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Annual Report 2015 Creating two companies with a bright future

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  • Annual Report2015

    Creating twocompanies witha bright future

  • 2 Annual Report 2015

    ContentsIFRS basis of presentationThe financial information included in this document is based on IFRS, asexplained in note 1, Significant accounting policies, of this report, unlessotherwise indicated.

    Dutch Financial Markets Supervision ActThis document comprises regulated information within the meaning of theDutch Financial Markets Supervision Act (Wet op het Financieel Toezicht).

    Statutory financial statements and management reportThe chapters Group financial statements and Company financialstatements contain the statutory financial statements of the Company. Theintroduction to the chapter Group financial statements sets out which partsof this Annual Report form the Management report within the meaning ofSection 2:391 of the Dutch Civil Code (and related Decrees).

    Significant developmentsIn September 2014, Philips announced its plan to sharpen its strategic focusby establishing two stand-alone companies focused on the HealthTech andLighting opportunities respectively. We have established a stand-alonestructure for Philips Lighting within the Philips Group effective February 1,2016. We expect to be able to announce the separation of the Lightingbusiness in the first half of 2016, subject to market conditions and otherrelevant circumstances. As previously stated, we are reviewing all strategicoptions for Philips Lighting, including an initial public offering and a privatesale.

    It should however be noted that the completion of the separation couldtake more time than originally planned or anticipated and that there is nocertainty as to the method or timing of the separation of the Lightingbusiness, which may expose Philips to risks of additional cost and otheradverse consequences. For further information on specific risks involved inthe separation please refer to chapter 7, Risk management, of this AnnualReport.

    The separation impacts all businesses and markets as well as all supportingfunctions and all assets and liabilities of the Group. With effect from Q12016 onwards Philips plans to report and discuss its financial performanceon the basis of different reportable segments than the sectors currentlypresented and discussed in this Annual Report. For more details on thenew segment reporting in 2016 and onwards, please refer to theintroduction of chapter 6, Sector performance, of this Annual Report.

    As announced on January 22, 2016, the agreement pursuant to which theconsortium led by GO Scale Capital would acquire an 80.1% interest in thecombined businesses of Lumileds and Automotive, has been terminated.Philips is now actively engaging with other parties that have expressed aninterest in the businesses and will continue to report the Lumileds andAutomotive businesses as discontinued operations (see note 3,Discontinued operations and other assets classified as held for sale).

    Further updates will be provided in the course of 2016.

    Philips ArenaVision LED is the worlds first LED pitchlighting to meet the stringent requirements ofinternational television broadcasters and sportsfederations, ensuring a fantastic match experience, bothfor the fans in the stadium and those watching at home.

    Increasingly, Philips is teaming up with hospital andhealth systems to understand their needs, provideintegrated solutions, and engage in multi-yearcooperation to drive improvements in terms of patientoutcomes, quality of care delivery and cost productivity.

    1 Performance highlights 4

    2 Message from the CEO 6

    3 Philips in 2015 at a glance 9

    4 Our strategic focus 104.1 Addressing global challenges 104.2 How we create value 124.3 Accelerate! journey continues 144.4 Lives improved 154.5 Global presence 154.6 Our strategy in action 16

    5 Group performance 235.1 Financial performance 235.2 Social performance 345.3 Environmental performance 395.4 Proposed distribution to shareholders 455.5 Outlook 45

    6 Sector performance 466.1 Healthcare 476.2 Consumer Lifestyle 516.3 Lighting 556.4 Innovation, Group & Services 60

    7 Risk management 647.1 Our approach to risk management and business

    control

    64

    7.2 Risk categories and factors 667.3 Strategic risks 677.4 Operational risks 687.5 Compliance risks 707.6 Financial risks 717.7 Separation risk 72

    8 Management 74

    9 Supervisory Board 76

    10 Supervisory Board report 7810.1 Report of the Corporate Governance and

    Nomination & Selection Committee

    81

    10.2 Report of the Remuneration Committee 8210.3 Report of the Audit Committee 87

    11 Corporate governance 8911.1 Board of Management 8911.2 Supervisory Board 9311.3 General Meeting of Shareholders 9711.4 Meeting logistics and other information 9811.5 Investor Relations 101

  • Annual Report 2015 3

    12 Group financial statements 10312.1 Managements report on internal control 10412.2 Report of the independent auditor 10412.3 Independent auditors report on internal control

    over financial reporting

    105

    12.4 Consolidated statements of income 10612.5 Consolidated statements of comprehensive

    income

    107

    12.6 Consolidated balance sheets 10812.7 Consolidated statements of cash flows 11012.8 Consolidated statements of changes in equity 11112.9 Notes 112

    General, sector and main countries information1 Significant accounting policies 112

    2 Information by sector and main country 123

    3 Discontinued operations and other assets

    classified as held for sale

    125

    4 Acquisitions and divestments 126

    5 Interests in entities 127

    Notes related to the income statement6 Income from operations 128

    7 Financial income and expenses 130

    8 Income taxes 131

    9 Earnings per share 134

    Notes related to the balance sheet10 Property, plant and equipment 135

    11 Goodwill 136

    12 Intangible assets excluding goodwill 138

    13 Other financial assets 139

    14 Other assets 140

    15 Inventories 140

    16 Receivables 140

    17 Equity 140

    18 Debt 143

    19 Provisions 144

    20 Post-employment benefits 147

    21 Accrued liabilities 152

    22 Other liabilities 152

    Notes related to the cash flow statement23 Cash used for derivatives and current financial

    assets

    153

    24 Purchase and proceeds from non-current

    financial assets

    153

    Other notes25 Contractual obligations 153

    26 Contingent assets and liabilities 154

    27 Related-party transactions 157

    28 Share-based compensation 157

    29 Information on remuneration 160

    30 Fair value of financial assets and liabilities 163

    31 Details of treasury / other financial risks 166

    32 Subsequent events 170

    13 Company financial statements 17113.1 Balance sheets before appropriation of results 17213.2 Statements of income 17313.3 Statement of changes in equity 17313.4 Notes 174

    A Net income 174

    B Audit fees 174

    C Intangible assets 174

    D Financial fixed assets 174

    E Other financial assets 175

    F Receivables 175

    G Shareholders equity 175

    H Debt 177

    I Other current liabilities 177

    J Employees 177

    K Contractual obligations and contingent

    liabilities not appearing in the balance sheet

    177

    L Subsequent events 177

    13.5 Independent auditors report 178

    14 Sustainability statements 18314.1 Economic indicators 18914.2 Social statements 18914.3 Environmental statements 20114.4 Independent Auditors Assurance Report 20714.5 Global Reporting Initiative (GRI) table 4.0 208

    15 Reconciliation of non-GAAP information 219

    16 Five-year overview 223

    17 Investor Relations 22617.1 Key financials and dividend 22617.2 Share information 22817.3 Philips rating 23017.4 Performance in relation to market indices 23017.5 Financial calendar 23317.6 Investor contact 233

    18 Definitions and abbreviations 235

    19 Forward-looking statements and otherinformation

    237

  • Performance highlights 1

    4 Annual Report 2015

    1 Performance highlights

    Philips GroupKey data in millions of EUR unless otherwise stated2014 - 2015

    2014 2015

    Sales 21,391 24,244

    Comparable sales growth (1)% 2%

    EBITA 821 1,372

    as a % of sales 3.8% 5.7%

    EBIT 486 992

    as a % of sales 2.3% 4.1%

    Net income 411 659

    Net income attributable to shareholdersper common share in EUR:

    basic 0.45 0.70

    diluted 0.45 0.70

    Net operating capital 8,838 11,096

    Free cash flow 497 325

    Shareholders equity 10,867 11,662

    Employees at December 31 113,678 112,959

    continuing operations 105,365 104,204

    discontinued operations 8,313 8,755

    Philips GroupLives improved in billions

    0.3by Philipswell-beingproducts

    0.88by Philips

    care products

    1.7by Philips

    Green Products

    Total: 2.0 billion (double counts eliminated)

    Double countsConceptual drawing, areas do not reflect actual proportions

    Performance in millions of EUR unless otherwise stated2014 - 2015

    Group Healthcare Consumer Lifestyle Lighting

    2014 2015 2014 2015 2014 2015 2014 2015

    Sales 21,391 24,244 13% 9,186 10,912 19% 4,731 5,347 13% 6,869 7,411 8%

    Green Productsales 11,065 13,014 18% 3,508 4,580 31% 2,605 3,091 19% 4,952 5,343 8%

    Sales in maturegeographies1) 14,004 15,836 13% 6,890 8,207 19% 2,508 2,784 11% 4,182 4,425 6%

    Sales in growthgeographies1) 7,387 8,408 14% 2,296 2,705 18% 2,223 2,563 15% 2,687 2,986 11%

    EBITA 821 1,372 67% 616 1,024 66% 573 673 17% 293 594 103%

    Net operatingcapital 8,838 11,096 26% 7,565 9,212 22% 1,353 1,453 7% 3,638 3,813 5%

    1) For a definition of mat