1Message from the CEO 

Dear Stakeholder,

The challenges of a world in turmoil amplify the sense of urgency I feel to make sure Philips delivers on its purpose and becomes an even stronger force for good, so people everywhere can look after their health and well-being and access the care they need, with us focusing on where we can help, from the hospital to the home.

In January 2023, we announced our multi-year plan to create value with sustainable impact. Throughout the year, Philips teams around the world worked relentlessly, in a volatile environment, to deliver on the first phase of that plan, laying a strong foundation for sustained future success.

Our products and services reached 1.9 billion people in 2023, including 221 million in underserved communities – taking us closer to our goal of improving 2.5 billion lives per year by 2030, including 400 million in underserved communities.

Our improved operational performance was driven by significant progress on the three pillars of our plan to create value for all our stakeholders: 1) focused organic growth; 2) scalable people- and patient-centric innovation; and 3) focus on execution to enhance patient safety and quality, strengthen our supply chain reliability, and establish a simplified, agile operating model.

We achieved our raised 2023 outlook with strong sales growth, improved profitability, and strong cash flow, despite the uncertainties brought about by an increasingly turbulent geopolitical environment. While the order book remains strong in absolute terms, order intake was down, for which the necessary improvement actions are under way. There is still a lot of work to be done, but 2023 represents a good start, and it reinforces our confidence in delivering on our three-year plan.

Patient safety and quality

Resolving the consequences of the Respironics recall for our patients and customers is a key focus area, and I apologize for the distress caused. Globally, over 99% of the sleep therapy device registrations that are complete and actionable have been remediated, while the remediation of the ventilator devices remains ongoing.

We are fully committed to complying with the terms of the consent decree agreed with the US Department of Justice (DOJ), representing the US Food and Drug Administration (FDA), which primarily focuses on Philips Respironics in the US. The proposed consent decree will provide Philips Respironics with a roadmap of defined actions, milestones, and deliverables to demonstrate compliance with regulatory requirements and to restore the business. Further details will become available once the consent decree has been finalized and submitted to the relevant US court for approval.

As well as implementing all measures agreed with the FDA and DOJ in connection with the Respironics recall, we will continue to rebuild relations with the FDA and other national regulators. In October, Philips Respironics received preliminary court approval for the class action settlement that would resolve all or nearly all private economic loss claims in the US related to the recall. The settlement does not include or constitute any admission of liability, wrongdoing, or fault by any of the Philips parties. The previously disclosed litigation, including the personal injury and medical monitoring claims, and investigation by the DOJ related to the Respironics recall are ongoing.

Driving progress on priorities

With patient safety and quality the number one priority, oversight now resides at Executive Committee level, and we have a new organization in place, with stronger processes and more effective early warning systems in the businesses. We are pro-actively addressing quality improvements and first-time-right design. One of the most inspiring events of the year took place in October – a company-wide Timeout for Patient Safety and Quality. All 70,000 employees came together in their teams to discuss how we are moving forward on patient safety and quality, and how to take it further.

In our drive to create more reliable and resilient supply chains, we have significantly reduced our high-risk components and our inventories, and the actions we have taken continued to have a positive impact on our sales and service levels. We continue to strengthen further through regionalization of the supply base and manufacturing capability to better respond to local requirements with a shorter value chain.

We also started the shift to our new, simplified operating model – with end-to-end businesses supported by a leaner enterprise layer, strong regions and a reinvigorated impact culture – and completed the realignment of workforce roles and reporting lines. This included the difficult but necessary reduction of approximately 8,000 roles to date, out of the planned reduction of 10,000 roles by 2025.

Reflecting our changing culture of people- and patient-centricity, accountability and impact, our Executive Committee was strengthened with the arrival of four new members in 2023, each bringing valuable experience and skills to the work of our leadership team. We also welcome the decision by Exor to take a 15% minority stake in our company – a sign of confidence in our plan, our people, and our future. And we marked the 100th anniversary of Philips in China, a remarkable achievement. 

The opportunity to deliver better care for more people

Today, millions of people around the world have little or no access to basic healthcare, and climate change is impacting both environmental and human health. Healthcare is simply not working as it needs to. There are not enough doctors and nurses to address the growing demand for care. In parallel, rising costs are stretching financial budgets to the limit.

That’s why we are advocating for systemic change, driven by all ecosystem players, that addresses technology, clinical practice, financing and regulation as a whole. Change that delivers better, more productive healthcare that works for everyone. Without this change, communities all around the world will increasingly face challenges to get the care they need.

Focusing our efforts on where we can make a difference, we want to help more healthcare providers help more patients, in a sustainable way, and empower more people to take care of their health and well-being – by applying our combined capabilities in innovation, design and sustainability.

There is a lot of work to be done, but we see the potential for a future where health systems run smoothly, efficiently and sustainably, with doctors and nurses seeing the patient at the right time and at the right point of care. Where they can be confident that the right choice is also the easy choice, with simpler workflows enabling them to give patients the best care and best experience.

With real-time and predictive insights supporting collaboration across the patient journey. And AI being used in a responsible manner to optimize workflows and improve efficiency, so that clinical staff get the time and space to focus on what matters and what they do best: caring for their patients.

We see a future where it is also easier for people everywhere to look after their health and well-being. For example, with solutions helping more parents and babies in the first 1,000 days and supporting the connection between good oral care and good overall health.

Recognizing that human health and environmental health go hand in hand, we are collaborating with our customers and suppliers to decarbonize healthcare and so create a more sustainable and resilient industry.

Looking ahead

While realistic about the challenging economic environment, geopolitical risks, and uncertainties around ongoing litigation, I am confident we will continue to deliver on our multi-year plan to create value with sustainable impact – helping consumers lead healthy lives and healthcare providers deliver efficient, high-quality care to patients in a sustainable way. Based on our ongoing actions to enhance execution – driving patient safety and quality, increasing supply chain reliability, and further simplifying how we work – we expect further performance improvement in 2024.

Against this background, and reflecting the importance we attach to dividend stability, we propose to maintain the dividend at EUR 0.85 per share, to be distributed fully in shares.

On behalf of the Executive Committee, I would like to thank our consumers, our customers and their patients, our suppliers and ecosystem partners for their support, and the Supervisory Board for their support and guidance. I also want to express my deep gratitude to our employees for their dedication to improving people’s lives and our company’s performance, and to our shareholders and other stakeholders for their continued support.

As I look ahead, I am realistic about the challenges we face, optimistic about building on the momentum we have created, and excited about delivering on our purpose – for the benefit of patients, customers and consumers the world over.

Roy Jakobs
Chief Executive Officer

2Board of Management and Executive Committee

Royal Philips has a two-tier board structure consisting of a Board of Management and a Supervisory Board, each of which is accountable to the General Meeting of Shareholders for the fulfillment of its respective duties. The Board of Management is entrusted with the management of the company. The other members of the Executive Committee have been appointed to support the Board of Management in the fulfilment of its managerial duties. Please also refer to Board of Management and Executive Committee within the chapter Corporate governance.

Members of the Board of Management

Other members of the Executive Committee

This page reflects the composition of the Executive Committee as per December 31, 2023. For a current overview of the Executive Committee members, see also https://www.philips.com/a-w/about/executive-committee.html

At a glance

Strategy and Businesses

Significant opportunities to drive impact – helping healthcare providers help more patients, in a sustainable way, and empowering more people to take care of their health and well-being

Patient safety and quality at the heart of innovation design

Strong customer interest in AI-enabled health technology innovations across our portfolio

Personal health innovations supported by online expansion, retail partnerships, and scaling of new business models

Respironics recall: remediation of sleep devices almost complete, remediation of ventilator devices ongoing 

3Strategy and Businesses

3.1Our strategic focus 

Today, most healthcare systems are struggling to keep up with the ever-rising need for, and cost of, healthcare, while systemic staff shortages and financial resource constraints increase the pressure. Climate change is impacting both environmental and human health, compounding the stress on our healthcare systems and influencing consumer behavior. At the same time, in both the hospital and the home, emerging technologies and AI are affecting our lives like never before.

At Philips, our purpose is to improve people’s health and well-being through meaningful innovation. As such, we see huge opportunities to make a difference through innovation, design, and sustainability – partnering with our healthcare customers to increase productivity and deliver better care for more people through our innovation platforms of monitoring, imaging, interventional and enterprise informatics. And empowering more people to take care of their health and well-being through our personal health propositions.

Our plan to create value with sustainable impact 

As a health technology company, Philips is committed to driving progressive value creation through a strategy of focused organic growth, scalable patient- and people-centric innovation, and focus on reliable execution.

Philips has significant strengths to build on. We have a portfolio of patient- and people-centric innovations in hardware, software, AI and services, supporting care in the hospital and in the home. And we are the preferred strategic and innovation partner for many customers across the globe.

A strategy of focused growth

We operate in growing market segments, where attractive margins provide a foundation for sustainable value creation. To deliver on our strategy, we make clear portfolio choices. We are concentrating our resources on areas where we have strong positions and can accelerate growth and expand margins more quickly – Image Guided Therapy, Monitoring, Ultrasound, and Personal Health. In doing so, we will focus to support clinical workflows in areas where we have domain leadership, such as cardiology, and that build on our deep strength in the Intensive Care Unit (ICU) and Cath Lab.

In Diagnostic Imaging, our goal is to help healthcare providers who need to do more with less. We will do so by leveraging our differentiating, AI-enabled innovations to increase their imaging workflow productivity, departmental efficiency and financial sustainability and, by doing so, improve our margins and drive uptake of our services supporting care pathways.

We help our customers to unlock actionable insights from pools of medical imaging data, vital signs (patient monitoring) data and insights generated with the support of artificial intelligence (AI) to optimize care delivery across the patient journey. With the scaling of our end-to-end multi-vendor Enterprise Informatics business, we aim to grow our platforms such as radiology, pathology and remote care delivery across health systems and care settings, while building long-term customer relationships, generating recurring revenue and enabling the hardware business to maintain a competitive advantage.

Additionally, we remain committed to rebuilding our position in Sleep & Respiratory Care while continuing to resolve the effects of the Respironics recall.

Scalable patient- and people-centric innovation

At Philips, we’ve been innovating to improve lives for over 130 years. People’s needs are at the very heart of how we innovate and design for sustainable impact with a ‘safety and quality first’ mindset.

Innovation is our core strength and will continue to be our core differentiator. Recent industry trends have accelerated the adoption of technology within healthcare. We are embracing these trends and shifting our innovation to a more patient- and people-centric model closer to our customers. This starts with asking: What do people – in our case, patients and clinicians, nurses and technicians, consumers – really need? And how can we best support healthcare professionals with their workflow?

In our businesses, we are focusing our efforts and resources on fewer projects offering greater scale and impact on patient outcomes and care providers’ clinical, operational and sustainability challenges. We do this by balancing new, breakthrough innovations and continuous optimized lifecycle management, through upgrades and services, of Philips products and systems already deployed in care settings. We bring together expertise across the product lifecycle, from research through serviceability, to ensure our innovations drive maximum impact for our customers and consumers – delivering a superior experience and value, with minimum environmental impact.

Execution as the value driver

Enabled by a culture of patient- and people-centricity, accountability and impact, supported by strong health technology capabilities, we see effective execution as the key value driver of our plan and a key driver for change. We are focusing on:

• Patient safety and quality – remains our highest priority
• End-to-end supply chain resilience
• A simplified operating model with an agile way of working

First, patient safety and quality is at the heart of everything we do. We have stepped up accountability for patient safety and quality, for example, by elevating oversight to the Executive Committee and creating a new organization, with stronger processes and more effective early warning systems in the businesses, as well as giving all employees dedicated patient safety and quality objectives. We are investing in systems, capabilities and training to facilitate identification of potential patient safety or quality issues. And we are taking the learnings from the Respironics recall to improve our ability to correctly assess patient safety and provide quality of the highest standard across Philips and in delivery to patients, customers and consumers.

Second, we are re-shaping our supply chain set-up so we can ensure reliable delivery of products and services and deliver our order book. We have moved away from being organized around central functions to a structure where we align procurement and supply chain to our businesses. A more regionalized structure combined with dual sourcing that can work effectively even when volatile conditions emerge in different parts of the world. We are pruning our product portfolio, which includes a long tail of smaller product lines and older generations of our products. We also have a dedicated team redesigning products and components to increase our resilience to more volatile demand.

Finally, we are implementing our simplified operating model to enable us to better serve patients, customers and consumers, as well as ensuring that our cost of organization remains competitive in an inflationary and cost-driven environment, and that we are more agile in responding to changes in the market. Prime accountability has been assigned to the businesses, supported by lean Functions and Regions following tailored models, all guided by fewer KPIs and more focused targets. 

Driving impact for people and planet

Building on our strong heritage in environmental sustainability and social impact, we have operationalized our purpose by adopting a fully integrated approach to doing business responsibly and sustainably. We are partnering with stakeholders to drive environmental, social and governance (ESG) priorities and make a global impact. For example:

• We aim to improve the lives of 2.5 billion people a year, including 400 million in underserved communities, by 2030
• We will continue to operate carbon-neutrally and are partnering with customers and suppliers on reducing emissions across the full value chain in line with science-based targets
• We aim to increase circular revenues from 15% of sales in 2020 to 25% of sales by 2025

Delivering on our plan

With our global reach, market leadership positions, deep clinical and technological insights, and patient- and people-focused innovation, we believe Philips is well positioned to help deliver real change across healthcare. Fueled by our purpose and supported by a reinvigorated culture of accountability and empowerment, as well as strengthened health technology capabilities, we aim to progressively create value with sustainable impact. 

3.2How we create value with sustainable impact

The overview below is based on the International Integrated Reporting Council framework and includes resource inputs, value outcomes and societal impact across various financial and Environmental, Social and Governance (ESG) dimensions.

3.3Double Materiality Assessment

We identify the Environ­mental, Social and Governance topics which we believe have the greatest impact on our business and the greatest level of concern to stakeholders along our value chain, for instance patient safety and quality. We do this through a multi-stakeholder process. Please refer to Working with stakeholders and advocacy for more information. Assessing these topics enables us to prioritize and focus upon the most material topics and effectively address these in our policies, programs, targets and actions. We do this with reference to the GRI standard and identify and assess impacts on an ongoing basis, for example through discussions with our customers, suppliers, investors, employees, peer companies, social partners, regulators, NGOs, and academics. We also conduct a benchmark exercise, carry out trend analysis and run media searches to provide input for our materiality analysis. GRI has not yet published a sector standard for the healthcare industry. Philips’ impact on society at large is covered through our Lives Improved metric and the Environmental Profit & Loss account, as well as a number of other KPIs addressed in Environmental, Social and Governance. The result of our impact materiality assessment you will find below.

Similar to 2022, we used an evidence-based approach to materiality assessment, powered by a third-party AI-based application. The application allows automated sifting and analysis of millions of data points from publicly available sources, including corporate reports, mandatory regulations and voluntary initiatives, as well as news. With this data-driven approach to materiality assessment we have incorporated a wider range of data and stakeholders than was ever possible before and managed to get an evidence-based perspective on regulatory, strategic and reputational risks and opportunities. Topics were prioritized through a survey sent to a large and diverse set of internal and external stakeholders, combined with input from the application.

Changes in 2023

On both external and internal importance axis, the most significant increases compared to 2022 were Waste management and Social inclusion & engagement. Innovation & research went down on both axes. On the internal importance axis, there was a significant decrease on Pollution.

Double materiality

After completing the regular impact materiality assessment, we completed a preliminary 'double materiality' assessment, in preparation for the upcoming requirements of the EU Corporate Sustainability Reporting Directive (CSRD). The double materiality assessment addresses both financial materiality (the impact of society on Philips) as well as impact materiality (the impact of Philips on society): we only included the high and medium material topics from impact materiality and/or financial materiality. The data sources used for the financial materiality include corporate reports, mandatory regulations with sanctions, voluntary initiatives by e.g. central banks, and Sustainability Accounting Standards Board (SASB) accounting metrics. For impact materiality, we included sustainability data from corporate reports or sustainability reports, coverage in the news and voluntary initiatives and regulation. We calibrated the financial and impact materiality with a team of internal experts from Enterprise Risk Management, Group Control, Internal Audit, Insurance and Risk Management and Sustainability and aligned with our Enterprise Risk Management assessment. After this calibration the financial impact of Product responsibility & safety, Geopolitical events, and Big data, AI & Cybersecurity were increased. The results of the double materiality analysis are depicted below. 

From the financial materiality assessment, the topics that ranked highest were: (1) Product responsibility & safety, (2) Geopolitical events, and (3) Big data, AI & Cybersecurity, as well as Business ethics & General business principles.

From the impact materiality assessment, the topics that ranked the highest were: (1) from the Environmental topics, Climate change, and Energy efficiency; (2) from the Social topics, Employee well-being, health & safety, and Access to (quality & affordable) care; and (3) from the Governance topics, Big data, AI & Cybersecurity, and Competition & market access. These topics are all covered in more detail in the Annual Report 2023 and monitored regularly. 

The outcome of the double materiality assessment did not result in any significant changes in the material topics identified from impact materiality.

The results of our materiality assessment have been reviewed and approved by the Philips Board of Management and will be used to prepare for the upcoming EU legislation.

For more information on materiality, refer to Material topics and our focus.

3.4Our business structure

Koninklijke Philips N.V. (Royal Philips) is the parent company of the Philips Group. As announced on January 30, 2023, Philips has changed its operating model to end-to-end businesses with single accountability in order to make the company more agile in its drive to create value with sustainable impact. The segments Diagnosis & Treatment, Connected Care and Personal Health are each responsible for the management of their business activity worldwide, and are made up of the six businesses shown below. Additionally, Royal Philips identifies the segment Other.

3.4.1Diagnosis & Treatment segment

Our Diagnosis & Treatment businesses create value through their portfolio of innovative AI-enabled solutions that support precision diagnosis and minimally invasive treatment in therapeutic areas such as cardiology, peripheral vascular, neurology, surgery, and oncology. With these solutions, we enable our customers to realize better health outcomes, improved patient and staff experience, and lower cost of care.

Serving diagnostic imaging markets globally, our goal is to improve customer performance in the radiology/imaging workflow. We see significant opportunity to enable precision diagnosis while at the same time supporting adjacent needs for care orchestration across care pathways and increasing departmental productivity. We do this through smart diagnostic systems, connected workflow solutions, and integrated AI-supported diagnostics and pathway informatics. These drive enterprise-wide operational efficiency and help clinicians to provide an early and definitive diagnosis, enabling them to select tailored care pathways with predictable outcomes for every patient, both inside and outside the hospital.

We also provide integrated solutions combining imaging systems, diagnostic monitoring data and therapeutic devices, which optimize interventional procedures to deliver more effective treatment, better outcomes and higher productivity. Building upon our leading-edge Azurion system, we continue to innovate, optimizing clinical and operational lab performance through advances in workflow and integration for routine procedures, and expanding the role of image-guided interventions to treat new groups of patients such as those with complex diseases including various cardiovascular conditions, stroke and lung cancer. We are also innovating the way we engage with our customers, using new business models across different care settings, including out-of-hospital settings such as office-based labs and ambulatory surgical centers, which offer clear clinical, financial and operational benefits.

In 2023, the Diagnosis & Treatment segment consisted of the following businesses:

• Precision Diagnosis, consisting of:
  • Diagnostic Imaging:
    • Diagnostic X-ray business unit – systems with associated software to optimize diagnostic imaging quality and improve efficiency and productivity for the hospital  
    • Magnetic Resonance Imaging business unit – helium-free-for-life operations, bundled with associated AI-enabled software to streamline workflows, optimize diagnostic quality, and improve patient experience
    • Computed Tomography AMI business unit – advanced and efficient systems and software, including detector-based Spectral CT and molecular and hybrid imaging solutions for nuclear medicine
  • Ultrasound business unit – echography solutions focused on diagnosis, treatment planning and guidance for cardiology, general imaging, obstetrics/gynecology, and point-of-care applications, as well as proprietary AI-enabled and intelligent software capabilities to enable early, advanced diagnostics and timely interventions, and remote capabilities to enable tele-ultrasound operations and training
    
    
• Image Guided Therapy, consisting of:
  • Image Guided Therapy Systems business unit – integrated interventional systems that combine information from imaging systems, interventional devices, navigation tools, monitoring patient data and patient health records, supported by AI, to provide interventional staff with the control and information they need to perform procedures efficiently
  • Image Guided Therapy Devices business unit – interventional diagnostic and therapeutic devices to treat coronary artery and peripheral vascular disease

Revenue is predominantly earned through the sale of products, leasing, customer services fees, recurring per-procedure fees for disposable devices, and software license fees. For certain offerings, per-study fees or outcome-based fees are earned over the contract term.  

Sales channels are a mix of a direct sales force, especially in the larger markets, third-party distributors and an online sales portal. This varies by product, market and price segment. Our sales organizations have an intimate knowledge of technologies and clinical applications, as well as the solutions necessary to solve problems for our customers. 

Sales at Philips’ Diagnosis & Treatment businesses are generally higher in the second half of the year, largely due to the timing of customer spending patterns.

At year-end 2023, Diagnosis & Treatment had 28,397 employees worldwide.

2023 highlights

At RSNA23, Philips announced a raft of new innovations, including next-generation EPIQ Elite 10.0 and Affiniti ultrasound systems that increase diagnostic confidence and workflow efficiency, BlueSeal MRI Mobile, the world’s first and only mobile MRI system with helium-free operations, and new AI-enabled cloud solutions that enhance radiology efficiency and clinical confidence. 

Philips launched its new MR 7700 3.0T system, which features an enhanced gradient system designed to deliver outstanding imaging results and speed to support confident diagnosis for every patient.

Five top hospitals in Shanghai, with a total of more than 10,000 beds, installed Philips’ advanced Spectral CT 7500 imaging system, helping physicians deliver first-time-right diagnosis through fast, low-dose X-ray scans.

Philips further expanded its ultrasound portfolio with the launch of the Ultrasound Compact 5500 CV, which delivers cart-based premium image quality in ultrasound exams for cardiology and vascular patients at the bedside. 

Philips IntraSight Mobile received approval from the Chinese regulatory authority, paving the way for its commercial introduction in the Chinese market. IntraSight Mobile combines imaging and physiology applications on a mobile system for peripheral and coronary artery disease therapy.

Philips expanded its image-guided therapy portfolio with the launch of Philips Zenition 10, which provides a cost-effective imaging solution to guide high-volume routine surgery, as well as complex orthopedic and trauma procedures. Philips also launched the Zenition 30 Image Guided Therapy Mobile C-arm. Its workflow-enhancing features and excellent image quality enable surgeons to deliver enhanced care to more patients, helping alleviate the staff shortages faced by many hospitals.

Through the WE-TRUST study, Philips is driving innovation in stroke treatment. The trial examines the impact of the direct-to-angio treatment pathway on clinical outcomes, facilitated by a helical scan in the angio suite developed by Philips to reduce time to treatment. With 16 leading stroke centers and hospitals around the world involved in the trial and 100 patients enrolled, the WE-TRUST study has already achieved the scale and momentum needed to deliver a reliable evidence base on the potential benefits of the Direct to Angio Suite pathway for patients suspected of having a large vessel occlusion (LVO) ischemic stroke – a treatment pathway that focuses squarely on addressing the fact that the faster a patient is treated, the more likely they are to recover. Another significant milestone was the publication of health economics analysis results in the Journal of NeuroInterventional Surgery, demonstrating that this new stroke care pathway can save over USD 3,000 per patient.

3.4.2Connected Care segment

With technology constantly advancing and becoming increasingly pervasive in healthcare, the Connected Care businesses aim to connect and elevate care for all. Philips connects patients and caregivers across care settings, delivering clinical, operational and therapeutic solutions that help our customers deliver better health outcomes, improve the patient and staff experience, and lower the cost of care across care settings. In 2023, the global economic situation continued to put additional pressure on customer budgets and worsened trends such as staff shortages, as well as increasing the need for solutions that enable more effective, sustainable and convenient care in hospital, clinics and the home – especially enabled by strong informatics and AI.

The Sleep & Respiratory Care business in particular continued to face multiple operational and regulatory challenges in 2023, but action has been taken to improve the ability of the Sleep & Respiratory Care organization to correctly assess potential patient safety or quality issues. Philips has reaffirmed its core activities, which put patient safety front and center in everything we do, and we believe that the implementation of a new simplified organization, which for Sleep & Respiratory Care began in 2022, will help to achieve this, as well as to improve productivity and increase agility. In the course of the year, Sleep & Respiratory Care gradually returned to the market for sleep therapy devices outside the US. For information about the Respironics recall and related remediation effort, please refer to Quality & Regulatory and patient safety. 

With clinical depth and discovery, Philips Connected Care technologies help to cultivate a more accurate and complete view of the patient that drives better health and care. The combination of advanced technological solutions and a co-creation approach allows Philips to be an effective partner to its customers in their digital transformation, both across the enterprise and at the level of the individual clinician, nurse and patient. We help our customers to unlock actionable insights from pools of medical imaging data, patient monitoring data, and through the use of advanced AI, to improve outcomes and drive productivity.

Philips’ open, interoperable platforms aggregate and leverage information from clinical devices, patient and historical data to support care providers in patient engagement, diagnostics, and patient monitoring in the hospital, ambulatory and home settings.

In 2023, the Connected Care segment consisted of the following businesses:

• Monitoring – in-hospital, ambulatory and home-based monitoring and diagnosis solutions and services supporting the patient journey; as well as continuous monitoring and workflow solutions fueled by advanced interoperability and patient data insights.
  • The Hospital Patient Monitoring business unit delivers acute patient management solutions to improve clinical and patient outcomes and achieve operational and economic efficiencies. Leveraging a strong presence in the operating theater and intensive care unit (ICU), Hospital Patient Monitoring solutions enhance customers’ experience and improve patient outcomes with seamless patient data pulled from over 1,000 vendor-neutral devices monitoring from admission to discharge, and by turning that patient data into clinical insights that are actionable at the right time and specific to targeted care settings.
  • The Ambulatory Monitoring & Diagnostics business unit provides patient care management in ambulatory and home care settings through a suite of cardiac diagnostic and monitoring solutions to identify heart rhythm disorders plus other disease states supported by AI algorithms that orchestrate workflows and services across care settings to provide care virtually anywhere.
  • The Emergency Care business unit’s propositions play a critical role in connected acute care management, both inside and outside the hospital, including cardiac resuscitation (e.g. Automated External Defibrillators) and emergency care solutions (devices, services, and digital/data solutions) for professional and consumer applications.

• Sleep & Respiratory Care – Working closely with clinical partners and Durable/Home Medical Equipment providers, Philips Respironics provides sleep and respiratory solutions to customers, clinicians and patients. This extends from ambulatory patient care solutions for obstructive sleep apnea, to solutions encompassing diagnostics, people-centric therapy, cloud-based connected propositions and care management services for patients with COPD (Chronic Obstructive Pulmonary Disease) and respiratory conditions. Hospital Respiratory Care provides invasive and non-invasive ventilators for acute and sub-acute hospital environments; Home Respiratory Care supports chronic care management in the home.

• Enterprise Informatics – By combining our informatics propositions into one end-to-end business segment, Philips can scale its software business, providing vendor-agnostic, integrated workflow solutions that convert data from our imaging and monitoring systems into clinical and operational.
  • The Radiology Informatics business unit enables enterprise imaging across sites, specialties and technologies to simplify medical image management, facilitate effective collaboration and enhance patient care.
  • The EMR & Care Management business unit provides electronic medical record (EMR), acute care, and TeleICU solutions to deliver intelligent informatics propositions to connect people, data, and technology across care settings.
  • The Clinical Integration & Insights business unit offers medical device and data integration across the enterprise for continuous, vendor-neutral data capture from more than 1,000 device models supported by insightful clinical decision support and analysis.
  • The Cardiovascular Informatics business unit offers solutions that empower caregivers across the enterprise to make fast, informed clinical decisions to care for cardiac patients, providing support in managing increased volume and complexity of clinical and administrative data, wherever care is delivered.
  • The Clinical Insight & Informatics business unit delivers clinical decision support in the domains of digital pathology, advanced visualization and specific disease management solutions.

In most of the Connected Care businesses, revenue is earned through the sale of products and solutions, as well as services and software licenses. Where bundled offerings result in solutions for our customers, or offerings are based on the number of people being monitored, we see more usage-based earnings models. In the area of patient care management (Ambulatory Monitoring & Diagnostics business unit and Sleep & Respiratory Care business), revenue is generated through clinical services, product sales and through rental models, whereby revenue is generated over time.

Sales channels include a mix of a direct sales force, partly paired with an online sales portal and distributors (varying by product, market and price segment). Sales are mostly driven by a direct sales force with an intimate knowledge of clinical settings and patient-specific diagnosis and treatment. Philips collaborates with customers and partners to co-create solutions, drive commercial innovation and adapt to new models such as monitoring-as-a-service and software-as-a-service.

Sales at Philips’ Connected Care businesses are generally higher in the second half of the year, largely due to customer spending patterns. However, the Philips Respironics voluntary recall notification in the Sleep & Respiratory Care business in June 2021 (as further discussed in Quality & Regulatory and patient safety) continued to have a negative impact on sales throughout 2023.

At year-end 2023, Connected Care had 17,549 employees worldwide.

2023 highlights

Philips signed a 10-year, EUR 100 million Enterprise Monitoring as a Service agreement with one of the largest health systems in the US, covering 20 hospitals with over 3,000 beds. The agreement provides the health system with constant access to the latest technology, including software and services, while lowering initial investments.

Philips and NYU Langone Health announced an 8-year strategic partnership valued up to USD 115 million and aimed at enhancing patient care through further innovation. The partnership includes digital pathology, clinical informatics, and innovative AI-enabled diagnostics, with an Enterprise Monitoring as a Service model. With these new technologies, NYU Langone clinicians can collaborate in real time, sharing pathology, imaging studies or patient data to support diagnostic confidence and tailor individualized care plans.

Highlighting the strength of its comprehensive patient monitoring offering, Philips announced a multi-year partnership with Northwell Health to standardize and centralize patient monitoring across the hospital, allowing caregivers to see what is happening at each bedside.

Philips announced new interoperability capabilities that offer a comprehensive view of patient health for improved monitoring and care coordination. This is realized through the interoperability of Philips Capsule Medical Device Information Platform (MDIP) with Philips Patient Information Center iX (PIC iX) with streaming, vendor-neutral data that supports care delivery and collaboration.

Philips introduced the cloud-based Philips HealthSuite Imaging PACS on Amazon Web Services. This cloud-based enterprise imaging solution, which includes advanced AI-enabled applications, has been designed to enhance image access speed, reliability, and data orchestration for clinicians across the imaging workflow, while reducing costs for healthcare organizations.

Philips launched its ambulatory monitoring offering in Japan, combining Philips ePatch Holter monitors with ECG analysis through AI and advanced algorithms. This innovative approach aims to reduce clinician workload and improve the patient experience.

3.4.3Personal Health segment

Our Personal Health business plays an important role in enabling healthy individual care routines with technology and solutions that support people’s long-term health and well-being.

We aim to drive profitable growth through a focus on innovation across three key areas:

• Reaching more people through consumer-driven product and solutions innovation 
• Ensuring the highest quality of consumer experience from pre-purchase consideration through to purchase and unboxing, all the way to end-of-use recycling
• Expanding our ecosystem through partnerships with leading retailers and scaling new business models, such as try-and-buy and subscription services

The Personal Health segment consists of the Personal Health business, which comprises the following business units:

• Oral Healthcare business unit – power toothbrushes for a range of price segments, from entry-level battery-operated toothbrushes for a young audience to premium power toothbrushes connected to the Sonicare app with in-app coaching; brush heads, which are also available as a subscription service; products for interdental cleaning and for teeth whitening
• Mother & Child Care business unit – products to support parents and babies in the first 1,000 days, including infant feeding (breast pumps, baby bottles and sterilizers), connected baby monitors and digital parental and women’s health solutions (Pregnancy+ and Baby+ apps)
• Personal Care business unit – grooming and beauty products ranging from entry-level to premium. The grooming portfolio includes shavers, OneBlade, groomers, trimmers and hair clippers, as well as premium solutions with SkinIQ technology, in-app coaching for a personalized shave, and blade subscriptions. The beauty portfolio includes devices to support skin care, hair care and hair removal, including Lumea premium IPL hair removal devices and solutions with the latest SenseIQ technology that sense and adapt for personalized care; also available through subscription models.

Through our Personal Health business, we offer a broad range of solutions in various consumer price segments to support people in proactively managing their health and well-being. Depending on the market, we offer an additional portfolio of locally relevant innovations and adjust our range to increase accessibility. A notable aspect of our commercial strategy is driving increased direct-to-consumer relationships and sales through our consumer communities and online store. About half of our Personal Health sales worldwide now take place online.

We are leveraging connectivity to offer new business models, partnering with other players in the health ecosystem, e.g. insurance companies and healthcare professionals, with the goal of extending opportunities for people to live healthily and prevent or manage disease. We are engaging consumers in their health journey in new and impactful ways through social media and digital innovation.  

In Personal Health, improving lives also means caring for the world, with a key focus on environmental sustainability. For example, in 2023 we launched an initiative in Germany, Philips Refurb Editions, to give products a second life, with the same two-year guarantee as a new product. This is part of Personal Health’s commitment to driving a more circular economy, and we believe we need to keep finding innovative ways to support consumers with greater choices to live sustainably. 

We also offer mobile solutions to support parents and parents-to-be for a more informed, more connected and healthier journey to parenthood. The Pregnancy+ app and Baby+ app offer parents supportive content at every stage of their first 1,000-day journey. Pregnancy+ also offers state-of-the-art, photo-realistic and interactive 3D fetal models to make the experience even more exciting, with new, personalized content for each day of the pregnancy. The Philips Pregnancy+ app was ranked among the best pregnancy apps of 2023 by Forbes^*). It has more than 1.5 million daily active users and is available in 22 languages.

The revenue model is mainly based on product sale at the point in time the products are delivered to retailers and online platforms. We continue to increase revenue model diversity by expanding our new business models, including direct-to-consumer, subscriptions, try-and-buy offerings and services. 

The Personal Health business experiences seasonality, with higher sales around key national and international events and holidays. 

At year-end 2023, Personal Health employed 9,085 people worldwide.

2023 highlights

Philips successfully launched the Sonicare DiamondClean 7900 Series electric toothbrush in China on major online shopping channels Alibaba and JD.com. Highlighting increasing customer demand, it claimed the number-one position in the high-end toothbrush category on Alibaba’s Tmall.

In partnership with JD.com, Philips launched the premium 7 Series Shaver in China, debuting as the #1 shaver on this major online shopping channel. Additionally, Philips’ DiamondClean 9000 premium electric toothbrush has become the best-selling high-end oral healthcare product on Alibaba.

To improve oral care habits among children, Philips introduced Sonicare for Kids 'Design a Pet Edition' with an entry price point designed to give more parents access to an electric toothbrush for their children.

Philips OneBlade packaging was named the 2023 Red Dot Communication Design Best of the Best in recognition of its paper-based model, illustrating how the use of less material, fewer parts, and less volume can go hand in hand with iconic presence and the best user experience.

Philips launched its 'Better than New' campaign in Germany, repositioning refurbished innovations and underscoring the company's commitment to circularity and sustainability. The campaign led to a significant year-on-year increase in sales revenue of refurbished Lumea and refurbished shaving products.

Philips announced Babybell Maternal & Child Supplies as the exclusive distributor for Philips Avent OneFeeding in China; the partnership aims to accelerate growth of the Philips Avent brand in the Chinese maternal health industry. The partnership combines the power of Philips’ latest innovations with Babybell's rich understanding of the local market and robust retail network to deliver on a faster innovation pace and expand market share.

3.4.4Segment Other

In our external reporting on Other we report on the items Innovation & Strategy, IP Royalties, Central costs, and other small items. At year-end 2023, 14,626 people worldwide were working in these areas.

About segment Other

Innovation & Strategy

At Philips, we have set up our innovation teams to be as close to our customers and consumers as possible. The majority of our Research & Development (R&D) experts work in one of our business units, which allows them to directly hear customer and consumer needs and work closely with other stakeholders to turn innovations into actual products. Innovation at Philips is organized to encourage innovation anywhere along the value chain and not just at the product ideation stage.

The remaining R&D experts are part of our central Innovation & Strategy organization. The main job of these experts is to focus on industry-shifting ideas that advance a core product to fulfill the needs of a broad new customer segment. Innovation & Strategy focuses on enabling and accelerating innovation across our business units in different ways:

Strategy supports the business units in shaping their strategy to create a competitive advantage. The Enterprise Strategy team focuses on overall corporate strategy, and the Market Analysis & Forecasting team analyzes customer segments and market growth trends. Strategy also partners closely with the Mergers & Acquisitions and Finance teams to ensure our M&A activity is aligned with the business units and our enterprise strategic direction.

Research helps to define the future of healthcare by unlocking opportunities that have the potential to disrupt the healthcare industry. Breakthrough Innovation Teams (BRITE) and Exploratory Innovations Teams (XITE) are two ways Philips nurtures long-term ‘big bets’ in innovation and enables the growth of an overarching entrepreneurial mindset across all of Philips.

Experience Design plays an important role in making sure that the voice of the customer is heard and included in innovation. This means linking product development from inception with a patient and consumer view and ensuring that the highest product and experience performance requirements are embedded throughout all innovation projects. In 2023, the Philips brand won 160 awards for design excellence.

Innovation Engineering teams bring innovations to life by providing Philips business units with a central team of experienced, talented individuals with capabilities in software, hardware engineering, and AI. Innovation Engineering teams also enable business units to scale through shared platforms.

Innovation Excellence helps our business units to be the best they can in innovation by offering them an outside-in view and developing competencies, processes, data and tools they need to excel at innovation.

Innovation Effectiveness teams help to measure the return on innovation investments and guide enterprise-wide innovation initiatives.

Innovation & Strategy works from four main innovation sites – Eindhoven (Netherlands), Cambridge (USA), Bangalore (India) and Shanghai (China) – and smaller innovation and research sites in the Regions. Our global footprint enables us to understand, anticipate and react to local markets and needs.

IP Royalties

Philips Intellectual Property & Standards (IP&S) proactively pursues the creation of new Intellectual Property (IP) in close co-operation with Philips’ operating businesses and Innovation & Strategy. IP&S is a leading industrial IP organization providing world-class IP solutions to Philips’ businesses to support their growth, competitiveness and profitability.

Royal Philips’ IP portfolio currently consists of approximately 53,000 patent rights, 31,500 trademarks, 135,000 design rights and 3,300 domain names. Philips filed 795 new patents in 2023, with a strong focus on the growth areas in health technology services and solutions. 

Philips earns substantial annual income from license fees and royalties.

Philips believes its business as a whole is not materially dependent on any particular third-party patent or license, or any particular group of third-party patents and licenses.

Central Costs

We recharge the directly attributable part of the functional costs to the businesses. The remaining part is accounted for as 'central costs', and includes costs related to the Executive Committee and Group Functions such as Strategy, Legal and Audit fees.

Other small items

Other small items refer to remaining items for intra-group services and legacy items relating to previously disposed businesses.

3.5Our geographic structure

3.5.1Our Regions

Geographically, our business is organized in three Regions: North America, Greater China and International Region (the latter made up of Europe and Growth groupings). Within our Regions, we further organize the business by Zones and Countries. Their primary accountability is to manage customer intimacy, relationships and understanding of their needs, (strategic) account management, service delivery, and indirect partner management. They are also accountable for government relations, local infrastructure needed to support Philips’ presence in a country (license to operate) and for statutory, fiscal & compliance duties, safety, sustainability and labor relations to secure compliant operations in the Region/Zone/Country.

For financial reporting purposes, we recognize four geographic areas: Western Europe, North America, Other mature geographies, and Growth geographies. Western Europe, North America and Other mature geographies are collectively recognized as Mature geographies in reporting on sales. This reflects the grouping of countries based on similar economic characteristics.

3.5.22023 highlights from our Regions 

North America

Leading health systems such as Northwell, TriHealth, and Atrium Health, have extended their long-term strategic partnerships (LSPs) with Philips to include enterprise informatics and precision diagnostics. In Canada, eHealth Saskatchewan elected to extend their enterprise informatics relationship with Philips, reinforcing the value of the partnership to clinicians and patients across the province.

The Enterprise Monitoring as a Service model (EMaaS) also drove innovation, giving health systems like NYU Langone Health, the University of California Irvine and Children’s Hospital of Orange County a predictable, scalable business model that enables them to standardize their patient monitoring platform across the enterprise. In addition to adopting EMaaS for their monitoring solutions, NYU Langone Health is also partnering with Philips to advance patient safety, quality and improve patient outcomes through digital innovation, including integrating patient data across the network, AI-enabled diagnostic imaging and digital pathology for precision diagnosis and treatment.

Philips Sonicare remains the leading electric rechargeable toothbrush in the United States and Canada, as well as the most-recommended rechargeable toothbrush brand in the United States. Additionally, Philips Norelco remains the leading electric male grooming brand in the US and Canada, reaching the next generation of young men with our One Blade multi-purpose shaver.

Philips continues to lead the way with innovation in its efforts to help address health disparities and maternal health access specifically – partnering with the state of Michigan to tailor the Philips Avent Pregnancy+ app, making it easier for moms within the state to find resources available to them, such as home-visiting nurses. During the first year, Pregnancy+ reached over 32,000 Michigan families, helping them get access to vital resources. The app was recognized by Forbes as the best pregnancy app of 2023. Forbes also recognized Philips for its Inclusion & Diversity efforts in North America, naming the company among the Best Employers for Diversity and Best Employers for Women for the second year in a row.

Greater China

In 2023, we continued to deliver on our commitment to support China’s national health strategy, supplying hospitals with tailor-made solutions for their clinical and research needs, and empowering consumers to manage their health and well-being.

With the aim of better serving the Chinese market, we are committed to our ‘In China, For China’ strategy, which focuses on local innovation, manufacturing, services and partnership. We continue to drive ‘made in China’ fulfillment and create more locally relevant solutions by leveraging local ecosystems to serve both professional and consumer markets. 

In the professional market, we have expanded our cooperation with local customers by providing cutting-edge imaging systems, informatics solutions and other products in support of delivering better care to patients in terms of precision diagnosis, interventional treatment, and smart hospital development. Key customers include many top hospitals: Huaxi Hospital in Sichuan Province, Renji Hospital, Xinhua Hospital, the Sixth People's Hospital, the 10^th People's Hospital and Children’s Hospital in Shanghai, Jishuitan Hospital and Anzhen Hospital in Beijing, the First Affiliated Hospital of Dalian Medical University, the First Affiliated Hospital of Zhengzhou University, and Regional Imaging Center of Jiangxi Province, to name just a few.

In the consumer market, in line with our consistent ‘Professional, Young and Premium’ positioning, Philips’ brand strength increased in 2023, despite an overall weak consumer market. We leveraged new online and offline channels, including Healthy Living Lab, TikTok, O2O instant retail platforms like Meituan, JD to home, and Ele.me to engage with young consumers and grow business. Local innovation drove significant growth in Male Grooming and Oral Healthcare, which continue to solidify their leadership positions in China. Philips was recognized as a ‘gold brand’ (most favored consumer brand) in the Personal Health category for the fourth consecutive year by China Business Weekly.

2023 marked the 100th anniversary of Philips in China. This achievement stands as a testament to Philips’ commitment and dedication to improving people’s lives through meaningful innovation and fostering strong partnerships in China.

International 

In International Region we strive to execute on a shared global vision whilst meeting the unique local needs and circumstances of our customers. Our goal is to elevate customer relationships and move from being a trusted supplier of equipment, services and software to a transformational partner directly contributing to our customers’ long-term success. To support this vision we have made great progress on leveling up our go-to-market model, developing scalable solutions and software, expanding fit-for-future capabilities, reinvesting revenue to enable new business models, and establishing new partnerships. 

In International Region, our Personal Health business plays an important role in enabling healthy individual care routines with technology and solutions that support people’s long-term health and well-being.

Philips entered into many new customer partnerships in 2023, including the following:

International – Europe

Patients at Martini Hospital were the first in the Netherlands to use Philips' ePatch wearable sensor to diagnose cardiac arrhythmias. The hospital uses the sensor and Cardiologs software to detect atrial fibrillation after patients have had a stroke. The patch is designed to replace traditional Holter monitors, which are more cumbersome and can only be worn for a day. The new sensor is expected to improve detection of heart rhythm disorders and provide more personalized care, as well as reducing workload and lowering costs.

Philips and Gibraltar Health Authority announced a 16-year strategic partnership to transform patient imaging and cardiac care for local patients. The partnership will provide local coronary angiography and angioplasty services in a new interventional cardiac suite equipped with the latest diagnostic technology. The announcement represents a major reform in service delivery, improving the region’s access to life-saving interventions while reducing environmental impact, with patients no longer needing to travel abroad for treatment.

Developed by Dr David Tscholl and Dr Christoph Nöthiger, consulting anesthesiologists at University Hospital Zurich, the Visual Patient Avatar is a new approach to patient monitoring: patient data is translated into a simple visual design, reducing the time needed in the operating room to check and interpret vital signs. Together with Philips, this idea was further developed into a commercial solution that is now being implemented at University Hospital Bonn, the first hospital in Europe to use this type of display for faster decision support.

Philips is partnering with Assistance Publique-Hôpitaux de Paris, Hôpitaux Civils de Lyon and Incepto (a PACS AI application platform) to make Artificial Intelligence more accessible to radiologists. Philips has also joined forces with Hôpital Saint-Joseph (Paris) and Hôpital Marie-Lannelongue (Hauts-de-Seine) to improve personalized cancer care by integrating digital pathology into the imaging workflow. And Philips has opened its new healthcare innovation center, Health Innovation Paris (HIP).

Philips' innovative technologies feature across the Polish hospital network. In 2023, the first Incisive CT scanner in Central & Eastern Europe was installed to diagnose patients with cardiac disease at a private cardiology network. In addition, a state-of-the-art hybrid room was created at the University Hospital in Bydgoszcz. Longstanding cooperation with the American Heart of Poland has resulted in further contracts, including the installation of a monitoring network. 

Philips and Norwegian Vestre Viken Health Trust deployed AI-enabled clinical care to help radiologists improve patient care. The large-scale deployment provides access to an AI-based bone fracture radiology application that will serve the needs of around half a million people across 22 Norwegian municipalities.

International – Growth

Philips Japan officially launched the Turbo-Power laser atherectomy catheter, which debulks lesions in a single step and offers remote automatic rotation for precise directional control – a powerful tool for the treatment of peripheral vascular diseases. The Philips MR7700 3.0T imaging system with SmartSpeed AI was installed for the first time in Japan, at Hamamatsu University Hospital. The MR7700 achieves high image quality, while SmartSpeed utilizes the Compressed SENSE speed engine to reduce scan time.

Philips launched the Spectral CT 7500 imaging system with an event for the top 100 radiologists in India. This system performs low-dose scans without compromising speed, power or field of view. We also received an order for 28 Philips Incisive CT systems from a single state. This system combines operator and design efficiencies to improve patient and staff experience and support clinical decision-making. Philips Innovation Campus opened its new site in Bengaluru, home to over 5,000 engineers, scientists, business developers, and clinical experts.

In Australia, Philips signed a 7-year partnership agreement with the Queensland Government and Cairns and Hinterland Hospital and Health Service (CHHHS) to provide a turnkey solution including Vue PACS, Reporting & VNA Philips Software, and Infrastructure as a Service (IaaS) across a remote and large geography. The Philips solution will enable clinicians to access a complete imaging health record of their patients and provide a platform for the integration of all image data across the CHHHS enterprise, greatly enhancing the radiology workflow.

Demonstrating our commitment to high-quality, sustainable healthcare, Philips undertook multiple initiatives to expand helium-free MR operations in Brazil. Besides Brazil, this expansion reached Mexico, Panama, Puerto Rico, Colombia, Chile, Argentina and Ecuador, making a significant mark on the region's healthcare landscape. We are also working to localize the production of BlueSeal MRI magnets in Brazil. Other notable ventures included the Brazilian Company of Hospital Services (EBSERH) installing 14 Incisive CT imaging systems at Federal University Hospitals.

In Turkey, Philips has supplied high-grade medical equipment to the new Gaziantep City Hospital. The public city hospital complex, with 1,875 new beds, will serve Gaziantep and surrounding cities, adding much-needed healthcare capacity to the region, which was hit by a devastating earthquake in February 2023.

As part of a deal with Egypt’s Ministry of Health, Philips unveiled the first Mobile MRI Truck for the Middle East, Turkey & Africa region, to enhance healthcare delivery in remote, difficult-to-access and underserved locations. In just 3 months after implementation, more than 1,100 patients across Egypt had already benefited from this initiative.

In Kazakhstan, Philips provided advanced medical equipment to the National Coordination Center for Emergency HealthCare in Astana and the Hematology and Cardiology Center in Ust-Kamenogorsk. Both are multi-modality projects and have a high social importance, as the Emergency Center will be the flagship center for the National Stroke Program in Kazakhstan, and the Hematology and Cardiology Canter treats patients with serous blood diseases.

3.6Supply chain and procurement

Philips runs an Integrated Supply Chain (ISC), which encompasses supplier selection and management through procurement, manufacturing across all the industrial sites, logistics and warehousing operations, customer installation, as well as demand/supply orchestration.

When selecting and evaluating partners, we consider not only business metrics such as quality, on-time delivery performance and cost, but also environmental, social and governance factors. We use supplier classification models to identify critical suppliers, including those supplying materials, components and services that could influence the safety and performance of our products and solutions.

The Philips Supplier Quality Manual outlines Philips’ quality, regulatory, product, process and customer requirements. The standards outlined in this manual underpin agreements between suppliers and Philips, and guide compliance with Philips’ quality standards.

Driving end-to-end supply chain reliability and agility 

As part of our plan to create value with sustainable impact, the supply chain plays an important role in improving our performance and delivering to our customers and consumers as promised. In 2023, we initiated multiple interventions and have longer-term programs planned to improve our execution capabilities and become more resilient in navigating volatility.

In 2023, we focused on restoring the stability and reliability of our supply chain, including safeguarding material flows and de-risking in a sustainable manner. For example, we accelerated the redesign of printed circuit board assemblies (PCBAs) to replace older e-components with more modern and widely available e-components. We also reduced our purchases of high-risk parts by applying our supplier risk management framework, which assesses suppliers for factors such as strategic fit, financial stability, operational performance, quality, sustainability, compliance and location. We aim to maintain close relationships with our suppliers and conduct an ongoing dialogue with respect to our forecast.

Over the past year, we have re-aligned our end-to-end supply chain organization, with dedicated teams by Business and Region allowing us to tailor to specific challenges and implement solutions that address different customer and consumer needs. Whereas Philips’ supply chain historically delivered efficiencies through a functional orientation, the new operating model has sped up decision-making and better supports the businesses in achieving their short-, mid- and long-term goals.

Under the new set-up, initial investments have been made to improve our end-to-end visibility and planning tools by digitizing our priority information flows.

We continue to deploy our strategy for a more regional vs global approach to our end-to-end network design, taking into account factors such as customer proximity, leveraging manufacturing capabilities, our environmental footprint, and efficiency. We are using our multi-modality sites, in combination with contract manufacturing partners, to regionally ‘multi-source’ many of our products. This is intended to increase the resilience of our supply chain to manage future, unplanned disruptions and to ensure access to public healthcare investment where ‘local’ requirements exist in our largest markets.

Like the rest of the industry, we remain exposed to continued geopolitical tensions around the world. Labor costs remain a concern due to the persistent inflation in 2023 and show an upward trend entering 2024. On the other hand, overall macroeconomics show improved availability of materials. As a result, the cost of raw materials and energy, as well as inflation, show a downward trend compared to 2022. We believe that our interventions, in combination with the improvement in macroeconomic trends, put us on the right track in our journey to build a reliable, predictable and efficient supply chain.

3.7Real Estate

Philips is present in 75 countries globally and has its corporate headquarters in Amsterdam, Netherlands. Our real estate locations are spread around the globe, with key manufacturing and R&D sites in Europe, the Americas and Asia.

In 2023, we consolidated five different R&D locations into a new R&D Hub in Bangalore, India, which will host some 5,000 employees. We continued our right-sizing program through our Future of Work concepts to support hybrid working. The project to move Philips’ headquarters to a new location in Amsterdam in 2025 is progressing as planned.

We also continue to optimize our real estate portfolio in line with our Environmental ESG commitments towards 2025. Having met our goal of bringing our site-related CO₂ emissions under 35 kilotons per year in 2020, we further reduced our CO₂ emissions to 22 kilotons in 2023. In addition, we reached 78% renewable energy in 2023, already exceeding our target of 75% by 2025. Energy consumption decreased by 7.8% compared to 2022.

Over 75% of our locations are leased properties, and we manage vacancy closely to ensure the right level of space efficiency and flexibility to support our business dynamic. Our current facilities are adequate to meet the requirements of our present and foreseeable future operations. As expected, occupancy rates in our offices continued to stabilize in the first half of 2023. We continue to evaluate options to right-size our office footprint, to further adopt task-based working principles, and to cater for meaningful presence in inspiring layout and workplace solutions. The net book value of our land and buildings as of December 31, 2023, represented EUR 1,282 million; construction in progress represented EUR 32 million.

At a glance

Financial performance

Group sales increased 6% on a comparable basis^*) to EUR 18.2 billion in 2023

Income from operations was a loss of EUR 115 million, compared to a loss of EUR 1,529 million in 2022

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.)} increased to EUR 1,921 million, or 10.6% of sales, compared to EUR 1,318 million, or 7.4% of sales, in 2022

Operating cash flow improved to EUR 2,136 million, compared to an outflow of EUR 173 million in 2022

4Financial performance

4.1Performance review

The year 2023

• Sales amounted to EUR 18.2 billion, an increase of 2% on a nominal basis. On a comparable basis^*), sales increased 6%, driven by supply chain improvements. Comparable sales^*) showed 11% growth in the Diagnosis & Treatment segment, 1% growth in the Connected Care segment, and 3% growth in the Personal Health segment.
• Net income amounted to a loss of EUR 463 million, driven by higher earnings offset by a EUR 575 million Respironics litigation provision. Net income for 2022 was a loss of EUR 1.6 billion, which included a charge of EUR 1.5 billion related to goodwill and R&D impairments. 
• As of December 31, 2023, over 99% of the sleep therapy device registrations that are actionable had been remediated, while the remediation of the ventilator devices remains ongoing. In October 2023, Philips Respironics received preliminary court approval for the class action settlement that would resolve all or nearly all private economic loss claims in the US.
• Adjusted EBITA^*) amounted to EUR 1,921 million, or 10.6% of sales, compared to 7.4% of sales in 2022. All segments showed an increase in Adjusted EBITA^*) margin, mainly driven by increased sales and pricing & productivity measures, partly offset by cost inflation.
• Supported by significant change management efforts, by year-end 2023 Philips had reduced its workforce by approximately 8,000 roles, out of 10,000 roles in total planned by 2025.
• Net cash flows from operating activities amounted to EUR 2,136 million; free cash flow^*) amounted to EUR 1,582 million.
• Philips cancelled approximately 15.1 million shares acquired under its 2021 share buyback program for capital reduction purposes.

4.2Factors impacting performance

The introduction of a simplified operating model, workforce reduction, an improved global supply chain, and the geopolitical environment contributed to the company’s business and results in 2023. Where relevant, the impact of these factors and the resulting uncertainties on the company’s results, balance sheet and cash flows have been considered and are reflected in amounts reported.

Macro-economic landscape 2023

In 2023, global economic growth is estimated to have slowed compared to 2022, marked by easing price pressures and supply chain stress while major central banks were tightening their respective monetary policies. Global real GDP is estimated to have grown by 2.7% in 2023, compared with 3.1% in 2022. On the consumer side, households were dipping into their savings accumulated during the COVID period to maintain their spending levels and to cushion against the inflation surge since late 2021. However, consumer spending momentum is not expected to sustain due to the depletion of savings and expected labor market softening because of tighter financial conditions. The delayed effect of higher benchmark interest rates is expected to manifest further in 2024, leading to a further slowdown in global economic growth. Oxford Economics expects world real GDP growth of 2.3% in 2024.

Simplified operating model

On January 30, 2023, Philips announced its plan to create value with sustainable impact, which is based on focused organic growth to deliver patient- and people-driven innovation at scale, with improved execution as a key value driver, prioritizing patient safety and quality, supply chain reliability and a simplified operating model. The simplified operating model aims to simplify the organization to increase agility and structurally lower the cost base by giving end-to-end accountability to the segments. Operating model productivity savings, procurement savings and other productivity programs contributed positively to the results of operations.

Workforce reduction

In addition to the reduction of its workforce by 4,000 roles announced in October 2022, in 2023 Philips announced plans to reduce its workforce by an additional 6,000 roles globally by 2025, in line with relevant local regulations and processes. These reductions are focused on Corporate and Functions optimization and non-core activities, and amounted to approximately 8,000 roles by year-end 2023. Workforce-related restructuring charges were EUR 196 million in 2023 and EUR 136 million in 2022.

Supply chain resilience

In 2023, following significant actions to increase supply chain resilience and mitigate the impact of disruptions, our sales benefited from improved material availability and resolved shortages in components.

Limited availability and delays in the supply of certain components and products internationally – partly a consequence of the COVID pandemic and the Russia-Ukraine war – impacted our results in 2022. In addition, the supply chain constraints resulted in an increase in overall working capital, in particular inventories.

Geopolitical environment

Having substantially reduced our operations in Russia in 2022, the remaining activities were focused on the delivery of medical systems, devices, and spare parts to healthcare providers. In 2023, increased sanctions and export controls led to a further reduction in sales activity. Philips’ operations in Russia and Ukraine on a combined basis represented less than 2% of group sales in both 2022 and 2023. The asset value of the activities in Russia and Ukraine, mainly working capital, was less than 1% of the consolidated total assets as of December 31, 2022 and 2023. The Russia-Ukraine war continues to put pressure on the global commodity landscape and supply chains, and contribute to higher levels of cost inflation.

The company’s global operations are exposed to geopolitical and macroeconomic changes (refer to Risk management and internal control framework ). The current situation in the Middle East further increases economic and political uncertainty. Philips is present in Israel with several subsidiaries, mainly in Diagnosis & Treatment and Connected Care, that are primarily involved in manufacturing and research and development activities.

Climate-related matters

In preparing the consolidated financial statements, management has considered the impact of climate change, specifically the financial impact of Philips meeting its internal and external climate-related aims, the potential impact of climate-related risks, and the costs incurred to pro-actively manage such risks. These considerations did not have a material impact on the financial reporting judgments, estimates or assumptions. The financial impacts considered include specific climate mitigation measures, such as the use of lower-carbon energy sources, the cost of developing more sustainable product offerings, and expenses incurred to mitigate against the impact of extreme weather conditions. To meet its long-term Science Based Targets and reduce its full value chain emissions in line with a 1.5°C global warming scenario, Philips has entered into a number of power purchase agreements.

4.3Results of operations

Sales

The composition of sales growth in percentage terms in 2023, compared to 2022 and 2021, is presented in the following table.

Group sales in 2023 amounted to EUR 18,169 million, 1.9% higher than in 2022 on a nominal basis. Considering a 4.1% negative currency effect and consolidation impact, comparable sales growth^*) was 6.0%. The negative currency effect was mainly due to depreciation of currencies against the euro, and affected all segments. In addition, provisions charged to sales of EUR 174 million, mainly in connection with the proposed Respironics consent decree, had a negative impact of 1%. 

Comparable order intake decreased 5% in 2023, compared to a 3% decline in 2022. The order book (which covers around 40% of Group sales) remains strong, and we are taking the necessary actions to improve order intake by shortening lead times from order to delivery and building on the positive impact we are making with our innovations, for example in predictive data analytics and artificial intelligence across our portfolio, to help improve the quality and efficiency of care delivery. The order book remains strong and is expected to continue to support growth.

Diagnosis & Treatment

In 2023, sales amounted to EUR 8,818 million, 6.4% higher than in 2022 on a nominal basis. Considering a 4.7% negative currency effect and consolidation impact, comparable sales^*) increased by 11.1%. This was due to double-digit growth in Ultrasound and Image-Guided Therapy and high-single-digit growth in Diagnostic Imaging, due to supply chain improvements. 

Connected Care

In 2023, sales amounted to EUR 5,138 million, 2.5% lower than in 2022 on a nominal basis. Considering a 3.6% negative currency effect and consolidation impact, comparable sales^*) increased by 1.1%. This growth was mainly driven by double-digit growth in Monitoring, partly offset by a decline in Sleep & Respiratory Care due to the consequences of the Respironics recall. In addition, sales were impacted by provisions charged to sales of EUR 174 million, mainly in connection with the proposed Respironics consent decree, which had a negative impact of 3.4%.  

Personal Health

In 2023, sales amounted to EUR 3,602 million, 0.7% lower than in 2022 on a nominal basis. Considering a 3.9% negative currency effect and consolidation impact, comparable sales^*) increased by 3.2%. This was mainly driven by high-single-digit growth in Personal Care, partly offset by a decline in Oral Healthcare. 

Other

In 2023, sales amounted to EUR 612 million, compared to EUR 643 million in 2022. The decrease was mainly due to the discontinuation of innovation consultancy activities provided to other companies until 2023.

Performance by geographic area

Sales in Mature geographies in 2023 were 1% higher than in 2022 on a nominal basis and 4% higher on a comparable basis^*). Sales in Western Europe were 6% higher year-on-year on a nominal basis and 7% higher on a comparable basis^*), with double-digit growth in the Diagnosis & Treatment segment, mid-single-digit growth in the Personal Health segment, and low-single-digit decline in the Connected Care segment. Sales in North America were flat year-on-year on a nominal basis and 3% higher on a comparable basis^*), as high-single-digit growth in the Diagnosis & Treatment segment was offset by a low-single-digit decline in the Personal Health segment. Sales in Other mature geographies decreased by 1% on a nominal basis and increased by 7% on a comparable basis^*), with high-single-digit comparable sales growth^*) in the Connected Care segment and mid-single-digit growth in the Diagnosis & Treatment and Personal Health segments.

Sales in Growth geographies in 2023 increased by 3% on a nominal basis and 10% on a comparable basis^*), with double-digit growth in the Diagnosis & Treatment and Connected Care segments and low-single-digit growth in the Personal Health segment. The double-digit growth in comparable sales growth^*) was driven by China, Middle East & Turkey and Latin America.

Diagnosis & Treatment

Sales in Growth geographies increased by 6% on a nominal basis in 2023, and on a comparable basis^*) showed double-digit growth, which was mainly driven by China and Middle East & Turkey. Sales in Mature geographies increased by 7% on a nominal basis and showed double-digit growth on a comparable basis^*), which was driven by double-digit growth in Western Europe and high-single-digit growth in North America.

Connected Care

Sales in Growth geographies increased by 1% on a nominal basis in 2023, and on a comparable basis^*) grew 7%, which was driven by Latin America and China. Sales in Mature geographies decreased by 3% on a nominal basis and were flat year-on-year on a comparable basis^*), as growth in Other mature geographies was offset by Western Europe. In addition, provisions charged to sales of EUR 174 million, mainly in connection with the proposed Respironics consent decree, had a negative impact of 3.4%. 

Personal Health

Sales in Growth geographies decreased by 1% on a nominal basis in 2023, and on a comparable basis^*) showed mid-single-digit growth, which was mainly driven by Middle-East & Turkey and China, partly offset by a decline in Russia & Central Asia. Sales in Mature geographies were flat on a nominal basis, and on a comparable basis^*) showed low-single-digit growth, driven by Western Europe.

Cost of sales

Cost of sales includes only expenses directly or indirectly attributable to the sale of products or services, such as cost of materials used, salaries and wages, depreciation and amortization of assets used in manufacturing, and other manufacturing costs (such as repair and maintenance costs related to production, expenses incurred for shipping and handling of internal movements of goods, and other expenses related to manufacturing).

Philips’ cost of sales increased by EUR 88 million to EUR 10,721 million in 2023, and decreased as a percentage of sales, compared to EUR 10,633 million in 2022, mainly due to an increase in Cost of materials used by EUR 306 million in 2023, mainly due to increased sales volume and cost inflation, partly offset by productivity measures and a favorable foreign currency impact. Other key factors influencing cost of sales were as follows:

• Salaries and wages decreased by EUR 81 million, driven by productivity measures and a favorable foreign currency impact, partly offset by cost inflation.
• Depreciation and amortization decreased by EUR 74 million in 2023, mainly due to a favorable foreign currency impact.
• Other manufacturing costs decreased by EUR 64 million in 2023, driven by productivity measures and a favorable foreign currency impact, partly offset by cost inflation.

Gross margin

In 2023, Philips’ gross margin was EUR 7,448 million, or 41.0% of sales, compared to EUR 7,194 million, or 40.4% of sales, in 2022. Gross margin increased by EUR 254 million year-on-year, driven by increased sales and price & productivity measures, partly offset by cost inflation, an unfavorable foreign currency impact, and higher restructuring, acquisition-related and other charges. 

Selling expenses

Selling expenses amounted to EUR 4,524 million, or 24.9% of sales, in 2023, compared to EUR 4,621 million, or 25.9% of sales, in 2022. The year-on-year decrease in selling expenses of EUR 97 million was mainly driven by a favorable foreign currency impact, partly offset by higher restructuring, acquisition-related and other charges. 

General and administrative expenses

General and administrative expenses amounted to EUR 608 million, or 3.3% of sales, in 2023, compared to EUR 671 million, or 3.8% of sales, in 2022. The year-on-year decrease of EUR 63 million was mainly driven by a favorable foreign currency impact and lower restructuring, acquisition-related and other charges.

Research and development expenses

Research and development costs were EUR 1,890 million, or 10.4% of sales, in 2023, compared to EUR 2,091 million, or 11.7% of sales, in 2022. The year-on-year decrease of EUR 201 million was mainly driven by lower restructuring, acquisition-related and other charges and a favorable foreign currency impact. 2022 included R&D project impairment charges.

Impairment of goodwill

Goodwill impairment charges were EUR 8 million in 2023 and EUR 1,357 million in 2022. For further information refer to Goodwill.

Net income, Income from operations (EBIT) and Adjusted EBITA^*)

Net income amounted to a loss of EUR 463 million in 2023, an improvement of EUR 1.1 billion compared to 2022, which included a charge of EUR 1.5 billion related to goodwill and R&D impairments. Higher earnings in 2023 were offset by a EUR 575 million litigation provision in connection with the Respironics recall. Net income in 2022 included a charge of EUR 1.5 billion related to goodwill and R&D impairments. Net income is not allocated to segments, as certain income and expense line items are monitored on a centralized basis, resulting in them being shown on a Philips Group level only.

The following overview shows Income from operations and Adjusted EBITA^*) by segment.

Income from operations amounted to a loss of EUR 115 million, or (0.6)% of sales, in 2023, compared to a loss of EUR 1,529 million, or (8.6)% of sales, in 2022, which included a charge of EUR 1.5 billion related to goodwill and R&D impairments. Higher earnings in 2023 were offset by a EUR 575 million Respironics litigation provision. Adjusted EBITA^*) increased to EUR 1,921 million and the margin improved to 10.6%, compared to EUR 1,318 million and a margin of 7.4% in 2022, mainly driven by increased sales and pricing & productivity measures.

Amortization and goodwill impairment charges were EUR 298 million in 2023. This includes amortization charges of EUR 290 million and goodwill impairment charges of EUR 8 million. Amortization and goodwill impairment charges in 2022 were EUR 1,720 million. This included a charge of EUR 1,331 million related to an impairment of goodwill in the Sleep & Respiratory Care business, EUR 363 million amortization charges and a EUR 27 million goodwill impairment in the Precision Diagnosis Solutions business.

Restructuring, acquisition-related and other charges were EUR 1,739 million in 2023. This includes: a EUR 575 million Respironics litigation provision, EUR 363 million in connection with the proposed Respironics consent decree, and EUR 224 million Respironics field-action running remediation costs. In addition, it includes EUR 285 million restructuring charges, mainly related to workforce reduction, and charges in relation to quality remediation actions of EUR 175 million. 2022 charges were EUR 1,127 million and included: restructuring charges of EUR 185 million; EUR 148 million portfolio realignment impairments and charges; R&D project impairment charges of EUR 134 million; EUR 250 million for the Respironics field-action provision; EUR 210 million Respironics field-action running remediation costs; an approximately EUR 60 million provision for public investigations into tender irregularities; and EUR 59 million for provisions for quality actions in Connected Care.

Income from continuing operations attributable to shareholders per common share (in EUR) - diluted, was EUR (0.50) in 2023, compared to EUR (1.76) in 2022. Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted^*) was EUR 1.25, compared to EUR 0.92 in 2022.

Diagnosis & Treatment

Income from operations increased to EUR 720 million in 2023, compared to EUR 538 million in 2022. This was mainly driven by increased sales and pricing & productivity measures, partly offset by cost inflation. These factors also resulted in an increase in Adjusted EBITA^*) to 11.6% of sales in 2023.

Amortization and goodwill impairment charges in 2023 were EUR 98 million and include EUR 89 million amortization charges and EUR 8 million goodwill impairment charges. 2022 charges were EUR 115 million and included EUR 22 million of charges related to an impairment of a technology asset in Image-Guided Therapy.

Restructuring, acquisition-related and other charges in 2023 were EUR 210 million and include EUR 81 million charges in relation to quality remediation actions and EUR 73 million restructuring charges, mainly related to workforce reduction. 2022 charges amounted to EUR 136 million and included R&D project impairment charges of EUR 73 million and a provision of approximately EUR 60 million for public investigations into tender irregularities. 

Connected Care

Income from operations increased to EUR (1,199) million in 2023, compared to EUR (2,347) million in 2022, which included a charge of EUR 1.3 billion related to goodwill impairment. 2023 was mainly impacted by the consequences of the Respironics field action, in particular the EUR 575 million provision in connection with the Respironics litigation, partly offset by increased sales and productivity measures. Adjusted EBITA^*) improved to 7.2% of sales and was also impacted by cost inflation.

Amortization and goodwill impairment charges in 2023 were EUR 178 million and include EUR 178 million amortization charges. 2022 charges were EUR 1,583 million and included EUR 1,331 million impairment of goodwill related to the Sleep & Respiratory Care business and a goodwill impairment of EUR 27 million in Precision Diagnosis Solutions.

Restructuring, acquisition-related and other charges in 2023 were EUR 1,390 million and include: charges of EUR 575 million Respironics litigation provision, EUR 363 million in connection with the proposed Respironics consent decree, and EUR 224 million Respironics field-action running remediation costs. In addition, it includes EUR 64 million restructuring charges, mainly related to workforce reduction, and charges in relation to quality remediation actions of EUR 94 million. 2022 charges were EUR 875 million and included: EUR 250 million for the Respironics field action provision; EUR 210 million Respironics running remediation costs; EUR 148 million portfolio realignment impairments and charges; and EUR 59 million provisions for quality actions in Connected Care.

Personal Health

Income from operations increased to EUR 552 million in 2023, compared to EUR 515 million in 2022. This was mainly driven by increased sales and pricing & productivity measures. These factors also resulted in an increase in Adjusted EBITA^*) to 16.6% of sales.

Amortization charges in 2023 were EUR 14 million and include amortization charges related to intangible assets in Mother & Child Care. 2022 charges were EUR 15 million and included amortization charges related to intangible assets in Mother & Child Care.

Restructuring, acquisition-related and other charges in 2023 were EUR 31 million and include a EUR 23 million investment re-measurement loss and restructuring costs mainly related to workforce reduction of EUR 9 million. 2022 charges were not material.

Other

In Other we report on the items Innovation & Strategy, IP Royalties, Central costs and Other.

Income from operations amounted to a loss of EUR 188 million in 2023, compared to a loss of EUR 235 million in 2022. Adjusted EBITA^*) amounted to a loss of EUR 71 million, compared to a loss of EUR 119 million in 2022. The increase in Adjusted EBITA^*) was mainly due to cost savings, partly offset by lower royalty income. 

Restructuring, acquisition-related and other charges in 2023 were EUR 108 million and include EUR 139 million restructuring charges mainly related to workforce reduction and a gain of EUR 35 million due to a divestment. 2022 charges were EUR 108 million and included restructuring charges of EUR 61 million and a EUR 21 million impairment of intangible assets.

Financial income and expenses

A breakdown of financial income and expenses is presented in the following table.

Financial income and expenses resulted in a net expense of EUR 314 million in 2023, compared to a net expense of EUR 200 million in 2022. 2023 includes higher interest expense, fair value losses on minority investments and net foreign exchange losses compared to 2022. For further information, refer to Financial income and expenses.

Income taxes

Income tax expense increased by EUR 40 million year-on-year. The income tax benefit in 2023 is mainly driven by the negative income before tax, recognition of tax credits and tax incentives, partly offset by the tax effect on the economic loss class-action settlement provision relating to the Respironics recall. The income tax benefit in 2022 was mainly driven by the negative income before tax and tax incentives, partly offset by non-tax-deductible goodwill impairment. 

Investments in associates

Results related to investments in associates declined from a loss of EUR 2 million in 2022 to a loss of EUR 98 million in 2023. 2023 includes impairments of EUR 58 million and share of results of associates of EUR 40 million. 

Discontinued operations

In 2023 and 2022, Discontinued operations consisted primarily of the Domestic Appliances business and certain other divestments that were reported as discontinued operations. In 2021, the sale of the Domestic Appliance business resulted in an after-tax gain of EUR 2.5 billion.

For further information, refer to Discontinued operations and assets classified as held for sale.

Non-controlling interests

Net income attributable to non-controlling interests decreased from EUR 3 million in 2022 to EUR 2 million in 2023.

4.4Restructuring and acquisition-related charges

In 2023, Philips continued general productivity actions aimed at simplifying the organization to streamline ways of working and reduce operating expenses. This included a further reduction to 8,000 roles to date, out of the planned reduction of 10,000 roles globally across the organization by 2025, for which a restructuring charge of EUR 140 million was recorded in 2023. In addition, restructuring projects were executed during the year, of which the most significant impacted the Diagnosis & Treatment and Connected Care segments and mainly took place in the US and Netherlands. 

In 2022, Philips initiated general productivity actions aimed at simplifying the organization to streamline ways of working and reduce operating expenses. This included an immediate reduction of around 4,000 positions globally across the organization, for which a restructuring charge of EUR 80 million was recorded. In addition, restructuring projects were executed during the year, of which the most significant impacted the Diagnosis & Treatment and Connected Care segments and mainly took place in the US and Netherlands. The restructuring mainly comprised product portfolio rationalization and the reorganization of global support functions. 

For further information on restructuring, refer to Provisions.

In 2023, acquisition-related charges amounted to EUR 96 million. The Diagnosis & Treatment segment recorded charges of EUR 45 million, mainly related to the acquisition of Spectranetics, due to post-acquisition integration costs. The Connected Care segment recorded charges of EUR 51 million, mainly related to the acquisition of BioTelemetry and Capsule Technologies, due to post-acquisition integration costs. 

In 2022, acquisition-related charges amounted to EUR 17 million. The Connected Care segment recorded charges of EUR 70 million related to the acquisitions of BioTelemetry and Capsule Technologies, due to post-acquisition integration costs. The Diagnosis & Treatment segment recorded a net gain of EUR 54 million, mainly related to a gain of EUR 92 million from the re-measurement of contingent consideration liabilities, partly offset by charges related to the acquisition of Spectranetics.

4.5Acquisitions and divestments

Acquisitions

In 2023, Philips completed one acquisition involving a total net cash outflow of EUR 53 million (total equity price and settlement of debt). The acquisition is subject to final purchase price allocation procedures, which are expected to be finalized in the second quarter of 2024.

In 2022, Philips completed three acquisitions. The acquisition of Vesper Medical Inc., completed on January 11, 2022, was the most notable. Acquisitions in 2022 and prior years led to acquisition and post-merger integration charges of EUR 70 million in the Connected Care segment.

Divestments

In 2023, Philips completed six divestments for a cash consideration of EUR 80 million, notably Philips Pharma Solutions in the US.

In 2022, Philips completed one divestment, which was not material.

For details, please refer to Acquisitions and divestments.

4.6Cash flows

The movements in cash and cash equivalents balance for the years ended December 31, 2021, 2022 and 2023 are presented and explained in the following table.

Net cash flows from operating activities

Net cash flows from operating activities amounted to an inflow of EUR 2,136 million in 2023, compared to an outflow of EUR 173 million in 2022. This increase is mainly due to higher cash earnings and lower working capital, and includes a EUR 141 million payment related to the previously announced resolution of the economic loss class action in the US. Free cash flow^*) amounted to a cash inflow of EUR 1,582 million in 2023, compared to an outflow of EUR 961 million in 2022.

Net cash flows from operating activities amounted to an outflow of EUR 173 million in 2022, compared to an inflow of EUR 1,629 million in 2021. This decrease is mainly due to lower cash earnings, increased working capital and cash costs related to the Philips Respironics field action. Free cash flow*) amounted to a cash outflow of EUR 961 million in 2022, compared to an inflow of EUR 900 million in 2021.

Net cash flows from investing activities

Net cash flows from investing activities consist of net capital expenditures and other cash flows from investing activities.

In 2023, other cash flows from investing activities amounted to a cash outflow of EUR 82 million, mainly due to a new business acquisition and minority investments, partly offset by divestment proceeds.

In 2022, other cash flows from investing activities amounted to a cash outflow of EUR 698 million, mainly due to the acquisitions of Vesper Medical and Cardiologs, amounting to EUR 414 million, and new minority investments. 

Net cash flows from financing activities

Net cash flows from financing activities consist of treasury shares transactions, changes in debt, dividend paid and other cash flow items. 

In 2023, treasury shares transactions mainly included the share buyback activities, which resulted in EUR 662 million net cash outflow. Changes in debt mainly includes new bonds issued of EUR 500 million and loan repayments amounting to EUR 500 million. The dividend was distributed fully in shares.

In 2022, treasury shares transactions mainly included the share buyback activities, which resulted in EUR 174 million net cash outflow. Changes in debt mainly included new bonds issued of EUR 2 billion and a new term loan issued of EUR 500 million, partly offset by bond repayments of EUR 1.2 billion. Philips’ shareholders received a total dividend of EUR 741 million, including costs, of which the cash portion amounted to EUR 412 million.

Net cash flows from discontinued operations

In 2023, net cash provided by discontinued operations was EUR 123 million, mainly related to a refund received of one-off advance tax payments of a previously disposed business.

In 2022, net cash used for discontinued operations was EUR 12 million, mainly related to previously disposed businesses.

4.7Financing

Condensed consolidated balance sheets as of December 31, 2021, 2022 and 2023 are presented in the following table:

4.8Debt position

Total debt outstanding at the end of 2023 was EUR 7,689 million, compared with EUR 8,201 million at the end of 2022.

In 2023, total debt decreased by EUR 512 million compared to 2022. The decrease mainly comes from maturing forward contracts related to the share buyback program and long-term incentive and employee stock purchase plans, and repayments of long-term debt including leases, partly offset by new borrowings. In 2023, Philips issued EUR 500 million of fixed rate notes under the company’s EMTN program that mature in 2031 and used the proceeds for general corporate purposes, including the repayment of EUR 500 million that was outstanding under the credit facility entered into in the fourth quarter of 2022. Changes in payment obligations from forward contracts are related to the maturity in 2023 of EUR 481 million of share buyback forwards (as announced in July 2021) and EUR 125 million of forwards relating to long-term incentive and employee stock purchase plans (as announced in March 2020 and May 2021), partially offset by EUR 138 million of forwards entered into relating to long-term incentive plans (as announced in June 2023).

In 2022, Philips announced a series of Liability Management transactions to optimize its debt maturity profile. The transactions included the issuance of three series of Notes under its EMTN program for a total of EUR 2 billion with maturities in 2027, 2029 and 2033. Part of the proceeds were used to tender certain of Philips’ outstanding US Dollar denominated bonds due 2025 and 2026 and Euro-denominated bonds due 2023, 2024 and 2025, as well as make-whole and fully redeem the Euro-denominated bonds due 2023 and 2024 that were not purchased as part of the Euro tender offer. Philips issued Commercial Paper of EUR 200 million in September 2022 and EUR 101 million in October 2022. These tranches were repaid throughout the fourth quarter of 2022. In addition, in October 2022 Philips entered into a EUR 1 billion credit facility that could be used for general corporate purposes. The credit facility was fully repaid in October 2023. Per year-end 2022, EUR 500 million was utilized and outstanding under the credit facility.

At the end of 2023, long-term debt as a proportion of the total debt stood at 91.5% with an average remaining term (including current portion) of 6.0 years, compared to 88.6% and 6.1 years respectively at the end of 2022. 

At the end of 2022, long-term debt as a proportion of the total debt stood at 88.6% with an average remaining term (including current portion) of 6.1 years, compared to 92.7% and 6.0 years respectively at the end of 2021.

For further information, please refer to Debt.

4.9Liquidity position

As of December 31, 2023, including the cash position (cash and cash equivalents), as well as its EUR 1 billion committed revolving credit facility, the Philips Group had access to available liquidity of EUR 2,883 million, compared with gross debt (including short and long-term) of EUR 7,689 million. 

As of December 31, 2022, including the cash position (cash and cash equivalents), as well as its EUR 1 billion committed revolving credit facility and the EUR 500 million undrawn portion of the credit facility entered into in October 2022, the Philips Group had access to available liquidity of EUR 2,704 million, compared with gross debt (including short and long-term) of EUR 8,201 million.

Philips has a EUR 1 billion committed revolving credit facility which was signed in April 2017 and refinanced in March 2022,  which will expire in March 2027. In 2023, Philips extended the maturity of the facility to 2028 and has one 1-year extension option remaining. The facility can be used for general group purposes, such as a backstop of its Commercial Paper Program.

Philips' Commercial Paper Program amounts to USD 2.5 billion, under which commercial paper can be issued up to 364 days in tenor, both in the US and in Europe, in any major freely convertible currency. As of December 31, 2023, Philips had no commercial paper outstanding. Philips established a Euro Medium Term Note (EMTN) program which facilitates the issuance of notes for a total amount of up to EUR 10.0 billion. In 2023, Philips issued EUR 500 million fixed rate notes due 2031 under the program. The proceeds were used for general corporate purposes, including the repayment of EUR 500 million that was outstanding under the credit facility entered into in the fourth quarter of 2022. 

In terms of liquidity, the company has access to various sources. The company’s liquidity risk management procedures have not changed significantly during 2023. The access to existing lines of credit remains intact. These lines of credit, along with other financial risks to which Philips is exposed, are disclosed in Details of treasury and other financial risks. Further, with respect to potential claims related to the Respironics recall, please refer to Contingencies. The management continues to monitor the risks associated with such potential claims and its impact on liquidity position, if any.

Philips’ existing long-term debt is rated BBB+ (with stable outlook) by Fitch, Baa1 (with negative outlook) by Moody’s, and BBB+ (with negative outlook) by Standard & Poor’s. As part of our capital allocation policy, our net debt^*) position is managed with the intention of retaining our strong investment grade credit rating. Ratings are subject to change at any time and there is no assurance that Philips will be able to achieve this goal. Philips' aim when managing the net debt^*) position is dividend stability and a pay-out ratio of 40% to 50% of adjusted income from continuing operations attributable to shareholders^*). Philips’ outstanding long-term debt and credit facilities do not contain financial covenants. Adverse changes in the company’s ratings will not trigger automatic withdrawal of committed credit facilities or any acceleration in the outstanding long-term debt (provided that the USD-denominated bonds issued by Philips in March 2008 and 2012 contain a ‘Change of Control Triggering Event’ and the EUR-denominated bonds contain a ‘Change of Control Put Event’). A description of Philips’ credit facilities can be found in Debt.

Philips pools cash from subsidiaries to the extent legally and economically feasible. Cash not pooled remains available for local operational needs or general purposes. The company faces cross-border foreign exchange controls and/or other legal restrictions in a few countries, which could limit its ability to make these balances available on short notice for general use by the group.

Philips believes its current liquidity and direct access to capital markets is sufficient to meet its present financing needs.

4.10Shareholders’ equity

In 2023, shareholders’ equity decreased by EUR 1,220 million to EUR 12,028 million at year-end. The decrease was mainly due to the net loss of EUR 463 million and currency translation reductions in equity of EUR 604 million, primarily due to the depreciation of the US dollar against the euro in 2023. 

In 2022, shareholders’ equity decreased by EUR 1,189 million to EUR 13,249 million at year-end. The decrease was mainly due to net loss of EUR 1,608 million, dividend distributed (EUR 412 million), and settlements of earlier concluded forward contracts (EUR 140 million). This was partly offset by currency translation gains of EUR 749 million, primarily due to the appreciation of the US dollar against the euro in 2022.

Share capital structure

The number of issued common shares of Royal Philips as of December 31, 2023 was 913,515,966. At year-end 2023, the company held 7.1 million shares in treasury to cover obligations under long-term incentive plans. In 2016, Philips purchased call options on its own shares to hedge options granted to employees up to 2013, and as of December 31, 2023, no such options remained outstanding. In 2023 (and earlier years), the company entered into several forward contracts to acquire its own shares, and as of December 31, 2023, the outstanding forward contracts related to 15.5 million shares. See below for more information on the shares that were acquired in the course of 2023. Philips issued 39.3 million shares in May 2023 in order to distribute the 2022 dividend. The company cancelled 15.1 million shares in December 2023.

The number of issued common shares of Royal Philips as of December 31, 2022 was 889,315,082. At year-end 2022, the company held 7.8 million shares in treasury. Of these shares, 5.7 million shares were held to cover obligations under long-term incentive plans and 2.2 million shares were held for capital reduction purposes. In 2016, Philips purchased call options on its own shares to hedge options granted to employees up to 2013, and as of December 31, 2022, Philips’ outstanding options related to 26 thousand shares. In 2022 (and earlier years), the company entered into several forward contracts to acquire its own shares, and as of December 31, 2022, the outstanding forward contracts related to 24.5 million shares. See below for more information on the shares that were acquired in the course of 2022. Philips issued 14.2 million shares in June 2022 in order to distribute the 2021 dividend. The company cancelled 8.8 million shares in June 2022.

Share repurchase methods for long-term incentive plans and capital reduction purposes

Historically, Philips uses different methods to repurchase shares in its own capital: (i) share buyback repurchases in the open market via an intermediary; (ii) repurchase of shares via forward contracts for future delivery of shares; and (iii) the unwinding of call options on own shares. During 2023, Philips used method (ii) to repurchase shares for capital reduction purposes and share-based compensation plans. 

The open market transactions via an intermediary allow for buybacks during both open and closed periods. 

For more information on share repurchase transactions entered into 2021, 2022, and 2023, please refer to Equity.

4.11Cash obligations 

Contractual cash obligations

The following table presents a summary of the Group's fixed contractual cash obligations and commitments as of December 31, 2023. These amounts are an estimate of future payments, which could change as a result of various factors such as a change in interest rates, foreign exchange, contractual provisions, as well as changes in our business strategy and needs. Therefore, the actual payments made in future periods may differ from those presented in the following table:

Included in debt are remaining forward contracts of EUR 167 million related to the EUR 1.5 billion share buyback program announced in July 2021 and EUR 224 million relating to the repurchase of shares to cover long-term incentive and employee stock purchase plans. In 2023, Philips entered into a total amount of EUR 138 million of forward contracts relating to the repurchase of up to 7.1 million shares to cover long-term incentive plans. In addition, in 2023 there were maturities of a total of EUR 481 million of forward contracts for 13.0 million shares related to the EUR 1.5 billion share buyback program announced in July 2021, as well as maturities of a total of EUR 125 million of forward contracts to repurchase shares to cover long-term incentive and employee stock purchase plans. Philips intends to cancel all of the shares acquired under the share buyback program and has canceled 15.1 million shares acquired in 2023, as the program was initiated for capital reduction purposes.

Philips offers voluntary supply chain finance programs with third parties, which provide participating suppliers with the opportunity to factor their trade receivables at the sole discretion of both the suppliers and the third parties. Philips continues to recognize these liabilities as trade payables and settles them accordingly on the invoice maturity date based on the terms and conditions of these arrangements. As of December 31, 2023, approximately EUR 114 million (2022: EUR 151 million) of the Philips accounts payable were transferred under these arrangements.

Other cash commitments

The company and its subsidiaries sponsor post-employment benefit plans in many countries in accordance with legal requirements, customs and the local situation in the countries involved. For a discussion of the plans and expected cash outflows, please refer to Post-employment benefits.

The company had various provisions by the end of 2023 which are expected to result in cash outflows in 2024. Refer to Provisions.

Philips has contracts with investment funds where it committed itself to make, under certain conditions, capital contributions to these funds of an aggregated remaining amount of EUR 153 million (2022: EUR 127 million). Capital contributions already made to these investment funds are recorded as non-current financial assets.

Please refer to Dividend for information on the proposed dividend distribution.

Please refer to Equity for information on other Long-term incentive and employee stock purchase plans.

Guarantees

Philips’ policy is to provide guarantees and other letters of support only in writing. Philips does not provide other forms of support. The total fair value of guarantees recognized on the balance sheet amounts to EUR nil million for both 2023 and 2022. Remaining off-balance-sheet business-related guarantees on behalf of third parties and associates amount to EUR 2 million as of December 31, 2023 (December 31, 2022: EUR 2 million).

4.12Dividend

Dividend policy

Philips’ dividend policy is aimed at dividend stability and a pay-out ratio of 40% to 50% of adjusted income from continuing operations attributable to shareholders^*). 

Proposed distribution

A proposal will be submitted to the Annual General Meeting of Shareholders, to be held on May 7, 2024, to declare a distribution of EUR 0.85 per common share, in common shares, against retained earnings.

If the above dividend proposal is adopted, the shares will be traded ex-dividend as of May 9, 2024 at the New York Stock Exchange and Euronext Amsterdam. In compliance with the listing requirements of the New York Stock Exchange and Euronext Amsterdam, the dividend record date will be May 10, 2024.

The number of share dividend rights entitled to one new common share will be determined based on the volume-weighted average price of all traded common shares of Koninklijke Philips N.V. at Euronext Amsterdam on May 9, 10 and 13, 2024. The company will calculate the number of share dividend rights entitled to one new common share (the ratio), such that the gross dividend in shares will be approximately equal to EUR 0.85. The ratio and the number of shares to be issued will be announced on May 15, 2024. Distribution of the dividend (up to EUR 770 million) and delivery of new common shares, with settlement of any fractions in cash, will take place from May 16, 2024.

Further details will be given in the agenda with explanatory notes for the 2024 Annual General Meeting of Shareholders. The proposed distribution and all dates mentioned remain provisional until then.

Dividend in shares distributed out of retained earnings is subject to 15% dividend withholding tax, but only in respect of the par value of the shares (EUR 0.20 per share). Shareholders are advised to consult their tax advisor on the applicable situation with respect to taxes on the dividend received.

In May 2023, Philips settled a dividend of EUR 0.85 per common share, representing a total value of EUR 749 million (including costs). The dividend was distributed in the form of shares only, resulting in the issuance of 39,334,938 new common shares, leading to a 4.5% dilution. For more information refer to Shareholders’ equity.

Dividends and distributions per common share

The following table sets forth in euros the gross dividends on the common shares in the fiscal years indicated (from prior-year profit distribution) and such amounts as converted into US dollars and paid to holders of shares of the New York Registry:

4.13Analysis of 2022 compared to 2021

The analysis of the 2022 financial results compared to 2021, and the discussion of the critical accounting policies, have not been included in this Annual Report. These sections are included in Philips’ Form 20-F for the financial year 2023, which will be filed electronically with the US Securities and Exchange Commission.

4.14Outlook

Philips reiterates confidence in delivering the plan for 2023-2025, acknowledging that uncertainties remain. For full-year 2024, Philips expects to deliver 3-5% comparable sales growth^*) and an Adjusted EBITA^*) margin of 11-11.5%. In 2024, Philips expects around 100 basis points of costs that relate to remediation activities and disgorgement payments for Philips Respironics sales in the US. The free cash flow^*) from Philips' businesses is expected to amount to EUR 0.8-1 billion. This only excludes the remaining cash-out related to the previously announced resolution of the economic loss class action in the US.
The previously stated 2023-2025 Group financial outlook of mid-single-digit comparable sales growth^*), low-teens Adjusted EBITA^*) margin, and EUR 1.4-1.6 billion free cash flow^*) now takes the proposed Respironics consent decree into account and remains unchanged. It excludes the investigation by the US Department of Justice related to the Respironics field action and the impact of the ongoing litigation.

At a glance

Environmental, Social and Governance

1.88 billion lives improved by our products and solutions, including 221 million in underserved communities 

CDP ‘A List' rating for climate action for 11^th year in a row 

Strengthening patient safety and quality Philips' highest priority

Shift to new, simplified operating model, including reduction of roles

Preparing for upcoming ESG reporting legislation

5Environmental, Social and Governance

Environmental, Social & Governance (ESG) are three key dimensions within which a company’s approach to doing business responsibly and sustainably, and its overall societal impact, are defined. They give expression to an increasingly widely held view – that companies that hold themselves accountable to their stakeholders and increase transparency will be more viable, and valuable, in the long term. 

Philips is a purpose-driven company aiming to improve the health and well-being of 2.5 billion people annually by 2030. We believe that private-sector companies like ours have a vital role to play in collaborating with other partners across our supply chain, and with private and public organizations in society, to address the major challenges the world is facing. 

Taking a multi-stakeholder approach, we draw inspiration from the societal impact we can have through our products and solutions, and through how we operate in the world. Our company is very conscious of our responsibility and our contribution to society and the environment. We are also witnessing growing interest in ESG on the part of our customers, who are increasingly turning to technology companies for support in addressing their sustainability objectives and are including ESG-related considerations in their procurement policies and criteria. 

We aim to be a front-runner in the area of ESG and have been recognized as leading the way in, for example, sustainability, corporate governance practices and tax transparency. 

Our reporting is aligned with the comprehensive and integrated Environmental, Social & Governance (ESG) commitments we have adopted for the period 2020-2025.

We have excluded the data from Domestic Appliances from the ESG information wherever possible. In a limited number of cases, for example for road logistics emissions, we have used proxies. If Domestic Appliances information was not available for past years, and could therefore not be excluded, we have indicated this in the respective section. The Employee Engagement Index (EEI) and General Business Principles (GBP) results have not been restated.

5.1Philips' ESG commitments

In September 2020, Philips reinforced its commitments as a purpose-driven company with the announcement of an enhanced and fully integrated approach to doing business responsibly and sustainably. Philips’ framework comprises a comprehensive set of commitments across all the Environmental, Social and Governance (ESG) dimensions that guide execution of the company’s strategy. It includes ambitious targets and detailed plans of action. 

As a leading health technology company today, our purpose is to improve people’s health and well-being through meaningful innovation, positively impacting 2.5 billion lives per year by 2030. We aim to grow Philips responsibly and sustainably, and we therefore continuously set ourselves challenging environmental and social targets, and highest standards of governance. Acting responsibly towards the planet and society is part of our DNA. We believe that this is the best way for us to create superior, long-term value for Philips’ multiple stakeholders. 

Philips’ ESG commitments are set out below. Further details relating to these commitments can be found throughout the rest of this chapter, in Supplier sustainability, and in ESG statements.

5.2Environmental performance

We have an environmental impact through our global operations (including our supply chain), but even more so through our products and solutions. This is where we contribute to SDG 12 (Ensure sustainable consumption and production patterns) and SDG 13 (Take urgent action to combat climate change and its impacts).

In this Environmental performance section, an overview is given of the most important environmental parameters of our ESG commitments. We focus on the material topics arising from our Double Materiality Assessment - Climate change and Resource use and circular economy, but also address some other environmental topics. Details can be found in the ESG statements.

Measuring our environmental impact 

Philips has been performing Life-Cycle Assessments (LCAs) since 1990. LCAs provide insight into the lifetime environmental impact of our products. They are used to steer our EcoDesign efforts by reducing the environmental impact during the lifetime of our products and to grow our Green/EcoDesigned/EcoHero and Circular portfolio. As a next step, for the seventh year, we have measured our environmental impact on society at large via a so-called Environmental Profit & Loss (EP&L) account, which includes the hidden environmental costs associated with our activities and products. It provides insights into the main environmental hotspots and innovation areas to reduce the environmental impact of our products and solutions.

The EP&L account is based on LCA methodology, in which the environmental impacts are expressed in monetary terms using conversion factors developed by CE Delft. These conversion factors are subject to further refinement and are expected to change over time. We used expert opinions and estimates for some parts of the calculations. The figures reported are Philips’ best possible estimates. As we gain new insights and retrieve more and better data, we will enhance the methodology, use-cases and accuracy of results in the future. For more information and details we refer to our methodology document.

The definition of the use-case scenarios has a significant impact on the result, especially for consumer products, which have large sales volumes, long lifetimes and frequently high energy consumption.

The current EP&L account only includes the hidden environmental costs. It does not yet include the benefits to society that Philips generates by improving people’s health and well-being through our products and solutions. We have a well-established methodology to calculate the number of lives we positively touch with our products and solutions. We aim to look into valuing these societal benefits in monetary terms in the future.

The Philips products subject to the Respironics recall were evaluated as part of the 2023 EP&L calculation. In accordance with the EP&L methodology, products replaced during the recall by new products with lifetime guarantees were included in the 2023 EP&L calculation for all life cycle stages. Refurbished products and repair kits were not included. 

Results 2023

Compared to the adjusted 2022 EP&L impact of EUR 4.38 billion, Philips reduced its environmental impact in 2023 to EUR 4.21 billion. This is mainly due to differences in sales mix (including the impact of the Respironics recall).

The increase in the 2022 baseline was mainly driven was mainly driven by the update to the EcoInvent 3.9.1 database using ReCiPe 2016 (our Life Cycle Inventory database containing environmental impacts of products and services) from the EcoInvent 3.8 database using ReCiPe 2008, and the update to the 2023 CE Delft prices for EU27 from the 2017 CE Delft prices for Dutch territory only. Philips updates the EcoInvent database used on a yearly basis to utilize recent emission factors and in this case, to utilize the current ReCiPe 2016 methodology. Additionally, the CE Delft prices for EU27 were more representative of a global manufacturing company, like Philips.

To understand the changes to the 2022 EP&L and have a comparable baseline for the 2023 reporting, please refer to the following chart: 

The majority of this increase can be attributed to the increase in the emission factors and/or prices for the following environmental impact categories on the lifecycle stages included in the 2022 EP&L:

• Climate change
• Human toxicity, mainly linked to electricity generation
• Particulate matter formation 

Additionally, the environmental impact categories associated with biodiversity and ecosystem services were included, which amounted to approximately EUR 61 million. Therefore, the total increase attributed to methodology changes to the 2022 EP&L with the existing 2022 lifecycle stages is EUR 2.48 billion. Additionally, to compare the 2022 EP&L with the 2023 EP&L, the Raw Material Processing and Raw Material Waste lifecycle stages should be included (adding some EUR 302 million to the 2022 EP&L). With the inclusion of data quality improvements and corrections performed in 2023, the 2022 EP&L would be approximately EUR 4.38 billion.

The most significant environmental impact, 51% of the total, is related to the usage of our products, which is due to electricity consumption. Human toxicity, particulate matter formation, and climate change are other important impacts. The environmental costs include the environmental impact of the full lifetime of the products that we put on the market in 2023, e.g. 10 years in the case of a MRI or 5 years of usage in the case of a Sonicare toothbrush. Products identified as rentals are the only exception, with an energy consumption of one year. As we expand our EcoDesign activities, with a target to have all our products EcoDesigned by 2025, we expect to better report on its environmental impact in the years to come.

Of the total 2023 impact, just EUR 261 million (6%) is directly caused by Philips’ own operations, mainly driven by outbound logistics, followed by business travel. Compared to EUR 128 million in 2022, this is almost a two times increase, mainly due to updating the emission factors from EcoInvent 3.8 to EcoInvent 3.9.1 and the prices to the 2023 CE Delft prices for EU27, mitigating the downward trend in logistics emissions as presented in Sustainable Operations.

Our materials and components supply chain, including raw materials supply, raw materials processing, raw materials waste, and packaging currently has an environmental impact of some EUR 1.80 billion, which is 43% of our total environmental impact. The main contributors are the electronic components (including printed circuit boards), cables and metals used in our products. Through our Circular Economy and Supplier Sustainability programs we will continue to focus on reducing the environmental impact caused by the materials we source and apply in our products. 

In 2018, we were the first health technology company to have its 2020-2040 targets (including purchased goods and services and the use of sold products) approved by the Science Based Targets initiative – showing our commitment to drive climate action across the value chain, from suppliers to customers, and ensuring that we contribute to the decarbonization required to stay in line with a 1.5 °C global warming scenario, as agreed in the Paris Agreement. Together with the insights gained through the EP&L we will optimize our climate impact by providing our businesses with actionable insights. For more information on our climate performance please refer to Climate Action.

For more information on our efforts to reduce emissions in the supply chain, please refer to Supplier sustainability.

For more information on our efforts to reduce emissions in the customer use-phase, please refer to Green/EcoDesigned Innovation and Green/EcoDesigned and EcoHero Revenues.

5.2.1Climate Action

Carbon footprint and energy efficiency

At Philips, we see climate change as a serious threat. Research from the Potsdam Institute for Climate Impact Research shows that over 4% of global CO₂ emissions are caused by the healthcare sector. Therefore, we are taking action to rethink our business models and decouple economic growth from the impact we have on the environment. We believe large corporates should lead the transition to a low-carbon economy. This will not only benefit the environment, but will also positively impact social and economic aspects.

Operational carbon footprint

During the COP21 United Nations Climate Conference in Paris in 2015, we committed to become carbon-neutral in our operations, pursue all efforts to reduce our operational emissions, source all our electricity from 100% renewable sources, and offset all unavoidable emissions by year-end 2020. We delivered on a comprehensive program that included energy-efficiency improvements, on-site renewables, and Power Purchase Agreements, as well as business travel improvements and transport mode shifts to low-carbon-emitting alternatives. As a result, we have significantly reduced our operational carbon footprint.

Since 2020, Philips has been carbon-neutral in its operations (scope 1, scope 2, and scope 3 - business travel and transportation & distribution). Although we prioritize carbon reduction, our comprehensive carbon offsetting program is still necessary to ensure carbon neutrality in our own operations.

Philips Group

Net operational carbon footprint

in kilotonnes CO₂ -equivalent

Driving emission reductions across the value chain

Having achieved our 2020 carbon neutrality target, we have raised the bar and set ambitious emission reduction targets to ensure we help limit the impact of global warming throughout our value chain – collaborating with suppliers and customers to amplify our impact. Philips is committed to addressing climate change by establishing ambitious long-term emission reduction targets, officially approved by the Science Based Targets initiative (SBTi). We have added the emissions from our (scope 3 categories) Purchased Goods & Services and Use of Sold Products retrospectively to define a baseline (2020). With these additions, we cover approximately 96% of our value chain emissions.

For all of our SBTi-approved and 1.5 °C-aligned targets, baselines and performance, please refer to the following table. These targets follow the cross-sector guidance of the SBTi. Philips was the first health technology company to have its targets approved by the SBTi.

In establishing our Greenhouse Gas (GHG) emissions baseline, the selection of the base year is guided by several considerations. More precisely, it is driven by historical data availability, the stability of operations during that period, and the desire to capture a representative snapshot of our emissions profile. In particular, we consider factors such as significant changes in business operations, facility expansions, or the implementation of emission reduction initiatives.

Despite the unprecedented challenges brought about by the COVID-19 pandemic, the year 2020 stands out as a significant year for Philips, marked by a level of relative stability in both customer base and emissions profile. In contrast, the year 2015 was selected as the baseline for scope 1 and 2 emissions due to it being the earliest feasible date for measurement and target-setting in alignment with the Paris Agreement. Should enhancements in data quality or methodological changes lead to an emission deviation exceeding 5% compared to our current baseline emissions, we are committed to restating the baseline in accordance with the Science Based Targets initiative.

How we will drive emission reduction across the value chain

By joining forces with customers and suppliers, we can reduce our shared carbon footprint and create a sustainable and more resilient healthcare industry. To deliver, we will focus on the following four objectives, in order of magnitude:

Designing energy-efficient products and collaborating with our customers to reduce emissions during the use-phase

More and more, customers – both in healthcare and retail – are seeking solutions that are less impactful on the environment. To address that demand, we are continuously reducing the climate impact of our products by increasing the energy efficiency of our existing installed base and future product introductions. We see improving energy efficiency as a huge lever to deliver on our value chain emission reductions. More information can be found on our sustainability website.

Collaborating with our suppliers to reduce emissions in our supply chain

There is a pressing need for industry and business to manage and reduce CO₂-e emissions across the entire value chain – including at supplier level. To this end, we have invited many of our largest suppliers – first-tier manufacturing and transportation-related suppliers – to report their climate performance and strategy as part of the Carbon Disclosure Project (CDP) Supply Chain program. Additionally, we engage with these suppliers to reduce their emissions as part of our Supplier Sustainability program. More information can be found on our sustainability website.

Minimizing our climate impact by adopting circular economy principles

From a climate perspective, applying circular business models can lead to a significant emission reduction. As the value of materials is retained, the need for virgin resources is significantly reduced, and consequently, the need for e.g. energy to produce those virgin materials, leading to reduced emissions. This is also part of our Circular Economy program. More information can be found on our sustainability website.

Transitioning to lower carbon-emitting energy at our sites

By continuing to phase out fossil fuels at our sites and increase our global renewable energy share, we will be able to achieve our long-term emission targets (scope 1 and 2). This entails, for example, moving towards geothermal and renewable district heating and cooling solutions where available. More information can be found on our sustainability website.

Recognition

Our efforts are acknowledged by CDP (formerly known as the Carbon Disclosure Project), a global NGO that assesses the greenhouse gas (GHG) emission performance and management of reporting companies. In 2023, we were ranked on the CDP Climate Change ’A’ List for our continued climate performance and transparency for the 11^th consecutive year. None of our peers can claim the same.

Actions related to the achievement of our targets are governed by our Environmental policy, which incorporates input from Philips' regulatory, design, sustainability, supply chain, and operations stakeholders, as well as the voice of our customers to minimize their environmental footprint. 

For more information on our Climate Action progress in 2023, please refer to Climate Action.

Philips reports all its emissions in line with the Greenhouse Gas Protocol (GHGP) as further described in Scope of reporting.

5.2.2Circular Economy

A circular economy aims to decouple economic growth from the consumption of natural resources and ecosystems by optimizing their use, eliminating waste and pollution, and circulating products and materials for as long as possible, while giving natural systems the opportunity to regenerate themselves. The way we take, make and use materials has a significant impact on both climate and nature, as 45% of global GHG emissions come from the way products are made and used, and more than 90% of biodiversity loss stems from extraction and processing. Bringing this back to Philips’ impact on the planet, our use of materials accounts for over 40% of our environmental impact based on our EP&L methodology, which includes raw material supply, processing, waste and packaging. Therefore, in addition to the use of renewable resources and energy efficiency, the transition to a circular economy will be essential to meet our global climate goals.

Our Circular Economy program

The Circular Economy program at Philips ran for the 11th year in 2023, building on more than 30 years' experience of applying resource efficiency through our sustainability programs. Our ambition is to help our customers to ‘do more with less’ and drive the circular transformation across the value chain together with our partners. We apply Philips’ circularity principles ‘use less, use longer and use again’ across five strategic areas:

• Circular design of software and hardware
• Circular manufacturing and supply
• Circular delivery and financing models
• Circular service in use-phase
• Circular end-of-use management

Philips has committed to voluntary circularity targets to be delivered by 2025 as part of our externally communicated 2025 Sustainability Commitments. Key actions to deliver on these are stated in the above table. In 2023, Philips increased its circular revenues by 1.8% compared to the previous year, mainly driven by circular design of software and hardware. We implemented sharpened circular revenue requirements to further align with developments on circularity metrics and reporting disclosures. For example, external trends on metrics led to further sharpening of the definition of our software contributions. We also brought our circular revenue reporting more in line with our circular strategy on design and closing the loop. 

In 2023, Philips achieved 91% circular materials management, comparable to 2022. We continued the emphasis on our Zero Waste to Landfill KPI, achieving 0.0% waste to landfill, compared to 0.0% in 2022. 

We reclaimed more than 11,500 systems or pieces of equipment in 2023. The main driver was our take-back program for patient monitors.

For more information on our Circular Economy program, please refer to Circular Economy.

5.2.3Biodiversity and Ecosystem Services

Philips recognizes the importance of healthy ecosystems and biodiversity for our company, our employees, and society. Therefore, Philips has developed the Natural Capital program, which is an addition to existing sustainability programs. This program is dedicated to reducing Philips’ impacts on natural capital, focusing on our chemicals footprint, water consumption, and improving biodiversity and ecosystem services. By systematically quantifying and reducing the environmental impact of our operations, supply chain and the use-phase of our products, we actively aim to protect and restore biodiversity. Philips acknowledges its dependency and impact on natural capital and aims to iteratively improve its understanding to drive regenerative decisions.

Philips aims to restore and enhance biodiversity and ecosystem services (BES) at our industrial sites and to actively promote ecosystem restoration activities through partnerships with, among others, NGOs, local communities, and governments. The Natural Capital program is focused, taking our 23 manufacturing sites as a starting point; Philips has created a BES community and trained employees on all these sites in ecosystem services. As a result, the ecosystem services of Philips' global manufacturing sites have been mapped and quantified. Based on this data, Philips evaluated the total area and ecological value of each manufacturing site and established the first BES data baseline to measure BES improvements by 2024. Together with our partners, we are working to develop more advanced BES metrics suitable for industrial areas.  

In 2022, our manufacturing sites delivered some 80 potential measures to enhance biodiversity on-site. Philips implemented 30% of the biodiversity improvement measures selected for the short term at a number of sites in 2023, e.g. planting native trees in India, creating flower gardens in China, and creating habitats for endangered bee species in Central America. Furthermore, we have published our first Taskforce on Nature-related Financial Disclosures (TNFD) report and aim to set ourselves Science Based Targets for Nature (SBTN) in the future.

Philips aims to expand BES improvements in 2024 and track BES performance at our manufacturing sites with a new ecosystem services mapping according to our Environmental Policy. Improving BES at our manufacturing sites, and thereby also improving the working environment, is a contributor to making Philips the ’best place to work’, one of the ESG commitments Philips announced in 2020. Furthermore, healthy ecosystems support our efforts to mitigate climate risks assessed in our TCFD report for our sites. 

As can be derived from our Environmental Profit & Loss (EP&L) account, the environmental impact of Philips’ sites is limited, as they are not very energy-intensive, are 100%-powered with electricity from renewable sources, do not emit large quantities of high-impact substances, and are not water-intensive. At the same time, Philips is aware that the total environmental impact of the full value chain is substantial, especially upstream in the mining industry. Philips considers improving biodiversity on its own land as a first important step towards reducing biodiversity impact over the full value chain.

Having become carbon-neutral in our operations by year-end 2020, and with our drive to send zero waste to landfill, focus on circular materials management, and enhance BES, the environmental impact of our sites will be further optimized in the years to come.

5.2.4Green/EcoDesigned Innovation

At Philips, we recognize that human health and environmental health go hand in hand. In 2022, the United Nations declared the ability to live in a clean, healthy and sustainable environment a human right.

Climate change poses a threat to health and is expected to cause some 250,000 additional deaths per year globally, according to the World Health Organization. It creates a pressing need – together with global resource constraints, growing and aging populations, and the rise of chronic diseases – for resilient and sustainable healthcare models.

We see a growing demand from our customers, including hospitals, to reduce their environmental impact, reduce waste and decarbonize healthcare. Our Green/EcoDesigned Innovation – the Research & Development spend related to the development of new generations of Green/EcoDesigned products and solutions and Green technologies, addressing SDG 12 (Ensure sustainable consumption and production patterns) – is focused on addressing that impact.

Sustainable Innovation is the Research & Development spend related to the development of new generations of products and solutions that address the United Nations’ Sustainable Development Goals 3 (Ensure healthy lives and promote well-being for all at all ages) or 12.

In 2023, Philips invested EUR 142 million in Green/EcoDesigned Innovation, a decrease compared to 2022 due to more demanding EcoDesign criteria, a growing share of innovation spend in software, for which reporting processes still need to be further implemented, and reduced R&D investments at Philips. We expect Green/EcoDesigned Innovation spend to increase in the years to come, as one of our 2025 ESG commitments is to design all our new product introductions in line with our EcoDesign requirements by 2025. Over EUR 1.5 billion was invested in Sustainable Innovation in 2023.

Philips Group

Green/EcoDesigned Innovation per segment

 in millions of EUR

Diagnosis & Treatment

Philips develops innovative solutions that support precision diagnosis and effective, minimally invasive interventions and therapy, while respecting the limits of natural resources. Investments in Green Innovation in 2023 amounted to EUR 78 million, a reduction compared to EUR 93 million in 2022.

We aim to reduce environmental impact over the total lifecycle and our Green/EcoDesign innovations focus on four areas: Energy, Substances, Circularity, and Packaging. Energy efficiency is an area of focus, especially for our large imaging systems such as MRI. Through circular design, Philips also pays particular attention to enabling the reduction in use of virgin materials, for example, through designing for low weight and enabling the upgrading and re-use of our products. As a result, our customers can, for example, benefit from enhancements in workflow, dose management and imaging quality. In addition, we are reducing the substances of concern and improving our packaging. We continued to actively partner with multiple leading care providers to investigate innovative ways to reduce the environmental impact of healthcare, for example by maximizing energy-efficient use of medical equipment (e.g. by introducing EcoModes) and optimizing lifetime value. Philips closed the loop on large equipment by the end of 2020, by structurally embedding a responsible take-back policy into its customer trade-in offers. This means that for all equipment that a customer is willing to trade-in at end of use, Philips will take it back for refurbishment and parts recovery where feasible, or locally recycle it in a certified way to ensure it does not end up in landfill. Sustainable design and innovation help to further increase the value created and decrease the environmental impact Philips can deliver from returned systems.

Connected Care

Philips’ connected health solutions integrate, collect, combine and deliver quality data for actionable insights to help improve access to quality care, while respecting the limits of natural resources. It is our belief that well-designed e-health solutions can reduce the travel-related carbon footprint of healthcare, increase efficiency in hospitals, reduce waste, and improve access to care and outcomes. For example, our Philips Radiology Operations Command Center enables real-time collaboration and virtual imaging operations and can decrease staff travel time and costs. The value and adoption of e-health solutions also became apparent during the COVID-19 crisis. Green/EcoDesigned Innovation investments in 2023 amounted to EUR 29 million, in line with EUR 31 million in 2022. Over the coming years, Green/EcoDesigned Innovation projects will deliver, among other things, new EcoDesigned patient monitors with lower environmental footprints.

Personal Health

R&D investments at our Personal Health segment amounted to EUR 33 million in 2023, compared with EUR 40 million in 2022. Personal Health continued its work on improving the energy efficiency of its products, and the voluntary phase-out of polyvinyl chloride (PVC), brominated flame retardants (BFR), Bisphenol A (BPA) and phthalates from, among others, food contact and childcare products. New hairdryers have been launched that are more energy-efficient, with an improvement of more than 10% compared to the 2020 baseline. Personal Health also continues to increase circularity by, for example, using recycled materials in products and packaging. For packaging, we are increasingly shifting away from single use plastic materials. As part of our Fit for Future Packaging program, we have launched additional paper-based, mailbox-ready packaging solutions in our Grooming & Beauty portfolio, including OneBlades and hairdryers.

Other

The segment Other invested EUR 2 million in Green/EcoDesigned Innovation, spread over projects focused on global challenges relating to water, air, energy, food, circular economy, and access to affordable healthcare.

For more information on our Circular Economy activities and the progress towards targets in 2023, please refer to Circular Economy.

5.2.5Green/EcoDesigned and EcoHero Revenues

Green/EcoDesigned Revenues are generated through products and solutions that offer a significant environmental improvement in one or more Green Focal Areas – Energy efficiency, Packaging, Substances, and Circularity – and thereby deliver a contribution to SDG 12 (Ensure sustainable consumption and production patterns). Green/EcoDesigned Revenues amounted to EUR 12.8 billion in 2023, or 70.5% of sales, comparable to 2022 (71.7% in 2022). 

As the first EU Taxonomy delegated act, addressing Climate Change Adaptation and Climate Change Mitigation, only applies to sectors with the highest CO₂ emissions, Philips’ activities are not within the scope of this delegated act and consequently none of Philips' revenues were eligible under this taxonomy during 2023.

Philips Group

Green/EcoDesigned Revenues per segment

 in millions of EUR unless otherwise stated

Through our EcoDesign process we aim to create products and solutions that have significantly less impact on the environment over their whole lifecycle. Overall, the most significant improvements have been in energy efficiency and lower weight (thus less resources), although increased attention was also given to substances of concern, packaging and circular design, in particular design for recyclability, in all segments in 2023.

By 2025, 25% of hardware revenues should come from EcoHeroes, which meet the EcoDesign requirements and outperform in at least one of the focal areas compared to their predecessor or relevant benchmarks, supported by a sustainability claim. In 2023, Philips achieved 15.9% in EcoHero Revenues, with most contributions from improvements in energy use.

Diagnosis & Treatment

In 2023, a number of main platforms were launched. Specific attention was paid to preparing for future EcoDesigned product launches.

Connected Care

New Green/EcoDesigned products in Connected Care are expected in 2024 and beyond, with improvements in all EcoDesign focal areas.

Personal Health

In our Personal Health business, the focus is on Green/EcoDesigned Products and Solutions that meet or exceed our minimum requirements in the areas of energy consumption, packaging, substances of concern, and application of recycled plastics. We continue to make progress in developing PVC/BFR-free products. More than 90% of our consumer product sales consist of PVC/BFR-free products, with the exception of power cords, for which there are not yet economically viable alternatives available. In our Oral Healthcare portfolio, we introduced the first brush heads containing 75% bio-based materials. In our Mother & Child Care portfolio, we launched the first baby monitor with recycled plastic. And we implemented recycled plastic in the interior parts of a significant proportion of the Male Grooming portfolio. 

5.3Social performance

As a leading health technology company, it is our purpose is to improve people’s health and well-being through meaningful innovation, in line with UN SDG 3 ‘Ensure healthy lives and promote well-being for all at all ages’. In pursuing this purpose, we act responsibly towards society and partner with our stakeholders.

We aim to be the best place to work for people who share our passion, promoting personal development, inclusion and diversity.

5.3.1Improving people’s lives

Lack of access to affordable, quality care is one of the most pressing issues of our time. Climate change is exacerbating this situation and putting the lives of millions of people at risk. At Philips, we are conscious of our responsibilities towards society and the planet. It is our purpose to improve people’s health and well-being through meaningful innovation. As such, we aim to improve the lives of 2.5 billion people a year by 2030. To ensure we remain on track to achieve this goal, we have developed an integrated approach that tells us how many lives have been improved by our products and solutions in a given year. We call this our Lives Improved model.

The Lives Improved model helps us to track our performance on a country-by-country basis in line with UN Sustainable Development Goal 3, allowing us to shape strategies to ensure healthy lives and promote well-being for all at all ages.

In 2023, Philips improved 1.88 billion lives, an increase of around 67 million compared to 2022. This increase was driven by steady growth across all segments, improved statistics and the addition of the Ambulatory Monitoring & Diagnostics (AM&D) and Clinical Data Services (CDS) business units in the Lives Improved model. From a zone perspective, we saw significant growth mainly in Latin America, Asia Pacific, Japan, Indian Subcontinent, Middle East & Turkey, and Africa.

Philips believes that improving access to healthcare requires meaningful innovation. It also requires a deep understanding of the relationship between all stakeholders and their specific needs in underserved communities. We have an additional commitment to improve the lives of 300 million people in underserved communities with our health-related products by 2025, rising to 400 million by 2030. This commitment allows us to increase our focus on those populations where we can make a positive impact by providing access to effective and affordable healthcare for those in greatest need. By combining the strengths of Philips, Philips Ventures, Philips Foundation, and its partners, we can provide better healthcare and improve health outcomes for all. In 2023, our health-related solutions improved the lives of 221 million people in underserved communities (an increase of some 20 million compared to 2022).

For more information, please refer to our Lives Improved methodology document.

Lives Improved per region/zone

The following table shows the number of Lives Improved per region/zone.

5.3.2Our organization, people and culture

2023 has been a year of change, focused on building the foundation to deliver greater impact in all we do by addressing challenges and shifting to our new operating model, whilst continuing to deliver for patients, customers and consumers. We laid the groundwork for our updated People strategy and the key pillars of growing our people, igniting our culture, simplifying how we work, and bringing oxygen to the organization through simple adaptive people processes and a focus on well-being and inclusion.

Aligned with these pillars, we continued driving the broader Talent agenda, with a strong focus on Executive Committee successor identification and development. This resulted in two internal executive appointments, our new Chief People Officer and Market Leader North America, and the appointment of two critical external executive female talents, Chief Business Leader Monitoring & Connected Care and Chief Medical Officer, further strengthening our MedTech expertise. We continued to support the development of our internal talents resulting in 33% internal mobility (vs. target 30%) and further improved our diversity ambitions with over 31% women in senior leadership. Overall, employee turnover is slightly up to 17.6% from 2022 (17.5%) and top talent has seen an increase to 12.3% from 10.2% in 2022.

In 2023, we began reinvigorating our culture using a phased approach to emphasize action over words, laying the groundwork for scaling this work in 2024. This included working on our culture through our most pressing challenges with the Philips Leadership Team and how to understand our disabling patterns as an organization so that we can begin to disrupt them. Deeper culture work was started in the businesses with specific needs, and preparations to ignite, embed and embody our culture at scale are under way. This culture work will run in parallel with our priority of scaling development for all 7,500 people leaders. Building on 2023 progress, we will enable leaders to model the skills and behaviors that align with our refreshed culture and position us to deliver results through our teams.

As a result of the shift in the operating model, we have made progress in simplifying how we work and are trending below the target headcount (69,656 actual vs. 72,295 target). Despite the amount of change in the organization, we saw an improvement in engagement scores between March and October 2023 by 5% to 73% indicating that the organization is starting to recover from the change, although the number is still below 2022 (78%) and benchmark levels.

In 2023, we gained momentum towards our strategy of becoming a more people-centric organization and we have put in place the foundations that will help us to deliver value with sustainable impact through our people.

Our culture

Our culture is crucial to meeting our goal of improving the lives of 2.5 billion people by 2030. The way we act and behave shapes our shared understanding of what is important and how we deliver. As a leader in health technology, we are on a journey to reinvigorate our culture so that we become even more people-focused, reduce complexity, and drive greater accountability to meet the needs of our patients, consumers, and customers more consistently.

We have launched a new global People strategy to accelerate this mission and significantly shape our organizational culture. This strategy rests on three pillars. Firstly, we simplify and enhance our core operations to empower employees to address pressing needs efficiently, all to prioritize patient safety and customer experience. Secondly, we focus on nurturing our workforce's skills and capabilities, adapting to the ever-evolving health technology industry. Thirdly, we instill a culture of inclusivity and belonging by integrating health, well-being, and diversity into our work practices, ensuring that every employee feels valued and connected to our shared mission. These pillars form the foundation of our talent ecosystem and reflect our commitment to fostering innovation and excellence on a global scale.

But our culture is more than words; it is also shaped by how our organization is structured. Our new operating model, implemented in 2023, defines how we work in a regulated environment to safely develop innovations that improve people's health and well-being responsibly and sustainably. We prioritize patient safety, quality, compliance, and integrity in everything we do. With this new structure, our culture-defining initiatives and programs are expected to have a greater impact as we focus on consistency and tangible action.

For example, in October we held a global Timeout for Patient Safety and Quality, where our entire company took time to reflect on how our daily work affects patient safety and quality, where we can commit to taking personal and collective responsibility, and how to create a culture centered on patients and people. Initiatives like this, along with targeted learning activities like our Clinical and Medical Learning Hub, which provides world-class clinical training and resources, contribute to making our culture ‘real’ and deliver a sense of pride for our people.

Considering the ever-changing economic, political, and health environment, we also remain flexible in our approach to how we work. We continue to adapt our hybrid model for more flexibility and collaboration, with a stronger focus on policies and programs that prioritize people and are tech-enabled for easier access and efficiency. This means we continue to:

• Embrace flexibility, making innovative choices about how and where we work, giving employees more autonomy.
• Be at our best, investing in and growing our Talent through on-going learning and development.
• Collaborate impactfully, simplifying how we work to bring additional efficiency into the organization and create opportunities to come together, build strong teams, and solve problems together.

This comprehensive and people-centric strategy – combined with our operating model and targeted interventions – is designed to transform Philips into an even more agile, high-performing organization with a thriving culture at the core.

5.3.3Workforce of the Future

Through 2023, our Strategic Priority recruitment team continued to focus on delivery of the roles most critical to the delivery of our strategy. Together, the Strategic Priority team delivered 1,427 hires within R&D, Q&R and Clinical roles at Corporate Grade 70 and above, and all Informatics roles. To further enhance our workforce of the future, Talent Acquisition delivered 20.2% of external candidates with MedTech experience.

Early Career Talent

Our Philips-wide Graduate Development Program (GDP) continues to perform well and increased from 40 participants in 2021 to 240 in 2023. The GDP lasts two years and includes two job rotations, as well as offering the graduates a comprehensive learning and development track, and access to career centers to help guide future steps. Philips also gave meaningful work experience to 1,802 interns, offering 321 of them permanent employment after their internship.

Total Workforce Strategy

We continue our Total Workforce Strategy, which considers all sources of skills, capabilities, locations and changes in the labor market in order to deliver the Workforce of the Future. Our Right Shoring & Sourcing methodology is used to implement this strategy. This methodology steers improvements in workforce composition towards the ‘right shore’ (onshore, nearshore and offshore) and the ‘right source’ (employees, contingent workers and external services). The program delivered EUR 11.4 million in savings in 2023.

In 2023 we started with the implementation of our external workforce strategy. In addition, we have been looking at how we are attracting contingent workforce talent. Direct sourcing has been expanded to 32% in the Netherlands, to 14% in the United States, and has been rolled out to India. To strengthen the way we directly source contingent workforce talent, our own Philips employer value proposition is utilized for the different Functions to attract these contingent workers.

More information on training and learning programs can be found in People development.

5.3.4Diversity, Inclusion and Well-Being

As a health technology leader, we attach great importance to the health and well-being of our workforce and to creating an environment of inclusion and belonging, where all employees feel psychologically safe. Our company’s success depends on our employees feeling valued, respected, and empowered to contribute fully. We are a diverse team made up of approximately 70,000 individuals across over 100 countries, all with different backgrounds, perspectives, and experiences. We fully value and leverage these differences to ensure that creativity and innovation can flourish. Philips’ commitment towards Inclusion & Diversity is reflected in our General Business Principles and the company-wide Inclusion & Diversity Policy and Fair Employment Policy.

Representation

We continue to put in place measures to enhance representation of diverse talent at all levels within the organization, and to ensure that representation at senior management levels reflects the diversity of our stakeholders, including consumers, our customers and their patients.

To this end, in 2022, Philips restated its commitment to having 35% of senior management positions held by women, by the end of 2025. Senior management positions (including senior directors and executives) amount to approximately 1,155 employees, 363 females (31.4%), 792 males (68.6%) at the end of 2023. As of year-end 2023, we had reached our initial goal (set in 2020) of a 30% representation of women in senior management.

Our Supervisory Board has adopted the Diversity Policy for the Supervisory Board, Board of Management and Executive Committee, which also includes the Supervisory Board’s aim that at least one-third of the members of each of the Board of Management and the Executive Committee are women and at least one-third are men. For more information on the Diversity Policy, please refer to Report of the Corporate Governance and Nomination & Selection Committee. 

At year-end, the three members of the Board of Management remained male, with three out of 10 members of the Executive Committee being female. The Executive Committee numbers reflect a slight increase compared to 2022, where there were two women out of twelve in total, pending expected announcements of new leaders. The company generally seeks to fill vacancies by considering candidates that bring a diversity of (amongst others) gender. The selection of candidates is based on merit and there have been and may be pragmatic reasons – such as other relevant selection criteria and the availability of suitable candidates – that have impacted the achievement of our gender diversity goals.

Long-term Inclusion & Diversity ambitions are embedded in our People strategy. In our ongoing effort to increase transparency and accountability, we share data on the representation of women throughout our Businesses, Regions and Functions, including a monthly review with the Executive Committee. We closely monitor the inflow, advancement and outflow of talent, which makes it possible to customize goals and intervene where appropriate. We continue important initiatives that address unconscious bias, health and well-being, inclusion and development of underrepresented talent.

Philips Group

Gender diversity

in %

At Philips, we remain committed to a multi-generational workforce, as the presence of generational diversity is a key factor to foster creativity, productivity and innovation. The different life experiences of a multi-generational workforce support collaborative decision making and the inclusion of different beliefs and points of view. 

Global Diversity Council

Our Global Diversity Council is comprised of 10 senior leaders representing our Businesses, Regions and Functions. The Council provides governance and oversight on diversity efforts, promotes company-wide behavior change, and communicates on progress. Additionally, every Council member is an Executive Sponsor to one of our Employee Resource Groups.

Employee Resource Groups

Employee Resource Groups (ERGs) provide an inclusive space for employees to support and care for one another, develop skills, experience meaningful cultural connections, expand their knowledge, all while strengthening relationships among the Philips community.

Philips currently has 11 ERGs globally, with over 10,000 employees participating: Able & Allies; Asian Employee Resource Group; Black Employee Resource Group; Future Leaders and Rising Employees; Latinx Employee Resource Group; Middle Eastern Employee Resource Group; Philips Empowering Parents; Philips Women Lead; Pride Network; Veterans and Family Coalition; and Neurodiversity Network.

Health & Well-being

In 2023, we evolved our (mental) health and well-being framework to incorporate two additional pillars of well-being – career and environmental – enhancing our holistic approach and integrating global and local programs. We continued to address mental health by further rolling out the Employee Assistance Program (EAP).

We grew our Mental Health Champion program to 250 Champions across the globe, providing accredited training for peer-to-peer confidential support. We developed Compassionate leadership training for all our people managers, as well as encouraging dialogues around self-care, building trust and resilience. We also launched a Manager Mental Health toolkit, complemented by training sessions.

Along with International Women’s Day and PRIDE, Philips also recognized World Health Day and World Mental Health Day, with a variety of virtual mental well-being sessions and resilience practices that engaged employees across our Regions. In collaboration with Philips University, the Philips Energy Management well-being program was further extended across the organization. 

Building capability

In 2023, we deployed bias training to all recruiters, continued the learning journey for employees with a focus on emotional wellness, and launched a learning series for all employees called Learn With Us, where we featured Diversity, Inclusion and Well-being best practices from across the globe.

External awards

Many stakeholders, including customers and potential partners and employees, view third-party assessments as objective indications of the strength of our commitment. Awards received in 2023 included Forbes Best Employers for Women, Forbes Best Employers for Diversity, and Forbes Best Employers in Texas.

External partnerships

As we continue to focus on integrating inclusion, belonging and equity into the employee experience, we see value in partnering with diverse professional network organizations and job boards to sharpen our focus on the development and retention of our internal diverse talent and increasing representation of diverse talent across our organization. In 2023, we renewed a partnership with the National Black MBA Association and introduced partnerships with the National Sales Network, Circa and Mogul.

5.3.5Employee engagement

We continue to keep a close pulse on our employee sentiment through our bi-annual Employee Engagement Survey. Amidst the changes across the company, our Employee Engagement Survey (EES) saw an extremely high response rate of 73%, which means that almost 50,000 employees participated.

In 2023, average employee engagement scores decreased to 73% – lower than the Fortune 500 benchmark. The decrease in employee engagement scores, specifically in the first half of the year, did not come as a surprise, as we announced employee reductions and organizational changes in January and many of our employees were (pre-) informed of how they would be impacted. There was significant improvement (5 percentage points) in the EES scores in the second half of the year, as the employees settled within the new organization structure.

In a changing environment, we listened actively to our employees to provide them with greater clarity on future direction and enable them to proactively deal with change to meet our customer and patient needs. In 2023, we introduced specific sessions around Patient Safety and Quality. We saw that our employees feel comfortable reporting a patient safety or quality concern, while some employees feel that we can learn more from reviewing quality and regulatory events, and that there is an opportunity to improve training and recognition on these topics. This is critical given the culture of people- and patient-centricity that we aspire to.

Using the Customer Experience Index, we look at how well employees think we focus on customer needs. These inputs are actively exchanged with the Customer Experience team.

Our employee engagement is primarily driven by a clear understanding of our customer needs and delivering on commitments that we make to each other. The results of the EES indicate that employees feel they can be themselves and have trusting relationships at work. Another significant factor driving engagement is our high scores on the Inclusion & Diversity index, which remains above the industry benchmark.

5.3.6Employment

The total number of Philips Group employees was 69,656 at the end of 2023, compared to 77,233 at the end of 2022, a decrease of 7,577 FTEs.

On January 30, 2023, we launched a multi-year plan to create value with sustainable impact. Part of this plan is to improve performance and simplify our way of working to improve our agility and productivity. This includes the difficult, but necessary reduction of our workforce by around 6,000 roles globally by 2025. This is in addition to the 4,000 reductions announced in 2022. As we went through this change, we did it with the utmost care and respect for our people, with a strong focus on supporting those who were directly impacted by the reductions in finding a new role.

Subject to local country legislation, our support offers include:

• Social Plan or respective severance policy
• Outplacement services and support through our Employee Assistance Program
• Work placement agency, where applicable, for Employment-to-Employment support
• Redeployment – where possible – as applicable by local legislation and in the context of the hiring restrictions

Geographic footprint

Approximately 56% (2022: 58%) of the Philips workforce is located in Mature geographies and 44% (2022: 42%) in Growth geographies. In 2023, the number of employees in Mature geographies decreased by 5,392. The number of employees in Growth geographies decreased by 2,184.

Employee turnover

In 2023, employee turnover amounted to 17.6%, of which 9.5% was voluntary, compared to 17.5% (11.1% voluntary) in 2022. External benchmarks show that our voluntary employee turnover remains in line with similar-sized companies, and that we are reasonably successful in retaining our employees.

The rate of employee turnover reported, is calculated in headcount as a monthly average across the reporting period.

5.3.7Equal opportunities and equal pay

As a company, Philips is committed to remunerating equal pay for equal work. We ensure that all employees are compensated fairly and without inequity based on gender, race, or any other characteristic protected by law.

A pay equity review is a crucial process that reflects our commitment to fostering fairness, equality, and transparency within our organization. Annually, Philips conducts a comprehensive analysis of its compensation structure to ensure that all employees are remunerated fairly for their skills, experience, and contributions, regardless of human characteristics that can lead to potential biases. The systematic measurement of gender pay gaps within Philips is an integral aspect of our operational practices. This commitment ensures that we not only provide equal opportunities, but also uphold fairness in compensation for the work undertaken by our diverse workforce. This dedication to transparency and proactive correction reflects our overarching commitment to fostering an environment of equality and inclusivity within the company.

In alignment with our global ethos, many countries in which Philips operates have already embraced the practice of regular pay equity reviews over several years. Notable examples include Australia, the United Kingdom, Sweden, India, and certain states within the United States. This demonstrates our unwavering dedication to upholding the principles of equity and inclusivity on a global scale. When an unexplained gap is brought to light, immediate actions are taken to rectify the situation. Furthermore, Philips is committed to understanding the underlying factors contributing to these unexplained gaps, and formulating proactive measures to prevent such occurrences in the future.

Specifically focusing on the United States, Philips embarked on a significant initiative in the form of a company-wide Pay Equity & Transparency Project starting in 2022 and culminating in 2023. This project builds upon the successful groundwork laid during pay equity reviews at the state level in the US. The objective has been to create a comprehensive and standardized approach to pay equity and pay transparency, ensuring that all employees across the US are remunerated fairly, in accordance with their skills and responsibilities. All US employees have the right to request pay transparency and understand their position against peers, which is over and above the current legislative requirements.

The Pay Equity Project is a testament to our commitment to not only meeting but exceeding legal and regulatory requirements. By proactively addressing pay equity concerns, we aim to create an inclusive work environment that fosters diversity and promotes equal opportunities for everyone within the organization. This initiative reinforces our belief that fair compensation is not only a legal obligation but a fundamental ethical responsibility that contributes to the overall success and sustainability of our company.

Through this proactive approach, we strive to set an industry standard for pay equity, demonstrating that a commitment to fairness and equality is not only beneficial for our employees but also the long-term success and reputation of Philips as a global leader in innovation and healthcare solutions.

5.3.8Living wage

Philips can only achieve its aim to improve the lives of 2.5 billion people per year by 2030 if we support and empower our people, so they can be their best and perform effectively. To this end, we conducted a living wage analysis on the lowest salaries in every country in which we currently operate.

The living wage is a concept defined by Anker and Anker (2017) as “Remuneration received by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, healthcare, transport, clothing, and other essential needs, including provision for unexpected events”.

Based on the Living Wage analysis conducted in 2023, all Philips employees received wages and benefits that are consistent with at least the minimum Living Wage standard for an individual. Furthermore, approximately 97% of Philips employees received wages and benefits that are consistent with at least the minimum Living Wage standard for a family (based on reference data and guidance from Wage Indicator).

5.3.9Health and Safety

In 2023, the safety of our employees remained paramount. As the COVID-19 pandemic continued the endemic phase, the centralized controls put in place during the pandemic were relaxed in line with local governments’ advice. As Philips resumed normal operations, office occupancy started to rise, and business travel restarted. However, critical control measures were maintained. Philips has emerged from the pandemic with a good record of management and control that restricted the impact of the pandemic on employees and the wider business operations.

At Philips, we strive for an injury-free and illness-free work environment. Since 2016, the Total Recordable Cases (TRC) rate has been defined as a Key Performance Indicator (KPI). A TRC is a case where an injured employee is unable to work for one or more days, has medical treatment, or sustains an industrial illness. We set yearly TRC targets for the company, businesses and industrial sites.

We recorded 172 TRCs in 2023, the same as in 2022. While our workforce decreased in 2023, the TRC rate increased from 0.23 per hundred FTEs in 2022 to 0.24 in 2023. 

In 2023 we recorded 90 Lost Workday Injury Cases (LWIC). These are occupational injury cases where an injured person is unable to work for one or more days after the injury. This represents a 9% increase compared with 81 in 2022. The LWIC rate increased to 0.12 per 100 FTEs in 2023, compared with 0.11 in 2022. The number of Lost Workdays caused by injuries decreased by 1,471 days (37%) to 2,549 days in 2023.

For more information on Health and Safety, please refer to Health and Safety performance

5.3.10Human rights

Philips strongly believes that companies have both the responsibility to respect human rights and the ability to protect them. Philips’ Human Rights Policy, General Business Principles, Supplier Sustainability Declaration and other relevant policies detail how Philips respects human rights, in line with the International Bill of Human Rights and the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work.

In this regard, Philips follows the guidance given in the UN Guiding Principles on Business and Human Rights and the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises. Philips has also been a signatory to the UN Global Compact since 2007. Philips’ Board of Management is responsible for strategy and oversight of all company activities across the three ESG dimensions, including human rights. The Board also monitors progress and takes corrective action where needed.

In addition, a cross-functional project team, comprised of a Human Rights Manager and professionals from several business functions, is in place to drive several human rights initiatives. The project team is overseen by the Human Rights Steering Committee, consisting of senior leaders from Operations, Legal, Human Resources and Sustainability.

In 2023, we continued to develop our due diligence strategy by conducting Human Rights Impact Assessments (HRIA). Philips conducted Human Rights Impact Assessments (HRIAs) at its sites in Pune (India) and Varginha (Brazil), living up to its commitment of conducting HRIAs at 100% of its at-risk sites by 2023. Philips intends to monitor the progress and findings from these sites and take them on a continuous improvement journey regarding human rights topics.

Although the Human Rights Impact Assessment of selected sites is primarily focused on Philips own operations, a derived deep-dive approach for certain suppliers has been rolled out since 2022. For 8 suppliers, a focused assessment on human rights was conducted, compared with the broader Supplier sustainability assessment approach which covers sustainability more holistically and is detailed in Supplier sustainability.

Our Human Rights Report contains detailed information regarding our progress, targets, and plans for continuous improvement.

5.3.11Supplier sustainability

Philips’ purpose to improve people’s health and well-being applies throughout our value chain. An important area of focus for the Integrated Supply Chain is sustainability, and we are actively working on this together with our partners, whether these be component suppliers or energy or logistics providers. Close cooperation with our suppliers not only helps us deliver health technology innovations, it also supports new approaches that help us minimize our environmental impact and maximize the social and economic value we create.

The sustainability performance of our suppliers is fully embedded in our procurement strategy and way of working. We want to make a difference through sustainable supply management and responsible sourcing. This is more than just managing compliance – it is about collaborating with our supply partners to make a positive and lasting impact.

Since 2003, our sustainability strategy has included dedicated supplier sustainability programs. We have a direct (tier 1) business relationship with approximately 4,900 product and component suppliers and 16,100 service providers. Social and environmental issues deeper in our supply chain also require us to intervene beyond tier 1 suppliers. In 2023, our programs focused specifically on improving supplier sustainability performance, human rights, responsible sourcing of minerals, and reducing the environmental footprint of our supply base by driving the adoption of Science Based Targets.

Through the Supplier Sustainability Performance program, our maturity-based approach to drive continuous improvement, we improved the lives of approximately 723,000 workers in our supply chain in 2023 (2022: 459,000). Collaborating with our strategic partners, we increased the number of deep-dives at second-tier suppliers, actively supporting them to become more effective in their own sustainability engagement approaches towards their suppliers.

Detailed information on our supplier sustainability programs is available in section Supplier sustainability of this Annual Report. 

5.3.12Total tax contribution

To fulfill our company purpose, a responsible tax approach is required. We fully acknowledge our societal role when it comes to paying taxes in the geographies where value is created. We consider our tax payments as a contribution to the communities in which we operate, and part of our social value creation.

Our Approach to Tax sets the standard for our conduct, by which individual employees, the company and its subsidiaries must abide. We consider tax in the context of the broader society, inspired by our stakeholder dialogues, global initiatives of the Organization for Economic Cooperation and Development and United Nations, human rights, international tax laws and regulations, and relevant codes of conduct.

Under the ultimate responsibility of the Board of Management, the Chief Financial Officer annually reviews, evaluates, approves and where necessary adjusts Philips’ approach to tax. Part of our approach is to acknowledge the importance of transparency in respect of our tax contributions. Philips supports and participates in transparency initiatives such as the Dow Jones Sustainability Index (DJSI) and the Tax Transparency Benchmark of the Dutch Association of Investors for Sustainable Development (VBDO). The Tax Transparency Benchmark is a study conducted by the VBDO on tax transparency practices among Dutch and European listed companies. The 2023 benchmark assessed the tax transparency practices of 51 Dutch companies and 65 listed companies from Belgium, Denmark, France, Germany, Italy, Spain, and Sweden. Philips scored the maximum achievable 40 points. The jury noted our comprehensive Country Activity and Tax Report 2022, which explicitly linked to the GRI 207 Tax Standard and included information on environmental and social factors. Furthermore, the jury commended Philips for the clear description of the role taxes play within its value creation model. In addition, Philips scored a top score (100 out of 100) in the Tax Strategy section of the 2023 Dow Jones Sustainability Index. 

Since 2020, we have been providing certain voluntary disclosures about taxes paid and collected in the countries in which we operate. The 2023 Country Activity and Tax Report is published on our website, in addition to, and simultaneously with the disclosures on tax included in this Annual Report.

Philips has a Tax Control Framework in place that forms part of its standard set of Internal Controls over Financial Reporting (ICFR). Philips' tax position is therefore reflected in its financial statements and covered by the Board of Management's report on ICRF and its conclusion regarding the effectiveness thereof, as referred to in the section Risk management and internal control framework .

Philips also endorses the ambitions expressed in the Tax Governance Code published by Dutch employers' organization VNO-NCW. We comply with the principles prescribed in the Code, available at www.vno-ncw.nl/taxgovernancecode, and we have touched upon the elements of this code in our Country Activity and Tax Report.

In 2023, Philips contributed to the communities where we operate through taxes paid (e.g. corporate income tax) and taxes collected (e.g. VAT). Philips' total tax contribution in 2023, amounting to EUR 3,051 million, is presented by tax type in the following table. Please refer to our 2023 Country Activity and Tax Report for more details.

5.3.13Philips Foundation

Stichting Philips Foundation, an independent foundation organized under Dutch law, is a registered charity established in 2014. In 2023, Royal Philips supported Philips Foundation with a contribution of EUR 6.7 million and provided the operating staff as well as the expert assistance of skilled volunteers in the execution of the Foundation’s programs.

Philips Foundation’s mission is to reduce healthcare inequality by providing access to quality healthcare for underserved communities through meaningful innovation. It does this through the provision and application of Philips’ healthcare expertise, innovation power, talent and resources and by financial support. Together with key partners around the globe (NGOs, academic partners, entrepreneurs), Philips Foundation seeks to identify challenges where a combination of healthcare technology expertise and partner experience can be used to create meaningful solutions that have a positive impact on people’s lives.

Philips Foundation works in projects (grant-based) and through impact investments (loans and equity). The instrument depends on the status and self-sustainability of the respective healthcare technology in serving the more disadvantaged communities.

For more information on the Philips Foundation, please refer to Philips Foundation. 

5.3.14Working with stakeholders and advocacy

Our stakeholder engagement is closely aligned with the company’s purpose to improve people’s health and well-being through meaningful innovation. One of our key ESG commitments is to be transparent about our plans, activities, targets, results and contributions to society, and to engage with shareholders, customers, business partners, governments and regulators through a variety of platforms. The purpose of our engagement efforts is to pursue and foster an open, meaningful, effective, and informed dialogue regarding our activities and our internal and external stakeholders’ needs, concerns and expectations. Please refer to the Philips Stakeholder Engagement Policy available at our website.

The purpose of our advocacy efforts is to contribute to policy development and legislative processes and to support business opportunities in the areas relevant to Philips and its businesses, for example: health system resilience policies and investment plans; ESG, in particular on climate, circularity and green procurement; and Digital Health, such as AI, data protection, interoperability, cybersecurity, and technological sovereignty. For information on our advocacy activities and expenses in 2023, please refer to Advocacy activities and expenses.

In organizing ourselves around customers and markets, we conduct dialogues with our diverse stakeholders in order to explore common ground for addressing societal challenges, building partnerships and jointly developing supporting ecosystems for our innovations around the world. We derive significant value from our stakeholders across all our activities and engage with, listen to and learn from them. Working in partnerships is crucial to delivering on our purpose to improve people’s health and well-being through meaningful innovation. We incorporate feedback on specific areas of our business into our planning, actions, targets, policies and disclosures. In addition, we participate in meetings and task forces as a member of organizations including the World Economic Forum, WBCSD, Responsible Business Alliance (RBA), EFRAG, Dutch Sustainable Growth Coalition, the Ellen MacArthur Foundation, European Round Table for Industry, Platform for Accelerating the Circular Economy (PACE) and the European Partnership for Responsible Minerals.

Furthermore, we engage with the leading Dutch labor union (FNV) and a number of NGOs, including Enough, GoodElectronics, the Chinese Institute of Public and Environmental Affairs, UNICEF, Amnesty International, Greenpeace, Friends of the Earth, and WageIndicator. We also engage with a variety of investors, analysts, institutional advisory and other organizations, such as Eumedion, ISS, Glass Lewis, VEB and VBDO. Please also refer to Investor information.

In addition to our many stakeholder engagement sessions, our sustainability e-mail account (philips.sustainability@philips.com) enables stakeholders to share their issues, comments and questions, also about this Annual Report. The following table provides a non-exhaustive overview of our stakeholder engagement, which is also used for our materiality analysis.

5.4Governance

5.4.1Corporate governance

Koninklijke Philips N.V. (Royal Philips), a company organized under Dutch law, is the parent company of the Philips group. Royal Philips has a two-tier board structure consisting of a Board of Management and a Supervisory Board, each of which is accountable to the General Meeting of Shareholders for the fulfillment of its respective duties. The Board of Management is entrusted with the management of the company. The other members of the Executive Committee have been appointed to support the Board of Management in the fulfilment of its managerial duties. See the chapter Corporate governance of this Annual Report, where the company addresses the main elements of its corporate governance structure, reports on how it applies the principles and best practices of the Dutch Corporate Governance Code, and provides other information required under Dutch law.

Under the chairmanship of the President/Chief Executive Officer (CEO) and supported by the other members of the Executive Committee, the members of the Board of Management drive the company’s management agenda and share responsibility for the continuity of the Philips group, focusing on sustainable long-term value creation. In fulfilling their duties, the members of the Board of Management and Executive Committee are guided by the interests of the company and its affiliated enterprise, taking into account the interests of its stakeholders.

The Supervisory Board supervises the policies, management and general affairs of Philips, and assists the Board of Management and the Executive Committee with advice on general policies related to the activities of the company, including setting and executing the strategy of the Philips Group.

Philips’ strategy, and the way it has been developed by the Board of Management under the supervision of the Supervisory Board, clearly integrates the company’s impact in the field of sustainability, including the effects on people and the environment. The Board of Management regularly convenes on ESG matters with other Executive Committee members (the Chief Operating Officer, the Chief Strategy & Innovation Officer, the Chief Human Resources Officer, the Chief Business Leader Precision Diagnosis and the Chief International Markets Market Leader) and certain functional executives. Together they define Philips’ ESG strategy, commitments, programs, targets and policies, they monitor and evaluate progress and take corrective action where needed. Progress on ESG is reported on a quarterly basis to the Audit Committee of the Supervisory Board, which assist the Supervisory Board in fulfilling its oversight responsibilities for the integrity and quality of the company’s sustainability statements,

ESG is also embedded in our core business processes, like innovation (EcoDesign), sourcing (Supplier Sustainability Program), manufacturing (Sustainable Operations), logistics (Green Logistics) and programs like the Circular Economy initiative.

5.4.2Philips Operating Model

Our operating model integrates key aspects of how we operate – from our strategy, structure & governance, policies, processes, systems & data, to our people & culture and performance management.

In 2023 we continued the process of simplifying the way we work to drive clear accountability and agility, and to unlock significant productivity and margin gains. This simplification – with end-to-end accountable businesses supported by a much leaner Group layer and strong Regions, together with a strengthened culture of patient- and people-centricity, innovation impact and clear accountability – is a primary enabler to create value with sustainable impact.

It is designed to help us to fulfill our purpose of improving the health and well-being of billions of people and ensure the highest standards of quality and integrity in everything we do.

5.4.3Risk management and internal control framework 

The company’s risk management and internal control framework forms an integral part of the Philips business planning and performance review cycle. The purpose of our risk management is to identify and analyze the risks Philips faces in executing its strategy and activities, to set the risk appetite of the company, and to monitor its effectiveness. The objective of internal control is to maintain integrated management control of the company’s operations and reporting, as well as safeguard compliance with applicable laws and regulations. Key elements of our framework include (but are not limited to) our General Business Principles, our corporate governance, authorization structures, our policy framework, internal reporting structures. Furthermore, it comprises various frameworks to help manage and control risk in line with our risk appetite. These include (but are not limited to) our Enterprise Risk Management framework (refer to Risk management), and other management systems and frameworks relevant to specific risk areas such as patient safety and quality, health & safety, environmental, tax, business continuity, information security and privacy.

As a key part of its risk management and internal control framework, Philips has implemented a standard set of Internal Controls over Financial Reporting (ICFR). Philips has designed its ICFR framework based on the COSO Internal Control-Integrated Framework (2013). Together with Philips’ established accounting procedures, this standard set of internal controls is designed to provide reasonable assurance that assets are safeguarded, that the books and records properly reflect transactions necessary to permit preparation of financial statements, that policies and procedures are carried out by qualified personnel, and that published financial statements are properly prepared and do not contain any material misstatements. In each reporting unit, management is responsible for customizing the controls set for their business, risk profile and operations.

Each year, management’s accountability for ICFR is evidenced through the formal certification statement sign-off. Any deficiencies noted in the design and operating effectiveness of ICFR that were not completely remediated are evaluated at year-end by the Board of Management and the outcome reported to the Supervisory Board. The Board of Management’s report on ICFR, including its conclusions regarding the effectiveness thereof, can be found in this report in the section Management’s statements and report .

5.4.4Philips General Business Principles (GBP)

While pursuing our business objectives, we aim to be a responsible partner in society, acting with integrity towards our employees, customers, patients, business partners and shareholders, as well as the wider community in which we operate. To that end, our GBP – part of the Philips Operating Model – and their underlying policies incorporate and represent the fundamental principles by which all Philips businesses and employees around the globe must abide. They set the minimum standard for our business conduct as a health technology company, for our individual employees and for our subsidiaries, and Philips rigorously enforces compliance of its GBP throughout the company. Our GBP also serve as a reference for the business conduct, we expect from all our business partners.

The GBP include principles of doing business with integrity at work, integrity in the market and professional integrity outside work. They also set our integrity standard on inside information, aiming to prevent trading on or disclosure of non-public information, the publication of which would be likely to have a significant influence on the trading price of Philips securities or securities of companies that Philips is seeking to acquire. More specifically, Philips has adopted Rules of Conduct with respect to trading in Philips securities to promote compliance with applicable insider trading and other market abuse laws, rules and regulations, in particular the EU Market Abuse Regulation. The Rules of Conduct apply to all employees, the members of the Board of Management and the Supervisory Board of Royal Philips.

The GBP form an integral part of labor contracts in virtually every country in which Philips operates. Translations of the GBP text are available in 30 languages, allowing almost every employee to read the GBP in their native language. Detailed underlying policies, manuals, training, and tools are in place to give employees practical guidance on how to apply and uphold the GBP in their daily work environment. Details can be found at www.philips.com/gbp. Each year, employees reconfirm their commitment to the code of conduct after completing their GBP e-learning, and there is an additional annual sign-off for Executives. A similar sign-off is in place for Finance and Procurement staff for their respective codes of conduct.

The Executive Committee is responsible for the effective deployment of the GBP and for generally promoting a culture of compliance and ethics within the company. Furthermore, each quarter all our key Regions convene market compliance committees dealing with GBP-related matters in the local context. They are also responsible for the design and execution of localized compliance plans that are tailored to their market-specific risks and organizational set-up, and regularly review the relevant compliance metrics for their respective market through dashboards delivered by the legal compliance monitoring team. The GBP Program Office, together with a worldwide network of GBP Compliance Officers, supports the implementation of GBP initiatives.

As part of our continuous effort to raise GBP awareness and foster dialogue throughout the organization, each year a global GBP communications and training plan is deployed, including structured dialogues led by managers where quality, integrity and speaking up are discussed. This is part of a company-wide initiative aimed at reinforcing a culture of dialogue using ethical dilemma case studies that are relevant to our workforce. All functions at risk also receive annual training which includes content on, amongst others, antibribery and anticorruption and healthcare compliance via tailored case studies. Almost 60,000 (94%) of our assigned employees completed their yearly GBP e-learning. Specifically in 2023, we again focused on increasing awareness on integrity and on the importance of speaking up, through and following the deployment of our biennial Business Integrity Survey. Through this survey, more than 22,500 employees trusted us with their views and opinions on integrity within Philips. Ninety-four percent of employees expressed the belief that we act with integrity with Philips. To gain deeper insights into the results of the Business Integrity Survey, we execute deep-dive initiatives amongst our employees. 

A key control to measure implementation of our GBP is the GBP monitoring and reporting program, which is part of our Internal Control framework. In addition, we continue to expand the capabilities of our legal compliance monitoring team, serving our business customers as well as our compliance networks with actionable data, thus further improving our compliance control framework.

The GBP are supported by established mechanisms with the aim of ensuring standardized reporting and enabling employees and third parties to escalate concerns 24/7. Concerns raised are registered consistently in a single database hosted outside of Philips servers to ensure confidentiality and security of identity and information. Encouraging people to speak up through the available channels if they have a concern will continue to be a cornerstone of our GBP communications and awareness campaigns. At least twice a year, the Executive Committee and Audit Committee of the Supervisory Board are informed on relevant GBP metrics, cases, trends and learnings.

In 2023, a total of 764 concerns were reported via Philips Speak Up (Ethics Line) and through our network of GBP Compliance Officers. This represents an increase of 8% from the total of 706 concerns in the previous reporting period (2022). This is a continuation of a year-on-year upward trend. See Philips SpeakUp (Ethics Line) for further details.

Through the Audit Committee of the Supervisory Board, the company also has procedures in place for the receipt, retention and treatment of complaints specifically relating to accounting, internal accounting controls, or auditing matters, enabling the confidential, anonymous submission of complaints.

The results of the monitoring measures in place are given in Philips SpeakUp (Ethics Line). The GBP and underlying policies, including the Financial Code of Ethics and Procurement Code of Ethics, are published on the company website, at www.philips.com/gbp.

5.4.5Remuneration policy

Our remuneration policy is designed to encourage employees to deliver on our purpose and strategy and create stakeholder value, and to motivate and retain them. Our executive long-term incentive plan includes environmental and social commitments. A description of the composition of the remuneration of the individual members of the Board of Management and the Supervisory Board is included in the Report of the Remuneration Committee.

5.4.6Quality & Regulatory and patient safety

Enabling the delivery of patient-centric, safe, and high-quality care – the essence of patient safety and quality – is foundational to Philips' purpose to improve the health and well-being of people through meaningful innovation. This year we formed the Patient Safety and Quality organization, which brings together the Quality, Regulatory Affairs, and Clinical and Medical functions as one unified team. Positioned to support and enable the entire Philips organization and to foster the quality culture at Philips, the Patient Safety and Quality team is instrumental in ensuring we have the capabilities, processes, and tools required for operating in a highly regulated healthcare technology industry.

Throughout 2023, we continued to accelerate our work in crucial areas, with the goal of achieving and maintaining the highest level of patient safety and quality. Specific areas of focus included: preparation and manufacturing site readiness for audits and inspections; a review of quality records; new ways of undertaking product quality reviews; planning for IT and data enhancements; and simplification of our process framework and Quality Management Systems.

This year, we created the new role of Chief Patient Safety and Quality Officer, who is a member of the Philips Executive Committee and reports directly to the Chief Executive Officer. Additionally, we hired a new Chief Medical Officer to lead the team that is focused on clinical research, medical safety, and medical support for our global businesses.

Early in 2023, we organized CAPA management, Quality Management Systems, compliance training, internal quality audits, and other crucial areas for patient safety and quality into a Compliance and Quality shared service team. We set up a Transformations team, responsible for project management of Patient Safety and Quality programs. Regulatory Affairs formed new teams that are responsible for expanding our engagement with external stakeholders and regulators, and for the delivery of effective tools, processes, and services to facilitate timely and compliant market access. We appointed a new leader for Product Safety and Surveillance, Corrections and Removals, and strengthened our post-market processes and ways of working.

Across Philips, teams in all Businesses, Regions, and Functions continued to foster a quality culture and mindset, where all employees are encouraged to speak up and share ideas for improving the safety and efficacy of our products. In October, our employees took part in a Timeout for Patient Safety and Quality to solidify commitment and planning.

Quality

We strive to continuously raise our performance to deliver safe and high-quality products, services, and solutions, which are compliant with quality and safety standards and all applicable laws. In 2023, as part of our plan to create value with sustainable impact, we introduced a new operating model that enables us to simplify how we work and improve accountability and ownership. We are strengthening our engineering capabilities for new product development in areas such as quality systems engineering, reliability and software design.

We further reduced the number of Quality Management Systems in which we operate to increase focus, reduce complexity, and minimize risk. This year we closed nine QMS for a total of 66 Quality Management Systems by year-end 2023, with further significant reductions planned for 2024.

In 2023, our Accelerating Patient Safety & Quality program instituted an improved approach for management of skills and launched a training program on patient safety and quality topics. In collaboration with business units and Innovation & Strategy, we established programs to improve product design and reliability.

All Philips businesses are accountable for patient safety and quality. This year, we instituted a new Patient Safety and Quality performance review meeting with each business and at the Philips level in aggregate. We set Patient Safety and Quality key performance indicators for the company, and Quality performance metrics are part of the remuneration of all Philips Executives. Additionally, every employee has a patient safety and quality goal as part of people performance management.

Regulatory Affairs

Under Philips' new operating model, Regulatory Affairs sits on the leadership team of each Business and Region as a key partner. In 2023, we established internal governance and requirements for engagements with national government regulatory authorities (e.g. the US Food and Drug Administration (FDA), European Medicines Agency (EMA), China National Medical Products Administration, Notified Bodies, and National Competent Authorities in the European Union.

As a global business in a dynamic regulatory environment, we must ensure compliance with evolving regulations related to innovations in areas such as Artificial Intelligence, and healthcare informatics and software design. This year, we increased levels of investment in regulatory science and policy and in enterprise informatics. Teams are working on global harmonization of requirements, safe and innovative applications of AI, and secure transmission and storage of protected health information. Sought as strategic partners, the Regulatory Affairs team participated in international consensus standards groups alongside regulators and engaged with international regulators as invited experts and speakers at the International Medical Device Regulators Forum, Global Harmonization Working Party, and other meetings. We are working with the National Institutes of Health to establish ethical applications of Artificial Intelligence in medical devices.

In 2023, we also increased our collaborations with organizations supporting regulatory science like the Food, Drug, and Law Institute and the Regan-Udall Foundation for the FDA. In partnership with the Boston Globe and the Washington Post, we hosted an industry and customer panel on Transforming Healthcare with AI: Harnessing Technology to Promote Safety and Quality for Patients. Regulatory Affairs leaders moderated panel discussions among key international regulators and were featured speakers at events such as MedTech Europe and the AdvaMed annual conference.

Throughout 2023, we continued transitioning our portfolio to become European Union Medical Device Regulation (EU-MDR)-compliant. In March 2023, the grace period was extended until year-end 2027 or 2028, under strict conditions and depending on risk class. We continue to use this available grace period for placing a portion of our portfolio on the market under the European Union Medical Device Directive (EU-MDD).

Regulatory Affairs deployed a digital regulatory information management tool to all Regions in 2023, with continued deployments planned to Businesses in 2024. This tool will be a single source for regulatory data that will help increase speed to market.

Medical Office

In 2023, we formed a centralized medical office with expertise in clinical research, medical safety, healthcare economics, and a breadth of care specialties. This team is focused on supporting the global business, navigating the intricacies of addressing patients' and customers’ unmet needs across a variety of ecosystems, and looking across the entire product lifecycle to help teams develop solutions that are safe, effective, and relevant for patients, providers, and payers.

In 2023, we hosted our second Patient Safety Advisory Board, where external leaders from across the world, from a variety of professional backgrounds, participated in intensive workshops focused on themes identified as key to improving the safety and efficacy of our solutions. Experts from outside and within Philips exchanged ideas ranging from the role of innovation in human interface models, patient safety and clinical education programs and capability building at Philips, and other topics that are key to our overall way forward in innovation and safety. This year, Philips also introduced an extensive Clinical and Medical curriculum, available to all employees.

The team continued our advocacy and investment in topics such as radiation safety, medical device testing, and improved access to physician and staff training. At Harbor-UCLA Lundquist Institute, we host a facility for R&D pre-clinical testing, clinical and medical education proctoring, and fellows training. Our team continues to design, generate, and disseminate clinical and economic evidence to show the value of our solutions in improving patient outcomes. 

Our Health Economics and Outcomes Research team continued to contribute economic evidence to support innovation and expand access to high-quality care, authoring 12 publications and 18 studies during 2023. The Ambulatory Monitoring & Diagnostics business unit increased in-network access to ambulatory patient monitoring for an additional 35 million patients in the United States through payer contracting initiatives. Our Image Guided Therapy-Devices team advocated with the Centers for Medicare and Medicaid (CMS) to improve Medicare payment to ambulatory surgery centers for cardiovascular and peripheral vascular treatments, ensuring patients have access to care in the setting that their providers determine is most appropriate.

Philips Respironics voluntary recall

On June 14, 2021, Philips’ subsidiary, Philips Respironics, initiated a voluntary recall notification in the United States, and field safety notice outside the US, for certain sleep and respiratory care products related to the polyester-based polyurethane (PE-PUR) sound abatement foam in these devices.

Since June 2021, together with five independent, certified testing laboratories and third-party experts, Philips Respironics has conducted extensive testing. Based on the results to date, Philips Respironics and the third-party experts concluded that use of the sleep therapy devices is not expected to result in any appreciable harm to health in patients. Further testing remains ongoing. Following ongoing communications, Philips Respironics agreed in October 2023 to the FDA’s recommendations to implement additional testing on the sleep and respiratory care devices to supplement current test data. Philips Respironics is in discussions with the FDA on the details of that further testing. Further testing remains ongoing. Since the start of the test and research program, Philips Respironics has endeavored to work cooperatively with the FDA on the program and to publish regular test updates as agreed with the FDA.

Following the FDA’s inspection of a Philips Respironics manufacturing facility in the US and the subsequent inspectional observations, the US Department of Justice (DOJ), acting on behalf of the FDA, began discussions with Philips in July 2022 regarding the terms of a proposed consent decree. On January 29, 2024, as part of the announcement of Philips’ fourth quarter and full year 2023 financial results, the company provided an update stating that Philips agrees on the terms of a consent decree with the DOJ and FDA. The consent decree primarily focuses on Philips Respironics’ business operations in the US. The consent decree is being finalized and will be submitted to the relevant US court for approval. The decree will provide Philips Respironics with a roadmap of defined actions, milestones, and deliverables to demonstrate compliance with regulatory requirements and to restore the business.

In the US, Philips Respironics will continue to service sleep and respiratory care devices already with healthcare providers and patients, and supply accessories (including patient interfaces), consumables (including patient circuits), and replacement parts (including repair kits). Until the relevant requirements of the consent decree are met, Philips Respironics will not resume selling new CPAP or BiPAP sleep therapy devices or other respiratory care devices in the US. Outside the US, Philips Respironics will continue to provide new sleep and respiratory care devices, accessories, consumables, replacement parts and services, subject to certain requirements. Further details will become available once the proposed Respironics consent decree has been finalized and submitted to the relevant US court for approval. For more information, refer to Contingencies.

In 2023, we also maintained manufacturing capacity to produce the necessary devices and rework kits required for remediation of the Respironics recall. As of December 31, 2023, over 99% of the sleep therapy device registrations that are actionable had been remediated, while the remediation of the ventilator devices remains ongoing. We expect to continue such remediation activities in 2024.

Philips Respironics regularly communicates on product remediation and testing associated with the recall with global regulators and customers through a variety of channels. Philips Respironics continues to monitor complaints received following the recall/field safety notice via our Quality Management Systems, in accordance with the medical devices regulations and laws.

Consent decree – Emergency Care & Resuscitation

In October 2017, Philips North America LLC reached agreement on a consent decree with the DOJ, representing the FDA, related to compliance with current good manufacturing practice requirements arising from inspections conducted in 2015 and prior. The consent decree focuses primarily on Philips' Emergency Care and Resuscitation (ECR) business operations in Andover, Massachusetts, and Bothell, Washington.

Following a successful inspection in Bothell, Washington, in April 2020, the FDA determined Philips had met the conditions for resuming manufacturing and distribution of defibrillators in the US. The consent decree remains in effect for several years, during which the Emergency Care (formerly Emergency Care and Resuscitation) business unit will be subject to a series of annual assessments by an independent expert. Hospital Patient Monitoring (formerly Monitoring & Analytics), also named in the consent decree, is also under a heightened level of scrutiny over the same period.

We continue to make substantial progress in our compliance efforts. In October 2022, the FDA inspected Emergency Care in Bothell as a consent decree follow-up. Three observations (Form 483) were issued and subsequently remediated and reported to the FDA. In June 2023, Emergency Care in Bothell received the October 2022 Establishment Inspection Report marking closure. In late October 2023, the FDA conducted a follow-up inspection to the 2022 inspection that resulted in a 483 with two observations, which were rapidly addressed in formal responses and subsequently acknowledged by the FDA the first week of January 2024 as closed. Efforts in 2024 are focused on ensuring the sustained demonstrated state of substantial compliance to support seeking formal relief in the first half of 2025, which is the earliest time allowed in the consent decree.

We cannot predict the outcome of this matter, and the consent decree authorizes the FDA, in the event of any violations in the future, to order us to cease manufacturing and distributing Emergency Care or Hospital Patient Monitoring devices, recall products, pay liquidated damages, and take other actions. We cannot predict whether additional monetary investment will be incurred to resolve this matter or the matter’s ultimate impact on our business.

5.4.7Cybersecurity

As a health technology company operating in a highly competitive industry, Philips’ brand reputation depends on the safety, quality and security of our products and services. Failure to meet cybersecurity standards may cause patient harm, negatively impact customer operations and their ability to provide healthcare or provide unauthorized access to patient records and medical devices. Philips furthermore relies on information technology to operate and manage its businesses, as well as store and process confidential data (relating to patients, employees, customers, intellectual property, suppliers and other partners). For a discussion of cybersecurity risks facing our business, see “Products and services may fail quality or security standards, which could adversely affect patient safety or customer operations" and “Philips could be exposed to a significant enterprise cybersecurity breach” in section Operational risks. As of the date of this Annual Report, there are no breaches of cybersecurity or other related risk threats that have, or are reasonably likely to, materially affect our business.

Security risk management is part of our broader risk management processes, and its aim is to protect the confidentiality, integrity, and availability of Philips’ products and services. To this end, the company has established a Group Security function and implemented security management processes, requirements and controls for the assessment, identification and management of material risks from, amongst others, cybersecurity threats. Our Head of Group Security, reporting to our Chief Financial Officer, leads the Group Security function in supporting the Board of Management in evaluating and setting the Group’s security strategy, issuing security policies and evaluating the progress and effectiveness of the deployment of the company’s security management framework. Our Chief Information Security Officer, reporting to our Head of Group Security, has nearly 26 years of technology and information security management experience in the industry, including prior roles with the Dutch Government and multinationals in the Consumer goods, Manufacturing, Chemical and Food processing industries, in various roles ranging from Chief Information Security Officer to IT security officer and Security Architect. Our Chief Information Security Officer is informed of and monitors the prevention, detection, mitigation and remediation of cybersecurity incidents through the Global Security Operations Center.

The company’s security management framework, including its cybersecurity policies and procedures, is maintained by the Group Security function and is designed to implement security requirements into all applicable business processes, information processing systems and infrastructure pertaining to our products and services and our supporting and enabling functions, during the entire lifecycle. The framework includes risk, vulnerability and penetration assessments, mandatory yearly security training for all employees, (including new hires Regular Phishing simulations for all employees three times a year), monitoring and response activities for vulnerabilities identified in products, services and infrastructure.

The Group Security function is also responsible for addressing security risks, including monitoring cybersecurity threats and responding to cybersecurity incidents. Philips’ Global Security Operations Center monitors the prevention, detection, mitigation and remediation of cybersecurity incidents on global enterprise systems, supported by certain external services and periodic/intermittent assessments. The severity and materiality of incidents are assessed through a dedicated security incident reporting process and, if necessary, incidents are escalated through central crisis management and (potentially) to the Philips Disclosure Committee, which assesses the need for public disclosure of (material) incidents. Incidents, where needed, are further escalated to Global Crisis Management.

Additionally, in order to address the security risks associated with our suppliers and the services they provide, security controls are embedded in our procurement and supplier management processes, covering due diligence when engaging with new suppliers, contracting, monitoring and managing existing supplier relationships, and terminating supplier relationships. These security controls check for existing security certificates and assurances reports for the services in scope, validate suppliers’ answers to security questionnaires in due diligence, and ensure that security schedules are part of the signed contracts.

The Board of Management is ultimately responsible for Philips’ cybersecurity management, which is overseen by the Supervisory Board (and specifically its Audit Committee). As part of this process, quarterly reports on cybersecurity risks and incidents are prepared by the IT Audit & Risk Committee (consisting of representatives from the Group Security and Group IT functions, Philips Internal Audit and the external auditor and submitted to the Board of Management and the Supervisory Board. This reporting includes the overall risk level, relevant changes in the risk environment, challenges in reaching and/or maintaining current risk levels and actual risk responses in the form of actions and owners.

5.5Philips' ESG performance at a glance

Below we show how Philips performed in 2023 on the 21 Core metrics of the WEF ESG reporting framework, mapped to the three dimensions of our ESG commitments, as well as a number of additional Philips-specific metrics that we consider fundamental to the strategy and operation of our business.

5.6ESG by key country

On the following pages we show how Philips performed in a number of key countries in 2023 on a subset of the WEF Core metrics, as well as a number of additional Philips-specific metrics that we consider fundamental to the strategy and operation of our business. In this section, revenues are on a stand-alone country basis (unconsolidated).

At a glance

Risk management

Risk management is integrated into our standard Operating Model

Explicitly connects our strategy and improvement initiatives to risk assessment

Evaluates the risk dynamics that could impact achievement of objectives and our main responses

Puts dedicated focus on risks related to Patient Safety and Quality

6Risk management

6.1Our approach to risk management

Vision and objectives

Philips approaches risk management as a value-creating activity that is integral to innovation and entrepreneurship. As such, it is part of the Philips Operating Model. The key elements of our risk management and control system are described in this chapter. There can be no absolute assurance that our risk management will avoid or mitigate all risks that Philips faces. The material risks are described in the section Risk factors.

Risk management governance

The Board of Management (BoM) is ultimately responsible for identifying, analyzing and managing the risks Philips faces in executing its strategy and activities, for setting the risk appetite of the company, and for the design, implementation and maintenance of our risk management and control system, including the monitoring of its effectiveness. As described below, the Executive Committee (ExCo), several experts, Enterprise functions and committees support the BoM in the discharge of its responsibilities.

The ExCo is primarily responsible for identifying and mitigating materials risks to Philips. The ExCo is supported by the Risk Management Support Team, consisting of experts on various categories of risk, through regular analysis of the enterprise risk profile and enhancement of the risk management framework. In addition, management across the company is responsible for identifying critical risks and implementing appropriate risk responses within their areas of responsibility.

Various Enterprise functions (e.g. Legal & ESG, Patient Safety & Quality, Finance and Group Security) support the ExCo and management with the process of risk identification, risk management, and monitoring of key risk areas. With the support of these functions certain designated frameworks and activities to structurally manage specific risk areas are maintained and deployed, such as:

• Deploying the Philips General Business Principles (GBP), which set the minimum standard for our business conduct as a health technology company for our individual employees and for our subsidiaries, and generally promoting a culture of compliance and ethics within the company.
• Maintaining Quality Management Systems (QMS) with the aim of ensuring the quality and safety of product design, manufacturing, distribution, and servicing in compliance with regulation from various government and regulatory agencies, e.g., FDA (US), EMA (Europe), NMPA (China). Through specialist teams at the global, regional or local level, standards and requirements are defined and continuously improved, deployed, and monitored to ensure our employees are aware of and comply with these requirements.
• Maintaining integrated management control of the company’s operations, reporting, and compliance with applicable laws, including the deployment of the Philips standard for Internal Controls over Financial Reporting (ICFR).
• Managing security (including cybersecurity) risks and evaluating the Group’s security strategy, issuing security policies and evaluating the progress and effectiveness of the deployment of the Security Management Framework (SMF).
• Developing the Philips ESG strategy, setting ESG policies, disclosures and planning of programs and activities in relation to our ESG commitments and obligations.

For further details refer to the section Governance.

To ensure clarity and alignment on the status of, and to make recommendations on key risk areas these functions have recurring items on the BoM meeting agenda. The BoM discusses these topics with participation from relevant ExCo members and other senior executives and subject matter experts. Furthermore, dedicated reports on these key risk areas are shared and discussed with the Supervisory Board and external auditors in the relevant Audit & Risk Committees facilitated by Internal Audit.

The Internal Audit function assesses the quality of risk management and controls through the execution of a risk-based audit plan, as approved by the Audit Committee of the Supervisory Board. The BoM and leadership from Businesses, Regions/Zones and key Functions meet quarterly with Internal Audit in Audit and Risk Committees to discuss strengths and weaknesses of risk management and controls – as evaluated by internal and external auditors and by means of other (self) assessments – and take corrective action where necessary.

The Disclosure Committee oversees the company’s disclosure activities and assists the BoM in fulfilling its responsibilities in this respect. The Disclosure Committee seeks to ensure that the company implements and maintains internal procedures for the timely collection, evaluation, and disclosure of information potentially subject to public disclosure under the legal, regulatory and stock exchange requirements to which the company is subject.

The Supervisory Board oversees Philips’ risk management including the identification of material risks, in relation to the risk appetite of the company, the response measures put in place and the effectiveness thereof. The Audit Committee and the Quality & Regulatory Committee of the Supervisory Board assist the full Supervisory Board in fulfilling its risk management oversight responsibilities. The Audit Committee reviews the quality of risk management and controls, and the reported findings of internal and external audits. The Quality & Regulatory Committee’s role particularly relates to the quality and regulatory compliance of the company’s products (including software), services and systems throughout their lifecycle.

The chapter Corporate governance of this report addresses the main elements of the company’s corporate governance structure, reports on how it applies the principles and best practice provisions of the Dutch Corporate Governance Code and provides other information relevant to risk management governance.

Risk appetite

Philips seeks to manage risks consistently within its risk appetite. Risk appetite is set by the BoM, reviewed at least annually and published in the Philips risk management policy. It is effectuated through our Operating Model, of which various elements – such as our strategy, Philips General Business Principles (GBP) and behaviors, authority schedules, policies, process standards and performance management systems – include or reflect risk-taking guidance.

Philips’ risk appetite differs depending on the type of risk, ranging from an averse to a seeking approach. Philips operates within the dynamics of the health technology industry and aims to take the risks needed to ensure we continually revitalize our offerings and the way we work. At the same time, Philips is committed to act with integrity always and is averse to risks impacting our GBP, which include (but are not limited to) the Philips behavior ‘Patient safety, Quality, and Integrity always’. Our employees are expected to ensure compliance with our GBP, laws, and regulations, and to take action in the case of concerns or violations to our GBP. Please refer to the Philips General Business Principles (GBP) for more information. Philips’ risk appetite for the main risk categories is visualized below. Philips does not classify these risk categories in order of importance.

Risk management process

To provide a comprehensive view of Philips’ risks, structured risk assessments take place according to the Philips risk management process standard, applying a top-down and bottom-up approach. Our process standard is designed based on ‘Enterprise Risk Management: Integrating with Strategy and Performance’ (2017) from the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and on ISO 31000 - Risk Management.

Key elements of the Philips risk management process are:

• Management of Businesses, Zones/Regions and key Functions perform a risk assessment at least once a year, with the update of their strategic plans, to identify and prioritize risks, assign ownership, and implement appropriate risk responses. Risk workshops are facilitated by Internal Audit with senior management across the company to further support these risk assessments, and during 2023 several of such risk workshops were held.
• Senior management discusses and monitors the risk profile and risk response effectiveness at least quarterly in its performance reviews and during Audit & Risk Committees, which cover all Businesses, Zones/Regions and selected Functions.
• Developments in the enterprise risk profile and management’s initiatives to improve risk responses are discussed and monitored during the quarterly Audit & Risk update session of the BoM.
• As an integral part of the strategy review, each year the ExCo assesses the enterprise risk profile and the potential risk impact versus Enterprise risk appetite. The assessment also covers the effectiveness of the risk management framework and potential improvements thereto.
• The Philips risk profile and the risk management framework, including the outcomes of the annual ExCo risk workshop, are presented to the full Supervisory Board. The underlying risks and response plans are discussed at the end of the year with the Audit Committee of the Supervisory Board.

The measures taken during 2023 to further strengthen risk management include:

• Improved clarity and efficiency of our risk management governance by streamlining the reviews and decision making on several key risk areas.
• Implemented various improvements to our risk management process standards in several risk areas, for example for compliance risk and operational risk management.
• Strengthened our capabilities via upgrades to our risk management tooling and use of data analytics.
• Conducted various analytics to further increase knowledge about risks within the company, via deep dives, risk interdependency analysis, and risk velocity analysis using statistical scenario modelling.
• Further standardization and alignment of controls in Philips process standards.
• Further developed our regulatory landscape monitoring to enhance foresight in and internal communication on upcoming regulatory change to enable a more proactive response.
• Continued strengthening the risk dialogue as an integrated part of regular performance and strategy execution dialogues.
• Further improved our supplier risk management, and diversification of critical-component sourcing to further reduce supply dependencies.
• Continued analysis of global warming and weather scenarios on the geographical footprint of our facilities as well as suppliers’, in line with the recommendations of the Task Force on Climate-Related Financial Disclosures.

6.2Risk factors

Philips believes the risks set out below are the material risks affecting Philips and its securities. These risk factors may not, however, include all the risks that ultimately may affect Philips. Some risks not yet known to Philips, or currently believed not to be material, may ultimately have a major impact on Philips’ business, revenue, income, assets, liquidity, capital resources, reputation and/or ability to achieve its business and ESG objectives. Please note that this section is not intended to describe risks that have materialized, as these are addressed in other sections and referenced where relevant. Philips defines risks in four main categories: Strategic, Operational, Compliance and Financial. Philips presents the risk factors within each category in order of our current view of their expected significance. Compared to the previous year we have further prioritized risk factors relating to patient safety and quality, supply chain, and the simplification of how we work. Although still relevant, we have de-emphasized risk factors related to pandemics. This does not mean that a lower-listed risk factor may not have a material and adverse impact on Philips’ business, revenue, income, assets, liquidity, capital resources, reputation, and/or ability to achieve its business and ESG objectives. Furthermore, other risk factors not listed below may ultimately prove to have more significant adverse consequences than the listed risk factors.

The visual below lists our material risks and how these relate to our plan for creating value with sustainable impact.

In the following sections we provide a description of each material risk factor, as well as our main risk mitigating responses, which we believe help us to manage these risks. However, we may not be successful in deploying some or all of these mitigating actions effectively, or these actions may not achieve the anticipated effect. If specific circumstances occur or are not sufficiently mitigated, our value creation objectives could be materially adversely affected. In addition, risks and uncertainties could cause actual results to vary from those described (including those described in forward-looking statements), could impact our ability to meet our targets, or could be detrimental to our reputation. The risk responses described below are designed to manage risks toward, and should be read in conjunction with, the Risk appetite as described above.

6.3Strategic risks

Philips’ global operations are exposed to geopolitical and macroeconomic changes

Philips’ business environment can be adversely impacted by macroeconomic and geopolitical conditions in global and individual markets. In 2023, Mature geographies accounted for 72% of Philips’ revenue, while Growth geographies accounted for the remaining 28%. Mature economies are currently the main source of Philips’ revenues, while growth economies are an increasing source of revenues. Philips produces, sources, and designs its products and services mainly from the United States (US), the European Union (EU) (primarily the Netherlands) and China, and the majority of Philips’ assets are located in these geographies. Changes in politics and monetary, trade and tax policies in the US, the EU and China may trigger reactions and countermeasures and may also have an adverse impact on other economies and international markets in which Philips is active. Philips continues to expect global market conditions to remain highly uncertain and volatile due to geopolitical and macroeconomic factors, whether or not they are related to or caused by the Russia-Ukraine war and/or the current situation in Israel and the larger Middle East region.

Philips observes a trend of geopolitical tensions and deglobalization which intensifies protectionism. Examples of protectionism measures are trade policies, tariffs, sanctions, local value creation and production requirements to obtain market access, custom duties, taxation, technology and data restrictions, cyberattacks, import or export controls, talent mobility restrictions, nationalization of assets, restrictions on repatriation of returns from foreign investments. In addition, there is general uncertainty on the development of local regulations and compliance thereto. Philips observes this trend in the major markets in which it operates and has a particular concern on the development of the US-China relationship and China’s drive to expand its global political footprint and become self-sufficient in critical technologies, including health-related ones.

If this trend continues, geopolitical relations deteriorate, and economies decouple, it is expected that existing global trade and investment restrictions will remain, and further regulatory and compliance challenges for doing business globally may emerge, resulting in continued pressure on market growth and investments.

Uncertainty and challenges regarding various global macroeconomic factors continue to persist. Examples of general factors are an overall weakening economic growth outlook, reduced government spending, declining customer and consumer confidence and spending, high inflation and interest rates, and the emergence of economic impacts related to the climate crisis. Although the ability to manage pandemics (for example, resurgences of COVID-19 or mutations thereof) has improved, pandemics may continue to affect Philips’ operations in the future. Examples of healthcare-specific potential factors include rising uncertainty over the future direction of public healthcare policy and the risk of declining public investment in healthcare ecosystems.

The Russia-Ukraine war has increased global economic and political uncertainty. Governments in the US, the UK, the EU, Canada, and Japan have each imposed export controls on certain products and sanctions on certain industry sectors and institutions in Russia, and additional controls and sanctions could be enacted in the future. Similarly, the conflict in Israel will further increase economic and political uncertainty and may affect the company’s results of operations, financial position and cash flows. Philips is present in Israel with several subsidiaries, mainly in Diagnosis & Treatment and Connected Care, that are primarily involved in manufacturing and research and development (R&D) activities. Upcoming elections in the US, the UK and the EU could also have an impact on the course of these conflicts. The ongoing conflicts may heighten the impact of other risks factors described herein, including but not limited to: volatility in prices for transportation, energy, commodities and other raw materials; disruptions in the global supply chain; decreased customer and consumer confidence and spending; increased cyberattacks; intensified protectionism; political and social instability; increased exposure to foreign currency fluctuations; rising inflation and interest rates; and constraints, volatility or disruptions in the credit and capital markets. It is possible that the conflict in Ukraine may escalate or expand and current or future sanctions and resulting geopolitical and macroeconomic disruptions could be significant. We cannot predict the impact the conflict may have on the global economy in the future.

Changes in geopolitical and macroeconomic conditions are difficult to predict, and the factors described above, or other factors, may lead to adverse impacts on global trade levels and flows, economic growth, and financial market and political stability, all of which could adversely affect the demand for, and supply of, Philips’ products and services. This may result in a material adverse impact on Philips’ business, financial condition, and operating results. These factors could also make it more difficult to budget and to make reliable financial forecasts or could have a negative impact on Philips’ access to funding.

Risk response: Philips monitors economic, political, and general societal changes and, where necessary, develops response strategies to such events. High-risk markets (for example, markets exposed to high volatility) are regularly assessed for emerging risks, and if necessary, capital structure planning is performed. The Philips Group Crisis Operations team has activated response teams that are running programs on Russia and Ukraine as well as Israel. To be less exposed to the uncertainty caused by the Russia-Ukraine war we actively reduced balance sheet exposure in this market. The response to the conflict in Israel is more complex as we also maintain a manufacturing footprint in the country. Developments in Israel are being monitored carefully by the response team to ensure the safety of our workforce in the country.

Philips is active in more than 100 countries, and we believe that this global footprint allows us to better deal with adverse local market developments. Philips establishes a strong local presence in both mature and growth geographies through market-specific strategies (for example for China, the US, and the EU). These market strategies cover various local value-creation aspects such as innovation, manufacturing and assembly; hosting of health data; and capability development. These strategies also leverage our in-depth knowledge of healthcare, Research & Development, Quality Management Systems, sustainable global business models, and brand. This local presence enables Philips to create value and tailor its propositions to local market needs. In addition to local measures, Philips also optimizes its integrated supply chain organization, supplier base, and global manufacturing footprint to enable agile responses to large and rapid shifts in demand and supply globally.

Philips may be unable to keep pace with the changing health technology environment

With Philips’ focus on health technology, our business model is transforming from transactional, product-focused business models to customer- and patient-centric, outcome-oriented business models, with multi-year customer partnerships enabled by a portfolio of innovative devices, solutions, platforms, insights and value-added services. If this transformation is made too slowly or is not successful, Philips may not meet the expectations of patients and other stakeholders in the health technology business environment. We may face a loss of customer relevance, fail to capture growth, and lose market share. In addition, because of our health technology focus, Philips may have a reduced ability to offset potential negative impacts (including, but not limited to, impacts on sales, operating results, liabilities, compliance, and financing) on its health technology business by other businesses through a more diversified portfolio. As a result of its focus on health technology, Philips is deepening customer engagement and entering into long-term solutions and services business arrangements and, as a result, is becoming more dependent on a number of key customers for long-term recurring revenues, thus increasing the risk that the loss of, or a significant reduction in, orders from one or more of our key customers could cause a significant decline in our revenues. As Philips looks to increase our use of indirect sales channels, Philips will increasingly rely on successfully leveraging new and existing partners to support end customers and patients. Any of these factors may have a material adverse impact on Philips’ brand value and reputation, business, financial condition, and operating results. More specific health technology risks and their potential impacts are included in the Operational, Financial and Compliance risk sections below as well as in the note Contingencies.

Risk response: Philips is running multiple interconnected initiatives intended to enable, strengthen and accelerate various aspects of our business model to the standards of the health technology solutions business environment including, but not limited to, patient safety, quality, patient-centric innovation, social impact, productivity and compliance. For examples of responses to these various aspects we refer to the related risk factors in this section.

Furthermore, we pursue the end-to-end alignment of our governance, processes and IT systems to maintain a people- and patient-centric portfolio of offerings. We are making our solutions and insights available through software as a service (SaaS) and platform-as-a-service (PaaS). We are also expanding digital customer engagement and e-commerce channels, as well as activation of our offerings in markets, either directly or through our managed network of partners. We run a partner management program aimed to ensure a strong network of committed partners who share our patient-centric mindset. Where Philips engages in long-term service-based business models, we aim to run a disciplined deal process with strict acceptance criteria. Our integrated portfolio of products, solutions and services covers the various stages in health, including healthy living, prevention, diagnosis, treatment and home care, without significant dependence on a single product, solution, service or market.

Philips may be unable to gain leadership in health informatics

New digital technologies and ways of conducting business are fundamentally changing the health technology industry, and thus our competitive business environment. A key trend, started in radiology, is the application of artificial intelligence (AI) and machine learning (ML) to drive quality and efficiency in clinical and operational workflows. Customers need workflow-aware solutions that convert data from our imaging and monitoring systems into actionable insights. Another trend, accelerated by the pandemic, is the shift toward cloud-based Software as a Service (SaaS) business models and remotely upgradable and serviceable systems with suites of apps. These new types of offerings are enabled by hybrid cloud/on-premise digital platforms. Our informatics and systems businesses may fall behind established and new ‘born digital’ competitors if Philips fails to, in a timely way, develop the requisite capabilities, adjust its business models, and find ways to globally commercialize new products and services at scale. This could result in an inability to satisfy customer and patient needs, thereby missing out on revenue and margin growth opportunities, which may have a material adverse impact on Philips’ business, financial condition and operating results.

Risk response: In 2023 Philips brought all informatics businesses together into one end-to-end business, called Enterprise Informatics. Taking this enterprise-wide view, Philips unlocks insights at scale from combined imaging and monitoring data pools to improve workflows, enhance the caregiver and patient experience, and elevate care delivery. Enterprise Informatics will position Philips as a global leader and trusted partner in integrated diagnostics, though enterprise imaging capabilities, insights and analytics from patient monitoring and management, service line delivery, virtual care enablement and enterprise operations. The business has a software-oriented operating model, value chain and go-to-market capabilities tailored for informatics, and corresponding business model to enable it to scale. Philips embeds a coherent set of initiatives within this end-to-end Enterprise Informatics business to accelerate the transformation of informatics-enabled propositions. Some examples of these initiatives are mentioned here (without limitation). We are migrating and modernizing existing informatics propositions (such as Radiology Picture Archiving and Communications System (PACS) and image viewing) to the cloud, with a SaaS business model. This is done in an end-to-end approach, including IT backbone and go-to-market adjustments. We are developing new informatics propositions with explicit data and AI strategies, such as acute care management with clinical decision support. We are partnering, with technology providers and others, across our value chain to further enable the business to extend our propositions with state-of-the-art data and AI (including generative AI) capabilities, enabling Philips businesses to easily generate AI-enabled applications that can offer insights at scale to our customers. We are accelerating the rollout of our global cloud strategy, together with leading industry partners, such as Amazon Web Services (AWS). We are also transforming our traditional modality businesses, such as imaging and monitoring, toward offering ‘software defined systems’ with features, functions, and services that are primarily defined in software and continually upgraded over the lifetime to enable continuous value delivery to our customers (such as the enhancement of magnetic resonance systems with AI-based reconstruction or remote sensing capabilities, and preventative maintenance services).

Acquisitions could fail to deliver on Philips’ business plans and value creation expectations, and we may not be able to successfully integrate acquired operations

Although Philips focusses on organic growth to deliver patient and people driven innovation at scale, selected acquisitions remain part of Philips’ growth strategy. We may not be able to integrate acquisitions successfully or efficiently with our existing operations, culture and systems, which may expose Philips to risks in areas such as sales and service, logistics, quality, regulatory compliance, legal claims, information technology, and finance. Integration challenges may adversely impact the realization of value creation expectations. Transactions may incur significant costs, result in unforeseen operating difficulties, divert management attention from other business priorities, and may ultimately be unsuccessful. Cost savings expected to be implemented, or other assumptions underlying the business case relating to a particular acquisition, may not be realized. If we are unable to accomplish any of our objectives in respect of any of our new acquisitions, we may not realize the anticipated benefits of such acquisitions and we may experience lower than anticipated profits, or even incur losses. Acquisitions may also lead to a substantial increase in long-lived assets, including goodwill, which may later be subject to write-down if an acquired business does not perform as expected, which may have a material adverse effect on Philips’ earnings.

Risk response: Philips maintains an active Mergers and Acquisitions funnel per business to ensure organizational fit. Philips aims to use a structured and disciplined acquisition process with strict acceptance criteria, budgets and tollgates, and time allocated for critical review of due diligence, including integration risks and expected integration benefits. A broad range of internal and external functional experts are involved in this process. Philips develops and deploys a high-quality post-acquisition integration playbook with set milestones and conducts value-creation progress reviews with the responsible business leader throughout the integration of each acquisition.

Philips may be unable to meet internal or external aims or expectations with respect to ESG-related matters

Environmental, Social and Governance (ESG) factors may directly and indirectly impact the business environment in which Philips operates. Philips may, from time to time, disclose ESG-related initiatives or aims in connection with the conduct of its business and operations (for example, with respect to reducing greenhouse gas emissions in its supply chain). However, there is no guarantee that Philips will be able to implement such initiatives or meet such aims within anticipated timeframes, or at all. In addition, there is an increasing focus from Philips’ stakeholders – including customers, employees, regulators, and investors – on ESG matters, and those stakeholders may also have ESG-related expectations with respect to Philips’ business and operations. For example, customers may focus on ESG-related criteria in buying our products, and any inability by Philips to address concerns about ESG-related matters could negatively impact sentiment towards Philips and our products and brands. There are an increasing number of regulatory and legislative initiatives in the EU and other jurisdictions to address ESG issues, which will (once implemented) require Philips to significantly increase the scope of mandatory ESG disclosures, including the Corporate Sustainability Reporting Directive (CSRD), European Sustainability Reporting Standards (ESRS) and the SEC’s proposed climate disclosure rules. They will introduce or extend a duty of care, requiring Philips to identify and act on adverse environmental and human rights impacts across the organization and potentially the entire value chain, beyond or different from our current efforts. These regulatory and legislative initiatives, in turn, could also affect how customers or other stakeholders perceive our products or business operations. If our products or business operations do not meet the criteria for sustainability according to, for example, the EU Taxonomy Regulation (including the related delegated regulations) or any other similar regulations, this may negatively affect how customers or other stakeholders view Philips. Philips may fail to fulfill internal or external ESG-related initiatives, aims or expectations, or be perceived to do so, or we may fail to report performance or developments adequately or accurately with respect to such initiatives, aims or expectations. In addition, Philips could be criticized or held responsible for the scope of its initiatives or goals regarding ESG matters. Any of these factors may have an adverse impact on Philips’ reputation and brand value, or on Philips’ business, financial condition and operating results.

Risk response: We have raised our 2025 ESG commitments and have adopted a comprehensive ESG framework. Environmental: We are working to minimize our impact on the planet by taking climate actions, driving the transition to a circular economy, implementing EcoDesign in our products, and partnering with our suppliers to reduce their environmental footprint. Social: We aim to deliver social impact by improving people’s health and well-being, offering the best place to work, and engaging with our suppliers and the communities where we operate. Governance: At Philips, everything we do is anchored by ethical and responsible practices. Our management structure, Operating Model, ethics framework and robust risk management help us maintain the highest standards. Our Board of Management monitors progress and assesses risks in relation to our ESG strategy and makes recommendations for the continuous improvement of our ESG endeavors. For more information, please refer to the chapter Environmental, Social and Governance. For our perspective on ESG-related compliance risk, please refer to this specific risk factor in the section Compliance risks.

Philips may be unable to secure and maintain intellectual property rights for its products and services or may infringe others’ intellectual property rights

Philips is dependent on its ability to obtain and maintain licenses and other intellectual property (IP) rights covering its products and services and its design and manufacturing processes. The IP portfolio is the result of an extensive IP generation process that could be influenced by a number of factors, including innovation and acquisitions. The value of the IP portfolio is dependent on the successful promotion and market acceptance of standards (co-)developed by Philips. This is particularly applicable to the segment ‘Other’, where licenses from Philips to third parties generate IP royalties and are important to Philips’ results of operations. The timing of licenses from Philips to third parties and associated revenues from IP royalties are uncertain and may vary significantly from period to period. Additionally, royalties are often based on sales by third parties, creating an exposure to macroeconomic effects and continuity of these third parties. A loss or impairment in connection with such licenses to third parties could have a material adverse impact on Philips’ financial condition and operating results. Philips is also exposed to the risk that a third party may claim to own IP rights to technology applied in Philips’ products and services. If any such claims of infringement of these IP rights are successful, Philips may be required to pay damages to such third parties or may incur other costs or losses.

Risk response: Philips has an Intellectual Property & Standards organization (IP&S) that proactively pursues the creation of new IP and the protection of existing IP in close co-operation with Philips’ operating businesses and the Innovation & Strategy function. IP&S is a leading industrial IP organization providing IP solutions to Philips’ businesses to support their growth, competitiveness and profitability. In addition, Philips believes our business is not materially dependent on any particular third-party patent or license, or any particular group of third-party patents and licenses.

6.4Operational risks

Products and services may fail quality or security standards, which could adversely affect patient safety or customer operations

The safety of patients and our brand reputation depends on the safety and quality of our products and services. Failure to meet product quality and security standards may cause patient harm, negatively impact customer operations and their ability to provide healthcare, provide unauthorized access to patient records and medical devices through cybersecurity incidents, and damage Philips' reputation and brand. 

As a health technology innovator, our products and services must comply with rules and regulations that govern our operations, processes, and ways of working. Risks associated with non-compliance with quality, regulatory, and security assessments apply to pre-market activities (such as product design, production and supplier quality activities) and post-market activities. There are risks involving hardware, software and human error, spanning across the lifecycle, and involving third-party suppliers and components. Many of our products have multiple third-party software components, which may be exposed to security threats. We are subject to risk from known issues, and emerging potential issues. Potential consequences of these risks include damage to our brand reputation, competitive disadvantage, consent decrees (for example, the proposed Respironics consent decree described in note Subsequent events to the Consolidated financial statements), and losing our licenses to operate in specific markets, all of which may have a material adverse impact on Philips' business, financial condition, and operating results.

Risk response: Through a variety of Quality Operations improvement efforts, we are working to ensure that our products and services -- new and in-use in the field by our customers -- meet product quality and security standards. All employees across Philips recognize the need to meet product quality or security standards – and that failure could result in patient harm, negative impact to customers delivery of care, unauthorized access to patient records and medical devices and damage to Philips reputation and brand. Through a focus on fostering a culture of quality and patient safety, Philips employees are working together to mitigate operational and compliance risks.

Quality Operations efforts are carried out to strengthen processes involved in the design, development, materials, supplier quality, production manufacturing, installation, monitoring, and servicing of Philips health technology, products, and services. These activities apply to new and in-market products, hardware and software, third-party suppliers and more. Teams are addressing currently known issues and risks and safeguarding against potential emerging issues. For example, we are focused on Design Controls to verify and validate that product designs are robust prior to manufacture. We are emphasizing testing and inspection quality checks across the product lifecycle, which also involve in-process manufacturing, product release, installation, and servicing controls. We are addressing cost of design, yield, non-conformance, market activation and de-activation, stop-use orders, field recalls, repairs, financial claims, and liabilities.

This year, we also focused on strengthening post-market surveillance, implementing a global product safety and surveillance, corrections and removals team that is responsible for identifying issues (including detecting emerging issues), monitoring, and correcting issues related to our devices and software as early as possible. We closely monitor the quality of production and performance of suppliers. Strengthening processes such as Corrective and Preventive Action (CAPA) is contributing to continuous improvement across all businesses of Philips. Moreover, we are investing in improvements to our overall ways of working through our Quality Management Systems (QMS), standardizing where possible, reducing complexity, and reducing the number of QMSs in which we operate for more effective and efficient operations.

For further details refer to the section Quality & Regulatory and patient safety, as well as the notes Provisions and Contingencies.

Philips may be unable to ensure a resilient supply chain

Most of Philips’ operations are conducted internationally, which exposes Philips to supply chain challenges and uncertainties. Philips produces and procures products and parts in various countries globally. The production and shipping of products and parts, whether from Philips or from third parties, could be interrupted and may face increasing costs by various external factors, such as regional conflicts (e.g. the Middle East region), natural disasters, extreme weather events (the effects of which may be exacerbated by climate change) and geopolitics.

While macro trends around materials availability have improved in 2023, Philips’ medical systems stay in production for longer periods than the lifecycle of their semi-conductors and require continuous rejuvenation of their electronic components. Philips may fail to timely obtain or replace such components from existing supplies, and alternative sources of components could involve significant costs and regulatory challenges and may not be available to us on reasonable terms, adversely affecting our business and financial performance.

Our suppliers and our third-party service providers may also be exposed to labor shortages and potentially worsening macroeconomic and geopolitical trends. These factors may cause increased lead times and adversely impact our production capacity, which may negatively affect the delivery of products and services to customers, for example the postponement of equipment installations in hospitals. If Philips is not able to respond swiftly to those factors, this may result in an inability to deliver on customer needs, ultimately resulting in loss of revenue and margin.

Philips purchases raw materials, including rare-earth metals, copper, steel, aluminum, noble gases and oil-related products. While the macroeconomic trend of improved materials availability also positively impacts the raw materials and energy cost compared to 2022, there is no assurance that these raw materials will be available for purchase in the future or available at current costs.

Commodities have been subject to volatile markets, and such volatility is expected to continue and costs to increase. Costs may also increase as a result of stricter climate-change-related laws and regulations. Such legislation could require investments in technology to reduce energy use and greenhouse gas emissions, beyond what we expect in our existing plans, or could result in additional and increased carbon pricing. If Philips is not able to compensate for increased costs of energy, (sub-)components, (raw) materials, and transportation – either by reducing reliance thereon or passing on increased costs to customers – then price increases could have a material adverse impact on Philips’ business, financial condition, and operating results.

Philips may increase its dependency on a concentration of external suppliers, as a result of the continuing process of creating a leaner supply base and launching initiatives to replace internal capabilities with less costly outsourced products and services. These initiatives also need to be balanced with local-market value-creation requirements, including those relating to local manufacturing and data storage.

Although Philips works closely with its suppliers to avoid supply discontinuities, there can be no assurance that Philips will not encounter future supply issues, causing disruptions or unfavorable conditions. Furthermore, while the materials supply has improved in 2023, the challenges in our capability for the planning and synchronization of supply with demand continue, which combined with a drive for inventory reduction and cash flow improvements, can lead to further materials running out of stock, which could have a material adverse impact on Philips’ business, financial condition and operating results.

Risk response: Philips has put in place a process to assess and reduce the supply risk of its critical products. The two-pronged mitigation approach addresses the supplier risk and the component obsolescence risk of its printed circuit board assembly (PCBA). The supplier risk management framework assesses and manages suppliers from various perspectives, such as strategic fit, financial stability, operational performance and quality, sustainability, compliance, and location. We also maintain close relationships with our suppliers and maintain an ongoing dialogue on our forecast. The PCBA Refresh process identifies components that are either obsolete or that have an announced future obsolescence date, and proactively replaces them, ensuring continuous availability of active components. Furthermore, Philips is engaging with senior government officials, strategic suppliers and foundries to prioritize healthcare supplies, directly working on component issues across all tiers of suppliers and diversifying sourcing of high-risk components. These actions, together with a trend in improved materials availability in markets, have yielded a normalized materials supply in 2023 and have reduced the cost of spot buys. Internally, Philips is making balanced investments in global and local supply chain capabilities to improve end-to-end planning, synchronization of supply with demand, and data management.

We continue to deploy our strategy for a more regional versus global approach to our end-to-end network design, taking into account factors such as customer proximity, leveraging manufacturing capabilities, our environmental footprint, and efficiency. We are using our multi-modality sites, in combination with contract manufacturing partners, to regionally ‘multi-source’ many of our products.

Philips manages carbon pricing risk by reducing its full value-chain carbon footprint, as well as partnering with suppliers to reduce their environmental footprint and closely monitor carbon regulations, including carbon taxes. Philips manages the risk of rising commodity prices by several means, including engaging in long-term contracts and keeping physical inventories. Philips closely monitors price developments and takes pricing action where appropriate. Philips conducts various scenario assessments and develops response strategies to events potentially impacting its supply chain, such as geopolitical changes, regional conflicts, natural disasters, emerging markets volatility, and pandemics. We run various global warming and weather scenarios on the geographical footprint of our facilities, as well as our suppliers’ facilities, in line with the recommendations of the Task Force on Climate-Related Financial Disclosures.

Philips may face challenges in simplifying the organization and the ways of working 

As announced in January 2023, a simplified, more agile operating model is a priority to improve the execution of our strategy. If we do not effectively simplify the organization and our ways of working, which changes include, but are not limited to, changes in governance, roles, processes, and IT landscape and architecture, this may result in limiting our ability to fully realize our business ambitions with respect to delivering sustainable impact, meeting critical patient and customer needs, delivering integral value proposition, growing the business, and/or maintaining business continuity. While Philips has implemented a new operating model to simplify the organization and improve its ways of working, Philips may need to undertake further changes and related restructuring in the future if the operating model ultimately proves to be wholly or partly unsuccessful.

To simplify ways of working and improve performance, Philips continuously seeks to create a more open, standardized, and cost-effective IT landscape. Approaches include outsourcing, offshoring, integration, and consolidation of IT systems. These changes may elevate third-party dependency risks regarding the delivery of IT services, the availability of IT systems, and the functionality offered by IT systems. Although Philips has sought to strengthen security measures and quality controls related to these systems, these measures may prove to be insufficient or unsuccessful, which may lead to a material adverse impact on Philips’ business, financial condition, and operating results.

Risk response: By implementing the new Operating Model, Philips strengthened the governance and clarified roles and responsibilities in the organization. In addition, Philips makes multiple focused efforts to simplify the way we work; drive accountability, increase agility; and realize significant productivity gains. Simplification of the organization and ways of working is a primary enabler for better orchestrated execution. Philips has established an Enterprise Excellence organization to drive end-to-end orchestration of this change. The Enterprise Excellence organization comprises, among others, Enterprise Process excellence, IT, and Global Business Services (GBS), and it works closely with the established Process & System Excellence teams in Business Units and Centers of Excellence to ensure effective implementation of the strategy. In addition, the Enterprise Excellence organization provides best practices such as Lean, Agile, and Project and Performance Management to support Business Units, Regions, and Functions in simplifying ways of working and realizing their strategic ambitions. The regional organization is execution-focused, with account management, indirect partner management, local (service) delivery, government relations, and local infrastructure to support an integral customer approach.

Philips will simplify its Process Framework to provide critical enterprise standards and best practices to secure quality and compliance, while at the same time enabling Business Units and Regions to simplify and optimize ways of working to meet to specific patient, customer, consumer and business needs.

Philips uses structured IT risk management methodologies to identify and address risks to our critical business applications. Our ongoing IT Business Continuity Management activities include real-time monitoring of availability and redundancies, as well as testing and upgrading of applications. We regularly validate IT systems with our IT change management capabilities, we make sure that changes of an IT system are executed in a controlled way and sufficiently tested to minimize the impact of business disruptions in the case of failures of the system.

Philips is dependent on its people for leadership and specialized skills and may be unable to attract and retain personnel

The attraction and retention of talented employees is critical to Philips’ success, and the loss of employees with specialized skills could result in business interruptions. There is strong competition for talent in key capability segments, and Philips needs to attract and retain critical talent. If employees perceive the workload following the recent operating model transformation and workforce reduction to be overly burdensome or prefer more flexibility than offered by our hybrid working policies, to mention two, employees may choose to terminate their employment with us. In this case, efficiencies in workflow may be impacted, or we may experience employee unrest, slowdowns, stoppages or other demands, such as overburden of the remaining employees. Philips is competing for the best talent and most sought-after skills, and there is no assurance of succeeding compared to other companies in attracting and retaining the highly qualified employees needed in the future. Wage inflation is increasing the competition for talent as well as the cost of labor. This may negatively impact our ability to realize our plan for creating value with sustainable impact, and if we are unable to offset the increased costs of labor through higher selling prices and increased productivity, then rising costs could also have a material adverse impact on Philips’ business, financial condition and operating results.

Risk response: Philips continuously assesses capability gaps for its key positions and has initiatives in place to close any employee capability gaps. This includes monitoring and understanding the drivers behind attrition, maintaining appropriate remuneration structures aimed at attracting and retaining talent, and leveraging its purpose and contribution to societal and environmental challenges, as a differentiating proposition for employees. Philips measures employee engagement through regular surveys and benchmarks the results across the organization against high-performing external norms. Philips performs deep-dives where necessary and drives improvement actions to address any gaps. For example, the company is running a Future of Work program to drive a hybrid-model approach, with continued emphasis on embracing flexibility, being at our best, and engaging in impactful collaboration.

Philips could be exposed to a significant enterprise cybersecurity breach

Philips relies on information technology to operate and manage its businesses, as well as store and process confidential data (relating to patients, employees, customers, intellectual property, suppliers and other partners). Philips’ products, solutions and services increasingly contain sophisticated and complex information technology. The healthcare industry is subject to strict privacy, security and safety regulations with regard to a wide range of health information. At the same time, geopolitical conflicts and criminal activity continue to drive increases in the number, severity, and sophistication of cyberattacks globally. Considering the general increase in cybercrime, our customers and other stakeholders are becoming more demanding regarding the cybersecurity of our products and services. As a global health technology company, Philips is inherently and increasingly exposed to the risk of cyberattacks and potential impact of attacks on our suppliers. Information systems may be damaged, disrupted (including the provision of services to customers), or shut down due to cyberattacks. In addition, breaches in the security of our systems (or the systems of our customers, suppliers, or other partners) could result in the misappropriation, destruction, or unauthorized disclosure of confidential information (including intellectual property) or personal data belonging to us or our employees, customers, suppliers or other partners. These risks are particularly significant with respect to patient medical records. Cyberattacks may result in substantial costs and other negative consequences, which may include, but are not limited to, lost revenues, reputational damage, remediation and enhancement costs, penalties, and other liabilities to regulators, customers and other partners. Philips has not encountered any material breaches or other significant cybersecurity incidents in 2023. While Philips deals with the operational threat of cybercrime on a continuous basis and has so far been able to prevent significant damage or significant monetary cost in taking corrective action, there can be no assurance that future cyberattacks will not result in material or other consequences than as described above, which may result in a material adverse impact on Philips’ business, financial condition and operating results.

Risk response: Philips has established a Group Security function and implemented security management processes and controls, and monitors risk trends on material security topics, such as the risk of security breaches and ransomware attacks, in our information systems and our products and services. The Philips Board of Management continually monitors the risks, as well as required investments and progress made on the programs to reduce security risk. Risk workshops are held across the company to calibrate cybersecurity risks. Philips is deploying security risk management further into our Businesses and Functions to enhance the completeness and quality of overall risk reporting, and to manage identified improvement actions.

Philips assesses and continuously improves key security controls (e.g., strengthening endpoints, email security, and network security, and conducting global vulnerability scans, including mitigation of vulnerabilities). We have strengthened the IT function to ensure IT systems are kept up to date and applications are designed and developed with security in mind. We run initiatives to enhance security awareness for all Philips staff. For example, there are mandatory security trainings and specific phishing trainings, and we give additional focus to groups who need it across the company. Philips evaluates its supply chain and continuously monitors the security maturity of critical suppliers, as well as their performance against contractually agreed security standards. Philips continuously improves the Philips Operating Model to ensure adequate security management of products and services via the Quality Management Systems. Philips maintains relationships and cooperates with several government intelligence and law enforcement agencies, as well as with healthcare-specific Information Sharing and Analysis Centers (ISACs) and Cyber Emergency Response Teams (CERTs), to remain abreast of new threats.

Philips may face challenges to drive excellence and speed in bringing innovations to market

To gain sustainable competitive advantage and create value with sustainable impact, Philips aims to deliver scalable, people-centric, and patient-centric innovations. It is important that Philips innovates and delivers these innovations in close collaboration with its customers on a timely basis and at scale. The emergence of new low-cost competitors, particularly in Asia, the rise of artificial intelligence (AI) and data driven solutions, and the increasing importance of product and cyber security, further underlines the importance of improvements in the innovation process. Success in launching innovations depends on a number of factors, including development of value propositions, architecture and platform creation, product development, market acceptance, production, and delivery ramp-up. It is also dependent on addressing potential quality issues or other defects in the early stages of introduction, and on attracting and retaining skilled employees. Costs of developing new products and solutions may partially be reflected on Philips’ balance sheet and may be subject to write-down or impairment depending on the performance of such products or services. The significance and timing of such write-downs or impairments are uncertain, as is the ultimate commercial success of new product introductions. Accordingly, Philips cannot determine in advance the ultimate effect that innovations will have on its financial condition and operating results. If Philips fails to create and commercialize its innovations at scale, it may lose market share and competitiveness, which could have a material adverse effect on its financial condition and operating results.

Risk response: In 2023, innovation activities have moved from the central Innovation & Strategy function to Business Units and as such closer to the customer. Philips is in continuous dialogue with customers to understand their needs and to reaffirm that its strategy is translated into a balanced portfolio of products, software, services and integrated solutions with a corresponding innovation pipeline close to its strategic core. Ways of working are anchored in standardized processes and tools in all aspects of customer-needs-focused innovation (from exploration to launch in the market and eventually customer success management). In addition, a number of initiatives are running to improve innovation capabilities, in areas such as software and systems engineering, data and AI, product and cybersecurity, and usability. These initiatives, taken together, will improve innovation effectiveness, efficiency, quality, and regulatory compliance.

6.5Financial risks

Philips is exposed to a variety of treasury and financing risks, including liquidity, currency, credit and country risk

Negative developments impacting the liquidity of global capital markets could affect Philips’ ability to raise or re-finance debt in the capital markets or could lead to significant increases in the cost of such borrowing in the future. If the markets expect a downgrade by the rating agencies, or if such a downgrade has actually taken place, this could increase the cost of borrowing, reduce our potential investor base and adversely affect our business.

Philips’ financing and liquidity position may also impact its ability to implement or complete any share-buyback program or distribute any dividends in accordance with its dividend policy or at all. Any announced share-buyback program or dividend policy may also be amended, suspended or terminated at any time, including at Philips’ discretion or as a result of applicable law, regulation or regulatory guidance, and any such amendment, suspension or termination could negatively affect the trading price of, increase trading price volatility of, or reduce the market liquidity of Philips’ shares or other securities. Additionally, any share-buyback program or distribution of dividend could diminish Philips’ cash or other reserves, which may impact its ability to finance future growth and to pursue potential future strategic opportunities. Any share-buyback program or dividend payment will depend on factors such as availability of financing, liquidity position, business outlook, cash flow requirements and financial performance, the state of the market and the general economic climate, and other factors, including tax and other regulatory considerations. Philips and its subsidiaries may also be subject to limitations on the distribution of shareholders’ equity under applicable law.

Philips operates in over 100 countries and its reported earnings and equity are therefore inevitably exposed to fluctuations in the exchange rates of foreign currencies against the euro. Philips’ sales and net investments in its foreign subsidiaries are sensitive in particular to movements in the US dollar, Japanese yen, Chinese renminbi, and a wide range of other currencies from developed and emerging economies. Philips’ sourcing and manufacturing spend is concentrated in the EU, the US and China. Income from operations is particularly sensitive to movements in currencies of countries where Philips has no or very small-scale manufacturing/local sourcing activities but significant sales of its products or services, such as Japan, Canada, Australia, the United Kingdom, and a range of emerging markets, such as South Korea, Indonesia, India and Brazil.

In view of the long lifecycle of health technology solution sales and long-term strategic partnerships, the financial risk of counterparties with outstanding payment obligations creates exposure risks for Philips, particularly in relation to accounts receivable from customers, liquid assets, and the fair value of derivatives and insurance contracts with financial counterparties. A default by counterparties in such transactions can have a material adverse effect on Philips’ financial condition and operating results.

Contingent liabilities may have a significant impact on the company’s consolidated financial position, results of operations and cash flows. For an overview of current cases please refer to the note Contingencies.

Risk response: At Philips, liquidity is monitored by the Group Treasury department, which tracks the actual cash flow for the Group against forecasts of the liquidity requirements on both a short- and longer-term basis. This includes regular reviews of liquidity versus credit rating constraints and scenario analysis to assess the risk of potential downgrades in credit ratings. Philips manages the available liquidity for the Group in several ways, e.g., by spreading maturities of external debt over time and by having appropriate standby credit facilities available. As an example, on August 30, 2023, Philips issued EUR 500 million fixed rate notes due 2031 under its Euro Medium Term Note program. Proceeds were used to repay an outstanding term loan in the same amount. Weighted average maturity of long-term debt increased from 6.5 years to 7.1 years. Additionally, in the first quarter of 2023 the maturity of the EUR 1bn revolving standby credit facility was extended by one year to March 2028.

Philips hedges the anticipated net exposure of developed-market foreign currencies resulting from sales, purchases and net investments in its foreign subsidiaries in those currencies. For emerging markets, Philips mainly relies on pricing adjustments for its products and services to counteract any expected depreciation of emerging-market currencies. Philips performs ongoing evaluations of the financial and non-financial condition of its customers and other counterparties and uses various tools to manage credit risks.

Please also refer to the note Details of treasury and other financial risks.

Philips is exposed to tax risks which could have a significant adverse financial impact

Philips is exposed to tax risks that could result in double taxation, penalties and interest payments. The source of the risks could originate from local tax laws and regulations as well as international and EU regulatory frameworks. These include transfer pricing risks on internal cross-border deliveries of goods and services, as well as tax risks relating to changes in the transfer pricing model. Examples of initiatives that may result in changing tax rules include, but are not limited to, the plans adopted by the Dutch parliament to abolish the tax exemption for dividend withholding tax on share buy backs with effect from 2025 and the OECD/G20 Inclusive Framework to address the allocation of income to user markets (Pillar One) and a 15% minimum corporate income tax rate (Pillar Two). The formal adoption of Council Directive (EU) 2022/2523 (the Pillar Two Directive) in December 2022 aims to achieve a coordinated implementation of Pillar Two in EU member states. The Dutch government adopted the Minimum Tax Rate Act 2024 (MTR Act) in December 2023 and the Pillar Two legislation will be applicable in local law with effect from 2024. As for Pillar One, it is too early to assess the potential impact. Philips is closely following the developments of this initiative.

As Philips maintains substance in the form of relevant assets and personnel in the countries in which it operates, and with the recently provided transitional safe harbor rules (based on Country-by-Country report) enacted by OECD, Philips currently expects to have limited exposure to taxation under Pillar Two. Pillar Two may still impose an additional tax burden on a jurisdiction-by-jurisdiction basis (which do not meet the transitional safe harbor rules) and increase Philips’ tax compliance burden significantly.

Furthermore, Philips is exposed to tax risks related to acquisitions and divestments, permanent establishments, tax loss, interest and tax credits carried forward, and potential changes in tax law that could result in higher tax expenses and payments. The risks may have a significant impact on local financial tax results, which could adversely affect Philips’ financial condition and operating results. The value of the deferred tax assets, such as tax losses carried forward, is subject to the availability of sufficient taxable income within the tax loss-carry-forward period. The ultimate realization of the company’s deferred tax assets is uncertain. Accordingly, there can be no absolute assurance that all deferred tax assets, such as (net) tax losses and credits carried forward, will be realized.

Risk response: Philips has a globally organized and experienced tax function, which is accountable for the definition and execution of the tax strategy and for the tax position of Philips worldwide. It advises management on the tax implications of intended decisions, performs appropriate tax planning to support business goals, and ensures compliance with all local and international tax laws. Philips has a Tax Control Framework in place, which creates awareness of and ensures adherence to current tax policies.

Philips will be in full compliance with Pillar Two whereby we will be leveraging our existing digital tax systems to ensure an efficient and high-quality process to determine countries in scope, calculate the additional tax liability (if any) and enable timely filing.

Potential risks are carefully monitored and dealt with by tax specialists from relevant areas (e.g., corporate income tax, transfer pricing, indirect taxes, wage tax and tax accounting). There are extensive controls in place on processes and systems to address these risks, which are discussed in detail in the Country Activity and Tax Report and in the note Income taxes.

Flaws in internal controls could adversely affect our financial reporting and management process

Accurate disclosures provide investors and other market professionals with significant information for a better understanding of Philips’ businesses. Failures in internal controls or other issues with respect to Philips’ public disclosures, including disclosures with respect to cybersecurity risks and incidents, could create market uncertainty regarding the reliability of the information (including financial data) presented. This could have a negative impact on the price of Philips securities. In addition, the reliability of revenue and expenditure data is key for steering the businesses and for managing top-line and bottom-line growth. The long lifecycle of health technology solution sales, from order acceptance to accepted installation and servicing, together with the complexity of the accounting rules recognizing revenue in the accounts, presents a challenge in terms of ensuring consistent and correct application of the accounting rules throughout Philips’ global business. Significant changes in the way of working, such as the changes made to our operating model, restructurings, and shifting processes to remote Global Business Services locations, may have an adverse impact on the environment under which controls are executed, monitored, reviewed, and tested. Any flaws in internal controls, or regulatory or investor actions in connection with flaws in internal controls, could have a material adverse effect on Philips’ business, financial condition, operation results, and reputation and brand.

Risk response: The Philips’ Business Control Framework (PBCF) sets the standard for risk management and internal control over financial reporting. Key components of the PCBF are the standards on management, testing of controls, and our Financial Code of Ethics. The code is designed to deter wrongdoings; to promote honest and ethical conduct; to ensure full, fair, accurate, timely, and understandable disclosures; and to encourage internal reporting of (suspected) violations. Please also refer to the section Our approach to risk management for more information on the PBCF.

Global inflation could materially adversely impact our business and results of operations

Changes in macroeconomic conditions, supply chain constraints, labor shortages, the conflict in Ukraine, and steps taken by governments and central banks, including in response to the COVID-19 pandemic as well as recent stimulus and spending programs, have led to higher inflation, which is likely, in turn, to lead to increased interest rates and adverse changes in the availability and cost of capital. These inflationary pressures could affect our manufacturing costs, operating expenses (including wages), and other expenses. We may not be able to compensate for increased costs by driving productivity to reduce costs and by passing these cost increases on through price measures in a timely manner, if at all, which could have an impact on our gross margins and profitability. Our business also operates in certain countries that have experienced hyperinflation, including Argentina and Turkey, and hyperinflationary conditions in any of the markets in which we operate may have a material adverse effect on our business, result of operations and financial condition. Inflation may also cause our customers to reduce or delay orders for our products, which could have a material adverse effect on our business, results of operations, and cash flows.

Risk response: To improve agility and productivity, Philips has stepped up its performance initiatives to remove organizational complexity, optimize quality and simplify ways of working. The following sentences summarize key initiatives. Procurement spend reduction through consolidation of suppliers and leveraging low-cost locations. Investing in the relationships with our suppliers and maintain an ongoing dialogue to align our demand forecast to their supply allocation and manage the risk of rising prices by several means, including engaging in long-term contracts and keeping physical inventories. Reductions of Supply chain cost through rationalization of manufacturing, warehousing, logistics providers, digitalization, and remote servicing. R&D productivity increases through platforms and footprint simplification, and simplification of our product designs. And general productivity measures, including organizational restructuring, headcount reduction, real estate optimization and the expansion of our Global Business Services and automation initiatives.

Refer to the note Details of treasury and other financial risks for financing costs management examples.

Furthermore, we closely monitor inflation development to enable timely action if needed. Currently Philips mainly relies on pricing adjustments for its products and services, as well as periodic indexation clauses in long-term contracts, to counteract cost increases as well as to build capabilities to drive value extraction and handle inflation for the foreseeable future, for example, through training of commercial teams.

6.6Compliance risks

Philips products and services may be exposed to the risk of non-compliance with various regulations and standards involving quality, safety, and security

Our reputation and license to operate depends on our compliance with global regulations and standards. Operating in a highly regulated health-technology industry, our products and services, including parts and materials from suppliers, are subject to regulation by various government and regulatory agencies, e.g., FDA (US), EMA (Europe), NMPA (China), MHRA (UK), ASNM (France), BfArM (Germany), and IGZ (the Netherlands). In the EU, the Medical Device Regulation (EU MDR) became effective in May 2021 and imposes significant additional pre-market and post-market requirements. Examples of other product-related regulations are the EU’s Waste from Electrical and Electronic Equipment (WEEE), Restriction of Hazardous Substances (RoHS), Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) and Energy-using Products (EuP) regulations. We are subject to various European, United States, and domestic, and foreign environmental laws and regulations, which are continuing to develop. Any failure to comply with such laws and regulations could jeopardize product quality, safety, and security or expose us to lawsuits, administrative penalties, and civil remedies, all of which may have a material adverse impact on Philips’ business, financial condition, and operating results.

Philips has observed an increase in safety and security requirements in a variety of new and upcoming legislation dealing with market access of consumer goods, medical devices, information and communication technology products, Cloud services, and specific areas such as data protection, cybersecurity, AI, and supply chain.

Both regulators and customers require us to demonstrate legal compliance and adequate security management using national and international standards and associated certifications. Non-compliance with conditions imposed by regulatory authorities, including in connection with the proposed Respironics consent decree relating to the Respironics recall or any similar regulatory undertakings, could result in product recalls, a temporary ban on products, stoppages at production facilities, remediation costs, fines, disgorgements of profits, and/or claims for damages. Product safety incidents or user concerns could jeopardize patient safety and/or trigger inspections by the FDA or other regulatory agencies, which, depending on the results of such inspections, could trigger the impacts described above, as well as other consequences. These issues could adversely impact Philips’ financial condition or operating result through lost revenue and cost of any required remedial actions, penalties or claims for damages. They could also negatively impact Philips’ reputation, brand, relationship with customers and market share. In particular, Philips is exposed to the ongoing impact of the Respironics voluntary recall/field action and related matters. Please refer to the section Quality & Regulatory and patient safety and the note Contingencies.

Risk response: Philips is committed to complying with all applicable laws, regulations, and standards as a means of delivering safe, effective, and high-quality products, services, and solutions. Our Regulatory Affairs team closely monitors developments across the regulatory landscape, with specialist teams operating at central, business, and regional levels. A new Regulatory Science and Policy team is helping to shape and define industry standards. Additionally, this team is involved with improving processes, and offers programs to ensure that employees are aware of and able to comply with requirements. In the event of compliance issues, we actively engage with the regulatory authorities to resolve, mitigate, and work on remediation, as required.
We are actively working on remediation related to the June 2021 voluntary recall notification for certain sleep and respiratory care products by our subsidiary, Respironics. Philips is actively collaborating with United States Department of Justice, acting on behalf of the FDA, to finalize the proposed Respironics consent decree. We publish updates on the Respironics field action on our corporate website,www.philips.com.

For more information, refer to the sub-section Quality & Regulatory and patient safety in the Governance section of the ESG chapter in this report and the notes Provisions and Contingencies 

Philips is exposed to the risks of non-compliance with business conduct rules and regulations, including privacy and upcoming ESG disclosure and due diligence requirements

In the execution of its strategy, Philips could be exposed to the risk of non-compliance with business conduct rules and regulations and our General Business Principles, including, but not limited to, patient safety, quality, anti-bribery, healthcare compliance, privacy and data protection, as well as upcoming ESG disclosure requirements and due diligence requirements. This risk is heightened in Growth geographies, as the legal and regulatory environment is less developed compared to Mature geographies. Examples of compliance risk areas include commission payments to third parties and remuneration payments to agents, distributors, consultants and similar entities, as well as the acceptance of gifts, which may be considered in some markets to be normal local business practice. The ongoing digitalization of Philips’ products and services, including its processing of personal data, increases the importance of compliance with privacy, data protection and similar laws. These risks could adversely affect Philips’ financial condition, reputation and brand and trigger the additional risk of exposure to governmental investigations, inquiries and legal proceedings and fines. In various jurisdictions, ESG disclosure requirements are currently being drafted. In Europe, the Corporate Sustainability Reporting Directive and European Sustainability Reporting Standards have been approved. The latter will significantly increase the scope of mandatory ESG disclosures. Philips needs to report over FY 2024 in line with the requirements of the CSRD and the ESRS. In addition, the proposed European Corporate Sustainability Due Diligence Directive and similar regulations and directives or other rules will (if implemented) require companies to identify and act on adverse environmental and human rights impacts across their organization – and potentially their entire value chain. Failure to meet these requirements could trigger the additional risk of exposure to inquiries from supervisory bodies and adversely affect Philips’ reputation and brand or could adversely impact Philips’ financial condition or operating result through lost revenue and cost of any required remedial actions, penalties or claims for damages.

For further details, please refer to the sub-section Legal proceedings within the note Contingencies.

Risk response: Over the years, we have extensively transformed the company and strengthened our business processes. As part of that, we have invested substantially in adherence to our General Business Principles (patient safety, quality and integrity always) through the deployment of compliance and awareness programs, as well as the establishment of policies and processes that reinforce adherence. With respect to privacy and data protection, Philips has established a privacy compliance framework, which includes policies, standards and procedures (such as the Binding Corporate Rules), with the aim of ensuring and demonstrating compliance with applicable data protection laws and regulations. Philips has a strong track record on ESG disclosures, often ahead of legislation, and has been closely involved in the development of ESRS. The company already has reasonable assurance on all its ESG disclosures and runs a project to meet the increased requirements of ESRS.

7Supervisory Board

In the two-tier corporate structure under Dutch law, the Supervisory Board is a separate body that is independent of the Board of Management and the company. The Supervisory Board supervises the policies, management and general affairs of Philips, and assists the Board of Management and the Executive Committee with advice. Please also refer to Supervisory Board within the chapter Corporate governance.

At a glance

Supervisory Board report

Strong focus on patient safety, quality, supply chain, business and financial performance, organization, succession planning and strategy

Exor stake in share capital a sign of confidence in Philips’ growth and value potential; provides for Exor to nominate one member to the Supervisory Board

Changes in Supervisory Board composition

Reports of Supervisory Board committees

8Supervisory Board report

Letter from the Chairman of the Supervisory Board  

Dear Stakeholder,

2023 was a challenging as well as an encouraging year for Philips, as the company started to deliver on its three-year plan to create value with sustainable impact. Improved operational performance was driven by a strong focus on execution to enhance patient safety and quality, strengthen supply chain reliability, and establish a simplified operating model. The company succeeded in achieving its raised 2023 outlook with strong sales growth, improved profitability, and strong cash flow. All despite the uncertainties brought about by an increasingly volatile geopolitical environment. That said, order intake and the Respironics recall, including litigation and the investigation by the US Department of Justice (DOJ), remain key areas of attention.

The Supervisory Board remains fully committed to its responsibilities to supervise and advise management in leading the company towards a future of progressive value creation with sustainable impact. As we explain in our Report, we spent many sessions in 2023 engaging with the Board of Management and closely and actively reviewing key priority issues and actions to build further momentum and keep Philips on a value creation track for its stakeholders. The main topics discussed were patient safety and quality, supply chain strengthening, the workforce reduction, the new operating model and strategy for future business growth, as well as the composition of the Board of Management and Supervisory Board, the remuneration of the Board of Management, and the succession slate/bench across the organization.

Strengthening patient safety and quality across Philips is the highest priority, and resolving the consequences of the Respironics recall for our patients and customers is a key focus area. We feel encouraged by the progress made on the recall, as the company completes remediation of the sleep devices and strives to finalize remediation of the ventilator devices. Philips is fully committed to complying with the terms of the consent decree agreed with the DOJ, representing the US Food and Drug Administration (FDA), which primarily focuses on Philips Respironics in the US. The consent decree will provide Philips Respironics with a roadmap of defined actions, milestones, and deliverables to demonstrate compliance with regulatory requirements and to restore the business. In 2023, the Supervisory Board spent time on further anchoring patient safety and quality in the organization, and it remains actively involved in the further outstanding steps which are expected to follow in respect of litigation and the investigation by the DOJ. For more information, please refer to Quality & Regulatory and patient safety.

We also discussed developments around the supply chain frequently and in depth – both the external situation and the further improvements planned internally to improve business and financial performance. The progress made in this area has been a strong driver of the company's increased growth.

The Supervisory Board endorses the simplification of Philips’ organizational structure, where the Businesses are leading, supported by the Regions and global Functions, with more focused KPIs. The workforce reduction of approximately 8,000 roles to date, out of the planned reduction of 10,000 roles by 2025, was an impactful and difficult, yet necessary, measure as the company drives a major step-up in productivity, including focusing its R&D activities on fewer, yet more impactful projects. The impact of this reduction became visible in the P&L in 2023. Philips will strive to implement the remaining reductions with due respect for every employee affected and in line with all local rules and regulations.

We welcome the decision by Exor, the Netherlands-based diversified holding company, to become a long-term investor in Philips, supporting the company’s strategy. Their purchase of a 15% shareholding underlines their confidence in Philips’ growth and value potential, and their trust in the leadership, and provides for Exor to nominate one member to our Supervisory Board. We are pleased with the availability of Mr. Benoît Ribadeau-Dumas as Exor nominee, and we will propose his appointment at the upcoming 2024 General Meeting of Shareholders.

We appreciate the support expressed by the shareholders for the current management and direction of Philips. The Supervisory Board has every confidence in CEO Roy Jakobs and his leadership team, as they focus on implementing the plan to create value with sustainable impact for our shareholders and all other stakeholders.

Together with my fellow members of the Supervisory Board, I look forward to providing continued oversight of Philips as the company continues its value creation trajectory and delivers on its purpose of improving people’s health and well-being through meaningful innovation.

Feike Sijbesma
Chairman of the Supervisory Board

Introduction Supervisory Board report

The Supervisory Board supervises, advises and challenges the Board of Management in performing their management tasks as well as setting and executing the strategy of the Philips Group. The members of the Supervisory Board act in the interests of Royal Philips, its businesses and all its stakeholders. This report includes a more specific description of the Supervisory Board’s activities during the financial year 2023 and other relevant information on its functioning.

2023 focus areas and activities of the Supervisory Board

Against the background set forth in the Chairman’s letter above, the Supervisory Board was regularly updated by management on the company’s performance and outlook. The Supervisory Board engaged in discussions with management on improving performance and increasing productivity and agility, by addressing the enhancement of patient safety and accelerating the focus on quality, strengthening the supply chain reliability and establishing a simplified operating model at Philips. Progress, as well as the near-term and longer-term actions on those three priorities were reviewed and monitored by the Supervisory Board. 

In this context, the Supervisory Board and management also discussed the external environment in which the company operates, and the impact that the macro-economic outlook has on its performance. 

In 2023, the Supervisory Board devoted considerable time to the Respironics recall, as a recurring agenda item for each of its (regular) meetings. The Supervisory Board was kept apprised of the progress made with the repair and replacement program, and in particular discussed and tracked the comprehensive test and research program for the affected CPAP, BiPAP and mechanical ventilator devices. Putting the interest of patients first, the Supervisory Board challenged management to remain focused on keeping patients regularly updated on the status of the repair or replacement of their devices and to accelerate the repair and replacement program where possible, despite operational and supply challenges.

The Supervisory Board was also regularly updated on other aspects of the recall. This includes, amongst other things, the negotiations and preliminary approval of the economic loss class settlement, the ongoing engagements with the FDA and other competent authorities globally, and the discussions with the DOJ, acting on behalf of the FDA, regarding a proposed consent decree. It also includes the criminal and civil investigation opened by the DOJ’s Consumer Protection Branch and Civil Fraud Section, and the US Attorney’s Office for the Eastern District of Pennsylvania to which Philips Respironics is subject and the ongoing class-action lawsuits and individual personal injury claims in which Philips Respironics and other entities are defendants. The Supervisory Board specifically engaged with management on the potential impact of the consent decree as well as the litigation and investigations on the Philips Respironics business, both in North America and the rest of the world, and reviewed its plans to keep on serving patients with affected devices until market re-entry.

Recognizing the importance of patient safety and quality of products and solutions sold by the Philips Group generally, significant time was spent in 2023 on reviewing and tracking progress of the company-wide program Accelerating Patient Safety and Quality to improve and foster a culture, behaviors and a mindset that puts quality and patient safety first. In the context of this program, the Supervisory Board also discussed the process framework for product design and production controls in the company.

As presented on January 30, 2023, the Supervisory Board and the Board of Management together with the Executive Committee interacted on the company’s overall strategy to extend its leadership as a health technology company and its plan to create value with sustainable impact towards 2025 and beyond, based on focused organic growth and scalable innovation with improved execution as the key value driver. This plan is designed to restore Philips' value creation based upon sales growth and improvement of profitability and cash generation by strong focus on execution. It includes, amongst other things, the strategic plans and priorities of each of the Segments and Regions and at Enterprise level. The Supervisory Board engaged in multiple deep dive sessions on the strategy. These interactions led to more detailed strategy plans that were reviewed and signed-off by the Supervisory Board. Each strategic plan is supplemented with milestones and an execution plan to achieve the company’s ambitions. Specific attention was given to the role of China in the strategy moving forward given the dynamics of the China market.

Our oversight over the company’s overall strategy also included the restructuring and other actions designed to improve the operations and performance, to invest in quality, to simplify ways of working, to remove organizational complexity by putting businesses with single accountability in the lead enabled by strong Regions and lean Functions, and to reduce operational expenses in close alignment with the respective works councils and unions and with respect for the impacted employees and their colleagues.

The overview below indicates other key matters that were reviewed and/or discussed during one or more meetings in the course of 2023:

• Capital allocation, including the dividend policy and pay-out and the M&A framework, and specifically the company’s flexibility under its capital structure and credit ratings to pay dividends and to fund capital investments, including share repurchases and other corporate finance initiatives.
• The company’s liquidity position and leverage, including the measures taken to strengthen it in light of the financial performance of the company. These measures include the issue of bonds through the Euro Medium Term Note (EMTN) program to repay the EUR 500 million term loan in August 2023.
• Geopolitical developments and their impact on Philips’ business, in particular the impact of the war in Ukraine, the situation in Russia, and the Israel/Hamas conflict on Philips’ employees and the (potential) implications on continuity of Philips’ business in these countries.
• Regular review of the dashboard, tracking the performance of the 2023 key performance indicators for the Executive Committee versus target.
• Philips’ annual management commitments, including the 2024 key performance indicators for the Executive Committee, the 2024 targets for such key performance indicators, and the annual operating plan for 2024.
• Quality & Regulatory compliance, systems and processes. The Supervisory Board was regularly updated on past and upcoming FDA inspections at various company sites, including the preparations for and outcomes of such inspections. Also, referred to the Report of the Quality & Regulatory Committee.
• Oversight of the adequacy of the company’s Internal Control over Financial Reporting.
• Enterprise risk management, including updates on and improvements to the relevant processes; the outcome of the annual risk assessment dialogue with the Executive Committee; and an update of the top risks faced by the Philips Group, including the possible impact of such risks, as well as control and mitigation measures. Refer to Our approach to risk management.
• The terms and conditions of the Relationship Agreement between the company and long-term minority investor Exor.
• Engagements with shareholders and institutional advisory firms on the remuneration for the Board of Management and the negative shareholder vote against the discharge of the Board of Management at the 2023 Annual General Meeting of Shareholders. Refer to the Letter from the Remuneration Committee Chair below for more information.
• The revised Remuneration Policy for the Board of Management and the revised Remuneration Policy for the Supervisory Board, to be proposed for adoption at the upcoming 2024 Annual General Meeting of Shareholders. Refer to the Letter from the Remuneration Committee Chair below for more information.
• Continuous succession planning for the Supervisory Board, as well as for the Board of Management and Executive Committee, including the re-appointment of Abhijit Bhattacharya as member of the Board of Management for a 2-year term at the 2023 Annual General Meeting of Shareholders, and the appointments of Steve C de Baca, Jeff DiLullo, Julia Strandberg and Heidi Sichien as members of the Executive Committee.
• The company’s People strategy and priorities, employee engagement and retention of employees, review of talent management, leadership and talent development, leadership culture, inclusion and diversity.
• Evaluation of the Board of Management and the Executive Committee based on the achievement of specific group and individual targets approved by the Supervisory Board at the beginning of the year, as well as the assessment of the main findings and conclusions of the evaluation and the related follow-up.
• Significant civil litigation claims against, and public investigations into, Philips.
• Philips’ Environmental, Social and Governance (ESG) approach, comprising an update on progress made with respect to the 2025 ESG key programs and sustainability commitments and aims (including circular revenues) and Philips’ aim to improve the health and well-being of 2.5 billion people per year by 2030 through meaningful innovation. The Supervisory Board was also educated on sustainability reporting requirements and requirements related to sustainability-related financial disclosures, as well as European Union regulatory developments in this context. These include but are not limited to education on the European Union Corporate Sustainability Reporting Directive and European Union Sustainability Reporting Standards and the impact thereof on reporting by the Philips Group.
• The agenda for the 2023 Annual General Meeting of Shareholders (held on May 9, 2023) and the proposed agenda for the upcoming 2024 Annual General Meeting of Shareholders (to be held on May 7, 2024).
• The re-appointment of Ernst & Young Accountants LLP as the company’s external auditor for a term of one year, starting on January 1, 2024, as well as the appointment of Price Waterhouse Coopers LLP as the company’s external auditor for a term of 4 years starting on January 1, 2025, both at the 2023 Annual General Meeting of Shareholders.
• The market environment for global M&A activities that offered limited opportunities in 2023 driven by growing macro-economic challenges, inflationary pressure and rising interest rates, as well as the company’s selective approach towards M&A going forward and the (business) performance of companies previously acquired by the company.

The Supervisory Board conducted four dedicated dialogues on Philips' positioning in the market and versus its competitors. Subsequently, the Supervisory Board ’deep dived’ into the overall Philips strategy and the strategy and performance of:

• The Diagnostic Imaging, Enterprise Informatics, Personal Health businesses; and
• Philips Greater China Region, including market trends, business performance and key strategic and transformation initiatives and priorities.

The Supervisory Board reviewed Philips’ annual and interim financial statements, including information related to ESG, prior to publication.

Supervisory Board meetings and attendance

In 2023, the members of the Supervisory Board convened for seven regular meetings and four extraordinary meetings. Moreover, the Supervisory Board members collectively and individually interacted with members of the Board of Management, with members of the Executive Committee and with senior management outside the formal Supervisory Board meetings. The Chairman of the Supervisory Board and the CEO frequently had bilateral discussions about the company’s progress on a variety of matters.

The Supervisory Board meetings were well attended in 2023. All Supervisory Board members were present during the Supervisory Board meetings in 2023. The committees of the Supervisory Board also convened regularly (see the separate reports of the committees below) and the committees reported back on their activities to the full Supervisory Board. In addition, the Supervisory Board and Committees held private meetings. The members of the Supervisory Board concluded that they devoted sufficient time to engage (proactively if the circumstances so required) in their supervisory responsibilities.

In March 2023, a Supervisory Board member visited the European Congress of Radiology in Vienna, Austria. In June 2023, the Supervisory Board members visited Philips’ Image Guided Therapy-Devices site in Plymouth, Minnesota, USA. In the course of 2023, various Supervisory Board members visited Philips’ Diagnosis & Treatment manufacturing site in Best, the Netherlands.

Supervisory Board: composition, diversity and self-evaluation 

The Supervisory Board is a separate corporate body that is independent of the Board of Management and the company. Its independent character is also reflected in the requirement that members of the Supervisory Board can be neither a member of the Board of Management nor an employee of the company. The Supervisory Board considers all its members (i.e. 100%) to be independent under the Dutch Corporate Governance Code. Furthermore, the members of its Audit Committee are independent under the rules of the US Securities and Exchange Commission, applicable to the Audit Committee. 

The Supervisory Board currently consists of 10 members. Effective as per (the end of) the 2023 Annual General Meeting of Shareholders, David Pyott was re-appointed for a term of two years and Liz Doherty was re-appointed for a term of four years. The agenda for the upcoming 2024 Annual General Meeting of Shareholders will include proposals to re-appoint Feike Sijbesma and Peter Löscher as members of the Supervisory Board. The agenda will also include the proposal to appoint Benoît Ribadeau-Dumas as new member of the Supervisory Board, who will be nominated pursuant to the commitment of Exor N.V. to be a long-term minority investor in Philips and its right to propose one member to the Supervisory Board. We are very pleased with the availability of Mr. Benoît Ribadeau-Dumas and welcome him as new member of our Board (subject to his appointment at the 2024 AGM).

The Supervisory Board attaches great value to diversity in its composition and has adopted a Diversity Policy for the Supervisory Board, Board of Management and Executive Committee. For more information on the Diversity Policy, please refer to Report of the Corporate Governance and Nomination & Selection Committee. The Supervisory Board spent time in 2023 considering its composition, as well as the composition of the Executive Committee (including the Board of Management), taking into account the criteria set forth in the Diversity Policy.

The composition of the Supervisory Board furthermore follows its profile (which was updated in early 2023), as included in the Rules of Procedure of the Supervisory Board. The profile aims for an appropriate combination of knowledge and experience among the members of the Supervisory Board, encompassing general management, international business, environmental, social and governance (ESG) and sustainability, (consumer) health and medical technology, quality and regulatory, finance and accounting, human resources, manufacturing and supply chain, information technology and digital, marketing, and governmental and public affairs, all in relation to the global character of Philips’ businesses. The Supervisory Board also aims for having members with different nationalities and (cultural) backgrounds, working experiences or otherwise diverse qualities, as well as one or more members with an executive or similar position in business or society no more than five years ago. The composition of the Supervisory Board shall furthermore be in accordance with the Dutch Corporate Governance Code best practice provisions on independence, and each member of the Supervisory Board shall be capable of assessing the broad outline of the overall policy of the company. The size of the Supervisory Board may vary as it considers appropriate to support its profile. 

Any (re-)appointments of members of the Supervisory Board must meet the gender quota, in accordance with Dutch law, requiring that at least one-third of the supervisory board members are women and at least one-third are men. (For calculation purposes, a total number of board members that cannot be divided by three, must be rounded up to the next number that can be divided by three.) Currently, the statutory quota is met, as out of ten Supervisory Board members, four members are female and six members are male.

In 2023, each member of the Supervisory Board completed a questionnaire to verify compliance with the applicable corporate governance rules and the Rules of Procedure of the Supervisory Board. The outcome of this survey was satisfactory. 

An independent external party facilitated the 2023 self-evaluation process for the Supervisory Board and its committees. This included drafting and submitting relevant questionnaires, interviewing members of the Supervisory Board and aggregating and reporting on the results. The members of the Board of Management also provided their input. The questionnaires covered various topics such as composition, size, skills and experience, geographical coverage and diversity of the Supervisory Board, dynamics and focus of the meetings of the Supervisory Board, the effectiveness of the Supervisory Board’s oversight of various aspects such as strategy, business performance, risk management, succession planning and people, and engagement with management. All members of the Supervisory Board were invited to share recommendations to improve the Supervisory Board’s functioning and ways of working going forward. Furthermore, the performance of the Chairman, the other Supervisory Board members individually, and of the Supervisory Board’s committees was evaluated separately.

The reports on the results of the evaluation were discussed in a meeting of the Supervisory Board. The results of the self-evaluation indicated that the Supervisory Board is a well-functioning team of appropriate size that benefits from different expertise, diversity, and international geographical representation. The meetings and meeting dynamics were rated positively with good interactions, discussions and feedback and a strong relationship with management, and suggestions were made to further improve meeting efficiency. Board members also noted the importance of being challenged constructively and of the need to maintain a collective understanding of priorities and options for any relevant matters. The composition of the Supervisory Board and its succession plan is considered adequate. Already anticipating the expiry of the third term of appointment of Mr. Pyott in 2025, the Supervisory Board is tasked with identifying a candidate with equivalent MedTech expertise. In addition, attracting candidates with expertise in artificial intelligence will be part of the Supervisory Board’s succession planning. Supervisory Board members further noted the potential benefit from getting external views from various stakeholders, such as Exor, regulators, suppliers, employees, patients, and investors, to enhance its oversight and decision-making. Finally, the Supervisory Board members confirmed a number of current focus areas, such as Patient Safety and Quality, senior executive succession planning, strategy execution and value creation. Early 2024, the Chairman of the Supervisory Board had several meetings with individual members of the Supervisory Board to discuss ways to further enhance the functioning of the Supervisory Board and its individual members going forward. The Chairman also discussed the evaluation of his own functioning with the Vice-Chairman.

Supervisory Board committees

While retaining overall responsibility, the Supervisory Board has assigned certain of its tasks to the three long-standing committees, also referred to in the Dutch Corporate Governance Code: the Corporate Governance and Nomination & Selection Committee, the Remuneration Committee and the Audit Committee. In 2015, the Supervisory Board also established the Quality & Regulatory Committee. The separate reports of these committees are part of this Supervisory Board report and are published below.

The function of all of the Supervisory Board’s committees is to prepare the decision-making of the full Supervisory Board, and the committees currently have no independent or assigned powers. The full Supervisory Board retains overall responsibility for the activities of its committees.

Financial statements 2023

The financial statements of the company for 2023, as presented by the Board of Management, have been audited by Ernst & Young Accountants LLP, the independent external auditor appointed by the General Meeting of Shareholders. We have approved these financial statements, and all individual members of the Supervisory Board have signed these documents (as did the members of the Board of Management).

Finally, we would like to express our thanks to the members of the Board of Management, the Executive Committee and all other employees for their continued contribution throughout 2023.

The Supervisory Board

Feike Sijbesma
Paul Stoffels
Chua Sock Koong
Liz Doherty
Marc Harrison
Peter Löscher
Indra Nooyi
Sanjay Poonen
David Pyott
Herna Verhagen