Philips prepares for rocky start to 2022 after ventilator recall knocks €719M off 2021 income

Though Philips is well into the repair-and-replace program for the millions of respiratory devices affected by last summer’s wide-ranging Class I recall and is already plotting its recovery from the resulting financial setbacks, the company still has quite a ways to go before completely digging itself out of that particular hole.

In Philips’ 2021 financial wrap-up, published this week, CEO Frans van Houten noted that the Dutch conglomerate is expecting to get back on track with its pre-recall plans for widespread growth by the end of this year—but not before weathering a few more storms along the way.

“Based on good customer demand and our growing order book, we expect to resume our growth and margin expansion trajectory in the course of 2022. In the short term, however, we continue to see significant volatility and headwinds related to COVID-19 and supply chain challenges, despite our ongoing mitigation efforts,” van Houten said.

Because of those issues—and in comparison to the solid growth that occurred in the first quarter of 2021, before the recall was initiated—he continued, “We expect to start the year with a comparable sales decline, followed by a recovery and strong second half of the year.”

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Recovery from Philips’ difficult 2021 will require at least static sales growth. For the full year, the company reported a year-over-year sales decline of 1%, as promised in a preview of its financial results issued earlier this month.

In total, it raked in sales amounting to 17.2 billion euros, or about $19.4 billion. Though a 23% sales decline in the connected care business, which houses the recalled devices, was largely responsible for the overall drop, Philips’ numbers were buoyed by comparable growth of 8% and 9% in the diagnosis and treatment and personal health businesses, respectively.

The diagnosis and treatment segment, in particular, shows promise in ushering Philips out of the mire that was 2021, thanks to what van Houten classified as its “all-time-high order book.”

Still, the recall left its mark on nearly every aspect of the company’s financial performance. After clocking just under 1 billion euros in net income for 2020, Philips saw just 612 million euros, or about $691 million, at its bottom line by the end of last year. The tally would’ve been significantly higher had it not been for the recall, which sent a direct hit of 719 million euros, or $812 million, to Philips’ 2021 net income.

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With that hard-hitting year in the rearview mirror, Philips is now aiming not only to bring its sales numbers back into the black by the second half of 2022 but also to wrap up the technical aspects of the recall around the same time.

The recall recently grew to comprise about 5.2 million machines in use around the world. Philips began its repair-and-replace program for the devices in September and said this month that it had already manufactured 1.5 million repair kits, approximately half of which have reached customers.

In its full-year financial report, Philips said it’s on track to close out the repair program sometime in the fourth quarter of this year. After that, the only loose ends of the recall left to tie up will be those regarding the many class-action and personal injury lawsuits that have been brought against the company because of the recall, the financial impact of which Philips said it was still unable to estimate.