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Annual Report
2015
Creating two
companies with
a bright future

Table of contents

  • Page 1
    Annual Report 2015 Creating two companies with a bright future

  • Page 2
    ...& Selection Committee 10.2 Report of the Remuneration Committee 10.3 Report of the Audit Committee 11 Corporate governance 11.1 11.2 11.3 11.4 11.5 Board of Management Supervisory Board General Meeting of Shareholders Meeting logistics and other information Investor Relations 2 Annual Report 2015

  • Page 3
    ...17.5 17.6 Key financials and dividend 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
    ... Philips Group Key data in millions of EUR unless otherwise stated 2014 - 2015 2014 Sales Comparable sales growth EBITA as a % of sales EBIT as a % of sales Net income Net income attributable to shareholders per common share in EUR: basic diluted Net operating capital Free cash flow Shareholders...

  • Page 5
    ...580 Healthcare 2,270 2,605 Consumer Lifestyle Lighting As a % of sales Philips Group Operational carbon footprint in kilotonnes CO2-equivalent 2011 - 2015 2,022 130 46.3% 38.8% 1,807 167 1,898 220 1,697 176 1,600 183 Discontinued operations Manufacturing Non-industrial operations Business travel...

  • Page 6
    ... - separating out our Lighting business and moving away from a diversified holding structure to create two stand-alone companies, each with their own clearly defined strategic direction and focus. We believe this is the best way to create lasting value for our customers and shareholders and a bright...

  • Page 7
    ..., forming an 'information pathway'. This is opening up new applications where we can deliver extraordinary value beyond illumination, also via new service-based business models. As a more agile, stand-alone company with direct access to capital markets, we believe that our Lighting business will be...

  • Page 8
    ...to LED systems, building the largest IoT connected installed base; capturing adjacent value through new Services business models; and being its customers' best business partner locally, leveraging its global scale. Subject to approval by the 2016 Annual General Meeting of Shareholders I would like...

  • Page 9
    ... to transform patient care June 25 Philips connected lighting a key feature of sustainable office building The Edge in Amsterdam July 6 Philips opens GrowWise City Farming research center in Eindhoven to develop light growth recipes September 3 Philips introduces personal health programs at IFA...

  • Page 10
    ... therapies, faster recovery and better outcomes Home care Support recovery and chronic care at home Connected care and health informatics Improve population health outcomes and efficiency through optimized care coordination, real-time analytics and value-added services 10 Annual Report 2015

  • Page 11
    ...company, our Lighting business is well positioned to capture the value that is shifting from individual products to connected LED lighting systems and services, more than offsetting the decline of conventional lighting. Its total addressable market is estimated at over EUR 65 billion. Annual Report...

  • Page 12
    ... new Services business models with recurring revenue streams, e.g. Light as a Service. And, leveraging its global scale, it will continue to strive to be its customers' best business partner locally. 4.2 How we create value Understanding and meeting people's needs Building upon our long history...

  • Page 13
    ....8 billion • Market capitalization EUR 21.6 billion Financial • Comparable sales growth 2.2% • EBITA as % of sales 5.7% • Free cash flow EUR 325 million • Dividend EUR 730 million • Corporate taxes paid EUR 280 million Strategy Where we invest Excellence How we operate Manufacturing...

  • Page 14
    ... Productivity and margin improvements Rebuild culture, processes, systems and capabilities Implement the Philips Business System 2011 2016 For 2016, we continue to expect modest comparable sales growth and we will build on our 2015 operational performance improvement. Taking into account...

  • Page 15
    ..., CIA Factbook & Wikipedia 4.5 Global presence Regions Sales in millions of EUR Number of employees Employees female Employees male R&D centers Manufacturing sites Tangible and intangible assets in millions of EUR Asia & Pacific EMEA Latin America North America 6,990 7,948 1,211 8,095 32,533 39...

  • Page 16
    Our strategic focus 4.6 4.6 Our strategy in action Training tomorrow's lifesavers At Philips, we build relationships to ensure that our products and solutions are addressing people's needs in the right way. And that means supplying help as well as hardware. In a technologically advanced world, it...

  • Page 17
    ... Life Centers are a total solution for primary healthcare facilities, combining an integrated set of appropriate technologies with design, implementation and support services. Since the opening of the Langata Community Life Center the number of children treated has doubled and Ante Natal Care visits...

  • Page 18
    ... personal health programs represent a new era in connected care for consumers, patients and health providers, as healthcare continues to move outside the hospital, and into our homes and everyday lives. They are built on the Philips HealthSuite digital platform, an open and secure, cloud-based...

  • Page 19
    ... key dates in order to provide bespoke guidance, e.g. on baby's developing weight, or on weaning as baby grows. " Being a parent is a life-changing experience, during which we often rely on our intuition," says Aliette van der Wal, Business Leader Mother & Childcare, Health & Wellness. "At Philips...

  • Page 20
    Our strategic focus 4.6 Connected lighting delivering value beyond illumination With Philips CityTouch, Los Angeles remotely manages more than 100,000 street lights to create a more livable city. In 2015, Los Angeles became the first city in the world to control its street lighting through an ...

  • Page 21
    Our strategic focus 4.6 Creating a sustainable office environment Opened in 2015, innovative office building The Edge in Amsterdam received the highest-ever BREEAM score - the leading assessment method for sustainable buildings. A key aspect of the design is a connected lighting system from Philips...

  • Page 22
    ... has been a substantial improvement in health, safety, as well as productivity and energy benefits," says Anoop Nair, Chief Operating Officer, ArcelorMittal, Ostrava. "This gave kind of an explosive or meteoric effect to the employees. And I think it was thanks to Philips." 22 Annual Report 2015

  • Page 23
    ...Lighting business overall. • In line with our mission to improve people's lives, we have embedded sustainability at the heart of our business processes, and Green Product sales increased to 54% of total revenues in 2015. In recognition of our sustainability achievements, Philips was named industry...

  • Page 24
    ... to shareholders per common share in EUR: basic diluted Net operating capital (NOC)1) Free cash flow1) Employees (FTEs) continuing operations discontinued operations 1) Consumer Lifestyle Lighting Innovation, Group & Services Philips Group Group sales amounted to EUR 24,244 million in 2015, which...

  • Page 25
    ... to industrial assets at Lighting, EUR 46 million of mainly inventory write-downs related to the voluntary suspension of production at the Cleveland facility, and a past-service pension cost gain of EUR 17 million. Excluding these items, gross margin as a % of sales was broadly in line with 2014...

  • Page 26
    ... mainly due to investments in key growth geographies, such as China and India, and mature geographies such as the United States and Japan. The total advertising and promotion investment as a percentage of sales was 4.1% in 2015, compared to 4.3% in 2014. Philips brand value increased by 6% to over...

  • Page 27
    ... the pension balances as per the Company's accounting policy. For further information, refer to note 20, Postemployment benefits. '11 '12 '13 '14 '15 Philips Group Research and development expenses in millions of EUR 2013 - 2015 2013 Healthcare Consumer Lifestyle Lighting Innovation, Group...

  • Page 28
    ...further information on restructuring, refer to note 19, Provisions. Philips Group Restructuring and related charges in millions of EUR 2013 - 2015 2013 Restructuring and related charges per sector: Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Continuing operations Discontinued...

  • Page 29
    Group performance 5.1.12 In 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 third-party investors for this combined business. As announced on January 22, 2016...

  • Page 30
    ... most directly comparable GAAP measures, see chapter 15, Reconciliation of non-GAAP information, of this Annual Report Philips Group Sales by geographic cluster in millions of EUR 2013 - 2015 24,244 21,990 21,391 8,408 7,668 7,387 1,855 1,759 1,661 8,095 North America Other mature 1) Growth Cash...

  • Page 31
    ... increase of EUR 1,231 million. Additionally, net cash outflows for share buy-back and share delivery totaled EUR 425 million. Please refer to section 12.6, Consolidated balance sheets, of this Annual Report Philips expects the financing in 2016 to be broadly in line with 2015. Annual Report 2015...

  • Page 32
    ... increased Free cash flow +3251) equity by EUR 82 million and net share-based Other +82) compensation plans increased equity by EUR 82 Debt +1,231 million. Acquisitions Treasury share transaction Dividend Discontinued operations 2015 -107 -425 -298 +79 1,766 -1,137 At the end of 2015, long-term...

  • Page 33
    ... as the market interest rate changes Philips has commitments related to the ordinary course of business which in general relate to contracts and purchase order commitments for less than 12 months. In the table, only the commitments for multiple years are presented, including their short-term portion...

  • Page 34
    Group performance 5.1.23 Philips continues to recognize these liabilities as trade payables and will settle the liabilities in line with the original payment terms of the related invoices. Our people At Philips, a key element of our vision is to offer the best place to work for people who share ...

  • Page 35
    ... compared to 2014, mainly driven by Healthcare in Greater China and North America, Consumer Lifestyle in Greater China, ASEAN and North America, and Lighting in North America and the Indian subcontinent. Philips Group Lives improved in billions In 2015, MAS had an average employee response rate of...

  • Page 36
    ... 14 15 Male '13 '14 '15 25-35 '13 '14 '15 35-45 '13 '14 '15 45-55 '13 '14 '15 over 55 5.2.4 Employment The total number of Philips Group employees (continuing operations) was 104,204 at the end of 2015, compared to 105,365 at the end of 2014. Approximately 38% were employed in the Healthcare sector...

  • Page 37
    ...new learning channels to improve capability building and focus on business-critical topics and key roles that will increase the impact of the University. More than one million hours in total were spent on training through Philips University in 2015. Training spend Our external training spend in 2015...

  • Page 38
    ...Philips has a direct business relationship with approximately 10,000 product and component suppliers and 30,000 service providers. In many cases the sustainability issues deeper in our supply chain require us to intervene beyond tier 1 of the chain. Supplier sustainability programs We have developed...

  • Page 39
    ... Indonesia, Philippines, Russia and Ukraine. These audits directly or indirectly relate to the working conditions of almost 116,000 workers at the production sites that were audited. Philips Group Distribution of supplier audits by country 2015 Philips' shares the concern about issues in the mining...

  • Page 40
    ... amount as in 2014. Increasing investments in digital lighting solutions and cloud computing have led to further improvements in the area of energy efficiency. In 2015, Los Angeles became the first city in the world to control its street lighting through an advanced Philips management system that...

  • Page 41
    ...these resources more effectively. It is a driver of innovation in the areas of material, component and product re-use, as well as new business models such as system solutions and services. In a circular economy, more effective (re)use of materials enables the creation of more value, both by means of...

  • Page 42
    ... to support our customers in reducing their waste streams. Another example is our Home Monitoring business which operates by a performance-based service business model that enables 76% re-use of products and parts while maintaining the embedded labor and energy. The Efficia is a new Green Product in...

  • Page 43
    ... '15 Philips Group Operational carbon footprint by Greenhouse Gas Protocol scopes in kilotonnes CO2-equivalent 2011 - 2015 2011 Scope 1 Scope 2 (market based) Scope 3 Philips Group Scope 2 (location based) 381 365 1,146 1,892 579 2012 355 335 950 1,640 584 2013 361 313 1,004 1,678 583 2014 320 277...

  • Page 44
    ... 4,411 Philips Group Total waste in kilotonnes 2011 - 2015 2011 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Continuing operations Discontinued operations Philips Group 9.3 19.6 58.1 87.0 7.0 94.0 2012 10.4 12.7 57.5 80.6 7.0 87.6 2013 9.6 11.4 54.9 75.9 16.1 92.0 2014 9.8 11...

  • Page 45
    ... a share dividend resulting in the issue of 17,671,990 new common shares, leading to a 1.9% dilution. EUR 298 million was 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...

  • Page 46
    ..., human resources, IT and real estate are reported in this sector, as well as certain pension costs. At the end of 2015, Philips had 95 production sites in 25 countries, sales and service outlets in approximately 100 countries, and 112,959 employees. 2016 and beyond In September 2014, Philips...

  • Page 47
    ...costs. Consumers are becoming increasingly engaged in managing their own health, with greater attention being focused on the benefits of healthy living and home care. Mobile and digital technologies are significant enablers of this trend, leading to new care delivery models - Annual Report 2015 47

  • Page 48
    ... application development, enhanced patient centricity and engagement. Philips Healthcare Total sales by business as a % 2015 Imaging Systems Patient Care & Monitoring Solutions Healthcare Informatics, Solutions & Services Customer Services 6 26 31 37 Sales at Philips' health systems businesses...

  • Page 49
    ... related to Volcano, comparable sales increased by 4%. Healthcare Informatics, Solutions & Services achieved mid-singledigit growth, Imaging Systems posted high-single-digit growth, Customer Services reported low-single-digit growth, while Patient Care & Monitoring Solutions was in line with 2014...

  • Page 50
    ...10.9 Net operating capital Sales 6.1.6 2016 and beyond In September 2014, Philips announced its plan to sharpen its strategic focus by establishing two stand-alone companies focused on the HealthTech and Lighting opportunities respectively. Philips has transferred its Lighting business into a stand...

  • Page 51
    ... are real-time, highly personal and direct them towards better health. In a connected, digital world, consumers are looking for smart, personalized solutions. Purchase decisions are increasingly made or influenced online. In 2015, economic headwinds, especially in growth markets, created pressure on...

  • Page 52
    ...Wellness: mother and child care, oral healthcare, pain management • Personal Care: male grooming, beauty • Domestic Appliances: kitchen appliances, coffee, air purification, garment care, floor care Philips Consumer Lifestyle Total sales by business as a % 2015 We are leveraging connectivity to...

  • Page 53
    ... of EUR 2011 - 2015 6.2.4 2015 financial performance Philips Consumer Lifestyle Key data in millions of EUR unless otherwise stated 2013 - 2015 2013 Sales Sales growth % increase, nominal % increase, comparable1) EBITA EBIT as a % of sales Net operating capital (NOC) Cash flows before financing...

  • Page 54
    ... two standalone companies focused on the HealthTech and Lighting opportunities respectively. Philips has transferred its Lighting business into a stand-alone structure effective February 1, 2016 and has moved from a holding company model to an operating company model. 54 Annual Report 2015

  • Page 55
    ...and adjacent value from new services-based business models. Our leadership positions, innovations and strong brand present a catalyst for value creation, growth and a solid foundation on which to become a stand-alone lighting company." Eric Rondolat, CEO Philips Lighting • The lighting industry is...

  • Page 56
    ... value through new services business models • Be our customers' best business partner locally, leveraging our global scale • Use our Accelerate! program to improve our operational excellence We aim to further invest to support our leadership in LED and connected lighting systems and services...

  • Page 57
    ... 6.3.4 2015 financial performance Philips Lighting Key data in millions of EUR unless otherwise stated 2013 - 2015 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) Cash flows before...

  • Page 58
    ... of non-GAAP information, of this Annual Report Other mature 2,030 North America 6.3.5 Delivering on EcoVision sustainability 1,832 1,991 commitments Early in 2015, Philips Lighting engaged in a 'Light as a Service' business arrangement with Amsterdam Airport Schiphol. Under the terms of this...

  • Page 59
    ... market conditions and other relevant circumstances. As previously stated, we are reviewing all strategic options for Philips Lighting, including an initial public offering and a private sale. From an external financial reporting perspective, it should be noted that Royal Philips will introduce new...

  • Page 60
    ...activities of Philips 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 61
    ...concept aimed at supporting family-centered and developmental care, improved parental experience, long-term development and quality of life for pre-term babies. Increasingly we are leveraging our design capabilities and processes to work directly with our customers and our customer-facing teams. For...

  • Page 62
    ...Philips with key stakeholders, especially our employees, customers, governments and society. These organizations include the Executive Committee, Brand Management, Sustainability, New Venture Integration, the Group functions related to strategy, human resources, legal and finance, as well as country...

  • Page 63
    ... stated 2013 - 2015 2013 Sales Sales growth % increase (decrease), nominal % increase (decrease), comparable1) EBITA of: Group Innovation IP Royalties Group and regional costs Accelerate! investment Pensions Service units and other EBITA 1) EBIT Net operating capital (NOC)1) Cash flows before...

  • Page 64
    ... Board quarterly. As part of the Annual Report process, management's accountability for business controls is enforced through the formal issuance of a Statement on Business Controls and a Corporate governance Corporate governance is the system by which a company is directed and controlled. Philips...

  • Page 65
    ... the Chief Market Leader and the Chief Financial Officer. They are supported by a secretariat and a network of GBP compliance Officers in all countries and at all major sites where Philips has operations. Related roles and responsibilities are laid down in the Charter of the GBP Review Committee. In...

  • Page 66
    ... 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 and reporting Corporate Governance Philips Business...

  • Page 67
    ..., invest in local talents, understand developments in end-user preferences and localize the portfolio in order to stay competitive. If Philips fails to achieve this, then this could have a material adverse effect on growth ambitions, financial condition and operating result. Annual Report 2015 67

  • Page 68
    ...solution and product creation process, ensuring timely delivery of new solutions and products at lower cost and upgrading of customer service levels to create sustainable competitive advantage, are important in realizing Philips' profitable growth ambitions. The emergence of new low-cost competitors...

  • Page 69
    Risk management 7.4 may face an erosion of its market share and competitiveness, which could have a material adverse effect on its financial condition and operating results. Risk of unauthorized use of intellectual property rights Philips produces and sells products and services which incorporates ...

  • Page 70
    ... its relationships with key customers (both customers for end products and customers that use Philips' products in their production process). As a result, product liability claims could materially impact Philips' financial condition and operating results. Any damage to Philips' reputation could have...

  • Page 71
    ... its 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 flow risk...

  • Page 72
    ... market and demographic developments, creating volatility in Philips' financials. A significant proportion of (former) employees in Europe and North and Latin America is covered by defined-benefit pension plans and other post-retirement plans. The accounting for such plans requires management...

  • Page 73
    ... as strategic risks (e.g. insufficient integration of acquisitions), operational risks (e.g. delays in innovation-to-market), compliance risk (e.g. ineffective internal controls) and financial risks (e.g. reporting risks). The design and execution of the separation will involve and depend on support...

  • Page 74
    ...& Chief Financial Officer (CFO) Member of the Board of Management since December 2015 Group responsibilities: Finance, Capital structure, Mergers & Acquisitions, Investor Relations, Accelerate! - Operating Model Corporate governance A full description of the Company's corporate governance structure...

  • Page 75
    ... Pieter Nota Born 1964, Dutch Executive Vice President & Chief Executive Officer of Personal Health, Chief Marketing Officer, Member of the Board of Management since April 2011 Group responsibilities: Sector Consumer Lifestyle, Accelerate! - Resource to Win, Marketing Annual Report 2015 75

  • Page 76
    ... Board since 2012; first term expires in 2016 Currently Managing Director of Hewlett-Packard Enterprise India Orit Gadiesh Born 1951, Israeli/American 1) Member of the Supervisory Board since 2014; first term expires in 2018 Currently Chairman of Bain & Company and the International Business...

  • Page 77
    ... Board since 2011; second term expires in 2019 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...

  • Page 78
    ... lighting to LED applications; • Performance of the Philips Group and its underlying businesses and financial headroom; • Philips' annual management commitment and annual operating plan for 2016; • Capital allocation, including the dividend policy and continuance of the share buyback program...

  • Page 79
    ... marketing, manufacturing, technology, financial, economic, social, quality & regulatory and legal aspects of international business, government and public administration in relation to the global and multi- product character of Philips' businesses. The Supervisory Board pays great value...

  • Page 80
    ... the training and education efforts around Quality & Regulatory matters being implemented in the Company. Members of the Q&R Committee visited sites and reviewed quality systems in the United States and the Netherlands. Supervisory Board remuneration The agenda for the upcoming 2016 Annual General...

  • Page 81
    ...member of the Board of Management and Chief Financial Officer. • Ron Wirahadiraksa and Jim Andrew left the company, Patrick Kung retired. 10.1 Report of the Corporate Governance and Nomination & Selection Committee The Corporate Governance and Nomination & Selection Committee is chaired by Jeroen...

  • Page 82
    ... Plan (see sub-section 10.2.7, Long-Term Incentive Plan, of this Annual Report) respectively. Key features of our Executive Committee Compensation Program The list below highlights Philips' approach to remuneration, in particular taking into account Corporate Governance practices in the Netherlands...

  • Page 83
    ... of the current pension costs see sub-section 10.2.8, Pensions, of this Long-Term Incentive Plan (LTI) in 2013, the guideline for Annual Report. members of the Board of Management to hold a certain number of shares in the Company was increased to the 10.2.5 Annual base compensation level of at...

  • Page 84
    ... the Board of Management at 100% of base compensation. This is broadly 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 85
    Supervisory Board report 10.2.7 For more details of the LTI Plan see note 28, Sharebased compensation. TSR results Philips LTI Plan 2013 grants Koninklijke Philips: 34.15% Total Shareholder Return ranking per December 31, 2015 Start date: December 2012 End date: December 2015 Company Panasonic ...

  • Page 86
    ... headed 'Philips Group Performance Shares' in this section does not reflect this 10.2.9 Additional arrangements In addition to the main conditions as stipulated in the adjustment. contracts for the provision of services, a number of additional arrangements apply to members of the Board of Management...

  • Page 87
    ..., the Chief Legal Officer, the Head of Internal Audit and the external auditor as well as on an ad hoc basis with other company employees, such as the Group Treasurer, the Group Accountant, the Head of Mergers, Acquisitions and Divestments and the Head of Financial Risk and Pensions Management. The...

  • Page 88
    ... to the Company's capital structure following the proposed sale of Lumileds and Automotive (including its classification as discontinued operations), the Volcano acquisition and the accounting therefore, the intended separation of the Lighting business and its potential impact on the 2015 financial...

  • Page 89
    ... governance practice and the New York Stock Exchange corporate governance standards is published on the Company's website (www.philips.com/investor). In this report, the Company addresses its overall corporate governance structure and states to what extent and how it applies the principles and best...

  • Page 90
    ... of another supervisory board. In order for a company or foundation to be regarded as large, it must meet at least two of the following criteria: (i) the value of the assets according to the balance sheet with explanatory notes, considering the acquisition or manufacturing price, exceeds EUR 20...

  • Page 91
    ... payment is limited to a maximum of one year's 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...

  • Page 92
    ... design and effectiveness of internal controls and reviews in group and Business Group, Market and Function Audit & Risk committees are integral parts of the Company's risk management approach. On the basis thereof, the Board of Management confirms that internal controls over financial reporting...

  • Page 93
    Corporate governance 11.1 with section 404 is set forth in section 12.1, Management's report on internal control, of this Annual Report. Next to the Philips General Business Principles (GBP), the Company has a Financial Code of Ethics which additionally applies to designated senior executives, ...

  • Page 94
    ... Board report, of this Annual Report for more information on the composition and activities of these committees. In line with US and Dutch best practices, the Chairman of the Supervisory Board must be independent pursuant to the Dutch Corporate Governance Code and under the applicable US standards...

  • Page 95
    ... Company held by a Supervisory Board member are long-term investments. The Supervisory Board has adopted a policy on ownership of and transactions in non-Philips securities by members of the Supervisory Board. This policy is included in the Rules of Procedure of the Supervisory Board. The Corporate...

  • Page 96
    ...performance, as well as the Company's process for monitoring compliance with laws and regulations and the General Business Principles (GBP). It reviews the Company's annual and interim financial statements, including non-financial information, prior to publication and advises the Supervisory Board...

  • Page 97
    ... the financial 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...

  • Page 98
    ... consolidated balance sheet and notes thereto as published in the last adopted annual accounts of the Company, by the Company or one of its subsidiaries. Thus the Company applies principle IV.1 of the Dutch Corporate Governance Code within the framework of the Articles of Association and Dutch law...

  • Page 99
    ... procedure within the meaning of section 2:344 Dutch Civil Code. Annual financial statements The annual financial statements are prepared by the Board of Management and reviewed by the Supervisory Board upon the advice of its Audit Committee and taking into account the report of the external...

  • Page 100
    ... publication of the Annual Report, the annual accounts, the quarterly figures and ad hoc financial information. As from 2003, the internal assurance process for business risk assessment has been strengthened and the review frequency has been upgraded to a quarterly review cycle, in line with best...

  • Page 101
    ...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 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 23, 2016 102 Annual Report 2015

  • Page 103
    ... 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 104
    ... consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board in the US, which will be included in the Annual Report on Form 20-F expected to be filed with the US Securities and Exchange Commission on February 23, 2016. 104 Annual Report 2015

  • Page 105
    ... 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, 2015 and 2014, and the related consolidated statements of income, comprehensive income, cash flows, and changes in equity...

  • Page 106
    ... ended December 31 2013 Sales Cost of sales Gross margin Selling expenses Research and development expenses General and administrative expenses Impairment of goodwill Other business income Other business expenses 6 7 7 Income from operations Financial income Financial expenses Income before taxes...

  • Page 107
    ... the years ended December 31 2013 Net income for the period 1,172 2014 411 2015 659 Pensions and other post-employment plans: Remeasurements Income tax effect on remeasurements Revaluation reserve: Release revaluation reserve Reclassification directly into retained earnings Total of items that will...

  • Page 108
    ... assets Current derivative financial assets Income tax receivable Receivables: - Accounts receivable - Accounts receivable from related parties - Other current receivables 4,476 14 233 4,723 3 31 Assets classified as held for sale Cash and cash equivalents Total current assets Total assets 1,613...

  • Page 109
    ... Accounts and notes payable: - Trade creditors - Accounts payable to related parties 2,495 4 2,499 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 110
    ... in associates Dividends paid to non-controlling interests Income taxes paid Net cash provided by operating activities Cash flows from investing activities Net capital expenditures Purchase of intangible assets Expenditures on development assets Capital expenditures on property, plant and equipment...

  • Page 111
    .... 31, 2013 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 sharebased compensation plans Balance as of Dec. 31, 2014 Total...

  • Page 112
    ...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 on May 12, 2016. Changes in accounting policies The accounting policies...

  • Page 113
    ... 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 classes of gross...

  • Page 114
    ... a pre-tax discount rate that reflects current market assessments of the time value of money. The increase in the provision due to passage of time is recognized as interest expense. The accounting and presentation for some of the Company's provisions is as follows: • Product warranty - A provision...

  • Page 115
    ... financial statements and related notes for all periods presented. Comparatives in the balance sheet are not represented when a non-current asset or disposal group is classified as held for sale. Comparatives are represented for presentation of discontinued operations in the Statement of cash flow...

  • Page 116
    ... from business plans and other information available for estimating their fair value, which is based on estimated future cash flows discounted at the asset's original effective interest rate. Any impairment loss is charged to the Statement of income. An impairment loss related to financial assets...

  • Page 117
    ... in which the entity operates (functional currency). The euro (EUR) is the functional currency of the Company and presentation currency of the Group financial statements. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates...

  • Page 118
    ...fair value 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...

  • Page 119
    ... 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 120
    ...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 121
    ... on the Group financial statements. In case of the absence of explicit transition requirements for new accounting pronouncements, the Company accounts for any change in accounting policies retrospectively. IFRS accounting standards to be adopted as from 2016 and onwards A number of new standards and...

  • Page 122
    .... The impairment model is based on the concept of providing for expected losses at inception of a contract, except in the case of purchased or originated credit-impaired financial assets, where expected credit losses are incorporated into the effective interest rate. The standard supersedes all...

  • Page 123
    2 Group financial statements 12.9 2 Information by sector and main country Philips Group Information on income statement and cash flow by sector in millions of EUR unless otherwise stated 2013 - 2015 sales including intercompany research and development expenses income from operations income from...

  • Page 124
    Group financial statements 12.9 Philips Group Information on balance sheet and capital expenditure in millions of EUR 2013 - 2015 total assets 2015 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Sector totals Assets classified as held for sale Total assets/liabilities (excl. ...

  • Page 125
    ... of cash flows with the related assets and liabilities as per the end of November 2014 included as Assets classified as held for sale and Liabilities directly associated with assets held for sale in the Consolidated balance sheet. As announced on January 22, 2016, Philips and GO Scale Capital have...

  • Page 126
    ... as held for sale and Liabilities directly associated with assets classified as held for sale in the Consolidated balance sheet as from 2014. Philips Group Assets and liabilities of combined Lumileds and Automotive Lighting businesses in millions of EUR 2014- 2015 2014 Property, plant and equipment...

  • Page 127
    ... before and after the acquisition was as follows: Volcano Balance sheet in millions of EUR 2015 before acquisition date Goodwill Other intangible assets Property, plant and equipment Other assets Other liabilities Working Capital Cash Total assets and liabilities Group Equity Loans Financed by 133...

  • Page 128
    Group financial statements 12.9 6 Philips Group Interests in materially wholly owned subsidiaries in alphabetical order 2015 Legal entity name Invivo Corporation Lumileds Malaysia Sdn. Bhd. Philips (China) Investment Company, Ltd. Philips Consumer Lifestyle B.V. Philips Electronics North America ...

  • Page 129
    ... The average number of employees by category is summarized as follows: Philips Group Employees in FTEs 2013 - 2015 2013 Production Research and development Other Employees 3rd party workers Continuing operations Discontinued operations 50,628 11,757 31,673 94,058 12,194 106,252 10,792 2014 48,110...

  • Page 130
    ... non-strategic businesses. For further information, see note 4, Acquisitions and divestments. In 2015, result on disposal of fixed assets was mainly due to sale of real estate assets. In 2015, result on other remaining businesses mainly relates to non-core revenue and various legal matters. In 2014...

  • Page 131
    ... tax rate and the Netherlands' statutory income tax rate of 25.0% (2014: 25.0%; 2013: 25.0%). A reconciliation of the weighted average statutory income tax rate to the effective income tax rate of continuing operations is as follows: Philips Group Effective tax rate in % 2013 - 2015 2013 Weighted...

  • Page 132
    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 2015 and 2014 respectively are presented in the tables ...

  • Page 133
    ...to the specific service agreements. Total 217 2016 - 2017 4 2018 5 2019 4 2020 2 later 146 At December 31, 2015, net operating loss and tax credit carryforwards for which no deferred tax assets have been recognized in the balance sheet, expire as follows: Philips Group Net operating loss and...

  • Page 134
    ... permanent establishments In countries where Philips starts new operations or alters business models, the issue of permanent establishment may arise. This is because when 9 Earnings per share Philips Group Earnings per share in millions of EUR unless otherwise stated1) 2013 - 2015 2013 Income from...

  • Page 135
    ... combined businesses of Lumileds and Automotive. Impairment charges of EUR 49 million are related to industrial assets in Lighting in 2014. Property, plant and equipment includes financial lease assets with a book value of EUR 203 million at December 31, 2015 (2014: EUR 192 million). Annual Report...

  • Page 136
    ... 2015. Cash flow projections of Respiratory Care & Sleep Management, Image-Guided Therapy, Patient Care & Monitoring Solutions and Professional Lighting Solutions for 2015 were based on the key assumptions Goodwill increased by EUR 627 million in 2015 due to the acquisition of Volcano. The increase...

  • Page 137
    ...-term sales growth rate The assumptions used for the 2014 cash flow projections were as follows: Philips Group Key assumptions in % 2014 compound sales growth rate1) initial forecast period Respiratory Care & Sleep Management Imaging Systems Patient Care & Clinical Informatics Professional Lighting...

  • Page 138
    ...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 Lumileds and Automotive. The impairment charges in 2015 for product development relate to various projects mainly...

  • Page 139
    ... of intangible assets is specified in note 6, Income from operations. Other intangible assets consist of: Philips Group Amortization of other intangible assets in millions of EUR 2014 -2015 Balance as of December 31, 2014 gross Brand names Customer relationships Technology Other Other intangibles...

  • Page 140
    ...; 2013: EUR 172 million). 17 Equity Common shares As of December 31, 2015, the issued and fully paid share capital consists of 931,130,387 common shares, each share having a par value of EUR 0.20. In June 2015, Philips settled a dividend of EUR 0.80 per common share, representing a total value of...

  • Page 141
    ... in treasury at year-end Total cost In 2015, no additional share purchase was needed to cover our share-based compensation plan commitments. In order to reduce share capital, the following transactions took place: Philips Group Share capital transactions 2014 - 2015 2014 2015 20,296,016 EUR 24...

  • Page 142
    ... Objectives, policies and processes for managing capital Philips manages capital based upon the measures net operating capital (NOC), net debt and cash flows before financing activities. Philips Group Net operating capital composition in millions of EUR 2013 - 2015 2013 Intangible assets Property...

  • Page 143
    ...and cash equivalents Philips Group Composition of cash flows in millions of EUR 2013 - 2015 2013 Cash flows from operating activities Cash flows from investing activities Cash flows before financing activities 912 (862) 50 2014 1,303 (984) 319 2015 1,167 (1,941) (774) In 2015, total debt increased...

  • Page 144
    ... relate to issued bond discounts, transaction costs and fair value adjustments for interest rate derivatives Secured liabilities In 2015, none of the long-term and short-term debt was secured by collateral (2014: EUR nil million). Environmental provisions Short-term debt Philips Group Short-term...

  • Page 145
    Group financial statements 12.9 Philips Group Environmental provisions in millions of EUR 2013 - 2015 2013 Balance as of January 1 Changes: Additions Utilizations Releases Changes in discount rate Accretion Purchase price allocation adjustment Changes in consolidation Reclassification Translation ...

  • Page 146
    ...2013 Jan. 1, 2013 Healthcare Consumer Lifestyle Lighting Innovation, Group and Services Philips Group 1) 2015 The majority of the ending balance as of December 31, 2015 relates to the patent infringement lawsuit by Masimo Corporation as mentioned in the 2014 paragraph. The majority of the transfers...

  • Page 147
    ...DC) pension plans. The Company also sponsors a number of defined benefit pension plans. The benefits provided by these plans are based on employees' years of service and compensation levels. The Company also sponsors a limited number of defined benefit retiree medical plans. Annual Report 2015 147

  • Page 148
    ... a EUR 1 million past service cost gain. In 2015 in preparation of the split of the Company into Lighting Solutions and HealthTech the benefits of a group of former US employees not having worked for Balance sheet positions The net balance sheet position presented in this note can be explained as...

  • Page 149
    ...for defined benefit pension plans: Philips Group Defined-benefit obligations in millions of EUR 2014 - 2015 2014 Netherlands Balance as of January 1 Service cost Interest cost Employee contributions Actuarial (gains) / losses - demographic assumptions - financial assumptions - experience adjustment...

  • Page 150
    ...: Philips Group Assumptions used for defined-benefit obligations in % 2014 - 2015 2014 Netherlands Discount rate 2.1% other 3.7% 2015 Netherlands other 4.0% 5,088 1,784 312 17,847 388 13 1,265 8,016 740 9 438 2,710 Rate of compensation increase 2.0% 3.0% - 2.7% Asset values related to buy...

  • Page 151
    ...: Philips Group Liability for retiree medical plans in millions of EUR 2014 - 2015 2014 Balance as of January 1 Service cost Interest cost Actuarial (gains) or losses arising from: - Demographic assumptions - Financial assumptions - Experience adjustment Past service cost Benefits paid Exchange rate...

  • Page 152
    ... costs Sales-related costs: - Commission payable 17 161 68 132 56 869 379 2,692 20 168 54 147 69 932 324 2,863 47 51 112 53 46 107 502 179 119 567 180 196 2015 Philips Group Key assumptions in millions of EUR 2014 Defined benefit obligation Pension Netherlands Increase Discount rate (1% movement...

  • Page 153
    ... as market interest rate changes Philips has commitments related to the ordinary course of business which in general relate to contracts and purchase order commitments for less than 12 months. In the table, only the commitments for multiple years are presented, including their short-term portion...

  • Page 154
    .... At the end of 2015, the total fair value of guarantees recognized on the balance sheet amounted to EUR nil million (December 31, 2014: EUR nil million). Remaining off-balance-sheet business and credit-related guarantees provided on behalf of third parties and associates increased by EUR 16 million...

  • Page 155
    Group financial statements 12.9 The Company reached settlements with both the direct purchaser plaintiffs and indirect purchaser plaintiffs fully resolving all claims of the direct and indirect purchaser class. The direct purchaser settlement was approved by the court in 2012, while the indirect ...

  • Page 156
    Group financial statements 12.9 In September 2015, prior to the resubmission of a class certification motion by the direct purchaser plaintiffs, PLDS entered into a settlement agreement with the direct purchaser plaintiffs under which the Company was released from the direct purchaser claims. In ...

  • Page 157
    ... 2012 and to the Board of Management in January 2013. Under the terms of employee stock purchase plans established by the Company in various countries, employees are eligible to purchase a limited number of Philips shares at discounted prices through payroll withholdings. Share-based compensation...

  • Page 158
    ... 2015 2015 EUR-denominated Risk-free interest rate Expected dividend yield Expected share price volatility (0.11)% 4.0% 25% A summary of the status of the Company's performance share plans as of December 31, 2015 and changes during the year are presented below: Philips Group Performance share plans...

  • Page 159
    ... of the Company's restricted shares as of December 31, 2015 and changes during the year are presented below: Philips Group Restricted shares 2015 weighted average grant-date fair value The total intrinsic value of options exercised during 2015 was EUR 21 million (2014: EUR 11 million, 2013: EUR 15...

  • Page 160
    Group financial statements 12.9 29 The aggregate intrinsic value in the tables and text above represents the total pre-tax intrinsic value (the difference between the Company's closing share price on the last trading day of 2015 and the exercise price, multiplied by the number of in-the-money ...

  • Page 161
    ...Annual Report. The tables below give an overview of the performance share plans, restricted share rights and the stock option plans of the Company, held by the members of the Board of Management: Philips Group Number of performance shares (holdings) in number of shares 2015 awarded dividend shares...

  • Page 162
    ... of the Board of Management See note 28, Share-based compensation for further information on performance shares, 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...

  • Page 163
    ... market prices for certain issues, or on the basis of discounted cash flow analysis based upon market rates plus Philips' spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt. Annual Report 2015...

  • Page 164
    Group financial statements 12.9 Philips Group Fair value of financial assets and liabilities in millions of EUR 2014 - 2015 Balance as of December 31, 2014 carrying amount Financial assets Carried at fair value: Available-for-sale financial assets - non-current Securities classified as assets held ...

  • Page 165
    ... of listed equity investments classified as available-forsale financial assets, investees and financial assets designated at fair value through profit and loss. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is...

  • Page 166
    ... risk that reported financial performance or the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Philips operates in many countries and currencies and therefore currency Related amounts not offset in the balance sheet Financial...

  • Page 167
    Group financial statements 12.9 fluctuations may impact Philips' financial results. Philips is exposed to currency risk in the following areas: • Transaction exposures, related to anticipated sales and purchases and on-balance-sheet receivables/ payables resulting from such transactions • ...

  • Page 168
    ...from equity interests in nonfunctional-currency investments in associates and available-for-sale financial assets. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Philips...

  • Page 169
    ... prior to trading, and whenever possible, to have a strong credit rating from Standard & Poor's and Moody's Investor Services. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are...

  • Page 170
    ... Engineering program in place. The main focus of this program is on property damage and business interruption risks including company interdependencies. Regular on-site assessments take place at Philips locations and business critical suppliers by risk engineers of the insurer in order to provide...

  • Page 171
    ... 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 172
    ...sale 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: 14,026,801 shares (2014: 20,430,544 shares) Total equity Non-current liabilities: H Long-term debt Long...

  • Page 173
    ... 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 as of December 31, 2015 186 (23) 101 3 (4) 429 (9) 33...

  • Page 174
    ... 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 is included in the net equity value of the investment and is not...

  • Page 175
    ...for-sale financial assets mainly consist of investments in common shares of companies in various industries. The line additions/acquisitions mainly relates to capital calls for certain investment funds. The impairment movement relates to a specific investment's declining financial performance. Loans...

  • Page 176
    ...-based compensation plans. In order to reduce share capital, the following transactions took place: Koninklijke Philips N.V. Share capital transactions 2014 - 2015 2014 Shares acquired Average market price Amount paid Reduction of capital stock (shares) Reduction of capital stock (EUR) Total shares...

  • Page 177
    ... 63 138 458 659 2015 59 127 314 500 J Employees The number of persons employed by the Company at year-end 2015 was 7 (2014: 9). For the remuneration of past and present members of both the Board of Management and the Supervisory Board, please refer to note 29, Information on remuneration, which is...

  • Page 178
    ..., 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, 2015; 2. the company statements of...

  • Page 179
    ... the intended separation of the Company into HealthTech and Lighting, the acquisition of Volcano Corporation and the continued classification of the Lumileds and Automotive business as Assets Held for Sale and Discontinued operations have been included as a key audit matter. Goodwill Income taxes1...

  • Page 180
    ... presentation of the financial statements. We also assessed the adequacy of the disclosures in Section 12.9, Note 4 Acquisitions and Divestments (Volcano Corporation) and Note 3 Discontinued operations and other assets classified as held for sale (Lumileds and Automotive). 180 Annual Report 2015

  • Page 181
    ... Company, in particular those relating to the compound sales growth rate and pre-tax discount rate. The cash flow projections, mainly for Healthcare cash-generating units (Respiratory Care & Sleep Management, Image-Guided Therapy, Patient Care & Monitoring Solutions and Home Monitoring) and Lighting...

  • Page 182
    ... re-appointed by the Annual General Meeting of Shareholders as auditor of Koninklijke Philips N.V. on May 1, 2014, for the year 2015, after which we will rotate off from the Philips audit. Amsterdam, The Netherlands February 23, 2016 KPMG Accountants N.V. E.H.W. Weusten RA 182 Annual Report 2015

  • Page 183
    ... sustainability in our way of doing business. This is also supported by the inclusion of sustainability in the Philips Mission, Vision and the company strategy. For more information, please refer to chapter 4, Our strategic focus, of this Annual Report. This is our eighth annual integrated financial...

  • Page 184
    ..., employee development process, quarterly update webinars. For more information refer to section 5.2, Social performance, of this Annual Report. Joint (research) projects, business development, Lean value chain projects, consumer panels, Net Promoter Scores, Philips Customer Care centers, Training...

  • Page 185
    ... and restructuring Resource scarcity medium Product responsibility and regulation Business ethics and General Business Principles Energy efficiency Big Data and privacy Responsible supply chains Employee health and safety Metrics beyond financials Responsible tax policy Conflict minerals...

  • Page 186
    ... the value chain. More details on our impact are provided in the relevant sections. The consolidated selected financial information in this sustainability statements section has been derived from the Group Financial Statements, which are based on IFRS. target 2015 50% of total sales 2 billion 2015...

  • Page 187
    ... 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 the Lumileds and Automotive business, we have excluded this data from the consolidated Sustainability data if...

  • Page 188
    ... related to activities not owned or controlled by the Group is reported on for our business travel and distribution activities. The Philips operational carbon footprint (Scope 1, 2 and 3) is calculated on a half-yearly basis and includes the emissions from our: • Industrial sites - manufacturing...

  • Page 189
    ... specific financial statements and notes in this report. Philips Group Distribution of direct economic benefits in millions of EUR 2013 - 2015 2013 Suppliers: goods and services Employees: salaries and wages Shareholders: distribution from retained earnings Government: corporate income taxes Capital...

  • Page 190
    ..., many engineers and architects, sales and account managers and supply chain employees have been trained and have gone through certification paths, gained new capabilities and brought new ways of working to their daily work. Newly developed Marketing education programs are being rolled out globally...

  • Page 191
    ... as an internal best practice program with plans to be deployed globally at all manufacturing units within Philips 14.2.5 beginning in 2016. Philips Group Lost workday injuries per 100 FTEs 2011 - 2015 2011 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Continuing operations...

  • Page 192
    ... cases, corrective action was taken, which varied from strengthening the business processes to increasing awareness of the expected standard of business conduct. Philips Group Breakdown of reported GBP concerns in number of reports 2011 - 2015 2011 Health & Safety Treatment of employees - Collective...

  • Page 193
    ... social and economic Philips Group Classification of the concerns investigated in number of reports 2013 - 2015 2013 substantiated Health & Safety Treatment of employees Legal Business Integrity Supply Management IT Other Total 33 2 32 3 70 unsubstantiated 2 136 2 32 3 1 176 2014 substantiated 1 32...

  • Page 194
    ... and business models. The Innovation Hub employs African talents and operates on the concept of open innovation, working in close collaboration with the R&D ecosystem of Kenya and Africa. In order to strengthen primary care in communities, it developed the concept of Community Life Centers (CLCs...

  • Page 195
    Sustainability statements 14.2.7 refrigeration, IT-solutions and water supply and purification. In 2014, the first center was opened in Kenya, which now delivers two babies per day, and receives 13 times more patients than before. Key for success was close co-creation with the local government and ...

  • Page 196
    ...Philips Supplier Sustainability Declaration The Philips Supplier Sustainability Declaration is based on the EICC Code of Conduct and in line with our General Business Principles. The topics covered include labor and human rights, worker health and safety, environmental impact, ethics, and management...

  • Page 197
    ... waste 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...

  • Page 198
    ... corrective plans in sewage treatment. In 2016, Philips will continue its environmental collaboration with the IPE by intensifying its surveillance over our supplier environmental performance, in order to build a sustainable green supply chain in China. Responsible Sourcing of Minerals: Addressing...

  • Page 199
    ... Republic of Congo (DRC). Philips works towards the following goals: • Eliminate all illicit minerals from the market by steering our supply chain towards sourcing from the conflict free validated smelters only, while working with all relevant industries to increase the number of audited smelters...

  • Page 200
    ... to support the sustainable mining practices through promoting responsible sourcing in Philips supply chain. (IDH, the Sustainable Trade Initiative) are very "We impressed with the commitment and engagement that Philips has showed over the past years as member of the Tin Working Group to address the...

  • Page 201
    ... 2016. In our new supplier sustainability approach we aim to structurally improve the sustainability performance at our suppliers. Within this new approach, one of the key areas to address is Health & Safety at our supplier sites. Philips will focus on training suppliers to manage process chemicals...

  • Page 202
    ...16% compared to 2014. In 2016, we will continue to focus on the most efficient use of facility space and increase the share of purchased electricity from renewable sources. • The total CO2 emissions related to business travel, accounting for 14% of our carbon footprint, showed a slight decrease of...

  • Page 203
    ... site reporting for the first time. The energy use of our discontinued operations amounted to 2,179 terajoules in 2015 (2014: 2,160 terajoules). Philips Group Total energy consumption in manufacturing in terajoules 2011 - 2015 2011 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services...

  • Page 204
    ... organizational changes. Philips Group Total carbon emissions in manufacturing per sector in kilotonnes CO2-equivalent 2011 - 2015 2011 Healthcare Consumer Lifestyle Lighting Innovation, Group & Services Philips Group 57 41 462 560 2012 78 42 443 563 2013 57 37 424 518 2014 50 34 384 468 2015 47 37...

  • Page 205
    ...covering 19 manufacturing sites. Philips Group ISO 14001 certification as a % of all reporting organizations 2011 - 2015 2011 Philips Group 87 2012 69 2013 79 2014 79 2015 78 Environmental Incidents In 2015, one environmental incident with an oil spill was reported in Healthcare. Consumer Lifestyle...

  • Page 206
    Sustainability statements 14.3.3 Sustainability world map Total waste Markets Manufacturing sites Lost Workday Injury rate1) CO2 emitted (Tonnes CO2) Waste (Tonnes) Recycled (%) Water (m3) Emissions (kg) Restricted substances Hazardous substances Africa ASEAN2) Benelux Central & Eastern Europe ...

  • Page 207
    ...information within our scope. Also we held interviews with relevant management and tested documentation on a sample basis to determine whether the information is supported by sufficient evidence. Amsterdam, The Netherlands February 23, 2016 KPMG Accountants N.V. E.H.W. Weusten RA Annual Report 2015...

  • Page 208
    ... from the CEO section 7.2, Risk categories and factors section 7.3, Strategic risks section 7.4, Operational risks section 7.5, Compliance risks section 7.6, Financial risks section 7.7, Separation risk chapter 14, Sustainability statements - "Material aspects and our focus" 208 Annual Report 2015

  • Page 209
    .... 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 information and...

  • Page 210
    ..., relate to geographical location; Specific limitation regarding the Aspect Boundary outside the organization Explanation of the effect of any restatements chapter 14, Sustainability statements G4-22 note 3, Discontinued operations and other assets classified as held for sale note 4, Acquisitions...

  • Page 211
    ... that all material Aspects are covered The process for communicating critical concerns to the highest governance body G4-49 sub-section 5.2.7, General Business Principles section 7.1, Our approach to risk management and business control section 11.1, Board of Management Annual Report 2015 211

  • Page 212
    ... operations to the median percentage increase in annual total compensation for all employees (excluding the highest-paid individual) in the same country cross-reference sub-section 14.2.5, General Business Principles G4-51 section 10.2, Report of the Remuneration Committee note 29, Information...

  • Page 213
    ... locations of operation Development and impact of infrastructure investments and services supported Indirect economic impacts G4-EC7 sub-section 5.2.8, Working with stakeholders sub-section 14.2.6, The Philips Foundation sub-section 6.1.3, 2015 business highlights sub-section 6.3.3, 2015 business...

  • Page 214
    ...waste shipped internationally Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the organization's discharges of water and runoff Extent of impact mitigation of environmental impacts of products and services Percentage of products...

  • Page 215
    ... note 6, Income from operations Benefits provided are fully compliant with all applicable national laws. See General Business Principles. For all Philips businesses, guidance is applicable regarding equal and fair treatment. See General Business Principles. Actual rates are managed and monitored...

  • Page 216
    ... General Business Principles sub-section 14.2.5, General Business Principles sub-section 14.2.8, 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...

  • Page 217
    ... Principles G4-SO4 G4-SO5 Public Policy G4-SO6 Philips does not make political contributions as defined in General Business Principles - 2.5 Dealing responsibly with government,political parties and politicians. section 7.5, Compliance risks Anti-competitive Behavior G4-SO7 Total number of legal...

  • Page 218
    ...of non-compliance related to any type of court order took place in 2015. G4-PR2 Product and service labeling G4-PR3 G4-PR4 G4-PR5 Marketing communications G4-PR6 G4-PR7 Philips measures the Net Promoter Scores, but does not disclose these for confidentiality reason. To the best of our knowledge...

  • Page 219
    ...Philips N.V. (the 'Company') believes that an understanding of sales performance, capital efficiency, financial strength and its funding requirements is enhanced by introducing certain Non-GAAP measures, respectively Comparable sales growth, EBITA, Net operating capital, Net debt, and Free cash flow...

  • Page 220
    ... of non-GAAP information 15 Philips Group Sales growth composition per geographic cluster in % 2013 - 2015 comparable growth 2015 versus 2014 Western Europe North America Other mature geographies Mature geographies Growth geographies Philips Group 1.3 1.4 2.7 1.5 3.5 2.2 1.9 18.4 5.3 10...

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    ... capital to total assets in millions of EUR 2013 - 2015 Consumer Lifestyle Innovation, Group & Services Philips Group 2015 Net operating capital (NOC) Exclude liabilities comprised in NOC: - payables/liabilities - intercompany accounts - provisions Include assets not comprised in NOC: - investments...

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    ... 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 2013 - 2015 2013 Long-term debt Short-term debt Total debt Cash and cash...

  • Page 223
    ... attributable to shareholders Free cash flow Net assets Turnover rate of net operating capital1) Total employees at year-end 1) 2012 22,234 12% 592 (329) (166) (171) 136 (30) (35) 1,645 11,185 2.22 118,087 2013 21,990 (1)% 1,855 (330) 1,034 1,031 138 1,172 1,169 82 11,227 2.39 116,082 2014 21,391...

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    ... 16 Philips Group Financial structure in millions of EUR unless otherwise stated 2011 - 2015 2011 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...

  • Page 225
    ...16 Philips Group Sustainability 2011 - 2015 2011 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...

  • Page 226
    ... of share dividend rights entitled to one new common share will be determined based on the volume-weighted average price of all traded common shares of Koninklijke Philips N.V. at Euronext Amsterdam on 8, 9 and 10 June, 2016. The Company will calculate the number of share 226 Annual Report 2015

  • Page 227
    ... converted into US dollars and paid to holders of shares of the New York Registry: Philips Group Gross dividends on the common shares 2011 - 2015 2011 in EUR in USD 0.75 1.11 2012 0.75 0.94 2013 0.75 0.98 2014 0.80 1.09 2015 0.80 0.89 Exchange rates USD : EUR The following two tables set forth, for...

  • Page 228
    ... number of basic shares outstanding increased from 914 million at December 31, 2014 to 917 million at December 31, 2015. At December 31, 2015, the shares held in treasury amounted to 14 million shares, of which 12 million are held by Philips to cover long-term incentive and employee stock purchase...

  • Page 229
    ... Relations website. For more information see chapter 11, Corporate governance, of this Annual Report. A total of 14,026,801 shares were held in treasury by the Company at December 31, 2015 (2014: 20,430,544 shares). As of that date, a total of 39 million rights under long-term incentive plans...

  • Page 230
    ... change. Philips Group Credit rating summary 2015 long-term Standard & 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 Registry Shares of the Company, representing common shares of...

  • Page 231
    ...24.26 22.05 22.91 5.74 24.37 22.52 23.78 5.74 In millions of shares New York Stock Exchange Philips Group Share price development in New York in USD 2014 - 2015 PHG 2015 High Low Average Average daily volume1) 2014 High Low Average Average daily volume1) 1) Jan 30.31 27.54 28.49 1.34 Feb 30.10...

  • Page 232
    ... Philips NY closing share price 87.5 20 monthly traded volume in Philips on New York Stock Exchange, in millions 75 Jan '15 10 Dec '15 Philips Group Relative performance: Philips and unweighted peer group index1) 2015 120 120 110 110 100 100 Philips Amsterdam closing share price Philips...

  • Page 233
    ...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 234
    ... of shareholders. More information on the activities of Investor Relations can be found in chapter 11, Corporate governance, of this Annual Report. Group Communications contact Royal Philips Philips Center, HBT 19 Amstelplein 2 1096 BC Amsterdam, The Netherlands E-mail: group.communications@philips...

  • Page 235
    ... is a product that uses, generates, transfers or measures energy (electricity, gas, fossil fuel). Examples include boilers, computers, televisions, transformers, industrial fans and industrial furnaces. Free cash flow Free cash flow is the net cash flow from operating activities minus net capital...

  • Page 236
    ... uses Productivity internally and as mentioned in this Annual Report as a non-financial indicator of efficiency that relates the added value, being income from operations adjusted for certain items such as restructuring and acquisition-related charges plus salaries and wages (including pension costs...

  • Page 237
    ...management. Rankings are based on sales unless otherwise stated. Fair value information In presenting the Philips Group's financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices...

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