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Philips’ outlook hit by supply chain volatility and product recall

Dutch manufacturer Philips has become the latest company to cut its annual forecast because of supply chain snags, adding to worries for investors awaiting more information on the fallout from a huge recall of faulty respiratory devices.

The “intensified” supply chain issues, including a shortage in semiconductors and disruption in the global shipping network, made it harder to deliver on orders with revenues slipping 7.6 per cent in the third quarter compared with a year earlier. That pressure is expected to continue until at least the end of the year, Philips said on Monday.

“Supply chain volatility has intensified globally, which already led to longer lead times to convert our strong order book to revenue in the third quarter, and we expect this headwind to continue in the fourth quarter,” said Frans van Houten, chief executive. He added that “uncertainty related to Covid-19” also remained.

Revenues were also hit by the recall of devices used by sleep apnoea patients that have a faulty sound abatement foam that can degrade and become toxic. The group has so far produced 750,000 repair and replacement kits out of an estimated total of 3.5m affected devices worldwide.

As a result, Philips expects low-single-digit growth in sales and a “modest” profit margin improvement this year, trimming its previous guidance.

The medical device recall has wiped about €10bn from the group’s market capitalisation with the shares having fallen about a quarter since April when the problem was first discovered.

Philips previously said it expected a €500m impairment charge for the replacement process but investors are nervous about legal settlements, related to possible carcinogenic effects due to the machines. The group said it was “unable to reliably estimate” any legal liabilities.


Source: Economy - ft.com

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