Amsterdam-based global technology company Philips announced on Monday, October 24, that it will reduce its workforce by around 4,000 globally to streamline the work culture and reduce operating expenses. The associated cost savings are expected to amount to annualised savings of approximately €300M, says the company.
Tommie Dijstelbloem, Integrated Communications Lead & Spokesperson Philips Benelux in a statement to Silicon Canals says, “As a result of the intended global workforce reduction, we expect to reduce about 800 positions in the Netherlands. We can largely compensate for this through natural attrition by not extending various types of temporary contracts and open vacancies that will not be filled. Unfortunately, we cannot rule out any forced redundancies; we expect that about 400 colleagues will probably be made redundant.”
“We take our responsibility as an employer very seriously. Colleagues who will be affected by this reduction are eligible for our Central Social Plan. An important part in this is the “from-work-to-work” counseling programs with a duration of six months,” adds Dijstelbloem.
Currently, the company employs nearly 80,000 people in 100 countries.
The announcement comes with the release of the company’s Q3 results and after Roy Jakobs replaced Frans van Houten as the President and CEO on October 15, 2022, who had held the position for 12 years.
“We face multiple challenges, and our Q3 2022 performance reflects this,” says Jakobs.
“My immediate priority is, therefore, to improve execution so that we can start rebuilding the trust of patients, consumers, and customers, as well as shareholders and our other stakeholders. We will do this by first further strengthening our patient safety and quality management and addressing the various facets of the Philips Respironics recall; second, by urgently improving our supply chain operations so that we can deliver on our strong order book and improve performance; and third, by simplifying our way of working to improve productivity and increase agility,” he adds. “These initial actions are needed to start turning the company around to realise Philips’ profitable growth potential and create value for all our stakeholders.”
The company announced in a statement that it will take a €1.3B write-down for defective machines, which pushed it into a net loss of €1.33B in the third quarter compared with a profit of €2.97B in the same period last year.
Last year, Philps announced a recall of sleep apnea machines as the foam used in these devices could pose a health hazard.
“Philips Respironics continued to make progress with the repair and replacement programme and the comprehensive test and research programme for the CPAP, BiPAP, and mechanical ventilator devices affected by the June 2021 field safety notice. To date, approximately 4 million replacement devices and repair kits have been produced. Philips Respironics aims to complete around 90 per cent of the production and shipments to customers in 2022,” says the company.
Philips says that Q3 was impacted by operational and supply challenges, inflationary pressures, the COVID situation in China, and the Russia-Ukraine war.
As a result, the Group sales amounted to €4.3B, with a 5 per cent comparable sales decline and an Adjusted EBITA of €209M, or 4.8 per cent of sales.
Operating cash flow was an outflow of €180M, mainly due to lower cash earnings, increased inventories, and higher consumption of provisions.
Comparable order intake declined 6 per cent on the back of strong 47 per cent growth in Q3 2021. As a result, the book-to-bill ratio was 1.18 and the equipment order book grew further in the quarter.
Diagnosis & Treatment and Connected Care businesses
The Diagnosis & Treatment businesses’ comparable sales decreased by 2 per cent on the back of 10 per cent growth in Q3 2021.
Comparable order intake increased by 3 per cent on the back of 15 per cent growth in Q3 2021.
The Adjusted EBITA margin was 9.1 per cent, mainly due to the decline in sales and cost inflation.
The Connected Care businesses’ comparable sales decreased by 15 per cent, mainly due to operational and supply challenges.
Comparable order intake showed a 24 per cent decrease on the back of over 260 per cent comparable order intake growth in Q3 2021.
The Adjusted EBITA margin amounted to -9.5 per cent, mainly due to the decline in sales and cost inflation.
The Dutch company says it will continue to review areas to improve its supply operations further, invest in quality, simplify the way of working and remove organizational complexity, which is expected to result in additional restructuring and associated costs in 2023.
Philips has stated that it expects to see prolonged operational and supply challenges, a worsening macroeconomic environment, and continued uncertainty related to COVID-19 measures in China. However, the company also believes that these challenges will be offset by Philips’ productivity and pricing actions.
Philips expects a mid-single-digit comparable sales decline for the fourth quarter of 2022, with a high-single-to-double-digit Adjusted EBITA margin range.