Ladies and gentlemen, welcome. I am pleased to open the general meeting of shareholders of Koninklijke Philips N.V. Our annual meeting is an important moment for us at which you, our shareholders, show your deep commitment and involvement in this firm, and we definitely appreciate this commitment and involvement. As customary at Philips, the official language is Dutch, but some speeches will be delivered in English. In addition, the questions submitted in advance have been drafted in English and will be answered in English as well. Understandably, you can listen to Dutch or English translation via our webcasts. We are happy that the corona restrictions have now largely been lifted. The coronavirus turned out to be difficult to predict, however, and when we convened this meeting, we did not know where we would stand at that date.
That's why we have opted for this virtual arrangement, although we explicitly prefer conducting these meetings live. Hybrid has pros and cons as well, so that's why we have opted for this structure. Assuming that we can do it live next year, we will in that case. This is my first year as chairman of the Supervisory Board, and I will do my utmost to accommodate the desires of all stakeholders in this meeting. I would also like to take this opportunity to note and will later elaborate on, as will Mr. Van Houten, the challenges that Philips faces, especially, of course, the security alert from Respironics concerning the sleep apnea devices, as well as the shortages in worldwide supply chains.
Of course, I understand how you may feel concerning these matters, and let me assure you that the Philips management team is doing its utmost to resolve and/or address these issues to the best of its ability. This serves the interests of patients, partners, and you, our shareholders. As the Supervisory Board, we are confident in the management team's approach. We regularly consult with them and support them wherever we can, and together, we will ensure that we devote every possible consideration and attention to this. We are present here with a limited number of people, as I said. Next to me, from your perspective, from left to left, are Marnix van Ginneken, our COO, Frans van Houten, next to me, our CEO, and Abhijit Bhattacharya, our CFO.
Behind me are the three chairpersons of the Supervisory Board committees from left to right, Paul Stoffels, the chairman of the Remuneration Committee, Liz Doherty, chair of the Audit Committee, and David Pyott, the chair of the Quality and Regulatory Committee. The other Supervisory Board members, like you, will be attending this meeting virtually. Because of the setting selected, Mrs. Verhagen and Mrs. Sanjay Poonen will be present virtually as well and attend the meeting in that mode. I will elaborate on their nomination later in this meeting. We also have present here the corporate secretary, Loes Meerburg, to my left, Hanneke Overbeek, our external auditor from EY, and the civil law notary of the firm, Martin van Olffen from De Brauw Blackstone Westbroek.
Before I give the floor to Frans van Houten, our CEO, to deliver his speech, I would like to share a few remarks about the practical procedure at this meeting. Some shareholders have responded to our appeal to submit questions in advance if you so desire. We will answer some of those questions during the meeting. All questions and answers will be published on our website after the meeting. Some shareholders who submitted questions in advance will also have the opportunity to ask follow-up questions during the meeting. For the convenient procedure of this meeting, I will identify three moments for asking these questions. They are at the end of agenda items two, three, and eight. During the meeting, voting online is possible concerning the proposals. In any case, the shareholders who registered to do such, the voting has now been opened and will remain open throughout the meeting.
After all agenda items have been addressed, I will share the official records of the civil law notary, including about the capital present and represented today, and then I will conclude the voting procedures and will display the voting results and determine which decisions have been taken. Once again, thank you very much for attending. This is the first meeting I am chairing, and I am pleased to move on to agenda item one, which is the presentation by our CEO, Frans van Houten. I'm pleased to invite him to deliver his presentation, which once again will be in English, and you can listen to the Dutch interpretation via the webcast. Frans, you have the floor.
Ladies and gentlemen, welcome to the 2022 annual general meeting of Royal Philips. In the next 20 minutes, I would like to share with you our view on the current state of affairs at Philips. It is clear that 2021 has been an eventful and challenging year for Philips and its stakeholders. The impact of the sleep recall is significant for patients, our partners, and our shareholders, and I will discuss that and our financial performance in 2021 in a moment. At the same time, thanks to the hard work of our employees, on many fronts, Philips is doing well despite external headwinds. Nevertheless, let me say upfront that I'm not satisfied where the company is right now and recognize that there is more work to be done.
Our team is laser-focused on resolving the sleep recall and addressing the external headwinds, such as the global supply chain issues. We are all committed to getting Philips on an upward trajectory and are taking decisive action to deliver value for our shareholders. We will do this based on the strong fundamentals of Philips. Namely, our customers are appreciating our strategy and portfolio. We have made significant progress in our transformation to a solutions leader in health technology, and we are recognized for doing business responsibly and sustainably. Let me elucidate by starting with the customer view. I'm very encouraged that our strategy to help transform the delivery of care across the health continuum continues to show strong traction. Our businesses focus on Personal Health, Precision Diagnosis, Image-Guided Therapy, and Connected Care.
They all have attractive value propositions, as can be seen from the volume, but also the consistency of our all-time high order book. Hospitals continue to be challenged by staff shortages, aging equipment, and patient and staff dissatisfaction, even as they are confronted with an increasing number of patients and a growing backlog. Philips has breakthrough solutions available to alleviate these challenges and support our customers to achieve the quadruple aim of healthcare, better outcomes, higher productivity, and improved patient and staff experiences. I would like to give you three concrete examples of value propositions that are currently high in demand. Let's start with helping people to stay healthy. As you know, oral hygiene is essential for well-being, but it also contributes to better overall health and may help prevent diseases such as certain cardiovascular diseases. Through our Philips Sonicare connected toothbrushes, we offer market-leading care for optimal oral hygiene.
Sonicare's advanced sensor technology senses but also adapts to the teeth and gums, offering a personalized brushing experience with 100% coverage. Moreover, the clinically proven premium brush heads remove up to 20 times more plaque, providing healthier gums. In the United States, Germany, the Netherlands, health insurance companies have partnered with us to offer a new type of dental insurance that is focused on prevention. As part of the insurance, participants receive a connected Sonicare toothbrush, a coaching app, and regular replacement brush heads for optimal oral hygiene. Let's now switch to one of the cornerstones of Precision Diagnosis, the radiology department in a hospital. Philips offers a vendor-neutral radiology operations command center that connects imaging experts in a central location with local and remote diagnostic imaging sites. This enables virtual operation of the scanners, improved utilization and uptime, and enhanced efficiency of operation.
It also provides an additional layer of remote expert support to radiology services across the diagnostic imaging sites. The ability for imaging experts to support others remotely in more than one location and at the same time removes the limitations of distance and travel time, and it helps to improve access to imaging services for the patients. One customer said that an expert at a radiology operations command center was, and I quote, "able to help us identify a critical finding, an acute brain tumor, when a junior radiographer reached out from a distant location for assistance with something that they saw on an MRI scan." This took place while the patient was in the scanner, and the team was able to notify the patient's referring doctor immediately.
This is a huge step forward in accelerating care pathways, and of course, it goes a long way towards improving job satisfaction. In the third and final example, that I would like to highlight, it relates to our telehealth offering. Inspired by their experiences during the height of the COVID-19 pandemic, care providers are very keen to adopt virtual care models more widely. As a pioneer, West Moreton Health in Australia had already piloted virtual care as they were looking to improve ambulatory care for patients with chronic conditions like heart failure. A few years ago, West Moreton Health and Philips formed a partnership to introduce the MeCare program based on Philips eCareCompanion telemonitoring and tailored health management plans. The results, they speak for themselves.
A 35% reduction in preventable hospital visits with the program and a median cost savings of around $1,200 per patient per month for a group of hundreds of patients. Dr. Kerrie Freeman, CEO of West Moreton Health, she said, "Our patients say that it has changed their lives. They have chronic conditions, but are now better able to have high quality of life." These were just three examples of the many innovations we continue to introduce. They show that our current portfolio is very strong and will drive sustained growth at Philips. Let me also say a few words on the significant progress that we have made in the transformation to a solutions leader in health technology. In 2021, we concluded our major divestments with the completion of the sale of the domestic appliances business to Hillhouse Investment.
We have done 25 acquisitions over the last five years, and that has strengthened our portfolio and further enhanced the portfolio relevance to our customers. On the systems side, our R&D programs, of course, lead to many innovations, including the launch of our new Spectral CT 7500, helping clinicians make precision diagnoses without the need for multiple re-scans of the patient. Moreover, the core of our portfolio is based on informatics, data science, artificial intelligence, and cloud-based solutions which all help care providers to improve workflows, access the right data at the right time for the right patient. This is especially relevant given the huge staff shortages and escalating cost of healthcare. The acquisitions of BioTelemetry and Capsule Technologies and Cardiologs further strengthened our offerings in this domain last year.
These acquisitions are delivering double-digit growth and help us further accelerate our transformation into a solutions company, both for the hospital as well as for ambulatory care. Our Image-Guided Therapy business is another successful example of synergistic organic and inorganic investments. This fast-growing business is about to reach annual sales of EUR 3 billion. Did you actually know that every second a patient is treated somewhere in the world with the Philips Image-Guided Therapy offering? This includes minimally invasive treatments for cardiac and vascular diseases, but also cancer and stroke. In January 2022, we completed the acquisition of Vesper Medical, further expanding our offering with an advanced stent portfolio specifically for the treatment of deep venous disease. The patient benefit here is enormous. Through this treatment, amputation of the legs may be prevented.
Ladies and gentlemen, let me now update you on the sleep recall and also touch on the broader topic of quality at Philips. The origin of the issue is the choice of the sound abatement material in the design of the sleep apnea products many years ago. In a very low percentage of the produced devices, we have seen that the material may degrade. When we became aware of this, we immediately and voluntarily issued a field safety notice and started the remediation actions. We started this recall based on limited information, and there was a lot that we didn't know yet at that time. The recall is a complex undertaking because of the sheer volume of devices to be remediated, and also the outreach to every individual patient, wherever they live.
We have established a dedicated team of 1,000 colleagues working under the direct supervision of the executive committee, and we have taken a systematic approach to addressing the unknowns and expand production capacity. In an average year, we produce and distribute around 1 million sleep devices, but in the meantime, we have scaled up by a factor of 3. Inevitably, it still takes time to remediate over 5 million devices. While we are working as fast as we can, I acknowledge that this has been worrying for the patients and frustrating for our partners. I mentioned that the outreach to each individual patient is complex. For example, in the United States, where we have a large installed base, Philips Respironics does not own or manage patient contact information for sleep therapy devices. That patient information is actually retained by the durable medical equipment providers, the DMEs, that are.
They are our customers. Therefore, Philips Respironics has been working with the DMEs and healthcare providers in order to find and contact the patients. As we progressed, the patient outreach became more effective, and insights as well as the discussions with the competent authorities progressed. We have been able to adjust the number of devices that are eligible for remediation and recorded additional provision increases as a consequence. I'm encouraged that we have significantly ramped up now, and that we are currently almost halfway through the shipments of repair and replacement devices to customers and patients. We do expect to complete over 90% of the production and shipments to customers by the end of 2022. At the time that we announced the recall, we had to take a worst case scenario, with regards to potential health risks for the patients.
In December, however, we were able to demonstrate, after comprehensive testing, that the concentration of volatile organic compounds emitted by the DreamStation 1 devices is actually within the safety limits. We are currently working with outside experts to also test and to better characterize the probability, but also the potential health risks of particles of sound abatement materials. We expect to be able to issue a report on this later this quarter. Regarding the litigation aspects of the recall, it will take time to work through these. We have a strong and experienced legal defense team in place for that. Today is no update to give, and I ask for further patience on that front. I realize that many shareholders may want to hear more about the quality management system for Philips as a whole.
Since turning Philips from a holding company into a focused operating company, we have made significant progress with more standardized, transparent business processes. During this last period, we have further enhanced the robustness of our quality design controls, post-market surveillance, and our systems around handling corrective actions. There are still some areas of improvement, and we are working through the ongoing field actions. Our enterprise-wide accelerating patient safety and quality program brings us a further step up to the focus on patient safety in our culture, processes, capabilities, and management accountability. Still, the vast majority of our other businesses are in very good shape. Ladies and gentlemen, let me now move on to discuss the 2021 financial results. With this AGM taking place in May 2022, it feels quite some time ago. Financially, 2021 was a challenging year.
The intensified global supply chain headwinds, postponement of customer equipment installations due to COVID-19, combined with the sales consequences of the Philips Respironics recall, resulted in a 1% comparable sales decline year-on-year in 2021. The component shortage and shipping delays affected all our businesses. For example, semiconductor delivery times increased from a mere few months to over a year, and sometimes suppliers even decommitted orders on short notice. Our engineering teams are developing alternate parts, as well as adjusting product designs to diversify the sourcing of components. However, in a regulated industry, this all takes time. Our Connected Care businesses posted a 23% decline in comparable sales, and that was on the back of very high COVID-19-generated demand in 2020. Of course, because of the Philips Respironics field action.
At the same time, and I want to underline that, our Diagnosis & Treatment businesses, our Personal Health businesses, performed very well in 2021, recording 8% and 9% comparable sales growth respectively. Our order intake grew a further 4% in the year, driven by 16% growth in the Diagnosis & Treatment businesses. The 80 new long-term strategic partnerships that we signed in 2021 further demonstrate the continued trust of our customers in our portfolio and in our people. We further grew our solutions-based sales and recurring revenues to around 45% of our total revenue. Against this background and reflecting the importance that we attach to dividend stability, we propose to maintain the dividend at EUR 0.85 per share.
Driven by our purpose, we reached 1.7 billion people with our products, services, and solutions in 2021, and that included 167 million people in underserved communities. We are on track to improve the lives of 2 billion people a year by 2025, including 300 million people in underserved communities. Philips has been carbon neutral in its own operations for the last two years. Due to our focus on circular business practices, we bring near zero waste to landfills. Our circular revenues are at 16% of sales, driven by our software and services to enhance equipment uptime and utilization, software upgrades, and also reusing refurbished parts and systems. Did you actually know that the world's healthcare systems account for over 4% of global CO2 emissions?
We are therefore working closely with partners and customers to offer concrete solutions to help hospitals reduce their own environmental footprint. Let me now conclude. As I already mentioned, our customers tell us that we are very relevant to them, and that we have a stronger than ever innovation portfolio. We are all very and fully focused on everyday execution to overcome the near-term headwinds such as the continued supply chain shortages and COVID-19 resurgences, and to convert our all-time high order book into higher revenue growth and expanding margins. We continue to invest in the future. We leverage data science in all our propositions. We are advancing healthcare with solutions that deliver on the quadruple aim of healthcare. We are advancing operational excellence, patient safety and quality, which is a daily priority for all of us at Philips.
I'd like to take a moment to thank our customers, our suppliers and our partners for their continued support. A word of special thanks to our employees for their fantastic contribution through a year of often difficult working circumstances. I would like to thank our shareholders for their patience, and I'd like to ask for their support as we work through the near-term issues towards a bright future for Philips. The entire Philips team of 79,000 people is geared up to deliver on our full potential. Thank you very much.
Thank you.
Thank you.
Sir.
Thank you, Frans, for your explanation. Thank you very much for elaborating on the different elements of the firm that your report covers a broad scope regarding what happened in 2021 and what is important for the firm. I now conclude agenda item one, and we'll move on to agenda item two in this meeting, which concerns the annual report for 2021. The second agenda item comprises some subsections from two A through two F, which will all be addressed. A few introductory remarks, and after that, we will answer the questions. The first remark concerns the dividend. The dividend proposal aligns with the retention and dividend policy of Philips in recent years that is familiar to you and Frans just explained it.
In the past few years, an advisory vote is conducted regarding the firm's remuneration report, which appears in the annual report, and you had the opportunity to read it. I'm pleased to give the floor to Paul Stoffels, the Chair of our Remuneration Committee, so that he can elaborate on this remuneration report. Paul will speak English, and after that, we will move on to the other items, subsections.
It is my pleasure as the Chair of the Remuneration Committee to discuss the 2021 remuneration report for the Board of Management and the Supervisory Board. Before we turn to the remuneration for the year 2021, as a reminder, slide number one illustrates the compensation structure for the CEO and other members of the Board of Management. This structure was approved at the shareholder meeting in 2020 and is comprised of three elements. One, a base compensation. Two, an annual incentive. And three, a long-term incentive grant. For our CEO, an on-target payout of this annual incentive is 100% of his base compensation, with a range of zero payout at below-threshold performance and a 200% payout at maximum performance.
The LTI grant is measured over a three-year period, with a target vesting of 200% of a CEO's base compensation, and again, a range of zero payout below threshold and a maximum vesting of 400%. Annual incentive LTI for our CFO and our Chief Legal Officer are following the same plans but are based on different target and grant sizes, as you can see on the slide. Our compensation design supports a pay for performance focus, with 75% of the total CEO compensation package being variable, at risk and tied to performance measures as approved and wanted by shareholders. Now turning to the 2021 remuneration report, which reports on the implementation of a remuneration policy for the members of the Board of Management. I will highlight the compensation decisions made by the Supervisory Board in relation to the Board of Management.
First turning to the annual compensation cycle. The annual compensation cycle for the Board of Management was reviewed as part of the regular process. For our CEO, the annual compensation was kept unchanged. The CFO and CLO received an increase of 1.3% and 3.4%, respectively, to maintain total compensation at market levels, as well as to address internal equity. Typically, the salary increase is implemented on April 1. However, as part of the measure taken in view of the COVID-19 pandemic, it was delayed from April 1 to July 1, aligned with all senior management within Philips. As a result, the annual compensation as of July 1, 2021 was set at EUR 1,325,000 for the CEO, so no increase. EUR 795,000 for the CFO and EUR 615,000 for the CLO.
For the 2021 annual incentive payout, 80% of the payout was based on the achievements against three financial metrics: comparable sales growth, EBITDA and free cash flow targets. The other 20% of the payout was based on performance against individual targets in the areas of strategy execution, quality and operational excellence, people and organization, sustainability and customer results. The remuneration policy, as adopted by the shareholders at the AGM in 2020, specifically allows for adjustment of annual incentive performance to account for events that were not planned when targets were set or were outside of management control. As part of our annual performance measurement process, where specific items qualify for adjustment. This has led, amongst others, a proportional recognition of the effect of component shortages in our supply chain, which I will reflect later. No corrections have been made for the Philips Respironics field action.
Slide two shows the 2021 annual incentive payout of 64% of target for our CEO, 57% of target for our CFO, and 64% of target for our CLO. The 2019 performance share LTI grant vested in mid-2022. Early 2022, the remuneration committee approved the payout of 38% of target versus 200% of target at maximum performance. The payout of this grant was based on an equal weighting of total shareholder return and EPS performance over a three-year period from 2019 to 2021. The TSR payout was 0% of target based on Philips rank of number 16 of 20 companies on our performance peer group.
The LTI, as approved by the shareholders at the AGM 2020, specifically allows for adjustment of EPS performance to account for events that were not planned when targets were set or were outside of management control. As part of annual performance measurement process, we have evaluated which items qualified for adjustment. This led to, amongst others, a partial adjustment for the component shortages in our supply chain. A comparable adjustment as for the annual incentive. Based on the adjusted net income from continuing operations, the LTI plan EPS performance was EUR 1.43, leading to a realization of 76% of target for this performance measure. The Supervisory Board is obviously mindful of the fact that it received from you, our shareholders and as other stakeholders.
Regardless of the outcome of the vote of the remuneration, we will take the feedback on board and discuss it seriously. The Supervisory Board, however, holds the view that the adjustment made, the adjustments made are appropriate and in the best interest of the company and its shareholders, taking all relevant factors into account. Let me now reflect on these factors. The scale of the global supply chain disruption in 2021 was unprecedented, and electronic component shortages and shipping constraints intensified in the second half of the year when we were faced with further decommitments and delays from semiconductor suppliers, despite the long-term nature of our agreements with them. The Supervisory Board aims to proportionally recognize both the significant progress made by the company on the strategic and operational goals during 2021, as well as the headwinds beyond management control.
To assess the management performance in a meaningful manner, two steps were taken. A detailed analysis of orders, which has been previously confirmed for delivery and installation within the year but were delayed due to global supply chain constraint, was conducted. The value of these delayed sales was determined to amount to EUR 498 million. The Supervisory Board decided on a 75% adjustment of the impact for the long-term incentive and a 50% adjustment for the annual incentive. The difference in percent adjustment was made to reflect the difference in duration of performance periods for each of these payouts. I stress that no adjustments have been made for the impact of the Philips Respironics field action.
Before concluding, I would like to draw your attention to the fact that the remuneration is uniformly managed across the organization and therefore adjusted, adjustments made for the Board of Management have an equal impact on the rest of the organization and vice versa, according to the adopted remuneration policy. The Supervisory Board is well aware of the war for talent within our industry and wants to maintain a competitive environment for attracting and retaining talent. Retaining top talent in our company is important for addressing the current challenges the company is facing. A consequence of our decision is that Mr. van Houten's total income has halved compared to what it was in previous years.
Now I would like to conclude with saying that I sincerely believe that our decisions have led to a remuneration level that is significantly below target, but appropriately rewarding the members of the Board of Management for their performance in a time of difficult external conditions, in which still significant progress was made. This concludes my discussion of the 2021 remuneration report. Chairman, back to you.
Thank you, Paul, and thank you for elucidating the remuneration report of the company. Later on, we have some questions which were asked, and we will address those. The year
The financial statements for 2021, as stated, are audited by EY, our external auditor, Hanneke Overbeek, and on the website, you'll see statements in the annual report by EY. Ladies and gentlemen, now I would like to answer some of the questions that were submitted prior to this meeting. We received questions from NN Investment Partners, APG Asset Management, VEB, the Association of Investors for Sustainable Development, VBDO, and Reverend Al Sharpton and National Action Network. I will group these questions by theme. First, some questions concerning our sleep and respiratory care business, and I will hand you over to Frans, who will answer those questions. You will see the questions briefly on the screen, and Frans van Houten will repeat the context of the question and will then answer the questions in English. Once again, these are the questions following agenda item two.
Later on, we will answer different questions following items three and eight. Frans, over to you to answer the first questions.
NN Investment Partners and APG Asset Management. This question is around a Canadian study that assesses the risk of sleep apnea devices. My answer to this question is that it is indeed a very encouraging study, and we've also mentioned this in our March 10, 2022 press release, in which we gave an update on the remediation in the United States. Additionally, as stated in our December 2021 update, testing results for the first generation DreamStation devices indicate that the emitted volatile organic compound concentrations are within the safe exposure limits and are not typically anticipated to result in long-term health consequences for patients. We will continue to conduct further research and testing to more fully understand and scope potential patient risks, and then we expect to provide an update later this quarter.
The second question from NN Investment Partners and APG is around the two additional quality issues that we flagged in the first quarter. I'd like to give an answer to that question. In the first quarter of 2021, Philips recorded a provision in relation to two anticipated voluntary recalls in more smaller business lines, also in the connected care portfolio. In February, we actually started the V60 ventilator product family recall and the HeartStart HS1 defibrillator pads recall. Those were the two that I referred to in January. Regarding the V60 product family recall, it is at this time too early to actually speculate whether that has any legal exposure.
The third question from NN Investment Partners and APG relates to the timing in which the Board of Management was aware of potential foam degradation issues. I can tell you that the Philips Board of Management became aware of the issue and its potential significance in the first quarter of 2021 and took adequate and immediate action. This resulted in the issuance of the field safety notice and start of the remediation actions in the first half of 2021. We also took a lot of actions. We have, for example, onboarded sleep and respiratory care business. We strengthened quality and regulatory affairs leadership for the group, for Connected Care and for the sleep and respiratory care business. We've also added resources to strengthen specific capabilities, all as the consequence of finding out about this issue.
The next question comes from the VEB, the Vereniging van Effectenbezitters. The first question asks about the optimistic tone that they perceived, and they said, "Is it then really difficult to reconcile with the more severe observations in the FDA report?" I can answer to the question, how does Philips explain this potential discrepancy? Actually, we have always taken this matter very seriously. The recall is a complex undertaking because of the sheer volume of devices to be remediated and the outreach to every individual patient that we actually do not serve directly. In 2021, we had to make decisions based initially on limited information. Even though we didn't know everything yet, for transparency and the patient's safety, we took the initiative and assumed a worst case scenario with respect to potential health risks.
We then voluntarily issued the field safety notice. We started the remediation actions, but we also started a comprehensive test and research program in parallel to better assess what the real health risks are. We have and still are evaluating the issues that contributed to the recall. We are currently working through corrective measures. We continue to work with competent authorities around the world. For the second part of the question of the VEB, when Royal Philips Board of Management became aware of the issue and its potential significance, we took adequate and immediate action, and this resulted in the issuance of the field safety notice and the start of the remediation actions. As I said before, we had to make decisions based on limited information, and we learned more about the various aspects of this complex and multifaceted issue over time.
The patient outreach became more effective and our discussions with relevant competent authorities progressed. Alongside, we have adjusted our efforts accordingly. The second question that is raised by the VEB is also about when we were aware of the issue with the sleep devices. My answer to the questions A to C is the following. In prior years, there were actually limited complaints related to foam degradation. Philips Respironics evaluated and addressed these on a case-by-case basis. Potential issues relating to the emission of volatile organic compounds surfaced only more recently. When the Royal Philips Board of Management became aware of the issue and its potential significance in the first quarter of 2021, we took adequate and immediate action, leading to the recall notification in the first half of 2021.
We have, and we still are, evaluating the issues that contributed to the recall. We are working through the corrective measures, and we will continue to work with the competent authorities around the world. Another question from the VEB relates to the incremental steps of the provision. My answer to the first two aspects of this question is that it is a complex issue that relates to the volume of the device to be remediated and the complexity of the outreach to every individual patient. We learned more about the various aspects of this multifaceted issue over time. The patient outreach then became more effective. We reached more patients, and of course, the discussions with competent authorities progressed. We have been adjusting our efforts accordingly over time and raised the provision as well.
The answer to your third part of this question is, we are now 11 months in the recall, and we have made significant progress across the board. For example, the number of registrations is now at 5.3 million. We expect that to level off around 5.5 million. The production capacity is already at more than 3x the normal capacity, and we have produced almost half of the replacement devices and repair kits needed. Moreover, the patient communication has become much more effective, and we will maintain the current intensity of patient and customer communication activities. Another question relates to a competitor comment. Of course, I should not expand too much on what competitors say, but I do want to give an answer here as well. There are two major players in this market.
We at Philips expect that the durable medical device distributors, the doctors, but also healthcare providers, are supportive of our brand, as they will want to make sure that there are two strong players and not just one. A recovery of our market share is likely to take a few years, but we see strong pent-up demand in the market for sleep therapy devices. Please note that growth will not just come from the replacement market, but also from new patients, as sleep apnea is still significantly underdiagnosed across the world. In relation to the last part of this question, in terms of engaging DMEs and customers and filling the pipeline, we can expect to resume commercial activities of sleep devices in the end of this year, somewhere in the course of Q4 of this year.
All right.
Another question. Chairman, there's one more here. Relates to the various headwinds that we talked about in earlier quarterly results and our expectations. There, I would like to repeat that there is a lot of uncertainty and volatility in the world. The performance range that we communicated in January of this year of 3%-5% comparable sales growth represents a certain buffer in case those risks would materialize. The top of the growth range is supported by our strong order book. The China COVID-19 situation, the Russia-Ukraine war, are new risks compared to January. The China COVID-19 situation is not quantifiable at this moment, while the risks related to the Russia-Ukraine war have not materialized yet fully for us. Despite our mitigating actions, the risks materialize.
If the risk materializes through the year and the net impact would exceed EUR 500 million, then we would be starting to test the lower end of the comparable sales growth range for the full year. Chairman.
Yeah. Thank you. Thank you, Frans, for answering the first set of questions from NN, APG, and VEB. I would like now to proceed to a follow question from VEB, and that's directed to our CFO about impairment test.
Thank you for the question. I'm afraid the answer is a bit technical, so let me just be clear. When we do the half yearly testing, in the half year of 2021, the starting point is the full year sales of 2020. When we do the full year testing, the starting point is the full year sales of 2021. What has happened is because of the recall in 2021, the jump-off point comes significantly below, and therefore you see a growth. It's not that we have increased the outlook for the outer years to make it look at 9.2% is because the starting point has come lower. The second question regarding the growth rate assumption of 9.2% compared to the analyst consensus, let me clarify there as well.
The analyst consensus is for the whole of the Connected Care, whereas the 9.2% growth rate we talked about is for sleep and respiratory care only. However, if you look at the analyst view for the two years going forward, they are very much within our guided range of 5%-6%. I think when we come out in the summer with clearer view on the years coming forward, they will then correct it because next year, of course, we expect to be able to resell our sleep and respiratory care portfolio, and that will give a bigger jump in the numbers. Back to you, Chairman.
Thank you very much, Abhijit. I would like to move to another question, also by the VEB, to our auditor, Hanneke Overbeek-Goeseije. Hanneke.
Thank you, Chairman. Yeah, the valuation of goodwill inherently requires management to make assumptions and estimates, including expected growth rates, but also to various other assumptions. Our procedures included testing the operational effectiveness of controls and assessing and evaluating assumptions in data used by management. As part of our assessment, we, for example, compared assumptions to external data. The growth rate in the initial forecast period is furthermore impacted by the comparative period, and management provided further insights in the answer to the previous question. Back to you, Chairman.
Thank you very much, Hanneke. Another question, also by the VEB. I will answer myself. Question was, in the annual report of 2021, the Supervisory Board made some remarks to further strengthen its own board and also to spend more time on some regulatory, manufacturing, and supply topics. Question was, in the previous annual report of 2020, this was less mentioned or not mentioned, and how does the Supervisory Board look to its own functioning? Well, indeed, the remarks made on where to strengthen, you will, amongst others, see also in this agenda by the appointment of the new Supervisory Board members, adding to the competencies of the board, especially on digitization, which is important for Philips.
To this point exactly, the Supervisory Board fully embraces, of course, the importance of patient safety, of quality, of regulatory matters. Of course, we spent quite some time on overseeing what Philips is doing on its Philips Quality Management System. We believe that our processes have become more robust. We believe that the Philips Respironics recall shows obviously also that we can always further improve our quality processes. Therefore, management and in good discussion with the Supervisory Board started, I think, immediately after this recall, a further acceleration of the patient safety and quality system. Showing that we can always spend more attention to that. This does not say that it is not enough and it is not good, but looking always to the further improvement matters.
I can guarantee you that also the Supervisory Board is quite close to this topic. The self-evaluation shows that we have a well-functioning committee, a well-functioning team on this matter, and we are continuously focused in discussion with management of where we can further improve. Good. With that, I would like to round off the first set of questions around Respironics and those kind of topics and move to a second set, so to say, of questions around ESG and amongst others from VBDO. Frans.
Thank you, Chairman. The first question from VBDO is around biodiversity. Let me start by saying that Philips' direct diversity impact is actually rather limited, as VBDO also concluded from our disclosures. We have a limited number of sites that occupy only limited space, and also our environmental impact is small, thanks to our long-standing environmental programs. Nevertheless, in 2021, we started a study on closing the loop on materials at site level. That also includes biodiversity assessments. Once the results have been analyzed, we will develop an improvement program, and we may partner with like-minded companies to address bigger challenges like biodiversity, restoration, and conservation. Next question relates to the transparency on green and eco design revenues, but also along Scope 3, the total life cycle of our products. That's a great question.
I can tell you in answer that we have assessed the impact of our portfolio for each individual product, and it was included in our environmental profit and loss account. That you will find in the annual report. Also in our submission to the Science Based Targets initiative. This organization approved our reduction targets back in 2018, and we were the first healthcare technology company to achieve this. The anticipated regulation by the European Union, that is in fact the European Sustainability Reporting Standards, the International Sustainability Standards Board, the ISSB, and the SEC will make the Scope 3 use phase disclosures mandatory. We aim to disclose our own numbers ahead of the date required by the European Union. The next question from VBDO.
Actually, they compliment us with our company's human rights due diligence approach, and like to know what we are doing vis-à-vis our company peers. Well, Philips is working actively to make its human rights due diligence approach available to the wider industry via our partnership with the Responsible Business Alliance. In addition, Philips participates in working groups of various multi-stakeholder initiatives that are focused on improving due diligence practices, and Philips is further sharing its best practices via public speaking engagements, roundtables, and other platforms. We aim to accelerate positive change throughout our supply chain. We also intend to make our advocacy activities around supply chain engagement more explicit in our next annual report. A question from NN Investment Partners and APG Asset Management, who welcome that we commit our suppliers to science-based targets.
Well, if we want to deliver on Philips' science-based targets, and we are very ambitious, we indeed need to address the full value chain, including, besides our own operations, also, our supply chain, as well as the use phase of our products with the hospitals. About 39% of our full value chain emissions originates in our supply chain. We address emissions in our supply chain in various ways, including helping our suppliers to become more energy efficient through our supplier development program. We are pleased that around 31% of our suppliers, in spent terms, have committed to science-based targets already. Many suppliers see the benefits of implementing energy saving improvements as this saves cost. Moreover, in many cases, our suppliers also deliver goods to other companies that are stepping up on climate action.
By meeting our demands and their demands, they actually become better suppliers. So far, our comprehensive supplier development program has been very successful, and Philips has been recognized for that. Especially our larger suppliers are long-term. They are trusted partners with shared values and shared incentives, and we will further build on that. There is a question from Reverend Al Sharpton and the National Action Network. They are asking about diversity plans for employees, but also seen in your executive positions. Well, there, I'd like to say that workplace diversity and culture is a priority at Philips, and we have been recognized for our ongoing investment in building diverse workplaces. Our leadership teams create tangible action plans to provide support. We also increase representation for our underrepresented employees.
Our approach for increasing representation of minority talent at all levels, including senior level positions, includes several initiatives. For example, in North America, a commitment to increasing our minority talent representation at senior management levels to reach or exceed market availability. We have piloted a mentoring program with our Black high-performing talent within North America. We are also launching two additional cohorts this year. The second question from Reverend Al Sharpton relates to adding minority members to the board of directors. My answer to that question is that we have in place ensure that the Supervisory Board, but also the executive committee, have sufficient diversity of views and the expertise needed for a good understanding of current affairs, risks, and opportunities related to the company's business.
According to this policy, the selection of candidates for appointment to both the Supervisory Board and the executive committee are based on merit. With due regard to this, the company aims to fill vacancies by considering candidates that bring a diversity of, among others, age, gender, ethnicity, education, and professional backgrounds. The Supervisory Board's aim is that both the Supervisory Board and the executive committee comprise members of a European and a non-European background and at least four different nationalities, and that they comprise at least 30% male and at least 30% female members. The third question from Reverend Al Sharpton and the National Action Network relates to embedding diversity in procurement and contracting also with Black and minority-owned businesses. Well, as a health technology company, we are diligent in regards to which suppliers we work with.
Of course, only bringing the best on board and always with quality and safety at the forefront. Philips has approved an initiative to ensure procurement and contract opportunities for minority-owned businesses. Our 2022 and 2023 supplier diversity program reflects that. This program is sponsored by the Philips Chief Operating Officer, as well as the executive committee member, who will lead our active investment in this important program.
We are also having a dialogue with our major supplier partners on the diversity of the project teams that they provide to us. We believe that working with our major supplier partners on their own diversity, as well as the diversity of their supply base, is a way where we can exponentially drive impact in addition to how we direct our own spending. I think the fourth question of the Reverend Al Sharpton and National Action Network is related to that, because that asks about diversity plans in terms of advertising with Black and minority-owned media companies. Our marketing and media investments take into account both the business to businesses, business-business audiences, and the business to consumer audiences of our healthcare products and solutions, including the impact they make on Black, Hispanic, Asian, and LGBTQ communities.
This approach guides programmatic decisioning that includes spend with Black and minority-owned suppliers and media, and we make targeted investments in emerging publishers and Black and minority self-publishing entrepreneurs, like influencers and creators that have authentic voices and follower base. We also make media investments in non-minority-owned media who have large minority audiences, as these media partners reach these communities effectively and employ large percentages of minority talent.
Very good. Thank you very much, Frans, answering all those questions. I would like to underline also the importance of diversity also in the Supervisory Board, as Frans already mentioned. We have there a mix of nationality, gender, and background in healthcare, in digitization, and general management in international organizations. You will see later on on the agenda that we remain busy on strengthening the Supervisory Board. I would like to go to the third subset of questions around remuneration. Questions from NN, APG, and the VEB. Paul.
Thank you, Mr. Chairman. The first question relates to the opinion of the external auditors on the decision of the Supervisory Board to adjust the remuneration. As explained in the remuneration report, the Supervisory Board used an analysis of delayed sales, in particular, to underpin its decision to adjust the realization of AI and LTI performance metrics. This approach was, of course, only taken for remuneration purposes. It is not relevant at all in relation to the revenue recognition for financial reporting purposes or the external audit performed by EY. As a different matter, EY did confirm, as required by Dutch law, that the remuneration report includes all required information. The second question comes from the VEB and is in different parts. The first part, we always had long-term agreements.
It relates to Frans giving an interview in a newspaper where he made certain statements on long-term agreements with suppliers. We always had long-term agreements and orders with our tier one suppliers. Nevertheless, we were increasingly challenged with semiconductor suppliers deeper in our supply chain to tier two or up to tier four suppliers in our supply chain. That increased lead times from 12 to 20 to over 52 weeks, or were unable to give any visibility on e-component availability and delivery times beyond, at certain times beyond three months, or even decommitted orders on a very short notice.
The answer to the second question, on should we have taken more a proactive approach, we have been working through the global supply chain headwinds for some time now, but in the first half of 2021, our ability to mitigate supply risks was higher. During the first half of the year, inventory started depleting due to our strong growth, and then global supply challenges intensified, making the inventory situation very tight. The third question is with regards to the supply chain disruptions and then the add back of certain parts of the sales. When considering these adjustments, a number of factors were taken into account. The difference between AI and LTI is especially the short term versus the long term, the duration of the plans. The short-term incentive is one year, the three...
The long-term incentive is three years. The measurement point-to-point in LTI assessment is a three-year measurement. The balance between internal and external causes for the delay in production, any adjustment needs to be partial. For the annual incentive, the Supervisory Board considered that an adjustment of 50% of the revenue loss following from the component shortages could be taken into account. For the LTI, a point-to-point assessment is taken into account, so successes in previous year will not influence the final assessment. Furthermore, the duration is a three-year, and as such, the component shortage occurring last year would have had a very disproportionate effect on the performance assessment. Therefore, it was decided to apply a 75% adjustment of revenue loss following from the component shortage. The last question is about Remuneration Report.
They are taken into account, setting the target. What do we do going forward? Is the target adjusted? The answer to that question is that the Supervisory Board considers that ex-ante publication of targets may harm the company's interests as they may be commercially sensitive. For that reason, the exact annual incentive target and target range is not disclosed ex-ante, which is in line with external market practice. I would like to add that our disclosure practice is among market best practice. The answer to question B is that on a forward-looking basis, we expect a catch-up effect of delayed sales in 2022. This is incorporated in our external guidance for 2022. The target is set above the midpoint of external guidance, meaning that delayed sales are not allowed to ease our targets in any way.
With this, I conclude my comments on the questions. Mr. Chairman, back to you.
Thank you very much, Paul. Believe it or not, we just answered 35 questions, answered by Frans, Abhijit, Paul, Hanneke, and myself. I would like to thank you as shareholders very much for asking those questions, because it's an important that you show what is in your mind also, which we can answer. Thank you for that. Done. Yeah, it switches to just English and the Netherlands.
I switch between English and Dutch now and then. I hope the interpreters can keep up with this. This is the opportunity to ask follow-up questions. A few shareholders have opted to attend online and to take the opportunity to ask follow-up questions, which we see on the screen of Loes Meerburg, the company secretary. Would anybody like the floor for a follow-up question? First, Mr. Evers on behalf of the VEB and Mrs. Verhoef on behalf of Nationale-Nederlanden and APG. Could you please give the floor to Mr. Evers? Hopefully, you can hear me. Yes, we hear you perfectly.
In English as well.
Okay.
I will not redo the questions raised and answered so far, but I'd like to follow up on a few. First of all, it's a missed opportunity to not have a physical meeting, but to have a digital meeting. I really don't understand why, along the lines of the COVID developments, this was not possible. I very much feel sorry for Mr. Van Houten that he had his finger in the door. I'd like to use the opportunity to give an explanation of vote. Philips is such an important company, such important products. However, trust in the management, trust by the patients, trust by the investors is at stake. The real question is how to regain trust.
That is, I think, what patients and investors deserve. What I missed in the contribution of Mr. van Houten is a very important point. He did not apologize physically to patients for the products being delivered over the last decades. I really think that is a missed opportunity, but it is a consecutive and a continuous flow of information. He did pay attention to the strong legal defense team at Philips. He did pay attention to the vast majority of other segments in good shape, but really to really apologize to those that have been affected by the products, the patients, but also the EUR 20 billion of missed opportunity for shareholders that should have been his statement. Since the announcement in 2021, a lot of things happened.
In consecutive terms, the truth had to come out. Mr. van Houten referred to the fact that from the first instance, the worst case scenario was applied. Well, this is not what we recognize. Also at the share price developments, you see that with each quarterly report or each public statement, the investors were surprised, and it hit hard on the value of the shares. That is really not the worst case scenario. To try to push things and the issue, the reality forward and forward, and still today, that is what I hear, and it's really a missed opportunity. It really remains unclear at what moment Philips management or Respironics management was first informed about the wrong products. We read the FDA report, which refers to the year 2015.
We read the report which refers to the fact that at least at top management it was known at 2020, January 2020. Why then only in April 2021 the recall and the information to the public went out? I really don't understand why that question cannot be raised, cannot be answered by a date as such. That, in my view, is a missed opportunity. The other thing, you referred to your competitor, ResMed, which is very outspoken, and it's not always the right thing to do with your competitor, at the stage as Philips is in. How can the expectations for next year be that positive if the switching costs to switch back from ResMed to Philips, in my view, would be very high?
Hence, I really doubt the positive expectations explained by management, but also by the CFO on the future and the current year and the next year of Philips. That is a question we still have. The sales growth assumption that changed from -4.8% mid-year 2021 to 9.2% growth expectation forecast at the end of the year. I understand that the reference period is another year, but still 9.2% forecast, while the analyst consensus is only 2.9%, that is again a far too optimistic assessment by the management of Philips. We really doubt whether that is the right message, the message to give. A question for EY. EY said that they carefully reflected on the impairment test.
Why at Q1 there was an increase in the provision of EUR 156 million by Philips, why not take that into account before signing the audit opinion over the year 2021? We really see that the end of the year, the prospects were far more optimistic than at Q1 based on management's assessment. We still have a question there as well. That it's quite on the remuneration issue, I think that is the main issue for today. To really adjust the realization of the bonuses of the variable pay, in our view, is really very ill-considered. Ill-considered by the Supervisory Board and ill-considered also by the CEO himself. Due to
According to the Dutch Corporate Governance Code, you really, as a chairman, should reflect, or as a CEO, should reflect on your remuneration as well. To adjust the realization in our view is really absurd, and the reasoning why is even more absurd. It's about the value or the chain of suppliers. Every company in the world suffers from that, and there's no company that's adjusting the realization of short-term and long-term incentive plans there. This is really creative accounting, and in my view, it's really a let's say a big negative for the investors that have suffered, and especially the clients and the patients that have suffered from the situation Philips currently is in. You refer to the fact that the Mr.
Stoffels, that looking forward to 2022, you cannot give us any ex-ante information about the realization criteria because it's commercially sensitive and not market practice. I would like to refer to market practice also at the prior point. It's really not market practice to adjust the realization, and we cannot accept it, and with us, I think many shareholders. I think that are the most important things, not to really dominate the question part. Maybe I have one or two questions following on your answers on this.
These are for the investors and also I think for the patients that depends on Philips for their sleep, for their rest, the really important questions, and I have not sensed any apologies from the board, nor from the Supervisory Board physically and your clients and investors, and that's really a very negative, again, on Philips.
Mr. Evers, thank you very much for your questions and engagement, and if I may say also critical questions. In the situation we are in, I fully understand, and I recognize a couple of the points that you make, of course, very well. Appreciate that you continue this dialogue with us. I would like to make a few remarks on some of the points you made. I would like to go to Hanneke, EY, then to Paul on the remuneration, and then the majority of the questions to Frans. Two things I would like to mention. One is I totally agree with you, we should try to have all meetings physically and not virtually. I totally agree.
This decision was made due to uncertainty and the feeling that people have that a hybrid situation would create maybe not an optimal situation either. That could be a wrong or right judgment call, but let me say we will do everything just to have a normal physical meeting next year. I agree with your point that we should try to do that. Secondly, I think I take very serious the remark on patient safety and your apologies. I would like to say that Frans van Houten, when he encounters this problem, the first thing he mentioned internally but also with the recall, was about patient safety.
This was high on his agenda as first thing, therefore, the voluntary recall, therefore, to take the financial consequences, and as well in the Q&R Committee, in the Supervisory Board and the full Supervisory Board. I just want to assure you that patient safety and also, of course, feeling very sorry for the unrest we have created, and I'm sure that Frans will say more about that, is a very important topic for us. First, in fact, I'm glad you raised that. This is top of the bill, and this was the first thing that Frans mentioned when this topic came at the table. I would like to move to Hanneke answering question of Mr. Evers.
The question, Mr. Evers, from you was the increase in provision in Q1 and why that was not taken in consideration as per Q4. I think it's important to say that all evidence that was available at the sign-off date was taken in consideration. We looked at the significant assumptions driving the provision, being, for example, the quantity, but also the replacement share. Information was vouched with external data and of course, also based on communications and information that was available internally. When we signed off on the financial statements, our opinion on the financial statements, this was management's best estimate based on the information available at that point in time.
Thank you very much, Hanneke. Paul, the question is on remuneration.
Yes, I want to give a short answer. From the remuneration committee and the Supervisory Board, we view that the company is in a difficult situation. About 80,000 people in Philips are working very hard to build this global business all over the world, China, U.S., Europe, South America, and are 100% engaged doing this. The problem of Respironics is 10% of the company is working very hard to repair this day and night. The other 90% are working on building the business. People are very specialized people in a combination of the know-how of electronics, data, and healthcare, who are in huge demand in the world. All big companies now, Amazon, Google, Apple, everyone wants to go in healthcare, and our people are have.
Are very in demand. If we want to build this company, rebuild it, and make sure it's a continues to be a strong company, we had to incentivize the entire company. As we are used and did for many, many years, always a uniform compensation policy in the company, we decided to have a recognition through a short-term incentive and an LTI payout. That was mainly done for retention and for continue to build the company in good shape. Thank you.
Thank you, Paul. We stress that point, that it is important to recognize all our people globally, and we need them also to repair the situations. Frans, a whole set of questions for you.
Thank you, Chairman. Mr. Evers, a few more pieces of information and expressions with regards to your follow-on questions. I think in my speech, I did dwell on the impact on the patients, and I want to emphasize how sorry we are for disrupting or influencing the lives of patients. We are very serious about it. We are doing our utmost to remediate the situation as fast as we can. I completely am on the same page there. Now you ask about the incremental approach to the provisions, whereas I use the expression of a worst-case health risk assessment. Let me reconcile the two statements for you. The reasonably worst-case assumption on health risk is reflected in the field safety notice, and hence a full Class I recall as issued here.
We have produced products for many, many years, and we know that many patients go off therapy after a while. It is very difficult to exactly estimate how many patients are still using their devices. We had made an estimation, if you recall, of 3.5 million-4 million units initially. As we progressed and also engaged with the regulators across the world, and did more communication, we found that more patients were still active users or occasional users. In some cases, also products came out of the cupboard that were no longer actively in use. That reflects an incremental increase in volumes. Also, given the supply chain challenges and others, the cost to remediate the units were higher than what we originally assumed. Moreover, considerable testing programs to really assess the risks.
We leave no stone unturned. Over 1,000 people are involved. That, of course, also adds to the cost of the whole operation. You reiterated your question about when does management know, and I can understand that it is confusing because the FDA talks about top management, but they refer to the top management of the Respironics business unit, which is the legal manufacturer of the respiratory care devices. That's very clear in the FDA's 483, and this is their way to target and call that top management. I have said explicitly and clearly that the Board of Management became aware of this information in the first quarter of last year, and we have taken immediate and drastic action.
You went to ResMed and yeah, how difficult it is to regain market share. I said in my speech, it will take time, right? We are realistic. It will take time. There is something remarkable to say here, is that we were able to ramp up supply chain by a factor of three, and we are currently producing at a level of 3 million devices for the year. We used to have 50% market share, and there is a huge gap in the market. You can study the ResMed numbers for yourself, but they have been unable to fill the void that we have created by focusing on the remediation as opposed to serving new patients. As a consequence, there is a large volume of unserved patients that are waiting to get a device.
We know from our distributors as well as the doctors that they would like to see us come back. Now, realistically speaking, it will take time to do all of this, but there is no such thing as a switchback cost per se. There are many patients that just need a machine. I think probably the last question that is on my list, Chairman, is around the sales forecast and the sales growth. We gave in January the guidance of 3%-5%. Of course, we could look at the constituent components in the individual businesses. I think for this shareholder meeting, that goes a bit too far. I'd like to limit my answer to the bigger picture.
The 3%-5% is actually fully underpinned at the high end of the range thanks to our order book and a bit of the demand that's shifted from 2021 into 2022. That gives us a lot of confidence. At the same time, the supply constraints, but also the geopolitical risks due to the war and COVID, do paint a more risky outlook for 2022. That is what we wanted to flag also in our April release, that there are many moving pieces and that can influence the year's outlook.
When analysts come to a certain consensus that is lower than what I said in January, that has to do with their interpretation of the risks that we flagged, and that may have an impact on the order book to sales conversion and realization. We are working fully and to our utmost to maximize the conversion of the order book and deliver as good as possible year this year. Thank you.
Thank you, Frans. Mr. Evers, question to you is, are the questions answered satisfactory for you? Well, satisfactory, maybe not everything is satisfactory to be honest today, but so far we could answer the questions. Please help me.
Mr. Evers would like the floor again. Oh, I did that automatically. I apologize. I should ask the secretary first. Well, Mr. Evers, you have the floor again.
We very much appreciate the further responses, so much appreciated there. I have one comment, very small one, and one question based on what we actually heard about let's say, the incentives to really get this out of the way. First, it says for the first time we hear that the top management of Respironics was aware, but the top management of Philips was not aware about the early signals about the failure of the DreamStation. I believe, honestly, this information should have been forwarded to the management board. Hence, you cannot have the patients being the weakest link, nor the investors being the weakest link of internal procedures that did not work effectively.
We still think that this should have been addressed within Philips, wherever the information was, more actively, more early. That's a remark. Mr. Sijbesma, on many things that you referred to the fact that Mr. van Houten, the first thing he mentioned was the safety of the patient which should be center stage. We did not hear him say that. We are in good company. The regulator, the Food and Drug Administration in the U.S., is very aggressive with Philips on the comments on quality control, but also the communication style of Philips. We have read the following. During the Q1 call, that's the investor call on 26th of April, Mr.
van Houten stated, the Murrysville factory and Respironics factory has a good track record with regards to prior inspections. That's his statement. The second statement during the Q2 call on the 26th of July, van Houten claims with respect to its systems and analytics to detect quality issues, Philips made, and then I quote, "A ton of progress over the last several years. That doesn't mean that the journey is over, but I feel good about how this will stand up to scrutiny." I unquote. A third Financial Times article with the title Chief Plays Down Litigation Risk Over Faulty Components. That's 26th of July, 2021, Mr. van Houten said, "Only 10 patients have reported mild health issues." And he quoted, "None of them have reported serious health issues.
We should not get carried away on the risk of litigation." The question I have here, I have two questions for Mr. van Houten. How does Mr. van Houten look back on these statements? These are the public statements we read, not internally within Philips vis-à-vis the Supervisory Board, but vis-à-vis the investors. A second question, Mr. van Houten, directly directed to you. There is a lot of negative feedback coming from the shareholders. There's a lot of distrust coming from the patients also about the remuneration and your variable pay. We really believe that it should be up to you to voluntarily state today that you are not willing to accept an extra bonus in this terrible year, 2021, where the health issues were the thing you should manage, which was managed poorly.
You really want to address the shareholders and your clients in stating, "Okay, I understand. This is a serious issue. I take the full blame. I would reject the variable pay, and I will do my utmost to regain trust from the patients and from the investors." This investment, in my view, would do you very well. That's a direct question on your empathetic feelings also based on what you heard today.
Thank you again, Mr. Evers. I learned in the past that feedback is a gift, even when it does not taste always like that. We will take your remarks, of course, seriously. I would like to ask Frans to respond to your points, but I would like to say from the entire Supervisory Board and myself that I have zero doubts in that the patient safety and the concerns of the patient are fully in the heart of the CEO, Frans van Houten, the entire Managing Board and his leadership team. Like I said, the first thing when this came at the table was not about financial consequences, was not about other things, it was about the safety of the patients.
I believe and the supervisor believe that is in the heart of this company as it should be, like you say correctly. With that, I would like to go over to Frans.
Yeah. Thank you. Thank you. Trying to discern what is the question on the patient risk. The original field safety notice expressed a deep concern for potential safety risk for patients. We were very upfront about that. We were also transparent that the amount of complaints in our system were relatively limited, and indeed, did not show any complaint of death. Of course, after that initial field safety notice and publicity, the amount of complaints went up significantly. That may also be information that you referred to. We will go full out to fully understand what this did to every patient individually. We're going after everyone, because we want to do the right thing. I don't think that today is the last day that we will talk about it.
At the same time, we cannot speculate to what is the final outcome and how severe was the risk to the patients of the use. Like the volatile organic compound study showed, actually, our original assumption of the risk of volatile organic compounds turned out to be a lot less. Now, you may say, "There we go again, Frans van Houten is too optimistic." But that was a study done by external experts, right? Like there was a study by the Canadians on 7,000 patients that showed no higher cancer incident rate of users of sleep apnea devices from Philips versus patients that were not using devices. I very much want to express empathy, but we also have to look here at some of the data points that stare us in the face.
Look, I am very sorry for all the hassle and all the pain that this may have caused to anybody. I thought I have been pretty clear. I'll say it here once more again. On your other question with regards to pay, of course, the board and I, we have discussed this pay. Believe me, I am deeply invested in Philips, spent my life on it. I've also a lot of shares in Philips, and I feel the pain exactly like everybody else. That is what I would like to leave it at. Thank you very much.
Thank you. Thank you, Frans. Thank you, Mr. Evers, for your questions.
Um-
I look to Loes because I'm ordered to do so. Thank you, Chairman. Madam Verhoef on behalf of Nationale-Nederlanden. Thank you then, and thanks to Evers. Madam Verhoef from NN Investment Partners.
Right.
Well, thank you all for answering all our questions. We were a bit surprised that Mr. Stoffels answered our questions regarding the remuneration. We would really like to hear the opinion of the external auditor on the questions we had.
Okay. Hanneke,
Very well. Hanneke, what can you tell us about the statements of Mr. Stoffels about remuneration?
I can repeat the questions if that's necessary.
Yeah. Hanneke
If you can do so, please.
Oh, please do so. Can you repeat the question you had?
What's the opinion of the external auditor on the decision of the Supervisory Board to recognize 50% of the sales impact in the 2021 book year for remuneration purposes, although the customer had not obtained control of the goods at the moment, at that moment in time?
Okay. Hanneke.
Yeah. If I may answer that, I think Mr. Stoffels gave a very correct answer, where our role is to look at the remuneration report, whether it's in line with the guidance, with the laws that are applicable, and whether it's in line with the financial statements. There is no obligation for us to further look into the remuneration report, which we also have not done. I think Mr. Stoffels clearly indicated that it does not impact the financial statements, how the revenue is being recognized.
Okay. Thank you for that. The other question was, did the external auditor provide reasonable assurance to the contents of the remuneration report as she did with the other facts and figures in the 2021 annual report?
Hanneke.
No, we did not. We look at the remuneration report, whether it's in line and consistent with the financial statements.
The last question was, did the auditor make some observations with respect to the remuneration report? If so, what were these observations and were they communicated with the audit and/or the remuneration committee?
In line with my first answer, there is no responsibility for us than only to look at the consistency and whether it's in line with the applicable guidance. There were no further remarks being made.
Okay. Mrs. Verhoeven, are the questions answered satisfactorily?
They are answered. Thank you.
Yeah. I almost presented it to you, that answer. Thank you. I would like to stress also with Mr. Evers and also yourself. I appreciate the questions. We will take the feedback very serious. [Luz], are there more people asking questions on the agenda so far?
Not for now.
The agenda so far is only up until point two yet. No further questions right now?
Nee. Voor nu niet, dank.
Good. With that, I would like to conclude the agenda point two of the meeting, point A till F. As we said, we can vote online during the whole meeting, and at the end of the meeting, we will show you the results of that. To add to the confusion, I will switch into Dutch again, but those on the translation, you can follow that again via your headsets. That is agenda punt drie.
Now we come to agenda item three, which is the composition of the Supervisory Board, A to D. Ladies and gentlemen, the next point in agenda is the composition of the Supervisory Board. The Supervisory Board has proposed a number of reappointments and a number of new appointments. Before I turn to these nominations, I would like to express my thanks to Neelam Dhawan. She joined the Supervisory Board in 2012, and at the end of this meeting, her third term of office will expire. During this very long period, Neelam, with all her knowledge and skills in the IT industry, has made a significant contribution to our transformation into a leader in health technology.
I would like to thank Neelam on behalf of the entire Supervisory Board, and I'm sure also on behalf of the entire Executive Committee, for her dedicated support to Philips. Allow me now to briefly comment on the nominations. For the further motivation, I can refer to the explanatory notes to the agenda and also the binding recommendations of the Supervisory Board. Paul Stoffels has been a member of the Supervisory Board since 2018. He has deep-going knowledge of pharmaceutical, biotechnology, or medical industries and the instrument industry, and also very broad experience in R&D. It is for this reason we ask you to reappoint him as member of the Supervisory Board. Marc Harrison has also been a member of the Supervisory Board since 2018. He has a very in-depth knowledge in healthcare systems and experience in the industry, in particular.
Specifically in North America. Therefore, we also invite you to reappoint Marc Harrison. In nominating Paul and Marc, obviously, we took stock of the way they have fulfilled their roles as members of the Supervisory Board and also in the relevant committees. We're very glad both have indicated their availability for reappointment. We're also very glad about the nomination of two new supervisory directors. Herna Verhagen, who will bring a very precious new perspective in a customer-focused corporate culture, and also with a background in digital and human resources within Philips. Then Sanjay Poonen, who has a very broad level of knowledge and skills in information and cloud technologies, things that are very important for the future of Philips, and they will contribute to the digital competencies of the Supervisory Board.
We have received no questions about the nomination of Ms. Herna Verhagen and Mr. Sanjay Poonen. Maybe there are follow-up questions of shareholders following the meeting online. I would like to ask Ms. Evers Whether we have any questions.
No, Chairman, no questions.
No questions, Mr. Chairman. That means I can now conclude item three on the agenda, and we may have the outcome of the vote later on. That brings me to item four on the agenda, which is the proposal to reappoint Ernst & Young Accountants LLP as the external auditor of the company. Ladies and gentlemen, the next agenda item is the reappointment of Ernst & Young Accountants as auditors of Royal Philips. In 2015, Ernst & Young were appointed as external auditor of the company starting January 1, 2016, for a term of four years. In 2019, EY was reappointed starting January 1, 2020, for a three-year term. The second term of the external auditor therefore automatically expires at the end of this year.
The Supervisory Board proposes to reappoint Ernst & Young for a term of one year starting January 1, 2023, which gives us sufficient flexibility to carry out a so-called audit tender and reflect on the nomination of the following auditor within the terms for rotating auditor appointment. This is in line with the recommendation of the audit committee to the full Supervisory Board that has been adopted. Obviously, after evaluation of the functioning of the relationship of, with the external auditor, and also taking stock with the observations of the support of the Board of Management that supports the proposal. That brings me to item 5, the authority of the Board of Management to issue or to grant rights to acquire shares or to restrict or to exclude preferential rights. Ladies and gentlemen, that brings me to agenda point 5 for your vote.
This is an annual repeating authority to either issue shares or to grant rights with acquisition files or to exclude priority rights. These are two separate points that can be voted upon separately. This is an annual point, and this is because we only ask an authority for 18 months. I assume we need no further explanations. That brings me to agenda item 6, the authority of the Board of Management to buy back company shares. Also for a term of 18 months, subject to the approval of the Supervisory Board, the possibility to buy back company shares. This is an authority that is granted annually, the authority to buy back shares, and we will once again request such an authority within the limits and under the conditions as indicated in the explanatory notes.
Among them, we have the condition that the company may not acquire more than 10% of the outstanding shares, including additional 10% of the issued capital at the same date, in the light of the buy back program for capital reduction purposes. Now, agenda item seven, the cancellation of shares. This is the cancellation of ordinary shares in the capital of the company that have been bought or will be bought by the company by virtue of the purchase authorization indicated under agenda item six. Allow me to refer you to the explanatory notes to the agenda concerning this matter. Well, chairman, I'm the chairman, I think. Dear secretary, we have not received any questions about agenda items four through seven. Is that correct? Yes, that is correct. No further questions. Then maybe some online participants would like to raise questions. No.
We move on, and that means we have now concluded agenda items four through six. I come now to the formal conclusions and the outcome of the vote. First of all, I will share the formal observations of the Notary Public. After this, I will conclude the voting procedure. After that, we will have to wait for one minute before we have the results. The reason for this is that online participants following the webcast have a slight delay. The preparation of this meeting has shown that all legal and statutory requirements have been met, meaning that the AGM currently underway is qualified to take legally valid decisions on all the items indicated in the agenda.
The calculation by the Notary Public has shown that at the opening of the meeting, a capital presented of rounded off EUR 102 million, entitling to 610 million votes, representing 70% of the issued capital eligible to vote at the AGM represented or present. In conclusion, I can inform you that the Supervisory Board and the Board of Management have not received any proposals of shareholders to include agenda items. I now close the voting procedure, and we will now wait or rest for 1 minute as you prefer, before we announce the outcome of the vote.
Yeah. The stemuitslag is binnen.
The voting results have arrived. Can I see it on screen? Otherwise, I have to guess. Agenda item 2B. Let's start with that. 99.98% of the votes was cast in favor. The proposal to adopt the financial statements has been adopted. Agenda item 2C, the proposal to adopt the dividend also 99.98% of the votes cast in favor. That agenda item 2C has been adopted as well. Next, agenda item 2D, approval of the remuneration report. This is an advisory vote regarding the remuneration report, and I see that a great many votes have been cast, again, nearly 80%. Of course, we regret this because the Supervisory Board believed that remuneration was being applied in the interest of the firm and all stakeholders. Nonetheless, and as Mr. Stoffels has said, we take this feedback very seriously.
In the year ahead, as I would like to ask Mr. Stoffels as chairman of the Remuneration Committee, in the coming year, there will be ongoing dialogue with shareholders. Once again, Mr. Stoffels remarked at Philips, we do have a remuneration policy approved by the shareholders in which which has been adopted by the AGM, which is a uniform remuneration policy of management and staff. It's important to keep them motivated and incentivized because they need to help resolve these problems. The entire management and staff of Philips have done a great many good things in the past year as well. I would like to emphasize that not everything within Philips is going wrong. We do need to resolve serious issues. We acknowledge that, but we need all those people to achieve those solutions.
Nonetheless, we take the feedback very seriously and will remain in ongoing discussion with you in the year ahead under the aegis of Mr. Stoffels. Now, agenda item two E is the proposal for discharge of the members of the Board of Management. 93.45% of the votes was cast in favor, so that item was adopted as well. Next, proposal to grant discharge from liability to the members of the Supervisory Board, 96.28% voted in favor, so item two has been adopted. Next agenda item three A is the proposal to reappoint Paul Stoffels as a member of the Supervisory Board. Nearly 91% voted in favor, so that item has been adopted as well.
The proposal to reappoint Marc Harrison as a member of the Supervisory Board, 99% of the votes was cast in favor. I'd like to thank Paul Stoffels and Marc Harrison for your service on the Supervisory Board. Next, the appointment of Herna Verhagen as a member of the Supervisory Board, 77% in favor. That has been adopted, and 98% has voted in favor of appointing Sanjay Poonen. That has been adopted as well. I welcome them to the Supervisory Board. Next, agenda item four, reappointment of Ernst & Young as auditors for the firm for another year. 99.96% has voted in favor, so that item has been adopted as well. Agenda item 5A, authorization of the Board of Management to issue shares.
98% has voted in favor, so it's been adopted. Agenda item 5B, for the restricting and exclusion of preemptive rights, has been adopted as well. Agenda item 5B has also been adopted. Agenda item 6, if I'm correct, the proposal to authorize the Board of Management to repurchase shares. 97% voted in favor. It's been adopted. The final agenda item, proposal to cancel shares. 99.9% has voted in favor, and that agenda item has been adopted as well. Ladies and gentlemen, that takes me to the end of this meeting. I am looking at the secretary to see whether anything is still pending or if there are still any questions. No.
I'd also like to thank the executive management, Marnix van Ginneken, Abhijit, and I'd like to thank my fellow Supervisory Board members behind me for answering the questions and, of course, the other members of the Supervisory Board who, like you, are attending online. To conclude, I'd like to thank all those who have confidence in the firm and the interest of the shareholders, patients, stakeholders, and partners. Thank you very much for your interest and attention, and I guarantee that all Philips staff are highly dedicated to make this firm even better. Thank you all for attending this shareholder meeting. I now close the meeting. Thank you.