Philips Annual Report 2018

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Our 2018 performance at a glance

	2016	2017	2018
Sales	17,422	17,780	18,121
Nominal sales growth	4%	2%	2%
Comparable sales growth¹	5%	4%	5%
Income from operations	1,464	1,517	1,719
as a % of sales	8.4%	8.5%	9.5%
Financial expenses, net	(442)	(137)	(213)
Investments in associates, net of income taxes	11	(4)	(2)
Income tax expense	(203)	(349)	(193)
Income from continuing operations	831	1,028	1,310
Discontinued operations, net of income taxes	660	843	(213)
Net income	1,491	1,870	1,097
Adjusted EBITA¹	1,921	2,153	2,366
as a % of sales	11.0%	12.1%	13.1%
Income from continuing operations attributable to shareholders² per common share (in EUR) - diluted³	0.89	1.08	1.39
Adjusted income from continuing operations attributable to shareholders² per common share (in EUR) - diluted¹	1.24	1.54	1.76

	2016	2017	2018
Western Europe	3,756	3,802	3,990
North America	6,279	6,409	6,338
Other mature geographies	1,792	1,707	1,892
Total mature geographies	11,826	11,918	12,221
Nominal sales growth (%)	3.9	0.8	2.5
Comparable sales growth (%)¹	3.3	1.9	3.3
Growth geographies	5,596	5,862	5,901
Nominal sales growth (%)	3.2	4.8	0.7
Comparable sales growth (%)¹	8.4	8.0	7.6
Philips Group	17,422	17,780	18,121

	'16	'17	'18
Amortization and impairment in value	243	269	347
Adjusted items	214	366	300
EBIT in value	1,464	1,517	1,719
Adjusted EBITA as a % of sales	11.0%	12.1%	13.1%
Adjusted EBITA in value	1,921	2,153	2,366

	'16	'17	'18
Personal Health	3,951	4,237	4,444
Diagnosis & Treatment	4,798	5,096	5,332
Connected Care & Health Informatics	1,442	1,373	1,769
As a % of sales	58.5%	60.2%	63.7%

	2016	2017	2018
Diagnosis & Treatment	629	715	756
Connected Care & Health Informatics	388	399	371
Personal Health	412	415	425
Other	240	235	207
Philips Group	1,669	1,764	1,759
As a % of sales	9.6%	9.9%	9.7%

	2014	2015	2016	2017	2018
Net operational carbon footprint	743	757	821	627	436

	2017	2018	% change
Sales	17,780	18,121	2%
Green Revenues	10,706	11,545	8%
Sales in mature geographies	11,918	12,221	3%
Sales in growth geographies	5,862	5,901	1%

	2017	2018	% change
Sales	7,310	7,228	(1)%
Green Revenues	4,237	4,444	5%
Sales in mature geographies	4,371	4,327	(1)%
Sales in growth geographies	2,939	2,901	(1)%

	2017	2018	% change
Sales	6,891	7,245	5%
Green Revenues	5,096	5,332	5%
Sales in mature geographies	4,566	4,829	6%
Sales in growth geographies	2,325	2,416	4%

	2017	2018	% change
Sales	3,163	3,084	(3)%
Green Revenues	1,373	1,769	29%
Sales in mature geographies	2,705	2,624	(3)%
Sales in growth geographies	458	460	0%

Management summary

Sales rose to EUR 18.1 billion, a nominal increase of 2%, which reflected 5% nominal growth in the Diagnosis & Treatment businesses, a 3% sales decline in the Connected Care & Health Informatics businesses and a 1% decline in the Personal Health businesses. On a comparable basis^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. the 5% growth reflected 7% growth in the Diagnosis & Treatment businesses, higher IP royalty income, 3% growth in the Personal Health businesses, and flat sales in the Connected Care & Health Informatics businesses.
Net income amounted to EUR 1.1 billion, a decrease of EUR 773 million compared to 2017, mainly due to the deconsolidation of Signify (formerly Philips Lighting). Net income is not allocated to segments as certain income and expense line items are monitored on a centralized basis.
Adjusted EBITA^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. totaled EUR 2.4 billion, or 13.1% of sales, an increase of EUR 213 million, or 100 basis points as a % of sales, compared to 2017. The productivity programs delivered annual savings of approximately EUR 466 million, ahead of the targeted savings of EUR 400 million, and included approximately EUR 269 million procurement savings, led by the Design for Excellence (DfX) program, and EUR 197 million savings from other productivity programs.
Net cash provided by operating activities amounted to EUR 1.8 billion, a decrease of EUR 90 million compared to 2017, as higher earnings were offset by higher working capital outflows. Free cash flow^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. amounted to EUR 984 million, which includes a EUR 176 million outflow related to pension liability de-risking and an early bond redemption.
On June 28, 2017, Philips announced a EUR 1.5 billion share buyback program for capital reduction purposes. Under that program, which was initiated in the third quarter of 2017, Philips repurchased shares in the open market and entered into a number of forward transactions, some of which are to be settled in Q2 2019. As the program was initiated for capital reduction purposes, Philips intends to cancel all of the shares acquired under the program.
On January 29, 2019, Philips announced a new share buyback program for an amount of up to EUR 1.5 billion. Philips started the program in the first quarter of 2019 and expects to complete it within two years. As the program was initiated for capital reduction purposes, Philips intends to cancel all shares acquired under the program. The program will be executed by an intermediary to allow for purchases in the open market during both open and closed periods.
As of December 31, 2018, Philips’ shareholding in Signify (formerly Philips Lighting) was 16.5% of Signify's issued share capital. For further information, refer to Sell-down Signify shares (former Philips Lighting).

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Message from the CEO

Our transformation into a customer-centric solutions company is gathering momentum, and with our focus on innovation and continuous improvement we will unlock further value.

Frans van Houten

CEO Royal Philips

Dear Stakeholder,

In 2018 we made further progress on our journey to extend our leadership as a health technology company. In my frequent meetings with our hospital customers, they tell me how they appreciate our strategy and are keen to engage with us. They want to know more about our innovative solutions – suites of systems, smart devices, software and services – that can help them deliver on the Quadruple Aim of improved patient experience, better health outcomes, improved staff experience, and lower cost of care. At the same time, we see a real interest among consumers, healthcare professionals, insurers and policy makers to help people towards a healthier lifestyle and support primary and secondary prevention of health challenges. We see this as a validation of our strategy to drive technology innovation along the health continuum and disease pathways. As a result, we have seen growing demand for our products and solutions, an increase in long-term strategic partnerships, and substantial growth of order intake.

With comparable sales growth of 5%^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. and the Adjusted EBITA^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. margin improving by 100 basis points to 13.1% in 2018, we continue to deliver on our financial targets. Having said that, our performance at segment level shows we still have scope for further improvement. Our Diagnosis & Treatment businesses had a very good year in terms of sales growth, order intake growth and improved earnings. At Connected Care & Health Informatics, topline growth was flat and we continued to make substantial investments in R&D, but the expanding order book gives us confidence we are on the right path to boost growth. Personal Health had a slower year, in part due to internal execution challenges, but we have taken decisive action. We are confident about the road ahead, given the exciting array of innovative new products and services we are bringing onto the market. We also made a number of complementary acquisitions in 2018 to strengthen businesses across our portfolio.

In light of the continuous performance improvement over the last three years and the strength of our balance sheet, we propose to increase the dividend by 6%.

While the current geopolitical and macroeconomic uncertainty is a challenge, we are making progress with our ‘self-help’ initiatives to address headwinds such as trade tariffs and emerging-market currency volatility, for instance by adjusting our supply base, leveraging our multi-modality factories, and extending our productivity plans. Last year I wrote that making further progress on product performance and quality was our highest priority for 2018. We continue to invest substantially in driving quality and compliance, and while there is still work to do, we are starting to reap the benefits of our improvement efforts, positioning us well for the future.

Transforming healthcare through innovation

Meeting the growing demand and improving the delivery of care while containing costs – that is the very substantial challenge faced by health systems around the world. It is driving the shift towards value-based care, the consolidation of hospitals into Integrated Delivery Networks, and the consumerization of healthcare, as well as increasing the importance of preventative care, early disease detection, and the management of chronic disease outside the hospital.

Innovative health technology is helping to transform healthcare, supporting improved outcomes as well as productivity gains. The growing role of data, informatics and Artificial Intelligence (AI) is having a major impact, principally in the areas of precision diagnosis, clinical decision support, care orchestration, telehealth and, not least, in helping consumers to live a healthy life or cope with chronic disease. In this market, which has attractive growth rates and profit pools, we have strong positions across the health continuum.

At Philips, we believe in integrated, connected care – connecting consumers/patients, providers and payers more effectively and leveraging informatics for better outcomes at lower cost.

We enable clinicians to make precision diagnosis and deliver personalized, minimally invasive therapies through our digital imaging and clinical informatics solutions. A shining example is our Azurion image-guided therapy platform, which has secured a +300 basis points gain in market share and over 1,000 orders since its launch in 2017.

We empower care professionals with healthcare informatics solutions like our IntelliSpace Portal data integration, visualization and analysis platform for enhanced diagnostic confidence, and monitoring, predictive analytics solutions like our IntelliVue Guardian with Early Warning Scoring, which enables nursing staff to identify patients whose condition may be deteriorating rapidly.

We enable people to recover, or live with chronic disease, at home, thanks to solutions such as our new Trilogy Evo home ventilation platform plus Care Orchestrator cloud-based management system. Likewise, we enable people to stay healthy and prevent disease by means of connected products like our Pregnancy+ parenting app and our Sonicare DiamondClean electric toothbrush with Sonicare app, which includes teledentistry and automatic brush-head reordering services.

Joining up the dots from the ICU to the home, our HealthSuite platforms support the seamless flow of data needed to care for people in real time, wherever they are.

Our innovation strength has been key to these transformational solutions, and I am convinced there is even better to come. We continue to maintain a high level of investment in R&D, with a strong focus on software and data science, and we now apply the Quadruple Aim as a guide in all our development choices, so that our innovations have maximum impact and are fully scalable.

Delivering on our sustainability commitments

Reflecting our commitment to the United Nations’ Sustainable Development Goals, we continue to embed sustainability deeper in the way we do business. With its focus on access to care, circular economy and climate action, our ‘Healthy people, Sustainable planet’ program is the vehicle that will enable us to deliver on these commitments. In December 2018, Philips became the world’s first health technology company to have its CO₂ emission targets approved by the Science Based Targets initiative. Our sustainability performance received renewed recognition when – in the first year since our reclassification to the Health Care Equipment & Services industry group – we took second place in the 2018 Dow Jones Sustainability Index. With health systems the world over increasingly keen to reduce their environmental footprint, we remain convinced that sustainability can be a key competitive differentiator.

Roadmap to win

With our transformation into a customer-first solutions company gathering pace, we have identified three main drivers of continued growth and improved profitability: Better serve customers and improve quality; Boost growth in core business; Win with solutions along the health continuum.

We believe that by engaging more deeply with our customers and consumers, making it easier for them to do business with us, developing more compelling solutions, and acting with increased agility, speed and efficiency, we will deliver greater value for all our stakeholders.

This means making a big step up in quality, operational excellence and productivity, and continuing to drive the digital transformation in every area of our business. It means capturing geographic growth opportunities and pivoting to consultative customer partnerships and business models that offer a much deeper relationship, with recurring revenue streams. In that regard, our multi-year ‘patient monitoring as a service’ agreement with Miami's Jackson Health System and our medical technology partnership agreements with Children’s Health hospital in Dallas and Munich Municipal Hospital are a blueprint for the way to go. It also means continuing the shift from products to innovative value-added, integrated solutions, supported by organic growth and disciplined M&A.

Together, these measures will drive sustained performance improvement as we pursue our overall targets of 4-6% comparable sales growth^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. and an Adjusted EBITA^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. margin improvement of 100 basis points on average per year for the period 2017–2020. We also expect to increase the annual free cash flow^*^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information. to above EUR 1.5 billion by 2020.

In the end, culture is foundational to our strategic ambitions. At Philips we place five key elements high on our culture agenda: putting customers first, acting with quality and integrity, teaming up to win, taking ownership to deliver fast, and improving and inspiring each other. These behaviors create a shared understanding of how we all need to act in order to delight the customer and drive market success.

In conclusion

On a personal note, I would like to thank our customers, shareholders and other stakeholders for the confidence they have shown in Philips over the past year. I would also like to thank our employees for their hard work and dedication, as we seek to combine day-to-day performance with a profound, customer-focused transformation.

Pleased with the progress we are making, yet conscious that we still have a way to go, I strongly believe that the combination of our sense of purpose, innovation strength, culture of customer centricity and deep commitment to continuous improvement is a potent recipe for Philips to win and make the world healthier and more sustainable.

Frans van Houten
Chief Executive Officer

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Transforming healthcare through innovation

The case studies below are just a few examples of how our long-term strategic partnerships and innovative solutions are helping healthcare providers address the Quadruple Aim of improved patient experience, better health outcomes, improved staff experience, and lower cost of care. At the same time, our connected consumer products are helping people the world over to take better care of their health.

Reducing hospital readmissions with remote patient care management

West Moreton Health, Queensland, Australia

Our clinicians can now intervene early if a patient’s health is showing signs of deterioration.

Melinda Parcell
Executive Director Community and Rural Services,
West Moreton Health

28% decrease in potentially preventable hospitalizations in chronically ill patients¹
53% decrease in hospital emergency department visits for these patients²

West Moreton Health is pioneering the use of remote patient care management to help chronically ill patients achieve better health and stay out of hospital.

Philips and West Moreton Health developed Mobile Enabled Care (MeCare), an innovative program that combines technology, in-home support and education to empower patients and help enable early intervention when needed.

¹Compared to a baseline average of potentially preventable hospitalizations without the MeCare program.

²Compared to a pre-MeCare trend. Without intervention through MeCare, the emergency department visits for this group were predicted to continue to increase.

Unlocking the full potential of digital pathology for primary diagnostics

AZ Sint-Jan, Bruges, Belgium

Digital pathology enhances clinical confidence in our findings by delivering the right result the first time.

Dr. Ivo van den Berghe
Director of surgical pathology

Quicker processing
of laboratory test
Easy to share information
for multidisciplinary use
Lower risk of reporting on wrong patient samples
Improved ergonomic conditions for laboratory staff

Using Philips digital pathology solutions, the Anatomical Pathology laboratory of AZ Sint-Jan hospital in Bruges was the first in Belgium to digitize workflow for primary diagnostics.

Reducing procedure time in image-guided therapy with Philips Azurion

St. Antonius Hospital, The Netherlands

With Philips Azurion, we now have the ability to treat one more patient a day, with no compromise to patient safety or quality of care.

Marco van Strijen
MD – Interventional Radiologist at St. Antonius Hospital

12% reduction
in patient preparation time
17% reduction
in procedure time
28% reduction on post-procedure lab time

St. Antonius Hospital was one of the first hospitals in the world to install Philips Azurion, the next-generation image guided-therapy platform. An independently verified study shows that St. Antonius Hospital has achieved significant improvements in workflow with the new interventional lab.

Discover more on the website

Results are specific to the institution where they were obtained and may not reflect the results achievable at other institutions.

Empowering nurses to be able to make critical interventions

Saratoga Hospital, New York, US

Philips IntelliVue MP5SC patient monitors

The early warning scoring system helps us better identify patients at risk and, most importantly, respond to those patients earlier.

Mary Jo LaPosta, MS, PhD, RN
Senior Vice President, Saratoga Hospital

66% of cardiac arrest patients show abnormal signs and symptoms up to 6 hours prior to cardiac arrest, but physicians are only notified 25% of the time¹
63% reduction in patient transfers to the ICU within its 20-bed orthopedic unit, which dropped from three or four codes per year to zero²

Internal research on patient events uncovered a need for more support of nursing staff as they dealt with patient events outside of the ICU. Our solution supports clinicians in identifying and responding to patient events with the help of Philips IntelliVue MP5SC patient monitors and IntelliVue Guardian early warning scoring.

¹Franklin C, Mathew J. Developing strategies to prevent in hospital cardiac arrest: analyzing responses of physicians and nurses in the hours before the event. Crit Care Med. 1994;22(2):244-247

²Based on results collected from 2015 to 2018. Results are specific to the institution where they were obtained and may not reflect the results achievable at other institutions.

Ingenia Ambition 1.5T MRI with BlueSeal magnet and Compressed SENSE acceleration

RadNet, US

The key to the Philips Compressed SENSE implementation is that it is universally applicable to all 2D & 3D scans as well as all body parts – that makes an enormous difference.

Dr. Lawrence Tanenbaum
Medical Director of RadNet, USA

<0.5% of the helium
of a conventional system¹
~900 kg lighter magnet
than its predecessor¹
>5 more patients per day within the same scanning hours with Compressed SENSE³

With its revolutionary, fully sealed BlueSeal magnet, Ingenia Ambition enables more productive¹, helium-free MR operations, reducing the chance of potentially lengthy and costly disruptions, and virtually eliminating dependency on a commodity with an unpredictable supply. The fully sealed system does not require a vent pipe, significantly reducing the typical MR siting challenges and lowering construction costs.

The Ingenia Ambition delivers superb image quality, even for challenging patients, and performs MRI exams up to 50% faster with Compressed SENSE acceleration for all anatomies in both 2D- and 3D scanning².

Discover more on the website

¹Compared to the Ingenia 1.5T ZBO magnet

²Compared to Philips scans without Compressed SENSE

³Radiologie Dr Wagner, Göttingen, Germany. Results from case studies are not predictive of results in other cases. Results in other cases may vary.

DreamMapper app

10% of the world’s adult population suffers from sleep apnea, but many struggle to stick with their therapy.
58% more people used their therapy every night when they used DreamMapper¹
283% higher success rate
for DreamMapper users struggling with adherence to sleep therapy¹

The DreamMapper app helps motivate people living with sleep apnea to improve their adherence to treatment by providing tools and real-time tracking and analysis of their PAP (positive airway pressure) therapy from Philips devices.

¹Retrospective review conducted by Philips Respironics of the EncoreAnywhere database

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Making the world healthier and more sustainable

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Compare our key data from the last five years

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The years 2013, 2014, 2015 and 2016 include Philips Lighting

	2014	2015	2016	2017	2018
Sales	14,517	16,806	17,422	17,780	18,121
Income from operations	461	658	1,464	1,517	1,719
Adjusted EBITA	1,458	1,688	1,921	2,153	2,366
Income (loss) from continuing operations	260	160	831	1,028	1,310
Net income (loss)	408	638	1,491	1,870	1,097

	'16	'17	'18
Net cash provided by operating activities	1,170	1,870	1,780
Net capital expenditures	(741)	(685)	(796)
Free cash flows	429	1,185	984

	2014	2015	2016	2017	2018
Sales	14,517	16,806	17,422	17,780	18,121
Income from operations	461	658	1,464	1,517	1,719
Adjusted EBITA	1,458	1,688	1,921	2,153	2,366
Income (loss) from continuing operations	260	160	831	1,028	1,310
Net income (loss)	408	638	1,491	1,870	1,097

	2016	2017	2018
Sales	7,099	7,310	7,228
Income from operations	953	1,075	1,045
Adjusted EBITA	1,108	1,221	1,215

	2016	2017	2018
Sales	6,686	6,891	7,245
Income from operations	546	488	600
Adjusted EBITA	631	716	838

	2016	2017	2018
Sales	3,158	3,163	3,084
Income from operations	275	206	179
Adjusted EBITA	324	372	341

	2014	2015	2016	2017	2018
Income from operations	3.2%	3.9%	8.4%	8.5%	9.5%
Adjusted EBITA	10.0%	10.0%	11.0%	12.1%	13.1%

	2016	2017	2018
Income from operations	13.4%	14.7%	14.5%
Adjusted EBITA	15.6%	16.7%	16.8%

	2016	2017	2018
Income from operations	8.2%	7.1%	8.3%
Adjusted EBITA	9.4%	10.4%	11.6%

	2016	2017	2018
Income from operations	8.7%	6.5%	5.8%
Adjusted EBITA	10.3%	11.8%	11.1%

	2014	2015	2016	2017	2018
Total assets	28,317	30,943	32,270	25,315	26,019
Total provisions and liabilities	17,384	19,218	18,817	13,292	13,902
Shareholders’ equity	10,832	11,607	12,546	11,999	12,088
Market capitalization at year-end	22,082	21,607	26,751	29,212	28,276

	2014	2015	2016	2017	2018
Sales per common share	15.86	18.35	18.98	19.14	19.63
Income (loss) from continuing operations per share	0.28	0.17	0.90	1.10	1.41
Dividend distributed per common share	0.80	0.80	0.80	0.80	0.80
Share price at year-end	24.15	23.56	29.00	31.54	34.02
Price/earnings ratio	96.60	53.55	25.89	35.84	24.13

	2014	2015	2016	2017	2018
Total employees at year-end	113,678	112,959	114,731	73,951	77,400
Engagement index (% positive score)	72%	71%	74%	76%	74%

	2014	2015	2016	2017	2018
Personal Health	2,937	3,521	3,951	4,237	4,444
Diagnosis & Treatment	3,858	4,670	4,798	5,096	5,332
Connected Care & Health Informatics	856	1,258	1,442	1,373	1,769
Philips Group	7,651	9,449	10,191	10,706	11,545

	2014	2015	2016	2017	2018
Personal Health	49	52	56	58	62
Diagnosis & Treatment	73	72	72	74	74
Connected Care & Health Informatics	32	42	46	43	57
Philips Group	53	56	58	60	64

	2014	2015	2016	2017	2018
Personal Health	97	99	96	91	86
Diagnosis & Treatment	68	103	133	99	101
Connected Care & Health Informatics	22	18	38	33	36
Other	21	21	10	10	5
Philips Group	208	241	277	233	228

	2014	2015	2016	2017	2018
Manufacturing	84	87	85	55	26
Non-industrial operations	65	58	77	40	40
Business travel	147	152	158	135	137
Logistics	447	460	501	617	563

	2014	2015	2016	2017	2018
Scope 1	40	39	42	38	40
Scope 2	109	106	121	58	26
Scope 3	594	612	658	751	700
Philips Group	743	757	821	847	766
Scope 2 (location based)	210	212	252	225	227

	2014	2015	2016	2017	2018
Philips Group	0.41	0.35	0.33	0.27	0.28

	2014	2015	2016	2017	2018
Personal Health	1,352	1,389	1,436	1,464	1,508
Diagnosis & Treatment	1,202	1,214	1,316	1,298	1,237
Connected Care & Health Informatics	334	336	318	310	315
Philips Group	2,888	2,939	3,070	3,072	3,060

	2014	2015	2016	2017	2018
Personal Health	585	614	613	496	533
Diagnosis & Treatment	392	268	269	312	288
Connected Care & Health Informatics	74	94	81	80	70
Philips Group	1,051	976	963	888	891

	2014	2015	2016	2017	2018
Philips Group		3.2	2.9	2.5	1.7

	2014	2015	2016	2017	2018
Philips Group	77	78	79	80	84

	2015	2016	2017	2018
Personal Health	789	642	670	456
Diagnosis & Treatment	604	428	743	636
Connected Care & Health Informatics	26	29	4	1
Philips Group	1,419	1,099	1,417	1,093

	2015	2016	2017	2018
Personal Health	138	92	92	83
Diagnosis & Treatment	29	35	48	44
Connected Care & Health Informatics	2	2	2	2
Philips Group	169	129	142	128

	2014	2015	2016	2017	2018
Philips Group	73	75	78	82	83

	2014	2015	2016	2017	2018
Philips Group	15	19	18	18	19

	2014	2015	2016	2017	2018
Personal Health	0.16	0.16	0.15	0.17	0.11
Diagnosis & Treatment	0.27	0.20	0.36	0.27	0.20
Connected Care & Health Informatics	0.18	0.16	0.15	0.15	0.16
Other	0.11	0.13	0.10	0.14	0.11
Philips Group	0.15	0.15	0.16	0.17	0.13

	2016	2017	2018
Personal Health	0.33	0.28	0.19
Diagnosis & Treatment	0.65	0.58	0.55
Connected Care & Health Informatics	0.67	0.60	0.30
Other	0.27	0.29	0.22
Philips Group	0.37	0.36	0.28

	2014	2015	2016	2017	2018
Philips Group	1	0	0	0	0

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Driving social and environmental progress

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Creating value for our stakeholders

With the Philips Business System at the heart of our endeavors, we apply six forms of capital in our processes, to deliver a range of outcomes

Capital input

The capitals (resources and relationships) that Philips draws upon for its business activities

Human

Employees 77,400, 120 nationalities, 38% female
Philips University 1,200 new courses, 700,000 hours, 550,000 training completions
29,977 employees in growth geographies
Focus on Inclusion & Diversity

Intellectual

Invested in R&D EUR 1.76 billion (Green Innovation EUR 228 million)
Employees in R&D 10,528 across the globe including growth geographies

Financial

Equity EUR 12.1 billion
Net debt^*) EUR 3.1 billion

Manufacturing

Employees in production 30,925
Manufacturing sites 39, cost of materials used EUR 4.8 billion
Total assets EUR 26.0 billion
Capital expenditure EUR 422 million

Natural

Energy used in manufacturing 3,062 terajoules
Water used 891,000 m³
Recycled plastics in our products 1,840 tonnes
19 'zero waste to landfill' sites
Pledge to take back all medical equipment by 2025

Social

Philips Foundation
Stakeholder engagement
New volunteering policy

Philips Business System

With its four interlocking elements, the Philips Business System (PBS) is designed to help us deliver on our mission and vision – and to ensure that success is repeatable. As we execute our strategy and invest in the best opportunities, leverage our unique strengths and become operationally excellent, we will be able to consistently deliver value to our customers, consumers, shareholders, and other stakeholders.

Strategy - Where we invest

We manage our portfolio with clearly defined strategies and allocate resources to maximize value creation.

Capabilities, Assets and Positions - Our unique strengths

We strengthen and leverage our core Capabilities, Assets and Positions as they create differential value: deep customer insight, technology innovation, our brand, global footprint, and our people.

Excellence - How we operate

We are a learning organization that applies common operating principles and practices to deliver to our customers with excellence.

Path to Value - What we deliver

We define and execute business plans that deliver sustainable results along a credible Path to Value.

The six 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 generate the funds we need through our business operations and where appropriate raise additional financing from capital providers.

Manufacturing

We apply Lean techniques 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 also our products and solutions.

Social

We contribute to our customers and society through our products and solutions, our tax payments, the products and services we buy, and our investments in local communities.

Value outcomes

Output

The result of the application of the six forms of capital to Philips’ business activities and processes as shaped by the Philips Business System

Human

Employee Engagement Index 74% favorable
Sales per employee EUR 234,121

Intellectual

New patent filings 1,120
IP Royalties Adjusted EBITA^*)EUR 272 million
141 design awards

Financial

Comparable sales growth^*)5%
64% Green Revenues
Adjusted EBITA^*) as a % of sales 13.1%
Net cash provided by operating activities EUR 1.8 billion
Net capital expenditures EUR 796 million

Manufacturing

EUR 18.1 billion revenues from products and solutions sold

Natural

12% revenues from circular propositions
Net CO₂ emissions down to 436 kilotonnes
257,000 tonnes (estimated) materials used to put products on the market
Waste down to 24.5 kilotonnes, of which 84% recycled

Social

Brand value USD 12.1 billion (Interbrand)
Partnerships with UNICEF, Red Cross, Amref and Ashoka

Societal impact

Impact

The societal impact of Philips though its supply chain, its operations, and its products and solutions

Human

Employee benefit expenses EUR 5,287 million
Appointed 77% of our senior positions from internal sources
21% of Leadership positions held by women

Intellectual

Around 40% of revenues from new products and solutions introduced in the last three years

Financial

Market capitalization EUR 28.3 billion at year-end
Long-term credit rating A- (Fitch), Baa1 (Moody's), BBB+ (Standard & Poor's)
Dividend EUR 738 million

Manufacturing

90% electricity from renewable sources
240,000 employees impacted at suppliers participating in the 'Beyond Auditing' program

Natural

Environmental impact Philips operations down to EUR 175 million
1st health technology company to have its CO₂ reductions assessed and approved by the Science Based Targets initiative

Social

1.54 billion Lives Improved (2.24 billion including Signify), of which 175 million in underserved communities
Income tax paid EUR 301 million; the geographic statutory income tax rate is 25% of the result before tax

^*Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information.

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Our strategic focus

Healthcare challenges the world over

All around the world, trends such as growing, aging populations, the increase in chronic illnesses and changing reimbursement systems have created a need for more efficient, effective and sustainable models of care. At the same time, a growing focus on healthy living and prevention means people are looking for new ways to monitor and manage their health. In underserved communities, meanwhile, access to care remains a pressing issue.

A clear vision guiding our actions

Led by our vision of making the world healthier and more sustainable through innovation, Philips is driving the digital health revolution to unlock the value of seamless care, helping people to look after their health at every stage of life – with the goal of improving the lives of 3 billion people a year by 2025.

This ambition demands an approach that addresses both the social and ecological dimensions, as reflected in our commitment to the United Nations’ Sustainable Development Goals 3, 12 and 13:

Ensure healthy lives and promote well-being for all at all ages
Ensure sustainable consumption and production patterns
Take urgent action to combat climate change and its impacts

With its focus on access to care, circular economy and climate action, our ‘Healthy people, Sustainable planet’ program, running from 2016-2020, is designed to help us deliver on these commitments.

Innovating care

The desire for affordable and effective healthcare delivery, without compromising the future availability of natural resources, is driving the adoption of value-based care. This will first require a shift from volume to value, which Philips is driving through innovation, as well as by transforming the way we engage with customers and shape business models. Secondly, it will require the balance to shift from acute and episodic care more towards primary and secondary preventative care in the community and home, improving overall population health.

At Philips, we like to visualize healthcare as a continuum since it puts people at the center and supports the idea of care pathways. Believing that healthcare should be seamless, efficient and effective, we ‘join up the dots’ for our customers and consumers. Data and informatics will play an ever-increasing role in helping people to live healthily and/or cope with disease, and in enabling care providers to meet people’s needs, deliver better outcomes and improve productivity.

Applying our extensive consumer insights, we develop locally relevant, connected solutions that support healthier lifestyles, prevent or cure disease, and help people to live well with chronic disease, also in the home and community settings. In hospitals, we are teaming up with healthcare providers in long-term strategic partnerships to innovate and transform the way care is delivered.

We listen closely to our customers’ needs and together we co-create solutions – suites of systems, smart devices, software and services that drive improvements in patient outcomes, quality of care delivery and cost productivity. Increasingly, we are partnering with our customers in new business models where we take co-responsibility for our customers’ key performance indicators.

Integrated solutions addressing the Quadruple Aim

Philips sees significant value in integrated healthcare, applying the power of predictive data analytics and artificial intelligence at the point of care, while at the same time optimizing care delivery across the health continuum. This includes an increased focus on both primary and secondary prevention and population health management programs.

With our global reach, deep insights and innovative strength, we are uniquely positioned in ‘the last yard’ to consumers and care providers, delivering:

connected products and services supporting the health and well-being of people
integrated modalities and clinical informatics to deliver precision diagnosis
real-time guidance and smart devices for minimally invasive interventions
connected products and services for chronic care.

Underpinning these solutions, and spanning the health continuum, our connected care and health informatics solutions enable us to:

connect patients and providers for more effective, coordinated, personalized care
manage population health, leveraging real-time patient data and clinical analytics.

By addressing healthcare as a ‘connected whole’ in this way, we are able to unlock gains and efficiencies and drive innovations that help our customers to deliver on the Quadruple Aim of value-based healthcare: improved patient experience, better health outcomes, improved staff experience, and lower cost of care.

We are focusing on end-to-end pathways – at present primarily cardiology, oncology, respiratory care, and pregnancy and parenting – where we believe our integrated approach can add even greater value.

The road ahead

As we continue on our health technology journey, the drivers set out in the roadmap below are designed to deliver higher levels of customer value and quality, boost growth, and deliver winning solutions – all coming together to improve performance and results.

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Message from the CEO

Dear Stakeholder,

Transforming healthcare through innovation

Delivering on our sustainability commitments

Roadmap to win

In conclusion

Transforming healthcare through innovation

Reducing hospital readmissions with remote patient care management

Unlocking the full potential of digital pathology for primary diagnostics

Reducing procedure time in image-guided therapy with Philips Azurion

Empowering nurses to be able to make critical interventions

Ingenia Ambition 1.5T MRI with BlueSeal magnet and Compressed SENSE acceleration

DreamMapper app

Making the world healthier and more sustainable

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Compare our key data from the last five years

Balance Sheet

Driving social and environmental progress

Creating value for our stakeholders

Capital input

Human

Intellectual

Financial

Manufacturing

Natural

Social

Philips Business System

Strategy - Where we invest

Capabilities, Assets and Positions - Our unique strengths

Excellence - How we operate

Path to Value - What we deliver

The six capitals

Human

Intellectual

Financial

Manufacturing

Natural

Social

Value outcomes

Output

Human

Intellectual

Financial

Manufacturing

Natural

Social

Societal impact

Impact

Human

Intellectual

Financial

Manufacturing

Natural

Social

Our strategic focus

Healthcare challenges the world over

A clear vision guiding our actions

Innovating care

Integrated solutions addressing the Quadruple Aim

The road ahead

View the HTML version of our Annual Report 2017