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Philips in 2014

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Talking strategy and performance

CEO Frans van Houten and CFO Ron Wirahadiraksa look back on a challenging 2014 and the advances made in driving value for our customers and other stakeholders.

A difficult year, ... and an exciting future

Frans van Houten, CEO

Clear action to drive stronger operational performance

Ron Wirahadiraksa, CFO

Significant 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 efforts. 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 specific risks involved in the separation please refer to Risk management.

Finally, Philips is in discussion with external investors for the combined Lumileds and Automotive Lighting businesses and expects to complete a transaction in the first half of 2015. Therefore, the combined businesses of Lumileds and Automotive are reported as discontinued operations in the Consolidated statements of income and cash flows. As a result, Lumileds and Automotive sales and EBITA are no longer included in the Lighting and Group results of continuing operations. Prior-period financial 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 classified as held for sale). The applicable assets and liabilities of these combined businesses are reported under Assets and Liabilities classified as held for sale in the consolidated balance sheets as of December 31, 2014.

These developments will have a significant impact on Philips and its organization in many respects. 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 that stage, and in view of applicable IFRS requirements, Philips will report and discuss its financial performance on the basis of different reportable segments than the sectors currently presented and discussed in this Annual Report.

Further updates will be provided in the course of 2015.

At a glance

The key facts and figures of Philips’ performance in 2014

Sales

€ 21,391

million

Green Product sales

€ 11,065

million

Comparable sales growth

-0.9%

EBITA

€ 821

million

EBITA margin

3.8%

R&D expenses

€ 1,635

million

FTE

113,678

New patents filed

1,680

Brand value

$ 10.3

billion

How we create value

We apply six different forms of capital in our processes, to deliver a range of outcomes.

Creating value
for our
stakeholders
Philips
Business
System
Capital
inputs
Value
outcomes
Capitals
Human
We employ diverse and talented people and give them the skills and training they need to ensure their effectiveness and their personal development and employability.
Intellectual
We apply our innovation and design expertise to create new products and solutions that meet local customer needs.
Financial
We raise the funds we need for our businesses from capital providers. We then prioritize our investment opportunities, focusing on those areas offering the best prospects for growth and returns.
Manufacturing
We apply Lean techniques also to our manufacturing processes to produce high-quality products. We manage our supply chain in a responsible way.
Natural
We are a responsible company and aim to minimize the environmental impact of our supply chain, our operations, and our products and solutions.
Social
We engage with stakeholders and contribute to customers and society through our products and solutions, but also through our tax payments, the products and services we buy, and our investments in local communities.
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Improving people’s lives

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Philips in 2014

2014 was a landmark year as we continued on our journey to unlock Philips’ full potential and drive value for our customers and other stakeholders.

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