Philips' insurance covered over €500 mil. of sleep apnea device recall

Philips will receive over half a billion euros from its insurers after the settlement of the sleep apnea device scandal, according to the company’s latest quarterly figures. Of the 816 million euros in operating profit the company recorded in the second quarter, 538 million euros was insurance money. Philips has already received around 150 million euros of this amount. The company expects another 389 million euros during the second half of the year.

The insurance money is intended as compensation for the costs that Philips incurred while settling all the problems with its Respironics sleep apnea devices. Earlier this year, the healthcare technology group reached a settlement of 1.1 billion dollars in the United States to compensate patients who suffered injuries due to the devices.

CEO Roy Jakobs said that Philips would “rigorously tackle” the lawsuit that European victims of the sleep apnea affair are preparing. “We cannot say anything else about it yet except that we will defend ourselves in it.” Earlier this month, law firm Global Justice Network announced that the Italian consumer association ADUSBEF will file the first “Europe-wide collective lawsuit” against Philips.

“If there are any consequences, they will be on a completely different scale than in the North American case,” said Jakobs. “But it is too early to talk about that now. We do not even know whether there is anything of significance in the case.”

Although Philips’ quarterly profit was significantly boosted by the insurance income, the problems at Respironics have cost the company a total of between 4 and 5 billion euros in settlements, write-offs, and recovery costs, among other things.

Even apart from the insurance windfall, Philips had a good second quarter. For the first time in two years, the company saw its order numbers grow again, by 9 percent compared to the same period a year earlier.

Philips CEO Jakobs feels “encouraged” by the figures, especially when he looks at Philips’ growth in North America. “That is clearly the strongest market in the world; that is where the greatest demand for healthcare is.” Of the almost 4.5 billion euros in turnover that Philips achieved in the past three months, almost 2 billion euros came from North America.

Although Philips’ debt has simultaneously increased by over half a billion euros, the healthcare technology group is considered more creditworthy by both the leading credit agency S&P Global Ratings and industry peer Moody’s Ratings, partly due to the settlement of the sleep apnea affair.

Philips saw the number of orders in China decrease, but CEO Jakobs still thinks that the country will become a growth market. “I have been back from China for a week, and it is absolutely clear that it remains an attractive country,” he said. According to Jakobs, the fact that the figures decreased is partly due to the Chinese government’s anti-corruption measures. These affect the orders of hospitals in the short term. At the same time, government support for the healthcare sector in China is coming. “That is fuel for growth,” said the CEO.