Philips 2009 Annual Report Download - page 111

Ineffective compliance procedures relating to the use of
resources could have an adverse effect on the financial
results.
Philips is exposed to non-compliance with data privacy
and product safety laws.
Philips’ brand image and reputation would be adversely
impacted by non-compliance with the various (patient)
data privacy and (medical) product security laws. Privacy
and product safety issues may arise with respect to
remote access or monitoring of patient data or loss of
data on customers’ systems. Philips Healthcare is further
subject to various data privacy and safety laws. Privacy and
product security issues may arise, especially with respect
to remote access or monitoring of patient data or loss of
data on our customers’ systems, although Philips
Healthcare contractually limits liability, where permitted.
Philips Healthcare operates in a highly regulated product
safety and quality environment. Philips Healthcare’s
products are subject to regulation by various government
agencies, including the FDA (US) and comparable foreign
agencies. Obtaining their approvals is costly and time-
consuming, but a prerequisite for market introduction. A
delay or inability to obtain the necessary regulatory
approvals for new products could have a material adverse
effect on its business. The risk exists that product safety
incidents or user concerns could trigger FDA business
reviews which if failed could lead to business interruption.
6.7 Financial risks
6.7.1 General
Philips is exposed to a variety of treasury risks including
liquidity risk, currency risk, interest rate risk, equity price
risk, commodity price risk, credit risk, country risk and
other insurable risk.
During 2008 Philips re-financed a significant proportion of
its long-term debt commitments, thereby significantly
extending the overall maturity profile of its funding.
Furthermore, additional credit lines were arranged to act
as additional back-up for the liquidity needs of the group.
Further negative developments impacting the global
liquidity markets could affect the ability to raise or re-
finance debt in the capital markets, or could also lead to
significant increases in the cost of such borrowing in the
future. If the market expected a downgrade or
downgrades by the rating agencies, or if such a downgrade
has actually taken place, this could increase our cost of
borrowing, reduce our potential investor base and
negatively affect our business.
Philips is a global company and as a direct consequence the
financial results of the group may be impacted through
currency fluctuations. The majority of the currency risk to
which Philips is exposed relates to transaction exposure
within the business of on-balance and forecasted foreign
currency purchases or sales and translation exposure of
foreign currency denominated financing positions.
Philips is also exposed to interest rate risk particularly in
relation to its long-term debt position; this risk can take
the form of either fair value or cash flow risk. Failure to
effectively hedge this risk can impact Philips’ financial
results.
Philips is exposed to equity price risk through holdings in
publicly listed and other companies. A downturn in equity
markets can materially impact the realizable value of such
securities and can lead to material financial losses and
impairment charges for the Group.
Credit risk of counterparties that have outstanding
payment obligations creates exposure for Philips,
particularly in relation to accounts receivable and liquid
assets and fair values of derivatives and insurance
contracts with financial counterparties. A default by
counterparties in such transactions can have a material
and adverse effect on Philips’ financial condition.
For further analysis, please refer to section 6.7.2, Details
of treasury risks, of this Annual Report.
6 Risk management 6.6 - 6.7.1
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