Philips 2014 Annual Report Download - page 2

2 Annual Report 2014
Contents
Signicant developments
In September 2014 Philips announced its plan to sharpen its strategic focus
by establishing two stand-alone companies focused on the HealthTech and
Lighting Solutions opportunities.
To achieve this transformation, from January 1, 2015, Philips started to
integrate the sectors Consumer Lifestyle and Healthcare into one operating
company focused on our HealthTech businesses. At the same time Philips is
taking the next step in the implementation of its new operating model
which will give the company a dedicated, focused and lean management
structure, as a result of the planned integration of the relevant sector and
group layers.
The establishment of the two stand-alone companies will also involve the
split and allocation of the current Innovation, Group & Services sector to
each company in 2015. This means that in the course of 2015 the IG&S
sector as currently described in this Annual Report will disappear and no
longer be presented as a separate segment for reporting purposes.
Philips also started the process to carve out its Lighting business into a
separate legal structure and will consider various options for ownership
structures for this company with direct access to capital markets. The
proposed separation of the Lighting business impacts all businesses and
markets as well as all supporting functions and all assets and liabilities of
the Group and may require complex and time consuming disentanglement
eorts. Philips expects the separation will take approximately 12-18 months
and currently estimates separation costs to be in the range of EUR 300-400
million in 2015. However, the separation could take more time than
originally planned or anticipated, which may expose Philips to risks of
additional cost and other adverse consequences. It should be noted that
there is no certainty as to the method or timing of the separation of the
Lighting business. For further information on specic risks involved in the
separation please refer to chapter 7, Risk management, of this Annual
Report.
Finally, Philips is in discussion with external investors for the combined
Lumileds and Automotive Lighting businesses and expects to complete a
transaction in the rst half of 2015. Therefore, the combined businesses of
Lumileds and Automotive are reported as discontinued operations in the
Consolidated statements of income and cash ows. As a result, Lumileds
and Automotive sales and EBITA are no longer included in the Lighting and
Group results of continuing operations. Prior-period nancial information
presented and discussed in this Annual Report 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 classied as held for sale). The applicable assets and liabilities of
these combined businesses are reported under Assets and Liabilities
classied as held for sale in the consolidated balance sheets as of
December 31, 2014.
These developments will have a signicant impact on Philips and its
organization in many respects. From an external nancial 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 that stage, and in view of applicable IFRS requirements, Philips will
report and discuss its nancial performance on the basis of dierent
reportable segments than the sectors currently presented and discussed in
this Annual Report.
Further updates will be provided in the course of 2015.
IFRS basis of presentation
The nancial information included in this document is based on IFRS, as
explained in the note 1, Signicant accounting policies, unless otherwise
indicated.
Forward-looking statements and other information
Please refer to chapter 19, Forward-looking statements and other
information, of this Annual Report for more information about forward-
looking statements, third-party market share data, fair value information,
IFRS basis of preparation, use of non-GAAP information, statutory nancial
statements and management report, and reclassications.
Dutch Financial Markets Supervision Act
This document comprises regulated information within the meaning of the
Dutch Financial Markets Supervision Act (Wet op het Financieel Toezicht).
Statutory nancial statements and management report
The chapters Group nancial statements and Company nancial statements
contain the statutory nancial statements of the Company. The introduction
to the chapter Group nancial 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).
1Performance highlights 4
2Message from the CEO 6
3Philips in 2014 at a glance 9
4Our strategic focus 10
4.1 Addressing global challenges 10
4.2 How we create value 12
4.3 Accelerate! journey continues 14
4.4 Lives improved 15
4.5 Global presence 15
4.6 Our strategy in action 16
5Group performance 21
5.1 Financial performance 21
5.2 Social performance 32
5.3 Environmental performance 38
5.4 Proposed distribution to shareholders 43
5.5 Outlook 43
6Sector performance 44
6.1 Healthcare 45
6.2 Consumer Lifestyle 51
6.3 Lighting 56
6.4 Innovation, Group & Services 62
7Risk management 67
7.1 Our approach to risk management and business
control
67
7.2 Risk categories and factors 69
7.3 Strategic risks 69
7.4 Operational risks 71
7.5 Compliance risks 73
7.6 Financial risks 74
7.7 Separation risk 75
8Management 76
9Supervisory Board 78
10 Supervisory Board report 80
10.1 Report of the Corporate Governance and
Nomination & Selection Committee
83
10.2 Report of the Remuneration Committee 83
10.3 Report of the Audit Committee 88
11 Corporate governance 90
11.1 Board of Management 90
11.2 Supervisory Board 94
11.3 General Meeting of Shareholders 97
11.4 Meeting logistics and other information 99
11.5 Investor Relations 101