AMSTERDAM, Jan 24 — Royal Philips NV shares slumped after Chief Executive Officer Frans van Houten disclosed the Dutch health-care equipment provider is in discussions with US authorities on the compliance of its defibrillators business.
In its fourth-quarter earnings statement, Amsterdam-based Philips warned today of a “meaningful impact” on the operations of its defibrillators in the US due to discussions with the Department of Justice, representing the Food and Drug Administration, on a civil matter related to inspections in 2015 and before.
The defibrillator business is a “relatively small” business in the US and it’s too early to know the magnitude of the impact, the CEO said in an interview with Bloomberg TV. The issue hasn’t affected financial guidance and is about compliance rather than equipment quality, he added later on a conference call. The company said its worldwide defibrillator business earns less than €300 million (RM1.4 billion).
Philips shares fell 4 per cent to €26.76 in Amsterdam, the most in almost seven months. The company’s fourth-quarter profit met estimates and it kept financial targets.
Under van Houten, Philips has sharpened focus on growing as a health-care company by spinning off Philips Lighting NV through an initial public offering in May, and the sale of its lighting components unit Lumileds in December. The Dutch company aims to be seen as a provider of software and health technology, as opposed to a manufacturer of light bulbs, TVs and CD players that made up its core products during the company’s 125-year history.
“The defibrillator issue is in any case material, and these kind of issues are just not what you want to see any more, Philips should have a good performance,” said Bank Degroof Petercam analyst Marcel Achterberg.
Kept guidance
Philips reported fourth-quarter adjusted earnings before interest, taxes and amortization rose 19 per cent to €1 billion, meeting estimates, while sales increased 3 per cent on a comparable basis to €7.2 billion.
Looking ahead over the next three or four years, the company kept an outlook for comparable annual sales growth of 4 per cent to 6 per cent and an improvement by 100 basis points on average in the adjusted EBITA margin, which was 13.8 per cent in the latest quarter compared with 11.9 per cent a year earlier.
“Our health technology activity really has momentum,” van Houten said in the interview. “That is our future.”
The CEO also warned of a more unpredictable business environment in the US following the election of President Donald Trump.
“I am seeing heightened uncertainty — that is a concern — and we will just need to see what is going to come through in terms of policy adjustments,” the CEO said. The US is an important market for Philips, making up a third of its health technology business, and is also a manufacturing base, he added.
Philips has said it’s seeking to raise profitability to the average industry standard for health care-equipment peers, including General Electric Co and Siemens AG, over the next three to four years. — Bloomberg
