Edgar Filing: KONINKLIJKE PHILIPS NV

6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

October 24, 2016

KONINKLIJKE PHILIPS N.V.

(Exact name of registrant as specified in its charter)

Royal Philips

(Translation of registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Breitner Center, Amstelplein 2, 1096 BC Amsterdam, The Netherlands

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule101(b)(7): ¨

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ¨ No x

Name and address of person authorized to receive notices

and communications from the Securities and Exchange Commission:

M.J. van Ginneken

Koninklijke Philips N.V.

Amstelplein 2

1096 BC Amsterdam – The Netherlands

This report comprises a copy of the following press release:

“Philips’ Third Quarter Results 2016”, dated October 24, 2016.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized at Amsterdam, on the 24^th of October, 2016.

KONINKLIJKE PHILIPS N.V.

/s/ M.J. van Ginneken

(General Secretary)

LOGO

Philips reports Q3 sales of EUR 5.9 billion, a 14% improvement in Adjusted EBITA to EUR 649 million, and an 18% increase in net income to EUR 383 million

Amsterdam, October 24, 2016

Third-quarter highlights

•

Sales increased to EUR 5.9 billion, with consolidated comparable sales growth of 2% and the HealthTech portfolio growing by 5%

•

Adjusted EBITA amounted to EUR 649 million, or 11.0% of sales, compared to 9.8% of sales in Q3 2015

•

EBITA totaled EUR 567 million, or 9.6% of sales, compared to 7.4% of sales in Q3 2015

•

Income from operations (EBIT) amounted to EUR 481 million, compared to EUR 342 million in Q3 2015

•

Net income amounted to EUR 383 million, compared to EUR 324 million in Q3 2015

•

Operating cash flow totaled EUR 500 million, compared to EUR 281 million in Q3 2015; free cash flow of EUR 280 million, compared to EUR 58 million in Q3 2015

Frans van Houten, CEO:

“I am pleased with the solid 5% comparable sales growth and 8% order intake growth in our HealthTech portfolio in the third quarter. Overall, Philips posted 2% comparable sales growth, and the operational improvements at the Personal Health and Diagnosis & Treatment businesses, combined with continued improvements at Philips Lighting, led to the 120-basis-point increase in the Adjusted EBITA margin for the Philips Group.

Our outlook for 2016 remains unchanged, as we expect further earnings improvements in the fourth quarter of the year. Going forward, we remain concerned about risk due to volatility in the markets in which we operate.”

HealthTech

“Underlining our strategic focus on innovation, we saw healthy growth in order intake in the quarter, as well as solid sales growth and margin expansion. This was driven by recent product introductions across our HealthTech portfolio and by continued synergies from the integration of Volcano in Image-Guided Therapy. Our Accelerate! transformation program again delivered operational improvements across our businesses, while we also continue to invest significantly in quality and innovation, including in health informatics, wearable patient monitoring solutions and digital pathology.”

The Personal Health businesses grew by 7% on a comparable basis, with growth across the portfolio, most notably double-digit growth in Health & Wellness, and the Adjusted EBITA margin improving by 130 basis points. The Diagnosis & Treatment businesses showed comparable sales growth of 6% and the Adjusted EBITA margin improved by 210 basis points, mainly driven by Image- Guided Therapy and improvements at the Cleveland site. In the Connected Care & Health Informatics businesses, comparable sales growth in Healthcare Informatics, Solutions & Services was mainly offset by a decline in Patient Care & Monitoring Solutions, which also resulted in a decrease of the Adjusted EBITA by 180 basis points. Equipment-order intake increased by 8% on a currency-comparable basis, driven by the Connected Care & Health Informatics businesses.

•

In line with Philips’ strategy of delivering solutions consisting of smart devices, software and services to address specific customer needs, the company signed a 3-year patient monitoring solutions agreement with Rush University Medical Center, Chicago.

•

Leveraging its expertise in cardiology, Philips signed a 5-year interventional cardiology solutions agreement with DeltaHealth in China for its new DeltaHealth Hospital Shanghai, which will specialize in cardiac care. The agreement comprises interventional X-ray systems, ultrasound imaging, software and services.

•

Philips introduced a range of personalized health programs at this year’s IFA trade show in Berlin, including the Philips Sonicare FlexCare Platinum Connected toothbrush and the uGrow medical-grade baby app. The health programs leverage Philips HealthSuite, a cloud-enabled connected health ecosystem of devices, apps and digital tools.

•

Philips acquired Wellcentive, a leading US-based provider of population health management software solutions. Wellcentive complements Philips’ portfolio with cloud-based IT solutions to import, aggregate and analyze clinical, claims and financial data across hospital and health systems to help care providers deliver coordinated care.

•

Building on its expertise in new care models based on telehealth technologies, Philips enabled Macquarie University’s MQ Health in Sydney, Australia, and Emory Healthcare in Atlanta, US, to provide continuous night-time critical care oversight to ICU patients back in Atlanta during daytime hours in Australia.

•

In the 2016 Interbrand annual ranking of the world’s most valuable brands, Philips’ ranking improved to #41 from #47, with a total estimated brand value of approximately USD 11.3 billion.

•

Philips became the Industry Group Leader in the Capital Goods category in the 2016 Dow Jones Sustainability Index, achieving the highest possible scores in three sections, including climate strategy and operational eco-efficiency.

Philips Lighting

In the third quarter, Adjusted EBITA improved by 250 basis points to 10.1% of sales, while comparable sales declined by 3% and free cash flow improved to EUR 164 million. Full details about the financial performance of Philips Lighting in the third quarter were published on October 20, 2016. The related report can be accessed here. Following the listing of Philips Lighting in Amsterdam, Philips holds a 71.225% stake with the aim of fully selling down over the next several years. As the majority shareholder in Philips Lighting, Philips continues to consolidate the financial results of Philips Lighting.

Group cost savings

In the third quarter, overhead cost savings amounted to EUR 12 million, the Design for Excellence (DfX) program generated EUR 102 million of incremental procurement savings, and the End2End improvement program achieved EUR 66 million in productivity gains.

Miscellaneous

As of September 30, 2016, Philips had completed 98% of the 3-year EUR 1.5 billion share buy-back program. The buy-back was completed on October 20, 2016. On October 19, 2016, Philips announced the final results of the tender offer for certain outstanding notes, which the company started on September 20, 2016. The aggregate principal amount of the purchased notes was USD 285 million, and in Q3 2016 the tender offer resulted in a EUR 98 million charge recognized in Financial expenses.

Conference call and audio webcast

Frans van Houten, CEO, and Abhijit Bhattacharya, CFO, will host a conference call for investors and analysts at 10:00 am CET to discuss the results. A live audio webcast of the conference call will be available on the Philips Investor Relations website and can be accessed here.

Philips performance


Key data in millions of EUR unless otherwise stated
	Q3 2015			Q3 2016
Sales		5,836			5,898
Nominal sales growth		12	%		1	%
Comparable sales growth		2	%		2	%
Income from operations (EBIT)		342			481
as a % of sales		5.9	%		8.2	%
Adjusted EBITA		570			649
as a % of sales		9.8	%		11.0	%
EBITA		429			567
as a % of sales		7.4	%		9.6	%
Financial expenses, net		(100	)		(202	)
Income taxes		(8	)		(6	)
Results investments in associates		2			7
Income from continuing operations		236			280
Discontinued operations		88			103
Net income		324			383
Net income attributable to shareholders per common share (in EUR) - diluted		0.34			0.40

•

Comparable sales growth was driven by 5% growth in the HealthTech portfolio, partly offset by a 3% decline in Lighting.

•

Currency-comparable order intake showed 8% growth, driven by double-digit growth in the Connected Care & Health Informatics businesses and low-single-digit growth in the Diagnosis & Treatment businesses.

•

Adjusted EBITA improved by EUR 79 million and the margin improved by 120 basis points compared to Q3 2015. The improvement was mainly attributable to cost productivity, positive currency impacts and improvements at the Cleveland site, partly offset by higher expenditure for growth initiatives and innovation.

•

Restructuring and acquisition-related charges amounted to EUR 59 million, compared to EUR 51 million in Q3 2015. EBITA also included EUR 24 million of charges related to the separation of the Lighting business, compared to EUR 59 million in Q3 2015.

•

Net financial expenses increased by EUR 102 million year-on-year, mainly due to a charge related to the notes redeemed in October 2016.

•

Income tax expense was in line with Q3 2015 and included a release of tax provisions.

•

Net income from discontinued operations increased by EUR 15 million year-on-year, mainly due to improved operational performance in the combined businesses of Lumileds and Automotive.

•

Net income increased by EUR 59 million compared to Q3 2015, driven by improved income from operations, partly offset by higher financial charges.


Sales per geographic cluster in millions of EUR unless otherwise stated
					% change
	Q3 2015		Q3 2016		nominal			comparable
Western Europe		1,435		1,400		(2	)%		0	%
North America		1,983		2,005		1	%		1	%
Other mature geographies		444		489		10	%		0	%

Total mature geographies		3,862		3,894		1	%		0	%
Growth geographies		1,974		2,004		2	%		6	%

Philips		5,836		5,898		1	%		2	%

•

Comparable sales growth in mature geographies was driven by low-single-digit growth in North America, while Western Europe and other mature geographies were in line with Q3 2015. In growth geographies, comparable sales growth was largely driven by high-single-digit growth in China and Latin America.

•

Currency-comparable order intake in growth geographies showed double-digit growth, driven by China. North America achieved mid-single-digit growth, Western Europe posted a low-single-digit decline, and other mature geographies recorded double-digit growth.


Cash balance in millions of EUR
	Q3 2015			Q3 2016
Beginning cash balance		1,135			1,926
Free cash flow		58			280
Net cash flows from operating activities		281			500
Net capital expenditures		(223	)		(220	)
Other cash flows from investing activities		5			(186	)
Treasury shares transactions		(109	)		(124	)
Changes in debt		(7	)		30
Dividend paid to shareholders of the Company		(45	)		(50	)
Other cash flow items		(34	)		(36	)
Net cash flows from discontinued operations		22			19

Ending cash balance		1,025			1,859

•

The net cash flows from operating activities increased by EUR 219 million, mainly due to improvements in income from operations and working capital, partly offset by a EUR 63 million outflow related to pension liability de-risking in the United States.

•

Other cash flows from investing activities decreased by EUR 191 million and includes the Wellcentive acquisition.

•

As of September 30, 2016, Philips had completed 98% of the 3-year EUR 1.5 billion share buy-back program, which was completed on October 20, 2016.


		Quarterly report Q3 2016 3

Performance per segment

Personal Health businesses


Key data in millions of EUR unless otherwise stated
	Q3 2015			Q3 2016
Sales		1,585			1,663
Sales growth
Nominal sales growth		12	%		5	%
Comparable sales growth		4	%		7	%
Income from operations (EBIT)		151			217
as a % of sales		9.5	%		13.0	%
Adjusted EBITA		221			253
as a % of sales		13.9	%		15.2	%
EBITA		189			253
as a % of sales		11.9	%		15.2	%

•

Comparable sales growth was driven by double-digit growth in Health & Wellness, high-single-digit growth in Sleep & Respiratory Care and mid-single-digit growth in Personal Care and Domestic Appliances.

•

Comparable sales in growth geographies showed high-single-digit growth, driven by double-digit growth in Central & Eastern Europe and high-single-digit growth in China. Mature geographies recorded mid-single-digit growth, driven by high-single-digit growth in Western Europe and mid-single-digit growth in North America.

•

Adjusted EBITA increased by EUR 32 million and the margin improved by 130 basis points compared to Q3 2015. The increase was attributable to higher volumes and cost productivity.

•

Restructuring and acquisition-related charges were nil in Q3 2016, compared to EUR 1 million restructuring charges and EUR 31 million charges related to a legal matter in Q3 2015. In Q4 2016, restructuring and acquisition-related charges are expected to total approximately EUR 5 million.

Diagnosis & Treatment businesses


Key data in millions of EUR unless otherwise stated
	Q3 2015			Q3 2016
Sales		1,556			1,635
Sales growth
Nominal sales growth		21	%		5	%
Comparable sales growth		4	%		6	%
Income from operations (EBIT)		98			165
as a % of sales		6.3	%		10.1	%
Adjusted EBITA		143			184
as a % of sales		9.2	%		11.3	%
EBITA		105			178
as a % of sales		6.7	%		10.9	%

•

Comparable sales growth was driven by double-digit growth in Image-Guided Therapy and low-single-digit growth in Diagnostic Imaging, partly offset by a low-single-digit decline in Ultrasound.

•

Comparable sales in growth geographies showed double-digit growth, largely driven by China and Latin America. Mature geographies recorded low-single-digit growth, driven by North America, partly offset by a mid-single-digit decline in other mature geographies. Western Europe was in line with Q3 2015.

•

Adjusted EBITA increased by EUR 41 million and the margin improved by 210 basis points year-on-year, mainly due to improvements at the Cleveland site and positive currency impacts, partly offset by higher expenditure on innovation.

•

Restructuring and acquisition-related charges were EUR 6 million, compared to EUR 38 million in Q3 2015. In Q4 2016, restructuring and acquisition-related charges are expected to total approximately EUR 20 million.

Connected Care & Health Informatics businesses


Key data in millions of EUR unless otherwise stated
	Q3 2015			Q3 2016
Sales		732			742
Sales growth
Nominal sales growth		13	%		1	%
Comparable sales growth		1	%		0	%
Income from operations (EBIT)		62			47
as a % of sales		8.5	%		6.3	%
Adjusted EBITA		75			62
as a % of sales		10.2	%		8.4	%
EBITA		75			58
as a % of sales		10.2	%		7.8	%

•

Comparable sales growth was impacted by a low-single-digit decline in Patient Care & Monitoring Solutions. Healthcare Informatics, Solutions & Services recorded mid-single-digit growth.

•

Comparable sales in growth geographies showed mid-single-digit growth, mainly driven by high-single-digit growth in India and double-digit growth in Africa, partly offset by a low-single-digit decline in China. Mature geographies posted a low-single-digit decline, reflecting mid-single-digit growth in other mature geographies and low-single-digit growth in North America, which was more than offset by a double-digit decline in Western Europe.

•

Adjusted EBITA decreased by EUR 13 million and the margin declined by 180 basis points year-on-year, mainly reflecting a sales decline in Patient Care & Monitoring Solutions.

•

Restructuring and acquisition-related charges amounted to EUR 5 million, compared to nil in Q3 2015. Restructuring and acquisition-related charges are expected to total approximately EUR 15 million in Q4 2016.


4 Quarterly report Q3 2016

HealthTech Other


Key data in millions of EUR
	Q3 2015			Q3 2016
Sales		125			117
Income from operations (EBIT)		5			(15	)
Adjusted EBITA		4			(14	)
IP Royalties		72			68
Emerging Businesses		(19	)		(22	)
Innovation		(21	)		(24	)
Central costs		(23	)		(32	)
Other		(5	)		(4	)
EBITA		8			(13	)

•

Sales reflected EUR 14 million lower royalty income due to the foreseen expiration of licenses, partly offset by strong double-digit growth in Emerging Businesses.

•

The Adjusted EBITA decline was mainly attributable to lower royalty income, investments in Innovation and Emerging Businesses, and centralization of certain overhead costs.

•

EBITA included a EUR 1 million net release of restructuring charges, compared to a net release of EUR 4 million in Q3 2015. In Q4 2016, restructuring and acquisition-related charges are expected to total approximately EUR 40 million.

Lighting


Key data in millions of EUR unless otherwise stated ¹⁾
	Q3 2015			Q3 2016
Sales		1,838			1,741
Sales growth
Nominal sales growth		8	%		(5	)%
Comparable sales growth		(2	)%		(3	)%
Income from operations (EBIT)		98			112
as a % of sales		5.3	%		6.4	%
Adjusted EBITA		139			175
as a % of sales		7.6	%		10.1	%
EBITA		124			139
as a % of sales		6.7	%		8.0	%

¹⁾	The Lighting segment results differ from the stand-alone Philips Lighting reporting mainly due to the exclusion of intercompany sales and the reporting within Legacy Items of Philips Lighting separation costs incurred in Q3 2016.

•

Comparable sales reflected double-digit growth in LED and Home, which was more than offset by a double-digit decline in Lamps and a mid-single-digit decline in Professional.

•

Total LED lighting sales grew 16% year-on-year and now represent 56% of total Lighting sales, compared to 46% in Q3 2015.

•

Adjusted EBITA continued to improve year-on-year. The EUR 36 million increase was mainly attributable to an increase in gross margin.

•

Restructuring and acquisition-related charges were EUR 49 million, compared to EUR 15 million in Q3 2015. EBITA in Q3 2016 also included a gain of EUR 13 million related to a release of provisions originating from the separation activities. For information regarding the restructuring and acquisition-related charges guidance for 2016, please refer to the Philips Lighting Q3 2016 press release.

Legacy Items


Income from operations (EBIT) in millions of EUR
	Q3 2015			Q3 2016
Separation costs		(59	)		(24	)
Other		(13	)		(21	)

Income from operations (EBIT)		(72	)		(45	)

•

Income from operations (EBIT) mainly included EUR 24 million of charges related to the separation of the Lighting business, a EUR 13 million charge related to provisions originating from the separation of the Lighting business, and EUR 9 million of stranded costs related to the combined Lumileds and Automotive businesses.

•

Charges related to the separation of the Lighting business are expected to total approximately EUR 45 million in Q4 2016.

Discontinued operations


Net income of discontinued operations in millions of EUR
	Q3 2015		Q3 2016
The combined Lumileds and Automotive businesses		86		101
Other		2		2

Net income of discontinued operations		88		103

•

Net income of the combined businesses of Lumileds and Automotive increased by EUR 15 million, mainly due to higher sales and improvements in gross margins, partly offset by higher tax expenses.

•

Philips continues to actively engage in discussions for the sale of the combined Lumileds and Automotive businesses and will continue to report the Lumileds and Automotive businesses as discontinued operations.


		Quarterly report Q3 2016 5

Adjusted EBITA and EBITA - HealthTech portfolio segments

Personal Health

Adjusted EBITA in millions of EUR unless otherwise stated

LOGO

Diagnosis & Treatment

Adjusted EBITA in millions of EUR unless otherwise stated

LOGO

Connected Care & Health Informatics

Adjusted EBITA in millions of EUR unless otherwise stated

LOGO

EBITA in millions of EUR unless otherwise stated

LOGO

EBITA in millions of EUR unless otherwise stated

LOGO

EBITA in millions of EUR unless otherwise stated

LOGO


6 Quarterly report Q3 2016

Forward-looking statements and other important information

Forward-looking statements

This document and the related oral presentation, including responses to questions following the presentation, contain certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forward-looking statements include statements made about the strategy, estimates of sales growth, future EBITA, future developments in Philips’ organic business and the completion of acquisitions and divestments. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.

These factors include but are not limited to: domestic and global economic and business conditions; developments within the euro zone; the successful implementation of Philips’ strategy and the ability to realize the benefits of this strategy; the ability to develop and market new products; changes in legislation; legal claims; changes in exchange and interest rates; changes in tax rates; pension costs and actuarial assumptions; raw materials and employee costs; the ability to identify and complete successful acquisitions, and to integrate those acquisitions into the business; the ability to successfully exit certain businesses or restructure the operations; the rate of technological changes; political, economic and other developments in countries where Philips operates; industry consolidation and competition; and the state of international capital markets as they may affect the timing and nature of the dispositions by Philips of its interests in Philips Lighting and the combined Lumileds and Automotive businesses. As a result, Philips’ actual future results may differ materially from the plans, goals and expectations set forth in such forward-looking statements. For a discussion of factors that could cause future results to differ from such forward-looking statements, see the Risk management chapter included in the Annual Report 2015.

Third-party market share data

Statements regarding market share, including those regarding Philips’ competitive position, contained in this document are based on outside sources such as research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.

Use of non-GAAP information

In presenting and discussing the Philips Group financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. Non-GAAP financial measures do not have standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. A reconciliation of these non-GAAP measures

to the most directly comparable IFRS measures is contained in this document. Further information on non-GAAP measures can be found in the Annual Report 2015.

Use of fair-value measurements

In presenting the Philips Group financial position, fair values are used for the measurement of various items in accordance with the applicable accounting standards. These fair values are based on market prices, where available, and are obtained from sources that are deemed to be reliable. Readers are cautioned that these values are subject to changes over time and are only valid at the balance sheet date. When quoted prices or observable market data are not readily available, fair values are estimated using appropriate valuation models and unobservable inputs. Such fair value estimates require management to make significant assumptions with respect to future developments, which are inherently uncertain and may therefore deviate from actual developments. Critical assumptions used are disclosed in the Annual Report 2015. Independent valuations may have been obtained to support management’s determination of fair values.

Presentation

All amounts are in millions of euros unless otherwise stated. All reported data is unaudited. Financial reporting is in accordance with the accounting policies as stated in the Annual Report 2015, unless otherwise stated.

Prior-period financial statements have been restated to reflect a reclassification of net defined-benefit post-employment plan obligations to Long-term provisions in accordance with the accounting policies as stated in the Semi-annual Report of 2016.

Market Abuse Regulation

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation.


		Quarterly report Q3 2016 7

Condensed consolidated statements of income


Condensed consolidated statements of income in millions of EUR unless otherwise stated
	Q3						January to September
	2015			2016			2015			2016
Sales		5,836			5,898			17,149			17,276
Cost of sales		(3,414	)		(3,295	)		(10,116	)		(9,869	)

Gross margin		2,422			2,603			7,033			7,407
Selling expenses		(1,390	)		(1,411	)		(4,171	)		(4,256	)
General and administrative expenses		(241	)		(203	)		(679	)		(626	)
Research and development expenses		(471	)		(514	)		(1,390	)		(1,485	)
Impairment of goodwill		(1	)					(1	)		(3	)
Other business income		25			15			73			48
Other business expenses		(2	)		(9	)		(35	)		(29	)

Income from operations		342			481			830			1,056
Financial income		12			15			71			54
Financial expenses		(112	)		(217	)		(312	)		(469	)

Income before taxes		242			279			589			641
Income taxes		(8	)		(6	)		(87	)		(129	)

Income after taxes		234			273			502			512
Results relating to investments in associates		2			7			24			13

Income from continuing operations		236			280			526			525
Discontinued operations - net of income tax		88			103			172			326

Net income		324			383			698			851
Attribution of net income for the period
Net income attributable to Koninklijke Philips N.V. shareholders		319			370			690			822
Net income attributable to non-controlling interests		5			13			8			29
Earnings per common share attributable to shareholders
Weighted average number of common shares outstanding (after deduction of treasury shares) during the period (in thousands):
- basic		923,675			924,670			915,044			916,337
- diluted		928,028			930,752			920,949			923,587
Net income attributable to shareholders per common share in EUR:
- basic		0.35			0.40			0.75			0.90
- diluted		0.34			0.40			0.75			0.89


8 Quarterly report Q3 2016

Condensed consolidated balance sheets


Condensed consolidated balance sheets in millions of EUR
	September 30, 2015		December 31, 2015		September 30, 2016
Non-current assets:
Property, plant and equipment		2,245		2,322		2,196
Goodwill		8,245		8,523		8,455
Intangible assets excluding goodwill		3,682		3,693		3,472
Non-current receivables		182		191		165
Investments in associates		180		181		190
Other non-current financial assets		479		489		369
Non-current derivative financial assets		48		58		49
Deferred tax assets		2,730		2,758		2,693
Other non-current assets		67		68		68

Total non-current assets		17,858		18,283		17,657

Current assets:
Inventories		4,011		3,463		3,759
Other current financial assets		13		12		103
Other current assets		529		444		545
Current derivative financial assets		125		103		77
Income tax receivable		95		114		131
Receivables		4,782		4,982		4,804
Assets classified as held for sale		1,751		1,809		1,975
Cash and cash equivalents		1,025		1,766		1,859

Total current assets		12,331		12,693		13,253

Total assets		30,189		30,976		30,910


Equity
Shareholders’ equity		11,446		11,662		11,620
Non-controlling interests		108		118		853

Group equity		11,554		11,780		12,473

Non-current liabilities:
Long-term debt		3,973		4,095		4,860
Non-current derivative financial liabilities		613		695		466
Long-term provisions		3,571		3,471		3,197
Deferred tax liabilities		127		164		43
Other non-current liabilities		769		812		700

Total non-current liabilities		9,053		9,237		9,266

Current liabilities:
Short-term debt		1,574		1,665		908
Current derivative financial liabilities		261		238		292
Income tax payable		120		116		106
Accounts payable		2,551		2,673		2,625
Accrued liabilities		2,642		2,815		2,884
Short-term provisions		720		772		596
Liabilities directly associated with assets held for sale		377		407		476
Other current liabilities		1,337		1,273		1,284

Total current liabilities		9,582		9,959		9,171

Total liabilities and group equity		30,189		30,976		30,910


		Quarterly report Q3 2016 9

Condensed consolidated statements of cash flows


Condensed consolidated statements of cash flows in millions of EUR
	Q3						January to September
	2015			2016			2015			2016
Cash flows from operating activities
Net income		324			383			698			851
Results of discontinued operations - net of income tax		(88	)		(103	)		(172	)		(326	)
Adjustments to reconcile net income to net cash of operating activities:
Depreciation, amortization and impairments of fixed assets		312			304			926			915
Impairment of goodwill and other non-current financial assets		1			—			5			25
Net loss (gain) on sale of assets		(17	)		(3	)		(63	)		(3	)
Interest income		(9	)		(11	)		(35	)		(35	)
Interest expense on debt, borrowings and other liabilities		71			79			206			228
Income taxes		8			6			87			129
Results from investments in associates		(3	)		(7	)		(3	)		(13	)
Decrease (increase) in working capital:		(282	)		92			(618	)		10
Decrease (increase) in receivables and other current assets		(152	)		47			228			189
Decrease (increase) in inventories		(205	)		(134	)		(596	)		(403	)
Increase (decrease) in accounts payable, accrued and other liabilities		75			179			(250	)		224
Decrease (increase) in non-current receivables, other assets, other liabilities		(30	)		(18	)		(9	)		(211	)
Decrease in provisions		(59	)		(126	)		(351	)		(434	)
Other items		200			101			(30	)		219
Interest paid		(107	)		(114	)		(236	)		(262	)
Interest received		9			12			36			35
Dividends received from investments in associates		—			27			6			33
Income taxes paid		(49	)		(122	)		(236	)		(333	)

Net cash provided by (used for) operating activities		281			500			211			828
Cash flows from investing activities
Net capital expenditures		(223	)		(220	)		(626	)		(598	)
Purchase of intangible assets		(42	)		(38	)		(97	)		(80	)
Expenditures on development assets		(74	)		(78	)		(229	)		(227	)
Capital expenditures on property, plant and equipment		(135	)		(118	)		(344	)		(314	)
Proceeds from sale of property, plant and equipment		28			14			44			23
Net proceeds from (cash used for) derivatives and current financial assets		2			(21	)		(78	)		(119	)
Purchase of other non-current financial assets		(14	)		(10	)		(16	)		(32	)
Proceeds from other non-current financial assets		20			—			38			5
Purchase of businesses, net of cash acquired		—			(152	)		(1,104	)		(198	)
Net proceeds from sale of interests in businesses, net of cash disposed of		(3	)		(3	)		61			—

Net cash used for investing activities		(218	)		(406	)		(1,725	)		(942	)
Cash flows from financing activities
Proceeds from issuance (payments) of short-term debt		14			19			1,204			(1,124	)
Principal payments on long-term debt		(42	)		(27	)		(81	)		(60	)
Proceeds from issuance of long-term debt		21			38			64			1,265
Re-issuance of treasury shares		9			30			74			54
Purchase of treasury shares		(118	)		(154	)		(398	)		(520	)
IPO Philips Lighting proceeds											863
IPO Philips Lighting transaction costs paid					(19	)					(38	)
Dividend paid to shareholders of Koninklijke Philips N.V.		(45	)		(50	)		(298	)		(330	)
Dividends paid to non-controlling interests					(1	)					(11	)

Net cash provided by (used for) financing activities		(161	)		(164	)		565			99

Net cash provided by (used for) continuing operations		(98	)		(70	)		(949	)		(15	)
Cash flows from discontinued operations
Net cash provided by (used for) operating activities		22			19			12			155

Net cash provided by (used for) discontinued operations		22			19			12			155

Net cash provided by (used for) continuing and discontinued operations		(76	)		(51	)		(937	)		140
Effect of change in exchange rates on cash and cash equivalents		(34	)		(16	)		89			(47	)
Cash and cash equivalents at the beginning of the period		1,135			1,926			1,873			1,766

Cash and cash equivalents at the end of the period		1,025			1,859			1,025			1,859

For a number of reasons, principally the effects of translation differences, certain items in the statements of cash flows do not correspond to the differences between the balance sheet amounts for the respective items.


10 Quarterly report Q3 2016

Condensed consolidated statement of changes in equity


Condensed consolidated statement of changes in equity in millions of EUR
	common shares		capital in excess of par value			retained earnings			revaluation reserve			currency translation differences			available- for-sale financial assets			cash flow hedges			treasury shares at cost			total shareholders’ equity			non- controlling interests		total equity
January to September 2016
Balance as of December 31, 2015		186		2,669			8,040			4			1,058			56			12			(363	)		11,662			118		11,780

Total comprehensive income (loss)							821			(4	)		(223	)		(20	)		(18	)					556			19		575
Dividend distributed		4		398			(732	)																	(330	)				(330	)
IPO Philips Lighting							125						(15	)					(1	)					109			716		825
Purchase of treasury shares																						(500	)		(500	)				(500	)
Re-issuance of treasury shares				(119	)		(31	)														198			48					48
Share call options							(103	)														90			(13	)				(13	)
Share-based compensation plans				83																					83					83
Income tax share-based compensation plans				5																					5					5

Total other equity movements		4		367			(741	)					(15	)					(1	)		(212	)		(598	)		716		118

Balance as of September 30, 2016		190		3,036			8,120						820			36			(7	)		(575	)		11,620			853		12,473


		Quarterly report Q3 2016 11

Segments and main countries


Sales and income (loss) from operations in millions of EUR unless otherwise stated
	Q3 2015								Q3 2016
	sales		income from operations						sales		income from operations
						*as a % of sales*								*as a % of sales*
Personal Health		1,585		151			9.5	%		1,663		217			13.0	%
Diagnosis & Treatment		1,556		98			6.3	%		1,635		165			10.1	%
Connected Care & Health Informatics		732		62			8.5	%		742		47			6.3	%
HealthTech Other		125		5						117		(15	)
Lighting		1,838		98			5.3	%		1,741		112			6.4	%
Legacy Items		—		(72	)							(45	)

Philips		5,836		342			*5.9*	%		5,898		481			*8.2*	%


Sales and income (loss) from operations in millions of EUR unless otherwise stated
	January to September
	2015								2016
	sales		income from operations						sales		income from operations
						*as a % of sales*								*as a % of sales*
Personal Health		4,710		470			10.0	%		4,934		606			12.3	%
Diagnosis & Treatment		4,509		167			3.7	%		4,654		286			6.1	%
Connected Care & Health Informatics		2,106		61			2.9	%		2,203		104			4.7	%
HealthTech Other		377		42						325		(42	)
Lighting		5,401		256			4.7	%		5,160		296			5.7	%
Legacy Items		46		(166	)					—		(194	)

Philips		17,149		830			*4.8*	%		17,276		1,056			*6.1*	%


Sales and tangible and intangible assets in millions of EUR
	sales				long-lived assets¹⁾
	January to September				September 30,		September 30,
	2015		2016		2015		2016
Netherlands		461		482		962		992
United States		5,352		5,521		9,061		9,005
China		1,964		1,999		1,177		1,117
Germany		947		945		160		195
Japan		716		816		412		529
France		560		584		48		45
India		595		577		132		116
Other countries		6,554		6,352		2,220		2,124

Philips		17,149		17,276		14,172		14,123

¹⁾	Includes property, plant and equipment, intangible assets excluding goodwill, and goodwill


12 Quarterly report Q3 2016

Reconciliation of non-GAAP performance measures

Certain non-GAAP financial measures are presented when discussing the Philips Group’s performance. In the following tables, reconciliations to the most directly comparable IFRS measures are presented.

The Lighting segment results differ from the stand-alone Philips Lighting reporting mainly due to the exclusion of intercompany sales and the reporting within Legacy Items of Philips Lighting separation costs incurred in 2016.


Sales growth composition in %
	Q3												January to September
	comparable growth			currency effects			consolidation changes			nominal growth			comparable growth			currency effects			consolidation changes			nominal growth
2016 versus 2015
Personal Health		6.7			(1.8	)		0.0			4.9			7.2			(2.4	)		0.0			4.8
Diagnosis & Treatment		5.7			(0.2	)		(0.4	)		5.1			3.8			(1.2	)		0.6			3.2
Connected Care & Health Informatics		(0.1	)		0.5			1.0			1.4			4.7			(0.3	)		0.2			4.6
HealthTech Other		(5.8	)		(0.6	)		0.0			(6.4	)		(13.8	)		0.0			0.0			(13.8	)
Lighting		(3.2	)		(2.0	)		(0.1	)		(5.3	)		(2.1	)		(2.3	)		(0.1	)		(4.5	)

Philips		2.2			(1.1	)		0.0			1.1			2.6			(1.8	)		(0.1	)		0.7


Adjusted EBITA to Income from operations
in millions of EUR
	Q3																					January to September
	Adjusted EBITA			Other items			Restructuring and acquisition related charges			EBITA (or Adjusted income from operations)			Amortization of intangibles			Impairment of goodwill			Income from operations			Adjusted EBITA			Other items			Restructuring and acquisition related charges			EBITA (or Adjusted income from operations)			Amortization of intangibles			Impairment of goodwill			Income from operations
2016
Personal Health		253									253			(36	)					217			714						(3	)		711			(105	)					606
Diagnosis & Treatment		184						(6	)		178			(13	)					165			347						(22	)		325			(39	)					286
Connected Care & Health Informatics		62			1			(5	)		58			(11	)					47			147			(3	)		(6	)		138			(33	)		(1	)		104
HealthTech Other		(14	)					1			(13	)		(2	)					(15	)		(37	)								(37	)		(5	)					(42	)
Lighting		175			13			(49	)		139			(27	)					112			457			13			(91	)		379			(81	)		(2	)		296
Legacy Items		(11	)		(37	)					(48	)		3						(45	)		(61	)		(134	)					(195	)		1						(194	)

Philips		649			(23	)		(59	)		567			(86	)					481			1,567			(124	)		(122	)		1,321			(262	)		(3	)		1,056
2015
Personal Health		221			(31	)		(1	)		189			(38	)					151			615			(31	)		(2	)		582			(112	)					470
Diagnosis & Treatment		143						(38	)		105			(7	)					98			294						(90	)		204			(37	)					167
Connected Care & Health Informatics		75									75			(13	)					62			129			(28	)		(1	)		100			(39	)					61
HealthTech Other		4						4			8			(3	)					5			38						14			52			(10	)					42
Lighting		139						(15	)		124			(25	)		(1	)		98			390						(54	)		336			(79	)		(1	)		256
Legacy Items		(12	)		(59	)		(1	)		(72	)								(72	)		(68	)		(97	)					(165	)		(1	)					(166	)

Philips		570			(90	)		(51	)		429			(86	)		(1	)		342			1,398			(156	)		(133	)		1,109			(278	)		(1	)		830

Adjusted EBITA is defined as Income from operations (EBIT) excluding amortization of acquired intangible assets, impairment of goodwill and other intangible assets, restructuring charges, acquisition-related costs and other significant items.


		Quarterly report Q3 2016 13

Reconciliation of non-GAAP performance measures (continued)


Composition of cash flows in millions of EUR
	Q3						January to September
	2015			2016			2015			2016
Cash flows provided by (used for) operating activities		281			500			211			828
Cash flows used for investing activities		(218	)		(406	)		(1,725	)		(942	)

Cash flows before financing activities		63			94			(1,514	)		(114	)
Cash flows provided by (used for) operating activities		281			500			211			828
Net capital expenditures:		(223	)		(220	)		(626	)		(598	)
Purchase of intangible assets		(42	)		(38	)		(97	)		(80	)
Expenditures on development assets		(74	)		(78	)		(229	)		(227	)
Capital expenditures on property, plant and equipment		(135	)		(118	)		(344	)		(314	)
Proceeds from sale of property, plant and equipment		28			14			44			23

Free cash flows		58			280			(415	)		230


Net operating capital to total assets in millions of EUR
	September 30, 2015		December 31, 2015		September 30, 2016
Net operating capital (NOC)		11,427		11,096		11,571
Exclude liabilities comprised in NOC:
- payables/liabilities		8,293		8,622		8,357
- provisions		4,291		4,243		3,793
Include assets not comprised in NOC:
- investments in associates		180		181		190
- other current financial assets		13		12		103
- other non-current financial assets		479		489		369
- deferred tax assets		2,730		2,758		2,693
- cash and cash equivalents		1,025		1,766		1,859
Assets classified as held for sale		1,751		1,809		1,975

Total assets		30,189		30,976		30,910


Composition of net debt to group equity in millions of EUR unless otherwise stated
	September 30, 2015			December 31, 2015			September 30, 2016
Long-term debt		3,973			4,095			4,860
Short-term debt		1,574			1,665			908

Total debt		5,547			5,760			5,768
Cash and cash equivalents		1,025			1,766			1,859

Net debt (total debt less cash and cash equivalents)		4,522			3,994			3,909
Shareholders’ equity		11,446			11,662			11,620
Non-controlling interests		108			118			853

Group equity		11,554			11,780			12,473
Net debt and group equity		16,076			15,774			16,382
Net debt divided by net debt and equity (in %)		28	%		25	%		24	%
Equity divided by net debt and equity (in %)		72	%		75	%		76	%


14 Quarterly report Q3 2016

Philips statistics

in millions of EUR unless otherwise stated


	2015												2016
	Q1			Q2			Q3			Q4			Q1			Q2			Q3			Q4
Sales		5,339			5,974			5,836			7,095			5,517			5,861			5,898
Comparable sales growth %		2	%		3	%		2	%		2	%		3	%		3	%		2	%
Gross margin		2,116			2,495			2,422			2,823			2,266			2,538			2,603
as a % of sales		39.6	%		41.8	%		41.5	%		39.8	%		41.1	%		43.3	%		44.1	%
Selling expenses		(1,341	)		(1,440	)		(1,390	)		(1,644	)		(1,418	)		(1,427	)		(1,411	)
as a % of sales		(25.1	)%		(24.1	)%		(23.8	)%		(23.2	)%		(25.7	)%		(24.3	)%		(23.9	)%
G&A expenses		(214	)		(224	)		(241	)		(530	)		(189	)		(234	)		(203	)
as a % of sales		(4.0	)%		(3.7	)%		(4.1	)%		(7.5	)%		(3.4	)%		(4.0	)%		(3.4	)%
R&D expenses		(436	)		(483	)		(471	)		(537	)		(470	)		(501	)		(514	)
as a % of sales		(8.2	)%		(8.1	)%		(8.1	)%		(7.6	)%		(8.5	)%		(8.5	)%		(8.7	)%
EBIT		139			349			342			162			199			376			481
as a % of sales		2.6	%		5.8	%		5.9	%		2.3	%		3.6	%		6.4	%		8.2	%
EBITA		230			450			429			263			290			464			567
as a % of sales		4.3	%		7.5	%		7.4	%		3.7	%		5.3	%		7.9	%		9.6	%
Net income (loss)		100			274			324			(39	)		37			431			383
Net income (loss) attributable to shareholders		99			272			319			(45	)		32			420			370
Net income (loss) - shareholders per common share in EUR - diluted		0.11			0.30			0.34			(0.05	)		0.03			0.46			0.40


	2015												2016
	January- March			January- June			January- September			January- December			January- March			January- June			January- September			January- December
Sales		5,339			11,313			17,149			24,244			5,517			11,378			17,276
Comparable sales growth %		2	%		3	%		2	%		2	%		3	%		3	%		3	%
Gross margin		2,116			4,611			7,033			9,856			2,266			4,804			7,407
as a % of sales		39.6	%		40.8	%		41.0	%		40.7	%		41.1	%		42.2	%		42.9	%
Selling expenses		(1,341	)		(2,781	)		(4,171	)		(5,815	)		(1,418	)		(2,845	)		(4,256	)
as a % of sales		(25.1	)%		(24.6	)%		(24.3	)%		(24.0	)%		(25.7	)%		(25.0	)%		(24.6	)%
G&A expenses		(214	)		(438	)		(679	)		(1,209	)		(189	)		(423	)		(626	)
as a % of sales		(4.0	)%		(3.9	)%		(4.0	)%		(5.0	)%		(3.4	)%		(3.7	)%		(3.6	)%
R&D expenses		(436	)		(919	)		(1,390	)		(1,927	)		(470	)		(971	)		(1,485	)
as a % sales		(8.2	)%		(8.1	)%		(8.1	)%		(7.9	)%		(8.5	)%		(8.5	)%		(8.6	)%
EBIT		139			488			830			992			199			575			1,056
as a % of sales		2.6	%		4.3	%		4.8	%		4.1	%		3.6	%		5.1	%		6.1	%
EBITA		230			680			1,109			1,372			290			754			1,321
as a % of sales		4.3	%		6.0	%		6.5	%		5.7	%		5.3	%		6.6	%		7.6	%
Net income		100			374			698			659			37			468			851
Net income attributable to shareholders		99			371			690			645			32			452			822
Net income - shareholders per common share in EUR - diluted		0.11			0.40			0.75			0.70			0.03			0.49			0.89
Net income from continuing operations as a % of shareholders’ equity		2.4	%		5.3	%		6.5	%		3.6	%		0.5	%		4.6	%		6.4	%
Number of common shares outstanding (after deduction of treasury shares) at the end of period (in thousands)		910,616			925,277			921,181			917,104			913,011			927,316			924,271
Shareholders’ equity per common share in EUR		12.50			12.32			12.43			12.72			12.35			12.39			12.57
Inventories as a % of sales ^1,2)		17.3	%		17.0	%		16.8	%		14.2	%		14.7	%		15.2	%		15.4	%
Net debt : equity ratio		26:74			28:72			28:72			25:75			27:73			24:76			24:76
Net operating capital		10,977			11,397			11,427			11,096			11,118			11,445			11,571
Total employees		115,970			114,606			114,380			112,959			114,021			113,356			113,627
of which discontinued operations		8,334			8,689			8,812			8,755			8,913			9,158			9,531
of which third-party workers		13,930			13,796			13,338			12,189			12,250			11,604			11,822

¹⁾	Sales is calculated over the preceding 12 months

²⁾	Inventories as a % of sales excludes inventories and sales related to acquisitions, divestments and discontinued operations


		Quarterly report Q3 2016 15

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