Risk Management: Top 10 risks of a Koninklijke Philips Electronics

Résumé du document

Philips Presentation
Koninklijke Philips Electronics N.V., well known as Philips, is one of the biggest groups of the world in terms of electronics, household, music edition and medical equipment. In 2004, its sales reached € 30.3 billion and employed 161 586 people in more than 60 countries all over the world.
Philips is composed by several divisions: consumer lifestyle, semiconductor, healthcare and lighting.
In 2005, as electronic chips manufacturer, Philips is the 9th most important manufacturers of semiconductors.

History
The company was founded in 1891 by the Gerard brothers (1858-1942) and Anton Philips (1874-1951) in Eindhoven, in Netherlands. Its first products were electric bulbs and other electrotechnical products. The first manufacture is used today as museum.
In the years 1920, the company started to manufacture other products, like the first shaver, Philishave, in 1939. In United States, the brand name is Norelco. At the beginning of the 70's, Philips launched the cassette with audio ribbon with a broad success, but failed with its standard for the cassettes video ribbon, V2000, in favor of betamax and especially of VHS, cassette DCC (DIGITAL Compact Cassette) launched in November 1992 in partnership with Matsushita (Panasonic, Technics).
During the Second World War, on May 9th, 1940, the leaders of Philips were informed of the German invasion of the Netherlands on the following day. Then they decided to join the United States, taking along with them a broad portion of the capital of the company. So they kept the company working during the war from United States, having made it move (on paper), in the Dutch West Indies. After the War, Philips came back to Eindhoven. Many research centres had been hidden or padlocked, so after the withdrawal of the Germans, Philips could quickly restart its activities.

Some people thought that Philips has, before and during the war, provided equipment to the Germans, which led some to believe that they had collaborated with the Nazis, like several other companies of the time. However, no proofs exist indicating that Philips or its leaders sympathized with the Nazis or their ideologies. In addition, Philips was not able to prevent the occupant from using his manufactures and putting its employees at the forced labor.

Extraits

[...] Bigger is the debt amount, riskier is the situation. Philips got a debt of million in 2008 which represents a really big interest rate risk. Liquidity risk “Philips has various sources to mitigate the liquidity risk for the group, including million in cash and cash equivalence, a US$2,500 million commercial paper program, and a US$2,500 committed revolving facility that could serve as back-up for short term financing requirements, that could normally be satisfied through the commercial paper program.” Some other treasury risks are quoted by the company governance as: Equity price risk Commodity price risk Credit risk Country risk Other insurance risk PENSION RISK Pension related exposure to changes in financial markets To be aware of its pension risks, Philips analyze its sensitivity, sensitivity of funded status to equity and interest rates, of funded status to inflation and longevity Moreover, Philips analyses its stochastic degree. [...]

[...] For example, in 2008, capital and credit markets experienced extended volatility and disruption that have reached unprecedented levels and have negatively impacted both consumer borrowing and spending and economic growth globally.[ ] The current tightening of credit in the financial markets may make it more difficult for Philips' customers o obtain financing and they may modify, delay or cancel plans to purchase Philips' products and services or a slowdown in the automobile and construction industry could impact the results of our Lighting sector.” Moreover, we have to add some other factors which could impact the current market: fluctuation of energy and raw material prices, global political conflicts On a political level, Philips could be badly surprised by unfavorable political factors as unexpected legal or regulatory changes, nationalization of assets Growth anticipated could be finally different in emerging market Expanding its geographical cover on emerging markets is very important for Philips. One of its future goals is based on “emerging markets attack”. For example, Asia is a strategic place to produce, source and set up its design center. Philips will meet different actors on those new markets as new competitors which could be stronger than others. [...]

[...] However, the product creation process depends on several factors as “timely and successful completion of development efforts, market acceptance, Philips' ability to manage the risks linked with new products and production ramp-up issues, availability of products in good quantities and costs to meet anticipated demand, and the risk that products and services could have defects”. A bad supply chain management could be risky on a competitiveness level Philips has always based its supply chain management on a leaner one thanks to fewer suppliers. [...]

[...] Risk Management belongs to Philips business Control Frameword and Philips General Principles in the Philips' organization. Corporate Governance According to Philips' policy, success can not be reached without a good Corporate Governance. It is in charge of controlling and directing the company. Its corporate governance has been built on several internal controls and on some “high ethical standards”. Internal audits permit the firm to avoid internal risks. They could identify all weaknesses could be met in the future; it is a strategic way to anticipate failure. [...]

[...] “Reliability of reporting and discolors, and safeguarding of assets” The reliability of reporting and information are very important in the making decision process. The right decision could only be taken if Philips uses high quality data. Significant information permit a better understanding of the business, that is why, lack of clarity in the disclosures may have a negative impact in Philips share price. “Compliance procedures have been adapted by management to ensure that the use of resources is consistent with laws, regulations and policies, and that resources are safeguarded against waste, loss and misuse”. [...]