Gerard KleisterleePresident and CEO

Royal Philips Electronics

Creating value:Blending growth and capital management

2

Philips Group Objectives

• IFO margins of 7-10% in the course of 2006

• Consistent returns in excess of the cost of capital

• Reduce earnings volatility of cyclical businesses

• Improve stability / predictability across the portfolio

3

Philips’ changing portfolio – growth

Medical SystemsLighting

Domestic Appliances

cash

shareholders

Consumer Electronics

Semiconductors

Financial stakes

grow

lower risks

reduce

Current IFO margins between 13-16%

Target IFO margin of 4-4.5%

Target IFO margin of 5-15% (over the cycle)

4

Summary of Transaction

• Acquisition price:

• Source of financing:

• Post-deal status of Lumileds:

• Headquarters:

• Conditions to closing:

• Anticipated transaction close:

US$ 950 (EUR 765) million

Cash on hand

Fully consolidated business unit within Philips Lighting

San Jose, California

Receipt of required government approvals and other customary conditions government

Q4 of 2005

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Why acquire Agilent’s stake in Lumileds?

• Builds on Philips’ leading global position in lighting

• Gives Philips a controlling share in a leading LED (light emitting diode) company

• Extends Philips’ involvement to all segments of the LED value chain

• Gives Philips access to strong portfolio of over 200 LED patents

• Deepens Philips’ presence in the higher-growth, higher-margin segments of the LED market

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Lighting• Number 1 market position globally with strong margins and cash flows

• End-user-driven innovation, marketing and supply excellence

• Accelerated growth from emerging markets in UHP, automotive and LEDs

• Investments in R&D and capital expenditures to propel innovation and growth

EUR billion

Sales IFO

as % of sales

EUR million

7

Philips’ changing portfolio – capital management

Medical SystemsLighting

Domestic Appliances

cash

shareholders

Consumer Electronics

Semiconductors

Financial stakes

grow

lower risks

reduce

Current IFO margins between 13-16%

Target IFO margin of 4-4.5%

Target IFO margin of 5-15% (over the cycle)

8

Philips’ changing portfolio – capital management

Medical SystemsLighting

Domestic Appliances

cash

shareholders

Consumer Electronics

Semiconductors

Financial stakes

grow

lower risks

reduce

Current IFO margins between 13-16%

Target IFO margin of 4-4.5%

Target IFO margin of 5-15% (over the cycle)

9

Share repurchase programs in 2005

First program:

• Start date: January 27• Size: EUR 750 million• Use of funds: Capital reduction (EUR 500 million)

and hedging (EUR 250 million)• Duration: 6 months

10

Share repurchase programs in 2005

First program:

• Start date: January 27• Size: EUR 750 million• Use of funds: Capital reduction (EUR 500 million)

and hedging (EUR 250 million)• Duration: 6 months

Second program:

• Start date: August 15• Size: EUR 1.5 billion• Use of funds: Capital reduction• Duration: Up to 12 months

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Impact on net debt : group equity ratioEUR billion

Net debt / group equity ratio

Group equity

Net debt

8:92 13:87

* Reflecting impact of Lumileds and Stentor acquisitions, new share buyback program, and lowering of holdings inTSMC, LG.Philips LCD and Atos Origin.

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Conclusion

Blending growth and capital management will help us:

• Grow more stably and predictably

• Maintain our strong financial position

• Become a simpler organization to understand

• Continue to demonstrate financial discipline

• Create value for shareholders