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Philips Medical Systems: Beyond 14%

Jouko Karvinen

Analysts Meeting

June 15th, 2005

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2Philips Medical Systems

Philips Medical

Beyond 14%

Improvement

Metric of Success

Building the future Innovation

Building the future Customers

Where do we go from here

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3Philips Medical Systems

In June 2004

Seven consecutive quarters ofimprovement

Will continue on this path to 14 %and beyond

significant & quantified opportunitiesstill ahead

Next step expansion is also a path

focus on improving care cycle, build

on existing strengths and differentiate

In June 2005

Eleven consecutive quarters ofimprovement

Will continue on this path beyond 14.4% of 2004

significant & quantified opportunitiesstill ahead

Next step expansion is also a path

focus on improving care cycle, build on

existing strengths and differentiate

Growth opportunities mapped discussions on going

Value creation driven, not just top line our time table

Deliver on Commitments, Focused on Growth

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4Philips Medical Systems

Surgical instruments,

devices and supplies

IT in Healthcare

Diagnostic imagingand monitoring

Other equipment &services

Main categories Medical equipment, services, devices and supplies 260 bln worldwide

Sources: Medistat, PMS internal analysis

30 bln

60 bln

70 bln

100 bln

The Medical Systems & Device Market

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5Philips Medical Systems

Business by Segment 2004

Medical IT

Patient Monitoringand Cardiac Devices

Document services

Medical IT

Patient Monitoringand Cardiac Devices

Document services

Imaging Systems

EUR 2.8 bln

Nuclear Medicine

CT

MR

PET

Ultrasound

X-Ray

Nuclear Medicine

CT

MR

PET

Ultrasound

X-Ray

Consultancy

Clinical services

Asset management

Maintenance& Repair

Consultancy

Clinical services

Asset management

Maintenance& Repair

Information andMonitoring Solutions

EUR 1.5 bln

Customer Services

EUR 1.6 bln

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6Philips Medical Systems

+ 2.6 pts

+ 23%

+ 4%

+ 16%

2004 to 2003

+ 9%Comparable OrdersGrowth

+ 9%EBIT Growth*

+0.5 pts

+ 5%

Q1 05 to Q1 04Achievements

EBIT margin*Improvement

Comparable SalesGrowth

Year-on-YearImprovement

Improvement is the Metric of Success

*excl. non-recurring items

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A Faster, More Efficient Supply Chain

Net Capital Turnover

3,9 4,0

5,0

2,9

3,7

0

1

2

3

4

5

6

2002 2003 2004 FC 2004

Actual

Target

Equipment Direct Deliveries

as % Sales (world)

59%

73%

80%

26%32%

0%

10%

20%

30%

40%

50%

60%70%

80%

90%

100%

2002 2003 2004 FC 2004

Actual

Target

Net Capital = Capital excluding Goodwill

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Information Technology Improvements

IT spending as % Sales

4,0%

3,0%

4,9%4,4%

0%

2%

4%

6%

8%

2003 2004

FC

2004

Actual

Target

Number of ERP systems

9 9

1

24

10

0

5

10

15

20

25

30

2002 2003 2004

FC

2004

Actual

Target

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Building an Integrated Supply Base

No. of Suppliers (80 % of spend)

0

20

40

60

80

100

120

140

160

2003 2004 FC 2004

Actual

Target

Supplier Managed Inventory (%)

0

10

20

30

40

50

60

70

80

2003 2004 FC 2004

Actual

Target

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Philips Medical Systems

Philips Medical

Beyond 14%

Improvement Metric of Success

Building the future Innovation

Building the future Customers

Where do we go from here

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Philips Medical Systems

PMS Renewing Product Portfolio

0

20

40

60

80

100

120

140

2002 2003 2004 2005 FC

Support

Life CycleManagement

Evolutionary

New Platform

Breakthrough

40%

45%

63%

58%

70%

2002 2003 2004 FC 2004 Actual Target

Accelerated Product Renewal% Revenues based on

products < 2 yrs old

Balanced InvestmentR&D spending at comparablecurrency (indexed: 2002=100)

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Philips Medical Systems

Expanding in Research . . .

Increase of Research FTE

(indexed)

166

252

100

140

0

50

100

150

200

250

300

2002 2003 2004 2005

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Philips Medical Systems

. . . And increasing the patent portfolio

Increase of granted European Patents (indexed)

167161

100 108

0

2040

60

80

100

120140

160

180

2001 2002 2003 2004

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Philips Medical Systems

Ambient Experience offers

strong differentiation

First install: Lutheran Childrens Hospital

Designed Around You:Addresses the unmet need of a supportiveenvironment for patients and staff a like.

Easy To Experience:Focus on patients emotional experience

and comfort as well as operator and

hospital workflow considerations.

Advanced:A truly One Philips concept:

Medical, Lighting, CE and Semiconductor

technology

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Philips Medical Systems

Dr Anastaos, Lutheran Hospital Chicago

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16Philips Medical Systems

Philips Medical

Beyond 14%

Improvement Metric of Success

Building the future Innovation

Building the future Customers

Where do we go from here

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17Philips Medical Systems

This what we told you last year: We are winning .

2005-06-15

US News Best Hospitals 2003Strategic Alliance Agreements and LOUs

C

S

S

S

S

LOU

LOU

LOU

SBASBA

4 MR systems, R/D

Current Discussions

MR systems, R/D

Strategic Business Alliance

Strategic Cardiac AllianceSource US News and World Report 2003

Strategic Technology Alliance

Strategic wins are significant N.A.s Best hospital accounts Positioning Philips brand

like never before at five of

N.A.s best health care institutions

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18Philips Medical Systems

Now quickly expanding our Strategic Alliances

Customer Base

24 strategic deals

in one year

in 2 years USD >1 blnin contract backlog

0

5

10

15

20

25

1-Jan-04 1-Mar-04 1-May-04 1-Jul-04 1-Sep-04 1-Nov-04

Cumulative growth of strategic deals

1-Jan-05

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19Philips Medical Systems

Market share gain across geographies and modalities

Global Product LinesWorld by Region

Sources NEMA, various European studies and estimates

2004sharetrend

Total

Asia Pacific

Europe, ME& Africa

Americas

2003sharetrend

Region 2004sharetrend

Total

Asia Pacific

Europe, ME& Africa

Americas

YTDOrderstrend

YTDOrderstrend

2003sharetrend

Region 2004sharetrend

Monitoring

Total

US

MIT

NM

MR

CT

X-ray

2003sharetrend

ProductLine

2004sharetrend

Monitoring

Total

US

MIT

NM

MR

CT

X-ray

YTDOrderstrend

YTDOrderstrend

2003sharetrend

ProductLine

Continuous expansion of market share and orders

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20Philips Medical Systems

Philips Medical

Beyond 14%

Improvement Metric of Success

Building the future Innovation

Building the future Customers

Where do we go from here

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21Philips Medical Systems

Focus on the Care Cycle Space to grow

Information &Decision supportOperating room

Monitoring

Imaging

Operating roomMonitoring

Imaging

IntensiveCare unitMonitoring

IntensiveCare unitMonitoring

Step downfacility

Monitoring

Step downfacility

Monitoring

HomeMonitoring

HomeMonitoring

Pre-Hospital/Ambulance

Monitoring

Pre-Hospital/Ambulance

Monitoring

DiagnosticsImaging

DiagnosticsImaging

Treatment

Follow Up

Diagnostics

Euro 170 billion market

Euro 10

billionmarket

Euro 80 billion market

Market size for medical devices and equipment

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22Philips Medical Systems

Our Mission in Healthcare

To improve peoples lives

with advanced technologythat is easy to experienceand designed around you

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23Philips Medical Systems

Our Vision:

Healthcare without Boundaries

Remove barriers to the best care

Not having to:

see the doctor to be seen

wait for an ambulance to save a life

be in the hospital to see the patient

delay a decision waiting for information

wait to be sick to be healed

compromise Clinical Excellenceto save costs

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24Philips Medical Systems

Philips Medical Growth beyond Present ScopePMS Current Scope

Expansion Options

IVD

Imaging

Monitoring

Imaging Agents

OrthopedicDevices and

Implants

CardiacDevices and

Implants

Surgicalproductssuch as

biomaterials,wound

dressing,closuredevices,

powered andnon-powered

accessdevices

Medical Devicessuch as hearingaids, eye care,

wound care,wheelchairs and

fitness equipment

Infrastructure IT

Global Market USD 260B

IT Other SurgeryOther Medical

DevicesImplants &Devices

Imaging &Monitoring

Life Sciences& IVD

OncologyTherapy

Endoscopes

A

nesthesia

Therapy

Other healthcare IT

PACS

Life Sciences

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25Philips Medical Systems

Priorities

STRENGTHENCURRENTPORTFOLIO

EXPAND THE BUSINESS

SECUREPREVIOUSINVESTMENTS

Maximize

ValueCreation

Maximize

ValueCreation

Grow with

Improving

Margins

Grow with

Improving

Margins

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26Philips Medical Systems

Do it right is more important than do it now

Acquisition Approach

1. Growth opportunities

2. No or time-limited margin dilution

3. Clear commercial, clinical, and technology synergies

4. Complementary position

5. Strong market position

6. Integration strategy part of acquisition decision

7. Walk-away price set at discussion start

8. A good alliance is an alternative to acquisition

Value Creation

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Conclusions

In the past three years we have

built a strong team

built a track record of improvement

built a track record of innovation

For the coming few years we have

many quantified improvement opportunities

a few additional margin points to gain

a clear set of priorities for further expansion

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