Philips 2012 Annual Report Download - page 88

7 Risk management 7.3 - 7.3
88 Annual Report 2012
7.3 Strategic risks
As Philips’ business is global, its operations are exposed
to economic and political developments in countries
across the world that could adversely impact its revenues
and income.
Philips’ business environment is influenced by conditions
in the domestic and global economies. Continued
concerns about the macroeconomic environment has
shown its impact on global financial markets during 2012.
It is clear that the Eurozone crisis and the fiscal problems
in the US are still far from being resolved and political
stability and international cooperation remain major
drivers to make further progress. The current
macroeconomic situation and the economic policies in
developed economies continue to point towards reduced
levels of capital expenditures in general, continued
pressure on consumer and business confidence and
increasing unemployment in certain countries. Political
developments, such as healthcare reforms in various
countries (e.g. the US Healthcare Reform) may impose
additional uncertainties by redistributing sector spending,
changing reinbursement models and fiscal changes.
Numerous other factors, such as the fluctuation of energy
and raw material prices, as well as global political conflicts
in North Africa, the Middle East and other regions, could
continue to impact macroeconomic factors and the
international capital and credit markets. Economic and
political uncertainty may have a material adverse impact
on Philips’ financial condition or results of operations and
can also make it more difficult for Philips to budget and
forecast accurately. Philips may encounter difficulty in
planning and managing operations due to unfavorable
political factors, including unexpected legal or regulatory
changes such as foreign exchange import or export
controls, increased healthcare regulation, nationalization
of assets or restrictions on the repatriation of returns
from foreign investments and the lack of adequate
infrastructure. Given that growth geographies are
becoming increasingly important in Philips’ operations,
the above-mentioned risks are also expected to grow and
could have a material adverse effect on Philips’ financial
condition and operating results.
Philips may be unable to adapt swiftly to changes in
industry or market circumstances, which could have a
material adverse impact on its financial condition and
results.
Fundamental shifts in the industry, like the transition from
traditional lighting to LED lighting, may drastically change
the business environment. If Philips is unable to recognize
these changes in good time, is too inflexible to rapidly
adjust its business models, or if circumstances arise, such
as pricing actions by competitors, then could have a
material adverse effect on Philips' growth ambitions
financial condition and operating result.
Philips’ overall performance in the coming years is
dependent on realizing its growth ambitions in growth
geographies.
Growth geographies are becoming increasingly important
in the global market. In addition, Asia is an important
production, sourcing and design center for Philips. Philips
faces strong competition to attract the best talent in tight
labor markets and intense competition from local
companies as well as other global players for market share
in growth geographies. Philips needs to maintain and grow
its position in growth geographies, invest in local talents,
understand developments in end-user preferences and
localize the portfolio in order to stay competitive. If
Philips fails to achieve this, then could have a material
adverse effect on growth ambitions financial condition and
operating result.
Philips may not control joint ventures or associated
companies in which it invests, which could limit the ability
of Philips to identify and manage risks.
Philips has invested or will invest in joint ventures or
associated companies in which Philips will have a non-
controlling interest (e.g. TP Vision). In these cases , Philips
has limited influence over, and limited or no control of,
the governance, performance and cost of operations of
joint ventures or associated companies. Some of these
joint ventures or associated companies may represent
significant investments. The joint ventures and associated
companies that Philips does not control may make
business, financial or investment decisions contrary to
Philips’ interests or decisions different from those which
Philips itself may have made. Additionally, Philips partners
or members of a joint venture or associated company may
not be able to meet their financial or other obligations,
which could expose Philips to additional financial or other
obligations, as well as a material adverse affect on the
value of its investments in those entities or potentially
subject Philips to additional claims.
Acquisitions could expose Philips to integration risks and
challenge management in continuing to reduce the
complexity of the company.
Philips acquisitions may continue to expose Philips in the
future to integration risks in areas such as sales and
service force integration, logistics, regulatory compliance,
information technology and finance. Integration
difficulties and complexity may adversely impact the
realization of an increased contribution from acquisitions.