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Annual Report
2014
Innovating for a
healthier, more
sustainable world

Table of contents

  • Page 1
    Annual Report 2014 Innovating for a healthier, more sustainable world

  • Page 2
    ... statutory financial statements of the 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). 10.1 Report of the Corporate Governance...

  • Page 3
    ....6 Key financials and dividend policy Share information Philips' rating Performance in relation to market indices Financial calendar Investor contact 18 Definitions and abbreviations Notes related to the cash flow statement 23 24 Cash used for derivatives and current financial assets Purchase and...

  • Page 4
    ... accounting policy changes (see note 1, Significant accounting policies). For a reconciliation to the most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report. Philips Group Key data in millions of EUR unless otherwise stated 2013 - 2014...

  • Page 5
    ... Other Innovation 1,123 '10 '11 '12 '13 '14 '10 '11 '12 '13 '14 Philips Group Green Product sales per sector in millions of EUR 2010 - 2014 Philips Group Operational carbon footprint in kilotonnes CO2-equivalent 2010 - 2014 1,877 121 46.3% 10,285 38.8% 7,719 50.0% 10,997 51.7% 11,065...

  • Page 6
    ... way we use our personal and public spaces. By giving people satisfying and inspiring experiences, solutions such as Power over Ethernet office lighting, city-wide lighting management and our Philips Hue smart home lighting are set to transform the very fabric of modern life. 6 Annual Report 2014

  • Page 7
    ... of our balance sheet. Supported by Accelerate! Our Accelerate! transformation program helped us manage through this challenging year, driving improvements across the organization, not least in serving our customers better. Strong customer focus was key to securing long-term partnerships with...

  • Page 8
    ... thank all our employees for their hard work over the past year, as well as their willingness to embrace change. And I wish to thank our customers, shareholders and other stakeholders for the trust and support they continue to give us. Frans van Houten Chief Executive Officer 8 Annual Report 2014

  • Page 9
    ... in the Netherlands November 17 November 29 December 17 December 19 Philips Lighting named European Frost & Sullivan Lighting Company of the year Philips presented with Best in KLAS award for 2014, based on customer feedback, at RSNA Announcement of planned acquisition of Volcano to expand...

  • Page 10
    ...ways to proactively monitor and manage their health. This is driving the convergence of professional health care and consumer end-markets across the health continuum. With customers expressing a need for integrated solutions, Royal Philips' businesses in HealthTech - with their combined clinical and...

  • Page 11
    ... And with the integration of LED technology, lighting controls and software opening up new functionality and services, the world will also benefit from the compelling new applications that digital light can offer. As a stand-alone company, the Lighting Solutions business will be better positioned to...

  • Page 12
    ... System at the heart of our endeavors - we use six different forms of capital to drive value in the short, medium and long term. Philips Group Strategy Where we invest Mission Vision Guiding Statement Philips Excellence How we operate Philips Path to Value What we deliver 12 Annual Report 2014

  • Page 13
    ... billion • Equity EUR 11.0 billion • Market capitalization EUR 22.1 billion Financial Philips Business System Capital inputs Value outcomes • Comparable sales growth % (0.9)% • EBITA as % of sales 3.8% • Return on invested capital 4.5% • Dividend paid EUR 729 million • Taxes paid...

  • Page 14
    ... markets and our competitive position. Later in 2015, as we progress with the separation of the Lighting business from the Philips Group and the re-allocation of IG&S, we will update the market about the integral performance targets for each of the two operating companies. 14 Annual Report 2014

  • Page 15
    ...: Philips Source: The World Bank, CIA Factbook & Wikipedia Source: IMF, CIA Factbook & Wikipedia 4.5 Global presence Markets Sales Number of employees Employees female Employees male R&D centers Manufacturing sites Tangible and intangible assets Asia & Pacific EMEA Latin America North America...

  • Page 16
    ... their family is the center of the universe. And when that child is sick, medics need every tool to ensure that family gets the best care. "Family-centered care is our philosophy, we want to combine technology with humanization and place the mother and newborn at the center of this," says Professor...

  • Page 17
    ... sort of meaningful, impactful innovations that Philips has become synonymous with. "My personal experience is that patients who use Philips Sonicare have an easier time removing biofilm plaque." Michael Noack, Professor of Dental Care & Periodontology, University of Cologne Annual Report 2014 17

  • Page 18
    ... and beyond Connected lighting systems combine intelligent illumination with data and connectivity to deliver the best possible lighting experience and extraordinary value beyond illumination. In a connected lighting system, every light point is networked together and digitally controlled, creating...

  • Page 19
    ... is part of a major initiative to incorporate recycled plastics into product design. In designing SENSEO® Up - our first one-cup coffee machine aimed at single or double households - we challenged our designers to specify recycled plastics right from the start of the design process. The designers...

  • Page 20
    ... with traditional design, the Philips SlimStyle LED bulb shows that a value-priced offering can deliver the innovation, energy efficiency and light quality that consumers want. "The main drive to start the SlimStyle project was to maintain our leadership position in LED lighting worldwide," says...

  • Page 21
    ... by lower income tax expense and higher results from investments in associates and discontinued operations. • Sales amounted to EUR 21,391 million, a 3% nominal decline for the year. Excluding unfavorable currency effects, comparable sales were 1% below the level of 2013, Annual Report 2014 21

  • Page 22
    ...cash flows from operating activities was partly offset by higher outflows related to acquisitions of new businesses. By the end of 2014, Philips had completed 41% of the EUR 1.5 billion share buy-back program. 5.1.1 Sales The composition of sales growth in percentage terms in 2014, compared to 2013...

  • Page 23
    ..., the year-on-year decline was mainly driven by operational decline at Healthcare and Lighting as well as negative currency impacts. Selling expenses increased from EUR 5,057 million in 2013 to EUR 5,124 million in 2014. 2014 included EUR 128 million of restructuring and acquisition-related charges...

  • Page 24
    ... in China. The total advertising and promotion investment as a percentage of sales was 4.3% in 2014, compared to 4.0% in 2013. Philips Group Research and development expenses in millions of EUR 2012 - 2014 2012 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Philips Group 858...

  • Page 25
    ...defined-benefit plans was EUR 59 million in 2014 (2013: EUR 71 million). 2014 included past-service cost gains in the Netherlands of EUR 67 million, which were mainly related to the mandatory plan change in the Netherlands, where a salary cap of EUR 100,000 must be applied to the pension salary with...

  • Page 26
    ... statements of cash flows. On June 30, 2014, Philips announced the start of the process to combine the Lumileds and Automotive Lighting businesses into a stand-alone company and explore strategic options to attract capital from thirdparty investors for this combined business. Philips is actively...

  • Page 27
    ..., a Danish healthcare company, and a 51% interest in General Lighting Company (GLC) based in The Kingdom of Saudi Arabia (KSA). Philips also purchased some minor magnetic resonance imaging (MRI) activities from Hologic, a US healthcare company. Acquisitions in 2014 and previous years led to post...

  • Page 28
    ... working capital reductions. Philips Group Cash flows from operating activities and net capital expenditures in millions of EUR 2010 - 2014 1,886 1,691 1,303 912 610 Cash flows from operating activities 2) Please refer to section 12.7, Consolidated statements of cash flows, of this Annual Report...

  • Page 29
    .... Acquisitions and financial assets The net cash impact of acquisitions of businesses and financial assets in 2014 was a total of EUR 258 million. There was a EUR 177 million outflow for acquisitions of businesses, mainly related to the acquisition of a 51% interest in the General Lighting Company...

  • Page 30
    ... million outflow related to acquisitions. This was partly offset by a EUR 497 million free cash flow. Philips Group Cash balance movements in millions of EUR 2014 Long-term debt as a proportion of the total debt stood at 90% at the end of 2014 with an average remaining term of 11.6 years, compared...

  • Page 31
    ... operational or investment needs. Philips had a total gross debt position of EUR 4,104 million at year-end 2014. Philips believes its current liquidity is sufficient to meet its present working capital requirements. Philips intends to finance the acquisition of Volcano through a combination of cash...

  • Page 32
    ... critical accounting policies, have not been included in this Annual Report. These sections are included in Philips' Form 20-F for the financial year 2014, which will be filed electronically with the US Securities and Exchange Commission. 1.5 0.67 by Philips care products by Philips Green Products...

  • Page 33
    ...-end 2014 - up from 15% in 2013. We are well on track to achieve the aspiration of 20% female executives by year-end 2016 - having embedded D&I objectives in HR processes and culture-building activities, combined with the active engagement of senior female leaders globally. One of the key drivers of...

  • Page 34
    ...the GLC acquisition in The Kingdom of Saudi Arabia (KSA). Philips Group Employees per geographic cluster in FTEs at year-end 2012 - 2014 2012 Western Europe North America Other mature geographies Mature geographies Growth geographies Continuing operations Discontinued operations Philips Group 29,803...

  • Page 35
    ... country in which Philips operates. In 2015, the number of employees is expected to remain broadly in line with 2014, with increases from our acquisition of Volcano Corporation to be offset by reductions from footprint-related initiatives. 5.2.5 Developing our people Our drive to build a learning...

  • Page 36
    ... able to install over 27 solar and semi-solar Community Light Centers, which provide safe and functional space for sports and other community activities after dark. In North America, the Philips Cares program provides ways for employees to work together to improve people's lives by creating healthy...

  • Page 37
    ... China India Mexico Brazil Other 6 9 8 24 156 Management system • Company commitment • Risk assessment and risk management • Management accountability and responsibility • Improvement objectives • Legal and customer requirements Training Communication Corrective action process...

  • Page 38
    ...the chapter 14, Sustainability statements, of this Annual Report. 5.3.1 Green Innovation Green Innovation is the Research & Development spend related to the development of new generations of Green Products and Green Technologies. We announced in 2010 our plan to invest a cumulative EUR 2 billion in...

  • Page 39
    ... and open system architecture streamlines servicing and maintenance, affords an easy upgrade path, and extends system lifetime. Philips Group Innovation Philips Group Innovation invested EUR 21 million in Green Innovations, spread over projects focused on global challenges related to water, air...

  • Page 40
    ... services (mainly Healthcare). Recycled materials We calculated the amount of recycled materials used in our products in 2014 at some 13,000 tonnes (2013: 14,000 tonnes), by focusing on the material streams plastics (Consumer Lifestyle), aluminum (Lighting), refurbished products, and spare parts...

  • Page 41
    ... 70% in 2013 to 72% in 2014. Connected lighting systems contributed to Green Product sales with solutions like CityTouch, a system for outdoor lighting management. CityTouch offers simple web applications to remotely control street lights and analyze related data. This gives cities the flexibility...

  • Page 42
    ...2014 was 3.1 million m3, about 6% lower than in 2013. This decrease was mainly due to lower production volumes at multiple Lighting sites as well as a significant reduction at a Consumer Lifestyle site in China which implemented various water savings actions. This was partly offset by one Healthcare...

  • Page 43
    ...paid in cash. For additional information, see chapter 17, 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, 2014, is before appropriation of the result for the financial year 2014. For...

  • Page 44
    ... and Group and regional management organizations. Additionally, the global shared business services for procurement, finance, human resources, IT and real estate are reported in this sector, as well as certain pension costs. At the end of 2014, Philips had 93 production sites in 25 countries, sales...

  • Page 45
    ... access and outcomes while managing costs. 6.1.1 Health care landscape Health care systems around the world are under increasing economic pressure. More people are living longer, and more are living with chronic conditions - driving healthcare spending to unsustainable levels. 6.1.2 About Philips...

  • Page 46
    ..., Big Data analytics, optimized workflows and care pathways, rapid application development, enhanced patient centricity and engagement. Philips Healthcare Total sales by business as a % 2014 Imaging Systems Patient Care & Monitoring Solutions Healthcare Informatics, Solutions & Services Customer...

  • Page 47
    ...Philips Healthcare Key data in millions of EUR unless otherwise stated 2012 - 2014 2012 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) Cash flows before financing activities1) Employees...

  • Page 48
    ... levels of human development worldwide pose a number of challenges, such as scarcity of natural resources, pollution, and stressed health care systems. Philips Healthcare continues to help increase the number of lives improved annually around the globe by developing solutions that improve access...

  • Page 49
    ... businesses who have not only taken steps to improve their organization's green practices, but have also gone the extra mile to help their clients and associates expand their sustainable practices as well. 6.1.6 2015 and beyond In September 2014 Philips announced its plan to sharpen its strategic...

  • Page 50
    .... "Having joined forces (with Philips), we're bridging the gap to match technology with actual clinical need. Today the focus is on liver cancer, but I hope to expand the collaboration to other areas." Dr. Yan Luo, Director of the Ultrasound Department, West China Hospital 50 Annual Report 2014

  • Page 51
    ... better margins. • Our multi-year Accelerate! program has transformed the sector into a market-driven organization, by changing our operating model and instilling a strong performance culture and end-to-end approach. 6.2.1 Lifestyle retail landscape Across the world, consumers are looking for...

  • Page 52
    ... and social media to build our brand and drive sales in local markets and globally. On the Philips Global Facebook page for instance, an educational personal health and well-being campaign helped increase the number of fans from 4 million to 6 million. More locally, a UK-focused Domestic Appliances...

  • Page 53
    ...Wellness and Domestic Appliances. Net operating capital increased from EUR 1,261 million in 2013 to EUR 1,353 million in 2014, due to higher working capital and a reduction in provisions. Cash flows before financing activities increased from EUR 480 million in 2013 to EUR 553 million in 2014, mainly...

  • Page 54
    ...while managing overall cost, and helping governments increase access to highquality, affordable care. From an external financial reporting perspective, it should be noted that the planned organizational changes will require Philips to transition to a new reporting structure in the course of 2015. At...

  • Page 55
    ...on the medical system. of a unique experiment, Saudi medical professionals gave her a Philips Airfryer, along with other patients suffering from high blood pressure or diabetes, to see if using the Philips Airfryer could help her lose weight. The Airfryer uses innovative Rapid Air Technology so that...

  • Page 56
    ... data. The lighting market is expected to grow by 3-5% per annum between 2013 and 2018. The majority of this growth will be driven by LED-based solutions and applications - heading towards a 60-65% share by 2018 - and growth geographies. 6.3.1 Lighting business landscape We are witnessing a number...

  • Page 57
    ... and water purification. In 2014, Philips Lighting spanned the entire lighting value chain - from light sources, luminaires, electronics and controls to application-specific systems and services - through the following businesses: • Light Sources & Electronics: LED, eco-halogen, (compact...

  • Page 58
    ... of apps developed by third parties will ensure further new experiences over time. • Philips acquired 51% of General Lighting Company (GLC) in the Kingdom of Saudi Arabia. This company combines Philips' expertise in LED technology and global supply base with GLC's deep local market knowledge and...

  • Page 59
    ... Investments continue to be made in energy-saving technologies such as LED and connected lighting systems and services. In January, Philips announced the introduction of the new InstantFit LED T8, which reduces costs for facility managers replacing fluorescent tube lighting with energy-efficient LED...

  • Page 60
    ... structures with direct access to capital markets. As a stand-alone company, the Lighting Solutions business will be better positioned to capture the value which is shifting from individual products to connected LED lighting systems and services. Philips is also in discussion with external investors...

  • Page 61
    ... that has become a tourist attraction in its own right and revitalized the area. "Philips had a very innovative design department. They've been here every day to help us through the process," says Terry Orf, Senior Architect at Naismith Engineers. Because the locals love the Corpus Christi Harbor...

  • Page 62
    ..., 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 this sector. 62 Annual Report 2014

  • Page 63
    ..., the first Philips Community Life Center was opened in Kenya, which provides access to healthcare, enables social, educational and commercial activities after dark, and enhances neighborhood safety and security. A joint initiative between PGI, IT and multiple Philips businesses aims at speeding...

  • Page 64
    ... Services business, Philips Design is developing in-depth consulting relationships with our Healthcare partners. The Experience Design team recently supported the complete renovation of the Infusion Center for cancer patients at the Broward Health Medical Center in Florida, USA, in order...

  • Page 65
    ...! investments Innovation, Group & Services plays an important role in the Accelerate! program, notably by helping to improve the end-to-end value chain. The End-to-End approach consists of three core processes: Idea-to-Market, Market-to-Order, and Order-to-Cash. Innovation, Group & Services supports...

  • Page 66
    ... due to an increase in working capital. Cash flows before financing activities improved from an outflow of EUR 2,140 million in 2013 to an outflow of EUR 1,586 million. 6.4.3 2015 and beyond In September 2014 Philips announced its plan to sharpen its strategic focus by establishing two standalone...

  • Page 67
    ... Annual Report process, management's accountability for business controls is enforced through the formal issuance of a Statement on Business Controls and a Letter of Representation by business and functional management to the Executive Committee. Any deficiencies noted in the design and Corporate...

  • Page 68
    ...principal 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...

  • Page 69
    ... Transformation programs Innovation process Intellectual Property Supply chain IT People Product quality and liability Reputation Compliance Legal Market practices Regulatory General Business Principles Internal controls Data privacy/Product security Financial Treasury Tax Pensions Accounting...

  • Page 70
    ... 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...

  • Page 71
    ...on the mid and long term financial targets. In addition the transformation program of the Finance function may expose Philips to adverse changes in the quality of its systems of internal control. Failure to achieve improvements in Philips' solution and product creation process and/or increased speed...

  • Page 72
    ... benefit from such price decreases as Philips attempts to reduce the risk of rising commodity prices by several means, such as including long-term contracting or physical and financial hedging. Diversity in information technology (IT) could result in ineffective or inefficient business management...

  • Page 73
    ... on the Philips share price. The reliability of revenue and expenditure data is key for steering the business and for managing top-line and bottom-line growth. The long lifecycle of healthcare sales, from order acceptance to accepted installation, together with the complexity of the accounting rules...

  • Page 74
    ... to the tax risks paragraph in note 8, Income taxes. Philips has defined-benefit pension plans in a number of countries. The funded status and the cost of maintaining these plans are influenced by movements in financial market and demographic developments, creating volatility in Philips' financials...

  • Page 75
    ... in the note 1, Significant accounting policies, as the Company assessed that reporting risk is closely related to the use of estimates and application of judgment. potential impact of the risks as described in section 7.2, Risk categories and factors, of this Annual Report, such as strategic risks...

  • Page 76
    ...Company's website (www.philips.com/investor). Frans van Houten Born 1960, Dutch President/Chief Executive Officer (CEO) Chairman of the Board of Management since April 2011 Group responsibilities: Chairman of the Executive Committee, Sector Healthcare, Internal Audit, Information Technology, Supply...

  • Page 77
    ... Group responsibilities: Philips Greater China Ron Wirahadiraksa Born 1960, Dutch Executive Vice President & Chief Financial Officer (CFO) Member of the Board of Management since April 2011 Group responsibilities: Finance, Mergers & Acquisitions, Accelerate! - Operating Model Annual Report 2014...

  • Page 78
    ...-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 of the Supervisory Board, see chapter 10, Supervisory Board report, of this Annual Report and...

  • Page 79
    ...2011; first term expires in 2015 Former Vice-Chairman and CEO of DBS Group and DBS Bank Ltd and former Managing Director at J.P. Morgan &Co. Incorporated. Currently a member of the Boards of Directors of The Bank of China Limited, MasterCard Incorporated and Eli Lilly and Company. Also Non-Executive...

  • Page 80
    ... two companies: one focused on HealthTech businesses and one focused on Lighting Solutions businesses, which was announced during the Capital Markets Day in September 2014. As part of this discussion, the Supervisory Board discussed the various strategic options available to Philips and the benefits...

  • Page 81
    ...; he also served on the Audit Committee from 2005 until 2011. James was instrumental in the introduction of the new Remuneration Policy and Long-term Incentive Plan that was approved by shareholders in 2013. James was an excellent Supervisory Board member and a loyal friend, he was full of integrity...

  • Page 82
    ... the Audit Committee. Financial Statements 2014 The financial statements of the company for 2014, 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 have been included in...

  • Page 83
    ... at the upcoming 2015 Annual General Meeting of Shareholders of members of the Board of Management and Supervisory Board, as explained in chapter 10, Supervisory Board report, of this Annual Report. In 2014 this also resulted in the appointment of Denise Haylor as Chief Human Resources Officer and...

  • Page 84
    ... Incentive Plan (see sub-section 10.2.7, Long-Term Incentive Plan, of this Annual Report) respectively. 10.2.2 Contracts Below, the main elements of the contracts of the members of the Board of Management are included. These contracts expire at the end of the Annual General Meeting on May 7, 2015...

  • Page 85
    ... by the Company in the financial year in relation to the remuneration of the Board of Management. Costs related to performance shares, stock option and restricted share right grants are taken by the Company Philips Group Remuneration Board of Management1) in EUR 2014 over a number of years. As...

  • Page 86
    ... up) stock option grants, an overview of performance shares granted but not yet vested and an overview of restricted share rights granted but not yet released. The reference date for board membership is December 31, 2014. Philips Group Performance shares1) number of performance shares originally...

  • Page 87
    ... Nota 2011 2012 2011 2012 2011 2012 value at grant date 418,021 296,415 284,282 201,582 284,282 201,582 For more details of the LTI Plan see note 28, Sharebased compensation. 10.2.8 Pensions In 2014 Members of the Board of Management participated in the Executives Pension Plan in the Netherlands...

  • Page 88
    ... the Company's financial statements and reviewing the Company's internal controls. The Audit Committee met for four quarterly meetings and one education and training session during 2014 and reported its findings to the plenary Supervisory Board. The CEO, the CFO, the Chief Legal Officer, the Head...

  • Page 89
    ...the upcoming 2015 Annual General Meeting of Shareholders for more information on the proposed appointment of the external auditor. Finally, the Audit Committee also participated in an education session during 2014 on the quality and regulatory aspects of the industries in which the company is active...

  • Page 90
    ... otherwise. The Board of Management remains accountable for the actions and decisions of the Executive Committee and has ultimate responsibility for the Company's management and the external reporting and is answerable to shareholders of the Company at the Annual General Meeting of Shareholders. All...

  • Page 91
    ... Shareholders. The current remuneration policy applicable to the Board of Management was adopted by the 2013 Annual General Meeting of Shareholders, and is published on the Company's website. A full and detailed description of the composition of the remuneration of the individual Annual Report 2014...

  • Page 92
    ... the annual base compensation. From 2003 until 2013, Philips maintained a Long-Term Incentive 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. Since the full revision in 2013 of...

  • Page 93
    ...report on internal control, of this Annual Report. Philips has a financial code of ethics which applies to certain senior officers, including the CEO and CFO, and to employees performing an accounting or financial function (the financial code of ethics has been published on the Company's website...

  • Page 94
    ... the Philips group's general strategy and the risks connected to its business activities, (c) the operational and financial objectives, (d) the parameters to be approved in relation to the strategy, (e) corporate social responsibility issues (f) the structure and management 94 Annual Report 2014

  • Page 95
    ... are unique to the Company and its business activities, and the responsibilities of a Supervisory Board member. Any need for further training or education of members will be reviewed annually, also on the basis of an annual evaluation survey. Under the Dutch Corporate Governance Code, no member of...

  • Page 96
    ... advisers attend its meetings. committees is determined by the General Meeting of Shareholders. The remuneration of a Supervisory Board member is not dependent on the results of the Company. Further details are published in the Supervisory Board report. Shares or rights to shares shall not be...

  • Page 97
    ... reports. It also advises on the Supervisory Board's statement to shareholders in the annual accounts. The Audit Committee periodically discusses the Company's policy on business controls, the GBP including the deployment thereof, overviews on tax, IT, litigation and legal proceedings, environmental...

  • Page 98
    ... 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 99
    ... available on the Company's website. Repurchase and issue of (rights to) own shares At the 2014 Annual General Meeting of Shareholders it was resolved to authorize the Board of Management, subject to the approval of the Supervisory Board, to acquire shares in the Company within the limits of the...

  • Page 100
    ... to obtain (de facto) control of the Company, the General Meeting of Shareholders in 1989 adopted amendments to the Company's Articles of Association that allow the Board of Management and the Supervisory Board to issue (rights to) preference shares to a third-party. As a result, the Stichting...

  • Page 101
    ...the financial year 2015. Mr E.H.W. Weusten is the current partner of KPMG Accountants N.V. in charge of the audit duties for Philips. The external auditor shall attend the Annual General Meeting of Shareholders. Questions may be put to him at the meeting about his report. The Board of Management and...

  • Page 102
    ...provisions that are addressed to the Board of Management or the Supervisory Board. The full text of the Dutch Corporate Governance Code can be found at the website of the Monitoring Commission Corporate Governance Code (www.commissiecorporategovernance.nl). February 24, 2015 102 Annual Report 2014

  • Page 103
    ... auditors' report on internal control over financial reporting 12.4 Consolidated statements of income 12.5 Consolidated statements of comprehensive income 12.6 Consolidated balance sheets 12.7 Consolidated statements of cash flows 12.8 Consolidated statements of changes in equity 12.9 Notes 105 106...

  • Page 104
    Notes overview Group financial statements General, sector and main countries information 1 2 3 Company financial statements A B C D E 4 5 Significant accounting policies Information by sector and main country Discontinued operations and other assets classified as held for sale Acquisitions and ...

  • Page 105
    ... this Annual Report for more information about forward-looking statements, thirdparty market share data, fair value information, and revisions and reclassifications. The Board of Management of the Company hereby declares that, to the best of our knowledge, the Group financial statements and Company...

  • Page 106
    ... 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 reporting...

  • Page 107
    ... Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Koninklijke Philips N.V. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, cash flows, and changes in equity for each of the years...

  • Page 108
    ... 0.45 2013 2014 Prior-period financial statements have been restated for the treatment of the combined businesses of Lumileds and Automotive as discontinued operations (see note 3, Discontinued operations and other assets classified as held for sale) and for two voluntary accounting policy changes...

  • Page 109
    ... (loss) for the period (238) 763 461 Total comprehensive income (loss) attributable to: Shareholders of Koninklijke Philips N.V. Non-controlling interests The accompanying notes are an integral part of these consolidated financial statements. (243) 5 760 3 465 (4) Annual Report 2014 109

  • Page 110
    Group financial statements 12.6 12.6 Consolidated balance sheets Philips Group Consolidated balance sheets in millions of EUR unless stated otherwise As of December 31 2013 Non-current assets 2 10 25 Property, plant and equipment: - At cost - Less accumulated depreciation 7,692 (4,912) 2,780 2 11 ...

  • Page 111
    ... Accounts and notes payable: - Trade creditors - Accounts payable to related parties 2,458 4 2,462 21 19 20 3 22 Accrued liabilities Short-term provisions Liabilities directly associated with assets held for sale Other current liabilities Total current liabilities Total liabilities and group equity...

  • Page 112
    Group financial statements 12.7 12.7 Consolidated statements of cash flows Philips Group Consolidated statements of cash flows in millions of EUR unless otherwise stated For the years ended December 31 2012 Cash flows from operating activities Net income (loss) Result of discontinued operations - ...

  • Page 113
    ... policy changes (see note 1, Significant accounting policies). The accompanying notes are an integral part of these consolidated financial statements. For a number of reasons, principally the effects of translation differences and consolidation changes, certain items in the statements of cash flows...

  • Page 114
    ... plans Income tax sharebased compensation plans Balance as of Dec. 31, 2012 Total comprehensive income (loss) Dividend distributed Movement in noncontrolling interests Cancellation of treasury shares Purchase of treasury shares Re-issuance of treasury shares Share-based compensation plans Income tax...

  • Page 115
    ... which is the Company's presentation currency. On February 24, 2015, the Board of Management authorized the Consolidated financial statements for issue. The Consolidated financial statements as presented in this report are subject to adoption by the Annual General Meeting of Shareholders, to be held...

  • Page 116
    ... statement. Company-wide overhead and indirect Business function costs will be brought more in line with the actual activities performed in the markets. This change has no net effect on Income from operations. Philips Group Reclassification of cost by function1) in millions of EUR 2012 - 2013 2012...

  • Page 117
    ...these elements, the Company presents service costs in Income from operations and the net interest expenses related to defined benefit plans in Financial expense. Cash flow statements Under IFRS, an entity shall report cash flows from operating activities using either the direct method (whereby major...

  • Page 118
    ... 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 adjustment to tax payable in respect of...

  • Page 119
    ... 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 of new or substantially improved products and processes...

  • Page 120
    ... segment. Cash flows at this level are substantially independent from other cash flows 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 the Statements of...

  • Page 121
    ... reserve in equity. When an investment is derecognized, the gain 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...

  • Page 122
    ... related. The Company measures all derivative financial instruments at fair value derived from market prices of the instruments, or calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates...

  • Page 123
    ... at the balance sheet date. The projected defined benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. Recognized assets are limited to the present value of any reductions in future contributions or any future refunds. For the Company's major plans...

  • Page 124
    .... Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Company incurs are expensed as incurred. Any contingent consideration payable is recognized at fair value at the acquisition date and initially is presented as Long-term provisions...

  • Page 125
    ...differences of equity stake resulting from gaining control over the investee previously recorded as associate are recorded under Results relating to investments in associates. Cash flow statements Cash flows arising from transactions in a foreign currency are translated in the Company's functional...

  • Page 126
    ... benefit costs not directly allocated to the other sectors. Transactions between the sectors mainly relate to services provided by the sector Innovation, Group & Services to the other sectors. The pricing of such transactions is determined on an arm's length basis. 126 Annual Report 2014

  • Page 127
    Group financial statements 12.9 Philips Group Information on balance sheet and capital expenditure in millions of EUR 2012 - 2014 total assets 2014 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Sector totals Assets classified as held for sale Total assets/liabilities (excl. ...

  • Page 128
    Group financial statements 12.9 Philips Group Main countries in millions of EUR 2012 - 2014 sales1) 2014 Netherlands United States China Germany Japan France United Kingdom Other countries Total main countries Assets classified as held for sale Total tangible and intangible assets 594 6,160 2,362 ...

  • Page 129
    ... the Consolidated statements of income as Discontinued operations. Philips Group Results of Audio, Video, Multimedia and Accessories business in millions of EUR 2012 - 2014 2012 Sales Costs and expenses Gain on sale of business Income before taxes Income taxes Investments in associates Results from...

  • Page 130
    ...: GLC Balance sheet in millions of EUR 2014 before acquisition date Goodwill Other intangible assets Property, plant and equipment Working capital Provisions Cash Total assets and liabilities 18 112 (15) 23 138 after acquisition date 58 158 18 122 (56) 23 323 Group equity Non-controlling interests...

  • Page 131
    ... acquisitions involved an aggregated purchase price of EUR 10 million. Philips completed five divestments of business activities during 2013, mainly related to certain Healthcare service activities. The transactions involved an aggregate consideration of EUR 99 million. 5 Philips Electronics China...

  • Page 132
    ... financial statements 12.9 6 The changes during 2014 are as follows: Philips Group Investments in associates in millions of EUR 2014 Total investments Balance as of January 1, 2014 Changes: Acquisitions/additions Sales/Redemption Reclassifications Share in income Dividends declared Translation...

  • Page 133
    ...remuneration of the members of the Board of Management and the Supervisory Board, see note 29, Information on remuneration. Audit fees Philips Group Fees KPMG in millions of EUR 2012 - 2014 2012 Audit fees - consolidated financial statements - statutory financial statements Audit-related fees 1) 14...

  • Page 134
    ... in 2013 was EUR 40 million lower than in 2012, mainly as a result of lower average outstanding debt and lower interest related to pensions in 2013. In 2013 impairment charges amounted to EUR 10 million, mainly from shareholdings in Lighting Science Group and Gilde III. 134 Annual Report 2014

  • Page 135
    ... expense in 2012. Total financial income of EUR 106 million included a EUR 46 million gain related to a change in estimate on the valuation of long term derivative contracts. 8 Philips' operations are subject to income taxes in various foreign jurisdictions. The statutory income tax rates vary from...

  • Page 136
    Group financial statements 12.9 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 2014 and 2013 respectively are as follows: Philips ...

  • Page 137
    Group financial statements 12.9 Deferred tax assets and liabilities relate to the balance sheet captions, as follows: Philips Group Deferred tax assets and liabilities in millions of EUR 2013 - 2014 assets 2014 Intangible assets Property, plant and equipment Inventories Prepaid pension costs Other ...

  • Page 138
    ... of the transfer pricing directives. Tax uncertainties on general and specific service agreements and licensing agreements Due to the centralization of certain activities in a limited number of countries (such as research and development, centralized IT, group functions and head office), costs are...

  • Page 139
    9 Group financial statements 12.9 9 Earnings per share Philips Group Earnings per share in millions of EUR unless stated otherwise1) 2012 - 2014 2012 Income (loss) from continuing operations Income (loss) attributable to non-controlling interest Income (loss) from continuing operations ...

  • Page 140
    .... Impairment charges of EUR 49 million are related to industrial assets in Lighting in 2014. Transfer to assets classified as held for sale in 2014 mainly relate to combined businesses of Lumileds and Automotive. Property, plant and equipment includes financial lease assets with a book value of EUR...

  • Page 141
    ... structure of the Healthcare sector Acquisitions in 2014 which included goodwill mainly related to the acquisition of General Lighting Company (GLC) for EUR 58 million. In addition, goodwill changed due to the finalization of purchase price accounting related to acquisitions in the prior year...

  • Page 142
    ... text as compound long-term sales growth rate The assumptions used for the 2013 cash flow projections were as follows: Philips Group Key assumptions in % 2013 compound sales growth rate1) initial forecast period Respiratory Care & Sleep Management Imaging Systems Patient Care & Clinical Informatics...

  • Page 143
    ... of General Lighting Company (GLC) for EUR 158 million. In addition, other intangible fixed assets changed due to the finalization of purchase price accounting related to acquisitions in the prior year. Transfer to assets classified as held for sale in 2014 mainly relate to combined businesses of...

  • Page 144
    ... of investments in common stock of companies in various industries. An amount of EUR 38 million has been reclassified to assets held for sale mainly relating to the contribution agreement between the Philips Pension Fund, Philips and Dutch trade unions on July 1, 2013. 144 Annual Report 2014

  • Page 145
    ... Limited (herein referred to as "UK Pension Fund"). The purchase agreement with the UK Pension Fund included an arrangement that entitled Philips to a cash payment from the UK Pension Fund on or after September 7, 2014, if certain conditions were met. As of December 31, 2013, management's best...

  • Page 146
    ... tax in connection with the Company's purchase of treasury shares is recorded in retained earnings. The following transactions took place resulting from employee option and share plans: Philips Group Employee option and share plan transactions 2013 - 2014 2013 Shares acquired Average market price...

  • Page 147
    ... statements 12.9 In order to reduce share capital, the following transactions took place: Philips Group Share capital transactions 2013 - 2014 2013 Shares acquired Average market price Amount paid Reduction of capital stock (shares) Reduction of capital stock (EUR) Total shares in treasury at year...

  • Page 148
    ... financial statements 12.9 Cash flows before financing activities, being the sum of net cash from operating activities and net cash from investing activities, are presented separately to facilitate the reader's understanding of the Company's funding requirements. Philips Group Net operating capital...

  • Page 149
    ... 7.210% 3.906% 5.273% Provisions Philips Group Provisions in millions of EUR 2013 - 2014 2013 longterm Provisions for definedbenefit plans (see note 20) Other postretirement benefits (see note 20) Product warranty Environmental provisions Restructuring-related provisions Litigation provisions Other...

  • Page 150
    ... next five years. The remaining portion relates to longer-term remediation activities. Philips Group Environmental provisions in millions of EUR 2012 - 2014 2012 Balance as of January 1 Changes: Additions Utilizations Releases Changes in discount rate Accretion Translation differences Purchase price...

  • Page 151
    ... (mainly Italy). Restructuring projects at Lighting centered on Luminaires businesses and Light Sources & Electronics, the largest of which took place in the Netherlands, Belgium and in various locations in the US. Innovation, Group & Services restructuring projects focused on the IT and Financial...

  • Page 152
    ...new funding agreement, which became effective January 1, 2014, the Company has no further financial obligation to the Pension Fund other than to pay an agreed fixed contribution for the annual accrual of active members. Executives are in a 'hybrid plan' with an accrual rate of 1.25% per service year...

  • Page 153
    ... independent Boards or by Trustees who have a legal obligation to evenly balance the interests of all stakeholders and operate under the local regulatory framework. United Kingdom The UK plan is executed by a Company Pension Fund. In the UK plan the accrual of new benefits ceased in 2011. A legally...

  • Page 154
    Group financial statements 12.9 Defined-benefit plans: Pensions Movements in the net liabilities and assets for defined benefit pension plans: Philips Group Defined-benefit obligations in millions of EUR 2013 - 2014 2013 Netherlands Balance as of January 1 Service cost Interest cost Employee ...

  • Page 155
    ... 2013 mainly related to the new buy-in value in the UK plan. Plan assets in 2014 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 2014 including experience...

  • Page 156
    ...and global government bonds, investment grade credits, interest rate and inflation swaps and mortgages) and the remaining part in high yield bonds and emerging market debt. The return assets mainly consist of global equities and real estate. The Philips pension plan in the UK operates a fixed income...

  • Page 157
    21 Group financial statements 12.9 The funding of the pension fund in the Netherlands for 2015 consists of a fixed percentage of payroll which applies for a period of 5 years i.e. 2014-2018. The remaining part of the EUR 600 million additional contribution to the pension fund for the Netherlands ...

  • Page 158
    ... in the accrued pension costs is mainly attributable to the US defined benefit plan. See also note 20, Post-employment benefits. For further details on tax related liabilities refer to note 8, Income taxes. total Long-term debt2) Finance lease obligations Short-term debt Operating lease obligations...

  • Page 159
    ... to EUR 21 million. Offbalance-sheet guarantees for year end 2013 were restated from EUR 333 million to EUR 34 million to reflect guarantees related to associates and third-party only. Environmental remediation The Company and its subsidiaries are subject to environmental laws and regulations. Under...

  • Page 160
    ...November 2014 the Company presented its defense at a Hearing with the General Court. United States Subsequent to the public announcement of these investigations in 2007, certain Philips Group companies were named as defendants in class action antitrust complaints by direct and indirect purchasers of...

  • Page 161
    ... on the Company's consolidated financial position, results of operations and cash flows. Consumer Electronics products and small Domestic Appliances Several companies, amongst which the Company, are involved in an investigation by the European Commission into alleged restrictions of online sales of...

  • Page 162
    ...of business, Philips purchases and sells goods and services from/to various related parties in which Philips typically holds a 50% or less equity interest and has significant influence. These transactions are generally conducted with terms comparable to transactions with third parties. Philips Group...

  • Page 163
    ... account dividend payments between the grant date and the vesting date by including reinvested dividends, the market conditions expected to impact relative Total Shareholders' Return performance in relation to selected peers, and the following weighted-average assumptions: Philips Group Assumptions...

  • Page 164
    Group financial statements 12.9 The following tables summarize information about the Company's options as of December 31, 2014 and changes during the year: Philips Group Options on EUR-denominated listed share 2014 weighted average exercise price 21.63 21.03 22.33 24.13 21.65 million in 2014 (2013...

  • Page 165
    ... 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 withholdings, of which the maximum ranges from 10% to 20% of total salary. Generally...

  • Page 166
    Group financial statements 12.9 Philips Group Remuneration costs of individual members of the Board of Management in EUR 2012 - 2014 annual incentive1) performance shares2) stock options2) restricted share rights2) pension costs other compensation3) total costs salary 2014 F.A. van Houten R.H. ...

  • Page 167
    ..., stock options and restricted share rights as well sub-section 10.2.7, LongTerm 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 EUR): Philips Group Accumulated annual pension...

  • Page 168
    ...of the Board of Management are not allowed to hold any derivatives of Philips securities. Philips Group Shares held by Board members1) in number of shares 2014 December 31, 2013 J. van der Veer H. von Prondzynski J.P. Tai F.A. van Houten R.H. Wirahadiraksa P.A.J. Nota 1) 30 Fair value of financial...

  • Page 169
    ... on the basis of the quoted market prices for certain issues, or on the basis of discounted cash flow analysis based upon market rates plus Philips' spread for the particular Philips Group Fair value of financial assets and liabilities in millions of EUR 2014 tenors of the borrowing arrangement...

  • Page 170
    .... 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 171
    ... 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 172
    ... exchange rates. Currency fluctuations may impact Philips' financial results. Philips is exposed to currency risk in the following areas: • Transaction exposures, related to forecasted sales and purchases and on-balance-sheet receivables/ payables resulting from such transactions • Translation...

  • Page 173
    ... in cash and cash equivalents, total long-term debt of EUR 3,712 million and total short-term debt of EUR 392 million. At December 31, 2014, Philips had a ratio of fixed-rate long-term debt to total outstanding debt of approximately 85%, compared to 80% one year earlier. Annual Report 2014 173

  • Page 174
    ... in some publicly listed companies, including TPV Technology Limited. As a result, Philips is exposed to potential financial loss through movements in their share prices. The aggregate equity price exposure in such financial assets amounted to approximately EUR 12 million at year-end 2014 (2013: EUR...

  • Page 175
    ... shares of Volcano for USD 18.00 per share. The total equity purchase price and the settlement of stock option rights involved an amount of USD 955 million (approximately EUR 840 million) and was paid in cash at closing date. Philips is financing the acquisition through a combination of cash...

  • Page 176
    ... note 1, Significant 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...

  • Page 177
    ...financial assets Legal reserve: cash flow hedges Legal reserve: affiliated companies Legal reserve: currency translation differences Retained earnings A Net income1) Treasury shares, at cost: 20,430,544 shares (2013: 24,508,022 shares) Total equity Non-current liabilities: H Long-term debt Long-term...

  • Page 178
    ... reserve Net current period change Income tax on net current period change Reclassification into income Dividend distributed Cancellation of treasury shares Purchase of treasury shares Re-issuance of treasury shares Share-based compensation plans Income tax on sharebased compensation plans Balance...

  • Page 179
    ... related to defined-benefit plans of group companies. D Financial fixed assets The investments in group companies and associates are presented as financial fixed assets in the balance sheet using the equity method. Goodwill paid upon acquisition of investments in group companies or associates...

  • Page 180
    ... Limited (herein referred to as "UK Pension Fund"). The purchase agreement with the UK Pension Fund included an arrangement that entitled Philips to a cash payment from the UK Pension Fund on or after September 7, 2014, if certain conditions were met. As of December 31, 2013, management's best...

  • Page 181
    ... the impact of taxes. Settlements of stock based compensation plans involved a cash inflow of EUR 116 million. Dividend distribution A proposal will be submitted to the 2015 Annual General Meeting of Shareholders to pay a dividend of EUR 0.80 per common share, in cash or shares at the option...

  • Page 182
    ... 2016. General guarantees as referred to in Section 403, Book 2, of the Dutch Civil Code, have been given by the Company on behalf of several group companies in the Netherlands. The liabilities of these companies to third parties and investments in associates totaled EUR 1,546 million as of year...

  • Page 183
    ..., cash flows and changes in equity for the year then ended; and 3. the notes comprising a summary of the significant accounting policies and other explanatory information. The company financial statements comprise: 1. the company balance sheet as at December 31, 2014; 2. the company statement of...

  • Page 184
    ...the financial statements as a result of the program. We also tested monitoring activities executed at different levels of the organization designed to ensure continued effectiveness of the internal control framework during the Finance Transformation. Valuation of goodwill Under EU-IFRSs, the Company...

  • Page 185
    ...by the Company, in particular those relating to the compound sales growth rate and pre-tax discount rate. The cash flow projections, mainly for Healthcare cashgenerating units - Respiratory Care & Sleep Management, Imaging Systems, and Patient Care & Monitoring Solutions and Lighting cash-generating...

  • Page 186
    ... the Annual General Meeting of Shareholders as auditor of Koninklijke Philips N.V. for the year 2015, after which we will mandatorily rotate off from the Philips audit pursuant to Dutch law. Amsterdam, The Netherlands February 24, 2015 KPMG Accountants N.V. E.H.W. Weusten RA 186 Annual Report 2014

  • Page 187
    ... of this Annual Report. Issues meetings, research projects, policy and legislative developments, business development Issues meetings, cross-sector (multi-stakeholder) projects, joint projects, social investment program Webinars, roadshows, capital markets days, investor relations and sustainability...

  • Page 188
    ...Business ethics and General Business Principles Energy efficiency Healthy living Economic downturn and restructuring Expanding middle class in growth geographies Employee health and safety Metrics beyond financials Resource scarcity medium Responsible tax policy Living wage Stakeholder activism...

  • Page 189
    ... 5.2.7, Philips' General Business Principles renewed, of this Annual Report sub-section 6.4.1, About Innovation, Group & Services, of this Annual Report chapter 14, Sustainability statements, of this Annual Report section 5.2, Social performance, of this Annual Report section 5.3, Environmental...

  • Page 190
    .... Data for activities that are divested during the reporting year are not included in full-year reporting. Environmental data are reported for manufacturing sites with more than 50 industrial employees. In line with the discontinued operations presentation in the Group financial statements regarding...

  • Page 191
    ... R&D activities directly contributing to the development of Green Products or Green Technologies. A wide set of additional criteria and boundaries have been defined as the basis for internal and external validation. Environmental data All environmental data from manufacturing operations are reported...

  • Page 192
    ... specific financial statements and notes in this report. Philips Group Distribution of direct economic benefits in millions of EUR 2012 - 2014 2012 Suppliers: goods and services Employees: salaries and wages Shareholders: distribution from retained earnings Government: corporate income taxes Capital...

  • Page 193
    ... programs on the new Learning Management System. By year-end, all Philips employees with an email account had access to the Philips University, there were close to 2,000 active courses, and some 280,000 enrolments. As part of our Accelerate! transformation, we are developing our Philips Excellence...

  • Page 194
    ... of passive industry talent. â-ª Digital career channel (job board, social media site, etc.) - In line with the company's overall focus on increasing its digital footprint, Philips' recruitment marketing team invested more heavily in its digital footprint in 2014. As a result, Philips increased its...

  • Page 195
    ...2010 - 2014 2010 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 IT...

  • Page 196
    ... statements 14.2.5 Philips Group Classification of the concerns investigated in number of reports 2012 - 2014 2012 substantiated Health & Safety Treatment of employees Legal Business Integrity Supply Management IT Other Total 2 22 5 37 1 - 11 78 unsubstantiated 7 150 8 51 - - 4 220 2013...

  • Page 197
    ... due to the high investment risks. The Medical Credit Fund works with African banks to provide these clinics with affordable loans, combined with management training and a quality improvement program, which enhances trust in the clinics among both patients and financial institutions. Every Woman...

  • Page 198
    ...the EICC Code of Conduct and in line with our General Business Principles, we added requirements on Freedom of Association and Collective Bargaining. The topics covered include labor and human rights, worker health and safety, environmental impact, ethics, and management systems. We monitor supplier...

  • Page 199
    ...the last 3 years and don't have - or have resolved all - major NCs. During 2014 we achieved a compliance rate of 86% (2013: 77%). Philips Group Number of initial and continual conformance audits 2014 104 52 8 1 Brazil 9 15 India 3 3 Mexico 5 Continued conformance Initial 3 Others China Audit...

  • Page 200
    ... and solid waste Air emissions Product content restrictions Management systems Certified management system Company commitment Management accountability and responsibility Legal and customer requirements Risk assessment and risk management Improvement objectives Training Communication Worker feedback...

  • Page 201
    ...Supplier training and capacity building Based on many years of experience with the audit program, we know that a combination of audits, capacity building, consequence management and structural attention from management is crucial to realize structural and lasting changes at supplier production sites...

  • Page 202
    ...-based information sharing platform. It connects environmental and Health & Safety officers, human resource managers and general managers from 500 suppliers. Progress During the supplier classroom trainings we included insights from the IDH program. We paid special attention to the relation between...

  • Page 203
    ... and we implement measures in our chain to ensure that our products are not directly or indirectly funding atrocities in the DRC. Philips works towards the following goals: • Stop trade in conflict minerals that benefit armed groups in the DRC or an adjoining country Annual Report 2014 203

  • Page 204
    ... and publish Philips smelter list Step 7 Assess and mitigate sourcing risks Step 8 Report publicly about process and results In 2014 we continued our work with 392 priority suppliers - including 13 from discontinued operations to raise awareness and conduct supply chain investigations into...

  • Page 205
    ... enforce responsible sourcing in long and complex supply chains Contract manufacturers, assembly tens of thousands After having identified smelters in our supply chain, we published our smelter list . Back in 2012 Philips was the first company to make its smelter list public. We did this to drive...

  • Page 206
    ... up and show their commitment to supply chain responsibility by working on improving conditions at the deepest level of the supply chain, mineral sourcing. They have taken a proactive leadership role in forming and supporting the IDH Indonesian Tin Working Group in cooperation with Milieudefensie...

  • Page 207
    ... value include: • Extended and intensified long term business relationships with suppliers and customers • Innovative business models addressing access to services and products instead of ownership • Re-use of parts and components 14.3 Environmental statements This section provides additional...

  • Page 208
    ... to operational changes, data availability for our road freight activities of Consumer Lifestyle and Healthcare in the APAC region was limited. Therefore, The circular economy program The circular economy program in Philips has been running for its second year in 2014 and consists of four strategic...

  • Page 209
    ..." and place a financial value on Philips environmental impacts. The environmental impact of Philips itself is limited as the company is not very energy intensive and is not emitting large quantities of high impact substances. The impact of our supply chain Our Green Operations program, related to...

  • Page 210
    ... Innovation, Group & Services Philips Group 60 44 507 1 612 2011 56 41 463 - 560 2012 79 39 446 - 564 2013 58 38 428 - 524 2014 52 34 388 - 474 Hazardous substances As described above, reduction targets have been set on a selected number of hazardous substances in our Green Operations program. In...

  • Page 211
    ... have plans for new acquisitions to be certified. Philips Group ISO 14001 certification as a % of all reporting organizations 2010 - 2014 2010 Philips Group 94 2011 87 2012 69 2013 79 2014 79 Environmental Incidents In 2014, there were neither incidents nor fines reported in Healthcare. Consumer...

  • Page 212
    ... 599,894 33,708 1 2 1 2 3 - 536 109 18,258 12 25 449 0 3,030 2,764 788 0 2,332 7 Includes manufacturing and non-manufacturing sites One manufacturing site did not start to report environmental data yet Two manufacturing sites did not start to report environmental data yet 212 Annual Report 2014

  • Page 213
    ...developed guidelines as described in Approach to sustainability reporting in the chapter Sustainability statements, of this Annual Report. It is important to view the performance data in the context of these criteria. As part of this, the Board of Management is responsible for such internal control...

  • Page 214
    ...KPMG has audited chapter 12, Group financial statements, of this Annual Report and chapter 13, Company financial statements, of this Annual Report, as well as sections section 5.2, Social performance, of this Annual Report, section 5.3, Environmental performance, of this Annual Report and chapter 14...

  • Page 215
    ... Employment note 6, Income from operations For all Philips businesses, guidance is applicable regarding collective bargaining agreements. See General Business Principles. The actual percentage of employees covered by collective bargaining agreements is managed and monitored at local level. Philips...

  • Page 216
    ... Engagement profile disclosure G4-17 description 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...

  • Page 217
    ..." section 7.1, Our approach to risk management and business control chapter 10, Supervisory Board report chapter 11, Corporate governance G4-41 G4-42 G4-43 The measures taken to develop and enhance the highest governance body's collective knowledge Processes for evaluating the highest governance...

  • Page 218
    ... 10.2, Report of the Remuneration Committee section 11.1, Board of Management section 11.2, Supervisory Board note 29, Information on remuneration section 11.3, General Meeting of Shareholders section 11.4, Meeting logistics and other information section 11.5, Investor Relations Philips does not...

  • Page 219
    ... - 2014 details" sub-section 14.3.3, Green Operations note 20, Post-employment benefits Philips does not receive significant financial assistance from governments. For all Philips businesses, guidance is applicable regarding equal and fair treatment and wages and payment. See General Business...

  • Page 220
    ... of activities, products and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas Habitats protected or restored Total number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of...

  • Page 221
    ...and Safety topics in these agreements is monitored locally and not considered relevant to be reported at Group level. sub-section 5.2.5, Developing our people The number of enrollments and the training spend are managed and monitored on consolidated level. The hours of training per year per employee...

  • Page 222
    ...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 data on consolidated level not relevant. sub-section 14.2.5, General Business...

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    ... The actual percentage of security personnel trained in the organization's human rights policies or procedures that are relevant to operations is managed and monitored at local level. Philips considers this data on consolidated level not relevant. Philips is not operational in areas with indigenous...

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    ...sub-section 14.3.3, Green Operations - "Environmental incidents" See General Business Principles. 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 are assessed for...

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    ...in consolidation. As indicated in the note 1, 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 currency movements...

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    ...EUR 2012 - 2014 Philips Group 2014 EBITA Amortization of intangible assets1) Impairment of goodwill Income from operations (or EBIT) 821 (332) (3) 486 616 (159) (1) 456 573 (53) - 520 293 (106) (2) 185 (661) (14) - (675) Healthcare Consumer Lifestyle Lighting Innovation, Group & Services 2013 EBITA...

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    ... Net operating capital to total assets in millions of EUR 2012 - 2014 Philips Group 2014 Net operating capital (NOC) Exclude liabilities comprised in NOC: - payables/liabilities - intercompany accounts - provisions Include assets not comprised in NOC: - investments in associates - current financial...

  • Page 228
    ...the financial strength of the Company. This measure is widely used by management and investment analysts and is therefore included in the disclosure. Philips Group Composition of net debt to group equity in millions of EUR unless otherwise stated 2012 - 2014 2012 Long-term debt Short-term debt Total...

  • Page 229
    ... (see note 1, Significant accounting policies). Due to factors such as acquisitions and divestments, the amounts, percentages and ratios are not directly comparable. Philips Group General data in millions of EUR unless otherwise stated 2010 - 2014 2010 Sales % increase over previous year Income from...

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    ... stated 2010 - 2014 2010 Other liabilities Liabilities directly associated with assets held for sale Debt Provisions Total provisions and liabilities Shareholders' equity Non-controlling interests Group equity and liabilities Net debt: group equity ratio Market capitalization at year-end 10,610...

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    ... continuing operations attributable to shareholders per share Net income (loss) attributable to shareholders Dividend distributed per common share Total shareholder return per common share Shareholders' equity per common share Price/earnings ratio Share price at year-end Highest closing share price...

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    Investor Relations 17 17 Investor Relations 17.1 Key financials and dividend policy Prior-period financial information has been restated for the treatment of the combined businesses of Lumileds and Automotive as discontinued operations (see note 3, Discontinued operations and other assets ...

  • Page 233
    ...1 = EUR 0.8227). This rate is not materially different from the Noon Buying Rate on such date (USD 1 = EUR 0.8264). The following table sets out the exchange rate for US dollars into euros applicable for translation of Philips' financial statements for the periods specified. Annual Report 2014 233

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    ... are held by Philips to cover long-term incentive and employee stock purchase plans. The Dutch Act on Financial Supervision imposes an obligation on persons holding certain interests to disclose (inter alia) percentage holdings in the capital and/or voting rights in the Company when such holdings...

  • Page 235
    ... of the Philips stock price. Further details on the share repurchase programs can be found on the Investor Relations website. For more information see chapter 11, Corporate governance, of this Annual Report. average price paid per share in EUR total number of shares purchased as part of publicly...

  • Page 236
    ...are based on adverse changes in ratings or on material adverse change. Philips Group Credit rating summary 2014 long-term Standard and Poor's Moody's 1) 17.4 Performance in relation to market indices The common shares of the Company are listed on the stock market of Euronext Amsterdam. The New York...

  • Page 237
    ...In millions of shares Philips Group Share information Share listings Ticker code No. of shares issued at Dec. 31, 2014 No. of shares outstanding issued at Dec. 31, 2014 Market capitalization at year-end 2014 Industry classification MSCI: Capital Goods ICB: Diversified Industrials Members of indices...

  • Page 238
    ... as part of the Long-Term Incentive Plan. Philips Group 5-year relative performance: Philips and Dow Jones Industrial Average 2009 - 2014 200 60 Dow Jones Industrial Average 150 40 100 20 Philips NY closing share price monthly traded volume in Philips on New York Stock Exchange, in...

  • Page 239
    ...Report Office Philips Center, HBT 12 P.O. Box 77900 1070 MX Amsterdam, The Netherlands E-mail: [email protected] Communications concerning share transfers, lost certificates, dividends and change of address should be directed to: ABN AMRO Bank N.V. Department Equity Capital Markets/Corporate...

  • Page 240
    ...issue reports on the company. How to reach us Investor Relations contact Royal Philips Philips Center, HBT 14 P.O. Box 77900 1070 MX Amsterdam, The Netherlands Telephone: +31-20-59 77222 Website: www.philips.com/investor E-mail: [email protected] Robin Jansen Head of Investor Relations...

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    ... application 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. Green Products Green...

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    ...investments in associates and financial income and expenses, divided by the average net operating capital at year end and the preceding four quarter ends. Philips believes that ROIC information makes the underlying performance of its businesses more transparent as it relates returns to the operating...

  • Page 243
    ... contain the statutory financial statements of the 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). Annual Report 2014 243

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