Philips warns on profits amid supply challenges

Health technology giant Royal Philips issued a profit warning ahead of its full-year on Wednesday, amid some serious supply challenges.

The company said its financial performance in the third quarter was largely impacted by continued supply chain challenges that were “more significant” than anticipated, impacting deliveries and customer installations.

As a result, group sales were expected to be €4.3bn, with a comparable sales decline of approximately 5%.

Philips said its diagnosis and treatment businesses were expected to show a low-single-digit comparable sales decline, and the connected care businesses a “mid-teen” decline, while the personal health businesses were expected to show mid-single-digit comparable sales growth.

As a result, group adjusted EBITA for the quarter was expected to be around €210m, or about 5% of sales.

“On the back of strong 47% comparable order intake growth in the third quarter of last year, Philips’ comparable order intake in the third quarter of 2022 declined approximately 6%,” the board said in its statement.

“The book-to-bill ratio remained strong at 1.18 and the equipment order book grew further in the quarter.”

Philips also said it expected to record a €1.3bn non-cash charge in the third quarter for the impairment of goodwill of its sleep and respiratory care business, due to revisions to the financial forecast of the business.

The drivers for the revised forecast included current assumptions regarding the estimated impact of the proposed consent decree, and changes to the pre-tax discount rate.

Operationally, the company said it was accelerating productivity initiatives, and other actions to mitigate ongoing headwinds, that would be further detailed in its final results.

As a result of the earlier-announced initiative to enhance productivity in research and development by shifting the focus to “fewer and better-resourced projects” in the innovation pipeline, Philips said it expected to record a non-cash charge in the third quarter of about €165m.

“Looking ahead, Philips still expects a better second half of the year, compared to the first half of 2022.

“However, the company sees prolonged supply chain disruptions and a worsening macro-environment.

“Consequently, Philips now expects a mid-single-digit comparable sales decline for the fourth quarter of 2022 with a high-single-to-double-digit adjusted EBITA margin range.”

The company said it would report its final results on 24 October.

At 1303 CEST (1203 BST), shares in Koninklijke Philips were down 8.75% in Amsterdam at €14.13.

Reporting by Josh White at Sharecast.com.