Philips shares slide as supply chain woes, ventilator issues persist

AMSTERDAM (Reuters) -Philips shares dropped almost 11% on Monday as the Dutch health technology company expanded a recall of ventilators and flagged multiple risks to its growth outlook for the rest of the year.

The supplier of products ranging from large medical systems to toothbrushes and shavers said it still expected sales and profitability to recover in the second half of the year.

But Philips also said that any deterioration of the COVID-19 situation in China, of the war in Ukraine or of the supply chain challenges and inflationary pressures could put this outlook at risk.

“This is not the time to give up (on the outlook), but the situation is very vulnerable”, Chief Executive Frans van Houten told Reuters.

“Especially in China, where the COVID lockdowns are a major risk to international trade and to us.”

The Amsterdam-based company said adjusted earnings before interest, tax and amortisation (EBITA) dropped about a third in the first quarter from a year earlier and comparable sales fell 4%, as it continued to struggle with a global shortage of parts and the fallout of its recall operation.

Philips shares traded down 10.5% at 0850 GMT in Amsterdam.

ING analysts said the cautious stance was likely to bring down market expectations for results in this year and next.

VENTILATOR RECALL EXPANDED

Growth is also being held back by the company’s sleep and respiratory care business, which is still working on the recall of ventilators launched last year amid concerns that a type of foam used in the devices could deteriorate and become toxic.

Philips said the total number of devices that needed to be repaired or replaced had increased by 300,000 to around 5.5 million worldwide. It raised its provision for the operation by 165 million euros in the first quarter, taking the total costs so far to almost 900 million euros.

“We expect this provision to be enough to cover the remediation risks”, Van Houten said.

The sum, however, does not cover possible litigation costs, with the company facing more than a hundred class action suits. Fears of a large claims bill have lopped around 15 billion euros off Philips’ market value since June last year.

($1 = 0.9281 euros)

(Reporting by Bart Meijer; Editing by Christopher Cushing, Kenneth Maxwell and Jane Merriman)