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Publication date: 24 October 2022

Philips experienced a lot of problems in the third quarter and is therefore now firmly cutting into its own workforce. This appeared on Monday from figures from the company, which issued a warning in mid-October.

Philips warned last month that the challenges in the supply chain were a lot bigger than previously feared. As a result, Philips said it had booked a turnover of 4.3 billion euros last quarter, which the company confirmed on Monday.

That sales represented a comparable sales decline of 5 percent.

The Diagnosis & Treatment division posted a comparable sales decline of 2 percent, while Connected Care posted a 15 percent decline. At Personal Health, Philips did achieve comparable sales growth of 4 percent.

As a result of the lower sales, adjusted EBITA amounted to EUR 209 million with an associated margin of 4.8 percent. Philips had already indicated that it expected an EBITA of 210 million euros, or roughly 5 percent of turnover.

Philips' order intake fell by 6 percent. At last month's warning, CFO Abhijit Bhattacharya said no orders are being canceled yet. "But customers have become more cautious," Bhattacharya said at the time.

For the third quarter of 2021, Philips reported an increase in order intake of 47 percent.

Philips posted a net loss of more than 1.3 billion euros last quarter.

A provision of 1.5 billion euros was made by the company, as Philips had already warned.

This provision is mainly related to the changed financial outlook for the Sleep & Respiratory Care division. The company has already taken several measures to deal with setbacks in the division. Then CEO Frans van Houten said in October that it is difficult to estimate exactly what impact the current lawsuits regarding the ventilators will have. "We are still negotiating a settlement."

Among other things, Philips wants to improve productivity in research and development by focusing on fewer, but more qualitative projects in the innovation pipeline. However, this change led to a provision in the third quarter of 165 million euros.

Philips had an operational cash outflow of 180 million euros last quarter. That was an inflow of 256 million euros a year earlier.

As is known, Roy Jakobs took over from CEO Frans van Houten on October 15.

The new CEO said that Philips faces many challenges, as became clear last quarter. Jakobs will focus on regaining trust by addressing the supply chain and improving productivity.

The latter is accompanied by a round of layoffs of 4,000 employees worldwide. According to the CEO, this is necessary to be able to achieve profitable growth again and to create shareholder value.

Philips estimates that the measures will eventually yield approximately 300 million euros annually.

It is still unclear how much the intervention will cost, but Philips warned on Monday that this will be a substantial amount in 2023.

Philips also wants to secure a credit line of 1 billion euros.

Fourth quarter

Philips expects a comparable sales decline of approximately 5 percent for the fourth quarter, with a high single-digit to double-digit EBITA margin.

CFO Bhattacharya estimated the impact of the supply chain issues on sales at around 200 million euros last quarter, but the impact in the fourth quarter will be greater. "In that quarter we usually also book more turnover, so the impact is greater, possibly up to 500 million euros," said the CFO in October.

Based on the warning in October, ING decided to lower its own valuations. Instead of an adjusted EBITA of 1.75 billion euros, the bank now expects 1.18 billion euros for 2022. In 2023 this will rise to 1.62 billion euros, where the bank previously assumed 2.18 billion euros.

We expect business to recover in part in 2024, but the adjusted EBITA margin remains well below the 14 to 16 percent that Philips forecasts for 2025.