Jan Christiaens, CFO Corporate Investments at Philips spoke at the CFO Event in Frankfurt 2013.

1. Jan Christiaens
Value Creation by Integrating in an
effective way newly integrated companies.
Philips Corporate Investments &
New Venture Integration

2. Agenda
• Introduction
• Philips and its acquisitions
• The New Venture Integration team
• The M&A process and integration
• Drivers of success
• Objectives of integration
• Key lessons learned
• Monitoring and review
• Q&A

3. Acquiring and integrating companies
- the importance of doing it right
 Studies show that ~80% of M&A deals don´t boost shareholder value
 Daimler-Benz acquired Chrysler for $38 billion and seven years later sold it for only $7.5 billion
 Quaker Oats purchased Snapple for $1.7 billion and three years later sold it for $0.3 billion
 BHP Billiton spent $875 million pursuing three major deals that subsequently collapsed
 Integration is key to achieving value creation
 Acquiring companies tend to focus on which targets to pursue without a clear understanding of
how to integrate them into their organizations
 Too often the transaction itself absorbs most of the company's energy: CEO and organization focus
on consummating the deal, not on making it work
 Value is created not in the transaction itself but in successful implementation: Catastrophic failures
are rare, but failing to realize the potential value of the merger is common

4. Philips: a strong diversified industrial group
Who we are Our businesses Operating in >100 countries
Founded in 1891
Headquartered in Amsterdam,
The Netherlands
26%
Sales of €22.6 billion in 2011 40%
- 33% in Growth Markets 2011
- 65% in B2B
- EBITA 7.4% of sales
Globally recognized brand (world top 50) 34%
Our brand value doubled to $8.7bn since
2004
Healthcare Growth Markets
122,000 employees
Sales and service outlets in over 100 Lighting Western Europe
countries
Consumer Lifestyle North America
€1.6 billion investment in R&D Other

5. Healthcare
Philips Healthcare
Businesses Geographies
Imaging Home Patient Care Customer North Growth All Other
Systems Healthcare and Clinical Services America Geographies Geographies
Solutions Informatics
38% 14% 23% 25% 45% 22% 33%
€8.9 37,000+ 8% 450+
Billion sales People employed of sales invested in R&D Products & services
in 2011 worldwide in 100 countries in 2011 offered in over 100 countries

6. Consumer Lifestyle
Philips Consumer Lifestyle
Businesses1, 2 Geographies1
Personal Health & Domestic Lifestyle Mature Growth
Care Wellness Appliances Entertainment Geographies Geographies
24% 14% 31% 29% 56% 44%
€5.6 19,000+ 5% 27%
Billion sales People employed of sales invested of green product
in 2011 worldwide in R&D in 2011 sales in 2011

7. Lighting
Philips Lighting
Customer Segments1
Homes Offices Outdoor Industry Retail Hospitality Entertainment Healthcare Automotive
25% 15% 15% 8% 15% 4% 4% 3% 11%
€7.6 52,000+ 5% 80,000+
Billion sales People employed of sales invested Products & services
in 2011 worldwide in 60 countries in R&D in 2011 offered in 2011

8. Amsterdam:
NVI global footprint 3x Program Manager
1x Project Assistant
Eindhoven:
Boston: 1x Head of NVI
3x Program 1x Assistant
Manager 2x F&A Expert
1x HR Lead
Seattle:
1x Communications Business Partner
1x IT Business
1x Procurement Business Partner
Partner
Shanghai:
1x Program
Manager
Delhi:
1x Program Manager
Healthcare Lighting Consumer lifestyle Emerging Markets

9. M&A process & NVI Involvement
Deal Financials & Data & Acquisition Metrics
M&A Process
Preliminary
Due
Strategy -> Diligence Integration &
Negotiate Definitive Due Diligence & Valuation Closing & Post-
Target Transaction
Letter of Merger
Screening & Negotiate Final Closing
Identification Intent Full Due Diligence
Deal Preparation Integration
Build Initial
Valuation
Project Intake Non-Binding Term Sheet Binding Transfer of Post-Close
Form Offer Offer & Ownership / RFA
(Start NVI RFA Start Closing Validation
Involvement) document
• Early involvement PMI in planning/business case & synergy definitions & validation
• Sales & Standalone numbers ownership/Assigning ownership during pre-close
• RFA (Request For Approval) business case benchmark

10. Post Merger Integration Metrics, Tracking and Feedback loops
PMI Metrics & Tracking
PMI Process
Executing Post-Merger Integration
Closing & PMI Capture Lessons
Close PMI Post-Calculation
Kick-Off Tracking & Learned PMI
Integration Audit
Reporting
Start Detailed PMI Integration Post-Close Post-Close
PMI planning performance Audit 12- RFA Value
Tracking 24mths Validation Calculation
• After sign/close Go in and validate:
• Synergies
• Restricted Areas; R&D pipeline/Customer/Prices etc
• Unknowns; auctions/listed
• Conclusion: is our original case still alive or does it need adjusting?
• Share/discuss PMI assumptions with the target!
• PMI Metrics: everything we consistently check & measure in relation to the PMI Results and Approach

11. Drivers of successful post-merger integration*
*MARC J. EPSTEIN – “Organizational Dynamics”
• Coherent integration strategy
• Strong integration team
• Communication
• Speed in implementation
• Aligned measurement
11

12. Five steps towards successful integration
Overall objective Deliverables before close
• Integration objectives aligned with acquisition
Integration rationale
strategy • Translation of integration objectives in prioritized
initiatives/workstreams and targets
• Business leadership team in place and embedded in
Successful Organization and key
Philips organization
person retention/
integration succession
• Key integration team roles identified
• Retention/ succession plan in place
Cultural integration • Change management plan in place based on culture
Value creation of
and change mgmt / assessment
combined • Communication plan in place
communication
company exceeds
what both parts • Day 1 plan in place
Detailed
could achieve as • Detailed plan per workstream, including
planning responsibilities, milestones, targets and key actions
independent firms
Execution and • Kick-off fully prepared
tracking • Tracking and monitoring tools and process in place

13. Objectives when integrating companies
- create value by realizing synergies, ensuring that:
People
 Employees are constantly informed, motivated and feel part of our company
 The right leadership is put in place
 Key talent remains with the business to protect company-specific knowledge
Business goals
 Best practices from both companies are shared before
choosing which ones to follow
 The new company is provided with all necessary tools to perform
 Goals are set early, properly tracked and fully achieved
 The new business incorporates Philips’ global general principles

14. Key lessons learned
• It is difficult to compensate for stand alone delay via synergies
• Cross selling in a global company is time and resource consuming and we must account for
regulatory approvals, adaptation of product specifications/ documentation, sales resources, sales
training
• Detailed integration planning before closing makes it possible to take advantage of excitement
immediately after the deal closes to build momentum
• Retention of (key) people is a critical success factor, especially in small businesses and solution
focused businesses
• Injecting our people into newly acquired companies soon after close can significantly improve
employee engagement, communication and cultural integration
• Cultural integration and communication continue to be critical success factors

15. High level PMI Cascading reporting structure
Reporting mechanism Report to Frequency Discussion Topics
Tracking tool
workstream • Overview milestones
management • Tasks
Continuous • Synergies
/PMI
leadership • Issue recognition and resolution
Progress reporting
• Financial performance target
Steering – Including synergies and project costs
Monthly • Milestone reporting
Committee
• Key issue resolution
• Financial performance target
BBSC – Inc. synergies and project costs
• Progress report
Philips ExCo Monthly • People retention
• Customer satisfaction (NPS)
• Link to Original Business Case/RFA

16. From Charter to Project Tracker
Workstream Project Charter
Workstream: IT Applications (SBO+ suite)
Integration Project: Philips Saudi Arabia Joint Venture
Workstream Project Objectives and Workstream Project Scope and Approach
Goals
Provide and implement IT Applications for new KSA In Scope:
JV legal entity CS (Call Mgmt, Long Term Planning, IB Mgmt, CSA Mgmt, FCO
* create SBO+ instance for new KSA JV Mgmt, Logistics, Warehouse Management, Procurement, Field
* roll out satellite tools of SBO+ suite for new KSA JV in activities, training, invoicing)
harmonized set up (according to blueprint) Supply Chain (Logistics, Warehouse Management, Procurement
* train new organization in ORP, CS and F&A blueprint factory&third party,
processes Project Management)
* train key users in SBO ways of working covering OAP, Pricing, fiscal
ORP, CS and F&A F&A responsibilities: Equipment Invoicing, Credit check,
* test tooling prior to go live
* provide post go live support
OoS:
HHS
Project Plan
Index Activity (From Must Do List) Finish By Date Done Owner Milestone / Deliverable
Define Gaps and solutions KSA blueprinted week 48 Busines clearly defined gaps and pro po sed
1 so lutio ns
2 Create KSA instance in SBO+ week 49 s team
IT new instance in SB O+
3 Create KSA developments in SBO+ week 6 IT new develo pments in new instance
4 User Training week 9 Busines signed o ff training fo r key users
UAT/ 2nd training week 12 Busines signed o ff UA T and retraining fo r key
5
users
6 Upload masterdata to production system week 13 s team
IT migratio n o f clean master data
7 Go-live of SAPBO week 14 ALL system live to enable o peratio nal
suppo rt
Unique ID Milestone Task Description Task Start date Duration Finish Original % Planned
Accountable (days) date Finish Complete Completio
(frozen) n % (vs
frozen
finish)
RD2 Impl ement Desi gn Control s Complete Gap Analysis Vacheron 28-Mar-11
Determine w hich existing Dameca process documents can be used or modif ied 39 6-May-11 6-May-11 100% 100%
RD3 Impl ement Desi gn Control s Modify RICA Design Control Documents Correct documentation w here appropriate Vacheron 9-May-11 14 23-May-11 23-May-11 100% 100%
RD4 Impl ement Desi gn Control s Review Design Control Documents Review updated documents and overall design Vacheron
control implementation24-May-11 24 17-Jun-11 17-Jun-11 100% 100%
RD5 Impl ement Desi gn Control s Release Design Control Documents Formally put processes in place Molberg 20-Jun-11 2 22-Jun-11 22-Jun-11 100% 100%
RD7 Si esta I TS Desi gn Control Documents Create Initial Documents Create initial drafts of DDP, UN, DID, SHA, and FMECA
Molberg 2-Jun-11 13 15-Jun-11 15-Jun-11 100% 100%
RD8 Si esta I TS Desi gn Control Documents Review Initial Documents Correct documentation where appropriate Molberg 15-Jun-11 6 21-Jun-11 15-Aug-11 100% 100%
RD9 Si esta I TS Desi gn Control Documents Release Documents Formally release DDP, UN, DID Molberg 21-Jun-11 2 23-Jun-11 17-Aug-11 100% 100%
RD10 Si esta I TS Desi gn Control Documents Create FMECA & SHA RMA Improve details of FMECA & SHA QA manager 23-Jun-11 21 14-Jul-11 19-Aug-11 100% 100%
Translate Action Plan to
RD11 Si esta I TS Desi gn Control Documents Review FMECA & SHA RMA Correct documentation where appropriate QA manager 13-Jul-11 7 20-Jul-11 26-Aug-11 100% 100%
RD12 Si esta I TS Desi gn Control Documents Release FMECA & SHA RMA Formally release FMECA & SHA QA manager 20-Jul-11 2 22-Jul-11 31-Aug-11 100% 100%
RD14 Si esta i TS 510K functi onal changes Complete Final Changes List Agreement on final list between Marketing (Walter and RICA) and R&D
Huehn 12-Apr-11 34 16-May-11 16-May-11 100% 100%
RD15 Si esta i TS 510K functi onal changes Modify Design Documentation Re-design components and update drawings Molberg 16-May-11 137 30-Sep-11 30-Sep-11 100% 100%
RD16 Si esta i TS 510K functi onal changes Working Prototype Available in RICA Working prototype delivered to RICA for evaluation
Molberg 17-May-11 92 17-Aug-11 17-Aug-11 100% 100%
Project tracking
Si esta i TS 510K functi onal changes 14 31-Aug-11 100% 100%
Charter to
RD17 Final Prototype Input RICA marketing provides feedback for working prototype
Vacheron 17-Aug-11 31-Aug-11
RD18 Si esta i TS 510K functi onal changes Update Design Documentation Re-design components and update drawings based on RICA marketing feedback
Molberg 31-Aug-11 30 30-Sep-11 30-Sep-11 100% 100%
RD19A Si esta i TS 510K functi onal changes First 2 Working Models Complete assembly of 10 working models (production equivalent)
JC Pedersen 31-Aug-11 75 14-Nov-11 14-Nov-11 100% 100%
RD19B Si esta i TS 510K functi onal changes 10 Working Models Complete assembly of 10 working models (production equivalent)
JC Pedersen 31-Aug-11 200 18-Mar-12 15-Mar-12 100% 100%
RD21 Veri fi cati on Testi ng Gap Analysis Identify testing necessary to complete 510K submission
Battiste 28-Mar-11 119 25-Jul-11 31-Aug-11 100% 100%
RD22 Veri fi cati on Testi ng Create Verification Protocols Create drafts of verification protocols Molberg 25-Jul-11 203 13-Feb-12 13-Feb-12 100% 100%
Action plan RD23
RD24
RD26
RD27
RD29
Veri fi cati on Testi ng
Veri fi cati on Testi ng
El ectri cal Veri fi cati on Testi ng
El ectri cal Veri fi cati on Testi ng
Bi ocompati bi l i ty Testi ng
Review Verification Protocols
Release Verification Protocols
EMC
Electrical Safety
VOC
Correct documentation where appropriate
Formally release verification protocols
Molberg
Molberg
Complete EMC testing at an outside laboratoryMolberg
Complete Electrical Safety testing at an outside laboratory
Complete Volatile Organic Compound testing
Molberg
Molberg
1-Jan-12
8-Jan-12
15-Nov-11
14-Dec-11
15-Dec-11
48
43
136
184
198
18-Feb-12
20-Feb-12
30-Mar-12
15-Jun-12
30-Jun-12
18-Feb-12
20-Feb-12
30-Mar-12
30-Mar-12
7-Apr-12
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
& Metrics

17. PMI Project Tracking & Management
17

18. Regularly (monthly) reporting per Workstream
Workstream Lead: Date
Status is stable
On target
Overall status: Status is improving
Slightly behind
Status is deteriorating
Significantly delayed
Milestones/Key Activities current period: Milestones/Key Activities next period:
Major issues/risks - issues or risks that will impact upon your project
Description of issue/risk: Action Owner:

19. Employee Engagement: Pulse Survey Process
• The Pulse Survey is a tool to provide employees of acquired organizations the
opportunity to share their feedback regarding the integration
• This feedback is used during the integration process to make changes to the
approach where needed
• The Pulse Survey
measures:
• Future/Vision/Trust
• Inclusion and Team
Work
• Communication
• Employee
Engagement score
19 Ultimately it’s not the score that counts but the 2 way dialogue with Employees! 19

20. Integration Audit
• All acquired companies go through a Corporate Integration audit after 9-18mths after close
• Depending on the business size the audit takes 1-4 weeks and will:
• Assess the efficiency and effectiveness of the key business processes of the acquired
business
• Do a risk assessment along with Management in order to short-list the high risk,
critical processes
• Perform an in-depth process review of some of the high risk processes.
Audit Example:
• Each observation is given a 1-3
star rating indicating criticality
• Target & PMI team need to
address all items within a 6
month window
• Key leanings from Integration
audits are fed back into PMI
approach
20

21. Closing the PMI phase Example closing report:
• Conditions to close PMI:
1. Due Diligence Risks
2. Project Planning
3. Project Planning changes
4. Corporate Internal Audit
5. Other compliancy issues
6. Synergies
7. Lessons Learned
8. Transfer to operation

22. Post-Calc
Post Calculation:
• After PMI close Corporate Controls audits the results
• Audits focus on 3 areas:
• Stand alone
• Synergy realization
• Strategic rationale and fit
• Original Value Creation compared to new Value creation case & outlook

23. Food for thought…
Value Creation:
• Which companies measure value creation consistently?
• How do you know what the ‘score’ is?
Metrics vs KPI’s:
A Key Performance Indicator is a Metric that helps the
business know if things are on track or if something is
about to change.
How many KPI vs Metrics do you have?
How many are truly leading/forward looking
indicators?

24. Questions?

25. … and these roles and responsibilities in the integration
execution phase Annex 1
Teams Project roles Key responsibilities
• Key decision making
strategy
Integrat
Integration • Project resource management
• Steering committee
ion
steering
– Incl. NVI member
committee
• Business integration leader (Philips) • Daily project management
Integrati
• Overall decision making
manage
Integration
project
• Integration manager (target)
ment
on
management • Program manager (NVI) • Report to Steering Committee
team
• Project Office
• Implement workstream plans
• Workstream leaders (Philips + target)
Functional • Report to integration management
integrati
Busines
process
• Functional experts (e.g. NVI, country or
workstreams team
on
s
sector function)
Country teams • Project and/or Country manager
Communication Communications • Implement communication plan and
(in scope of HR workstream) support workstreams
team
Culture & change
Culture team • Implement culture & change
management (in scope of HR workstream) management plan & support workstreams

26. NVI supports the acquisition process from the
beginning with… Annex 2
Acquisition rationale
Set integration
• 'Why we do the deal' objectives and translate
(defined in the M&A into initiatives Prioritization of
process) • Core integration initiatives and high level
objectives to realize planning
value creation potential Build detailed planning/
• Verify initiatives and
• First view on initiatives milestones and tasks
prioritize
to meet the integration
• Verify risks during due
objectives (business • Plan initiatives in detail
diligence and identify Implement and track
initiatives and key (workstreams),
mitigating actions
enablers/ must-do's) including
• Build high level
• Build first view on key responsibilities, tasks, • Implement workstream
planning including
risks milestones, tracking plans and monitor
responsibilities,
• Prepare for due etc. milestones and KPIs of
planned value creation
diligence • Build day 1 plan initiatives
and project costs
Establish structure Planning Detailed planning Implementation
Due diligence
Non-binding RFA Binding RFA Deal close

27. New Venture Integration Annex 3
- roles and responsibilities
• Work closely with the Business and Mergers & Acquisitions to effectively realize the value
from acquisitions
• Lead the preparation of an overall integration plan
• Link the integration process and priorities to the strategic rationale and the size/ maturity of
Roles &
the acquired company
Responsibilities
• Organize the timely introduction of functional processes and expertise
• Build and maintain a competence center by capturing, learning, sharing and developing know-
how, standardized tools and metrics on acquisition integration
• Track progress and report to Sector / Business Management, ExCo, Supervisory Board
• Acquiring Business • Acquired Company
Main Stakeholders • Sector / Business Mgt • ExCo, Supervisory Board, Audit Committee
• Corporate Functions • M&A