Royal Philips Second Quarter 2016 Results Information booklet July 25 th , 2016 1
Important information Forward-looking statements and other important information This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forward-looking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, domestic and global economic and business conditions, developments within the euro zone, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, economic and other developments in countries where Philips operate s, industry consolidation and competition. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in the Annual Report 2015. Third-party market share data Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are ba sed on outside sources such as specialized research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated. Use of non-GAAP Information In presenting and discussing the Philips’ financial position, operating results and cash flows, management uses certain non -GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of such measures to the most directly comparable IFRS measures is contained in our Annual Report 2015. Further information on non-GAAP measures can be found in our Annual Report 2015. Use of fair-value measurements In presenting the Philips’ financial position, fair values are used for the measurement of various items in accordance with t he applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data are not readily available, fair values are estimated using valuation models, which we believe are appropriate for their purpose. Such fair value estimates require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our Annual Report 2015. Independent valuations may have been obtained to support management’s determination of fair values. All amounts are in millions of Euro’s unless otherwise stated. All reported data is unaudited. Financial reporting is in acco rdance with the accounting policies as stated in the Annual Report 2015, unless otherwise stated. The presentation of certain prior-year information has been reclassified to conform to the current-year presentation. 2
Content 1. Company Overview 3 2. HealthTech Strategy 6 3. Accelerate! transformation program 14 4. Financial Performance 20 Appendix 28 3
Company Overview Philips Geographies 1,2 Businesses 1,3 Connected Care Western North Other Mature Growth Diagnosis & Lighting 4 Personal Health & Health Europe America Geographies Geographies Treatment Informatics 24% 34% 8% 34% 29% 27% 13% 31% € 24.2 billion sales in 2015, 70% B2B € 1.9 billion R&D spend in 2015 and ~76,000 patent rights 104,000 employees in over 100 countries More than 1/4 of revenues from recurring revenue streams 1 Based on sales last 12 months June 2016. 2 Growth geographies are all geographies excluding USA, Canada, Western Europe, Australia, New Zealand, South Korea, Japan and Israel. 3 Excluding HealthTech Other. 4 Philips retains a 71.225% stake in Philips Lighting. 4
Philips has transformed itself into a focused HealthTech company Acquisition Acquisition of Acquisition of Volcano of Lifeline Respironics 2006 2007 2010 2014 2015 2016 IPO of Philips Sale of Audio, Sale of NXP Lumileds for sale Video, Lighting Multimedia and Accessories business Sale of TV business HealthTech businesses moving from ~28% of total portfolio to ~100% 3 % 7 % 21 % 18 % 15 % 40 % 2005 2015 7 % 16 % 39 % 34 % Medical Systems DAP¹ Consumer Electronics Lighting Personal Health Diagnosis & Treatment Semiconductors Other Activities Connected Care & Health Informatics HealthTech Other 5 1 Domestic Appliances and Personal Care.
Content 1. Company Overview 3 2. HealthTech Strategy 6 3. Accelerate! transformation program 14 4. Financial Performance 20 Appendix 28 6
Continuing our Accelerate! journey to drive value creation Initiate new growth engines • Invest in adjacencies • Seed emerging business areas Expand global leadership positions • Invest to strengthen our core businesses • Resource allocation to right businesses & geographies Transform to address underperformance • Turnaround or exit underperforming businesses • Productivity & margin improvements Accelerate! • Rebuild culture, processes, systems & capabilities • Implement the Philips Business System 2011 2016 7
Profound market trends are driving the HealthTech opportunity Prevention Treatment Home care Healthy living Diagnosis Consumers increasingly Shift to value - based healthcare will reduce waste, Care shifting to lower cost engaged in their health increase access and improve outcomes settings and homes + + We see two major opportunities for Philips: • “Industrialization of care” : enabling providers to deliver lower-cost care and better outcomes • “Personalization of care” : driving convergence of professional healthcare and consumer health 8
Philips targets professional and consumer needs along the Health Continuum Help people to live a Enable people to Ensure first time right Enable more effective Support recovery healthy life in a manage their own diagnosis with therapies, faster and chronic care at healthy home health personalized and recovery and better home environment adaptive care pathways outcomes Monitoring, informatics and connected care Improve population health outcomes and efficiency through integrated care, real-time analytics and value-added services 9
Operating through three segments across the Health Continuum Businesses Key products Sales ( € bn) Adj. EBITA margin Personal Health Health & Wellness Power toothbrushes, mother & child care 15.0% Sleep & Respiratory Care Home ventilators, CPAP, respiratory masks CSG 6% 6.9 Personal Care Male grooming, skin care Domestic Appliances Air purification, small kitchen appliances LTM Diagnosis & Treatment 8.0% Computed tomography, magnetic resonance, X-ray Diagnostic Imaging CSG 4% Ultrasound Ultrasound scanners 6.6 Interventional X-ray, Catheter-based imaging and Image-guided Therapy measurement LTM Connected Care & Health Informatics 10.4% Patient Care & Monitoring Solutions Patient monitors, hospital ventilators, defibrillators CSG 4% Healthcare Informatics & Services Healthcare IT, clinical and imaging informatics 3.1 Population Health Management Home monitoring, remote cardiac monitoring LTM 10
We have many leadership positions >60% of sales from businesses with global leading positions 1 Healthy living Prevention Diagnosis Treatment Home care #1 in China Global leader Global top 3 Global leader Global leader Air Oral Healthcare Magnetic Resonance Image-guided interventions Sleep & Respiratory Care Global leader Global leader Global leader #1 in North America Global leader Male Grooming Mother & Childcare Ultrasound Home Monitoring Smart catheters Monitoring, informatics and connected care Global leader #1 in North America Global leader Noninvasive ventilation 2 Patient Monitoring Cardiology Informatics Source: GfK, Nielsen, Euromonitor, Frost and Sullivan, Home Healthcare TBS, PCMS market insight. 1 Defined as the positions in which Philips has a top 3 position globally. 2 Based on non-invasive ventilators for the home. 11
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