Philips 2011 Annual Report Download - page 174

35 12 Group financial statements 12.11 - 12.11
174 Annual Report 2011
For an overview of the overall maximum credit exposure of the group’s
financial assets, please refer to note 33, Fair value of financial assets and
liabilities for details of carrying amounts and fair value.
Country risk
Country risk is the risk that political, legal, or economic developments
in a single country could adversely impact our performance. The
country risk per country is defined as the sum of the equity of all
subsidiaries and associated companies in country cross-border
transactions, such as intercompany loans, accounts receivable from
third parties and intercompany accounts receivable. The country risk
is monitored on a regular basis.
As of December 31, 2011, the company had country risk exposure of
EUR 10 billion in Belgium, EUR 9 billion in the United States, and EUR
1.4 billion in China (including Hong Kong). Other countries higher than
EUR 500 million are Japan (EUR 876 million), United Kingdom (EUR
728 million) and the Netherlands (EUR 618 million). Countries where
the risk exceeded EUR 300 million but was less than EUR 500 million
are Germany, Poland and Italy. The degree of risk of a country is taken
into account when new investments are considered. The company does
not, however, use financial derivative instruments to hedge country
risk.
Other insurable risks
Philips is covered for a broad range of losses by global insurance policies
in the areas of property damage/business interruption, general and
product liability, transport, directors’ and officers’ liability, employment
practice liability, crime, and aviation product liability.
The counterparty risk related to the insurance companies participating
in the above mentioned global insurance policies are actively managed.
As a rule Philips only selects insurance companies with a S&P credit
rating of at least A-. Throughout the year the counterparty risk is
monitored on a regular basis.
To lower exposures and to avoid potential losses, Philips has a
worldwide Risk Engineering program in place. The main focus in this
program is on property damage and business interruption risks, which
also include interdependencies. Philips sites, and also a limited number
of sites of key suppliers, are inspected on a regular basis by the Risk
Engineering personnel of the insurer. Inspections are carried out against
predefined Risk Engineering standards which are agreed between
Philips and the insurers. Recommendations are made in a Risk
Management report and are reviewed centrally. This is the basis for
decision-making by the local management of the business as to which
recommendations will be implemented. In 2011 additional focus was
put on assessing natural catastrophe exposures. For all policies,
deductibles are in place, which vary from EUR 250,000 to EUR
2,500,000 per occurrence and this variance is designed to differentiate
between the existing risk categories within Philips. Above this first layer
of working deductibles, Philips operates its own re-insurance captive,
which during 2011 retained EUR 2.5 million per occurrence for
property damage and business interruption losses and EUR 5 million in
the aggregate per year. For general and product liability claims, the
captive retained EUR 1.5 million per claim and EUR 6 million in the
aggregate. New contracts were signed on December 31, 2011, for the
coming year, whereby the re-insurance captive retentions remained
unchanged.
35 Subsequent events
Acquisition of Indal Group
On January 9, 2012, Philips completed the purchase of all outstanding
shares of Indal Group, a Spanish professional luminaires company
mainly focused on outdoor lighting solutions. Philips paid a total net
cash consideration of EUR 210 million. The impact of this acquisition is
not material in respect of IFRS 3 disclosure requirements.
Philips and Sara Lee Corp. agreement on Senseo trademark
On January 26, 2012, Philips announced that it has agreed to extend its
partnership with Sara Lee Corp (Sara Lee) to drive growth in the global
coffee market. Under a new exclusive partnership framework, which
will run through 2020, Philips will be the exclusive Senseo consumer
appliance manufacturer and distributor for the duration of the
agreement. As part of the agreement, Philips will transfer its 50%
ownership right in the Senseo trademark to Sara Lee. Under the terms
of the agreement, Sara Lee will pay Philips a total consideration of EUR
170 million. The consideration for the agreement, which is expected to
close in the first half of 2012, will be recorded as pre-tax earnings.
Divestment of TV Business
On February 22, 2012, the shareholders of TPV Technology Limited
(TPV) approved the strategic partnership with Philips regarding its
Television business. At the end of the first quarter of 2012, Philips will
transfer its Television business to a newly established entity in which
TPV will hold a 70% interest and Philips will hold the remaining 30% of
the shares.