Philips 2010 Annual Report Download - page 112

7 Risk management 7.5 - 7.6
112 Annual Report 2010
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
which in turn could adversely affect Philips’ financial
condition and operating results.
7.6 Financial risks
Philips is exposed to a variety of treasury risks including
liquidity risk, currency risk, interest rate risk, commodity
price risk, credit risk, country risk and other insurable
risk.
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, it could increase our cost of borrowing, reduce our
potential investor base and adversely affect our business.
Philips is exposed to fluctuations in exchange rates,
especially between the US dollar and the euro, because a
high percentage of its business volume is conducted in the
US and as exports from Europe. In addition, Philips is
exposed to currency effects involving the currencies of
emerging markets such as China, India and Brazil.
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
condition and operating results.
Philips’ supply chain is also exposed to fluctuations in
energy and raw material prices. In recent times,
commodities such as oil have been subject to volatile
markets and significant price increases from time to time.
If Philips is not able to compensate for or pass on its
increased costs to customers, such price increases could
have an adverse impact on its financial condition and
operating results.
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
adverse effect on Philips’ financial condition and operating
results.
For further analysis, please refer to note 33.