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Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2013 bis zum 31.12.2013

BILANZ zum 31. Dezember 2013

AKTIVA

	31.12.2013 EUR	31.12.2012 EUR
A. ANLAGEVERMÖGEN
Finanzanlagen
Anteile an verbundenen Unternehmen	255,65	255,65
B. UMLAUFVERMÖGEN
I. Forderungen und sonstige Vermögensgegenstände
Sonstige Vermögensgegenstände	0,00	24,39
Sonstige Forderungen	2.829,73	0,00
II. Guthaben bei Kreditinstituten	29.460,19	29.394,83
	32.545,57	29.674,87
PASSIVA
	31.12.2013 EUR	31.12.2012 EUR
A. EIGENKAPITAL
I. Gezeichnetes Kapital	25.564,59	25.564,59
II. Verlustvortrag	- 9.274,62	- 9.269,51
III. Jahresüberschuss / -fehlbetrag	- 430,50	- 5,11
	15.903,78	16.289,97
B. Verbindlichkeiten
Verbindlichkeiten gegenüber verbundenen Unternehmen	16.686,10	13.384,9
Sonstige Verbindlichkeiten	0,00	0,00
	32.545,57	29.674,87

Gewinn- und Verlustrechnung für das Geschäftsjahr vom 01. Januar 2013 bis 31. Dezember 2013

	WJ 2013 EUR	WJ 2012 EUR
1. Sonstige betriebliche Aufwendungen	499,19	561,11
2. Sonstige Zinsen und ähnliche Erträge	0,00	0,00
3. Steuern vom Einkommen und vom Ertrag	- 68,69	- 556,00
4. Jahresüberschuss / -fehlbetrag	- 430,50	- 5,11

ANHANG für das Geschäftsjahr vom 01. Januar 2013 bis 31. Dezember 2013

Allgemeine Hinweise

Der vorliegende Jahresabschluss wurde gemäß §§ 242 ff. und §§ 264 ff. HGB sowie nach den einschlägigen Vorschriften des GmbHG aufgestellt. Es gelten die Vorschriften für kleine Kapitalgesellschaften. Die Gewinn- und Verlustrechnung ist nach dem Gesamtkostenverfahren aufgestellt.

Bilanzierungs- und Bewertungsmethoden

Für die Aufstellung des Jahresabschlusses waren unverändert die nachfolgenden Bilanzierungs- und Bewertungsmethoden maßgebend.

Bei den Finanzanlagen werden die Anteilsrechte zu Anschaffungskosten angesetzt.

Forderungen und sonstige Vermögensgegenstände sind zum Nennwert angesetzt.

Verbindlichkeiten sind zum Rückzahlungsbetrag angesetzt.

Erläuterungen zur Bilanz

Finanzanlagen

Der Anteilsbesitz besteht aus einer Minderheitsbeteiligung an der Respironics Deutschland GmbH & Co. KG, Herrsching.

Verbindlichkeiten

Die Verbindlichkeiten haben eine Restlaufzeit von weniger als einem Jahr.

Haftungsverhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist alleiniger unbeschränkt haftender Gesellschafter der Respironics Deutschland GmbH & Co. KG, Herrsching.

Sonstige Angaben

1. Gesellschaftsrechtliche Grundlagen

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist im Handelsregister von München unter HRB 116900 eingetragen.

Es gilt der Gesellschaftsvertrag vom 28. Mai 1997, zuletzt geändert durch den Beschluss vom 11. November 2008.

Gegenstand des Unternehmens

Gegenstand des Unternehmens ist das Halten und Verwalten von Beteiligungen sowie die Übernahme der persönlichen Haftung in Kommanditgesellschaften, insbesondere bei der Respironics Deutschland GmbH & Co. KG, deren Gegenstand die Entwicklung, Herstellung, der Vertrieb und der technische Kundendienst von medizinischen Geräten aller Art im In- und Ausland, insbesondere in Europa, ist.

Stammkapital

Das Stammkapital ist voll eingezahlt. Alleinige Gesellschafterin ist die Philips GmbH, Hamburg.

Geschäftsführung und Vertretung

Die Geschäftsführung setzt sich wie folgt zusammen:

	Alexander Schröder, Kaufmann
	Peter Hebblethwaite, Technischer Leiter

Die Geschäftsführer Peter Hebblethwaite und Alexander Schröder sind einzelvertretungsberechtigt.

2. Steuerliche Verhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH wird beim Finanzamt Fürstenfeldbruck unter der Steuernummer 117/116/31218 geführt.

Herrsching, 17. November 2014

Geschäftsführung

2d:T27a1,

Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2012 bis zum 31.12.2012

zum Geschäftsjahr vom 01. Januar 2012 bis zum 31. Dezember 2012

Bilanz zum 31. Dezember 2012

AKTIVA

	31.12.2012	31.12.2011
	EUR	EUR
A. ANLAGEVERMÖGEN
Finanzanlagen
Anteile an verbundenen Unternehmen	255,65	255,65
B. UMLAUFVERMÖGEN
I. Forderungen und sonstige Vermögensgegenstände
Sonstige Vermögensgegenstände	24,39	24,39
II. Guthaben bei Kreditinstituten	29.394,83	29.133,47
	29.674,87	29.413,51
PASSIVA
	31.12.2012	31.12.2011
	EUR	EUR
A. EIGENKAPITAL
I. Gezeichnetes Kapital	25.564,59	25.564,59
II. Verlustvortrag	-9.269,51	-11.299,15
III. Jahresüberschuss / -fehlbetrag	-5,11	2.029,64
	16.289,97	16.295,08
B. Verbindlichkeiten
Verbindlichkeiten gegenüber verbundenen Unternehmen	13.384,90	13.027,23
Sonstige Verbindlichkeiten	0,00	91,20
	29.674,87	29.413,51

Gewinn- und Verlustrechnung für das Geschäftsjahr vom 01. Januar 2012 bis 31. Dezember 2012

	WJ 2012	WJ 2011
	EUR	EUR
1. Sonstige betriebliche Aufwendungen	561,11	341,86
2. Sonstige Zinsen und ähnliche Erträge	0	-49,81
3. Steuern vom Einkommen und vom Ertrag	-556	-2.321,69
4. Jahresüberschuss / -fehlbetrag	-5,11	2.029,64

Anhang für das Geschäftsjahr vom 01. Januar 2012 bis 31. Dezember 2012

Allgemeine Hinweise

Bilanzierungs- und Bewertungsmethoden

Für die Aufstellung des Jahresabschlusses waren unverändert die nachfolgenden Bilanzierungs- und Bewertungsmethoden maßgebend.

Bei den Finanzanlagen werden die Anteilsrechte zu Anschaffungskosten angesetzt.

Forderungen und sonstige Vermögensgegenstände sind zum Nennwert angesetzt.

Verbindlichkeiten sind zum Rückzahlungsbetrag angesetzt.

Erläuterungen zur Bilanz

Finanzanlagen

Der Anteilsbesitz besteht aus einer Minderheitsbeteiligung an der Respironics Deutschland GmbH & Co. KG, Herrsching.

Verbindlichkeiten

Die Verbindlichkeiten haben eine Restlaufzeit von weniger als einem Jahr.

Haftungsverhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist alleiniger unbeschränkt haftender Gesellschafter der Respironics Deutschland GmbH & Co. KG, Herrsching.

Sonstige Angaben

1. Gesellschaftsrechtliche Grundlagen

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist im Handelsregister von München unter HRB 116900 eingetragen.

Es gilt der Gesellschaftsvertrag vom 28. Mai 1997, zuletzt geändert durch den Beschluss vom 11. November 2008.

Gegenstand des Unternehmens

Stammkapital

Das Stammkapital ist voll eingezahlt. Alleinige Gesellschafterin ist die Philips GmbH, Hamburg.

Geschäftsführung und Vertretung

Die Geschäftsführung setzt sich wie folgt zusammen:

	Alexander Schröder, Kaufmann
	Peter Hebblethwaite, Technischer Leiter

Die Geschäftsführer Peter Hebblethwaite und Alexander Schröder sind einzelvertretungsberechtigt.

2. Steuerliche Verhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH wird beim Finanzamt Fürstenfeldbruck unter der Steuernummer 117/116/31218 geführt.

Herrsching, 17. April 2013

Geschäftsführung

2e:T2430,

Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2011 bis zum 31.12.2011

Bilanz zum 31. Dezember 2011

AKTIVA

	EUR	31.12.2010 EUR
A. ANLAGEVERMÖGEN
Finanzanlagen
Anteile an verbundenen Unternehmen	255,65	255,65
B. UMLAUFVERMÖGEN
I. Forderungen und sonstige Vermögensgegenstände
Sonstige Vermögensgegenstände	24,39	9,71
II. Guthaben bei Kreditinstituten	29.133,47	29.116,84
	29.413,51	29.382,20
PASSIVA
	EUR	31.12.2010 EUR
A. EIGENKAPITAL
I. Gezeichnetes Kapital	25.564,59	25.564,59
II. Verlustvortrag	- 11.299,15	- 10.755,81
III. Jahresüberschuss / -fehlbetrag	2.029,64	- 543,34
	16.295,08	14.265,44
B. Verbindlichkeiten
Verbindlichkeiten gegenüber verbundenen Unternehmen	13.027,23	15.025,56
Sonstige Verbindlichkeiten	91,20	91,20
	29.413,51	29.382,20

Gewinn- und Verlustrechnung
für das Geschäftsjahr vom 01. Januar 2011 bis 31. Dezember 2011

	EUR	WJ 2010 EUR
1. Sonstige betriebliche Aufwendungen	341,86	158,24
2. Sonstige Zinsen und ähnliche Erträge	- 49,81	- 36,90
3. Steuern vom Einkommen und vom Ertrag	- 2.321,69	422,00
4. Jahresüberschuss / -fehlbetrag	2.029,64	- 543,34

Anhang für das Geschäftsjahr vom 01. Januar 2011 bis 31. Dezember 2011

Allgemeine Hinweise

Bilanzierungs- und Bewertungsmethoden

Für die Aufstellung des Jahresabschlusses waren unverändert die nachfolgenden Bilanzierungs- und Bewertungsmethoden maßgebend.

Bei den Finanzanlagen werden die Anteilsrechte zu Anschaffungskosten angesetzt.

Forderungen und sonstige Vermögensgegenstände sind zum Nennwert angesetzt.

Verbindlichkeiten sind zum Rückzahlungsbetrag angesetzt.

Erläuterungen zur Bilanz

Finanzanlagen

Der Anteilsbesitz besteht aus einer Minderheitsbeteiligung an der Respironics Deutschland GmbH & Co. KG, Herrsching.

Verbindlichkeiten

Die Verbindlichkeiten haben eine Restlaufzeit von weniger als einem Jahr.

Haftungsverhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist alleiniger unbeschränkt haftender Gesellschafter der Respironics Deutschland GmbH & Co. KG, Herrsching.

Sonstige Angaben

1. Gesellschaftsrechtliche Grundlagen

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist im Handelsregister von München unter HRB 116900 eingetragen.

Es gilt der Gesellschaftsvertrag vom 28. Mai 1997, zuletzt geändert durch den Beschluss vom 11. November 2008.

Gegenstand des Unternehmens

Stammkapital

Das Stammkapital ist voll eingezahlt. Alleinige Gesellschafterin ist die Philips GmbH, Hamburg.

Geschäftsführung und Vertretung

Die Geschäftsführung setzt sich wie folgt zusammen:

	Alexander Schröder, Kaufmann
	Peter Hebblethwaite, Technischer Leiter

Die Geschäftsführer Peter Hebblethwaite und Alexander Schröder sind einzelvertretungsberechtigt.

Geoffrey Waters ist mit Wirkung zum 24.06.2011 als Geschäftsführer ausgetreten.

2. Steuerliche Verhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH wird beim Finanzamt Fürstenfeldbruck unter der Steuernummer 117/116/31218 geführt.

Herrsching, 23. Oktober 2012

Geschäftsführung

2f:T268a,

Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2009 bis zum 31.12.2009

Bilanz zum 31. Dezember 2009

AKTIVA

	EUR	31.12.2008 EUR
A. ANLAGEVERMÖGEN
Finanzanlagen
Anteile an verbundenen Unternehmen	255,65	255,65
B. UMLAUFVERMÖGEN
I. Forderungen und sonstige Vermögensgegenstände
Sonstige Vermögensgegenstände	0,00	206,51
II. Guthaben bei Kreditinstituten	29.148,90	29.039,28
	29.404,55	29.501,44
PASSIVA
	EUR	31.12.2008 EUR
A. EIGENKAPITAL
I. Gezeichnetes Kapital	25.564,59	25.564,59
II. Verlustvortrag	-12.637,90	-9.390,36
III. Jahresüberschuss / -fehlbetrag	1.882,09	-3.247,54
	14.808,78	12.926,69
B. Verbindlichkeiten
Verbindlichkeiten gegenüber verbundenen Unternehmen	14.504,57	16.574,75
Sonstige Verbindlichkeiten	91,20	0,00
	29.404,55	29.501,44

Gewinn- und Verlustrechnung für das Geschäftsjahr vom 01. Januar 2009 bis 31. Dezember 2009

	EUR	RWJ 2008 EUR
1. Sonstige betriebliche Aufwendungen	350,43	3.109,55
2. Sonstige Zinsen und ähnliche Erträge	226,98	303,45
3. Steuern vom Einkommen und vom Ertrag	- 2.005,54	441,44
4. Jahresüberschuss / -fehlbetrag	1.882,09	-3.247,54

ANHANG für das Geschäftsjahr vom 01. Januar 2009 bis 31. Dezember 2009

Allgemeine Hinweise

Bilanzierungs- und Bewertungsmethoden

Für die Aufstellung des Jahresabschlusses waren unverändert die nachfolgenden Bilanzierungs- und Bewertungsmethoden maßgebend.

Bei den Finanzanlagen werden die Anteilsrechte zu Anschaffungskosten angesetzt.

Forderungen und sonstige Vermögensgegenstände sind zum Nennwert angesetzt.

Verbindlichkeiten sind zum Rückzahlungsbetrag angesetzt.

Erläuterungen zur Bilanz

Finanzanlagen

Der Anteilsbesitz besteht aus einer Minderheitsbeteiligung an der Respironics Deutschland GmbH & Co. KG, Herrsching.

Verbindlichkeiten

Die Verbindlichkeiten haben eine Restlaufzeit von weniger als einem Jahr.

Haftungsverhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist alleiniger unbeschränkt haftender Gesellschafter der Respironics Deutschland GmbH & Co. KG, Herrsching.

Sonstige Angaben

1. Gesellschaftsrechtliche Grundlagen

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist im Handelsregister von München unter HRB 116900 eingetragen.

Es gilt der Gesellschaftsvertrag vom 28. Mai 1997, zuletzt geändert durch den Beschluss vom 11. November 2008.

Gegenstand des Unternehmens

Geschäftsjahr

Mit Beschluss der Gesellschafterversammlung vom 11.11.2008 wurde das Geschäftsjahr mit Wirkung zum 31.12.2008 auf das Kalenderjahr umgestellt.

Stammkapital

Das Stammkapital ist voll eingezahlt. Alleinige Gesellschafterin ist die Philips GmbH, Hamburg.

Geschäftsführung und Vertretung

Die Geschäftsführung setzt sich wie folgt zusammen:

	Geoffrey C. Waters, Kaufmann
	Peter Hebblethwaite, Technischer Leiter
	Alexander Schröder, Kaufmann

Die Geschäftsführer Peter Hebblethwaite und Alexander Schröder sind einzelvertretungsberechtigt.

Der Geschäftsführer Geoffrey C. Waters ist einzelvertretungsberechtigt, mit der Befugnis, im Namen der Gesellschaft mit sich im eigenen Namen oder als Vertreter eines Dritten Rechtsgeschäfte abzuschließen.

2. Steuerliche Verhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH wird beim Finanzamt Fürstenfeldbruck unter der Steuernummer 117/116/31218 geführt.

Herrsching, 31. März 2010

Geschäftsführung

30:T4b49,

Respironics Deutschland Verwaltungsgesellschaft mbH

München

JAHRESABSCHLUSS

zum Rumpfgeschäftsjahr vom 01. Juli 2008 bis zum 31. Dezember 2008

BILANZ

zum 31. Dezember 2008

AKTIVA

	EUR	30.06.2008 EUR
A. ANLAGEVERMÖGEN
Finanzanlagen
Anteile an verbundenen Unternehmen	255,65	255,65
B. UMLAUFVERMÖGEN
I. Forderungen und sonstige Vermögensgegenstände
Sonstige Vermögensgegenstände	206,51	300,74
II. Guthaben bei Kreditinstituten	29.039,28	28.829,38
	29.501,44	29.385,77
PASSIVA
	EUR	30.06.2008 EUR
A. EIGENKAPITAL
I. Gezeichnetes Kapital	25.564,59	25.564,59
II. Verlustvortrag	- 9.390,36	- 4.583,44
III. Jahresfehlbetrag	- 3.247,54	- 4.806,92
	12.926,69	16.174,23
B. Verbindlichkeiten
Verbindlichkeiten gegenüber verbundenen Unternehmen	16.574,75	13.211,54
	29.501,44	29.385,77

Gewinn- und Verlustrechnung
für das Rumpfgeschäftsjahr vom 01. Juli 2008 bis 31. Dezember 2008

	EUR	2007/2008 EUR
1. Sonstige betriebliche Aufwendungen	5.006,89	5.354,67
2. Sonstige Zinsen und ähnliche Erträge	1.759,35	547,75
3. Jahresfehlbetrag	- 3.247,54	- 4.806,92

ANHANG

für das Rumpfgeschäftsjahr vom 01. Juli 2008 bis 31. Dezember 2008

Allgemeine Hinweise

Die Gewinn- und Verlustrechnung ist unverändert nach dem Gesamtkostenverfahren aufgestellt.

Bilanzierungs- und Bewertungsmethoden

Für die Aufstellung des Jahresabschlusses waren unverändert die nachfolgenden Bilanzierungs- und Bewertungsmethoden maßgebend.

Bei den Finanzanlagen werden die Anteilsrechte zu Anschaffungskosten angesetzt.

Forderungen und sonstige Vermögensgegenstände sind zum Nennwert angesetzt.

Verbindlichkeiten sind zum Rückzahlungsbetrag angesetzt.

Erläuterungen zur Bilanz

Finanzanlagen

Der Anteilsbesitz besteht aus einer Minderheitsbeteiligung an der Respironics Deutschland GmbH & Co. KG, Herrsching.

Verbindlichkeiten

Die Verbindlichkeiten haben eine Restlaufzeit von weniger als einem Jahr.

Haftungsverhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist alleiniger unbeschränkt haftender Gesellschafter der Respironics Deutschland GmbH & Co. KG, Herrsching.

Sonstige Angaben

Der Gewinn wird auf neue Rechnung vorgetragen.

Geschäftsführung

	Geoffrey C. Waters, Kaufmann
	Peter Hebblethwaite, Technischer Leiter
	Alexander Schröder, Kaufmann

Herrsching, 18. März 2009

Geschäftsführung

1. Gesellschaftsrechtliche Grundlagen

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist im Handelsregister von München unter HRB 116900 eingetragen.

Es gilt der Gesellschaftsvertrag vom 28. Mai 1997 zuletzt geändert durch den Beschluss vom 11. November 2008.

Gegenstand des Unternehmens

Geschäftsjahr

Die Gesellschafterversammlung vom 11. November 2008 hat die Änderung des Geschäftsjahres beschlossen. Dies wurde im Handelsregister München, HRB 116900, eingetragen.

Das Geschäftsjahr umfasst nunmehr den Zeitraum vom 1. Januar bis 31. Dezember eines jeden Jahres. Der Zeitraum vom 1. Juli 2008 bis zum 31. Dezember 2008 bildet ein Rumpfgeschäftsjahr.

Stammkapital

Das Stammkapital ist voll eingezahlt. Alleiniger Gesellschafter ist Respironics Colorado Inc., Westminster, Colorado, USA.

Geschäftsführung und Vertretung

Die Geschäftsführung setzt sich wie folgt zusammen:

	Geoffrey C. Waters, Kaufmann
	Peter Hebblethwaite, Technischer Leiter
	Alexander Schröder, Kaufmann

Ist nur ein Geschäftsführer bestellt, so vertritt er die Gesellschaft alleine. Sind mehrere Geschäftsführer bestellt, so wird die Gesellschaft entweder durch zwei Geschäftsführer oder durch einen Geschäftsführer zusammen mit einem Prokuristen vertreten.

Die Geschäftsführer Herr Peter Hebblethwaite und Herr Alexander Schröder sind einzelvertretungsberechtigt.

Der Geschäftsführer Herr Geoffrey C. Waters ist einzelvertretungsberechtigt, mit der Befugnis, im Namen der Gesellschaft mit sich im eigenen Namen oder als Vertreter eines Dritten Rechtsgeschäfte abzuschließen.

2. Steuerliche Verhältnisse

Die Respironics Deutschland Verwaltungsgesellschaft mbH ist beim Finanzamt Fürstenfeldbruck unter der Steuernummer 117/116/31218 registriert.

Anlage 1 zum Jahresabschluss zum 31. Dezember 2008

1. Sonstige betriebliche Aufwendungen:

	EUR
Gebühren	1,10
Notargebühren	309,50
Rechtsberatungsgebühren	2.790,45
Säumniszuschlag KSt	8,50
KSt/Soli 2008 Vz	1.867,34
GewSt	30,00
Summe:	5.006,89

2. Sonstige Zinsen und ähnliche Erträge:

	EUR
KSt/Soli 2007 Erstattung	1.455,90
Zinsen Kto. 2730197	11,35
Zinsen Kto. 802501811	292,10
Summe:	1.759,35

3. Jahresfehlbetrag:

sonstige betriebliche Aufwendungen	5.006,89
sonstige Zinsen und ähnliche Erträge	1.759,35
Jahresfehlbetrag	- 3.247,54

Anlage 2 zum Jahresabschluss zum 31. Dezember 2008

Buchungsliste (EUR)

Konto Nr.	Kontenbezeichnung	GuV		Bilanz
Konto Nr.	Kontenbezeichnung	Soll	Haben	Soll	Haben
	Gebühren	1,10
	Bank				1,10
	Bank			211,00
	sonstige VG (ZAST und Soli)			92,45
	Zinserträge		303,45
	Notargebühren	309,50
	Verbindlichkeiten gegenüber verbundenen Unternehmen				309,50
	Beratungsgebühren	2.790,45
	Verbindlichkeiten gegenüber verbundenen Unternehmen				2.790,45
	Verbindlichkeiten gegenüber verbundenen Unternehmen			1.642,58
	sonstige VG (ZAST und Soli)		186,68
	Körperschaftsteuer/Soli VJ		1.455,90
	Säumniszuschlag Körperschaftsteuer	8,50
	Verbindlichkeiten gegenüber verbundenen Unternehmen				8,50
	Gewerbesteuer VJ	30,00
	Verbindlichkeiten gegenüber verbundenen Unternehmen				30,00
	KSt/Soli 2008/2009	1.867,34
	Verbindlichkeiten gegenüber verbundenen Unternehmen				1.867,34

31:T1884,

Respironics Deutschland Verwaltungs GmbH

München

Jahresabschluss zum 30. Juni 2007

Bilanz zum 30. Juni 2007

Respironics Deutschland Verwaltungs GmbH, München

AKTIVA

	EUR	30.06.2006 EUR
A. ANLAGEVERMÖGEN
Finanzanlagen
Anteile an verbundenen Unternehmen	255,65	255,65
B. UMLAUFVERMÖGEN
L Forderungen und sonstige Vermögensgegenstände
Sonstige Vermögensgegenstände	262,86	128,32
II. Guthaben bei Kreditinstituten	28.450,38	28.139,46
	28.968,89	28.523,43
PASSIVA
	EUR	30.06.2006 EUR
A. EIGENKAPITAL
I. Gezeichnetes Kapital	25.564,59	25.564,59
II. Verlust-/Gewinnvortrag	-2.992,51	1.768,22
III. Jahresfehlbetrag	-1.590,93	-4.760,73
	20.981,15	22.572,08
B. VERBINDLICHKEITEN
Verbindlichkeiten gegenüber verbundenen Unternehmen	7.987,74	5.951,35
	28.968,89	28.523,43

Anhang für das Geschäftsjahr vom 1. Juli 2006 bis 30. Juni 2007

Respironics Deutschland Verwaltungs GmbH, München

Allgemeine Hinweise

Die Gewinn- und Verlustrechnung ist unverändert nach dem Gesamtkostenverfahren aufgestellt.

Bilanzierungs- und Bewertungsmethoden

Für die Aufstellung des Jahresabschlusses waren unverändert die nachfolgenden Bilanzierungs- und Bewertungsmethoden maßgebend.

Bei den Finanzanlagen werden die Anteilsrechte zu Anschaffungskosten angesetzt. Forderungen und sonstige Vermögensgegenstände sind zum Nennwert angesetzt. Verbindlichkeiten sind zum Rückzahlungsbetrag angesetzt.

Erläuterungen zur Bilanz

Finanzanlagen

Der Anteilsbesitz besteht aus einer Minderheitsbeteiligung an der Respironics Deutschland GmbH & Co. KG, Herrsching.

Verbindlichkeiten

Die Verbindlichkeiten haben eine Restlaufzeit von weniger als einem Jahr.

Haftungsverhältnisse

Die Respironics Deutschland Verwaltungs GmbH ist alleiniger unbeschränkt haftender Gesellschafter der Respironics Deutschland GmbH & Co. KG, Herrsching.

Sonstige Angaben

Der Gewinn wird auf neue Rechnung vorgetragen.

Geschäftsführung

Geoffrey C. Waters, Kaufmann

Peter Hebblethwaite, Technischer Leiter

Alexander Schröder, Kaufmann (ab 1. Januar 2004)

Herrsching, 31. August 2007

Geschäftsführung

32:T27a8df,

Philips GmbH

Hamburg

Befreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2022 bis zum 31.12.2022

Annual Report 2022

Committed to improving people's health and well-being

PDF/printed version

This document is the PDF/printed version of the 2022 Annual Report of Royal Philips and has been prepared for ease of use. The 2022 Annual Report was made publicly available pursuant to section 5:25c of the Dutch Financial Supervision Act (Wet op hetfinancieel toezicht), and was filed with Netherlands Authority for the Financial Markets in European single electronic reporting format (the ESEF package). The ESEF package is available on the company's website at https://www.results.philips.com/downloadcenter#ar22 and includes a human readable XHTML version of the 2022 Annual Report. In any case of discrepancies between this PDF version and the ESEF package, the latter prevails.

IFRS basis of presentation

The financial information included in this document is based on IFRS, as explained in General information to the Consolidated financial statements, starting on page 151, 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 259.

References to Philips

References to the 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.

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, starting on page 141 and Company financial statements, starting on page 225 contain the statutory financial statements of the company. The introduction to the chapter Group financial statements, starting on page 141 sets out which parts of this Annual Report form the Management report within the meaning of Section 2:391 of the Dutch Civil Code.

Contents

1 Message from the CEO

2 Board of Management and Executive Committee

3 Strategy and Businesses

3.1 Our strategic focus

3.2 How we create value with sustainable impact

3.3 Materiality analysis

3.4 Our businesses

3.5 Our geographies

3.6 Supply chain and procurement

4 Financial performance

4.1 Performance review

4.2 Factors impacting performance

4.3 Results of operations

4.4 Restructuring and acquisition-related charges

4.5 Acquisitions and divestments

4.6 Cash flows

4.7 Financing

4.8 Debt position

4.9 Liquidity position

4.10 Shareholders' equity

4.11 Cash obligations

4.12 Dividend

4.13 Analysis of 2021 compared to 2020

4.14 Outlook

5 Environmental, Social and Governance

5.1 ESG reporting framework

5.2 Philips' ESG commitments

5.3 Environmental performance

5.4 Social performance

5.5 Governance

5.6 Philips' ESG performance at a glance

5.7 ESG by key country

6 Risk management

6.1 Our approach to risk management

6.2 Risk factors

6.3 Strategic risks

6.4 Operational risks

6.5 Financial risks

6.6 Compliance risks

7 Supervisory Board

8 Supervisory Board report

8.1 Report of the Corporate Governance and Nomination & Selection Committee

8.2 Report of the Remuneration Committee

8.3 Report of the Audit Committee

8.4 Report of the Quality & Regulatory Committee

9 Corporate governance

9.1 Introduction

9.2 Board of Management and Executive Committee

9.3 Supervisory Board

9.4 Other Board-related matters

9.5 General Meeting of Shareholders

9.6 Risk management approach

9.7 Annual financial statements and external audit

9.8 Stichting Preferente Aandelen Philips

9.9 Investor Relations

9.10 Major shareholders

9.11 Corporate information

10 Group financial statements

10.1 Management's report on internal control

10.2 Report of the independent auditor

10.3 Independent auditor's report on internal control over financial reporting

10.4 Consolidated statements of income

10.5 Consolidated statements of comprehensive income

10.6 Consolidated balance sheets

10.7 Consolidated statements of cash flows

10.8 Consolidated statements of changes in equity

10.9 Notes to the Consolidated financial statements

11 Company financial statements

11.1 Statements of income

11.2 Balance sheets before appropriation of results

11.3 Statements of changes in equity

11.4 Notes to the Company financial statements

12 Further information

12.1 Appropriation of profits

12.2 Independent auditor's report

12.3 Reconciliation of non-IFRS information

12.4 Other Key Performance Indicators

12.5 Forward-looking statements and other information

12.6 Investor information

12.7 Definitions and abbreviations

13 ESG statements

13.1 Approach to ESG reporting

13.2 Economic indicators

13.3 Environmental statements

13.4 Social statements

13.5 Governance indicators

13.6 Assurance report of the independent auditor

2022 at a glance

Social impact

•	1.81 billion lives improved
•	202 million in underserved communities

Patient safety & quality

•	Strengthening patient safety and quality Philips' highest priority
•	Updated Quality Policy, further implementation of Accelerating Patient Safety & Quality program, and mandatory Quality training completed by all employees

Customers

•	Around 100 new long-term strategic partnerships
•	Approximately 40% recurring revenues

Innovation

•	Increased focus on innovation impact and productivity, with patient safety and quality at the core of innovation design
•	Philips named as a Clarivate Top 100 Global Innovator for 9 ^th year in succession

Operations

•	Significant focus and effort on Philips Respironics recall - around 90% of production required for delivery of replacement devices to patients completed by year-end
•	Challenging macroeconomic/geopolitical environment giving rise to high inflation, resource shortages and global supply chain headwinds, in combination with operational challenges causing supply delivery delays

Environmental sustainability

•	Circular revenues at 18% of sales
•	Updated carbon reduction targets approved by Science Based Targets initiatives (SBTi)
•	CDP 'A List' rating for 10th year in a row

People & culture

•	Reinvigorated culture and leadership focused on organic growth, people- and patientcentric innovation at scale, and improved execution
•	30% representation of women in senior leadership roles

Financials

•	EUR 17.8 billion sales impacted by global and industry-wide challenges
•	Profitability also affected by consequences of the Respironics field action
•	Productivity measures and restructuring introduced

1 Message from the CEO

"2022 was a very disappointing year for Philips and its stakeholders, and we are taking firm action to strengthen patient safety and quality, improve our execution and step up performance with urgency in 2023."

Royal Philips

Roy Jakobs, CEO

Dear Stakeholder,

Philips is a company with strong market leadership positions, an extensive customer base, strong innovation portfolio, talented employees, and a global purpose-driven brand. Yet, as our 2022 performance underlines, we are not extracting the full value of our businesses and have disappointed many stakeholders.

My priority as CEO is to address operational challenges, improve performance, and drive progressive value creation through a strategy of focused organic growth and an innovation model shift to increase the impact of patient- and people-centric innovation at scale. Execution will be the key value driver, with three clear priorities around improving patient safety and quality, creating more reliable and resilient supply chains, and simplifying the way we work, so we are more agile and competitive.

Addressing priority challenges - improved execution as key value driver Our first priority is to rebuild Philips' reputation around patient safety and quality. The recall of specific Respironics sleep therapy devices and ventilators let down the patients who depended on them, and the doctors caring for those patients. We apologize deeply forthat and are working hard to restore trust with all stakeholders. By year-end, following the substantial ramp-up of capacity, Philips Respironics had completed around 90% of the production required for the delivery of replacement devices to patients.

In consultation with regulators around the world, we have also been conducting a comprehensive test and research program to better understand the potential health risks associated with the use of affected devices. I am very conscious that 18 months is long, but this work had to be done thoroughly. I am encouraged by the test results for the first- generation DreamStation devices, that account for over two thirds of the registered affected devices: the prevalence of visible foam degradation is low, and the emission of the detected volatile organic compounds and particulates are within the applicable safety limits and not expected to result in appreciable harm to health in patients.

We are fully committed to completing the Respironics recall and testing program in 2023.

We will also implement all measures agreed with the US Food & Drug Administration (FDA) and US Department of Justice, including a consent decree, and rebuild ties with the FDA and other national regulators. We have put the leadership and end-to-end organization in place and have invested significantly in doing so. Across the company, we have assigned the highest priority to making the necessary step-up in patient safety and quality management and have elevated leadership of patient safety and quality to Executive Committee level.

An integral aspect of quality is the ability to deliver and install equipment on time and to the required specifications. To this end, we are taking decisive action to make our supply chain more reliable and predictable, by securing near-term supply, redesigning and pruning our portfolio, and moving from a 'one size fits all' supply chain structure to a more agile, tailored value chain model per business, with dedicated and upgraded domain expertise. This will secure more deliveries, drive faster order-book conversion and build down inventory.

We are also simplifying the way we work to drive accountability and agility, with the aim of unlocking significant productivity and margin gains. This simplification - with end-to-end businesses with single accountability and more focused targets, supported by a much leaner enterprise layer, strong regions and a reinvigorated culture of patient- and people-centricity, innovation impact and clear accountability - is a primary enabler to drive flawless execution.

The set of measures we have taken includes the very difficult, yet necessary decisions announced in October 2022 and January 2023 to reduce our workforce by 4,000 employees and then a further 6,000 respectively, as we drive a major step-up in productivity. We will strive to implement these reductions with due respect for every employee affected and in line with all local rules and regulations.

We believe that, together, these measures will help us establish the culture, capabilities and infrastructure needed to consistently execute and deliver as a reliable patient- and peoplecentric health technology company.

Focused organic growth in Diagnosis & Treatment, Connected Care and Personal Health

As well as restoring our reputation as a responsible patient- and people-centric innovation leader in health technology, we urgently need to get back on course to create value with sustainable impact. To do this, we will drive organic growth through scale and leadership:

•	Focusing investments to accelerate growth in Image Guided Therapy, Ultrasound and Monitoring, where we have strong #1 or #2 positions, and expand our leadership position in Personal Health
•	Scaling our new Enterprise Informatics business
•	Driving margin improvement in Diagnostic Imaging
•	Restoring the Sleep & Respiratory Care business.

We will leverage our distinctive market positions, especially our strong presence in North America and many international markets, while further localizing to support our leadership position in China.

Patient- and people-centric innovation at scale

We will continue to invest significantly in innovation, but are making a number of important changes to increase the impact of our patient- and people-driven innovation. Focusing our resources on fewer, better-resourced and more impactful projects, we will concentrate a higher proportion of our R&D resources in the businesses to ensure that innovation is done closer to our customers. We will scale and accelerate innovations, driven by the business and supported by rightsized corporate research, with patient safety, quality and sustainability at the core of innovation design. The technological and business model innovation that Philips brings to healthcare across care settings - often as part of long-term partnerships - is critical, making care delivery more convenient and sustainable.

2022 performance

Looking back on last year, sales increased nominally to EUR 17.8 billion, while several factors weighed down on profitability. Performance was impacted by our efforts to mitigate supply chain and inflationary pressures and the revenue and cost consequences of the Philips Respironics sleep recall, whilst at the same time dealing with global challenges such as the COVID situation in China, volatile demand and supply, and the war in Ukraine. As we worked through the operational challenges, we progressed on our execution priorities in the fourth quarter and saw initial signs of improvement.

I find it greatly encouraging that, despite our recent difficulties, Philips' purpose, strategy and solutions resonate strongly with customers, as evidenced by the around 100 long-term strategic partnerships we entered into with hospitals and health systems around the world in 2022, and by the continued strength of our order book.

Delivering on our ESG commitments

Environmental, Social & Governance (ESG) are three key dimensions defining our approach to doing business responsibly and sustainably. In 2022, we reached 1.81 billion people with our products and services, including 202 million in underserved communities - taking us a step closer to our goal of improving 2 billion lives per year by 2025, including 300 million in underserved communities.

We continued to work hard to deliver on our other key ESG commitments. For example, our updated carbon reduction targets were approved by the Science Based Targets initiative (SBTi), and we were included in CDP's climate action 'A-List' for the 10th year in a row. We see increasing momentum within the healthcare industry and on the part of our customers to reduce their environmental impact, and we are well placed - with innovations such as our BlueSeal magnet for helium-free-for-life MR and our Circular portfolio - to support that trend and help create a sustainable infrastructure for the future of healthcare.

Looking ahead

We remain cautious in light of the subdued economic outlook for the year, staffing and inflationary pressures facing our customers, geopolitical risks, supply and demand volatility, and uncertainties around ongoing consent decree negotiations, litigation and Department of Justice investigations. Nevertheless, we expect that, by prioritizing patient safety and quality, tightening our focus on innovation and strengthening our category leadership areas, while at the same time improving execution and taking a disciplined approach to capital, we will be able to progressively create value with sustainable impact. 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 in shares.

On behalf of the Executive Committee, I would like to acknowledge, once again, that 2022 has been very disappointing and we carry accountability for the plan to bring Philips back to where it belongs. I want to thank our customers and their patients fortheir understanding - and our suppliers and ecosystem partners fortheir support - over this past year. I appreciate our employees' hard work and willingness to embrace change and drive performance improvement. And I wish to thank our shareholders and other stakeholders fortheir continued support in these challenging times.

I am honored to have been tasked with leading our company and am heartened by the support I have encountered from our employees and customers, investors and other stakeholders. I am realistic about the challenges we face, but have full confidence in our plan of action and am firm in my resolve to lead Philips back to a position of strength in a world that needs meaningful innovation.

Roy Jakobs, Chief Executive Officer

2 Board 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, starting on page 132 within the chapter Corporate governance.

Members of the Board of Management

Roy Jakobs

Born 1974, Dutch and German

Chief Executive Officer (CEO)

Chairman of the Board of Management and the Executive Committee since October 2022

Roy Jakobs joined Philips in 2010 and has held various global leadership positions across the company, starting as Chief Marketing & Strategy Officer for Philips Lighting. In 2012, he became Market Leader for Philips Middle East & Turkey, leading the Healthcare, Consumer, and Lighting businesses out of Dubai. Subsequently, he became Business Leader of Domestic Appliances, based in Shanghai, in 2015. In 2018, Roy joined the Executive Committee as Chief Business Leader of the Personal Health businesses and in early 2020 he started as Chief Business Leader of Connected Care. Prior to his career at Philips, he held various management positions at Royal Dutch Shell and Reed Elsevier.

Abhijit Bhattacharya

Born 1961, Indian

Executive Vice President

Member of the Board of Management since December 2015

Chief Financial Officer

Abhijit Bhattacharya first joined Philips in 1987 and has held multiple senior leadership positions across various businesses and functions in Europe, Asia Pacific and the US. Between 2010 - 2014, he was the Head of Investor Relations of Philips, and subsequently, CFO of Philips Healthcare, Philips' largest sector at the time. Prior to 2010, Abhijit was Head of Operations & Quality at ST-Ericsson, the joint venture of ST Microelectronics and Ericsson, and he was CFO of NXP's largest business group.

Marnix van Ginneken

Born 1973, Dutch

Executive Vice President

Member of the Board of Management since November 2017

Chief ESG & Legal Officer

Marnix van Ginneken joined Philips in 2007 and became Head of Group Legal in 2010. In 2014, Marnix became Chief Legal Officer of Royal Philips and Member of the Executive Committee. He is responsible for ESG/ Sustainability, Legal, Intellectual Property & Standards and Government & Public affairs. Since 2011, he is also Professor of International Corporate Governance at the Erasmus School of Law in Rotterdam. Before joining Philips, Marnix worked for Akzo Nobel and as an attorney in a private practice.

Other members of the Executive Committee

as of December 31,2022

Willem Appelo

Born 1964, Dutch

Executive Vice President

Chief Operations Officer

Andy Ho

Born 1961, Chinese/Canadian

Executive Vice President

Chief Market Leader of Philips Greater China

Deeptha Khanna

Born 1976, Singaporean

Executive Vice President

Chief Business Leader Personal Health

Bert van Meurs

Born 1961, Dutch

Executive Vice President

Chief Business Leader Image Guided Therapy and jointly responsible for Diagnosis & Treatment

Edwin Paalvast

Born 1963, Dutch

Executive Vice President

Chief of International Markets

Shez Partovi

Born 1967, Canadian

Executive Vice President

Chief Innovation & Strategy Officer

Vitor Rocha

Born 1969, Brazilian/American

Executive Vice President

Chief Market Leader of Philips North America

Daniela Seabrook

Born 1973, Swiss

Executive Vice President

Chief Human Resources Officer

Kees Wesdorp

Born 1976, Dutch

Executive Vice President

Chief Business Leader Precision Diagnosis and jointly responsible for Diagnosis & Treatment

This page reflects the composition of the Executive Committee as per December 31, 2022. As announced on December 8, 2022, Kees Wesdorp left the company on January 1, 2023, with Bert van Meurs (Chief Business Leader for the Image Guided Therapy businesses) temporarily expanding his role to include the leadership of the Precision Diagnosis businesses. As announced on January 30, 2023, Steve C. de Baca and Jeff DiLullo joined the Executive Committee, effective February 6, 2023, as Chief Patient Safety & Quality Officer and Chief Market Leader of Philips North America, respectively. As such, Mr DiLullo succeeds Vitor Rocha, who left the company effective as per the same date. Philips expects to announce new leaders for its Connected Care businesses (which was the responsibility of Roy Jakobs until his appointment as CEO) as well as for its Precision Diagnosis businesses, in 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

Continued strong customer interest in our innovative healthcare technology

Challenging macroeconomic/geopolitical environment giving rise to high inflation, resource shortages, and global supply chain headwinds

Significant focus and effort on Philips Respironics recall: around 90% of production required for delivery of replacement devices to patients completed by year-end

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

3 Strategy and Businesses

3.1 Our strategic focus

A strategy of focused organic growth, founded on clear choices in business and innovation, and improved execution

Over the past 10 years, Philips has undergone a transformation to reshape its portfolio and become a focused health technology company. As a result, we are active in highly attractive segments that offer significant potential for growth and margin expansion.

These markets are attractive due to the underlying growth of demand for access to healthcare from an aging and growing population. This in turn fuels the need for meaningful innovation to address the rising healthcare spending and staff shortages and make healthcare more efficient and productive, while driving better outcomes.

At Philips, we view the provision and collection of data from patient monitors, imaging devices, and Electronic Medical Records as the foundation upon which Artificial Intelligence (Al) propositions can be built to turn clinical data into actionable insights for patients, providers, and consumers. In addition to providing clinical insights, the same system, informatics and service solutions also provide improved operational forecasting - something our customers have been requesting since COVID-19 to help them improve productivity.

When we perform all of the above for a particular health condition, such as cardiac disease, we establish domain expertise across various sites of care for that disease state. Our healthcare customers are asking for integrated innovations that enable them to care for patients both in the hospital and in outpatient settings. In parallel we continue to provide impactful consumer health propositions.

Creating value with sustainable impact

2022 was a difficult year for Philips as its business and financial performance suffered due to challenges in execution, quality and supply, and a complex operating model. Going forward, Philips will address these operational challenges, improve performance, and drive progressive value creation through a strategy of a) focused organic growth, b) scalable patient- and people-centric innovation, and c) focus on reliable execution, prioritizing patient safety and quality, supply chain reliability, and a simplified operating model. All supported by a reinvigorated culture of accountability, empowerment and strengthened health technology talent and capabilities.

Focused organic growth

Having transformed to become a health technology company in recent years, we will now focus on extracting the full value of our strong portfolio with leading positions.

We will focus investments to accelerate growth and margin expansion in areas - Image Guided Therapy, Ultrasound, Monitoring, and Personal Health - where we have strong #1 or #2 positions. In 2022, approximately 70% of our sales were generated by businesses with such leadership positions in the hospital and the home. We will also scale our new Enterprise Informatics business, drive margin improvement in Diagnostic Imaging, and restore Sleep & Respiratory Care.

Scalable patient- and people-centric innovation

Philips' purpose-to improve people's health and well-being through meaningful innovation - is at the center of everything we do. This core principle has never been more relevant than it is in these challenging times. As a leading health technology company, we believe that-viewed through the lens of customer needs - patient- and people-centric innovation can improve people's health and healthcare outcomes, as well as making care more convenient and sustainable, both in the hospital and at home.

Given our global presence, strong enterprise informatics platforms, (ambulatory) monitoring and imaging data, as well as our capabilities to support care across settings, we believe Philips is well positioned to do this, and - leveraging our strong clinical, consumer and Environmental, Social & Governance (ESG) franchise, and our strong brand - do it in a convenient and sustainable way.

In the consumer domain, we develop innovative solutions that support healthier lifestyles, prevent disease, and help people to live well with chronic illness, also in the home and community settings.

In clinics and hospitals, we are teaming up with healthcare providers to innovate and transform the way care is delivered. We listen closely to our customers' needs and together we co-create solutions that help our customers improve outcomes, patient and staff experience and productivity. We are embedding Al and data science in our propositions - for instance, applying the power of predictive data analytics and artificial intelligence at the point of care -to leverage the value of data in the clinical and operational domains, aiding clinical decision making and improving the quality and efficiency of healthcare services. Increasingly, we are working together with our health systems customers in novel business models, including outcome-oriented payment models, that align their interests and ours in long-term partnerships.

Going forward, we will focus our innovation on where we see customer needs evolving. To improve outcomes, we will support clinical workflows in areas where we have domain leadership, e.g. cardiology and the ICU. To increase productivity in a system having to contend with high patient volumes, staff shortages and rising costs, we will enhance care pathways and operational workflows through integrated technology infrastructure, and we will leverage our (enterprise) informatics and hardware innovation to lower costs and reduce the burden on staff. To improve the delivery of care outside the hospital, we will utilize our consumer/home experience and our strength in data and informatics to connect and support care for patients, with better outcomes, across settings.

In doing so, we will leverage leading technologies across our portfolio. To name just a handful, by way of example: our Ingenia Ambition MR system with BlueSeal magnet that offers helium-free-for-life operation; our Azurion suite of interventional cardiology solutions; our IntelliVue MX750 and MX850 patient monitors and MCOT ambulatory cardiac ePatch offering comprehensive monitoring capabilities across sites of care; and our multivendor, multi-modality, multi-site Radiology Operations Command Center virtualized imaging solution.

While we continue to invest significantly in innovation, we are making a number of important changes to increase the impact of our patient- and people-driven innovation and generate better returns. Moving forward, we will focus our resources on a smaller number of projects and products with greater potential for impact. We will scale and accelerate innovations, driven by the business and supported by rightsized Group research, with patient safety, quality and sustainability at the core of design. By bringing our central innovation activities into the heart of the businesses, we are bringing our system and software innovation closer to our customers.

Focus on improved execution

The key driver for our performance improvement is improved execution grounded in three decisive actions:

1.	patient safety and quality: putting this at the heart of (business) innovation, elevating the function to Executive Committee level, and embedding it in our culture, e.g. by giving all employees dedicated patient safety and quality objectives;
2.	supply chain reliability: moving from a centralized 'one size fits all' supply chain structure to a more agile, dedicated end-to-end set-up per business, and pruning and redesigning products;
3.	a simplified operating model: end-to-end businesses with single accountability working in a leaner, more agile way, guided by patient- and people-centricity and accountable leadership with empowered teams.

Our ambition

With our global reach, market leadership positions, deep clinical and technological insights, and customer-centric, patient- and people-focused innovation capability, we believe Philips is well placed to create further value in a changing health and care world.

We aim to improve the lives of 2 billion people a year by 2025, including 300 million in underserved communities, rising to 2.5 billion and 400 million respectively by 2030. This is one of the comprehensive set of commitments we have deployed across all the Environmental, Social and Governance (ESG) dimensions that help guide the execution of our strategy and support our contribution to UN Sustainable Development Goals 3 (Ensure healthy lives and promote well-being for all at all ages), 12 (Ensure sustainable consumption and production patterns) and 13 (Take urgent action to combat climate change and its impacts).

We strive to deliver superior, long-term value to patients, customers, consumers and shareholders, while acting responsibly towards our planet and society, in partnership with our stakeholders. We believe that, executed with rigor, discipline and quality, the strategic imperatives outlined above, in combination with a relentless focus on execution, will put us back on track for a future of progressive value creation with sustainable impact.

3.2 How we create value with sustainable impact

Based on the International Integrated Reporting Council framework, we use various resources to create value with sustainable impact for our stakeholders.

Resource inputs

Human

•	Employees 77,233,120-plus nationalities, 39% female
•	Philips University 1,344,956 courses, 1,880,416 hours, 1,009,459 training completions
•	32,742 employees in growth geographies
•	Focus on Inclusion & Diversity

Intellectual

•	Invested in R&D EUR 2.1 billion (Green Innovation EUR 168 million)
•	Employees in R&D 11,690

Financial

•	Equity EUR 13.3 billion
•	Net debt ^*) EUR 7.0 billion

Manufacturing

•	Employees in production 39,742
•	Industrial sites 23, cost of materials used EUR 4.3 billion
•	Total assets EUR 31 billion
•	Capital expenditures on property, plant and equipment EUR 444 million

Natural

•	Energy used in manufacturing 338.1 gigawatt hours
•	Water used 677,632 m ³
•	'Closing the loop' on all our professional medical equipment by 2025

Social

•	Philips Foundation
•	Stakeholder engagement
•	Volunteering policy

Value outcomes

Human

•	Employee Engagement Index 77% favorable
•	Sales per employee EUR 230,817
•	Safety 172 Total Recordable Cases

Intellectual

•	New patent filings 920
•	Royalties EUR 419.0 million
•	171 design awards

Financial

•	Comparable sales growth ^*) (2.8)%
•	Adjusted EBITA ^*) as a % of sales 7.4%
•	Free cash flow ^*) EUR (961) million

Manufacturing

•	EUR 12.1 billion revenues from goods sold

Natural

•	71.7% Green/EcoDesigned Revenues
•	18% revenues from circular propositions
•	Net CO ₂ emissions from own operations down to zero kilotonnes
•	62,000 tonnes (estimated) materials used to put products on the market
•	Waste 22,802 tonnes, of which 91% repurposed

Social

•	Brand value USD 12.8 billion (Interbrand)
•	Partnerships with UNICEF, Red Cross, Amref and Ashoka

Societal impact

Human

•	Employee benefit expenses EUR 6,952 million, all staff paid at least a Living Wage
•	Appointed 71% of our senior positions from internal sources
•	30% of Leadership positions held by women

Intellectual

•	Around 55% of revenues from new products and solutions introduced in the last three years
•	Approximately 70% of sales from leadership positions

Financial

•	Market capitalization EUR 12 billion at year-end
•	Long-term credit rating A-1, Baa12, BBB+3 ^**
•	Dividend EUR 741 million

Manufacturing

•	100% electricity from renewable sources

Natural

•	Environmental impact of Philips operations up to EUR 128 million
•	All 23/23 industrial sites 'Zero Waste to Landfill' at year-end 2022
•	Updated CO ₂ reductions approved by the Science Based Targets initiative

Social

•	1.81 billion Lives Improved, of which 202 million in underserved communities (including 2.2 million via Philips Foundation)
•	459,000 employees impacted at suppliers participating in the 'Beyond Auditing' program
•	Total tax contribution EUR 3,469 million (taxes paid/ withheld)
•	Income tax benefit EUR 113 million; the effective income tax rate is 6.5%

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.
^**) 1 Fitch,2 Moody's,3 Standards & Poor's

3.3 Materiality analysis

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. Assessing these topics enables us to prioritize and focus upon the most material topics and effectively address these in our policies, programs and targets. 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, starting on page 45.

Similar to 2021, we used an evidence-based approach to materiality analysis, powered by a third-party Al-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. In our 2022 materiality analysis, we identified a list of topics that are material to our businesses. With this data- driven approach to materiality analysis 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.

Public health risks emerged as a new material topic in 2020, as a result of the COVID-19 pandemic, and it was assessed as a material topic in 2022 as well.

Changes in 2022

On the external importance axis, the most significant increases compared to 2021 were Sustainable value creation, Geopolitical events, Responsible and Resilient Supply Chains, Talent & development, and Energy efficiency. On the internal importance axis, there were significant increases on Pollution, Governance, Access to (quality and affordable) care, Competition & market access, and Talent & development.

Double materiality

After completing the regular materiality analysis, we completed a preliminary 'double materiality' analysis, in preparation for the upcoming requirements of the EU Corporate Sustainability Reporting Directive (CSRD). The double materiality analysis 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 listed above. 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. The results of the double materiality analysis are depicted below.

From the financial materiality analysis, the topics that ranked highest were: (1) from the environmental topics, Circular economy, and Climate change; (2) from the social topics, Fair & inclusive workplace, Employee well-being, health & safety, and Responsible & resilient supply chains; and (3) from the governance topics, Business ethics & General Business Principles, Big data & privacy, and Product responsibility & safety.

From the impact materiality analysis, the topics that ranked the highest were: (1) from the environmental topics, Climate change, and Energy efficiency; (2) from the social topics, Public health risks and Employee well-being, health & safety, and Fair & inclusive workplace; and (3) from the governance topics, Big data & privacy and Innovation & research. These topics are all covered in more detail in the Annual Report 2022 and monitored regularly.

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

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

For more information on materiality, refer to Material topics and our focus, starting on page 267.

3.4 Our businesses

Our reporting structure in 2022

Koninklijke Philips N.V. (Royal Philips) is the parent company of the Philips Group. In 2022, the reportable segments were Diagnosis & Treatment businesses, Connected Care businesses, and Personal Health businesses, each having been responsible for the management of its business worldwide. Additionally, Royal Philips identifies the segment Other.

Philips
Diagnosis & Treatment business	Connected Care business	Personal Health business	Other
Diagnostic Imaging	Hospital Patient Monitoring	Oral Healthcare	Innovation
Ultrasound	Emergency Care	Mother & Child Care	IP Royalties
Enterprise Diagnostic Infomatics	Sleep & Respiratory Care	Personal Care	Central costs
Image Guided Therapy	Connected Care Informatics		Other

Focus of external reporting

Philips Group

Total sales by reportable segment

	2022
Diagnosis & Treatment	51%
Connected Care	25%
Personal Health	20%
Other	4%

Our reporting structure in 2023 and beyond

As announced on January 30, 2023, Philips is changing its operating model to end-to-end businesses with single accountability. In 2023, the businesses will be as follows.

Philips
Diagnosis & Treatment businesses	Connected Care businesses	Personal Health businesses	Other
Diagnostic Imaging	Enterprise Informatics	Personal Health	Innovation
Ultrasound	Monitoring		IP Royalties
Image Guided Therapy	Sleep & Respiratory Care		Central costs
			Other

Focus of external reporting

3.4.1 Diagnosis & Treatment businesses in 2022

Our Diagnosis & Treatment businesses create value through their unique portfolio of innovative solutions - consisting of systems, smart devices, software and services, powered by Al-enabled informatics -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 the full potential of the Quadruple Aim - better health outcomes, improved patient and staff experience, and lower cost of care.

Serving diagnostic enterprise imaging markets globally, 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, integrated diagnostics and pathway informatics, driving enterprise-wide operational efficiency and helping 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 and diagnostic and therapeutic devices, which optimize interventional procedures to deliver more effective treatment, better outcomes and higher productivity. Building upon our leading-edge Image Guided Therapy System - Azurion, 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 stroke, lung cancer and spine disorders. 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 2022, Philips completed the acquisition of Vesper Medical Inc. a US-based medical technology company that develops minimally-invasive peripheral vascular devices. Vesper Medical will further expand Philips' portfolio of diagnostic and therapeutic devices with an advanced venous stent portfolio for the treatment of deep venous disease.

In 2022, the Diagnosis & Treatment segment consisted of the following areas of business:

•	Diagnostic Imaging: Magnetic Resonance Imaging (MRI), with helium-free-for-life operations, bundled with associated software to streamline workflows, optimize diagnostic quality, and improve patient experience; X-ray systems, together with associated software to streamline workflows and optimize diagnostic quality; advanced and efficient Computed Tomography (CT) systems and software, including detectorbased Spectral CT and molecular and hybrid imaging solutions for nuclear medicine
•	Ultrasound: echography solutions focused on diagnosis, treatment planning and guidance for cardiology, general imaging, obstetrics/gynecology, and point-of-care applications, as well as proprietary software capabilities to enable advanced diagnostics and interventions, and remote capabilities to enable tele-ultrasound operations and training
•	Enterprise Diagnostic Informatics: a suite of integrated multivendor products and services that deliver a comprehensive platform designed to connect clinical data and optimize workflows around every step in the patient's journey across a range of diagnostic (radiology, point-of-care, laboratory) and clinical (oncology, cardiology, neurology) service lines
•	Image Guided Therapy: integrated interventional systems that combine information from imaging systems, interventional devices, navigation tools and patient health records to provide interventional staff with the control and information they need to perform procedures efficiently; interventional diagnostic and therapeutic devices to treat coronary artery and peripheral vascular disease

Diagnosis & Treatment

Total sales by business

	2022
Diagnostic Imaging	41%
Ultrasound	18%
Enterprise Diagnostic Informatics	8%
Image Guided Therapy	33%

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 all 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.

Under normal circumstances, 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 2022, Diagnosis & Treatment had around 33,000 employees worldwide.

2022 business highlights

Philips received FDA clearance to market its new 7700 3.0T MR system, which features an enhanced gradient system for Philips' highest image quality to support a precision diagnosis. Philips also received FDA clearance for its SmartSpeed MR acceleration software, adding Al data collection algorithms to Philips' existing Compressed SENSE MR engine for higher image resolution with three times faster scan times and virtually no loss in image quality.

By combining the Spectral CT 7500 scanner with the Azurion with FlexArm image-guided therapy system, Philips has developed a fully integrated hybrid angio CT suite solution for single-room, single-session diagnosis and treatment in areas such as oncology, stroke, and trauma care.

In radiotherapy, the AI-enabled Philips MR for Calculating Attenuation (MRCAT) Head and Neck radiotherapy application expands the range of MR-only workflows for cancer patients, advancing comprehensive and personalized cancer care through precision oncology solutions.

Philips expanded its leading ultrasound portfolio with the FDA market clearance for its new Ultrasound 5000 Compact system to deliver cart-based premium image quality in compact form for point-of-care, cardiology, general imaging, and obstetrics and gynecology applications.

Building on Philips' leading position in interventional cardiology solutions, the company launched the latest version of its EchoNavigator image-guidance tool, which integrates live ultrasound, interventional X-ray imaging and advanced 3D heart models to help interventional teams treat structural heart disease with greater ease and efficiency.

To improve outcomes for patients undergoing endovascular treatment, physicians now have access to advanced new 3D image-guidance capabilities through Philips' Zenition mobile C- arm system, which offers enhanced clinical accuracy and efficiency.

Philips is successfully expanding into interventional oncology with the installation of its innovative lung cancer diagnosis and treatment solution Lung Suite in hospitals in Belgium, France, Israel, and the UK. Based on Philips Azurion, this solution enhances the accuracy of biopsy procedures and provides a therapy option for immediate treatment of early-stage lung cancer patients.

Inferior Vena Cava (IVC) filters are used to treat patients with venous thromboembolism, in which blood clots form in the deep veins of the leg and groin and can travel through the circulatory system, but research has shown that they may have long-term complications. In the United States, the first patients were successfully treated for Inferior Vena Cava (IVC) filter removal using Philips' CavaClear solution - the only FDA-cleared solution for advanced IVC filter removal.

3.4.2 Connected Care businesses in 2022

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 address the Quadruple Aim of better health outcomes, improved patient and staff experience, and lower cost of care. After the years of the COVID pandemic, which has accelerated the digital transformation of healthcare, in 2022 the volatile global economic situation 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.

Philips' Sleep & Respiratory Care business in particular faced multiple operational, regulatory and supply-chain challenges in 2022, but action has been taken to address these through the decision to establish Sleep & Respiratory Care as an organization with end-to-end accountability, spanning product creation through to customer fulfillment (pending the outcome of consultation with workers councils in a number of countries). There has been a reset to put patient safety front and center in everything we do, and we believe that the implementation of a new simplified organization, which began in 2022, will help to achieve this, as well as to improve productivity and increase agility. For information about the Philips Respironics recall and remediation effort, please refer to Quality & Regulatory and patient safety, starting on page 70.

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 consultative 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. The role of Connected Care is to collect, connect, analyze and communicate data to provide insights and clinical decision support that help to improve outcomes and drive productivity.

To help enable care delivery across the health continuum and help our customers embrace healthcare's digital transformation, the Connected Care businesses continue to step up platform investments that span three key domains:

•	Acute Patient Management: in-hospital continuous monitoring and workflow solutions fueled by advanced interoperability and patient data insights
•	Ambulatory Patient Care Management: ambulatory and home-based monitoring and diagnosis solutions and services supporting the patient journey
•	Enterprise Informatics Management: turning data insights into decision support and productivity tools.

Philips' platforms aggregate and leverage information from clinical devices, patient and historical data to support care providers in patient engagement, diagnostics, (ambulatory) patient monitoring and (clinical) therapy solutions.

In January 2022, Philips completed the acquisition of Cardiologs, a France-based medical technology company focused on transforming cardiac diagnostics using artificial intelligence (Al) and cloud technology. Cardiologs is already further strengthening Philips' cardiac monitoring and diagnostics offering with innovative software technology, electrocardiogram (ECG) analysis and reporting services.

In 2022, the Connected Care segment consisted of the following areas of business:

• Hospital Patient Monitoring: This business delivers acute patient management solutions to improve clinical and patient outcomes and achieve operational and economic efficiencies. Leveraging a strong presence in the intensive care unit (ICU), Hospital Patient Monitoring solutions enhance customers' experience and improve patient outcomes with seamless patient data monitoring from admission to discharge, and by turning patient data into clinical insights that are actionable at the right time and specific to targeted care settings.

• Emergency Care: Emergency Care propositions play a critical role in connected acute care management, both inside and outside the hospital, including cardiac resuscitation (e.g. AEDs) 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.

• Connected Care Informatics: Comprised of three core business units, this business focuses on clinical analytics solutions that provide actionable insights to optimize patient data.

The fully integrated Electronic Medical Record & Care Management business enables centralized management of clinical, organizational and operational processes, and virtual care delivery propositions, including remote patient management and real-time monitoring in acute care. The Tele-ICU program continues to play a pivotal role, enabling clinicians and nursing staff to remotely monitor a scalable number of ICU beds from a central monitoring facility with predictive analytics, enabled by Philips' HealthSuite Platform.

The Clinical Data Services business - formerly Capsule Technologies, acquired by Philips in early 2021 - 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.

Our Ambulatory Monitoring & Diagnostics business - comprised of BioTelemetry, which Philips acquired in 2021 - provides industry-leading patient care management in ambulatory and home care settings in North America and beyond through a suite of cardiac diagnostic and monitoring solutions to identify heart rhythm disorders supported by Al algorithms that orchestrate workflows and services across care settings. The acquisition of Cardiologs complements this capability with a vendor-neutral heart disorder screener and ECG analysis applications, based on machine learning algorithms.

Connected Care

Total sales by business

	2022
Hospital Patient Monitoring	47%
Emergency Care	5%
Sleep & Respiratory Care	28%
Connected Care Informatics	20%

In most of the Connected Care businesses, revenue is earned through the sale of products and solutions, customer services fees and software license fees. 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 patient care management businesses (Ambulatory Monitoring & Diagnostics and Sleep & Respiratory Care), 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 salesforce, partly paired with an online sales portal and distributors (varying by product, market and price segment). Sales are mostly driven by a direct salesforce with an intimate knowledge of the procedures that use our integrated solutions' smart devices, systems, software and services. Philips works 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 had a negative impact on sales throughout 2022.

At year-end 2022, Connected Care had around 17,000 employees worldwide.

2022 business highlights

Philips' offerings improving clinical workflow and alarm management in critical care environments, as well as its contributions to a quieter healing environment in intensive care units, resonated well with customers.

Philips expanded its Advanced Life Support activities across international markets and Greater China.

In Greater China, Philips partnered to drive localization of its EMR Tasy offering in order to be locally relevant for the China market.

Philips continues to successfully expand into ambulatory care. Newly published research validated that Philips Mobile Cardiac Outpatient Telemetry (MCOT) is crucial in detecting arrhythmias and providing data that allows care teams to intervene quickly and decisively to provide the optimal patient treatment.

Underlining the clinical and economic value of remote cardiac patient monitoring, Philips announced new research demonstrating increased atrial fibrillation detection and significant cost savings using Philips' mobile cardiac outpatient telemetry monitoring.

Philips expanded its remote cardiac monitoring portfolio with a patch-based, clinical-grade ECG to improve patient recruitment, compliance and retention for clinical trials.

3.4.3 Personal Health businesses in 2022

Our Personal Health businesses play an important role serving people's needs in the areas of healthy living, prevention and home care - delivering compelling value propositions to enable people to live a healthy life and proactively manage their own health.

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
•	Accelerating online growth and engaging more people through an end-to-end digital approach
•	Expanding our ecosystem through partnerships with leading retailers and scaling new business models

The Personal Health segment consists of the following areas of business:

•	Oral Healthcare: power toothbrushes for a range of price segments, from entry-level battery-operated toothbrushes for a young audience to premium, intuitive 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: 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 solutions (Pregnancy+ and Baby+ apps)
•	Personal Care: 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 SenselQ technology that sense and adapt for personalized care; also available through subscription models.

Personal Health

Total sales by business

	2022
Oral Healthcare	37%
Mother & Child Care	11%
Personal Care	52%

Through our Personal Health businesses, we offer a broad range of solutions in various consumer price segments to support people in proactively managing their health and wellbeing. 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.

For example, we strongly believe in the connection between good oral care and good overall health - a belief underpinned by the World Health Organization (WHO), which in 2021 adopted a stronger resolution on oral healthcare as part of the drive towards universal health coverage. Good oral care is important for everyone. And since everyone is different, oral healthcare should also be personalized to each user to garner the best health outcome. Philips Sonicare, which celebrated its 30th anniversary in 2022, offers a wide range of solutions for complete oral care: from intelligent and intuitive power toothbrushes to interdental cleaning solutions and apps that help users to manage their complete oral care on a daily basis and give the option to share brushing data with their dental practitioners, putting personalized guidance at their fingertips.

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. As of year-end 2022, the Pregnancy+ app and Baby+ app combined have more than 68 million downloads, more than 1.5 million daily active users, and are available in 22 languages.

The company's wide portfolio of connected consumer health platforms leverages Philips Health Suite Platform, a cloud-enabled connected health ecosystem of devices, apps and digital tools that support personalized health and continuous care.

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 businesses experience seasonality, with higher sales around key national and international events and holidays.

At year-end 2022, Personal Health employed around 9,000 people worldwide.

2022 business highlights

Building on the successful strengthening of the company's innovative power toothbrushes portfolio, ranging from entry-level to premium propositions, as well as targeted advertising and promotion campaigns, Philips Oral Healthcare recorded continued market share gains in North America.

Philips' locally developed China power interdental cleaning innovation launched in Q1 contributed to our leadership position in overall market share (source: GfK).

Building on its successful OneBlade platform, Philips introduced in Europe the new OneBlade 360, which leverages a new blade that adjusts to the curves of the face to enhance shaving comfort. The global roll-out is expected to start in 2023.

Philips completed the global introduction of its new Philips Shaver S9000 with SkinIQ with its launch in Japan, resulting in accelerated sales growth for this category and a 4.9 (out of 5) consumer rating and review score within the first month.

Philips continues the integration of SkinIQ technology by expanding into the S5000-S7000 ranges, increasing access to Philips proprietary technology that senses pressure and movement to adapt and guides the users for a more efficient shave.

In China, Philips launched its first premium portable shaver, which garnered 4.7-star ratings/ reviews (source: Taobao) within the first month.

3.4.4 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 2022, around 18,000 people worldwide were working in these areas.

About Other

Innovation & Strategy

Innovation & Strategy supports all businesses and markets within Philips in developing an innovation roadmap and strategies to deliver on our customers' needs and achieve our growth and profitability ambitions.

We innovate to help our customers and consumers overcome clinical challenges, and to improve healthcare. We help our businesses to enable and accelerate innovation by providing deeply specialized expertise. This starts with strategy and entails cooperation between research, development, design, medical affairs, professional services, marketing and businesses in a multi-disciplinary fashion, from early exploration to first-of-a-kind offerings.

We do so in the following ways:

•	We actively participate in open innovation through relationships with academic, clinical, industrial partners and start-ups, as well as via public-private partnerships. We do so to increase innovation speed and improve agility, to capture and generate new ideas, and in some cases to leverage third-party capabilities.
•	We drive continuous improvement in the Philips product and solution portfolios. Innovation & Strategy improves the efficiency and effectiveness of innovation through Centers of Excellence, such as Platform Modularity & Re-use, Data Science, Artificial Intelligence (Al) and Internet of Things.
•	We strive for breakthrough innovations that can help drive fundamental shift in the healthcare industry, thereby supporting businesses to focus on selected must-win battles.
•	We drive adoption of digital architecture and platforms, moving to cloud-based Software-as-a-Service for informatics offerings, and excellence in Data Science and Al, as well as software engineering. Industry best practices include creating and maintaining application-level software, modular and configurable system design and model-based system engineering.
•	We drive our HealthSuite Architecture to help unlock the power of data and enable healthcare professionals, patients and consumers. Its modular set of re-usable digital capabilities liberate, integrate and enable actionable insights on data from disparate systems within a secure environment.
•	We help secure patient safety and quality by participating in stage gate reviews from the start of the idea-to-market (I2M) process. This is intended to ensure that patient safety and quality aspects of Philips products and solutions match the expectations and criteria of the end-users in the field. We engage with professional medical societies during regular and ad hoc advisory boards to help us understand the criteria on patient safety and quality related to medical devices. Together with the Regulatory function, we contribute to clinical evaluation during pre-market risk assessments, post-market surveillance, and support any health hazards evaluations with expert advice.
•	We leverage the knowledge and expertise of our community of medical professionals. Activities include strategic guidance built on clinical and scientific knowledge, building and nurturing customer partnerships and growth opportunities, fostering peer-to-peer relationships in relevant medical communities, driving co-innovation with customers, liaising with medical regulatory bodies, and supporting clinical and economic evidence development.
•	We deploy our engineering capabilities to realize innovations that deliver on our customers' needs, advancing the Quadruple Aim of better health outcomes, improved patient and staff experience, and lower cost of care.
•	We drive innovation effectiveness and enable locally relevant solution creation at four established innovation hubs: Eindhoven (Netherlands), Cambridge (USA), Bangalore (India) and Shanghai (China). These four hubs form a global network, together with the other smaller innovation and research sites in their respective regions, to provide access to each other's capabilities to serve businesses, markets, and customers globally.
•	We ensure that the user experiences of our innovations are inspiring, meaningful, people-focused, and locally relevant. A key enabler for this is an engaging and differentiating design language system (DLS) that is embedded in software, hardware, and services across our businesses. In 2022, Philips received a total of 171 awards for design excellence.

During 2022, Innovation & Strategy started to refocus R&D to deliver a greater return on investments by being selective in our choice of innovations in which to invest. We stopped projects and reduced the workforce by 5%. As part of the strategy to create value with sustainable impact, resources will shift to the businesses to innovate closer to, and with, customers.

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 56,000 patent rights, 33,000 trademarks, 114,000 design rights and 3,200 domain names. Philips filed 920 new patents in 2022, 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.

Real estate

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

In 2022, we relocated key offices in Budapest (Hungary), Carlsbad (USA) and Haifa (Israel), and manufacturing operations in Zhuhai (China). We invested in, amongst others, our R&D and manufacturing sites in Bangalore (India), Pune (India), Plymouth (USA), Pittsburg (USA), Shenzhen (China) and Suzhou (China) to create an engaging work environment that fosters the attraction and retention of the best talent. We have continued to drive productivity by optimizing our footprint globally and reducing the number of sites through post-acquisition integration programs, as well as by implementing our Future of Work concepts to support hybrid working. We also announced that Philips' headquarters will be moving to a new location in Amsterdam in 2025.

In line with our Environmental ESG commitments towards 2025, we continue to actively optimize our real estate portfolio. Having met our goal of bringing our site-related CO ₂ emissions under 35 kilotons per year in 2020, we further reduced our CO ₂ emissions to 25 kilotons in 2022. In addition, we reached 77% renewable energy in 2022, already exceeding our target of 75% by 2025. Anticipating the higher cost of energy for 2023, we redoubled our efforts on energy-saving measures. Combined with portfolio optimization, this resulted in a 5.3% reduction in 2022 total energy consumption compared to 2020 and 2021.

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 be low in the first half of 2022 in the aftermath of COVID-19. In the second half of 2022 we saw occupancy stabilizing and we are currently evaluating 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, 2022, represented EUR 1,336 million; construction in progress represented EUR 23 million.

3.5 Our geographies

3.5.1 Our Markets

We address North America, Western Europe and other mature geographies, as well as Greater China and other growth geographies, via three market groups - North America, Greater China and International Markets - which are active in more than 100 countries worldwide.

The Markets' core objective is to understand local market/customer needs, to create and activate the local marketing plans, to develop and manage the relationship with existing and new customers, and to deliver orders. They act as the voice of the customer in the creation of the suite of solutions strategy, bring relevant products and solutions to market, and ensure local (solution) delivery and service execution, as well as managing the (integral) go-to-market approaches to our key customers and indirect channels - all with the aim of maximizing long-term customer value and gaining market share.

3.5.2 Macro-economic landscape in 2022

In 2022, global economic activity slowed down compared to 2021, when the global economy rebounded strongly from a COVID-induced recession. Several factors were at play. Firstly, the re-opening of the economy for most of the world in 2021 has disrupted global supply chains. Secondly, previous loose monetary policy, combined with supply chain issues, resulted in strong inflationary pressures commencing towards the end of 2021. Thirdly, to combat high inflation, central banks around the globe have embarked on aggressive monetary policy tightening cycles. Consequently, global real GDP is estimated to have grown by 3.0% in 2022, compared with the 6.0% estimated in 2021 for 2022. Looking ahead, Oxford Economics expects mild recessions for advanced economies in 2023, with full-year global real GDP growth expected at just 1.3%.

3.5.3 2022 highlights from our Market Groups

North America

In North America, Philips continues to expand its leadership in long-term strategic partnership, helping health systems like TriHealth, Prisma Health and the University Health System of San Antonio to address interoperability challenges and standardize care across their networks. This includes entering into a 7-year agreement with Northwell Health, the largest healthcare provider in the state of New York, to help standardize patient monitoring, drive interoperability, and lay the foundation for a future-proof, enterprise-wide platform. Moreover, Philips has signed multi-year agreements to continue to expand virtual monitoring and care with the US Department of Defense.

Philips continues to innovate in its personal health business and has started selling Philips Avent breast pumps via Durable Medical Equipment (DME) providers to give parents the ability to receive breastfeeding equipment and supplies that may be covered by their health insurance. Celebrating 30 years in business in 2022, Philips Sonicare leads the electric rechargeable toothbrush market in the US and Canada and is the most-recommended rechargeable toothbrush brand in the US. Philips Norelco remains the leading electric male grooming brand in the US and Canada, reaching the next generation of young men with our new OneBlade multi-purpose shaver.

Philips continues to be recognized for its Inclusion and Diversity efforts in North America, including being recognized by Forbes as one of their Best Employers for Diversity and Best Employers for Women.

Greater China

In 2022 we continued to provide innovative health technology solutions in support of China's national health strategy, supplying national top hospitals, primary hospitals and private hospitals with tailor-made solutions for their clinical and research needs.

We partnered with national top hospitals Shanghai Ruijin Hospital and Sichuan Huaxi Hospital on clinical research that leverages our cutting-edge health technologies, and helped the 1st Affiliated Hospital of Guangzhou Medical University establish the largest sleep center in South China by providing consulting services, key equipment and systems. We also provided Zhongshan-Jinshan Diabetic Foot Center with an integrated solution comprised of laser ablation and ultrasound screening technology, and supplied Hainan Dongfang People's hospital with high-end patient monitors and defibrillators for use in acute and critical care. And we provided Suzhou Kowloon Hospital with a radiology solution that included Ingenia Elition, Ingenia Ambition, Spectral CT and Azurion 7, and delivered a cardiology and smart hospital solution to Jiangxi Cihuai Cardiovascular and Cerebrovascular Hospital.

In the consumer space, in line with the consistent 'Professional, Young and Premium' positioning, we continue to accelerate local innovation to address the specific needs of local consumers. In 2022, locally initiated products generated 20% of revenue. In addition, Philips was recognized as a 'gold brand' (most favored brand of consumers) in the Personal Health category for the third consecutive year by China Business Weekly.

With the aim of better serving the Chinese market, we established three Philips Innovation Centers in China to focus on 'local-for-local' innovation in systems, products and software, and continue to drive 'made in China' fulfillment for professional medical equipment.

International Markets

In our International Markets 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 Markets, Personal Health showed top-line resilience in 2022. Growth was strongest in the Middle East, Turkey & Africa, India and Japan, and overall our growth markets delivered double-digit growth. A major driver of growth in Middle East, Turkey & Africa came from activating GenZ consumers via social media and influencer marketing campaigns on TikTok and other platforms, focusing on relevant GenZ propositions such as OneBlade and Hair Care. In Japan, we successfully launched our latest Shaver series 9000 with SkinIQ technology via a cut-through advertising campaign in Hokkaido and Kanto prefectures. This campaign targeted younger audiences and succeeded in increasing market shares and distribution points.

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

Philips entered into partnerships with healthcare providers in the UK and Germany to deliver its vendor-neutral Radiology Operations Command Center, which enables remote collaboration between technologists, radiologists and imaging operations teams across multiple sites, to help increase productivity and expand access to MR- and CT-based diagnosis. In Germany, Philips signed a 10-year partnership agreement with the municipal hospital Stadtisches Klinikum Braunschweig, one of the country's largest care providers, to provide monitoring solutions and alarm management. In an interview with a German healthcare magazine, Dr. Andreas Goepfert, CEO Braunschweig Clinic, commented: "Quality of care is an important aspect that is safeguarded by such a partnership. Nowadays, it is difficult to imagine successful economic operation in the healthcare sector in the medium and long term without technology partners." In the Netherlands, Philips signed a long-term agreement with the Rijnstate hospital to deliver a wide range of advanced ultrasound devices for 17 different departments at multiple locations of the hospital. The agreement involves ultrasound devices and services for cardiological, vascular or radiological examinations, OB/GYN, as well as mobile devices for the emergency department.

In Spain, we provided computed tomography, magnetic resonance and image-guided therapy solutions for several Spanish public hospitals as part of INVEAT, an impact initiative driving investment in high-technology equipment in the Spanish national health system. In Finland, Philips signed a 10-year agreement with Oulu University Hospital to deliver the latest Azurion image-guided therapy solutions, as well as maintenance, consultancy and financing services. In the SDA Imaging Center in Chelm, Poland, Philips installed an MR 5300 scanner with Ambient Experience technology, which combines images, sound and light to create an atmosphere that puts patients at ease and reduces the need to redo scans. In Romania, Philips is the trusted partner and supplier of medical equipment and solutions to Transylvania Hospital, a private medical initiative launched in September 2022. The medical technology we provided includes an Azurion 7 biplane angiograph, an Ingenia 3T MR system, and an Affiniti 50 Doppler ultrasound. In Turkey, as part of a project supported by the European Bank for Reconstruction and Development (EBRD), we installed 3,400 hospital patient monitors and 437 ultrasound systems across 250 different hospitals within a 4-month window. The Philips team also trained over 3,000 clinicians and monitored usage.

In Central Asia, we supplied equipment for Kazakhstan's National Research Oncology Center and two multi-modality projects, while in Uzbekistan we won a project to equip Tashkent International Medical Clinic (TIMC) with advanced clinical technology solutions. In a 10-year partnership deal with the Cloud Nine hospital group in India, we connected 257 beds across 26 tele-ICU locations. In addition, some 2,000 Zenition C-arms and 500 Affiniti ultrasound systems were shipped from our manufacturing plant in Chakan.

In Japan, Philips signed a 10-year agreement with a large university hospital for the expansion of its eICU program for centralized, remote surveillance of high-risk ICU patients. Philips and Thanh Vu Medic Hospital Vietnam signed a 10-year strategic partnership agreement for which Philips is providing state-of-the-art imaging technology, informatics connectivity, 10-year comprehensive service and 5-year structured financing. In Fiji, Philips and Aspen Medical signed a 12-year strategic partnership agreement to supply and integrate diagnostic imaging equipment and services for use in two public hospitals.

In Brazil, Philips' joint venture to provide and operate imaging diagnostics in the state of Bahia via a Public-Private Partnership model continues to expand access to quality diagnostics and care for underserved populations, e.g. through the provision of a new reporting center and 12 imaging units placed in 12 hospitals. Also in Brazil, a two-year Electronic Medical Record implementation at Fundação Hospitalar do Estado de Minas Gerais (FEHMIG) will integrate 23 public hospitals in the state of Minas Gerais. In Argentina, Philips successfully participated in a tender for a turnkey solution providing high-end imaging equipment for 17 public hospitals. In Mexico, Philips secured a deal with Grupo Angeles to provide an extensive range of Diagnostic Imaging and Image Guided Therapy solutions.

3.6 Supply chain and procurement

3.6.1 Integrated Supply Chain

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.

Addressing immediate challenges

2022 continued to test the resilience of supply chains globally. The Russia-Ukraine war continues to put severe pressure on the commodity landscape and supply chains, and has contributed to the sharp rise in energy and food prices and extreme inflation rates. This came on top of a pre-war environment of low inventories and long lead times, with the accompanying build-up of backlog orders. In addition, the Chinese government's zero-COVID policy in 2022 again led to outages and supply chain issues. Furthermore, Philips has been hampered by an aging product portfolio with older technology (component designs) and a fragmented supplier landscape. As a result, our lead times to customers suffered, for which we are sorry and are working to take corrective actions.

Under these market circumstances, the ISC function's priority was to endeavor to safeguard continuity of supply, with dedicated Procurement teams by modalities and types of commodities, so that Philips could continue to provide critical healthcare equipment and solutions to our customers all over the world. For example, we have placed non-cancellable semiconductor orders for a 12-month horizon to ensure our place in the queue. At the same time, we have intensified spot buys and alternate parts qualifications in partnership with Research & Development. In parallel, we continue our advocacy towards the industry and governments on prioritizing supply for life-saving equipment.

In 2022, extremely high energy costs, especially in Europe, and increasing labor costs driven by inflation led to a significant rise in production/operational cost in our supply base. In the second half of the year, these same drivers led to a slowdown of demand, and spot prices for commodities and energy started to come off from their historical peaks in the second quarter. However, costs for production and materials remained at historical elevated levels. Specifically for electronic components, although the supply crunch has receded from its peaks, distributor data suggest that shortages will continue into 2023.

For information about the Philips Respironics recall and remediation effort, please refer to Quality & Regulatory and patient safety, starting on page 70.

Driving end-to-end supply chain reliability and agility

Whereas Philips' supply chain organization historically delivered efficiencies through a functional orientation, the above-mentioned factors required much greater agility for our businesses, each having their own specific requirements. We are moving to a business and customer-centric orientation to address end-to-end visibility and improve reliability and outcomes by implementing solutions that are tailored to specific business needs.

Much like the rest of the industry, we remain exposed to inflation and the continued geopolitical tensions around the world. All of these challenges have reinforced our strategy for a more 'regional vs global' approach to our end-to-end network design.

Philips has continued to progress the consolidation of its manufacturing footprint into versatile 'multi-modality' manufacturing sites that produce multiple product categories and are located within or near the regions they serve. We do this for enhanced scale, efficiency and customer proximity, and to reduce our environmental footprint. While our site count has continued to decrease, the number of locations equipped to make the same product is increasing. Philips is using its multi-modality sites, in combination with contract manufacturing partners, to regionally 'multi-source' many of its products. This will increase the resilience of our supply chain to manage future, unplanned disruptions and ensure access to public healthcare investment where 'local' requirements exist in our largest markets.

We continue to make progress in transforming our warehousing and distribution operations into a more customer-centric and agile network. In 2022, we reduced our warehousing footprint by 31% compared to 2021, essentially through consolidation and servicing of multiple businesses from a single location.

On the logistics front, we have established long-term contracts with suppliers, with the aim of increasing reliability as well as secured costs and availability on contracted lanes. We continue to explore and implement solutions to diversify transportation options to increase reliability while reducing carbon emission and cost.

Philips Group

Supplier spend analysis per region in %

	2022
Western Europe	30%
North America	36%
Other mature geographies	6%
Total mature geographies	71%
Growth geographies	29%
Philips Group	100%

3.6.2 Supplier sustainability

Philips' purpose to improve people's lives 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.

Since 2003, our sustainability strategy has included dedicated supplier sustainability programs. We have a direct (tier 1) business relationship with approximately 5,300 product and component suppliers and 17,100 service providers. In many cases, social issues deeper in our supply chain require us to intervene beyond tier 1 of the chain.

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. Therefore, the sustainability performance of our suppliers is fully embedded in our procurement strategy and way of working.

In 2022, we focused on further maximizing our positive impact deeper in the supply chain, strengthening our maturity-based approach to drive continuous improvement. Through the Supplier Sustainability Performance program, we improved the lives of approximately 459,000 workers in our supply chain (2021: 430,000). We also launched new ways to engage our suppliers, performing deep-dives at second-tier suppliers and actively supporting our strategic partners to become more effective in their own supply chain engagement approaches.

In addition, our improvement program has been adopted by the Responsible Business Alliance under the name Responsible Factory Initiative. This program enables other companies to work on continuously improving their suppliers' sustainability performance through the same methodology as Philips.

Managing our large and diverse supply chain in a socially and environmentally responsible way requires a structured and innovative approach, while being transparent and engaging with a wide variety of stakeholders. In 2022, our programs focused specifically on improving suppliers' sustainability performance, responsible sourcing of minerals, and reducing the environmental footprint of our supply base by driving the adoption of Science Based Targets.

Detailed information on our supplier sustainability programs is available in section Supplier indicators, starting on page 286 of this Annual Report.

At a glance Financial performance

Group sales amounted to EUR 17.8 billion, with a 3% comparable sales ^*) decline due to operational and supply chain challenges, lower sales in China, the consequences of the Respironics field action, and the Russia-Ukraine war. The order book at year-end 2022 was 10% higher than at the end of 2021, ensuring a higher coverage for sales in 2023.

Net income amounted to a loss of EUR 1.6 billion; profitability affected by lower sales, cost inflation and impairments, partly offset by pricing and productivity measures.

Operating cash flow amounted to an outflow of EUR 0.2 billion.

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

4 Financial performance

"Our financial performance in 2022 was significantly challenged, largely due to supply issues, COVID-related consequences, and the impact of the Respironics recall. As we look forward to 2023, we are taking firm actions to focus on patient safety and quality, improve supply reliability and simplify the organization to increase agility and structurally lower the cost base."

Abhijit Bhattacharya CFO Royal Philips

4.1 Performance review

The year 2022

•	Sales amounted to EUR 17.8 billion, an increase of 4% on a nominal basis. On a comparable basis), sales declined 3%, due to operational and supply challenges, the COVID situation in China, the consequences of the Respironics field action, and the Russia-Ukraine war. Comparable sales) showed a 1% decline in the Diagnosis & Treatment businesses, an 11% decline in the Connected Care businesses, and flat growth in the Personal Health businesses.
•	Net income amounted to a loss of EUR 1,605 million, a decrease of EUR 4.9 billion compared to 2021, mainly due to a charge of EUR 1.5 billion related to goodwill and R&D impairments in 2022 and the EUR 2.5 billion gain on the sale of Domestic Appliances in 2021.
•	In 2021, our subsidiary, Philips Respironics, initiated a voluntary recall notification in the United States and field safety notice outside the United States for certain sleep and respiratory care products. In 2022, as we took steps to accelerate the remediation program, we recorded an additional provision of EUR 250 million. By year-end 2022, around 90% of the production required for the delivery of replacement devices to patients had been completed.
•	Due to revisions to the financial forecast of Philips Respironics, Philips recorded a EUR 1.3 billion non-cash charge in the third quarter for the impairment of goodwill of this business.
•	Adjusted EBITA ^) amounted to EUR 1,318 million, or 7.4% of sales, compared to 12.0% of sales in 2021. The Diagnosis & Treatment, Connected Care and Personal Health businesses showed a decline in Adjusted EBITA ^) margin, mainly due to the sales decline and cost inflation, partly offset by pricing and productivity measures.
•	Philips has initiated several productivity actions, including simplifying the organization to streamline ways of working, increase agility and reduce operating expenses. Additionally, Philips is implementing several actions to enhance performance and productivity in the supply chain, R&D and quality.
•	Operating cash flow amounted to an outflow of EUR 173 million; free cash flow ^*) amounted to an outflow of EUR 961 million.
•	To further strengthen its liquidity position and optimize its debt maturity profile, Philips secured a EUR 1 billion credit facility and conducted a liability management exercise, which reduced the debt repayment profile for the period 2023 to 2025 from EUR 3.2 to 2.0 billion and increased the average maturity on bonds by 1.3 years to 7.9 years.

Philips Group

Key data in millions of EUR unless otherwise stated

	2020	2021	2022
Sales	17,313	17,156	17,827
Nominal sales growth	1.0%	(0.9)%	3.9%
Comparable sales growth ¹⁾	2.9%	(1.2)%	(2.8)%
Impairment of goodwill	(144)	(15)	(1,357)
Income from operations	1,264	553	(1,529)
as a % of sales	7.3%	3.2%	(8.6)%
Financial expenses, net	(44)	(39)	(200)
Investments in associates, net of income taxes	(9)	(4)	(2)
Income tax expense	(212)	103	113
Income from continuing operations	999	612	(1,618)
Discontinued operations, net of income taxes	196	2,711	13
Net income	1,195	3,323	(1,605)
Adjusted EBITA ¹⁾	2,277	2,054	1,318
as a % of sales	13.2%	12.0%	7.4%
Income from continuing operations attributable to shareholders ²⁾ per common share (in EUR) - diluted	1.08	0.67	(1.84)
Adjusted income from continuing operations attributable to shareholders ²⁾ per common share (in EUR) - diluted ¹⁾	1.74	1.65	0.96

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.
²⁾ Shareholders in this table refers to shareholders of Koninklijke Philips N.V.
^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

4.2 Factors impacting performance

In 2022, global economic activity slowed down compared to 2021, when the global economy rebounded strongly from a COVID-induced recession. Global real GDP is estimated to have grown by 3.0% in 2022, compared with the 6.0% estimated in 2021 for 2022.

The company's business and results in 2022 were impacted by global and industry-wide challenges, including global supply chain constraints, COVID lockdown measures in China, inflationary pressures and the Russia-Ukraine war. 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. Comparable sales ^*) declined by 3%, mainly due to operational and supply chain challenges, the COVID situation in China and the Russia-Ukraine war. We aim to offset the operational and supply challenges with specific programs to increase supply chain resilience, improve patient safety and quality, and simplify the organization to increase agility and structurally lower the cost base.

Global supply chain constraints

Limited availability and delays in the supply of certain components and products internationally - partly a consequence of COVID and the Russia-Ukraine war - impacted the company's results in 2022. In addition, the supply chain constraints resulted in an increase in overall working capital balances, in particular inventories. Inventories increased compared to 2021, as work-in-process inventories could not be converted into finished goods available for sale due to the scarcity of certain components. Improved component supplies contributed to a comparable sales ^*) increase in the fourth quarter of 2022.

In response, we continue to drive significant actions to increase supply chain resilience and mitigate the impact of disruptions. We are: engaging with senior government officials, strategic suppliers and foundries to prioritize healthcare supplies; directly working on component issues across all tiers of suppliers; diversifying sourcing of high-risk components, with almost 400 alternate components certified to date. Lastly, we are also redesigning our printed circuit boards to qualify alternate sources of supply.

COVID situation in China

COVID continued to affect the company's results, balance sheet and cash flows presented in these consolidated financial statements, in particular due to the lockdowns in China. Production in several of our factories, as well as those of our suppliers in China, was suspended periodically, which exacerbated the global supply chain and cost challenges. The China lockdowns impacted the results of operations due to lower sales and factory underutilization.

COVID did not result in any material adjustments to the carrying amounts of assets and liabilities during 2022. In addition, there were no material changes to treasury and other financial risks directly related to the pandemic.

Cost inflation

Global inflation and cost headwinds, including higher energy prices, resulted in an increase in cost levels and negatively impacted gross margin in 2022.

In response, we have been raising pricing by low- to mid-single-digits since the beginning of 2022. In the Personal Health businesses, the higher sales prices contributed to a gross increase in sales of around 3% compared to 2021. In the Diagnosis & Treatment and Connected Care businesses, due to the longer equipment order book cycles, the price increases take longer to be fully realized in the profit and loss account.

Russia-Ukraine war

Since February 2022, Philips has substantially reduced its activities in Russia. This includes stopping shipments of our consumer health products to the country (except for certain child care products), the suspension of marketing activities, and winding down of R&D activities. We are focusing our remaining activities in Russia on the delivery of medical systems, devices, and spare parts to healthcare providers to the extent possible under export controls and sanctions. Philips' operations in Russia and Ukraine on a combined basis represented less than 2% of group sales in both 2021 and 2022. 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, 2021 and 2022. There have been no significant asset write-downs to date, but we continue to closely monitor developments in this regard. The Russia-Ukraine war continues to put severe pressure on the global commodity landscape and supply chains, and has contributed to the sharp rise in energy and food prices and high cost inflation, as further discussed above.

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. Some of these contracts have a fixed price structure, which in 2022 helped to mitigate the impact of increased electricity prices.

Actions in response

In 2022, Philips took several actions to enhance performance and productivity in the supply chain (e.g. dual sourcing, supplier consolidation, warehouse footprint rationalization), R&D (e.g. shifting the focus to fewer, high-impact projects in the innovation pipeline) and quality (e.g. enhancing processes, increasing capabilities and product management). As a result, Philips recorded non-cash portfolio realignment impairments and charges of EUR 282 million in 2022, consisting of R&D project impairments of EUR 134 million, Connected Care portfolio realignment charges of EUR 109 million and asset impairments in Sleep & Respiratory Care of EUR 39 million.

As announced in October 2022, Philips has initiated general productivity actions, including simplifying the organization to streamline the way of working and reduce operating expenses. This includes an immediate reduction of around 4,000 positions globally across the organization, subject to consultation with the relevant workers councils and social partners, with severance and termination-related costs of EUR 80 million incurred in 2022 and an additional EUR 50 million expected in 2023.

On January 30, 2023, Philips announced plans 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. In addition to the reduction of its workforce by 4,000 roles announced in October 2022, Philips plans to reduce its workforce by an additional 6,000 roles globally by 2025, of which 3,000 will be implemented in 2023, in line with relevant local regulations and processes. These reductions are focused on Corporate and Functions optimization and non-core activities, for which charges in 2023 are expected to be approximately EUR 470 million.

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

4.3 Results of operations

Sales

The composition of sales growth in percentage terms in 2022, compared to 2021 and 2020, is presented in the following table.

Philips Group

Sales in millions of EUR unless otherwise stated

	2020	2021	2022
Diagnosis & Treatment businesses	8,175	8,635	9,168
Nominal sales growth	(3.7)%	5.6%	6.2%
Comparable sales growth ¹⁾	(2.3)%	8.1%	(0.7)%
Connected Care businesses	5,543	4,573	4,403
Nominal sales growth	18.6%	(17.5)%	(3.7)%
Comparable sales growth ¹⁾	21.6%	(22.6)%	(10.8)%
Personal Health businesses	3,199	3,429	3,626
Nominal sales growth	(9.0)%	7.2%	5.7%
Comparable sales growth ¹⁾	(6.2)%	8.8%	0.1%
Other	396	519	629
Philips Group	17,313	17,156	17,827
Nominal sales growth	1.0%	(0.9)%	3.9%
Comparable sales growth ¹⁾	2.9%	(1.2)%	(2.8)%

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Group sales amounted to EUR 17,827 million in 2022, 3.9% higher than in 2021 on a nominal basis. Considering a 6.7% positive effect from currency and consolidation, comparable sales*) decreased by 2.8%. This was driven by a positive currency effect, mainly due to appreciation of currencies against the euro, and affected all segments.

The order book at year-end 2022 was 10% higher than at the end of 2021, ensuring a higher coverage for sales in 2023. The increase mainly relates to the Diagnosis & Treatment businesses driven by Diagnostic Imaging. Comparable order intake decreased 3%, compared to 4% growth in 2021. In the fourth quarter of 2022, lower demand for COVID-19-related products compared to 2021 and company actions to improve the order book margin profile contributed to this decrease.

Diagnosis & Treatment businesses

In 2022, sales amounted to EUR 9,168 million, 6.2% higherthan in 2021 on a nominal basis. Considering a 6.9% positive currency effect and consolidation impact, comparable sales*1 decreased by 0.7%. This was due to mid-single-digit growth in Image-Guided Therapy and low-single-digit growth in Enterprise Diagnostic Informatics, which was more than offset by a decline in Ultrasound and in Diagnostic Imaging due to specific electronic component shortages.

Connected Care businesses

In 2022, sales amounted to EUR 4,403 million, 3.7% lower than in 2021 on a nominal basis. Considering a 7.1% positive currency effect and consolidation impact, comparable sales*) decreased by 10.8%. This was mainly due to the consequences of the Respironics field action and the impact of supply chain headwinds.

Personal Health businesses

In 2022, sales amounted to EUR 3,626 million, 5.7% higherthan in 2021 on a nominal basis. Considering a 5.6% positive currency effect and consolidation impact, comparable sales*' increased by 0.1%, consisting of a global increase of 2.5%, offset by a 2.4% decline in sales attributable to Russia due to the war with Ukraine. Oral Healthcare and Mother & Child Care recorded mid-single-digit growth, which was offset by a mid-single-digit decline in Personal Care.

Other

In 2022, sales amounted to EUR 629 million, compared to EUR 519 million in 2021. The increase was mainly due to additional royalty income and supplies to the divested Domestic Appliances business.

Performance by geographic area

Philips Group

Sales by geographic area in millions of EUR unless otherwise stated

	2020	2021	2022
Western Europe	3,702	3,645	3,603
North America	6,884	6,781	7,588
Other mature geographies	1,750	1,694	1,643
Total mature geographies	12,336	12,120	12,833
Nominal sales growth	2%	(2)%	6%
Comparable sales growth ¹⁾	3%	(3)%	(1)%
Growth geographies	4,977	5,036	4,993
Nominal sales growth	(3)%	1%	(1)%
Comparable sales growth ¹⁾	3%	3%	(7)%
Philips Group	17,313	17,156	17,827

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Sales in mature geographies in 2022 were 6% higher than in 2021 on a nominal basis and 1% lower on a comparable basis*). Sales in Western Europe were 1% lower year-on-year on a nominal basis and 3% lower on a comparable basis*), with a double-digit decline in the Connected Care businesses, a low-single-digit decline in the Diagnosis & Treatment businesses, and flat growth in the Personal Health businesses. Sales in North America were 12% higher year-on-year on a nominal basis and were flat on a comparable basis*), as double-digit growth in the Personal Health businesses and low-single-digit growth in the Diagnosis & Treatment businesses were offset by a mid-single-digit decline in the Connected Care businesses, mainly due to the Sleep & Respiratory Care business. Sales in other mature geographies decreased by 3% on a nominal basis and 1% on a comparable basis*), with high- single-digit comparable sales growth*) in the Personal Health businesses more than offset by a high-single-digit decline in the Connected Care businesses and a low-single-digit decline in the Diagnosis & Treatment businesses.

Sales in growth geographies in 2022 decreased by 1% on a nominal basis and 7% on a comparable basis *), with a double-digit decline in the Connected Care and Personal Health businesses and a low-single-digit decline in the Diagnosis & Treatment businesses. The high-single-digit decline in comparable sales growth *) was due to a double-digit decline in China and Russia & Central Asia, partly offset by double-digit growth in Middle East, Turkey & Africa.

Diagnosis & Treatment businesses

Sales by geographic area in millions of EUR unless otherwise stated

	2020	2021	2022
Western Europe	1,589	1,743	1,707
North America	2,931	3,088	3,514
Other mature geographies	835	849	825
Total mature geographies	5,355	5,681	6,046
Growth geographies	2,820	2,954	3,122
Sales	8,175	8,635	9,168
Nominal sales growth	(4)%	6%	6%
Comparable sales growth ¹⁾	(2)%	8%	(1)%

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Sales in growth geographies increased by 6% on a nominal basis in 2022, and on a comparable basis*) showed a low-single-digit decline, which was mainly due to China. Sales in mature geographies increased by 6% on a nominal basis and were flat year-on-year on a comparable basis*).

Connected Care businesses

Sales by geographic area in millions of EUR unless otherwise stated

	2020	2021	2022
Western Europe	1,106	764	646
North America	2,876	2,602	2,741
Other mature geographies	722	605	544
Total mature geographies	4,704	3,971	3,931
Growth geographies	839	602	472
Sales	5,543	4,573	4,403
Nominal sales growth	19%	(17)%	(4)%
Comparable sales growth ¹⁾	22%	(23)%	(11)%

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Sales in growth geographies decreased by 22% on a nominal basis in 2022, and on a comparable basis ^*) showed a double-digit decline, with a double-digit decline across most regions, mainly due to the consequences of the Respironics field action and the COVID situation in China. Sales in mature geographies decreased by 1% on a nominal basis and showed a high-single-digit decline on a comparable basis ^*) , with a double-digit decline in Western Europe and a mid-single-digit decline in North America.

Personal Health businesses

Sales by geographic area in millions of EUR unless otherwise stated

	2020	2021	2022
Western Europe	859	894	902
North America	937	939	1,209
Other mature geographies	190	198	211
Total mature geographies	1,986	2,032	2,322
Growth geographies	1,213	1,398	1,304
Sales	3,199	3,429	3,626
Nominal sales growth	(9)%	7%	6%
Comparable sales growth ¹⁾	(6)%	9%	0%

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Sales in growth geographies decreased by 7% on a nominal basis in 2022, and on a comparable basis*) showed a double-digit decline, which was mainly attributable to China. Sales in mature geographies increased by 14% on a nominal basis, and on a comparable basis*) showed high-single-digit growth, driven by double-digit growth in North America.

Cost of sales

Philips Group

Cost of sales components in millions of EUR unless otherwise stated

	2020	as a % of sales	2021
Costs of materials used	4,221	24.4%	4,142
Salaries and wages	2,316	13.4%	2,245
Depreciation and amortization	591	3.4%	479
Other manufacturing costs	2,364	13.7%	3,123
Cost of sales	9,493	54.8%	9,988

	as a % of sales	2022	as a % of sales
Costs of materials used	24.1%	4,320	24.2%
Salaries and wages	13.1%	2,462	13.8%
Depreciation and amortization	2.8%	535	3.0%
Other manufacturing costs	18.2%	3,316	18.6%
Cost of sales	58.2%	10,633	59.6%

Cost of sales includes only expenses directly or indirectly attributable to the production process, 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 645 million to EUR 10,633 million in 2022, compared to EUR 9,988 million in 2021, mainly due to increased expenses of EUR 217 million in salaries and wages, driven by an unfavorable foreign currency impact and wage inflation, partly offset by productivity measures. Other key factors influencing cost of sales were as follows:

•	Cost of materials used increased by EUR 178 million in 2022, mainly due to an unfavorable foreign currency impact and cost inflation, partly offset by the reduced field action provision and productivity measures.
•	Depreciation and amortization increased by EUR 56 million in 2022, mainly due to an unfavorable foreign currency impact.
•	Other manufacturing costs increased by EUR 193 million in 2022, mainly driven by an unfavorable foreign currency impact and cost inflation, partly offset by the lower field action provision and productivity measures.

Gross margin

In 2022, Philips' gross margin was EUR 7,194 million, or 40.4% of sales, compared to EUR 7,168 million, or 41.8% of sales, in 2021. Gross margin was flat year-on-year due to cost inflation and a decrease in sales, which was offset by a favorable foreign currency impact, a decrease in restructuring, acquisition-related and other charges, and productivity and pricing measures.

Selling expenses

Selling expenses amounted to EUR 4,609 million, or 25.9% of sales, in 2022, compared to EUR 4,258 million, or 24.8% of sales, in 2021. The year-on-year increase in selling expenses of EUR 351 million was mainly due to an unfavorable foreign currency impact and an increase in restructuring, acquisition-related and other charges.

General and administrative expenses

General and administrative expenses amounted to EUR 671 million, or 3.8% of sales, in 2022, compared to EUR 599 million, or 3.5% of sales, in 2021. The year-on-year increase of EUR 72 million was mainly driven by higher restructuring, acquisition-related and other charges.

Research and development expenses

Research and development costs were EUR 2,103 million, or 11.8% of sales, in 2022, compared to EUR 1,806 million, or 10.5% of sales, in 2021. The year-on-year increase of EUR 297 million was mainly driven by higher restructuring, acquisition-related and other charges in relation to R&D project impairments and an unfavorable foreign currency impact.

Philips Group

Research and development expenses in millions of EUR unless otherwise stated

	2020	2021	2022
Diagnosis & Treatment	891	910	1,124
Connected Care	547	543	637
Personal Health	190	190	200
Other	194	163	142
Philips Group	1,822	1,806	2,103
As a % of sales	10.5%	10.5%	11.8%

Impairment of goodwill

During 2022, EUR 1,331 million of goodwill impairment charges were recorded in the Sleep & Respiratory Care business, due to revisions to the expected future cash flows. In addition, a EUR 27 million goodwill impairment was recognized in the Precision Diagnosis Solutions business. For further information refer to Goodwill, starting on page 176.

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

Net income amounted to a loss of EUR 1,605 million, a decrease of EUR 4.9 billion compared to 2021, mainly due to a charge of EUR 1.5 billion related to goodwill and R&D impairments in 2022 and a gain of EUR 2.5 billion on the sale of the Domestic Appliances business in 2021. 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.

Philips Group

Income from operations and Adjusted EBITA ¹⁾ in millions of EUR unless otherwise stated

	Income from operations	as a % of sales	Adjusted EBITA ¹⁾	as a % of sales
2022
Diagnosis & Treatment	404	4.4%	774	8.4%
Connected Care	(2,246)	(51.0)%	95	2.2%
Personal Health	515	14.2%	538	14.8%
Other	(202)		(89)
Philips Group	(1,529)	(8.6)%	1,318	7.4%
2021
Diagnosis & Treatment	941	10.9%	1,071	12.4%
Connected Care	(722)	(15.8)%	497	10.9%
Personal Health	576	16.8%	590	17.2%
Other	(242)		(105)
Philips Group	553	3.2%	2,054	12.0%
2020
Diagnosis & Treatment	497	6.1%	818	10.0%
Connected Care	704	12.7%	1,191	21.5%
Personal Health	362	11.3%	433	13.5%
Other	(300)		(165)
Philips Group	1,264	7.3%	2,277	13.2%

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Income from operations in 2022 amounted to a loss of EUR 1,529 million, or (8.6)% of sales, compared to EUR 553 million, or 3.2% of sales, in 2021, mainly impacted by a charge of EUR 1.5 billion related to goodwill and R&D impairments. Adjusted EBITA ^*) in 2022 was EUR 1,318 million and the margin amounted to 7.4%, compared to EUR 2,054 million and a margin of 12.0% in 2021, primarily due to the sales decline and cost inflation, partly offset by pricing and productivity measures.

Amortization and goodwill impairment charges in 2022 were EUR 1,720 million. This includes a charge of EUR 1,331 million related to an impairment of goodwill in the Sleep & Respiratory Care business, a EUR 27 million goodwill impairment in the Precision Diagnosis Solutions business, and amortization charges of EUR 22 million related to an impairment of a technology asset. In 2021, amortization and goodwill impairment charges were EUR 337 million and included a charge of EUR 13 million related to an impairment of goodwill and amortization charges of EUR 55 million related to an impairment of a technology asset.

Restructuring, acquisition-related and other charges in 2022 were EUR 1,127 million. This includes: restructuring charges of EUR 185 million; EUR 282 million portfolio realignment impairments and charges; EUR 250 million for the Respironics field-action provision; EUR 210 million Respironics field-action running remediation costs; a EUR 60 million provision for public investigations tender irregularities; and EUR 59 million for provisions for quality actions in Connected Care. 2021 charges were EUR 1,164 million and included: a field action provision of EUR 719 million in connection with the Philips Respironics voluntary recall notification; provisions for quality actions of EUR 94 million and other matters of EUR 53 million in Connected Care; restructuring charges of EUR 80 million; acquisition-related charges of EUR 102 million partly offset by a EUR 87 million gain related to the remeasurement of contingent consideration liabilities; a loss of EUR 76 million related to a divestment; and separation costs of EUR 64 million related to the Domestic Appliances business. 2021 also included a release of a legal provision of EUR 38 million, a gain of EUR 33 million related to a minority participation, and a benefit from the re-measurement of environmental liabilities of EUR 22 million.

Income from continuing operations attributable to shareholders per common share (in EUR) - diluted, was EUR (1.84) in 2022, compared to EUR 0.67 in 2021. Adjusted income from continuing operations attributable to shareholders per common share (in EUR) - diluted ^*) was EUR 0.96 in 2022, compared to EUR 1.65 in 2021.

Diagnosis & Treatment businesses

Income from operations in 2022 decreased to EUR 404 million, compared to EUR 941 million in 2021. This was mainly due to cost inflation, partly offset by productivity measures. These factors also resulted in a decrease in Adjusted EBITA ^*) to 8.4% of sales in 2022.

Amortization and goodwill impairment charges in 2022 were EUR 170 million and include EUR 22 million of charges related to an impairment of a technology asset in Image-Guided Therapy and a goodwill impairment of EUR 27 million in Precision Diagnosis Solutions. 2021 charges were EUR 155 million and included EUR 55 million of charges related to an impairment of a technology asset in Image-Guided Therapy.

Restructuring, acquisition-related and other charges in 2022 were EUR 201 million and include EUR 120 million portfolio realignment impairments and charges and a provision of EUR 60 million for public investigations tender irregularities. 2021 charges amounted to a gain of EUR 25 million and included: restructuring charges of EUR 44 million; acquisition- related charges of EUR 48 million offset by a EUR 85 million gain related to the remeasurement of contingent consideration liabilities; and the release of a legal provision of EUR 38 million.

Connected Care businesses

Income from operations in 2022 decreased to EUR (2,246) million, compared to EUR (722) million in 2021. This was mainly due to the EUR 1.3 billion goodwill impairment, the sales decline, the consequences of the Respironics field action and cost inflation. Adjusted EBITA ^*) was 2.2% of sales in 2022 and was also impacted by the sales decline and cost inflation, partly offset by productivity measures.

Amortization and goodwill impairment charges in 2022 were EUR 1,530 million and include EUR 1,331 million impairment of goodwill related to the Sleep & Respiratory Care business. 2021 charges were EUR 161 million and included a EUR 13 million impairment of goodwill related to the divested Personal Emergency Response Services (PERS) and Senior Living business.

Restructuring, acquisition-related and other charges in 2022 were EUR 811 million and include: EUR 250 million for the Respironics field action provision; EUR 210 million Respironics running remediation costs; EUR 160 million portfolio realignment impairments and charges; and EUR 59 million provisions for quality actions in Connected Care. 2021 charges were EUR 1,058 million and included: a field action provision of EUR 719 million in connection with the Philips Respironics voluntary recall notification; EUR 93 million of restructuring and acquisition-related charges; provisions for quality actions of EUR 94 million and other matters of EUR 53 million; and a gain of EUR 33 million related to a minority participation.

Personal Health businesses

Income from operations in 2022 decreased to EUR 515 million, compared to EUR 576 million in 2021. This was mainly driven by cost inflation and an adverse foreign currency impact, partly offset by pricing and productivity measures. These factors also resulted in a decrease in Adjusted EBITA ^*) to 14.8% of sales.

Amortization charges in 2022 were EUR 15 million and include amortization charges related to intangible assets in Mother & Child Care. 2021 charges were EUR 15 million and included amortization charges related to intangible assets in Mother & Child Care.

Restructuring, acquisition-related and other charges in 2022 and 2021 were not material.

Other

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

Income from operations in 2022 amounted to a loss of EUR 202 million, compared to a loss of EUR 242 million in 2021. Adjusted EBITA ^*) in 2022 amounted to a loss of EUR 89 million, compared to a loss of EUR 105 million in 2021. Adjusted EBITA ^*) increased, mainly due to higher royalty income, partly offset by an adverse currency impact and investment in Quality & Regulatory.

Restructuring, acquisition-related and other charges in 2022 were EUR 107 million and include restructuring charges of EUR 61 million and a EUR 21 million impairment of intangible assets. 2021 charges were EUR 131 million and included a loss of EUR 76 million related to a divestment and EUR 64 million of separation costs related to the Domestic Appliances business, partly offset by a benefit from the re-measurement of environmental liabilities of EUR 22 million.

Financial income and expenses

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

Philips Group

Financial income and expenses in millions of EUR

	2020	2021	2022
Interest expense, net	(160)	(141)	(210)
Sale of securities	2	-	-
Net change in fair value of financial assets through profit or loss	129	95	9
Other	(15)	6	2
Financial income and expenses	(44)	(39)	(200)

Financial income and expenses resulted in a net expense of EUR 200 million, compared to a net expense of EUR 39 million in 2021. 2022 includes lower gains on the value of Philips' minority participations and higher interest expense, primarily due to financial charges related to early redemption of EUR and USD bonds and issuance of new EUR bonds in April 2022, compared to 2021. For further information, refer to Financial income and expenses, starting on page 167.

Income taxes

Income tax expense decreased by EUR 10 million year-on-year, mainly due to lower income, partly offset by a non-deductible goodwill impairment in the Sleep & Respiratory Care business in 2022 and a one-off benefit relating to the recognition of tax assets due to a business transfer in 2021.

Investments in associates

Results related to investments in associates improved from a loss of EUR 4 million in 2021 to a loss of EUR 2 million in 2022. In 2022, Philips recorded an impairment of EUR 66 million in relation to its interest in Candid Care Co. As part of the acquisition of Affera, Inc. by Medtronic plc in August 2022, the company sold its investment in Affera to Medtronic and recorded a gain of EUR 84 million on the sale.

Discontinued operations

Philips Group

Discontinued operations, net of income taxes in millions of EUR

	2020	2021	2022
Domestic Appliances	206	2,698	3
Other	(10)	13	10
Net income of Discontinued operations	196	2,711	13

In 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, starting on page 156.

Non-controlling interests

Net income attributable to non-controlling interests decreased from EUR 4 million in 2021 to EUR 3 million in 2022.

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

4.4 Restructuring and acquisition-related charges

Philips Group

Restructuring charges in millions of EUR

	2020	2021	2022
Restructuring charges per segment:
Diagnosis & Treatment	57	44	69
Connected Care	76	42	43
Personal Health	31	(1)	11
Other	37	(5)	61
Philips Group	200	80	185
Cost breakdown of restructuring charges:
Provision for personnel lay-off costs	78	17	136
Restructuring-related asset impairment	58	30	31
Other restructuring-related costs	64	33	18
Philips Group	200	80	185

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.

In 2021, the most significant restructuring projects 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, starting on page 193.

Philips Group

Acquisition-related charges in millions of EUR

	2020	2021	2022
Diagnosis & Treatment	(28)	(37)	(48)
Connected Care	22	51	65
Philips Group	(6)	14	17

In 2022, acquisition-related charges amounted to EUR 17 million. The Connected Care segment recorded charges of EUR 65 million related to the acquisitions of BioTelemetry and Capsule Technologies, due to post-acquisition integration costs. The Diagnosis & Treatment businesses recorded a net gain of EUR 48 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.

In 2021, acquisition-related charges amounted to EUR 14 million. The Connected Care segment recorded charges of EUR 51 million related to the acquisitions of BioTelemetry and Capsule Technologies. The Diagnosis & Treatment businesses recorded a net gain of EUR 37 million, mainly related to a gain of EUR 85 million from the re-measurement of contingent consideration liabilities, partly offset by charges related to the acquisitions of Spectranetics and the Healthcare Information Systems business of Carestream Health.

4.5 Acquisitions and divestments

Acquisitions

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 65 million in the Connected Care businesses.

In 2021, Philips completed two acquisitions: BioTelemetry, which was completed on February 9, 2021, and Capsule Technologies, which was completed on March 4, 2021. Acquisitions in 2021 and prior years led to acquisition and post-merger integration charges of EUR 51 million in the Connected Care businesses.

Divestments

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

In 2021, Philips completed three divestments. On September 1, 2021, Philips sold its Domestic Appliances business to a global investment firm, Hillhouse Investment, resulting in a EUR 2.5 billion gain after tax and transaction-related costs; reported in Discontinued Operations.

In addition, Philips completed the divestment of the Personal Emergency Response Services (PERS) and Senior Living business on June 30, 2021, and September 17, 2021, respectively, as well as completing the divestment of a small business in segment Other. As part of the PERS divestment, Philips acquired shares in the buyer, Connect America Investment Holdings, LLC, with a value of EUR 40 million. The investment is classified as a financial asset measured at Fair Value through Other Comprehensive Income (FVTOCI) and is reported as part of Other non-current financial assets. The divestment resulted in a loss of EUR 76 million, which is included in Other business expenses in our Consolidated statements of income.

For details, please refer to Acquisitions and divestments, starting on page 158.

4.6 Cash flows

The movements in cash and cash equivalents balance for the years ended December 31, 2020, 2021 and 2022 are presented and explained in the following table.

Philips Group

Condensed consolidated cash flows in millions of EUR

	2020	2021	2022
Beginning cash and cash equivalents balance	1,425	3,226	2,303
Net cash flows from operating activities	2,511	1,629	(173)
Net cash flows from investing activities
Net capital expenditures	(876)	(729)	(788)
Other cash flows from investing activities	(391)	(2,943)	(698)
Net cash flows from financing activities
Treasury shares transactions	(297)	(1,613)	(174)
Changes in debt	783	(251)	1,092
Dividend paid to shareholders of the company	(1)	(482)	(412)
Other cash flow items	(57)	62	34
Net cash flows from discontinued operations	129	3,403	(12)
Ending cash and cash equivalents balance	3,226	2,303	1,172

Net cash flows from operating activities

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.

In 2021, net cash flows from operating activities amounted to EUR 1,629 million, compared to EUR 2,511 million in 2020. This decrease is mainly due to increased working capital and consumption of provisions, partly offset by lower income tax paid. Free cash flow ^*) amounted to EUR 900 million in 2021, compared to EUR 1,635 million in 2020.

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

In 2021, other cash flows from investing activities amounted to a cash outflow of EUR 2,943 million, mainly due to the acquisitions of BioTelemetry and Capsule Technologies amounting to EUR 2.8 billion.

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 2022, treasury shares transactions mainly included the share buyback activities, which resulted in EUR 174 million net cash outflow. Changes in debt mainly includes new bonds issued of EUR 2 billion and 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.

In 2021, treasury shares transactions mainly included the share buyback activities, which resulted in EUR 1,613 million net cash outflow. Changes in debt mainly relates to short-term debt and lease repayments. Philips' shareholders received a total dividend of EUR 773 million, including costs, of which the cash portion amounted to EUR 482 million.

Net cash flows from discontinued operations

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

In 2021, net cash provided by discontinued operations was EUR 3,403 million and consisted primarily of the net cash inflow of EUR 3,319 million from the sale of the Domestic Appliances business on September 1, 2021.

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

4.7 Financing

Condensed consolidated balance sheets for the years 2020, 2021 and 2022 are presented in the following table:

Philips Group

Condensed consolidated balance sheets in millions of EUR

	2020	2021	2022
Intangible assets	11,012	14,287	13,764
Property, plant and equipment	2,682	2,699	2,638
Investments and financial assets	781	1,121	1,334
Deferred tax assets	1,820	2,216	2,449
Inventories	2,993	3,450	4,049
Receivables	4,537	4,191	4,616
Other assets	663	693	665
Payables	(3,854)	(3,784)	(3,635)
Provisions	(1,980)	(2,313)	(2,115)
Contract liabilities	(1,643)	(1,936)	(2,210)
Other liabilities	(1,402)	(1,473)	(1,244)
Net asset employed	5,609	19,151	20,311
Cash and cash equivalents	3,226	2,303	1,172
Debt	(6,934)	(6,980)	(8,201)
Net debt ¹⁾	(3,708)	(4,676)	(7,028)
Non-controlling interests	(31)	(36)	(34)
Shareholders' equity	(11,870)	(14,438)	(13,249)
Financing	(15,609)	(19,151)	(20,311)

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

4.8 Debt position

Total debt outstanding at the end of 2022 was EUR 8,201 million, compared with EUR 6,980 million at the end of 2021.

Philips Group

Balance sheet changes in debt in millions of EUR

	2020	2021	2022
New lease liabilities	128	164	104
New borrowings long-term debt	1,065	76	2,516
Repayments long-term debt incl. leases	(298)	(302)	(1,472)
New borrowings (repayments) short-term debt	16	(25)	47
Forward contracts entered (matured)	793	(48)	(76)
Currency effects, consolidation changes and other	(217)	180	101
Changes in debt	1,487	46	1,221

In 2022, total debt increased by EUR 1,221 million compared to 2021. The increase mainly comes from the issuance of EUR 2 billion Notes in April 2022, offset by the early redemption of approximately EUR 1.2 billion Notes originally due in 2023, 2024, 2025 and 2026 and by the utilization of EUR 500 million under the credit facility entered into in October 2022. Changes in payment obligations from forward contracts are related to the maturity in 2022 of EUR 83 million of share buyback forwards (as announced in July 2021) and EUR 57 million of forwards relating to long-term incentive and employee stock purchase plans (as announced in January 2020), partially offset by EUR 63 million of forwards entered into relating to long-term incentive and employee stock purchase plans (as announced in June 2022).

In April 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 can be used for general corporate purposes. The credit facility matures in October 2023 and has a 12-month extension option at Philips discretion. Per yearend 2022, EUR 500 million was utilized and outstanding under the credit facility.

In 2021, total debt increased by EUR 46 million compared to 2020. The increase mainly comes from currency effects and consolidation changes, partly offset by net lease repayments and forward settlements. Repayments of long-term debt amounted to EUR 302 million. In February 2021, Philips entered into two bilateral loans amounting to a total of EUR 500 million that were repaid in September 2021. In addition, Philips issued commercial paper of EUR 300 million in May 2021 and EUR 150 million in July 2021 that was repaid in September 2021. Changes in payment obligations from forward contracts are mainly related to the forward contracts entered into of EUR 731 million relating to the EUR 1.5 billion share buyback program announced on July 26, 2021, and EUR 90 million relating to the long-term incentive and employee stock purchase plans announced on May 19, 2021. In addition, a total amount of EUR 745 million of forward contracts matured in 2021, which completed the settlement of the EUR 1.5 billion share buyback program announced on January 29, 2019, and a total amount of EUR 123 million of forward contracts matured in 2021 relating to the long-term incentive and employee stock purchase plans announced on October 22, 2018 and January 29, 2020. These payment obligations are recorded as financial liabilities under longterm debt. Other changes, mainly resulting from currency effects, led to an increase of EUR 175 million.

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.

At the end of 2021, long-term debt as a proportion of the total debt stood at 92.7% with an average remaining term (including current portion) of 6.0 years, compared to 82.3% and 6.3 years respectively at the end of 2020.

For further information, please refer to Debt, starting on page 191.

4.9 Liquidity position

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.

As of December 31, 2021, 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 3,370 million, compared with debt (including short and long-term) of EUR 6,980 million.

Philips Group

Liquidity position in millions of EUR

	2020	2021	2022
Cash and cash equivalents	3,226	2,303	1,172
Listed equity investments at fair value ¹⁾	17	67	32
Committed revolving credit facility	1,000	1,000	1,000
Credit facility			500
Liquidity	4,243	3,370	2,704
Short-term debt	(1,229)	(506)	(931)
Long-term debt	(5,705)	(6,473)	(7,270)
Debt	(6,934)	(6,980)	(8,201)
Net available liquidity resources	(2,691)	(3,609)	(5,497)

¹⁾ Philips holds listed equity investments at fair value (level 1) in common shares of companies in various industries. Refer to Other financial assets, starting on page 184 and Fair value of financial assets and liabilities, starting on page 214.

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. The facility can be used for general group purposes, such as a backstop of its Commercial Paper Program. In addition, Philips entered into a EUR 1 billion credit facility in October 2022 which can be used for general corporate purposes, of which EUR 500 million is undrawn by year-end 2022.

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, 2022, Philips had no commercial paper outstanding. During the year 2020, 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 2022 Philips issued three new tranches under the program for a total of EUR 2 billion, while also early redeeming its outstanding 2023 and 2024 Notes and completing a tender offer on the outstanding 2025 and 2026 Notes.

In terms of liquidity, the company has access to various sources. The company's liquidity risk management procedures have not changed significantly during 2022. 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, starting on page 218. Further, with respect to the Respironics field action, please refer to Contingencies, starting on page 204. 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 A- (with stable outlook) by Fitch, Baal (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, starting on page 191.

Philips Group

Credit rating summary

	long-term	short-term	outlook
Fitch	A-		Stable
Moody's	Baa1	P-2	Negative
Standard & Poor's	BBB+	A-2	Negative

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.

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

4.10 Shareholders' equity

In 2022, shareholders' equity decreased by EUR 1,189 million to EUR 13,249 million at yearend. 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.

In 2021, shareholders' equity increased by EUR 2,568 million to EUR 14,438 million at yearend. The increase was mainly due to net income of EUR 3,323 million and currency translation gains of EUR 1,117 million, primarily due to the appreciation of the US dollar against the euro in 2021. This was partly offset by the dividend distributed (EUR 482 million), settlements of earlier concluded forward contracts (EUR 869 million) and the share repurchases made in the open market (EUR 758 million).

Share capital structure

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 24,531,609 shares. See below for more information on the shares that were acquired in the course of 2022. Philips issued 14,174,568 shares in June 2022 in order to distribute the 2021 dividend. The company cancelled 8.8 million shares in June 2022.

The number of issued common shares of Royal Philips as of December 31, 2021 was 883,898,969. At year-end 2021, the company held 13.7 million shares in treasury. Of these shares, 5.7 million shares were held to cover obligations under long-term incentive plans, and 8.0 million shares were held for share 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, 2021, Philips' outstanding options related to 0.4 million shares. In 2021 (and earlier years), the company entered into several forward contracts to acquire its own shares, and as of December 31, 2021, the outstanding forward contracts related to 25,071,218 shares. See below for more information on the shares that were acquired in the course of 2021. Philips issued 6,345,968 shares in June 2021 (in order to distribute the 2020 dividend). The company cancelled 33.5 million shares in December 2021.

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 2022, Philips used methods (i) to repurchase shares for capital reduction purposes and methods (ii) and (iii) to repurchase shares for 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 2022, 2021, and 2020, please refer to Group Financial Statements Note 18 Equity, Forward share repurchase plans / contracts, starting on page 187.

Philips Group

Impact of share acquisitions and cancellations on share count in thousands of shares as of December 31

	2018	2019	2020	2021	2022
Shares issued	926,196	896,734	911,053	883,899	889,315
Shares in treasury	12,011	5,760	5,925	13,717	7,835
Shares outstanding	914,184	890,974	905,128	870,182	881,481
Shares acquired	31,994	40,390	8,670	45,486	5,081
Shares cancelled	24,247	38,541	3,810	33,500	8,758

Philips Group

Total number of shares repurchased in thousands of shares unless otherwise stated

	share repurchases related to shares acquired for capital reduction	average price paid per share	shares acquired for LTI's
		in EUR
January 2022	769	31.52	149
February 2022			240
March 2022
April 2022
May 2022
June 2022
July 2022
August 2022			3
September 2022
October 2022			1,750
November 2022	2,170	38.41
December 2022
Total	2,938		2,142
of which ⁵⁾
purchased in the open market	769
acquired through exercise of call options/ settlement of forward contracts	2,170		2,142
To be acquired by settlement of forward contracts after December 31, 2022

	average price paid per share	total number of shares purchased ¹⁾	average price paid per share	total number of shares purchased as part of publicly announced plans or programs ^{2) 3) 4)}	approximate value of shares that may yet be purchased under the plans or programs
	in EUR		in EUR		in thousands of EUR
January 2022	29.36	918	31.17	769	933,871
February 2022	29.48	240	29.48		933,871
March 2022					933,871
April 2022					933,871
May 2022					933,871
June 2022					997,072
July 2022					997,072
August 2022	20.18	3	20.18		997,072
September 2022					997,072
October 2022	32.30	1,750	32.30	1,750	941,676
November 2022		2,170	38.41	2,170	858,343
December 2022					858,343
Total		5,081	34.56	4,688
of which ⁵⁾
purchased in the open market		769		769
acquired through exercise of call options/ settlement of forward contracts		4,312		3,920
To be acquired by settlement of forward contracts after December 31, 2022					858,343

¹⁾ All shares were purchased through publicly announced plans or programs, other than approximately 392,000 shares repurchased through the unwinding of call options on own shares.
²⁾ First, on January 29, 2020, Philips announced that it would repurchase up to 6 million shares to cover certain of its obligations arising from its long-term incentive and employee stock purchase plans. Under this program, Philips entered into three forward contracts to acquire 5 million shares for an amount of EUR 174 million with settlement dates varying between October 2021 and November 2022. On October 26, 2022, the original settlement date of two share tranches entered into under this program (in total 1.75 million shares) has been extended from November 23, 2022, to November 2023, and 2024, respectively. Second, on May 19, 2021, Philips announced that it will repurchase up to 2 million shares to cover certain of its obligations arising from its long-term incentive and employee stock purchase plans. Under this program, Philips entered into one forward contract for an amount of EUR 90 million to acquire 2 million shares with settlement dates in October and November 2023. Third, on July 26, 2021, Philips announced a share buyback program for share cancellation purposes for an amount of up to EUR 1.5 billion. Consequently, in the third quarter of 2021 Philips entered into three forward contracts for an amount of EUR 731 million to acquire 19.6 million shares with settlement dates in 2022, 2023 and 2024. Philips executed the remainder of the program through open market purchases by an intermediary in the fourth quarter of 2021 (acquiring 21 million shares) and January 2022 (acquiring 0.8 million shares). Fourth, on June 13, 2022, Royal Philips announced that it will repurchase up to 3.2 million shares to cover certain of its obligations arising from its long-term incentive and employee stock purchases plans. Under this program, Philips entered into one forward contract for an amount of EUR 63 million to acquire 3.2 million shares with settlement dates in November 2024 and December 2024. For further details on these publicly announced plans or programs refer to Equity, starting on page 187.
³⁾ Philips cancelled 8.8 million shares on June 30, 2022.
⁴⁾ In 2022, Philips did not determine to terminate any publicly announced plans or programs prior to expiration, or determine that it intends not to make any further purchases under any publicly announced plans or programs. It is noted that Philips entered into several forward share repurchase contracts to cover certain of its obligations arising from its share-based remuneration, as announced on January 29, 2020. Please refer to Equity, starting on page 187 for more information.
⁵ As described above, Philips acquired shares via three different methods: (i) share buyback repurchases in the open market via an intermediary, (ii) repurchase of shares via forward contracts for future delivery of shares, (iii) the unwinding of call options on own shares.

4.11 Cash obligations

Contractual cash obligations

The following table presents a summary of the Group's fixed contractual cash obligations and commitments as of December 31, 2022. 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:

Philips Group

Contractual cash obligations ¹⁾²⁾ in millions of EUR

		payments due by period
	total	less than 1 year	1-3 years	3-5 years	after 5 years
Long-term debt	8,168	842	1,760	1,809	3,757
Short-term debt	89	89
Interest on debt	1,683	159	304	264	956
Derivative liabilities	210	208	2
Purchase obligations ³⁾	782	336	412	21	12
Trade and other payables	1,968	1,968
Contractual cash obligations	12,901	3,603	2,478	2,094	4,725

¹⁾ Amounts in this table are undiscounted
²⁾ This table excludes post-employment benefit plan contribution commitments and income tax liabilities in respect of tax risks because it is not possible to make a reasonably reliable estimate of the actual period of cash settlement.
³ Purchase obligations are agreements to purchase goods or services that are enforceable and legally binding for the Group. They specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. They do not include open purchase orders or other commitments which do not specify all significant terms.

Included in debt are remaining forward contracts of EUR 648 million related to the EUR 1.5 billion share buyback program announced in July 2021 and EUR 211 million relating to the repurchase of shares to cover long-term incentive and employee stock purchase plans. In 2022, Philips entered into a total amount of EUR 63 million of forward contracts relating to the repurchase of up to 3.2 million shares to cover long-term incentive and employee stock purchase plans. In addition, in 2022 there were maturities of a total of EUR 83 million of forward contracts related to the EUR 1.5 billion share buyback program announced in July 2021, as well as maturities of a total of EUR 57 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, 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, 2022, approximately EUR 151 million (2021: EUR 139 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 Postemployment benefits, starting on page 198.

The company had EUR 140 million restructuring-related provisions by the end of 2022, of which EUR 134 million is expected to result in cash outflows in 2022. Refer to Provisions, starting on page 193 for details of restructuring 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 127 million (2021: EUR 116 million). Capital contributions already made to these investment funds are recorded as non-current financial assets.

Please refer to Dividend, starting on page 43 for information on the proposed dividend distribution.

Please refer to Equity, starting on page 187 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 2021 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, 2022 (December 31, 2021: EUR 2 million).

4.12 Dividend

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 9, 2023, 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 11, 2023 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 12, 2023.

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 11, 12 and 15, 2023. 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 17, 2023. Distribution of the dividend (up to EUR 751 million) and delivery of new common shares, with settlement of any fractions in cash, will take place from May 18, 2023.

	ex-dividend date	record date	distribution from
Euronext Amsterdam	May 11, 2023	May 12, 2023	May 18, 2023
New York Stock Exchange	May 11, 2023	May 12, 2023	May 18, 2023

Further details will be given in the agenda for the 2023 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 June 2022, Philips settled a dividend of EUR 0.85 per common share, representing a total value of EUR 741 million (including costs). Shareholders could elect for a cash dividend or a share dividend. Approximately 45% of the shareholders elected for a share dividend, resulting in the issuance of 14,174,568 new common shares, leading to a 1.6% dilution. For more information refer to Shareholders' equity, starting on page 40. The settlement of the cash dividend involved an amount of EUR 411 million (including costs).

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:

Philips Group

Gross dividends on the common shares

	2018 ¹⁾	2019 ¹⁾	2020 ²⁾	2021 ¹⁾	2022 ²⁾
in EUR	0.80	0.85	0,85	0.85	0.85
in USD	0.94	0.96	0.95	1.03	0.90

¹⁾ In cash or shares at the election of shareholder.
²⁾ In shares only.
^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

4.13 Analysis of 2021 compared to 2020

The analysis of the 2021 financial results compared to 2020, 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 2022, which will be filed electronically with the US Securities and Exchange Commission.

4.14 Outlook

Looking ahead, Philips expects to deliver low-single-digit comparable sales growth ^*) and high-single-digit Adjusted EBITA ^*) margin in 2023. Considering the slowing of consumer demand and a gradual improvement of the order book conversion during 2023, Philips anticipates a slow start to the year, with improvements throughout the year supported by the ongoing productivity, pricing and other actions. This guidance excludes the impact of the ongoing discussion on a consent decree beyond current assumptions (Sleep & Respiratory Care/Respironics CSGR 2023-2025 of 10%), as well as ongoing litigation and the investigation by the US Department of Justice related to the Respironics field action.

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

At a glance Environmental, Social and Governance

1.81 billion lives improved by our products and solutions, including 202 million in underserved communities.

Updated carbon reduction goals approved by Science Based Targets initiative (SBTi).

CDP 'A List' rating for climate action for 10th year in a row.

Strengthening patient safety and quality Philips' highest priority.

Announcement of workforce reduction by some 10,000 roles globally.

5 Environmental, 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.

5.1 ESG reporting framework

Building on our extensive experience of environmental and social impact measurement and of providing transparency on governance, Philips has taken an active role - in collaboration with, in particular, the International Financial Reporting Standards (IFRS) Foundation, the World Economic Forum (WEF) and the European Union -to help drive the evolution towards a standard ESG reporting framework.

In 2007, Philips signed up to the United Nations Global Compact, to advance ten universal principles in the areas of human rights, labor, the environment and anti-corruption. In 2017, at the WEF Annual Meeting in Davos, we signed the Compact for Responsive and Responsible Leadership - an initiative (initiated by WEF and Philips) to promote and align the long-term sustainability of corporations and the long-term goals of society, with an inclusive approach for all stakeholders. The WEF secured a commitment from over 140 CEOs to align their corporate values and strategies with the United Nations' Sustainable Development Goals (SDGs).

In 2020, the WEF's International Business Council (IBC) published its core set of Stakeholder Capitalism Metrics and disclosures. These can be used by companies to align their mainstream reporting on performance against environmental, social and governance (ESG) indicators and tracktheir contributions towards the SDGs on a consistent basis. Thus far, 135 companies reported in line with this framework. Based where possible on existing standards, the full set is comprised as follows:

•	Core metrics: A set of 21 more-established or critically important metrics and disclosures that focus primarily on activities within an organization's own boundaries.
•	Expanded metrics: A set of 34 metrics and disclosures that tend to be less well-established in existing practice and have a wider value chain scope or convey impact in a more sophisticated or tangible way, e.g. in monetary terms.

The recommended metrics are organized under four pillars that are aligned with the SDGs and principal ESG domains: Principles of Governance, Planet, People and Prosperity. There is no intention to replace industry- or company-specific metrics (like our Lives Improved metric). Companies are encouraged to report against as many of the core and expanded metrics as they find material and appropriate, on the basis of 'disclose or explain'.

In section 5.6 of this Annual Report, we show how Philips performed in 2022 on the above-mentioned 21 Core metrics, 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.

Philips is also contributing to the IFRS Foundation's endeavors to drive standardization of non-financial reporting as well as the development of sustainability standards by the European Union by EFRAG.

EU taxonomy framework

The aim of the European Taxonomy Regulation (EU 2020/852), including the delegated acts adopted thereunder, is to provide companies, investors and policymakers with appropriate criteria for determining which economic activities can be considered environmentally sustainable, and it requires companies to report on how and to what extent their activities are associated with such 'taxonomy-eligible activities'. The Taxonomy Regulation is relatively new and there are after the first year of reporting (2021) still significant uncertainties around its phased implementation. It is expected, however, that the EU Taxonomy will develop into a comprehensive and detailed framework over the coming years.

The Taxonomy Regulation provides certain conditions for taxonomy alignment. Among others, the relevant activity must substantially contribute to one or more of the following six environmental objectives (while not significantly harming any of the others):

1.	Climate change mitigation
2.	Climate change adaptation
3.	The sustainable use and protection of water and marine resources
4.	The transition to a circular economy
5.	Pollution prevention and control
6.	The protection and restoration of biodiversity and ecosystems

The delegated acts adopted under the Taxonomy Regulation will provide technical screening criteria which must also be met to constitute taxonomy alignment. On the date of this Annual Report 2022, only one relevant delegated act has been adopted, concerning activities significantly contributing to climate change mitigation and adaptation.

The taxonomy framework provisions effective on the date of this Annual Report 2022 require Philips to disclose the proportion of its taxonomy-eligible activities (described in any delegated act adopted to date) and non-eligible economic activities in its total turnover, capital and operational expenditure, as well as certain qualitative information. We used the delegated act ((EU) 2021/2139) to identify activities that are eligible. However, none of our revenue-generating activities were included as this delegated act only applies to sectors with very high CO ₂ emissions. As a result, Philips' core activities are not within the scope of this delegated act and consequently none of Philips' revenues were eligible under this delegated act during 2022 (0%). All revenues were non-eligible (100%). We used delegated act (EU) 2021/2178 for the definition and calculation of the taxonomy-eligible percentages. Revenue is calculated based on 'Sales' as per Consolidated statements of income, starting on page 145. Philips expects to be eligible and report its taxonomy-eligible revenues under additional environmental objectives as further delegated acts with applicable technical screening criteria are adopted.

Philips Group

Proportion of turnover from products or services associated with Taxonomy-aligned economic activities 2022 in millions of EUR unless otherwise stated

Economic activities	Absolute Turnover	Proportion of turnover
A. ELIGIBLE ACTIVITIES
Turnover of eligible Taxonomy-aligned activities (A.1)	0	0%
Turnover of eligible not Taxonomy-aligned activities (A.2)	0	0%
Total (A.1 + A.2)	0	0%
B. Taxonomy-non-eligible activities
Turnover of Taxonomy-non-eligible activities (B)	17,827	100%
Total (A + B)	17,827	100%

Some other (enabling) Philips activities are included in the delegated act ((EU) 2021/2139) and are eligible for capital expenditures for the objective of climate change mitigation and climate change adaptation. We therefore screened (EU) 2021/2139, assessed our capital expenditure and identified relevant activities mainly related to our real estate portfolio. For these activities, capital expenditures are determined based on the 2022 additions to property, plant and equipment, intangible assets, and additions to right-of-use assets, excluding any re-assessments (refer to Property, plant and equipment, starting on page 173 and Intangible assets excluding goodwill, starting on page 181).

Reportable taxonomy-eligible capital expenditures in 2022 amounted to EUR 8 million, or 1% of total capital expenditure (non-eligible capital expenditures 99%), and mainly related to energy efficiency improvement measures in our buildings (installation, maintenance and repair of energy efficiency equipment), such as energy efficient heating, ventilation, and air conditioning (HVAC) in various locations around the world. Next, we invested in onsite renewable electricity generation (installation, maintenance and repair of renewable energy technologies) by installing PV panels in one of our factories in Asia.

We assessed compliance with the criteria set out in Article 3 of Regulation (EU) 2020/852 and the associated technical screening criteria on a project basis.

Philips Group

Proportion of CapEx from products or services associated with Taxonomy-aligned economic activities 2022 in EUR unless otherwise stated

			Substantial contribution criteria
Economic activities	Absolute CapEx	Proportion of CapEx	Climate change mitigation	Climate change adaption	Water and marine resources
		%	%	%	%
A. ELIGIBLE ACTIVITIES
A. 1 Eligible Taxonomy-aligned activities
4.16 Installation and operation of electric heat pumps	234,000	0	100	0	0
7.2 Renovation of existing buildings	121,000	0	100	0	0
7.3 Installation, maintenance and repair of energy efficient equipment	7,720,000	1	100	0	0
7.4 Installation, maintenance and repair of charging stations for electric vehicles	61,000	0	100	0	0
7.6 Installation, maintenance and repair of renewable energy technologies	240,000	0	100	0	0
CapEx of eligible Taxonomy-aligned activities (A.1)	8,376,000
A.2. Eligible not Taxonomy-aligned activities
No eligible not Taxonomy-aligned activiites identified
CapEx of eligible not Taxonomy-aligned activities (A.2)	0
Total (A.1 + A.2)	8,376,000	1	100	0	0
B. Taxonomy-non-eligible activities
CapEx of Taxonomy-non-eligible activities (B)	591,624,000	99
Total (A+B)	600,000,000	100

	Substantial contribution criteria
Economic activities	Circular economy	Pollution	Biodiversity and ecosystems
	%	%	%
A. ELIGIBLE ACTIVITIES
A. 1 Eligible Taxonomy-aligned activities
4.16 Installation and operation of electric heat pumps	0	0	0
7.2 Renovation of existing buildings	0	0	0
7.3 Installation, maintenance and repair of energy efficient equipment	0	0	0
7.4 Installation, maintenance and repair of charging stations for electric vehicles	0	0	0
7.6 Installation, maintenance and repair of renewable energy technologies	0	0	0
CapEx of eligible Taxonomy-aligned activities (A.1)
A.2. Eligible not Taxonomy-aligned activities
No eligible not Taxonomy-aligned activiites identified
CapEx of eligible not Taxonomy-aligned activities (A.2)
Total (A.1 + A.2)	0	0	0
B. Taxonomy-non-eligible activities
CapEx of Taxonomy-non-eligible activities (B)
Total (A+B)

	DNSH criteria ('Do No Significant Harm')
Economic activities	Climate change mitigation	Climate change adaption	Water and marine resources
	Y/N	Y/N	Y/N
A. ELIGIBLE ACTIVITIES
A. 1 Eligible Taxonomy-aligned activities
4.16 Installation and operation of electric heat pumps		Y	Y
7.2 Renovation of existing buildings		Y	Y
7.3 Installation, maintenance and repair of energy efficient equipment		Y	Y
7.4 Installation, maintenance and repair of charging stations for electric vehicles		Y	Y
7.6 Installation, maintenance and repair of renewable energy technologies		Y	Y
CapEx of eligible Taxonomy-aligned activities (A.1)
A.2. Eligible not Taxonomy-aligned activities
No eligible not Taxonomy-aligned activiites identified
CapEx of eligible not Taxonomy-aligned activities (A.2)
Total (A.1 + A.2)		Y	Y
B. Taxonomy-non-eligible activities
CapEx of Taxonomy-non-eligible activities (B)
Total (A+B)

	DNSH criteria ('Do No Significant Harm')
Economic activities	Circular economy	Pollution	Biodiversity and ecosystems
	Y/N	Y/N	Y/N
A. ELIGIBLE ACTIVITIES
A. 1 Eligible Taxonomy-aligned activities
4.16 Installation and operation of electric heat pumps	Y	Y	Y
7.2 Renovation of existing buildings	Y	Y	Y
7.3 Installation, maintenance and repair of energy efficient equipment	Y	Y	Y
7.4 Installation, maintenance and repair of charging stations for electric vehicles	Y	Y	Y
7.6 Installation, maintenance and repair of renewable energy technologies	Y	Y	Y
CapEx of eligible Taxonomy-aligned activities (A.1)
A.2. Eligible not Taxonomy-aligned activities
No eligible not Taxonomy-aligned activiites identified
CapEx of eligible not Taxonomy-aligned activities (A.2)
Total (A.1 + A.2)	Y	Y	Y
B. Taxonomy-non-eligible activities
CapEx of Taxonomy-non-eligible activities (B)
Total (A+B)


Economic activities	Minimum safeguards	Taxonomy-aligned proportion of CapEx 2022	Taxonomy-aligned proportion of CapEx 2021	Category (enabling activity or transitional activity)
	Y/N	%	%	E/T
A. ELIGIBLE ACTIVITIES
A. 1 Eligible Taxonomy-aligned activities
4.16 Installation and operation of electric heat pumps	Y	0	NA	E
7.2 Renovation of existing buildings	Y	0	NA	T
7.3 Installation, maintenance and repair of energy efficient equipment	Y	1	NA	E
7.4 Installation, maintenance and repair of charging stations for electric vehicles	Y	0	NA	E
7.6 Installation, maintenance and repair of renewable energy technologies	Y	0	NA	E
CapEx of eligible Taxonomy-aligned activities (A.1)
A.2. Eligible not Taxonomy-aligned activities
No eligible not Taxonomy-aligned activiites identified
CapEx of eligible not Taxonomy-aligned activities (A.2)
Total (A.1 + A.2)	Y	1	NA	E
B. Taxonomy-non-eligible activities
CapEx of Taxonomy-non-eligible activities (B)
Total (A+B)

Similar to capital expenditures, we screened (EU) 2021/2139 for relevant operational expenditure activities and have applied the exemption rule, as the eligible operational expenditure was not material in relation to the taxonomy non-eligible operational expenditure of around EUR 2.3 billion. Total operational expenditures are determined based on the 2022 non-capitalized costs that relate to research and development, building renovation, short-term lease, maintenance and repair, and any other direct expenditures relating to day-to day servicing of property, plant and equipment.

In 2022, we did not record reportable taxonomy-eligible operational expenditures (0%), as, for example, the sourcing of renewable energy was not included in the Taxonomy. Non-eligible operational expenditures were 100%.

Philips Group

Proportion of OpEx from products or services associated with Taxonomy aligned economic activities 2022 in millions of EUR unless otherwise stated

Economic activities	Absolute OpEx	Proportion of OpEx
A. ELIGIBLE ACTIVITIES
OpEx of eligible Taxonomy-aligned activities (A.1)	0	0%
OpEx of eligible not Taxonomy-aligned activities (A.2)	0	0%
Total (A.1 + A.2)	0	0%
B. Taxonomy-non-eligible activities
OpEx of Taxonomy-non-eligible activities (B)	2,276	100%
Total (A + B)	2,276	100%

We followed the same accounting principles as in our financial statements.

We will continue to monitor legislative developments and adapt our disclosures where needed.

5.2 Philips' 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 key 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 billion lives per year by 2025. 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, starting on page 25, and in ESG statements, starting on page 266.

Our key ESG commitments

Environmental

We act responsibly towards our planet in line with UN SDGs 12 and 13.

•	We will use 75% renewable energy in our operations by 2025.
•	While maintaining carbon neutrality in our operations, we will reduce CO ₂ emissions in our entire value chain in line with a 1.5 °C global warming scenario (based on Science Based Targets). We will actively partner with our suppliers and our customers to achieve this.
•	We will generate 25% of our revenue from circular products and solutions, and offer a trade-in on all professional medical equipment so that we can take care of responsible repurposing by 2025.
•	We will embed circular practices at our sites and put zero waste to landfill by 2025.
•	All new product introductions will fulfill our EcoDesign requirements by 2025, with 'EcoHeroes' accounting for 25% of revenues.
•	We work with our suppliers to reduce the environmental footprint of our supply chain in line with a 1.5 °C global warming scenario (based on Science Based Targets).
•	We engage with our stakeholders and other companies to drive sustainability efforts addressing the United Nations Sustainable Development Goals.

Social

Our purpose is to improve people's health and wellbeing through meaningful innovation, in line with UN SDG 3. We act responsibly towards society and partner with our stakeholders

•	We aim to improve the health and well-being of 2 billion people per year by 2025, including 300 million people in underserved communities.
•	It is our strategy to lead with innovative solutions along the health continuum - helping our customers deliver on the Quadruple Aim (better health outcomes, a better experience for patients and staff, lower cost of care) and helping people take better care of their health.
•	We aim to be the best place to work for our employees, providing opportunities for learning and development, embracing diversity and inclusion, and assuring a safe and healthy work environment. We pay at least a living wage and aim for employee engagement above the high-performance norm.
•	Through our supplier development program we will improve the lives of 1,000,000 workers in our supply chain by 2025.
•	We actively engage with and support the communities in which we operate, e.g. through volunteering, internships, STEM (Science, Technology, Engineering, Mathematics) initiatives.
•	We contribute to the Philips Foundation, an independent foundation (stichting) organized under Dutch law, which aims to provide access to quality healthcare for disadvantaged communities.
•	We consider our tax payments as a contribution to the communities in which we operate, as part of our social value creation.

Governance

We aim to deliver superior long-term value for our customers and shareholders, and we live up to the highest standards of ethics and governance in our culture and practices

•	Our management structure and governance combines responsible leadership and independent supervision.
•	The Philips Business System is our integrated operating model. It defines how we work together to delight our customers and achieve our company goals, leveraging our global scale and capabilities.
•	We are committed to delivering the highest-quality products, services and solutions compliant with all applicable laws and standards.
•	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.
•	We ensure ethical behavior through our General Business Principles, with a strong compliance and reporting framework.
•	Our risk management is designed to provide reasonable assurance that strategic and operational objectives are met, legal requirements complied with, and the integrity of the company's reporting and related disclosures safeguarded.
•	We are transparent about our plans, activities, results and contributions to society (e.g. Country activity and Tax report), and engage with shareholders, customers, business partners, governments and regulators through a variety of platforms.

5.3 Environmental performance

In September 2020, we launched our ESG commitments, with ambitious targets to be achieved by the end of 2025. Besides our social impact, focusing on SDG 3, described in the Social performance section, 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. Details can be found in the ESG statements, starting on page 266.

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 Solutions portfolio. As a next step, for the sixth 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 overtime. 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 wellbeing 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 2022 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 2022 EP&L calculation for all life cycle stages. Refurbished products and repair kits were not included.

Results 2022

In 2022, Philips' environmental impact amounted to EUR 1.63 billion, compared to EUR 2.16 billion in 2021. This reduction was mainly driven by updated energy use cases for hair dryers (causing a reduction of around EUR 450 million) and a changed product mix (causing a EUR 250 million reduction), but was mitigated by the update to the Ecolnvent 3.8 database (our Life Cycle Inventory database containing environmental impacts of products and services, causing around EUR 75 million increase) and further granulation of the data, including the application of country emission factors (causing around EUR 100 million increase). The most significant environmental impact, 63% 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 2022, 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 an environmental impact in the years to come.

Of the total 2022 impact, just EUR 128 million (7%) is directly caused by Philips' own operations, mainly driven by outbound logistics, followed by business travel. Compared to EUR 106 million in 2021, this is a 21% increase, mainly due to more granular data on our operations and updating the emission factors from Ecolnvent 3.4 to Ecolnvent 3.8, mitigating the downward trend in logistics emissions as presented in Sustainable Operations, starting on page 56.

Our materials and components supply chain currently has an environmental impact of some EUR 421 million, which is 26% 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. We will also include the impact on biodiversity and ecosystem services in the future.

In order to deliver on our carbon neutrality commitment, we have set ambitious reduction targets. In 2018, we were the first health technology company to have its 2020-2040 targets (including the use-phase of our products) approved by the Science Based Targets initiative - a collaboration between CDP (formerly Carbon Disclosure Project), the United Nations Global Compact (UNGC), the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) aimed at driving ambitious corporate climate action. Approval confirms that Philips' long-term targets are in line with the level of decarbonization required to keep the global temperature increase below 2 °C. As a next step in our journey to reduce our environmental impact, and part of our ESG commitments launched in September 2020, we have committed to reduce our full value chain emissions in line with a 1.5 °C global warming scenario.

For more information on our efforts to reduce emissions in the supply chain, please refer to Supplier indicators, starting on page 286.

For more information on our efforts to reduce emissions in the customer use-phase, please refer to Green/EcoDesigned Innovation, starting on page 54 and Green/EcoDesigned Revenues, starting on page 56.

5.3.1 Green/EcoDesigned Innovation

Research from the Potsdam Institute for Climate Impact research shows that over 4% of global CO ₂ emissions are caused by the Healthcare sector. We see a growing demand from our customers, including hospitals, to reduce their environmental impact 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 2022, Philips invested EUR 168 million in Green/EcoDesigned Innovation, a reduction compared to 2021 due to the completion of a number of sizeable innovation projects in the course of 2022. We expect this spend to increase again in the years to come. In 2022, over EUR 1.8 billion was invested in Sustainable Innovation.

As the current EU Taxonomy delegated act only applies to sectors with highest CO ₂ emissions, Philips' activities are not within the scope of this delegated act and consequently none of Philips 1 R&D investments were eligible under this taxonomy during 2022.

Diagnosis & Treatment businesses

Philips develops innovative diagnosis and treatment solutions that support precision diagnosis and effective, minimally invasive interventions and therapy, while respecting the limits of natural resources. Investments in Green Innovation in 2022 amounted to EUR 93 million, comparable to EUR 96 million in 2021.

All Philips EcoDesign/Green Focal Areas are taken into account as we aim to reduce environmental impact over the total lifecycle. Energy efficiency is an area of focus, especially for our large imaging systems such as MRI. Through circular-ready design, Philips also pays particular attention to enabling the upgrading and reuse pathways, so our customers can benefit from enhancements in workflow, dose management and imaging quality and availability of re-used service parts with the equipment they already own. In addition, we are reducing the amount of hazardous substance 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 (by for example introducing EcoModes) and optimizing lifecycle value. Philips aims to close the loop on all medical equipment that becomes available to us by the end of 2025. To achieve this target, we actively drive trade-ins in markets where deinstall, trade-in and reverse logistics capabilities are in place, and build these capabilities in countries that do not yet have them.

Connected Care businesses

Philips' connected health IT 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, and improve access to care and outcomes. This has also become apparent during the COVID-19 crisis. Green/ EcoDesigned Innovation investments in 2022 amounted to EUR 31 million, in line with EUR 32 million in 2021. Green Innovation projects in 2022 will deliver the coming years, among other things, new EcoDesigned patient monitors with lower environmental footprints, reflecting all the Philips EcoDesign/Green Focal Areas. Energy efficiency, material reduction, less hazardous substances and closing the loop activities are the main areas of focus.

Personal Health businesses

R&D investments at our Personal Health businesses amounted to EUR 40 million in 2022, compared with EUR 65 million in 2021, as some larger innovation projects were finalized in the course of 2022. The Personal Health businesses continued their work on improving the energy efficiency of their products, closing the materials loop (e.g. by using recycled materials in products and packaging), 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. More specifically, as part of our Fit for Future Packaging program, we launched the first plastic free, mailbox-ready, packaging solution in our Grooming and Beauty portfolio for an online One Blade shaver, and plastic free packaging in the Female Depilation and Hairstyling portfolio. Philips also launched a foldable, more energy-efficient hairdryer containing recycled plastic.

Other

The segment Other invested EUR 4 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.

Circular economy

For a sustainable world, the transition from a linear to a circular economy is essential. A circular economy aims to decouple economic growth from the use of natural resources and ecosystems by using these resources more effectively. It is a driver of innovation in the areas of material, component and product re-use, as well as new business models such as system solutions and services. At Philips, we have set ambitious targets to guide this journey. In 2020, as we announced our ESG commitments, we aimed, among other things, to generate 25% of our revenues from circular products and services, to extend our 'closing the loop' practices across all our medical products, and to further embed circular practices at our sites and send zero waste to landfill in our own operations.

For more information on our Circular Economy activities and the progress towards targets in 2022, please refer to Circular Economy, starting on page 274.

5.3.2 Green/EcoDesigned 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, Hazardous substances, Weight, Circularity, and Lifetime reliability and thereby deliver a contribution to SDG 12 (Ensure sustainable consumption and production patterns). Green/EcoDesigned Revenues amounted to EUR 12.8 billion in 2022, or 71.7% of sales (70.5% in 2021). This increase is mainly attributable to higher Green/ EcoDesigned revenues in the Precision Diagnosis and Personal Health businesses.

As the current EU Taxonomy delegated act only applies to sectors with highest CO ₂ emissions, Philips' activities are not within the scope of this delegated act and consequently none of Philips' revenues were eligible under this taxonomy during 2022.

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 hazardous substances, packaging and recyclability in all segments in 2021, the latter driven by our Circular Economy initiatives.

Diagnosis & Treatment businesses

In 2022, a number of main platforms were launched in our Diagnosis & Treatment businesses. CT7500 and various redesigns of current platforms have been launched offering further environmental improvements. Specific attention was paid to preparing for future EcoDesigned product launches.

Connected Care businesses

After several launches of new Green/EcoDesigned products in 2020, no major new launches took place in 2021 and 2022 except for the VS20 monitor which has good performance on all EcoDesign focal areas. New EcoDesigned Products are expected in 2023 with improvements on all EcoDesign focal areas.

Personal Health businesses

In our Personal Health businesses, 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. Green/EcoDesigned Revenues in 2022 amounted to 90% of total sales, compared to 85% in 2021. 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.

5.3.3 Sustainable Operations

Philips' Sustainable Operations programs focus on the main contributors to climate change, recycling of waste, reduction of water consumption, and reduction of emissions.

Full details can be found in ESG statements, starting on page 266.

Carbon footprint and energy efficiency

At Philips, we see climate change as a serious threat. 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.

During the COP 21 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. Since 2020, Philips has been carbon-neutral in its operations. We delivered on this commitment as a result of a comprehensive program that included energy-efficiency improvements, on-site renewables, Power Purchase Agreements, as well as business travel reduction and transport mode shifts to low-carbon emitting alternatives, and finally a carbon offset program.

Our efforts are acknowledged by the 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 2022, we were ranked on the CDP Climate Change 'A' List for our continued climate performance and transparency for the 10th consecutive year.

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, not only in our operations, but throughout our value chain - collaborating with suppliers and customers to amplify our impact. That is why Philips has set new long-term emission reduction targets, which have been assessed and approved by the Science Based Targets initiative (SBTi) - locking down our commitment to drive climate action across the value chain, from suppliers to customers, and ensuring that we contribute to the decarbonization required to keep the global temperature increase below 1.5 °C. At COP 26, we announced our plan to step up our acclaimed supplier sustainability program with the goal of having at least 50% of our suppliers (based on spend) committing to science-based targets (SBTs) for CO ₂ -e emissions reduction by 2025.

We stepped up our commitment to reduce our scope 3 carbon emissions in line with the 1.5 °C global warming scenario (Paris agreement). This commitment has been reviewed and approved by the Science Based Targets initiative (SBTi) in 2022, after we sold the Domestic Appliances business in 2021. The latter had a material downward impact on our scope 3 emissions, requiring a new assessment by the SBTi.

In 2022, our net operational carbon footprint resulted in zero kilotonnes carbon dioxideequivalent (CO ₂ -e), mainly driven by continued use of 100% electricity from renewable sources and a continuing reduction in air freight. A total of 438 kilotonnes carbon dioxideequivalent (CO ₂ -e) were compensated via carbon offsets.

Philips reports all its emissions in line with the Greenhouse Gas Protocol (GHGP) as further described in Scope, starting on page 271.

Scope 1

In our sites, we reduced our scope 1 (direct) CO ₂ -e emissions by 16% compared to 2021. Scope 1 emissions cover the emissions from our direct fuel consumption and the use of refrigerants that have a global warming potential. The reduction in scope 1 emissions is mainly driven by our continued energy efficiency measures, our program to phase out fossil fuels, working from home, and mild winters. As the consumption of natural gas is still the main source of our scope 1 emissions, we will continue to drive down our overall consumption and find alternative renewable sources to heat our buildings.

Scope 2

In 2022, our indirect scope 2 (market-based method) CO ₂ -e emissions declined by 33% compared to 2021. Scope 2 (market-based) emissions cover the emissions of non-renewable electricity and purchased (city/district) heating and cooling. As we have already been sourcing 100% renewable electricity since 2020, the remaining emissions are associated with purchasing (city/district) heating and cooling, which we leverage as a low-carbon alternative to natural gas to heat our buildings. Moving forward, we will continue to increase the renewable energy share of our (city/district) heating and cooling that we purchase.

To secure long-term delivery and quality of our renewable electricity, we have multiple Power Purchase Agreements (PPAs) in place. For instance, the Los Mirasoles wind farm in the US and the Krammer and Bouwdokken wind farms in the Dutch province of Zeeland. We closed the latter agreements with our renewable electricity purchasing consortium with Nouryon, DSM and Google, powering all our operations in the Netherlands. Combined with the Los Mirasoles wind farm, this covers 49% of our total electricity demand. In December 2020, Philips announced its next Power Purchase Agreement that will become operational during the summer of 2023, again in a purchasing consortium with Heineken, Nouryon and Signify, to power most of the remaining European sites with renewable electricity for the long term.

In 2022, our indirect scope 2 (location-based method) CO ₂ -e emissions declined by 6% compared to 2021. Scope 2 (location-based method) emissions cover the emissions of electricity (excluding the renewable share) and purchased (city/district) heating and cooling. Emissions are calculated using average grid emission factors, ignoring the renewable electricity share of the reporting entity. This method indicates the efforts to reduce energy.

Our operational energy efficiency improved by 9%, from 0.031 GWh/millions EUR sales in 2021 to 0.028 GWh/millions EUR sales in 2022.

Our continued efforts to reduce our energy consumption, eliminate refrigerants with a high global warming potential (GWP), and increase our renewable energy share led to a 16% reduction in (scope 1 and scope 2 market-based) emissions in 2022 compared to 2021. Overall, we are making good progress, increasing our renewable energy share to 77% in 2022, from 74% in 2021. We are already overachieving our 2025 ambition to source 75% of our energy from renewable sources and delivering on our 2025 scope 1 and scope 2 (marketbased method) ambition. Even though we have already achieved our 2025 SBTi targets, we will continue to accelerate our efforts to phase out fossil fuels (mainly natural gas) consumption from our operations by driving down overall consumption and finding alternative renewable sources, making sure we remain well on track to deliver on our longterm (2040) science-based targets.

Scope 3

In our operational carbon footprint, we include two scope 3 (indirect) emission categories - not included in scope 2 - that occur in the value chain, namely business travel and transportation & distribution. Together with our scope 1 and scope 2 (market-based method) emissions, these comprise our operational carbon footprint.

Our business travel emissions, covering emissions from air travel, lease cars and rental cars, increased by 20% compared to 2021. This is mainly due to the fact that more of our employees are traveling to meet customers and are using their lease cars again post- COVID-19. The remaining effects of COVID-19 also continued to keep these emissions low compared to pre-COVID-19 levels. Moving forward, we continue to electrify our lease fleet and to promote online collaboration post-COVID-19 to limit air travel, as well as increasing our efforts to move travelers to rail transport for shorter distances.

In 2022, we recorded a 22% decrease in emissions from our transportation & distribution compared to 2021. The scope of these emissions covers the CO ₂ -e emitted by air freight, ocean freight, road freight and parcel shipments. As airfreight accounts for most of our operational carbon footprint, we have taken several measures, such as the Corridor Project, where we shifted airfreight shipments to ocean freight for several lanes. This helped to reduce our air freight emissions by 15% compared to 2021. CO ₂ -e emissions from ocean freight decreased by 43% in 2022 compared to 2021. Most of these reductions can be attributed to the fact that the Domestic Appliances businesses have now been fully disentangled and (combined) shipment data for ocean freight now fully excludes all their related shipments. To quantify our ocean freight emissions by leveraging carrier-trade-lane specific emission factors, we use data from the Smart Freight Center - Clean Cargo (formerly known as the CCWG). This improved approach was implemented in 2021, allowing us to quantify our ocean freight emissions more accurately. This approach has been implemented for 2020, 2021 and 2022.

Emissions from parcel shipments decreased by 10%, as the number of shipments increased but was mitigated by shorter average distances per shipment. The emissions from road transport decreased by 51%, mainly driven by a reduction of shipments and the average weight per shipment. The emission reductions in road freight are also impacted by the inclusion of combined shipments of Domestic Appliances and Philips in 2021. Historically, we were not able to exclude all the Domestic Appliances businesses' shipments from our shipment data.

Moving forward, we will continue to drive efforts to further reduce emissions from air freight and are exploring options to source sustainable fuel alternatives for shipments, which will help us to reach our long-term emission reduction targets.

Although reduction is key to achieving carbon neutrality, unavoidable carbon emissions required offsetting to gradually drive down our emissions to zero by year-end 2022. We did this by financing projects in emerging regions that have a strong link with UN Sustainable Development Goals 3 (Ensure healthy lives and promote well-being for all at all ages) and 12 (Ensure sustainable consumption and production patterns). In 2022, we decreased offsets to 438 kilotonnes, equivalent to the annual uptake of approximately 13 million medium-sized oak trees. This covers the total emissions of our entire operations, including all CO ₂ -e emissions from our sites, all business travel, and all transportation & distribution. We do this by financing carbon reduction projects through long-term carbon offsets in emerging regions that drive social, economic and additional environmental progress for the local communities, such as:

Providing access to safe drinking water while reducing wood consumption

This carbon-emission reduction project will provide millions of liters of safe drinking water in Uganda and will reduce the mortality risk from water-borne diseases. Additionally, less wood will be required for boiling water, leading to less indoor air pollution and slowing down the deforestation rate. To ensure quality, all offsets are verified under the Gold Standard.

Replanting degraded land while providing education on health matters

Planting trees will improve livelihoods and address issues such as deforestation, biodiversity loss, and adaptation to climate change and provide support and education including on HIV and malaria. To ensure quality, all offsets are verified under the VCS standard.

Protecting forests through sustainable production

Deforestation is reduced through promotion of sustainable businesses to protect the forest. Unsustainable harvest of fuelwood is reduced. The forest supports the supply of water to other parts of Ethiopia and neighboring countries. It is also the habitat of diverse and, in some cases, rare species. To ensure quality, all offsets are verified under the VCS standard.

Increasing employment through provision of sustainable energy

The energy supply gap is reduced by providing access to clean energy and related employment through wind generation in India. This enables an improvement in livelihoods. To ensure quality, all offsets are verified under the VCS standard.

Improving respiratory health and reducing deforestation through provision of clean cookstoves

By supporting a range of cookstove technologies across Ghana and Kenya, the projects improve respiratory health, reduce fuel costs and reduce deforestation for fuel. This also enables more time for paid work, thus improving prospects. To ensure quality, all offsets are verified under the Gold Standard.

Operational carbon footprint

Philips Group

Operational carbon footprint by scope in kilotonnes CO ₂ -equivalent unless otherwise stated

	2018	2019	2020	2021	2022
Scope 1	36	32	30	27	23
Scope 2 (market-based)	26	14	3	3	2
Scope 2 (location-based)	200	196	173	177	167
Scope 3	687	622	485	489	413
Scope 3 - Transportation & Distribution	540	470	415	417	327
Scope 3 - Business Travel	147	152	70	72	86
Total (scope 1,2 (market-based), and 3) ¹⁾	749	668	518	519	438
Emissions compensated by carbon offset projects	314	416	518	519	438
Net operational carbon emissions	435	252	-	-	-
Operational CO ₂ e efficiency in tonnes CO ₂ e/mln EUR sales	47.2	39.0	29.9	30.3	24.6

¹⁾ Considered as operational carbon footprint

In 2022, we updated our emission factors to the latest available sources to reflect the most accurate results. For more information, please refer to Scope, starting on page 271. Historical emissions of our discontinued Domestic Appliances business have been excluded for all years, except for some combined ocean and road freight shipments in 2021 as described above. Where available, actual emission allocations were applied. Where business-specific emission data were not available, a spend allocation key was applied. Philips reports all its emissions in line with the Greenhouse Gas Protocol (GHGP).

Energy consumption

Philips Group

Energy consumption ¹⁾ in gigawatt hours (GWh) unless otherwise stated

	2018	2019	2020	2021	2022
Electricity consumption	421.6	403.5	381.6	389.1	382.1
Renewable electricity	374.6	382.0	381.3	389.1	382.1
In-contract renewable electricity	146.8	95.5	63.1	56.7	39.6
Power Purchase Agreement (PPA)	45.7	160.9	186.2	168.7	187.4
Purchased renewable electricity certificates	181.1	124.5	130.0	161.3	152.3
Renewable electricity generated and consumed on-site	1.0	1.1	2.1	2.4	2.7
Fuel consumption	146.1	134.7	133.8	120.6	102.7
Natural gas	137.0	127.3	126.4	116.3	97.7
Other non-renewable fuel	9.1	7.4	7.4	4.3	5.0
Purchased heat, steam and cooling	17.2	17.8	12.4	14.4	11.9
Total energy consumption	584.9	556.1	527.9	524.1	496.7
Renewable energy consumption	374.6	382.0	381.3	389.1	382.1
Renewable energy share	64%	69%	72%	74%	77%
Renewable electricity share	89%	95%	100%	100%	100%
Non-renewable energy consumption	210.3	174.0	146.5	135.0	114.7
Non-renewable energy share	36%	31%	28%	26%	23%
Sales to thirds in millions of EUR	15,878	17,147	17,313	17,156	17,827
Operational energy efficiency in GWh/millions EUR sales	0.037	0.032	0.030	0.031	0.028

¹⁾ This table reflects Philips energy consumption, excluding potential heat and transmission losses from electricity generation and transport

Our high-level plan to deliver on Science Based Targets

Philips has set long-term CO ₂ -e emission targets approved by the Science Based Targets initiative (SBTi) for all three scopes. The approval confirms that Philips' targets across our value chain are in line to limit global warming to below 1.5 °C. By joining forces with our customers and suppliers, we can reduce our shared carbon footprint and help create a sustainable and more resilient healthcare industry.

Together with our customers and suppliers, we intend to continue to reduce our collective need for fossil fuels by using renewable and energy-efficient alternatives. To deliver, we will focus on the following four objectives:

Collaborating with our suppliers to reduce emissions in our supply chain

With growing global concerns about the impact of climate change, there is a pressing need for industry and business to manage and reduce CO ₂ -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. In October 2021, during COP26, we announced our ambition to have at least 50% of our suppliers (based on spend) committed to science-based targets for carbon reduction by 2025. At year-end 2022 already 41% of our suppliers (based on spend) had committed. Please refer to Supplier indicators, starting on page 286 for more details.

Minimizing our climate impact in our supply chain by adopting circular economy principles

From a climate perspective, applying circular business models leads to a significant emission reduction in our supply chain. As the value of materials is retained, the need for new abiotic resources is significantly reduced, and consequentially, the need for energy to produce those new resources/materials, leading to reduced emissions. This is also part of our Circular Economy program.

Transitioning to lower carbon emitting energy in our sites

By continuing to phase out fossil fuels at our sites, we will be able to achieve our longterm emission targets. This entails, for example, moving towards geothermal and district heating and cooling solutions where available.

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

More and more, our customers - both in healthcare and retail - are seeking solutions that are less impactful to the environment. To address that demand, we are continuously reducing the climate impact of our products by increasing energy efficiency, increasing the use of recycled plastics and other recyclable materials, and ensuring we make our packaging easier to re-use and recycle. We see improving energy efficiency as a huge lever to deliver on our value chain emission reductions. In 2022, we performed an initial assessment of our scope 3 category Use of Sold Products by estimating the lifetime energy consumption and applying the Life-Cycle Assessment (LCA) methodology on a country-by-country basis. Initial results indicate that the emissions from the use of sold products are 3,898 kilotonnes CO ₂ -e, approximately 9 times more than our entire operational carbon footprint. This emphasizes the need to drive energy efficiency efforts under our EcoDesign program and collaborate with our customers to magnify our impact.

Water

Philips is not a water-intense company. However, a number of our manufacturing sites are located in water-stressed regions in, for example, USA (California), India and Israel. With the help of the WRI Aqueduct tool, the water withdrawn from areas with high baseline water stress was identified across all Philips' industrial operations. It shows that around 13% of the industrial sites are located in Extremely High (>80%) baseline water stress areas. However, the impact from these operational sites is very limited, only amounting to 4% of Philips' total water withdrawal.

We were included in the CDP "A-list" for water in the 2022 ranking, achieving a 'double-A' score when combined with our Climate Change results.

Total water withdrawal in 2022 was 677,632 m ³ , a 4% decrease compared to 2021 and a 5% reduction compared to 2019 (pre-COVID level). Water consumption in 2020 and 2021 was impacted by the government-mandated lockdowns and the working-from-home protocol - resulting in a significant reduction in water intake at several sites (mainly in China).

Diagnosis & Treatment, which consumes 46% of total water usage, recorded an 8% decrease, mainly caused by lower construction activity and effective processes, mitigated by a site expansion in India. Personal Health recorded a 4% increase. This was mainly due to the construction of a new factory in China, mitigated by decreased production volume at a water-intensive manufacturing site in Asia. Connected Care showed a decrease of 7%, due to the decreased production volume at a site in Asia, mitigated by construction activity at a site in North America.

Philips Group

Water withdrawal in thousands of m ³

	2018	2019	2020	2021	2022
Diagnosis & Treatment	288	295	286	337	310
Connected Care	161	150	116	119	111
Personal Health	238	265	221	247	257
Philips Group	687	710	623	703	678

In 2022, 99.7% of water was purchased and 0.3% was extracted from groundwater wells.

Waste

In 2022, our manufacturing sites generated 22,802 tonnes of waste, an increase of 3% compared to 2021, mainly driven by the high impact of our construction activities in different locations across the globe and changes in the operations.

The Diagnosis & Treatment businesses increased waste by 7%, mainly driven by a strong increase in construction-related reused material in Best (see below), which was partially offset by the operational changes and lower construction activity on the other sites. The reported reused materials now constitute 22% of total waste. The Connected Care businesses increased waste by 5% due to the increased volume of reused materials and operational changes. The reported reused materials are 24% of the total waste. Personal Health decreased waste by 3% due to lower construction activity and changes in production.

Re-using temporary offices to house refugees

In the past, Philips in Best (Netherlands) decided to purchase temporary offices to resolve office space shortages, and after many years these temporary offices became redundant. Since the temporary offices were still of good quality, Philips made every effort to find a sustainable solution for the building and found a partner in COA (Centraal Orgaan opvang asielzoekers, the Dutch national organization helping asylum seekers). These units were completely refurbished for their new purpose: a COA location for people seeking asylum in the Netherlands. The 'new' building is located in Zeist. By re-using the offices, we are contributing to the provision of good housing for asylum seekers and to a circular society.

Philips Group

Total waste in tonnes

	2018	2019	2020	2021	2022
Diagnosis & Treatment	8,368	9,675	19,703	9,974	10,694
Connected Care	3,962	4,095	3,475	2,753	2,899
Personal Health	8,820	8,758	7,929	9,477	9,209
Philips Group	21,150	22,528	31,107	22,204	22,802

Until 2020, total waste consisted of waste that is delivered for landfill, incineration, waste to energy or recycling. We extended the scope with materials sent for reuse and other recovery as of 2021.

Materials delivered for reuse, other recovery or recycling via an external contractor amounted to 20,406 tonnes, which equals 89% of the total waste. Of the 11% remaining waste, 77% comprised non-hazardous waste and 23% hazardous waste. We recorded 1,484 tonnes of waste prevented in our own activities in 2022, compared to 1,525 tonnes in 2021.

Philips Group

Total waste by destination in tonnes

	Waste generated	Hazardous waste	Non-hazardous waste
Reuse	3,382	11	3,371
Recycling	16,978	1,582	15,396
Other recovery	46	0	46
Waste diverted from disposal by recovery operation	20,406	1,593	18,813
Incineration (with energy recovery)	1,802	156	1,646
Incineration (without energy recovery)	412	383	29
Landfilling	182	5	177
Waste directed to disposal by disposal operation	2,396	544	1,852
Total waste generated	22,802	2,137	20,665

Our sites addressed both the Circular Material Management percentage as well as waste sent to landfill, as part of our ESG commitments.

The Circular Material Management percentage has replaced the recycling percentage, and includes circular measures such as waste prevented, reuse and other recovery, but excludes waste delivered to landfill and incineration (with and without energy recovery) due to regulatory requirements. The Circular Material Management percentage was 91% in 2022, compared to 87% in 2021.

Our Zero Waste to Landfill KPI excludes one-time-only waste and waste delivered to landfill due to regulatory requirements. According to this definition, in 2022 we reported 1 tonne of waste sent to landfill, a significant reduction compared to 19 tonnes in 2021. All our 23 industrial sites achieved Zero Waste to Landfill status at the end of 2022.

Philips Group

Total waste by composition in tonnes

	Waste generated	Waste diverted from disposal	Waste directed to disposal
Wood	4,413	4,356	57
Paper/ cardboard	4,122	4,117	5
Metal scrap	3,490	3,440	49
Plastic waste	2,891	2,533	358
General waste	2,308	1,266	1,042
Demolition scrap	2,216	2,163	53
Chemical waste	2,117	1,570	547
Other	1,245	961	285

Philips included reduction targets for the substances that are most relevant for its businesses in its ESG commitment. For more details on emissions from substances, please refer to Sustainable Operations, starting on page 277.

5.4 Social performance

Our people strategy and culture support a constantly evolving workforce capable of delivering strong business performance and executing our strategy. As such, we focus on developing our Workforce of the Future and delivering on our deep commitment to Inclusion & Diversity.

Together with the announcement of our Q3 results in October 2022, we had to take the difficult decision to reduce our workforce by approximately 4,000 roles globally. This was followed in January 2023 by the announcement of a further reduction of our workforce by an additional 6,000 roles globally. While executing these measures, we are committed to leading with openness, respect and care at every step of the way. We highly respect our impacted employees and are focused on providing support for them during this process and helping them find a new role.

5.4.1 Improving 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-to-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 2022, Philips improved 1.81 billion lives, an increase of around 135 million compared to 2021. This increase was driven by a steady growth of all segments and the inclusion of our Picture Archiving and Communication System (PACS) products in the Lives Improved model. PACS is an image-management software within our Enterprise Diagnostic Informatics business. From a market perspective, we saw significant growth mainly in Latin America, North America, Asia Pacific, Iberia, 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 to truly make a difference and help improve access to healthcare. 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 2022, our health-related solutions improved the lives of 202 million people in underserved markets (an increase of 35 million compared to 2021).

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

Lives Improved per market

The following table shows the number of Lives Improved per market.

Philips Group

Lives improved per market

	Lives Improved	Population	Saturation rate (as % of population)
Market	(million) ¹⁾	(million) ²⁾
Africa	29	1,340	2%
ASEAN & Pacific	125	976	13%
Benelux	26	30	87%
Central & Eastern Europe	79	164	48%
Germany, Austria & Switzerland	84	101	83%
France	44	68	64%
Greater China	496	1,442	34%
Iberia	47	58	81%
Indian Subcontinent	92	1,610	6%
Italy, Israel & Greece	47	81	58%
Japan	48	125	38%
Latin America	158	654	24%
Middle East & Turkey	72	378	19%
Nordics	19	28	68%
North America	360	369	98%
Russia & Central Asia	50	252	20%
UK & Ireland	41	73	56%

¹⁾ Source: Philips, double counts eliminated
²⁾ Source: The World Bank, CIA Factbook & Wikipedia

5.4.2 Our culture

Culture is foundational to achieving our strategic ambitions. Our behaviors create a shared understanding of how we all need to act in order to live up to our purpose of improving the lives of people around the world. All Philips employees are expected to commit to living our behaviors - customers first, patient safety, quality and integrity always, team up to win, take ownership to deliver fast, and be eager to improve and inspire - every step of the way. As we evolve our culture, we will drive patient- and people-centricity, accountability and empowerment, transparency and execution rigor in order to become an industry-leading player in HealthTech.

As we continue strengthening our position as a focused leader in health technology, leading with open, respectful and caring communication is critical. We foster a culture within Philips that will help us achieve operational excellence and extend our solutions capability to address our customers' unmet needs. Patient safety and quality are at the heart of our purpose. To further strengthen our patient- and people-centric culture, we launched in 2022 a company-wide 'Accelerating Patient Safety & Quality' culture program. We also foster an inclusive and psychologically safe environment where our people feel valued for who they are and fortheir contributions. We do this through our rich Well-being offering, as well as a 'Speak Up!' campaign in 2022. As a health technology leader, the health and well-being of our people is imperative for success.

In the wake of the evolving external economic, geopolitical, and global health situation, we remain flexible in our ways of working, making use of learnings developed through the COVID-19 pandemic. We have embraced a hybrid working model that offers greater flexibility and improved collaboration across teams. Our new ways of working are defined by three goals:

•	Embracing flexibility: Making innovative choices for how and where to work, allowing more autonomy for our employees.
•	Being at our best: Caring for ourselves, each other and our customers, patients and consumers. This means prioritizing our own well-being, as well as making time for personal growth and development.
•	Impactful collaboration: Creating moments to come together, supporting employees' sense of connection and belonging, so we can build strong teams, generate ideas and solve problems.

All of the above underpins how we lead, engage, hire and develop our employees. We have been focusing on well-being, deepening our leadership asks into the organization and supporting our culture shift as a leading innovative, customer-focused health technology company.

We are building an organization that is fit for today and the future with the skills and capabilities needed to successfully deliver on our strategic imperatives. We attract, onboard and retain the best talent to accelerate our business transformation.

5.4.3 Workforce of the Future

In 2022, transforming our organization and workforce for the future remained a key pillar of our People strategy. We are operating in a fast-changing landscape and adapting to changes in the nature of work accelerated by the pandemic. Moreover, at the end of 2022, a company-wide change initiative was launched. This requires us to continuously evolve capabilities in support of our business transformation. Our focus on the Workforce of the Future helps us attract, onboard, develop and retain a workforce that is fit for today and future with the skills and capabilities to successfully deliver on our strategic imperatives.

We staff our positions based on assessed behavior, potential and capabilities. In 2022, we filled 71% of our Director-level and more senior positions from within the company. We ensure our candidates are high performers with strong potential - more than 69% of all internal vacancies were filled by appointing top performers. We supplement this internal growth with targeted external hiring, bringing in employees with the behaviors and capabilities we require for our Workforce of the Future.

Strategic Capability Building

We apply an enterprise-wide Strategic Workforce Planning approach, which all businesses, markets and functions adopt as part of the strategic planning cycle, to identify and develop the capabilities needed to realize our ambitions as a health technology company. This approach recognizes that capabilities are complex, with people, processes and systems being developed holistically. In 2022, we strengthened our focus on strategic priorities and top talent and used the lens of strategic enterprise capabilities to streamline our talent attraction, onboarding, and development initiatives.

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 outsourced). The program has delivered € 20 million in savings in 2022.

We continue working with the Freelance Management System, which covers India, Netherlands, Germany and the USA. By advertising opportunities for freelancers on our own career site alongside employee jobs, in 2022 we filled 48% of all our freelancer roles without having to go through staffing agencies.

Our Philips-wide Graduate Development Program (GDP) continues to perform well and has increased from 40 participants in 2021 to 285 in 2022. The GDP lasts two years and includes three job rotations, as well as offering the graduates a comprehensive learning and development track and access to career centers to help guide future steps. We continue focusing on campus hiring, with 901 campus hires in 2022. Philips also offered meaningful work experience to 1,822 interns in 2022, and they formed a critical source of our graduate hires - with 55% of all graduate hires having been an intern with us prior.

More information on training and learning programs can be found in People development, starting on page 282.

5.4.4 Inclusion & Diversity

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 some 77,000 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 1,300 employees. As of year-end 2022, 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, starting on page 115. At year-end, none of the three members of the Board of Management were women, and two out of the other nine members of the

Executive Committee were women. These numbers reflect a slight decline compared to previous years (2021: 3 out of 13; 2020: 3 out of 15), pending expected announcements of new leaders. The company generally seeks to fill vacancies by considering candidates that bring a diversity of (amongst others) gender, and it is noted that 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 are sharing data on the representation of women throughout our businesses, markets 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 various initiatives around unconscious bias, health and well-being, inclusion and development of underrepresented talent.

Global Diversity Council

Our Global Diversity Council is comprised of 10 senior leaders representing our businesses, markets 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

Since 2016, 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 13 ERGs globally, with over 7,000 employees participating: Able & Allies; Asian Employee Resource Group; Black Employee Resource Group; #BeTheChange Network; Caregivers Network; 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 2022, we embedded our health and well-being framework further across our businesses, markets and functions. We continued to address mental health by rolling out the Employee Assistance Program (EAP), extending the service to a further 25 countries, including crisis support for Ukraine and Poland.

We grew our Mental Health Champion program to 180 Champions across the globe, providing accredited training for peer-to-peer confidential support. We also encouraged leader-led dialogues on mental health, to remove stigma and help engender a sense of psychological safety.

Our efforts culminated in World Mental Health Day, with a variety of virtual mental wellbeing sessions and self-care tips that engaged employees from across our markets. In collaboration with Philips University, the Philips Energy Management well-being program was further extended across the organization.

Building Capability

In 2022, we continued the deployment of Unconscious Bias training across the organization while focusing new content on Allyship, Resilience and Psychological Safety. In North America, we launched four mandatory e-learnings, reaching our 20,000 employees in this market.

External awards

Many stakeholders, including customers and potential partners and employees, view third- party assessments as objective indications of how well we are demonstrating the strength of our commitment. Awards received in 2022 included: Forbes Best Employers for Women; Forbes Best Place to Work in America; Forbes World Best Employers; and 100% Human Rights Campaign's Corporate Equality Index.

5.4.5 Employee engagement

We continue to keep a close pulse on our employee sentiment through our quarterly Employee Engagement Survey. In 2022, average employee engagement scores remained high at 77% in line with the Fortune 500 benchmark. However there was a decline in overall engagement levels in the second half of 2022. This feedback does not come as a surprise given the recent challenges that the company has encountered and the announcement of productivity measures.

Philips Group

Employee Engagement index

	2020	2021	2022
Favorable	79%	79%	77%
Neutral	14%	14%	15%
Unfavorable	7%	7%	8%

In a challenging business environment, we listened actively to our employees to provide them with greater clarity on future direction and proactively deal with change to meet our customer and patient needs. Using the Customer Experience Index we look at how well employees think we orient ourselves to customer needs. These inputs are actively exchanged with the customer experience team to design and work on related programs.

Our employee engagement is primarily driven by how proud our employees feel to work for Philips, as well as feeling that 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 stays above the Industry Benchmark.

5.4.6 Employment

The total number of Philips Group employees was 77,233 at the end of 2022, compared to 78,189 at the end of 2021, a decrease of 956 FTE.

Together with the announcement of our Q3 results in October 2022, we had to take the difficult decision to reduce our workforce by approximately 4,000 roles globally. This was followed in January 2023 by the announcement of a further reduction of our workforce by an additional 6,000 roles globally. As we go through this change, we do it with the utmost care and respect for our people, with a strong focus on supporting them 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 an Employment-to-Employment support
•	Redeployment - where possible - as applicable by local legislation and in the context of the hiring restrictions

Philips Group

Employees per segment in FTEs at year-end

	2020	2021	2022
Diagnosis & Treatment	32,193	32,390	32,904
Connected Care	15,866	17,751	16,673
Personal Health	10,253	10,134	9,319
Other	16,689	17,913	18,337
Philips Group	75,001	78,189	77,233

Philips Group

Employment in FTEs

	2020	2021	2022
Balance as of January 1	73,311	75,001	78,189
Consolidation changes:
Acquisitions	72	2,594	87
Divestments		(744)	(33)
Other changes	1,618	1,338	(1,010)
Balance as of December 31	75,001	78,189	77,233

Geographic footprint

Approximately 58% (2021: 59%) of the Philips workforce is located in mature geographies and 42% (2021: 41%) in growth geographies. In 2022, the number of employees in mature geographies decreased by 1,774. The number of employees in growth geographies increased by 819.

Philips Group

Employees per geographic cluster in FTEs at year-end

	2020	2021	2022
Western Europe	19,925	19,775	19,297
North America	21,118	21,807	20,618
Other mature geographies	4,664	4,683	4,576
Mature geographies	45,707	46,265	44,491
Growth geographies	29,294	31,923	32,742
Philips Group	75,001	78,189	77,233

Employee turnover

In 2022, employee turnover amounted to 17.5%, of which 11.1% was voluntary, compared to 17.6% (10.0% voluntary) in 2021. 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.

Philips Group

Employee turnover 2022

	Staff	Professionals	Management	Executives	Total
Female	23.2%	16.7%	14.6%	22.4%	19.6%
Male	19.5%	14.5%	14.5%	17.5%	16.2%
Philips Group	21.3%	15.3%	14.5%	18.7%	17.5%

Philips Group

Voluntary turnover 2022

	Staff	Professionals	Management	Executives	Total
Female	12.9%	11.8%	9.2%	11.8%	12.2%
Male	11.8%	9.9%	8.2%	7.1%	10.4%
Philips Group	12.3%	10.5%	8.5%	8.2%	11.1%

5.4.7 Equal opportunities and equal pay

Philips is committed to ensuring equal pay for equal work. In the Netherlands, Philips was certified for Gender Equality by Economic Dividends for Gender Equality (EDGE) in 2021. The study did not find a gender pay gap that exceeds the threshold as set by EDGE. Philips continues to study gender pay parity using EDGE methodology. Many countries in which Philips operates have already undertaken pay equity reviews, for example in Australia, UK, Sweden, India and certain US states. In the US, Philips will be executing a company-wide Pay Equity Project during 2023, originally scheduled for 2022, building on work completed at US state level.

5.4.8 Living 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 for the fourth year in a row 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". We combined forces with Valuing Nature, several local NGOs, WageIndicator and other global corporates to develop living wage standards that are complete and have a reliable geographical scope.

Based on the living wage analysis conducted in 2022, all Philips employees received wages and benefits that are consistent with at least the minimum Living Wage standard for an individual. Furthermore, 99% 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 from Wageindicator). Assuming no significant changes in reference data, it is expected that the wages of the 1% of employees currently below the family standard will be within that standard in the course of 2023.

5.4.9 Health and Safety

In 2022, the safety of our employees remained paramount. However, as the COVID-19 pandemic entered the endemic phase, the centralized controls put in place during the pandemic were relaxed in line with local governments' advice. Control was gradually returned from the Group Crisis Operations Team to the local Crisis Management Teams. As Philips started to resume normal operations, office occupancy started to rise and business travel restarted. However, critical control measures were maintained, including maintaining safety stocks of PPE, and the internal website containing guidance was updated regularly. Campaigns and advice concerning the importance of vaccinations was promoted widely. 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 2022, a 19% decrease compared to 213 in 2021. While our workforce continued to expand in 2022, the TRC rate decreased from 0.29 per hundred FTEs in 2021 to 0.23 in 2022.

In 2022 we recorded 81 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 29% decrease compared with 114 in 2021. The LWIC rate decreased to 0.11 per 100 FTEs in 2022, compared with 0.16 in 2021. The number of Lost Workdays caused by injuries decreased by 216 days (5%) to 4,020 days in 2022.

For more information on Health and Safety, please refer to Health and Safety performance, starting on page 284.

5.4.10 Human 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, 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 also 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' ESG Committee, composed of Executive Committee members and senior executives from businesses and functions across Philips, leads our efforts and actions. The Committee is responsible for strategy and oversight of all company activities across the three ESG dimensions. The Committee also monitors progress and takes corrective action where needed.

In 2022, we continued to develop our due diligence strategy by conducting Human Rights Impact Assessments (HRIA). Based on an updated risk analysis, the United States was added as a country of focus for Human Rights Impact Assessments, primarily due to the size of Philips' operations in this country. To efficiently cover more sites in the future, Philips also developed a remote assessment methodology to be used in conjunction with the on-site approach, which will help to better identify locations requiring on-site visits.

While no non-compliances were found in the two assessments carried out in 2022, ways to reduce risks concerning workers' health and safety and management of overtime were identified. There was also a lack of awareness among some production employees regarding General Business Principles reporting mechanisms, for whom the company is identifying more effective training mechanisms. Continuous support during the implementation of the action plan has been put in place.

Although the Human Rights Impact Assessment of selected sites is primarily focused on Philips own operations, a new deep-dive approach for certain suppliers was further developed and rolled out in 2022. For eight 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, starting on page 25.

In 2022, we also deployed new training materials on our GBP, targeting employees without regular access to a computer, or otherwise unable to complete the online training module. For the approximately 12,000 employees who are not able to take the online General Business Principles course, an offline General Business Principles training has been created that was rolled out across various sites. Our Human Rights Report contains detailed information regarding our progress, targets, and plans for continuous improvement.

5.4.11 Philips Foundation

Stichting Philips Foundation, an independent foundation organized under Dutch law, is a registered charity established in 2014. In 2022, Royal Philips supported the Philips Foundation with a contribution of EUR 6.7 million, and provided the operating staff as well as the expert assistance of skilled employees in the execution of the Foundation's programs.

The 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 (including respected NGOs such as Red Cross organizations, UNICEF, Amref and Save the Children), the Philips Foundation seeks to identify challenges where a combination of Philips expertise and partner experience can be used to create meaningful solutions that have an impact on people's lives.

For more information on the Philips Foundation, please refer to Philips Foundation, starting on page 285.

5.4.12 Working with stakeholders

In organizing ourselves around customers and markets, we conduct dialogues with our stakeholders in order to explore common ground for addressing societal challenges, building partnerships and jointly developing supporting ecosystems for our innovations around the world.

An overview of stakeholders and topics discussed is provided in ESG statements, starting on page 266.

For more information on our stakeholder engagement activities in 2022, please refer to Stakeholder engagement, starting on page 293.

5.5 Governance

5.5.1 Corporate governance structure

Koninklijke Philips N.V. (Royal Philips), a company organized under Dutch law, is the parent company of the Philips group. Its shares have been listed on the Amsterdam stock exchange (Euronext Amsterdam) since 1912. Furthermore, its shares have been traded in the United States since 1962 and have been listed on the New York Stock Exchange since 1987.

The company is governed by Dutch corporate and securities laws, its Articles of Association, and the Rules of Procedure of the Board of Management and the Executive Committee and of the Supervisory Board respectively. Its corporate governance framework is also based on the Dutch Corporate Governance Code (dated December 8, 2016) and US laws and regulations applicable to Foreign Private Issuers. Additionally, the Board of Management has implemented the Philips General Business Principles (GBP) and underlying policies, as well as separate codes of ethics that apply to employees working in specific areas of our business, i.e. the Financial Code of Ethics and the Procurement Code of Ethics. Many of the documents referred to are published on the company's website and more information can be found in Our approach to risk management, starting on page 88.

Please also refer to Corporate governance, starting on page 132 where the main elements of the company's corporate governance structure have been addressed.

5.5.2 Philips Business System

Our operating model-the Philips Business System (PBS) - integrates key aspects of how we operate - from our strategy, governance, organizational design, processes and systems, to our people and team practices, and our culture and performance management.

Towards the end of 2022 we initiated the process of simplifying the way we work to drive 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 a culture of patient and people centricity, innovation impact and clear accountability - is a primary enabler to drive flawless execution.

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.

5.5.3 Quality & Regulatory and patient safety

Enabling the delivery of patient-centric, safe and high-quality care - the essence of patient safety and quality - is inextricably linked to Philips' purpose to improve the health and wellbeing of people through meaningful innovation. Patient safety and quality management represents the very foundation of our license to operate as a health technology company. Compliance with quality and regulatory standards is a pre-requisite for ensuring patient safety, which is Philips' highest priority.

Philips' reputation - and ultimately our long-term business continuity and success - fully depends on the quality and safety of our products, services and solutions for patients, customers and consumers, and on our compliance with global regulations and standards. This has never been more crucial than in this last year as we continued to remediate the devices included in the Philips Respironics recall: see section below, 'Philips Respironics voluntary recall notification'.

Acting with due urgency, in 2022 we accelerated our focus on patient safety and quality, with the goal of achieving and maintaining the highest level of quality. We upgraded the Quality & Regulatory leadership team with emphasis on medical technology expertise; over 90% of the renewed team has direct industry experience. We further strengthened our Post Market Surveillance global complaint handling organization and improved ways of working; this represents a significant milestone toward improving investigation and issues reporting and moving away from transactional elements of complaint handling. In addition, Philips continued to focus on harmonizing processes and enhancing the quality culture across the enterprise. Activities include training approximately 77,000 employees throughout the world on key process changes and refreshers on quality and regulatory topics.

As a global business, we must ensure compliance with various and evolving regulations and standards. In the dynamic medical technology industry, we also must stay ahead of innovation and trends such as data privacy and cybersecurity. This involves increased levels of investment to meet the competitive demands and evolving regulatory compliance activities in such areas as secure electronic transmission and storage solutions for protected personal information, protected health information, financial information, intellectual property, and other sensitive information related to our customers, consumers, patients, and workforce. For information on how Philips manages cybersecurity risk, please refer to Operational risks, starting on page 96.

Quality

Quality is an integral part of the leadership and culture at Philips. Philips is committed to delivering the highest quality products, services and solutions, which are compliant with all applicable laws and quality and safety standards. We continuously strive to raise our performance in ensuring quality, which is demonstrated by the continued, substantial investment to embed quality through standardization and adoption of industry best practices throughout our Quality Management Systems and enhanced capabilities.

Through quality system improvement program activities, our aim is to enhance consistency in how we work, collaborate, and make decisions. Our critical Accelerating Patient Safety & Quality program initially focused on awareness and compliance improvements, triaging, and process design. Examples of improvements include reducing and consolidating our Quality Management Systems from 107 to 75 by year-end 2022, with further reductions planned. In 2022 we harmonized and improved consistency for a significant number of processes across Philips to enhance our best practices and implemented standard education programs tailored to specific roles plus many mandatory all-employee, quality-related courses for capability building and to demonstrate compliance. The program is now focused on further strengthening design and product reliability, and patient safety and quality culture and competencies, while continuing efforts reducing complexity. This is an ongoing journey of continuous improvement and we expect our plans to yield demonstrable progress starting in 2023.

In 2022, we updated our Quality Policy, which expresses our overall intention and direction with respect to quality. Established by management with executive responsibility, it states our objectives for, and commitment to, quality. Everyone at Philips is responsible for understanding, implementing, and maintaining the Quality Policy, and all employees now have patient safety and quality as one of five key KPIs. Underscoring leadership's continued commitment, all Philips business leaders are held accountable for patient safety and quality, and performance on Quality metrics will be part of the remuneration of all Philips Executives.

Regulatory compliance

As required by global regulatory requirements, Philips actively maintains Quality Management Systems that establish procedures, processes and documentation to ensure quality at each stage of the product lifecycle. These requirements outline actions from product design and pre-market submissions, production, operations, distribution, servicing and post-market management and oversight in every market we serve. These requirements include those from national government regulatory authorities (e.g. the US Food and Drug Administration and China National Medical Products Administration), Notified Bodies, and National Competent Authorities in the EU.

Products that we introduce to the market often must undergo pre-market regulatory review (e.g. pre-market approval (PMA), pre-market notification (510(k), or de novo authorization) before they can be marketed and sold in the USA as an FDA-regulated device, subjected to Notified Body review in the EU for a CE Mark, and subjected to review in China by the National Medical Products Association. If the regulatory body reviewing the submission determines that the required supporting data has not been provided, further data may be required to obtain the clearance or approval, which could prolong the process to market the product. During the lifecycle of a cleared/approved device, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, may require a further regulatory submission and review. Regulatory bodies require each manufacturer to determine whether the proposed change requires a submission, but can review any such decision and disagree with a manufacturer's determination. If the regulatory body disagrees with a manufacturer's determination regarding whether a new submission is required for the modification of an existing device, they can require the manufacturer to cease marketing and/or recall the modified device until the relevant approval/clearance is obtained. In addition, in these circumstances, significant regulatory fines or other penalties may be imposed.

We also must comply with the EU's Waste from Electrical and Electronic Equipment (WEEE), Restriction of Hazardous Substances (RoHS), and Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), Energy-using Products (EuP), and other product safety regulations.

Post-market Regulation

After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. In the USA these include:

•	establishment of registration and device listing with the FDA;
•	Quality System Regulation (QSR) requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process;
•	labeling regulations and restrictions, including, for example, prohibitions against the promotion of investigational products, the promotion of "off-label" uses of cleared or approved products, or the use of false, misleading or unsubstantiated claims or statements;
•	requirements related to promotional activities;
•	clearance or approval of product modifications to 510(k)-cleared or, de novo-authorized devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, and approval of certain modifications to PMA-approved devices;
•	medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;
•	correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;
•	the FDA's notification and recall authority, whereby the agency can order a device manufacturer to take certain actions if the FDA determines the manufacturer's device presents an unreasonable risk of substantial harm to public health, such as: provide notice to users and other affected stakeholders; submit a plan for the repair, replacement or refund of devices; or recall the device from the market;
•	post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.

Our manufacturing processes are required to comply with the applicable portions of the QSR and/or ISO13485, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file and complaint files. As a manufacturer, we will be subject to periodic scheduled or unscheduled inspections by the FDA, Notified Bodies or other relevant regulatory bodies. Our failure to maintain compliance with the QSR or ISO 13485 requirements could result in the shut-down of, or the imposition of restrictions on, our manufacturing operations, imposition of an import alert, or the recall or seizure of our products, which would have a material adverse effect on our business. The discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.

In the USA, the FDA has broad regulatory compliance and enforcement powers, which it can impose on its own or in coordination with the Department of Justice (DoJ), which has separate enforcement authority. If the FDA determines that we failed to comply with applicable regulatory requirements, it may lead to any of the following sanctions:

•	warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
•	orders to issue notifications to users and other stakeholders, or to submit to the FDA a plan for the repair, replacement or refund of devices;
•	recalls, withdrawals or administrative detention or seizure of our products;
•	operating restrictions or partial suspension or total shutdown of production;
•	refusing or delaying requests for 510(k) marketing clearance, de novo authorization, or PMA approvals of new products or modified products;
•	withdrawing 510(k) clearances, de novo authorizations, or PMA approvals that have already been granted;
•	refusal to grant export approvals for our products; or
•	criminal prosecution.

European Union Medical Device Regulation

The European Union Medical Device Regulation (EU-MDR) passed its date of application (May 26, 2021). For a portion of the portfolio, we used the available grace period, where products that were placed on the market under the predecessor of the EU-MDR, the European Union Medical Device Directive (EU-MDD), can continue to be placed on the market if meeting a subset of EU-MDR requirements in addition to the EU-MDD requirements. Reasons for this include stock depletion management and Notified Body capacity limitations. Throughout 2022, we made progress in transitioning some of the portfolio to become EU-MDR-compliant. We also started registering our entities and medical devices in the European Database for Medical Devices (EUDAMED) on a voluntary basis.

As the global regulatory environment continues to evolve, we are working to address the impact on cost, time and resources needed to obtain future approvals, and our ability to maintain existing approvals for our products, services, and solutions.

Philips Respironics voluntary recall and consent decree

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

This recall let down the patients who depended on them, as well as their caregivers, and we are deeply sorry for that. We are treating this matter with the highest possible seriousness and are working to address this issue as efficiently and thoroughly as possible.

Following the substantial ramp-up of production, service and repair capacity in 2021 and 2022, by year-end 2022 around 90% of the production required for the delivery of replacement devices to patients had been completed. In order to expedite the completion of the recall, Philips Respironics will increase the proportion of new replacement devices.

Working with five certified, independent testing laboratories in the US and Europe and other third-party qualified experts and an external medical panel, we have been conducting a comprehensive test and research program on the PE-PUR foam to better assess and scope the potential patient health risks related to possible emissions of particulate from degraded foam and Volatile Organic Compounds related to the first- generation DreamStation devices. We provided an update to healthcare providers, patients, and other stakeholders in June 2022 and December 2022, outlining encouraging test results for the first-generation DreamStation (DS1), which accounts for over two thirds of the sleep therapy devices subjected to the recall.

The company developed and began executing a comprehensive plan to replace the PE- PUR sound abatement foam used in earlier-generation devices, with the new material used in next-generation products such as DreamStation 2, which was cleared by the US FDA and approved by many competent authorities around the world. Philips Respironics has regularly been communicating progress to regulators and competent authorities around the world, as well as customers, clinicians, and patients, to complete the needed repairs and replacements associated with this recall. In certain circumstances, the products in question may be replaced or financially compensated rather than repaired.

While third-party lab and internal testing efforts are ongoing, the company will continue with the remediation activities for all devices and continues to communicate with customers through a variety of channels.

3.	Philips Respironics will also continue to monitor complaints received following the recall/field safety notice via our Quality Management System, in accordance with the medical devices regulations and laws in the markets that we serve.

Following the FDA's inspection of a Philips Respironics manufacturing facility in connection with the recall and the subsequent inspectional observations, the US DoJ, acting on behalf of the FDA, began discussions with Philips in July 2022 regarding the terms of a consent decree to resolve the identified issues. Philips is engaged in ongoing discussions with FDA and DoJ on the proposed consent decree. For more information, see Note Contingencies, starting on page 204.

Consent decree - ECR

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

Following a successful inspection in Bothell, Washington, in April 2020, the FDA determined that 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 & Resuscitation) business 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.

Substantial progress continues to be made in our compliance efforts. In August 2021, 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. The FDA later presented Emergency Care with four Establishment Inspection Reports dating back to 2015, signaling the closure of the four open inspections. There was a consent decree followup inspection in October 2022, resulting in three observations (Form 483). These will soon be reported as fully remediated.

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 currently predict whether additional monetary investment will be incurred to resolve this matter or the matter's ultimate impact on our business.

5.5.4 Remuneration 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 longterm 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 Report of the Remuneration Committee, starting on page 116.

5.5.5 General Business Principles

While pursuing our business objectives, we aim to be a responsible partner in society, acting with integrity towards our employees, customers, business partners and shareholders, as well as the wider community in which we operate. Everyone at Philips is expected to always act with integrity, and Philips rigorously enforces compliance of its General Business Principles (GBP) throughout the company.

In the highly regulated world of healthcare, integrity requires in-depth knowledge of the applicable rules and regulations and a sensitivity to healthcare-specific issues. The GBP incorporate and represent the fundamental principles by which all Philips businesses and employees around the globe must abide. They set the minimum standard for business conduct, both for individual employees and for the company and our subsidiaries. Our GBP also serve as a reference forthe business conduct we expect from all our business partners.

The GBP also include principles which 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.

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.

In 2022, a total of 706 concerns were reported via Philips Speak Up (Ethics Line) and through our network of GBP Compliance Officers. This represents an increase of 16% from the total of 610 concerns in the previous reporting period (2021).

While this is a continuation of the upward trend, the increase is flattening. Specifically in 2022, we once more focused on increasing awareness on Integrity and on the importance of speaking up, following up on the conclusions of the deep-dives executed after our 2021 biennial Business Integrity Survey. We believe the upward trend in reporting remains in line with our multi-year efforts to encourage our employees to express their concerns, whilst realizing that the extraordinary business conditions in the past few years make it imprudent to draw any specific conclusions from these numbers.

More information on the Philips GBP can be found in Risk management, starting on page 87.

The results of the monitoring measures in place are given in General Business Principles, starting on page 292.

5.5.6 Risk management approach

Risk management and control forms an integral part of the Philips business planning and performance review cycle. The company's risk management policy and framework are designed to provide reasonable assurance that its strategic and operational objectives are met, that legal requirements are complied with, and that the integrity of the company's financial reporting and its related disclosures is safeguarded. Please refer to Risk management, starting on page 87 for a more detailed description of Philips' approach to risk management (including Internal Control over Financial Reporting), risk categories and factors, and certain specific risks that have been identified.

With respect to financial reporting, a structured self-assessment and monitoring process is used company-wide to assess, document, review and monitor compliance with Internal Control over Financial Reporting. Please also refer to the statement made by the Board of Management on the basis of the outcome of this process, as included in Risk management approach, starting on page 74.

5.5.7 Total tax contribution

To fulfil 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, as 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). Since 2020, we have been providing certain voluntary disclosures about taxes paid and collected in the countries in which we operate. The 2022 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 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 on this code in our Country Activity and Tax Report.

In 2022, 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 2022, amounting to EUR 3,469 million, is presented by tax type in the following table. Please refer to our 2022 Country Activity and Tax Report for more details.

Philips Group

Total Contribution 2022 per Tax Type in millions of EUR

	Corporate income tax paid	Customs duties	VAT ¹⁾
Western Europe	224	10	183
North America	80	45	102
Other mature geographies	35	3	63
Growth geographies	22	86	317
Philips Group	362	144	664

	Payroll Tax	Other Taxes	Total
Western Europe	848	68	1,333
North America	846	8	1,081
Other mature geographies	134	1	236
Growth geographies	345	48	818
Philips Group	2,174	124	3,469

¹⁾ Includes VAT, GST and sales tax.

5.6 Philips' ESG performance at a glance

Below we show how Philips performed in 2022 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.

Environmental

Green House Gas (GHG) emissions

•	100% electricity from renewable sources
•	0 kilotonnes CO ₂ -equivalent (net operational carbon footprint)

Taskforce on Climate-related Financial Disclosures (TCFD) implementation

Updated 1.5, 2 and 4 °C global warming scenarios and assessed their impact on our supply chain, Philips and customers (disclosed in separate report)

Land use and ecological sensitivity

•	1 tonne waste sent to landfill
•	All 23/23 industrial sites 'Zero Waste to Landfill' at yearend

Water consumption and withdrawal in water-stressed areas

•	677,632 m ³ total water intake
•	224,627 m ³ in water-stressed areas

Circular revenues ^*)

18.1% of revenues

Closing the loop ^*)

Closed the loop for over 3,400 systems returned to us

Social

Lives Improved ^*)

1.81 billion, of which 202 million in underserved communities

Diversity & Inclusion

•	30% gender diversity in senior management positions
•	39% gender diversity in total workforce
•	77% Employee Engagement Index Score ^*)

Pay equality

•	EDGE-certified for Gender Equality in the Netherlands
•	US Nationwide Pay Equity project scheduled for 2023

Wage level

•	EUR 6,952 million employee benefit expenses
•	Philips pays all employees at least a living wage

Risk for incidents of child, forced or compulsory labor

Addressed in Philips GBP, Supplier Sustainability Declaration and Supplier Sustainability program

Health & Safety

•	0.23 Total Recordable Case rate per 100 FTEs
•	172 Total Recordable Cases

Training provided

•	1,880,416 training hours in Philips University
•	1,009,459 training completions

Absolute number and rate of employment

77,233 employees, 18% turnover

Supplier development program ^*)

296 companies, 459,000 employees impacted

Volunteering ^*)

29 new projects in 2022 reaching 26.0 million people

Governance

Setting purpose

Philips' purpose is to improve the health and well-being of people through meaningful innovation

Governance body composition

Philips has a Board of Management and an independent Supervisory Board

Material issues impacting stakeholders

Detailed double Materiality Analysis performed

Anti-corruption

62,000 employees completed General Business Principles training

Protected ethics advice and reporting mechanisms

Whistleblower mechanism in place

Integrating risk and opportunity in business processes

Included in Risk Management section

Economic contribution

•	EUR 17,827 million revenues
•	EUR 741 million dividend declared
•	EUR 6.7 million contribution to Philips Foundation
•	EUR 103 million government grants

Financial investment contribution

•	EUR 2,638 million total tangible assets
•	EUR 444 million capital expenditures on property, plant and equipment

Total R&D expenses

EUR 2.1 billion invested in R&D (11.8% of revenues)

Total tax contribution

EUR 3,469 million

5.7 ESG by key country

On the following pages we show how Philips performed in a number of key countries in 2022 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.

Brazil

Environmental

Net operational carbon footprint	0 kilotonnes CO ₂ -equivalent
Land use and ecological sensitivity	0 tonnes waste sent to landfill
Water withdrawal	4,564 m ³
Circular revenues ^*)	27.6%

Social

Lives improved ^*)	96 million
Absolute number and rate of employment	2,047 employees, 15.0% employee turnover
Training provided	33,971 hours
Wage level	EUR 92 million employee benefit expenses

Governance

Economic contribution	EUR 262 million revenues
	EUR 180 million cost of sales
Financial investment contribution	EUR 57 million tangible assets
	EUR 1 million capital expenditure
Total tax contribution	EUR 71 million

Main business activities

•	Research and Development
•	Holding and/or managing of intellectual property
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Holding shares or other equity instruments

Inclusion and diversity

The I&D Committee has some 80 volunteers engaged in Women, Race, Disabilities & Mental Health and LGBTQIA+. Philips Blumenau was recognized by DIO Digital Innovation One as the technology enterprise that generated most opportunity for people with disabilities.

Philips Foundation and volunteering

Philips Foundation has partnered with SAS Brazil to bring specialized healthcare to remote areas through technology and telemedicine. Primary healthcare units are equipped with digital virtual healthcare solutions to provide early diagnosis and remote physician referral.

Stakeholder engagement

Philips has engaged with health authorities at the federal, state and municipal levels to discuss the digital transformation of health. Philips also attended stakeholder meetings as a board member of local medical technology trade associations.

China

Environmental

Net operational carbon footprint	0 kilotonnes CO ² -equivalent
Land use and ecological sensitivity	0 tonnes waste sent to landfill
Water withdrawal	192,594 m ³
Circular revenues ^*)	8.1%

Social

Lives improved ^*)	474 million
Absolute number and rate of employment	8,170 employees, 17.0% employee turnover
Training provided	104,367 hours
Wage level	EUR 466 million employee benefit expenses

Governance

Economic contribution	EUR 2,117 million revenues
	EUR 1,345 million cost of sales
Financial investment contribution	EUR 459 million tangible assets
	EUR 38 million capital expenditure
Total tax contribution	EUR 334 million

Main business activities

•	Research and Development
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Internal Group Finance
•	Holding shares or other equity instruments

Inclusion and diversity

Special care, including mental health support, was offered to over 2,000 employees during lockdown in a number of cities. The Women's Leadership Council was activated and launched the #Being Philips Becoming Shero Campaign, which is designed to inspire female professionals to make a bigger impact. Philips China topped several employer rankings in 2022.

Philips Foundation and volunteering

Philips Foundation continued collaborating with the Chinese Red Cross Foundation in cardiovascular emergency care, completing 6,439 certified training sessions. It also donated AED equipment and training as a total solution and launched the 'Heart-safe Campus' program at Peking Union Medical College to ensure the health and safety of students and teachers.

Stakeholder engagement

Philips continues to work with the China Center for International Exchange on the China Sustainable Development Blue Book, as well with the Peking Union Medical College Foundation and the Peking Union Medical Foundation to discuss the sustainable site management of campus and hospitals, development and training of medical leaders, and empowerment of female medical talents.

France

Environmental

Net operational carbon footprint	0 kilotonnes CO ² -equivalent
Land use and ecological sensitivity	- tonnes waste sent to landfill
Water withdrawal	m ³
Circular revenues ^*)	10.8%

Social

Lives improved ^*)	42 million
Absolute number and rate of employment	982 employees, 18.0% employee turnover
Training provided	15,108 hours
Wage level	EUR 115 million employee benefit expenses

Governance

Economic contribution	EUR 375 million revenues
	EUR 238 million cost of sales
Financial investment contribution	EUR 41 million tangible assets
	EUR 6 million capital expenditure
Total tax contribution	EUR 110 million

Main business activities

•	Research and Development
•	Holding and/or managing of intellectual property
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Holding shares or other equity instruments

Inclusion and diversity

Philips scored an overall rating of 93/100 in the government index on gender equity at work. There is continued focus on building a pipeline of talented women. Communication efforts around invisible disability were intensified through a partnership with DCA Handicap to raise awareness among managers and employees.

Further training was provided on topics such as Bias@Work.

Philips Foundation and volunteering

To heighten awareness among the French population about the dangers of cardiovascular disease, Philips Foundation continued to work with Global Heart Watch to organize a series of first-aid training sessions for young people in underserved areas, so that they can act as first responders.

Stakeholder engagement

In 2022, Philips France continued to deliver on its commitment to the Ministry of Health to help accelerate the digital transformation of the healthcare system. We participate in all the projects led by the digital health agency (ANS) around the program 'Le Ségur du numérique'.

Germany

Environmental

Net operational carbon footprint	0 kilotonnes CO ² -equivalent
Land use and ecological sensitivity	0 tonnes waste sent to landfill
Water withdrawal	32,962 m ³
Circular revenues ^*)	12.5%

Social

Lives improved ^*)	67 million
Absolute number and rate of employment	3,754 employees, 7.0% employee turnover
Training provided	39,686 hours
Wage level	EUR 424 million employee benefit expenses

Governance

Economic contribution	EUR 2,099 million revenues
	EUR 1,204 million cost of sales
Financial investment contribution	EUR 514 million tangible assets
	EUR 22 million capital expenditure
Total tax contribution	EUR 365 million

Main business activities

•	Research and Development
•	Holding and/or managing of intellectual property
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Internal Group Finance
•	Regulated financial services
•	Holding shares or other equity instruments

Inclusion and diversity

2022 saw a significant increase in promotions of female top talent to leadership positions, and a mentoring program for female talent was set up. I&D activities were organized around International Women's Day and World Refugee Day. Throughout the year, local Philips Women Lead Calls, Sustainability sessions and a meet-up on 'living and working with disabilities' took place.

Philips Foundation and volunteering

Philips Foundation and Pink Ribbon Deutschland have created a multilingual breast cancer awareness app focused on women with migrant backgrounds. It is available in seven languages, with others to follow. By tackling cultural and language barriers, the app aims to encourage women to become active, e.g. with self-palpation, and provides access to relevant information if something unusual is detected. In 2022, a broad communication campaign was rolled out, and work was done on additional content and interaction upgrades.

Stakeholder engagement

Philips has been working closely with the Ministry of Health (MoH), public institutions and industry associations to collect best practices and provide expertise for the MoH's upcoming National Digitalization Strategy. Philips also continues to liaise with the Federal State Governments and institutions, hospitals and solution partners to respond to the National Hospital Future Act (KHZG) project pipeline, foreseeing a large number of KHZG tenders in 2023.

India

Environmental

Net operational carbon footprint	0 kilotonnes CO ₂ -equivalent
Land use and ecological sensitivity	0 tonnes waste sent to landfill
Water withdrawal	15,850 m ³
Circular revenues ^*)	12.2%

Social

Lives improved ^*)	87 million
Absolute number and rate of employment	9,234 employees, 17.0% employee turnover
Training provided	191,705 hours
Wage level	EUR 273 million employee benefit expenses

Governance

Economic contribution	EUR 850 million revenues
	EUR 408 million cost of sales
Financial investment contribution	EUR 240 million tangible assets
	EUR 14 million capital expenditure
Total tax contribution	EUR 152 million

Main business activities

•	Research and Development
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Other

Inclusion and diversity

ISC Philips Women's League held sessions on return to work and psychological, physical and financial well-being for over 5,000 colleagues. A formal mentoring program was launched for female employees. Philips secured a Bronze category award in the India Workplace Equality Index 2022 for its efforts towards LGBTQ+ inclusion.

Philips Foundation and volunteering

2022 saw the conclusion of a two-year collaboration between Philips Foundation, Save the Children India, social enterprise ZMQ Development and Philips India to develop and prove low-cost innovative approaches for prevention, diagnosis and management of childhood pneumonia. The project uses the ChARM (Children's Automated Respiration Monitor) device to aid pneumonia identification through automated respiratory rate measurement.

Stakeholder engagement

Philips presented to the Parliamentary Standing Committee on Health and Family Welfare and National Medical Device Promotion Council, discussing issues in the manufacturing, import and sales of high-end medical devices. Philips supported the compilation of approach papers on the Draft Medical Device Policy 2022, to reduce the regulatory burden for Ultrasound sales and marketing in India. Philips ensured business continuity by enabling postponement of the implementation of the amendment to India Specific Label (77E) by six months.

Japan

Environmental

Net operational carbon footprint	0 kilotonnes CO ₂ -equivalent
Land use and ecological sensitivity	- tonnes waste sent to landfill
Water withdrawal	- m ³
Circular revenues ^*)	33.5%

Social

Lives improved ^*)	48 million
Absolute number and rate of employment	2,257 employees, 11.0% employee turnover
Training provided	19,107 hours
Wage level	EUR 158 million employee benefit expenses

Governance

Economic contribution	EUR 1,061 million revenues
	EUR 813 million cost of sales
Financial investment contribution	EUR 260 million tangible assets
	EUR 5 million capital expenditure
Total tax contribution	EUR 139 million

Main business activities

•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Other

Inclusion and diversity

Breast and prostate cancer awareness events were held, with many employees of all ages and genders participating. Various l&D networking initiatives were conducted, as well as workshops on psychological safety and reverse mentoring aimed at creating a workplace where all employees can be themselves - #you are you.

Philips Foundation and volunteering

Improving cancer outcomes and survival rates is a key goal: measures for early detection through education and selfexamination were implemented at our facilities during Pink Ribbon month and Movember. Together with local NPO organizations, Philips employees developed season's greetings cards to support pediatric patients who need to stay in hospital during the holiday season.

Stakeholder engagement

We have liaised with the Ministry of Health, Labor and Welfare (MHLW) on a reimbursement and authorization system through the European Business Council in Japan. The focus of the MHLW from 2022 will again be on Software as Medical Devices (SaMD) and cybersecurity. We are discussing the handling and authorization system for these through the Japan Federation of Medical Devices Associations.

Netherlands

Environmental

Net operational carbon footprint	0 kilotonnes CO ₂ -equivalent
Land use and ecological sensitivity	1 tonnes waste sent to landfill
Water withdrawal	82,419 m ³
Circular revenues ^*)	5.9%

Social

Lives improved ^*)	17 million
Absolute number and rate of employment	10,807 employees, 10.0% employee turnover
Training provided	141,507 hours
Wage level	EUR 1,206 million employee benefit expenses

Governance

Economic contribution	EUR 8,194 million revenues
	EUR 5,073 million cost of sales
Financial investment contribution	EUR 1,512 million tangible assets
	EUR 74 million capital expenditure
Total tax contribution	EUR 490 million

Main business activities

•	Research and Development
•	Holding and/or managing of intellectual property
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Internal Group Finance
•	Holding shares or other equity instruments

Inclusion and diversity

Support was provided for employee health and well-being through health offerings, work-from-home policies and energy management programs. 125 people took part in the Employment Scheme, which offers vulnerable external jobseekers work experience. The new European Black Employee Resource Group (eBERG) continued to develop.

Philips Foundation and volunteering

A volunteering program was rolled out together with Samen voor Eindhoven. Activities included receiving Ukrainian refugees and supporting elderly citizens. Some 600 employees took part. With support from Philips Foundation, a special app, the KLIK Pain Monitor, was developed by the Princess Maxima Center for Pediatric Oncology. This app is designed to help children and parents at home quickly get in touch with caregivers at painful moments.

Stakeholder engagement

Philips is a member of the European Round Table for Industry (ERT), which strives for a strong, open and competitive Europe, with the EU and its Single Market as a driver of inclusive growth and sustainable prosperity. Philips is on the board of, among others, employers' organization VNO-NCW and trade association FME, as well as public-private committees on innovation, talent, Al, cybersecurity, and health.

Poland

Environmental

Net operational carbon footprint	0 kilotonnes CO ₂ -equivalent
Land use and ecological sensitivity	- tonnes waste sent to landfill
Water withdrawal	- m ³
Circular revenues ^*)	8.0%

Social

Lives improved ^*)	26 million
Absolute number and rate of employment	2,219 employees, 22.0% employee turnover
Training provided	40,685 hours
Wage level	EUR 76 million employee benefit expenses

Governance

Economic contribution	EUR 226 million revenues
	EUR 109 million cost of sales
Financial investment contribution	EUR 22 million tangible assets
	EUR 2 million capital expenditure
Total tax contribution	EUR 49 million

Main business activities

•	Research and Development
•	Holding and/or managing of intellectual property
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Holding shares or other equity instruments

Inclusion and diversity

We introduced the Employee Assistance Program to provide employees, their relatives and people leaders with psychological, financial, legal and professional counselling. We launched the Women's Network Poland, which brings together 300 female employees, to empower women to grow through coaching and experience sharing.

Philips Foundation and volunteering

Philips Foundation provided 65 patient monitors and 38 handheld diagnostic ultrasounds to organizations including the Polish Red Cross. It also helped cover some costs of temporary accommodation and settlement for Philips Ukraine employees and their relatives in Poland. Philips Poland provided the Polish Red Cross with 15,000 maternal and childcare units. Employees in Poland supported Ukrainian colleagues and their families by hosting them in their houses, providing transport from the border, and collecting food and other necessities for Ukrainian families arriving in Poland.

Stakeholder engagement

Philips has engaged strongly with NGOs and government organizations helping Ukraine. Philips and UNGC prepared the report 'Green hospitals in Poland 1. Philips is discussing the digital transformation of health and oncology with the health authorities at the federal, state and municipal levels. Philips also attended stakeholder meetings as a board member of local medical technology trade associations.

United Kingdom

Environmental

Net operational carbon footprint	0 kilotonnes CO ₂ -equivalent
Land use and ecological sensitivity	- tonnes waste sent to landfill
Water withdrawal	- m ³
Circular revenues ^*)	19.6%

Social

Lives improved ^*)	39 million
Absolute number and rate of employment	1,044 employees, 15.0% employee turnover
Training provided	13,813 hours
Wage level	EUR 104 million employee benefit expenses

Governance

Economic contribution	EUR 450 million revenues
	EUR 339 million cost of sales
Financial investment contribution	EUR 115 million tangible assets
	EUR 11 million capital expenditure
Total tax contribution	EUR 109 million

Main business activities

•	Research and Development
•	Holding and/or managing of intellectual property
•	Purchasing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Holding shares or other equity instruments

Inclusion and diversity

Employee events included living with disabilities, challenging gender stereotypes, and allyship. A UK chapter of the Philips Women Lead program was launched. We delivered psychological safety and bias at work training. We also maintained our focus on well-being, developing our mental health champions and menopause network, and training 95% of managers on employee mental health.

Philips Foundation and volunteering

Philips employees raised funds forthe MIND charity, with 17 colleagues completing a 10-km sponsored walk. Philips signed the British Armed Forces Covenant and established an Armed Forces Network of volunteers, pledging support to past and current service personnel. Philips volunteers welcomed refugees to our UK headquarters, providing advice and holding practice interviews as part of our job-seeking mentoring program.

Stakeholder engagement

Philips continued to engage with the government, AXREM and the National Health Service (NHS) to support the transformation to more resilient health systems post-COVID. We maintain strong relations with the Association of British Health Technology Industries and the Office of Life Sciences and established partnerships with key academic institutions. Philips supported the commitment to help the NHS achieve its 'Net Zero' target through the launch of a circular economy report with the University of Exeter and the first sustainability workflow review with an NHS Hospital Trust. Philips published a further report on expanding diagnostic capacity in communities across England in partnership with Imperial College London.

United States

Environmental

Net operational carbon footprint	0 kilotonnes CO ₂ -equivalent
Land use and ecological sensitivity	0 tonnes waste sent to landfill
Water withdrawal	175,965 m ³
Circular revenues ^*)	18.8%

Social

Lives improved ^*)	331 million
Absolute number and rate of employment	20,054 employees, 22.0% employee turnover
Training provided	364,217 hours
Wage level	EUR 3,029 million employee benefit expenses

Governance

Economic contribution	EUR 10,078 million revenues
	EUR 6,842 million cost of sales
Financial investment contribution	EUR 3,367 million tangible assets
	EUR 191 million capital expenditure
Total tax contribution	EUR 1,026 million

Main business activities

•	Research and Development
•	Holding and/or managing of intellectual property
•	Purchasing
•	Manufacturing
•	Sales, marketing and distribution
•	Administrative, management and support services
•	Provision of services to unrelated parties
•	Holding shares or other equity instruments

Inclusion and diversity

We progressed on our two-year I&D strategy, including increasing representation of Black talent and women in leadership roles, launching mentoring programs, implementing mandatory I&D trainings, hosting safe space dialogues, and partnering with organizations serving people of color. We were recognized by the Human Rights Campaign's Corporate Equality Index as a 'best place to work' for LGBTQ employees.

Philips Foundation and volunteering

Philips organized several volunteer opportunities, including American Heart Association walks for 16 groups representing 1,000 Philips families/friends. Philips collaborated with MedShare on multiple initiatives, including donating personal health products to safety net clinics and shelters that see 25,000 people per week, donating medical equipment to relief organizations building temporary hospitals in Ukraine, and packing safe birthing kits for moms in underserved communities.

Stakeholder engagement

Philips connected with government and private sector leaders at a White House Cancer Moonshot. In partnership with the American Cancer Society, Philips hosted a workshop with 30 top minds in healthcare to address cancer care delivery in the home. Philips also represented the private health sector at a White House roundtable on climate change and formally signed the US Department of Health and Human Services (HHS) Climate Pledge. The company then brought together 12 leading healthcare providers to discuss addressing sustainability through circular practices.

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

6 Risk management

6.1 Our 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 Business System (PBS). Key elements are our risk management governance, Risk appetite, the Risk management process standard, the Philips Business Control Framework, and our General Business Principles (GBP), which are further 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, starting on page 92.

Risk management governance

The Executive Committee identifies and manages the risks Philips faces in realizing its objectives. It defines the risk appetite, provides the risk management framework, and monitors the effectiveness thereof. The Risk Management Support Team, consisting of experts on various categories of risk, supports the Executive Committee through regular analysis of the enterprise risk profile and enhancement of the risk management framework. Management is responsible for identifying critical risks and implementing appropriate risk responses within their areas of responsibility. Various functions (such as Internal Control, Quality & Regulatory, Legal, and Group Security) support the management of specific risk areas.

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. Leadership from the Executive Committee, Businesses, Markets and key Functions meet quarterly with Internal Audit in Audit & 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 Board of Management in fulfilling its responsibilities in this respect. The Disclosure Committee ensures 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 GBP Review Committee is responsible for the effective deployment of the Philips General Business Principles (GBP) and for generally promoting a culture of compliance and ethics within the company. For more information see below under 'Philips General Business Principles'.

The Security Steering Committee (SSC) and the Group Security function manage security (including cybersecurity) risks. The SSC evaluates and sets the Group's security strategy, issues security policies and evaluates progress and effectiveness. Dedicated security reports are shared with the Executive Committee, the Supervisory Board and external auditors. On a quarterly basis, briefings on cybersecurity risks are provided to the IT Audit & Risk Committee.

The Environmental, Social and Governance (ESG) Committee initiates, drives and coordinates ESG strategy development, policy setting, disclosures and planning of programs and activities in relation to our ESG commitments and obligations. It administers ESG reporting, monitors progress, assesses risks in relation to ESG and makes recommendations to the Executive Committee on our ESG endeavors.

Philips actively maintains 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). Our Quality & Regulatory function closely monitors developments in the regulatory landscape. 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. Next to continuous improvement a program runs with the aim to accelerate patient safety and quality. A formal quality audit program assesses our organization's compliance with our QMS. Quality & safety is a standard item in personal goal setting and evaluation of all Philips' employees.

The Supervisory Board oversees Philips' risk management, including the identified risks in relation to the Risk appetite, 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 Corporate governance, starting on page 132 chapter 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

The Executive Committee and management seek to manage risks consistently within the risk appetite. Risk appetite is set by the Executive Committee and captured in the risk management policy. It is effectuated through our PBS, 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 risktaking 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 always act with integrity and is averse to risks impacting our GBP, which include (but 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 act in case of concerns or violations to our GBP, please refer to the GBP section below 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 the Enterprise Risk Management Framework: 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, Markets and key Functions perform a risk assessment at least once a year, with updates of the strategic plan, to identify and prioritize risks, assign ownership, and implement appropriate risk responses. Risk workshops are conducted with senior management across the company to facilitate these risk assessments, and during 2022 several 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, Markets and selected Functions and at Group level.
•	Developments in the enterprise risk profile and management's initiatives to improve risk responses are discussed and monitored during the quarterly meeting of the Audit Committee of the Supervisory Board.
•	As an integral part of the strategy review, each year the Executive Committee assesses the enterprise risk profile and the potential risk impact versus Group 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 are discussed at least once a year with the Supervisory Board.

Examples of measures taken during 2022 to further strengthen risk management:

•	In addition to the continuous improvement of our QMS we run an enterprise-wide program Accelerating Patient Safety and Quality. This program was initiated in 2021 following the Respironics voluntary recall to evaluate and further improve our QMS, our oversight & performance management and our culture where necessary. For more information, refer to the Quality & Regulatory and patient safety, starting on page 70.
•	An enterprise-wide analysis is conducted regarding detection and reporting of product defects/failures, applying the lessons learned from the Respironics field action to each Philips business.
•	Various improvements to our risk management process standards in several risk areas, for example enterprise risk, product risk, and supplier- and supply-chain-related risk.
•	Further standardization and alignment of controls and the embedding in the global Philips standard process framework.
•	Risk & Compliance (R&C) community building to drive continuous improvement, knowledge sharing, capability building and risk transparency across various R&C areas.
•	Strengthening the risk dialogue as an integrated part of regular performance and strategy execution dialogues.
•	Continued improvement of our risk management capabilities in security (including cyber, product and supply chain).
•	Extension of our supplier risk management to deeper tiers, and diversified sourcing of high-risk components to further reduce supply dependencies.
•	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.
•	Ongoing exploration and capturing of opportunities to use data analytics and automation in controls monitoring, and the ongoing deployment of our governance, risk and compliance IT solutions.

Philips Business Control Framework

The Philips Business Control Framework (PBCF) sets the standard for internal control at Philips. The objective of the PBCF is to maintain integrated management control of the company's operations and reporting, as well as safeguard compliance with applicable laws and regulations. Philips has designed its PBCF based on the COSO Internal Control-Integrated Framework (2013).

As part of the PBCF, Philips has implemented a standard set of Internal Controls over Financial Reporting (ICFR). 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. The Board of Management's report, including its conclusions regarding the effectiveness of ICFR, can be found in this report in the section Management's report on internal control, starting on page 143.

Philips General Business Principles (GBP)

The GBP - part of the Philips Business System - 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. The GBP form an integral part of labor contracts in virtually every country in which Philips operates, and translations are available in 30 languages. 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. 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.

The GBP Review Committee is responsible for the effective deployment of the GBP and for generally promoting a culture of compliance and ethics within the company. The Committee is chaired by the Chief ESG & Legal Officer, and its members include the Chief Financial Officer, Chief Human Resources Officer and the Chief of International Markets. Furthermore, each quarter all our key markets convene market compliance committees, which act as local satellites of the GBP Review Committee, 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 Secretariat of the GBP Review Committee, together with a worldwide network of GBP Compliance Officers, supports the organization with 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. 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 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 enable 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 GBP Review Committee, as well as the Executive Committee and Audit Committee of the Supervisory Board, are informed on relevant GBP metrics, cases, trends and learnings.

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, which enable the confidential, anonymous submission of complaints.

More information on the Philips GBP can be found in Environmental, Social and Governance, starting on page 45. The GBP and underlying policies, including the Financial and Procurement Code of Ethics, are published on the company website, at https://www.philips.com/a-w/about/investor-relations/governance/business- principles.html.

6.2 Risk factors

Philips believes the risks set out below are the material risks that, individually or in combination, could impact our ability to achieve our objectives and to live up to the expectations of our customers and stakeholders. 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 risk that have materialized, as these are addressed in other sections and referenced to 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 prioritized risk factors relating to patient safety and quality management, addressing the Respironics voluntary recall and the regulatory and legal processes connected to this, geopolitical and macro-economic factors, and to our supply chain operations. 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.

6.3 Strategic 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. 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 related to or caused by the Russia-Ukraine war.

Philips observes a trend of geopolitical tensions and deglobalization which intensifies protectionism. Examples of protectionism measures are policies on trade, 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, and 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 economy, declines in economic growth projections in the US, the EU and China (which collectively account for around two-thirds of Philips' sales), reduced government spending, declining customer and consumer confidence and spending, rising inflation and interest rates, and the emergence of economic impacts related to the climate crisis. 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, UK, 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.

The Russia-Ukraine war 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. To be less exposed to the uncertainty caused by the Russia-Ukraine war we actively reduced balance sheet exposure in this market, and we closely manage accounts receivable to prevent customer defaults.

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 valuecreation 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 shift to the health technology solutions and services business model

With Philips' focus on health technology, our business model is transforming from transactional, product-focused business models to outcome-oriented, multi-year customer partnerships enabled by solutions 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. It 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, financing) on its health technology business by other businesses through a more diversified portfolio. As a result of the shift to a solutions and services business model, Philips 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. 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, starting on page 204.

Risk response: Philips is running multiple interconnected initiatives intended to enable, strengthen and accelerate various aspects our business model to the standards of the Health Technology solutions business environment including, but not limited to, patient safety, quality, innovation, social, the shift of our solutions business model, productivity and compliance. For examples of responses to these various aspects we refer to the related risk factors in this section, Examples of initiatives to shift from a transactional to a solutions business model are mentioned here. We pursue the end-to-end alignment of our governance, processes and IT systems to our solution offerings. We are making our solutions available through SaaS and Platform-as-a-Service (PaaS). We are also expanding digital customer engagement and e-commerce channels, as well as activation of our solutions in markets.

Where Philips engages in long-term service-based business models, we aim to run a disciplined deal process with strict acceptance criteria. It is noted that although our portfolio is focused on health technology, it covers various products, solutions and services across the health continuum 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 (Al) and machine learning (ML) to drive quality and efficiency in clinical and operational workflows. 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: Philips runs a coherent set of initiatives to accelerate the transformation of informatics-enabled propositions. Some examples of these initiatives are mentioned here (without limitation). We are moving existing informatics propositions (such as Radiology 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 Al strategies, such as acute care management with clinical decision support. We are extending our Healthsuite Platform (HSP) with state-of- the-art data and Al capabilities, enabling Philips businesses to easily generate Al enabled applications that can offer insights at scale to our customers. We are accelerating the roll out 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 Al-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

Selected acquisitions have been, and are expected to remain, part of Philips' growth strategy. We may not be able to successfully or efficiently integrate new acquisitions 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 has an active acquisition allocation strategy and roadmap per growth area 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 or may (if implemented) require Philips to significantly increase the scope of mandatory ESG disclosures. They will or may (if implemented) require Philips to identify and act on adverse environmental and human rights impacts across the organization and potentially the entire value chain, beyond 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 adequately or accurately to report performance or developments 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 action, driving the transition to a circular economy, implementing EcoDesign in our products, and partnering with our suppliers to reduce their environmental footprint. Social: W/e aim to deliver social impact by improving people's health and wellbeing, 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. W/e have established an ESG Committee that monitors progress and assesses risks in relation to our ESG strategy, and it makes recommendations to the Executive Committee on the continuous improvement of our ESG endeavors. For more information, please refer to the chapter in this report.

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 cooperation 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 aims its business as a whole not to be materially dependent on any particular third-party patent or license, or any particular group of third-party patents and licenses.

6.4 Operational risks

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

The safety of patients and our reputation depends on the safety and quality of our products and services. Our products and services, either new and/or in field use by our customers, may fail to meet product quality or product security standards. In particular, Philips is exposed to the ongoing impact of the Respironics voluntary recall and related matters. Please refer to the section Quality & Regulatory and patient safety, starting on page 70 and the Note Contingencies, starting on page 204. If products fail to meet product quality and/ or security standards, this 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 or generally cause customer dissatisfaction. Given Philips' focus on health technology, products and services often require regulatory approvals, including approval of quality and benefit/risk prior to market introduction. Many of our products also have multiple software components, which may be exposed to security threats, including potentially in the event of obsolescence or insufficient maintenance. Issues with the quality or security of our products and services can occur as a result of various factors, including product design, production, suppliers, materials used, installation, or newly emerging and rapidly evolving cybersecurity threats. These (and other) issues could cause events that need to be actively addressed, which may lead to (amongst others) higher costs of design, market de-activation, stop use, field recalls and repairs, financial claims and liabilities, damage to our brand reputation, competitive disadvantage, regulatory non- compliance (refer to the section Compliance risks, starting on page 103), consent decrees or losing our license to operate for products or access to markets. Any of these may have a material adverse impact on Philips' business, financial condition and operating results.

Notwithstanding the proliferation of technology and technology-based control systems to detect defects or other errors in our products before they are released, our business ultimately relies on people as our greatest resource, and, from time to time, they make mistakes or engage in violations of applicable policies, laws, rules or procedures. These events are not always caught immediately by our technological processes or by our controls and other procedures, which are intended to prevent and detect such errors or violations. In addition to human error, our quality controls are also subject to overriding, as well as resource or technical constraints. As such, these quality controls and preventative measures may not be effective in detecting all defects or errors in our products before they have been released into the marketplace. In such an event, the technological reliability and safety of our products could be below our standards, and our reputation, brand and sales could be adversely affected. In addition, we could be required to, or may find it necessary to, offer a refund for the product or service, suspend the availability or sale of the product or service, or expend significant resources to cure the defect or error. 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: Philips is committed to delivering the highest-quality products, services and solutions compliant with all applicable laws and standards, and patient safety is paramount to everything we do. We design, produce, and supply our products and services with a focus on safety, security and effectiveness. Post-market surveillance processes monitor our devices after release to market to attempt to uncover emerging issues as early as possible. The quality of production and performance of our critical suppliers is also monitored closely. A cybersafe program is running to address obsolescence issues.

We continuously invest substantially in embedding quality in our organizational culture as well as consolidating and standardizing our Quality Management Systems (QMS). We run an enterprise-wide program Accelerating Patient Safety and Quality. This program was initiated in 2021 following the Respironics voluntary recall to evaluate and further improve our QMS, our oversight & performance management and our culture where necessary. A formal quality audit program assesses our organization's compliance with our QMS. With consistency of purpose, top-down accountability, consolidation, standardization and continuous improvement, we aim to drive the adoption of a quality mindset as well as improved quality and safety outcomes throughout the enterprise. Quality is an integral part of the evaluation of all levels of management. While we believe our processes have become more robust, continuing to enhance our quality culture remains a top priority. We perform extensive programs to monitor and evaluate product performance, and we correct or remove any product from service that presents harm to patients or users. In the event of issues, we run extensive programs with the goal of recalling, repairing or replacing affected products and attempting to prevent such issues from reoccurring. For example, in June 2021, our subsidiary, Respironics, initiated a voluntary recall notification for certain sleep and respiratory care products to address identified potential health risks and substantially ramped up the production, service and repair capacity. In 2022, Respironics continued to make progress with the repair and replacement program and the comprehensive test and research program for the affected devices. As of January 2023, around 90% of the production required for the delivery of replacement devices to patients has been completed. In order to expedite the remaining 10% of the affected devices. Philips Respironics will increase the proportion of replacement devices.

For further details refer to section Quality & Regulatory and patient safety, starting on page 70, the Notes Provisions, starting on page 193 and Contingencies, starting on page 204.

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, including Asian countries. Disruption to production in, and shipping from, Asian countries could have a disproportionate impact on our business compared to disruptions in other markets. The production and shipping of products and parts, whether from Philips or from third parties, could be interrupted by various external factors, such as geopolitics (for example, US-China relations and protectionist measures taken in other markets), regional conflicts, natural disasters or extreme weather events (the effects of which may be exacerbated by climate change), container imbalances, port congestions, and continued uncertainty related to COVID-19 measures (particularly in China). Throughout 2022 we experienced supply chain headwinds and expect these to continue throughout 2023. Currently, components are scarce. Global supply constraints and cost impacts as a result of worldwide economic disruptions, electronic component shortages, fear of future or ongoing pandemics, inflation, and geopolitical events, including the war in Ukraine, are impacting our ability to procure components. Obtaining alternative sources of components could involve significant costs and regulatory challenges and may not be available to us on reasonable terms, if at all. As a health technology company, Philips is dependent on the availability of components, including semiconductors. Semiconductors have been subject to an ongoing global supply shortage. At the same time our product design may include obsolescent semiconductors and other components. If semiconductor shortage continues, we may experience delays, production interruptions, increased costs, the need to make engineering design changes orthe inability to fulfill customer demand, any of which could adversely affect our business and financial performance. Philips, our customers, our suppliers, and our third-party service providers may also be exposed to labor shortages, potentially as a result of COVID-19. These factors may cause increased lead times and adversely impact our production capacity, which may negatively impact 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.

A general shortage of energy, materials, (sub-)components or means of transportation may drive fluctuations in price. Philips purchases raw materials, including rare-earth metals, copper, steel, aluminum, noble gases and oil-related products. There is no assurance that these raw materials will be available for purchase in the future. The actions by the governments in the US, UK, and the EU in response to the war between Russia and Ukraine, among other factors, have had an adverse impact on the cost of the raw materials that we purchase. 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 climatechange-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.

Risk response: Philips is extending the simplification of its portfolio and its Design for Excellence approach to the full value chain, which includes designing products in such a way that supply dependencies are minimized (for example, redesigning our printed circuit boards to qualify alternate sources of supply). Furthermore, we are optimizing our supplier base, manufacturing, and warehousing footprint to enable agile responses to shifts in demand and supply, as well as a changing geopolitical risk landscape. 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. Philips is making balanced investments in global and local supply chain capabilities to reduce dependencies and lead times, and to meet local market requirements.

Philips has deployed an integrated risk management framework to assess and manage 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 to align our demand to their supply allocation.

Philips conducts various scenario assessments and develops response strategies to events potentially impacting its supply chain, such as geopolitical changes, 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', in line with the recommendations of the Task Force on Climate-Related Financial Disclosures.

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 may face challenges in connection with its strategy to improve execution and other business performance initiatives

As announced in January 2023, Philips has prioritized the further strengthening of our patient safety and quality management, our supply chain operations, and the simplification of the organization and the ways we work. If we do not effectively manage the necessary changes, including any upgrades to Philips' IT architecture, this may result in us not realizing our business ambitions with respect to growth, safety, quality, operational excellence, productivity and solutions delivery, amongst others, and/or may cause business discontinuities. There can be no assurance that the recently announced changes in operating model will be successful in supporting Philips' strategy or improving Philips' results of operations, and Philips may need to undertake further restructurings in the future. If the recently announced restructuring or any future restructurings ultimately prove unsuccessful or have a material adverse effect on Philips' reputation and brand value, Philips' business, financial condition, and operating results could be materially adversely affected.

Philips continually seeks to create a more open, standardized, and cost-effective IT landscape. Approaches include further outsourcing, offshoring, commoditization, and ongoing reduction in the number of IT systems. These changes create 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 relating 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: Philips runs a process to simplify the way we work, to drive accountability and agility and to unlock significant productivity and margin gains. This simplification is a primary enabler for flawless execution. Philips has a dedicated business transformation and IT implementation organization that drives end-to-end orchestration of this change. To enable change, Philips has adopted several practices to drive a culture of performance and to ensure programs are effective. These practices include Lean and Agile, change management, project management, knowledge management, and performance management. Philips is rolling out an Enterprise Process Framework to simplify and standardize our business processes and supporting enterprise (IT) architecture.

Philips uses a structured IT risk management method to identify and address risks to our critical business applications. Our ongoing IT Business Continuity Management activities include real-time monitoring of availability, redundancies, testing, and upgrading of applications. We regularly validate IT systems and continuously improve our IT change management capabilities to make sure that every change of an IT system is executed in a controlled way and sufficiently tested to minimize the impact of business disruptions due to failure of the system. Philips has deployed a global Business Continuity Management System, which includes a global early warning system for operational threats and is certified against ISO 22301:2019, the international standard for Business Continuity.

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

In October 2022 and January 2023, Philips announced a series of reductions in workforce. These restructuring measures may negatively impact Philips' reputation and its ability to attract and retain employees whose skills and experience are important for its business. Layoffs of skilled employees may subject Philips to potential employment lawsuits and benefit Philips' competitors. Philips' restructuring measures may also pose operational challenges and place a substantial strain on remaining management and employees. The reduction in workforce may adversely affect the pace and breadth of Philips' research and development efforts. The diversion of management time to planning and implementing any restructuring measures may also cause disruptions to Philips' business.

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 fierce competition for talent in key capability segments, and there is a heightened expectation of attrition post-pandemic. The announced organizational restructuring may also impact employee engagement. These factors may affect Philips' ability to attract and retain critical talent. Post-COVID-19 adjustments such as hybrid working may continue to present challenges to team interactions and the onboarding of new people. If employees perceive our post-COVID-19 approach to working to be inadequate, overly burdensome, or prefer the safety or convenience of working from home, employees may choose to terminate their employment with us, productivity may decline, or we may experience employee unrest, slowdowns, stoppages or other demands. 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 and the cost of labor. This may negatively impact our ability to deliver on our strategic imperatives, and if we are unable to offset the increased costs of labor through higher selling prices, 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 and 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 cybersecurity incidents in 2022. 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 significant 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 Security Steering Committee 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 and the appropriate risk appetite. Philips is deploying security risk management further into our businesses and functions to enhance the completeness and quality of overall risk reporting, and management of 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 assure 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 training, 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 has also strengthened its procurement process for security. Philips also continuously improves the Philips Business System 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 to deliver on our purpose and the Quadruple Aim (better health outcomes, improved patient experience, improved staff experience and lower cost of care), it is important that Philips continues to innovate and delivers these innovations to the market on a timely basis. The emergence of new low-cost competitors, particularly in Asia, 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 writedown 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: Philips is in continuous dialogue with customers to better 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. Philips transformed its marketing to accelerate the understanding of rapidly evolving customer needs and to translate that understanding into integrated value propositions. Philips is also driving the Customer First Innovation transformation to accelerate its innovation ambitions and effectiveness across all elements of the Philips Business System. The focus is on digital platform-based solutions and software-defined systems, leveraging data and Al at scale, and enabling delivery of informatics and system-related applications with a Software as a Service business model. Furthermore, Philips runs initiatives to rationalize our Research & Development (R&D) footprint and to prioritize R&D projects. 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 Al, and usability. Finally, Product Design Centers have been set up to take responsibility for common modules used by multiple businesses, such as wireless connectivity modules and batteries. These initiatives, taken together, will improve innovation effectiveness, efficiency, quality, and regulatory compliance.

Pandemics could have an adverse effect on Philips' operations and employees

Although the ability to manage pandemics (for example, resurgences of COVID-19 or mutations thereof) has improved, pandemics may continue to affect Philips' operations and results in 2023 and Philips expects uncertainty and volatility related to the impact of pandemics and the local response policies thereto, in China in particular given our footprint in China and recent developments in China to loosen restrictions and countervailing measures imposed by other countries. This is driven by, among other things, the extent and depth of government policies to restrict the spread of viruses, the effectiveness of vaccination programs, the appearance of mutations, and the emergence of new viruses that may cause new pandemics. COVID-19 and other pandemics may continue to impact delivery on our triple duty of care in various ways: the health and safety of our employees (in our various working environments); meeting critical customer needs (for example, our production capacity and our ability to deliver, install and provide services); and business continuity (for example, our functional operations, supply chain, and commercial processes). In 2022, we have gradually reopened our offices mostly applying a hybrid schedule. For further discussion or the risks related to hybrid working, see the risk factor "Philips is dependent on its people for leadership and specialized skills and may be unable to attract and retain such personnel". The expectation remains that responses to the risks of COVID-19 continue to require effort and expense and may negatively affect Philips' business, financial conditions, and results of operations. In addition, Philips' customers may not yet be fully focused on making new investments in medical equipment while recovering from COVID-19 disruptions, or they may be facing liquidity issues caused by COVID-19, which may adversely impact Philips' revenue and cash flow generation.

Risk response: The Philips Group Crisis Operations team has activated a comprehensive COVID-19 response program, which is continuously maturing and helps Philips be better prepared to respond to future events. Philips' response measures are focused on delivering on its triple duty of care:

•	Safeguarding the health and safety of employees, including personal hygiene measures and safety protocols, work-from-home protocol, safe working environments, personal protective equipment, and remote servicing capabilities.
•	Meeting critical customer needs, including production volume ramp-up, delivery and installation of critical equipment, fair and ethical allocation of scarce equipment and supplies, customer services, updated clinical guidance, increased cloud-enabled telehealth, remote patient engagement and hub-and-spoke models.
•	Ensuring business continuity, including liquidity measures and our Business Continuity Management System covering functional operations, the integrated supply chain and commercial processes.

6.5 Financial 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 sharebuyback 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 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. Philips' operations in all segments were scaled back in Russia and Ukraine in 2022, which together represented less than 2% of group sales in 2021 and in 2022. The asset value of the activities in Russia and Ukraine were less than 1% of the consolidated total assets of the group as of December 31, 2022. While there have been no significant asset write-downs to date in Russia and Ukraine, we continue to closely monitor developments in this regard.

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, starting on page 204.

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 to manage 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, in the second quarter of 2022, Philips issued EUR 750 million fixed-rate notes due 2027, EUR 650 million Green Innovation Notes due 2029, and EUR 600 million Sustainability Innovation Notes due 2033 under its Euro Medium Term Note program. Philips also entered into a series of transactions to extend and optimize the company's debt maturity profile.

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 the credit risks.

Please also refer to the Note Details of treasury and other financial risks, starting on page 218.

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

Philips is exposed to tax risks which could result in double taxation, penalties and interest payments. The source of the risks could originate from local tax rules 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 and regulations include, but are not limited to, the OECD/G20 Inclusive Framework to address the allocation of income to user markets ("Pillar One") and a 15 per cent, minimum income tax rate ("Pillar Two"). The formal adoption of Directive (EU) 2022/2523 (the "Pillar Two Directive") in December 2022 aims to achieve a coordinated implementation of Pillar Two in EU Member States and is expected to have an effect on the draft Dutch legislative proposal for the proposed Minimum Tax Rate Act 2024 (the "MTR Act") Philips is closely monitoring these developments, but does not currently expect that it will be affected by Pillar One implementing measures (subject to clarity on final regulations). However, Philips may be affected by the "MTR Act" following its implementation, which is expected to occur on 1 January 2024, and other regulations and rules that have been, or will be, enacted to implement Pillar Two (for example, any implementing acts in EU Member States in respect of the "Pillar Two Directive"). This may impose an additional tax burden and increase Philips' tax compliance requirements. 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, in turn, 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. It is also subject to the availability of sufficient taxable income within the foreseeable future, in the case of tax losses carried forward with an indefinite 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' tax policy, strategy and planning provides overarching governance. The Philips global tax organization designs and implements this and provides tax advice, ensures tax compliance, including accounting and reporting, and deploys our tax risk management and control framework to ensure adherence to up-to-date tax policies. The Group Tax department is in charge of establishing, maintaining and overseeing the tax policies. 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). In monthly reviews, a group of Market Tax Managers helps manage the risks and overall tax governance by applying their knowledge of local markets (e.g., introduction of new tax law), among others.

Please also refer to the disclosure in the Note Income taxes, starting on page 168 and the Country Activity and Tax Report.

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 hybrid working and shifting processes to remote Global Business Services locations, may have an adverse impact on the control 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: Philips' Business Control Framework (PBCF) sets the standard for risk management and internal control over financial reporting. Key components of our 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, starting on page 88 for more information on our 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, particularly in response to the COVID-19 pandemic as well as other 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. 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. These initiatives relate to, however are not limited to, the following areas. Procurement spend reduction through for consolidation of suppliers and leveraging low-cost locations, l/l/e maintain close 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. Supply chain cost reductions through rationalization of manufacturing, warehousing, logistics providers, digitalization, and remote servicing. R&D cost productivity increases through platforms and footprint simplification and simplification of our product designs. General productivity measures including organizational restructuring, headcount reduction, real estate optimization and the expansion of our Global Business Services and automation initiatives. Refer to Treasury and Financing risk for financing costs management examples.

Furthermore, Philips relies on pricing adjustments for its products and services and periodic indexation clauses in long term contracts to counteract costs increases as well as building capabilities to drive value extraction and handle inflation for the foreseeable future, for example through training of commercial teams.

6.6 Compliance risks

Philips is exposed to risks of non-compliance of its products and services with various regulations and standards, including quality, product safety and security

Our reputation and license to operate depends on our compliance with global regulations and standards. In particular, Philips is exposed to the ongoing impact of the Respironics voluntary recall and related matters. Please refer to the section Quality & Regulatory and patient safety, starting on page 70 and the Note Contingencies, starting on page 204. Philips operates in a highly regulated health-technology product safety and quality environment and its products and services, including parts or 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 domestic, EU, US 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 and/or expose us to lawsuits, administrative penalties and civil remedies, 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, Al, 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 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, if failed, 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.

Risk response: Philips is committed to patient safety and delivering the highest-quality products, services and solutions compliant with all applicable laws and standards. Our Quality & Regulatory function closely monitors developments in the regulatory landscape. Through specialist teams at the global, regional or local level, detailed standards and requirements are defined and continuously improved as an integral part of our process standards and through dedicated programs when needed, with the aim of ensuring that our employees are aware of and able to comply with these requirements. In the event of compliance issues, we actively engage with the regulatory authorities with respect to compliance and remediation, where relevant. For example, in June 2021 our subsidiary, Respironics, initiated a voluntary recall notification for certain sleep and respiratory care products to address identified potential health risks, and the FDA conducted an inspection of a Respironics manufacturing facility in connection with the recall. Following the FDA's inspection and the subsequent inspectional observations, the US Department of Justice, acting on behalf of the FDA, began discussions with Philips in July 2022 regarding the terms of a consent decree to resolve the identified issues. We are publishing the latest 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, starting on page 70 in the Governance section of the ESG chapter in this report and the Notes Provisions, starting on page 193 and Contingencies, starting on page 204.

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 has been approved. European Sustainability Reporting Standards (ESRS) will be adopted in 2023 and will significantly increase the scope of mandatory ESG disclosures. Also, the proposed European Corporate Sustainability Due Diligence Directive 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, starting on page 204.

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 has started a project to meet the increased requirements of ESRS.

For more details, please refer to the sub-section Philips General Business Principles in the section Our approach to risk management, starting on page 88.

7 Supervisory 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, starting on page 133 within the chapter Corporate governance.

Feike Sijbesma ²⁾³⁾

Born 1959, Dutch

Chairman of the Supervisory Board since May 2021

Chairman of the Corporate Governance and Nomination & Selection Committee

Member of the Supervisory Board since 2020; first term expires in 2024

Former CEO and member of the Managing Board of Koninklijke DSM NV. Currently Honorary Chairman of Koninklijke DSM NV, member of the Supervisory Board of Dutch Central Bank (DNB), non-executive Director of Unilever NV, Co-Chair of the Global Climate Adaptation Center and Member of the Board of Trustees of the World Economic Forum.

Chua Sock Koong ¹⁾

Born 1957, Singaporean

Member of the Supervisory Board since 2021; first term expires in 2025

Former Group CEO of Singapore Telecommunications Limited and currently member of the Board of Directors of Prudential plc, Bharti Airtel Limited, Bharti Telecom Limited and Ayala Corporation. Member of the Council of Presidential Advisors of Singapore, Deputy Chairman of the Public Service Commission of Singapore.

Liz Doherty ¹⁾

Born 1957, British/Irish

Chairwoman of the Audit Committee

Member of the Supervisory Board since 2019; first term expires in 2023

Former CFO and board member of Reckitt Benckiser Group PLC, former CFO of Brambles Ltd, former nonexecutive director and audit committee member at Delhaize Group, Nokia Corp., SABMiller PLC and Dunelm Group PLC. Currently, member of the Supervisory Board and Chairwoman of the audit committee of Novartis AG and of Corbion N.V. Fellow of the Chartered Institute of Management Accountants. Former non-executive board member of the UK Ministry of Justice and of Her Majesty's Courts and Tribunals Service (UK). Currently advisor to GBfoods SA and Affinity Petcare SA, subsidiaries of Agrolimen SA.

Marc Harrison ⁴⁾

Born 1964, American

Member of the Supervisory Board since 2018; second term expires in 2026

Former President and Chief Executive Officer of Intermountain Healthcare and former Chief of International Business Development for Cleveland Clinic and Chief Executive Officer of Cleveland Clinic Abu Dhabi. Currently Executive leading Health Assurance at General Catalyst.

Peter Löscher ^{1) 4)}

Born 1957, Austrian

Member of the Supervisory Board since 2020; first term expires in 2024

Former President and CEO of Siemens AG, President of Global Human Health and Member of the Executive Board of Merck & Co., President and CEO of GE Healthcare Bio-Sciences and member of GE's Corporate Executive Council, CEO and Delegate of the Board of Directors of Renova Management AG. Currently member of the Board of Directors of Telefonica S.A. and Chairman of the Supervisory Board of Telefonica Deutschland Holding AG, Non-Executive Director of Thyssen-Bornemisza Group AG and Doha Venture Capital LLC and Senior Advisor at Bain Capital Private Equity.

Indra Nooyi ³⁾

Born 1955, American

Member of the Supervisory Board since 2021; first term expires in 2025

Former CFO and Chairman and CEO of PepsiCo. Currently member of the Board of Directors and Chair of the Audit Committee of Amazon, Inc. Member of the International Board of Advisors of Temasek, member of the Board of Trustees of the Memorial Sloan Kettering Hospital.

Sanjay Poonen ¹⁾

Born 1969, American

Member of the Supervisory Board since 2022; first term expires in 2026

Former Chief Operating Officer at VMware and President at SAP. Currently CEO and President of Cohesity and member of the Board of Directors of Snyk.

David Pyott ^{2) 4)}

Born 1953, British/American

Chairman of the Quality & Regulatory Committee

Member of the Supervisory Board since 2015; second term expires in 2023

Former Chairman and Chief Executive Officer of Allergan, Inc. and former Lead Director of Avery Dennison Corporation. Currently member of the Board of Directors of Alnylam Pharmaceuticals Inc., BioMarin Pharmaceutical Inc. and Pliant Therapeutics. Deputy Chairman of the Governing Board of London Business School, member of the Board of Trustees and Executive Committee of the California Institute of Technology, President of the Ophthalmology Foundation and President of the Advisory Board of the Foundation of the American Academy of Ophthalmology.

Paul Stoffels ^{2) 3)}

Born 1962, Belgian

Vice-Chairman and Secretary

Chairman of the Remuneration Committee

Member of the Supervisory Board since 2018; second term expires in 2026

Former CEO of Virco, Chairman of Tibotec, worldwide Chair of Pharmaceuticals at Johnson & Johnson and Chief Scientific Officer & member of the Executive Committee at Johnson & Johnson. Currently CEO and Chairman of the Board of Directors of Galapagos NV.

Herna Verhagen ²⁾

Born 1966, Dutch

Member of the Supervisory Board since 2022; first term expires in 2026

Currently CEO of PostNL, member of the Supervisory Board of ING Groep N.V., member of the Supervisory Board of Het Concertgebouw N.V., member of the Advisory Board of Goldschmeding Foundation and member of the executive committee and general board of VNO/NCW (Confederation of Netherlands Industry and Employers).

¹⁾ member of the Audit Committee
²⁾ member of the Remuneration Committee
³⁾ member of the Corporate Governance and Nomination & Selection Committee
⁴⁾ member of the Quality & Regulatory Committee

For a current overview of the Supervisory Board members, see also https://www.philips.com/a-w/about/supervisory-board.html

At a glance Supervisory Board report

Roy Jakobs appointed as new CEO/President

Regular discussion on patient safety, quality, supply chain, business and financial performance, organization, succession planning and strategy

Changes in Supervisory Board composition

Reports of Supervisory Board committees

8 Supervisory Board report

Letter from the Chairman of the Supervisory Board

Dear Stakeholder,

2022 was an extremely challenging year for Philips, which was reflected in a disappointing set of results. The company faced significant issues, including the consequences of the Philips Respironics recall, supply chain and inflationary pressures, the war in Ukraine and the COVID situation in China, which all contributed to the below-par business and financial performance. These developments had a significant impact on our shareholders and employees. In that context, we greatly appreciate the trust our customers show in us, as reflected in our order book.

Mindful of the seriousness of the situation, the Supervisory Board is fully committed to supporting management in leading the company out of its current difficulties and towards a future of progressive value creation with sustainable impact. As we explain in our Report, the Supervisory Board spent many sessions in 2022 engaging with the Board of Management and closely and actively reviewing key priority issues and actions to put Philips back on a value creation track for its stakeholders.

In the course of the year, our succession planning - during which we extensively evaluated internal and external candidates - resulted in the appointment of Roy Jakobs as CEO of Philips. The Board recognizes the portfolio transformation of Philips over the last decade into a focused, global solutions leader in health technology, which needs further performance improvement on several aspects. Our Board is convinced that Roy is the right CEO to take Philips to the next level of performance, by driving execution of the strategic plan and the firm measures announced in the October and January releases. Our Board focus is fully aligned with the company's priorities: driving quality, completing the recall, improving supply chain and business performance, and simplifying the organization. We continue to offer the leadership team our support wherever applicable.

The Supervisory Board knows that addressing the Philips Respironics recall and strengthening patient safety and quality is Philips' first priority. We feel encouraged by the most recent update around the recall, as the company strives to finalize remediation and testing. We fully understand the impact this issue has had on patients, clinicians, care givers, as well on regulators and investors. We are pleased to note that by year-end 2022, following the substantial ramp-up of capacity, Philips Respironics had completed around 90% of the production required for the delivery of replacement devices to patients. We are also encouraged by the complete set of test results for the first-generation DreamStation (DS1), which accounts for over two thirds of the sleep therapy devices subjected to the recall.

The Supervisory Board also discussed the supply chain situation frequently and in depth in 2022 - both the external situation and the improvements needed internally to improve business and financial performance.

The Supervisory Board supports the simplification of Philips' organizational structure, where the businesses are leading, supported by the regions and global functions, with more focused KPIs. The workforce reductions announced in October 2022 and January 2023 were difficult, yet necessary measures as the company as drives a major step-up in productivity, including focusing its R&D activities on fewer, yet more impactful projects. Philips will strive to implement these reductions with due respect for every employee affected and in line with all local rules and regulations.

Changes to the composition of the Supervisory Board

At the Annual General Meeting of Shareholders held in May 2022, the Supervisory Board was strengthened by the addition of Hema Verhagen and Sanjay Poonen as new members. With her proven track record in driving a customer-first company culture and a background in e-commerce logistics, Hema Verhagen has brought valued and new perspectives to the Supervisory Board, while Sanjay Poonen's extensive experience in enterprise IT and cloud- enabled business models has further strengthened the Supervisory Board's digital competencies. I also wish to thank Neelam Dhawan, who stepped down at the end of the 2022 AGM, for her long-term counsel and support.

Together with my fellow Supervisory Board members, I look forward to providing further oversight of Philips as the company addresses the key priorities for its recovery and at the same time continues to deliver 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. As members of the Supervisory Board, we 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 2022 and other relevant information on its functioning.

2022 focus areas and activities of the Supervisory Board

In 2022, Philips' performance continued to be impacted by the Philips Respironics voluntary recall and operational and supply challenges, such a shortage of electronic components, longer shipping timelines, and disruptions at suppliers caused by the COVID-19 pandemic, which also affected Philips' manufacturing sites in China. The company also faced other headwinds, such as inflationary pressure and the Russia-Ukraine war. These headwinds negatively impacted the conversion of the company's strong order book into sales and the 2022 margin. Furthermore, performance continued to be negatively impacted by the consequences of the Philips Respironics voluntary recall notification in the Sleep & Respiratory Care business in June 2021.

Against this background, the Supervisory Board was regularly updated by management on the company's performance and outlook, and the Supervisory Board engaged in discussions with management on improving performance, among others by addressing the patient safety and accelerating our focus on quality, resilience and quality of the supply chain operations and simplifying the ways of working at Philips to improve performance and increase productivity and agility. Near term and longer-term actions to strengthen the supply chain resilience, as proposed by management, were reviewed 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 2022, the Supervisory Board devoted considerable time to the Philips Respironics voluntary recall, as a recurring agenda item for each of its (regular) meetings. The Supervisory Board discussed and tracked the progress made with the repair and replacement program, as well as the comprehensive test and research approach for the CPAP, BiPAP and mechanical ventilator devices affected. Putting the interest of patients first, the Supervisory Board asked management to keep 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, such as the ongoing engagements with the US Food and Drug Administration (FDA) and other competent authorities globally, discussions with the US Department of Justice (DOJ), acting on behalf of the FDA regarding the consent decree, as well as 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 classaction lawsuits and individual personal injury claims in which Philips Respironics is a defendant.

Recognizing the importance of patient safety and quality of products and solutions sold by the Philips Group generally, significant time was spent in 2022 on reviewing and tracking progress of the company-wide program launched in 2021 ('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.

The Supervisory Board carefully considered the CEO succession planning and ran an extensive selection and evaluation process, supported by an external executive search firm, during which various scenarios were considered to ensure the best outcome. Following the completion of this process in which both internal and external candidates were considered and evaluated, the Supervisory Board unanimously concluded that Mr Roy Jakobs was the best candidate. The Supervisory Board subsequently nominated Mr Jakobs as the new CEO/ President of the company effective October 15, 2022, to allow for him to take full ownership of the 2023 budget and business plan. The Supervisory Board is very pleased that Philips' shareholders appointed Mr Jakobs at the Extraordinary General Meeting of Shareholders (with 99.77% of our shareholders voting favor) held on September 30, 2022. Since the appointment of Mr Jakobs, the Supervisory Board has been working closely with him on his key priorities to further improve and strengthen Philips' performance as a leading health technology company, which priorities include: (i) further deepening the patient safety and quality capability across the company, which includes the completion of the Philips Respironics voluntary recall; (ii) leading the Philips Group to resume its profitable growth trajectory by addressing current headwinds, including strengthening the supply chain resilience as noted above; and (iii) simplification of the organization to improve performance and productivity.

Following Mr Jakobs' appointment, the Supervisory Board and the Board of Management 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, as presented on January 30, 2023. This plan is designed to restore sales growth and improvement of profitability, including the strategic plans and priorities of each of the segments Diagnosis & Treatment, Connected Care and Personal Health. These interactions led to the company's ambition and productivity initiatives, restructuring and other actions designed to improve its supply operations and performance, as well as its plans to invest in quality, simplify ways of working, remove organizational complexity by putting businesses with single accountability in the lead, enabled by strong regions and lean functions, and reduce operating expenses, as publicly announced by management on October 24, 2022 and January 30, 2023. Furthermore, the number of key performance indicators that is used to track the company's performance will be significantly reduced. In this context, the Supervisory Board is also pleased with the strengthening of the Executive Committee with the appointments of Steve C. de Baca and Jeff DiLullo as members of the Executive Committee, in their roles as Chief Patient Safety & Quality Officer and Chief Market Leader of Philips North America respectively. This includes the immediate reduction of around 4,000 roles globally across the organization announced on October 24, 2022 and the further reduction of the company's workforce by around 6,000 roles globally by 2025 announced on January 30, 2023.

The overview below indicates other key matters that were reviewed and/or discussed during one or more meetings in the course of 2022:

•	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 underperformance of the company. These measures include securing a EUR 1 billion credit facility and executing the settlement of the forward contracts (entered into as part of the share repurchase program announced on July 26, 2021) at the original settlement dates in 2023 and 2024 instead of in 2022 as announced on April 28, 2022.
•	Geopolitical developments and their impact on Philips' business, in particular the impact of the Russia-Ukraine war 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 2022 key performance indicators for the Executive Committee versus target.
•	Philips' annual management commitments, including the 2023 key performance indicators for the Executive Committee, the 2023 targets for such key performance indicators, and the annual operating plan for 2023.
•	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, refer 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.
•	Engagement with shareholders on the remuneration for the Board of Management following the negative advisory shareholder vote against the 2021 Remuneration Report at the 2022 Annual General Meeting of Shareholders. See the Letter from the Remuneration Committee Chair, starting on page 116 below for more information.
•	Succession planning for the Supervisory Board, as well as for the Board of Management and Executive Committee, including the appointments of Wim Appelo, Steve C. de Baca and Jeff DiLullo 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.
•	Following best practices, an evaluation of the CEO succession process, with a satisfactory outcome.
•	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.
•	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 2022 Annual General Meeting of Shareholders (held on May 10, 2022) and the Extraordinary General Meeting of Shareholders (held on September 30, 2022) and the proposed agenda for the 2023 Annual General Meeting of Shareholders (to be held on May 9, 2023).
•	The re-appointment, at the 2022 Annual General Meeting of Shareholders, of Ernst & Young Accountants LLP as the company's external auditor for a term of one year, starting on January 1, 2023.
•	The proposed re-appointment of Ernst & Young Accountants LLP as the company's external auditor for a term of one year, starting on January 1, 2024, and the proposed appointment of PricewaterhouseCoopers Accountants N.V. as the company's new external accountant, starting on January 1, 2025 for a term of four years. Both proposals will be submitted to the shareholders for their approval at the 2023 Annual General Meeting of Shareholders.
•	The market environment for global M&A activities that has slowed down in the second half of 2022 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 also conducted 'deep dives' into the strategy and performance of:

•	The Image Guided Therapy businesses; and
•	Philips North America and Philips International Markets, including market trends, business performance and key strategic and transformation initiatives and priorities.

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

Supervisory Board meetings and attendance

In 2022, 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 met regularly for bilateral discussions about the company's progress on a variety of matters. Herna Verhagen and Sanjay Poonen were appointed to the Supervisory Board with effect from May 10, 2022. They followed an induction program and interacted with the members of the Board of Management and various Executive Committee members for deep dives on strategy, finance and investor relations, governance and legal affairs.

The Supervisory Board meetings were well attended in 2022. All Supervisory Board members were present during the Supervisory Board meetings in 2022. 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 to the formal meetings of the Board and its committees, the Board and Committee members 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 May 2022, some Supervisory Board members visited Philips' Personal Health site in Drachten, the Netherlands and some Supervisory Board members participated in an innovation tour at the Philips site at the High Tech Campus in Eindhoven. In the course of 2022, various Supervisory Board members visited Philips' Diagnosis & Treatment manufacturing site in Best, the Netherlands, including a visit to the Customer Experience Center. Furthermore, in June 2022, the Supervisory Board visited the headquarters of Philips North America in Cambridge, Massachusetts, US, where the North American Research &

Development Center of the company is based and met with several key members of the North American management team.

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 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. In 2022, there were a number of changes to the composition of the Supervisory Board, all effective as per (the end of) the 2022 Annual General Meeting of Shareholders. Herna Verhagen and Sanjay Poonen were each appointed to the Supervisory Board for a term of four years. Paul Stoffels and Marc Harrison were each re-appointed for a term of four years. The term of appointment of Neelam Dhawan expired.

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, starting on page 115. The Supervisory Board spent time in 2022 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 which 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.

Effective 2022, (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 2022, 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 2022 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 topics such as the composition, size, skills and experience, geographical coverage and diversity of the Supervisory Board, stakeholder oversight, strategic oversight, the management, dynamics and focus of the meetings of the Supervisory Board, the effectiveness of the Supervisory Board's oversight of various aspects of the company's business, risk management, succession planning and people oversight, the CEO succession process, the engagement with management and 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 evaluation indicated that the Supervisory Board continues to be a well-functioning team, as also demonstrated during the expedited CEO succession process in 2022. The results demonstrated that the Supervisory Board is of appropriate size and benefits from different expertise, diversity, and international geographical representation. Suggestions were made to further strengthen the functioning of the Supervisory Board and its Committees going forward. The Supervisory Board stresses the importance of going deep in some important matters, in which the Committees play a key role too. This is in full alignment with the current focus of management on patient safety and quality, supply chain reliability and performance and simplification of the organization, with the aim to enhance organic growth and people and patient centric innovation. Early 2023, the Chairman of the Supervisory Board also discussed the results of the self-evaluation with each of the individual members of the Supervisory Board; the Chairman also discussed the evaluation of his own functioning with the Vice -Chairman.

Key topics that the Supervisory Board and its Committees will focus on in 2023 include tracking progress on certain aspects of the Philips Respironics voluntary recall notification (including but not limited to the repair and replace program and the testing program), the internal Accelerating Patient Safety and Quality program launched in 2021, with respect to improving the resilience of the supply chain and the company's performance and cash flow generation. Furthermore, in 2023, the Supervisory Board will focus on the company's liquidity position and financial headroom and prepare updates to the remuneration policies for the Supervisory Board and the Board of Management that will be submitted to the 2024 Annual General Meeting of Shareholders, and track the progress made with the simplification of the company's operating model with the aim of reducing complexity and clarifying accountabilities and tracking the reduction of roles as announced by the company on October 24, 2022 and January 30, 2023 respectively.

The periodic use of an external facilitator to measure the functioning of the Supervisory Board will continue to be considered in the future.

Supervisory Board composition

	Feike Sijbesma	Paul Stoffels	Chua Sock Koong	Liz Doherty
Year of birth	1959	1962	1957	1957
Gender	Male	Male	Female	Female
Nationality	Dutch	Belgian	Singaporean	British/Irish
Initial appointment date	2020	2018	2021	2019
Date of (last) (re-)appointment	n/a	2022	n/a	n/a
End of current term	2024	2026	2025	2023
Independent	yes	yes	yes	yes
Committee memberships ²⁾	RC & CGNSC	RC & CGNSC	AC	AC
Attendance at Supervisory Board meetings	(11/11)	(11/11)	(11/11)	(11/11)
Attendance at committee meetings	RC (7/7)	RC (7/7)	AC (7/7)	AC (7/7)
	CGNSC (9/9)	CGNSC (9/9)
General management	yes	yes	yes	yes
International business	yes	yes	yes	yes
ESG & sustainability	yes
(Consumer) health and medical technology	yes	yes		yes
Patient safety, quality & regulatory and product development		yes
Finance and accounting	yes	yes	yes	yes
Human Resources	yes	yes	yes
Manufacturing and supply chain	yes	yes		yes
Information technology and digital	yes	yes	yes	yes
Marketing	yes	yes
Governmental and public affairs	yes	yes	yes	yes

	Marc Harrison	Peter Loscher	Indra Nooyi	Sanjay Poonen ¹⁾
Year of birth	1964	1957	1955	1969
Gender	Male	Male	Female	Male
Nationality	American	Austrian	American	American
Initial appointment date	2018	2020	2021	2022
Date of (last) (re-)appointment	2022	n/a	n/a	n/a
End of current term	2026	2024	2025	2026
Independent	yes	yes	yes	yes
Committee memberships ²⁾	QRC	AC & QRC	CGNSC	AC ³⁾
Attendance at Supervisory Board meetings	(11/11)	(11/11)	(11/11)	(8/8)
Attendance at committee meetings	QRC (6/6)	AC (7/7)	CGNSC (8/9)	AC (4/4)
		QRC (6/6)
General management	yes	yes	yes	yes
International business	yes	yes	yes	yes
ESG & sustainability		yes	yes
(Consumer) health and medical technology	yes	yes
Patient safety, quality & regulatory and product development	yes	yes
Finance and accounting	yes	yes	yes	yes
Human Resources	yes	yes	yes	yes
Manufacturing and supply chain		yes	yes
Information technology and digital	yes	yes	yes	yes
Marketing		yes	yes	yes
Governmental and public affairs	yes	yes	yes

	David Pyott	Herna Verhagen ¹⁾
Year of birth	1953	1966
Gender	Male	Female
Nationality	British/ American	Dutch
Initial appointment date	2015	2022
Date of (last) (re-)appointment	2019	n/a
End of current term	2023	2026
Independent	yes	yes
Committee memberships ²⁾	RC & QRC	RC ⁴⁾
Attendance at Supervisory Board meetings	(11/11)	(8/8)
Attendance at committee meetings	RC (7/7)	RC (5/5)
	QRC (6/6)
General management	yes	yes
International business	yes	yes
ESG & sustainability		yes
(Consumer) health and medical technology	yes
Patient safety, quality & regulatory and product development	yes
Finance and accounting	yes	yes
Human Resources	yes	yes
Manufacturing and supply chain
Information technology and digital		yes
Marketing	yes	yes
Governmental and public affairs		yes

¹⁾ Appointed as member of the Supervisory Board with effect from May 10, 2022
²⁾ CGNSC: Corporate Governance & Nomination and Selection Committee; AC: Audit Committee; RC: Remuneration Committee; QRC: Quality & Regulatory Committee
³⁾ Sanjay Poonen joined the Audit Committee in the course of 2022
⁴⁾ Herna Verhagen joined the Remuneration Committee in the course of 2022

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 2022

The financial statements of the company for 2022, 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).

We recommend to shareholders that they adopt the 2022 financial statements. We likewise recommend to shareholders that they adopt the proposal of the Board of Management to make a distribution of declare a dividend of EUR 0.85 per common share, against retained earnings, and to distribute such dividend in shares.

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 2022.

February 21, 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

Further information

To gain a better understanding of the responsibilities of the Supervisory Board and the internal regulations and procedures governing its functioning and that of its committees, please refer to Corporate governance, starting on page 132 and to the following documents published on the company's website:

•	Articles of Association
•	Rules of Procedure of the Supervisory Board, including the Charters of the Supervisory Board committees
•	Diversity Policy for the Supervisory Board, Board of Management and Executive Committee

8.1 Report of the Corporate Governance and Nomination & Selection Committee

The Corporate Governance and Nomination & Selection Committee is chaired by Feike Sijbesma. Its other members are Paul Stoffels and Indra Nooyi. The Committee is responsible for the review of selection criteria and appointment procedures for the Board of Management, the Executive Committee, certain other key management positions, as well as the Supervisory Board.

In 2022, the Corporate Governance and Nomination & Selection Committee held nine meetings and all Committee members attended these meetings, with the exception of one member unable to attend the meeting in August 2022. Furthermore, the Committee had numerous additional special meetings in 2022, in particular on the topic of the CEO succession process, which were attended by all Committee members.

The Committee devoted time to the appointment or reappointment of candidates to fill current and future vacancies on the Supervisory Board. Following those consultations, it prepared decisions and advised the Supervisory Board on candidates for appointment. This resulted in the appointment of Herna Verhagen and Sanjay Poonen as members of the Supervisory Board at the 2022 Annual General Meeting of Shareholders.

Under its responsibility for the selection criteria and appointment procedures for Philips' senior management, the Committee reviewed the functioning of the Board of Management and its individual members, the Executive Committee succession plans and emergency candidates for key roles in the company. The conclusions from these reviews were taken into account in the performance evaluation of the Board of Management and Executive Committee members and the selection of succession candidates. Reference is made to 2022 Annual Incentive, setting out the performance review of the Board of Management and the Executive Committee members by the Remuneration Committee.

In 2022, the Committee devoted ample time to the selection and appointment of the new CEO/President of the company as discussed above in the report of the Supervisory Board. This resulted in the appointment of Mr Roy Jakobs as President/CEO and member of the Board of Management at the Extraordinary General Meeting of Shareholders on September 30, 2022. Furthermore, the Committee devoted time in 2022 to the selection and/or appointment of candidates to fill other current and future vacancies on the Board of Management and the Executive Committee. This resulted in: the appointment of Willem Appelo as a member of the Executive Committee in his role as Chief Operations Officer (succeeding Sophie Bechu who stepped down from the Executive Committee), effective September 2022; the appointment of Steve C. de Baca as a member of the Executive Committee in his role as Chief Patient Safety & Quality Officer, effective February 6, 2023; and the appointment of Jeff DiLullo as a member of the Executive Committee in his role as Chief Market Leader of Philips North America (succeeding Vitor Rocha who left the company), also effective February 6, 2023. As announced on December 8, 2022, Kees Wesdorp left the company on January 1, 2023, with Bert van Meurs (Chief Business Leader for the Image Guided Therapy businesses) temporarily expanding his role to include the leadership of the Precision Diagnosis businesses.

With respect to corporate governance matters, the Committee discussed relevant developments and legislative changes, including the revised Dutch Corporate Governance Code and the regulatory regimes around disclosure requirements related to ESG. Finally, the Committee reviewed the Charter of the Corporate Governance and Nomination and Selection Committee and concluded it remains appropriate.

With respect to the productivity initiatives and other actions to improve the company's performance (including the unfortunate but necessary reduction of roles), the Committee was updated by management on the impact on employees and the phased deployment approach and reviewed the simplification of the organization.

Diversity

The Diversity Policy for the Supervisory Board, Board of Management and Executive Committee was adopted in 2017 and revised in early 2023, and is published on the company website. The Committee periodically assesses the Diversity Policy and the size and composition of the Supervisory Board and makes recommendations, if relevant, relating to the profile for the Supervisory Board.

The criteria in the Diversity Policy aim to ensure that the Supervisory Board, the Board of Management and the Executive Committee have a sufficient diversity of views and the expertise needed for a good understanding of current affairs and longer-term risks and opportunities related to the company's business. The nature and complexity of the company's business is taken into account when assessing optimal diversity, as well as the social and environmental context in which the company operates.

Pursuant to the Diversity Policy, the selection of candidates for appointment to the Supervisory Board, Board of Management and Executive Committee is based on merit. With due regard to the criteria set forth in the Diversity Policy, the company shall seek to fill vacancies by considering candidates that represent a diversity of (among others) ages, gender, identities and educational and professional backgrounds. Please refer to the Supervisory Board report, starting on page 107 for more information on the diversity of the Supervisory Board.

The Diversity Policy includes the Supervisory Board's aim that the Board of Management and the Executive Committee comprise members with different nationalities and (cultural) backgrounds, working experiences or otherwise diverse qualities. Effective 2022, Dutch law requires listed companies to set appropriate and ambitious gender diversity targets for the Board of Management and for a management level of a seniority to be determined by the company. To this end, the Diversity Policy 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, please refer to Inclusion & Diversity, starting on page 65.

8.2 Report of the Remuneration Committee

8.2.1 Letter from the Remuneration Committee Chair

Dear Stakeholder,

On behalf of the Remuneration Committee, I am pleased to report on the Committee's activities in 2022 and to present the 2022 Remuneration Report on behalf of the Board of Management and the Supervisory Board.

The Remuneration Committee has been very mindful of the fact that during the Annual General Meeting of Shareholders (AGM) held in 2022, a majority of the advisory votes were cast against the 2021 Remuneration Report. We have taken this negative advisory vote very seriously and that is why we reached out to the company's shareholders immediately after the 2022 AGM, and further engaged with our shareholders in the second half of 2022.1, as the Chairman of the Remuneration Committee, together with Investor Relations, held discussions with thirteen of our larger shareholders (in aggregate representing approximately 45% of the issued share capital) and with three of the most representative institutional advisory organizations.

Feedback received from our shareholders

Most of our shareholders understand that under certain circumstances the Supervisory Board should be able to adjust the Annual Incentive (Al) and Long-Term Incentive (LTI) payouts, but they did express their specific concern regarding the adjustments made for the members of the Board of Management over 2021 also in view of the impact the year had on our shareholders. Our shareholders, however, did understand the discretionary adjustments made for the wider employee workforce, particularly to address retention risks.

Furthermore, they requested us to be more transparent in the way we disclose our individual performance realization, especially given the above-target realization over 2021 for the CEO. Finally, they requested us to be transparent about the way the 2021 adjustments would be reflected in the company performance targets set for the 2022 Al.

How have we addressed this feedback

Naturally the Al and LTI pay-out was impacted by the low company performance. As explained in our 2021 Remuneration Report and during our engagements ahead of the 2022 AGM we have applied the adjustments in the best interest of the company and employees to address retention risks in view of the challenging circumstances our people had and still have to work in. However, in discussions with our shareholders after the 2022 AGM, we concluded that in making adjustments for the members of the Board of Management, a stronger alignment with the interest of our shareholders should be applied. Therefore, the Supervisory Board reconsidered the company's long standing practice, and decided to no longer automatically apply a uniform Al and LTI adjustment methodology for the entire company and effectively de-couple the remuneration approaches for the members of the Board of Management and for the broader workforce.

We still have the opinion that it is good to have a strong alignment in remuneration between members of the Board of Management and our broader workforce, but we realize that in certain circumstances addressing the retention risks of our own people can result in a disalignment between the remuneration of the members of the Board of Management and the interest of the shareholders. Therefore we have adjusted our approach.

A decision we have taken - already prior to the 2022 AGM - to increase clarity on potential adjustments and reward for performance, is to set targets going forward, starting with the 2022 Al based on our adjusted EBITA ^*) metric reported externally and as such apply a well- defined and disclosed set of adjustments (please refer to Reconciliation of non-IFRS information, starting on page 246 for an exact definition of the performance metric).

In the context of our company's performance in 2022 and to align with the shareholder experience, the Supervisory Board and Board of Management have jointly concluded that it was appropriate to waive any 2022 Al pay-out and any vesting of the 2020 LTI grant of the current members of the Board of Management. Specifically, this means that an amount of EUR 236,957 of the Al and an amount of EUR 188,994 of the LTI was waived.

For transparency purposes, we provided an enhanced disclosure of the individual performance realization. While there would have been a payout based on the individual performance realization, there was no Al payout for the financial performance criteria because the realized performance is below the respective thresholds. For the avoidance of doubt we confirm that the financial targets that were set for 2022 took into account the adjustments made in relation to the 2021 remuneration in a way that the members of the Board of Management would not benefit twice from these adjustments.

Other feedback received during these (and future) shareholder engagements, including but not limited to enhanced disclosures, pay-out principles and thresholds and, an evaluation of our claw back conditions, will also be taken into account when preparing for a renewal of our shareholders' mandate on our remuneration policies (to be voted on during our 2024 AGM). As I have mentioned in my letter last year, it is our purpose at Philips to improve people's health and well-being through meaningful innovation. As a Remuneration Committee we want to assure that our remuneration policy supports this purpose.

CEO remuneration

Per October 15, 2022, Roy Jakobs was appointed as CEO of the company. The annual base compensation of Mr Jakobs was set at EUR 1,200,000, below the base salary of his predecessor, and in line with Philips' remuneration policy, but just below the median of our Quantum Peer Group. Upon his appointment, Mr Jakobs received performance shares with a grant value of EUR 314,137, which equals his 2022 CEO LTI grant value pro-rated for the time in role in 2022. The 2022 LTI grant that Mr Jakobs received as part of the remuneration, in his previous role, was likewise pro-rated for the time in role and until he took over the role as CEO. Our 2022 Remuneration Report also includes a description of the remuneration (to be) received by the former CEO after his succession under his services agreement terminating on April 30, 2023. All payments are in line with contractual obligations.

The composition of the Remuneration Committee and its activities

The Remuneration Committee is chaired by Paul Stoffels. Its other members are David Pyott, Herna Verhagen and Feike Sijbesma. The Committee is responsible for preparing decisions of the Supervisory Board on the remuneration of individual members of the Board of Management and the Executive Committee, as well as the policies governing this remuneration. In performing its duties and responsibilities, the Remuneration Committee is assisted by an external consultant and an in-house remuneration expert. For a full overview of the responsibilities of the Committee, please refer to the Charter of the Remuneration Committee, as set forth in Chapter 3 of the Rules of Procedure of the Supervisory Board (which are published on the company's website). Our annual Remuneration Committee cycle enables us to have an effective decision-making process supporting the determination, review and implementation of the Remuneration Policy. The Committee met seven times in 2022. All Committee members were present during these meetings.

I look forward to presenting this Remuneration report at our annual General Meeting of Shareholders.

On behalf of the Remuneration Committee,

Paul Stoffels, Chairman of the Remuneration Committee

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

8.2.2 Remuneration report 2022

In this Remuneration Report, the Supervisory Board provides a comprehensive overview, in accordance with article 2:135b of the Dutch Civil Code, of the remuneration paid and owed to the individual members of the Board of Management and the Supervisory Board respectively in the financial year 2022. The report will also be published as a stand-alone document on the company's website after the 2023 Annual General Meeting of Shareholders, the agenda of which will include an advisory vote on this Remuneration Report.

Board of Management

Summary of 2020 Remuneration Policy

The Remuneration Policy and Long-Term Incentive Plan for the Board of Management have been adopted and approved respectively by the Annual General Meeting of Shareholders 2020, which took place on April 30, 2020.

The objectives of the Remuneration Policy for the Board of Management are: to focus them on delivering on our purpose and strategy, to motivate and retain them, and to create stakeholder value.

Thus, the Remuneration Policy:

•

Supports improving the company's overall performance and enhancing the long-term value of the company;

•

Directly supports our purpose by:

a)	linking a part of remuneration to achieving our strategic imperatives through the criteria and targets included in the Annual and Long-Term Incentives;
b)	offering market competitive compensation compared to a peer group of business competitors and companies we compete with for executive talent;
c)	enabling us to motivate, retain and attract world-class talent in order to support our purpose of improving people's health and well-being through meaningful innovation and our goal of addressing our customers' healthcare challenges (delivering on the Quadruple Aim);
d)	stimulating share ownership to create alignment with shareholders and encourage employees to act as stewards and ambassadors of the company;

•

Encourages the company and its employees to act responsibly and sustainably;

•

Delivers value for our stakeholders, such as shareholders, customers, consumers and employees, by continuously engaging with them and make a positive contribution to society at large;

•

Leads to fair and internally consistent pay levels by taking into account internal pay ratios.

Main elements of the Remuneration Policy

Compensation element	Purpose and link to strategy	Operation	Policy Level
Total Direct Compensation	To support the Remuneration Policy's objectives, the Total Direct Compensation includes a significant variable part in the form of an Annual Incentive (cash bonus) and Long-Term Incentive in the form of performance shares. As a result, a significant proportion of pay is 'at risk'.	The Supervisory Board ensures that a competitive remuneration package for Board-level executive talent is maintained and benchmarked. The positioning of Total Direct Compensation is reviewed against benchmark data : on an annual basis and is recalibrated if and when required. To establish this benchmark, data research is carried out each year on the compensation levels in the Quantum Peer Group.	Total direct remuneration is aimed at or close to, the median of the Quantum Peer Group.
Annual Base Compensation	Fixed cash payments intended to attract and retain executives of the highest caliber and to reflect their experience and scope of responsibilities.	Annual Base Compensation levels and any adjustments made by the Supervisory Board are based on factors including the median of Quantum Peer Group data and performance and experience of the individual member.	The individual salary levels are shown in this Remuneration Report.
		The annual review date for the base salary is typically before April 1.
Annual Incentive	Variable cash bonus incentive of which achievement is tied to specific financial and non-financial targets derived from the company's annual strategic plan. These targets are set at challenging levels and are partly linked to the results of the company (80% weighting) and partly to the contribution of the individual member (20% weighting).	The payout in any year relates to the achievements of the preceding year. Metrics are disclosed ex-ante in the Remuneration Report and there will be no retroactive changes to the selection of metrics used in any given year once approved by the Supervisory Board and disclosed.	President & CEO On-target: 100% Maximum: 200% of Annual Base Compensation. Other BoM members On-target: 80% Maximum: 160% of Annual Base Compensation.
Long-Term Incentive	Our Long-Term Incentives form a substantial part of total remuneration, with payouts contingent on achievement of challenging EPS targets, relative TSR performance against a high performing peer group and sustainability objectives that are directly aligned with our purpose to make the world healthier and more sustainable through innovation.	The annual award size is set by reference to a multiple of base salary. The actual number of performance shares to be awarded is determined by reference to the average of the closing price of the Royal Philips share on the day of publication of the first quarterly results and the four subsequent trading days. I Dependent upon the achievement of the performance conditions, cliff-vesting applies three years after the date of grant. During the vesting period, the value of dividends will be added to the performance shares in the form of shares. These dividend-equivalent shares will only be delivered to the extent that the award actually vests.	President & CEO Annual grant size: 200% of Annual Base Compensation. Other BoM members Annual grant size: 150% of Annual Base Compensation. Maximum vesting opportunity is 200% of the number of performance shares granted.
Mandatory share ownership and holding requirement	To further align the interests of executives to those of stakeholders and to motivate the achievement of sustained performance.	The guideline for members of the Board of Management is to hold at least a minimum shareholding in the company. Until this level has been reached the members of the Board of Management are required to retain all after-tax shares derived from any Long-Term Incentive Plan. All Board of Management members have reached the required share ownership level.	The minimum shareholding requirement is 400% of annual base compensation for the CEO and 300% for other members of the Board of Management.
		The shares granted under the Long-Term Incentive Plan shall be retained for a period of at least 5 years or until at least the end of their contract period if this period is shorter.
		The guideline does not require members of the Board of Management to purchase shares in order to reach the required share ownership level.
Pension	Pension plan and pension contribution intended to result into an appropriate level at retirement.	1. Defined Contribution plan with fixed contribution (applicable to all executives in the Netherlands - capped at EUR 114,866).
		2. Gross allowance of 25% of annual base compensation exceeding EUR 114,866.
		3. Temporary gross transition allowance offsetting historical plan changes.
Additional arrangements	To aid retention and remain competitive within the marketplace	Additional arrangements include expense and relocation allowances, medical insurance, accident insurance and company car arrangements, which are in line with other Philips executives in the Netherlands.
		The members of the Board of Management also benefit from coverage under the company's Directors & Officers (D&O) liability insurance.
		The company does not grant personal loans to members of the Board of Management.

Peer Groups

We use a Quantum Peer Group for remuneration benchmarking purposes, and therefore we aim to ensure that it includes business competitors, with an emphasis on companies in the healthcare, technology-related or consumer products area, and other companies we compete with for executive talent. The Quantum Peer Group consists of predominantly Dutch and other European companies, plus a minority (up to 25%) of US-based global companies, of comparable size, complexity and international scope. As of 2023, the Supervisory Board has decided to replace Atos with Baxter in the Quantum Peer Group.

Philips Group

Quantum Peer Group 2022

European companies		Dutch companies	US companies
Alcon	Reckitt Benckiser	Ahold Delhaize	Becton Dickinson
Atos	Roche	AkzoNobel	Boston Scientific
BAE Systems	Rolls-Royce	ASML	Danaher
Capgemini	Safran	Heineken	Medtronic
Ericsson	Siemens Healthineers		Stryker
Fresenius Medical Care	Smith & Nephew
GlaxoSmithKline	Thales
Nokia

In addition, we use a TSR Performance Peer Group to benchmark our relative Total Shareholder Return performance for LTI purposes and against our business peers in the health technology market and other markets in which we compete. The companies we have selected for this peer group include predominantly US-based healthcare companies. Given that a substantial number of relevant competitors are US-headquartered, the weighting of US-based healthcare companies is more notable than for the Quantum Peer Group.

Philips Group

TSR Performance Peer Group 2022

US companies	European companies	Japanese companies
Becton Dickinson	Alcon	Canon
Boston Scientific	Elekta	Terumo
Cerner	Fresenius Medical Care
Danaher	Getinge
General Electric	Siemens Healthineers
Hologic	Smith & Nephew
Johnson & Johnson	Reckitt Benckiser
Medtronic
Resmed
Stryker

The Remuneration Policy and the LTI Plan allow changes to the peer groups to be made by the Supervisory Board without further approval from the General Meeting of Shareholders in respect of up to three companies on an annual basis (for instance: following a delisting of a company or, a merger of two peer companies), or six companies in total during the four years following adoption and approval of the Remuneration Policy and the LTI Plan respectively (or, if earlier, until the adoption or approval of a revised Remuneration Policy or revised LTI Plan). Since the adoption of the current Remuneration Policy in 2020, the divestment of the Domestic Appliances business in 2021 led to the decision of the Supervisory Board to remove Electrolux, Essity and Henkel from the Quantum Performance Peer Group and replace them with Alcon, GlaxoSmithKline and Stryker. No changes were made to the TSR Peer Group during 2022. However, as Cerner has been delisted after its acquisition by Oracle in 2022, the Supervisory Board has selected Baxter to replace Cerner for the 2023 LTI grant. In addition, following the initial public offering of GE Healthcare, GE Healthcare is included in the TSR Performance Peer Group for the 2023 LTI grant, replacing General Electric.

Services agreements

The members of the Board of Management are engaged by means of a services agreement (overeenkomst van opdracht). Termination of the contract by either party is subject to six months' notice period. The severance payment is set at a maximum of one year's annual base compensation. No severance payment is due if the agreement is terminated early on behalf of the Board of Management member or in the case of urgent cause (dringende reden) as defined in article 7:678 and further of the Dutch Civil Code. The term of the services agreement is aligned with the term for which the relevant member has been appointed by the General Meeting of Shareholders (which is a maximum period of four years, it being understood that this period expires no later than at the end of the Annual General Meeting of Shareholders (AGM) held in the fourth year after the year of appointment).

Philips Group

Contract terms for current members 2022

	end of term
Roy Jakobs	AGM 2026
Abhijit Bhattacharya	AGM 2023
Marnix van Ginneken	AGM 2025

8.2.3 Remuneration of the Board of Management in 2022

The Supervisory Board has determined the 2022 pay-outs and awards to the members of the Board of Management, upon the proposal of the Remuneration Committee, in accordance with the 2020 Remuneration Policy and the 2020 LTI Plan. In addition, the Supervisory Board has determined the 2022 pay-out of the 2020 LTI Plan, of which the performance period ended on December 31, 2022. This was done in accordance with the LTI Plan as approved during the 2020 Annual General Meeting of Shareholders.

The Remuneration Committee annually conducts a scenario analysis. This includes the calculation of remuneration under different scenarios, whereby different Philips performance assumptions and corporate actions are examined. The Supervisory Board concluded that the relationship between the strategic objectives and the chosen performance criteria for the 2022 Annual Incentive, as well as for the 2020 LTI, were adequate.

However, in the context of our company's performance in 2022 and to align with the shareholder experience, the Supervisory Board and Board of Management have jointly concluded that it was appropriate to waive any 2022 Al pay-out and any vesting of the 2020 LTI grant of the members of the Board of Management.

This 2022 Remuneration Report also includes a description of the remuneration (to be) received by the former CEO of the company in respect of the period after October 15, 2022 (the date on which he was succeeded by Mr Jakobs) pursuant to and in line with the terms of his services agreement that was concluded and published on the company's website and presented to the AGM in view of his appointment in 2019 and which will terminate on April 30, 2023 (reference is made to 'Remuneration former CEO'). Accordingly, the former CEO will receive a partial 2022 Al pay-out and partial vesting of the 2020 LTI grant.

Annual Base Compensation

The annual base compensation of Roy Jakobs as new CEO was set at EUR 1,200,000 (below the base salary of his predecessor of EUR 1,325,000), in line with Philips' remuneration policy, following market practice and considering the complexity of the role. The annual base compensation of the other members of the Board of Management has been reviewed as part of the regular remuneration review. As a result, the annual base compensation of Abhijit Bhattacharya and Marnix van Ginneken has been increased per April 1, 2022, from EUR 795,000 to EUR 810,000 and EUR 615,000 to EUR 630,000, respectively. This increase was made to move the total compensation level closer to the market median level, as well as to reflect internal relativities.

2022 Annual Incentive

The Annual Incentive performance has been assessed based on company financial results as well as individual results. Details are as follows:

Company financial results (80% weighting)

In line with the Remuneration Policy, the company sets financial targets in advance of the year for all members of the Board of Management. For the year 2022, the financial targets set at Group level cover Comparable Sales Growth ^*) , Adjusted EBITA ^*) and Free Cash Flow ^*). The realized performance regrettably did not reach the threshold performance target on any of these three criteria.

		Assessment of performance
Financial performance criteria	Weighting as % of target Annual Incentive	threshold performance	target performance
Comparable Sales Growth ¹⁾	30%	1.8%	4.8%
Adjusted EBITA ¹⁾	30%	9.7%	12.7%
Free Cash Flow ¹⁾	20%	400	700
Total	80%

	Assessment of performance
Financial performance criteria	maximum performance	realized performance	resulting payout as % of target	Weighted pay-out as % of target Annual Incentive
Comparable Sales Growth ¹⁾	6.8%	(2.8)%	0.0%	0%
Adjusted EBITA ¹⁾	14.7%	7.4%	0.0%	0%
Free Cash Flow ¹⁾	1,000	(961)	0.0%	0%
Total				0%

¹⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Individual targets based on area of responsibility (20% weighting)

In the context of our company's performance in 2022 and to align with the shareholder experience, the members of the Supervisory Board and Board of Management jointly concluded that it was appropriate to waive any 2022 Al pay-out of the current members of the Board of Management, despite a positive realization on their individual performance criteria. Specifically, this means that aggregately an amount of EUR 236,957 (including an amount of EUR 35,881 related to the Al for Roy Jakobs in his role as Chief Business Leader Connected Care for the period January 1, 2022 up and until October 14, 2022) was waived.

For the sake of transparency, the individual performance criteria and assessment targets set at the beginning of the year, have been disclosed in the table below. To determine the payout levels for the individual goals, the Supervisory Board typically applies a holistic assessment as to the performance against the set goals as well as the relative weighting of the goal categories. These relative weightings are not in all cases equal, but such that any goal category remains relevant and aligned with the strategic priorities for the year.

Board of Management Member	Individual Performance criteria	Assessment of performance	Weighted pay-out as% of target Annual Incentive
	Strategy execution	• CEO and company transition plan completed before year end. Creating Value with Sustainable Impact plan, including interventions required, released on January 30, 2023
		• S&RC recall progressed to 90% production of remediation, DS1 testing data released in December
		• Patient Safety and Quality assessment done, plan formulated and released. New leader hired to join the Executive Committee
Roy Jakobs	Quality & operational excellence	• Customer delivery in Personal Health improved strongly. Health Systems without delivery still under continued pressure with significant inventory build as a result	14% (fully waived)
	People & organization	• Progress on improving gender balance in leadership positions, leadership hires, whilst employee engagement slightly behind on high-performance norms
	Customer results	• Good progress on customer satisfaction, customer NPS and Ratings & Reviews ahead on target
		• Progress made on value delivery from past Mergers & Acquisitions
		• Further strengthened sustaining engineering team in India
	Strategy execution	• Progress made on China localization plan. Growth plan India on track for long term ambition, but slightly behind in the year
Abhijit Bhattacharya		• Patient Safety and Quality key investments and support ensured to further accelerate our transformation to enhance quality and regulatory capabilities	13% (fully waived)
	Quality & operational excellence	• Productivity results not enough to close the margin gaps experienced, and inventory levels significantly increased on the back of unfinished products
	People & organization	• Progress on improving gender balance in leadership positions. Employee engagement slightly behind on high-performance norms
		• License income above target
	Strategy execution	• Significant order growth intake from large government deals, above target
		• Key foundational elements set to accelerate transformation to enhance quality and regulatory capabilities
		• Progress made on S&RC remediation
Marnix van Ginneken	Quality & operational excellence	• Further progress on consolidation and simplification of legal manufacturers and quality management systems in line with plan	17% (fully waived)
	People & organization	• Progress on improving gender balance in leadership positions. Employee engagement slightly behind on high-performance norms
	Environmental, Social & Governance / Sustainability	• ESG performance objectives above targets, including strong performance on Lives Improved, circular revenues and total emissions from operational carbon footprint

Overall this leads to the following total Annual Incentive realization and no payout:

Annual Incentive realization 2022 in EUR unless otherwise stated

	Annual incentive opportunity		Realized annual incentive
	Target as a % of base compensation	Target Annual Incentive	Financial performance (weighted pay-out %)
Roy Jakobs ²⁾	100%	256,438	0%
Abhijit Bhattacharya	80%	648,000	0%
Marnix van Ginneken	80%	504,000	0%

	Realized annual incentive
	Individual performance (weighted pay-out %)	Payout as % of target Annual Incentive ¹⁾	Realized annual incentive	Payout of annual incentive
Roy Jakobs ²⁾	69%	14%	35,260	0
Abhijit Bhattacharya	63%	13%	81,648	0
Marnix van Ginneken	84%	17%	84,168	0

¹⁾ Note that figures may not add up due to rounding.
²⁾ As per October 15, 2022, Roy Jakobs was appointed as CEO of the company.

2023 Annual Incentive

The Annual Incentive criteria consist of:

Financial criteria (80% weighting):

For the year 2023, the following financial indicators of the company's results are selected to ensure alignment with the key (strategic) priorities in the year:

•	Profit/margin
•	Revenue/growth
•	Cash flow

Individual criteria (20% weighting):

The contribution of the individual member is assessed based on areas of responsibility, for which annually two to a maximum of five performance categories are selected for each Board of Management member from the following list:

•	Customer results
•	Quality & operational excellence
•	Strategy execution
•	People & organization
•	ESG/Sustainability

For the year 2023, the following performance categories are selected to ensure alignment with the key (strategic) priorities in the year:

Board of Management Member	Selected performance categories
	• Customer Results
	• Quality & operational excellence
	• Strategy execution
Roy Jakobs	• People & organization
	• ESG/Sustainability
	• Customer Results
	• Quality & operational excellence
	• Strateav execution
Abhijit Bhattacharya	• People & organization
	• ESG/Sustainability
	• Customer Results
	• Oualitv & operational excellence
	• Strategy execution
Marnix van Ginneken	• People & organization
	• ESG/Sustainability

2020 Long-Term Incentive

The 3-year performance period of the 2020 LTI grant, consisting of performance shares, ended on December 31, 2022. The realization of this grant is based on TSR achievement, adjusted EPS growth and sustainability objectives.

In the context of our company's performance in 2022 and to align with the shareholder experience, the Supervisory Board and Board of Management jointly concluded that it was appropriate to waive any vesting of the 2020 LTI grant of the current members of the Board of Management, despite a positive performance achievement of the sustainability objectives. Specifically, this means that an amount of EUR 188,994 was waived.

Philips Group

Performance achievement and vesting levels

	achievement	weighting	vesting level	adjusted vesting level (waived)
TSR	0%	50%	0%	0%
EPS	0%	40%	0%	0%
Sustainability objectives	180%	10%	18%	0%
Total			18%	0%

TSR (50% weighting)

A ranking approach to TSR applies with Philips itself included in the TSR Performance Peer Group. TSR scores are calculated based on a local currency approach and by taking a 3-month averaging period prior to the start and end of the 3-year performance period. The performance incentive pay-out zone is outlined in the following table, which results in zero vesting for performance below the 40th percentile and 200% vesting for performance levels above the 75th percentile. The incentive zone range has been constructed such that the average pay-out over time is expected to be approximately 100%.

Philips Group

Performance-incentive zone for TSR in %

Position	20-14	13	12	11	10
Payout	0	60	80	100	120

Position	9	8	7	6	5-1
Payout	140	160	180	190	200

The TSR achieved by Philips during the performance period was -63.66%, using a start date of October 2019 and end date of December 2022. This resulted in Philips being positioned at rank 20 in the TSR performance peer group shown in the following table, resulting in a TSR achievement of 0%.

Following Oracle's acquisition of Cerner (completed June 2022), the Supervisory Board adopted the approach of recognizing Cerner's performance through the delisting date. As a proxy for future performance, reinvestment in an index of the remaining 19 peer companies was assumed (effectively retaining a peer group of 20 companies).

TSR results LTI Plan 2020 grant: (63.66%)

	total return	rank number
Danaher	85.47%	1
Hitachi	74.64%	2
ResMed	56.08%	3
Getinge	44.14%	4
Hologic	43.04%	5
Johnson & Johnson	37.70%	6
Siemens Healthineers	24.07%	7
De Longhi	15.22%	8
Terumo	14.05%	9
Stryker	13.15%	10
Cerner	7.70%	11
Boston Scientific	3.48%	12
Becton Dickinson	(1.36)%	13
General Electric	(3.63)%	14
Medtronic	(20.68)%	15
Smith & Nephew	(35.25)%	16
Groupe SEB	(39.46)%	17
Elekta	(48.80)%	18
Fresenius Medical	(51.91)%	19
Philips	(63.66)%	20

Adjusted EPS growth (40% weighting)

The LTI Plan EPS payouts and targets set at the beginning of the performance period were as follows:

Philips Group

LTI Plan EPS payouts

	Below threshold	Threshold	Target	Maximum	Actual
LTI plan EPS (euro)	<1.28	1.28	1.50	1.71	(1.43)
Payout	0%	40%	100%	200%	0%

In respect of the 2020 LTI grant, the LTI plan EPS is calculated based on a reported net income attributable to shareholders divided by the number of common shares outstanding (after deduction of treasury shares) on the day prior to the beginning of the performance period (to eliminate the impact of any share buyback, stock dividend, etc.), resulting in an EPS of EUR (1.82). Furthermore, as per the 2020 LTI Plan, the LTI Plan EPS includes adjustments to account for events that were not planned when targets were set or were outside management's control such as the profit and loss impact of acquisitions and divestitures (positive adjustment), the profit and loss impact of portfolio restructuring (positive impact), the profit and loss impact of legal charges (positive impact) and impact of foreign exchange variations versus plan (positive adjustment). Overall, this resulted in an LTI Plan EPS of EUR (1.43) based on adjusted net income from continuing operations, leading to a realization of 0% of target.

Sustainability objectives (10% weighting)

In order to further align the remuneration package for the Board of Management with our purpose and our ESG commitment, a sustainability criterion was introduced in the 2020 LTI Plan. Philips believes that ESG performance will improve the company's performance as a whole and, therefore, that it should be explicitly linked to (long-term) remuneration. The criteria are based on three Sustainable Development Goals (SDGs) as defined by the United Nations that are included in Philips' strategy on sustainability (no. 3,12 and 13). These three SDGs are translated in five underlying objectives, which are measured against a specific target range.

At the beginning of the performance period, challenging target ranges are set for each of the five objectives. Based on a point-to-point method, performance achievement is measured at the end of the performance period (i.e. 3 years) versus the beginning of the performance period. The pay-out is determined based on the following scheme:

No. of measures achieved within or above target zone	Pay-out %
1	0%
2	0%
3	50%-100%
4	100%-150%
5	150%-200%

The realized performance is described in the following table. As five out of five objectives are achieved within or above target zone, the payout % lies between 150% and 200% of target. Based on the overall performance of the five objectives, the Supervisory Board has assessed that a vesting level of 180% would reflect an appropriate positioning within the target range. However, as explained above, any vesting of the 2020 LTI grant of the Board of Management was waived, including vesting relating to the achieved sustainability objectives. While the strong performance on the sustainability objectives is therefore not resulting in any vesting for the current members of the Board of Management, it is celebrated by the company as it contributes to our purpose and our ESG commitment.

For more information on the realized performance on all five objectives please refer to our Environmental, Social and Governance, starting on page 45 and Assurance report of the independent auditor, starting on page 296.

Sustainability category	Underlying objective	Target range	realized performance
Ensure healthy lives and promote well-being for all at all ages (SDG3)	Targeted # of Lives Improved in year 3 ¹⁾	1,467 - 1,667 million	1,810 million	Above target zone
Lives Improved
Ensure sustainable consumption and production patterns (SDG12)	Targeted circular revenue in year 3 ²⁾	12.2% - 16.2%	18.1%	Above target zone
	Targeted waste to landfill in year 3 ³⁾	4.7%-0.1%	<0.1%	Within target zone
Circularity	Targeted closing the loop in year 3 ⁴⁾	14.5-23.0%	35.2%	Above target zone
Take urgent action to combat climate change and its impacts (SDG13)	Targeted CO ₂ equivalent (in Kilo Tonnes) in year 3	661 - 589 KTonnes CO ₂	438 Ktonnes CO ₂	Above target zone
Carbon footprint

¹⁾ Lives Improved by Philips products, solutions and services and care to those in underserved markets.
²⁾ Revenue from circular products (re-using materials).
³⁾ Avoiding production of waste materials.
⁴⁾ Taking back healthcare equipment.

2023 Long-Term Incentive

The vesting of the 2023 Long-Term Incentive grant consisting of performance shares is subject to performance over a period of 3 years and based on two financial criteria and one non-financial criterion:

•	50% weighting: Relative Total Shareholder Return ('TSR')
•	40% weighting: Adjusted Earnings per Share growth ^*) ('EPS')
•	10% weighting: Sustainability objectives

Please refer to the Long-Term Incentive Plan published on the company's website for more information.

^*) Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Pension

The following pension arrangement is in place for the members of the Board of Management working under a services agreement governed by Dutch law:

•	Flex ES Pension Plan in the Netherlands, which is a Collective Defined Contribution plan with a fixed contribution of (currently) 30.3% (including an own contribution of 2%) of the maximum pensionable salary of EUR 114,866 (effective January 1, 2022) minus the offset. The Flex ES Plan has a target retirement age of 68 and a target accrual rate of 1.85%;
•	A gross Pension Allowance equal to 25% of the base compensation exceeding EUR 114,866;
•	A temporary gross Transition Allowance, for a maximum period of 8 years (first 5 years in full; year 6: 75%; year 7: 50%, year 8: 25%) for members of the Board of Management who were participants of the former Executive Pension Plan. The level of the allowance is based on the age and salary of the Board member on December 31, 2014.

Total remuneration costs in 2022

The following table gives an overview of the costs incurred by the company in 2022 and 2021 in relation to the remuneration of the Board of Management. Costs related to performance shares are based on accounting standards (IFRS), which prescribe that costs for each LTI grant are recognized over the full (multi-year) vesting period, proportionate to the relevant fiscal year. Therefore, the costs for any year reflect costs of multiple LTI grants, as opposed to the actual value for the holder of an LTI grant at the vesting date. Hence, the waiving of the 2020 LTI grant by the current members of the Board of Management is not apparent in this table. Please refer to section 2020 Long-Term Incentive, starting on page 122 for more details on the actual vesting of the performance shares.

Philips Group

Remuneration Board of Management ¹⁾ in EUR

			Accounting costs in the year
	reported year	annual base compensation ²⁾	base compensation	realized annual incentive
R. Jakobs ⁷⁾	2022	1,200,000	256,438	waived
F.A. van	2022	1,325,000	1,041,849	208,370
Houten ⁷⁾	2021	1,325,000	1,325,000	850,915
A. Bhattacharva	2022	810,000	806,250	waived
	2021	795,000	790,000	360,103
M.J. van	2022	630,000	626,250	waived
Ginneken	2021	615,000	605,000	317,192
Total	2022		2,730,788	208,370
	2021		2,720,000	1,528,210

	Accounting costs in the year
	performance shares ³⁾	pension allowances ⁴⁾	pension scheme costs	other compensation ⁵⁾
R. Jakobs ⁷⁾	112,737 ⁸⁾	57,973	6,012	11,507
F.A. van	2.930,068	444,051	22,121	42,533
Houten ⁷⁾	2,626,295	565,403	27,462	57,224
A. Bhattacharva	763,140 ⁸⁾	237,250	28,133	61,308
	1,172,533	233,857	27,462	68,908
M.J. van	585,490 ⁸⁾	141,622	28,133	35,343
Ginneken	886,035	150,755	27,462	42,610
Total	4,391,434	880,896	84,398	150,691
	4,684,863	950,015	82,386	168,742

	Accounting costs in the year
	total cost	Fixed-variable remuneration ⁶⁾
R. Jakobs ⁷⁾	444,667	75%-25%
F.A. van	4,688,992	33%-67%
Houten ⁷⁾	5,452,299	36%-64%
A. Bhattacharva	1,896,081	60%-40%
	2,652,864	42%-58%
M.J. van	1,416,837	59%-41%
Ginneken	2,029,054	41%-59%
Total	8,446,577	46%-54%
	10,134,217	39%-61%

¹⁾ Reference date for board membership is December 31, 2022.
²⁾ Annual base compensation as incurred in the year, base compensation increases are reflected proportionally.
³⁾ Costs of performance shares are based on accounting standards (IFRS) and do not reflect the value of performance shares at the vesting/release date. For Mr. van Houten, the accounting costs for 2022 include additional costs for the accelerated accrual of the 2021 and 2022 LTI grant.
⁴⁾ The Pension Transition Allowances were maintained at the current level for Messrs van Houten and Bhattacharya for the term of their services agreements. The total pension cost of the company related to the pension arrangement (including the aforementioned Transition Allowance) is at a comparable level over a period of time to the pension costs under the former Executive Pension Plan.
⁵⁾ The stated amounts mainly concern (share of) allowances to members of the Board of Management that can be considered as remuneration. In a situation where such a share of an allowance can be considered as (indirect) remuneration (for example, private use of the company car), then the share is both valued and accounted for here. The method employed by the fiscal authorities is the starting point for the value stated.
⁶⁾ Fixed remuneration is determined as the sum of base compensation, pension allowances, pension scheme costs and other compensation. Variable remuneration is determined as the sum of realized annual incentive and performance shares.
⁷⁾ As per October 15, 2022, Roy Jakobs was appointed as CEO of the company. The table includes actual costs incurred in respect of the remuneration received by Mr Van Houten and Mr Jakobs, respectively, as CEO.
⁸⁾ Despite the waiving of the 2020 LTI grant, these amounts are not nil as they reflect accounting costs according to IFRS.

Remuneration former CEO

Per October 15, 2022, Frans van Houten, the former CEO, was succeeded by Roy Jakobs as CEO of the company.

In view of a proper handover, and pursuant to the contractual obligations of his services agreement (published on the company's website and presented to the AGM at the time of his re-appointment in 2019), the former CEO's services agreement will terminate on April 30, 2023. Until this time, the former CEO obviously remains available for advisory services. The termination of the agreement with the former CEO is fully in line with the applicable conditions as laid down in the services agreement agreed in 2019.

Up to the termination date of April 30, 2023, the former CEO will be receiving the base compensation, pension arrangement and other allowances following from the termination of his 2019 services agreement. For the period October 15, 2022 up and until December 31, 2022, the base compensation, pension expenditures and other compensation represent a value of EUR 283,151, EUR 126,695 and EUR 11,774 respectively. The partial 2022 Al pay-out and partial vesting of the 2020 LTI grant will be paid out, respectively vest, pursuant to contractual obligations in this regard. Therefore, the former CEO received an Al payment of EUR 265,000 for the year 2022 and his 2020 LTI grant vested at 18% of target in line with the 2020 LTI plan realization.

For the year 2023, the base compensation, pension expenditures and other compensation represent a value of EUR 435,616, EUR 194,986 and EUR 18,087 (expected) respectively. In respect of the remainder of his services agreement during 2023, the former CEO will be eligible for a prorated Al payment based on the actual 2023 financial performance and his individual performance at target according to the contractual obligations. At target this prorated Al represents a value of EUR 435,616. The former CEO will not receive an LTI grant for the year 2023. In accordance with the relevant provisions of his services agreement, the former CEO will receive a severance payment equal to one-year annual base compensation (amounting to EUR 1,325,000).

The former CEO's LTI grants with a vesting date after April 30, 2023 (granted in 2021 and 2022) will continue to vest at their regular vesting dates (April 30, 2024, and April 29, 2025 respectively) subject to the predetermined performance conditions. The termination of the services agreement with the former CEO did not trigger a tax expense for the company based on Article 32bb of the Dutch Wage Tax Act.

5-year development of CEO and BoM versus average employee remuneration costs compared to company performance

Internal pay ratios are a relevant input factor for determining the appropriateness of the implementation of the Remuneration Policy, as recognized in the Dutch Corporate Governance Code. For the 2022 financial year, the ratio between the annual total compensation for the CEO and the average annual total compensation for an employee was 55:1. The ratio decreased from 63:1 in 2021. Further details on the development of these amounts and ratios over time can be found in the following table. The average employee remuneration costs and company financial performance have been adjusted retroactively such that the Domestic Appliances business is excluded from the figures. Please note that the amounts presented in the following table reflect total remuneration costs to the company which differ from the actual payout to the members of the Board of Management.

Philips Group

Remuneration cost in EUR

	2018	2019	2020	2021	2022
Remuneration
CEO Total Remuneration Costs (A) ¹⁾	5,391,265	5,260,111	6,153,067	5,452,299	5,133,659
CFO Total Remuneration Costs	2,595,688	2,602,606	3,007,990	2,652,864	1,896,081
CLO Total Remuneration Costs	1,861,200	1,856,426	2,203,160	2,029,054	1,416,837
Average Employee (FTE) Total Remuneration Costs (B) ²⁾	89,843	92,645	91,455	86,853	93,373
Ratio A versus B ³⁾	60:1	57:1	67:1	63:1	55:1
Company performance
Annual TSR ⁴⁾	1.2%	25.6%	6.2%	(14.5)%	(60.0)%
Comparable Sales Growth% ⁵⁾	4.9%	4.5%	2.9%	(1.2)%	(2.8)%
Adjusted EBITA% ⁵⁾	13.3%	13.2%	13.2%	12.0%	7.4%
Free Cash Flow ⁵⁾	990	923	1,635	900	(961)

¹⁾ For 2022, CEO refers to Frans van Houten for the period up to October 15, 2022, and to Roy Jakobs for the period from October 15, 2022, onwards. For 2018 through 2021, CEO refers to Frans van Houten.
²⁾ Based on Employee benefit expenses (EUR 7.0 billion) divided by the average number of employees (74,451 FTE) as reported in Income from operations. This results in an average annual total compensation cost of EUR 93,373 per employee.
³⁾ A consideration when interpreting the ratios between CEO and average employee remuneration is that the remuneration of the CEO is more heavily dependent on variable compensation than the remuneration of the average employee at Philips. Furthermore, the costs of performance shares are based on accounting standards (IFRS) and the specific allocation of these costs to the year. As such, the total remuneration level and costs applicable to the CEO will vary more with Philips' financial performance than the remuneration level and costs applicable to the average employee. As a consequence, the ratio will increase when financial performance is strong and conversely decrease when financial performance is not as strong.
⁴⁾ Annual TSR was calculated in line with the method as used for the LTI plan (i.e. based on reinvested dividends and 3 month averaging)
⁵⁾ Non-IFRS financial measure. For the definition and reconciliation of the most directly comparable IFRS measure, refer to Reconciliation of non-IFRS information, starting on page 246.

Historical LTI grants and holdings

Number of performance shares (holdings)

Under the LTI Plan the current members of the Board of Management were granted 153,891 performance shares in 2022. The following table provides an overview at end December 2022 of performance share grants.

Philips Group

Number of performance shares (holdings) in number of shares unless otherwise stated

	grant date	number of shares originally granted	value at grant date	vesting date
R. Jakobs	5/6/2019	21,592 ²⁾	810,000	06/05/2022
	4/30/2020	17,704 ²⁾	706,250	30/04/2023
	4/30/2021	15,812 ²⁾	750,000	30/04/2024
	4/29/2022	37,630 ²⁾	930,000	29/04/2025
	10/28/2022	24,279	314,137	28/10/2025
F.A. van Houten ³⁾	5/6/2019	70,640	2,650,000	06/05/2022
	4/30/2020	66,431	2,650,000	30/04/2023
	4/30/2021	55,868	2,650,000	30/04/2024
	4/29/2022	107,227	2,650,000	29/04/2025
A. Bhattacharya	5/6/2019	31,388	1,177,500	06/05/2022
	4/30/2020	29,518	1,177,500	30/04/2023
	4/30/2021	25,141	1,192,500	30/04/2024
	4/29/2022	49,162	1,215,000	29/04/2025
M.J. van Ginneken	5/6/2019	22,991 ²⁾	862,500	06/05/2022
	4/30/2020	22,373	892,500	30/04/2023
	4/30/2021	19,448	922,500	30/04/2024
	4/29/2022	38,237	945,000	29/04/2025

	end of holding period	unvested opening balance at Jan. 1, 2022	number of shares awarded in 2022	(dividend) shares awarded	number of shares vested in 2022 ¹⁾
R. Jakobs	06/05/2022	22,979	-	-	8,717
	30/04/2025	18,399	-	674	-
	30/04/2026	16,105	-	590	-
	29/04/2027	-	37,630	1,379	-
	28/10/2027	-	24,279	-	-
F.A. van Houten ³⁾	06/05/2024	75,177	-	-	28,567
	30/04/2025	69,037	-	2,530	-
	30/04/2026	56,905	-	2,086	-
	29/04/2027	-	107,227	3,930	-
A. Bhattacharya	06/05/2024	33,404	-	-	12,693
	30/04/2025	30,676	-	1,124	-
	30/04/2026	25,608	-	939	-
	29/04/2027	-	49,162	1,802	-
M.J. van Ginneken	06/05/2024	24,467	-	-	9,298
	30/04/2025	23,251	-	852	-
	30/04/2026	19,809	-	726	-
	29/04/2027	-	38,237	1,401	-

	value at vesting date in 2022	unvested closing balance at Dec. 31, 2022
R. Jakobs	216,060	-
	-	19,073
	-	16,696
	-	39,009
	-	24,279
F.A. van Houten ³⁾	708,078	-
	-	71,567
	-	58,991
	-	111,157
A. Bhattacharya	314,626	-
	-	31,800
	-	26,547
	-	50,964
M.J. van Ginneken	230,456	-
	-	24,103
	-	20,535
	-	39,638

¹⁾ The shares vested in 2022 are subject to a 2-year holding
²⁾ Awarded before date of appointment as a member of the Board of Management
³⁾ Mr. Van Houten was not a member of the Board of Management on December 31, 2022. However for transparency purposes he is shown in this table

Number of stock options (holdings)

The tables below give an overview of the stock options held by the members of the Board of Management.

Philips Group

Stock options (holdings) in number of shares unless otherwise stated

	grant date	vesting date	exercise price	expiry date	opening balance at January 1, 2022
			(in EUR)
F.A. van Houten ¹⁾	23/04/2012	23/04/2015	14.82	23/04/2022	75,000
	29/01/2013	29/01/2014	22.43	29/01/2023	55,000
A. Bhattacharya	30/01/2012	30/01/2014	15.24	30/01/2022	20,000
	23/04/2012	23/04/2015	14.82	23/04/2022	16,500
M.J. van Ginneken	30/01/2012	30/01/2014	15.24	30/01/2022	10,000
	23/04/2012	23/04/2015	14.82	23/04/2022	8,400

	number of stock options awarded in 2022	number of stock options exercised in 2022	share price on exercise date	number of stock options expired in 2022	closing balance at December 31, 2022

F.A. van Houten ¹⁾	-	75,000	28.35	-	-
	-	-	-	-	55,000
A. Bhattacharya	-	20,000	28.85	-	-
	-	16,500	28.35	-	-
M.J. van Ginneken	-	10,000	28.35	-	-
	-	8,400	28.35	-	-

¹⁾ Mr. Van Houten was not a member of the Board of Management on December 31, 2022. However for transparency purposes he is shown in this table

Share ownership guidelines

To further align the interests to those of stakeholders and to motivate the achievement of sustained performance, the members of the Board of Management are bound to a minimum shareholding requirement. The table below shows the minimum shareholding requirement, annual base compensation, (vested) shares held and share ownership ratio of each Board of Management member as per December 31, 2022. Until the minimum shareholding requirement is reached, the members of the Board of Management are required to retain all after-tax performance shares that have vested, but they are not required to make additional share purchases.

Philips Group

Share ownership Board of Management

	Minimum shareholding requirement ¹⁾	Annual Base Compensation	(Vested) shares held	Ownership ratio ²⁾
R. Jakobs	4.0x	1,200,000	109,423	1.3x
A. Bhattacharya	3.0x	810,000	169,517	2.9x
M.J. van Ginneken	3.0x	630,000	123,914	2.8x

¹⁾ As ratio of Annual Base Compensation
²⁾ The Ownership ratio is calculated by multiplying the total shares held by the share price of EUR 14.00 (based on the closing share price of December 31, 2022) and dividing this by the base compensation.

Remuneration of the Supervisory Board in 2022

Summary of the Remuneration Policy

Please find below a brief summary of the Remuneration Policy for the Supervisory Board, as adopted at the Annual General Meeting of Shareholders 2020. The fee levels in this Remuneration Policy are the same as the Supervisory Board fee levels as determined by our shareholders at the 2018 Extraordinary General Meeting of Shareholders.

The overarching objective of the 2020 Remuneration Policy for the Supervisory Board is to enable its members to fulfill their duties, acting independently: supervising the policies, management and the general affairs of Philips, and supporting the Board of Management and the Executive Committee with advice. Also, the members of the Supervisory Board are guided by the company's long-term interests, with due observance of the company's purpose and strategy, taking into account the interests of shareholders and all other stakeholders.

To support the objectives mentioned above, the 2020 Remuneration Policy is aimed at attracting and retaining international Supervisory Board members of the highest caliber and with experience and expertise relevant to our health technology businesses.

In compliance with the Dutch Corporate Governance Code, the 2020 Remuneration Policy provides that the remuneration for the members of the Supervisory Board is not dependent on the results of the company and does not include any shares (or rights to shares). Nevertheless, members of the Supervisory Board are encouraged to hold shares in the company for the purpose of long-term investment to reflect their confidence in the future course of the company. The company does not grant personal loans to members of the Supervisory Board.

The Supervisory Board reviews fee levels in principle every three years in order to monitor and take account of market developments and manage expectations of our key stakeholders. The levels are aimed at broadly median market levels (and around the 25th percentile market level for the Chairman) paid in the Quantum Peer Group (as used in the 2020 Remuneration Policy for the Board of Management).

The following table provides an overview of the current remuneration structure:

Philips Group

Remuneration Supervisory Board in EUR

	Chair	Vice Chair	Member
Supervisory Board	155,000	115,000	100,000
Audit Committee	27,000	n.a.	18,000
Remuneration Committee	21,000	n.a.	14,000
Corporate Governance and Nomination & Selection Committee	21,000	n.a.	14,000
Quality & Regulatory Committee	21,000	n.a.	14,000
Attendance fee per inter-European trip	2,500	2,500	2,500
Attendance fee per intercontinental trip	5,000	5,000	5,000
Entitlement to Philips product arrangement	2,000	2,000	2,000
Annual fixed net expense allowance	11,345	2,269	2,269
Other travel expenses	As reasonably incurred

The members of the Supervisory Board benefit from coverage under the company's Directors and Officers (D&O) liability insurance.

Remuneration of the Supervisory Board in 2022

The individual members of the Supervisory Board received, by virtue of the positions they held, the following remuneration in 2022:

Philips Group

Remuneration of the Supervisory Board in EUR

	membership	committees	other compensation ¹⁾	total
F. Sijbesma	155,000	35,000	16,345	206,345
P.A.M. Stoffels	115,000	35,000	27,269	177,269
N. Dhawan	35,616	6,411	5,808	47,836
D.E.I. Pyott	100,000	35,000	17,269	152,269
A.M. Harrison	100,000	14,000	12,269	126,269
M.E. Doherty	100,000	27,000	24,769	151,769
P. Loscher	100,000	32,000	24,769	156,769
I. Nooyi	100,000	14,000	17,269	131,269
S.K. Chua	100,000	18,000	22,269	140,269
H. Verhagen	100,000	14,000	7,269	121,269
S. Poonen	100,000	18,000	17,269	135,269
Total	1,105,616	248,411	192,574	1,546,602

¹⁾ The amounts mentioned under other compensation relate to the fee for intercontinental travel, inter-European travel, the entitlement of EUR 2,000 under the Philips product arrangement and the annual fixed net expense allowance.

8.3 Report of the Audit Committee

The Audit Committee is chaired by Liz Doherty. Its other members are Peter Löscher, Chua Sock Koong and Sanjay Poonen (who joined in the course of 2022). Feike Sijbesma also regularly attends Audit Committee meetings. The Committee assists the Supervisory Board in fulfilling its supervisory responsibilities, including ensuring the integrity of the company's financial statements, reviewing the company's internal controls and overseeing the enterprise risk management process.

In 2022, the Audit Committee held five regular meetings and two extraordinary meetings, which all Audit Committee members attended.

The CEO, CFO, Chief ESG & Legal Officer, Head of Internal Audit, Chief Accounting Officer and external auditor (Ernst & Young Accountants LLP) were invited to and attended all regular meetings.

The Committee, together with the Chief ESG & Legal Officer, also met separately in private sessions with the CEO, CFO, Head of Internal Audit and external auditor after every regular quarterly meeting of the Committee. Prior to the Committee meetings, the Audit Committee chair met one-on-one with the Group Treasurer as well as with each of the management who regularly attend the Audit Committee meetings (as set out in the previous paragraph) and with the external auditor (Ernst & Young Accountants LLP).

The following overview highlights matters that were reviewed and/or discussed during Committee meetings in the course of, or in respect of, the financial year 2022:

•	The company's 2022 annual and interim financial statements and non-financial information, prior to publication. This review included the increase of EUR 165 million in the field action provision recorded in Q1 2022 in connection with the Philips Respironics voluntary recall notification related to the sound abatement foam in certain sleep and respiratory care products (announced on June 14, 2021), to cater for the higher expected volume of devices eligible for remediation, higher communication costs and potential higher cost of execution and to ensure the speed of the program in a volatile environment. The Committee also reviewed the increase of EUR 85 million in such provision recorded in Q4 2022, resulting from the increased proportion of new replacement devices in order to expedite the completion of the Philips Respironics voluntary recall. In each of the regular quarterly meetings of the Committee, the Committee reviewed the draft of the press release on the company's annual or interim financial statements.
•	Matters relating to accounting policies, financial risks, reporting and compliance with accounting standards. Key accounting judgments were discussed in-depth, and treatments were challenged, as were quality of earnings. Compliance with statutory and legal requirements and regulations, particularly in the financial domain, was also reviewed. Important findings, Philips' top and emerging areas of risk (including the internal auditor's reporting thereon, and the Chief ESG & Legal Officer's review of litigation and other claims, as well as material investigations), and follow-up actions and appropriate measures were examined thoroughly.
•	The company's cash flow generation, liquidity and financing headroom, and its ability under its capital structure and credit ratings to pay dividends and to fund capital investments, including share repurchases and other corporate finance initiatives. The Committee also monitored ongoing goodwill impairment indicators, in particular in the Sleep & Respiratory Care business, which resulted in a EUR 1.3 billion non-cash charge in Q3 2022 for the impairment of goodwill of this business. The non-cash charge of EUR 168 million that was recorded in Q3 2022 in connection with the initiative to enhance the productivity in Research & Development (among others, by discontinuing certain Research & Development projects) has also been reviewed by the Committee. Furthermore, the Committee reviewed the goodwill impairment tests performed in the fourth quarter, risk management, legal compliance, and developments in regulatory investigations, as well as legal proceedings, including antitrust investigations and related provisions.
•	The quarterly Internal Audit reports in which the Head of Internal Audit highlighted key findings of internal audits and fraud investigations by the Internal Audit Function in the previous quarter. The Committee discussed the adequacy of the remediation actions agreed with management and accountabilities for executing on these actions. In each meeting the Head of Internal Audit also presented the audit schedule for the upcoming quarter.
•	Specific finance topics, share repurchases, and in particular the settlement of forward contracts entered into as part of the share repurchase program announced on July 26, 2021, (at the original settlement dates in 2023 and 2024, instead of in 2022 as earlier announced), capital spending and the company's debt financing strategy (including the EUR 1 billion credit facility the company entered into as announced on October 24, 2022).
•	A post-investment review of projects in the areas of Information Technology, Research & Development, Real Estate, Operations and Restructuring, and assessment of the actual spend and timing of such projects against the original budget and timing.
•	Review and approval of the revised Internal Audit charter, annual audit plan and budget, audit scope, and its coverage in relation to the scope of the external audit, as well as the staffing, independence, performance and organizational structure of the Internal Audit Function.
•	The performance of the external auditor in conducting the group and statutory audits as required by the Auditor Policy and the results of the 2021 EY service quality review program for Philips. Taking into account this performance review, the Committee evaluated the proposal for re-appointment of Ernst & Young Accountants LLP. Subsequently, Ernst & Young Accountants LLP was re-appointed at the 2022 Annual General Meeting of Shareholders as external auditor for a term of one year, starting on January 1, 2023.
•	Later in the year, the Committee also evaluated the auditor tender process which resulted in the Committee's recommendation to the Supervisory Board to submit to the 2023 Annual General Meeting of Shareholders proposals to re-appoint Ernst & Young Accountants LLP as the company's external auditor for a term of one year, starting on January 1, 2024 and to appoint PricewaterhouseCoopers Accountants N.V. as the company's new external auditor, starting on January 1, 2025 for a term of four years.
•	The proposed 2022 external audit scope, including key audit areas, approach and fees, and non-audit services provided by the external auditor in conformity with the Philips Auditor Policy.
•	Review and challenge of the independence as well as the professional fitness and good standing of the external auditor and its engagement partners. For information on the fees of the Group auditor, please refer to Audit fees in the note Income from operations, starting on page 162.
•	The company's policy on business controls, legal compliance and the General Business Principles (including deployment). The Committee reviewed, discussed and monitored closely the company's internal control certification processes, and in particular, compliance with section 404 of the US Sarbanes-Oxley Act and its requirements regarding assessment, review and monitoring of internal controls. The Committee also reviewed the status of previously reported significant deficiencies and progress made with respect to the remediation thereof. It also discussed on a regular basis the developments in, and findings relating to, conduct resulting from investigations into alleged violations of the General Business Principles and, if required, any measures taken.
•	The company's structure and system on export controls and sanctions for compliance with the international sanctions and export controls.

Furthermore, the Committee received a report from the company's Head of Tax, updating the Committee on several tax aspects, including the company's effective tax rate, tax transparency and tax assets and liabilities.

In February 2023, the Committee reviewed, together with the other members of the Supervisory Board, the key audit matters and the critical audit matters identified by the auditor in relation to the 2022 financial statements included in the Annual Report 2022 and the Annual Report on Form 20-F respectively as well as the draft of the Annual Report 2022. In February 2023, the Committee also reviewed the draft of the company's 2022 Country Activity and Tax Report.

During each regular quarterly Audit Committee meeting, the Committee reviewed the quarterly report from the external auditor, in which the auditor set forth its findings and attention points during the relevant period. Apart from the Audit Committee meetings, the external auditor also attended all private sessions with the Audit Committee, where their observations were, if necessary, further discussed. The Annual Audit Letter was circulated to the full Supervisory Board, and planned actions to address the items raised were discussed with management in the subsequent Audit Committee meetings as well as in private sessions with management.

Finally, the Committee reviewed the Audit Committee Charter and concluded it remains appropriate.

8.4 Report of the Quality & Regulatory Committee

The Quality & Regulatory Committee was established in view of the importance of patient safety and the quality of the company's products, systems, services and solutions. The Committee provides broad oversight of compliance with the regulatory requirements that govern the development, manufacturing, marketing and servicing of the company's products, systems, services and solutions. The Quality & Regulatory Committee assists the Supervisory Board in fulfilling its oversight responsibilities in these areas. It is chaired by David Pyott and its members are Marc Harrison and Peter Löscher.

In 2022, the Quality & Regulatory Committee held six meetings and all Committee members attended these meetings. The Chief Executive Officer, the Chief ESG & Legal Officer, the Chief Operations Officer and the Chief Quality & Regulatory Officer were present during these meetings.

The following overview indicates some of the matters that were discussed during meetings in the course of 2022:

•	The company's Quality & Regulatory strategy, focusing on patients and customers to ensure the safety and efficacy of the company's products and solutions and the status and progress of the company's Accelerating Patient Safety and Quality program. For more information, please refer to Quality & Regulatory and patient safety, starting on page 70.
•	The Philips Respironics voluntary recall notification related to the sound abatement foam in certain sleep and respiratory care products (announced on June 14, 2021) in the company's Sleep & Respiratory Care business. Management regularly updated the Committee on the trend of the number of devices registered for remediation and on the progress of the repair and replace program for the affected devices, as well as actions taken to accelerate the remediation. The Committee reviewed aspects of this issue, such as the program governance to enable effective execution, ongoing engagements with the FDA and DOJ, among others, with respect to the 518(a) Notification order issued by the FDA on March 10, 2022, the investigation initiated by the DOJ to which Philips Respironics is subject, and the consent decree that is currently under discussion with the US Department of Justice (DOJ), acting on behalf of the FDA and engagements with other regulatory authorities globally. Furthermore, the Committee reviewed and discussed with management the engagement with and communication efforts to patients, physicians, customers and durable medical equipment providers, the testing program and its outcomes, and health hazard evaluations. The Committee also discussed the increases in the field action provision of EUR 165 million and EUR 85 million, respectively, as set out in more detail in the report of the Audit Committee above. Finally, management updated the Committee on two problems detected in corrected Trilogy 100/200 ventilators that had already been repaired, as announced by the company on November 21, 2022; the potential root causes of these issues were discussed between the Committee and management.
•	Management updated the Committee regularly with respect to other quality issues (other than the Philips Respironics voluntary recall notification mentioned in the previous bullet) and the Committee reviewed the progress made with solving and closing such other issues, including but not limited to the quality issue with respect to the pads of the HeartStart 1 devices (for which the company issued a Field Safety Notice on February 21, 2022).
•	Review of progress in the transformation of the company's Quality & Regulatory function, aimed at further strengthening expertise and capabilities within the company's Quality & Regulatory function.
•	Review of the progress made with global initiatives around the transformation, standardization and simplification of the company's structure and organizational processes relating to Quality Management Systems, Management Systems and regulated manufacturing sites (Legal Manufacturers).
•	The status and outcome of Quality & Regulatory-related investigations and inspections by regulatory authorities and Notified Bodies globally across the organization. This in particular covered findings, related matters and follow-up actions taken by the company to address these findings and includes the progress made with respect to closing the open warning letter from the FDA in relation to the company's Hospital Respiratory Care business. Management also regularly provided the Committee with an overview of upcoming scheduled inspections across company sites by the FDA, other regulatory authorities and Notified Bodies, and the actions taken to prepare such inspections.
•	Review of the 2022 dashboard of Quality & Regulatory key performance indicators, showing the trend of performance. The Committee also reviewed the Quality & Regulatory key performance indicators for 2023.

9 Corporate governance

9.1 Introduction

The company is governed by Dutch corporate and securities laws, its Articles of Association, and the Rules of Procedure of the Board of Management and the Executive Committee and of the Supervisory Board respectively. Its corporate governance framework is also based on the Dutch Corporate Governance Code (dated December 8, 2016) and US laws and regulations applicable to Foreign Private Issuers. Additionally, the Board of Management has implemented the Philips General Business Principles (GBP) and underlying policies, as well as separate codes of ethics that apply to employees working in specific areas of our business, i.e., the Financial Code of Ethics and the Procurement Code of Ethics. Many of the documents referred to are published on the company's website and more information can be found in Our approach to risk management, starting on page 88.

In this section of the Annual Report, 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 the information required by the Dutch governmental Decree on Corporate Governance (Besluit inhoud bestuursverslag) and governmental Decree on Article 10 Takeover Directive (Besluit artikel 10 overnamerichtlijn). When deemed necessary in the interests of the company, the company may deviate from aspects of the company's corporate governance structure, and any such deviations will be disclosed in the company's corporate governance report.

In compliance with the Dutch Corporate Governance Code, other parts of the management report (within the meaning of article 2:391 of the Dutch Civil Code) included in the Annual Report address the strategy and culture of Philips aimed at long-term value creation. Philips' strategy is driven by our purpose to improve people's health and well-being through meaningful innovation, as described in more detail in Strategy and Businesses, starting on page 9. The Message from the CEO, starting on page 5 explains how the company's strategy was executed in 2022; in this regard, please refer also to Financial performance, starting on page 26. Furthermore, reference is made to the Philips Business System, an interdependent, collaborative operating model that covers all aspects of how we operate - strategy, governance, processes, people, culture and performance management. As set out in Our culture, starting on page 64, we set standards for behaviors, quality and integrity within Philips that will help achieve operational excellence and extend our solutions capability to address our customers' unmet needs. Finally, refer to Environmental, Social and Governance, starting on page 45 for more information on our approach to doing business responsibly and sustainably and our overall societal impact.

9.2 Board of Management and Executive Committee

Introduction

The Board of Management is entrusted with the management of the company. Certain key officers have been appointed to support the Board of Management in the fulfilment of its managerial duties. The members of the Board of Management and these key officers together constitute the Executive Committee. In this Corporate governance report, wherever the Executive Committee is mentioned, this also includes the members of the Board of Management, unless the context requires otherwise. Please refer to Board of Management and Executive Committee, starting on page 7 for an overview of the current members of the Board of Management and the Executive Committee.

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 long-term value creation. Please refer to the Rules of Procedure of the Board of Management and the Executive Committee, which are published on the company's website, for a description of further responsibilities and tasks, as well as procedures for meetings, resolutions and minutes.

In fulfilling their duties, the members of the Board of Management and Executive Committee shall be guided by the interests of the company and its affiliated enterprise, taking into account the interests of its stakeholders. The Board of Management and the Executive Committee have adopted a division of responsibilities based on the functional and business areas, each of which is monitored and reviewed by the individual members. The Board of Management is accountable for the actions and decisions of the Executive Committee and has ultimate responsibility for the company's external reporting (including reporting to the shareholders of the company).

The Board of Management and the Executive Committee are supervised by the Supervisory Board. Members of the Board of Management and the Executive Committee will be present in the meetings of the Supervisory Board if so invited. In addition, the CEO and other members of the Board of Management (and if needed, the other members of the Executive Committee) meet on a regular basis with the Chairman and other members of the Supervisory Board. The Board of Management and the Executive Committee are required to keep the Supervisory Board informed of all facts and developments concerning Philips that the Supervisory Board may need to be aware of in order to function as required and to properly carry out its duties.

Certain important decisions of the Board of Management require Supervisory Board approval, including decisions concerning: the operational and financial objectives of the company and the strategy designed to achieve these objectives; the issue, repurchase or cancellation of shares; and major acquisitions or divestments.

Appointment and composition

Members of the Board of Management, including the CEO, are appointed by the General Meeting of Shareholders upon a binding recommendation drawn up by the Supervisory Board after consultation with the CEO. This binding recommendation may be overruled by a resolution of the General Meeting of Shareholders adopted by a simple majority of the votes cast and representing at least one-third of the issued share capital. If a simple majority of the votes cast is in favor of the resolution to overrule the binding recommendation, but such majority does not represent at least one-third of the issued share capital, a new meeting may be convened, at which the resolution may be passed by a simple majority of the votes cast, regardless of the portion of the issued share capital represented by such majority. In the event that a binding recommendation has been overruled, a new binding recommendation shall be submitted to the General Meeting of Shareholders. If such second binding recommendation has been overruled, the General Meeting of Shareholders shall be free to appoint a board member.

The CEO and the other members of the Board of Management are appointed for a term of four years, it being understood that this term expires at the closing of the General Meeting of Shareholders to be held in the fourth calendar year after the year of their appointment or, if applicable, at a later retirement date or other contractual termination date in the fourth year, unless the General Meeting of Shareholders resolves otherwise. The same applies in the case of re-appointment, which is possible for consecutive terms of four years. A (re-)appointment schedule for the Board of Management is published on the company's website.

Pursuant to Dutch law, the members of the Board of Management are engaged by means of a services agreement (overeenkomst van opdracht). The term of the services agreement is aligned with the term for which the relevant member has been appointed by the General Meeting of Shareholders. In case of termination of the services agreement by the company, severance payment is limited to a maximum of one year's base salary. The services agreements provide no additional termination benefits.

Members of the Board of Management may be suspended by the Supervisory Board and by the General Meeting of Shareholders, and members of the Board of Management may be dismissed by the General Meeting of Shareholders (in each case in accordance with the Articles of Association). The other members of the Executive Committee are appointed, suspended and dismissed by the CEO, subject to approval by the Supervisory Board.

9.3 Supervisory Board

Introduction

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. In fulfilling their duties, the members of the Supervisory Board shall be guided by the interests of the company and its affiliated enterprise, taking into account the interests of its stakeholders.

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. 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 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 must approve certain important decisions of the Board of Management, including decisions concerning the operational, business and financial objectives of the company and the strategy designed to achieve these objectives, the issue, repurchase or cancellation of shares and major acquisitions or divestments. The Supervisory Board and its individual members each have a responsibility to request from the Board of Management, the Executive Committee and the external auditor all information that the Supervisory Board needs in order to be able to carry out its duties properly as a supervisory body.

Please refer to the Rules of Procedure of the Supervisory Board, which are published on the company's website, for a description of further responsibilities and tasks, as well as procedures for meetings, resolutions and minutes.

In its report (included in the company's Annual Report), the Supervisory Board describes the composition and functioning of the Supervisory Board and its committees, their activities in the financial year, the number of committee meetings held and the main items discussed. Please refer to Supervisory Board report, starting on page 107. Please also refer to Supervisory Board, starting on page 105 for an overview of the current members of the Supervisory Board.

Appointment and composition

Members of the Supervisory Board are appointed by the General Meeting of Shareholders upon a binding recommendation drawn up by the Supervisory Board. This binding recommendation may be overruled by a resolution of the General Meeting of Shareholders adopted by a simple majority of the votes cast and representing at least one-third of the issued share capital. If a simple majority of the votes cast is in favor of the resolution to overrule the binding recommendation, but such majority does not represent at least one- third of the issued share capital, a new meeting may be convened. At this new meeting the resolution may be passed by a simple majority of the votes cast, regardless of the portion of the issued share capital represented by such majority. In the event that a binding recommendation has been overruled, a new binding recommendation shall be submitted to the General Meeting of Shareholders. If such second binding recommendation has been overruled, the General Meeting of Shareholders shall be free to appoint a board member.

The term of appointment of members of the Supervisory Board expires at the closing of the General Meeting of Shareholders to be held after a period of four years following their appointment. There is no age limit requiring the retirement of board members.

In line with the Dutch Corporate Governance Code, members of the Supervisory Board are eligible for re-appointment for a fixed term of four years once, and may subsequently be reappointed for a period of two years, which appointment may be extended by at most two years. The report of the Supervisory Board must state the reasons for any re-appointment beyond an eight-year period.

A (re-)appointment schedule for the Supervisory Board is published on the company's website.

Members of the Supervisory Board may be suspended or dismissed by the General Meeting of Shareholders in accordance with the Articles of Association.

Candidates for appointment to the Supervisory Board are selected taking into account the company's Diversity Policy, which is published on the company's website. The Supervisory Board's composition furthermore follows the profile included in the Rules of Procedure of the Supervisory Board, and the size of the board may vary as it considers appropriate to support its profile. Please refer to Supervisory Board report, starting on page 107 by the Supervisory Board, starting on page 105.

Effective 2022, Dutch law provides a mandatory gender quota, requiring that least one-third of the Supervisory Board members are women and at least one-third 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). The quota is applicable to (i) the appointment of new Supervisory Board members, and (ii) the re-appointment of acting board members after eight years following their initial appointment. Except in certain exceptional circumstances, any appointment or re-appointment resulting in a Supervisory Board composition which does not meet (or no longer meets) the quota, will be invalid (null and void).

Supervisory Board committees

The Supervisory Board, while retaining overall responsibility, has assigned certain tasks to four committees: the Corporate Governance and Nomination & Selection Committee, the Remuneration Committee, the Audit Committee, and the Quality & Regulatory Committee. Each committee reports to the full Supervisory Board. Please refer to the charters of the respective committees, which are published on the company's website as part of the Rules of Procedure of the Supervisory Board, fora description of their responsibilities, composition, meetings and working procedures.

The Corporate Governance and Nomination & Selection Committee is responsible for preparing selection criteria and appointment procedures for members of the Supervisory Board, the Board of Management and the Executive Committee. The Committee makes proposals to the Supervisory Board for the (re)appointment of such members, and periodically assesses their functioning. The Committee also periodically assesses the Executive Committee succession planning, and the Diversity Policy, and supervises the policy of the Executive Committee on the selection criteria and appointment procedures for Philips executives. At least once a year, the Committee reviews the corporate governance principles applicable to the company, and advises the Supervisory Board on any changes to these principles that it deems appropriate.

The Remuneration Committee is responsible for preparing decisions of the Supervisory Board on the remuneration of individual members of the Board of Management and the Executive Committee. The Committee prepares an annual remuneration report, which is published on the company's website by the Supervisory Board ahead of the Annual General Meeting of Shareholders. In performing its duties and responsibilities, the Remuneration Committee is assisted by an external consultant and an in-house remuneration expert.

The Audit Committee assists the Supervisory Board in fulfilling its oversight responsibilities for: the integrity of the company's financial statements; the financial reporting process; the effectiveness (also in respect of the financial reporting process) of the system of internal controls and risk management; the internal and external audit process; the internal and external auditor's qualifications, independence and performance; as well as the company's process for monitoring compliance with laws and regulations and the GBP (including related manuals, training and tools). It reviews the company's annual and interim financial statements, including non-financial information, prior to publication and advises the Supervisory Board on the adequacy and appropriateness of internal control policies and internal audit programs and their findings. The Committee furthermore supervises the internal audit function, maintains contact with and supervises the external auditor and prepares the nomination of the external auditor for appointment by the General Meeting of Shareholders.

The composition of the Audit Committee meets the relevant requirements under Dutch law and the applicable US rules. All of the members are considered to be independent and financially literate, and the Audit Committee as a whole has the competence relevant to the sector in which the company is operating. In addition, Liz Doherty is designated as an Audit Committee financial expert, as defined under the regulations of the US Securities and Exchange Commission. The Supervisory Board considers the expertise and experience available in the Audit Committee, in conjunction with the possibility to take advice from internal and external experts and advisors, to be sufficient for the fulfillment of the tasks and responsibilities of the Audit Committee.

The Quality & Regulatory Committee has been established by the Supervisory Board in view of the central importance of the quality and (patient) safety of the company's products, systems, services and software as well as the development, testing, manufacturing, marketing and servicing thereof, and the regulatory requirements relating thereto. The Quality & Regulatory Committee assists the Supervisory Board in fulfilling its oversight responsibilities in this area, whilst recognizing that the Audit Committee assists the Supervisory Board in its oversight of other areas of regulatory, compliance and legal matters.

9.4 Other Board-related matters

Remuneration and share ownership

The remuneration of the individual members of the Board of Management is determined by the Supervisory Board, taking into account the remuneration policy adopted by the General Meeting of Shareholders. The remuneration of the individual members of the Supervisory Board is determined by the General Meeting of Shareholders, also on the basis of a remuneration policy.

The current remuneration policies for the Board of Management and the Supervisory Board, respectively, were adopted in 2020 and are published on the company's website. Pursuant to Dutch law, the shareholders are entitled to vote on the adoption of the separate remuneration policies for the Board of Management and the Supervisory Board at the Annual General Meeting of Shareholders (at least) every four years. The adoption of a remuneration policy will require a special majority of three-quarters of the votes cast (as the Articles of Association do not provide for a lower majority).

A description of the composition of the remuneration paid and owed to the individual members of the Board of Management and the Supervisory Board is included in the annual remuneration report (as prepared by the Remuneration Committee, adopted by the Supervisory Board and published on the company's website). Shareholders have an advisory vote at each Annual General Meeting of Shareholders on the remuneration report relating to the preceding financial year.

Pursuant to Dutch law, the Supervisory Board is authorized to reduce or eliminate unpaid bonuses awarded to members of the Board of Management if payment or delivery of the bonus would be unacceptable according to the principles of reasonableness and fairness. The company, which in this respect may also be represented by the Supervisory Board or a special representative appointed for this purpose by the General Meeting of Shareholders, may also request return of bonuses already paid or delivered insofar as these have been granted on the basis of incorrect information on the fulfillment of the relevant performance criteria or other conditions. Bonuses are broadly defined as 'non-fixed' (variable) remuneration - either in cash or in the form of share-based compensation - that is conditional in whole or in part on the achievement of certain targets or the occurrence of certain circumstances. The explanatory notes to the balance sheet shall report on any moderation and/or claim for repayment of Board of Management remuneration. No such reduction of unpaid bonuses or requests for repayment occurred during the financial year 2022.

In compliance with the Dutch Corporate Governance Code, the company does not grant personal loans to and guarantees on behalf of members of the Board of Management or the Supervisory Board. No such loans were granted and no such guarantees were issued in 2022, nor were any loans or guarantees outstanding as of December 31, 2022.

Also in compliance with the Dutch Corporate Governance Code, the Articles of Association provide that shares or rights to shares shall not be granted to members of the Supervisory Board.

Members of the Board of Management and the Supervisory Board may only hold shares in the company for the purpose of long-term investment and must refrain from short-term transactions in Philips securities. According to Philips' internal rules of conduct with respect to inside information, members of the Board of Management and the Supervisory Board are only allowed to trade in Philips securities (including the exercise of stock options) during 'windows' of 20 business days following the publication of annual and quarterly results (provided further the person involved has no inside information regarding Philips at that time, unless an exemption is available). Furthermore, members of the Board of Management and the Supervisory Board are prohibited from trading, directly or indirectly, in securities of any of the companies belonging to Philips' peer group (as determined by the Supervisory Board) during one week preceding the disclosure of Philips' annual or quarterly results.

Transactions in Philips shares carried out by members of the Board of Management and the Supervisory Board are reported to the Dutch Authority for the Financial Markets (AFM) in accordance with the EU Market Abuse Regulation and, if necessary, to other relevant authorities.

Indemnification

Unless Dutch law provides otherwise, the members of the Board of Management and of the Supervisory Board shall be reimbursed by the company for various costs and expenses, such as the reasonable costs of defending claims, as formalized in the Articles of Association.

Under certain circumstances, described in the Articles of Association, such as an act or failure to act by a member of the Board of Management or a member of the Supervisory Board that can be characterized as intentional (opzettelijk'), intentionally reckless (bewust roekeloos) or seriously culpable (ernstig verwijtbaar), there will be no entitlement to this reimbursement unless the law or the principles of reasonableness and fairness require otherwise. The company has also taken out liability insurance (D&O - Directors & Officers) for the persons concerned.

Diversity

Candidates for appointment to the Supervisory Board, the Board of Management and the Executive Committee are selected taking into account the company's Diversity Policy, which is published on the company's website. Effective 2022, Dutch law provides that (reJappointments of members of the Supervisory Board must be in accordance with a mandatory gender quota, requiring that at least one-third of the supervisory board members are women (and at least one-third are men). There are certain exceptions where the gender quota does not apply, such as the re-appointments within eight years of the initial appointment and (re-)appointments made in exceptional circumstances.

For more details on the Diversity Policy and board diversity, please refer to Report of the Corporate Governance and Nomination & Selection Committee, starting on page 115. For more details on the Diversity Policy, the profile of the Supervisory Board and board diversity please refer to Supervisory Board report, starting on page 107, to Report of the Corporate Governance and Nomination & Selection Committee, starting on page 115 and to Inclusion & Diversity, starting on page 65.

Conflicts of interest

Dutch law on conflicts of interest provides that a member of the Board of Management or Supervisory Board may not participate in the adoption of resolutions if he or she has a direct or indirect personal conflict of interest with the company or related enterprise. If all members of the Board of Management have a conflict of interest, the resolution concerned will be considered by the Supervisory Board. If all members of the Supervisory Board have a conflict of interest, the resolution concerned must be considered by the General Meeting of Shareholders.

In compliance with the Dutch Corporate Governance Code, the company's corporate governance includes rules to specify situations in which a potential or actual conflict may exist, procedures to avoid such conflicts of interest as much as possible, and procedures to deal with such conflicts should they arise. Relevant matters relating to conflicts of interest, if any, must be mentioned in the Annual Report (specifically the management report) for the financial year in question. No decisions to enter into material transactions in which there are conflicts of interest with members of the Board of Management or the Supervisory Board were taken during the financial year 2022.

Outside directorships

In compliance with the Dutch Corporate Governance Code, members of the Board of Management require the approval of the Supervisory Board before they can accept a position as a member of a supervisory board or a position as a non-executive director on a one-tier board (Non-Executive Directorship) at another company. The Supervisory Board must be notified of other important positions (to be) held by a member of the Board of Management.

Dutch law provides for certain limitations on the number of Non-Executive Directorships a member of the Board of Management or Supervisory Board may hold. No member of the Board of Management shall hold more than two Non-Executive Directorships at 'large' companies (naamloze vennootschappen or besloten vennootschappen) or 'large' foundations (stichtingen), as defined under Dutch law, and no member of the Board of Management shall hold the position of chairman of another one-tier board or the position ofchairman of another supervisory board. No member of the Supervisory Board shall hold more than five Non-Executive Directorships at such companies or foundations, with a position as chairman counting for two. During the financial year 2022 all members of the Board of Management and the Supervisory Board complied with the limitations described above in this paragraph.

9.5 General Meeting of Shareholders

Meetings

The Annual General Meeting of Shareholders shall be held no later than six months after the end of the financial year. The agenda for the meeting typically includes: an advisory vote on the remuneration report; discussion of the Annual Report; the adoption of the financial statements; policy on additions to reserves and dividends; any proposed dividends or other distributions; discharge of the members of the Board of Management and the Supervisory Board; any other matters proposed by the Supervisory Board, the Board of Management or shareholders in accordance with Dutch law and the Articles of Association.

Shareholders' meetings are convened by public notice via the company's website, and registered shareholders are notified by letter or by electronic means of communication at least 42 days prior to the day of the relevant meeting. Shareholders who wish to exercise the rights attached to their shares in respect of a shareholders' meeting are required to register for such meeting. Shareholders may attend a meeting in person, vote by proxy (via an independent third party) or grant a power of attorney to a third party to attend the meeting and vote on their behalf. Details on registration for meetings, attendance and proxy voting will be included in the notice convening the relevant meeting.

Pursuant to Dutch law, the record date for the exercise of voting rights and rights relating to shareholders' meetings is set at the 28th day prior to the day of the relevant meeting.

Shareholders registered on such date are entitled to attend the meeting and to exercise the other shareholder rights (at the relevant meeting) notwithstanding any subsequent sale of their shares after the record date.

In accordance with the Articles of Association and Dutch law, requests from shareholders for items to be included on the agenda will generally be honored, subject to the company's rights to refuse to include the requested agenda item under Dutch law, provided that such requests are made in writing at least 60 days before a General Meeting of Shareholders to the Board of Management and the Supervisory Board by shareholders representing at least 1% of the company's outstanding capital or, according to the official price list of Euronext Amsterdam, representing a value of at least EUR 50 million. Written requests may be submitted electronically and shall comply with the procedure stipulated by the Board of Management, which procedure is posted on the company's website.

Pursuant to Dutch law, shareholders requesting an item to be included on the agenda of a meeting have an obligation to disclose their full economic interest (i.e., long position and short position) to the company. The company has the obligation to publish such disclosures on its website.

Main powers of the General Meeting of Shareholders

The main powers of the General Meeting of Shareholders are:

•	to appoint, suspend and dismiss members of the Board of Management and the Supervisory Board;
•	to adopt remuneration policies for the Board of Management and the Supervisory Board, to determine the remuneration of the individual members of the Supervisory Board and to approve long-term incentive (equity-based) plans for the Board of Management;
•	to adopt the annual accounts, to declare dividends and to discharge the Board of Management and the Supervisory Board from any liability in respect of the performance of their respective duties for the previous financial year;
•	to appoint the company's external auditor;
•	to adopt amendments to the Articles of Association and proposals to dissolve or liquidate the company;
•	to issue shares or rights to shares;
•	to restrict or exclude pre-emptive rights of shareholders and to repurchase or cancel outstanding shares; and
•	in accordance with Dutch law, to approve decisions of the Board of Management that are so far-reaching that they would greatly change the identity or nature of the company or the business.

The company applies principle 4.1 of the Dutch Corporate Governance Code within the framework of the Articles of Association and Dutch law and in the manner described in this corporate governance report. All issued and outstanding shares carry voting rights and each share confers the right to cast one vote in a shareholders' meeting. Pursuant to Dutch law, no votes may be cast at a General Meeting of Shareholders in respect of shares which are held by the company. There are no special statutory rights attached to the shares of the company and no restrictions on the voting rights of the company's shares exist. Subject to certain exceptions provided by Dutch law and/or the Articles of Association, resolutions of the General Meeting of Shareholders are passed by an absolute majority of votes cast and do not require a quorum.

Share capital; issue and repurchase of (rights to) shares

The authorized share capital of the company amounts to EUR 800 million, divided into 2 billion common shares with a nominal value of 20 eurocents each and 2 billion preference shares also with a nominal value of 20 eurocents each. On December 31, 2022, the issued share capital amounted to EUR 177,863,016.40 divided into 889,315,082 common shares and no preference shares. All shares are fully paid-up. There are currently no limitations, either under Dutch law or the Articles of Association, to the transfer of the common shares.

Only Euroclear shares are traded on Euronext Amsterdam. Only New York Registry Shares are traded on the New York Stock Exchange. Pursuant to article 10:138(2) of the Dutch Civil Code, the laws of the State of New York are applicable to the proprietary regime with respect to the New York Registry Shares, which proprietary regime includes the requirements for a transfer of, or the creation of an in rem right in, such New York Registry Shares. Euroclear shares and New York Registry Shares may be exchanged for each other.

As per December 31, 2022, approximately 89% of the common shares were held through the system of Euroclear Nederland (Euroclear shares) and approximately 11% of the common shares were represented by New York Registry Shares issued in the name of approximately 843 holders of record. The latter include Cede & Co. Cede & Co acts as nominee for The Depository Trust Company, which holds the shares (indirectly) for individual investors as beneficiaries. Deutsche Bank Trust Company Americas is Philips' New York transfer agent, registrar and dividend disbursing agent. Since certain shares are held by brokers and other nominees, these numbers may not be representative of the actual number of United States beneficial holders or the number of New York Registry Shares beneficially held by US residents.

At the 2022 Annual General Meeting of Shareholders, it was resolved to authorize the Board of Management, subject to the approval of the Supervisory Board, to issue shares or to grant rights to acquire shares in the company as well as to restrict or exclude the pre-emption right accruing to shareholders up to and including November 9, 2023. This authorization is limited to a maximum of 10% of the number of shares issued as of May 10, 2022.

In addition, at the 2022 Annual General Meeting of Shareholders, it was resolved to authorize the Board of Management, subject to the approval of the Supervisory Board, to acquire shares in the company within the limits of the Articles of Association and within a certain price range up to and including November 9, 2023. The maximum number of shares the company may hold will not exceed 10% of the issued share capital as of May 10, 2022. The number of shares may be increased by 10% of the issued capital as of that same date in connection with the execution of share repurchase programs for capital reduction programs.

9.6 Risk management approach

With respect to financial reporting, a structured self-assessment and monitoring process is used company-wide to assess, document, review and monitor compliance with Internal Control over Financial Reporting. On the basis of the outcome of this process, the Board of Management confirms that: (i) the management report (within the meaning of section 2:391 of the Dutch Civil Code) provides sufficient insights into any failings in the effectiveness of the internal risk management and control systems; (ii) such systems provide a reasonable level of assurance that the financial reporting does not contain any material inaccuracies; (iii) based on the current state of affairs, it is justified that the financial reporting is prepared on a going concern basis; and (iv) the management report states those material risks and uncertainties that are relevant to the expected continuity of the company for a period of 12 months after the preparation of the report. The financial statements fairly represent the financial condition and result of operations of the company and provide the required disclosures.

In view of the above, the Board of Management believes that it is in compliance with best practice provision 1.4.2 of the Dutch Corporate Governance Code. It should be noted that the above does not imply that the internal risk management and control systems provide certainty as to the realization of operational and financial business objectives, nor can they prevent all misstatements, inaccuracies, errors, fraud or non- compliances with rules and regulations. The above statement on internal control should not be construed as a statement in response to the requirements of section 404 of the US Sarbanes-Oxley Act. The statement as to compliance with section 404 is set forth in Management's report on internal control, starting on page 143.

9.7 Annual financial statements and external audit

The annual financial statements are prepared by the Board of Management and reviewed by the Supervisory Board upon the advice of its Audit Committee, taking into account the report of the external auditor. Upon approval by the Supervisory Board, the accounts are signed by all members of both the Board of Management and the Supervisory Board and are published together with the opinion of the external auditor. The Board of Management is responsible, under the supervision of the Supervisory Board, for the quality and completeness of such publicly disclosed financial reports. The annual financial statements are presented for discussion and adoption at the Annual General Meeting of Shareholders, to be convened subsequently.

The external auditor is appointed by the General Meeting of Shareholders in accordance with the Articles of Association. Philips' current external auditor, Ernst & Young Accountants LLP, was appointed by the General Meeting of Shareholders held on May 7, 2015, for a term of four years starting January 1, 2016, was re-appointed at the Annual General Meeting of Shareholders held on May 9, 2019 for a term of three years starting January 1, 2020 and was re-appointed at the Annual General Meeting of Shareholders held on May 10, 2022 for a term of one year starting January 1,2023.

European and Dutch law requires the separation of audit and certain non-audit services. The external auditor may only provide audit and audit-related services and is prohibited from providing any other services. This is reflected in the Auditor Policy, which is published on the company's website. The policy is also in line with (and in some ways stricter than) applicable US rules, under which the appointed external auditor must be independent from the company both in fact and appearance.

The Auditor Policy specifies certain audit services and audit-related services (also known as assurance services) that will or may be provided by the external auditor, and includes rules for the pre-approval by the Audit Committee of such services. Audit services must be preapproved on the basis of the annual audit services engagement agreed with the external auditor. Proposed audit-related services may be pre-approved at the beginning of the year by the Audit Committee (annual pre-approval) or may be pre-approved during the year by the Audit Committee in respect of a particular engagement (specific pre-approval). The annual pre-approval is based on a detailed, itemized list of services to be provided, which is designed to ensure that there is no management discretion in determining whether a service has been approved, and to ensure that the Audit Committee is informed of each of the services it is pre-approving. Unless pre-approval with respect to a specific service has been given at the beginning of the year, each proposed service requires specific preapproval during the year. Any annually pre-approved services where the fee for the engagement is expected to exceed pre-approved cost levels or budgeted amounts will also require specific pre-approval. The term of any annual pre-approval is 12 months from the date of the pre-approval unless the Audit Committee states otherwise. During 2022, there were no services provided to the company by the external auditor which were not preapproved by the Audit Committee.

9.8 Stichting Preferente Aandelen Philips

Stichting Preferente Aandelen Philips, a Foundation (stichting) organized under Dutch law, has been granted the right to acquire preference shares in the capital of Royal Philips, as stated in the company's Articles of Association. In addition, the Foundation has the right to file a petition with the Enterprise Chamber of the Amsterdam Court of Appeal to commence an inquiry procedure within the meaning of article 2:344 of the Dutch Civil Code.

The object of the Foundation is to represent the interests of Royal Philips, the enterprises maintained by the company and its affiliated companies within the company's group, in such a way that the interests of the company, these enterprises and all parties involved with them are safeguarded as effectively as possible, and that they are afforded maximum protection against influences which, in conflict with those interests, may undermine the autonomy and identity of Philips and those enterprises, and also to do anything related to the above ends or conducive to them. This object includes the protection of Philips against (an attempt at) an unsolicited takeover or other attempt to exert (de facto) control of the company. The arrangement will allow Philips to determine its position in relation to the relevant third party (or parties) and its (their) plans, to seek alternatives and to defend the company's interests and those of its stakeholders.

The mere notification that the Foundation exercises its right to acquire preference shares will result in such shares being effectively issued. The Foundation may exercise this right for as many preference shares as there are common shares in the company outstanding at that time. No preference shares have been issued as of December 31, 2022.

The members of the self-electing Board of the Foundation are Messrs J.P. de Kreij, J.V. Timmermans, J. van der Veer and P.N. Wakkie. No Philips Supervisory Board or Board of Management members or Philips officers are represented on the board of the Foundation.

Other than the arrangements made with the Foundation referred to above, the company does not have any measures which exclusively or almost exclusively have the purpose of defending against unsolicited public offers for shares in the capital of the company. It should be noted that the Board of Management and the Supervisory Board remain under all circumstances authorized to exercise all powers vested in them to promote the interests of Philips.

The company has issued certain corporate bonds, the provisions of which contain a 'Change of Control Triggering Event' or a 'Change of Control Put Event'. Upon the occurrence of such events, the company might be required to offer to redeem or purchase any outstanding bonds at certain pre-determined prices. Please also refer to Debt, starting on page 191.

9.9 Investor Relations

Philips is continuously focused on maintaining strong and open relations with its shareholders. In addition to communication with its shareholders at shareholders' meetings, the company may discuss its financial results during conference calls, which are broadly accessible. The company also publishes annual, semi-annual and quarterly reports and press releases, and informs investors via its website.

From time to time the company communicates with investors and analysts via roadshows, broker conferences and a Capital Markets Day, which are announced in advance on the company's website. The purpose of these engagements is to further inform the market of the results, strategy and decisions made, as well as to receive feedback from shareholders. It is the company's policy to post presentations to investors and analysts on its website. Philips applies the best practice provision 4.2.3 of the Dutch Corporate Governance Code, which it does not view (in line with market practice) as extending to less important analyst meetings and presentations.

Furthermore, Philips engages in bilateral communications with investors and analysts. These communications take place either at the initiative of the company or at the initiative of investors/analysts. The company is generally represented by its Investor Relations department during these interactions, however, on a limited number of occasions the Investor Relations department is accompanied by one or more members of the senior management. The subject matter of the bilateral communications ranges from individual queries from investors/analysts to more elaborate discussions following disclosures that the company has made, such as its annual and quarterly reports. Philips complies with applicable rules and regulations on fair and non-selective disclosure and equal treatment of shareholders.

9.10 Major shareholders

The Dutch Act on Financial Supervision imposes an obligation on persons holding certain interests to disclose (inter alia) percentage holdings in the capital and/or voting rights in the company when such holdings reach, exceed or fall below 3, 5, 10, 15, 20, 25, 30, 40, 50, 60, 75 and 95 percent (as a result of an acquisition or disposal by a person, or as a result of a change in the company's total number of voting rights or capital issued). Certain derivatives (settled in kind or in cash) are also taken into account when calculating the capital interest. The statutory obligation to disclose capital interest relates not only to gross long positions, but also to gross short positions. Required disclosures must be made to the Dutch Authority for the Financial Markets (AFM) without delay. The AFM then notifies the company of such disclosures and includes them in a register, which is published on the AFM's website. Furthermore, an obligation to disclose (net) short positions is set out in the EU Regulation on Short Selling.

The AFM register shows the following notifications of substantial holdings and/or voting rights at or above the 3% threshold: BlackRock, Inc.: substantial holding of 5.75% and 7.45% of the voting rights (May 13, 2022); T. Rowe Price Group, Inc.: substantial holding of 4.98% and 4.96% of the voting rights (February 2, 2023); Artisan Investments GP LLC: substantial holding of 5.13% and 5.13% of the voting rights (May 5, 2022).

9.11 Corporate information

The company began as a limited partnership with the name Philips & Co in Eindhoven, the Netherlands, in 1891, and was converted into the company with limited liability N.V. Philips' Gloeilampenfabrieken on September 11,1912. The company's name was changed to Philips Electronics N.V. on May 6,1994, to Koninklijke Philips Electronics N.V. on April 1,1998, and to Koninklijke Philips N.V. on May 15, 2013.

The majority of the shares in Royal Philips are held through the system maintained by the Dutch Central Securities Depository (Euroclear Nederland). In the past, Philips has also issued (physical) bearer share certificates ('Share Certificates'). A limited number of Share Certificates have not been surrendered yet, although the holders of Share Certificates are still entitled to a corresponding number of shares in Royal Philips. It is noted that, as a result of Dutch legislation that became effective per July 2019, the relevant shares were registered in the name of Royal Philips by operation of law per January 1, 2021. Owners of Share Certificates will continue to be entitled to a corresponding number of shares, but may not exercise the rights attached to such shares until they surrender their Share Certificates. Owners of Share Certificates may come forward to do so and to receive a corresponding number of shares until January 1, 2026, at the latest. As per January 2, 2026, entitlements attached to the Share Certificates not surrendered, will expire by operation of law. For more information, please contact the Investor Relations department by email (investor.relations@philips.com) or telephone (+31-20-59 77222).

The statutory seat of the company is Eindhoven, the Netherlands, and the statutory list of all subsidiaries and affiliated companies, prepared in accordance with the relevant legal requirements (Dutch Civil Code, Book 2, articles 379 and 414), forms part of the notes to the consolidated financial statements and is deposited at the office of the Commercial Register in Eindhoven, the Netherlands (file no. 17001910). The executive offices of the company are located at the Philips Center, Amstelplein 2,1096 BC Amsterdam, the Netherlands, telephone +31-20-59 77777.

The Board of Management and the Supervisory Board are of the opinion that the principles and best practice provisions of the Dutch Corporate Governance Code that are addressed to the boards are being applied. The full text of the Dutch Corporate Governance Code can be found on the website of the Monitoring Commission Corporate Governance Code (www.mccg.nl).

Group financial statements contents

10.1 Management's report on internal control

10.2 Report of the independent auditor

10.3 Independent auditor's report on internal control over financial reporting

10.4 Consolidated statements of income

10.5 Consolidated statements of comprehensive income

10.6 Consolidated balance sheets

10.7 Consolidated statements of cash flows

10.8 Consolidated statements of changes in equity

10.9 Notes to the Consolidated financial statements

1 General information to the Consolidated financial statements

2 Information by segment and main country

3 Discontinued operations and assets classified as held for sale

4 Acquisitions and divestments

5 Interests in entities

6 Income from operations

7 Financial income and expenses

8 Income taxes

9 Earnings per share

10 Property, plant and equipment

11 Goodwill

12 Intangible assets excluding goodwill

13 Other financial assets

14 Other assets

15 Inventories

16 Receivables

17 Equity

18 Debt

19 Provisions

20 Post-employment benefits

21 Accrued liabilities

22 Other liabilities

23 Cash flow statement supplementary information

24 Contingencies

25 Related-party transactions

26 Share-based compensation

27 Information on remuneration

28 Fair value of financial assets and liabilities

29 Details of treasury and other financial risks

30 Subsequent events

10 Group financial statements

Introduction

Statutory financial statements

This section 'Group financial statements' and the section 'Company Financial Statements' together contain the statutory financial statements of the company. These statements are subject to adoption by the company's shareholders at the upcoming 2023 Annual General Meeting of Shareholders.

Management report and statement

The following sections and chapters form the management report within the meaning of article 2:391 of the Dutch Civil Code:

•	Message from the CEO, starting on page 5
•	Board of Management and Executive Committee, starting on page 7
•	Strategy and Businesses, starting on page 9
•	Financial performance, starting on page 26
•	Environment, Social and Governance, starting on page 45
•	Risk management, starting on page 87
•	Sub-section 'Diversity' in Report of the Corporate Governance and Nomination & Selection Committee, starting on page 115
•	Corporate governance, starting on page 132
•	Forward-looking statements and other information, starting on page 259
•	ESG statements, starting on page 266 but excluding 13.6 Assurance report of the independent auditor

The sections Strategy and Businesses, Financial performance and Environment, Social and Governance provide an extensive analysis of the developments during the financial year 2022 and the results. These sections also provide information on the business outlook, investments, financing, personnel and research and development.

For 'Additional information' within the meaning of article 2:392 of the Dutch Civil Code, please refer to Independent auditor's report, starting on page 237 and the Appropriation of profits, starting on page 237.

Please refer to Forward-looking statements and other information, starting on page 259 for more information about forward-looking statements, third-party market share data, fair value information, and revisions and reclassifications.

The Board of Management of Royal Philips hereby declares that, to the best of our knowledge, the Group financial statements and Company financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole and that the management report referred to above gives a true and fair view concerning the position as per the balance sheet date, the development and performance of the business during the financial year of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks that they face.

February 21,2023

Board of Management

Roy Jakobs

Abhijit Bhattacharya

Marnix van Ginneken

10.1 Management's report on internal control

Management's annual report on internal control over financial reporting pursuant to section 404 of the US Sarbanes-Oxley Act

The Board of Management of Koninklijke Philips N.V. (Royal Philips) is responsible for establishing and maintaining an adequate system of internal control over financial reporting (as such term is defined in Rule 13a-15 (f) under the US Securities Exchange Act). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with IFRS as issued by the IASB.

Internal control over financial reporting includes maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Board of Management conducted an assessment of Royal Philips' internal control over financial reporting based on the "Internal Control Integrated Framework (2013)" established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on the Board of Management's assessment of the effectiveness of Royal Philips1 internal control over financial reporting as of December 31, 2022, it has concluded that, as of December 31, 2022, Royal Philips' internal control over Group financial reporting is considered effective.

The effectiveness of the Royal Philips' internal control over financial reporting as of December 31,2022, as included in this section Group financial statements, has been audited by Ernst & Young Accountants LLP, an independent registered public accounting firm, as stated in their report which follows hereafter.

February 21, 2023

Board of Management

Roy Jakobs

Abhijit Bhattacharya

Marnix van Ginneken

10.1.1 Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting during 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

10.2 Report of the independent auditor

Management's report on internal control over financial reporting is set out in Management's report on internal control, starting on page 143. The report set out in section Independent auditor's report on internal control over financial reporting, starting on page 144, is provided in compliance with standards of the Public Company Accounting Oversight Board in the US and includes an opinion on the effectiveness of internal control over financial reporting as of December 31, 2022, based on COSO criteria.

Ernst & Young Accountants LLP has also issued a report on the 2022 consolidated financial statements and the company financial statements, in accordance with Dutch law, including the Dutch standards on Auditing, of Koninklijke Philips N.V., which is set out in Independent auditor's report, starting on page 237.

Ernst & Young Accountants LLP has also issued a report on the consolidated financial statements 2022 and 2021 in accordance with the standards of the Public Company Accounting Oversight Board in the US, which will be included in the Annual Report on Form 20-F expected to be filed with the US Securities and Exchange Commission on February 21, 2023.

10.3 Independent auditor's report on internal control over financial reporting

Report of Independent Registered Public Accounting Firm

To: The Supervisory Board and Shareholders of Koninklijke Philips N.V.

Opinion on Internal Control over Financial Reporting

We have audited Koninklijke Philips N.V.'s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Koninklijke Philips N.V. (the company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the company as of December 31,2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 21, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying section 'Management's report on internal control', of this Annual Report. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Amsterdam, the Netherlands February 21, 2023

Ernst & Young Accountants LLP

10.4 Consolidated statements of income

Philips Group

Consolidated statements of income in millions of EUR

For the year ended December 31

	2020	2021	2022
6 Sales	17,313	17,156	17,827
Cost of sales	(9,493)	(9,988)	(10,633)
Gross margin	7,820	7,168	7,194
Selling expenses	(4,054)	(4,258)	(4,609)
General and administrative expenses	(630)	(599)	(671)
Research and development expenses	(1,822)	(1,806)	(2,103)
11 Impairment of goodwill	(144)	(15)	(1,357)
(6) Other business income	122	186	127
6 Other business expenses	(29)	(123)	(109)
6 Income from operations	1,264	553	(1,529)
7 Financial income	158	149	58
7 Financial expenses	(202)	(188)	(258)
Investments in associates, net of income taxes	(9)	(4)	(2)
Income before taxes	1,211	509	(1,731)
8 Income tax expenses	(212)	103	113
Income from continuing operations	999	612	(1,618)
(3) Discontinued operations, net of income taxes	196	2,711	13
Net income	1,195	3,323	(1,605)
Attribution of net income:
Net income attributable to shareholders of Koninklijke Philips N.V.	1,187	3,319	(1,608)
Net income attributable to non-controlling interests	8	4	3

Philips Group

Earnings per common share attributable to shareholders of Koninklijke Philips N.V. in EUR

	2020	2021	2022
Basic earnings per common share attributable to shareholders of Koninklijke Philips N.V.
Income from continuing operations	1.09	0.67	(1.84)
Net income	1.31	3.67	(1.82)
Diluted earnings per common share attributable to shareholders of Koninklijke Philips N.V.
Income from continuing operations	1.08	0.67	(1.84)
Net income	1.29	3.65	(1.82)

10.5 Consolidated statements of comprehensive income

Philips Group

Consolidated statements of comprehensive income in millions of EUR

For the year ended December 31

	2020	2021	2022
Net income for the period	1,195	3,323	(1,605)
20 Pensions and other-post employment plans:
Remeasurement, before tax	51	134	101
Q Income tax effect on remeasurements	(12)	(21)	(20)
Financial assets fair value through OCI:
Net current-period change, before tax	-	(39)	(32)
Income tax effect on net current-period change	-	1	1
Total of items that will not be reclassified to Income Statement	39	74	49
Currency translation differences:
Net current period change, before tax	(1,040)	1,078	748
8 Income tax effect on net current-period change	1	(5)	2
Reclassification adjustment for (gain) loss realized		36	-
Reclassification adjustment for (gain) loss realized, in discontinued operations		69
Cash flow hedges:
Net current-period change, before tax	69	(52)	(29)
(8) Income tax effect on net current-period change	(17)	18	(10)
Reclassification adjustment for (gain) loss realized	(6)	(14)	63
Total of items that are or may be reclassified to Income Statement	(992)	1,129	774
Other comprehensive income for the period	(953)	1,203	823
Total comprehensive income for the period	242	4,527	(782)
Total comprehensive income attributable to:
Shareholders of Koninklijke Philips N.V.	235	4,520	(786)
Non-controlling interests	6	7	4

10.6 Consolidated balance sheets

Philips Group

Consolidated balance sheets in millions of EUR unless otherwise stated

As of December 31

	2021	2022
Non-current assets
10 Property, plant and equipment	2,699	2,638
11 Goodwill	10,637	10,238
12 Intangible assets excluding goodwill	3,650	3,526
16 Non-current receivables	224	279
(5) Investments in associates	426	537
13 Other non-current financial assets	630	660
28 Non-current derivative financial assets	2	4
8 Deferred tax assets	2,216	2,449
14 Other non-current assets	129	98
Total non-current assets	20,613	20,429
Current assets
15 Inventories	3,450	4,049
(13) Other current financial assets	2	11
14 Other current assets	493	490
28 Current derivative financial assets	61	123
Income tax receivable	180	222
(16)(25) Current receivables	3,787	4,115
3 Assets classified as held for sale	71	77
29 Cash and cash equivalents	2,303	1,172
Total current assets	10,347	10,259
Total assets	30,961	30,688

	2021	2022
17 Equity
Shareholders' equity	14,438	13,249
Common shares	177	178
Capital in excess of par value	4,646	5,025
Reserves	748	1,488
Other	8,868	6,558
(17) Non-controlling interests	36	34
Group equity	14,475	13,283
Non-current liabilities
18 Long-term debt	6,473	7,270
(28) Non-current derivative financial liabilities	119	4
19 20 Long-term provisions	1,315	1,097
8 Deferred tax liabilities	83	91
22 Non-current contract liabilities	446	515
(8) Non-current tax liabilities	544	435
(22) Other non-current liabilities	56	60
Total non-current liabilities	9,037	9,471
Current liabilities		-
• Short-term debt	506	931
28 Current derivative financial liabilities	83	207
Income tax payable	128	40
25 Accounts payable	1,872	1,968
21 Accrued liabilities	1,784	1,626
(22) Current contract liabilities	1,491	1,696
(19)(20) Short-term provisions	998	1,018
Liabilities directly associated with assets held for sale	1	-
22 Other current liabilities	587	448
Total current liabilities	7,450	7,934
Total liabilities and group equity	30,961	30,688

10.7 Consolidated statements of cash flows

Philips Group

Consolidated statements of cash flows in millions of EUR

For the year ended December 31

	2020	2021	2022
Cash flows from operating activities
Net income (loss)	1,195	3,323	(1,605)
Results of discontinued operations, net of income tax	(196)	(2,711)	(13)
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation, amortization, and impairment of assets	1,462	1,323	1,602
Impairment of goodwill	144	15	1,357
Share-based compensation	112	108	95
Net loss (gain) on sale of assets	(1)	55	(115)
Interest income	(13)	(18)	(25)
Interest expense on debt, borrowings, and other liabilities	159	152	226
Investments in associates, net of income taxes	9	4	112
Income taxes	212	(103)	(113)
Decrease (increase) in working capital	(98)	(401)	(862)
Decrease (increase) in receivables and other current assets	92	(39)	(342)
Decrease (Increase) in inventories	(578)	(581)	(572)
Increase (decrease) in accounts payable, accrued and other current liabilities	387	219	52
Decrease (increase) in non-current receivables and other assets	(9)	(46)	1
Increase (decrease) in other liabilities	50	33	(84)
19 Increase (decrease) in provisions	(91)	427	(199)
Other items	96	(164)	(39)
Interest received	13	17	15
Interest paid	(148)	(151)	(205)
Dividends received from investments in associates	4	14	12
Income taxes paid	(390)	(249)	(333)
Net cash provided by (used for) operating activities	2,511	1,629	(173)
Cash flows from investing activities
Net capital expenditures	(876)	(729)	(788)
Purchase of intangible assets	(114)	(107)	(105)
Expenditures on development assets	(296)	(259)	(257)
Capital expenditures on property, plant and equipment	(485)	(397)	(444)
Proceeds from sales of property, plant and equipment	19	33	18
23 Net proceeds from (cash used for) derivatives and current financial assets	(13)	48	(72)
23 Purchase of other non-current financial assets	(131)	(124)	(116)
23 Proceeds from other non-current financial assets	65	124	78
4 Purchase of businesses, net of cash acquired	(317)	(3,098)	(712)
Net proceeds from sale of interests in businesses, net of cash disposed	4	107	124
Net cash provided by (used for) for investing activities	(1,267)	(3,672)	(1,487)
Cash flows from financing activities
18 Proceeds from issuance (payments on) short-term debt	16	(25)	47
18 Principal payments on current portion of long-term debt	(298)	(302)	(1,472)
18 Proceeds from issuance of long-term debt	1,065	76	2,516
Re-issuance of treasury shares	46	23	12
Purchase of treasury shares	(343)	(1,636)	(187)
Dividends paid to shareholders of Koninklijke Philips N.V.	(1)	(482)	(412)
Dividends paid to shareholders of non-controlling interests	(2)	(2)	(6)
Net cash provided by (used for) financing activities	483	(2,347)	500
Net cash provided by (used for) continuing operations	1,727	(4,390)	(1,160)
3 Net cash provided by (used for) discontinued operations	129	3,403	(12)
Net cash provided by (used for) continuing and discontinued operations	1,856	(986)	(1,172)
Effect of changes in exchange rates on cash and cash equivalents	(55)	65	41
Cash and cash equivalents at the beginning of the period	1,425	3,226	2,303
Cash and cash equivalents at the end of the period	3,226	2,303	1,172

10.8 Consolidated statements of changes in equity

Philips Group

Consolidated statements of changes in equity in millions of EUR

For the year ended December 31

	Common shares	Capital in excess of par value	Fair value through OCI	Cash flow hedges
			Reserves
Balance as of January 1, 2020	179	3,671	(303)	(24)
Total comprehensive income (loss)			-	46
Dividend distributed	4	754
Minority Buy-out
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings			(2)
Purchase of treasury shares
Re-issuance of treasury shares	-	(146)
Forward contracts
Share call options
Cancellation of treasury shares	(1)
Share-based compensation plans		116
Income tax share-based compensation plans		4
Balance as of December 31, 2020	182	4,400	(305)	23
Total comprehensive income (loss)			(39)	(48)
Dividend distributed	1	290
Minority Buy-out
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings
Purchase of treasury shares
Re-issuance of treasury shares		(150)
Forward contracts
Share call options
Cancellation of treasury shares	(7)
Share-based compensation plans		110
Income tax share-based compensation plans		(4)
Balance as of December 31, 2021	177	4,646	(344)	(25)

	Currency translation differences	Retained earnings	Treasury shares	Total shareholders' equity	Noncontrolling interests	Group equity
	Reserves	Other
Balance as of January 1, 2020	978	8,296	(201)	12,597	28	12,625
Total comprehensive income (loss)	(1,036)	1,225		235	6	242
Dividend distributed		(782)		(25)	(2)	(26)
Minority Buy-out					(1)	(1)
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings		2		-		-
Purchase of treasury shares		-	(130)	(130)		(130)
Re-issuance of treasury shares		7	161	23		23
Forward contracts		(793)	(126)	(920)		(920)
Share call options		24	(55)	(31)		(31)
Cancellation of treasury shares		(151)	152
Share-based compensation plans				116		116
Income tax share-based compensation plans				4		4
Balance as of December 31, 2020	(58)	7,828	(199)	11,870	31	11,901
Total comprehensive income (loss)	1,175	3,432		4,520	7	4,527
Dividend distributed		(773)		(482)	(2)	(484)
Minority Buy-out					-	-
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings		-		-		-
Purchase of treasury shares		-	(758)	(757)		(757)
Re-issuance of treasury shares		18	143	11		11
Forward contracts		48	(869)	(821)		(821)
Share call options		12	(21)	(9)		(9)
Cancellation of treasury shares		(1,221)	1,228
Share-based compensation plans				110		110
Income tax share-based compensation plans				(4)		(4)
Balance as of December 31, 2021	1,117	9,344	(476)	14,438	36	14,475

	Common shares	Capital in excess of par value	Fair value through OCI	Cash flow hedges	Currency translation differences
			Reserves
Balance as of December 31, 2021	177	4,646	(344)	(25)	1,117
Total comprehensive income (loss)			(32)	23	749
Dividend distributed	3	326
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings			(1)
Purchase of treasury shares
Re-issuance of treasury shares		(43)
Forward contracts
Share call options
Cancellation of treasury shares	(2)
Share-based compensation plans		95
Income tax share-based compensation plans		1
Balance as of December 31, 2022	178	5,025	(376)	(2)	1,866

	Retained earnings	Treasury shares	Total shareholders' equity	Noncontrolling interests	Group equity
	Other
Balance as of December 31, 2021	9,344	(476)	14,438	36	14,475
Total comprehensive income (loss)	(1,527)		(786)	4	(782)
Dividend distributed	(741)		(412)	(6)	(418)
Transfer of gain on disposal of equity investments at FVTOCI to retained earnings	1		-		-
Purchase of treasury shares	-	(24)	(24)		(24)
Re-issuance of treasury shares	(28)	77	7		7
Forward contracts	76	(140)	(64)		(64)
Share call options	5	(12)	(6)		(6)
Cancellation of treasury shares	(298)	299
Share-based compensation plans			95		95
Income tax share-based compensation plans			1		1
Balance as of December 31, 2022	6,832	(275)	13,249	34	13,283

10.9 Notes to the Consolidated financial statements

1 General information to the Consolidated financial statements

Reporting entity and its operations

Koninklijke Philips N.V. ('Royal Philips'), incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch Law. Philips is headquartered in Amsterdam, the Netherlands and has its registered address at High Tech Campus 52, 5656 AG Eindhoven, the Netherlands. The consolidated financial statements of Royal Philips as of December 31, 2022 comprise Royal Philips and its subsidiaries (together referred to as the 'company' or 'Philips' or the 'Group'). Philips is a leading health technology company primarily involved in diagnostic imaging, image-guided therapy, patient monitoring and health informatics, as well as in consumer health and home care.

Basis of preparation

The Consolidated financial statements are:

•	prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and comply with the statutory provisions of Part 9, Book 2 of the Dutch Civil Code;
•	authorized for issue by the Board of Management of Royal Philips on February 21,2023;
•	prepared under the historical cost convention, unless otherwise indicated;
•	prepared on a going concern basis;
•	presented in euro, which is the presentation currency;
•	rounded to the nearest million euro unless stated otherwise;
•	subject to rounding, whereby amounts may not add up precisely to the totals provided.

Accounting estimates and judgments

The preparation of financial statements requires management to make a number of estimates and judgments that affect the application of accounting policies and the reporting amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Amounts recognized are based on factors that are by default associated with uncertainty. Actual results may therefore differ from estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to estimates are recognized prospectively. Where applicable, the estimates and judgments of specific financial statement items are described in the respective note to the consolidated financial statements.

The areas involving a higher degree of judgment and complexity in applying accounting principles and for which changes in the assumptions and estimates could result in significantly different results than those recorded in the consolidated financial statements are the following:

•	Assessment of control (below paragraph Basis of consolidation and Interests in entities, starting on page 161)
•	Revenue recognition (Income from operations, starting on page 162)
•	For acquisitions, the identification and valuation of acquired assets and liabilities including contingent considerations provisions (Acquisitions and divestments, starting on page 158, Provisions, starting on page 193)
•	Determination of deferred tax assets for losses carried forward and uncertain tax positions (Income taxes, starting on page 168)
•	Assumptions used for impairment testing (Property, plant and equipment, starting on page 173, Goodwill, starting on page 176, Intangible assets excluding goodwill, starting on page 181)
•	Assessments of exposure to credit risk of financial instruments (Note Other financial assets, starting on page 184, Receivables, starting on page 186, Debt, starting on page 191, Fair value of financial assets and liabilities, starting on page 214, Details of treasury and other financial risks, starting on page 218)
•	Assumptions used to determine the net realizable value of inventories (Inventories, starting on page 186)
•	Actuarial assumptions of future events that are used in calculating post-employment benefit expenses and liabilities (Post-employment benefits, starting on page 198)
•	Estimating the likelihood of a potential outflow of resources, as well as the ability to make a reliable estimate of the obligation relating to provisions and contingent liabilities (Provisions, starting on page 193, Contingencies, starting on page 204)

The company regularly updates its significant assumptions and estimates to support the reported amounts of assets, liabilities, income and expenses. In relation to areas of judgment and estimates as disclosed in the accounting policies, those which are primarily impacted by the macroeconomic environment include impairment testing, valuation of inventories, valuation of deferred tax balances, measurement of financial instruments and the determination of fair values (for example fair values of acquired identifiable intangible assets, contingent considerations and certain investments).

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 specific financial impacts considered include, for example: specific climate mitigation measures, such as the use of lower carbon energy sources, the costs of developing more sustainable product offerings and expenses incurred to mitigate against the impact of extreme weather conditions.

Accounting policies

The general accounting policies as applied throughout the financial statements are described below. Accounting policies relating to specific financial statement items are included in the respective notes to the financial statements.

Basis of consolidation

The Consolidated financial statements comprise the financial statements of Koninklijke Philips N.V. and all subsidiaries that the company controls on a consolidated basis. Control exists when the company is exposed or has rights to variable returns from its involvement with the investee and the company has the ability to affect those returns through its power over the investee. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and in cases where Philips has less than a majority of the voting or similar rights of an investee, Philips considers all relevant facts and circumstances in assessing whether it has power over an investee, including the contractual arrangement(s) with the other vote holders of the investee, rights arising from other contractual arrangements and the company's voting rights and potential voting rights. Subsidiaries are fully consolidated from the date that control commences until the date that control ceases. All intercompany balances and transactions have been eliminated in the Consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

Foreign currency transactions

The financial statements of all group entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The euro (EUR) is the functional currency of the company and the presentation currency of the consolidated financial statements. Foreign currency transactions are converted into the functional currency using the exchange rates prevailing at transaction date or the valuation date in cases where items are remeasured. Gains and losses resulting from the settlement of foreign currency transactions and those resulting from the conversion of foreign currency denominated monetary assets and liabilities at period-end exchange rates are recognized in the Consolidated statements of income, except for qualifying cash flow hedges, qualifying net investment hedges and equity investments measured at fair value through OCI which are recognized in other comprehensive income.

All foreign exchange differences are presented as part of Cost of sales, apart from tax items and financial income and expense, which are recognized in the same line item as they relate to in the Consolidated statements of income.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency using the exchange rate at the date the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the transaction date.

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to euros at the exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated to euros at the exchange rates prevailing at the dates of the transactions.

Foreign currency differences arising upon translation of foreign operations into euros are recognized in Other comprehensive income and presented as part of Currency translation differences in Equity. However, if the operation is not a wholly-owned subsidiary, the proportionate share of the translation difference is allocated to Non-controlling interests.

When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the Currency translation differences related to the foreign operation is reclassified to the Consolidated statements of income as part of the gain or loss on disposal. When the company disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the respective proportion of the cumulative amount is reattributed to Non-controlling interests. When the company disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to the Consolidated statements of income.

Philips operates in two economies that are considered hyperinflationary, Argentina and Turkey. The impact of the application of IAS 29, Financial Reporting in Hyperinflationary Economies, is not material for the consolidated financial statements.

New accounting policies effective in 2022

No new IFRS accounting standards or amendments to existing standards, effective in 2022, had a significant impact on the consolidated financial statements. The company has not early adopted any standards or amendments to existing standards.

New accounting policies effective after 2022

The IASB has issued several IFRS accounting standards, or amendments to standards, with an effective date after 2022. The company does not anticipate that the application of these standards, or amendments to standards, will have a significant effect on the consolidated financial statements upon adoption.

Changes in presentation from the prior year

Accounting policies have been applied consistently for all periods presented in these consolidated financial statements. Certain prior-year amounts have been reclassified to conform to the current year presentation due to immaterial organizational changes.

2 Information by segment and main country

Accounting policies

Segment accounting policies are the same as the accounting policies applied by the company. Operating segments are components of the company's business activities about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the Executive Committee of the company). The Executive Committee decides how to allocate resources and assesses performance. Reportable segments comprise the operating segments Diagnosis & Treatment businesses, Connected Care businesses and Personal Health businesses. Additionally, besides these reportable segments, segment Other contains the items Innovation & Strategy, IP Royalties, Central costs, and other small items.

The Philips operating segments are Diagnosis & Treatment businesses, Connected Care businesses and Personal Health businesses, each being responsible for the management of its business worldwide. As of the first quarter of 2021 the Domestic Appliances business was presented as a discontinued operation and therefore no longer part of the Personal Health segment. The comparative results prior to that were restated to reflect the treatment of the Domestic Appliances business as a discontinued operation. Refer to Discontinued operations and assets classified as held for sale, starting on page 156.

Philips focuses on improving people's lives through meaningful innovation. The Diagnosis & Treatment segment unites the businesses related to the goal of precision diagnosis and disease pathway selection, and the businesses related to image-guided, minimally invasive treatment. The Connected Care segment focuses on patient care solutions, advanced informatics and analytics, and patient and workflow optimization inside and outside the hospital, and aims to unlock synergies from integrating and optimizing patient care pathways, and leveraging provider-payer-patient business models. The Personal Health segment focuses on healthy living and preventative care.

The Executive Committee of Philips is deemed to be the chief operating decision maker (CODM) for segment reporting purposes pursuant to IFRS 8 'Operating Segments'. The key segmental performance measure is Adjusted EBITA, which Management believes is the most relevant measure to evaluate the results of the segments.

Philips Group

Information on income statements in millions of EUR

	sales	sales including intercompany	depreciation and amortization ¹⁾	Adjusted EBITA
2022
Diagnosis & Treatment	9,168	9,471	(559)	774
Connected Care	4,403	4,441	(514)	95
Personal Health	3,626	3,684	(132)	538
Other	629	596	(397)	(89)
Inter-segment eliminations		(366)
Philips Group	17,827	17,827	(1,602)	1,318
2021
Diagnosis & Treatment	8,635	8,846	(459)	1,071
Connected Care	4,573	4,617	(382)	497
Personal Health	3,429	3,462	(131)	590
Other	519	531	(350)	(105)
Inter-segment eliminations		(299)
Philips Group	17,156	17,156	(1,323)	2,054
2020
Diagnosis & Treatment	8,175	8,289	(536)	818
Connected Care	5,543	5,620	(414)	1,191
Personal Health	3,199	3,198	(145)	433
Other	396	481	(368)	(165)
Inter-segment eliminations		(275)
Philips Group	17,313	17,313	(1,462)	2,277

¹⁾ Includes impairments (excluding goodwill impairment); for impairment values please refer to Property, plant and equipment, starting on page 173 and Intangible assets excluding goodwill, starting on page 181

The term Adjusted EBITA is used to evaluate the performance of Philips and its segments. EBITA represents Income from operations excluding amortization and impairment of acquired intangible assets and impairment of goodwill. Adjusted EBITA represents EBITA excluding gains or losses from restructuring costs, acquisition-related charges and other items.

Adjusted EBITA is not a recognized measure of financial performance under IFRS. Presented in the following table is a reconciliation of Adjusted EBITA to the most directly comparable IFRS measure, Net income, for the years indicated. 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.

Philips Group

Reconciliation from net income to Adjusted EBITA In millions of EUR

	Philips Group	Diagnosis & Treatment	Connected Care	Personal Health	Other
2022
Net Income	(1,605)
Discontinued operations, net of income taxes	(13)
Income tax expense	(113)
Investments in associates, net of income taxes	2
Financial expenses	258
Financial income	(58)
Income from operations	(1,529)	404	(2,246)	515	(202)
Amortization and impairment of acquired intangible assets	363	143	199	15	7
Impairment of goodwill	1,357	27	1,331
EBITA	192	573	(716)	531	(196)
Restructuring and acquisition-related charges	202	21	108	11	61
Other items:	925	180	703	(4)	46
Respironics field-action provision	250		250
Respironics field-action running remediation costs	210		210
R&D project impairments	134	120	12	3
Portfolio realignment charges	109		109
Impairment of assets in S&RC	39		39
Provision for public investigations tender irregularities	60	60
Provisions for quality actions in Connected Care	59		59
Remaining items	63	-	24	(6)	46
Adjusted EBITA	1,318	774	95	538	(89)

Philips Group

Reconciliation from net income to Adjusted EBITA In millions of EUR

	Philips Group	Diagnosis & Treatment	Connected Care	Personal Health	Other
2021
Net Income	3,323
Discontinued operations, net of income taxes	(2,711)
Income tax expense	(103)
Investments in associates, net of income taxes	4
Financial expenses	188
Financial income	(149)
Income from operations	553	941	(722)	576	(242)
Amortization and impairment of acquired intangible assets	322	153	148	15	6
Impairment of goodwill	15	2	13
EBITA	890	1,097	(562)	591	(236)
Restructuring and acquisition-related charges	95	7	93	(1)	(5)
Other items:	1,069	(32)	965	-	136
Respironics field-action provision	719	-	719		-
Respironics field-action running remediation costs	94		94
Provisions for quality actions in Connected Care	94		94
Loss on divestment of business	76				76
Remaining items	87	(32)	58	-	61
Adjusted EBITA	2,054	1,071	497	590	(105)

Philips Group

Reconciliation from net income to Adjusted EBITA In millions of EUR

	Philips Group	Diagnosis & Treatment	Connected Care	Personal Health	Other
2020
Net Income	1,195
Discontinued operations, net of income taxes	(196)
Income tax expense	212
Investments in associates, net of income taxes	9
Financial expenses	202
Financial income	(158)
Income from operations	1,264	497	704	362	(300)
Amortization and impairment of intangible assets	377	209	134	16	18
Impairment of goodwill	144	-	144
EBITA	1,784	706	982	378	(282)
Restructuring and acquisition-related charges	195	29	97	31	37
Other items	299	83	112	24	81
Adjusted EBITA	2,277	818	1,191	433	(165)

Transactions between the segments are mainly related to components and parts included in the product portfolio of the other segments. The pricing of such transactions was at cost or determined on an arm's length basis. Philips has no single external customer that represents 10% or more of sales.

Philips Group

Main countries in millions of EUR

	sales ¹⁾	tangible and intangible assets ²⁾
2022
Netherlands	540	1,746
United States	7,246	12,087
China	2,193	290
Japan	1,077	436
Germany	821	323
United Kingdom	463	527
France	400	249
Other countries	5,085	744
Total main countries	17,827	16,402
2021
Netherlands	570	1,934
United States	6,420	12,615
China	2,335	283
Japan	1,073	480
Germany	839	305
United Kingdom	481	567
France	397	49
Other countries	5,040	753
Total main countries	17,156	16,986
2020
Netherlands	404	1,926
United States	6,580	9,080
China	2,319	313
Japan	1,113	511
Germany	980	302
United Kingdom	509	545
Italy	383	111
Other countries	5,024	906
Total main countries	17,313	13,694

¹⁾ The sales are reported based on country of destination.
²⁾ Consists of Property plant and equipment, Intangible assets excluding goodwill and Goodwill

3 Discontinued operations and assets classified as held for sale

Accounting policies

Assets classified as held-for-sale

Non-current assets (or disposal groups) are classified as held-for-sale if their carrying amounts are expected be recovered through a sale transaction rather than through continuing use. Non-current assets (or disposal groups) classified as held-for-sale are measured at the lower of their carrying amount or the fair value less costs of disposal. Depreciation or amortization of an asset ceases when it is classified as held-for-sale. When non-current assets (or disposal groups) are classified as held-for-sale, comparative balances prior to such date are not represented in the Consolidated balance sheets.

Discontinued operations

A discontinued operation is a component of the company that has either been disposed of or is classified as held-for-sale and represents a separate major line of business or geographical area of operations or is a part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations. Any gain or loss from disposal, together with the results of these operations until the date of disposal, are reported separately as discontinued operations in the Consolidated statements of income.

The financial information of discontinued operations is excluded from the respective captions in the Consolidated financial statements and related notes for all periods presented. Comparatives are re-presented for presentation of discontinued operations in the Consolidated statements of income and Consolidated statements of cash flows.

Accounting estimates and judgments

The determination of the fair value less costs of disposal involves the use of estimates and assumptions that tend to be uncertain. Circumstances to which these adjustments may relate include resolution of uncertainties that arise from the terms of the disposal transaction, such as the resolution of purchase price adjustments and indemnifications, resolution of uncertainties that arise from and are directly related to the operations of the component before its disposal, such as environmental and assurance-type product warranty obligations retained by the company, and the settlement of employee benefit plan obligations provided that the settlement is directly related to the disposal transaction.

In 2020, 2021 and 2022 Discontinued operations consist primarily of the Domestic Appliances business. The following table summarizes the results of discontinued operations, net of income taxes, reported in the consolidated statements of income.

Philips Group

Discontinued operations, net of income taxes in millions of EUR

	2020	2021	2022
Domestic Appliances	206	2,698	3
Other	(10)	13	10
Discontinued operations, net of income taxes	196	2,711	13

Discontinued operations: Domestic Appliances

In 2022, net results from discontinued operations for Domestic Appliances was EUR 3 million.

On March 25, 2021, Philips signed an agreement to sell its Domestic Appliances business to global investment firm Hillhouse Investment. Since the first quarter of 2021, the Domestic Appliances business is presented as a discontinued operation, and comparative results have been restated to reflect the treatment of the Domestic Appliances business as a discontinued operation, because the sale of the Domestic Appliances business constitutes the discontinuance of a major line of business from the Personal Health segment.

The following table summarizes the results of Domestic Appliances included in the Consolidated statements of income as a discontinued operation.

Philips Group

Results of Domestic Appliances in millions of EUR

	2020	2021	2022
Sales	2,222	1,516	6
Costs and expenses	(1,944)	(1,322)	(2)
Income from operations	279	194	4
Result on the sale of discontinued operations		3,241	1
Income before tax	279	3,435	5
Income tax expense ¹⁾	(72)	6	(2)
Income tax related the sale of discontinued operations		(743)
Results from discontinued operations	206	2,698	3

¹⁾ The income tax expense from discontinued operations is calculated based on the separate return method, as if Domestic Appliances was filing its own separate tax returns.

Costs of EUR 64 million incurred in relation to the separation of the Domestic Appliances business in 2021 have been accounted for in continuing operations, because these costs reflect expenses incurred by Royal Philips in the divestment process and are not considered representative of the core business results of the Domestic Appliances business.

On September 1, 2021, the company completed the sale of the Domestic Appliances business and recognized a transaction gain before tax of EUR 3,241 million. Philips received consideration of EUR 4,041 million, which is based on an enterprise value of EUR 3,850 million, increased by an amount of EUR 191 million for closing adjustments related to working capital and net indebtedness. The transaction gain before tax is the net effect of (i) the EUR 4,041 million consideration (ii) less the derecognition of net assets employed of EUR 715 million (iii) less transaction related costs of EUR 16 million, (iv) less the release of cumulative translation losses of EUR 69 million included in Other comprehensive income. The income tax charges related to the divestment process was EUR 743 million, resulting in an after-tax transaction gain of EUR 2,499 million. The income tax charge represents the consolidated tax expense resulting from asset transactions completed as part of the disentanglement of the business in anticipation of its sale, a significant portion of which relates to taxes payable in the Netherlands. In addition, Philips and the buyer entered into a 15-year brand license agreement with future annual payments that represents an estimated net present value of approximately EUR 0.7 billion, which will be received and recognized overtime.

Discontinued operations: Other

Certain costs related to other divestments, which were previously reported as discontinued operations, resulted in a net gain of EUR 10 million in 2022, a net gain of EUR 13 million in 2021 and a net loss of EUR 10 million in 2020.

Discontinued operations cash flows

The following table presents the net cash provided by (used for) discontinued operations reported in the Consolidated statements of cash flows.

Net cash provided by (used for) discontinued operations in millions of EUR

	2020	2021	2022
Net cash provided by (used for) operating activities	129	85	(27)
Net cash provided by (used for) investing activities		3,319	15
Net cash provided by (used for) discontinued operations	129	3,403	(12)

In 2022, net cash used for discontinued operations was EUR (12) million and consisted primarily of cash flows related to the tax claims from the previously divested business.

In 2021, net cash provided for discontinued operations was EUR 3,403 million and consisted primarily of the net cash inflow of EUR 3,319 million from the sale of the Domestic Appliances business on September 1, 2021.

In 2020, net cash provided for discontinued operations was EUR 129 million and consisted primarily of cash flows provided by operating activities of the Domestic Appliances business, partly offset by advance income tax payments amounting to EUR 78 million.

Assets classified as held for sale

As of December 31, 2022, assets held for sale consists of property, plant and equipment mainly related to the APAC Center Singapore building. The sale was finalized in January 2023.

As of December 31, 2021, assets held for sale consists of property, plant and equipment mainly related to the APAC Center Singapore building.

O Acquisitions and divestments

Accounting policies

Acquisitions

The company accounts for business combinations using the acquisition method when control is transferred to the group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired and the liabilities assumed. Transaction costs are expensed as incurred. Any contingent consideration is measured at fair value at the acquisition date and is initially presented in Long-term provisions. When the timing and amount of the consideration become more certain, it is reclassified to Accrued liabilities. If the contingent consideration that meets the definition of a financial instrument is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in the Consolidated statements of income.

Changes to the initial fair value of the acquired assets and liabilities, based on new information about the circumstances at the acquisition date, can be made up to twelve months after the acquisition date.

Divestments

Upon loss of control, the company derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising from the loss of control is recognized in the Consolidated statements of income. If the company retains any interest in the previous subsidiary, such interest is measured at fair value at the date the control is lost. Subsequently it is accounted for as either an equity-accounted investee (associate) or as a financial asset, depending on the level of influence retained. Further information on loss of control can be found in Discontinued operations and assets classified as held for sale, starting on page 156.

Accounting estimates and judgments

Intangible assets acquired in a business acquisition and the financial liability related to noncontrolling interest are measured at fair value at the date of the acquisition.

To determine the fair value of intangible assets at the acquisition date, estimates and assumptions are required. The valuation of the identifiable intangible assets involves estimates of expected sales, earnings and/or future cash flows and require use of key assumptions such as discount rate, royalty rate and growth rates.

Estimates are also applied when determining the fair value of legal cases and tax positions in the acquired entity. The fair value is based on estimates of the likelihood, the expected timing and the amount of the potential cash outflow. Provisions for legal cases and nonincome tax positions are recognized at fair value even if it is not probable that an outflow will be required to settle the obligation. After initial recognition and until the liability is settled, cancelled or expired, the liability is measured at the higher of the amount that would be recognized in accordance with IAS 37 'Provisions, contingent liabilities and contingent assets' and the initial liability amount. For income tax positions, the company applies IAS 12 'Income Taxes', which requires recognition of provisions only when the likelihood of cash outflow is considered probable.

2022

Acquisitions

In 2022 Philips completed three acquisitions. The acquisitions involved aggregated net cash outflow of EUR 359 million and contingent consideration of EUR 96 million measured at fair value. Upon acquisition, the company recognized aggregated Goodwill of EUR 307 million, Other intangible assets of EUR 179 million, Deferred tax assets of EUR 20 million and Deferred tax liabilities generated from the intangible assets of EUR 43 million.

Vesper Medical Inc. (Vesper) was the most notable acquisition and is discussed below. The remaining two acquisitions involved aggregated net cash outflow of EUR 139 million and contingent consideration of EUR 61 million measured at fair value. The two acquisitions resulted in aggregated Goodwill of EUR 130 million, Other intangible assets of EUR 95 million and Deferred tax liabilities of EUR 23 million.

The opening balance sheet positions reflect the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed with the acquisitions. The final determination of the fair values will be completed in 2023. As of December 31, 2022, the valuation studies necessary to determine the fair value of the intangible assets and the valuation of goodwill are preliminary.

Since the respective acquisition dates through December 31, 2022, the contribution to sales to third parties and net income of the three acquired entities was not material. The sales and net income of the combined entities would not differ materially from these amounts if the acquisition date had been January 1, 2022. Acquisition-related costs were not material.

Vesper

On January 11, 2022, Philips acquired all shares of Vesper for an amount of EUR 227 million in cash and EUR 34 million contingent consideration at fair value. Vesper, headquartered in Wayne, Pennsylvania, US, is a medical technology company that develops minimally-invasive peripheral vascular devices. The company is developing the Vesper DUO Venous Stent System®, commercialization of which is estimated to start after approval by the US Food and Drug Administration (FDA), expected in 2024. The Vesper DUO Venous Stent System® consists of venous stents intended to treat deep venous obstruction. It provides physicians with a modular portfolio to customize therapy, restore venous flow, and resolve the painful symptoms of deep venous disease for the broad range of patients suffering from chronic venous insufficiency. As of the acquisition date, Vesper forms part of the Image-Guided Therapy business portfolio of the Diagnosis & Treatment segment.

The condensed opening balance sheet of Vesper was as follows:

Opening balance sheet in millions of EUR

	At acquisition date
	Vesper Medical Inc
Assets
Intangible assets excluding goodwill	84
Deferred tax assets	15
Cash	7
Total Assets	106
Liabilities
Accounts payable and other payables	(1)
Deferred tax liabilities	(20)
Total Liabilities	(21)
Total identifiable net assets at fair value	85
Goodwill arising on acquisition	177
Total purchase consideration	262
Of which:
Purchase consideration transferred	227
Contingent consideration	34

Goodwill recognized in the amount of EUR 177 million mainly represents revenue synergies expected from the combination of Philips' peripheral vascular portfolio and Vesper's venous stenting solution to address the root cause of chronic deep venous disease (DVD). Strong clinical synergies between Vesper's innovative stenting solution and Philips' existing peripheral vascular offering will help to better support clinicians to decide, guide, treat and confirm during the procedure, thereby enhancing patient care. Vesper Goodwill is not taxdeductible.

The majority of the Intangible assets balance relates to capitalized development costs, the fair value of which is determined using the multi-period excess earnings method, which is a valuation technique that estimates the fair value of an asset based on market participants' expectations of the cash flows associated with that asset over its remaining useful life. The fair value of capitalized development costs is based on an estimate of positive future cash flows associated with incremental profits related to excess earnings, discounted at a rate of 12.0%. Capitalized development costs are tested for impairment on an annual basis until FDA approval is obtained and the asset is reclassified to an intangible asset that is depreciated over its economical useful life.

The contingent consideration arrangement requires Philips to pay the former owners of Vesper up to a maximum undiscounted amount of EUR 44 million contingent upon FDA approval of the Vesper DUO Venous Stent System. The fair value of the contingent consideration arrangement of EUR 34 million has been estimated by calculating the present value of the future expected cash flows. The estimate is based on a discount rate of 12% and assumed probability adjusted likelihood of FDA approval at a certain point in time.

Divestments

During 2022 Philips completed two divestments that were not material.

2021

Acquisitions

In 2021 Philips completed two acquisitions, BioTelemetry, Inc. and Capsule Technologies, Inc., that involved aggregated net cash outflow of EUR 2,824 million. Including final purchase price adjustment processed in the course of 2022, the company recognized aggregated Goodwill of EUR 2,113 million, Other intangible assets of EUR 840 million and related Deferred tax liabilities of EUR 206 million.

The condensed opening balance sheets of BioTelemetry and Capsule Technologies were as follows:

Opening balance sheet in millions of EUR

	At acquisition date
	BioTelemetry	Capsule Technologies
Assets
Intangible assets excluding goodwill	623	217
Property, plant and equipment	42	11
Other non-current assets	48	-
Deferred tax assets	77	17
Inventories	11	11
Receivables and other current assets	75	97
Cash	205	19
Total Assets	1,082	371
Liabilities
Accounts payable and other payables	(278)	(98)
Deferred tax liabilities	(160)	(46)
Long-term liabilities	(82)	(11)
Acquired provision for contingent considerations	(16)
Total Liabilities	(536)	(155)
Total identifiable net assets at fair value	547	217
Goodwill arising on acquisition	1,790	322
Purchase consideration transferred	2,337	539

BioTelemetry

On February 9, 2021, Philips successfully completed a tender offer to acquire all issued and outstanding shares of BioTelemetry, Inc. for USD 72 per share. As a result, BioTelemetry shares were delisted from NASDAQ. The total equity purchase price and the settlement of stock option rights, including BioTelemetry's cash and debt, involved an amount of EUR 2,132 million and EUR 172 million equity awards consideration paid to employees after the acquisition day.

BioTelemetry, headquartered in Malvern, Pennsylvania, is a leading US-based provider of remote cardiac diagnostics and monitoring solutions. BioTelemetry offers a complete range of clinically validated ambulatory cardiac diagnostics and monitoring services: Short term Holter monitoring services, Long-term Holter monitoring services, Event recorder services, and Mobile Cardiac Outpatient Telemetry (MCOT) services. The acquisition of BioTelemetry is a strong fit with Philips' cardiac care portfolio, and its strategy to transform the delivery of care along the health continuum with integrated solutions. BioTelemetry, forms part of the Connected Care segment.

Goodwill recognized in the amount of EUR 1,790 million mainly represents revenue synergies expected from the combination of Philips' cardiac care portfolio and its strategy to transform the delivery of care along the health continuum with integrated solutions, and BioTelemetry complete range of clinically validated ambulatory cardiac diagnostics and monitoring services. BioTelemetry Goodwill is not tax-deductible.

The majority of the Intangible assets balance relates to the Customer relationships asset, the fair value of which is determined using the multi-period excess earnings method, which is a valuation technique that estimates the fair value of an asset based on market participants' expectations of the cash flows associated with that asset over its remaining useful life. The fair value of the Customer relationships asset is based on an estimate of positive future cash flows associated with incremental profits related to excess earnings, discounted at a rate of 10.0%. The amortization period of the Customer relationships asset is 14 years. Receivables and other current assets reflect the best estimate at the acquisition date of the contractual cash flows expected to be received.

Since the acquisition date through December 31, 2021, the contribution to sales to third parties and net income of BioTelemetry was EUR 387 million and EUR 32 million loss, respectively. The sales and net income would not differ materially from these amounts if the acquisition date had been on January 1, 2021.

In 2021, acquisition-related costs of EUR 40 million were mainly recognized in General and administrative expenses.

Capsule Technologies

On March 4, 2021, Philips acquired all shares of Capsule Technologies, Inc. for an amount of EUR 520 million in cash. Capsule Technologies, headquartered in Andover, Massachusetts, is a leading provider of medical device integration and data technologies for hospitals and healthcare organizations. Capsule Technologies offers a leading vendor-neutral Medical Device Information Platform with a software-as-a-service business model. The acquisition of Capsule Technologies is a strong fit with Philips' strategy to transform the delivery of care along the health continuum with integrated solutions. Capsule Technologies, forms part of the Connected Care segment.

Goodwill recognized in the amount of EUR 322 million mainly represents revenue synergies expected from the combination of Philips' industry-leading portfolio of real-time patient monitoring, therapeutic devices, telehealth, informatics and interoperability solutions and Capsule's leading Medical Device Information Platform, connected through Philips' secure vendor-neutral cloud-based HealthSuite digital platform. Capsule Technologies Goodwill is not tax-deductible.

The majority of the Intangible assets balance relates to the Customer relationships asset, the fair value of which is determined using the multi-period excess earnings method, which is a valuation technique that estimates the fair value of an asset based on market participants' expectations of the cash flows associated with that asset over its remaining useful life. The fair value of the Customer relationships asset is based on an estimate of positive future cash flows associated with incremental profits related to excess earnings, discounted at a rate of 12.0%. The amortization period of the Customer relationships asset is 17 years.

Receivables and other current assets reflect the best estimate at the acquisition date of the contractual cash flows expected to be received.

Since the acquisition date through December 31, 2021, the contribution to sales to third parties and net income of Capsule was EUR 75 million and EUR 10 million loss, respectively. The sales and net income would not differ materially from these amounts if the acquisition date had been on January 1, 2021.

In 2021, acquisition-related costs of EUR 11 million were mainly recognized in General and administrative expenses.

Divestments

During 2021 Philips completed three divestments. On September 1, 2021, Philips sold its Domestic Appliances business to global investment firm Hillhouse Investment. For further details on this transaction, refer to note Discontinued operations and assets classified as held for sale, starting on page 156.

In addition, the company completed the divestment of the PERS business on June 30, 2021 and completed the divestment of a small business of segment Other on September 17, 2021. As part of PERS divestment, Philips acquired shares in the buyer Connect America Investment Holdings, LLC with a value of EUR 40 million. The investment is classified as a financial asset measured at Fair Value through Other Comprehensive Income (FVTOCI) and is reported as part of Other non-current financial assets. The divestment resulted in a loss of EUR 75 million, which is included in Other Business Expenses in the Statement of Income.

5 Interests in entities

Accounting policies

Associates are all entities over which the company has significant influence, but not control or joint control. Significant influence is presumed with a shareholding of between 20% and 50% of the voting rights.

Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The carrying amount of an investment in associate includes the carrying amount of goodwill identified on acquisition. An impairment loss on such investment is allocated to the investment as a whole.

The company's share of the net income of these associates is included in Investments in associates, net of income taxes, in the Consolidated statements of income, after adjustments to align the accounting policies with those of the company. Dilution gains and losses arising from investments in associates are recognized in the Consolidated statements of income as part of Investments in associates, net of income taxes. Impairment losses and gains or losses on sale of investments are recorded in the Consolidated statements of income, more specifically on the line item 'Investments in associates, net of income taxes'.

When the company's share of losses exceeds its interest in an associate, the carrying amount of that interest is reduced to zero and recognition of further losses is discontinued except to the extent that the company has an obligation or made payments on behalf of the associate.

The nature of the company's interests in its consolidated entities and associates, and the effects of those interests on the company's financial position and financial performance are discussed below.

Group companies

Below is a list of material subsidiaries as of December 31, 2022 representing greater than 5% of either the consolidated group Sales, Income from operations or Income from continuing operations (before any intra-group eliminations) of Group legal entities. All of the entities are fully consolidated in the group financial statements.

Philips Group

Interests in group companies in alphabetical order by country

2022

Legal entity name	Principal country of business
Philips (China) Investment Company, Ltd.	China
Philips Medizin Systeme Böblingen GmbH	Germany ¹⁾
Philips Japan, Ltd.	Japan
Philips Consumer Lifestyle B.V.	Netherlands
Philips Oral Healthcare B.V.	Netherlands
Philips Ultrasound LLC	United States
Philips North America LLC	United States
Philips USA Export Corporation	United States

¹⁾ Application of Sec. 264 (3) and Sec. 264b HGB (German Commercial Code) for fully consolidated legal entities: Philips GmbH, Hamburg; Philips Medical Systems DMC GmbH, Hamburg; Respironics Deutschland GmbH & Co. KG, München; Philips Medizin Systeme Hofheim-Wallau GmbH, Hamburg; Philips Medizin Systeme Boblingen GmbH, Boblingen; TomTec Imaging Systems GmbH, UnterschleiBheim; Forecare GmbH, Ratingen.

Information related to non-controlling interests

As of December 31, 2022, four consolidated subsidiaries are not wholly owned by Philips (December 31, 2021: four). In 2022, Sales to third parties and Net income for these subsidiaries in aggregate are EUR 472 million (December 31, 2021: EUR 522 million) and EUR 28 million (December 31, 2021: EUR 39 million), respectively.

Investments in associates

Philips has investments in a number of associates. During 2022, Philips purchased eight investments in associates for a total amount of EUR 256 million. The most notable investment was a EUR 172 million investment in B-SOFT Co, Ltd, a China-based IT supplier for the medical and health sectors, listed on the stock exchange in Shenzhen. Philips acquired only a 10% interest, but determined that it is able to exercise significant influence amongst others due to its representation on B-SOFT's Board of Directors. None of these investments are regarded as individually material from the point of view of the consolidated financial statements.

In 2022, Philips recorded an impairment of EUR 66 million in relation to its interest in Candid Care Co. As part of the acquisition of Affera, Inc. by Medtronic plc in August 2022, the company sold its investment in Affera to Medtronic and recorded a gain of EUR 84 million on the sale.

Cumulative translation adjustments related to investments in associates were EUR 22 million as of December 31, 2022 (2021: EUR 32 million).

Involvement with unconsolidated structured entities

Philips founded three Philips Medical Capital (PMC) entities, in the United States, France and Germany, in which Philips holds a minority interest. Philips Medical Capital, LLC in the United States is the most significant entity. PMC entities provide healthcare equipment financing and leasing services to Philips customers for diagnostic imaging equipment, patient monitoring equipment, and clinical IT systems.

The company concluded that it does not control, and therefore should not consolidate the PMC entities. In the United States, PMC operates as a subsidiary of De Lage Landen Financial Services, Inc. The same structure and treatment is applied to the PMC entities in the other countries, with other majority shareholders. Operating agreements are in place for all PMC entities, whereby acceptance of sales and financing transactions resides with the respective majority shareholder. After acceptance of a transaction by PMC, Philips transfers control and does not retain any obligations towards PMC or its customers, from the sales contracts.

As of December 31, 2022, Philips' shareholding in Philips Medical Capital, LLC had a carrying value of EUR 29 million (December 31, 2021: EUR 27 million).

The company does not have any material exposures to losses from interests in unconsolidated structured entities other than the invested amounts.

6 Income from operations

Accounting policies

Revenue recognition

The company recognizes revenue when it transfers control over a good or service to a customer, in an amount that reflects the consideration (i.e., transaction price) to which the company expects to be entitled to in exchange for the good or service. The consideration expected by the company may include fixed and/or variable amounts which can be impacted by sales returns, trade discounts and volume rebates. The company adjusts the consideration for the time value of money if the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds six months.

Transfer of control varies depending on the individual terms of the contract of sale. For consumer-type products in the segment Personal Health businesses, control is transferred when the product is shipped and delivered to the customer and title and risk have passed to the customer (depending on the delivery conditions) and acceptance of the product has been obtained.

Revenues from transactions relating to distinct goods or services are accounted for separately based on their relative stand-alone selling prices. The stand-alone selling price is the price that would be charged for the goods or service in a separate transaction under similar conditions to similar customers. The transaction price is determined (considering variable considerations) and allocated to performance obligations based on their relative stand-alone selling prices. These transactions mainly occur in the segments Diagnosis & Treatment businesses and Connected Care businesses and include arrangements that require subsequent installation and training activities to make distinct goods operable for the customer. As such, the related installation and training activities are part of equipment sales rather than separate performance obligations. Revenue is recognized when the performance obligation is satisfied, i.e., when the installation has been completed and the equipment is ready to be used by the customer in the way contractually agreed.

Variable consideration is included in the transaction price to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur once associated uncertainties are resolved. Such assessment is performed on each reporting date to check whether it is constrained. For products for which a right of return exists during a defined period, revenue recognition is determined based on the historical pattern of actual returns, or in cases where such information is not available, revenue recognition is postponed until the return period has lapsed. Return policies are typically based on customary return arrangements in local markets. A provision is recognized for assurance-type product warranty at the time of revenue recognition and reflects the estimated costs of replacement and free-of-charge services that will be incurred by the company with respect to the products sold. For certain products, the customer has the option to purchase the warranty separately, which is considered a separate performance obligation on top of the assurance-type product warranty. For such warranties which provide distinct service, revenue recognition occurs on a straight-line basis over the extended warranty contract period.

In the case of loss under a sales agreement, the loss is recognized immediately.

Sale of goods

Revenues are recognized at a point in time when control of the goods passes to the buyer, based on the allocation of the transaction price to the performance obligation.

Revenue from services

Revenues are recognized over time as the company transfers control of the services to the customer which is demonstrated by the customer simultaneously receiving and consuming the benefits provided by the company. The amount of revenues is measured by reference to the progress made towards complete satisfaction of the performance obligation, which in general is evenly over time. Service revenue related to repair and maintenance activities for goods sold is recognized ratably over the service period or as services are rendered.

Income from royalties

Royalty income from brand license arrangements and from intellectual property rights, such as technology licenses or patents, is recognized on an accrual basis in accordance with the substance of the relevant agreement.

Shipping and handling

Expenses incurred for shipping and handling are mainly recorded as cost of sales. When shipping and handling are part of a project and billed to the customer, then the related expenses are recorded as cost of sales. Shipping and handling related to sales to third parties are partly recorded as selling expenses. When shipping and handling billed to customers are considered a distinct and separate performance obligation, the fees are recognized as revenue and costs included in cost of sales.

Other business income (expenses)

Other business income (expenses) includes gains and losses on the sale of property, plant and equipment, gains and losses on the sale of businesses as well as other gains and losses not related to the company's operating activities.

Government grants

Grants from governments are recognized at their fair value when there is a reasonable assurance that the grant will be received and the company will comply with the conditions. Grants related to costs are deferred in the consolidated balance sheet and recognized in the consolidated statement of income as a reduction of the related costs that they are intended to compensate. Grants related to assets are deducted from the cost of the asset and presented net in the consolidated balance sheets.

Accounting estimates and judgments

Sales-related accruals

The company has sales promotions-related agreements with distributors and retailers designed to promote the sale of products. Among the programs are arrangements under which rebates and discounts can be earned by the distributors and retailers by attaining agreed upon sales levels, or for participating in specific marketing programs. Management estimates the sales-related accruals associated with these arrangements based on a combination of historical patterns and future expectations regarding which promotional targets are expected to be met by distributors and retailers. Accrued customer rebates are presented as other current liabilities, unless there is a right to offset against the respective accounts receivable.

A breakdown by nature of the income (loss) from operations is as follows:

Philips Group

Sales and costs by nature in millions of EUR

	2020	2021	2022
Sales	17,313	17,156	17,827
Costs of materials used	(4,221)	(4,142)	(4,320)
Employee benefit expenses	(6,289)	(6,246)	(6,952)
Depreciation and amortization ¹⁾	(1,462)	(1,323)	(1,602)
Impairment of goodwill	(144)	(15)	(1,357)
Shipping and handling	(554)	(645)	(756)
Advertising and promotion	(696)	(752)	(739)
Lease expenses	(34)	(19)	(39)
Other operational costs	(2,741)	(3,524)	(3,609)
Other business income (expenses)	92	63	18
Income from operations	1,264	553	(1,529)

¹⁾ Includes impairments; for impairment values please refer to Property, plant and equipment, starting on page 173 and Intangible assets excluding goodwill, starting on page 181

Sales composition and disaggregation

For information related to sales on a segment and geographical basis, refer to Information by segment and main country, starting on page 153.

Philips Group

Sales composition in millions of EUR

	2020	2021	2022
Goods	12,491	11,981	12,139
Services	4,058	4,374	4,878
Royalties	301	383	419
Total sales from contracts with customers	16,851	16,738	17,435
Sales from other sources	462	418	391
Total sales	17,313	17,156	17,827

Total sales from other sources mainly relates to leases, including sublease income from right- of-use assets and related services of EUR 258 million (2021: EUR 293 million 2020: EUR 325 million). Sales represent revenue from external customers.

As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations from a sale of goods and services was EUR 16.57 million. The company expects to recognize approximately 50% of the remaining performance obligations within 1 year. Revenue expected to be recognized beyond 1 year is mostly related to longer term customer service and software contracts.

Sales over time represent services and Other also includes royalties over time (2022: EUR 292 million 2021: EUR 220 million 2020: EUR 211 million).

Philips Group

Disaggregation of Sales per segment in millions of EUR

	2022
	Sales at a point in time	Sales over time	Total sales from contracts with customers	Sales from other sources	Total sales
Diagnosis & Treatment	5,565	3,547	9,112	56	9,168
Connected Care	2,803	1,266	4,068	335	4,403
Personal Health	3,615	11	3,626		3,626
Other	279	348	629	-	629
Philips Group	12,263	5,172	17,435	391	17,827

Philips Group

Disaggregation of Sales per segment in millions of EUR

	2021
	Sales at a point in time	Sales over time	Total sales from contracts with customers	Sales from other sources	Total sales
Diagnosis & Treatment	5,408	3,177	8,583	52	8,635
Connected Care	3,116	1,090	4,207	366	4,573
Personal Health	3,423	6	3,429		3,429
Other	194	323	518	-	519
Philips Group	12,142	4,596	16,738	418	17,156

Philips Group

Disaggregation of Sales per segment in millions of EUR

	2020
	Sales at a point in time	Sales over time	Total sales from contracts with customers	Sales from other sources	Total sales
Diagnosis & Treatment	5,133	2,997	8,129	46	8,175
Connected Care	4,183	943	5,126	417	5,543
Personal Health	3,195	4	3,199		3,199
Other	69	327	396	-	396
Philips Group	12,580	4,271	16,851	462	17,313

Philips Group

Disaggregation of Sales per geographical cluster in millions of EUR

	2022
	Sales at a point in time	Sales over time	Total sales from contracts with customers	Sales from other sources	Total sales
Western Europe	2,387	1,183	3,572	31	3,603
North America	4,889	2,612	7,502	86	7,588
Other mature geographies	972	399	1,369	274	1,643
Total mature geographies	8,248	4,194	12,443	390	12,833
Growth geographies	4,015	978	4,992	1	4,993
Sales	12,263	5,172	17,435	391	17,827

Philips Group

Disaggregation of Sales per geographical cluster in millions of EUR

	2021
	Sales at a point in time	Sales over time	Total sales from contracts with customers	Sales from other sources	Total sales
Western Europe	2,537	1,087	3,624	21	3,645
North America	4,427	2,268	6,695	86	6,781
Other mature geographies	1,000	386	1,386	309	1,694
Total mature geographies	7,964	3,741	11,705	415	12,120
Growth geographies	4,178	856	5,033	3	5,036
Sales	12,142	4,596	16,738	418	17,156

Philips Group

Disaggregation of Sales per geographical cluster in millions of EUR

	2020
	Sales at a point in time	Sales over time	Total sales from contracts with customers	Sales from other sources	Total sales
Western Europe	2,747	936	3,682	19	3,702
North America	4,654	2,135	6,789	95	6,884
Other mature geographies	1,035	373	1,408	342	1,750
Total mature geographies	8,435	3,444	11,879	457	12,336
Growth geographies	4,145	828	4,972	5	4,977
Sales	12,580	4,271	16,851	462	17,313

Costs of materials used

Cost of materials used represents the inventory recognized in cost of sales.

Employee benefit expenses

Philips Group

Employee benefit expenses in millions of EUR

	2020	2021	2022
Salaries and wages excluding share-based compensation	5,085	5,014	5,594
Share-based compensation	119	115	104
Post-employment benefit costs	418	396	439
Other social security and similar charges:
Required by law	556	529	590
Voluntary	111	192	225
Employee benefit expenses	6,289	6,246	6,952

The employee benefit expenses relate to employees who are working on the payroll of Philips, both with permanent and temporary contracts.

For further information on post-employment benefit costs, refer to Post-employment benefits, starting on page 198.

For details on the remuneration of the members of the Board of Management and the Supervisory Board, referto Information on remuneration, starting on page 211.

Employees

The average number (full-time equivalents, or FTEs) of employees by category is summarized as follows:

Philips Group

Employees by category in FTEs

	2020	2021	2022
Production	35,482	38,618	39,742
Research & development	10,812	10,751	11,690
Other	22,474	22,543	23,019
Employees	68,769	71,912	74,451
Third party workers	4,998	4,533	4,086
Philips Group	73,767	76,445	78,538

Employees consist of those persons working on the payroll of Philips and whose costs are reflected in employee benefit expenses. Other consists of employees in commercial, general and administrative functions. Third party workers consist of personnel hired on a per-period basis, via external companies.

Philips Group

Employees by geographical location in FTEs

	2020	2021	2022
Netherlands	11,146	11,142	11,180
Other countries	62,621	65,303	67,357
Philips Group	73,767	76,445	78,538

Depreciation and amortization

Depreciation of property, plant and equipment and amortization of intangible assets, including impairments, are as follows:

Philips Group

Depreciation and amortization ¹⁾ in millions of EUR

	2020	2021	2022
Depreciation of property, plant and equipment	691	630	711
Amortization of software	76	88	117
Amortization of other intangible assets	377	322	363
Amortization of development costs	319	284	411
Depreciation and amortization	1,462	1,323	1,602

¹⁾ Includes impairments; for impairment values please refer to Property, plant and equipment, starting on page 173 and Intangible assets excluding goodwill, starting on page 181

Depreciation of property, plant and equipment is mainly included in cost of sales. Amortization of software is mainly included in general and administration expenses. Amortization of other intangible assets is included in selling expenses for brand names and customer relationships and is included in cost of sales for technology based and other intangible assets. Amortization of development costs is included in research and development expenses.

Impairment of goodwill

Shipping and handling

Shipping and handling costs are included in cost of sales and selling expenses in the Consolidated statements of income, starting on page 145.

Advertising and promotion

Advertising and promotion costs are included in selling expenses in the Consolidated statements of income, starting on page 145.

Lease expense

Lease expense relates to short-term and low value leases.

Other operational costs

Other operational costs contain items which are dissimilar in nature and individually insignificant in amount to disclose separately. These costs contain among others expenses for outsourcing services, mainly in Information Technology and Human Resources, third party workers, consultants, warranty, patents, costs for travelling and external legal service. Government grants of EUR 103 million were recognized as cost reduction in 2022 (2021: EUR 104 million 2020: EUR 98 million). The grants mainly relate to research and development activities and business development. The increase in other operational costs 2021 versus 2020 is mainly due to the Respironics field action provision. For more details refer to Provisions, starting on page 193.

Audit and audit-related fees

The following table shows the fees attributable to the fiscal years 2020, 2021 and 2022 for services rendered by the external auditors.

Philips Group

Audit and audit-related fees in millions of EUR

	2020
	EY NL ¹⁾	EY Network	Total
Audit fees	9.0	5.6	14.6
consolidated financial statements	9.0	2.9	11.9
statutory financial statements		2.7	2.7
Audit-related fees ²⁾	2.2	0.5	2.7
divestment	1.5	0.2	1.7
sustainability assurance	0.5		0.5
other	0.2	0.3	0.5
Tax fees
All other fees
Fees	11.2	6.1	17.3

	2021
	EY NL ¹⁾	EY Network	Total
Audit fees	10.3	5.4	15.7
consolidated financial statements	10.3	2.7	13.0
statutory financial statements		2.7	2.7
Audit-related fees ²⁾	0.6	0.3	0.9
divestment
sustainability assurance	0.5		0.5
other	0.1	0.3	0.4
Tax fees
All other fees
Fees	10.9	5.7	16.6

	2022
	EY NL ¹⁾	EY Network	Total
Audit fees	8.9	5.5	14.4
consolidated financial statements	8.9	3.0	11.9
statutory financial statements		2.5	2.5
Audit-related fees ²⁾	0.7	0.2	0.9
divestment
sustainability assurance	0.6		0.6
other	0.1	0.2	0.3
Tax fees
All other fees
Fees	9.6	5.7	15.3

¹⁾ Ernst & Young Accountants LLP
²⁾ Also known as Assurance fees

Other business income (expenses)

Other business income (expenses) consists of the following:

Philips Group

Other business income (expenses) in millions of EUR

	2020	2021	2022
Result on disposal of businesses:
income	-	-	4
expenses	-	(75)	-
Result on disposal of fixed assets:
income	2	24	3
expenses	-	(5)	(1)
Result on other remaining businesses:
income	120	161	121
expenses	(30)	(43)	(109)
Other business income (expenses)	92	63	18
Total other business income	122	186	127
Total other business expenses	(29)	(123)	(109)

The result on disposal of businesses mainly relates to divestment of non-strategic businesses. For more information refer to Acquisitions and divestments, starting on page 158.

The result on disposal of fixed assets mainly relates to the sale of real estate assets.

The result on other remaining businesses mainly relates to the revaluation of contingent consideration and various legal matters. For information on contingent consideration, refer to Provisions, starting on page 193.

• Financial income and expenses

Accounting policies

Financial income and expenses are recognized on the accrual basis in the consolidated statements of income. Interest income and expense are measured using the effective interest method. Dividend income is recognized in the consolidated statements of income on the date that the company's right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

Philips Group

Financial income and expenses in millions of EUR

	2020	2021	2022
Interest income	13	18	25
Interest income from loans and receivables	8	7	7
Interest income from cash and cash equivalents	5	11	18
Dividend income from financial assets	3	2	3
Net gains from disposal of financial assets	2	-	-
Net change in fair value of financial assets through profit or loss	129	95	9
Other financial income	12	33	20
Financial income	158	149	58
Interest expense	(173)	(159)	(235)
Interest expense on debt and borrowings	(130)	(126)	(200)
Finance charges under lease contract	(29)	(25)	(25)
Interest expense on pensions	(13)	(8)	(10)
Provision-related accretion expenses	(10)	(5)	(9)
Net foreign exchange gains (losses)	4	-	9
Other financial expenses	(23)	(24)	(24)
Financial expenses	(202)	(188)	(258)
Financial income and expenses	(44)	(39)	(200)

In 2022, Financial income and expenses increased by EUR 161 million year-on-year, mainly due to higher interest expense and lower fair value gains. The lower fair value gains are mainly from investments in limited-life funds (mainly Glide Healthcare) and other investments recognized at fair value through profit or loss compared with in 2021. Net interest expense in 2022 was EUR 69 million higher than in 2021, mainly due to the financial charges related to early redemption of EUR and USD bonds and issuance of new EUR bonds issued in 2022. The decrease in other financial income is mainly due to higher interest income on tax in 2021.

In 2021, Financial income and expenses decreased by EUR 5 million year-on-year, mainly due to higher other financial income and lower interest expense, offset by lower fair value gain. Fair value gains of EUR 95 million are from investments in limited-life funds (mainly Gilde Healthcare) and other investments recognized at fair value through profit or loss. Net interest expense in 2021 was EUR 19 million lower than in 2020, mainly due to lower interest expense on borrowings and provisions, and interest expense on pensions. The increase in other financial income is mainly due to higher interest income on tax.

(8) Income taxes

Accounting policies

Income taxes comprise current, non-current and deferred tax. Income tax is recognized in the Consolidated statements of income except to the extent that it relates to items recognized directly within equity or in other comprehensive income. Current tax is the expected taxes payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

In cases where it is concluded it is not probable that tax authorities will accept a tax treatment, the effect of the uncertainty is reflected in the recognition and measurement of tax assets and liabilities or, alternatively, a provision is made for the amount that is expected to be settled, where this can be reasonably estimated. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the company to change its judgment regarding the adequacy of existing tax assets and liabilities. Such changes to tax assets and liabilities will impact the income tax expense in the period during which such a determination is made.

Deferred tax assets and liabilities are recognized, using the consolidated balance sheets method, for the expected tax consequences of temporary differences between the carrying amounts of assets and liabilities and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill; the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and differences relating to investments in subsidiaries, joint ventures and associates where the reversal of the respective temporary difference can be controlled by the company and it is probable that it will not reverse in the foreseeable future. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity or on different taxable entities, but the company intends to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that there will be future taxable profits against which they can be utilized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the countries where the deferred tax assets originated and during the periods when the deferred tax assets become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Deferred tax liabilities for withholding taxes are recognized for subsidiaries in situations where the income is to be paid out as dividend in the foreseeable future and for undistributed earnings of unconsolidated companies to the extent that these withholding taxes are not expected to be refundable or deductible. Changes in tax rates and tax laws are reflected in the period when the change was enacted or substantively enacted by the reporting date.

Any subsequent adjustment to a tax asset or liability that originated in discontinued operations and for which no specific arrangements were made at the time of divestment, due to a change in the tax base or its measurement, is allocated to discontinued operations (i.e. backwards tracing). Examples are a tax rate change or change in retained assets or liabilities directly relating to the discontinued operation. Any subsequent change to the recognition of deferred tax assets is allocated to the component in which the taxable gain is or will be recognized. The above principles are applied to the extent the 'discontinued operations' are sufficiently separable from continuing operations.

Accounting estimates and judgments

Deferred tax recoverability

Deferred tax assets are recognized to the extent that it is probable that there will be future taxable profits against which these can be utilized. Significant judgment is involved in determining whether such profits are probable. Management determines this on the basis of expected taxable profits arising from the reversal of recognized deferred tax liabilities, appropriate tax planning opportunities to support business goals and on the basis of forecasts.

Uncertain tax positions

Uncertain tax positions are recognized as liabilities if and to the extent it is probable that additional tax will be due and the amount can be reliably measured. Significant judgment is involved in determining these positions.

The income tax benefit of continuing operations amounts to EUR 113 million (2021: EUR 103 million tax benefit, 2020: EUR 212 million tax expense).

The components of income before taxes and income tax expense are as follows:

Philips Group

Income tax expense in millions of EUR

	2020	2021	2022
Income before taxes	1,211	509	(1,731)
Investments in associates, net of income taxes	(9)	(4)	(2)
Income before taxes and Investment in associates	1,220	513	(1,729)
Current tax (expense) benefit	(380)	(298)	(97)
Deferred tax (expense) benefit	167	401	210
Income tax (expense) of continuing operations	(212)	103	113

Income tax benefit of continuing operations excludes the tax benefit of the discontinued operations of EUR 18 million (2021: EUR 737 million expense, 2020: EUR 81 million expense), mainly related to the release of provisions.

The components of income tax expense of continuing operations are as follows:

Philips Group

Current income tax expense in millions of EUR

	2020	2021	2022
Current year tax (expense) benefit	(390)	(291)	(111)
Prior year tax (expense) benefit	10	(7)	14
Current tax (expense) benefit	(380)	(298)	(97)

Philips Group

Deferred income tax expense In millions of EUR

	2020	2021	2022
Recognition of previously unrecognized tax loss and credit carryforwards	6	138	2
Unrecognized tax loss and credit carryforwards		(10)	(13)
Changes to recognition of temporary differences	19	(1)	(4)
Prior year tax (expense) benefit	(8)	20	(1)
Tax rate changes	12	10	(18)
Origination and reversal of temporary differences, tax losses and tax credits	137	245	244
Deferred tax (expense) benefit	167	401	210

Philips' operations are subject to income taxes in various foreign jurisdictions. The statutory income tax rate varies per country, which results in a difference between the weighted average statutory income tax rate and the Netherlands' statutory income tax rate of 25.8% (2021: 25.0% 2020: 25.0%).

A reconciliation of the weighted average statutory income tax rate to the effective income tax rate of continuing operations is as follows:

Philips Group

Effective income tax rate in %

	2020	2021	2022
Weighted average statutory income tax rate in %	25.2	22.7	23.6
Recognition of previously unrecognized tax loss and credit carryforwards	(0.5)	(26.9)	0.1
Unrecognized tax loss and credit carryforwards	0.0	1.9	(0.7)
Changes to recognition of temporary differences	(1.6)	0.3	(0.2)
Non-taxable income and tax incentives	(12.9)	(40.6)	5.8
Non-deductible expenses	7.0	19.3	(22.9)
Withholding and other taxes	0.6	7.2	(1.4)
Tax rate changes	(1.0)	(1.9)	(1.0)
Prior year tax	(0.2)	(2.4)	0.7
Tax expense (benefit) due to change in uncertain tax treatments	1.2	4.4	2.8
Others, net	(0.2)	(4.0)	(0.2)
Effective income tax rate	17.6	(20.0)	6.5

The effective income tax rate is lower than the weighted average statutory income tax rate in 2022 mainly due to a non-deductible goodwill impairment in the Sleep & Respiratory Care business and other non-deductible expenses such as share based compensation expenses, partly offset by recurring favorable tax incentives related to R&D investments, the innovation box regime in the Netherlands and export activities.

Due to the loss position in 2022, items such as non-deductible expense lead to a decrease of the effective income tax rate and items such as tax incentives lead to an increase in the effective income tax rate.

Deferred tax assets and liabilities

Deferred tax assets are recognized for temporary differences, unused tax losses, and unused tax credits to the extent that realization of the related tax benefits is probable. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the countries where the deferred tax assets originated and during the periods when the deferred tax assets become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

Net deferred tax assets relate to the following underlying assets and liabilities and tax loss carryforwards (including tax credit carryforwards) and their movements during the years 2022 and 2021 respectively are presented in the following tables.

The net deferred tax assets of EUR 2,358 million (2021: EUR 2,134 million) consist of deferred tax assets of EUR 2,449 million (2021: EUR 2,216 million) and deferred tax liabilities of EUR 91 million (2021: EUR 83 million). Of the total deferred tax assets of EUR 2,449 million as of December 31, 2022 (2021: EUR 2,216 million), EUR 1,453 million (2021: EUR 12 million) is recognized in respect of entities in various countries where there have been tax losses in the current or preceding period. The increase is mainly related to the United States where there has been a tax loss in 2022, among others due to the consequences of the Respironics field action. Management's projections support the assumption that it is probable that the results of future operations will generate sufficient taxable income to utilize the tax losses as well the deductible temporary differences. The projections include forward-looking assumptions whereby the most recent available information was used to determine the expected period of recovery of the deferred tax assets. Relevant developments potentially impacting the period and probability of recovery will be monitored closely.

As of December 31, 2022 the temporary differences associated with investments, including potential income tax consequences on dividends, for which no deferred tax liabilities are recognized, aggregate to EUR 355 million (2021: EUR 298 million).

Philips Group

Deferred tax assets and liabilities in millions of EUR

	Balance as of January 1, 2022	recognized in income statement	other ¹⁾
Intangible assets	587	63	(20)
Property, plant and equipment	29	(33)	2
Inventories	372	75	17
Other assets	68	(16)	(8)
Pensions and other employee benefits	180	6	(32)
Other liabilities	499	(34)	17
Deferred tax assets on tax loss carryforwards	398	149	38
Set-off deferred tax positions
Net deferred tax assets	2,134	210	14

	Balance as of December 31, 2022	Assets	Liabilities
Intangible assets	630	783	(152)
Property, plant and equipment	(2)	49	(52)
Inventories	464	473	(8)
Other assets	44	98	(55)
Pensions and other employee benefits	153	175	(22)
Other liabilities	483	560	(77)
Deferred tax assets on tax loss carryforwards	586	586
Set-off deferred tax positions		(275)	275
Net deferred tax assets	2,358	2,449	(91)

¹¹ Other includes the movements of assets and liabilities recognized in equity and OCI, which includes foreign currency translation differences, acquisitions and divestments.

Philips Group

Deferred tax assets and liabilities in millions of EUR

	Balance as of January 1, 2021	recognized in income statement	other ¹⁾
Intangible assets	240	535	(188)
Property, plant and equipment	32	13	(16)
Inventories	313	31	28
Other assets	97	(30)	1
Pensions and other employee benefits	245	(45)	(21)
Other liabilities	384	91	25
Deferred tax assets on tax loss carryforwards	449	(194)	143
Set-off deferred tax positions
Net deferred tax assets	1,761	401	(28)

	Balance as of December 31, 2021	Assets	Liabilities
Intangible assets	587	716	(130)
Property, plant and equipment	29	55	(26)
Inventories	372	381	(9)
Other assets	68	112	(43)
Pensions and other employee benefits	180	182	(2)
Other liabilities	499	584	(84)
Deferred tax assets on tax loss carryforwards	398	398
Set-off deferred tax positions		(211)	211
Net deferred tax assets	2,134	2,216	(83)

¹⁾ Other includes the movements of assets and liabilities recognized in equity and OCI, which includes foreign currency translation differences, acquisitions and divestments.

The company has available tax loss and credit carryforwards, which expire as follows:

Philips Group

Expiry years of net operating loss and credit carryforwards in millions of EUR

	Total Balance as of December 31, 2021	Unrecognized balance as of December 31, 2021	Total Balance as of December 31, 2022	Unrecognized balance as of December 31, 2022
Within 1 year	1,593	1,592	4	3
1 to 2 years	6	-	10	5
2 to 3 years	9	-	9	3
3 to 4 years	7	-	13	4
4 to 5 years	18	-	38	3
Later	751	21	812	93
Unlimited	1,567	934	2,301	920
Total	3,951	2,547	3,187	1,032

As of December 31, 2022, the amount of deductible temporary differences for which no deferred tax asset has been recognized in the balance sheet was EUR 45 million (2021: EUR 33 million). The unrecognized balance as of December 31, 2021 (expiring within 1 year, EUR 1,592 million) which were partly utilized and the remainder expired unutilized.

Tax risks

Philips is exposed to tax risks and uncertainty over tax treatments. For particular tax treatments that are not expected to be accepted by tax authorities, Philips either recognizes a liability or reflects the uncertainty in the recognition and measurement of its current and deferred tax assets and tax attributes. For the measurement of the uncertainty, Philips uses the most likely amount or the expected value of the tax treatment. The expected liabilities resulting from the uncertain tax treatments are included in non-current tax liabilities (2022: EUR 435 million, 2021: EUR 544 million, decrease due to release of liabilities, in combination with higher tax losses or similar tax carryforwards that can be used if uncertain tax treatments were settled for the presumed amount at balance sheet date). The positions include, among others, the following:

Transfer pricing risks

Philips has issued transfer pricing directives, which are in accordance with international guidelines such as those of the Organization of Economic Co-operation and Development. In order to reduce the transfer pricing uncertainties, monitoring procedures are carried out by Group Tax to safeguard the correct implementation of the transfer pricing directives. However, tax disputes can arise due to inconsistent transfer pricing regimes and different views on "at arm's length" pricing.

Tax risks on general and specific service agreements and licensing agreements

Due to the centralization of certain activities (such as research and development, IT and group functions), costs are also centralized. As a consequence, these costs and/or revenues must be allocated to the beneficiaries, i.e. the various Philips entities. For that purpose, service contracts such as intra-group service agreements and licensing agreements are signed with a large number of group entities. Tax authorities review these intra-group service and licensing agreements, and may reject the implemented intra-group charges. Furthermore, buy in/out situations in the case of (de)mergers could affect the cost allocation resulting from the intragroup service agreements between countries. The same applies to the specific service agreements.

Tax risks due to disentanglements and acquisitions

When a subsidiary of Philips is disentangled, or a new company is acquired, tax risks may arise. Philips creates merger and acquisition (M&A) teams for these disentanglements or acquisitions. In addition to representatives from the involved business, these teams consist of specialists from various group functions and are formed, among other things, to identify tax risks and to reduce potential tax claims.

Tax risks due to permanent establishments

A permanent establishment may arise when a Philips entity has activities in another country, tax claims could arise in both countries on the same income.

9 Earnings per share

Accounting policies

The company presents basic and diluted earnings per share (EPS) data for its common shares. Basic EPS is calculated by dividing the Net income (loss) attributable to shareholders by the weighted average number of common shares outstanding (after deduction of treasury shares) during the period. Diluted EPS is determined by adjusting the Net income (loss) attributable to shareholders and the weighted average number of common shares outstanding (after deduction of treasury shares) during the period, for the effects of all dilutive potential common shares, which comprise performance shares, restricted shares and share options granted under share-based compensation plans as well as forward contracts to repurchase shares.

Philips Group

Earnings per share in millions of EUR unless otherwise stated ¹⁾

	2020	2021	2022
Income from continuing operations	999	612	(1,618)
Income from continuing operations attributable to shareholders	991	608	(1,622)
Income from continuing operations attributable to non-controlling interests	8	4	3
Income from discontinued operations	196	2,711	13
Income from discontinued operations attributable to shareholders	196	2,711	13
Net income	1,195	3,323	(1,605)
Net income attributable to shareholders	1,187	3,319	(1,608)
Net income attributable to non-controlling interests	8	4	3
Weighted average number of common shares outstanding (after deduction of treasury shares) during the period	907,721,150	904,271,675	881,615,862
Plus incremental shares from assumed conversions of:
Share options	757,622	387,125	25,506
Performance shares	5,561,501	2,548,891	1,147,790
Restricted shares	2,584,728	2,376,736	1,986,538
Forward contracts to repurchase shares		70,329	17,611,920
Dilutive potential common shares ²⁾	8,903,851	5,383,080	20,771,753
Diluted weighted average number of shares outstanding (after deduction of treasury shares) during the period	916,625,001	909,654,754	881,615,862
Basic earnings per common share in EUR
Income from continuing operations attributable to shareholders	1.09	0.67	(1.84)
Income from discontinued operations attributable to shareholders	0.22	3.00	0.02
Net income attributable to shareholders	1.31	3.67	(1.82)
Diluted earnings per common share in EUR ²⁾
Income from continuing operations attributable to shareholders	1.08	0.67	(1.84)
Income from discontinued operations attributable to shareholders	0.21	2.98	0.02
Net income attributable to shareholders	1.29	3.65	(1.82)
Dividend distributed per common share in EUR	0.85	0.85	0.85

¹⁾ Shareholders in this table refers to shareholders of Koninklijke Philips N.V.
²⁾ The dilutive potential common shares are not taken into account in the periods for which there is a loss, as the effect would be antidilutive

10 Property, plant and equipment

Accounting policies

Owned assets

The cost of property, plant and equipment comprise all directly attributable costs (including the cost of material and direct labor).

Depreciation is generally calculated using the straight-line method over the useful life of the asset. Land and assets under construction are not depreciated. When assets under construction are ready for their intended use, they are transferred to the relevant asset category and depreciation starts. All other property, plant and equipment items are depreciated over their estimated useful lives to their estimated residual values.

The estimated useful lives of property, plant and equipment are as follows:

Philips Group

Useful lives of property, plant and equipment

Buildings	from 5 to 50 years
Machinery and installations	from 3 to 20 years
Other equipment	from 1 to 10 years

Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the assets concerned may not be recoverable. An impairment loss is recognized for the amount by which the asset's book value exceeds their recoverable amount. Impairments are reversed if and to the extent that the impairment no longer exists. The recoverable amount is defined as the higher of the asset's fair value less costs of disposal and its value in use.

Gains and losses on the sale of property, plant and equipment are included in other business income. Costs related to repair and maintenance activities are expensed in the period in which they are incurred unless they extend the asset's original lifetime or capacity.

Right-of-use assets

The company leases various items of real estate, vehicles and other equipment. The company determines whether an arrangement constitutes or contains a lease based on the substance of the arrangement at the lease inception. The arrangement constitutes or contains a lease if fulfillment is dependent on the use of a specific asset and the arrangement conveys a right to use the asset, even if that asset is not explicitly specified in the arrangement.

Company as a lessee

The company recognizes right-of-use assets and lease liabilities for leases with a term of more than twelve months if the underlying asset is not of low value. Payments for shortterm and low-value leases are expensed over the lease term. Extension options are included in the lease term if their exercise is reasonably certain. Right-of-use assets are measured at cost less accumulated depreciation and impairment losses, adjusted for any remeasurements. Right-of-use assets are depreciated using the straight-line method over the shorter of the lease term and the useful life of the underlying assets.

Company as a lessor

When the company acts as a lessor, it determines at lease inception whether a lease is a finance lease or an operating lease. Leases in which the company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. The company recognizes lease payments received under operating leases as income on a straight-line basis over the lease term in the Consolidated statement of income.

Accounting estimates and judgments

Impairment of owned and right-of-use assets

Judgments are required, not only to determine whether there is an indication that an asset may be impaired, but also whether indications exist that impairment losses previously recognized may no longer exist or may have decreased (impairment reversal). After indications of impairment have been identified, estimates and assumptions are used in the determination of the recoverable amount of a fixed asset. These involve estimates of expected future cash flows (based on future growth rates and remaining useful life) and residual value assumptions, as well as discount rates to calculate the present value of the future cash flows.

Owned assets

Estimates are required to determine the (remaining) useful lives of fixed assets. Useful lives are determined based on an asset's age, the frequency of its use, repair and maintenance policy, technology changes in production and expected restructuring. The company estimates the expected residual value per asset item. The residual value is the higher of the asset's expected sales price (based on recent market transactions of similar sold items) and its material scrap value.

Right-of-use assets

Significant judgment is required to determine the lease term. The assessment of whether the company is reasonably certain to exercise extension options impacts the lease term, which could affect the amount of lease liabilities and right-of-use assets recognized.

Property, plant and equipment are fixed assets that are owned or right-of-use assets under a lease agreement.

Owned and right-of-use assets are held for use in Philips' operating activities.

Philips Group

Property, plant and equipment in millions of EUR

	2021	2022
Owned assets	1,641	1,718
Right-of-use assets	1,058	919
Total	2,699	2,638

Philips Group

Property, plant and equipment - owned assets in millions of EUR

	Land and buildings	Machinery and installations	Other equipment	Assets under construction	Total
Balance as of January 1, 2022
Cost	1,097	1,585	1,382	208	4,273
Accumulated depreciation	(591)	(1,074)	(967)		(2,632)
Book value	506	511	415	208	1,641
Additions	1	102	77	314	494
Assets available for use	34	69	111	(220)	(6)
Depreciation	(56)	(215)	(176)	-	(447)
Impairments	(3)	(20)	(18)	(1)	(42)
Transfer (to) from AHFS	(3)		-		(3)
Reclassifications	18	14	(5)	2	29
Translation differences and other	16	26	2	5	50
Total change	8	(23)	(8)	100	78
Balance as of December 31, 2022
Cost	1,135	1,779	1,454	309	4,676
Accumulated depreciation	(621)	(1,291)	(1,046)		(2,958)
Book value	514	488	408	309	1,718

Philips Group

Property, plant and equipment - right-of-use assets in millions of EUR

	Land and buildings	Machinery and installations	Other equipment	Total
Balance as of January 1, 2022
Cost	1,332	176	216	1,724
Accumulated depreciation	(418)	(139)	(109)	(666)
Book value	914	37	107	1,058
Additions	52	-	54	106
Assets available for use	5		1	6
Depreciation	(155)	(2)	(58)	(214)
Impairments	(8)	-	-	(9)
Transfer (to) from AHFS	3			3
Reclassifications	(19)	(13)	-	(32)
Translation differences and other	31	(23)	(6)	1
Total change	(92)	(37)	(9)	(139)
Balance as of December 31,2022
Cost	1,365	-	206	1,571
Accumulated depreciation	(543)		(108)	(651)
Book value	822	-	98	919

Philips Group

Property, plant and equipment - owned assets in millions of EUR

	Land and buildings	Machinery and installations	Other equipment	Assets under construction	Total
Balance as of January 1, 2021
Cost	1,076	1,506	1,572	261	4,415
Accumulated depreciation	(539)	(1,028)	(1,185)		(2,752)
Book value	537	478	387	261	1,663
Additions	9	62	77	261	409
Assets available for use	72	110	117	(305)	(5)
Acquisitions	-	9	43		53
Depreciation	(53)	(144)	(158)		(355)
Impairments	(1)	(6)	(11)	-	(18)
Transfer (to) from AHFS	(87)	(16)	(46)	(20)	(170)
Reclassifications	6	2	(10)	1	-
Translation differences and other	23	14	16	10	65
Total change	(31)	33	29	(53)	(22)
Balance as of December 31, 2021
Cost	1,097	1,585	1,382	208	4,273
Accumulated depreciation	(591)	(1,074)	(967)		(2,632)
Book value	506	511	415	208	1,641

Philips Group

Property, plant and equipment - right-of-use assets in millions of EUR

	Land and buildings	Machinery and installations	Other equipment	Assets under construction	Total
Balance as of January 1,2021
Cost	1,147	199	213	1	1,560
Accumulated depreciation	(310)	(144)	(86)		(540)
Book value	837	55	126	1	1,020
Additions	150	21	44		215
Assets available for use	2		3		5
Acquisitions	43				43
Depreciation	(157)	(32)	(63)		(252)
Impairments	1	(5)	-		(4)
Transfer (to) from AHFS	(7)		(1)		(8)
Reclassifications			2	(1)	1
Translation differences and other	44	(2)	(4)		39
Total change	77	(18)	(20)	(1)	38
Balance as of December 31, 2021
Cost	1,332	176	216		1,724
Accumulated depreciation	(418)	(139)	(109)		(666)
Book value	914	37	107		1,058

Lease related notes

Below are the references with respect to year-end disclosures as lessee:

•	Short-term and low-value leases, are disclosed in Income from operations, starting on page 162;
•	Disclosures regarding interest expenses on lease liabilities, are disclosed in Financial income and expenses, starting on page 167;
•	For disclosure on leasing related cash outflow and the split between interest and principal payments, refer to Cash flow statement supplementary information, starting on page 203;
•	For disclosure on sale and leaseback transactions, refer to Details of treasury and other financial risks, starting on page 218;
•	For disclosure on lease liabilities and maturity analysis, refer to Debt, starting on page 191;
•	Other qualitative and quantitative disclosures regarding the nature of lessee's leasing activities and future lease obligations, refer to Debt, starting on page 191.

Below are the references with respect to year-end disclosures as lessor:

•	For disclosures on lease income and sublease income, refer to Details of treasury and other financial risks, starting on page 218;
•	Other qualitative disclosures regarding the nature of lessors leasing activities and risk management, refer to Details of treasury and other financial risks, starting on page 218.

• Goodwill

Accounting policies

The measurement of goodwill at initial recognition is described in the Acquisitions and divestments note. Goodwill is subsequently measured at cost less accumulated impairment losses.

Goodwill is not amortized but tested for impairment annually and whenever impairment indicators require. Internal or external sources of information are considered to assess if there are indicators that an asset or a CGU may be impaired. In most cases the company identifies its cash-generating units for goodwill at one level below that of an operating segment. Cash flows at this level are substantially independent from other cash flows and this is the lowest level at which goodwill is monitored by the Executive Committee. An impairment loss is recognized in the Consolidated statements of income whenever and to the extent that the carrying amount of a cash-generating unit exceeds the unit's recoverable amount, whichever is the greater, its value in use or its fair value less cost of disposal. Value in use is measured as the present value of future cash flows expected to be generated by the asset. Fair value less cost of disposal is measured as the amount obtained from the sale of an asset in an arm's length transaction, less costs of disposal.

Accounting estimates and judgments

The cash flow projections used in the value in use calculations for goodwill impairment testing contain various judgments and estimations as described in the key assumptions sections below.

The changes in 2021 and 2022 were as follows:

Philips Group

Goodwill in millions of EUR

	2021	2022
Balance as of January 1
Cost	9,094	11,793
Impairments	(1,080)	(1,156)
Book value	8,014	10,637
Acquisitions	2,095	317
Impairments	(15)	(1,357)
Divestments and transfers to assets classified as held for sale	(189)
Translation differences and other	732	641
Total change	2,622	(399)
Balance as of December 31
Cost	11,793	12,747
Impairments	(1,156)	(2,509)
Book value	10,637	10,238

In 2022, goodwill decreased by EUR 399 million, primarily as a result of goodwill impairments of EUR 1,357 million partially offset by translation differences of EUR 641 million and acquisitions of EUR 317 million (which includes changes in the provisional opening balance sheet position for certain 2021 acquisitions, refer to Acquisitions and divestments, starting on page 158).

In 2021, goodwill increased by EUR 2,622 million, primarily as a result of provisional goodwill recognized on new acquisitions of BioTelemetry (EUR 1,776 million) and Capsule Technologies of (EUR 325 million), and translation differences of EUR 732 million. This was partially offset by EUR 15 million of impairment losses primarily related to the PERS CGU and EUR 189 million divested in the period, mostly relating to the Domestic Appliances business. For details on the impact of new acquisitions and the divestment of the Domestic Appliances business, refer to Acquisitions and divestments, starting on page 158.

Goodwill reallocations in 2022 and 2021

In 2022 and 2021 there were changes to the CGU structure following internal reorganizations. These resulted in a goodwill reallocation across certain CGUs, none of which had a significant impact on headroom or led to goodwill impairments. These reallocations were performed using a relative value approach. In addition there were also certain CGU movements and/or combinations within businesses that did not result in a reallocation of goodwill, but resulted in changes to the business structure. This did not have a significant impact on headroom or lead to goodwill impairments.

Impairments

During 2022 goodwill impairment charges of EUR 1,357 million were recognized. This relates to the third quarter impairment charge of EUR 1,331 million in the Sleep & Respiratory Care (S&RC) CGU of the Connected Care segment. In addition, as a result of the annual impairment testing a goodwill impairment charge of EUR 27 million was recognized in relation to the Precision Diagnosis Solutions (PDS) CGU which is part of the Diagnosis & Treatment segment. The value in use methodology was used to estimate the recoverable amount for the PDS CGU.

During 2021 an impairment charge of EUR 15 million was recognized. The majority of this related to the PERS CGU which was classified as an asset held for sale as of Q4 2020. The PERS CGU was divested as of June 30, 2021. Prior to the divestment a goodwill impairment of EUR 13 million was recorded to reflect a decrease in the recoverable amount of the CGU, this reduced the goodwill balance of the CGU to zero. The fair value less cost of disposal methodology was used to estimate the recoverable amount for the PERS CGU, this was based on Level 3 inputs. Key assumptions and inputs used in the calculation included the signed purchase agreement for the PERS divestment. The impairment of EUR 13 million was recorded in the Connected Care segment.

Interim goodwill impairment testing

As explained in the accounting policy above, goodwill is tested for impairment annually and whenever impairment indicators require. In the third quarter of 2022, an impairment indicator was noted in relation to the S&RC CGU as a consequence of revisions to the expected future cashflows of the CGU. The drivers of the revised forecast (which form the basis for the future cashflow assumptions) were current assumptions regarding the estimated impact of a consent decree that is currently under discussion with the US Department of Justice (DoJ), acting on behalf of the FDA, along with updates to expected business performance and changes to the pre-tax discount rate. An impairment test was performed in order to determine if the carrying amount of the cash-generating unit exceeded the unit's recoverable amount, which was determined on a value in use basis. As a result of this test a goodwill impairment charge of EUR 1,331 million was recognized. Following the impairment charge, the estimated recoverable amount, based on the CGU's value in use, forthe S&RC CGU was EUR 1,001 million and equal to its carrying value.

The assumptions used to determine the recoverable amount of the CGU at the interim testing date are presented below:

Philips Group

Key assumptions - Interim impairment testing

	compound sales growth rate ¹⁾
	initial forecast period	extrapolation period ²⁾	used to calculate terminal value ³⁾	pre-tax discount rates
Sleep & Respiratory Care	1.5%	4.3%	2.5%	9.5%

¹⁾ Compound sales growth rate is the annualized steady nominal growth rate over the forecast period
²⁾ Also referred to later in the text as compound long-term sales growth rate
³⁾ The historical long-term growth rate is only applied to the first year after the extrapolation period, after which no further growth is assumed for the terminal value calculation

In addition to the above assumptions, assumptions were made regarding the estimated impact of a consent decree on the business. These assumptions included the expected financial impact of the scope and duration of a consent decree, as well as expected additional costs. These assumptions were determined by management based on discussions held in relation to the consent decree and other available sources of information.

Annual goodwill impairment testing

For impairment testing, goodwill is allocated to cash generating units (typically one level below segment level, i.e. at the business level), which represent the lowest level at which the goodwill is monitored internally for management purposes.

Goodwill allocated to the cash generating units Ambulatory Monitoring & Diagnostics, Hospital Patient Monitoring and Image-Guided Therapy is considered to be significant in comparison to the total book value of goodwill for the Group as of December 31, 2022. The amounts associated as of December 31, 2022 are presented in the following table:

Philips Group

Goodwill allocated to the cash-generating units in millions of EUR

	2021	2022
Ambulatory Monitoring & Diagnostics	1,897	2,215
Hospital Patient Monitoring	1,663	1,806
Image-Guided Therapy	2,802	3,154
Sleep & Respiratory Care	2,031	731
Other (units carrying a non-significant goodwill balance)	2,245	2,332
Book value	10,637	10,238

Unless otherwise noted, the basis of the recoverable amount used in the annual impairment tests for the units disclosed further in this note is the value in use. The fair value less cost of disposal methodology was used as a basis for the recoverable amount in the annual impairment test when greater than the value-in-use test. Refer to the 'key assumptions- general' section for further detail on the methodology.

Key assumptions - general

Key assumptions used in the value-in-use impairment tests for the units were sales growth rates, EBITA*) in the terminal value and the rates used for discounting the projected cash flows. These cash flow projections were determined using Royal Philips managements' internal forecasts that cover an initial forecast period from 2023 to 2025. Projections were extrapolated with stable or declining growth rates for an extrapolation period of 4 years (2026-2029), after which a terminal value was calculated per 2030. For the terminal value calculation, growth rates were capped at a historical long-term average growth rate. In the case of the Ambulatory Monitoring & Diagnostics CGU management's internal forecasts were used in the value in use test for a period of 5 years (2023-2027).

The sales growth rates and EBITA *) used to estimate cash flows are based on past performance, external market growth assumptions and industry long-term growth averages. EBITA *) in all units mentioned in this note is expected to increase over the projection period as a result of volume growth and cost efficiencies.

In 2022 there continued to be uncertainty and volatility related to global, industry-wide macroeconomic challenges including global supply chain constraints, COVID lockdown measures in China, inflationary pressures and the Russia-Ukraine war. Where relevant, and to the extent possible, the estimated impact of these factors and the resulting uncertainties have been reflected in the forecasts used for the value-in-use calculations. As was the case in 2021, the company uses scenarios in the business forecasting process and the most reasonable and supportable assumptions which represent management's best estimate are used as the basis for the value-in-use tests.

The rates used for discounting the projected cash flows in goodwill impairment testing is based on a business weighted cost of capital (WACC), which in turn is based on businessspecific inputs along with other inputs as mentioned below. The WACC is based on post-tax cost of equity and cost of debt, and is further calculated based on market data and inputs to accurately capture changes to the time value of money, such as the risk-free interest rate, the beta factor and country risk premium. In order to properly reflect the different risk-profiles of different businesses, a WACC is determined for each business. As such, the beta factor is determined based on a selection of peer companies, which can differ per business. Different businesses have different geographical footprints, resulting in business-specific inputs for variables like country risk. Philips performs the value in use calculation using post-tax cashflows and discount rate, the implicit pre-tax rate discount rate is derived from an iterative calculation for disclosure purposes.

In 2022 the pre-tax discount rates increased for all CGUs primarily due to the impact on the WACC of higher interest rates. As explained above, for S&RC this increased pre-tax discount rate contributed to the impairment charge recognized in the third quarter of 2022.

Key assumptions and sensitivity analysis relating to cash-generating units to which a significant amount of goodwill is allocated

In 2022 cash flow projections of Ambulatory Monitoring & Diagnostics, Hospital Patient Monitoring, Image-Guided Therapy and Sleep & Respiratory Care are based on the key assumptions included in the following table, which were used in the annual impairment test performed in the fourth quarter.

Philips Group

Key assumptions 2022

	compound sales growth rate ¹⁾
	initial forecast period	extrapolation period ²⁾	used to calculate terminal value ³⁾	pre-tax discount rates
Ambulatory Monitoring & Diagnostics	15.4%	9.5%	2.5%	8.5%
Hospital Patient Monitoring	4.8%	3.4%	2.5%	8.5%
Image-Guided Therapy	8.7%	5.0%	2.5%	10.6%
Sleep & Respiratory Care	10.0%	5.0%	2.5%	9.9%

The assumptions used for the 2021 cash flow projections were as follows:

Philips Group

Key assumptions 2021

	compound sales growth rate ¹⁾
	initial forecast period	extrapolation period ²⁾	used to calculate terminal value ³⁾	pre-tax discount rates
Ambulatory Monitoring & Diagnostics	24.5%	11.9%	2.5%	7.3%
Hospital Patient Monitoring	5.4%	3.4%	2.5%	7.8%
Image-Guided Therapy	10.2%	5.4%	2.5%	8.9%
Sleep & Respiratory Care	9.2%	5.0%	2.5%	9.2%

Impairment tests are performed based on forward looking assumptions, using the most recent available information. By their nature, these assumptions 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 the plans, goals and expectations set forth in these assumptions.

In performing the value-in-use test for the S&RC CGU it was necessary for management to make assumptions regarding the estimated impact of a consent decree on the business. These assumptions included the expected financial impact of the scope and duration of a consent decree, as well as expected additional costs. These assumptions were determined by management based on discussions held in relation to the consent decree and other available sources of information. There have been no significant changes to these assumptions since the interim goodwill testing in the third quarter of 2022 (see Interim Goodwill impairment testing section above).

For the Sleep & Respiratory Care CGU, based on the annual goodwill impairment testing performed by management during the fourth quarter of 2022 in accordance with the methodology discussed above, no additional impairment charge was warranted. However, following the interim impairment charge, the annual impairment test indicates that the value in use of the CGU remains sensitive to the assumptions set out above. This means that there is a higher risk that deviations in the mentioned key assumptions could cause the recoverable amount to fall below the level of its carrying value. There continues to be significant uncertainty associated with the initiated voluntary recall notification in the United States and field safety notice outside the United States for certain sleep and respiratory care products, the associated legal matters and the outcome of a consent decree. The legal matters are described in further detail in Contingencies, starting on page 204.

Based on the annual impairment test of Sleep & Respiratory Care, it was noted that an increase of 40 basis points in the pre-tax discount rate, a 160 basis points decline in the compound long-term sales growth rate or a 7% decrease in terminal value would, individually, cause its recoverable amount to fall to the level of its carrying value.

Additionally, any significant adverse changes to the assumptions related to the expected financial impact of a consent decree could cause the recoverable amount of the CGU to fall below its carrying value, resulting in impairment.

The results of the annual impairment tests of the Ambulatory Monitoring & Diagnostics CGU indicate that the value in use of the CGUs is sensitive to the assumptions set out above. This means that there is a higher risk that deviations in the mentioned key assumptions could cause the recoverable amount to fall below the level of its carrying value. Based on the annual impairment test of Ambulatory Monitoring & Diagnostics, it was noted that an increase of 40 basis points in the pre-tax discount rate, a 210 basis points decline in the compound long-term sales growth rate or a 8% decrease in terminal value would, individually, cause its recoverable amount to fall to the level of its carrying value.

The results of the annual impairment test of Hospital Patient Monitoring and Image-Guided Therapy indicate that a reasonably possible change in key assumptions would not cause the value in use to fall to the level of the carrying value.

Additional information relating to cash-generating units to which a non-significant amount relative to the total goodwill is allocated

The results of the annual impairment tests of the Emergency Care CGU indicate that the value in use of the CGU is sensitive to the assumptions set out above. This means that there is a higher risk that deviations in the mentioned key assumptions could cause the recoverable amount to fall below the level of its carrying value. Based on the annual impairment test of Emergency Care, it was noted that an increase of 190 basis points in the pre-tax discount rate, a 900 basis points decline in the compound long-term sales growth rate or a 26% decrease in terminal value would, individually, cause its recoverable amount to fall to the level of its carrying value.

With the exception of those described above, for the cash generating units to which a non-significant amount relative to the total goodwill is allocated, any reasonable change in assumptions would not cause the value in use to fall to the level of the carrying value.

^*) The definition of this non-IFRS measure and a reconciliation to the IFRS measure is included in Information by segment and main country, starting on page 153

12 Intangible assets excluding goodwill

Accounting policies

Acquired finite-lived intangible assets are amortized using the straight-line method over their estimated useful life. The useful lives are evaluated annually. Intangible assets are initially capitalized at cost, with the exception of intangible assets acquired as part of a business combination, which are capitalized at their acquisition date fair value.

The company expenses all research costs as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized as an intangible asset if the product or process is technically and commercially feasible, the company has sufficient resources and the intention to complete development and can measure the attributable expenditure reliably.

The capitalized development expenditure comprises of all directly attributable costs (including the cost of materials and direct labor). Other development expenditures and expenditures on research activities are recognized in the Consolidated statements of income. Capitalized development expenditure is stated at cost less accumulated amortization and impairment losses. Amortization of capitalized development expenditure is charged to the Consolidated statements of income on a straight-line basis over the estimated useful lives of the intangible assets.

The expected useful lives of the intangible assets excluding goodwill are as follows:

Philips Group

Expected useful lives of intangible assets excluding goodwill in years

Brand names	2-20
Customer relationships	2-25
Technology	3-20
Other	1-10
Software	1-10
Product development	3-10

The weighted average expected remaining life of brand names, customer relationships, technology and other intangible assets is 9.4 years as of December 31, 2022 (2021: 9.6 years).

Impairment of intangible assets not yet ready for use

Intangible assets not yet ready for use are not amortized but are tested for impairment annually and whenever impairment indicators require. In the case of intangible assets not yet ready for use, either internal or external sources of information are considered to assess if there are indicators that an asset or a CGU may be impaired.

Impairment of non-financial assets other than goodwill, intangible assets not yet ready for use, inventories and deferred tax assets

Non-financial assets other than goodwill, intangible assets not yet ready for use, inventories and deferred tax assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of an asset with the greater of its value in use and fair value less cost of disposal. Value in use is measured as the present value of future cash flows expected to be generated by the asset. Fair value less cost of disposal is measured as the amount obtained from a sale of an asset in an arm's length transaction, less costs of disposal. If the carrying amount of an asset is deemed not recoverable, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the recoverable amount. The review for impairment is carried out at the level where cash flows occur that are independent of other cash flows.

Impairment losses recognized in prior periods for Intangible assets other than goodwill are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if and to the extent that there has been a change in the estimates used to determine the recoverable amount. The loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. Reversals of impairment are recognized in the Consolidated statements of income.

Accounting estimates and judgments

The cash flow projections used in the value in use calculations for intangible assets excluding goodwill contain various judgments and estimations. For intangible assets excluding goodwill, estimates are required to determine the (remaining) useful lives.

Philips Group

Intangible assets excluding goodwill in millions of EUR

	brand names	customer relationships	technology	product development
Balance as of January 1, 2022
Cost	644	2,590	2,605	2,701
Amortization / impairments	(481)	(1,447)	(1,605)	(2,102)
Book value	162	1,143	1,000	599
Additions	(3)	-	51	-
Assets available for use				118
Acquisitions	1	3	177	-
Amortization	(24)	(141)	(140)	(206)
Impairments	-	(6)	(46)	(123)
Translation differences and other	4	71	59	5
Total change	(22)	(74)	102	(206)
Balance as of December 31, 2022
Cost	647	2,735	2,947	2,605
Amortization / impairments	(507)	(1,665)	(1,845)	(2,212)
Book Value	140	1,070	1,102	393

	product development construction in progress	software	other	total
Balance as of January 1, 2022
Cost	505	754	146	9,944
Amortization / impairments	(91)	(467)	(101)	(6,294)
Book value	414	287	44	3,650
Additions	257	109	1	416
Assets available for use	(118)
Acquisitions		-		180
Amortization	(1)	(100)	(3)	(614)
Impairments	(81)	(17)	(2)	(276)
Translation differences and other	31	1	(2)	169
Total change	88	(7)	(6)	(125)
Balance as of December 31, 2022
Cost	648	869	152	10,602
Amortization / impairments	(146)	(589)	(113)	(7,077)
Book Value	502	280	39	3,526

Philips Group

Intangible assets excluding goodwill in millions of EUR

	brand names	customer relationships	technology
Balance as of January 1, 2021
Cost	556	2,036	2,434
Amortization / impairments	(437)	(1,385)	(1,565)
Book value	120	651	869
Additions			9
Assets available for use
Acquisitions	62	544	235
Amortization	(21)	(126)	(114)
Impairments		(3)	(57)
Transfers to assets classified as held for sale	(10)	(3)	(11)
Translation differences and other	12	80	69
Total change	42	492	131
Balance as of December 31, 2021
Cost	644	2,590	2,605
Amortization / impairments	(481)	(1,447)	(1,605)
Book Value	162	1,143	1,000

	product development	product development construction in progress	software	other	total
Balance as of January 1, 2021
Cost	2,519	480	723	135	8,883
Amortization / impairments	(1,897)	(83)	(427)	(91)	(5,886)
Book value	622	398	295	44	2,997
Additions	1	261	117	2	392
Assets available for use	247	(247)	-	-	-
Acquisitions			-	-	841
Amortization	(219)	-	(85)	(3)	(568)
Impairments	(51)	(15)	-	-	(126)
Transfers to assets classified as held for sale	(17)	(6)	(34)		(82)
Translation differences and other	17	23	(7)	1	195
Total change	(22)	17	(8)	1	653
Balance as of December 31, 2021
Cost	2,701	505	754	146	9,944
Amortization / impairments	(2,102)	(91)	(467)	(101)	(6,294)
Book Value	599	414	287	44	3,650

Acquisitions in 2022 involved Intangible assets of EUR 180 million in aggregate (2021: EUR 841 million). For more information, refer to Acquisitions and divestments, starting on page 158.

Impairments in 2022 were EUR 276 million (2021: EUR 126 million) and mainly relate to technology (EUR 46 million) and product development (EUR 204 million), including product development construction in progress. In the third quarter of 2022 an initiative was undertaken to enhance productivity in R&D, specifically to shift the focus to fewer, high-impact projects in the innovation pipeline. As a result of this initiative EUR 132 million of product development (including product development construction in progress) asset impairments were recognized.

The most notable impairments in 2022, recognized as part of the above productivity initiative, were in the Diagnosis & Treatment segment, for product development assets in Precision Diagnosis (PD) of EUR 36 million and Image Guided Therapy-Systems (IGT Systems) of EUR 41 million (EUR 16 million of which was product development construction in progress). The basis of the recoverable amount used in these tests was the value-in-use. After the impairment charge the recoverable amount of the related intangible assets is EUR 0 million.

In 2022 there continued to be uncertainty and volatility related to by global, industry-wide macroeconomic challenges including global supply chain constraints, COVID lockdown measures in China, inflationary pressures and the Russia-Ukraine war. Where relevant, and to the extent possible, the estimated impact of these factors and the resulting uncertainties have been reflected in the forecasts used for the VIU calculations. As was the case in 2021, the company uses scenarios in the business forecasting process and the most reasonable and supportable assumptions which represent management's best estimate are used as the basis for the value-in-use tests.

The amortization of intangible assets is specified in Income from operations, starting on page 162.

The most notable intangible assets as of December 31, 2022 relate to the BioTelemetry customer relationships and technology with a carrying value of EUR 385 million and EUR 150 million and a remaining amortization period of 14 years and 10 years, respectively and Spectranetics customer relationships and technology with a carrying value of EUR 291 million and EUR 203 million and a remaining amortization period of 15 years and 10 years, respectively. The most notable intangible assets as of December 31, 2021 relate to the BioTelemetry customer relationships and technology with value of EUR 391 million and EUR 162 million and a remaining amortization period of 15 years and 11 years, respectively and Spectranetics customer relationships and technology with a carrying value of EUR 292 million and EUR 210 million and a remaining amortization period of 16 years and 11 years, respectively.

• Other financial assets

Accounting policies

Classification and measurement of financial assets

The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the company's business model for managing them.

The company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.

For the purposes of subsequent measurement, financial assets are classified into four categories:

•	Financial assets at amortized cost (debt instruments).
•	Financial assets at fair value through other comprehensive income (OCI) with recycling of cumulative gains and losses (debt instruments).
•	Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments).
•	Financial assets at fair value through profit or loss (debt instruments and equity instruments).

Impairment of financial assets

The company recognizes a loss allowance for expected credit losses for trade receivables, contract assets, lease receivables, debt investments carried at amortized cost and fair value through other comprehensive income (FVTOCI).

At each balance sheet date, the company assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognizes a loss allowance for expected credit losses for financial assets measured at either amortized costs or at fair value through other comprehensive income. If, at the reporting date, the credit risk on a financial instrument has not increased significantly since initial recognition, the company measures the loss allowance for the financial instrument at an amount equal to 12 months of expected credit losses. If, at the reporting date, the credit risk on a financial instrument has increased significantly since initial recognition, the company measures the loss allowance for the financial instrument at an amount equal to the lifetime-expected credit losses. For all trade receivables, contract assets and lease receivables the company measures the loss allowance at an amount equal to lifetime-expected credit losses.

Accounting estimates and judgments

The determination of fair value is subject to estimates for investments that are not publicly traded. Refer to Fair value of financial assets and liabilities, starting on page 214.

Financial assets classified at amortized cost and at fair value through OCI are subject to impairment assessment. The calculation of expected credit losses requires the company to apply significant judgment and make estimates and assumptions that involve significant uncertainty at the time they are made. Changes to these estimates and assumptions can result in significant changes to the timing and amount of expected credit losses to be recognized.

Other current financial assets

In 2022, Other current financial assets increased from EUR 2 million to EUR 11 million (2021: increased from EUR nil million to EUR 2 million).

Other non-current financial assets

The company's investments in Other non-current financial assets mainly consist of investments in common shares of companies in various industries and investments in limited life funds. The changes during 2022 and 2021 were as follows:

Philips Group

Other non-current financial assets in millions of EUR

	Non-current financial assets at FVTP&L	Non-current financial assets at FVTOCI	Non-current financial assets at Amortized cost	Total
Balance as of January 1, 2022	283	300	47	630
Changes:
Acquisitions/additions	114	18	18	150
Sales/redemptions/ reductions	(75)	(3)	(8)	(86)
Impairments	(3)		(1)	(5)
Value adjustment through OCI	-	(35)		(35)
Value adjustment through P&L	5		-	5
Translation differences and other	(2)	5	(1)	2
Reclassifications	1	(2)	(1)	(2)
Balance as of December 31, 2022	322	284	54	660

Philips Group

Other non-current financial assets in millions of EUR

	Non-current financial assets at FVTP&L	Non-current financial assets at FVTOCI	Non-current financial assets at Amortized cost	Total
Balance as of January 1, 2021	248	146	37	430
Changes:
Acquisitions/additions	54	59	10	123
Sales/redemptions/ reductions	(122)	-	(3)	(126)
Value adjustment through OCI		(43)	-	(43)
Value adjustment through P&L	95		-	95
Translation differences and other	8	19	2	29
Reclassifications	(1)	120	2	122
Balance as of December 31, 2021	283	300	47	630

As of December 31, 2022, equity investments of EUR 259 million (2021: EUR 273 million) are accounted under the FVTOCI category based on the company's election at initial recognition mainly because such investments are neither held for trading purposes nor primarily for their increase in value and the elected presentation is considered to reflect the nature and purpose of the investment.

(14) Other assets

Accounting policies

The company recognizes contract assets for revenue earned from installation services because the receipt of consideration is conditional on successful completion of the installation. Upon completion of the installation and acceptance by the customer, the amount recognized as contract assets is reclassified to trade receivables.

Other assets are measured at amortized cost minus any impairment losses.

Other non-current assets

Other non-current assets as of December 31, 2022 were EUR 98 million (2021: EUR 129 million). These are mainly related to prepaid expenses.

Other current assets

Other current assets as of December 31, 2022 of EUR 490 million (2021: EUR 493 million) included contract assets of EUR 292 million (2021: EUR 290 million), accrued income of EUR 24 million (2021: EUR 31 million) and prepaid expenses of EUR 174 million (2021: EUR 172 million) mainly related to Diagnosis & Treatment businesses and Connected Care businesses.

15 Inventories

Accounting policies

Inventories are stated at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The costs of conversion of inventories include direct labor and fixed and variable production overheads, considering the stage of completion and the normal capacity of production facilities. Costs of idle facility and abnormal waste are expensed. The cost of inventories is determined using the first-in, firstout (FIFO) method.

Accounting estimates and judgments

Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on sales in the recent past and/or expected future demand.

Inventories are summarized as follows:

Philips Group

Inventories in millions of EUR

	2021	2022
Raw materials and supplies	1,143	1,541
Work in process	646	648
Finished goods	1,660	1,860
Inventories	3,450	4,049

The write-down of inventories to net realizable value was EUR 215 million in 2022 (2021: EUR 177 million). The write-down is included in cost of sales.

In 2022, the limited availability and delays in the supply of certain components and products internationally, resulted in an increase in inventories compared to December 31, 2021, as work in process inventories could not be translated to finished goods available for sale due to the scarcity of certain components. While there was an increase in inventories, this has not resulted in a significant write-down of inventories, as the expectation is that such components will become available in the near future.

16 Receivables

Accounting policies

Receivables are held by the company to collect the related cash flows. These receivables are measured at fair value and subsequently measured at amortized cost minus any impairment losses.

Receivables are derecognized when the company has transferred substantially all risks and rewards, which includes transactions in which the company enters into factoring transactions, or if the company does not retain control over the receivables.

Accounting estimates

Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets, starting on page 184 for accounting policies on impairment of financial assets.

Non-current receivables

Non-current receivables are associated mainly with customer financing in the Diagnosis & Treatment businesses amounting to EUR 70 million (2021: EUR 44 million), for Signify indemnification amounting to EUR 26 million (2021: EUR 46 million), an income tax receivable amounting to EUR 126 million (which includes an interest receivable of EUR 10 million) for which Philips expects to get a refund (2021: EUR 78 million) and insurance receivables in Other in the US amounting to EUR 30 million (2021: EUR 37 million).

Current receivables

Current receivables of EUR 4,115 million (2021: EUR 3,787 million) as of December 31, 2022 included trade accounts receivable (net of allowance) of EUR 3,832 million (2021: EUR 3,559 million), accounts receivable other of EUR 228 million (2021: EUR 188 million) and accounts receivable from investments in associates of EUR 55 million (2021: EUR 40 million).

The trade accounts receivable, net, per segment are as follows:

Philips Group

Trade accounts receivable, net in millions of EUR

	2021	2022
Diagnosis & Treatment	1,759	2,013
Connected Care	980	1,114
Personal Health	575	479
Other	245	226

Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2013 bis zum 31.12.2013

BILANZ zum 31. Dezember 2013

Gewinn- und Verlustrechnung für das Geschäftsjahr vom 01. Januar 2013 bis 31. Dezember 2013

ANHANG für das Geschäftsjahr vom 01. Januar 2013 bis 31. Dezember 2013

Allgemeine Hinweise

Bilanzierungs- und Bewertungsmethoden

Erläuterungen zur Bilanz

Sonstige Angaben

Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2012 bis zum 31.12.2012

zum Geschäftsjahr vom 01. Januar 2012 bis zum 31. Dezember 2012

Bilanz zum 31. Dezember 2012

Gewinn- und Verlustrechnung für das Geschäftsjahr vom 01. Januar 2012 bis 31. Dezember 2012

Anhang für das Geschäftsjahr vom 01. Januar 2012 bis 31. Dezember 2012

Allgemeine Hinweise

Bilanzierungs- und Bewertungsmethoden

Erläuterungen zur Bilanz

Sonstige Angaben

Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2011 bis zum 31.12.2011

Bilanz zum 31. Dezember 2011

Gewinn- und Verlustrechnung für das Geschäftsjahr vom 01. Januar 2011 bis 31. Dezember 2011

Anhang für das Geschäftsjahr vom 01. Januar 2011 bis 31. Dezember 2011

Allgemeine Hinweise

Bilanzierungs- und Bewertungsmethoden

Erläuterungen zur Bilanz

Sonstige Angaben

Respironics Deutschland Verwaltungsgesellschaft mbH

München

Jahresabschluss zum Geschäftsjahr vom 01.01.2009 bis zum 31.12.2009

Bilanz zum 31. Dezember 2009

Gewinn- und Verlustrechnung für das Geschäftsjahr vom 01. Januar 2009 bis 31. Dezember 2009

ANHANG für das Geschäftsjahr vom 01. Januar 2009 bis 31. Dezember 2009

Allgemeine Hinweise

Bilanzierungs- und Bewertungsmethoden

Erläuterungen zur Bilanz

Sonstige Angaben

Respironics Deutschland Verwaltungsgesellschaft mbH

München

JAHRESABSCHLUSS zum Rumpfgeschäftsjahr vom 01. Juli 2008 bis zum 31. Dezember 2008

BILANZ zum 31. Dezember 2008

Gewinn- und Verlustrechnung für das Rumpfgeschäftsjahr vom 01. Juli 2008 bis 31. Dezember 2008

ANHANG für das Rumpfgeschäftsjahr vom 01. Juli 2008 bis 31. Dezember 2008

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Erläuterungen zur Bilanz

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1. Gesellschaftsrechtliche Grundlagen

2. Steuerliche Verhältnisse

Anlage 1 zum Jahresabschluss zum 31. Dezember 2008

Anlage 2 zum Jahresabschluss zum 31. Dezember 2008

Respironics Deutschland Verwaltungs GmbH

München

Jahresabschluss zum 30. Juni 2007

Bilanz zum 30. Juni 2007

Respironics Deutschland Verwaltungs GmbH, München

Anhang für das Geschäftsjahr vom 1. Juli 2006 bis 30. Juni 2007

Respironics Deutschland Verwaltungs GmbH, München

Allgemeine Hinweise

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Philips GmbH

Hamburg

Befreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2022 bis zum 31.12.2022

Consolidated statements of income in millions of EUR

For the year ended December 31

Gewinn- und Verlustrechnung
für das Geschäftsjahr vom 01. Januar 2011 bis 31. Dezember 2011

JAHRESABSCHLUSS

zum Rumpfgeschäftsjahr vom 01. Juli 2008 bis zum 31. Dezember 2008

BILANZ

zum 31. Dezember 2008

Gewinn- und Verlustrechnung
für das Rumpfgeschäftsjahr vom 01. Juli 2008 bis 31. Dezember 2008

ANHANG

für das Rumpfgeschäftsjahr vom 01. Juli 2008 bis 31. Dezember 2008