Philips shares plunge worst in 20 years after extending recall of ventilators       

The group has hiked its provision for the recall by 45% to €725m

The Dutch health technology group warned supply chain woes would hit profits and that a ventilator recall needed to be expanded.

Shares in Philips plunged 15%, its worst intra-day drop in over 20 years, after the Dutch health technology group warned supply chain woes would hit profits and a ventilator recall needed to be expanded.

Philips recalled up to 4m of its breathing-aid machines last year amid concerns that a type of foam used in the devices could degrade and become toxic. 

It has now raised that estimate by 1m and hiked its provision for the recall by 45% to €725m. 

"The extended recall is a major negative as this also extends the litigation risk", ING analyst Marc Hesselink said.

The current provision does not cover the possible costs of litigation, with Philips facing more than a hundred class action suits. 

Fears of a large claims bill had already lopped around €15bn off Philips' market value in the past nine months.

In addition to the expanded recall, Philips also cut its estimate for adjusted earnings before interest, tax, and amortisation by almost 40% in the fourth quarter to about €650m, as it continued to scramble for memory chips and other parts.

The double whammy of bad news saw it lose over €4.5bn of its market value, its worst day on the stock market since 1998, when it was still a sprawling conglomerate selling lightbulbs, televisions, and CD players.

Global shortage

Now specialising in medical equipment and other health products, Philips initially benefited from a jump in demand during the Covid-19 pandemic but a global shortage of semiconductors and other electronic components has left it exposed.

Chief executive Frans van Houten said those shortages had put a serious brake on sales in recent months.

"We had shortages of several components and saw port congestion, sometimes up to two or three weeks. All of this meant our manufactured goods couldn't reach customers in time", he said.

Comparable sales fell 10% on a yearly basis to €4.9bn, Philips said, as hospitals had to postpone the installation of equipment due to a lack of parts. 

Last June, the CEO said the company was one of the largest makers of sleep apnea machines and ventilators and that between 3m and 4m would be targeted in the recall. The group had at the time taken a €250m charge for the issue after announcing an identical provision in its first quarter earnings report in April. 

• Reuters