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Sunday, April 14, 2024

Philips Posts Strong Earnings, Raises Profit Forecast

Dutch health technology company Philips (PHG.AS) modestly increased its full-year targets on Monday after beating quarterly earnings expectations. However, it voiced concern over China’s drive to become self-sufficient in developing health-related technologies. The Amsterdam-based group, a former industrial conglomerate focusing on medical technology, reported adjusted earnings before interest, taxes, and amortization (EBITA) of 453 million euros for the April-June period. That beat the average estimate of 489 million euros in an analyst survey. However, the company said it had set aside 575 million euros to cover its sleep apnea device recall lawsuits.

The company also said it would take a 1.3 billion euro hit in the third quarter for “the impairment of goodwill” related to the subsidiary that makes its sleep apnea machines. The company has recalled millions of the devices, saying that foam used in them may pose a health risk.

Founded in 1891 by Frederik Philips, who wanted to improve the longevity of lightbulbs, the firm expanded into household electrical appliances and lighting. It was later involved in the development of the radio. It was among several international companies that benefited from the Netherlands’ neutrality during World War I and helped to propel it to the top of the global economy in the 1930s.

However, the company began to face economic headwinds, which accelerated with the outbreak of World War II. In the early part of the war, it moved its headquarters to Curacao and shifted production overseas to avoid import controls. Philips diversified into medical equipment, earning a reputation for quality, reliability, and innovation.

The company became the leader in diagnostic imaging, image-guided therapy and monitoring, consumer healthcare, and home care. It generated 2019 sales of EUR 19.5 billion, employing around 81,000 people with sales and services in more than 100 countries.

A year ago, the company laid out plans to refocus its research and development resources on its core businesses. It said it would focus on fewer, better-resourced, and more impactful projects and put patient safety, quality, and customer needs at the heart of innovation design. It also aimed to boost profitability in its healthcare business segment and scale its enterprise informatics unit.

However, it faced headwinds from a slowdown in emerging markets and was hit by lower orders. Comparable order intake was down 8% during the second quarter, and the company also faces ongoing costs related to its recall of sleep apnea devices.

In addition, the company announced a plan to scrap 4,000 jobs globally. That represents about 5% of its workforce and will save the company 300 million euros annually. The cuts are in addition to the 2,000 jobs already planned for this year. The company said the reorganization and cost-cutting measures should lead to an Ebita margin in the low-to-mid-teens range by 2025. The company expects a 2% rise in net profit this year and a 7% increase next year.

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