Philips 2007 Annual Report Download - page 161

Philips Annual Report 2007 167
Cash ows
The Company expects considerable cash outows in relation to
employee benets which are estimated to amount to EUR 314 million
in 2008 (2007: EUR 433 million), consisting of EUR 160 million employer
contributions to dened-benet pension plans, EUR 89 million employer
contributions to dened-contribution pension plans, and EUR 65 million
expected cash outows in relation to unfunded pension plans. The
employer contributions to dened-benet pension plans are expected
to amount to EUR 129 million for the Netherlands and EUR 31 million
for other countries.
Estimated future pension benet payments
The following benet payments, which reect expected future service,
as appropriate, are expected to be paid:
2008 1,158
2009 1,141
2010 1,150
2011 1,158
2012 1,172
Years 2013-2017 6,222
Netherlands other total
The accumulated benet
obligation for all dened-
benet pension plans was
2007 10,944 7,123 18,067
2006 12,047 7,707 19,754
Plan assets: investment policies/strategies
Investment policies are reviewed at least once per year. The resulting
investment plans determine the strategic asset allocations, the constraints
on any tactical deviation from such strategic allocations and the
constraints on amongst others geographical allocations and credit risk,
and will be reected in the investment guidelines to the respective
investment managers. In order to keep the investment strategies in
balance with pension obligations, asset-liability reviews are carried out
at least once every three years. Generally, plan assets are invested in
global equity
and debt markets (with the exception of debt or equity
instruments that
have been issued by the Company or any of its
subsidiaries) and property.
Derivatives of equity and debt instruments
may be used to
realize swift changes in investment portfolios, to hedge
against unfavorable market developments or to ne tune any matching
of assets and liabilities.
Plan assets in the Netherlands
The Company’s pension plan asset allocation in the Netherlands at
December 31, 2006 and 2007 and target allocation 2008 is as follows:
Percentage of plan assets at December 31
2006 2007 target allocation
2008
Matching portfolio 57 59 62
- Debt securities 57 59 62
Return portfolio 43 41 38
- Equity securities 29 28 25
- Real Estate 9 8 5
- Other 5 5 8
100 100 100
The objective of the Matching portfolio is to match the interest rate
sensitivity of the plan’s real pension liabilities. The Matching portfolio is
mainly invested in euro-denominated government bonds and investment
grade debt securities and derivatives. Any leverage or gearing is not
permitted. The size of the Matching portfolio is supposed to be at
least 70% of the fair value of the plan’s real pension obligations.
The objective of the Return portfolio is to maximize returns within
well-specied risk constraints. The long-term rate of return on total
plan assets is expected to be 5.7% per annum, based on expected
long-term returns on equity securities, debt securities, real estate
and other investments of 8.7%, 4.1%, 6.6% and 3.0%, respectively.
Philips Pension Fund in the Netherlands
On November 13, 2007, various ofcials, on behalf of the Public
Prosecutor’s ofce in The Netherlands, visited a number of ofces of
the Philips Pension Fund and the company in relation to a widespread
investigation into potential fraud in the real estate sector. The
company was notied that one former employee and one current
employee of an afliate of the company were detained. This afliate,
Philips Real
Estate Investment Management BV, has managed the real
estate portfolio
of the Philips Pension Fund since 2002. The
investigation by the public prosecutor is aimed at the potential
involvement of (former) employees of a number of Dutch companies
with respect to fraud in the context of certain real estate transactions.
Neither Philips Pension Fund nor any Philips entity is a suspect in this
investigation. The Philips Pension Fund and Philips are cooperating
with the authorities and have also started their own investigation.
Formal notications of suspected fraud
have been led with the public
prosecutor against the (former) employees
concerned and with our
insurers. At this time it is not possible to assess the outcome of this
matter nor the potential consequences. At present it is management’s
assessment that this matter will not cause a decline in plan assets or an
increase in pension costs in any material respect.
Plan assets in other countries
The Company’s pension plan asset allocation in other countries at
December 31, 2006 and 2007 and target allocation 2008 is as follows:
Percentage of plan assets at December 31
Asset category 2006 2007
target
allocation
2008
Equity securities 26 24 19
Debt securities 68 73 78
Real estate 2 2 3
Other 4 1 −
100 100 100
Group nancial statements
Notes to the group nancial statements
Company nancial statements 250 Corporate governance246 Reconciliation of
non-US GAAP information 258 The Philips Group in the last ten years 260
Investor information