IFRS basis of presentation The financial information included in this document is based on IFRS, as explained in Significant accounting policies, starting on page 94, unless otherwise indicated. Forward-looking statements This document contains certain forward-looking statements. By their nature, these statements involve risk and uncertainty. For more information, please refer to Forward-looking statements and other information, starting on page 185 References to Philips References to the Company or company, to Philips or the (Philips) Group or group, relate to Koninklijke Philips N.V. and its subsidiaries, as the context requires. Royal Philips refers to Koninklijke Philips N.V. Philips Lighting/Signify References to 'Signify' in this Annual Report relate to Philips' former Lighting segment (prior to deconsolidation as from the end of November 2017 and when reported as discontinued operations), Philips Lighting N.V. (before or after such deconsolidation) or Signify N.V. (after its renaming in May 2018), as the context requires. Dutch Financial Markets Supervision Act This document comprises regulated information within the meaning of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht). Statutory financial statements and management report The chapters Group financial statements and Company financial statements contain the statutory financial statements of the Company. The introduction to the chapter Group financial statements sets out which parts of this Annual Report form the Management report within the meaning of Section 2:391 of the Dutch Civil Code (and related Decrees). Front cover: In 2019, Philips unveiled a unique augmented-reality concept developed with Microsoft Corp. to intuitively control the operating room of the future, giving doctors a holographic dashboard of data that integrates imaging, device and medical information to drive treatment optimization. This solution capitalizes on the advanced, integrated capabilities of Philips’ industry-leading Azurion image-guided therapy platform and is being used to gather clinical insights to support a future commercially available product. Contents 9.5 General Meeting of Shareholders 81 1 Message from the CEO 4 9.6 Risk management approach 83 9.7 Annual financial statements and external audit 83 2 Board of Management and Executive 7 9.8 Stichting Preferente Aandelen Philips 84 Committee 9.9 Investor Relations 84 9.10 Major shareholders 84 3 Strategy and Businesses 8 9.11 Corporate information 85 3.1 Innovating with purpose 8 3.2 How we create value 10 10 Group financial statements 86 3.3 Our businesses 12 10.1 Management’s report on internal control 86 3.4 Our geographies 20 10.2 Report of the independent auditor 87 3.5 Supply chain and procurement 21 10.3 Independent auditor’s report on internal 87 3.6 Quality, Regulatory Compliance and Integrity 22 control over financial reporting 10.4 Consolidated statements of income 89 4 Financial performance 24 10.5 Consolidated statements of comprehensive 90 4.1 Performance review 24 income 10.6 Consolidated balance sheets 91 5 Societal impact 37 10.7 Consolidated statements of cash flows 92 5.1 Social performance 37 10.8 Consolidated statements of changes in equity 93 5.2 Environmental performance 42 10.9 Notes 94 6 Risk management 49 11 Company financial statements 159 6.1 Our approach to risk management 49 11.1 Statements of income 160 6.2 Risk factors 52 11.2 Balance sheets before appropriation of results 161 6.3 Strategic risks 52 11.3 Statement of changes in equity 162 6.4 Operational risks 54 11.4 Notes 163 6.5 Compliance risks 56 6.6 Financial risks 56 12 Other information 170 12.1 Appropriation of profits 170 7 Supervisory Board 58 12.2 Independent auditor's report 170 12.3 Reconciliation of non-IFRS information 176 8 Supervisory Board report 59 12.4 Five-year overview 184 8.1 Report of the Corporate Governance and 63 12.5 Forward-looking statements and other 185 Nomination & Selection Committee information 8.2 Report of the Remuneration Committee 65 12.6 Investor information 186 8.3 Report of the Audit Committee 75 12.7 Definitions and abbreviations 188 8.4 Report of the Quality & Regulatory Committee 76 13 Sustainability statements 191 9 Corporate governance 77 13.1 Approach to sustainability reporting 191 9.1 Introduction 77 13.2 Economic indicators 197 9.2 Board of Management and Executive 77 13.3 Social statements 197 Committee 13.4 Environmental statements 208 9.3 Supervisory Board 78 13.5 Assurance report of the independent auditor 213 9.4 Other Board-related matters 80 Message from the CEO 1 1 Message from the CEO “Philips continues to make progress to unlock its full potential as a leader in health technology. Our innovations are driving better health outcomes and increased healthcare productivity, while offering a better experience for consumers, patients and healthcare professionals.” Frans van Houten, CEO Royal Philips Dear Stakeholder, In 2019, we continued our transformation as a focused outcomes and productivity gains, as well as extending leader in health technology, pursuing our vision of access to care to those in need. making the world healthier and more sustainable through innovation. I am pleased with the resilience of Our goal of improving the lives of 3 billion people a year our businesses as we recorded 4.5% growth while by 2030, including 400 million in underserved addressing significant headwinds. We made good healthcare communities, infuses our innovation drive progress against our strategic imperatives – driving with true purpose, as we strive to make the world customer centricity and operational excellence, healthier and more sustainable, in line with UN focusing on quality, growing our core businesses, and Sustainable Development Goals 3 (Ensure healthy lives pivoting to become a solutions company. Our purpose and promote well-being for all at all ages), 12 (Ensure is clear, and so is our firm belief in our potential to grow sustainable consumption and production patterns) and and create more value, while doing so in a sustainable 13 (Take urgent action to combat climate change and manner. Reflecting our confidence in the road ahead its impacts). and the importance we attach to dividend stability, we propose to maintain the dividend at EUR 0.85 per share. Innovating with purpose in mind helps us to create more value for our customers and society – by Innovating with purpose developing truly relevant solutions. Helping people to Time and again, customers tell us they like our strategy stay healthy and prevent disease. Giving clinicians the and the comprehensive view we take of healthcare AI-assisted tools to make precision diagnoses and along the health continuum – delivering innovations for deliver personalized, minimally invasive treatment. consumer health, precision diagnosis, image-guided Orchestrating and delivering care outside the hospital, therapy, hospital and home care, leveraging informatics in lower-cost care settings. Helping people to recover, and artificial intelligence. They are keen to engage with or live with chronic disease, at home in the community. Philips for innovations that can help them deliver on the All supported by a seamless flow of data enabled by Quadruple Aim – better health outcomes, improved connected care and health informatics solutions. patient and staff xperience e, and lower cost of care. This is reflected in the sustained growth in the number Increasingly, AI will enhance the quality and efficiency of long-term strategic partnerships we have signed, e.g. of care, providing clinical decision support, helping with Inspira Health (USA) and Klinikum Stuttgart clinical staff ot spot emerging risks, and freeing up (Germany), with solutions and recurring revenues now valuable time for healthcare professionals to focus on accounting for over one third of total revenues. There is their patients. We work with clinical partners around the also substantial interest in how we can contribute to world to develop AI-enabled solutions, like our care outside the hospital setting – through solutions IntelliSpace AI Workflow Suite, that are secure, firmly that support healthy living, prevention and home care. grounded in scientific esearr ch, and rigorously validated in clinical practice. Aging populations and the growing incidence of chronic disease, coupled with resource constraints, are In the consumer domain too, connected personal necessitating a shift from a volume-based approach health solutions like our Philips Sonicare Teledentistry towards value-based healthcare models, including care service help people to manage their health with outside of the hospital. I firmly believe that innovative actionable insights, coaching, and where needed, health technology – a growing market with scope for support from care professionals. margin expansion, in which Philips has strong positions – will help address these challenges, providing better 4 Annual Report 2019 Message from the CEO 1 Determined to deliver the full benefits of data-enabled diagnostic informatics, the latter strengthened by the care, we have significantly stepped up our activities in recent acquisition of Carestream Health’s Healthcare informatics and data science in recent years. Today, Information Systems business. around one in two Philips R&D professionals is active in these fields, and most of our acquisitions since 2015 Our Connected Care businesses had a challenging year, have been designed to strengthen our informatics even as we retained market share. The businesses capabilities.