Philips boss says the litigation threat as a consequence of defective elements is exaggerated
Royal Philips NV updates
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The head of Royal Philips said Monday that the litigation risk was exaggerated due to a defective component in some of the medical technology company’s sleep and ventilators.
The mistake has squeezed the Dutch company’s market capitalization by almost 10 billion euros, as stocks have plummeted by more than 20 percent since April when the defective part was discovered. On Monday, the share fell another 4 percent to 39.06 euros.
Frans van Houten, CEO, said only 10 patients had reported mild health problems, although investors feared a series of impairments totaling € 500 million would result in high legal costs.
The problems stem from the foam used in its devices, which can degrade and expose patients to harmful particles and toxic chemicals.
“None of them reported serious health problems. We shouldn’t get carried away with the risk of litigation, ”he told the Financial Times. It is “far too early to come to an assessment” of the sums involved in possible comparisons.
Scott Bardo, an analyst at Berenberg, said the issue was “unlikely to move into the next Bayer Monsanto,” referring to a comparison of up to $ 10.9 billion on the potential carcinogenic effects of the herbicidal product German giants.
Several consumer class action lawsuits have been filed in the US and Canada, while some law firms have announced possible lawsuits on behalf of investors against the group for potential securities law violations.
Citi analysts said recent medical device product liability-related comparisons were lower than the price decline suggested, citing the $ 3 billion to $ 3.5 billion comparisons for ruptured breast implants with an alleged potential cancer risk.
“The discount is too big for the sector as litigation concerns overshadow improving fundamentals and significant margin potential,” the analysts said.
The price decline made it favorable for the company to announce a share buyback program worth 1.5 billion euros over a period of three years on Monday.
The comments came as the company’s revenue rose 9 percent to 4.2 billion euros in the three months to the end of June, from peaking a year earlier when the first wave of the pandemic was due to the return of elective surgery in hospitals , had broken in.
However, for one quarter in a row with a provision of € 250 million for the repair and replacement of the defective component, income from continuing operations fell by two thirds to € 65 million. The company is waiting for regulators to approve the use of replacements.
The company has transformed itself from a consumer electronics group to a medical technology company over the past ten years.
In March, the company announced the sale of its home appliance division for EUR 3.7 billion to the Chinese investment fund Hillhouse Capital, which is expected to be a godsend in the third quarter.
Philips bought two companies called BioTelemetry and Capsule Technologies for around 3 billion euros in the first quarter to support expansion in medical technology.
The group hopes to reach annual sales of € 23 billion by 2025, the level seen in 2011 before it sold its lighting, home appliances and consumer electronics businesses.
Van Houten said the semiconductor scarcity, which threatens performance in the third quarter, needs to improve.