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1 Royal Philips Defining The Blueprint For Treasury Best Practice November 14 th, 2014 DACT Treasury Beurs Slide 2 Forward-looking statements 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 operates, 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 our Annual Report 2013. Third-party market share data Statements regarding market share, including those regarding Philips competitive position, contained in this document are based 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 2013. Further information on non- GAAP measures can be found in our Annual Report 2013. Use of fair-value measurements In presenting the Philipss 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, 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 2013. Independent valuations may have been obtained to support managements determination of fair values. All amounts are in millions of euros unless otherwise stated; data included are unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2013, unless otherwise stated. Important information Slide 3 3 1.Introduction 2.Our transformation: Accelerate! 3.Defining The Blueprint 4.Implementation in North Latam 5.What is next Agenda Slide 4 Philips: A strong industrial company leading in health and well being 1.8 billion lives improved in 2013 1 and we aim to improve 3 billion lives a year by 2025 80% of our industrial waste was recycled in 2013 1 51% Green Products in 2013 (% of total sales) 1 and we are unlocking value through circular economy principles 14 th position in Interbrand Global Green Brands 2014 Green Innovation R&D in 2013 509 million 1 14,000 tonnes of recycled materials used in products 1 1 Based on sustainability performance in Annual Report 2013 4 Slide 5 Slide 6 Global Banking Citi values the strong and longstanding relationship of over 50 years with Philips, both as partner and customer in over 55 countries Deep and broad relationship Treasury and Trade Solutions Citi serves as a long term trusted advisor for Philips, with a matching global footprint. Citi acts as one of Philips cash management banks Citi is a key provider of Liquidity solutions to Philips servicing Philips domestic and cross-border Liquidity overlay structures Citi also has been a strategic partner in supporting Philips Treasury architecture goals via ISO XML & SWIFT Citi has supported Philips Global Supply Chain Finance program since 2009 Philips and Citi: A Longstanding and Strategic Partnership Citi A proud partner of Philips Citi chose Philips to help it reach its sustainability goal of achieving a 20% increase in energy efficiency by 2014 compared to 2005 Citis EMEA headquarters in Canary Wharf were outfitted with Philips LED light fittings Philips lighting solutions has delivered energy savings to Citi of approximately 45% compared to the previous installation 6 Slide 7 7 1.Introduction 2.Our transformation: Accelerate! 3.Defining The Blueprint 4.Implementation in North Latam 5.What is next Agenda Slide 8 Our transformation: Accelerate! The Accelerate! change and performance improvement program is making Philips a more agile and entrepreneurial innovator. resource our business/ market combinations to win create lean end-to-end customer value chains implement a simpler, standardized operating model drive a growth and performance culture make us more customer- focused 8 Slide 9 The Philips Business System is the way we run our company to deliver on our mission and vision. It is designed to ensure that success is repeatable, i.e. that we create value for our stakeholders time after time. 1.Manage our portfolio with granular value creation plans and resource allocation 2.Leverage our unique strengths and assets to drive global scale and local relevance across our portfolio 3.Be a learning organization that delivers to our customers with speed and excellence 4.Live a growth and performance culture 5.Create value in a repeatable manner Ensuring success is repeatable 9 Slide 10 10 1.Introduction 2.Our transformation: Accelerate! 3.Defining The Blueprint 4.Implementation in North Latam 5.What is next Agenda Slide 11 Treasury is a highly centralized function and operates with key regional Center of Excellence 11 Slide 12 12 SAP Group Treasury IHB1 In-house Bank and Payment Factory IHB1 In-house Bank and Payment Factory PF01 Payment Factory linked to own external bank account PF01 Payment Factory linked to own external bank account Electronic payments, Cheques & Direct Debit instructions Information Factory/ Teradata Philips Integrated Landscape (PIL) Accounting data Bank statements, exposures and manual payments Treasury Portal Banks Bank station Cash flow forecasting Instructions Payment files Cheques (SEPA) Direct Debits Trade and Supplier Finance Acknowledgement messaging Bank statements Billing Electronic Bank Account Management Collections Relationship management Reporting KOPLNL2E Deal station SAP Products ServicesSolutions Software Philips Integrated Landscape Data analytics 12 Slide 13 13 1.Introduction 2.Our transformation: Accelerate! 3.Defining The Blueprint 4.Implementation in North Latam 5.What is next Agenda Slide 14 Long supply lead time, high risk of non- availability, excess and obsolesce Lack of transparency and suboptimal decision making Waste in order and fulfillment processes and limited flexibility Insufficient project management capabilities A very old, unsupported and very functionality-limited IT landscape North Latam Total GDP of EUR 700b Population of 120m North Latam was identified as the cluster with the higher potential improvement 14 Slide 15 Multiple banks each with different legacy formats and requirements Many legacy systems, connections and entities not on SAP platforms Moving people away from their local solution One point of connection to all banks via treasury, leveraging on Swift Standardizing and leverage on central processing Harmonizing processes and reducing processing costs Complexity in local products and regulations Complexity in multi system environment Standardizing processes over a wide range of process What are the complexity factors How can we make the difference Challenges to overcome North Latam was challenging from Treasury point of view 15 Slide 16 May 21, 2014 CorporateTreasury Internal use only Focus Area Restrictions or Considerations El SalvadorPanamaPeruPuerto Rico Colombia Payment Factory (1)(2) Regulations Disallowed, Strictly prohibited Allowed, No major restrictions on non- residents making payments on behalf of residents. Not a common market practice Allowed, No major restrictions on non- residents making payments on behalf of residents Not a common market practice Allowed, No major restrictions on non- residents making payments on behalf of residents Cross-Border POBO Allowed Tax on cash transfer (4X1000) Tax on intercompany loans Withholding tax Local Currency freely convertible domestically only. Tax on intercompany loans Withholding tax Local currency freely convertible domestically and offshore No FX Control Withholding tax Local currency is freely convertible domestically and offshore Local Tax: 7% of commission (ITBMS) No FX Control Tax on cash transfer Withholding tax Local currency is freely convertible domestically and offshore No FX Control Withholding tax USD is considered local currency; no other currencies can be opened onshore. Local Currency is freely convertible domestically and offshore. No FX Control. (1) With POBO, liabilities for all business units are discharged by the POBO agent vs. a payment factory (e.g., SSC), which discharges liabilities for the business unit in the name of the business unit Country relevant treasury regulations (2) Payment Factory may trigger tax implications 16 Slide 17 Solution Principle: reconcile the needs of the (local) business with Philips treasury One connectivity, one file format, one process Reality Check: advisory role as an integral part of solution design One Size Fits All Covering all payment flows (supplier payments, payroll, tax) Covering all payment instruments (local instruments, e.g. bill of exchange in Peru, network cash collections etc in addition to standard ACH and wires) Delivering standardised reporting of collections across channels and instruments Integration of local banks One solution irrespective of whether the invoice is settled at maturity or in advance via the supply chain finance programme Alignment to Philips organisational construct (e.g. Payment Factory, Centralised Treasury) Regional single window project management approach, coordinating on the ground teams, to simplify and accelerate solution implementation Citi solution for countries 17 Slide 18 1.Introduction 2.Our transformation: Accelerate! 3.Defining The Blueprint 4.Implementation in North Latam 5.What is next Agenda Slide 19 People on the ground know best; start the discussion in an early stage Consider materiality in of usage (cash flows) for future state products Dont try to fix everything with IT; keep business sense (e.g. multibank sweep for local banks including bank statement) The importance of clear lines of communication, strong project governance and single co-ordination point covered in statement of work to ensure discipline and alignment Be open minded and have alternatives available Setup dedicated project team including local business and users Ensure adequate time allocated to testing cycles Operate a dual process (new and legacy solution) as part of migration cut over Training of local users Transition of current way of working phased approach vs. big bang Project prioritization within overall projects Set up of Health Tec and Lighting Solutions company What are the success factors How can we mitigate the risks Challenges for next stage Lessons learned 19 Slide 20 Focused on the EUR 100+ billion HealthTech opportunity Serving the Health Continuum Leveraging strengths of Healthcare and Consumer Lifestyle EUR 14.8 billion sales 2013 1 Royal Philips Focused on the EUR 60+ billion Lighting solutions opportunity Establishing stand-alone Lighting structure EUR 8.4 billion sales 2013 2 LED Components & Automotive (Announced in June 2014) Philips Lighting Higher growth and profitability Improved customer focus in attractive markets Faster decision making Lean overhead structure Considering options for capital market access for Philips Lighting Release capital for investments in growth 1 Excluding Lifestyle Entertainment; including IG&S revenue allocation 2 Including LED Components & Automotive; including IG&S revenue allocation Note - Following the completion of the divestment of the AVM&A business, prior-period financials have been adjusted (for details please refer to note 1 Significant accounting policies in the Q2 2014 Quarterly report and Semi-annual report) Establishing two focused companies to capture highly attractive market opportunities 20 Slide 21 21 Appendix Slide 22 HealthTech opportunity shaped by convergence between Healthcare and Consumer markets TreatmentRecoveryDiagnosisHome Care PreventionHealthy Living Care shifting to lower cost settings and homes Ongoing focus on total quality and cost of care Increased emphasis on population health Consumers increasingly engaged in their health journey Opportunities from intersection of consumer and clinical spaces Customers expressing need for integrated solutions Systems integration, connected devices, big data and analytics Philips uniquely positioned with portfolio, insights and capabilities TreatmentRecoveryDiagnosisHome CarePreventionHealthy Living TreatmentRecoveryDiagnosisHome CarePreventionHealthy Living 22 Slide 23 Building the leader in HealthTech Personal Care 11% Domestic 16% Appliances 1 Sales last 12 months September2014 2 Combined Patient Care & Clinical Informatics and Healthcare Informatics, Solutions & Services (not reported separately) Strong positions across the Health Continuum Deep customer, clinical and consumer insights World-class innovation, design and marketing capabilities Systems integration, connected devices, big data & analytics, integrated solutions Trusted Philips brand Imaging Systems 23%Patient Care & 15 2 % Clinical Informatics Healthcare Informatics, Solutions & Services Home 10% Healthcare Solutions Customer Services 18% Health & 7% Wellness TreatmentRecoveryDiagnosisHome CarePreventionHealthy Living TreatmentRecoveryDiagnosisHome CarePreventionHealthy Living Share of HealthTech sales 1 23 Slide 24 Industry dynamics create opportunities in Lighting Solutions Maximize value from the golden tail Differentiate in LED through innovation in and intelligence Capture professional systems and services opportunity Establish winning connected lighting ecosystemshome and professional Industry dynamicsResulting opportunities Conventional to LED New competitors emerging Differentiation in LED systems and services Connectivity and intelligence create new growth avenues and open up adjacencies Philips Lighting strongly positioned as global leader in Lighting solutions market 24 Slide 25 Philips Lighting well positioned to capture growth opportunities Consumer 6% Luminaires Components Light SourcesLuminairesSystemsServices 1 Sales last 12 months September 2014 Leading global customer and market positions World-class innovation and design capabilities Deep application and systems integration expertise Unmatched distribution strength and brand Professional Lighting Solutions 34% Automotive LED Components Light Sources 60% & Electronics Share of Lighting sales 1 25 Slide 26 26