Royal Philips Defining The Blueprint For Treasury Best

Royal Philips Defining The Blueprint For Treasury Best Practice November 14 th, 2014 DACT Treasury Beurs 1

Important information Forward-looking statements This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forwardlooking statements include statements made about our strategy, estimates of sales growth, future EBITA and future developments in our organic business. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements. These factors include, but are not limited to, domestic and global economic and business conditions, developments within the euro zone, the successful implementation of our strategy and our ability to realize the benefits of this strategy, our ability to develop and market new products, changes in legislation, legal claims, changes in exchange and interest rates, changes in tax rates, pension costs and actuarial assumptions, raw materials and employee costs, our ability to identify and complete successful acquisitions and to integrate those acquisitions into our business, our ability to successfully exit certain businesses or restructure our operations, the rate of technological changes, political, economic and other developments in countries where Philips operates, industry consolidation and competition. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in our Annual Report 2013. Third-party market share data Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as specialized research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated. Use of non-GAAP Information In presenting and discussing the Philips’ financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A reconciliation of such measures to the most directly comparable IFRS measures is contained in our Annual Report 2013. Further information on non. GAAP measures can be found in our Annual Report 2013. Use of fair-value measurements In presenting the Philips’s financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data are not readily available, fair values are estimated using valuation models, which we believe are appropriate for their purpose. Such fair value estimates require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in our Annual Report 2013. Independent valuations may have been obtained to support management’s determination of fair values. All amounts are in millions of euro’s unless otherwise stated; data included are unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2013, unless otherwise stated.

Agenda 1. Introduction 2. Our transformation: Accelerate! 3. Defining The Blueprint 4. Implementation in North Latam 5. What is next 3

Philips: A strong industrial company leading in health and well being Green Innovation R&D in 2013 51% Green Products in 2013 (% of total sales) 1 and we are unlocking value through circular economy principles € 509 million 1 80% of our industrial waste was recycled in 2013 1 14, 000 tonnes of recycled materials used in products 1 1. 8 billion lives improved in 2013 1 and we aim to improve 3 billion lives a year by 2025 1 4 Based on sustainability performance in Annual Report 2013 14 th position in Interbrand Global Green Brands 2014

Philips and Citi: A Longstanding and Strategic Partnership Global Banking – Citi values the strong and longstanding relationship of over 50 years with Philips, both as partner and customer in over 55 countries – Deep and broad relationship Treasury and Trade Solutions – Citi serves as a long term trusted advisor for Philips, with a matching global footprint. Citi acts as one of Philips’ cash management banks – Citi is a key provider of Liquidity solutions to Philips – servicing Philips’ domestic and cross-border Liquidity overlay structures – Citi also has been a strategic partner in supporting Philips’ Treasury architecture goals via ISO XML & SWIFT – Citi has supported Philips’ Global Supply Chain Finance program since 2009 6 · Citi – A proud partner of Philips – Citi chose Philips to help it reach its sustainability goal of achieving a 20% increase in energy efficiency by 2014 compared to 2005 – Citi’s EMEA headquarters in Canary Wharf were outfitted with Philips LED light fittings – Philips’ lighting solutions has delivered energy savings to Citi of approximately 45% compared to the previous installation

Agenda 1. Introduction 2. Our transformation: Accelerate! 3. Defining The Blueprint 4. Implementation in North Latam 5. What is next 7

Our transformation: Accelerate! The Accelerate! change and performance improvement program is making Philips a more agile and entrepreneurial innovator. make us more customerfocused 8 resource our business/ market combinations to win create lean end-to-end customer value chains implement a simpler, standardized operating model drive a growth and performance culture

Ensuring success is repeatable The Philips Business System is the way we run our company to deliver on our mission and vision. It is designed to ensure that success is repeatable, i. e. that we create value for our stakeholders time after time. 9 1. Manage our portfolio with granular value creation plans and resource allocation 2. Leverage our unique strengths and assets to drive global scale and local relevance across our portfolio 3. Be a learning organization that delivers to our customers with speed and excellence 4. Live a growth and performance culture 5. Create value in a repeatable manner

Agenda 1. Introduction 2. Our transformation: Accelerate! 3. Defining The Blueprint 4. Implementation in North Latam 5. What is next 10

Treasury is a highly centralized function and operates with key regional Center of Excellence 11

Philips Integrated Landscape Group Treasury Banks KOPLNL 2 E SAP IHB 1 In-house Bank and Payment Factory Electronic payments, Cheques & Direct Debit instructions PF 01 Payment Factory – linked to own external bank account Bank statements, exposures and manual payments Treasury Portal SAP Products Software Services Solutions Bank station Deal station Philips Integrated Landscape (PIL) 12 12 Cash flow forecasting • Instructions • Payment files • Cheques • (SEPA) Direct Debits • Trade and Supplier Finance • Acknowledgement messaging • Bank statements • Billing • Electronic Bank Account Management • Collections • Relationship management Accounting Data analytics data Information Factory/ Teradata Reporting

Agenda 1. Introduction 2. Our transformation: Accelerate! 3. Defining The Blueprint 4. Implementation in North Latam 5. What is next 13

North Latam was identified as the cluster with the higher potential improvement Long supply lead time, high risk of nonavailability, excess and obsolesce Lack of transparency and suboptimal decision making Waste in order and fulfillment processes and limited flexibility Insufficient project management capabilities A very old, unsupported and very functionality-limited IT landscape 14 North Latam • Total GDP of EUR 700 b • Population of 120 m

North Latam was challenging from Treasury point of view 15 What are the complexity factors • • • Multiple banks each with different legacy formats and requirements Many legacy systems, connections and entities not on SAP platforms Moving people away from “their local solution” How can we make the difference • • • One point of connection to all banks via treasury, leveraging on Swift Standardizing and leverage on central processing Harmonizing processes and reducing processing costs Challenges to overcome • • • Complexity in local products and regulations Complexity in multi system environment Standardizing processes over a wide range of process

Country relevant treasury regulations Colombia El Salvador Panama Peru Disallowed, Strictly prohibited Allowed, No major restrictions on nonresidents making payments on behalf of residents Not a common market practice Cross-Border POBO Allowed Not a common market practice Tax on cash transfer (4 X 1000) Tax on intercompany loans Withholding tax Tax on cash transfer Tax on intercompany loans Withholding tax Puerto Rico Regulations Payment Factory (1)(2) Focus Area Withholding tax Local Currency freely convertible domestically only. Restrictions or Considerations Local currency freely convertible domestically and offshore No FX Control Local currency is freely convertible domestically and offshore Local Tax: 7% of commission (ITBMS) No FX Control Withholding tax Local currency is freely convertible domestically and offshore No FX Control Allowed, No major restrictions on nonresidents making payments on behalf of residents Withholding tax USD is considered local currency; no other currencies can be opened onshore. Local Currency is freely convertible domestically and offshore. No FX Control. 16 (1) With POBO, liabilities for all business units are discharged by the POBO agent vs. a payment f actory (e. g. , SSC) , which discharges liabilities for the business in the. Corporate. Treasury name of the business Internal unit May 21, unit 2014 use only (2) Payment Factory may trigger tax implications

Citi solution for countries Solution Principle: reconcile the needs of the (local) business with Philips treasury “Reality Check”: advisory role as an integral part of solution design “One Size Fits All” One connectivity, one file format, one process Covering all payment flows (supplier payments, payroll, tax) Covering all payment instruments (local instruments, e. g. bill of exchange in Peru, network cash collections etc in addition to “standard” ACH and wires) Delivering standardised reporting of collections across channels and instruments Integration of local banks One solution irrespective of whether the invoice is settled at maturity or in advance via the supply chain finance programme Alignment to Philips’ organisational construct (e. g. Payment Factory, Centralised Treasury) Regional single window project management approach, coordinating on the ground teams, to simplify and accelerate solution implementation 17 17

Agenda 1. Introduction 2. Our transformation: Accelerate! 3. Defining The Blueprint 4. Implementation in North Latam 5. What is next

Lessons learned What are the success factors • • How can we mitigate the risks Challenges for next stage 19 People on the ground know best; start the discussion in an early stage Consider materiality in of usage (cash flows) for future state products Don’t try to fix everything with IT; keep business sense (e. g. multibank sweep for local banks including bank statement) The importance of clear lines of communication, strong project governance and single co-ordination point covered in statement of work to ensure discipline and alignment • • Be open minded and have alternatives available Setup dedicated project team including local business and users Ensure adequate time allocated to testing cycles Operate a dual process (new and legacy solution) as part of migration cut over • • Training of local users Transition of current way of working – phased approach vs. big bang Project prioritization within overall projects Set up of Health Tec and Lighting Solutions company

Establishing two focused companies to capture highly attractive market opportunities Royal Philips Lighting Focused on the EUR 100+ billion Health. Tech opportunity Focused on the EUR 60+ billion Lighting solutions opportunity Serving the Health Continuum Leveraging strengths of Healthcare and Consumer Lifestyle • Higher growth and profitability • Improved customer focus in attractive markets • Faster decision making • Lean overhead structure Establishing stand-alone Lighting structure LED Components & Automotive (Announced in June 2014) • Considering options for capital market access for Philips Lighting • Release capital for investments in growth EUR 14. 8 billion sales 20131 1 Excluding 20 EUR 8. 4 billion sales 20132 Lifestyle Entertainment; including IG&S revenue allocation 2 Including LED Components & Automotive; including IG&S revenue allocation Note - Following the completion of the divestment of the AVM&A business, prior-period financials have been adjusted (for details please refer to note 1 “Significant accounting policies” in the Q 2 2014 Quarterly report and Semi-annual report)

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Health. Tech opportunity shaped by convergence between Healthcare and Consumer markets Healthy. Living Healthy Living Consumers increasingly engaged in their health journey Prevention Diagnosis Increased emphasis on population health Treatment Ongoing focus on total quality and cost of care Recovery Home Care shifting to lower cost settings and homes Opportunities from intersection of consumer and clinical spaces Customers expressing need for integrated solutions Systems integration, connected devices, big data and analytics Philips uniquely positioned with portfolio, insights and capabilities 22

Building the leader in Health. Tech Healthy Living Prevention Personal Care 11% Health & Wellness Domestic Appliances 16% Diagnosis 7% Imaging Systems Treatment 23% Recovery Patient Care & 152% Clinical Informatics Home Care Home 10% Healthcare Solutions Healthcare Informatics, Solutions & Services Customer Services 18% Share of Health. Tech sales 1 Strong positions across the Health Continuum Deep customer, clinical and consumer insights World-class innovation, design and marketing capabilities Systems integration, connected devices, big data & analytics, integrated solutions Trusted Philips brand 1 23 2 Sales last 12 months September 2014 Combined Patient Care & Clinical Informatics and Healthcare Informatics, Solutions & Services (not reported separately)

Industry dynamics create opportunities in Lighting Solutions Industry dynamics Resulting opportunities • Conventional to LED • Maximize value from the golden tail • New competitors emerging • • Differentiation in LED systems and services Differentiate in LED through innovation in and intelligence • Connectivity and intelligence create new growth avenues and open up adjacencies • Capture professional systems and services opportunity • Establish winning connected lighting ecosystems—home and professional Philips Lighting strongly positioned as global leader in Lighting solutions market 24

Philips Lighting well positioned to capture growth opportunities Components LED Components Automotive Light Sources 60% & Electronics Luminaires Systems Professional Lighting Solutions Consumer Luminaires 6% Share of Lighting sales 1 Leading global customer and market positions World-class innovation and design capabilities Deep application and systems integration expertise Unmatched distribution strength and brand 25 1 Sales last 12 months September 2014 Services 34%

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