Will Philips be able to recover?
After a "very difficult" 2022, the Dutch medical device manufacturer Philips managed to reduce losses in 2023, caused in particular by the recall of sleep apnea machines, for which it set aside a fund of 363 million euros. All the details
The Dutch company Philips, of which Exor acquired 15% last August , had a bad 2022, but from the fourth quarter and annual results of 2023 it seems to be on the road to recovery, even if, for analysts, the road is still long and uphill.
The main reason for the crisis, which began in June 2021, was the Food and Drug Administration (FDA) recall of 15 million breathing devices and ventilators used for sleep apnea due to the risk of degradation and toxicity of a component in foam suspected of carcinogenic effects. Now, however, Philips said it has reached a “consent” agreement with US authorities to comply with regulatory requirements.
THE SETTLEMENT WITH THE FDA AND THE PROVISION FOR THE RECALLED DEVICES
Last October, the FDA declared that it was still not satisfied with the way Philips was handling the issue of the recall of the respiratory devices, causing the stock to fall on the Amsterdam stock exchange. However, this morning, in a press release, the company announced that an agreement has been reached – still being finalized – but which consists of a "roadmap" of objectives to be able to return to selling new respiratory devices in United States.
The so-called “consent decree” establishes improvements that Philips must make to Respironics facilities, without which it will not be able to proceed with the sale. “We are fully committed to the consent decree, which represents an important step and provides a clear path forward,” said CEO Roy Jakobs. “Until the requirements of the consent decree are satisfied,” he added, “Philips Respironics will not sell new sleep therapy devices or other airway care devices in the United States.”
The costs of the deal resulted in a provision of 363 million euros in the fourth quarter of last year and the company, Reuters recalls, predicted that they would amount to around 1% of total revenue in 2024.
Now all that remains is approval of the decree by the competent US court.
PHILIPS' 2023 RESULTS
Although the recall of the devices cost Philips dearly, causing its market value to plummet by around 70% as investors feared large litigation costs, Philips said the deal did not change its expectations of achieving growth comparable sales at mid-single digits and a profit margin at around ten points, in adjusted EBITA, in 2025, with free cash flow of between 1.4 and 1.6 billion euros.
For 2023, Philips managed to reduce losses compared to the previous year, looking to recover from what it described as a “very difficult” 2022. For the whole of last year the 'red' amounted to 463 million euros, compared to 1.6 billion euros in 2022. Such results, according to Jakobs, “lay a solid foundation for a lasting performance”.
Due to the provision, Philips' core profit in the fourth quarter remained virtually stable at 653 million euros, while comparable sales fell 1%. The company said it expects comparable sales growth of 3-5% in 2024, with an adjusted EBITA margin of 11-11.5%.
The results also show that the group's turnover amounts to 18.2 billion euros in 2023, of which 5.1 billion euros in the fourth quarter.
ANALYST COMMENTS AND PREDICTIONS
In the past, Jakobs had hypothesized that the consequences of the recall of the devices could last seven years and today we read on Bloomberg that for Jefferies analysts "it will probably take years" before Philips can resume sales of its freediving products. sleep in the United States. Which is why the company's shares fell as much as 6% today, the steepest drop since November 29th. The stock, specifies the economic newspaper, has grown by 29% in the last twelve months.
Ultimately, Philips could be forced to pay between $2 billion and $4.5 billion to settle personal injury claims related to the devices, according to Bloomberg Intelligence analyst Holly Froum.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/philips-riuscira-a-risollevarsi/ on Mon, 29 Jan 2024 10:39:43 +0000.