IAS 7 paras 42A-42B, changes in ownership not resulting in loss of control treated as financing

 

Koninklijke Philips N.V. – Annual report – 31 December 2016

Industry: manufacturing

5 Interests in entities (extract)

IPO Philips Lighting

In May and June 2016, the Company sold 28.775% of its interest in Philips Lighting (a wholly owned subsidiary of the Company) through an IPO (involving 28.75% of the shares) and transactions with the CEO and CFO of Philips Lighting (involving 0.025% of the shares), reducing its remaining interest in Philips Lighting to 71.225%. This transaction involved cash proceeds of EUR 863 million and EUR 38 million transaction costs spend. This partial divestment transaction did not impact the profit and loss account of the Company, as Philips Lighting continues to be fully consolidated.

The transactions had a positive impact on Shareholders’ equity of the Company of EUR 109 million. This amount is based on:

  • the difference between the proceeds and the carrying value of the 28.775% stake in Philips Lighting (gain of EUR 163 million);
  • costs related to the IPO which were directly recognized in Shareholders’ equity (loss of EUR 38 million) and;
  • certain reallocations of Other comprehensive income items to Non-controlling interests (loss of EUR 16 million).

As a result of the IPO, Non-controlling interests increased by EUR 716 million. Please refer also to note 17, Equity. This amount is based on:

  • the carrying value of the 28.775% stake in Philips Lighting (increase of EUR 700 million) and;
  • certain reallocations of Other comprehensive income items from Shareholders’ equity (increase of EUR 16 million).

Prior to the IPO, the Company completed an internal legal restructuring whereby all Lighting activities were concentrated in Philips Lighting. This legal restructuring resulted in an increase of consolidated legal entities from 450 as of December 31, 2015 to 465 as of December 31, 2016.

Sales and Income from operations of Philips Lighting are reflected in the Lighting segment information included in note 2, Information by segment and main country. Certain differences exist between the Lighting segment information reported by the Company and Philips Lighting’s stand-alone Annual Report published on February 21, 2017. Differences in income from operations mainly relate to separation costs (EUR 62 million) that Philips Lighting recognizes in Income from operations, whereas these costs are reflected in the segment Legacy Items by Royal Philips.

10.7 Consolidated statements of cash flows

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