Philips Medical SystemsProgress Report

Jouko KarvinenPhilips Medical System

Analyst Meeting, Amsterdam June 9th 2004

Medical Systems 2

Philips MedicalProgress Report

• Seven consecutive quarters of improvement

• Building the future – Innovation• Building the future – Customers• Where do we go from here

Medical Systems 3

8%

9%

10%

11%

12%

13%

14%

15%

Q42

001

Q1 2

002

Q2 2

002

Q3 2

002

Q4 2

002

Q1 2

003

Q2 2

003

Q3 2

003

Q4 2

003

Q1 2

004

Q2 2

004

Q3 2

004

Q4 2

004

The path (EBITA)

3.5 margin points up in seven quarters 1.7 points to go in 3 quarters

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Progress Report

+32 % +19 % EBIT

+ 2 pts

+ 7 %

2002 to 2003 Achievements

+ 2 ptsEBIT margin Improvementexcl. special and one time items 02/03

+ 4 %Comparable Growth

Q1 03 to Q1 04 Achievements

Year-on-Year Improvement

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Supply Chain Improvements

Equipment warehouses in North America

1

21

5

0

5

10

15

20

25

30

2003 FC2004 TARGET

Equipment Direct Deliveries as % Sales (world)

59%

80%

26%32%

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 FC2004 TARGET

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Net Capital turnover goes up

Net Capital Turnover

3,9

5,0

2,93,7

0123

456

2002 2003 FC 2004 TARGET

Net Capital = Capital excluding Goodwill

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IT spending as % Sales

3.0%

4.9%4.4%

0%

2%

4%

6%

8%

2003 FC2004 Target

IT

Number of ERP systems

9

1

24

10

0

5

10

15

20

25

30

2002 2003 FC2004 Target

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Financing

Total Value of Financed deal in US (indexed)

191

250

100143

0

50

100

150

200

250

300

2002 2003 FC 2004 Target

• North America reaching industry levels – in combination with the

“Diamond Select” trade-in program

• Europe Finance ventures agreement signed in May with Société Générale – Starting in 6 countries

France, Germany, Italy, UK, Netherlands, Spain

– EUR 8 mln in deals signed / funded

• Asia to come next

30% average growth

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Building Integrated Supply Base

No. of Suppliers (80 % of spend)

020406080

100120140160

2003 FC2004 TARGET

Supplier Managed Inventory (%)

01020304050607080

2003 FC2004 TARGET

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Last 6 months show positive trend

Total

Asia Pacific

Europe, ME & Africa

Americas

6 months Trend

2003 Trend

Product Line

MonitoringTotal

USMIT

NMMRCTX-ray

6 months Trend

2003 Trend

Product Line

Global Product LinesWorld by Region

Sources – NEMA, various European studies and estimates

We drive to gain market share

Medical Systems 11

Philips MedicalProgress Report

• Seven consecutive quarters of improvement

• Building the future – Innovation• Building the future – Customers• Where do we go from here

Medical Systems 12

X-ray – FD20 with large detector

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Cardiovascular X-ray with 250 x finer details

5 years ago.. Now

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MR – Achieva 3T

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MR with15 x more specifity and scan speed

5 years ago.. Now

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CT – Brillance with up to 40 slices

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CT Competitive Racefrom Follower to an Industry Leader

0

5

10

15

20

25

30

35

40

1998 1999 2000 2001 2002 2003 2004

Competition

Philips Medical

CT /No. of Slices/ Launch Year with FDA approval and clinical data

Focus now moving to - clinical benefits - upgradability- computer aided

diagnostic tools

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CT with 35 x scan speed, 3X specificity

5 years ago.. Now 3D

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Ultrasound – iU22 with voice control

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Cardiac Ultrasound with 5 x Improvement in Signal to Noise and Scan Time

2 years ago.. Now – Live 3D

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Nuclear Medicine PET-CT with 16-slice CT

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Progress in Molecular Imaging…and Animal Imaging …

... and experimental Hybrid Imaging …

to expedite Clinical Molecular Imaging

From agent discovery ..

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Launching a new Molecular Imaging platform…

• First open PET-CT

• Launching an unique SPECT-CT

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…To develop new Molecular Imaging agentswith Top Academia and highly innovative start-ups

Oncology / CV

Oncology / CV

Oncology / CV / Neuro

CV / Oncology

CV / Oncology / NeuroStanfordStanford

Washington UniversityWashington University

Johns HopkinsJohns Hopkins

NIH/NCINIH/NCI

U of WashingtonU of Washington

OncologySloan KetteringSloan Kettering

MD AndersonMD Anderson Oncology

Image Optimization

Oncology / CV

CV / OncologyKereosKereos

TheseusTheseus

CytogenCytogen

University of BordeauxUniversity of Bordeaux Gene Therapy

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PMS – Renewing Product PortfolioTotal R&D investment, indexed. 2002 = 100

0

20

40

60

80

100

120

2002 2003 2004

Support

Life CycleManagement

Evolutionary

New Platform

Breakthrough

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PMS – Renewing Product Portfolio % Revenues based on products < 2 yrs old

40%45%

63%

72%

2002 2003 2004 FC Target

New product is defined as a product based on a new hardware platform or a product with a significant increased in functionality, or cost-per-function improvement

From 2002 to 2005 major portfolio

renewal in Ultrasound, CMS,

CV and GXR.

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Software

BiometriXFD plates

FIMIDisplays

Flat Detectors

Collimators

Digital Image Handling

Image Inten-sifier / TV

CommonHW

Components

LRSTable Tops

Generators

More to come …

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Improving Customer Support

Bringing Customer Satisfactionto the next level:• Increase system uptime • Reduce service delivery costs• Platform for future

value-added services

0%

20%

40%

60%

80%

100%

Today FC 2005 Target

% of eligible systemsconnected

Roll out of Remote Services Network

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Philips MedicalProgress Report

• Seven consecutive quarters of improvement

• Building the future - Innovation• Building the future – Customers• Where do we go from here

Medical Systems 30

Ledford Distribution Channel

Full-line Account Management

Strategic Business

Academic Medical Centers apx. 75 accounts• Teaching Hospitals, Research Opportunities• Reference sites - Early AdoptersLarge IDN’S Commercial Customer apx. 350 accounts• Non Teaching - Integrated Administration• Early Adopters - Cash Cows of the IndustryZone and Regional Influence Accounts apx. 50 accounts• Large Regional Influencers - 1-3 Hospitals• Early AdoptersNew Construction Customers apx. 7B annual market• Specialty facilities or replacement,- Willing to work with a single vendor

Hospitals greater than 125 beds and associated Imaging Centers

Hospitals less than than 125 beds and unassociated Imaging Centers

The Strategic Business segment represents a significant opportunity for Philips N.A. to grow and establish critical relationships in this stable and profitable segment.

North American Market is Segmented by Size, Profitability, and Market Influence

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>70% of the US top hospitals have Philips in Cardiology

Source: US News and World Report

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Philips MedicalProgress Report

• Seven consecutive quarters of improvement

• Building the future – Innovation• Building the future – Customers• Where do we go from here

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Our Mission

To help improve people’s livesby healthcare technology

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Remove barriers to the best careNot 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 Excellence

to save costs

Our Vision: “Healthcare without Boundaries”

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Focus on the Care Cycle

Information &Decision supportOperating room

MonitoringImaging

Operating roomMonitoringImaging

IntensiveCare unitMonitoring

IntensiveCare unitMonitoring

Step downfacility

Monitoring

Step downfacility

Monitoring

HomeMonitoringHome

MonitoringPre-Hospital/Ambulance

Monitoring

Pre-Hospital/Ambulance

Monitoring

DiagnosticsImaging

DiagnosticsImaging

Treatment

Follow Up

Diagnostics

Euro 210 billion market

Euro 10 billion marketEuro 80 billion market

Market size for medical devices and equipment

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PMS Strategic Priorities

• Secure Previous Investments

• Strengthen Current Portfolio

• Expand the BusinessSTRENGTHEN

CURRENT PORTFOLIO

EXPAND

SECURE PREVIOUS INVESTMENTS

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Summary

• Seven consecutive quarters of improvement– financials, innovation, customer relationships & supply chain

• Will continue on this path to 14 % and beyond– significant & quantified opportunities still ahead

• Next step expansion is also a path – stay focused on improving care cycle– build on existing strengths of Medical and Philips– differentiate from competition

Deliver on commitment, focused on growthDeliver on commitment, focused on growth