A contract between Royal Philips and the U.S. Department of Health and Human Services (HHS) that would have brought 43,000 bundled EV300 ventilator configurations to the Strategic National Stockpile will be terminated after fulfillment of just 12,300 this month.
“To date, we have delivered on our commitments to HHS,” Frans van Houten, CEO of Royal Philips, said. “I am proud that with great urgency and under intense pressure, we achieved a fourfold ventilator production expansion with substantial investments: we hired hundreds of new colleagues for our factories in the U.S. and called upon our supply chain partners to massively step up, all in response to the COVID-19 pandemic. While we are disappointed in light of these vast efforts, we will adjust our plans and work with HHS to effectuate the partial termination of this contract.”
Originally, Royal Philips had been tapped to continue filling orders through December. Now, the remaining 30,700 ventilators will go undelivered. It had been part of a larger effort, built on multiple contracts in April, to produce and supply HHS with 187,000 ventilators by year’s end. Noting that it is still committed to working with the government, Royal Philips nevertheless admitted the contract cancellation will affect its financials.
“While we continue to see uncertainty and volatility related to the impact of COVID-19 across the world, our order book remains solid,” van Houten said. “The reduction in our ventilator deliveries to HHS will obviously impact Philips’ financial performance, but we continue to expect to return to growth and improved profitability in the second half of the year, starting in the third quarter. For the full year 2020, we now expect to deliver modest comparable sales growth with an Adjusted EBITA margin of around the level of last year.”
Since March, Royal Philips has reached a fourfold increase in ventilator production.