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Annual Report 2013
Annual Report 2013
Delivering
innovation that
matters to you

Table of contents

  • Page 1
    Annual Report Annual Report 2013 2013 Delivering innovation that matters to you

  • Page 2
    ...improved Group performance Financial performance Social performance Environmental performance Proposed distribution to shareholders Outlook Sector performance Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Risk management Our approach to risk management and business control Risk...

  • Page 3
    ... Social statements Environmental statements Independent assurance report Global Reporting Initiative (GRI) table 4.0 Reconciliation of non-GAAP information Five-year overview Investor Relations Key financials and dividend policy Share information Philips' rating Performance in relation to market...

  • Page 4
    ... attributable to shareholders per common share in euro: - basic - diluted Net operating capital Free cash ï¬,ows Shareholders' equity Employees at December 31 of which discontinued operations 1) 2) 3) 4) Operating cash ï¬,ows in millions of euros 2013 23,329 2,451 10.5 1,000 3,000 2012 23,457...

  • Page 5
    ... EBITA Net operating capital 1,106 9,316 Total sales by business 2013: Healthcare as a % Total sales by business 2013: Consumer Lifestyle as a % Customer Services 26 Imaging Systems 38 Domestic Appliances 47 Health & Wellness 20 Home Healthcare Solutions 14 Patient Care & Clinical Informatics...

  • Page 6
    ... value chains is speeding up the introduction of locally relevant innovations in key markets around the world. Innovations like our EPIQ ultrasound imaging system, our Smart Air Purifier and Airfryer home appliances, and our energy-efficient CityTouch lighting management system. 6 Annual Report...

  • Page 7
    ... solution and the development of the 200 lm/W TLED prototype to replace ï¬,uorescent tube lighting. We also continued to deliver on our EcoVision sustainability commitments in 2013, improving the lives of 1.8 billion people around the globe and hitting our Green Product sales target of 50% of total...

  • Page 8
    ...initiatives 0.20 0 2010 1) 2011 2012 2013 2014 1) Subject to approval by the 2014 Annual General Meeting of Shareholders On behalf of my colleagues on the Executive Committee, I wish to thank all our employees for embracing Accelerate!, helping to build a great company fit for the demands...

  • Page 9
    Accelerate! In 2011 we embarked upon our Accelerate! journey of change and performance improvement. Ultimately, Accelerate! is all about delivering meaningful innovation to our customers in local markets - and doing so faster and better than the competition.

  • Page 10
    ...run through 2017, is made up of five streams designed to: make us more customer focused resource our business/market combinations to win create lean end-to-end customer value chains implement a simpler, standardized operating model drive a growth and performance culture 10 Annual Report 2013

  • Page 11
    ... the continuum of care. Read more on page 13 Faster, more efficient innovation We are transforming our end-to-end value chain to just four Lean-based business models. This is helping us to deliver our innovations to market faster and more efficiently. Read more on page 14 Annual Report 2013 11

  • Page 12
    ... of our company culture continued to pay further dividends in 2013, with our engaged employees driving performance improvement across the organization. Read more on page 16 Increasing our cost productivity As we move toward a single value-added layer above our business and market organizations, we...

  • Page 13
    ... of patient advisors like Alice Reece, Philips and Georgia Regents Medical Center are working to redefine patient and family care. "When I think about the future of healthcare we have to re-think everything: every square foot, every person, every dollar, every resource. And that forces real dynamic...

  • Page 14
    ...to purchase a Philips Sonicare and replacement brush heads at their local drugstore. To present current manual toothbrush users with more alternatives from Philips Sonicare, driving growth in the mid-segment, we created a more accessibly priced proposition, the Philips Sonicare PowerUp. This product...

  • Page 15
    ...LED value chain in China. This has resulted in a broad range of competitively priced façade lighting solutions for the mid-tier market segment in China, with a 40% reduction in time-to-market for new product introductions and a significant increase in on-time delivery. In 2012, market intelligence...

  • Page 16
    ... activities with the organizational development priorities we have set to enable us to deliver on our business strategy. New ï¬,agship learning programs will be introduced early in 2014, and a move to one single learning management system is scheduled for the second half of the year. Transformation...

  • Page 17
    ... shield through a mosaic launched via social media. Over 14,000 individuals took part in the 48 hours ahead of the reveal. On the day itself, over 60 sites around the world hosted simultaneous events linked to a live feed of the unveiling at our head office in Amsterdam. In this way, a highly...

  • Page 18
    ... activities which take place mainly above the level of operational businesses and market organizations. Since then, real progress has been made - with more work to be done over the coming years. The Accelerate! productivity program looked first to benchmarks - to what was currently industry best...

  • Page 19
    ... 2013 results Comparable sales growth EBITA Return on invested capital 4.5% CAGR 2012-2013 10.5% group margin 15.3% Comparable sales growth Net income R&D expenditure 3.3% 2013 â,¬ 1,172 million â,¬ 1,733 million 7.4% of sales Green Product sales Patent families Brand value 51% of total...

  • Page 20
    ... the value we create, as measured by sales growth, profitability and our use of capital: Return on invested capital Lighting Consumer Lifestyle Healthcare Group reported EBITA Our targets for 2016 Comparable sales growth CAGR 2014-2016 4-6% 11-12% 16-17% 11-13% 9-11% >14% 20 Annual Report 2013

  • Page 21
    Building a great company We have what it takes to be a great company, fit for the demands of the 21st century - a compelling mission and vision, a clearly defined strategic direction, and, increasingly, a culture of high performance.

  • Page 22
    ... the world healthier and more sustainable through innovation. Our goal is to improve the lives of 3 billion people a year by 2025. We will be the best place to work for people who share our passion. Together we will deliver superior value for our customers and shareholders. 22 Annual Report 2013

  • Page 23
    ... of many of the longerterm challenges our world faces, we see major opportunities to apply our innovative competencies and create value for our stakeholders. We see a growing need for health care The world's population aged 60 years and older 11% 22% 2000 2050 Annual Report 2013 23

  • Page 24
    ... knowledge of customers, outstanding innovation capabilities, strong brand, global footprint and talented and engaged people - often in value-adding partnerships - to provide solutions that address these needs and challenges and make the world healthier and more sustainable. 24 Annual Report 2013

  • Page 25
    ...ll their ambitions. Engagement supports our culture of growth and performance improvement, reinforcing our goal of being the best place to work for people who share our passion. 2013 Employee Engagement Survey % positive 80 75 72 70 75 0 Highperformance benchmark 2013 Annual Report 2013 25

  • Page 26
    ... sites Assets* 1,439 3,189 37 % 63 % 3 6 947 4 North America Sales* Number of employees Employees female Employees male R&D centers Manufacturing sites Assets* 7,041 29,233 35 % 65% 22 40 10,520 * In millions of euros 2013 R&D centers includes group and sector centers 26 Annual Report 2013

  • Page 27
    Delivering innovation that matters to you At Philips, our mission is to improve people's lives through meaningful innovation. In 2013 we reaffirmed our long-standing commitment to this goal with the launch of our new brand promise.

  • Page 28
    ... customer insights. By understanding the challenges local people face - whether they be a hospital director, a city planner, a doctor or a consumer - we ensure that their actual needs and aspirations drive our innovation efforts. So we can deliver what really matters to them. 28 Annual Report 2013

  • Page 29
    ... Understanding people's needs What matters to you? "Without communication, Ralph and I could have never survived the 64 years." Helen McCurdy Phoenix, USA Discover how an innovative telemedicine program is enabling seniors to continue living at home. Read more on page 32 Annual Report 2013 29

  • Page 30
    "My husband loves fried food. Back then I would tell him, No, it's not good for your health." Dable Kwan Hong Kong Find out how Philips Airfryer is helping people to eat more healthily. Read more on page 33 30 Annual Report 2013

  • Page 31
    "I no longer have to struggle working at the factory." Le Thi Vinh Da Nang, Vietnam See how LED lighting is helping to bring prosperity to the port of Da Nang. Read more on page 34 Annual Report 2013 31

  • Page 32
    ... can catch things earlier, treat things earlier, and intervene in a way that allows me to accomplish what I set out to do as a geriatrician, and ultimately to do some good in these patient's lives." Edward Perrin, MD Geriatric Care Specialist & Medical Director Banner Hospice 32 Annual Report 2013

  • Page 33
    ...Philips Airfryer, ah, what a happy man." "It really makes cooking much easier, much healthier, and much more fun. Now, I'm using less oil, less salt, less everything else. We just had our check-ups and our cholesterol, blood sugar and everything else are at very healthy levels." Annual Report 2013...

  • Page 34
    ... happy that I no longer have to struggle working at the factory. On a Saturday and Sunday it's so much fun to see the show. The bridge is very important to my family and me. My life lit up because the bridge lit up. It has changed our lives for the better." Le Thi Vinh 34 Annual Report 2013

  • Page 35
    ... then bring together our R&D and design expertise and our local business-creation capabilities to address these needs. The locally relevant solutions we develop - often in collaboration with our customers - do not always involve 'new technology'. Instead, they may mean a new application or a unique...

  • Page 36
    ...study by Philips confirmed that comfort is physiologically essential to helping mothers produce lots of milk. Pain, stress or discomfort hampers the release of oxytocin, the hormone responsible for triggering milk production. Philips...that is warm and gentle against the skin. 36 Annual Report 2013

  • Page 37
    ... improving people's lives. Products and solutions that directly support the curative (care) or preventive (well-being) side of people's health, determine the contribution to the social dimension. The contribution to the ecological dimension is determined by means of our Green product portfolio, such...

  • Page 38
    ...our Path to Value. Despite stronger headwinds than initially anticipated, we succeeded in achieving our mid-term 2013 financial targets. We delivered a compound annual growth rate for comparable sales over the period 2012-2013 of 4.5%, compared to our target of 4-6%. We achieved a reported EBITA of...

  • Page 39
    ... by Lighting and Healthcare. • In 2013 we generated EUR 1,138 million of cash ï¬,ow from operating activities, which was EUR 944 million lower than in 2012. The decrease is mainly a result of the payment of the European Commission fine in Q1 2013, increased working capital requirements and the...

  • Page 40
    ... at Customer Services, while Home Healthcare Solutions and Patient Care & Clinical Informatics recorded low-single-digit growth. This was partly offset by a mid-single-digit decline at Imaging Systems. Increases in growth geographies were tempered by a decline in North America and Western Europe...

  • Page 41
    ...Philips Group resulting from cost-saving programs. Restructuring and acquisition-related charges in 2013 were close to zero, compared to EUR 134 million in 2012. 2013 included a past-service pension cost gain of EUR 61 million and a gain on the sale of a business of EUR 21 million. 2012 Healthcare...

  • Page 42
    ...2009 2010 2011 2012 2013 Research and development costs within Healthcare Advertising & Promotion expenses in millions of euros 1,000 decreased by EUR 43 million, mainly due to lower â- -in value----as a % of sales 3.6 841 3.8 882 restructuring activities at Imaging Systems and Patient Care...

  • Page 43
    ...Netherlands and UK decreased, but as Philips does not recognize a surplus in these countries, the net balance sheet position was not impacted. In 2013, major progress was made in managing the financial exposure to defined-benefit plans, such as the changes in the funding of the Dutch pension plan...

  • Page 44
    ... operations, while EUR 196 million related to LG.Philips Displays and was therefore recorded in Results of investments in associates. Results of investments in associates in millions of euros 2011 2012 2013 TPV Chi-Mei Innolux BG Medicine Prime Technology Tendris Gilde III Lighting Science Group...

  • Page 45
    ... Processing activities and certain Healthcare service activities. The Speech Processing activities were sold to Invest AG, in line with our strategy. During 2013, Philips completed several divestments of business activities, mainly related to certain Healthcare activities. Annual Report 2013 45

  • Page 46
    ...of euros 0 (0.5) (5) â- -cash ï¬,ows from operating activities--â- -net capital expenditures 2011 2012 2013 2,500 2,000 1,500 1) For a reconciliation to the most directly comparable GAAP measures, see chapter 14, Reconciliation of non-GAAP information, of this Annual Report 1,931 2,082 Sales...

  • Page 47
    ... consolidated cash ï¬,ow statements1) in millions of euros 2011 2012 2013 Net capital expenditures Net capital expenditures totaled EUR 966 million, which was EUR 511 million higher than in 2012, mainly reï¬,ecting the impact of proceeds received in 2012 from the sale of the High Tech Campus...

  • Page 48
    ... years 2011, 2012 and 2013 are presented below: Condensed consolidated balance sheet information1) in millions of euros 2011 2012 2013 Intangible assets Property, plant and equipment Inventories Receivables Assets held for sale Other assets Payables Provisions Liabilities directly associated with...

  • Page 49
    ... : 108 2011 5 : 95 2012 6 : 94 2013 11 : 89 2009 ratio: 1) (1) : 101 For a reconciliation to the most directly comparable GAAP measures, see chapter 14, Reconciliation of non-GAAP information, of this Annual Report Shareholders' equity and non-controlling interests In 2012, total debt increased...

  • Page 50
    ... revolving credit facility, the Company had access to net available liquid resources of EUR 429 million as of December 31, 2013, compared to EUR 1,220 million one year earlier. Liquidity position in millions of euros 2011 2012 2013 to meet its present working capital requirements. 4.1.23 Cash...

  • Page 51
    ... for details of restructuring provisions and potential cash ï¬,ow impact for 2014 and further. total Long-term debt2) Finance lease obligations Short-term debt Operating leases Derivative liabilities Interest on debt3) Purchase obligations4) Trade and other payables 3,472 241 230 1,017 337 2,421...

  • Page 52
    ... in 2012. More information on this metric can be found in chapter 13, Sustainability statements, of this Annual Report. 4.2.2 Employee engagement Employee engagement is key to our competitive performance. Engaged employees help us meet our business goals and help make Philips a great place to work...

  • Page 53
    ...customers, communities, governments, suppliers and shareholders. Gender diversity in % 100 â- -male -â- -female 1) 1) 43 43 42 28 29 29 18 82 18 82 19 81 13 87 14 86 15 85 72 50 71 71 57 57 58 0 Staff 1) Professionals Management Executives Left to right: 2011, 2012 and 2013...

  • Page 54
    ... 70 57 40 54 Employees per age category in % 70 â- -male -â- -female 1) 20 1) 0 33 33 32 31 31 32 1) Staff Professionals Management Executives Left to right: 2012 and 2013 20 20 21 35 4.2.4 Employment The total number of Philips Group employees (Continued operations) was 114,689 at...

  • Page 55
    ... Philips' vision statement includes the following affirmation: "We will be the best place to work for people who share our passion. Together we will deliver superior value for our customers and shareholders." Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Continuing operations...

  • Page 56
    ... in reported accident rates mainly attributed to active management involvement, launch of a new policy on machine safety improvements and further strengthening of management systems at major sites implementing the "Safety First" program. Lighting initiated a work stream to address Health & Safety...

  • Page 57
    ... GBP, a set of directives has been published, which are applicable to all employees. There are also separate directives which apply to specific categories of employees, e.g. the Supply Management Code of Ethics and Financial Code of Ethics. Details can be found at www.philips.com/gbp. In 2013, we...

  • Page 58
    ... statements, of this Annual Report. 4.2.8 for aging well. As of 2014, the activities of the Center will be merged with our other stakeholder engagement platforms and initiatives across the businesses and markets. Partnering to improve healthcare in Africa In November 2013, Philips and...

  • Page 59
    ...to engage and support our suppliers on a shared journey towards continuous improvement in supply chain sustainability. Social Investment Programs In 2013, we continued to develop and localize our global social investment program, SimplyHealthy@Schools. In Brazil, 230 employees from Philips offices...

  • Page 60
    ... rate of 77% (2012: 75%). Please refer to sub-section 13.2.2, Supplier indicators, of this Annual Report for the detailed findings of 2013. In 2013, Philips conducted 200 full-scope audits, including four joint audits conducted on behalf of Philips and other EICC member companies. Additionally...

  • Page 61
    ... levels of our supply chain. Therefore Philips continued its active contribution to the Conï¬,ict Free Sourcing Initiative, a joint effort of the EICC and GeSI and others to positively inï¬,uence the social and environmental conditions in the metals extractives supply chain. To assist in developing...

  • Page 62
    ...-section 13.2.2, Supplier indicators, of this Annual Report. 4.3 Environmental performance EcoVision Philips has a long sustainability history stretching all the way back to our founding fathers. In 1994 we launched our first program and set sustainability targets for our own operations. Next we...

  • Page 63
    ... locations, and LED solutions for agricultural applications supporting biodiversity. Philips Group Innovation 0 Healthcare Philips Healthcare develops innovative solutions across the continuum of care in collaborating with clinicians and customers to improve patient outcomes, provide better value...

  • Page 64
    ...by the average annual operating hours and the annual pieces sold and then dividing the light output (lumens) by the energy consumed (watts). The average energy efficiency of our total product portfolio improved some 2% in 2013 (19% compared to 2009). In 2013 LED sales continued to advance well, but...

  • Page 65
    ... statements, of this Annual Report. Carbon footprint and energy efficiency Healthcare During 2013, Healthcare expanded the Green Product portfolio with 13 new products to improve patient outcomes, provide better value, and expand access to care, while reducing environmental impact. Philips...

  • Page 66
    ... euro sales in 2013 as a result of intensified industrial activities, increased business travel and increased logistics activities. Water Total water intake in 2013 was 5.0 million m3, about 4% higher than in 2012. This increase was mainly due to a new acquisition in China that started to report...

  • Page 67
    ... of the Supervisory Board. A proposal will be submitted to the 2014 Annual General Meeting of Shareholders to declare a dividend of EUR 0.80 per common share (up to EUR 740 million), in cash or in shares at the option of the shareholder, against the net income for 2013. Shareholders will be given...

  • Page 68
    ...,204 was paid in cash. For additional information, see chapter 16, Investor Relations, of this Annual Report. The balance sheet presented in this report, as part of the Company financial statements for the period ended December 31, 2013, is before appropriation of the result for the financial year...

  • Page 69
    ... regional management organizations support the creation of value, connecting Philips with key stakeholders, especially our employees, customers, government and society. Additionally, the global shared business services for procurement, finance, human resources, IT and real estate are reported in...

  • Page 70
    ... to the most directly comparable GAAP measures, see chapter 14, Reconciliation of non-GAAP information, of this Annual Report Sales per operating sector 2013 in millions of euros Employees per operating sector 2013 in FTEs at year-end Lighting 8,413 Healthcare 9,575 Healthcare 37,008 Lighting...

  • Page 71
    ... and more effectively than ever before." Deborah DiSanzo, CEO Philips Healthcare • By focusing on innovations in key areas across the continuum of care and aligning our resources with customers and clinicians, we continue to provide solutions that offer more value while helping lower the cost of...

  • Page 72
    ... *In January 2014 the Healthcare Informatics Solutions & Services business group was established. This business group is focusing on a common digital healthcare platform, advanced informatics and big data analytics, and world-class integration and consulting services. Total sales by business 2013 as...

  • Page 73
    ... of resource-intensive patient populations requires integrated solutions. By leveraging our leadership in telehealth technology and care coordination, we implemented new Hospital to Home programs with Banner Health in the US and opened eICUs with Guy's and St Thomas' Hospitals in the UK. 2013 also...

  • Page 74
    ... effect, comparable sales increased by 1%. Customer Services achieved solid mid-singledigit growth. Home Healthcare Solutions and Patient Care & Clinical Informatics both posted low-single-digit growth, while Imaging Systems recorded a mid-singledigit decline. Green Product sales amounted to EUR...

  • Page 75
    ...health care systems. Philips Healthcare continues to help increase the number of lives improved annually around the globe by developing solutions that improve access to care, while at the same time respecting the boundaries of natural resources. In 2013 we introduced 13 new Green Products to support...

  • Page 76
    ... daily activities such as sleeping, walking. This pain can be really debilitating." "If we have patients with cancer that don't need to be treated anymore with the surgical scalpel and leave a day after treatment in a good clinical condition, that would be a really major shift in health care and...

  • Page 77
    ... daily lives. At Philips Consumer Lifestyle we are driving profitable growth, by taking global innovations and bringing them to market in a way that is highly locally relevant. We are empowering millions of consumers to make healthier choices every day, in areas such as oral healthcare, nutrition...

  • Page 78
    ... childcare, oral healthcare, pain management • Personal Care: male grooming, beauty • Domestic Appliances: kitchen appliances, coffee, garment care, ï¬,oor care, air purification *Philips had reached an agreement to transfer the Audio, Video, Multimedia and Accessories (AVM&A) business to Funai...

  • Page 79
    ..., of this Annual Report. 5.2.3 2013 financial performance Key data in millions of euros unless otherwise stated 2011 2012 2013 Sales Sales growth % increase (decrease), nominal % increase (decrease), comparable1) EBITA 1) as a % of sales EBIT as a % of sales Net operating capital (NOC) 1) 3,771...

  • Page 80
    ... 142 516 1,200 1,532 1,954 2,187 2,500 0 5.2.6 Delivering innovation that matters to you 2009 2010 2011 2012 2013 Sales and net operating capital in billions of euros 6 â- -Sales----NOC 1.2 4.3 1.3 4.6 3 0.7 2.9 0.9 3.3 0.9 3.8 0 2009 2010 2011 2012 2013 80 Annual Report 2013

  • Page 81
    ... with Philips SensoTouch Jialing Jin's family means the world to him. And he wants them to know it. When he shaves with a Philips SensoTouch 3D, he feels more confident and his family feels the difference. "I... confidence, and with that I am able to enjoy a full life." Annual Report 2013 81

  • Page 82
    ...our customers to realize the benefits of intelligent connected lighting, serving both consumers and the growing professional market for integrated systems and services." Eric Rondolat, CEO Philips Lighting • The lighting industry is undergoing a radical transformation. • The lighting market is...

  • Page 83
    .... Finally, we offer specific applications of lighting in specialized areas, such as horticulture and water purification. Philips Lighting spans the entire lighting value chain - from light sources, luminaires, electronics and controls to application-specific systems and services - through the...

  • Page 84
    ... Products (EuP) and Energy Performance of Buildings (EPBD) directives. Total sales by business 2013 as a % Lumileds 5 Automotive 10 Professional Lighting Solutions 28 Light Sources & Electronics 52 2013 financial performance Key data in millions of euros unless otherwise stated 2011 2012 2013...

  • Page 85
    ...Sources & Electronics recorded low-single-digit growth, while comparable sales at Professional Lighting Solutions were in line with 2012. Consumer Luminaires showed a low-single-digit decline. Cash ï¬,ows before financing activities increased from EUR 279 million in 2012 to EUR 478 million, mainly...

  • Page 86
    ... our total product portfolio improved from 37.9 to 38.5 lumens per watt in 2013. Within the Green Operations 2015 program, we are on track to meet our commitments to reduce Lighting's environmental footprint. By using energy from renewable sources and implementing energy-saving programs in our major...

  • Page 87
    5 Sector performance 5.3.6 - 5.3.6 An inspired home: lighting up a little girl's day Meet a London couple who use Philips Hue lighting to create a happy and inspiring environment for their daughter, Elena. .... It makes for a much more engaging and fun day for us and for her." Annual Report 2013 87

  • Page 88
    ... the activities of Group Innovation, Group headquarters, including country and regional management, and certain costs of pension and other post-retirement benefit plans. Additionally, the global shared business services for procurement, finance, human resources, IT and real estate are reported in...

  • Page 89
    ...to current LED lamps. In the area of Healthcare, Philips Research co-created innovative imaging solutions with improved ultrasound, MRI and X-ray results. In the case of X-ray, the Philips AlluraClarity system provides industry-leading visibility for live image guidance at low X-ray dose levels. The...

  • Page 90
    ...activities in Imaging Systems and Patient Care & Clinical Informatics. While PIC originally started as a software center, it has since developed into a broad product development center (including mechanical, electronics, and supply chain capabilities). Several Healthcare businesses have also located...

  • Page 91
    ..., and Key data in millions of euros unless otherwise stated 2011 2012 2013 represent costs related to deferred pensioners covered by company plans. In 2013, EBITA was impacted by a EUR 31 million settlement loss arising from a lump-sum offering to terminated vested employees in our US pension plan...

  • Page 92
    ..., of this Annual Report. Risk management forms an integral part of the business planning and review cycle. The company's risk and control policy is designed to provide reasonable assurance that objectives are met by integrating management control into the daily operations, by ensuring compliance...

  • Page 93
    ...Executive Committee via the Quarterly Certification Statement process. In June 2013, as part of the global GBP communications Philips General Business Principles The Philips General Business Principles (GBP) govern Philips' business decisions and actions throughout the world, applying to corporate...

  • Page 94
    ... financial and principal accounting officer), and to the heads of the Group Control, Group Treasury, Group Fiscal and Group Internal Audit departments of the Company. The Company has published its Financial Code of Ethics within the investor section of its website located at www.philips.com. No...

  • Page 95
    ... privacy/Product security Financial • Treasury • Tax • Pensions • Accounting and reporting Corporate Governance Philips Business Control Framework Philips General Business Principles Taking risks is an inherent part of entrepreneurial behavior. A structured risk management process allows...

  • Page 96
    ... and monetary policy continues to provide uncertainty on the levels of capital expenditures in general, unemployment levels and consumer and business confidence, which could adversely affect demand for products and services offered by Philips. Political developments, such as healthcare reforms in...

  • Page 97
    ... program (Accelerate!) to unlock Philips' full potential. Accelerate! spans a time period of several years. Failure to achieve the objectives of the transformation programs may have a material adverse effect on the mid and long term financial targets. 6.4 Operational risks Annual Report 2013...

  • Page 98
    ... to replace a supplier that is not able to meet its demand. Shortages or delays could materially harm its business. Most of Philips' activities are conducted outside of the Netherlands, and international operations bring challenges. For example, production and procurement of products and parts in...

  • Page 99
    ...or social nature, or connected to the behavior of individual employees or suppliers and could relate to adherence to regulations related to labor, health and safety, environmental and chemical management. Reputational damage could materially impact Philips' financial condition and operating results...

  • Page 100
    ... and safety laws. In Philips Healthcare, privacy and product safety and security issues may arise, especially with respect to remote access or monitoring of patient data or loss of data on our customers' systems. Philips operates in a highly regulated product safety and quality environment. Philips...

  • Page 101
    ... increased costs to customers, such price increases could have an adverse impact on its financial condition and operating results. Philips is 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 ï¬,ow risk...

  • Page 102
    .... Important critical reporting risk areas identified within Philips following the risk assessment are: • complex accounting for sales-related accruals, warranty provisions, tax assets and liabilities, pension benefits, and business combinations • complex sales transactions relating to multi...

  • Page 103
    ... of Management and Executive Committee are published on the Company's website (www.philips.com/investor). Koninklijke Philips N.V. and is answerable to shareholders at the Annual General Meeting of Shareholders. Pursuant to the two-tier corporate structure, the Board of Management is accountable for...

  • Page 104
    7 Management 7 - 7 From top to bottom, from left to right: Frans van Houten, Ron Wirahadiraksa, Deborah DiSanzo, Ronald de Jong, Jim Andrew, Pieter Nota, Eric Coutinho, Eric Rondolat, Carole Wainaina, Patrick Kung 104 Annual Report 2013

  • Page 105
    ... Philips N.V. and advises the executive management thereon. The Supervisory Board, in the two-tier corporate structure under Dutch law, is a separate and independent corporate body. The Rules of Procedure of the Supervisory Board are published on the Company's website. For details on the activities...

  • Page 106
    8 Supervisory Board 8 - 8 From top to bottom, from left to right: Neelam Dhawan, Jackson Tai, Ewald Kist, Heino von Prondzynski, Christine Poon, James Schiro, Kees van Lede, Jeroen van der Veer 106 Annual Report 2013

  • Page 107
    ... year 2013 and other relevant information on its functioning. The Supervisory Board also conducted a number of reviews of the company's operations in markets, including in China, Middle-East and Turkey, and Africa. Moreover, the North American Market (including the activities of the Sectors and key...

  • Page 108
    ... to be independent pursuant to the Dutch Corporate Governance Code. We will continue to pay close attention to applicable independence criteria. The Supervisory Board currently consists of eight members. The agenda for the upcoming 2014 Annual General Meeting of Shareholders includes the proposal to...

  • Page 109
    ... Information • (Re)appointment scheme Financial Statements 2013 The financial statements of the company for 2013, as presented by the Board of Management, have been audited by KPMG Accountants N.V. as independent external auditor appointed by the General Meeting of Shareholders. Its reports...

  • Page 110
    ... Executive Committee and Supervisory Board. Under its responsibility for the selection criteria and appointment procedures for Philips' senior management, the Committee reviewed the succession plans for top 70 positions and emergency candidates for key roles in the company. With respect to corporate...

  • Page 111
    ... targets is given in the chapters on the Annual Incentive and the Long-Term Incentive Plan respectively. Contracts The main elements of the contracts of the members of the Board of Management are made public no later than the date of the notice convening the General Meeting of Shareholders...

  • Page 112
    ...% of base pay (the CEO 300%). Until this level has been reached the members of the Board of Management are required to retain all after-tax shares derived from any long-term incentive plan. 9.2.3 9.2.4 Remuneration costs The table below gives an overview of the costs incurred by the Company in the...

  • Page 113
    ... members of the Board of Management at 100% of base salary. This is at a mid-market level against leading European listed companies. The actual number of performance shares to be awarded is determined by reference to the average of the closing price of the Philips share on the day of publication...

  • Page 114
    ... 1) Accelerate! Grant reported separately. Dividend performance shares resulting from the new LTI Plan not included Stock options2) in euros number of stock options value at grant date end of lock up period value at end of lock up period3) grant date F.A. van Houten 2010 2011 2012 20,4001) 75...

  • Page 115
    ...mid-term targets as announced in 2011. As a consequence the total number of shares and options under the Accelerate! Grant, as these were originally granted in January 2013, became unconditional. On January 28, 2014 the shares (after tax) have been delivered to the members of the Board of Management...

  • Page 116
    ... other company employees, such as the Group Treasurer, the Group Controller and Head of Financial Risk and Pensions Management. dividends, The Committee also reviewed the goodwill impairment test performed in the second quarter, risk management, tax issues, IT strategy and transformation (including...

  • Page 117
    ... selection in 2014 of such future auditor, subject to appointment by the 2015 Annual General Meeting of Shareholders. During each Audit Committee meeting, the Committee reviewed the report from the external auditor in which the auditor set forth its findings and attention points during the relevant...

  • Page 118
    ... its investor relations policy, has strengthened the accountability of its executive management and its independent supervisory directors, and has increased the rights and powers of shareholders and the communication with investors. The Company is required to comply with, inter alia, Dutch Corporate...

  • Page 119
    ... Plan ('LTI Plan') consisting of a mix of restricted shares rights and stock options for members of the Board of Management, Philips executives and other key employees. A fully revised LTI Plan applicable to members of the Board of Management was approved by the 2013 General Meeting of Shareholders...

  • Page 120
    ... Group financial statements, of this Annual Report, as required by applicable Dutch company law and securities law. 10.2 Supervisory Board Introduction The Supervisory Board supervises the policies of the Board of Management and Executive Committee and the general course of affairs of Philips and...

  • Page 121
    ... has been overruled, the General Meeting of Shareholders shall be free to appoint a board member. There is no age limit applicable, and members may be re-elected twice. The date of expiration of the terms of Supervisory Board members is published on the Company's website. Individual data on the...

  • Page 122
    ... and the General Business Principles (GBP). It reviews the Company's annual and interim financial statements, including nonfinancial information, prior to publication and advises the Supervisory Board on the adequacy and appropriateness of internal control policies and internal audit programs and...

  • Page 123
    ... of Association and Dutch law and in the manner as described in this corporate governance report. The Board of Management and Supervisory Board are also accountable, at the Annual General Meeting of Shareholders, for the policy on the additions to reserves and dividends (the level and purpose...

  • Page 124
    .... The annual financial statements are presented for discussion and adoption to the Annual General Meeting of Shareholders, to be convened subsequently. The Company, under US securities regulations, separately files its Annual Report on Form 20-F, incorporating major parts of the Annual Report as...

  • Page 125
    ...the Annual General Meeting of Shareholders, Philips elaborates its financial results during (public) conference calls, which are broadly accessible. It publishes informative annual, semi-annual and quarterly reports and press releases, and informs investors via its extensive website. The Company is...

  • Page 126
    ...of cash ï¬,ows Consolidated statements of changes in equity Notes 130 131 132 134 136 137 189 128 128 128 129 11.10 Independent auditor's report - Group 12 12.1 12.2 12.3 12.4 12.5 13 13.1 13.2 13.3 13.4 13.5 Company financial statements Balance sheets before appropriation of results Statements of...

  • Page 127
    ...7 Company financial statements 137 145 148 149 150 153 154 Significant accounting policies Information by sector and main country Income from operations Financial income and expenses Income taxes Interests in entities Discontinued operations and other assets classified as held for sale Earnings...

  • Page 128
    ... Act The Board of Management of Koninklijke Philips N.V. (the Company) is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the US Securities Exchange Act). Internal control over financial...

  • Page 129
    ... with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Koninklijke Philips N.V. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, cash ï¬,ows, and changes in...

  • Page 130
    ... stated Consolidated statements of income of the Philips Group for the years ended December 31 2011 2012 2013 Sales Cost of sales 20,992 (12,732) 23,457 (14,466) 23,329 (13,641) Gross margin 8,260 8,991 9,688 Selling expenses General and administrative expenses Research and development...

  • Page 131
    ... to: Shareholders Non-controlling interests (1,770) 4 (243) 5 760 3 The Consolidated statements of comprehensive income have been restated for the adoption of IAS 19R, which mainly relates to pension reporting (see note 30, Postemployment benefits). The accompanying notes are an integral part of...

  • Page 132
    11 Group financial statements 11.6 - 11.6 11.6 Consolidated balance sheets in millions of euros unless otherwise stated Consolidated balance sheets of the Philips Group as of December 31 Assets 2012 Non-current assets 2013 10 25 Property, plant and equipment: - At cost - Less accumulated ...

  • Page 133
    ... Discontinued operations and other assets classified as held for sale) and the adoption of IAS 19R, which mainly relates to accounting for pensions (see note 30, Post-employment benefits). The accompanying notes are an integral part of these consolidated financial statements. Annual Report 2013...

  • Page 134
    11 Group financial statements 11.7 - 11.7 11.7 Consolidated statements of cash ï¬,ows in millions of euros Consolidated statements of cash ï¬,ows of the Philips Group for the years ended December 31 2011 Cash ï¬,ows from operating activities Net income (loss) Result of discontinued operations - ...

  • Page 135
    ... 7, Discontinued operations and other assets classified as held for sale) and the adoption of IAS 19R, which mainly relates to accounting for pensions (see note 30, Post-employment benefits). The accompanying notes are an integral part of these consolidated financial statements. For a number of...

  • Page 136
    ... of euros unless otherwise stated Consolidated statements of changes in equity of the Philips Group currency translation differences available-forsale financial assets total shareholders' equity common share capital in excess of par value retained earnings revaluation reserve cash ï¬,ow...

  • Page 137
    ...euros, which is the Company's presentation currency. On February 25, 2014, the Board of Management authorized the Consolidated financial statements for issue. The Consolidated financial statements as presented in this report are subject to the adoption by the Annual General Meeting of Shareholders...

  • Page 138
    ... from the sale or issuance of stock by a consolidated subsidiary or an associate in the Statement of income, unless the Company or the subsidiary either has reacquired or plans to reacquire such shares. In such instances, the result of the transaction is recorded directly in equity. Dilution gains...

  • Page 139
    ... or loss accumulated in equity is reclassified to the Statement of income. Available-for-sale financial assets including investments in privately-held companies that are not associates, and do not have a quoted market price in an active market and whose fair value could not be reliably determined...

  • Page 140
    ... useful lives. Intangible assets acquired as part of a business combination are capitalized at their acquisition-date fair value. The Company expenses all research costs as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production...

  • Page 141
    ... of an operating segment. Cash ï¬,ows at this level are substantially independent from other cash ï¬,ows and this is the lowest level at which goodwill is monitored by the Executive Committee. The Company performed and completed annual impairment tests in the same quarter of all years presented in...

  • Page 142
    ... in the Statement of income except to the extent that it relates to items recognized directly within equity or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially-enacted at the reporting date, and any...

  • Page 143
    ... certain assets and liabilities, in which case such items are not presented as part of assets/liabilities held for sale, even though the associated item in the Statement of income would be presented as part of discontinued operations. The presentation of cash ï¬,ows relating to such items in that...

  • Page 144
    ... the asset ceiling test regarding the Dutch pension plan's surplus, and hence there is no further impact on the Company's balance sheet figures other than the direct recognition of previously unrecognized past service cost. The impact on Equity from the IAS 19 (2011) accounting policy change is as...

  • Page 145
    ...euros Information by sector and main country Sectors sales including intercompany research and development expenses income from income from operations as a % of sales operations cash ï¬,ow before financing activities sales 2013 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services...

  • Page 146
    ...nancial statements 11.9 - 11.9 Sectors net operating capital total liabilities excl. debt current accounts receivable, net tangible and intangible assets depreciation and amortization1) capital expenditures total assets 2013 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services 10...

  • Page 147
    11 Group financial statements 11.9 - 11.9 Main countries sales1) tangible and intangible assets 2013 Netherlands United States China Germany Japan France United Kingdom Other countries 656 6,442 2,942 1,355 1,006 915 692 9,321 23,329 Assets classified as held for sale 915 7,384 1,057 288 401 80 ...

  • Page 148
    ... geographical and sector basis, see note 2, Information by sector and main country. Employees The average number of employees by category is summarized as follows (in FTEs): 2011 2012 2013 Sales and costs by nature 2011 2012 2013 Production Research and development Sales 20,992 23,457 23,329 Other...

  • Page 149
    ... mainly due to sale of real estate assets. In 2013, result on other remaining businesses were mainly due to release of earn out provisions. For further information, see note 21, Provisions. Fees KPMG 2011 2012 2013 Audit fees - consolidated financial statements - statutory financial statements...

  • Page 150
    ... Group financial statements 11.9 - 11.9 the sale of shares in TCL and EUR 6 million resulted from the sale of Digimarc. Remaining financial income included dividend income of EUR 11 million and a total net EUR 6 million gain from fair value changes, mainly the revaluation of the NXP option. Total...

  • Page 151
    11 Group financial statements 11.9 - 11.9 Deferred tax assets and liabilities Net deferred tax assets relate to the following balance sheet captions and tax loss carryforwards (including tax credit carryforwards), of which the movements during the years 2013 and 2012 respectively are as follows: ...

  • Page 152
    ... correct implementation of the transfer pricing directives. Tax uncertainties on general service agreements and specific allocation contracts Due to the centralization of certain activities in a limited number of countries (such as research and development, centralized IT, group functions and head...

  • Page 153
    ... Balance as of January 1, 2013 Changes: Sales/Redemption Reclassifications Share in income Dividends declared Translation and exchange rate differences Balance as of December 31, 2013 177 (2) (7) 5 (6) (6) 161 Interests in subsidiaries Wholly owned subsidiaries The Group financial statements...

  • Page 154
    ... for sale in the Consolidated balance sheet. The following table summarizes the results of the AVM&A business included in the Consolidated statements of income as discontinued operations. 2011 2012 2013 Non-transferrable balance sheet positions, such as certain accounts receivable, accounts payable...

  • Page 155
    ... in 2013 (2012: a result of EUR nil million; 2011: a net gain of EUR 27 million). Other assets classified as held for sale On July 1, 2013, Philips announced to transfer certain assets and cash proceeds from the sale of certain assets to the Dutch pension plan. In total EUR 94 million of related...

  • Page 156
    ...on Group Sales, Income from operations, Net income and Net income per common share (on a fully diluted basis) are not material in respect of IFRS 3 disclosure requirements. Philips completed five divestments of business activities during 2013, mainly related to certain Healthcare service activities...

  • Page 157
    ... 2011, Philips entered into six acquisitions. These acquisitions involved an aggregated purchase price of EUR 498 million and have been accounted for using the acquisition method. Measured on an annualized basis, the aggregated impact of the six acquisitions on group Sales, Income from operations...

  • Page 158
    ... January 1, 2012: Cost Accumulated depreciation Book value Change in book value: Capital expenditures Assets available for use Acquisitions Disposals and sales Depreciation Impairments Transfer to assets classified as held for sale Reclassifications Translation differences Total changes Balance as...

  • Page 159
    ...2012 2013 Cash ï¬,ow projections of Respiratory Care & Sleep Management, Imaging Systems, Patient Care & Clinical Informatics and Professional Lighting Solutions for 2013 were based on the following key assumptions (based on the annual impairment test performed in the second quarter): in % Balance...

  • Page 160
    ... basis points decline in the compound long-term sales growth rate or a 38% decrease in terminal value would cause its value in use to fall to the level of its carrying value. The goodwill allocated to Home Monitoring at December 31, 2013 amounts to EUR 35 million. Based on the annual impairment test...

  • Page 161
    ... operations. The impairment charges in 2012 for other intangibles mainly relates to brand names in Professional Lighting Solutions. As part of the rationalization of the go-to-market model in Professional Lighting Solutions, the Company decided to discontinue the use of several brands which resulted...

  • Page 162
    ... assets of the UK Pension Fund. The purchase agreement with the UK Pension Fund includes an arrangement that may entitle Philips to a cash payment from the UK Pension Fund on or after September 7, 2014, if the total value yielded by the NXP shares has increased by this date to a level in excess of...

  • Page 163
    ... cash dividend resulted in a payment of EUR 272 million. The following table shows the movements in the outstanding number of shares; Total cost In order to reduce share capital, the following transactions took place: 2012 2013 Shares acquired Average market price Amount paid Reduction of capital...

  • Page 164
    ... and net cash from investing activities, are presented separately to facilitate the reader's understanding of the Company's funding requirements. NOC composition 2011 2012 2013 Intangible assets Property, plant and equipment Remaining assets Provisions Other liabilities Net operating capital 11...

  • Page 165
    ... and unpaid interest, if any. Adjustments relate to issued bond discounts, transaction costs and fair value adjustments for interest rate derivatives Secured liabilities In 2013, none of the long-term and short-term debt was secured by collateral (2012: EUR nil million). Annual Report 2013 165

  • Page 166
    ... relates to longer-term remediation activities. The changes in this provision are as follows: 2011 2012 2013 Provisions for defined-benefit plans (see note 30) Other postretirement benefits (see note 30) Postemployment benefits and obligatory severance payments Product warranty Environmental...

  • Page 167
    ... in Home Healthcare Solutions, Imaging Systems and Patient Care & Clinical Informatics in various locations in the United States to reduce the operating costs and simplify the organization. Consumer Lifestyle restructuring charges mainly relate to our remaining Television operations in Europe...

  • Page 168
    ...years are presented, including their short-term portion The long-term operating lease commitments are mainly related to the rental of buildings. A number of these leases originate from sale-andleaseback arrangements. Operating lease payments under sale-andleaseback arrangements for 2013 totaled EUR...

  • Page 169
    ... amounted to less than EUR 1 million. The following table outlines the total outstanding off-balance sheet credit-related guarantees and business-related guarantees provided by Philips for the benefit of unconsolidated companies and third parties as at December 31, 2013. Annual Report 2013 169

  • Page 170
    ... US and Europe relating to the ODD market. Where relevant, the Company is cooperating with the authorities. Subsequent to the public announcement of these investigations in 2009, the Company, PLDS and Philips & Lite-On Digital Solutions USA, Inc. (PLDS USA), among other industry participants, were...

  • Page 171
    ...ows resulting from investing activities. In 2012, the cash outï¬,ow was mainly due to loans provided to TPV Technology Limited and TP Vision venture in connection with the divestment of the Television business (EUR 151 million in aggregate). In 2011, the sale of Philips' interest in TCL Corporation...

  • Page 172
    ... contains the total of current- and past service costs, admin costs and settlement results as included in operating cost and the interest cost as included in financial income and expense. 2011 2012 2013 Defined-benefit plans: Pensions Defined-benefit plans included in operating cost included...

  • Page 173
    ... mainly related to the buy-in value in the UK plan. Plan assets in 2013 do not include property occupied by or financial instruments issued by the Company Assumptions The mortality tables used for the Company's major schemes are Netherlands: Prognosis table 2012-2062 including experience rating...

  • Page 174
    ...real estate case has been closed. 31 Share-based compensation The purpose of the share-based compensation plans is to align the interests of management with those of shareholders by providing incentives to improve the Company's performance on a long-term basis, thereby increasing shareholder value...

  • Page 175
    ... a group of approximately 500 key employees below the level of Board of Management in January 2012 and to the Board of Management in January 2013. In May 2013 a new long-term incentive plan was approved at the Annual General Meeting of Shareholders granting performance shares to members of the Board...

  • Page 176
    ...! program, which were based on the 2013 mid-term financial targets, have been met. Restricted and Accelerate! shares The fair value of restricted and Accelerate! shares is equal to the fair value of the share at grant date less the present value, using the risk-free interest rate, of dividends...

  • Page 177
    ... of 2.3 years. Other plans Employee share purchase plan Under the terms of employee stock purchase plans established by the Company in various countries, substantially all employees in those countries are eligible to purchase a limited number of Philips shares at discounted prices through payroll...

  • Page 178
    ... parties. 2011 2012 2013 Remuneration costs of the Executive Committee in euros 2012 2013 Salary Sales of goods and services Purchases of goods and services 278 117 288 130 305 143 Annual incentive1) Performance shares2) Stock options2) Receivables from related parties Payables to related parties...

  • Page 179
    11 Group financial statements 11.9 - 11.9 Remuneration costs of individual members of the Board of Management in euros annual incentive1) performance shares2) stock options2) restricted share rights2) pension costs other compensation3) salary 20134) F.A. van Houten R.H. Wirahadiraksa P.A.J. Nota...

  • Page 180
    ...of the holding of the members of the Board of Management under the performance share plans, restricted share rights plan and the stock option plans of the Company: Number of performance shares (holdings) awarded dividend shares 2013 January 1, 2013 awarded 2013 December 31, 2013 F.A. van Houten...

  • Page 181
    ... further information on performance shares, stock options and restricted share rights as well subsection 9.2.7, Long-Term Incentive Plan, of this Annual Report. The accumulated annual pension entitlements and the pension costs of individual members of the Board of Management are as follows (in euros...

  • Page 182
    ... in Philips shares Members of the Supervisory Board and of the Board of Management are not allowed to hold any interests in derivative Philips securities. 34 Fair value of financial assets and liabilities The estimated fair value of financial instruments has been determined by the Company using...

  • Page 183
    .... The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency...

  • Page 184
    ... and long term basis. Group Treasury invests surplus cash in money market deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due. The rating of the Company's debt by major rating services may improve or deteriorate. As a result, Philips' future...

  • Page 185
    ... of on-balance-sheet accounts receivable/ payable and forecasted sales and purchases. Changes in the value of onbalance-sheet foreign-currency accounts receivable/payable, as well as the changes in the fair value of the hedges related to these exposures, are reported in the income statement under...

  • Page 186
    ... companies amounting to EUR 50 million. As a result, Philips is exposed to potential value adjustments. As part of the sale of shares in NXP to Philips Pension Trustees Limited there was an arrangement that may entitle Philips to a cash payment from the UK Pension Fund on or after September 7, 2014...

  • Page 187
    ... payment, which Philips has accounted for in the fourth quarter of 2013 under Results relating to investments in associates (see note 6, Interests in entities). LTI coverage program To cover Philips' outstanding obligations resulting from past and present long-term incentive and employee stock...

  • Page 188
    11 Group financial statements 11.9 - 11.9 The LTI coverage program is over and above the existing EUR 1.5 billion share repurchase program for cancellation purposes which started on October 21, 2013. 188 Annual Report 2013

  • Page 189
    ...we report that the Management report to the extent we can assess, is consistent with the consolidated financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code. Amsterdam, The Netherlands February 25, 2014 KPMG Accountants N.V. J.F.C. van Everdingen RA Annual Report 2013 189

  • Page 190
    ...ficant accounting policies. Investments in group companies are accounted for using the equity method in these Company financial statements. Presentation of Company financial statements The structure of the Company balance sheets is aligned with the Consolidated balance sheets in order to achieve...

  • Page 191
    ...: 937,845,789 shares (2012: 957,132,962 shares) Capital in excess of par value Legal reserve: revaluation Legal reserve: available-for-sale financial assets Legal reserve: cash ï¬,ow hedges Legal reserve: affiliated companies Legal reserve: currency translation differences Retained earnings 191...

  • Page 192
    ...legal reserves availablefor-sale financial assets common shares capital in excess of par value revaluation cash ï¬,ow hedges affiliated companies currency translation differences retained earnings net income treasury shares at cost shareholders' equity Balance as of January 1, 2013 191...

  • Page 193
    ... assets of the UK Pension Fund. The purchase agreement with the UK Pension Fund includes an arrangement that may entitle Philips to a cash payment from the UK Pension Fund on or after September 7, 2014, if the total value yielded by the NXP shares has increased by this date to a level in excess of...

  • Page 194
    ... of the UK Pension Fund. The change in fair value in 2013 is reported under Value adjustments in the table above. are accounted for as a reduction of shareholders' equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When issued, shares are removed...

  • Page 195
    ...liated companies. I Employees The number of persons employed by the Company at year-end 2013 was 10 (2012: 10) and included the members of the Board of Management and certain leaders from functions, businesses and markets, together referred to as the Executive Committee. Annual Report 2013 195

  • Page 196
    ... payment, which Philips has accounted for in the fourth quarter of 2013 under Results relating to investments in associates (see note 6, Interests in entities). LTI coverage program To cover Philips' outstanding obligations resulting from past and present long-term incentive and employee stock...

  • Page 197
    ... on and by Philips through our operations and products/solutions. This is a dynamic process, as we continuously monitor the world around us. We develop our policies and programs based on our findings. The results have been reviewed and approved by the Sustainability Board. Annual Report 2013 197

  • Page 198
    ... Use phase - Expanding middle class in growth geographies Use phase - Responsible Supply Chains (inc. human rights) Supply chain - Demographic shift and urbanization Use phase - Conï¬,ict minerals Supply chain - Employee health and safety Supply chain, operations 198 Annual Report 2013

  • Page 199
    ... statements, of this Annual Report Boundaries - Privacy and on-line sales Operations, use phase - Business ethics and General Business Principles Supply chain, operations, use phase - Partnerships and co-creation Supply chain, use phase - Impact of social media Supply chain, operations...

  • Page 200
    ... or controlled by the Group is reported on for our business travel and distribution activities. Commuting by our employees, upstream distribution (before suppliers ship to us), outsourced activities and emissions resulting from product use by our customers are not included in our operational carbon...

  • Page 201
    ...fic financial statements and notes in this report. Distribution of direct economic benefits in millions of euros 2011 2012 2013 Suppliers: goods and services Employees: salaries and wages Shareholders: distribution from retained earnings Government: corporate income taxes Capital providers: net...

  • Page 202
    ... 2011 2012 2013 Health & Safety Treatment of employees - Collective bargaining - Equal and fair treatment - Employee development - Employee privacy - Employee relations - Respectful treatment - Remuneration - Right to organize - Working hours - HR other Legal Business Integrity Supply management...

  • Page 203
    ...suppliers), insufficient management accountability and responsibility, and absence of improvement objectives. Number of initial and continued conformance audits â- -initial--â- -continued conformance 150 95 100 50 44 14 0 7 Brazil 3 China 13 India 8 Mexico 6 7 Others 3 Annual Report 2013...

  • Page 204
    ... Air emissions Product content restrictions Management systems Certified management system (SA8000, etc.) Company commitment Management accountability and responsibility Legal and customer requirements Risk assessment and risk management Improvement objectives Training Communication Worker feedback...

  • Page 205
    ...safety, working hours, and management systems. We continued our training programs for Philips buyers and quality managers, supporting them to further integrate sustainability in their daily work with suppliers. Supplier training and capacity building 2013 Goals 35% of active risk suppliers in China...

  • Page 206
    ... levels of our supply chain. Since 2008 Philips is actively contributing to the Conï¬,ict Free Sourcing Initiative, a joint effort founded by a coalition of leading electronics companies from the industry organizations EICC and GeSI (formerly called the "EICC-GeSI Extractives Work Group"). Over...

  • Page 207
    ...) to support suppliers in collecting the requested information Priority suppliers to adopt a conï¬,ict-free sourcing policy Priority suppliers to investigate supply chain and report back on progress and results Conï¬,ict Free Tin Initiative: include DRC tin in end-user product 2014 Goals Publish...

  • Page 208
    ... share of purchased electricity from renewable sources. The total CO2 emissions related to business travel, accounting for 14% of our carbon footprint, increased 5%. This is mainly attributable to Philips' increasing presence in emerging markets. Our stringent inhouse travel policy remains in place...

  • Page 209
    ... decided to group all activities related to improving the environmental performance of our manufacturing facilities (including chemicals management) under the Green Manufacturing 2015 program, Carbon emissions in manufacturing The greenhouse gas emissions of our manufacturing operations totaled 705...

  • Page 210
    ... statements 13.3.3 - 13.3.3 Total carbon emissions in manufacturing in kilotonnes CO2-equivalent 2009 2010 2011 2012 2013 CFCs/HCFCs In 2013 total emissions from CFCs/HCFCs remained at 1 kg. Hazardous substances Targets have been set on a selected number of hazardous substances. Direct...

  • Page 211
    ... 11 12 2 Total waste Markets Manufacturing sites Lost Workday Injury rate* CO2 emitted (Tonnes CO2) Waste (Tonnes) Recycled (%) Water (m3) Emissions (kg) Restricted substances Hazardous substances 1. Africa 2. ASEAN 3. Benelux 4. Central & East Europe 5. DACH 6. France 7. Greater China 8. Iberia...

  • Page 212
    ...Koninklijke Philips N.V. (further 'Philips') to provide assurance on the information in the chapter Sustainability statements and the sections Social performance and Environmental performance in the Annual Report 2013 (further 'The Sustainability Information'). The Board of Management is responsible...

  • Page 213
    ... audited Chapter 11 Group financial statements and Chapter 12 Company financial statements, as well as sections 4.2 Social performance, 4.3 Environmental performance and Chapter 13 Sustainability statements. Where in the table crossreference is made to these parts, the information is included in...

  • Page 214
    ... chain (incl. product or service providers, engaged suppliers in total number, type, and location, payments made to suppliers) Significant changes during the reporting period relating to size, structure, or ownership or its supply chain (incl. changes in location, operations, facilities, capital...

  • Page 215
    ...ed material aspects and boundaries G4-17 Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures (List all entities in the consolidated financial statements) Process for defining report content and the Aspect Boundaries and explain...

  • Page 216
    ... Governance structure of the organization (incl. report the committees responsible for decision-making on economic, environmental and social impacts) chapter 10, Corporate governance section 10.1, Board of Management section 10.2, Supervisory Board section 10.3, General Meeting of Shareholders...

  • Page 217
    ...General Meeting of Shareholders section 10.4, Logistics of the General Meeting of Shareholders and provision of information section 10.5, Investor Relations Philips does not consider this indicator relevant, Philips makes an impact on local communities by the salaries it pays its employees. Salaries...

  • Page 218
    ...G4-EC1 Direct economic value generated and distributed, including revenues, operating costs, employee wages and benefits, payments to providers of capital, payments to government (by country) and community investments; EVG&D separately at country, regional or market level Financial implications and...

  • Page 219
    ... of energy consumption Reductions in energy requirements of products and services sub-section 4.3.3, Green Operations sub-section 13.3.3, Green Operations sub-section 13.2.2, Supplier indicators Philips does not report this indicator in the Annual Report, but in the Carbon Disclosure Project (CDP...

  • Page 220
    ... members of the workforce sub-section 4.3.3, Green Operations Overall G4-EN31 Total environmental protection expenditures and investments by type chapter 13, Sustainability statements sub-section 13.3.2, Biodiversity Philips does not monitor such expenditures at Group level Supplier environmental...

  • Page 221
    ... level. The hours of training per year per employee are managed and monitored on local level. Philips considers these data on consolidated level not relevant. Our people, our culture sub-section 4.2.5, Developing our people G4-LA10 Programs for skills management and lifelong learning that support...

  • Page 222
    ... 13.2.1, General Business Principles sub-section 13.2.2, Supplier indicators For all Philips businesses, guidance is applicable regarding employee training on human rights policies as part of the GBP. Total hours of employee training are managed and monitored at local level. Philips considers these...

  • Page 223
    ... 13, Sustainability statements G4-HR11 Significant actual and potential negative human rights impacts in the supply chain and actions taken sub-section 13.2.2, Supplier indicators Human rights grievance mechanisms G4-HR12 Number of grievances about human rights impacts filed, addressed, and...

  • Page 224
    ... Supplier indicators sub-section 13.3.3, Green Operations - "Environmental incidents" See www.philips.com/gbp profile disclosure Product responsibility Customer health and safety G4-PR1 description cross-reference Life cycle stages in which health and safety impacts of products and services...

  • Page 225
    ... movements and changes in consolidation. As indicated in the Significant accounting policies, sales and income are translated from foreign currencies into the Company's reporting currency, the euro, at the exchange rate on transaction dates during the respective years. As a result of significant...

  • Page 226
    14 Reconciliation of non-GAAP information 14 - 14 Sales growth composition per sector in % comparable growth currency effects consolidation changes nominal growth 2013 versus 2012 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Philips Group 0.8 10.0 3.2 (2.0) 3.3 (4.6) (3.4) ...

  • Page 227
    ...information 14 - 14 Composition of net debt to group equity 2011 2012 2013 Long-term debt Short-term debt Total debt Cash and cash equivalents Net debt (cash) 1) 3,278 582 3,860 3,147 713 3,725 809 4,534 3,834 700 3,309 592 3,901 2,465 1,436 Shareholders' equity Non-controlling interests Group...

  • Page 228
    ... (56) 400 128 (194) (66) (704) (8) (712) 2,451 (432) (28) 1,991 1,512 (195) (2) 1,315 483 (54) âˆ' 429 695 (180) (26) 489 (239) (3) âˆ' (242) Healthcare Consumer Lifestyle Lighting Innovation, Group & Services 1) Excluding amortization of software and product development. 228 Annual Report 2013

  • Page 229
    ... of non-GAAP information 14 - 14 Net operating capital to total assets Philips Group Healthcare Consumer Lifestyle Lighting Innovation, Group & Services 2013 Net operating capital (NOC) Exlcude liabilities comprised in NOC: - payables/liabilities - intercompany accounts - provisions Include assets...

  • Page 230
    ... adoption of IAS 19R, which mainly relates to pension reporting (see note 30, Post-employment benefits). Due to factors such as acquisitions and divestments, the amounts, percentages and ratios are not directly comparable. General data 2009 2010 2011 2012 2013 Sales % increase over previous year...

  • Page 231
    ...- 15 Capital employed 2009 2010 2011 2012 2013 Cash and cash equivalents Receivables and other current assets Assets classified as held for sale Inventories Non-current financial assets/investments in associates Non-current receivables/assets Property, plant and equipment Intangible assets Total...

  • Page 232
    ...Sustainability 2009 2010 2011 2012 2013 Lives improved, in billions Energy efficiency of products, in lumen/watt Collection and recycling amount, in tonnes Recycled material in products, in tonnes Green Product sales, as a % of total sales Green Innovation, in millions of euros Operational carbon...

  • Page 233
    ... 458 648 (500) 2009 2010 2011 2012 2013 For a reconciliation to the most directly comparable GAAP measures, see chapter 14, Reconciliation of non-GAAP information, of this Annual Report Key financials Net income attributable to shareholders of the Philips Group in 2013 showed a gain of EUR...

  • Page 234
    ... and acquisition-related charges and the result of the sale of the 30% stake in investment in associate TP Vision are also excluded. Amsterdam shares New York shares ex-dividend date record date payment date Proposed distribution A proposal will be submitted to the 2014 Annual General Meeting of...

  • Page 235
    ... to 25 million shares, of which 21 million are held by Philips to cover long-term incentive and employee stock purchase plans. The Dutch Act on Financial Supervision imposes an obligation to disclose (inter alia) percentage holdings in the capital and/or voting rights in the Company when such...

  • Page 236
    ... of 2013, Philips had completed 7% of the EUR 1.5 billion share repurchase program. Share repurchases related to Long-Term Incentive (LTI) and employee stock purchase programs To cover Philips' outstanding obligations resulting from past and present long-term incentive and employee stock purchase...

  • Page 237
    ... date, a total of 44 million rights to acquire shares (under long-term incentive plans) were outstanding (2012: 52 million). total number of shares average price paid per share purchased in EUR Period January, 2013 February, 2013 March, 2013 April, 2013 May, 2013 June, 2013 July, 2013 August, 2013...

  • Page 238
    ... the Company, are listed on the New York Stock Exchange. The principal market for the The following table shows the high and low closing sales prices of the common shares on the stock market of NYSE Euronext Amsterdam as reported in the Official Price List and the high and low closing sales prices...

  • Page 239
    16 Investor Relations 16.4 - 16.4 Euronext Amsterdam Share price development in Amsterdam in euros PHIA Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 High Low Average Average daily volume1) 23.13 20.26 21.34 5.50 23.31 21.23 22.26 6.11 23.67 21.56 22.93 6.09 23.48 20....

  • Page 240
    ... closing share price 150 Philips peer group 1) Share listings Ticker code No. of shares issued at Dec. 31, 2013 Amsterdam, New York PHIA, PHG 938 million 913 million EUR 24.3 billion 125 No. of shares outstanding issued at Dec. 31, 2013 Market capitalization at year-end 2013 100 Industry...

  • Page 241
    ... customized energy-efficient lighting solutions Become a leading kitchen appliances company in India Expand portfolio with integrated, advanced anesthesia care solutions Expand capabilities in imaging equipment services, strengthening Philips' MultiVendor Services business Expand Women's Healthcare...

  • Page 242
    ...Investor contact Shareholder services Holders of shares listed on Euronext Philips offers a dynamic print manager that facilitates the creation of a customized PDF. Non-US shareholders and other non-US interested parties can make inquiries about the Annual Report 2013 to: Royal Philips Annual Report...

  • Page 243
    ... Philips offers a dividend reinvestment and direct stock purchase plan designed for the US market. This program provides existing shareholders and interested investors with an economical and convenient way to purchase and sell Philips New York Registry shares and to reinvest cash dividends. Philips...

  • Page 244
    [email protected] Corporate Communications contact Royal Philips Philips Center, HBT 19 P.O. Box 77900 1070 MX Amsterdam, The Netherlands E-mail: [email protected] For media contacts please refer to: www.newscenter.philips.com/main/standard/news/ contacts 244 Annual Report 2013

  • Page 245

  • Page 246
    ... worldwide. GRI's core goals include the mainstreaming of disclosure on environmental, social and governance performance. Green Innovation Green Innovation comprise all R&D activities directly contributing to the development of Green Products or Green Technologies. 246 Annual Report 2013

  • Page 247
    ... cameras and television remote controls and also as light sources in fiber-optic telecommunication systems. Lives improved by Philips To calculate how many lives we are improving, market intelligence and statistical data on the number of people touched by the products contributing to the social or...

  • Page 248
    ... rate of net operating capital Sales divided by average net operating capital (calculated on the quarterly balance sheet positions). Waste Electrical and Electronic Equipment (WEEE) The Waste Electrical and Electronic Equipment Directive (WEEE Directive) is the European Community directive on...

  • Page 249
    ... Company. The introduction to the chapter Group financial statements sets out which parts of this Annual Report form the management report within the meaning of Section 2:391 of the Dutch Civil Code (and related Decrees). Analysis of 2012 compared to 2011 The analysis of the 2012 financial results...

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