Philips tackles China tariffs hit with €800m cuts
Philips sees a flat business in 2025 as it recovers from a damaging recall and coming tariffs in China with €800m of cuts.
The company is going through a three year restructuring, “within a challenging macro environment”, that includes selling off its MEMS foundry business in Eindhoven. The company is now raising its productivity savings target for the 2023-2025 period from €2 billion to €2.5 billion, driven by cost efficiencies and further simplification of its operating model, with €800 million in 2025.
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For 2025, Philips expects a 1%-3% growth with a decline in China of up to 9%.
“We anticipate comparable sales growth to be back-end-loaded in the year, with a mid-single-digit decline in Q1 mainly due to lower demand in China and royalties phasing, with correspondingly lower Adjusted EBITA margin.
The outlook includes the impact of the recently announced US-China tariffs. It excludes ongoing Philips Respironics-related legal proceedings, including the investigation by the US Department of Justice and the $1.1bn payment which was approved in the last two weeks. This will be paid out of expected free cash flow of $1.4 to $1.5bn.
“We delivered better care for more people by enhancing execution and focusing on driving improvements in profitability and cash flow, as well as order and sales growth. We strengthened our fundamentals and resolved significant US litigation relating to the Respironics recall,” said Roy Jakobs, CEO of Royal Philips.
“Despite double-digit declines in demand in both consumer and health systems in China, we returned to positive order growth and continued to drive margin expansion and cash-flow generation.”
The company has shifted to medical equipment and services, with strong use of AI. Since the start of the three-year plan, 75% of executive hires across the company have come from a health technology background.
Savings were ahead of the plan with €163 million in Q4. This came from operational savings of €47 million, procurement savings of €56 million, and other programmes savings of €59 million. Since 2023, productivity initiatives have delivered savings of more than €1.7 billion.
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