Philips Profits Hit By Shortages And Recalls, Shares Slide

Philips shares fell more than 11 per cent on Wednesday morning after the Dutch health technology giant raised the cost of its major ventilator recall and warned that worldwide supply chain constraints would hurt earnings.

As it continued to struggle for memory chips and other supplies, the hospital equipment and personal health device supplier said it expects fourth-quarter core profit to plummet about 40% to roughly 650 million euros ($739 million).

“It’s a difficult situation,” CEO Frans van Houten told reporters. “We had shortages of several components and saw port congestion, sometimes up to 2 or 3 weeks. All of this meant our manufactured goods couldn’t reach customers in time.”

According to Philips, comparable sales declined 10% year over year to 4.9 billion euros, as hospitals were forced to postpone equipment installations due to a lack of parts.

According to Van Houten, supply chain issues worsened in the fourth quarter and are unlikely to disappear in the early months of 2022. He did, however, reiterate his prediction that growth will resume later this year.

Quarterly sales were roughly 350 million euros lower than Philips had anticipated, resulting in a 1% decline in comparable sales in 2021, compared to the company’s previous projection of a slight increase.

The adjusted earnings before interest, taxes, and amortisation (EBITA) margin is now predicted to fall to around 12 per cent in 2021, down from 13.2 per cent in 2020, compared to a previous prediction of 13 per cent.

The supply chain issues compounded investor concerns about the ventilator recall, which has frightened investors and slashed the Amsterdam-based company’s market value by almost 18 billion euros in the last nine months.

Philips announced that it has made a fresh provision of 225 million euros because it planned to return and repair over one million more devices than predicted.

The entire cost of the recall now stands at 725 million euros.

That sum, however, does not account for the potential costs of litigation, since Philips is facing more than a hundred class action lawsuits from concerned patients, some of whom claim that the devices’ deteriorating foam causes cancer or other health problems.

Last year, the business had forecast that it would have to repair up to four million ventilators and breathing equipment around the world due to a polyurethane foam component that might degrade and become poisonous.

It announced last month that preliminary tests on afflicted devices had yielded positive results, indicating that the problem would not have long-term health effects for patients.

On January 24, the corporation will release its full quarterly and annual results.

(Adapted from USNews.com)

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