Philips shares and profits up as investors dismiss £575m sleep device recall bill

Philips shares jumped 13 per cent on Monday as the Dutch health technology company reported much better than expected first-quarter results and said it had set aside €575 million ($631 million) related to lawsuits over its recall of respiratory devices.

Amsterdam-based Philips has been grappling with the fallout of the global recall of millions of respirators used to treat sleep apnoea since it was announced in June 2021 over worries that foam used in the machines could become toxic.

The recall has knocked off around 70 per cent of Philips’ market value since then as investors feared the costs of a string of U.S. class-action lawsuits launched by patients who claim to have suffered economic losses due to the use of the device.

“We are happy we can solve this case,” CEO Roy Jakobs said about the provision for the settlement Philips expects to reach in the current quarter.

“We will continue to work on finding solutions for the other cases.”

Philips yet to reach settlement

Analysts, however, warned that much remained unclear regarding the total costs of the recall.

Philips still has to reach a settlement with the U.S. Food and Drug Administration (FDA) and is also facing lawsuits from individual patients over health problems they claim were caused by the devices.

“The more significant medical litigation risk and the consent decree impact remain,” ING analysts said in a note.

“Overall we believe this is a positive update but it also underlines that litigation impact and market uncertainty are not out of the way.”

Philips said the outcomes of negotiations with the FDA and the other lawsuits were still too uncertain to make a provision.

The company reported an almost 50 per cent jump in first-quarter core profit to €359 million, with comparable sales up 6 per cent from a year earlier.

Analysts in a company-compiled poll had on average forecast adjusted earnings before interest, taxes and amortisation (EBITA) would fall 15 per cent on sales growth of less than 2 per cent.

Reuters