Koninklijke Philips N.V. (\u2018Royal Philips\u2019), incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch Law. Philips is headquartered in Amsterdam, the Netherlands\u00a0and 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\u2019 or \u2018Philips\u2019 or the 'Group\u2019). 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.
The Consolidated financial statements are:
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:
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.
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.
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\u2019s 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.
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.
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.
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.
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.
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.
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.
Philips focuses on improving people\u2019s 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.\u00a0
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
| \u00a0 | sales | sales including intercompany | depreciation and amortization1) | Adjusted EBITA |
|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | (366) | \u00a0 | \u00a0 |
| Philips Group | 17,827 | 17,827 | (1,602) | 1,318 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | (299) | \u00a0 | \u00a0 |
| Philips Group | 17,156 | 17,156 | (1,323) | 2,054 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | (275) | \u00a0 | \u00a0 |
| Philips Group | 17,313 | 17,313 | (1,462) | 2,277 |
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
| \u00a0 | Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other |
|---|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Net Income | (1,605) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Discontinued operations, net of income taxes | (13) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Income tax expense | (113) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Investments in associates, net of income taxes | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial expenses | 258 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial income | (58) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | 250 | \u00a0 | \u00a0 |
| Respironics field-action running remediation costs | 210 | \u00a0 | 210 | \u00a0 | \u00a0 |
| R&D project impairments\u00a0 | 134 | 120 | 12 | 3 | \u00a0 |
| Portfolio realignment charges | 109 | \u00a0 | 109 | \u00a0 | \u00a0 |
| Impairment of assets in S&RC | 39 | \u00a0 | 39 | \u00a0 | \u00a0 |
| Provision for public investigations tender irregularities | 60 | 60 | \u00a0 | \u00a0 | \u00a0 |
| Provisions for quality actions in Connected Care\u00a0 | 59 | \u00a0 | 59 | \u00a0 | \u00a0 |
| 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
| \u00a0 | Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other |
|---|---|---|---|---|---|
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Net Income | 3,323 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Discontinued operations, net of income taxes | (2,711) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Income tax expense | (103) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Investments in associates, net of income taxes | 4 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial expenses | 188 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial income | (149) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | - |
| Respironics field-action running remediation costs | 94 | \u00a0 | 94 | \u00a0 | \u00a0 |
| Provisions for quality actions in Connected Care | 94 | \u00a0 | 94 | \u00a0 | \u00a0 |
| Loss on divestment of business | 76 | \u00a0 | \u00a0 | \u00a0 | 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
| \u00a0 | Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other |
|---|---|---|---|---|---|
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Net Income | 1,195 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Discontinued operations, net of income taxes | (196) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Income tax expense | 212 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Investments in associates, net of income taxes | 9 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial expenses | 202 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial income | (158) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | \u00a0 |
| 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\u2019s length basis. Philips has no single external customer that represents 10% or more of sales.
Philips Group
Main countries
in millions of EUR
| \u00a0 | sales1) | tangible and intangible assets2) |
|---|---|---|
| 2022 | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| 2020 | \u00a0 | \u00a0 |
| 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 |
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.
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.
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
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Domestic Appliances | 206 | 2,698 | 3 |
| Other | (10) | 13 | 10 |
| Discontinued operations, net of income taxes | 196 | 2,711 | 13 |
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
| \u00a0 | 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 | \u00a0 | 3,241 | 1 |
| Income before tax | 279 | 3,435 | 5 |
| Income tax expense1) | (72) | 6 | (2) |
| Income tax related the sale of discontinued operations | \u00a0 | (743) | |
| Results from discontinued operations | 206 | 2,698 | 3 |
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 over time.
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.
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
| \u00a0 | 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
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.
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.
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.
Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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 non-income 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.
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.\u00a0
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.\u00a0
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.\u00a0Acquisition-related costs were not material.\u00a0
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\u00ae, 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\u00ae 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:\u00a0
Opening balance sheet
in millions of EUR
| \u00a0 | At acquisition date |
|---|---|
| \u00a0 | Vesper Medical Inc, |
| Assets | \u00a0 |
| Intangible assets excluding goodwill | 84 |
| Deferred tax assets | 15 |
| Cash | 7 |
| Total Assets | 106 |
| \u00a0 | \u00a0 |
| Liabilities | \u00a0 |
| Accounts payable and other payables | (1) |
| Deferred tax liabilities | (20) |
| Total Liabilities | (21) |
| \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 85 |
| Goodwill arising on acquisition | 177 |
| Total purchase consideration | 262 |
| Of which: | \u00a0 |
| 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\u2019 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\u2019s 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.\u00a0Vesper Goodwill is not tax-deductible.
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\u2019 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.
During 2022 Philips completed two divestments that were not material.
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
| \u00a0 | At acquisition date | |
| \u00a0 | BioTelemetry\u00a0 | Capsule Technologies |
| Assets | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| Liabilities | \u00a0 | \u00a0 |
| 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) |
| \u00a0 | \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 547 | 217 |
| Goodwill arising on acquisition\u00a0 | 1,790 | 322 |
| Purchase consideration transferred | 2,337 | 539 |
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\u2019s 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\u2019 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\u2019 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\u2019 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.\u00a0
In 2021, acquisition-related costs of EUR 40 million were mainly recognized in General and administrative expenses.\u00a0
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\u2019 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\u2019 industry-leading portfolio of real-time patient monitoring, therapeutic devices, telehealth, informatics and interoperability solutions and Capsule\u2019s leading Medical Device Information Platform, connected through Philips\u2019 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\u2019 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\u00a0 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.\u00a0
In 2021, acquisition-related costs of EUR 11 million were mainly recognized in General and administrative expenses.\u00a0
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.\u00a0
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.\u00a0
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\u2019s 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 \u2019Investments in associates, net of income taxes\u2019.\u00a0
When the company\u2019s 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\u2019s interests in its consolidated entities and associates, and the effects of those interests on the company\u2019s financial position and financial performance are discussed below.
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 B\u00f6blingen GmbH | Germany1) |
| 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 |
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.
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\u2019s Board of Directors.\u00a0None of these investments are regarded as individually material from the point of view of the consolidated financial statements.\u00a0
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.\u00a0
Cumulative translation adjustments related to investments in associates were EUR 22 million as of December 31, 2022 (2021: EUR 32 million).
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\u2019 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.
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.
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.
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\u00a0progress 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.
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.
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) 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\u2019s operating activities.
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.
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
| \u00a0 | 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 amortization1) | (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) |
For information related to sales on a segment and geographical basis, refer to Information by segment and main country.
Philips Group
Sales composition
in millions of EUR
| \u00a0 | 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%\u00a0of 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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 |
Cost of materials used represents the inventory recognized in cost of sales.
Philips Group
Employee benefit expenses
in millions of EUR
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 |
| 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.
For details on the remuneration of the members of the Board of Management and the Supervisory Board, refer to Information on remuneration.
The average number (full-time equivalents, or FTEs) of employees by category is summarized as follows:
Philips Group
Employees by category
in FTEs
| \u00a0 | 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
| \u00a0 | 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 of property, plant and equipment and amortization of intangible assets, including impairments, are as follows:
Philips Group
Depreciation and amortization1)
in millions of EUR
| \u00a0 | 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 |
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.
During 2022, EUR 1,331 million\u00a0of 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 note Goodwill.
Shipping and handling costs are included in cost of sales and selling expenses in the Consolidated statements of income.
Advertising and promotion costs are included in selling expenses in the Consolidated statements of income.
Lease expense relates to short-term and low value leases.
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 .
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
| \u00a0 | 2020 | 2021 | 2022 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| \u00a0 | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total |
| Audit fees | 9.0 | 5.6 | 14.6 | 10.3 | 5.4 | 15.7 | 8.9 | 5.5 | 14.4 |
| consolidated financial statements | 9.0 | 2.9 | 11.9 | 10.3 | 2.7 | 13.0 | 8.9 | 3.0 | 11.9 |
| statutory financial statements | \u00a0 | 2.7 | 2.7 | \u00a0 | 2.7 | 2.7 | 2.5 | 2.5 | |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Audit-related fees2) | 2.2 | 0.5 | 2.7 | 0.6 | 0.3 | 0.9 | 0.7 | 0.2 | 0.9 |
| divestment | 1.5 | 0.2 | 1.7 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| sustainability assurance | 0.5 | \u00a0 | 0.5 | 0.5 | \u00a0 | 0.5 | 0.6 | \u00a0 | 0.6 |
| other | 0.2 | 0.3 | 0.5 | 0.1 | 0.3 | 0.4 | 0.1 | 0.2 | 0.3 |
| Tax fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| All other fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Fees | 11.2 | 6.1 | 17.3 | 10.9 | 5.7 | 16.6 | 9.6 | 5.7 | 15.3 |
Other business income (expenses) consists of the following:
Philips Group
Other business income (expenses)
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Result on disposal of businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | - | - | 4 |
| \u00a0expenses | - | (75) | - |
| Result on disposal of fixed assets: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 2 | 24 | 3 |
| \u00a0expenses | - | (5) | (1) |
| Result on other remaining businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 120 | 161 | 121 |
| \u00a0expenses | (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.
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.\u00a0For information on contingent consideration, refer to Provisions.
Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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 Gilde 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.
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 \u2018discontinued operations\u2019 are sufficiently separable from continuing operations.
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 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.\u00a0
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
| \u00a0 | 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) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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
| \u00a0 | 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
| \u00a0 | \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|---|
| Recognition of previously unrecognized tax loss and credit carryforwards | \u00a0 | 6 | 138 | 2 |
| Unrecognized tax loss and credit carryforwards | \u00a0 | (10) | (13) | |
| Changes to recognition of temporary differences | \u00a0 | 19 | (1) | (4) |
| Prior year tax (expense) benefit | \u00a0 | (8) | 20 | (1) |
| Tax rate changes | \u00a0 | 12 | 10 | (18) |
| Origination and reversal of temporary differences, tax losses and tax credits | \u00a0 | 137 | 245 | 244 |
| Deferred tax (expense) benefit | \u00a0 | 167 | 401 | 210 |
Philips\u2019 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\u2019 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 %
| \u00a0 | 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 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.\u00a0
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
| \u00a0 | Balance as of January 1, 2022 | recognized in income statement | other1) | Balance as of December 31, 2022 | Assets | Liabilities |
|---|---|---|---|---|---|---|
| Intangible assets | 587 | 63 | (20) | 630 | 783 | (152) |
| Property, plant and equipment | 29 | (33) | 2 | (2) | 49 | (52) |
| Inventories | 372 | 75 | 17 | 464 | 473 | (8) |
| Other assets | 68 | (16) | (8) | 44 | 98 | (55) |
| Pensions and other employee benefits | 180 | 6 | (32) | 153 | 175 | (22) |
| Other liabilities | 499 | (34) | 17 | 483 | 560 | (77) |
| Deferred tax assets on tax loss carryforwards | 398 | 149 | 38 | 586 | 586 | \u00a0 |
| Set-off deferred tax positions | \u00a0 | \u00a0 | \u00a0 | \u00a0 | (275) | 275 |
| Net deferred tax assets | 2,134 | 210 | 14 | 2,358 | 2,449 | (91) |
Philips Group
Deferred tax assets and liabilities
in millions of EUR
| \u00a0 | Balance as of January 1, 2021 | recognized in income statement | other1) | Balance as of December 31, 2021 | Assets | Liabilities |
|---|---|---|---|---|---|---|
| Intangible assets | 240 | 535 | (188) | 587 | 716 | (130) |
| Property, plant and equipment | 32 | 13 | (16) | 29 | 55 | (26) |
| Inventories | 313 | 31 | 28 | 372 | 381 | (9) |
| Other assets | 97 | (30) | 1 | 68 | 112 | (43) |
| Pensions and other employee benefits | 245 | (45) | (21) | 180 | 182 | (2) |
| Other liabilities | 384 | 91 | 25 | 499 | 584 | (84) |
| Deferred tax assets on tax loss carryforwards | 449 | (194) | 143 | 398 | 398 | \u00a0 |
| Set-off deferred tax positions | \u00a0 | \u00a0 | \u00a0 | \u00a0 | (211) | 211 |
| Net deferred tax assets | 1,761 | 401 | (28) | 2,134 | 2,216 | (83) |
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
| \u00a0 | 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.\u00a0
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:
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.
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.
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.
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.
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.\u00a0Land 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
| \u00a0 | \u00a0 |
|---|---|
| Buildings | from\u00a05 to 50\u00a0years |
| Machinery and installations | from 3\u00a0to 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\u2019s 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.
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.
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 short-term 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.\u00a0
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.
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.
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.\u00a0
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\u00a0
| \u00a0 | 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\u00a0
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,097 | 1,585 | 1,382 | 208 | 4,273 |
| Accumulated depreciation | (591) | (1,074) | (967) | \u00a0 | (2,632) |
| Book value \u00a0 | 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) | \u00a0 | - | (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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,135 | 1,779 | 1,454 | 309 | 4,676 |
| Accumulated depreciation | (621) | (1,291) | (1,046) | \u00a0 | (2,958) |
| Book value | 514 | 488 | 408 | 309 | 1,718 |
Philips Group
Property, plant and equipment - right-of-use assets
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Total |
|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 |
| Accumulated depreciation | (418) | (139) | (109) | (666) |
| Book value \u00a0 | 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 | \u00a0 | 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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,076 | 1,506 | 1,572 | 261 | 4,415 |
| Accumulated depreciation | (539) | (1,028) | (1,185) | \u00a0 | (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 | \u00a0 | 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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,147 | 199 | 213 | 1 | 1,560 |
| Accumulated depreciation | (310) | (144) | (86) | \u00a0 | (540) |
| Book value | 837 | 55 | 126 | 1 | 1,020 |
| Additions | 150 | 21 | 44 | 215 | |
| Assets available for use | 2 | 3 | 5 | ||
| Acquisitions | 43 | \u00a0 | \u00a0 | 43 | |
| Depreciation | (157) | (32) | (63) | (252) | |
| Impairments | 1 | (5) | - | (4) | |
| Transfer (to) from AHFS | (7) | (1) | \u00a0 | (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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 | |
| Accumulated depreciation | (418) | (139) | (109) | (666) | |
| Book value | 914 | 37 | 107 | 1,058 |
Below are the references with respect to year-end disclosures as lessee:
Other qualitative and quantitative disclosures regarding the nature of lessee\u2019s leasing activities and future lease obligations, refer to Debt.
Below are the references with respect to year-end disclosures as lessor:
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\u2019s 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\u2019s length transaction, less costs of disposal.
The changes in 2021 and 2022 were as follows:
Philips Group
Goodwill
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | \u00a0 | \u00a0 |
| Cost | 9,094 | 11,793 |
| Impairments | (1,080) | (1,156) |
| Book value | 8,014 | 10,637 |
| \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | \u00a0 |
| 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).
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.\u00a0
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.
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.\u00a0
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\u2019s 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\u2019s value in use, for the 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\u00a0
- Interim impairment testing\u00a0
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | pre-tax discount rates |
| Sleep & Respiratory Care | 1.5% | 4.3% | 2.5% | 9.5% |
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.
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\u00a0 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
| \u00a0 | 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 \u2018key assumptions- general\u2019 section for further detail on the methodology.
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\u2019 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). \u00a0
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\u2019s 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 business-specific 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.\u00a0Philips 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.\u00a0
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\u00a0
2022
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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\u00a0
2021
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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).\u00a0
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.
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.\u00a0
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.\u00a0
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.\u00a0
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.
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
| \u00a0 | \u00a0 |
|---|---|
| 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).\u00a0
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.
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\u2019s 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\u2019s 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.
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book value | 162 | 1,143 | 1,000 | 599 | 414 | 287 | 44 | 3,650 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | (3) | - | 51 | - | 257 | 109 | 1 | 416 |
| Assets available for use | 118 | (118) | ||||||
| Acquisitions | 1 | 3 | 177 | - | - | 180 | ||
| Amortization | (24) | (141) | (140) | (206) | (1) | (100) | (3) | (614) |
| Impairments | - | (6) | (46) | (123) | (81) | (17) | (2) | (276) |
| Translation differences and other | 4 | 71 | 59 | 5 | 31 | 1 | (2) | 169 |
| Total change | (22) | (74) | 102 | (206) | 88 | (7) | (6) | (125) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 647 | 2,735 | 2,947 | 2,605 | 648 | 869 | 152 | 10,602 |
| Amortization / impairments | (507) | (1,665) | (1,845) | (2,212) | (146) | (589) | (113) | (7,077) |
| Book Value | 140 | 1,070 | 1,102 | 393 | 502 | 280 | 39 | 3,526 |
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 556 | 2,036 | 2,434 | 2,519 | 480 | 723 | 135 | 8,883 |
| Amortization / impairments | (437) | (1,385) | (1,565) | (1,897) | (83) | (427) | (91) | (5,886) |
| Book value | 120 | 651 | 869 | 622 | 398 | 295 | 44 | 2,997 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | \u00a0 | 9 | 1 | 261 | 117 | 2 | 392 | |
| Assets available for use | \u00a0 | \u00a0 | \u00a0 | 247 | (247) | - | - | - |
| Acquisitions | 62 | 544 | 235 | - | - | 841 | ||
| Amortization | (21) | (126) | (114) | (219) | - | (85) | (3) | (568) |
| Impairments | (3) | (57) | (51) | (15) | - | - | (126) | |
| Transfers to assets classified as held for sale | (10) | (3) | (11) | (17) | (6) | (34) | (82) | |
| Translation differences and other | 12 | 80 | 69 | 17 | 23 | (7) | 1 | 195 |
| Total change | 42 | 492 | 131 | (22) | 17 | (8) | 1 | 653 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book Value | 162 | 1,143 | 1,000 | 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.\u00a0
Impairments in 2022 were EUR 276 million (2021: EUR 126 million)\u00a0and 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\u2019s best estimate are used as the basis for the value-in-use tests
The amortization of intangible assets is specified in Income from operations.
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.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the company\u2019s 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:
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.
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
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.\u00a0
In 2022, Other current financial assets increased from EUR 2 million to EUR 11\u00a0million (2021: increased from EUR nil\u00a0million to EUR 2\u00a0million).\u00a0
The company\u2019s 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
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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)\u00a0are 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.
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 as of December 31, 2022 were EUR 98 million (2021: EUR 129 million). These are mainly related to prepaid expenses.
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.\u00a0
Inventories are summarized as follows:
Philips Group
Inventories
in millions of EUR
| \u00a0 | 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\u00a0in 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.
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.
Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
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 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
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Diagnosis & Treatment | 1,759 | 2,013 |
| Connected Care | 980 | 1,114 |
| Personal Health | 575 | 479 |
| Other | 245 | 226 |
| Trade accounts receivable, net | 3,559 | 3,832 |
The aging analysis of trade accounts receivable, net, representing current and overdue but not fully impaired receivables, is as follows:
Philips Group
Aging analysis
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Current | 3,075 | 3,280 |
| Overdue 1-30 days | 160 | 169 |
| Overdue 31-180 days | 245 | 282 |
| Overdue more than 180 days | 79 | 101 |
| Trade accounts receivable, net | 3,559 | 3,832 |
The changes in the allowance for doubtful accounts receivable are as follows:
Philips Group
Allowance for accounts receivable
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 195 | 190 |
| Additions charged to expense | 4 | 66 |
| Deductions from allowance1) | (17) | (51) |
| Transfer to assets held for sale | (8) | |
| Other movements | 16 | 21 |
| Balance as of December 31 | 190 | 226 |
The allowance for doubtful accounts receivable has been primarily established for receivables that are past due.
Included in the above balances as of December 31, 2022 are allowances for individually impaired receivables of EUR 222 million (2021: EUR 188 million) .
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Where the company\u00a0repurchases the company\u2019s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs (net of income taxes), is deducted from shareholders\u2019 equity until such treasury shares are cancelled or reissued.
Where such treasury shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in shareholders\u2019 equity.
Call options on own shares are treated as equity instruments.
Dividends are recognized as a liability in the period in which they are declared and approved by shareholders. The income tax consequences of dividends are recognized when a liability to pay the dividend is recognized.
As of December 31, 2022, authorized common shares consist of 2 billion shares (December 31, 2021: 2 billion; December 31, 2020: 2 billion) and the issued and fully paid share capital consists of 889,315,082 common shares, each share having a par value of EUR 0.20 (December 31, 2021: 883,898,969; December 31, 2020: 911,053,001).
As a means to protect the company against (an attempt at) an unsolicited takeover or other attempt to exert (de facto) control of the company, the \u2018Stichting Preferente Aandelen Philips\u2019 has been granted the right to acquire preference shares in the company. As of December 31, 2022, no such right has been exercised and no preference shares have been issued. Authorized preference shares consist of 2 billion shares as of December 31, 2022 (December 31, 2021: 2 billion; December 31, 2020: 2 billion).
Under its share-based compensation plans, the company granted stock options on its common shares up to 2013 and other conditional rights to receive common shares in the future such as restricted shares and performance shares (refer to Share-based compensation).
In connection with the company\u2019s share repurchase programs, shares which have been repurchased and are held in Treasury for the purpose of (i) delivery under share-based compensation plans upon exercise of options, or vesting of restricted or performance shares, and (ii) capital reduction, are accounted for as a reduction of shareholders\u2019 equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When treasury shares are delivered by the company under its share-based compensation plans, such shares are removed from treasury shares on a first-in, first-out (FIFO) basis.
When treasury shares are delivered by the company upon exercise of options (granted to employees up to 2013), the difference between the cost and the cash received is recorded in retained earnings. When treasury shares are delivered by the company upon vesting of restricted shares or performance shares (granted under the company\u2019s share-based compensation plans), the difference between the market price of the shares and the cost is recorded in retained earnings, and the market price is recorded in capital in excess of par value.
The following table shows the movements in the outstanding number of shares over the last three years:
Philips Group
Outstanding number of shares
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Balance as of January 1 | 890,973,790 | 905,128,293 | 870,182,445 |
| Dividend distributed | 18,080,198 | 6,345,968 | 14,174,568 |
| Purchase of treasury shares | (8,669,622) | (45,486,392) | (5,080,693) |
| Delivery of treasury shares | 4,695,170 | 4,194,577 | 2,204,207 |
| Issuance of new shares | 48,757 | ||
| Balance as of December 31 | 905,128,293 | 870,182,445 | 881,480,527 |
The following table reflects transactions that took place in relation to former and current share-based compensation plans:
Philips Group
Transactions related to share-based compensation plans
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 5,351,411 | 3,996,576 | 2,142,445 |
| Average market price | EUR 33.81 | EUR 36.15 | EUR 31.76 |
| Amount paid | EUR 181 million | EUR 144 million | EUR 68 million |
| Shares delivered | 4,695,170 | 4,194,577 | 2,204,207 |
| Average price (FIFO) | EUR 34.35 | EUR 34.14 | EUR 35.16 |
| Cost of delivered shares | EUR 161 million | EUR 143 million | EUR 77 million |
| Total shares in treasury at year-end | 5,924,708 | 5,726,708 | 5,664,946 |
| Total cost | EUR 199 million | EUR 201 million | EUR 191 million |
The following transactions took place for capital reduction purposes:
Philips Group
Transactions related to capital reduction
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 3,318,211 | 41,489,816 | 2,938,248 |
| Average market price | EUR 39.21 | EUR 36.22 | EUR 36.61 |
| Amount paid | EUR 130 million | EUR 1,503 million | EUR 108 million |
| Cancellation of treasury shares (shares) | 3,809,675 | 33,500,000 | 8,758,455 |
| Cancellation of treasury shares (EUR) | EUR 152 million | EUR 1,216 million | EUR 299 million |
| Total shares in treasury at year-end | 7,989,816 | 2,169,609 | |
| Total cost | EUR 287 million | EUR 83 million |
Share purchase transactions related to employee option and share plans, as well as transactions related to the reduction of share capital, involved a cash outflow of EUR 187 million. A cash inflow of EUR 12 million from treasury shares mainly relates to the exercise of employee stock options (granted until 2013).
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.\u00a0
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 and a weighted average forward price of EUR 19.75.
On May 19, 2021, Royal 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 2023 and November 2023 and a weighted average forward price of EUR 44.85.\u00a0
On January 29, 2020, Philips announced that it will 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 in total 5 million for an amount of EUR 174 million to acquire with settlement dates varying between October 2021 and November 2022 and a weighted average forward price of EUR 34.85. On October 26, 2022, the original settlement date of two tranches entered into under this program (in total 1.75 million shares) has been extended from November 23, 2022 to November 2023, and November 2024, respectively. As of December 31, 2022, a total of 3.3 million shares (December 31, 2021: 1.5 million) under this program were acquired (settled in the fourth quarter of 2021 and 2022, respectively). This resulted in a EUR 57 million\u00a0 (December 31, 2021: EUR 61 million) increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts to cover obligations under share-based remuneration plans related to 7.0 million shares (December 31, 2021: 5.5 million) and amounted to EUR 211 million (December 31, 2021: EUR 203 million).
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 20 million shares with settlement dates in 2022, 2023 and 2024 and a weighted average forward price of EUR 37.36. 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). This resulted in a EUR 781 million increase in retained earnings against treasury shares. As of December 31, 2022, a total of 2.2 million shares under this program were acquired (in the fourth quarter of 2022). This resulted in EUR 83 million increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts entered into for capital reduction purposes relate to 17.4 million shares (December 31, 2021: 19.6 million) and amounted to EUR 648 million (December 31, 2021: EUR 731 million).
In 2016, Philips purchased EUR-denominated and USD-denominated call options on its own shares to hedge options granted to employees up to 2013.
In 2022, the company unwound 239,880 EUR-denominated and 152,565 USD-denominated call options against the transfer of the same number of its own shares (392,445 shares) and an additional EUR 6 million cash payment to the buyer of the call options.
As of December 31, 2022, the remaining EUR-denominated call options related to 55,750 shares while there are no remaining USD-denominated call options.
In June 2022, Philips completed the cancellation of 8.8 million of its common shares (with a cost price of EUR 299 million). The cancelled shares were acquired as part of the Philips\u2019 EUR 1.5 billion share repurchase programs announced on July 26, 2021.
In May 2022, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of \u00a0EUR 741 million\u00a0(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. The settlement of the cash dividend involved an amount of EUR 411 million (including costs).
A proposal will be submitted to the 2023 Annual General Meeting of Shareholders to pay a dividend of \u00a0EUR 0.85 per common share, in common shares only, against retained earnings for 2022.
In June 2021, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of EUR 773 million (including costs). Shareholders could elect for a cash dividend or a share dividend. Approximately\u00a038% of the shareholders elected for a share dividend, resulting in the issuance of 6,345,968 new common shares. The settlement of the cash dividend involved an amount of \u00a0EUR 482 million (including costs).
In July 2020, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of EUR 758 million (including costs). The dividend was distributed in the form of shares only resulting in the issuance of 18,080,198 new common shares.\u00a0
As of December 31, 2022, pursuant to Dutch law, certain limitations exist relating to the distribution of shareholders\u2019 equity of EUR 3,054 million. Such limitations relate to common shares of EUR 178 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 1,010 million and unrealized currency translation differences of EUR 1,866 million. The unrealized loss related to cash flow hedges of EUR 2 million and unrealized loss related to fair value through OCI financial assets of EUR 376 million qualify as revaluation reserves and reduce the distributable amount due to the fact that these reserves are negative.
The legal reserves required by Dutch law of EUR 1,010 million included under retained earnings relates to any legal or economic restrictions on the ability of affiliated companies to transfer funds to the parent company in the form of dividends.
As of December 31, 2021, these limitations in distributable amounts were EUR 1,947 million and related to common shares of EUR 177 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 654 million and unrealized currency translation differences of EUR 1,117 million. The unrealized losses related to fair value through OCI financial assets of EUR 344 million and unrealized loss related to cash flow hedges of EUR 25 million qualify as a revaluation reserve and reduce the distributable amount due to the fact that this reserve is negative.
Non-controlling interests relate to minority stakes held by third parties in consolidated group companies.
Philips manages capital based upon the IFRS measures, net cash provided by operating activities and net cash used for investing activities as well as the non-IFRS measure net debt. The definition of this non-IFRS measure and a reconciliation to the IFRS measure is included below.
Net debt is defined as the sum of long and short-term debt minus cash and cash equivalents. Group equity is defined as the sum of shareholders\u2019 equity and non-controlling interests. This measure is used by Philips Treasury management and investment analysts to evaluate financial strength and funding requirements. The Philips net debt position is managed with the intention of retaining the current strong investment grade credit rating. Furthermore, Philips\u2019 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 (reconciliation to the most directly comparable IFRS measure, Net income, is provided at the end of this note).
Philips Group
Composition of net debt and group equity
in millions of EUR unless otherwise stated
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Long-term debt | 5,705 | 6,473 | 7,270 |
| Short-term debt | 1,229 | 506 | 931 |
| Total debt | 6,934 | 6,980 | 8,201 |
| Cash and cash equivalents | 3,226 | 2,303 | 1,172 |
| Net debt | 3,708 | 4,676 | 7,028 |
| Shareholders' equity | 11,870 | 14,438 | 13,249 |
| Non-controlling interests | 31 | 36 | 34 |
| Group equity | 11,901 | 14,475 | 13,283 |
| Net debt and group equity ratio | 24:76 | 24:76 | 35:65 |
Adjusted income from continuing operations attributable to shareholders is not a recognized measure of financial performance under IFRS. The reconciliation of Adjusted income from continuing operations attributable to shareholders to the most directly comparable IFRS measure, Net income for 2022 is included in the following table.
Philips Group
Adjusted income from continuing operations attributable to shareholders
1) in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Net income | 1,195 | 3,323 | (1,605) |
| Discontinued operations, net of income taxes | (196) | (2,711) | (13) |
| Income from continuing operations | 999 | 612 | (1,618) |
| Income from continuing operations attributable to non-controlling interests | (8) | (4) | (3) |
| Income from continuing operations attributable to shareholders1) | 991 | 608 | (1,622) |
| Adjustments for: | \u00a0 | \u00a0 | \u00a0 |
| Amortization and impairment of acquired intangible assets | 377 | 322 | 363 |
| Impairment of goodwill | 144 | 15 | 1,357 |
| Restructuring costs and acquisition-related charges | 195 | 95 | 202 |
| Other items: | 299 | 1,069 | 925 |
| Respironics field-action provision | \u00a0 | 719 | 250 |
| Respironics field-action running remediation cost | \u00a0 | 94 | 210 |
| R&D project impairments | \u00a0 | \u00a0 | 134 |
| Portfolio realignment charges | \u00a0 | \u00a0 | 109 |
| Impairment of assets in S&RC | \u00a0 | \u00a0 | 39 |
| Provision for public investigations tender irregularities | \u00a0 | \u00a0 | 60 |
| Provisions for quality actions in Connected Care | \u00a0 | 94 | 59 |
| Loss on divestment of business | \u00a0 | 76 | \u00a0 |
| Remaining items | 299 | 87 | 63 |
| Net finance income/expenses | (125) | (84) | (4) |
| Tax impact of adjusted items and tax only adjusting items | (285) | (527) | (376) |
| Adjusted Income from continuing operations attributable to shareholders1) | 1,594 | 1,497 | 845 |
Debt is initially measured at fair value net of directly attributable transaction costs. Subsequently, debt is measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Debt is derecognized when the obligation under the liability is discharged, cancelled or has expired.
Lease liabilities are measured at the present value of the lease payments due over the lease term, generally discounted using the incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest method. Lease liabilities are remeasured in case of modifications or reassessments of the lease.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop of its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion.\u00a0In 2022 Philips issued three new tranches under the\u00a0program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0
The provisions applicable to all USD-denominated corporate bonds issued by the company in March 2008 and March 2012 (due 2038 and 2042) contain a \u2018Change of Control Triggering Event\u2019. If the company would experience such an event with respect to a series of corporate bonds the company might be required to offer to purchase the bonds that are still outstanding at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. Furthermore, the conditions applicable to the EUR-denominated corporate bonds issued in 2018, 2019, 2020 and 2022 (due 2025, 2026, 2027, 2028, 2029, 2030 and 2033) contain a similar provision (\u2018Change of Control Put Event\u2019). Upon the occurrence of such an event, the company might be required to redeem or purchase any of such bonds at their principal amount together with interest accrued. Philips\u2019 outstanding long-term debt do not contain financial covenants.
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\u2019 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 year-end 2022, EUR 500 million was utilized and outstanding under the credit facility. In 2022, Philips entered into a total amount of EUR 63 million forward contracts relating to the company\u2019s long-term incentive and employee stock purchase plans. A total of EUR 57 million forward contracts relating to the long-term incentive and employee stock purchase plans as announced in 2020\u00a0and EUR 83 million of forwards related to the share buyback program announced in 2021 matured throughout 2022.
In February 2021, Philips entered into two new bilateral loans amounting to a total of EUR 500 million (EUR 250 million each) with a tenor of up to one year, that were repaid in September 2021. In 2021, Philips also entered into a total amount of EUR 731 million of forward contracts relating to the EUR 1.5 billion share buyback program announced on July 26, 2021, with maturity dates in 2022, 2023 and 2024. 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. \u00a0In addition, Philips entered into a total amount of EUR 90 million of forward contracts in 2021 relating to the long-term incentive and employee stock purchase plans announced on May 19, 2021, with maturity dates in 2023, and a total amount of EUR 123 million of forward contracts matured in 2021 relating to the company's long-term incentive and employee stock purchase plans announced on October 22, 2018 and January 29, 2020.
The following tables present information about the long-term debt outstanding, its maturity and average interest rates in 2022 and 2021.
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2022 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,378 | 1,378 | 250 | 1,128 | 14.3 | 6.3% | |
| EUR bonds | 4,061 | 4,061 | 1,836 | 2,225 | 5.7 | 1.7% | |
| Forward contracts | 858 | 606 | 252 | 252 | 1.0 | ||
| Lease liabilities | 1,082 | 230 | 852 | 504 | 348 | 3.9 | 2.4% |
| Bank borrowings | 705 | 2 | 702 | 702 | 1.9 | 1.7% | |
| Other long-term debt | 28 | 4 | 24 | 17 | 6 | 8.9 | 2.9% |
| Long-term debt | 8,111 | 842 | 7,270 | 3,562 | 3,706 | 6.1 | 2.4% |
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2021 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,313 | \u00a0 | 1,313 | 255 | 1,058 | 15.1 | 6.3% |
| EUR bonds | 3,233 | 3,233 | 2,242 | 991 | 4.4 | 1.0% | |
| Forward contracts | 934 | 196 | 738 | 738 | \u00a0 | 1.6 | \u00a0 |
| Lease liabilities | 1,220 | 257 | 963 | 580 | 383 | 4.2 | 2.1% |
| Bank borrowings | 203 | 1 | 202 | 202 | 3.2 | 0.1% | |
| Other long-term debt | 30 | 5 | 26 | 18 | 8 | 8.6 | 3.5% |
| Long-term debt | 6,933 | 459 | 6,473 | 4,034 | 2,439 | 6.0 | 2.1% |
The following table presents the amount outstanding and effective rate of bonds.
Philips Group
Unsecured Bonds
in millions of EUR unless otherwise stated
| \u00a0 | effective rate | 2021 | 2022 |
|---|---|---|---|
| Unsecured EUR Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 06/09/2023; 1/2% | 0.634% | 500 | |
| Due 02/05/2024; 3/4% | 0.861% | 500 | |
| Due 22/05/2026; 1/2% | 0.608% | 750 | 750 |
| Due 02/05/2028; 1 3/8% | 1.523% | 500 | 500 |
| Due 30/03/2025; 1 3/8% | 1.509% | 500 | 346 |
| Due 30/03/2030; 2% | 2.128% | 500 | 500 |
| Due 05/05/2027; 1 7/8% | 2.049% | 750 | |
| Due 05/11/2029; 2 1/8% | 2.441% | 650 | |
| Due 05/05/2033; 2 5/8% | 2.710% | 600 | |
| Unsecured USD Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 15/05/2025; 7 3/4% | 7.429% | 56 | 51 |
| Due 01/06/2026; 7 1/5% | 6.885% | 120 | 119 |
| Due 15/05/2025; 7 1/8% | 6.794% | 74 | 78 |
| Due 11/03/2038; 6 7/8% | 7.210% | 641 | 683 |
| Due 15/03/2042; 5% | 5.273% | 441 | 470 |
| Adjustments1) | \u00a0 | (37) | (57) |
| Unsecured Bonds | \u00a0 | 4,545 | 5,439 |
The following table presents a reconciliation between the total of future minimum lease payments and their present value.
Philips Group
Lease liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | future minimum lease payments | interest | present value of minimum lease payments | future minimum lease payments | interest | present value of minimum lease payments |
| Less than one year | 280 | 22 | 257 | 251 | 21 | 230 |
| Between one and five years | 636 | 56 | 580 | 554 | 49 | 505 |
| More than five years | 417 | 34 | 383 | 376 | 28 | 348 |
| Lease liabilities | 1,333 | 113 | 1,220 | 1,180 | 98 | 1,082 |
Philips Group
Short-term debt
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Short-term bank borrowings | 47 | 89 |
| Current portion of long-term debt | 459 | 842 |
| Short-term debt | 506 | 931 |
During 2022, the weighted average interest rate on the bank borrowings was 5.7% (2021: 1.2%). This increase was mainly driven by financial market conditions across various countries globally.
\u00a0
A provision is a liability of uncertain timing or amount. Provisions are recognized if, as a result of a past event, the company has a present legal or constructive obligation, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated reliably. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money. The increase in the provision due to passage of time (accretion) is recognized as interest expense.
Provisions for severance and termination benefits are recognized for those costs only when the company has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Before a provision is established, the company recognizes any impairment loss on the assets associated with the restructuring.
By their nature, the recognition of provisions require estimates and assumptions regarding the timing and the amount of outflow of resources. The main estimates include:
Philips Group
Provisions
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | long-term | short-term | total | long-term | short-term | total |
| Post-employment benefits1) | 659 | \u00a0 | 659 | 546 | \u00a0 | 546 |
| Respironics field-action provision | 52 | 525 | 577 | 23 | 366 | 390 |
| Product warranty provisions | 32 | 207 | 238 | 57 | 287 | 344 |
| Environmental provisions | 99 | 26 | 124 | 83 | 20 | 104 |
| Restructuring-related provisions | 8 | 58 | 66 | 6 | 134 | 140 |
| Legal provisions | 53 | 39 | 91 | 14 | 74 | 89 |
| Contingent consideration provisions | 156 | 52 | 208 | 89 | 23 | 113 |
| Other provisions | 257 | 92 | 349 | 279 | 112 | 390 |
| Provisions | 1,315 | 998 | 2,313 | 1,097 | 1,018 | 2,115 |
On June 14, 2021, Philips\u2019 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 related to the polyester-based polyurethane (PE-PUR) sound abatement foam in these devices.
The repair and replacement program is under way globally. Because of the prioritization of the repair and replace program, Philips is currently not taking new orders for sleep therapy systems, while masks and other consumables continue to be sold.\u00a0As of December 31, 2022, approximately 90% of the production required for the delivery of replacement devices to patients has been completed. The time to complete the program is impacted by the dependency on supply of materials, including from China, and global logistics capacity.\u00a0Philips Respironics is also conducting a test and research program with independent laboratories.\u00a0
Philips has recognized a provision based on Philips' best estimate of the costs to repair or replace devices subject to the Respironics field action. The provision is related to the cost to repair and/or replace affected devices and includes, amongst others, the costs for the remaining production, the cost of intensified communication with physicians and patients, material costs, labor cost and logistics. The provision does not include any product liability costs or other claims. Movements during the year were as follows:
Philips Group
Respironics field-action provision
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | - | 577 |
| Additions | 719 | 250 |
| Utilizations | (175) | (486) |
| Translation differences | 33 | 49 |
| Balance as of December 31 | 577 | 390 |
Additions for the year reflect updated expectations in relation to the volume of devices eligible for remediation as well as additional costs related to the acceleration of the program. As of December 31, 2022, Philips Respironics expects to remediate a total of around 5.6 million devices (specific CPAP, BiPAP and mechanical ventilator devices) globally,\u00a0excluding certain end-of-life devices that are expected to be retired. In 2022, following Philips Respironics\u2019 comprehensive patient and customer communication outreach and based on current insights, the total expected units to be remediated have increased by approximately 0.4 million, primarily in the US. Furthermore, efforts to accelerate the program resulted in a shift towards replacement, which increased the replacement share to 60% (compared to 46% as of December 31, 2021) and as a result further reduced repair quantities. Utilizations for the year reflect the costs incurred in executing the repair and replace program during the year.
The completion of the field action continues to be subject to significant uncertainties, which require management to make estimates and assumptions about items such as quantities and the portion to be replaced or repaired. As of December 31, 2022, the impact of changes in these main assumptions and estimates, holding other assumptions constant, on the field action provision are as follows:
Philips Group
Main assumptions
in millions of EUR unless otherwise stated
| \u00a0 | Increase (decrease) in provision | |
|---|---|---|
| Assumption | Increase individual assumption by 10% | Decrease individual assumption by 10% |
| Total quantity of devices remaining | 26 | (26) |
| Replacement share | 12 | (12) |
Actual outcomes in future periods may differ from these estimates and affect the company's results of operations, financial position and cash flows.
In addition, running remediation costs of EUR 210 million (2021: EUR 94 million) related to the remediation, such as testing, external advisory and regulatory response and additional right-of-return and warranty provisions have been incurred.
Following the FDA\u2019s inspection of certain of Philips Respironics\u2019 facilities in the US in 2021 and the subsequent inspectional observations, the US Department of Justice, acting on behalf of the FDA, in July 2022 started discussions with Philips regarding the terms of a consent decree to resolve the identified issues. At the end of December 2022, the discussions are ongoing. Furthermore, Philips is a defendant in a number of consumer class action lawsuits from users of the affected devices and a number of individual personal injury and other compensation claims. To date no provisions have been recorded for the litigation and investigations associated with the Respironics field action. For legal matters including claims refer to Contingencies.\u00a0
The provisions for assurance-type product warranty reflect the estimated costs of replacement and free-of-charge services that will be incurred by the company with respect to products sold, and include costs to execute field change orders. The field action provision in connection with the Philips Respironics voluntary recall notification is shown separately above.
The company expects the provisions to be utilized mainly within the next year.
Philips Group
Provisions for assurance-type product warranty
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 167 | 238 |
| Additions | 364 | 320 |
| Utilizations | (265) | (224) |
| Transfer to liabilities associated with assets held for sale | (37) | |
| Translation differences and other | 10 | 9 |
| Balance as of December 31 | 238 | 344 |
Additions in 2022 include quality actions of EUR 108 million in the Connected Care segment, mainly for the following matters:
In February 2022, Philips issued a field safety notice notifying customers of a potential issue with the Adult SMART Pads Cartridge (M5071A) and the Infant/Child SMART Pads Cartridge (M5072A) for use specifically with the HeartStart HS1 Automated External Defibrillator (AED) devices. Philips has identified that for affected pads the HS1 AED could deliver less effective or ineffective therapy. Philips is actively working on replacing these pads and has commenced the replacement program in 2022.
In March 2022, Philips Respironics issued a voluntary recall notification/field safety notice to customers of its V60, V60 Plus and V680 ventilators, regarding a potential issue that could affect the main electrical circuit (\u201c35V Rail\u201d) powering the ventilator and alarm. This notification was updated in April 2022 with additional customer instructions. In June 2022, Philips issued a further update to this notification, regarding the projected correction for this matter. To address the issue with the 35V Rail, Philips Respironics has commenced the remediation program in 2022.
The environmental provisions include accrued costs recorded with respect to environmental remediation in various countries. In the United States, subsidiaries of the company have been named as potentially responsible parties in state and federal proceedings for the clean-up of certain sites.
Provisions for environmental remediation can change significantly due to the emergence of additional information regarding the extent or nature of the contamination, the need to utilize alternative technologies, actions by regulatory authorities as well as changes in judgments and discount rates.
Approximately EUR 73 million\u00a0of the long-term provision is expected to be utilized after one to five years, with the remainder after five years. For more details on the environmental remediation refer to Contingencies.
Philips Group
Environmental provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 183 | 124 |
| Additions | 18 | 15 |
| Utilizations | (15) | (17) |
| Releases | (64) | (2) |
| Changes in discount rate | (10) | (27) |
| Accretion | 3 | 4 |
| Translation differences and other | 9 | 7 |
| Balance as of December 31 | 124 | 104 |
The additions and the releases of the provisions originate from additional insights in relation to factors like the estimated cost of remediation, changes in regulatory requirements and efficiencies in completion of various site work phases.
Based on the progressive insight with respect to site remediation experience, technological progress and risk-based clean-up strategies, the estimated remaining duration of remediation activities for environmental liabilities for infinite environmental sites was revised in 2021 from 60 years to 30 years. The resulting release was EUR 55 million of which EUR 33 million is recorded in continuing operations and EUR 22 million in discontinued operations.
Philips Group
Restructuring-related provisions
in millions of EUR
| \u00a0 | January 1, 2022 | additions | utilizations | releases | other changes | December 31, 2022 |
|---|---|---|---|---|---|---|
| Diagnosis & Treatment | 26 | 58 | (27) | (8) | 0 | 49 |
| Connected Care | 17 | 34 | (13) | (3) | (1) | 34 |
| Personal Health | 9 | 9 | (7) | (2) | 0 | 10 |
| Other | 14 | 52 | (14) | (5) | 0 | 47 |
| Philips Group | 66 | 154 | (61) | (18) | (1) | 140 |
In 2022, Philips initiated general productivity actions aimed at simplifying the organization to streamline the way of working and reduce operating expenses. This includes an immediate reduction of around 4,000\u00a0positions globally across the organization, subject to consultation with the relevant workers councils and social partners, with severance and termination-related costs expected to be approximately EUR 130 million in aggregate, of which EUR 80 million was recorded in 2022.
In addition, restructuring projects were executed during the year, of which the most significant impacted Diagnosis & Treatment and Other and mainly took place in the US and Netherlands. The restructuring mainly comprised product portfolio rationalization and the reorganization of global support functions. The company expects the provisions to be utilized mainly within the next year.
In 2021, the most significant restructuring projects impacted Diagnostic & Treatment and Connected Care businesses and mainly took place in the Netherlands and US.\u00a0
The movements in the provisions for restructuring in 2021 are presented by segment as follows:
Philips Group
Restructuring-related provisions
in millions of EUR
| \u00a0 | January 1, 2021 | additions | utilizations | releases | other changes | December 31, 2021 |
|---|---|---|---|---|---|---|
| Diagnosis & Treatment | 33 | 23 | (19) | (13) | 1 | 26 |
| Connected Care | 17 | 16 | (12) | (4) | - | 17 |
| Personal Health | 28 | 6 | (21) | (6) | 2 | 9 |
| Other | 38 | 10 | (21) | (16) | 4 | 14 |
| Philips Group | 117 | 55 | (73) | (39) | 6 | 66 |
The company and certain of its group companies and former group companies are involved as a party in legal proceedings, including regulatory and other governmental proceedings.
Philips Group
Legal provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 72 | 91 |
| Additions | 43 | 89 |
| Acquisitions | 38 | 4 |
| Utilizations | (17) | (100) |
| Releases | (48) | (3) |
| Accretion | 1 | - |
| Translation differences and other | 3 | 7 |
| Balance as of December 31 | 91 | 89 |
The majority of the movements in the above schedule are: Additions mainly relate to a provision recognized for alleged tender irregularities as disclosed in note Contingencies and provisions recognized for CRT matters. Utilizations mainly relate to the settlement of investigations in the Connected Care businesses (unrelated to the Philips Respironics voluntary recall notification).
For details of other legal matters, including regulatory and other governmental proceedings, refer to Contingencies.
The company expects the provisions to be utilized mainly within the next three years.
Philips Group
Contingent consideration provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 318 | 208 |
| Acquisitions | 16 | 96 |
| Utilizations | (48) | (105) |
| Fair value changes | (78) | (86) |
| Balance as of December 31 | 208 | 113 |
The provision for contingent consideration reflects the fair value of the expected payment to former shareholders of an acquiree for the exchange of control if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The provision for contingent consideration can change significantly due to changes in the estimated achievement of milestones and changes in discount rates. Changes in fair value of the contingent consideration liability are reflected in other business income.
In 2021 and 2022, the fair value changes mainly related to EPD. In 2022, the decrease of EUR 61 million in the fair value of the contingent consideration comprised of EUR 30 million\u00a0 due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 31 million due to delays in achievement of certain milestones. In 2021, the decrease of EUR 67 million in the fair value of the contingent consideration comprised of EUR 41 million due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 26 million due to delays in achievement of certain milestones.
The company expects the provisions to be utilized mainly within the next three years.
Philips Group
Other provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 372 | 349 |
| Additions | 89 | 160 |
| Utilizations | (87) | (95) |
| Releases | (29) | (35) |
| Accretion | (5) | (3) |
| Translation differences and other | 9 | 14 |
| Balance as of December 31 | 349 | 390 |
The main elements of other provisions are:
The company expects the provisions to be utilized mainly within the next five years, except for:
A defined contribution plan is a post-employment benefit plan for which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the Consolidated statements of income in the periods during which services are rendered by employees.
A defined benefit plan is a post-employment benefit plan that is not a defined contribution plan. Defined benefit plans define an amount of pension benefit that an employee will receive after retirement. That pension benefit typically depends on several factors such as years of service, age and salary.
The net pension asset or liability recognized in the Consolidated balance sheets in respect of defined benefit plans is the fair value of plan assets less the present value of the projected defined benefit obligation at the Consolidated balance sheets date. The defined benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. Recognized assets are limited to the present value of any reductions in future contributions or any future refunds. The net pension liability is presented as a long-term provision; no distinction is made for the short-term portion.
For the company\u2019s major plans, a full discount rate curve of high-quality corporate bonds is used to determine the defined benefit obligation, where available. The curves are based on the Mercer Yield Curve methodology, which uses data of corporate bonds rated AA or equivalent. For the other plans the Mercer Yield Curve/Mercer Methodology has also been used taking into account the cash flows as much as possible in case there is a deep market in corporate bonds. For plans in countries without a deep corporate bond market, the discount rate is based on government bonds and the plan\u2019s maturity.
Pension costs in respect of defined benefit plans primarily represent the increase of the actuarial present value of the obligation for post-employment benefits based on employee service during the year and the interest on the net recognized asset or liability in respect of employee service in previous years.
Remeasurements of the net defined benefit asset or liability comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (excluding interest). The company recognizes all remeasurements in Other comprehensive income.
Past service costs arising from the introduction of a change to the benefit payable under a plan or a significant reduction of the number of employees covered by a plan (curtailment) are recognized in full in the Consolidated statements of income.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. The company recognizes a liability and an expense for bonuses and incentives based on a formula that takes into consideration the profit attributable to the company\u2019s shareholders after certain adjustments.
The company\u2019s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods, such as jubilee entitlements. That benefit is discounted to determine its present value. Remeasurements are recognized in the Consolidated statements of income in the period in which they arise.
Further information on other employee benefits can be found in Provisions in the Other provisions section.
To make the actuarial calculations for the valuation of defined benefit obligations, assumptions are needed for interest rates, healthcare cost increases, future pension increases, life expectancy and employee turnover rates. The actuarial calculations are made by external actuaries based on inputs from observable market data, such as corporate bond returns and yield curves to determine the discount rates to apply, mortality tables to determine life expectancy and inflation rates to determine future salary and pension growth assumptions.
Employee post-employment benefit plans have been established in many countries in accordance with the legal requirements, customs and the local practice in the countries involved. The larger part of post-employment benefits are company pension plans, of which some are funded and some are unfunded. All funded post-employment benefit plans are considered to be related parties.
Most employees that take part in a company pension plan are covered by defined contribution (DC) pension plans. The main DC plans are in the Netherlands and the United States. The company also sponsors a number of defined benefit (DB) pension plans. The benefits provided by these plans are based on employees\u2019 years of service and compensation levels.
The company also sponsors a limited number of DB retiree medical plans. The benefits provided by these plans typically cover a part of the healthcare costs after retirement. None of these plans are individually significant to the company and are therefore not further separately disclosed.
The larger funded DB and DC plans are governed by independent Trustees who have a legal obligation to protect the interests of all plan members and operate under the local regulatory framework.
The DB plans in Germany and the United States make up most of the defined benefit obligation (DBO) and the net position. The company also has DB plans in the rest of the world; however these are individually not significant to the company and do not have a significantly different risk profile that would warrant separate disclosure.
The adjacent table provides a break-down of the present value of the funded and unfunded DBO, the fair value of plan assets and the net position in Germany, the United States and in Other Countries. The table also provides the value of reimbursement rights.
Philips Group
Post-employment benefits
in millions of EUR
| \u00a0 | Germany | United States | Other Countries | Total | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Present value of funded DBO | (606) | (489) | (558) | (440) | (206) | (179) | (1,370) | (1,108) |
| Present value of unfunded DBO | (316) | (249) | (149) | (128) | (135) | (136) | (600) | (513) |
| Total present value of DBO | (921) | (738) | (708) | (568) | (341) | (315) | (1,970) | (1,621) |
| Fair value of plan assets | 572 | 477 | 623 | 474 | 185 | 171 | 1,380 | 1,122 |
| Net position | (349) | (261) | (84) | (94) | (157) | (144) | (590) | (499) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Value of reimbursement rights | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | 6 | \u00a0 | 6 |
The classification of the net position is as follows:
Philips Group
Classification net position
in millions of EUR
| \u00a0 | Germany | United States | Other Countries\u00a0\u00a0 | Total\u00a0 | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Total asset for plans in a surplus | 3 | 9 | 65 | 34 | 1 | 4 | 69 | 46 |
| Total liability for plans in a deficit | (352) | (270) | (149) | (128) | (157) | (148) | (659) | (546) |
| Provisions for post-employment benefit plans under AHFS | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |||
| Net position | (349) | (261) | (84) | (94) | (157) | (144) | (590) | (499) |
The company has several DB plans in Germany which for the largest part are unfunded, meaning that after retirement the company is responsible for the benefit payments to retirees.
Due to the relatively high level of social security in Germany, the company\u2019s pension plans mainly provide benefits for the higher earners. The plans are open for future pension accrual. Indexation is mandatory due to legal requirements. Some of the German plans have a DC design, but are accounted for as DB plans due to a legal minimum return requirement.
Company pension commitments in Germany are partly protected against employer bankruptcy via the \u201cPensions-Sicherungs-Verein\u201d which charges a fee to all German companies providing pension promises.
Philips is one of the sponsors of Philips Pensionskasse VVaG in Germany, which is a multi-employer plan. The plan is classified and accounted for as a DC plan.
The US DB pension plans are closed plans without future pension accrual. For the funding of any deficit in the US plan the Group adheres to the minimum funding requirements of the US Pension Protection Act.
The assets of the US funded pension plans are in Trusts governed by fiduciaries. The non-qualified pension plans that cover accrual above the maximum salary of the funded qualified plan are unfunded.
The company\u2019s qualified pension commitments in the United States are covered via the Pension Benefit Guaranty Corporation which charges a fee to US companies providing DB pension plans. The fee is also dependent on the amount of unfunded vested liabilities.
DB plans expose the company to various demographic and economic risks such as longevity risk, investment risks, currency and interest rate risk and in some cases inflation risk. The latter plays a role in the assumed wage increase but more importantly in some countries where indexation of pensions is mandatory.
The company has an active de-risking strategy in which it constantly looks for opportunities to reduce the risks associated with its DB plans. Liability-driven investment strategies, lump sum cash-out options, buy-ins, buy-outs and a change to DC are examples of the strategy.\u00a0
Pension fund trustees are responsible for and have full discretion over the investment strategy of the plan assets. The plan assets of the Philips pension plans are invested in well diversified portfolios. The interest rate sensitivity of the fixed income portfolio is closely aligned to that of the plan\u2019s pension liabilities for most of the plans. Any contributions from the sponsoring company are used to further increase the fixed income part of the assets. As part of the investment strategy, any improvement in the funded ratio over time is used to further decrease the interest rate mismatch between the plan assets and the pension liabilities.
The adjacent table contains the total of current and past service costs, administration costs and settlement results as included in Income from operations and the interest cost as included in Financial expenses.
Philips Group
Pre-tax costs for post-employment benefits
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Defined benefit plans | 74 | 36 | 50 |
| - included in income from operations | 59 | 28 | 39 |
| - included in financial expense | 13 | 8 | 10 |
| - included in Discontinued operations | 1 | 1 | |
| Defined contribution plans | 366 | 375 | 400 |
| - included in income from operations | 358 | 368 | 400 |
| - included in Discontinued operations | 8 | 7 | |
| Post-employment benefits costs | 440 | 411 | 449 |
The adjacent tables contain the reconciliations for the DBO and plan assets.
Philips Group
Defined benefit obligations
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 2,153 | 1,970 |
| Service cost | 36 | 32 |
| Interest cost | 33 | 36 |
| Employee contributions | 7 | 4 |
| Actuarial (gains) / losses | \u00a0 | \u00a0 |
| - demographic assumptions | 3 | 2 |
| - financial assumptions | (86) | (366) |
| - experience adjustment | (6) | 12 |
| (Negative) past service cost | (5) | 16 |
| Settlements | (90) | |
| Benefits paid from plan | (95) | (95) |
| Benefits paid directly by employer | (33) | (41) |
| Translation differences and other | 52 | 52 |
| Balance as of December 31 | 1,970 | 1,621 |
Philips Group
Plan assets
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 1,403 | 1,380 |
| Interest income on plan assets | 25 | 26 |
| Admin expenses paid | (1) | (1) |
| Return on plan assets excluding interest income | 44 | (254) |
| Employee contributions | 7 | 4 |
| Employer contributions | 33 | 17 |
| Settlements | (86) | 0 |
| Benefits paid from plan | (96) | (95) |
| Translation differences and other | 50 | 45 |
| Balance as of December 31 | 1,380 | 1,122 |
The past service cost in 2022 mainly relates to the retiree medical plans in Brazil. The settlement amounts of 2021 mainly relate to the transfer of the provident fund plan into the government provident fund in India.\u00a0
The asset allocation in the company\u2019s DB plans as of December 31 was as follows:
Philips Group
Plan assets allocation
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Assets quoted in active markets | \u00a0 | \u00a0 |
| - Debt securities | 790 | 560 |
| - Equity securities | \u00a0 | \u00a0 |
| - Other | 195 | 203 |
| \u00a0 | \u00a0 | \u00a0 |
| Assets not quoted in active markets | \u00a0 | \u00a0 |
| - Debt securities | 1 | |
| - Equity securities | 122 | 101 |
| - Other | 272 | 258 |
| Total assets | 1,380 | 1,122 |
The plan assets in 2022 contain 32% (2021: 29%) unquoted plan assets. Plan assets in 2022 do not include property occupied by or financial instruments issued by the company.
The mortality tables used for the company\u2019s largest DB plans are:
Germany: Heubeck-Richttafeln 2018 Generational, assuming 93% of mortality rates for male retirees between age 60 and 85
US: PRI-2012 Generational with MP2021 improvement scale + white collar adjustment
The weighted averages of the assumptions used to calculate the DBO as of December 31 were as follows:
Philips Group
Assumptions used for defined benefit obligations in Germany, the United States and the rest of the world
in %
| \u00a0 | Germany | United States | Other Countries | Total | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Discount rate | 1.1% | 4.1% | 2.6% | 5.2% | 2.1% | 4.9% | 1.8% | 4.7% |
| Inflation rate | 1.8% | 2.0% | 2.2% | 2.3% | 2.0% | 2.6% | 2.0% | 2.2% |
| Salary increase | 2.5% | 2.8% | 0.0% | 0.0% | 2.9% | 3.3% | 2.6% | 2.9% |
The following table illustrates the approximate impact on the DBO from movements in key assumptions. The DBO was recalculated using a change in the assumptions of 1%\u00a0which overall is considered a reasonably possible change. The impact on the DBO because of changes in discount rate is normally accompanied by offsetting movements in plan assets, especially when using matching strategies.
The average duration of the DBO of the DB plans is 8 years (Germany: 9, United States: 8, and Other countries: 8) as of December 31, 2022 (2021: 11 years).
Philips Group
Sensitivity of key assumptions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Increase | \u00a0 | \u00a0 |
| Discount rate (1% movement) | (196) | (122) |
| Pension increase (1% movement) | 99 | 57 |
| Salary increase (1% movement) | 19 | 12 |
| Longevity1) | 48 | 32 |
| Decrease | \u00a0 | \u00a0 |
| Discount rate (1% movement) | 241 | 145 |
| Pension increase (1% movement) | (83) | (49) |
| Salary increase (1% movement) | (18) | (11) |
Cash outflows in relation to post-employment benefits are estimated to amount to EUR 464 million in 2023, consisting of:
The service and administration cost for 2023 is expected to amount to EUR 29 million for DB plans. The net interest cost for 2023 for the DB plans is expected to amount to EUR 21 million. The cost for DC pension plans in 2023 is equal to the expected DC cash flow.
Accrued liabilities are summarized as follows:
Philips Group
Accrued liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Personnel-related costs: | \u00a0 | \u00a0 |
| - Salaries and wages | 566 | 490 |
| - Accrued holiday entitlements | 127 | 97 |
| - Other personnel-related costs | 108 | 101 |
| Fixed-asset-related costs: | \u00a0 | \u00a0 |
| - Gas, water, electricity, rent and other | 33 | 46 |
| Communication and IT costs | 82 | 64 |
| Distribution costs | 122 | 110 |
| Sales-related costs: | \u00a0 | \u00a0 |
| - Commission payable | 7 | 8 |
| - Advertising and marketing-related costs | 175 | 127 |
| - Other sales-related costs | 20 | 20 |
| Material-related costs | 130 | 132 |
| Interest-related accruals | 52 | 71 |
| Other accrued liabilities | 362 | 361 |
| Accrued liabilities | 1,784 | 1,626 |
Other liabilities are initially measured at fair value and subsequently at amortized cost and are derecognized when the obligation under the liability is discharged, cancelled or has expired.
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
Non-current liabilities were EUR 60 million as of December 31, 2022 (December 31, 2021: EUR 56 million).\u00a0
Non-current liabilities are associated mainly with indemnification and non-current accruals.
Other current liabilities are summarized as follows:
Philips Group
Other current liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Accrued customer rebates\u00a0 | 280 | 213 |
| Other taxes including social security premiums | 190 | 115 |
| Other liabilities | 116 | 120 |
| Other current liabilities | 587 | 448 |
Non-current contract liabilities were EUR 515 million as of December 31, 2022 (December 31, 2021: EUR 446 million) and current contract liabilities were EUR 1,696 million as of December 31, 2022 (December 31, 2021: EUR 1,491 million).
The current contract liabilities increased by EUR 205 million, which is mainly driven by an increase in deferred balances for customer service contracts.
The current contract liabilities as of December 31, 2021 resulted in revenue recognized of EUR 1,491 million in 2022.
Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
The cash flow statement is prepared using the indirect method. Cash flows related to interest and tax are included in operating activities. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to shareholders are included in financing activities. Dividends received are included in operating activities.
Cash flows arising from transactions in a foreign currency are translated into the company\u2019s functional currency using the exchange rate at the date of the cash flow. Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the same category as the cash flows from the hedged items. Cash flows from other derivative instruments are classified as investing cash flows.
In 2022, gross lease payments of EUR 316 million (2021: EUR 308 million; 2020: EUR 325 million) included interest of EUR 25 million (2021: EUR 25 million; 2020: EUR 29 million).
In 2022, a total of EUR 72 million cash was paid with respect to foreign exchange derivative contracts related to activities for liquidity management (2021: EUR 48 million inflow; 2020: EUR 13 million outflow).
In 2022, the net cash outflow is EUR 38 million.
In 2021, the net cash flow is EUR 0 million.
In 2020, the net cash outflow of EUR 66 million was mainly the cash outflow due to investment in DC Health amounting to EUR 45 million in China.
Certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items, principally because of the effects of translation differences and consolidation changes.
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2021 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2022 |
|---|---|---|---|---|---|
| Long term debt2) | 6,933 | 1,045 | 107 | 27 | 8,111 |
| EUR bonds | 3,233 | 827 | \u00a0 | 4,061 | |
| USD bonds | 1,313 | (20) | 85 | \u00a0 | 1,378 |
| Leases | 1,220 | (260) | 17 | 105 | 1,082 |
| Forward contracts3) | 934 | \u00a0 | \u00a0 | (76) | 858 |
| Bank borrowings | 203 | 498 | 4 | \u00a0 | 705 |
| Other long-term debt | 30 | (1) | 1 | (1) | 28 |
| Short term debt2) | 47 | 47 | (6) | 1 | 89 |
| Short-term bank borrowings | 47 | 47 | (6) | 1 | 89 |
| Other short-term loans | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,410) | (593) | \u00a0 | 869 | (1,133) |
| Dividend payable | \u00a0 | (418) | \u00a0 | 418 | \u00a0 |
| Forward contracts3) | (934) | \u00a0 | \u00a0 | 76 | (858) |
| Treasury shares | (476) | (174) | \u00a0 | 375 | (275) |
| Total | \u00a0 | 500 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2020 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2021 |
|---|---|---|---|---|---|
| Long term debt2) | 6,857 | (226) | 200 | 101 | 6,933 |
| EUR bonds | 3,229 | \u00a0 | 4 | 3,233 | |
| USD bonds | 1,210 | 103 | \u00a0 | 1,313 | |
| Leases | 1,216 | (239) | 98 | 145 | 1,220 |
| Forward contracts3) | 982 | \u00a0 | \u00a0 | (48) | 934 |
| Bank borrowings | 205 | (1) | \u00a0 | 203 | |
| Other long-term debt | 16 | 14 | \u00a0 | 30 | |
| Short term debt2) | 76 | (25) | (5) | \u00a0 | 47 |
| Short-term bank borrowings | 76 | (24) | (5) | \u00a0 | 47 |
| Other short-term loans | 1 | (1) | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,181) | (2,096) | \u00a0 | 1,868 | (1,410) |
| Dividend payable | \u00a0 | (484) | \u00a0 | 484 | \u00a0 |
| Forward contracts3) | (982) | \u00a0 | \u00a0 | 48 | (934) |
| Treasury shares | (199) | (1,613) | \u00a0 | 1,336 | (476) |
| Total | \u00a0 | (2,347) | \u00a0 | \u00a0 | \u00a0 |
A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
Philips\u2019 policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. The company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The guarantee is subsequently measured at the higher of the best estimate of the obligation or the amount initially recognized less, when appropriate, cumulative amortization.
As of December 31, 2022, the company had no material contingent assets.
The total fair value of guarantees recognized on the balance sheet amounts to EUR nil million for both 2022 and 2021. Remaining off-balance-sheet business related guarantees on behalf of third parties and associates to EUR 2 million in 2022 (December 31, 2021: EUR 2 million).
The company and its subsidiaries are subject to environmental laws and regulations. Under these laws, the company and/or its subsidiaries may be required to remediate the effects of certain manufacturing activities on the environment.
The company and certain of its group companies and former group companies are involved as a party in legal proceedings, regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, commercial transactions, product liability, participations, and environmental pollution.
While it is not feasible to predict or determine the outcome of all pending or threatened legal proceedings, regulatory and governmental proceedings, the company is of the opinion that the cases described below may have, or have had in the recent past, a significant impact on the company\u2019s consolidated financial position, results of operations and cash flows.
The company is engaged in discussions with, and has provided information to, the US Securities and Exchange Commission (SEC) and US Department of Justice (DoJ) regarding alleged tender irregularities in the medical device industry in certain jurisdictions. These interactions are primarily focused on a number of compliance findings that the company is addressing in Brazil, China and Bulgaria. In connection with these discussions and their status, the company recorded a provision in the amount of EUR 60 million.
Given the significant uncertainty regarding the nature of the relevant events and obligations, Philips is not currently able to reliably estimate the full financial effect of a range of possible outcomes in connection with the abovementioned discussions with the SEC and DoJ beyond the recorded provision. The outcomes of these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On June 14, 2021, Philips\u2019 subsidiary Philips RS North America LLC (Philips Respironics) issued a voluntary recall notification in the United States and field safety notice outside the United States for specific Philips Respironics CPAP, Bi-Level PAP, and mechanical ventilator devices (the \u201cRecalled Devices\u201d).
On August 26, 2021, the US Food and Drug Administration (FDA) commenced an inspection of the Philips Respironics manufacturing facility in Murrysville, Pennsylvania and provided Philips Respironics with its preliminary inspectional observations on November 9, 2021. Philips Respironics responded to the FDA\u2019s inspectional observations in December 2021, which described the actions already taken by the company, as well as additional planned actions. Philips Respironics is also providing periodic updates to the FDA on its progress for the planned actions. In July 2022, Philips started discussions with the DoJ acting on behalf of the FDA on a consent decree that would address compliance requirements for future sales, the resolution of the inspectional findings and the completion of the recall. At the end of December 2022, the discussions are ongoing.
On April 8, 2022, Philips Respironics and certain of Philips\u2019 subsidiaries in the US received a subpoena from the US DoJ to provide information related to events leading to the Respironics recall. The relevant subsidiaries are cooperating with the investigation. The criminal and civil investigation is being conducted by the US DoJ\u2019s Consumer Protection Branch and Civil Fraud Section, and the US Attorney\u2019s Office for the Eastern District of Pennsylvania. Given the early stages of the investigation, the company is not able to reliably estimate the financial impact, if any.
Following the voluntary recall notification, a number of civil complaints have been filed in several jurisdictions against Philips Respironics and certain of its affiliates (including the company) generally alleging economic loss, personal injury and/or the potential for personal injury allegedly caused by devices subject to the recall.
In the United States, consumer and commercial class action lawsuits have been filed alleging economic loss and medical monitoring claims. Individual personal injury lawsuits have also been filed. On October 8, 2021, a Multi-District Litigation (MDL) in the US District Court for the Western District of Pennsylvania was formed, and most of these class action and personal injury lawsuits have been consolidated in the MDL for pre-trial proceedings. As of December 31, 2022, plaintiffs have filed a consolidated economic loss class action complaint on behalf of device users, hospitals, and insurers and other third-party payers, a consolidated medical monitoring class action complaint on behalf of device users, and over 300 individual personal injury complaints.\u00a0The company anticipates that the number of individual personal injury complaints will increase in 2023.
In September 2022, the MDL court established a voluntary, court-approved census registry, and associated tolling, for potential claimants who have not filed claims, but may file claims in the future, relating to the Recalled Devices. The census registry replaces the private tolling agreement that had been in effect before the establishment of the census registry. At the time of termination, approximately 60,000 individuals had entered into the private tolling agreement. In the event these individuals wish to pursue or preserve their claims, they will need to file a lawsuit or register on the census registry. By December 31, 2022, approximately 13,500 individuals had joined the census registry. The company anticipates that the number of individuals on the census registry will increase in 2023.
In Australia, a consumer class action lawsuit alleging personal injury was filed against the company\u2019s subsidiary Philips Electronics Australia Ltd on October 4, 2021. In the course of 2022, the plaintiff in the case has sought leave of the court to discontinue the class action citing that there is insufficient evidence to warrant the continuation of the class action and that since the issue of proceedings, Philips Respironics has been repairing, replacing, or refunding the devices which are the subject of the recall, meaning that any compensation relating to financial loss would be relatively confined. It is expected that the case will be discontinued in the first half of 2023.
Philips Respironics and certain of its affiliates (including the company) are also defendants in consumer class action lawsuits in Canada and Israel and collective actions in Chile, France and the Netherlands alleging economic loss and/or personal injury.
While the company believes it is probable that these lawsuits will in the aggregate lead to an outflow of economic resources for Philips Respironics or other Philips entities, given the significant uncertainty regarding the nature of the relevant events and potential obligations, the company is not currently able to reliably estimate the amount of the obligation associated with these various lawsuits. The final outcome of the lawsuits and the cost to resolve them cannot currently be determined due to a number of variables, including uncertainty regarding the ultimate number of claimants and their allegations. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices.
For the United States specifically, the relative early stage of the census registry, and lack of clarity around the nature of the specific injury each claimant is claiming, contribute to the uncertainty. In addition, the MDL court has not yet decided several significant motions, including motions to dismiss all of the complaints, and plaintiffs have not yet filed their motions for class certification in the economic loss and medical monitoring actions. Further, discovery is still in its early stages, and expert discovery has not yet begun. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices. An adverse outcome with respect to any or all of these lawsuits and/or any future claims could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On August 16, 2021, a securities class action complaint was filed against the company, its former CEO and its CFO in the United States District Court for the Eastern District of New York alleging violations of the Securities Exchange Act of 1934 causing damage to investors. On January 3, 2022, the lead plaintiff in the case filed its amended complaint seeking to represent individuals that purchased Philips shares between February 23, 2016, through November 12, 2021. Following the filing and briefing of the company\u2019s motion to dismiss in the first half of 2022, plaintiff filed a second amended complaint on November 30, 2022, in which the alleged damage period was expanded to include certain share price declines that were allegedly based on disclosures made in 2022. The second amended complaint now focuses on share price declines that allegedly occurred as a result of various disclosures starting on April 26, 2021 through October 2022. The company\u2019s motion to dismiss the second amended complaint is due in the first quarter of 2023.
On September 11, 2022, the company received a letter from shareholders representative organization European Investors-VEB (\"VEB\"). The VEB holds Philips and its (former) managing and supervisory directors liable for \u2013 inter alia \u2013 allegedly failing to timely disclose price-sensitive information to shareholders regarding indications of potential (severe) health risks from the use of Recalled Devices, failing to exercise proper oversight over Philips Respironics and implement and ensure a proper information and risk management structure; providing incorrect or incomplete information in the company\u2019s financial disclosures.\u00a0
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. An adverse outcome of these cases could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On October 12, 2021, SoClean, a company offering ozone-based cleaning products for sleep devices, filed a lawsuit against the company and certain of its affiliates alleging that the defendants\u2019 statements about the potential adverse effect ozone cleaning may have on the recalled devices has significantly damaged its business. Philips believes that the claim is without merit and will vigorously defend itself. Motions to dismiss the case were filed in November and December 2022.
In addition, some of Philips Respironics\u2019 business partners such as distributors and durable medical equipment providers have filed or threatened to file claims alleging economic losses suffered as a consequence of the voluntary recall. In particular, Philips Respironics is engaging with certain of its business partners on the level of compensation they allege to be entitled to under Philips Respironics\u2019 replacement program of the Recalled Devices.
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. In the event of an adverse outcome, these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
To date no provisions have been recorded for the litigation and investigations associated with the Respironics field action.
For details on other contractual obligations, please refer to liquidity risk in Details of treasury and other financial risks.
In 2022, the total remuneration costs relating to the members of the Executive Committee (consisting of 14 members throughout the year, including the members of the Board of Management) amounted to EUR 25.6 million (2021: EUR 33.4 million; 2020: EUR 33.2 million) consisting of the elements in the following table.
Philips Group
Remuneration costs of the Executive Committee1)
in EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Base salary/Base compensation | 9,299,794 | 9,598,588 | 9,528,279 |
| Annual incentive2) | 6,726,768 | 5,250,408 | 208,370 |
| Performance shares3) | 13,153,975 | 12,610,073 | 11,242,581 |
| Restricted share rights3) | 288,372 | 1,380,644 | 1,191,529 |
| Pension allowances4) | 2,054,570 | 2,107,953 | 1,949,204 |
| Pension scheme costs | 382,513 | 306,694 | 288,179 |
| Other compensation5) | 1,264,908 | 2,104,044 | 1,216,163 |
| Total | 33,170,901 | 33,358,405 | 25,624,305 |
As of December 31, 2022, the members of the Executive Committee (including the members of the Board of Management) held 0 stock options (2021: 184,900; 2020: 193,300).\u00a0
In 2022, the total remuneration costs relating to the members of the Board of Management amounted to EUR 8.4 million (2021: EUR 10.3 million; 2020: EUR 11.4 million), see the following table.
Philips Group
Remuneration costs of individual members of the Board of Management
in EUR
| \u00a0 | base compen\u00adsation/salary | annual incentive1) | perfor\u00admance shares2) | restricted share rights2) | pension allowances3) | pension scheme costs | other compen\u00adsation | total costs |
|---|---|---|---|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| R. Jakobs4) | 256,438 | 112,737 | - | 57,973 | 6,012 | 11,507 | 444,667 | |
| F.A. van Houten4) | 1,041,849 | 208,370 | 2,930,068 | - | 444,051 | 22,121 | 42,533 | 4,688,992 |
| A. Bhattacharya | 806,250 | - | 763,140 | - | 237,250 | 28,133 | 61,308 | 1,896,081 |
| M.J. van Ginneken | 626,250 | - | 585,490 | - | 141,622 | 28,133 | 35,343 | 1,416,837 |
| \u00a0 | 2,730,788 | 208,370 | 4,391,434 | - | 880,896 | 84,398 | 150,691 | 8,446,577 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 850,915 | 2,626,295 | - | 565,403 | 27,462 | 57,224 | 5,452,299 |
| A. Bhattacharya | 790,000 | 360,103 | 1,172,533 | - | 233,857 | 27,462 | 68,908 | 2,652,864 |
| M.J. van Ginneken | 605,000 | 317,192 | 886,035 | - | 150,755 | 27,462 | 42,610 | 2,029,054 |
| \u00a0 | 2,720,000 | 1,528,211 | 4,684,863 | - | 950,014 | 82,387 | 168,742 | 10,134,217 |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 1,298,500 | 2,874,467 | - | 565,922 | 27,001 | 62,176 | 6,153,067 |
| A. Bhattacharya | 785,000 | 596,600 | 1,295,996 | - | 233,126 | 27,001 | 70,267 | 3,007,990 |
| M.J. van Ginneken | 580,000 | 437,920 | 952,453 | - | 158,800 | 27,001 | 46,986 | 2,203,160 |
| \u00a0 | 2,690,000 | 2,333,020 | 5,122,916 | - | 957,849 | 81,004 | 179,428 | 11,364,217 |
The accumulated annual pension entitlements and the pension costs of individual members of the Board of Management are as follows:
Philips Group
Accumulated annual pension entitlements and pension-related costs
in EUR unless otherwise stated
| \u00a0 | age at December 31, 2022 | accumulated annual pension as of December 31, 2022 | total pension related costs |
|---|---|---|---|
| R. Jakobs | 48 | 53,175 | 63,985 |
| A. Bhattacharya | 61 | 37,446 | 265,383 |
| M.J. van Ginneken | 49 | 50,614 | 169,755 |
| Pension costs | \u00a0 | \u00a0 | 499,123 |
When pension rights are granted to members of the Board of Management, necessary payments (if insured) and all necessary provisions are made in accordance with the applicable accounting principles. In 2022, no (additional) pension benefits were granted to former members of the Board of Management.
The remuneration of the members of the Supervisory Board amounted to EUR 1.5 million (2021: EUR 1.3 million; 2020: 1.3 million). Former members received no remuneration.
The members of the Supervisory Board do not receive any share-based remuneration. Therefore, as of December 31, 2022 the members of the Supervisory Board held no stock options, performance shares or restricted shares.
The individual members of the Supervisory Board received, by virtue of the positions they held, the following remuneration:
Philips Group
Remuneration of the Supervisory Board
in EUR
| membership | committees | other compensation1) | total | |
|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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. L\u00f6scher | 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 |
| 1,105,616 | 248,411 | 192,574 | 1,546,602 | |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| J. van der Veer | 53,507 | 12,082 | 3,916 | 69,505 |
| C.A. Poon | 39,699 | 16,915 | 783 | 57,397 |
| N. Dhawan | 100,000 | 18,000 | 2,269 | 120,269 |
| O. Gadiesh | 34,521 | 4,833 | 783 | 40,137 |
| D.E.I. Pyott | 100,000 | 36,370 | 2,269 | 138,639 |
| P.A.M. Stoffels | 109,863 | 27,808 | 4,769 | 142,440 |
| A.M. Harrison | 100,000 | 14,000 | 2,269 | 116,269 |
| M.E. Doherty | 100,000 | 27,000 | 4,769 | 131,769 |
| P. L\u00f6scher | 100,000 | 32,000 | 4,769 | 136,769 |
| F. Sijbesma | 141,301 | 27,808 | 8,237 | 177,346 |
| I. Nooyi | 100,000 | 14,000 | 2,269 | 116,269 |
| S.K. Chua | 65,753 | 11,836 | 1,492 | 79,081 |
| 1,044,644 | 242,652 | 38,595 | 1,325,891 | |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| J. van der Veer | 155,000 | 35,000 | 11,345 | 201,345 |
| C.A. Poon | 115,000 | 49,000 | 7,269 | 171,269 |
| P. L\u00f6scher | 66,667 | 21,333 | 1,513 | 89,513 |
| F. Sijbesma | 76,667 | 9,333 | 1,513 | 87,513 |
| N. Dhawan | 100,000 | 18,000 | 7,269 | 125,269 |
| O. Gadiesh | 100,000 | 14,000 | 2,269 | 116,269 |
| D.E.I. Pyott | 100,000 | 42,000 | 12,269 | 154,269 |
| P.A.M. Stoffels | 100,000 | 9,333 | 9,769 | 119,102 |
| A.M. Harrison | 100,000 | 14,000 | 2,269 | 116,269 |
| M.E. Doherty | 100,000 | 24,000 | 9,769 | 133,769 |
| 1,013,333 | 236,000 | 65,254 | 1,314,587 |
Members of the Supervisory Board and of the Board of Management are prohibited from writing call and put options or similar derivatives of Philips securities.
| \u00a0 | December 31, 2021 | December 31, 2022 |
|---|---|---|
| R. Jakobs | 101,156 | 109,422 |
| A. Bhattacharya | 148,365 | 169,517 |
| M.J. van Ginneken | 110,528 | 123,914 |
| P. Stoffels | - | 17,000 |
| S. Poonen | - | 3,000 |
| I. Nooyi | - | 3,100 |
| D. Pyott | - | 19,000 |
| S.K. Chua | - | 2,000 |
| F. Sijbesma | - | 12,500 |
| M. Harrison | - | 1,500 |
| P. L\u00f6scher | - | 20,732 |
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Determining the fair value of financial instruments requires the use of estimates according to the method applied for each type of financial asset of liability. The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
Specific valuation techniques used to value financial instruments include:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as financial assets carried at fair value through profit or loss or carried at fair value through other comprehensive income. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm\u2019s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or convertible bond instruments) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are based on observable market data, the instrument is included in level 2. The fair value of derivatives is calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread and foreign exchange rates. The valuation of convertible bond instruments uses observable market quoted data for the options and present value calculations using observable yield curves for the fair value of the bonds.
Level 3
If one or more of the significant inputs are not based on observable market data, such as third-party pricing information without adjustments, the instrument is included in level 3.
The fair value of debt is estimated on the basis of the quoted market prices for certain issuances, or on the basis of discounted cash flow analysis using market rates plus Philips\u2019 spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt.
The fair value of contingent consideration is dependent on the terms of the respective acquisition agreement that may require Philips to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of the contingent consideration provision is generally determined using a probability-weighted and a risk-adjusted approach to estimate the achievement of future regulatory and commercial milestones, respectively. The discount rates used in the risk adjusted approach reflect the inherent risk related to achieving the commercial milestones. Both regulatory and commercial milestones are discounted for the time value of money at risk-free rates. The fair value measurement is based on management\u2019s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy.
The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.\u00a0
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 232 | 232 | \u00a0 | \u00a0 | 232 |
| Equity instruments | 4 | 4 | 1 | \u00a0 | 2 |
| Other financial assets | 86 | 86 | \u00a0 | 35 | 51 |
| Financial assets carried at FVTP&L | 322 | 322 | 1 | 35 | 285 |
| Debt instruments | 25 | 25 | \u00a0 | 25 | \u00a0 |
| Equity instruments | 259 | 259 | 30 | \u00a0 | 229 |
| Current financial assets | 9 | 9 | \u00a0 | \u00a0 | 9 |
| Receivables - current | 26 | 26 | \u00a0 | \u00a0 | 26 |
| Financial assets carried at FVTOCI | 319 | 319 | 30 | 25 | 264 |
| Derivative financial instruments | 127 | 127 | \u00a0 | 127 | \u00a0 |
| Financial assets carried at fair value | 768 | 768 | 32 | 187 | 549 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 1,172 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 54 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 4,088 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 279 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 5,596 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 6,364 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Financial liabilities carried at FVTP&L | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Derivative financial instruments | (211) | (211) | \u00a0 | (211) | \u00a0 |
| Financial liabilities carried at fair value | (324) | (324) | \u00a0 | (211) | (113) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,968) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (71) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (6,520) | (6,083) | (5,001) | (1,082) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,680) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (10,240) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (10,564) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 233 | 233 | \u00a0 | \u00a0 | 233 |
| Equity instruments | 4 | 4 | 4 | \u00a0 | \u00a0 |
| Other financial assets | 46 | 46 | \u00a0 | 34 | 12 |
| Financial assets carried at FVTP&L | 283 | 283 | 4 | 34 | 245 |
| Debt instruments | 27 | 27 | \u00a0 | 27 | |
| Equity instruments | 273 | 273 | 63 | \u00a0 | 210 |
| Current financial assets | - | - | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 68 | 68 | \u00a0 | \u00a0 | 68 |
| Financial assets carried at FVTOCI | 368 | 368 | 63 | 27 | 278 |
| Derivative financial instruments | 63 | 63 | \u00a0 | 63 | \u00a0 |
| Financial assets carried at fair value | 714 | 714 | 67 | 124 | 523 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 2,303 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 47 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 3,720 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 224 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 6,296 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 7,010 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Financial liabilities carried at FVTP&L | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Derivative financial instruments | (202) | (202) | \u00a0 | (202) | \u00a0 |
| Financial liabilities carried at fair value | (410) | (410) | \u00a0 | (202) | (208) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,872) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (52) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (5,765) | (6,396) | (5,177) | (1,220) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,214) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (8,904) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (9,314) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
The following table shows the reconciliation from the beginning balance to the end balance for Level 3 fair value measurements.
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2022 | 523 | 208 |
| Acquisitions | \u00a0 | 96 |
| Purchase | 131 | \u00a0 |
| Sales | (76) | \u00a0 |
| Utilizations | \u00a0 | (105) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (85) |
| financial income and expenses1) | 7 | (8) |
| Recognized in other comprehensive income2) | 8 | |
| Receivables held to collect and sell | (41) | \u00a0 |
| Reclassification | 5 | \u00a0 |
| Balance as of December 31, 2022 | 549 | 113 |
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2021 | 411 | 318 |
| Acquisitions | \u00a0 | 16 |
| Purchase | 113 | \u00a0 |
| Sales | (122) | \u00a0 |
| Utilizations | \u00a0 | (48) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (87) |
| financial income and expenses | 98 | 1 |
| Recognized in other comprehensive income1) | 12 | 9 |
| Receivables held to collect and sell | (25) | \u00a0 |
| Reclassification from associates | 36 | \u00a0 |
| Balance as of December 31, 2021 | 523 | 208 |
Transactions in derivatives are subject to master netting and set-off agreements. In the case of certain termination events, under the terms of the master agreement, Philips can terminate the outstanding transactions and aggregate their positive and negative values to arrive at a single net termination sum (or close-out amount). This contractual right is subject to the following:
Philips Group
Financial assets subject to offsetting, enforceable master netting arrangements or similar agreements
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Derivatives | \u00a0 | \u00a0 |
| Gross amounts of recognized financial assets | 63 | 127 |
| Gross amounts of recognized financial liabilities offset in the balance sheet | \u00a0 | \u00a0 |
| Net amounts of financial assets presented in the balance sheet | 63 | 127 |
| \u00a0 | \u00a0 | \u00a0 |
| Related amounts not offset in the balance sheet | \u00a0 | \u00a0 |
| Financial instruments | (47) | (54) |
| Net amount | 17 | 73 |
Philips Group
Financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreements
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Derivatives | \u00a0 | \u00a0 |
| Gross amounts of recognized financial liabilities | (202) | (211) |
| Gross amounts of recognized financial assets offset in the balance sheet | \u00a0 | \u00a0 |
| Net amounts of financial liabilities presented in the balance sheet | (202) | (211) |
| \u00a0 | \u00a0 | \u00a0 |
| Related amounts not offset in the balance sheet | \u00a0 | \u00a0 |
| Financial instruments | 47 | 54 |
| Net amount | (155) | (157) |
The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
Financial assets are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
Philips is exposed to several types of financial risks which are further analyzed below. Philips does not purchase or hold derivative financial instruments for speculative purposes. Information regarding financial instruments is included in Fair value of financial assets and liabilities.
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk for the group is monitored through the Treasury liquidity committee, which tracks the development of the actual cash flow position for the group and uses input from a number of sources in order to forecast the overall liquidity position on both a short and longer term basis. Philips invests surplus cash in short-term deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due and in money market funds.
The rating of the company\u2019s debt by major rating agencies may improve or deteriorate. As a result, Philips\u2019 future borrowing capacity may be influenced and its financing costs may fluctuate. Philips has various sources to mitigate the liquidity risk for the group. As of December 31, 2022, Philips had EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), within which short-term deposits of EUR 482 million (2021: EUR 1,357 million). Cash and cash equivalents include all cash balances, money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Philips pools cash from subsidiaries to the extent legally and economically feasible; cash not pooled remains available for the company\u2019s operational or investment needs.
Philips faces cross-border foreign exchange controls and/or other legal restrictions in a few countries that could limit its ability to make these balances available on short notice for general use by the group.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop for its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion. In 2022, Philips issued three new tranches under the program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0For a description of Philips\u2019 credit facilities, refer to Debt.\u00a0
In addition to cash and cash equivalents, as of December 31, 2022, Philips also held EUR 32 million of listed (level 1) equity investments at fair value (classified as other non-current financial assets).
The following table presents a summary of the Group\u2019s 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 business strategy and needs. Therefore, the actual payments made in future periods may vary from those presented in the following table:
| \u00a0 | \u00a0 | payments due by period | |||
|---|---|---|---|---|---|
| \u00a0 | 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 obligations3) | 782 | 336 | 412 | 21 | 12 |
| Trade and other payables | 1,968 | 1,968 | \u00a0 | \u00a0 | \u00a0 |
| Contractual cash obligations | 12,901 | 3,603 | 2,478 | 2,094 | 4,725 |
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). As of December 31, 2022 capital contributions already made to these investment funds are recorded as non-current financial assets.
Philips offers voluntary supply chain finance programs with third parties which provide participating suppliers 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 these arrangements. As of December 31, 2022 approximately EUR 151 million (2021: EUR 139 million)of the Philips account payable were transferred under these arrangements.
With respect to the Respironics field action, please refer to Contingencies. The management continues to monitor the risks associated with such potential claims and its impact on liquidity position, if any.
The company leases various items of real estate, vehicles and other equipment where it acts as a lessee. The company has multiple extension and termination options in a number of lease contracts. These are used to maximize operational flexibility in terms of managing the assets used in the company's operations. The options considered reasonably certain are part of lease liabilities. However, the options not considered reasonably certain are not part of lease liability, which exposes the company to potential future cash outflows amounting to EUR 400 million. In addition, the company is committed to leases not yet commenced to EUR 93 million. The company's lease contracts do not contain financial covenants.
The company enters into sale-and-leaseback transactions primarily for its Sleep & Respiratory Care businesses. These transactions are accounted for at market value. The payments for these leases are considered in determining lease liabilities. Principal repayments are part of cash flows used for financing activities and interest payments are part of cash flows used for operating activities. The cash inflows arising from the sales transactions are part of cash flows provided by financing activities. Lease payments under sale-and-leaseback arrangements for 2022 were EUR 72 million (2021: EUR 85 million). The remaining minimum payment under sale-and-leaseback arrangements included in lease obligations above are as follows:
Philips Group
Remaining minimum payments under sale-and-leaseback arrangements
in millions of EUR
| \u00a0 | \u00a0 |
|---|---|
| 2023 | 55 |
| 2024 | 38 |
| 2025 | 23 |
| 2026 | 14 |
| 2027 | 5 |
| Thereafter | 18 |
Philips has leasing activities where it acts as lessor. In such arrangements, Philips provides the customer with a right to use of medical equipment in exchange for a series of payments. Residual values of assets under lease form an insignificant part of the carrying amount of those assets. Residual values are influenced by asset market prices and are therefore subject to management estimation. Residual values are at least reassessed on an annual basis, or more often when necessary. Reassessments are based on a combination of realization of assets sold, expert knowledge and judgment of local markets. For lease receivables, the value of unguaranteed residual values as of December 31, 2022 was EUR 0.6 million (2021: EUR 0.2 million). In order to reduce residual value risk exposures there may be residual value guarantees or purchase options embedded in the customer contract. Credit risk for lease receivables is reviewed regularly and mitigated, for example, by retaining a security interest in the leased asset.
Currency risk is the risk that reported financial performance or the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Philips operates in many countries and currencies and therefore currency fluctuations may impact Philips\u2019 financial results. Philips is exposed to currency risk in the following areas:
It is Philips\u2019 policy to reduce the potential year-on-year volatility caused by foreign-currency movements on its net earnings by hedging the anticipated net exposure of foreign currencies resulting from foreign-currency sales and purchases. In general, net anticipated exposures for the Group are hedged during a period of 15 months in layers of 20% up to a maximum hedge of 80%. Philips\u2019 policy requires significant committed foreign currency exposures to be fully hedged, generally using forwards. However, not every foreign currency can or shall be hedged as there may be regulatory barriers or prohibitive hedging cost preventing Philips from effectively and/or efficiently hedging its currency exposures. As a result, hedging activities cannot and will not eliminate all currency risks for anticipated and committed transaction exposures.
The following table outlines the estimated nominal value in millions of EUR for committed and anticipated transaction exposure and related hedges for Philips\u2019 most significant currency exposures consolidated as of December 31, 2022:
Philips Group
Estimated transaction exposure and related hedges
in millions of EUR
| \u00a0 | Sales/Receivables | Purchases/Payable | ||
|---|---|---|---|---|
| \u00a0 | exposure | hedges | exposure | hedges |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Exposure currency | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| USD | 1,754 | (1,530) | (979) | 936 |
| JPY | 479 | (289) | (9) | 9 |
| GBP | 303 | (188) | (7) | 7 |
| CNY | 346 | (259) | (80) | 79 |
| CAD | 203 | (138) | \u00a0 | \u00a0 |
| PLN | 65 | (62) | \u00a0 | \u00a0 |
| AUD | 139 | (92) | (1) | 1 |
| CHF | 132 | (56) | (3) | 2 |
| CZK | 48 | (50) | \u00a0 | \u00a0 |
| SEK | 55 | (17) | (1) | 1 |
| RUB | 192 | (192) | (129) | 129 |
| Others | 64 | (46) | (259) | 162 |
| Total 2022 | 3,779 | (2,920) | (1,468) | 1,326 |
| \u00a0 Total 2021 | 5,131 | (3,363) | (1,559) | 1,322 |
Philips uses foreign exchange spot and forward contracts, as well as zero cost collars in hedging the exposure. The derivatives related to transactions are, for hedge accounting purposes, split into hedges of on-balance-sheet accounts receivable/ payable and forecasted sales and purchases. Changes in the value of on-balance-sheet foreign-currency accounts receivable/payable, as well as the changes in the fair value of the hedges related to these exposures, are reported in the income statement under costs of sales. The RUB as shown in the table above was hedged for part of the year till Q2 2022. Hedges related to forecasted transactions, where hedge accounting is applied, are accounted for as cash flow hedges. The results from such hedges are deferred in other comprehensive income within equity to the extent that the hedge is effective. As of December 31, 2022, a loss of EUR 2 million was deferred in equity as a result of these hedges (2021: EUR 25 million loss). The result deferred in equity will be released to earnings mostly during 2023 at the time when the related hedged transactions affect the income statement. During 2022,\u00a0 EUR 1 million\u00a0 (2021: EUR\u00a0nil million net gain) was recorded in the consolidated statement of income as a result of ineffectiveness on certain anticipated cash flow hedges. Ineffectiveness arises when anticipated exposures are no longer expected to be highly probable. During 2022, a loss of EUR 42 million included in the cash flow hedges reserve in equity pertaining to changes in fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of option contracts was released to income statement.
The total net fair value of hedges related to transaction exposure as of December 31, 2022, was an unrealized gain of EUR 6 million. The estimated impact of a 10% increase of value of the EUR is estimated to be EUR 114 million. The following table contains an overview of the instantaneous 10% increase in the value of EUR against major currencies.
Philips Group
Estimated impact of 10% increase of value of the EUR on the fair value of hedges
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| USD | 78 | 68 |
| JPY | 13 | 15 |
| GBP | 14 | 16 |
| CHF | 5 | 4 |
| PLN | 3 | 2 |
| RUB | 10 | 0 |
The EUR 114 million increase includes a gain of EUR 41 million that would impact the income statement, which would largely offset the opposite revaluation effect on the underlying accounts receivable and payable, and the remaining gain of EUR 73 million would be recognized in equity to the extent that the cash flow hedges were effective.
Foreign exchange exposure also arises as a result of inter-company loans and deposits. Where the company enters into such arrangements, the financing is generally provided in the functional currency of the subsidiary entity. The currency of the company\u2019s external funding and liquid assets is matched with the required financing of subsidiaries, either directly through external foreign currency loans and deposits, or synthetically by using foreign exchange derivatives, including cross currency interest rate swaps and foreign exchange forward contracts. In certain cases where group companies may also have external foreign currency debt or liquid assets, these exposures are also hedged through the use of foreign exchange derivatives. Changes in the fair value of hedges related to this exposure are recognized within financial income and expenses in the statements of income. When such loans would be considered part of the net investment in the subsidiary, net investment hedging would be applied.
Translation exposure of foreign-currency equity invested in consolidated entities is generally not hedged. If a hedge is entered into, it is accounted for as a net investment hedge. Net current-period change, before tax, of the currency translation reserve of EUR 748 million mainly relates to the development of the USD versus the EUR. As of December 31, 2022, a weakening of USD by 10% versus the EUR would result in a decrease in the currency translation reserve in equity of approximately EUR 1,132 million, while a strengthening of USD by 10% versus the EUR would result in an increase in the currency translation reserve in equity of approximately EUR 1,384 million. Refer to the country risk paragraph for countries with significant foreign currency denominated equity invested.
As of December 31, 2022, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 147 million) and external bond funding for a nominal value of USD 1,490 million (liability at book value: EUR 1,378 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2022 a total loss of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2022, was a liability of EUR 147 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 192 million in the value of the derivatives, including a EUR 191 million increase related to the USD.
As of December 31, 2021, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 116 million) and external bond funding for a nominal value of USD 1,473 million (liability at book value: EUR 1,313 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2021 a total gain of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2021, was a liability of EUR 116 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 40 million in the value of the derivatives, including a EUR 40 million increase related to the USD.
Philips does not currently hedge the foreign exchange exposure arising from equity interests in non-functional-currency investments in associates and other non-current financial assets.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As of December 31, 2022, Philips had outstanding debt of EUR 8,201 million (2021: EUR 6,980 million), which constitutes an inherent interest rate risk with potential negative impact on financial results. At year-end, Philips held EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), and had total long-term debt of EUR 7,270 million (2021: EUR 6,473 million) and total short-term debt of EUR 931 million (2021: EUR 506 million). As of December 31, 2022, Philips had a ratio of fixed-rate long-term debt to total outstanding debt of approximately 80% compared to 90% one year earlier. Philips debt has a long maturity profile with an average tenor of long-term debt of 6.1 years with maturities up to 2042.
The following table provides the impact of a 1% increase/decrease of interest rates on the fair value of the debt and the annualized net interest expenses.
Philips Group
Net debt1) and interest rate sensitivity
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Impact 1% interest increase on the fair value of the fixed-rate long-term debt2)3) | (297) | (274) |
| Impact 1% interest decrease on the fair value of the fixed-rate long-term debt2)3) | 298 | 274 |
| Impact 1% interest increase on the annualized net interest expense4) | 20 | 4 |
Global regulators and central banks have been driving international efforts to reform key benchmark interest rates (Interbank Offered Rate or IBOR rates). The market has transitioned to alternative risk-free reference rates (RFRs) that are transaction-based. LIBOR has been discontinued for most currencies and maturities after December 31, 2021, except for the US-dollar for which certain maturities are expected to be phased out in 2023. The company has no interest rate hedging relationships which get affected by the reform and does not expect any significant impact on existing contracts due to change in the interest rates. The company implemented new alternative risk-free rates from January 1, 2022 and the impact upon transition was EUR 1 million financial expense.\u00a0
Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in equity prices.
Philips is a shareholder in some publicly listed companies and as a result is exposed to potential financial loss through movements in their share prices. The aggregate equity price exposure in such financial assets amounted to approximately EUR 32 million as of December 31, 2022 (2021: EUR 67 million). Philips does not hold derivatives in the above-mentioned listed companies. Philips also has shareholdings in several privately-owned companies amounting to EUR 229 million, mainly consisting of minority stakes in companies in various industries. As a result, Philips is exposed to potential value adjustments.
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices.
Philips is a purchaser of certain base metals, precious metals and energy. Philips may hedge certain commodity price risks using derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity price volatility. As of December 31, 2022 and 2021, respectively, Philips did not have any significant outstanding financial commodity derivatives.
Credit risk represents the loss that would be recognized at the reporting date, if counterparties failed completely to perform their payment obligations as contracted. Credit risk is present within Philips trade receivables and contract assets. To have better insights into the credit exposures, Philips performs ongoing evaluations of the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instances where the creditworthiness of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap, including reducing payment terms, cash on delivery, pre-payments and pledges on assets.
Philips invests available cash and cash equivalents with various financial institutions and is exposed to credit risk with these counterparties. Philips is also exposed to credit risks in the event of non-performance by financial institutions with respect to financial derivative instruments. Philips actively manages concentration risk and on a daily basis measures the potential loss under certain stress scenarios, should a financial institution default. These worst-case scenario losses are monitored and limited by the company.
The company does not enter into any financial derivative instruments to protect against default by financial institutions. However, where possible the company requires all financial institutions with which it deals in derivative transactions to complete legally enforceable netting agreements under an International Swap Dealers Association master agreement or otherwise prior to trading, and whenever possible, to have a strong credit rating. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings or with governments or government-backed institutions.
The following table shows the number of financial institutions with credit rating A- and above with which Philips has cash at hand and short-term deposits above EUR 10 million as of December 31, 2022.
Philips Group
Credit risk with number of counterparties
for deposits above EUR 10 million
| \u00a0 | 10-100 million | 100-500 million | 500 million and above |
|---|---|---|---|
| AA- rated bank counterparties | 1 | 0 | 0 |
| A+ rated bank counterparties | 3 | 1 | 0 |
| A rated bank counterparties | 0 | 1 | 0 |
| A- rated bank counterparties | 1 | 1 | 0 |
| \u00a0 | 5 | 3 | 0 |
For an overview of the overall maximum credit exposure related to debt instruments, derivatives and loans and receivables, refer to Fair value of financial assets and liabilities.
Country risk is the risk that political, legal, or economic developments in a single country could adversely impact performance. The country risk per country is defined as the sum of the equity of all subsidiaries and associated companies in country cross-border transactions, such as intercompany loans, accounts receivable from third parties and intercompany accounts receivable. The country risk is monitored on a regular basis.
As of December 31, 2022, the company had country risk exposure of EUR 14.0 billion in the United States, EUR 1.3 billion in China (including Hong Kong). Other countries higher than\u00a0EUR 500 million are Germany\u00a0EUR 808 million, United Kingdom EUR 766 million, and Japan\u00a0EUR 639 million. Other country which have significant exposure is\u00a0 Singapore EUR 206 million. The degree of risk of a country is taken into account when new investments are considered. The company does not, however, use financial derivative instruments to hedge country risk.
The impact of hyperinflation is also routinely assessed and was not material for the periods presented.
Philips is insured for a broad range of losses by global insurance policies in the areas of property damage/ business interruption, general and product liability, transport, directors\u2019 and officers\u2019 liability, employment practice liability, crime and cybersecurity. The counterparty risk related to the insurance companies participating in the above-mentioned global insurance policies is actively managed. As a rule, Philips only selects insurance companies with a financial strength of at least A-. Throughout the year the counterparty risk is monitored on a regular basis.
To lower exposures and to avoid potential losses, Philips has a global Risk Engineering program in place. The main focus of this program is on property damage and business interruption risks including company interdependencies. Regular on-site assessments take place at Philips locations and business-critical suppliers by risk engineers of the insurer in order to provide an accurate assessment of the potential loss and its impact. The results of these assessments are shared across the company\u2019s stakeholders. On-site assessments are carried out against the predefined Risk Engineering standards, which are agreed between Philips and the insurers. Recommendations are made in a Risk Improvement report and are monitored centrally. This is the basis for decision-making by the local management of the business as to which recommendations will be implemented.
For all policies, deductibles are in place, which vary from EUR 0.3 million to EUR 10 million per occurrence and this variance is designed to differentiate between the existing risk categories within Philips. Above a first layer of working deductibles, Philips operates its own re-insurance captive, which during 2022 retained EUR 25 million per claim and EUR 50 million in the annual aggregate for general, product, professional liability, and marine cargo claims.
New contracts were signed effective December 31, 2022, for the coming year, whereby the re-insurance captive retentions remained the same.
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 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 the 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.
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:
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.
Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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 non-income 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.
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.
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.
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 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.\u00a0
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:
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.
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.
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.
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.
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.
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.\u00a0
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.
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.\u00a0
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\u2019s 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\u2019s value in use, for the 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\u00a0
- Interim impairment testing\u00a0
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | pre-tax discount rates |
| Sleep & Respiratory Care | 1.5% | 4.3% | 2.5% | 9.5% |
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.
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\u00a0 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
| \u00a0 | 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 \u2018key assumptions- general\u2019 section for further detail on the methodology.
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\u2019 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). \u00a0
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\u2019s 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 business-specific 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.\u00a0Philips 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.\u00a0
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\u00a0
2022
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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\u00a0
2021
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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).\u00a0
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.
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.\u00a0
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.\u00a0
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.\u00a0
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 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.
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
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.\u00a0
Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
By their nature, the recognition of provisions require estimates and assumptions regarding the timing and the amount of outflow of resources. The main estimates include:
To make the actuarial calculations for the valuation of defined benefit obligations, assumptions are needed for interest rates, healthcare cost increases, future pension increases, life expectancy and employee turnover rates. The actuarial calculations are made by external actuaries based on inputs from observable market data, such as corporate bond returns and yield curves to determine the discount rates to apply, mortality tables to determine life expectancy and inflation rates to determine future salary and pension growth assumptions.
The mortality tables used for the company\u2019s largest DB plans are:
Germany: Heubeck-Richttafeln 2018 Generational, assuming 93% of mortality rates for male retirees between age 60 and 85
US: PRI-2012 Generational with MP2021 improvement scale + white collar adjustment
The weighted averages of the assumptions used to calculate the DBO as of December 31 were as follows:
Philips Group
Assumptions used for defined benefit obligations in Germany, the United States and the rest of the world
in %
| \u00a0 | Germany | United States | Other Countries | Total | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Discount rate | 1.1% | 4.1% | 2.6% | 5.2% | 2.1% | 4.9% | 1.8% | 4.7% |
| Inflation rate | 1.8% | 2.0% | 2.2% | 2.3% | 2.0% | 2.6% | 2.0% | 2.2% |
| Salary increase | 2.5% | 2.8% | 0.0% | 0.0% | 2.9% | 3.3% | 2.6% | 2.9% |
The following table illustrates the approximate impact on the DBO from movements in key assumptions. The DBO was recalculated using a change in the assumptions of 1%\u00a0which overall is considered a reasonably possible change. The impact on the DBO because of changes in discount rate is normally accompanied by offsetting movements in plan assets, especially when using matching strategies.
The average duration of the DBO of the DB plans is 8 years (Germany: 9, United States: 8, and Other countries: 8) as of December 31, 2022 (2021: 11 years).
Philips Group
Sensitivity of key assumptions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Increase | \u00a0 | \u00a0 |
| Discount rate (1% movement) | (196) | (122) |
| Pension increase (1% movement) | 99 | 57 |
| Salary increase (1% movement) | 19 | 12 |
| Longevity1) | 48 | 32 |
| Decrease | \u00a0 | \u00a0 |
| Discount rate (1% movement) | 241 | 145 |
| Pension increase (1% movement) | (83) | (49) |
| Salary increase (1% movement) | (18) | (11) |
A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
The use of a valuation model to determine market-based performance share fair value requires estimates for the expected volatility of the Philips share price and correlation among input variables.
At each reporting date, Philips calculates the expected realization the of non-market-based performance targets and revises the expected share-based compensation expense. The cumulative effect is recorded in the consolidated statement of income with a corresponding adjustment in equity.
No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met.
Determining the fair value of financial instruments requires the use of estimates according to the method applied for each type of financial asset of liability. The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
Specific valuation techniques used to value financial instruments include:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as financial assets carried at fair value through profit or loss or carried at fair value through other comprehensive income. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm\u2019s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or convertible bond instruments) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are based on observable market data, the instrument is included in level 2. The fair value of derivatives is calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread and foreign exchange rates. The valuation of convertible bond instruments uses observable market quoted data for the options and present value calculations using observable yield curves for the fair value of the bonds.
Level 3
If one or more of the significant inputs are not based on observable market data, such as third-party pricing information without adjustments, the instrument is included in level 3.
The fair value of debt is estimated on the basis of the quoted market prices for certain issuances, or on the basis of discounted cash flow analysis using market rates plus Philips\u2019 spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt.
The fair value of contingent consideration is dependent on the terms of the respective acquisition agreement that may require Philips to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of the contingent consideration provision is generally determined using a probability-weighted and a risk-adjusted approach to estimate the achievement of future regulatory and commercial milestones, respectively. The discount rates used in the risk adjusted approach reflect the inherent risk related to achieving the commercial milestones. Both regulatory and commercial milestones are discounted for the time value of money at risk-free rates. The fair value measurement is based on management\u2019s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy.
Financial assets are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
Credit risk represents the loss that would be recognized at the reporting date, if counterparties failed completely to perform their payment obligations as contracted. Credit risk is present within Philips trade receivables and contract assets. To have better insights into the credit exposures, Philips performs ongoing evaluations of the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instances where the creditworthiness of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap, including reducing payment terms, cash on delivery, pre-payments and pledges on assets.
Philips invests available cash and cash equivalents with various financial institutions and is exposed to credit risk with these counterparties. Philips is also exposed to credit risks in the event of non-performance by financial institutions with respect to financial derivative instruments. Philips actively manages concentration risk and on a daily basis measures the potential loss under certain stress scenarios, should a financial institution default. These worst-case scenario losses are monitored and limited by the company.
The company does not enter into any financial derivative instruments to protect against default by financial institutions. However, where possible the company requires all financial institutions with which it deals in derivative transactions to complete legally enforceable netting agreements under an International Swap Dealers Association master agreement or otherwise prior to trading, and whenever possible, to have a strong credit rating. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings or with governments or government-backed institutions.
The following table shows the number of financial institutions with credit rating A- and above with which Philips has cash at hand and short-term deposits above EUR 10 million as of December 31, 2022.
Philips Group
Credit risk with number of counterparties
for deposits above EUR 10 million
| \u00a0 | 10-100 million | 100-500 million | 500 million and above |
|---|---|---|---|
| AA- rated bank counterparties | 1 | 0 | 0 |
| A+ rated bank counterparties | 3 | 1 | 0 |
| A rated bank counterparties | 0 | 1 | 0 |
| A- rated bank counterparties | 1 | 1 | 0 |
| \u00a0 | 5 | 3 | 0 |
For an overview of the overall maximum credit exposure related to debt instruments, derivatives and loans and receivables, refer to Fair value of financial assets and liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAccountingJudgementsAndEstimatesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13981": { "value": "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:
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.
Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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 non-income 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.
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.
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.
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 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.\u00a0
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:
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.
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.
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.
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.
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.
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.\u00a0
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.
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.\u00a0
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\u2019s 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\u2019s value in use, for the 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\u00a0
- Interim impairment testing\u00a0
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | pre-tax discount rates |
| Sleep & Respiratory Care | 1.5% | 4.3% | 2.5% | 9.5% |
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.
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\u00a0 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
| \u00a0 | 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 \u2018key assumptions- general\u2019 section for further detail on the methodology.
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\u2019 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). \u00a0
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\u2019s 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 business-specific 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.\u00a0Philips 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.\u00a0
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\u00a0
2022
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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\u00a0
2021
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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).\u00a0
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.
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.\u00a0
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.\u00a0
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.\u00a0
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 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.
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
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.\u00a0
Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
By their nature, the recognition of provisions require estimates and assumptions regarding the timing and the amount of outflow of resources. The main estimates include:
To make the actuarial calculations for the valuation of defined benefit obligations, assumptions are needed for interest rates, healthcare cost increases, future pension increases, life expectancy and employee turnover rates. The actuarial calculations are made by external actuaries based on inputs from observable market data, such as corporate bond returns and yield curves to determine the discount rates to apply, mortality tables to determine life expectancy and inflation rates to determine future salary and pension growth assumptions.
The mortality tables used for the company\u2019s largest DB plans are:
Germany: Heubeck-Richttafeln 2018 Generational, assuming 93% of mortality rates for male retirees between age 60 and 85
US: PRI-2012 Generational with MP2021 improvement scale + white collar adjustment
The weighted averages of the assumptions used to calculate the DBO as of December 31 were as follows:
Philips Group
Assumptions used for defined benefit obligations in Germany, the United States and the rest of the world
in %
| \u00a0 | Germany | United States | Other Countries | Total | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Discount rate | 1.1% | 4.1% | 2.6% | 5.2% | 2.1% | 4.9% | 1.8% | 4.7% |
| Inflation rate | 1.8% | 2.0% | 2.2% | 2.3% | 2.0% | 2.6% | 2.0% | 2.2% |
| Salary increase | 2.5% | 2.8% | 0.0% | 0.0% | 2.9% | 3.3% | 2.6% | 2.9% |
The following table illustrates the approximate impact on the DBO from movements in key assumptions. The DBO was recalculated using a change in the assumptions of 1%\u00a0which overall is considered a reasonably possible change. The impact on the DBO because of changes in discount rate is normally accompanied by offsetting movements in plan assets, especially when using matching strategies.
The average duration of the DBO of the DB plans is 8 years (Germany: 9, United States: 8, and Other countries: 8) as of December 31, 2022 (2021: 11 years).
Philips Group
Sensitivity of key assumptions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Increase | \u00a0 | \u00a0 |
| Discount rate (1% movement) | (196) | (122) |
| Pension increase (1% movement) | 99 | 57 |
| Salary increase (1% movement) | 19 | 12 |
| Longevity1) | 48 | 32 |
| Decrease | \u00a0 | \u00a0 |
| Discount rate (1% movement) | 241 | 145 |
| Pension increase (1% movement) | (83) | (49) |
| Salary increase (1% movement) | (18) | (11) |
A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
The use of a valuation model to determine market-based performance share fair value requires estimates for the expected volatility of the Philips share price and correlation among input variables.
At each reporting date, Philips calculates the expected realization the of non-market-based performance targets and revises the expected share-based compensation expense. The cumulative effect is recorded in the consolidated statement of income with a corresponding adjustment in equity.
No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met.
Determining the fair value of financial instruments requires the use of estimates according to the method applied for each type of financial asset of liability. The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
Specific valuation techniques used to value financial instruments include:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as financial assets carried at fair value through profit or loss or carried at fair value through other comprehensive income. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm\u2019s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or convertible bond instruments) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are based on observable market data, the instrument is included in level 2. The fair value of derivatives is calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread and foreign exchange rates. The valuation of convertible bond instruments uses observable market quoted data for the options and present value calculations using observable yield curves for the fair value of the bonds.
Level 3
If one or more of the significant inputs are not based on observable market data, such as third-party pricing information without adjustments, the instrument is included in level 3.
The fair value of debt is estimated on the basis of the quoted market prices for certain issuances, or on the basis of discounted cash flow analysis using market rates plus Philips\u2019 spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt.
The fair value of contingent consideration is dependent on the terms of the respective acquisition agreement that may require Philips to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of the contingent consideration provision is generally determined using a probability-weighted and a risk-adjusted approach to estimate the achievement of future regulatory and commercial milestones, respectively. The discount rates used in the risk adjusted approach reflect the inherent risk related to achieving the commercial milestones. Both regulatory and commercial milestones are discounted for the time value of money at risk-free rates. The fair value measurement is based on management\u2019s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy.
Financial assets are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
Credit risk represents the loss that would be recognized at the reporting date, if counterparties failed completely to perform their payment obligations as contracted. Credit risk is present within Philips trade receivables and contract assets. To have better insights into the credit exposures, Philips performs ongoing evaluations of the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instances where the creditworthiness of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap, including reducing payment terms, cash on delivery, pre-payments and pledges on assets.
Philips invests available cash and cash equivalents with various financial institutions and is exposed to credit risk with these counterparties. Philips is also exposed to credit risks in the event of non-performance by financial institutions with respect to financial derivative instruments. Philips actively manages concentration risk and on a daily basis measures the potential loss under certain stress scenarios, should a financial institution default. These worst-case scenario losses are monitored and limited by the company.
The company does not enter into any financial derivative instruments to protect against default by financial institutions. However, where possible the company requires all financial institutions with which it deals in derivative transactions to complete legally enforceable netting agreements under an International Swap Dealers Association master agreement or otherwise prior to trading, and whenever possible, to have a strong credit rating. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings or with governments or government-backed institutions.
The following table shows the number of financial institutions with credit rating A- and above with which Philips has cash at hand and short-term deposits above EUR 10 million as of December 31, 2022.
Philips Group
Credit risk with number of counterparties
for deposits above EUR 10 million
| \u00a0 | 10-100 million | 100-500 million | 500 million and above |
|---|---|---|---|
| AA- rated bank counterparties | 1 | 0 | 0 |
| A+ rated bank counterparties | 3 | 1 | 0 |
| A rated bank counterparties | 0 | 1 | 0 |
| A- rated bank counterparties | 1 | 1 | 0 |
| \u00a0 | 5 | 3 | 0 |
For an overview of the overall maximum credit exposure related to debt instruments, derivatives and loans and receivables, refer to Fair value of financial assets and liabilities.
", "dimensions": { "concept": "ifrs-full:ExplanationOfAssumptionAboutFutureWithSignificantRiskOfResultingInMaterialAdjustments", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13982": { "value": "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.
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.
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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForForeignCurrencyTranslationExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13983": { "value": "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.
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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13984": { "value": "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.
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.
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.
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.
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.
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.
Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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 non-income 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.
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\u2019s 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 \u2019Investments in associates, net of income taxes\u2019.\u00a0
When the company\u2019s 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 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.
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.
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\u00a0progress 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.
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.
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) 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\u2019s operating activities.
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.
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.
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 \u2018discontinued operations\u2019 are sufficiently separable from continuing operations.
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 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.\u00a0
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.\u00a0Land 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
| \u00a0 | \u00a0 |
|---|---|
| Buildings | from\u00a05 to 50\u00a0years |
| Machinery and installations | from 3\u00a0to 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\u2019s 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.
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.
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 short-term 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.\u00a0
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.
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.
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.\u00a0
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.
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\u2019s 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\u2019s length transaction, less costs of disposal.
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
| \u00a0 | \u00a0 |
|---|---|
| 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).\u00a0
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.
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\u2019s 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\u2019s 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.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the company\u2019s 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:
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.
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
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.\u00a0
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.
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.
Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Where the company\u00a0repurchases the company\u2019s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs (net of income taxes), is deducted from shareholders\u2019 equity until such treasury shares are cancelled or reissued.
Where such treasury shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in shareholders\u2019 equity.
Call options on own shares are treated as equity instruments.
Dividends are recognized as a liability in the period in which they are declared and approved by shareholders. The income tax consequences of dividends are recognized when a liability to pay the dividend is recognized.
Debt is initially measured at fair value net of directly attributable transaction costs. Subsequently, debt is measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Debt is derecognized when the obligation under the liability is discharged, cancelled or has expired.
Lease liabilities are measured at the present value of the lease payments due over the lease term, generally discounted using the incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest method. Lease liabilities are remeasured in case of modifications or reassessments of the lease.
A provision is a liability of uncertain timing or amount. Provisions are recognized if, as a result of a past event, the company has a present legal or constructive obligation, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated reliably. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money. The increase in the provision due to passage of time (accretion) is recognized as interest expense.
Provisions for severance and termination benefits are recognized for those costs only when the company has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Before a provision is established, the company recognizes any impairment loss on the assets associated with the restructuring.
By their nature, the recognition of provisions require estimates and assumptions regarding the timing and the amount of outflow of resources. The main estimates include:
A defined contribution plan is a post-employment benefit plan for which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the Consolidated statements of income in the periods during which services are rendered by employees.
A defined benefit plan is a post-employment benefit plan that is not a defined contribution plan. Defined benefit plans define an amount of pension benefit that an employee will receive after retirement. That pension benefit typically depends on several factors such as years of service, age and salary.
The net pension asset or liability recognized in the Consolidated balance sheets in respect of defined benefit plans is the fair value of plan assets less the present value of the projected defined benefit obligation at the Consolidated balance sheets date. The defined benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. Recognized assets are limited to the present value of any reductions in future contributions or any future refunds. The net pension liability is presented as a long-term provision; no distinction is made for the short-term portion.
For the company\u2019s major plans, a full discount rate curve of high-quality corporate bonds is used to determine the defined benefit obligation, where available. The curves are based on the Mercer Yield Curve methodology, which uses data of corporate bonds rated AA or equivalent. For the other plans the Mercer Yield Curve/Mercer Methodology has also been used taking into account the cash flows as much as possible in case there is a deep market in corporate bonds. For plans in countries without a deep corporate bond market, the discount rate is based on government bonds and the plan\u2019s maturity.
Pension costs in respect of defined benefit plans primarily represent the increase of the actuarial present value of the obligation for post-employment benefits based on employee service during the year and the interest on the net recognized asset or liability in respect of employee service in previous years.
Remeasurements of the net defined benefit asset or liability comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (excluding interest). The company recognizes all remeasurements in Other comprehensive income.
Past service costs arising from the introduction of a change to the benefit payable under a plan or a significant reduction of the number of employees covered by a plan (curtailment) are recognized in full in the Consolidated statements of income.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. The company recognizes a liability and an expense for bonuses and incentives based on a formula that takes into consideration the profit attributable to the company\u2019s shareholders after certain adjustments.
The company\u2019s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods, such as jubilee entitlements. That benefit is discounted to determine its present value. Remeasurements are recognized in the Consolidated statements of income in the period in which they arise.
Further information on other employee benefits can be found in Provisions in the Other provisions section.
To make the actuarial calculations for the valuation of defined benefit obligations, assumptions are needed for interest rates, healthcare cost increases, future pension increases, life expectancy and employee turnover rates. The actuarial calculations are made by external actuaries based on inputs from observable market data, such as corporate bond returns and yield curves to determine the discount rates to apply, mortality tables to determine life expectancy and inflation rates to determine future salary and pension growth assumptions.
Other liabilities are initially measured at fair value and subsequently at amortized cost and are derecognized when the obligation under the liability is discharged, cancelled or has expired.
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
The cash flow statement is prepared using the indirect method. Cash flows related to interest and tax are included in operating activities. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to shareholders are included in financing activities. Dividends received are included in operating activities.
Cash flows arising from transactions in a foreign currency are translated into the company\u2019s functional currency using the exchange rate at the date of the cash flow. Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the same category as the cash flows from the hedged items. Cash flows from other derivative instruments are classified as investing cash flows.
A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
Philips\u2019 policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. The company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The guarantee is subsequently measured at the higher of the best estimate of the obligation or the amount initially recognized less, when appropriate, cumulative amortization.
Philips share-based compensation is an equity-settled plan comprising restricted and performance shares. The restricted shares are subject to a three-year service condition and the performance shares include both market and non-market-based performance conditions, in addition to a three-year vesting period. These shares are awarded to the Executive Committee and Senior Management.
The grant date fair value of market-based performance shares is determined through a Monte Carlo valuation model. The grant date fair value of non-market-based performance shares and restricted shares is determined as the share price at the grant date as participants are eligible to receive dividends throughout the vesting period. The costs of share-based compensation plans are revised for expected performance (non-market-based performance shares) and forfeiture and are spread evenly over the service period.
Share-based compensation is recognized over the vesting period as personnel expense in the consolidated statement of income, with a corresponding increase to equity.
The use of a valuation model to determine market-based performance share fair value requires estimates for the expected volatility of the Philips share price and correlation among input variables.
At each reporting date, Philips calculates the expected realization the of non-market-based performance targets and revises the expected share-based compensation expense. The cumulative effect is recorded in the consolidated statement of income with a corresponding adjustment in equity.
No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met.
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Determining the fair value of financial instruments requires the use of estimates according to the method applied for each type of financial asset of liability. The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
Specific valuation techniques used to value financial instruments include:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as financial assets carried at fair value through profit or loss or carried at fair value through other comprehensive income. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm\u2019s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or convertible bond instruments) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are based on observable market data, the instrument is included in level 2. The fair value of derivatives is calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread and foreign exchange rates. The valuation of convertible bond instruments uses observable market quoted data for the options and present value calculations using observable yield curves for the fair value of the bonds.
Level 3
If one or more of the significant inputs are not based on observable market data, such as third-party pricing information without adjustments, the instrument is included in level 3.
The fair value of debt is estimated on the basis of the quoted market prices for certain issuances, or on the basis of discounted cash flow analysis using market rates plus Philips\u2019 spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt.
The fair value of contingent consideration is dependent on the terms of the respective acquisition agreement that may require Philips to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of the contingent consideration provision is generally determined using a probability-weighted and a risk-adjusted approach to estimate the achievement of future regulatory and commercial milestones, respectively. The discount rates used in the risk adjusted approach reflect the inherent risk related to achieving the commercial milestones. Both regulatory and commercial milestones are discounted for the time value of money at risk-free rates. The fair value measurement is based on management\u2019s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy.
The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
Financial assets are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
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:
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.
Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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 non-income 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.
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.
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.
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 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.\u00a0
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:
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.
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.
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.
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.
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.
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.\u00a0
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.
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.\u00a0
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\u2019s 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\u2019s value in use, for the 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\u00a0
- Interim impairment testing\u00a0
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | pre-tax discount rates |
| Sleep & Respiratory Care | 1.5% | 4.3% | 2.5% | 9.5% |
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.
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\u00a0 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
| \u00a0 | 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 \u2018key assumptions- general\u2019 section for further detail on the methodology.
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\u2019 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). \u00a0
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\u2019s 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 business-specific 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.\u00a0Philips 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.\u00a0
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\u00a0
2022
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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\u00a0
2021
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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).\u00a0
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.
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.\u00a0
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.\u00a0
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.\u00a0
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 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.
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
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.\u00a0
Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
By their nature, the recognition of provisions require estimates and assumptions regarding the timing and the amount of outflow of resources. The main estimates include:
To make the actuarial calculations for the valuation of defined benefit obligations, assumptions are needed for interest rates, healthcare cost increases, future pension increases, life expectancy and employee turnover rates. The actuarial calculations are made by external actuaries based on inputs from observable market data, such as corporate bond returns and yield curves to determine the discount rates to apply, mortality tables to determine life expectancy and inflation rates to determine future salary and pension growth assumptions.
The mortality tables used for the company\u2019s largest DB plans are:
Germany: Heubeck-Richttafeln 2018 Generational, assuming 93% of mortality rates for male retirees between age 60 and 85
US: PRI-2012 Generational with MP2021 improvement scale + white collar adjustment
The weighted averages of the assumptions used to calculate the DBO as of December 31 were as follows:
Philips Group
Assumptions used for defined benefit obligations in Germany, the United States and the rest of the world
in %
| \u00a0 | Germany | United States | Other Countries | Total | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Discount rate | 1.1% | 4.1% | 2.6% | 5.2% | 2.1% | 4.9% | 1.8% | 4.7% |
| Inflation rate | 1.8% | 2.0% | 2.2% | 2.3% | 2.0% | 2.6% | 2.0% | 2.2% |
| Salary increase | 2.5% | 2.8% | 0.0% | 0.0% | 2.9% | 3.3% | 2.6% | 2.9% |
The following table illustrates the approximate impact on the DBO from movements in key assumptions. The DBO was recalculated using a change in the assumptions of 1%\u00a0which overall is considered a reasonably possible change. The impact on the DBO because of changes in discount rate is normally accompanied by offsetting movements in plan assets, especially when using matching strategies.
The average duration of the DBO of the DB plans is 8 years (Germany: 9, United States: 8, and Other countries: 8) as of December 31, 2022 (2021: 11 years).
Philips Group
Sensitivity of key assumptions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Increase | \u00a0 | \u00a0 |
| Discount rate (1% movement) | (196) | (122) |
| Pension increase (1% movement) | 99 | 57 |
| Salary increase (1% movement) | 19 | 12 |
| Longevity1) | 48 | 32 |
| Decrease | \u00a0 | \u00a0 |
| Discount rate (1% movement) | 241 | 145 |
| Pension increase (1% movement) | (83) | (49) |
| Salary increase (1% movement) | (18) | (11) |
A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
The use of a valuation model to determine market-based performance share fair value requires estimates for the expected volatility of the Philips share price and correlation among input variables.
At each reporting date, Philips calculates the expected realization the of non-market-based performance targets and revises the expected share-based compensation expense. The cumulative effect is recorded in the consolidated statement of income with a corresponding adjustment in equity.
No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met.
Determining the fair value of financial instruments requires the use of estimates according to the method applied for each type of financial asset of liability. The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
Specific valuation techniques used to value financial instruments include:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as financial assets carried at fair value through profit or loss or carried at fair value through other comprehensive income. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm\u2019s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or convertible bond instruments) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are based on observable market data, the instrument is included in level 2. The fair value of derivatives is calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread and foreign exchange rates. The valuation of convertible bond instruments uses observable market quoted data for the options and present value calculations using observable yield curves for the fair value of the bonds.
Level 3
If one or more of the significant inputs are not based on observable market data, such as third-party pricing information without adjustments, the instrument is included in level 3.
The fair value of debt is estimated on the basis of the quoted market prices for certain issuances, or on the basis of discounted cash flow analysis using market rates plus Philips\u2019 spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt.
The fair value of contingent consideration is dependent on the terms of the respective acquisition agreement that may require Philips to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of the contingent consideration provision is generally determined using a probability-weighted and a risk-adjusted approach to estimate the achievement of future regulatory and commercial milestones, respectively. The discount rates used in the risk adjusted approach reflect the inherent risk related to achieving the commercial milestones. Both regulatory and commercial milestones are discounted for the time value of money at risk-free rates. The fair value measurement is based on management\u2019s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy.
Financial assets are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
Credit risk represents the loss that would be recognized at the reporting date, if counterparties failed completely to perform their payment obligations as contracted. Credit risk is present within Philips trade receivables and contract assets. To have better insights into the credit exposures, Philips performs ongoing evaluations of the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instances where the creditworthiness of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap, including reducing payment terms, cash on delivery, pre-payments and pledges on assets.
Philips invests available cash and cash equivalents with various financial institutions and is exposed to credit risk with these counterparties. Philips is also exposed to credit risks in the event of non-performance by financial institutions with respect to financial derivative instruments. Philips actively manages concentration risk and on a daily basis measures the potential loss under certain stress scenarios, should a financial institution default. These worst-case scenario losses are monitored and limited by the company.
The company does not enter into any financial derivative instruments to protect against default by financial institutions. However, where possible the company requires all financial institutions with which it deals in derivative transactions to complete legally enforceable netting agreements under an International Swap Dealers Association master agreement or otherwise prior to trading, and whenever possible, to have a strong credit rating. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings or with governments or government-backed institutions.
The following table shows the number of financial institutions with credit rating A- and above with which Philips has cash at hand and short-term deposits above EUR 10 million as of December 31, 2022.
Philips Group
Credit risk with number of counterparties
for deposits above EUR 10 million
| \u00a0 | 10-100 million | 100-500 million | 500 million and above |
|---|---|---|---|
| AA- rated bank counterparties | 1 | 0 | 0 |
| A+ rated bank counterparties | 3 | 1 | 0 |
| A rated bank counterparties | 0 | 1 | 0 |
| A- rated bank counterparties | 1 | 1 | 0 |
| \u00a0 | 5 | 3 | 0 |
For an overview of the overall maximum credit exposure related to debt instruments, derivatives and loans and receivables, refer to Fair value of financial assets and liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfAssetsAndLiabilitiesWithSignificantRiskOfMaterialAdjustmentExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13986": { "value": "Koninklijke Philips N.V. (\u2018Royal Philips\u2019), incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch Law. Philips is headquartered in Amsterdam, the Netherlands\u00a0and 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\u2019 or \u2018Philips\u2019 or the 'Group\u2019). 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.
The Consolidated financial statements are:
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.
Country risk is the risk that political, legal, or economic developments in a single country could adversely impact performance. The country risk per country is defined as the sum of the equity of all subsidiaries and associated companies in country cross-border transactions, such as intercompany loans, accounts receivable from third parties and intercompany accounts receivable. The country risk is monitored on a regular basis.
As of December 31, 2022, the company had country risk exposure of EUR 14.0 billion in the United States, EUR 1.3 billion in China (including Hong Kong). Other countries higher than\u00a0EUR 500 million are Germany\u00a0EUR 808 million, United Kingdom EUR 766 million, and Japan\u00a0EUR 639 million. Other country which have significant exposure is\u00a0 Singapore EUR 206 million. The degree of risk of a country is taken into account when new investments are considered. The company does not, however, use financial derivative instruments to hedge country risk.
The impact of hyperinflation is also routinely assessed and was not material for the periods presented.
", "dimensions": { "concept": "ifrs-full:DisclosureOfHyperinflationaryReportingExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13994": { "value": "Koninklijke Philips N.V.", "dimensions": { "concept": "ifrs-full:NameOfReportingEntityOrOtherMeansOfIdentification", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13995": { "value": "the Netherlands", "dimensions": { "concept": "ifrs-full:CountryOfIncorporation", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13996": { "value": "the Netherlands", "dimensions": { "concept": "ifrs-full:DomicileOfEntity", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13997": { "value": "public limited liability company", "dimensions": { "concept": "ifrs-full:LegalFormOfEntity", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13998": { "value": "High Tech Campus 52, 5656 AG Eindhoven, the Netherlands", "dimensions": { "concept": "ifrs-full:AddressOfRegisteredOfficeOfEntity", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f13999": { "value": "health technology company", "dimensions": { "concept": "ifrs-full:DescriptionOfNatureOfEntitysOperationsAndPrincipalActivities", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f14000": { "value": "The Consolidated financial statements are:
The Consolidated financial statements are:
The Consolidated financial statements are:
The Consolidated financial statements are:
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\u2019s 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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfConsolidationExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f14073": { "value": "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.
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f14074": { "value": "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.
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesAccountingEstimatesAndErrorsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f14086": { "value": "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.
Philips focuses on improving people\u2019s 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.\u00a0
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
| \u00a0 | sales | sales including intercompany | depreciation and amortization1) | Adjusted EBITA |
|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | (366) | \u00a0 | \u00a0 |
| Philips Group | 17,827 | 17,827 | (1,602) | 1,318 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | (299) | \u00a0 | \u00a0 |
| Philips Group | 17,156 | 17,156 | (1,323) | 2,054 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | (275) | \u00a0 | \u00a0 |
| Philips Group | 17,313 | 17,313 | (1,462) | 2,277 |
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
| \u00a0 | Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other |
|---|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Net Income | (1,605) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Discontinued operations, net of income taxes | (13) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Income tax expense | (113) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Investments in associates, net of income taxes | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial expenses | 258 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial income | (58) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | 250 | \u00a0 | \u00a0 |
| Respironics field-action running remediation costs | 210 | \u00a0 | 210 | \u00a0 | \u00a0 |
| R&D project impairments\u00a0 | 134 | 120 | 12 | 3 | \u00a0 |
| Portfolio realignment charges | 109 | \u00a0 | 109 | \u00a0 | \u00a0 |
| Impairment of assets in S&RC | 39 | \u00a0 | 39 | \u00a0 | \u00a0 |
| Provision for public investigations tender irregularities | 60 | 60 | \u00a0 | \u00a0 | \u00a0 |
| Provisions for quality actions in Connected Care\u00a0 | 59 | \u00a0 | 59 | \u00a0 | \u00a0 |
| 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
| \u00a0 | Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other |
|---|---|---|---|---|---|
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Net Income | 3,323 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Discontinued operations, net of income taxes | (2,711) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Income tax expense | (103) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Investments in associates, net of income taxes | 4 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial expenses | 188 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial income | (149) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | - |
| Respironics field-action running remediation costs | 94 | \u00a0 | 94 | \u00a0 | \u00a0 |
| Provisions for quality actions in Connected Care | 94 | \u00a0 | 94 | \u00a0 | \u00a0 |
| Loss on divestment of business | 76 | \u00a0 | \u00a0 | \u00a0 | 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
| \u00a0 | Philips Group | Diagnosis & Treatment | Connected Care | Personal Health | Other |
|---|---|---|---|---|---|
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Net Income | 1,195 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Discontinued operations, net of income taxes | (196) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Income tax expense | 212 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Investments in associates, net of income taxes | 9 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial expenses | 202 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial income | (158) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | \u00a0 |
| 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\u2019s length basis. Philips has no single external customer that represents 10% or more of sales.
Philips Group
Main countries
in millions of EUR
| \u00a0 | sales1) | tangible and intangible assets2) |
|---|---|---|
| 2022 | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| 2020 | \u00a0 | \u00a0 |
| 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 |
For information related to sales on a segment and geographical basis, refer to Information by segment and main country.
Philips Group
Sales composition
in millions of EUR
| \u00a0 | 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%\u00a0of 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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 |
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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForNoncurrentAssetsOrDisposalGroupsClassifiedAsHeldForSaleExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15150": { "value": "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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15151": { "value": "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.
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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForNoncurrentAssetsOrDisposalGroupsClassifiedAsHeldForSaleAndDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15152": { "value": "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.
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.
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
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Domestic Appliances | 206 | 2,698 | 3 |
| Other | (10) | 13 | 10 |
| Discontinued operations, net of income taxes | 196 | 2,711 | 13 |
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
| \u00a0 | 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 | \u00a0 | 3,241 | 1 |
| Income before tax | 279 | 3,435 | 5 |
| Income tax expense1) | (72) | 6 | (2) |
| Income tax related the sale of discontinued operations | \u00a0 | (743) | |
| Results from discontinued operations | 206 | 2,698 | 3 |
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 over time.
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.
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
| \u00a0 | 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
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfNoncurrentAssetsHeldForSaleAndDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15153": { "value": "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.
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
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Domestic Appliances | 206 | 2,698 | 3 |
| Other | (10) | 13 | 10 |
| Discontinued operations, net of income taxes | 196 | 2,711 | 13 |
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
| \u00a0 | 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 | \u00a0 | 3,241 | 1 |
| Income before tax | 279 | 3,435 | 5 |
| Income tax expense1) | (72) | 6 | (2) |
| Income tax related the sale of discontinued operations | \u00a0 | (743) | |
| Results from discontinued operations | 206 | 2,698 | 3 |
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 over time.
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.
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
| \u00a0 | 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
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.\u00a0
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.\u00a0
", "dimensions": { "concept": "ifrs-full:DisclosureOfDiscontinuedOperationsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15163": { "value": "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.
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfNoncurrentAssetsOrDisposalGroupsClassifiedAsHeldForSaleExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15408": { "value": "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.
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.
Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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 non-income 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.
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.\u00a0
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.\u00a0
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.\u00a0Acquisition-related costs were not material.\u00a0
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\u00ae, 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\u00ae 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:\u00a0
Opening balance sheet
in millions of EUR
| \u00a0 | At acquisition date |
|---|---|
| \u00a0 | Vesper Medical Inc, |
| Assets | \u00a0 |
| Intangible assets excluding goodwill | 84 |
| Deferred tax assets | 15 |
| Cash | 7 |
| Total Assets | 106 |
| \u00a0 | \u00a0 |
| Liabilities | \u00a0 |
| Accounts payable and other payables | (1) |
| Deferred tax liabilities | (20) |
| Total Liabilities | (21) |
| \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 85 |
| Goodwill arising on acquisition | 177 |
| Total purchase consideration | 262 |
| Of which: | \u00a0 |
| 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\u2019 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\u2019s 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.\u00a0Vesper Goodwill is not tax-deductible.
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\u2019 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.
During 2022 Philips completed two divestments that were not material.
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
| \u00a0 | At acquisition date | |
| \u00a0 | BioTelemetry\u00a0 | Capsule Technologies |
| Assets | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| Liabilities | \u00a0 | \u00a0 |
| 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) |
| \u00a0 | \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 547 | 217 |
| Goodwill arising on acquisition\u00a0 | 1,790 | 322 |
| Purchase consideration transferred | 2,337 | 539 |
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\u2019s 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\u2019 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\u2019 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\u2019 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.\u00a0
In 2021, acquisition-related costs of EUR 40 million were mainly recognized in General and administrative expenses.\u00a0
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\u2019 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\u2019 industry-leading portfolio of real-time patient monitoring, therapeutic devices, telehealth, informatics and interoperability solutions and Capsule\u2019s leading Medical Device Information Platform, connected through Philips\u2019 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\u2019 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\u00a0 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.\u00a0
In 2021, acquisition-related costs of EUR 11 million were mainly recognized in General and administrative expenses.\u00a0
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.\u00a0
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.\u00a0
", "dimensions": { "concept": "ifrs-full:DisclosureOfBusinessCombinationsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15409": { "value": "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.
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.
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.
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.
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\u2019s 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\u2019s length transaction, less costs of disposal.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15411": { "value": "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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSubsidiariesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15412": { "value": "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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForTransactionsWithNoncontrollingInterestsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15413": { "value": "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.\u00a0
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.\u00a0
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.\u00a0Acquisition-related costs were not material.\u00a0
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\u00ae, 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\u00ae 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:\u00a0
Opening balance sheet
in millions of EUR
| \u00a0 | At acquisition date |
|---|---|
| \u00a0 | Vesper Medical Inc, |
| Assets | \u00a0 |
| Intangible assets excluding goodwill | 84 |
| Deferred tax assets | 15 |
| Cash | 7 |
| Total Assets | 106 |
| \u00a0 | \u00a0 |
| Liabilities | \u00a0 |
| Accounts payable and other payables | (1) |
| Deferred tax liabilities | (20) |
| Total Liabilities | (21) |
| \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 85 |
| Goodwill arising on acquisition | 177 |
| Total purchase consideration | 262 |
| Of which: | \u00a0 |
| 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\u2019 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\u2019s 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.\u00a0Vesper Goodwill is not tax-deductible.
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\u2019 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.
During 2022 Philips completed two divestments that were not material.
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
| \u00a0 | At acquisition date | |
| \u00a0 | BioTelemetry\u00a0 | Capsule Technologies |
| Assets | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| Liabilities | \u00a0 | \u00a0 |
| 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) |
| \u00a0 | \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 547 | 217 |
| Goodwill arising on acquisition\u00a0 | 1,790 | 322 |
| Purchase consideration transferred | 2,337 | 539 |
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\u2019s 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\u2019 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\u2019 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\u2019 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.\u00a0
In 2021, acquisition-related costs of EUR 40 million were mainly recognized in General and administrative expenses.\u00a0
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\u2019 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\u2019 industry-leading portfolio of real-time patient monitoring, therapeutic devices, telehealth, informatics and interoperability solutions and Capsule\u2019s leading Medical Device Information Platform, connected through Philips\u2019 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\u2019 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\u00a0 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.\u00a0
In 2021, acquisition-related costs of EUR 11 million were mainly recognized in General and administrative expenses.\u00a0
During 2022, EUR 1,331 million\u00a0of 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 note Goodwill.
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\u2019s 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\u2019s length transaction, less costs of disposal.
The changes in 2021 and 2022 were as follows:
Philips Group
Goodwill
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | \u00a0 | \u00a0 |
| Cost | 9,094 | 11,793 |
| Impairments | (1,080) | (1,156) |
| Book value | 8,014 | 10,637 |
| \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | \u00a0 |
| 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).
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.\u00a0
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.
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.\u00a0
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\u2019s 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\u2019s value in use, for the 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\u00a0
- Interim impairment testing\u00a0
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | pre-tax discount rates |
| Sleep & Respiratory Care | 1.5% | 4.3% | 2.5% | 9.5% |
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.
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\u00a0 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
| \u00a0 | 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 \u2018key assumptions- general\u2019 section for further detail on the methodology.
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\u2019 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). \u00a0
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\u2019s 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 business-specific 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.\u00a0Philips 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.\u00a0
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\u00a0
2022
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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\u00a0
2021
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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).\u00a0
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.
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.\u00a0
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.\u00a0
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.\u00a0
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.
Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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 non-income 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.
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.\u00a0
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.\u00a0
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.\u00a0Acquisition-related costs were not material.\u00a0
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\u00ae, 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\u00ae 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:\u00a0
Opening balance sheet
in millions of EUR
| \u00a0 | At acquisition date |
|---|---|
| \u00a0 | Vesper Medical Inc, |
| Assets | \u00a0 |
| Intangible assets excluding goodwill | 84 |
| Deferred tax assets | 15 |
| Cash | 7 |
| Total Assets | 106 |
| \u00a0 | \u00a0 |
| Liabilities | \u00a0 |
| Accounts payable and other payables | (1) |
| Deferred tax liabilities | (20) |
| Total Liabilities | (21) |
| \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 85 |
| Goodwill arising on acquisition | 177 |
| Total purchase consideration | 262 |
| Of which: | \u00a0 |
| 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\u2019 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\u2019s 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.\u00a0Vesper Goodwill is not tax-deductible.
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\u2019 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.
During 2022 Philips completed two divestments that were not material.
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
| \u00a0 | At acquisition date | |
| \u00a0 | BioTelemetry\u00a0 | Capsule Technologies |
| Assets | \u00a0 | \u00a0 |
| 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 |
| \u00a0 | \u00a0 | \u00a0 |
| Liabilities | \u00a0 | \u00a0 |
| 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) |
| \u00a0 | \u00a0 | \u00a0 |
| Total identifiable net assets at fair value | 547 | 217 |
| Goodwill arising on acquisition\u00a0 | 1,790 | 322 |
| Purchase consideration transferred | 2,337 | 539 |
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\u2019s 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\u2019 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\u2019 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\u2019 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.\u00a0
In 2021, acquisition-related costs of EUR 40 million were mainly recognized in General and administrative expenses.\u00a0
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\u2019 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\u2019 industry-leading portfolio of real-time patient monitoring, therapeutic devices, telehealth, informatics and interoperability solutions and Capsule\u2019s leading Medical Device Information Platform, connected through Philips\u2019 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\u2019 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\u00a0 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.\u00a0
In 2021, acquisition-related costs of EUR 11 million were mainly recognized in General and administrative expenses.\u00a0
During 2022, EUR 1,331 million\u00a0of 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 note Goodwill.
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\u2019s 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\u2019s length transaction, less costs of disposal.
The changes in 2021 and 2022 were as follows:
Philips Group
Goodwill
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | \u00a0 | \u00a0 |
| Cost | 9,094 | 11,793 |
| Impairments | (1,080) | (1,156) |
| Book value | 8,014 | 10,637 |
| \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | \u00a0 |
| 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).
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.\u00a0
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.
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.\u00a0
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\u2019s 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\u2019s value in use, for the 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\u00a0
- Interim impairment testing\u00a0
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | pre-tax discount rates |
| Sleep & Respiratory Care | 1.5% | 4.3% | 2.5% | 9.5% |
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.
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\u00a0 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
| \u00a0 | 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 \u2018key assumptions- general\u2019 section for further detail on the methodology.
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\u2019 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). \u00a0
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\u2019s 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 business-specific 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.\u00a0Philips 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.\u00a0
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\u00a0
2022
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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\u00a0
2021
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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).\u00a0
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.
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.\u00a0
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.\u00a0
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.\u00a0
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.
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
| \u00a0 | \u00a0 |
|---|---|
| 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).\u00a0
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.
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\u2019s 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\u2019s 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.
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book value | 162 | 1,143 | 1,000 | 599 | 414 | 287 | 44 | 3,650 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | (3) | - | 51 | - | 257 | 109 | 1 | 416 |
| Assets available for use | 118 | (118) | ||||||
| Acquisitions | 1 | 3 | 177 | - | - | 180 | ||
| Amortization | (24) | (141) | (140) | (206) | (1) | (100) | (3) | (614) |
| Impairments | - | (6) | (46) | (123) | (81) | (17) | (2) | (276) |
| Translation differences and other | 4 | 71 | 59 | 5 | 31 | 1 | (2) | 169 |
| Total change | (22) | (74) | 102 | (206) | 88 | (7) | (6) | (125) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 647 | 2,735 | 2,947 | 2,605 | 648 | 869 | 152 | 10,602 |
| Amortization / impairments | (507) | (1,665) | (1,845) | (2,212) | (146) | (589) | (113) | (7,077) |
| Book Value | 140 | 1,070 | 1,102 | 393 | 502 | 280 | 39 | 3,526 |
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 556 | 2,036 | 2,434 | 2,519 | 480 | 723 | 135 | 8,883 |
| Amortization / impairments | (437) | (1,385) | (1,565) | (1,897) | (83) | (427) | (91) | (5,886) |
| Book value | 120 | 651 | 869 | 622 | 398 | 295 | 44 | 2,997 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | \u00a0 | 9 | 1 | 261 | 117 | 2 | 392 | |
| Assets available for use | \u00a0 | \u00a0 | \u00a0 | 247 | (247) | - | - | - |
| Acquisitions | 62 | 544 | 235 | - | - | 841 | ||
| Amortization | (21) | (126) | (114) | (219) | - | (85) | (3) | (568) |
| Impairments | (3) | (57) | (51) | (15) | - | - | (126) | |
| Transfers to assets classified as held for sale | (10) | (3) | (11) | (17) | (6) | (34) | (82) | |
| Translation differences and other | 12 | 80 | 69 | 17 | 23 | (7) | 1 | 195 |
| Total change | 42 | 492 | 131 | (22) | 17 | (8) | 1 | 653 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book Value | 162 | 1,143 | 1,000 | 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.\u00a0
Impairments in 2022 were EUR 276 million (2021: EUR 126 million)\u00a0and 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\u2019s best estimate are used as the basis for the value-in-use tests
The amortization of intangible assets is specified in Income from operations.
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15415": { "value": "Intangible assets acquired in a business acquisition and the financial liability related to non-controlling 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.
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
| \u00a0 | \u00a0 |
|---|---|
| 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).\u00a0
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.
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\u2019s 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\u2019s 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.
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book value | 162 | 1,143 | 1,000 | 599 | 414 | 287 | 44 | 3,650 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | (3) | - | 51 | - | 257 | 109 | 1 | 416 |
| Assets available for use | 118 | (118) | ||||||
| Acquisitions | 1 | 3 | 177 | - | - | 180 | ||
| Amortization | (24) | (141) | (140) | (206) | (1) | (100) | (3) | (614) |
| Impairments | - | (6) | (46) | (123) | (81) | (17) | (2) | (276) |
| Translation differences and other | 4 | 71 | 59 | 5 | 31 | 1 | (2) | 169 |
| Total change | (22) | (74) | 102 | (206) | 88 | (7) | (6) | (125) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 647 | 2,735 | 2,947 | 2,605 | 648 | 869 | 152 | 10,602 |
| Amortization / impairments | (507) | (1,665) | (1,845) | (2,212) | (146) | (589) | (113) | (7,077) |
| Book Value | 140 | 1,070 | 1,102 | 393 | 502 | 280 | 39 | 3,526 |
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 556 | 2,036 | 2,434 | 2,519 | 480 | 723 | 135 | 8,883 |
| Amortization / impairments | (437) | (1,385) | (1,565) | (1,897) | (83) | (427) | (91) | (5,886) |
| Book value | 120 | 651 | 869 | 622 | 398 | 295 | 44 | 2,997 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | \u00a0 | 9 | 1 | 261 | 117 | 2 | 392 | |
| Assets available for use | \u00a0 | \u00a0 | \u00a0 | 247 | (247) | - | - | - |
| Acquisitions | 62 | 544 | 235 | - | - | 841 | ||
| Amortization | (21) | (126) | (114) | (219) | - | (85) | (3) | (568) |
| Impairments | (3) | (57) | (51) | (15) | - | - | (126) | |
| Transfers to assets classified as held for sale | (10) | (3) | (11) | (17) | (6) | (34) | (82) | |
| Translation differences and other | 12 | 80 | 69 | 17 | 23 | (7) | 1 | 195 |
| Total change | 42 | 492 | 131 | (22) | 17 | (8) | 1 | 653 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book Value | 162 | 1,143 | 1,000 | 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.\u00a0
Impairments in 2022 were EUR 276 million (2021: EUR 126 million)\u00a0and 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\u2019s best estimate are used as the basis for the value-in-use tests
The amortization of intangible assets is specified in Income from operations.
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15416": { "value": "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.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the company\u2019s 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:
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15417": { "value": "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.\u00a0
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.\u00a0
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\u2019s operating activities.
Other business income (expenses) consists of the following:
Philips Group
Other business income (expenses)
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Result on disposal of businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | - | - | 4 |
| \u00a0expenses | - | (75) | - |
| Result on disposal of fixed assets: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 2 | 24 | 3 |
| \u00a0expenses | - | (5) | (1) |
| Result on other remaining businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 120 | 161 | 121 |
| \u00a0expenses | (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.
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.\u00a0For information on contingent consideration, refer to Provisions.
Philips Group
Contingent consideration provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 318 | 208 |
| Acquisitions | 16 | 96 |
| Utilizations | (48) | (105) |
| Fair value changes | (78) | (86) |
| Balance as of December 31 | 208 | 113 |
The provision for contingent consideration reflects the fair value of the expected payment to former shareholders of an acquiree for the exchange of control if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The provision for contingent consideration can change significantly due to changes in the estimated achievement of milestones and changes in discount rates. Changes in fair value of the contingent consideration liability are reflected in other business income.
In 2021 and 2022, the fair value changes mainly related to EPD. In 2022, the decrease of EUR 61 million in the fair value of the contingent consideration comprised of EUR 30 million\u00a0 due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 31 million due to delays in achievement of certain milestones. In 2021, the decrease of EUR 67 million in the fair value of the contingent consideration comprised of EUR 41 million due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 26 million due to delays in achievement of certain milestones.
The company expects the provisions to be utilized mainly within the next three years.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExpenseExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15418": { "value": "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.\u00a0
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.\u00a0
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\u2019s operating activities.
Other business income (expenses) consists of the following:
Philips Group
Other business income (expenses)
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Result on disposal of businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | - | - | 4 |
| \u00a0expenses | - | (75) | - |
| Result on disposal of fixed assets: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 2 | 24 | 3 |
| \u00a0expenses | - | (5) | (1) |
| Result on other remaining businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 120 | 161 | 121 |
| \u00a0expenses | (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.
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.\u00a0For information on contingent consideration, refer to Provisions.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingExpenseExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15763": { "value": "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\u2019s 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 \u2019Investments in associates, net of income taxes\u2019.\u00a0
When the company\u2019s 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\u2019s interests in its consolidated entities and associates, and the effects of those interests on the company\u2019s financial position and financial performance are discussed below.
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 B\u00f6blingen GmbH | Germany1) |
| 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 |
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.
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\u2019s Board of Directors.\u00a0None of these investments are regarded as individually material from the point of view of the consolidated financial statements.\u00a0
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.\u00a0
Cumulative translation adjustments related to investments in associates were EUR 22 million as of December 31, 2022 (2021: EUR 32 million).
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\u2019 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.
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\u2019s 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 \u2019Investments in associates, net of income taxes\u2019.\u00a0
When the company\u2019s 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\u2019s interests in its consolidated entities and associates, and the effects of those interests on the company\u2019s financial position and financial performance are discussed below.
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 B\u00f6blingen GmbH | Germany1) |
| 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 |
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.
Non-controlling interests relate to minority stakes held by third parties in consolidated group companies.
", "dimensions": { "concept": "ifrs-full:DisclosureOfNoncontrollingInterestsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15769": { "value": "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\u2019s 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 \u2019Investments in associates, net of income taxes\u2019.\u00a0
When the company\u2019s 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.
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\u2019s Board of Directors.\u00a0None of these investments are regarded as individually material from the point of view of the consolidated financial statements.\u00a0
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.\u00a0
Cumulative translation adjustments related to investments in associates were EUR 22 million as of December 31, 2022 (2021: EUR 32 million).
", "dimensions": { "concept": "ifrs-full:DisclosureOfSignificantInvestmentsInAssociatesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15770": { "value": "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\u2019s 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 \u2019Investments in associates, net of income taxes\u2019.\u00a0
When the company\u2019s 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.
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\u2019s Board of Directors.\u00a0None of these investments are regarded as individually material from the point of view of the consolidated financial statements.\u00a0
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.\u00a0
Cumulative translation adjustments related to investments in associates were EUR 22 million as of December 31, 2022 (2021: EUR 32 million).
", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentsAccountedForUsingEquityMethodExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15771": { "value": "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\u2019s 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 \u2019Investments in associates, net of income taxes\u2019.\u00a0
When the company\u2019s 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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15772": { "value": "The nature of the company\u2019s interests in its consolidated entities and associates, and the effects of those interests on the company\u2019s financial position and financial performance are discussed below.
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 B\u00f6blingen GmbH | Germany1) |
| 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 |
In the normal course of business, Philips purchases and sells goods and services from/to various related parties in which Philips typically holds between 20% and 50% equity interest and has significant influence. These transactions are generally conducted with terms comparable to transactions with third parties.
Philips Group
Related-party transactions
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Sales of goods and services | 204 | 116 | 111 |
| Purchases of goods and services | 57 | 41 | 46 |
| Receivables from related parties | 37 | 40 | 55 |
| Payables to related parties | 1 | 2 | 2 |
In the previous table, sales transactions between Philips and PMC are included amounting to EUR 101 million in 2022 (2021: EUR 106 million; 2020: EUR 191 million), under which PMC has leased the equipment to the ultimate customer. In addition to that, as part of its S&RC operations in the US, Philips Medical Capital LLC funded durable medical equipment (DMEs) providers, through loans and leases. PMC-funded transactions these DMEs entered into with Philips amount to EUR 117 million in 2022 (2021: EUR 162 million; 2020: EUR 242 million). The associated costs of these funding transactions are borne by the ultimate customer and settled directly with Philips Medical Capital LLC.
Philips Medical Capital LLC, a Pennsylvania limited liability company, is owned 60% by De Lage Landen Financial Services, Inc. (DLL) and 40% by Philips Electronics North America Corporation (Philips).\u00a0
In light of the composition of the Executive Committee, the company considers the members of the Executive Committee and the Supervisory Board to be the key management personnel as defined in IAS 24 Related Party Disclosures.
For remuneration details of the Executive Committee, the Board of Management and the Supervisory Board see Information on remuneration.
For Post-employment benefit plans see Post-employment benefits.
In 2022, the total remuneration costs relating to the members of the Executive Committee (consisting of 14 members throughout the year, including the members of the Board of Management) amounted to EUR 25.6 million (2021: EUR 33.4 million; 2020: EUR 33.2 million) consisting of the elements in the following table.
Philips Group
Remuneration costs of the Executive Committee1)
in EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Base salary/Base compensation | 9,299,794 | 9,598,588 | 9,528,279 |
| Annual incentive2) | 6,726,768 | 5,250,408 | 208,370 |
| Performance shares3) | 13,153,975 | 12,610,073 | 11,242,581 |
| Restricted share rights3) | 288,372 | 1,380,644 | 1,191,529 |
| Pension allowances4) | 2,054,570 | 2,107,953 | 1,949,204 |
| Pension scheme costs | 382,513 | 306,694 | 288,179 |
| Other compensation5) | 1,264,908 | 2,104,044 | 1,216,163 |
| Total | 33,170,901 | 33,358,405 | 25,624,305 |
As of December 31, 2022, the members of the Executive Committee (including the members of the Board of Management) held 0 stock options (2021: 184,900; 2020: 193,300).\u00a0
In 2022, the total remuneration costs relating to the members of the Board of Management amounted to EUR 8.4 million (2021: EUR 10.3 million; 2020: EUR 11.4 million), see the following table.
Philips Group
Remuneration costs of individual members of the Board of Management
in EUR
| \u00a0 | base compen\u00adsation/salary | annual incentive1) | perfor\u00admance shares2) | restricted share rights2) | pension allowances3) | pension scheme costs | other compen\u00adsation | total costs |
|---|---|---|---|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| R. Jakobs4) | 256,438 | 112,737 | - | 57,973 | 6,012 | 11,507 | 444,667 | |
| F.A. van Houten4) | 1,041,849 | 208,370 | 2,930,068 | - | 444,051 | 22,121 | 42,533 | 4,688,992 |
| A. Bhattacharya | 806,250 | - | 763,140 | - | 237,250 | 28,133 | 61,308 | 1,896,081 |
| M.J. van Ginneken | 626,250 | - | 585,490 | - | 141,622 | 28,133 | 35,343 | 1,416,837 |
| \u00a0 | 2,730,788 | 208,370 | 4,391,434 | - | 880,896 | 84,398 | 150,691 | 8,446,577 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 850,915 | 2,626,295 | - | 565,403 | 27,462 | 57,224 | 5,452,299 |
| A. Bhattacharya | 790,000 | 360,103 | 1,172,533 | - | 233,857 | 27,462 | 68,908 | 2,652,864 |
| M.J. van Ginneken | 605,000 | 317,192 | 886,035 | - | 150,755 | 27,462 | 42,610 | 2,029,054 |
| \u00a0 | 2,720,000 | 1,528,211 | 4,684,863 | - | 950,014 | 82,387 | 168,742 | 10,134,217 |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 1,298,500 | 2,874,467 | - | 565,922 | 27,001 | 62,176 | 6,153,067 |
| A. Bhattacharya | 785,000 | 596,600 | 1,295,996 | - | 233,126 | 27,001 | 70,267 | 3,007,990 |
| M.J. van Ginneken | 580,000 | 437,920 | 952,453 | - | 158,800 | 27,001 | 46,986 | 2,203,160 |
| \u00a0 | 2,690,000 | 2,333,020 | 5,122,916 | - | 957,849 | 81,004 | 179,428 | 11,364,217 |
The accumulated annual pension entitlements and the pension costs of individual members of the Board of Management are as follows:
Philips Group
Accumulated annual pension entitlements and pension-related costs
in EUR unless otherwise stated
| \u00a0 | age at December 31, 2022 | accumulated annual pension as of December 31, 2022 | total pension related costs |
|---|---|---|---|
| R. Jakobs | 48 | 53,175 | 63,985 |
| A. Bhattacharya | 61 | 37,446 | 265,383 |
| M.J. van Ginneken | 49 | 50,614 | 169,755 |
| Pension costs | \u00a0 | \u00a0 | 499,123 |
When pension rights are granted to members of the Board of Management, necessary payments (if insured) and all necessary provisions are made in accordance with the applicable accounting principles. In 2022, no (additional) pension benefits were granted to former members of the Board of Management.
The remuneration of the members of the Supervisory Board amounted to EUR 1.5 million (2021: EUR 1.3 million; 2020: 1.3 million). Former members received no remuneration.
The members of the Supervisory Board do not receive any share-based remuneration. Therefore, as of December 31, 2022 the members of the Supervisory Board held no stock options, performance shares or restricted shares.
The individual members of the Supervisory Board received, by virtue of the positions they held, the following remuneration:
Philips Group
Remuneration of the Supervisory Board
in EUR
| membership | committees | other compensation1) | total | |
|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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. L\u00f6scher | 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 |
| 1,105,616 | 248,411 | 192,574 | 1,546,602 | |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| J. van der Veer | 53,507 | 12,082 | 3,916 | 69,505 |
| C.A. Poon | 39,699 | 16,915 | 783 | 57,397 |
| N. Dhawan | 100,000 | 18,000 | 2,269 | 120,269 |
| O. Gadiesh | 34,521 | 4,833 | 783 | 40,137 |
| D.E.I. Pyott | 100,000 | 36,370 | 2,269 | 138,639 |
| P.A.M. Stoffels | 109,863 | 27,808 | 4,769 | 142,440 |
| A.M. Harrison | 100,000 | 14,000 | 2,269 | 116,269 |
| M.E. Doherty | 100,000 | 27,000 | 4,769 | 131,769 |
| P. L\u00f6scher | 100,000 | 32,000 | 4,769 | 136,769 |
| F. Sijbesma | 141,301 | 27,808 | 8,237 | 177,346 |
| I. Nooyi | 100,000 | 14,000 | 2,269 | 116,269 |
| S.K. Chua | 65,753 | 11,836 | 1,492 | 79,081 |
| 1,044,644 | 242,652 | 38,595 | 1,325,891 | |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| J. van der Veer | 155,000 | 35,000 | 11,345 | 201,345 |
| C.A. Poon | 115,000 | 49,000 | 7,269 | 171,269 |
| P. L\u00f6scher | 66,667 | 21,333 | 1,513 | 89,513 |
| F. Sijbesma | 76,667 | 9,333 | 1,513 | 87,513 |
| N. Dhawan | 100,000 | 18,000 | 7,269 | 125,269 |
| O. Gadiesh | 100,000 | 14,000 | 2,269 | 116,269 |
| D.E.I. Pyott | 100,000 | 42,000 | 12,269 | 154,269 |
| P.A.M. Stoffels | 100,000 | 9,333 | 9,769 | 119,102 |
| A.M. Harrison | 100,000 | 14,000 | 2,269 | 116,269 |
| M.E. Doherty | 100,000 | 24,000 | 9,769 | 133,769 |
| 1,013,333 | 236,000 | 65,254 | 1,314,587 |
Members of the Supervisory Board and of the Board of Management are prohibited from writing call and put options or similar derivatives of Philips securities.
| \u00a0 | December 31, 2021 | December 31, 2022 |
|---|---|---|
| R. Jakobs | 101,156 | 109,422 |
| A. Bhattacharya | 148,365 | 169,517 |
| M.J. van Ginneken | 110,528 | 123,914 |
| P. Stoffels | - | 17,000 |
| S. Poonen | - | 3,000 |
| I. Nooyi | - | 3,100 |
| D. Pyott | - | 19,000 |
| S.K. Chua | - | 2,000 |
| F. Sijbesma | - | 12,500 |
| M. Harrison | - | 1,500 |
| P. L\u00f6scher | - | 20,732 |
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.
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.
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\u00a0progress 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.
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.
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) 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\u2019s operating activities.
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.
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
| \u00a0 | 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 amortization1) | (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) |
For information related to sales on a segment and geographical basis, refer to Information by segment and main country.
Philips Group
Sales composition
in millions of EUR
| \u00a0 | 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%\u00a0of 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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 |
Cost of materials used represents the inventory recognized in cost of sales.
Philips Group
Employee benefit expenses
in millions of EUR
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 |
| 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.
For details on the remuneration of the members of the Board of Management and the Supervisory Board, refer to Information on remuneration.
The average number (full-time equivalents, or FTEs) of employees by category is summarized as follows:
Philips Group
Employees by category
in FTEs
| \u00a0 | 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
| \u00a0 | 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 of property, plant and equipment and amortization of intangible assets, including impairments, are as follows:
Philips Group
Depreciation and amortization1)
in millions of EUR
| \u00a0 | 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 |
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.
During 2022, EUR 1,331 million\u00a0of 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 note Goodwill.
Shipping and handling costs are included in cost of sales and selling expenses in the Consolidated statements of income.
Advertising and promotion costs are included in selling expenses in the Consolidated statements of income.
Lease expense relates to short-term and low value leases.
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 .
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
| \u00a0 | 2020 | 2021 | 2022 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| \u00a0 | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total |
| Audit fees | 9.0 | 5.6 | 14.6 | 10.3 | 5.4 | 15.7 | 8.9 | 5.5 | 14.4 |
| consolidated financial statements | 9.0 | 2.9 | 11.9 | 10.3 | 2.7 | 13.0 | 8.9 | 3.0 | 11.9 |
| statutory financial statements | \u00a0 | 2.7 | 2.7 | \u00a0 | 2.7 | 2.7 | 2.5 | 2.5 | |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Audit-related fees2) | 2.2 | 0.5 | 2.7 | 0.6 | 0.3 | 0.9 | 0.7 | 0.2 | 0.9 |
| divestment | 1.5 | 0.2 | 1.7 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| sustainability assurance | 0.5 | \u00a0 | 0.5 | 0.5 | \u00a0 | 0.5 | 0.6 | \u00a0 | 0.6 |
| other | 0.2 | 0.3 | 0.5 | 0.1 | 0.3 | 0.4 | 0.1 | 0.2 | 0.3 |
| Tax fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| All other fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Fees | 11.2 | 6.1 | 17.3 | 10.9 | 5.7 | 16.6 | 9.6 | 5.7 | 15.3 |
Other business income (expenses) consists of the following:
Philips Group
Other business income (expenses)
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Result on disposal of businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | - | - | 4 |
| \u00a0expenses | - | (75) | - |
| Result on disposal of fixed assets: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 2 | 24 | 3 |
| \u00a0expenses | - | (5) | (1) |
| Result on other remaining businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 120 | 161 | 121 |
| \u00a0expenses | (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.
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.\u00a0For information on contingent consideration, refer to Provisions.
", "dimensions": { "concept": "ifrs-full:DisclosureOfProfitLossFromOperatingActivitiesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15898": { "value": "The average number (full-time equivalents, or FTEs) of employees by category is summarized as follows:
Philips Group
Employees by category
in FTEs
| \u00a0 | 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
| \u00a0 | 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 |
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.
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.
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\u00a0progress 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.
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.
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.
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRecognitionOfRevenue", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15900": { "value": "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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForExpensesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15901": { "value": "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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForGovernmentGrants", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15902": { "value": "A breakdown by nature of the income (loss) from operations is as follows:
Philips Group
Sales and costs by nature
in millions of EUR
| \u00a0 | 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 amortization1) | (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) |
Cost of materials used represents the inventory recognized in cost of sales.
Philips Group
Employee benefit expenses
in millions of EUR
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 |
| 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.
For details on the remuneration of the members of the Board of Management and the Supervisory Board, refer to Information on remuneration.
The average number (full-time equivalents, or FTEs) of employees by category is summarized as follows:
Philips Group
Employees by category
in FTEs
| \u00a0 | 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
| \u00a0 | 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 of property, plant and equipment and amortization of intangible assets, including impairments, are as follows:
Philips Group
Depreciation and amortization1)
in millions of EUR
| \u00a0 | 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 |
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.
During 2022, EUR 1,331 million\u00a0of 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 note Goodwill.
Shipping and handling costs are included in cost of sales and selling expenses in the Consolidated statements of income.
Advertising and promotion costs are included in selling expenses in the Consolidated statements of income.
Lease expense relates to short-term and low value leases.
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 .
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
| \u00a0 | 2020 | 2021 | 2022 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| \u00a0 | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total |
| Audit fees | 9.0 | 5.6 | 14.6 | 10.3 | 5.4 | 15.7 | 8.9 | 5.5 | 14.4 |
| consolidated financial statements | 9.0 | 2.9 | 11.9 | 10.3 | 2.7 | 13.0 | 8.9 | 3.0 | 11.9 |
| statutory financial statements | \u00a0 | 2.7 | 2.7 | \u00a0 | 2.7 | 2.7 | 2.5 | 2.5 | |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Audit-related fees2) | 2.2 | 0.5 | 2.7 | 0.6 | 0.3 | 0.9 | 0.7 | 0.2 | 0.9 |
| divestment | 1.5 | 0.2 | 1.7 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| sustainability assurance | 0.5 | \u00a0 | 0.5 | 0.5 | \u00a0 | 0.5 | 0.6 | \u00a0 | 0.6 |
| other | 0.2 | 0.3 | 0.5 | 0.1 | 0.3 | 0.4 | 0.1 | 0.2 | 0.3 |
| Tax fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| All other fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Fees | 11.2 | 6.1 | 17.3 | 10.9 | 5.7 | 16.6 | 9.6 | 5.7 | 15.3 |
Other business income (expenses) consists of the following:
Philips Group
Other business income (expenses)
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Result on disposal of businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | - | - | 4 |
| \u00a0expenses | - | (75) | - |
| Result on disposal of fixed assets: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 2 | 24 | 3 |
| \u00a0expenses | - | (5) | (1) |
| Result on other remaining businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 120 | 161 | 121 |
| \u00a0expenses | (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.
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.\u00a0For information on contingent consideration, refer to Provisions.
", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15903": { "value": "A breakdown by nature of the income (loss) from operations is as follows:
Philips Group
Sales and costs by nature
in millions of EUR
| \u00a0 | 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 amortization1) | (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) |
Cost of materials used represents the inventory recognized in cost of sales.
Philips Group
Employee benefit expenses
in millions of EUR
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 |
| 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.
For details on the remuneration of the members of the Board of Management and the Supervisory Board, refer to Information on remuneration.
The average number (full-time equivalents, or FTEs) of employees by category is summarized as follows:
Philips Group
Employees by category
in FTEs
| \u00a0 | 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
| \u00a0 | 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 of property, plant and equipment and amortization of intangible assets, including impairments, are as follows:
Philips Group
Depreciation and amortization1)
in millions of EUR
| \u00a0 | 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 |
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.
During 2022, EUR 1,331 million\u00a0of 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 note Goodwill.
Shipping and handling costs are included in cost of sales and selling expenses in the Consolidated statements of income.
Advertising and promotion costs are included in selling expenses in the Consolidated statements of income.
Lease expense relates to short-term and low value leases.
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 .
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
| \u00a0 | 2020 | 2021 | 2022 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| \u00a0 | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total |
| Audit fees | 9.0 | 5.6 | 14.6 | 10.3 | 5.4 | 15.7 | 8.9 | 5.5 | 14.4 |
| consolidated financial statements | 9.0 | 2.9 | 11.9 | 10.3 | 2.7 | 13.0 | 8.9 | 3.0 | 11.9 |
| statutory financial statements | \u00a0 | 2.7 | 2.7 | \u00a0 | 2.7 | 2.7 | 2.5 | 2.5 | |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Audit-related fees2) | 2.2 | 0.5 | 2.7 | 0.6 | 0.3 | 0.9 | 0.7 | 0.2 | 0.9 |
| divestment | 1.5 | 0.2 | 1.7 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| sustainability assurance | 0.5 | \u00a0 | 0.5 | 0.5 | \u00a0 | 0.5 | 0.6 | \u00a0 | 0.6 |
| other | 0.2 | 0.3 | 0.5 | 0.1 | 0.3 | 0.4 | 0.1 | 0.2 | 0.3 |
| Tax fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| All other fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Fees | 11.2 | 6.1 | 17.3 | 10.9 | 5.7 | 16.6 | 9.6 | 5.7 | 15.3 |
Other business income (expenses) consists of the following:
Philips Group
Other business income (expenses)
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Result on disposal of businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | - | - | 4 |
| \u00a0expenses | - | (75) | - |
| Result on disposal of fixed assets: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 2 | 24 | 3 |
| \u00a0expenses | - | (5) | (1) |
| Result on other remaining businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 120 | 161 | 121 |
| \u00a0expenses | (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.
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.\u00a0For information on contingent consideration, refer to Provisions.
", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesByNatureExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15904": { "value": "Cost of materials used represents the inventory recognized in cost of sales.
Depreciation of property, plant and equipment and amortization of intangible assets, including impairments, are as follows:
Philips Group
Depreciation and amortization1)
in millions of EUR
| \u00a0 | 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 |
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.
Shipping and handling costs are included in cost of sales and selling expenses in the Consolidated statements of income.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCostOfSalesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15905": { "value": "Philips Group
Employee benefit expenses
in millions of EUR
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 |
| 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.
For details on the remuneration of the members of the Board of Management and the Supervisory Board, refer to Information on remuneration.
Philips Group
Other provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 372 | 349 |
| Additions | 89 | 160 |
| Utilizations | (87) | (95) |
| Releases | (29) | (35) |
| Accretion | (5) | (3) |
| Translation differences and other | 9 | 14 |
| Balance as of December 31 | 349 | 390 |
The main elements of other provisions are:
The company expects the provisions to be utilized mainly within the next five years, except for:
A defined contribution plan is a post-employment benefit plan for which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the Consolidated statements of income in the periods during which services are rendered by employees.
A defined benefit plan is a post-employment benefit plan that is not a defined contribution plan. Defined benefit plans define an amount of pension benefit that an employee will receive after retirement. That pension benefit typically depends on several factors such as years of service, age and salary.
The net pension asset or liability recognized in the Consolidated balance sheets in respect of defined benefit plans is the fair value of plan assets less the present value of the projected defined benefit obligation at the Consolidated balance sheets date. The defined benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. Recognized assets are limited to the present value of any reductions in future contributions or any future refunds. The net pension liability is presented as a long-term provision; no distinction is made for the short-term portion.
For the company\u2019s major plans, a full discount rate curve of high-quality corporate bonds is used to determine the defined benefit obligation, where available. The curves are based on the Mercer Yield Curve methodology, which uses data of corporate bonds rated AA or equivalent. For the other plans the Mercer Yield Curve/Mercer Methodology has also been used taking into account the cash flows as much as possible in case there is a deep market in corporate bonds. For plans in countries without a deep corporate bond market, the discount rate is based on government bonds and the plan\u2019s maturity.
Pension costs in respect of defined benefit plans primarily represent the increase of the actuarial present value of the obligation for post-employment benefits based on employee service during the year and the interest on the net recognized asset or liability in respect of employee service in previous years.
Remeasurements of the net defined benefit asset or liability comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (excluding interest). The company recognizes all remeasurements in Other comprehensive income.
Past service costs arising from the introduction of a change to the benefit payable under a plan or a significant reduction of the number of employees covered by a plan (curtailment) are recognized in full in the Consolidated statements of income.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. The company recognizes a liability and an expense for bonuses and incentives based on a formula that takes into consideration the profit attributable to the company\u2019s shareholders after certain adjustments.
The company\u2019s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods, such as jubilee entitlements. That benefit is discounted to determine its present value. Remeasurements are recognized in the Consolidated statements of income in the period in which they arise.
Further information on other employee benefits can be found in Provisions in the Other provisions section.
To make the actuarial calculations for the valuation of defined benefit obligations, assumptions are needed for interest rates, healthcare cost increases, future pension increases, life expectancy and employee turnover rates. The actuarial calculations are made by external actuaries based on inputs from observable market data, such as corporate bond returns and yield curves to determine the discount rates to apply, mortality tables to determine life expectancy and inflation rates to determine future salary and pension growth assumptions.
Employee post-employment benefit plans have been established in many countries in accordance with the legal requirements, customs and the local practice in the countries involved. The larger part of post-employment benefits are company pension plans, of which some are funded and some are unfunded. All funded post-employment benefit plans are considered to be related parties.
Most employees that take part in a company pension plan are covered by defined contribution (DC) pension plans. The main DC plans are in the Netherlands and the United States. The company also sponsors a number of defined benefit (DB) pension plans. The benefits provided by these plans are based on employees\u2019 years of service and compensation levels.
The company also sponsors a limited number of DB retiree medical plans. The benefits provided by these plans typically cover a part of the healthcare costs after retirement. None of these plans are individually significant to the company and are therefore not further separately disclosed.
The larger funded DB and DC plans are governed by independent Trustees who have a legal obligation to protect the interests of all plan members and operate under the local regulatory framework.
The DB plans in Germany and the United States make up most of the defined benefit obligation (DBO) and the net position. The company also has DB plans in the rest of the world; however these are individually not significant to the company and do not have a significantly different risk profile that would warrant separate disclosure.
The adjacent table provides a break-down of the present value of the funded and unfunded DBO, the fair value of plan assets and the net position in Germany, the United States and in Other Countries. The table also provides the value of reimbursement rights.
Philips Group
Post-employment benefits
in millions of EUR
| \u00a0 | Germany | United States | Other Countries | Total | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Present value of funded DBO | (606) | (489) | (558) | (440) | (206) | (179) | (1,370) | (1,108) |
| Present value of unfunded DBO | (316) | (249) | (149) | (128) | (135) | (136) | (600) | (513) |
| Total present value of DBO | (921) | (738) | (708) | (568) | (341) | (315) | (1,970) | (1,621) |
| Fair value of plan assets | 572 | 477 | 623 | 474 | 185 | 171 | 1,380 | 1,122 |
| Net position | (349) | (261) | (84) | (94) | (157) | (144) | (590) | (499) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Value of reimbursement rights | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | 6 | \u00a0 | 6 |
The classification of the net position is as follows:
Philips Group
Classification net position
in millions of EUR
| \u00a0 | Germany | United States | Other Countries\u00a0\u00a0 | Total\u00a0 | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Total asset for plans in a surplus | 3 | 9 | 65 | 34 | 1 | 4 | 69 | 46 |
| Total liability for plans in a deficit | (352) | (270) | (149) | (128) | (157) | (148) | (659) | (546) |
| Provisions for post-employment benefit plans under AHFS | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |||
| Net position | (349) | (261) | (84) | (94) | (157) | (144) | (590) | (499) |
The company has several DB plans in Germany which for the largest part are unfunded, meaning that after retirement the company is responsible for the benefit payments to retirees.
Due to the relatively high level of social security in Germany, the company\u2019s pension plans mainly provide benefits for the higher earners. The plans are open for future pension accrual. Indexation is mandatory due to legal requirements. Some of the German plans have a DC design, but are accounted for as DB plans due to a legal minimum return requirement.
Company pension commitments in Germany are partly protected against employer bankruptcy via the \u201cPensions-Sicherungs-Verein\u201d which charges a fee to all German companies providing pension promises.
Philips is one of the sponsors of Philips Pensionskasse VVaG in Germany, which is a multi-employer plan. The plan is classified and accounted for as a DC plan.
The US DB pension plans are closed plans without future pension accrual. For the funding of any deficit in the US plan the Group adheres to the minimum funding requirements of the US Pension Protection Act.
The assets of the US funded pension plans are in Trusts governed by fiduciaries. The non-qualified pension plans that cover accrual above the maximum salary of the funded qualified plan are unfunded.
The company\u2019s qualified pension commitments in the United States are covered via the Pension Benefit Guaranty Corporation which charges a fee to US companies providing DB pension plans. The fee is also dependent on the amount of unfunded vested liabilities.
DB plans expose the company to various demographic and economic risks such as longevity risk, investment risks, currency and interest rate risk and in some cases inflation risk. The latter plays a role in the assumed wage increase but more importantly in some countries where indexation of pensions is mandatory.
The company has an active de-risking strategy in which it constantly looks for opportunities to reduce the risks associated with its DB plans. Liability-driven investment strategies, lump sum cash-out options, buy-ins, buy-outs and a change to DC are examples of the strategy.\u00a0
Pension fund trustees are responsible for and have full discretion over the investment strategy of the plan assets. The plan assets of the Philips pension plans are invested in well diversified portfolios. The interest rate sensitivity of the fixed income portfolio is closely aligned to that of the plan\u2019s pension liabilities for most of the plans. Any contributions from the sponsoring company are used to further increase the fixed income part of the assets. As part of the investment strategy, any improvement in the funded ratio over time is used to further decrease the interest rate mismatch between the plan assets and the pension liabilities.
The adjacent table contains the total of current and past service costs, administration costs and settlement results as included in Income from operations and the interest cost as included in Financial expenses.
Philips Group
Pre-tax costs for post-employment benefits
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Defined benefit plans | 74 | 36 | 50 |
| - included in income from operations | 59 | 28 | 39 |
| - included in financial expense | 13 | 8 | 10 |
| - included in Discontinued operations | 1 | 1 | |
| Defined contribution plans | 366 | 375 | 400 |
| - included in income from operations | 358 | 368 | 400 |
| - included in Discontinued operations | 8 | 7 | |
| Post-employment benefits costs | 440 | 411 | 449 |
The adjacent tables contain the reconciliations for the DBO and plan assets.
Philips Group
Defined benefit obligations
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 2,153 | 1,970 |
| Service cost | 36 | 32 |
| Interest cost | 33 | 36 |
| Employee contributions | 7 | 4 |
| Actuarial (gains) / losses | \u00a0 | \u00a0 |
| - demographic assumptions | 3 | 2 |
| - financial assumptions | (86) | (366) |
| - experience adjustment | (6) | 12 |
| (Negative) past service cost | (5) | 16 |
| Settlements | (90) | |
| Benefits paid from plan | (95) | (95) |
| Benefits paid directly by employer | (33) | (41) |
| Translation differences and other | 52 | 52 |
| Balance as of December 31 | 1,970 | 1,621 |
Philips Group
Plan assets
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 1,403 | 1,380 |
| Interest income on plan assets | 25 | 26 |
| Admin expenses paid | (1) | (1) |
| Return on plan assets excluding interest income | 44 | (254) |
| Employee contributions | 7 | 4 |
| Employer contributions | 33 | 17 |
| Settlements | (86) | 0 |
| Benefits paid from plan | (96) | (95) |
| Translation differences and other | 50 | 45 |
| Balance as of December 31 | 1,380 | 1,122 |
The past service cost in 2022 mainly relates to the retiree medical plans in Brazil. The settlement amounts of 2021 mainly relate to the transfer of the provident fund plan into the government provident fund in India.\u00a0
The asset allocation in the company\u2019s DB plans as of December 31 was as follows:
Philips Group
Plan assets allocation
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Assets quoted in active markets | \u00a0 | \u00a0 |
| - Debt securities | 790 | 560 |
| - Equity securities | \u00a0 | \u00a0 |
| - Other | 195 | 203 |
| \u00a0 | \u00a0 | \u00a0 |
| Assets not quoted in active markets | \u00a0 | \u00a0 |
| - Debt securities | 1 | |
| - Equity securities | 122 | 101 |
| - Other | 272 | 258 |
| Total assets | 1,380 | 1,122 |
The plan assets in 2022 contain 32% (2021: 29%) unquoted plan assets. Plan assets in 2022 do not include property occupied by or financial instruments issued by the company.
The mortality tables used for the company\u2019s largest DB plans are:
Germany: Heubeck-Richttafeln 2018 Generational, assuming 93% of mortality rates for male retirees between age 60 and 85
US: PRI-2012 Generational with MP2021 improvement scale + white collar adjustment
The weighted averages of the assumptions used to calculate the DBO as of December 31 were as follows:
Philips Group
Assumptions used for defined benefit obligations in Germany, the United States and the rest of the world
in %
| \u00a0 | Germany | United States | Other Countries | Total | ||||
|---|---|---|---|---|---|---|---|---|
| \u00a0 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 |
| Discount rate | 1.1% | 4.1% | 2.6% | 5.2% | 2.1% | 4.9% | 1.8% | 4.7% |
| Inflation rate | 1.8% | 2.0% | 2.2% | 2.3% | 2.0% | 2.6% | 2.0% | 2.2% |
| Salary increase | 2.5% | 2.8% | 0.0% | 0.0% | 2.9% | 3.3% | 2.6% | 2.9% |
The following table illustrates the approximate impact on the DBO from movements in key assumptions. The DBO was recalculated using a change in the assumptions of 1%\u00a0which overall is considered a reasonably possible change. The impact on the DBO because of changes in discount rate is normally accompanied by offsetting movements in plan assets, especially when using matching strategies.
The average duration of the DBO of the DB plans is 8 years (Germany: 9, United States: 8, and Other countries: 8) as of December 31, 2022 (2021: 11 years).
Philips Group
Sensitivity of key assumptions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Increase | \u00a0 | \u00a0 |
| Discount rate (1% movement) | (196) | (122) |
| Pension increase (1% movement) | 99 | 57 |
| Salary increase (1% movement) | 19 | 12 |
| Longevity1) | 48 | 32 |
| Decrease | \u00a0 | \u00a0 |
| Discount rate (1% movement) | 241 | 145 |
| Pension increase (1% movement) | (83) | (49) |
| Salary increase (1% movement) | (18) | (11) |
Cash outflows in relation to post-employment benefits are estimated to amount to EUR 464 million in 2023, consisting of:
The service and administration cost for 2023 is expected to amount to EUR 29 million for DB plans. The net interest cost for 2023 for the DB plans is expected to amount to EUR 21 million. The cost for DC pension plans in 2023 is equal to the expected DC cash flow.
In 2022, the total remuneration costs relating to the members of the Executive Committee (consisting of 14 members throughout the year, including the members of the Board of Management) amounted to EUR 25.6 million (2021: EUR 33.4 million; 2020: EUR 33.2 million) consisting of the elements in the following table.
Philips Group
Remuneration costs of the Executive Committee1)
in EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Base salary/Base compensation | 9,299,794 | 9,598,588 | 9,528,279 |
| Annual incentive2) | 6,726,768 | 5,250,408 | 208,370 |
| Performance shares3) | 13,153,975 | 12,610,073 | 11,242,581 |
| Restricted share rights3) | 288,372 | 1,380,644 | 1,191,529 |
| Pension allowances4) | 2,054,570 | 2,107,953 | 1,949,204 |
| Pension scheme costs | 382,513 | 306,694 | 288,179 |
| Other compensation5) | 1,264,908 | 2,104,044 | 1,216,163 |
| Total | 33,170,901 | 33,358,405 | 25,624,305 |
As of December 31, 2022, the members of the Executive Committee (including the members of the Board of Management) held 0 stock options (2021: 184,900; 2020: 193,300).\u00a0
In 2022, the total remuneration costs relating to the members of the Board of Management amounted to EUR 8.4 million (2021: EUR 10.3 million; 2020: EUR 11.4 million), see the following table.
Philips Group
Remuneration costs of individual members of the Board of Management
in EUR
| \u00a0 | base compen\u00adsation/salary | annual incentive1) | perfor\u00admance shares2) | restricted share rights2) | pension allowances3) | pension scheme costs | other compen\u00adsation | total costs |
|---|---|---|---|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| R. Jakobs4) | 256,438 | 112,737 | - | 57,973 | 6,012 | 11,507 | 444,667 | |
| F.A. van Houten4) | 1,041,849 | 208,370 | 2,930,068 | - | 444,051 | 22,121 | 42,533 | 4,688,992 |
| A. Bhattacharya | 806,250 | - | 763,140 | - | 237,250 | 28,133 | 61,308 | 1,896,081 |
| M.J. van Ginneken | 626,250 | - | 585,490 | - | 141,622 | 28,133 | 35,343 | 1,416,837 |
| \u00a0 | 2,730,788 | 208,370 | 4,391,434 | - | 880,896 | 84,398 | 150,691 | 8,446,577 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 850,915 | 2,626,295 | - | 565,403 | 27,462 | 57,224 | 5,452,299 |
| A. Bhattacharya | 790,000 | 360,103 | 1,172,533 | - | 233,857 | 27,462 | 68,908 | 2,652,864 |
| M.J. van Ginneken | 605,000 | 317,192 | 886,035 | - | 150,755 | 27,462 | 42,610 | 2,029,054 |
| \u00a0 | 2,720,000 | 1,528,211 | 4,684,863 | - | 950,014 | 82,387 | 168,742 | 10,134,217 |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 1,298,500 | 2,874,467 | - | 565,922 | 27,001 | 62,176 | 6,153,067 |
| A. Bhattacharya | 785,000 | 596,600 | 1,295,996 | - | 233,126 | 27,001 | 70,267 | 3,007,990 |
| M.J. van Ginneken | 580,000 | 437,920 | 952,453 | - | 158,800 | 27,001 | 46,986 | 2,203,160 |
| \u00a0 | 2,690,000 | 2,333,020 | 5,122,916 | - | 957,849 | 81,004 | 179,428 | 11,364,217 |
The accumulated annual pension entitlements and the pension costs of individual members of the Board of Management are as follows:
Philips Group
Accumulated annual pension entitlements and pension-related costs
in EUR unless otherwise stated
| \u00a0 | age at December 31, 2022 | accumulated annual pension as of December 31, 2022 | total pension related costs |
|---|---|---|---|
| R. Jakobs | 48 | 53,175 | 63,985 |
| A. Bhattacharya | 61 | 37,446 | 265,383 |
| M.J. van Ginneken | 49 | 50,614 | 169,755 |
| Pension costs | \u00a0 | \u00a0 | 499,123 |
When pension rights are granted to members of the Board of Management, necessary payments (if insured) and all necessary provisions are made in accordance with the applicable accounting principles. In 2022, no (additional) pension benefits were granted to former members of the Board of Management.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15906": { "value": "Depreciation of property, plant and equipment and amortization of intangible assets, including impairments, are as follows:
Philips Group
Depreciation and amortization1)
in millions of EUR
| \u00a0 | 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 |
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDepreciationAndAmortisationExpenseExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15907": { "value": "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.
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 .
", "dimensions": { "concept": "ifrs-full:DisclosureOfGovernmentGrantsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15908": { "value": "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
| \u00a0 | 2020 | 2021 | 2022 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| \u00a0 | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total | EY NL1) | EY Network | Total |
| Audit fees | 9.0 | 5.6 | 14.6 | 10.3 | 5.4 | 15.7 | 8.9 | 5.5 | 14.4 |
| consolidated financial statements | 9.0 | 2.9 | 11.9 | 10.3 | 2.7 | 13.0 | 8.9 | 3.0 | 11.9 |
| statutory financial statements | \u00a0 | 2.7 | 2.7 | \u00a0 | 2.7 | 2.7 | 2.5 | 2.5 | |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Audit-related fees2) | 2.2 | 0.5 | 2.7 | 0.6 | 0.3 | 0.9 | 0.7 | 0.2 | 0.9 |
| divestment | 1.5 | 0.2 | 1.7 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| sustainability assurance | 0.5 | \u00a0 | 0.5 | 0.5 | \u00a0 | 0.5 | 0.6 | \u00a0 | 0.6 |
| other | 0.2 | 0.3 | 0.5 | 0.1 | 0.3 | 0.4 | 0.1 | 0.2 | 0.3 |
| Tax fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| All other fees | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Fees | 11.2 | 6.1 | 17.3 | 10.9 | 5.7 | 16.6 | 9.6 | 5.7 | 15.3 |
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\u2019s operating activities.
Other business income (expenses) consists of the following:
Philips Group
Other business income (expenses)
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Result on disposal of businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | - | - | 4 |
| \u00a0expenses | - | (75) | - |
| Result on disposal of fixed assets: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 2 | 24 | 3 |
| \u00a0expenses | - | (5) | (1) |
| Result on other remaining businesses: | \u00a0 | \u00a0 | \u00a0 |
| \u00a0income | 120 | 161 | 121 |
| \u00a0expenses | (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.
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.\u00a0For information on contingent consideration, refer to Provisions.
Philips Group
Contingent consideration provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 318 | 208 |
| Acquisitions | 16 | 96 |
| Utilizations | (48) | (105) |
| Fair value changes | (78) | (86) |
| Balance as of December 31 | 208 | 113 |
The provision for contingent consideration reflects the fair value of the expected payment to former shareholders of an acquiree for the exchange of control if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The provision for contingent consideration can change significantly due to changes in the estimated achievement of milestones and changes in discount rates. Changes in fair value of the contingent consideration liability are reflected in other business income.
In 2021 and 2022, the fair value changes mainly related to EPD. In 2022, the decrease of EUR 61 million in the fair value of the contingent consideration comprised of EUR 30 million\u00a0 due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 31 million due to delays in achievement of certain milestones. In 2021, the decrease of EUR 67 million in the fair value of the contingent consideration comprised of EUR 41 million due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 26 million due to delays in achievement of certain milestones.
The company expects the provisions to be utilized mainly within the next three years.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15910": { "value": "Lease expense relates to short-term and low value leases.
Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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) |
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.
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 short-term 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.\u00a0
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.
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\u00a0
| \u00a0 | 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 - right-of-use assets
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Total |
|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 |
| Accumulated depreciation | (418) | (139) | (109) | (666) |
| Book value \u00a0 | 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 | \u00a0 | 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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,365 | - | 206 | 1,571 |
| Accumulated depreciation | (543) | (108) | (651) | |
| Book value | 822 | - | 98 | 919 |
Philips Group
Property, plant and equipment - right-of-use assets
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,147 | 199 | 213 | 1 | 1,560 |
| Accumulated depreciation | (310) | (144) | (86) | \u00a0 | (540) |
| Book value | 837 | 55 | 126 | 1 | 1,020 |
| Additions | 150 | 21 | 44 | 215 | |
| Assets available for use | 2 | 3 | 5 | ||
| Acquisitions | 43 | \u00a0 | \u00a0 | 43 | |
| Depreciation | (157) | (32) | (63) | (252) | |
| Impairments | 1 | (5) | - | (4) | |
| Transfer (to) from AHFS | (7) | (1) | \u00a0 | (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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 | |
| Accumulated depreciation | (418) | (139) | (109) | (666) | |
| Book value | 914 | 37 | 107 | 1,058 |
Below are the references with respect to year-end disclosures as lessee:
Other qualitative and quantitative disclosures regarding the nature of lessee\u2019s leasing activities and future lease obligations, refer to Debt.
Below are the references with respect to year-end disclosures as lessor:
Lease liabilities are measured at the present value of the lease payments due over the lease term, generally discounted using the incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest method. Lease liabilities are remeasured in case of modifications or reassessments of the lease.
The following tables present information about the long-term debt outstanding, its maturity and average interest rates in 2022 and 2021.
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2022 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,378 | 1,378 | 250 | 1,128 | 14.3 | 6.3% | |
| EUR bonds | 4,061 | 4,061 | 1,836 | 2,225 | 5.7 | 1.7% | |
| Forward contracts | 858 | 606 | 252 | 252 | 1.0 | ||
| Lease liabilities | 1,082 | 230 | 852 | 504 | 348 | 3.9 | 2.4% |
| Bank borrowings | 705 | 2 | 702 | 702 | 1.9 | 1.7% | |
| Other long-term debt | 28 | 4 | 24 | 17 | 6 | 8.9 | 2.9% |
| Long-term debt | 8,111 | 842 | 7,270 | 3,562 | 3,706 | 6.1 | 2.4% |
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2021 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,313 | \u00a0 | 1,313 | 255 | 1,058 | 15.1 | 6.3% |
| EUR bonds | 3,233 | 3,233 | 2,242 | 991 | 4.4 | 1.0% | |
| Forward contracts | 934 | 196 | 738 | 738 | \u00a0 | 1.6 | \u00a0 |
| Lease liabilities | 1,220 | 257 | 963 | 580 | 383 | 4.2 | 2.1% |
| Bank borrowings | 203 | 1 | 202 | 202 | 3.2 | 0.1% | |
| Other long-term debt | 30 | 5 | 26 | 18 | 8 | 8.6 | 3.5% |
| Long-term debt | 6,933 | 459 | 6,473 | 4,034 | 2,439 | 6.0 | 2.1% |
The following table presents a reconciliation between the total of future minimum lease payments and their present value.
Philips Group
Lease liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | future minimum lease payments | interest | present value of minimum lease payments | future minimum lease payments | interest | present value of minimum lease payments |
| Less than one year | 280 | 22 | 257 | 251 | 21 | 230 |
| Between one and five years | 636 | 56 | 580 | 554 | 49 | 505 |
| More than five years | 417 | 34 | 383 | 376 | 28 | 348 |
| Lease liabilities | 1,333 | 113 | 1,220 | 1,180 | 98 | 1,082 |
In 2022, gross lease payments of EUR 316 million (2021: EUR 308 million; 2020: EUR 325 million) included interest of EUR 25 million (2021: EUR 25 million; 2020: EUR 29 million).
The company leases various items of real estate, vehicles and other equipment where it acts as a lessee. The company has multiple extension and termination options in a number of lease contracts. These are used to maximize operational flexibility in terms of managing the assets used in the company's operations. The options considered reasonably certain are part of lease liabilities. However, the options not considered reasonably certain are not part of lease liability, which exposes the company to potential future cash outflows amounting to EUR 400 million. In addition, the company is committed to leases not yet commenced to EUR 93 million. The company's lease contracts do not contain financial covenants.
The company enters into sale-and-leaseback transactions primarily for its Sleep & Respiratory Care businesses. These transactions are accounted for at market value. The payments for these leases are considered in determining lease liabilities. Principal repayments are part of cash flows used for financing activities and interest payments are part of cash flows used for operating activities. The cash inflows arising from the sales transactions are part of cash flows provided by financing activities. Lease payments under sale-and-leaseback arrangements for 2022 were EUR 72 million (2021: EUR 85 million). The remaining minimum payment under sale-and-leaseback arrangements included in lease obligations above are as follows:
Philips Group
Remaining minimum payments under sale-and-leaseback arrangements
in millions of EUR
| \u00a0 | \u00a0 |
|---|---|
| 2023 | 55 |
| 2024 | 38 |
| 2025 | 23 |
| 2026 | 14 |
| 2027 | 5 |
| Thereafter | 18 |
Philips has leasing activities where it acts as lessor. In such arrangements, Philips provides the customer with a right to use of medical equipment in exchange for a series of payments. Residual values of assets under lease form an insignificant part of the carrying amount of those assets. Residual values are influenced by asset market prices and are therefore subject to management estimation. Residual values are at least reassessed on an annual basis, or more often when necessary. Reassessments are based on a combination of realization of assets sold, expert knowledge and judgment of local markets. For lease receivables, the value of unguaranteed residual values as of December 31, 2022 was EUR 0.6 million (2021: EUR 0.2 million). In order to reduce residual value risk exposures there may be residual value guarantees or purchase options embedded in the customer contract. Credit risk for lease receivables is reviewed regularly and mitigated, for example, by retaining a security interest in the leased asset.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLeasesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15911": { "value": "During 2022, EUR 1,331 million\u00a0of 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 note Goodwill.
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\u2019s fair value less costs of disposal and its value in use.
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.
Philips Group
Property, plant and equipment - owned assets\u00a0
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,097 | 1,585 | 1,382 | 208 | 4,273 |
| Accumulated depreciation | (591) | (1,074) | (967) | \u00a0 | (2,632) |
| Book value \u00a0 | 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) | \u00a0 | - | (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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,135 | 1,779 | 1,454 | 309 | 4,676 |
| Accumulated depreciation | (621) | (1,291) | (1,046) | \u00a0 | (2,958) |
| Book value | 514 | 488 | 408 | 309 | 1,718 |
Philips Group
Property, plant and equipment - right-of-use assets
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Total |
|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 |
| Accumulated depreciation | (418) | (139) | (109) | (666) |
| Book value \u00a0 | 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 | \u00a0 | 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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,076 | 1,506 | 1,572 | 261 | 4,415 |
| Accumulated depreciation | (539) | (1,028) | (1,185) | \u00a0 | (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 | \u00a0 | 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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,147 | 199 | 213 | 1 | 1,560 |
| Accumulated depreciation | (310) | (144) | (86) | \u00a0 | (540) |
| Book value | 837 | 55 | 126 | 1 | 1,020 |
| Additions | 150 | 21 | 44 | 215 | |
| Assets available for use | 2 | 3 | 5 | ||
| Acquisitions | 43 | \u00a0 | \u00a0 | 43 | |
| Depreciation | (157) | (32) | (63) | (252) | |
| Impairments | 1 | (5) | - | (4) | |
| Transfer (to) from AHFS | (7) | (1) | \u00a0 | (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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 | |
| Accumulated depreciation | (418) | (139) | (109) | (666) | |
| Book value | 914 | 37 | 107 | 1,058 |
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\u2019s 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\u2019s length transaction, less costs of disposal.
The changes in 2021 and 2022 were as follows:
Philips Group
Goodwill
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | \u00a0 | \u00a0 |
| Cost | 9,094 | 11,793 |
| Impairments | (1,080) | (1,156) |
| Book value | 8,014 | 10,637 |
| \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | \u00a0 |
| 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).
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.\u00a0
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.\u00a0
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\u2019s 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\u2019s value in use, for the 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\u00a0
- Interim impairment testing\u00a0
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | pre-tax discount rates |
| Sleep & Respiratory Care | 1.5% | 4.3% | 2.5% | 9.5% |
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.
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\u00a0 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
| \u00a0 | 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 \u2018key assumptions- general\u2019 section for further detail on the methodology.
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\u2019 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). \u00a0
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\u2019s 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 business-specific 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.\u00a0Philips 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.\u00a0
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\u00a0
2022
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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\u00a0
2021
| \u00a0 | compound sales growth rate1) | \u00a0 | ||
|---|---|---|---|---|
| \u00a0 | initial forecast period | extrapolation period2) | used to calculate terminal value3) | 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).\u00a0
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.
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.\u00a0
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.\u00a0
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.\u00a0
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.
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.
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\u2019s 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\u2019s 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.
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book value | 162 | 1,143 | 1,000 | 599 | 414 | 287 | 44 | 3,650 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | (3) | - | 51 | - | 257 | 109 | 1 | 416 |
| Assets available for use | 118 | (118) | ||||||
| Acquisitions | 1 | 3 | 177 | - | - | 180 | ||
| Amortization | (24) | (141) | (140) | (206) | (1) | (100) | (3) | (614) |
| Impairments | - | (6) | (46) | (123) | (81) | (17) | (2) | (276) |
| Translation differences and other | 4 | 71 | 59 | 5 | 31 | 1 | (2) | 169 |
| Total change | (22) | (74) | 102 | (206) | 88 | (7) | (6) | (125) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 647 | 2,735 | 2,947 | 2,605 | 648 | 869 | 152 | 10,602 |
| Amortization / impairments | (507) | (1,665) | (1,845) | (2,212) | (146) | (589) | (113) | (7,077) |
| Book Value | 140 | 1,070 | 1,102 | 393 | 502 | 280 | 39 | 3,526 |
Philips Group
Intangible assets excluding goodwill
in millions of EUR
| \u00a0 | brand names | customer relationships | technology | product development | product development construction in progress | software | other | total |
|---|---|---|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 556 | 2,036 | 2,434 | 2,519 | 480 | 723 | 135 | 8,883 |
| Amortization / impairments | (437) | (1,385) | (1,565) | (1,897) | (83) | (427) | (91) | (5,886) |
| Book value | 120 | 651 | 869 | 622 | 398 | 295 | 44 | 2,997 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Additions | \u00a0 | 9 | 1 | 261 | 117 | 2 | 392 | |
| Assets available for use | \u00a0 | \u00a0 | \u00a0 | 247 | (247) | - | - | - |
| Acquisitions | 62 | 544 | 235 | - | - | 841 | ||
| Amortization | (21) | (126) | (114) | (219) | - | (85) | (3) | (568) |
| Impairments | (3) | (57) | (51) | (15) | - | - | (126) | |
| Transfers to assets classified as held for sale | (10) | (3) | (11) | (17) | (6) | (34) | (82) | |
| Translation differences and other | 12 | 80 | 69 | 17 | 23 | (7) | 1 | 195 |
| Total change | 42 | 492 | 131 | (22) | 17 | (8) | 1 | 653 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Balance as of December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 644 | 2,590 | 2,605 | 2,701 | 505 | 754 | 146 | 9,944 |
| Amortization / impairments | (481) | (1,447) | (1,605) | (2,102) | (91) | (467) | (101) | (6,294) |
| Book Value | 162 | 1,143 | 1,000 | 599 | 414 | 287 | 44 | 3,650 |
Impairments in 2022 were EUR 276 million (2021: EUR 126 million)\u00a0and 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\u2019s best estimate are used as the basis for the value-in-use tests
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.
The company\u2019s 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
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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 |
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.
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.
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\u00a0progress 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.
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.
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
| \u00a0 | 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 amortization1) | (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) |
For information related to sales on a segment and geographical basis, refer to Information by segment and main country.
Philips Group
Sales composition
in millions of EUR
| \u00a0 | 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%\u00a0of 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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 |
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 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.\u00a0
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
Non-current contract liabilities were EUR 515 million as of December 31, 2022 (December 31, 2021: EUR 446 million) and current contract liabilities were EUR 1,696 million as of December 31, 2022 (December 31, 2021: EUR 1,491 million).
The current contract liabilities increased by EUR 205 million, which is mainly driven by an increase in deferred balances for customer service contracts.
The current contract liabilities as of December 31, 2021 resulted in revenue recognized of EUR 1,491 million in 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRevenueExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f15913": { "value": "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.
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.
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\u00a0progress 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.
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.
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
| \u00a0 | 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 amortization1) | (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) |
For information related to sales on a segment and geographical basis, refer to Information by segment and main country.
Philips Group
Sales composition
in millions of EUR
| \u00a0 | 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%\u00a0of 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2022 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2021 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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
| \u00a0 | 2020 | ||||
|---|---|---|---|---|---|
| \u00a0 | 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 |
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 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.\u00a0
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
Non-current contract liabilities were EUR 515 million as of December 31, 2022 (December 31, 2021: EUR 446 million) and current contract liabilities were EUR 1,696 million as of December 31, 2022 (December 31, 2021: EUR 1,491 million).
The current contract liabilities increased by EUR 205 million, which is mainly driven by an increase in deferred balances for customer service contracts.
The current contract liabilities as of December 31, 2021 resulted in revenue recognized of EUR 1,491 million in 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRevenueFromContractsWithCustomersExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f17363": { "value": "Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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 Gilde 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.
Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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 Gilde 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.
Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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 Gilde 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.
Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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 Gilde 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.
Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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 Gilde 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.
Philips Group
Financial income and expenses
in millions of EUR
| \u00a0 | 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 Gilde 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.
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 \u2018discontinued operations\u2019 are sufficiently separable from continuing operations.
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 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.\u00a0
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.\u00a0
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
| \u00a0 | Balance as of January 1, 2022 | recognized in income statement | other1) | Balance as of December 31, 2022 | Assets | Liabilities |
|---|---|---|---|---|---|---|
| Intangible assets | 587 | 63 | (20) | 630 | 783 | (152) |
| Property, plant and equipment | 29 | (33) | 2 | (2) | 49 | (52) |
| Inventories | 372 | 75 | 17 | 464 | 473 | (8) |
| Other assets | 68 | (16) | (8) | 44 | 98 | (55) |
| Pensions and other employee benefits | 180 | 6 | (32) | 153 | 175 | (22) |
| Other liabilities | 499 | (34) | 17 | 483 | 560 | (77) |
| Deferred tax assets on tax loss carryforwards | 398 | 149 | 38 | 586 | 586 | \u00a0 |
| Set-off deferred tax positions | \u00a0 | \u00a0 | \u00a0 | \u00a0 | (275) | 275 |
| Net deferred tax assets | 2,134 | 210 | 14 | 2,358 | 2,449 | (91) |
Philips Group
Deferred tax assets and liabilities
in millions of EUR
| \u00a0 | Balance as of January 1, 2021 | recognized in income statement | other1) | Balance as of December 31, 2021 | Assets | Liabilities |
|---|---|---|---|---|---|---|
| Intangible assets | 240 | 535 | (188) | 587 | 716 | (130) |
| Property, plant and equipment | 32 | 13 | (16) | 29 | 55 | (26) |
| Inventories | 313 | 31 | 28 | 372 | 381 | (9) |
| Other assets | 97 | (30) | 1 | 68 | 112 | (43) |
| Pensions and other employee benefits | 245 | (45) | (21) | 180 | 182 | (2) |
| Other liabilities | 384 | 91 | 25 | 499 | 584 | (84) |
| Deferred tax assets on tax loss carryforwards | 449 | (194) | 143 | 398 | 398 | \u00a0 |
| Set-off deferred tax positions | \u00a0 | \u00a0 | \u00a0 | \u00a0 | (211) | 211 |
| Net deferred tax assets | 1,761 | 401 | (28) | 2,134 | 2,216 | (83) |
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
| \u00a0 | 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.\u00a0
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredTaxesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f17548": { "value": "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 \u2018discontinued operations\u2019 are sufficiently separable from continuing operations.
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 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.\u00a0
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
| \u00a0 | 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) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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
| \u00a0 | 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
| \u00a0 | \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|---|
| Recognition of previously unrecognized tax loss and credit carryforwards | \u00a0 | 6 | 138 | 2 |
| Unrecognized tax loss and credit carryforwards | \u00a0 | (10) | (13) | |
| Changes to recognition of temporary differences | \u00a0 | 19 | (1) | (4) |
| Prior year tax (expense) benefit | \u00a0 | (8) | 20 | (1) |
| Tax rate changes | \u00a0 | 12 | 10 | (18) |
| Origination and reversal of temporary differences, tax losses and tax credits | \u00a0 | 137 | 245 | 244 |
| Deferred tax (expense) benefit | \u00a0 | 167 | 401 | 210 |
Philips\u2019 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\u2019 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 %
| \u00a0 | 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 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.\u00a0
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
| \u00a0 | Balance as of January 1, 2022 | recognized in income statement | other1) | Balance as of December 31, 2022 | Assets | Liabilities |
|---|---|---|---|---|---|---|
| Intangible assets | 587 | 63 | (20) | 630 | 783 | (152) |
| Property, plant and equipment | 29 | (33) | 2 | (2) | 49 | (52) |
| Inventories | 372 | 75 | 17 | 464 | 473 | (8) |
| Other assets | 68 | (16) | (8) | 44 | 98 | (55) |
| Pensions and other employee benefits | 180 | 6 | (32) | 153 | 175 | (22) |
| Other liabilities | 499 | (34) | 17 | 483 | 560 | (77) |
| Deferred tax assets on tax loss carryforwards | 398 | 149 | 38 | 586 | 586 | \u00a0 |
| Set-off deferred tax positions | \u00a0 | \u00a0 | \u00a0 | \u00a0 | (275) | 275 |
| Net deferred tax assets | 2,134 | 210 | 14 | 2,358 | 2,449 | (91) |
Philips Group
Deferred tax assets and liabilities
in millions of EUR
| \u00a0 | Balance as of January 1, 2021 | recognized in income statement | other1) | Balance as of December 31, 2021 | Assets | Liabilities |
|---|---|---|---|---|---|---|
| Intangible assets | 240 | 535 | (188) | 587 | 716 | (130) |
| Property, plant and equipment | 32 | 13 | (16) | 29 | 55 | (26) |
| Inventories | 313 | 31 | 28 | 372 | 381 | (9) |
| Other assets | 97 | (30) | 1 | 68 | 112 | (43) |
| Pensions and other employee benefits | 245 | (45) | (21) | 180 | 182 | (2) |
| Other liabilities | 384 | 91 | 25 | 499 | 584 | (84) |
| Deferred tax assets on tax loss carryforwards | 449 | (194) | 143 | 398 | 398 | \u00a0 |
| Set-off deferred tax positions | \u00a0 | \u00a0 | \u00a0 | \u00a0 | (211) | 211 |
| Net deferred tax assets | 1,761 | 401 | (28) | 2,134 | 2,216 | (83) |
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
| \u00a0 | 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.\u00a0
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:
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.
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.
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.
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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIncomeTaxExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f17549": { "value": "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 \u2018discontinued operations\u2019 are sufficiently separable from continuing operations.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDeferredIncomeTaxExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f17550": { "value": "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 \u2018discontinued operations\u2019 are sufficiently separable from continuing operations.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIncomeTaxExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f18328": { "value": "Philips Group
Earnings per share
in millions of EUR unless otherwise stated1)
| \u00a0 | 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 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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: | \u00a0 | \u00a0 | \u00a0 |
| 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 | \u00a0 | 70,329 | 17,611,920 |
| Dilutive potential common shares2) | 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 | \u00a0 | \u00a0 | \u00a0 |
| 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 EUR2) | \u00a0 | \u00a0 | \u00a0 |
| 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) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Dividend distributed per common share in EUR | 0.85 | 0.85 | 0.85 |
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.\u00a0Land 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
| \u00a0 | \u00a0 |
|---|---|
| Buildings | from\u00a05 to 50\u00a0years |
| Machinery and installations | from 3\u00a0to 20 years |
| Other equipment | from 1 to 10 years |
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.
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 short-term 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.\u00a0
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.
Lease liabilities are measured at the present value of the lease payments due over the lease term, generally discounted using the incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest method. Lease liabilities are remeasured in case of modifications or reassessments of the lease.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForLeasesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f18582": { "value": "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.\u00a0Land 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
| \u00a0 | \u00a0 |
|---|---|
| Buildings | from\u00a05 to 50\u00a0years |
| Machinery and installations | from 3\u00a0to 20 years |
| Other equipment | from 1 to 10 years |
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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRepairsAndMaintenanceExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f18584": { "value": "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\u2019s fair value less costs of disposal and its value in use.
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\u2019s 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\u2019s length transaction, less costs of disposal.
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.
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\u2019s 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\u2019s 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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfNonfinancialAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f18585": { "value": "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\u2019s fair value less costs of disposal and its value in use.
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\u2019s 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\u2019s length transaction, less costs of disposal.
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.
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\u2019s 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\u2019s 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.
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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f18586": { "value": "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.\u00a0Land 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
| \u00a0 | \u00a0 |
|---|---|
| Buildings | from\u00a05 to 50\u00a0years |
| Machinery and installations | from 3\u00a0to 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\u2019s 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.
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.
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 short-term 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.\u00a0
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.
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.\u00a0Land 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
| \u00a0 | \u00a0 |
|---|---|
| Buildings | from\u00a05 to 50\u00a0years |
| Machinery and installations | from 3\u00a0to 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\u2019s 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.
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.
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 short-term 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.\u00a0
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.
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.
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.\u00a0
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\u00a0
| \u00a0 | 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\u00a0
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,097 | 1,585 | 1,382 | 208 | 4,273 |
| Accumulated depreciation | (591) | (1,074) | (967) | \u00a0 | (2,632) |
| Book value \u00a0 | 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) | \u00a0 | - | (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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,135 | 1,779 | 1,454 | 309 | 4,676 |
| Accumulated depreciation | (621) | (1,291) | (1,046) | \u00a0 | (2,958) |
| Book value | 514 | 488 | 408 | 309 | 1,718 |
Philips Group
Property, plant and equipment - right-of-use assets
in millions of EUR\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Total |
|---|---|---|---|---|
| Balance as of January 1, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 |
| Accumulated depreciation | (418) | (139) | (109) | (666) |
| Book value \u00a0 | 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 | \u00a0 | 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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,076 | 1,506 | 1,572 | 261 | 4,415 |
| Accumulated depreciation | (539) | (1,028) | (1,185) | \u00a0 | (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 | \u00a0 | 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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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\u00a0
| \u00a0 | Land and buildings | Machinery and installations | Other equipment | Assets under construction | Total |
|---|---|---|---|---|---|
| Balance as of January 1, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,147 | 199 | 213 | 1 | 1,560 |
| Accumulated depreciation | (310) | (144) | (86) | \u00a0 | (540) |
| Book value | 837 | 55 | 126 | 1 | 1,020 |
| Additions | 150 | 21 | 44 | 215 | |
| Assets available for use | 2 | 3 | 5 | ||
| Acquisitions | 43 | \u00a0 | \u00a0 | 43 | |
| Depreciation | (157) | (32) | (63) | (252) | |
| Impairments | 1 | (5) | - | (4) | |
| Transfer (to) from AHFS | (7) | (1) | \u00a0 | (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 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cost | 1,332 | 176 | 216 | 1,724 | |
| Accumulated depreciation | (418) | (139) | (109) | (666) | |
| Book value | 914 | 37 | 107 | 1,058 |
Below are the references with respect to year-end disclosures as lessee:
Other qualitative and quantitative disclosures regarding the nature of lessee\u2019s leasing activities and future lease obligations, refer to Debt.
Below are the references with respect to year-end disclosures as lessor:
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\u2019s 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\u2019s length transaction, less costs of disposal.
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\u2019s 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\u2019s length transaction, less costs of disposal.
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
| \u00a0 | \u00a0 |
|---|---|
| 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).\u00a0
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.
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\u2019s 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\u2019s 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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f20059": { "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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForResearchAndDevelopmentExpenseExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f20060": { "value": "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
| \u00a0 | \u00a0 |
|---|---|
| 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).\u00a0
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.
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\u2019s 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\u2019s 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.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the company\u2019s 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:
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.
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.
Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f20799": { "value": "The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the company\u2019s 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:
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.
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.
Debt is initially measured at fair value net of directly attributable transaction costs. Subsequently, debt is measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Debt is derecognized when the obligation under the liability is discharged, cancelled or has expired.
Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
The cash flow statement is prepared using the indirect method. Cash flows related to interest and tax are included in operating activities. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to shareholders are included in financing activities. Dividends received are included in operating activities.
Cash flows arising from transactions in a foreign currency are translated into the company\u2019s functional currency using the exchange rate at the date of the cash flow. Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the same category as the cash flows from the hedged items. Cash flows from other derivative instruments are classified as investing cash flows.
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f20800": { "value": "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.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f20801": { "value": "The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the company\u2019s 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:
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.
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
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.\u00a0
In 2022, Other current financial assets increased from EUR 2 million to EUR 11\u00a0million (2021: increased from EUR nil\u00a0million to EUR 2\u00a0million).\u00a0
The company\u2019s 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
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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
| \u00a0 | 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: | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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)\u00a0are 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.
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.
Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
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 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
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Diagnosis & Treatment | 1,759 | 2,013 |
| Connected Care | 980 | 1,114 |
| Personal Health | 575 | 479 |
| Other | 245 | 226 |
| Trade accounts receivable, net | 3,559 | 3,832 |
The aging analysis of trade accounts receivable, net, representing current and overdue but not fully impaired receivables, is as follows:
Philips Group
Aging analysis
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Current | 3,075 | 3,280 |
| Overdue 1-30 days | 160 | 169 |
| Overdue 31-180 days | 245 | 282 |
| Overdue more than 180 days | 79 | 101 |
| Trade accounts receivable, net | 3,559 | 3,832 |
The changes in the allowance for doubtful accounts receivable are as follows:
Philips Group
Allowance for accounts receivable
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 195 | 190 |
| Additions charged to expense | 4 | 66 |
| Deductions from allowance1) | (17) | (51) |
| Transfer to assets held for sale | (8) | |
| Other movements | 16 | 21 |
| Balance as of December 31 | 190 | 226 |
The allowance for doubtful accounts receivable has been primarily established for receivables that are past due.
Included in the above balances as of December 31, 2022 are allowances for individually impaired receivables of EUR 222 million (2021: EUR 188 million) .
Debt is initially measured at fair value net of directly attributable transaction costs. Subsequently, debt is measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Debt is derecognized when the obligation under the liability is discharged, cancelled or has expired.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop of its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion.\u00a0In 2022 Philips issued three new tranches under the\u00a0program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0
The provisions applicable to all USD-denominated corporate bonds issued by the company in March 2008 and March 2012 (due 2038 and 2042) contain a \u2018Change of Control Triggering Event\u2019. If the company would experience such an event with respect to a series of corporate bonds the company might be required to offer to purchase the bonds that are still outstanding at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. Furthermore, the conditions applicable to the EUR-denominated corporate bonds issued in 2018, 2019, 2020 and 2022 (due 2025, 2026, 2027, 2028, 2029, 2030 and 2033) contain a similar provision (\u2018Change of Control Put Event\u2019). Upon the occurrence of such an event, the company might be required to redeem or purchase any of such bonds at their principal amount together with interest accrued. Philips\u2019 outstanding long-term debt do not contain financial covenants.
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\u2019 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 year-end 2022, EUR 500 million was utilized and outstanding under the credit facility. In 2022, Philips entered into a total amount of EUR 63 million forward contracts relating to the company\u2019s long-term incentive and employee stock purchase plans. A total of EUR 57 million forward contracts relating to the long-term incentive and employee stock purchase plans as announced in 2020\u00a0and EUR 83 million of forwards related to the share buyback program announced in 2021 matured throughout 2022.
In February 2021, Philips entered into two new bilateral loans amounting to a total of EUR 500 million (EUR 250 million each) with a tenor of up to one year, that were repaid in September 2021. In 2021, Philips also entered into a total amount of EUR 731 million of forward contracts relating to the EUR 1.5 billion share buyback program announced on July 26, 2021, with maturity dates in 2022, 2023 and 2024. 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. \u00a0In addition, Philips entered into a total amount of EUR 90 million of forward contracts in 2021 relating to the long-term incentive and employee stock purchase plans announced on May 19, 2021, with maturity dates in 2023, and a total amount of EUR 123 million of forward contracts matured in 2021 relating to the company's long-term incentive and employee stock purchase plans announced on October 22, 2018 and January 29, 2020.
The following tables present information about the long-term debt outstanding, its maturity and average interest rates in 2022 and 2021.
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2022 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,378 | 1,378 | 250 | 1,128 | 14.3 | 6.3% | |
| EUR bonds | 4,061 | 4,061 | 1,836 | 2,225 | 5.7 | 1.7% | |
| Forward contracts | 858 | 606 | 252 | 252 | 1.0 | ||
| Lease liabilities | 1,082 | 230 | 852 | 504 | 348 | 3.9 | 2.4% |
| Bank borrowings | 705 | 2 | 702 | 702 | 1.9 | 1.7% | |
| Other long-term debt | 28 | 4 | 24 | 17 | 6 | 8.9 | 2.9% |
| Long-term debt | 8,111 | 842 | 7,270 | 3,562 | 3,706 | 6.1 | 2.4% |
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2021 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,313 | \u00a0 | 1,313 | 255 | 1,058 | 15.1 | 6.3% |
| EUR bonds | 3,233 | 3,233 | 2,242 | 991 | 4.4 | 1.0% | |
| Forward contracts | 934 | 196 | 738 | 738 | \u00a0 | 1.6 | \u00a0 |
| Lease liabilities | 1,220 | 257 | 963 | 580 | 383 | 4.2 | 2.1% |
| Bank borrowings | 203 | 1 | 202 | 202 | 3.2 | 0.1% | |
| Other long-term debt | 30 | 5 | 26 | 18 | 8 | 8.6 | 3.5% |
| Long-term debt | 6,933 | 459 | 6,473 | 4,034 | 2,439 | 6.0 | 2.1% |
The following table presents the amount outstanding and effective rate of bonds.
Philips Group
Unsecured Bonds
in millions of EUR unless otherwise stated
| \u00a0 | effective rate | 2021 | 2022 |
|---|---|---|---|
| Unsecured EUR Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 06/09/2023; 1/2% | 0.634% | 500 | |
| Due 02/05/2024; 3/4% | 0.861% | 500 | |
| Due 22/05/2026; 1/2% | 0.608% | 750 | 750 |
| Due 02/05/2028; 1 3/8% | 1.523% | 500 | 500 |
| Due 30/03/2025; 1 3/8% | 1.509% | 500 | 346 |
| Due 30/03/2030; 2% | 2.128% | 500 | 500 |
| Due 05/05/2027; 1 7/8% | 2.049% | 750 | |
| Due 05/11/2029; 2 1/8% | 2.441% | 650 | |
| Due 05/05/2033; 2 5/8% | 2.710% | 600 | |
| Unsecured USD Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 15/05/2025; 7 3/4% | 7.429% | 56 | 51 |
| Due 01/06/2026; 7 1/5% | 6.885% | 120 | 119 |
| Due 15/05/2025; 7 1/8% | 6.794% | 74 | 78 |
| Due 11/03/2038; 6 7/8% | 7.210% | 641 | 683 |
| Due 15/03/2042; 5% | 5.273% | 441 | 470 |
| Adjustments1) | \u00a0 | (37) | (57) |
| Unsecured Bonds | \u00a0 | 4,545 | 5,439 |
Philips Group
Short-term debt
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Short-term bank borrowings | 47 | 89 |
| Current portion of long-term debt | 459 | 842 |
| Short-term debt | 506 | 931 |
During 2022, the weighted average interest rate on the bank borrowings was 5.7% (2021: 1.2%). This increase was mainly driven by financial market conditions across various countries globally.
Philips Group
Provisions
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | long-term | short-term | total | long-term | short-term | total |
| Post-employment benefits1) | 659 | \u00a0 | 659 | 546 | \u00a0 | 546 |
| Respironics field-action provision | 52 | 525 | 577 | 23 | 366 | 390 |
| Product warranty provisions | 32 | 207 | 238 | 57 | 287 | 344 |
| Environmental provisions | 99 | 26 | 124 | 83 | 20 | 104 |
| Restructuring-related provisions | 8 | 58 | 66 | 6 | 134 | 140 |
| Legal provisions | 53 | 39 | 91 | 14 | 74 | 89 |
| Contingent consideration provisions | 156 | 52 | 208 | 89 | 23 | 113 |
| Other provisions | 257 | 92 | 349 | 279 | 112 | 390 |
| Provisions | 1,315 | 998 | 2,313 | 1,097 | 1,018 | 2,115 |
Philips Group
Contingent consideration provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 318 | 208 |
| Acquisitions | 16 | 96 |
| Utilizations | (48) | (105) |
| Fair value changes | (78) | (86) |
| Balance as of December 31 | 208 | 113 |
The provision for contingent consideration reflects the fair value of the expected payment to former shareholders of an acquiree for the exchange of control if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The provision for contingent consideration can change significantly due to changes in the estimated achievement of milestones and changes in discount rates. Changes in fair value of the contingent consideration liability are reflected in other business income.
In 2021 and 2022, the fair value changes mainly related to EPD. In 2022, the decrease of EUR 61 million in the fair value of the contingent consideration comprised of EUR 30 million\u00a0 due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 31 million due to delays in achievement of certain milestones. In 2021, the decrease of EUR 67 million in the fair value of the contingent consideration comprised of EUR 41 million due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 26 million due to delays in achievement of certain milestones.
The company expects the provisions to be utilized mainly within the next three years.
Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
The cash flow statement is prepared using the indirect method. Cash flows related to interest and tax are included in operating activities. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to shareholders are included in financing activities. Dividends received are included in operating activities.
Cash flows arising from transactions in a foreign currency are translated into the company\u2019s functional currency using the exchange rate at the date of the cash flow. Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the same category as the cash flows from the hedged items. Cash flows from other derivative instruments are classified as investing cash flows.
In 2022, gross lease payments of EUR 316 million (2021: EUR 308 million; 2020: EUR 325 million) included interest of EUR 25 million (2021: EUR 25 million; 2020: EUR 29 million).
In 2022, a total of EUR 72 million cash was paid with respect to foreign exchange derivative contracts related to activities for liquidity management (2021: EUR 48 million inflow; 2020: EUR 13 million outflow).
In 2022, the net cash outflow is EUR 38 million.
In 2021, the net cash flow is EUR 0 million.
In 2020, the net cash outflow of EUR 66 million was mainly the cash outflow due to investment in DC Health amounting to EUR 45 million in China.
Certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items, principally because of the effects of translation differences and consolidation changes.
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2021 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2022 |
|---|---|---|---|---|---|
| Long term debt2) | 6,933 | 1,045 | 107 | 27 | 8,111 |
| EUR bonds | 3,233 | 827 | \u00a0 | 4,061 | |
| USD bonds | 1,313 | (20) | 85 | \u00a0 | 1,378 |
| Leases | 1,220 | (260) | 17 | 105 | 1,082 |
| Forward contracts3) | 934 | \u00a0 | \u00a0 | (76) | 858 |
| Bank borrowings | 203 | 498 | 4 | \u00a0 | 705 |
| Other long-term debt | 30 | (1) | 1 | (1) | 28 |
| Short term debt2) | 47 | 47 | (6) | 1 | 89 |
| Short-term bank borrowings | 47 | 47 | (6) | 1 | 89 |
| Other short-term loans | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,410) | (593) | \u00a0 | 869 | (1,133) |
| Dividend payable | \u00a0 | (418) | \u00a0 | 418 | \u00a0 |
| Forward contracts3) | (934) | \u00a0 | \u00a0 | 76 | (858) |
| Treasury shares | (476) | (174) | \u00a0 | 375 | (275) |
| Total | \u00a0 | 500 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2020 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2021 |
|---|---|---|---|---|---|
| Long term debt2) | 6,857 | (226) | 200 | 101 | 6,933 |
| EUR bonds | 3,229 | \u00a0 | 4 | 3,233 | |
| USD bonds | 1,210 | 103 | \u00a0 | 1,313 | |
| Leases | 1,216 | (239) | 98 | 145 | 1,220 |
| Forward contracts3) | 982 | \u00a0 | \u00a0 | (48) | 934 |
| Bank borrowings | 205 | (1) | \u00a0 | 203 | |
| Other long-term debt | 16 | 14 | \u00a0 | 30 | |
| Short term debt2) | 76 | (25) | (5) | \u00a0 | 47 |
| Short-term bank borrowings | 76 | (24) | (5) | \u00a0 | 47 |
| Other short-term loans | 1 | (1) | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,181) | (2,096) | \u00a0 | 1,868 | (1,410) |
| Dividend payable | \u00a0 | (484) | \u00a0 | 484 | \u00a0 |
| Forward contracts3) | (982) | \u00a0 | \u00a0 | 48 | (934) |
| Treasury shares | (199) | (1,613) | \u00a0 | 1,336 | (476) |
| Total | \u00a0 | (2,347) | \u00a0 | \u00a0 | \u00a0 |
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Determining the fair value of financial instruments requires the use of estimates according to the method applied for each type of financial asset of liability. The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
Specific valuation techniques used to value financial instruments include:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as financial assets carried at fair value through profit or loss or carried at fair value through other comprehensive income. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm\u2019s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or convertible bond instruments) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are based on observable market data, the instrument is included in level 2. The fair value of derivatives is calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread and foreign exchange rates. The valuation of convertible bond instruments uses observable market quoted data for the options and present value calculations using observable yield curves for the fair value of the bonds.
Level 3
If one or more of the significant inputs are not based on observable market data, such as third-party pricing information without adjustments, the instrument is included in level 3.
The fair value of debt is estimated on the basis of the quoted market prices for certain issuances, or on the basis of discounted cash flow analysis using market rates plus Philips\u2019 spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt.
The fair value of contingent consideration is dependent on the terms of the respective acquisition agreement that may require Philips to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of the contingent consideration provision is generally determined using a probability-weighted and a risk-adjusted approach to estimate the achievement of future regulatory and commercial milestones, respectively. The discount rates used in the risk adjusted approach reflect the inherent risk related to achieving the commercial milestones. Both regulatory and commercial milestones are discounted for the time value of money at risk-free rates. The fair value measurement is based on management\u2019s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy.
The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.\u00a0
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 232 | 232 | \u00a0 | \u00a0 | 232 |
| Equity instruments | 4 | 4 | 1 | \u00a0 | 2 |
| Other financial assets | 86 | 86 | \u00a0 | 35 | 51 |
| Financial assets carried at FVTP&L | 322 | 322 | 1 | 35 | 285 |
| Debt instruments | 25 | 25 | \u00a0 | 25 | \u00a0 |
| Equity instruments | 259 | 259 | 30 | \u00a0 | 229 |
| Current financial assets | 9 | 9 | \u00a0 | \u00a0 | 9 |
| Receivables - current | 26 | 26 | \u00a0 | \u00a0 | 26 |
| Financial assets carried at FVTOCI | 319 | 319 | 30 | 25 | 264 |
| Derivative financial instruments | 127 | 127 | \u00a0 | 127 | \u00a0 |
| Financial assets carried at fair value | 768 | 768 | 32 | 187 | 549 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 1,172 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 54 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 4,088 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 279 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 5,596 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 6,364 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Financial liabilities carried at FVTP&L | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Derivative financial instruments | (211) | (211) | \u00a0 | (211) | \u00a0 |
| Financial liabilities carried at fair value | (324) | (324) | \u00a0 | (211) | (113) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,968) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (71) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (6,520) | (6,083) | (5,001) | (1,082) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,680) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (10,240) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (10,564) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 233 | 233 | \u00a0 | \u00a0 | 233 |
| Equity instruments | 4 | 4 | 4 | \u00a0 | \u00a0 |
| Other financial assets | 46 | 46 | \u00a0 | 34 | 12 |
| Financial assets carried at FVTP&L | 283 | 283 | 4 | 34 | 245 |
| Debt instruments | 27 | 27 | \u00a0 | 27 | |
| Equity instruments | 273 | 273 | 63 | \u00a0 | 210 |
| Current financial assets | - | - | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 68 | 68 | \u00a0 | \u00a0 | 68 |
| Financial assets carried at FVTOCI | 368 | 368 | 63 | 27 | 278 |
| Derivative financial instruments | 63 | 63 | \u00a0 | 63 | \u00a0 |
| Financial assets carried at fair value | 714 | 714 | 67 | 124 | 523 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 2,303 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 47 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 3,720 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 224 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 6,296 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 7,010 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Financial liabilities carried at FVTP&L | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Derivative financial instruments | (202) | (202) | \u00a0 | (202) | \u00a0 |
| Financial liabilities carried at fair value | (410) | (410) | \u00a0 | (202) | (208) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,872) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (52) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (5,765) | (6,396) | (5,177) | (1,220) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,214) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (8,904) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (9,314) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
The following table shows the reconciliation from the beginning balance to the end balance for Level 3 fair value measurements.
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2022 | 523 | 208 |
| Acquisitions | \u00a0 | 96 |
| Purchase | 131 | \u00a0 |
| Sales | (76) | \u00a0 |
| Utilizations | \u00a0 | (105) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (85) |
| financial income and expenses1) | 7 | (8) |
| Recognized in other comprehensive income2) | 8 | |
| Receivables held to collect and sell | (41) | \u00a0 |
| Reclassification | 5 | \u00a0 |
| Balance as of December 31, 2022 | 549 | 113 |
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2021 | 411 | 318 |
| Acquisitions | \u00a0 | 16 |
| Purchase | 113 | \u00a0 |
| Sales | (122) | \u00a0 |
| Utilizations | \u00a0 | (48) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (87) |
| financial income and expenses | 98 | 1 |
| Recognized in other comprehensive income1) | 12 | 9 |
| Receivables held to collect and sell | (25) | \u00a0 |
| Reclassification from associates | 36 | \u00a0 |
| Balance as of December 31, 2021 | 523 | 208 |
Transactions in derivatives are subject to master netting and set-off agreements. In the case of certain termination events, under the terms of the master agreement, Philips can terminate the outstanding transactions and aggregate their positive and negative values to arrive at a single net termination sum (or close-out amount). This contractual right is subject to the following:
Philips Group
Financial assets subject to offsetting, enforceable master netting arrangements or similar agreements
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Derivatives | \u00a0 | \u00a0 |
| Gross amounts of recognized financial assets | 63 | 127 |
| Gross amounts of recognized financial liabilities offset in the balance sheet | \u00a0 | \u00a0 |
| Net amounts of financial assets presented in the balance sheet | 63 | 127 |
| \u00a0 | \u00a0 | \u00a0 |
| Related amounts not offset in the balance sheet | \u00a0 | \u00a0 |
| Financial instruments | (47) | (54) |
| Net amount | 17 | 73 |
Philips Group
Financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreements
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Derivatives | \u00a0 | \u00a0 |
| Gross amounts of recognized financial liabilities | (202) | (211) |
| Gross amounts of recognized financial assets offset in the balance sheet | \u00a0 | \u00a0 |
| Net amounts of financial liabilities presented in the balance sheet | (202) | (211) |
| \u00a0 | \u00a0 | \u00a0 |
| Related amounts not offset in the balance sheet | \u00a0 | \u00a0 |
| Financial instruments | 47 | 54 |
| Net amount | (155) | (157) |
The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
Financial assets are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
Philips is exposed to several types of financial risks which are further analyzed below. Philips does not purchase or hold derivative financial instruments for speculative purposes. Information regarding financial instruments is included in Fair value of financial assets and liabilities.
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk for the group is monitored through the Treasury liquidity committee, which tracks the development of the actual cash flow position for the group and uses input from a number of sources in order to forecast the overall liquidity position on both a short and longer term basis. Philips invests surplus cash in short-term deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due and in money market funds.
The rating of the company\u2019s debt by major rating agencies may improve or deteriorate. As a result, Philips\u2019 future borrowing capacity may be influenced and its financing costs may fluctuate. Philips has various sources to mitigate the liquidity risk for the group. As of December 31, 2022, Philips had EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), within which short-term deposits of EUR 482 million (2021: EUR 1,357 million). Cash and cash equivalents include all cash balances, money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Philips pools cash from subsidiaries to the extent legally and economically feasible; cash not pooled remains available for the company\u2019s operational or investment needs.
Philips faces cross-border foreign exchange controls and/or other legal restrictions in a few countries that could limit its ability to make these balances available on short notice for general use by the group.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop for its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion. In 2022, Philips issued three new tranches under the program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0For a description of Philips\u2019 credit facilities, refer to Debt.\u00a0
In addition to cash and cash equivalents, as of December 31, 2022, Philips also held EUR 32 million of listed (level 1) equity investments at fair value (classified as other non-current financial assets).
The following table presents a summary of the Group\u2019s 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 business strategy and needs. Therefore, the actual payments made in future periods may vary from those presented in the following table:
| \u00a0 | \u00a0 | payments due by period | |||
|---|---|---|---|---|---|
| \u00a0 | 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 obligations3) | 782 | 336 | 412 | 21 | 12 |
| Trade and other payables | 1,968 | 1,968 | \u00a0 | \u00a0 | \u00a0 |
| Contractual cash obligations | 12,901 | 3,603 | 2,478 | 2,094 | 4,725 |
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). As of December 31, 2022 capital contributions already made to these investment funds are recorded as non-current financial assets.
Philips offers voluntary supply chain finance programs with third parties which provide participating suppliers 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 these arrangements. As of December 31, 2022 approximately EUR 151 million (2021: EUR 139 million)of the Philips account payable were transferred under these arrangements.
With respect to the Respironics field action, please refer to Contingencies. The management continues to monitor the risks associated with such potential claims and its impact on liquidity position, if any.
The company leases various items of real estate, vehicles and other equipment where it acts as a lessee. The company has multiple extension and termination options in a number of lease contracts. These are used to maximize operational flexibility in terms of managing the assets used in the company's operations. The options considered reasonably certain are part of lease liabilities. However, the options not considered reasonably certain are not part of lease liability, which exposes the company to potential future cash outflows amounting to EUR 400 million. In addition, the company is committed to leases not yet commenced to EUR 93 million. The company's lease contracts do not contain financial covenants.
The company enters into sale-and-leaseback transactions primarily for its Sleep & Respiratory Care businesses. These transactions are accounted for at market value. The payments for these leases are considered in determining lease liabilities. Principal repayments are part of cash flows used for financing activities and interest payments are part of cash flows used for operating activities. The cash inflows arising from the sales transactions are part of cash flows provided by financing activities. Lease payments under sale-and-leaseback arrangements for 2022 were EUR 72 million (2021: EUR 85 million). The remaining minimum payment under sale-and-leaseback arrangements included in lease obligations above are as follows:
Philips Group
Remaining minimum payments under sale-and-leaseback arrangements
in millions of EUR
| \u00a0 | \u00a0 |
|---|---|
| 2023 | 55 |
| 2024 | 38 |
| 2025 | 23 |
| 2026 | 14 |
| 2027 | 5 |
| Thereafter | 18 |
Philips has leasing activities where it acts as lessor. In such arrangements, Philips provides the customer with a right to use of medical equipment in exchange for a series of payments. Residual values of assets under lease form an insignificant part of the carrying amount of those assets. Residual values are influenced by asset market prices and are therefore subject to management estimation. Residual values are at least reassessed on an annual basis, or more often when necessary. Reassessments are based on a combination of realization of assets sold, expert knowledge and judgment of local markets. For lease receivables, the value of unguaranteed residual values as of December 31, 2022 was EUR 0.6 million (2021: EUR 0.2 million). In order to reduce residual value risk exposures there may be residual value guarantees or purchase options embedded in the customer contract. Credit risk for lease receivables is reviewed regularly and mitigated, for example, by retaining a security interest in the leased asset.
Currency risk is the risk that reported financial performance or the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Philips operates in many countries and currencies and therefore currency fluctuations may impact Philips\u2019 financial results. Philips is exposed to currency risk in the following areas:
It is Philips\u2019 policy to reduce the potential year-on-year volatility caused by foreign-currency movements on its net earnings by hedging the anticipated net exposure of foreign currencies resulting from foreign-currency sales and purchases. In general, net anticipated exposures for the Group are hedged during a period of 15 months in layers of 20% up to a maximum hedge of 80%. Philips\u2019 policy requires significant committed foreign currency exposures to be fully hedged, generally using forwards. However, not every foreign currency can or shall be hedged as there may be regulatory barriers or prohibitive hedging cost preventing Philips from effectively and/or efficiently hedging its currency exposures. As a result, hedging activities cannot and will not eliminate all currency risks for anticipated and committed transaction exposures.
The following table outlines the estimated nominal value in millions of EUR for committed and anticipated transaction exposure and related hedges for Philips\u2019 most significant currency exposures consolidated as of December 31, 2022:
Philips Group
Estimated transaction exposure and related hedges
in millions of EUR
| \u00a0 | Sales/Receivables | Purchases/Payable | ||
|---|---|---|---|---|
| \u00a0 | exposure | hedges | exposure | hedges |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Exposure currency | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| USD | 1,754 | (1,530) | (979) | 936 |
| JPY | 479 | (289) | (9) | 9 |
| GBP | 303 | (188) | (7) | 7 |
| CNY | 346 | (259) | (80) | 79 |
| CAD | 203 | (138) | \u00a0 | \u00a0 |
| PLN | 65 | (62) | \u00a0 | \u00a0 |
| AUD | 139 | (92) | (1) | 1 |
| CHF | 132 | (56) | (3) | 2 |
| CZK | 48 | (50) | \u00a0 | \u00a0 |
| SEK | 55 | (17) | (1) | 1 |
| RUB | 192 | (192) | (129) | 129 |
| Others | 64 | (46) | (259) | 162 |
| Total 2022 | 3,779 | (2,920) | (1,468) | 1,326 |
| \u00a0 Total 2021 | 5,131 | (3,363) | (1,559) | 1,322 |
Philips uses foreign exchange spot and forward contracts, as well as zero cost collars in hedging the exposure. The derivatives related to transactions are, for hedge accounting purposes, split into hedges of on-balance-sheet accounts receivable/ payable and forecasted sales and purchases. Changes in the value of on-balance-sheet foreign-currency accounts receivable/payable, as well as the changes in the fair value of the hedges related to these exposures, are reported in the income statement under costs of sales. The RUB as shown in the table above was hedged for part of the year till Q2 2022. Hedges related to forecasted transactions, where hedge accounting is applied, are accounted for as cash flow hedges. The results from such hedges are deferred in other comprehensive income within equity to the extent that the hedge is effective. As of December 31, 2022, a loss of EUR 2 million was deferred in equity as a result of these hedges (2021: EUR 25 million loss). The result deferred in equity will be released to earnings mostly during 2023 at the time when the related hedged transactions affect the income statement. During 2022,\u00a0 EUR 1 million\u00a0 (2021: EUR\u00a0nil million net gain) was recorded in the consolidated statement of income as a result of ineffectiveness on certain anticipated cash flow hedges. Ineffectiveness arises when anticipated exposures are no longer expected to be highly probable. During 2022, a loss of EUR 42 million included in the cash flow hedges reserve in equity pertaining to changes in fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of option contracts was released to income statement.
The total net fair value of hedges related to transaction exposure as of December 31, 2022, was an unrealized gain of EUR 6 million. The estimated impact of a 10% increase of value of the EUR is estimated to be EUR 114 million. The following table contains an overview of the instantaneous 10% increase in the value of EUR against major currencies.
Philips Group
Estimated impact of 10% increase of value of the EUR on the fair value of hedges
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| USD | 78 | 68 |
| JPY | 13 | 15 |
| GBP | 14 | 16 |
| CHF | 5 | 4 |
| PLN | 3 | 2 |
| RUB | 10 | 0 |
The EUR 114 million increase includes a gain of EUR 41 million that would impact the income statement, which would largely offset the opposite revaluation effect on the underlying accounts receivable and payable, and the remaining gain of EUR 73 million would be recognized in equity to the extent that the cash flow hedges were effective.
Foreign exchange exposure also arises as a result of inter-company loans and deposits. Where the company enters into such arrangements, the financing is generally provided in the functional currency of the subsidiary entity. The currency of the company\u2019s external funding and liquid assets is matched with the required financing of subsidiaries, either directly through external foreign currency loans and deposits, or synthetically by using foreign exchange derivatives, including cross currency interest rate swaps and foreign exchange forward contracts. In certain cases where group companies may also have external foreign currency debt or liquid assets, these exposures are also hedged through the use of foreign exchange derivatives. Changes in the fair value of hedges related to this exposure are recognized within financial income and expenses in the statements of income. When such loans would be considered part of the net investment in the subsidiary, net investment hedging would be applied.
Translation exposure of foreign-currency equity invested in consolidated entities is generally not hedged. If a hedge is entered into, it is accounted for as a net investment hedge. Net current-period change, before tax, of the currency translation reserve of EUR 748 million mainly relates to the development of the USD versus the EUR. As of December 31, 2022, a weakening of USD by 10% versus the EUR would result in a decrease in the currency translation reserve in equity of approximately EUR 1,132 million, while a strengthening of USD by 10% versus the EUR would result in an increase in the currency translation reserve in equity of approximately EUR 1,384 million. Refer to the country risk paragraph for countries with significant foreign currency denominated equity invested.
As of December 31, 2022, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 147 million) and external bond funding for a nominal value of USD 1,490 million (liability at book value: EUR 1,378 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2022 a total loss of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2022, was a liability of EUR 147 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 192 million in the value of the derivatives, including a EUR 191 million increase related to the USD.
As of December 31, 2021, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 116 million) and external bond funding for a nominal value of USD 1,473 million (liability at book value: EUR 1,313 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2021 a total gain of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2021, was a liability of EUR 116 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 40 million in the value of the derivatives, including a EUR 40 million increase related to the USD.
Philips does not currently hedge the foreign exchange exposure arising from equity interests in non-functional-currency investments in associates and other non-current financial assets.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As of December 31, 2022, Philips had outstanding debt of EUR 8,201 million (2021: EUR 6,980 million), which constitutes an inherent interest rate risk with potential negative impact on financial results. At year-end, Philips held EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), and had total long-term debt of EUR 7,270 million (2021: EUR 6,473 million) and total short-term debt of EUR 931 million (2021: EUR 506 million). As of December 31, 2022, Philips had a ratio of fixed-rate long-term debt to total outstanding debt of approximately 80% compared to 90% one year earlier. Philips debt has a long maturity profile with an average tenor of long-term debt of 6.1 years with maturities up to 2042.
The following table provides the impact of a 1% increase/decrease of interest rates on the fair value of the debt and the annualized net interest expenses.
Philips Group
Net debt1) and interest rate sensitivity
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Impact 1% interest increase on the fair value of the fixed-rate long-term debt2)3) | (297) | (274) |
| Impact 1% interest decrease on the fair value of the fixed-rate long-term debt2)3) | 298 | 274 |
| Impact 1% interest increase on the annualized net interest expense4) | 20 | 4 |
Global regulators and central banks have been driving international efforts to reform key benchmark interest rates (Interbank Offered Rate or IBOR rates). The market has transitioned to alternative risk-free reference rates (RFRs) that are transaction-based. LIBOR has been discontinued for most currencies and maturities after December 31, 2021, except for the US-dollar for which certain maturities are expected to be phased out in 2023. The company has no interest rate hedging relationships which get affected by the reform and does not expect any significant impact on existing contracts due to change in the interest rates. The company implemented new alternative risk-free rates from January 1, 2022 and the impact upon transition was EUR 1 million financial expense.\u00a0
Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in equity prices.
Philips is a shareholder in some publicly listed companies and as a result is exposed to potential financial loss through movements in their share prices. The aggregate equity price exposure in such financial assets amounted to approximately EUR 32 million as of December 31, 2022 (2021: EUR 67 million). Philips does not hold derivatives in the above-mentioned listed companies. Philips also has shareholdings in several privately-owned companies amounting to EUR 229 million, mainly consisting of minority stakes in companies in various industries. As a result, Philips is exposed to potential value adjustments.
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices.
Philips is a purchaser of certain base metals, precious metals and energy. Philips may hedge certain commodity price risks using derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity price volatility. As of December 31, 2022 and 2021, respectively, Philips did not have any significant outstanding financial commodity derivatives.
Credit risk represents the loss that would be recognized at the reporting date, if counterparties failed completely to perform their payment obligations as contracted. Credit risk is present within Philips trade receivables and contract assets. To have better insights into the credit exposures, Philips performs ongoing evaluations of the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instances where the creditworthiness of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap, including reducing payment terms, cash on delivery, pre-payments and pledges on assets.
Philips invests available cash and cash equivalents with various financial institutions and is exposed to credit risk with these counterparties. Philips is also exposed to credit risks in the event of non-performance by financial institutions with respect to financial derivative instruments. Philips actively manages concentration risk and on a daily basis measures the potential loss under certain stress scenarios, should a financial institution default. These worst-case scenario losses are monitored and limited by the company.
The company does not enter into any financial derivative instruments to protect against default by financial institutions. However, where possible the company requires all financial institutions with which it deals in derivative transactions to complete legally enforceable netting agreements under an International Swap Dealers Association master agreement or otherwise prior to trading, and whenever possible, to have a strong credit rating. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings or with governments or government-backed institutions.
The following table shows the number of financial institutions with credit rating A- and above with which Philips has cash at hand and short-term deposits above EUR 10 million as of December 31, 2022.
Philips Group
Credit risk with number of counterparties
for deposits above EUR 10 million
| \u00a0 | 10-100 million | 100-500 million | 500 million and above |
|---|---|---|---|
| AA- rated bank counterparties | 1 | 0 | 0 |
| A+ rated bank counterparties | 3 | 1 | 0 |
| A rated bank counterparties | 0 | 1 | 0 |
| A- rated bank counterparties | 1 | 1 | 0 |
| \u00a0 | 5 | 3 | 0 |
For an overview of the overall maximum credit exposure related to debt instruments, derivatives and loans and receivables, refer to Fair value of financial assets and liabilities.
Country risk is the risk that political, legal, or economic developments in a single country could adversely impact performance. The country risk per country is defined as the sum of the equity of all subsidiaries and associated companies in country cross-border transactions, such as intercompany loans, accounts receivable from third parties and intercompany accounts receivable. The country risk is monitored on a regular basis.
As of December 31, 2022, the company had country risk exposure of EUR 14.0 billion in the United States, EUR 1.3 billion in China (including Hong Kong). Other countries higher than\u00a0EUR 500 million are Germany\u00a0EUR 808 million, United Kingdom EUR 766 million, and Japan\u00a0EUR 639 million. Other country which have significant exposure is\u00a0 Singapore EUR 206 million. The degree of risk of a country is taken into account when new investments are considered. The company does not, however, use financial derivative instruments to hedge country risk.
The impact of hyperinflation is also routinely assessed and was not material for the periods presented.
Philips is insured for a broad range of losses by global insurance policies in the areas of property damage/ business interruption, general and product liability, transport, directors\u2019 and officers\u2019 liability, employment practice liability, crime and cybersecurity. The counterparty risk related to the insurance companies participating in the above-mentioned global insurance policies is actively managed. As a rule, Philips only selects insurance companies with a financial strength of at least A-. Throughout the year the counterparty risk is monitored on a regular basis.
To lower exposures and to avoid potential losses, Philips has a global Risk Engineering program in place. The main focus of this program is on property damage and business interruption risks including company interdependencies. Regular on-site assessments take place at Philips locations and business-critical suppliers by risk engineers of the insurer in order to provide an accurate assessment of the potential loss and its impact. The results of these assessments are shared across the company\u2019s stakeholders. On-site assessments are carried out against the predefined Risk Engineering standards, which are agreed between Philips and the insurers. Recommendations are made in a Risk Improvement report and are monitored centrally. This is the basis for decision-making by the local management of the business as to which recommendations will be implemented.
For all policies, deductibles are in place, which vary from EUR 0.3 million to EUR 10 million per occurrence and this variance is designed to differentiate between the existing risk categories within Philips. Above a first layer of working deductibles, Philips operates its own re-insurance captive, which during 2022 retained EUR 25 million per claim and EUR 50 million in the annual aggregate for general, product, professional liability, and marine cargo claims.
New contracts were signed effective December 31, 2022, for the coming year, whereby the re-insurance captive retentions remained the same.
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.
The aging analysis of trade accounts receivable, net, representing current and overdue but not fully impaired receivables, is as follows:
Philips Group
Aging analysis
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Current | 3,075 | 3,280 |
| Overdue 1-30 days | 160 | 169 |
| Overdue 31-180 days | 245 | 282 |
| Overdue more than 180 days | 79 | 101 |
| Trade accounts receivable, net | 3,559 | 3,832 |
The changes in the allowance for doubtful accounts receivable are as follows:
Philips Group
Allowance for accounts receivable
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 195 | 190 |
| Additions charged to expense | 4 | 66 |
| Deductions from allowance1) | (17) | (51) |
| Transfer to assets held for sale | (8) | |
| Other movements | 16 | 21 |
| Balance as of December 31 | 190 | 226 |
The allowance for doubtful accounts receivable has been primarily established for receivables that are past due.
Included in the above balances as of December 31, 2022 are allowances for individually impaired receivables of EUR 222 million (2021: EUR 188 million) .
", "dimensions": { "concept": "ifrs-full:DisclosureOfAllowanceForCreditLossesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21087": { "value": "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 as of December 31, 2022 were EUR 98 million (2021: EUR 129 million). These are mainly related to prepaid expenses.
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.\u00a0
In the normal course of business, Philips purchases and sells goods and services from/to various related parties in which Philips typically holds between 20% and 50% equity interest and has significant influence. These transactions are generally conducted with terms comparable to transactions with third parties.
Philips Group
Related-party transactions
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Sales of goods and services | 204 | 116 | 111 |
| Purchases of goods and services | 57 | 41 | 46 |
| Receivables from related parties | 37 | 40 | 55 |
| Payables to related parties | 1 | 2 | 2 |
In the previous table, sales transactions between Philips and PMC are included amounting to EUR 101 million in 2022 (2021: EUR 106 million; 2020: EUR 191 million), under which PMC has leased the equipment to the ultimate customer. In addition to that, as part of its S&RC operations in the US, Philips Medical Capital LLC funded durable medical equipment (DMEs) providers, through loans and leases. PMC-funded transactions these DMEs entered into with Philips amount to EUR 117 million in 2022 (2021: EUR 162 million; 2020: EUR 242 million). The associated costs of these funding transactions are borne by the ultimate customer and settled directly with Philips Medical Capital LLC.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21093": { "value": "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 as of December 31, 2022 were EUR 98 million (2021: EUR 129 million). These are mainly related to prepaid expenses.
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.\u00a0
", "dimensions": { "concept": "ifrs-full:DisclosureOfPrepaymentsAndOtherAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21094": { "value": "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 as of December 31, 2022 were EUR 98 million (2021: EUR 129 million). These are mainly related to prepaid expenses.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherNoncurrentAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21095": { "value": "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 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.\u00a0
In the normal course of business, Philips purchases and sells goods and services from/to various related parties in which Philips typically holds between 20% and 50% equity interest and has significant influence. These transactions are generally conducted with terms comparable to transactions with third parties.
Philips Group
Related-party transactions
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Sales of goods and services | 204 | 116 | 111 |
| Purchases of goods and services | 57 | 41 | 46 |
| Receivables from related parties | 37 | 40 | 55 |
| Payables to related parties | 1 | 2 | 2 |
In the previous table, sales transactions between Philips and PMC are included amounting to EUR 101 million in 2022 (2021: EUR 106 million; 2020: EUR 191 million), under which PMC has leased the equipment to the ultimate customer. In addition to that, as part of its S&RC operations in the US, Philips Medical Capital LLC funded durable medical equipment (DMEs) providers, through loans and leases. PMC-funded transactions these DMEs entered into with Philips amount to EUR 117 million in 2022 (2021: EUR 162 million; 2020: EUR 242 million). The associated costs of these funding transactions are borne by the ultimate customer and settled directly with Philips Medical Capital LLC.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherCurrentAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21141": { "value": "Inventories are summarized as follows:
Philips Group
Inventories
in millions of EUR
| \u00a0 | 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\u00a0in 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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfInventoriesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21142": { "value": "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.
Receivables are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
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 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
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Diagnosis & Treatment | 1,759 | 2,013 |
| Connected Care | 980 | 1,114 |
| Personal Health | 575 | 479 |
| Other | 245 | 226 |
| Trade accounts receivable, net | 3,559 | 3,832 |
The aging analysis of trade accounts receivable, net, representing current and overdue but not fully impaired receivables, is as follows:
Philips Group
Aging analysis
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Current | 3,075 | 3,280 |
| Overdue 1-30 days | 160 | 169 |
| Overdue 31-180 days | 245 | 282 |
| Overdue more than 180 days | 79 | 101 |
| Trade accounts receivable, net | 3,559 | 3,832 |
The changes in the allowance for doubtful accounts receivable are as follows:
Philips Group
Allowance for accounts receivable
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 195 | 190 |
| Additions charged to expense | 4 | 66 |
| Deductions from allowance1) | (17) | (51) |
| Transfer to assets held for sale | (8) | |
| Other movements | 16 | 21 |
| Balance as of December 31 | 190 | 226 |
The allowance for doubtful accounts receivable has been primarily established for receivables that are past due.
Included in the above balances as of December 31, 2022 are allowances for individually impaired receivables of EUR 222 million (2021: EUR 188 million) .
In the normal course of business, Philips purchases and sells goods and services from/to various related parties in which Philips typically holds between 20% and 50% equity interest and has significant influence. These transactions are generally conducted with terms comparable to transactions with third parties.
Philips Group
Related-party transactions
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Sales of goods and services | 204 | 116 | 111 |
| Purchases of goods and services | 57 | 41 | 46 |
| Receivables from related parties | 37 | 40 | 55 |
| Payables to related parties | 1 | 2 | 2 |
In the previous table, sales transactions between Philips and PMC are included amounting to EUR 101 million in 2022 (2021: EUR 106 million; 2020: EUR 191 million), under which PMC has leased the equipment to the ultimate customer. In addition to that, as part of its S&RC operations in the US, Philips Medical Capital LLC funded durable medical equipment (DMEs) providers, through loans and leases. PMC-funded transactions these DMEs entered into with Philips amount to EUR 117 million in 2022 (2021: EUR 162 million; 2020: EUR 242 million). The associated costs of these funding transactions are borne by the ultimate customer and settled directly with Philips Medical Capital LLC.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherReceivablesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21211": { "value": "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.
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Where the company\u00a0repurchases the company\u2019s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs (net of income taxes), is deducted from shareholders\u2019 equity until such treasury shares are cancelled or reissued.
Where such treasury shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in shareholders\u2019 equity.
Call options on own shares are treated as equity instruments.
Dividends are recognized as a liability in the period in which they are declared and approved by shareholders. The income tax consequences of dividends are recognized when a liability to pay the dividend is recognized.
As of December 31, 2022, authorized common shares consist of 2 billion shares (December 31, 2021: 2 billion; December 31, 2020: 2 billion) and the issued and fully paid share capital consists of 889,315,082 common shares, each share having a par value of EUR 0.20 (December 31, 2021: 883,898,969; December 31, 2020: 911,053,001).
As a means to protect the company against (an attempt at) an unsolicited takeover or other attempt to exert (de facto) control of the company, the \u2018Stichting Preferente Aandelen Philips\u2019 has been granted the right to acquire preference shares in the company. As of December 31, 2022, no such right has been exercised and no preference shares have been issued. Authorized preference shares consist of 2 billion shares as of December 31, 2022 (December 31, 2021: 2 billion; December 31, 2020: 2 billion).
Under its share-based compensation plans, the company granted stock options on its common shares up to 2013 and other conditional rights to receive common shares in the future such as restricted shares and performance shares (refer to Share-based compensation).
In connection with the company\u2019s share repurchase programs, shares which have been repurchased and are held in Treasury for the purpose of (i) delivery under share-based compensation plans upon exercise of options, or vesting of restricted or performance shares, and (ii) capital reduction, are accounted for as a reduction of shareholders\u2019 equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When treasury shares are delivered by the company under its share-based compensation plans, such shares are removed from treasury shares on a first-in, first-out (FIFO) basis.
When treasury shares are delivered by the company upon exercise of options (granted to employees up to 2013), the difference between the cost and the cash received is recorded in retained earnings. When treasury shares are delivered by the company upon vesting of restricted shares or performance shares (granted under the company\u2019s share-based compensation plans), the difference between the market price of the shares and the cost is recorded in retained earnings, and the market price is recorded in capital in excess of par value.
The following table shows the movements in the outstanding number of shares over the last three years:
Philips Group
Outstanding number of shares
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Balance as of January 1 | 890,973,790 | 905,128,293 | 870,182,445 |
| Dividend distributed | 18,080,198 | 6,345,968 | 14,174,568 |
| Purchase of treasury shares | (8,669,622) | (45,486,392) | (5,080,693) |
| Delivery of treasury shares | 4,695,170 | 4,194,577 | 2,204,207 |
| Issuance of new shares | 48,757 | ||
| Balance as of December 31 | 905,128,293 | 870,182,445 | 881,480,527 |
The following table reflects transactions that took place in relation to former and current share-based compensation plans:
Philips Group
Transactions related to share-based compensation plans
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 5,351,411 | 3,996,576 | 2,142,445 |
| Average market price | EUR 33.81 | EUR 36.15 | EUR 31.76 |
| Amount paid | EUR 181 million | EUR 144 million | EUR 68 million |
| Shares delivered | 4,695,170 | 4,194,577 | 2,204,207 |
| Average price (FIFO) | EUR 34.35 | EUR 34.14 | EUR 35.16 |
| Cost of delivered shares | EUR 161 million | EUR 143 million | EUR 77 million |
| Total shares in treasury at year-end | 5,924,708 | 5,726,708 | 5,664,946 |
| Total cost | EUR 199 million | EUR 201 million | EUR 191 million |
The following transactions took place for capital reduction purposes:
Philips Group
Transactions related to capital reduction
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 3,318,211 | 41,489,816 | 2,938,248 |
| Average market price | EUR 39.21 | EUR 36.22 | EUR 36.61 |
| Amount paid | EUR 130 million | EUR 1,503 million | EUR 108 million |
| Cancellation of treasury shares (shares) | 3,809,675 | 33,500,000 | 8,758,455 |
| Cancellation of treasury shares (EUR) | EUR 152 million | EUR 1,216 million | EUR 299 million |
| Total shares in treasury at year-end | 7,989,816 | 2,169,609 | |
| Total cost | EUR 287 million | EUR 83 million |
Share purchase transactions related to employee option and share plans, as well as transactions related to the reduction of share capital, involved a cash outflow of EUR 187 million. A cash inflow of EUR 12 million from treasury shares mainly relates to the exercise of employee stock options (granted until 2013).
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.\u00a0
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 and a weighted average forward price of EUR 19.75.
On May 19, 2021, Royal 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 2023 and November 2023 and a weighted average forward price of EUR 44.85.\u00a0
On January 29, 2020, Philips announced that it will 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 in total 5 million for an amount of EUR 174 million to acquire with settlement dates varying between October 2021 and November 2022 and a weighted average forward price of EUR 34.85. On October 26, 2022, the original settlement date of two tranches entered into under this program (in total 1.75 million shares) has been extended from November 23, 2022 to November 2023, and November 2024, respectively. As of December 31, 2022, a total of 3.3 million shares (December 31, 2021: 1.5 million) under this program were acquired (settled in the fourth quarter of 2021 and 2022, respectively). This resulted in a EUR 57 million\u00a0 (December 31, 2021: EUR 61 million) increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts to cover obligations under share-based remuneration plans related to 7.0 million shares (December 31, 2021: 5.5 million) and amounted to EUR 211 million (December 31, 2021: EUR 203 million).
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 20 million shares with settlement dates in 2022, 2023 and 2024 and a weighted average forward price of EUR 37.36. 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). This resulted in a EUR 781 million increase in retained earnings against treasury shares. As of December 31, 2022, a total of 2.2 million shares under this program were acquired (in the fourth quarter of 2022). This resulted in EUR 83 million increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts entered into for capital reduction purposes relate to 17.4 million shares (December 31, 2021: 19.6 million) and amounted to EUR 648 million (December 31, 2021: EUR 731 million).
In 2016, Philips purchased EUR-denominated and USD-denominated call options on its own shares to hedge options granted to employees up to 2013.
In 2022, the company unwound 239,880 EUR-denominated and 152,565 USD-denominated call options against the transfer of the same number of its own shares (392,445 shares) and an additional EUR 6 million cash payment to the buyer of the call options.
As of December 31, 2022, the remaining EUR-denominated call options related to 55,750 shares while there are no remaining USD-denominated call options.
In June 2022, Philips completed the cancellation of 8.8 million of its common shares (with a cost price of EUR 299 million). The cancelled shares were acquired as part of the Philips\u2019 EUR 1.5 billion share repurchase programs announced on July 26, 2021.
In May 2022, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of \u00a0EUR 741 million\u00a0(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. The settlement of the cash dividend involved an amount of EUR 411 million (including costs).
A proposal will be submitted to the 2023 Annual General Meeting of Shareholders to pay a dividend of \u00a0EUR 0.85 per common share, in common shares only, against retained earnings for 2022.
In June 2021, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of EUR 773 million (including costs). Shareholders could elect for a cash dividend or a share dividend. Approximately\u00a038% of the shareholders elected for a share dividend, resulting in the issuance of 6,345,968 new common shares. The settlement of the cash dividend involved an amount of \u00a0EUR 482 million (including costs).
In July 2020, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of EUR 758 million (including costs). The dividend was distributed in the form of shares only resulting in the issuance of 18,080,198 new common shares.\u00a0
As of December 31, 2022, pursuant to Dutch law, certain limitations exist relating to the distribution of shareholders\u2019 equity of EUR 3,054 million. Such limitations relate to common shares of EUR 178 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 1,010 million and unrealized currency translation differences of EUR 1,866 million. The unrealized loss related to cash flow hedges of EUR 2 million and unrealized loss related to fair value through OCI financial assets of EUR 376 million qualify as revaluation reserves and reduce the distributable amount due to the fact that these reserves are negative.
The legal reserves required by Dutch law of EUR 1,010 million included under retained earnings relates to any legal or economic restrictions on the ability of affiliated companies to transfer funds to the parent company in the form of dividends.
As of December 31, 2021, these limitations in distributable amounts were EUR 1,947 million and related to common shares of EUR 177 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 654 million and unrealized currency translation differences of EUR 1,117 million. The unrealized losses related to fair value through OCI financial assets of EUR 344 million and unrealized loss related to cash flow hedges of EUR 25 million qualify as a revaluation reserve and reduce the distributable amount due to the fact that this reserve is negative.
Non-controlling interests relate to minority stakes held by third parties in consolidated group companies.
Philips manages capital based upon the IFRS measures, net cash provided by operating activities and net cash used for investing activities as well as the non-IFRS measure net debt. The definition of this non-IFRS measure and a reconciliation to the IFRS measure is included below.
Net debt is defined as the sum of long and short-term debt minus cash and cash equivalents. Group equity is defined as the sum of shareholders\u2019 equity and non-controlling interests. This measure is used by Philips Treasury management and investment analysts to evaluate financial strength and funding requirements. The Philips net debt position is managed with the intention of retaining the current strong investment grade credit rating. Furthermore, Philips\u2019 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 (reconciliation to the most directly comparable IFRS measure, Net income, is provided at the end of this note).
Philips Group
Composition of net debt and group equity
in millions of EUR unless otherwise stated
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Long-term debt | 5,705 | 6,473 | 7,270 |
| Short-term debt | 1,229 | 506 | 931 |
| Total debt | 6,934 | 6,980 | 8,201 |
| Cash and cash equivalents | 3,226 | 2,303 | 1,172 |
| Net debt | 3,708 | 4,676 | 7,028 |
| Shareholders' equity | 11,870 | 14,438 | 13,249 |
| Non-controlling interests | 31 | 36 | 34 |
| Group equity | 11,901 | 14,475 | 13,283 |
| Net debt and group equity ratio | 24:76 | 24:76 | 35:65 |
Adjusted income from continuing operations attributable to shareholders is not a recognized measure of financial performance under IFRS. The reconciliation of Adjusted income from continuing operations attributable to shareholders to the most directly comparable IFRS measure, Net income for 2022 is included in the following table.
Philips Group
Adjusted income from continuing operations attributable to shareholders
1) in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Net income | 1,195 | 3,323 | (1,605) |
| Discontinued operations, net of income taxes | (196) | (2,711) | (13) |
| Income from continuing operations | 999 | 612 | (1,618) |
| Income from continuing operations attributable to non-controlling interests | (8) | (4) | (3) |
| Income from continuing operations attributable to shareholders1) | 991 | 608 | (1,622) |
| Adjustments for: | \u00a0 | \u00a0 | \u00a0 |
| Amortization and impairment of acquired intangible assets | 377 | 322 | 363 |
| Impairment of goodwill | 144 | 15 | 1,357 |
| Restructuring costs and acquisition-related charges | 195 | 95 | 202 |
| Other items: | 299 | 1,069 | 925 |
| Respironics field-action provision | \u00a0 | 719 | 250 |
| Respironics field-action running remediation cost | \u00a0 | 94 | 210 |
| R&D project impairments | \u00a0 | \u00a0 | 134 |
| Portfolio realignment charges | \u00a0 | \u00a0 | 109 |
| Impairment of assets in S&RC | \u00a0 | \u00a0 | 39 |
| Provision for public investigations tender irregularities | \u00a0 | \u00a0 | 60 |
| Provisions for quality actions in Connected Care | \u00a0 | 94 | 59 |
| Loss on divestment of business | \u00a0 | 76 | \u00a0 |
| Remaining items | 299 | 87 | 63 |
| Net finance income/expenses | (125) | (84) | (4) |
| Tax impact of adjusted items and tax only adjusting items | (285) | (527) | (376) |
| Adjusted Income from continuing operations attributable to shareholders1) | 1,594 | 1,497 | 845 |
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Where the company\u00a0repurchases the company\u2019s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs (net of income taxes), is deducted from shareholders\u2019 equity until such treasury shares are cancelled or reissued.
Where such treasury shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in shareholders\u2019 equity.
Call options on own shares are treated as equity instruments.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForTreasurySharesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21420": { "value": "Dividends are recognized as a liability in the period in which they are declared and approved by shareholders. The income tax consequences of dividends are recognized when a liability to pay the dividend is recognized.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDividendsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21421": { "value": "Where such treasury shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in shareholders\u2019 equity.
In connection with the company\u2019s share repurchase programs, shares which have been repurchased and are held in Treasury for the purpose of (i) delivery under share-based compensation plans upon exercise of options, or vesting of restricted or performance shares, and (ii) capital reduction, are accounted for as a reduction of shareholders\u2019 equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When treasury shares are delivered by the company under its share-based compensation plans, such shares are removed from treasury shares on a first-in, first-out (FIFO) basis.
When treasury shares are delivered by the company upon exercise of options (granted to employees up to 2013), the difference between the cost and the cash received is recorded in retained earnings. When treasury shares are delivered by the company upon vesting of restricted shares or performance shares (granted under the company\u2019s share-based compensation plans), the difference between the market price of the shares and the cost is recorded in retained earnings, and the market price is recorded in capital in excess of par value.
The following table shows the movements in the outstanding number of shares over the last three years:
Philips Group
Outstanding number of shares
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Balance as of January 1 | 890,973,790 | 905,128,293 | 870,182,445 |
| Dividend distributed | 18,080,198 | 6,345,968 | 14,174,568 |
| Purchase of treasury shares | (8,669,622) | (45,486,392) | (5,080,693) |
| Delivery of treasury shares | 4,695,170 | 4,194,577 | 2,204,207 |
| Issuance of new shares | 48,757 | ||
| Balance as of December 31 | 905,128,293 | 870,182,445 | 881,480,527 |
The following table reflects transactions that took place in relation to former and current share-based compensation plans:
Philips Group
Transactions related to share-based compensation plans
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 5,351,411 | 3,996,576 | 2,142,445 |
| Average market price | EUR 33.81 | EUR 36.15 | EUR 31.76 |
| Amount paid | EUR 181 million | EUR 144 million | EUR 68 million |
| Shares delivered | 4,695,170 | 4,194,577 | 2,204,207 |
| Average price (FIFO) | EUR 34.35 | EUR 34.14 | EUR 35.16 |
| Cost of delivered shares | EUR 161 million | EUR 143 million | EUR 77 million |
| Total shares in treasury at year-end | 5,924,708 | 5,726,708 | 5,664,946 |
| Total cost | EUR 199 million | EUR 201 million | EUR 191 million |
The following transactions took place for capital reduction purposes:
Philips Group
Transactions related to capital reduction
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 3,318,211 | 41,489,816 | 2,938,248 |
| Average market price | EUR 39.21 | EUR 36.22 | EUR 36.61 |
| Amount paid | EUR 130 million | EUR 1,503 million | EUR 108 million |
| Cancellation of treasury shares (shares) | 3,809,675 | 33,500,000 | 8,758,455 |
| Cancellation of treasury shares (EUR) | EUR 152 million | EUR 1,216 million | EUR 299 million |
| Total shares in treasury at year-end | 7,989,816 | 2,169,609 | |
| Total cost | EUR 287 million | EUR 83 million |
Share purchase transactions related to employee option and share plans, as well as transactions related to the reduction of share capital, involved a cash outflow of EUR 187 million. A cash inflow of EUR 12 million from treasury shares mainly relates to the exercise of employee stock options (granted until 2013).
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.\u00a0
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 and a weighted average forward price of EUR 19.75.
On May 19, 2021, Royal 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 2023 and November 2023 and a weighted average forward price of EUR 44.85.\u00a0
On January 29, 2020, Philips announced that it will 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 in total 5 million for an amount of EUR 174 million to acquire with settlement dates varying between October 2021 and November 2022 and a weighted average forward price of EUR 34.85. On October 26, 2022, the original settlement date of two tranches entered into under this program (in total 1.75 million shares) has been extended from November 23, 2022 to November 2023, and November 2024, respectively. As of December 31, 2022, a total of 3.3 million shares (December 31, 2021: 1.5 million) under this program were acquired (settled in the fourth quarter of 2021 and 2022, respectively). This resulted in a EUR 57 million\u00a0 (December 31, 2021: EUR 61 million) increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts to cover obligations under share-based remuneration plans related to 7.0 million shares (December 31, 2021: 5.5 million) and amounted to EUR 211 million (December 31, 2021: EUR 203 million).
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 20 million shares with settlement dates in 2022, 2023 and 2024 and a weighted average forward price of EUR 37.36. 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). This resulted in a EUR 781 million increase in retained earnings against treasury shares. As of December 31, 2022, a total of 2.2 million shares under this program were acquired (in the fourth quarter of 2022). This resulted in EUR 83 million increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts entered into for capital reduction purposes relate to 17.4 million shares (December 31, 2021: 19.6 million) and amounted to EUR 648 million (December 31, 2021: EUR 731 million).
In 2016, Philips purchased EUR-denominated and USD-denominated call options on its own shares to hedge options granted to employees up to 2013.
In 2022, the company unwound 239,880 EUR-denominated and 152,565 USD-denominated call options against the transfer of the same number of its own shares (392,445 shares) and an additional EUR 6 million cash payment to the buyer of the call options.
As of December 31, 2022, the remaining EUR-denominated call options related to 55,750 shares while there are no remaining USD-denominated call options.
In June 2022, Philips completed the cancellation of 8.8 million of its common shares (with a cost price of EUR 299 million). The cancelled shares were acquired as part of the Philips\u2019 EUR 1.5 billion share repurchase programs announced on July 26, 2021.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTreasurySharesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21422": { "value": "As of December 31, 2022, pursuant to Dutch law, certain limitations exist relating to the distribution of shareholders\u2019 equity of EUR 3,054 million. Such limitations relate to common shares of EUR 178 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 1,010 million and unrealized currency translation differences of EUR 1,866 million. The unrealized loss related to cash flow hedges of EUR 2 million and unrealized loss related to fair value through OCI financial assets of EUR 376 million qualify as revaluation reserves and reduce the distributable amount due to the fact that these reserves are negative.
The legal reserves required by Dutch law of EUR 1,010 million included under retained earnings relates to any legal or economic restrictions on the ability of affiliated companies to transfer funds to the parent company in the form of dividends.
As of December 31, 2021, these limitations in distributable amounts were EUR 1,947 million and related to common shares of EUR 177 million, as well as to legal reserves required by Dutch law included under retained earnings of EUR 654 million and unrealized currency translation differences of EUR 1,117 million. The unrealized losses related to fair value through OCI financial assets of EUR 344 million and unrealized loss related to cash flow hedges of EUR 25 million qualify as a revaluation reserve and reduce the distributable amount due to the fact that this reserve is negative.
", "dimensions": { "concept": "ifrs-full:DisclosureOfReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21423": { "value": "The following transactions took place for capital reduction purposes:
Philips Group
Transactions related to capital reduction
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 3,318,211 | 41,489,816 | 2,938,248 |
| Average market price | EUR 39.21 | EUR 36.22 | EUR 36.61 |
| Amount paid | EUR 130 million | EUR 1,503 million | EUR 108 million |
| Cancellation of treasury shares (shares) | 3,809,675 | 33,500,000 | 8,758,455 |
| Cancellation of treasury shares (EUR) | EUR 152 million | EUR 1,216 million | EUR 299 million |
| Total shares in treasury at year-end | 7,989,816 | 2,169,609 | |
| Total cost | EUR 287 million | EUR 83 million |
Share purchase transactions related to employee option and share plans, as well as transactions related to the reduction of share capital, involved a cash outflow of EUR 187 million. A cash inflow of EUR 12 million from treasury shares mainly relates to the exercise of employee stock options (granted until 2013).
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.\u00a0
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 and a weighted average forward price of EUR 19.75.
On May 19, 2021, Royal 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 2023 and November 2023 and a weighted average forward price of EUR 44.85.\u00a0
On January 29, 2020, Philips announced that it will 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 in total 5 million for an amount of EUR 174 million to acquire with settlement dates varying between October 2021 and November 2022 and a weighted average forward price of EUR 34.85. On October 26, 2022, the original settlement date of two tranches entered into under this program (in total 1.75 million shares) has been extended from November 23, 2022 to November 2023, and November 2024, respectively. As of December 31, 2022, a total of 3.3 million shares (December 31, 2021: 1.5 million) under this program were acquired (settled in the fourth quarter of 2021 and 2022, respectively). This resulted in a EUR 57 million\u00a0 (December 31, 2021: EUR 61 million) increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts to cover obligations under share-based remuneration plans related to 7.0 million shares (December 31, 2021: 5.5 million) and amounted to EUR 211 million (December 31, 2021: EUR 203 million).
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 20 million shares with settlement dates in 2022, 2023 and 2024 and a weighted average forward price of EUR 37.36. 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). This resulted in a EUR 781 million increase in retained earnings against treasury shares. As of December 31, 2022, a total of 2.2 million shares under this program were acquired (in the fourth quarter of 2022). This resulted in EUR 83 million increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts entered into for capital reduction purposes relate to 17.4 million shares (December 31, 2021: 19.6 million) and amounted to EUR 648 million (December 31, 2021: EUR 731 million).
In 2016, Philips purchased EUR-denominated and USD-denominated call options on its own shares to hedge options granted to employees up to 2013.
In 2022, the company unwound 239,880 EUR-denominated and 152,565 USD-denominated call options against the transfer of the same number of its own shares (392,445 shares) and an additional EUR 6 million cash payment to the buyer of the call options.
As of December 31, 2022, the remaining EUR-denominated call options related to 55,750 shares while there are no remaining USD-denominated call options.
In June 2022, Philips completed the cancellation of 8.8 million of its common shares (with a cost price of EUR 299 million). The cancelled shares were acquired as part of the Philips\u2019 EUR 1.5 billion share repurchase programs announced on July 26, 2021.
In February 2021, Philips entered into two new bilateral loans amounting to a total of EUR 500 million (EUR 250 million each) with a tenor of up to one year, that were repaid in September 2021. In 2021, Philips also entered into a total amount of EUR 731 million of forward contracts relating to the EUR 1.5 billion share buyback program announced on July 26, 2021, with maturity dates in 2022, 2023 and 2024. 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. \u00a0In addition, Philips entered into a total amount of EUR 90 million of forward contracts in 2021 relating to the long-term incentive and employee stock purchase plans announced on May 19, 2021, with maturity dates in 2023, and a total amount of EUR 123 million of forward contracts matured in 2021 relating to the company's long-term incentive and employee stock purchase plans announced on October 22, 2018 and January 29, 2020.
", "dimensions": { "concept": "ifrs-full:DisclosureOfRepurchaseAndReverseRepurchaseAgreementsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21424": { "value": "Dividends are recognized as a liability in the period in which they are declared and approved by shareholders. The income tax consequences of dividends are recognized when a liability to pay the dividend is recognized.
In May 2022, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of \u00a0EUR 741 million\u00a0(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. The settlement of the cash dividend involved an amount of EUR 411 million (including costs).
A proposal will be submitted to the 2023 Annual General Meeting of Shareholders to pay a dividend of \u00a0EUR 0.85 per common share, in common shares only, against retained earnings for 2022.
In June 2021, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of EUR 773 million (including costs). Shareholders could elect for a cash dividend or a share dividend. Approximately\u00a038% of the shareholders elected for a share dividend, resulting in the issuance of 6,345,968 new common shares. The settlement of the cash dividend involved an amount of \u00a0EUR 482 million (including costs).
In July 2020, Philips distributed a dividend of EUR 0.85 per common share, representing a total value of EUR 758 million (including costs). The dividend was distributed in the form of shares only resulting in the issuance of 18,080,198 new common shares.\u00a0
", "dimensions": { "concept": "ifrs-full:DisclosureOfDividendsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21425": { "value": "Philips manages capital based upon the IFRS measures, net cash provided by operating activities and net cash used for investing activities as well as the non-IFRS measure net debt. The definition of this non-IFRS measure and a reconciliation to the IFRS measure is included below.
Net debt is defined as the sum of long and short-term debt minus cash and cash equivalents. Group equity is defined as the sum of shareholders\u2019 equity and non-controlling interests. This measure is used by Philips Treasury management and investment analysts to evaluate financial strength and funding requirements. The Philips net debt position is managed with the intention of retaining the current strong investment grade credit rating. Furthermore, Philips\u2019 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 (reconciliation to the most directly comparable IFRS measure, Net income, is provided at the end of this note).
Philips Group
Composition of net debt and group equity
in millions of EUR unless otherwise stated
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Long-term debt | 5,705 | 6,473 | 7,270 |
| Short-term debt | 1,229 | 506 | 931 |
| Total debt | 6,934 | 6,980 | 8,201 |
| Cash and cash equivalents | 3,226 | 2,303 | 1,172 |
| Net debt | 3,708 | 4,676 | 7,028 |
| Shareholders' equity | 11,870 | 14,438 | 13,249 |
| Non-controlling interests | 31 | 36 | 34 |
| Group equity | 11,901 | 14,475 | 13,283 |
| Net debt and group equity ratio | 24:76 | 24:76 | 35:65 |
Adjusted income from continuing operations attributable to shareholders is not a recognized measure of financial performance under IFRS. The reconciliation of Adjusted income from continuing operations attributable to shareholders to the most directly comparable IFRS measure, Net income for 2022 is included in the following table.
Philips Group
Adjusted income from continuing operations attributable to shareholders
1) in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Net income | 1,195 | 3,323 | (1,605) |
| Discontinued operations, net of income taxes | (196) | (2,711) | (13) |
| Income from continuing operations | 999 | 612 | (1,618) |
| Income from continuing operations attributable to non-controlling interests | (8) | (4) | (3) |
| Income from continuing operations attributable to shareholders1) | 991 | 608 | (1,622) |
| Adjustments for: | \u00a0 | \u00a0 | \u00a0 |
| Amortization and impairment of acquired intangible assets | 377 | 322 | 363 |
| Impairment of goodwill | 144 | 15 | 1,357 |
| Restructuring costs and acquisition-related charges | 195 | 95 | 202 |
| Other items: | 299 | 1,069 | 925 |
| Respironics field-action provision | \u00a0 | 719 | 250 |
| Respironics field-action running remediation cost | \u00a0 | 94 | 210 |
| R&D project impairments | \u00a0 | \u00a0 | 134 |
| Portfolio realignment charges | \u00a0 | \u00a0 | 109 |
| Impairment of assets in S&RC | \u00a0 | \u00a0 | 39 |
| Provision for public investigations tender irregularities | \u00a0 | \u00a0 | 60 |
| Provisions for quality actions in Connected Care | \u00a0 | 94 | 59 |
| Loss on divestment of business | \u00a0 | 76 | \u00a0 |
| Remaining items | 299 | 87 | 63 |
| Net finance income/expenses | (125) | (84) | (4) |
| Tax impact of adjusted items and tax only adjusting items | (285) | (527) | (376) |
| Adjusted Income from continuing operations attributable to shareholders1) | 1,594 | 1,497 | 845 |
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Where the company\u00a0repurchases the company\u2019s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs (net of income taxes), is deducted from shareholders\u2019 equity until such treasury shares are cancelled or reissued.
Where such treasury shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in shareholders\u2019 equity.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIssuedCapitalExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21427": { "value": "Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Where the company\u00a0repurchases the company\u2019s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs (net of income taxes), is deducted from shareholders\u2019 equity until such treasury shares are cancelled or reissued.
As of December 31, 2022, authorized common shares consist of 2 billion shares (December 31, 2021: 2 billion; December 31, 2020: 2 billion) and the issued and fully paid share capital consists of 889,315,082 common shares, each share having a par value of EUR 0.20 (December 31, 2021: 883,898,969; December 31, 2020: 911,053,001).
As a means to protect the company against (an attempt at) an unsolicited takeover or other attempt to exert (de facto) control of the company, the \u2018Stichting Preferente Aandelen Philips\u2019 has been granted the right to acquire preference shares in the company. As of December 31, 2022, no such right has been exercised and no preference shares have been issued. Authorized preference shares consist of 2 billion shares as of December 31, 2022 (December 31, 2021: 2 billion; December 31, 2020: 2 billion).
", "dimensions": { "concept": "ifrs-full:DisclosureOfIssuedCapitalExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f21428": { "value": "Under its share-based compensation plans, the company granted stock options on its common shares up to 2013 and other conditional rights to receive common shares in the future such as restricted shares and performance shares (refer to Share-based compensation).
In connection with the company\u2019s share repurchase programs, shares which have been repurchased and are held in Treasury for the purpose of (i) delivery under share-based compensation plans upon exercise of options, or vesting of restricted or performance shares, and (ii) capital reduction, are accounted for as a reduction of shareholders\u2019 equity. Treasury shares are recorded at cost, representing the market price on the acquisition date. When treasury shares are delivered by the company under its share-based compensation plans, such shares are removed from treasury shares on a first-in, first-out (FIFO) basis.
When treasury shares are delivered by the company upon exercise of options (granted to employees up to 2013), the difference between the cost and the cash received is recorded in retained earnings. When treasury shares are delivered by the company upon vesting of restricted shares or performance shares (granted under the company\u2019s share-based compensation plans), the difference between the market price of the shares and the cost is recorded in retained earnings, and the market price is recorded in capital in excess of par value.
The following table shows the movements in the outstanding number of shares over the last three years:
Philips Group
Outstanding number of shares
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Balance as of January 1 | 890,973,790 | 905,128,293 | 870,182,445 |
| Dividend distributed | 18,080,198 | 6,345,968 | 14,174,568 |
| Purchase of treasury shares | (8,669,622) | (45,486,392) | (5,080,693) |
| Delivery of treasury shares | 4,695,170 | 4,194,577 | 2,204,207 |
| Issuance of new shares | 48,757 | ||
| Balance as of December 31 | 905,128,293 | 870,182,445 | 881,480,527 |
The following table reflects transactions that took place in relation to former and current share-based compensation plans:
Philips Group
Transactions related to share-based compensation plans
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 5,351,411 | 3,996,576 | 2,142,445 |
| Average market price | EUR 33.81 | EUR 36.15 | EUR 31.76 |
| Amount paid | EUR 181 million | EUR 144 million | EUR 68 million |
| Shares delivered | 4,695,170 | 4,194,577 | 2,204,207 |
| Average price (FIFO) | EUR 34.35 | EUR 34.14 | EUR 35.16 |
| Cost of delivered shares | EUR 161 million | EUR 143 million | EUR 77 million |
| Total shares in treasury at year-end | 5,924,708 | 5,726,708 | 5,664,946 |
| Total cost | EUR 199 million | EUR 201 million | EUR 191 million |
The following transactions took place for capital reduction purposes:
Philips Group
Transactions related to capital reduction
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Shares acquired | 3,318,211 | 41,489,816 | 2,938,248 |
| Average market price | EUR 39.21 | EUR 36.22 | EUR 36.61 |
| Amount paid | EUR 130 million | EUR 1,503 million | EUR 108 million |
| Cancellation of treasury shares (shares) | 3,809,675 | 33,500,000 | 8,758,455 |
| Cancellation of treasury shares (EUR) | EUR 152 million | EUR 1,216 million | EUR 299 million |
| Total shares in treasury at year-end | 7,989,816 | 2,169,609 | |
| Total cost | EUR 287 million | EUR 83 million |
Share purchase transactions related to employee option and share plans, as well as transactions related to the reduction of share capital, involved a cash outflow of EUR 187 million. A cash inflow of EUR 12 million from treasury shares mainly relates to the exercise of employee stock options (granted until 2013).
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.\u00a0
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 and a weighted average forward price of EUR 19.75.
On May 19, 2021, Royal 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 2023 and November 2023 and a weighted average forward price of EUR 44.85.\u00a0
On January 29, 2020, Philips announced that it will 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 in total 5 million for an amount of EUR 174 million to acquire with settlement dates varying between October 2021 and November 2022 and a weighted average forward price of EUR 34.85. On October 26, 2022, the original settlement date of two tranches entered into under this program (in total 1.75 million shares) has been extended from November 23, 2022 to November 2023, and November 2024, respectively. As of December 31, 2022, a total of 3.3 million shares (December 31, 2021: 1.5 million) under this program were acquired (settled in the fourth quarter of 2021 and 2022, respectively). This resulted in a EUR 57 million\u00a0 (December 31, 2021: EUR 61 million) increase in retained earnings against treasury shares.
As of December 31, 2022, the remaining forward contracts to cover obligations under share-based remuneration plans related to 7.0 million shares (December 31, 2021: 5.5 million) and amounted to EUR 211 million (December 31, 2021: EUR 203 million).
In 2016, Philips purchased EUR-denominated and USD-denominated call options on its own shares to hedge options granted to employees up to 2013.
In 2022, the company unwound 239,880 EUR-denominated and 152,565 USD-denominated call options against the transfer of the same number of its own shares (392,445 shares) and an additional EUR 6 million cash payment to the buyer of the call options.
As of December 31, 2022, the remaining EUR-denominated call options related to 55,750 shares while there are no remaining USD-denominated call options.
", "dimensions": { "concept": "ifrs-full:DisclosureOfSharebasedPaymentArrangementsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22094": { "value": "Debt is initially measured at fair value net of directly attributable transaction costs. Subsequently, debt is measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Debt is derecognized when the obligation under the liability is discharged, cancelled or has expired.
Lease liabilities are measured at the present value of the lease payments due over the lease term, generally discounted using the incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest method. Lease liabilities are remeasured in case of modifications or reassessments of the lease.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop of its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion.\u00a0In 2022 Philips issued three new tranches under the\u00a0program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0
The provisions applicable to all USD-denominated corporate bonds issued by the company in March 2008 and March 2012 (due 2038 and 2042) contain a \u2018Change of Control Triggering Event\u2019. If the company would experience such an event with respect to a series of corporate bonds the company might be required to offer to purchase the bonds that are still outstanding at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. Furthermore, the conditions applicable to the EUR-denominated corporate bonds issued in 2018, 2019, 2020 and 2022 (due 2025, 2026, 2027, 2028, 2029, 2030 and 2033) contain a similar provision (\u2018Change of Control Put Event\u2019). Upon the occurrence of such an event, the company might be required to redeem or purchase any of such bonds at their principal amount together with interest accrued. Philips\u2019 outstanding long-term debt do not contain financial covenants.
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\u2019 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 year-end 2022, EUR 500 million was utilized and outstanding under the credit facility. In 2022, Philips entered into a total amount of EUR 63 million forward contracts relating to the company\u2019s long-term incentive and employee stock purchase plans. A total of EUR 57 million forward contracts relating to the long-term incentive and employee stock purchase plans as announced in 2020\u00a0and EUR 83 million of forwards related to the share buyback program announced in 2021 matured throughout 2022.
In February 2021, Philips entered into two new bilateral loans amounting to a total of EUR 500 million (EUR 250 million each) with a tenor of up to one year, that were repaid in September 2021. In 2021, Philips also entered into a total amount of EUR 731 million of forward contracts relating to the EUR 1.5 billion share buyback program announced on July 26, 2021, with maturity dates in 2022, 2023 and 2024. 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. \u00a0In addition, Philips entered into a total amount of EUR 90 million of forward contracts in 2021 relating to the long-term incentive and employee stock purchase plans announced on May 19, 2021, with maturity dates in 2023, and a total amount of EUR 123 million of forward contracts matured in 2021 relating to the company's long-term incentive and employee stock purchase plans announced on October 22, 2018 and January 29, 2020.
The following tables present information about the long-term debt outstanding, its maturity and average interest rates in 2022 and 2021.
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2022 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,378 | 1,378 | 250 | 1,128 | 14.3 | 6.3% | |
| EUR bonds | 4,061 | 4,061 | 1,836 | 2,225 | 5.7 | 1.7% | |
| Forward contracts | 858 | 606 | 252 | 252 | 1.0 | ||
| Lease liabilities | 1,082 | 230 | 852 | 504 | 348 | 3.9 | 2.4% |
| Bank borrowings | 705 | 2 | 702 | 702 | 1.9 | 1.7% | |
| Other long-term debt | 28 | 4 | 24 | 17 | 6 | 8.9 | 2.9% |
| Long-term debt | 8,111 | 842 | 7,270 | 3,562 | 3,706 | 6.1 | 2.4% |
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2021 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,313 | \u00a0 | 1,313 | 255 | 1,058 | 15.1 | 6.3% |
| EUR bonds | 3,233 | 3,233 | 2,242 | 991 | 4.4 | 1.0% | |
| Forward contracts | 934 | 196 | 738 | 738 | \u00a0 | 1.6 | \u00a0 |
| Lease liabilities | 1,220 | 257 | 963 | 580 | 383 | 4.2 | 2.1% |
| Bank borrowings | 203 | 1 | 202 | 202 | 3.2 | 0.1% | |
| Other long-term debt | 30 | 5 | 26 | 18 | 8 | 8.6 | 3.5% |
| Long-term debt | 6,933 | 459 | 6,473 | 4,034 | 2,439 | 6.0 | 2.1% |
The following table presents the amount outstanding and effective rate of bonds.
Philips Group
Unsecured Bonds
in millions of EUR unless otherwise stated
| \u00a0 | effective rate | 2021 | 2022 |
|---|---|---|---|
| Unsecured EUR Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 06/09/2023; 1/2% | 0.634% | 500 | |
| Due 02/05/2024; 3/4% | 0.861% | 500 | |
| Due 22/05/2026; 1/2% | 0.608% | 750 | 750 |
| Due 02/05/2028; 1 3/8% | 1.523% | 500 | 500 |
| Due 30/03/2025; 1 3/8% | 1.509% | 500 | 346 |
| Due 30/03/2030; 2% | 2.128% | 500 | 500 |
| Due 05/05/2027; 1 7/8% | 2.049% | 750 | |
| Due 05/11/2029; 2 1/8% | 2.441% | 650 | |
| Due 05/05/2033; 2 5/8% | 2.710% | 600 | |
| Unsecured USD Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 15/05/2025; 7 3/4% | 7.429% | 56 | 51 |
| Due 01/06/2026; 7 1/5% | 6.885% | 120 | 119 |
| Due 15/05/2025; 7 1/8% | 6.794% | 74 | 78 |
| Due 11/03/2038; 6 7/8% | 7.210% | 641 | 683 |
| Due 15/03/2042; 5% | 5.273% | 441 | 470 |
| Adjustments1) | \u00a0 | (37) | (57) |
| Unsecured Bonds | \u00a0 | 4,545 | 5,439 |
The following table presents a reconciliation between the total of future minimum lease payments and their present value.
Philips Group
Lease liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | future minimum lease payments | interest | present value of minimum lease payments | future minimum lease payments | interest | present value of minimum lease payments |
| Less than one year | 280 | 22 | 257 | 251 | 21 | 230 |
| Between one and five years | 636 | 56 | 580 | 554 | 49 | 505 |
| More than five years | 417 | 34 | 383 | 376 | 28 | 348 |
| Lease liabilities | 1,333 | 113 | 1,220 | 1,180 | 98 | 1,082 |
Philips Group
Short-term debt
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Short-term bank borrowings | 47 | 89 |
| Current portion of long-term debt | 459 | 842 |
| Short-term debt | 506 | 931 |
During 2022, the weighted average interest rate on the bank borrowings was 5.7% (2021: 1.2%). This increase was mainly driven by financial market conditions across various countries globally.
\u00a0
", "dimensions": { "concept": "ifrs-full:DisclosureOfBorrowingsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22095": { "value": "Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop of its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion.\u00a0In 2022 Philips issued three new tranches under the\u00a0program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0
The provisions applicable to all USD-denominated corporate bonds issued by the company in March 2008 and March 2012 (due 2038 and 2042) contain a \u2018Change of Control Triggering Event\u2019. If the company would experience such an event with respect to a series of corporate bonds the company might be required to offer to purchase the bonds that are still outstanding at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. Furthermore, the conditions applicable to the EUR-denominated corporate bonds issued in 2018, 2019, 2020 and 2022 (due 2025, 2026, 2027, 2028, 2029, 2030 and 2033) contain a similar provision (\u2018Change of Control Put Event\u2019). Upon the occurrence of such an event, the company might be required to redeem or purchase any of such bonds at their principal amount together with interest accrued. Philips\u2019 outstanding long-term debt do not contain financial covenants.
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\u2019 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 year-end 2022, EUR 500 million was utilized and outstanding under the credit facility. In 2022, Philips entered into a total amount of EUR 63 million forward contracts relating to the company\u2019s long-term incentive and employee stock purchase plans. A total of EUR 57 million forward contracts relating to the long-term incentive and employee stock purchase plans as announced in 2020\u00a0and EUR 83 million of forwards related to the share buyback program announced in 2021 matured throughout 2022.
The following tables present information about the long-term debt outstanding, its maturity and average interest rates in 2022 and 2021.
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2022 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,378 | 1,378 | 250 | 1,128 | 14.3 | 6.3% | |
| EUR bonds | 4,061 | 4,061 | 1,836 | 2,225 | 5.7 | 1.7% | |
| Forward contracts | 858 | 606 | 252 | 252 | 1.0 | ||
| Lease liabilities | 1,082 | 230 | 852 | 504 | 348 | 3.9 | 2.4% |
| Bank borrowings | 705 | 2 | 702 | 702 | 1.9 | 1.7% | |
| Other long-term debt | 28 | 4 | 24 | 17 | 6 | 8.9 | 2.9% |
| Long-term debt | 8,111 | 842 | 7,270 | 3,562 | 3,706 | 6.1 | 2.4% |
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2021 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,313 | \u00a0 | 1,313 | 255 | 1,058 | 15.1 | 6.3% |
| EUR bonds | 3,233 | 3,233 | 2,242 | 991 | 4.4 | 1.0% | |
| Forward contracts | 934 | 196 | 738 | 738 | \u00a0 | 1.6 | \u00a0 |
| Lease liabilities | 1,220 | 257 | 963 | 580 | 383 | 4.2 | 2.1% |
| Bank borrowings | 203 | 1 | 202 | 202 | 3.2 | 0.1% | |
| Other long-term debt | 30 | 5 | 26 | 18 | 8 | 8.6 | 3.5% |
| Long-term debt | 6,933 | 459 | 6,473 | 4,034 | 2,439 | 6.0 | 2.1% |
The following table presents the amount outstanding and effective rate of bonds.
Philips Group
Unsecured Bonds
in millions of EUR unless otherwise stated
| \u00a0 | effective rate | 2021 | 2022 |
|---|---|---|---|
| Unsecured EUR Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 06/09/2023; 1/2% | 0.634% | 500 | |
| Due 02/05/2024; 3/4% | 0.861% | 500 | |
| Due 22/05/2026; 1/2% | 0.608% | 750 | 750 |
| Due 02/05/2028; 1 3/8% | 1.523% | 500 | 500 |
| Due 30/03/2025; 1 3/8% | 1.509% | 500 | 346 |
| Due 30/03/2030; 2% | 2.128% | 500 | 500 |
| Due 05/05/2027; 1 7/8% | 2.049% | 750 | |
| Due 05/11/2029; 2 1/8% | 2.441% | 650 | |
| Due 05/05/2033; 2 5/8% | 2.710% | 600 | |
| Unsecured USD Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 15/05/2025; 7 3/4% | 7.429% | 56 | 51 |
| Due 01/06/2026; 7 1/5% | 6.885% | 120 | 119 |
| Due 15/05/2025; 7 1/8% | 6.794% | 74 | 78 |
| Due 11/03/2038; 6 7/8% | 7.210% | 641 | 683 |
| Due 15/03/2042; 5% | 5.273% | 441 | 470 |
| Adjustments1) | \u00a0 | (37) | (57) |
| Unsecured Bonds | \u00a0 | 4,545 | 5,439 |
Philips Group
Short-term debt
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Short-term bank borrowings | 47 | 89 |
| Current portion of long-term debt | 459 | 842 |
| Short-term debt | 506 | 931 |
During 2022, the weighted average interest rate on the bank borrowings was 5.7% (2021: 1.2%). This increase was mainly driven by financial market conditions across various countries globally.
The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.\u00a0
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 232 | 232 | \u00a0 | \u00a0 | 232 |
| Equity instruments | 4 | 4 | 1 | \u00a0 | 2 |
| Other financial assets | 86 | 86 | \u00a0 | 35 | 51 |
| Financial assets carried at FVTP&L | 322 | 322 | 1 | 35 | 285 |
| Debt instruments | 25 | 25 | \u00a0 | 25 | \u00a0 |
| Equity instruments | 259 | 259 | 30 | \u00a0 | 229 |
| Current financial assets | 9 | 9 | \u00a0 | \u00a0 | 9 |
| Receivables - current | 26 | 26 | \u00a0 | \u00a0 | 26 |
| Financial assets carried at FVTOCI | 319 | 319 | 30 | 25 | 264 |
| Derivative financial instruments | 127 | 127 | \u00a0 | 127 | \u00a0 |
| Financial assets carried at fair value | 768 | 768 | 32 | 187 | 549 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 1,172 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 54 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 4,088 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 279 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 5,596 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 6,364 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Financial liabilities carried at FVTP&L | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Derivative financial instruments | (211) | (211) | \u00a0 | (211) | \u00a0 |
| Financial liabilities carried at fair value | (324) | (324) | \u00a0 | (211) | (113) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,968) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (71) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (6,520) | (6,083) | (5,001) | (1,082) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,680) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (10,240) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (10,564) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 233 | 233 | \u00a0 | \u00a0 | 233 |
| Equity instruments | 4 | 4 | 4 | \u00a0 | \u00a0 |
| Other financial assets | 46 | 46 | \u00a0 | 34 | 12 |
| Financial assets carried at FVTP&L | 283 | 283 | 4 | 34 | 245 |
| Debt instruments | 27 | 27 | \u00a0 | 27 | |
| Equity instruments | 273 | 273 | 63 | \u00a0 | 210 |
| Current financial assets | - | - | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 68 | 68 | \u00a0 | \u00a0 | 68 |
| Financial assets carried at FVTOCI | 368 | 368 | 63 | 27 | 278 |
| Derivative financial instruments | 63 | 63 | \u00a0 | 63 | \u00a0 |
| Financial assets carried at fair value | 714 | 714 | 67 | 124 | 523 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 2,303 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 47 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 3,720 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 224 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 6,296 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 7,010 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Financial liabilities carried at FVTP&L | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Derivative financial instruments | (202) | (202) | \u00a0 | (202) | \u00a0 |
| Financial liabilities carried at fair value | (410) | (410) | \u00a0 | (202) | (208) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,872) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (52) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (5,765) | (6,396) | (5,177) | (1,220) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,214) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (8,904) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (9,314) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
The following table shows the reconciliation from the beginning balance to the end balance for Level 3 fair value measurements.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDebtSecuritiesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22096": { "value": "Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop of its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion.\u00a0In 2022 Philips issued three new tranches under the\u00a0program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0
The provisions applicable to all USD-denominated corporate bonds issued by the company in March 2008 and March 2012 (due 2038 and 2042) contain a \u2018Change of Control Triggering Event\u2019. If the company would experience such an event with respect to a series of corporate bonds the company might be required to offer to purchase the bonds that are still outstanding at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. Furthermore, the conditions applicable to the EUR-denominated corporate bonds issued in 2018, 2019, 2020 and 2022 (due 2025, 2026, 2027, 2028, 2029, 2030 and 2033) contain a similar provision (\u2018Change of Control Put Event\u2019). Upon the occurrence of such an event, the company might be required to redeem or purchase any of such bonds at their principal amount together with interest accrued. Philips\u2019 outstanding long-term debt do not contain financial covenants.
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\u2019 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 year-end 2022, EUR 500 million was utilized and outstanding under the credit facility. In 2022, Philips entered into a total amount of EUR 63 million forward contracts relating to the company\u2019s long-term incentive and employee stock purchase plans. A total of EUR 57 million forward contracts relating to the long-term incentive and employee stock purchase plans as announced in 2020\u00a0and EUR 83 million of forwards related to the share buyback program announced in 2021 matured throughout 2022.
In February 2021, Philips entered into two new bilateral loans amounting to a total of EUR 500 million (EUR 250 million each) with a tenor of up to one year, that were repaid in September 2021. In 2021, Philips also entered into a total amount of EUR 731 million of forward contracts relating to the EUR 1.5 billion share buyback program announced on July 26, 2021, with maturity dates in 2022, 2023 and 2024. 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. \u00a0In addition, Philips entered into a total amount of EUR 90 million of forward contracts in 2021 relating to the long-term incentive and employee stock purchase plans announced on May 19, 2021, with maturity dates in 2023, and a total amount of EUR 123 million of forward contracts matured in 2021 relating to the company's long-term incentive and employee stock purchase plans announced on October 22, 2018 and January 29, 2020.
The following tables present information about the long-term debt outstanding, its maturity and average interest rates in 2022 and 2021.
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2022 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,378 | 1,378 | 250 | 1,128 | 14.3 | 6.3% | |
| EUR bonds | 4,061 | 4,061 | 1,836 | 2,225 | 5.7 | 1.7% | |
| Forward contracts | 858 | 606 | 252 | 252 | 1.0 | ||
| Lease liabilities | 1,082 | 230 | 852 | 504 | 348 | 3.9 | 2.4% |
| Bank borrowings | 705 | 2 | 702 | 702 | 1.9 | 1.7% | |
| Other long-term debt | 28 | 4 | 24 | 17 | 6 | 8.9 | 2.9% |
| Long-term debt | 8,111 | 842 | 7,270 | 3,562 | 3,706 | 6.1 | 2.4% |
Philips Group
Long-term debt
in millions of EUR unless otherwise stated
| \u00a0 | 2021 | ||||||
|---|---|---|---|---|---|---|---|
| \u00a0 | amount outstanding | Current portion | Non-current portion | Between 1 and 5 years | amount due after 5 years | average remaining term (in years) | average rate of interest |
| USD bonds | 1,313 | \u00a0 | 1,313 | 255 | 1,058 | 15.1 | 6.3% |
| EUR bonds | 3,233 | 3,233 | 2,242 | 991 | 4.4 | 1.0% | |
| Forward contracts | 934 | 196 | 738 | 738 | \u00a0 | 1.6 | \u00a0 |
| Lease liabilities | 1,220 | 257 | 963 | 580 | 383 | 4.2 | 2.1% |
| Bank borrowings | 203 | 1 | 202 | 202 | 3.2 | 0.1% | |
| Other long-term debt | 30 | 5 | 26 | 18 | 8 | 8.6 | 3.5% |
| Long-term debt | 6,933 | 459 | 6,473 | 4,034 | 2,439 | 6.0 | 2.1% |
The following table presents the amount outstanding and effective rate of bonds.
Philips Group
Unsecured Bonds
in millions of EUR unless otherwise stated
| \u00a0 | effective rate | 2021 | 2022 |
|---|---|---|---|
| Unsecured EUR Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 06/09/2023; 1/2% | 0.634% | 500 | |
| Due 02/05/2024; 3/4% | 0.861% | 500 | |
| Due 22/05/2026; 1/2% | 0.608% | 750 | 750 |
| Due 02/05/2028; 1 3/8% | 1.523% | 500 | 500 |
| Due 30/03/2025; 1 3/8% | 1.509% | 500 | 346 |
| Due 30/03/2030; 2% | 2.128% | 500 | 500 |
| Due 05/05/2027; 1 7/8% | 2.049% | 750 | |
| Due 05/11/2029; 2 1/8% | 2.441% | 650 | |
| Due 05/05/2033; 2 5/8% | 2.710% | 600 | |
| Unsecured USD Bonds | \u00a0 | \u00a0 | \u00a0 |
| Due 15/05/2025; 7 3/4% | 7.429% | 56 | 51 |
| Due 01/06/2026; 7 1/5% | 6.885% | 120 | 119 |
| Due 15/05/2025; 7 1/8% | 6.794% | 74 | 78 |
| Due 11/03/2038; 6 7/8% | 7.210% | 641 | 683 |
| Due 15/03/2042; 5% | 5.273% | 441 | 470 |
| Adjustments1) | \u00a0 | (37) | (57) |
| Unsecured Bonds | \u00a0 | 4,545 | 5,439 |
The following table presents a reconciliation between the total of future minimum lease payments and their present value.
Philips Group
Lease liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | future minimum lease payments | interest | present value of minimum lease payments | future minimum lease payments | interest | present value of minimum lease payments |
| Less than one year | 280 | 22 | 257 | 251 | 21 | 230 |
| Between one and five years | 636 | 56 | 580 | 554 | 49 | 505 |
| More than five years | 417 | 34 | 383 | 376 | 28 | 348 |
| Lease liabilities | 1,333 | 113 | 1,220 | 1,180 | 98 | 1,082 |
Philips Group
Short-term debt
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Short-term bank borrowings | 47 | 89 |
| Current portion of long-term debt | 459 | 842 |
| Short-term debt | 506 | 931 |
During 2022, the weighted average interest rate on the bank borrowings was 5.7% (2021: 1.2%). This increase was mainly driven by financial market conditions across various countries globally.
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk for the group is monitored through the Treasury liquidity committee, which tracks the development of the actual cash flow position for the group and uses input from a number of sources in order to forecast the overall liquidity position on both a short and longer term basis. Philips invests surplus cash in short-term deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due and in money market funds.
The rating of the company\u2019s debt by major rating agencies may improve or deteriorate. As a result, Philips\u2019 future borrowing capacity may be influenced and its financing costs may fluctuate. Philips has various sources to mitigate the liquidity risk for the group. As of December 31, 2022, Philips had EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), within which short-term deposits of EUR 482 million (2021: EUR 1,357 million). Cash and cash equivalents include all cash balances, money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Philips pools cash from subsidiaries to the extent legally and economically feasible; cash not pooled remains available for the company\u2019s operational or investment needs.
Philips faces cross-border foreign exchange controls and/or other legal restrictions in a few countries that could limit its ability to make these balances available on short notice for general use by the group.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop for its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion. In 2022, Philips issued three new tranches under the program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0For a description of Philips\u2019 credit facilities, refer to Debt.\u00a0
In addition to cash and cash equivalents, as of December 31, 2022, Philips also held EUR 32 million of listed (level 1) equity investments at fair value (classified as other non-current financial assets).
The following table presents a summary of the Group\u2019s 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 business strategy and needs. Therefore, the actual payments made in future periods may vary from those presented in the following table:
| \u00a0 | \u00a0 | payments due by period | |||
|---|---|---|---|---|---|
| \u00a0 | 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 obligations3) | 782 | 336 | 412 | 21 | 12 |
| Trade and other payables | 1,968 | 1,968 | \u00a0 | \u00a0 | \u00a0 |
| Contractual cash obligations | 12,901 | 3,603 | 2,478 | 2,094 | 4,725 |
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). As of December 31, 2022 capital contributions already made to these investment funds are recorded as non-current financial assets.
Philips offers voluntary supply chain finance programs with third parties which provide participating suppliers 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 these arrangements. As of December 31, 2022 approximately EUR 151 million (2021: EUR 139 million)of the Philips account payable were transferred under these arrangements.
With respect to the Respironics field action, please refer to Contingencies. The management continues to monitor the risks associated with such potential claims and its impact on liquidity position, if any.
The company leases various items of real estate, vehicles and other equipment where it acts as a lessee. The company has multiple extension and termination options in a number of lease contracts. These are used to maximize operational flexibility in terms of managing the assets used in the company's operations. The options considered reasonably certain are part of lease liabilities. However, the options not considered reasonably certain are not part of lease liability, which exposes the company to potential future cash outflows amounting to EUR 400 million. In addition, the company is committed to leases not yet commenced to EUR 93 million. The company's lease contracts do not contain financial covenants.
The company enters into sale-and-leaseback transactions primarily for its Sleep & Respiratory Care businesses. These transactions are accounted for at market value. The payments for these leases are considered in determining lease liabilities. Principal repayments are part of cash flows used for financing activities and interest payments are part of cash flows used for operating activities. The cash inflows arising from the sales transactions are part of cash flows provided by financing activities. Lease payments under sale-and-leaseback arrangements for 2022 were EUR 72 million (2021: EUR 85 million). The remaining minimum payment under sale-and-leaseback arrangements included in lease obligations above are as follows:
Philips Group
Remaining minimum payments under sale-and-leaseback arrangements
in millions of EUR
| \u00a0 | \u00a0 |
|---|---|
| 2023 | 55 |
| 2024 | 38 |
| 2025 | 23 |
| 2026 | 14 |
| 2027 | 5 |
| Thereafter | 18 |
Philips has leasing activities where it acts as lessor. In such arrangements, Philips provides the customer with a right to use of medical equipment in exchange for a series of payments. Residual values of assets under lease form an insignificant part of the carrying amount of those assets. Residual values are influenced by asset market prices and are therefore subject to management estimation. Residual values are at least reassessed on an annual basis, or more often when necessary. Reassessments are based on a combination of realization of assets sold, expert knowledge and judgment of local markets. For lease receivables, the value of unguaranteed residual values as of December 31, 2022 was EUR 0.6 million (2021: EUR 0.2 million). In order to reduce residual value risk exposures there may be residual value guarantees or purchase options embedded in the customer contract. Credit risk for lease receivables is reviewed regularly and mitigated, for example, by retaining a security interest in the leased asset.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLiquidityRiskExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22097": { "value": "Debt is initially measured at fair value net of directly attributable transaction costs. Subsequently, debt is measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Debt is derecognized when the obligation under the liability is discharged, cancelled or has expired.
Lease liabilities are measured at the present value of the lease payments due over the lease term, generally discounted using the incremental borrowing rate. Lease liabilities are subsequently measured at amortized cost using the effective interest method. Lease liabilities are remeasured in case of modifications or reassessments of the lease.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBorrowingsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22098": { "value": "Debt is initially measured at fair value net of directly attributable transaction costs. Subsequently, debt is measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Debt is derecognized when the obligation under the liability is discharged, cancelled or has expired.
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
A provision is a liability of uncertain timing or amount. Provisions are recognized if, as a result of a past event, the company has a present legal or constructive obligation, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated reliably. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money. The increase in the provision due to passage of time (accretion) is recognized as interest expense.
Provisions for severance and termination benefits are recognized for those costs only when the company has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Before a provision is established, the company recognizes any impairment loss on the assets associated with the restructuring.
By their nature, the recognition of provisions require estimates and assumptions regarding the timing and the amount of outflow of resources. The main estimates include:
Philips Group
Provisions
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | long-term | short-term | total | long-term | short-term | total |
| Post-employment benefits1) | 659 | \u00a0 | 659 | 546 | \u00a0 | 546 |
| Respironics field-action provision | 52 | 525 | 577 | 23 | 366 | 390 |
| Product warranty provisions | 32 | 207 | 238 | 57 | 287 | 344 |
| Environmental provisions | 99 | 26 | 124 | 83 | 20 | 104 |
| Restructuring-related provisions | 8 | 58 | 66 | 6 | 134 | 140 |
| Legal provisions | 53 | 39 | 91 | 14 | 74 | 89 |
| Contingent consideration provisions | 156 | 52 | 208 | 89 | 23 | 113 |
| Other provisions | 257 | 92 | 349 | 279 | 112 | 390 |
| Provisions | 1,315 | 998 | 2,313 | 1,097 | 1,018 | 2,115 |
On June 14, 2021, Philips\u2019 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 related to the polyester-based polyurethane (PE-PUR) sound abatement foam in these devices.
The repair and replacement program is under way globally. Because of the prioritization of the repair and replace program, Philips is currently not taking new orders for sleep therapy systems, while masks and other consumables continue to be sold.\u00a0As of December 31, 2022, approximately 90% of the production required for the delivery of replacement devices to patients has been completed. The time to complete the program is impacted by the dependency on supply of materials, including from China, and global logistics capacity.\u00a0Philips Respironics is also conducting a test and research program with independent laboratories.\u00a0
Philips has recognized a provision based on Philips' best estimate of the costs to repair or replace devices subject to the Respironics field action. The provision is related to the cost to repair and/or replace affected devices and includes, amongst others, the costs for the remaining production, the cost of intensified communication with physicians and patients, material costs, labor cost and logistics. The provision does not include any product liability costs or other claims. Movements during the year were as follows:
Philips Group
Respironics field-action provision
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | - | 577 |
| Additions | 719 | 250 |
| Utilizations | (175) | (486) |
| Translation differences | 33 | 49 |
| Balance as of December 31 | 577 | 390 |
Additions for the year reflect updated expectations in relation to the volume of devices eligible for remediation as well as additional costs related to the acceleration of the program. As of December 31, 2022, Philips Respironics expects to remediate a total of around 5.6 million devices (specific CPAP, BiPAP and mechanical ventilator devices) globally,\u00a0excluding certain end-of-life devices that are expected to be retired. In 2022, following Philips Respironics\u2019 comprehensive patient and customer communication outreach and based on current insights, the total expected units to be remediated have increased by approximately 0.4 million, primarily in the US. Furthermore, efforts to accelerate the program resulted in a shift towards replacement, which increased the replacement share to 60% (compared to 46% as of December 31, 2021) and as a result further reduced repair quantities. Utilizations for the year reflect the costs incurred in executing the repair and replace program during the year.
The completion of the field action continues to be subject to significant uncertainties, which require management to make estimates and assumptions about items such as quantities and the portion to be replaced or repaired. As of December 31, 2022, the impact of changes in these main assumptions and estimates, holding other assumptions constant, on the field action provision are as follows:
Philips Group
Main assumptions
in millions of EUR unless otherwise stated
| \u00a0 | Increase (decrease) in provision | |
|---|---|---|
| Assumption | Increase individual assumption by 10% | Decrease individual assumption by 10% |
| Total quantity of devices remaining | 26 | (26) |
| Replacement share | 12 | (12) |
Actual outcomes in future periods may differ from these estimates and affect the company's results of operations, financial position and cash flows.
In addition, running remediation costs of EUR 210 million (2021: EUR 94 million) related to the remediation, such as testing, external advisory and regulatory response and additional right-of-return and warranty provisions have been incurred.
Following the FDA\u2019s inspection of certain of Philips Respironics\u2019 facilities in the US in 2021 and the subsequent inspectional observations, the US Department of Justice, acting on behalf of the FDA, in July 2022 started discussions with Philips regarding the terms of a consent decree to resolve the identified issues. At the end of December 2022, the discussions are ongoing. Furthermore, Philips is a defendant in a number of consumer class action lawsuits from users of the affected devices and a number of individual personal injury and other compensation claims. To date no provisions have been recorded for the litigation and investigations associated with the Respironics field action. For legal matters including claims refer to Contingencies.\u00a0
The provisions for assurance-type product warranty reflect the estimated costs of replacement and free-of-charge services that will be incurred by the company with respect to products sold, and include costs to execute field change orders. The field action provision in connection with the Philips Respironics voluntary recall notification is shown separately above.
The company expects the provisions to be utilized mainly within the next year.
Philips Group
Provisions for assurance-type product warranty
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 167 | 238 |
| Additions | 364 | 320 |
| Utilizations | (265) | (224) |
| Transfer to liabilities associated with assets held for sale | (37) | |
| Translation differences and other | 10 | 9 |
| Balance as of December 31 | 238 | 344 |
Additions in 2022 include quality actions of EUR 108 million in the Connected Care segment, mainly for the following matters:
In February 2022, Philips issued a field safety notice notifying customers of a potential issue with the Adult SMART Pads Cartridge (M5071A) and the Infant/Child SMART Pads Cartridge (M5072A) for use specifically with the HeartStart HS1 Automated External Defibrillator (AED) devices. Philips has identified that for affected pads the HS1 AED could deliver less effective or ineffective therapy. Philips is actively working on replacing these pads and has commenced the replacement program in 2022.
In March 2022, Philips Respironics issued a voluntary recall notification/field safety notice to customers of its V60, V60 Plus and V680 ventilators, regarding a potential issue that could affect the main electrical circuit (\u201c35V Rail\u201d) powering the ventilator and alarm. This notification was updated in April 2022 with additional customer instructions. In June 2022, Philips issued a further update to this notification, regarding the projected correction for this matter. To address the issue with the 35V Rail, Philips Respironics has commenced the remediation program in 2022.
The environmental provisions include accrued costs recorded with respect to environmental remediation in various countries. In the United States, subsidiaries of the company have been named as potentially responsible parties in state and federal proceedings for the clean-up of certain sites.
Provisions for environmental remediation can change significantly due to the emergence of additional information regarding the extent or nature of the contamination, the need to utilize alternative technologies, actions by regulatory authorities as well as changes in judgments and discount rates.
Approximately EUR 73 million\u00a0of the long-term provision is expected to be utilized after one to five years, with the remainder after five years. For more details on the environmental remediation refer to Contingencies.
Philips Group
Environmental provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 183 | 124 |
| Additions | 18 | 15 |
| Utilizations | (15) | (17) |
| Releases | (64) | (2) |
| Changes in discount rate | (10) | (27) |
| Accretion | 3 | 4 |
| Translation differences and other | 9 | 7 |
| Balance as of December 31 | 124 | 104 |
The additions and the releases of the provisions originate from additional insights in relation to factors like the estimated cost of remediation, changes in regulatory requirements and efficiencies in completion of various site work phases.
Based on the progressive insight with respect to site remediation experience, technological progress and risk-based clean-up strategies, the estimated remaining duration of remediation activities for environmental liabilities for infinite environmental sites was revised in 2021 from 60 years to 30 years. The resulting release was EUR 55 million of which EUR 33 million is recorded in continuing operations and EUR 22 million in discontinued operations.
Philips Group
Restructuring-related provisions
in millions of EUR
| \u00a0 | January 1, 2022 | additions | utilizations | releases | other changes | December 31, 2022 |
|---|---|---|---|---|---|---|
| Diagnosis & Treatment | 26 | 58 | (27) | (8) | 0 | 49 |
| Connected Care | 17 | 34 | (13) | (3) | (1) | 34 |
| Personal Health | 9 | 9 | (7) | (2) | 0 | 10 |
| Other | 14 | 52 | (14) | (5) | 0 | 47 |
| Philips Group | 66 | 154 | (61) | (18) | (1) | 140 |
In 2022, Philips initiated general productivity actions aimed at simplifying the organization to streamline the way of working and reduce operating expenses. This includes an immediate reduction of around 4,000\u00a0positions globally across the organization, subject to consultation with the relevant workers councils and social partners, with severance and termination-related costs expected to be approximately EUR 130 million in aggregate, of which EUR 80 million was recorded in 2022.
In addition, restructuring projects were executed during the year, of which the most significant impacted Diagnosis & Treatment and Other and mainly took place in the US and Netherlands. The restructuring mainly comprised product portfolio rationalization and the reorganization of global support functions. The company expects the provisions to be utilized mainly within the next year.
In 2021, the most significant restructuring projects impacted Diagnostic & Treatment and Connected Care businesses and mainly took place in the Netherlands and US.\u00a0
The movements in the provisions for restructuring in 2021 are presented by segment as follows:
Philips Group
Restructuring-related provisions
in millions of EUR
| \u00a0 | January 1, 2021 | additions | utilizations | releases | other changes | December 31, 2021 |
|---|---|---|---|---|---|---|
| Diagnosis & Treatment | 33 | 23 | (19) | (13) | 1 | 26 |
| Connected Care | 17 | 16 | (12) | (4) | - | 17 |
| Personal Health | 28 | 6 | (21) | (6) | 2 | 9 |
| Other | 38 | 10 | (21) | (16) | 4 | 14 |
| Philips Group | 117 | 55 | (73) | (39) | 6 | 66 |
The company and certain of its group companies and former group companies are involved as a party in legal proceedings, including regulatory and other governmental proceedings.
Philips Group
Legal provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 72 | 91 |
| Additions | 43 | 89 |
| Acquisitions | 38 | 4 |
| Utilizations | (17) | (100) |
| Releases | (48) | (3) |
| Accretion | 1 | - |
| Translation differences and other | 3 | 7 |
| Balance as of December 31 | 91 | 89 |
The majority of the movements in the above schedule are: Additions mainly relate to a provision recognized for alleged tender irregularities as disclosed in note Contingencies and provisions recognized for CRT matters. Utilizations mainly relate to the settlement of investigations in the Connected Care businesses (unrelated to the Philips Respironics voluntary recall notification).
For details of other legal matters, including regulatory and other governmental proceedings, refer to Contingencies.
The company expects the provisions to be utilized mainly within the next three years.
Philips Group
Contingent consideration provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 318 | 208 |
| Acquisitions | 16 | 96 |
| Utilizations | (48) | (105) |
| Fair value changes | (78) | (86) |
| Balance as of December 31 | 208 | 113 |
The provision for contingent consideration reflects the fair value of the expected payment to former shareholders of an acquiree for the exchange of control if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The provision for contingent consideration can change significantly due to changes in the estimated achievement of milestones and changes in discount rates. Changes in fair value of the contingent consideration liability are reflected in other business income.
In 2021 and 2022, the fair value changes mainly related to EPD. In 2022, the decrease of EUR 61 million in the fair value of the contingent consideration comprised of EUR 30 million\u00a0 due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 31 million due to delays in achievement of certain milestones. In 2021, the decrease of EUR 67 million in the fair value of the contingent consideration comprised of EUR 41 million due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 26 million due to delays in achievement of certain milestones.
The company expects the provisions to be utilized mainly within the next three years.
Philips Group
Other provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 372 | 349 |
| Additions | 89 | 160 |
| Utilizations | (87) | (95) |
| Releases | (29) | (35) |
| Accretion | (5) | (3) |
| Translation differences and other | 9 | 14 |
| Balance as of December 31 | 349 | 390 |
The main elements of other provisions are:
The company expects the provisions to be utilized mainly within the next five years, except for:
A provision is a liability of uncertain timing or amount. Provisions are recognized if, as a result of a past event, the company has a present legal or constructive obligation, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated reliably. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money. The increase in the provision due to passage of time (accretion) is recognized as interest expense.
Provisions for severance and termination benefits are recognized for those costs only when the company has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Before a provision is established, the company recognizes any impairment loss on the assets associated with the restructuring.
By their nature, the recognition of provisions require estimates and assumptions regarding the timing and the amount of outflow of resources. The main estimates include:
Philips Group
Provisions
in millions of EUR
| \u00a0 | 2021 | 2022 | ||||
|---|---|---|---|---|---|---|
| \u00a0 | long-term | short-term | total | long-term | short-term | total |
| Post-employment benefits1) | 659 | \u00a0 | 659 | 546 | \u00a0 | 546 |
| Respironics field-action provision | 52 | 525 | 577 | 23 | 366 | 390 |
| Product warranty provisions | 32 | 207 | 238 | 57 | 287 | 344 |
| Environmental provisions | 99 | 26 | 124 | 83 | 20 | 104 |
| Restructuring-related provisions | 8 | 58 | 66 | 6 | 134 | 140 |
| Legal provisions | 53 | 39 | 91 | 14 | 74 | 89 |
| Contingent consideration provisions | 156 | 52 | 208 | 89 | 23 | 113 |
| Other provisions | 257 | 92 | 349 | 279 | 112 | 390 |
| Provisions | 1,315 | 998 | 2,313 | 1,097 | 1,018 | 2,115 |
On June 14, 2021, Philips\u2019 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 related to the polyester-based polyurethane (PE-PUR) sound abatement foam in these devices.
The repair and replacement program is under way globally. Because of the prioritization of the repair and replace program, Philips is currently not taking new orders for sleep therapy systems, while masks and other consumables continue to be sold.\u00a0As of December 31, 2022, approximately 90% of the production required for the delivery of replacement devices to patients has been completed. The time to complete the program is impacted by the dependency on supply of materials, including from China, and global logistics capacity.\u00a0Philips Respironics is also conducting a test and research program with independent laboratories.\u00a0
Philips has recognized a provision based on Philips' best estimate of the costs to repair or replace devices subject to the Respironics field action. The provision is related to the cost to repair and/or replace affected devices and includes, amongst others, the costs for the remaining production, the cost of intensified communication with physicians and patients, material costs, labor cost and logistics. The provision does not include any product liability costs or other claims. Movements during the year were as follows:
Philips Group
Respironics field-action provision
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | - | 577 |
| Additions | 719 | 250 |
| Utilizations | (175) | (486) |
| Translation differences | 33 | 49 |
| Balance as of December 31 | 577 | 390 |
Additions for the year reflect updated expectations in relation to the volume of devices eligible for remediation as well as additional costs related to the acceleration of the program. As of December 31, 2022, Philips Respironics expects to remediate a total of around 5.6 million devices (specific CPAP, BiPAP and mechanical ventilator devices) globally,\u00a0excluding certain end-of-life devices that are expected to be retired. In 2022, following Philips Respironics\u2019 comprehensive patient and customer communication outreach and based on current insights, the total expected units to be remediated have increased by approximately 0.4 million, primarily in the US. Furthermore, efforts to accelerate the program resulted in a shift towards replacement, which increased the replacement share to 60% (compared to 46% as of December 31, 2021) and as a result further reduced repair quantities. Utilizations for the year reflect the costs incurred in executing the repair and replace program during the year.
The completion of the field action continues to be subject to significant uncertainties, which require management to make estimates and assumptions about items such as quantities and the portion to be replaced or repaired. As of December 31, 2022, the impact of changes in these main assumptions and estimates, holding other assumptions constant, on the field action provision are as follows:
Philips Group
Main assumptions
in millions of EUR unless otherwise stated
| \u00a0 | Increase (decrease) in provision | |
|---|---|---|
| Assumption | Increase individual assumption by 10% | Decrease individual assumption by 10% |
| Total quantity of devices remaining | 26 | (26) |
| Replacement share | 12 | (12) |
Actual outcomes in future periods may differ from these estimates and affect the company's results of operations, financial position and cash flows.
In addition, running remediation costs of EUR 210 million (2021: EUR 94 million) related to the remediation, such as testing, external advisory and regulatory response and additional right-of-return and warranty provisions have been incurred.
Following the FDA\u2019s inspection of certain of Philips Respironics\u2019 facilities in the US in 2021 and the subsequent inspectional observations, the US Department of Justice, acting on behalf of the FDA, in July 2022 started discussions with Philips regarding the terms of a consent decree to resolve the identified issues. At the end of December 2022, the discussions are ongoing. Furthermore, Philips is a defendant in a number of consumer class action lawsuits from users of the affected devices and a number of individual personal injury and other compensation claims. To date no provisions have been recorded for the litigation and investigations associated with the Respironics field action. For legal matters including claims refer to Contingencies.\u00a0
The provisions for assurance-type product warranty reflect the estimated costs of replacement and free-of-charge services that will be incurred by the company with respect to products sold, and include costs to execute field change orders. The field action provision in connection with the Philips Respironics voluntary recall notification is shown separately above.
The company expects the provisions to be utilized mainly within the next year.
Philips Group
Provisions for assurance-type product warranty
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 167 | 238 |
| Additions | 364 | 320 |
| Utilizations | (265) | (224) |
| Transfer to liabilities associated with assets held for sale | (37) | |
| Translation differences and other | 10 | 9 |
| Balance as of December 31 | 238 | 344 |
Additions in 2022 include quality actions of EUR 108 million in the Connected Care segment, mainly for the following matters:
In February 2022, Philips issued a field safety notice notifying customers of a potential issue with the Adult SMART Pads Cartridge (M5071A) and the Infant/Child SMART Pads Cartridge (M5072A) for use specifically with the HeartStart HS1 Automated External Defibrillator (AED) devices. Philips has identified that for affected pads the HS1 AED could deliver less effective or ineffective therapy. Philips is actively working on replacing these pads and has commenced the replacement program in 2022.
In March 2022, Philips Respironics issued a voluntary recall notification/field safety notice to customers of its V60, V60 Plus and V680 ventilators, regarding a potential issue that could affect the main electrical circuit (\u201c35V Rail\u201d) powering the ventilator and alarm. This notification was updated in April 2022 with additional customer instructions. In June 2022, Philips issued a further update to this notification, regarding the projected correction for this matter. To address the issue with the 35V Rail, Philips Respironics has commenced the remediation program in 2022.
The environmental provisions include accrued costs recorded with respect to environmental remediation in various countries. In the United States, subsidiaries of the company have been named as potentially responsible parties in state and federal proceedings for the clean-up of certain sites.
Provisions for environmental remediation can change significantly due to the emergence of additional information regarding the extent or nature of the contamination, the need to utilize alternative technologies, actions by regulatory authorities as well as changes in judgments and discount rates.
Approximately EUR 73 million\u00a0of the long-term provision is expected to be utilized after one to five years, with the remainder after five years. For more details on the environmental remediation refer to Contingencies.
Philips Group
Environmental provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 183 | 124 |
| Additions | 18 | 15 |
| Utilizations | (15) | (17) |
| Releases | (64) | (2) |
| Changes in discount rate | (10) | (27) |
| Accretion | 3 | 4 |
| Translation differences and other | 9 | 7 |
| Balance as of December 31 | 124 | 104 |
The additions and the releases of the provisions originate from additional insights in relation to factors like the estimated cost of remediation, changes in regulatory requirements and efficiencies in completion of various site work phases.
Based on the progressive insight with respect to site remediation experience, technological progress and risk-based clean-up strategies, the estimated remaining duration of remediation activities for environmental liabilities for infinite environmental sites was revised in 2021 from 60 years to 30 years. The resulting release was EUR 55 million of which EUR 33 million is recorded in continuing operations and EUR 22 million in discontinued operations.
Philips Group
Restructuring-related provisions
in millions of EUR
| \u00a0 | January 1, 2022 | additions | utilizations | releases | other changes | December 31, 2022 |
|---|---|---|---|---|---|---|
| Diagnosis & Treatment | 26 | 58 | (27) | (8) | 0 | 49 |
| Connected Care | 17 | 34 | (13) | (3) | (1) | 34 |
| Personal Health | 9 | 9 | (7) | (2) | 0 | 10 |
| Other | 14 | 52 | (14) | (5) | 0 | 47 |
| Philips Group | 66 | 154 | (61) | (18) | (1) | 140 |
In 2022, Philips initiated general productivity actions aimed at simplifying the organization to streamline the way of working and reduce operating expenses. This includes an immediate reduction of around 4,000\u00a0positions globally across the organization, subject to consultation with the relevant workers councils and social partners, with severance and termination-related costs expected to be approximately EUR 130 million in aggregate, of which EUR 80 million was recorded in 2022.
In addition, restructuring projects were executed during the year, of which the most significant impacted Diagnosis & Treatment and Other and mainly took place in the US and Netherlands. The restructuring mainly comprised product portfolio rationalization and the reorganization of global support functions. The company expects the provisions to be utilized mainly within the next year.
In 2021, the most significant restructuring projects impacted Diagnostic & Treatment and Connected Care businesses and mainly took place in the Netherlands and US.\u00a0
The movements in the provisions for restructuring in 2021 are presented by segment as follows:
Philips Group
Restructuring-related provisions
in millions of EUR
| \u00a0 | January 1, 2021 | additions | utilizations | releases | other changes | December 31, 2021 |
|---|---|---|---|---|---|---|
| Diagnosis & Treatment | 33 | 23 | (19) | (13) | 1 | 26 |
| Connected Care | 17 | 16 | (12) | (4) | - | 17 |
| Personal Health | 28 | 6 | (21) | (6) | 2 | 9 |
| Other | 38 | 10 | (21) | (16) | 4 | 14 |
| Philips Group | 117 | 55 | (73) | (39) | 6 | 66 |
The company and certain of its group companies and former group companies are involved as a party in legal proceedings, including regulatory and other governmental proceedings.
Philips Group
Legal provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 72 | 91 |
| Additions | 43 | 89 |
| Acquisitions | 38 | 4 |
| Utilizations | (17) | (100) |
| Releases | (48) | (3) |
| Accretion | 1 | - |
| Translation differences and other | 3 | 7 |
| Balance as of December 31 | 91 | 89 |
The majority of the movements in the above schedule are: Additions mainly relate to a provision recognized for alleged tender irregularities as disclosed in note Contingencies and provisions recognized for CRT matters. Utilizations mainly relate to the settlement of investigations in the Connected Care businesses (unrelated to the Philips Respironics voluntary recall notification).
For details of other legal matters, including regulatory and other governmental proceedings, refer to Contingencies.
The company expects the provisions to be utilized mainly within the next three years.
Philips Group
Contingent consideration provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 318 | 208 |
| Acquisitions | 16 | 96 |
| Utilizations | (48) | (105) |
| Fair value changes | (78) | (86) |
| Balance as of December 31 | 208 | 113 |
The provision for contingent consideration reflects the fair value of the expected payment to former shareholders of an acquiree for the exchange of control if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The provision for contingent consideration can change significantly due to changes in the estimated achievement of milestones and changes in discount rates. Changes in fair value of the contingent consideration liability are reflected in other business income.
In 2021 and 2022, the fair value changes mainly related to EPD. In 2022, the decrease of EUR 61 million in the fair value of the contingent consideration comprised of EUR 30 million\u00a0 due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 31 million due to delays in achievement of certain milestones. In 2021, the decrease of EUR 67 million in the fair value of the contingent consideration comprised of EUR 41 million due to the revisions to EPD\u2019s forecast due to more severe short-term impacts of COVID-19 and the competitive environment, and EUR 26 million due to delays in achievement of certain milestones.
The company expects the provisions to be utilized mainly within the next three years.
Philips Group
Other provisions
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Balance as of January 1 | 372 | 349 |
| Additions | 89 | 160 |
| Utilizations | (87) | (95) |
| Releases | (29) | (35) |
| Accretion | (5) | (3) |
| Translation differences and other | 9 | 14 |
| Balance as of December 31 | 349 | 390 |
The main elements of other provisions are:
The company expects the provisions to be utilized mainly within the next five years, except for:
A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
Philips\u2019 policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. The company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The guarantee is subsequently measured at the higher of the best estimate of the obligation or the amount initially recognized less, when appropriate, cumulative amortization.
As of December 31, 2022, the company had no material contingent assets.
The total fair value of guarantees recognized on the balance sheet amounts to EUR nil million for both 2022 and 2021. Remaining off-balance-sheet business related guarantees on behalf of third parties and associates to EUR 2 million in 2022 (December 31, 2021: EUR 2 million).
The company and its subsidiaries are subject to environmental laws and regulations. Under these laws, the company and/or its subsidiaries may be required to remediate the effects of certain manufacturing activities on the environment.
The company and certain of its group companies and former group companies are involved as a party in legal proceedings, regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, commercial transactions, product liability, participations, and environmental pollution.
While it is not feasible to predict or determine the outcome of all pending or threatened legal proceedings, regulatory and governmental proceedings, the company is of the opinion that the cases described below may have, or have had in the recent past, a significant impact on the company\u2019s consolidated financial position, results of operations and cash flows.
The company is engaged in discussions with, and has provided information to, the US Securities and Exchange Commission (SEC) and US Department of Justice (DoJ) regarding alleged tender irregularities in the medical device industry in certain jurisdictions. These interactions are primarily focused on a number of compliance findings that the company is addressing in Brazil, China and Bulgaria. In connection with these discussions and their status, the company recorded a provision in the amount of EUR 60 million.
Given the significant uncertainty regarding the nature of the relevant events and obligations, Philips is not currently able to reliably estimate the full financial effect of a range of possible outcomes in connection with the abovementioned discussions with the SEC and DoJ beyond the recorded provision. The outcomes of these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On June 14, 2021, Philips\u2019 subsidiary Philips RS North America LLC (Philips Respironics) issued a voluntary recall notification in the United States and field safety notice outside the United States for specific Philips Respironics CPAP, Bi-Level PAP, and mechanical ventilator devices (the \u201cRecalled Devices\u201d).
On August 26, 2021, the US Food and Drug Administration (FDA) commenced an inspection of the Philips Respironics manufacturing facility in Murrysville, Pennsylvania and provided Philips Respironics with its preliminary inspectional observations on November 9, 2021. Philips Respironics responded to the FDA\u2019s inspectional observations in December 2021, which described the actions already taken by the company, as well as additional planned actions. Philips Respironics is also providing periodic updates to the FDA on its progress for the planned actions. In July 2022, Philips started discussions with the DoJ acting on behalf of the FDA on a consent decree that would address compliance requirements for future sales, the resolution of the inspectional findings and the completion of the recall. At the end of December 2022, the discussions are ongoing.
On April 8, 2022, Philips Respironics and certain of Philips\u2019 subsidiaries in the US received a subpoena from the US DoJ to provide information related to events leading to the Respironics recall. The relevant subsidiaries are cooperating with the investigation. The criminal and civil investigation is being conducted by the US DoJ\u2019s Consumer Protection Branch and Civil Fraud Section, and the US Attorney\u2019s Office for the Eastern District of Pennsylvania. Given the early stages of the investigation, the company is not able to reliably estimate the financial impact, if any.
Following the voluntary recall notification, a number of civil complaints have been filed in several jurisdictions against Philips Respironics and certain of its affiliates (including the company) generally alleging economic loss, personal injury and/or the potential for personal injury allegedly caused by devices subject to the recall.
In the United States, consumer and commercial class action lawsuits have been filed alleging economic loss and medical monitoring claims. Individual personal injury lawsuits have also been filed. On October 8, 2021, a Multi-District Litigation (MDL) in the US District Court for the Western District of Pennsylvania was formed, and most of these class action and personal injury lawsuits have been consolidated in the MDL for pre-trial proceedings. As of December 31, 2022, plaintiffs have filed a consolidated economic loss class action complaint on behalf of device users, hospitals, and insurers and other third-party payers, a consolidated medical monitoring class action complaint on behalf of device users, and over 300 individual personal injury complaints.\u00a0The company anticipates that the number of individual personal injury complaints will increase in 2023.
In September 2022, the MDL court established a voluntary, court-approved census registry, and associated tolling, for potential claimants who have not filed claims, but may file claims in the future, relating to the Recalled Devices. The census registry replaces the private tolling agreement that had been in effect before the establishment of the census registry. At the time of termination, approximately 60,000 individuals had entered into the private tolling agreement. In the event these individuals wish to pursue or preserve their claims, they will need to file a lawsuit or register on the census registry. By December 31, 2022, approximately 13,500 individuals had joined the census registry. The company anticipates that the number of individuals on the census registry will increase in 2023.
In Australia, a consumer class action lawsuit alleging personal injury was filed against the company\u2019s subsidiary Philips Electronics Australia Ltd on October 4, 2021. In the course of 2022, the plaintiff in the case has sought leave of the court to discontinue the class action citing that there is insufficient evidence to warrant the continuation of the class action and that since the issue of proceedings, Philips Respironics has been repairing, replacing, or refunding the devices which are the subject of the recall, meaning that any compensation relating to financial loss would be relatively confined. It is expected that the case will be discontinued in the first half of 2023.
Philips Respironics and certain of its affiliates (including the company) are also defendants in consumer class action lawsuits in Canada and Israel and collective actions in Chile, France and the Netherlands alleging economic loss and/or personal injury.
While the company believes it is probable that these lawsuits will in the aggregate lead to an outflow of economic resources for Philips Respironics or other Philips entities, given the significant uncertainty regarding the nature of the relevant events and potential obligations, the company is not currently able to reliably estimate the amount of the obligation associated with these various lawsuits. The final outcome of the lawsuits and the cost to resolve them cannot currently be determined due to a number of variables, including uncertainty regarding the ultimate number of claimants and their allegations. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices.
For the United States specifically, the relative early stage of the census registry, and lack of clarity around the nature of the specific injury each claimant is claiming, contribute to the uncertainty. In addition, the MDL court has not yet decided several significant motions, including motions to dismiss all of the complaints, and plaintiffs have not yet filed their motions for class certification in the economic loss and medical monitoring actions. Further, discovery is still in its early stages, and expert discovery has not yet begun. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices. An adverse outcome with respect to any or all of these lawsuits and/or any future claims could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On August 16, 2021, a securities class action complaint was filed against the company, its former CEO and its CFO in the United States District Court for the Eastern District of New York alleging violations of the Securities Exchange Act of 1934 causing damage to investors. On January 3, 2022, the lead plaintiff in the case filed its amended complaint seeking to represent individuals that purchased Philips shares between February 23, 2016, through November 12, 2021. Following the filing and briefing of the company\u2019s motion to dismiss in the first half of 2022, plaintiff filed a second amended complaint on November 30, 2022, in which the alleged damage period was expanded to include certain share price declines that were allegedly based on disclosures made in 2022. The second amended complaint now focuses on share price declines that allegedly occurred as a result of various disclosures starting on April 26, 2021 through October 2022. The company\u2019s motion to dismiss the second amended complaint is due in the first quarter of 2023.
On September 11, 2022, the company received a letter from shareholders representative organization European Investors-VEB (\"VEB\"). The VEB holds Philips and its (former) managing and supervisory directors liable for \u2013 inter alia \u2013 allegedly failing to timely disclose price-sensitive information to shareholders regarding indications of potential (severe) health risks from the use of Recalled Devices, failing to exercise proper oversight over Philips Respironics and implement and ensure a proper information and risk management structure; providing incorrect or incomplete information in the company\u2019s financial disclosures.\u00a0
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. An adverse outcome of these cases could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On October 12, 2021, SoClean, a company offering ozone-based cleaning products for sleep devices, filed a lawsuit against the company and certain of its affiliates alleging that the defendants\u2019 statements about the potential adverse effect ozone cleaning may have on the recalled devices has significantly damaged its business. Philips believes that the claim is without merit and will vigorously defend itself. Motions to dismiss the case were filed in November and December 2022.
In addition, some of Philips Respironics\u2019 business partners such as distributors and durable medical equipment providers have filed or threatened to file claims alleging economic losses suffered as a consequence of the voluntary recall. In particular, Philips Respironics is engaging with certain of its business partners on the level of compensation they allege to be entitled to under Philips Respironics\u2019 replacement program of the Recalled Devices.
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. In the event of an adverse outcome, these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
To date no provisions have been recorded for the litigation and investigations associated with the Respironics field action.
For details on other contractual obligations, please refer to liquidity risk in Details of treasury and other financial risks.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherProvisionsContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22733": { "value": "Provisions for severance and termination benefits are recognized for those costs only when the company has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Before a provision is established, the company recognizes any impairment loss on the assets associated with the restructuring.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForTerminationBenefits", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f22734": { "value": "A provision is a liability of uncertain timing or amount. Provisions are recognized if, as a result of a past event, the company has a present legal or constructive obligation, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be estimated reliably. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money. The increase in the provision due to passage of time (accretion) is recognized as interest expense.
Provisions for severance and termination benefits are recognized for those costs only when the company has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Before a provision is established, the company recognizes any impairment loss on the assets associated with the restructuring.
Provisions for severance and termination benefits are recognized for those costs only when the company has a detailed formal plan for the restructuring and has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Before a provision is established, the company recognizes any impairment loss on the assets associated with the restructuring.
A defined contribution plan is a post-employment benefit plan for which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the Consolidated statements of income in the periods during which services are rendered by employees.
A defined benefit plan is a post-employment benefit plan that is not a defined contribution plan. Defined benefit plans define an amount of pension benefit that an employee will receive after retirement. That pension benefit typically depends on several factors such as years of service, age and salary.
The net pension asset or liability recognized in the Consolidated balance sheets in respect of defined benefit plans is the fair value of plan assets less the present value of the projected defined benefit obligation at the Consolidated balance sheets date. The defined benefit obligation is calculated annually by qualified actuaries using the projected unit credit method. Recognized assets are limited to the present value of any reductions in future contributions or any future refunds. The net pension liability is presented as a long-term provision; no distinction is made for the short-term portion.
For the company\u2019s major plans, a full discount rate curve of high-quality corporate bonds is used to determine the defined benefit obligation, where available. The curves are based on the Mercer Yield Curve methodology, which uses data of corporate bonds rated AA or equivalent. For the other plans the Mercer Yield Curve/Mercer Methodology has also been used taking into account the cash flows as much as possible in case there is a deep market in corporate bonds. For plans in countries without a deep corporate bond market, the discount rate is based on government bonds and the plan\u2019s maturity.
Pension costs in respect of defined benefit plans primarily represent the increase of the actuarial present value of the obligation for post-employment benefits based on employee service during the year and the interest on the net recognized asset or liability in respect of employee service in previous years.
Remeasurements of the net defined benefit asset or liability comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (excluding interest). The company recognizes all remeasurements in Other comprehensive income.
Past service costs arising from the introduction of a change to the benefit payable under a plan or a significant reduction of the number of employees covered by a plan (curtailment) are recognized in full in the Consolidated statements of income.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. The company recognizes a liability and an expense for bonuses and incentives based on a formula that takes into consideration the profit attributable to the company\u2019s shareholders after certain adjustments.
The company\u2019s net obligation in respect of other long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods, such as jubilee entitlements. That benefit is discounted to determine its present value. Remeasurements are recognized in the Consolidated statements of income in the period in which they arise.
Further information on other employee benefits can be found in Provisions in the Other provisions section.
Accrued liabilities are summarized as follows:
Philips Group
Accrued liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Personnel-related costs: | \u00a0 | \u00a0 |
| - Salaries and wages | 566 | 490 |
| - Accrued holiday entitlements | 127 | 97 |
| - Other personnel-related costs | 108 | 101 |
| Fixed-asset-related costs: | \u00a0 | \u00a0 |
| - Gas, water, electricity, rent and other | 33 | 46 |
| Communication and IT costs | 82 | 64 |
| Distribution costs | 122 | 110 |
| Sales-related costs: | \u00a0 | \u00a0 |
| - Commission payable | 7 | 8 |
| - Advertising and marketing-related costs | 175 | 127 |
| - Other sales-related costs | 20 | 20 |
| Material-related costs | 130 | 132 |
| Interest-related accruals | 52 | 71 |
| Other accrued liabilities | 362 | 361 |
| Accrued liabilities | 1,784 | 1,626 |
Non-current contract liabilities were EUR 515 million as of December 31, 2022 (December 31, 2021: EUR 446 million) and current contract liabilities were EUR 1,696 million as of December 31, 2022 (December 31, 2021: EUR 1,491 million).
The current contract liabilities increased by EUR 205 million, which is mainly driven by an increase in deferred balances for customer service contracts.
The current contract liabilities as of December 31, 2021 resulted in revenue recognized of EUR 1,491 million in 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredIncomeExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f24501": { "value": "Other liabilities are initially measured at fair value and subsequently at amortized cost and are derecognized when the obligation under the liability is discharged, cancelled or has expired.
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
Non-current liabilities were EUR 60 million as of December 31, 2022 (December 31, 2021: EUR 56 million).\u00a0
Non-current liabilities are associated mainly with indemnification and non-current accruals.
Non-current contract liabilities were EUR 515 million as of December 31, 2022 (December 31, 2021: EUR 446 million) and current contract liabilities were EUR 1,696 million as of December 31, 2022 (December 31, 2021: EUR 1,491 million).
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherNoncurrentLiabilitiesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f24502": { "value": "Other liabilities are initially measured at fair value and subsequently at amortized cost and are derecognized when the obligation under the liability is discharged, cancelled or has expired.
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
Other current liabilities are summarized as follows:
Philips Group
Other current liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Accrued customer rebates\u00a0 | 280 | 213 |
| Other taxes including social security premiums | 190 | 115 |
| Other liabilities | 116 | 120 |
| Other current liabilities | 587 | 448 |
Non-current contract liabilities were EUR 515 million as of December 31, 2022 (December 31, 2021: EUR 446 million) and current contract liabilities were EUR 1,696 million as of December 31, 2022 (December 31, 2021: EUR 1,491 million).
The current contract liabilities increased by EUR 205 million, which is mainly driven by an increase in deferred balances for customer service contracts.
The current contract liabilities as of December 31, 2021 resulted in revenue recognized of EUR 1,491 million in 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherCurrentLiabilitiesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f24503": { "value": "Other liabilities are initially measured at fair value and subsequently at amortized cost and are derecognized when the obligation under the liability is discharged, cancelled or has expired.
The company recognizes contract liabilities if a payment is received or a payment is due (whichever is earlier) from a customer before the company transfers the related goods or services. Contract liabilities are recognized as revenue when the company performs under the contract (i.e., transfers control of the related goods or services to the customer).
Non-current liabilities were EUR 60 million as of December 31, 2022 (December 31, 2021: EUR 56 million).\u00a0
Non-current liabilities are associated mainly with indemnification and non-current accruals.
Other current liabilities are summarized as follows:
Philips Group
Other current liabilities
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Accrued customer rebates\u00a0 | 280 | 213 |
| Other taxes including social security premiums | 190 | 115 |
| Other liabilities | 116 | 120 |
| Other current liabilities | 587 | 448 |
Non-current contract liabilities were EUR 515 million as of December 31, 2022 (December 31, 2021: EUR 446 million) and current contract liabilities were EUR 1,696 million as of December 31, 2022 (December 31, 2021: EUR 1,491 million).
The current contract liabilities increased by EUR 205 million, which is mainly driven by an increase in deferred balances for customer service contracts.
The current contract liabilities as of December 31, 2021 resulted in revenue recognized of EUR 1,491 million in 2022.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f24597": { "value": "Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
The cash flow statement is prepared using the indirect method. Cash flows related to interest and tax are included in operating activities. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to shareholders are included in financing activities. Dividends received are included in operating activities.
Cash flows arising from transactions in a foreign currency are translated into the company\u2019s functional currency using the exchange rate at the date of the cash flow. Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the same category as the cash flows from the hedged items. Cash flows from other derivative instruments are classified as investing cash flows.
In 2022, gross lease payments of EUR 316 million (2021: EUR 308 million; 2020: EUR 325 million) included interest of EUR 25 million (2021: EUR 25 million; 2020: EUR 29 million).
In 2022, a total of EUR 72 million cash was paid with respect to foreign exchange derivative contracts related to activities for liquidity management (2021: EUR 48 million inflow; 2020: EUR 13 million outflow).
In 2022, the net cash outflow is EUR 38 million.
In 2021, the net cash flow is EUR 0 million.
In 2020, the net cash outflow of EUR 66 million was mainly the cash outflow due to investment in DC Health amounting to EUR 45 million in China.
Certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items, principally because of the effects of translation differences and consolidation changes.
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2021 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2022 |
|---|---|---|---|---|---|
| Long term debt2) | 6,933 | 1,045 | 107 | 27 | 8,111 |
| EUR bonds | 3,233 | 827 | \u00a0 | 4,061 | |
| USD bonds | 1,313 | (20) | 85 | \u00a0 | 1,378 |
| Leases | 1,220 | (260) | 17 | 105 | 1,082 |
| Forward contracts3) | 934 | \u00a0 | \u00a0 | (76) | 858 |
| Bank borrowings | 203 | 498 | 4 | \u00a0 | 705 |
| Other long-term debt | 30 | (1) | 1 | (1) | 28 |
| Short term debt2) | 47 | 47 | (6) | 1 | 89 |
| Short-term bank borrowings | 47 | 47 | (6) | 1 | 89 |
| Other short-term loans | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,410) | (593) | \u00a0 | 869 | (1,133) |
| Dividend payable | \u00a0 | (418) | \u00a0 | 418 | \u00a0 |
| Forward contracts3) | (934) | \u00a0 | \u00a0 | 76 | (858) |
| Treasury shares | (476) | (174) | \u00a0 | 375 | (275) |
| Total | \u00a0 | 500 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2020 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2021 |
|---|---|---|---|---|---|
| Long term debt2) | 6,857 | (226) | 200 | 101 | 6,933 |
| EUR bonds | 3,229 | \u00a0 | 4 | 3,233 | |
| USD bonds | 1,210 | 103 | \u00a0 | 1,313 | |
| Leases | 1,216 | (239) | 98 | 145 | 1,220 |
| Forward contracts3) | 982 | \u00a0 | \u00a0 | (48) | 934 |
| Bank borrowings | 205 | (1) | \u00a0 | 203 | |
| Other long-term debt | 16 | 14 | \u00a0 | 30 | |
| Short term debt2) | 76 | (25) | (5) | \u00a0 | 47 |
| Short-term bank borrowings | 76 | (24) | (5) | \u00a0 | 47 |
| Other short-term loans | 1 | (1) | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,181) | (2,096) | \u00a0 | 1,868 | (1,410) |
| Dividend payable | \u00a0 | (484) | \u00a0 | 484 | \u00a0 |
| Forward contracts3) | (982) | \u00a0 | \u00a0 | 48 | (934) |
| Treasury shares | (199) | (1,613) | \u00a0 | 1,336 | (476) |
| Total | \u00a0 | (2,347) | \u00a0 | \u00a0 | \u00a0 |
Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyToDetermineComponentsOfCashAndCashEquivalents", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f24599": { "value": "The cash flow statement is prepared using the indirect method. Cash flows related to interest and tax are included in operating activities. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to shareholders are included in financing activities. Dividends received are included in operating activities.
Cash flows arising from transactions in a foreign currency are translated into the company\u2019s functional currency using the exchange rate at the date of the cash flow. Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the same category as the cash flows from the hedged items. Cash flows from other derivative instruments are classified as investing cash flows.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForCashFlowsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f24600": { "value": "Cash and cash equivalents include all cash balances, certain money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Bank overdrafts are included in borrowings in current liabilities.
The cash flow statement is prepared using the indirect method. Cash flows related to interest and tax are included in operating activities. Assets and liabilities acquired as part of a business combination are included in investing activities (net of cash acquired). Dividends paid to shareholders are included in financing activities. Dividends received are included in operating activities.
Cash flows arising from transactions in a foreign currency are translated into the company\u2019s functional currency using the exchange rate at the date of the cash flow. Cash flows from derivative instruments that are accounted for as cash flow hedges are classified in the same category as the cash flows from the hedged items. Cash flows from other derivative instruments are classified as investing cash flows.
In 2022, gross lease payments of EUR 316 million (2021: EUR 308 million; 2020: EUR 325 million) included interest of EUR 25 million (2021: EUR 25 million; 2020: EUR 29 million).
In 2022, a total of EUR 72 million cash was paid with respect to foreign exchange derivative contracts related to activities for liquidity management (2021: EUR 48 million inflow; 2020: EUR 13 million outflow).
In 2022, the net cash outflow is EUR 38 million.
In 2021, the net cash flow is EUR 0 million.
In 2020, the net cash outflow of EUR 66 million was mainly the cash outflow due to investment in DC Health amounting to EUR 45 million in China.
Certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items, principally because of the effects of translation differences and consolidation changes.
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2021 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2022 |
|---|---|---|---|---|---|
| Long term debt2) | 6,933 | 1,045 | 107 | 27 | 8,111 |
| EUR bonds | 3,233 | 827 | \u00a0 | 4,061 | |
| USD bonds | 1,313 | (20) | 85 | \u00a0 | 1,378 |
| Leases | 1,220 | (260) | 17 | 105 | 1,082 |
| Forward contracts3) | 934 | \u00a0 | \u00a0 | (76) | 858 |
| Bank borrowings | 203 | 498 | 4 | \u00a0 | 705 |
| Other long-term debt | 30 | (1) | 1 | (1) | 28 |
| Short term debt2) | 47 | 47 | (6) | 1 | 89 |
| Short-term bank borrowings | 47 | 47 | (6) | 1 | 89 |
| Other short-term loans | \u00a0 | \u00a0 | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,410) | (593) | \u00a0 | 869 | (1,133) |
| Dividend payable | \u00a0 | (418) | \u00a0 | 418 | \u00a0 |
| Forward contracts3) | (934) | \u00a0 | \u00a0 | 76 | (858) |
| Treasury shares | (476) | (174) | \u00a0 | 375 | (275) |
| Total | \u00a0 | 500 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Reconciliation of liabilities arising from financing activities
in millions of EUR
| \u00a0 | Balance as of December 31, 2020 | Cash flow | Currency effects and consolidation changes | Other1) | Balance as of December 31, 2021 |
|---|---|---|---|---|---|
| Long term debt2) | 6,857 | (226) | 200 | 101 | 6,933 |
| EUR bonds | 3,229 | \u00a0 | 4 | 3,233 | |
| USD bonds | 1,210 | 103 | \u00a0 | 1,313 | |
| Leases | 1,216 | (239) | 98 | 145 | 1,220 |
| Forward contracts3) | 982 | \u00a0 | \u00a0 | (48) | 934 |
| Bank borrowings | 205 | (1) | \u00a0 | 203 | |
| Other long-term debt | 16 | 14 | \u00a0 | 30 | |
| Short term debt2) | 76 | (25) | (5) | \u00a0 | 47 |
| Short-term bank borrowings | 76 | (24) | (5) | \u00a0 | 47 |
| Other short-term loans | 1 | (1) | \u00a0 | \u00a0 | |
| Forward contracts3) | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Equity | (1,181) | (2,096) | \u00a0 | 1,868 | (1,410) |
| Dividend payable | \u00a0 | (484) | \u00a0 | 484 | \u00a0 |
| Forward contracts3) | (982) | \u00a0 | \u00a0 | 48 | (934) |
| Treasury shares | (199) | (1,613) | \u00a0 | 1,336 | (476) |
| Total | \u00a0 | (2,347) | \u00a0 | \u00a0 | \u00a0 |
The rating of the company\u2019s debt by major rating agencies may improve or deteriorate. As a result, Philips\u2019 future borrowing capacity may be influenced and its financing costs may fluctuate. Philips has various sources to mitigate the liquidity risk for the group. As of December 31, 2022, Philips had EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), within which short-term deposits of EUR 482 million (2021: EUR 1,357 million). Cash and cash equivalents include all cash balances, money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Philips pools cash from subsidiaries to the extent legally and economically feasible; cash not pooled remains available for the company\u2019s operational or investment needs.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCashAndCashEquivalentsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25081": { "value": "A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
Philips\u2019 policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. The company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The guarantee is subsequently measured at the higher of the best estimate of the obligation or the amount initially recognized less, when appropriate, cumulative amortization.
As of December 31, 2022, the company had no material contingent assets.
The total fair value of guarantees recognized on the balance sheet amounts to EUR nil million for both 2022 and 2021. Remaining off-balance-sheet business related guarantees on behalf of third parties and associates to EUR 2 million in 2022 (December 31, 2021: EUR 2 million).
The company and its subsidiaries are subject to environmental laws and regulations. Under these laws, the company and/or its subsidiaries may be required to remediate the effects of certain manufacturing activities on the environment.
The company and certain of its group companies and former group companies are involved as a party in legal proceedings, regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, commercial transactions, product liability, participations, and environmental pollution.
While it is not feasible to predict or determine the outcome of all pending or threatened legal proceedings, regulatory and governmental proceedings, the company is of the opinion that the cases described below may have, or have had in the recent past, a significant impact on the company\u2019s consolidated financial position, results of operations and cash flows.
The company is engaged in discussions with, and has provided information to, the US Securities and Exchange Commission (SEC) and US Department of Justice (DoJ) regarding alleged tender irregularities in the medical device industry in certain jurisdictions. These interactions are primarily focused on a number of compliance findings that the company is addressing in Brazil, China and Bulgaria. In connection with these discussions and their status, the company recorded a provision in the amount of EUR 60 million.
Given the significant uncertainty regarding the nature of the relevant events and obligations, Philips is not currently able to reliably estimate the full financial effect of a range of possible outcomes in connection with the abovementioned discussions with the SEC and DoJ beyond the recorded provision. The outcomes of these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On June 14, 2021, Philips\u2019 subsidiary Philips RS North America LLC (Philips Respironics) issued a voluntary recall notification in the United States and field safety notice outside the United States for specific Philips Respironics CPAP, Bi-Level PAP, and mechanical ventilator devices (the \u201cRecalled Devices\u201d).
On August 26, 2021, the US Food and Drug Administration (FDA) commenced an inspection of the Philips Respironics manufacturing facility in Murrysville, Pennsylvania and provided Philips Respironics with its preliminary inspectional observations on November 9, 2021. Philips Respironics responded to the FDA\u2019s inspectional observations in December 2021, which described the actions already taken by the company, as well as additional planned actions. Philips Respironics is also providing periodic updates to the FDA on its progress for the planned actions. In July 2022, Philips started discussions with the DoJ acting on behalf of the FDA on a consent decree that would address compliance requirements for future sales, the resolution of the inspectional findings and the completion of the recall. At the end of December 2022, the discussions are ongoing.
On April 8, 2022, Philips Respironics and certain of Philips\u2019 subsidiaries in the US received a subpoena from the US DoJ to provide information related to events leading to the Respironics recall. The relevant subsidiaries are cooperating with the investigation. The criminal and civil investigation is being conducted by the US DoJ\u2019s Consumer Protection Branch and Civil Fraud Section, and the US Attorney\u2019s Office for the Eastern District of Pennsylvania. Given the early stages of the investigation, the company is not able to reliably estimate the financial impact, if any.
Following the voluntary recall notification, a number of civil complaints have been filed in several jurisdictions against Philips Respironics and certain of its affiliates (including the company) generally alleging economic loss, personal injury and/or the potential for personal injury allegedly caused by devices subject to the recall.
In the United States, consumer and commercial class action lawsuits have been filed alleging economic loss and medical monitoring claims. Individual personal injury lawsuits have also been filed. On October 8, 2021, a Multi-District Litigation (MDL) in the US District Court for the Western District of Pennsylvania was formed, and most of these class action and personal injury lawsuits have been consolidated in the MDL for pre-trial proceedings. As of December 31, 2022, plaintiffs have filed a consolidated economic loss class action complaint on behalf of device users, hospitals, and insurers and other third-party payers, a consolidated medical monitoring class action complaint on behalf of device users, and over 300 individual personal injury complaints.\u00a0The company anticipates that the number of individual personal injury complaints will increase in 2023.
In September 2022, the MDL court established a voluntary, court-approved census registry, and associated tolling, for potential claimants who have not filed claims, but may file claims in the future, relating to the Recalled Devices. The census registry replaces the private tolling agreement that had been in effect before the establishment of the census registry. At the time of termination, approximately 60,000 individuals had entered into the private tolling agreement. In the event these individuals wish to pursue or preserve their claims, they will need to file a lawsuit or register on the census registry. By December 31, 2022, approximately 13,500 individuals had joined the census registry. The company anticipates that the number of individuals on the census registry will increase in 2023.
In Australia, a consumer class action lawsuit alleging personal injury was filed against the company\u2019s subsidiary Philips Electronics Australia Ltd on October 4, 2021. In the course of 2022, the plaintiff in the case has sought leave of the court to discontinue the class action citing that there is insufficient evidence to warrant the continuation of the class action and that since the issue of proceedings, Philips Respironics has been repairing, replacing, or refunding the devices which are the subject of the recall, meaning that any compensation relating to financial loss would be relatively confined. It is expected that the case will be discontinued in the first half of 2023.
Philips Respironics and certain of its affiliates (including the company) are also defendants in consumer class action lawsuits in Canada and Israel and collective actions in Chile, France and the Netherlands alleging economic loss and/or personal injury.
While the company believes it is probable that these lawsuits will in the aggregate lead to an outflow of economic resources for Philips Respironics or other Philips entities, given the significant uncertainty regarding the nature of the relevant events and potential obligations, the company is not currently able to reliably estimate the amount of the obligation associated with these various lawsuits. The final outcome of the lawsuits and the cost to resolve them cannot currently be determined due to a number of variables, including uncertainty regarding the ultimate number of claimants and their allegations. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices.
For the United States specifically, the relative early stage of the census registry, and lack of clarity around the nature of the specific injury each claimant is claiming, contribute to the uncertainty. In addition, the MDL court has not yet decided several significant motions, including motions to dismiss all of the complaints, and plaintiffs have not yet filed their motions for class certification in the economic loss and medical monitoring actions. Further, discovery is still in its early stages, and expert discovery has not yet begun. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices. An adverse outcome with respect to any or all of these lawsuits and/or any future claims could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On August 16, 2021, a securities class action complaint was filed against the company, its former CEO and its CFO in the United States District Court for the Eastern District of New York alleging violations of the Securities Exchange Act of 1934 causing damage to investors. On January 3, 2022, the lead plaintiff in the case filed its amended complaint seeking to represent individuals that purchased Philips shares between February 23, 2016, through November 12, 2021. Following the filing and briefing of the company\u2019s motion to dismiss in the first half of 2022, plaintiff filed a second amended complaint on November 30, 2022, in which the alleged damage period was expanded to include certain share price declines that were allegedly based on disclosures made in 2022. The second amended complaint now focuses on share price declines that allegedly occurred as a result of various disclosures starting on April 26, 2021 through October 2022. The company\u2019s motion to dismiss the second amended complaint is due in the first quarter of 2023.
On September 11, 2022, the company received a letter from shareholders representative organization European Investors-VEB (\"VEB\"). The VEB holds Philips and its (former) managing and supervisory directors liable for \u2013 inter alia \u2013 allegedly failing to timely disclose price-sensitive information to shareholders regarding indications of potential (severe) health risks from the use of Recalled Devices, failing to exercise proper oversight over Philips Respironics and implement and ensure a proper information and risk management structure; providing incorrect or incomplete information in the company\u2019s financial disclosures.\u00a0
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. An adverse outcome of these cases could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On October 12, 2021, SoClean, a company offering ozone-based cleaning products for sleep devices, filed a lawsuit against the company and certain of its affiliates alleging that the defendants\u2019 statements about the potential adverse effect ozone cleaning may have on the recalled devices has significantly damaged its business. Philips believes that the claim is without merit and will vigorously defend itself. Motions to dismiss the case were filed in November and December 2022.
In addition, some of Philips Respironics\u2019 business partners such as distributors and durable medical equipment providers have filed or threatened to file claims alleging economic losses suffered as a consequence of the voluntary recall. In particular, Philips Respironics is engaging with certain of its business partners on the level of compensation they allege to be entitled to under Philips Respironics\u2019 replacement program of the Recalled Devices.
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. In the event of an adverse outcome, these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
To date no provisions have been recorded for the litigation and investigations associated with the Respironics field action.
For details on other contractual obligations, please refer to liquidity risk in Details of treasury and other financial risks.
The following table presents a summary of the Group\u2019s 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 business strategy and needs. Therefore, the actual payments made in future periods may vary from those presented in the following table:
| \u00a0 | \u00a0 | payments due by period | |||
|---|---|---|---|---|---|
| \u00a0 | 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 obligations3) | 782 | 336 | 412 | 21 | 12 |
| Trade and other payables | 1,968 | 1,968 | \u00a0 | \u00a0 | \u00a0 |
| Contractual cash obligations | 12,901 | 3,603 | 2,478 | 2,094 | 4,725 |
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). As of December 31, 2022 capital contributions already made to these investment funds are recorded as non-current financial assets.
Philips offers voluntary supply chain finance programs with third parties which provide participating suppliers 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 these arrangements. As of December 31, 2022 approximately EUR 151 million (2021: EUR 139 million)of the Philips account payable were transferred under these arrangements.
With respect to the Respironics field action, please refer to Contingencies. The management continues to monitor the risks associated with such potential claims and its impact on liquidity position, if any.
The company leases various items of real estate, vehicles and other equipment where it acts as a lessee. The company has multiple extension and termination options in a number of lease contracts. These are used to maximize operational flexibility in terms of managing the assets used in the company's operations. The options considered reasonably certain are part of lease liabilities. However, the options not considered reasonably certain are not part of lease liability, which exposes the company to potential future cash outflows amounting to EUR 400 million. In addition, the company is committed to leases not yet commenced to EUR 93 million. The company's lease contracts do not contain financial covenants.
The company enters into sale-and-leaseback transactions primarily for its Sleep & Respiratory Care businesses. These transactions are accounted for at market value. The payments for these leases are considered in determining lease liabilities. Principal repayments are part of cash flows used for financing activities and interest payments are part of cash flows used for operating activities. The cash inflows arising from the sales transactions are part of cash flows provided by financing activities. Lease payments under sale-and-leaseback arrangements for 2022 were EUR 72 million (2021: EUR 85 million). The remaining minimum payment under sale-and-leaseback arrangements included in lease obligations above are as follows:
Philips Group
Remaining minimum payments under sale-and-leaseback arrangements
in millions of EUR
| \u00a0 | \u00a0 |
|---|---|
| 2023 | 55 |
| 2024 | 38 |
| 2025 | 23 |
| 2026 | 14 |
| 2027 | 5 |
| Thereafter | 18 |
Philips has leasing activities where it acts as lessor. In such arrangements, Philips provides the customer with a right to use of medical equipment in exchange for a series of payments. Residual values of assets under lease form an insignificant part of the carrying amount of those assets. Residual values are influenced by asset market prices and are therefore subject to management estimation. Residual values are at least reassessed on an annual basis, or more often when necessary. Reassessments are based on a combination of realization of assets sold, expert knowledge and judgment of local markets. For lease receivables, the value of unguaranteed residual values as of December 31, 2022 was EUR 0.6 million (2021: EUR 0.2 million). In order to reduce residual value risk exposures there may be residual value guarantees or purchase options embedded in the customer contract. Credit risk for lease receivables is reviewed regularly and mitigated, for example, by retaining a security interest in the leased asset.
", "dimensions": { "concept": "ifrs-full:DisclosureOfContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25088": { "value": "A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25089": { "value": "Philips\u2019 policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. The company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The guarantee is subsequently measured at the higher of the best estimate of the obligation or the amount initially recognized less, when appropriate, cumulative amortization.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialGuaranteesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25090": { "value": "A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognized in the balance sheet because they are dependent on the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the company or because the risk of loss is estimated to be possible but not probable or because the amount cannot be measured reliably. Pursuant to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, certain information is not disclosed for legal proceedings for which the company concludes that disclosure can be expected to seriously prejudice the outcome of the matter.
Philips\u2019 policy is to provide guarantees and other letters of support only in writing. Philips does not stand by other forms of support. The company recognizes a liability at the fair value of the obligation at the inception of a financial guarantee contract. The guarantee is subsequently measured at the higher of the best estimate of the obligation or the amount initially recognized less, when appropriate, cumulative amortization.
The total fair value of guarantees recognized on the balance sheet amounts to EUR nil million for both 2022 and 2021. Remaining off-balance-sheet business related guarantees on behalf of third parties and associates to EUR 2 million in 2022 (December 31, 2021: EUR 2 million).
The company and its subsidiaries are subject to environmental laws and regulations. Under these laws, the company and/or its subsidiaries may be required to remediate the effects of certain manufacturing activities on the environment.
The company and certain of its group companies and former group companies are involved as a party in legal proceedings, regulatory and other governmental proceedings, including discussions on potential remedial actions, relating to such matters as competition issues, commercial transactions, product liability, participations, and environmental pollution.
While it is not feasible to predict or determine the outcome of all pending or threatened legal proceedings, regulatory and governmental proceedings, the company is of the opinion that the cases described below may have, or have had in the recent past, a significant impact on the company\u2019s consolidated financial position, results of operations and cash flows.
The company is engaged in discussions with, and has provided information to, the US Securities and Exchange Commission (SEC) and US Department of Justice (DoJ) regarding alleged tender irregularities in the medical device industry in certain jurisdictions. These interactions are primarily focused on a number of compliance findings that the company is addressing in Brazil, China and Bulgaria. In connection with these discussions and their status, the company recorded a provision in the amount of EUR 60 million.
Given the significant uncertainty regarding the nature of the relevant events and obligations, Philips is not currently able to reliably estimate the full financial effect of a range of possible outcomes in connection with the abovementioned discussions with the SEC and DoJ beyond the recorded provision. The outcomes of these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On June 14, 2021, Philips\u2019 subsidiary Philips RS North America LLC (Philips Respironics) issued a voluntary recall notification in the United States and field safety notice outside the United States for specific Philips Respironics CPAP, Bi-Level PAP, and mechanical ventilator devices (the \u201cRecalled Devices\u201d).
On August 26, 2021, the US Food and Drug Administration (FDA) commenced an inspection of the Philips Respironics manufacturing facility in Murrysville, Pennsylvania and provided Philips Respironics with its preliminary inspectional observations on November 9, 2021. Philips Respironics responded to the FDA\u2019s inspectional observations in December 2021, which described the actions already taken by the company, as well as additional planned actions. Philips Respironics is also providing periodic updates to the FDA on its progress for the planned actions. In July 2022, Philips started discussions with the DoJ acting on behalf of the FDA on a consent decree that would address compliance requirements for future sales, the resolution of the inspectional findings and the completion of the recall. At the end of December 2022, the discussions are ongoing.
On April 8, 2022, Philips Respironics and certain of Philips\u2019 subsidiaries in the US received a subpoena from the US DoJ to provide information related to events leading to the Respironics recall. The relevant subsidiaries are cooperating with the investigation. The criminal and civil investigation is being conducted by the US DoJ\u2019s Consumer Protection Branch and Civil Fraud Section, and the US Attorney\u2019s Office for the Eastern District of Pennsylvania. Given the early stages of the investigation, the company is not able to reliably estimate the financial impact, if any.
Following the voluntary recall notification, a number of civil complaints have been filed in several jurisdictions against Philips Respironics and certain of its affiliates (including the company) generally alleging economic loss, personal injury and/or the potential for personal injury allegedly caused by devices subject to the recall.
In the United States, consumer and commercial class action lawsuits have been filed alleging economic loss and medical monitoring claims. Individual personal injury lawsuits have also been filed. On October 8, 2021, a Multi-District Litigation (MDL) in the US District Court for the Western District of Pennsylvania was formed, and most of these class action and personal injury lawsuits have been consolidated in the MDL for pre-trial proceedings. As of December 31, 2022, plaintiffs have filed a consolidated economic loss class action complaint on behalf of device users, hospitals, and insurers and other third-party payers, a consolidated medical monitoring class action complaint on behalf of device users, and over 300 individual personal injury complaints.\u00a0The company anticipates that the number of individual personal injury complaints will increase in 2023.
In September 2022, the MDL court established a voluntary, court-approved census registry, and associated tolling, for potential claimants who have not filed claims, but may file claims in the future, relating to the Recalled Devices. The census registry replaces the private tolling agreement that had been in effect before the establishment of the census registry. At the time of termination, approximately 60,000 individuals had entered into the private tolling agreement. In the event these individuals wish to pursue or preserve their claims, they will need to file a lawsuit or register on the census registry. By December 31, 2022, approximately 13,500 individuals had joined the census registry. The company anticipates that the number of individuals on the census registry will increase in 2023.
In Australia, a consumer class action lawsuit alleging personal injury was filed against the company\u2019s subsidiary Philips Electronics Australia Ltd on October 4, 2021. In the course of 2022, the plaintiff in the case has sought leave of the court to discontinue the class action citing that there is insufficient evidence to warrant the continuation of the class action and that since the issue of proceedings, Philips Respironics has been repairing, replacing, or refunding the devices which are the subject of the recall, meaning that any compensation relating to financial loss would be relatively confined. It is expected that the case will be discontinued in the first half of 2023.
Philips Respironics and certain of its affiliates (including the company) are also defendants in consumer class action lawsuits in Canada and Israel and collective actions in Chile, France and the Netherlands alleging economic loss and/or personal injury.
While the company believes it is probable that these lawsuits will in the aggregate lead to an outflow of economic resources for Philips Respironics or other Philips entities, given the significant uncertainty regarding the nature of the relevant events and potential obligations, the company is not currently able to reliably estimate the amount of the obligation associated with these various lawsuits. The final outcome of the lawsuits and the cost to resolve them cannot currently be determined due to a number of variables, including uncertainty regarding the ultimate number of claimants and their allegations. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices.
For the United States specifically, the relative early stage of the census registry, and lack of clarity around the nature of the specific injury each claimant is claiming, contribute to the uncertainty. In addition, the MDL court has not yet decided several significant motions, including motions to dismiss all of the complaints, and plaintiffs have not yet filed their motions for class certification in the economic loss and medical monitoring actions. Further, discovery is still in its early stages, and expert discovery has not yet begun. Moreover, Philips Respironics has not yet completed its test and research program for all of the categories of the Recalled Devices. An adverse outcome with respect to any or all of these lawsuits and/or any future claims could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On August 16, 2021, a securities class action complaint was filed against the company, its former CEO and its CFO in the United States District Court for the Eastern District of New York alleging violations of the Securities Exchange Act of 1934 causing damage to investors. On January 3, 2022, the lead plaintiff in the case filed its amended complaint seeking to represent individuals that purchased Philips shares between February 23, 2016, through November 12, 2021. Following the filing and briefing of the company\u2019s motion to dismiss in the first half of 2022, plaintiff filed a second amended complaint on November 30, 2022, in which the alleged damage period was expanded to include certain share price declines that were allegedly based on disclosures made in 2022. The second amended complaint now focuses on share price declines that allegedly occurred as a result of various disclosures starting on April 26, 2021 through October 2022. The company\u2019s motion to dismiss the second amended complaint is due in the first quarter of 2023.
On September 11, 2022, the company received a letter from shareholders representative organization European Investors-VEB (\"VEB\"). The VEB holds Philips and its (former) managing and supervisory directors liable for \u2013 inter alia \u2013 allegedly failing to timely disclose price-sensitive information to shareholders regarding indications of potential (severe) health risks from the use of Recalled Devices, failing to exercise proper oversight over Philips Respironics and implement and ensure a proper information and risk management structure; providing incorrect or incomplete information in the company\u2019s financial disclosures.\u00a0
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. An adverse outcome of these cases could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
On October 12, 2021, SoClean, a company offering ozone-based cleaning products for sleep devices, filed a lawsuit against the company and certain of its affiliates alleging that the defendants\u2019 statements about the potential adverse effect ozone cleaning may have on the recalled devices has significantly damaged its business. Philips believes that the claim is without merit and will vigorously defend itself. Motions to dismiss the case were filed in November and December 2022.
In addition, some of Philips Respironics\u2019 business partners such as distributors and durable medical equipment providers have filed or threatened to file claims alleging economic losses suffered as a consequence of the voluntary recall. In particular, Philips Respironics is engaging with certain of its business partners on the level of compensation they allege to be entitled to under Philips Respironics\u2019 replacement program of the Recalled Devices.
It is the company\u2019s assessment that it is possible but not probable that these cases could lead to a certain outflow of economic resources. The company is not able to reliably estimate the financial impact, if any. In the event of an adverse outcome, these matters could have a material impact on the company\u2019s consolidated financial position, results of operations and cash flows.
To date no provisions have been recorded for the litigation and investigations associated with the Respironics field action.
For details on other contractual obligations, please refer to liquidity risk in Details of treasury and other financial risks.
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk for the group is monitored through the Treasury liquidity committee, which tracks the development of the actual cash flow position for the group and uses input from a number of sources in order to forecast the overall liquidity position on both a short and longer term basis. Philips invests surplus cash in short-term deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due and in money market funds.
The rating of the company\u2019s debt by major rating agencies may improve or deteriorate. As a result, Philips\u2019 future borrowing capacity may be influenced and its financing costs may fluctuate. Philips has various sources to mitigate the liquidity risk for the group. As of December 31, 2022, Philips had EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), within which short-term deposits of EUR 482 million (2021: EUR 1,357 million). Cash and cash equivalents include all cash balances, money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Philips pools cash from subsidiaries to the extent legally and economically feasible; cash not pooled remains available for the company\u2019s operational or investment needs.
Philips faces cross-border foreign exchange controls and/or other legal restrictions in a few countries that could limit its ability to make these balances available on short notice for general use by the group.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop for its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion. In 2022, Philips issued three new tranches under the program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0For a description of Philips\u2019 credit facilities, refer to Debt.\u00a0
In addition to cash and cash equivalents, as of December 31, 2022, Philips also held EUR 32 million of listed (level 1) equity investments at fair value (classified as other non-current financial assets).
The following table presents a summary of the Group\u2019s 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 business strategy and needs. Therefore, the actual payments made in future periods may vary from those presented in the following table:
| \u00a0 | \u00a0 | payments due by period | |||
|---|---|---|---|---|---|
| \u00a0 | 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 obligations3) | 782 | 336 | 412 | 21 | 12 |
| Trade and other payables | 1,968 | 1,968 | \u00a0 | \u00a0 | \u00a0 |
| Contractual cash obligations | 12,901 | 3,603 | 2,478 | 2,094 | 4,725 |
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). As of December 31, 2022 capital contributions already made to these investment funds are recorded as non-current financial assets.
Philips offers voluntary supply chain finance programs with third parties which provide participating suppliers 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 these arrangements. As of December 31, 2022 approximately EUR 151 million (2021: EUR 139 million)of the Philips account payable were transferred under these arrangements.
With respect to the Respironics field action, please refer to Contingencies. The management continues to monitor the risks associated with such potential claims and its impact on liquidity position, if any.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25179": { "value": "In the normal course of business, Philips purchases and sells goods and services from/to various related parties in which Philips typically holds between 20% and 50% equity interest and has significant influence. These transactions are generally conducted with terms comparable to transactions with third parties.
Philips Group
Related-party transactions
in millions of EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Sales of goods and services | 204 | 116 | 111 |
| Purchases of goods and services | 57 | 41 | 46 |
| Receivables from related parties | 37 | 40 | 55 |
| Payables to related parties | 1 | 2 | 2 |
In the previous table, sales transactions between Philips and PMC are included amounting to EUR 101 million in 2022 (2021: EUR 106 million; 2020: EUR 191 million), under which PMC has leased the equipment to the ultimate customer. In addition to that, as part of its S&RC operations in the US, Philips Medical Capital LLC funded durable medical equipment (DMEs) providers, through loans and leases. PMC-funded transactions these DMEs entered into with Philips amount to EUR 117 million in 2022 (2021: EUR 162 million; 2020: EUR 242 million). The associated costs of these funding transactions are borne by the ultimate customer and settled directly with Philips Medical Capital LLC.
", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherPayablesExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f25253": { "value": "Philips share-based compensation is an equity-settled plan comprising restricted and performance shares. The restricted shares are subject to a three-year service condition and the performance shares include both market and non-market-based performance conditions, in addition to a three-year vesting period. These shares are awarded to the Executive Committee and Senior Management.
The grant date fair value of market-based performance shares is determined through a Monte Carlo valuation model. The grant date fair value of non-market-based performance shares and restricted shares is determined as the share price at the grant date as participants are eligible to receive dividends throughout the vesting period. The costs of share-based compensation plans are revised for expected performance (non-market-based performance shares) and forfeiture and are spread evenly over the service period.
Share-based compensation is recognized over the vesting period as personnel expense in the consolidated statement of income, with a corresponding increase to equity.
In 2022, the total remuneration costs relating to the members of the Executive Committee (consisting of 14 members throughout the year, including the members of the Board of Management) amounted to EUR 25.6 million (2021: EUR 33.4 million; 2020: EUR 33.2 million) consisting of the elements in the following table.
Philips Group
Remuneration costs of the Executive Committee1)
in EUR
| \u00a0 | 2020 | 2021 | 2022 |
|---|---|---|---|
| Base salary/Base compensation | 9,299,794 | 9,598,588 | 9,528,279 |
| Annual incentive2) | 6,726,768 | 5,250,408 | 208,370 |
| Performance shares3) | 13,153,975 | 12,610,073 | 11,242,581 |
| Restricted share rights3) | 288,372 | 1,380,644 | 1,191,529 |
| Pension allowances4) | 2,054,570 | 2,107,953 | 1,949,204 |
| Pension scheme costs | 382,513 | 306,694 | 288,179 |
| Other compensation5) | 1,264,908 | 2,104,044 | 1,216,163 |
| Total | 33,170,901 | 33,358,405 | 25,624,305 |
As of December 31, 2022, the members of the Executive Committee (including the members of the Board of Management) held 0 stock options (2021: 184,900; 2020: 193,300).\u00a0
In 2022, the total remuneration costs relating to the members of the Board of Management amounted to EUR 8.4 million (2021: EUR 10.3 million; 2020: EUR 11.4 million), see the following table.
Philips Group
Remuneration costs of individual members of the Board of Management
in EUR
| \u00a0 | base compen\u00adsation/salary | annual incentive1) | perfor\u00admance shares2) | restricted share rights2) | pension allowances3) | pension scheme costs | other compen\u00adsation | total costs |
|---|---|---|---|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| R. Jakobs4) | 256,438 | 112,737 | - | 57,973 | 6,012 | 11,507 | 444,667 | |
| F.A. van Houten4) | 1,041,849 | 208,370 | 2,930,068 | - | 444,051 | 22,121 | 42,533 | 4,688,992 |
| A. Bhattacharya | 806,250 | - | 763,140 | - | 237,250 | 28,133 | 61,308 | 1,896,081 |
| M.J. van Ginneken | 626,250 | - | 585,490 | - | 141,622 | 28,133 | 35,343 | 1,416,837 |
| \u00a0 | 2,730,788 | 208,370 | 4,391,434 | - | 880,896 | 84,398 | 150,691 | 8,446,577 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 850,915 | 2,626,295 | - | 565,403 | 27,462 | 57,224 | 5,452,299 |
| A. Bhattacharya | 790,000 | 360,103 | 1,172,533 | - | 233,857 | 27,462 | 68,908 | 2,652,864 |
| M.J. van Ginneken | 605,000 | 317,192 | 886,035 | - | 150,755 | 27,462 | 42,610 | 2,029,054 |
| \u00a0 | 2,720,000 | 1,528,211 | 4,684,863 | - | 950,014 | 82,387 | 168,742 | 10,134,217 |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| F.A. van Houten | 1,325,000 | 1,298,500 | 2,874,467 | - | 565,922 | 27,001 | 62,176 | 6,153,067 |
| A. Bhattacharya | 785,000 | 596,600 | 1,295,996 | - | 233,126 | 27,001 | 70,267 | 3,007,990 |
| M.J. van Ginneken | 580,000 | 437,920 | 952,453 | - | 158,800 | 27,001 | 46,986 | 2,203,160 |
| \u00a0 | 2,690,000 | 2,333,020 | 5,122,916 | - | 957,849 | 81,004 | 179,428 | 11,364,217 |
The accumulated annual pension entitlements and the pension costs of individual members of the Board of Management are as follows:
Philips Group
Accumulated annual pension entitlements and pension-related costs
in EUR unless otherwise stated
| \u00a0 | age at December 31, 2022 | accumulated annual pension as of December 31, 2022 | total pension related costs |
|---|---|---|---|
| R. Jakobs | 48 | 53,175 | 63,985 |
| A. Bhattacharya | 61 | 37,446 | 265,383 |
| M.J. van Ginneken | 49 | 50,614 | 169,755 |
| Pension costs | \u00a0 | \u00a0 | 499,123 |
When pension rights are granted to members of the Board of Management, necessary payments (if insured) and all necessary provisions are made in accordance with the applicable accounting principles. In 2022, no (additional) pension benefits were granted to former members of the Board of Management.
The remuneration of the members of the Supervisory Board amounted to EUR 1.5 million (2021: EUR 1.3 million; 2020: 1.3 million). Former members received no remuneration.
The members of the Supervisory Board do not receive any share-based remuneration. Therefore, as of December 31, 2022 the members of the Supervisory Board held no stock options, performance shares or restricted shares.
The individual members of the Supervisory Board received, by virtue of the positions they held, the following remuneration:
Philips Group
Remuneration of the Supervisory Board
in EUR
| membership | committees | other compensation1) | total | |
|---|---|---|---|---|
| 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| 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. L\u00f6scher | 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 |
| 1,105,616 | 248,411 | 192,574 | 1,546,602 | |
| 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| J. van der Veer | 53,507 | 12,082 | 3,916 | 69,505 |
| C.A. Poon | 39,699 | 16,915 | 783 | 57,397 |
| N. Dhawan | 100,000 | 18,000 | 2,269 | 120,269 |
| O. Gadiesh | 34,521 | 4,833 | 783 | 40,137 |
| D.E.I. Pyott | 100,000 | 36,370 | 2,269 | 138,639 |
| P.A.M. Stoffels | 109,863 | 27,808 | 4,769 | 142,440 |
| A.M. Harrison | 100,000 | 14,000 | 2,269 | 116,269 |
| M.E. Doherty | 100,000 | 27,000 | 4,769 | 131,769 |
| P. L\u00f6scher | 100,000 | 32,000 | 4,769 | 136,769 |
| F. Sijbesma | 141,301 | 27,808 | 8,237 | 177,346 |
| I. Nooyi | 100,000 | 14,000 | 2,269 | 116,269 |
| S.K. Chua | 65,753 | 11,836 | 1,492 | 79,081 |
| 1,044,644 | 242,652 | 38,595 | 1,325,891 | |
| 2020 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| J. van der Veer | 155,000 | 35,000 | 11,345 | 201,345 |
| C.A. Poon | 115,000 | 49,000 | 7,269 | 171,269 |
| P. L\u00f6scher | 66,667 | 21,333 | 1,513 | 89,513 |
| F. Sijbesma | 76,667 | 9,333 | 1,513 | 87,513 |
| N. Dhawan | 100,000 | 18,000 | 7,269 | 125,269 |
| O. Gadiesh | 100,000 | 14,000 | 2,269 | 116,269 |
| D.E.I. Pyott | 100,000 | 42,000 | 12,269 | 154,269 |
| P.A.M. Stoffels | 100,000 | 9,333 | 9,769 | 119,102 |
| A.M. Harrison | 100,000 | 14,000 | 2,269 | 116,269 |
| M.E. Doherty | 100,000 | 24,000 | 9,769 | 133,769 |
| 1,013,333 | 236,000 | 65,254 | 1,314,587 |
Members of the Supervisory Board and of the Board of Management are prohibited from writing call and put options or similar derivatives of Philips securities.
| \u00a0 | December 31, 2021 | December 31, 2022 |
|---|---|---|
| R. Jakobs | 101,156 | 109,422 |
| A. Bhattacharya | 148,365 | 169,517 |
| M.J. van Ginneken | 110,528 | 123,914 |
| P. Stoffels | - | 17,000 |
| S. Poonen | - | 3,000 |
| I. Nooyi | - | 3,100 |
| D. Pyott | - | 19,000 |
| S.K. Chua | - | 2,000 |
| F. Sijbesma | - | 12,500 |
| M. Harrison | - | 1,500 |
| P. L\u00f6scher | - | 20,732 |
For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFairValueMeasurementExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f27056": { "value": "For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
Determining the fair value of financial instruments requires the use of estimates according to the method applied for each type of financial asset of liability. The estimated fair value of financial instruments has been determined by the company using available market information and appropriate valuation methods. The estimates presented are not necessarily indicative of the amounts that will ultimately be realized by the company upon maturity or disposal. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
Specific valuation techniques used to value financial instruments include:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as financial assets carried at fair value through profit or loss or carried at fair value through other comprehensive income. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm\u2019s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives or convertible bond instruments) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are based on observable market data, the instrument is included in level 2. The fair value of derivatives is calculated as the present value of the estimated future cash flows based on observable interest yield curves, basis spread and foreign exchange rates. The valuation of convertible bond instruments uses observable market quoted data for the options and present value calculations using observable yield curves for the fair value of the bonds.
Level 3
If one or more of the significant inputs are not based on observable market data, such as third-party pricing information without adjustments, the instrument is included in level 3.
The fair value of debt is estimated on the basis of the quoted market prices for certain issuances, or on the basis of discounted cash flow analysis using market rates plus Philips\u2019 spread for the particular tenors of the borrowing arrangement. Accrued interest is not included within the carrying amount or estimated fair value of debt.
The fair value of contingent consideration is dependent on the terms of the respective acquisition agreement that may require Philips to pay additional consideration to former shareholders if specified future events occur or conditions are met, such as the achievement of certain regulatory milestones or the achievement of certain commercial milestones. The fair value of the contingent consideration provision is generally determined using a probability-weighted and a risk-adjusted approach to estimate the achievement of future regulatory and commercial milestones, respectively. The discount rates used in the risk adjusted approach reflect the inherent risk related to achieving the commercial milestones. Both regulatory and commercial milestones are discounted for the time value of money at risk-free rates. The fair value measurement is based on management\u2019s estimates and assumptions and hence classified as Level 3 in the fair value hierarchy.
The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.\u00a0
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 232 | 232 | \u00a0 | \u00a0 | 232 |
| Equity instruments | 4 | 4 | 1 | \u00a0 | 2 |
| Other financial assets | 86 | 86 | \u00a0 | 35 | 51 |
| Financial assets carried at FVTP&L | 322 | 322 | 1 | 35 | 285 |
| Debt instruments | 25 | 25 | \u00a0 | 25 | \u00a0 |
| Equity instruments | 259 | 259 | 30 | \u00a0 | 229 |
| Current financial assets | 9 | 9 | \u00a0 | \u00a0 | 9 |
| Receivables - current | 26 | 26 | \u00a0 | \u00a0 | 26 |
| Financial assets carried at FVTOCI | 319 | 319 | 30 | 25 | 264 |
| Derivative financial instruments | 127 | 127 | \u00a0 | 127 | \u00a0 |
| Financial assets carried at fair value | 768 | 768 | 32 | 187 | 549 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 1,172 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 54 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 4,088 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 279 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 5,596 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 6,364 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Financial liabilities carried at FVTP&L | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Derivative financial instruments | (211) | (211) | \u00a0 | (211) | \u00a0 |
| Financial liabilities carried at fair value | (324) | (324) | \u00a0 | (211) | (113) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,968) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (71) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (6,520) | (6,083) | (5,001) | (1,082) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,680) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (10,240) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (10,564) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 233 | 233 | \u00a0 | \u00a0 | 233 |
| Equity instruments | 4 | 4 | 4 | \u00a0 | \u00a0 |
| Other financial assets | 46 | 46 | \u00a0 | 34 | 12 |
| Financial assets carried at FVTP&L | 283 | 283 | 4 | 34 | 245 |
| Debt instruments | 27 | 27 | \u00a0 | 27 | |
| Equity instruments | 273 | 273 | 63 | \u00a0 | 210 |
| Current financial assets | - | - | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 68 | 68 | \u00a0 | \u00a0 | 68 |
| Financial assets carried at FVTOCI | 368 | 368 | 63 | 27 | 278 |
| Derivative financial instruments | 63 | 63 | \u00a0 | 63 | \u00a0 |
| Financial assets carried at fair value | 714 | 714 | 67 | 124 | 523 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 2,303 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 47 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 3,720 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 224 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 6,296 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 7,010 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Financial liabilities carried at FVTP&L | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Derivative financial instruments | (202) | (202) | \u00a0 | (202) | \u00a0 |
| Financial liabilities carried at fair value | (410) | (410) | \u00a0 | (202) | (208) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,872) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (52) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (5,765) | (6,396) | (5,177) | (1,220) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,214) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (8,904) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (9,314) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
The following table shows the reconciliation from the beginning balance to the end balance for Level 3 fair value measurements.
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2022 | 523 | 208 |
| Acquisitions | \u00a0 | 96 |
| Purchase | 131 | \u00a0 |
| Sales | (76) | \u00a0 |
| Utilizations | \u00a0 | (105) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (85) |
| financial income and expenses1) | 7 | (8) |
| Recognized in other comprehensive income2) | 8 | |
| Receivables held to collect and sell | (41) | \u00a0 |
| Reclassification | 5 | \u00a0 |
| Balance as of December 31, 2022 | 549 | 113 |
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2021 | 411 | 318 |
| Acquisitions | \u00a0 | 16 |
| Purchase | 113 | \u00a0 |
| Sales | (122) | \u00a0 |
| Utilizations | \u00a0 | (48) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (87) |
| financial income and expenses | 98 | 1 |
| Recognized in other comprehensive income1) | 12 | 9 |
| Receivables held to collect and sell | (25) | \u00a0 |
| Reclassification from associates | 36 | \u00a0 |
| Balance as of December 31, 2021 | 523 | 208 |
The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.\u00a0
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 232 | 232 | \u00a0 | \u00a0 | 232 |
| Equity instruments | 4 | 4 | 1 | \u00a0 | 2 |
| Other financial assets | 86 | 86 | \u00a0 | 35 | 51 |
| Financial assets carried at FVTP&L | 322 | 322 | 1 | 35 | 285 |
| Debt instruments | 25 | 25 | \u00a0 | 25 | \u00a0 |
| Equity instruments | 259 | 259 | 30 | \u00a0 | 229 |
| Current financial assets | 9 | 9 | \u00a0 | \u00a0 | 9 |
| Receivables - current | 26 | 26 | \u00a0 | \u00a0 | 26 |
| Financial assets carried at FVTOCI | 319 | 319 | 30 | 25 | 264 |
| Derivative financial instruments | 127 | 127 | \u00a0 | 127 | \u00a0 |
| Financial assets carried at fair value | 768 | 768 | 32 | 187 | 549 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 1,172 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 54 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 4,088 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 279 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 5,596 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 6,364 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Financial liabilities carried at FVTP&L | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Derivative financial instruments | (211) | (211) | \u00a0 | (211) | \u00a0 |
| Financial liabilities carried at fair value | (324) | (324) | \u00a0 | (211) | (113) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,968) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (71) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (6,520) | (6,083) | (5,001) | (1,082) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,680) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (10,240) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (10,564) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 233 | 233 | \u00a0 | \u00a0 | 233 |
| Equity instruments | 4 | 4 | 4 | \u00a0 | \u00a0 |
| Other financial assets | 46 | 46 | \u00a0 | 34 | 12 |
| Financial assets carried at FVTP&L | 283 | 283 | 4 | 34 | 245 |
| Debt instruments | 27 | 27 | \u00a0 | 27 | |
| Equity instruments | 273 | 273 | 63 | \u00a0 | 210 |
| Current financial assets | - | - | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 68 | 68 | \u00a0 | \u00a0 | 68 |
| Financial assets carried at FVTOCI | 368 | 368 | 63 | 27 | 278 |
| Derivative financial instruments | 63 | 63 | \u00a0 | 63 | \u00a0 |
| Financial assets carried at fair value | 714 | 714 | 67 | 124 | 523 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 2,303 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 47 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 3,720 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 224 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 6,296 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 7,010 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Financial liabilities carried at FVTP&L | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Derivative financial instruments | (202) | (202) | \u00a0 | (202) | \u00a0 |
| Financial liabilities carried at fair value | (410) | (410) | \u00a0 | (202) | (208) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,872) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (52) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (5,765) | (6,396) | (5,177) | (1,220) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,214) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (8,904) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (9,314) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Transactions in derivatives are subject to master netting and set-off agreements. In the case of certain termination events, under the terms of the master agreement, Philips can terminate the outstanding transactions and aggregate their positive and negative values to arrive at a single net termination sum (or close-out amount). This contractual right is subject to the following:
Philips Group
Financial assets subject to offsetting, enforceable master netting arrangements or similar agreements
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Derivatives | \u00a0 | \u00a0 |
| Gross amounts of recognized financial assets | 63 | 127 |
| Gross amounts of recognized financial liabilities offset in the balance sheet | \u00a0 | \u00a0 |
| Net amounts of financial assets presented in the balance sheet | 63 | 127 |
| \u00a0 | \u00a0 | \u00a0 |
| Related amounts not offset in the balance sheet | \u00a0 | \u00a0 |
| Financial instruments | (47) | (54) |
| Net amount | 17 | 73 |
Philips Group
Financial liabilities subject to offsetting, enforceable master netting arrangements or similar agreements
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Derivatives | \u00a0 | \u00a0 |
| Gross amounts of recognized financial liabilities | (202) | (211) |
| Gross amounts of recognized financial assets offset in the balance sheet | \u00a0 | \u00a0 |
| Net amounts of financial liabilities presented in the balance sheet | (202) | (211) |
| \u00a0 | \u00a0 | \u00a0 |
| Related amounts not offset in the balance sheet | \u00a0 | \u00a0 |
| Financial instruments | 47 | 54 |
| Net amount | (155) | (157) |
The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
Philips uses foreign exchange spot and forward contracts, as well as zero cost collars in hedging the exposure. The derivatives related to transactions are, for hedge accounting purposes, split into hedges of on-balance-sheet accounts receivable/ payable and forecasted sales and purchases. Changes in the value of on-balance-sheet foreign-currency accounts receivable/payable, as well as the changes in the fair value of the hedges related to these exposures, are reported in the income statement under costs of sales. The RUB as shown in the table above was hedged for part of the year till Q2 2022. Hedges related to forecasted transactions, where hedge accounting is applied, are accounted for as cash flow hedges. The results from such hedges are deferred in other comprehensive income within equity to the extent that the hedge is effective. As of December 31, 2022, a loss of EUR 2 million was deferred in equity as a result of these hedges (2021: EUR 25 million loss). The result deferred in equity will be released to earnings mostly during 2023 at the time when the related hedged transactions affect the income statement. During 2022,\u00a0 EUR 1 million\u00a0 (2021: EUR\u00a0nil million net gain) was recorded in the consolidated statement of income as a result of ineffectiveness on certain anticipated cash flow hedges. Ineffectiveness arises when anticipated exposures are no longer expected to be highly probable. During 2022, a loss of EUR 42 million included in the cash flow hedges reserve in equity pertaining to changes in fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of option contracts was released to income statement.
The total net fair value of hedges related to transaction exposure as of December 31, 2022, was an unrealized gain of EUR 6 million. The estimated impact of a 10% increase of value of the EUR is estimated to be EUR 114 million. The following table contains an overview of the instantaneous 10% increase in the value of EUR against major currencies.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f27058": { "value": "Financial assets and liabilities are offset and the net amount is reported in the balance sheet when, and only when, the company has currently a legally enforceable right to set-off the amounts and the group intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForOffsettingOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f27059": { "value": "For financial reporting purposes, financial instruments are categorized into Level 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are as follows:
Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period during which the change has occurred.
The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.\u00a0
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 232 | 232 | \u00a0 | \u00a0 | 232 |
| Equity instruments | 4 | 4 | 1 | \u00a0 | 2 |
| Other financial assets | 86 | 86 | \u00a0 | 35 | 51 |
| Financial assets carried at FVTP&L | 322 | 322 | 1 | 35 | 285 |
| Debt instruments | 25 | 25 | \u00a0 | 25 | \u00a0 |
| Equity instruments | 259 | 259 | 30 | \u00a0 | 229 |
| Current financial assets | 9 | 9 | \u00a0 | \u00a0 | 9 |
| Receivables - current | 26 | 26 | \u00a0 | \u00a0 | 26 |
| Financial assets carried at FVTOCI | 319 | 319 | 30 | 25 | 264 |
| Derivative financial instruments | 127 | 127 | \u00a0 | 127 | \u00a0 |
| Financial assets carried at fair value | 768 | 768 | 32 | 187 | 549 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 1,172 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 54 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 4,088 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 279 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 5,596 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 6,364 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Financial liabilities carried at FVTP&L | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Derivative financial instruments | (211) | (211) | \u00a0 | (211) | \u00a0 |
| Financial liabilities carried at fair value | (324) | (324) | \u00a0 | (211) | (113) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,968) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (71) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (6,520) | (6,083) | (5,001) | (1,082) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,680) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (10,240) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (10,564) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 233 | 233 | \u00a0 | \u00a0 | 233 |
| Equity instruments | 4 | 4 | 4 | \u00a0 | \u00a0 |
| Other financial assets | 46 | 46 | \u00a0 | 34 | 12 |
| Financial assets carried at FVTP&L | 283 | 283 | 4 | 34 | 245 |
| Debt instruments | 27 | 27 | \u00a0 | 27 | |
| Equity instruments | 273 | 273 | 63 | \u00a0 | 210 |
| Current financial assets | - | - | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 68 | 68 | \u00a0 | \u00a0 | 68 |
| Financial assets carried at FVTOCI | 368 | 368 | 63 | 27 | 278 |
| Derivative financial instruments | 63 | 63 | \u00a0 | 63 | \u00a0 |
| Financial assets carried at fair value | 714 | 714 | 67 | 124 | 523 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 2,303 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 47 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 3,720 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 224 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 6,296 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 7,010 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Financial liabilities carried at FVTP&L | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Derivative financial instruments | (202) | (202) | \u00a0 | (202) | \u00a0 |
| Financial liabilities carried at fair value | (410) | (410) | \u00a0 | (202) | (208) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,872) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (52) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (5,765) | (6,396) | (5,177) | (1,220) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,214) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (8,904) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (9,314) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
The following table shows the reconciliation from the beginning balance to the end balance for Level 3 fair value measurements.
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2022 | 523 | 208 |
| Acquisitions | \u00a0 | 96 |
| Purchase | 131 | \u00a0 |
| Sales | (76) | \u00a0 |
| Utilizations | \u00a0 | (105) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (85) |
| financial income and expenses1) | 7 | (8) |
| Recognized in other comprehensive income2) | 8 | |
| Receivables held to collect and sell | (41) | \u00a0 |
| Reclassification | 5 | \u00a0 |
| Balance as of December 31, 2022 | 549 | 113 |
Philips Group
Reconciliation of Level 3 fair value measurements
in millions of EUR
| \u00a0 | Financial assets | Financial liabilities |
|---|---|---|
| Balance as of January 1, 2021 | 411 | 318 |
| Acquisitions | \u00a0 | 16 |
| Purchase | 113 | \u00a0 |
| Sales | (122) | \u00a0 |
| Utilizations | \u00a0 | (48) |
| Recognized in profit and loss: | \u00a0 | \u00a0 |
| other business income | \u00a0 | (87) |
| financial income and expenses | 98 | 1 |
| Recognized in other comprehensive income1) | 12 | 9 |
| Receivables held to collect and sell | (25) | \u00a0 |
| Reclassification from associates | 36 | \u00a0 |
| Balance as of December 31, 2021 | 523 | 208 |
The following tables show the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. Fair value information for financial assets and financial liabilities not carried at fair value is not included if the carrying amount is a reasonable approximation of fair value.\u00a0
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 232 | 232 | \u00a0 | \u00a0 | 232 |
| Equity instruments | 4 | 4 | 1 | \u00a0 | 2 |
| Other financial assets | 86 | 86 | \u00a0 | 35 | 51 |
| Financial assets carried at FVTP&L | 322 | 322 | 1 | 35 | 285 |
| Debt instruments | 25 | 25 | \u00a0 | 25 | \u00a0 |
| Equity instruments | 259 | 259 | 30 | \u00a0 | 229 |
| Current financial assets | 9 | 9 | \u00a0 | \u00a0 | 9 |
| Receivables - current | 26 | 26 | \u00a0 | \u00a0 | 26 |
| Financial assets carried at FVTOCI | 319 | 319 | 30 | 25 | 264 |
| Derivative financial instruments | 127 | 127 | \u00a0 | 127 | \u00a0 |
| Financial assets carried at fair value | 768 | 768 | 32 | 187 | 549 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 1,172 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 54 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 4,088 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 279 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 5,596 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 6,364 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Financial liabilities carried at FVTP&L | (113) | (113) | \u00a0 | \u00a0 | (113) |
| Derivative financial instruments | (211) | (211) | \u00a0 | (211) | \u00a0 |
| Financial liabilities carried at fair value | (324) | (324) | \u00a0 | (211) | (113) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,968) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (71) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (6,520) | (6,083) | (5,001) | (1,082) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,680) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (10,240) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (10,564) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Philips Group
Fair value of financial assets and liabilities
in millions of EUR\u00a0
| \u00a0 | carrying amount | estimated fair value1) | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|
| December 31, 2021 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt instruments | 233 | 233 | \u00a0 | \u00a0 | 233 |
| Equity instruments | 4 | 4 | 4 | \u00a0 | \u00a0 |
| Other financial assets | 46 | 46 | \u00a0 | 34 | 12 |
| Financial assets carried at FVTP&L | 283 | 283 | 4 | 34 | 245 |
| Debt instruments | 27 | 27 | \u00a0 | 27 | |
| Equity instruments | 273 | 273 | 63 | \u00a0 | 210 |
| Current financial assets | - | - | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 68 | 68 | \u00a0 | \u00a0 | 68 |
| Financial assets carried at FVTOCI | 368 | 368 | 63 | 27 | 278 |
| Derivative financial instruments | 63 | 63 | \u00a0 | 63 | \u00a0 |
| Financial assets carried at fair value | 714 | 714 | 67 | 124 | 523 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Cash and cash equivalents | 2,303 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Loans and receivables: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Current loans receivables | 2 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Other non-current loans and receivables | 47 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - current | 3,720 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Receivables - non-current | 224 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial assets carried at (amortized) cost | 6,296 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial assets | 7,010 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at fair value: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Contingent consideration | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Financial liabilities carried at FVTP&L | (208) | (208) | \u00a0 | \u00a0 | (208) |
| Derivative financial instruments | (202) | (202) | \u00a0 | (202) | \u00a0 |
| Financial liabilities carried at fair value | (410) | (410) | \u00a0 | (202) | (208) |
| \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Carried at (amortized) cost: | \u00a0 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Accounts payable | (1,872) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Interest accrual | (52) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Debt (Corporate bonds and leases) | (5,765) | (6,396) | (5,177) | (1,220) | \u00a0 |
| Debt (excluding corporate bonds and leases) | (1,214) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Financial liabilities carried at (amortized) cost | (8,904) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Total financial liabilities | (9,314) | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
Credit risk represents the loss that would be recognized at the reporting date, if counterparties failed completely to perform their payment obligations as contracted. Credit risk is present within Philips trade receivables and contract assets. To have better insights into the credit exposures, Philips performs ongoing evaluations of the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instances where the creditworthiness of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap, including reducing payment terms, cash on delivery, pre-payments and pledges on assets.
Philips invests available cash and cash equivalents with various financial institutions and is exposed to credit risk with these counterparties. Philips is also exposed to credit risks in the event of non-performance by financial institutions with respect to financial derivative instruments. Philips actively manages concentration risk and on a daily basis measures the potential loss under certain stress scenarios, should a financial institution default. These worst-case scenario losses are monitored and limited by the company.
The company does not enter into any financial derivative instruments to protect against default by financial institutions. However, where possible the company requires all financial institutions with which it deals in derivative transactions to complete legally enforceable netting agreements under an International Swap Dealers Association master agreement or otherwise prior to trading, and whenever possible, to have a strong credit rating. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings or with governments or government-backed institutions.
The following table shows the number of financial institutions with credit rating A- and above with which Philips has cash at hand and short-term deposits above EUR 10 million as of December 31, 2022.
Philips Group
Credit risk with number of counterparties
for deposits above EUR 10 million
| \u00a0 | 10-100 million | 100-500 million | 500 million and above |
|---|---|---|---|
| AA- rated bank counterparties | 1 | 0 | 0 |
| A+ rated bank counterparties | 3 | 1 | 0 |
| A rated bank counterparties | 0 | 1 | 0 |
| A- rated bank counterparties | 1 | 1 | 0 |
| \u00a0 | 5 | 3 | 0 |
For an overview of the overall maximum credit exposure related to debt instruments, derivatives and loans and receivables, refer to Fair value of financial assets and liabilities.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCreditRiskExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f28180": { "value": "The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
Financial assets are subject to impairment assessment, which involves estimating expected credit losses. Refer to Other financial assets for accounting policies on impairment of financial assets.
Philips is exposed to several types of financial risks which are further analyzed below. Philips does not purchase or hold derivative financial instruments for speculative purposes. Information regarding financial instruments is included in Fair value of financial assets and liabilities.
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.
Liquidity risk for the group is monitored through the Treasury liquidity committee, which tracks the development of the actual cash flow position for the group and uses input from a number of sources in order to forecast the overall liquidity position on both a short and longer term basis. Philips invests surplus cash in short-term deposits with appropriate maturities to ensure sufficient liquidity is available to meet liabilities when due and in money market funds.
The rating of the company\u2019s debt by major rating agencies may improve or deteriorate. As a result, Philips\u2019 future borrowing capacity may be influenced and its financing costs may fluctuate. Philips has various sources to mitigate the liquidity risk for the group. As of December 31, 2022, Philips had EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), within which short-term deposits of EUR 482 million (2021: EUR 1,357 million). Cash and cash equivalents include all cash balances, money market funds and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash. Philips pools cash from subsidiaries to the extent legally and economically feasible; cash not pooled remains available for the company\u2019s operational or investment needs.
Philips faces cross-border foreign exchange controls and/or other legal restrictions in a few countries that could limit its ability to make these balances available on short notice for general use by the group.
Philips has a USD 2.5 billion Commercial Paper Program and a EUR 1 billion committed standby revolving credit facility that can be used for general group purposes, such as a backstop for its Commercial Paper Program. As of December 31, 2022, Philips did not have any loans outstanding under either facility. These facilities do not have a material adverse change clause, have no financial covenants and no credit-rating-related acceleration possibilities. Philips issued commercial paper of EUR 200 million in September 2022 and EUR 101 million in October 2022, that was repaid throughout the fourth quarter of 2022. In addition, Philips secured a EUR 1 billion credit facility in the fourth quarter of 2022 that can be used for general corporate purposes. As of December 31, 2022, Philips had EUR 500 million outstanding under the credit facility. The facility does not have a material adverse change clause, has no financial covenants and no credit-rating-related acceleration possibilities. As per March 9, 2020, Philips established a Euro Medium-Term Note (EMTN) program, a framework that facilitates the issuance of notes for a total amount up to EUR 10 billion. In 2022, Philips issued three new tranches under the program for a total of EUR 2 billion, while also redeeming its outstanding 2023 and 2024 Notes and issuing a tender offer on the outstanding 2025 and 2026 Notes.\u00a0For a description of Philips\u2019 credit facilities, refer to Debt.\u00a0
In addition to cash and cash equivalents, as of December 31, 2022, Philips also held EUR 32 million of listed (level 1) equity investments at fair value (classified as other non-current financial assets).
The following table presents a summary of the Group\u2019s 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 business strategy and needs. Therefore, the actual payments made in future periods may vary from those presented in the following table:
| \u00a0 | \u00a0 | payments due by period | |||
|---|---|---|---|---|---|
| \u00a0 | 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 obligations3) | 782 | 336 | 412 | 21 | 12 |
| Trade and other payables | 1,968 | 1,968 | \u00a0 | \u00a0 | \u00a0 |
| Contractual cash obligations | 12,901 | 3,603 | 2,478 | 2,094 | 4,725 |
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). As of December 31, 2022 capital contributions already made to these investment funds are recorded as non-current financial assets.
Philips offers voluntary supply chain finance programs with third parties which provide participating suppliers 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 these arrangements. As of December 31, 2022 approximately EUR 151 million (2021: EUR 139 million)of the Philips account payable were transferred under these arrangements.
With respect to the Respironics field action, please refer to Contingencies. The management continues to monitor the risks associated with such potential claims and its impact on liquidity position, if any.
The company leases various items of real estate, vehicles and other equipment where it acts as a lessee. The company has multiple extension and termination options in a number of lease contracts. These are used to maximize operational flexibility in terms of managing the assets used in the company's operations. The options considered reasonably certain are part of lease liabilities. However, the options not considered reasonably certain are not part of lease liability, which exposes the company to potential future cash outflows amounting to EUR 400 million. In addition, the company is committed to leases not yet commenced to EUR 93 million. The company's lease contracts do not contain financial covenants.
The company enters into sale-and-leaseback transactions primarily for its Sleep & Respiratory Care businesses. These transactions are accounted for at market value. The payments for these leases are considered in determining lease liabilities. Principal repayments are part of cash flows used for financing activities and interest payments are part of cash flows used for operating activities. The cash inflows arising from the sales transactions are part of cash flows provided by financing activities. Lease payments under sale-and-leaseback arrangements for 2022 were EUR 72 million (2021: EUR 85 million). The remaining minimum payment under sale-and-leaseback arrangements included in lease obligations above are as follows:
Philips Group
Remaining minimum payments under sale-and-leaseback arrangements
in millions of EUR
| \u00a0 | \u00a0 |
|---|---|
| 2023 | 55 |
| 2024 | 38 |
| 2025 | 23 |
| 2026 | 14 |
| 2027 | 5 |
| Thereafter | 18 |
Philips has leasing activities where it acts as lessor. In such arrangements, Philips provides the customer with a right to use of medical equipment in exchange for a series of payments. Residual values of assets under lease form an insignificant part of the carrying amount of those assets. Residual values are influenced by asset market prices and are therefore subject to management estimation. Residual values are at least reassessed on an annual basis, or more often when necessary. Reassessments are based on a combination of realization of assets sold, expert knowledge and judgment of local markets. For lease receivables, the value of unguaranteed residual values as of December 31, 2022 was EUR 0.6 million (2021: EUR 0.2 million). In order to reduce residual value risk exposures there may be residual value guarantees or purchase options embedded in the customer contract. Credit risk for lease receivables is reviewed regularly and mitigated, for example, by retaining a security interest in the leased asset.
Currency risk is the risk that reported financial performance or the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Philips operates in many countries and currencies and therefore currency fluctuations may impact Philips\u2019 financial results. Philips is exposed to currency risk in the following areas:
It is Philips\u2019 policy to reduce the potential year-on-year volatility caused by foreign-currency movements on its net earnings by hedging the anticipated net exposure of foreign currencies resulting from foreign-currency sales and purchases. In general, net anticipated exposures for the Group are hedged during a period of 15 months in layers of 20% up to a maximum hedge of 80%. Philips\u2019 policy requires significant committed foreign currency exposures to be fully hedged, generally using forwards. However, not every foreign currency can or shall be hedged as there may be regulatory barriers or prohibitive hedging cost preventing Philips from effectively and/or efficiently hedging its currency exposures. As a result, hedging activities cannot and will not eliminate all currency risks for anticipated and committed transaction exposures.
The following table outlines the estimated nominal value in millions of EUR for committed and anticipated transaction exposure and related hedges for Philips\u2019 most significant currency exposures consolidated as of December 31, 2022:
Philips Group
Estimated transaction exposure and related hedges
in millions of EUR
| \u00a0 | Sales/Receivables | Purchases/Payable | ||
|---|---|---|---|---|
| \u00a0 | exposure | hedges | exposure | hedges |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Exposure currency | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| USD | 1,754 | (1,530) | (979) | 936 |
| JPY | 479 | (289) | (9) | 9 |
| GBP | 303 | (188) | (7) | 7 |
| CNY | 346 | (259) | (80) | 79 |
| CAD | 203 | (138) | \u00a0 | \u00a0 |
| PLN | 65 | (62) | \u00a0 | \u00a0 |
| AUD | 139 | (92) | (1) | 1 |
| CHF | 132 | (56) | (3) | 2 |
| CZK | 48 | (50) | \u00a0 | \u00a0 |
| SEK | 55 | (17) | (1) | 1 |
| RUB | 192 | (192) | (129) | 129 |
| Others | 64 | (46) | (259) | 162 |
| Total 2022 | 3,779 | (2,920) | (1,468) | 1,326 |
| \u00a0 Total 2021 | 5,131 | (3,363) | (1,559) | 1,322 |
Philips uses foreign exchange spot and forward contracts, as well as zero cost collars in hedging the exposure. The derivatives related to transactions are, for hedge accounting purposes, split into hedges of on-balance-sheet accounts receivable/ payable and forecasted sales and purchases. Changes in the value of on-balance-sheet foreign-currency accounts receivable/payable, as well as the changes in the fair value of the hedges related to these exposures, are reported in the income statement under costs of sales. The RUB as shown in the table above was hedged for part of the year till Q2 2022. Hedges related to forecasted transactions, where hedge accounting is applied, are accounted for as cash flow hedges. The results from such hedges are deferred in other comprehensive income within equity to the extent that the hedge is effective. As of December 31, 2022, a loss of EUR 2 million was deferred in equity as a result of these hedges (2021: EUR 25 million loss). The result deferred in equity will be released to earnings mostly during 2023 at the time when the related hedged transactions affect the income statement. During 2022,\u00a0 EUR 1 million\u00a0 (2021: EUR\u00a0nil million net gain) was recorded in the consolidated statement of income as a result of ineffectiveness on certain anticipated cash flow hedges. Ineffectiveness arises when anticipated exposures are no longer expected to be highly probable. During 2022, a loss of EUR 42 million included in the cash flow hedges reserve in equity pertaining to changes in fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of option contracts was released to income statement.
The total net fair value of hedges related to transaction exposure as of December 31, 2022, was an unrealized gain of EUR 6 million. The estimated impact of a 10% increase of value of the EUR is estimated to be EUR 114 million. The following table contains an overview of the instantaneous 10% increase in the value of EUR against major currencies.
Philips Group
Estimated impact of 10% increase of value of the EUR on the fair value of hedges
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| USD | 78 | 68 |
| JPY | 13 | 15 |
| GBP | 14 | 16 |
| CHF | 5 | 4 |
| PLN | 3 | 2 |
| RUB | 10 | 0 |
The EUR 114 million increase includes a gain of EUR 41 million that would impact the income statement, which would largely offset the opposite revaluation effect on the underlying accounts receivable and payable, and the remaining gain of EUR 73 million would be recognized in equity to the extent that the cash flow hedges were effective.
Foreign exchange exposure also arises as a result of inter-company loans and deposits. Where the company enters into such arrangements, the financing is generally provided in the functional currency of the subsidiary entity. The currency of the company\u2019s external funding and liquid assets is matched with the required financing of subsidiaries, either directly through external foreign currency loans and deposits, or synthetically by using foreign exchange derivatives, including cross currency interest rate swaps and foreign exchange forward contracts. In certain cases where group companies may also have external foreign currency debt or liquid assets, these exposures are also hedged through the use of foreign exchange derivatives. Changes in the fair value of hedges related to this exposure are recognized within financial income and expenses in the statements of income. When such loans would be considered part of the net investment in the subsidiary, net investment hedging would be applied.
Translation exposure of foreign-currency equity invested in consolidated entities is generally not hedged. If a hedge is entered into, it is accounted for as a net investment hedge. Net current-period change, before tax, of the currency translation reserve of EUR 748 million mainly relates to the development of the USD versus the EUR. As of December 31, 2022, a weakening of USD by 10% versus the EUR would result in a decrease in the currency translation reserve in equity of approximately EUR 1,132 million, while a strengthening of USD by 10% versus the EUR would result in an increase in the currency translation reserve in equity of approximately EUR 1,384 million. Refer to the country risk paragraph for countries with significant foreign currency denominated equity invested.
As of December 31, 2022, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 147 million) and external bond funding for a nominal value of USD 1,490 million (liability at book value: EUR 1,378 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2022 a total loss of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2022, was a liability of EUR 147 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 192 million in the value of the derivatives, including a EUR 191 million increase related to the USD.
As of December 31, 2021, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 116 million) and external bond funding for a nominal value of USD 1,473 million (liability at book value: EUR 1,313 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2021 a total gain of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2021, was a liability of EUR 116 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 40 million in the value of the derivatives, including a EUR 40 million increase related to the USD.
Philips does not currently hedge the foreign exchange exposure arising from equity interests in non-functional-currency investments in associates and other non-current financial assets.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As of December 31, 2022, Philips had outstanding debt of EUR 8,201 million (2021: EUR 6,980 million), which constitutes an inherent interest rate risk with potential negative impact on financial results. At year-end, Philips held EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), and had total long-term debt of EUR 7,270 million (2021: EUR 6,473 million) and total short-term debt of EUR 931 million (2021: EUR 506 million). As of December 31, 2022, Philips had a ratio of fixed-rate long-term debt to total outstanding debt of approximately 80% compared to 90% one year earlier. Philips debt has a long maturity profile with an average tenor of long-term debt of 6.1 years with maturities up to 2042.
The following table provides the impact of a 1% increase/decrease of interest rates on the fair value of the debt and the annualized net interest expenses.
Philips Group
Net debt1) and interest rate sensitivity
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Impact 1% interest increase on the fair value of the fixed-rate long-term debt2)3) | (297) | (274) |
| Impact 1% interest decrease on the fair value of the fixed-rate long-term debt2)3) | 298 | 274 |
| Impact 1% interest increase on the annualized net interest expense4) | 20 | 4 |
Global regulators and central banks have been driving international efforts to reform key benchmark interest rates (Interbank Offered Rate or IBOR rates). The market has transitioned to alternative risk-free reference rates (RFRs) that are transaction-based. LIBOR has been discontinued for most currencies and maturities after December 31, 2021, except for the US-dollar for which certain maturities are expected to be phased out in 2023. The company has no interest rate hedging relationships which get affected by the reform and does not expect any significant impact on existing contracts due to change in the interest rates. The company implemented new alternative risk-free rates from January 1, 2022 and the impact upon transition was EUR 1 million financial expense.\u00a0
Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in equity prices.
Philips is a shareholder in some publicly listed companies and as a result is exposed to potential financial loss through movements in their share prices. The aggregate equity price exposure in such financial assets amounted to approximately EUR 32 million as of December 31, 2022 (2021: EUR 67 million). Philips does not hold derivatives in the above-mentioned listed companies. Philips also has shareholdings in several privately-owned companies amounting to EUR 229 million, mainly consisting of minority stakes in companies in various industries. As a result, Philips is exposed to potential value adjustments.
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices.
Philips is a purchaser of certain base metals, precious metals and energy. Philips may hedge certain commodity price risks using derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity price volatility. As of December 31, 2022 and 2021, respectively, Philips did not have any significant outstanding financial commodity derivatives.
Credit risk represents the loss that would be recognized at the reporting date, if counterparties failed completely to perform their payment obligations as contracted. Credit risk is present within Philips trade receivables and contract assets. To have better insights into the credit exposures, Philips performs ongoing evaluations of the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instances where the creditworthiness of a customer is determined not to be sufficient to grant the credit limit required, there are a number of mitigation tools that can be utilized to close the gap, including reducing payment terms, cash on delivery, pre-payments and pledges on assets.
Philips invests available cash and cash equivalents with various financial institutions and is exposed to credit risk with these counterparties. Philips is also exposed to credit risks in the event of non-performance by financial institutions with respect to financial derivative instruments. Philips actively manages concentration risk and on a daily basis measures the potential loss under certain stress scenarios, should a financial institution default. These worst-case scenario losses are monitored and limited by the company.
The company does not enter into any financial derivative instruments to protect against default by financial institutions. However, where possible the company requires all financial institutions with which it deals in derivative transactions to complete legally enforceable netting agreements under an International Swap Dealers Association master agreement or otherwise prior to trading, and whenever possible, to have a strong credit rating. Philips also regularly monitors the development of the credit risk of its financial counterparties. Wherever possible, cash is invested and financial transactions are concluded with financial institutions with strong credit ratings or with governments or government-backed institutions.
The following table shows the number of financial institutions with credit rating A- and above with which Philips has cash at hand and short-term deposits above EUR 10 million as of December 31, 2022.
Philips Group
Credit risk with number of counterparties
for deposits above EUR 10 million
| \u00a0 | 10-100 million | 100-500 million | 500 million and above |
|---|---|---|---|
| AA- rated bank counterparties | 1 | 0 | 0 |
| A+ rated bank counterparties | 3 | 1 | 0 |
| A rated bank counterparties | 0 | 1 | 0 |
| A- rated bank counterparties | 1 | 1 | 0 |
| \u00a0 | 5 | 3 | 0 |
For an overview of the overall maximum credit exposure related to debt instruments, derivatives and loans and receivables, refer to Fair value of financial assets and liabilities.
Country risk is the risk that political, legal, or economic developments in a single country could adversely impact performance. The country risk per country is defined as the sum of the equity of all subsidiaries and associated companies in country cross-border transactions, such as intercompany loans, accounts receivable from third parties and intercompany accounts receivable. The country risk is monitored on a regular basis.
As of December 31, 2022, the company had country risk exposure of EUR 14.0 billion in the United States, EUR 1.3 billion in China (including Hong Kong). Other countries higher than\u00a0EUR 500 million are Germany\u00a0EUR 808 million, United Kingdom EUR 766 million, and Japan\u00a0EUR 639 million. Other country which have significant exposure is\u00a0 Singapore EUR 206 million. The degree of risk of a country is taken into account when new investments are considered. The company does not, however, use financial derivative instruments to hedge country risk.
The impact of hyperinflation is also routinely assessed and was not material for the periods presented.
Philips is insured for a broad range of losses by global insurance policies in the areas of property damage/ business interruption, general and product liability, transport, directors\u2019 and officers\u2019 liability, employment practice liability, crime and cybersecurity. The counterparty risk related to the insurance companies participating in the above-mentioned global insurance policies is actively managed. As a rule, Philips only selects insurance companies with a financial strength of at least A-. Throughout the year the counterparty risk is monitored on a regular basis.
To lower exposures and to avoid potential losses, Philips has a global Risk Engineering program in place. The main focus of this program is on property damage and business interruption risks including company interdependencies. Regular on-site assessments take place at Philips locations and business-critical suppliers by risk engineers of the insurer in order to provide an accurate assessment of the potential loss and its impact. The results of these assessments are shared across the company\u2019s stakeholders. On-site assessments are carried out against the predefined Risk Engineering standards, which are agreed between Philips and the insurers. Recommendations are made in a Risk Improvement report and are monitored centrally. This is the basis for decision-making by the local management of the business as to which recommendations will be implemented.
For all policies, deductibles are in place, which vary from EUR 0.3 million to EUR 10 million per occurrence and this variance is designed to differentiate between the existing risk categories within Philips. Above a first layer of working deductibles, Philips operates its own re-insurance captive, which during 2022 retained EUR 25 million per claim and EUR 50 million in the annual aggregate for general, product, professional liability, and marine cargo claims.
New contracts were signed effective December 31, 2022, for the coming year, whereby the re-insurance captive retentions remained the same.
Currency risk is the risk that reported financial performance or the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Philips operates in many countries and currencies and therefore currency fluctuations may impact Philips\u2019 financial results. Philips is exposed to currency risk in the following areas:
It is Philips\u2019 policy to reduce the potential year-on-year volatility caused by foreign-currency movements on its net earnings by hedging the anticipated net exposure of foreign currencies resulting from foreign-currency sales and purchases. In general, net anticipated exposures for the Group are hedged during a period of 15 months in layers of 20% up to a maximum hedge of 80%. Philips\u2019 policy requires significant committed foreign currency exposures to be fully hedged, generally using forwards. However, not every foreign currency can or shall be hedged as there may be regulatory barriers or prohibitive hedging cost preventing Philips from effectively and/or efficiently hedging its currency exposures. As a result, hedging activities cannot and will not eliminate all currency risks for anticipated and committed transaction exposures.
The following table outlines the estimated nominal value in millions of EUR for committed and anticipated transaction exposure and related hedges for Philips\u2019 most significant currency exposures consolidated as of December 31, 2022:
Philips Group
Estimated transaction exposure and related hedges
in millions of EUR
| \u00a0 | Sales/Receivables | Purchases/Payable | ||
|---|---|---|---|---|
| \u00a0 | exposure | hedges | exposure | hedges |
| Balance as of December 31, 2022 | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| Exposure currency | \u00a0 | \u00a0 | \u00a0 | \u00a0 |
| USD | 1,754 | (1,530) | (979) | 936 |
| JPY | 479 | (289) | (9) | 9 |
| GBP | 303 | (188) | (7) | 7 |
| CNY | 346 | (259) | (80) | 79 |
| CAD | 203 | (138) | \u00a0 | \u00a0 |
| PLN | 65 | (62) | \u00a0 | \u00a0 |
| AUD | 139 | (92) | (1) | 1 |
| CHF | 132 | (56) | (3) | 2 |
| CZK | 48 | (50) | \u00a0 | \u00a0 |
| SEK | 55 | (17) | (1) | 1 |
| RUB | 192 | (192) | (129) | 129 |
| Others | 64 | (46) | (259) | 162 |
| Total 2022 | 3,779 | (2,920) | (1,468) | 1,326 |
| \u00a0 Total 2021 | 5,131 | (3,363) | (1,559) | 1,322 |
Philips uses foreign exchange spot and forward contracts, as well as zero cost collars in hedging the exposure. The derivatives related to transactions are, for hedge accounting purposes, split into hedges of on-balance-sheet accounts receivable/ payable and forecasted sales and purchases. Changes in the value of on-balance-sheet foreign-currency accounts receivable/payable, as well as the changes in the fair value of the hedges related to these exposures, are reported in the income statement under costs of sales. The RUB as shown in the table above was hedged for part of the year till Q2 2022. Hedges related to forecasted transactions, where hedge accounting is applied, are accounted for as cash flow hedges. The results from such hedges are deferred in other comprehensive income within equity to the extent that the hedge is effective. As of December 31, 2022, a loss of EUR 2 million was deferred in equity as a result of these hedges (2021: EUR 25 million loss). The result deferred in equity will be released to earnings mostly during 2023 at the time when the related hedged transactions affect the income statement. During 2022,\u00a0 EUR 1 million\u00a0 (2021: EUR\u00a0nil million net gain) was recorded in the consolidated statement of income as a result of ineffectiveness on certain anticipated cash flow hedges. Ineffectiveness arises when anticipated exposures are no longer expected to be highly probable. During 2022, a loss of EUR 42 million included in the cash flow hedges reserve in equity pertaining to changes in fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of option contracts was released to income statement.
The total net fair value of hedges related to transaction exposure as of December 31, 2022, was an unrealized gain of EUR 6 million. The estimated impact of a 10% increase of value of the EUR is estimated to be EUR 114 million. The following table contains an overview of the instantaneous 10% increase in the value of EUR against major currencies.
Philips Group
Estimated impact of 10% increase of value of the EUR on the fair value of hedges
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| USD | 78 | 68 |
| JPY | 13 | 15 |
| GBP | 14 | 16 |
| CHF | 5 | 4 |
| PLN | 3 | 2 |
| RUB | 10 | 0 |
The EUR 114 million increase includes a gain of EUR 41 million that would impact the income statement, which would largely offset the opposite revaluation effect on the underlying accounts receivable and payable, and the remaining gain of EUR 73 million would be recognized in equity to the extent that the cash flow hedges were effective.
Foreign exchange exposure also arises as a result of inter-company loans and deposits. Where the company enters into such arrangements, the financing is generally provided in the functional currency of the subsidiary entity. The currency of the company\u2019s external funding and liquid assets is matched with the required financing of subsidiaries, either directly through external foreign currency loans and deposits, or synthetically by using foreign exchange derivatives, including cross currency interest rate swaps and foreign exchange forward contracts. In certain cases where group companies may also have external foreign currency debt or liquid assets, these exposures are also hedged through the use of foreign exchange derivatives. Changes in the fair value of hedges related to this exposure are recognized within financial income and expenses in the statements of income. When such loans would be considered part of the net investment in the subsidiary, net investment hedging would be applied.
Translation exposure of foreign-currency equity invested in consolidated entities is generally not hedged. If a hedge is entered into, it is accounted for as a net investment hedge. Net current-period change, before tax, of the currency translation reserve of EUR 748 million mainly relates to the development of the USD versus the EUR. As of December 31, 2022, a weakening of USD by 10% versus the EUR would result in a decrease in the currency translation reserve in equity of approximately EUR 1,132 million, while a strengthening of USD by 10% versus the EUR would result in an increase in the currency translation reserve in equity of approximately EUR 1,384 million. Refer to the country risk paragraph for countries with significant foreign currency denominated equity invested.
As of December 31, 2022, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 147 million) and external bond funding for a nominal value of USD 1,490 million (liability at book value: EUR 1,378 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2022 a total loss of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2022, was a liability of EUR 147 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 192 million in the value of the derivatives, including a EUR 191 million increase related to the USD.
As of December 31, 2021, cross-currency interest rate swaps for a nominal value of USD 500 million (liability at fair value: EUR 116 million) and external bond funding for a nominal value of USD 1,473 million (liability at book value: EUR 1,313 million) were designated as net investment hedges of financing investments in foreign operations for an equal amount. During 2021 a total gain of EUR 1.1 million was recognized in the income statement as ineffectiveness on net investment hedges, arising from counterparty and own credit risk.
The total net fair value of financing derivatives as of December 31, 2021, was a liability of EUR 116 million. An instantaneous 10% increase in the value of the EUR against all currencies would lead to an increase of EUR 40 million in the value of the derivatives, including a EUR 40 million increase related to the USD.
Philips does not currently hedge the foreign exchange exposure arising from equity interests in non-functional-currency investments in associates and other non-current financial assets.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As of December 31, 2022, Philips had outstanding debt of EUR 8,201 million (2021: EUR 6,980 million), which constitutes an inherent interest rate risk with potential negative impact on financial results. At year-end, Philips held EUR 1,172 million in cash and cash equivalents (2021: EUR 2,303 million), and had total long-term debt of EUR 7,270 million (2021: EUR 6,473 million) and total short-term debt of EUR 931 million (2021: EUR 506 million). As of December 31, 2022, Philips had a ratio of fixed-rate long-term debt to total outstanding debt of approximately 80% compared to 90% one year earlier. Philips debt has a long maturity profile with an average tenor of long-term debt of 6.1 years with maturities up to 2042.
The following table provides the impact of a 1% increase/decrease of interest rates on the fair value of the debt and the annualized net interest expenses.
Philips Group
Net debt1) and interest rate sensitivity
in millions of EUR
| \u00a0 | 2021 | 2022 |
|---|---|---|
| Impact 1% interest increase on the fair value of the fixed-rate long-term debt2)3) | (297) | (274) |
| Impact 1% interest decrease on the fair value of the fixed-rate long-term debt2)3) | 298 | 274 |
| Impact 1% interest increase on the annualized net interest expense4) | 20 | 4 |
Global regulators and central banks have been driving international efforts to reform key benchmark interest rates (Interbank Offered Rate or IBOR rates). The market has transitioned to alternative risk-free reference rates (RFRs) that are transaction-based. LIBOR has been discontinued for most currencies and maturities after December 31, 2021, except for the US-dollar for which certain maturities are expected to be phased out in 2023. The company has no interest rate hedging relationships which get affected by the reform and does not expect any significant impact on existing contracts due to change in the interest rates. The company implemented new alternative risk-free rates from January 1, 2022 and the impact upon transition was EUR 1 million financial expense.\u00a0
Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in equity prices.
Philips is a shareholder in some publicly listed companies and as a result is exposed to potential financial loss through movements in their share prices. The aggregate equity price exposure in such financial assets amounted to approximately EUR 32 million as of December 31, 2022 (2021: EUR 67 million). Philips does not hold derivatives in the above-mentioned listed companies. Philips also has shareholdings in several privately-owned companies amounting to EUR 229 million, mainly consisting of minority stakes in companies in various industries. As a result, Philips is exposed to potential value adjustments.
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices.
Philips is a purchaser of certain base metals, precious metals and energy. Philips may hedge certain commodity price risks using derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity price volatility. As of December 31, 2022 and 2021, respectively, Philips did not have any significant outstanding financial commodity derivatives.
Country risk is the risk that political, legal, or economic developments in a single country could adversely impact performance. The country risk per country is defined as the sum of the equity of all subsidiaries and associated companies in country cross-border transactions, such as intercompany loans, accounts receivable from third parties and intercompany accounts receivable. The country risk is monitored on a regular basis.
As of December 31, 2022, the company had country risk exposure of EUR 14.0 billion in the United States, EUR 1.3 billion in China (including Hong Kong). Other countries higher than\u00a0EUR 500 million are Germany\u00a0EUR 808 million, United Kingdom EUR 766 million, and Japan\u00a0EUR 639 million. Other country which have significant exposure is\u00a0 Singapore EUR 206 million. The degree of risk of a country is taken into account when new investments are considered. The company does not, however, use financial derivative instruments to hedge country risk.
The impact of hyperinflation is also routinely assessed and was not material for the periods presented.
", "dimensions": { "concept": "ifrs-full:DisclosureOfMarketRiskExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f28196": { "value": "The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForHedgingExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f28197": { "value": "The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "f28198": { "value": "The company uses derivative financial instruments principally to manage its foreign currency risks and, to a more limited extent, interest rate and commodity price risks. All derivative financial instruments are accounted for at the trade date and classified as current or non-current assets or liabilities based on the maturity date or the early termination date. The company measures all derivative financial instruments at fair value that is derived from the market prices of the instruments, calculated on the basis of the present value of the estimated future cash flows based on observable interest yield curves, basis spread, credit spreads and foreign exchange rates, or derived from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Consolidated statements of income, except for derivatives that are highly effective and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of foreign exchange forward contracts attributable to forward points and changes in the time value of the option contracts are deferred in the cash flow hedges reserve within equity. The deferred amounts are recognized in the Consolidated statements of income against the related hedged transaction when it occurs.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash flow hedge are recorded in OCI until the Consolidated statements of income are affected by the variability in cash flows of the designated hedged item. To the extent that the hedge is ineffective, changes in the fair value are recognized in the Consolidated statements of income.
The company formally assesses, both at the hedge\u2019s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is established that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the company discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is expected that a forecasted transaction will not occur, the company continues to carry the derivative on the Consolidated balance sheets at its fair value, and gains and losses that were accumulated in OCI are recognized immediately in the same line item as they relate to in the Consolidated statements of income.
Foreign currency differences arising upon retranslation of financial instruments designated as a hedge of a net investment in a foreign operation are recognized directly in the currency translation differences reserve through OCI, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the Consolidated statements of income.
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 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 the 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.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEventsAfterReportingPeriodExplanatory", "language": "en", "entity": "scheme:H1FJE8H61JGM1JSGM897", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "note-68941c51": { "value": "Shareholders in this table refers to shareholders of Koninklijke Philips N.V.", "dimensions": { "concept": "xbrl:note", "noteId": "note-68941c51", "language": "en" } } } }