(Philips Lighting N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of the Netherlands, with its corporate seat in Eindhoven, the Netherlands)

Initial Public Offering of 37,500,000 ordinary shares
Koninklijke Philips N.V. (the “Selling Shareholder”) is offering 37,500,000 ordinary shares in the share capital of the Company (as defined below) with a nominal value of €0.01 each(the “Offer Shares”, which include, unless the context indicates otherwise, the Over-Allotment Shares (as defined below)). Assuming no exercise of the Over-Allotment Option (as defined
below), the Offer Shares will constitute 25% of the issued and outstanding ordinary shares in the share capital of the Company with a nominal value of €0.01 each (the “Ordinary Shares”).
Except where the context otherwise requires, references to the Ordinary Shares will be deemed to include the Offer Shares. Assuming the Over-Allotment Option is fully exercised, the Offer
Shares will constitute 28.75% of the Ordinary Shares. See “The Offering”.
The offering of the Offer Shares (the “Offering”) consists of (i) a public offering in the Netherlands to institutional and retail investors and (ii) a private placement to (a) investors outside
the Netherlands and the United States of America (the “U.S.” or “United States”) subject to applicable exemptions from the prospectus requirements and (b) investors in the United States
reasonably believed to be “qualified institutional buyers” (“QIBs”) as defined in Rule 144A under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) (“Rule 144A”). All
offers and sales in the United States will be made only to persons reasonably believed to be QIBs in reliance on Rule 144A. All offers and sales outside the United States will be made incompliance with Regulation S under the U.S. Securities Act (“Regulation S”).
Prior to the Offering, there has been no public market for the Ordinary Shares. Application has been made to list and admit all of the Ordinary Shares to trading under the symbol “LIGHT”
on Euronext in Amsterdam, a regulated market of Euronext Amsterdam N.V. (“Euronext Amsterdam”). Subject to acceleration or extension of the timetable for the Offering, trading on an“as-if-and-when-delivered” basis in the Ordinary Shares on Euronext Amsterdam is expected to commence on or about 27 May 2016 (the “First Trading Date”).

The price of the Offer Shares (the “Offer Price”) is expected to be in the rangeof €18.50 to €22.50 (inclusive) per Offer Share (the “Offer Price Range”)
The Offering will take place from 9:00 Central European Time (“CET”) on 16 May 2016 until 12:00 CET on 26 May 2016 for prospective institutional investors and from 9:00 CET on
16 May 2016 until 17:30 CET on 25 May 2016 for prospective retail investors (the “Offering Period”), subject to acceleration or extension of the timetable for the Offering, and subject as set
out below for the Preferential Retail Allocation (as defined below). The Offer Price Range is indicative. The Offer Price and the exact number of Offer Shares offered in the Offering will be
determined by the Selling Shareholder, after consultation with the Company and the Joint Global Coordinators (as defined below), after the end of the Offering Period on the basis of thebookbuilding process and taking into account economic and market conditions, a qualitative and quantitative assessment of demand for the Offer Shares and other factors deemed appropriate.
The Offer Price and the exact numbers of Offer Shares to be sold will be stated in a pricing statement (the “Pricing Statement”) which will be published through a press release and filed with
the Netherlands Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, the “AFM”). Prior to the allocation of the Offer Shares (the “Allocation”), the number of Offer
Shares can be increased or decreased and the Offer Price Range can be changed. Any change of the Offer Price Range on the last day of the Offering Period will result in the Offering Period
being extended by at least two business days; any change of the Offer Price Range on the day prior to the last day of the Offering Period will result in the Offering Period being extended by atleast one business day. In this case, if the Offering Period for Dutch Retail Investors (as defined below) would already have closed, this Offering Period for Dutch Retail Investors would be
reopened. Accordingly, all investors, including Dutch Retail Investors, will have at least two business days to reconsider their subscriptions. Any such change in the number of Offer Shares
and/or the Offer Price Range will be announced in a press release.
There will be a preferential allocation of Offer Shares to eligible retail investors in the Netherlands (the “Preferential Retail Allocation”). Each eligible retail investor in the Netherlands(each a “Dutch Retail Investor”) will be allocated the first 250 (or fewer) Offer Shares for which such investor applies, provided that if the total number of Offer Shares subscribed for by
Dutch Retail Investors under the Preferential Retail Allocation would exceed 10% of the total number of Offer Shares, assuming no exercise of the Over-Allotment Option, the preferential
allocation to each Dutch Retail Investor may be reduced pro rata to the first 250 (or fewer) Offer Shares for which such investor applies. As a result, Dutch Retail Investors may not be allocated
all of the 250 (or fewer) Offer Shares that they apply for. The exact number of Offer Shares allocated to Dutch Retail Investors will be determined after the Offer Period has ended. To be
eligible for the Preferential Retail Allocation, Dutch Retail Investors must place their subscriptions during the period commencing on 16 May 2016 at 9:00 CET and ending on 25 May 2016 at
17:30 CET through financial intermediaries.
Subject to acceleration or extension of the timetable for the Offering, payment (in euro) for, and delivery of, the Offer Shares (“Settlement”) is expected to take place on or about 31 May
2016 (the “Settlement Date”). If Settlement does not take place on the Settlement Date as planned or at all, the Offering may be withdrawn, in which case all subscriptions for Offer Shares will
be disregarded, any allotments made will be deemed not to have been made and any subscription payments made will be returned without interest or other compensation. Any transactions inOffer Shares prior to Settlement are at the sole risk of the parties concerned. The Company, the Selling Shareholder, ING (as defined below) as listing and paying agent (the “Listing andPaying Agent”), the Underwriters (as defined below), the Financial Adviser (as defined below) and Euronext Amsterdam N.V. do not accept responsibility or liability towards any person as aresult of the withdrawal of the Offering or the (related) annulment of any transactions in Offer Shares.

INVESTING IN THE OFFER SHARES INVOLVES RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 51 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS THAT SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING IN THE OFFER SHARES.
Philips Lighting N.V. (at the date of this prospectus (the “Prospectus”) still a private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) named Philips
Lighting NewCo B.V.) (the “Company”) will be converted into a public company with limited liability (naamloze vennootschap) prior to Settlement.
Goldman Sachs International and J.P. Morgan Securities plc (“J.P. Morgan”) are acting as joint global coordinators (in such and any other capacity, the “Joint Global Coordinators”)
and, together with Citigroup Global Markets Limited (“Citigroup”), ING Bank N.V. (“ING”), Morgan Stanley & Co. International plc (“Morgan Stanley”) and Société Générale Corporate &Investment Banking (“Société Générale”) as joint bookrunners for the Offering (the “Joint Bookrunners”). ABN AMRO Bank N.V. (“ABN AMRO”) and Coöperatieve Rabobank U.A.
(“Rabobank”) are acting as co-bookrunners (the “Co-Bookrunners”) and together with the Joint Global Coordinators, the Joint Bookrunners, the “Underwriters”) for the Offering. N.M.
Rothschild & Sons Limited (“Rothschild”) is acting as the financial adviser to the Selling Shareholder for the Offering (the “Financial Adviser”).
The Offer Shares will be delivered in book-entry form through the facilities of Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. (“Euroclear Nederland”).
The Selling Shareholder expects to grant the Joint Global Coordinators, on behalf of the Underwriters, an option (the “Over-Allotment Option”), exercisable within 30 calendar days after
the First Trading Date, pursuant to which Goldman Sachs International, as the stabilization manager (the “Stabilization Manager”), may require the Selling Shareholder to sell at the Offer
Price up to a number of Ordinary Shares equal to 15% of the total number of Offer Shares sold in the Offering (the “Over-Allotment Shares”), to cover over-allotments or short positions, ifany, in connection with the Offering.
The Offering is only made in those jurisdictions in which, and only to those persons to whom, the Offering may be lawfully made. The Company is not taking any action to permit a public
offering of the Offer Shares in any jurisdiction outside the Netherlands.
The Ordinary Shares have not been, and will not be, registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction in the
United States, and are being offered and sold: (i) in the United States only to persons reasonably believed to be QIBs in reliance on Rule 144A; and (ii) outside the United States incompliance with Regulation S. Prospective purchasers are hereby notified that sellers of Offer Shares may be relying on the exemption from the provisions of Section 5 of the U.S.
Securities Act provided by Rule 144A. The distribution of this Prospectus, the offer and sale of the Offer Shares in certain jurisdictions may be restricted by law. Persons inpossession of this Prospectus are required to inform themselves about and to observe any such restrictions. Each purchaser of Offer Shares, in making a purchase, will be deemed tohave made certain acknowledgements, representations and agreements as set out in “Selling and Transfer Restrictions”. Prospective investors in the Offer Shares should carefully
read “Selling and Transfer Restrictions”.
This Prospectus constitutes a prospectus for the purposes of Article 3 of Directive 2003/71/EC of the European Parliament and of the Council, and amendments thereto (including thoseresulting from Directive 2010/73/EU) (the “Prospectus Directive”) and has been prepared in accordance with Section 5:9 of the Dutch Financial Markets Supervision Act (Wet op het
financieel toezicht; the “FMSA”) and the rules promulgated thereunder. This Prospectus has been approved by and filed with the AFM.
Joint Global Coordinators and Joint Bookrunners

Goldman Sachs International

J.P. Morgan
Joint Bookrunners

Citigroup

ING

Morgan Stanley

Société Générale
Corporate & Investment Banking

Co-Bookrunners

ABN AMRO

Rabobank
Financial Adviser to the Selling Shareholder

RothschildThis Prospectus is dated 16 May 2016

TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

SAMENVATTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

51

IMPORTANT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

82

SEPARATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89

DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

97

CAPITALIZATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99

SELECTED HISTORICAL FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

102

OPERATING AND FINANCIAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

106

INDUSTRY AND COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

169

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

179

REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

209

MANAGEMENT, EMPLOYEES AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . .

215

DESCRIPTION OF SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

229

EXISTING SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . . . .

239

THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

242

PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

246

SELLING AND TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

249

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

254

INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

261

GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

262

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

263

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

265

INDEX TO THE FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-1

PENSION NOTES OF THE ROYAL PHILIPS 2015 ANNUAL REPORT . . . . . . . . . . . . . . . . . . . . . . .

P-1

SUMMARY
Summaries are made up of disclosure requirements known as ‘Elements’. These Elements are numberedin Sections A – E (A.1 – E.7).
This summary contains all the Elements required to be included in a summary for this type of security andissuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequenceof the Elements.
Even though an Element may be required to be inserted in the summary because of the type of securities
and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short
description of the Element is included in the summary together with an indication that such Element is ‘notapplicable’.
Section A – Introduction and Warnings
A.1

Introduction and warnings

This summary should be read as an introduction to theprospectus (the “Prospectus”) relating to the offering (the“Offering”) by Koninklijke Philips N.V. (the “Selling
Shareholder”) of 37,500,000 ordinary shares in the sharecapital of the Company (as defined below) with a nominal
value of €0.01 each (the “Offer Shares”, which include, unlessthe context indicates otherwise, the Over-Allotment Shares (asdefined below)), and the admission to listing and trading of theordinary shares, with a nominal value of €0.01 each, in theshare capital of the Company (the “Ordinary Shares”) on
Euronext in Amsterdam, a regulated market of Euronext
Amsterdam N.V. (“Euronext Amsterdam”). Except where thecontext otherwise requires, references to the Ordinary Shares
will be deemed to include the Offer Shares. Assuming no
exercise of the Over-Allotment Option (as defined below), theOffer Shares will constitute 25% of the issued Ordinary Shares.
Assuming the Over-Allotment Option is fully exercised, theOffer Shares will constitute 28.75% of the Ordinary Shares.
Any decision to invest in the Ordinary Shares should be basedon a consideration of the Prospectus as a whole by the investor.
Where a claim relating to the information contained in the
Prospectus is brought before a court, the plaintiff investor
might, under the national legislation of the Member States,
have to bear the costs of translating the Prospectus before thelegal proceedings are initiated. Civil liability attaches only tothose persons who have tabled the summary including any
translation thereof, but only if the summary is misleading,inaccurate or inconsistent when read together with the otherparts of the Prospectus, or it does not provide, when read
together with the other parts of the Prospectus, key informationin order to aid investors when considering whether to invest in
the Ordinary Shares.

A.2

Consent, indication, conditions andnoticeNot applicable. The Company does not consent to the use of
the Prospectus for the subsequent resale or final placement ofOffer Shares by financial intermediaries.

1Section B – The Issuer
B.1

Legal and commercial name of theCompany

Philips Lighting N.V., at the date of the Prospectus still a
private limited liability company (besloten vennootschap met
beperkte aansprakelijkheid) named Philips Lighting NewCo
B.V. (the “Company”), will be converted into a publiccompany with limited liability (naamloze vennootschap) prior
to settlement of the Offering (“Settlement”).

B.2

Domicile, legal form, legislationand country of incorporation

The Company is a private limited liability company (besloten
vennootschap met beperkte aansprakelijkheid) incorporated
under the laws of the Netherlands. The Company will be
converted into a public company with limited liability(naamloze vennootschap) prior to Settlement. The Company
has its corporate seat (statutaire zetel) in Eindhoven, theNetherlands.

B.3

Key factors relating to the nature of
the Group’s operations and its
principal activities

The Company together with its subsidiaries within the meaningof Section 2:24b DCC (each a “Group Company”, andtogether with the Company, the “Group”) is a global market
leader in the general lighting market measured by sales withrecognized expertise in the development, manufacturing andapplication of innovative lighting products, systems andservices. The Group has pioneered many of the key
breakthroughs in lighting over the past 125 years, including
incandescent lighting, high-intensity discharge (“HID”) lamps,
fluorescent lighting and compact fluorescent lamps (“CFL”),
and has been a driving force behind several technologicaltransitions, laying the basis for its current strengths and its
leading position in the transition of the lighting industry fromconventional lighting technologies to light-emitting diode(“LED”) lighting technologies as well as lighting systems(including connected lighting systems) and services. The Group
has a strong track record in innovation and invests heavily inresearch and development (“R&D”) (for the year ended
31 December 2015, 4.9% of sales) to stay at the forefront oftechnological developments. It has a strong patent portfoliowith over 14,000 patent rights, which it believes is more thanany of its competitors, and a licensing program with over 600
licensees as of 31 March 2016.
The Group believes that it is well positioned across the lighting
value chain and has a focus on the general lighting market. The
Group’s light source product portfolio includes incandescentlamps, halogen lamps, fluorescent lamps, linear fluorescentlamps (“LFL”), CFLs, HID lamps and LED lamps. In addition,
the Group offers electronic components, such as electronicballasts and drivers, as well as complete luminaires for
consumers and professional users. The Group also placesemphasis on offering innovative, integrated and customized
lighting systems and services, including light management
systems and value-added services such as energy audits, light
design and engineering as well as remote monitoring andmanaged services. The Group’s products are used forillumination and visualization in a variety of applications forgeneral lighting, in particular residential, road and street,architectural, office, industrial, retail and hospitality lighting.
The Group also produces light sources and systems for special
applications, such as projection, cinema, entertainment,
city beautification (i.e., dynamic architectural lighting) and2

horticulture as well as water purification (e.g., disinfection withultraviolet radiation). The combined LED and automotive
lighting components businesses (“Lumileds”) of Royal Philips(as defined below) were separated into a stand-alone company
in 2015. The lighting components and automotive lighting
businesses are not reflected in the financial results of theGroup.
The Group’s business is organized and managed on afunctional basis by technology and end-markets through four
operating business groups: BG Lamps, BG LED, BG
Professional and BG Home (“Business Groups” or “BGs”).
BG Lamps comprises the Group’s conventional lamps andlamp electronics businesses; BG LED comprises the Group’s
LED lamps and LED electronics businesses; BG Professional
comprises the Group’s professional luminaires, lighting
systems and services businesses; and BG Home comprises theGroup’s consumer luminaires and home systems businesses.
Each Business Group is responsible for the development of its
strategy, product portfolio and the production and sourcing of
its products. In addition, the Group’s commercial organizationis structured along four geographical market groups to manage
its global sales channels: Europe, Americas, Growth Markets
and Greater China (“Market Groups” or “MGs”).
The Group has a global reach with commercial activities thatcover approximately 180 countries. The Group has operational
manufacturing plants in 22 countries in all major regions of theworld, and more than 70 sales offices worldwide. The Grouphandles commercial activities in countries without a salesorganization via independent distributors and agents who
cooperate closely with the Group’s international salesorganization.
The Group has secured the right to use the Philips brand for
products and services for an initial period of ten years
following the separation of the Group from Royal Philips (the“Separation”). This term may be extended with two periods offive years if certain financial targets in terms of net turnover
are met and provided that the Group as licensee has acted incompliance with the conditions of the trademark license
agreement. The brand license is subject to royalty payments.
The Group expects that the net effect of the royalty payment tobe made to Royal Philips under the trademark license
agreement annually will be approximately €20 million higher
than the historical costs allocated to the Group for promotion of
the Philips brand that are reflected in the Combined Financial
Statements (as defined below) for the year ended 31 December
2015.
For the year ended 31 December 2015, the Group’s sales were€7,465 million (2014: €6,981 million; 2013: €7,129 million),
the Group’s income from operations was €331 million (2014:€41 million; 2013: €213 million), the Group’s adjusted
EBITDA (unaudited) was €739 million (2014: €665 million;
2013: €659 million) and the Group’s free cash flow (unaudited)was €632 million (2014: €355 million; 2013: €84 million). For
the three-month period ended 31 March 2016, the Group’s sales
were €1,702 million, the Group’s income from operations was€71 million, the Group’s adjusted EBITDA (unaudited) was€161 million and the Group’s free cash flow (unaudited) was€(78) million. As of 31 March 2016, the Group employedapproximately 36,350 full time equivalent personnel worldwide.
3

B.4a

Significant recent trends

The general lighting market is in a technological transition
from conventional lighting technologies to LED lighting
technologies. In addition, the general lighting market iscurrently undergoing a rapid transformation, mainly driven by
three underlying trends:•

The increasing need for light;•

The increasing demand for more efficient light; and•The increasing demand for digital lighting.

B.5

Description of the Group and theCompany’s position therein

The Company is a holding company without material directbusiness operations. The principal assets of the Company are
the equity interests it directly or indirectly holds in its Group
Companies.

B.6

Shareholders of the Company

The Selling Shareholder is the only holder of Shares (asdefined below)(a “Shareholder”) that holds (either directly or
indirectly) a substantial interest (substantiële deelneming, i.e., aholding of at least 3% of the share capital of voting rights as
defined in the Dutch Financial Markets Supervision Act (Wetop het financieel toezicht) in the Company as of the date of theProspectus. The Selling Shareholder holds 100 Ordinary
Shares, or 100% of the Company’s total issued and outstanding
share capital as of the date of the Prospectus.
Each Share gives the right to cast one vote at the general meetingof the Company (“General Meeting”). All Shareholders havethe same voting rights.

B.7

Selected historical key financial
information

This Prospectus contains combined financial information of theGroup, which has been derived from the combined financial
statements of the Group as of and for the years ended
31 December 2015, 31 December 2014 and 31 December 2013
which have been prepared in accordance with IFRS as adopted
by the EU and in accordance with IFRS as issued by the IASB
(the “Combined Financial Statements”) and is based on the
consolidated financial statements of the Selling Shareholder
together with its subsidiaries within the meaning of Section
2:24b DCC (“Royal Philips”) and its accounting records. The
Combined Financial Statements have been prepared based on“carve-out” financial information from the consolidated
financial statements of Royal Philips for the purpose ofpresenting the financial position, results of operations and cash
flow of the Group on a stand-alone basis. The Grouphistorically did not exist as a reporting group and therefore
previously no separate (statutory) consolidated financial
statements were prepared. As a result, the Combined Financial
Statements do not necessarily reflect what the Group’s resultsof operations, financial condition and cash flows would havebeen had the Group operated as a separate, stand-alone groupduring the periods presented in the Prospectus and are notnecessarily indicative of the Group’s future results ofoperations, financial condition or cash flow.
This Prospectus also contains the condensed combined interim
financial statements of the Group for the three-month periods
ended 31 March 2016 and 2015 and the accompanying notes(the “Condensed Combined Interim Financial Statements”).
The Condensed Combined Interim Financial Statements havebeen prepared on the basis of IAS 34.

4

Combined Statements of Income
For the threemonths ended
31 March(unaudited)
2016
2015

In € millions

For the year ended
31 December
2015
2014
2013

Sales . . . . . . . . . . . . . . . . . . . 1,702 1,727 7,465 6,981 7,129
Cost of sales . . . . . . . . . . . . . (1,075) (1,106) (4,810) (4,671) (4,573)
Gross margin . . . . . . . . . . . .

627

621

Selling expenses . . . . . . . . . .
Research and development
expenses . . . . . . . . . . . . . .
General and administrative
expenses . . . . . . . . . . . . . .
Impairment of goodwill . . . .
Other business income . . . . .
Other business expenses . . . .

(430)(430) (1,751) (1,657) (1,722)

2,655

2,310

2,556

(90)

(88)

(366)

(395)

(375)

(49)
(2)
18
(3)

(50)
—
2
—

(233)
—
48
(22)

(223)
(2)
13
(5)

(233)
(26)
31
(18)

Income from operations . . .

71

55

331

41

213

Financial income . . . . . . . . .
Financial expenses . . . . . . . .

4
(21)

—
(2)

3
(11)

3
(9)

3
(4)

Income before taxes . . . . . .

54

53

323

35

212

Income tax expense . . . . . . .

(40)

(23)

(83)

(66)

(45)

Income after taxes . . . . . . .

14

30

240

(31)

167

Results relating toinvestments inassociates . . . . . . . . . . . . .

—

—

—

2

1

Net income (loss) . . . . . . . . .

14

30

240

(29)

168

Combined Balance SheetsIn € millions

Non-current assets
Property, plant andequipment:
At cost . . . . . . . . . . . .
Less accumulated
depreciation . . . . .
Total property, plant andequipment . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . .
Intangible assets:
At cost . . . . . . . . . . . .
Less accumulated
depreciation . . . . .
Total intangible assets . . .
Non-current
receivables . . . . . . . . . .
Investments inassociates . . . . . . . . . . .
Other non-current
financial assets . . . . . . .
Deferred tax assets . . . . . .
Other non-current
assets . . . . . . . . . . . . . .
Total non-current
assets . . . . . . . . . . . . . .

5

As of
31 March(unaudited)2016

As of 31 December
2015
2014
2013

2,634

2,620

2,840

2,767

(2,031)(1,986)(2,118)(1,937)

603
1,781

634
1,844

722
1,676

830
1,458

2,196

2,192

2,120

1,799

(1,391)805(1,336)856(1,214)906(1,027)
772

16

20

10

8

23

23

24

27

58
409

8
259

23
241

22
212

19

15

4

4

3,714

3,659

3,606

3,333

In € millions

Current assets
Inventories . . . . . . . . . . . .
Other current assets . . . . .
Derivative financial
assets . . . . . . . . . . . . . .
Income tax receivable . . .
Receivables:
Accounts
receivable . . . . . . .
Accounts receivablefrom relatedparties – Royal
Philips . . . . . . . . .
Other current
receivables . . . . . .

As of
31 March(unaudited)2016

As of 31 December
2015
2014
2013

1,010
48

988
46

996
65

983
52

10
30

9
25

17
8

20
7

1,344

1,436

1,455

1,289

65

83

3

13

103

80

87

69

Total receivables . . . . . . .
Assets classified as held
for sale . . . . . . . . . . . . .
Short-term loans
receivable from Royal
Philips . . . . . . . . . . . . . .
Cash and cash
equivalents . . . . . . . . . .

1,512

1,599

1,545

1,371

52

34

20

15

207

—

—

—

353

83

75

49

Total current assets . . . .

3,222

2,784

2,726

2,497

Total assets . . . . . . . . . . .

6,936

6,443

6,332

5,830

3,011

3,513

3,495

3,297

110

103

88

2

3,121

3,616

3,583

3,299

18
678
38

2
350
126

41
461
150

6
348
132

320

159

158

145

1,054

637

810

631

95

86

49

2

645

—

—

—

13
23

7
6

15
14

22
10

765

940

847

867

147

111

37

20

912
404
266

1,051
459
263

884
447
240

887
459
227

10
393

6
312

—
290

—
293

Total current
liabilities . . . . . . . . . . .

2,761

2,190

1,939

1,900

Total liabilities . . . . . . . .

3,815

2,827

2,749

2,531

Total liabilities andbusiness equity . . . . . .

6,936

6,443

6,332

5,830

EquityOwner’s net investment . .
Non-controllinginterest . . . . . . . . . . . . .
Business equity . . . . . . . .
Non-current liabilities
Long-term debt . . . . . . . . .
Long-term provisions . . . .
Deferred tax liabilities . . .
Other non-current
liabilities . . . . . . . . . . . .
Total non-current
liabilities . . . . . . . . . . .
Current liabilities
Short-term debt . . . . . . . . .
Short-term loans payable
to Royal Philips . . . . . .
Derivative financial
liabilities . . . . . . . . . . . .
Income tax payable . . . . .
Account and notes
payable:Trade creditors . . . . .
Accounts payable torelated parties –Royal Philips . . . .
Total account and notes
payable . . . . . . . . . . . . .
Accrued liabilities . . . . . .
Short-term provisions . . . .
Liabilities associated withassets classified as held
for sale . . . . . . . . . . . . .
Other current liabilities . .

6Combined Statements of Cash Flows

In € millions

Cash flows from operating
activities
Net income (loss) . . . . . . . . . . . . .

For the threemonths ended
31 March
For the year ended(unaudited)
31 December
2016 2015 2015 2014 2013

14

30

240

(29)

168

73

315

381

390

—
—
—

4
(26)
(3)

—
(2)
(3)

—
(1)
(3)

2
23
7

7
83
24

9
66
22

4
45
27

79

209

(33) (231)28—(17) (206)

(65)

29

114

(94)

116

180

(130)

69

2

(29)

—

4

Depreciation, amortization &impairments of non-financial
assets . . . . . . . . . . . . . . . . . . . . .
78
Impairment of non-current
financial assets . . . . . . . . . . . . .
3Net gain on sale of assets . . . . . . .
(1)
Interest income . . . . . . . . . . . . . . .
(4)Interest expense on debt,
borrowings and otherliabilities . . . . . . . . . . . . . . . . . .
18
Income tax expense . . . . . . . . . . . .
40
Share-based compensation . . . . . .
6
Decrease (increase) in working
capital . . . . . . . . . . . . . . . . . . . . (102)
Decrease (increase) inreceivables and othercurrent assets . . . . . . . . . .
28
Decrease (increase) ininventories . . . . . . . . . . . . .
(47)
Increase (decrease) in
accounts payable, accruedand other current
liabilities . . . . . . . . . . . . . .
(83)
Increase (decrease) in non-current
receivables, other assets andother liabilities . . . . . . . . . . . . .
(63)
Increase (decrease) in
provisions . . . . . . . . . . . . . . . . .
(31)
Decrease (increase) in assets
classified as held for sale . . . . . —Interest paid . . . . . . . . . . . . . . . . .
(1)
Income taxes paid . . . . . . . . . . . . .
(17)

(23)

(79)

116

(86)

—
(2)
(7)

—
(2)
(26)

(1)
(5)
(43)

(1)
—
(54)

Net cash provided by operating
activities . . . . . . . . . . . . . . . . . .

(60)

184

717

478

262

(18)

(28)

(85) (123) (178)

(4)

(8)

(38)

(16)

(20)

(98) (109) (159)

2

—

51

37

19

—

17

31

—

—

—

(3)

(11) (125)

—

—

—

(18)

(14)

(65) (249) (176)Cash flows from investing
activities
Net capital expenditures . . . . . . . .
Additions of intangible
assets . . . . . . . . . . . . . . . . .
Capital expenditures onproperty, plant andequipment . . . . . . . . . . . . .
Proceeds from disposal ofproperty, plant andequipment . . . . . . . . . . . . .
Proceeds from other non-current
financial assets . . . . . . . . . . . . .
Purchase of businesses, net ofcash acquired . . . . . . . . . . . . . .
Dividends received frominvestments in associates . . . . .
Net cash used in investing
activities . . . . . . . . . . . . . . . . . .

7

(51)

(1)

(38)

—
2

For the threemonths ended
31 March
For the year ended(unaudited)
31 December
2016 2015 2015 2014 2013In € millions

Cash flows from financing
activities
Funding by (distribution to) Royal
Philips . . . . . . . . . . . . . . . . . . . .
Capital contribution from Royal
Philips . . . . . . . . . . . . . . . . . . . .

(349) (149) (626) (200)
692

—

3

(24)

Proceeds from issuance(payments) of debt . . . . . . . . . .
Net cash used for financing
activities . . . . . . . . . . . . . . . . . .
Net cash (used for) provided bycontinuing operations . . . . . . .
Effects of changes in exchange
rates on cash and cash
equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents at
beginning of period . . . . . . . . . .

346

Cash and cash equivalents at
end of period . . . . . . . . . . . . . .

(12)

(95)

(1)

(2)

(173) (638) (201)

(97)

268

(3)

14

28

(11)

2

(9)

(6)

(2)

2

83

75

75

49

58

353

63

83

75

49

Business Group Information
The Group’s business is organized and managed on afunctional basis by technology and end-markets through four
operating Business Groups: BG Lamps, BG LED, BG
Professional and BG Home. Certain innovation activities of theGroup, as well as certain costs related to the headquarters of theGroup, are not reflected in the financial results of the BusinessGroups, and are described under the caption “Other” in thisProspectus.
In € millions

For the three months
ended 31 March
2016
Sales . . . . . . . . . . . . . .
Income fromoperations . . . . . . . .

BG
BG
BG
BG
Lamps LED Professional Home Other Total

615

355

601

124

113

19

(25)

(15) (21)

727

275

610

112

106

2

(19)

(19) (15)For the year ended
31 December 2015
Sales . . . . . . . . . . . . . . 2,850 1,334
Income fromoperations . . . . . . . . 403
66

2,757

For the year ended
31 December 2014
Sales . . . . . . . . . . . . . . 3,119
Income fromoperations . . . . . . . . 356

958

2,420

(62)

(56)

For the year ended
31 December 2013
Sales . . . . . . . . . . . . . . 3,557
Income fromoperations . . . . . . . . 586

772

2,308

(20)

(75)

For the three months
ended 31 March
2015
Sales . . . . . . . . . . . . . .
Income fromoperations . . . . . . . .

8

14

515

7 1,702

3 1,727331

2 6,981(70) (127)

490

55

9 7,465(73) (79)

482

71

41

2 7,129(152) (126)

213

B.8

Selected key pro forma financial
information

Not applicable. No pro forma financial information has been
included in the Prospectus.

B.9

Profit forecast

Not applicable. The Company has not issued a profit forecast.

B.10

Historical audit report qualifications

Not applicable. There are no qualifications in the auditor’sreport on the historical financial information for the years
ended 31 December 2015, 2014 and 2013.

B.11

Explanation if insufficient working
capitalThe Company believes that the working capital available to theGroup is sufficient for the Group’s present requirements; that isfor at least 12 months following the date of the Prospectus.

Section C – Securities
C.1

Type and class, security identification The Ordinary Shares are ordinary shares in the issued andnumberoutstanding share capital of the Company with a nominal valueof €0.01 each.
Application has been made to list all Ordinary Shares under thesymbol “LIGHT” on Euronext Amsterdam under ISIN Code:NL0011821392.

C.2

Currency of the Offer Shares

The Offer Shares are denominated in and will trade in euro.

C.3

Number of Shares and nominalvalue

As of the date of this Prospectus, the authorized share capital of
the Company is €6,000,000, divided into 300,000,000 Ordinary
Shares with a nominal value of €0.01 each and 300,000,000
Preference Shares with a nominal value of €0.01 each (the“Preference Shares”, and together with the Ordinary Shares,
the “Shares”). The issued and outstanding share capital of theCompany is €1, divided into one hundred Ordinary Shares andno Preference Shares.
As of the date of the Prospectus, no Ordinary Shares are heldby the Company.

C.4

Rights attached to the Shares

References to the “Articles of Association” hereafter will be to
the Company’s articles of association as they will read after thedate on which payment (in euro) for and delivery of the Offer
Shares (“Settlement”) occurs which is expected to be on or
about 31 May 2016, subject to acceleration or extension of thetimetable for the Offering (the “Settlement Date”).
The Ordinary Shares carry dividend rights. Each Ordinary
Share confers the right to cast one vote in the General Meeting.
There are no restrictions on voting rights.
Upon issue of Ordinary Shares in return for a cash
consideration, each holder of Ordinary Shares has a preemptive right in proportion to the number of Ordinary Shares
which it owns. Shareholders do not have pre-emptive rights in
respect of Shares issued against contribution in kind, Sharesissued to employees of the Company or a Group Company or
Shares issued to persons exercising a previously granted rightto subscribe for Shares.
Pre-emptive rights may be limited or excluded by the board ofmanagement (raad van bestuur) of the Company (the “Boardof Management”) if the Board of Management is designatedby the General Meeting to do so. If the Board of Management
has not been authorized to resolve to issues Shares, the General
Meeting has the power, upon the proposal of the Board ofManagement, to restrict or exclude the pre-emptive rights.
9Such proposal must be approved by the supervisory board(raad van commissarissen) of the Company (the “Supervisory
Board”). A resolution of the General Meeting requires amajority of at least two-thirds of the vote cast if less than halfof the issued share capital is represented at the General
Meeting.
No pre-emptive rights exists upon the issue of Preference
Shares. Holders of Preference Shares do not have a pre-emptive
right in respect of Ordinary Shares.
As set out above, the Board of Management is authorized by
the General Meeting to resolve to issue Ordinary Shares, togrant rights to subscribe for Ordinary Shares and to restrict
and/or exclude statutory pre-emptive rights in relation to theissuances of Ordinary Shares or the granting of rights to
subscribe for Shares. Aforementioned authorization of theBoard of Management is limited to 10% of the total nominal
issued share capital of the Company as of the Settlement Dateplus an additional 10% of the nominal issued share capital of
the Company as of the Settlement Date in connection with oron the occasion of mergers and acquisitions and strategic
alliances and will be valid for 18 months following such date.
C.5

Restrictions on transferability of theOffer Shares

A transfer of a Share or a restricted right thereto (beperkt recht)
requires a deed of transfer and the acknowledgment by theCompany of the transfer in writing.
A Share becomes a deposit share by transfer or issuance to
Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V.
(“Euroclear Nederland”) or to an intermediary, recording inwriting that it is a deposit share. The deposit share must berecorded in the shareholders register of the Company in thename of Euroclear Nederland or the relevant intermediary,
stating in writing that it is a deposit share. Deposit shareholders
are not recorded in the shareholders register of the Company.
Deposit shares can only be delivered from a collective depot or
giro depot with due observance of the related provisions of the
Dutch Securities Giro Transactions Act. The transfer by adeposit shareholder of its book-entry rights representing
deposit shares shall be effected in accordance with theprovisions of the Dutch Securities Giro Transactions Act. The
same applies to the establishment of a right of pledge and theestablishment or transfer of a usufruct on these book-entry
rights.

1

C.6

Listing and admission to trading of
the Offer Shares

Prior to the Offering, there has been no public market for theOrdinary Shares. Application has been made to list all of theOrdinary Shares on Euronext Amsterdam under the symbol“LIGHT” with ISIN code NL0011821392. Subject toacceleration or extension of the timetable for the Offering,
trading on an “as-if-and-when-delivered” basis in the Offer
Shares is expected to commence on or about 27 May 2016 (the“First Trading Date”).

C.7

Dividend policy

The Company is targeting an annual dividend pay-out ratio of
40% to 50% of continuing net income1 to be paid out annuallyin cash. The Company expects the first dividend payment totake place in 2017, which will be based on the results for theContinuing net income is defined as recurring net income from continuing operations, or net income excluding discontinued operations
and excluding material non-recurring items.

10full year 2016. There can be no assurances that in any given
year a dividend will be paid. The payment of dividends, if any,
and the amounts and timing thereof, will depend on a numberof factors, including future revenue, profits, financial
conditions, general economic and business conditions, andfuture prospects and such other factors as the Board ofManagement may deem relevant as well as other legal andregulatory requirements, many of which are beyond the controlof the Company. There can be no assurances that the Group’s
performance will facilitate adherence to the dividend policy or
any increase in the pay-out ratio and, in particular, theCompany’s ability to pay dividends may be impaired if any of
the risks described in this Prospectus were to occur.
Furthermore, the Company’s dividend policy is subject tochange as the Board of Management will revisit the Company’s
dividend policy from time to time.
Section D – Risks
D.1

Selection of key risks

The following is a selection of key risks that relate to theGroup’s industry, business and operations, the Separation andthe establishment of the Company as an independent publicly
listed company, legal and compliance, financial, the Ordinary
Shares and the Offering and Offer Shares. In making theselection, the Group has considered circumstances such as theprobability of the risk materializing on the basis of the current
state of affairs, the potential impact which the materializationof the risk could have on the Group’s business, financial
condition, results of operations and prospects, and the attention
that management of the Group would on the basis of current
expectations have to devote to these risks if they were tomaterialize. Investors should read, understand and consider allrisk factors, which risk factors are material and should be readin their entirety, in “Risk Factors” beginning on page 51 of theProspectus before making an investment decision to invest in
the Offer Shares.
•

As the Group’s business is global and cyclical, it is
exposed to adverse economic and political developments
in countries and industries across the world.

•

The lighting industry is in a technological transition fromconventional lighting technologies to LED lighting
technologies and the Group may not be successful inaddressing this transition.

•

Rapid technological change and the transition fromconventional lighting technologies to LED lighting
technologies may be disruptive and require otheradjustments to the Group’s business model, including to
the Group’s sales and marketing, R&D, supply chain
management and procurement processes.

•

The general lighting market in which the Group operates
is highly competitive as it includes other traditional global
lighting manufacturers as well as new entrants to the LED
lighting market. Moreover, the competitive landscape may
change due to increasing vertical integration.

•

The Group has spent considerable resources to develop its
offering of lighting systems (including connected lighting

11systems) and lighting services. There can be no assurance
that the Group’s strategy with respect to lighting systems
and lighting services will be successfully implemented, orthat the Group will fully realize the expected benefits of
its strategy.

Key risks that are specific to the
Group

•

The Group’s current and future business transformation
programs are and may in the future be costly, may not be
successfully implemented and may not improve theperformance of the Group’s business to the extent
expected.

•

The Group may from time to time make acquisitions andengage in other transactions to complement or expand its
existing business. However, the Group may not be
successful in acquiring suitable targets at acceptable prices
and integrating them into its operations, and any
acquisitions may lead to a diversion of management
resources.

•

Due to the Separation, the Company has prepared the
Combined Financial Statements for this Prospectus basedon carve-out financial information. The financial
information presented in this Prospectus therefore differsfrom what the financials would have been if the Company
had been an independent company and is not necessarily
representative of the historic or future position of theCompany as a separate, publicly listed company.

•

Actual pension liabilities and costs following the
Separation may differ significantly from those set out in
the Combined Financial Statements.

•

The Group may not be successful in establishing a newcorporate and brand identity.

•

The history of the combined Group, the Separation of theGroup from Royal Philips and the Offering may result inadverse tax consequences.

•

The Group conducts its business in multiple jurisdictions
and is exposed to the tax laws of such jurisdictions,
including risks in connection with challenges to its tax
position.

The following is a summary of all other key risks that relate to
the Group’s industry, business and operations, the Separationand the establishment of the Company as an independent
publicly listed company, legal and compliance, financial, theOrdinary Shares and the Offering and Offer Shares. Investors
should read, understand and consider all risk factors, which risk
factors are material and should be read in their entirety, in“Risk Factors” beginning on page 51 of the Prospectus
before making an investment decision to invest in the Offer
Shares.
Risks Relating to the Group’s Industry, Business andOperations•

There can be no assurance that the Group’s strategy toaddress the transition from conventional lighting
technologies to LED lighting technologies whilst
optimizing cash generation from the conventional lamps
business will be successful.

12•A significant portion of the Group’s existing operational
manufacturing plants has or will become obsolete due to thetransition from conventional lighting technologies to LED
lighting technologies, which has resulted in and is expected
to continue to result in significant costs to the Group.

•

The Group may not be successful in offsetting thesignificant price erosion which characterizes the market
for LED lamps, with higher volumes, productivity
improvements, product innovations and cost control.

•

The ability of the Group to compete effectively depends
upon its ability to distinguish the Group and its products,
systems and services from those of its competitors.

•

Cost savings initiatives needed to maintain and improve
profitability margins and cash generation may not be
successful.

•

The loss of important customers or a change in the termsof purchases by important customers may materiallyadversely affect the Group’s business.

•

The Group’s manufacturing and supply operations
are shifting from an in-house production model to an“asset-light” outsourcing model, which makes the Group
increasingly dependent on external suppliers and effective
supply chain management.

•

The Group depends on external suppliers for certain
critical components and raw materials, which may expose
it to rising prices or shortages.

•

The Group relies on the manufacturing of its LED lamps
in Asia for its worldwide distribution and could suffer as aresult of long lead times.

•

In difficult market conditions, the Group’s high fixed
costs combined with low revenues may negatively impact
its results.

•

The Group may suffer losses related to winning, executing
and managing complex lighting projects.

•

The Group owns less than 100% of the shares in certain of
its companies and participates in joint ventures or
associated companies in which the ownership structure
carries risks.

•

The Group may from time to time desire to exit certain
product lines, businesses or markets, but may not be
successful in doing so.

•

Risk of unauthorized use of intellectual property rights of
the Group may cause the Group’s business, results ofoperations and financial condition to suffer.

•

The Group may require access to third party intellectual
property rights for its products and services and third parties
may assert intellectual property rights against the Group.

•

The Group sets high quality standards for its products but
it is possible that products may contain defects orotherwise not perform as expected. Quality defects may
reduce sales, result in costs associated with warranty or
product liability claims or require recall of affected items.
13

•

The Group may suffer substantial losses in the event of anatural disaster, terrorist attack or other casualty event inmarkets in which it operates.

•

The Group relies upon the uninterrupted operation of its
production work flows and available information
technology (“IT”) systems, and is exposed to the risks ofinterruption, loss of information, IT security threats,
computer crime and breaches of data confidentiality andintegrity.

•

The Group is dependent on its personnel for leadershipand specialized skills and the loss of its ability to attract
and retain such personnel may have an adverse effect on
its business.

•

The Group is dependent on its relationships with its
workforce. Strikes and other labor-related conflicts as wellas rising wages or indirect labor costs may have a material
adverse effect on its business.

Risks Relating to the Separation and the Establishment of
the Company as an Independent Publicly Listed Company•

The Group relies on Royal Philips to perform certain
services after the Separation, including with respect to IT,
and the Group may be unable to make, on a timely or costeffective basis, the changes necessary to operate as anindependent company.

•

The Group may lose rights to key intellectual property
arrangements as a result of no longer being a businesssegment of Royal Philips.

•

Potential indemnification obligations to Royal Philips
pursuant to the agreement between Philips Lighting
Holding B.V. and the Selling Shareholder dated
1 February 2016 relating to the Separation (the“Separation Agreement”) could subject the Group to
substantial liabilities.

•

In connection with the Separation, Royal Philips agreed toindemnify the Group for certain liabilities. However, there
can be no assurance that the indemnity will be sufficient toinsure the Group against the full amount of suchliabilities, or that Royal Philips’ ability to satisfy its
indemnification obligation will not be impaired in the
future.

•Following the Offering, Royal Philips will continue tohave a position to exert substantial influence over theCompany and its interests may differ from the interests of
the Company’s other Shareholders.

•

The Company may face increased administrative,
financial and related expenses as a result of operating as
an independent company.

Legal and Compliance Risks•

The Group is involved or may become involved in legal
proceedings.

14

•

A material change in applicable laws and regulations, or in
their interpretation or enforcement, may materiallyadversely affect the Group’s business, results ofoperations, financial condition and prospects.

•

The Group’s business, results of operations, financial
condition and prospects may be materially adversely
affected by violations of antitrust laws.

•

The Group’s business and operations may be adversely
affected by violations of the U.S. Foreign Corrupt
Practices Act, the United Kingdom Bribery Act 2010 orsimilar worldwide anti-bribery laws.

•

The Group is subject to stringent data privacy laws andmay therefore be exposed to increased compliance costs
and to confidentiality and security breaches.

•

The Group’s business and operations may be adversely
affected by violations of export control laws andinternational sanctions.

•

The Group is exposed to financial reporting and internal
controls risks.

•

The Group is subject to environmental liability risks andregulations and incurs costs to comply with such
regulations.

Financial Risks

D.3

Key risks relating to the Shares andthe Offering•

The Group is exposed to the movement of foreign
currency exchange rates, particularly versus the euro.

•

The Group is exposed to the risk of restricted access to
debt funding.

•

The Group is exposed to interest rate risks.

•

The Group may be adversely affected by regulatory
restrictions on cross border payment flows or currency
conversions.

•

The Group is exposed to counterparty/credit risk from
customers and financial institutions.

•

The Group is exposed to a number of different fiscal
uncertainties which may have a significant impact on local
tax results.

•

The Group may be subject to risk of impairment of
goodwill of acquired businesses.

•

The Group has pension plans and retiree medical benefit
plans in a number of countries. The funded status and thecost of maintaining these plans are influenced by
movements in financial market and demographic
developments and may adversely affect the Group’s
financial condition.

Risks Relating to the Ordinary Shares•

The payment of future dividends will depend on theGroup’s results of operations and financial condition, as
well as on the Group’s operating subsidiaries’
distributions to the Company.

15

•

Future issuances of Ordinary Shares or debt or equity
securities convertible into Ordinary Shares by theCompany, or future sales of a substantial number ofOrdinary Shares by Royal Philips or the perception
thereof, may adversely affect the market price of theOrdinary Shares, and any future issuance of Ordinary
Shares may dilute investors’ shareholdings. Although theCompany and Royal Philips are expected to agree in the
Underwriting Agreement (as defined below) to certain
restrictions on issuing, selling or transferring Ordinary
Shares for a period of 180 days after the Settlement Date,
the Joint Global Coordinators (as defined below) may, intheir sole discretion and at any time, waive such
restrictions.

•

Holders of Ordinary Shares outside the Netherlands may
suffer dilution if they are unable to exercise pre-emptive
rights in future offerings.

•

Provisions in the Articles of Association and in contracts
concluded by the Group may delay, deter or prevent
takeover attempts that may be favorable to the holders of
Ordinary Shares.

Risks Relating to the Offering and Offer Shares•

The Ordinary Shares have not been publicly traded prior
to the Offering, and there is no guarantee that an active
and liquid market for the Shares will develop.

•

The Company’s Ordinary Share price may fluctuatesignificantly, and investors may lose all or part of theirinvestment.

•

If closing of the Offering does not take place, purchases of
the Offer Shares will be disregarded and transactions
effected in the Offer Shares will be annulled.

Section E – Offer
E.1

Net proceeds and estimated expenses

The Company will not receive any proceeds from the Offering,
the net proceeds of which will be received by the Selling
Shareholder.
After deducting the estimated expenses, commissions and taxes
related to the Offering payable by the Selling Shareholder ofapproximately €47,000,000, the Selling Shareholder expects toreceive approximately €721,750,000 in net proceeds from theOffering (based on an Offer Price at the mid-point of the Offer
Price Range (as defined below) and assuming the sale of the
maximum number of Offer Shares by the Selling Shareholder
and no exercise of the over-allotment option (the “OverAllotment Option”) that is to be granted by the Selling
Shareholder in connection with the Offering).
The expenses related to the Offering are estimated at
approximately €47 million and include, among other items, thefees due to the Netherlands Authority for the Financial Markets(Stichting Autoriteit Financiële Markten) (“AFM”) andEuronext Amsterdam, the commission for the Underwriters (asdefined below), and legal and administrative expenses, as wellas publication costs and applicable taxes, if any.

16

E.2a

Reasons for the Offering and use ofproceeds

On 23 September 2014, the Selling Shareholder announced that
it was sharpening its strategic focus by separating Royal Philips
into two leading companies focused on the healthtech andlighting markets. In a shareholder circular published by the
Selling Shareholder on 19 March 2015, Royal Philips statedthat it believes that the healthtech and lighting business areas
both offer attractive end-markets, but that each has uniquecustomer needs, value drivers, industry trends and competitive
dynamics. Royal Philips therefore considered the time
appropriate to establish two independent companies eachfocusing on their respective end-markets:•

Royal Philips, which aims to capture new healthtech
opportunities by combining its existing healthcare andconsumer lifestyle businesses; and•the Group, which will continue Royal Philips’ existing
lighting business (except for Lumileds which will remainpart of Royal Philips) and which aims to boost growth in
LED lighting products, systems and services.

The Group believes, and Royal Philips has informed the Group
that it believes, that, as a pure-play lighting company following
the Separation, the Group will be well positioned to deliver
shareholder and corporate value for the following reasons:•the Separation will allow the Group to focus on and more
effectively pursue its own operating priorities andstrategies, and will enable the management of the Groupto concentrate all its efforts on the needs of the lighting
business and pursue distinct opportunities for long-term
growth and profitability;•

the Separation will permit the Group to concentrate its
financial resources solely on its own operations, providing
greater flexibility to invest capital in its business in a timeand manner appropriate for its strategy and business needs
and facilitating a more efficient allocation of capital;•

the Separation will create a separate lighting company
with a simplified organizational structure and increased
focus on the needs of the lighting business, facilitating
faster decision-making and flexibility, and improving theability of the Group to compete and enabling it to respondquickly to changing customer requirements and market
dynamics;•

the Separation will create an independent equity structurethat will allow the Group to have direct access to capital
markets and facilitate the ability of the Group to capitalize
on its growth opportunities and effect future investments(including acquisitions) utilizing its common stock if
needed; and•the Separation will facilitate incentive compensation
arrangements for the Group’s employees more directlytied to the performance of the Group’s business, and may
enhance employee hiring and retention by, among otherthings, improving the alignment of management andemployee incentives with performance and growthobjectives.

Although the Company believes that for these reasons, it will
be well positioned to deliver shareholder and corporate value,
17the Company cannot assure that, following the Separation, anyof the benefits described above or otherwise will be realized tothe extent anticipated or even at all.
The Company will not receive any proceeds from the Offering.
E.3

Terms and conditions of the Offering

Offer Shares
The Selling Shareholder is offering 37,500,000 Offer Shares.
The Offering consists of (i) a public offering in the Netherlands
to institutional and retail investors and (ii) a private placement
to (a) investors outside the Netherlands and the United States ofAmerica (the “U.S.” or “United States”), subject to applicable
exemptions from the prospectus requirements and (b) investors
in the United States reasonably believed to be “qualified
institutional buyers” (“QIBs”) as defined in Rule 144A under
the U.S. Securities Act of 1933, as amended (the“U.S. Securities Act”) (“Rule 144A”). All offers and sales in
the United States will be made only to persons reasonably
believed to be QIBs in reliance on Rule 144A. All offers andsales outside the United States will be made in compliance with
Regulation S under the U.S. Securities Act (“Regulation S”).
The Offering is made only in those jurisdictions in which, andonly to those persons to whom, the Offering may be lawfully
made.
Over-Allotment Option
The Selling Shareholder expects to grant the Joint Global
Coordinators, on behalf of the Underwriters (as defined below),
the Over-Allotment Option, exercisable up to 30 calendar days
after the First Trading Date, pursuant to which the Stabilization
Manager (as defined below) may require the Selling
Shareholder to sell at the Offer Price up to 5,625,000 additional
Over-Allotment Shares, comprising up to a number of Ordinary
Shares equal to 15% of the total number of Offer Shares sold in
the Offering (the “Over-Allotment Shares”), to cover overallotments or short positions, if any, in connection with theOffering.
Offering Period
Prospective investors may subscribe for Offer Shares during
the period commencing at 9:00 Central European Time(“CET”) on 16 May 2016 and ending at 12:00 CET on 26 May
2016 (the “Offering Period”), subject to acceleration or
extension of the timetable for the Offering.
The Offering Period for Dutch Retail Investors (as defined
below) will end at 17:30 CET on 25 May 2016.
Offer Price and Number of Offer Shares
The Offer Price is expected to be in the range of €18.50 to€22.50 (inclusive) per Offer Share (the “Offer Price Range”).
The Offer Price and the exact number of Offer Shares will be
determined on the basis of a book building process. The Offer
Price may be set within, above or below the Offer Price Range.
The Offer Price Range is an indicative price range. The Offer
Price and the exact number of Offer Shares offered will be
determined by the Selling Shareholder, after consultation with
the Company and the Joint Global Coordinators after the end of
the Offering Period, including any acceleration or extension, on
the basis of the book building process and taking into accounteconomic and market conditions, a qualitative and quantitative18

assessment of demand for the Offer Shares, and other factors
deemed appropriate. The Offer Price, the exact numbers ofOffer Shares to be sold and the maximum number of OverAllotment Shares will be stated in a pricing statement which
will be published through a press release that will also be
posted on the Company’s website and filed with the AFM.
Prior to the Allocation, the number of Offer Shares can beincreased or decreased, and the Offer Price Range can bechanged. Investors who have already agreed to purchase or
subscribe for the Offer Shares during the Offering Period prior
to the announcement of any change of the Offer Price Range,
shall have the right, exercisable within two business days
following the publication of such announcement, to withdraw
their acceptances. Any change of the Offer Price Range on thelast day of the Offering Period will result in the Offering Period
being extended by at least two business days; any change of theOffer Price Range on the day prior to the last day of theOffering Period will result in the Offering Period being
extended by at least one business day. In this case, if theOffering Period for the Dutch Retail Investors would alreadyhave closed, this Offering Period for Dutch Retail Investors
would be reopened. Accordingly, all investors, including Dutch
Retail Investors, will have at least two business days toreconsider their subscriptions. Any such change in the numberof Offer Shares and/or the Offer Price Range will be announced
in a press release that will be posted on the Company’s website.
Upon a change of the number of Offer Shares, references toOffer Shares in this Prospectus should be read as referring to
the amended number of Offer Shares and references to OverAllotment Shares should be read as referring to the amended
number of Over-Allotment Shares.
Subscription and Allocation
Dutch Retail Investors can only subscribe on a market order(bestens) basis. This means that Dutch Retail Investors will bebound to purchase and pay for the Offer Shares indicated intheir share application, to the extent allocated to them, at theOffer Price, even if the Offer Price Range has been changed.
Dutch Retail Investors are entitled to cancel or amend theirapplication, at the financial intermediary where their original
application was submitted, at any time prior to the end of theOffering Period for Dutch Retail Investors (if applicable, as
amended or extended), for any reason, including an amendment
to increase the Offer Price Range. Dutch Retail Investors can
submit their subscriptions through their own financial
intermediary. The financial intermediary will be responsible forcollecting subscriptions from Dutch Retail Investors and forsubmitting their subscriptions to ING as the retail coordinator(the “Retail Coordinator”). The Retail Coordinator willconsolidate all subscriptions of Dutch Retail Investors
submitted on an aggregate basis by financial intermediaries andinform the Joint Global Coordinators, the Company and the
Selling Shareholder. All questions concerning the timeliness,
validity and form of instructions to a financial intermediary in
relation to the purchase of Offer Shares and, if applicable,
Over-Allotment Shares, will be determined by the financial
intermediaries in accordance with their usual procedures or asotherwise notified to the Dutch Retail Investors. The Company
and the Selling Shareholder are not liable for any action or19failure to act by a financial intermediary or the Retail
Coordinator in connection with any purchase, or purported
purchase, of Offer Shares.
The allocation is expected to take place after termination of theOffering Period on or about 26 May 2016, subject toacceleration or extension of the timetable for the Offering.
Allotment to investors who applied to subscribe for Offer
Shares will be determined by the Selling Shareholder, after
consultation with the Company and the Joint Global
Coordinators, and full discretion will be exercised as towhether or not and how to allot the Offer Shares. There is no
maximum or minimum number of Offer Shares for whichprospective investors may subscribe and multiple (applicationsfor) subscriptions are permitted. In the event that the Offering
is over-subscribed, investors may receive fewer Offer Sharesthan they applied to subscribe for. The Selling Shareholder, theCompany, the Joint Global Coordinators and the Joint
Bookrunners may, at their own discretion and without stating
the grounds therefor, reject any subscriptions wholly or partly.
Any monies received in respect of subscriptions which are notaccepted in whole or in part will be returned to the investors
without interest and at the investors’ risk.
Preferential Retail Allocation
There will be a preferential allocation of Offer Shares toeligible retail investors in the Netherlands in accordance withapplicable law and regulations (the “Preferential Retail
Allocation”). Each eligible retail investor in the Netherlands(each a “Dutch Retail Investor”) will be allocated the first 250(or fewer) Offer Shares for which such investor applies.
However, if the total number of Offer Shares subscribed for by
Dutch Retail Investors would exceed 10% of the total numberof the Offer Shares, assuming no exercise of the OverAllotment Option, the preferential allocation to each Dutch
Retail Investor may be reduced pro rata to the first 250 (orfewer) Offer Shares for which such investor applies. As aresult, Dutch Retail Investors may not be allocated all of thefirst 250 (or fewer) Offer Shares for which they apply. The
exact number of Offer Shares allocated to Dutch Retail
Investors will be determined after the Offer Period has ended.
The Preferential Retail Allocation will only be made in relation
to Offer Shares comprising up to 10% of the total number ofOffer Shares, not including the Over-Allotment Shares. The
Selling Shareholder, after consultation with the Company and
the Joint Global Coordinators has full discretion as to whether
or not and how to allocate the remainder of the Offer Shares
applied for.
For the purpose of the Preferential Retail Allocation, a Dutch
Retail Investor is either: (i) a natural person resident in the
Netherlands; or (ii) a special investment vehicle having its seatin the Netherlands which is a legal entity established for the
express and sole purpose of providing asset management and/or
retirement planning services for a natural person.
To be eligible for the Preferential Retail Allocation, Dutch
Retail Investors must place their subscriptions during theperiod commencing on 16 May 2016 at 9:00 CET and endingon 25 May 2016 at 17:30 CET through financial intermediaries.
Different financial intermediaries may apply deadlines before
the closing time of the Offering Period.
20

The Retail Coordinator will communicate to the financial
intermediaries the aggregate number of Offer Shares allocatedto their respective Dutch Retail Investors. It is up to thefinancial intermediaries to notify Dutch Retail Investors of
their individual allocations.
Payment
Payment (in euros) for and delivery of the Offer Shares willtake place on the Settlement Date. Taxes and expenses, if any,must be borne by the investor. Dutch Retail Investors may becharged expenses by their financial intermediary. Investors
must pay the Offer Price in immediately available funds in fullin euro on or before the Settlement Date (or earlier in the caseof an early closing of the Offering Period and consequent
acceleration of pricing, allocation, commencement of trading
and Settlement).
Delivery of Shares
The Offer Shares will be delivered in book-entry form throughthe facilities of Euroclear Nederland. Delivery of the Offer
Shares will take place on the Settlement Date, through the
book-entry facilities of Euroclear Nederland, in accordancewith its normal settlement procedures applicable to equity
securities and against payment (in euros) for the Offer Sharesand the Over-Allotment Shares, if applicable, in immediately
available funds.
If Settlement does not take place on the Settlement Date asplanned or at all, the Offering may be withdrawn, in which caseall subscriptions for Offer Shares will be disregarded, any
allotments made will be deemed not to have been made and any
subscription payments made will be returned without interest orother compensation. Any dealings in Ordinary Shares prior to
Settlement are at the sole risk of the parties concerned.
Underwriting Agreement
The Company, the Selling Shareholder, and the Underwriters(as defined below) will enter into an agreement (the“Underwriting Agreement”) after the end of the Offering
Period and only after pricing and the Allocation of all Offer
Shares to investors, which is expected to be on or about
26 May 2016. Under the terms and subject to the conditions set
forth in the Underwriting Agreement, the Underwriters willseverally agree to procure purchasers for the Offer Shares or,
failing which, to purchase those Offer Shares themselves, andthe Selling Shareholder will agree to sell those Offer Shares at
the Offer Price to purchasers procured by the Underwriters or,
failing which, to the Underwriters themselves.
In the Underwriting Agreement, the Company makes certain
representations and warranties. In addition, the Company, andfor certain limited matters, the Selling Shareholder, will
indemnify the Underwriters against certain losses and liabilities
in connection with the Offering.
The Underwriting Agreement will provide that the obligationsof the Underwriters to procure purchasers for or, failing which,to purchase the Offer Shares themselves are subject to, among
other things, the following conditions: (i) the approval of thisProspectus by the AFM being in full force and effect; (ii)
receipt of opinions on certain legal matters from counsel; (iii)21

receipt of customary officers’ certificates; (iv) the absence of amaterial adverse change in the Group’s business; (v) theadmission of the Ordinary Shares to listing on Euronext
Amsterdam; and (vi) certain other customary conditions. The
Underwriters will have the right to waive the satisfaction ofcertain conditions or part thereof.
Upon the occurrence of certain specific events, such as theoccurrence of: (i) a material adverse change in the Group’sbusiness; (ii) a breach of any of the representations andwarranties, undertakings or obligations contained in the
Underwriting Agreement; or (iii) a statement in this Prospectus,
the Pricing Statement or any amendment or supplement to thisProspectus being untrue, inaccurate or misleading, theUnderwriters may elect to terminate the Underwriting
Agreement.
Joint Global Coordinators and Joint Bookrunners
Goldman Sachs International, and J.P. Morgan Securities plc(“J.P. Morgan”) are acting as joint global coordinators (the“Joint Global Coordinators”) and, together with Citigroup
Global Markets Limited (“Citigroup”), ING Bank N.V.
(“ING”), Morgan Stanley & Co. International plc (“Morgan
Stanley”) and Société Générale Corporate & Investment
Banking (“Société Générale”) as the joint bookrunners (the“Joint Bookrunners”).
Co-Bookrunners
ABN AMRO Bank N.V. (“ABN AMRO”) and Coöperatieve
Rabobank U.A. (“Rabobank”) are acting as co-bookrunners(the “Co-Bookrunners”).
Underwriters
The Joint Global Coordinators, the Joint Bookrunners and the
Co-Bookrunners
areactingasunderwriters(the“Underwriters”).
Listing and Paying Agent
ING is the listing and paying agent with respect to the Ordinary
Shares on Euronext Amsterdam.
Retail Coordinator
ING is the retail coordinator with respect to the Preferential
Retail Allocation.
Stabilization Manager
Goldman Sachs International is the stabilization manager (the“Stabilization Manager”) with respect to the Shares onEuronext Amsterdam.
E.4

Interests material to the Offering(including conflicts of interests)

Certain of the Underwriters and N.M. Rothschild & Sons
Limited (“Rothschild” or the “Financial Adviser”) and/or
their respective affiliates have in the past been engaged, andmay in the future, from time to time, engage in commercial
banking, investment banking and financial advisory andancillary activities in the ordinary course of their business with
the Company and/or the Selling Shareholder or any parties
related to any of them, in respect of which they have received,
and may in the future receive, customary fees andcommissions.

22

In connection with the Offering, each of the Underwriters andany of their respective affiliates, acting as an investor for its
own account, may take up Offer Shares in the Offering and inthat capacity may retain, purchase or sell for its own accountsuch securities and any Offer Shares or related investments andmay offer or sell such Offer Shares or other investments
otherwise than in connection with the Offering. Accordingly,
references in this Prospectus to Offer Shares being offered orplaced should be read as including any offering or placement ofOffer Shares to any of the Underwriters or any of theirrespective affiliates acting in such capacity. None of theUnderwriters intends to disclose the extent of any suchinvestment or transactions otherwise than pursuant to any legal
or regulatory obligation to do so. In addition certain of theUnderwriters or their affiliates may enter into financing
arrangements (including swaps) with investors in connection
with which such Underwriters (or their affiliates) may fromtime to time acquire, hold or dispose of Offer Shares.
As a result of acting in the capacities described above, theUnderwriters may have interests that may not be aligned, or
could potentially conflict, with investors’ and the Company’s
interests.
E.5

Person or entity offering to sell the
Offer
Sharesandlock-uparrangements

The Joint Global Coordinators may, in their sole discretion andat any time, waive the restrictions, including those on sales,issuances or transfers of Ordinary Shares, described below.
Pursuant to the Underwriting Agreement, the Company and the
Selling Shareholder are expected to agree with theUnderwriters that, until 180 days from the Settlement Date (thelock-up period), they will not, except as set forth below,
without the prior written consent of the Joint Global
Coordinators: (i) directly or indirectly, issue, offer, pledge, sell,contract to sell, sell or grant any option, right, warrant orcontract to purchase, exercise any option to sell, purchase any
option or contract to sell, or lend or otherwise transfer or
dispose of any Ordinary Shares or any securities convertible
into or exercisable or exchangeable for Ordinary Shares; or (ii)enter into any swap or any other agreement or any transactionthat transfers, in whole or in part, directly or indirectly, theeconomic consequences of ownership of any Ordinary Shares,
whether any such transaction is to be settled by delivery of
Ordinary Shares or such other securities, in cash or otherwise.
Each of the CEO and the CFO is expected to agree with theUnderwriters that, until 360 days from the Settlement Date (thelock-up period), they will not, except as set forth below,
without the prior written consent of the Joint Global
Coordinators: (i) directly or indirectly, issue, offer, pledge, sell,contract to sell, sell or grant any option, right, warrant orcontract to purchase, exercise any option to sell, purchase any
option or contract to sell, or lend or otherwise transfer or
dispose of any Ordinary Shares that he has purchased in theOffering as described in this Prospectus or any securities
convertible into or exercisable or exchangeable for thoseOrdinary Shares; or (ii) enter into any swap or any otheragreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequences of ownershipof any of those Ordinary Shares, whether any such transaction
is to be settled by delivery of those Ordinary Shares or suchother securities, in cash or otherwise.

23

The foregoing restrictions shall not apply to: (i) accepting ageneral offer to all holders of the issued and allotted Ordinary
Shares of the Company on terms which treat all such holders
alike and which has become or been declared unconditional in
all respects or been recommended for acceptance by the
directors of the Company; and (ii) the granting of awards inoptions or Ordinary Shares by the Company or the issuance ofOrdinary Shares upon exercise of options granted by the
Selling Shareholder or the Company pursuant to employee
incentive schemes as disclosed or described as being proposedor contemplated in this Prospectus and other offer documents.
E.6

Dilution

Not applicable. As only existing Shares will be offered, theOffering will not have a dilutive effect.

E.7

Estimated expenses charged to theinvestors by the Company or the
Selling Shareholders

Not applicable. No expenses have been or will be charged tothe investors by the Company or the Selling Shareholder in
relation to the Offering.

24

SAMENVATTINGSamenvattingen van prospectussen zijn opgebouwd uit verschillende informatievereisten die ‘Elementen’
worden genoemd. Deze Elementen zijn genummerd als Afdelingen A – E (A.1 – E.7).
Deze samenvatting bevat alle Elementen die in een samenvatting van een prospectus voor dit typeeffecten en uitgevende instelling dienen te worden opgenomen. Omdat sommige elementen niet verplicht zijn,
is het mogelijk dat de nummering van de Elementen niet volledig is.
Hoewel een Element verplicht opgenomen dient te worden in een samenvatting voor dit type effecten envoor deze uitgevende instelling, is het mogelijk dat er geen relevante informatie kan worden gegeven voor een
bepaald Element. In dat geval is er een korte beschrijving van het Element opgenomen in de samenvatting metvermelding ‘niet van toepassing’.
Afdeling A – Inleiding en waarschuwingen
A.1

Inleiding en waarschuwingen

Deze samenvatting moet worden gelezen als een inleiding op
het prospectus (het “Prospectus”) met betrekking tot
de aanbieding (de “Aanbieding”) door Koninklijke Philips
N.V.
(de“Verkopende
Aandeelhouder”)
van
37.500.000 gewone aandelen in het aandelenkapitaal van deVennootschap (zoals hierna gedefinieerd) met een nominale
waarde van €0,01 per aandeel (de “Aangeboden Aandelen”,
inclusief – tenzij uit de context anders blijkt – deOvertoewijzingsaandelen (zoals hierna gedefinieerd) en detoelating tot de notering van en de handel in de gewone
aandelen, met een nominale waarde van €0,01 per aandeel, in
het aandelenkapitaal van de Vennootschap (de “Gewone
Aandelen”), aan Euronext in Amsterdam, een gereguleerde
markt die deel uitmaakt van Euronext Amsterdam N.V.
(“Euronext Amsterdam”). Tenzij uit de context anders blijkt,
is een verwijzing naar de Gewone Aandelen tevens een
verwijzing naar de Aangeboden Aandelen. Als deOvertoewijzingsoptie (zoals hierna gedefinieerd) niet wordt
uitgeoefend, maken de Aangeboden Aandelen 25% uit van deuitgegeven Gewone Aandelen. Als de Overtoewijzingsoptie
volledig wordt uitgeoefend, maken de Aangeboden Aandelen
28.75% van de Gewone Aandelen uit. Iedere beslissing om tebeleggen in de Gewone Aandelen moet worden gebaseerd zijn
op de bestudering van het gehele Prospectus door de belegger.
Wanneer een vordering met betrekking tot de informatie in het
Prospectus bij een rechterlijke instantie aanhangig wordt
gemaakt, zou de belegger die als eiser optreedt volgens denationale wetgeving van de lidstaten eventueel de kosten voor
de vertaling van het Prospectus moeten dragen voordat derechtsvordering wordt ingesteld. Alleen de personen die desamenvatting, met inbegrip van een vertaling ervan, hebben
ingediend, kunnen wettelijk aansprakelijk worden gesteld
indien de samenvatting, wanneer zij samen met de andere delen
van het Prospectus wordt gelezen, misleidend, onjuist ofinconsistent is, of indien zij, wanneer zij samen met de andere
delen van het Prospectus wordt gelezen, niet de kerngegevens
bevat om beleggers te helpen wanneer zij overwegen in die
effecten te investeren.

A.2

Toestemming,
aanduiding,voorwaarden en aankondiging

Niet van toepassing. De Vennootschap verleent geen
toestemming voor het gebruik van het Prospectus voor deverdere wederverkoop of definitieve plaatsing van de
Aangeboden Aandelen door financiële tussenpersonen.

25

Afdeling B – De Uitgevende Instelling
B.1

Statutaire en handelsnaam van deVennootschap

Philips Lighting N.V., per de datum van het Prospectus nog een
besloten vennootschap met beperkte aansprakelijkheid,
genaamd Philips Lighting NewCo B.V. (de “Vennootschap”),
die voorafgaand aan de afwikkeling van deze Aanbieding
wordt
omgezetineennaamlozevennootschap(“Afwikkeling”).

B.2

Vestigingsplaats,
rechtsvorm,
toepasselijk recht en land van
oprichting

De Vennootschap is een besloten vennootschap met beperkte
aansprakelijkheid naar Nederlands recht en is gevestigd in
Nederland. De Vennootschap wordt voorafgaand aan deAfwikkeling omgezet in een naamloze vennootschap. De
Vennootschap heeft haar statutaire zetel in Eindhoven.

B.3

Kerngegevens betreffende de aard
van de huidige werkzaamheden en
belangrijkste
bedrijfsactiviteiten
van de Groep

De Vennootschap en haar groepsmaatschappijen (zijnde
rechtspersonen in de zin van artikel 2:24b van het Burgerlijk
Wetboek)(elk
afzonderlijk
aangeduidals“Groepsmaatschappij” en samen met de Vennootschap, de“Groep”) hebben in termen van omzet een leidende positie op
de wereldmarkt met erkende deskundigheid ten aanzien van deontwikkeling, fabricage en toepassing van innovatieve
producten, systemen en diensten op het gebied van verlichting.
De Groep is verantwoordelijk voor veel belangrijke doorbraken
op het gebied van verlichting in de afgelopen 125 jaar, zoals degloeilamp,
hogedrukontladingslampen(“HID”),
fluorescentielampenencompacte
fluorescentielampen(“CFL”), en was de drijvende kracht achter diverse
technologische veranderingen, waarmee de basis werd gelegd
voor haar huidige kracht en leidende positie in de overgang indeverlichtingsindustrievanconventionele
verlichtingstechnologieën naar led-verlichtingstechnologieën
(“LED”) en verlichtingssystemen (zoals connected verlichting)en diensten. De Groep staat bekend om haar innovatieve kracht
en investeert intensief in onderzoek en ontwikkeling (“R&D”)(in totaal 4,9% van de omzet over het jaar 2015) om haarpioniersrol in de technologische ontwikkelingen te behouden.
De Groep heeft een sterke octrooiportfolio met meer dan
14.000 octrooirechten, naar haar mening meer dan haarconcurrenten, en een licentieprogramma met meer dan 600
licentienemers per 31 maart 2016.
De Groep meent dat zij een sterke positie heeft in deverlichtingswaardeketen en richt zich op de algemene
verlichtingsmarkt. Het assortiment lichtbronnen van de Groep
omvat
onder
meer
gloeilampen,
halogeenlampen,
fluorescentielampen, rechte fluorescentielampen (“TL”), CFL,
HID-lampen en LED-lampen. Daarnaast verkoopt de Groepelektronische
componenten,
zoals
elektronischevoorschakelapparaten alsook complete armaturen aan
consumenten en professionele gebruikers. De Groep legt denadruk op het aanbieden van innovatieve, geïntegreerde
verlichtingssystemen en -diensten op maat, waaronder
verlichtingsbeheersystemen en diensten zoals energie-audits,lichtontwerp en -techniek alsook controle op afstand en
managed services. De producten van de Groep worden gebruikt
voor
verlichtingenvisualiseringindiverseverlichtingstoepassingen, vooral in woningen, op straat enlangs de weg, in architectuur, in kantoren, in de industrie, retailen horeca. De Groep produceert ook lichtbronnen en26

verlichtingssystemen voor speciale toepassingen, zoals
projectie,
bioscoop,entertainment,
stadsverfraaiing(dynamische architectonische verlichting) en horticultuur
alsook waterzuivering (bijvoorbeeld desinfectie met
ultraviolette straling). De gecombineerde ondernemingen van
Koninklijke
Philipsvoor
LED-componenten
enautoverlichtingscomponenten (“Lumileds”) (zoals hierna
gedefinieerd) werd in 2015 zelfstandig en de resultaten vandeze onderneming zijn niet opgenomen in de financiële
resultaten van de Groep.
De onderneming van de Groep is functioneel ingedeeld en
wordt, op basis van technologie en eindmarkten, geleid doorvier bedrijfsonderdelen: BG Lamps, BG LED, BG Professionalen BG Home (“BGs”). BG Lamps omvat de conventionele
lampen- en lampenelectronica-activiteiten van de Groep, BG
LED de LED-lampen- en LED-electronica-activiteiten, BG
Professional de professionele armaturen, verlichtingssystemen
en –diensten en BG Home de consumenten armaturen enthuisverlichtingssystemen. Elke BG is verantwoordelijk voor
de ontwikkeling van haar strategie, productassortiment en deproductie en inkoop van haar producten. Daarnaast is decommerciële organisatie van de Groep opgedeeld in viergeografische marktgroepen voor het beheer van haarwereldwijde verkoopkanalen. Dit zijn: Europa, Noord- en
Zuid-Amerika,
GroeimarktenenGroot-China(“Marktgroepen” of “MG’s”).
De Groep heeft een mondiaal bereik en ontplooit haarcommerciële activiteiten in ongeveer 180 landen. De Groep
heeft operationele fabrieken in 22 landen in belangrijke regio’s
in de wereld, en meer dan 70 verkoopkantoren wereldwijd. In
landen zonder verkooporganisatie ontplooit de Groep haarcommerciële activiteiten via onafhankelijke distributeurs envertegenwoordigers die nauw samenwerken met deverkooporganisatie van de Groep.
De Groep heeft het recht om het Philips merk voor producten en
diensten te gebruiken voor een eerste termijn van tien jaar na deafsplitsing van de Groep van Koninklijke Philips(“Afsplitsing”). Deze eerste termijn kan worden verlengd met
twee termijnen van vijf jaar als bepaalde financiële
doelstellingen in termen van netto omzet worden behaald en als
de Groep aan alle eisen van de handelsmerklicentieovereenkomst
voldoet. De handelsmerklicentie is onderhevig aan royalty
betalingen. De Groep verwacht dat het netto effect van
de royalty betalingen aan Koninklijke Philips onder thehandelsmerklicentieovereenkomst jaarlijks ongeveer €20 miljoen
hoger zullen zijn dan de historische kosten voor de promotie vanhet Philips handelsmerk die voor het boekjaar 2015 aan de Groepwaren gealloceerd zoals weergegeven in de Gecombineerde
Jaarrekening (zoals hierna gedefinieerd).
In het jaar 2015 behaalde de Groep een omzet van€7.465 miljoen (2014: €6.981 miljoen; 2013: €7.129 miljoen),
het bedrijfsresultaat van de Groep bedroeg €331 miljoen (2014:€41 miljoen; 2013: €213 miljoen), de aangepaste EBITDA(geen onderdeel van accountantscontrole) van de Groep
bedroeg €739 miljoen (2014: €665 miljoen; 2013:€659 miljoen) en de vrije kasstroom (geen onderdeel van

27

accountantscontrole) van de Groep bedroeg €632 miljoen(2014: €355 miljoen; 2013: €84 miljoen). Over het eerste
kwartaal van 2016 geëindigd op 31 maart behaalde de Groepeen omzet van €1.702 miljoen, bedroeg het bedrijfsresultaat
van de Groep €71 miljoen, bedroeg de aangepaste EBITDA(geen onderdeel van accountantscontrole) van de Groep€161 miljoen en de vrije kasstroom (geen onderdeel van
accountantscontrole) van de Groep €9 miljoen. Per 31 maart
2016 had de Groep wereldwijd ongeveer 36.350 medewerkers(Fte’s) in dienst.
B.4a

Belangrijke recente trends

De verlichtingmarkt is in een technologische transitie vanconventionele verlichting technologieën naar LED-verlichting
technologieën. Daarnaast laat de markt voor verlichting op dit
moment een snelle transformatie zien die wordt gedreven door
met name de volgende drie onderliggende trends:•

De toenemende behoefte aan licht;•

De toenemende vraag naar efficiënter licht; en•

De toenemende vraag naar digitaal licht.

B.5

Omschrijving van de Groep en depositie van de Vennoot-schap
daarinDe Vennootschap is een houdstermaatschappij zonder een
materiële eigen bedrijfsvoering. De belangrijkste activa van deVennootschap zijn de belangen die zij direct of indirect houdt
in haar Groepsmaatschappijen.

B.6

Aandeelhouders van de Vennootschap

De Verkopende Aandeelhouder is de enige houder van
Aandelen (zoals hierna gedefinieerd) (“Aandeelhouder”) die
per de datum van het Prospectus (direct dan wel indirect) een
substantiële deelneming bezit, dat wil zeggen ten minste 3%
van het aandelenkapitaal of de stemrechten in de zin van deWet op het financieel toezicht, in de Vennootschap. De
Verkopende Aandeelhouder houdt per de datum van het
Prospectus 100 Gewone Aandelen en is derhalve houdster van
100% van het totaal uitgegeven en geplaatste aandelenkapitaal
van de Vennootschap.
Elk Aandeel geeft recht op het uitbrengen van één stem op dealgemene vergadering van aandeelhouders van deVennootschap(“Algemene
Vergadering”).
Alle
Aandeelhouders hebben dezelfde stemrechten.

B.7

Geselecteerde
belangrijke
historische financiële informatie

Dit Prospectus bevat gecombineerde financiële informatie vande Groep, die is afgeleid uit de, in overeenstemming met IFRS
(zoals aangenomen door de EU en zoals uitgegeven door de
IASB) opgemaakte, gecombineerde jaarrekening van de Groepper en over de jaren tot aan 31 december 2015, 31 december
2014 en 31 december 2013 (de “Gecombineerde
Jaarrekening”), en die is gebaseerd op de geconsolideerde
jaarrekening van de Verkopende Aandeelhouder en haardochtermaatschappijen in de zin van artikel 2:24b BW(“Koninklijke Philips”) alsook haar boekhouding. De
Gecombineerde Jaarrekening is gebaseerd op “carve-out”
financiële informatie van de geconsolideerde jaarrekening van
Koninklijke Philips voor het presenteren van de financiële
positie, bedrijfsresultaten en kasstromen van de Groep als
zelfstandige entiteit. De Groep bestond eerder niet als een
rapporterende groep en daarom is er eerder geen afzonderlijke(verplichte)geconsolideerde
jaarrekening
opgemaakt.
Dientengevolge weerspiegelt de Gecombineerde Jaarrekening
niet noodzakelijkerwijs het bedrijfsresultaat, de financiële
28

toestand en de kasstromen van de Groep waarvan sprake was
geweest als zij in de in het Prospectus gepresenteerde periode
als een afzonderlijke, zelfstandige groep had opgetreden en isdeze niet noodzakelijkerwijs leidend voor de toekomstige
bedrijfsresultaten, financiële toestand en kasstromen van deGroep.
Dit Prospectus bevat daarnaast de verkorte gecombineerdeinterim jaarrekening van de Groep voor de driemaandperiodegeëindigd op 31 maart 2016 en 2015 en de toelichting daarop (de“Verkorte Gecombineerde Interim Jaarrekening”). De
Verkorte Gecombineerde Interim Jaarrekening is opgemaakt op
basis van IAS 34.
Gecombineerde resultatenrekening

In miljoenen euro’s

Over het
eerstekwartaalgeëindigd op
31 maart (nietgecontroleerd)
2016
2015

Voor jaareinde
31 december
2015
2014
2013

Omzet . . . . . . . . . . . . . . . . . . . . 1,702 1,727 7.465 6.981 7.129
Kostprijs van de omzet . . . . . . . (1,075) (1,106) (4.810) (4.671) (4.573)
Bruto marge . . . . . . . . . . . . . .
627
621 (2.655) 2.310 2.556
Verkoopkosten . . . . . . . . . . . . . (430) (430) (1.751) (1.657) (1.722)
Onderzoeks- en
ontwikkelingskosten . . . . . . .
(90) (88) (366) (395) (375)
Algemene en administratieve
kosten . . . . . . . . . . . . . . . . . .
(49) (50) (233) (223) (233)
Waardevermindering van
goodwill . . . . . . . . . . . . . . . .
(2) ——(2) (26)
Overige bedrijfsinkomsten . . . .
18
2
48
13
31
Overige bedrijfskosten . . . . . . .
(3) —
(22)
(5) (18)
Bedrijfsresultaat . . . . . . . . . . .
71
55
331
41
213
Financiële baten . . . . . . . . . . . .
4
—
3
3
3
Financiële lasten . . . . . . . . . . . .
(21)(2) (11)(9)(4)
Winst voor belasting . . . . . . . .
54
53
323
35
212
Winstbelasting . . . . . . . . . . . . .
(40) (23) (83) (66) (45)Winst na belasting . . . . . . . . .
14
30
240
(31) 167
Resultaten verband houdende
met investering indeelnemingen . . . . . . . . . . . .
—
—
—
2
1
Netto opbrengsten (verlies) . .
14
30
240
(29) 168

Gecombineerde balans

In miljoenen euro’s

Vaste activa
Materiële vaste activa:
Kostprijs . . . . . . . . . . . . . .
Gecumuleerdeafschrijvingen . . . . . . . .
Totale materiële vaste activa . . .
Goodwill . . . . . . . . . . . . . . . . . .
Immateriële activa:
Kostprijs . . . . . . . . . . . . . .
Gecumuleerdeafschrijvingen . . . . . . . .
Totale immateriële activa . . . . .
Langlopende vorderingen . . . . .
Investeringen in
deelnemingen . . . . . . . . . . . . .
Overige financiële vaste
activa . . . . . . . . . . . . . . . . . . .
Uitgesteldebelastingvorderingen . . . . . . .
Overige vaste activa . . . . . . . . .
Totale vaste activa . . . . . . . . . .

29

Per 31 maart(niet gecontroleerd)
2016

Per 31 december
2015
2014
2013

2,634

2.620

2.840

(2,031)603
1,781(1.986) (2.118) (1.937)
634
722
830
1.844 1.676 1.458

2,196

2.192

(1,391)805
16(1.336) (1.214) (1.027)
856
906
772
20
10
8

2.120

2.767

1.799

23

23

24

27

58

8

23

22

409
19
3,714

259
241
212
15
4
4
3.659 3.606 3.333

In miljoenen euro’s

Vlottende activa
Voorraden . . . . . . . . . . . . . . . . . . .
Overige vlottende activa . . . . . . . .
Financiële activa - derivaten . . . . .
Vordering inkomstenbelasting . . . .
Vorderingen:Vorderingen . . . . . . . . . . . . . .
Vorderingen op verbonden
partijen – Koninklijke
Philips . . . . . . . . . . . . . . . .
Overige kortlopende
vorderingen . . . . . . . . . . . .

Per 31 maart(niet gecontroleerd)
2016

1,010
48
10
30
1,344
65
103

Per 31 december
2015 2014 2013

988
46
9
25

996
65
17
8

983
52
20
7

1.436 1.455 1.289
83

3

13

80

87

69

Totale vorderingen . . . . . . . . . . . . .
Activa geclassificeerd als
aangehouden voor verkoop . . . .
Kortlopende vorderingen
Koninklijke Philips . . . . . . . . . .
Liquide middelen . . . . . . . . . . . . . .

1,512

Totale vlottende activa . . . . . . . .

3,222

2.784 2.726 2.497

Totale activa . . . . . . . . . . . . . . . . .

6,936

6.443 6.332 5.830

Eigen vermogen
Netto investering eigenaar . . . . . . .
Minderheidsbelang . . . . . . . . . . . .

3,011
110

3.513 3.495 3.297
103
88
2

Bedrijfsvermogen . . . . . . . . . . . .

3,121

3.616 3.583 3.299

Langlopende verplichtingenLanglopende schuld . . . . . . . . . . . .
Langlopende voorzieningen . . . . .
Uitgesteldebelastingverplichtingen . . . . . . .
Overige langlopende
verplichtingen . . . . . . . . . . . . . .
Totale langlopende
verplichtingen . . . . . . . . . . . . .
Kortlopende verplichtingen
Kortlopende schuld . . . . . . . . . . . .
Kortlopende schuld Koninklijke
Philips . . . . . . . . . . . . . . . . . . . .
Financiële verplichtingen– derivaten . . . . . . . . . . . . . . . . .
Verschuldigde winstbelasting . . . .
Crediteuren en verhandelbare
schuldpapieren:
Handelscrediteuren . . . . . . . .
Aan verbonden partijenverschuldigde vorderingen– Koninklijke Philips . . . . .
Totale crediteuren enverhandelbare
schuldpapieren . . . . . . . . . . . . . .
Overlopende passiva . . . . . . . . . . .
Kortlopende voorzieningen . . . . . .
Verplichtingen in verband met
activa geclassificeerd als
aangehouden voor verkoop . . . .
Overige kortlopende
verplichtingen . . . . . . . . . . . . . .

1.599 1.545 1.371

52

34

20

15

207
353

—
83

—
75

—
49

18
678

2
350

41
461

6
348

38

126

150

132

320

159

158

145

1,054

637

810

631

95

86

49

2

645

—

—

—

13
23

7
6

15
14

22
10

765

940

847

867

147

111

37

20

912
404
266

1,051
459
263

884
447
240

887
459
227

10

6

—

—

393

312

290

293

Totale kortlopende
verplichtingen . . . . . . . . . . . . .

2,761

2.190 1.939 1.900

Totale verplichtingen . . . . . . . . . .

3,815

2.827 2.749 2.531

Totale verplichtingen en
bedrijfsvermogen . . . . . . . . . . .

6,936

6.443 6.332 5.830

30Gecombineerde kasstroomoverzichten

In miljoenen euro’s

Over het
eerstekwartaalgeëindigd op
31 maart (niet Voor jaareinde
gecontroleerd)
31 december
2016 2015 2015 2014 2013

Kasstromen uit operationele
activiteiten
Netto winst (verlies) . . . . . . . . . . .

14Afschrijving, amortisatie &waardevermindering van nietfinanciële activa . . . . . . . . . . . . .
78
Waardevermindering van nietfinanciële activa . . . . . . . . . . . . .
3
Netto voordeel uit verkoop van
activa . . . . . . . . . . . . . . . . . . . . . .
(1)
Rentebaten . . . . . . . . . . . . . . . . . . . .
(4)
Rentelasten op schulden, leningenen overige verplichtingen . . . . . .
18
Winstbelasting . . . . . . . . . . . . . . . . .
40
Op aandelen gebaseerde
beloning . . . . . . . . . . . . . . . . . . . .
6
Afname (toename) van
werkkapitaal . . . . . . . . . . . . . . . . (102)
Afname (toename) van
vorderingen en overigevlottende activa . . . . . . . . . .
28
Afname (toename) van
voorraden . . . . . . . . . . . . . . (47)
Toename (afname) van
crediteuren, overlopende
passiva en overigekortlopende
verplichtingen . . . . . . . . . . . (83)
Toename (afname) van langlopende
vorderingen en overige activa en
verplichtingen . . . . . . . . . . . . . . . (63)Toename (afname) van
voorzieningen . . . . . . . . . . . . . . . (31)Afname (toename) van activa
geclassificeerd als aangehouden
voor verkoop . . . . . . . . . . . . . . . . —Betaalde rente . . . . . . . . . . . . . . . . .
(1)
Betaalde winstbelasting . . . . . . . . . . (17)Netto kasstroom uit operationele
activiteiten . . . . . . . . . . . . . . . . .

30

240

(29) 168

73

315

381

390

—

4

—

—

—
—

(26)
(3)

(2)
(3)

(1)
(3)

2
23

7
83

9
66

4
45

7

24

22

27

79

209

(33) (231)28—(17) (206)

(65)

29

114

(94)

116

180 (130)692(29) —

4(23)(79) 116(86)——(1) (1)(2)(2) (5) —(7) (26) (43) (54)

(60)

184

717

478

262

(18)

(28)

(85) (123) (178)

(4)

(8)

(38) (51) (38)

(16)

(20)

(98) (109) (159)

2

—

51

37

19

—

17

31

—

—

—

(3)

(11) (125) —

—

—

—

(18)

(14)

(65) (249) (176)Kasstromen uit
investeringsactiviteiten
Netto kapitaalinvesteringen . . . . . . .
Toevoeging van immateriële
activa . . . . . . . . . . . . . . . . . .
Kapitaalinvesteringen inmateriële vaste activa . . . . .
Opbrengsten uit verkoop vanmateriële vaste activa . . . . .
Opbrengsten uit overige vaste
financiële activa . . . . . . . . . . . . .
Aankoop van bedrijven,gecorrigeerd voor meegekocht
kasgeld . . . . . . . . . . . . . . . . . . . .
Ontvangen dividend uit
investeringen in deelnemingen . .
Netto kasstroom gebruikt voor
investeringsactiviteiten . . . . . . .

31

(1)

2

Over het
eerstekwartaal
eindigend op
31 maart (niet Voor jaareinde
gecontroleerd)
31 december
2016 2015 2015 2014 2013

In miljoenen euro’s

Kasstromen uit
financieringsactiviteiten
Financiering van (betaling aan)
Koninklijke Philips . . . . . . . . . . . (349) (149) (626) (200) (95)
Kapitaalinbreng van Koninklijke
Philips . . . . . . . . . . . . . . . . . . . . . 692——— —Opbrengst uit uitgifte (betalingen)van schuldpapieren . . . . . . . . . . .

3

Netto geldmiddelen gebruikt voor
financieringsactiviteiten . . . . . .
Netto geldmiddelen (gebruiktvoor) uit doorlopende
operaties . . . . . . . . . . . . . . . . . . .
Gevolgen vanwisselkoersschommelingen voor
liquide middelen . . . . . . . . . . . . .
Liquide middelen aan begin van deperiode . . . . . . . . . . . . . . . . . . . . .

346

Liquide middelen aan eind van deperiode . . . . . . . . . . . . . . . . . . . .

(24)

(12)

(1)

(2)

(173) (638) (201) (97)

268

(3)

14

28 (11)

2

(9)

(6)

(2)

2

83

75

75

49

58

353

63

83

75

49

Bedrijfsonderdeel informatie
De onderneming van de Groep is functioneel ingedeeld en
wordt, op basis van technologie en eindmarkten, geleid doorvier operationele bedrijfsonderdelen: BG Lamps, BG LED, BG
Professional en BG Home. Sommige innovatieactiviteiten van
de Groep, alsook bepaalde kosten die verband houden met het
hoofdkantoor van de Groep, worden niet weerspiegeld in definanciële resultaten van de BGs, en worden in dit Prospectus
beschreven onder “Overig”.
In miljoenen euro’s
Over het eerste kwartaal
geëindigd op 31 maart van
2016
Omzet . . . . . . . . . . . . . . . . . .
Inkomsten uit
bedrijfsactiviteiten . . . . . .
Over het eerste kwartaal
geëindigd op 31 maart van
2015
Omzet . . . . . . . . . . . . . . . . . .
Inkomsten uit
bedrijfsactiviteiten . . . . . .

BG BG
BG
BG
Lamps LED Professional Home Overig Totaal

615

355

601

124

7

1,702

113

19

(25)

(15)

(21)

71

727

275

610

112

3

1,727

106

2

(19)

(19)

(15)

55

Over het jaar 2015 geëindigd
op 31 december
Omzet . . . . . . . . . . . . . . . . . . 2.850 1.334
Inkomsten uit
bedrijfsactiviteiten . . . . . . 403
66

2.757

515

9

7.465

14

(73)

(79)

331

Over het jaar 2014 geëindigd
op 31 december
Omzet . . . . . . . . . . . . . . . . . . 3119
Inkomsten uit
bedrijfsactiviteiten . . . . . . 356

958

2.420

482

2

6.981

(62)

(56)

(70) (127)41Over het jaar 2013 geëindigd
op 31 december
Omzet . . . . . . . . . . . . . . . . . . 3.557
Inkomsten uit
bedrijfsactiviteiten . . . . . . 586

772

2.308

(20)

(75)

32

490

2

7.129

(152) (126)

213

B.8

Geselecteerde
belangrijke
forma financiële informatie

pro

Niet van toepassing. Het Prospectus bevat geen pro forma
financiële informatie.

B.9

Winstprognose

B.10

Voorbehouden in de afgifte van Niet van toepassing. De accountantsverklaring bevat geenverklaring van accountant betreffende voorbehouden ten aanzien van de historische financiële
de historisch financiële informatie
informatie voor de jaren geëindigd op 31 december 2015, 2014en 2013.

B.11

Verklaring in geval van onvoldoende
werkkapitaal

Niet van toepassing. De
winstprognose afgegeven.

Vennootschap

heeft

geen

De Vennootschap meent dat het voor de Groep beschikbare
werkkapitaal voldoende toereikend is om aan de huidige
financiële verplichtingen van de Groep te voldoen, ten minste
voor de periode van twaalf maanden vanaf de datum van het
Prospectus.

Afdeling C – Effecten
C.1

Soort en klasse en het security
identification number

Alle Gewone Aandelen zijn gewone aandelen in het geplaatste
en uitstaande aandelenkapitaal van de Vennootschap, met een
nominale waarde van €0,01 per aandeel.
Er is een aanvraag ingediend voor een notering van alle
Gewone Aandelen onder het symbool “LIGHT” aan Euronext
Amsterdam, met ISIN Code: NL0011821392.

C.2

Valuta van de Aangeboden Aandelen

De Aangeboden Aandelen worden uitgedrukt en verhandeld in
euro’s.

C.3

Aantal Aandelen en
waarde per Aandeel

Per de datum van het Prospectus bedraagt het aandelenkapitaal
van de Vennootschap €6,000,000, bestaande uit 300,000,000
Gewone Aandelen met een nominale waarde van €0,01 peraandeel en 300,000,000 preferente aandelen met een nominale
waarde van €0,01 per aandeel (de “Preferente Aandelen”, engezamenlijk met de Gewone Aandelen, de “Aandelen”). Het
geplaatste en uitstaande aandelenkapitaal van de Vennootschapis €1, bestaande uit honderd Gewone Aandelen en geen
Preferente Aandelen.

nominale

Per de datum van het Prospectus houdt de Vennootschap geen
Gewone Aandelen.
C.4

Rechten verbonden aan de Aandelen

Elke verwijzing hieronder naar de “Statuten” is een verwijzing
naar de statuten van de Vennootschap zoals deze luiden na dedatum waarop betaling (in euro’s) voor en levering van de
Aangeboden Aandelen (de Afwikkeling) plaatsvindt hetgeen
wordt verwacht plaats te vinden op of omstreeks 31 mei 2016,
onder voorbehoud van inkorting of verlenging van het
tijdschema voor de Aanbieding (de “Afwikkelingsdatum”).
Op de Gewone Aandelen rust een dividendrecht. Elk Gewoon
Aandeel geeft recht tot het uitbrengen van één stem tijdens de
Algemene Vergadering. Het stemrecht is niet aan beperkingen
onderhevig.
Bij de uitgifte van Gewone Aandelen tegen contante betaling
wordt aan elke Aandeelhouder een voorkeursrecht toegekend inverhouding tot de nominale waarde van zijn totale Gewone
Aandelen. Het voorkeursrecht geldt niet ten aanzien van
Aandelen die tegen inbreng in natura worden uitgegeven,
Aandelen die worden uitgegeven aan werknemers van deVennootschap of van een Groepsmaatschappij, of Aandelen die
worden uitgegeven aan een persoon die een eerder toegekend
recht tot het nemen van Aandelen uitoefent.
33

De raad van bestuur van de Vennootschap (de “Raad van
Bestuur”) kan besluiten het voorkeursrecht te beperken of uit
te sluiten, voor zover de Raad van Bestuur door de Algemene
Vergadering daartoe is aangewezen. Indien de Raad van
Bestuur niet bevoegd is om te beslissen tot uitgifte van
Aandelen, is de Algemene Vergadering, op voorstel van deRaad van Bestuur, bevoegd tot het beperken of uitsluiten vanvoorkeursrechten. Een dergelijk voorstel moet worden
goedgekeurd door de raad van commissarissen van deVennootschap (de “Raad van Commissarissen”). Voor een
besluit van de Algemene Vergadering is een meerderheid
vereist van ten minste twee derde van de uitgebrachte stemmen
indien minder dan de helft van het geplaatste aandelenkapitaal
in de Algemene Vergadering is vertegenwoordigd.
Bij de uitgifte van Preferente Aandelen bestaat geenvoorkeursrecht. Houders van Preferente Aandelen hebben geenvoorkeursrecht ten opzichte van Gewone Aandelen.
Zoals hierboven uiteengezet, is de Raad van Bestuur door de
Algemene Vergadering gemachtigd te besluiten tot de uitgifte
van Gewone Aandelen, tot het verlenen van rechten tot het
nemen van Gewone Aandelen en tot het beperken en/of
uitsluiten van het wettelijk voorkeursrecht met betrekking tot
de uitgiftes van Gewone Aandelen of de verlening van rechten
tot het nemen van Aandelen. Genoemde machtiging van deRaad van Bestuur is beperkt tot 10% van het totale nominale
geplaatste aandelenkapitaal van de Vennootschap per deAfwikkelingsdatum plus een extra 10% van het nominale
geplaatste aandelenkapitaal van de Vennootschap per deAfwikkelingsdatum in verband met of in het geval van fusies
en overnames en strategische allianties en is met ingang vandie datum 18 maanden geldig.
C.5

Beperkingen op de overdraagbaarheid Voor een overdracht van een Aandeel of een beperkt recht op
van de Aangeboden Aandelen
dat Aandeel is een akte van overdracht en de schriftelijke
erkenning van de overdracht door de Vennootschap vereist.
Een Aandeel wordt een giraal aandeel door overdracht ofuitgifte aan het Nederlands Centraal Instituut voor Giraal
Effectenverkeer B.V. (“Euroclear Nederland”) of aan een
tussenpersoon, met schriftelijke vermelding dat het aandeel een
giraal aandeel is. Het girale aandeel moet worden opgenomen
in het aandeelhoudersregister van de Vennootschap op naam
van Euroclear Nederland of de desbetreffende tussenpersoon,
met de schriftelijke vermelding dat het een giraal aandeel
betreft. Girale aandeelhouders worden niet opgenomen in het
aandeelhoudersregister van de Vennootschap. Girale aandelen
kunnen uitsluitend worden geleverd vanuit een collectief depotof girodepot met inachtneming van de toepasselijke bepalingenvan de Wet giraal effectenverkeer. De overdracht door een
girale aandeelhouder van zijn girale rechten vindt plaats inovereenstemming met de bepalingen van de Wet giraal
effectenverkeer. Hetzelfde geldt voor de vestiging van een
pandrecht en de vestiging of overdracht van een vruchtgebruik
op deze girale rechten.

C.6

Notering en toelating tot de handel
van de Aangeboden Aandelen

Er bestaat voorafgaand aan de Aanbieding geen openbaremarkt voor de Gewone Aandelen. Er is een aanvraag ingediendvoor een notering van alle Gewone Aandelen aan Euronext
Amsterdam onder het symbool “LIGHT” met ISIN code
NL0011821392. Afhankelijk van eventuele inkorting of34

verlenging van het tijdschema van de Aanbieding, wordt
verwacht dat de handel in de Aangeboden Aandelen aan
Euronext Amsterdam zal beginnen, op een as-if-and-whendelivered basis, op of omstreeks 27 mei 2016 (de “Eerste
Handelsdag”).
C.7

Dividendbeleid

De Vennootschap streeft naar een jaarlijkse contante
dividenduitkering van 40% tot 50% van de gecorrigeerde netto
inkomsten.2 De Vennootschap verwacht de eerste dividenduitkering
te kunnen doen in 2017, en deze zal zijn gebaseerd op de resultaten
over heel 2016. Er kunnen geen garanties worden gegeven dat ineen bepaald jaar dividend zal worden uitgekeerd. De eventuele
uitkering van dividend en de bedragen en timing daarvan zullen vanverschillende factoren afhankelijk zijn, waaronder toekomstige
resultaten, winsten, financiële en algemene economische en
bedrijfsomstandigheden, prognoses en al die factoren die de Raadvan Bestuur mogelijk van belang acht alsook andere eisen in wet- enregelgeving; veel van deze factoren kunnen buiten de macht van deVennootschap liggen. Er kunnen geen garanties worden gegeven dat
de prestaties van de Groep de naleving van het dividendbeleid of
een verhoging van het dividendpercentage mogelijk zullen maken,
en in het bijzonder zal de Vennootschap mogelijk minder of geen
dividend kunnen uitkeren als een van de in dit Prospectus
beschreven risico’s zich voordoet. Verder zal de Raad van Bestuur
het dividendbeleid van de Vennootschap van tijd tot tijd herzien eneventueel wijzigen.
Afdeling D – Risico’s

D.1

Selectie van belangrijkste risico’s

Het volgende is een selectie van de belangrijkste risico’s die
betrekking hebben op de industrie, onderneming en
bedrijfsactiviteiten van de Groep, de Afsplitsing en de
oprichting van de Vennootschap als een onafhankelijke
beursgenoteerde onderneming, juridische en nalevingsrisico’s,
financiële risico’s, risico’s die samenhangen met de Gewone
Aandelen en risico’s die samenhangen met de Aanbieding en
de Aangeboden Aandelen. Bij het maken van de selectie heeftde Groep onder meer rekening gehouden met dewaarschijnlijkheid naar huidige omstandigheden dat het risicozich verwezenlijkt, de mogelijke impact die een
verwezenlijking van het risico zou kunnen hebben op de
onderneming, de financiële situatie, het operationeel resultaat
en vooruitzichten van de Groep, en de aandacht die dezerisico’s naar de huidige verwachting bij verwezenlijking
behoeven van het management van de Groep. Beleggers dienen
alle risico’s te lezen, te begrijpen en te overwegen, welke
risico’s materieel zijn en in hun geheel gelezen dienen teworden in het hoofdstuk “Risk Factors” beginnend op pagina
51 van het Prospectus, voordat zij een beslissing nemen om inde Aangeboden Aandelen te beleggen.
•2

Met haar wereldwijde en cyclische activiteiten is de Groepgevoelig voor negatieve economische en politieke
ontwikkelingen in landen en industrieën over de hele
wereld.

Gecorrigeerde netto inkomsten worden gedefinieerd als netto inkomsten uit normale bedrijfsactiviteiten, ofwel netto inkomsten met
uitzondering van uitzonderlijke bedrijfsactiviteiten en materiële niet-terugkerende items.

35•

In de verlichtingsindustrie is een technologische transitie
gaande van conventionele verlichtingstechnologieën naar
LED-verlichtingstechnologieën en het is mogelijk dat de
Groep er niet in slaagt hiermee succesvol om te gaan.

•

Snelle technologische veranderingen en de overgang vanconventionele verlichtingstechnologieën naar LEDverlichtingstechnologieën kunnen het bedrijfsmodel van
de Groep ontwrichten en vragen mogelijk om andere
aanpassingen van het bedrijfsmodel, met inbegrip van
verkoop en marketing, onderzoek en ontwikkeling,
toeleveringsketenbeheer en inkoopprocessen.

•

De lichtmarkt waarin de Groep opereert, kent een sterke
concurrentie aangezien daarin naast andere traditionele
verlichtingsfabrikanten op de markt van LED-verlichting
ook nieuwkomers over de hele wereld actief zijn.
Bovendien zal het concurrentielandschap wellicht
veranderen onder invloed van toenemende verticale
integratie.

•

De Groep heeft aanzienlijk geïnvesteerd in deontwikkeling van haar aanbod van verlichtingssystemen(waaronder
connected
verlichtingssystemen)enverlichtingsdiensten. Het is niet gegarandeerd dat destrategie van de Groep op dit punt met succes zal wordengeïmplementeerd of dat de Groep de verwachte opbrengst
van deze strategie volledig zal kunnen genereren.

•

De huidige en toekomstige programma’s van de Groep
voor bedrijfstransformatie zijn kostbaar of kunnen dat inde toekomst worden, worden mogelijk niet succesvolgeïmplementeerd en leiden mogelijk niet tot de verwachte
mate van prestatieverbetering van de Groep.

•

De Groep zal van tijd tot tijd aankopen doen en anderetransacties aangaan ter aanvulling of uitbreiding van haarhuidige onderneming. De Groep zou evenwel niet kunnenslagen in het doen van geschikte aankopen tegen de juiste
prijs en het integreren daarvan in haar bedrijfsactiviteiten,en aankopen leiden mogelijk tot een verschuiving van deaandacht van management.

•

Als gevolg van de Afsplitsing heeft de Vennootschap voor
dit Prospectus, op basis van “carve-out” financiële
informatie, een Gecombineerde Jaarrekening van deGroep opgemaakt. De financiële informatie in dit
Prospectus verschilt daarom van de financiën waarvan
sprake was geweest als de Vennootschap een
onafhankelijke vennootschap was geweest en deze
informatieisderhalveniet
noodzakelijkerwijs
representatief voor de historische of toekomstige positie
vandeVennootschapalseenafzonderlijke
beursgenoteerde onderneming.

•

De daadwerkelijke pensioenverplichtingen en kosten na deAfsplitsing kunnen aanmerkelijk verschillen van wat
wordt weergegeven in de Gecombineerde Jaarrekening.

•

De Groep zou er niet in kunnen slagen een nieuwe
bedrijfs- en merkidentiteit te creëren.

36

D.2

Belangrijkste risico’s die kenmerkend
zijn voor de Groep•Het verleden van de gecombineerde Groep, de Afsplitsing
van de Groep van Koninklijke Philips en de Aanbiedingkunnen nadelige fiscale gevolgen hebben.

•

De Groep opereert in meerdere jurisdicties en moet zich
houden aan de fiscale wetgeving van die jurisdicties, endat brengt fiscale risico’s voor de Groep met zich mee.

Het volgende is een samenvatting van alle andere belangrijksterisico’s die betrekking hebben op de industrie, onderneming en
bedrijfsactiviteiten van de Groep, de Afsplitsing en de
oprichting van de Vennootschap als een onafhankelijke
beursgenoteerde onderneming, juridische en nalevingsrisico’s,
financiële risico’s, risico’s die samenhangen met de Gewone
Aandelen en risico’s die samenhangen met de Aanbieding en
de Aangeboden Aandelen. Beleggers dienen alle risico’s telezen, te begrijpen en te overwegen, welke risico’s materieelzijn en in hun geheel gelezen dienen te worden in het hoofdstuk“Risk Factors” beginnend op pagina 51 van het Prospectus,
voordat zij een beslissing nemen om in de Aangeboden
Aandelen te beleggen.
Risico’s voor de industrie, onderneming en bedrijfsactiviteiten
van de Groep•

Er bestaat geen garantie dat de strategie van de Groep ten
aanzien van deze overgang van conventionele
verlichtingstechnologieën
naar
LEDverlichtingstechnologieën, naast het optimaliseren van het
genereren van kasstromen uit de onderneming rond
conventionele lampen, succesvol zal zijn.

•

Een belangrijk deel van de bestaande operationele
fabrieken van de Groep is overbodig geworden of zal
overbodig worden als gevolg van de overgang vanconventionele verlichtingstechnologieën naar LEDverlichtingstechnologieën, hetgeen heeft geresulteerd in en
naar verwachting zal blijven resulteren in een aanzienlijke
kostenpost voor de Groep.

•

De Groep slaagt er mogelijk niet in de sterk afkalvende
prijzen die kenmerkend zijn voor de markt van LEDlampen op te vangen door middel van grotere volumes,
productiviteitsverbetering,productinnovaties
enkostenbeheersing.

•Of en in welke mate de Groep in staat is om effectief te
concurreren hangt af van haar vermogen om met haarproducten, systemen en diensten onderscheidend te zijnten opzichte van haar concurrenten.

•

Initiatieven tot kostenbesparingen die nodig zijn voor het
behoud en de verhoging van winstmarges en grotere
kasstromen, hebben mogelijk niet het gewenste effect.

•

De onderneming van de Groep kan grote negatieve gevolgen
ondervinden van verlies van belangrijke klanten of wijzigingenvan de inkoopvoorwaarden van belangrijke klanten.

•

De fabrieks- en leveringsactiviteiten van de Groep
verschuiven van een in-house-productiemodel naar een“asset-light”-outsourcing model, dat de Groep in
toenemende mate afhankelijk maakt van externe
leveranciers en een effectief toeleveringsketenbeheer.
37

•

De Groep is voor bepaalde cruciale componenten en
grondstoffen afhankelijk van externe leveranciers, wat het
risico van prijsverhogingen of tekorten met zichmeebrengt.

•

De Groep steunt voor haar wereldwijde distributie van
LED-lampen op de fabricage daarvan in Azië, en kan
daardoor te maken hebben met lange levertijden.

•

Hoge vaste kosten van de Groep kunnen, in combinatie
met lage opbrengsten, in moeilijke marktomstandigheden
een negatief effect hebben op de resultaten van de Groep.

•

De Groep kan verliezen lijden in verband met het
binnenhalen, uitvoeren en beheren van complexe
verlichtingsprojecten.

•

De Groep heeft minder dan 100% van de aandelen in handen
van sommige van haar vennootschappen en neemt deel aan
joint ventures of gelieerde vennootschappen waarvan deeigendomsstructuur bepaalde risico’s met zich meebrengt.

•

De Groep zal van tijd tot tijd met bepaalde productlijnen,
ondernemingen of markten willen stoppen maar slaagt
daar mogelijk niet in.

•

Het risico van onbevoegd gebruik van intellectuele
eigendomsrechten van de Groep kan mogelijk schadeberokkenen aan de onderneming, de bedrijfsresultaten ende financiële toestand van de Groep.

•

De Groep heeft voor haar producten en diensten mogelijk
toegang nodig tot intellectuele eigendomsrechten vanderden en derden kunnen intellectuele eigendomsrechten
inroepen tegen de Groep.

•

De Groep stelt hoge kwaliteitseisen aan haar producten
maar het kan zijn dat producten gebreken vertonen of
anderszins niet aan de eisen voldoen. Kwaliteitsgebreken
kunnen leiden tot minder verkopen en kosten in verband
met garantie of productaansprakelijkheidsclaims dan wel
het terugroepen van gebrekkige producten.

•

De Groep kan aanzienlijke verliezen lijden ingeval van
een natuurramp, terroristische aanslag of andere calamiteit
in markten waarin zij actief is.

•

De Groep gaat uit van een ononderbroken verloop van
haar
productiestromenenbeschikbare
informatietechnologiesystemen (“IT”), en loopt het risicovan onderbreking, verlies van gegevens, bedreigingen vande IT-veiligheid, computercriminaliteit en inbreuken op devertrouwelijkheid en integriteit van gegevens.

•

De Groep is afhankelijk van haar personeel waar het gaatom leidinggeven en specialistische vakkennis. Wanneer
zij niet meer in staat is dergelijk personeel aan te trekken
en te behouden, kan dit haar onderneming negatiefbeïnvloeden.

•

De Groep is afhankelijk van haar relatie met haarwerknemers. Stakingen en andere arbeidsconflicten alsook
loonstijgingen of indirecte arbeidskosten kunnen een
substantieel, nadelig effect hebben voor haaronderneming.
38

Risico’s die samenhangen met de Afsplitsing en de
oprichting van de Vennootschap als een onafhankelijke
beursgenoteerde onderneming•

De Groep steunt na de Afsplitsing op Koninklijke Philips
voor het leveren van bepaalde diensten waaronder ITdiensten, en het is mogelijk dat de Groep niet in staat zal
zijn om tijdig en kosteneffectief die wijzigingen door tevoeren die nodig zijn om als een volledig onafhankelijke
vennootschap te kunnen opereren.

•

De Groep zou aanspraken op essentiële intellectuele
eigendomsrechten kunnen verliezen als gevolg van het feit dat
zij niet meer een bedrijfsonderdeel van Koninklijke Philips is.

•

Potentiële vrijwaringsverplichtingen jegens Koninklijke
Philips ingevolge de overeenkomst tussen Philips Lighting
Holding B.V. en de Verkopende Aandeelhouder van
1 februari 2016 ter zake van de Afsplitsing (de“Afsplitsingsovereenkomst”) zouden voor de Groep
substantiële verplichtingen tot gevolg kunnen hebben.

•

In verband met de Afsplitsing stemt Koninklijke Philips
ermee in de Groep te vrijwaren tegen bepaalde
aansprakelijkheden. Er bestaat evenwel geen garantie dat
de vrijwaring voldoende is om de Groep te beschermentegen het volledige bedrag van zulke aansprakelijkheden,of dat Koninklijke Philips ook in de toekomst in staat zal
zijn aan haar vrijwaringsverplichting te voldoen.

•

Na de Aanbieding zal Koninklijke Philips nog steeds in een
positie verkeren waarin zij substantieel invloed kan uitoefenen
op de Vennootschap, en haar belangen kunnen afwijken vandie van de overige Aandeelhouders van de Vennootschap.

•

Als onafhankelijk opererende Vennootschap kan deVennootschap te maken krijgen met een toename inadministratieve, financiële en aanverwante kosten.

Juridische en nalevingsrisico’s•

De Groep is of kan in de toekomst worden betrokken bij
juridische procedures.

•

Wezenlijke veranderingen in toepasselijke wet- enregelgeving dan wel in de interpretatie of handhaving
daarvan, zouden de onderneming, de bedrijfsresultaten, definanciële toestand en de vooruitzichten van de Groepernstig kunnen schaden.

•

De onderneming, de bedrijfsresultaten, de financiële
toestand en de vooruitzichten van de Groep zouden ernstig
nadelig kunnen worden geraakt door schendingen van
mededingingswetten.

•

De onderneming en de bedrijfsactiviteiten van de Groep
zouden ernstige nadelige gevolgen kunnen ondervinden
van schendingen van de U.S. Foreign Corrupt Practices
Act, de United Kingdom Bribery Act 2010 of vanvergelijkbare anti-omkopingswetgeving in andere landen.

•

De Groep moet zich houden aan strenge wetgeving op het
gebied van de bescherming van persoonsgegevens en
loopt daarom risico op hogere nalevingskosten en
inbreuken op vertrouwelijkheid en beveiliging.
39

•De onderneming en de bedrijfsactiviteiten van de Groep
zouden nadelige gevolgen kunnen ondervinden vanschendingen van wetgeving inzake exportcontrole eninternationale sancties.

•

De Groep wordt blootgesteld aan risico’s met betrekking
tot financiële rapportage en interne controles.

•

De Groep staat bloot aan milieu-aansprakelijkheidsrisico’s,moet voldoen aan milieuregelgeving en maakt kosten om aanzulke regels te voldoen.

Financiële risico’s

D.3

Belangrijke risico’s verbonden aan
de Aandelen en de Aanbieding•

De Groep loopt wisselkoersrisico’s, met name ten
opzichte van de euro.

•

De Groep loopt het risico van beperkte toegang tot
schuldfinanciering.

•

De Groep loopt renterisico’s.

•

De Groep zou nadelige invloed kunnen ondervinden vanbeperkingen op grond van regelgeving ten aanzien van
grensoverschrijdende
betalingsstromenofvalutaomrekeningen.

•

De Groep staat bloot aan tegenpartijrisico/kredietrisico
van klanten en financiële instellingen.

•

De Groep staat bloot aan verschillende fiscale
onzekerheden met mogelijk aanzienlijke gevolgen voor
lokale fiscale resultaten.

•

Het risico bestaat dat de Groep te maken krijgt met
waardevermindering van goodwill van aangekochte
bedrijven.

•

De Groep heeft in verschillende landen pensioenregelingenen ziektekostenregelingen voor gepensioneerden. De
dekkingsstatus en de kosten om deze regelingen in stand tehouden staan onder invloed van bewegingen in definanciële markten en demografische ontwikkelingen, endeze regelingen zouden een negatief effect kunnen hebben
op de financiële situatie van de Groep.

Risico’s die samenhangen met de Gewone Aandelen•

Of en in welke mate in de toekomst dividend wordt
uitgekeerd, hangt af van de bedrijfsresultaten en definanciële staat van de Groep en van de resultaten, en vande uitkeringen aan de Vennootschap door dewerkmaatschappijen binnen de Groep.

•

De marktprijs van Gewone Aandelen kan nadelig beïnvloed
worden door toekomstige uitgifte door de Vennootschap van
Gewone Aandelen of schuldinstrumenten of andere effecten
die converteerbaar zijn in Gewone Aandelen, of detoekomstige verkoop van een aanzienlijk aantal Gewone
Aandelen door Koninklijke Philips of de verwachting dat dit
gaat gebeuren, en door een toekomstige uitgifte van Gewone
Aandelen kan het aandelenbezit van bestaande
Aandeelhouders verwateren. Hoewel verwacht wordt dat deVennootschap en Koninklijke Philips in de Underwriting
Overeenkomst (zoals hierna gedefinieerd) instemmen met
bepaalde beperkingen ten aanzien van de uitgifte, verkoop of40

overdracht van Gewone Aandelen gedurende een periode van
180 dagen na de Afwikkelingsdatum, zijn de Joint Global
Coordinators (zoals hierna gedefinieerd) gerechtigd, geheelnaar eigen inzicht en op elk moment, afstand te doen van diebeperkingen.
•Houders van Gewone Aandelen buiten Nederland zijn
mogelijk niet in staat om hun voorkeursrecht uit teoefenen bij toekomstige aanbiedingen, en kunnen als
gevolg daarvan verwatering ervaren.

•

Bepalingen in de Statuten en in contracten die de Groep isaangegaan, kunnen vertragend werken ingeval van
pogingen tot overname die gunstig zouden kunnen zijnvoor de houders van Gewone Aandelen, of deze pogingenzelfs verhinderen.

Risico’s die samenhangen met de Aanbieding en de
Aangeboden Aandelen•

De Gewone Aandelen zijn voorafgaand aan de Aanbieding
niet op de publieke markt verhandeld en er is geen enkele
garantie dat er een actieve en liquide markt voor de
Aandelen ontstaat.

•

De marktprijs van de Gewone Aandelen van deVennootschap kan aanzienlijk fluctueren en het risico
bestaat dat beleggers hun gehele inleg of een deel ervankwijtraken.

•

Als de afwikkeling van de Aanbieding niet plaatsvindt,
worden inschrijvingen op de Aangeboden Aandelen buiten
beschouwing gelaten en gaan transacties in de
Aangeboden Aandelen die reeds zijn uitgevoerd, teniet.

Afdeling E – Aanbieding
E.1

Netto opbrengst en geschatte kosten

De Vennootschap zal geen opbrengsten van de Aanbieding
ontvangen; de netto opbrengst is bestemd voor de Verkopende
Aandeelhouder.
Na aftrek van de met de Aanbieding verband houdende kosten,commissies en belastingen van circa €47.000.000, die de
Verkopende Aandeelhouder verschuldigd is, verwacht deVerkopende Aandeelhouder een netto opbrengst te ontvangenvan €721.750.000. Dit is gebaseerd op een Aanbiedingsprijs in
het midden van de Bandbreedte van de Aanbiedingsprijs (zoals
hierna gedefinieerd) en op basis van de verwachting dat alle
Aangeboden Aandelen door de Verkopende Aandeelhouder
worden verkocht en dat de door de Verkopende Aandeelhouder
in verband met de Aanbieding te verlenen overtoewijzingsoptie(de “Overtoewijzingsoptie”) niet wordt uitgeoefend.
De door de Vennootschap verschuldigde kosten, commissies enbelastingen in verband met de Aanbieding bedragen naar
schatting €47 miljoen met inbegrip van onder meer de aan de
Nederlandse Stichting Autoriteit Financiële Markten (“AFM”)
en Euronext Amsterdam verschuldigde bedragen, de commissie
voor de Underwriters (zoals hierna gedefinieerd) alsook deoverige juridische en administratieve kosten en eventuele
kosten van publicatie en toepasselijke belastingen.

41

E.2a

Redenen voor de Aanbieding en
bestemming van de opbrengsten

Op 23 september 2014 kondigde de Verkopende Aandeelhouder
aan zijn strategische focus te willen aanscherpen door Koninklijke
Philips op te delen in twee grote vennootschappen voor demarkten van gezondheidstechnologie en verlichting. In een door
Koninklijke Philips op 19 maart 2015 gepubliceerde
aandeelhouderscirculaire, gaf Koninklijke Philips aan dat
gezondheidstechnologie en verlichting beide aantrekkelijke
eindmarkten zijn, maar dat deze markten elk hun eigen unieke
klantbehoeften,value
drivers,
industrietrends
enconcurrentiedynamiek kennen. Daarom achtte Koninklijke Philips
de tijd rijp voor de oprichting van twee onafhankelijke
vennootschappen, ieder met de focus op haar eigen eindmarkt:•

Koninklijke Philips, dat zich richt op nieuwe kansen op
het gebied van gezondheidstechnologie door haarbestaande gezondheidszorg- en consumentenlifestyleondernemingen te combineren; en•de Groep, die de bestaande verlichtingsonderneming van
Koninklijke Philips zal voortzetten (met uitzondering van
Lumileds, dat onderdeel zal blijven van Koninklijke
Philips) en die zich zal richten op verdere groei in LEDverlichtingsproducten, -systemen en -diensten.

De Groep meent, en Koninklijke Philips heeft de Groep laten
weten dat ook zij meent, dat de Groep, als onderneming diezich na de Afsplitsing uitsluitend zal richten op verlichting, een
sterke positie zal hebben voor het leveren van aandeelhoudersen ondernemingswaarde, en wel om de volgende redenen:•de Afsplitsing zal de Groep in staat stellen zich te richten op
haar eigen bedrijfsprioriteiten en strategieën waardoor zij
deze effectiever gestalte zal kunnen geven, en deAfsplitsing zal het management van de Groep in staat
stellen zich uitsluitend te concentreren op de behoeften vande verlichtingsonderneming en duidelijke kansen te creëren
voor groei en winstgevendheid op de lange termijn;•

de Afsplitsing zal de Groep toestaan haar financiële
middelen uitsluitend in te zetten voor haar eigen
activiteiten, met aldus grotere flexibiliteit voor
kapitaalinvesteringen in de onderneming op een voor haarstrategie en bedrijfsbehoeften geschikt moment en
passende wijze waardoor er een efficiëntere verdeling van
kapitaal mogelijk zal zijn;•

door de Afsplitsing ontstaat een afzonderlijk
verlichtingsbedrijf
meteen
vereenvoudigdeorganisatiestructuur en een grotere focus op de behoeftenvan de verlichtingsonderneming die een snellere
besluitvorming en meer flexibiliteit mogelijk maakt, deconcurrentiepositie van de Groep versterkt en haar in staat
stelt
snellertereagerenopveranderende
consumentenbehoeften en marktbewegingen;•de Afsplitsing zal een onafhankelijke vermogensstructuurcreëren die de Groep directe toegang tot kapitaalmarkten
geeft en die de Groep in staat stelt te profiteren van haargroeimogelijkheden en om in de toekomst te gaan
investeren (waaronder ook begrepen overnames), zo nodig
met gebruikmaking van haar gewone aandelen; en42•door de Afsplitsing worden stimuleringsregelingen voor
werknemers van de Groep mogelijk die directer
samenhangen met de prestatie van de onderneming van deGroep en zal de werving en het behoud van werknemers
kunnen verbeteren door, onder andere, een betere
afstemming van incentives voor management en
werknemers met prestaties en groeidoelen.

Hoewel de Vennootschap meent dat zij om deze redenen een
goede positie heeft om aandeelhouders- en ondernemingswaarde
te leveren, kan de Vennootschap niet garanderen dat de hiervoor
beschreven of andere voordelen na de Afsplitsing zullen worden
gerealiseerd, noch dat dit zal gebeuren in de verwachte mate.
De Vennootschap zal geen inkomsten uit de Aanbieding
ontvangen.
E.3

Algemene voorwaarden van de
Aanbieding

Aangeboden Aandelen
De Verkopende Aandeelhouder zal 37.500.000 Aangeboden
Aandelen aanbieden. De Aanbieding bestaat uit (i) een
openbare aanbieding aan institutionele beleggers en particuliere
beleggers in Nederland en (ii) een onderhandse plaatsing bij(a) beleggers buiten Nederland en de Verenigde Staten (de“V.S.” of “Verenigde Staten”), met inachtneming van
toepasselijke uitzonderingen op de prospectusvereisten en(b) beleggers in de Verenigde Staten waarvan redelijkerwijs
kan worden aangenomen dat het gaat om “gekwalificeerde
institutionele kopers” (“qualified institutional buyers” of“QIB’s”) zoals gedefinieerd in Rule 144A onder de U.S.
Securities Act van 1933, zoals gewijzigd (de “U.S. SecuritiesAct”) (“Rule 144A”). Alle aanbiedingen en verkopen in deVerenigde Staten zullen uitsluitend worden gedaan aan
personen van wie redelijkerwijs kan worden aangenomen dat
zij QIB’s ingevolge Rule 144A zijn. Alle aanbiedingen en
verkopen buiten de Verenigde Staten zullen plaatsvinden inovereenstemming met Regulation S onder de U.S. Securities
Act (“Regulation S”). De Aanbieding vindt uitsluitend plaats indie jurisdicties waarin, en uitsluitend aan personen aan wie deAanbieding rechtsgeldig gedaan mag worden.
Overtoewijzingsoptie
De Verkopende Aandeelhouder verwacht de Joint Global
Coordinators, handelend namens de Underwriters (zoals hierna
gedefinieerd), een Overtoewijzingsoptie toe te kennen, die binnen
30 kalenderdagen na de Eerste Handelsdag moet worden
uitgeoefend, en op grond waarvan de Stabilisatiemanager (zoals
hierna gedefinieerd) van de Verkopende Aandeelhouder kan eisen
dat hij maximaal 5.625.000 Overtoewijzingsaandelen, die maximaal
15% van het totaal aantal Aangeboden Aandelen dat verkocht wordt
in de Aanbieding (de “Overtoewijzingsaandelen”), verkoopt tegende Aanbiedingsprijs om eventuele short posities te dekken die
ontstaan zijn door overtoewijzing in verband met de Aanbieding.
Aanbiedingsperiode
Behoudens inkorting of verlenging van het tijdschema voor de
Aanbieding, kunnen toekomstige beleggers zich inschrijven op
Aangeboden Aandelen gedurende de periode vanaf 9:00 uur
Midden-Europese Tijd (“CET”) op 16 mei 2016 tot 12:00 CET
op 26 mei 2016 (de “Aanbiedingsperiode”).

43

De Aanbiedingsperiode voor Nederlandse Particuliere Beleggers(zoals hierna gedefinieerd) sluit om 17:30 CET op 25 mei 2016.
Aanbiedingsprijs en aantal Aangeboden Aandelen
De Aanbiedingsprijs zal naar verwachting liggen tussen €18,50
en €22,50 per Aangeboden Aandeel (de “Bandbreedte van de
Aanbiedingsprijs”). De Aanbiedingsprijs en het exacte aantal
Aangeboden Aandelen zal worden bepaald op basis van een
book building proces. De Aanbiedingsprijs kan hoger of lager
dan de Bandbreedte van de Aanbiedingsprijs worden gesteld.
De Bandbreedte van de Aanbiedingsprijs is een indicatieve
bandbreedte. De Aanbiedingsprijs en het daadwerkelijke aantal
Aangeboden Aandelen dat wordt aangeboden zal worden
bepaald nadat de Aanbiedingsperiode voorbij is, behoudens
eventuele inkorting of verlenging daarvan, door de Verkopende
Aandeelhouder, na overleg met de Vennootschap en de Joint
Global Coordinators op basis van het book building proces en
met inachtneming van economische en marktfactoren, een
kwalitatieve en kwantitatieve beoordeling van de vraag naar de
Aangeboden Aandelen en overige toepasselijk geachte
factoren. De Aanbiedingsprijs, het daadwerkelijke aantal teverkopen Aangeboden Aandelen en het maximum aantal
Overtoewijzingsaandelen
wordenvermeldineen
prijsverklaring die wordt bekendgemaakt in een persbericht dat
tevens wordt gepubliceerd op de website van de Vennootschap
en wordt ingediend bij de AFM.
Voorafgaand aan de Toewijzing kan het aantal Aangeboden
Aandelen worden verhoogd of verlaagd, en kan de Bandbreedte
van de Aanbiedingsprijs worden aangepast. Beleggers die reeds
hebben ingestemd met de aankoop van of inschrijving op de
Aangeboden Aandelen gedurende de Inschrijvingsperiode
voorafgaand aan de aankondiging van een wijziging
van de Bandbreedte van de Aanbiedingsprijs, hebben het
recht om binnen twee werkdagen na de publicatie van dezeaankondiging, hun instemming in te trekken. Elke wijziging
van de Bandbreedte van de Aanbiedingsprijs op de laatste dag
van de Aanbiedingsperiode heeft tot gevolg dat deAanbiedingsperiode wordt verlengd met ten minste twee
werkdagen; elke wijziging van de Bandbreedte van de
Aanbiedingsprijs op de dag voorafgaand aan de laatste dag vande Aanbiedingsperiode heeft tot gevolg dat deAanbiedingsperiode wordt verlengd met ten minste één
werkdag. In dit geval, wanneer de Aanbiedingsperiode voor de
Nederlandse Particuliere Beleggers reeds zou zijn gesloten,
wordt deze Aanbiedingsperiode voor de Nederlandse
Particuliere Beleggers heropend. Aldus hebben alle beleggers,
ook Nederlandse Particuliere Beleggers, ten minste twee
werkdagen om te beslissen over hun inschrijving. Een
dergelijke wijziging in het aantal Aangeboden Aandelen en/of
de Bandbreedte van de Aanbiedingsprijs zal worden
bekendgemaakt in een persbericht dat op de website van deVennootschap zal worden gepubliceerd. Bij een wijziging van
het aantal Aangeboden Aandelen moeten verwijzingen in dit
Prospectus naar de Aangeboden Aandelen tevens worden
gelezen als verwijzingen naar het gewijzigde aantal
Aangeboden Aandelen en moeten verwijzingen naar
Overtoewijzingsaandelen worden gelezen als verwijzingen naar
het gewijzigde aantal Overtoewijzingsaandelen.

44

Inschrijvingen en toewijzing
Nederlandse Particuliere Beleggers kunnen enkel inschrijven
op basis van een “bestens” order. Dit betekent dat Nederlandse
Particuliere Beleggers verplicht zijn tot koop en betaling van
Aangeboden Aandelen zoals vermeld in hun aanvraag, voor
zover deze aan hen zijn toegewezen, voor de Aanbiedingsprijs,
zelfs als de Bandbreedte van de Aanbiedingsprijs is veranderd.
Nederlandse Particuliere Beleggers hebben het recht hun
aanvraag te annuleren of aan te passen bij de financiële
tussenpersoon waar de aanvraag in de eerste plaats wasingediend ten allen tijde voor het einde van de
Aanbiedingsperiode voor Nederlandse Particuliere Beleggers(indien van toepassing, zoals aangepast of verlengd), voor
welke reden dan ook, inclusief een aanpassing van deBandbreedte van de Aanbiedingsprijs naar boven. Nederlandse
Particuliere Beleggers kunnen hun inschrijving indienen via
hun eigen financiële tussenpersoon. De financiële
tussenpersoon zal verantwoordelijk zijn voor het verzamelen
van inschrijvingen van Nederlandse Particuliere Beleggers en
het indienen van hun inschrijvingen bij ING als de retailcoördinator (de “Retail Coördinator”). De Retail Coördinator
bundelt alle inschrijvingen van Nederlandse Particuliere
Beleggers die door financiële tussenpersonen ingediend zijn op
een geaggregeerde basis en stelt de Joint Global Coördinators,de Vennootschap en de Verkopende Aandeelhouder daarvan in
kennis. Alle kwesties met betrekking tot de tijdigheid,
geldigheid en vorm van instructies aan een financiële
tussenpersoon met betrekking tot de koop van Aangeboden
Aandelen, zullen worden vastgesteld door de financiële
tussenpersonen in overeenstemming met hun gebruikelijke
procedures of anderszins zoals medegedeeld aan de
Nederlandse Particuliere Beleggers. De Vennootschap en de
Verkopende Aandeelhouder zijn niet aansprakelijk voor enige
handelen of nalaten door een financiële tussenpersoon of deRetail Coördinator in verband met enige inschrijving, koop, ofvermeende aankoop, van Aangeboden Aandelen.
Toewijzing van de aangeboden aandelen vindt naar
verwachting plaats na afloop van de Aanbiedingsperiode, op of
omstreeks 26 mei 2016, behoudens eventuele inkorting ofverlenging van het tijdschema voor de Aanbieding. Toewijzing
aan beleggers die hebben aangegeven te willen inschrijven op
Aangeboden Aandelen geschiedt door de Verkopende
Aandeelhouder, na overleg met de Vennootschap en de Joint
Global Coordinators. De Verkopende Aandeelhouder kan
geheel naar eigen inzicht bepalen of en hoe de Aangeboden
Aandelen worden toegewezen. Er is geen minimum of
maximum aantal Aangeboden Aandelen waarop toekomstige
beleggers kunnen inschrijven en het is toegestaan om meerdere(aanvragen voor) inschrijvingen in te dienen. Ingeval op meer
Aandelen wordt ingeschreven dan Aandelen worden
aangeboden, kunnen beleggers minder Aangeboden Aandelen
ontvangen dan waarop zij hebben ingeschreven. De
Verkopende Aandeelhouder, de Vennootschap, de Joint Global
Coordinators en de Joint Bookrunners mogen, geheel naar
eigen inzicht en zonder opgaaf van redenen, inschrijvingen
geheel of gedeeltelijk weigeren. Gelden die zijn ontvangenvoor inschrijvingen die niet (volledig) worden geaccepteerd,
zullen, zonder rente en op risico van de belegger, worden
geretourneerd.
45Preferente toewijzing aan particuliere beleggers
In aanmerking komende particuliere beleggers in Nederland
hebben voorrang bij het toekennen van de Aangeboden
Aandelen in overeenstemming met de toepasselijke wet- enregelgeving (de “Preferente Toewijzing aan Particuliere
Beleggers”). Aan elke in aanmerking komende particuliere
belegger in Nederland (elk een “Nederlandse Particuliere
Belegger”) worden de eerste 250 (of minder) Aangeboden
Aandelen toegewezen waarop hij heeft ingeschreven. Als het
totaal aantal Aangeboden Aandelen waarop Nederlandse
Particuliere Beleggers hebben ingeschreven meer bedraagt dan
10% van het totaal aantal Aangeboden Aandelen (en ervan
uitgaand dat de Overtoewijzingsoptie niet wordt uitgeoefend),
kan de preferente toewijzing aan elke Nederlandse Particuliere
Belegger verhoudingsgewijs worden verlaagd tot de eerste 250(of minder) Aangeboden Aandelen waarop de betreffende
belegger heeft ingeschreven. Dit houdt in dat aan Nederlandse
Particuliere Beleggers mogelijk niet alle eerste 250 (of minder)
Aangeboden Aandelen waarop zij hebben ingeschreven worden
toegewezen. Het exacte aantal Aangeboden Aandelen dat wordt
toegewezen aan Nederlandse Particuliere Beleggers wordt
vastgesteld na afloop van de Aanbiedingsperiode.
De Preferente Toewijzing aan Nederlandse Particuliere
Beleggers zal uitsluitend plaatsvinden ten aanzien van de
Aangeboden Aandelen die maximaal 10% uitmaken van het
totaal aantal Aangeboden Aandelen, met uitzondering van deOvertoewijzingsaandelen. De Verkopende Aandeelhouder kan,na overleg met de Vennootschap en de Joint Global
Coordinators, geheel naar eigen inzicht bepalen of en hoe deovergebleven Aangeboden Aandelen waarop is ingeschrevenzullen worden toegewezen.
In het geval van Preferente Toewijzing aan Particuliere
Beleggers wordt onder een Nederlandse Particuliere Beleggers
verstaan, ofwel: (i) een in Nederland woonachtig natuurlijk
persoon; ofwel (ii) een in Nederland gevestigd speciaal
investeringsvehikel met rechtspersoonlijkheid, opgericht met
als uitdrukkelijk en enig doel vermogensbeheer en/of
pensioenplanning voor een natuurlijk persoon.
Om in aanmerking te komen voor Preferente Toewijzing aan
Particuliere Beleggers, moeten Nederlandse Particuliere Beleggers
hun inschrijving indienen in de periode tussen 9:00 uur CET op
16 mei 2016 en 17:30 CET op 25 mei 2016 via financiële
tussenpersonen. Verschillende financiële tussenpersonen kunnen
deadlines toepassen voor het einde van de Aanbiedingsperiode.
De Retail Coördinator stelt de financiële tussenpersonen in kennis
van het totale aantal Aangeboden Aandelen dat aan hun
respectievelijke Nederlandse Particuliere Beleggers is toegewezen.
Het is aan de financiële tussenpersonen om die Nederlandse
Particuliere Beleggers op de hoogte te brengen van hun
individuele toewijzingen.
Betaling
Het voor de Aangeboden Aandelen verschuldigd bedrag dient
te worden voldaan (in euro’s) en de Aangeboden Aandelen
worden geleverd op de Afwikkelingsdatum. Mogelijk
verschuldigde belastingen en kosten zijn voor rekening van de46

belegger. Aan Nederlandse Particuliere Beleggers kunnen
kosten in rekening worden gebracht door hun financiële
tussenpersonen. Beleggers moeten de Aanbiedingsprijsvolledig in euro’s betalen met terstond beschikbare financiële
middelen op of voor de Afwikkelingsdatum (of eerder ingevalde Aanbiedingsperiode eerder sluit en vaststelling van de prijs
en toewijzing worden vervroegd en de handel en afwikkelingeerder beginnen).
Levering van de Aandelen
De Aangeboden Aandelen worden giraal geleverd met
gebruikmaking van de faciliteiten van Euroclear Nederland.
Levering van de Aangeboden Aandelen vindt plaats op de
Afwikkelingsdatum, via de girale faciliteiten van Euroclear
Nederland, in overeenstemming met de gebruikelijke toepasselijke
afwikkelingsprocedures voor aandelen en tegen betaling (ineuro’s) voor de Aangeboden Aandelen en de eventuele
Overtoewijzingsaandelen, met terstond beschikbare financiële
middelen.
Indiendeafwikkelingnietplaatsvindt
opdeAfwikkelingsdatum zoals gepland, of helemaal niet plaatsvindt,
kan de Aanbieding worden ingetrokken. In dat geval worden
alle inschrijvingen op Aangeboden Aandelen als niet gedaanbeschouwd, worden alle toewijzingen geacht niet te hebben
plaatsgevonden en worden eventueel bij de inschrijving
betaalde gelden geretourneerd, zonder rente of anderevergoeding. Alle handel in Gewone Aandelen voorafgaand aan
de Afwikkeling vindt plaats voor het uitsluitende risico van debetrokken partijen.
Underwriting Overeenkomst
De Vennootschap, de Verkopende Aandeelhouder, en de
Underwriters (zoals hierna gedefinieerd) gaan na het einde vande Aanbiedingsperiode en alleen na prijsbepaling en toewijzing
van alle Aangeboden Aandelen aan investeerders naar
verwachting op of omstreeks 26 mei 2016 een overeenkomst
aan (de “Underwriting Overeenkomst”). Onder devoorwaarden en met inachtneming van de bepalingen in de
Underwriting Overeenkomst, gaan de Underwriters er ieder
afzonderlijk maar niet hoofdelijk mee akkoord kopers aan tebrengen voor deze Aangeboden Aandelen, of, bij gebreke
daarvan, zelf te kopen, en gaat de Verkopende Aandeelhouder
ermee akkoord deze Aangeboden Aandelen tegen de
Aanbiedingsprijs te verkopen aan de kopers die de
Underwriters hebben aangebracht of, bij gebreke daarvan, aande Underwriters zelf.
In de Underwriting Overeenkomst geeft de Vennootschap een
aantal garanties af. Daarnaast vrijwaart de Vennootschap, en,voor een beperkt aantal zaken, vrijwaart de Verkopende
Aandeelhouder, de Underwriters tegen bepaalde verliezen enaansprakelijkheden in verband met de Aanbieding.
De Underwriting Overeenkomst zal bepalen dat de verplichting
van de Underwriters om kopers aan te brengen of, bij gebreke
daarvan, de Aangeboden Aandelen zelf te kopen, isonderworpen aan onder andere de volgende voorwaarden: (i)de goedkeuring door de AFM van het Prospectus is van kracht,(ii) opinies van juridische adviseurs over bepaalde juridische

47zaken zijn verkregen, (iii) de gebruikelijke certificaten zijn
afgegeven door daartoe bevoegde personen, (iv) deafwezigheid van wezenlijke nadelige wijzigingen in de
onderneming van de Groep, (v) het toelaten van de Gewone
Aandelen tot de handel van de Aandelen op Euronext
Amsterdam, en (vi) bepaalde andere gebruikelijke
voorwaarden. De Underwriters hebben het recht afstand tedoen van bepaalde voorwaarden of van een deel daarvan.
Tot de Afwikkelingsdatum hebben de Underwriters, indien zich
bepaalde specifieke gebeurtenissen voordoen, zoals (i)wezenlijk nadelige wijzigingen in de onderneming van deGroep; (ii) het niet-naleven van de afgegeven garanties,
toezeggingen of verplichtingen in de Underwriting
Overeenkomst of (iii) een onware, onjuiste, of misleidende
verklaring in het Prospectus, in de Prijsverklaring, en in elke
andere wijziging of supplement van het Prospectus, het recht deUnderwriting Overeenkomst te beëindigen.
Joint Global Coordinators en Joint Bookrunners
Goldman Sachs International, en J.P. Morgan Securities plc (“J.P.
Morgan”) treden op als joint global coordinators (de “Joint
Global Coordinators”) en, gezamenlijk met Citigroup Global
Markets Limited (“Citigroup”), ING Bank N.V. (“ING”),
Morgan Stanley & Co. International plc (“Morgan Stanley”) en
Société Générale Corporate & Investment Banking (“Société
Générale”) als de joint bookrunners (de “Joint Bookrunners”).
Co-Bookrunners
ABN AMRO Bank N.V. (“ABN AMRO”) en Coöperatieve
Rabobank U.A. (“Rabobank”) treden op als co-bookrunners(de “Co-Bookrunners”).
Underwriters
De Joint Global Coordinators, de Joint Bookrunners en de CoBookrunners treden op als underwriters (de “Underwriters”).
Noteringsagent en betaalkantoor
ING treedt op als noteringsagent (listing agent) en
betaalkantoor (paying agent) met betrekking tot de Gewone
Aandelen aan Euronext Amsterdam.
Retail Coördinator
ING treedt op als retail coördinator met betrekking tot dePreferente Toewijzing aan Particuliere Beleggers.
Stabilisatiemanager
Goldman Sachs International treedt op als stabilisatiemanager (de“Stabilisatiemanager”) met betrekking tot de Aandelen aan
Euronext Amsterdam.
E.4

Materiële
belangenbij
deAanbieding (waaronder begrepen
tegenstrijdige belangen)

Bepaalde Underwriters en N.M. Rothschild & Sons Limited(“Rothschild” of de “Financieel Adviseur”) en/of de met hen
verbonden ondernemingen waren in het verleden betrokken bij
en kunnen in de toekomst van tijd tot tijd betrokken worden bij,
het verlenen van verschillende commerciële bankdiensten,investeringsbankdiensten en financieel advies of andere
diensten in de normale uitoefening van hun bedrijfsvoering aan
de Vennootschap en/of de Verkopende Aandeelhouder of aan
hen verbonden ondernemingen. De Underwriters hebben

48gebruikelijke vergoedingen en commissies voor dezetransacties en diensten ontvangen of zouden deze kunnen
ontvangen.
In het kader van de Aanbieding kan elke Underwriter en elkevan de respectievelijk aan hen gelieerde ondernemingen, voor
eigen rekening handelend als belegger, Aangeboden Aandelen
in de Aanbieding kopen en zulke effecten en Aangeboden
Aandelen of verwante beleggingen in deze hoedanigheid voor
eigen rekening houden, kopen of verkopen en kunnen zij deze
Aangeboden Aandelen of andere beleggingen, anders dan inverband met de Aanbieding, aanbieden of verkopen. Derhalve
moeten verwijzingen in dit Prospectus naar een aanbieding ofplaatsing van Aangeboden Aandelen tevens worden gelezen als
verwijzingen naar een aanbieding of plaatsing van Aangeboden
Aandelen aan een van de Underwriters of een van de aan hen
gelieerde ondernemingen, handelend in die hoedanigheid. De
Underwriters zullen de omvang van dergelijke beleggingen oftransacties alleen bekendmaken als zij daartoe op grond van
wet- of regelgeving verplicht zijn. Daarnaast kunnen bepaalde
Underwriters of de aan hen gelieerde ondernemingen financiële
afspraken (waaronder begrepen swaps) maken met beleggers inverband waarmee zulke Underwriters (of de aan hen gelieerde
ondernemingen) van tijd tot tijd Aangeboden Aandelen kunnen
kopen, houden of verkopen.
Het handelen in de hoedanigheid zoals hiervoor omschreven,kan betekenen dat de belangen van de Underwriters niet gelijk
zijn aan of zelfs strijdig zijn met die van beleggers en de
Vennootschap.
E.5

Persoon of entiteit die deAangeboden Aandelen aanbiedt enlock-up-afspraken

De Joint Global Coordinators zijn gerechtigd om, geheel naar
eigen inzicht en op elk moment, afstand te doen van de hierna
beschreven beperkingen, waaronder die op de verkoop, uitgifte
en overdracht van Gewone Aandelen.
Conform de Underwriting Overeenkomst, wordt verwacht dat
de Vennootschap en de Verkopende Aandeelhouder met deUnderwriters overeenkomen dat zij, tot 180 dagen na de
Afwikkelingsdatum (de lock-up-periode), niet, behoudens voor
zover hierna anders bepaald, zonder de voorafgaande
schriftelijke toestemming van de Joint Global Coordinators: (i)Gewone Aandelen of effecten converteerbaar in, uit te oefenenof inwisselbaar voor Gewone Aandelen of andere aandelen inde Vennootschap rechtstreeks of indirect, zullen uitgeven,aanbieden, verpanden, verkopen, aannemen om te verkopen,
een optie daarop zullen verkopen of verlenen, een recht daarop
zullen verlenen, een garantie of overeenkomst tot de aankoop
ervan zullen overeenkomen, een optie zullen uitoefenen om
deze te verkopen, enige optie of overeenkomst tot verkoop
zullen sluiten, of zullen lenen of op andere wijze zullen
overdragen of afstoten; (ii) swaps of andere overeenkomsten oftransacties zullen aangaan die in het geheel of ten dele,rechtstreeks of indirect het economisch eigendom van Gewone
Aandelen overdraagt, ongeacht of een dergelijke transactie
moet worden afgewikkeld door de levering van Gewone
Aandelen of dergelijke andere effecten, in contanten of op
andere wijze.
Het wordt verwacht dat de leden van de Raad van Bestuur met
de Underwriters overeenkomen dat zij, tot 360 dagen na de49

Afwikkelingsdatum (de lock-up-periode), niet, behoudens voor
zover hierna anders bepaald, zonder de voorafgaande
schriftelijke toestemming van de Joint Global Coordinators: (i)Gewone Aandelen die zij hebben gekocht in de Aanbieding
zoals beschreven in dit Prospectus of effecten converteerbaar
in, uit te oefenen of inwisselbaar voor deze Gewone Aandelenof andere aandelen in de Vennootschap rechtstreeks of indirect,
zullen uitgeven, aanbieden, verpanden, verkopen, aannemenom te verkopen, een optie daarop zullen verkopen of verlenen,
een recht daarop zullen verlenen, een garantie of overeenkomst
tot de aankoop ervan zullen overeenkomen, een optie zullen
uitoefenen om deze te verkopen, enige optie of overeenkomst
tot verkoop zullen sluiten, of zullen lenen of op andere wijze
zullen overdragen of afstoten; (ii) swaps of andere
overeenkomsten of transacties zullen aangaan die in het geheelof ten dele, rechtstreeks of indirect het economisch eigendom
van deze Gewone Aandelen overdraagt, ongeacht of een
dergelijke transactie moet worden afgewikkeld door delevering van deze Gewone Aandelen of dergelijke andere
effecten,incontantenofopanderewijze.
Bovenstaande beperkingen zijn niet van toepassing op: (i) het
accepteren van een algemene aanbieding aan alle houders vande uitgegeven en toegewezen Gewone Aandelen van deVennootschap op voorwaarden waarin al deze houders
hetzelfde worden behandeld en die in alle opzichten
onvoorwaardelijk van toepassing zijn geworden of verklaard of
waarvan het bestuur van de Vennootschap acceptatie heeft
aanbevolen; en (ii) het toekennen van beloningen in opties ofGewone Aandelen door de Vennootschap of de uitgifte vanGewone Aandelen in het geval van uitoefening van door de
Verkopende Aandeelhouder of de Vennootschap aan
werknemers op basis van aandelenparticipatieplannen
toegekende opties die zijn bekendgemaakt of als voorstel ofvoornemen staan beschreven in dit Prospectus en overige
aanbiedingsdocumenten.
E.6

Verwatering

Niet van toepassing. De Aanbieding heeft geen verwaterend
effect aangezien uitsluitend bestaande Aandelen worden
aangeboden.

E.7

Geraamde kosten die de VennootschapofdeVerkopende
Aandeelhouders aan de beleggers inrekening brengen

Niet van toepassing. De Vennootschap en de Verkopende
Aandeelhouder brengen de beleggers geen kosten in rekening
in verband met de Aanbieding.

50

RISK FACTORS
Before investing in the Ordinary Shares, prospective investors should carefully consider the risks anduncertainties described below, together with the other information contained or incorporated by reference in thisProspectus. The occurrence of any of the events or circumstances described in these risk factors, individually or
together with other circumstances, may have a material adverse effect on the business, results of operations,financial condition and prospects of the Group (as defined below). In that event, the value of the Ordinary Shares
could decline and investors may lose part or all of their investment.
All of these risk factors and events relate to contingencies or describe effects which may or may not occur or
may occur in form different from that described below. The Group may face a number of these risks described
below simultaneously and one or more risks described below may be interdependent. The order in which risks
are presented is not necessarily an indication of the likelihood of the risks actually materializing, or of thepotential significance of the risks or of the scope of any potential harm to the business, results of operations,financial condition and prospects of the Group.
The risk factors are based on assumptions that could turn out to be incorrect. Furthermore, although theGroup believes that the risks and uncertainties described below are the material risks and uncertainties
concerning the Group’s business and the Ordinary Shares, they are not the only risks and uncertainties relating
to the Group and the Ordinary Shares. Other risks, facts or circumstances not presently known to the Group, orthat the Group currently deem to be immaterial could, individually or cumulatively, prove to be important andmay have a material adverse effect on the business, results of operations, financial condition and prospects of theGroup. The value of the Ordinary Shares could decline as a result of the occurrence of any such risks, facts orcircumstances or as a result of the events or circumstances described in these risk factors, and investors may losepart or all of their investment.
Prospective investors should read and carefully review the entire Prospectus and should reach their own
views before making an investment decision with respect to any Ordinary Shares. Furthermore, before making an
investment decision with respect to any Ordinary Shares, prospective investors should consult their own
stockbroker, bank manager, lawyer, auditor or other financial, legal and tax advisers and carefully review therisks associated with an investment in the Ordinary Shares and consider such an investment decision in light of
their personal circumstances.
Risks Relating to the Group’s Industry, Business and Operations
1.

As the Group’s business is global and cyclical, it is exposed to adverse economic and politicaldevelopments in countries and industries across the world.

The Company together with its subsidiaries within the meaning of Section 2:24b of the Dutch Civil Code(“DCC”) (each a “Group Company”, and together with the Company, the “Group”) is active in a global
business. The Group’s business environment is influenced by both political and economic conditions in theindividual domestic markets in which the Group operates as well as general global economic and politicaldevelopments.
The Group experienced the impact of adverse macro-economic developments in various geographies during
2015, in particular in China where economic growth was at the lowest level in the last 25 years. Also, theeconomic growth of countries highly dependent on revenues from energy, raw materials and commodities has
been adversely affected by the slowdown of growth in China, most strongly in emerging market countries such as
Brazil, Chile and Colombia. These trends have continued in 2016. In Europe, monetary interventions by theEuropean Central Bank have neither resulted in an increase of inflation nor in stronger economic growth, andeconomic growth and the business environment in the European Union (“EU”) may be adversely affected byother economic and political developments including, among other things, uncertainty arising from the planned
referendum in the United Kingdom on continued membership in the EU and the effects of regional politicalconflicts in the Middle East, Russia and Ukraine and other areas. The disparate macro-economic outlook for themain geographies, political and military conflicts and the unknown impact of U.S. and Eurozone monetary
policies continues to provide uncertainty with respect to consumer and business confidence, the levels of capital
expenditures in general and unemployment levels, which could adversely affect demand for products andservices offered by the Group. Economic and political uncertainty may make it more difficult for the Group to
budget and forecast accurately. The Group may encounter difficulty in planning and managing operations due tounfavorable political factors, including unexpected legal or regulatory changes such as foreign exchange importor export controls, increased regulation, import tariffs, nationalization of assets or restrictions on the repatriationof returns from foreign investments. Given that growth geographies are becoming increasingly important in theGroup’s operations, the above-mentioned risks are expected to grow.
51

In addition, demand for the Group’s products has historically been partly cyclical, with a significant portionof the Group’s business exposed to changes in construction activity, consumer spending and the general
economic environment. This applies in particular to the Group’s professional luminaires, home systems and LED
electronics businesses. The Group’s products are sold in various applications of the general lighting market suchas residential, road and street, architectural, office, industrial, retail and hospitality lighting. The fact that various
products of the Group have different cycles to some extent mitigates but does not eliminate the negative effect ofan economic downturn. Furthermore, as the Group’s main markets are in Europe, the United States, Asia
(including the Middle East and Turkey) and Latin America, economic developments in these regions have andare expected to continue to have the highest impact on the Group’s business activities. For example, in light of
the intensified geopolitical situation in the Middle East and depressed oil prices, the Group wrote down customer
receivables related to long-term overdue balances in Saudi Arabia in the three month period ended 31 March2016. As the economic environment in Saudi Arabia remains difficult, the Group continues to evaluate the statusof customer receivables and may in the future make further write-downs.
The continuation or occurrence of one or more of the above-mentioned adverse developments may have amaterial adverse effect on the business, results of operations, financial condition and prospects of the Group.
2. The lighting industry is in a technological transition from conventional lighting technologies to LED
lighting technologies and the Group may not be successful in addressing this transition.
The Group’s business is primarily focused on the sale of lamps, luminaires, lighting systems and lighting
services in the general lighting market. A significant but decreasing portion of the Group’s sales are derived fromconventional lighting technologies (i.e., 57% of the Group’s sales in 2015 compared to 74% in 2013), while asignificant and increasing portion of the Group’s sales are derived from light emitting diode (“LED”)
technologies (i.e., 43% of the Group’s sales in 2015 compared to 26% in 2013). Conventional lighting
technologies and LED lighting technologies have fundamentally different characteristics. For example,
conventional lamps, such as incandescent lamps, are generally energy intensive and need to be replaced more
frequently than LED lamps as they have a relatively short life expectancy. By contrast, LED lamps are energy
efficient, have a longer life expectancy, generate less heat, provide a greater range of colors, are more easily
controlled (including remotely) and can be digitally connected. LED lamps are increasingly replacing
conventional lamps such as incandescent and fluorescent lamps. In addition, government authorities andconsumers around the world are committed to reducing energy consumption and government measures have beentaken to support energy-saving lighting technology. LED lighting technologies are currently four to five times
more energy-efficient than some conventional lighting technologies, such as incandescent lamps and halogen
lamps, and are expected to become even more efficient.3 Many countries have imposed—or are in the process of
imposing—a phase out on energy inefficient lamps in favor of energy efficient lamps. These trends are expected
to promote increased penetration of LED lighting technologies.
As a result of the foregoing, the transition of the general lighting market in which the Group operates fromproducts based on conventional lighting technologies to products, systems and services based on LED lighting
technologies will have a fundamental effect on the Group. The Group believes that the percentage of its sales
provided by products, systems and services based on LED lighting technologies will continue to increase over the
next years. If the Group fails to adapt its business to adequately address the fundamental transition fromconventional lighting technologies to LED lighting technologies, this may have a material adverse effect on thebusiness, results of operations, financial condition and prospects of the Group. The Group’s business is expected
to face certain specific risks in relation to this transition, as further explained in the following risk factors
mentioned below “There can be no assurance that the Group’s strategy to address the transition fromconventional lighting technologies to LED lighting technologies whilst optimizing cash generation from theconventional lamps business will be successful”, “A significant part of the Group’s existing operational
manufacturing plants has or will become obsolete due to the transition from conventional lighting technologies
to LED lighting technologies, which has resulted in and is expected to continue to result in significant costs to
the Group” and “Rapid technological change and the transition from conventional lighting technologies to LED
lighting technologies may be disruptive and require other adjustments to the Group’s business model, including
to the Group’s sales and marketing, R&D, supply chain management and procurement processes”.
3. There can be no assurance that the Group’s strategy to address the transition from conventional lighting
technologies to LED lighting technologies whilst optimizing cash generation from the conventional lamps
business will be successful.
The Group’s conventional lamps business has historically been the greatest contributor to the Group’s cash
generation. During the transition from conventional lighting technologies to LED lighting technologies, theGroup aims to leverage its conventional lamps business and to carry on managing this business for cash
optimization by continuing to pro-actively manage costs through reductions in its manufacturing footprint. The
3

Source: Boston Consultancy Group (“BCG”), How to Win in a Transforming Lighting Industry, 2015 (“BCG Report”).

52

Group is exposed to the risks that its strategy of optimizing cash generation from the conventional lamps
business may not be successfully implemented or continued and that the Group will not fully realize the expected
benefits of its strategy.
The Group’s strategy is also based on various assumptions regarding the expected speed of the transition to
LED lighting technologies, and a recent market study predicts that the percentage of worldwide lamp revenues
from LED lamps will increase from 24% in 2014 to 64% in 2020.4 Factors that may influence the extent andspeed of the transition from conventional lighting technologies to LED lighting technologies include:•

the further development of the regulatory framework, including government support measures in favor ofenergy-saving lighting technology, phase out of certain inefficient lamps and bans on certain hazardous
materials;•

developments in market prices and products costs for LED products, particularly as a result of research anddevelopment (“R&D”) activities by market participants;•

developments in energy prices;•

acceptance of LED lighting technologies in the consumer segment and by the Group’s customers generally,in particular further education on the weighing of comparably high acquisition costs against durability andenergy savings and the perceived quality of other LED lighting products;•

development of other alternatives to LED lighting technologies, such as more energy efficient conventional
lighting technologies or new lighting technologies; and•developments in individual end markets, such as the construction industry, and consumer spending.

The Group has established certain medium and long term objectives to serve as measures of its operationaland managerial performance, as further explained in “Business—Outlook”. The Group’s ability to achieve thesefinancial objectives is subject to significant business, economic and competitive uncertainties and contingencies,
including with respect to the speed and extent of the transition from conventional lighting technologies to LED
lighting technologies.
However, it is difficult to predict the extent and speed of the transition from conventional lighting technologies
to LED lighting technologies. As a result, the transition may be faster or slower than currently anticipated and themarket may develop differently than anticipated by the Group. The Group expects that its market share in LED
lamps will be smaller than its current market share in conventional lamps. The longer the transition fromconventional lighting technologies to LED lighting technologies persists, the longer there will be an overlap of the
product lifecycles of the Group’s conventional lamps business with those products, systems and services based on
LED lighting technologies. The shorter such transition period, the less cash can be generated from the Group’s
conventional lamps business. Growth in market share in products, systems and services based on LED lighting
technologies at a faster rate than expected by the Group may require the Group to intensify and accelerate its efforts
and investments relating to the transition and the Group may not be as successful as other industry participants indoing so, including in the area of technological innovation, which is a key element of the strategy.
As a result, the Group is exposed to the risk that its assumptions underlying its strategy (including thetiming of the transition from conventional lighting technologies to LED lighting technologies and cash flow
generation from the conventional lamps business) may not be accurate and that its actual results differ materiallyfrom the financial objectives set by the Group. There is no guarantee that the Group’s strategy will be
successfully implemented or continued, or will be effective in addressing the transition from conventional
lighting technologies to LED lighting technologies, any failure of which may have a material adverse effect on
the business, results of operations, financial condition and prospects of the Group.
4.

A significant portion of the Group’s existing operational manufacturing plants has or will become
obsolete due to the transition from conventional lighting technologies to LED lighting technologies,
which has resulted in and is expected to continue to result in significant costs to the Group.

A significant portion of the Group’s operational manufacturing plants is used to produce conventional
lamps. The production process for conventional lamps is significantly different from the production processes
required for LED lamps. Due to the transition from conventional lighting technologies to LED lighting
technologies, over time, the Group expects to use less of its existing operational manufacturing plants and mostof the Group’s conventional lamp plants will become obsolete. In response, the Group has focused on rightsizing its conventional lamp production in line with market demand, as well as moving production to more
efficient manufacturing plants to maintain scale and cost efficiency. The Group may close affected
manufacturing plants or transform such manufacturing plants to produce LED lighting technologies, which ispossible for a limited number of manufacturing plants only. The Group has reduced the number of its operational
manufacturing plants for conventional lamps from 45 in 2008 to 21 by year-end 2015 (out of a total number of 60
4

Source: BCG Report.

53

operational manufacturing plants of the Group) and expects to close further operational manufacturing plants inthe future. As a result, the Group currently expects that it will incur significant additional costs in connection
with future closure or restructuring of remaining manufacturing plants. The timing of such costs will depend
upon various circumstances, in particular the speed and extent of the transition to LED lighting technologies. The
Group’s restructuring costs, which are primarily related to the restructuring, closing down or sale of conventional
lamp manufacturing plants, were €18 million and €28 million in the three months ended 31 March 2016 and2015, respectively, and €90 million, €261 million and €79 million for the years ended 31 December 2015, 2014
and 2013, respectively.
The restructuring, closing down and sale of conventional lamp manufacturing plants over the next few years
will likely result in additional net restructuring costs, including depreciation and impairments relating tooperational manufacturing plants, costs of removal, potential restructuring costs, environmental remediation,
costs for the transfer or dismissal of employees and other costs, and which, if occurring sooner than currently
anticipated by the Group, may have a material adverse effect on the business, results of operations, financial
condition and prospects of the Group. See “Business—Outlook” and “Operational and Financial Review—
Material Factors Affecting Results of Operations—Restructuring costs” for more information.
5.

Rapid technological change and the transition from conventional lighting technologies to LED lighting
technologies may be disruptive and require other adjustments to the Group’s business model, including to
the Group’s sales and marketing, R&D, supply chain management and procurement processes.

Rapid technological change and the transition from conventional lighting technologies to LED lighting
technologies has had, and is expected to continue to have, significant effects on the Group’s business model. In
particular, the longer life expectancy of LED lamps as compared to conventional lamps is expected to lead tolower replacement demand for lamps in the future. As a result, replacements will be less driven by technicallifespan, but by refurbishment cycles (in which luminaires may be replaced together with the light source), which
differ by customer segment. The Group is transforming from a traditional manufacturing company predominantly
focused on conventional lighting products towards an “asset-light” manufacturer and service provider focused on
products, systems (including connected lighting systems) and services based on LED lighting technology. Thischange requires a corresponding shift in the Group’s business model. These business model adjustments haverequired, and are expected to continue to require, among other areas, changes to the Group’s sales and marketing,
R&D, supply chain management and procurement processes, for the following reasons:•Due to the characteristics of LED lighting technology that facilitates lighting control systems, the market forthese systems and related services are expected to become a more important part of the general lighting
market and the Group’s product portfolio. As a result, the Group will need to adapt and educate its sales
force to develop the necessary technical know-how and expertise that is required to meet this shift indemand, in particular with respect to the Group’s projects business where systems and related services are
increasingly sold directly to end users.

•

Despite the longer anticipated life expectancy of LED lamps as compared to conventional lighting products,
the actual product lifecycle of products, systems and services based on LED lighting technologies isgenerally much shorter compared to those based on conventional lighting technologies. These shorter
lifecycles can be explained by the high speed of the technological developments with respect to LED
lighting product features, improvements in cost efficiencies and shorter refurbishment trends for products,
systems and services based on LED lighting technologies. This requires the Group to adapt its R&D profile
to build further capacity in systems and services, which in turn may require higher up-front R&D
expenditures. As a result, the Group will need to adjust and make further investments in its overall businessprocesses, R&D and information technology (“IT”) systems which enable and support development of
products, systems and services based on LED lighting technologies.

•

In the past, the Group’s production processes were primarily organized to produce conventional lighting
products on a large scale. Because LED lighting technologies have been subject to rapid technologicalchange and significant price erosion, supply and demand for LED lighting technologies are more difficult topredict. These factors will require the Group to manage its external suppliers and production levels moreclosely in order to align supply and production levels with actual market demand in order to avoid excessive
or obsolete inventory and associated costs. As a result, the Group will need to improve its flexibility inchanging production levels and adjust its supply chain management accordingly.

•

The supply chain for conventional lamps is largely integrated and predominantly based on in-houseproduction, while almost all of the Group’s LED lamp production is outsourced, except for a relatively
small proportion that is kept in-house for strategic reasons to reduce lead times and to take advantage of theGroup’s conventional lamps infrastructure to manufacture glass LED bulbs. As a result, the Group is
exposed to certain risks as further explained in—“The Group’s manufacturing and supply operations are54

shifting from an in-house production model to an “asset-light” outsourcing model, which makes the Group
increasingly dependent on external suppliers and effective supply chain management” below and will needto adjust its procurement processes to address increasing levels of purchases from suppliers.
If the Group is unable to adjust its business processes, including sales and marketing, R&D, supply chain
management and procurement processes, to effectively address the transition from products based on conventional
lighting technologies to products, systems and services based on LED lighting technologies, this may have amaterial adverse effect on the business, results of operations, financial condition and prospects of the Group.
6.

The Group may not be successful in offsetting the significant price erosion which characterizes themarket for LED lamps, with higher volumes, productivity improvements, product innovations and cost
control.

The market for LED lamps has historically been subject to significant price erosion, and is expected toremain subject to price erosion in the future. For example, a recent market study predicts that the average price ofan LED lamp (bulbs and spots) will drop at least 50% from more than €4.52 in 2014 to less than €2.26 in 2020.5
The Group believes that the average price of an LED lamp declined by 20-25% per annum in 2013 and 2014.
However, such price erosion may occur more quickly in the future than anticipated by the Group, or may not be
fully offset by higher volumes, productivity improvements, product innovations and cost reductions.
Conventional lamps have historically been subject to marginal price erosion. However, because the Group’s
strategy is to optimize cash generation from its conventional lamp business, aggressive pricing practices by theGroup’s competitors in conventional lamps may have a significant negative impact on the Group’s cash flow
generation. While the Group has implemented cost saving and efficiency improvement measures in the past,
including in respect of costs of materials procured from third party suppliers, there is no guarantee that theGroup’s cost saving and efficiency improvement measures will continue to be successful or result in the
anticipated savings, as further explained in “Cost savings initiatives needed to maintain and improve profitability
margins and cash generation may not be successful” below. Furthermore, any restructuring measures may have amaterial adverse effect on the Group’s results of operations and cash flow as the costs of reorganization are
incurred before the potential benefits are realized. Any of the foregoing factors may have a material adverse
effect on the business, results of operations, financial condition and prospects of the Group.
7.

The general lighting market in which the Group operates is highly competitive as it includes othertraditional global lighting manufacturers as well as new entrants to the LED lighting market. Moreover,the competitive landscape may change due to increasing vertical integration.

The general lighting market in which the Group operates is highly competitive as it, among other reasons,
includes other traditional global lighting manufacturers as well as new entrants to the LED lighting market. The
competitive landscape of the general lighting market in which the Group operates varies along the value chain,
which consists of LED components, conventional and LED lamps, conventional and LED electronics, andconventional and LED luminaires, which are complemented by the lighting systems and lighting services
segments. The Group is active in each segment of the value chain other than LED components. The maincompetitive factors include market leadership, scale, sales channels access, technology leadership, innovation
strength, extensive patent portfolio, reliability, brand image, product range, performance, energy efficiency,
price, delivery speed, quality and design.
The increasing penetration of LED lighting products has resulted in product lifecycles becoming shorter, hasemphasized the need for continuous innovation and, as new technologies evolve, has provided entry points for
new competitors and opportunities for rapid market share shifts. The growth in the market for LED lighting
technologies has encouraged new competitors (particularly from Asia) to enter the market for LED lighting
products. The Group believes the current competitive landscape in each segment of the general lighting market inwhich it operates is as follows:•

Conventional lamps and electronics: The conventional lamps and electronics market is comparatively
concentrated. The Group believes that the Group, Osram and GE are the top three global market participantsmeasured by sales.

•

LED lamps and electronics: The LED lamps market is dynamic and more fragmented than the conventional
lamps and electronics market with strong competition from low cost Asian competitors. The Group believes
that next to Osram, other competitors active in LED lamps include Panasonic, Toshiba, GE, Cree and TCP.
Europe and the United States are relatively more concentrated, while the market in China is relatively
fragmented. The largest companies active in the LED electronics market include the Group, Tridonic (partof Zumtobel) and Osram.

5

Source: BCG Report. The BCG projections are in USD and assume a constant 2014 exchange rate of € 1.00 = USD 1.3269 through
2020.

55

•

Professional luminaires, systems and services: The professional luminaires, systems and services market
differs significantly by geography with many regionally focused competitors. The Group perceives theprofessional luminaires and systems markets in North America and Europe as relatively concentrated. In
North America, the Group believes that its key competitors are Acuity Brands, Cooper Industries andHubbell. In Europe, the Group believes its main competitors are Zumtobel, Fagerhult and Schréder. In India,
the Group believes its main competitors are Crompton, Bajaj and Havells. The professional market in China
and Growth Markets6 (excluding Japan) are highly fragmented. In China, the Group believes its maincompetitors are NVC and Ocean King; in Growth Markets, the Group considers Panasonic and Toshiba as
its main competitors.

•

Consumer luminaires: The consumer luminaires market is highly localized and fragmented with few global
or regional competitors, except for companies with own distribution including Ikea Private Label and Home
Depot Private Label.

•Home systems: The home systems markets is still in its early stages.

As a result, some of the Group’s competitors are large, sophisticated and well-capitalized companies withsignificant resources, while the Group also faces competition from new entrants such as start-ups and othercompanies that target only a certain product (range) or limited geographic area. Start-ups can sometimes operate
as a small organization or in low cost environments that allow them to keep prices low and spend aggressively on
product development, marketing, sales and other product initiatives, for example in the LED lamps market with
its lower entry barriers. The transition in the general lighting market from conventional lighting technologies to
LED lighting technologies has also resulted in competitors that had previously been active in specialized markets
entering into the general lighting market, and increased levels of competition in the market segments in which theGroup operates. Moreover, some of the Group’s competitors may in the future benefit from government support
measures, increasing import tariffs or local content or manufacturing requirements in government tenders, all ofwhich would seek to support local companies but may not available to the Group or available only to a lesser
extent. Alternatively, governments may decide to purchase and on-sell subsidized LED lamps to encourage theadoption of energy efficient lighting, which may accelerate price erosion of LED lamps and may disrupt theGroup’s established global distribution network. Further, the transition to LED lighting technologies may result
in large, well-known technology and software companies entering the lighting market, particularly with respect
to connected systems and services, as they seek to expand applications for their existing software and control
systems and applications.
The competitive landscape in which the Group operates is also subject to change as a result of consolidation
along the value chain towards integrated lighting providers. The Group’s competitive position may besignificantly affected by this vertical integration trend, for example as a result of traditional luminaire
manufacturers moving into developing lighting systems and services or LED lamp manufacturers producing LED
electronics in house. Integration in one or the other direction might enhance the product offering of the Group’s
competitors, market share and competitive position, or turn customers or business partners into competitors, who
may be lost as customers and could in turn extend their business activities into market segments in which theGroup operates.
To the extent the Group is unable to successfully address competition in some or all of its market segments,
sales of the Group’s products will be negatively impacted, which may have a material adverse effect on thebusiness, results of operations, financial condition and prospects of the Group.
8.

The ability of the Group to compete effectively depends upon its ability to distinguish the Group and its
products, systems and services from those of its competitors.

The Group’s ability to compete effectively in the Group’s markets depends in large part upon its ability to
distinguish the Group and its products, systems and services from those of its competitors, including with respectto:•breadth and quality of product offering;•product pricing and cost competitiveness;•

supporting the customer’s product search and strong customer relationships;•

quality and breadth of intellectual property;•

brand quality and recognition;

6

Growth Markets consists of six markets covering the following regional clusters: (i) ASEAN plus other Pacific (comprising ten counties,
primarily Indonesia, Thailand and Australia); (ii) the Indian Subcontinent (India, Bangladesh and Sri Lanka); (iii) Middle East andTurkey; (iv) Africa (primarily South Africa, Morocco and Egypt); (v) Russia, Ukraine and Central Asia; and (vi) Japan.

56

•energy efficiency of products; and•the success and timing of new product development and the speed of delivery of new products.

The Group carries a wide and diverse range of products allowing the Group to compete in most segments of
the lighting market, and it could suffer significantly if competitors target the Group’s higher margin or major
revenue generating products. For instance, higher margin products or major revenue generating products
benefitting from the Philips brand may suffer if other premium brands are offered at significantly lower prices. In
addition, as a result of product differentiation in new markets, the Group may not be able to benefit from
economies of scale in the same way as it used to with respect to its conventional lamps business.
As competition becomes more diverse and with new competitors entering the lighting market, competition
may intensify. To the extent the Group is unable to distinguish its products, systems and services, its competitors
may be able to capture the Group’s customers and reduce the Group’s opportunities for success, which may havea material adverse effect on the business, results of operations, financial condition and prospects of the Group.
9.

The Group has spent considerable resources to develop its offering of lighting systems (including
connected lighting systems) and lighting services. There can be no assurance that the Group’s strategy
with respect to lighting systems and lighting services will be successfully implemented, or that the Groupwill fully realize the expected benefits of its strategy.

The general lighting market is evidencing fast adoption of lighting systems and services based on LED
lighting technologies, including as a result of a greater focus on the total cost of ownership by customers. In
addition to the general shift in the Group’s business towards LED lighting technologies, the Group has spentconsiderable resources on developing its offering of lighting systems (including connected lighting systems thatallow dynamic lighting control through connectivity with sensors, the cloud and networks) and lighting services
based on LED lighting technologies. Moving from sales of products to sales of systems and services requires,among other things, that the Group extends its go-to-market approach from distributing via trade/value added
partners to directly engaging with end-users and developing different capabilities and competences along thevalue chain (including with respect to IT capabilities, data and product security, technical knowledge or support
to sales force and project management skills). The Group may not currently have access to all of the required
capabilities and competences in-house and may therefore need to develop these internally or via partnerships or
acquisitions in the future. The Group may also need to spend additional resources to further develop expertise inconnected lighting systems as these systems are expected to become an increasingly important component of thegeneral lighting market in the future. The percentage of all luminaires (measured in revenues) that are sold aspart of a connected lighting system is expected to grow from 5% in 2014 to 25% in 2020,7 and the Group intends
to focus on such connected lighting systems as part of its strategy to address the transition from conventional
lighting technologies to LED lighting technologies. However, there can be no assurance that the Group’s strategy
to develop its offering of lighting systems (including connected lighting systems) and lighting services will be
successfully implemented, that the benefits of the strategy will outweigh the costs to the Group, that the Group’s
strategy will address the trends in the general lighting market, or that the shift towards lighting systems andlighting services will develop as anticipated, any of which may have a material adverse effect on the business,
results of operations, financial condition and prospects of the Group.
10. Cost savings initiatives needed to maintain and improve profitability margins and cash generation may
not be successful.
Historically, the Group has sought through its cost savings initiatives to maintain and improve its
profitability margins and cash generation. Historic cost savings have focused on three areas: (i) footprint
rationalization, (ii) bill-of-material costs, and (iii) productivity and efficiency improvements. Footprint
rationalization involves pro-active management by the Group of its manufacturing footprint, including throughrelocation of manufacturing activities to more efficient manufacturing locations close to relevant markets andclosing or divesting operational manufacturing plants where needed. The Group has reduced the number of its
operational manufacturing plants for conventional lamps from 45 in 2008 to 21 in 2015 and expects to close
more operational manufacturing plants in the future. In addition, the Group has focused on realizing bill-ofmaterial savings from both product engineering and price negotiations leveraging its scale to reduce costs.
Further, the Group has implemented several cost savings programs with regards to functional overhead and otheroperating expenses (e.g., the Accelerate! productivity program of the Selling Shareholder together with its
subsidiaries within the meaning of Section 2:24b DCC (“Royal Philips”) that started in 2011), pursuant towhich, for example, the Group has been able to reduce its aggregate selling expenses, R&D expenses and generaland administrative expenses, in each case excluding restructuring costs, acquisition-related charges and otherincidental charges, as a percentage of sales from 32.2% in 2013 to 31.0% in 2015. Given the expectation for7

Source: BCG Report.

57

continued declines in the market for conventional lighting technologies and continued competition in the market
for LED lighting technologies, the Group expects that further cost savings will be required to maintain or
improve profitability margins and cash generation. The Group’s ability to implement cost saving initiatives,
including by closing or consolidating operations, depends on a number of factors, many of which are outside ofits control. In particular, most of the Group’s operations and manufacturing plants are subject to collective
bargaining agreements or involve the presence of work councils that may prevent or complicate the Group’s
efforts to sell or restructure its business. There is no assurance that the Group’s cost savings initiatives will be
successfully implemented, that the benefits of its cost savings initiatives will outweigh the costs, that the costsavings initiatives will be sufficient to address price erosion in the general lighting market, or that the Group’s
cost savings initiatives will maintain or improve profitability margins or cash generation, any of which may havea material adverse effect on the business, results of operations, financial condition and prospects of the Group.
11. The Group’s current and future business transformation programs are and may in the future be costly,
may not be successfully implemented and may not improve the performance of the Group’s business tothe extent expected.
The Group has previously implemented or is currently implementing certain business transformation
programs intended to ensure sustainable performance by transforming processes, operations, organization or
culture, particularly for certain parts of its professional luminaires business in North America, home business in
Europe and overall in China. The Group’s past and current business transformation programs have been or are
costly, and the Group is exposed to potential charges in connection with its current and future business
transformation programs, as well as the risk that such programs may not be successfully implemented orcontinued and may not improve the overall performance of the Group’s business. The measures taken inconnection with such business transformation programs may be significant, including reduction in production
footprint, changes in the go-to-market approach, improvements in IT systems, reduction in number of local
brands, portfolio pruning and headcount reductions, may result in significant costs to the Group and may haveother adverse impacts on the business and operations of the Group.
For example, following the economic and financial crises which had a significant negative impact on theperformance of its business group (“Business Group” or “BG”) Professional in North America beginning in
2008, BG Professional in North America implemented from 2012 to 2014 a major business transformation
program, which included the integration of individual businesses, footprint optimization, supply baseconsolidation, portfolio and brand rationalization, go-to-market approach implementation (including
consolidation of the agent network as a key component), IT consolidation and productivity improvements, among
other measures. This business transformation program was costly, and also resulted in disruption of ongoing
operations that contributed to a further decline in performance of BG Professional in North America. There is no
guarantee that the business transformation program in North America has fully addressed the performance issuesof BG Professional in North America. In addition, BG Home undertook beginning in 2014 an extensive portfolio
pruning exercise in its consumer luminaires business in Europe, seeking to optimize manufacturing fixed costs
and rationalize its European warehouse footprint in order to improve profitability. This exercise contributed to a
decline in the sales of BG Home. The Group’s ability to continue to improve the performance of BG Home inEurope and of BG Professional in North America will be key to the Group’s future development and results. The
Group is also currently implementing business transformation programs to address the decline in the Group’s
sales in China since 2013, including by reducing the number of distributors, establishing clear regional andproduct or channel responsibilities for distributors, collaborating with key distributors to target end-users directlyin order to reduce layers in the go-to-market model, increasing prices for certain products, offering customer
financing for distributors through third party banks and driving online sales through relationships with large
vendors. The Group’s comparable sales in Greater China declined by 19.6% for the year ended 31 December
2015, and there is no guarantee that the Group’s business transformation programs will be successful in reversing
the decline in sales in Greater China.
While the Group implements any business transformation program, such as the programs mentioned above,with the objective of improving the long-term performance of the Group’s business, such business transformation
programs may adversely impact performance of the Group’s business, and there can be no assurance that any
business transformation program will achieve the anticipated results. The costs to implement business
transformation programs, failure to successfully implement business transformation programs or failure toachieve the anticipated results of business transformation programs may have a material adverse effect on thebusiness, results of operations and financial condition of the Group.
12. The loss of important customers or a change in the terms of purchases by important customers may
materially adversely affect the Group’s business.
The Group sells its products, systems and services to customers such as retailers (e.g., hypermarket chainsand do-it-yourself (“DIY”) stores), distributors (wholesalers) and end-user customers. While the Group’s sales
58

do not depend materially on a single or small number of customers, some of its customers generate sales
corresponding to a low single digit percentage of the Group’s sales. The Group generally does not enter into
long-term commitment contracts with its customers other than framework agreements with no firm purchasecommitment. Important customers may alter their purchasing behavior and reduce or cancel orders or entirely
cease to do business with the Group with little or no notice. The effect would be particularly severe if a numberof important relationships were terminated or the number of products the Group delivers to such customers was
substantially reduced within a short period to time. As a result, the Group must maintain its longstanding
relationships with such customers to maintain levels of sales. Customers whose framework agreements expire
may also request a reduction of prices or a change in terms of purchases before making further purchases fromthe Group. Agreeing to such requests may materially adversely affect the Group’s sales and its results ofoperations and failure to reach an agreement may result in the loss of important customers. Any of the foregoingdevelopments that is systematic or widespread among the Group’s customers, especially where significant sales
are involved, may have a material adverse effect on the Group’s business, results of operations, financial
condition and prospects.
13. The Group’s manufacturing and supply operations are shifting from an in-house production model to an“asset-light” outsourcing model, which makes the Group increasingly dependent on external suppliersand effective supply chain management.
As part of the transition from conventional lighting technologies to LED lighting technologies, the Group’s
manufacturing and supply operations have shifted and continue to shift from an in-house production model for
conventional products to an “asset-light” outsourcing model for LED products. As a result, the Group
increasingly outsources the production of components and, with LED lamps, the production of entire finishedproducts. This “asset-light” outsourcing model is expected to result in fewer or smaller operational
manufacturing plants globally, and thereby reduces the capital intensity of the business. If this trend continues, as
is expected, the Group will become highly dependent on third party assembly and manufacturing. Outsourcing
the production of finished products and components presents a number of risks. The Group must cooperate with
suppliers to, among other things, optimize time to market and maintain the quality standard of its products.
Effective management of the external supply chain is crucial to preserve competitiveness in the markets in which
the Group operates. Although the Group works, and intends to continue to work, closely with its suppliers to
avoid supply-related problems, there can be no assurance that it will not encounter supply problems in the futureor that it will be able to timely replace a supplier that is not able to meet its demand. From time to time, suppliers
may extend lead times, limit the amounts supplied to the Group or increase prices due to capacity constraints orother factors. If the Group is unable to address the aforementioned risks, this may have a material adverse effecton the business, results of operations, financial condition and prospects of the Group.
14. The Group depends on external suppliers for certain raw materials and critical components, which may
expose it to rising prices or shortages.
The Group depends on external suppliers for certain raw materials (e.g., rare earth metals, copper, phosphor,steel, aluminum, noble gases and oil-related products) and critical components. Market prices for raw materials
are subject to significant volatility, such as the fluctuations experienced in the phosphor market in 2012. During
periods of increasing costs of raw materials, the Group may not be able to compensate for cost increases throughproductivity improvements or passing cost increases on to customers. By contrast, in times of falling prices for
raw materials, the Group may not fully benefit from such price decreases, for example, because the Group
attempts to reduce the risk of rising raw material prices through long-term contracting. A general shortage of raw
materials, including as a result of unforeseen natural disasters, may also result in increases in market prices andpotential disruption to production. The Group’s strategy to maximize cash generation from the conventional
lamps market during the transition to LED lighting technologies exposes the Group to heightened supply risk as
suppliers of certain critical components for the conventional lamp products exit the market, including by focusing
on supplying critical components for LED lighting products. As a result, the supply of critical components forconventional lighting products and services has been reduced to some extent. The Group expects this trend tocontinue. The Group may in the future not be able to source certain critical components for its conventional
lighting products at all or in a timely manner because suppliers on which the Group currently relies may exit thismarket as it further declines. Any failure by the Group to effectively address rising prices or shortages of raw
materials or critical components may have a material adverse effect on the business, results of operations,financial condition and prospects of the Group.
15. The Group relies on the manufacturing of its LED lamps in Asia for its worldwide distribution and could
suffer as a result of long lead times.
The Group’s LED lamps are primarily manufactured by third parties in Asia, which requires shipping the
LED lamps from Asia to the Group’s main markets in the United States and Europe. As a result, the lead times
59for delivery of such products to its main markets can be significant. Increased demand from customers and longer
than expected delivery times could result in LED lamps going out of stock. In addition, the Group is exposed to
an increased risk that its stock of manufactured LED lamps become obsolete, as compared to competitors that
manufacture locally. In particular, changes in customer demand and preferences or new technologicaldevelopments between the time production cycles are planned and the time that products arrive in the relevantmarket’s distribution centers, requires more effective production cycle and supply chain management by theGroup. Any of the foregoing risks may have an adverse effect on the Group’s reputation, resulting in retailers
allocating less, or less prominent, shelf space to the Group’s LED lamps, which may in turn have a material
adverse effect on the business, results of operations, financial condition and prospects of the Group.
16. In difficult market conditions, the Group’s high fixed costs combined with low revenues may negatively
impact its results.
The production of conventional lighting products is characterized by high fixed costs. Notwithstanding theGroup’s shift from an in-house production model to an “asset-light” outsourcing model, a significant portion of
the Group’s production and assembly requirements are met by its own operational manufacturing plants. In
difficult market conditions, the Group may be faced with a decline in the utilization rates of its operational
manufacturing plants due to decreases in product demand. During such periods, the Group’s operational
manufacturing plants may not operate at full capacity, resulting in higher average costs per product. The Group
cannot guarantee that difficult market conditions in the future will not adversely affect its utilization rates at its
operational manufacturing plants, and consequently the Group’s future gross margins, which may have a material
adverse impact on the business, results of operations, financial condition and prospects of the Group.
17. The Group may suffer losses related to winning, executing and managing complex lighting projects.
One of the Group’s business strategies is to participate in, and win, competitive bid selection processes forlighting projects (e.g., luminaires and connected lighting systems for cities, office buildings or retailers).
Although the number of these projects is limited compared to the overall sales of the Group, they are projected to
grow—potentially significantly—in the future. The selection processes for these projects can be lengthy andrequire the Group to incur significant design, development and selling expenditures, with no guarantee of
winning a contract or generating revenue. Failure to win a sufficient number of these bids may result in reduced
revenues and hurt the Group’s business.
If the Group is selected for complex lighting projects, it may suffer losses due to various circumstances,including contractually agreed penalties or reputational damage if it cannot complete the work in accordancewith the time limits specified in the project contract or as a result of more extensive maintenance and service
obligations than anticipated at the time of the Group’s bid. Risks associated with these types of complex projects
for the Group include:•

delays in awards of major contracts or postponement of previously awarded contracts, which may result inhigher inventory and higher inventory write-downs;•

key assumptions made by the Group in its bid (such as life expectancy of LED lighting products, expectedenergy savings, service levels required or replacement rates) that may prove incorrect over time;•

failure to satisfy projected energy savings, in particular where the Group’s revenues for the project arelinked to such energy savings;•

project modifications that may lead to unexpected and unrecoverable cost increases;•

performance defaults by suppliers, subcontractors or consortium partners for which the Group may be (held)
responsible;•

deterioration of the financial condition of customers, which risk is exacerbated by the relatively long
duration of projects;•

if actual results and cash flows deviate from initial assumptions underlying a project, its financing structure
may be inadequate or inefficient;•

the accounting analysis of projects is complex and may change during the lengthy contract period, which
may lead to an accounting treatment that differs from the treatment anticipated at the inception of the
project;•

failure or inability to adequately manage or supervise complex projects and project participants involved
which may result in delays, cost overruns and post-completion problems; and•unanticipated technical problems which may require the Group or its suppliers to spend additional time andmoney to address these challenges.
60Any of the foregoing risks may have a material adverse effect on the business, results of operations,financial condition and prospects of the Group.
18. The Group owns less than 100% of the shares in certain of its companies and participates in joint
ventures or associated companies in which the ownership structure carries risks.
In addition to its wholly-owned subsidiaries, the Group holds majority participating interests in certain
companies and in certain cases participates in certain joint ventures or associated companies, primarily to gain
market access (e.g., the Group’s acquisition of its 51% interest in General Lighting Company (“GLC”) to gain
access to the lighting market in the Kingdom of Saudi Arabia in 2014), to ensure supply relationships or as partof a consolidation process in certain fragmented regional markets where the Group is active. The Group may
make further acquisitions or investments following which it will hold less than 100% of the relevant entity.
Owning less than 100% of an entity carries certain risks, including:•conflicts between the policies or objectives adopted by the Group’s partners and those adopted by the Groupor non-compliance by such partner with the policies or objectives adopted by the Group, particularly
regarding insurance coverage and sanctions compliance;•

disagreement with the Group’s partners over the performance of their obligations;•disputes as to the scope of each party’s responsibilities;•

financial difficulties encountered by the Group’s partners affecting their ability to perform their obligations;•

legal or contractual responsibilities with respect to the Group’s other partners or their interest in the relevant
entity;•change of control or deadlock provisions in governance arrangements that may require the Group to takecertain actions; and•financial or other obligations of joint ventures, which may be (partially) guaranteed by the Group in certain
locations.

These and other risks may result in a deadlock situation and an inability to distribute profits or make further
necessary investments. Rights of minority shareholders may negatively affect the Company’s ability to control
certain subsidiaries. If such conflicts or problems arise with respect to non-wholly owned companies andoperations, this may have a material adverse effect on the business, results of operations, financial condition andprospects of the Group.
Further, the Group has invested and may further invest in joint ventures or associated companies in which
the Group will have a non-controlling interest for growing new and other business in R&D, production,marketing and other areas. Some of these joint ventures or associated companies may represent significant
investments. In these cases, the Group may have limited influence over, and limited or no control of, thegovernance, performance and cost of operations of joint ventures or associated companies. The joint ventures andassociated companies that the Group may not control may make business, financial or investment decisions
contrary to the Group’s interests or decisions different from those that the Group itself would have made. If theGroup faces any disagreement with its relevant partner in a joint venture or business alliance in respect offinancing, technological management, product development, management strategies or otherwise, such joint
venture or business alliance may be terminated. Additionally, the Group’s partners or members of a joint venture
or associated company may not be able to meet their financial or other obligations, which may expose the Groupto additional financial or other obligations.
Any of the foregoing risks may have a material adverse effect on the Group’s reputation and the value of its
investments or potentially subject the Group to additional claims, each of which may in turn have a material
adverse effect on the business, results of operations, financial condition and prospects of the Group.
19. The Group may from time to time make acquisitions and engage in other transactions to complement or
expand its existing business. However, the Group may not be successful in acquiring suitable targets at
acceptable prices and integrating them into its operations, and any acquisitions may lead to a diversion ofmanagement resources.
The Group may in the future consider acquiring, making investments or forming joint ventures thatcomplement, enhance or expand the Group’s current portfolio of lighting products and services or otherwise offer
growth opportunities (e.g., the Group’s acquisition of a 51% interest in GLC to gain access to the lighting market
in the Kingdom of Saudi Arabia in 2014). If the Group is unable to identify suitable targets, the Group’s growthprospects may suffer, and the Group may not be able to realize sufficient scale advantages to compete effectively
in all markets. In addition, in pursuing acquisitions, the Group may face competition from other companies in thelighting industry. The Group’s ability to acquire targets may also be limited by applicable antitrust laws and other61

regulations. To the extent that the Group is successful in making acquisitions, it may have to spend substantial
amounts of cash, incur debt, assume loss-making business units and incur other types of expenses in order toacquire and integrate the acquired businesses. The Group may also face challenges in successfully integrating
acquired companies into its existing organization, which may distract management from other tasks. In addition,
the Group may face challenges in delivering the originally envisioned value creation of an acquisition due tovarious factors, including some beyond the control of the company, such as changes in economic and politicalconditions. For example, the intensified geopolitical situation in the Middle East and depressed oil prices may
result in customers experiencing difficulties in completing ongoing projects or fulfilling existing payment
obligations or in a cut back in government spending resulting in delays of government tenders and scale down ofplanned infrastructure projects. Any of the foregoing factors may adversely affect GLC’s results or operations(including revenues from sales in the Kingdom of Saudi Arabia), financial condition and prospects and ultimately
the Group’s results of operations and financial condition, including through an impairment of goodwill relating tothe original acquisition of GLC. Acquisitions may also expose the Group to liabilities it may not be aware of at
the time of the acquisition, for example if acquired companies and business do not act, or have not acted, incompliance with applicable laws and regulations. The Group’s acquisitions may not ultimately provide theresults that the Group initially envisioned when making the related acquisition. Any of the foregoing risks may
have a material adverse effect on the business, results of operations, financial condition and prospects of theGroup.
20. The Group may from time to time desire to exit certain product lines, businesses or markets, but may not
be successful in doing so.
From time to time, the Group may decide to divest or exit certain product lines, businesses or markets. The
Group has, in recent years, exited several of its product lines and businesses. The Group may continue to do so in
the future. However, the Group’s ability to successfully exit from product lines, businesses and markets, depends
on a number of factors, many of which are outside of its control. For example, the Group may not find a buyer
for a particular business line, or the Group may not be successful in negotiating satisfactory terms withprospective buyers. In addition, the Group may face regulatory or contractual restrictions on divestiture. In
particular, several of the Group’s operations and manufacturing plants are subject to collective bargaining
agreements and social plans or require the Group to consult with its employee representatives, such as work
councils, which may prevent or complicate the Group’s efforts to sell or restructure its business. In some cases,
there may be laws or other legal impediments that may affect the Group’s ability to carry out such sales or
restructurings. If a divestment or exit of a certain product line or business is successful, the Group may faceindemnity and other liability claims in the future, including claims for financial support of divested businesses ortheir employees. If the Group is unable to exit a product line, business or market, in a manner the Group’s deems
to be advantageous and timely, this may have a material adverse effect on the Group’s business, results ofoperations, financial condition and prospects.
21. Risk of unauthorized use of intellectual property rights of the Group may cause the Group’s business,
results of operations and financial condition to suffer.
The Group produces and sells products and services which are protected by intellectual property rights. The
Group develops and acquires intellectual property rights on a regular basis. On 31 March 2016, the Group held aportfolio of intellectual property rights including over 25,000 registered intellectual property rights, of which
over 14,000 were patent rights.
If the Group is not able to adequately protect or enforce the proprietary aspects of its products and services,competitors may utilize the Group’s proprietary rights and the Group’s business, results of operations andfinancial condition may be harmed. The Group relies on a combination of patent, copyright, trademark, design
right and trade secret laws, contractual restrictions and similar means to establish and protect proprietary rights in
the Group’s technologies and corporate and brand identity. Despite all efforts, other parties may attempt todisclose, obtain, reverse-engineer or use the Group’s technologies. The Group’s competitors may also be able toindependently develop products that are substantially equivalent or superior to the Group’s products or design
around the Group’s proprietary technology.
The laws of some countries do not protect proprietary rights to the same degree as is customary in Europe or
the United States and there is a risk that the Group’s proprietary rights may not be adequate in these countries.
Many companies have encountered significant problems in protecting their proprietary rights against copying or
infringement in such countries, some of which are countries in which the Group sells its products and services.
The application of laws governing intellectual property and trade secret rights in developing markets is uncertainand evolving and may involve substantial risks to the Group. If the Group is unable to adequately protect its
intellectual property and trade secret rights in developing markets, the Group’s attempts to penetrate suchmarkets may be harmed.
62In order to protect or enforce its intellectual property rights, the Group may initiate litigation against third
parties, such as infringement suits or interference proceedings. Any lawsuits that the Group initiates could be
expensive, take significant time and divert management’s attention from other business concerns. The outcomeof litigation is highly unpredictable. Litigation also puts patents, trademarks and design rights at risk of being
invalidated or, in case of patents, interpreted narrowly. The Group may not prevail in any lawsuits that it initiates
and the damages or other remedies awarded, including attorney fees, if any, may not be commercially valuable.
The occurrence of any of the foregoing events may have a material adverse effect on the Group’s business,
results of operations, financial condition and prospects.
22. The Group may require access to third party intellectual property rights for its products and services andthird parties may assert intellectual property rights against the Group.
Patent license and patent cross-license agreements are common practice in the lighting industry. In certain
areas, the competitive position of the Group is based on patent cross-license agreements which it entered intowith its competitors. Such agreements typically only cover patents filed within a certain defined period. If theGroup is unable to enter into new or renew existing patent cross-license agreements at regular intervals to also
cover patents filed after such period, this may have a material adverse effect on the competitive position of theGroup and may leave it with insufficient licenses to continue its business. Patent license and cross-license
agreements might also be at risk in case of certain circumstances such as insolvency of counterparties of theGroup.
Technology covered by third party intellectual property rights may be unavailable or available only on
unfavorable terms and conditions to the Group. The validity of intellectual property rights owned by third parties
may need to be challenged while at the same time alternative solutions avoiding use of third party rights mayneed to be investigated and developed. However, the Group may not be successful in all cases or may not be able
to obtain all licenses necessary to use a technology relevant to it.
Third parties may claim that the Group infringes their intellectual property rights and commence patent
litigation against the Group that may require substantial financial and personnel resources. Depending on theoutcome of any such litigation, which is usually difficult or impossible to predict, the Group may be prevented
from using corresponding technologies and manufacturing or distributing certain products, and may be held
liable for damages by the owners of such asserted intellectual property rights. Disputes and litigation may lead topayments of significant amounts. Particularly in the United States, patent-holding companies that do not make orsell products (often referred to as “patent trolls”) may claim that the Group’s products infringe upon theirintellectual property rights, and the litigation or settlement of these matters, regardless of the merit of the claims,
may result in significant costs and consume personnel resources.
The Group may as a result of third party intellectual property assertions also be held to have licensed theasserted intellectual property rights, requiring the Group to pay significant licensing fees. Even if asserted claims
are not valid, they may expose the Group to significant costs. In recent years, such costs have been relatively low,
but this may change in the future with the incorporation of digital technology, including software applications, inthe Group’s products, systems and services. Moreover, the licensing activities of the Group have intensified inrecent years with the Group initiating more law suits and signing up more licenses for its licensing programs.
These intensifying licensing activities of the Group may provoke third parties to assert counter claims against it.
The Group also runs the risk of infringing intellectual property rights of third parties by sourcing
components and products from suppliers. Concerning sourced items, it may be difficult to obtain indemnificationfrom third party claims from the supplier.
Expenditures to acquire licenses, the development of alternative non-infringing technologies and litigationand the payment of damages in connection with the infringement of intellectual property rights owned by third
parties, as well as potential court injunctions preventing the Group from manufacturing and distributing certain
products, may have a material adverse effect on the Group’s business, results of operations, financial conditionand prospects.
23. The Group sets high quality standards for its products but it is possible that products may contain defects
or otherwise not perform as expected. Quality defects may reduce sales, result in costs associated withwarranty or product liability claims or require recall of affected items.
Manufacturing of the Group’s products involves complex processes, and defects have in the past, and couldin the future, occur in the Group’s products. In addition, it is possible that certain of the Group’s products may
not perform as expected (e.g., in terms of estimated life span and energy savings). These defects or shortfalls may
cause the Group to incur significant warranty, support and replacement costs. Furthermore, the Group may
become subject to actions by regulatory authorities related to alleged failures of products, which actions may
63result in fines or costs incurred in connection with product recalls or the defence and resolution of any regulatory
enforcement actions. Depending on the type of product involved and damage caused, the costs incurred in
conducting recalls and exchanging defective or non-performing products may significantly exceed the cost of the
product.
Additionally, failures or malfunctions of the Group’s products may lead to claims for property damage andpersonal injury, alleged to have been caused by such failure or malfunction. In particular, the Group is on
occasion put on notice by individual claimants or their insurers when fires may have been related to products
manufactured and/or marketed by the Group. If forensic investigations do not rule out the involvement of theGroup’s products, the Group may become subject to liability claims by the claimants or their insurers. Although
to date such claims have not resulted in material loss to the Group, the Group, on the same basis as other lamp
and luminaire manufacturers, expects that it will continue to be subject to legal proceedings seeking to hold theGroup liable for property damage and personal injury resulting from fires alleged to have been caused by the
failure or malfunction of products manufactured and/or marketed by the Group.
Claims for damages and/or personal injury have related to such Group products as fluorescent lamps,
ballasts, and high-intensity discharge (“HID”) metal halide lighting systems. HID metal halide lamps are
generally subject to non-passive or explosive failure of the lamp while operating under high temperature andpressure. These events, which occur most frequently when a lamp has been operated well past its publishedlifetime, can result in the discharge of heated materials capable of initiating a fire. HID metal halide lamps are
currently either engineered with glass shrouds designed to contain any discharge of lamp fragments upon a nonpassive failure or are specified to be used only in luminaires with secondary containment such as a lens whichacts as a barrier to protect the area surrounding the lamp from the discharge of materials in the event of such
events. Despite the large number of metal halide lamps used in the last 15 years by multiple suppliers across theindustry, there have been very few instances to date of property damage and personal injury claims resulting
from the alleged failure of metal halide lamps and luminaires. It should be noted, however, that despite the factthat a non-passive failure is well-understood and relatively rare occurrence, because metal halide lamps andluminaires are often used in large industrial plants and commercial properties, property damage caused by adefective product could be significant. The Group is currently conducting a review of certain acrylic lenses thathave been utilized in luminaires manufactured and sold by the Group. The purpose of this review is to review theperformance of such acrylic lenses in containing hot lamp fragments in event of the non-passive failure of an
installed lamp when properly used as part of a metal halide lighting system. The Group cannot predict theoutcome of this review, or what steps, if any, the Group may determine are required based on the results of thereview, or of the aggregate costs of such steps.
The Group has obtained insurance coverage which it believes is adequate for its type of business and which
generally covers the cost of recalls (excluding product costs and subject to certain deductibles and limits) andliability claims for damage to property and injuries. There is, however, no assurance that the Group will be able
to continue to maintain such insurance at reasonable costs or in sufficient amounts to protect the Group against
losses due to product liability. If products that the Group sources from third party suppliers are defective, theGroup may be unable to enforce full recourse against such suppliers. In addition, product defects and recall
actions may divert the attention of the Group’s management and engineering personnel and can entail
reputational damage which may reduce future sales. Such costs and reputational damage may have a material
adverse effect on the Group’s business, results of operations, financial condition and prospects.
24. The Group may suffer substantial losses in the event of a natural disaster, terrorist attack or othercasualty event in markets in which it operates.
The Group’s global operations are subject to the risk of natural disasters, such as, among others,
earthquakes, typhoons, fires and floods. Additionally, large disasters, terrorist attacks, riots and civil commotion
or other casualty events may disrupt the Group’s operations despite any absence of direct physical damage to its
properties by causing a material economic downturn, whether in the affected area or a country in which theGroup operates. A catastrophic loss of lives, businesses and infrastructure may have an indirect impact on theGroup by affecting its employees, customers, business partners and suppliers, and may consequently affect theGroup’s production, sourcing and reduce the demand for its products. In addition, risks may not be insured or theGroup’s insurance cover may not protect it against all damages or related business interruptions resulting fromthe events described above. With or without relevant insurance coverage, damage to any of the Group’s offices,branches, operational manufacturing plants or distribution network or to third parties (e.g., suppliers), due tonatural disasters, terrorist attacks or other casualty events, may have a material adverse effect on the Group’sbusiness, results of operations, financial condition and prospects.

6425. The Group relies upon the uninterrupted operation of its production work flows and available IT systems,
and is exposed to the risks of interruption, loss of information, IT security threats, computer crime andbreaches of data confidentiality and integrity.
Technical, logistical or other disruptions may occur and lead to a temporary stoppage of individual plants orplant components that are material to the Group’s business and production activities. An associated interruptionof production or shipping may prevent the Group from meeting its supply obligations to its customers. This may
cause customers to file a claim (especially for damages) or cause customers to cease purchasing from the Group.
In particular, the efficient operation of the Group’s business is dependent on IT systems. The Group relieson those systems generally to manage the day-to-day operation of the Group’s business, manage relationships
with customers, maintain R&D data and maintain financial and accounting records. Additionally, the integrationof acquired companies and successful outsourcing of business processes are highly dependent on secure and wellcontrolled IT systems. The interruption or failure of IT systems, the Group’s inability to successfully maintainand enhance the IT systems or any compromise of the integrity or security of the data generated from the IT
systems may adversely affect the Group’s results of operations, disrupt its business and product development andmay limit its ability to respond to customer demands. In particular, the Group’s systems and services businesses
rely on networks and software which may be vulnerable to damage or interruption.
The Group’s IT systems and certain of its technology-based products and services are vulnerable to damage
or interruption from:•attacks by computer viruses or hackers;•

cyber-based attacks or network security breaches;•

earthquake, fire, flood and other natural disasters;•

employee or other theft;•

power outages; and•computer systems, internet, telecommunications or data network failure.

In recent years, the risks that the Group and other companies face from cyber-attacks have increased
significantly and may further increase in the future as the Group increasingly provides connected lighting
systems and services in the Internet of Things (i.e., the network of physical objects, devices and other items
which are embedded with electronics, software, sensors and network connectivity which enables these objects tocollect and exchange data). The objectives of these cyberattacks vary widely and may include disruptions ofoperations including provision of services to customers or theft of intellectual property or other sensitive
information belonging to the Group or its business partners. Successful cyber-attacks may result in substantial
costs and other negative consequences, which may include, but are not limited to, lost revenues, reputational
damage, remediation costs, and other liabilities to customers and partners. Furthermore, enhanced protection
measures can involve significant costs. Although the Group has experienced cyber-attacks, it has not to date
incurred any significant damage as a result and did not incur significant monetary cost in taking corrective action.
However, there can be no assurance that future cyber-attacks will not result in material damages or corrective
costs to the Group.
The Group is relying on the IT systems of Royal Philips during a 12-month transition period after the
separation of the Group from Royal Philips (the “Separation”) to support its operations and faces certain risks inthis regard, as further explained in “The Group relies on Royal Philips to perform certain services after the
Separation, including with respect to IT, and the Group may be unable to make, on a timely or cost-effective
basis, the changes necessary to operate as an independent company” below.
Any of the foregoing risks may have a material adverse effect on the Group’s reputation and its business,
results of operations, financial condition and prospects.
26. The Group is dependent on its personnel for leadership and specialized skills and the loss of its ability to
attract and retain such personnel may have an adverse effect on its business.
The attraction and retention of talented employees in sales and marketing, R&D, design, intellectual
property, finance and general management, as well as of highly specialized technical personnel is critical to theGroup’s success. This is particularly valid in times of economic recovery. The loss of specialized skills may also
result in business interruptions. Competition for qualified employees among established companies and start-ups
that rely heavily on engineering and technology expertise is intense, in particular in Asia, and in the past theGroup has seen qualified employees leave the Group as a result thereof. The Group expects that competition for
qualified employees might grow further in the future as the Group is separated from Royal Philips and the65number of competitors in the LED lighting technologies market grows. As part of the Separation, the Groupagreed certain principles with Royal Philips to ensure that employees who worked exclusively on lighting
products and services were allocated to the Group. Employees who did not work exclusively on either lighting or
healthtech products and services were allocated on a pro rata sharing basis between the Group and Royal Philips.
The loss of qualified employees or an inability to attract, retain and motivate highly skilled employees mayhinder the Group’s ability to successfully conduct research activities or develop marketable products and bringthose products to market, each of which may have a material adverse effect on the Group’s business, results ofoperations, financial condition and prospects.
27. The Group is dependent on its relationships with its workforce. Strikes and other labor-related conflicts
as well as rising wages or indirect labor costs may have a material adverse effect on its business.
Personnel expenses represent a significant cost factor for the Group. The majority of the Group’s staff iscovered by collective bargaining agreements. There is no guarantee that when existing collective bargaining
agreements expire, new agreements will be concluded on terms that are mutually satisfactory and beneficial to
the Group. It also cannot be ruled out that such an agreement will only be reached following strikes or similaractions, potentially affecting production over a longer period of time. The Group’s relationship with its
employees may also be negatively affected by the disruptive trends in the lighting industry that require changes
in the Group’s production process and requires the closure of further operational manufacturing plants together
with the need to transfer employees to new operational manufacturing plants and processes or to reduce its
workforce. For more information, see “A significant portion of the Group’s existing operational manufacturing
plants has or will become obsolete due to the transition from conventional lighting technologies to LED lighting
technologies, which has resulted in and is expected to continue to result in significant costs to the Group” above.
In the Group’s operations in emerging markets, labor costs may continue to increase as a result of inflationary
trends in these countries and rising unrest among low paid workers. Indirect labor costs may increase due tocontinued inflation of medical costs. Certain management decisions within the Group are subject to priorapproval or prior advice from works councils, for example, see “Existing Shareholders and Related Party
Transactions—Existing Shareholders”. Certain decisions by the Selling Shareholder as majority shareholder may
be attributed to the Group’s management. Works councils may, when asked for approval or advice, withhold
their approval or render negative advice or impose conditions to an approval or a positive advice which could beonerous in certain cases. Any of these events might delay the implementation of management decisions or force
management to amend decisions. If one or more of these risks materialize, this may have a material adverse
effect on the Group’s business, results of operations, financial condition and prospects.
Risks Relating to the Separation and the Establishment of the Company as an Independent Publicly Listed
Company
28. Due to the Separation, the Company has prepared the Combined Financial Statements for thisProspectus based on carve-out financial information. The financial information presented in thisProspectus therefore differs from what the financials would have been if the Company had been an
independent company and is not necessarily representative of the historic or future position of theCompany as a separate, publicly listed company.
Royal Philips did not account for the Company, and the Company was not operated, as a separate, standalone company before the Separation. This Prospectus contains combined financial information of the Group,
which has been derived from the combined financial statements of the Group as of and for the years ended
31 December 2015, 31 December 2014 and 31 December 2013 (the “Combined Financial Statements”) and isbased on the consolidated financial statements of Royal Philips and its accounting records. As a result, theCombined Financial Statements do not necessarily reflect what the Group’s results of operations, financial
condition and cash flows would have been had the Group operated as a separate, stand-alone group during theperiods presented in this Prospectus and are not necessarily indicative of the Group’s future results of operations,financial condition or cash flow. Differences may arise from, among other factors:•

the historical costs and expenses reflected in the Combined Financial Statements include an allocation forcertain services from corporate functions historically provided to the Group by Royal Philips, including
legal, finance, human resources and other administrative functions. These allocations are based on what theGroup and Royal Philips consider to be reasonable reflections of the historical utilization levels of thesefunctions required in support of the Group’s business. There can be no guarantee that such costs are notsignificantly higher or lower than the comparable expenses the Group would have incurred as anindependent company. For example, such costs could be higher than the comparable expenses the Groupwould have incurred as an independent company if the Group on a standalone basis would have been able tooutsource such services at lower cost. Conversely, such costs could be lower than the comparable expenses
66the Group would have incurred as an independent company if a single employee combined the provision ofservices to the Group and Royal Philips, and the Group on a standalone basis would have to hire at least one
employee to secure the provision of such services;•

the Combined Financial Statements do not reflect that the costs of debt funding and related costs that would
be necessary as a standalone company are expected to be higher;•

the Combined Financial Statements do not fully reflect any potential increased costs associated with being
an independent publicly listed company, including possible changes in the Group’s cost structure,
management, financing arrangements and business operations as a result of the Separation;•

as a separate smaller company, the Group may lose the benefit of some economies of scale which Royal
Philips was able to achieve with respect to administrative operations; and•the Combined Financial Statements do not fully reflect the Group’s pension plan costs and liabilities as aseparate entity, and such costs and liabilities may differ significantly as a result of setting up the Group’s
stand-alone plans.

The adjustments made to prepare the Combined Financial Statements do not reflect, among other things,
changes in the Group’s funding as a result of the Separation. For more information see “Operating and Financial
Review—Basis of Preparation of Financial Statements” and the Combined Financial Statements and theaccompanying notes.
29. Actual pension liabilities and costs following the Separation may differ significantly from those set out in
the Combined Financial Statements.
Employees of the Group have historically participated in Royal Philips-sponsored pension plans in which
the Group and other Royal Philips businesses participated. The costs of pension benefits with respect to theGroup’s employees participating in these plans have been allocated to the Group based upon historical accrual,compensation, headcount and allocation of personnel. These allocations are reflected in the Combined Financial
Statements. The Group’s liability amounts as reflected in the Combined Financial Statements were €(43) million,€(40) million and €(23) million as of 31 December 2015, 2014 and 2013, respectively, which do not include any
additional liabilities allocated to the Group as part of the Separation. For pension plans in which only the Group’s
employees participate (dedicated plans), the related costs, assets and liabilities have been included in the balance
sheets included in the Combined Financial Statements. The net balance of defined-benefit pension plans,
including additional assumed net pension obligations for the periods prior to the Separation Date, which are notreflected in the Combined Financial Statements, were €(607) million, €(524) million and €(449) million as of
31 December 2015, 2014 and 2013, respectively. See “Management, Employees and Corporate
Governance—Pension Schemes” for more information about the Group’s defined benefit plans. As part of the
Separation, significant pension assets and liabilities have been legally transferred to the Group on a country bycountry basis, based on the relationship between pension liabilities and the respective Royal Philips and theGroup’s businesses or, if such relationship was not decisive, on a variety of legal, fiscal, financial and practicalconsiderations. Based on the current funding levels of the pension plans (in particular the U.S. and German
pension plans), the liabilities transferred to the Group exceeded the assets transferred to the Group, and as a result
the Group recorded accrued pension costs of €224 million, a provision of €271 million related to unfundedpension liabilities and a provision of €112 million related to retiree medical liabilities at the Separation. The
transfer also resulted in the Group recognizing €122 million in deferred tax assets, relating to the transferredpension deficit. As of 31 March 2016, the net pension liability (including retiree medical liabilities) amounts to€587 million and the related deferred tax assets arising from the transferred pension liabilities have decreased to€101 million.
As part of the Separation, significant pension assets and liabilities were allocated to the Group on a country
by country basis, based on the relationship between pension liabilities and the respective Royal Philips and theGroup’s businesses or, if such relationship was not decisive, on a combination of legal, fiscal, financial andpractical considerations. This allocation of pension assets and liabilities was complex and certain implications of
the Separation are uncertain. For example, with respect to the Group’s pension benefits for its Dutch employees,
the Group will continue participating in the pension plans operated by the Philips Pension Fund after the
Separation. However, the terms and conditions (e.g., premium contribution levels) for this pension plan will haveto be renegotiated with the relevant unions before the end of 2018 and it is not certain that the Group will bewilling and able to continue to offer such pension benefits. There is a risk that the Group may change its pension
plan in the Netherlands and will be faced with compensation claims from Dutch employees or theirrepresentatives, which may have a material adverse impact on the Group’s pension liabilities in the Netherlands.
Following the Separation, the Group’s pension liabilities depend on various factors and assumptions, formore information see “The Group has pension plans and retiree medical benefit plans in a number of countries.
The funded status and the cost of maintaining these plans are influenced by movements in financial markets and67

demographic developments and may adversely affect the Group’s financial condition” below. The Group’s actual
costs to meet these liabilities going forward may differ significantly from those set out in the Combined Financial
Statements and may have a material adverse impact on its financial condition.
30. The Group relies on Royal Philips to perform certain services after the Separation, including with respect
to IT, and the Group may be unable to make, on a timely or cost-effective basis, the changes necessary tooperate as an independent company.
Prior to the Separation, the Group had not been operated as a stand-alone company. The Group has
historically relied on Royal Philips for various financial, tax and other corporate services and IT systems to
support the Group’s operations. Royal Philips is continuing to supply the Group with certain of these services
and systems, generally for a period of up to 12 months after the Separation. To this end, the Group and Royal
Philips have entered into several transitional services agreements. For more information see “Separation”. Suchtransitional services may not be sufficient to meet the Group’s needs and, after its agreements with Royal Philips
expire, the Group may not be able to replace these services at all or obtain these services at prices or on terms asfavorable as it currently has. In particular in respect of IT, certain aspects of the migration to an independent IT
platform will be challenging and complex to achieve within 12 months after the Separation. If Royal Philips isunable to satisfy its obligations under these transitional services agreements, including with respect to IT, theGroup may suffer operational difficulties or losses but may not be able to claim for damages. If the Group isunable to timely replace the relevant systems or services after the transition period with an adequate internal
solution or external service provider at reasonable costs, the Group may incur operational difficulties or losses.
Each of the foregoing circumstances may have a material adverse effect on the Group’s business, results ofoperations and financial condition.
31. The Group may not be successful in establishing a new corporate and brand identity.
Historically, the Group has conducted its business under the Philips company name and brand. Following
the Separation, the Group has secured the right to use the Philips company name and a license to use the Philips
brand for a limited period of time and under certain conditions. More specifically, the Group may use the Philips
company name for a period of 18 months after the date that it is no longer controlled by Royal Philips and it may
use the Philips brand for products and services for an initial period of ten years following the Separation. The
brand license provides for two possible extension periods of five years if certain targets are met. After therespective 18-month and ten-year periods, there is no guarantee that the Group can continue its business under
the Philips company name or brand. In addition, Royal Philips may under certain conditions terminate theGroup’s right of use or license before they have expired. The brand license is subject to royalty payments. The
Group expects that the net effect of the royalty payment to be made to Royal Philips under the trademark license
agreement between the Selling Shareholder and Philips Lighting Holding B.V., dated 1 February 2016(“TMLA”) annually will be approximately €20 million higher than the historical costs allocated to the Group for
promotion of the Philips brand that are reflected in the Combined Financial Statements for the year ended
31 December 2015. For more information see “Separation—Intellectual Property”. The value of the Philips
company name and brand is recognized by the Group’s suppliers, customers and potential employees. When theright of use or license is terminated, including at the end of its respective term, the Group will need to spend
significant time, effort and resources to establish a new company and brand name in the marketplace. The Group
cannot guarantee that this effort will ultimately be successful. If the Group’s efforts to establish a new corporate
and brand identity are unsuccessful, its business, results of operations and financial condition will be materiallyadversely affected.
32. The Group may lose rights to key intellectual property arrangements as a result of no longer being abusiness segment of Royal Philips.
As part of the Royal Philips group, the Group benefited from some of Royal Philips’s intellectual property
arrangements, including cross-licensing arrangements with other companies and licenses from third parties oftechnology incorporated in its products and used to operate its business. As a result of leaving the Royal Philips
group, the Group may no longer be a beneficiary under certain of these arrangements, for instance because
necessary third party consents may not be obtained for assignment of such arrangements or because the Group
cannot benefit from divested company rights under such arrangements. Notably, most-cross licensing
arrangements contain third party termination rights upon Royal Philips losing a certain controlling interest in theGroup, depending on the specific terms of the arrangements. Consequently, the Group may no longer have theright to use important intellectual property that it was previously licensed to use and may therefore be subject toclaims that it is infringing intellectual property rights of third parties through the manufacture and sale of theGroup’s products and the operation of its business. Therefore, the Group may be exposed to claims by suchparties that its products or operations infringe such parties’ patents or other intellectual property rights. In
addition, third parties may have refrained from asserting intellectual property infringement claims against the68Group because the Group was formerly a business segment of Royal Philips. Following the Separation, thesethird parties may attempt to pursue such claims against the Group. Any of the foregoing risks, may have amaterial adverse impact on the Group’s business, results of operations, financial condition and prospects.
33. Potential indemnification obligations to Royal Philips pursuant to the Separation Agreement could
subject the Group to substantial liabilities.
On 1 February 2016, Philips Lighting Holding B.V., the previous parent company of the Group, and the
Selling Shareholder entered into an agreement (the “Separation Agreement”) and a set of ancillary agreements
to document the various arrangements between the two companies to effect the Separation. The Separation
Agreement and the ancillary agreements will be assigned to the Company prior to the Settlement Date. Amongother things, the Separation Agreement provides for indemnification obligations designed to make the Groupfinancially responsible for substantially all liabilities that may exist relating to the lighting business, whether
incurred prior to or after the Separation, as well as those obligations of Royal Philips assumed by the Grouppursuant to the Separation Agreement, including with respect to liability in respect of this Prospectus. For more
information see “Separation—Liability regime”. If the Group is required to indemnify Royal Philips under thecircumstances set forth in the Separation Agreement, the Group may be subject to substantial liabilities, which
may have a material adverse effect on its business, results of operations and financial condition.
34. In connection with the Separation, Royal Philips agreed to indemnify the Group for certain liabilities.
However, there can be no assurance that the indemnity will be sufficient to insure the Group against thefull amount of such liabilities, or that Royal Philips’ ability to satisfy its indemnification obligation will
not be impaired in the future.
The Separation Agreement provides for indemnification obligations designed to make Royal Philips
financially responsible for substantially all liabilities other than in relation to the lighting business, whether
incurred prior to or after the Separation. However, third parties could seek to hold the Group responsible for anyof the liabilities that Royal Philips has agreed to retain, and there can be no assurance that the indemnity fromRoyal Philips will be sufficient to protect the Group against the full amount, or any, of such liabilities, or that
Royal Philips will be able to satisfy its indemnification obligations. Moreover, even if the Group ultimately
succeeds in recovering from Royal Philips any amounts for which the Group is held liable, the Group may be
temporarily required to bear these losses itself. After the Separation, Royal Philips’ insurers may deny coverageto the Group for liabilities of Royal Philips associated with occurrences prior to the Separation or prior to theSettlement Date. Even if the Group ultimately succeeds in recovering liabilities from such insurance providers,the Group may be required to temporarily bear such loss of coverage. If Royal Philips is unable to satisfy its
indemnification obligations or if insurers deny coverage, the underlying liabilities may have a material adverse
effect on the Group’s business, results of operations and financial condition.
35. Following the Offering, the Selling Shareholder will continue to have a position to exert substantial
influence over the Company and its interests may differ from the interests of the Company’s other
Shareholders.
Immediately after the closing of the Offering, the Selling Shareholder will hold approximately 71.25% of
the Company’s issued and outstanding share capital (assuming full placement of the Offer Shares and full
exercise of the Over-Allotment Option). The Selling Shareholder will be in a position to exert substantial
influence over the general meeting of the Company (in the context of this risk factor being the corporate body,
but where another context so requires, the physical meeting of shareholders, both the “General Meeting”) and,
consequently, on matters decided by the General Meeting, including the appointment and dismissal of membersof the board of management of the Company (the “Board of Management”) and supervisory board of theCompany (the “Supervisory Board”), the adoption of the annual accounts, the distribution of dividends, theamendment of the articles of association of the Company as they will read after the Settlement Date (the“Articles of Association”) or any proposed capital increase. In addition, as long as the Selling Shareholder holds
at least one-tenth of the issued share capital of the Company, it has the statutory right to request the convocationof a General Meeting and as long as the Selling Shareholder holds at least 3% of the issued share capital of theCompany it has the statutory right to request the inclusion of an item of the agenda of the General Meeting (seealso “Description of Share Capital—General Meeting and Voting Rights”).
In addition, pursuant to a relationship agreement to be entered between the Company and the Selling Shareholder
on or prior to the Settlement Date governing the relationship between the Company and the Selling Shareholder (the“Relationship Agreement”), the Selling Shareholder will have the right to propose nominees for appointment as
members of the Supervisory Board. As long as the Selling Shareholder’s shareholding in the Company equals or
exceeds 30% of the Ordinary Shares, there shall be two members of the Supervisory Board nominated by the Selling
Shareholder (“Royal Philips Nominees”). Once the Selling Shareholder’s holding of the issued and outstanding69

Ordinary Shares falls below 30% but is equal to or exceeds 15%, there shall be one Royal Philips Nominee on the
Supervisory Board. Once the Selling Shareholder’s holding falls below 15%, there shall be no Royal Philips Nomineeon the Supervisory Board if so requested by the Company. Certain resolutions of the Supervisory Board shall require
the affirmative vote of a Royal Philips Nominee. See “Existing Shareholders and Related Party Transactions Policy—
Relationship Agreement” for more information.
In any of the above instances, the interests of the Selling Shareholder could deviate from the interests of theCompany’s other holders of Ordinary Shares and Preference Shares (as defined below) (together “Shares”, andthe holders thereof “Shareholders”). As the major Shareholder, the Selling Shareholder may, subject toapplicable law, delay, postpone or prevent transactions that might be advantageous for investors. Furthermore,
the concentration of ownership may adversely affect the trading volume and market price of the Ordinary Shares.
36. The Company may face increased administrative, financial and related expenses as a result of operating
as an independent company.
As a business sector of Royal Philips, the Group historically had access to a wide range of administrative,
financial, IT, logistics and other services that are provided centrally to Royal Philips’ group of companies. The
Group may incur increased administrative expenses as a stand-alone company, including expenses for services
that will continue to be provided by Royal Philips pursuant to transitional services agreements. The Group may
also face increased expenses whilst it continues to develop and recruit employees to fill key functions,particularly those in the treasury and financial reporting functions, as part of ongoing separation efforts. In
addition, as a smaller company, the Group may also lose the benefit of some economies of scale that Royal
Philips was able to achieve with respect to administrative operations. The Group has limited experience operating
as a stand-alone entity, and it is possible that these increased costs will be materially higher than anticipated. In
the future, the Group will also no longer benefit from funding previously provided by Royal Philips or fromexternal financing supported by collateral provided by Royal Philips (e.g., guarantees). Without further support
activities of Royal Philips and dependent on the Group’s own credit standing, its future financing and its
providing guarantees as security for the Group’s contractual obligations towards third parties may become moredifficult and more expensive as an independent company. The withdrawal from the Royal Philips group ofcompanies may also lead to the loss of business opportunities and higher procurement costs as the Group’sbusiness partners took into consideration other business opportunities relating to Royal Philips when they enteredinto business with the Group previously. Any of the foregoing developments may have a material adverse effecton the Group’s competitive position and its business, results of operations, financial condition and prospects.
37. The history of the combined Group, the Separation of the Group from Royal Philips and the Offering
may result in adverse tax consequences.
Following the Separation, there are several significant areas where the liabilities of Royal Philips may
become the Group’s obligations. For example, under the U.S. Internal Revenue Code and the related rules andapplicable treasury regulations, each Group Company that was a member of the Philips Holding USA
Incorporated consolidated tax reporting group is severally liable towards the U.S. government for the U.S. federal
income tax liability of the entire Philips Holding USA Incorporated consolidated tax reporting group for any
taxable year during any part of which it was a member. Also, under the Dutch Collection of State Taxes Act,
each Group Company that was a member of the Royal Philips fiscal unity for Dutch corporate income tax
purposes is severally liable towards the Dutch government for the Dutch corporate income tax liability of theentire Royal Philips fiscal unity for Dutch corporate income tax purposes for the period during which that Group
Company was a member. Furthermore, under the Dutch Collection of State Taxes Act, each Group Company that
was a member of the Royal Philips fiscal unity for Dutch value added tax purposes is severally liable towards the
Dutch government for the Dutch value added tax liability of the entire Royal Philips fiscal unity for Dutch value
added tax purposes for the period during which that Group Company was a member. The Dutch tax authorities
also have the right to set-off any taxes payable by a member of the Royal Philips fiscal unity for Dutch corporate
income tax with any taxes receivable of any Group Company that was a member of the Royal Philips fiscal unity
for Dutch corporate income tax purposes in respect of any taxable period ending on or before Settlement Date.
Consequently, the failure of Royal Philips to comply with its tax obligations may have a material adverse effecton the Group’s results of operations and financial condition, although the Separation Agreement does provide foran allocation of historical tax liabilities to ensure that such liabilities are for the account of either Royal Philips or
the Group. In addition, the Group is generally required to indemnify Royal Philips for any historical tax liabilities
associated with the Group’s business. Furthermore, the disentanglement of the Group’s business from Royal
Philips was effected through multiple types of separation structuring such as share transfers, asset transfers anddemergers. The Group has taken positions with regard to the tax consequences of the separation structuring andthe subsequent Offering (including in respect of the tax attributes that remain available to the Group after the
Separation or the Offering) in the different jurisdictions in which it operates and has effectuated the70disentanglement based on those positions. The local tax authorities may not agree with the positions taken by the
combined group. As such, there can be no assurance that such positions will not be questioned by the relevant tax
authorities. Future adjustments made in this respect (including in respect of available tax attributes) may have amaterial adverse effect on the Group’s business, results of operations, financial condition and prospects. Further,under the Separation Agreement the Group is generally required to indemnify Royal Philips for any increase in
the tax liabilities of Royal Philips (including the reduction of tax losses, deductions or other tax reliefs) as a resultof (i) an adjustment or correction by a tax authority to the valuation used for the transfer of assets or shares of theGroup Companies in connection with the Separation, or (ii) a reversal, denial or claw-back of certain tax reliefs
claimed by Royal Philips in connection with the Separation. If any such indemnity obligation is triggered, theGroup may be subject to substantial liabilities which may have a material adverse effect on its financial
condition. Finally, the delayed Separation, and in particular the delayed transfer of the U.S. Group Companies inthe second quarter of 2016, may result in a loss of certain tax attributes of the U.S. Group Companies including a
reduction in the basis of certain assets for U.S. tax purposes with respect to which a deferred tax liability may berecognized.
Legal and Compliance Risks
38. The Group is involved or may become involved in legal proceedings.
The Group, including a certain number of its current and former group companies, is involved in legal
proceedings relating to such matters as product warranty claims, property damage and personal injury that werecaused, or alleged to have been caused, by its products, alleged false or misleading information regarding productcharacteristics as well as environmental pollution, competition issues and intellectual property infringements(among other things). While the Group does not currently consider any of its existing legal proceedings to bematerial, the Group cannot exclude that pending or future legal proceedings may be resolved in a way that is
detrimental to the Group and may lead to significant liabilities or damages. The ultimate outcome of asserted
claims and proceedings, or the impact of any claims that may be asserted in the future, cannot be predicted withcertainty. In addition, in presenting its combined annual financial statements, management may make estimates
regarding the outcome of legal proceedings, regulatory and arbitration matters. The Group makes provisions if
payments with respect to such matters are probable and the amount can be estimated reliably. However, as
payment may occur potentially several years after the event that caused them, such provisions may proveinsufficient. Any of the foregoing circumstances may have a material adverse effect on the Group’s business,
results of operations, financial condition and prospects.
39. A material change in applicable laws and regulations, or in their interpretation or enforcement, may
materially adversely affect the Group’s business, results of operations, financial condition and prospects.
The Group’s business, including its lighting products and services and operations, is subject to extensive
laws, regulations and industry standards in the various jurisdictions where the Group operates, markets anddistributes its products. Among others, they include environmental, health and safety, financial and tax laws andregulations, which vary from jurisdiction to jurisdiction. Compliance with this complex array of laws, regulations
and standards imposed on the Group’s products, services and operations is difficult and may require significant
capital and operating expenditures or lead to additional manufacturing, servicing and quality control measures.
Many of the applicable laws and regulations that affect the Group’s products and operations, and the enforcement
thereof, have become increasingly complex, stringent and expensive to comply with over time. The Group
monitors and adapts to changes in the legal systems, regulatory controls and customs and practices. However, theGroup cannot ensure that applicable laws and regulations will not be further revised or that new laws andregulations will not be adopted or become applicable to the Group. New laws and regulations, amendment ofexisting laws and regulations, increased government enforcement or other developments may require the Groupto make additional unforeseen expenditures, in particular changes in relation to the phase out of certain
inefficient lamps and the recycling and collection of the Group’s products, such as pursuant to the EU Waste
Electrical and Electronic Equipment Directive and related regulations. For more information on important
regulatory requirements to which the Group is subject, see “Regulation”. There can be no assurance as to theamount or timing of future expenditures to comply with laws or regulations, and actual future expenditures may
be different from the amounts the Group currently anticipates. Moreover, the increasing complexity and numberof regulations may require greater expenditures or significant adjustments to its products and operations. In
addition to increasing the Group’s costs and liabilities, legal or regulatory changes could also impact the Group’s
ability to develop new products and its market position, in particular if such changes are more beneficial, or seek
to protect, local companies. The Group may be exposed to civil, criminal and administrative fees, fines, penalties
or interruptions in its operations due to non-compliance with the laws and regulations imposed by local, regional,
national and international authorities. In addition, the Group’s tax strategy is affected by laws and regulations andtheir interpretation by local tax authorities in the jurisdictions in which it operates. A material change inapplicable laws and regulations, or in their interpretation or enforcement, may require the Group to alter its
71business strategy, leading to additional costs or loss of revenue, which may have a material adverse effect on theGroup’s business, results of operations, financial condition and prospects.
40. The Group’s business, results of operations, financial condition and prospects may be materiallyadversely affected by violations of antitrust laws.
Due to increasingly active scrutiny by regulators and its global span leading to presence in certain markets
where the risk of non-compliance with antitrust laws is perceived to be relatively high, the Group remains
exposed to non-compliance with its general business principles in this area. The Group has implemented anelaborate compliance program to address these risks, entailing deployment of controls including raisingawareness via training and communication campaigns. However, the Group’s compliance program and internal
control policies and procedures have not always and, in the future, may not always protect the Group fromreckless or negligent acts, including illegal contacts with competitors, restriction of e-commerce and pricing
restrictions on distributors. Antitrust law violations, allegations of such violations and related investigations maylead to fines, legal proceedings, harm the Group’s reputation and disrupt the Group’s business, potentiallyresulting in a material adverse effect on the Group’s business, results of operations, financial condition andprospects.
41. The Group’s business and operations may be adversely affected by violations of the U.S. Foreign Corrupt
Practices Act, the United Kingdom Bribery Act 2010 or similar worldwide anti-bribery laws.
The Group’s international operations require it to comply with international and national laws andregulations regarding anti-bribery and anti-corruption, including the U.S. Foreign Corrupt Practices Act and theUnited Kingdom Bribery Act 2010. These laws and regulations, for example, prohibit improper payments toforeign officials and private individuals for the purpose of obtaining or retaining business and may include
reporting obligations to relevant regulatory and governmental bodies. The scope and enforcement of anticorruption laws and regulations may vary.
The Group operates in parts of the world, that have experienced governmental corruption to some degree,
including high risk markets in Asia and Africa, and in certain circumstances, strict compliance with anti-bribery
laws and reporting obligations may conflict with local customs and practices. In its international operations,employees of the Group frequently interact with government officials with respect to lighting projects, which
account for a significant portion of the Group’s sales. In addition, the Group makes use of third parties, also in
high-risk markets, which pose an inherent risk to strict compliance with anti-bribery and anti-corruption laws.
The Group’s compliance programs, internal controls, policies and procedures have not always and, in the future,
may not always protect the Group from reckless or negligent acts, including bribery of government officials andprivate individuals, petty corruption and misuse of corporate funds, committed by the Group’s employees oragents, particularly given the decentralized nature of the Group and its use of joint venture arrangements.
Violations of these laws, or allegations of such violations, may lead to fines or harm the Group’s reputation andmay disrupt the Group’s business and result in inaccurate books and records, each of which may have a material
adverse effect on the Group’s business, results of operations, financial condition and prospects.
42. The Group is subject to stringent data privacy laws and may therefore be exposed to increased
compliance costs and to confidentiality and security breaches.
The Group is subject to complex and evolving European and other jurisdictions’ laws and regulations
regarding the collection, retention, sharing and protection of data which the Group receives from, and which
concern, customers, as well as its employees and third parties it deals with. Many of these laws and regulations
are subject to change and new, additional requirements may require the Group to modify its business practices
and develop new systems and processes, which may increase costs of operations. The Group makes use ofinnovative products and services that give rise to increased risk of non-compliance under the legal data protection
frameworks. Members of the Group that are subject to European data protection laws and process or have third
party service providers process personal data in jurisdictions that do not offer a similar level of data protection
are subject to an increased risk of non-compliance with EU data protection legislation. Security breaches maylead to unlawful use of personal data for which the Group is responsible, as well as notification obligations
towards data protection authorities or individuals, damage to the Group’s reputation and claims from individuals.
Any failure to comply with privacy laws and regulations or data protection policies may lead to fines and mayundermine the Group’s reputation and may have a material adverse effect on the Group’s business, results ofoperations, financial condition and prospects.
43. The Group’s business and operations may be adversely affected by violations of export control laws andinternational sanctions.
Sanctions regimes imposed by governments, including those imposed by the EU, the United States and its
Office of Foreign Assets Control, or other countries or international bodies prohibit the Group from engaging in72

trade or financial transactions with certain countries, businesses, organizations and individuals. The Group’s
operations in certain countries, the products it handles, and the services it renders could bring it within the scopeof such sanctions regimes. Moreover, the legislation, rules and regulations which establish sanctions regimes areoften broad in scope, and in recent years, governments have increased and strengthened such regimes.
A violation of European, United States or international sanctions or export control laws may result in finesor other penalties that may have a negative impact on the Group’s reputation and the ability to conduct businessin certain jurisdictions or access the U.S. or international capital markets. Any sanctions regime may, even
without it being violated by the Group, accordingly have a material adverse effect on the Group’s business,
results of operations, financial condition and prospects.
44. The Group is exposed to financial reporting and internal controls risks.
The Group’s management has established specific accounting and reporting procedures in relation to,amongst other things, its revenue recognition process, taxation and other complex accounting issues. A risk
rating is assigned for each risk identified based on the likelihood of occurrence and the potential impact of therisk on the financial statements and related disclosures. In determining the probability that a risk will result in a
misstatement of a more than inconsequential amount or material nature, the following factors are considered tobe critical: complexity of the associated accounting activity or transaction process, history of accounting andreporting errors, likelihood of significant (contingent) liabilities arising from activities, exposure to losses,
existence of a related party transaction, volume of activity and homogeneity of the individual transactions
processed and changes to the prior period in accounting characteristics compared to the previous period. Any
failure to prevent and detect errors and fraud, including by customers, within the implementation of the Group’s
accounting and reporting procedures may affect its reputation, business, results of operations, as well as its
ability to meet its commercial objectives, and may expose the Group to penalties and fines for violations ofaccounting or financial reporting obligations. In addition, because the reliability of financial reporting isimportant in ensuring that management decisions for steering the businesses and managing both top-line andbottom-line growth are based on top-quality data, inaccurate financial reporting could result in theimplementation of policies and strategies based on erroneous information. The correctness of disclosures also
provides investors and other market professionals with significant information for a better understanding of theGroup’s business. Imperfections or lack of clarity in the disclosures may create market uncertainty regarding thereliability of the data presented and may have a negative impact on the Group’s share price. Any errors infinancial reporting or failures in internal controls may require subsequent corrections to the financial informationof the Group or result in significant corrective costs. Any of the foregoing risks may have a material adverse
effect on the business, results of operations, financial condition and prospects of the Group.
45. The Group conducts its business in multiple jurisdictions and is exposed to the tax laws of suchjurisdictions, including risks in connection with challenges to its tax position.
The Group operates on a global basis and is therefore subject to the tax laws and regulations of different
jurisdictions. Given that tax laws and regulations are subject to frequent change and their meaning is not always
clear-cut or definitive, the tax positions taken by the Group are sometimes based on the Group’s interpretationsof such laws and regulations. The Group cannot guarantee that such interpretations will not be questioned by therelevant authorities. Further, the authorities may not agree with the tax advice that the Group receives from its
outside tax advisors. Also, in some of the jurisdictions in which the Company operates, in particular emerging
markets (such as India and Brazil), the legal systems are in varying stages of development. This creates anuncertain business and investment environment and related additional risks. More generally, any failure tocomply with the tax laws or regulations applicable to the Group may result in reassessments, late payment
interest, fines and penalties. In addition, as a global business, the Group’s effective average tax rate from period
to period will be affected by many factors, including changes in tax legislation, global mix of earnings, the tax
characteristics of the Group’s income, the timing and recognition of goodwill impairments, acquisitions anddispositions, adjustments to the Group’s reserves related to uncertain tax positions and changes in valuation
allowances. Also, a material change in applicable laws and regulations, or in their interpretation or enforcement,
may force the Group to alter its business strategy, leading to additional costs or loss of revenue. If, as a result of aparticular tax risk materializing, the tax costs associated with particular transactions are greater than anticipated,
it may affect the profitability of those transactions. As future developments are uncertain and partly beyond
management’s control, assumptions are necessary to estimate future taxable profits as well as the period in which
deferred tax assets will recover. Any significant increase in the Group’s tax burden due to the factors describedabove is likely to have a material adverse effect on its cash flows, results of operations, financial condition andprospects.
The Group currently expects that its effective income tax rate (without giving effect to the impact of the
Separation; see “Separation—Tax” and Note 5 to the Condensed Combined Interim Financial Statements for73

more information on the anticipated tax impact of the Separation) will be in the low thirties for the year ending
31 December 2016 and expects it will move below thirty per cent in the medium term. See Note E.8 of the
Combined Financial Statements for more information. However, no assurances can be made in this regard. A
higher than anticipated effective income tax rate could have an adverse impact on the Group’s cash flows, resultsof operations, financial condition and prospects.
The Group is also expected to face certain tax risks in relation to the Separation, as further explained in “Thehistory of the combined Group, the Separation of the Group from Royal Philips and the Offering may result inadverse tax consequences” above.
46. The Group is subject to environmental liability risks and regulations and incurs costs to comply with such
regulations.
Costs and obligations in connection with environmental matters are inherent to the Group’s past, present andfuture operations. The Group’s operations are subject to laws and regulations in Europe, the United States andother countries in which it operates, which govern the use and discharge of materials into the environment orotherwise relating to the environment. The Group is also active in certain jurisdictions in which limited
environmental legislation has been implemented or in which laws and regulations can be implemented withretroactive effect. Implementation of or changes to such legislation may lead to unexpected liabilities of theGroup. Furthermore, certain environmental liabilities not directly relating to the Group have been allocated to theGroup as part of the Separation (see “Separation—Allocation of Assets and Liabilities”).
Some of the Group’s manufacturing facilities and sites have been used for industrial purposes for decades
and as such, there is a latent risk that these premises may have environmental conditions that require corrective
actions as a result of such use. Furthermore, violations or sites with certain environmental conditions that theGroup does not know about—including conditions caused by prior owners and operators of such sites, conditions
caused by the Group to divested sites, or newly discovered information—may result in additional compliance or
corrective actions or other liabilities, which may be material. Even if the Group is not responsible for the specificcondition, the Group may be held responsible for the examination and potential corrective actions of plants
formerly or presently owned or leased by the Group by law or under contractual obligations, for example in casesof certain soil or groundwater conditions. Although the Group typically agrees to receive (partial) reimbursementof environmental costs from former owners or operators of manufacturing sites, the Group may in practice not beable to fully recover these costs due to various reasons (e.g., insolvency of responsible entity).
In addition, some of the buildings owned or leased by the Group may contain hazardous materials likeasbestos that would eventually have to be removed. Environmental liabilities may arise, including clean-up
obligations at these sites or at off-site locations where materials from the Group’s operations were disposed of,which may result in future expenditures that currently cannot be quantified. Accordingly, the Group’s provisions
recognized in accordance with the International Financial Reporting Standards (“IFRS”) as endorsed by theEuropean Union and as issued by the International Accounting Standards Board (“IASB”) may not be sufficient,but are a reflection of the current best knowledge and may be subject to future adjustments based on progressive
insight. Moreover, future developments in environmental regulations may require the Group to increase
expenditures for environmental compliance beyond the levels currently anticipated, or have other unanticipatedeffects. For example, changes to the EU Waste Electrical and Electronic Equipment Directive and related
regulations may expose the Group to increased costs with respect to the recycling and collection of the Group’s
products, such as increased waste management fees, which increased costs the Group may not be able to (fully)
pass on to its customers. Furthermore, the previous and future existence of hazardous materials such as thepresence of asbestos in the Group’s manufacturing facilities or the previous or ongoing use of hazardous
substances such as lead, mercury or hazardous dust in the production or the release of hazardous ionizing or nonionizing radiation in the production process may, due to the potential exposure of people, especially employees
or other people working on the Group’s sites, despite all precautions, result or have resulted in healthimpairments or illnesses, for the consequences of which, including examinations, treatment and compensation,
the Group may be held liable even if the Group is not at fault.
If one or more of these risks materializes, this may have a material adverse effect on the Group’s
competitive situation, its reputation and its business, results of operations, financial condition and prospects.
Financial Risks
47. The Group is exposed to the movement of foreign currency exchange rates, particularly versus the euro.
The Group is engaged in an international business that operates in, and makes sales into, countries withdifferent currencies. In particular, the Group has significant sourcing and manufacturing spend in currencies suchas the U.S. dollar and Chinese renminbi, while much of the Group’s sales are in euro. As a result, the Group is74

exposed to foreign currency exchange rate risks in the ordinary course of its operations when transactions are
executed or assets and liabilities are denominated in a currency other than the Group’s reporting currency, theeuro. The Group is primarily affected by movements in foreign currency exchange rates in two ways: (i) throughtranslation of foreign currency financial statements into euro during consolidation, referred to as translation risk,and (ii) through transactions by subsidiaries in the Group in currencies other than their own functional currencies,
referred to as the transaction risk.
Translation Risk. Translation risk arises during the preparation of the Group’s consolidated financial
statements. In particular, the Group presents its consolidated financial statements in euro, while the functional
currency of each of the Group’s subsidiaries depends on the primary economic environment of that subsidiary.
As a result of its global operations, the Group has a number of subsidiaries located outside the euro zone and witha functional currency other than the euro. In preparing the consolidated financial statements, the assets andliabilities of foreign non-euro operations, including goodwill and fair value adjustments arising on acquisition,
are translated to euro at exchange rates at the reporting date. The income and expenses of foreign operations aretranslated to euro at exchange rates at the dates of the transactions. Accordingly, movements in foreign currency
exchange rates against the euro may result in an adverse change in the reported income or balance sheet items
from non-euro operations. Examples of translation risk to which the Group may be exposed include:•translation exposure of net income in foreign operations. The Group’s income from operations is sensitive inparticular to movements in the U.S. dollar (including currencies pegged to the U.S. dollar) and a wide rangeof other currencies from developed and emerging markets. Therefore a strong U.S. dollar and Chinese
renminbi would generally have a negative impact on the Group’s income from operations. Income fromoperations is also sensitive to movements in currencies from countries where the Group has little or no
manufacturing/sourcing activity, such as the United Kingdom, Canada and a range of emerging markets
such as India, Indonesia, Mexico, Thailand and Brazil;•translation exposure of foreign-currency intercompany and external debt and deposits. The Group generally
carries foreign-currency intercompany and external debt and deposits on the balance sheet of the Group’s
foreign operations. Movements in foreign currency rates may have an adverse impact on the value of suchbalance items when translated into euro;•translation exposure of foreign-currency denominated equity invested in consolidated subsidiaries; and•translation exposure to equity interests in non-functional-currency investments in associates and availablefor-sale financial assets.

In the three month period ended 31 March 2016, the Group estimates that foreign currency exchange rate
fluctuations (reflecting the impact of both translation and transaction exposure) had a negative impact on
adjusted EBITA of approximately 300 basis points as compared to the three month period ended 31 March 2015,
primarily as a result of devaluations of a number of currencies against the Euro, most notably in Latin America(including the Brazilian real and the Argentine peso). This impact included an estimated negative impact ofapproximately 170 basis points from underlying foreign exchange rate fluctuations (excluding measures taken in
response to the foreign currency exchange rate movements) for the three month period ended 31 March 2016, as
well as an estimated positive impact of approximately 130 basis points for non-recurring positive working capital
revaluation in the three month period ended 31 March 2015. The Group does not expect the latter impact to recur
for the remainder of 2016, as the majority of balance sheet positions are hedged as a result of changes to theGroup’s hedging policies implemented in the course of 2015.
Transaction Risk. Transaction risks arise when the Group’s subsidiaries conduct transactions in currencies
other than their own functional currency. The Group is therefore exposed to foreign currency risks in connection
with scheduled payments and receipts in multiple currencies. Examples of transaction risk to which the Groupmay be exposed include transaction exposures related to sales and purchases in currencies other than thefunctional currency and the on-balance-sheet receivables/payables resulting from such transactions.
It is the Group’s policy to reduce the 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, using forwards and currency options. The Group’s policy requires significant committed foreign
currency exposures to be fully hedged, generally using forwards. However, not every foreign currency can or will
be hedged as there may be regulatory barriers or prohibitive hedging cost preventing the Group from effectively
or efficiently hedging its currency exposures. As a result, hedging activities cannot and will not eliminate all
currency risks for transaction exposures. The Group estimates that approximately 10% of its current foreign
currency exposure will not be hedged. In addition, the Group’s hedging strategies may be based on estimates for
future transactions denominated in a foreign currency or other assumptions, and such estimates and assumptions
may prove to be incorrect or inaccurate in the future.
75

In addition, the movement of foreign currency exchange rates may also affect the Group’s competitive
position. Unlike certain of the Group’s competitors which generate sales and incur costs within a specificgeographic region, the Group’s sourcing and manufacturing spend in certain currencies, in particular the U.S.
dollar and Chinese renminbi, exceeds sales from these currencies. Accordingly, to the extent this currency
exposure is not or not effectively hedged, an appreciation of those currencies may result in a relative increase in
the Group’s reported costs of goods sold as compared to competitors which incur costs and generate sales in thesame currency. As a result, the Group may be forced to offer its products only at a comparatively higher price orto accept lower gross margins if foreign currency exchange rates develop unfavorably.
Any of the foregoing foreign currency exchange rate related risks may have a material adverse effect on theGroup’s business, results of operations and financial condition.
48. The Group is exposed to the risk of restricted access to debt funding.
Negative economic and political developments and adverse business performance or outlook could affectthe ability of the Group to raise or refinance debt in the bank markets or in the capital markets or could have amaterial adverse effect on the terms and conditions (including covenants) under which debt can be raised or
renewed. This could result in increases in the cost of such borrowing and could have a material adverse effect on
the Group’s liquidity and ability to run its business.
The Company will enter into a credit agreement (the “Credit Agreement)” establishing two term loan
facilities in the amounts of €740 million and $500 million (the “Term Loan Facility”), and a multi-currency
revolving credit facility in a maximum amount of €500 million (the “Revolving Credit Facility”). The Credit
Agreement requires the Group to maintain a net leverage ratio (ratio of net debt to EBITDA) of not more than 3.0
to 1.0, compliance with which could limit the Group’s ability to incur indebtedness and finance future capitalneeds and pursue acquisitions and other business activities that may be in the Group’s interest (see “Operating
and Financial Review—Financing Structure Following the Offering”). A default under the Credit Agreement orother existing or future debt incurred could result in a cross-default or cross-acceleration, causing borrowers
under other debt instruments that contain such provisions to become due and payable. The Group’s assets andcash flow may not be sufficient to fully repay such borrowings in all circumstances.
If the Company has obtained a credit rating and the markets expect a downgrade by the rating agencies or ifsuch a downgrade has actually taken place, it may adversely affect the availability, terms and conditions and costof borrowing, which may have a material adverse effect on the Group’s business, results of operations andfinancial condition.
49. The Group is exposed to interest rate risks.
The Company expects to maintain a capital structure with debt leverage levels that allow it to pursue its
growth objectives while maintaining its dividend policy. The Term Loan Facility and the Revolving Credit
Facility bear interest at a variable rate of interest linked to the relevant applicable EURIBOR or LIBOR (see“Operating and Financial Review–Financing Structure Following the Offering”). The Group expects to fully
draw the Term Loan Facility by the Settlement Date but does not expect to utilize the Revolving Credit Facility
immediately. Adverse fluctuations and increases in interest rates, to the extent that they are not effectively
hedged, could have a material adverse effect on the Group’s business, results of operations and financial
condition.
50. The Group may be adversely affected by regulatory restrictions on cross border payment flows orcurrency conversions.
The Group operates in approximately 180 countries and supplies these markets from manufacturing
operations mainly in the United States, Mexico, China and Europe. The supply chain from these manufacturing
operations to the markets where the Group’s products and services are sold requires the ability to make regularcash payments from these markets to the manufacturing operations. The Group operates a global network of bankaccounts to centralize/pool cash and the Group provides intercompany funding to some foreign subsidiaries. The
Group is experiencing regulatory cash payment/currency conversion restrictions in countries such as Egypt,
Argentina and, to a lesser extent, in other emerging market countries. Such regulatory restrictions on foreign
currency conversions or cross border payments may adversely affect the Group’s ability to conduct its regularbusiness and block the Group’s unrestricted access to and use of its cash resources, which may have a material
adverse effect on the business, results of operations, financial condition and prospects of the Group.
51. The Group is exposed to counterparty/credit risk from customers and financial institutions.
As part of its normal business operations, the Group extends credit to its customers and is exposed to therisk that trade receivables are not paid in full by customers. The Group is also exposed to counterparty risk
76related to derivative contracts with banks, cash deposits at banks and receivable claims from insurancecompanies. In case of defaults, the Group may not be legally able to offset payment obligations against
receivables. The provision for doubtful accounts involves significant judgement and review of individual
receivables based on individual customer creditworthiness, current economic trends and analysis of historical bad
debts on a portfolio basis. As of 31 March 2016, the Group has made a provision in its financial statements in an
amount of approximately €124 million. Defaults by customers or financial counterparties may have a material
adverse effect on the business, results of operations, financial condition and prospects of the Group.
52. The Group is exposed to a number of different fiscal uncertainties which may have a significant impact
on local tax results.
The Group operates on a global basis and is therefore exposed to a number of different tax uncertainties
which could result in double taxation, penalties and interest payments. These include uncertainties in respect of
the transfer pricing of internal cross-border deliveries of goods and services and tax uncertainties related to thecost allocation with regard to head office expenses. If tax authorities impose significant additional tax liabilities
as a result of transfer pricing adjustments, this may have a material adverse effect on the Group’s financial
condition and results of operations and may lead to double taxation. It is also possible that tax authorities in the
countries in which the Group operates will introduce additional revenue raising measures. Those uncertainties
may have a significant impact on local tax results, which in turn may adversely affect the Group’s business,
results of operations and financial condition.
Also, the Organization for Economic Co-operation and Development (the “OECD”) is engaged in a projectto equip governments with domestic and international instruments to address the double non-taxation and toensure that profits are taxed where economic activities generating the profits are performed and where value iscreated, namely the anti-Base Erosion and Profit Shifting Project (BEPS). In this context, the OECD has
developed 15 actions, the effects of which may force the Group to alter its business strategy, which may have amaterial adverse effect on the Group’s business. The following actions are in particular relevant to the Group.
The actions contain transfer pricing guidance to ensure that transfer pricing outcomes are in line with value
creation in relation to intangibles (including hard-to-value ones) to risks and capital, and to other high-risk
transactions (actions 8, 9 and 10) as well as new rules as to the required transfer pricing documentation andreporting (action 13). The actions also contain new guidance on the limitation of the deductibility of interest(action 4) and recognition of taxable presence in the form of a permanent establishment (action 7). On 5 October
2015, the OECD published final reports regarding these actions. The G20/OECD will undertake further work in2016 on transfer pricing in the context of these actions.
Given that the Group envisages funding several of the Group Companies through (intragroup) loan
financing, new rules in the spirit of action 4 (such as the rules proposed by the European Commission in the draft
anti avoidance directive) could further limit the tax deduction of interest expenses. Also new U.S. proposed
regulations—if finalized in their current form (or possibly in broader form)—could re-characterize certain
intragroup debt as equity for U.S. federal income tax purposes. If these regulations were to apply to the Group,
they may significantly limit the tax deduction of interest expenses or result in dividend income to Group
Companies.
In addition, the Group’s direct export business models, through which a material amount of the Group’s
sales are realized, are by their nature prone to the challenge by tax authorities in the countries where the sales are
made. In such case the tax authorities may take the position that the Group’s sales activities give rise to a taxable
presence (permanent establishment) in such country. Such challenges may increase if the threshold for the
existence of a taxable presence (permanent establishment) in a country is lowered.
The Group’s current transfer pricing policy is coherent with the transfer pricing rules and principles laid
down in the final reports for actions 8, 9 and 10. However, given the size of the intangibles created and owned by
the Group in combination with material transactions that include intangibles, the implementation of the actions 8,
9 and 10 may entail significant risks for the Group. The exact impact on the Group’s resources is not clear at thedate of this Prospectus.
Action 13 will increase the overall compliance burden for the Group and may lead to more questions on thetransfer pricing methods applied by the Group. Any disparities between the interpretation of transfer pricing
principles by the various tax authorities involved could have a material impact on the Group’s transfer pricing andtax position. Furthermore, there has in recent years been an increased interest by governments, political parties, themedia and the public in the tax affairs of companies. This increased interest may also apply to the Group’s tax
policy or the tax affairs of the Group’s clients. Changes as to what is perceived by governments or by the public tobe appropriate, ethical or sustainable behavior in relation to tax may lead to a situation where the Group’s tax policy
is in line with all applicable tax laws, rules and regulations, but nevertheless comes under public scrutiny. These twodevelopments may lead to reputational damage and damage to the brand used by the Group.
7753. The Group may be subject to risk of impairment of goodwill of acquired businesses.
The Group has acquired several companies and businesses in the past in particular to strengthen its
professional luminaires and systems businesses as well as its consumer luminaires business. Acquisitions often leadto goodwill being recognized in the Group’s balance sheet. Goodwill represents the consideration paid for theacquired businesses in excess of the fair value of identifiable assets and liabilities as of the acquisition date.
Goodwill and other acquired intangible assets expected to contribute indefinitely to the Group’s cash flows are notamortized, but are evaluated for impairment by the Group’s management at least annually, as well as whenever
there are events or changes in circumstances which suggest that the carrying amount may not be recoverable.
Goodwill recorded on the Group’s balance sheet amounted to €1,844 million as of 31 December 2015 and €1,781
million as of 31 March 2016. BG Professional and BG Home reported limited headroom in the 2015 annual
impairment test and therefore adverse changes could cause an impairment loss to be recognized. See Note E.12 to
Combined Financial Statements for further information. If the value of goodwill or other acquired intangible assets
is impaired, this may have a material adverse effect on the Group’s results of operations and equity.
54. The Group has pension plans and retiree medical benefit plans in a number of countries. The funded
status and the cost of maintaining these plans are influenced by movements in financial market anddemographic developments and may adversely affect the Group’s financial condition.
Following the Separation, certain defined-benefit plans, defined-contribution plans and retiree medical
benefit plans were allocated to the Group. For more information see “Separation—Allocation of Assets andLiabilities—Pensions” and “Actual pension liabilities and costs following the Separation may differ significantly
from those set out in the Combined Financial Statements” above. The retiree medical benefit plans are not funded
and some of the defined-benefit plans are not funded or not fully funded.
For unfunded plans (i.e., retiree medical benefit plans and some defined-benefit plans) the Group pays
benefits to former employees from its operating cash flow. Changes in key assumptions (e.g., longevity, cost of
medical care) may result in higher or extended cash payments and an adverse impact on the Group’s pension
liabilities, its results of operations and financial condition.
For defined-benefit plans that are (partially) funded, the Group may be required to provide additional cash
funding from time to time. The accounting for retiree medical benefit plans and defined-benefit pension plans
requires management to make estimates on discount rates, inflation, longevity and expected rates ofcompensation. Movements (e.g., due to the movements of financial markets) in these assumptions can have asignificant impact on the defined benefit obligations, pension cost and cash contributions. A negative
performance of the financial markets may have a material impact on the value of defined-benefit plan assets andcreate or increase the need to provide immediate or delayed cash funding.
The Group may partially or wholly settle defined-benefit obligations from time to time at a cost that exceeds
the accounting valuation of the defined-benefit obligations. Such settlement will require the Group to provide
additional cash funding and triggers one-off settlement charges in the earnings of the Group.
Management has assessed the accounting treatment (defined-benefit or defined-contribution) for each postretirement benefit plan on the basis of applicable accounting rules, existing legal and regulatory requirements,
funding agreements and any other available facts or circumstances. Future changes in legislation or regulations,accounting rules or other facts or circumstances may require the Group to reassess this accounting classificationand subsequently recognize or de-recognize defined-benefit obligations in its balance sheet. For example, thePhilips Pensionskasse in Germany of which the Group is a co-sponsor is currently accounted for as a defined
contribution plan. Such re-classification of accounting treatment may have significant one-off and continuing
adverse impact on the Group’s results from operations and financial condition, potentially with retrospective
application on financial reporting from prior years.
Risks Relating to the Ordinary Shares
55. The payment of future dividends will depend on the Group’s results of operations and financial
condition, as well as on the Group’s operating subsidiaries’ distributions to the Company.
The Company is a holding company with no material, direct business operations. The principal assets of theCompany are the equity interests it holds in its operating subsidiaries. As a result, the Company is dependent on
the results of operations from these subsidiaries to pay dividends. The Company may only make distributions to
its shareholders insofar as the Company’s equity exceeds the sum of the paid-in and called-up share capitalincreased by the reserves as required to be maintained by Dutch law or by the Articles of Association. The Boardof Management may furthermore determine, subject to the approval of the Supervisory Board, that any amountout of the profit remaining after any distribution on preference shares in the share capital of the Company with a78

nominal value of €0.01 each (“Preference Shares”), if any, will be added to the reserves. The remaining profit
amount will be at the disposal of the General Meeting, which may resolve to carry it to the reserves or to
distribute it among the holders of Ordinary Shares. The Board of Management may resolve, subject to theapproval of the Supervisory Board, to make interim distributions to shareholders. The General Meeting may also
resolve to make an interim distribution on the proposal of the Board of Management, subject to the approval of
the Supervisory Board. The Company’s ability to pay dividends if determined based on its unconsolidated
financial statements in accordance with IFRS. There can be no assurance that any dividends will be paid or that,
if paid, they will correspond to the Company’s dividend policy. In addition, the Company has not established ashare buyback program and there can be no assurance that such program will be established in the future.
56. Future issuances of Ordinary Shares or debt or equity securities convertible into Ordinary Shares by theCompany, or future sales of a substantial number of Ordinary Shares by Royal Philips or the perception
thereof, may adversely affect the market price of the Ordinary Shares, and any future issuance ofOrdinary Shares may dilute investors’ shareholdings. Although the Company and Royal Philips are
expected to agree in the Underwriting Agreement to certain restrictions on issuing, selling or transferring
Ordinary Shares for a period of 180 days after the Settlement Date, the Joint Global Coordinators may, intheir sole discretion and at any time, waive such restrictions.
Prior to or on the Settlement Date, the General Meeting will designate the Board of Management for aperiod that ends 18 months following the Settlement Date, as the corporate body authorized to, subject toapproval of the Supervisory Board, issue Ordinary Shares or grant rights to subscribe for Ordinary Shares and to
restrict or exclude pre-emptive rights in respect thereof. Pursuant to this designation, the Board of Management
may, subject to approval of the Supervisory Board, resolve to issue Ordinary Shares or grant rights to subscribe
for Ordinary Shares (i) up to a maximum of 10% of the total number of Ordinary Shares issued and outstandingon the Settlement Date plus (ii) an additional 10% of the total number of Ordinary Shares issued and outstandingon the Settlement Date in connection with or on the occasion of mergers, acquisitions and strategic alliances.
Such authorization may from time to time be extended by a resolution of the General Meeting. See also
“Description of Share Capital–Issuance of Shares”. Pursuant to this designation, the Board of Management may
resolve to issue Ordinary Shares or grant rights to subscribe for Ordinary Shares up to a maximum of 10% of thenumber of Ordinary Shares issued as of the Settlement Date and to limit or exclude pre-emptive rights in relation
thereto.
The Group may in the future seek to raise capital through public or private debt or equity financings by
issuing additional Ordinary Shares, debt or equity securities convertible into Ordinary Shares or rights to acquire
these securities and exclude the pre-emptive rights pertaining to the then outstanding Ordinary Shares. In
addition, the Group may in the future seek to issue additional Ordinary Shares as consideration for or otherwise
in connection with the acquisition of new businesses. Furthermore, the Group may issue new Ordinary Shares in
the context of any new employment arrangement for involving employees in the capital of the Company. The
issuance of any additional Ordinary Shares may dilute an investor’s shareholding interest in the Company.
Furthermore, any additional debt or equity financing the Group may need may not be available on terms
favorable to the Group or at all, which may adversely affect the Group’s future plans and the market price of theOrdinary Shares. Any additional offering or issuance of Ordinary Shares by the Company or the perception that
an offering or issuance may occur may also have a negative impact on the market price of the Ordinary Sharesand may increase the volatility in the trading price of the Ordinary Shares.
The market price of the Ordinary Shares may decline if substantial numbers of Ordinary Shares are sold by
the Selling Shareholder in the public market or if there is a perception that such sales could occur. Furthermore, asale of Shares by any or all of the members of the Board of Management could be considered as a lack ofconfidence in the performance and prospects of the Group and may cause the market price of the Shares todecline. Although the Selling Shareholder and the Company are expected to agree with the Underwriters,
pursuant to the underwriting agreement expected to be dated on or about 26 May 2016 among the Company, theSelling Shareholder and the Underwriters (the “Underwriting Agreement”), to restrictions on their ability toissue, sell or transfer Ordinary Shares for a period of 180 days after the Settlement Date, the Joint Global
Coordinators may, in their sole discretion and at any time, waive such restrictions on issuances, sales or transfers.
See “Plan of Distribution—Lock-up Arrangements”.
57. Holders of Ordinary Shares outside the Netherlands may suffer dilution if they are unable to exercise
pre-emptive rights in future offerings.
In the event of an increase in the Company’s Share capital, holders of Ordinary Shares are generally entitled
to full pre-emptive rights unless these rights are limited or excluded either by virtue of Dutch Law, a resolutionof the General Meeting on the proposal of the Board of Management which has been approved by theSupervisory Board, or by a resolution of the Board of Management subject to the approval of the Supervisory
79Board (if the Board of Management has been designated by the General Meeting or the Articles of Association
for this purpose). However, certain holders of Ordinary Shares outside the Netherlands may not be able toexercise pre-emptive rights, and therefore suffer dilution, unless local securities laws have been complied with.
In particular, U.S. holders of Ordinary Shares may not be able to exercise their pre-emptive rights orparticipate in a rights offering, as the case may be, unless a registration statement under the U.S. Securities Act,is effective with respect to such rights or an exemption from the registration requirements is available. The Groupintends to evaluate at the time of any issue of Ordinary Shares subject to pre-emptive rights or in a rights
offering, as the case may be, the costs and potential liabilities associated with any such registration statement, as
well as the indirect benefits to it of enabling the exercise of U.S. holders of their pre-emptive rights to Ordinary
Shares or their participation in a rights offering, as the case may be, and any other factors considered appropriate
at the time and then to make a decision as to whether to file such a registration statement. The Group cannot
assure investors that any registration statement would be filed as to enable the exercise of such holders’ preemptive rights or participation in a rights offering.
58. Provisions in the Articles of Association and in contracts concluded by the Group may delay, deter or
prevent takeover attempts that may be favorable to the holders of Ordinary Shares.
The Articles of Association contain protection provisions that may have the effect of preventing,discouraging or delaying a change of control. Provisions of the Articles of Association could make it difficult for
the Company’s Shareholders to change, or prevent its Shareholders from changing, the composition of the Boardof Management and Supervisory Board. The Articles of Association provide that members of the Board ofManagement and members of the Supervisory Board can be appointed only by the General Meeting upon anomination by the Supervisory Board. The Supervisory Board may resolve that the nomination will have abinding nature.
In relation to a removal of a member of the Board Management or the Supervisory Board, other thanpursuant to a resolution proposed by the Supervisory Board, such a resolution of the General Meeting would
require an absolute majority of the votes cast representing more than one-third of the issued Share capital. The
Articles of Association impose various procedural and other requirements, which could make it difficult for
Shareholders to effect certain corporate actions. These provisions may substantially impede the ability of the
Shareholders to benefit from a change in control and, as a result, may materially adversely affect the market priceof the Ordinary Shares.
Prior to or on the Settlement Date, the General Meeting will designate the Board of Management for aperiod that ends 18 months following the Settlement Date, as the corporate body authorized to, subject toapproval of the Supervisory Board, issue Ordinary Shares or grant rights to subscribe for Ordinary Shares and to
restrict or exclude pre-emptive rights in respect thereof. Pursuant to this designation, the Board of Management
may, subject to approval of the Supervisory Board, resolve to issue Ordinary Shares or grant rights to subscribe
for Ordinary Shares (i) up to a maximum of 10% of the total number of Ordinary Shares issued and outstandingon the Settlement Date plus (ii) an additional 10% of the total number of Ordinary Shares issued and outstandingon the Settlement Date in connection with or on the occasion of mergers and acquisitions and strategic alliances.
Such authorization may from time to time be extended by a resolution of the General Meeting. See also
“Description of Share Capital—Issuance of Shares”. An issue of Ordinary Shares may make it more difficult fora Shareholder to obtain control over the General Meeting.
Prior to or on the Settlement Date, Stichting Continuïteit Philips Lighting (the “Foundation”) will be
granted a call option by the Company to acquire Preference Shares with a nominal value of €0.01 each. The
Foundation may not exercise the call option without the prior consent of the Selling Shareholder for so long as
the Selling Shareholder’s (direct or indirect) holding of Ordinary Shares represents 30% or more of the issued
and outstanding Ordinary Shares. On each exercise of the call option, the Foundation is entitled to acquire fromthe Company Preference Shares up to a maximum corresponding with 100% of the issued and outstanding sharecapital of the Company excluding the Preference Shares in the share capital of the Company as outstanding
immediately prior to the exercise of the call option, less one Ordinary Share, from which maximum any
Preference Shares already placed with the Foundation at the time of the exercise of the call option must be
deducted. The Foundation may exercise its option right repeatedly, each time up to the aforementioned
maximum. See “Description of Share Capital—Response Measures”. The issuance of Preference Shares in thismanner would cause substantial dilution to the voting power of any Shareholder, including a Shareholder
attempting to obtain control over the General Meeting, and may therefore have the effect of preventing,discouraging or delaying a change of control that might otherwise be in the interest of Shareholders, or haveotherwise resulted in an opportunity for Shareholders to sell the Ordinary Shares at a premium to the thenprevailing market price. This anti-takeover measure may have an adverse effect on the market price of theOrdinary Shares.
80

Risks Relating to the Offering and Offer Shares
59. The Ordinary Shares have not been publicly traded prior to the Offering, and there is no guarantee thatan active and liquid market for the Ordinary Shares will develop.
Prior to the Offering, there has been no public trading market for the Ordinary Shares. There can be noassurance that an active trading market for the Ordinary Shares will develop after the Offering or, if it does
develop, that it will be sustained or liquid. If such market fails to develop or be sustained, this may negatively
affect the liquidity and price of the Ordinary Shares, as well as increase their price volatility, which may
adversely affect the value of an investment in the Ordinary Shares.
60. The Company’s Ordinary Share price may fluctuate significantly, and investors may lose all or part oftheir investment.
The Offer Price may not be indicative for the market price of the Ordinary Shares after the Offering has
been completed. The market price of the Ordinary Shares may also fluctuate substantially due to various factors,some of which could be specific to the Group and its operations and some of which could be related to theindustry in which the Group operates or equity markets generally. As a result of these and other factors, theOrdinary Shares may trade at prices significantly below the Offer Price. The Company cannot guarantee that themarket price of the Ordinary Shares will not decline, and the Ordinary Shares may trade at prices significantly
below the Offer Price, regardless of the Group’s actual operating performance.
61. If closing of the Offering does not take place, purchases of the Ordinary Shares will be disregarded andtransactions effected in the Ordinary Shares will be annulled.
Application has been made to list the Ordinary Shares on Euronext Amsterdam under the symbol “LIGHT”.
The Company expects that the Ordinary Shares will be admitted to listing and that trading in the Ordinary Shares
will commence prior to the Settlement Date on the First Trading Date on an “as-if-and-when-delivered” basis.
The closing of the Offering may not take place on the Settlement Date or at all if certain conditions of eventsreferred to in Underwriting Agreement are not satisfied or waived or occur on or prior to such date (see “Plan ofDistribution”). Trading in the Ordinary Shares before the closing of the Offering will take place subject to thecondition that, if closing of the Offering does not take place, the Offering will be withdrawn, all applications for
the Ordinary Shares will be disregarded, any allotments made will be deemed not to have been made, any
application payments made will be returned without interest or other compensation and transactions on Euronext
Amsterdam will be annulled. All dealings in the Ordinary Shares prior to settlement and delivery are at the solerisk of the parties concerned. The Company, the Selling Shareholder, the Listing and Paying Agent, theUnderwriters, the Financial Adviser and Euronext Amsterdam N.V. do not accept any responsibility or liability
for any loss incurred by any person as a result of a withdrawal of the Offering or the related annulment of any
transaction on Euronext Amsterdam.

81

IMPORTANT INFORMATION
GeneralThe content of this Prospectus is not to be considered or interpreted as legal, financial or tax advice. It is notintended to provide the basis of any credit or other evaluation and should not be considered as a recommendation
by any of the Company, the members of its Supervisory Board and Board of Management, the Selling
Shareholder or any of the Underwriters, the Financial Adviser or any of their respective representatives that any
recipient of this Prospectus should subscribe for or purchase any Offer Shares. Prior to making any decision
whether to purchase the Offer Shares, prospective investors should read this Prospectus. Investors should ensurethat they read the whole of this Prospectus and not just rely on key information or information summarized
within it. Each prospective investor should consult his or her own stockbroker, bank manager, lawyer, auditor orother financial, legal or tax advisers before making any investment decision with regard to the Offer Shares, toamong other things consider such investment decision in light of his or her personal circumstances and in orderto determine whether or not such prospective investor is eligible to subscribe for the Offer Shares. In making an
investment decision, prospective investors must rely on their own examination of the Company, the Shares andthe terms of the Offering, including the merits and risks involved.
Prospective investors should rely only on the information contained in this Prospectus, the Pricing
Statement and any supplement to this Prospectus within the meaning of Section 5:23 FMSA. The Company does
not undertake to update this Prospectus, unless required pursuant to Section 5:23 FMSA, and therefore potential
investors should not assume that the information in this Prospectus is accurate as of any date other than the dateof this Prospectus. No person is or has been authorized to give any information or to make any representation inconnection with the Offering, other than as contained in this Prospectus, and, if given or made, any other suchinformation or representations must not be relied upon as having been authorized by the Company, the membersof the Board of Management or Supervisory Board, the Selling Shareholder, the Listing and Paying Agent, anyof the Underwriters, the Financial Adviser or any of their respective representatives. The delivery of thisProspectus at any time after the date hereof will not, under any circumstances, create any implication that there
has been no change in the Group’s affairs since the date hereof or that the information set forth in this Prospectus
is correct as of any time since its date.
No representation or warranty, express or implied, is made or given by the Listing and Paying Agent or on
behalf of the Underwriters, the Financial Adviser or any of their affiliates or any of their respective directors,
officers or employees or any other person, as to the accuracy, completeness or fairness of the information or
opinions contained in this Prospectus, or incorporated by reference herein, and nothing in this Prospectus, orincorporated by reference herein, is, or shall be relied upon as, a promise or representation by the Listing or
Paying Agent, the Underwriters or the Financial Adviser or any of their respective affiliates as to the past or
future. None of the Listing or Paying Agent and the Underwriters accepts any responsibility whatsoever for thecontents of this Prospectus or for any other statements made or purported to be made by either itself or on its
behalf in connection with the Company, the Selling Shareholder, the Group, the Offering or the Shares.
Accordingly, the Listing or Paying Agent and the Underwriters disclaim, to the fullest extent permitted byapplicable law, all and any liability, whether arising in tort or contract or which they might otherwise be found tohave in respect of this Prospectus and/or any such statement.
Although the Underwriters are party to various agreements pertaining to the Offering and each of theUnderwriters has or might enter into a financing arrangement with the Company and/or the Selling Shareholder
or any of their affiliates, this should not be considered as a recommendation by any of them to invest in the Offer
Shares.
The distribution of this Prospectus and the Offering may, in certain jurisdictions, be restricted by law, andthis Prospectus may not be used for the purpose of, or in connection with, any offer or solicitation by anyone inany jurisdiction in which such offer or solicitation is not authorized or to any person to whom it is unlawful tomake such offer or solicitation. This Prospectus does not constitute an offer of, or an invitation to, purchase any
Offer Shares in any jurisdiction in which such offer or invitation would be unlawful. The Company, the Selling
Shareholder and the Underwriters require persons into whose possession this Prospectus comes to informthemselves of and observe all such restrictions. None of the Company, the Selling Shareholder or theUnderwriters accepts any legal responsibility for any violation by any person, whether or not a prospective
purchaser of Offer Shares, of any such restrictions. The Company, the Selling Shareholder and the Underwriters
reserve the right in their own absolute discretion to reject any offer to purchase Offer Shares that the Company,
the Selling Shareholder, the Underwriters or their respective agents believe may give rise to a breach or violationof any laws, rules or regulations.

82

Responsibility Statement
This Prospectus is made available by the Company. The Company accepts responsibility for the information
contained in this Prospectus. In addition, the Selling Shareholder accepts responsibility for the information
contained in “Separation—Reasons for the Separation” and “Existing Shareholders and Related Party
Transactions—Existing Shareholders”. Each of the Company and the Selling Shareholder declares that having
taken all reasonable care to ensure that such is the case, the information contained in this Prospectus for which itis responsible is, to the best of its knowledge, in accordance with the facts and contains no omission likely toaffect its import.
Presentation of Financial Information
IFRS information
This Prospectus contains the Combined Financial Statements of the Group as of and for the years ended
31 December 2015, 2014, and 2013 and the accompanying notes. The Combined Financial Statements have been
prepared in accordance with IFRS. All standards and interpretations issued by the International AccountingStandards Board (“IASB”) and the IFRS Interpretations Committee effective as of 31 December 2015 have beenendorsed by the EU, except that the EU did not adopt certain paragraphs of IAS 39 applicable to certain hedgetransactions. The Group has no hedge transactions to which these paragraphs are applicable. Consequently, theaccounting policies applied by the Group also comply with IFRS as issued by the IASB. References to “IFRS”
should be construed as references to International Financial Reporting Standards as endorsed by the EU and as
issued by the IASB. The Combined Financial Statements have been prepared based on “carve-out” financial
information from the consolidated financial statements of Royal Philips for the purpose of presenting thefinancial position, results of operations and cash flow of the Group on a stand-alone basis. The Combined
Financial Statements have been prepared on a going-concern basis. The Combined Financial Statements havebeen audited by KPMG Accountants N.V. (“KPMG”) as set forth in their report thereon included in the
Combined Financial Statements.
This Prospectus also contains the condensed combined interim financial statements of the Group for thethree-month periods ended 31 March 2016 and 2015 and the accompanying notes (the “Condensed Combined
Interim Financial Statements”). The Condensed Combined Interim Financial Statements have been prepared on
the basis of IAS 34. The Condensed Combined Interim Financial Statements do not include all of the information
required for the Combined Financial Statements and should be read in conjunction with the Combined Financial
Statements. Ernst & Young Accountants LLP (“EY”) has issued a review report of the Condensed Combined
Interim Financial Statements as of and for the three month period ended 31 March 2016 as set forth in theirreport thereon included in the Condensed Combined Interim Financial Statements.
For a discussion of the presentation of the Group’s historical financial information included in thisProspectus, see “Operating and Financial Review—Basis of Presentation of Financial Statements”.
Non-IFRS financial measures
Certain parts of this Prospectus contain non-IFRS financial measures and ratios, such as comparable sales
growth, adjusted gross margin, EBITA, adjusted EBITA, EBITDA, adjusted EBITDA and free cash flow, andother related ratios, which are not recognized measures of financial performance or liquidity under IFRS.
The non-IFRS financial measures presented are not measures of financial performance under IFRS, but
measures used by management to monitor the underlying performance of the Group’s business and operations
and, accordingly, they have not been audited or reviewed. Further, they may not be indicative of the Group’s
historical operating results, nor are such measures meant to be predictive of the Group’s future results. These
non-IFRS measures are presented in this Prospectus because management considers them an important
supplemental measure of the Group’s performance and believes that they and similar measures are widely used in
the industry in which the Group operates as a means of evaluating a company’s operating performance andliquidity.
However, not all companies calculate non-IFRS financial measures in the same manner or on a consistentbasis. As a result, these measures and ratios may not be comparable to measures used by other companies under
the same or similar names. Accordingly, undue reliance should not be placed on the non-IFRS financial measurescontained in this Prospectus and they should not be considered as a substitute for income from operations, net
income, net cash provided by operating activities or other financial measures computed in accordance with IFRS.
The presentation of the non-IFRS measures in this Prospectus should not be construed as an implication that
the Group’s future results will be unaffected by exceptional or non-recurring items. See also “Operating and
Financial Review—Non-IFRS Financial Measures”.
83Rounding and negative amounts
Certain figures in this Prospectus, including financial data, have been rounded. Accordingly, figures shownfor the same category presented in different tables may vary slightly and figures shown as totals in certain tables
may not be an exact arithmetic aggregation of the figures which precede them.
In preparing the Condensed Combined Interim Financial Statements and the Combined Financial
Statements, most numerical figures are presented in thousands of euros. For the convenience of the reader of thisProspectus, certain numerical figures in this Prospectus are rounded to the nearest one million. As a result of thisrounding, certain numerical figures presented herein may vary slightly from the corresponding numerical figures
presented in the Condensed Combined Interim Financial Statements and the Combined Financial Statements.
The percentages (as a percentage of revenues or costs and period-on-period percentage changes) presented
in the textual financial disclosure in this Prospectus are derived directly from the financial information containedin the Condensed Combined Interim Financial Statements and the Combined Financial Statements. The
computation of such percentages may be computed on the numerical figures expressed in thousands of euros in
the Condensed Combined Interim Financial Statements and the Combined Financial Statements. Therefore, such
percentages are not calculated on the basis of the financial information in the textual disclosure that has been
subjected to rounding adjustments in this Prospectus.
In tables, negative amounts are shown between brackets. Otherwise, negative amounts may also be shownby “-” or “negative” before the amount.
Currency
All references in this Prospectus to “euro”, “EUR” or “€” are to the single currency introduced at the start of
the third stage of the European Economic and Monetary Union pursuant to the Treaty on the functioning of theEuropean Community, as amended from time to time. All references to “U.S. dollars”, “USD” or “$” are to thelawful currency of the United States.
Exchange rates
The Combined Financial Statements and Condensed Combined Interim Financial Statements have been
prepared by the Group in euros.
The table below sets forth, for the annual periods indicated, information regarding the period high, low,
average and period end noon buying rates in the City of New York for cable transfers in foreign currencies ascertified for customs purposes by the Federal Reserve Bank of New York for U.S. dollar per euro as published byBloomberg (“noon buying rates”). The average is computed calculated by using the average of the noon buying
rates on the last day of each month during the period.
Year

U.S. dollar(High)

U.S. dollar(Low)

U.S. dollar(Average)

U.S. dollar(Period end)

2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.29261.4875

1.39311.29732012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.2062

1.34631.28591.31862013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.2774

1.3816

1.32811.37792014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.2101

1.39271.32101.21012015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.20151.0524

1.1032

1.08592016 (through 6 May 2016) . . . . . . . . . . . . . . . . . . . . . . . . . .

1.15161.0743

1.1133

1.1421

The table below sets forth, for the monthly periods indicated, information regarding the period high, low,
average and period end noon buying rates. The average is computed calculated by using the average of the noonbuying rates on the last day of each month during the period.
Month

U.S. dollar(High)

U.S. dollar(Low)

U.S. dollar(Average)

U.S. dollar(Period end)

November 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1026

1.0562

1.07271.0562

December 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1025

1.05731.08891.0859January 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.09641.07431.08551.0832February 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1362

1.08681.1092

1.0868March 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.13901.0845

1.1134

1.1390April 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1441

1.12391.1346

1.1441

May 2016 (through 6 May 2016) . . . . . . . . . . . . . . . . . . . . . .

1.15161.1404

1.1467

1.1421

84

The noon buying rate on 6 May 2016 (the latest practicable date before publication of this Prospectus) was€1.00 = $1.1421.
The exchange rate information above is solely provided for convenience purposes. No representation ismade that the euro amounts have been or could have been converted into U.S. dollars, or vice versa, at theexchange rates indicated above or at any other rate.
Market and Industry Information
All references to market share, market data, industry statistics and industry forecasts in this Prospectus
consist of estimates compiled by industry professionals, competitors, organizations or analysts, of publicly
available information or of the Group’s own assessment of its sales and markets. Statements based on the
Company’s own proprietary information, insights, opinions or estimates contain words such as “the Group
believes”, “the Group expects”, “the Group estimates”, “the Group sees”, “the Group perceives” and as such do
not purport to cite, refer to or summarize any third-party or independent source and should not be so read.
Industry publications generally state that their information is obtained from sources believed to be reliable
but that the accuracy and completeness of such information is not guaranteed and that the projections they
contain are based on a number of significant assumptions. Where third-party information has been sourced in thisProspectus, the source of such information has been identified. Third-party reports referenced in this Prospectus
include the BCG Report. Unless indicated otherwise, numbers included in this Prospectus in reference of thelighting industry have been derived from the BCG Report.
The information in this Prospectus that has been sourced from third parties has been accurately reproducedwith reference to these sources in the relevant paragraphs and, as far as the Group is aware and able to ascertainfrom the information published by that third party, no facts have been omitted that would render the reproduced
information inaccurate or misleading.
In this Prospectus, the Group makes certain statements regarding the characteristics of the lighting market aswell as its competitive and market position. The Group believes these statements to be true, based on market dataand industry statistics, but the Group has not independently verified the information. The Group cannot guaranteethat a third party using different methods to assemble, analyze or compute market data or public disclosure fromcompetitors would obtain or generate the same results. In addition, the Group’s competitors may define theirmarkets and their own relative positions in these markets differently than the Group does and may also define
various components of their business and operating results in a manner which makes such figures noncomparable with the Group’s.
Supplements
If a significant new factor, material mistake or inaccuracy relating to the information included in thisProspectus which is capable of affecting the assessment of the Offer Shares, arises or is noted between the date ofthis Prospectus and the later of the end of the Offering Period and the start of trading of the Offer Shares onEuronext Amsterdam, a supplement to this Prospectus is required. Such a supplement will be subject to approvalby the AFM in accordance with Section 5:23 FMSA and will be made public in accordance with the relevant
provisions under the FMSA. The summary shall also be supplemented, if necessary to take into account the new
information included in the supplement.
Investors who have already agreed to purchase or subscribe for the Offer Shares before the supplement ispublished shall have the right, exercisable within two business days following the publication of a supplement, towithdraw their acceptances. Investors are not allowed to withdraw their acceptance in any other circumstances.
Statements contained in any such supplement (or contained in any document incorporated by reference
therein) shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or
supersede statements contained in this Prospectus or in a document which is incorporated by reference in thisProspectus. Any statement so modified or superseded shall, except as so modified or superseded, no longer
constitute a part of this Prospectus. For the avoidance of doubt, references in this paragraph to any supplement
being published by the Company do not include the Pricing Statement.
Notice to Investors
The distribution of this Prospectus and the offer, acceptance, delivery, transfer, exercise, purchase of,subscription for, or trade in the Offer Shares may, in certain jurisdictions other than the Netherlands, including,but not limited to, the United States, be restricted by law. Persons in possession of this Prospectus are required to
inform themselves about, and to observe, any such restrictions. Any failure to comply with such restrictions may
constitute a violation of the securities laws of any such jurisdiction. This Prospectus may not be used for, or inconnection with, and does not constitute, an offer to sell, or an invitation to purchase, any of the Offer Shares in85

any jurisdiction in which such offer or invitation is not authorized or would be unlawful. Neither this Prospectus,
nor any related materials, may be distributed or transmitted to, or published in any jurisdiction except undercircumstances that will result in compliance with any applicable laws or regulations.
None of the Company, the members of the Board of Management or Supervisory Board, the Selling
Shareholder, any of the Underwriters, the Financial Adviser or any of their respective representatives, is making
any representation to any offeree or purchaser of the Offer Shares regarding the legality of an investment in theOffer Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser.
Investors who purchase Offer Shares will be deemed to have acknowledged that: (i) they have not relied on
the Listing and Paying Agent or any of the Underwriters or any person affiliated with any of them in connection
with any investigation of the accuracy of any information contained in this Prospectus or their investment
decision; and (ii) they have relied only on the information contained in this Prospectus, and that no person has
been authorized to give any information or to make any representation concerning the Company or its
subsidiaries, the Selling Shareholder or the Offer Shares (other than as contained in this Prospectus) and, that if
given or made, any such other information or representation has not been relied upon as having been authorized
by the Company, the Selling Shareholder, the Listing and Paying Agent or any of the Underwriters.
EXCEPT AS OTHERWISE SET OUT IN THIS PROSPECTUS, THE OFFERING DESCRIBED IN
THIS PROSPECTUS IS NOT BEING MADE TO INVESTORS IN THE UNITED STATES, CANADA,
AUSTRALIA OR JAPAN.
This Prospectus does not constitute or form part of any offer or invitation to sell, or any solicitation of any
offer to acquire, Offer Shares in any jurisdiction in which such an offer or solicitation is unlawful or would resultin the Company becoming subject to public company reporting obligations outside the Netherlands.
The distribution of this Prospectus, and the offer or sale of Offer Shares, is restricted by law in certain
jurisdictions. This Prospectus may only be used where it is legal to offer, solicit offers to purchase or sell Offer
Shares. Persons who obtain this Prospectus must inform themselves about and observe all such restrictions. Noneof the Company, the Selling Shareholder or the Underwriters accepts any legal responsibility for any violation by
any person, whether or not a prospective purchaser of Shares, of any such restrictions. The Company, the Selling
Shareholder and the Underwriters reserve the right in their own absolute discretion to reject any offer to purchase
Shares that the Company, the Selling Shareholder, the Underwriters or their respective agents believe may giverise to a breach or violation of any laws, rules or regulations.
No action has been or will be taken to permit a public offer or sale of Offer Shares, or the possession or
distribution of this Prospectus or any other material in relation to the Offering, in any jurisdiction outside theNetherlands where action may be required for such purpose. Accordingly, neither this Prospectus nor any
advertisement or any other related material may be distributed or published in any jurisdiction except undercircumstances that will result in compliance with any applicable laws and regulations. See “Selling and Transfer
Restrictions”. Subject to certain exceptions, this Prospectus should not be forwarded or transmitted in or into
Australia, Canada or Japan.
Notice to Prospective Investors in the United States
The Ordinary Shares have not been, and will not be, registered under the U.S. Securities Act or with any
securities regulatory authority of any state or other jurisdiction in the United States, and are being offered andsold: (i) in the United States only to persons reasonably believed to be QIBs in reliance on Rule 144A; and (ii)outside the United States in compliance with Regulation S. Prospective purchasers are hereby notified that sellersof Offer Shares may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act
provided by Rule 144A. The distribution of this Prospectus and the offer and sale of the Offer Shares in certain
jurisdictions may be restricted by law. Persons in possession of this Prospectus are required to inform themselves
about and to observe any such restrictions. See “Selling and transfer restrictions”.
THE OFFER SHARES HAVE NOT BEEN RECOMMENDED BY ANY U.S. FEDERAL OR STATESECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE IN THE UNITED STATES.
Notice to Prospective Investors in Canada
The Offer Shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal thatare accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1)of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration
86Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the Offer Shares must be made inaccordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicablesecurities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies forrescission or damages if this Prospectus (including any amendment thereto) contains a misrepresentation,
provided that the remedies for rescission or damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any
applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of theserights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a nonCanadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), theUnderwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriterconflicts of interest in connection with this Offering.
Enforcement of Civil Liabilities
The ability of Shareholders in certain countries other than the Netherlands, in particular in the United States,
to bring an action against the Company may be limited under law. The Company is incorporated in the
Netherlands and has its statutory seat (statutaire zetel) in Eindhoven, the Netherlands.
All of the members of the Board of Management and most members of the Supervisory Board are residentsof countries other than the United States. All or a substantial proportion of the assets of these individuals arelocated outside the United States. A significant portion of the Group’s assets are located outside of the UnitedStates. As a result, it may be impossible or difficult for investors to effect service of process within the UnitedStates upon such persons or the Company or to enforce against them in U.S. courts a judgement obtained in suchcourts. In addition, there is doubt as to the enforceability, in the Netherlands, or original actions or actions for
enforcement based on the federal or state securities laws of the United States or judgements of U.S. courts,
including judgements based on the civil liability provisions of the U.S. federal or state securities laws.
The United States and the Netherlands do not currently have a treaty providing for reciprocal recognitionand enforcement of judgements, other than arbitration awards, in civil and commercial matters. Accordingly, ajudgement rendered by a court in the United States will not be recognized and enforced by the Dutch courts.
However, if a person has obtained a final and conclusive judgement for the payment of money rendered by acourt in the United States which is enforceable in the United States and files his claim with the competent Dutch
court, the Dutch court will generally give binding effect to such foreign judgement insofar as it finds that thejurisdiction of the U.S. court has been based on grounds which are internationally acceptable and that proper
legal procedures have been observed and except to the extent that the foreign judgement contravenes Dutch
public policy.
Forward-Looking Statements
This Prospectus contains forward-looking statements that reflect the Group’s intentions, beliefs or current
expectations and projections about the Group’s future results of operations, financial condition, liquidity,
performance, prospects, anticipated growth, strategies and opportunities and the markets in which the Group
operates. Forward-looking statements involve all matters that are not historical facts. The Group has tried to
identify forward-looking statements by using words as “may”, “will”, “would”, “should”, “expects”, “intends”,“estimates”, “anticipates”, “projects”, “believes”, “could”, “hopes”, “seeks”, “plans”, “aims”, “objective”,“potential”, “goal” “strategy”, “target”, “continue”, “annualized” and similar expressions or negatives thereof orother variations thereof or comparable terminology, or by discussions of strategy that involve risks anduncertainties. Forward-looking statements may be found principally in sections in this Prospectus entitled “Risk
Factors”, “Dividend Policy”, “Industry and Competition”, “Business” and in particular in “Business—Outlook”,“Operating and Financial Review” and also elsewhere.
The forward-looking statements are based on the Group’s beliefs, assumptions and expectations regarding
future events and trends that affect the Group’s future performance, taking into account all information currently
available to the Group, and are not guarantees of future performance. These beliefs, assumptions andexpectations can change as a result of possible events or factors, not all of which are known to the Group or are
within the Group’s control. If a change occurs, the Group’s business, financial condition, liquidity, results ofoperations, anticipated growth, strategies or opportunities may vary materially from those expressed in, or
suggested by, these forward-looking statements. In addition, the forward-looking estimates and forecasts
reproduced in the Prospectus from third-party reports could prove to be inaccurate. A number of importantfactors could cause actual results or outcomes to differ materially from those expressed in any forward-looking
87statement as a result of risks and uncertainties facing the Company and its Group Companies. Such risks,
uncertainties and other important factors include, but are not limited to those listed in the section entitled “Risk
Factors”.
Investors or potential investors should not place undue reliance on the forward-looking statements in thisProspectus. The Group urges investors to read the sections of this Prospectus entitled “Risk Factors”,“Separation”, “Operating and Financial Review”, “Industry and Competition” and “Business” for a more
complete discussion of the factors that could affect the Group’s future performance and the markets in which theGroup operates. In light of the possible changes to the Group’s beliefs, assumptions and expectations, theforward-looking events described in this Prospectus may not occur. Additional risks currently not known to theGroup or that the Group has not considered material as of the date of this Prospectus could also cause theforward-looking events discussed in this Prospectus not to occur. Forward-looking statements involve inherent
risks and uncertainties and speak only as of the date they are made. The Group undertakes no duty to and will notnecessarily update any of the forward-looking statements in light of new information or future events, except tothe extent required by applicable law.
Definitions
This Prospectus is published in English only. Definitions used in this Prospectus are defined in“Definitions”.
Available Information
For so long as any ordinary shares of the Company are “restricted securities” within the meaning ofRule 144(a)(3) under the U.S. Securities Act, the Company will, during any period in which it is neither subject
to Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended (the “U.S. ExchangeAct”), nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial
owner of such restricted securities or to any prospective purchaser of such restricted securities designated by suchholder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, theinformation required to be provided by Rule 144A(d)(4) under the U.S. Securities Act.
The Company is not currently subject to the periodic reporting and other information requirements of the
U.S. Exchange Act.
Documents Incorporated by Reference
The draft Articles of Association are incorporated in this Prospectus by reference and, as such, form part ofthis Prospectus. The draft Articles of Association (or copies thereof) may be obtained in electronic form free ofcharge from the Company’s website at www.lighting.philips.com/main/company.
No Incorporation of Website
The contents of the Company’s website, including any websites accessible form hyperlinks on the
Company’s website, do not form part of and are not incorporated by reference in this Prospectus.

88SEPARATION
Reasons for the Separation
Royal Philips is a diversified health and well-being company, focused on improving people’s lives throughmeaningful innovation in the areas of healthcare, consumer lifestyle and, until the Settlement Date, lighting.
Headquartered in the Netherlands, Royal Philips, according to its annual accounts, posted sales of approximately€24.2 billion in 2015 and employed approximately 113,959 employees with sales and services in more than
100 countries. Royal Philips is listed on Euronext Amsterdam and the New York Stock Exchange.
On 23 September 2014, the Selling Shareholder announced that it was sharpening its strategic focus by
separating Royal Philips into two leading companies focused on the healthtech and lighting markets. In ashareholder circular published by the Selling Shareholder on 19 March 2015, the Selling Shareholder stated thatit believes that the healthtech and lighting business areas both offer attractive end-markets, but that each has
unique customer needs, value drivers, industry trends and competitive dynamics. The Selling Shareholder
therefore considered the time appropriate to establish two independent companies each focusing on theirrespective end-markets:•

Royal Philips, which aims to capture new healthtech opportunities by combining its existing healthcare andconsumer lifestyle businesses; and•the Group, which will continue Royal Philips’ existing lighting business (except for Lumileds (as defined
below) which will remain part of Royal Philips) and which aims to boost growth in LED lighting products,
systems and services.

The Group believes, and the Selling Shareholder has informed the Group that it believes, that, as a pure-playlighting company following the Separation, the Group will be well positioned to deliver shareholder andcorporate value for the following reasons:•the Separation will allow the Group to focus on and more effectively pursue its own operating priorities andstrategies, and will enable the management of the Group to concentrate all its efforts on the needs of thelighting business and pursue distinct opportunities for long-term growth and profitability;•

the Separation will permit the Group to concentrate its financial resources solely on its own operations,providing greater flexibility to invest capital in its business in a time and manner appropriate for its strategy
and business needs and facilitating a more efficient allocation of capital;•

the Separation will create a separate lighting company with a simplified organizational structure andincreased focus on the needs of the lighting business, facilitating faster decision-making and flexibility, andimproving the ability of the Group to compete and enabling it to respond quickly to changing customer
requirements and market dynamics;•

the Separation will create an independent equity structure that will allow the Group to have direct access tocapital markets and facilitate the ability of the Group to capitalize on its growth opportunities and effectfuture investments (including acquisitions) utilizing its common stock if needed; and•the Separation will facilitate incentive compensation arrangements for the Group’s employees more directlytied to the performance of the Group’s business, and may enhance employee hiring and retention by, among
other things, improving the alignment of management and employee incentives with performance andgrowth objectives.

Although the Company believes that for these reasons, it will be well positioned to deliver shareholder andcorporate value, the Company cannot assure that, following the Separation, any of the benefits described aboveor otherwise will be realized to the extent anticipated or even at all.
In 2015, Royal Philips started the process of transitioning its lighting business into a stand-alone holding
company structure, separating it from the remaining Royal Philips business. The Separation was substantiallycompleted on 1 February 2016, with the split of operations and functions, and the legal transfer of the assets andliabilities allocated to the Group, with the exception of certain delayed transfers as specified below. Due to thescale and variety of Royal Philips’ businesses and its global footprint (among other factors), the separation
process was complex and required effort and attention from employees throughout Royal Philips. For example,
thousands of employees transitioned within the organization, and legacy programs going back decades, such aspensions, needed to be divided or shared between Royal Philips and the Group. Outside the organization, Royal
Philips notified and established separation readiness among numerous customers, business partners and suppliers
so that business relationships all over the world would continue following completion of the Separation.
Administratively, the Separation involved legal reorganizations in various jurisdictions throughout the world.
Separation management functions were created and are maintained to plan and execute the separation process inan orderly and timely fashion.
89For more information on the risks involved in the separation process, see “Risk Factors—Risks Related to
the Separation”.
Formation of the GroupThe Company was incorporated in the Netherlands on 1 February 2016 as Philips Lighting NewCo B.V., forthe purpose of being the holding company of the Group. As part of the plan to separate the lighting business fromthe remainder of its businesses, Royal Philips transferred to Philips Lighting Holding B.V., which prior to theSettlement Date will become a direct subsidiary of the Company, the equity interests of certain entities that
operate the lighting businesses, as well as assets and liabilities allocated to the Group, in accordance with andsubject to the terms of the Separation Agreement described in further detail below.
The Company directly holds equity interests in 87 legal entities and indirectly holds equity interests in afurther 116 legal entities, in 69 countries. Of the Group’s legal entities, 152 are wholly-owned, while equity
interests in 51 legal entities are held together with third party shareholders, including eight joint ventures. In
some countries, the Group operates branch offices or representative offices.
Separation Agreement
On 1 February 2016 (the “Separation Date”), the Selling Shareholder and Philips Lighting Holding B.V.
entered into the Separation Agreement and a set of ancillary agreements, together effectuating the Separation andproviding a framework for the relationship between Royal Philips and the Group after the Separation. An
addendum to the Separation Agreement was entered into on 4 May 2016, and references in this Prospectus to the
Separation Agreement shall be interpreted as references to the Separation Agreement as amended pursuant to thisaddendum. The Separation Agreement and the ancillary agreements will be assigned to the Company prior to theSettlement Date. The Separation Agreement allocates assets, liabilities, employees and contracts of the former
Royal Philips between the new Royal Philips and the Group. The transfer thereof has been effected at the level ofthe relevant group companies on or around 1 February 2016 (the “Effective Time”), except for a limited numberof transfers which took place thereafter (e.g., in India, Turkey and Mexico). At the date of this Prospectus, there
are no material transfers outstanding, save for the transfer of the U.S. business of the Group which is scheduled
to take place on or before the Settlement Date.
In addition to the Separation Agreement, other principal agreements entered into between Royal Philips andthe Group include:•

a transitional services agreement between the Selling Shareholder and Philips Lighting Holding B.V., dated
1 February 2016 (“TSA”);•

an IT transitional services level agreement between Philips Electronics Nederland B.V. (“Philips
Electronics”) and Philips Lighting B.V., dated 1 February 2016 (“IT TSLA”) and reverse IT TSLA
between Philips Electronics and Philips Lighting B.V., dated 1 February 2016 (“Reverse IT TSLA”);•

an intellectual property transfer and license agreement between the Selling Shareholder and Philips Lighting
Holding B.V., dated 1 February 2016 (“IP TLA”);•

the TMLA; and•a company name license agreement between the Selling Shareholder and Philips Lighting Holding B.V.,
dated 1 February 2016 (“CNLA”).

While the Group believes that these agreements contribute to Group’s ability to function as a standaloneorganization operating the lighting business, the Group cannot assure that these agreements are on terms asfavorable to the Group as would be comparable agreements with unaffiliated third parties.
The following paragraphs describe certain material provisions of the Separation Agreement and theancillary agreements.
Allocation of Assets and Liabilities
The Separation was guided by the principle that the Group will comprise substantially all of Royal Philips’
lighting business, related assets and liabilities, employees and contracts, as well as allocated activities from Royal
Philips’ Innovation, Group & Services (“IG&S”) sector.
As part of the Separation, certain historical exposures and liabilities of Royal Philips have been allocated toeach of Royal Philips and the Group, which are unrelated to their respective businesses. These include, inparticular, liabilities relating to pensions and environmental issues, as further described below.
The assets and liabilities that have been allocated to the Group are reflected in the Company’s Combined
Financial Statements and Condensed Combined Interim Financial Statements. In addition to the amounts
reflected in this financial information, the Group will be responsible for certain other contingent liabilities related
and unrelated to the lighting business after the Separation.
90

As part of the Separation, Royal Philips retained certain intercompany accounts payable to the Group (i.e.,
payable by Philips Egypt LLC, a subsidiary of Royal Philips). The corresponding intercompany accounts
receivable are reflected in the Condensed Combined Interim Balance Sheet as of 31 March 2016, for an amountof €36 million. Subsequently, pursuant to the aforementioned addendum to the Separation Agreement, theeconomic ownership of these intercompany accounts receivable was transferred by the Group to Royal Philips,
against payment by Royal Philips to the Group of their nominal value, such payment to be made prior to theSettlement Date.
The assets and liabilities that have been allocated to the Group have been transferred to the Group either by
way of an asset transfer, demerger, contribution or indirectly through a transfer of the shares in the legal entity inwhich the relevant asset or liability resided. Conversely, legal entities forming part of the Group have transferredcertain assets and liabilities that were allocated to Royal Philips, to subsidiaries of Royal Philips. Assets andliabilities have been transferred between Royal Philips and the Group on an “as is” basis and on a going concern
basis. See also below under “—Liability Regime”.
The following paragraphs provide a description of certain assets and liabilities allocated to the Group as partof the Separation.
Real estateOver 200 real estate properties have been allocated to the Group, depending on whether the property wasused for the benefit of the lighting business in whole or in part prior to the Separation. This includes real estate
situated on key manufacturing sites located in Belgium, Poland, Hungary, India, China, the United States and
Mexico. Owned real estate has been transferred to the Group and in respect of leased properties, either the leaseagreement has been assigned to the Group or, in case of shared properties, a sub-lease agreement has beenentered into with Royal Philips as the sub-lessor.
Environmental
Environmental liabilities, whether contingent or not, have been allocated between Royal Philips and theGroup taking into account not only the allocation of manufacturing sites and other real estate objects to theGroup, but also the fact that as part of the Separation, legacy environmental liabilities (i.e., liabilities unrelated tothe current business of Royal Philips or the current business of the Group) needed to be divided between Royal
Philips and the Group. These legacy liabilities have been allocated by Royal Philips in such manner that after the
Separation, each of Royal Philips and the Group would have an overall level of exposure to such liabilities as
deemed appropriate by Royal Philips in view of their respective financial position. To the extent required underapplicable accounting rules, provisions have been made in respect of environmental liabilities allocated to theGroup, which provisions are reflected in the Combined Financial Statements and Condensed Combined Interim
Financial Statements.
Employees
As of 31 March 2016, the Group employed approximately 36,350 full time equivalent personnel in over 70
countries. As part of the Separation, employees who immediately prior to the Separation worked exclusively in
relation to the lighting business have been allocated to the Group, as well as certain employees providing
functional support at group level. To the extent not already employed by legal entities forming part of the Group,
these employees have transferred to the Group either by operation of law or by entering into an employment
contract substituting their former contract. Pursuant to the Separation Agreement, the Company is liable for any
liabilities to the extent arising out of or relating to its active employees, or to former employees of Royal Philips
who worked exclusively in relation to the lighting business.
Pensions
Pension obligations of current employees and former employees of Royal Philips are in part externally
funded and in part internally funded. Pension liabilities and liabilities from retiree medical plans of Royal Philips
have been significantly reduced prior to the Separation. Remaining liabilities have subsequently been allocatedbetween Royal Philips and the Group, with a view to arriving at an aggregate exposure to pension liabilities foreach of the two companies that was deemed appropriate by Royal Philips in view of the size of each business andits balance sheet.
For internally funded pension plans, as a general principle under the Separation Agreement, any pension
liabilities relating to current employees of the Group have been allocated to the Group. For externally fundedplans, as a general principle, any pension liabilities accrued until the Separation relating to current employees ofRoyal Philips, continue to be for the account of the group company of Royal Philips in which the liability resided
prior to the Separation. In most countries, this is a group company of Royal Philips, but in some cases, this is amember of the Group. Service costs for accrual of pension liabilities for current employees of the Group thatarise after the Separation are for the account of the Group.
91

In respect of former employees, for internally funded plans as well as externally funded plans, pension
liabilities continue to be for the account of the group company of Royal Philips in which the liability resided
prior to the Separation. Again, in most countries, this is a group company of Royal Philips, but in some cases,
this is a member of the Group. Exceptions to this general principle have been made in various countries, to arriveat the targeted aggregate exposure for each of Royal Philips and the Group. Also, for each major country atailored approach has been designed taking into account fiscal, legal, financial and practical considerations.
Pension liabilities allocated to the Group are reflected, to the extent required, in the Combined Financial
Statements and Condensed Combined Interim Financial Statements. The transfer also resulted in the Group
recognizing €122 million in deferred tax assets.
Claims
As is customary for most large businesses, Royal Philips is involved in a number of legal proceedings bothas claimant and as defendant. As part of the Separation, a limited number of claims exceeding a materiality
threshold were explicitly allocated between Royal Philips and the Group based primarily on the relationshipbetween the claim and their respective business. In respect of claims below the materiality threshold, theSeparation Agreement provides that claims arising out of or relating to the business of the Group, or arising outof or relating to assets or liabilities allocated to the Group as part of the Separation, have been allocated to theGroup. Provisions for legal claims allocated to the Group are reflected, to the extent required, in the Combined
Financial Statements and Condensed Combined Interim Financial Statements.
Acquisitions and divestments
The former Royal Philips consisted of a portfolio of related businesses that was actively managed in linewith the company’s strategy. The composition of this portfolio has changed over time, as new businesses havebeen acquired and existing businesses have been divested. Liabilities, actual or contingent, in relation to suchdivestments have been allocated between Royal Philips and the Group, taking into account the nature of thedivested business activities. The liabilities that the Group will assume as a result include certain contingent legal
claims and indemnifications relating to tax and other topics.
Lumileds
Separate arrangements have been made in connection with the contemplated divestment by Royal Philips ofthe combined LED and automotive lighting components businesses (“Lumileds”). Although active in thelighting sphere, Lumileds has been separated from the Group and is retained by Royal Philips. Royal Philips isseparately exploring strategic options to attract capital from third party investors for Lumileds. Any suchtransaction related to Lumileds will be for the account of Royal Philips.
The Group has entered into certain agreements with Lumileds in connection with the separation of Lumileds
and the Group, including a strategic partnership and supply agreement regarding the strategic partnership
between the Group and Lumileds for the supply of LED components by Lumileds to the Group, and certain othersupply agreements for the supply of lighting components by the Group to Lumileds. The strategic partnership andsupply agreement contains a purchase commitment pursuant to which the Group commits to purchase from
Lumileds at least 60% of its actual spend on certain in-scope LED components for a period of four years as from
1 January 2016, provided inter alia that the price offered by Lumileds is competitive (i.e., equal or lower thanoffered by other relevant suppliers). For certain LED components, this purchase commitment also applies if theprice offered by Lumileds is higher than the prices offered by other suppliers but such excess does not exceed acertain range, in which case Royal Philips—subject to certain limitations—will compensate the Group for theexcess as long as the Group is bound to purchase such LED components for such excess price. Suchcompensation is covered under a separate compensation agreement between the Group and Royal Philips. In
addition to this compensation, the compensation agreement also provides that the Group may be entitled tocertain bonuses if the Group purchases more than certain percentages of LED components from Lumileds under
the strategic partnership and supply agreement. Different bonus target percentages apply to different types of
LED components. The compensation and bonuses are valid for a period of four years as from 1 January 2016,
subject to termination and variation rights set out in the compensation agreement.
Furthermore, the Group and Lumileds entered into an intellectual property agreement regarding, inter alia,
the cross license of certain intellectual property between the Group and Lumileds, as well as regarding thearrangement of licenses under certain third-party patents following the Separation.
In connection with the Separation, Royal Philips also assigned to the Group certain transitional service
agreements in relation to Lumileds, including an IT transitional service level agreement, that are to be performed
between the Group and Lumileds. Additionally, the Group has also agreed with Royal Philips that it will consent
to an assignment by Lumileds of the partnership and supply agreement and the intellectual property mutual
license agreement between the Group and Lumileds to a new ultimate parent company of Lumileds (or any ofsuch company’s subsidiaries) as reasonably acceptable to the Group.
92

Tax
As a result of the Separation, certain historical tax liabilities arising out of or relating to the businessretained by Royal Philips have been transferred to or retained by the Group, and certain historical tax liabilities
arising out of or relating to the Group’s business have been transferred to or retained by Royal Philips byoperation of law. The Group’s business was separated from Royal Philips by way of share transfers, asset
transfers and demergers:•in the case of the share transfers, the historical tax liabilities of the entities transferred to the Group(including those arising out of or relating to the business of Royal Philips) generally follow such transferred
entities by operation of law.

•

in respect of the demergers, both the demerging and the acquiring legal entities may, on the basis of either
local tax or corporate law, be held liable for (part of) the historical tax liabilities of the (demerging) legal
entity in which the combined business activities were performed before the Separation.

•

the assets transfers did in general not result in the transfer of historical tax liabilities to the Group.

To ensure that the historical tax liabilities (including the set-off of such liabilities against accounted for tax
attributes) attributable to the Group’s business are for the account of the Group, the Separation Agreement
generally provides for the allocation of historical tax liabilities relating to the period prior to the Separation
through a reciprocal tax indemnity. The reciprocal tax indemnity in the Separation Agreement provides that all
historical tax liabilities up to and including 31 January 2016, known and unknown, that relate exclusively to theGroup’s business are generally for the account of the Group, and all historical tax liabilities, known and unknown
that relate exclusively to the Royal Philips’s business are generally for the account of Royal Philips. However,tax liabilities related to the ordinary course of business in the period from 1 January 2016 up to and including
31 January 2016 shall not be settled between the Group and Royal Philips. Certain historical tax liabilities
relating to the Group’s business, including the Group’s legacy business, as well as to the business of Royal
Philips have been allocated between the Group and Royal Philips on the basis of allocation principles set out in
the Separation Agreement. The reciprocal tax indemnity included in the Separation Agreement excludes
anticipated tax liabilities that are the direct result of the Separation. Such tax liabilities are, to the extent
anticipated upon the Separation, for the account of the Group if such tax liabilities are imposed on the Group,
regardless of whether these are related to the carve-out of the Group’s business or Royal Philips business. Thesetax liabilities are, to the extent the relevant Separation steps are carried out before the end of the first quarter of
2016, accounted for in the Condensed Combined Interim Financial Statements. The Group is generally required
to indemnify Royal Philips for any increase in the tax liabilities of Royal Philips (including the reduction of tax
losses, deductions or other tax reliefs) as a result of (i) an adjustment or correction by a tax authority to thevaluation used for the transfer of assets or shares of the Group Companies in connection with the Separation, or(ii) a reversal, denial or claw-back of certain tax reliefs claimed by Royal Philips in connection with the
Separation. Royal Philips is generally required to indemnify the Group for any increase in the tax liabilities of theGroup (including the reduction of tax losses, deductions or other tax reliefs) as a result of (i) an adjustment or
correction by a tax authority to the valuation of assets or shares transferred to Royal Philips, or (ii) a reversal,
denial or claw-back of certain tax reliefs claimed by the Group in connection with the Separation. The Separation
Agreement also includes an indemnity for the benefit of the Group in respect of taxes that are primarily theliability of Royal Philips and for which a Group Company becomes liable as a consequence of being a member ofthe same fiscal unity or consolidated tax group as such group company of Royal Philips at any time before theSettlement Date.
The relevant Dutch Group Companies will by operation of law cease to be a member of the Royal Philips
fiscal unity for Dutch corporate income tax purposes at or around the First Trading Date. Certain assets of these
Dutch Group Companies have been transferred within the fiscal unity. Upon the separation from the fiscal unity
these assets should be revalued and be set at fair market. As a result, Dutch corporate income tax on the
difference between the book value and the fair market value (i.e., the hidden reserves) is levied from the fiscal
unity pursuant to the application of section 15ai CITA which will be borne by Royal Philips. Following thegeneral principles set out above, the Group is also required to indemnify Royal Philips for any increase in the tax
liability of Royal Philips (including the reduction of tax losses, deductions or other tax reliefs) as a result of an
adjustment or correction of the amount of such hidden reserves by the Dutch tax authorities. At the same time,
the relevant Dutch Group Companies will benefit from additional depreciation and amortization allowances
resulting from the revaluation of the assets which give rise to an additional deferred tax asset.
Tax attributes are in principle retained by the entity in which they arose. After the Separation there will be
no compensation between the Group and Royal Philips in respect of the use thereof.
93

Prospectus liability
The Separation Agreement also allocates to the Company any liability in connection with a claim that the
information included in this Prospectus (or related communications), except for certain Royal Philips-provided
information, is untrue, or in connection with a claim arising out of or based upon any omission to state a fact
required to be stated in this Prospectus, or necessary to make the statements herein not misleading.
Liability Regime
The Separation Agreement allocates assets and liabilities to each of Royal Philips and the Group. To theextent, prior to the Separation, such assets or liabilities already resided in legal entities forming part of the groupto which they are allocated, no direct transfer of such assets and liabilities was required in connection with the
Separation. To the extent such assets and liabilities did not reside in legal entities forming part of the group towhich they were allocated, they were transferred either by way of an asset transfer, demerger or contribution.
Assets and liabilities have been transferred between Royal Philips and the Group on an “as is” basis and on agoing concern basis. No warranties have been provided by the transferor to the transferee and no representations
have been made in this regard.
In certain instances, liabilities of one party that have been allocated to the other party, could not be legallytransferred without cooperation of third parties, or could not be legally transferred at all. For example, legal
claims against a legal entity cannot be legally transferred without cooperation of the claimant. Other examples of
liabilities that cannot be legally transferred without cooperation of third parties include environmental liabilities,
tax liabilities and pension liabilities. In these instances, the Separation Agreement provides for an economictransfer through an indemnity granted by the party to which the liability is allocated. In addition, under the
Separation Agreement, the Company has granted a general indemnity to Royal Philips for all liabilities relating
to the Group’s business, and Royal Philips has granted a general indemnity to the Company for all liabilities
relating to Royal Philips’ business. These include the liabilities described above under “Allocation of assets andliabilities” and also other liabilities relating to the respective businesses.
As a result of this arrangement, the Company shall be indemnified in case claims relating to liabilities ofRoyal Philips are submitted against the Group. However, in respect of liabilities of legal entities forming part of
the Group that have been allocated to Royal Philips but could not be legally transferred by the relevant legal
entities to Royal Philips, such as legal claims, environmental liabilities, tax liabilities or pension liabilities, theGroup will continue to be liable towards the relevant claimant, and depends on Royal Philips to indemnify theGroup pursuant to the indemnity granted by Royal Philips to the Group. There can be no assurance that theindemnity from Royal Philips will be sufficient to protect the Group against the full amount, or any, of suchclaims, or that Royal Philips will be able to satisfy its indemnification obligations. If Royal Philips is not in thefinancial position to meet its indemnification obligation, this could have material adverse effects on the Group’sbusiness, financial position and results of operations. Moreover, even if the Company ultimately succeeds inrecovering from Royal Philips any amounts for which the Group is held liable, the Group may be temporarily
required to bear these losses.
By way of surety for the fulfilment of the Company’s obligations under the Separation Agreement,
including the indemnifications granted to Royal Philips, certain major subsidiaries of the Company haveprovided guarantees to Royal Philips. Conversely, certain major subsidiaries of Royal Philips have provided
guarantees to the Company. However, there can be no assurance that if Royal Philips were to be unable to meet
its indemnification obligations towards the Company, the subsidiaries who have provided guarantees will be.
Transitional Services
Royal Philips and the Group have entered into a master TSA and various underlying transitional service
level agreements (“TSLAs”) in respect of services that need to continue after completion of the Separation. The
services are described in separate TSLAs that have been entered into between Royal Philips and the Group. The
Group will also provide limited services to Royal Philips under reversed TSLAs.
As a general rule, the term of these TSLAs, including the IT TSLA and reverse IT TSLA, is 12 months,
starting at the Effective Time. Depending on the services provided or received under these TSLAs, the term of
the TSLAs may be longer or shorter (i.e., between 1 and 24 months). It is the responsibility of the Group to
replace the relevant TSLA with an internal solution or external contract prior to the end of the transition period.
In respect of IT in particular, certain aspects of the migration to an independent IT platform will be challenging
and complex. The Group expects to incur approximately €60 million to €70 million of costs in connection with
the Separation for the year ending 31 December 2016, of which a substantial part is in connection with
developing standalone IT systems. See also “Risk Factors—The Group relies on Royal Philips to perform certain
services after the Separation, including with respect to IT, and the Group may be unable to make, on a timely or
cost-effective basis, the changes necessary to operate as an independent company”.
94The price charged for the services in the TSLAs is in principle based on current cost levels and tax uplifts,
where legally required.
The transitional services relate to: IT (i.e., infrastructure and applications); real estate (i.e., non-transferable
lease contracts; local facility services); supply chain management (i.e., warehousing and distribution); sales andmarketing (i.e., government contract and relation management); brand/digital & communication (i.e., intranet;
digital marketing services); research, Philips innovation services, Philips ventures (i.e., shared research &innovation projects, activities and equipment); finance (i.e., treasury, insurance, statutory reporting, operations,back-office); human resources (“HR”) (i.e., HR IT applications, central system support, local payroll, admin &health insurance); procurement (i.e., shared procurement tools); quality and regulation (i.e., supplier quality tool);
intellectual property and services (i.e., licensing administration; reports and planning database); manufacturing(i.e., local plant facilities); strategy (i.e., alliances support); sustainability (i.e., local sustainability support); andlegal (limited local legal support).
IT TSLA and Reverse IT TSLA
Under the IT TSLA, Philips Electronics Nederland B.V. (“Philips Electronics”) shall provide certain IT
services to the Group for a period of 12 months as of the date of the Separation (“IT Services Period”). As soon
as reasonably possible, but in any case prior to the end of the IT Services Period, the Group expects that its IT
systems will operate independently and separately from the IT systems of Philips Electronics and the IT services
provided by Philips Electronics. Under the terms of the IT TSLA, the Group is required to provide a migration
plan and to align its approach with Philips Electronics for phasing out the IT services provided by Philips
Electronics. The Company may request extension of the IT Services Period if, despite commercially reasonableendeavors by the Company to eliminate the Group’s dependency on more of the IT services, the Company
foresees any remaining dependency on one or more of the IT services provided by Philips electronics after the IT
Services Period that would threaten business continuity. Philips Electronics may not unreasonably withhold its
consent to a request for an extension under the terms of the IT TSLA. In the event that Philips Electronics would
fail to satisfy its obligations under the IT TSLA, the Group may suffer operational difficulties or loss. See “Risk
Factors—The Group relies on Royal Philips to perform certain services after the Separation, including withrespect to IT, and the Group may be unable to make, on a timely or cost-effective basis, the changes necessary tooperate as an independent company”, for more information.
The IT services that will be provided under the IT TSLA consist of certain (i) functional IT services; (ii) IT
infrastructure services; and (iii) IT application services. The scope of the IT services may be amended from time
to time.
For the provision of (parts of) the IT services, Philips Electronics depends on agreements with third parties
which may restrict or preclude the provision of IT services to the Group. While the Group is still under control ofRoyal Philips (the “Internal IT Services Period”), Philips Electronics shall extend similar use and access rights
as it grants to any other group member in the Royal Philips group. When the Group is no longer under control ofRoyal Philips (the “External IT Services Period”), Philips Electronics shall extend only limited use and accessrights. During the External IT Services Period, the Group is responsible for acquiring the right to use and tobenefit from third party software.
Under the Reverse IT TSLA, the Company shall provide certain IT services to members of the Royal Philips
group for a period of 12 months as of the date of the Separation. The terms and conditions of the Reverse IT
TSLA are largely similar to those of the IT TSLA. The Reverse IT TSLA further provides that the Company andthe Royal Philips group each have obligations in connection with the provision of IT services to Lumileds underan IT TSLA between Philips Electronics and Lumileds dated 1 April 2015 and any amendments and restatements
made thereto, including those made as a result of any anticipated transaction following on which Royal Philips
no longer directly or indirectly owns 100% of Lumileds (the “Lumileds IT TSLA”). The Reverse IT TSLA lists
the services required to be delivered under the Lumileds IT TSLA and which are allocated to the Company.
Intellectual Property
Under the TMLA, Royal Philips has licensed certain trademarks to the Group, including the Philips
trademark, the Philips shield emblem and the brand line “innovation and you”. The Group was granted:•

an exclusive worldwide license for dedicated lighting products and services such as light sources, lighting
controllers and lighting related services;•a sole worldwide license for, amongst other things, lighting systems designed for hospitals and medical
solar products; and•a non-exclusive worldwide license for smart home/connected products controlling lighting systems fordomestic use such as switches and dimmers.
95

The license was granted for a period of ten years commencing on the Effective Time. The term may be
extended with two periods of five years if certain financial targets in terms of net turnover are met and provided
that the Group as licensee has acted in compliance with the conditions of the TMLA. Net turnover is defined as
the Group’s gross invoiced sales for licensed products sold or otherwise disposed of and licensed services
performed, less any sales tax, environmental charges and commercial returns in unopened packaging. The
financial targets are a minimum combined net turnover in the sixth year of the initial license term of €3 billion
and a minimum combined net turnover of €2.5 billion in the first year of the second license term. If these targets
are not met, parties shall enter into good-faith discussions regarding potential renewal. The license is subject tocompliance with brand identity-, quality- and sustainability requirements. Both parties may terminate theagreement in the event of certain material breaches that are not remedied timely and in case of bankruptcy of theother party or certain of its affiliates. As a result, any such breach may result in damages to be paid to Royal
Philips and loss of the license for a subset or all products and services.
The Group has historically used the Philips brand name. The Group has historically incurred costs related tothe promotion of the Philips brand which have been allocated to the Group under IG&S. Such allocations arereflected in the Combined Financial Statements. Under the TMLA, the Group is obliged to pay a royalty on the
net turnover of all licensed products and services. The applicable royalty percentages are 0.6% for the first five
years, 0.7% for the second five years and 1% after the tenth year. For the first ten years, a minimum annual
guaranteed royalty payment of €30 million applies. Thereafter, a minimum annual guaranteed royalty payment of€20 million applies. The Group is also subject to various other obligations, including for example in respect ofcontrol mechanisms and consumer care for the licensed products. The Group expects that the net effect of theroyalty payment to be made to Royal Philips under the TMLA annually will be approximately €20 million higher
than the historical costs allocated to the Group for promotion of the Philips brand that are reflected in the
Combined Financial Statements for the year ended 31 December 2015.
Under and subject to the conditions of the IP TLA, Royal Philips has transferred, licensed or otherwise
made available to the Group certain intellectual property rights deemed relevant for the Group’s business. The
Group, on its part, has licensed back certain intellectual property rights to Royal Philips for use within the scopeof Royal Philips’ business. No royalty payments in respect of licenses are due by the Group or by Royal Philips
under the IP TLA. For a description of the IP portfolio of the Group, see “Business—Intellectual Property”.
Under the CNLA, the Group has also secured the right to use the Philips company name for a period of
18 months after the date that it is no longer controlled by Royal Philips. Royal Philips may terminate theagreement with immediate effect upon a change of control in relation to the Company or termination of the
TMLA. The agreement terminates automatically under certain limited circumstances such as bankruptcy of theCompany. Upon termination of the agreement, the Group will refrain from any use of the name “PHILIPS” aspart of its corporate identity and adopt a new trade name that is dissimilar from “PHILIPS”.
Insurance
The Separation Agreement provides that as from the Separation, the Group will cease to benefit fromcoverage under existing Royal Philips local insurance policies for events occurring after the Separation Date. The
Separation Agreement also provides that as from the Settlement Date, the Group will cease to benefit fromcoverage under existing Royal Philips global umbrella insurance policies.
The Separation Agreement further provides that for the Group to pursue coverage for events prior to theSettlement Date under existing Royal Philips global umbrella insurance policies, it must notify the insurer ofsuch claim or circumstance within a fixed period. As part of the Separation, Royal Philips and the Group haveagreed that if the insured limit of a local policy up to the Separation Date, or a global umbrella insurance policy
up to the Settlement Date, is insufficient to pay out all coverage demands under such policy (through all primaryand excess layers), then the parties shall allocate the original full insured limits such that in principle one-third ofsuch limit is allocated to the Group and two-thirds of such limit is allocated to Royal Philips.
Access to Information
The Separation Agreement provides that the parties will exchange certain information reasonably required
to comply with requirements imposed on the requesting party by a government authority, or for use in any
proceeding or to satisfy audit, accounting or similar requirements. In addition, the parties will use commerciallyreasonable efforts to make available to each other past and present directors, officers, other employees and agentsas witnesses in any legal, administrative or other proceeding in which the other party may become involved.
Advisor’s fees
The Separation Agreement provides that fees of professional advisors (such as financial and legal advisors aswell as accounting services providers), who have been engaged by Royal Philips prior to the Separation Date toadvise and assist with the preparation and implementation of the Separation, are for the account of Royal Philips.
96

DIVIDEND POLICY
GeneralUnder Dutch corporate law, the Company may only make distributions to its Shareholders if the Company’s
equity exceeds the sum of the paid-up and called-up share capital increased by the reserves as required to be
maintained by Dutch law or by the Articles of Association. Under the Articles of Association, the dividend payout is a multi-stage pay-out which can be summarized as follows.
A dividend will be paid out of the profit for distribution on the Preference Shares (if any). The Board ofManagement may, subject to the approval of the Supervisory Board and subject to Dutch law and the Articles of
Association, resolve that any amount remaining out of the profit after the distribution on Preference Shares will
be added to the reserves. The profit remaining after the distribution on Preference Shares and the reservation, will
be at the disposal of the General Meeting which may resolve to add the profits to the reserves or to distribute it
among the Shareholders.
Under the Articles of Association, distribution of profits as shown by the adopted annual accounts referred
to in Section 2:391 of the DCC (the “Annual Accounts”), will be made after the adoption of the Annual
Accounts from which it appears that they are permitted for the respective financial year, entirely without
prejudice to any of the other provisions of the Company’s articles of association.
Subject to the approval of the Supervisory Board and subject to Dutch law and the Articles of Association,
the Board of Management may resolve to distribute an interim dividend insofar as the Company’s equity exceeds
the amount of the paid-up and called-up part of the share capital increased with the reserves that should bemaintained pursuant to Dutch law or the Articles of Association. For this purpose, the Board of Management
must prepare an interim statement of assets and liabilities evidencing sufficient distributable equity.
Subject to the approval of the Supervisory Board, and subject to Dutch law and the Articles of Association,
the Board of Management may resolve to distribute a dividend in the form of Ordinary Shares to the
Shareholders.
According to the Articles of Association, dividends and other distributions will be due and payable no later
than thirty days after the date when they were declared, unless the body declaring the dividend determines adifferent date.
Dividend History
The Company was incorporated on 1 February 2016 and has not made any dividend distributions on or prior
to the date of this Prospectus.
Dividend Policy
The Company is targeting an annual dividend pay-out ratio of 40% to 50% of continuing net income8 to be
paid out annually in cash. The Company expects the first dividend payment to take place in 2017, which will bebased on the results over the full year 2016. There can be no assurances that in any given year a dividend will be
paid. The payment of dividends, if any, and the amounts and timing thereof will depend on a number of factors,
including future revenue, profits, financial conditions, general economic and business conditions and prospects
and such other factors as the Board of Management may deem relevant as well as other legal and regulatory
requirements, many of which are beyond the control of the Company. There can be no assurances that theGroup’s performance will facilitate adherence to the dividend policy or any increase in the pay-out ratio and, inparticular, the Company’s ability to pay dividends may be impaired if any of the risks described in thisProspectus were to occur. The Company is a holding company and its ability to generate income and pay
dividends is dependent on the ability of its subsidiaries to declare and pay dividends or lend funds to theCompany. In addition, the Company’s ability to pay dividends is subject to restrictions on the distribution ofdividends under Dutch law. See “Risk Factors—The payment of future dividends will depend on the Group’s
results of operations and financial condition, as well as on the Group’s operating subsidiaries’ distributions to
the Company”. Furthermore, the Company’s dividend policy is subject to change as the Board of Management
may revisit the Company’s dividend policy from time to time.
Manner and Time of Dividend Payments
Payment of any dividend in cash will in principle be made in euro. According to the Articles of Association,
the Board of Management may determine that distributions on Shares will be made payable either in euro or inanother currency. Any dividends that are paid to Shareholders through Euroclear Nederland, will be
8Continuing net income is defined as recurring net income from continuing operations, or net income excluding discontinued operations
and excluding material non-recurring items.

97

automatically credited to the relevant Shareholders’ accounts without the need for the Shareholders to present
documentation proving their ownership of the Shares. Payment of dividends on the Shares in registered form (notheld through Euroclear Nederland, but directly) will be made directly to the relevant Shareholder using theinformation contained in the Company’s shareholders’ register and records.
Uncollected Dividends
A claim for any declared dividend and other distributions lapses five years and one day after the date those
dividends or distributions became payable. Any dividend or distribution that has not been claimed within thisperiod will be forfeited and will be carried to the reserves of the Company.
Taxation
Dividend payments on the Shares are generally subject to withholding tax in the Netherlands. See“Taxation—Taxation in the Netherlands—Withholding tax”.

98

CAPITALIZATION AND INDEBTEDNESSCapitalization
The following table presents (i) the Group’s actual combined capitalization as of 31 March 2016;(ii) adjustments for the effects of certain intragroup transactions in connection with the Offering as if they had
occurred on 31 March 2016; (iii) adjustments for debt financing in an aggregate amount of approximately€1,179 million as if it had occurred on 31 March 2016; and (iv) the Group’s combined capitalization as of
31 March 2016, as adjusted to reflect the adjustments described in (ii) and (iii). As of 31 March 2016, Philips
Lighting Holding B.V. was the parent company of the Group. As a result of certain intragroup transactions, theCompany will become the parent company of the Group. See “Separation” for more information.
This table should be read in conjunction with the Condensed Combined Interim Financial Statements andCombined Financial Statements and the information included in “Important Information—Presentation of
Financial Information”, “Selected Historical Financial Information” and “Operating and Financial Review”. See“Description of Share Capital” for information concerning the Company’s share capital.
The Company will not receive any proceeds from the Offering, as the net proceeds will be received by the
Selling Shareholder. Therefore, the table below does not include any adjustment in respect of the net proceeds of
the Offering.
The “adjustment” and “as adjusted” columns below are based upon a number of estimates, and thecorresponding final amounts will not be determinable until the transactions described in (ii) and (iii) above haveactually occurred. The actual impact of such transactions, which may differ, possibly materially, from theestimates shown in the “adjustment” and “as adjusted” columns below, is expected to be reflected in the Group’s
financial information for the six months ending 30 June 2016.
In € millions

ActualAs of 31
March 2016 (1)Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured . . . . . . . . . . . . . . . . . . . . . .
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . .
Guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unguaranteed/unsecured . . . . . . . . . . . . . . . . . . . . . .
Business equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owner’s net investment . . . . . . . . . . . . . . . . . . . . . .
Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . .
Total capitalization (4) . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,761
—
—
2,761
1,054
—
—
1,054
3,121
3,011
—
—
—
110
6,936

Adjustments
Intragroup
Debt
Transactions (2) Financing (3)

(645)
—
—
(645)
—
—
—
—
(714)
(3,011)2,296
1——(1,359)

—
—
—
—
1,179
1,179
—
—
—
—
—
—
—
1,179

As Adjusted
As of 31
March 2016

2,116
—
—
2,116
2,233
1,179
—
1,054
2,407
—
2,296
1
—
110
6,756

(1) Financial information set forth in this column was derived from the Group’s balance sheet as of 31 March 2016 included in theCondensed Combined Interim Financial Statements. As of 31 March 2016, Philips Lighting Holding B.V. was the parent company of theGroup. As a result of certain intragroup transactions, the Company will become the parent company of the Group.
(2) The Group estimates that certain intragroup transactions on or prior to the Settlement Date would result in the following adjustments to
the Group’s capitalization:(i) a net decrease in unguaranteed/unsecured debt of €(645) million due to settlement of intragroup liabilities (including intragroupliabilities in connection with the Separation);(ii) a decrease in owner’s net investment of €3,011 million due to: (a) distribution in cash of $500 million (equivalent to €(439) million
based on the euro to U.S. dollar exchange rate of €1.00 = $1.1421 as of 6 May 2016) from the Group to Royal Philips; (b) adecrease in owner’s net investment of €(908) million resulting from the contribution and sale by the Selling Shareholder to theCompany of all of the outstanding share capital of Philips Lighting Holding B.V.; and (c) a decrease in owner’s net investment of€(1,664) million in connection with the contribution (at book value) by the Selling Shareholder to the Company of the U.S. businessof the Group;(iii) an increase in share premium of €2,296 million due to: (a) an increase in share premium of €167 million resulting from the issuanceby the Company of 149,999,900 Ordinary Shares to the Selling Shareholder as part of the consideration for the contribution and saleby the Selling Shareholder to the Company of all of the outstanding share capital of Philips Lighting Holding B.V.; (b) an increasein share premium of €1,664 million in connection with the contribution (at book value) by the Selling Shareholder to the Companyof the U.S. business of the Group; (c) an increase in share premium of €427 million in connection with contribution in cash by the
Selling Shareholder to the Company in repayment of intragroup debt (representing the difference between short-term loans payable
to Royal Philips of €(645) million and short-term loans receivable from Royal Philips of €207 million, minus net decrease in cash of€(11) million); and (d) an increase in share premium of €38 million due to recognition of a deferred tax asset resulting from
dissolution of the Netherlands tax group on or prior to the Settlement Date; and99

(iv) an increase in share capital of €1 million resulting from the issuance by the Company of 149,999,900 Ordinary Shares to the Selling
Shareholder in exchange for the contribution and sale by the Selling Shareholder to the Company of all outstanding share capital ofPhilips Lighting Holding B.V.
The Group also expects to engage in certain other intragroup transactions which will not have any net effect on capitalization, including
loan and repayment of intragroup debt from the Selling Shareholder to the Company in an amount of €740 million in connection with thecontribution and sale by the Selling Shareholder to the Company of all of the outstanding share capital of Philips Lighting Holding B.V.
The actual amounts involved in the intragroup transactions may differ, possibly materially, from the amounts described above due to,among other factors, (i) changes in working capital, including the effect of payments to third parties and payments by Royal Philips to
the Group of receivables under the Royal Philips cash pooling arrangements, (ii) the impact of foreign currency exchange rate
movements on the value of assets and liabilities, (iii) repayments by the Group of liabilities to third parties, (iv) new third party
borrowings by the Group, (e.g., local working capital funding in countries where cross-border cash flows are restricted); (v) changes in
the actual cash balances due to, among other factors, business performance of the Group from 31 March 2016 through the Settlement
Date and intercompany financing arrangements and (vi) the value of the business on or prior to the Settlement Date. On the Settlement
Date, the amount of the contribution in cash from Royal Philips to the Company (which is assumed to be €427 million as describedabove) will be determined in order to achieve a net financial indebtedness of approximately €950 million, representing a ratio to 2015
EBITDA of approximately 1.5x, as of the close of business on the Settlement Date.
(3) On or prior to the Settlement Date, the Group expects to draw down $500 million (equivalent to €439 million based on the euro to
U.S. dollar exchange rate of €1.00 = $1.1421 as of 6 May 2016) and €740 million under the Term Loan Facility. The Group does notexpect to draw down any amounts under the Revolving Credit Facility immediately. The actual amounts drawn down under the Term
Loan Facility may differ from the amounts shown in the table due to foreign currency exchange rate movements in relation to the $500
million drawdown. See “Operating and Financial Review—Financing Structure Following the Offering” for a description of the Term
Loan Facility and the Revolving Credit Facility.
(4) Total capitalization is the sum of total current liabilities, total non-current liabilities and business equity.

Indebtedness
The following table presents (i) the Group’s combined indebtedness as of 31 March 2016; (ii) adjustments
for the effects of certain intragroup transactions in connection with the Offering as if they had occurred on
31 March 2016; (iii) adjustments for debt financing in an aggregate amount of approximately €1,179 million as if
it had occurred on 31 March 2016; and (iv) the Group’s combined capitalization as of 31 March 2016, as
adjusted to reflect the adjustments described in (ii) and (iii). As of 31 March 2016, Philips Lighting Holding B.V.
was the parent company of the Group. As a result of certain intragroup transactions, the Company will become
the parent company of the Group. See “Separation” for more information.
This table should be read in conjunction with the Condensed Combined Interim Financial Statements andCombined Financial Statements and the information included in “Important Information—Presentation of
Financial Information”, “Selected Historical Financial Information” and “Operating and Financial Review”.
The “adjustment” and “as adjusted” columns below are based upon a number of estimates, and thecorresponding final amounts will not be determinable until the transactions described in (ii) and (iii) above haveactually occurred. The actual impact of such transactions, which may differ, possibly materially, from theestimates shown in the “adjustment” and “as adjusted” columns below, is expected to be reflected in the Group’s
financial information for the six months ending 30 June 2016. The Group intends to achieve a net financial
indebtedness of approximately €950 million, representing a ratio to 2015 EBITDA of approximately 1.5x, as of
the close of business on the Settlement Date.
In € millions

A. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Cash equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. Trading securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
D. Liquidity (A) + (B) + (C) . . . . . . . . . . . . . . . . . . . . . . . . . . .
E. Current financial receivables . . . . . . . . . . . . . . . . . . . . . . .
F. Current bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
G. Current portion of non-current debt . . . . . . . . . . . . . . . . . . .
H. Other current financial debt . . . . . . . . . . . . . . . . . . . . . . . . .
I. Current financial debt (F) + (G) + (H) . . . . . . . . . . . . . . . .
J. Net current financial indebtedness (I) – (E) – (D) . . . . . . .
K. Non-current bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
L. Bonds issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
M. Other non-current loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N. Non-current financial indebtedness (K) + (L) + (M) . . . .
O. Net financial indebtedness (J) + (N) (4)ActualAs of
31 March2016 (1)Intragroup
Transactions (2)Debt
Financing (3)As
Adjusted
As of
31 March
2016

258
95
—
353
207
52
43
645
740
180
18
—
—
18
198

(1,190)——(1,190)
(207)
—
—
(645)
(645)
752
—
—
—
—
752

1,179
—
—
1,179
—
—
—
—
—
(1,179)
1,179
—
—
1,179
—

247
95
—
342
—
52
43
—
95
(247)
1,197
—
—
1,197
950

Adjustments(1) Financial information set forth in this column was derived from the Group’s balance sheet as of 31 March 2016 included in theCondensed Combined Interim Financial Statements. As of 31 March 2016, Philips Lighting Holding B.V. was the parent company of theGroup. As a result of certain intragroup transactions, the Company will become the parent company of the Group.

100(2) The Group estimates that certain intragroup transactions on or prior to the Settlement Date would result in the following adjustments to
the Group’s indebtedness:(i) a net decrease in cash of €(1,190) million due to: (a) distribution of $(500) million (equivalent to €(439) million based on the euro to
U.S. dollar exchange rate of €1.00 = $1.1421 as of 6 May 2016) from the Group to Royal Philips; (b) repayment by the Group to
Royal Philips of intragroup debt in an amount of €(740) million; (c) repayment by Royal Philips to the Group of outstanding current
financial receivables in an amount of €207 million; (d) repayment by the Group to Royal Philips of short-term loans payable in an
amount of €(645) million; (e) contribution in cash by Royal Philips to the Company in an amount of €427 million;(ii) a decrease in current financial receivables of €(207) million due to the repayment from Royal Philips to the Group of outstanding
current financial receivables; and(iii) a decrease in other current financial debt of €(645) million due to repayment by the Group to Royal Philips of short-term loans
payableThe Group will also engage in certain other intragroup transactions which are not expected to have any net effect on capitalization,
including loan and repayment of intragroup debt from the Selling Shareholder to the Company in an amount of €740 million inconnection with the contribution and sale by the Selling Shareholder to the Company of all of the outstanding share capital of Philips
Lighting Holding B.V.
The actual amounts involved in the intragroup transactions may differ, possibly materially, from the amounts described above due to,among other factors, (i) changes in working capital, including the effect of payments to third parties and payments by Royal Philips to
the Group of receivables under the Royal Philips cash pooling arrangements, (ii) the impact of foreign currency exchange rate
movements on the value of assets and liabilities, (iii) repayments by the Group of liabilities to third parties, (iv) new third party
borrowings by Group (e.g., local working capital funding in countries where cross-border cash flows are restricted), (v) changes in theactual cash balances due to, among other factors, business performance of the Group from 31 March 2016 through the Settlement Dateand intercompany financing arrangements and (vi) the value of the business on or prior to the Settlement Date. On the Settlement Date,the amount of the contribution in cash from Royal Philips to the Company (which is assumed to be €427 million as described above) will
be determined in order to achieve a net financial indebtedness of approximately €950 million, representing a ratio to 2015 EBITDA ofapproximately 1.5x, as of the close of business on the Settlement Date.
(3) On or prior to the Settlement Date, the Group expects to draw down $500 million (equivalent to €439 million based on the euro to
U.S. dollar exchange rate of €1.00 = $1.142 as of 6 May 2016) and €740 million under the Term Loan Facility. The Group does notexpect to draw down any amounts under the Revolving Credit Facility immediately. The actual amounts drawn down under the Term
Loan Facility may differ from the amounts shown in the table due to foreign currency exchange rate movements in relation to the$500 million drawdown. See “Operating and Financial Review—Financing Structure Following the Offering” for a description of the
Term Loan Facility and the Revolving Credit Facility.
(4) The Group had EBITDA of €646 million for the year ended 31 December 2015. As adjusted for debt financing and based on thetransactions and assumptions described herein, the Group is therefore expected to have a net financial indebtedness to 2015 EBITDA
ratio of approximately 1.5x, as of the close of business on the Settlement Date with the ability to reduce leverage over time (excluding
temporary increases in leverage as a result of acquisitions). See “Operating and Financial Review—Non-IFRS measures” for more
information on non-IFRS financial measures and reconciliation of EBITDA for the year ended 31 December 2015.

The Group does not have any indirect or contingent indebtedness other than the contractual obligations andcontingent liabilities described in Note 14 to the Condensed Combined Interim Financial Statements and Notes
E.24 and E.26 to the Combined Financial Statements.

101

SELECTED HISTORICAL FINANCIAL INFORMATIONThe selected combined financial information of the Group as of and for the years ended 31 December 2015,31 December 2014 and 31 December 2013 set forth below have been derived from the Combined Financial
Statements included elsewhere in this Prospectus, which have been prepared in accordance with IFRS andaudited by KPMG, independent auditors.
The selected combined financial information of the Group as of and for the three-month period ended
31 March 2016 set forth below, have been derived from the Condensed Combined Interim Financial Statements
included elsewhere in this Prospectus, which has been prepared in accordance with International AccountingStandards (“IAS”) 34. The selected combined financial information of the Group as of and for the comparative
three-month period ended 31 March 2015 set forth below, have also been derived from the Condensed Combined
Interim Financial Statements. EY has issued a review report of the Condensed Combined Interim Financial
Statements as of and for the three month period ended 31 March 2016 as set forth in their report thereon
included in the Condensed Combined Interim Financial Statements.
The following information should be read in conjunction with the information contained in “Important
Information—Presentation of Financial and Other Information”, “Capitalization and Indebtedness”,“Operating and Financial Review”, the Condensed Combined Interim Financial Statements, including the notes
thereto, the Combined Financial Statements, including the notes thereto and the auditor’s report thereon andother financial data appearing elsewhere in this Prospectus.
The Group historically did not exist as a reporting group and no separate (statutory) consolidated financial
statements were therefore prepared. Accordingly, to allow for the evaluation of the historical financial results of
the Group’s business, the Group has prepared the Combined Financial Statements and the Condensed Combined
Interim Financial Statements. For additional information, see “Operating and Financial Review—Basis ofPreparation of Financial Information”.
The following tables present the Group’s combined income statement, the Group’s combined balance sheet,the Group’s combined cash flows statement and information regarding the Business Groups for the periods or asof the dates indicated.
Combined Statements of Income
For the three months
ended 31 March(unaudited)
2016
2015

In € millions

For the year ended
31 December
2015
2014
2013

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,702
1,727
7,465
6,981
7,129
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,075) (1,106) (4,810) (4,671) (4,573)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

627

621

2,655

2,310

2,556

Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(430)
(90)
(49)
(2)
18
(3)

(430)
(88)
(50)
—
2
—

(1,751)
(366)
(233)
—
48
(22)

(1,657)
(395)
(223)
(2)
13
(5)

(1,722)
(375)
(233)
(26)
31
(18)

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71

55

331

41

213

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4
(21)

—
(2)

3
(11)

3
(9)

3
(4)

Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54

53

323

35

212

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(40)

(23)

(83)

(66)

(45)

Income after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

30

240

(31)

167

Results relating to investments in associates . . . . . . . . . . . . . . . .

—

—

—

2

1

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

30

240

(29)

168

102

Combined Balance Sheets
As of
31 March(unaudited)2016

In € millions

Non-current assets
Property, plant and equipment:
At cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of 31 December
2015
2014
2013

2,634
(2,031)

2,620(1,986)

2,840(2,118)2,767(1,937)

Total property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets:
At cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

603
1,781

634
1,844

722
1,676

830
1,458

2,196
(1,391)

2,192(1,336)

2,120(1,214)

1,799(1,027)

Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

805
16
23
58
409
19

856
20
23
8
259
15

906
10
24
23
241
4

772
8
27
22
212
4

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,714

3,659

3,606

3,333

1,010
48
10
30

988
46
9
25

996
65
17
8

983
52
20
7

1,344
65
103

1,436
83
80

1,455
3
87

1,289
13
69

Total receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets classified as held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term loans receivable from Royal Philips . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,512
52
207
353

1,599
34
—
83

1,545
20
—
75

1,371
15
—
49

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,222

2,784

2,726

2,497

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,936

6,443

6,332

5,830

EquityOwner’s net investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,011
110

3,513
103

3,495
88

3,297
2

Business equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,121

3,616

3,583

3,299

18
678
38
320

2
350
126
159

41
461
150
158

6
348
132
145

Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,054

637

810

631

95
645
13
23

86
—
7
6

49
—
15
14

2
—
22
10

765
147

940
111

847
37

867
20

Total account and notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities associated with assets classified as held for sale . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

912
404
266
10
393

1,051
459
263
6
312

884
447
240
—
290

887
459
227
—
293

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,761

2,190

1,939

1,900

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,815

2,827

2,749

2,531

Total liabilities and business equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,936

6,443

6,332

5,830

Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable from related parties—Royal Philips . . . . . . . . . . . .
Other current receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Current liabilities
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term loans payable to Royal Philips . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Account and notes payable:
Trade creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable to related parties – Royal Philips . . . . . . . . . . . . . . . .

103

Combined Statements of Cash Flows
For the three months
ended 31 March
For the year ended(unaudited)
31 December
2016
2015
2015
2014
2013

In € millions

Cash flows from operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

30

240

(29)

168

Depreciation, amortization & impairments of non-financial assets . . . . .
Impairment of non-current financial assets . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on debt, borrowings and other liabilities . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

78
3
(1)
(4)
18
40
6

73
—
—
—
2
23
7

315
4
(26)
(3)
7
83
24

381
—
(2)
(3)
9
66
22

390
—
(1)
(3)
4
45
27

Decrease (increase) in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in receivables and other current assets . . . . . .
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accounts payable, accrued and othercurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in non-current receivables, other assets and otherliabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in assets classified as held for sale . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(102)
28
(47)

79
28
(65)

209
—
29

(33)
(17)
114

(231)
(206)
(94)

(83)

116

180

(130)

69

(63)
(31)
—
(1)
(17)

2
(23)
—
(2)
(7)

(29)
(79)
—
(2)
(26)

—
116
(1)
(5)
(43)

4
(86)
(1)
—
(54)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities

(60)

184

717

478

262

Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment . . . . . . . . .
Proceeds from disposal of property, plant and equipment . . . . . . . .
Proceeds from other non-current financial assets . . . . . . . . . . . . . . . . . . .
Purchase of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . .
Dividends received from investments in associates . . . . . . . . . . . . . . . . .

(18)
(4)
(16)
2
—
—
—

(28)
(8)
(20)
—
17
(3)
—

(85) (123) (178)
(38)
(51)
(38)
(98) (109) (159)
51
37
19
31
—
—
(11) (125)
—
—
(1)
2

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

(18)

(14)

(65)

(249)

(176)

Cash flows from financing activities
Funding by (distribution to) Royal Philips . . . . . . . . . . . . . . . . . . . . . . . .
Capital contribution from Royal Philips . . . . . . . . . . . . . . . . . . . . . . . . . .

(349)
692

(149)
—

(626)

(200)

(95)

Proceeds from issuance (payments) of debt . . . . . . . . . . . . . . . . . . . . . . .

3

(24)

(12)

(1)

(2)

Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used for) provided by continuing operations . . . . . . . . . . . .
Effects of changes in exchange rates on cash and cash equivalents . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . .

346
268
2
83

(173)
(3)
(9)
75

(638) (201)
14
28
(6)
(2)
75
49

(97)
(11)
2
58

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . .

353

63

104

83

75

49

Business Group Information
The Group’s business is organized and managed on a functional basis by technology and end-markets
through four operating Business Groups: BG Lamps, BG LED, BG Professional and BG Home. Certain
innovation activities of the Group, as well as certain costs related to the headquarters of the Group, are notreflected in the financial results of the Business Groups, and are described under the caption “Other” in thisProspectus.
BG
Lamps

BG
LED

BG
Professional

BG
Home

Other

Total

For the three months ended 31 March 2016 (unaudited)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

615
113

355
19

601
(25)

124
(15)

7
(21)

1,702
71

For the three months ended 31 March 2015 (unaudited)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

727
106

275
2

610
(19)

112
(19)

3
(15)

1,727
55

For the year ended 31 December 2015
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,850
403

1,334
66

2,757
14

515
(73)

9
(79)

7,465
331

For the year ended 31 December 2014
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,119
356

958
(62)

2,420
(56)

482
2
(70) (127)

6,981
41

For the year ended 31 December 2013
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,557
586

772
(20)

2,308
(75)

490
(152)

7,129
213

In € millions

105

2
(126)

OPERATING AND FINANCIAL REVIEWThis operating and financial review should be read in conjunction with the rest of this Prospectus, including
the information set forth in “Important Information”, “Capitalization and Indebtedness” and “Selected
Historical Financial Information” and the information set forth in the Combined Financial Statements and theCondensed Combined Interim Financial Statements.
The Combined Financial Statements as of and for the years ended 31 December 2015, 2014, and 2013 havebeen derived from the consolidated financial statements of Royal Philips. The Combined Financial Statements
have been prepared in accordance with IFRS as adopted by the EU and in accordance with IFRS as issued by the
IASB. References to “IFRS” should be construed as references to International Financial Reporting Standards
as adopted by the EU and as issued by the IASB. The Combined Financial Statements have been prepared basedon “carve-out” financial information from the consolidated financial statements of Royal Philips for the purposeof presenting the financial position, results of operations and cash flow of the Group on a stand-alone basis. The
Combined Financial Statements have been prepared on a going-concern basis. The Combined Financial
Statements have been audited by KPMG as set forth in their report thereon included in the Combined Financial
Statements.
The Condensed Combined Interim Financial Statements for the three month periods ended 31 March 2016
and 2015 and as of 31 March 2016 have been prepared on the basis of IAS 34. The Condensed Combined Interim
Financial Statements do not include all of the information required for the Combined Financial Statements andshould be read in conjunction with the Combined Financial Statements. EY has issued a review report of theCondensed Combined Interim Financial Statements as of and for the three month period ended 31 March 2016as set forth in their report thereon included in the Condensed Combined Interim Financial Statements.
For a discussion of the presentation of the Group’s historical financial information included in thisProspectus, see “—Basis of Preparation of Financial Information”.
This operating and financial review contains forward-looking statements that involve risks anduncertainties. The Group’s future results could differ materially from those discussed below. Factors that could
cause or contribute to such differences include, without limitation, those discussed in particular in the sections
entitled “Risk Factors” and “Business” and elsewhere in this Prospectus. See “Important Information—
Forward-Looking Statements” for a discussion of the risks and uncertainties related to those statements.
Overview
The Group is a global market leader in the general lighting market measured by sales with recognizedexpertise in the development, manufacturing and application of innovative lighting products, systems andservices. The Group has pioneered many of the key breakthroughs in lighting over the past 125 years, including
incandescent lighting, HID lamps, fluorescent lighting and CFL, and has been a driving force behind several
technological transitions, laying the basis for its current strengths and its leading position in the transition of thelighting industry from conventional lighting technologies to LED lighting technologies as well as lighting
systems (including connected lighting systems) and services. The Group has a strong track record in innovationand invests heavily in R&D (for the year ended 31 December 2015, 4.9% of sales) to stay at the forefront oftechnological developments. It has a strong patent portfolio with over 14,000 patent rights, which it believes ismore than any of its competitors, and a licensing program with over 600 licensees as of 31 March 2016.
The Group believes that it is well positioned across the lighting value chain and has a focus on the generallighting market. The Group’s light source product portfolio includes incandescent lamps, halogen lamps,
fluorescent lamps, LFLs, CFLs, HID lamps and LED lamps. In addition, the Group offers electronic components,
such as electronic ballasts and drivers, as well as complete luminaires for consumers and professional users. The
Group also places emphasis on offering innovative, integrated and customized lighting systems and services,
including light management systems and value-added services such as energy audits, light design andengineering as well as remote monitoring and managed services. The Group’s products are used for illuminationand visualization in a variety of applications for general lighting, in particular residential, road and street,architectural, office, industrial, retail and hospitality lighting. The Group also produces light sources and systems
for special applications, such as projection, cinema, entertainment, city beautification (i.e., dynamic architecturallighting) and horticulture as well as water purification (e.g., disinfection with ultraviolet radiation). The
combined LED and automotive lighting components businesses of Royal Philips were separated into a standalone company in 2015. The lighting components and automotive lighting businesses are not reflected in thefinancial results of the Group.
The Group has a global reach with commercial activities that cover approximately 180 countries. The Grouphas operational manufacturing plants in 22 countries in all major regions of the world, and more than 70 sales
106

offices worldwide. The Group handles commercial activities in countries without a sales organization via
independent distributors and agents who cooperate closely with the Group’s international sales organization.
The Group has secured the right to use the Philips brand for products and services for an initial period often years following the Separation. This term may be extended with two periods of five years if certain financial
targets in terms of net turnover are met and provided that the Group as licensee has acted in compliance with theconditions of the trademark license agreement. The brand license is subject to royalty payments. The Group
expects that the net effect of the royalty payment to be made to Royal Philips under the trademark license
agreement annually will be approximately €20 million higher than the historical costs allocated to the Group for
promotion of the Philips brand that are reflected in the Combined Financial Statements for the year ended
31 December 2015.
For the year ended 31 December 2015, the Group’s sales were €7,465 million (2014: €6,981 million;
2013: €7,129 million), the Group’s income from operations was €331 million (2014: €41 million; 2013:€213 million), the Group’s adjusted EBITDA (unaudited) was €739 million (2014: €665 million; 2013:€659 million) and the Group’s free cash flow (unaudited) was €632 million (2014: €355 million; 2013:€84 million). For the three-month period ended 31 March 2016, the Group’s sales were €1,702 million, theGroup’s income from operations was €71 million, the Group’s adjusted EBITDA (unaudited) was €161 million
and the Group’s free cash flow (unaudited) was €(78) million. As of 31 March 2016, the Group employedapproximately 36,350 FTEs worldwide. See also “—Non-IFRS Financial Measures”.
Description of segments
The Group’s business is organized and managed on a functional basis by technology and end-markets
through four operating business groups: BG Lamps, BG LED, BG Professional and BG Home (“BusinessGroups” or “BGs”). BG Lamps comprises the Group’s conventional lamps and lamp electronics businesses; BG
LED comprises the Group’s LED lamps and LED electronics businesses; BG Professional comprises the Group’s
professional luminaires, lighting systems and services businesses; and BG Home comprises the Group’s
consumer luminaires and home systems businesses. Each Business Group is responsible for the development of
its strategy, its product portfolio and the production and sourcing of its products. Certain costs, not reflected in
the financial results of the Business Groups, relating to centralized shared services with respect to, among otherfunctions, legal, finance, human resources, business transformation, strategy and marketing, innovation andoperations, are described under the caption “Other” in this Prospectus.
In addition, the Group’s commercial organization is structured along four geographical market groups tomanage its global sales channels: Europe, Americas, Growth Markets and Greater China (“Market Groups” or“MGs”). The Group manages certain businesses (the “Global Businesses”) on a global basis rather than on ageographical market basis, including digital projection, licensing programs, entertainment and the Modular andLuceplan brands.
For the three month period ended 31 March 2016, the BG Lamps had the highest sales of any Business Group at€615 million or 36.1% of total Group sales, followed by BG Professional (€601 million or 35.3%), BG LED(€355 million or 20.9%) and BG Home (€124 million or 7.3%). For the same period, BG Lamps had the highest
EBITDA (unaudited) of any Business Group at €136 million or 91.3% of total Group EBITDA, followed by BG LED(€24 million or 16.1%), BG Professional (€13 million or 8.7%) and BG Home (€(12) million or (8.1)%).
Basis of Preparation of Financial Information
Basis of preparation of Combined Financial Statements
The Group historically did not exist as a reporting group and no separate (statutory) consolidated financial
statements were therefore prepared. The Combined Financial Statements consist of the activities of the former
lighting business of Royal Philips, representing the activities, assets and liabilities of the lighting sector of Royal
Philips and the lighting-related activities of the IG&S (Innovation, Group & Services) sector of Royal Philipsthat relate to or have been assigned to the lighting business of Royal Philips. The Group’s business was
historically conducted through separate legal entities only engaged in lighting activities as well as through legal
entities also engaged in Royal Philips (comprising the consumer lifestyle and healthcare businesses of Royal
Philips) or IG&S activities. Approximately 93 legal entities contained both Group and Royal Philips or IG&S
activities. In addition, 57 legal entities were dedicated Group legal entities. Accordingly, to allow for theevaluation of the historical financial results of the Group’s business access, the Group has prepared the
Combined Financial Statements.
The Group has not previously prepared stand-alone financial statements. Therefore, the Combined Financial
Statements are the first IFRS financial statements of the Group in which IFRS 1 (First-time Adoption ofInternational Financial Reporting Standards) has been applied. IFRS 1 sets out the procedures that an entity must
follow when it adopts IFRSs for the first time as the basis for preparing its general purpose financial statements. As
107

a first-time adopter, the Group has applied the exemption under IFRS 1.D13(a) to deem the cumulative foreignexchange differences to be zero at 1 January 2013 (the date of transition). Since the Group did not previously
prepare combined financial statements, and accordingly does not have any previous GAAP for purposes of the
Combined Financial Statements, the Group is not required to present reconciliations as per IFRS 1.
The accounting policies applied in the Combined Financial Statements are, to the extent applicable,consistent with accounting policies applied in the consolidated financial statements of Royal Philips. As a result,
the Combined Financial Statements have been prepared according to IFRS 1.D16(b) and, apart from the applied
exemption, reflect the carrying amounts that are included in the consolidated financial statements of Royal
Philips.
The Combined Financial Statements have been prepared based on “carve-out” financial information fromthe consolidated financial statements of Royal Philips for the purpose of presenting the financial position, resultsof operations and cash flows of the Group on a stand-alone basis. The Combined Financial Statements wereprepared in accordance with IFRS as adopted by the EU. All standards and interpretations issued by the IASB
and the IFRS Interpretations Committee effective year-end 2015 have been endorsed by the EU, except that the
EU did not adopt some of the paragraphs of IAS 39 applicable to certain hedge transactions. The Group has nohedge transactions to which these paragraphs are applicable. Consequently, the accounting policies applied by
the Group also comply with IFRS as issued by the IASB.
The Combined Financial Statements have been prepared on a going concern basis.
The Combined Financial Statements have been audited by KPMG.
For further detail on the information presented in this section, please see Note C to the Combined Financial
Statements.
The following is a summary of how certain items were treated in the preparation of the Combined Financial
Statements.
Combined income statements
Royal Philips historically charged central IG&S costs, such as IT, finance and accounting, HR, real estateand other central support services, to its sectors mainly based on activity (headcount, floor area, etc.), sales orgross margin. As a result of the foregoing, a significant portion of the IG&S costs were already charged to thelighting sector of Royal Philips. The combination of the lighting-related activities of IG&S mainly resulted inadditional allocation of previously unallocated costs to the Group. Previously unallocated costs mainly compriseRoyal Philips funded research programs, Royal Philips overhead and other items such as restructuring andforeign exchange results. The allocation to the Group of previously unallocated costs is based on activity.
Royal Philips-funded research costs were allocated according to the project-level administration of thebusiness for which the activity has been performed.
Royal Philips overhead includes central finance functions, including tax and treasury, HR, strategy, business
transformation, brand, communication & digital, legal and general management, including the Royal Philips
Executive Committee. The costs of Royal Philips overhead have been allocated to the Group based on estimatedactivity levels and the relation of these functions to the Group and Royal Philips.
Other items of IG&S, such as restructuring costs, foreign exchange results and other items, have been
allocated to the Group based on its relative share in overall costs of IG&S.
Employee benefit expenses and other operational costs were allocated to the Group based on activity.
Depreciation and amortization were assigned to the Group based on the split of related assets.
Interest expense recorded in the Combined Financial Statements does not include any allocation of interest
incurred by Royal Philips or interest on funding provided as part of the owner’s net investment.
Combined balance sheets
The Combined Financial Statements include the assets and liabilities previously reported as part of theRoyal Philips lighting sector as well as the lighting-related assets and liabilities of IG&S, which have been
determined in the following manner:•

Property, plant and equipment: Property plant and equipment held centrally in IG&S has been assigned
fully to either Royal Philips or the Group based on main user of the asset.

•

Intangible assets: Intangible assets held in IG&S mainly comprise IT related assets, which have been
allocated between Royal Philips and the Group based on relative usage.
108

•Trade and other receivables: Unless balances could be specifically assigned to either Royal Philips or theGroup, these balances were allocated based on relative percentage of net Royal Philips or net Group sales of
IG&S, which approximates allocation on an item-by-item basis.

•

Trade and other payables: Unless payables could be specifically assigned to either Royal Philips or theGroup, these balances are allocated to either Royal Philips or the Group based on the relative percentage ofthe external costs in IG&S, which approximates allocation on an item-by-item basis.

•

Accrued liabilities: Unless accruals could be specifically assigned to either Royal Philips or the Group, theseaccruals were allocated based on headcount or using a cost allocation ratio, depending on the specific natureof the balance.

Combined cash flow statements
The combined statements of cash flow included in the Combined Financial Statements have been preparedusing the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature,
any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense
associated with investing or financing cash flows. For a number of reasons, principally the effects of translationdifferences and acquisitions and disposals, certain items in the combined statements of cash flows do notcorrespond to the changes between the combined balance sheets amounts for the respective items. Cash deposits
of Royal Philips are pooled and transferred to a central treasury function on a daily basis wherever possible.
Amounts for cash, cash equivalents and debt are reflected in the Combined Financial Statements only for those
activities of the Group that operated or existed in separate dedicated Group legal entities, during the period of the
Combined Financial Statements. For all other activities, changes in cash and debt balances form part of the line
item funding by (distribution to) Royal Philips.
Funding by (distribution to) Royal Philips as reflected in the combined statements of cash flows under cash
flows from financing activities differs from the movement in funding in the combined statements of changes inbusiness equity, as a result of the following:•

Foreign exchange translation adjustments related to cash balances of dedicated Group entities are reflectedin the combined statements of cash flows. For all other activities, funding balances with Royal Philips arepresented as part of owner’s net investment and accordingly, foreign currency translation adjustments
arising upon consolidation of these balances are also included in owner’s net investment; and•Income taxes of all entities of the Group that are calculated on a separate return basis. Due to the fact thatcertain Group entities did not file separate tax returns, but were part of a Royal Philips consolidated tax
group, tax balances are deemed either contributed or distributed to the shareholder, Royal Philips, and havetherefore been accounted for as business equity transactions with Royal Philips.

Pensions
Royal Philips is the sponsor of Royal Philips group defined benefit plans that are externally funded. The net
liabilities of these Royal Philips group defined benefit plans are recognized at the Royal Philips level only, andare not included in the Combined Financial Statements. Royal Philips group defined benefit plans are accounted
for in accordance with the Royal Philips policy for charging pension costs to the participating entities. The
service cost in Royal Philips group defined benefit plans are allocated to the participating companies, including
the Group. Cash contributions to externally funded plans occur at Royal Philips and no further cash of theparticipating companies of the Group is requested other than their share in the cost.
The only Group defined benefit plan is the mandatory end of service benefit of the GLC joint venture in
Saudi Arabia, which has no external funding. The liability of such a plan is equal to the defined benefit obligation
as determined under the guidance of IAS 19 and as calculated by a local actuary. The liability is included in thebalance sheet under provisions.
The Group assumed liabilities from Royal Philips at the date of Separation, including pension obligations.
These pension obligations are not reflected in the Combined Financial Statements of the Group as the legal
obligation did not exist prior to the date of Separation. For more information on assumed net pension obligations
for periods prior to the Separation Date, see “Corresponding pension liabilities assumed as part of the legal
separation on 1 February 2016” in Note E.19 to the Combined Financial Statements.
Interest expense
Cash deposits of Royal Philips are pooled and transferred to a central treasury function on a daily basis
where possible. Amounts for cash, cash equivalents and debt are reflected in the Combined Financial Statements
only for those activities of the Group which operated or existed in separate legal entities dedicated to the lighting
business, during the period of the Combined Financial Statements. For all other activities, cash and debt balances109with Royal Philips have been presented as part of the owner’s net investment. The funding structure is therefore
not necessarily representative of the financing that would have been reported if the Group operated on its own oras an entity independent from Royal Philips during the periods presented, nor is it indicative of the financing that
may arise in the future. In particular, interest expense recorded in the Combined Financial Statements does notinclude any allocation of interest incurred by Royal Philips or any interest on funding provided to the Group aspart of the owner’s net investment.
The Group’s participation in the Royal Philips funding program is expected to be replaced in the third
quarter of 2016 by a funding program operated by Philips Lighting Holding B.V., a subsidiary of the Group, thatwill provide cash pooling arrangements, clearing and settlement of intra-group and external payables andreceivables and financing and liquidity investment opportunities to participating members of the Group.
Income taxes
The Group legal entities and businesses historically filed a consolidated tax return with other Royal Philips
activities or entities for the majority of their jurisdictions. For the purpose of the Combined Financial Statements,
income taxes have been computed and reported using the separate return method. The resulting deferred tax
assets and liabilities have been accounted for using the asset and liability approach. The Group estimates theincome taxes for each of the jurisdictions in which they operate. This involves estimating their actual current tax
exposures and assessing temporary and permanent differences resulting from differing treatment of items, suchas reserves and accruals, for tax and accounting purposes.
The Group considers the separate tax return method to be reasonable, but it does not necessarily result in thesame amounts that would have been incurred if the Group entities were separate taxable entities. The separate
taxable entities assumption implies that current and deferred taxes of all Group entities are calculated separately,
and any resulting deferred tax assets are evaluated for utilization following this assumption.
In certain jurisdictions, the Group operations were included with other Royal Philips operations in aconsolidated Royal Philips tax return. Accordingly, income tax associated with these tax groups was reported in
the consolidated financial statements of Royal Philips and paid by Royal Philips. The effects of being included in
the Royal Philips consolidated tax returns, including the utilization of any historical net operating losses, havebeen recorded as part of owner’s net investment in business equity. The cash flow statement presents taxes
actually paid by tax groups within the Group; the effects of being included in the Royal Philips consolidated tax
returns have not been included.
Basis of preparation of Condensed Combined Interim Financial Statements
The Condensed Combined Interim Financial Statements consist of the activities of the former lighting
business of Royal Philips, representing the activities, assets and liabilities of the lighting sector of Royal Philips
and the lighting-related activities of the IG&S sector of Royal Philips that relate to or have been assigned to theformer lighting business of Royal Philips. The Condensed Combined Interim Financial Statements therefore
present the financial position, results of operations and cash flows of the Group as of and for the three month
period ended 31 March 2016 on a combined basis.
On 1 February 2016, Royal Philips and the Group entered into a master separation agreement and a set ofancillary agreements, together effectuating the separation of their respective businesses and providing a framework forthe relationship between Royal Philips and the Group thereafter. See “Separation” for more information.
The Condensed Combined Interim Financial Statements have been prepared under IFRS, as endorsed by the
EU and in accordance with IAS 34 (Interim Financial Reporting).
The Condensed Combined Interim Financial Statements are unaudited and does not contain all theinformation and disclosures included in the Combined Financial Statements, and should be read in conjunction
with the Combined Financial Statements.
The accounting policies applied in the Condensed Combined Interim Financial Statements are consistent withthose applied in the Combined Financial Statements. Refer to Note D.26 to the Combined Financial Statements, whichsets out IFRS accounting standards to be adopted as from 2016 and onwards that may be the most relevant to theGroup and which did not materially impact the Condensed Combined Interim Financial Statements.
Transactions and balances previously reported as part of the continuing operations of the former lighting
business of Royal Philips have been directly attributed to the Group. However, transactions and balances
previously reported as part of the IG&S sector of Royal Philips have been attributed to the Group based on
specific identification or allocation. Allocations were made using relative percentages of net sales, headcount,floor area usage or other methods, which are considered reasonable.
110

The preparation of the Condensed Combined Interim Financial Statements required management to makejudgments, estimates, and assumptions that affect the application of accounting policies and the reported amountsof assets and liabilities, income and expense. Actual results may differ from the estimates. In preparing theCondensed Combined Interim Financial Statements, the significant estimates and judgments made bymanagement in applying the accounting policies and the sources of estimation uncertainty were the same as those
applied to the Combined Financial Statements. See “—Critical Accounting Estimates” for more information.
EY has issued a review report of the Condensed Combined Interim Financial Statements as of and for thethree month period ended 31 March 2016.
Key Financial Performance Measures
The following table sets forth the key financial performance measures of the Group for the three month
periods ended 31 March 2016 and 2015 and for the years ended 31 December 2015, 2014 and 2013.
For the three month
period ended
31 March(unaudited)
2016
2015

In € millions, except percentages

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparable sales growth (%) (unaudited) (1) . . . . . . . . . . . . . .
Adjusted gross margin ratio (%) (unaudited) (2) . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITA (unaudited) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (4) . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA ratio (%) (unaudited) (5) . . . . . . . . . . . . . . . .
EBITDA (unaudited) (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (unaudited) (7) . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA ratio (%) (unaudited) (8) . . . . . . . . . . . . . . .
Free cash flow (unaudited) (9) . . . . . . . . . . . . . . . . . . . . . . . . . .

1,702(1.3)%
37.6%
71
100
121
7.1%
149
161
9.5%
(78)

1,727
—
36.8%
55
81
110
6.4%
128
155
9.0%
156

For theyear ended
31 December
2015
2014
2013

7,465
6,981 7,129(3.5)% (0.8)%—
36.6% 36.9% 36.4%
331
41
213
438
149
380
547
476
453
7.3%
6.8%
6.4%
646
422
603
739
665
659
9.9%
9.5%
9.2%
632
355
84

(1) The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects of currency movements andchanges in consolidation. See “—Non-IFRS financial measures—Comparable sales growth (unaudited)” for more information on nonIFRS financial measures and reconciliation of comparable sales growth for the three month periods ended 31 March 2016 and 2015 andthe years ended 31 December 2015, 2014 and 2013.
(2) The Group defines adjusted gross margin ratio as gross margin, excluding restructuring costs, acquisition-related charges and otherincidental charges attributable to cost of sales, divided by sales. See “—Non-IFRS financial measures—Adjusted gross margin ratio(unaudited)” for more information on non-IFRS financial measures and reconciliation of adjusted gross margin ratio for the three month
periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013. See “—Non-IFRS financial
measures—Adjusting items” for more information on restructuring costs, acquisition-related charges and other incidental charges
attributable to cost of sales.
(3) The Group defines EBITA as income from operations excluding amortization related to acquisition-related intangible assets. See“—Non-IFRS financial measures—EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA and adjusted EBITDA
ratio (unaudited)” for more information on non-IFRS financial measures and reconciliation of EBITA for the three month periods ended
31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
(4) The Group defines adjusted EBITA as EBITA excluding restructuring costs, acquisition-related charges and other incidental charges
attributable to cost of sales, selling expenses, R&D expenses and general and administrative expenses. See “—Non-IFRS financial
measures—EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA and adjusted EBITDA ratio (unaudited)” formore information on non-IFRS financial measures and reconciliation of adjusted EBITA for the three month periods ended 31 March
2016 and 2015 and the years ended 31 December 2015, 2014 and 2013. See “—Non-IFRS financial measures—Adjusting items” formore information on restructuring costs, acquisition-related charges and other incidental charges.
(5) The Group defines adjusted EBITA ratio as adjusted EBITA divided by sales (or sales including intersegment in the case of adjusted
EBITA ratio of Business Groups). See “—Non-IFRS financial measures—EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA,
adjusted EBITDA and adjusted EBITDA ratio (unaudited)” for more information on non-IFRS financial measures and reconciliation ofadjusted EBITA for the three month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013. See“—Non-IFRS financial measures—Adjusting items” for more information on restructuring costs, acquisition-related charges and otherincidental charges.
(6) The Group defines EBITDA as income from operations excluding depreciation, amortization and impairments of non-financial assets, see Note
E.7 to the Combined Financial Statements. See “—Non-IFRS financial measures—EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA,
adjusted EBITDA and adjusted EBITDA ratio (unaudited)” for more information on non-IFRS financial measures and reconciliation of
EBITDA for the three month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
(7) The Group defines adjusted EBITDA as EBITDA excluding restructuring costs, acquisition-related charges and other incidental charges
attributable to cost of sales, selling expenses, R&D expenses and general and administrative expenses. See “—Non-IFRS financial
measures—EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA and adjusted EBITDA ratio (unaudited)” formore information on non-IFRS financial measures and reconciliation of adjusted EBITDA for the three month periods ended 31 March
2016 and 2015 and the years ended 31 December 2015, 2014 and 2013. See “—Non-IFRS financial measures—Adjusting items” formore information on restructuring costs, acquisition-related charges and other incidental charges.

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(8) The Group defines adjusted EBITDA ratio as adjusted EBITDA divided by sales. See “—Non-IFRS financial measures—EBITA,
adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA and adjusted EBITDA ratio (unaudited)” for more information on
non-IFRS financial measures and reconciliation of adjusted EBITDA for the three month periods ended 31 March 2016 and 2015 and theyears ended 31 December 2015, 2014 and 2013. See “—Non-IFRS financial measures—Adjusting items” for more information on
restructuring costs, acquisition-related charges and other incidental charges.
(9) The Group defines free cash flow as net cash provided by operations minus net capital expenditures, which the Group defines asadditions of intangible assets, capital expenditures on property, plant and equipment and proceeds from disposal of property, plant andequipment. Free cash flow as calculated by the Group includes interest paid and income taxes paid. See “—Non-IFRS financial
measures—Free cash flow (unaudited)” for more information on non-IFRS financial measures and reconciliation of free cash flow for thethree month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.

Material Factors Affecting Results of Operations
The Group believes that the factors discussed below have had a material impact on the development of theGroup’s results of operations in the periods for which financial information is presented in this Prospectus.
General economic conditions
Because the Group is active in a global business, its results of operations are affected by general global andregional economic conditions. The Group’s business environment is influenced by both political and economic
conditions in the individual domestic markets in which the Group operates as well as general global economic
and political developments. Demand for the Group’s products is partly cyclical, with a significant portion of theGroup’s business exposed to changes in construction activity, consumer spending and the general economic
environment. This applies in particular to the Group’s professional luminaires, home systems and LED
electronics businesses. As the Group’s main markets are in Europe, the United States, Asia (including the Middle
East and Turkey) and Latin America, economic developments in these regions have and are expected to continue
to have the highest impact on the Group’s business activities.
Transition from conventional lighting technologies to LED lighting technologies
Because the Group’s business is primarily focused on the sale of lamps, luminaires, lighting systems andlighting services in the general lighting market, its results of operations depend on demand for these products andservices. A significant but decreasing portion of the Group’s sales are derived from conventional lighting
technologies (i.e., 57% of the Group’s sales in 2015 compared to 74% in 2013), while a significant andincreasing portion are derived from LED lighting technologies (i.e., 43% of the Group’s sales in 2015 compared
to 26% in 2013). LED lamps are increasingly replacing conventional lamps such as incandescent and fluorescentlamps as a general light source. The transition of the general lighting market in which the Group operates fromproducts based on conventional lighting technologies to products, systems and services based on LED lighting
technologies is driven by a number of factors, including technological developments, consumer demand andgovernment measures to support energy-saving lighting technology. The transition from conventional lighting
technologies to LED lighting technologies will have a fundamental effect on the Group, including as a result of
the following:•

Cash flow from conventional-related sales. The Group’s conventional lamps business has historically been
the greatest contributor to the Group’s cash generation, with BG Lamps accounting for EBITDA of€492 million, €474 million and €690 million for the years ended 31 December 2015, 2014 and 2013,
respectively. BG Lamps also maintained its level of free cash flow excluding restructuring costs as apercentage of BG Lamps sales during this period. During the transition from conventional lighting
technologies to LED lighting technologies, the Group aims to leverage its conventional lamp business andcarry on managing this business for cash optimization by continuing to pro-actively manage costs throughmanufacturing footprint rationalization.

•

Changes to the business model. Rapid technological change and the transition from conventional lighting
technologies to LED lighting technologies have also had, and are expected to continue to have, significant
effects on the Group’s business model. In particular, the longer life expectancy of LED lamps as compared
to conventional lamps is expected to lead to lower replacement demand for lamps in the future. As a result,replacements will not only be driven by technical lifespan, but also by refurbishment cycles (in whichluminaires may be replaced together with the light source). The Group is transforming from a traditional
manufacturing company predominantly focused on conventional lighting products into an “asset-light”
manufacturer and service provider focused on products, systems (including connected lighting systems) andservices based on LED lighting technology. In particular, the Group’s sales from systems and services grewby double-digits for the year ended 31 December 2015. These business model adjustments have required,and are expected to continue to require, changes to, among other areas, the Group’s sales and marketing,
R&D, supply chain management and procurement processes, with corresponding impacts on the business,
results of operations, financial condition and prospects of the Group.
112•

Cost savings initiatives. The Group’s cost savings initiatives are also driven by the transition fromconventional lighting technologies to LED lighting technologies. These cost savings initiatives havehistorically focused on (i) manufacturing footprint rationalization (to address the decline of conventional
lamps), (ii) reduction of bill-of-material costs (to address price erosion, particularly in LED lamps), and(iii) productivity and efficiency improvements (to address generally lower margins in LED lamps). In
particular, a significant portion of the Group’s operational manufacturing plants are used to produce
conventional lamps and, given the Group’s expectation of a continuous decline in the market for
conventional lighting technologies and continued competition in the market for LED lighting, the Group
expects that further cost savings, including by closing or restructuring remaining plants, will be required. In
addition, for the years ended 31 December 2013 to 2015, margin improvement in the Group’s LED lamps
was largely driven by bill-of-materials savings offsetting price erosion. The balance between price erosionin the market for the Group’s products and cost savings, efficiency improvements and price erosion in billof-materials is expected to continue to impact the Group’s business, results of operations, financial
condition and prospects.

Foreign currency exchange rates
While the Group reports in euros, the Group is engaged in an international business that operates in, andmakes sales into, both developed and emerging market countries with many different currencies. For the year
ended 31 December 2015, 30% of the Group’s sales were denominated in U.S. dollars (2014: 27%; 2013: 27%),
26% of the Group’s sales were denominated in euro (2014: 29%; 2013: 30%) and 6% of the Group’s sales weredenominated in Chinese renminbi (2014: 7%; 2013: 8%). Accordingly, movements in foreign currency exchange
rates against the euro may result in an adverse change in the reported income or balance sheet items from noneuro operations. In addition, the Group’s sourcing and manufacturing spend in a particular foreign currency may
not match the Group’s sales in that foreign currency. In particular, the Group’s sourcing and manufacturing
spend in U.S. dollars exceeded its sales in U.S. dollars for the year ended 31 December 2015, resulting in a shortposition in U.S. dollars. As a result of the transition from conventional lighting technologies to LED lighting
technologies and the corresponding developments in the Group’s business and operations, the Group expects thatsourcing and manufacturing spend in U.S. dollars will continue to increase relative to the Group’s sales in
U.S. dollars. The Group’s sourcing and manufacturing spend in Chinese renminbi also exceeded sales in Chinese
renminbi for the year ended 31 December 2015, resulting in a short position in Chinese renminbi. Accordingly,
any adverse change in the foreign currency exchange rates for U.S. dollars, Chinese renminbi or other currencies
where sourcing and manufacturing spend does not match sales could have an adverse impact on the Group’sreported costs of goods sold or income from operations as compared to competitors which incur costs andgenerate sales in the same currency, and therefore have an impact on the competitive position of the Group.
Foreign currency exchange rate fluctuations may have different impacts on results of operations from period toperiod. For instance, foreign currency exchange rate fluctuations had a positive impact on adjusted EBITA for
the three month period ended 31 March 2015 due to a non-recurring working capital revaluation, while adjusted
EBITA for the three month period ended 31 March 2016 was negatively impacted by devaluations of currencies
against the euro. The Group’s foreign currency exchange rate risk management policy is aimed at reducing thevolatility of EBITA through active management of pricing in markets affected by high foreign currency exchange
rate volatility, matching revenues and manufacturing spend to the extent practicable, adjusting the Group’s
foreign currency footprint in the long-term and hedging foreign currency exchange rate volatility. See Note E.30
to the Combined Financial Statements for more information on the foreign currency exchange rate risks to which
the Group may be exposed.
Business transformation programs
The Group’s results of operations have historically been impacted by certain business transformation
programs intended to ensure sustainable performance by transforming processes, operations, organization andculture, particularly for certain parts of BG Professional in North America and BG Home in Europe and China.
Because the measures taken in connection with such business transformation programs may be significant,including manufacturing footprint rationalization, changes in marketing channel approach, improvements in IT
systems, reductions in number of local brands, portfolio pruning and headcount reductions, such business
transformation programs have resulted in significant costs as well as disruption to the Group’s business. The
Group expects that its results of operations will continue to be impacted by both short-term costs ofimplementation and long-term benefits of the Group’s historical and future business transformation programs.
Restructuring costs
The Group’s ongoing business transition from conventional lighting technologies to LED lighting
technologies and business transformation programs have required significant restructuring costs. For more
information on the Group’s restructuring activities, see “—Transition from conventional lighting technologies to113

LED lighting technologies” and “—Business transformation programs”. The Group’s restructuring costs were€(18) million and €(28) million in the three month periods ended 31 March 2016 and 2015, respectively, and€(90) million, €(261) million and €(79) million for the years ended 31 December 2015, 2014 and 2013,
respectively, which primarily related to manufacturing footprint rationalization in BG Lamps and BG
Professional in response to the transition from conventional lighting technologies to LED lighting technologies.
The Group expects to incur restructuring costs and acquisition-related charges of approximately €60 million for
the three month period ending 30 June 2016, of which approximately one-third relates to restructuring plans
which were announced by the Group as of the date of the issuance of the Condensed Combined Interim Financial
Statements. The Group recognizes a provision for restructuring costs when the Group has a detailed formal planfor the restructuring and has raised a valid expectation with those affected that they will carry out the
restructuring by starting to implement the plan or announcing the main features of the plan to those impacted byit. The Group accounts for restructuring costs in the income statement under cost of sales, selling expenses, R&D
expenses and general and administrative expenses, depending on the nature of the restructuring cost. However,restructuring costs will be recognized in the cash flow statement only when the relevant payments are actually
made and may therefore occur in future periods. The Group expects to incur restructuring costs in the future,including in connection with the continued transition from conventional lighting technologies to LED lighting
technologies.
Based on its current business plan, including assumptions as to key economic developments and market
developments, the Group currently estimates that over the medium term, annual total restructuring costs incurred
will amount to between approximately 1.5% and 2.0% of the Group’s annual total sales in each financial year,with the majority of these restructuring costs expected to relate to BG Lamps and BG Professional. The Groupcurrently expects that annual total restructuring costs as a percentage of sales will decline below these levels overthe long term, with annual total restructuring costs expected to amount to between approximately 0.5% and 1.0%of the Group’s annual total sales in each financial year. Included in these estimates of Group total restructuringcosts, the Group expects to incur total restructuring costs in relation to BG Lamps of approximately €(0.3) billion
over the medium term, primarily in relation to manufacturing footprint rationalization and restructuring of R&D
and sales activities. The Group currently does not expect to have to restructure the remaining BG Lamps
production facilities over the long term. However, if the Group were to decide to restructure all remaining BG
Lamps production facilities, it estimates that additional restructuring costs would amount to approximately€(0.2) billion. Restructuring costs in relation to BG Lamps amounted to €(52) million, €(154) million and€(21) million for the years ended 31 December 2015, 2014 and 2013, respectively. For the years ended
31 December 2013 to 2015, the actual restructuring costs incurred by the Group in connection with restructuring
activities in BG Lamps were consistent with the amounts budgeted by the Group in connection with such
restructuring activities. However, estimates of any future restructuring costs may change, including materially,
over time in response to changes in the Group’s business plan or strategy, external economic or market
developments, or any other factors.
Acquisitions and divestments
The Group’s results of operations have historically been influenced by acquisitions and divestments ofcertain businesses. In particular, the Group’s acquisition of a 51% interest in GLC in Saudi Arabia wascompleted on 2 September 2014. GLC was immediately consolidated as part of the Group within BG
Professional. The interest in GLC was acquired for a total amount of €146 million (on a cash-free, debt-freebasis) and taking into account closing conditions, the Group paid an amount of €148 million. The overall cash
position of GLC on the transaction date was €23 million, resulting in a net cash outflow related to this acquisitionof €125 million. Acquisition-related charges that were recognized in general and administrative expenses
amounted to €(4) million. For the period from 2 September 2014 to 31 December 2014, GLC, which became
Philips Lighting Saudi Arabia, contributed sales of €86 million. During the year ended 31 December 2014, theGroup also disposed of certain factories that were intended to be closed as part of the business transformation
program of BG Professional in North America.
Factors Affecting Comparability of Financial Information
The financial and operating data and other information included in this Prospectus reflect the financial
position, financial performance, cash flows and historical information of the Group based on “carve-out”
financial information for the three month period ended 31 March 2015 and the years ended 31 December 2015,2014 and 2013. The financial and operating data and other information for the three month period ended
31 March 2016 reflect the financial position, financial performance, cash flows and historical information of theGroup on both “carve-out” financial information and on a historical basis. Following the Offering, the Group’s
financial and operating data will be presented to reflect the Group’s actual financial position, financial
performance, cash flows and historical information. As a result, the Group’s reported financial condition andresults of operations in any given period may not be comparable with the Group’s financial condition and results114

of operations in the future. For a discussion of the presentation of the Group’s historical financial information
included in this Prospectus, see “—Basis of Preparation of Financial Information”.
Separation costs
In the three month period ended 31 March 2016, the Group incurred certain costs related to the Separation.
The Separation Agreement provides that fees of professional advisors (such as financial and legal advisors aswell as accounting services providers) who have been engaged by Royal Philips prior to the Separation Date toadvise on and assist with the preparation and implementation of the Separation are for the account of Royal
Philips. As a result, Royal Philips has incurred the majority of the costs related to the Separation and preparationof the Offering, and such costs are not reflected in the Combined Financial Statements. The net expenses incurredby the Group as a result of the Separation were €(2) million in the three month period ended 31 March 2016,
which are included in the amounts recognized as restructuring costs, acquisition-related charges and otherincidental charges. In total, the Group expects to incur approximately €60 million to €70 million of costs inconnection with the Separation for the year ending 31 December 2016, of which a substantial part is inconnection with developing standalone IT systems. See “Separation—Transitional Services”.
Allocated costs
The Group, comprising the former lighting sector of Royal Philips and the lighting-related activities ofRoyal Philips IG&S, historically did not exist as a reporting group and no separate (statutory) consolidated
financial statements were prepared. The Separation therefore involved the split and allocation of historical IG&S
costs to each member of the Group. Because a significant majority of IG&S costs were historically charged to theGroup based on activity (headcount, floor area, etc.) or sales, the Separation primarily resulted in the additional
allocation to the Group of previously unallocated costs. See “—Basis of Preparation of Financial
Information—Basis of preparation of Combined Financial Statements—Combined income statement” and Note
C.1 to the Combined Financial Statements. The Group compared the results of the additional allocation ofpreviously unallocated costs relating to overhead functions (in particular, number of employees) against theresults of a bottom-up analysis of overhead functions expected to be required for the stand-alone requirements of
the Group to ensure the allocation was reasonable. The additional allocation of costs reflected in the Combined
Financial Statements were €153 million, €158 million and €181 million for the years ended 31 December 2015,2014 and 2013, respectively, in each case on an earnings before interest and tax basis and including depreciation,amortization and impairments of non-financial assets. The Combined Financial Statements also reflect carve-out
adjustments of €(3) million, €14 million and €(20) million for the years ended 31 December 2015, 2014 and2013, respectively. These carve-out adjustments are related to presenting the Group as a stand-alone entity,
including reversal of Royal Philips hedging contracts, unwinding of credits related to allocated costs as well as
accounting corrections to reflect the lower materiality of results. The Group believes the allocation methods
applied in the Combined Financial Statements to be a reasonable reflection of the utilization of services provided
by Royal Philips. However, different allocation methods could have resulted in different outcomes. The
allocation methods are therefore not necessarily representative of the financial positions, results of operations or
cash flows that would have been reported if the Group had operated on its own or as an entity independent fromRoyal Philips during the periods presented, nor are they indicative of the financial positions, results of operations
or cash flows that may arise in the future. The Combined Financial Statements include the following allocationsof IG&S costs:•

Allocated overhead costs: The Combined Financial Statements reflect the Group’s share of centrally
managed costs and expenses incurred by Royal Philips, such as sales office support in foreign locations,shared accounting services, HR and benefit management, treasury, and other corporate general andadministrative expenses.

•

Allocated IT costs: The Combined Financial Statements reflect the IT costs allocated to the Group by Royal
Philips, including IT costs associated with licenses for IT used by the Group as well as operation andmaintenance costs related to these IT licenses.

•

Allocated research costs: The Combined Financial Statements reflect Royal Philips-funded research costs,
which were allocated to the Group according to the project-level administration of the business for which
the activity had been performed.

From the Separation Date, the Group will no longer be allocated IG&S costs, instead actual costs to theGroup of accessing such services will be recorded. The Combined Interim Financial Statements, however, reflect
allocated IG&S costs through the Separation Date and actual costs to the Group of accessing such services
following the Separation Date. Following the Separation Date, these services will be sourced in part pursuant to
the TSA, TSLAs and IT TLSA. See “Separation” for more information.

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Financing costs
The Group has historically financed its capital expenditures, working capital requirements and acquisitions
through a combination of cash flow from operating activities and short-term financing from Royal Philips. The
Group is expected to be included in the Royal Philips funding program, which includes certain cash poolingarrangements, until the third quarter of 2016. The Combined Financial Statements and the Condensed Combined
Interim Financial Statements do not include any costs attributable to the Group from interest payments on Royal
Philips’ long-term capital markets funding or bank facilities or benefits from the funding from Royal Philips’
capital markets instruments and revolving credit facility. Following the completion of the Offering, the Group
expects to finance its capital expenditures, working capital requirements and acquisitions through cash flows
from operating activities, cash and cash equivalents on balance sheet following draw down of its new five-year
approximately €1,200 million equivalent Term Loan Facility and the application of proceeds thereof, and its new
five-year €500 million equivalent Revolving Credit Facility. On or prior to the Settlement Date, the Group
expects to draw down approximately $500 million and approximately €740 million under the Term Loan
Facility, for an aggregate of approximately €1,200 million equivalent drawn under the Term Loan Facility in
U.S. dollars and euros. See “Capitalization and Indebtedness” for more information on the effect of drawdown of
the Term Loan Facility. The Group does not expect to drawdown any amounts under the Revolving Credit
Facility immediately. The initial interest rate on borrowings under the Term Loan Facility will be EURIBOR or
LIBOR plus a margin of 0.75% per annum and the initial interest rate on any borrowings under the Revolving
Credit Facility will be EURIBOR or LIBOR plus a margin of 0.45% per annum, with a commitment fee equal to35% of the applicable margin under the Revolving Credit Facility. The Group expects the initial interest andcommitment fee payments (including upfront fee amortization) under these facilities to be approximately€15 million total on an annual basis, subject to the Group’s choice from time to time to make drawdowns under
the Revolving Credit Facility. See “—Financing Structure Following the Offering” for further details.
Pensions
Employees of the Group have historically participated in Royal Philips-sponsored pension plans in which
the Group and other Royal Philips businesses participated. The costs of pension benefits with respect to theGroup’s employees participating in these plans have been allocated to the Group based upon historical accrual,compensation, headcount and allocation of personnel. These allocations are reflected in the Combined Financial
Statements. For pension plans in which only the Group’s employees participate (dedicated plans), the related
costs, assets and liabilities have been included in the balance sheets included in the Combined Financial
Statements. The Group’s liability amounts as reflected in the Combined Financial Statements were €(43) million,€(40) million and €(23) million as of 31 December 2015, 2014 and 2013, respectively, which do not include any
additional liabilities transferred to the Group as part of the Separation. The net balance of defined-benefit pension
plans attributable to the Group, including additional assumed net pension obligations for the periods prior to
Separation Date, which are not reflected in the Combined Financial Statements, were €(607) million,€(524) million and €(449) million as of 31 December 2015, 2014 and 2013, respectively. See “Management,
Employees and Corporate Governance—Pension Schemes” for more information about the Group’s defined
benefit plans. As part of the Separation, significant pension assets and liabilities have been legally transferred to
the Group on a country-by-country basis, based on the relationship between pension liabilities and the respective
businesses of Royal Philips and the Group or, if such relationship was not decisive, on a variety of legal, fiscal,
financial and practical considerations. As a result of the transfer, the Group recorded accrued pension costs of€224 million, a provision of €271 million related to unfunded pension liabilities and a provision of €112 million
related to retiree medical liabilities at the Separation. The transfer also resulted in the Group recognizing €122
million in deferred tax assets relating to the transferred pension deficit. As of 31 March 2016, the net pension
liability (including retiree medical liabilities) amounts to €587 million and the related deferred tax assets arisingfrom the transferred pension liabilities have decreased to €101 million. See Note E.19 to the Combined Financial
Statements and Note 13 to the Condensed Combined Interim Financial Statements for more information on
post-employment benefits.
Philips brand
Following completion of the Offering, the Group will have the right to use the Philips brand name for aperiod of ten years commencing on the Effective Time. The term may be extended with two periods of five years
if certain financial targets in terms of net turnover are met and provided that the Group as licensee has acted incompliance with the conditions of the TMLA. See “Separation—Intellectual Property” for more information. The
Group has historically used the Philips brand name, but in the Combined Financial Statements, no costs havebeen incurred for the usage of the brand name. Instead, the Group has historically incurred costs related to thepromotion of the Philips brand which have been allocated to the Group under IG&S. Such allocations arereflected in the Combined Financial Statements. Under the TMLA, the Group is obliged to pay a royalty on the
net turnover of all licensed products and services. The applicable royalty percentages are 0.6% for the first five116

years, 0.7% for the second five years and 1% after the tenth year. For the first ten years, an annual minimum
guaranteed royalty payment of €30 million applies. Thereafter, an annual minimum guaranteed royalty paymentof €20 million applies. The Group expects that the net effect of the royalty payment to be made to Royal Philips
under the TMLA will be approximately €20 million higher on an annual basis than the historical costs allocatedto the Group for promotion of the Philips brand that are reflected in the Combined Financial Statements. Costs
incurred before the Separation related to the promotion of the Philips brand are recognized as selling expenses.
Royalty payments made to Royal Philips under the TMLA following the Separation are also recognized as
selling expenses.
Description of Key Line Items
Set forth below is a brief description of the composition of certain line items of the consolidated income
statement. This description should be read in conjunction with “—Critical Accounting Estimates” and Note D to
the Combined Financial Statements.
Sales
Revenue from the sale of goods in the course of the ordinary activities is measured at the fair value of theconsideration received or receivable, net of returns, trade discounts and volume rebates. Revenue for sale ofgoods is recognized when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, the associated costs and possible return of the goods can be estimatedreliably, there is no continuing involvement with goods, and the amount of revenue can be measured reliably. If
it is probable that discounts will be granted and the amount can be measured reliably, then the discount isrecognized as a reduction of revenue as the sales are recognized.
Transfer of risks and rewards varies depending on the individual terms of the contract of sale. For
consumer-type products these criteria are met at the time the product has been shipped and delivered to thecustomer and title and risk have passed to the customer (depending on the delivery conditions) and acceptance ofthe product has been obtained. Examples of delivery conditions are Free on Board point of delivery and Costs,
Insurance Paid point of delivery, where the point of delivery may be the shipping warehouse or any other point ofdestination as agreed in the contract with the customer and where title and risk for the goods pass to thecustomer.
Revenues of transactions that have separately identifiable components are recognized separately based on
their relative fair values.
Revenues are recorded net of sales taxes, customer discounts, rebates and similar charges. For products forwhich a right of return exists during a defined period, revenue recognition is determined based on the historicalpattern 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.
In case of loss under a sales agreement, the loss is recognized immediately.
Shipping and handling billed to customers is recognized as revenues. Expenses incurred for shipping andhandling in respect of internal movements of goods are recorded as cost of sales. Expenses incurred for shippingand handling related to sales to third parties are recorded as selling expenses. When shipping and handling is partof a project and billed to the customer, the related expenses are recorded as cost or sales.
Service revenue related to repair and maintenance activities for goods sold is recognized ratably over theservice period or as services are rendered. A provision for product warranty is made at the time of revenue
recognition and reflects the estimated costs of replacement and free-of-charge services that will be incurred by
the Group with respect to the products. For certain products, the customer has the option to purchase an extensionof the warranty, which is subsequently billed to the customer. Revenue recognition occurs on a straight-line basis
over the contract period.
The Group recognizes service revenue related to value-added services ratably over the service period or as
services are rendered. Value-added services of the Group include professional services such as audit consulting,lifecycle services such as maintenance and asset management, and managed services tied to performancebenchmarks. Revenue from sales of systems, which are comprised of both sales of products and value-added
services of the Group, is recognized when the Group can reliably measure the amount of revenue and theassociated cost related to the stage of completion of a contract or transaction, and the recovery of theconsideration is considered probable.
Royalty income, which is generally earned based upon a percentage of sales or a fixed amount per productsold, is recognized on an accrual basis based on actual or reliably estimated sales made by the licensees.
117

Grants from the government are recognized at their fair value where there is a reasonable assurance that the
grant will be received and the Group will comply with all attached conditions. Government grants relating tocosts are deferred and recognized in the income statement over the period necessary to match them with the costs
for which they are intended to compensate.
Sales of each of the Group’s operating segments is defined as any sales by the relevant Business Group to
any third party, but excludes sales to any other Business Group.
Sales including intersegment of each of the Group’s operating segments is defined as any sales made by therelevant Business Group, including sales to any other Business Group.
Cost of sales
Cost of goods sold and services rendered includes the production costs of the goods sold and services
rendered. All production-related costs such as costs of raw materials, labor costs, costs for supplies, merchandisefor resale, order-specific development and design costs as well as energy costs for use and depreciation are
included. Administrative functions within operations and plants are also reported as cost of goods sold andservices rendered, as are warehousing and distribution. Expenses incurred for shipping and handling in respect ofinternal movements of goods are recorded as cost of sales. When shipping and handling is part of a project andbilled to the customer, then the related expenses are recorded as cost or sales. Depreciation of property, plant andequipment is primarily included in cost of sales. Amortizations of the categories of other intangible assets arereported in cost of sales for technology-based and other intangible assets. Changes in the value of on-balancesheet 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 cost of sales.
Cost of sales includes certain amounts which the Group defines as restructuring costs, acquisition-related
charges and other incidental charges attributable to cost of sales.
Gross margin
Gross margin is calculated as sales less cost of sales.
Selling expenses
Selling expenses covers all sales personnel, distribution, marketing and commission cost as well as regional
market overheads. Shipping and handling costs related to sales to third parties are recorded as selling expenses.
Advertising and promotion costs are included in selling expenses. Amortizations of the categories of otherintangible assets are reported in selling expenses for brand names and customer relationships. Bad debt expenses
are recorded as part of selling expenses.
Selling expenses includes certain amounts which the Group defines as restructuring costs, acquisitionrelated charges and other incidental charges attributable to selling expenses. Costs incurred before the Separation
related to the promotion of the Philips brand are recognized as selling expenses. Royalty payments made toRoyal Philips under the TMLA following the Separation are also recognized as selling expenses.
Research and development expenses
The most significant component of R&D spending is personnel expenses. All research costs are expensed 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, cost can be reliably measured and the Group has
sufficient resources, the intention to complete development and the intention to use or sell the asset.
The development expenditure capitalized comprises all directly attributable costs (including the cost of
materials and direct labor). Other development expenditures and expenditures on research activities arerecognized in the income statement. Capitalized development expenditure is stated at cost less accumulated
amortization and impairment losses. Amortization of capitalized development expenditure is charged to theincome statement on a straight-line basis over the estimated useful lives of the intangible assets.
R&D expenses includes certain amounts which the Group defines as restructuring costs, acquisition-related
charges and other incidental charges attributable to R&D expenses.
General and administrative expenses
General administrative expenses include headquarter functions which are not allocable to other functions –such as administrative functions in units dedicated solely to production, research and sales – as well as executive
management costs.

118

General and administrative expenses includes certain amounts which the Group defines as restructuringcosts, acquisition-related charges and other incidental charges attributable to general and administrative
expenses.
Impairment of goodwill
Goodwill is not amortized, but tested for impairment annually and whenever impairment indicators require
impairment testing. The Group performed and completed annual impairment tests in the same quarter of all years
presented in the income statement included in the Combined Financial Statements. An impairment loss isrecognized in the income statement whenever and to the extent that the carrying amount of a cash-generating unit
exceeds the unit’s recoverable amount, which is the greater of its value in use and its fair value less costs to sell.
Value in use is measured as the present value of future cash flows expected to be generated by the asset.
Other business income and other business expenses
These items comprise all other income and expense that is not related to the Group’s core business but thatarises as part of its operating activities. This includes, among other things, gains and losses on sales of property,
plant and equipment and intangibles and on disposals of businesses and the creation and reversal of accruals forother expenses and certain costs in connection with the initial stock exchange listing.
Income from operations
Income from operations is gross margin minus selling expenses, R&D expenses, general and administrative
expenses, impairment of goodwill and other business expenses plus other business income.
Financial income and financial expenses
Financial income comprises interest income on funds invested (including available-for-sale financial assets),
dividend income, net gains on the disposal of available-for-sale financial assets, net fair value gains on financial
assets at fair value through profit and loss, net gains on the re-measurement to fair value of any pre-existingavailable-for-sale interest in an acquisition, and net gains on hedging instruments that are recognized in theincome statement.
Interest income is recognized on accrual basis in the income statement, using the effective interest method.
Dividend income is recognized in the income statement on the date that the Group’s right to receive payment isestablished, which in the case of quoted securities is normally the ex-dividend date.
Financial expense comprises interest expenses on borrowings and on the net defined benefit plans,
unwinding of the discount of provisions and contingent consideration, losses on disposal of available-for-salefinancial assets, net fair value losses on financial assets at fair value through profit and loss, impairment losses
recognized on financial assets (other than trade receivables), net interest expense related to defined benefit plans
and net losses on hedging instruments that are recognized in the income statement.
Income tax expense
Tax expenses recorded in the Combined Financial Statements include income taxes for the Group on a
separate returns basis for the years ended 31 December 2015, 2014 and 2013, i.e., assuming that the tax groups
with Philips did not exist and that the Group companies would have been taxed on a stand-alone basis. Tax
expenses recorded in the Condensed Combined Interim Financial Statements also include income taxes for theGroup on a separate returns basis for the three month periods ended 31 March 2016 and 2015. See “—Basis ofPreparation of Financial Information—Basis of preparation of Combined Financial Statements—Income taxes”.
Net income (loss)
Net income (loss) is derived by deducting income taxes from income (loss) before income taxes. It also
includes non-controlling interests. The net income (loss) attributable to non-controlling interests and that is
attributable to Royal Philips is reported separately in the income statement.

119

Results of Operations
The following table sets out the Group’s combined results of operations for the periods indicated.
For the three month
periods ended
31 March(unaudited)
2016
2015

In € millions

For the year ended
31 December
2015
2014
2013

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,702(1,075)

1,727(1,106)

7,465
6,981
7,129
(4,810) (4,671) (4,573)

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

627

621

2,655

Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other business expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(430)
(90)
(49)
(2)
18
(3)

(430)
(88)
(50)
—
2
—

(1,751) (1,657) (1,722)
(366)
(395)
(375)
(233)
(223)
(233)
—
(2)
(26)
48
13
31
(22)
(5)
(18)

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .

71

55

331

41

213

Financial income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4
(21)

—
(2)

3
(11)

3
(9)

3
(4)

Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54

53

323

35

212

Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(40)

(23)

(83)

(66)

(45)

Income after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

30

240

(31)

167

Results relating to investments in associates . . . . . . . . . . . . .

—

—

—

2

1

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

30

240

(29)

168

2,310

2,556

Comparison of Results of Operations for the Three Month Periods Ended 31 March 2016 and 31 March2015
The Group’s combined results of operations in the three month period ended 31 March 2016 compared tothe three month period ended 31 March 2015 are discussed below. The discussion includes the results of theBusiness Groups and Market Groups.
Sales
Sales for the three month period ended 31 March 2016 were €1,702 million, compared to €1,727 million for
the three month period ended 31 March 2015, a decrease of €25 million, or (1.4)%. Nominal sales were slightly
impacted by foreign exchange movements, with the Group’s sales experiencing unfavorable foreign currency
effects of €3 million for the three month period ended 31 March 2016, or (0.1)%, mainly arising from theweakening of emerging market currencies against the euro, including the Brazilian real and the Argentine peso,
which were partly offset by the strengthening of the U.S. dollar and the Chinese renminbi against the euro.
Comparable sales growth from the three month period ended 31 March 2015 to the three month period ended
31 March 2016 was (1.3)%. The decrease in comparable sales was primarily attributable to lower sales of
conventional lighting products by BG Lamps, which were offset in part by increased sales of LED lighting
products by BG LED, as a result of the transition from conventional to LED lighting.
Sales by Business GroupThe following table presents the Group’s sales by Business Group for each of the periods indicated.

In € millions, except percentages

For the three month
periods ended
31 March(unaudited)
2016
2015

Comparable
Sales
Growth (1)Effects ofCurrency
Movements

Effects of
Changes inConsolidation

NominalSales
GrowthBG Lamps . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .

615
355
601
124
7

727
275
610
112
3

(14.5)%
28.8%(2.1)%
10.7%
133.3%(0.9)%
0.3%
0.6%
—
—

—
—
—
—
—

(15.4)%
29.1%(1.5)%
10.7%
133.3%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,702

1,727

(1.3)%(0.1)%—(1.4)%(1) The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects of currency movements andchanges in consolidation. See “—Non-IFRS financial measures” for more information on non-IFRS financial measures andreconciliation of comparable sales growth by Business Group for the three month periods ended 31 March 2016 and 2015.

120

Sales by Market GroupThe following table presents the Group’s sales by Market Group for each of the periods indicated.

In € millions, except percentages

For the three month
periods ended
31 March(unaudited)
2016
2015

Comparable
Sales
Growth (1)Effects ofCurrency
Movements

Effects of
Changes inConsolidation

NominalSales
GrowthEurope . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . . . . . . . . . . .
Growth Markets . . . . . . . . . . . . . . . . . . .
Greater China . . . . . . . . . . . . . . . . . . . .
Global Businesses . . . . . . . . . . . . . . . . .

533
555
350
136
128

561
538
369
138
121

(4.3)%
2.8%(3.4)%(2.9)%
2.4%(0.2)%
0.4%(2.2)%
2.2%
1.7%(0.5)%—
0.5%(0.7)%
1.7%(5.0)%
3.2%(5.1)%(1.4)%
5.8%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,702

1,727

(1.3)%(0.1)%—(1.4)%(1) The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects of currency movements andchanges in consolidation. See “—Non-IFRS financial measures” for more information on non-IFRS financial measures andreconciliation of comparable sales growth by Market Group for the three month periods ended 31 March 2016 and 2015.

Sales in Europe for the three month period ended 31 March 2016 were €533 million, compared to€561 million for the three month period ended 31 March 2015, a decrease of €28 million, or (5.0)%. Nominal
sales were negatively impacted by unfavorable currency effects mainly driven by the weakening of the British
pound against the euro. Comparable sales growth in Europe for the three month period ended 31 March 2016 was(4.3)%. The decrease in comparable sales was primarily attributable to lower sales of BG Lamps and
BG Professional, which were partly offset by an increase in sales of BG LED, in each case due to the transition
from conventional to LED lighting.
Sales in Americas for the three month period ended 31 March 2016 were €555 million, compared to€538 million for the three month period ended 31 March 2015, an increase of €17 million, or 3.2%. Nominal sales
were positively impacted by the strengthening of the U.S. dollar against the euro, which was partly offset by aweakening of emerging market currencies against the euro, mainly the Brazilian real and Argentine peso for thethree month period ended 31 March 2016 as compared to the three month period ended 31 March 2015.
Comparable sales growth in Americas for the three month period ended 31 March 2016 was 2.8%. The increase incomparable sales was primarily attributable to growth in BG LED, BG Professional and BG Home and partly offset
by lower sales of BG Lamps.
Sales in Growth Markets for the three month period ended 31 March 2016 were €350 million, compared to€369 million for the three month period ended 31 March 2015, a decrease of €19 million, or (5.1)%. Nominal
sales were negatively impacted by a weakening of emerging market currencies, mainly the Turkish lira, theIndian rupee, the Russian ruble and the Indonesian rupiah, against the euro. Comparable sales growth in GrowthMarkets for the three month period ended 31 March 2016 was (3.4)%. The decrease in comparable sales wasprimarily attributable to a decline in BG Lamps, driven by the transition from conventional to LED, and to a
decline in BG Professional, primarily driven by macroeconomic weakness in the Middle East and Turkey, which
was partially offset by an increase in sales of BG LED and BG Home.
Sales in Greater China for the three month period ended 31 March 2016 were €136 million, compared to€138 million for the three month period ended 31 March 2015, a decrease of €2 million, or (1.4)%. Nominal sales
were positively impacted by the strengthening of other currencies, in particular the Chinese renminbi, in relation
to the euro for the three month period ended 31 March 2016 as compared to the three month period ended
31 March 2015. Comparable sales growth in Greater China for the three month period ended 31 March 2016 was(2.9)%. The decrease in comparable sales was primarily attributable to decreased sales in BG Lamps driven by
the transition from conventional to LED lighting, which were partly offset by growth in BG LED, BG
Professional and BG Home.
Sales in Global Businesses for the three month period ended 31 March 2016 were €128 million, comparedto €121 million for the three month period ended 31 March 2015, an increase of €7 million, or 5.8%. Comparable
sales growth in Global Businesses for the three month period ended 31 March 2016 was 2.4%. The increase incomparable sales was primarily attributable to growth in revenue from licensing of patents, which was primarily
driven by the transition from conventional to LED lighting.
Cost of sales
Cost of sales for the three month period ended 31 March 2016 were €(1,075) million, compared to€(1,106) million for the three month period ended 31 March 2015, a decrease of €31 million, or (2.8)%.
Restructuring costs, acquisition-related charges and other incidental charges attributable to cost of sales for thethree month period ended 31 March 2016 were €(13) million, compared to €(15) million for the three month121

period ended 31 March 2015, in each case primarily relating to manufacturing footprint rationalization in BG
Lamps. Cost of sales excluding restructuring costs, acquisition-related charges and other incidental charges forthe three month period ended 31 March 2016 decreased by €29 million as compared to the three month period
ended 31 March 2015 primarily as a result of lower comparable sales.
Gross margin
Gross margin for the three month period ended 31 March 2016 was €627 million, compared to €621 million
for the three month period ended 31 March 2015, an increase of €6 million, or 1.0%. Gross margin as apercentage of sales increased from 36.0% for the three month period ended 31 March 2015 to 36.8% for thethree month period ended 31 March 2016. The increase in gross margin was primarily attributable to a decreasein cost of sales, which was partly offset by a decrease in sales. Excluding restructuring costs, acquisition-related
charges and other incidental charges, adjusted gross margin for the three month period ended 31 March 2016 was€640 million, compared to €636 million for the three month period ended 31 March 2015, an increase of€4 million, or 0.6%. As a percentage of sales, adjusted gross margin ratio increased from 36.8% for the threemonth period ended 31 March 2015 to 37.6% for the three month period ended 31 March 2016.
Selling expenses
Selling expenses for the three month period ended 31 March 2016 were stable at €(430) million, comparedto €(430) million for the three month period ended 31 March 2015. Selling expenses as a percentage of sales
increased from 24.9% for the three month period ended 31 March 2015 to 25.3% for the three month period
ended 31 March 2016. Restructuring costs, acquisition-related charges and other incidental charges attributable
to selling expenses for the three month period ended 31 March 2016 were €(6) million, compared to€(15) million for the three month period ended 31 March 2015, in each case primarily relating to productivity
improvements in the Group’s sales organization. Selling expenses, excluding restructuring costs,
acquisition-related charges and other incidental charges for the three month period ended 31 March 2016,
increased by €9 million, compared to the three month period ended 31 March 2015, as a result of payment of abrand license fee to Royal Philips for the two months following the Separation, which occurred on 1 February
2016, as well as write-downs related to customer receivables related to long-term overdue balances in Saudi
Arabia which were partly offset by the positive impact of productivity improvements.
Research and development expenses
R&D expenses for the three month period ended 31 March 2016 were €(90) million, compared to€(88) million for the three month period ended 31 March 2015, an increase of €2 million, or 2.3%. R&D
expenses as a percentage of sales increased from 5.1% for the three month period ended 31 March 2015 to 5.3%
for the three month period ended 31 March 2016. There were no restructuring costs, acquisition-related charges
and other incidental charges attributable to R&D expenses for the three month period ended 31 March 2016,
compared to a release of €1 million for the three month period ended 31 March 2015.
General and administrative expenses
General and administrative expenses for the three month period ended 31 March 2016 were €(49) million,
compared to €(50) million for the three month period ended 31 March 2015, a decrease of €1 million, or (2.0)%.
General and administrative expenses as a percentage of sales were stable at 2.9% for the three month period
ended 31 March 2015 and 31 March 2016. Restructuring costs, acquisition-related charges and other incidental
charges attributable to general and administrative expenses for the three month period ended 31 March 2016
were €(2) million, compared to nil million for the three month period ended 31 March 2015. The decrease ingeneral and administrative expenses was primarily attributable to improvements in cost productivity.
Impairment of goodwill
Impairment of goodwill for the three month period ended 31 March 2016 was €(2) million, compared to nil
million for the three month period ended 31 March 2015, an increase of €2 million. For further information see
Note 7 to the Condensed Combined Interim Financial Statements and Note E.12 to the Combined Financial
Statements.
Other business income
Other business income for the three month period ended 31 March 2016 was €18 million, compared to€2 million for the three month period ended 31 March 2015, an increase of €16 million. For the three month
period ended 31 March 2015, other business income included €2 million of other operating income. There were
no gains related to the sale of assets for the three month period ended 31 March 2015. For the three month period
ended 31 March 2016, other business income included €4 million of gains related to the sale of assets and€14 million of other operating income, mainly from a gain of €12 million resulting from the sale of tradeaccounts receivable to the other shareholder of GLC, and release of related provisions by the Group.
122Other business expenses
Other business expenses for the three month period ended 31 March 2016 was €(3) million, compared to nil
for the three month period ended 31 March 2015, an increase of €3 million. For the three month period ended
31 March 2016, other business expenses included €(2) million of losses related to the sale of assets and€(1) million of other operating charges.
Income from operations
Income from operations for the three month period ended 31 March 2016 was €71 million, compared to€55 million for the three month period ended 31 March 2015, an increase of €16 million. Restructuring costs,
acquisition-related charges and other incidental charges included in income from operations were €(29) million
in the three month period ended 31 March 2015 compared to €(21) million in the three month period ended
31 March 2016. Income from operations, excluding restructuring costs, acquisition-related charges and otherincidental charges, increased primarily as a result of higher gross margin, lower general and administrative
expenses and increased other business income, which were partially offset by increased selling expenses. The
reasons for each of these changes are as described above.
Financial income
Financial income for the three month period ended 31 March 2016 was €4 million, compared to nil million
for the three month period ended 31 March 2015. The increase was primarily attributable to higher interest
received on cash balances and intercompany receivables.
Financial expenses
Financial expenses for the three month period ended 31 March 2016 were €(21) million, compared to€(2) million for the three month period ended 31 March 2015, an increase of €19 million. The increase wasprimarily attributable to exchange differences related to intercompany loans of €(10) million, interest related topensions of €(3) million and impairments related to available held for sale balances of €(3) million. Exchange
differences related to intercompany loans primarily related to losses on the Egyptian pound of €(6) million.
Income tax expense
Income tax expense for the three month period ended 31 March 2016 was €(40) million, compared to€(23) million for the three month period ended 31 March 2015, an increase of €17 million. This increase wasprimarily due to non-recurring tax charges related to the Separation directly attributable to the Group.
Net income (loss)
Net income for the three month period ended 31 March 2016 was €14 million, compared to net income of€30 million for the three month period ended 31 March 2015, a decrease of €16 million. The decrease wasprimarily attributable to higher income taxes and financial expenses and partly offset by higher income fromoperations as further described above.
EBITA (unaudited)
EBITA for the three month period ended 31 March 2016 was €100 million, compared to €81 million for thethree month period ended 31 March 2015, an increase of €19 million, or 23.5%. Amortization related toacquisition-related intangible assets for the three month period ended 31 March 2016 was €(27) million,
compared to €(26) million for the three month period ended 31 March 2015, and relates primarily to amortizationof customer relationships, brands and technology capitalized from prior acquisitions (in particular, the acquisitionof Genlyte in 2008). The increase in EBITA was primarily attributable to higher gross margin, lower general andadministrative expenses and increased other business income, which were partially offset by higher selling
expenses, each as further described above.
EBITA by Business GroupThe following table presents the Group’s EBITA by Business Group for each of the periods indicated.
For the three month periods
ended 31 March(unaudited)
2016
2015

In € millions, except percentages

Nominal Change€ millions%

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

114
20
1
(14)
(21)

106
3
5
(18)
(15)

8
17
(4)
4
(6)

7.5%
566.7%
80.0%(22.2%)
40.0%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100

81

19

23.5%

123

Adjusted EBITA (unaudited)
Adjusted EBITA for the three month period ended 31 March 2016 was €121 million, compared to€110 million for the three month period ended 31 March 2015, an increase of €11 million, or 10.0%. Restructuringcosts, acquisition-related costs and other incidental charges were €(21) million in the three month period ended
31 March 2016, compared to €(29) million in the three month period ended 31 March 2015, a decrease of€8 million, or (27.6%). The increase in adjusted EBITA was primarily attributable to higher gross margin, lower
general and administrative expenses and increased other business income, which were partially offset by higher
selling expenses, each as further described above. Adjusted EBITA for the three month period ended 31 March
2015 includes the effects of foreign currency exchange rate fluctuations, including a non-recurring positive impact
related to a working capital revaluation, while adjusted EBITA for the three month period ended 31 March 2016reflects negative impact related to devaluations of currencies against the euro. Despite these impacts of foreign
currency exchange rate movements, as a percentage of sales, adjusted EBITA for the three month period ended
31 March 2016 was 7.1%, compared to 6.4% for the three month period ended 31 March 2015, primarily driven by
the results of productivity improvements.
Adjusted EBITA by Business GroupThe following table presents the Group’s adjusted EBITA by Business Group for each of the periods
indicated.
For the three month periods
ended 31 March(unaudited)
2016
2015

In € millions, except percentages

Nominal Change€ millions%

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

125
20
6
(12)
(18)

123
5
12
(14)
(16)

2
15
(6)
2
(2)

1.6%
300.0%(50.0)%(14.3)%
12.5%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

121

110

11

10.0%

EBITDA (unaudited)
EBITDA for the three month period ended 31 March 2016 was €149 million, compared to €128 million for
the three month period ended 31 March 2015, an increase of €21 million, or 16.4%. The increase was primarily
attributable to higher income from operations for the three month period ended 31 March 2016.
EBITDA by Business GroupThe following table presents the Group’s EBITDA by Business Group for each of the periods indicated.
For the three month periods
ended 31 March(unaudited)
2016
2015

In € millions, except percentages

Nominal Change€ millions%

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

136
24
13
(12)
(12)

126
6
17
(16)
(5)

10
18
(4)
4
(7)

7.9%
300.0%(23.5)%(25.0)%
140.0%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

149

128

21

16.4%

Adjusted EBITDA (unaudited)
Adjusted EBITDA for the three month period ended 31 March 2016 was €161 million, compared to€155 million for the three month period ended 31 March 2015, an increase of €6 million, or 3.9%. The increasein adjusted EBITDA was primarily attributable to higher gross margin, lower general and administrative
expenses and increased other business income, which were partially offset by higher selling expenses, each as
further described above. Adjusted EBITDA ratio increased from 9.0% for the three month period ended
31 March 2015 to 9.5% for the three month period ended 31 March 2016.

124

Segment information
BG Lamps
The following table presents certain financial information of BG Lamps for each of the periods indicated.
For the three month
periods ended
31 March(unaudited)
2016
2015

In € millions, except percentages

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . .

615
623(14.5)%
113
18.1%
114
18.3%
125
20.1%
136
21.8%
(3)

727
741
—
106
14.3%
106
14.3%
123
16.6%
126
17.0%
(7)

Nominal Change€ millions
%

(112)
(118)
—
7
—
8
—
2
—
10
—
4

(15.4)%(15.9)%
—
6.6%
—
7.5%
—
1.6%
—
7.9%
—
—

(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the three month periods ended 31 March 2016 and 2015.

Sales of BG Lamps for the three month period ended 31 March 2016 were €615 million, compared to€727 million for the three month period ended 31 March 2015, a decrease of €112 million, or (15.4)%.
Comparable sales growth for BG Lamps from the three month period ended 31 March 2015 to the three month
period ended 31 March 2016 was (14.5)%. The decrease in comparable sales was primarily attributable to thetransition from conventional to LED lighting, as well as price erosion in respect of conventional lighting
products. Sales declined across all Market Groups.
Sales including intersegment for BG Lamps for the three month period ended 31 March 2016 were€623 million, compared to €741 million for the three month period ended 31 March 2015, a decrease of€118 million, or (15.9)%.
EBITA for BG Lamps for the three month period ended 31 March 2016 was €114 million, or 18.3% of sales
including intersegment, compared to €106 million, or 14.3% of sales including intersegment, for the three month
period ended 31 March 2015, an increase of €8 million. Amortization related to acquisition-related intangible
assets was €(1) million for the three month period ended 31 March 2016, compared to nil million for thethree month period ended 31 March 2015. The increase in EBITA for the three month period ended 31 March
2016 was primarily attributable to lower selling expenses and lower general and administrative expenses.
Adjusted EBITA for BG Lamps for the three month period ended 31 March 2016 was €125 million, or
20.1% of sales including intersegment, compared to €123 million, or 16.6% of sales including intersegment, forthe three month period ended 31 March 2015, an increase of €2 million. Restructuring costs, acquisition-related
charges and other incidental charges amounted to €(11) million for the three month period ended 31 March 2016,
compared to €(17) million for the three month period ended 31 March 2015, and in each case related primarily to
manufacturing footprint rationalization. The increase in adjusted EBITA was primarily attributable to lower
selling expenses and lower general and administrative expenses. Gross margin excluding restructuring costs,
acquisition-related charges and other incidental charges as a percentage of sales including intersegment for BG
Lamps improved as a result of savings from manufacturing footprint rationalization and procurement savings.
EBITDA for BG Lamps for the three month period ended 31 March 2016 was €136 million, or 21.8% ofsales including intersegment, compared to €126 million, or 17.0% of sales including intersegment, for thethree month period ended 31 March 2015. Depreciation, amortization and impairments of non-financial assets
amounted to €(23) million for the three month period ended 31 March 2016, compared to €(20) million for thethree month period ended 31 March 2015. The increase in depreciation, amortization and impairments of
non-financial assets for the three month period ended 31 March 2016 was primarily attributable to higher
write-downs following manufacturing footprint rationalization.
Income from operations for BG Lamps for the three month period ended 31 March 2016 was €113 million,
compared to €106 million for the three month period ended 31 March 2015, an increase of €7 million, or 6.6%,
for the reasons further described above.
125

Net capital expenditures for BG Lamps for the three month period ended 31 March 2016 was €(3) million,
compared to €(7) million for the three month period ended 31 March 2015, a decrease of €4 million. The
decrease was primarily attributable to lower investments in machinery and installations due to decreased
manufacturing footprint.
BG LEDThe following table presents certain financial information of BG LED for each of the periods indicated.
For the three month
periods ended
31 March(unaudited)
2016
2015

In € millions, except percentages

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . .

355
386
28.8%
19
4.9%
20
5.2%
20
5.2%
24
6.2%
(3)

275
295
—
2
0.7%
3
1.0%
5
1.7%
6
2.0%
(6)

Nominal Change€ millions
%

80
91
—
17
—
17
—
15
—
18
—
3

29.1%
30.8%
—
850.0%—
566.7%—
300.0%—
300.0%——(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the three month periods ended 31 March 2016 and 2015.

Sales of BG LED for the three month period ended 31 March 2016 were €355 million, compared to€275 million for the three month period ended 31 March 2015, an increase of €80 million, or 29.1%. Comparable
sales growth for BG LED from the three month period ended 31 March 2015 to the three month period ended
31 March 2016 was 28.8%. The increase in comparable sales was primarily attributable to higher sales volume of
LED products due to the market-wide transition from conventional to LED lighting technologies, which waspartially offset by lower LED product selling prices due to market pressure to maintain competitive pricing. Sales
increased across all Market Groups, with the strongest growth in Growth Markets and Americas.
Sales including intersegment for BG LED for the three month period ended 31 March 2016 were€386 million, compared to €295 million for the three month period ended 31 March 2015, an increase of€91 million, or 30.8%.
EBITA for BG LED for the three month period ended 31 March 2016 was €20 million, or 5.2% of sales
including intersegment, compared to €3 million, or 1.0% of sales including intersegment, for the three month
period ended 31 March 2015, an increase of €17 million. Amortization related to acquisition-related intangible
assets was €(1) million for the three month period ended 31 March 2016, compared to €(1) million for thethree month period ended 31 March 2015. The increase in EBITA was primarily attributable to higher grossmargins, due to higher sales and lower bill-of-material costs driven by product redesign and procurementsavings, as well as reductions in selling expenses and R&D expenses as a percentage of sales for the three month
period ended 31 March 2016.
Adjusted EBITA for BG LED for the three month period ended 31 March 2016 was €20 million, or 5.2% ofsales including intersegment, compared to €5 million, or 1.7% of sales including intersegment, for thethree month period ended 31 March 2015, an increase of €15 million. Restructuring costs, acquisition-related
charges and other incidental charges for the three month period ended 31 March 2016 were nil million, comparedto €(2) million for the three month period ended 31 March 2015. The increase in adjusted EBITA was primarily
attributable to higher gross margins. As a percentage of sales including intersegment, each of selling expenses,
R&D expenses and general and administrative expenses decreased from the three month period ended 31 March
2016 compared to 31 March 2015.
EBITDA for BG LED for the three month period ended 31 March 2016 was €24 million, or 6.2% of sales
including intersegment, compared to €6 million, or 2.0% of sales including intersegment, for the three month
period ended 31 March 2015. Depreciation, amortization and impairments of non-financial assets amounted to€(5) million for the three month period ended 31 March 2016, compared to €(4) million for the three month
period ended 31 March 2015.
126

Income from operations for BG LED for the three month period ended 31 March 2016 was €19 million,
compared to €2 million for the three month period ended 31 March 2015, an increase of €17 million, for thereasons further described above.
Net capital expenditures for BG LED for the three month period ended 31 March 2016 was €(3) million,
compared to €(6) million for the three month period ended 31 March 2015, and was mainly related to lower
capitalization of development assets.
BG Professional
The following table presents certain financial information of BG Professional for each of the periods
indicated.
For the three month
periods ended
31 March(unaudited)
2016
2015

In € millions, except percentages

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . .

601
609(2.1)%(25)(4.1)%
1
0.2%
6
1.0%
13
2.1%
(8)

610
614
—
(19)
(3.1)%
5
0.8%
12
2.0%
17
2.8%
(8)

Nominal Change€ millions
%

(9)
(5)
—
(6)
—
(4)
—
(6)
—
(4)
—
—

(1.5)%(0.8)%—
31.6%—(80.0)%—(50.0)%—(23.5)%——(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the three month periods ended 31 March 2016 and 2015.

Sales of BG Professional for the three month period ended 31 March 2016 were €601 million, compared to€610 million for the three month period ended 31 March 2015, a decrease of €9 million, or (1.5)%. Comparable
sales growth for BG Professional from the three month period ended 31 March 2015 to the three month period
ended 31 March 2016 was (2.1)%. The decrease in comparable sales was primarily due to macroeconomic
weakness in Middle East and Turkey and, to a lesser extent, Latin America, which was partly offset by growth inNorth America due primarily to the results of business transformation activities. Growth of sales of LED
luminaires, systems and services was offset by the decline in conventional luminaires, in each case as a result of
the transition from conventional to LED lighting.
Sales including intersegment for BG Professional for the three month period ended 31 March 2016 were€609 million, compared to €614 million for the three month period ended 31 March 2015, a decrease of€5 million, or 0.8%.
EBITA for BG Professional for the three month period ended 31 March 2016 was €1 million, or 0.2% ofsales including intersegment, compared to €5 million, or 0.8% of sales including intersegment, for thethree month period ended 31 March 2015, a decrease of €4 million. Amortization related to acquisition-related
intangible assets for the three month period ended 31 March 2016 was €(26) million, compared to €(24) million
for the three month period ended 31 March 2015, in each case relating primarily to amortization of customer
relationships, brands and technology capitalized from prior acquisitions (in particular the acquisition of Genlyte
in 2008). The decrease in EBITA was primarily attributable to higher selling expenses as a result of bothwrite-downs related to customer receivables and investments in systems and services business, which was partly
offset by an increase in other business income related to a gain of €12 million resulting from the sale of tradeaccounts receivable to the other shareholder of GLC and release of related provisions by the Group.
Adjusted EBITA for BG Professional for the three month period ended 31 March 2016 was €6 million, or
1.0% of sales including intersegment, compared to €12 million, or 2.0% of sales including intersegment, for thethree month period ended 31 March 2015, a decrease of €6 million. Restructuring costs, acquisition-related
charges and other incidental charges for the three month period ended 31 March 2016 amounted to €(5) million,
compared to €(7) million for the three month period ended 31 March 2015, primarily due to lower
acquisition-related charges. Acquisition-related charges for the three month period ended 31 March 2016 were€(1) million, compared to €(1) million for the three month period ended 31 March 2015, which was primarily the
result of the acquisition of GLC on 2 September 2014. The decrease in adjusted EBITA was primarily
127attributable to higher selling expenses and partly offset by an increase in other business income. Gross margin
excluding restructuring costs, acquisition-related charges and other incidental charges as a percentage of sales
including intersegment for BG Professional improved as a result of LED penetration, productivity improvements
and procurement savings.
EBITDA for BG Professional for the three month period ended 31 March 2016 was €13 million, or 2.1% ofsales including intersegment, compared to €17 million, or 2.8% of sales including intersegment, for thethree month period ended 31 March 2015. Depreciation, amortization and impairments of non-financial assets
amounted to €(38) million for the three month period ended 31 March 2016, compared to €(36) million for thethree month period ended 31 March 2015. The increase in depreciation, amortization and impairments of
non-financial assets for the three month period ended 31 March 2016 was primarily attributable to foreignexchange translation.
Loss from operations for BG Professional for the three month period ended 31 March 2016 was€(25) million, compared to a loss from operations of €(19) million for the three month period ended 31 March
2015, an increase of €6 million, for the reasons further described above.
Net capital expenditures for BG Professional for the three month period ended 31 March 2016 was€(8) million, compared to €(8) million for the three month period ended 31 March 2015.
BG Home
The following table presents certain financial information of BG Home for each of the periods indicated.
For the three month
periods ended
31 March(unaudited)In € millions, except percentages

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . .

Nominal Change

2016

2015

€ millions

%

124
124
10.7%
(15)
(12.1)%(14)(11.3)%(12)(9.7)%(12)(9.7)%
(1)

112
113
—
(19)
(16.8)%(18)(15.9)%(14)(12.4)%(16)(14.2)%
(7)

12
11
—
4
—
4
—
2
—
4
—
6

10.7%
9.7%
—
(21.1)%—(22.2)%—(14.3)%—(25.0)%——(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the three month periods ended 31 March 2016 and 2015.

Sales of BG Home for the three month period ended 31 March 2016 were €124 million, compared to€112 million for the three month period ended 31 March 2015, an increase of €12 million, or 10.7%. Comparable
sales growth for BG Home from the three month period ended 31 March 2015 to the three month period ended
31 March 2016 was 10.7%. The increase in comparable sales was primarily attributable to double-digit growth inhome systems for the three month period ended 31 March 2016.
Sales including intersegment for BG Home for the three month period ended 31 March 2016 were€124 million, compared to €113 million for the three month period ended 31 March 2015, an increase of€11 million, or 9.7%.
EBITA for BG Home for the three month period ended 31 March 2016 was €(14) million, or (11.3)% ofsales including intersegment, compared to €(18) million, or (15.9)% of sales including intersegment, for thethree month period ended 31 March 2015, an increase of €4 million. Amortization related to acquisition-related
intangible assets was €(1) million for the three month period ended 31 March 2016, compared to €(1) million for
the three month period ended 31 March 2015. The improvement in EBITA was primarily attributable to higher
gross margin as a result of an increase in sales and a reduction in restructuring costs, acquisition-related charges
and other incidental charges.
Adjusted EBITA for BG Home for the three month period ended 31 March 2016 was €(12) million, or(9.7)% of sales including intersegment, compared to €(14) million, or (12.4)% of sales including intersegment,
for the three month period ended 31 March 2015, an increase of €2 million. Restructuring costs,
acquisition-related charges and other incidental charges amounted to €(2) million for the three month period
ended 31 March 2016, compared to €(4) million for the three month period ended 31 March 2015, and in each128

case related primarily to restructuring costs resulting from the business transformation program in the consumer
luminaires business in Europe. The improvement in adjusted EBITA was primarily attributable to higher grossmargin as a result of an increase in sales.
EBITDA for BG Home for the three month period ended 31 March 2016 was €(12) million, or (9.7)% ofsales including intersegment, compared to €(16) million, or (14.2)% of sales including intersegment, for thethree month period ended 31 March 2015. Depreciation, amortization and impairments of non-financial assets
amounted to €(3) million for the three month period ended 31 March 2016, compared to €(3) million for thethree month period ended 31 March 2015.
Income from operations for BG Home for the three month period ended 31 March 2016 was €(15) million,
compared to €(19) million for the three month period ended 31 March 2015, an improvement of €4 million.
Net capital expenditures for BG Home for the three month period ended 31 March 2016 was €(1) million,
compared to €(7) million for the three month period ended 31 March 2015, a decrease of €6 million. The
increased level of net capital expenditures for the three month period ended 31 March 2015 was primarily due toinvestments in machinery and installations following the move of certain manufacturing activities.
Other
Sales attributed to Other for the three month period ended 31 March 2016 were €7 million, compared to€3 million for the three month period ended 31 March 2015. Income from operations attributed to Other for thethree month period ended 31 March 2016 was €(21) million, compared to €(15) million for the three month
period ended 31 March 2015, a decrease of €6 million. Restructuring costs, acquisition-related charges and otherincidental charges amounted to €(3) million for the three month period ended 31 March 2016 compared to a net
release of €1 million for the three month period ended 31 March 2015, primarily related to reevaluation ofpreviously provisioned restructuring costs. Restructuring costs, acquisition-related charges and other incidental
expenses included costs incurred in connection with the Separation of €(2) million for the three month period
ended 31 March 2016. Excluding restructuring costs, acquisition-related charges and other incidental charges, thedecrease in income from operations was primarily attributable to higher investments related to R&D.
Comparison of Results of Operations for the Years Ended 31 December 2015 and 31 December 2014
The Group’s combined results of operations for the year ended 31 December 2015 compared to the year
ended 31 December 2014 are discussed below. The discussion includes the results of the Business Groups andMarket Groups.
Sales
Sales for the year ended 31 December 2015 were €7,465 million, compared to €6,981 million for the year
ended 31 December 2014, an increase of €484 million, or 6.9%. Nominal sales in all Business Groups werepositively impacted by favorable foreign exchange movements, with the Group’s sales experiencing favorable
foreign currency effects of €599 million for the year ended 31 December 2015, or 8.2%, mainly arising from thestrengthening of the U.S. dollar and the Chinese renminbi against the euro. The Group’s acquisition of a 51%
interest in GLC as of 2 September 2014 also contributed additional sales of €186 million for the comparative
period from 1 January 2015 to 1 September 2015. Comparable sales growth from the year ended 31 December
2014 to the year ended 31 December 2015 was (3.5)%. The decrease in comparable sales was primarily
attributable to lower sales of conventional lighting products by BG Lamps, which were offset in part by increased
sales of LED lighting products by BG LED, as a result of the transition from conventional to LED lighting.
Sales by Business GroupThe following table presents the Group’s sales by Business Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

Comparable
Sales
Growth (1)Effects ofCurrency
Movements

Effects of
Changes inConsolidation

NominalSales
GrowthBG Lamps . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,850
1,334
2,757
515
9

3,119
958
2,420
482
2

(15.9)%
27.0%(0.7)%(0.4)%
350.0%

7.4%
11.9%
8.2%
7.2%
—

(0.1)%
0.3%
6.4%
—
—

(8.6)%
39.2%
13.9%
6.8%
350.0%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,465

6,981

(3.5)%

8.2%

2.2%

6.9%

(1) The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects of currency movements andchanges in consolidation. See “—Non-IFRS financial measures” for more information on non-IFRS financial measures andreconciliation of comparable sales growth by Business Group for the years ended 31 December 2015 and 2014.

129

Sales by Market GroupThe following table presents the Group’s sales by Market Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

Comparable
Sales
Growth (1)Effects ofCurrency
Movements

Effects of
Changes inConsolidation

NominalSales
GrowthEurope . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . . . . . . . . . . .
Growth Markets . . . . . . . . . . . . . . . . . . .
Greater China . . . . . . . . . . . . . . . . . . . .
Global Businesses . . . . . . . . . . . . . . . . .

2,290
2,380
1,717
582
496

2,311
2,156
1,450
624
440

(2.2)%(2.8)%(2.1)%(19.6)%
5.6%

1.3%
14.3%
7.8%
12.9%
8.8%

—
(1.1)%
12.7%—(1.7)%(0.9)%
10.4%
18.4%(6.7)%
12.7%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

7,465

6,981

(3.5)%

8.2%

2.2%

6.9%

(1) The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects of currency movements andchanges in consolidation. See “—Non-IFRS financial measures” for more information on non-IFRS financial measures andreconciliation of comparable sales growth by Market Group for the years ended 31 December 2015 and 2014.

Sales in Europe for the year ended 31 December 2015 were €2,290 million, compared to €2,311 million forthe year ended 31 December 2014, a decrease of €21 million, or (0.9)%. Nominal sales were positively impacted
by favorable currency effects mainly driven by the appreciation of the British pound against the euro.
Comparable sales growth in Europe for the year ended 31 December 2015 was (2.2)%. The decrease incomparable sales was primarily attributable to lower sales of BG Lamps, which were partly offset by an increasein sales of BG Professional, driven by increased sales of LED-based luminaires as well as systems and services,
and an increase in sales of BG LED, in each case due to the transition from conventional to LED lighting.
Sales in Americas for the year ended 31 December 2015 were €2,380 million, compared to €2,156 million
for the year ended 31 December 2014, an increase of €224 million, or 10.4%. Nominal sales were positively
impacted by the strengthening of other currencies, in particular the U.S. dollar, in relation to the euro for the year
ended 31 December 2015 as compared to the year ended 31 December 2014. Comparable sales growth inAmericas for the year ended 31 December 2015 was (2.8)%. The decrease in comparable sales was primarily
attributable to decreased sales of BG Lamps driven by the transition from conventional to LED lighting anddecreased sales of BG Professional as a result of the business transformation program in North America, whichwere partly offset by growth in BG LED and BG Home.
Sales in Growth Markets for the year ended 31 December 2015 were €1,717 million, compared to€1,450 million for the year ended 31 December 2014, an increase of €267 million, or 18.4%. Nominal sales werepositively impacted by a strengthening of emerging market currencies, mainly the Indian rupee, the Turkish liraand the Indonesian rupiah, against the euro. Sales were also positively impacted by change in consolidation as aresult of the Group’s acquisition of a 51% interest in GLC as of 2 September 2014, which contributed sales of€186 million for the comparative period from 1 January 2015 to 1 September 2015. Comparable sales growth in
Growth Markets for the year ended 31 December 2015 was (2.1)%. The decrease in comparable sales wasprimarily attributable to a decline in BG Lamps, which was partially offset by an increase in sales of BG
Professional, driven by increased sales of LED-based luminaires as well as systems and services, and an increasein sales of BG LED and BG Home, in each case due to the transition from conventional to LED lighting.
Sales in Greater China for the year ended 31 December 2015 were €582 million, compared to €624 million
for the year ended 31 December 2014, a decrease of €42 million, or (6.7)%. Nominal sales were positively
impacted by the strengthening of other currencies, in particular the Chinese renminbi, in relation to the euro forthe year ended 31 December 2015 as compared to the year ended 31 December 2014. Comparable sales growthin Greater China for the year ended 31 December 2015 was (19.6)%. The decrease in comparable sales wasprimarily attributable to decreased sales in BG Lamps driven by the transition from conventional to LED lighting
and decreased sales in BG Professional and BG Home, which were partly offset by growth in BG LED.
Sales in Global Businesses for the year ended 31 December 2015 were €496 million, compared to€440 million for the year ended 31 December 2014, an increase of €56 million, or 12.7%. Comparable sales
growth in Global Businesses for the year ended 31 December 2015 was 5.6%. The increase in comparable sales
was primarily attributable to growth in revenue from licensing of patents, which was primarily driven by thetransition from conventional to LED lighting.
Cost of sales
Cost of sales for the year ended 31 December 2015 were €(4,810) million, compared to €(4,671) million forthe year ended 31 December 2014, an increase of €139 million, or 3.0%. Restructuring costs, acquisition-related
charges and other incidental charges attributable to cost of sales for the year ended 31 December 2015 were€(76) million, compared to €(266) million for the year ended 31 December 2014, in each case primarily relating130to manufacturing footprint rationalization in BG Lamps and BG Professional and consolidation of the European
warehouse footprint in BG Home. This included other incidental charges attributable to cost of sales for the year
ended 31 December 2014 of €(63) million, primarily relating to a €(68) million write-down of the assets relating
to the organic light-emitting diode business of the Group (“OLED”). Other incidental charges included
intercompany losses of €(14) million across the Business Groups recognized in cost of sales due to foreignexchange rate fluctuations in Argentina for the year ended 31 December 2015. Cost of sales excluding
restructuring costs, acquisition-related charges and other incidental charges for the year ended 31 December 2015
increased by €329 million as compared to the year ended 31 December 2014 primarily as a result of adverse
foreign exchange impacts and for the full year impact of the Group’s acquisition of a 51% interest in GLC as of2 September 2014.
Gross margin
Gross margin for the year ended 31 December 2015 was €2,655 million, compared to €2,310 million for theyear ended 31 December 2014, an increase of €345 million, or 14.9%. Gross margin as a percentage of sales
increased from 33.1% for the year ended 31 December 2014 to 35.6% for the year ended 31 December 2015. The
increase in gross margin was primarily attributable to the increase in sales and partly offset by an increase in costof sales. Excluding restructuring costs, acquisition-related charges and other incidental charges, adjusted grossmargin for the year ended 31 December 2015 was €2,731 million, compared to €2,576 million for the year ended
31 December 2014, an increase of €155 million, or 6.0%. As a percentage of sales, adjusted gross margin ratio
remained broadly stable, decreasing slightly from 36.9% for the year ended 31 December 2014 to 36.6% for theyear ended 31 December 2015.
Selling expenses
Selling expenses for the year ended 31 December 2015 were €(1,751) million, compared to €(1,657) million
for the year ended 31 December 2014, an increase of €94 million, or 5.7%. Selling expenses as a percentage ofsales decreased from 23.7% for the year ended 31 December 2014 to 23.5% for the year ended 31 December
2015. Restructuring costs, acquisition-related charges and other incidental charges attributable to selling
expenses for the year ended 31 December 2015 were €(32) million, compared to €(37) million for the year ended
31 December 2014, in each case primarily relating to productivity improvements in the Group’s salesorganization. Selling expenses, excluding restructuring costs, acquisition-related charges and other incidental
charges for the year ended 31 December 2015 increased by €99 million as compared to the year ended
31 December 2014, primarily as a result of adverse foreign exchange impacts and for the full year impact of theGroup’s acquisition of a 51% interest in GLC as of 2 September 2014, which were partially offset by cost
reductions attributable to the business transformation programs relating to BG Professional in North America andconsolidation of the European warehouse footprint for BG Home.
Research and development expenses
R&D expenses for the year ended 31 December 2015 were €(366) million, compared to €(395) million forthe year ended 31 December 2014, a decrease of €29 million, or (7.3%). R&D expenses as a percentage of sales
decreased from 5.7% for the year ended 31 December 2014 to 4.9% for the year ended 31 December 2015.
Restructuring costs, acquisition-related charges and other incidental charges attributable to R&D expenses for theyear ended 31 December 2015 were €(1) million, compared to €(13) million for the year ended 31 December
2014. The decrease in R&D expenses was primarily attributable to the decrease in restructuring costs,
acquisition-related charges and other incidental charges.
General and administrative expenses
General and administrative expenses for the year ended 31 December 2015 were €(233) million, comparedto €(223) million for the year ended 31 December 2014, an increase of €10 million, or 4.5%. General andadministrative expenses as a percentage of sales decreased from 3.2% for the year ended 31 December 2014 to
3.1% for the year ended 31 December 2015. Restructuring costs, acquisition-related charges and other incidental
charges attributable to general and administrative expenses for the year ended 31 December 2015 were nil
million, compared to €(11) million for the year ended 31 December 2014. The increase in general andadministrative expenses was primarily attributable to an increase in costs related to the headquarter functions,
including additional costs related to information security.
Impairment of goodwill
Impairment of goodwill for the year ended 31 December 2015 amounted to nil million, compared to€(2) million for the year ended 31 December 2014, an improvement of €2 million. For further information see
Note E.12 to the Combined Financial Statements.

131

Other business income
Other business income for the year ended 31 December 2015 was €48 million, compared to €13 million forthe year ended 31 December 2014, an increase of €35 million, or 269.2%. For the year ended 31 December 2014,
other business income included €5 million of gains related to the sale of assets and €8 million of other operating
income, mainly in BG Professional. For the year ended 31 December 2015, other business income included€38 million in gains related to the sale of assets and €10 million of other operating income.
Other business expenses
Other business expenses for the year ended 31 December 2015 was €(22) million, compared to €(5) million
for the year ended 31 December 2014, an increase of €17 million, or 340.0%. For the year ended 31 December
2014, other business expenses included €(1) million of losses related to the sale of assets and €(4) million ofother operating charges. For the year ended 31 December 2015, other business expenses included €(11) million
of losses related to the sale of assets and €(11) million of other operating charges.
Income from operations
Income from operations for the year ended 31 December 2015 was €331 million, compared to €41 million forthe year ended 31 December 2014, an increase of €290 million. The increase was primarily attributable to adecrease of restructuring costs, acquisition-related charges and other incidental charges from €(327) million in theyear ended 31 December 2014 to €(109) million in the year ended 31 December 2015. Other incidental charges
includes pension past service cost gains, which were lower for the year ended 31 December 2015 as compared to
the year ended 31 December 2014, in which pension past service cost gains across the Group of €22 million wererecognized. Pension past service cost gains relate to lower defined-benefit obligations of Royal Philips in the
Netherlands as a result of mandatory plan changes for which gains were allocated to the Group in respect of its
relevant employees in the Netherlands. Pension past service cost gains are recognized in cost of sales, selling
expenses, R&D expenses or general and administrative expenses depending on the nature of the corresponding
employee function. Income from operations, excluding restructuring costs, acquisition-related charges and otherincidental charges, increased primarily as a result of increased gross margin and reduced R&D expenses, whichwere partially offset by increased selling expenses and general and administrative expenses. The reasons for each ofthese changes are as described above.
Financial income
Financial income for the year ended 31 December 2015 was unchanged from the year ended
31 December 2014 at €3 million and relates to interest on cash balances.
Financial expenses
Financial expenses for the year ended 31 December 2015 were €(11) million, compared to €(9) million forthe year ended 31 December 2014, an increase of €2 million, or 22.2%. The increase was primarily attributable toa €(4) million impairment loss related to financial assets, partly offset by lower interest expense on tax balances.
Income tax expense
Income tax expense for the year ended 31 December 2015 was €(83) million, compared to €(66) million forthe year ended 31 December 2014, an increase of €17 million, or 25.8%. The increase was primarily attributable
to an increase in taxable earnings, which was partly offset by a decrease in expenses related to deferred taxes.
Net income (loss)
Net income for the year ended 31 December 2015 was €240 million, compared to net income of €(29)
million for the year ended 31 December 2014, an increase of €269 million. The increase was primarily
attributable to higher income from operations and partly offset by higher income taxes, as further describedabove.
EBITA (unaudited)
EBITA for the year ended 31 December 2015 was €438 million, compared to €149 million for the year
ended 31 December 2014, an increase of €289 million. Amortization related to acquisition-related intangible
assets for the year ended 31 December 2015 was €(107) million, compared to €(108) million for the year ended
31 December 2014, and relates primarily to amortization of customer relationships, brands and technology
capitalized from prior acquisitions (in particular, the acquisition of Genlyte in 2008). The increase in EBITA wasprimarily attributable to higher gross margin and lower R&D expenses, which were partially offset by increased
selling expenses and general and administrative expenses, each as further described above.

132

EBITA by Business GroupThe following table presents the Group’s EBITA by Business Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

405
70
114
(72)
(79)

358
(59)
45
(68)
(127)

47
129
69
(4)
48

13.1%
(218.6)%
153.3%
5.9%(37.8)%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

438

149

289

194.0%

Nominal Change€ millions%

Adjusted EBITA (unaudited)
Adjusted EBITA for the year ended 31 December 2015 was €547 million, compared to €476 million for theyear ended 31 December 2014, an increase of €71 million, or 14.9%. Restructuring costs, acquisition-related
costs and other incidental charges were €(109) million in the year ended 31 December 2015, compared to €(327)
million in the year ended 31 December 2014, a decrease of €218 million, or (66.7%). Restructuring costs
associated with the manufacturing footprint rationalization in BG Lamps and BG Professional for the year ended
31 December 2015 were significantly lower than restructuring costs related to manufacturing footprint
rationalization for the year ended 31 December 2014. Other incidental charges for the year ended 31 December
2015 included intercompany losses of €(14) million across the Business Groups due to foreign exchange rate
fluctuations in Argentina for the year ended 31 December 2015, while other incidental charges for the year ended
31 December 2014 included a write-down in relation to OLED of €(68) million and pension past service cost
gains across the Group of €22 million. The increase in adjusted EBITA was primarily attributable to increased
gross margin and reduced R&D expenses, which were partially offset by increased selling expenses and generaland administrative expenses, as further described above. As a percentage of sales, adjusted EBITA for the year
ended 31 December 2015 was 7.3%, compared to 6.8% for the year ended 31 December 2014.
Adjusted EBITA by Business GroupThe following table presents the Group’s adjusted EBITA by Business Group for each of the periods
indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

463
74
150
(57)
(83)

506
14
102
(46)
(100)

(43)
60
48
(11)
17

(8.5)%
428.6%
47.1%
23.9%(17.0)%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

547

476

71

14.9%

Nominal Change€ millions%

EBITDA (unaudited)
EBITDA for the year ended 31 December 2015 was €646 million, compared to €422 million for the year
ended 31 December 2014, an increase of €224 million, or 53.1%. The increase was primarily attributable tohigher income from operations for the year ended 31 December 2015.
EBITDA by Business GroupThe following table presents the Group’s EBITDA by Business Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

492
86
169
(59)
(42)

474
11
93
(60)
(96)

18
75
76
1
54

3.8%
681.8%
81.7%(1.7)%(56.3)%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

646

422

224

53.1%

133

Nominal Change€ millions%

Adjusted EBITDA (unaudited)
Adjusted EBITDA for the year ended 31 December 2015 was €739 million, compared to €665 million forthe year ended 31 December 2014, an increase of €74 million, or 11.1%. The increase in adjusted EBITDA wasprimarily attributable to increased gross margin and reduced R&D expenses, which were partially offset byincreased selling expenses and general and administrative expenses, as further described above. The adjusted
EBITDA ratio increased from 9.5% for the year ended 31 December 2014 to 9.9% for the year ended
31 December 2015.
Segment information
BG Lamps
The following table presents certain financial information of BG Lamps for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . . .

2,850
2,899
(15.9)%
403
13.9%
405
14.0%
463
16.0%
492
17.0%
(19)

3,119
3,181
(9.5)%
356
11.2%
358
11.3%
506
15.9%
474
14.9%
(33)

Nominal Change€ millions
%

(269)
(282)
—
47
—
47
—
(43)
—
18
—
14

(8.6)%(8.9)%
—
13.2%
—
13.1%
—
(8.5)%—
3.8%—(42.4)%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2015 and 2014.

Sales of BG Lamps for the year ended 31 December 2015 were €2,850 million, compared to €3,119 million
for the year ended 31 December 2014, a decrease of €269 million, or (8.6)%. Comparable sales growth for BG
Lamps from the year ended 31 December 2014 to the year ended 31 December 2015 was (15.9)%. The decreasein comparable sales was primarily attributable to the transition from conventional to LED lighting, as well as
price erosion in respect of conventional lighting products. Sales declined across all Market Groups.
Sales including intersegment for BG Lamps for the year ended 31 December 2015 were €2,899 million,
compared to €3,181 million for the year ended 31 December 2014, a decrease of €282 million, or (8.9)%.
EBITA for BG Lamps for the year ended 31 December 2015 was €405 million, or 14.0% of sales includingintersegment, compared to €358 million, or 11.3% of sales including intersegment, for the year ended
31 December 2014, an increase of €47 million. Amortization related to acquisition-related intangible assets was€(2) million for the year ended 31 December 2015, compared to €(2) million for the year ended 31 December
2014. The increase in EBITA for the year ended 31 December 2015 was primarily attributable to lower
restructuring costs associated with manufacturing footprint rationalization.
Adjusted EBITA for BG Lamps for the year ended 31 December 2015 was €463 million, or 16.0% of sales
including intersegment, compared to €506 million, or 15.9% of sales including intersegment, for the year ended
31 December 2014, a decrease of €43 million. Restructuring costs, acquisition-related charges and otherincidental charges amounted to €(58) million for the year ended 31 December 2015, compared to €(148) million
for the year ended 31 December 2014, and in each case related primarily to manufacturing footprint
rationalization. The decrease in adjusted EBITA was primarily attributable to the reduction in sales as a result of
the transition from conventional to LED lighting, which was partially offset by lower selling expenses, lower
R&D expenses and lower general and administrative expenses. The adjusted EBITA ratio for BG Lamps
remained broadly stable, as lower sales including intersegment were offset by the positive impacts ofmanufacturing footprint rationalization and procurement savings.
EBITDA for BG Lamps for the year ended 31 December 2015 was €492 million, or 17.0% of sales includingintersegment, compared to €474 million, or 14.9% of sales including intersegment, for the year ended
31 December 2014. Depreciation, amortization and impairments of non-financial assets amounted to €(89) million
for the year ended 31 December 2015, compared to €(118) million for the year ended 31 December 2014. The
decrease in depreciation, amortization and impairments of non-financial assets for the year ended 31 December
2015 was primarily attributable to decreased fixed assets following manufacturing footprint rationalization.
134

Income from operations for BG Lamps for the year ended 31 December 2015 was €403 million, comparedto €356 million for the year ended 31 December 2014, an increase of €47 million, or 13.2%, for the reasons
further described above.
Net capital expenditures for BG Lamps for the year ended 31 December 2015 was €(19) million, comparedto €(33) million for the year ended 31 December 2014, a decrease of €14 million. The decrease was primarily
attributable to higher proceeds received on the sale of fixed assets.
BG LEDThe following table presents certain financial information of BG LED for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . . .

1,334
1,427
27.0%
66
4.6%
70
4.9%
74
5.2%
86
6.0%
(25)

958
1,025
26.3%
(62)
(6.0)%(59)(5.8)%
14
1.4%
11
1.1%
(27)

Nominal Change€ millions
%

376
402
—
128
—
129
—
60
—
75
—
2

39.2%
39.2%
—
(206.5)%—(218.6)%—428.6%—
681.8%—(7.4)%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2015 and 2014.

Sales of BG LED for the year ended 31 December 2015 were €1,334 million, compared to €958 million forthe year ended 31 December 2014, an increase of €376 million, or 39.2%. Comparable sales growth for BG LED
from the year ended 31 December 2014 to the year ended 31 December 2015 was 27.0%. The increase incomparable sales was primarily attributable to higher sales volume of LED products due to the market-wide
transition from conventional to LED lighting technologies, which was partially offset by lower LED productselling prices due to market pressure to maintain competitive pricing. Sales increased across all Market Groups,
with the strongest growth in Growth Markets and Americas.
Sales including intersegment for BG LED for the year ended 31 December 2015 were €1,427 million,
compared to €1,025 million for the year ended 31 December 2014, an increase of €402 million, or 39.2%.
EBITA for BG LED for the year ended 31 December 2015 was €70 million, or 4.9% of sales includingintersegment, compared to €(59) million, or (5.8)% of sales including intersegment, for the year ended
31 December 2014, an increase of €129 million. Amortization related to acquisition-related intangible assets was€(4) million for the year ended 31 December 2015, compared to €(3) million for the year ended 31 December
2014. The increase in EBITA was primarily attributable to higher gross margins due to higher bill-of-materials
savings and lower levels of write-downs of fixed assets for the year ended 31 December 2015.
Adjusted EBITA for BG LED for the year ended 31 December 2015 was €74 million, or 5.2% of sales
including intersegment, compared to €14 million, or 1.4% of sales including intersegment, for the year ended
31 December 2014, an increase of €60 million. Restructuring costs, acquisition-related charges and otherincidental charges for the year ended 31 December 2015 were €(4) million, compared to €(73) million for theyear ended 31 December 2014. Restructuring costs amounted to €(2) million for the year ended 31 December
2015, compared to €(5) million for the year ended 31 December 2014, and related primarily to commercial
activities. The year ended 31 December 2014 included other incidental charges of €(68) million relating to awrite-down of the assets relating to OLED. The increase in adjusted EBITA was primarily attributable to higher
gross margins, due to higher sales and lower bill-of-material costs driven by product redesign and procurementsavings. The effect of price erosion was largely offset by lower bill-of-material costs.
EBITDA for BG LED for the year ended 31 December 2015 was €86 million, or 6.0% of sales includingintersegment, compared to €11 million, or 1.1% of sales including intersegment, for the year ended 31 December
2014. Depreciation, amortization and impairments of non-financial assets amounted to €(20) million for the year
ended 31 December 2015, compared to €(73) million for the year ended 31 December 2014. The decrease indepreciation, amortization and impairments of non-financial assets for the year ended 31 December 2015
compared to the year ended 31 December 2014 was primarily attributable to a €(49) million write-down of fixed
assets relating to OLED in the year ended 31 December 2014.
135

Income from operations for BG LED for the year ended 31 December 2015 was €66 million, compared to€(62) million for the year ended 31 December 2014, an increase of €128 million, for the reasons further
described above.
Net capital expenditures for BG LED for the year ended 31 December 2015 was €(25) million, compared to€(27) million for the year ended 31 December 2014, a decrease of €2 million, mainly due to reduced investments
in OLED, partly offset by additional growth investments in LED electronics.
BG Professional
The following table presents certain financial information of BG Professional for each of the periods
indicated.
In € millions, except percentages

For the year ended
31 December
2015
2014

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . . .

2,757
2,775
(0.7)%
14
0.5%
114
4.1%
150
5.4%
169
6.1%
(56)

2,420
2,433
3.3%
(56)
(2.3)%
45
1.8%
102
4.2%
93
3.8%
(26)

Nominal Change€ millions
%

337
342
—
70
—
69
—
48
—
76
—
(30)

13.9%
14.1%
—
(125.0)%—153.3%
—
47.1%
—
81.7%
—
115.4%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2015 and 2014.

Sales of BG Professional for the year ended 31 December 2015 were €2,757 million, compared to€2,420 million for the year ended 31 December 2014, an increase of €337 million, or 13.9%. The Group’s
acquisition of a 51% interest in GLC as of 2 September 2014 also contributed sales of €186 million for thecomparative period from 1 January 2015 to 1 September 2015. Comparable sales growth for BG Professionalfrom the year ended 31 December 2014 to the year ended 31 December 2015 was (0.7)%. The decrease incomparable sales was primarily attributable to weaker sales in North America and Greater China due to theimpacts of business transformation programs, which was partially offset by higher sales in Europe and GrowthMarkets. Growth of sales of LED luminaires, systems and services in all Market Groups was offset by the decline
in conventional luminaires as a result of the transition from conventional to LED lighting.
Sales including intersegment for BG Professional for the year ended 31 December 2015 were
€2,775 million, compared to €2,433 million for the year ended 31 December 2014, an increase of €342 million,or 14.1%.
EBITA for BG Professional for the year ended 31 December 2015 was €114 million, or 4.1% of sales
including intersegment, compared to €45 million, or 1.8% of sales including intersegment, for the year ended
31 December 2014, an increase of €69 million. Amortization related to acquisition-related intangible assets forthe year ended 31 December 2015 was €(100) million, compared to €(101) million for the year ended
31 December 2014, in each case relating primarily to amortization of customer relationships, brands andtechnology capitalized from prior acquisitions (in particular the acquisition of Genlyte in 2008). The increase in
EBITA was primarily attributable to lower restructuring costs related to manufacturing footprint rationalizationand improvement in gross margin.
Adjusted EBITA for BG Professional for the year ended 31 December 2015 was €150 million, or 5.4% ofsales including intersegment, compared to €102 million, or 4.2% of sales including intersegment, for the year
ended 31 December 2014, an increase of €48 million. Restructuring costs, acquisition-related charges and otherincidental charges for the year ended 31 December 2015 amounted to €(36) million, compared to €(57) million
for the year ended 31 December 2014, primarily due to lower restructuring costs related to manufacturing
footprint rationalization and lower acquisition related charges. Acquisition-related charges for the year ended
31 December 2015 were €(5) million, compared to €(20) million for the year ended 31 December 2014, which
was primarily the result of the acquisition of GLC on 2 September 2014. The increase in adjusted EBITA wasprimarily attributable to improvement in gross margin following an increase in LED penetration, higher
procurement savings, and an improvement in factory productivity as a result of manufacturing footprint
rationalization.
136

EBITDA for BG Professional for the year ended 31 December 2015 was €169 million, or 6.1% of sales
including intersegment, compared to €93 million, or 3.8% of sales including intersegment, for the year ended
31 December 2014. Depreciation, amortization and impairments of non-financial assets amounted to€(155) million for the year ended 31 December 2015, compared to €(149) million for the year ended
31 December 2014. The increase in depreciation, amortization and impairments of non-financial assets for theyear ended 31 December 2015 was primarily attributable to an increase in fixed assets resulting from theacquisition of GLC and foreign exchange translation.
Income from operations for BG Professional for the year ended 31 December 2015 was €14 million,
compared to a loss from operations of €(56) million for the year ended 31 December 2014, an increase of€70 million, for the reasons further described above.
Net capital expenditures for BG Professional for the year ended 31 December 2015 was €(56) million,
compared to €(26) million for the year ended 31 December 2014, an increase of €30 million. The increase wasprimarily attributable to higher growth investments and lower proceeds received on the sales of fixed assets.
BG Home
The following table presents certain financial information of BG Home for each of the periods indicated.
For the year ended
31 December
2015
2014

In € millions, except percentages

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . .

515
519(0.4)%(73)(14.1)%(72)(13.9)%(57)(11.0)%(59)(11.4)%
(3)

482
485
(0.4)%(70)(14.4)%(68)(14.0)%(46)(9.5)%(60)(12.4)%(9)

Nominal Change€ millions
%

33
34
—
(3)
—
(4)
—
(11)
—
1
—
6

6.8%
7.0%
—
4.3%
—
5.9%
—
23.9%
—
(1.7)%—(66.7)%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2015 and 2014.

Sales of BG Home for the year ended 31 December 2015 were €515 million, compared to €482 million forthe year ended 31 December 2014, an increase of €33 million, or 6.8%. Comparable sales growth for BG Home
from the year ended 31 December 2014 to the year ended 31 December 2015 was (0.4)%. The decrease incomparable sales was primarily attributable to lower sales in Europe, which were primarily due to the business
transformation program in the consumer luminaires portfolio in Europe, and to lower sales in Greater China,
which were partially offset by an increase in comparable sales in Americas and Growth Markets. Sales of homesystems continued to grow in the double-digits, with particularly strong growth in Europe for the year ended
31 December 2015.
Sales including intersegment for BG Home for the year ended 31 December 2015 were €519 million,
compared to €485 million for the year ended 31 December 2014, an increase of €34 million, or 7.0%.
EBITA for BG Home for the year ended 31 December 2015 was €(72) million, or (13.9)% of sales includingintersegment, compared to €(68) million, or (14.0)% of sales including intersegment, for the year ended
31 December 2014, a decrease of €4 million. Amortization related to acquisition-related intangible assets was€(1) million for the year ended 31 December 2015, compared to €(2) million for the year ended 31 December
2014. The decrease in EBITA was primarily attributable to higher investments in R&D in home systems.
Adjusted EBITA for BG Home for the year ended 31 December 2015 was €(57) million, or (11.0)% of sales
including intersegment, compared to €(46) million, or (9.5)% of sales including intersegment, for the year ended
31 December 2014, a decrease of €11 million. Restructuring costs, acquisition-related charges and otherincidental charges amounted to €(15) million for the year ended 31 December 2015, compared to €(22) million
for the year ended 31 December 2014, and in each case related primarily to restructuring costs resulting from thebusiness transformation program in the consumer luminaires business in Europe. The decrease in adjusted
EBITA was primarily attributable to higher investments in R&D, of which the majority related to home systems.

137

EBITDA for BG Home for the year ended 31 December 2015 was €(59) million, or (11.4)% of sales
including intersegment, compared to €(60) million, or (12.4)% of sales including intersegment, for the year
ended 31 December 2014. Depreciation, amortization and impairments of non-financial assets amounted to€(14) million for the year ended 31 December 2015, compared to €(10) million for the year ended 31 December
2014. The increase in depreciation, amortization and impairments of non-financial assets for the year ended
31 December 2015 was primarily attributable to higher amortization of development assets.
Income from operations for BG Home for the year ended 31 December 2015 was €(73) million, comparedto €(70) million for the year ended 31 December 2014, a decrease of €3 million.
Net capital expenditures for BG Home for the year ended 31 December 2015 was €(3) million, compared to€(9) million for the year ended 31 December 2014, a decrease of €6 million. The decrease was primarily
attributable to higher proceeds received on the sale of fixed assets.
Other
Sales attributed to Other for the year ended 31 December 2015 were €9 million, compared to €2 million forthe year ended 31 December 2014. Income from operations attributed to Other for the year ended 31 December
2015 was €(79) million, compared to €(127) million for the year ended 31 December 2014, an improvement of€48 million. Restructuring costs, acquisition-related charges and other incidental charges amounted to net releaseof €4 million for the year ended 31 December 2015, primarily related to reevaluation of previously provisioned
restructuring costs, compared to costs of €(27) million for the year ended 31 December 2014, primarily related torestructuring of centralized Group IT functions. Excluding restructuring costs, acquisition-related charges andother incidental charges, the improvement in income from operations was primarily attributable to lower costs
related to global service units, including as a result of lower central IT costs, and gains on the sale of property,
plant and equipment in the year ended 31 December 2015.
Comparison of Results of Operations for the Years Ended 31 December 2014 and 31 December 2013
The Group’s combined results of operations for the year ended 31 December 2014 compared to the year
ended 31 December 2013 are discussed below. The discussion includes the results of the Business Groups andMarket Groups.
Sales
Sales for the year ended 31 December 2014 were €6,981 million, compared to €7,129 million for the year
ended 31 December 2013, a decrease of €148 million, or (2.1)%. Sales in all Business Groups were impacted byadverse foreign exchange movements, with the Group’s sales experiencing adverse foreign currency effects of€(167) million for the year ended 31 December 2014, or (2.3)%, mainly arising from the weakening of theIndonesian rupiah, Indian rupee and Canadian dollar against the euro. The Group’s acquisition of a 51% interestin GLC, which was included in the Group from 2 September 2014 to 31 December 2014 for the year ended
31 December 2014, also contributed €86 million of sales for that period. Comparable sales growth from the year
ended 31 December 2013 to the year ended 31 December 2014 was (0.8)%. The decrease in comparable sales
was primarily attributable to lower sales of conventional lighting products by BG Lamps, which were offset inpart by increased sales of LED lighting products by BG LED and an increase in sales of BG Professional, in eachcase primarily as a result of the transition from conventional to LED lighting.
Sales by Business GroupThe following table presents the Group’s sales by Business Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

BG Lamps . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,119
958
2,420
482
2

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,981

Comparable
Sales
Growth (1)Effects ofCurrency
Movements

Effects of
Changes inConsolidation

NominalSales
Growth

3,557
772
2,308
490
2

(9.5)%
26.3%
3.3%(0.4)%—(2.8)%(2.2)%(1.6)%(1.4)%
—

—
—
3.2%
0.2%
—

(12.3)%
24.1%
4.9%(1.6)%—

7,129(0.8)%(2.3)%

1.0%(2.1)%(1) The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects of currency movements andchanges in consolidation. See “—Non-IFRS financial measures” for more information on non-IFRS financial measures andreconciliation of comparable sales growth by Business Group for the years ended 31 December 2014 and 2013.

138

Sales by Market GroupThe following table presents the Group’s sales by Market Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

Europe . . . . . . . . . . . . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . . . . . . . . . . .
Growth Markets . . . . . . . . . . . . . . . . . . .
Greater China . . . . . . . . . . . . . . . . . . . .
Global Businesses . . . . . . . . . . . . . . . . .

2,311
2,156
1,450
624
440

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,981

Comparable
Sales
Growth (1)Effects ofCurrency
Movements

Effects of
Changes inConsolidation

NominalSales
Growth

2,297
2,223
1,469
692
448

0.4%
0.4%
(1.2)%(8.8)%
0.7%

0.2%(3.2)%(6.2)%(1.0)%——(0.2)%
6.1%—(2.5)%

0.6%(3.0)%(1.3)%(9.8)%(1.8)%

7,129(0.8)%(2.3)%

1.0%(2.1)%(1) The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects of currency movements andchanges in consolidation. See “—Non-IFRS financial measures” for more information on non-IFRS financial measures andreconciliation of comparable sales growth by Market Group for the years ended 31 December 2014 and 2013.

Sales in Europe for the year ended 31 December 2014 were €2,311 million, compared to €2,297 million forthe year ended 31 December 2013, an increase of €14 million, or 0.6%. Comparable sales growth in Europe forthe year ended 31 December 2014 was 0.4%. The increase in comparable sales was primarily attributable to
BG Professional, driven by increased sales of LED-based luminaires as well as systems and services, and
BG LED, which was largely offset by a decrease in BG Lamps, in each case due to the transition fromconventional to LED lighting.
Sales in Americas for the year ended 31 December 2014 were €2,156 million, compared to €2,223 million
for the year ended 31 December 2013, a decrease of €67 million, or (3.0)%. Nominal sales were negatively
impacted by the weakening of other currencies, in particular the Canadian dollar and the Argentine peso, in
relation to the euro for the year ended 31 December 2014, as compared to the year ended 31 December 2013.
Comparable sales growth in Americas for the year ended 31 December 2014 was 0.4%. The increase incomparable sales was primarily attributable to growth in BG LED, which was partially offset by decreased sales
in BG Lamps driven by the transition from conventional to LED lighting and bans on certain conventional
lighting products and decreased sales in BG Professional as a result of the business transformation program in
North America.
Sales in Growth Markets for the year ended 31 December 2014 were €1,450 million, compared to€1,469 million for the year ended 31 December 2013, a decrease of €19 million, or (1.3)%. Nominal sales were
negatively impacted by a weakening of emerging market currencies, mainly the Indonesian rupiah, the Indianrupee and the Russian ruble, against the euro. In addition, the Group’s acquisition of a 51% interest in GLC
contributed €86 million of sales for the period 2 September 2014 to 31 December 2014. Excluding the effects ofadverse currency movements and changes in consolidation, comparable sales growth in Growth Markets for theyear ended 31 December 2014 was (1.2)%. The decrease in comparable sales was primarily attributable to a
decline in BG Lamps, mainly due to lower sales in the Association of Southeast Asian Nations (“ASEAN”)
region, which was partially offset by growth in BG Professional, driven by increased sales of LED-based
luminaires as well as systems and services, and growth in BG LED, in each case due to the transition fromconventional to LED lighting.
Sales in Greater China for the year ended 31 December 2014 were €624 million, compared to €692 million
for the year ended 31 December 2013, a decrease of €68 million, or (9.8)%. Comparable sales growth in Greater
China for the year ended 31 December 2014 was (8.8)%. The decrease in comparable sales was attributable toadverse macroeconomic conditions, which resulted in both liquidity constraints for certain of the Group’s
customers and a slow-down in the Group’s sales related to projects, both of which contributed to declines incomparable sales in BG Lamps and BG Professional. These effects on comparable sales were partially offset by
growth in sales by BG LED for the year ended 31 December 2014.
Sales in Global Businesses for the year ended 31 December 2014 were €440 million, compared to €448
million for the year ended 31 December 2013, a decrease of €8 million, or 1.8%. Sales were negatively impacted
by consolidation changes of (2.5)%, which resulted from the transition of marketing channels from Global
Businesses to commercial entities within other Market Groups (primarily in Growth Markets). Comparable sales
growth in Global Businesses for the year ended 31 December 2014 was 0.7%. The increase in comparable sales
was primarily attributable to growth in revenue from licensing of patents, which was primarily driven by thetransition from conventional to LED lighting, which was partially offset by lower sales of components to third
parties.

139

Cost of sales
Cost of sales for the year ended 31 December 2014 were €(4,671) million, compared to €(4,573) million forthe year ended 31 December 2013, an increase of €98 million, or 2.1%. Restructuring costs, acquisition-related
charges and other incidental charges attributable to cost of sales for the year ended 31 December 2014 were€(266) million, primarily relating to consolidation of the European warehouse footprint in BG Home andmanufacturing footprint rationalization in BG Lamps and BG Professional, compared to €(37) million for theyear ended 31 December 2013, primarily relating to manufacturing footprint rationalization in BG Lamps and
BG Professional and consolidation of the European warehouse footprint in BG Home. This included otherincidental charges attributable to cost of sales for the year ended 31 December 2014 of €(63) million, primarily
relating to a €(68) million write-down of the assets relating to OLED. Cost of sales, excluding restructuring costs,
acquisition-related charges and other incidental charges, for the year ended 31 December 2014 decreased by€131 million as compared to the year ended 31 December 2013, as a result of procurement savings, lower
production costs as a result of the manufacturing footprint rationalization and productivity improvements.
Gross margin
Gross margin for the year ended 31 December 2014 was €2,310 million, compared to €2,556 million for theyear ended 31 December 2013, a decrease of €246 million, or (9.6)%. Gross margin as a percentage of sales
decreased from 35.9% for the year ended 31 December 2013 to 33.1% for the year ended 31 December 2014.
The decrease in gross margin was primarily attributable to higher restructuring costs, acquisition-related charges
and other incidental charges attributable to cost of sales for the year ended 31 December 2014 of €(266) million,
compared to €(37) million for the year ended 31 December 2013. Excluding restructuring costs, acquisitionrelated charges and other incidental charges, adjusted gross margin for the year ended 31 December 2014 was€2,576 million, compared to €2,593 million for the year ended 31 December 2013, a decrease of €17 million, or0.7%. As a percentage of sales, adjusted gross margin ratio increased from 36.4% for the year ended
31 December 2013 to 36.9% for the year ended 31 December 2014, or 0.5%.
Selling expenses
Selling expenses for the year ended 31 December 2014 were €(1,657) million, compared to €(1,722) million
for the year ended 31 December 2013, a decrease of €65 million, or (3.8)%. Selling expenses as a percentage ofsales decreased from 24.2% for the year ended 31 December 2013 to 23.7% for the year ended 31 December
2014. Restructuring costs, acquisition-related charges and other incidental charges attributable to selling
expenses for the year ended 31 December 2014 were €(37) million, compared to €(30) million for the year ended
31 December 2013, in each case primarily relating to productivity improvements in the Group’s salesorganization. Selling expenses, excluding restructuring costs, acquisition-related charges and other incidental
charges for the year ended 31 December 2014, decreased by €72 million as compared to the year ended
31 December 2013. The decrease in selling expenses for the year ended 31 December 2014 was largely driven bycost reductions relating to the business transformation programs of BG Professional in North America and BG
Home in Europe (the consolidation of the European warehouse footprint), which was partly offset by theacquisition of a 51% interest in GLC. In addition, the Group incurred a €(32) million expense for the impairmentof customer relationships in BG Home for the year ended 31 December 2013. The impairment charge wastriggered by specific mature markets following the Group’s implementation of a business transformation in
respect of BG Home, which resulted in the Group reconsidering product ranges and growth rates. See Note E.13
to the Combined Financial Statements for more information on impairment of customer relationships.
Research and development expenses
R&D expenses for the year ended 31 December 2014 were €(395) million, compared to €(375) million, forthe year ended 31 December 2013, an increase of €20 million, or 5.3%. R&D expenses as a percentage of sales
increased from 5.3% for the year ended 31 December 2013 to 5.7% for the year ended 31 December 2014.
Restructuring costs, acquisition-related charges and other incidental charges attributable to research anddevelopment expenses for the year ended 31 December 2014 were €(13) million, primarily due to aligning thenumber of FTEs to reflect the separation of the Lumileds business from the remaining lighting business of Royal
Philips, compared to €(2) million for the year ended 31 December 2013. The increase in research anddevelopment expenses was primarily attributable to the increase in restructuring costs, acquisition-related
charges and other incidental charges and due to higher investments in LED technology as a result of a continuous
focus on cost-downs and new platforms.
General and administrative expenses
General and administrative expenses for the year ended 31 December 2014 were €(223) million, comparedto €(233) million for the year ended 31 December 2013, a decrease of €10 million, or (4.3)%. General andadministrative expenses as a percentage of sales decreased from 3.3% for the year ended 31 December 2013 to140

3.2% for the year ended 31 December 2014. Restructuring costs, acquisition-related charges and other incidental
charges attributable to general and administrative expenses for the year ended 31 December 2014 were€(11) million, primarily due to additional restructuring activities and the Group’s acquisition of a 51% interest in
GLC in the year ended 31 December 2014, compared to €(4) million for the year ended 31 December 2013. The
decrease in general and administrative expenses was primarily attributable to reduced overhead activities as aresult of a continued focus on reducing costs, which more than offset the increase in restructuring costs,
acquisition-related charges and other incidental charges.
Impairment of goodwill
Impairment of goodwill for the year ended 31 December 2014 was €(2) million, compared to €(26) million
for the year ended 31 December 2013, a decrease of €24 million. An impairment charge of €(26) million wasmade in the fourth quarter of 2013 due to reduced growth expectations for BG Home due to slower anticipated
recovery of certain markets and delays in the introduction of new product ranges. For further information see
Note E.12 to the Combined Financial Statements.
Other business income
Other business income for the year ended 31 December 2014 was €13 million, compared to €31 million forthe year ended 31 December 2013, a decrease of €18 million, or (58.1)%. For the year ended 31 December 2013,
other business income included a €11 million gain on sale of assets and €20 million of other operating income.
For the year ended 31 December 2014, other business income included a €5 million gain on sale of assets and €8
million of other operating income.
Other business expenses
Other business expenses for the year ended 31 December 2014 was €(5) million, compared to €(18) million
for the year ended 31 December 2013, an improvement of €(13) million. For the year ended 31 December 2013,
other business expenses included €(12) million of losses on sale of assets and €(6) million of other operating
charges. For the year ended 31 December 2014, other business expenses included €(1) million of losses related tothe sale of assets and €(4) million of other operating charges.
Income from operations
Income from operations for the year ended 31 December 2014 was €41 million, compared to €213 million
for the year ended 31 December 2013, a decrease of €172 million. The decrease was primarily attributable tohigher restructuring costs, acquisition-related charges and other incidental charges. Other incidental charges
included pension past service cost gains across the Group for year ended 31 December 2014 of €22 million, as
compared to €12 million for the year ended 31 December 2013. Pension past service cost gains are recognized incost of sales, selling expenses, R&D expenses or general and administrative expenses depending on the nature of
the corresponding employee function. Income from operations excluding restructuring costs, acquisition-related
charges and other incidental charges increased primarily as a result of reduced selling expenses, reduced generaland administrative expenses and reduced impairment of goodwill, which were partially offset by reduced grossmargin, increased R&D expenses and reduced other business income. The reasons for each of these changes are
as described above.
Financial income
Financial income for the year ended 31 December 2014 was unchanged from the year ended
31 December 2013 at €3 million and relates to interest on cash balances.
Financial expenses
Financial expenses for the year ended 31 December 2014 were €(9) million, compared to €(4) million forthe year ended 31 December 2013, an increase of €5 million. The increase was primarily attributable to increased
net interest expense on tax balances.
Income tax expense
Income tax expense for the year ended 31 December 2014 was €(66) million, compared to €(45) million forthe year ended 31 December 2013, an increase of €21 million, or 46.7%. The increase was primarily attributable
to an increase in non-deductible expenses and recognition of deferred tax assets, which were partly offset by nontaxable income.
Net income (loss)
Net loss for the year ended 31 December 2014 was €(29) million, compared to net income of €168 million
for the year ended 31 December 2013, a difference of €197 million. The decrease was primarily attributable tolower income from operations, as described above.
141

EBITA (unaudited)
EBITA for the year ended 31 December 2014 was €149 million, compared to €380 million for the year
ended 31 December 2013, a decrease of €231 million. Amortization related to acquisition-related intangible
assets was €(108) million for the year ended 31 December 2014, compared to €(167) million for the year ended
31 December 2013, a decrease of €59 million, or (35.3)%. The decrease in amortization related to acquisitionrelated intangible assets was primarily attributable to higher levels of impairments for the year ended
31 December 2013 relating to fixed assets and goodwill of BG Home. The decrease in EBITA was primarily
attributable to higher restructuring costs, acquisition-related charges and other incidental charges, as describedabove.
EBITA by Business GroupThe following table presents the Group’s EBITA by Business Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

358
(59)
45
(68)
(127)

587
(16)
25
(90)
(126)

(229)
(43)
20
22
(1)

(39.0)%
268.8%
80.0%(24.4)%
0.8%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

149

380

(231)

(60.8)%

Nominal Change€ millions%

Adjusted EBITA (unaudited)
Adjusted EBITA for the year ended 31 December 2014 was €476 million, compared to €453 million for theyear ended 31 December 2013, an increase of €23 million, or 5.1%. Restructuring costs, acquisition-related costs
and other incidental charges were €(327) million for the year ended 31 December 2014, compared to €(73)
million for the year ended 31 December 2013, an increase of €254 million, or 347.9%. The increase in
restructuring costs, acquisition-related costs and other incidental charges was primarily attributable tomanufacturing footprint rationalization in BG Lamps and BG Professional and consolidation of the European
warehouse footprint in BG Home for the year ended 31 December 2014. The increase in adjusted EBITA wasprimarily attributable to lower selling expenses driven by the business transformation program in North America
and reduced general and administrative expenses, which were partially offset by reduced gross margin, increased
R&D expenses and reduced other business income, as described above. As a percentage of sales, the adjusted
EBITA ratio increased from 6.4% for the year ended 31 December 2013 to 6.8% for the year ended 31 December
2014, or 0.4%.
Adjusted EBITA by Business GroupThe following table presents the Group’s adjusted EBITA by Business Group for each of the periods
indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

506
14
102
(46)
(100)

601
(17)
51
(57)
(125)

(95)
31
51
11
25

(15.8)%(182.4)%100.0%(19.3)%(20.0)%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

476

453

23

5.1%

Nominal Change€ millions%

EBITDA (unaudited)
EBITDA for the year ended 31 December 2014 was €422 million, compared to €603 million for the year
ended 31 December 2013, a decrease of €181 million, or (30.0)%. The decrease was primarily attributable tohigher restructuring costs, acquisition-related charges and other incidental charges, as described above.

142

EBITDA by Business GroupThe following table presents the Group’s EBITDA by Business Group for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

474
11
93
(60)
(96)

690
(1)
80
(74)
(92)

(216)
12
13
14
(4)

(31.3)%(1,200.0)%
16.3%(18.9)%
4.3%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

422

603

(181)

(30.0)%

Nominal Change€ millions%

Adjusted EBITDA (unaudited)
Adjusted EBITDA for the year ended 31 December 2014 was €665 million, compared to €659 million forthe year ended 31 December 2013, an increase of €6 million, or 0.9%. The increase in adjusted EBITDA wasprimarily attributable to reduced selling expenses and reduced general and administrative expenses, which werepartially offset by reduced gross margin, increased R&D expenses and reduced other business income, as
described above. The adjusted EBITDA ratio increased from 9.2% for the year ended 31 December 2013 to 9.5%
for the year ended 31 December 2014.
Segment information
BG Lamps
The following table presents certain financial information of BG Lamps for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . .

3,119
3,181
(9.5)%
356
11.2%
358
11.3%
506
15.9%
474
14.9%
(33)

3,557
3,658
—
586
16.0%
587
16.0%
601
16.4%
690
18.9%
(45)

Nominal Change€ millions
%

(438)
(477)
—
(230)
—
(229)
—
(95)
—
(216)
—
12

(12.3)%(13.0)%—(39.2)%—(39.0)%—(15.8)%—(31.3)%—(26.7)%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2014 and 2013.

Sales of BG Lamps for the year ended 31 December 2014 were €3,119 million, compared to €3,557 million
for the year ended 31 December 2013, a decrease of €438 million, or (12.3)%. Comparable sales growth for BG
Lamps from the year ended 31 December 2013 to the year ended 31 December 2014 was (9.5)%. The decrease incomparable sales was primarily attributable to the transition from conventional to LED lighting, as well as priceerosion in respect of conventional lighting products. Sales declined across all Market Groups, with the biggest
decline in Greater China, due to the reasons described above.
Sales including intersegment for BG Lamps for the year ended 31 December 2014 were €3,181 million,
compared to €3,658 million for the year ended 31 December 2013, a decrease of €477 million, or (13.0)%.
EBITA for BG Lamps for the year ended 31 December 2014 was €358 million, or 11.3% of sales includingintersegment, compared to €587 million, or 16.0% of sales including intersegment, for the year ended
31 December 2013. Amortization related to acquisition-related intangible assets was €(2) million for the year
ended 31 December 2014, compared to €(1) million for the year ended 31 December 2013. The decrease in
EBITA for the year ended 31 December 2014 was primarily attributable to manufacturing footprint
rationalization in BG Lamps.
Adjusted EBITA for BG Lamps for the year ended 31 December 2014 was €506 million, or 15.9% of sales
including intersegment, compared to €601 million, or 16.4% of sales including intersegment for the year ended143

31 December 2013, a decrease of €95 million. Restructuring costs, acquisition-related charges and otherincidental charges amounted to €(148) million for the year ended 31 December 2014 compared to €(14) million
for the year ended 31 December 2013. The decrease in adjusted EBITA was primarily attributable to the
reduction in sales as a result of the transition from conventional to LED lighting, with operating expenses
declining at a lower rate than the scale of operations. However, due to manufacturing footprint rationalizationand procurement savings, gross margins remain broadly stable.
EBITDA for BG Lamps for the year ended 31 December 2014 was €474 million, or 14.9% of sales
including intersegment, compared to €690 million, or 18.9% of sales including intersegment, for the year ended
31 December 2013. Depreciation, amortization and impairments of non-financial assets amounted to €(118)
million for the year ended 31 December 2014 compared to €(104) million for the year ended 31 December 2013.
The increase in depreciation, amortization and impairments of non-financial assets for the year ended
31 December 2014 was primarily attributable to increased write-downs due to manufacturing footprint
rationalization, due to €(31) million of write-downs for the year ended 31 December 2014 compared to€(4) million of write-downs for the year ended 31 December 2013. Depreciation, amortization and impairmentsof non-financial assets decreased by €13 million from the year ended 31 December 2013 to the year ended
31 December 2014 excluding write-downs.
Income from operations for BG Lamps for the year ended 31 December 2014 was €356 million, comparedto €586 million for the year ended 31 December 2013, a decrease of €230 million, or (39.2)%, for the reasonsdescribed above.
Net capital expenditures for BG Lamps for the year ended 31 December 2014 was €(33) million, comparedto €(45) million for the year ended 31 December 2013, a decrease of €12 million. The decrease was primarily
attributable to manufacturing footprint rationalization.
BG LEDThe following table presents certain financial information of BG LED for each of the periods indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . .

958
1,025
26.3%
(62)
(6.0)%(59)(5.8)%
14
1.4%
11
1.1%
(27)

772
828
—
(20)
(2.4)%(16)(1.9)%(17)(2.1)%(1)(0.1)%(29)

Nominal Change€ millions
%

186
197
—
(42)
—
(43)
—
31
—
12
—
2

24.1%
23.8%
—
210.0%—
268.8%—(182.4)%—(1,200.0)%—(6.9)%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2014 and 2013.

Sales of BG LED for the year ended 31 December 2014 were €958 million, compared to €772 million forthe year ended 31 December 2013, an increase of €186 million, or 24.1%. Comparable sales growth for BG LED
from the year ended 31 December 2013 to the year ended 31 December 2014 was 26.3%. The increase incomparable sales was primarily attributable to higher sales volume of LED products due to the market-wide
transition from conventional lighting to LED lighting, which was partially offset by lower LED product selling
prices due to market pressure to maintain competitive pricing. Sales increased across all Market Groups, with thestrongest growth in Europe and Americas.
Sales including intersegment for BG LED for the year ended 31 December 2014 were €1,025 million,
compared to €828 million for the year ended 31 December 2013, an increase of €197 million, or 23.8%.
EBITA for BG LED for the year ended 31 December 2014 was €(59) million, or (5.8)% of sales includingintersegment, compared to €(16) million, or (1.9)% of sales including intersegment, for the year ended
31 December 2013, a decrease of €43 million. Amortization related to acquisition-related intangible assets was€(3) million for the year ended 31 December 2014, compared to €(4) million for the year ended 31 December
2013. The decrease in EBITA was primarily attributable to higher other incidental charges for the year ended
31 December 2014.
144

Adjusted EBITA for BG LED for the year ended 31 December 2014 was €14 million, or 1.4% of sales
including intersegment, compared to €(17) million, or (2.1)% of sales including intersegment, for the year ended
31 December 2013, an increase of €31 million. Restructuring costs, acquisition-related charges and otherincidental charges amounted to €(73) million for the year ended 31 December 2014, including other incidental
charges of €(68) million relating to a write-down of the assets relating to OLED. The increase in adjusted EBITA
was primarily attributable to higher gross margins due to lower obsolescence costs, lower bill-of-material costs
from product redesign, and procurement savings. The effects of price erosion were largely offset by these lower
bill-of-material costs.
EBITDA for BG LED for the year ended 31 December 2014 was €11 million, or 1.1% of sales includingintersegment, compared to €(1) million, or (0.1)% of sales including intersegment, for the year ended
31 December 2013. Depreciation, amortization and impairments of non-financial assets amounted to€(73) million for the year ended 31 December 2014 compared to €(19) million for the year ended 31 December
2013. The increase in depreciation, amortization and impairments of non-financial assets for the year ended
31 December 2014 was primarily attributable to a €(49) million write-down of fixed assets relating to OLED.
Income from operations for BG LED for the year ended 31 December 2014 was €(62) million, compared to€(20) million for the year ended 31 December 2013, a decrease of €42 million, for the reasons described above.
Net capital expenditures for BG LED for the year ended 31 December 2014 was €(27) million, compared to€(29) million for the year ended 31 December 2013, a decrease of €2 million. The decrease was primarily due toreduced capital expenditures in relation to OLED.
BG Professional
The following table presents certain financial information of BG Professional for each of the periods
indicated.
In € millions, except percentages

For the year ended
31 December
2014
2013

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,420
2,433
3.3%
(56)
(2.3)%
45
1.8%
102
4.2%
93
3.8%
(26)

2,308
2,337
—
(75)
(3.2)%
25
1.1%
51
2.2%
80
3.4%
(57)

Nominal Change€ millions
%

112
96
—
19
—
20
—
51
—
13
—
31

4.9%
4.1%
—
(25.3)%—
80.0%—
100.0%—
16.3%—(54.4)%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2014 and 2013.

Sales of BG Professional for the year ended 31 December 2014 were €2,420 million, compared to €2,308
million for the year ended 31 December 2013, an increase of €112 million, or 4.9%. Sales of BG Professional
were impacted by the Group’s acquisition of a 51% interest in GLC, which was included in BG Professionalfrom 2 September 2014 to 31 December 2014 and contributed €86 million of sales for that period. Comparable
sales growth for BG Professional from the year ended 31 December 2013 to the year ended 31 December 2014
was 3.3%. The increase in comparable sales was primarily attributable to growth in sales of LED luminaires andsystems in most geographic regions as a result of the transition from conventional to LED lighting, which waspartially offset by weaker sales in North America due to impacts of the transformation program. Sales werehigher in Europe and Growth Markets, but were partially offset by declines in Americas and Greater China.
Sales including intersegment for BG Professional for the year ended 31 December 2014 were €2,433
million, compared to €2,337 million for the year ended 31 December 2013, an increase of €96 million, or 4.1%.
EBITA for BG Professional for the year ended 31 December 2014 was €45 million, or 1.8% of sales
including intersegment, compared to €25 million, or 1.1% of sales including intersegment, for the year ended
31 December 2013, an increase of €20 million, or 80.0%. Amortization related to acquisition-related intangible
assets for the year ended 31 December 2014 was €(101) million, compared to €(100) million for the year ended
31 December 2013, in each case relating primarily to amortization of customer relationships, brands and145technology capitalized from prior acquisitions (in particular the acquisition of Genlyte in 2008). The increase in
EBITA was primarily attributable to improvement in gross margin, which was partially offset by an increase in
restructuring costs related to manufacturing footprint rationalization.
Adjusted EBITA for BG Professional for the year ended 31 December 2014 was €102 million, or 4.2% ofsales including intersegment, compared to €51 million, or 2.2% of sales including intersegment, for the year
ended 31 December 2013, an increase of €51 million. Restructuring costs, acquisition-related charges and otherincidental charges amounted to €(57) million for the year ended 31 December 2014 compared to €(26) million
for the year ended 31 December 2013, and in each case related primarily to manufacturing footprint
rationalization. The increase in adjusted EBITA was primarily attributable to improvement in gross margin
following an increase in LED penetration, higher procurement savings, and an improvement in factory
productivity due to manufacturing footprint rationalization.
EBITDA for BG Professional for the year ended 31 December 2014 was €93 million, or 3.8% of sales
including intersegment, compared to €80 million, or 3.4% of sales including intersegment, for the year ended
31 December 2013. Depreciation, amortization and impairments of non-financial assets amounted to €(149)
million for the year ended 31 December 2014, compared to €(155) million for the year ended 31 December 2013.
The decrease in depreciation, amortization and impairments of non-financial assets for the year ended
31 December 2014 was primarily attributable to lower write-downs of fixed assets.
Income from operations for BG Professional for the year ended 31 December 2014 was €(56) million,
compared to €(75) million for the year ended 31 December 2013, an increase of €19 million.
Net capital expenditures for BG Professional for the year ended 31 December 2014 was €(26) million,
compared to €(57) million for the year ended 31 December 2013, a decrease of €31 million. The decrease wasprimarily attributable to lower growth investments and higher proceeds from disposal of property, plant andequipment.
BG Home
The following table presents certain financial information of BG Home for each of the periods indicated.
For the year ended
31 December
2014
2013

In € millions, except percentages

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . .
Comparable Sales Growth (%) (unaudited) (1) . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Adjusted EBITA (unaudited) (1) . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
EBITDA (unaudited) (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
% of sales including intersegment . . . . . . . . . . . . .
Net capital expenditures (1) . . . . . . . . . . . . . . . . . . . . . . .

482
485(0.4)%(70)(14.4)%(68)(14.0)%(46)(9.5)%(60)(12.4)%
(9)

490
492
—
(152)
(30.9)%(90)(18.3)%(57)(11.6)%(74)(15.0)%(6)

Nominal Change€ millions
%

(8)
(7)
—
82
—
22
—
11
—
14
—
(3)

(1.6)%(1.4)%—(53.9)%—(24.4)%—(19.3)%—(18.9)%—
50.0%(1) See “—Non-IFRS financial measures” for more information on non-IFRS financial measures and reconciliation of non-IFRS financial
measures to IFRS financial measures for the years ended 31 December 2014 and 2013.

Sales of BG Home for the year ended 31 December 2014 were €482 million, compared to €490 million forthe year ended 31 December 2013, a decrease of €8 million, or (1.6)%. Comparable sales growth for BG Home
from the year ended 31 December 2013 to the year ended 31 December 2014 was (0.4)%. The decrease incomparable sales was primarily attributable to a large product pruning exercise resulting in discontinuation of a
portion of the product portfolio as well as more selective customer focus in BG Home in Europe, which waspartially offset by increased sales of home systems. Sales declined in all Market Groups except Growth Markets.
Sales including intersegment for BG Home for the year ended 31 December 2014 were €485 million,
compared to €492 million for the year ended 31 December 2013, a decrease of €7 million, or (1.4)%.
EBITA for BG Home for the year ended 31 December 2014 was €(68) million, or (14.0)% of sales includingintersegment, compared to €(90) million, or (18.3)% of sales including intersegment, for the year ended
31 December 2013, an increase of €22 million. Amortization related to acquisition-related intangible assets was€(2) million for the year ended 31 December 2014, compared to €(62) million for the year ended 31 December
2013 due to €(32) million of impairments of customer relationships and €(26) million of impairments of goodwill146

at BG Home for the year ended 31 December 2013. See Note E.12 to the Combined Financial Statements formore information on impairments of goodwill and see Note E.13 to the Combined Financial Statements for more
information on impairment of customer relationships. The improvement in EBITA was primarily attributable toimproved performance of consumer luminaires and lower restructuring costs in connection with the business
transformation program in the consumer luminaires business in Europe.
Adjusted EBITA for BG Home for the year ended 31 December 2014 was €(46) million, or (9.5)% of sales
including intersegment, compared to €(57) million, or (11.6)% of sales including intersegment, for the year
ended 31 December 2013, an increase of €11 million. Restructuring costs, acquisition-related charges and otherincidental charges amounted to €(22) million for the year ended 31 December 2014, compared to €(33) million
for the year ended 31 December 2013, and in each case related primarily to restructuring costs in connection withthe business transformation program in the consumer luminaires business in Europe. The improvement inadjusted EBITA was primarily attributable to improved performance of consumer luminaires, which was partly
offset by higher investments in home systems.
EBITDA for BG Home for the year ended 31 December 2014 was €(60) million, or (12.4)% of sales
including intersegment, compared to €(74) million, or (15.0)% of sales including intersegment, for the year
ended 31 December 2013. Depreciation, amortization and impairments of non-financial assets amounted to €(10)
million for the year ended 31 December 2014 compared to €(78) million for the year ended 31 December 2013.
The decrease in depreciation, amortization and impairments of non-financial assets for the year ended
31 December 2014 was primarily attributable to lower write-downs of fixed assets.
Income from operations for BG Home for the year ended 31 December 2014 was €(70) million, comparedto €(152) million for the year ended 31 December 2013, an increase of €82 million.
Net capital expenditures for BG Home for the year ended 31 December 2014 was €(9) million, compared to€(6) million for the year ended 31 December 2013, an increase of €3 million. The increase was primarily
attributable to higher investments in growth assets.
Other
Sales attributed to Other for the year ended 31 December 2014 were €2 million, compared to €2 million forthe year ended 31 December 2013. Restructuring costs, acquisition-related charges and other incidental charges
amounted to €(27) million for the year ended 31 December 2014, primarily related to restructuring of centralizedGroup IT functions, compared to €(1) million for the year ended 31 December 2013. Income from operations
attributed to Other for the year ended 31 December 2014 was €(127) million, compared to €(126) million for theyear ended 31 December 2013.
Seasonality
The conventional lighting industry generally experiences minor seasonal fluctuations in sales, as generally
the first and fourth quarters of the year (largely correlating with winter in the northern hemisphere) with shorter
daylight periods causes higher demand for lighting products than in the second and third quarters of the year. Due
to less daylight, lights are turned on for longer periods of time during the day, thus requiring more replacements
than in summertime with lower light consumption. In the case of the Group, this seasonality effect may moststrongly influence sales by BG Lamps.
However, the Group’s sales are more strongly influenced by other trends, including the overall decline insales of BG Lamps and overall increase in sales of BG LED as a result of transition from conventional lighting to
LED lighting, and the timing of specific projects in the case of sales of BG Professional.
Liquidity and Capital Resources
Sources and uses of cash
The Group primarily uses cash to finance its capital expenditure, working capital requirements andacquisitions. Following the Offering, the Group may also make dividend payments to shareholders of theCompany from time to time in accordance with its dividend policy. For more information on the dividend policyof the Group, see “Dividend Policy”.
The Group has historically financed its capital expenditures, working capital requirements and acquisitions
through a combination of cash flow from operating activities and short-term financing from Royal Philips. The
Group is expected to be included in the Royal Philips funding program, which includes certain cash poolingarrangements, until the third quarter of 2016. Under this funding program, the Group invests excess short term
liquidity in Royal Philips’ cash pooling arrangements and is granted overdraft facilities and/or short-term loans
by Royal Philips or affiliated financing companies to the extent operating activities cannot be otherwise financed
through their operating cash flow. This funding program also provided for a Royal Philips-wide system forclearing and settlement of intra-group and external payables and receivables. The Group engages in proactive
147

management of its levels of inventories, accounts receivable and trade creditors. Management of inventory has
been supported by portfolio rationalization programs in BG Lamps, BG Home and BG Professional in North
America.
The Group expects that, following completion of the Offering, capital expenditures, working capitalrequirements and acquisitions will be financed through cash flows from operating activities, cash and cash
equivalents on balance sheet following draw down of its new five-year approximately €1,200 million equivalent
Term Loan Facility and the application of proceeds thereof, and its new five-year €500 million equivalent
Revolving Credit Facility. The Group’s participation in the Royal Philips funding program is expected to be
replaced in the third quarter of 2016 by a funding program operated by Philips Lighting Holding B.V., asubsidiary of the Group, that will provide cash pooling arrangements, clearing and settlement of intra-group andexternal payables and receivables and financing and liquidity investment opportunities to participating membersof the Group. The liabilities owed by the Group to Royal Philips will be repaid shortly prior to or following the
Settlement Date financed by borrowings under the Term Loan Facility, see “—Financing Structure Following theOffering”.
Working capital statement
The Company believes that the working capital available to the Group is sufficient for the Group’s present
requirements; that is for at least twelve months following the date of this Prospectus.
Cash flows
The following table presents primary components of the Group’s cash flows for each of the periods
indicated.
For the threemonth period
ended 31 March(unaudited)
2016
2015

In € millions

Cash flows from operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

For the year ended
31 December
2015
2014
2013

14

30

240

(29)

78
3
(1)
(4)
18
40
6
(102)
28
(47)

73
—
—
—
2
23
7
79
28
(65)

315
4
(26)
(3)
7
83
24
209
—
29

381
390
—
—
(2)
(1)
(3)
(3)
9
4
66
45
22
27
(33) (231)(17) (206)
114
(94)

(83)

116

180

(130)

69

(63)
(31)
—
(1)
(17)

2
(23)
—
(2)
(7)

(29)
(79)
—
(2)
(26)

—
116
(1)
(5)
(43)

4
(86)
(1)
—
(54)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .

(60)

184

717

478

262

Cash flows from investing activities
Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment . . . . . . . . . . .
Proceeds from disposal of property, plant and equipment . . . . . . . . .
Proceeds from other non-current financial assets . . . . . . . . . . . . . . . . . . . .
Purchase of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received from investments in associates . . . . . . . . . . . . . . . . . .

(18)
(4)
(16)
2
—
—
—

(28)
(8)
(20)
—
17
(3)
—

(85) (123) (178)
(38)
(51)
(38)
(98) (109) (159)
51
37
19
31
—
—
(11) (125)
—
—
(1)
2

Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(18)

(14)

(65)

Adjustments to reconcile net income (loss) to net cash provided byoperating activities:
Depreciation, amortization and impairments of non-financial assets . . . . .
Impairment of non-current financial assets . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on debt, borrowings and other liabilities . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in receivables and other current assets . . . . . . .
Decrease (increase) in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accounts payable, accrued and other current
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in non-current receivables, other assets and otherliabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in assets classified as held for sale . . . . . . . . . . . . . . .
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

148

(249)

168

(176)

For the threemonth period
ended 31 March
2016
2015

In € millions

For the year ended
31 December
2015
2014
2013

Cash flows from financing activities
Funding by (distribution to) Royal Philips . . . . . . . . . . . . . . . . . . . . . . . .
Capital contribution from Royal Philips . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance (payments) of debt . . . . . . . . . . . . . . . . . . . . . . .

(349)
692
3

(149)
—
(24)

(626)
—
(12)

(200)
—
(1)

(95)
—
(2)

Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .

346

(173)

(638)

(201)

(97)

Net cash (used for) provided by continuing operations . . . . . . . . . . . .
Effect of changes in exchange rates on cash and cash equivalents . . . . . .
Cash and cash equivalents at the beginning of the year . . . . . . . . . . . . . .

268
2
83

(3)
(9)
75

14
(6)
75

28
(2)
49

(11)
2
58

Cash and cash equivalents at the end of the year . . . . . . . . . . . . . . . . .

353

63

83

75

49

Comparison of cash flows for the three month periods ended 31 March 2016 and 31 March 2015
Cash flows from operating activities
Net cash provided by operating activities for the three month period ended 31 March 2016 was€(60) million, compared to €184 million for the three month period ended 31 March 2015, a decrease of€244 million. The decrease in net cash provided by operating activities primarily reflects a negative adjustment
for change in working capital, as well as lower net income for the three month period ended 31 March 2016 of€14 million, compared to net income of €30 million for the three month period ended 31 March 2015. In
addition, cash provided by operating activities for the three month period ended 31 March 2016 included an
outflow of €45 million related to pension liability de-risking in the United States. From an operational
perspective, net cash provided by operating activities decreased from the three month period ended 31 March
2015 to the three month period ended 31 March 2016 as a result of higher payments to suppliers due to the timingof vendor payments.
Change in working capital resulted in a negative adjustment to net income for the three month period ended
31 March 2016 of €(102) million, compared to a positive adjustment of €79 million for the three month period
ended 31 March 2015. Within change in working capital, changes in accounts payable, accrued and other current
liabilities for the three month period ended 31 March 2016 resulted in a negative adjustment to net income of€(83) million, compared to a positive adjustment of €116 million for the three month period ended 31 March
2015, mainly as a result of a decrease in trade payables due to the timing of vendor payments, as well as thesettlement of shared payable positions resulting from the Separation.
Cash flows from investing activities
Net cash used for investing activities for the three month period ended 31 March 2016 was €(18) million,
compared to €(14) million for the three month period ended 31 March 2015, an increase of €4 million, or 28.6%.
This increase was primarily attributable to the lower proceeds from the sale of other non-current financial assets
in the three month period ended 31 March 2015, which was partly offset a lower level of net capital expenditures
for the three month period ended 31 March 2016 as compared to the three month period ended 31 March 2015.
Cash flows from financing activities
Net cash used for financing activities for the three month period ended 31 March 2016 was €346 million,
compared to €(173) million for the three month period ended 31 March 2015, a difference of €519 million. The
difference was primarily due to a capital contribution from Royal Philips of €692 million for the three month
period ended 31 March 2016, which has been provided to the Group to satisfy funding requirements following
the separation of activities from Royal Philips. Net cash flows from (used in) financing activities reported in theCondensed Combined Interim Financial Statements are reflective of the results of the Royal Philips central cash
management and funding of operations currently attributable to the Group. Funding by (distribution to) Royal
Philips relate to the Group’s participation in Royal Philips’ funding program, which includes certain cash poolingarrangements in which the Group invests excess short-term liquidity. Cash deposits of Royal Philips are pooled
and transferred to a central treasury function on a daily basis wherever possible. The Group’s participation in theRoyal Philips funding program is expected to be replaced in the third quarter of 2016 by a funding program
operated by Philips Lighting Holding B.V., a subsidiary of the Group, that will provide cash poolingarrangements, clearing and settlement of intra-group and external payables and receivables and financing andliquidity investment opportunities to participating members of the Group.

149

Cash and cash equivalents
For the above reasons, cash and cash equivalents as of 31 March 2016 were €353 million, compared to€63 million for 31 March 2015, an increase of €290 million. Amounts for cash and cash equivalents are reflectedin the Condensed Combined Interim Financial Statements only for those activities of the Group that operated orexisted in separate dedicated Group legal entities, during the period of the Condensed Combined Interim
Financial Statements. For all other activities, changes in cash and cash equivalent balances form part of fundingby (distribution to) Royal Philips.
Net capital expenditures
Net capital expenditures for the three month period ended 31 March 2016 were €(18) million, compared to€(28) million for the three month period ended 31 March 2015, a decrease of €10 million, or 35.7%. The
decrease was attributable to higher proceeds from the disposal of property plant and equipment, lower additions
to intangible assets and lower capital expenditures on property, plant and equipment. Proceeds from the disposalof property, plant and equipment for the three month period ended 31 March 2016 were €2 million, relating to thesale of a commercial building, as well as disposals related to manufacturing footprint rationalization. Additions
to intangible assets were €(4) million for the three month period ended 31 March 2016, compared to €(8) million
the three month period ended 31 March 2015, which was primarily due to lower capitalizations of development
costs.
Free cash flow
Free cash flow for the three month period ended 31 March 2016 was €(78) million, compared to€156 million for the three month period ended 31 March 2015, a decrease of €234 million. The decrease wasprimarily attributable to lower income from operations and differences in adjustments for net working capital forthe three month period ended 31 March 2016 as compared to the three month period ended 31 March 2015, as
further described above.
Comparison of cash flows for the years ended 31 December 2015 and 31 December 2014
Cash flows from operating activities
Net cash provided by operating activities for the year ended 31 December 2015 was €717 million, comparedto €478 million for the year ended 31 December 2014, an increase of €239 million, or 50.0%. The increase in net
cash provided by operating activities primarily reflects higher net income for the year ended 31 December 2015of €240 million, compared to net loss of €(29) million for the year ended 31 December 2014, as well as a positive
adjustment to net income from change in working capital. Higher net income for the year ended 31 December
2015 was primarily attributable to higher income from operations, attributable to a decrease of restructuringcosts, acquisition-related charges and other incidental charges, which was partly offset by higher income taxes.
Net cash provided by operating activities was negatively impacted by, among other factors, a negative
adjustment to net income for change in provisions for the year ended 31 December 2015 of €(79) million,
compared to a positive adjustment of €116 million for the year ended 31 December 2014, due primarily todifferences in restructuring-related provisions. From an operational perspective, net cash provided by operating
activities increased from the year ended 31 December 2014 to the year ended 31 December 2015 as a result ofhigher net income and lower payments to suppliers.
Change in working capital resulted in a positive adjustment to net income for the year ended 31 December
2015 of €209 million, compared to a negative adjustment of €(33) million for the year ended 31 December 2014.
Within change in working capital, changes in accounts payable, accrued and other current liabilities for the year
ended 31 December 2015 resulted in a positive adjustment to net income of €180 million, compared to a negative
adjustment of €(130) million for the year ended 31 December 2014, mainly as a result of the timing of vendor
payments and an increase of payables due to Royal Philips. Changes in inventories for the year ended
31 December 2015 resulted in a positive adjustment to net income of €29 million, compared to €114 million forthe year ended 31 December 2014, as a result of inventory optimization programs.
Cash flows from investing activities
Net cash used for investing activities for the year ended 31 December 2015 was €(65) million, compared to€(249) million for the year ended 31 December 2014, a decrease of €184 million, or 73.9%. This decrease wasprimarily attributable to the acquisition of a 51% interest in GLC in the year ended 31 December 2014 and alower level of net capital expenditures for the year ended 31 December 2015 as compared to the year ended
31 December 2014.
Cash flows from financing activities
Net cash used for financing activities for the year ended 31 December 2015 was €(638) million, comparedto €(201) million for the year ended 31 December 2014, a difference of €437 million. The difference was150

primarily due to distributions to Royal Philips of €(626) million for the year ended 31 December 2015 compared
to distributions to Royal Philips of €(200) million for the year ended 31 December 2014. Net cash flows from(used in) financing activities reported in the Combined Financial Statements are reflective of the results of theRoyal Philips central cash management and funding of operations currently attributable to the Group. Funding by(distributions to) Royal Philips relate to the Group’s participation in Royal Philips’ funding program, which
includes certain cash pooling arrangements in which the Group invests excess short-term liquidity. Cash deposits
of Royal Philips are pooled and transferred to a central treasury function on a daily basis wherever possible.
Cash and cash equivalents
For the above reasons, cash and cash equivalents as of 31 December 2015 were €83 million, compared to€75 million for 31 December 2014, an increase of €8 million, or 10.7%. Amounts for cash and cash equivalents
are reflected in the Combined Financial Statements only for those activities of the Group that operated or existed
in separate dedicated Group legal entities, during the period of the Combined Financial Statements. For all otheractivities, changes in cash and cash equivalent balances form part of funding by (distribution to) Royal Philips.
Net capital expenditures
Net capital expenditures for the year ended 31 December 2015 were €(85) million, compared to €(123)
million for the year ended 31 December 2014, a decrease of €38 million, or 30.9%, which was attributable tolower additions to intangible assets, lower capital expenditures on property, plant and equipment and higher
proceeds from disposal of property, plant and equipment. Additions to intangible assets were €(38) million forthe year ended 31 December 2015, compared to €(51) million the year ended 31 December 2014, which was
primarily due to lower capital expenditures attributable to Other as a result of reduced IT capitalization. Capital
expenditure on property plant and equipment for the year ended 31 December 2015 was €(98) million, comparedto €(109) million for the year ended 31 December 2014, primarily due to lower levels of commercial property
renovations of Other for the year ended 31 December 2015. Proceeds from the disposal of property, plant andequipment for the year ended 31 December 2015 were €51 million, compared to €37 million for the year ended
31 December 2014, and included sale of a commercial building for €22 million, as well as several disposals
related to manufacturing footprint rationalization.
Free cash flow (unaudited)
Free cash flow for the year ended 31 December 2015 was €632 million, compared to €355 million for theyear ended 31 December 2014, an increase of €277 million. The increase was primarily attributable to higher
income from operations and overall lower net working capital for the year ended 31 December 2015 as comparedto the year ended 31 December 2014, as further described above.
Comparison of cash flows for the years ended 31 December 2014 and 31 December 2013
Cash flows from operating activities
Net cash provided by operating activities for the year ended 31 December 2014 was €478 million, comparedto €262 million for the year ended 31 December 2013, an increase of €216 million, or 82.4%. The increase in net
cash provided by operating activities was primarily attributable to lower negative adjustments to net income forchange in working capital. The increase in net cash provided by operating activities also reflects the positive
adjustment to net income for change in provisions for the year ended 31 December 2014 of €116 million,
compared to a negative adjustment of €(86) million for the year ended 31 December 2013, due primarily todifferences in restructuring-related provisions. Net cash provided by operating activities was negatively impacted
by, among other factors, net loss for the year ended 31 December 2014 of €(29) million, compared to net incomeof €168 million for the year ended 31 December 2013, primarily as a result of higher restructuring costs,
acquisition-related charges and other incidental charges for the year ended 31 December 2014. From an
operational perspective, net cash provided by operating activities increased from the year ended 31 December
2013 to the year ended 31 December 2014 as a result of higher receipts from customers and lower payments forinventories.
Change in working capital resulted in a negative adjustment to net income for the year ended 31 December
2014 of €(33) million, compared to €(231) million for the year ended 31 December 2013. Within change inworking capital, change in inventories for the year ended 31 December 2014 resulted in a positive adjustment to
net income of €114 million, compared to €(94) million for the year ended 31 December 2013, as a result of
inventory optimization programs, mainly impacting BG Professional and BG Home. Change in receivables andother current assets for the year ended 31 December 2013 resulted in a negative adjustment to net income of€(206) million, largely due to a build-up of receivables in Greater China from extended payment terms granted tocertain customers. Change in receivables and other current assets for the year ended 31 December 2014 resulted
in a lower negative adjustment of €(17) million, largely due to a normalization of payment terms in Greater151China, as well as an increased focus on cash collection across all Market Groups. Change in accounts payable,
accrued and other current liabilities for the year ended 31 December 2014 resulted in a negative adjustment to net
income of €(130) million, compared to a positive adjustment of €69 million for the year ended 31 December
2013, as a result of lower overdue payables and the renegotiation of payment terms with certain suppliers.
Cash flows from investing activities
Net cash used for investing activities for the year ended 31 December 2014 was €(249) million, compared to€(176) million for the year ended 31 December 2013, an increase of €73 million, or 41.5%. This increase wasprimarily attributable to the acquisition of a 51% interest in GLC, which was partly offset by proceeds from thedisposal of assets relating to manufacturing footprint rationalization of €37 million for the year ended
31 December 2014, and a lower level of net capital expenditures for the year ended 31 December 2014 ascompared to the year ended 31 December 2013 as a result of completion of a BG Professional factory, which
contributed €(18) million to purchases of tangible fixed assets for the year ended 31 December 2013. The
Group’s acquisition of the interest in GLC was completed on 2 September 2014 and GLC was consolidated as ofthat date as part of the Group within BG Professional. The interest in GLC was acquired for a total amount of€146 million (on a cash-free, debt-free basis) and taking into account closing conditions, the Group paid anamount of €148 million. The overall cash position of GLC on the transaction date was €23 million resulting in a
net cash outflow in relation to this acquisition of €125 million.
Cash flows from financing activities
Net cash used for financing activities for the year ended 31 December 2014 was €(201) million, comparedto net cash used for financing activities of €(97) million for the year ended 31 December 2013, an increase of€104 million. The increase in net cash used for financing activities was primarily attributable to distributions toRoyal Philips of €(200) million for the year ended 31 December 2014 compared to distributions to Royal Philipsof €(95) million for the year ended 31 December 2013. Net cash flows from (used in) financing activities
reported in the Group’s Combined Financial Statements are reflective of the results of Royal Philips’ central cash
management and funding of operations currently attributable to the Group. Funding by (distributions to) Royal
Philips relate to the Group’s participation in Royal Philips’ funding program, which includes certain cash poolingarrangements in which the Group invests excess short-term liquidity. Cash deposits of Royal Philips are pooled
and transferred to a central treasury function on a daily basis wherever possible.
Cash and cash equivalents
For the above reasons, cash and cash equivalents as of 31 December 2014 was €75 million, compared to€49 million as of 31 December 2013, an increase of €26 million, or 53.1%. Amounts for cash and cash
equivalents are reflected in the Combined Financial Statements only for those activities of the Group that
operated or existed in separate dedicated Group legal entities, during the period of the Combined Financial
Statements. For all other activities, changes in cash and cash equivalents balances form part of funding by(distribution to) Royal Philips.
Net capital expenditures
Net capital expenditures for the year ended 31 December 2014 were €(123) million, compared to€(178) million for the year ended 31 December 2013, a decrease of €55 million, or (30.9)%, attributable to lower
capital expenditures on property, plant and equipment and higher proceeds from disposal of property, plant andequipment, which was partially offset by higher additions of intangible assets. Additions to intangible assets were€(51) million for the year ended 31 December 2014, compared to €(38) million the year ended 31 December
2013, which was primarily due to higher capitalization of software development. Capital expenditure on property
plant and equipment for the year ended 31 December 2014 was €(109) million, compared to €(159) million forthe year ended 31 December 2013, primarily due to a decrease in purchases of tangible fixed assets due tocompletion of a BG Professional factory, which contributed €(18) million to purchases of tangible fixed assets
for the year ended 31 December 2013. Investments in OLED of €(11) million were also made in the year ended
31 December 2013. Proceeds from the disposal of property, plant and equipment for the year ended 31 December
2014 were €37 million, compared to €19 million for the year ended 31 December 2013, primarily due to thedisposal of non-core assets in BG Professional and Other.
Free cash flow (unaudited)
Free cash flow for the year ended 31 December 2014 was €355 million, compared to €84 million for theyear ended 31 December 2013, an increase of €271 million. The increase was primarily attributable to anincrease in net working capital of only €(33) million for the year ended 31 December 2014 compared to anincrease in working capital of €(231) million for the year ended 31 December 2013, as described above.
152

Balance sheet
The following table presents primary components of the Group’s balance sheet as of each of the dates
indicated.
As of
31 March(unaudited)2016

In € millions

As of 31 December
2015
2014
2013

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,714
3,222

3,659
2,784

3,606
2,726

3,333
2,497

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,936
3,121
1,054
2,761

6,443
3,616
637
2,190

6,332
3,583
810
1,939

5,830
3,299
631
1,900

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,815

2,827

2,749

2,531

Total liabilities and business equity . . . . . . . . . . . . . . . . . . .

6,936

6,443

6,332

5,830

Comparison of financial position as of 31 March 2016 and 31 December 2015
The Group’s total assets as of 31 March 2016 were €6,936 million, compared to €6,443 million as of
31 December 2015, an increase of €493 million, or 7.7%. The increase included €140 million in currencytranslation differences mainly explained by the weakening of the U.S. dollar in relation to the euro as of
31 March 2016 compared to 31 December 2015. Excluding currency movements, the total assets of the Group
increased by €633 million, which was primarily attributable to higher cash and cash equivalents, higher deferred
tax assets and short-term loans receivable from Royal Philips.
The Group’s total liabilities as of 31 March 2016 were €3,815 million, compared to €2,827 million as of
31 December 2015, an increase of €988 million, or 34.9%. The increase included €53 million in currencytranslation differences primarily attributable to the weakening of the U.S. dollar in relation to the euro as of
31 March 2016. Excluding currency movements, the increase in the Group’s liabilities of €1,041 million was
primarily attributable to an increase in net pension liabilities of €544 million and higher short-term loans payable
to Royal Philips of €645 million.
Comparison of financial position as of 31 December 2015 and 31 December 2014
The Group’s total assets as of 31 December 2015 were €6,443 million, compared to €6,332 million as of
31 December 2014, an increase of €111 million, or 1.8%. The increase included €327 million in currencytranslation differences mainly explained by the strengthening of the U.S. dollar in relation to the euro as of
31 December 2015 compared to 31 December 2014. Excluding currency movements, the total assets of theGroup decreased by €216 million, which was primarily attributable to amortization of intangible assets excluding
goodwill as well as a decrease in property plant and equipment from depreciation and asset sales.
The Group’s total liabilities as of 31 December 2015 were €2,827 million, compared to €2,749 million as of
31 December 2014, an increase of €78 million, or 2.8%. The increase included €54 million in currencytranslation differences primarily attributable to the strengthening of the U.S. dollar in relation to the euro as of
31 December 2015. Excluding currency movements, the increase in the Group’s liabilities of €24 million was
primarily attributable to higher payables to Royal Philips.
Comparison of financial position as of 31 December 2014 and 31 December 2013
The Group’s total assets as of 31 December 2014 were €6,332 million, compared to €5,830 million as of
31 December 2013, an increase of €502 million, or 8.6%. The increase included €441 million in currencytranslation differences mainly explained by the strengthening of the U.S. dollar in relation to the euro as of
31 December 2014 compared to 31 December 2013. Total assets were also impacted by the acquisition of a 51%
interest in GLC, which resulted in consolidation of assets of €424 million, including €109 million of receivablesand €216 million of intangible assets, in each case as of 31 December 2014. Excluding currency movements andthe acquisition of an interest in GLC, the total assets of the Group decreased by €363 million, which was
primarily attributable to amortization of intangible assets excluding goodwill as well as a decrease in property
plant and equipment from depreciation and asset sales.
The Group’s total liabilities as of 31 December 2014 were €2,749 million, compared to €2,531 million as of
31 December 2013, an increase of €218 million, or 8.6%. The increase included €114 million in currencytranslation differences and the consolidation of €192 million in liabilities related to the acquisition of GLC.
Excluding currency movements and the acquisition of an interest in GLC, the decrease in the Group’s liabilities
was primarily attributable to a decrease in accounts payable and partly offset by an increase in long-term
provisions, mainly in restructuring.
153

Capital Expenditures
The Group does not have any material commitments for capital expenditures.
The Group’s net capital expenditures for the three month period ended 31 March 2016 were €(18) million.
The Group had additions to intangible assets of €(4) million relating primarily to capitalization of development
costs and purchases of intellectual property. The Group had capital expenditures on property, plant andequipment of €(16) million relating primarily to machinery and installations in existing factories. The Group hadproceeds from disposal of property, plant and equipment of €2 million relating primarily to sale of a commercial
building, as well as disposals related to manufacturing footprint rationalization.
The Group’s net capital expenditures for the year ended 31 December 2015 were €(85) million. The Group
had additions to intangible assets of €(38) million relating primarily to capitalization of development costs andpurchases of intellectual property. The Group had capital expenditures on property, plant and equipment of €(98)
million relating primarily to machinery and installations in existing factories. The Group had proceeds from
disposal of property, plant and equipment of €51 million relating primarily to sale of a commercial building for€22 million, as well as several disposals related to manufacturing footprint rationalization.
The Group’s net capital expenditures for the year ended 31 December 2014 were €(123) million. The Group
had additions to intangible assets of €(51) million relating primarily to capitalization of development and IT
costs. The Group had capital expenditures on property, plant and equipment of €(109) million relating primarily
to machinery and installations in existing factories. The Group had proceeds from disposal of property, plant andequipment of €37 million related primarily to the disposal of non-core assets in BG Professional and Other.
The Group’s net capital expenditures for the year ended 31 December 2013 were €(178) million. The Group
had additions to intangible assets of €(38) million relating primarily to capitalization of development costs. The
Group had capital expenditures on property, plant and equipment of €(159) million relating primarily tomachinery and installations in existing factories, as well as €(18) million for construction of a BG Professional
factory and €(11) million of investments in OLED. The Group had proceeds from disposal of property, plant andequipment of €19 million related primarily to disposals related to manufacturing footprint rationalization.
Financing Structure Following the Offering
The Group expects that, following completion of the Offering, capital expenditures, working capitalrequirements and acquisitions will be financed through cash flows from operating activities, cash and cash
equivalents on balance sheet following draw down of its new five-year approximately €1,200 million equivalent
Term Loan Facility and the application of proceeds thereof, and its new five-year €500 million equivalent
Revolving Credit Facility. On 12 May 2016, the Company entered into a credit agreement (the “Credit
Agreement”) with a syndicate of financial institutions as the original lenders and ING Bank N.V. as facility
agent which established the Term Loan Facility and the Revolving Credit Facility.
Pursuant to the Credit Agreement, the lenders have agreed to make available to the Company (i) a Term
Loan Facility comprising (a) a euro term loan facility of €740 million and (b) a U.S. dollar term loan facility of$500 million; and (ii) a Revolving Credit Facility in a maximum amount of €500 million, which may be drawn ineuros, U.S. dollars, British pounds and, with the consent of the lenders, other currencies. The Revolving Credit
Facility incorporates both euro and U.S. dollar swingline facilities (i.e., short term loans).
The Term Loan Facility will be drawn by the Company to refinance outstanding financial indebtedness andtransaction costs. On or prior to the Settlement Date, the Group expects to draw down approximately$500 million and approximately €740 million under the Term Loan Facility, for an aggregate of approximately€1,200 million equivalent drawn under the Term Loan Facility in U.S. dollars and euros. See “Capitalization andIndebtedness” for more information on the effect of drawdown of the Term Loan Facility. The Group does notexpect to drawdown any amounts under the Revolving Credit Facility immediately.
The Revolving Credit Facility may be drawn by the Company and may be applied towards working capitaland the general corporate purposes of the Group. The facilities will be guaranteed by the Company and certain
subsidiaries of the Company incorporated in the Netherlands, the United States, Germany, the People’s Republicof China, Poland and Belgium.
Both the Term Loan Facility and the Revolving Credit Facility have a term of five years from the date of theCredit Agreement. The loans under the Term Loan Facility will be repaid at the end of the term and may also be
repaid without penalty at the option of the Company during the term, but if so repaid may not be redrawn. The
loans under the Revolving Credit Facility are due and payable at the end of their respective interest periods,
unless rolled-over to the end of the following interest period (which, subject to certain conditions, will be
automatic), and may be re-borrowed thereafter until one month prior to the expiry of the term. The terms of the154Credit Agreement also permit the Company to cancel without penalty the undrawn portion of either the Term
Loan Facility or the Revolving Credit Facility.
Mandatory prepayments are required to be made under the Credit Agreement if it becomes illegal for alender to maintain its participation or upon the occurrence of a change of control. A “change of control” occurs if
any person or group of persons acting in concert (other than (i) Stichting Continuïteit Philips Lighting or (ii) the
Selling Shareholder or any person controlled by the Selling Shareholder) gains control of the Company or holds(directly or indirectly ) more than 50% of the issued share capital of the Company or any person purchases all or
substantially all of the assets of the Company and its subsidiaries as a whole. “Control” for these purposes means
the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to direct the
management and policies of an entity. A mandatory prepayment is also required with respect to the Term Loan
Facility is any amounts have been drawn but the Offering has failed to complete.
Loans will bear interest at a variable rate based on the relevant applicable EURIBOR or LIBOR plus a
margin which will initially be 0.75% for the Term Loan Facility and 0.45% for the Revolving Credit Facility. In
relation to any interest period commencing at least six months following the closing date under the Credit
Agreement and no event of default is outstanding, the margin will vary based on the ratio of consolidated total
net debt (equal to total indebtedness less cash and certain defined instruments equivalent to cash) to consolidated
EBITDA (based on a calculation methodology described in the Credit Agreement which differs from that
described elsewhere in this prospectus) (the “Net Leverage Ratio”) on the most recent financial covenant test
date as follows:
Net Leverage Ratio≥1.75x . . . . . . . . . . . . . . . . . . . . . . . .
<1.75x but ≥1.25x . . . . . . . . . . . . . . .
<1.25x but ≥0.50x . . . . . . . . . . . . . . .
<0.50x . . . . . . . . . . . . . . . . . . . . . . . .

Margin on
Term Loan Facility(% per annum)

Margin on
Revolving Credit Facility(% per annum)

0.85
0.75
0.65
0.55

0.55
0.45
0.35
0.25

The rate of interest on the euro swingline component of the Revolving Credit Facility will be the aggregateof the applicable margin for the Revolving Credit Facility and EONIA (Euro Overnight Index Average). The rateof interest on the U.S. dollar swingline component of the Revolving Credit Facility will be the higher of (a) the
U.S. prime rate and (b) the federal funds rate plus 0.5%.
The commitment fee for the Revolving Credit Facility is 35% of the applicable margin (i.e., 0.35 times thethen applicable margin on the Revolving Credit Facility set forth in the table above), payable as a fee on undrawn
commitments for the period from and including the closing date under the Credit Agreement to and including thelast day of the Revolving Credit Facility’s availability period. A utilization fee is also payable at a rate of 0.10%
per annum on all amounts drawn under the Revolving Credit Facility (including under the swingline facility andany ancillary facility) for each day on which such amounts are more than zero but less than or equal to 33% of
the total commitments under the Revolving Credit Facility, 0.15% per annum for each day on which such drawn
amounts are more than 33% but less than or equal to 66% of the total commitments under the Revolving Credit
Facility and 0.30% for each day on which such drawn amounts exceed 66% of the total commitments under the
Revolving Credit Facility.
The Credit Agreement contains customary representations and warranties to be given at signing and, insome cases, at each drawdown and on the first day of each interest period. The representations include, among
others, status, validity and admissibility in evidence and no violation of laws or other obligations.
The Credit Agreement contains customary undertakings. The undertakings include, among others, anegative pledge that provides that (subject to certain exceptions) no member of the group may grant security over
its assets without the consent of the lenders, and a restriction on subsidiaries of the Company (other than the
obligors) incurring additional financial indebtedness. There are also restrictions (subject to certain exceptions andthresholds) on engaging in acquisitions, disposals and reorganizations. The Credit Agreement also includes afinancial covenant providing that the Group must maintain a Net Leverage Ratio in respect of any test period
ending on or after 31 December 2016 of not greater than 3.00:1.00.
The Credit Agreement includes customary rights for the lenders to terminate the Term Loan Facility and the
Revolving Credit Facility early and accelerate any amounts outstanding following an event of default. In
particular, these rights exist if amounts payable under the Term Loan Facility and the Revolving Credit Facility
are not made when due, obligations under the Term Loan Facility and the Revolving Credit Facility (including
the financial covenant and other undertakings) are not complied with, an obligor or material subsidiary becomesinsolvent or defaults on other financial liabilities or the representations and warranties are inaccurate (in eachcase subject to customary thresholds and exceptions).
155

The Group is expected to be included in the Royal Philips funding program, which includes certain cash
pooling arrangements, until the third quarter of 2016. The Group’s participation in the Royal Philips funding
program is expected to be replaced in the third quarter of 2016 by a funding program operated by Philips
Lighting Holding B.V., a subsidiary of the Group, that will provide cash pooling arrangements, clearing andsettlement of intra-group and external payables and receivables and financing and liquidity investment
opportunities to participating members of the Group.
Off-Balance-Sheet Arrangements and Contingent Liabilities
The following table presents the contractual cash obligations of the Group as of 31 December 2015. Offbalance sheet commitments of the Group relate to purchase obligations and operating lease obligations.
Payments due by period (1)less than
1-3
3-5
after
1 yearyears years 5 years

In € millions

Total

Long-term debt (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47
41
284
7
2
56
940

45
41
79
7
2
26
940

—
—
82
—
—
20
—

—
—
57
—
—
7
—

2
—
66
—
—
3
—

Contractual cash obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,377

1,140

102

64

71

(1) Obligations are not discounted.
(2) Long-term debt includes short-term portion of debt and excludes finance lease obligations.

The operating lease obligations are mainly related to rental of buildings. A number of these leases originate
from sale-and-leaseback arrangements. As of 31 December 2015, the Group did not have any finance leaseobligations. See Note E.24 to the Combined Financial Statements for more information.
The Group does not have any material commitments for capital expenditures.
The Group’s policy is to provide guarantees and other letters of support only in writing. The Group does notstand by other forms of support. The Group had no guarantees recognized on the balance sheet as of
31 December 2015, 2014 or 2013. Off-balance-sheet business and credit-related guarantees provided on behalf ofthird parties and associates as of 31 December 2015 amounted to €8 million, compared to €9 million as of
31 December 2014 and €11 million as of 31 December 2013.
The Group is subject to environmental laws and regulations. Under these laws and regulations, the Groupmay be required to remediate the effects of the release or disposal of certain chemicals on the environment.
The Group is involved as a party in legal proceedings, regulatory and other governmental proceedings,
including discussions on potential remedial actions, relating to such matters as commercial transactions, productliability, participations and environmental pollution. In respect of labor related litigation, the Group is involved inseveral proceedings relating to former employees. These proceedings consist of individual claims in various
jurisdictions and a collective claim before a federal public prosecutor in South America. These claims areassessed on a case-by-case basis and are in various phases of litigation. Please also refer to “Business—Legal
Proceedings” and Note E.26 to the Combined Financial Statements. Since the ultimate disposition of asserted
claims and proceedings and investigations cannot be predicted with certainty, an adverse outcome could have amaterial adverse effect on the Group’s financial position, results of operations and cash flows.
Financial Risk Management
The Group is exposed to several types of financial risks, including liquidity risk, currency risk, commodity
price risk, credit risk and country risk. Please see Note E.30 to the Combined Financial Statements for a
discussion of the liquidity risk, currency risk, commodity price risk, credit risk and country risk faced by theGroup.
In relation to liquidity risk, the Group expects that, following completion of the Offering, capital
expenditures, working capital requirements and acquisitions will be financed through cash flows from operating
activities, cash and cash equivalents on balance sheet following draw down of its new five-year approximately€1,200 million equivalent Term Loan Facility and the application of proceeds thereof, and its new five-year€500 million equivalent Revolving Credit Facility. The Group’s participation in the Royal Philips funding
program is expected to be replaced in the third quarter of 2016 by a funding program operated by Philips
Lighting Holding B.V., a subsidiary of the Group, that will provide cash pooling arrangements, clearing and156

settlement of intra-group and external payables and receivables and financing and liquidity investment
opportunities to participating members of the Group. The liabilities owed by the Group to Royal Philips will be
repaid shortly prior to or following the Settlement Date financed by borrowings under the Term Loan Facility,
see “—Financing Structure Following the Offering”.
Critical Accounting Estimates
The preparation of the Combined Financial Statements in conformity with IFRS requires the Group to makejudgements, estimates and assumptions that affect the application of accounting policies, the reported amounts ofassets, liabilities, income and expenses and assumptions that affect amounts reported in the Combined Financial
Statements. These estimates inherently contain a degree of uncertainty. Actual results may differ from theseestimates.
These estimates and judgements are evaluated by the Group on an on-going basis and are based on historicalexperience, current and expected future outcomes, third-party evaluations and various other assumptions that areconsidered reasonable under the circumstances. The results of these estimates form the basis for making
judgements about the carrying values of assets and liabilities as well as identifying and assessing the accounting
treatment with respect to commitments and contingencies. The Group revises material estimates if changes occur
in the circumstances or there is new information or experience on which an estimate was or can be based.
The areas which relate to the most significant judgements and estimates of the Group are listed below.
Goodwill and other intangible assets
The Group has recognized significant balances of goodwill, customer relationships, brand names andtechnology as intangible assets. Furthermore, 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, iscapitalized as an intangible asset if the product or process is technically and commercially feasible and the Group
has sufficient resources and the intention to complete development.
Impairment of goodwill and intangible assets not yet ready for use
Further judgement is applied when analyzing impairments of goodwill and intangible assets not ready foruse. Goodwill, intangible assets not yet ready for use are not amortized but tested for impairment annually andwhenever impairment indicators require impairment testing. The Group performed and completed annual
impairment tests in the same quarter of all years presented in the income statement included in the Combined
Financial Statements. An impairment loss is recognized in the Combined Financial Statements whenever and to
the extent that the carrying amount of a cash-generating unit exceeds the unit’s recoverable amount, which is thegreater of its value in use and fair value less costs to sell. Value in use is measured as the present value of future
cash flows expected to be generated by the asset.
Impairment of non-financial assets other than goodwill, intangible assets not yet ready for use, inventories
and deferred tax assets
Non-financial assets other than goodwill, intangible assets not yet ready for use, inventories and deferred tax
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is recognized andmeasured by a comparison of the carrying amount of an asset with the greater of its value in use and fair valueless cost to sell. Value in use is measured as the present value of future cash flows expected to be generated by
the asset. If the carrying amount of an asset is deemed not recoverable, an impairment charge is recognized in theamount by which the carrying amount of the asset exceeds the recoverable amount. The review for impairment iscarried out at the level where cash flows occur that are independent of other cash flows.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that theloss has decreased or no longer exists. An impairment loss is reversed if and to the extent that there has been achange in estimates used to determine the recoverable amount. The loss is reversed only to the extent that theasset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been recognized. Reversals of impairment are recognizedin the income statement in the Combined Financial Statements.
Deferred tax asset recoverability and other tax liabilities
The evaluation of the recoverability of deferred tax assets requires judgement about the future taxable
profitability of the legal entity holding the tax loss carry forward. A lack of future taxable profits or taxable
profits below the level of current estimates, may cause deferred tax assets to be impaired.
Other tax liabilities include liabilities for uncertain tax positions which are recognized when it is probablethat additional tax will be due. Actual tax assessments in relation to these other tax liabilities may significantly
deviate from estimates.
157

In determining the amount of current and deferred income tax, the Group takes into account the impact ofother tax liabilities and whether additional taxes and interest may be due. This assessment relies on estimates andassumptions and may involve a series of judgements about future events. New information may become available
that causes the Group to change its judgement regarding the adequacy of existing tax liabilities; such changes totax liabilities will impact the income tax expense in the period that such a determination is made.
Revenue recognition
Commercial agreements may contain multiple elements. The separate accounting for each of these elements
based on its fair value requires judgement.
Useful lives of intangible and tangible assets
Acquired finite-lived intangible assets are amortized using the straight-line method over their estimateduseful life. The useful lives are evaluated annually. Patents and trademarks with a finite useful life acquired fromthird parties either separately or as part of a business combination are capitalized at cost and amortized over theirremaining useful lives. Amortization of capitalized development expenditure is charged to the income statementin the Combined Financial Statements on a straight-line basis over the estimated useful lives of the intangible
assets.
Inventory valuation and obsolescence provision
Due to price erosion and technological developments, inventory valuation requires forward looking
estimates on future sales levels, future price erosion and related expected gross margin percentages. On eachreporting date, the Group performs an analysis of net realizable values and determines the lower of cost and net
realizable value to measure its inventories.
Estimation of allowances for doubtful accounts
The Group determines the present value of estimated future cash flows through the use of allowances for
doubtful accounts based on an individual or collective assessment of the collectability of trade and otherreceivables. Allowances for doubtful accounts are applied to trade and other receivables where events or changes
in circumstances indicate that the balances may not be collectible. The identification of doubtful debtors requires
the use of judgement and estimates. Where the expectation is different from the original estimate, such difference
will impact the carrying amount of receivables and doubtful debt expense in the period in which such estimate ischanged.
Provisions
In order to recognize a provision, it is necessary to reliably estimate the present obligation. Further
judgement is required to determine the likelihood of an outflow of economic benefits.
Fair value of derivatives and other financial instruments
The Group manages their exposure on foreign currency purchases and sales using forward foreign exchange
contracts, which are reported at fair value. The fair value of the forward foreign exchange contracts has been
determined using discounted cash flow calculations using directly observable market inputs (level 2).
Contingent liabilities
The Group had certain guarantees, environmental remediation and legal proceedings at the reporting dates.
Significant judgement is required in determining whether it is probable that an outflow of resources will be
required to settle, in which case an accrual for the potential settlement is recognized.
Basis of allocation
The nature of the Combined Financial Statements requires management of the Group to make estimates of areasonable assignment or allocation for assets, liabilities and costs shared with other businesses of Royal Philips.
These allocations were performed in a manner deemed reasonable by management of the Group and are
explained in Note C to the Combined Financial Statements. Different allocation methods could have resulted indifferent outcomes.
The basis of allocation is therefore not necessarily representative of the assets, liabilities or costs that would
have been reported if the Group operated on its own or as an entity independent from Royal Philips during theperiods presented, nor is it indicative of the assets, liabilities or costs that may arise in the future.
Changes in Accounting Policies and Disclosures
For a summary of changes in accounting policies and disclosures, please see Note D.26 to the Combined
Financial Statements.
158

Non-IFRS Financial Measures
Certain parts of this Prospectus contain financial measures that are not measures of financial performance or
liquidity under IFRS. These are commonly referred to as non-IFRS financial measures and include such items ascomparable sales growth, adjusted gross margin, EBITA, adjusted EBITA, EBITDA, adjusted EBITDA and free
cash flow, and other related ratios.
Although the non-IFRS financial measures presented are not measures of financial performance or liquidity
under IFRS, the Group uses these measures to monitor the underlying performance of its business and operations.
These measures have not been audited or reviewed by the Company’s accountants. Further, these measures may
not be indicative of the Group’s historical operating results, nor are such measures meant to be predictive of theGroup’s future results. These measures are presented in this Prospectus because the Group considers them animportant supplemental measure of its performance and believes that these and similar measures are widely usedin the industry in which the Group operates as a means of evaluating a company’s operating performance andliquidity.
However, not all companies calculate non-IFRS financial measures in the same manner or on a consistentbasis. As a result, these measures and ratios may not be comparable to measures used by other companies under
the same or similar names or captions. Accordingly, undue reliance should not be placed on the non-IFRS
financial measures contained in this Prospectus. These measures should not be considered as a substitute for
operating profit, profit for the year, cash flow or other financial measures computed in accordance with IFRS.
The presentation of the non-IFRS financial measures in this Prospectus should not be construed as animplication that the Group’s future results will be unaffected by exceptional or non-recurring items.
Adjusting items
The Group presents certain non-IFRS financial measures, including adjusted gross margin, adjusted EBITA
and adjusted EBITDA, and related ratios, giving effect to adjustments for restructuring costs, acquisition-related
charges and other incidental charges. The Group discloses adjustments for restructuring costs, acquisition-related
charges and other incidental charges in order to provide these supplemental non-IFRS financial measures, as theGroup believes these supplemental non-IFRS financial measures are meaningful to evaluate the Group’s
financial performance on a comparable basis over time by factoring out restructuring costs, acquisition-related
charges and other incidental charges which are not directly related to the operational performance the Group.
These supplemental non-IFRS financial measures are used by the Group as key financial measures to assess theoperating performance of the Group and, in the case of adjusted EBITDA and adjusted EBITA ratio, theperformance of the Business Groups. These supplemental non-IFRS financial measures may be subject tolimitations as an analytical tool for investors, as they exclude restructuring costs, acquisition-related charges andother incidental charges and therefore do not reflect the expense associated with such items, which may besignificant and have a significant effect on the Group’s income from operations.
In the Combined Financial Statements, costs which the Group discloses as restructuring costs, acquisitionrelated charges and other incidental charges are included in the line items cost of sales, selling expenses, R&D
expenses or general and administrative expenses, depending on the nature of the restructuring costs, acquisitionrelated charges or other incidental charges.
Restructuring costs
The Group defines restructuring costs as the estimated costs of initiated reorganizations, the most significantof which have been approved by the Group, and which generally involve the realignment of certain parts of theindustrial and commercial organization. When such reorganizations require discontinuance and/or closure oflines of activities, the anticipated costs of closure or discontinuance are included in restructuring provisions. A
liability is recognized for those costs only when the Group has a detailed formal plan for the restructuring andhas raised a valid expectation with those affected that it will carry out the restructuring by beginning to
implement that plan or announcing its main features to those affected by it. Before a provision is established, theGroup recognizes any impairment loss on the assets associated with the restructuring.
Acquisition-related charges
The Group defines acquisition-related charges as significant costs that are directly triggered by theacquisition of a company, such as transaction costs, purchase accounting related costs and integration-related
expenses.
Other incidental charges
The Group defines other incidental charges as any item (also called event) with an income statement impact(loss or gain) that is deemed to be both significant and not part of normal business activity. Other incidental
charges may extend over several quarters within the same financial year.
159Comparable sales growth (unaudited)
The Group defines comparable sales growth as the period-on-period growth in sales excluding the effects ofcurrency movements and changes in consolidation.
Effects of currency movements
The Group presents the Combined Financial Statements and Condensed Combined Interim Financial
Statements in euros. However, a significant proportion of the Group’s sales and income are generated in otherfunctional currencies. The Group’s sales and income are translated from foreign currencies into the Company’s
reporting currency, the euro, at the exchange rate on the respective transaction dates during the respective
periods. As a result of significant currency movements during the periods presented, the effects of translating
foreign currency sales amounts into euro could have a material impact, and converting figures from various
currencies into euro affects the comparability of the Group’s results of operations and financial position between
the reporting periods when the exchange rates for these currencies fluctuate. Therefore, the effects of currency
movements have been excluded in arriving at comparable sales in euro. The effects of currency movements havebeen calculated by translating previous periods’ foreign currency sales amounts into euro at the following
periods’ exchange rates in comparison with the sales in euro as historically reported.
Effects of changes in consolidation
In addition, the effects of changes in consolidation as a result of acquisitions or divestments on the Group’s
sales affect the comparability of the periods presented in the Combined Financial Statements and Condensed
Combined Interim Financial Statements. The years under review were characterized by a number of acquisitions
and divestments, as a result of which certain entities were consolidated or de-consolidated. The effect ofconsolidation changes has also been excluded in arriving at the comparable sales. The effects of changes in
consolidation are calculated for purposes of calculating the comparable sales growth percentage. The effects ofchanges in consolidation, in the event a previously consolidated business is sold or contributed to a venture thatis not consolidated by the Group, are calculated by excluding relevant sales from impacted prior periods. The
effects of changes in consolidation (e.g., in the event a business is acquired) are calculated by excluding relevant
sales from impacted prior periods. Changes in consolidation during a period have pro rata effects in the periods
following the change in consolidation, as the effect of change in consolidation impacts during the year of
consolidation or de-consolidation only those reporting months during which the newly consolidated business was
already consolidated by the Group or the de-consolidated business was no longer consolidated by the Group,
respectively. Thus, in the following period, there is an effect of change in consolidation on the remaining months
during which the newly consolidated business was not yet consolidated by the Group or the de-consolidated
business was still consolidated by the Group, respectively.
Reconciliation of comparable sales growth
The Group discloses comparable sales growth as a supplemental non-IFRS financial measure, as the Group
believes that the presentation of comparable sales growth is a meaningful measure for investors to evaluate theperformance of the Group’s business activities over time. The Group determines comparable sales growth bydeducting the percentage figures for changes from the nominal change of sales. Interaction effects between
currency movements and changes in consolidation (second order effects) are not taken into account. The Group
presents comparable sales growth on both a Business Group and Market Group basis. Comparable sales growth isalso used by the Group as key financial measures to assess the operating performance of the Business Groups andMarket Groups.
Comparable sales growth may be subject to limitations as an analytical tool for investors, as comparable
sales growth figures are not adjusted for other effects, such as increases or decreases in prices or quantity/
volume. In addition, interaction effects between currency movements and changes in consolidation (second ordereffects) are not taken into account.

160

The following table sets forth the reconciliation of sales to comparable sales growth by Business Group forthe three month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
BG
Lamps

BG
LED

For the three month period ended 31 March 2016
(unaudited)
Sales for the three month period ended
31 March 2015 . . . . . . . . . . . . . . . . . . . . . . . . . .

727

275

610

112

3

1,727

Effects of currency movements . . . . . . . . . . . . . . . .
Effects of changes in consolidation . . . . . . . . . . . . .

(9)
—

(1)
—

1
—

—
—

—
—

(9)
—

Comparable sales for the three month period
ended 31 March 2015 . . . . . . . . . . . . . . . . . . . . .

718

274

611

112

3

1,718

Comparable sales growth . . . . . . . . . . . . . . . . . . . . .

(104)

79

(13)

12

4

(22)

Comparable sales for the three month period
ended 31 March 2016 . . . . . . . . . . . . . . . . . . . . .

614

353

598

124

7

1,696

—

—

—
2

3

—
—

—
—

—

1

Sales for the three month period ended
31 March 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .

615

355

601

124

7

1,702

Comparable sales growth (%) . . . . . . . . . . . . . . . . .

(14.5)%

28.8%(2.1)%

10.7%

133.3%(1.3)%For the year ended 31 December 2015
Sales for the year ended 31 December 2014 . . . . .

3,119

958

2,420

482

2

6,981

Effects of currency movements . . . . . . . . . . . . . . . .
Effects of changes in consolidation . . . . . . . . . . . . .

275
(4)

90
2

202
(31)

35
—

—
—

602
(33)

Comparable sales for the year ended
31 December 2014 . . . . . . . . . . . . . . . . . . . . . . .

3,390

1,050

2,591

517

2

7,550

Comparable sales growth . . . . . . . . . . . . . . . . . . . . .

(539)

284

(18)

(2)

7

(268)

Comparable sales for the year ended
31 December 2015 . . . . . . . . . . . . . . . . . . . . . . .

2,851

1,334

2,573

515

9

7,282

Effects of changes in consolidation . . . . . . . . . . . . .
Effects of currency movements . . . . . . . . . . . . . . . .

—
(1)

—
—

186
(2)

—
—

—
—

186
(3)

For the year ended 31 December 2014
Sales for the year ended 31 December 2015 . . . . .

2,850

1,334

2,757

515

9

7,465

Comparable sales growth (%) . . . . . . . . . . . . . . . . .

(15.9)%

27.0%(0.7)%(0.4)%

350.0%(3.5)%

Sales for the year ended 31 December 2013 . . . . .

3,557

772

2,308

490

2

7,129

Effects of currency movements . . . . . . . . . . . . . . . .
Effects of changes in consolidation . . . . . . . . . . . . .

(111)
(1)

(15)
—

(40)
(12)

(7)
(1)

—
—

(173)
(14)

Comparable sales for the year ended
31 December 2013 . . . . . . . . . . . . . . . . . . . . . . .

3,445

757

2,256

482

Comparable sales growth . . . . . . . . . . . . . . . . . . . . .

(326)

199

74

(2)

Comparable sales for the year ended
31 December 2014 . . . . . . . . . . . . . . . . . . . . . . .

3,119

956

2,330

480

2

6,887

Effects of changes in consolidation . . . . . . . . . . . . .
Effects of currency movements . . . . . . . . . . . . . . . .

—
—

—

86
4

2

2

—

—
—

88
6

Sales for the year ended 31 December 2014 . . . . .

3,119

958

2,420

482

2

6,981

Comparable sales growth (%) . . . . . . . . . . . . . . . . .

(9.5)%

26.3%

3.3%

(0.4)%In € millions, except percentages

Effects of changes in consolidation . . . . . . . . . . . . .
Effects of currency movements . . . . . . . . . . . . . . . .

161

BG
Professional

BG
Home

Other

Total

6

2
—

—

6,942
(55)

(0.8)%

The following table sets forth the reconciliation of sales to comparable sales growth by Market Group forthe three month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
EuropeAmericas

GrowthMarkets

Greater
China

GlobalBusinesses

Total

For the three month period ended 31 March 2016
(unaudited)
Sales for the three month period ended
31 March 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .

561

538

369

138

121

1,727

Effects of currency movements . . . . . . . . . . . . . . . .
Effects of changes in consolidation . . . . . . . . . . . . .

2
(4)

—
—

(14)
3

2
(1)

1
2

(9)
—

Comparable sales for the three month period
ended 31 March 2015 . . . . . . . . . . . . . . . . . . . . .

559

538

358

139

124

1,718

Comparable sales growth . . . . . . . . . . . . . . . . . . . . .

(24)

15

(12)

(4)

3

(22)

Comparable sales for the three month period
ended 31 March 2016 . . . . . . . . . . . . . . . . . . . . .

535

553

346

135

127

1,696

Effects of changes in consolidation . . . . . . . . . . . . .
Effects of currency movements . . . . . . . . . . . . . . . .

1
(3)

—

(1)
5

—

—

2

1

1

—
6

Sales for the three month period ended
31 March 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .

533

555

350

136

128

1,702

Comparable sales growth (%) . . . . . . . . . . . . . . . . . .

(4.3)%

2.8%(3.4)%(2.9)%

2.4%(1.3)%For the year ended 31 December 2015
Sales for the year ended 31 December 2014 . . . . .

2,311

2,156

1,450

624

440

6,981

Effects of currency movements . . . . . . . . . . . . . . . .
Effects of changes in consolidation . . . . . . . . . . . . .

31
(4)

317
(25)

117
6

102
—

35
(10)

602
(33)

Comparable sales for the year ended
31 December 2014 . . . . . . . . . . . . . . . . . . . . . . . .

2,338

2,448

1,573

726

465

7,550

Comparable sales growth . . . . . . . . . . . . . . . . . . . . .

(51)

(68)

(33)

(142)

26

(268)

Comparable sales for the year ended
31 December 2015 . . . . . . . . . . . . . . . . . . . . . . . .

2,287

2,380

1,540

584

491

7,282

Effects of changes in consolidation . . . . . . . . . . . . .
Effects of currency movements . . . . . . . . . . . . . . . .

4
(1)

—
—

179
(2)

—
(2)

3
2

186
(3)

Sales for the year ended 31 December 2015 . . . . .

2,290

2,380

1,717

582

496

7,465

Comparable sales growth (%) . . . . . . . . . . . . . . . . . .

(2.2)%(2.8)%(2.1)%(19.6)%

5.6%(3.5)%For the year ended 31 December 2014
Sales for the year ended 31 December 2013 . . . . .

2,297

2,223

1,469

692

448

7,129

Effects of currency movements . . . . . . . . . . . . . . . .
Effects of changes in consolidation . . . . . . . . . . . . .

4
(4)

(73)
—

(95)
14

(7)
—

(2)
(24)

(173)
(14)

Comparable sales for the year ended
31 December 2013 . . . . . . . . . . . . . . . . . . . . . . . .

2,297

2,150

1,388

685

422

6,942

Comparable sales growth . . . . . . . . . . . . . . . . . . . . .

9

9

(16)

(60)

3

(55)

Comparable sales for the year ended
31 December 2014 . . . . . . . . . . . . . . . . . . . . . . . .

2,306

2,159

1,372

625

425

6,887

Effects of changes in consolidation . . . . . . . . . . . . .
Effects of currency movements . . . . . . . . . . . . . . . .

4
1

(5)
2

76
2

—
(1)

13
2

88
6

Sales for the year ended 31 December 2014 . . . . .

2,311

2,156

1,450

624

440

6,981

In € millions, except percentages

Comparable sales growth (%) . . . . . . . . . . . . . . . . . .
0.4%
0.4% (1.2)%(8.8)%
0.7%(0.8)%
Adjusted gross margin ratio (unaudited)
The Group defines adjusted gross margin ratio as gross margin, excluding restructuring costs, acquisitionrelated charges and other incidental charges attributable to cost of sales, divided by sales.
The Group discloses adjusted gross margin ratio as a supplemental non-IFRS financial measure, as theGroup believes it is a meaningful measure to evaluate the Group’s gross margin on a comparable basis over time162without the effects of variations in sales and by factoring out restructuring costs, acquisition-related charges andother incidental charges which are not directly related to the operational performance the Group. Adjusted grossmargin ratio is also used by the Group as key financial measures to assess the operating performance of theGroup. Adjusted gross margin ratio may be subject to limitations as an analytical tool for investors, as it excludes
restructuring costs, acquisition-related charges and other incidental charges and therefore does not reflect theexpense associated with such items, which may be significant and have a significant effect on the Group’s
income from operations.
The following table sets forth the reconciliation of adjusted gross margin ratio to sale and gross margin for
the three month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
For the three month
period ended
31 March(unaudited)
2016
2015

In € millions

For the year ended
31 December
2015
2014
2013

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,702
1,727
7,465
6,981
7,129
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,075) (1,106) (4,810) (4,671) (4,573)
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other incidental charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

627
(13)
—
—

621
(15)
—
—

2,655
(62)
—
(14)

2,310
(192)
(11)
(63)

2,556
(39)
(1)
3

Adjusted gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted gross margin ratio (%) . . . . . . . . . . . . . . . . . . . . . . . .

640
37.6%

636
36.8%

2,731
36.6%

2,576
36.9%

2,593
36.4%

EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA and adjusted EBITDA ratio(unaudited)
The Group defines EBITA as income from operations excluding amortization related to acquisition-related
intangible assets. The Group defines adjusted EBITA as EBITA excluding restructuring costs, acquisition-related
charges and other incidental charges attributable to cost of sales, selling expenses, R&D expenses and generaland administrative expenses. The Group defines adjusted EBITA ratio as adjusted EBITA divided by sales (orsales including intersegment in the case of adjusted EBITA ratio of Business Groups). The Group defines
EBITDA as income from operations excluding depreciation, amortization and impairments of non-financial
assets. See Note E.7 to the Combined Financial Statements for more information. The Group defines adjusted
EBITDA as EBITDA excluding restructuring costs, acquisition-related charges and other incidental charges
attributable to cost of sales, selling expenses, R&D expenses and general and administrative expenses. The
Group defines adjusted EBITDA ratio as adjusted EBITDA divided by sales.
The Group discloses EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA andadjusted EBITDA ratio as supplemental non-IFRS financial measures, as the Group believes they are meaningfulmeasures to evaluate the performance of the Group’s business activities over time. The Group understands thatthese measures are used by analysts, rating agencies and investors in assessing the Group’s performance. The
Group presents EBITA, adjusted EBITA and adjusted EBITA ratio on a Business Group basis. The Group also
believes that the presentation of EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA
and adjusted EBITDA ratio provide useful information to investors on the development of the Group’s business
and, in the case of EBITA, adjusted EBITA, adjusted EBITA ratio and EBITDA, enhances the ability ofinvestors to compare profitability across the Business Groups. In the case of EBITA, the Group believes that
EBITA makes the underlying performance of its businesses more transparent by factoring out the amortization
related to acquisition-related intangible assets, which arises when acquisitions are consolidated by the Group. In
the case of adjusted EBITA and adjusted EBITA ratio, the Group believes that adjusted EBITA and adjusted
EBITA ratio make the underlying performance of its businesses more transparent by factoring out restructuringcosts, acquisition-related charges and other incidental charges which are not directly related to the operational
performance of a Business Group. EBITA, adjusted EBITA and adjusted EBITA ratio are also used by the Group
as key financial measures to assess the operating performance of the Business Groups. In the case of EBITDA,
adjusted EBITDA and adjusted EBITDA ratio, the Group believes that presentation of these measures makes theunderlying cash generating ability of the Business Groups more transparent by adjusting income from operations
for non-cash items.
EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA and adjusted EBITDA may be subject tolimitations as an analytical tool for investors, as EBITA, adjusted EBITA, adjusted EBITA ratio and EBITDA
exclude items such as depreciation, amortization and impairment and do not reflect the expense associated withsuch items, and accordingly do not reflect the full economic effect of the loss in value of the Group’s assets over163

time. Similarly, none of EBITA, adjusted EBITA, adjusted EBITA ratio, EBITDA, adjusted EBITDA or adjusted
EBITDA ratio reflects the impact of the Group’s financial income, financial expense, tax expense or results
relating to investments in associates.
The following table sets forth the reconciliation of income from operations to EBITA, adjusted EBITA andadjusted EBITA ratio for the three month periods ended 31 March 2016 and 2015 and the years ended
31 December 2015, 2014 and 2013.
In € millions

BG
Lamps

BG
LED

113

19

(1)
114
(11)
—
—
125
623
20.1%

BG
Professional

BG Home

Other

Total

(25)

(15)

(21)

71

(1)
20
—
—
—
20
386
5.2%

(26)
1
(4)
(1)
—
6
609
1.0%

(1)
(14)
(2)
—
—
(12)
124
(9.7)%

106

2

(19)

(19)

—
106
(17)
—
—
123
741
16.6%

(1)
3
(2)
—
—
5
295
1.7%

(24)
5
(6)
(1)
—
12
614
2.0%

(1)
(18)
(4)
—
—
(14)
113
(12.4)%

403

66

14

(73)

(2)
405
(52)
—
(6)
463
2,899
16.0%

(4)
70
(2)
—
(2)
74
1,427
5.2%

(100)
114
(26)
(5)
(5)
150
2,775
5.4%

(1)
(72)
(14)
—
(1)
(57)
519
(11.0)%For the three month period ended 31 March 2016
(unaudited)
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
Amortization related to acquisition-related intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . .
Other incidental charges . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA ratio (%) . . . . . . . . . . . . . . . . . . . .

—
(29)
(21)
100
(1)
(18)
—
(1)
(2)
(2)
(18)
121
(40) (1) 1,702—
7.1%(1) Amount includes intersegment sales elimination.

For the three month period ended 31 March 2015
(unaudited)
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
Amortization related to acquisition-related intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . .
Other incidental charges . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA ratio (%) . . . . . . . . . . . . . . . . . . . .

(15)

55

—
(26)
(15)
81
1
(28)
—
(1)
—
0
(16)
110
(36) (1) 1,727—
6.4%(1) Amount includes intersegment sales elimination.

For the year ended 31 December 2015
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
Amortization related to acquisition-related intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . .
Other incidental charges (1) . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA ratio (%) . . . . . . . . . . . . . . . . . . . .

(79)

—
(107)
(79)
438
4
(90)
—
(5)
—
(14)
(83)
547
(155) (2) 7,465—
7.3%(1) Related to intercompany losses of €(14) million across the Business Groups due to foreign exchange rate fluctuations in Argentina.
(2) Amount includes intersegment sales elimination.

164

331

For the year ended 31 December 2014
Income from operations . . . . . . . . . . . . . . . . . . . . . . .
356(62)
Amortization related to acquisition-related intangible
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)(3)
EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
358(59)
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(154)
(5)
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . .
—
—
6
(68)
Other incidental charges (1) . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
506
14
Sales including intersegment . . . . . . . . . . . . . . . . . . . .
3,181 1,025
Adjusted EBITA ratio (%) . . . . . . . . . . . . . . . . . . . . . 15.9% 1.4%

(56)

(70)

(101)
45
(41)
(20)
4
102
2,433
4.2%

(2)
(68)
(22)
—
—
(46)
485
(9.5)%

(127)

41

—
(108)
(127)
149
(39)
(261)
—
(20)
12
(46)
(100)
476
(143) (2) 6,981—
6.8%(1) Related to pension past service cost gains of €22 million across the Group for the year ended 31 December 2014 and impairment of
OLED of €(68) million in BG LED. Pension past service cost gains relate to lower defined-benefit obligations of Royal Philips in the
Netherlands as a result of mandatory plan changes, for which gains were allocated to the Group in respect of its relevant employees in the
Netherlands.
(2) Amount includes intersegment sales elimination.

For the year ended 31 December 2013
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .

586

(20)

(75)

(152)

(126)

213

Amortization related to acquisition-related intangible
assets (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1)

(4)

(100)

(62)

—

(167)

EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

587

(16)

25

(90)

(126)

380

Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . .
Other incidental charges (2) . . . . . . . . . . . . . . . . . . . . . . . . .

(21)
—
7

—
—
1

(22)
(6)
2

(33)
—
—

(3)
—
2

(79)
(6)
12

Adjusted EBITA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales including intersegment . . . . . . . . . . . . . . . . . . . . . . .

601
3,658

(17)
828

51
2,337

(57)
492

(125)
453
(186) (3) 7,129

Adjusted EBITA ratio (%) . . . . . . . . . . . . . . . . . . . . . . .

16.4%(2.1)%

2.2%(11.6)%—

6.4%(1) Includes €(32) million impairment of customer relationships in BG Home and €(26) million impairment of goodwill in BG Home.
(2) Related to pension past service cost gains of €12 million across the Group for the year ended 31 December 2013. Pension past service
cost gains relate to lower defined-benefit obligations of Royal Philips in the United States as a result of freeze of accruals, for whichgains were allocated to the Group in respect of its relevant employees in the United States.
(3) Amount includes intersegment sales elimination.

165

The following table sets forth the reconciliation of income from operations to EBITDA for the three month
periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
BG
Lamps

BG
LED

BG
Professional

BG
Home

Other

Total

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113

19

(25)

(15)

(21)

71

Depreciation, amortization & impairments of non-financial
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(23)

(5)

(38)

(3)

(9)

(78)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

136

24

13

(12)

(12)

149

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

106

2

(19)

(19)

(15)

55

Depreciation, amortization & impairments of non-financial
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(20)

(4)

(36)

(3)

(10)

(73)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

126

6

17

(16)

(5)

128

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

403

66

14

(73)

(79)

331

Depreciation, amortization & impairments of non-financial
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(89)

(20)

(155)

(14)

(37)

(315)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

492

86

169

(59)

(42)

646

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

356

(62)

(56)

(70)

(127)

41

Depreciation, amortization & impairments of non-financial
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(118)

(73)

(149)

(10)

(31)

(381)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

474

11

93

(60)

(96)

422

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

586

(20)

(75)

(152)

(126)

213

Depreciation, amortization & impairments of non-financial
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(104)

(19)

(155)

(78)

(34)

(390)

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

690

(1)

80

(74)

(92)

603

In € millions

For the three month period ended 31 March 2016
(unaudited)

For the three month period ended 31 March 2015
(unaudited)

For the year ended 31 December 2015

For the year ended 31 December 2014

For the year ended 31 December 2013

The following table sets forth the reconciliation of EBITDA to adjusted EBITDA and adjusted EBITDA
ratio for the three month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014
and 2013.
For the three month
period ended
31 March
2016
2015

In € millions

For the year ended
31 December
2015
2014
2013

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

149

128

646

422

603

Restructuring costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other incidental charges (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9)
(1)
(2)

(26)
(1)
—

(74)
(5)
(14)

(225)
(20)
2

(61)
(6)
11

Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

161

155

739

665

659

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,702

1,727

7,465

6,981

7,129

Adjusted EBITDA ratio (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.5%

9.0%

9.9%

9.5%

9.2%

(1) Excludes restructuring costs and other incidental charges already deducted as depreciation, amortization and impairments of nonfinancial assets.

166

Net capital expenditures
The Group defines net capital expenditures as additions of intangible assets, capital expenditures onproperty, plant and equipment and proceeds from disposal of property, plant and equipment.
The Group discloses net capital expenditures by Business Group as a supplemental non-IFRS financial
measure, as the Group believes it is a meaningful measure to evaluate the performance of the Group’s businessactivities over time. The Group believes presentation of net capital expenditures provides useful information toinvestors regarding the amount of capital expenditures each Business Group has made excluding purchases ofbusinesses. The Group also uses net capital expenditures to calculate free cash flow, as described below.
Net capital expenditures may be subject to limitations as an analytical tool for investors as net capital
expenditures represents a limited subset of the Group’s overall investment expenditures and does not include
purchases of businesses, which may be significant.
The following table sets forth the reconciliation of net capital expenditures for the three month periods
ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
BG
Lamps

BG
LED

BG
Professional

BG
Home

Other

Total

Additions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment . . . . . .

—
(4)

(1)
(2)

(2)
(6)

—
(1)

(1)
(3)

(4)
(16)

Gross capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)

(3)

(8)

(1)

(4)

(20)

Proceeds from disposal of property, plant and equipment . . . .

1

—

—

—

1

2

Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)

(3)

(8)

(1)

(3)

(18)

Additions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment . . . . . .

—
(7)

(4)
(2)

(3)
(5)

(1)
(6)

—
—

(8)
(20)

Gross capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)

(6)

(8)

(7)

—

(28)

Proceeds from disposal of property, plant and equipment . . . .

—

—

—

—

—

—

Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7)

(6)

(8)

(7)

—

(28)

Additions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment . . . . . .

(1)
(32)

(9)
(16)

(24)
(29)

(3)
(11)

(1)
(10)

(38)
(98)

Gross capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .

(33)

(25)

(53)

(14)

(11)

(136)

Proceeds from disposal of property, plant and equipment . . . .

14

—

(3)

11

29

51

Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(19)

(25)

(56)

(3)

18

(85)

Additions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment . . . . . .

4
(38)

(15)
(12)

(10)
(30)

(3)
(6)

(27)
(23)

(51)
(109)

Gross capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .

(34)

(27)

(40)

(9)

(50)

(160)

Proceeds from disposal of property, plant and equipment . . . .

1

—

14

—

22

37

Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(33)

(27)

(26)

(9)

(28)

(123)

Additions of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures on property, plant and equipment . . . . . .

(4)
(46)

(14)
(15)

(12)
(52)

(3)
(4)

(5)
(42)

(38)
(159)

Gross capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .

(50)

(29)

(64)

(7)

(47)

(197)

Proceeds from disposal of property, plant and equipment . . . .

5

—

7

1

6

19

Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(45)

(29)

(57)

(6)

(41)

(178)

In € millions

For the three month period ended 31 March 2016
(unaudited)

For the three month period ended 31 March 2015
(unaudited)

For the year ended 31 December 2015

For the year ended 31 December 2014

For the year ended 31 December 2013167

Free cash flow (unaudited)
The Group defines free cash flow as net cash provided by operations minus net capital expenditures. Free
cash flow as calculated by the Group includes interest paid and income taxes paid. For more information oninterest paid and income taxes paid for the three month periods ended 31 March 2016 and 2015 and the years
ended 31 December 2015, 2014 and 2013, see the Condensed Combined Interim Financial Statements and the
Combined Financial Statements, respectively.
The Group discloses free cash flow as a supplemental non-IFRS financial measure, as the Group believes it
is a meaningful measure to evaluate the performance of the Group’s business activities over time. The Group
understands that free cash flow is broadly used by analysts, rating agencies and investors in assessing theGroup’s performance. The Group also believes that the presentation of free cash flow provides useful
information to investors regarding the cash generated by the Group’s operations after deducting cash outflows for
additions of intangible assets, capital expenditures on property, plant and equipment and proceeds from disposalof property, plant and equipment. Therefore, the measure gives an indication of the long-term cash generating
ability of the Group’s business. In addition, because free cash flow is not impacted by purchases of businesses, it
is less volatile than the total of net cash provided by / (used in) operating activities and net cash provided by /(used in) investing activities. Free cash flow is also used by the Group as a key financial measure to assess theoperating performance of the Group.
Free cash flow may be subject to limitations as an analytical tool for investors, as free cash flow is not ameasure of cash generated by operations available exclusively for discretionary expenditures and the Grouprequires funds in addition to those required for capital expenditures for a wide variety of non-discretionary
expenditures, such as payments on outstanding debt, dividend payments or other operating expenditures. In
addition, free cash flow does not reflect cash payments that may be required in future periods in relation to
restructuring costs already incurred.
The following table sets forth the reconciliation of net cash provided by operations to free cash flow for thethree month periods ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
For the three month
period ended
31 March(unaudited)
2016
2015

In € millions

For theyear ended
31 December
2015
2014
2013

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .

(60)

184

717

478

262

Net capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(18)

(28)

(85)

(123)

(178)

Free cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(78)

156

632

355

84

168

INDUSTRY AND COMPETITION
Sources of Information Presented in this Section
The information presented in this section is taken or derived from a number of third party sources whereindicated. Unless indicated otherwise, figures (including future estimates) included in this section referring to thelighting market have been sourced from the BCG Report, which is publicly available through its website, andhave been converted to euros. The market value as defined by the BCG is based on average manufacturer’s sales
price and does not include inflation. The BCG projections assume a constant 2014 exchange rate of € 1.00 =USD 1.3269 through 2020. In addition, certain other statements below are based on the Group’s own proprietary
information, opinions or estimates and not on any third-party or independent source; these statements containwords such as “the Group believes”, “the Group expects”, “the Group estimates”, “the Group sees”, “the Group
perceives” and as such do not purport to cite, refer to or summarize any third-party or independent source andshould not be read as such. See “Important Information—Market and Industry Information”.
Overview of Lighting Products and Technologies
The Group has a long history in the development and production of lighting technologies and light sources.
Currently, its product portfolio includes the following established and emerging technologies.
Conventional lamps
Conventional lamps are all non-LED based light emitting light sources, including incandescent lamps,
halogen lamps, fluorescent lamps and HID lamps.
An incandescent lamp is a conventional lamp that produces visible light by heating a tungsten filament
inside a glass bulb usually filled with an inert gas. The bulb prevents the hot filament from oxidation. Energy
efficiency is relatively low as most of the energy released by the lamp is in the form of heat rather than light. The
lifespan of an incandescent lamp typically ranges from approximately 1,400 hours up to 2,000 hours.9 Standard
incandescent lamps have been banned in most developed countries including the United States and countries in
Europe, whilst China and Brazil are in the process of phasing out incandescent lamps with higher wattages.
A halogen lamp is a type of incandescent lamp with a capsule that holds a special halogen gas composition
around the heated filament to increase the efficacy of the incandescence. Halogen lamps are more energy
efficient than standard incandescent bulbs but also more costly. The lifespan of halogen lamps typically ranges
from approximately 1,200 hours up to 4,100 hours.10 The European Commission has passed regulations phasingout most halogen lamp types by 2018 and the United States and China are expected to soon follow.
A fluorescent lamp produces light with an electric current conducted through an inert gas producing
ultraviolet light that is invisible to the human eye. The ultraviolet light in turn interacts with special blends ofphosphor coating on the interior surface of the fluorescent lamp tube that efficiently converts the invisible lightinto visible white light. These lamps require electronics to regulate the electricity current. Fluorescent lamps canbe either linear or compact:•

Linear fluorescent light (“LFL”): LFLs are longitudinal or circular gas-discharge lamps, often called tubularlinear (“TL”) lamps. They are popular for commercial and industrial buildings, and are usually identified as
T12, T8 or T5 based on their diameter. The lifespan of LFLs typically ranges from approximately 12,000
hours up to 30,000 hours.11 LFLs are more energy efficient than incandescent lamps and have a color
rendering close to daylight, making them particularly suited to illumination of large indoor areas.

•

Compact fluorescent light (“CFL”): CFLs usually combine a fluorescent light with an incandescent fixture.
There are two types of CFLs, the integrated CFLs (“CFLi”), which have the driver integrated in the lamp
and are mainly being used in home applications, and the non-integrated CFLs (“CFLni” or “CFLn”),
without an integrated driver, which are mainly used in office and hospitality applications. The lifespan of
CFLs typically ranges from approximately 10,000 hours up to 12,000 hours.12 CFLs are more energy
efficient and have a longer lifespan than incandescent lamps, however they require a warm-up period before
achieving full brightness, and contain a small amount of mercury.

HID lamps use electricity arcs between two electrodes to create an intensely bright light where mercury,sodium, or metal halide gas act as the conductor. The lifespan of HID lamps typically ranges from approximately
12,000 hours up to 25,000 hours.13 HID lamps have the advantage of providing high lumen lighting in a small
9
10
11
12
13

Source: U.S. Department of Energy (“DoE”), Energy Savings Potential of SSL, August 2014, pages 41-44.
Source: DoE, Energy Savings Potential of SSL, August 2014, pages 41-44.
Source: DoE, Energy Savings Potential of SSL, August 2014, pages 41-44.
Source: DoE, Energy Savings Potential of SSL, August 2014, pages 41-44.
Source: DoE, Energy Savings Potential of SSL, August 2014, pages 41-44.

169

size light bulb, and with less energy cost than incandescent lamps. However, HID lamps require warm-up time toachieve full brightness. HID lamps are mainly used in professional applications, such as road, street and stadium
lighting or retail illumination.
LED lamps
An LED lamp is a solid-state semiconductor device that converts electrical energy directly into light. The
actual light source of an LED lamp is often very small and integrated optical components may be used to shape
its radiation pattern. LED lamps are designed to fit in conventional sockets (e.g., screw sockets), which can bepart of a conventional luminaire. According to a 2014 DoE study, the lifespan of an LED lamp typically ranges
from approximately 40,000 hours to 50,000 hours.14 However, in 2016 the DoE and the U.S. Environmental
Protection Agency lowered LED lamps lifespan requirements to 15,000 to 25,000 hours, depending on the typeof lamp.15 In the experience of the Group, the lifespan of most LED lamps for consumer usage typically ranges
from 10,000 to 25,000 hours depending on consumer usage preferences, and from 15,000 to 50,000 hours for
professional usage depending on the specific application. LED lamps are the most energy efficient lamps
available, have the longest lifespan and create less heat than conventional lamps during use, but the initialpurchase price is higher than conventional lamps and they are currently not suited for all applications as a resultof technological limitations (e.g., small size, high lumen applications).
LED lamps are typically divided into three categories: LED bulbs, LED spots and tubular LED lamps. The
shape of LED bulbs allows them to emit uniform light in all directions and they can be placed in luminaires withtraditional screw sockets. LED spots produce a focused beam of light and are often used to replace halogen spots.
Tubular LED lamps can replace conventional TL lamps and can offer a more efficient distribution of light.
Luminaires
The term luminaires refers to electrical devices that produce, control and distribute light. Luminaires arealso called light fixtures. Luminaires consist of one or more light sources, lamps or sockets that connect thelamps to the electrical power (as well as drivers in some luminaires), and the mechanical components required tosupport or attach the housing. Luminaires are designed to provide proper and efficient light distribution for aparticular application. Such applications include consumer luminaires (including decorative (e.g., wall andceiling luminaires, table luminaires) or functional (e.g., spots, outdoor luminaires, desk lights)) and professional
luminaires used for professional applications such as in offices or commercial buildings, shops, the hospitality
sector, warehouses, factories and outdoor (e.g., street lighting, highways and tunnels, parking lots, sports venues
and monuments).
Conventional luminaires are light fixtures with a conventional socket for a conventional lamp or LED lamp.
Conventional lamps in conventional luminaires can be replaced by an LED retrofit lamp.
LED luminaires are light fixtures where LED modules are integrated into the luminaire as light source andcannot be separated from the luminaire by the user. LED luminaires therefore do not need a separate lamp.
Electronics
Electronics are units that regulate the current going through a light source. There are two types ofelectronics: drivers (which can be further divided into lamp drivers and LED drivers) and LED modules.
Lamp drivers are lighting electronics which are needed to operate gas discharge lamps (fluorescent lamps
and HID lamps) and low voltage halogen lamps. Lamp drivers are also known as “transformers”, “ballasts”,“gears” or “control gears”, depending on country, type and application. A lamp driver can drive one or more
lamps and is normally invisible for the end-user in a lighting fixture. A lamp driver changes input voltage,current, and frequency from the grid, into a combination of these suitable to power different lamp types. To starta gas discharge lamp, an initial high voltage “ignition” peak needs to be provided by the lamp driver. After
igniting the lamp, a steady state operation mode takes over. There are two major types of lamp drivers: magnetic
drivers and electronic drivers. Magnetic drivers are based on different sets of copper or aluminum windings, andare combined with an ignitor and capacitor. Magnetic drivers are particularly cost effective in higher wattages
applications (> 250W). Electronic drivers alter the flow of electricity in the lamp by using a series of induction
coils. Electronic drivers, in comparison to magnetic drivers, are in general more energy efficient, provide“flicker-free” lamp operation, can have special sophisticated functions to improve lamp life and lamp
performance during lifespan, have several safety related protections built-in and provide stable lamp operationeven with large input voltage fluctuations.
14
15

Source: DoE, Energy Savings Potential of SSL, August 2014, page 50.
Source: DoE and U.S. Environmental Protection Agency, Energy STAR Program Requirements for Lamps—Eligibility Criteria Version
2.0 (Rev. February 2016).

170

LED drivers are lighting electronics that convert input power into a current which remains constant despite
fluctuations in voltage. An LED driver protects LEDs from normal voltage fluctuations, over-voltages, andvoltage spikes. LED drivers may also offer advanced features like various control inputs, programmablefunctions (dimming schedules, lumen maintenance correction), multi-channel outputs, visual light
communications, energy metering, and self-diagnostics.
LED modules are light generating units around which LED luminaires are built for the purpose of emitting
distributed patterns of light. Such units typically comprise one or more packaged LEDs mounted on a printed
circuit board. These modules may also contain additional features such as mechanical mounting, primary optics/
diffusers, thermal management, power conversion electronics, connectivity interfaces, and/or sensing inputs.
Lighting systems
Lighting systems are the combination of luminaires, controls and software. They refer to the automation andrelated controls of lighting within a room, building or outdoor facilities for end-users defined as professional(professional systems) or as consumer (home systems). Lighting systems can be (i) local/stand alone, with basic
control of the luminaires (e.g., on/off, dimming), (ii) networked, with advanced control of the luminaires (e.g.,rules-based scheduling), or (iii) connected. Connected lighting systems combine intelligent illumination(illumination with the use of software, controls and sensors) with data and connectivity, enabling two-way data
communication. Lighting systems provide customers with enhanced ability to personalize lighting, remotemonitoring and control, improved energy efficiency and operational cost reduction via the combination of energy
efficient light sources and digital controls.
Lighting services
Lighting services refer to services offered to customers building on a lighting system and enabled by data.
Services can be categorized in three categories including (i) professional services, (ii) lifecycle services, and(iii) managed services. Professional services include services such as design, auditing a customer’s lighting
installation or consulting services on potential improvements of lighting efficiency. Lifecycle services relate to
the maintenance or asset management (including spare part management or small retrofits), extended warranty
and data services that enable additional functionality of an existing lighting installation. Managed services cover
the full management of a lighting installation through a performance-based contract. Examples of such managed
services include energy performance contracts or so-called “Light-as-a-Service” contracts. “Light-as-a-Service”
contracts are contracts enabling an integrated solution for customers where customers pay for the provision oflight to their premises, while the Group plans and builds the lighting infrastructure and ensures its performances
until the end of the contract. These contracts reduce the customer’s capital expenditures for lighting equipmentby outsourcing the management and maintenance of the lighting infrastructure.
Lighting Market
Global lighting market
The global lighting market as defined in the BCG Report is composed of three major segments:•

General lighting: This segment comprises the following four categories: (i) lamps (which include both point
and linear lamps), (ii) electronics, (iii) professional (which includes professional luminaires, systems andservices for professional end-customers including offices, retail, industry, governments), and (iv) consumer(which includes consumer luminaires and lighting systems for consumer use in the home);•

Automotive lighting: This segment comprises of all elements of lighting systems in cars including
electronics, luminaires and lamps; and•Backlighting: This segment is made up of the lighting used in devices such as TVs, smartphones and tablets.

The Group’s activities fall within the general lighting segment. The Group is no longer active in theautomotive and backlighting segments after the separation of Royal Philips’ combined LED and automotive
lighting components businesses into a stand-alone company in 2015.
Globally, North America and Europe represent the largest markets in size, representing approximately 45%of the global lighting market by revenue in 2014. However, rapidly developing economies such as China andcountries in Latin America have been key drivers of growth, accounting for approximately 70% of the global
lighting market growth from 2010 through 2014. The estimated sales of the global lighting market are expected
to grow from €84.2 billion in 2014 to €100.3 billion in 2020, representing a compound annual growth rate(“CAGR”) of approximately 3% over this period, in line with its historical growth rate of approximately 3% overthe 2010 to 2014 period. Although overall growth is expected to be in line with historical trends, the dynamics
within the global lighting market are expected to shift significantly because of the transition towards LED
lighting and the adoption of connected lighting systems.
171

General lighting market
The Group’s activities fall within the general lighting segment. The estimated sales of the general lighting
market were €65.6 billion in 2014, and annual sales are forecasted to grow at a CAGR of approximately 3% up to2020, reaching approximately €79.8 billion by 2020. The Group believes that the increase in LED luminaires
sales will be the key driver of the continuing growth of the general lighting market.
The estimated total market profit of the general lighting market, as measured by earnings before interest andtaxes, is expected to grow at a CAGR of 3% to 4% per year from €3.7 billion in 2014 to €4.5 billion by 2020.
This growth is expected to be driven by the increase in market size (most notably in LED luminaires) as margins
are expected to remain broadly constant for the broader general lighting market. However, margins are expected
to decrease for the lamps category, where the transition to LED lamps is expected to negatively impact
profitability in the lamps category in the near term. On the other hand, margins for professional luminaires,
systems and services, and consumer luminaires and systems are expected to increase on the back of the transition
from conventional to LED luminaires which typically have higher margins.
The estimated sales of the general lighting market in Europe are expected to grow from €17.8 billion in2014 to €19.5 billion in 2020. North America is expected to grow from €12.0 billion in 2014 to €13.1 billion in
2020, South America is expected to grow from €4.7 billion in 2014 to €5.6 billion in 2020, Japan is expected to
grow from €5.7 billion in 2014 to €6.2 billion in 2020, Greater China is expected to grow from €9.6 billion in2014 to €14.2 billion in 2020 and the rest of the world is expected to grow from €15.7 billion in 2014 to €21.3
billion in 2020.
Lamps
The overall volume of the total lamps market, including conventional and LED lamps, is anticipated to
decline in the coming years as a result of two underlying trends: (i) reduction in demand for replacement lamps
because of the longer lifespan of LED lamps and longer lasting conventional technologies (e.g., CFL) and (ii) thegrowth in LED luminaires reducing the need for separate light sources. The migration to LED luminaires is
expected to reduce the number of sockets requiring a lamp (as LED luminaires do not have a separate lamp but
instead have a built-in LED light source) and the remaining sockets requiring a lamp will increasingly be filledwith LED lamps. The growth in demand in emerging markets is expected to only partially offset these twotrends. The impact of the declining lamp volumes on market value sales is expected to be somewhat limited by
the higher prices of LED lamps compared to conventional lamps. As a result, it is expected that the total lamps
market (including conventional and LED lamps) will slightly decline at 2% per year up to 2020 in volume. The
estimated sales of the total lamps market are €12.9 billion in 2014 and €11.6 billion in 2020. However, the lamps
market is characterized by diverging underlying dynamics for conventional lamps (which are expected to decline
in volume) and LED lamps (which are expected to increase in volume).
The conventional lamp market size in 2014 was estimated by BCG at approximately €9.8 billion in sales.
BCG expects it to decline to approximately €4.2 billion in sales by 2020, representing an annual decline ofapproximately 13%. The Group, however, expects a more rapid annual decline (a percentage in the low twenties)
over the same period because it anticipates faster declines in prices of LED lamps than BCG driving accelerated
conversion from conventional lamps to LED lamps.
BCG estimates that by 2020 approximately more than 30% of lamp volumes will have moved fromconventional to LED lighting technology. The conventional lamps market is however expected to remain asizeable market through at least 2020 (approximately €4.2 billion in 2020 according to BCG) for the following
reasons (i) conventional lamps remain attractively priced versus LED lamps in many segments, and are an
attractive value proposition for low income population categories in developing countries, (ii) limited retrofit
LED solutions are available in the foreseeable future for high lumen, small size professional lamps and (iii) a
slow rate of refurbishment to LED in selected application areas such as outdoor, where a replacement market for
conventional lamps is expected to continue to exist for a long time. Renovation cycles for luminaires are
relatively long (on average 12 to 15 years) with possibly 35% to 45% of the installed luminaire base beyond 2030
still requiring replacement lamps (conventional or LED lamps).
The LED lamps market size is currently estimated by BCG at approximately €3.1 billion in sales as of 2014
and is expected to increase to approximately €7.3 billion by 2020, representing a CAGR of approximately 15%
over the same period on the back of ongoing volume substitution of conventional lamps by LED lamps. The
Group, however, expects that over the same period market growth of a percentage in the low teens per year up to2020 as a result of its estimate of greater price declines of LED lamps relative to BCG estimates. The Group
expects that this, in turn, will accelerate the transition from conventional lamps to LED lamps, while exerting
downward pressure on the aggregate value of the LED lamps market due to expected lower prices. The rapidtransition to LED lamps is driven by (i) a focus on energy efficiency (see—“Market Trends—Increasing demand172for more efficient light”), (ii) new capabilities and functions, such as the versatility of LED (variety of colors andsizes), and (iii) the continued expected price declines of LED lamps, which are expected to be significantly
higher than price declines of LED luminaires, combined with an increasing focus on the total cost of ownershipof lighting. The total cost of ownership includes the initial cost of lamps and luminaires, as well as the cost of
replacement of the lamps and the energy costs. As LED lamp prices continue to decline, the total cost ofownership calculation is expected to become an even stronger selling point for customers.
Volumes within the LED-lamp segment are expected to grow at an annual rate of more than 30% over the2014 to 2020 period. It is estimated that after 2023 LED lamp volumes will decline as the market continues to
evolve toward a replacement market with a longer replacement cycle and because of increasing use of LED
luminaires which do not need replacement lamps. However, the Group expects that the volume decline in the
LED-lamp segment will start in 2020. The rate of LED adoption is expected to differ between regions. Japan and
China are expected to adopt LED more quickly because of high customer acceptance and stricter regulations,followed by Europe and North America. LED adoption is expected to be somewhat slower in developing
economies in Latin America and Africa as lower initial prices of conventional lamps are attractive for customer
segments with lower levels of disposable income.
It is expected that overall profit margins for the conventional lamps market will remain relatively stable on
the back of anticipated restructuring and other cost reduction programs expected to be undertaken by leading
players that are likely to consolidate the market. The total profits, as measured by earnings before interest andtaxes, for the LED lamps market are currently estimated to be close to breakeven or negative for some players
due to the intense competition and as a result they are expected to remain weak in the coming years. However,within any segment margins can differ significantly per company depending on factors such as the company’sbusiness model, brand and access to distribution channels. The Group is currently profitable in LED lamps andexpects to continue to be so.
The share of HID and fluorescent lamps in the conventional lamps market is projected to increase to 23%
for HID (2010: 13%) and 63% for fluorescent lamps (2010: 56%) by 2020, whilst the share of halogen andincandescent lamps is projected to reduce to 10% for halogen lamps (2010: 20%) and 4% for incandescent lamps(2010: 11%) by 2020.
Evolution of Lamps Volume and Revenues by Technology (2010-2030)

Source: Converted graph from BCG Report, p18.
1Not considered part of the lamps market as integrated LED lamp/luminaire products compete as a solution with replacement LED lamps

used in socket-based luminaires.
Note: These figures are based on current technology efficiency and the assumption of a (slowed) price decline for LED luminaries(electronics) and LED lamps from 2020 through 2030 (for example, the average sales price of an LED lamp point in 2030 is expected to beapproximately €0.74), numbers are highly dependent on the price outlook for 2030. CFL = compact fluorescent lamp; HID = high-intensity
discharge; LED = light-emitting diode; LFL = linear fluorescent lamp

Electronics
BCG expects the electronics market to grow from approximately €6.2 billion in 2014 to approximately€12.0 billion by 2020, implying a CAGR of approximately 12% over the same period. The expansion of theelectronics market is driven by the transition towards LED lighting. Among other reasons, while some173

conventional lighting technologies do not require a driver, all LED lighting products require a driver so themarket for drivers will increase with the transition to LED lighting. The market for drivers is expected to grow by
12% per year from €4.0 billion in 2014 to €7.8 billion in 2020. Modules are also used in LED luminaires and as aresult, this segment is expected to grow rapidly on the back of the growth of the LED luminaires market, which is
expected to grow by 23% per year from €12.9 billion in 2014 to €45.4 billion in 2020. The modules market is
expected to grow by 12% per year from €2.2 billion in 2014 to €4.3 billion in 2020.
Professional luminaires, systems and services
The value of the professional luminaires, systems and services market is expected to grow from
€32.5 billion in 2014 to €39.7 billion in 2020, representing a 3% CAGR over the same period. The expected
growth in the professional market is primarily driven by the transition to LED and connected lighting (see—“Market Trends—Increasing demand for digital lighting”) where professional customers are rapidly replacing
conventional luminaires with LED luminaires. In 2020, approximately 80% of professional luminaires sold involume terms are expected to be LED luminaires. At the same time, approximately 25% of all luminaires sold inrevenue terms are expected to be part of a connected lighting system.
The growth of professional connected lighting systems is expected to create new opportunities in high end,
professional services. The greater functionality of LED will drive demand for consulting and design services. In
addition, the IT and software components of connected lighting systems increase the demand for systems
integrators and create new opportunities for service companies that can harness data from the systems. Lighting
market participants are offering customers so-called “Light-as-a-Service” contracts (contracts where customers
pay for the provision of light to their premises). As a result, the total market size for systems and services is
expected to grow from €5.0 billion in 2014 to €10.6 billion in 2020 measured by sales, representing a 13%
CAGR over the same period, with systems and services representing approximately 20% of the total professional
market by 2020.
BCG estimates that professional luminaires, systems and services market profit margins will slightly
increase from approximately 6.1% in 2014 to approximately 6.4% by 2020. The improvement in margins is
expected to be mainly driven by the transition to higher margin LED luminaires and the development of thesystems and services market.
Worldwide Professional Market Revenues( B)

Professional Luminaires, Systems and Services Market Size ( B)

80

60
3

7
40

50
5 (9%)
6 (12%)38
3 (8%)20

2

2 (6%)
40 (79%)33 (86%)0Professional
Market 2014
(Excluding Lamps)

Growth ofLuminaire Sales

Growth of
Systems Sales

Growth of WhiteCollar Services Sales

Professional
Market 2020
(Excluding Lamps)

~3

~15

~14

~5

CAGR
2014-2020 (%)

Luminaires

Systems, Added Value

White-collar Services

Source: Converted graph from BCG Report, p21.

Consumer luminaires and systems
The value of the consumer luminaires and home systems market is expected to increase from €14.0 billion
in 2014 to €16.6 billion in 2020 measured by sales, representing an approximate 3% CAGR over the same
period. Similarly to the professional market, the consumer market is expected to benefit from the transition to
LED luminaires with the adoption of LED connected home lighting systems. The connected home lighting
systems market (excluding luminaires or lamps) is expected to increase from approximately €0.3 billion in 2014
to approximately €1.0 billion in 2020 measured by sales, representing an approximate 20% CAGR over the same
period. Within the consumer market, consumer luminaires, both conventional and LED, will continue to174dominate the market as home systems are a relatively small but fast-growing segment. By 2020, LED luminaires
are expected to contribute approximately 60% of the total volume in the consumer luminaires market.
The pace of adoption of home lighting systems is expected to be more moderate than for lighting systems in
the professional market. Home systems products are currently priced at a significant premium while providing
relatively low energy cost savings. As a result, the home systems market is expected to remain relatively small in
the foreseeable future, with buyers mainly limited to affluent, technology-oriented early adopters.
The consumer luminaires and systems market profit pool margins are expected to slightly increase fromapproximately 3.2% in 2014 to approximately 3.5% by 2020. The moderate improvement in margins is driven by
the replacement of conventional luminaires with higher margin LED luminaires and the development of homeconnected systems on the back of increased digitalization.
Market Trends
GeneralThe general lighting market is currently undergoing a rapid transformation, mainly driven by three
underlying trends: (i) the increasing need for light, (ii) the increasing demand for more energy efficient light, and(iii) the increasing demand for digital lighting. These trends are changing the way people use, experience andinteract with light. The integration of LED technology, lighting controls and software allows for new
functionalities and services which will enable customers to benefit from new applications. LED technology,
when combined with sensors, controls and software and linked into a network, allows light points to achieve ahigher degree of intelligence compared to what is possible with conventional lighting technologies.
Increasing need for light
The growth in the overall demand for light is driven by the following macro trends: (i) the expected increasein the world’s population, (ii) the expected increase in urbanization of the world’s population and (iii) the
expected increase in wealth, especially in emerging markets. The world’s population is forecast to grow fromapproximately 7 billion in 2015 to approximately 10 billion people by 2050.16 At the same time, the urbanizationof the world’s population is expected to significantly increase, with approximately 66% of the world’s population
expected to live in urban areas by 2050 compared to approximately 54% in 2015.17 Finally, according to theInternational Monetary Fund (“IMF”), Gross Domestic Product (“GDP”) per capita is expected to grow at an
approximate CAGR of 5% over the 2014 to 2020 period for the emerging market and developing economies (asdefined by the IMF), while a CAGR of 3% is expected for the world. According to BCG, growth of the generallighting market has historically tracked global GDP growth with an approximate 3% CAGR for the 2010 to 2014
period.18 In developed countries, growth of the general lighting market has mainly been driven by economic
expansion and the increase in number of households, while in developing markets growth of the lighting market
is supported by growth in population, increasing access to electricity and electric grids, increasing urbanization
and wealth. Fast-growing developing economies such as China and Latin America represented approximately
70% of general lighting market growth over the last five years.
Increasing demand for more efficient light
The increasing global demand for light in the context of resource constraints and climate change has createda need for increased energy efficiency of lighting products. The Group believes lighting represents a significant
portion of global electricity consumption19 and the lighting industry will need to adapt to changing environmental
regulations and CO2 emission reduction requirements globally. The movement towards energy efficienttechnologies has led to the implementation of new regulations aimed at phasing out conventional lighting
technologies and the majority of incandescent lighting products are banned in most developed countries, while
China and Brazil are in the process of phasing out these technologies. Other conventional lighting technologies
are also expected to be banned over time; for example, the European Commission has passed regulations phasingout halogen lighting technologies by 2018.
The increasing demand for efficient light and the implementation of new regulations accelerate the adoptionof LED technology. The key benefits of LED over conventional lighting technologies are: (i) lower energy
consumption and (ii) a longer lifespan. LED is currently approximately four to five times more energy efficientthan some conventional technologies, such as incandescent lamps and halogen lamps, and this efficiency is
expected to further improve over time. According to BCG, LED lamps also have a longer lifespan with anaverage lifespan of approximately 15 years, representing on average four times the lifespan of CFL lighting and
16
17
18
19

Source: United Nations July 2015 statistics.
Source: United Nations June 2014 statistics.
World GDP grew approximately 3% CAGR over the same period, based on IMF GDP estimates based on market exchange rates.
Source: Lighting represented almost 20% of global electricity consumption according to the International Energy Agency (2011).

175

ten times that of incandescent lamps. The Group, however, believes that LED lamps have a lifespan of 1.5 to
4 times the lifespan of CFL lighting, depending on the product and market combination.
The expected continued price declines of LED lamps are expected to further encourage the transition fromconventional to LED. BCG expects the average price of an LED lamp (bulbs and spots) to decline from morethan €4.5 in 2014 to less than €2.3 in 2020. The Group, however, believes that the average market price of an
LED lamp (bulbs and spots) to decline faster than as expected by BCG. The decline will be mainly driven bytechnological improvements in manufacturing and product design, increasing LED chip efficiency (i.e., fewer
LED chips required for a similar amount of light output) and reduction in the cost of mechanical and electronicparts.
Increasing demand for digital lighting
One of the contributing factors to the increased use of LED technologies is the expanding offering ofsystems which enable users to program and control lights through connectivity with sensors and networks. The
cloud and networks are creating a new market that can be defined as digital light, connected lighting systems or
smart systems. The lighting systems market is expected to grow from €3.2 billion in 2014 to €7.0 billion in 2020,
representing a 14% CAGR over the same period.
Connected lighting systems offer multiple applications for professional and consumer end-users. For
example, lighting in offices can be automatically adjusted based on the level of natural lighting outside and as aresult provide energy savings, optimization of office space and overall safety. Furthermore, integration of sensors
in the lighting network allows for optimized cleaning schedules depending on which rooms have been usedduring the day. In addition, connected lighting systems can also be controlled and managed by users via smart
phone and device applications and remotely by building administrators, making these systems increasingly
accessible to a broader group of users. The evolution of the regulatory framework is also supporting thedevelopment of energy saving connected lighting systems. For example, U.S. regulations require that lighting inmost buildings is controlled automatically to adjust light usage based on working hours or occupancy. Energy
suppliers are also encouraging their customers to adopt connected lighting as a way to reduce significant energy
demand peaks. Energy cost reductions from efficiently controlled systems can be substantial (approximately 40%
on top of the savings offered by LED). The ability to track lamps burning out and other dysfunctions can offer a
reduction of maintenance expenses to customers.
The transition to connecting lighting is expected to occur most quickly within the professional category indeveloped countries. Professional systems typically control a large network of lights and potential savings based
on total cost of ownership tend to be significant. As an example, connected lighting enables cities to centrally
manage street lighting and adapt intensity depending on weather, traffic movement or organized events, thereby
realizing significant energy cost savings. In retail stores, luminaires can be equipped with visible light
communication which allows the creation of an indoor positioning system which, for example, allows retailers todevelop apps to help shoppers navigate through the store, expand into location-based services and enhance
shopper experience and loyalty. Furthermore, the increased integration of IT and software components within thelighting infrastructure creates the opportunity to offer additional services such as consultancy and services basedon data analytics and sensor data collected by smart systems for professional customers.
Smart connected lighting for the consumer market (e.g., home systems) generally delivers less significant
cost savings for the end-user than professional systems due to the smaller number of lights in a household and thelower frequency at which lights are used. As a result, growth in connected lighting in the consumer market will
likely lag that of professional systems. However, the Group believes that connected lighting in the consumer
market will become one of the leading carriers for connected objects in the Internet of Things (i.e., the networkof physical objects, devices and other items which are embedded with electronics, software, sensors and network
connectivity which enables these objects to collect and exchange data). The Group believes that the homesystems market is expected to transition from non-connected to connected systems, and that the adoption ofhome systems is mainly driven by its applications, such as the ability to use color combinations, smart control
and programmability, and not necessarily by cost savings. The number of smart homes is expected to increase
from 174 million in 2015 to 339 million in 2016.20 The Group also believes that lighting is the second mostdesired application (after security) for smart homes.
Competition and the Group’s Market Position
The Group faces competition within its key business segments: (i) professional and consumer conventional
lamps and lamp electronics (BG Lamps), (ii) LED lamps and LED electronics (BG LED), (iii) professional
luminaires, systems and services (BG Professional), and (iv) consumer luminaires and systems (BG Home). The
20

Gartner Press Release, “Gartner Says Smart Cities Will Use 1.6 Billion Connected Things in 2016”, 7 December 2015,www.gartner.com/newsroom/id/3175418.

176

competition varies between segments and along the value chain but the Group is one of the few companies withan integrated position across the downstream value chain, from lamps up to lighting services, which it believes
provides the Group with significant technology and go-to-market integration benefits as opposed to its
competitors. Furthermore, the Group believes that it is the largest downstream lighting company in the world andholds leading positions in conventional and LED lamps, electronics and luminaires.
BG Lamps
The Group believes that it holds a number one position in sales in the professional conventional lamps,
consumer conventional lamps and conventional lamp electronics segments. The Group also believes that it holds
a number one position in sales across all categories in each Market Group (Europe, Americas, Greater China and
Growth Markets).
The Group believes that the conventional lamps and lamp electronics market is comparatively concentrated,with the Group, Osram and GE as the top three market participants measured by sales. Based on the Group’s
internal research, it believes that it held a number one position in sales in 2014 and 2015 in the global
conventional lamp market and in digital projection lighting products (“DPL”). The Group believes that its market
share in 2015 was in the low twenties. The Group believes that it has improved its competitive position andbenefits from significant cost advantages globally due to pro-active early restructuring measures.
The Group believes that its position is strongest in the professional conventional lamps market, a market
which the Group perceives as highly concentrated. The Group perceives the consumer conventional lamps
market as less concentrated. This market is converging fast to LED as legislation bans a number of incandescentand halogen products in a number of markets in the world. The Group sees the share of retailers’ private label
brands growing in the consumer conventional lamps market. Nevertheless, the Group believes that it is still themarket leader worldwide in terms of sales. In lamp electronics, original equipment manufacturers (“OEMs”) are
reducing the number of suppliers, which will potentially drive further concentration in the market. The Group
believes that its position in the lamp electronics market is strong, especially in Americas. In DPL, the Group
believes that it is leading worldwide in terms of sales.
BG LED
Based on internal research, the Group believes that it held a number one position in sales in the global LED
lamps and electronics market in 2015 with a market share in the mid-teens. The Group also believes that it heldnumber one positions in sales in the LED lamps and electronics market in Europe, Americas and GrowthMarkets, and a number two position in sales in Greater China in 2015.
The LED lamps market is dynamic and more fragmented than the conventional lamps and electronics
market. Europe and the United States are relatively more concentrated while the market in China is relatively
fragmented. The LED lamps market features short product life spans due to rapid innovation. The Group faces
significantly growing competition in Greater China from local LED lamps brands, as most of the global LED
lamps and electronics components manufacturing industry is centered in China. The Group faces increased LED
lamps competition from private label products, or products manufactured or provided by one company for offer
under another company’s brand, primarily in Europe and North America. Other global competitors active in LED
lamps include Osram, Panasonic, Toshiba, GE, Cree and TCP. The Group believes that it holds number one
positions in sales in the LED lamps markets in Europe, Americas and Growth Markets (excluding Japan), and a
top three position in sales in Greater China. To maintain its competitive leadership, the Group continues to invest
in product engineering to drive innovation forward and cost down, and to emphasize its quality products andbrand identity.
The Group believes that the LED electronics market is more concentrated than the LED lamps market. The
largest companies active in the LED electronics market include the Group, Tridonic (part of Zumtobel) andOsram. Other notable competitors are Samsung and LG Innotek. The Group believes that it holds leading
positions in terms of sales in the LED electronics market in Americas, Europe and globally. The LED electronics
market is characterized both by rapid innovation as well as strict customer requirements. The Group believes that
it is able to differentiate itself from its competitors through rapid product innovations and reduction of costs,
close and collaborative customer relationships, and its brand identity as a quality supplier. The Group believes
that it generates more than 70% higher sales in LED lamps and electronics than its nearest competitor does.
BG Professional
The Group believes that it is the global leader in terms of sales of conventional and LED luminaires,
systems and services with strong positions across geographies.
The competitive dynamics of the professional luminaires and systems market differ significantly bygeography with many regionally focused competitors. The Group perceives the professional luminaires and177systems markets in Europe and North America as relatively concentrated, where top three players hold more than
45% in North America and more than 30% in Europe, and the markets in Greater China and Growth Markets as
highly fragmented. The Group also sees incumbent, well-known technology and software companies entering thelighting market, particularly with respect to connected systems and services, as they seek to expand applications
for their existing software and control systems and applications.
Based on internal research, the Group believes that it held a number one position globally in sales in theprofessional luminaires and systems and services market in 2015 with a market share in the high single digits. It
believes that it had a number one position in sales in Europe (ahead of Zumtobel, Fagerhult and Schréder), a
number one position in sales in India (main competitors include Crompton, Bajaj and Havells) and a number one
position in sales in Growth Markets (excluding Japan), where the main competitors are Panasonic and Toshiba. It
believes that it held a top three position in sales in China together with NVC and OceanKing and a top four
position in sales in North America, with Acuity Brands, Cooper Industries and Hubbell as main competitors.
BG Home
The Group believes that it is a top three player in sales in selected consumer luminaires markets and a leader
in home systems.
The Group believes that most markets for consumer luminaires are localized and fragmented, with a few
global and regional players, particularly companies with their own distribution including Ikea Private Label andHome Depot Private Label. The Group believes that in 2015 it held number two positions in sales in Europe,
Greater China and Growth Markets, and a top three position globally.
The Group believes that the market for home systems is an emerging new category, which is fast growing inline with the general growth in smart home applications. The Group believes that increased interoperability
across smart home systems and increased awareness will enhance consumer adoption and that lowering up-front
cost to enable consumers to step in at lower price points will further accelerate growth. With respect to homesystems, the Group believes that Europe and Americas will remain the main markets, but the Group expects Asia
to become a more important market for home systems. The Group estimates that it holds a number one positionin sales in Europe, Americas, Greater China, Growth Markets and globally in terms of sales in the home lighting
systems market.

178

BUSINESS
Overview
The Group is a global market leader in the general lighting market measured by sales with recognizedexpertise in the development, manufacturing and application of innovative lighting products, systems andservices. The Group has pioneered many of the key breakthroughs in lighting over the past 125 years, including
incandescent lighting, HID lamps, fluorescent lighting and CFL, and has been a driving force behind several
technological transitions, laying the basis for its current strengths and its leading position in the transition of thelighting industry from conventional lighting technologies to LED lighting technologies as well as lighting
systems (including connected lighting systems) and services. The Group has a strong track record in innovationand invests heavily in R&D (for the year ended 31 December 2015, 4.9% of sales) to stay at the forefront oftechnological developments. It has a strong patent portfolio with over 14,000 patent rights, which it believes ismore than any of its competitors, and a licensing program with over 600 licensees as of 31 March 2016.
The Group believes that it is well positioned across the lighting value chain and has a focus on the generallighting market. The Group’s light source product portfolio includes incandescent lamps, halogen lamps,
fluorescent lamps, LFLs, CFLs, HID lamps and LED lamps. In addition, the Group offers electronic components,
such as electronic ballasts and drivers, as well as complete luminaires for consumers and professional users. The
Group also places emphasis on offering innovative, integrated and customized lighting systems and services,
including light management systems and value-added services such as energy audits, light design andengineering as well as remote monitoring and managed services. The Group’s products are used for illuminationand visualization in a variety of applications for general lighting, in particular residential, road and street,architectural, office, industrial, retail and hospitality lighting. The Group also produces light sources and systems
for special applications, such as projection, cinema, entertainment, city beautification (i.e., dynamic architecturallighting) and horticulture as well as water purification (e.g., disinfection with ultraviolet radiation). The
combined LED and automotive lighting components businesses of Royal Philips were separated into astand-alone company in 2015. The lighting components and automotive lighting businesses are not reflected in
the financial results of the Group.
The Group’s business is organized and managed on a functional basis by technology and end-markets throughfour operating Business Groups: BG Lamps, BG LED, BG Professional and BG Home. BG Lamps comprises theGroup’s conventional lamps and lamp electronics businesses; BG LED comprises the Group’s LED lamps and LED
electronics businesses; BG Professional comprises the Group’s professional luminaires, lighting systems andservices businesses; and BG Home comprises the Group’s consumer luminaires and home systems businesses. EachBusiness Group is responsible for the development of its strategy, product portfolio and the production and sourcing
of its products. In addition, the Group’s commercial organization is structured along four geographical Market
Groups to manage its global sales channels: Europe, Americas, Growth Markets and Greater China.
The Group has a global reach with commercial activities that cover approximately 180 countries. The Grouphas operational manufacturing plants in 22 countries in all major regions of the world, and more than 70 sales
offices worldwide. The Group handles commercial activities in countries without a sales organization via
independent distributors and agents who cooperate closely with the Group’s international sales organization.
For the year ended 31 December 2015, the Group’s sales were €7,465 million (2014: €6,981 million;
2013: €7,129 million), the Group’s income from operations was €331 million (2014: €41 million;
2013: €213 million), the Group’s adjusted EBITDA (unaudited) was €739 million (2014: €665 million;
2013: €659 million) and the Group’s free cash flow (unaudited) was €632 million (2014: €355 million;
2013: €84 million). For the three-month period ended 31 March 2016, the Group’s sales were €1,702 million, theGroup’s income from operations was €71 million, the Group’s adjusted EBITDA (unaudited) was €161 million
and the Group’s free cash flow (unaudited) was €(78) million. As of 31 March 2016, the Group employedapproximately 36,350 FTEs worldwide. See also “Important Information—Non-IFRS financial measures” and“Operating and Financial Review—Non-IFRS Financial Measures”.
History
The origin of the Group dates to 1891 when Gerard Philips and his father Frederik Philips founded Philips& Co. in Eindhoven, the Netherlands. Recognizing that the rise of electricity would offer new opportunities, andinspired by Gerard Philips’ knowledge of electrical products and engineering, the Philips family entered thebusiness of producing and selling incandescent lamps. Anton Philips, the younger brother of Gerard Philips,
joined the company in 1895 and proved to be an effective salesman and entrepreneur. Almost from the outset, asignificant majority of the output was exported, first to European countries like Russia and Germany, later also toAustralia, Japan, South Africa and Argentina. Within the next fifteen years, the company was one of the major
producers of light bulbs in the world. In 1906, Philips & Co. mastered the technological transition from lamps
179using carbon filaments to lamps using tungsten filaments. A few years later, in 1912, the company became listedon the Amsterdam stock exchange under the name N.V. Philips’ Gloeilampenfabrieken. From the 1920s
onwards, the company diversified and Royal Philips functioned as the primary holding company, including forthe lighting business.
In the following decades, the demand for lamps increased and the range of lighting applications expanded
steadily. Production was internationalized through new lighting manufacturing centers abroad and by acquiringother businesses. Eindhoven remained the main center for R&D. Scientific and technical research has always
been at the core of many improvements and modernisations. Royal Philips’ research laboratories, established in
1914, together with the factory laboratories that had been established previously, were driving forces behind
many lighting innovations: from the production of incandescent lamps in the 19th century to the current
transition from conventional lighting products to LED lighting products, systems and services. The Group
believes that through its continuous innovations it has been instrumental in leading the lighting industry throughmany of these technological changes.
Highlights in the historical development of the Group include the following events:
1923

The Group establishes a sales company in Shanghai, China

1932

The Group is the first to commercialize the low pressure sodium lamp thereby putting it ahead of
the competition on road lighting

1938

The Group develops the “TL-tube”. The fluorescent tube is used in offices, factories, schools androoms with high ceilings

1964

The Group develops halogen lamps for professional use and automotive

1980

The Group is the first to produce a commercially successful CFL, an energy saving miniature
fluorescent tube with fitting and becomes a leader in this segment

1982-1983

The Group acquires Compagnie des Lampes in France and the lighting division of Westinghouse in
the U.S. and becomes the largest light bulb and tube manufacturer in the world

1999

The Group enters the LED market and within a few years becomes a leader in high power LEDs

2007

The Group acquires Partners in Lighting International (PLI), a leading European manufacturer ofhome luminaires. With this acquisition the Group enters the consumer luminaires market andstrengthens its presence in LED

2007

The Group acquires Color Kinetics, a leading U.S.-based company in designing and marketing
innovative LED lighting systems with a broad technology and intellectual property portfolio

2008

The Group acquires the North American luminaire manufacturer Genlyte which strengthens theGroup’s position in the U.S. market for professional lighting applications

2011

The Group wins the U.S. Department of Energy’s Bright Tomorrow Lighting Price (L-prize) for the
first commercially viable 60 Watt equivalent LED bulb, an energy saving replacement for
conventional light bulbs

2012

The Group acquires Industrias Derivadas del Aluminio. S.L. (“Indal”). With this acquisition theGroup grows its presence in professional outdoor lighting applications, creating a platform toexpand its capabilities to deliver lighting solutions and lead the transition to energy-efficientLED-based lighting applications

2012

The Group introduces Philips Hue, the world’s first commercially available internet-enabled LED
home lighting system, which enables users to control light wirelessly with an app on theirsmartphone or tablet and to personalize their lighting preferences and needs

2014

The Group acquires a 51% interest in GLC based in the Kingdom of Saudi Arabia. This joint
venture combines the Group’s expertise in LED technology and global supply base with GLC’s
local market knowledge and commercial capabilities making it a leading lighting player in thelargest economy in the Middle East2015

The combined LED and automotive lighting components businesses are separated into a stand-alonecompany and as a result the Group is no longer active in the lighting components and automotive
lighting businesses

2016

The Group separates from Royal Philips and begins to operate as a stand-alone company (see“Separation”)
180Competitive Strengths
The Group is a global market leader in the general lighting market, which is transitioning from conventional
lighting technologies to LED lighting technologies as well as lighting systems and services. The Group believes
that it possesses several key competitive advantages, which will support the Group in maintaining its leading
position in the general lighting market:
The Group has global leading positions across the lighting value chain
The Group is a global market leader in the general lighting market measured by sales with recognizedexpertise in the development, manufacturing and application of innovative lighting products, systems andservices. The Group’s sales in 2015 were significantly higher than the sales of any of its competitors in thegeneral lighting market.
100%

39%

Philips

Osram

34%

30%

Acuity Brands

General Electric

18%

12%

ZumtobelCree

Source: Internal analysis based on publicly available information (annual reports, investor relations presentations and press releases)21.

The Group firmly believes that its global leadership provides it with a competitive advantage that will allow
it to benefit from future growth opportunities. The Group’s size and positioning across the value chain provide
significant economies of scale, including procurement advantages, and allow the ongoing development ofinnovative technologies, products and services across the value chain.
•

Conventional lamps and conventional lamp electronics (BG Lamps): the Group believes that it is, andtraditionally has been, the largest player in this relatively concentrated and declining market segment,
allowing for significant channel and cost advantages;•

LED lamps and LED electronics (BG LED): the Group believes that it is the global market leader in the fast
growing and fragmented LED lamps and electronics market. The Group believes that its market position andbrand name allow for premium pricing, supported by its global distribution network and the relationships
with key OEMs, wholesalers and retailers;•Professional luminaires, systems and services (BG Professional): the Group believes that it has overallmarket leadership globally in this growing market segment. The Group believes that it benefits from its
recognized expertise in lighting application and luminaire design while its global scale allows for fast scaleup of new developed systems and services; and•Consumer luminaires and systems (BG Home): the Group believes that it is a top three player globally in thelocalized and fragmented consumer luminaires and systems market, which has few global players. The
Group believes that it will benefit from commercial and technological integration from its other activities inorder to capture further market share.

The Group’s diversified business profile in terms of geographic presence, technology and sales channels
adds to the resilience of the Group’s business model.
Strong global brand and well established global channels expand sales
The ‘Philips’ brand enjoys a long history and has developed significant brand value over time driven by theGroup’s reputation for innovation, understanding of customer needs, quality and range of propositions. The
Group believes that the strength of its brand drives sales as lighting customers spend up to 60-70% share ofwallet (i.e., the percentage of a specific customer’s spending on products and services that is captured by aspecific company) with their preferred brand and allows the Group to believe that it earns higher margins ingeneral than its competitors.

21

Percentages present comparable sales for the year 2015 (the Group = 100%). Based on sales calendarized to year-end 2015 and converted
into euros using the average 2015 exchange rate. Osram indexed sales exclude specialty lighting and its Opto Semiconductors segments
which are not comparable to the Group (44% on an indexed sales basis). Cree indexed sales exclude LED products and power & RF
products (8% on an indexed sales basis).

181

Based on internal analysis and independent third party studies commissioned by the Group, indicators of theGroup’s brand strength include:•

Net promoter score: the Philips brand received leading net promoter scores with its customers in 2015;•

Brand reputation: the Philips brand reputation and strength in the lighting industry scores 70 on a scale fromzero to 100, which is 20 points above an average brand in its industry and remained roughly stable in the
2013-2015 period;•

Top of mind awareness: the top of mind awareness of the Philips brand is 2 times higher than the awarenessof the brand of its nearest competitor; and•Preferred LED brand: in 2015, for the fourth year in a row, Philips was globally the most preferred brand in
LED lighting in both the professional and consumer categories.

As part of the Separation, Royal Philips and the Group have entered into an exclusive trademark license
agreement with respect to the use by the Group of the Philips brand for lighting products, systems and services
for the next ten years. The term may be extended for two periods of five years. The Group has also secured theright to use the Philips company name for a period of 18 months after the date that it is no longer controlled by
Royal Philips (see “Separation—Intellectual Property”).
In addition to its strong brand, the Group has a global sales and distribution channel structured alongfour geographical Market Groups (i.e., Europe, Americas, Growth Markets and Greater China), which it believes
would be difficult for a competitor to replicate. The size of the Group’s operations and its geographic reachensure global client coverage across 180 countries with more than 70 sales offices while maintaining local
proximity to its customers. Local, dedicated sales teams have developed longstanding customer relationships andquickly adapt to local needs and market circumstances. Its distribution network of approximately 120 distribution
centres globally as of 31 December 2015 allows the Group to offer its full portfolio of products to all customers,
to quickly scale-up and roll-out innovative products and services, and to leverage best practices across the globe.
In addition, the Group’s global sales and distribution network provides visibility and extensive knowledge in theflow of components and the supply chain.
Leading innovation capabilities drive fundamental change in the lighting industry and fuel the Group’s
growthThe Group has been innovating and leading the lighting industry through many technological changes withan established track record in conventional and LED lighting products since it produced the first commercial
incandescent lamp in 1891. The Group continues to invest in R&D, alliances and intellectual property to drive
new product development and energy-saving solutions:•

R&D: as of 31 March 2016, the Group employed approximately 2,750 FTEs in the R&D function and theGroup spends approximately 5.0% of annual sales (2015: €366 million (4.9% of sales), 2014: €395 million(5.7% of sales), 2013: €375 million (5.3% of sales)) on R&D in an effort to stay at the forefront oftechnological developments. The scale of the Group allows for ongoing innovation and quick roll-out of
leading edge technology;•

Alliances: the Group has numerous alliances with parties such as Apple, Cisco, Somfy, SAP, Vodafone and
Nest to drive product adoption and new applications, offering a superior connected lighting experience. The
Group believes that its alliances with leading industry brands support its own brand awareness as theworld’s leading lighting company; and•Intellectual property: the Group believes that it has more lighting and lighting controls patents than any
other competitor. Approximately 90% of its patent rights are LED and digital lighting related andapproximately 10% are conventional lighting related. In addition, the Group has a licencing program withover 600 licensees as of 31 March 2016.

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Patents issued by the European Patent Office counted as one living patent right, independent of number of designations.
Source: Internal analysis based on publicly available information (Derwent World Patents Index, annual reports, investor relations
presentations and press releases)

Key benefits of the Group’s strong patent portfolio include cross license agreements enabling higher
margins in certain areas and higher market shares, and the ability to get better conditions in licensing-in
agreements.
The Group believes that its technological expertise and its innovative capabilities combined with its leading
position in the lighting industry fuel the Group’s growth potential. They allow for the Group’s products, systems
and services to integrate leading energy-saving technology, distinctive styling and strong end-user experience,
while being able to obtain higher gross margins due to the uniqueness of many of its products and services.
Strong track record of cost savings drives profitability and cash generation
The Group has significant experience and a strong track record in terms of realizing cost savings in order tomaintain and improve profitability, margins and cash generation. Historic cost savings have focused on(i) footprint rationalization, (ii) bill-of-material costs, and (iii) productivity and efficiency improvements:•

Footprint rationalization: the Group believes that it is generally ahead of its competitors in managing its
conventional lighting manufacturing footprint while maximizing free cash flow from its conventional
lighting business. The Group has reduced the number of its conventional lamps operational manufacturing
plants from 45 in 2008 to 21 as of year-end 2015. The Group plans to continue reducing its manufacturing
footprint through relocation of manufacturing activities to more efficient manufacturing locations close to
relevant markets and consolidation of operational manufacturing plants for cost efficiency and to reflect
trends in demand. The Group has plans for each operational manufacturing plant for possible phase-outs andmaintains a flexible approach in order to be able to bring plant closures forward should this be required in
the context of an accelerated market decline. The Group aims to continue its track record of maintaining its
adjusted EBITA ratio of its conventional lighting business over the medium term and its constant free cash
flow from its conventional lighting business (excluding restructuring costs) as a percentage of sales over the
medium term.

•

Bill-of-material costs: both the conventional and LED lighting markets have been subject to price erosion
due to technological improvements in manufacturing and product design, increasing LED chip efficiency(i.e., fewer LED chips required for a similar amount of light output) and reduction in the cost of mechanicaland electronic parts. In order to offset this, the Group carefully tracks and manages its bill-of-material costsavings. The Group believes that its track record of realizing bill-of-material cost savings from both productengineering and price negotiations in addition to its scale, provide a sustainable competitive advantage
versus its peers; and•Productivity and efficiency improvements: over the last few years the Group has implemented several costsavings programs with regard to overhead and other operating expenses (e.g., the “Accelerate!” productivity
program of Royal Philips that includes for example improvements in internal and external quality
performance, reduction in functional overhead and selling expenses, and savings in warehousing anddistribution expenses). The Group believes that it has been successful in achieving cost savings in theseareas. For example, aggregate adjusted selling expenses, R&D expenses and general and administrative
expenses, in each case excluding restructuring costs, acquisition-related charges and other incidental
183

charges, as a percentage of sales decreased from 32.2% for the year ended 31 December 2013 to 31.7% for
the year ended 31 December 2014 and 31.0% for the year ended 31 December 2015.
Given the expectation of a further decline of the conventional lighting market and continued competition in
the LED lighting markets, the Group expects to benefit from its strong track record and know-how in terms of
cost savings resulting in improved profitability and cash generation. In addition, the Group expects that its
transition to an “asset light” business model as a result of outsourcing many of its LED manufacturing activities
will result in lower capital expenditure requirements going forward.
Experienced and diverse management team is driving operational improvements and financial performance
The Group has a highly skilled international senior management team with a broad range of relevant
industry and functional knowledge and geographic backgrounds. The members of the Group’s senior
management team are widely recognized in the market and bring significant individual experience to the overall
team. The management team with its capabilities forms a key enabler for the implementation of the Group’s
strategic priorities. The strength of the Group’s senior management team is demonstrated by the Group’s trackrecord in terms of operational excellence and financial performance with gross margin improvements andsignificant operating expense savings having resulted in an adjusted EBITA ratio (unaudited) improvement from
6.4% in 2013 to 7.3% in 2015. In addition, the Group believes that it is successful in attracting experienced andtalented senior management. The Group believes that the members of its organization are aligned in theirambition, strategy, focus and operational standards.
Strategy
The Group’s strategy is to leverage its strengths to capture the market opportunities presented in thetransitioning lighting market. The Group’s market leading positions in both conventional and LED lamps andelectronics provide a strong starting position to expand the LED products, systems and services business whilst
further leveraging the conventional lighting business. The Group has identified six key strategic priorities toachieve its objectives:
Optimize cash from conventional products to fund its growth
The Group’s conventional business has historically been and currently remains the greatest contributor tocash flow generation. The Group aims to leverage its conventional business and to continue managing thisbusiness for cash optimisation. In order to achieve this, the Group has identified two key focus areas: (i) continue
consolidating the industry in a declining market, and (ii) continue to exert cost leadership by downscaling the
manufacturing footprint and leveraging the Group’s procurement scale.
(i)

Consolidation: the Group’s goal is to leverage its conventional lamps business by growing market
share and optimizing cash from conventional lighting products by flexibly anticipating the slower or
faster phase-out of conventional products. The Group seeks to increase its market share in key
conventional segments by leveraging the brand preference and net promoter score leadership globally.
While the overall conventional market continues to decline, the Group expects to benefit from
capturing volumes from smaller players exiting the market, thereby increasing its market share. Notethat it is the Group’s intention to gain market share organically; and(ii) Cost leadership: the Group has a strong track record of managing its manufacturing footprint in linewith the conventional market decline and believes that it is ahead of the competition in this respect.
The Group intends to continue downscaling its manufacturing footprint in line with demand
developments. The Group has plans for each operational manufacturing plant for possible phase-outs.
Furthermore, the Group maintains a flexible approach in order to be able to bring plant closures
forward should this be required or appropriate in the context of accelerated market declines. In addition
to the footprint rationalization, operational excellence initiatives and simplification of the productportfolio are expected to result in additional efficiency gains and cost reductions.
The Group expects the combination of further consolidation and managing the cost base to result incontinued strong cash generation from its conventional business. In 2015, BG Lamps maintained its cash
contribution to the Group as a percentage of sales.22
Innovate in LED products commercially and technologically to outgrow the market
BG LED, BG Professional and BG Home strive for continued innovation in LED lighting products andtailored marketing approaches in order to outgrow the market.

22

Based on reported EBITDA minus net capex as a percentage of sales.

184

(i)

LED lamps and LED electronics: BG LED aims to strengthen its leadership position in LED lamps and
LED electronics by:a)increasing consumer LED lamp sales through ongoing new product introductions, meaningfulproduct differentiation and transformation of the marketing approach with increasingly more
focus on drawing customers to the product;b)

growing business-to-business LED lamp sales by continuing to lead in product innovation andupgrading business-to-business trade and online marketing; andc)generating more LED electronics revenues from global OEMs by increasing the number of OEM
customers and growing the share of LED electronics wallet with existing OEM customers.

(ii) LED luminaires: BG Professional and BG Home intend to continue to lead the transition fromconventional to LED luminaires:a)

In order to increase LED luminaire margins and price competitiveness, the Group works on
ongoing LED luminaire complexity reduction and product modularity;b)

BG Professional and BG Home work on a differentiated LED luminaire portfolio to sell higher
value products to customers; andc)

The Group aims to invest in growing online LED luminaire sales and driving a differentiatedregional go-to-market approach.

In 2015, LED lighting products generated 43% of the Group’s sales (2014: 34%; 2013: 26%), compared to
57% of the Group’s sales generated by conventional lighting products (2014: 66%; 2013: 74%). In the firstquarter of 2016, LED lighting products generated 50% of the Group’s sales (Q1 2015: 39%).
Lead the shift to lighting systems, building the largest connected installed base
The Group believes that connected lighting will be increasingly important in the general lighting market.
Accordingly, the Group plans to play a leading role in the industry shift to lighting systems in both theprofessional (BG Professional) and consumer (BG Home) markets. The Group strives to create the largest
installed base of connected light points (i.e., the sum of all connected light points installed by the Group
globally). The Group expects its local presence, global scale, innovation and go-to-market, customer intimacy
and in-depth domain expertise delivering modular global system architectures, to contribute to the Group’s
leading role in the connected lighting industry. The Group is recognized as the number one player in connected
lighting.23
BG Professional seeks to strengthen its global lighting systems leadership by accelerating the roll-out of its
leading architectures for connected lighting systems to end-users in all segments of the professional lighting
market and expects the proportion of its sales attributable to lighting systems and lighting services to end-users toincrease significantly. With a clear focus on innovation, the Group aims to be the first-to-market withbreakthrough applications. At the same time, the Group expects to continue enhancing the cost competitivenessof its systems by harmonizing controls and management software and through bill-of-material savings (i.e., as aresult of product engineering and procurement).
BG Home expects significant growth in the connected home lighting systems segment. It plans to take aleading role in this shift to connected lighting by (i) building awareness of the benefits of connected lighting,(ii) forging partnerships with key platforms and smart-home devices to drive adoption and sales by investing in
new applications and interoperability, (iii) expanding the product offering to cover key price points, and(iv) expanding the connected consumer luminaire portfolio by developing OEM solutions. In addition, the Groupaims to create differentiated regional approaches and grow its online and electronic retail distribution.
In addition, BG LED plays an active role in the development of lighting systems and services through its
production of LED electronics and the sales thereof to OEMs, as well as its production of connected lamps(specifically TLEDs) and the sales thereof to the professional segment. These LED electronics and connected
lamps are often used in lighting systems.
Capture adjacent value through new services business models
In BG Professional, the Group seeks to realize additional revenues from its installed base through value
added service offerings. In order to capture this value opportunity, the Group focuses on developing capabilities
around data analytics and software, and developing new data-enabled life cycle (e.g., maintenance, remotemonitoring), professional (e.g., audit, design) and managed (e.g., outcome versus performance commitment
23

MarketsandMarkets, “Smart Lighting Market (2014-2020)”.

185

based contracts) services. Innovative services are developed in co-creation with the systems and product teams toincreasingly build end-to-end competencies. Once new services have been developed, the global scale and strong
local presence of the Group enable rapid upscaling.
Be its customers’ best business partner locally, leveraging its global scale
The Group aims to utilize its long-standing local customer relations and global distribution network inconventional lamps and lamp electronics to lead the transition to LED lighting, systems and services. The
Group’s global reach and client proximity allow it to deliver product portfolios that address local market needs
with both high volume products and differentiating propositions. In order to accelerate growth momentum, theGroup intends to increase local coverage in priority Growth Markets and China. In North America, the Groupseeks to unlock potential and improve customer relationships through increased effectiveness of agents andre-establishment of the distribution business.
Accelerate! on its operational excellence improvement journey
The Group has a strong track record of improving margins through footprint rationalization, bill-of-material
cost savings, and productivity and efficiency improvements, despite declining volumes in conventional products
and price pressure in primarily LED lamps. Under the Accelerate! productivity program of Royal Philips whichstarted in 2011, the Group aims to leverage its operational excellence capabilities across the organization bycontinuing to implement programs which are focused on minimizing waste, reducing defects and increasing theefficiency of operations across the entire value chain whilst reducing fixed costs. The Group will continue tofocus on operational excellence and has implemented various cost saving programs to continue optimizing costs,
including:(i)Selling expense savings: The Group is working towards a standard end-to-end process framework thatenables the execution of all the route-to-markets for products, systems and services in a repeatable andstandardized way which drives cost efficiencies. Following the deployment of these standard processes
in 2016 and 2017, the Group expects to enter a cycle of continuous optimization through simplificationand digitalization;(ii) IT rationalization: The Group is transforming its IT function to achieve IT cost benchmarks, byrigorously decommissioning and consolidating applications, optimizing support models including
in-, or outsourcing and simplifying hosting structures. The Group expects that IT rationalization will
generate considerable cost savings; and(iii) Other internal overhead savings: The Group believes that there is significant room for additional costsavings in other enabling functions like finance, HR and real estate and will continue to focus on
capturing these by simplifying the way of working and consolidating back-offices.
Outlook
The Group has established the medium and long term objectives set forth below to serve as measures of its
operational and managerial performance on a Group-wide level and at the level of each Business Group. The
Group’s ability to achieve these financial objectives is subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Group’s control, and these financial objectives
have been developed based upon assumptions with respect to future business decisions and conditions that are
subject to change. As a result, the Group’s actual results may vary from the financial objectives set forth below,
and those variations may be material. Many of these business, economic and competitive uncertainties andcontingencies are described in “Risk Factors”. The Group does not undertake to publish revised financial
objectives to reflect events or circumstances existing or arising after the date of this Prospectus or to reflect theoccurrence of unanticipated events or circumstances. See also “Important Information—Forward-Looking
Statements” for further information.
The Group has not defined by reference to specific periods the terms “medium term” or “long term”, and thefinancial objectives below are not to be read as indicating that the Group is targeting or expecting such metrics inrespect of any particular financial year.
Subject to the foregoing, the Group is targeting the following for the purpose of measuring operational andmanagerial performance on a Group-wide level:•

return to positive comparable sales growth24 in the course of 2016 with comparable sales growth converging
to the growth of the general lighting market in the medium term, driven by an increasing contribution of
LED lamps, luminaires and systems and services, versus a diminishing proportion of conventional lighting;24

The Group defines comparable sales growth as the period on comparable prior year period growth in sales excluding the effects ofcurrency movements and changes in consolidation.

186

•

maintain broadly constant adjusted gross margin25 in line with historical performance over the medium term,in which the transition to higher margin LED luminaires is expected to offset the transition to lower margin
LED lamps;•

gradually improve the adjusted EBITA ratio26 to the low teens in the medium term, driven by significant
savings in selling expenses, R&D expenses and general and administrative expenses;•

incur annual total restructuring costs of between approximately 1.5% and 2.0% of the Group’s annual total
sales in each financial year over the medium term, with the majority of these restructuring costs expected torelate to BG Lamps and BG Professional;•

incur annual total restructuring costs of between approximately 0.5% and 1.0% of the Group’s annual total
sales in each financial year over the long term;•

make net capital expenditures27 as a percentage of sales of 1.0% to 1.5% in each financial year over the
medium term, driven by the transition to a more asset-light outsourcing model; and•achieve strong cash flow, with free cash flow excluding interest and taxes divided by EBITDA increasing to>75% in the medium term.

Subject to the considerations in the first paragraph above, the Group is targeting the following for the
purpose of measuring operational and managerial performance at the level of each Business Group:•

BG Lamps:
Oachieve comparable sales development in line with the conventional lamps market
development in the medium term;Omaintain the adjusted EBITA ratio over the medium term, driven by pro-active restructuring
and cost savings;

O

•

•

25

26

27

incur total restructuring costs in relation to BG Lamps of approximately €(0.3) billion overthe medium term, primarily in relation to manufacturing footprint rationalization andrestructuring of R&D and sales activities;O

the Group currently does not expect to have to restructure the remaining BG Lamps
production facilities over the long term. However, if the Group were to decide to restructure
all remaining BG Lamps production facilities, it estimates that additional restructuring costs
would amount to approximately €(0.2) billion; andO

maintain constant free cash flow (including restructuring costs) as a percentage of sales overthe medium term.

Oachieve comparable sales growth slightly above the market growth in the medium term; andOachieve a gradual increase of the adjusted EBITA ratio to the low teens in the medium term,
driven by operating leverage as a result of rapidly growing volumes and capitalizing theGroup’s brand strength.

BG LED:

BG Professional:Oachieve comparable sales growth slightly above the growth of the market for professional
lighting in the medium term, driven by the fast growth of systems and services sales; andOachieve gradual increase of adjusted EBITA ratio to the low to mid-teens in the medium
term, driven by further performance improvements in North America and an improved
product mix through increased sales of LED luminaires, systems and services which have ahigher average gross margin.

The Group defines adjusted gross margin as gross margin excluding restructuring costs, acquisition-related charges and other significant
incidental charges attributable to cost of sales. See “Operating and Financial Review—Non-IFRS financial measures” for more
information on non-IFRS financial measures and reconciliation of adjusted gross margin to gross margin for the three month periods
ended 31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.
Group defines adjusted EBITA ratio as adjusted EBITA divided by sales (or sales including intersegment in the case of adjusted EBITA
ratio of Business Groups). See “Operating and Financial Review—Non-IFRS financial measures” for more information on non-IFRS
financial measures and reconciliation of adjusted EBITA for the three month periods ended 31 March 2016 and 2015 and the years ended
31 December 2015, 2014 and 2013. Adjusted EBITA ratio outlook reflects the annual royalty payment to Royal Philips under the TMLA.
Group defines net capital expenditures as additions of intangible assets, capital expenditures on property, plant and equipment andproceeds from disposal of property, plant and equipment. See “Operating and Financial Review—Non-IFRS financial measures” formore information on non-IFRS financial measures and reconciliation of net capital expenditures for the three month periods ended
31 March 2016 and 2015 and the years ended 31 December 2015, 2014 and 2013.

187

•

•

BG Home:O

achieve comparable sales growth above the growth of the consumer luminaires market in themedium term, driven by a turnaround of the consumer luminaires business and double-digit
home systems growth; andO

return to positive adjusted EBITA in the course of 2017.

BG Other:O

incur annual unallocated Group costs in line with performance in 2015 for the medium term.

The KPMG and EY reports included in this Prospectus relate only to the Combined Financial Statements
and the Condensed Combined Interim Financial Statements, respectively, and do not extend to the financial
objectives included in this Prospectus and should not be read to do so.
Group Overview
The Group
The Group is a global market leader measured by sales in the general lighting industry. It believes that it hasa unique position across the lighting value chain with a focus on the general lighting market. The Group’s lightsource product portfolio includes incandescent lamps, halogen lamps, LFLs, CFLs, HID lamps and LED lamps.
In addition, the Group offers electronic components, such as electronic ballasts and drivers, as well as complete
luminaires for consumers and professional users. The Group also offers innovative, integrated and customized
lighting systems and services including light management systems and value-added services such as energy
audits, light design and engineering as well as remote monitoring and managed services. The Group’s products
are used for illumination and visualization in a variety of applications for general lighting, in particular
residential, road and street, architectural, office, industrial, retail and hospitality lighting. The Group also
produces light sources and systems for special applications, such as projection, cinema, entertainment, city
beautification (i.e., dynamic architectural lighting) and horticulture as well as water purification (e.g.,disinfection with ultraviolet radiation).
The Group engages in acquisitions, divestments and investments in joint ventures from time to time. The
Group is no longer active in the lighting components and automotive lighting businesses after the separation ofRoyal Philips’ combined LED and automotive lighting components businesses into a stand-alone company in2015. The lighting components and automotive lighting businesses are not reflected in the financial results of theGroup or in the business descriptions in this Prospectus.
The Group has a strong track record in innovation and invests heavily in R&D (for the year ended
31 December 2015, 4.9% of sales) to stay at the forefront of technological developments. It has a strong patentportfolio with over 14,000 patent rights, which it believes is more than any of its competitors, and a licensing
program with over 600 licensees as of 31 March 2016.

188

Conventional
Lamps &
Electronics

Conventional
Luminaires

Lighting
Systems

Lighting
Services

Office lighting system

LED Lamps &Electronics

LED
Components

LED
Luminaires
CityTouch street lighting system
Managed services: “Light asa service” opex based
recurring revenues forproviding light
Professional services (e.g.
audit, design)

Hue personal wirelesslighting system

After the separation of
the combined LED andautomotive lighting
components businesses
into a stand-alonecompany prior to theOffering, the Group is nolonger active in thelighting components andautomotive lighting
businesses.

Lamps:
actual light source
Electronics:
magnetic and electronic
units known as drivers
that regulate current ina luminaire and the LED
light source known as
modules

Luminaires:
electrical devices that
produce, control anddistribute light (also called
light fixtures). They consistof one or more lightsources, lamps or sockets
that connect the lamps to theelectrical power and themechanical components
required to support or attach
the housing.

Lifecycle services (e.g.
remote monitoring)

Systems:the combination of
luminaires, controls andsoftware. The automation
and related controls oflighting within a room,building or outdoor facilities
for end-users.

Organizational structure
The Group’s business is organized and managed on a functional basis by technology and end-markets
through four operating Business Groups: BG Lamps, BG LED, BG Home and BG Professional. The BusinessGroups are responsible for the development of their strategy, product portfolio and the production and sourcingof their products. In addition, the Group’s commercial organization is structured along four geographical Market
Groups to manage its global sales channels: Europe, Americas, Growth Markets and Greater China.
The Market Groups are principally responsible for driving and managing sales, managing customer
relationships and delivering the commercial activities of the business across 17 identified markets, coveringcommercial activities in approximately 180 countries. Moreover, the Group manages certain business on a global
basis rather than geographical market basis, including digital projection, licensing programs, entertainment, andcertain independently run specialty brands such as Modular and Luceplan (the Global Businesses).
These Business Groups and Market Groups are supported by centralized shared services with respect to,among other functions, legal, finance, human resources, business transformation, strategy and marketing,innovation and operations. Certain of these activities and costs are not reflected in the financial results of theBusiness Groups, and are described under the caption “Other” in this Prospectus.

189

The following table presents the contribution to Group sales of the various Business Groups and Markets
Groups for each of the periods indicated. The information relating to the three-month periods ended 31 March
2016 and 2015 has not been audited.
For the three months ended
31 March 2016
2016
2015

In euros millions

2015

For the year ended 31 December
2014
2013

Business Groups
BG Lamps . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . .
BG Professional . . . . . . . . .
BG Home . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .

615
355
601
124
7

36.1%
20.9%
35.3%
7.3%
0.4%

727
275
610
112
3

42.1%
15.9%
35.3%
6.5%
0.2%

2,850
1,334
2,757
515
9

38.2%
17.9%
36.9%
6.9%
0.1%

3,119
958
2,420
482
2

44.7%
13.7%
34.7%
6.9%
0.0%

3,557
772
2,308
490
2

49.9%
10.8%
32.4%
6.9%
0.0%

Total . . . . . . . . . . . . . . . . . .

1,702

100%

1,727

100%

7,465

100%

6,981

100%

7,129

100%

Market Groups
Europe . . . . . . . . . . . . . . . . .
Americas . . . . . . . . . . . . . . .
Growth Markets . . . . . . . . .
Greater China . . . . . . . . . . .
Global Businesses 1 . . . . . . .

533
555
350
136
128

31.3%
32.6%
20.6%
8.0%
7.5%

561
538
369
138
121

32.5%
31.1%
21.4%
8.0%
7.0%

2,290
2,380
1,717
582
496

30.7%
31.9%
23.0%
7.8%
6.6%

2,311
2,156
1,450
624
440

33.1%
30.9%
20.8%
8.9%
6.3%

2,297
2,223
1,469
692
448

32.2%
31.2%
20.6%
9.7%
6.3%

Total . . . . . . . . . . . . . . . . . .

1,702

100%

1,727

100%

7,465

100%

6,981

100%

7,129

100%

1

Global Sales businesses reflects certain businesses managed on a global basis rather than geographical market basis, including digitalprojection, licensing programs, entertainment and the Modular and Luceplan brands.

Business Groups
The graph below demonstrates the position of the Group’s four operating Business Groups across thelighting value chain and the end-markets served by the Business Groups.
Overview of Philips Lighting business groups
Lamps & Electronics

Conv Luminaires
Lighting Systems

End Markets

ProfessionalOEM

ConsumerConventional

LED

Conventional
Lamps &
Electronics
38%
of total
2015 Sales( 2.9bn)

LED Lamps &Electronics
18%of total
2015 Sales( 1.3bn)

Lighting Services

LED Luminaires
Professional Luminaires, Systems & Services
37% of total 2015 Sales ( 2.8bn)

Home Luminaires & Systems
7% of total 2015 Sales ( 0.5bn)

BG Lamps
Overview
BG Lamps comprises the Group’s conventional lamps and lamp electronics businesses. BG Lamps produces
and sells lamps in a wide range of non-LED based technologies such as incandescent, halogen, fluorescent and
HID technologies, as well as electronic drivers and electromagnetic ballasts needed to control the lamp current
for specific conventional technologies.
BG Lamps’ sales for the year ended 31 December 2015 were €2,850 million (2014: €3,119 million;
2013: €3,557 million). Income from operations for BG Lamps for the year ended 31 December 2015 was €403
million, compared to €356 million for the year ended 31 December 2014, an increase of €47 million, or 13.2%.
BG Lamps’ adjusted EBITA (unaudited) for the year ended 31 December 2015 was €463 million(2014: €506 million; 2013: €601 million). For the three-month period ended 31 March 2016, BG Lamps
generated €615 million in sales and its adjusted EBITA (unaudited) was €125 million.
Products
BG Lamps sells halogen lamps, CFLi’s and incandescent lamps for the consumer market. These lamps aremostly being used for residential applications in homes, but are also being used in hospitality and low-end
professional applications. BG Lamps also sells switches for the consumer market in selected countries in Asia. In
addition, BG Lamps sells TL lamps, CFLni’s, HID lamps and special lighting for the professional market.
CFLni’s are primarily being used in offices, retail and industrial applications. HID lamps are primarily being
used for outdoor street lighting, sport stadiums and in spots for fashion retail stores. Special lighting includes
190lamps for a range of special applications, such as theatre and stage lighting, cinema projectors and water
purification. Moreover, BG Lamps sells lamp electronics, consisting of drivers and ballasts, predominantly toOEMs who produce luminaires and integrate these electronics into their finished products. BG Lamps also sells
drivers to the replacement market, where contractors replace them into existing luminaires for repairs or
upgrades. Finally, BG Lamps sells projector lamps and drivers to the projector OEM market and the replacement
market.
The Group estimates that for the year ended 31 December 2015 average adjusted gross margin of its
conventional lamps products28 was materially higher than for its LED lamps products.
Customers
Consumer and professional lamps are being used in a wide variety of both residential and professional
applications and are bought by consumers, electrical installers and professional end-users. BG Lamps therefore
distributes its conventional lamps across a wide range of channels, including via intermediary distributors andwholesalers as well as to large consumer retailers and do-it-yourself stores. Lamp electronics are mainly sold toluminaire manufacturers through direct sales and as replacement products via electrical wholesalers. Projector
lamps and drivers are sold to projector OEMs and replacement projector lamps are sold to the replacement
market. BG Lamps sells its products throughout the world, with sales operations organized in line with the fourMarket Groups, except for digital projection lighting, which is run independently.
Strategy
BG Lamps aims to selectively increase its market share and reduce costs to maximize free cash flow. Its
strategic priorities include winning share in key segments and markets, managing its industrial footprint,
reducing operational costs, become a more flexible and reliable supplier and developing and retaining employees.
BG LED
Overview
BG LED comprises the Group’s LED lamps and LED electronics businesses. BG LED sells a wide varietyof LED lamps, including spots, bulbs and tubes, to the professional, consumer and OEM channels. These LED
lamp products replace existing conventional lamp products, using similar form factors, or offer new form factors
specific to LED lamp products. In addition, BG LED sells LED electronic components, consisting of LED
drivers and LED modules, to luminaire OEMs for professional luminaire applications in retail, office and outdoor
segments. LED drivers regulate the current going through the light source (both conventional and LED) and are
optimized for different applications and regional power grids. The LED driver portfolio also offers connected
driver-sensor solutions for building and city management systems. LED modules serve as the light source in LED
luminaires.
BG LED’s sales for the year ended 31 December 2015 were €1,334 million (2014: €958 million;
2013: €772 million). Income from operations for BG LED for the year ended 31 December 2015 was€66 million, compared to €(62) million for the year ended 31 December 2014, an increase of €128 million. BG
LED’s adjusted EBITA (unaudited) for the year 2015 was €74 million (2014: €14 million; 2013: €(17) million).
For the three-month period ended 31 March 2016, BG LED generated €355 million in sales and its adjusted
EBITA (unaudited) was €20 million.
Products
The Group believes that it has a relevant portfolio of LED lamps that addresses local market needs with both
high volume products and innovative specialty products built on consumer and end-user insights. BG LED sells
LED lamps of three primary types: (i) bulbs, including candles and lustres (i.e., a full range of conventional lightsource replacements in form factors familiar to users); (ii) spots (i.e., a wide range of halogen replacements); and(iii) tubes (i.e., energy saving and long-lasting replacements for fluorescent lamps, such as TL and CFLni, foroffice, industry and retail applications).
In addition, BG LED sells LED electronics, consisting of LED drivers and LED modules, and believes thatits lighting application expertise drives differentiating innovations. The BG LED Electronics portfolio of drivers
and modules is organized around three major application types: (i) point—designed for quality of light in retailand office applications; (ii) linear—applications in office and industry, replacing fluorescent products; and(iii) outdoor—applications for public customers.
The Group’s R&D expenses in LED lamps and LED electronics grew by 11% per year in the 2013-2015
period. More than one-third of BG LED sales in 2015 were from new products launched in that year.
28

Including consumer and professional lighting segments.

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The Group estimates that its category market shares in the LED lamps and LED electronics markets grew by
1% in 2015.
Customers
Consumer and professional LED lamps are being used in a wide variety of both residential and professional
applications and are bought by consumers, electrical installers and professional end-users. BG LED distributes its
LED lamps primarily through consumer channels (e.g., retail and DIY stores) and professional channels(e.g., wholesalers, resellers, installers and facility managers). LED electronics are predominantly sold toluminaire manufacturers via the OEM channel and the remainder is sold through professional channels. BG LED
sells its products throughout the world, with sales operations organized in line with the four Market Groups.
Strategy
BG LED aims to focus on commercial and technological innovation to outgrow the market. Its strategic
priorities include growing consumer and professional lamp sales through effective innovation and marketing,expanding sales of LED electronics via strong account management, increasing supply chain agility at lower
costs and improving cost productivity.
BG Professional
Overview
BG Professional comprises the Group’s conventional and LED luminaires, lighting systems and lighting
services businesses for professional customers (i.e., businesses and governments). BG Professional has tailoredpropositions for professional customers across three key segments: the public segment, the office and industry
segment, and the retail and hospitality segment. Largest segment of BG Professional is the public segment,
followed by the retail and hospitality segment and the office and industry segment.
In addition, BG Professional provides lighting systems to the entertainment and horticulture sector and earns
licensing income from the use of patents by other manufacturers.
BG Professional has made several acquisitions in the last decade. Noteworthy are the acquisition of Genlyte,a U.S.-based luminaire manufacturer, in 2008 to strengthen the Group’s position in the U.S. market for
professional lighting applications (see “Operating and Financial Review—Material Factors Affecting Results ofOperations—Business improvement programs”); the acquisition of Indal, a European luminaire manufacturer
focused on the public lighting segment, in 2012 to grow its presence in professional outdoor lighting
applications; and the acquisition of a 51% interest in GLC, a Saudi Arabian luminaire manufacturer, in 2014 tobecome a leading lighting player in the largest economy of the Middle East. BG Professional’s systems offering
was strengthened by the acquisition of Color Kinetics in the United States in 2007 and Dynalite, an Australiancompany specialized in controls which are increasingly used in systems, in 2009.
Following the economic and financial crises which had a significant negative impact on the performance of
BG Professional in North America beginning in 2008, BG Professional in North America implemented from2012 to 2014 a major business transformation program, which included the integration of individual businesses,
footprint optimization, supply base consolidation, portfolio and brand rationalization, go-to-market approach
implementation (including consolidation of the agent network as a key component), IT consolidation andproductivity improvements, among other measures. In 2015, BG Professional in North America focused on
operational improvements, which included improving agent effectiveness, gaining share of wallet with certain
distributors that collectively represent 20-30% of the professional luminaires market, scaling end-user sales for
systems and services and committing to end-to-end excellence by, among other things, improving service
reliability. This business transformation program has resulted in a reduction of the number of: (i) decentralizedbusinesses from 30 in 2012 to 1 in 2015, (ii) operational manufacturing plants from 38 in 2012 to 11 in 2015,(iii) suppliers by 63% in the 2012-2015 period, and (iv) stock-keeping units by a factor 10 in the 2012-2015
period. Based on internal analysis, indicators of the Group’s turnaround in North America include an increase of
its net promotor score lead compared to its nearest competitor to +3 in 2015 (2013: -8; 2014: -10), growth of its
systems and services order pipeline29 of approximately 99% between January 2015 and January 2016 and anincrease in its estimated backlog by approximately 38% between year-end 2014 and year-end 2015. BG
Professional in North America established momentum and demonstrated a positive trend in comparable sales inthe year ended 31 December 2015, with comparable sales growth reaching approximately break-even for the
fourth quarter of 2015 and turning positive in the first quarter of 2016.
29

Defined as pipeline from Salesforce.com, for systems and services, including all projects from 2015 (tracked monthly) that are open
(quality, develop, propose, order promised) or closed/won (order booked or sales recognized).

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BG Professional’s sales for the year ended 31 December 2015 were €2,757 million (2014: €2,420 million;
2013: €2,308 million). Income from operations for BG Professional for the year ended 31 December 2015 was€14 million, compared to a loss from operations of €(56) million for the year ended 31 December 2014, anincrease of €70 million. BG Professional’s adjusted EBITA (unaudited) for the year ended 31 December 2015was €150 million (2014: €102 million; 2013: €51 million). For the three-month period ended 31 March 2016,
BG Professional generated €601 million in sales and its adjusted EBITA (unaudited) was €6 million.
Products and services
BG Professional’s product portfolio primarily includes conventional and LED luminaires (or fixtures), used
in offices or commercial buildings, shops, the hospitality sector (e.g., hotels, bars and restaurants), the industrial
sector (e.g., warehouses and factories) and outdoor (e.g., street lighting, highways and tunnels, parking lots,
sports venues, monuments and buildings). Historically, sales of BG Professional experienced a rapid shift fromconventional luminaires to LED luminaires as a result of the transition from conventional to LED lighting. The
Group believes its current position in LED luminaires provides a strong platform for systems and services
development. The Group first recorded lighting systems and services sales in 2014, and by 2015 these accounted
for more than 10% of the sales of BG Professional. The remaining sales were roughly evenly divided between
conventional luminaires and LED luminaires. Consequently, combined sales of systems and services and LED
luminaires accounted for more than 50% of the sales of BG Professional in 2015. LED luminaires provide
additional functionalities for end-users and enable the Group to take advantage of global LED board and driver
platforms, which the Group believes has helped to achieve higher adjusted gross margins for LED as compared
to conventional luminaires. The Group estimates that for the year ended 31 December 2015 average grossmargin30 of LED luminaires was materially higher than for conventional luminaires and was higher in Europe
than in other regions due to increased LED penetration and higher adoption of LED board and driver platforms.
The Group believes that the transition from lower margin conventional luminaires to higher margin LED
luminaires offsets the transition from higher margin conventional lamps to lower margin LED lamps.
BG Professional also offers luminaires with controls and software as lighting systems. Lighting systems
provide customers with an enhanced lighting personalization, energy efficiency, sustainability and operational
cost reduction via the combination of energy efficient light sources and digital controls. Connected lighting
systems combine intelligent illumination with data and connectivity, enabling two-way data communication. In aconnected lighting system, every light point is networked together and digitally controlled, creating a more
intelligent, flexible, efficient and dynamic lighting system. Connected lighting systems can integrate with othersystems in a city or an office building. In a city, lighting can support city service infrastructure like security
surveillance and traffic. In an office building, it can gather data about occupancy and enable facility managers to
optimize services like climate control or cleaning. BG Professional has, for example, commercialized connected
lighting systems for road and street lighting (CityTouch), for office lighting (Envision) and for food and large
retail sub-segments (indoor positioning system). As of 31 December 2015, the Group estimates that BG
Professional had 530 CityTouch implementations in 33 countries.
BG Professional builds on its large installed base of light points (i.e., the sum of all light points installed by
the Group globally) and global scale to offer lighting services to its customers to capture additional value andrecurring revenues. Services are categorized in professional services, lifecycle services and managed services.
Professional services include services like auditing a customer’s lighting installation or consulting customers on
potential improvements. Lifecycle services include the maintenance or asset management, including spare partmanagement or small retrofits, of an existing lighting installation. Managed services cover the full managementof a lighting installation through a performance-based contract such as an energy performance contract orso-called “Light-as-a-Service” contracts (i.e., contracts where customers pay for the provision of light to theirpremises).
Most products of BG Professional are sold under the Philips brand. In some cases, in particular in the
United States, BG Professional also sells under sub-brands like Philips Color Kinetics, Philips Lightolier, Philips
Day-Brite and Philips Hadco, to cater for specific segments of the general lighting market.
Examples of projects in 2015 include the following: (i) the global strategic alliance between the Group andCisco combining the Group’s connected office lighting system with Cisco’s network technology, to increaseenergy efficiency, provide data to optimize user comfort and improve the office environment; (ii) the Philips
CityTouch lighting system in Los Angeles, which involves the Group’s management system using wireless andcloud-based technologies to control street lighting; (iii) the installation of 2.5 kilometers of LED lighting byCarrefour in Lille, France, using light to transmit a location signal to a shopper’s smartphone, triggering a
consumer engagement app to provide location-based product navigation and promotion services to Carrefour’s
30

Gross margin including systems and services and excluding entertainment and licencing sales; GLC acquired in 2014 is included in the
gross margin as of 2015.

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customers, such as helping them to navigate and find promotions across the 7,800 m2 shop floor and to reduce thetotal lighting-based electricity consumption; and (iv) the connected LED lighting system provided by the Groupfor the New NY Bridge in New York, combining roadway and architectural lighting. This system will feature
remotely programmed lights that produce dynamic colorful effects and use cloud-based monitoring andmanagement systems.
Customers
BG Professional sells its products, systems and services either indirectly, through wholesalers (called
distributors in North America), agents or value-added partners, or directly to end-users. Indirect sales represent
the large majority of sales. Agents are independent parties with exclusive rights to sell a manufacturer’s products
in an assigned territory and are compensated on a commission basis. Agents are often dedicated to a single
manufacturer, such as the Group, for a given business or segment. Due to the size of their selling organizations
and long-standing relationships with specifiers31, agents are an important sales channel in particularly
North America and influenced 60–70% of the Professional luminaires market for the year ended 31 December
2015. Value-added partners are parties selected and trained by the Group to sell its products and provide
specialized expertise and local support. (See also “—Sales and Marketing—Go-to-market-approach”).
BG Professional sells its systems and services directly to certain large end-users in the three key market
segments: public, office and industry, and retail and hospitality. In the public segment, typical end-users aremunicipalities, road/port/airport authorities or governments needing lighting for roads and streets, tunnels, arenas
and sports facilities, parks and plazas, bridges, monuments and façades, municipal buildings, education buildings
and airports. In the office and industry segment, typical end-users are office building owners, logistics andmanufacturing companies and hospitals needing lighting for offices, warehouses, manufacturing, parking garages
and healthcare facilities. In the retail and hospitality segment, typical end-users are large retail chains, petroleum
companies, retail banks and hotel chains needing lighting for food and large retail stores, fashion stores, petrol
stations and convenience stores, retail bank outlets, hotels and restaurants. BG Professional sells its products andservices throughout the world, with sales operations organized in line with the four Market Groups, except forentertainment lighting, horticulture lighting and licensing, which are run independently.
Strategy
BG Professional’s strategic aim is to lead the transition to LED and systems and services. Its strategic
priorities include consolidating its leading position in LED technologies, scaling up its services proposition,
further transforming its North American business and redesigning the integral supply chain according tocustomer needs.
BG HomeOverview
BG Home comprises the Group’s consumer luminaires and home systems business. BG Home produces andsells functional and decorative consumer luminaires, connected lighting systems and premium luminaires,consisting of the Modular and Luceplan brands.
BG Home undertook beginning in 2014 an extensive portfolio pruning exercise in its consumer luminaires
business in Europe, seeking to reduce R&D costs, optimize manufacturing fixed costs and rationalize its
European warehouse footprint in order to improve profitability. As a result, the total number of stock-keeping
units globally decreased by approximately 47% in the 2013-2015 period. This exercise contributed to a decline in
the total sales of BG Home, but in an increase in sales per (higher margin) stock-keeping unit globally of
approximately 69% in the 2013-2015 period. The Group has also implemented restructuring measures in its
consumer luminaires business in China, including with respect to its local sales channels and closure of an
operational manufacturing plant.
BG Home’s sales for the year ended 31 December 2015 were €515 million (2014: €482 million;
2013: €490 million). Income from operations for BG Home for the year ended 31 December 2015 was€(73) million, compared to €(70) million for the year ended 31 December 2014, a decrease of €3 million. BG
Home’s adjusted EBITA (unaudited) for the year ended 31 December 2015 was €(57) million(2014: €(46) million; 2013: €(57) million). For the three-month period ended 31 March 2016, BG Home
generated €124 million in sales and its adjusted EBITA (unaudited) was €(12) million.
Products
BG Home’s portfolio of consumer luminaires products consist of functional and decorative luminaires suchas spot lamps, ceiling and wall lights, outdoor lights and desk lights. For the development of consumer
31

Companies that are partly or wholly involved in the prescription of lighting products.

194

luminaires BG Home builds on the Group’s strong knowledge in LED and lighting applications complemented
by extensive qualitative and quantitative consumer research. For example, BG Home developed a desk light for
the Chinese market, which provides high quality lighting for studying children while addressing parents’concerns for their eyesight.
The Modular portfolio consists of premium luminaires for the architectural lighting subsector and are
predominantly used for hospitality or high-end residential projects. Modular luminaires are primarily sold in
Europe. The Luceplan portfolio consists of premium luminaires with a focus on aesthetic design and areprimarily sold in Europe.
The Group believes that it is the leader in the development of smart home lighting. In 2012, BG Home
introduced Philips Hue, the world’s first commercially available web-enabled LED home lighting system, whichenables users to control light wirelessly with an app on their smartphone or tablet and to personalize their lighting
preferences and needs. BG Home’s home systems portfolio now consists of the Philips Hue product family of
connected lighting systems, including wireless connected lamps, luminaires and switches. Philips Hue is known
for its ease of installation and intuitive user-interface. It is an open system with an active developer communityand compelling lighting applications. The Group operates a smart home developer program and network withapproximately 16,000 registered developers and over 600 third party apps as of 31 March 2016. The Group
believes that this network is expected to accelerate the penetration of Philips Hue.
The Group’s sales in home systems grew by double-digits in 2015, though this business represented a smallpart of BG Home’s sales in 2015. Gross margins on home systems products were on average materially higher
than those on consumer luminaires.
The Group also launched LifeLight in 2015, a solar-powered LED lighting range for homes in Kenya andother African countries. The range eliminates the need to use kerosene lamps in homes in off-grid areas, and is
expected to also increase productivity and community life by enabling activities to continue after dark.
Customers
For the year ended 31 December 2015, BG Home sold approximately 85% of its consumer luminaires
through consumer channels (e.g., retail stores, including online platforms, DIY and specialist stores, and Philips
branded specialist stores in selected markets), and the remainder through professional channels. Home systems
are sold through the same channels as well as through consumer electronics retail stores. BG Home sells its
products throughout the world, with sales operations organized in line with the four Market Groups. Home
systems are predominantly sold in Europe and North America.
Strategy
BG Home aims to realize profitable growth by driving the transition to LED luminaires and connected
lighting. Its strategic priorities include further developing the required capabilities to lead this transition, growing
its home systems business, driving profitable growth in LED luminaires in Asia and North America, turning
around the profitability of consumer luminaires in Europe and creating leaner R&D and operations functions.
Research and Development
R&D activities
As one of the leading established global players in the lighting industry, the Group has invested significantly
in R&D for conventional lighting products and the rapidly growing market of LED lighting products, as well as
the emerging market for connected lighting systems.
In conventional lighting products, the Group believes that it is the market leader and aims to defend its
market position by continuously improving cost and value of its conventional lighting product portfolio. This isbeing achieved by continuously optimizing its supply base and operations, as well as by optimizing its productportfolio.
Based on the expected higher demand for LED lighting products in the future, the Group has been proactively shifting R&D resources and capabilities from conventional lighting products to LED lighting products tomaintain its leadership position in lighting. The Group believes that it has become the market leader in LED
lighting products by, among other things, taking advantage of synergies between conventional and LED
competencies in the field of electronics, miniaturization, cost optimization and through its extensive lighting
application knowledge. Furthermore, the Group believes that additional large innovation opportunities areavailable with respect to LED lighting products to further reduce energy consumption and costs.

195

Examples of important innovative LED lighting product launches include:•

The Philips InstantFit family of LED-based T8 tubes (TLED), launched in 2013—LED tubes designed for
direct installation into fluorescent fixtures without requiring removal of the fluorescent ballast;•

The Philips LED Deco Classic filament bulb, launched in 2015—available in eight different designs, thePhilips LED Deco Classic is an LED bulb targeted to customers with an interest in energy-efficient LED
technology with a traditional filament bulb design;•

The Philips Scene Switch LED bulb, launched in 2015—a two-in-one LED bulb that enables the user toadjust between two color settings by toggling the power switch;•

LED luminaires for sports-lighting applications, launched in 2014; which can be used for fixed sportslighting configurations, as well as pre-programmed special lighting effects;•

The Philips SimpleSet wireless programming technology, launched in 2014—a technology which uses nearfield communication technology to program driver current and lumen levels without the driver being
powered or wired;•

The Philips Xitanium Point & Linear drivers, launched in 2014—drivers which eliminate visible flicker andstroboscopic lighting effects that otherwise impact smartphone/security cameras and barcode scanners;•

The Philips PremiumWhite Spot Light modules, launched in 2014—modules which offers high light quality
and energy efficiency, enabling retailers to transition from conventional ceramic discharge metal-halidetechnology to LED; and•The Philips Xitanium SR LED drivers, launched in 2015—drivers which provide a standard digitalinterface, power reporting capabilities and dim-to-off settings, and can be applied in a wide range ofluminaires and in a wide variety of connected lighting systems.

In addition, the Group focuses its innovation efforts on developing new digital connected lighting
applications. The Group believes that it is the innovation frontrunner in connected lighting systems. The Group
believes that its strong foundation in the development of LED light sources and luminaires will drive innovative
opportunities in the field of connected lighting systems. These opportunities will result in systems and services
that support further energy reduction and in lighting applications that can create an optimal user experience byadapting to personal preferences or working conditions. Via connected lighting systems, the Group specializes inlighting related applications as part of the Internet of Things. The Group’s connected lighting systems cangenerate and transport data. Based on this data, the Group can further adapt its products towards customer
requirements and can extend the functionality of its lighting systems (e.g., by automatic behavior) and canaddress areas outside the direct lighting domain (e.g., by combining lighting-based indoor positioning with retailanalytics for an improved shopping experience). The Group believes that it has developed strong know-how inlighting applications and has demonstrated consistent design leadership in lighting, as evidenced by the 35 design
awards received by the Group in 2015 for 19 of its products, most notably for the LumiStreet LED Road Light(three awards including the Red dot award: best of the best), The Hue Go (four awards) and the ArenaVision
LED (three awards).
Examples of innovative connected lighting system launches include:•

CityTouch for public clients: a wireless lighting system for connected outdoor lighting supporting remotemanagement of light poles and asset management applications with strong network reliability and fully
automated commissioning (2011);•

Philips HUE: a personal wireless lighting system for usage at home with local control via smartphone andconnected to the Internet for remote control. The system is based on open communication standards andinterfaces that allow partners and the app-developers community to integrate and develop new applications
for the Hue system (2012). In 2014, Philips Hue was named the second most innovative company globallyin Internet of Things by Fast Company.

•

Integrated lighting systems for offices: connected lighting systems for offices supporting installers (e.g.,through highly reduced installation times and easy commissioning), users (e.g., through personal control ofthe lights) and building management (e.g., by providing input for maintenance flows) (2014); and•Indoor positioning lighting systems for retail stores: intelligent LED in-store lighting systems with lightsthat can communicate with shoppers’ smartphones via so-called Visible Light Communication to provide
them with targeted offers and information based on their location (2015).

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The Group believes that sustainable economic value is created through continuous innovation and that
continuous investments in R&D are fundamental to its current and future success. The table below sets forth theGroup’s R&D expenses for the periods indicated:
For the year ended 31 December
2015
2014
2013

Research and development expenses (in EUR millions) . . .
As a percentage of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .

366
4.9%

395
5.7%

375
5.3%

R&D organization
The Group’s R&D activities are organized globally with activities in various locations. The Group has
established four global hubs. Each global hub has its specific focus areas and capabilities:•

Eindhoven (the Netherlands): LED lighting products, lighting systems, services and digital applications;•

Burlington (United States): lighting systems and digital applications;•

Shanghai (China): conventional lamps and LED lighting products; and•Bangalore (India): software.

Next to these four global hubs, the Group has approximately 25 sites with specific capabilities andapproximately 30 small sites (i.e., with less than ten R&D FTEs) for local support to customers and for
implementing specific local requirements. As of 31 March 2016, the Group employed approximately 2,750 FTEs
in the R&D function, approximately 70% of which were based at the global hubs.
The Group has dedicated R&D activities organized inside each of the four operating Business Groups to
support them in developing and realizing their near-term (i.e., one to two years) product roadmaps. In addition,
the Group has centrally organized R&D activities to develop longer-term innovations with a cross-businesses
approach covering various innovation areas, including LED lighting products, connected lighting systems,
services and lighting applications. The centralized R&D activities make use of the “open innovation” approach in
R&D by combining insight on lighting trends with actively seeking innovative concepts and cooperation partners
for products or technological solutions outside the company. These activities allow the Group to obtain
information about relevant technologies at an early stage, which makes it possible to bring innovative products tothe market.
Moreover, the Group’s R&D function has established a standards and regulations team that proactively
drives and influences existing and upcoming digital lighting-related standards and strives to address andinfluence regulatory changes. Furthermore, the R&D function has a ventures team that helps the Group explore
new directions. The R&D function also seeks early protection of its innovations through patents and otherintellectual properties and its design team supports the Business Groups in all design aspects, such as productdesigns and user interface designs. Finally, the R&D function has an “idea to market” excellence team thatstrives to increase the innovation development speed by developing and improving standardized R&D processes
and tools for, among other things, product development, portfolio management and product lifecycle
management.
Sales and Marketing
The Group’s commercial organization is structured along four geographical Market Groups to manage its
global sales channels: Europe (2015: 30.7% of sales of all MGs), Americas (2015: 31.9% of sales of all MGs),
Growth Markets (2015: 23.0% of sales of all MGs) and Greater China (2015: 7.8% of sales of all MGs)*. The
Market Groups are responsible for driving and managing sales, gross margin and market specific selling
expenses across customers and Business Groups in each of the markets. In addition, the Market Groups centrally
manage aspects of the supply chain process, pricing, international key account management and business
transformation projects. The Market Groups’ sales teams are organized in three customer centric segments (i.e.,
professionals, consumers and OEMs) to maximize channel synergies.
Go-to-market approach
The Group’s go-to-market approach involves activities that define how the Group reaches its customers todeliver its products and services. The Group’s go-to-market approach is important to continue serving its clientsand to achieve a competitive advantage and growth.
The Group has established a common go-to-market blueprint defined at Group level which can be adapted
to local markets to align with that market’s characteristics and end-user needs. The four Market Groups (i.e.,
Europe, Americas, Growth Markets and Greater China) are responsible for managing the go-to-market strategy inlocal markets. The Market Groups’ sales teams are organized in three customer channels to maximize synergies(*)

Sales percentages do not add up to 100%. See “—Group Overview—Organizational Structure” for further information on thecontribution to Group sales of the various Market Groups, including the contribution of Global Businesses.

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across the BGs: professionals, consumers and OEMs. Distribution of the Group’s products, systems and services
to end-users takes place either through direct sales or channel partners (i.e., organizations involved in the processof making a product, system or service available to end-users).

BG Lamps

Indirect

BG Professional

Trade

Installers

VAP
Public Lighting Systems

BG LED

DirectProfessional Channel

Go-to-market approach

Hospitality & Retail Lighting Systems
Office & Industry Lighting Systems

BG Home

Branded Store
BG Lamps

BG LEDEnd Users

Consumer Channel

Mass Retailer
BG HomeSpecialist Store
Online retailer

OEM Channel

Traditional Retailer

Multi Tier Retailers

BG LEDOEM Partners

BG Lamps

The channel used and the means by which a product reaches the end-user depends on the type of productbeing sold and the type of customer purchasing it. As a result, this differs between the BGs. For example,
conventional and LED lamps in the consumer channel are sold through retail stores’ shelf space. In theprofessional channel, conventional and LED luminaires are mostly sold via distributors and value-added partners.
Value-added partners are parties selected and trained by the Group to sell its products and who provide
specialized expertise and local support to customers. This expertise can include design, installation andintegration of technologies to offer a customized solution to customers and provide on-going support. The OEMchannel mainly relates to electronics being sold to luminaire manufactures, including internal sales and sales tocompetitors like Acuity Brands, Cooper Industries and Cree.
In addition, a further distinction in market approaches can be made per region. In particular, in North
America, products are being sold to end-users through agents. Agents are independent parties with exclusive
rights to sell a manufacturer’s products in an assigned territory and are compensated on a commission basis.
Agents are often dedicated to a single manufacturer, such as the Group, for a given business or segment. Due tothe size of their selling organizations and long-standing relationships with specifiers, agents are an importantsales channel in North America where they influenced 60–70% of the Professional luminaires market in the year
ended 31 December 2015. Moreover, in some countries, including Belgium and China, the Group has branded
stores or franchise stores that sell directly to customers.
Online sales
The use of Internet as a means to allow customers to research, compare and purchase products online is
growing in importance for the lighting industry. Online sales are an attractive distribution, electronic orderingand information channel due to the clear advantages they offer compared to physical channels, including:•lower marketing costs and higher conversion rate (i.e., the percentage of visitors who take the desired
action);•broader access to customers at lower cost of sales and ability to offer a bigger product selection due to nolimitations to any physical barriers and availability 24 hours a day;•enhanced customer service through better information management (i.e., allowing the delivery of completed
and correct information directly to the customers); and•lower inventory requirements due to the opportunity to centralize inventory in a single location rather thanspreading it out in numerous retail store locations.

Online sales are an important element in the Group’s multi-channel approach to market. For the year ended
31 December 2015, 7.6% of the Group’s total sales to consumers and 15.8% of its total sales to professionals
took place online.
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Marketing
The Group’s key marketing initiatives aim at continuously strengthening the Group’s leading brandposition, highlighting how the Group creates value for consumers and businesses on a personal and societal level
and helping customers make the right decision by disseminating accurate and relevant information.
Marketing activities differ depending on the end-goal to be achieved but ultimately all serve the three
aforementioned goals. The Group’s marketing teams run integrated marketing campaigns that align the way theGroup engages customers. These campaigns often involve a mix of advertising (digital and non-digital), retailcategory management, business-to-business (“B2B”) value marketing, events and tradeshow participation, direct
marketing and public relations. The Group closely tracks and manages marketing execution through return on
investment analytics tools to continuously optimize its outreach to customers and measure the return-oninvestment of its marketing activities.
In 2015, the Group ran a number of global integrated marketing campaigns focused on key product areas of
the business, including (i) a global consumer LED campaign aimed at stimulating LED adoption by mainstream
consumers, (ii) a demand generation campaign for Hue personal wireless lighting targeted at early adopter
audiences, and (iii) a B2B campaign focused on promoting LED, systems and services and aimed at creating acompelling customer value added promise across the B2B product offering.
Customers
The Group has strong positions and long-standing relations with key customers globally in all BusinessGroups. The Group has a well-balanced and diversified customer base with limited customer concentration, as no
customer accounted for more than 5% of the Group’s sales, and the Group’s top ten customers accounted for only
approximately 21% of sales for the year ended 31 December 2015.
Approximately 75% of the Group’s sales for the year ended 31 December 2015 across all Business Groups
were through to professional customer channels32 compared to 25% through retail consumer channels. The
Group’s international customers are wholesale organizations, retailers and professional end-users. The
contractual arrangements with international key wholesaler and retailer customers are mostly international
services or rebate agreements. These international agreements generally provide for performance related
incentives or rebates and typically do not contain concrete sale and purchase terms, which are agreed upon at anational level between both parties’ local businesses. However, occasionally in the retail and more so in theprofessional end-user channel, customers prefer to agree on both the incentive as well as the sales and purchaseterms in one central international agreement. Volume commitments are generally not agreed. The frameworkagreements at Group-level are typically entered into for a medium term period of one to three years with
automatic one-year renewal terms unless cancelled by one of the parties.
Production
The nature and need for manufacturing plants differs between the technologies used in the various lighting
products offered by the Group and depends on their historical manufacturing footprint, the capital-intensive
nature of producing certain products and the extent to which certain of the Group’s businesses elect to outsource
production to third parties. In light of the transition of the lighting industry from conventional lighting
technologies to LED lighting technologies, the Group is adjusting its production model accordingly. The Grouppursues an “asset-light” outsourcing production strategy with respect to the production of LED lamps pursuant towhich it relies on suppliers to produce products, parts, components and services. In 2015, the five largest
suppliers accounted for approximately 21% of the total bill-of-material costs and approximately 11% of the total
costs of indirect materials and services.
Typically, products sold by BG Professional are assembled in-house, a process that involves assembling
luminaires consisting of metal and plastic parts as well as adding optics for reflection and diffusion. The mass
production of conventional lamps at the Group’s operational manufacturing plants typically involves glass
melting and adding metal parts in, largely, mechanized production lines. The Group’s operational manufacturing
plants for conventional and LED electronics have production lines where electronic components are mounted on
printed circuit boards.
The Group has significantly reduced the number of operational manufacturing plants and plans to further
reduce this number in the future to reflect trends in demand. On 31 December 2015, the Group had
61 operational manufacturing plants in 22 countries (2011: 77 plants). Four of these plants are multi-BG plants,
meaning that they also produce lighting products for other BGs to take advantage of scale benefits.
22 operational manufacturing plants produce lighting products for BG Lamps and BG LED (2011: 31 plants);
35 operational manufacturing plants produce lighting products for BG Professional (2011: 41 plants); and four
32

Including OEMs.

199

operational manufacturing plants produce lighting products for BG Home (2011: 5 plants). On 31 December
2015, 16 of the Group’s operational manufacturing plants were based in North America (2011: 32 plants),
24 operational manufacturing plants were based in Europe (2011: 27 plants) and 21 operational manufacturing
plants were based elsewhere (2011: 18 plants).
The multi-BG plants are located in Malu (China), Tijuana (Mexico), Varginha (Brazil) and Pila (Poland).
The operational manufacturing plant in China produces lighting products for BG Lamps and BG Professional.
The operational manufacturing plant in Mexico produces lighting products for BG Lamps and BG LED. The
operational manufacturing plant in Brazil produces lighting products for BG Lamps and BG Professional. The
operational manufacturing plant in Poland produces lighting products for BG Lamps, BG LED and BG Home.
On 31 December 2015, the Group had 120 distribution centers globally to distribute its products to its
customers. The Group’s main distributions hubs are in Paris (France), Eindhoven (the Netherlands), Pila
(Poland), Mountain Top (United States), Memphis (United States), Ontario (United States), Shanghai (China),
Shenzhen (China), Chengdu (China) and in each country of the Growth Markets. In 2015, the Group shipped its
products to approximately 25,000 locations across 125 countries and processed 12 million order lines.
As a result of adjustments in its production model towards an “asset-light” outsourcing production model,
gross capital expenditures as a percentage of sales at Group level declined in the 2013-2015 period. As a result,gross capital expenditures were below depreciation and amortization levels in the 2013-2015 period. The Group
expects that gross capital expenditures in relation to LED, systems and services will continue to increase.
For the year ended 31 December
2015
2014
2013

Gross capital expenditures as a percentage of sales33 . . .
BG Lamps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross capital expenditures split% in relation to intangible assets . . . . . . . . . . . . . . . . . . . . . .
% in relation to tangible assets . . . . . . . . . . . . . . . . . . . . . . .

1.8%
1.1%
1.8%
1.9%
2.7%

2.3%
1.1%
2.6%
1.6%
1.9%

2.8%
1.4%
3.5%34
2.7%35
1.4%

27.9%
72.1%

31.9%
68.1%

19.3%
80.7%

BG Lamps
As of 31 December 2015, BG Lamps had 21 operational manufacturing plants. A number of the operational
manufacturing plants are electronics manufacturing plants that provide BG Lamps and external customers withcomponents, like wires, powder, burners, and caps for lamp manufacturing.
BG Lamps’ operational manufacturing plants are spread around the world in line with demand from local
markets. BG Lamps products, including TL, HID and the majority of lamp electronics, require highly automatedand capital intensive production. BG Lamps produces in-house through its own manufacturing plants in the
United States and Europe, and outsources the production of its less automated production items, including
selected CFLi, halogen, switches and lamp electronics (except for electromagnetic ballasts) to Asia.
Given the decline in conventional lamp sales volumes, the Group is proportionally reducing the BG Lamps
conventional lamps manufacturing footprint and associated cost base. BG Lamps is rightsizing production
requirements in line with market demand and concentrating part of the production to more efficientmanufacturing plants to maintain scale and cost efficiency. In addition, outsourcing options are further explored.
As a result, the Group has reduced the number of operational manufacturing plants for conventional lamps from45 in 2008 to 21 as of 31 December 2015. The Group believes that it will be able to continue the reduction of its
conventional lamps manufacturing footprint should this be required in the context of an accelerated market
decline or to maintain profitability and cash flow. In 2015 (Surabaya plant) and 2016 (Bangpoo and Terneuzen
plants), the Group has flexibly brought forward closures of operational manufacturing plants in view of market
conditions. See “Operating and Financial Review—Material Factors Affecting Results of Operations—
Restructuring Costs” for more information.
BG LEDOn 31 December 2015, BG LED products were produced in three operational manufacturing plants. Almost
all of the Group’s LED lamp production is outsourced, except for a relatively small proportion that is kept inhouse for strategic reasons to reduce lead times and to take advantage of the Group’s conventional lamps
33
34
35

Including intersegment sales.
Higher gross capital expenditures in 2013 as a result of €11 million investment in OLED.
Higher gross capital expenditures as a result of €18 million investment in a new factory for BG Professional.

200infrastructure to manufacture glass LED bulbs. The manufacturing of LED lamps is mainly outsourced to anumber of large lighting suppliers in China who are able to step-up capacity for mass production quickly. The
Group believes that economies of scale and efficiency improvements at these suppliers effectively drive down
production costs. Savings in procurement costs are generated by design innovations. In 2015, over one-third of
BG LED sales was attributable to products that have been available on the market for less than one year. The
Group has historically demonstrated ability to grow margins for its LED products, with an adjusted gross margin
ratio for both LED lamp products and LED electronic products increasing from 2013 to 2015 as decreases in costprice levels more than offset decreases in sales price levels.
BG LED produces LED electronics at multi-BG sites including in Tijuana (Mexico) and Pila (Poland). BG
LED also has a dedicated site in Collierville (United States) for LED electronics. In addition, the Group estimatesthat in 2015 around one-third of its LED electronics production was outsourced to third party suppliers. The LED
electronics are mainly sold in the region where the assembly takes place to align to local needs and to maintainrapid supply times to customers.
The Group believes that the pace of innovation in LED technology is fast, and that product engineering is an
important aspect to play an active role within LED. BG LED therefore works with a limited number of LED
suppliers to ensure product quality and to manage production costs. BG LED is highly involved in the productengineering process and initiates product innovations, product improvements and cost reducing developmentswith these suppliers. The Group believes that LED electronics are subject to strict norms and regulations, andrequire more intense design and precise manufacturing efforts for product and application usages. The productionof LED electronics is therefore mostly kept in-house, also to be more flexible towards individual customers.
BG Professional
As of 31 December 2015, BG Professional had 35 operational manufacturing plants, of which 11 werelocated in Europe, 15 in Americas, six in Growth Markets and three in China. This relatively substantial numberof operational manufacturing plants is the result of manufacturing plants acquired as part of the Group’s pastacquisitions of the Indal and Genlyte businesses and the substantial volume of products manufactured within BG
Professional.
The operational manufacturing plants are spread across each Market Group with manufacturing locations
linked to sales activity. BG Professional largely assembles its conventional and LED luminaires and lighting
systems in-house. The production of commoditized products is partly outsourced to Asia.
BG Professional’s industrial footprint structure is set up to offer customers low variety/relatively highvolume products and high variety (customized)/relatively low volume products and systems. In order to establish
a more competitive footprint, capable of supporting LED luminaires and systems, a number of plants were
divested (four), closed (six) or downsized (one) between the years 2012 and 2015. In general, production moved
towards lower cost countries such as Mexico and Eastern Europe, in particular for low variety/relatively highvolume products, while the high variety (customized)/relatively low volume products are still produced inWestern Europe and North America. In addition, as a result of the joint venture of the Group with GLC, BG
Professional has four operational manufacturing plants in the Middle East region.
BG Home
As of 31 December 2015, BG Home had four operational manufacturing plants. The operational
manufacturing plants are located in Roeselare (Belgium) for the brand Modular, Milan (Italy) for the brand
Luceplan, Pila (Poland) and Shenzhen (China). The Modular and Luceplan plants are dedicated to these brands
and are managed largely on a standalone basis. At the multi-BG plant in Poland, products for home systems arepackaged and consumer luminaires are assembled to reduce lead times to Europe and to reduce inventory
obsolescence, as well as adapting to the shorter production life cycles. BG Home sources highly commoditized
products (such as indoor spots) mostly from third parties in China. The Group also has a relatively large in-houseassembly operation in China that predominantly focuses on decorative products.
Property, Plants and Equipment
The following table provides an overview of the Group’s material owned and leased properties as of the dateof this Prospectus. There are no major encumbrances on any of these properties. The material properties aregrouped in three categories: (i) operational manufacturing plants; (ii) distribution centers; and (iii) otherproperties, which consist of manufacturing plants that are no longer operational, but that represent a material
financial asset.

201

Operational manufacturing plants
CountryCity

Principal use

Size (m2)

Owned/leased

Argentina
BelgiumBrazil
China
China
China
Hungary
India
MexicoBuenos Aires
Turnhout
Varghina
ChengduShanghai/Malu
ShenzhenTamasi
Vadodara
Tijuana

350
78,5955,500
7,800
47,24940,580
11,63328,1747,500

LeasedLand leased/ Building owned
Owned
Land leased/ Building owned
Land leased/ Building owned
Land leased/ Building owned
Owned
Owned
LeasedMexicoMexicoPolandPolandCamargoMonterrey
Pila
Pila

PolandSaudi Arabia
Saudi Arabia
Saudi Arabia
United States
United States
United States
United States

Ketrzyn
RiyadhRiyadhRiyadhSalinaCollierville
San Marcos
TupeloProfessional luminaires
Conventional lamps
Electronics
Professional luminaires
Conventional lamps
Consumer luminaires
Professional luminaires
Conventional lamps
LED lamps andelectronics
Professional luminaires
Professional luminaires
Electronics
Conventional and LED
lamps
Professional luminaires
Professional luminaires
Professional luminaires
Professional luminaires
Conventional Lamps
Electronics
Professional luminaires
Professional luminaires

17,280 Owned
34,293 Leased
11,703 Land leased/ Building owned
157,900 Land leased/ Building owned
15,8096,331
10,4996,660
71,5493,700
24,58447,701

Owned
Land leased/ Building owned
Land leased/ Building owned
Land leased/ Building owned
Owned
Owned
Owned
Owned

Distribution centers
CountryCity

Size (m2)

Owned/leased

FranceNetherlands
PolandVilleneuve-Saint-Georges
Eindhoven

55,635
19,903

Pila
Mountain Top
MemphisOntarioChengdu37,16135,72029,84912,300

Owned
LeasedOutsourced (CEVA)—Basically
dedicated to Philips
LeasedLeasedLeasedLand leased/ Building owned
Outsourced (PGL Logistics)—
Philips one of major customers
Outsourced (YHG)—Philips oneof major customers
Outsourced (K-LOG)—Philips
one of major customers

United States
United States
United States
China
China

Shanghai
China
ShenzhenIndonesia
Jakarta
Other properties
CountryCity

Principal use

Size (m2)Netherlands
China
MexicoIndonesia

Roosendaal*
Shanghai/Malu**Monterrey***
Surabaya

Financial Asset
Financial Asset
Financial Asset
Financial Asset

210,488 Owned
3,700 Owned
75,000 Owned
56,442 Land leased/ Building owned*

Owned/leased

Production at the Roosendaal site stopped as of December 2015 and the site is currently being decommissioned by the Group. The
Group intends to sell land and buildings before the end of 2016.
** The BG Professional activities in Shanghai/Malu are expected to be integrated into the operational manufacturing plant in Chengdu. BG
Lamps production will remain on site. A large majority of the Shanghai/Malu site is leased to Lumileds until 30 September 2021.
*** Production at the Monterrey site stopped as of October 2015. The property has been sold and is currently being decommissioned by theGroup. The Group expects to deliver this site to the buyer in mid-2016.

202

Procurement
The Group’s procurement function works across Business Groups and business functions to ensure its
approach is end-to-end driven. The procurement function generates value for the Group through its contribution
in margin optimization by realizing sustainable bill-of-material cost savings, which almost entirely come from (i)price savings, resulting from (re)negotiation of contracts with existing or new suppliers, and (ii) concept savings,
resulting from product design optimization through re-engineering or re-specification activities. In addition, theGroup’s procurement function manages payment terms with suppliers and enables meaningful innovations
through early supplier involvement and guided, sustainable supplier management. The Group’s procurement
function works with standardized, transparent processes and dedicated procurement tools, and uses shared service
center solutions to improve operational efficiency and reduce complexity. Electronic sourcing tools are
frequently used for auctions and biddings, to generate competition in negotiations and obtain objective andtransparent sourcing decisions.
With a relatively high level of vertical integration, the Group purchases a broad range of products with ahigh proportion of raw materials and components. In addition, the Group purchases finished products, nonproduct related materials and capital goods, such as machines or parts for production equipment, as well as
services to the extent needed. As the Group’s operational manufacturing plants and its sales organizations are
spread around the world, the purchased volumes are distributed accordingly. The main countries where the Grouppurchases its products in terms of volume are China, Poland, France, the Netherlands, India and the UnitedStates.
To support natural currency hedging and to realize logistical advantages, the Group pursues a balanced local
or regional sourcing strategy. The Group strives to maximize regional and worldwide demand pooling to
generate economies of scale to the extent possible on reasonable terms. The Group maintains a diversified supply
base with long-term supplier relations to increase bargaining power and not to become too dependent on alimited number of suppliers. To the extent possible, the Group tries to secure a qualified second procurement
source. Due to the specific sourcing needs, a fair amount of the products purchased by the Group is directly
impacted by the supply situation of commodities such as rare earth metals, copper, phosphor, steel, aluminum,
noble gases and oil-related products. While the Group does not expect specific supply constraints for thesematerials, its sourcing costs are strongly dependent on material price developments. Limitations on export of rareearths from China, for example, have historically resulted in a strong price fluctuations of rare earths used influorescent lamps and CFLs.
As the industry has begun the shift towards LED lighting products, some suppliers have also shifted theirfocus away from conventional lighting components towards those used in LED lighting products. The effect has
been to reduce to some extent sources of supply for conventional lighting products. The Group expects that thistrend may continue and continues to pursue where practicable a multiple supplier strategy.
The Group’s key suppliers are regularly evaluated and improvement measures are mutually agreed. It is partof the Group’s procurement strategy to use the innovation power of its suppliers by integrating them into the
product development processes and to continuously generate material related productivity improvements.
Employees
As of 31 March 2016, the Group employed approximately 36,350 FTEs, of which approximately 22,300
FTEs were manufacturing FTEs. As of 31 December 2015, BG Lamps accounted for approximately 53% of
manufacturing FTEs, BG LED for approximately 13% of manufacturing FTEs, BG Professional for
approximately 31% of manufacturing FTEs and BG Home for approximately 4% of manufacturing FTEs. The
Group expects that the split of employees will shift over time from BG Lamps to BG LED and BG Professionalin line with the industry transition from conventional lighting technologies to LED technologies, systems andservices. As of 31 December 2015, approximately one quarter of the Group’s manufacturing FTEs were based inWestern Europe36, United States and Canada, and the remainder elsewhere. See also “Management, Employees
and Corporate Governance—Employees”.
Intellectual Property
The Group owns a portfolio of intellectual property rights including over 25,000 registered intellectual
property rights of which over 14,000 patent rights as of 31 March 2016. The value of the patent portfolio issignificant because the Group has generated and acquired patents resulting from pioneering innovations. The
Group believes that it holds a number one position in the number of lighting business patents. Approximately
90% of its patents are LED lighting and digital related, and approximately 10% are conventional lighting related.
36

Western Europe includes Belgium, Italy, Germany, the Netherlands, United Kingdom, Denmark, France and Spain.

203

The Group believes that it owns the largest number of living patent families in LED lamps, modules and drivers,
and lighting control and services; for example, it owns the largest number of intellectual property rights in coded
light and indoor positioning services.
The Group applies many intellectual property rights and technologies across multiple BGs which allows forsynergies and scale benefits. In addition, the Group believes that its leading intellectual property right portfolio
provides the following key benefits:•

Cross license agreements that enable higher margins in certain areas and higher market shares. The large
and valuable patent portfolio of the Group enables it to conclude cross license agreements with competitorsthat also have strong patent portfolios. Through these cross license agreements, the Group has access totechnologies developed and protected by these competitors. This enables the Group to develop better
products against lower costs and this has a positive impact on market shares and margins, especially forinnovative products and services;•Intellectual property is used to get better deals in licensing-in agreements. Other companies sometimes offer
licenses under their patents in return for a royalty payment. As such companies often also use some of theGroup’s patents, the Group is able to negotiate lower royalty payments in return for a license under suchpatents; and•Higher margins because specific features are protected by intellectual property rights. As of 31 March 2016,
the Group has licensed only approximately 10% of its patent rights. This means that it is able to keep certain
specific features proprietary so that it can compete on these features in the market. Having proprietaryfeatures helps to obtain higher margins.

As of 31 March 2016, the Group has licensed over 1,400 patent rights to more than 600 licensees. The
Group expects more than 100 new licensees every year and growing licencing revenues as a result of a growing
luminaire market, increasing LED penetration and a growing connected lighting market. The life of each patent islimited by law to 20 years and consequently some important Group patents will lapse in the coming years.
However, as the Group has continuously invested in filing new patents and acquiring patents from third parties
over the last 20 years, it is expected that the license revenues and other benefits from the patent portfolio willremain significant until at least 2025.
The Group will have the right to use the Philips brand name for a period of ten years from the date of the
Separation, with two renewal options, each extending five years, contingent upon certain conditions being met,
under the TMLA, see “The Separation—Intellectual Property”. Through this license, the Group believes that it
will be able to continue to sell as a premium brand. The license is subject to royalty payments, brand identity,
quality and sustainability requirements. In addition, the Group also has the right to use the Philips company namefor a period of 18 months after the date that it is no longer controlled by Royal Philips (See “Separation—
Intellectual Property”).
Information Technology
IT is an important part of the Group’s operations. The Group relies on IT to manage the day-to-day
operation of its business, manage relationships with customers, maintain R&D data and maintain financial andaccounting records. The Group predominantly uses SAP and Microsoft products as its common application
platforms. The Group’s regional and global data centers are outsourced to third parties and data management isincreasingly organized through cloud-based services. Most of the operational and support activities have been
outsourced to Wipro and Cognisant, office support is provided by HP, and project work is done with resourcesfrom Ciber, Cap Gemini, Wipro and Cognisant. The Group has employees working in IT in Eindhoven, but also
has support centers in the United States, China and Singapore. Many operational activities are coordinated from
India where the Group also has a team conducting advanced analytics. The Group is currently building two nearshore support and development centers in Poland and Mexico.
The Group’s IT Strategy is aimed at supporting the Group’s business ambitions for growth and moving
more towards systems and services. The Group is seeking to invest in new capabilities such as CPQ (a new
system used by individuals involved in sales, which speeds up the quoting process and can automatically trigger
an order if needed), customer project management (a tool and process enabling projects for customers), B2B,
business-to-consumer, Digital (revising the website, social monitoring and creating a new web shop) and productlifecycle management (a single template used for all product developments). The Group is currently working on
moving towards a single SAP system which uses standardized processes and this is expected to be complete by
mid-2018. The Group aims to reduce costs by (i) accelerating the decommissioning and consolidation of
applications; (ii) moving traditional data center services to leverage cloud and virtual data centers; and (iii)aligning services.
204

Environment
The Group has been in the business of manufacturing products for 125 years. During that period, the Grouphas opened, discontinued and acquired manufacturing plants and sites. As of 31 March 2016, the Group had aportfolio of 80 sites that it tracks for their environmental status, including operational and defunct manufacturing
plants, offices, shops, warehouses and distribution centers. This number includes both currently operating sites(29) and discontinued sites (51), i.e., sites that have been divested or where operations have stopped. Of the 80
sites, 17 legacy sites relate to the manufacturing of non-lighting products but have been allocated to the Grouppursuant to the Separation. Two of these legacy sites are operational and 14 are discontinued sites.
The Group regards its responsibility to operate its business in an environmentally responsible manner as oneof its core objectives. The Group believes that it has adopted adequate and effective systems to control emissions
and to comply with applicable environmental laws and regulations, including an environmental risk assessment
and remediation policy. However, as the Group’s discontinued and currently operating manufacturing plants
produce(d) and use(d) various hazardous substances, including different metals and chemicals, there is always alatent risk that the Group’s premises may be subject to environmental conditions that require corrective
measures. The Group defines environmental conditions as conditions that need corrective action based on
legislation or constructive obligations. It can sometimes take many years before it is discovered that certain
premises have conditions that urge corrective measures. About two-thirds of the Group’s premises withrecognized environmental conditions are affected by chlorinated solvents, which are typically used for
degreasing and cleaning purposes. The remaining approximately one third of the premises are affected bypetroleum products from fuel storage and other uses or as a result of manufacturing materials and processes(heavy metals). Remedial solutions and corrective actions include hot-spot soil removal (excavation), off-site
disposal, soil vapor extraction, thermal desorption, pump and treat, enhanced reductive de-chlorination used insitu reactive zones and monitored natural attenuation of groundwater.
The Group has centralized its governance of environmental soil and groundwater liabilities. Such liabilities
are managed by a core team of environmental experts with an average of approximately 20 years of experience inthe environmental field, including investigation and remediation. The Group’s core environmental team is
supported by business analysts. This team provides support for the Group globally.
The Group believes that it has well established processes to identify and recognize environmental provisions
that are in compliance with IAS 37. The Group has a total environmental provision relating to soil andgroundwater contamination of €158 million as of 31 March 2016, of which approximately 46% relates to 5 sites
located in Germany, the Netherlands, France and Belgium. The environmental provision relates to approximately
11% of the Group’s portfolio of plants and sites. In addition, the Group has a total environmental provision of €9million relating to buildings and a total reimbursement potential of €19 million.
Health and Safety
The Group considers the protection of the health and safety of its employees, customers, suppliers and otherstakeholders as an integral part of its activities. The Group is committed to continuous improvement of its
machine safety and the general work environment and strives for an injury-free and illness-free work
environment. The Group considers governing regulations as a minimum. The Group expects every employee tocontribute to the prevention of accidents by reporting, analyzing and controlling health and safety hazards. Thisis supported by training programs for management and employees and health and safety improvement plans. Linemanagement is responsible for demonstrating the Group’s visible commitments and to enforce and provide
appropriate resource to implement the Group’s health and safety policy. Line management is supported bydedicated health and safety professionals and a team of sustainability professionals at Group level.
The Group has implemented reporting policies for health and safety infractions, process incidents and workrelated injuries. All such incidents are assessed at the division and corporate levels, which consult with eachother and with local personnel to determine the causes of such incidents. Finally, the Group implements
corrective measures designed to prevent future incidents. Where applicable, these measures are implemented not
only at the manufacturing plant where the original incident took place, but also at other manufacturing plants
where similar risk situations are identified.
The operational units of the Group are certified by relevant industry standards. Every major operational unitof the Group is OHSAS 18001 (Occupational Health and Safety Management) and ISO 14001 (Environmental
Management System) certified. The Group has a health and safety improvement plan that consists ofimprovement actions in the areas of people, assets and processes based on local priorities. Health and safety
performance and the status of improvement plans are reviewed by operational management on a regular basiswith regard to content, scope and how actions are followed up.

205As a result of its health and safety policy, the Group has succeeded in lowering the reported accident rates
from 1.4 lost workday injury cases per 100 employees in 2005 to 0.34 in 2015 (0.37 in 2014 and 0.42 in 2013).
The number of lost workdays reported in 2015 (4832 days of absence) was slightly higher than in 2014
(4700 days of absence). The slight increase in lost workdays is attributable to a few cases reported in 2015 withlonger-term absences.
Risk Management
The Group has and will continue to have a structured risk management process allowing its management totake risks in a controlled manner. Risks and opportunities are identified in a structured way combining elementsof a top-down and bottom-up approach. Risks are reported on a regular basis as part of the Group’s ‘Business
Performance Management’ process. All relevant risks and opportunities are prioritized in terms of impact andlikelihood, considering quantitative and qualitative aspects. The bottom-up identification and prioritization
process is supported by workshops with the respective management at BG, MG and Group level. The top-downelement allows potential new risks and opportunities to be discussed at management level and included in thesubsequent reporting process, if found to be applicable. Reported risks and opportunities are analyzed forpotential cumulative effects and are aggregated at BG, MG and Group level.
Risk management and controls form an integral part of the business planning and review cycle. The existingand potential risks could hinder the Group in achieving its strategic and financial business objectives, and could
ultimately have a major impact on the Group’s businesses, objectives, revenues, income, assets, liquidity orcapital resources. The Group’s risk management and control policy is designed to provide reasonable assurance
that objectives are met by integrating management control into the daily operations, by ensuring compliance withlegal requirements and by safeguarding the integrity of the Group’s financial reporting and its related disclosures.
It makes management responsible for identifying the critical business risks and for the implementation of fit-forpurpose risk responses.
The Group uses standardized methods designed for identifying, monitoring, documenting and reporting on
risks, and taking corrective action where necessary. The Group’s corporate governance approach, for example,
involves internal and external audits ensuring periodic monitoring and reporting. The Group has also
incorporated a Business Control Framework (“BCF”) and General Business Principles (“GBP”). The BCF sets
the standard for risk management and business control and is based on the “Internal Control-Integrated
Framework (2013)” established by the Committee of Sponsoring Organizations of the Treadway Commission. Its
objectives are maintaining integrated management control of the Group’s operations, in order to ensure theintegrity of the financial reporting, as well as compliance with laws and regulations. As part of the BCF, theGroup has also implemented a global standard for internal control over financial reporting, which supportsbusiness and functional management by quarterly assessments of, monitoring of, and reporting on the control
environment. The GBP set the standard of the Group’s core behavior, acting with integrity, and they apply to the
behavior of individual employees and corporate actions. The GBP set out a self-assessment process, enable
quarterly monitoring, include standardized reporting on non-compliance and further contain complaint
procedures and a formal escalation procedure. Every country organization and all main operational
manufacturing plants are supported by a GBP compliance officer, which is supervised by the GBP Review
Committee. Alleged violations of the GBP are registered consistently in a database and are investigated inaccordance with standardized investigation procedures. Furthermore, there are also separate codes of ethics that
apply to employees working in certain areas of the business (such as the Procurement Code of Ethics and the
Financial Code of Ethics).
ComplianceAs part of Royal Philips, the Group was integrated into the Royal Philips compliance system. The Groupwill continue to apply this compliance system, which is based on the GBP. The Group has also adopted the GBP
governance framework that applies within Royal Philips. A dedicated committee to review GBP compliance has
been established. This committee (i) advises the Board of Management on matters concerning the GBP and GBP
deployment; (ii) advises the business on GBP matters of a complex nature or with a global impact; (iii) drives the
deployment of programs designed to heighten awareness of, and compliance with, the GBP; (iv) implements andmaintains adequate procedures to help ensure compliance with the GBP; (v) coordinates the twice-yearlyreporting on compliance with the GBP and the underlying policies to the Board of Management and the Audit
Committee of the Supervisory Board; and (vi) facilitates alignment between the individual compliance domains(HR, legal, IT, Internal Audit and business) on the relevant ethics and compliance programs. The committee
maintains a network of GBP compliance officers at market, country, site, Business Group and functional level.
These GBP compliance officers are responsible for the effective deployment of the GBP within their area of
responsibility. The committee meets at least four times per year to discuss the progress on its commitments, risk
management, consolidated monitoring data and individual compliance domain reports. Various stakeholders are206

also involved and invited to inform the committee on the status of deployment of their respective ethics andcompliance programs. Representatives of individual compliance domains regularly review the GBP and themonitoring and reporting structure to ensure alignment with regulatory developments. They analyze and realize
improvement plans related to the individual compliance domains. They investigate alleged violations, provide
advice on corrective and disciplinary measures and report on a bi-annual basis to the committee on the status of
deployment of their respective ethics and compliance programs.
Legal and Arbitration Proceedings
Neither the Company nor any of its Group Companies are, or during the 12 months preceding the date ofthis Prospectus have been, involved in any governmental, legal or arbitration proceedings (including any suchproceedings which are pending or threatened of which the Company is aware) that may have, or have had in the
recent past, significant effects on Group’s financial position or profitability. The Group determines on the basisof applicable accounting principles whether or not it needs to form a provision for threatened or pending
proceedings. With respect to total amounts of provisions taken by the Group in relation to legal, regulatory andarbitration proceedings, please see Notes E.18 and E.26 of the Combined Financial Statements.
Although not considered material by the Group, a summary of the most relevant current legal proceedings isprovided below.
Capuava
The Group is involved in a number of legal proceedings initiated by former employees of the Group’s
manufacturing plant in the district of Capuava, in the city of Mauá, Brazil. The manufacturing plant in Capuava
was closed in 2010 and all employees were dismissed at that time. The legal proceedings consist of individual
claims of former employees and a collective action. The collective action was initiated by the Public Prosecutor
in Brazil encouraged by the association of workers (AEIMM), certain of whose members were allegedly
poisoned by mercury contamination at the Group’s manufacturing plant in Capuava. The collective action was
settled in April 2015 for a R$24 million lump sum compensation payment and an undertaking by the Group toprovide lifetime health plans to all former employees covered by the settlement (of which the currently estimatedamount is R$ 16.7 million) and the Group has assessed that there are 150 potential beneficiaries of the settlement.
The legal proceedings initiated by individual former employees include, among other claims, claims related tomercury contamination, other illnesses and overtime worked. These individual claims are assessed on a case-bycase basis and the Group defends itself vigorously against these claims. The total claimed amount of pending
individual legal proceedings related to mercury contamination, other illnesses and overtime worked corresponds
to approximately €13.3 million for the three month period ended 31 March 2016.
Insurance
Until the Settlement Date, the Group is covered by Royal Philips’ global umbrella insurance policies (theso-called Global Insurance Program). The Separation Agreement provides that as from the Settlement Date, theGroup ceased to benefit from coverage under existing Royal Philips global umbrella insurance policies. The
Group has purchased its own insurance cover, which has been negotiated with the assistance of professional
insurance brokers. As of the Settlement Date, the Group will have to rely on its own insurance program and will
no longer have access to the Royal Philips insurance programs after the agreed fixed period.
The Group’s global insurance policies provide cover for a broad range of losses in the areas of property
damage/business interruption, general and product liability, transport, directors’ and officers’ liability,
employment practice liability, crime, and cyber liability.
To lower exposures and to avoid potential losses, the Group has established a global risk engineering
program. The main focus of this program is on property damage and business interruption risks including
company interdependencies. Regular on-site assessments take place at the Group’s locations and business criticalsuppliers by risk engineers of the insurer in order to provide an accurate assessment of the potential loss and its
impact. On-site assessments are carried out against the predefined risk engineering standards, which are agreed
between the Group and the insurers. Recommendations are made in a risk improvement report and are monitoredcentrally.
The Group believes that it is adequately insured and that the Group pays appropriate premiums for thiscoverage. The insurance coverage is regularly evaluated and adjusted as necessary. It cannot, however, be ruledout that the Company or one of the companies within the Group could suffer damages that are not covered by theexisting insurance policies or that exceed the coverage limits set in these policies. Furthermore, there is no
guarantee that the Group will also be able to obtain adequate insurance cover at appropriate conditions in the
future.

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Material Contracts
Below is a summary of certain key contracts of the Group (other than those entered into in the ordinary
course of business).
•

Separation Agreement—for a description of the Separation Agreement, see “Separation—Separation
Agreement”•

IP TLA—for a description of the IP TLA, see “Separation—Intellectual Property”•

IT TSLA—for a description of the IT TSLA, see “Separation—IT TSLA and Reverse IT TSLA”•

CNLA—for a description of the CNLA, see “Separation—Intellectual Property”•

TMLA—for a description of the TMLA, see “Separation—Intellectual Property”•

Relationship Agreement—for a description of the Relationship Agreement, see “Existing Shareholders andRelated Party Transactions—Relationship Agreement”•

Credit Agreement—for a description of the Credit Agreement, see “Operating and Financial
Review—Financing Structure Following the Offering”

Group Structure
The Company is a holding company without material direct business operations. The principal assets of theCompany are the equity interests it directly or indirectly holds in its Group Companies.
Material subsidiaries
The following companies are the Company’s material subsidiaries:

WMGD Pty. Limited
Philips Belgium
Philips Innovative Applications
Philips Lighting Canada Ltd.
Philips Electronics Technology (Shanghai) Co., Ltd.
Philips Lighting Industry (China) Co., Ltd.
Philips Lighting Luminaires (Shanghai) Co., Ltd.
Philips Lighting (China) Investment Co., Ltd.
Philips Luminaires (Chengdu) Co., Ltd.
Philips Lighting GmbH
Philips IPSC Tamasi Kft.
PT. Philips Indonesia
Philips Lighting Italy S.p.A.
Philips Mexicana, S.A. de C.V.
Philips Lighting B.V.
Philips Lighting Holding B.V.
Philips Lighting Poland Sp. z.o.oPhilips Lighting Saudi Arabia LLC
Saudi Lighting Company Limited
Philips Lighting Spain, S.L.
Philips Lighting Sweden AB
Philips Electronics (Thailand) Ltd.
Philips Lighting UK Limited
Genlyte Thomas Group LLC37
Philips Lighting North America Corporation
Strand Lighting LLC
The Genlyte Group Incorporated

Corporate seatInterest heldby the Group

Australia
Belgium
Belgium
Canada
China
China
China
China
China
Germany
Hungary
Indonesia
Italy
MexicoNetherlands
Netherlands
PolandSaudi Arabia
Saudi Arabia
Spain
SwedenThailand
United Kingdom
United States
United States
United States
United States

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99,99%
100%
100%
100%
100%
100%
51%
51%
100%
100%
100%
100%
100%
100%
100%
100%

Recent Developments
The Group expects to incur restructuring and acquisition-related changes of approximately €60 million for
the three-month period ending 30 June 2016, of which approximately one-third relates to restructuring plans
which have already been initiated by the Group in the period prior to 11 May 2016.
37

Genlyte Thomas Group LLC, Philips Lighting North America Corporation, Strand Lighting LLC and The Genlyte Group Incorporated
will be transferred to the Group prior to the Settlement Date.

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REGULATION
Overview
The Group is subject to regulatory requirements in the markets where it operates. All countries in which theGroup operates have various and comprehensive laws, regulations, technical rules and standards in placeconcerning, among other things, environmental and health protection, the production, handling, storage andtransportation of hazardous materials, radiation protection and the recycling and disposal of waste. Due to theGroup’s multinational business operations, it has to comply not only with Dutch and European regulations, butalso with regulations in other jurisdictions in which the Group operates its business. These regulations are revised
on a constant basis and require ongoing monitoring and improvements by the Group, which can at times require
substantial investments.
Environmental Related Regulations
Each country where the Group develops, produces and sells its lighting products and services has various
environment-related regulatory requirements. Within the EU, these requirements are defined in EU directives andimplementing member states’ national laws as well as in EU regulations which are directly legally enforceable inthe member states. The Group must comply with substantial labelling, certification, approval and permit
requirements, as well as numerous and continually increasing energy related product requirements, particularly
with regard to environmental protection and the safety of users as well as substances reporting requirements andsubstance restrictions. Violations of such regulations can lead to consequences under public law, civil law andcriminal law. Non-compliance may result in administrative fines or even constitute a criminal offence. The
Group may be subject to claims under warranty laws, product liability laws and in tort, and may be required toissue warnings or product recalls, which may damage its reputation and lead to substantial liabilities and costs(see also “Risk Factors—The Group sets high quality standards for its products but it is possible that products
may contain defects or otherwise not perform as expected. Quality defects may reduce sales, result in costs
associated with warranty or product liability claims or require recall of affected items”). The following
regulations are of particular relevance to the Group:
Energy Efficiency and Labelling
As a manufacturer of energy-using products, the Group has to comply with all regulations on energy
efficiency and environmental compatibility. Energy-using products are products for whose use energy must be
supplied in the form of electricity, fossil fuels or renewable energy resources.
The Framework Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009
establishing a framework for the setting of eco-design requirements for energy-related products (also called
Energy-related Products Directive, “ErP-Directive”) deals with all energy related products. The ErP-Directive
aims at protecting the environment by reducing the environmental impact of energy-related products. Therefore,
the ErP-Directive sets a framework for the introduction of specific eco-design aspects that the Group has tointegrate into its product designs. Before being placed on the market or put into service, all products must
undergo a conformity assessment concerning all eco-design requirements. As a manufacturer, the Group has toprovide consumers with information on the role that they can play in the sustainable use of the productconcerned, as well as the ecological profile of the product and the advantages of eco-design. If a product does not
fulfil these requirements, member states of the European Union must take suitable measures which may go as far
as prohibiting product placement on the market. The ErP-Directive has been implemented into national law by
EU member states.
Based on the Eco-design Directive the European legislator sets forth specific requirements for defined
product groups or for environmental aspects thereof (“Implementing Measures”). With respect to lighting
products for households and certain fluorescent and HID products, the following Implementing Measures havebeen adopted:
Regulation (EC) No 244/2009 of 18 March 2009 implementing Directive 2005/32/EC of the European
Parliament and the Council with regard to eco-design requirements for non-directional household lamps(amended by Regulation (EC) No 859/2009 of September 18, 2009) establishes rules for the phasing out of
inefficient lamps (mainly conventional incandescent lamps and conventional halogen lamps) and sets forth
functionality requirements, e.g., with respect to lifespan, light quality, starting times, UV radiation, for otherlamps. In addition, the regulation requires the Group to display product information on the packaging of thelamps and on free access websites. According to the regulation, inefficient lamps have had or will have to bephased out gradually from the EU market by September 2012 (with respect to conventional incandescent lamps),
or respectively, September 2018 (with respect to mains-voltage halogen non-directional lamps).

209

Non-directional lamps must comply with the requirements regarding energy efficiency of Commis
Regulation (EC) No 244/2009. Special purpose lamps do not have to comply with energy efficiency andfunctionality requirements. However, there are certain information requirements for these lamps.
The Commission Regulation (EC) No 245/2009 of 18 March 2009 implementing Directive 2005/32/EC of
the European Parliament and of the Council with regard to eco-design requirements for fluorescent lamps
without integrated ballast, for HID lamps, and for ballasts and luminaires able to operate such lamps, andrepealing Directive 2000/55/EC of the European Parliament and of the Council (amended by Commission
Regulation (EU) No 347/2010 of 21 April 2010 and Commission Regulation (EU) No 1428/2015), establishes
eco-design requirements for products which are mainly used in office lighting, industry lighting and street
lighting. The following products have been or will be phased out in several stages: In 2010, T8 halophosphatefluorescent lamps have been phased out. T12 fluorescent lamps have been phased out in 2012. In addition,
regarding high-pressure sodium lamps (HPS) and metal halide lamps (for both, lamps with E27, E40, PGZ12
bases) minimum quality requirements (regarding efficiency, lifespan and lumen maintenance) are established andnon-complying products have been phased out. In 2015, high-pressure mercury lamps and plug-in or retrofit
high-pressure sodium lamps with low efficiency have been phased out. Poor performing metal halide lamps (with
E27, E40, PGZ12 bases) will be phased out in 2017. Certain products are exempt from the energy efficiency andfunctionality requirements. However, there are certain information requirements applicable to these products.
The Commission Regulation (EU) No 1194/2012 of 12 December 2012 implementing Directive
2009/125/EC of the European Parliament and of the Council with regard to eco-design requirements for
directional lamps, LED lamps and related equipment, designed for installation between the mains and the lamps,
including lamp control gear, control devices and luminaires (other than ballasts and luminaires for fluorescentand high-intensity discharge lamps), which also applies when integrated into other products, has come into force
on 3 January 2013 and establishes specific eco-design requirements (requirements in regard to energy efficiency,
functionality and product information) for these products and which shall apply in accordance with three stages(September 1, 2013, September 1, 2014 and September 1, 2016). Special purpose products do not have to comply
with energy efficiency and functionality requirements. However, there are certain information requirements
applicable to these products. On 11 September 2015 a communication by the European Commission(COM-2015-443 final) confirmed stage 3: as per 1 September 2016, the date mains-voltage halogen reflector
lamps will be phased out.
According to the Eco-design Directive, the products covered by Implementing Measures must bear the CE
marking before being placed on the market according to Decision 93/465/EEC of the Council dated 22 July 22
1993. In addition, the Group has to publish information on the consumption of energy and of other essential
resources. The Group has to label some of its products as set forth in Directive 2010/30/EC of the European
Parliament and of the Council of 21 July 2011. This directive establishes a framework for labelling and consumer
information regarding energy consumption of all goods having an impact on energy consumption (energy-related
products). For the energy consumption labelling of lamps and luminaires, the directive 2010/30/EU was
supplemented by the delegated regulation (EU) 874/2012 on 12 July 2012.
In 2014, the EU has commissioned a study on light sources for eco-design and/or energy labelling
requirements. A final report exploring the feasibility of unifying Commission Regulation (EC) No 244/2009,
Commission Regulation (EC) No 245/2009, Commission Regulation (EU) No 1194/2012 and delegatedregulation EU) 874/2012 into one single regulation was published on 31 October 2015. On 6 November 2015, theEuropean Commission published Staff Working Documents38 which discuss new eco-design and energy labelling
regulations, including the introduction of efficiency threshold values of 60, 80 and 120 Lumens per Watt for
implementation in 2018, 2020 and 2024, respectively.
In 2014, the European Commission announced a feasibility study (ENER Lot 37) on setting energy
requirements for lighting systems under existing EU regulations, such as eco-design, energy labelling or theenergy performance of buildings directive. This study is expected to be finished by the end of 2016. Dependingon the outcome of the study, the Group expects that this study may trigger next steps towards regulations
enforcing mandatory controls in new build and/or large renovations from 2017 onwards.
Hazardous Substances
The Group is a producer and importer of products as well as a producer and user of various substances andpreparations within the meaning of the applicable chemicals and hazardous substances laws. Therefore, theGroup must rely on a comprehensive and complex material management and safe working processes meeting therequirements of the individual countries in which the Group carries out its business operations. Chemicals and38

European Commission, Directorate-General for Energy, Invitation to a meeting of the Ecodesign Consultation Forum under Article 18 of
the ErP-Directive on lighting products (Lot 8/9/19).

210

hazardous substances laws are monitored by the competent authorities. In the event of violations, regulators canintervene and order remediation measures and, in the case of administrative offenses, may impose administrativefines. In serious cases, criminal prosecution is also possible.
Placing on the market of certain hazardous substances in electrical and electronic equipment is subject tospecific regional (EU) or national restrictions and phase-outs. The Group particularly has to comply with
Directive 2002/95/EC of the European Parliament and of the Counsel of 27 January 2003 on the restriction of theuse of certain hazardous substances in electrical and electronic equipment (“RoHS Directive”) (amended by
Directives 2005/618/EC and 2008/35/EC). The RoHS Directive requires heavy metals such as lead, mercury,cadmium, hexavalent chromium and flame retardants of the groups of polybrominated biphenyls andpolybrominated biphenyl ethers in electronic and electrical equipment materials to be substituted by safer
alternatives. The RoHS Directive has been revised by Directive 2011/65/EU of 8 June 2011 (“RoHS
II-Directive”), which entered into force on 21 July 2011 and had to be implemented into national law by
2 January 2013. The materials in the scope of the RoHS II-Directive are each subject to temporary exemptions
for periods up to five years. Once a particular exemption is due to expire, interested parties may request for arenewal. In January 2015, Lighting Europe applied, on behalf of the lighting industry, for the renewal of all
32 current exemptions, for the use of mercury and lead in lamps that would end by 21 July 2016, if these
exemptions are not renewed. The request for renewal of the exemptions has been scrutinized by Öko (i.e., themain consultant of the Directorate-General environment of the European Commission) and was open to the
public for commenting until 16 October 2015. The Directorate-General environment of the European
commission will write a proposal for the new exemptions, which will be presented to the European Parliament.
The new exemptions, if granted, come into force 12-18 months after publication in the European Official Journal.
This request for renewal is relevant for the Group as mercury is used in discharge lamps, such as fluorescentlamps and gas discharge lamps, produced by the Group and cannot be replaced by another substance nor can the
mercury dose in lamps be further reduced. Furthermore, many discharge lamps do not have an alternative LED
replacement lamp yet, which means that end-of-life discharge lamps cannot be replaced in all existing
luminaires.
As a manufacturer, the Group is also subject to Regulation (EC) No 1907/2006 of the European Parliamentand of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorization and Restrictionof Chemicals (“REACH Regulation”). A key requirement of the REACH Regulation is the registration ofchemical substances at the European Chemicals Agency. Compilation of safety data sheets and registration
requirements are applicable to all producers and importers of chemical substances in the European Union.
Without prior registration in accordance with the REACH Regulation, it is generally prohibited to produce
chemical substances or place them on the market in the European Union. The REACH Regulation also contains arequirement to disclose defined, particularly dangerous substances in products. The Group requests its chemical
suppliers to (pre)register the chemicals they supply to the Group, in order to ensure compliance and prevent
interruptions of supply. Currently, the number of chemicals the Group produces and imports is limited and allsuch chemicals have entered into the pre-registration process.
In addition, the REACH Regulation requires producers to inform their customers if certain hazardous
substances (so-called “substances of very high concern”) are present in concentrations above 0.1%. The list of
substances of very high concern is continuously updated (approximately twice a year) by the European Chemical
Agency. The Group manages these obligations on product level by gathering the necessary data from its suppliers
and, among other things, uses a web-based industry wide database to evaluate high-risk materials, components
and products.
Besides the REACH Regulation, Regulation (EC) No 1272/2008 on classification, labelling and packagingof chemical substances and preparations (“CLP Regulation”) applies to the Group’s business. The CLP
Regulation stipulates the classification, labelling and packaging of substances and preparations, with
manufacturers being responsible for the (correct) classification of the substances and preparations.
Radiation Protection
The Group has to comply with regulations on radiation protection to ensure safety with respect to thehandling of ionizing radiation and radiation sources. Certain types of the Group’s high performance lighting
sources that are used in professional and industrial applications contain small amounts of substances emitting low
level ionizing radiation (Krypton 85 or Thorium). Despite being proven as safe throughout their entire life spanby a number of independent studies, especially the publication of IAEA-TECDOC-1679 confirming the safety inall aspects of the life cycle of lamps, the products concerned are subject to an unharmonized and therefore
complex set of national and international regulations. These regulations are concerning distribution, storage,
handling and import/export activities of such products and may vary significantly by country, although they are211all derived from the International Atomic Energy Agency’s (“IAEA”) Basic Safety Standards and Directive
2013/59/Euratom of the Council of 5 December 2013 laying down basic safety standards for the protection
against the dangers arising from exposure to ionising radiation. According to these regulations, priorauthorization has to be obtained for practices that may involve a risk of ionizing radiation, subject to certain
exceptions. An authorization can be a license which is subject to certain conditions or an exemption may apply(e.g., if independent safety studies confirm that safety of the relevant products). In the logistic chain fromproduction to end-use, the transport has to comply with the international regulations on the transport ofdangerous goods. See —“Dangerous Goods Transport” below.
As of 31 March 2016, in 57 out of 65 countries where the Group manufactures its products the Group has
obtained a license or an exemption applies. However, as of 31 March 2016, in 8 countries an application process
is still ongoing, in most cased due to local law complexities with regard to classifying lamps as either ‘safe’ or‘consumer goods’ in terminology of IAEA. All manufacturing sites where the involved lamps are being
manufactured have obtained a license for the handling of the required components and production of the lamps.
The Group has eliminated or drastically reduced the quantities of low level ionizing radiation emitters in many
lamp types, thereby reducing non-compliance risks. The Group is focused on avoiding non-compliance withnational regulations but these regulations and complex and interpretations differ per country, and mistakes by
local staff cannot be excluded in general. However, no penalties or sanctions have ever been issued or threatenedin any country. The Group believes that any regulatory action against the Group by a relevant authority in respectof substances emitting low level ionizing radiation could impact local operations and result in financial penalties,
but the likelihood and impact of such financial penalties or any resulting reputational damage on the Group are
expected to be limited.
Transport of Dangerous Goods
The Group has to comply with dangerous goods regulations for shipment of certain of its products. The
Group deals with the transport of lamps containing low level ionizing radiation emitters (see —“Radiation
Protection” above), mercury and sodium. Cordless or emergency luminaires can contain lithium batteries. The
Group also transports dangerous goods such as chemicals, certain raw materials/components and hazardous
waste. Dangerous goods transport regulations are generally internationally defined to prevent issues whencrossing borders to other countries. However, regulations have not been harmonized completely and therefore
may differ from country to country. Dangerous goods regulations generally require specific organization,
training, classification, packaging, marking, labelling and documentation prior to transport and after receipt
depending on the ‘dangerous goods’ classification. The violation of these regulations may be sanctioned with afine or with further national sanctions (e.g., prohibition of transport) in the event of repetitive intentional
violation. Customers may not accept the aggravations of transport and storage caused by the required marking ofcertain consignments as dangerous goods. To reduce the risk and likelihood of mistakes the Group hasconcentrated the distribution of the relevant products as much as possible in a few, regional distribution centerswhere shipping of dangerous goods is part of the routines.
Waste Disposal and Recycling
The Directive (2012/19/EU) on waste of electrical and electronic equipment (“WEEE Directive”) enteredinto force on 13 August 2012 and had to be implemented into national law of EU member states by 14 February
2014. The WEEE Directive makes producers of electrical and electronic equipment (“EEE”) responsible formanaging and financing the collection, treatment, recovery and environmentally sound disposal of end of life
products. The WEEE Directive allows WEEE producers to manage their obligations pursuant to the Directive by
way of participation in collective schemes, who manage the obligations on behalf of all producers that are
participating in such collective scheme. The Group participates in such collective schemes. Collective schemes
finance their activities through collection of waste management fees payable by participating producers for each
WEEE product that they put on the market where the collective scheme operates. The relevant waste
management fees are determined by the collective schemes and differ per product category.
Luminaires and lamps (with the exception of incandescent and halogen lamps) fall under the product scopeof the WEEE Directive. However, the waste from lamps is considerably different from all other WEEE productcategories. Lamps represent high volumes but, because of their low average weight, represent only a small
fraction (approximately 2%) of the total EEE waste. Lamps are fragile and considered hazardous waste because
most lamps contain mercury. For this reason, the WEEE Directive provides for specific criteria for storage,transport and treatment of lamps waste. As a result of these criteria, lamps waste is the most costly waste stream
within the entire WEEE scope. Pursuant to the WEEE Directive, EU member states must annually collect 45% of
the average weight (and not units) of EEE placed on their national markets (calculated on the basis of EEE placedon the market in the three preceding years) in 2016. As of 2019, member states are generally to achieve a 65%
collection rate.
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Some equipment, parts and materials supplied to the Group or produced by the Group will become part ofequipment and products which can be subject to further regulation, for example the restrictions of substances
defined in Directive 2000/53/EC of the European Parliament and the Council of September 18, 2000 on ELVs
and defined in Directive 2006/66/EC of the European Parliament and the Council of September 6, 2006 on
batteries and accumulators and repealing Directive 91/157/EEC of the Council of March 18, 1991 on batteries
and accumulators containing certain dangerous substances.
In many other markets in which the Group is active, regulations have been enacted or are under discussionin pursuit of legislative goals similar to that in Germany and/or in the European Union. In the United States, forexample, a number of states have passed, introduced or plan to introduce regulations on the recycling ofproducts. Currently Maine, Washington and Vermont have passed laws requiring manufacturer-funded recyclingof (primarily) residential mercury-containing lamps. Massachusetts law holds manufacturers responsible for thestate lamp recycling rate for all mercury-containing lamps and currently authorizes an annual fine on the industry(up to $1 million annually) for the non-compliance. The Group is working with other lighting industry
participants through the National Electrical Manufacturers Association to amend this law and institute a morepractical program focused solely on mercury-containing lamps sold at retail. In California, the cost of recycling(or any “fee”) may not be added to prices unless approved by a 2/3 majority vote of the Californian legislature.
Since this is a difficult obstacle to overcome, the Group is currently working with a California lobbying firm
engaged by the Group, as well as with other lighting industry participants on alternative proposals. At this point,
all legislative activity related to manufacturer-funded recycling has been focused on lamps sold at retail. Given
the number of countries in all parts of the world which have or plan to implement such legislative acts related towaste electrical and electronic equipment, it cannot be ruled out that in some of these countries the Group will
not be able to comply, or fail to comply within the set timeframe, with all relevant regulations, which might leadto penalties or restrictions relating to the sale of the Group’s relevant products.
The WEEE Directive may serve as an example for implementation of local legislations with respect to EEE
in non-EU jurisdictions. In many non-EU countries where the Group is active, EEE regulations have beenenacted or are under discussion. The Group lobbies for workable and effective legislation, directly through its
local management teams or through local lighting associations. Also in non-EU countries, it is the Group’s policy
to manage its obligations pursuant to EEE waste legislations by way of participating in collective schemes. In
some countries the Group has established organisations through a range of different legal forms, which organize
the collection and treatment of used electrical or electronic waste for the companies in the lighting industry andwhich concluded agreements with third parties for this purpose.
U.S. Lighting Regulations
In the United States, lighting-related regulations are initiated on a federal level by the DoE, or in some cases
the state agencies (e.g., California Energy Commission). They are generally categorized as related to energy
efficiency or environmental in nature. Appliance standards set minimum energy performance standards forlighting components such as lamps, ballasts and luminaires. As a consequence, any product manufactured on orafter a specific date may not enter the U.S. market unless it meets the performance standard. To date, a variety of
appliance standards apply particularly to traditional lighting products, such as incandescent, halogen and linear
fluorescent lamps, to discharge lamp ballasts and to illuminated exit signs. There are also voluntary productperformance standards in the United States that have broad market acceptance and considerable business impact
such as the U.S. Environmental Protection Agency’s Energy Star program and the Design Lights Consortium’s
Qualified Products List. The Energy Star program covers consumer lighting products such as CFLs and LED
lamps and luminaires whereas Design Lights Consortium’s Qualified Product List address commercial
applications. The vast majority of utility driven rebate and incentive programs for lighting products rely on
obtaining Energy Star and Design Lights Consortium certifications.
Building energy standards/codes include provisions for maximum installed power allowed for lighting
systems and lighting controls. Building energy codes came into being in the United States during the energy andeconomic crises of the 1970s. In 1978, an amendment was added to the Energy Policy and Conservation Act of1975 which required states to create mandatory programs including energy conservation standards for newcommercial construction if they were receiving federal aid. The American Society for Heating Refrigeration and
Air Conditioning Engineers (“ASHRAE”) Standard 90.1, the International Energy Construction Code (“IECC”),
and California’s Title 24 code are the primary forces shaping the minimum requirements for lighting systems in
U.S. commercial buildings. ASHRAE Standard 90.1 and the IECC are created by consensus groups and have tobe adopted by state and local authorities before compliance can be required/enforced, while in California, theCalifornia Energy Commission oversees all updates to the code. Although only adopted in California, thecontinuous development and refinement of Title 24 drives ASHRAE 90.1 and the IECC toward greater efficiency
and at the same time, prescriptiveness. On the environmental side, most lighting regulations are state-driven andtend to focus on recycling, disposal, and material content of lighting products.
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Trends in energy-related lighting regulations are towards requirements for lighting controls and sensors to
reduce system-level energy consumption as well as increasing efficiency for lamps and ballasts. Three significant
ongoing rulemaking activities are the DoE’s General Service Lamp rulemaking update, mandated as part of theEnergy Independence and Security Act of 2007, the External Power Supply 2014 rule, and the State ofCalifornia’s Title 20 updates for General Service LED lamps and Small Diameter Directional Lamps.
The DoE is currently working on the next iteration of rulemaking for general service lamps which is
expected to include minimum performance standards for LED lamps and exchange them for CFLs. These
potential changes will impact the current product portfolio and are expected to go into effect on 1 January 2020.
This rulemaking will also eliminate some of the current exemptions for rough service and special application
incandescent lamps. The impact on the general service halogen lamp market is not yet clear. The proposed rulehas been issued on 12 February 2016 for public review and comment.
In 2014, the DoE enacted a regulation with performance criteria for External Power Supplies that is
primarily directed at plug-in remote power supplies for laptops, residential battery chargers and other similar
consumer devices that is effective from 1 February 2016. Unfortunately, the rule is loosely structured and it
could be inferred to include electronic drivers for commercial and industrial LED lighting products. As theprescribed test procedure was not intended for drivers, compliance with the regulation could have a business
impact. The Group is working with other lighting industry participants through the National Electrical
Manufacturers Association towards getting new legislation adopted that would amend the proposed language andexclude commercial and industrial LED drivers from the rule. New legislative language to exclude LED drivers
was agreed with the DoE and other stakeholders and has been approved in the House of Representatives on
29 February 2016 and by the Senate on 20 April 2016. The relevant bill is subject to the approval by the
President. The Group expects this issue to be successfully concluded in the coming weeks. Given the legislative
agreements, the DoE has indicated that it will not take any enforcement measures until Congress completes its
action with respect to the proposal.
The California Energy Commission has announced proposals for new performance standards (as part of
Title 20) for general service LED lamps effective from 1 January 2017 and 1 January 2019 and also small
diameter directional lamps including halogen and LED effective from 1 January 2018. Under the new proposal,
MR16 and other small diameter directional lamps would get demanding efficacy requirements while generalservice LED lamps will get stringent efficacy, and color uniformity and rendering requirements, and challenging
standby power limits for smart lamps. For all covered LED lamps, the California Energy Commission plans tooffer the option of lower efficacy for 90 CRI products. The new Title 20 proposals if enacted as is, will be thestrictest in any country.
The International Code Council and ASHRAE have agreed to consolidate the International Green
Construction Code (“IgCC”) and Standard 189.1 into the 2018 version. The IgCC is the first code to include
sustainability measures for complete construction projects and the site from design to completion. It establishes
baseline “green” requirements for new and existing buildings. This market-significant agreement is significant as
it establishes a comprehensive framework for jurisdictions looking to implement and adopt green building
regulations and codes and enhances the credibility and visibility of the IgCC, making it easier for states andmunicipalities to adopt. The 2012 IgCC is adopted as law in 13 states and in Washington, D.C.
Some U.S. states make producers responsible for disposal costs regarding lighting products that contain leador mercury. The Group expects that in the coming years, at least six additional U.S. states will adopt
corresponding regulations. According to the environment-related lighting regulations, manufacturers will be held
responsible for end-of-life disposal costs for products containing materials such as mercury and lead. The
regulations applicable in the EU serve as guidelines to set standards for maximum toxic material content inlighting products. Within the United States there is potential for different toxic material content regulations set bystates instead of federal law, which causes labelling, shipping, and operational issues. Some U.S. states haveestablished producer responsibility groups that are regulated by the state and are paid for and run by
manufacturers. The number of such groups will most likely increase and might extend to up to 50 different
groups in the future.

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MANAGEMENT, EMPLOYEES AND CORPORATE GOVERNANCE
This section summarizes certain information concerning the Board of Management, the Supervisory Board,
the Group’s employees and the Company’s corporate governance. It is based on the Articles of Association, theBoard of Management Rules (as defined below) and the Supervisory Board Rules (as defined below) as in effectultimately on the Settlement Date and applicable Dutch law.
The Articles of Association in the governing Dutch language and in an unofficial English translation thereof
are available on the Company’s website (www.lighting.philips.com/main/company). The Board of Management
Rules and the Supervisory Board Rules in the governing English language (only) are also available on the
Company’s website.
Board Structure
The Company has a two-tier board structure consisting of the Board of Management and the Supervisory
Board.
Board of Management
Powers, responsibilities and functioning
The Board of Management is responsible for the management of the operations of the Group, subject to thesupervision by the Supervisory Board. The Board of Management’s responsibilities include, among other things,
driving the Company’s management agenda, stimulating group performance, developing general strategy andidentifying risks connected to its business activities, pursuing operational and financial objectives, structuringand managing systems of internal business controls, complying with financial reporting processes, preparing
annual accounts, and monitoring corporate social responsibility issues.
Pursuant to the Board of Management Rules, the Board of Management may divide its tasks among its
members, with the approval of the Supervisory Board. In performing their duties, the members of the Board ofManagement are guided by the interests of the Company and its business enterprise, taking into consideration theinterests of the Company’s stakeholders (which includes but is not limited to its Shareholders, customers, its
suppliers, and its employees).
The Board of Management must provide the Supervisory Board and its committees in due time with any
information the Supervisory Board and its committees may need for the performance of their duties andfurthermore all the information reasonably requested by the Supervisory Board, and must regularly report to theSupervisory Board on the course of business of the Group. The Board of Management is required to notify theSupervisory Board of the main features of the strategic policy, the general and financial risks and the
management and control systems of the Company, at least once per year. The Board of Management must submit
certain important decisions to the Supervisory Board and/or the General Meeting for approval, as more fully
described below.
The Board of Management as a whole is authorized to represent the Company. In addition, two members of
the Board of Management, acting jointly, have the authority to represent the Company. Pursuant to the Articles
of Association, the Board of Management may appoint proxy holders (procuratiehouders) who will beauthorized to represent the Company within the limits of the specific delegated powers provided to them in suchproxies.
Board of Management Rules
Pursuant to the Articles of Association, the Board of Management may adopt rules governing, among otheritems, its decision-making process and conduct of meetings. The rules of the Board of Management effective
ultimately on the Settlement Date (the “Board of Management Rules”) are published on the Company’s website
under www.lighting.philips.com/main/company.
Composition, appointment and removal
The Articles of Association provide that the Supervisory Board determines the number of members of theBoard of Management. As of the date of this Prospectus, the Board of Management consists of two members.
If a member of the Board of Management is to be appointed, the Supervisory Board shall make anomination which nomination may be binding. If the Supervisory Board makes a non-binding nomination, thenominated candidate is appointed by a resolution adopted by the General Meeting with a simple majority of thevotes cast. If the Supervisory Board makes a binding nomination, the General Meeting may at all times overrule
the binding nomination by a resolution adopted by a majority of the votes cast, provided that majority represents
more than one-third of the issued share capital. If a majority of the votes is cast in favor of overruling the binding
nomination, but that majority does not represent more than one-third of the issued share capital, a new General215

Meeting may be convened at which the resolution to overrule the binding nomination may be adopted by asimple majority of the votes cast, regardless of the issued share capital represented by that majority. In the eventthe candidate nominated by way of a non-binding nomination is not appointed or a binding nomination isoverruled, the Supervisory Board may, after consultation with the Board of Management, make a newnomination, which nomination may be binding. In the event that this candidate nominated by the Supervisory
Board by way of a non-binding nomination is not appointed or if the relevant binding nomination is overruled,
the General Meeting shall be free to appoint a member of the Board of Management to fill the vacancy. In thatevent, the resolution to appoint a member of the Board of Management can be adopted by a simple majority ofthe votes cast.
The General Meeting may at any time suspend or dismiss a member of the Board of Management. A
resolution to suspend or dismiss a member of the Board of Management, other than a resolution proposed by the
Board of Management or the Supervisory Board, may only be adopted by a simple majority of the votes cast,provided that majority represents at least one-third of the issued share capital. If a majority of the votes are castin favor of the suspension or dismissal, but that majority does not represent more than one-third of the issued
share capital, a new General Meeting may be convened at which the resolution to suspend or dismiss the memberof the Board of Management may be adopted by a simple majority of the votes cast, regardless of the issued
share capital represented by that majority. The Supervisory Board may at any time suspend a member of theBoard of Management. Within three months of a suspension, a General Meeting will be held to decide whether
the suspension will be cancelled or upheld. The suspended member of the Board of Management is entitled to beheard at the General Meeting.
Term of appointment
The Articles of Association do not provide for a fixed or maximum term of appointment. In line with theDutch Corporate Governance Code, the current members of the Board of Management are appointed for a periodof four years, it being understood that the period of their appointment will expire at the end of the annual General
Meeting to be held in 2020.
Meetings and decisions
Pursuant to the Board of Management Rules, where possible, resolutions of the Board of Management are
adopted by unanimous vote. Where this is not possible, resolutions of the Board of Management are adopted by amajority vote of the members of the Board of Management present or represented and require the affirmative
vote of the CEO. Each member of the Board of Management has one vote. If there are more than two members of
the Board of Management in office and entitled to vote, the CEO shall have a casting vote in the event of a tie ofvotes within the Board of Management. In other cases the proposal shall be deemed rejected in case of a tie ofvotes within the Board of Management.
The Board of Management must obtain the approval of the Supervisory Board and the General Meeting forresolutions entailing a significant change in the identity or nature of the Company or its business. This includes
in any event: (i) transferring the business of the Company, or practically the entire business of the Company, to athird party; (ii) concluding or cancelling any long-lasting cooperation by the Company or a subsidiary with anyother legal person or company or as fully liable partner of a limited partnership or a general partnership, provided
that the cooperation or the cancellation of that cooperation is of material significance to the Company; and (iii)
acquiring or disposing of a participating interest in the capital of a company with a value of at least one-third of
the sum of the assets of the Company according to the balance sheet and notes thereto or, if the Company
prepares a consolidated balance sheet, according to the consolidated balance sheet and notes thereto according to
the most recently adopted annual accounts of the Company, by the Company or one of its subsidiaries.
Certain other important resolutions of the Board of Management identified in the Supervisory Board Rules(as defined below) require the approval of the Supervisory Board, including resolutions regarding (i) the issuanceof shares in the Company, restricting or excluding the pre-emption right in the event of an issue of shares,
acquisition of shares in the capital of the Company and the disposal of shares thus acquired; (ii) certain qualified
major investments; (iii) a proposal to amend of the Articles of Association; (iv) a proposal to dissolve theCompany or for a legal merger or split-off of the Company; (v) a petition for bankruptcy or for a moratorium of
payments; (vi) a proposal to reduce the issued share capital; (vii) the adoption and amendment of the Board ofManagement Rules, (viii) provisions regarding an indemnity for the members of the Board of Management or
members of the Supervisory Board (iv) the determination of the remuneration of certain senior executives
designated by the Supervisory Board; and (iv) the reservation of profits, distributions in the form of Shares,
distributions to the debit of one or several reserves, and interim distributions.
Pursuant to the Articles of Association, the Supervisory Board may, in a resolution to this effect, determinethat certain other specific resolutions of the Board of Management, are also subject to its approval. Those
resolutions must be clearly specified and communicated in writing to the Board of Management.
216

Pursuant to the Board of Management Rules, resolutions can also be adopted in writing or electronically,
without holding a meeting if (i) a proposal for such resolution has been sent to all members; (ii) no member has
objected to adopting the resolution in writing; and (iii) the majority of the members of the Board of Management
entitled to vote, including the CEO, have voted in favor of such resolution. If there are more than two membersof the Board of Management in office and entitled to vote the CEO shall have a casting vote in the event of a tieof votes. In other cases the resolution shall be deemed rejected in case of a tie of votes.
Conflict of interest
Dutch law provides that a managing director of a Dutch public limited liability company, such as theCompany (after execution of the Deed of Amendment), may not participate in the adoption of resolutions(including deliberations in respect of these) if he or she has a direct or indirect personal interest conflicting with
the interests of the company. Such a conflict of interest only exists if in the situation at hand the managing
director is deemed to be unable to serve the interests of the company and the business connected with it with therequired level of integrity and objectivity. Pursuant to the Board of Management Rules, any member of the Boardof Management shall immediately report any (potential) conflict of interest concerning to the chairman of theSupervisory Board and to the other members of the Board of Management and shall provide all information
relevant to the (potential) conflict. Pursuant to the Board of Management Rules, any member of the Board ofManagement shall not participate in the discussions and decision-making on a subject or transaction in relation towhich such member has a direct or indirect personal conflict of interest or has a conflict of interest within themeaning of the Dutch Corporate Governance Code (the “Dutch Corporate Governance Code”, or “Code”).
If no resolution can be adopted by the Board of Management as a consequence of such a conflict of interest,
the resolution concerned will be adopted by the Supervisory Board. All transactions in which there are conflictsof interests shall be agreed on terms at least customary in the sector concerned and must be approved by theSupervisory Board. All transactions in which there are conflicts of interest will be disclosed in the Company’s
annual report.
The existence of a (potential) conflict of interest does not affect the authority to represent the Company, as
described under “Board of Management—Powers, responsibilities and functioning” above.
Board of Management
The Board of Management is composed of the following two members of the Board of Management:
Name

Date of birth

Position

Member as of

Term

Eric Rondolat

30 April 1966

Chief Executive
Officer

2 May 2016

René van Schooten

25 June 1959

Chief Financial
Officer

2 May 2016

4
year
term
expiring at the endoftheannualGeneral Meeting to
be held in 2020
4
year
term
expiring at the endoftheannualGeneral Meeting to
be held in 2020

The intention of the Company is to expand the Board of Management over time with another member after
the Settlement Date, such member to take the Chief Financial Officer role.
The Company’s registered address, High Tech Campus 45, 5656 AE Eindhoven, the Netherlands, serves as
the business address for all members of the Board of Management.
Eric Rondolat
Eric Henri Edouard Rondolat, the chief executive officer and member of the Board of Management, is a
French and Italian national. He gained an engineering degree at the ENSEEG Institut National Polytechnique deGrenoble and a master’s degree in international marketing at the Ecole Supérieure de Commerce de Grenoble.
Mr. Rondolat began his professional career at Merlin Gerin SA in 1990 and thereafter became sales manager at
Schneider Electric Australia Limited. He was also marketing manager at Schneider Electric SA, based in
Singapore. Between 1995 and 1999, he was the plant manager of Systèmes Equipements Tableaux Basse Tension
SA in France and general manager of Merlin Gerin Loire SA from 1999 to 2001. In 2001, Mr. Rondolat wasappointed country manager of Schneider Electric Industries SAS. From 2006 to 2009, he was executive vicepresident of its power business unit and in 2010 Mr. Rondolat became executive vice president of the power
Asia-Pacific business. In 2012, Mr. Rondolat joined Royal Philips and was appointed executive vice president
and chief executive officer of its lighting business.
217

René van Schooten
Cornelis (René) Leonardus van Schooten, chief financial officer and member of the Board of Management,
as well as BG Lamps leader, is a Dutch national. Mr. van Schooten obtained degrees in industrial engineeringand management science from the Eindhoven University of Technology and completed an advanced management
program at the Wharton Business School of the University of Pennsylvania. He further completed the new board
programme at the Nyenrode Business University. From 1982 to 1988, Mr. van Schooten worked in various
financial positions at Esso Nederland B.V. and Esso Europe Inc. He joined Unilever Nederland B.V. in 1988,
working in several managerial positions, including as senior management accountant/controller, finance andaccounting director, special committee secretariat and senior finance manager in different European countries. In
1999, Mr. van Schooten joined Royal Philips in its lighting business as chief financial officer and controller ofthe lamps division and thereafter held positions as chief executive and head of operations in various divisions.
Since 2012, he is business leader of BG Light Sources & Electronics (as of 2015 known as BG Lamps), one of
the lighting businesses of Royal Philips. In 2015 he also became chief financial officer of the lighting business ofRoyal Philips.
Supervisory Board
Powers, responsibilities and functioning
The Supervisory Board supervises the policies and management and the general affairs of the Group. The
Supervisory Board also provides advice to the Board of Management. In performing its duties, the members of
the Supervisory Board will act in the interests of the Group, taking into consideration the interests of the Group’s
stakeholders (which includes but is not limited to its Shareholders, customers, its suppliers, and its employees).
The Supervisory Board is responsible for the quality of its own performance. The Supervisory Board may, at theCompany’s expense and after having informed the chairman of the Supervisory Board and the CEO, seek theadvice which it deems desirable for the correct performance of its duties.
Supervisory Board Rules
Pursuant to the Articles of Association, the Supervisory Board may adopt written rules governing, among
other things, its decision-making process and conduct of meetings. The Supervisory Board Rules effective
ultimately on the Settlement Date (the “Supervisory Board Rules”) are published on the Company’s website
under www.lighting.philips.com/main/company.
Composition, appointment and removal
The Supervisory Board determines the number of members of the Supervisory Board. The members of theSupervisory Board are appointed by the General Meeting on the nomination of the Supervisory Board, which
nomination may be binding.
If a member of the Supervisory Board is to be appointed, the Supervisory Board shall make a nomination
which nomination may be binding. If the Supervisory Board makes a non-binding nomination, the nominatedcandidate is appointed by a resolution adopted by the General Meeting with a simple majority of the votes cast. If
the Supervisory Board makes a binding nomination, the General Meeting may at all times overrule the binding
nomination by a resolution adopted by a majority of the votes cast, provided that majority represents more than
one-third of the issued share capital. If a majority of the votes is cast in favor of overruling the binding
nomination, but that majority does not represent more than one-third of the issued share capital, a new General
Meeting may be convened at which the resolution to overrule the binding nomination may be adopted by asimple majority of the votes cast, regardless of the issued share capital represented by that majority. In the eventthe candidate nominated by way of a non-binding nomination is not appointed or a binding nomination isoverruled, the Supervisory Board may make a new nomination, which nomination may be binding. In the eventthat this candidate nominated by the Supervisory Board by way of a non-binding nomination is not appointed orif the relevant binding nomination is overruled, the General Meeting shall be free to appoint a member of theSupervisory Board to fill the vacancy. In that event the resolution to appoint a member of the Supervisory Board
can be adopted by a simple majority of the votes cast.
Pursuant to the Relationship Agreement, the Selling Shareholder shall have the right, under the terms andconditions set out in the Relationship Agreement to nominate candidates for appointment as member of theSupervisory Board (see “Existing Shareholders and Related Party Transactions”).
Term of appointment
The Articles of Association do not provide for a fixed or maximum term of appointment. In line with theDutch Corporate Governance Code, the members of the Supervisory Board (with the exception of Kees vanLede) will be appointed for a period of four years, it being understood that the period of their appointment will
expire at the end of the annual General Meeting to be held in 2020.
218

Kees van Lede is currently a member of the supervisory board of the Selling Shareholder, from which hewill resign on or before the Settlement Date. His extensive experience as supervisory director at the Selling
Shareholder and various other listed companies will benefit the Company during its transition into anindependent, publicly listed company. The term of his appointment will expire at the end of the Company’s
annual General Meeting to be held in 2018.
Meetings and decisions
According to the Supervisory Board Rules, resolutions of the Supervisory Board can only be adopted in a
meeting at which at least one third of the members of the Supervisory Board is present or represented,
comprising at least one Royal Philips Nominee (as long as a Royal Philips Nominee is in office). Each memberof the Supervisory Board has one vote. As long as the Selling Shareholder’s shareholding in the Company equals
or exceeds 50% of the Ordinary Shares issued and outstanding, a resolution of the Supervisory Board to approvea resolution of the Board of Management regarding an issue of Shares or to grant rights to subscribe for Sharesrequires the affirmative vote of the Royal Philips Nominees. Furthermore, as long as the Selling Shareholder’sshareholding in the Company equals or exceeds 30% of the Ordinary Shares issued and outstanding, resolutionsof the Supervisory Board to determine the remuneration of the members of the Board of Management and to
approve a resolution of the Board of Management to determine the remuneration of certain senior executives
designated by the Supervisory Board, require the affirmative vote of the Royal Philips Nominee that is a memberof the Supervisory Board’s remuneration committee. The approval shall not be required if it concerns an issue of
Shares or grant of rights to Shares to an employee of the Company or a Group company under any applicable
employee share incentive plan.
The Supervisory Board meets at least six times a year. Meetings of the Supervisory Board are attended by
the CEO and, if possible, by the other members of the Board of Management and the Company’s generalsecretary, unless the Supervisory Board decides otherwise and save for certain meetings as described in the
Supervisory Board Rules.
Pursuant to the Supervisory Board Rules, resolutions can, upon a proposal by or on behalf of the Chairmanof the Supervisory Board, also be adopted in writing or without holding a meeting if (i) a proposal for such
resolution has been sent to all members; (ii) no member has objected to adopting a resolution in writing; and (iii)more than half of the members entitled to vote have voted in favor of the resolution.
Conflict of interest
Similar to the rules that apply to the members of the Board of Management as described above, Dutch law
also provides that a supervisory director of a Dutch public limited liability company, such as the Company (under
its governance effective ultimately on the Settlement Date), may not participate in the adoption of resolutions(including deliberations in respect of these) if he or she has a direct or indirect personal interest conflicting with
the interests of the company.
Each member of the Supervisory Board (other than the chairman of the Supervisory Board) shallimmediately report any (potential) conflict of interest, as described above or in the meaning of the Dutch
Corporate Governance code, to the chairman of the Supervisory Board and must provide him with all information
relevant to the (potential) conflict. In case the chairman of the Supervisory Board has a (potential) conflict ofinterest he shall immediately report such (potential) conflict to the vice-chairman of the Supervisory Board andshall provide all information relevant to the (potential) conflict of interest.
If no resolution can be adopted by the Supervisory Board as a consequence of personal conflicts of interestsof all Supervisory Directors, the relevant resolution will be referred to the General Meeting. All transactions inwhich there are conflicts of interests with members of the Supervisory Board will be agreed on terms that are
customary in the sector concerned and disclosed in the Company’s annual report.

219

Supervisory Board
On the Settlement Date, the Supervisory Board will be composed of the following five members:
Name

Date of birth

Position

Member as of

Arthur van der Poel

1 November 1948

Chairman

Settlement Date

4 year term expiring
at the end of theannualGeneralMeeting to be held in
2020

Term/maximum

Frans van Houten

26 April 1960

Vice-Chairman

Settlement Date

4 year term expiring
at the end of theannualGeneralMeeting to be held in
2020

Rita Lane

24 October 1962

MemberSettlement Date

4 year term expiring
at the end of theannualGeneralMeeting to be held in
2020

Kees van Lede

21 November 1942

MemberSettlement Date

2 year term expiring
at the end of theannualGeneralMeeting to be held in2018

Abhijit Bhattacharya

18 October 1961

MemberSettlement Date

4 year term expiring
at the end of theannualGeneralMeeting to be held in
2020

The Company’s registered address, High Tech Campus 45, 5656 AE Eindhoven, the Netherlands, serves as
the business address for all members of the Supervisory Board.
Kees van Lede
Cornelis Josephus Antonius van Lede, member of the Supervisory Board, Chairman of the Audit Committee
and Chairman of the Remuneration Committee, is a Dutch national. Mr. van Lede obtained an MBA at INSEAD,
Paris and a master’s degree in law at Leiden University. Mr. van Lede worked at McKinsey as a consultant from1967 until 1976. From 1976 until 1984 he was a member of the board of Nederhorst Bouw and HBG. In 1984,
Mr. van Lede was appointed chairman of VNO-NCW and in 1991 he joined Akzo Nobel N.V. as a member ofthe board, and thereafter served as chairman of the management board between 1994 and 2003. In 1995 he wasappointed chairman of the supervisory board of Puissance B.V. and Mr. van Lede currently still holds thisposition. During the period between 2002 and 2012, Mr. van Lede was the non-executive director of Sara Lee
Corporation. After the separation, Mr. van Lede was non-executive director of D.E. Master Blenders 1753 N.V.
between 2012 and 2014. Mr. van Lede joined the supervisory board of Heineken N.V. in 2003 and was chairmanof the supervisory board until 2014. From 2003 until 2015, he was a member of the supervisory board of Air
Liquide S.A. Mr. van Lede was appointed as non-executive director of Air France KLM S.A. in 2004 and in 2005
he was appointed senior adviser to JP Morgan Plc. Furthermore, Mr. van Lede was member of the supervisoryboard of Koninklijke Makkumer Aardewerk- en Tegelfabriek B.V. from 2005 to 2014 and of Royal Imtech N.V.
from 2013 to 2015. In 2009 he became chairman of Stichting Lauwerecht and in 2003 he joined Royal Philips as
member of the supervisory board.
Abhijit Bhattacharya
Abhijit Bhattacharya, member of the Supervisory Board, member of the Audit Committee and member ofthe Remuneration Committee, is an Indian national. Mr. Bhattacharya obtained a master’s degree in Commerce
majoring in finance, accounting and economics from Sydenham College of Commerce and Economics in
Mumbai, India. Mr. Bhattacharya is an Associate of the Institute of Cost and Management Accountants in India.
Mr. Bhattacharya joined Royal Philips in 1987 and held various senior management positions in the company inAsia Pacific, Europe and the United States. Mr. Bhattacharya assumed global responsibility as financial
controller for Royal Philips’ domestic appliance and personal care businesses in 2000 until 2004, based in the
Netherlands. In 2004, he was appointed senior vice president and financial controller for multi-market
semiconductors in Royal Philips’ semiconductor business, and held that position until 2006 and in 2006 he was220

appointed senior vice president and financial controller for multi-market semiconductors at NXP Semiconductors
N.V. and held that position until 2008. In 2008, Mr. Bhattacharya was appointed executive vice president andchief financial officer of ST-NXP Wireless (holding) AG and was a member of its executive committee until
2009. In 2009, Mr. Bhattacharya was appointed as the head of operations and quality and a member of theexecutive management team of the joint venture ST-Ericsson, who operated through ST-Ericsson Holding AG.
He held this position until 2010. Mr. Bhattacharya returned to Royal Philips in 2010 and was appointed executive
vice president, heading investor relations until 2013, when he became chief financial officer of the healthcare
business. He was chief financial officer of the healthcare business until 2014. In 2014, Mr. Bhattacharya was
appointed as chairman of the project team responsible for the separation of the lighting business from Royal
Philips and held this position until 2015. In 2015, Mr. Bhattacharya was appointed as executive vice president
and chief financial officer of the lighting business. Subsequently, Mr. Bhattacharya was appointed chief financial
officer and executive vice president of Royal Philips.
Frans van Houten
Francois Adrianus van Houten, member of the Supervisory Board and member of the Nomination &Selection Committee, is a Dutch national. Mr. van Houten gained a master’s degree in economics and business
management at the Erasmus University. He joined Royal Philips in 1986 and held various managerial positions,
including co-chief executive officer of the consumer electronics business. From 2004 to 2009, he was chief
executive officer at NXP Semiconductors N.V. (formerly Philips Semiconductors). From 2009 to 2010, he led a
consultancy practice and was senior advisor to the board of ING Group N.V. In 2011, Mr. van Houten was
appointed chief executive officer and chairman of Royal Philips’ executive committee and board of management.
Since 2011 he is a member of the European Round Table of Industrial Companies. Mr. van Houten holds nonexecutive board positions in the following non-profit foundations: Erasmus Trustfund, Worldexpo Rotterdam
2025 and NL2025.
Rita Lane
Rita Suganomiya Lane, member of the Supervisory Board and member of the Audit Committee, is a U.S.
national. Ms. Lane obtained a bachelor’s degree in electrical engineering from the United States Air Force
Academy, a master’s degree in electrical engineering from Purdue University and a master’s degree in businessadministration from the University of California, Berkeley. She started her career at the United States Air Forceas lieutenant in 1984. From 1991 to 2006, Ms. Lane held various managerial positions at International Business
Machines Corporation, including vice president integrated supply chain of various divisions. She worked as
senior vice president integrated supply chain, chief procurement officer and corporate vice president at Motorola,Inc. in the period 2006 to 2008. In the period 2008 to 2011, she was a member of the board of directors of Out &Equal. From 2008 to 2014, Ms. Lane worked as vice president operations at Apple Inc. In 2010, she became
member of the advisory board of Purdue University School of Electrical & Computer Engineering and currently
still holds this position. In 2014, Ms. Lane became a supply chain advisor as owner of Hajime, LLC and stillholds this position. She became member of the board of directors of Friends of Master Gardeners of Santa ClaraCounty in 2015 and was appointed member of the board of directors of DOTS Devices, Inc. in 2016.
Arthur van der Poel
Arthur Petrus Maria van der Poel, chairman of the Supervisory Board, chairman of the Nomination &Selection Committee and member of the Remuneration Committee, is a Dutch national. Mr. van der Poelobtained a master’s degree in telecommunications engineering at Eindhoven University of Technology. Mr. vander Poel joined Royal Philips in 1984 and held various management positions in the consumer integrated circuitbusiness of the semiconductor division. From 1996 to 2001, Mr. van der Poel was the chief executive officer ofthe semiconductors division. He served as a member of the board of management of Koninklijke Philips
Electronics N.V. from 1998 to 2003. He was member of the supervisory Board of P.S.V. N.V. from 1999 until
2011. In 2004, Mr. van der Poel was appointed member of the supervisory board of ASML Holding N.V. andwas chairman of the supervisory board from 2007 until April 2016. He was member of the supervisory board of
DHV B.V., later named Royal HaskoningDHV B.V. from 2004 until 2014. From 2004 to 2015, he was a memberof the board of directors of Axalto that, after the merger with Gemplus in 2006, became Gemalto Holding N.V.
In 2012, Mr. van der Poel was appointed member of the supervisory board of BDR Thermea Group B.V. andbecame chairman of the supervisory board in 2013. Mr van der Poel still holds this position. In January 2016 he
was appointed member of the supervisory board of VanderLande Industries Holding B.V. and became chairmanof the supervisory board in March 2016 and currently still holds this position.
Supervisory Board Committees
The Supervisory Board has an Audit Committee, a Corporate Governance and Nomination & Selection
Committee and a Remuneration Committee. Each of the committees has a preparatory and/or advisory role to theSupervisory Board. In accordance with the Supervisory Board Rules, the Supervisory Board has drawn up rules
221on each committee’s role, responsibilities and functioning. The committees consist of members of theSupervisory Board. They report their findings to the Supervisory Board, which is ultimately responsible for all
decision-making.
Audit Committee
The duties of the Audit Committee include advising the Supervisory Board in fulfilling its oversight
responsibilities for the integrity of the Company’s financial statements and the Company’s internal business
controls and risk management. The Audit Committee reviews the financial information to be disclosed by theCompany, the compliance with recommendations of internal and external accountants, the Company’s policy on
tax planning, the Company’s financing arrangements, assists the Supervisory Board with the Company’s
information and communications technology. It furthermore maintains contact with and supervises the external
accountant and it prepares the nomination of an external accountant for appointment by the General Meeting. The
Audit Committee meets at least before the publication of the Annual Accounts of the Company.
The Audit Committee will consist of C.J.A. van Lede (chairman), A. Bhattacharya, R.S. Lane.
The charter of the Audit Committee
www.lighting.philips.com/main/company.

ispublishedontheCompany’s

websiteunder

Corporate Governance and Nomination & Selection Committee
The Corporate Governance and Nomination & Selection Committee advises the Supervisory Board on its
duties regarding the (procedures for the) selection and appointment of members of the Supervisory Board and themembers of the Board of Management. The duties of the Corporate Governance and Nomination & Selection
Committee include preparing the selection criteria and appointment procedures for members of the Supervisory
Board and the members of the Board of Management and proposing the profile for the Supervisory Board. It also
periodically assesses the size and composition of the Board of Management and the Supervisory Board, and thefunctioning of the individual members. The Corporate Governance and Nomination & Selection Committee also
proposes on appointments and reappointments. It supervises the policy on selection criteria and appointment ofsenior executives within the Group. At least once a year it reviews the corporate governance of the Company andcan make recommendations to the Supervisory Board relating to the corporate governance of the Company. The
Corporate Governance and Nomination & Selection Committee meets at least twice every year.
The Corporate Governance and Nomination & Selection Committee will consist of A.P.M. van der Poel(chairman) and F.A. van Houten
The charter of the Corporate Governance and Nomination & Selection Committee is published on the
Company’s website under www.lighting.philips.com/main/company.
Remuneration Committee
The Remuneration Committee advises the Supervisory Board on the exercise of its duties regarding the
remuneration policy for the Board of Management, and preparing proposals for the Supervisory Board on thesesubjects. The duties of the Remuneration Committee include the preparation of proposals of the Supervisory
Board on the remuneration of the individual members of the Board of Management and the Supervisory Boardand the decision-making by the Supervisory Board regarding the approval and the decision-making of the
remuneration of certain senior executives. The Remuneration Committee reviews and prepares proposals for theSupervisory Board concerning the corporate goals and objectives relevant to the annual incentive of members of
the Board of Management and reviews the performance of members of the Board of Management in light of
those goals and objectives and it prepares proposals for the Supervisory Board on the compensation levels of themembers of the Board of Management based on such review. The Remuneration Committee also exercises
oversight over the development, implementation and administration of the Company’s compensation programsfor members of the Board of Management. The Remuneration Committee meets at least twice every year.
The Remuneration Committee will consist of C.J.A. van Lede (chairman), A. Bhattacharya and A.P.M. vander Poel.
The charter of the Remuneration Committee is published on the Company’s website under
www.lighting.philips.com/main/company.
Restrictions on Number of Supervisory Positions of members of the Board of Management andSupervisory Board
Dutch law restricts the overall number of supervisory positions that a member of the Board of Management
or Supervisory Board (including a one-tier board) of “large Dutch companies” may hold if such company
qualified as large Dutch company on two successive balance sheet dates and without interruption thereafter on
two successive balance sheet dates. The term “large Dutch companies” applies to Dutch public limited liability
companies, Dutch private limited liability companies and Dutch foundations: (i) the value of the company’s/
222

foundation’s assets according to its balance sheet together with explanatory notes, on the basis of the purchaseprice or manufacturing costs exceeds €20 million; (ii) its net turnover in the applicable year exceeds €40 million;and (iii) its average number of employees in the applicable year is 250 or more.
A person cannot be appointed as a managing or executive director of a “large Dutch company” if he/she
already holds a supervisory position at more than two other “large Dutch companies” or if he/she is the chairmanof the supervisory board or one-tier board of another “large Dutch company”. Also, a person cannot be appointed
as a supervisory director or non-executive director of a “large Dutch company” if he/she already holds asupervisory position at five or more other “large Dutch companies”, whereby the position of chairman of thesupervisory board or one-tier board of another “large Dutch company” is counted twice.
As the Company was incorporated in 2016 and a company has to meet the relevant criteria on two
consecutive balance sheet dates and without interruption, on two consecutive balance sheet dates thereafter, theCompany does not (yet) qualify as a large Dutch company.
The Dutch Corporate Governance Code restricts the overall number of supervisory positions that a memberof the Board of Management may hold. A member of the Board of Management may not be a member of thesupervisory board of more than two listed companies. Nor may a member of the Board of Management be thechairman of the supervisory board of a listed company. Under the Dutch Corporate Governance Code, thenumber of supervisory boards of Dutch listed companies of which a member of the Supervisory Board may be amember is limited to five, for which purpose the chairmanship of a supervisory board counts double.
Diversity
Until 1 January 2016, Dutch law required large Dutch companies (as described above) to pursue a policy of
having at least 30% of the seats on both the board of management and supervisory board held by men and at least
30% of the seats on the board of management and supervisory board held by women, each to the extent theseseats are held by natural persons. Under Dutch law, this was referred to as a well-balanced allocation of seats.
This allocation of seats needed to be taken into account in connection with: (i) the appointment, or nomination
for the appointment, of members of the board of management; (ii) drafting the criteria for the size andcomposition of the board of management and supervisory board, as well as the designation, appointment,
recommendation and nomination for appointment of supervisory board members; and (iii) drafting the criteria forthe non-executive directors, as well as nomination, appointment and recommendation of non-executive directors.
If a Dutch large company did not comply with the gender diversity rules, it was required to explain in its
management report (i) why the seats were not allocated in a well-balanced manner, (ii) how it had attempted toachieve a well-balanced allocation and (iii) how it aimed to achieve a well-balanced allocation in the future.
This rule was a temporary measure and automatically ceased to have effect on 1 January 2016. However, on
23 March 2016, the responsible Dutch Minister has submitted a legislative proposal to Dutch Parliament inwhich it is proposed to reinstate this rule and extend its application until 1 January 2020.
As set out above, the Company does not (yet) qualify as a large Dutch Company.
Potential Conflicts of Interest and Other Information
The Company is not aware of any potential conflicts between the personal interests or other duties ofmembers of the Board of Management and/or the members of the Supervisory Board on the one hand and theinterests or other duties of the Company on the other hand. There is no family relationship between any membersof the Board of Management and any members of the Supervisory Board.
During the last five years, none of the members of the Board of Management or the Supervisory Board: (i)has been convicted of fraudulent offenses; (ii) has served as a director or officer of any entity subject tobankruptcy proceedings, receivership or liquidation; or (iii) has been subject to any official public incrimination
and/or sanctions by statutory or regulatory authorities (including designated professional bodies), or
disqualification by a court from acting as a member of the administrative, management or supervisory body of anissuer, or from acting in the management or conduct of the affairs of any issuer. Mr. van Lede was a member ofthe supervisory board of Royal Imtech N.V. (August 2013 to May 2015) prior to its bankruptcy in August 2015.
Other than the Separation Agreement and the Relationship Agreement, the Company is not aware of any
arrangement or understanding with major Shareholders, suppliers, customers or others pursuant to which any
members of the Board of Management or Supervisory Board was selected as a director of such management or
supervisory bodies of the Company.
Remuneration
The Company was incorporated on 1 February 2016 and therefore did not have any members of the Boardof Management or Supervisory Board or key officers for the year ended 31 December 2015 and no historicalcompensation details for any of these persons can be provided.
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Board of Management Remuneration
The remuneration of the individual members of the Board of Management, has been established inaccordance with the Board of Management remuneration policy as adopted. It is expected that the remuneration
policy will be reconsidered after the Settlement Date and that a revised policy will be submitted for approval by
the General Meeting in 2017.
The compensation package for the members of the Board of Management will consist of the following fixedand variable components which are discussed in more detail below:•base salary;•

annual cash bonus (short-term incentive);•long-term incentive; and•pensions and other benefits.

Remuneration components
Base salary
The base salary of the members of the Board of Management aims to reflect the responsibility and scope of
their role, taking into account level of seniority and experience. The base salary of each member of the Board ofManagement is a fixed cash compensation paid on a monthly basis and is based on benchmark research byindependent external expert advisers. The total base salary is targeted to be the median of various referencegroups. These reference groups are established based on industry, ownership type, geographical business scopeand size parameters. The base salary can be adjusted by the Supervisory Board in accordance with the
remuneration policy.
Annual bonus (short-term incentive)
Each year, members of the Board of Management are eligible for a short-term incentive in the form of anannual cash bonus. The CEO is eligible for an at target annual bonus between 80% and 120% of his base salary,
while the CFO is eligible for an at target annual bonus between 60% and 100% of his base salary. In both cases
the maximum bonus is capped at twice the target amount. The objective of the annual bonus is to reward annual
financial and non-financial, Group and individual performance. The total annual bonus depends on theachievement of specific targets. The targets are determined annually by the Supervisory Board and consist of amix of financial and non-financial performance measures. Annual bonuses are subject to certain claw backprovisions pursuant to the Code and Dutch law.
Long-term incentive
As of the date of this Prospectus, the Company does not have any incentive plan for remuneration in theform of Ordinary Shares or rights to subscribe for Ordinary Shares either for members of the Board ofManagement or other employees of the Group in a senior management position within the Group. It is expectedthat a long-term incentive plan will be drawn up and submitted for approval by the General Meeting in 2017.
Subject to the terms and conditions of such long-term incentive plan, the current CEO shall be entitled to an
on target long-term incentive grant equaling 100% of his annual base salary, while the current CFO shall beentitled to an on target long-term incentive grant equaling 80% of his annual base salary. Long-term incentives
are subject to certain claw back provisions pursuant to the Code and Dutch law.
The members of the Board of Management and certain other employees and former employees allocated to
the Group have been awarded performance shares and certain restricted share rights of the Selling Shareholder
pursuant to the existing long-term incentive plans of the Selling Shareholder. These awards will not change as adirect result of Settlement and, pursuant to the Separation Agreement, the costs related to the relevant awards
will be charged by the Selling Shareholder to the Company.
Pensions and other benefits
Members of the Board of Management are eligible to receive post-employment benefits by participating in
one of the Company’s pension plans. See “—Pension Schemes” for more information.
Members of the Board of Management are also entitled to other benefits, such as expense and relocation
allowances, medical insurance, accident insurance and company car arrangements.
Severance arrangements
Contractual severance arrangements of members of the Board of Management comply with the Code. See“—Corporate Governance Code—Compliance with the Code”.
224

Adjustments to variable remuneration
Pursuant to Dutch law and the Dutch Corporate Governance Code, the remuneration of members of theBoard of Management may be reduced or members of the Board of Management may be obliged to repay (partof) their variable remuneration to the Company if certain circumstances apply.
Pursuant to the Code, any variable remuneration component conditionally awarded to a member of theBoard of Management in a previous financial year which would, in the opinion of the Supervisory Board,
produce an unfair result due to extraordinary circumstances during the period in which the predetermined
performance criteria have been or should have been applied, the Supervisory Board will have the discretionary
power to adjust the value downwards or upwards. In addition, the Supervisory Board will have the authority
under the Code and Dutch law to recover from a member of the Board of Management any variable remuneration
awarded on the basis of incorrect financial or other data (claw back).
Pursuant to Dutch law, the Supervisory Board may furthermore adjust the variable remuneration (to theextent that it is subject to reaching certain targets and the occurrence of certain events) to an appropriate level if
payment of the variable remuneration were to be unacceptable according to the requirements of reasonablenessand fairness.
In addition, Dutch law prescribes that, in case the value of the Shares granted by the Company to therespective members of the Board of Management increases during a period in which a public takeover bid is
made for the Shares in the share capital of the Company, the remuneration of that respective member of theBoard of Management will be reduced by the amount by which the value of the Shares granted by the Company
to such member of the Board of Management has increased. Similar provisions apply in the situation of an
intended legal merger or demerger, or if the Company intends to enter into certain transactions that are of suchsignificance to the Company that the Board of Management requires the approval of the General Meeting
pursuant to Dutch law (i.e., transactions that fall within the scope of section 2:107a DCC).
Remuneration of the Board of Management
The remuneration of the Board of Management for the year ending 2016 will comprise of a fixed andvariable part, including base salary, a bonus, post-employment benefits and other benefits. The table below sets
forth the “at target” annual remuneration of the members of the Board of Management as of the date of their
appointment. The amount of the variable remuneration component assumes that all targets are met for thereference year.
Name

Base salary

Variable
remuneration

Pension costs

Total

Eric Rondolat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
René van Schooten . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

€850,000€525,000€680,000€315,000€341,000€220,000€1,871,000€1,060,000

As of the date of this Prospectus, the Company has not provided any personal loans, advances or guarantees
to members of the Board of Management.
Supervisory Board Remuneration
The General Meeting determines the remuneration of the members of the Supervisory Board. The
Supervisory Board will submit a proposal to the General Meeting in respect thereof. The remuneration of theSupervisory Board cannot be dependent on the Company’s results.
None of the members of the Supervisory Board may receive Shares or options for Shares as part of theirremuneration. None of the members of the Supervisory Board may hold Shares, options for Shares or similar
securities other than as a long-term investment. The members of the Supervisory Board may also not hold suchsecurities, other than in accordance with the rules on holding or transacting in the Company’s securities.
Remuneration of the Supervisory Board
The chairman of the Supervisory Board will receive an annual retainer of €110,000, the vice-chairman will
receive an annual retainer of €85,000 and other members will each receive €75,000 annually for their services asof the date of their appointment. In addition, the chairman and each member of the Audit Committee will receive
an annual fee of €22,500 and €13,000, respectively. The chairman and each member of the Remuneration
Committee will receive an annual fee of €15,000 and €10,000, respectively. The chairman and each member of
the Corporate Governance and Nomination & Selection Committee will receive an annual fee of €15,000 and€7,500, respectively. A €5,000 travel allowance per meeting applies for members of the Supervisory Board who
travel intercontinentally to attend a meeting or €2,500 who travel within the same continent. The Royal Philips
Nominees will not receive an annual fee as part of their remuneration by the Group.
As of the date of this Prospectus, the Company has not provided any personal loans, advances or guarantees
to members of the Supervisory Board.
225

Pensions for the Supervisory Board
As of the date of this Prospectus, there are no amounts reserved or accrued by the Company or its
subsidiaries to provide pension, benefit, retirement or similar benefits for current members of the Supervisory
Board.
Equity Holdings
As of the date of this Prospectus, none of the members of the Board of Management or the Supervisory
Board hold any Ordinary Shares or options on Ordinary Shares.
The CEO has agreed with the Selling Shareholder that it will sell to him and that he will purchase,
conditional on Settlement of the Offering, Ordinary Shares in amounts of approximately €500,000 at the Offer
Price. The CFO has agreed with the Selling Shareholder that it will sell to him and that he will purchase,
conditional on Settlement of the Offering, Ordinary Shares in amounts of approximately €250,000 at the Offer
Price.
Equity Plans
As of the date of this Prospectus, the Company does not have a long-term incentive plan for remuneration in
the form of Ordinary Shares or rights to subscribe for Ordinary Shares for members of the Board of Management.
A new long-term incentive plan for the Group is expected to be established, subject to the prior approval of theGeneral Meeting, in 2017.
Employment, Service and Severance Agreements
As of the date of this Prospectus, the CEO is employed by the Selling Shareholder, and the CFO isemployed by Philips Lighting Holding B.V., a subsidiary of the Group. The terms and conditions of employment
are governed by Dutch employment law. Each member of the Board of Management is expected to enter into a
service agreement (overeenkomst van opdracht) with the Company effective as of the Settlement Date. The terms
and conditions of these service agreements have been aligned with the Code. The service contracts will beentered into for a period of four years for both members entering the service and members who are already inservice of the Company or the Selling Shareholder. The service contracts will also contain severance provisions
which provide for compensation for the loss of income resulting from a termination of employment with amaximum of one year’s base compensation. The members of the Supervisory Board do not have an employment,
service or severance contract with the Company.
Liability of members of the Board of Management and Supervisory Board
Under Dutch law, the members of the Board of Management and Supervisory Board may be liable towards
the Company for damages in the event of improper or negligent performance of their duties. They may be jointly
and severally liable for damages towards the Company for infringement of the Articles of Association or ofcertain provisions of the DCC. In addition, they may be liable towards third parties for infringement of certain
provisions of the DCC. In certain circumstances, they may also incur additional specific civil and criminal
liabilities.
Insurance
Members of the Board of Management and Supervisory Board and certain other directors or officers of theGroup are insured under an insurance policy, in effect on or prior to the Settlement Date, taken out by theCompany against damages resulting from their conduct when acting in their capacities as directors or officers.
Indemnification
Pursuant to the Articles of Association, and unless Dutch law provides otherwise, the following will bereimbursed to current and former members of the Board of Management and members of the Supervisory Board:(i) the reasonable costs of conducting a defense against claims based on action or inaction in exercising theirduties or any other duties in another position they are fulfilling or have fulfilled at the Company’s request;(ii) any damages or fines payable by them as a result of actions or inactions as mentioned under (i); (iii) the
reasonable costs of appearing in any other legal proceedings that they are involved in as a current or former
member of the Board of Management or Supervisory Board, with the exception of proceedings primarily aimed
at pursuing a claim on their own behalf; and (iv) any tax claims as a result of a reimbursement in accordance withthe foregoing.
There shall be, however, no entitlement to reimbursement if and to the extent that (i) it has been establishedin a final and conclusive decision of a Dutch court or, in the event of arbitration, by an arbitrator, that the action
or inaction of the person concerned can be characterized as deliberate, willfully reckless or seriously culpable,
unless Dutch law provides otherwise or this would be unacceptable in the given circumstances according tostandards of reasonable and fair conduct; or (ii) the person’s costs or financial losses are covered by insurance
and the insurer has paid out these costs or financial losses.
226

Pension Schemes
The Group operates various post-employment schemes, including both defined benefit and defined
contribution plans.
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed
contributions into a separate entity. The Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee
service in the current and prior periods. A defined benefit plan is a post-employment benefit plan that is not adefined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee
will receive on retirement, usually dependent on one or more factors such as age, years of service andcompensation.
The liability in respect of defined benefit pension plans is the present value of the defined benefit ofobligations at the balance sheet date minus the fair value of plan assets, together with adjustments for actuarial
gains/losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries
using the projected unit credit method. The present value of the defined benefit obligation is determined by theestimated future cash outflows using the interest rates of high quality corporate bonds that are denominated in thecurrency in which the benefits will be paid and which have terms of maturity approximating the terms of therelated pension obligation.
The Group operates defined benefit plans in a number of countries, of which the largest are in Germany andthe United States and such German and U.S. pension plans (including the U.S. post-employment healthcare
benefit plans as discussed below) represented the great majority of the total defined benefit liabilities of theGroup as of 31 March 2016. The defined benefit plans of the Group in the United States cover current and former
employees of the relevant U.S. subsidiaries of the Group. The Group pays additional contributions to cover a
deficit, if any, and the plans are subject to indexation (not mandatory). The defined benefit plans of the Group in
Germany cover retirement, disability and death, are the result of direct promises from the relevant German
subsidiaries of the Group to current and former employees of such German subsidiaries and are subject tominimum annual indexation and accrued interest. In 2013, IAS 19R (an accounting rule which outlines theaccounting requirements for the Company of employee benefits) was implemented: actuarial gains and losses
related to both defined benefit of obligation and fair value of plan assets arising from experience adjustments andchanges in actuarial assumptions are charged or credited to equity in other comprehensive income in the period
in which they arise. Past service costs are recognized immediately in the income statement.
In a number of countries the Group runs defined contribution plans. The contributions are recognized as
employee benefit expense when they are due. The Group has no further payment obligations once thecontributions have been paid. In the Netherlands, the pension schemes are collective defined contribution
schemes which cover retirement, death and disability. The employer contributes a level premium and cannot beheld liable to make additional contributions to such pension scheme. If the total contributions prove to be
insufficient to fund the targeted level of pension accruals in a certain year, the accrual of the employees’ pension
benefits is decreased (i.e., annual accrual ambition).
In a number of countries in which the Group operates, the Group provides post-employment healthcare
benefits to their retirees, of which the largest plan is in the United States. The benefits provided by these plans
typically cover a part of the healthcare insurance costs after retirement and such plans are unfunded. The
entitlement to these benefits is conditional on the employee remaining in service up to retirement age andincludes the estimation that (former) employees make use of this arrangement. The expected costs of thesebenefits are accrued over the period of employment using the same accounting methodology as used for thedefined benefit pension plans.
Trade Union Relations and Works Council
A Works Council is a body of employee representatives who have been elected by the employees. Under
Dutch law, the management board of any company running an enterprise where a Works Council has been
established must seek the non-binding advice of the Works Council before taking certain decisions with respect
to the enterprise, such as those related to a major restructuring, a change of control, or the appointment or
dismissal of a managing director. Certain other decisions directly involving employment matters that apply either
to all employees or certain groups of employees may only be taken with the works council’s consent. The
Company has not established a Works Council.
In the Netherlands, Philips Lighting B.V. has established a Works Council. As Philips Lighting B.V. isgoverned by the mitigated large company regime (gemitigeerd structuurregime), its Works Council has a right to227

recommend candidates for appointment to the supervisory of Philips Lighting B.V. For one third of the positions ofin the supervisory board of Philips Lighting B.V., its Works Council has an enhanced right of recommendation(versterkt aanbevelingsrecht).
In certain other jurisdictions, certain other subsidiaries of the Company have established Works Councils as
well.
Employees
The table below provides an overview of the total numbers of FTEs at year-ends (except for 2016) of theGroup, subdivided per Business Group and Market Group.
Q1 2016

2015

2014

2013

FTEs per Business Group
BG Lamp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG LED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BG Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,9792,695
10,4081,851
4,417
36,35017,032 19,877 23,699
2,534
3,218
1,869
10,611 11,055
9,378
1,506
2,084
2,508
5,716
5,401
4,939
37,399 41,634 42,393

FTEs per Market Group39
Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Growth Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Greater China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,277
13,893
7,168
6,012
36,3509,578 10,182 10,650
14,136 15,408 15,963
7,633
8,898
8,034
6,052
7,146
7,746
37,399 41,634 42,393

As of 31 March 2016, the Group employed a total of 4,060 temporary employees.
Corporate Governance Code
The Code applies to all Dutch companies listed on a government-recognized stock exchange, whether in the
Netherlands or elsewhere. The Code therefore applies to the Company. The Code contains a number of principles
and best practice provisions in respect of managing boards, supervisory boards, shareholders and the general
meeting, financial reporting, auditors, disclosure, compliance and enforcement standards.
The Company is required to disclose in its annual report whether or not it applies the provisions of the Codeand, if it does not apply those provisions, to explain the reasons why.
Compliance with the Code
The Company fully endorses the underlying principles of the Code, and is committed to adhering to the bestpractices of the Code as much as possible.
The Company fully complies with the Code except for Best Practice Provision III.2.1. This provision statesthat all members of the Supervisory Board, with the exception of not more than one person, must be independent
in the meaning of the Dutch Corporate Governance Code. A member of the board of management of a company
that holds 10% or more of the shares in the issued share capital of the company concerned does not qualify as
independent. Therefore, as long as the Selling Shareholder holds ten percent or more of the Shares, both Royal
Philips Nominees, F.A. van Houten and A. Bhattacharya, do not qualify as independent.

39

Includes all FTEs, including employees who work in enabling functions and BGs.

228

DESCRIPTION OF SHARE CAPITAL
The following paragraphs summarize certain information concerning the Company’s share capital andcertain material provisions of the Articles of Association as in effect ultimately on the Settlement Date andapplicable Dutch law.
The Articles of Association in the governing Dutch language and in an unofficial English translation thereof
are available on the Company’s website (www.lighting.philips.com/main/company). See also “Management,
Employees and Corporate Governance” for a summary of certain material provisions of the Articles of
Association, Board of Management Rules, Supervisory Board Rules and Dutch law relating to the Board ofManagement and the Supervisory Board.
GeneralThe Company was incorporated as a private limited liability company (besloten vennootschap met beperkte
aansprakelijkheid) under the laws of the Netherlands on 1 February 2016 and was named Philips Lighting
NewCo B.V. The Company will be converted to a public company with limited liability (naamloze
vennootschap) ultimately on the Settlement Date pursuant to a notarial deed of conversion and amendment (the“Deed of Amendment”). The legal and commercial name of the Company will then become Philips Lighting
N.V. The corporate seat of the Company is in Eindhoven, and its registered office is at High Tech
Campus 45, 5656 AE Eindhoven (telephone number +31 40 2791111). The Company is registered in theCommercial Register of the Chamber of Commerce (Handelsregister van de Kamer van Koophandel) under
number 65220692.
Corporate Purpose
Pursuant to article 2.2 of the Articles of Association, the corporate objects of the Company are to establish,
participate in, administer and finance legal entities, companies and other legal forms for the purpose of thedevelopment (including research) and manufacture of, and trading in, electrical and electronic products and the
exploitation of technical and other expertise (including software), in particular products and expertise relating tolight sources, luminaires, lighting electronics and controls to application-specific lighting systems and services
and its natural successors, or for the purpose of other activities, and to do everything pertaining to or connectedwith the above, including providing security in any way and binding the Company for commitments of third
parties, including companies which belong to its group, all this in the widest sense, as may also be conducive tothe proper continuity of the collectivity of business undertakings, in the Netherlands and abroad, which arecarried on by the Company and the companies in which it directly or indirectly participates.
Share Capital
Authorized and issued share capital of the Company
Under the Articles of Association, the authorized share capital of the Company is €6,000,000 divided into
300,000,000 Ordinary Shares with a nominal value of €0.01 each and 300,000,000 Preference Shares with anominal value of €0.01 each. The issued and outstanding share capital of the Company is €1, divided into one
hundred Ordinary Shares and no Preference Shares. On or prior to the Settlement Date, the Company will issue
149,999,900 Ordinary Shares to the Selling Shareholder, as a result of which the issued share capital of theCompany will amount to EUR 1,500,000 divided into 150,000,000 Ordinary shares and no Preference Shares. All
issued Shares are fully paid up and subject to, and have been created under, the laws of the Netherlands.
History of share capital
Since its incorporation, the Company has issued the following Ordinary Shares:
Date

Number of Ordinary Shares

1 February 2016

1 with a nominal value of €1 each (which Share wassplit into 100 Ordinary Shares with a nominal valueof €0.01 each on 2 May 2016)

No Preference Shares have been issued since the incorporation of the Company.
No Ordinary Shares or Preference Shares were acquired by the Company or by a subsidiary of the Company
since its incorporation.
Shareholders Register
The Shares are in registered form. The Company’s shareholders register records the names and addresses of
the Shareholders, the number and type of Shares held, the date on which registered shares were acquired, the dateof acknowledgement and/or service upon the Company of the instrument of transfer, and the amount paid on229

each Share. In addition, each transfer or passing of ownership is registered in the shareholders register. The
shareholders register also includes the names and addresses of persons and legal entities with a right of pledge(pandrecht) or a right of usufruct (vruchtgebruik) on those Shares, the date on which they acquired such a right,
the date of acknowledgment or service upon the Company of the instrument of transfer.
For shares as referred to in the Dutch Securities Giro Transactions Act (Wet giraal effectenverkeer),
including the Offer Shares, which belong to (i) a collective depot as referred to in that Dutch Securities GiroTransactions Act, of which shares form part kept by an intermediary, as referred to in the Dutch Securities GiroTransactions Act or (ii) a giro depot as referred to in that Act of which shares form part, as being kept by acentral institute as referred to in the Act, the name and address of the intermediary or the central institute shall beentered in the shareholders’ register, stating the date on which those shares became part of such collective depot
or giro depot, the date of acknowledgement by or giving of notice to, as well as the paid-up amount on eachshare.
Issuance of Shares
The Board of Management, to the extent so authorized by the General Meeting for a specific period, may
resolve to issue Shares. The Board of Management is only authorized to resolve to issue Shares subject to theapproval of the Supervisory Board. An authorization as referred to above will only be valid for a fixed term of no
more than five years and may each time only be extended for a maximum period of five years.
Pursuant to a written resolution of the General Meeting to be adopted on or prior to the Settlement Date, theBoard of Management is authorized by the General Meeting to resolve to issue Ordinary Shares, to grant rights to
subscribe for Ordinary Shares and to restrict and/or exclude statutory pre-emptive rights in relation to theissuances of Ordinary Shares or the granting of rights to subscribe for Shares. Aforementioned authorization of
the Board of Management is limited to 10% of the total nominal issued share capital of the Company as of theSettlement Date plus an additional 10% of the nominal issued share capital of the Company as of the Settlement
Date in connection with or on the occasion of mergers and acquisitions and strategic alliances and will be valid
for 18 months following such date. As long as the Selling Shareholder’s shareholding in the Company equals or
exceeds 50% of the issued and outstanding Ordinary Shares, a resolution of the Supervisory Board to approve aresolution of the Board of Management to issue Shares or to grant rights to subscribe for Shares shall require theaffirmative vote of the Royal Philips Nominees (as defined below). The affirmative vote shall not be required if itconcerns an issue of Shares or grant of rights to Shares to an employee of the Company or a Group company
under any applicable employee share incentive plan.
Pre-emptive Rights
Upon issue of Ordinary Shares in return for a cash consideration, each holder of Ordinary Shares has a preemptive right in proportion to the number of Ordinary Shares which it owns. Shareholders do not have preemptive rights in respect of Shares issued against contribution in kind, Shares issued to employees of theCompany or a Group Company or Shares issued to persons exercising a previously granted right to subscribe for
Shares.
Pre-emptive rights may be limited or excluded by the Board of Management if the Board of Management isdesignated by the General Meeting to do so. The Board of Management is only authorized to resolve to exclude
pre-emptive rights subject to the approval of the Supervisory Board. If the Board of Management has not beenauthorized to resolve to issues Shares, the General Meeting has the power, upon the proposal of the Board ofManagement, to restrict or exclude the pre-emptive rights. Such proposal must be approved by the Supervisory
Board. A resolution of the General Meeting requires a majority of at least two-thirds of the vote cast if less thanhalf of the issued share capital is represented at the General Meeting.
No pre-emptive rights exists upon the issue of Preference Shares. Holders of Preference Shares do not havea pre-emptive right in respect of Ordinary Shares.
As set out above, the Board of Management is authorized by the General Meeting to resolve to issue
Ordinary Shares, to grant rights to subscribe for Ordinary Shares and to restrict and/or exclude statutory preemptive rights in relation to the issuances of Ordinary Shares or the granting of rights to subscribe for Shares.
Aforementioned authorization of the Board of Management is limited to 10% of the total nominal issued sharecapital of the Company as of the Settlement Date plus an additional 10% of the nominal issued share capital of
the Company as of the Settlement Date in connection with or on the occasion of mergers and acquisitions andstrategic alliances and will be valid for 18 months following such date.
Acquisition by the Company of its Shares
The Company may acquire fully paid-up Shares at any time for no consideration or, subject to Dutch law
and the Articles of Association if: (i) its Shareholders’ equity less the purchase price of the Shares is not less than230

that laid down in relevant statutory provisions; (ii) the number of Shares in its capital which the Company
acquires, holds or holds as pledgee, or which is held by a subsidiary, is not more than as permitted by law; and(iii) the Board of Management has been authorized by the General Meeting to repurchase Shares. The resolutionof the Board of Management to repurchase Shares is subject to the Supervisory Board’s approval.
The Board of Management has the power, without the authorization from the General Meeting but with theapproval of the Supervisory Board, to acquire fully paid up Shares for the purpose of transferring these Shares to
employees of a Group Company pursuant to any equity compensation plan applying to them provided that thoseShares are quoted on an official list of a stock exchange.
The Company may not cast votes on Shares held by it nor will such Shares be counted for the purpose of
calculating a voting quorum. The Board of Management is authorized, subject to approval of the Supervisory
Board, to dispose of the Company’s own Shares held by it.
Pursuant to a resolution of the General Meeting which is to be adopted on or prior to the Settlement Date,the Board of Management is authorized by the General Meeting to resolve to repurchase fully paid-up Ordinary
Shares. Aforementioned authorization of the Board of Management is limited to 10% of the total nominal issued
share capital as of the Settlement Date, which number may be increased by 10% of the total nominal issued sharecapital of the Company as of the same date in connection with the execution of share repurchase programs forcapital reduction purposes, and will be valid for 18 months following such date.
Capital Reduction
Subject to the provisions of Dutch law and the Articles of Association, the General Meeting, upon the
proposal of the Board of Management, may resolve to reduce the issued share capital by (i) reducing the nominal
value of the Shares through an amendment of the Articles of Association; (ii); cancellation of Shares held by theCompany itself; or (iii) cancellation of all Shares of a specific class whereby the Ordinary Shares and thePreference Shares each qualify as a specific class. A partial repayment or release from the obligation to makefurther payment must be made proportionally on the Shares of a specific class. A proposal to reduce the issued
share capital by the Board of Management must have been approved by the Supervisory Board. In the event all
Shares of a specific class are cancelled, the amount paid up on those Shares and, where applicable, the sharepremium reserve connected to that specific class of Shares must be repaid and the Company must simultaneously
grant release from the obligation to fully pay up those Shares to the extent that they have only been partially paid
up. This does not apply to Preference Shares that are paid-up at the expense of the Protective Foundation Reserveof the Company.
A resolution of the General Meeting to reduce the share capital requires a majority of at least two-thirds ofthe votes cast, if less than half of the issued and outstanding share capital is present or represented at the General
Meeting.
In addition, Dutch law contains detailed provisions regarding the reduction of capital. A resolution to reducethe issued share capital shall not take effect as long as creditors have legal recourse against the resolution. Certain
aspects of taxation of a reduction of share capital are described in the section “Taxation” of this Prospectus.
Pursuant to a written resolution of the General Meeting which is to be adopted on or prior to the Settlement
Date, the General Meeting resolved to cancel a number of Ordinary Shares up to the number of Ordinary Sharesacquired by the Company under the share repurchase authorization, whereby the cancellation may be executed in
one or more tranches and the number of Ordinary Shares that will be cancelled shall be determined by the Boardof Management.
Transfer of Shares
A transfer of a Share or a restricted right thereto (beperkt recht) requires a deed of transfer and theacknowledgment by the Company of the transfer in writing.
A Share becomes a deposit share by transfer or issuance to Euroclear Nederland or to an intermediary,
recording in writing that it is a deposit share. The deposit share must be recorded in the shareholders register of
the Company in the name of Euroclear Nederland or the relevant intermediary, stating in writing that it is a
deposit share. Deposit shareholders are not recorded in the shareholders register of the Company. Deposit shares
can only be delivered from a collective depot or giro depot with due observance of the related provisions of the
Dutch Securities Giro Transactions Act. The transfer by a deposit shareholder of its book-entry rights
representing deposit shares shall be effected in accordance with the provisions of the Dutch Securities GiroTransactions Act. The same applies to the establishment of a right of pledge and the establishment or transfer of ausufruct on these book-entry rights.

231

Dividends and Other Distributions
GeneralThe Company may only make distributions, whether a distribution of profits or of freely distributablereserves, to its Shareholders if its shareholders’ equity exceeds the sum of the paid-up and called-up share capitalplus the reserves as required to be maintained by Dutch law or by the Articles of Association.
Distributions take place following the adoption of the Annual Accounts from which it appears that the
distribution is allowed. Out of the profits, a dividend shall first be distributed on the Preference Shares, if
outstanding. The Board of Management may determine, subject to approval of the Supervisory Board, that any
amount remaining out of the profit after the distribution on the Preference Shares will be added to the reserves.
The profit remaining after the reservation, if any, by the Board of Management will be at the disposal of theGeneral Meeting, which may resolve to carry it to the reserves or to distribute it among the holders of Ordinary
Shares.
The General Meeting may on a proposal made by the Board of Management, which proposal must be
approved by the Supervisory Board, resolve to make distributions to the holders of Ordinary Shares to the debitof one or several reserves which the Company is not prohibited from distributing by virtue by law or the Articles
of Association. The Board of Management, subject to the approval of the Supervisory Board, may resolve to
distribute to the holders of Ordinary Shares a dividend in the form of Ordinary Shares.
In addition, the Board of Management may resolve, subject to the approval of the Supervisory Board, tomake interim distributions on the Shares or on Shares of a specific class. The General Meeting may also resolve
to make an interim distribution on the proposal of the Board of Management, subject to the approval of theSupervisory Board.
See “Dividend Policy” for a more detailed description regarding dividends.
Right to reserve
The Board of Management, subject to the approval of the Supervisory Board, may resolve to reserve theprofits or a part of the profits.
Dissolution and Liquidation
The Company may only be dissolved by a resolution of the General Meeting, subject to the approval of theSupervisory Board. A resolution to dissolve the Company requires a simple majority of the votes cast, if theresolution is adopted on a proposal of the Board of Management. If the resolution to dissolve the Company is not
adopted on a proposal of the Board of Management, the resolution to dissolve the Company requires a majority
of at least three-fourths of the votes cast in a General Meeting provided that majority represents more than half of
the issued share capital. If the aforementioned quorum is not met, a second meeting may be convened, to be held
within eight weeks of the first meeting, at which the resolution requires a majority of at least three-fourths of thevotes cast, irrespective the share capital represented at the meeting. If the General Meeting has resolved todissolve the Company, the Board of Management must carry out the liquidation of the Company under thesupervision of the Supervisory Board, unless otherwise resolved by the General Meeting. During liquidation, theprovisions of the Articles of Association will remain in force where possible.
From the balance of the liquidation, a distribution must first be made on every Preference Share to theamount paid thereon and the residue thereafter must be distributed on the Ordinary Shares. However, if
Preference Shares are issued at the expense of the reserves of the Company, a distribution from the balance of theliquidation must be made on the Ordinary Shares only.
Defensive Measures
The Foundation will be incorporated under Dutch law and will be established on or prior to the Settlement
Date. The Foundation will have its statutory seat in Eindhoven, the Netherlands and its registered office at HighTech Campus 45, 5656 AE Eindhoven. The Foundation’s objects will be to further the interests of the Company,
the enterprises maintained by the Company and the companies affiliated with the Company in a group. The
Foundation will act in such a way that the interests of the Company and of those enterprises are optimallysafeguarded and that influences which could affect the independence, continuity or identity of the Company, theenterprise maintained by the Company and the companies affiliated with the Company in a group in conflict withthose interests are deterred to the best of the Foundation’s ability.
The Foundation shall pursue its objects, inter alia, by acquiring and holding Preference Shares and by
exercising the rights, in particular the voting rights, attached to those Preference Shares, as well as by exercising(whether or not in legal proceedings) rights attributed to it pursuant to Dutch law, the Articles of Association or232

any agreement, including the right to request the court for an inquiry proceeding (enquêteverzoek). The
Foundation will be authorized to pledge any Preference Shares it holds, however, the voting rights attached tosuch Preference Shares cannot be granted to the pledgee.
The possibility of issuing Preference Shares is a defensive measure. To this end, the Foundation will be
granted a call option by the Company to acquire Preference Shares. The Foundation may resolve to exercise thecall option at its sole discretion and does not require the consent of the Company to exercise the call option.
However the Foundation may not exercise the call option without the prior consent of the Selling Shareholder forso long as the Selling Shareholders’ (direct or indirect) holding of Ordinary Shares represents 30% or more of theissued and outstanding Shares (excluding Preference Shares). Furthermore, the Foundation may not exercise thecall option until the Company has appointed three members to the board of the foundation as further described
below. On each exercise of the call option, the Foundation is entitled to acquire, and the Company shall have theunconditional obligation to issue, Preference Shares up to a maximum corresponding with 100% of the sharecapital of the Company excluding the Preference Shares as issued and outstanding immediately prior to theexercise of the call option, less one Preference Share, from which maximum any Preference Shares alreadyplaced with the Foundation at the time of the exercise of the call option must be deducted. The call option can be
exercised by the Foundation in order to, for example:(i)prevent, slow down or otherwise complicate an unsolicited takeover bid for and an unsolicitedacquisition of Ordinary Shares by means of an acquisition at the stock market or otherwise;(ii) prevent and countervail concentration of voting rights in the General Meeting; and/or(iii) resist unwanted influence by and pressure from Shareholders to amend the strategy of the Company.
If the Foundation exercises the call option, the Company issues such number of Preference Shares as forwhich the Foundation exercised its call option. Upon issuance of Preference Shares, at least one fourth of thenominal value thereof must be paid-up. The Foundation must pay up any additional amounts only if and when the
Company will have claimed such additional payments. At the request of the Foundation, the Preference Sharescan be paid-up (in full only) at the expense of a non-distributable reserve of the Company formed for that
purpose (the “Protective Foundation Reserve”).
If Preference Shares are repurchased or cancelled, this will take place against repayment of the amounts
paid-up on these Preference Shares and payment of any distribution accrued but not declared, if any. If therelevant Preference Shares were paid-up at expense of the Protective Foundation Reserve, the paid-up amountwill not be paid to the Foundation and remain with the Company.
The Foundation will perform its role, and take all actions required, at its sole discretion, notwithstanding therequired consent of Royal Philips for exercising the call option as mentioned above. The Foundation shall
exercise the voting rights attached to the Preference Shares issued to the Foundation, independently, in
accordance with its objects according to its articles of association.
The Foundation is managed by a board. The Company will select one of its officers prior to the Settlement
Date who will be appointed as initial board member upon the incorporation of the Foundation, for the time being.
The Company will have the right to subsequently appoint three board members who will have a profile
customary for this purpose, such that the Foundation meets the independence requirement as referred to in
Article 5:71(1)(d) of the Dutch Financial Supervision Act. As noted above, the Foundation may only exercise thecall option after the Company has appointed these three board members. With the appointment of these threeboard members, the term of appointment of the board member in office on the Settlement Date will expire.
Thereafter, members of the board of the Foundation will be appointed by way of co-option.
Exchange Controls and other Provisions relating to Non-Dutch Shareholders
Under Dutch law, subject to the 1977 Sanction Act (Sanctiewet 1977) or otherwise by internationalsanctions, there are no exchange control restrictions on investments in, or payments on, Shares (except as to cash
amounts). There are no special restrictions in the Articles of Association or Dutch law that limit the right ofshareholders who are not citizens or residents of the Netherlands to hold or vote Shares.
General Meetings and Voting Rights
General Meetings
General Meetings must be held in Eindhoven, Amsterdam, Rotterdam, Utrecht, The Hague, orHaarlemmermeer (Schiphol), the Netherlands. The annual General Meeting must be held at least once a year, nolater than on 30 June. Extraordinary General Meetings may be held, as often as the Board of Management or theSupervisory Board deem desirable. In addition, one or more Shareholders, who solely or jointly represent at least
one-tenth of the issued capital, may request that a General Meeting be convened, the request setting out in detail233

matters to be considered. If no General Meeting has been held within 56 days of the Shareholder(s) making such
request, such Shareholder(s) will be authorized to request in summary proceedings a District Court to convene a
General Meeting. Within three months of it becoming apparent to the Board of Management that the equity of
the Company has decreased to an amount equal to or lower than one-half of the paid-up part of the capital, aGeneral Meeting will be held to discuss any requisite measures.
The convocation of the General Meeting is issued by a public announcement in electronic form which canbe directly and continuously accessed until the General Meeting. The notice must at least state the items to be
discussed, the location, date and time of the General Meeting, the procedure for taking part in the General
Meeting through a written proxy and the procedure for taking part in the General Meeting through electronicmeans of communication, if this right may be exercised, as well as the Company’s website address. The noticemust be given by at least such number of days prior to the day of the meeting as required by Dutch law, which iscurrently 42 days.
The agenda for the annual General Meeting must contain certain subjects, including, among other things, theadoption of the Annual Accounts, the discussion of any substantial change in the corporate governance structureof the Company and the allocation of the profits, insofar as this is at the disposal of the General Meeting. In
addition, the agenda shall include such items as have been included therein by the Board of Management or theSupervisory board. The agenda shall also include such items as one or more Shareholders and others entitled toattend General Meetings, representing, pursuant to the Articles of Association, at least the percentage of theissued and outstanding share capital as required by law (which as of the date of this Prospectus is 3%), haverequested the Board of Management by a motivated request to include in the agenda, at least 60 days before theday of the General Meeting. No resolutions may be adopted on items other than those which have been includedin the agenda.
Shareholders who, individually or with other Shareholders, hold Shares that represent at least 1% of theissued and outstanding share capital or a market value of at least €250,000, may request the Company todisseminate information that is prepared by them in connection with an agenda item for a General Meeting. The
Company can only refuse disseminating such information, if received less than seven business days prior to theGeneral Meeting, if the information gives or could give an incorrect of misleading signal or if, in light of thenature of the information, the Company cannot reasonably be required to disseminate it.
The General Meeting is chaired by the chairman of the Supervisory Board. Members of the Board ofManagement and Supervisory Board may attend a General Meeting. In these General Meetings, they have anadvisory vote. The chairman of the General Meeting may decide at his or her discretion to admit other persons to
the General Meeting.
Each Shareholder may attend the General Meeting, address the General Meeting and exercise voting rights
pro rata to his or her shareholding, either in person or by proxy. Shareholders may exercise these rights, if they
are the holders of Shares on the record date as required by Dutch law, which is currently the 28th day before theday of the General Meeting, and they or their proxy have notified the Company of their intention to attend theGeneral Meeting in writing or by any other electronic means that can be reproduced on paper at the address andby the date specified in the notice of the General Meeting. The convocation notice must state the record date andthe manner in which the persons entitled to attend the General Meeting may register and exercise their rights.
Meetings of holders of Shares of a specific class, whereby the Ordinary Shares and the Preference Shareseach qualify as a specific class, will be held as frequently and whenever such a meeting is required by virtue or
any statutory regulation or any regulation in the Articles of Association.
Voting rights
Each Share confers the right to cast one vote in the General Meeting. Subject to certain exceptions provided
by Dutch law or the Articles of Association, resolutions of the General Meeting are passed by an absolutemajority of votes cast. Pursuant to Dutch law, no votes may be cast at a General Meeting in respect of Shares
which are held by the Company.
Amendment of the Articles of Association
Pursuant to the Articles of Association, a resolution to amend the Articles of Association requires a simple
majority of the votes cast, if the resolution is adopted on a proposal of the Board of Management. If theresolution to amend the Articles of Association is not adopted on a proposal of the Board of Management, theresolution to amend the Articles of Association requires a majority of at least three-fourths of the votes cast in a
General Meeting provided that majority represents more than half of the issued share capital. If theaforementioned quorum is not met, a second meeting may be convened, to be held within eight weeks of the firstmeeting, at which the resolution requires a majority of at least three-fourths of the votes cast, irrespective the234share capital represented at the meeting. A resolution to amend the Articles of Association requires the approvalof the Supervisory Board. A copy of the proposal, containing the verbatim text of the proposed amendment, must
be lodged with the Company for the inspection of every Shareholder and have been published on the Company’s
website until the end of the General Meeting.
The above mentioned requirements to amend the Articles of Association are stricter than is required underDutch law. Dutch law requires a resolution of the General Meeting adopted by a simple majority of the votes castwithout a quorum requirement being applicable.
Annual Accounts and Semi-Annual Accounts
Annually, within four months after the end of the financial year, the Board of Management must prepare theannual accounts and make them available for inspection by the Shareholders at the office of the Company. The
annual accounts must be accompanied by an auditor’s report, a management commentary and certain otherinformation required under Dutch law and a report of the Supervisory Board. The annual accounts must be
signed by the members of the Board of Management and Supervisory Board.
The annual accounts, the auditor’s report, the management commentary, the other information required
under Dutch law and the report of the Supervisory Board must be made available to the Shareholders for review
as from the day of the notice convening the annual General Meeting. The annual accounts must be adopted by theGeneral Meeting. The Board of Management must send the adopted annual accounts to the AFM within fivebusiness days after adoption.
The Company must prepare and make publicly available a semi-annual financial report as soon as possible,
but at the latest three months after the end of the first six months of the financial year. If the semi-annual
financial report is audited or reviewed, the independent auditor’s audit or review report, respectively, must be
published together with the semi-annual financial report.
Dutch Financial Reporting Supervision Act
On the basis of the Dutch Financial Reporting Supervision Act (Wet toezicht financiële verslaggeving) (the“FRSA”) the AFM supervises the application of financial reporting standards by, among others, companies
whose corporate seat is in the Netherlands and whose securities are listed on a regulated market, as defined in the
FMSA, or foreign stock exchange.
Pursuant to the FRSA, the AFM has an independent right to (i) request an explanation from the Company
regarding its application of the applicable financial reporting standards and (ii) recommend the Company tomake available further explanations. If the Company does not comply with such a request or recommendation,
the AFM may request that the enterprise chamber of the court of appeal in Amsterdam (Ondernemingskamer van
het Gerechtshof te Amsterdam) (the “Enterprise Chamber”) orders the Company to (i) provide an explanationof the way it has applied the applicable financial reporting standards to its financial reports or (ii) prepare its
financial reports in accordance with the Enterprise Chamber’s instructions.
Rules Governing Obligations of Shareholders to Make a Public Takeover Bid
Pursuant to the FMSA, and in accordance with European Directive 2004/25/EC, also known as the takeover
directive, any shareholder who (individually or jointly) directly or indirectly obtains control of a Dutch listedcompany is required to make a public takeover bid for all issued and outstanding shares in that company’s sharecapital. Such control is deemed present if a (legal) person is able to exercise, alone or acting in concert, at least
30% of the voting rights in the general meeting of such listed company (subject to an exemption for major
shareholders who, acting alone or in concert, already had such stake in the company at the time of thatcompany’s initial public offering).
In addition, it is prohibited to launch a public takeover bid for shares of a listed company, such as theOrdinary Shares, unless an offer document has been approved by the AFM. A public takeover bid may only belaunched by way of publication of an approved offer document unless a company makes an offer for its shares.
The public takeover bid rules are intended to ensure that in the event of a public takeover bid, among others,sufficient information will be made available to the holders of the shares, the holders of the shares will be treatedequally, that there will be no abuse of inside information and that there will be a proper and timely offer period.
Squeeze-out Proceedings
Pursuant to Section 2:92a of the DCC, a shareholder who for his or her own account contributes atleast 95% of a Dutch company’s issued share capital may institute proceedings against such company’s minority
shareholders jointly for the transfer of their shares to him or her. The proceedings are held before the Enterprise235

Chamber and can be instituted by means of a writ of summons served upon each of the minority shareholders inaccordance with the provisions of the Dutch Code of Civil Procedure (Wetboek van Burgerlijke
Rechtsvordering). The Enterprise Chamber may grant the claim for squeeze-out in relation to all minority
shareholders and will determine the price to be paid for the shares, if necessary after appointment of one or threeexperts who will offer an opinion to the Enterprise Chamber on the value to be paid for the shares of the minority
shareholders. Once the order to transfer becomes final before the Enterprise Chamber, the person acquiring theshares shall give written notice of the date and place of payment and the price to the holders of the shares to beacquired whose addresses are known to him. Unless the addresses of all of them are known to him, he is required
to publish the same in a daily newspaper with nationwide circulation.
The offeror under a public takeover bid is also entitled to start squeeze-out proceedings if, following the
public takeover bid, the offeror contributes at least 95% of the outstanding share capital and represents at least
95% of the total voting rights. The claim of a takeover squeeze-out needs to be filed with the Enterprise Chamberwithin three months following the expiry of the acceptance period of the offer. The Enterprise Chamber may
grant the claim for squeeze-out in relation to all minority shareholders and will determine the price to be paid forthe shares, if necessary after appointment of one or three experts who will offer an opinion to the Enterprise
Chamber on the value to be paid for the shares of the minority shareholders. In principle, the offer price isconsidered reasonable if the offer was a mandatory offer or if at least 90% of the shares to which the offer related
were received by way of voluntary offer.
The Dutch takeover provisions of the FMSA also entitle those minority shareholders that have notpreviously tendered their shares under an offer to transfer their shares to the offeror, provided that the offeror has
acquired at least 95% of the outstanding share capital and represents at least 95% of the total voting rights. In
regard to price, the same procedure as for takeover squeeze-out proceedings initiated by an offeror applies. The
claim also needs to be filed with the Enterprise Chamber within three months following the expiry of theacceptance period of the offer.
Obligations to Disclose Holdings
Holders of the Shares may be subject to notification obligations under the FMSA. Shareholders are advised
to seek professional advice on these obligations.
Shareholders
Pursuant to the FMSA, any person who, directly or indirectly, acquires or disposes of an actual or potential
interest in the capital or voting rights of the Company must immediately notify the AFM by means of a standard
form, if, as a result of such acquisition or disposal, the percentage of capital interest or voting rights held by such
person in the Company reaches, exceeds or falls below any of the following thresholds: 3%, 5%, 10%, 15%,20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%.
A notification requirement also applies if a person’s capital interest or voting rights reaches, exceeds or falls
below the abovementioned thresholds as a result of a change in the Company’s total outstanding share capital or
voting rights. Such notification has to be made no later than the fourth trading day after the AFM has published
the Company’s notification of the change in its outstanding share capital.
The Company is required to notify the AFM immediately of the changes to its total share capital or voting
rights if its issued share capital or voting rights changes by 1% or more since the Company’s previous
notification. The Company must furthermore notify the AFM within eight days after each quarter, in the event its
share capital or voting rights changed by less than 1% in that relevant quarter since the Company’s previous
notification.
In addition, each person who is or ought to be aware that, as a result of the exchange of certain financial
instruments, such as options for actual shares, his actual capital or voting interest in the Company, reaches,
exceeds or falls below any of the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%,
75% and 95%, vis-à-vis his most recent notification to the AFM, must give notice to the AFM no later than the
fourth trading day after he became or ought to be aware of this change.
Controlled entities, within the meaning of the FMSA, do not have notification obligations under the FMSA,
as their, direct and indirect, interests are attributed to their (ultimate) parent. Any person may qualify as a parent
for purposes of the FMSA, including an individual. A person who has a 3% or larger interest in the Company’s
share capital or voting rights and who ceases to be a controlled entity for these purposes must immediately notify
the AFM. As of that moment, all notification obligations under the FMSA will become applicable to the former
controlled entity.
For the purpose of calculating the percentage of capital interest or voting rights, the following interests
must, inter alia, be taken into account: (i) shares and voting rights directly held (or acquired or disposed of) by
236

any person; (ii) shares and voting rights held (or acquired or disposed of) by such person’s controlled entity or bya third party for such person’s account or by a third party with whom such person has concluded an oral or
written voting agreement; (iii) voting rights acquired pursuant to an agreement providing for a temporary transferof voting rights against a payment; (iv) shares which such person (directly or indirectly) or third party referred toabove, may acquire pursuant to any option or other right to acquire Shares; (v) shares which determine the valueof certain cash settled financial instruments such as contracts for difference and total return swaps; (vi) sharesthat must be acquired upon exercise of a put option by a counterparty; and (vii) shares which are the subject ofanother contract creating an economic position similar to a direct or indirect holding in those shares. Special
attribution rules apply to shares and voting rights which are part of the property of a partnership or othercommunity of property. A holder of a pledge or right of usufruct in respect of shares can also be subject to thereporting obligations, if such person has, or can acquire, the right to vote on the shares. The acquisition of(conditional) voting rights by a pledgee or beneficial owner may also trigger the reporting obligations as if thepledgee or beneficial owner were the legal holder of the shares.
For the purpose of the notification obligation, the following instruments qualify as “shares”: (i) shares;(ii) depositary receipts for shares (or negotiable instruments similar to such receipts); (iii) negotiable instruments
for acquiring the instruments under (i) or (ii) (such as convertible bonds); and (iv) options for acquiring the
instruments under (i) or (ii).
Gross short positions in shares must also be notified to the AFM. For these gross short positions the same
thresholds apply as for notifying an actual or potential interest in the capital and/or or voting rights of a Dutch
listed company, as referred to above, and without any set-off against long positions.
In addition, pursuant to Regulation (EU) No 236/2012, each person holding a net short position attaining
0.2% of the issued share capital of a Dutch listed company is required to notify such position to the AFM. Eachsubsequent increase of this position by 0.1% above 0.2% must also be notified. Each net short position equal to
0.5% of the issued share capital of a Dutch listed company and any subsequent increase of that position by 0.1%
will be made public via the AFM short selling register. To calculate whether a natural person or legal person has
a net short position, their short positions and long positions must be set-off. A short transaction in a Share canonly be contracted if a reasonable case can be made that the Shares sold can actually be delivered, which requires
confirmation of a third party that the Shares have been located.
Management
Pursuant to the FMSA, any member of the Board of Management and Supervisory Board, as well as anyother person who would have managerial or co-managerial responsibilities in respect of the Company or who
would have the authority to make decisions affecting future developments and business prospects of theCompany regularly having access to inside information relating, directly or indirectly, to the Company, must
notify the AFM by means of a standard form of any transactions conducted for his or her own account relating to
the Shares or in financial instruments the value of which is also based on the value of the Shares.
In addition, in accordance with the FMSA and the regulations promulgated thereunder (e.g., the Dutch
Financial Supervision Act Decree on Market Abuse (Besluit Marktmisbruik Wft)), certain persons who areclosely associated with members of the Board of Management, Supervisory Board or any of the other persons as
described above, are required to notify the AFM of any transactions conducted for their own account relating to
the Shares or in financial instruments the value of which is also based on the value of the Shares. The FMSA andthe regulations promulgated thereunder cover, inter alia, the following categories of persons: (i) the spouse or any
partner considered by national law as equivalent to the spouse; (ii) dependent children; (iii) other relatives who
have shared the same household for at least one year at the relevant transaction date; and (iv) any legal person,
trust or partnership whose, among other things, managerial responsibilities are discharged by a person referred tounder (i) to (iii) above or by the relevant member of the Board of Management, Supervisory Board or otherperson with any authority in respect of the Company as described above.
Members of the Board of Management and Supervisory Board must notify the AFM forthwith. The otherpersons must notify the AFM no later than the fifth business day following the relevant transaction date. Undercertain circumstances, these latter notifications may be postponed until the date the value of the transactions
performed for that person’s own account, together with transactions carried out by the persons closely associatedwith that person, amounts to €5,000 or more in the calendar year in question.
Non-complianceNon-compliance with the notification obligations under the FMSA could lead to criminal fines,
administrative fines, imprisonment or other sanctions. In addition, non-compliance with some of the notification
obligations under the FMSA may lead to civil sanctions, including suspension of the voting rights relating to the237Shares held by the offender for a period of not more than three years, voiding of a resolution adopted by theGeneral Meeting in certain circumstances and ordering the person violating the disclosure obligations to refrain,
during a period of up to five years, from acquiring Shares and/or voting rights in Shares.
Public registry
The AFM does not issue separate public announcements of these notifications. It does, however, keep apublic register of all notifications under the FMSA on its website (www.afm.nl). Third parties can request to be
notified automatically by e-mail of changes to the public register in relation to a particular company’s shares or aparticular notifying party.
Identity of Shareholders
The Company may, in accordance with Chapter 3A of the Dutch Securities Giro Transactions Act, request
Euroclear Nederland, admitted institutions, intermediaries, institutions abroad, and managers of investment
institutions, to provide certain information on the identity of its Shareholders. Such request may only be madeduring a period of 60 days up to the day on which the General Meeting will be held. No information will be given
on Shareholders with an interest of less than 0.5% of the issued share capital. A Shareholder who, individually or
together with other Shareholders, holds an interest of at least 10% of the issued share capital may request theCompany to establish the identity of its Shareholders. This request may only be made during a period of 60 days
until (and not including) the 42nd day before the day on which the General Meeting will be held.
Market Abuse Regulation
The FMSA provides for specific rules intended to prevent market abuse, such as insider trading, tipping andmarket manipulation. Pursuant to these rules, the Company has adopted rules governing the holding and carryingout of transactions in the Shares or in financial instruments the value of which is determined by the value of the
Shares by members of the Board of Management and Supervisory Board as well as employees.
Transparency Directive
The Netherlands will be the Company’s home member state for the purposes of Directive 2004/109/EC (asamended by Directive 2013/50/EU) as a consequence of which the Company will be subject to the FMSA in
respect of certain ongoing transparency and disclosure obligations.

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EXISTING SHAREHOLDERS AND RELATED PARTY TRANSACTIONSExisting Shareholders
The Selling Shareholder is the only Shareholder who owns 3% or more of the Company’s share capital or
voting rights as of the date of this Prospectus. The Selling Shareholder is offering 37,500,000 Offer Shares in theOffering, assuming no exercise of the Over-Allotment Option. Assuming the Over-Allotment Option is fully
exercised, the Offer Shares will constitute 28.75% of the Ordinary Shares. After the Settlement Date, the Selling
Shareholder will remain the majority shareholder in the Company. The Selling Shareholder aims to sell all of its
remaining Ordinary Shares over the next several years as it will focus on its healthtech business. The Group has
agreed that it will ask the Philips Lighting B.V. central works council for advice on any sale of Ordinary Sharesby the Selling Shareholder that would result in the Selling Shareholder no longer holding the majority of theOrdinary Shares. The works council must be consulted at a stage where the council’s views may still have ameaningful influence on the relevant decision. Management may decide not to heed the council’s advice, inwhich case the relevant action would be stayed for one month. During that period, the council may institute legal
proceedings to seek to have the decision annulled on the basis that management could not have had a reasonablebasis for taking the decision.
The table below presents information about the ownership of Ordinary Shares by the Selling Shareholder asof the date of this Prospectus, as well as on or shortly after Settlement, without and with full exercise of theOver-Allotment Option.

Shareholder

Selling
Shareholder

Amount of Ordinary Share
Capital Owned as of the Date ofthis Prospectus
Number / class
Percentage ofof shares
share capital

150,000,000
Ordinary
Shares100%

Maximum number ofOrdinary Shares to be
sold in the Offering
Without
With full
exercise of the exercise of the
OverOverAllotment
Allotment
OptionOptionOrdinary Shares owned on or
shortly after Settlement(1)Without
exercise of theOver- Allotment
OptionWith full
exercise of theOver- Allotment Option%

37,500,000

43,125,000

112,500,000

75%%

106,875,000

71.25%(1) Excluding the effect of the sale of Ordinary Shares in amounts of approximately €500,000 and €250,000 by the Selling Shareholder tothe CEO and the CFO, respectively, at the Offer Price.

Each Share gives the right to cast one vote at the General Meetings. All Shareholders have the same voting
rights.
Related Party Transactions Policy
The Company acknowledges the importance of ensuring that related party transactions shall be at arms’length terms and shall be dealt with in accordance with the applicable legal framework. Accordingly, a related
party transactions policy has been adopted by the Board of Management. The full text of the related party
transactions policy is available on the Company’s website. This document includes the procedure for resolvingon transactions between the Company and legal or natural persons who hold at least 10% of the Ordinary Sharesand which transactions are of material significance to the Company and/or to such persons, as well as any
material amendment to an existing related party transaction. Such related party transactions require approval of
the Supervisory Board. Certain transactions are deemed to have been approved by the Supervisory Board inadvance, amongst others, transactions in connection with the Separation (for more information see “Separation”).
Relationship Agreement
On or prior to the Settlement Date, the Company and the Selling Shareholder will enter into the Relationship
Agreement. The Relationship Agreement contains certain arrangements regarding the relationship between the
Company and the Selling Shareholder. The full text of the Relationship Agreement is available on the
Company’s website. Below is a summary of the main elements of the Relationship Agreement.
Supervisory Board Nominees
The Selling Shareholder will have the right to propose two Royal Philips Nominees for appointment as
members of the Supervisory Board. If the Selling Shareholder nominates a person in accordance with theRelationship Agreement, the Company shall procure that the Supervisory Board shall make a binding nominationof such nominee for appointment as a member of the Supervisory Board to the General Meeting. The Royal
Philips Nominee shall be appointed unless the binding nomination is overruled (for more information see“Management, Employees and Corporate Governance”). Initially there shall be two Royal Philips Nominees on
the Supervisory Board. As long as the Selling Shareholder’s shareholding in the Company equals or exceeds 30%of the issued and outstanding Ordinary Shares, there shall be two Royal Philips Nominees on the Supervisory239

Board. Once the Selling Shareholder’s holding of the issued and outstanding Ordinary Shares falls below 30%
but is equal to or exceeds 15%, there shall be one Royal Philips Nominee on the Supervisory Board as the Selling
Shareholder shall procure that one Royal Philips Nominee designated as such by the Selling Shareholder shallresign from its position as member of the Supervisory Board with immediate effect if so requested by theCompany. Once the Selling Shareholder’s holding falls below 15%, there shall be no Royal Philips Nominee on
the Supervisory Board as the Selling Shareholder shall cause all Royal Philips Nominees to resign from theirposition as members of the Supervisory Board with immediate effect if so requested by the Company.
Supervisory Board Committees composition
As long as the Supervisory Board comprises a Royal Philips Nominee, both the Remuneration Committee
and, unless otherwise required by law, the Audit Committee shall include a Royal Philips Nominee.
Reserved matters
For as long as the Supervisory Board comprises a Royal Philips Nominee, certain resolutions of the Boardof Management as further specified in the Relationship Agreement, shall be subject to Supervisory Board
approval. As long as the Selling Shareholder’s shareholding in the Company equals or exceeds 50% of theOrdinary Shares issued and outstanding, a resolution of the Supervisory Board to approve a resolution of theBoard of Management regarding an issue of Shares or to grant rights to subscribe for Shares requires theaffirmative vote of the Royal Philips Nominees. Furthermore, as long as the Selling Shareholder’s shareholdingin the Company equals or exceeds 30% of the Ordinary Shares issued and outstanding, resolutions of theSupervisory Board to determine the remuneration of the members of the Board of Management and to approve aresolution of the Board of Management to determine the remuneration of certain senior executives designated by
the Supervisory Board require the affirmative vote of the Royal Philips Nominee that is a member of theSupervisory Board’s remuneration committee. The approval shall not be required if it concerns an issue of Sharesor grant of rights to Shares to an employee of the Company or a Group company under any applicable employee
share incentive plan.
Compliance, information right and matters concerning auditors
Until the date on which the Selling Shareholder is both (i) no longer required under IFRS to consolidate theCompany’s financial statements with its financial statements and (ii) the Selling Shareholder is holding 50% orless of the issued and outstanding Ordinary Shares, the Group shall observe certain business principles andpolicies as applied by Royal Philips.
Until the date on which the Selling Shareholder is both (i) no longer required under IFRS to account for its
investment in the Company under the equity method of accounting and (ii) the Selling Shareholder is holding
20% or less of the issued and outstanding Ordinary Shares, the Company shall provide to Selling Shareholder
information and data relating to the Group’s business, including financial results, to enable the Selling
Shareholder to satisfy its ongoing financial reporting, audit and other legal and regulatory requirements.
The Relationship Agreement contains provisions pursuant to which the Company shall procure that theCompany shall have the same external auditor as the Selling Shareholder until the date on which the Selling
Shareholder is both (i) no longer required under IFRS to account for its investments in the Company under theequity method of accounting, and (ii) the Selling Shareholder is holding 50% or less of the issued andoutstanding Ordinary Shares. The Relationship Agreement contains detailed provisions on the provision of
information by the Company to the Selling Shareholders’ external auditor.
The Relationship Agreement contains provisions on the confidentiality and limited use of information
provided under the Relationship Agreement.
Amendments to governance documents
An amendment to the Articles of Association, the Supervisory Board Rules or the Board of Management
Rules can be made in accordance with the relevant laws and as described in the relevant document, taking into
account the restrictions set forth in the Relationship Agreement. The Company shall procure that no amendment
to these documents will be proposed or implemented that would result in a violation of the Relationship
Agreement. An amendment of the related party transactions policy can be made by the Company subject toapproval by the Supervisory Board and prior consultation of the Selling Shareholder.
Orderly market arrangements
At any time after the lock-up period, the Selling Shareholder will be entitled to dispose of its Ordinary
Shares in whole or in part in the open market or through a private sale. The Selling Shareholder will use
reasonable commercial efforts to conduct any disposal of Ordinary Shares in an orderly market manner. The
Company has to cooperate to a reasonable extent to optimize any fully marketed offerings and block trades.
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Duration, termination and governing law
The Relationship Agreement will terminate if and when the Selling Shareholder holds less than 10% of theissued and outstanding Ordinary Shares, except for a limited number of clauses which will not terminate under
any circumstances other than by mutual written agreement. The Relationship Agreement may be terminated bymutual agreement of the Company and the Selling Shareholder in writing. The Relationship Agreement isgoverned by Dutch law.

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THE OFFERING
Introduction
The Selling Shareholder is offering 37,500,000 Offer Shares. Assuming no exercise of the Over-Allotment
Option, the Offer Shares will constitute 25% of the issued Shares. Assuming the Over-Allotment Option is fully
exercised, the Offer Shares will constitute 28.75% of the issued Shares. The Offering consists of (i) a public
offering in the Netherlands to institutional and retail investors and (ii) a private placement to (a) investors outside
the Netherlands and the United States, subject to applicable exemptions from the prospectus requirements and (b)investors in the United States reasonably believed to be QIB as defined in Rule 144A. All offers and sales in the
United States will be made only to persons reasonably believed to be QIBs in reliance on Rule 144A. All offers
and sales outside the United States will be made in compliance with Regulation S. The Offering is made only inthose jurisdictions in which, and only to those persons to whom, the Offering may be lawfully made.
The Selling Shareholder expects to grant the Joint Global Coordinators, on behalf of the Underwriters, theOver-Allotment Option, exercisable up to 30 calendar days after the First Trading Date, pursuant to which the
Stabilization Manager may require the Selling Shareholder to sell at the Offer Price up to 5,625,000 additional
Over-Allotment Shares, comprising up to a number of Ordinary Shares equal to 15% of the total number of Offer
Shares sold in the Offering, to cover over-allotments or short positions, if any, in connection with the Offering.
Timetable
Subject to acceleration or extension of the timetable for, or withdrawal of, the Offering, the timetable below
sets forth certain expected key dates for the Offering.
Event

Expected Date

Time CET

Start of Offering Period
End of Offering Period for Dutch Retail Investors
End of Offering Period for institutional investors
Pricing and Allocation
Commencement of trading on an “as-if-and-when-delivered” basis on Euronext
Amsterdam
Settlement (payment and delivery)

16 May 2016
25 May 2016
26 May 2016
26 May 2016

9:00
17:30
12:00

27 May 2016
31 May 2016

9:00

The Selling Shareholder, after consultation with the Company and the Joint Global Coordinators may adjust
the dates, times and periods given in the timetable and throughout this Prospectus. If the Selling Shareholder
should decide to do so, the Company will make this public through a press release, which will also be posted on
the Company’s website. Any other material alterations will be published through a press release that will also be
posted on the Company’s website and (if required) in a supplement to this Prospectus that is subject to theapproval of the AFM.
Any extension of the timetable for the Offering will be published in a press release at least three hours
before the end of the original Offering Period, provided that any extension will be for a minimum of one full day.
Any acceleration of the timetable for the Offering will be published in a press release at least three hours before
the proposed end of the accelerated Offering Period. In any event, the Offering Period will be at least six business
days.
Offer Price and Number of Offer Shares
As of the date of this Prospectus, the Offer Price is expected to be in the range of €18.50 to €22.50(inclusive) per Offer Share. This Offer Price Range is an indicative price range and can be changed prior to the
Allocation. The Offer Price, which may be set within, above or below this initial Offer Price Range, and the exact
number of Offer Shares will be determined on the basis of a book building process. The Offer Price and the exact
number of Offer Shares offered will be determined by the Selling Shareholder, after consultation with theCompany and the Joint Global Coordinators after the end of the Offering Period, including any acceleration or
extension, on the basis of the book building process and taking into account economic and market conditions, aqualitative and quantitative assessment of demand for the Offer Shares, and other factors deemed appropriate.
The Offer Price, the exact numbers of Offer Shares to be sold and the maximum number of Over-Allotment
Shares will be stated in the Pricing Statement which will be published through a press release that will also be
posted on the Company’s website and filed with the AFM.
Prior to the Allocation, the number of Offer Shares can be increased or decreased, and the Offer Price Range
can be changed. Investors who have already agreed to purchase or subscribe for the Offer Shares during theOffering Period prior to the announcement of any change of the Offer Price Range, shall have the right,
242

exercisable within two business days following the publication of such announcement, to withdraw theiracceptances. Any change of the Offer Price Range on the last day of the Offering Period will result in theOffering Period being extended by at least two business days; any change of the Offer Price Range on the dayprior to the last day of the Offering Period will result in the Offering Period being extended by at least one
business day. In this case, if the Offering Period for the Dutch Retail Investors would already have closed, thisOffering Period for Dutch Retail Investors would be reopened. Accordingly, all investors, including Dutch Retail
Investors, will have at least two business days to reconsider their subscriptions. Any such change in the numberof Offer Shares and/or the Offer Price Range will be announced in a press release that will be posted on the
Company’s website. Upon a change of the number of Offer Shares, references to Offer Shares in this Prospectus
should be read as referring to the amended number of Offer Shares and references to Over-Allotment Sharesshould be read as referring to the amended number of Over-Allotment Shares.
Offering Period
Subject to acceleration or extension of the timetable for the Offering, prospective institutional investors may
subscribe for Offer Shares during the period commencing at 9:00 CET on 16 May 2016 and ending at 12:00 CET
on 26 May 2016 and prospective retail investors may subscribe for Offer Shares during the period commencing
at 9:00 CET on 16 May 2016 and ending at 17:30 CET on 25 May 2016. In the event of an acceleration or
extension of the Offering Period, pricing, allotment, admission and first trading of the Offer Shares, as well as
payment (in euros) for and delivery of the Offer Shares in the Offering may be advanced or extended
accordingly. If a significant new factor, material mistake or inaccuracy relating to the information included inthis Prospectus which is capable of affecting the assessment of the Offer Shares arises or is noted before the final
closing of the Offering, a supplement to this Prospectus will be published, the Offering Period will be extended,
if so required by the Prospectus Directive, the FMSA or the rules promulgated thereunder, and investors who
have already agreed to purchase Offer Shares may withdraw their subscriptions within two business days
following the publication of the supplement, provided that the new factor, material mistake of inaccuracy, aroseor was noted before the final closing of the Offering.
Subscription and Allocation
Dutch Retail Investors can only subscribe on a market order (bestens) basis. This means that Dutch Retail
Investors will be bound to purchase and pay for the Offer Shares indicated in their share application, to the extent
allocated to them, at the Offer Price, even if the Offer Price Range has been changed. Dutch Retail Investors areentitled to cancel or amend their application, at the financial intermediary where their original application was
submitted, at any time prior to the end of the Offering Period for Dutch Retail Investors (if applicable, as
amended or extended), for any reason, including an amendment to increase the Offer Price Range. Dutch Retail
Investors can submit their subscriptions through their own financial intermediary. The financial intermediary will
be responsible for collecting subscriptions from Dutch Retail Investors and for submitting their subscriptions to
ING as the retail coordinator (the “Retail Coordinator”). The Retail Coordinator will consolidate all
subscriptions of Dutch Retail Investors submitted on an aggregate basis by financial intermediaries and informthe Joint Global Coordinators, the Company and the Selling Shareholder. All questions concerning thetimeliness, validity and form of instructions to a financial intermediary in relation to the purchase of Offer Shares
and, if applicable, Over-Allotment Shares, will be determined by the financial intermediaries in accordance with
their usual procedures or as otherwise notified to the Dutch Retail Investors. The Company and the Selling
Shareholder are not liable for any action or failure to act by a financial intermediary or the Retail Coordinator inconnection with any purchase, or purported purchase, of Offer Shares.
The Allocation is expected to take place after termination of the Offering Period on or about 26 May 2016,
subject to acceleration or extension of the timetable for the Offering. Allotment to investors who applied tosubscribe for Offer Shares will be determined by the Selling Shareholder, after consultation with the Company and
the Joint Global Coordinators, and full discretion will be exercised as to whether or not and how to allot the Offer
Shares. There is no maximum or minimum number of Offer Shares for which prospective investors may subscribe
and multiple (applications for) subscriptions are permitted. In the event that the Offering is over-subscribed,
investors may receive fewer Offer Shares than they applied to subscribe for. The Selling Shareholder, the Company,
the Joint Global Coordinators and the Joint Bookrunners may, at their own discretion and without stating the
grounds therefor, reject any subscriptions wholly or partly. Any monies received in respect of subscriptions which
are not accepted in whole or in part will be returned to the investors without interest and at the investors’ risk.
Notwithstanding the above, it is intended that Dutch Retail Investors will benefit from preferential
allocation, for up to 10% of the Offer Shares, assuming no exercise of the Over-Allotment Option. See“—Preferential Retail Allocation” below. Apart from the Preferential Retail Allocation, the Selling Shareholder,
the Company and the Joint Global Coordinators retain full flexibility to change the intended allocation. All Offer
Shares will be offered as part of a single offering, there is no separate tranche for retail investors.
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Investors participating in the Offering will be deemed to have checked whether and to have confirmed theymeet the requirements of the selling and transfer restrictions in “Selling and Transfer Restrictions”. If in doubt,
investors should consult their professional advisers.
The Joint Bookrunners will communicate to institutional investors the number of Offer Shares allocated tothem on the date that follows the date of Allocation.
Preferential Retail Allocation
There will be a preferential allocation of Offer Shares to Dutch Retail Investors in accordance withapplicable law and regulations. Each Dutch Retail Investor will be allocated the first 250 (or fewer) Offer Sharesfor which such investor applies. However, if the total number of Offer Shares subscribed for by Dutch Retail
Investors under the Preferential Retail Allocation would exceed 10% of the total number of the Offer Shares,
assuming no exercise of the Over-Allotment Option, the preferential allocation to each Dutch Retail Investor may
be reduced pro rata to the first 250 (or fewer) Offer Shares for which such investor applies. As a result, Dutch
Retail Investors may not be allocated all of the first 250 (or fewer) Offer Shares for which they apply. The exact
number of Offer Shares allocated to Dutch Retail Investors will be determined after of the Offer Period has
ended.
The Preferential Retail Allocation will only be made in relation to Offer Shares comprising up to 10% of thetotal number of Offer Shares, not including the Over-Allotment Shares. The Selling Shareholder, after
consultation with the Company and the Joint Global Coordinators has full discretion as to whether or not andhow to allocate the remainder of the Offer Shares applied for.
For the purpose of the Preferential Retail Allocation, a Dutch Retail Investor is either: (i) a natural person
resident in the Netherlands; or (ii) a special investment vehicle having its seat in the Netherlands which is a legal
entity established for the express and sole purpose of providing asset management and/or retirement planning
services for a natural person.
To be eligible for the Preferential Retail Allocation, Dutch Retail Investors must place their subscriptions
during the period commencing on 16 May 2016 at 9:00 CET and ending on 25 May 2016 at 17:30 CET throughfinancial intermediaries. Different financial intermediaries may apply deadlines before the closing time of theOffering Period.
The Retail Coordinator will communicate to the financial intermediaries the aggregate number of Offer
Shares allocated to their respective Dutch Retail Investors. It is up to the financial intermediaries to notify Dutch
Retail Investors of their individual allocations.
Payment
Payment (in euros) for and delivery of the Offer Shares will take place on the Settlement Date. Taxes andexpenses, if any, must be borne by the investor (for more information see “Taxation”). Dutch Retail Investors
may be charged expenses by their financial intermediary. Investors must pay the Offer Price in immediately
available funds in full in euro on or before the Settlement Date (or earlier in the case of an early closing of theOffering Period and consequent acceleration of pricing, allocation, commencement of trading and Settlement).
Delivery, Clearing and Settlement
The Offer Shares will be delivered in book-entry form through the facilities of Euroclear Nederland.
Application has been made for the Shares to be accepted for clearance through the book-entry facilities ofEuroclear Nederland. Euroclear Nederland has its offices at Herengracht 459-469, 1017 BS Amsterdam, theNetherlands.
Delivery of the Offer Shares will take place on the Settlement Date, through the book-entry facilities ofEuroclear Nederland, in accordance with its normal settlement procedures applicable to equity securities andagainst payment (in euros) for the Offer Shares and the Over-Allotment Shares, if applicable, in immediately
available funds.
Prior to the Offering, there has been no public market for the Ordinary Shares. Application has been made tolist all of the Ordinary Shares on Euronext Amsterdam under the symbol “LIGHT” with ISIN code
NL0011821392. Subject to acceleration or extension of the timetable for the Offering, trading on an“as-if-and-when-delivered” basis in the Offer Shares is expected to commence on or about 27 May 2016.
The closing of the Offering may not take place on the Settlement Date or at all if certain conditions or
events referred to in the Underwriting Agreement are not satisfied or waived or occur on or prior to such date.
See “Plan of Distribution”.

244

If Settlement does not take place on the Settlement Date as planned or at all, the Offering may be
withdrawn, in which case all subscriptions for Offer Shares will be disregarded, any allotments made will bedeemed not to have been made and any subscription payments made will be returned without interest or othercompensation. Any dealings in Ordinary Shares prior to Settlement are at the sole risk of the parties concerned.
Neither the Company, the Selling Shareholder, the Underwriters, the Listing and Paying Agent, the Financial
Adviser nor Euronext Amsterdam N.V. accept any responsibility or liability for any loss incurred by any person
as a result of a withdrawal of the Offering or the related annulment of any transactions in Ordinary Shares onEuronext Amsterdam.
Voting Rights
Each Ordinary Share confers the right to cast one vote in the General Meeting, see “Description of Share
Capital—General Meetings and Voting Rights—Voting Rights”. All Shareholders have the same voting rights.
Ranking and Dividends
The Offer Shares and, if the Over-Allotment Option will be exercised, any Over-Allotment Shares will,
upon issue, rank equally in all respects. The Offer Shares will carry dividend rights as of the date of issue. See“Dividend Policy”.
Listing and Paying Agent
ING is the Listing and Paying Agent with respect to the Shares on Euronext Amsterdam.
Retail Coordinator
ING is the Retail Coordinator with respect to the Preferential Retail Allocation.
Stabilization Manager
Goldman Sachs International is the Stabilization Manager with respect to the Ordinary Shares on Euronext
Amsterdam.
Dilution
As only existing Shares will be offered, the Offering will not have a dilutive effect.

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PLAN OF DISTRIBUTION
Underwriting
The Company, the Selling Shareholder and the Underwriters will enter into the Underwriting Agreement
after the end of the Offering Period and only after pricing and the Allocation of all Offer Shares to investors,
which is expected to be on or about 26 May 2016. Under the terms and subject to the conditions set forth in the
Underwriting Agreement, the Underwriters will severally agree to procure purchasers for the Offer Shares or,
failing which to purchase those Offer Shares themselves, and the Selling Shareholder will agree to sell those
Offer Shares at the Offer Price to purchasers procured by the Underwriters or, failing which, to the Underwriters
themselves.
Subject to the satisfaction of these conditions precedent, the proportion of Offer Shares that each
Underwriter may severally be required to purchase is indicated below.
Underwriting Commitmentof Offer Shares

Underwriters

Goldman Sachs International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
J.P. Morgan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Citigroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Morgan Stanley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Société Générale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ABN AMRO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rabobank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30.2%
30.2%
9.0%
9.0%
9.0%
9.0%
2.16%
1.44%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100%

In the Underwriting Agreement, the Company and the Selling Shareholder make certain representations andwarranties. In addition, the Company, and for certain limited matters, the Selling Shareholder, will indemnify the
Underwriters against certain losses and liabilities in connection with the Offering.
The Underwriting Agreement will provide that the obligations of the Underwriters to procure purchasers foror, failing which, to purchase the Offer Shares themselves are subject to, among other things, the following
conditions: (i) the approval of this Prospectus by the AFM being in full force and effect; (ii) receipt of opinions
on certain legal matters from counsel; (iii) receipt of customary officers’ certificates; (iv) the absence of amaterial adverse change in the Group’s business; (v) the admission of the Ordinary Shares to listing on Euronext
Amsterdam; and (vi) certain other customary conditions. The Joint Global Coordinators (on behalf of theUnderwriters) will have the right to waive the satisfaction of certain conditions or part thereof.
Upon the occurrence of certain specific events, such as the occurrence of: (i) a material adverse change in
the Group’s business; (ii) a breach of any of the representations and warranties, undertakings or obligations
contained in the Underwriting Agreement; or (iii) a statement in this Prospectus, the Pricing Statement or any
amendment or supplement to this Prospectus being untrue, inaccurate or misleading, the Joint Global
Coordinators (on behalf of the Underwriters) may elect to terminate the Underwriting Agreement.
Underwriting fees
In consideration of the agreement by the Underwriters to procure purchasers for or, failing which, topurchase the Offer Shares themselves at the Offer Price and subject to the Offer Shares being sold as provided forin the Underwriting Agreement, the Selling Shareholder has agreed to pay the Underwriters an aggregate basecommission of 1.25% of the gross proceeds of the Offering (including, if applicable, any gross proceeds relating
to the Over-Allotment Shares), subject to a maximum aggregate amount of €13.89 million, in proportion to theirindividual underwriting commitment.
In addition, the Selling Shareholder may, at its sole and absolute discretion, pay the Underwriters a
discretionary commission of up to 1.25% of the gross proceeds of the Offering (including, if applicable, any
gross proceeds relating to the Over-Allotment Shares), subject to a maximum aggregate amount of €13.89
million.
Furthermore, the Selling Shareholder have agreed to pay each of the Joint Global Coordinators an additional
process fee in order for their total fees for the Offering to consist of a base fee of €6.0 million each and adiscretionary fee of up to €5.0 million each (total fees include the base commission and discretionary
commission referred to above).

246

The decision by the Selling Shareholder to pay any discretionary fees and the allocation to the Underwriters
will be entirely at the discretion of the Selling Shareholder and may be distributed in proportions which are
different from their respective underwriting commitments. In addition, the Selling Shareholder has also agreed toreimburse the Underwriters for certain costs and expenses incurred by them in connection with the Offering.
The Offer Shares have not been and will not be registered under the U.S. Securities Act or the applicablesecurities laws of any state or other jurisdiction of the United States and may not be offered, sold, pledged ortransferred within the United States, except pursuant to an applicable exemption from, or in a transaction not
subject to, the registration requirements of the U.S. Securities Act. The offering of the Offer Shares consists of (i)a public offering in the Netherlands to institutional and retail investors and (ii) a private placement to (a)investors outside the Netherlands and the United States, subject to applicable exemptions from the prospectus
requirements and (b) investors in the United States reasonably believed to be QIBs as defined in Rule 144A. All
offers and sales in the United States will be made only to persons reasonably believed to be QIBs in reliance on
Rule 144A. All offers and sales outside the United States will be made in compliance with Regulation S.
To the extent that any Underwriter that is not a U.S. registered broker-dealer intends to effect any offers or
sales of Offer Shares in the United States or to U.S. persons, it will do so only through its U.S. registered brokerdealer, which may be its affiliate, pursuant to applicable U.S. securities laws.
Potential Conflicts of Interest
The Underwriters and the Financial Adviser are acting exclusively for the Company and/or the Selling
Shareholder and for no one else and will not regard any other person (whether or not a recipient of thisProspectus) as their respective clients in relation to the Offering. The Underwriters will not be responsible toanyone other than to the Company and/or the Selling Shareholder for the listing and trading of the Ordinary
Shares and/or any other transaction or arrangement referred to in this Prospectus. Moreover, the Financial
Advisor will not be responsible to anyone other than to the Company and/or the Selling Shareholder for giving
advice in relation to the Offering.
Certain of the Underwriters and the Financial Adviser and/or their respective affiliates have in the past been
engaged, and may in the future, from time to time, engage in commercial banking, investment banking andfinancial advisory and ancillary activities in the ordinary course of their business with the Company and/or the
Selling Shareholder or any parties related to any of them, in respect of which they have received, and may in the
future receive, customary fees and commissions. In addition, certain of the Underwriters and/or their respective
affiliates, including, as applicable, their respective asset management affiliates, have in the past held, and may inthe future, from time to time, hold positions in shares, bonds or other instruments of the Selling Shareholder or its
affiliates or have derivatives related to these instruments.
In connection with the Offering, each of the Underwriters and any of their respective affiliates, acting as aninvestor for its own account, may take up Offer Shares in the Offering and in that capacity may retain, purchaseor sell for its own account such securities and any Offer Shares or related investments and may offer or sell such
Offer Shares or other investments otherwise than in connection with the Offering. Accordingly, references in thisProspectus to Offer Shares being offered or placed should be read as including any offering or placement ofOffer Shares to any of the Underwriters or any of their respective affiliates acting in such capacity. None of theUnderwriters intends to disclose the extent of any such investment or transactions otherwise than pursuant to any
legal or regulatory obligation to do so. In addition, certain of the Underwriters or their affiliates may enter into
financing arrangements (including swaps) with investors in connection with which such Underwriters (or theiraffiliates) may from time to time acquire, hold or dispose of Offer Shares.
As a result of acting in the capacities described above, the Underwriters may have interests that may not bealigned, or could potentially conflict, with investors’ and the Company’s interests.
Lock-up Arrangements
The Joint Global Coordinators may, in their sole discretion and at any time, waive the restrictions, including
those on sales, issuances or transfers of Ordinary Shares, described below.
Pursuant to the Underwriting Agreement, the Company and the Selling Shareholder are expected to agreewith the Underwriters that, until 180 days from the Settlement Date (the lock-up period), they will not, except as
set forth below, without the prior written consent of the Joint Global Coordinators: (i) directly or indirectly, issue,
offer, pledge, sell, contract to sell, sell or grant any option, right, warrant or contract to purchase, exercise any
option to sell, purchase any option or contract to sell, or lend or otherwise transfer or dispose of any Ordinary
Shares or any securities convertible into or exercisable or exchangeable for Ordinary Shares; or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, theeconomic consequences of ownership of any Ordinary Shares, whether any such transaction is to be settled bydelivery of Ordinary Shares or such other securities, in cash or otherwise.
247

Each of the CEO and the CFO is expected to agree with the Underwriters that, until 360 days from theSettlement Date (the lock-up period), they will not, except as set forth below, without the prior written consent of
the Joint Global Coordinators: (i) directly or indirectly, issue, offer, pledge, sell, contract to sell, sell or grant any
option, right, warrant or contract to purchase, exercise any option to sell, purchase any option or contract to sell,or lend or otherwise transfer or dispose of any Ordinary Shares that he has purchased in the Offering as describedin this Prospectus or any securities convertible into or exercisable or exchangeable for those Ordinary Shares; or(ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequences of ownership of any of those Ordinary Shares, whether any suchtransaction is to be settled by delivery of those Ordinary Shares or such other securities, in cash or otherwise.
The foregoing restrictions shall not apply to: (i) accepting a general offer to all holders of the issued andallotted Ordinary Shares of the Company on terms which treat all such holders alike and which has become or
been declared unconditional in all respects or been recommended for acceptance by the directors of theCompany; and (ii) the granting of awards in options or Ordinary Shares by the Company or the issuance ofOrdinary Shares upon exercise of options granted by the Selling Shareholder or the Company pursuant toemployee incentive schemes as disclosed or described as being proposed or contemplated in this Prospectus andother offer documents.
Over-Allotment and Stabilization
In connection with the Offering, Goldman Sachs International, as the Stabilization Manager, or any of its
agents, on behalf of the Underwriters may (but will be under no obligation to), to the extent permitted byapplicable law, over-allot Shares or effect other transactions with a view to supporting the market price of the
Shares at a higher level than that which might otherwise prevail in the open market. The Stabilization Managers
will not be required to enter into such transactions and such transactions may be effected on any securities
market, over-the-counter market, stock exchange (including Euronext Amsterdam) or otherwise and may beundertaken at any time during the period commencing on the First Trading Date and ending no later than 30
calendar days thereafter. The Stabilization Manager or any of its agents will not be obligated to effect stabilizing
transactions, and there will be no assurance that stabilizing transactions will be undertaken. Such stabilizing
transactions, if commenced, may be discontinued at any time without prior notice. Save as required by law or
regulation, neither the Stabilization Manager nor any of its agents intends to disclose the extent of any overallotments made and/or stabilization transactions under the Offering. The Underwriting Agreement will providethat the Stabilization Manager may, for purposes of stabilizing transactions, over-allot Shares up to a maximum
number of Ordinary Shares equal to 15% of the total number of Offer Shares sold in the Offering.
In connection with the Over-Allotment Option, up to a maximum number of Ordinary Shares equal to 15%of the total number of Offer Shares will be made available by the Selling Shareholder through a securities loan to
be entered into on or around the date of the Underwriting Agreement (the “Stock Lending Agreement”) to the
Stabilization Manager.
None of the Company, the Selling Shareholder or any of the Underwriters and the Financial Adviser makes
any representation or prediction as to the direction or the magnitude of any effect that the transactions describedabove may have on the price of the Shares or any other securities of the Company. In addition, none of theCompany, the Selling Shareholder or any of the Underwriters and the Financial Adviser makes any
representation that the Stabilization Manager will engage in these transactions or that these transactions, once
commenced, will not be discontinued without notice.

248

SELLING AND TRANSFER RESTRICTIONS
No action has been taken by the Company, the Selling Shareholder, the Underwriters or the Financial
Adviser that would permit, other than pursuant to the Offering, an offer of the Offer Shares or possession or
distribution of this Prospectus or any other offering material in any jurisdiction where action for that purpose isrequired. The distribution of this Prospectus and the offer of the Offer Shares in certain jurisdictions may be
restricted by law.
Persons into whose possession this Prospectus comes should inform themselves about and observe any such
restrictions, including those in the paragraphs that follow. Any failure to comply with these restrictions may
constitute a violation of the securities laws of any such jurisdictions.
United States
The Ordinary Shares have not been, and will not be, registered under the U.S. Securities Act or with any
securities regulatory authority of any state or other jurisdiction in the United States, and may not be offered orsold except: (i) in the U.S. only to persons reasonably believed to be QIBs in reliance on Rule 144A; and (ii)outside the United States in compliance with Regulation S, and in each case in accordance with any applicablesecurities laws of any state or territory of the United States or any other jurisdiction. Accordingly, each
Underwriter has represented and agreed that it has not offered or sold, and will not offer or sell, any of the Offer
Shares as part of its allocation at any time except: (i) in the United States in transactions meeting therequirements of Rule 144A and only to those it reasonably believes to be QIBs or (ii) outside of the United Statesin compliance with Regulation S. Transfer of the Offer Shares will be restricted and each purchaser of the Offer
Shares in the United States will be required to make certain acknowledgements, representations and agreements,
as described below.
Any offer or sale in the United States will be made by affiliates of the Underwriters who are broker-dealersregistered under the U.S. Exchange Act. In addition, until 40 days after the commencement of the Offering, anoffer or sale of Offer Shares within the United States by a dealer, whether or not participating in the Offering,
may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than inaccordance with Rule 144A or another exemption from, or in a transaction not subject to, the registration
requirements of the U.S. Securities Act.
Rule 144A
Each purchaser of the Offer Shares within the United States will be deemed to have acknowledged,
represented and agreed that it has received a copy of this Prospectus and such other information as it deems
necessary to make an informed investment decision to purchase Shares and that:1.

The purchaser is authorized to consummate the purchase of the Offer Shares in compliance with allapplicable laws and regulations.

2.

The purchaser acknowledges that the Offer Shares have not been and will not be registered under the
U.S. Securities Act, or with any securities regulatory authority or any state of the United States, and are
subject to significant restrictions on transfer.

3.

The purchaser is, and at the time of its purchase of any Shares, will be a QIB.

4.

The purchaser understands and acknowledges that sellers of the Shares may be relying on the
exemption from the registration requirements of Section 5 of the U.S. Securities Act provided byRule 144A, and that the Shares may not be offered in sold, directly or indirectly, in the United States,
other than in accordance with paragraph (6) below.

5.

The purchaser is purchasing the Shares (i) for its own account, or (ii) for the account of one or moreother QIBs for which it is acting as duly authorized fiduciary or agent with sole investment discretion
with respect to each such account and with full authority to make the acknowledgments,
representations and agreements herein with respect to each such account (in which case it hereby
makes such acknowledgments, representations and agreements on behalf of such QIBs as well), in eachcase for investment and not with a view to any resale or distribution of any such Shares.

6.

The purchaser understands and agrees that all offers and sales in the United States will be made only topersons reasonably believed to be QIBs in reliance on Rule 144A, and that if, in the future, thepurchaser or any such other QIBs for which it is acting, as described in paragraph (4) above, or any
other fiduciary or agent representing such purchaser decides to offer, resell, pledge or otherwisetransfer such Offer Shares, as the case may be, such Shares may be offered, sold, pledged or otherwisetransferred only (i) to a person whom the beneficial owner and / or any person acting on its behalf249

reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) outside theUnited States in a transaction meeting the requirements of Regulation S, (iii) in accordance with
Rule 144 under the U.S. Securities Act (if available), (iv) pursuant to any other exemption from theregistration requirements of the U.S. Securities Act, subject to the receipt by the Company of an
opinion of counsel or such other evidence that the Company may reasonably require that such sale ortransfer is in compliance with the U.S. Securities Act or (v) pursuant to an effective registration
statement under the U.S. Securities Act, and in each case in accordance with any applicable securities
laws of any state or territory of the United States or any other jurisdiction.
7.

The purchaser is not an affiliate of the Company or a person acting on behalf of such affiliate, and is
not in the business of buying and selling securities or, if it is in such business, it did not acquire theOffer Shares from the Company or an affiliate thereof in the initial distribution of such Shares.

8.

The purchaser understands that the Offer Shares may be “restricted securities” within the meaning ofRule 144(a)(3) and that no representation is made as to the availability of the exemption provided byRule 144 under the U.S. Securities Act for resales of any Offer Shares, as the case may be.

9.

The purchaser understands that the Offer Shares (to the extent they are in certificated form), unlessotherwise determined by the Company in accordance with applicable law, will bear a legend
substantially to the following effect:
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR WITH ANYSECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF
THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (I) TO A PERSON WHOM THE BENEFICIAL OWNER AND / OR ANYPERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIEDINSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A UNDER THE U.S. SECURITIES ACT, (II) OUTSIDE THE UNITED STATES IN A
TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE U.S.
SECURITIES ACT, (III) IN ACCORDANCE WITH RULE 144 UNDER THE U.S. SECURITIESACT (IF AVAILABLE), (IV) PURSUANT TO ANY OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, SUBJECT TO THE
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL OR SUCH OTHER EVIDENCE
THAT THE COMPANY MAY REASONABLY REQUIRE THAT SUCH SALE OR TRANSFER IS
IN COMPLIANCE WITH THE U.S. SECURITIES ACT OR (V) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE U.S. SECURITIES ACT, AND IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE ORTERRITORY OF THE UNITED STATES OR ANY OTHER JURISDICTION. NO
REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTIONPROVIDED BY RULE 144 UNDER THE U.S. SECURITIES ACT FOR RELEASE OF THISSECURITY.

10. The Company shall not recognize any offer, sale pledge or other transfer of the Offer Shares madeother than in compliance with the above restrictions.
11. The purchaser acknowledges that these representations and undertakings are required in connection
with the securities laws of the United States and that the Company, the Selling Shareholder, theUnderwriters and their respective advisers will rely upon the truth and accuracy of the foregoing
acknowledgements, representations and agreements. The purchaser irrevocably authorizes theCompany, the Selling Shareholder and the Underwriters to produce this Prospectus to any interested
party in any administrative or legal proceedings or official inquiry with respect to the matters covered
herein.
12. The purchaser will not deposit or cause to be deposited any Offer Shares into any depositary receipt
facility established or maintained by a depositary bank other than a Rule 144A restricted depositary
receipt facility, so long as such Offer Shares are “restricted securities” within the meaning ofRule 144(a)(3).
13. The purchaser undertakes promptly to notify the Company, the Selling Shareholder and theUnderwriters, at time prior to the purchase of Shares, any of the foregoing ceases to be true.
Prospective purchasers are hereby notified that sellers of the Offer Shares may be relying on the
exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A.
250

Regulation S
Each purchaser of the Offer Shares outside the United States will be deemed to have acknowledged,
represented and agreed that it has received a copy of this Prospectus and such other information as it deems
necessary to make an informed investment decision to purchase Shares and that:1.

The purchaser is authorized to consummate the purchase of the Offer Shares in compliance with allapplicable laws and regulations.

2.

The purchaser acknowledges that the Offer Shares have not been and will not be registered under the
U.S. Securities Act, or with any securities regulatory authority or any state of the United States, and are
subject to significant restrictions on transfer.

3.

The purchaser is, and the person, if any, for whose account or benefit the purchaser is acquiring theOffer Shares was located outside the United States at the time the buy order for the Offer Shares was
originated and continues to be located outside the United States and has not purchased the Offer Sharesfor the benefit of any person in the United States or entered into any arrangement for the transfer of theOffer Shares to any person in the United States.

4.

The purchaser is not an affiliate of the Company or a person acting on behalf of such affiliate, and is
not in the business of buying and selling securities or, if it is in such business, it did not acquire theOffer Shares from the Company or an affiliate thereof in the initial distribution of such Shares.

5.

The purchaser is aware of the restrictions on the offer and sale of the Offer Shares pursuant toRegulation S described in this Prospectus.

6.

The Offer Shares have not been offered to it by means of any “directed selling efforts” as defined inRegulation S.

7.

The Company shall not recognize any offer, sale, pledge or other transfer of the Offer Shares madeother than in compliance with the above restrictions.

8.

The purchaser acknowledges that these representations and undertakings are required in connection
with the securities laws of the United States and that the Company, the Selling Shareholder, theUnderwriters and their respective advisers will rely upon the truth and accuracy of the foregoing
acknowledgements, representations and agreements. The purchaser irrevocably authorizes theCompany, the Selling Shareholder and the Underwriters to produce this Prospectus to any interested
party in any administrative or legal proceedings or official inquiry with respect to the matters covered
herein.

9.

The purchaser undertakes promptly to notify the Company, the Selling Shareholder and the Managers
if, at any time prior to the purchase of Shares, any of the foregoing ceases to be true.

European Economic Area
In relation to each member state of the European Economic Area (the “EEA”) which has implemented theProspectus Directive (each, a “Relevant Member State”) with effect from and including the date on which theProspectus Directive is implemented in that Relevant Member State, an offer to the public of any Offer Shares
which are the subject of the Offering contemplated by this Prospectus may not be made in that Relevant Member
State, except (i) in the Netherlands once this Prospectus has been approved by the AFM and published inaccordance with the Prospectus Directive and the relevant provisions of the FMSA or (ii) in that Relevant
Member State at any time under the following exemptions under the Prospectus Directive:•

to any legal entity which is a qualified investor as defined in the Prospectus Directive;•

to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus
Directive) per Relevant Member State, subject to obtaining the prior consent of the Joint Global
Coordinators; or•in any other circumstances falling within the scope of Article 3(2) of the Prospectus Directive,

provided that no such offer of Offer Shares shall require the Company or any Underwriters to publish aprospectus pursuant to Article 3 of the Prospectus Directive or a supplement to the prospectus pursuant to
Article 16 of the Prospectus Directive.
In the case of any Offer Shares being offered to a financial intermediary as that term is used in Article 3(2)of the Prospectus Directive, such financial intermediary will be deemed to have represented, acknowledged andagreed that the Offer Shares acquired by it in the Offering contemplated in this Prospectus have not beenacquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or251resale to, persons in circumstances which may give rise to an offer of any Offer Shares to the public other thantheir offer or resale in a Relevant Member State to qualified investors as defined in the Prospectus Directive or incircumstances in which the prior consent of the Joint Global Coordinators has been obtained to each suchproposed offer or resale. The Selling Shareholder and the Underwriters and their respective affiliates and others
will rely (and the Selling Shareholder acknowledges that the Underwriters and their respective affiliates andothers will rely) upon the truth and accuracy of the foregoing representations, acknowledgements andagreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any Offer Shares in
any Relevant Member State means the communication in any form and by any means of sufficient informationon the terms of the Offering and any Offer Shares to be offered so as to enable an investor to decide to purchase
any Offer Shares, as the same may be varied in that Member State by any measure implementing the Prospectus
Directive in that Relevant Member State.
United Kingdom
This Prospectus is being distributed in the United Kingdom only to, and is directed only at, qualified
investors within the meaning of Article 2(1) of the Prospectus Directive who are: (i) investment professionals
within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order
2005, as amended (the “Order”); or (ii) persons falling within Article 49(2)(a) to (d) (“high net worth
companies, unincorporated associations etc”) of the Order (all such persons together being referred to as“Relevant Persons”). In the United Kingdom, any investment activity to which this Prospectus relates is only
available to, and will be engaged in only with, Relevant Persons. Any person who is not a Relevant Person
should not act or rely on it or any of its contents.
Australia
This document (a) does not constitute a prospectus or a product disclosure statement under the Corporations
Act 2001 of the Commonwealth of Australia (“Corporations Act”); (b) does not purport to include theinformation required of a prospectus under Part 6D.2 of the Corporations Act or a product disclosure statement
under Part 7.9 of the Corporations Act; has not been, nor will it be, lodged as a disclosure document with theAustralian Securities and Investments Commission (“ASIC”), the Australian Securities Exchange operated by
ASX Limited or any other regulatory body or agency in Australia; and (c) may not be provided in Australia otherthan to select investors (“Exempt Investors”) who are able to demonstrate that they (i) fall within one or more of
the categories of investors under section 708 of the Corporations Act to whom an offer may be made without
disclosure under Part 6D.2 of the Corporations Act and (ii) are “wholesale clients” for the purpose of section
761G of the Corporations Act.
The Offer Shares may not be directly or indirectly offered for subscription or purchased or sold, and noinvitations to subscribe for, or buy, the Offer Shares may be issued, and no draft or definitive offering
memorandum, advertisement or other offering material relating to any Offer Shares may be distributed, received
or published in Australia, except where disclosure to investors is not required under Chapters 6D and 7 of the
Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By
submitting an application for the Offer Shares, each purchaser or subscriber of Offer Shares represents andwarrants to the Company, the Selling Shareholder, the Underwriters and their affiliates that such purchaser orsubscriber is an Exempt Investor.
As any offer of Offer Shares under this document, any supplement or the accompanying prospectus or otherdocument will be made without disclosure in Australia under Parts 6D.2 and 7.9 of the Corporations Act, theoffer of those Offer Shares for resale in Australia within 12 months may, under the Corporations Act, require
disclosure to investors if none of the exemptions in the Corporations Act applies to that resale. By applying for
the Offer Shares each purchaser or subscriber of Offer Shares undertakes to the Company, the Selling
Shareholder, and the Underwriters that such purchaser or subscriber will not, for a period of 12 months from thedate of issue or purchase of the Offer Shares, offer, transfer, assign or otherwise alienate those Offer Shares toinvestors in Australia except in circumstances where disclosure to investors is not required under the
Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.
CanadaThe Offer Shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal thatare accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1)of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration
Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the Offer Shares must be made inaccordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicablesecurities laws.
252

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies forrescission or damages if this Prospectus (including any amendment thereto) contains a misrepresentation,
provided that the remedies for rescission or damages are exercised by the purchaser within the time limit
prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any
applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of theserights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a nonCanadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), theUnderwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriterconflicts of interest in connection with this Offering.

253

TAXATION
Taxation in the Netherlands
This section is intended as general information only and it does not present any comprehensive or complete
description of all aspects of Dutch tax law which could be of relevance to a (prospective) Shareholder. For Dutch
tax purposes, a Shareholder may include an individual who or an entity that does not have the legal title of the
Shares, but to whom nevertheless the Shares are attributed, based either on such individual or entity owning abeneficial interest in the Shares or based on specific statutory provisions. These include statutory provisions
pursuant to which Shares are attributed to an individual who is, or who has directly or indirectly inherited from aperson who was, the settlor, grantor or similar originator of a trust, foundation or similar entity that holds the
Shares.
Prospective holders of Shares should consult their own tax adviser regarding the tax consequences of any
acquisition, holding or disposal of Shares.
This paragraph is based on Dutch tax law as applied and interpreted by Dutch tax courts and as publishedand in effect on the date hereof, without prejudice to any amendments introduced at a later date and implemented
with or without retroactive effect.
For the purpose of this paragraph, “Dutch Taxes” shall mean taxes of whatever nature levied by or on
behalf of the Netherlands or any of its subdivisions or taxing authorities. The Netherlands means the part of theKingdom of the Netherlands located in Europe.
Any reference hereafter made to a treaty for the avoidance of double taxation concluded by the Netherlands
includes the Tax Regulation for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk), the Tax
Arrangement The Netherlands Curaçao (Belastingregeling Nederland Curaçao), the Tax Regulation for thecountry of the Netherlands (Belastingregeling voor het land Nederland) and the Agreement between the Taipei
Representative Office in the Netherlands and the Netherlands Trade and Investment Office in Taipei for the
avoidance of double taxation.
This section does not describe the possible Dutch tax considerations or consequences that may be relevant toa Shareholder:(i)

who is an individual and for whom the income or capital gains derived from the Shares are attributableto employment activities, the income from which is taxable in the Netherlands;(ii) who has, or that has a (fictitious) substantial interest in the Company within the meaning of Section 4of the Dutch Income Tax Act 2001 (Wet op de inkomstenbelasting 2001);(iii) that is an entity which is not subject to Dutch corporate income tax or is in full or in part exempt from
Dutch corporate income tax (such as pension funds);(iv) that is an investment institution (beleggingsinstelling) as described in article 6a and 28 of the Dutch
Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969, “CITA”) respectively; or(v) that is entitled to the participation exemption (deelnemingsvrijstelling) or the participation credit(deelnemingsverrekening) with respect to the Shares (as defined in articles 13 CITA and 13aa CITA
respectively).
Withholding tax
A Shareholder is generally subject to Dutch dividend withholding tax at a rate of 15% on dividends
distributed by the Company. Generally, the Company is responsible for the withholding of such dividend
withholding tax at source; the dividend withholding tax is for the account of the Shareholder.
Dividends distributed by the Company include, but are not limited to:(i)distributions of profits in cash or in kind, whatever they be named or in whatever form;(ii) proceeds from the liquidation of the Company, or proceeds from the repurchase of shares by theCompany, in excess of the average paid-in capital recognized for Dutch dividend withholding tax
purposes;(iii) the par value of shares issued to a shareholder or an increase in the par value of shares, if and to theextent that no related contribution, recognized for Dutch dividend withholding tax purposes, has been
made or will be made; and254

(iv) partial repayment of paid-in capital, that is not recognized for Dutch dividend withholding tax
purposes, or recognized for Dutch dividend withholding tax purposes, to the extent that the Company
has “net profits” (zuivere winst), unless:(a) the General Meeting has resolved in advance to make such repayment; and(b) the par value of the shares concerned has been reduced with an equal amount by way of anamendment to the articles of association of the Company.
The term “net profits” includes anticipated profits that have yet to be realized.
Subject to certain exceptions under Dutch domestic law, the Company may not be required to transfer to the
Dutch tax authorities the full amount of Dutch dividend withholding tax withheld in respect of dividends
distributed by the Company, if the Company has received a profit distribution from a qualifying foreignsubsidiary (as described in article 11 of the Dutch Dividend Withholding Tax Act 1965 (Wet op de
dividendbelasting 1965 (“DWTA”)), which distribution (i) is exempt from Dutch corporate income tax and (ii)has been subject to a foreign withholding tax of at least 5%. The amount that does not have to be transferred to
the Dutch tax authorities can generally not exceed the lesser of (a) 3% of the dividends distributed by theCompany on which Dutch dividend withholding tax has been withheld and (b) 3% of the profit distributions theCompany received from qualifying foreign subsidiaries in the calendar year in which the Company distributes
the dividends (up to the moment of such dividend distribution) and the two previous calendar years; further
limitations and conditions apply. The Company will, upon request, provide shareholders with information
regarding the Dutch dividend withholding tax that was not transferred to the Dutch tax authorities by theCompany.
If a Shareholder is resident or deemed to be resident in the Netherlands, such Shareholder is generally
entitled to an exemption or a full credit for any Dutch dividend withholding tax against his Dutch (corporate)income tax liability and to a refund of any residual Dutch dividend withholding tax.
If a Shareholder is resident in a country other than the Netherlands and depending on its individual
circumstances, an exemption from, reduction, or (full or partial) refund of, Dutch dividend withholding tax may
be available pursuant to Dutch domestic law, European (case) law or treaties for avoidance of double taxation.
A Shareholder who is considered to be resident in the United States (a “U.S. Shareholder”) and is entitledto the benefits of the 1992 Double Taxation Treaty between the United States and the Netherlands, as amended
most recently by the Protocol signed 8 March 2004 (the “Treaty”), will be entitled to an exemption from or areduction of Dutch dividend withholding tax if the U.S. Shareholder is an exempt pension trust as described inarticle 35 of the Treaty or an exempt organisation as described in article 36 of the Treaty, the U.S. Shareholder
will be exempt from Dutch dividend withholding tax.
According to Dutch domestic anti-dividend stripping rules, no credit against Dutch (corporate) income tax,
exemption from, reduction of or refund of, Dutch dividend withholding tax will be granted if the recipient of thedividends paid by the Company is not considered to be the beneficial owner (uiteindelijk gerechtigde) of such
dividends as meant in these rules.
The DWTA provides for a non-exhaustive negative description of a beneficial owner. According to the
DWTA, a Shareholder will among other things not be considered the beneficial owner of the dividends for thispurpose if:•

as a consequence of a combination of transactions, a person other than the Shareholder wholly or partly
directly or indirectly benefits from the dividends;•

whereby such other person retains or acquires, directly or indirectly, an interest similar to that in the Shareson which the dividends were paid; and•that other person is entitled to a credit, reduction or refund of dividend withholding tax that is less than thatof the Shareholder.

Taxes on income and capital gains
Residents in the Netherlands
The description of certain Dutch tax consequences in this paragraph is only intended for the following
Shareholders:(i)

individuals who are resident or deemed to be resident in the Netherlands for Dutch income tax
purposes (“Dutch Individuals”); and(ii) entities that are subject to the CITA and are resident or deemed to be resident in the Netherlands for
Dutch corporate income tax purposes (“Dutch Corporate Entities”).
255Dutch Individuals engaged or deemed to be engaged in an enterprise or in miscellaneous activities
Dutch Individuals are generally subject to income tax at statutory progressive rates with a maximum of 52%(2016) with respect to any benefits derived or deemed to be derived from Dutch Enterprise Shares (as defined
below), including any capital gains realized on the disposal or transfer thereof.
“Dutch Enterprise Shares” are Shares, or rights to derive benefits from Shares:(i)that are either attributable to an enterprise from which a Dutch Individual derives profits, whether as anentrepreneur (ondernemer) or pursuant to a co-entitlement to the net worth of such enterprise (otherthan as an entrepreneur or a shareholder / holder of depositary receipts); or(ii) the benefits of which are attributable to miscellaneous activities (resultaat uit overige werkzaamheden),including, without limitation, activities which are beyond the scope of active portfolio investment
activities.
Dutch Individuals not engaged or deemed to be engaged in an enterprise or in miscellaneous activities
Generally, a Dutch Individual who owns Shares, excluding Dutch Enterprise Shares, will be subject
annually to an income tax imposed on a fictitious yield on such Shares. The Shares held by such Dutch
Individual will be taxed under the regime for savings and investments (inkomen uit sparen en beleggen).
Irrespective of the actual income or capital gains realized, the annual taxable benefit of all the assets andliabilities of a Dutch Individual that are taxed under this regime, including the Shares, is set at a fixed amount.
The fixed amount equals 4% of the fair market value of the assets (including, as the case may be, the Shares)
reduced by the liabilities and measured, in general, exclusively on 1 January of every calendar year. The tax rate
under the regime for savings and investments is a flat rate of 30% (2016). Taxation only occurs if and to theextent the fair market value of the assets, including the Shares, reduced by the liabilities exceeds a certain
threshold (heffingvrij vermogen). In the 2016 Dutch Tax Plan, and the legislative proposals that form part
thereof, a change to the current legislation regarding the taxation regime for savings and investments is proposed
to be entered into force as of 1 January 2017.
Dutch Corporate Entities
Dutch Corporate Entities are generally subject to corporate income tax at statutory rates up to 25% (2016)
with respect to any benefits derived or deemed to be derived (including any capital gains realized on the disposal
thereof) of the Shares. A reduced rate of 20% (2016) applies to the first €200,000 of taxable profits.
Non-residents in the Netherlands
A Shareholder other than a Dutch Individual or a Dutch Corporate Entity will not be subject to any Dutch
Taxes on income or capital gains in respect of the purchase, ownership and disposal or transfer of the Shares,
other than withholding tax as described above, except if:(i)the Shareholder, whether an individual or not, derives profits from an enterprise, whether as
entrepreneur or pursuant to a co-entitlement to the net worth of such enterprise other than as anentrepreneur or a shareholder / holder of depositary receipts, which enterprise is, in whole or in part,
carried on through a permanent establishment (vaste inrichting) or a permanent representative (vaste
vertegenwoordiger) in the Netherlands, to which the Shares are attributable;(ii) the Shareholder is an individual and derives benefits from miscellaneous activities carried out in the
Netherlands (resultaat uit overige werkzaamheden in Nederland) in respect of the Shares, including(without limitation) activities which are beyond the scope of active portfolio investment activities;(iii) the Shareholder is not an individual and is entitled to a share in the profits of an enterprise or aco-entitlement to the net worth of enterprise, other than by way of securities, which enterprise iseffectively managed in the Netherlands and to which enterprise the Shares are attributable; or(iv) the Shareholder is an individual and is entitled to a share in the profits of an enterprise, other than by
way of securities, or through an employment relationship, which enterprise is effectively managed in
the Netherlands and to which enterprise the Shares are attributable.
Gift tax or inheritance tax
No Dutch gift tax or inheritance tax is due in respect of any gift of the Shares by, or inheritance of the
Shares on the death of, a Shareholder, except if:(i)at the time of the gift or death of the Shareholder, the Shareholder is resident, or is deemed to beresident, in the Netherlands;
256

(ii) the Shareholder passes away within 180 days after the date of the gift of the Shares and is not, or notdeemed to be, at the time of the gift, but is, or deemed to be, at the time of his death, resident in the
Netherlands; or(iii) the gift of the Shares is made under a condition precedent and the Shareholder is resident, or is deemed
to be resident, in the Netherlands at the time the condition is fulfilled.
For purposes of Dutch gift tax or inheritance tax, an individual who is of Dutch nationality will be deemed
to be resident in the Netherlands if such individual has been resident in the Netherlands at any time during the 10
years preceding the date of the gift or his death. For purposes of Dutch gift tax, any individual, irrespective of his
nationality, will be deemed to be resident in the Netherlands if such individual has been resident in the
Netherlands at any time during the 12 months preceding the date of the gift.
Other taxes and duties
No other Dutch Taxes, including value added taxes and taxes of a documentary nature, such as capital tax,
stamp or registration tax or duty, are payable by or on behalf of a Shareholder by reason only of the purchase,ownership and disposal or transfer of the Shares.
Residency
A Shareholder will not become resident, or deemed resident, in the Netherlands for tax purposes by reason
only of the purchase, ownership and disposal or transfer of the Shares.
Certain U.S. Federal Income Tax Considerations
This section describes the material U.S. federal income tax consequences of owning Offer Shares. It applies
to you only if you acquire your Offer Shares in this offering and you hold your Offer Shares as capital assets fortax purposes. This section does not address all of the U.S. federal income tax consequences that may apply toyou, and your U.S. federal income tax consequences may be different than those described below, if you are amember of a special class of holders subject to special rules, including:•a dealer in securities;•a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;•

a tax-exempt organization;•a life insurance company;•a person liable for alternative minimum tax;•

a person that actually or constructively owns 10% or more of the Company’s voting stock;•a person that holds Offer Shares as part of a straddle or a hedging or conversion transaction;•a person that holds Offer Shares in connection with a trade or business outside the United States;•

a person that purchases or sells Offer Shares as part of a wash sale for tax purposes; or•a U.S. holder (as defined below) whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing andproposed regulations, and published rulings and court decisions, as well as on the Treaty. These laws are subject
to change, possibly on a retroactive basis.
If a partnership holds the Offer Shares, the U.S. federal income tax treatment of a partner will generally
depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding theOffer Shares should consult its tax advisor with regard to the U.S. federal income tax treatment of an investmentin the Offer Shares.
You are a U.S. holder if you are a beneficial owner of Offer Shares and you are:a citizen or resident of the United States;
a domestic corporation;an estate whose income is subject to U.S. federal income tax regardless of its source; ora trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S.
persons are authorized to control all substantial decisions of the trust.
A “non-U.S. holder” is a beneficial owner of Offer Shares that is not a U.S. person for U.S. federal income
tax purposes.
257You should consult your own tax advisor regarding the U.S. federal, state and local and other tax consequencesof owning and disposing of Offer Shares in your particular circumstances.
U.S. holders
Dividends
Under the U.S. federal income tax laws, and subject to the passive foreign investment company, or PFIC,
rules discussed below, if you are a U.S. holder, the gross amount of any dividend (including the amount of Dutchtaxes withheld, but excluding any amount not paid to the Dutch tax authorities, as described below) the Company
pays out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes)
is subject to U.S. federal income taxation. If you are a noncorporate U.S. holder, dividends that constitutequalified dividend income will generally be taxable to you at the preferential rates applicable to long-term capitalgains provided that certain holding period requirements are met. Dividends the Company pays with respect to theOffer Shares may be qualified dividend income. If you are a noncorporate U.S. holder, you should consult yourtax advisors regarding the availability of these preferential rates in your particular circumstances.
You must include any Dutch tax withheld from the dividend payment in this gross amount even though you
do not in fact receive it (but excluding any amount not paid to the Dutch tax authorities, as described below). The
dividend is taxable to you when you receive the dividend, actually or constructively. The dividend will not be
eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends
received from other U.S. corporations. The amount of the dividend distribution that you must include in yourincome as a U.S. holder will be the U.S. dollar value of the euro payments made, determined at the spot euro/
U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether thepayment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date you include the dividend payment in income to the date you convert
the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax
rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources
within the United States for foreign tax credit limitation purposes. Distributions in excess of current andaccumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a nontaxable return of capital to the extent of your basis in the Offer Shares and thereafter as capital gain. However,
the Company does not expect to calculate earnings and profits in accordance with U.S. federal income tax
principles. Accordingly, you should expect to generally treat distributions the Company makes as dividends.
Subject to applicable limitations, some of which vary depending upon your circumstances, Dutch income
taxes withheld from dividends on Offer Shares at a rate not exceeding any applicable Treaty rate will becreditable against your U.S. federal income tax liability. As described in “Taxation in the
Netherlands—Withholding Tax”, upon making a distribution to shareholders, the Company is required towithhold Dutch taxes but may be permitted to retain a portion of the amounts withheld. The amount of Dutch
withholding tax that the Company may retain reduces the amount of dividend withholding tax that the Company
is required to pay to the Dutch tax authorities but does not reduce the amount of tax the Company is required towithhold from dividends paid to U.S. holders. In these circumstances, it is likely that the portion of dividend
withholding tax that the Company is not required to pay to the Dutch tax authorities with respect to dividends
distributed to U.S. holders would not qualify as a creditable tax for U.S. foreign tax credit purposes. The rules
governing foreign tax credits are complex, and you should consult your tax adviser regarding the creditability offoreign taxes in your particular circumstances. In addition, special rules apply in determining the foreign tax
credit limitation with respect to dividends that are subject to preferential rates.
Dividends will generally be income from sources outside the United States and will, depending on yourcircumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit
allowable to you.
Capital gains
Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your
Offer Shares, you will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference
between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, inyour Offer Shares. Capital gain of a noncorporate U.S. holder is generally taxed at preferential rates where theproperty is held for more than one year. The gain or loss will generally be income or loss from sources within the
United States for foreign tax credit limitation purposes.
Medicare tax
A U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is
exempt from such tax, is subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” (or258“undistributed net investment income” in the case of an estate or trust) for the relevant taxable year and (2) theexcess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which inthe case of individuals is between $125,000 and $250,000, depending on the individual’s circumstances). A
holder’s net investment income generally includes its dividend income and its net gains from the disposition ofOffer Shares, unless such dividend income or net gains are derived in the ordinary course of the conduct of a
trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a
U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding theapplicability of the Medicare tax to your income and gains in respect of your investment in the Offer Shares.
Non-U.S. holders
Dividends
If you are a non-U.S. holder, dividends paid to you in respect of Offer Shares will not be subject to U.S.
federal income tax unless the dividends are “effectively connected” with your conduct of a trade or businesswithin the United States, and the dividends are attributable to a permanent establishment that you maintain in the
United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S.
taxation on a net income basis. In such cases, you generally will be taxed in the same manner as a U.S. holder. If
you are a corporate non-U.S. holder, “effectively connected” dividends may, under certain circumstances, be
subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits ofan income tax treaty that provides for a lower rate.
Capital gains
If you are a non-U.S. holder, you will not be subject to U.S. federal income tax on gain recognized on thesale or other disposition of your Offer Shares unless:•the gain is “effectively connected” with your conduct of a trade or business in the United States, and thegain is attributable to a permanent establishment that you maintain in the United States if that is required by
an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis; or•you are an individual, you are present in the United States for 183 or more days in the taxable year of thesale and certain other conditions exist.

If you are a corporate non-U.S. holder, “effectively connected” gains that you recognize may also, undercertain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are
eligible for the benefits of an income tax treaty that provides for a lower rate.
PFIC rules
The Company believes that the Offer Shares should not be treated as stock of a PFIC for U.S. federal
income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject
to change.
If the Company were to be treated as a PFIC, gain realized on the sale or other disposition of your Offer
Shares would in general not be treated as capital gain. Instead, you would be treated as if you had realized suchgain and certain “excess distributions” ratably over your holding period for the Offer Shares. Amounts allocatedto the taxable year of disposition and to years before the Company became a PFIC will be taxed as ordinary
income. The amounts allocated to each other taxable year would generally be taxed at the highest tax rate ineffect for each such year to which the gain was allocated, together with an interest charge in respect of the tax
attributable to each such year. With certain exceptions, your Offer Shares will be treated as stock in a PFIC if theCompany were a PFIC at any time during your holding period in your Offer Shares. Dividends that you receivefrom the Company will not be eligible for the special tax rates applicable to qualified dividend income if theCompany is a PFIC (or is treated as a PFIC with respect to you) either in the taxable year of the distribution or
the preceding taxable year, but instead will be taxable at rates applicable to ordinary income. Certain elections
may be available that would result in alternative treatments (such as mark-to-market treatment) of the Offer
Shares. You should consult your tax adviser to determine whether any of these elections would be available and,if so, what the consequences of the alternative treatments would be in your particular circumstances.
You should consult your tax adviser regarding whether the Company is a PFIC and the potential applicationof the PFIC rules to your ownership of Offer Shares for any taxable year.
Information with respect to foreign financial assets
Owners of “specified foreign financial assets” with an aggregate value in excess of $50,000 (and in somecircumstances, a higher threshold) may be required to file an information report with respect to such assets with
their tax returns. “Specified foreign financial assets” may include financial accounts maintained by foreign259

financial institutions, as well as the following, but only if they are held for investment and not held in accounts
maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial
instruments and contracts that have non-U.S. issuers or counterparties, and (iii) interests in foreign entities.
Holders are urged to consult their tax advisors regarding the application of this reporting requirement to theirownership of the Offer Shares.
Backup withholding and information reporting
If you are a noncorporate U.S. holder, information reporting requirements, on IRS Form 1099, generally
will apply to dividend payments or other taxable distributions made to you within the United States, and thepayment of proceeds to you from the sale of Offer Shares effected at a U.S. office of a broker.
Additionally, backup withholding may apply to such payments if you fail to comply with applicablecertification requirements or are notified by the IRS that you have failed to report all interest and dividends
required to be shown on your federal income tax returns.
If you are a non-U.S. holder, you are generally exempt from backup withholding and information reporting
requirements with respect to dividend payments made to you outside the United States by us or another non-U.S.
payor. You are also generally exempt from backup withholding and information reporting requirements in
respect of dividend payments made within the United States and the payment of the proceeds from the sale ofOffer Shares effected at a U.S. office of a broker, as long as either (i) the payor or broker does not have actual
knowledge or reason to know that you are a U.S. person and you have furnished a valid IRS Form W-8 or otherdocumentation upon which the payor or broker may rely to treat the payments as made to a non-U.S. person, or(ii) you otherwise establish an exemption.
Payment of the proceeds from the sale of Offer Shares effected at a foreign office of a broker generally will
not be subject to information reporting or backup withholding. However, a sale effected at a foreign office of abroker could be subject to information reporting in the same manner as a sale within the United States (and incertain cases may be subject to backup withholding as well) if (i) the broker has certain connections to the UnitedStates, (ii) the proceeds or confirmation are sent to the United States or (iii) the sale has certain other specified
connections with the United States.
You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed
your income tax liability by filing a refund claim with the IRS.

260

INDEPENDENT AUDITORSKPMG, independent auditors with their address at Laan van Langerhuize 1, 1186 DS Amstelveen, theNetherlands, have audited and rendered an unqualified auditor’s report on the Combined Financial Statements as
included in this Prospectus.
KPMG has no interest in the Company. KPMG is an independent registered accounting firm. KPMG isgoverned by Dutch law in the Netherlands and is subject to inspection by the AFM. The AFM has granted
KPMG a license to perform financial statement audits of public interest entities. The auditor who signed theauditor’s report on behalf of KPMG is a member of the Netherlands Institute of Chartered Accountants(Nederlandse Beroepsorganisatie van Accountants).
The Condensed Combined Interim Financial Statements has not been audited. EY, an independent registeredaccounting firm with its address at Cross Towers, Antonio Vivaldistraat 150, 1083 HP Amsterdam, theNetherlands, has issued a review report of the Condensed Combined Interim Financial Statements as of and forthe three month period ended 31 March 2016 as set forth in their report thereon. This independent auditor’s
review report is included in this Prospectus. EY has no interest in the Company. The auditor who signs thereview report on behalf of EY is a member of the Netherlands Institute of Chartered Accountants (Nederlandse
Beroepsorganisatie van Accountants).
KPMG and EY have given, and have not withdrawn, their consent to the inclusion of their reports in thisProspectus in the form and context in which they are included. As the Offer Shares have not been and will not beregistered under the U.S. Securities Act, KPMG and EY have not filed any consent under the U.S. Securities Act.
The Company confirms that the information in the auditor’s report and the review report included in thisProspectus has been accurately reproduced and that as far as the Company is aware and able to ascertain frominformation published by the auditors, no facts have been omitted which would render the auditor’s report andreview report inaccurate or misleading.
As decided by the general meeting of the Selling Shareholder on 7 May 2015 pursuant to an auditor rotation
requirement under Dutch law, EY was appointed as its new independent auditor effective 1 January 2016
succeeding KPMG. EY is the external auditor of the Group as of 2016.

261

GENERAL INFORMATION
Significant Change in the Company’s Financial or Trading Position
No significant change in the financial or trading position of the Group has occurred since 31 March 2016.
Use of Proceeds
The Company will not receive any proceeds from the Offering, the net proceeds of which will be received
by the Selling Shareholder.
After deducting the estimated expenses, commissions and taxes related to the Offering payable by the
Selling Shareholder of approximately €47,000,000, the Selling Shareholder expects to receive approximately€721,750,000 in net proceeds from the Offering (based on an Offer Price at the mid-point of the Offer Price
Range and assuming the sale of the maximum number of Offer Shares by the Selling Shareholder and no exerciseof the Over-Allotment Option that is to be granted by the Selling Shareholder in connection with the Offering).
The Selling Shareholder is also expected, after and conditional on Settlement, receive approximately €500,000
from the CEO and approximately €250,000 from the CFO for the sale to the CEO and CFO of Ordinary Shares at
the Offer Price.
Expenses of the Offering
The expenses related to the Offering are estimated at approximately €47 million and include, among otheritems, the fees due to the AFM and Euronext Amsterdam N.V., the commission for the Underwriters, and legal
and administrative expenses, as well as publication costs and applicable taxes, if any. These expenses are borneby the Selling Shareholder.
Availability of Documents
The following documents (or copies thereof) may be obtained free of charge from the Company’s website(www.lighting.philips.com/main/company):•

this Prospectus;•

the Articles of Association;•

the Pricing Statement;•

the Board of Management Rules;•

the Supervisory Board Rules;•

the charter of the Audit Committee;•

the charter of the Corporate Governance and Nomination & Selection Committee;•

the charter of the Remuneration Committee; and•the Relationship Agreement.

In addition, copies of the above documents, with the exception of the Pricing Statement, will be available
free of charge at the Company’s offices during normal business hours from the date of this Prospectus. The
Pricing Statement will be available after pricing of the Offering.

262

GLOSSARY
Agent

Independent parties with exclusive rights to sell a manufacturer’s
products in an assigned territory and who are compensated on acommission basis.

Automotive lighting

All elements of lighting systems in cars including electronics,
luminaires and lamps.

Backlighting

Lighting used in devices such as TVs, smartphones and tablets.

Ballasts

Lamp control gear inserted between the supply and one or more
discharge lamps, which, by means of inductance, capacitance or a
combination of inductance and capacitance, serves mainly to limit thecurrent of the lamp(s) to the required value.

Compact fluorescent light

Lamps that combine a fluorescent light with an incandescent fixture(including integrated compact fluorescent light, which have the driverintegrated in the lamp and are mainly being used in home applications,and non-integrated compact fluorescent light, without an integrated
driver, which are mainly used in office and hospitality applications).

Conventional lamps

Non-LED based light emitting light sources, including incandescentlamps, halogen lamps, fluorescent lamps and HID lamps.

Conventional lamp drivers

Lighting electronics which are needed to operate gas discharge lamps(fluorescent lamps and HID lamps) and low voltage halogen lamps.

Conventional luminaires

Light fixtures with a conventional socket (e.g., a screw socket for aconventional lamp or LED lamp).

Distributor

A person or company that buys products from the Group (thereby
becoming the owner of the products), promotes these products andresells these products to its (end) customers for its own account andrisk. The Distributor’s remuneration is the income made from re-selling
the products.

Electromagnetic ballasts

A device that uses the principle of electromagnetic induction to startand control the operation of an electric discharge lamp, such as
fluorescent lamp or metal halide lamps. The typical construction is theassembly of a coil made of copper or aluminum magnet wire on amagnetic core made of electrical steel.

Electronics

Units that regulate the current going through a light source.

Fluorescent lamp

A lamp which produces light with an electric current conducted
through an inert gas producing ultraviolet light that is invisible to thehuman eye.

General lighting

A segment comprising of lamps, electronics, professional (including
professional luminaires, systems and services for professional endcustomers) and consumer (including consumer luminaires and lighting
systems for consumer use in the home).

Halogen lamp

A type of incandescent lamp with a capsule that holds a special halogen
gas composition around the heated filament to increase the efficacy of
the incandescence.

High intensity discharge lamp

A type of conventional lamp that use electricity arcs between twoelectrodes to create an intensely bright light where mercury, sodium, or
metal halide gas act as the conductor.

Incandescent lamp

A conventional lamp that produces visible light by heating a tungsten
filament inside a glass bulb usually filled with an inert gas.

LED drivers

Lighting electronics that convert input power into a current which
remains constant despite fluctuations in voltage.

263

LED lamp

A solid-state semiconductor device that converts electrical energy
directly into light.

LED luminaires

Light fixtures where LED modules are integrated into the luminaire as
light source and cannot be separated from the luminaire by the user.

LED modules

Light generating units around which luminaires are built for the
purpose of emitting distributed patterns of light.

Light-as-a-service contract

Contracts enabling an integrated solution for customers where
customers pay for the provision of light to their premises, while theGroup plans and builds the lighting infrastructure and ensures its
performance until the end of the contract.

Lighting services

Services offered to customers building on a lighting system andenabled by data.

Lighting systems

The combination of luminaires, controls and software. The automation
and related controls of lighting within a room, building or outdoor
facilities for end-users.

Linear fluorescent lightLongitudinal or circular gas-discharge lamps, often called tubularlinear lamps.

Luminaire

Electrical devices that produce, control and distribute light. Also called
light fixtures. They consist of one or more light sources, lamps orsockets that connect the lamps to the electrical power (as well as
drivers in some luminaires), and the mechanical components required
to support or attach the housing.

Specifier

A company that is partly or wholly involved in the prescription oflighting products.

SwitchWall mounted devices designed to (i) change the electric connections
among its terminals or (ii) engage with the pins of a plug and having
terminals for the connection of cables or cords (i.e., socket contacts).

264

DEFINITIONS
The following definitions are used in this Prospectus:
ABN AMROABN AMRO Bank N.V.

AFM

The Netherlands Authority for the Financial Markets (Stichting
Autoriteit Financiële Markten)

Allocation

The allocation of the Offer Shares

Annual Accounts

The annual accounts referred to in Section 2:391 of the Dutch Civil
Code

Articles of Association

The articles of association of the Company as they will take effect onor prior to the Settlement Date

APAC

Asia-Pacific

ASEAN

Association of Southeast Asian NationsASIC

The Australian Securities and Investments Commission

BCG

Boston Consulting GroupBCG Report

BCG, How to Win in a Transforming Lighting Industry, 2015

Board of Management

The board of management (raad van bestuur) of the Company

Board of Management Rules

The rules of the Board of Management effective ultimately on the
Settlement Date

Business Groups or BGs

BG Lamps, BG LED, BG Home and BG Professional

B2B

Business-to-business

CAGR

Compound annual growth rate

CET

Central European Time

CFL

Compact fluorescent light

CFLi

Integrated CFLs

CFLni

Non-integrated CFLs

CITA

Dutch Corporate Income
vennootschapsbelasting 1969)

Citigroup

Citigroup Global Markets Limited

CLP Regulation

Regulation (EC) No 1272/2008 on classification, labelling andpackaging of chemical substances and preparations

CNLA

Company name license agreement between the Selling Shareholder
and Philips Lighting Holding B.V., dated 1 February 2016

Co-Bookrunners

ABN AMRO and Rabobank in their capacity as co-bookrunners

Company

Philips Lighting N.V. (at the date of this prospectus still a private
limited liability company (besloten vennootschap met beperkte
aansprakelijkheid) named Philips Lighting NewCo B.V., expected tobe converted into a public company with limited liability (naamloze
vennootschap) on or prior to the Settlement Date

Combined Financial Statements

The combined financial statements of the Group as of and for theyears ended 31 December 2015, 2014 and 2013

Condensed Combined Interim
Financial Statements

The condensed combined interim financial statements of the Groupfor the three-month periods ended 31 March 2016 and 2015 and as of
31 March 2016

Corporations Act

The Corporations Act 2001 of the Commonwealth of Australia

DCC

Dutch Civil Code
265

Tax

Act

1969

(Wet

op

de

Deed of Amendment

The notarial deed of amendment and conversion of the Company,
which deed will be executed prior to Settlement

DIY

Do-it-yourself

DoE

U.S. Department of Energy

DPL

Digital projection lighting systems

Dutch Corporate Entities

Entities that are subject to the CITA and are resident or deemed to beresident in the Netherlands for corporate income tax purposes

Dutch Corporate Governance Code or
CodeThe Dutch corporate governance code issued on 9 December 2003
and as amended as of 1 January 2009

Dutch Enterprise Shares

Ordinary shares or any right to derive benefits from ordinary shares
which are attributable to an enterprise from which a Dutch Individual
derives profits, whether as an entrepreneur or pursuant to a coentitlement to the net worth of such enterprise (other than as anentrepreneur or a shareholder) or of which the benefits are taxable in
the hands of a Dutch Individual as benefits from miscellaneous
activities including, without limitation, activities which are beyond
the scope of active portfolio investment activities

Dutch Individuals

Individuals who are resident or deemed to be resident in the
Netherlands for Dutch income tax purposes or individuals who opt tobe treated as if resident in the Netherlands for Dutch income tax
purposes

Dutch Retail Investor

A Dutch retail investor is either: (i) a natural person resident in the
Netherlands which also includes those employees of the Group whomeet the terms and conditions that will be communicated directly tothem; or (ii) a special investment vehicle having its seat in the
Netherlands which is a legal entity established for the express andsole purpose of providing asset management and/or retirement
planning services for a natural person

Dutch Taxes

Taxes of whatever nature levied by or on behalf of the Netherlands or
any of its subdivisions or taxing authorities

DWTA

Dutch Dividend Withholding
dividendbelasting 1965)

EEA

European Economic Area

EEEElectrical and electronic equipment

Effective Time

The date of transfer of assets, liabilities, employees and contracts ofthe former Royal Philips group between Royal Philips and the Group(on or around 1 February 2016).

EMEA

Europe, Middle East and Africa

Enterprise Chamber

The Dutch enterprise chamber of the court of appeal in Amsterdam

ErP-Directive

The Framework Directive 2009/125/EC of the European Parliamentand of the Council of 21 October 2009 establishing a framework forthe setting of eco-design requirements for energy-related products(also called Energy-related Products Directive)

EU

European Union

EUR or euro or €The lawful currency of the European Economic and Monetary Union

Euroclear Nederland

Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V.

Euronext Amsterdam

Euronext in Amsterdam, a regulated market of Euronext Amsterdam
N.V.
266

Tax

Act

1965

(Wet

op

de

Exempt Investors

Select investors who are able to demonstrate that they (i) fall within
one or more of the categories of investors under section 708 of the
Corporations Act to whom an offer may be made without disclosure
under Part 6D.2 of the Corporations Act and (ii) are “wholesaleclients” for the purpose of section 761G of the Corporations Act

External IT Services Period

The period during which the Group is no longer under control ofRoyal Philips and during which Philips Electronics shall extend only
limited use and access rights of certain IT services to the Grouppursuant to the IT TSLA. During this period, the Group is responsible
for acquiring the right to use and to benefit from third party software

EY

Ernst & Young Accountants LLPFirst Trading Date

The date on which trading on an “as-if-and-when-delivered” basis in
the Ordinary Shares on Euronext Amsterdam commences, which is
expected to be 27 May 2016

FMSA

Dutch Financial Markets Supervision Act (Wet op het financieeltoezicht)

Foundation

Stichting Continuïteit Philips Lighting

FRSA

Dutch Financial Reporting Supervision Act (Wet toezicht financiële
verslaggeving)

FTEs

Full time equivalent personnel

GBP

General Business Principles

GDP

Gross domestic product

General Meeting

General meeting of the Company, being the corporate body, or where
the context so requires, the physical meeting of Shareholders

GLC

General Lighting Company, a Saudi Arabian luminaire manufacturer,
in which the Group acquired 51% interest in 2014 to gain access to
the lighting market in the Kingdom of Saudi Arabia

Global Businesses

Certain businesses managed by the group on a global basis rather thangeographical market basis, including digital projection, licensing
programs, entertainment, modular and Luceplan

Group

The Company and its Group Companies

Group Companies

The Company’s subsidiaries within the meaning of Section 2:24b
DCC

Growth Markets

Six markets covering the following regional clusters: (i) ASEAN plus
other Pacific (comprising ten countries, primarily Indonesia, Thailand
and Australia); (ii) the Indian Subcontinent (India, Bangladesh and
Sri Lanka); (iii) Middle East and Turkey; (iv) Africa (primarily South
Africa, Morocco and Egypt); (v) Russia, Ukraine and Central Asia;and (vi) Japan

HID

High-intensity dischargeHR

Human resources

IAEA

International Atomic Energy Agency

IAS

International Accounting Standards

IASB

International Accounting Standards Board

IECC

International Energy Construction CodeIFRS

The International Financial Reporting Standards as endorsed by theEuropean Union and as issued by the IASB

IG&S

The Philips Innovation, Group & Services Sector

IMF

International Monetary Fund
267

IndalIndustrias Derivadas del Aluminio. S.L.

ING

ING Bank N.V.

Internal IT Services Period

The period during which the Group is still under control of Royal
Philips and during which Philips Electronics shall extend similar use
and access rights of certain IT services to the Group pursuant to the
IT TSLA as it grants to any other group member in the Royal Philips
groupInternal Revenue CodeThe Internal Revenue Code of 1986, as amended

IP TLAIntellectual property transfer and license agreement between the
Selling Shareholder and Philips Lighting Holding B.V., dated
1 February 2016

IT

Information technology

IT Services Period

A period of 12 months as of the date of the Separation, during which
Philips Electronics shall provide certain IT services to the GroupIT TSLAIT transitional services level agreement between Philips Electronics
and Philips Lighting B.V., dated 1 February 2016

Joint Bookrunners

Citigroup, ING, Morgan Stanley and Société Générale in theircapacity as joint bookrunners

Joint Global Coordinators

Goldman Sachs International and J.P. Morgan in their capacity as
joint global coordinators

J.P. Morgan

J.P. Morgan Securities plc

KPMG

KPMG Accountants N.V.

LED

Light-emitting diode

LFL

Linear fluorescent lamps

Listing and Paying Agent

ING Bank N.V.

Lumileds

The combined LED and automotive lighting components business ofRoyal Philips

Lumileds IT TSLAThe IT TSLA between Philips Electronics and Lumileds Holding
B.V. dated 1 April 2015

Market Groups or MGs

The following geographical market groups: Europe, Americas,
Growth Markets and Greater China

Morgan Stanley

Morgan Stanley & Co. International plc

OEM

Original equipment manufacturers

OLED

Organic light-emitted diode

Offer Price

The offer price per Offer Share

Offer Price Range

The expected price range of €18.50 to €22.50 (inclusive) per Offer
Share

Offer Shares

The Ordinary Shares that will be offered by the Selling Shareholder in
the Offering which includes, unless the context indicates otherwise,
the Over-Allotment Shares

Offering

The public offering of the Offer Shares to institutional and retailinvestors in the Netherlands and through private placements to certain
institutional investors in various other jurisdictions

Offering Period

The period during which the Offering will take place, commencing on
9:00 CET on 16 May 2016 and ending at 12:00 CET on 26 May 2016
for prospective institutional investors and commencing on 9:00 CET
on 16 May 2016 and ending at 17:30 CET on 25 May 2016 forprospective retail investors, subject to acceleration or extension of thetimetable for the Offering

Order

The Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005, as amended268

Ordinary Shares

Ordinary shares in the Company’s issued and outstanding sharecapital, with a nominal value of €0.01 per Ordinary Share

Over-Allotment Option

The option to be granted to the Stabilization Manager (on behalf of
the Underwriters) exercisable within 30 calendar days after the
Settlement Date, pursuant to which the Stabilization Manager (onbehalf of the Underwriters) may require the Selling Shareholder tosell additional Shares at the Offer Price

Over-Allotment Shares

The Ordinary Shares that may be made available pursuant to theOver-Allotment Option

PFIC

A passive foreign investment company

Philips Electronics

Philips Electronics Nederland B.V.

Preference Shares

Preference shares in the Company’s authorized share capital, with anominal value of €0.01 per Preference Share

Preferential Retail Allocation

The preferential allocation of Offer Shares to Dutch Retail Investors

Pricing Statement

The pricing statement detailing the Offer Price, the exact number ofOffer Shares to be sold and the maximum number of Over-Allotment
Shares, which will be filed with the AFM

Prospectus

This prospectus dated 16 May 2016

Prospectus Directive

Directive 2003/71/EC and amendments thereto, including Directive
2010/73/EU

Protective Foundation Reserve

Reserve of the Company formed so that Preference Shares can be
paid-up at the expense of such reserve

QIBs

Qualified institutional buyers as defined in Rule 144A

R&D

Research and development

Rabobank

Coöperatieve Rabobank U.A.

REACH Regulation

Regulation (EC) No 1907/2006 of the European Parliament and of theCouncil of 18 December 2006 concerning the Registration,
Evaluation, Authorization and Restriction of Chemicals

Regulation S

Regulation S under the U.S. Securities Act

Relationship Agreement

The agreement between the Company and the Selling Shareholder tobe entered into on or before the Settlement Date governing therelationship between the Company and the Selling Shareholder

Relevant Member State

Each member state of the EEA which has implemented theProspectus Directive

Relevant Person

A relevant person within the meaning of the Order

Retail Coordinator

ING

Reverse IT TSLA

Reverse IT TSLA between Philips Electronics and Philips Lighting
B.V., dated 1 February 2016

Revolving Credit Facility

The Group’s revolving credit facility in a maximum amount of€500 million

RoHS Directive

Directive 2002/95/EC of the European Parliament and of the Counselof 27 January 2003 on the restriction of the use of certain hazardous
substances in electrical and electronic equipment

RoHS II-Directive

Directive 2011/65/EU of 8 June 2011 (the revised RoHS Directive)

Rothschild

N.M. Rothschild & Sons Limited

Royal Philips

The Selling Shareholder together with its subsidiaries within themeaning of Section 2:24b DCC
269

Royal Philips Nominee(s)A member of the Supervisory Board nominated by the Selling
Shareholder

Rule 144A

Rule 144A under the U.S. Securities Act

Selling Shareholder

Koninklijke Philips N.V.

Separation

The separation of the Group from Royal Philips

Separation Agreement

The agreement between Philips Lighting Holding B.V. and the
Selling Shareholder dated 1 February 2016 relating to the Separation.

Separation Date

The date on which the Separation occurred, being 1 February 2016

Settlement

Payment (in euro) for and delivery of the Offer Shares

Settlement Date

The date on which Settlement occurs which is expected to be on or
about 31 May 2016, subject to acceleration or extension of thetimetable for the Offering

Shareholder(s)A holder of Shares

SharesOrdinary Shares and Preference Shares

Société Générale

Société Générale Corporate & Investment Banking

Stabilization Manager

Goldman Sachs International

Stock Lending Agreement

The stock lending agreement expected to be dated 26 May 2016
between the Selling Shareholder and the Stabilization Manager

Supervisory Board

The supervisory board (raad van commissarissen) of the Company

Supervisory Board Rules

The rules regarding the Supervisory Board’s functioning and internalorganization

Term Loan Facility

The Group’s term loan facility in an amount of approximately€1,200 million equivalent

The Netherlands

The part of the Kingdom of the Netherlands located in Europe

TL

Tubular linear lamps

TMLA

Trademark license agreement between the Selling Shareholder andPhilips Lighting Holding B.V., dated 1 February 2016

Treaty1992 Double Taxation Treaty between the United States and theNetherlands, as amended most recently by the Protocol signed
8 March 2004

TSA

Transitional services agreement between the Selling Shareholder andPhilips Lighting Holding B.V., dated 1 February 2016

TSLAs

Transitional services agreement and various underlying transitional
service level agreements

Underwriters

Each of the Joint Global Coordinators, the Joint Bookrunners and the
Co-Bookrunners

Underwriting Agreement

The underwriting agreement expected to be entered into on or about
26 May 2016 between the Company, the Selling Shareholder and theUnderwriters

U.S. or United States

United States of America

U.S. dollars or USD or $The U.S. Dollar, the lawful currency in the United States

U.S. Exchange Act

United States Securities Exchange Act of 1934, as amended

U.S. Securities Act

United States Securities Act of 1933, as amended

U.S. Shareholder

A Shareholder who is considered to be resident in the United States

WEEE Directive

Directive (2012/19/EU) on waste of electrical and electronicequipment
270

INDEX TO THE FINANCIAL STATEMENTS
THE GROUP’S CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS AS OF AND
FOR THE THREE MONTH PERIOD ENDED 31 MARCH 2016:
CONDENSED COMBINED STATEMENTS OF INCOME
CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME
CONDENSED COMBINED BALANCE SHEETSCONDENSED COMBINED STATEMENTS OF CASH FLOWSCONDENSED COMBINED STATEMENTS OF CHANGES IN BUSINESS EQUITYNOTES TO THE CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REVIEW REPORT

F-2
F-3
F-4
F-5
F-6
F-7
F-17

THE GROUP’S COMBINED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
31 DECEMBER 2015, 2014 AND 2013:
COMBINED STATEMENTS OF INCOME
COMBINED STATEMENTS OF COMPREHENSIVE INCOME
COMBINED BALANCE SHEETSCOMBINED STATEMENTS OF CASH FLOWSCOMBINED STATEMENTS OF CHANGES IN BUSINESS EQUITYNOTES TO THE COMBINED FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT

F-1

F-18
F-18
F-19
F-20
F-21
F-22
F-81

1. CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS OF PHILIPS LIGHTING
A. CONDENSED COMBINED STATEMENTS OF INCOME
in millions of EUR unless otherwise stated
January to March
2015
2016
unaudited unaudited

Sales
Cost of sales

1,727(1,106)

1,702(1,075)

621
(430)
(88)
(50)
—
2
—

627
(430)
(90)
(49)
(2)
18
(3)

55
—
(2)

71
4
(21)

53
(23)

54
(40)

Income after taxes
Results relating to investments in associates

30
—

14
—

Net income (loss)

30

14

Attribution of net income (loss):
Net income (loss) attributable to owners of Philips Lighting
Net income (loss) attributable to non-controlling interests

27
3

15
(1)

Gross margin
Selling expenses
Research and development expenses
General and administrative expenses
4,7 Impairment of goodwill
Other business income
Other business expenses
Income from operations
Financial income
Financial expenses
Income before taxes
5 Income tax expense

F-2

B. CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME
in millions of EUR unless otherwise stated
January to March
2015
2016
Unaudited Unaudited

Net income (loss) for the period
Total of items that are or may be reclassified to profit or loss
Currency translation differences:
Net current period change, before tax
Income tax effect

30

14

40
—

(81)
—

Total currency translation differences:
Cash flow hedges:
Net current period change, before tax
Income tax effect

40

(81)

(1)
—

(4)
1

Total cash flow hedges:

(1)

(3)

Other comprehensive (loss) income for the period

39

(84)

Total comprehensive income (loss) for the period

69

(70)

Total comprehensive income attributable to:
Owners of Philips Lighting
Non-controlling interests

57
12

(65)
(5)

F-3

C. CONDENSED COMBINED BALANCE SHEETS
in millions of EUR unless otherwise stated

6

7
8

17
5

9
16

17

10
17

11

12
5

17
16

17

12
10

Non-current assets
Property, plant and equipment- At cost- Less accumulated depreciation

31 December 2015

31 March 2016
unaudited

2,620(1,986)2,634(2,031)634
1,844

Goodwill
Intangible assets, excluding goodwill- At cost- Less accumulated amortization

2,192(1,336)

Non-current receivables
Investments in associates
Other non-current financial assets
Deferred tax assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Other current assets
Derivative financial assets
Income tax receivable
Receivables- Accounts receivable- Accounts receivable from related parties—Philips Group- Other current receivables

603
1,781
2,196
(1,391)

856
20
23
8
259
15

805
16
23
58
409
19

3,659

3,714

988
46
9
25

1,010
48
10
30

1,436
83
80

1,344
65
103

Assets classified as held for sale
Short-term loans receivable from Philips Group
Cash and cash equivalents

1,599
34
—
83

1,512
52
207
353

Total current assets

2,784

3,222

Total assets

6,443

6,936

EquityOwner’s net investment
Non-controlling interest

3,513
103

3,011
110

3,616

3,121

2
350
126
159

18
678
38
320

637

1,054

86
—
7
6

95
645
13
23

Business equity
Non-current liabilities
Long-term debt
Long-term provisions
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Current liabilities
Short-term debt
Short-term loans payable to Philips Group
Derivative financial liabilities
Income tax payable
Account and notes payable:- Trade creditors- Accounts payable to related parties—Philips Group

940
111

765
147

Accrued liabilities
Short-term provisions
Liabilities associated with assets classified held for sale
Other current liabilities

1,051
459
263
6
312

912
404
266
10
393

Total current liabilities

2,190

2,761

Total liabilities and business equity

6,443

6,936

F-4

D. CONDENSED COMBINED STATEMENTS OF CASH FLOWSIn millions of EUR unless otherwise stated
January to March
2015
2016
unaudited unaudited

4

5
15

9

12

8
6
6

Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, amortization and impairments of non-financial assets
Impairment of non-current financial assets
Net gain on sale of assets
Interest income
Interest expense on debt, borrowings and other liabilities
Income tax expense
Share-based compensation
Decrease (increase) in working capital
Decrease (increase) in receivables and other current assets
Decrease (increase) in inventories
Increase (decrease) in accounts payable, accrued and other current liabilities
Increase (decrease) in non-current receivables, other assets and other liabilities
Increase (decrease) in provisions
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Net capital expenditures
Additions of intangible assets
Capital expenditures on property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from other non-current financial assets
Purchase of businesses, net of cash acquired

30

14

73
—
—
—
2
23
7
79
28
(65)
116
2
(23)
(2)
(7)

78
3
(1)
(4)
18
40
6
(102)
28
(47)
(83)
(63)
(31)
(1)
(17)

184

(60)

(28)
(8)
(20)
—
17
(3)

(18)
(4)
(16)
2
—
—

Net cash used for investing activities
Cash flows from financing activities
Funding by (distribution to) Philips Group
Capital contribution from Philips Group
Proceeds from issuance (payments) of debt

(14)

(18)

(149)
—
(24)

(349)
692
3

Net cash (used for) provided by financing activities

(173)

346

Net cash (used for) provided by continuing operations

(3)

268

Effect of changes in exchange rates on cash and cash equivalents
Cash and cash equivalents at the beginning of the period

(9)
75

2
83

Cash and cash equivalents at the end of the period

63

353

F-5

E. CONDENSED COMBINED STATEMENTS OF CHANGES IN BUSINESS EQUITYCOMBINED STATEMENTS OF CHANGES IN BUSINESS EQUITY
in millions of EUR unless otherwise stated
Currency Cash Result Fundingtranslation flow for the by Royal Owner’s net Non-controlling Business
differences hedges period Philips investment
interests
equityJanuary to March 2015 unaudited
Balance 1 January
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the period
Total comprehensive income
Movement in funding
Transfer of previous year’s result

78
31
—
31
—
31
—
—

(1)
—
(1)
(1)
—
(1)
—
—

(22) 3,440
—
—
—
—
—
—
27
—
27
—
—
113
22
(22)

3,495
31
(1)
30
27
57
113
—

88
9
—
9
3
12
—
—

3,583
40
(1)
39
30
69
113
—

Balance 31 MarchJanuary to March 2016 unaudited
Balance 1 January
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the period
Total comprehensive income
Capital contribution
Transfer settlements above book value, netof taxMovement in funding
Transfer of previous year’s result

109

(2)

27

3,531

3,665

100

3,765

127
(77)
—
(77)
—
(77)
—

2
—
(3)
(3)
—
(3)
—

226
—
—
—
15
15
—

3,158
—
—
—
—
—
692

3,513
(77)
(3)
(80)
15
(65)
692

103
(4)
—
(4)
(1)
(5)
—

3,616
(81)
(3)
(84)
14
(70)
692

—
—
—

—
—
—

—
—
(226)

(584)
(545)
226

(584)
(545)
—

—
12
—

(584)
(533)
—

Balance 31 March

50

(1)

15

2,947

3,011

110

3,121

F-6

2. NOTES TO THE CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS FOR THE
THREE MONTHS ENDED 31 MARCH 2016
All amounts in millions of EUR unless otherwise stated
A. Introduction
The accompanying Financial Statements of Philips Lighting, comprising the former Lighting sector of
Koninklijke Philips N.V (“Royal Philips”) and the lighting-related activities of Philips Innovation, Group &Services sector (“IG&S”) present the financial position, results of operations and cash flows of Philips Lighting
for the three months ended 31 March 2016 on a combined basis (the “Condensed Combined Interim Financial
Statements”).
As used herein, the term ‘Philips or Philips Group’ is used for Royal Philips or, as the context requires, forRoyal Philips and its group companies excluding Philips Lighting.
The Condensed Combined Interim Financial Statements have been prepared in accordance with IAS 34‘Interim Financial Reporting’ as adopted by the European Union.
The Condensed Combined Interim Financial Statements are unaudited and do not contain all the informationand disclosures included in the annual financial statements, and should be read in conjunction with the Philips
Lighting Combined Financial Statements for the year ended 31 December 2015.
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 Philips Lighting Combined Financial
Statements for the year ended 31 December 2015.
The accounting policies applied in the Condensed Combined Interim Financial Statements are consistent
with those applied in the Philips Lighting Combined Financial Statements for the year ended 31 December 2015.
Refer to Note D.26 which sets out IFRS accounting standards to be adopted as from 2016 and onwards that may
be the most relevant to Philips Lighting, which did not materially impact these Condensed Combined Interim
Financial Statements.
Transactions and balances previously reported as part of the continuing operations of the former Lighting
sector of Royal Philips have been directly attributed to Philips Lighting. However, transactions and balances
previously reported as part of Philips IG&S have been attributed to Philips Lighting based on specificidentification or allocation. Allocations were made using relative percentages of net sales, headcount, floor area
usage or other methods, which are considered reasonable.
The preparation of the Condensed Combined Interim Financial Statements requires management to makejudgments, estimates, and assumptions that affect the application of accounting policies and the reported amountsof assets and liabilities, income and expense. Actual results may differ from the estimates.
In preparing the Condensed Combined Interim Financial Statements, the significant estimates andjudgments made by management in applying the accounting policies and the sources of estimation uncertainty
were the same as those applied to the Philips Lighting Combined Financial Statements for the year ended
31 December 2015.
B. Separation from Philips
On 1 February 2016, Royal Philips and Philips Lighting entered into a master Separation agreement and aset of ancillary agreements, together effectuating the Separation of their respective business and providing aframework for the relationship between Royal Philips and Philips Lighting thereafter (the “Separation”).
The Separation agreement allocates assets, liabilities, employees and contracts of the former Royal Philips
between the new Royal Philips and the Philips Lighting. The assets and liabilities that have been allocated toPhilips Lighting have been transferred to Philips Lighting either by way of an asset transfer, demerger,
contribution or indirectly through a transfer of the shares in the legal entity in which the relevant asset or liability
resided. Conversely, legal entities forming part of Philips Lighting have transferred certain assets and liabilities
that were allocated to Royal Philips, to subsidiaries of Royal Philips. Assets and liabilities have been transferred
F-7between Royal Philips and Philips Lighting on an “as is” basis and on a going concern basis. The legal separationof the lighting business was substantially completed by 31 March 2016, with the exception of certain delayedtransfers. As per the master separation agreement, the transfer of the US business is to be executed prior to thecompletion of a sale or listing of Philips Lighting. The finalization and settlement of certain subsidiary share andasset transfer values after March 31, 2016 will be effected as an equity transaction with the owner Royal Philips.
Philips Lighting uses the Philips brand name. As part of the Separation a brand license fee agreement was
signed between Philips Lighting and Philips Group.
C. DISCLOSURE NOTES
1. Information by segment and main country
Starting in 2016, Philips revised its approach of allocating overhead costs to its businesses. The following
table presents the results by segment for the comparative periods consistent with the revised approach.
The following is an overview of Philips Lighting revenues and results by segment:
Information on income statement by segment in millions of EUR unless otherwise stated
January to March 2015—2016

Sales

2016
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment elimination
Philips Lighting2015
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment elimination
Philips Lighting
1

Sales includingintersegment

Income (loss)
from
operations

Income (loss)
from
operations as
a % of sales

615
355
601
124
7

623
386
609
124
7
(47)

113
19
(25)
(15)
(21)

18%
5%
(4%)
(12%)
— 1

1,702

1,702

71

4%

727
275
610
112
3

741
295
614
113
3
(39)

106
2
(19)
(19)
(15)

14%
1%
(3%)
(17%)
— 1

1,727

1,727

55

3%

Considering the nature of Others income from operations as a % of sales for Others is not meaningful.

Sales between the segments mainly relate to the supply of goods. The pricing of such transactions isdetermined on an arm’s length basis.
Sales are reported based on the country of origin as follows:
Sales by main countries in millions of EUR unless otherwise stated
January to March

Netherlands
United States
Germany
China
India
Saudi Arabia
Other countries
Total sales

F-8

2015

2016

94
403
119
111
97
65
838

106
443
111
109
101
45
787

1,727

1,702

Balance sheet details of Philips Lighting by segment are as follows:
Selected balance sheet information by segment in millions of EUR unless otherwise stated
As of 31 December and 31 March
Total assets
31 March

Total liabilities
excl. Debt
31 March

Depreciation andamortization
Jan - March2016
BG Lamps
BG LED
BG Professional
BG HomeOthers

1,145
561
3,504
343
1,124

(829)
(316)
(647)
(168)
(1,087)

(23)
(5)
(38)
(3)
(9)

Philips Lighting subtotal
Assets classified as held for sale

6,677
52

(3,047)(10)(78)

Total assets/liabilities (excl. debt)

6,729(3,057)

Total assets
31 DecTotal liabilities
excl. Debt
31 DecDepreciation andamortization
Jan - March2015
BG Lamps
BG LED
BG Professional
BG HomeOthers

1,196
589
3,624
373
627

(844)
(315)
(627)
(180)
(767)

(20)
(4)
(36)
(3)
(10)

Philips Lighting subtotal
Assets classified as held for sale

6,409
34

(2,733)(6)(73)

Total assets/liabilities (excl. debt)

6,443(2,739)Tangible and intangible assets can be allocated to the following countries:
Tangible and intangible fixed assets¹ in millions of EUR unless otherwise stated
As of 31 December and 31 March
2015

2016

Netherlands
United States
Germany
China
India
Saudi Arabia
Other countries

141
2,159
8
116
29
248
633

133
2,058
13
101
28
223
633

Tangible and intangible assets

3,334

3,189

1

Including goodwill

2. Financial risk management
The Group’s financial risk management objectives and policies are consistent with those disclosed in the
Combined Financial Statements for the year ended 31 December 2015 (note E 30).
3. Seasonality
Under normal economic conditions sales in the Lighting business are generally not materially affected byseasonality.

F-9

4. Depreciation, amortization and impairments
Depreciation of property, plant and equipment, amortization of intangible assets and impairments of nonfinancial assets, are as follows:
Depreciation, amortization and impairments in millions of EUR unless otherwise stated
January to March
2015

2016

Depreciation of property, plant and equipment
Amortization of acquired intangible assets1
Amortization of non-acquired intangible assets2

(39)
(26)
(8)

(31)
(27)
(7)

Depreciation and amortization
Impairment of property, plant and equipment
Impairment of acquired intangible assets1
Impairment of non-acquired intangible assets2
Impairment of goodwill

(73)
—
—
—
—

(65)
(10)
—
(1)
(2)

Impairments

—

(13)

Total

(73)

(78)

1

Acquired intangible assets include technology, customer relationships, brand names and other intangible
assets, excluding goodwill.
2 Non-acquired intangible assets include product development and software, excluding goodwill.
Impairment of goodwill of EUR 2 million in the three months ended 31 March 2016 relates to goodwill
allocated to (anticipated) divestments of certain operations which met the IFRS 5 criteria of assets held for sale.
5. Income taxes
Income tax expense increased by EUR 17 million compared to Q1 2015, mainly due to non-recurring tax
charges related to the Separation directly attributable to Philips Lighting.
Deferred tax assets increased by EUR 150 million and deferred tax liabilities decreased by EUR 88 million
during the three months ended 31 March 2016, mainly due to the tax impacts of the Separation including therecognition of a deferred tax asset in connection with the transfer of pension liabilities (refer note 13).
As of 31 March 2016, the deferred tax asset arising from the transferred pension liabilities amounts to EUR
101 million.
6. Property, plant and equipment
Property, plant and equipment decreased by EUR 31 million during the three months ended 31 March 2016,
mainly due to additions of EUR 20 million (three months ended 31 March 2015: EUR 17 million) being morethan offset by depreciation of EUR 31 million (three months ended 31 March 2015: EUR 39 million) and
impairment charges of EUR 10 million (three months ended 31 March 2015: EUR nil million).
Impairment charges for the three months ended 31 March 2016 are primarily attributable to write-downs ofspecific assets due to restructuring programs related to manufacturing footprint rationalization.
7. Goodwill
For information regarding the most recent impairment test of the different cash-generating units, including
BG Professional and BG Home, reference is made to Note E 12 Goodwill in the 2015 Combined Financial
Statements. No events have been identified by management in the first quarter of 2016 that required management
to perform an update of the mentioned impairment tests.

F-10

8. Intangible assets excluding goodwill
The changes in intangible assets excluding goodwill in the first quarter of 2016 are summarized as follows:
Intangible assets excluding goodwill in millions of
EUR unless otherwise statedBalance 1 January 2016

856

Change in book value:
Additions
Amortization
Impairment
Translation differences

4
(34)
(1)
(20)

Total changes(51)

Balance 31 March 2016

805

The movement of the EUR 20 million translation differences is mainly due to the decrease in the USD/EUR
rate, which impacted the translation of intangible assets denominated in USD.
Intangible assets excluding goodwill in millions of
EUR unless otherwise statedBalance 1 January 2015

906

Change in book value:
AdditionsPurchase price allocation adjustment
Amortization
Impairment
Translation differences

37
(10)
(142)
(4)
69

Total changes(50)

Balance 31 December 2015856

9. Inventories
Inventories in millions of EUR unless otherwise stated31-12-2015

31-03-2016

Raw materials
Work in progress
Finished goods

294
27
667

314
26
670

Total

988

1,010

The write down of inventories to realizable value amounted to EUR nil million for the three months ended
31 March 2016 (2015: EUR 2 million).
10. Assets classified as held for sale
Assets classified as held for sale in millions of EUR unless otherwise stated
Assets classified as held for sale
Liabilities directly associated with assets held for sale

31-12-2015

31-03-2016

34
6

52
10

Assets classified as held for sale mainly relate to entities which are anticipated to be sold and their balances
mainly comprise of property, plant and equipment and production inventories. The liabilities directly associatedwith assets held for sale consist mainly of trade creditors.
11. Owner’s net investment
As part of the Separation, Philips Group has made cash injections to Philips Lighting of EUR 692 million,
which are reflected as capital contributions in the three months ended 31 March 2016.
F-11

As part of the Separation, certain assets and liabilities were settled based on their fair values to meet
corporate income tax requirements in various countries. Assets and liabilities continue to be recorded at theirbook values. The excess between the fair value and the recorded carrying value of the net assets transferred, netof tax, is reflected as an equity transaction with Philips Group of EUR 584 million during the three months ended
31 March 2016, as a transaction under common control. The finalization and settlement of certain subsidiaryshare and asset transfer values after March 31, 2016 will be effected as an equity transaction with the ownerRoyal Philips.
12. Provisions
Provisions are summarized as follows:
Provisions in millions of EUR unless otherwise stated31-12-2015

31-03-2016

43
—
178
163
60
31
25
113

307
110
142
158
58
31
25
113

613

944

263
350

266
678

613

944

Provisions for pension plans
Provision for other post-retirement benefits
Restructuring related provisions
Environmental provisions
Product warranty
Onerous contract provision
Other long-term employee benefit provisions
Other provisions
Total
Of which:
Short-term provisions
Long-term provisions
Total
The change in provisions was mainly attributable to:•the increase in provision for defined benefits, which resulted from the transfer of pension liabilities toPhilips Lighting as part of the Separation (refer to note 13 post-employee benefits), and•partly offset by the decrease in restructuring related provisions, which was mainly due to usage.

13. Post-employment benefits
As part of the Separation, Philips Lighting assumed additional net pension liabilities of EUR 607 million
from Philips Group. These pension obligations were not previously reflected in the Combined Financial
Statements of Philips Lighting as the legal obligation did not exist prior to the date of Separation. This amount
has been settled via short-term loans receivable from Philips Group as part of the Separation.
The following table provides the movements in the post-employment benefit obligation, plan asset and net
defined benefit liability determined under IAS 19.
Post-employment benefits in millions of EUR unless otherwise stated
Obligation

Plan assets

Net liability

(40)
—
(3)
(43)

—
—
—
—

(40)
—
(3)
(43)

Transfer from Philips
Reclassifications
Service costs
Interest
Contribution by employer
Benefits paid
Plan amendments (incl curtailments)
Translation differences
Total changes(1,153)
1
(2)
(12)
—
23
4
22
(1,117)

546
1
—
6
45
(13)
—
(12)
573

(607)
2
(2)
(6)
45
10
4
10
(544)

Balance 31 March 2016

(1,160)

573

(587)

Opening balance 1 January 2015
Acquisitions
Miscellaneous
Balance as of 31 December 2015

F-12

Unrecognized assets of EUR 19 million were transferred as part of the transfer from Philips and were
EUR 20 million as of 31 March 2016.
No actuarial gains and losses were recorded in the three months ended 31 March 2016. The calculation isbased on a roll forward using the assumptions and actuarial calculations per 31 December 2015.
The net pension liability is presented as follows:
Net pension liability in millions of EUR unless otherwise statedAccrued pension costs1
Provision for defined benefits (see note 12)
Provision for other post-employment benefits (seenote 12)Total
1

31-12-2015

31-03-2016

—
(43)

(170)
(307)

—

(110)

(43)

(587)

Accrued pension costs are mainly presented under Other non-current liabilities

14. Contingent liabilities
Guarantees
Philips Lighting’s policy is to provide guarantees and other letters of support only in writing. Philips
Lighting does not stand by other forms of support. As of 31 March 2016 the total fair value of guarantees
recognized on the Condensed Combined Interim Balance Sheet amounted to EUR nil million (31 December
2015: EUR nil million). Remaining off-balance-sheet business and credit-related guarantees provided on behalfof third parties and associates as per 31 March 2016 amounted to EUR 7 million (31 December 2015: EUR 8
million).
As part of the Separation, Philips Lighting has provided indemnities to Royal Philips based on contingent
events, including back-up guarantees for certain pension and rent payments.
Indemnifications
By way of surety for the fulfilment of the Philips Lighting’s obligations under the Separation Agreement,
including the indemnifications granted to Royal Philips, certain major subsidiaries of Philips Lighting haveprovided guarantees to Royal Philips. Conversely, certain major subsidiaries of Royal Philips have provided
guarantees to Philips Lighting. Refer to note 17, Related party transactions.
Environmental remediation
Philips Lighting is subject to environmental laws and regulations. Under these laws and regulations, Philips
Lighting may be required to remediate the effects of certain chemicals on the environment.
Legal proceedings
Philips Lighting is 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 ordetermine the ultimate outcome of all pending or threatened legal proceedings, regulatory and governmental
proceedings, Philips Lighting is of the opinion that the proceedings may have a significant impact on Philips
Lighting’s Condensed Combined Balance Sheet, results of operations and combined cash flows.
For information regarding legal proceedings in which the Company is involved, please refer to note E. 26 in
the 2015 Combined Financial Statements.
15. Share-based compensation
Share-based compensation costs for Philips Lighting were EUR 7 million and EUR 6 million in the firstquarter of 2015 and 2016 respectively. These costs relate to the share-based compensation plan of Royal Philips.
F-13

Performance and restricted shares granted
During the first three months of 2016 the Company granted 6,195 performance shares and 26,226 restricted
shares.
Restricted shares issued and options exercised
In the first three months of 2016 a total of 14,838 restricted shares were issued to employees, furthermore
144,423 EUR-denominated options and 22,087 USD-denominated options were exercised at a weighted average
exercise price of EUR 17.02 and USD 18.60 respectively.
Accelerate! options exercised
Under the Accelerate! Program, in the first three months of 2016 a total of 11,540 EUR-denominatedoptions and 5,600 USD-denominated options were exercised at an exercise price of EUR 15.24 and USD 20.02
respectively.
16. Fair value of financial assets and liabilites
The estimated fair value of financial instruments has been determined by Philips Lighting using available
market information and appropriate valuation methods. The estimates presented are not necessarily indicative of
the amounts that will ultimately be realized by Philips Lighting upon maturity or disposal. The use of market
assumptions and/ or estimation methods may have a material effect on the estimated fair value amounts.
For cash and cash equivalents, current receivables, accounts payable, interest accrual and short-term debt,
the carrying amounts approximate fair value because of short maturity of these instruments, and therefore fairvalue information is not included in the table below.
Fair value of financial assets and liabilities in millions of EUR unless otherwise statedBalance as of
31 December 2015
carrying estimatedamount fair value

Balance as of
31 March 2016
carrying estimatedamount fair value

Financial assets
Carried at fair value:
Derivative financial instruments

9

Financial assets carried at fair value

9

10

83

353

Carried at (amortized) cost:
Cash and cash equivalents
Loans and receivables:
Loans—current
Other non-current loans and receivables
Receivables—current
Receivables—non-current
Short-term loans receivables from Philips Group
Held-to-maturity investments
Available-for-sale financial assets

3
1,599
20
—
—
5

Financial assets carried at (amortized) costs

1,710

9

—
3
20

5

10

2
52
1,512
16
207
1
3

10

2
52
16

3

2,146

Financial liabilities
Carried at fair value:
Derivative financial instruments(7)

Financial liabilities carried at fair value

(7)

(13)

Carried at (amortized) cost:Accounts payable
Short-term loans payable to Philips GroupAccrued interest
Debt(1,051)
—
(1)
(88)

(912)
(645)
(1)
(113)

Financial liabilities carried at (amortized) costs(1,140)(1,671)

F-14

(7)

(13)

(13)

The following hierarchy is applied to classify the financial assets and liabilities:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as availablefor sale financial assets, investees and financial assets designated at fair value through profit and loss. The fairvalue of financial instruments traded in active markets is based on unadjusted quoted prices in active markets for
identical assets or liabilities 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’s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) are determined by using valuation techniques. These valuation techniques maximize the use ofobservable 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 isincluded 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.
Level 3
If one or more of the significant inputs are not based on observable market data, the instrument is includedin level 3.
Fair value hierarchy in millions of EUR unless otherwise statedlevel 1level 2level 3

total

Balance 31 March 2016
Derivative financial instruments—assets
Loans—current
Other non-current loans and receivables
Receivables—non-current
Available-for-sale financial assets

—
—
—
—
—

10
2
52
16
3

—
—
—
—
—

10
2
52
16
3

Total financial assets

—

83

—

83

Derivative financial instruments—liabilities

—

(13)

—

(13)

Total financial liabilities
Balance 31 December 2015
Derivative financial instruments—assets
Loans—current
Other non-current loans and receivables
Receivables—non-current
Available-for-sale financial assets

—

(13)

—

(13)

—
—
—
—
—

9
3
20
5

—
—
—
—
—

Total financial assets
Derivative financial instruments—liabilities

—
—

37
(7)

—
—

37
(7)

Total financial liabilities

—

(7)

—

(7)

—

9
—
3
20
5

17. Related party transactions
In the normal course of business, Philips Lighting purchases and sells goods and services from/to various
parties in which Philips typically holds a 50% or less equity interest and has significant influence. Thesetransactions are generally conducted with terms comparable to transactions with third parties.
These Condensed Combined Interim Financial Statements include transactions with Royal Philips and its
group companies that are outside of Philips Lighting. Philips Group is a related party as it controlled Philips
Lighting during the periods presented.

F-15

An overview of the significant related party transactions and balances is as follows:
Related party transactions in millions of EUR unless otherwise stated
For the period Jan—March

Sales to Philips Group
Sales to associates
Purchases from Philips Group
Purchases from associates
Movement funding from/ (to) Philips Group
Capital contribution
Transfer settlement transactions as part of separation
Transfer of pension obligations as part of separation
Transition Service Level Agreement costs charged by Philips

2015

2016

10
8
(20)
(5)
113
—
—
—
—

11
2
(19)
(5)
(545)
692
(584)
(607)
34

Related party balances in millions of EUR unless otherwise statedAccounts receivable—Philips GroupAccounts payable—Philips GroupLong term Loan receivable from Philips Group
Indemnification receivable from Philips Group
Indemnification payable to Philips Group
Funding from Philips Group (through owners net
investment)
Short-term loans receivable from Philips Group
Short-term loans payable to Philips Group

31-12-2015

31-03-2016

83
(111)
—
—
—

65
(147)
36
10
(95)

(3,158)——(2,947)207(645)

Indemnification receivable from (payable to) Philips Group relate to the indemnification for tax assets(liabilities) arising after Separation within the Philips Group which are attributable to Philips Lighting.
18. Subsequent events
Philips Lighting expects to incur restructuring and acquisition-related charges of approximately EUR
60 million for the three-month period ending 30 June 2016, of which approximately one-third relates torestructuring plans which were announced by Philips Lighting as per the date of the issuance of the Condensed
Combined Interim Financial Statements.

F-16

To: management of Philips Lighting
Review report
Introduction
We have reviewed the accompanying condensed combined interim financial statements of Philips Lighting,which comprise the condensed combined balance sheet as at 31 March 2016, the condensed combined statements
of income, comprehensive income, changes in business equity, and cash flows for the three month period thenended, and the notes, comprising a summary of the significant accounting policies and other explanatory
information.
Management of Philips Lighting is responsible for the preparation and presentation of this condensed
combined interim financial statements in accordance with IAS 34, ‘Interim Financial Reporting’ as adopted by
the European Union. Our responsibility is to express a conclusion on this condensed combined interim financial
statements based on our review.
Scope
We conducted our review in accordance with Dutch law including standard 2410, ‘Review of Interim
Financial Information Performed by the Independent Auditor of the Entity’. A review of interim financial
information consists of making inquiries, primarily of persons responsible for financial and accounting matters,
and applying analytical and other review procedures. A review is substantially less in scope than an audit
conducted in accordance with Dutch auditing standards and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying
condensed combined interim financial statements of Philips Lighting for the three month period ended 31 March
2016 are not prepared, in all material respects, in accordance with IAS 34, ‘Interim Financial Reporting’, as
adopted by the European Union.
Amsterdam, 11 May 2016
Ernst & Young Accountants LLP
Signed by O.E.D. Jonker

F-17

1. COMBINED FINANCIAL STATEMENTS OF PHILIPS LIGHTING
A. COMBINED STATEMENTS OF INCOME
in millions of EUR unless otherwise stated
For the years ended 31 December
2013

4, 28

7, 12

2014

2015

Sales
Cost of sales

7,129 6,981 7,465(4,573) (4,671) (4,810)

Gross margin
Selling expenses
Research and development expenses
General and administrative expenses
Impairment of goodwill
Other business income
Other business expenses

2,556 2,310 2,655(1,722) (1,657) (1,751)(375) (395) (366)(233) (223) (233)
(26)
(2)
—
31
13
48
(18)
(5)
(22)

4
9
9

Income from operations
Financial income
Financial expenses

213
3
(4)

41
3
(9)

331
3
(11)

8

Income before taxes
Income tax expense

212
(45)

35
(66)

323
(83)

3

Income after taxes
Results relating to investments in associates

167
1

(31)
2

240
—

Net income (loss)

168

(29)

240

Attribution of net income (loss):
Net income (loss) attributable to owners of Philips Lighting
Net income (loss) attributable to non-controlling interests

168
—

(22)
(7)

226
14

B. COMBINED STATEMENTS OF COMPREHENSIVE INCOME
in millions of EUR unless otherwise stated
For the years ended 31 December

23

23

2013

2014

Net income (loss) for the period

168(29) 240

Currency translation differences:
Net current period change, before tax
Income tax effect(94) 179——

58—

Total currency translation differences:
Cash flow hedges:
Net current period change, before tax
Income tax effect(94) 179

58

(3)
1

2
(1)

4
(1)

Total cash flow hedges:

(2)

1

3

Other comprehensive (loss) income for the period(96) 180

61

Total comprehensive income for the period
Total comprehensive income attributable to:
Owners of Philips Lighting
Non-controlling interests

72

151

301

72
—

151
—

278
23

The accompanying notes are an integral part of these Combined Financial Statements.
F-18

2015

C. COMBINED BALANCE SHEETS
in millions of EUR unless otherwise stated
01-01-2013

11

12
13

Non-current assets
Property, plant and equipment- At cost- Less accumulated depreciation
Goodwill
Intangible assets, excluding goodwill- At cost- Less accumulated amortization

Non-current receivables
3
Investments in associates
Other non-current financial assets
8
Deferred tax assets
Other non-current assets
Total non-current assets
Current assets
15
Inventories
16
Other current assets
31
Derivative financial assets
Income tax receivable
14, 28 Receivables:- Accounts receivable- Accounts receivable from relatedparties—Philips Group- Other current receivables
10
17

23

22
18
8
21

22
31
8
28

20
18
10
20

2,892
(1,985)2,767(1,937)
907
1,564

1,900
(952)

31-12-2014

2,840(2,118)
830
1,458

1,799
(1,027)31-12-2015

2,620(1,986)
722
1,676

2,120
(1,214)

634
1,844
2,192
(1,336)

948
8
28
21
185
10
3,671

772
8
27
22
212
4
3,333

906
10
24
23
241
4
3,606

856
20
23
8
259
15
3,659

954
51
21
9

983
52
20
7

996
65
17
8

988
46
9
25

1,185

1,289

1,455

1,436

2
55

13
69

3
87

83
80

Assets classified as held for sale
Cash and cash equivalents
Total current assets
Total assets
EquityOwner’s net investment
Non-controlling interest
Business equity
Non-current liabilities
Long-term debt
Long-term provisions
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Current liabilities
Short-term debt
Derivative financial liabilities
Income tax payable
Account and notes payable:- Trade creditors- Accounts payable to related parties—
Philips Group

31-12-2013

1,242
—
58
2,335
6,006

1,371
15
49
2,497
5,830

1,545
20
75
2,726
6,332

1,599
34
83
2,784
6,443

3,288
1
3,289

3,297
2
3,299

3,495
88
3,583

3,513
103
3,616

5
469
155
140
769

6
348
132
145
631

41
461
150
158
810

2
350
126
159
637

4
22
34

2
22
10

49
15
14

86
7
6

878

867

11

Accrued liabilities
Short-term provisions
Liabilities directly associated with assets
classified held for sale
Other current liabilities
Total current liabilities
Total liabilities and business equity

847

20

940

37

111

889
491
243

887
459
227

884
447
240

1,051
459
263

—
265
1,948
6,006

—
293
1,900
5,830

—
290
1,939
6,332

6
312
2,190
6,443

The accompanying notes are an integral part of these Combined Financial Statements.
F-19

D. COMBINED STATEMENTS OF CASH FLOWS
in millions of EUR unless otherwise stated
For the years ended 31 December

7
9
9
8
29

18

13
11

2013

2014

2015

168

(29)

240

390 381
—
—
(1)
(2)
(3)
(3)
4
9
45
66
27
22
(231) (33)(206) (17)(94) 114
69 (130)
4 —(86) 116
(1)
(1)
—
(5)
(54) (43)

315
4
(26)
(3)
7
83
24
209
—
29
180
(29)
(79)
—
(2)
(26)

262

478

717

(178) (123)(38) (51)(159) (109)
19
37
—
—
—
(125)
2
(1)

(85)
(38)
(98)
51
31
(11)
—

Net cash used for investing activities
Cash flows from financing activities
Additional funding from (payment to) Philips
Proceeds from issuance (payments) of debt(176) (249)(65)

Net cash used for financing activities(97) (201) (638)Net cash (used for) provided by continuing operations

(11)

28

14

Effect of changes in exchange rates on cash and cash equivalents
Cash and cash equivalents at the beginning of the year

2
58

(2)
49

(6)
75

Cash and cash equivalents at the end of the year

49

75

83

Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, amortization and impairments of non-financial assets
Impairment of non-current financial assets
Net gain on sale of assets
Interest income
Interest expense on debt, borrowings and other liabilities
Income tax expense
Share-based compensation
Decrease (increase) in working capital
Decrease (increase) in receivables and other current assets
Decrease (increase) in inventories
Increase (decrease) in accounts payable, accrued and other current liabilities
Increase (decrease) in non-current receivables, other assets and other liabilities
Increase (decrease) in provisions
Decrease (increase) in assets classified as held for saleInterest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Net capital expenditures
Additions of intangible assets
Capital expenditures on property, plant and equipment
Proceeds from disposal of property, plant and equipment
Proceeds from other non-current financial assets
Purchase of businesses, net of cash acquired
Dividends received from investments in associates(95) (200) (626)(2)(1) (12)

The accompanying notes are an integral part of these Combined Financial Statements.
F-20

E. COMBINED STATEMENTS OF CHANGES IN BUSINESS EQUITY
in millions of EUR unless otherwise stated
Currency
Nontranslation Cash flow Result for Funding by Owner’s net controlling Business
differences
hedgesthe period
Philipsinvestment
interests
equityBalance 1 January 2013
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the year
Total comprehensive income
Share-based compensation
Movement in funding
Movement in non-controllinginterests

—
(94)
—
(94)
—
(94)
—
—

—
—
(2)
(2)
—
(2)
—
—

—
—
—
—
168
168
—
—

3,288
—
—
—
—
—
27
(90)

3,288
(94)
(2)
(96)
168
72
27
(90)

1
—
—
—
—
—
—
—

3,289
(94)
(2)
(96)
168
72
27
(90)

—

—

—

—

—

1

1

Balance 31 December 2013

(94)

(2)

168

3,225

3,297

2

3,299

Balance 1 January 2014
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the year
Total comprehensive income
Share-based compensation
Movement in funding
Movement in non-controllinginterests
Transfer of previous year’s result

(94)
172
—
172
—
172
—
—

(2)
—
1
1
—
1
—
—

168
—
—
—
(22)
(22)
—
—

3,225
—
—
—
—
—
22
25

3,297
172
1
173
(22)
151
22
25

2
7
—
7
(7)
—
—
—

3,299
179
1
180
(29)
151
22
25

—
—

—
—

—
(168)

—
168

—
—

86
—

86
—

Balance 31 December 2014

78

(1)

(22)

3,440

3,495

88

3,583

Balance 1 January 2015
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the year
Total comprehensive income
Share-based compensation
Movement in funding
Movement in non-controllinginterests
Transfer of previous year’s result

78
49
—
49
—
49
—
—

(1)
—
3
3
—
3
—
—

(22)
—
—
—
226
226
—
—

3,440
—
—
—
—
—
24
(284)

3,495
49
3
52
226
278
24
(284)

88
9
—
9
14
23
—
—

3,583
58
3
61
240
301
24
(284)

—
—

—
—

—
22

—
(22)

—
—

(8)
—

(8)
—

Balance 31 December 2015

127

226

3,158

3,513

103

3,616

2

The accompanying notes are an integral part of these Combined Financial Statements.
F-21

2. NOTES TO THE COMBINED FINANCIAL STATEMENTS OF PHILIPS LIGHTING
A. PARTICULARS OF THE BUSINESSOn 23 September 2014, Koninklijke Philips N.V. (referred to as Royal Philips) announced its plan to
sharpen its strategic focus by establishing two stand-alone companies focused on HealthTech and Lighting
opportunities. The establishment of the two stand-alone companies also involves the allocation of elements of thePhilips Innovation, Group & Services Sector (“IG&S”) to each company.
To achieve this transformation, Royal Philips started the process to separate its existing lighting business(except for the combined LED and automotive lighting components businesses) into a separate legal structure
and considering various options for ownership structures that would have direct access to capital markets. For
this purpose, Royal Philips transferred to Philips Lighting Holding B.V., the equity interests of certain entities
that operate the lighting businesses, as well as assets and liabilities allocated to it (“Philips Lighting”). The legal
separation of the lighting business was substantially completed on 1 February 2016, with the exception of certain
delayed transfers.
Philips Lighting, comprising the former Lighting Sector of the Royal Philips group and the Lighting-related
activities of IG&S, historically did not exist as a separate legal and reporting group and no separate (statutory)financial statements were therefore prepared. Accordingly, for purpose of the evaluation of the historicalfinancial results of the Philips Lighting business and the preparation for capital markets access, Combined
Financial Statements of Philips Lighting for the years 2013, 2014 and 2015 have been prepared.
Royal Philips is the parent company of Philips Lighting. The registered office of Royal Philips is High Tech
campus 5 Eindhoven, The Netherlands.
As used herein, the term ‘Philips or Philips Group’ is used for Royal Philips or, as the context requires, forRoyal Philips and its group companies excluding Philips Lighting.
The Philips Lighting business encompasses a large part of the lighting value chain—from light sources,
luminaires, electronics and controls to application specific systems and services—and is conducted through thefollowing business groups (BGs):•

BG Lamps;•

BG LED;•

BG Professional;•

BG Home.

B. INTRODUCTION TO THE COMBINED FINANCIAL STATEMENTS
The Combined Financial Statements for the years ended 31 December 2015, 2014, and 2013 have been
derived from the consolidated financial statements of Royal Philips, which have been prepared in accordancewith International Financial Reporting Standards (“IFRS”), as endorsed by the European Union (“EU”). All
standards and interpretations issued by the International Accounting Standards Board (“IASB”) and the IFRSInterpretations Committee effective as of 31 December 2015 have been endorsed by the EU, except that the EU
did not adopt certain paragraphs of IAS 39 applicable to certain hedge transactions. The Group has no hedgetransactions to which these paragraphs are applicable. Consequently, the accounting policies applied by theGroup also comply with IFRS as issued by the IASB.
As Philips Lighting has not previously prepared stand-alone financial statements, these Combined Financial
Statements are the first IFRS financial statements of Philips Lighting in which IFRS 1 (First-time Adoption ofInternational Financial Reporting Standards) has been applied. IFRS 1 sets out the procedures that an entity must
follow when it adopts IFRSs for the first time as the basis for preparing its general purpose financial statements.
As a first-time adopter, Philips Lighting has applied the exemption under IFRS 1.D13(a) to deem the cumulative
foreign exchange differences to be zero at January 1, 2013 (the date of transition). Since Philips Lighting did notpreviously prepare combined financial statements, and accordingly does not have any previous GAAP for
purposes of the combined financial statements, Philips Lighting is not required to present reconciliations as per
IFRS 1.
F-22

The accounting policies applied in the Combined Financial Statements are, to the extent applicable,consistent with accounting policies applied in the Philips Group Consolidated Financial Statements. As a result,
the Combined Financial Statements have been prepared according to IFRS 1.D16(b) and, apart from the applied
exemption under IFRS 1.D13(a), reflect the carrying amounts that are included in Philips Group Consolidated
Financial Statements.
The Combined Financial Statements have been prepared on a “carve-out basis” from the Philips Group
Consolidated Financial Statements for the purpose of presenting the financial position, results of operations andcash flows of Philips Lighting on a stand-alone basis, as explained in section C, Basis of Preparation, below.
The Combined Financial Statements have been prepared on a going concern basis.
The Combined Financial Statements were authorized for issuance on 10 May 2016.
Basis of combination
The Combined Financial Statements of Philips Lighting consist of the activities of the Philips Lighting
Sector and the Lighting-related activities of the Philips IG&S Sector on a combined basis.
The Philips Lighting business is primarily conducted through legal entities that also comprise other Philips
activities. Approximately 93 legal entities contain combined Philips Lighting and HealthTech or IG&S activities.
In addition, 57 legal entities are dedicated Philips Lighting legal entities (refer to note E.3 – Interests in entities).
In the combination of Philips Lighting Sector and the Lighting-related activities of the Philips IG&S Sector,
all intercompany balances and transactions between Philips Lighting entities have been eliminated. Unrealized
gains and losses have also been eliminated in the combination, but, in the case of unrealized losses, only to theextent there is no indication of impairment.
The transactions and balances with Philips (including the other Philips entities not part of the allocated
IG&S companies) have not been eliminated. For details of such transactions with Philips, refer to note E.28 –Related party transactions.
The Combined Financial Statements include activity-based allocations from Philips for centrally managed
costs and expenses, such as sales office support in foreign locations, information technology support, sharedaccounting services, human resources and benefit management, treasury, and other corporate general andadministrative expenses. For further details of the Basis of Preparation refer to note C.
Management believes the allocation methods applied in the Combined Financial Statements to be areasonable reflection of the utilization of services provided by Philips Group. However, different allocation
methods could have resulted in different outcomes. The allocation methods are therefore not necessarily
representative of the financial positions, results of operations or cash flows that would have been reported if
Philips Lighting operated on its own or as an entity independent from Philips Group during the periods presented.
Actual future cost levels may thus deviate from historical presentation.
C. BASIS OF PREPARATION
1. General
These Combined Financial Statements present the Philips Lighting business of Philips Group, representing
the activities, assets and liabilities of the Philips Lighting Sector and the Lighting-related activities of the Philips
IG&S Sector that relate to or have been assigned to the Philips Lighting business.
The Combined Financial Statements reflect the substance of the activities, assets and liabilities attributableto Philips Lighting. The legal structure was not considered the key factor in determining the perimeter of the
Combined Financial Statements, but rather the basis of the economic activities.
The Combined Financial Statements have been prepared on a “carve-out basis” from the Philips Group
Consolidated Financial Statements for the purpose of presenting the financial position, results of operations andcash flows of Philips Lighting on a stand-alone basis.
The Combined Financial Statements present the assets, liabilities, revenues, expenses and cash flows
attributable to Philips Lighting for the years ended 31 December 2015, 2014 and 2013. The Combined financial
statements have been prepared under the historical cost convention, unless otherwise indicated. The fair value offinancial assets and liabilities is presented in note E.31.
F-23

Transactions and balances previously reported as part of the continuing operations of the Philips Lighting
Sector have been directly attributed to Philips Lighting. Transactions and balances previously reported as part of
IG&S have been attributed to Philips Lighting based on specific identification or allocation. Allocations weremade using relative percentages of net sales, headcount, floor area usage or other methods, which are consideredreasonable under the circumstances and further explained below.
Combined Balance Sheets
The Philips Lighting Combined Balance Sheets include the assets and liabilities previously reported as partof the Philips Lighting Sector as well as the Lighting-related assets and liabilities of the Philips IG&S Sector,
which have been determined in the following manner:•

Property, plant and equipment (‘PP&E’): PP&E held centrally in IG&S have been assigned fully to either
Philips Lighting or Philips Group based on main user of the asset.

•

Intangible assets held in IG&S mainly comprise IT related assets, which have been allocated between Philips
Lighting and Philips Group based on relative usage.

•

Receivables: unless balances could be specifically assigned to either Philips Lighting or Philips Group, thesewere allocated based on the relative percentage of net Philips Lighting or net Philips Group sales of IG&S,
which approximates allocation on an item-by-item basis.

•

Trade and other payables: unless payables could be specifically assigned to either Philips Lighting or Philips
Group, these balances are allocated to either Philips Lighting or Philips Group based on the relative
percentage of the external costs in IG&S, which approximates allocation on an item-by-item basis.

•

Accrued liabilities: unless accruals could be specifically assigned to either Philips Lighting or Philips Group,
these were allocated based on headcount or using a cost allocation ratio depending on the specific nature of
the balance.
Combined Statements of Income

Philips charges central IG&S costs, such as IT, finance and accounting, HR, real estate and other central
support services, to its sectors mainly based on activity (headcount, floor area, etc.), sales or gross margin.
Historically, a significant portion of the IG&S costs were already charged to the Lighting Sector. The
combination of the Lighting-related activities of IG&S mainly resulted in additional allocation of previously
unallocated costs to Philips Lighting. Previously unallocated costs mainly comprise Group funded research
programs, Group overhead and other items such as restructuring and foreign exchange results. The allocation toPhilips Lighting of previously unallocated costs is based on activity.
Group-funded research costs were allocated according to the project-level administration of the business forwhich the activity has been performed.
Group overhead includes central finance functions including treasury and tax, human resources, strategy,
business transformation, brand, communication & digital, legal and general management including the Philips
Executive Committee. The costs of Group overhead have been allocated based on estimated activity levels andthe relation of these functions to Philips Lighting and Philips Group.
Other items of IG&S, such as restructuring costs, foreign exchange results and other items, have been
allocated to Philips Lighting based on its relative share in overall costs of IG&S.
Employee benefit expenses and other operational costs were allocated to Philips Lighting based on activity.
Depreciation and amortization were assigned to Philips Lighting based on the split of related assets.
Interest expense recorded in the Combined Statements of Income does not include any allocation of interest
incurred by Philips Group or interest on funding provided as part of the owner’s net investment.
Combined statements of Cash flows
The combined statements of cash flow have been prepared using the indirect method, whereby profit or loss
is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future
operating cash receipts or payments, and items of income or expense associated with investing or financing cash
F-24

flows. For a number of reasons, principally the effects of translation differences and acquisitions and disposals,
certain items in the combined statements of cash flows do not correspond to the changes between the Combined
Balance Sheets amounts for the respective items. Cash deposits of the Philips Group are pooled and transferred toa Central Treasury function on a daily basis wherever possible. Amounts for cash, cash equivalents and debt arereflected in the Combined Financial Statements only for those activities of Philips Lighting that operated orexisted in separate dedicated Philips Lighting legal entities, during the period of the Combined Financial
Statements. For all other activities, changes in cash and debt balances form part of additional funding from(payment to) Philips.
2. Pensions
Philips Group is the sponsor of Group defined benefit plans (DB) that are externally funded. The net
liabilities of these Group DB plans are recognized at Group level only, and not included in the accompanying
Combined Financial Statements. Group DB plans are accounted for in accordance with the Philips Group policy
for charging pension costs to the participating entities. The service cost in Group DB plans are allocated to theparticipating companies, including Philips Lighting. Cash contributions to externally funded plans occur at
Philips Group level and no further cash of the participating Philips Lighting companies is requested other thantheir share in the cost.
The only Philips Lighting DB plan is the mandatory end-of-service benefit of the GLC joint venture in
Saudi Arabia, in which Philips Lighting holds a 51% interest, which has no external funding. The liability of sucha plan equals the defined benefit obligation (DBO) as determined under the guidance of IAS 19 and as calculated
by a local actuary. The liability is included in the Combined Balance Sheets under provisions.
Philips Lighting will assume certain liabilities from Philips Group at the date of separation, including
pension obligations. These pension obligations are not reflected in the Combined Financial Statements of Philips
Lighting as the legal obligation did not exist prior separation in 2016 (refer to note E.32).
3. Share-based compensation
Certain employees working in the Philips Lighting Sector and the Lighting-related activities of the Philips
IG&S Sector are entitled to stock options, restricted shares and/or performance shares of Philips. The relatedshare-based compensation expenses historically have been allocated to the Sectors based on an estimate of theservices delivered (time spent) by the employees for the Philips Lighting Sector and the Lighting-related
activities of the Philips IG&S Sector.
Since mid-2015, all employees within Philips have been allocated to either Royal Philips or Philips Lighting
by the HR department of Philips. Based upon this allocation IFRS 2 disclosures have been prepared.
4. Income tax
Philips Lighting legal entities, either through a fiscal unity or because the business unit forms part of alarger Philips legal entity, file a consolidated return with other Philips activities or entities for the majority of
their jurisdictions. For the purpose of the Combined Financial Statements, income taxes are computed andreported using the separate return method. The resulting deferred tax assets and liabilities are accounted for using
the asset and liability approach. Philips Lighting management estimates the income taxes for each of thejurisdictions in which they operate. This involves estimating their actual current tax exposures and assessing
temporary and permanent differences resulting from differing treatment of items, such as reserves and accruals,
for tax and accounting purposes.
Philips Lighting management considers the separate tax return method to be reasonable, but it does notnecessarily lead to the tax result that would have been incurred if the Philips Lighting entities were separate
taxable entities. The separate taxable entities assumption implies that current and deferred taxes of all Philips
Lighting entities are calculated separately and any resulting deferred tax assets are evaluated for utilization
following this assumption.
In certain jurisdictions, Philips Lighting operations were included with other Philips operations in aconsolidated group tax return. Accordingly, income tax associated with these tax groups was reported in theConsolidated Financial Statements of Philips Group and paid by Philips Group. The effects of being included in
the Philips Group consolidated tax returns, including the utilization of any historical net operating losses, have
F-25

been recorded as part of owner’s net investment in business equity. The Combined Statement of Cash Flowspresent taxes actually paid by tax groups within Philips Lighting; the effects of being included in the Philips
Group consolidated tax returns have not been included.
5. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker (‘CODM’) as part of the Philips Lighting management. The CODM, who is
responsible for allocating resources and assessing performance of the operating segments, has been identified as
the Chief Executive Officer (‘CEO’) and Chief Financial Officer (‘CFO’) of Philips Lighting. The operating
segments are BG Lamps, BG LED, BG Professional and BG Home. The segments are organized based on thenature of the products and services.
6. Owner’s net investment
The Philips Group utilizes a central approach for cash management and the funding of its operations. As acontractual obligation to deliver cash or other financial assets in relation to the funding from other Philips entities
did not exist during the historical periods presented and the balances will not be settled with Philips Lighting’s
own equity instruments, all balances with Philips Group are presented as owner’s net investment in the
Combined Financial Statements, except for intercompany current accounts with Philips Group that have an
operational nature and are settled periodically based on instructions from Philips Group Treasury.
7. Funding structure
Cash deposits of the Philips Group are pooled and transferred to a Central Treasury function to the extent
legally and fiscally possible. Amounts for cash, cash equivalents and debt are reflected in the Combined
Financial Statements only for those activities of Philips Lighting that operated or existed in separate dedicatedPhilips Lighting legal entities, during the period of the Combined Financial Statements. For all other activities,
cash and debt balances with Philips Group have been presented as part of owner’s net investment. The funding
structure is therefore not necessarily representative of the financing that would have been reported if Philips
Lighting operated on its own or as an entity independent from Philips Group during the periods presented, nor is
it indicative of the financing that may arise in the future.
8. Use of the Philips brand namePhilips Lighting uses the Philips brand name. The Combined Financial Statements include costs charged toPhilips Lighting for its share in the advertising & promotion costs. As part of the separation, these charges are
expected to be replaced by a brand license fee agreement between Philips Lighting and Philips Group.
9. Earnings per share
The information on earnings per share for Philips Lighting pursuant to IAS 33 has not been presented, as the
combined entities have not formed a statutory group and, as such, Philips Lighting has no historical capital
structure.
10. Subsequent events
Subsequent events have been considered for adjustment or disclosure up to 23 February 2016, the date thePhilips Group Consolidated Financial Statements, from which these Combined Financial Statements were
derived, were authorized for issue.
D. SIGNIFICANT ACCOUNTING POLICIESCRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The preparation of the Combined Financial Statements in conformity with IFRS, as endorsed by the EU,
requires management to make judgements, estimates and assumptions that affect the application of accounting
policies, the reported amounts of assets, liabilities, income and expenses and assumptions that affect amounts
reported in the Combined Financial Statements. These estimates inherently contain a degree of uncertainty.
Actual results may differ from these estimates.
F-26

These estimates and judgements are evaluated on an on-going basis and are based on historical experience,current and expected future outcomes, third-party evaluations and various other assumptions that are consideredreasonable under the circumstances. The results of these estimates form the basis for making judgements about
the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment withrespect to commitments and contingencies. We revise material estimates if changes occur in the circumstances orthere is new information or experience on which an estimate was or can be based.
THE AREAS WHERE THE MOST SIGNIFICANT JUDGEMENTS AND ESTIMATES ARE
Goodwill and other intangible assets
Philips Lighting has recognized significant balances of goodwill, customer relationships, brand names andtechnology as intangible assets. Furthermore, 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, iscapitalized as an intangible asset if the product or process is technically and commercially feasible and Philips
Lighting has sufficient resources and the intention to complete development.
Impairment of goodwill and intangible assets not yet ready for use
Further judgement is applied when analyzing impairments of goodwill and intangible assets not ready foruse. Goodwill, intangible assets not yet ready for use are not amortized but tested for impairment annually andwhenever impairment indicators require impairment testing. Philips Lighting performed and completed annual
impairment tests in the same quarter of all years presented in the Combined Statements of Income. An
impairment loss is recognized in the Combined Statements of Income whenever and to the extent that thecarrying amount of a cash-generating unit exceeds the unit’s recoverable amount, which is the greater of its value
in use and fair value less costs to sell. Value in use is measured as the present value of future cash flows expected
to be generated by the asset.
Impairment of non-financial assets other than goodwill, intangible assets not yet ready for use, inventories anddeferred tax assets
Non-financial assets other than goodwill, intangible assets not yet ready for use, inventories and deferred tax
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is recognized andmeasured by a comparison of the carrying amount of an asset with the greater of its value in use and fair valueless cost to sell. Value in use is measured as the present value of future cash flows expected to be generated by
the asset. If the carrying amount of an asset is deemed not recoverable, an impairment charge is recognized in theamount by which the carrying amount of the asset exceeds the recoverable amount. The review for impairment iscarried out at the level where cash flows occur that are independent of other cash flows.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that theloss has decreased or no longer exists. An impairment loss is reversed if and to the extent that there has been achange in estimates used to determine the recoverable amount. The loss is reversed only to the extent that theasset’s carrying amount does not exceed the carrying amount that would have been determined, net of
depreciation or amortization, if no impairment loss had been recognized. Reversals of impairment are recognizedin the Combined Statements of Income.
Deferred tax asset recoverability and other tax liabilities
The evaluation of the recoverability of deferred tax assets requires judgement about the future taxable
profitability of the legal entity holding the tax loss carry forward. A lack of future taxable profits or taxable
profits below the level of current estimates, may cause deferred tax assets to be impaired.
Other tax liabilities include liabilities for uncertain tax positions which are recognized when it is probablethat additional tax will be due. Actual tax assessments in relation to these other tax liabilities may significantly
deviate from estimates.
In determining the amount of current and deferred income tax, Philips Lighting takes into account the
impact of other tax liabilities and whether additional taxes and interest may be due. This assessment relies on
estimates and assumptions and may involve a series of judgements about future events. New information may
become available that causes Philips Lighting to change its judgement regarding the adequacy of existing tax
liabilities; such changes to tax liabilities will impact the income tax expense in the period that such a
determination is made.
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Revenue recognition
Commercial agreements may contain multiple elements. The separate accounting for each of these elements
based on its fair value requires judgement.
Useful lives of intangible and tangible assets
Acquired finite-lived intangible assets are amortized using the straight-line method over their estimateduseful life. The useful lives are evaluated annually. Patents and trademarks with a finite useful life acquired fromthird parties either separately or as part of a business combination are capitalized at cost and amortized over theirremaining useful lives. Amortization of capitalized development expenditure is charged to the Combined
Statements of Income on a straight-line basis over the estimated useful lives of the intangible assets.
Inventory valuation and obsolescence provision
Due to price erosion and technological developments, inventory valuation requires forward looking
estimates on future sales levels, future price erosion and related expected gross margin percentages. On eachreporting date, management performs an analysis of net realizable values and determines the lower of cost and
net realizable value to measure its inventories.
Estimation of allowances for doubtful accounts
Philips Lighting determines the present value of estimated future cash flows through the use of allowances
for doubtful accounts receivable based on an individual or collective assessment of the collectability of trade andother receivables. Allowances for doubtful accounts receivable are applied to trade and other receivables where
events or changes in circumstances indicate that the balances may not be collectible. The identification of
doubtful debtors requires the use of judgement and estimates. Where the expectation is different from the original
estimate, such difference will impact the carrying amount of receivables and doubtful debt expense in the period
in which such estimate is changed.
Provisions
In order to recognize a provision, it is necessary to reliably estimate the present obligation. Further
judgement is required to determine the likelihood of an outflow of economic benefits.
Fair value of derivatives and other financial instruments
Philips Lighting manages their exposure on foreign currency purchases and sales using forward foreignexchange contracts, which are reported at fair value. The fair value of the forward foreign exchange contracts has
been determined using discounted cash flow calculations using directly observable market inputs (level 2).
Contingent liabilities
Philips Lighting had certain guarantees, environmental remediation and legal proceedings at the reporting
dates. Significant judgement is required in determining whether it is probable that an outflow of resources will be
required to settle, in which case an accrual for the potential settlement is recognized.
Basis of allocation
The nature of the Combined Financial Statements requires management to make estimates of a reasonableassignment or allocation for assets, liabilities and costs shared with other Philips businesses. These allocations
were performed in a manner deemed reasonable by management and are explained in section C, Basis ofPreparation. Different allocation methods could have resulted in different outcomes.
The basis of allocation is therefore not necessarily representative of the assets, liabilities or costs that would
have been reported if Philips Lighting operated on its own or as an entity independent from Philips during theperiods presented, nor is it indicative of the assets, liabilities or costs that may arise in the future.
Specific choices within IFRS
Sometimes IFRS allows alternative accounting treatments for measurement and/or disclosure. The mostimportant of these alternative treatments are mentioned below
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POLICIES THAT ARE MORE CRITICAL IN NATURE
1. Revenue recognition
Revenue from the sale of goods in the course of the ordinary activities is measured at the fair value of theconsideration received or receivable, net of returns, trade discounts and volume rebates. Revenue for sale ofgoods is recognized when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, the associated costs and possible return of the goods can be estimatedreliably, there is no continuing involvement with goods, and the amount of revenue can be measured reliably. If
it is probable that discounts will be granted and the amount can be measured reliably, then the discount isrecognized as a reduction of revenue as the sales are recognized.
Transfer of risks and rewards varies depending on the individual terms of the contract of sale. For
consumer-type products these criteria are met at the time 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. Examples of delivery conditions are ‘Free on Board point of delivery’ and ‘Costs,
Insurance Paid point of delivery’, where the point of delivery may be the shipping warehouse or any other pointof destination as agreed in the contract with the customer and where title and risk for the goods pass to thecustomer.
Revenues of transactions that have separately identifiable components are recognized separately based on
their relative fair values.
Revenues are recorded net of sales taxes, customer discounts, rebates and similar charges. For products forwhich a right of return exists during a defined period, revenue recognition is determined based on the historicalpattern 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.
In case of loss under a sales agreement, the loss is recognized immediately.
Shipping and handling billed to customers is recognized as revenues. Expenses incurred for shipping andhandling of internal movements of goods are recorded as cost of sales. Shipping and handling related to sales tothird parties are recorded as selling expenses. When shipping and handling is part of a project and billed to thecustomer, then the related expenses are recorded as cost or sales. Service revenue related to repair andmaintenance activities for goods sold is recognized ratably over the service period or as services are rendered.
A provision for product warranty is made at the time of revenue recognition and reflects the estimated costsof replacement and free-of-charge services that will be incurred by Philips Lighting with respect to the products.
For certain products, the customer has the option to purchase an extension of the warranty, which is subsequently
billed to the customer. Revenue recognition occurs on a straight-line basis over the contract period.
Revenue from services is recognized when Philips Lighting can reliably measure the amount of revenue andthe associated cost related to the stage of completion of a contract or transaction, and the recovery of theconsideration is considered probable. Royalty income, which is generally earned based upon a percentage ofsales or a fixed amount per product sold, is recognized on an accrual basis based on actual or reliably estimatedsales made by the licensees.
Grants from the government are recognized at their fair value where there is a reasonable assurance that the
grant will be received and Philips Lighting will comply with all attached conditions. Government grants relating
to costs are deferred and recognized in the Combined Statements of Income over the period necessary to matchthem with the costs that they are intended to compensate.
2. Income taxes
Income tax comprises current and deferred tax. Income tax is recognized in the Statements of income except
to the extent that it relates to items, recognized directly within business equity or in other comprehensive income.
Current tax is the expected tax charge on the taxable income for the year, using tax rates enacted or substantiallyenacted at the reporting date, and any adjustment to tax charge in respect of previous years.

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Deferred tax assets and liabilities are recognized using the balance sheet 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 initialrecognition of goodwill, the initial recognition of assets and liabilities in a transaction that is not a businesscombination and that affects neither accounting nor taxable profit, and differences relating to investments in
subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at
the tax rates that are expected to be applied when temporary differences reverse, based on laws that are enacted
or substantially enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legallyenforceable 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 tax entities, but they intend to settle current tax liabilities andassets 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, tothe extent that it is probable that future taxable profits will be available 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 arereflected in the period when the change has been enacted or substantially-enacted by reporting date.
3. Provisions
Provisions are recognized if, as a result of a past event, Philips Lighting has a present legal or constructive
obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required
to settle the obligation. 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 time value ofmoney. The increase in the provision due to passage of time is recognized as interest expense.
The accounting and presentation for some of Philips Lighting’s provisions is as follows:•

Restructuring-related provisions—The provision for restructuring relates to the estimated costs ofinitiated reorganizations which involve the realignment of certain parts of the support, industrial andcommercial organization. When such reorganizations require discontinuance and/or closure of lines ofactivities, the anticipated costs of closure are included in the restructuring provisions. A liability isrecognized for those costs only when Philips Lighting has a detailed formal plan for the restructuringand have raised a valid expectation with those affected that they will carry out the restructuring bystarting to implement the plan or announcing its main features to those affected by it. Before aprovision is established, Philips Lighting recognizes any impairment loss on the assets associated withthe restructuring•

Environmental provisions—Measurement of liabilities associated with environmental obligations, isbased on current legal and constructive requirements. Liabilities and expected insurance recoveries, ifany, are recorded separately. The carrying amount of environmental provisions is regularly reviewed
and adjusted for new facts and changes in law.

•

Product warranty—A provision for warranties is recognized when the underlying products or services
are sold. The provision is based on historical warranty data and a weighing of possible outcomesagainst their associated probabilities.

•

Litigation provisions—In relation to legal claim provisions and settlements, the relevant balances aretransferred to Other liabilities at the point the amount and timing of cash flows are no longer uncertain.
Settlements which are agreed for amounts in excess of existing provisions are reflected as increases of
Other liabilities.

•

Onerous contract provision—Provisions are recognized for a contract if it is onerous. The present
obligation under the contract is measured and recognized as a provision. An onerous contract is acontract under which the unavoidable costs of meeting the obligations under the contract exceed theeconomic benefits expected to be received under it.
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4. Goodwill
The measurement of goodwill at initial recognition is described under accounting policy note 6, Businesscombinations, below. Goodwill is subsequently measured at cost less accumulated impairment losses. In respectof investments in associates, the carrying amount of goodwill is included in the carrying amount of investment,
and an impairment loss on such investment is allocated to the investment as a whole.
5. Intangible assets other than goodwill
Acquired finite-lived intangible assets are amortized using the straight-line method over their estimateduseful life. The useful lives are evaluated annually. Patents and trademarks with a finite useful life acquired fromthird parties either separately or as part of the business combination are capitalized at cost and amortized overtheir remaining useful lives. Intangible assets acquired as part of a business combination are capitalized at theiracquisition-date fair value.
Philips Lighting 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 andprocesses, is capitalized as an intangible asset if the product or process is technically and commercially feasible,
cost can be reliably measured, Philips Lighting has sufficient resources and the intention to complete
development.
The development expenditure capitalized comprises all directly attributable costs (including the cost of
materials and direct labor). Other development expenditures and expenditures on research activities arerecognized in the Combined Statements of Income. Capitalized development expenditure is stated at cost lessaccumulated amortization and impairment losses. Amortization of capitalized development expenditure ischarged to the Statements of Income on a straight-line basis over the estimated useful lives of the intangible
assets.
OTHER POLICIES
6. Business combinations
Business combinations are accounted for using the acquisition method. Under the acquisition method, theidentifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree are recognized at
the acquisition date, which is the date on which control is transferred to Philips Lighting. Philips Lighting
measures goodwill at the acquisition date as:•

the fair value of the consideration transferred; plus•

the recognized amount of any non-controlling interest in the acquiree; plus•

if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree;
less•the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that
Philips Lighting incurs are expensed as incurred.
Any contingent consideration payable is recognized at fair value at the acquisition date and initially ispresented as long-term provisions. When the timing and amount of the consideration become more certain, it isreclassified to accrued liabilities. If the contingent consideration is classified as equity, it is not remeasured andsettlement is accounted for within equity.
Otherwise, subsequent changes to the fair value of the contingent consideration are recognized in the
Combined Statements of Income.
Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets atthe date of acquisition.
Acquisitions of and adjustments to non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as
owners and therefore no goodwill is recognized. Adjustments to non-controlling interests arising fromtransactions that do not involve the loss of control are based on a proportionate amount of the net assets of thesubsidiary.
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Loss of control
Upon the loss of control, Philips Lighting derecognizes the assets and liabilities of the subsidiary, any noncontrolling interests and the other components of equity related to the subsidiary. Any surplus or deficit arisingon the loss of control is recognized in the Statements of Income. If Philips Lighting retains any interest in theprevious subsidiary, then such interest is measured at fair value at the date the control is lost. Subsequently it isaccounted for as either an equity accounted investee (associate) or as an available-for-sale financial asset,
depending on the level of influence retained.
7. Investments in associates (equity-accounted investees)
Associates are all entities over which Philips Lighting has significant influence, but does not 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. Philips
Lighting’s investments in associates include goodwill identified on acquisition, net of any accumulated
impairment loss.
Philips Lighting’s share of the net income of these companies is included in Results relating to investments
in associates in the Combined Statements of Income, after adjustments to align the accounting policies with thoseof Philips Lighting, from the date that significant influence commences until the date that significant influenceceases. Dilution gains and losses arising from investments in associates are recognized in the Combined
Statements of Income as part of Other results relating to investments in associates. When Philips Lighting’s shareof losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term loans)
is reduced to zero and recognition of further losses is discontinued except to the extent that Philips Lighting has
incurred legal or constructive obligations or made payments on behalf of the associate. Unrealized gains ontransactions between Philips Lighting and its associates are eliminated to the extent of Philips Lighting’s interestin the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairmentof the asset transferred. Re-measurement differences of equity stakes resulting from gaining control over theinvestee previously recorded as associate are recorded under results relating to investments in associates.
8. Non-current assets held for saleNon-current assets (disposal groups comprising assets and liabilities) that are expected to be recovered
primarily through sale rather than through continuing use are classified as held for sale.
Non-current assets held for sale are carried at the lower of carrying amount or fair value less cost to sell.
Comparatives in the balance sheet are not represented when a non-current asset is classified as held-for-sale.
9. Impairment of financial assets
A financial asset is considered to be impaired if objective evidence indicates that one or more events have
had a negative effect on the estimated future cash flows of that asset. In case of available-for-sale financial assets,a significant or prolonged decline in the fair value of the financial assets below its cost is considered an indicatorthat the financial assets are impaired. If any such evidence exists for available-for-sale for financial assets, thecumulative loss – measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognized in the Combined Statements of Income – isreclassified from the fair value reserve in business equity (through Other comprehensive income) to the
Combined Statements of Income.
If objective evidence indicates that financial assets that are carried at cost need to be tested for impairment,
calculations are based on information derived from business plans, and other information available for estimating
their fair value, which is based on estimated future cash flows discounted at the asset’s original effective interest
rate. Any impairment loss is charged to the Combined Statements of Income.
An impairment loss related to financial assets is reversed if in a subsequent period, the fair value increases
and the increase can be related objectively to an event occurring after the impairment loss was recognized. The
loss is reversed only to the extent that the asset’s carrying amount does not exceed the amount that would havebeen determined if no impairment loss had been recognized. Reversals of impairment are recognized in the
Combined Statements of Income, except for reversals of impairment of available-for-sale securities, which arerecognized in Other comprehensive income.
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10. Foreign currencies
Foreign currency transactions
The financial statements of all reporting units included in the Combined Financial Statements are measured
using the currency of the primary environment in which the reporting unit operates (functional currency). The
Euro (EUR) is the presentation currency of Philips Lighting. Foreign currency transactions are translated into thefunctional currency using the exchange rates prevailing at the dates of the transactions or valuation where items
are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and fromthe translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies arerecognized in the Combined Statements of Income, except when deferred in Other Comprehensive Income as
qualifying cash flow hedges and qualifying net investment hedges.
Foreign currency differences arising from translation are recognized in the Combined Statements of Income,
except for available-for-sale equity investments which are recognized in Other Comprehensive Income, except
on impairment in which case foreign currency differences that have been recognized in Other Comprehensive
Income are reclassified to the Combined Statements of Income.
Exchange difference items are presented as part of cost of sales, with the exception of tax items andfinancial income and expense, which are recognized in the same line item as they relate in the Combined
Statements of Income.
Non-monetary items denominated in foreign currencies that are measured at fair value are translated to thefunctional currency using the exchange rate at the date the fair value was determined. Non-monetary assets andliabilities in foreign currencies measured at historical cost are translated using the exchange rate at thetransaction date.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
acquisition, are translated to euro at exchange rates at the reporting date. The income and expenses of foreign
operations are translated to euro at exchange rates at the dates of the transactions.
Foreign currency differences arising on translation of foreign operations into euro are recognized in Other
comprehensive Income, and presented as part of currency translation differences in Owner’s Net Investment.
However, if the operation is a non-wholly owned subsidiary, then the relevant proportionate share of thetranslation difference is allocated to Non-controlling interests.
When a foreign operation is disposed of such that control, significant influence or joint control is lost, thecumulative amount in the Currency translation differences related to the foreign operation is reclassified to the
Combined Statements of Income as part of the gain or loss on disposal. When Philips Lighting 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 Philips Lighting disposesof 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
Combined Statements of Income.
11. Non-derivative financial instruments
Non-derivative financial instruments are recognized initially at fair value when Philips Lighting becomes aparty to the contractual provisions of the instrument. Subsequent to initial recognition non-derivative financial
instruments are measured at amortized cost or fair value. Regular way purchases and sales of financial
instruments are accounted for at the trade date. Dividend and interest income are recognized when earned. Gainsor losses, if any, are recorded in Financial income and expense. Non-derivative financial instruments comprise
cash and cash equivalents, receivables, other non-current financial assets, debt and other financial liabilities thatare not designated as hedges.
12. Cash and cash equivalents
Cash and cash equivalents represent cash positions of dedicated Philips Lighting positions only. Cash andcash equivalents include all cash balances and short-term highly liquid investments with an original maturity of
three months or less that are readily convertible into known amounts of cash.
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13. Derivative financial instruments, including hedge accounting
Philips Lighting uses derivative financial instruments principally to hedge its foreign currency risks and, to amore limited extent, for commodity price risks. All derivative financial instruments are accounted for at the tradedate and classified as current or non-current assets or liabilities based upon the maturity date or the earlier
termination date. Embedded derivatives are separated from the host contract and accounted for separately if theeconomic characteristics and risks of the host contract and the embedded derivative are not closely related.
Philips Lighting measures all derivative financial instruments at fair value derived from market prices of the
instruments, or calculated as the present value of the estimated future cash flows based on observable interest
yield curves, basis spread, credit spreads and foreign exchange rates, or from option pricing models, as
appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the Combined
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 a derivative that is highly effective and that is designated and qualifies as a cash
flow hedge, are recorded in Combined Other comprehensive income, until the Combined Statements of Income isaffected 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 Combined Statements of Income.
Philips Lighting formally assesses, both at the hedge’s inception and on an ongoing basis, whether thederivatives 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 hasceased to be a highly effective hedge, Philips Lighting discontinues hedge accounting prospectively. When hedge
accounting is discontinued because it is expected that a forecasted transaction will not occur, Philips Lighting
continues to carry the derivative on the Combined Balance Sheets at its fair value, and gains and losses that wereaccumulated in equity are recognized immediately in the Combined Statements of Income. If there is a delay and
it is expected that the transaction will still occur, the amount in equity remains there until the forecasted
transaction affects income. In all other situations in which hedge accounting is discontinued, Philips Lighting
continues to carry the derivative at its fair value on the Combined Balance Sheets, and recognizes any changes in
its fair value in the Statements of Income. Foreign currency differences arising on the retranslation of financial
instruments designated as a hedge of a net investment in a foreign operation are recognized directly as a separate
component of equity through Other comprehensive income, to the extent that the hedge is effective. To the extent
that the hedge is ineffective, such differences are recognized in the Combined Statements of Income.
Foreign currency differences arising on the retranslation of financial instruments designated as a hedge of anet investment in a foreign operation are recognized directly as a separate component of equity through Other
comprehensive income, to the extent that the hedge is effective. To the extent that the hedge is ineffective, suchdifferences are recognized in the Statements of Income.
Philips Lighting presents financial assets and financial liabilities on a gross basis as separate line items in
the Combined Balance Sheets. Master netting agreements may be entered into when Philips Lighting undertakes
a number of financial instrument transactions with a single counterparty. Such an agreement provides for a net
settlement of all financial instruments covered by the agreement in the event of default or certain termination
events on any of the transactions. A master netting agreement may create a right to offset that becomes
enforceable and affects the realization or settlement of individual financial assets and financial liabilities only
following a specified termination event. However, if this contractual right is subject to certain limitations then it
does not necessarily provide a basis for offsetting unless both of the offsetting criteria are met, i.e. there is alegally enforceable right and an intention to settle net or simultaneously.
14. Receivables
Receivables are carried at the lower of amortized cost or the present value of estimated cash flows, taking
into account discounts given or agreed. The present value of estimated future cash flows is determined throughthe use of value adjustments for uncollectible amounts. As soon as individual trade accounts receivable can nolonger be collected in a normal way and are expected to result in a loss, they are designated as doubtful tradeaccounts receivable and valued at the expected collectible amounts. They are written off when they are deemed
to be uncollectable because of bankruptcy or other form of receivership at the debtors. The allowance for the riskof non-collection of trade receivables takes into account credit-risk concentration, collective debt risk based on
average historical losses and specific circumstances such as serious adverse economic conditions in a certain
country or region.
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15. Other non-current financial assets
Other non-current financial assets include held-to-maturity investments, loans receivable and available-forsale financial assets and financial assets at fair value through profit or loss.
Held-to-maturity investments are those debt securities which Philips Lighting has the ability and intent tohold until maturity. Held-to-maturity debt investments are recorded at amortized cost, adjusted for theamortization or accretion of premiums or discounts using the effective interest method.
Loans receivable are stated at amortized cost, less impairment.
Available-for-sale financial assets are non-derivative financial assets that are designated as available-forsale and that are not classified in any of the other categories of financial assets. Subsequent to initial recognition,
they are measured at fair value and changes therein, other than impairment losses and foreign currency
differences on available for sale-debt instruments are recognized in Combined Other comprehensive income andpresented in the fair value reserve in business equity.
When an investment is derecognized, the gain or loss accumulated in equity is reclassified to the Combined
Statements of Income.
Available-for-sale financial assets including investments in privately-held companies that are not associates,and do not have a quoted market price in an active market and whose fair value could not be reliably determined,
are carried at cost.
A financial asset is classified as fair value through profit or loss if it is classified as held for trading or isdesignated as such upon initial recognition. Financial assets are designated as fair value through profit or loss if
Philips Lighting manages such investments and makes purchase and sale decisions based on their fair value inaccordance with the Philips Lighting’s documented risk management or investment strategy. Financial assets atfair value through profit or loss are measured at fair value, and changes therein are recognized in the Combined
Statements of Income. Attributable transaction costs are recognized in the Combined Statements of Income as
incurred.
16. Trade and other payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course ofbusiness from suppliers. Trade payables are classified as current liabilities if payment is due within one year or
less. If not, they are presented as non-current liabilities.
Trade and other payables are recognized initially at fair value and subsequently measured at amortized costusing the effective interest method.
17. Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses. The useful lives and residual values are evaluated annually. The costs of property, plant andequipment comprise of all directly attributable costs (including the cost of materials and direct labor).
Government grants for assets are deducted from the cost of the related asset.
Depreciation of property, plant and equipment, other than freehold land, is calculated using the straight-line
method, taking into account the residual values and estimated useful lives. Freehold land is not depreciated.
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 leading
to an extension of the original lifetime of capacity.
Plant and equipment under finance leases and leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the asset. The gain realized on sale andoperating leaseback transactions that are concluded based upon market conditions is recognized at the time of the
sale.

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18. Leased assets
Leases in which Philips Lighting is the lessee and has substantially all risks and rewards of ownership areclassified as finance leases. Finance leases are capitalized at the commencement of the lease at the lower of thefair value of the leased assets and the present value of the minimum lease payments. Each lease payment isallocated between the liability and finance charges. The interest element of the finance cost is charged to the
Combined Statements of Income over the lease period so as to produce a constant periodic rate of interest on theremaining balance of the liability for each period. The corresponding rental obligations, net of finance charges,
are included in other short-term and other non-current liabilities. The property, plant and equipment acquired
under finance leases is depreciated over the shorter of the useful life of the asset or the lease term.
Leases in which Philips Lighting is the lessee and in which substantially all risks and rewards of ownershipare retained by the lessor are classified as operating leases. Payments under operating leases (net of any incentive
received from the lessor) are recognized in the Combined Statements of Income on a straight-line basis over theterm of the lease.
19. Inventories
Inventories are stated at the lower of cost and net realizable value. The cost of inventories comprises all
costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present locationand condition. The costs of conversion of inventories include direct labor and fixed and variable production
overheads, taking into account the stage of completion and the normal capacity of production facilities. Costs ofidle facility and abnormal waste are expensed. The cost of inventories is determined using the first-in, first-out(FIFO) method. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determinedfor groups of products based on purchases in the recent past and/or expected future demand.
20. Debt and other liabilities
Debt and other liabilities other than provisions are measured initially at fair value and subsequently aremeasured at amortized cost using the effective interest method.
21. Employee benefits
Pension obligations
A defined contribution plan is a post-employment benefit plan under which an entity 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 Combined Statements of Income in the periods during which services are rendered by employees.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Plans forwhich the Philips Lighting has no legal or constructive obligation to pay further amounts, but for which
contributions paid by the Philips Lighting are not fixed, are also treated as defined benefit plans. For Philips
Group defined benefit plans that are not externally funded, but for which Philips Lighting has the obligation tosettle the post-employment benefit, the related liability is included in the Combined Balance Sheets underprovisions (see note 18, Provisions)
The projected defined benefit obligation is calculated annually using the projected unit credit method.
Termination benefits
Termination benefits are payable when employment is terminated by Philips Lighting before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. Philips
Lighting recognizes termination benefits when they are demonstrably committed to a termination and when they
have a detailed formal plan to terminate the employment of current employees without possibility of withdrawal.
In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on
the number of employees expected to accept the offer.
Bonus plans and other current employee benefits
Philips Lighting recognizes a liability and an expense for bonuses and other current employee benefits on an
accrual basis. Furthermore a provision is recognized where contractually obliged or where there is a past practicethat has created a constructive obligation.
F-36

22. Share-based compensation expenses
As per mid-2015, all employees within Philips have been allocated to either Philips Group or Philips
Lighting. This allocation is retrieved from the Philips HR department, and employee IDs have been matched withthe employee IDs included in the share-based payment cost allocation application. Based on this allocation
employees have been traced back for Philips Lighting to 2013 and 2014 for comparative figures. Shares granted
to employees whom either left or did not transfer to Philips Lighting have been adjusted so that, ultimately, theamount recognized for services received as consideration for the shares granted shall be based on the number ofshares that eventually vest.
The grant-date fair value of equity-settled share-based payment awards granted to employees is recognized
as personnel expense, with a corresponding increase in equity, over the vesting period of the award. Philips
Lighting uses the Black-Scholes option-pricing model and Monte Carlo simulation to determine the fair value ofthe awards, depending on the type of instruments granted and certain vesting conditions.
23. Financial income and expenses
Financial income comprises interest income on funds invested (including available-for-sale financial assets),
dividend income, net gains on the disposal of available-for-sale financial assets, net fair value gains on financial
assets at fair value through profit and loss, net gains on the re-measurement to fair value of any pre-existingavailable-for-sale interest in an acquiree, and net gains on foreign exchange impacts that are recognized in the
Combined Statements of Income.
Interest income is recognized on an accrual basis in the Combined Statements of Income, using the effective
interest method. Dividend income is recognized in the Combined Statements of Income on the date that Philips
Lighting’s right to receive payment is established, which in the case of quoted securities is normally the exdividend date.
Financial expense comprises interest expenses on borrowings, unwinding of the discount of provisions andcontingent consideration, losses on disposal of available-for-sale financial assets, net fair value losses on
financial assets at fair value through profit and loss, impairment losses recognized on financial assets (other thantrade receivables), net interest expenses related to defined benefits plans and net losses on hedging instrumentsthat are recognized in the Combined Statements of Income.
24. Financial guarantees
Philips Lighting 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.
25. Combined Statements of Cash FlowsThe combined statements of cash flow are prepared using the indirect method. Cash flows in foreign
currencies have been translated into Euro using the exchange rate at the date of the cash flow. Cash flows fromderivative instruments that are accounted for as fair value hedges or 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
consistent with the nature of the instrument.
26. Changes in accounting policies and disclosures
IFRS accounting standards to be adopted as from 2016 and onwards
A number of new standards and amendments to existing standards have been published and are mandatory
for Philips Lighting beginning on or after January 1, 2016 or later periods, and Philips Lighting has not early
adopted them. Those which may be the most relevant to the Philips Lighting are set out below. Changes to otherstandards, following from Amendments and the Annual Improvement Cycles, are not expected to have a materialon the Philips Lighting Combined Financial Statements.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments brings together the classification and measurement, impairment and hedge
accounting phases of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 adds a new expected loss impairment model and amendments to classification and measurement for
F-37

financial assets. The impairment model is based on the concept of providing for expected losses at inception of acontract, except in the case of purchased or originated credit-impaired financial assets, where expected credit
losses are incorporated into the effective interest rate. The Standard supersedes all previous versions of IFRS 9
and is effective for periods beginning on or after January 1, 2018. Philips Lighting is currently in the process ofassessing the impact of the new Standard. This standard has not yet been endorsed by the European Union.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 specifies how and when revenue is recognized as well as describes more informative and relevant
disclosures. The Standard supersedes IAS 18 Revenue, IAS 11 Construction Contracts and a number of revenue
related interpretations.
The new Standard provides a single, principles based five-step model to be applied to all contracts withcustomers. Furthermore, it provides new guidance on whether revenue should be recognized at a point in time orover time. The standard also introduces new guidance on costs of fulfilling and obtaining a contract, specifying
the circumstances in which such costs should be capitalized. Costs that do not meet the criteria must be expensed
when incurred.
IFRS 15 must be applied for periods beginning on or after January 1, 2018. It is not yet endorsed by the EU.
Philips Lighting is currently assessing the impact of the new standard.
IFRS 16 Leases
For lessees, IFRS 16 (issued on January 13, 2016) requires most leases to be recognized on-balance (under asingle model), eliminating the distinction between operating and finance leases. Lessor accounting however
remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16
supersedes IAS 17 Leases and related interpretations.
Under IFRS 16 a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treatedsimilarly to other non-financial assets and is depreciated accordingly. The lease liability is initially measured at
the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease ifthat can be readily determined, and the liability accrues interest. As with current IAS 17, under IFRS 16 lessorsclassify leases as operating or finance in nature. IFRS 16 must be applied for periods beginning on or afterJanuary 1, 2019, with earlier adoption permitted if abovementioned IFRS 15 has also been applied. IFRS 16 is
not yet endorsed by the EU. Philips Lighting is currently assessing the impact of the new standard.

F-38

E. DISCLOSURE NOTES
1. Information by segment and main country
The operating segments are BG Lamps, BG LED, BG Professional and BG Home. The segments areorganized based on the nature of the products and services. ‘Others’ represents amounts not allocated to theoperating segments and mainly comprise the activities of Lighting Group Innovation and certain costs of Group
headquarters.
The following is an overview of Philips Lighting revenues and results by segment:
Information on income statement by segment in millions of EUR unless otherwise stated2013-2015
Sales
includingintersegment

Income (loss)
from
operations

2,850
1,334
2,732
513
36

2,898
1,427
2,748
518
36
(162)

467
87
114
(53)
(284)

16%
6%
4%
(10%)
— 1

Philips Lighting
2014
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment eliminations

7,465

7,465

331

4%

3,119
958
2,407
482
15

3,181
1,025
2,420
485
15
(145)

403
(48)
16
(57)
(273)

13%
(5%)
1%
(12%)
— 1

Philips Lighting
2013
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment eliminations

6,981

6,981

41

1%

3,557
772
2,301
490
9

3,658
828
2,330
492
9
(188)

665
(4)
18
(136)
(330)

18%
(0%)
1%
(28%)
— 1

Philips Lighting

7,129

7,129

213

3%

Sales

2015
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment eliminations

1

Income (loss)
from
operations
as a % of
sales

Considering the nature of Others income from operations as a % of sales for Others is not meaningful.

Sales between the segments mainly relate to the supply of goods. The pricing of such transactions isdetermined on an arm’s length basis.
Sales are reported based on the country of origin as follows:
Sales by main countries in millions of EUR unless otherwise stated2013—2015
2013

2014

2015

Netherlands
United States
China
Germany
India
Saudi Arabia
Other countries

387
1,585
573
462
351
—
3,771

381
1,572
518
468
363
86
3,593

438
1,795
472
469
417
288
3,586

Total sales

7,129

6,981

7,465

F-39

Balance sheet details of Philips Lighting by segment are as follows:
Selected balance sheet information by segment in millions of EUR unless otherwise stated2013—2015
Total
assets

Total
Liabilities
excl. debt

Depreciation
andamortization

2015
BG Lamps
BG LED
BG Professional
BG HomeOthers

1,196
589
3,624
373
627

(844)
(315)
(627)
(180)
(767)

(89)
(20)
(155)
(14)
(37)

Philips Lighting subtotal
Assets classified as held for sale
Total assets/liabilities (excl. debt)

6,409
34
6,443

(2,733)(6)(2,739)

(315)

2014
BG Lamps
BG LED
BG Professional
BG HomeOthers

1,431
473
3,469
343
596

(887)
(310)
(585)
(142)
(735)

(118)
(73)
(149)
(10)
(31)

Philips Lighting subtotal
Assets classified as held for sale

6,312
20

(2,659)0(381)

Total assets/liabilities (excl. debt)

6,332(2,659)2013
BG Lamps
BG LED
BG Professional
BG HomeOthers

1,594
414
2,903
378
526

(918)
(234)
(548)
(165)
(658)

(104)
(19)
(155)
(78)
(34)

Philips Lighting subtotal
Assets classified as held for sale

5,815
15

(2,523)0(390)

Total assets/liabilities (excl. debt)

5,830(2,523)

F-40

Goodwill can be specified as follows:
Goodwill assigned to segment in millions of EUR unless otherwise stated2013—2015
Divestments
Purchaseand transfers
Carrying
price
to assets
Carrying
value atallocation
classified as Translation
value atJanuary 1 Reclassification Acquisitions adjustment Impairments held for sale differences December 31

2015
BG Lamps
BG LED
BG Professional
BG Home

61
33
1,470
112

—
(5)
(5)
10

—
—
—
—

—
—

—
—
—
—

(1)
—
—
—

3
—
153
5

63
28
1,626
127

Philips Lighting
2014
BG Lamps
BG LED
BG Professional
BG Home

1,676

—

—

8

—

(1)

161

1,844

56
30
1,266
106

—
—
—
—

—
—
58
—

—
—
—
—

—
—
(2)
—

—
—
(12)
—

5
3
160
6

61
33
1,470
112

Philips Lighting
2013
BG Lamps
BG LED
BG Professional
BG Home

1,458

—

58

—

(2)

(12)

174

1,676

61
33
1,337
133

—
—
—
—

—
—
—
—

—
—
(14)
—

—
—
—
(26)

—
—
—
—

(5)
(3)
(57)
(1)

56
30
1,266
106

Philips Lighting

1,564

—

—

(14)

(26)

—

(66)

1,458

8
—

Tangible and intangible assets can be allocated to the following countries:
Tangible and intangible fixed assets¹ in millions of EUR unless otherwise stated2013-2015

1

2013

2014

2015

Netherlands
United States
China
Germany
India
Saudi Arabia
Other countries

162
1,944
126
77
30
—
721

105
2,020
126
67
31
232
723

141
2,159
116
8
29
248
633

Tangible and intangible assets

3,060

3,304

3,334

Including goodwill

Revised segment information corresponding to revised cost allocation approach
Starting in 2016, Philips revised its approach of allocating overhead costs to its businesses. The following
table presents the results by segment for the comparative periods consistent with the revised approach. This
information is considered useful to users of the financial statements as it provides the segment results on a basisthat is comparable to the approach that will be applied by the Philips Group from 2016 onwards.

F-41

Revised information on income statement by segment in millions of EUR unless otherwise stated2013—2015
Sales
includingintersegment

Income (loss)
from
operations

2,850
1,334
2,757
515
9

2,899
1,427
2,775
519
9
(164)

403
66
14
(73)
(79)

14%
5%
1%
(14%)
— 1

Philips Lighting
2014
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment elimination

7,465

7,465

331

4%

3,119
958
2,420
482
2

3,181
1,025
2,433
485
2
(145)

356
(62)
(56)
(70)
(127)

11%
(6%)
(2%)
(14%)
— 1

Philips Lighting
2013
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment elimination

6,981

6,981

41

1%

3,557
772
2,308
490
2

3,658
828
2,337
492
2
(188)

586
(20)
(75)
(152)
(126)

16%
(2%)
(3%)
(31%)
— 1

Philips Lighting

7,129

7,129

213

3%

Sales

2015
BG Lamps
BG LED
BG Professional
BG HomeOthersIntersegment elimination

1

Income (loss)
from
operations
as a % of
sales

Considering the nature of Others income from operations as a % of sales for Others is not meaningful.

2. Acquisitions and divestments
Acquisitions in 2015
During 2015 Philips Lighting completed no major acquisitions.
During 2015 the purchase price accounting related to the GLC acquisition was finalized (see table below)
and resulted in some changes in the other intangible assets, property, plant and equipment, working capital andthe related effects in deferred tax liabilities, goodwill and non-controlling interest.
Acquisitions in 2014
Philips Lighting completed one acquisition in 2014: General Lighting Company (GLC), domiciled in The
Kingdom of Saudi Arabia (KSA). This acquisition enables Philips Lighting to grow its business in KSA, thelargest economy in the Middle East by GDP, particularly in LED lighting. On 2 September 2014, Philips
Lighting acquired 51% of GLC from a consortium of shareholders for a total amount of EUR 146 million (on acash-free, debt-free basis). Taking into account closing conditions, Philips paid an amount of EUR 148 million.
The overall cash position of GLC on the transaction date was EUR 23 million resulting in a net cash outflow
related to this acquisition of EUR 125 million. Acquisition related costs that were recognized in general andadministrative expenses amounted to EUR 4 million.
Subsequent to the acquisition, the existing Philips Lighting activities in KSA were combined with GLC.
This combined entity was renamed Philips Lighting Saudi Arabia. Alliance Holding Ltd. is the company that
holds a 49% non-controlling interest in Philips Lighting Saudi Arabia.

F-42

As of 2 September 2014, Philips Lighting Saudi Arabia is included as part of BG Professional within Philips
Lighting. Based on the completed purchase price accounting, the consolidated balance sheet of GLC,
immediately before and after the acquisition was as follows:
Balance sheet GLC in millions of EUR unless otherwise stated
Beforeacquisition
date

After
acquisition
date

Goodwill
Other intangible assets
Property, plant and equipment
Working capital
Provisions
Cash

—
—
18
112
(15)
23

66
148
22
112
(56)
23

Total assets and liabilities

138

315

Group equity
Non-controlling interests
Loans

47
—
91

146
78
91

Financed by

138

315

The goodwill is primarily related to the synergies expected to be achieved from integrating GLC in thePhilips Lighting business. The goodwill is not tax deductible.
Other intangible assets at the acquisition date after completion of the purchase price accounting arecomprised of the following:
Other intangible assets GLC in millions of EUR unless otherwise stated
AmountAmortization
period in years

Order backlog
Brand name
Customer relationships

17
60
71

0.2
20
10

Total other intangible assets

148

In 2014, for the period from 2 September 2014 to 31 December 2014, Philips Lighting Saudi Arabia
contributed sales of EUR 86 million and loss from operations of EUR 19 million mainly due to the amortizationof other intangible assets.
Divestments 2015
During 2015 Philips Lighting had no major divestments.
Divestments 2014
During 2014, Philips Lighting disposed of Shakespeare Composite Structures Inc, which was a company
that was part of the Professional segment. Total assets of Shakespeare had a book value of EUR 20 million,
including EUR 5 million of goodwill and EUR 7 million of property, plant and equipment. A book gain of
EUR 1 million was realized in this transaction.
3. Interests in entities
In this section we discuss the nature of, and risks associated with Philips Lighting’s interests in its
consolidated entities and associates, and the effects of those interests on Philips Lighting’s financial position andfinancial performance. Interests in entities relate to:•Interests in subsidiaries•

Investments in associates

F-43

Wholly-owned subsidiaries
As per 31 December, 2015 the following 57 legal entities (2014: 60, 2013: 60 and 01-01-2013: 60) arededicated Philips Lighting legal entities:
Legal entity namePhilips Algérie
WMGD Pty. Limited
Lighting Group PLI Holding
Philips Consumer Products
Helfont Participações Ltda.
PHILIPS (B) SDN BHD
Philips Lighting Luminaires (Shanghai) Co., Ltd.
Philips Consumer Luminaires (Shenzhen) Co., Ltd.
Carex Lighting Equipment (Dongguan) Co., Ltd.
Philips Luminaires (Chengdu) Co., Ltd.
Philips Energy Saving Technology Services (Wuhan) Co., Ltd.
Philips Lighting Industry (China) Co., Ltd.
Philips Lighting Electronics (Xiamen) Co. Ltd.
Philips Electronics Technology (Shanghai) Co., Ltd.
Philips Consumer Luminaires Manufacturing (Shenzhen) Co. Ltd.
Shanghai Li Yi Energy Saving Technology Co., Ltd
Philips Lighting Ecuador C.A.
Philips Lighting Central America, Sociedad Anónima de Capital Variable
Modular Lighting France
3E International, S.A.S.
Compagnie Française Philips
Philips Lighting Hong Kong Limited
Framas Lightings Limited
Massive Asia Pacific Ltd.
Philips Entertainment Lighting Asia Limited
Philips Hengdian Lighting (HK) Holding Limited
Philips IPSC Tamasi Kft.
Ilti Luce S.r.l.
Philips Lighting Italy S.p.A
Philips Lighting Electromagnetics, S.A. de C.V.
Philips Lighting Electronics México, S.A. de C.V.
Lumisistemas de México, S.A. de C.V.
Philips Real Estate Services Mexico, S.A. de C.V.
Lightolier de Mexico, S.A. de C.V.
Philips Holding México, S.A. de C.V.
Philips Lighting B.V.
Philips Lighting Holding B.V.
Modular Lighting Nederland B.V.
Philips Lighting Electronics Shanghai Holding B.V.
Genlyte Holding C B.V.
Genlyte Holding Canada B.V.
Siera Electronics B.V.
Dordtse Metaalindustrie “Johan de Witt” B.V.
Philips Lighting Bielsko Sp.z.o.o.
Philips Lighting Solutions (Pty) Ltd.
Philips Lighting Spain, S.L.
Philips Indal, S.L.
Saeta die Casting, S.L.
Philips Lighting Sweden AB
EBT Technology, Inc.
Philips Marketing et Services SARL
Philips Lighting North America Corporation
The Genlyte Group Incorporated
Strand Lighting, LLC
Genlyte Thomas Group LLC
Lighting.Com., Inc.
Philips Lighting Switzerland AG
F-44

Country

Statutory seat

Algeria
Australia
Belgium
BelgiumBrazilBrunei
China
China
China
China
China
China
China
China
China
China
EcuadorEl Salvador
FranceFranceFranceHong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hungary
Italia
ItaliaMexicoMexicoMexicoMexicoMexicoMexicoNetherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
PolandSouth Africa
Spain
Spain
Spain
SwedenTaiwanTunisia
United States
United States
United States
United States
United States
Switserland

Hydra - Alger
New South Wales
Anderlecht
Anderlecht
Sâo Paulo
Bandar Seri Begawar
Shanghai
Shenzhen
DongguanChengdu
Wuhan
Yizheng
XiamenShanghai
Shenzhen
Shanghai
Guayaquil
Olocuilta
Paris
Nancy
Suresnes
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Hong Kong
Tamasi
TorinoMilaanChihuahua
Ciudad Juárez
Mexico City
Mexico City
Chihuahua
Huixquilucan
Eindhoven
Eindhoven
Amsterdam
Eindhoven
Eindhoven
Eindhoven
Eindhoven
Dordrecht
Bielsko-biala
Johannesburg
MadridValladolid
Valladolid
Stockholm
Kaohsiung
Tunis
Delaware
Delaware
Delaware
Delaware
DelawareZürichInvestments in associates
Philips Lighting has investments in a number of associates, none of them are regarded as individuallymaterial. The associate entities develop, manufacture and sell lighting products.
Investments in associates in millions of EUR unless otherwise stated
As of 31 December

Zhejiang Yankon Lighting Co., Ltd
Dongyang Tospo Lighting Co., Ltd
Shenzhen Zhong Dian Sang Fei Intell. Light Co., Ltd
Roy Alpha, S.A.
Lite-tech Industries LLC
Assembléon
Elevite AG
Other investments

Country

01-01-2013

2013

2014

2015

China
China
China
Colombia
United Arab Emirates
Netherlands
Switzerland

6
6
—
3
2
6
2
3

5
5
—
3
2
7
2
3

7
7
4
3
2
—
—
1

7
6
4
3
2
—
—
1

28

27

24

23

Total
Not wholly-owned subsidiaries

In total, fourteen subsidiaries included in the Combined Financial Statements are not wholly-owned byPhilips Lighting. Among these legal entities is Philips Lighting Saudi Arabia created after the acquisition ofGeneral Lighting Company (GLC) where Philips Lighting owns 51% of the voting power. GLC was acquired on
2 September 2014. Philips Lighting controls this entity. The sales of this entity are less than 4% of the combined
financial data. The non-controlling interest of 49% represents an amount of EUR 103 million as per 31 December
2015 (2014: EUR 86 million). The non-controlling interest related to GLC at the acquisition date was measured
at the holders’ proportionate interest in the recognized amount of the identifiable net assets, which means that
goodwill recognized by Philips Lighting in this transaction relates only to the 51% interest acquired.
4. Income from operations
For information related to sales and tangible and intangible assets on a geographic and / or segment basis,see note 1, Information by segment and main country.
Sales and costs by nature
Sales and costs by nature in millions of EUR unless otherwise stated
For the years ended 31 December

Sales
Cost of Materials used
Employee benefit expenses
Depreciation and amortization
Shipping and handling
Advertising and Promotion
Lease expense
Other operational costs
Impairments
Other business income, net

2013

2014

2015

7,129
(3,031)(2,058)
(308)
(287)
(179)
(148)
(836)
(82)
13

6,981
(3,003)(2,138)
(290)
(264)
(188)
(128)
(846)
(91)
8

7,465
(3,289)(2,165)
(298)
(261)
(184)
(116)
(830)
(17)
26

213

41

331

Income from operations

The sales consist primarily of sales of goods (2015: 98%, 2014: 99% and 2013: 99%).
Cost of materials used represents the inventory recognized in cost of sales.
Shipping and handling costs are included in the cost of sales and selling expenses.
Advertising and promotion costs are included in selling expenses.
Other operational costs contain items which are dissimilar in nature and individually insignificant in amountto disclose separately. These costs contain among others expenses for outsourcing services, mainly in IT and HR,
3rd party workers, warranty, utilities and repair and maintenance for fixed assets.
F-45

Refer to note 7 for depreciation, amortization and impairment.
Philips Lighting has no external customer that represents 10% or more of sales. The amounts for sales toPhilips Group companies and associates are provided in note 28, Related Party transactions.
5. Employee benefit expenses
Employee benefit expenses included in the Combined Statements of Income consist of the following:
Employee benefit expenses by nature in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Salaries and wages
Social securities
PensionCost of termination plans
Temporary personnel
Share-based compensation
Other(1,165)
(251)
(98)
(36)
(221)
(27)
(260)

(1,177)
(226)
(77)
(189)
(205)
(22)
(242)

(1,261)
(240)
(113)
(55)
(190)
(24)
(282)

Total

(2,058)(2,138)(2,165)The employee benefit expenses relate to employees of Philips Lighting, with both permanent and temporary
contracts. For further information on post-employment benefit costs, refer to note 19, Post-employment benefits.
For further information on the remuneration of key management, refer to note 27, Key managementcompensation.
For further information on the share-based compensation, refer to note 29 Share-based compensation.
Other employee benefit expenses mainly relate to travel expenses, incentives and other personnel related
costs.
Employee benefit expenses are presented in the Combined Statements of Income as follows:
Employee benefit expenses by function in millions of EUR unless otherwise stated
For the years ended 31December

Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Total

2013

2014

2015

(705)
(917)
(160)
(276)

(764)
(950)
(146)
(278)

(684)
(1,050)
(149)
(282)

(2,058)(2,138)(2,165)

6. Employees
Due to the nature of Combined Financial Statements the disclosure below reflects the best estimate of thenumber of employees that worked for Philips Lighting, either in the Philips Lighting Sector or the Lightingrelated activities of the Philips IG&S Sector in 2013 and 2014. As per mid-2015, all employees within Philips
have actually been allocated to either Philips Group or Philips Lighting.

F-46

The number of employees is summarized as follows:
Employees in FTE at year-end
2013

2014

2015

Lighting sector
Lighting related activities in IG&S sector

38,671
3,721

37,8083,826

33,618
3,781

Total

42,392

41,63437,399

Employees of Philips Lighting are expressed on a full-time equivalent (FTE) basis and correspond to thecosts that are reflected in the employee benefit expenses table (note 5).
7.

Depreciation, amortization and impairments

Depreciation of property, plant and equipment, amortization of intangible assets and impairments of nonfinancial assets, are as follows:
Depreciation, amortization and impairments in millions of EUR unless otherwise stated
For the years ended 31 December

1
2

2013

2014

2015

Depreciation of property, plant and equipment
Amortization of acquired intangible assets1
Amortization of non-acquired intangible assets2

(163)
(109)
(36)

(152)
(106)
(32)

(156)
(107)
(35)

Depreciation and amortization
Impairment of property, plant en equipment
Impairment of acquired intangible assets1
Impairment of non-acquired intangible assets2
Impairment of goodwill

(308)
(18)
(32)
(6)
(26)

(290)
(83)
—
(6)
(2)

(298)
(13)
—
(4)
—

Impairments

(82)

(91)

(17)

Total

(390)

(381)

(315)

Acquired intangible assets include technology, customer relationships, brand names and other intangible assets, excluding goodwill.
Non-acquired intangible assets include product development and software, excluding goodwill.

Depreciation of property, plant and equipment is primarily included in cost of sales. Amortization of thecategories of other intangible assets is reported in selling expenses for brand names and customer relationships
and is reported in costs of sales for technology based and other intangible assets. Amortization of development
costs is included in research and development expenses.
8.

Income taxes
The income tax expense amounted to EUR 83 million (2014: EUR 66 million and 2013: EUR 45 million).
The components of income before taxes and income tax expense are as follows:
Income tax expense in millions of EUR unless otherwise stated2013-2015
2013

2014

2015

Netherlands
Foreign

(130)
342

164
(129)

136
187

Income before taxes
Netherlands:
Current tax benefit (expense)
Deferred tax benefit (expense)

212

35

323

—
15

(13)
(43)

(39)
(6)

Total tax expense (Netherlands)
Foreign:
Current tax benefit (expense)
Deferred tax benefit (expense)

15

(56)

(45)

(116)
56

(111)
101

(91)
53

Total tax expense (Foreign)

(60)

(10)

(38)

Income tax expense

(45)

(66)

(83)

F-47

The components of income tax expense are as follows:
Current tax expense in millions of EUR unless otherwise stated2013—2015
2013

2014

2015

Current tax expense
Prior year benefit (expense)

(124)
8

(122)
(2)

(129)
(1)

Current tax expense

(116)

(124)

(130)

2013

2014

2015

Deferred income tax expense in millions of EUR unless otherwise stated2013—2015

Origination and reversal of temporary differences
Change in tax losses, tax credits and temporary differences
recognized
Tax rate changes
Prior year benefit (expense)

16
35

60
(10)

31
17

—
20

1
7

—
(1)

Deferred income tax expense

71

58

47

Philips Lighting’s operations are subject to income taxes in various foreign jurisdictions. The statutory
income tax rates vary from 10.0% to 39.0%, which results in a difference between the weighted average statutory
income tax rate and the Netherlands’ statutory income tax rate of 25.0% (2014: 25.0% and 2013: 25.0%). A
reconciliation of the weighted average statutory income tax rate to the effective income tax rate of continuing
operations is as follows:
Reconciliation of income tax charge in millions of EUR unless otherwise stated
For the years ended 31 December
2013

Income before taxes
Weighted average statutory income tax rate
Non-deductible expenses
Tax incentives and exempt income
Deferred tax benefit (expense) related to recognition of deferred tax
assets—net
Changes in the liability for uncertain tax positions
Prior year tax expense
Other
Income tax expense recognised in Combined Statement of
Income

2014

212 %
35
(41) (19%)1(31) (15%) (20)
17
8%
14
(15)
(10)
28
7

2015

%
323 %
3% (67) (21%)(57%) (27) (8%)
40%
89 28%(7%) (46) (131%)(5%) (14) (40%)
13%
5
14%
3%
(6) (17%)(70) (22%)(1) (0%)(2) (1%)(5)2%(45) (21%) (66) (189%)(83) (26%)

The weighted average statutory income tax rate increased in 2015 compared to 2014 and decreased in 2014
compared to 2013, as a consequence of a significant change in the mix of profits and losses in the various
countries.
The effective income tax rate is higher than the weighted average statutory income tax rate in 2015, 2014
and 2013, mainly due to the non-deductible expenses and deferred tax expense related to recognition of deferred
tax assets which are partly offset by non-taxable income.

F-48

Recognized deferred tax assets and liabilities
Net deferred tax assets relate to the following balance sheet captions and tax carryforwards (including tax
credit carryforwards), of which the movements during the years 2015, 2014 and 2013 respectively are as follows:
Deferred tax assets and liabilities in millions of EUR unless otherwise stated2013—2015

2015
Intangible assets
Property, plant and equipment
Inventories
Prepaid pension cost
Other receivables and assets
Provisions for pensions and other postretirement
Provisions for termination benefits
Other provisions
Other liabilities
Deferred tax assets on tax loss carryforwards (including tax
credit carryforwards)

assetsliabilities

net

25
10
48
—
17
5
39
69
30

(237)
(17)
(1)
(2)
—
—
—
(1)
(6)

(212)
(7)
47
(2)
17
5
39
68
24

154

154

Total Allocations
Set-off of deferred tax

397
(138)

(264)
138

133
—

Net deferred tax assets

259

(126)

133

12
26
43
—
10
7
73
55
37

(250)
(26)
(3)
—
(2)
—
—
2
(10)

(238)
—
40
—
8
7
73
57
27

2014
Intangible assets
Property, plant and equipment
Inventories
Prepaid pension cost
Other receivables and assets
Provisions for pensions and other postretirement
Provisions for termination benefits
Other provisions
Other liabilities
Deferred tax assets on tax loss carryforwards (including tax
credit carryforwards)

117

117

Total Allocations
Set-off of deferred tax

380
(139)

(289)
139

91
—

Net deferred tax assets

241

(150)

91

16
19
40
—
7
4
43
45
39

(212)
(24)
(3)
—
(5)
—
—
(2)
(8)

(196)
(5)
37
—
2
4
43
43
31

2013
Intangible assets
Property, plant and equipment
Inventories
Prepaid pension cost
Other receivables and assets
Provisions for pensions and other postretirement
Provisions for termination benefits
Other provisions
Other liabilities
Deferred tax assets on tax loss carryforwards (including tax
credit carryforwards)

121

121

Total Allocations
Set-off of deferred tax

334
(122)

(254)
122

80
—

Net deferred tax assets

212

(132)

80

Deferred tax assets are recognized for temporary differences, unused tax losses, and unused tax credits tothe extent that realization of the related tax benefits is probable. The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income in the countries where the deferred tax assets originatedand during the periods when the deferred tax assets become deductible. Management considers the scheduled
F-49

reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making thisassessment.
The net deferred tax assets of EUR 133 million (2014: EUR 91 million, 2013: EUR 80 million and 01-01-2013:
EUR 30 million) consist of deferred tax assets of EUR 259 million (2014: EUR 241 million, 2013: EUR 212 million
and 01-01-2013: EUR 185 million) in countries with a net deferred tax asset position and deferred tax liabilities of
EUR 126 million (2014: EUR 150 million, 2013: EUR 132 million and 01-01-2013: EUR 155 million) in countries
with a net deferred tax liability position. An amount of EUR 150 million of deferred tax assets relates to several tax
jurisdictions in which Philips Lighting has suffered a tax loss in the current or preceding period. Management’s
projections support the assumption that it is probable that the results of future operations of the carve-out group will
generate sufficient taxable income to utilize these deferred tax assets.
Information regarding net operating loss carryforwards that will be retained by Philips Group and nottransferred to Philips Lighting, as per legal separation, has not been provided as Philips Lighting does not believethat such information is meaningful. Net operating losses generated by Philips entities and not utilized by Philips
Lighting will be retained by Philips Group. As such, net deferred tax assets recognized for operating losses
calculated on a separate return basis, of EUR 22 million, EUR 63 million and EUR 44 million for the years ended
31 December 2015, 2014 and 2013, respectively, have been accounted for as business equity transactions with
Philips Group.
At 31 December 2015, net operating loss carryforwards expire as follows:
Expiry year operating loss carryforwards in millions of EUR unless otherwise stated
For the years ended 31 December
2015

2016
2017
2018
2019
2020
After 2020 but not unlimited
Unlimited

—
1
—
138
143
65
648

At 31 December 2015, the amount of operating loss and tax credit carryforwards for which no deferred tax
assets have been recognized in the balance sheet is EUR 510 million (2014: EUR 301 million).
Out of EUR 510 million, an amount of EUR 362 million should not be limited in time, EUR 135 million
will expire by 2020 and the remaining EUR 13 million expires after 2020, but carryforward is limited in time.
At 31 December 2015, the amount of deductible temporary differences for which no deferred tax asset has
been recognized in the balance sheet is EUR 91 million (2014: EUR 128 million).
At 31 December 2015, there were no recognized deferred tax liabilities for taxes that would be payable on
the unremitted earnings of certain Philips Lighting foreign subsidiaries of Philips Holding USA because there isno intention to distribute these earnings in the foreseeable future. The temporary differences associated with theinvestments in subsidiaries of Philips Holding USA, for which a deferred tax liability has not been recognized,
aggregate to EUR 38 million (2014: EUR 34 million).
Classification of the income tax payable and receivable is as follows:
Income tax receivables and payables in millions of EUR unless otherwise stated
For the years ended 31 December

Income tax receivable
Income tax payableF-50

01-01-2013

31-12-2013

31-12-2014

31-12-2015

9
(34)

7
(10)

8
(14)

25
(6)

Tax risks
Philips Lighting is exposed to tax uncertainties. These uncertainties include, amongst others, the following:Transfer pricing uncertainties
Philips Lighting has issued transfer pricing directives, which are in accordance with international guidelines
such as those of the Organization of Economic Co-operation and Development. As transfer pricing has crossborder effect, potential adjustments by local tax authorities on implemented transfer pricing procedures in acountry may have an impact on the results in another country. In order to reduce the transfer pricing
uncertainties, monitoring procedures are carried out by Group tax and internal audit to safeguard the correct
implementation of transfer pricing directives.
Tax uncertainties on general and specific service agreements and licensing agreements
Due to the centralization of certain activities in a limited number of countries (such as research anddevelopment, centralized IT, group functions and head office), costs are also centralized. As a consequence, thesecosts and/or revenues must be allocated to the beneficiaries, i.e. the various Philips Lighting entities. For that
purpose, service contracts such as intragroup service agreements and licensing agreements are signed with a large
number of Philips group entities. Tax authorities review these intra-group service and licensing agreements andmay reject the implemented intragroup charges. Furthermore, buy in/out situations in the case of (de)mergers
could affect the cost allocation resulting from the general service agreements between countries. The same
applies to the specific service agreements.
Tax uncertainties due to disentanglements and acquisitions
When a subsidiary of Philips Lighting is disentangled, or a new company is acquired, related tax
uncertainties may arise. Philips Lighting 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 fromvarious group functions and are formed, amongst other things, to identify hidden tax uncertainties that could
subsequently surface when companies are acquired and to reduce tax claims related to disentangled entities.
These tax uncertainties are investigated and assessed to mitigate tax uncertainties in the future to the extent
possible. Examples of tax uncertainties are: applicability of the participation exemptions, allocation issues, andissues related to non-deductibility.
Tax uncertainties due to permanent establishments
In countries where Philips Lighting starts new operations or alters business models, the issue of permanentestablishment may arise, because when operations in a country involve a Philips Lighting organization in anothercountry, there is a risk that tax claims will arise in the former country as well as in the latter country.
9. Financial income and expenses
Financial income and expenses include:
Financial income and expenses in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Financial income
Interest on pensions
Interest expense on tax balances
Impairment loss of financial assets
Other interest expense

3
(1)
(1)
—
(2)

3
(1)
(4)
—
(4)

3
(2)
(1)
(4)
(4)

Financial expense

(4)

(9)

(11)

Total

(1)

(6)

(8)

F-51

10. Assets classified as held for sale
Assets classified as held for sale in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

—
—

15
—

20
—

34
6

Assets classified as held for sale
Liabilities directly associated with assets held for sale

Assets classified as held for sale mainly relate to entities which are anticipated to be sold and their balanceslargely comprise of property, plant and equipment and production inventories. The liabilities directly associatedwith assets held for sale consists mainly of trade creditors.
11. Property, plant and equipment
The movements in property, plant and equipment are as follows:
Property, plant and equipment movement schedule in millions of EUR unless otherwise statedLand andbuildings

Machinery andinstallations

Otherequipment

Prepayments andconstruction inprogress

Total

697
(341)

1,712
(1,327)

408
(317)

75
—

2,892
(1,985)

Book value
Change in book value:
Capital expenditure
Asset available for use
Sales and disposals
Transfer to assets classified as held for sale
Depreciation
Impairments
Translation differences

356

385

91

75

907

5
37
—
(8)
(31)
(9)
(17)

8
37
(5)
—
(95)
(5)
(10)

15
19
—
—
(37)
(3)
(3)

131
(93)
(10)
—
—
(1)
(2)

159
—
(15)
(8)
(163)
(18)
(32)

Total changes
Balance 31 December 2013
Cost
Accumulated depreciation

(23)

(70)

(9)

25

(77)

681
(348)

1,602
(1,287)

384
(302)

100
—

2,767
(1,937)

Book value
Change in book value:
Capital expenditure
Asset available for use
Acquisition
Sales and disposals
Transfer to assets classified as held for sale
Depreciation
Impairments
Translation differences

333

315

82

100

830

11
25
7
(8)
(20)
(35)
(18)
23

7
73
5
(3)
(6)
(80)
(57)
13

20
13
4
(2)
—
(37)
(3)
4

71
(111)
2
(1)
—
—
(5)
—

109
—
18
(14)
(26)
(152)
(83)
40

Total changes
Balance 31 December 2014
Cost
Accumulated depreciation

(15)

(48)

(1)

(44)

(108)

717
(399)

1,651
(1,384)

416
(335)

56
—

2,840
(2,118)Book value

318

267

81

56

722

Balance 1 January 2013
Cost
Accumulated depreciation

F-52

Property, plant and equipment movement schedule in millions of EUR unless otherwise statedLand andbuildings

Change in book value:
Capital expenditure
Asset available for use
Acquisition
Sales and disposals
Transfer to assets classified as held for sale
Depreciation
Impairments
Translation differences

Machinery andinstallations

Otherequipment

Prepayments andconstruction inprogress

Total

4
9
—
(11)
(10)
(35)
(6)
9

7
52
3
(7)
(9)
(77)
(7)
9

9
20
2
(2)
(1)
(44)
—
10

78
(81)
—
—
(1)
—
—
(9)

98
—
5
(20)
(21)
(156)
(13)
19

Total changes
Balance 31 December 2015
Cost
Accumulated depreciation

(40)

(29)

(6)

(13)

(88)

643
(365)

1,543
(1,305)

391
(316)

43
—

2,620
(1,986)

Book value

278

238

75

43

634

Land with a book value of EUR 23 million is not depreciated (2014: EUR 29 million, 2013: EUR 42 million
and 01-01-2013: EUR 49 million).
In 2014, management decided to divest the Organic light-emitted diode (OLED) activities to focus thebusiness and resources on LED based connected systems and services. This decision resulted in an impairment of
fixed assets of EUR 49m to reflect the estimated fair value less cost of disposal of these activities.
The expected useful lives of property, plant and equipment for 2015, 2014 and 2013 are as follows:
Useful lives of property, plant and equipment in years
Building
Machinery and installations
Other equipmentfrom 5 to 50
from 3 to 20
from 1 to 10

12. Goodwill
The movements in goodwill are as follows:
Goodwill movement schedule in millions of EUR unless otherwise statedBalance per 1 January
Cost
Amortization and impairments
Book value
Change in book value:
Acquisitions
Divestments and transfers to assets classified as held for
sale
Purchase price allocation adjustment
Impairments
Translation differences
Total changes
Book value per 31 December

2013

2014

2015

2,190
(626)

2,093
(635)

2,356
(680)

1,564

1,458

1,676

—

58

—

—
(14)
(26)
(66)
(106)
1,458

(12)
—
(2)
174
218
1,676

(1)
8
—
161
168
1,844

The increase in 2015 of EUR 161 million in translation differences was mainly due to the increase in the
USD/EUR rate which impacted the goodwill denominated in USD.
Acquisitions in 2014 includes goodwill related to the acquisition of General Lighting Company (GLC) for
EUR 58 million. In 2014 the movement of EUR 174 million in translation differences is mainly explained by theincrease of the USD/EUR rate which impacted the goodwill nominated in USD.
F-53

For impairment testing, goodwill is allocated to (groups of) cash-generating units, which represent thelowest level at which the goodwill is monitored internally for management purposes. From 2015 the cashgenerating units correspond to the operating segments.
Goodwill allocated to the cash-generating unit BG Professional (which includes the business previously
reported under Professional Lighting Solutions) is considered to be significant in comparison to the total bookvalue of goodwill of Philips Lighting at 31 December 2013, 31 December 2014 and 31 December 2015. The
amounts associated as of 31 December 2013, 31 December 2014 and 31 December 2015, are presented below.
Goodwill allocated to the cash-generating unit in millions of EUR unless otherwise stated2013—2015
EUR million

BG Professional
2015

1,626

Professional Lighting Solutions
2014
2013

1,470
1,266

The basis of the recoverable amount used for the units disclosed in this note is the value in use. In the annual
impairment test performed in the second quarter and in the tests performed in the second half of 2015 theestimated recoverable amount of the cash-generating unit tested approximated or exceeded the carrying value ofthe unit. Therefore no impairment loss was recognized.
Key assumptions—general
Key assumptions used in the impairment tests for the units were sales growth rates, income from operations
and the rates used for discounting the projected cash flows. These cash flow projections were determined using
management’s internal forecasts that cover an initial period from 2015 to 2019 that matches the period used forour strategic process. Projections were extrapolated with stable or declining growth rates for a period of 5 years,
after which a terminal value was calculated. For terminal value calculation, growth rates were capped at ahistorical long-term average growth rate.
The sales growth rates and margins used to estimate cash flows are based on past performance, externalmarket growth assumptions and industry long-term growth averages.
Income from operations in all mentioned units is expected to increase over the projection period as a resultof volume growth and cost efficiencies. In anticipation of the new reporting structure in 2016, the impact of anadditional allocation of central overhead costs over the projection period has been considered for units which
performed an updated test in the second half of 2015.
Key assumptions and sensitivity analysis in relation to cash-generating units to which a significant amountof goodwill is allocatedCash flow projections of BG Professional for 2015 and Professional Lighting Solutions for 2013 and 2014
were based on the key assumptions included in the table below. For 2013 these assumptions are based on theannual impairment test performed in the second quarter. For 2014 and 2015 these assumptions were based on an
updated test performed in Q4.
The key assumptions for the 2013/2014/2015 cash flow projections were as follows:
Key assumptions in %2013—2015
Compound sales growth rate1
used toinitialextra
calculate
forecast
polation
terminal
periodperiodvalue

1)

pre-tax
discountrates

BG Professional
2015

5.0

5.1

2.7

15.1

Professional Lighting Solutions
2014
2013

10.1
7.4

6.5
5.4

2.7
2.7

13.8
12.8

Compound sales growth rate is the annualized steady growth rate over the forecast period
F-54

Based on the test performed in Q4 2015, the headroom of Professional was estimated at EUR 100 million(2014: EUR 1,000 million and 2013: 670 million). The following changes could, individually, cause the value in
use to fall to the level of the carrying value:
Sensitivity analysis
increase in
pre-tax
discount
rate, basis
pointsdecrease incompoundlong-term
sales growthrate, basis
pointsdecrease interminal
value
amount, %BG Professional
2015

40

80

5.5

Professional Lighting Solutions
2014
2013

400
290

1,030
520

47.0
39.0

Additional information 2015 in relation to cash-generating units to which a non-significant amount of
goodwill is allocated
In addition to the significant goodwill recorded at BG Professional as referred to above, BG Home issensitive to fluctuations in the assumptions as set out above. Based on the most recent impairment test, it wasnoted that with regard to the headroom for the cash-generating unit BG Home (which includes the businesspreviously reported under Consumer Luminaires) the estimated recoverable amount approximates the carrying
value of this cash-generating unit. Consequently, any adverse change in key assumptions would, individually,
cause an impairment loss to be recognized in relation to BG Home. The goodwill allocated to BG Home at
31 December 2015 amounts to EUR 127 million.
Additional information 2014 in relation to cash-generating units to which a non-significant amount of
goodwill is allocated
In addition to the significant goodwill recorded at BG Professional as referred to above, Consumer
Luminaires (which is now reported as part of BG Home) is sensitive to fluctuations in the assumptions as set out
above. Based on the most recent impairment test, it was noted that with regard to the headroom for the cash
generating unit Consumer Luminaires the estimated recoverable amount approximates the carrying value of thiscash-generating unit. Consequently, any adverse change in key assumptions would, individually, cause an
impairment loss to be recognized. The goodwill allocated to Consumer Luminaires at 31 December 2014
amounted to EUR 112 million.
Impairment charge 2013
In the fourth quarter of 2013, the updated impairment test for Consumer Luminaires (which is now reported
as part of BG Home) resulted in EUR 26 million impairment of goodwill. This was mainly a consequence of areduced growth rate due to slower anticipated recovery of certain markets and introduction delays of new productranges. The pre-tax discount rate applied in the mentioned Q4 2013 test was 13.5%. The pre-tax discount rateapplied in the 2013 annual impairment test was 13.4%. Compared to the previous impairment test there has been
no change in the organization structure which impacts how goodwill is allocated to this cash-generating unit.

F-55

13 Intangible assets excluding goodwill
The movements in the intangible assets other than goodwill are as follows:
Intangible assets movement schedule in millions of EUR unless otherwise stated
Product
development

Technology

Customer
relationships

Other

Total

192
(140)

306
(158)

1,053
(426)

349
(228)

1,900
(952)

Book value

52

148

627

121

948

Change in book value:
Additions
Amortization
Impairment
Translation differences

31
(27)
(6)
(1)

1
(22)
—
—

—
(64)
(32)
(26)

6
(32)
—
(4)

38
(145)
(38)
(31)

Total changes

(3)

(21)

(122)

(30)

(176)

187
(138)

299
(172)

1,005
(500)

308
(217)

1,799
(1,027)

Book value

49

127

505

91

772

Change in book value:
Additions
Amortization
Acquisition
Impairment
Translation differences

22
(26)
—
(6)
4

2
(16)
—
—
8

—
(62)
84
—
47

27
(34)
74
—
10

51
(138)
158
(6)
69

Total changes

(6)

(6)

69

77

134

201
(158)

321
(200)

1,172
(598)

426
(258)

2,120
(1,214)

Book value

43

121

574

168

906

Change in book value:
Additions
Amortization
Purchase price allocation adjustment
Impairment
Translation differences

22
(23)
—
(4)
3

13
(17)
—
—
6

—
(76)
(13)
—
49

2
(26)
3
—
11

37
(142)
(10)
(4)
69

Total changes

(2)

2

(40)

(10)

(50)

180
(139)

358
(235)

1,245
(711)

409
(251)

2,192
(1,336)

41

123

534

158

856

Balance 1 January 2013
Cost
Amortization and impairments

Balance 31 December 2013
Cost
Amortization and impairments

Balance 31 December 2014
Cost
Amortization and impairments

Balance as of 31 December 2015
Cost
Amortization and impairments
Book value

Intangible assets other than goodwill mainly relate to balances identified and recorded as part of acquisitions
in earlier years in BG Professional, consisting of brand names, technology and customer relationships.
The impairment in 2013 includes a charge of EUR 32 million for customer relationships in Consumer
Luminaires. This is based on a trigger based test on specific mature markets following the initiated turnaroundplan, reconsidering product ranges and growth rates. The basis of the recoverable amount used in this test is thevalue in use and a pre-tax discount rate of 11.4% is applied. After the impairment charge, the carrying value ofthe related intangible assets is zero.
F-56

The acquisitions in 2014 consist of the acquired intangible assets of General Lighting Company (GLC) for
EUR 158 million. The amounts reflected as purchase price allocation adjustment in 2015 reflect the impact of the
final purchase price allocation for GLC.
The amortization of intangible assets is specified in note 7.
Other intangible assets consists of:
Other intangible assets in millions of EUR unless otherwise statedGross

31-12-2014
Amortization andimpairments

Gross

31-12-2015
Amortization andimpairments

SoftwareBrand names
Other

69
333
24

(38)
(196)
(24)

24
357
28

(7)
(219)
(25)

Other Intangible fixed assets

426

(258)

409

(251)

Gross

01-01-2013
Amortization andimpairments

Gross

31-12-2013
Amortization andimpairments

SoftwareBrand names
Other

75
267
7

(61)
(160)
(7)

45
257
6

(34)
(177)
(6)

Other Intangible fixed assets

349

(228)

308

(217)

Other intangible assets in millions of EUR unless otherwise stated

The expected useful lives of intangible assets other than goodwill are as follows:
Expected useful lives of intangible assets excluding goodwill
in years

Product development
SoftwareTechnology
Customer relations
Brand names
Licenses
Other

3-7
1-10
3-20
2-25
2-20
term of the license
1-8

There are no intangible assets with restricted title or pledged as security for liabilities.
14 Receivables
Receivables comprise:
Receivables in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

Trade receivables (net)

1,185

1,289

1,455

1,436

Accounts receivable—net

1,185

1,289

1,455

1,436

The ageing of trade receivables, representing current and overdue but not impaired receivables, is asfollows:
Ageing analysis in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

Current
Overdue 1-30 days
Overdue 31-180 days
Overdue >180 days

1,075
52
46
12

1,135
44
91
19

1,221
57
108
69

1,258
49
80
49

Accounts receivable—net

1,185

1,289

1,455

1,436

F-57

The changes in the allowance for doubtful accounts receivable are as follows:
Allowance for doubtful accounts movement in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Balance 1 January
Additions charged to expense
Utilizations

(35)
(8)
5

(38)
(33)
(2)

(73)
(33)
(4)

Balance 31 December

(38)

(73)

(110)

The allowance for doubtful accounts has been primarily established for receivables that are past due. The
maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables
mentioned above. No receivables have been pledged as security for monies borrowed.
Trade receivables that are impaired are fully provided for. Included in the above balances as per
31 December, 2015 are allowances for individually impaired receivables of EUR 103 million (2014: EUR 63
million, 2013: EUR 28 million).
Bad debt expenses are recorded as part of selling expenses. Reference is made to note 30 for morebackground on credit risk management.
15 Inventories
Inventories are summarized as follows:
Inventories in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

Raw materials
Work in progress
Finished goods

306
23
625

279
16
688

293
18
685

294
27
667

Total

954

983

996

988

The write-down of inventories to realizable value amounted to EUR 36 million for the year ended
31 December 2015 (2014: EUR 53 million, 2013: EUR 50 million). The write-down is included in cost of sales.
16 Other current assets
Other current assets are analyzed as follows:
Other current assets in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

Current financial assets
Prepayments and accrued income, excluding
prepaid pension assets

—

2

—

—

51

50

65

46

Total

51

52

65

46

01-01-2013

31-12-2013

31-12-2014

31-12-2015

Cash at banks and in hand
Short-term deposits (cash equivalents)
Other liquid assets

55
—
3

48
1
—

68
5
2

71
4
8

Cash and cash equivalents

58

49

75

83

17 Cash and cash equivalents
Cash and cash equivalents in millions of EUR unless otherwise statedCash and cash equivalents reflect amounts held in separate dedicated Philips Lighting legal entities.
Philips Group pools cash from subsidiaries to the extent legally and economically feasible; cash not pooled
remains available for local operational or investment needs. As per 31 December 2015 approximately EUR 22
million (2014: EUR 24 million) of cash held and short term deposits is held by General Lighting Company(GLC).
F-58

18 Provisions
Provisions can be analyzed as follows:
Provisions in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

Provision for defined benefits (see note 19)
Restructuring related provisions
Environmental provisions
Product warranty
Onerous contract provision
Other long-term employee benefit provisions
Other provisions

23
235
175
69
70
28
112

23
140
168
67
46
26
105

40
235
170
66
37
26
127

43
178
163
60
31
25
113

Total

712

575

701

613

Of which:
Short-term provisions
Long-term provisions

243
469

227
348

240
461

263
350

Total

712

575

701

613

Restructuring-related provisions
The most significant restructuring projects were mainly related to the manufacturing footprint
rationalization projects.
Restructuring-related provision in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Balance 1 January
AdditionsUtilizations
Releases
Currency translations and other movements

235
66
(134)
(25)
(2)

140
202
(91)
(17)
1

235
88
(120)
(25)
—

Balance 31 December

140

235

178

2013

2014

2015

Balance 1 January
AdditionsUtilizations
Reclassifications
Releases
Change in discount rate
Accretion
Currency translations and other movements

175
16
(6)
—
(1)
(2)
(1)
(13)

168
8
(9)
—
(12)
5
2
9

170
10
(14)
(1)
(13)
(3)
6
8

Balance 31 December

168

170

163

Philips Lighting expects the provision will be utilized mainly within the next year.
Environmental provisions
The movement in environmental provisions during the years presented is as follows:
Environmental provisions in millions of EUR unless otherwise stated
For the years ended 31 December

The environmental provisions include accrued losses recorded with respect to environmental remediation invarious countries.
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 judgements and discount rates. Also refer to note 26,
Contingent liabilities.
F-59

Approximately half of this provision is expected to be utilized within the next five years. The remaining
portion relates to longer-term remediation activities.
Product warranty
Product warranty in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Balance 1 January
AdditionsUtilizations
Reclassifications
Currency translations and other movements

69
49
(48)
1
(4)

67
36
(41)
—
4

66
37
(45)
—
2

Balance 31 December

67

66

60

The provision for product warranty reflects the estimated costs of replacement and free-of-charge services
that will be incurred by Philips Lighting with respect to products sold. Philips Lighting expects the provision will
be utilized mainly within the next year.
Onerous contract provision
Onerous contract provision in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Balance 1 January
AdditionsUtilizations
Currency translations and other movements

70
12
(35)
(1)

46
21
(31)
1

37
6
(11)
(1)

Balance 31 December

46

37

31

2013

2014

2015

Balance 1 January
AdditionsUtilizations
Reclassifications
Currency translations and other movements

28
3
(5)
—
—

26
2
(3)
1
—

26
3
(5)
—
1

Balance 31 December

26

26

25

Other long-term employee benefit provisions
Other long-term employee benefit provisions in millions of EUR unless otherwise stated
For the years ended 31 December

Other provisions
Other provisions mainly comprise of provisions for legal claims, decommissioning and self-insurance.
Provisions for legal claims mainly relate to the labor related litigation referred to in note 26, Contingent
liabilities.
Other provisions in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Balance 1 January
AdditionsUtilizations
Reclassifications
Releases
Change in discount rate
Accretion
Currency translations and other movements

112
40
(22)
5
(24)
—
—
(6)

105
56
(28)
2
(11)
—
—
3

127
31
(45)
4
(7)
—
—
3

Balance 31 December

105

127

113

F-60

19 Post-employment benefits
Philips Lighting employees take part in post-employment benefit plans in various countries. These postemployment plans have been established in accordance with the legal requirements, customs and the local
practice in the countries involved.
The following type of post-employment benefit plans exist:
1.

Royal Philips Group Defined Benefit (DB) plans

2.

Royal Philips Group Defined Contribution (DC) plans

3.

Philips Lighting DB plans

Most employees that take part in a post-employment benefit plan are covered by DC plans.
Group Defined Benefit plans
Group DB plans are accounted for in accordance the Philips Group policy for charging pension costs to theparticipating entities. The service cost in Group DB plans are allocated to the participating companies, including
Philips Lighting.
Philips Group is the sponsor of Group DB plans that are externally funded. The net liabilities of these GroupDB Plans are recognized at the parent company (Philips Group) level only, and not included in the accompanying
Combined Financial Statements.
For Group DB plans that are not externally funded, but for which Philips Lighting has the obligation tosettle the post-employment benefit, the related liability is included in the Combined Balance Sheets underProvisions (see Note 18, Provisions).
Cash contributions to externally funded plans occur at the Philips Lighting parent level and no further cashof the participating Lighting companies is requested other than their share in the cost.
For additional information of Royal Philips Group DB plans refer to the 2015 Annual Report of the Philips
Group (note 20).
Group Defined Contributions plans
The contributions made in a Group DC plan are allocated to the participating companies for the respective
employees of Philips Lighting.
Philips Lighting Defined Benefit plans
The only Philips Lighting DB plan is the mandatory end-of-service benefit of the GLC joint venture in
Saudi Arabia, in which Philips Lighting holds a 51% interest, which has no external funding. The liability of sucha plan equals the defined benefit obligation (DBO) as determined under the guidance of IAS 19 and as calculated
by a local actuary. The liability is included in the Combined Balance Sheets under provisions.
The overview of the balance sheet positions in Philips Lighting is as follows:
Defined Benefit Obligation (DBO) in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Balance 1 January
Acquisitions
Miscellaneous

(23)
—
—

(23)
(17)
—

(40)
—
(3)

Balance 31 December

(23)

(40)

(43)

Funded status

(23)

(40)

(43)

Net balance sheet position

(23)

(40)

(43)

The increase of the pension liability in 2014 by EUR 17 million mainly relates to the acquisition of the GLC
joint venture in Saudi Arabia.
F-61

Given its immaterial size to Philips Lighting as a whole, no full IAS 19 disclosures have been included for
the GLC joint venture plan.
The post-employment benefit costs included in the financial statements are:Cost of Post-employment benefit plans in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

1

1

1

2013

2014

2015

Service cost of Defined Benefit plans
Contribution to Defined Contribution plans (employer part)

66
32

43
34

38
74

Total

98

77

112

Interest expense of Defined Benefit plan in Financial expense
Cost of Post-employment benefit plans in millions of EUR unless otherwise stated
For the years ended 31 December

The above defined benefit service cost of 2013 includes a past service cost gain of EUR 12 million related tothe announcement made in 2013 to freeze the US DB Pension plan per January 2016 for the members still
accruing in this plan.
The 2014 defined benefit service cost includes a past service cost gain of EUR 22 million due to a
mandatory plan change per January 2015 in the Netherlands where the government introduced a maximum
pension giving salary of EUR 100 thousand. Employees impacted receive an allowance in their salary starting2015 which they can use for a net pension plan with an external provider.
As per May 2015 the Dutch pension plan is accounted for as a defined contribution plan which explains thelower 2015 service costs for defined benefit plans and higher defined contribution costs.
Risks related to defined benefit plans
The above DB plans expose Philips Lighting to various demographic and economic risks such as longevity
risk, investment risks, currency and interest rate risk. The Pension fund Trustees are responsible for and have full
discretion over the investment strategy of the plan assets. In general, the Trustees manage pension fund risks bydiversifying the investments of plan assets and by (partially) matching interest rate risk of liabilities.
Cash flows and costs in 2016
Philips Lighting expects cash outflows in relation to post-employment benefits which are estimated toamount EUR 196 million in 2016, consisting of:•

EUR 49 million employer contributions to defined benefit pension plans;•

EUR 106 million employer contributions to defined contribution pension plans;•

EUR 32 million expected cash outflows in relation to unfunded pension plans; and•EUR 9 million in relation to unfunded retiree medical plans.

The EUR 49 million for DB plans relate mainly to the US plan. For the funding of the deficit in the US plan
Philips Group adheres to the minimum funding requirements of the US Pension Protection Act.
The service and administration cost for 2016 is expected to amount to EUR 9 million for pension plans and
EUR 1 million for retiree medical plans. The interest expense for 2016 is expected to amount to EUR 14 million
for pension plans and EUR 5 million for retiree medical plans. The cost for defined contribution plans is
expected to be EUR 106 million.
Corresponding pension liabilities assumed as part of the legal separation on 1 February 2016
Philips Lighting assumed liabilities from Philips Group as part of the legal separation, including pension
obligations relating to Group DB plans. These pension obligations are not reflected in the Combined Financial
Statements of Philips Lighting as the legal obligation did not exist prior to the date of separation.
F-62

As stated in note 32, on February 1, 2016 Philips Lighting assumed additional net pension liabilities ofapproximately EUR 607 million as part of the separation.
The following table provides a summary of the corresponding extra amounts of the assumed net pension
obligations for the periods prior to separation date. The amounts represent the net defined benefit liability
determined under IAS 19, and are not included in the accompanying Combined Balance Sheets.
Net balance of defined-benefit pension plans in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

Accrued pension costs under other liabilities
Provision for defined benefits
Provisions for other post-employment benefits

(193)
(352)
—

(136)
(252)
(61)

(164)
(287)
(73)

(224)
(271)
(112)

Net balance of defined-benefit plans

(545)

(449)

(524)

(607)

20 Other current and accrued liabilities
Other current and accrued liabilities are summarized as follows:
Other payables and accrued liabilities in millions of EUR unless otherwise stated
01-01-2013

31-12-2013

31-12-2014

31-12-2015

177

199

201

189

3
29
56

11
51
32

22
39
28

31
50
42

265

293

290

312

139
51
36

142
50
32

127
50
24

130
46
21

18
2
34

16
13
34

16
17
51

17
13
45

16
21
20
25
16
113

11
21
17
14
13
96

10
21
2
16
30
83

11
19
13
23
47
74

491

459

447

459

01-01-2013

31-12-2013

31-12-2014

31-12-2015

Deferred income
Other tax liabilities
Other liabilities

31
98
11

29
108
8

24
126
8

22
131
6

Other non-current liabilities

140

145

158

159

Other current liabilities
Accrued customer rebates that cannot be offset
with accounts receivables for those customers
Advances received from customers on orders notcovered by work in process
Other taxes including social security premiums
Other liabilities
Total
Accrued liabilities
Personnel related costs:
Salaries and wages
Accrued holiday entitlements
Other personnel related costs
Fixed asset related costs:
Gas, water, electricity, rent and otherCommunication and IT costs
Distribution costs
Sales related costs:
Commissions payable
Advertising and marketing related costs
Other sales related costs
Material related costs
Deferred Income
Other accrued liabilities
Total
21 Other non-current liabilities
Other non-current liabilities are summarized as follows:

Other non-current liabilities in millions of EUR unless otherwise statedF-63

For further details on tax related liabilities refer to note 8, Income taxes.
22 Debt
Short-term and long-term debt relates to financing by local banks and financial institutions. EUR 77 million
out of the total EUR 88 million (2014: EUR 81 million out of resp. EUR 90 million) of debt relates to a loan
taken out by GLC in Saudi Arabia. The total current GLC debt position matures within one year for an amount of
EUR 77 million (2014: EUR 49 million). The fair value of this loan equals its book value. The long-term part isvalued according to level 2 techniques whereas for the short term portion no valuation techniques are used.
23 Owner’s net investment
Philips Lighting operated and was managed as part of the Philips Group during the periods presented.
The Owner’s net investment reflects the net funding position between Philips Lighting and Philips Group.
The Owner’s net investment comprises currency translation differences, hedging reserve, reserve relating toshare-based compensation, result for the period and owner’s funding. The Owner’s net investment shows thefollowing movements during the periods presented:
Owner’s net investment in business equity in millions of EUR unless otherwise stated
Currencytranslationdifferences

Cash flow
hedgesResult forthe period

Fundingby Philips

Owner’s net
investment

Balance 1 January 2013
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the year
Total comprehensive income
Share-based compensation
Movement in funding
Movement in non-controlling interests

—
(94)
—
(94)
—
(94)
—
—
—

—
—
(2)
(2)
—
(2)
—
—
—

—
—
—
—
168
168
—
—
—

3,288
—
—
—
—
—
27
(90)
—

3,288
(94)
(2)
(96)
168
72
27
(90)
—

Balance 31 December 2013
Balance 1 January 2014
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the year
Total comprehensive income
Share-based compensation
Movement in funding
Movement in non-controlling interests
Transfer of previous year’s result

(94)
(94)
172
—
172
—
172
—
—
—
—

(2)
(2)
—
1
1
—
1
—
—
—
—

168
168
—
—
—
(22)
(22)
—
—
—
(168)

3,225
3,225
—
—
—
—
—
22
25
—
168

3,297
3,297
172
1
173
(22)
151
22
25
—
—

Balance 31 December 2014
Balance 1 January 2015
Currency translation adjustment
Movement in hedging reserve
Other comprehensive income
Result for the year
Total comprehensive income
Share-based compensation
Movement in funding
Movement in non-controlling interests
Transfer of previous year’s result

78
78
49
—
49
—
49
—
—
—
—

(1)
(1)
—
3
3
—
3
—
—
—
—

(22)
(22)
—
—
—
226
226
—
—
—
22

3,440
3,440
—
—
—
—
—
24
(284)
—
(22)

3,495
3,495
49
3
52
226
278
24
(284)
—
—

Balance 31 December 2015

127

2

226

3,158

3,513

F-64

Objectives, policies and processes for managing capital
As Philips Lighting did not have a separate capital structure prior to the legal separation, the objectives forcapital management are met in conjunction with the overall Philips Group capital management objectives.
Philips Group manages capital based upon the measures net operating capital (NOC), net debt and cash
flows before financing activities. These measures are used by Philips Group to evaluate the capital efficiency of
the Philips Group and its operating sectors, including Philips Lighting. NOC is defined as: total assets excluding
assets classified as held for sale less: (a) cash and cash equivalents, (b) deferred tax assets, (c) other non-current
financial assets and current financial assets, (d) investments in associates, and after deduction of: (e) long-term
provisions and short-term provisions, (f) accounts and notes payable,(g) accrued liabilities, (h) income tax
payable, (i) non-current derivative financial liabilities and derivative financial liabilities and (j) other non-current
liabilities and other current liabilities. Net debt is defined as the sum of long- and short-term debt minus cash andcash equivalents. Cash flows before financing activities consist of cash flows from operating activities and cash
flows from investing activities.
24 Contractual obligations
The following table presents the contractual cash obligations of the Group as of 31 December 2015. Offbalance sheet commitments relate to purchase obligations and operating lease obligations.
Contractual cash obligations¹ in millions of EUR unless otherwise stated
As of 31 December 2015

Total

Payments due by period
less than 1year
1-3 years 3-5 years

after 5years

Long-term debt²
Short-term debt
Operating lease obligations
Derivative liabilities
Interest on debt
Purchase obligations
Trade payables

47
41
284
7
2
56
940

45
41
79
7
2
26
940

—
—
82
—
—
20
—

—
—
57
—
—
7
—

2
—
66
—
—
3
—

Contractual cash obligations

1.377

1.140

102

64

71

¹
²

Obligations in this table are undiscounted
Long-term debt includes short-term portion of debt

The operating lease obligations are mainly related to the rental of buildings. A number of these leases
originate from sale-and-leaseback arrangements. Operating lease payments under sale-and-leaseback
arrangements for 2015 totaled EUR 13 million (2014: EUR 13 million and 2013: EUR 13 million)
The remaining payments under sale-and-leaseback arrangements included in operating lease obligations
above are as follows:
Operating lease - minimum payments under sale-and-leaseback
arrangements
in millions of EUR unless otherwise stated
As of 31
December 2015

2016
2017
2018
2019
2020
Thereafter

11
11
12
10
10
34

F-65

25 Government grants
The Combined Statements of Income include EUR 14 million of government grants (2014: EUR 12 million,
2013: EUR 22 million). These grants are recognized in the Combined Statements of Income, net of related
expenses.
The split per country is as follows:
Government grants in millions of EUR unless otherwise stated
For the years ended 31 December
2013

2014

2015

Netherlands
China
Belgium
FranceGermany
Other countries

7
5
2
2
5
1

6
3
2
1
—
—

6
5
2
1
—
—

Total

22

12

14

A number of subsidies have been awarded based on future criteria to be met.
26 Contingent liabilities
Philips Lighting’s policy is to provide guarantees and other letters of support only in writing. Philips
Lighting does not stand by other forms of support. At the end of 2015, the total fair value of guarantees
recognized on the Combined Balance Sheet amounted to EUR nil million (2014: EUR nil million, 2013: EUR nil
million and 01-01-2013: EUR nil million). Remaining off-balance-sheet business and credit-related guarantees
provided on behalf of third parties and associates as per 31 December, 2015 amounted EUR 8 million (2014:
EUR 9 million, 2013: EUR 11 million and 01-01-2013: EUR 12 million).
Environmental remediation
Philips Lighting is subject to environmental laws and regulations. Under these laws and regulations, Philips
Lighting may be required to remediate the effects of certain chemicals on the environment.
Legal proceedings
Philips Lighting is 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 ultimate outcome of all pending or threatened legal
proceedings, regulatory and governmental proceedings, Philips Lighting is of the opinion that the proceedings
may have a significant impact on Philips Lighting’s Combined Balance Sheet, results of operations andcombined cash flows.
In respect of labor related litigation, Philips Lighting is involved in several proceedings relating to former
employees. These proceedings consist of individual claims in various jurisdictions and a collective claim before afederal public prosecutor in South America. The collective action was settled in April 2015 and Philips Lighting
is currently involved in the final assessment of potential beneficiaries of the settlement, which is expected in2016. The remaining individual claims are assessed on a case by case basis and are in various phases of
litigation. Please also refer to note 18, Provisions.

F-66

27 Key management compensation
The aggregate amounts of remuneration of key management personnel, comprising the CEO, CFO and the
BG leaders, during the relevant periods are as follows:
Key management compensation in millions of EUR unless otherwise stated 2013 - 2015
SalaryAnnual incentive¹
Long-Term incentive²
Pension allowance
Pension costs
Other compensation³
Total
¹
²

³

2013

2014

2015

2
1
2
—
1
—
6

3
1
2
—
1
—
7

3
1
2
1
—
—
7

The annual incentives are related to the performance in the year reported which are paid out in the subsequent year.
Costs of performance shares, stock options and restricted share rights are based on accounting standards (IFRS) and do not reflect thevalue of stock options at the end of the lock up period and value of performance shares and restricted share rights at the vesting/release
date. Costs for the Accelerate! grant are included in 2013.
The stated amounts mainly concern (share of) allowances to directors that can be considered as remuneration. In a situation where such ashare of an allowance can be considered as (indirect) remuneration (for example, private use of the company car), then the share is both
valued and accounted for here. The method employed by the fiscal authorities in the Netherlands is the starting point for the value stated.
The amount for other compensation is less than EUR 1 million.

As Philips Lighting did not operate as a stand-alone public company during the historical periods, theamounts presented above are not necessarily indicative of the compensation of key management in future
periods.
28 Related party transactions
In the normal course of business, Philips Lighting purchases and sells goods and services from/to various
parties in which Philips typically holds a 50% or less equity interest and has significant influence. Thesetransactions are generally conducted with terms comparable to transactions with third parties.
These Combined Financial Statements include transactions with Philips Group and its group companies thatare outside of Philips Lighting. Philips Group is a related party as it controlled Philips Lighting during theperiods presented.
Philips Group transactions
Philips Lighting entered into transactions with other Philips Group businesses for the sale of goods as wellas the purchase of corporate and other infrastructure services provided by the other Philips businesses. In
addition Philips Lighting business source part of their materials for production from other Philips businesses.
These transactions are generally conducted with terms comparable to those with third parties. Corporate
recharges reflect the allocation of costs to Philips Lighting of the Philips Group central service organization and
the Philips Group country organizations. This allocation in the periods presented was based on both actual
services and activities purchased and the relative sales share of Philips Lighting.
An overview of related party transactions with other Philips Group units and associates is as follows:
Related party transactions in millions of EUR unless otherwise stated
For the years ended 31 December

Sales to Philips Group
Sales to associates
Purchases from Philips Group
Purchases from associates
Defered tax assets retained by Philips
Movement in funding from / (to) Philips Group

2013

2014

2015

49
51
(123)
(23)
44
(90)

44
22
(156)
(14)
63
25

32
30
(214)
(18)
22
(284)

For employee benefit plans see note 19, Post-employments benefits. For deferred tax assets refer to note 8,
Income taxes. For key management compensation see note 27.
F-67

An overview of balance sheet positions with other Philips Group units and affiliates is as follows:
Related party balances in millions of EUR unless otherwise stated
For the years ended 31 December
01-01-2013
Accounts receivable - Philips GroupAccounts payable - Philips GroupAccounts receivable - associates
Accounts payable - associates
Receivable / (payable) balance
Funding from Philips Group

2
(11)
—
—
(9)
(3,288)31-12-2013

31-12-2014

31-12-2015

13
(20)
17
—
10
(3,225)

3
(37)
1
—
(33)
(3,440)

83
(111)
5
(1)
(24)
(3,158)The funding from Philips Group is further specified in note 23, Owner’s net investment.
29 Share-based compensation
The share-based compensation plans relate to shares of Royal Philips as historically Philips Lighting did nothave its own share capital.
The purpose of the share-based compensation plans is to align the interests of Philips Lighting managementwith those of shareholders of Philips Group by providing incentives to improve Philips performance on a longterm basis, thereby increasing shareholder value.
Philips Group has the following plans:•Performance shares: rights to receive common shares in the future based on performance and service
conditions;•

Restricted shares: rights to receive common shares in the future based on a service condition;•

Options on its common shares, including the 2012 and 2013 Accelerate! grant.

Since 2013 executives and certain selected employees of Philips Lighting are granted performance shares.
Restricted shares are granted only to new employees or certain selected employees of Philips Lighting. Prior to2013 restricted shares and options were granted to executives and certain selected employees of Philips Lighting.
Under the terms of employee stock purchase plans established by Philips Group in various countries, employees
are eligible to purchase a limited number of Philips shares at discounted prices through payroll withholdings.
Furthermore, as part of the Accelerate! program, Philips Group has granted options (Accelerate! options)and restricted shares (Accelerate! shares). These Accelerate! options and shares were granted to a group of
approximately 200 key employees of Philips Lighting. On 28 January, 2014 the Supervisory Board of Philips
Group resolved that all performance targets under the Accelerate! program, which were based on the 2013 midterm financial targets, have been met. Accelerate! shares fully vested at 31 December, 2013.
Under the terms of employee stock purchase plans established by the company in various countries
employees are eligible to purchase a limited number of the company’s shares at discounted prices through payroll
withholdings.
Philips Lighting’s share-based compensation costs were EUR 24 million (2014: EUR 22 million, 2013:
EUR 27 million). The amount recognized as an expense is adjusted for forfeiture. USD-denominatedperformance shares, restricted shares and options are granted to employees in the United States only.
Performance shares
The performance is measured over a three-year performance period. The performance shares have two
performance conditions, relative Total Shareholders’ Return of the Philips Group compared to a peer group of 21
companies and adjusted Earnings per Share growth of the Philips Group. The performance shares vest three years
after the grant date. The number of performance shares that will vest is dependent on achieving the two
performance conditions, which are equally weighted, and provided that the grantee is still employed with Philips
Group.

F-68

The amount recognized as an expense is adjusted for actual performance of adjusted Earnings per Sharegrowth since this is a non-market performance condition. It is not adjusted for non-vesting or extra vesting of
performance shares due to a relative Total Shareholders’ Return performance that differs from the performance
anticipated at the grant date, since this is a market-based performance condition.
The fair value of the performance shares is measured based on Monte-Carlo simulation, which takes into
account dividend payments between the grant date and the vesting date by including reinvested dividends, themarket conditions expected to impact relative Total Shareholders’ Return performance in relation to selected
peers, and the following weighted-average assumptions:
Assumptions used in Monte-Carlo simulation for valuation in %2013 - 2015
2013

2014

2015

EUR-denominatedRisk-free interest rate
Expected dividend yield
Expected share price volatility

0.55% 0.35% (0.11%)
3.7% 3.9%
4.0%
27% 25%25%

USD-denominatedRisk-free interest rate
Expected dividend yield
Expected share price volatility

0.55% 0.35% (0.10%)
3.7% 3.9%
4.0%
30% 27%27%

The assumptions were used for these calculations only and do not necessarily represent an indication ofPhilips Group Management’s expectation of future developments for other purposes. The Company has based its
volatility assumptions on historical experience measured over a ten-year period.
A summary of the status of the Philips Lighting’s performance share plans as of 31 December, 2015 andchanges for Philips Lighting during the year is presented below:
Performance share plans
2013 - 2015
EUR-denominatedweighted
average grantshares
date fair value

USD-denominatedweighted
average grantshares
date fair value

Outstanding at January 1, 2013
GrantedTransfers
VestedForfeited—
1,027,774——
17,292

—
23.59
—
—
23.45

—
488,736——
25,444

—
31.01
—
—
30.66

Outstanding at December 31, 2013

1,010,482

23.59

463,292

31.03

Outstanding at January 1, 2014
GrantedTransfers
VestedForfeited

1,010,482
1,095,802
4,105—
200,062

23.59
22.94
23.45
—
23.81

463,292
507,933
1,601—
41,322

31.03
30.38
30.66
—
30.43

Outstanding at December 31, 2014

1,910,327

23.19

931,504

30.70

Outstanding at January 1, 2015
GrantedTransfers
VestedForfeited

1,910,327
808,913(115,480)—
271,117

23.19
27.13
23.98

30.70
30.14
30.36

24.04

931,504
281,595(4,970)—98,824

Outstanding at December 31, 2015

2,332,643

24.42

1,109,305

30.51

31.25

At 31 December, 2015, an estimation of total of EUR 38 million of unrecognized compensation costs relate
to non-vested performance shares has been allocated to Philips Lighting. These costs are expected to berecognized over a weighted-average period of 1.8 years.
F-69

Restricted shares
The fair value of restricted shares is equal to the share price at grant date less the present value, using therisk-free interest rate, of estimated future dividends which will not be received up to the vesting date.
Philips Group issues restricted shares that, in general, vest in equal annual installments over a three-year
period, starting one year after the date of grant. For grants up to and including January 2013 Philips Group
granted 20% additional (premium) shares, provided the grantee still holds the shares after three years from thedelivery date and the grantee is still with Philips Lighting on the respective delivery dates.
A summary of the status of the Philips Group restricted shares granted to Philips Lighting employees as of
31 December 2015 and changes for Philips Lighting during the year is presented below:
Restricted shares2013 - 2015
EUR-denominatedweighted
average grantshares
date fair value

USD-denominatedweighted
average grantshares
date fair value

Outstanding at January 1, 2013
GrantedTransfers
VestedForfeited

592,025
45,5094,037
264,337
27,605

16.02
22.66
24.83
17.86
15.69

779,932
92,664
1,822
286,227
40,857

19.24
32.43
26.12
20.99
19.16

Outstanding at December 31, 2013

349,62915.63

547,334

20.61

Outstanding at January 1, 2014
GrantedTransfers
VestedForfeited349,629
10,59258,966
202,869
25,821

15.63
20.63
22.36
16.32
15.97

547,334
6,982
67,981
275,222
42,174

20.61
25.41
31.89
20.75
28.90

Outstanding at December 31, 2014

190,49717.24

304,901

21.99

Outstanding at January 1, 2015
GrantedTransfers
VestedForfeited

190,497
325,989(9,994)116,015
9,374

17.24
23.42
17.48
15.14
12.92

304,901
248,604(1,338)228,529
3,839

21.99
26.29
16.38
19.00
27.70

Outstanding at December 31, 2015

381,103

23.25

319,799

27.35

At 31 December, 2015, a total of EUR 10 million of unrecognized compensation costs relate to non-vested
restricted shares. These costs are expected to be recognized over a weighted-average period of 1.6 years.
Option plans
Philips Group granted options that expire after 10 years. These options vest after 3 years, provided that the
grantee is still employed with Philips Lighting. A limited number of options granted to certain employees ofacquired business may contain accelerated vesting. As of 31 December, 2015 there are no non-vested options
which contain non-market performance conditions.

F-70

The following tables summarize information about the Philips Lighting’s options as of 31 December, 2015
and changes during the year:
Options
2013 - 2015
EUR-denominatedweighted
averageexcercise
options
price

USD-denominatedweighted
averageexcercise
options
price

Outstanding at January 1, 2013
GrantedTransfers
Exercised
Forfeited
Expired

6,528,510
17,62579,574
824,196503,371
26,331

21.40
22.43
24.02
18.48
23.47
17.62

2,911,596
5,250(2,169)253,876
199,170
5,481

28.47
30.27
21.70
23.35
30.72
18.11

Outstanding at December 31, 2013

5,271,811

21.73

2,456,150

28.85

Outstanding at January 1, 2014
Transfers
Exercised
Forfeited
Expired

5,271,811
40,317
717,509
303,129
69,047

21.73
22.00
21.12
22.03
24.13

2,456,150
18,171
182,250
87,021
14,989

28.85
28.15
27.20
32.45
28.78

Outstanding at December 31, 2014

4,222,443

21.77

2,190,061

28.84

Outstanding at January 1, 2015
Transfers
Exercised
Forfeited
Expired4,222,443
864,732
1,065,431
764,837
178,574

21.77
24.28
19.38
25.66
19.43

2,190,061
481,068
344,055
340,873
65,130

28.84
29.68
24.47
31.22
25.29

Outstanding at December 31, 2015

3,078,333

22.47

1,921,071

29.53

Excercisable at December 31, 2015

3,077,208

22.47

1,915,821

29.53

The exercise prices for EUR denominated options range from EUR 12.63 to EUR 32.04. The weighted
average remaining contractual term for options outstanding and options exercisable at 31 December, 2015, wasfor both 3.5 years. The aggregate intrinsic value of the options outstanding and options exercisable at
31 December, 2015, was EUR 9 million and EUR 9 million, respectively.
The total intrinsic value of options exercised during 2015 was EUR 8 million (2014: EUR 3 million, 2013:
EUR 5 million).
The exercise prices for USD denominated option range from USD 16.76 to USD 44.15. The weighted
average remaining contractual term for options outstanding and options exercisable at 31 December, 2015, wasfor both 3.93 years. The aggregate intrinsic value of the options outstanding and options exercisable at
31 December, 2015, was USD 3.9 million and USD 3.9 million, respectively.
The total intrinsic value of options exercised during 2015 was EUR 3 million (2014: EUR 1 million, 2013:
EUR 2 million).
At 31 December, 2015, there were no unrecognized costs related to outstanding options. Cash received fromexercises under the Philips Group’s’ option plans for Philips Lighting amounted to EUR 31 million in 2015(2014: EUR 20 million, 2013: EUR 4 million). The actual tax deductions realized as a result of option exercises
totaled approximately EUR 1 million in 2015 (2014: EUR 1 million, 2013: EUR 1 million).

F-71

The outstanding options as of 31 December, 2015 are categorized in exercise price ranges as follows:
Outstanding options
2013

options

intrinsic value
in millions

weighted
averagecontractualterm

EUR-denominated
10-15
15-20
20-25
25-30
30-35

1,395,158
318,852
2,358,036
512,703
687,061

17
2
9
—
—

7.5 yrs
2.6 yrs
5.5 yrs
2.3 yrs
3.3 yrs

Outstanding options

5,271,810

28

5.3 yrs

USD-denominated
15-20
20-25
25-30
30-35
35-40
40-45

676,547
173,396543,260
476,626
275,684
310,638

12
3
4
2
—
—

7.6 yrs
8.1 yrs
5.5 yrs
4.9 yrs
4.3 yrs
3.3 yrs

Outstanding options

2,456,151

21

5.7 yrs

options

intrinsic value
in millions

weighted
averagecontractualterm

EUR-denominated
10-15
15-20
20-25
25-30
30-35

1,189,893
220,565
1,735,287
454,645622,053

12
1
3
—
—

6.6 yrs
1.5 yrs
5.1 yrs
1.3 yrs
2.3 yrs

Outstanding options

4,222,443

16

4.5 yrs

USD-denominated
15-20
20-25
25-30
30-35
35-40
40-45

617,442
169,517451,583
413,176
255,807282,53661

6.7 yrs
7.2 yrs
5.2 yrs
3.9 yrs
3.3 yrs
2.3 yrs

Outstanding options

2,190,061

Excercise price

Outstanding options
2014

Excercise price

—
—
—
—
7

4.5 yrs

intrinsic value
in millions

weighted
averagecontractual
term

Outstanding options
2015

Excercise priceoptions

EUR-denominated
10-15
15-20
20-25
25-30
30-35

794,761
30,2191,314,252
390,241
548,860

Outstanding options

3,078,333

F-72

7
1

5.5 yrs
6.3 yrs
4.1 yrs
0.3 yrs
1.3 yrs8

3.5 yrs———

intrinsic value
in millions

Excercise priceoptions

USD-denominated
15-20
20-25
25-30
30-35
35-40
40-45

494,892
143,180
370,431389,755
249,925
272,888

Outstanding options

1,921,071

3
1
—
—
—
—
4

weighted
averagecontractual
term

5.8 yrs
6.2 yrs
4.7 yrs
2.9 yrs
2.3 yrs
1.3 yrs
3.9 yrs

The aggregate intrinsic value in the tables and text above represents the total pre-tax intrinsic value (thedifference between Philips Group’s closing share price on the last trading day of 2015 and the exercise price,
multiplied by the number of in-the-money options) that would have been received by the option holders if theoptions had been exercised on 31 December, 2015.
The following table summarizes information about the Philips Accelerate! options as of 31 December, 2015
and changes during the year:
Accelerate! Options
2013 - 2015
EUR-denominatedweighted
averageexcercise
options
price

USD-denominatedweighted
averageexcercise
options
price

Outstanding at January 1, 2013
Transfers
Exercised
Forfeited

851,360
4,200—
79,000

15.24
15.24
—
15.24

158,200(1,400)
—
—

20.02
20.02
—
—

Outstanding at December 31, 2013

776,560

15.24

156,800

20.02

Outstanding at January 1, 2014
Transfers
Exercised
Forfeited

776,560
4,200
385,460
25,000

15.24
15.24
15.24
15.24

156,800
1,400
39,800
—

20.02
20.02
20.02
—

Outstanding at December 31, 2014

370,300

15.24

118,400

20.02

Outstanding at January 1, 2015
Transfers
Exercised
Forfeited

370,300(27,200)
117,860
7,000

15.24
15.24
15.24
15.24

118,400(4,200)30,000
1,400

20.02
20.02
20.02
20.02

Outstanding at December 31, 2015

218,240

15.24

82,80020.02

Excercisable at December 31, 2015

218,240

15.24

82,80020.02

The exercise price of the Accelerate! options is EUR 15.24 for EUR-denominated options and is USD 20.02
for USD-denominated options. The weighted average remaining contractual term for EUR-denominatedAccelerate! options outstanding and exercisable at 31 December, 2015 is 6.08 years for both. The weighted
average remaining contractual term for USD-Accelerate! options outstanding and exercisable at 31 December,2015 is 6.1 years for both. The aggregate intrinsic value of the EUR-denominated Accelerate! options
outstanding and exercisable at 31 December, 2015, was EUR 2 million for both. The aggregate intrinsic value ofthe USD-denominated Accelerate! options outstanding and exercisable at 31 December, 2015, was less than USD
1 million for both.
Cash received from exercises for EUR-denominated and USD-denominated Accelerate! options amounted
to EUR 2 million in 2015 (2014: EUR 6 million). The actual tax deductions realized as a result of Accelerate!
options exercises totaled approximately EUR nil million in 2015 and 2014
F-73

The total intrinsic value of Accelerate! options exercised during 2015 was EUR 1 million for EURdenominated options (2014: EUR 4 million) and less than USD 1 million (2014: USD 1 million) for USDdenominated options.
30 Details of treasury/other financial risks
Philips Lighting is exposed to several types of financial risks. This note further analyzes financial risks.
Philips Lighting does not purchase or hold derivative financial instruments for speculative purposes. Information
regarding financial instruments is included in note 31, Fair value of financial assets and liabilities.
Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated withfinancial liabilities.
Liquidity risk for the group is monitored through the Philips Treasury Risk & liquidity committees which
tracks the development of the actual cash flow position for the Philips group and uses input from a number ofsources in order to forecast the overall liquidity position both on a short and long term basis. Philips Group
Treasury invests surplus cash in money market deposits with appropriate maturities to ensure sufficient liquidity
is available to meet liabilities when due.
Currency risk
Currency risk is the risk that reported financial performance or the fair value or future cash flows of afinancial instrument will fluctuate because of changes in foreign exchange rates. Philips Lighting operates inmany countries and currencies and therefore currency fluctuations inevitably may impact Philips Lighting’s
financial results. Philips Lighting is exposed to currency risk in the following areas:•

Transaction exposures, related to anticipated sales and purchases and on-balance-sheet receivables/
payables resulting from such transactions•

Transaction exposure of foreign-currency intercompany and external debt and deposits•

Translation exposure of net income in foreign entities•

Translation exposure of foreign-currency denominated equity invested in consolidated companies•

Translation exposure to equity interests in nonfunctional-currency investments in associates andavailable-for-sale financial assets.

It is Philips Lighting’s 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 fromforeign-currency sales and purchases. In general net anticipated exposures are hedged during a period of 15
months in layers of 20% up to a maximum hedge of 80%, using forwards and currency options. Philips
Lighting’s 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 Lighting from effectively and/or efficiently hedging its currency
exposures. As a result, hedging activities cannot and will not eliminate all currency risks for anticipated andcommitted transaction exposures.
During 2015 Philips Lighting has changed its hedging policy with regard to anticipated transaction
exposures. The previous hedging policy focused on protecting against changes in value of forecasted individualtransactions and cash flows. Under the previous policy the hedging ratio and period were set by individual
businesses based on their ability to forecast cash flows, the time horizon for the cash flows and their ability toadapt to changing levels of foreign currency rates. Existing hedges under the old policy are continued until theymature against the original forecasted transactional exposures.

F-74

The following table outlines the estimated nominal value in millions of EUR for transaction exposure andrelated hedges for Philips Lighting’s most significant currency exposures:
Estimated transaction exposure and related hedges in millions unless otherwise stated2013 - 2015
Receivables
exposure
hedgesPayables
exposure
hedgesBalance as of January 1, 2013

Exposure currency
USD
PLN
GBP
RON
CNY
SGD
MYR
MXN
Others

363
90
22
20
—
—
—
—
577

(237)
(55)
(12)
(12)
—
—
—
—
(333)

(621)
(177)
—
—
(370)
(82)
(77)
(32)
(121)

326
103
—
—
241
45
34
20
90

1,072

(649)

(1,480)859

Exposure currency
USD
GBP
AED
AUD
PLN
SGD
CNY
MYR
Others

157
72
44
20
17
6
—
—
365

(102)
(42)
(23)
(12)
(15)
(4)
—
—
(223)

(175)
(9)
—
—
(132)
(23)
(232)
(17)
(16)

105
5
—
—
60
23
162
17
11

Total 2013

681

(421)

(604)

383

Exposure currency
USD
GBP
RON
PLN
AED
CNY
MXN
SGD
MYR
Others

172
47
38
30
26
23
21
10
—
320

(136)
(33)
(15)
(25)
(19)
(23)
(14)
(7)
—
(221)

(151)
(1)
—
(81)
—
(217)
—
(22)
(22)
(4)

113
—
—
53
—
168
—
23
22
3

Total 2014

687

(493)

(498)

382

Exposure currency
USD
GBP
PLN
CNY
CAD
SEK
CHF
MXN
Others

105
66
60
12
31
25
25
19
272

(104)
(35)
(59)
(13)
(2)
(12)
(12)
(11)
(170)

(206)
(1)
(15)
(354)
—
—
—
—
(91)

146
—
15
197
—
—
—
—
41

Total 2015

615

(418)

(667)

399

Total 2013
Balance as of December 31, 2013

Balance as of December 31, 2014

Balance as of December 31, 2015

F-75

The derivatives related to transactions are, for hedge accounting purposes, split into hedges of on-balancesheet 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 tothese exposures, are reported in the income statement under cost of sales. Hedges related to forecasted
transactions, where hedge accounting is applied, are accounted for as cash flow hedges. The results from suchhedges are deferred in other comprehensive income within equity to the extent that the hedge is effective. As of
31 December, 2015, a gain of EUR 3 million was deferred in equity as a result of these hedges. The result
deferred in equity will be released to earnings mostly during 2016 at the time when the related hedged transaction
affect the Combined statements of Income. During 2015, a net loss of less than EUR 1 million was recorded in
the Combined statements of Income as a result of ineffectiveness on certain anticipated cash flow hedges.
The total net fair value of hedges related to transaction exposure as of 31 December 2015 was an unrealized
asset of EUR 3 million. An instantaneous 10% increase in the value of the euro against all currencies would leadto an increase of EUR 9 million in the value of the derivatives; including a EUR 4 million increase related toforeign exchange transactions of the Polish Zloty against the euro and a EUR 4 million increase related to foreignexchange transactions of the Pound Sterling against euro, partially offset by a EUR 8 million decrease related toforeign exchange transactions of the euro against the US dollar.
The EUR 9 million increase includes a gain of EUR 6 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 3 million would be recognized in equity to the extent that the cash flow hedges
were effective.
The total net fair value of hedges related to transaction exposure as of 31 December 2014 was an unrealized
asset of EUR 3 million. An instantaneous 10% increase in the value of the euro against all currencies would leadto a decrease of less than EUR 1 million in the value of the derivatives; including a EUR 5 million decrease
related to foreign exchange transactions of the US dollar against the euro and a EUR 3 million decrease related toforeign exchange transactions of the Pound Sterling against euro, offset by a EUR 14 million increase related toforeign exchange transactions of the euro against the US dollar.
Foreign exchange exposure also arises as a result of intercompany loans and deposits. Where Philips
Lighting enters into such arrangements the financing is generally provided in the functional currency of thesubsidiary entity. The currency of Philips Lighting external funding and liquid assets is matched with therequired financing of subsidiaries either directly through external foreign currency loans and deposits orsynthetically by using foreign exchange derivatives, including cross currency interest rate swaps and foreignexchange 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 either recognized within financial income and expenses in the
Combined Statements of Income or accounted for as cash flow hedges.
Philips Lighting does not currently hedge the foreign exchange exposure arising from equity interests in
non-functional- currency investments in associates and available-for-sale financial assets.
Commodity price risk
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument willfluctuate because of changes in commodity prices.
Philips Lighting is a purchaser of certain base metals, precious metals and energy. Philips Lighting hedges
certain commodity price risks using derivative instruments to minimize significant, unanticipated earnings
fluctuations caused by commodity price volatility. The commodity price derivatives that Philips Lighting enters
into accounted for as cash flow hedges to offset forecasted purchases. As of December 2015, a loss of EUR 0.1
million was deferred in equity as a result of these hedges. A 10% increase in the market price of all commodities
as of 31 December, 2015 would increase the fair value of the derivatives by less than EUR 0.1 million.
As of December 2014, a loss of EUR 0.1 million was deferred in equity as a result of these hedges. A 10%
increase in the market price of all commodities as of 31 December, 2014 would increase the fair value of thederivatives by less than EUR 0.1 million.

F-76

Credit risk
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 Lighting tradereceivables. To have better insights into the credit exposures, Philips Lighting performs ongoing evaluations of
the financial and non-financial condition of its customers and adjusts credit limits when appropriate. In instanceswhere 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.
As part of Philips Group Treasury, Philips Lighting invests available cash and cash equivalents with various
financial institutions and is exposed to credit risk with these counterparties. As part of Philips Group Treasury,
Philips Lighting is also exposed to credit risks in the event of non-performance by financial institutions withrespect to financial derivative instruments. Philips Lighting 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 Philips Lighting, as part of Philips Group Treasury.
As part of Philips Group Treasury, Philips Lighting does not enter into any financial derivative instruments
to protect against default by financial institutions. However, where possible Philips Lighting requires all financial
institutions with whom 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 wheneverpossible, to have a strong credit rating from Standard & Poor’s and Moody’s Investor Services. As part of Philips
Group Treasury, Philips Lighting 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.
Country risk
Country risk is the risk that political, legal, or economic developments in a single country could adversely
impact our performance. The country risk per country is defined as the sum of the equity of all subsidiaries andassociated companies in country cross-border transactions, such as intercompany loans, accounts receivable fromthird parties and intercompany accounts receivable. The country risk is monitored on a regular basis.
As at 31 December 2015, Philips Lighting had country risk exposure of EUR 2.4 billion in the United Statesand EUR 1.0 billion in The Netherlands. Other countries higher than EUR 100 million are Saudi Arabia (286
million), Spain (EUR 194 million), Belgium (EUR 177 million) and China (including Hong Kong, EUR 165
million). Countries where the risk exceeded EUR 20 million but less than EUR 100 million are France, Australia,
Taiwan and Mexico. The degree of risk of a country is taken into account when new investments are considered.
Philips Lighting does not, however, use financial derivative instruments to hedge country risk.
Other insurable risk
Philips Lighting is covered for a broad range of losses by global insurance policies in the areas of property
damage/business interruption, general and product liability, transport, directors’ and officers’ liability,
employment practice liability, crime and cybersecurity. The counterparty risk related to the insurance companies
participating in the above mentioned global insurance policies are actively managed. As a rule Philips Lighting
only selects insurance companies with a Standard & Poor’s credit rating of at least A-. Throughout the year thecounterparty risk is monitored on a regular basis.
To lower exposures and to avoid potential losses, Philips Lighting as part of 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 Lighting locations
and business critical suppliers by risk engineers of the insurer in order to provide an accurate assessment of thepotential loss and its impact. The results of these assessments are shared across Philips Lighting’s stakeholders.
On-site assessments are carried out against the predefined Risk Engineering standards which are agreed between
Philips Group and the insurers. Recommendations are made in a Risk Improvement report and are monitoredcentrally. 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 250,000 to EUR 5 million per occurrence
and this variance is designed to differentiate between the existing risk categories within Philips Lighting as partF-77

of Philips. Above this first layer of working deductibles, Philips Lighting as part of Philips operates its own reinsurance captive, which during 2015 retained EUR 2.5 million per occurrence for property damage and businessinterruption losses and EUR 5 million in the aggregate per year. For general and product liability claims, thecaptive retained EUR 1.5 million per claim and EUR 6 million in the aggregate. New contracts were signed on
31 December, 2015, for the coming year, whereby the re-insurance captive retentions remained unchanged.
31 Fair value of financial assets and liabilities
The estimated fair value of financial instruments has been determined by Philips Lighting using available
market information and appropriate valuation methods. The estimates presented are not necessarily indicative of
the amounts that will ultimately be realized by Philips Lighting upon maturity or disposal. The use of market
assumptions and/ or estimation methods may have a material effect on the estimated fair value amounts.
For cash and cash equivalents, current receivables, accounts payable, interest accrual and short-term debts,
the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore
fair value information is not included in the table below.
The following hierarchy is applied to classify the financial assets and liabilities:
Level 1
Instruments included in level 1 are comprised primarily of listed equity investments classified as availablefor sale financial assets, investees and financial assets designated at fair value through profit and loss. The fairvalue 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’s length basis.
Level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) are determined by using valuation techniques. These valuation techniques maximize the use ofobservable 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 isincluded 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.
Level 3
If one or more of the significant inputs are not based on observable market data, the instrument is includedin level 3.
Fair value of financial assets and liabilities in millions of EUR unless otherwise stated2013 - 2015
Balance as of
Balance as of
Balance as of
Balance as of
1 January 201331 December 2013 31 December 2014 31 December 2015
carrying estimated carrying estimated carrying estimated carrying estimatedamount fair value amount fair value amount fair value amount fair value

Financial assets
Carried at fair value:
Available-for-sale financial assets - noncurrent
Securities classified assets held for sale
Fair value through profit and loss - noncurrent
Derivative financial instruments

—
—

—
—

—
—

—
—

—
—

—
—

—
—

—
21

—
21

—
20

—
20

—
17

—
17

—

Financial assets carried at fair value

21

20

F-78

17

—
—
—
9
9

9

Balance as of
Balance as of
Balance as of
Balance as of
1 January 201331 December 2013 31 December 2014 31 December 2015
carrying estimated carrying estimated carrying estimated carrying estimatedamount fair value amount fair value amount fair value amount fair value

Carried at (amortized) cost:
Cash and cash equivalents
Loans and receivables:
Loans - current
Non-current loans and receivables
Other non-current loans andreceivables
Receivables - current
Receivables - non-current
Held-to-maturity investments
Available-for-sale financial assets

7
1,242
8
—
15

Financial assets carried at (amortized)
costs

1,330

58

49

—
—

2
—
9
1,371
8
—
13

7
8
15

75

83

2

—
—

—
—

9

12
1,545
10
1
10

8
13

1,452

12

3
1,599
20
—
5

10
10

1,653

(22)

Financial liabilities carried at fair
value

(22)

(22)

(15)

(7)

Carried at (amortized) cost:Accounts payable
Accrued interest
Debt

(889)
—
(9)

(887)
—
(8)

(884)
—
(90)

(1,051)(1)(88)

Financial liabilities carried at(amortized) costs

(898)

(895)

(974)

(1,140)

(22)

(22)

(15)

20
5

1,710

Financial liabilities
Carried at fair value:
Derivative financial instruments

(22)

3

(15)

(7)

(7)

Fair value hierarchy in millions of EUR unless otherwise stated2013 – 2015
level 1level 2level 3

total

Balance 31 December 2015
Loans - current
Derivative financial instruments - assets
Non-current loans and receivables
Available-for-sale financial assets
Receivables - non-current

—
—
—
—
—

—

—
—
—
—
—

—

9
3
5
20

Total financial assets

—

37

—

37

Derivative financial instruments - liabilities
Debt

—
—

(7)
—

—

(7)

Total financial liabilities

—

(7)

—

(7)

Balance 31 December 2014
Loans - current
Derivative financial instruments - assets
Non-current loans and receivables
Available-for-sale financial assets
Receivables - non-current

—
—
—
—
—

—
17
12
10
10

—
—
—
—
—

—
17
12
10
10

Total financial assets

—

49

—

49

F-79

9
3
5
20

level 1

level 2level 3

total

Derivative financial instruments - liabilities
Debt

—
—

(15)
—

—
—

(15)
—

Total financial liabilities

—

(15)

—

(15)

Balance 31 December 2013
Loans - current
Derivative financial instruments - assets
Non-current loans and receivables
Available-for-sale financial assets
Receivables - non-current

—
—
—
—
—

2
20
9
13
8

—
—
—
—
—

2
20
9
13
8

Total financial assets

—

52

—

52

Derivative financial instruments - liabilities
Debt

—
—

(22)
—

—
—

(22)
—

Total financial liabilities

—

(22)

—

(22)

Balance 1 January 2013
Loans - current
Derivative financial instruments - assets
Non-current loans and receivables
Available-for-sale financial assets
Receivables - non-current

—
—
—
—

21
7
15
8

—
—
—
—

21
7
15
8

Total financial assets

—

51

—

51

Derivative financial instruments - liabilities
Debt

—
—

(22)
—

—
—

(22)
—

Total financial liabilities

—

(22)

—

(22)

32 Subsequent events
In accordance with IFRS 1 subsequent events have been considered for adjustment or disclosure up to
23 February 2016, the date of issuance of the Philips Consolidated Financial Statements, from which these
Combined Financial Statements were derived, were authorized for issue.
As part of the legal separation on 1 February 2016, Philips Lighting and Philips entered into a masterseparation agreement, including local business transfer agreements in various countries, whereby in principle all
assets and liabilities related to the Lighting business were transferred to Philips Lighting.
In addition, as part of the separation, pension obligations and corresponding assets of Philips Group defined
benefit plans with a net liability amount of approximately EUR 607 million were contributed to Philips Lighting(also refer to note 19).

F-80

Independent auditor’s report
To: The management of Philips Lighting
We have audited the accompanying Combined Financial Statements of Philips Lighting, which comprise the
combined balance sheets as at December 31, 2015, 31 December 2014, 31 December 2013, the combined
statements of income, comprehensive income, changes in cash flows and business equity for the years thenended, and notes, comprising a summary of significant accounting policies and disclosure notes.
Management’s responsibility
Management is responsible for the preparation and fair presentation of the Combined Financial Statementsin accordance with International Financial Reporting Standards as adopted by the European Union and inaccordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. Furthermore, Management is responsible for such internal control as it determines is necessary to enable
the preparation of the Combined Financial Statements that are free from material misstatement, whether due tofraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these Combined Financial Statements based on our audit. We
conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the Combined Financial Statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
Combined Financial Statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the Combined Financial Statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparationand fair presentation of the Combined Financial Statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness ofaccounting estimates made by management, as well as evaluating the overall presentation of the Combined
Financial Statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the Combined Financial Statements give a true and fair view of the financial position ofPhilips Lighting as at December 31, 2015, 31 December 2014, 31 December 2013 and of its results and its cash
flows for the years then ended in accordance with International Financial Reporting Standards as adopted by theEuropean Union and in accordance with International Financial Reporting Standards as issued by theInternational Accounting Standards Board.
Basis of preparation
Without modifying our opinion, we draw attention to note 2A and 2B, which describe the special purpose of
the Combined Financial Statements and the notes, including the basis of accounting. The Combined Financial
Statements are prepared in connection with a contemplated carve-out transaction. As a result, the Combined
Financial Statements may not be suitable for another purpose.
Amstelveen, 10 May 2016
KPMG Accountants N.V.

J. van Delden RA

F-81

PENSION NOTES OF THE ROYAL PHILIPS 2015 ANNUAL REPORTRoyal Philips is the sponsor of the Group’s defined benefit plans. This Annex includes:•

the “Employee benefit accounting”-section as included in Note 12.9 (1) to the consolidated financial
statements of Royal Philips as included in the Royal Philips annual report for the year ended
31 December 2015; and•a description of the defined benefit plans of Royal Philips as included in Note 12.9(20) “Postemployment benefits” to the consolidated financial statements of Royal Philips as included in theRoyal Philips annual report for the year ended 31 December 2015.

P-1

Employee benefit accounting
A defined contribution plan is a post-employment benefit plan under which an entity 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 Statement of income in the periods during which services are rendered by employees.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Plans forwhich the Company has no legal or constructive obligation to pay further amounts, however for which
contributions paid by the Company are not fixed, are also treated as defined benefit plan. The net pension asset or
liability recognized in the Consolidated balance sheets in respect of defined benefit postemployment plans is thefair value of plan assets less the present value of the projected defined benefit obligation (DBO) at the balance
sheet date. The projected 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 futurecontributions or any future refunds.
For the Company’s major plans, a full discount rate curve of high-quality corporate bonds is used todetermine the defined benefit obligation. The curves are based on Towers Watson’s RATE:Link methodology
which uses data of corporate bonds rated AA or equivalent. For the other plans a single point discount rate isused based on corporate bonds for which there is a deep market and the plan’s maturity. Plans in countries
without a deep corporate bond market use a discount rate based on the local sovereign curve and the plan’smaturity.
Pension costs in respect of defined benefit postemployment plans primarily represent the increase of theactuarial present value of the obligation for postemployment 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 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.
The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement
occurs. The gain or loss on settlement is the difference between the present value of the defined benefit
obligation being settled, as determined on the date of settlement, and the settlement price, including any plan
assets transferred and any payments made directly by the Company in connection with the settlement. In thisrespect, the amount of the plan assets transferred is adjusted for the effect of the asset ceiling. Past service costs
following from the introduction of a change to the benefit payable under a plan or a significant reduction of thenumber of employees covered by a plan (curtailment), are recognized in full in the Statement of income.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as therelated service is provided. The Company recognizes a liability and an expense for bonuses and incentives basedon a formula that takes into consideration the profit attributable to the Company’s shareholders after certain
adjustments.
The Company’s net obligation in respect of 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 Statement ofincome in the period in which they arise.
20

Post-employment benefits

Employee post-employment plans have been established in many countries in accordance with the legal
requirements, customs and the local practice in the countries involved.
Most employees that take part in a Company pension plan are covered by defined contribution (DC) pension
plans. The Company also sponsors a number of defined benefit pension plans. The benefits provided by theseplans are based on employees’ years of service and compensation levels. The Company also sponsors a limited
number of defined benefit retiree medical plans.
The benefits provided by these plans are typically covering a part of the healthcare insurance costs after
retirement.
P-2

The largest defined benefit pension plans are in:•

The Netherlands (settled per May l, 2015),•

The United Kingdom (UK) (settled per December 31, 2015) and•The United States (US)At the start of 2015 these plans accounted for more than 90% of the total defined benefit obligation and plan
assets. Philips is one of the sponsors of Philips Pensionskasse WaG in Germany, which is a multi-employer planand is accounted for as a DC plan.
The Netherlands
For the pension plan in the Netherlands (the Flexplan) the Company has no other financial obligation to thePension Fund than to pay an agreed fixed contribution for the annual accrual of active members. The pensionable
age is 67 year. The Flexplan is executed by a Company Pension Fund. A mandatory cap imposed by Dutch
legislation of EUR 100 thousand applies on the pension salary for future pension accrual. Employees earning
more than this cap receive a wage allowance and can join a voluntary net pension saving scheme, at their own
expense, for the salary part above the cap. The net pension saving scheme and some related risk insurances are
executed by an external provider other than the Company Pension Fund.
Up to May 2015, the Company accounted for the Flexplan as a defined benefit (DB) pension plan as it still
ran actuarial and investments risks by means of being entitled to a discount arrangement. This discountarrangement would result in potential future variable pension contributions to be paid by the Company.
Beginning of May 2015, the Company surrendered its right to future discounts and as a result the plan qualified
as a defined contribution plan. Reason for surrendering the discount arrangement was a significant reduction in2015 of the outlook for a potential discount due to increased pension obligations and a regulatory deficit at thefund (because of a lower regulatory discount rate and higher solvency buffers due to change in investment
strategy), combined with the need to avoid unwanted complexity of an allocation of the Dutch fund as a DB planas part of the separation. Consequently, the plan was classified as a DC plan. This triggered the accounting
settlement of the plan which at the time had a EUR 20 million surplus. As the surplus was not recognized in thebalance sheet due to the asset ceiling test, and because no further payments were made directly related to thesettlement, as per the Company’s accounting policy the Company did not recognize a settlement result in theincome statement but in remeasurements for pensions in the Consolidated statements of Comprehensive Income.
At the end of 2013 the Company agreed to transfer a one-off EUR 600 million to the Company Pension
Fund of which EUR 433 million was paid in 2014; the remainder of EUR 167 million (excluding interest) was
paid in the first quarter of 2015.
United Kingdom
The UK plan is executed by a Company Pension Fund currently being wound up. In the UK plan the accrualof new benefits ceased in 2011. A legally mandatory indexation for accrued benefits still applies. The Company
does not pay regular contributions, other than an agreed portion of the administration costs.
In November 2015 the Trustee of the UK Fund entered into two further bulk insurance contracts—buy-incontracts—which provide for payment in respect of all remaining parts of the Fund’s pensioners not covered
under earlier buy-in contracts. Subsequently, the Company requested the Trustee for a wind-up of the UK Fundin December 2015 resulting in a complete buy-out of the plan. As part of the buy-out, an additional payment of
EUR 305 million was made by the Company to the insurance company taking over the plan liabilities. The
buy-out triggers a complete settlement of the UK defined benefit plan. The existing surplus before the extra
payment was EUR 375 million. As this surplus was not recognized in the balance sheet, due to the asset ceiling
test, per the Company’s accounting policy the Company did not recognize this as a settlement result in theincome statement but in remeasurements for pensions in the Consolidated statements of Comprehensive Income.
However, the above mentioned payment of EUR 305 million for EUR 274 million is booked as a related
settlement loss in the income statement and for EUR 31 million as a past service cost in the income statement
being the increase in the DBO for a plan change required by the Insurers. Before and during the wind up of theFund several other de-risking actions were held resulting in a settlement loss of EUR 27 million and a past
service cost gain of EUR 14 million.
P-3

United States
The US defined benefit plan covers certain hourly workers and salaried workers hired before January 1,
2005. Indexation of benefits is not mandatory. The Company pays contributions for the annual service costs aswell as additional contributions to cover a deficit . The assets of the US plan are in a Trust governed by Trustees.
The accrual for salaried workers in the US plan as decided in 2013 would end per December 31, 2015 after
which the remaining members become eligible for the existing US DC plan. In 2015 the end date was accelerated
to July 1, 2015 triggering a EUR 1 million past service cost gain.
In 2015 in preparation of the split of the Company into Lighting Solutions and HealthTech the benefits of agroup of former US employees not having worked for any of the current businesses were transferred to a separate
plan covered by ERISA section 4044, which ensures a correct split of the plan assets among others based on thematurity of the plan. In October 2015 all the benefits of this plan were transferred to a consortium of three
insurance companies. The Company made a EUR 141 million contribution to the plan to enable the transfer. The
transfer to the insurance companies triggered a settlement of the plan. The difference between the DBO andsettlement price at transfer date amounted to EUR 33 million and is recognized as a settlement loss in the income
statement. The effects of ERISA section 4044 for the surviving defined benefit plan will be adjusted by acontribution to the surviving plan early in 2016 which is included in the 2016 cash projection further on in thisnote. A de-risking action held in the remaining pension plan providing lump sums resulted in a EUR 6 million
settlement gain.
Risks related to defined-benefit plans
The remaining defined benefit plans expose the Company to various demographic and economic risks suchas 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 and in some smaller plans where indexation is mandatory. Pension
fund Trustees are responsible for and have full discretion over the investment strategy of the plan assets. In
general Trustees manage pension fund risks by diversifying the investments of plan assets and by (partially)
matching interest rate risk of liabilities.
The Company has an active de-risking strategy in which it constantly looks for opportunities to reduce therisks associated with its defined benefit plans. Liability driven investment strategies, lump sum cash-out options,buy-ins, buy-outs and the above mentioned 2015 change to DC for the Dutch plan and the other settlements areexamples of that strategy. The larger plans are either governed by independent Boards or by Trustees who have alegal obligation to evenly balance the interests of all stakeholders and operate under the local regulatory
framework.
Balance sheet positions
The net balance sheet position presented in this note can be explained as follows:•

The surplus in our plan in Brazil is not recognized as a net defined benefit asset because in Brazil theregulatory framework prohibits refunds to the employer.

•

The deficit of the US defined benefit plan presented under other liabilities and the provisions of theunfunded plans therefore count for the largest part of the net balance sheet position.

The measurement date for all defined-benefit plans is December 31.

P-4

Summary of pre-tax costs for post-employment benefits
The below 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.
Defined benefit plans: Pensions
Movements in the net liabilities and assets for defined benefits pension plans:Philips Group
Pre-tax costs for post-employment benefits in millions of EUR
2013 – 2015

Defined-benefits plans
Included in operating cost
Included in financial expense
Included in discontinued operations
Defined-contribution plans including multi-employer plans
Included in operating cost
Included in discontinued operations

2013

2014

2015

297
220
71
6
142
134
8

245
182
59
4
148
144
4

561
487
72
2
299
293
6

Netherlands

2015
other

total

27,081
137465
9Philips GroupDefined-benefits obligations in millions of EUR
2014 – 2015
Netherlands

2014
other

total

Balance as of January 1
Service cost
Interest cost
Employee contributions
Actuarial (gains) / losses– demographic assumptions– financial assumptions– experience adjustment(Negative) past service cost
Acquisitions
Divestments
Settlements
Benefits paid
Exchange rate differences
Miscellaneous

14,294174478
57,911 22,205
65
239
361
839
4
9

17,616
77
120
5

9,465
60
345
4

(80)
3,487
23
(68)
—
—
—
(699)
—
2

197
117
782
4,269
25
48
(1)
(69)
12
12
—
—
(9)
(9)
(506) (1,205)
624
624
—
2

—
1,796
(176)
—
—
—
(19,197)
(234)

—
—
(271)
1,525
27
(149)
14
14
—
—
(12)
(12)
(5,193) (24,390)
(553)
(787)
635
635
(1)
(1)

Balance as of December 31

17,616

9,465

27,081

7

4,520

4,527

17,6098,532

26,141

—

3,635

3,635

7

933

940

7

885

892

Present value of funded obligations at
December 31
Present value of unfunded obligations at
December 31

P-5—

Philips Group
Plan assets in millions of EUR
2014 – 2015
Netherlands

2014
other

total

Balance as of January 1
Interest income on plan assets
Admin expenses paid
Return on plan assets excluding interest income
Employee contributions
Employer contributions
Divestments
Settlements
Benefits paid
Exchange rate differences

14,843
508
(9)
2,534
5
665
—
—
(699)
—

6,728 21,571
330
838
(6)
(15)
674
3,208
4
9
199
864
—
—
(8)
(8)
(445) (1,144)
540
540

Balance as of December 31

17,847

8,016

Funded status
Unrecognized net assets

Netherlands

2015
other

17,847
123
(3)
1,233
5
245
—
(19,217)(233)—

8,016 25,863
311
434
(6)
(9)
(315)
918
4
9
302
547
(7)
(7)
(5,623) (24,840)
(492)
(725)
520
520

25,863

total

—

2,710

2,710

231
(238)

(1,449) (1,218)
(554)
(792)

(7)
—

(1,810)(90)(1,817)(90)(7)(2,003) (2,010)(7)(1,900)(1,907)

2015
other

total

Net balance sheet positions
The classification of the net balance is as follows:

Philips group
Net balance of defined-benefit pension plans in millions of EUR
2014 – 2015
Netherlands

2014
other

total

Netherlands

Prepaid pension costs under other non-current
assets
Accrued pension costs under other liabilities
Provision for pensions under provisions
Provision in assets held for sale

—
—
(7)
—

2
2
(1,072) (1,072)(926) (933)
(7)
(7)

—
—
(7)
—

3
3
(1,018) (1,018)(885) (802)——

Net balance of defined-benefit plans(7)(2,003) (2,010)(7)(1,900) (1,907)

Philips group
Changes in the effect of the asset ceiling in millions of EUR
2014 – 2015
2014
Netherlands other

total

2015
Netherlands other

Balance as of January 1
Interests on unrecognized assets
Remeasurements
Exchange rate differences

555
19
(336)
—

428
28
73
25

983
47
(263)
25

238
2
(240)
—

Balance as of December 31

238

554

792

—

P-6

total

554 7922729(493) (733)
2
2
90

90

Plan assets allocation
The asset allocation in the company’s pension plans at December 31 was as follows:
Philips Group
Plan assets allocation in millions of EUR
2014 – 2015

Matching portfolio:– Debt securities– Other
Return portfolio:– Equity securities– Real estate– Other
Total assets

2014
Netherlands

other

2015
Netherlands

10,663
—

5,051
1,299

1,523

5,088
1,784
312

388
13
1,265

740
9
438

17,847

8,016

2,710

other

Asset values related to buy-in contracts are now included in the matching portfolio under Other.
The assets in 2015 contain 51% (2014: 17%) unquoted assets, the increase compared to 2014 fully related tothe exclusion of the UK and NL plan assets. Plan assets in 2015 do not include property occupied by or financial
instruments issued by the Company.
Assumptions
The mortality tables used for the Company’s major schemes are:•

Netherlands: Prognosis table 2014 including experience rating TW2014.

•

UK: SAPS 2002 – Core CMI 2011 projection•

US: RP2014 HA/EE Fully Generational scaled with MP2014

In the US the issued MP-2015 mortality improvement scale, not adopted by the Company yet due to thelimited extra period (2 years) of observation, would lower the DBO by about EUR 40 million.
The weighted averages of the assumptions used to calculate the defined-benefit obligations as ofDecember 31 were as follows:
Philips Group
Assumptions used for defined-benefit obligations in %2014-2015

Discount rate
Rate of compensation increase

2014
Netherlands

other

2015
Netherlands

other

2.1%
2.0%

3.7%
3.0%

—
—

4.0%
2.7%

The Discount rate for the Netherlands at the moment of the change to DC was 1.55%. Due to the nature of
the pension plan in the Netherlands until May 1, 2015 an assumption was required for the future pension accrualrate. If the fixed premium did not cover the cost of the target accrual of 1.85% per annum a lower percentage
must be applied for which the cost will be covered by the fixed premium. The Fund in the Netherlands has set
aside part of the EUR 600 million received for active members accrual or indexation. The accrual rate for the
next 5 years starting 2015 was expected to be 1.85% but per 31 December 2014 the average future accrual rateused to calculate the defined-benefit obligation and service cost was fixed at 1.74% as after the five year period alower percentage would apply assuming the current fixed premium level. Per May 1, 2015 this no longer applies
due to the change to DC.
The average duration of the defined-benefit obligation of the pension plans is 10 years (2014: 12 years).
P-7

COMPANY
Philips Lighting N.V.
High Tech Campus 455656 AE Eindhoven
The Netherlands

SELLING SHAREHOLDER
Koninklijke Philips N.V.
High Tech Campus 55656 AE Eindhoven
The Netherlands

LEGAL ADVISORS TO THE COMPANY AND THE SELLING SHAREHOLDER
As to Dutch law
De Brauw Blackstone Westbroek N.V.
Claude Debussylaan 801082 MD Amsterdam
The Netherlands

As to U.S. and English law
Sullivan & Cromwell LLP
1 New Fetter Lane
London, EC4A 1AN
United Kingdom

JOINT GLOBAL COORDINATORS AND JOINT BOOKRUNNERS
Goldman Sachs InternationalPeterborough Court
133 Fleet Street
London EC4A 2BB
United Kingdom

J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London E14 5JP
United Kingdom

JOINT BOOKRUNNERS
Citigroup Global Markets
Limited25 Canada Square
London E14 5LB
United Kingdom

ING Bank N.V.
Bijlmerplein 888
1102 MG Amsterdam
The Netherlands

Morgan Stanley & Co.
International plc
25 Cabot Square
Canary Wharf
London E14 4QA
United Kingdom

Société Générale
Corporate & Investment
Banking
29 Boulevard Haussmann
75009 Paris
FranceCO-BOOKRUNNERS
ABN AMRO Bank N.V.
Gustav Mahlerlaan 101082 PP Amsterdam
The Netherlands

Coöperatieve Rabobank U.A.
Croeselaan 183521 CB Utrecht
The Netherlands

LEGAL ADVISORS TO THE UNDERWRITERS
As to U.S. and English law
Davis Polk & Wardwell London LLP
5 Aldermanbury Square
London EC2V 7HR
United Kingdom

As to Dutch law
Stibbe N.V.
Stibbetoren
Strawinskylaan 2001
1077 ZZ Amsterdam
The Netherlands

FINANCIAL ADVISER TO THE SELLING SHAREHOLDER
N.M. Rothschild & Sons Limited
New Court
St. Swithin’s Lane
London EC4N 8AL
United Kingdom

INDEPENDENT AUDITORSAs auditors of the Combined Financial Statements
KPMG Accountants N.V.
Laan van Langerhuize 11186 DS Amstelveen
The Netherlands

As auditors of the Condensed Combined Interim Financial
Statements
Ernst & Young Accountants LLP
Cross Towers, Antonio Vivaldistraat 150
1083 HP Amsterdam
The Netherlands

LISTING AND PAYING AGENT AND RETAIL COORDINATOR
ING Bank N.V.
Bijlmerplein 888
1102 MG Amsterdam
The Netherlands

Printed by RR Donnelley, 174585