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Financial and operational improvement
update
Ron Wirahadiraksa
CFO Philips Healthcare

Topics for discussion
• Philips Healthcare’s performance
– Market shares
– Sales and EBITA
– Working capital & cash flow
– Progress on acquisitions
• Acceleration of existing initiatives
• Faster response to tougher market circumstances
– Response to business risks
– Increased use of customer financing
– Additional cost saving measures
2

While the equipment market looks set to decline in
2009, we expect to continue to gain market share
Global equipment market
EUR billion
22
21
20
19
18
17
2006 2007 2008 2009
Philips equipment market share
23%
22%
21%
20%
19%
20.7%
21.7%
22.0%
2006 2007 2008 2009
Source: NEMA, COCIR, JIRA, and Synovate; currency comparable
Healthcare market:
• 2008 global equipment market was up 1%
driven by Clinical Care Systems and Healthcare
Informatics & Patient Monitoring
• 2009 market expected to be very challenging
given the global recession and tight credit
markets in North America and uncertain
regulatory landscape in the USA, but
opportunities still exist in Emerging markets
Our market share:
• Philips gained market share in 2008 driven
mostly by Patient Monitoring, Nuclear Medicine
and Cardiovascular X-Ray
• Philips will continue to focus on gaining
market share in 2009 fueled by new product
introductions and quality and service
improvements
3

Steady earnings growth affected by the severe
economic climate as from the 2 nd half year 2008
EBITA quarterly as reported
500
400
300
200
100
0
1000
800
600
400
200
EBITA full year as reported
0
7.9%
Q1
13.7%
Q2
11.1%
12.8%
Q3
17.4%
Q4
8.0%
Q1
13.7%
Q2
12.2%
Q3
16.5%
Q4
10.5% 10.7%
8.8%
(1) Adjusted EBITA: EBITA excluding acquisition/integration related expenses, restructuring costs
EBITA quarterly adjusted (1)
13,7%
12,8%
EBITA full year adjusted (1)
(2) (2)
(2)
(2)
13.6%
4.3%
2006 2007 2008 2009
12.6%
Q1
Q2
13.4% 13.0%
Q3
Q4
Q1
11.3%
2004 2005 2006 2007 2008
20%
15%
10%
5%
0%
15%
13%
10%
8%
5%
3%
0%
500
400
300
200
100
0
1000
800
600
400
200
0
7,9%
19,2%
8,6%
13,7%
12,2%
16,8%
12,4%
11,7%
10,1%
16,9%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
(2) 2004 and 2005 based on US GAAP
5,1%
2006 2007 2008 2009
11.1%
12.6%
14.0%
13.2%
13.3%
2004 2005 2006 2007 2008
20%
15%
10%
5%
0%
15%
13%
10%
8%
5%
3%
0%
4

We continue to invest in high growth geographies
and businesses
Customer
Services
Healthcare
Informatics
2006 sales: Actual 2009 Sales: Indication
0%
Mature
markets
84%
Emerging markets
Excludes Home Healthcare Solutions
Mature
markets
80%
Of which USA is 42% Of which USA is 35%
28%
14%
15%
43%
16%
Clinical Care
Imaging
Systems
Healthcare
Informatics
Solid progress in expanding our non-Imaging Systems portfolio
Emerging markets
Customer
Services Imaging
25%
Systems
13%
Home Healthcare
15%
32%
15%
20%
Clinical
Care
5

… which is driving our annual sales growth
Quarterly nominal Quarterly comparable
(adjusted for currency and portfolio)
35%
30%
25%
20%
15%
10%
5%
0%
-5%
16%
10%
Full year nominal
20%
15%
10%
5%
0%
-5%
4%
3% 3% 2% 3% 3%
-2%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
-1%
11%
14%
29%
18%
2006 2007 2008 2009
9% 9%
1%
15%
2004 2005 2006 2007 2008
15%
13%
11%
9%
7%
5%
3%
1%
-1%
-3%
8%
9%
6%
6%
Full year comparable
(adjusted for currency and portfolio)
12%
10%
8%
6%
4%
2%
0%
4%
4% 4%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
5%
2006 2007 2008 2009
8%
8%
3%
5%
4%
3%
5%
6%
2004 2005 2006 2007 2008
9%
-2%
6

Our enhanced focus on cash is paying off…
Cash conversion cycle (1) in days Free cash flow (2) as a % of sales
35
30
25
20
15
10
5
0
22
25 25
1) Cash conversion cycle is defined as
days sales and inventories outstanding
minus days payables and accruals
outstanding
33
21
2004 2005 2006 2007 2008
1000
800
600
400
200
0
12.4%
10.6%
10.1%
7.0%
13.6%
2004 2005 2006 2007 2008
2) Free cash flow is defined as cash
flow from operating activities minus net
capital expenditures
15%
13%
10%
8%
5%
3%
0%
7

Delivering value from existing acquisitions
Stentor (Radiology IT 2005)
ADAC
Healthwatch (2007)
XIMIS (Radiology IT 2007)
Witt (Cardiac IT 2006)
EMERGIN (Critical Care IT 2007)
Lifeline (2006)
Intermagnetics (2006)
Raytel (2007)
VISICU (Critical Care IT 2007)
Respironics (2008)
TOMCAT (Cardiac IT 2008)
Meditronics
VMI-Sistemas Medico (2007)
Dixtal Biomedica e Technologia (2008)
= On track/ahead of plan
= Some issues being addressed
= Recently acquired
(2008)
The acquisition portfolio is on track to deliver the expected results
Goldway (2008)
Alpha (2008)
8

Topics for discussion
• Philips Healthcare’s performance
– Market shares
– Sales and EBITA
– Working capital & cash flow
– Progress on acquisitions
• Acceleration of existing initiatives
• Faster response to tougher market circumstances
– Response to business risks
– Increased use of customer financing
– Additional cost saving measures
9

We are accelerating our existing operational
improvement initiatives
Focus
areas Programs
Accelerate
growth
Increase
margins
OMA
(Optimize Market
Approach)
SBO
(Supply Base
Optimization)
ICS
(Integrated
Customer Service)
Q2C
(Quote to Cash)
Objectives
• Deliver significant top and bottom line benefits through value based
pricing
• Establish a highly flexible and responsive supply chain with an optimal
industrial footprint
• Optimize total external purchasing spend
• Improve overall customer service infrastructure by optimizing field
service, remote services, supply and usage of spare parts
• Improve Quote to Cash process through process optimization and
the establishment of Business Centers to drive visibility and
accountability-enabled changes
• Contributes to reducing IT cost.
10

Increase Margins SBO: Establish a highly flexible
supply chain with an optimal industrial footprint.
1
2
3
4
5
Industrial
consolidation
Divestment of non-
key components
Outsourcing of non-
core assembly
Low-cost country
manufacturing and
sourcing
Commercial back
office consolidation
• Final assembly and test sites are being
consolidated
• Vertically integrated non-key components are being
divested
• All non core product assembly activities are either
being outsourced or transferred to low-cost
countries
• Expansion of Imaging Systems Manufacturing Centers
in China, Brazil and India to serve the local and the
global market
• Consolidation of key-market back-offices
11

Increase Margins SBO: Increasing low cost country
sourcing
Healthcare low-cost country sourcing
40%
30%
20%
10%
0%
23%
2007
Actual
31%
2008
Actual
34%
2009
Expectation
38%
2010
Expectation
• On track with low cost country sourcing
expansion goals - total Healthcare
34% for 2009
• Leveraging supply base of newest
acquisitions
• Expansion of activities in China,
Brazil, India and Mexico
• Increase utilization of low-cost-
country supply base to support global
factories
Note: Percentages represented in the above graph represent the total bill of material expenses originating in a low cost country
Respironics included as of 2008
12

Increase Margins ICS: Optimizing integrated
customer service
Spare parts
optimization
• Deploy spare parts
‘redesign’
• Deploy UPS as global
logistics provider in ASIA
(NA & Europe Complete)
• Lower logistics costs
Material usage
reduction
• Improve parts purchase
approval process
• Reduce parts defective
on arrival
• Develop lower cost
service parts
ICS
Enable our service organization to support
customers in delivering excellent patient care, improve
operational performance, and deliver incremental EBITA
Foundation Enablers across work streams like Call/knowledge management, Engineer scheduling, and Mobile tools
IT infrastructure
Remote
productivity
• Increase remote
resolution (visit
avoidance)
• Increase remote
monitoring /
maintenance (call
avoidance)
Field
productivity
• Increase field
productivity and
capabilities of service
team
• Improve matching of
field capacity & demand
ICS brings four major services productivity initiatives under one program,
driving further cost reduction
13

Increase Margins Q2C: Improving the quote to cash
process…
Structural optimization
Global Commercial
Operations
Business Centers
Key markets
Process optimization
Product Lifecycle Data Management
• Uniform Product Data Management to
“design & build anywhere” and improve
efficiency
Catalogue and quoting
• Enable “One Philips” quoting
• Define customer oriented models
• Reduce impact of catalog changes
Order management
Planning • Ensure orders are on-time, complete, in
• Align Global Sales and Service &
perfect condition, meeting specifications
Business Unit planning, improve
• Reduce handoffs and rework
forecasting
Warehousing & delivery
• Provide end-to-end shipment visibility
• Optimize & outsource
• Improve customer satisfaction
• Improve complete and on-time shipments
• Reduce errors due to handoffs
• Control to drive harmonization to enable “One Philips”
• Enable end-to-end order visibility
• Establish clear accountability
• Tax benefits from Business Center
• Reduce cost and working capital
• Build talent and capabilities
Project management and installations
• Be the “Voice of the customer”
• Installer choice optimization and increased
use of best practices
14

Increase Margins Q2C: Contributes to lower IT
spend as a % of sales
IT spend as % of Sales
5%
4%
3%
2%
1%
0%
4.0%
3.8%
3.6%
* In 2007, the IT spend increased as a % of sales due to the North American commercial SAP implementation
*
*
3.4% 3.4%
2004 2005 2006 2007 2008 2009
3.1%
15

Topics for discussion
• Philips Healthcare’s performance
– Market shares
– Sales and EBITA
– Working capital & cash flow
– Progress on acquisitions
• Acceleration of existing initiatives
• Faster response to tougher market circumstances
– Response to business risks
– Increased use of customer financing
– Additional cost saving measures
16

Response to business risks
• Funding for hospital capital
purchases is under increased
pressure
Risk Responses
• Further contraction of order intake
across the regions (above and
beyond Q1)
• Accelerated price erosion in orders
to compete for existing ‘sockets’
• Philips Medical Capital provides real
solutions to meet customer’s financing
needs
• We are aggressively reducing the cost
base to maintain profitability and will
further adjust cost levels as necessary
• Strengthen low-end product offering to
drive profitable growth
17

Philips Medical Capital continues to grow and offer
sustainable finance at competitive rates
Philips Medical Capital - USA
Penetration in USA
15%
13%
12%
10%
2007 2008 Q1 2009
Notes: Philips Medical Capital is a minority joint venture with
De Lage Landen, operating in the USA. For Europe & Asia
there are different structures and different partners (Societe
Generale for Europe and De Lage Landen for Asia)
• The Healthcare industry, particularly the
hospital segment, is faced with a difficult
liquidity market in which credit criteria have
tightened
• There is a strong demand for financing
particularly in the USA
• PMC has benefited with an increase of its
market penetration by almost 3 points in
the quarter over the prior year
• PMC’s USA position has been helped by
having a strong financing partner in De
Lage Landen (RaboBank)
18

Fixed & discretionary cost savings to increase agility
and profitability
Ref period: Headcount 2008
Ref period: Spend 2008
5%
headcount
reduction
program
10 - 15%
additional cost
reduction
program –
non-material
related
Headcount reduction
• Slowdown in order intake has resulted in
immediate action to reduce headcount
• Headcount reduced 5% compared to
2008 level will lead to ~ EUR 60 million
saving in the second half of 2009.
Discretionary cost reduction
• As a result of further deteriorating market
circumstances impacting earnings, additional cost
reduction measures totaling approximately EUR
90 million for the year have been taken
Further restructuring actions
• We will continue to manage our business in
line with market developments and will take
action to further adjust our cost levels as
required.
Overall savings for 2009 are expected to
be EUR 150 million
19

In conclusion….
Accelerate
growth
Increase
margins
Capitalize on
acquisitions
• Despite challenging market circumstances we expect to see:
• modest market share growth and to expand in emerging markets
• Solid progress in expanding our non-Imaging Systems portfolio
• Value-based pricing approach to deliver top and bottom line growth
• Addressing the recent economic impact on earnings through
• implementing structural operational improvements / savings through
– Supply Base Optimization
– Improvements in Integrated Customer Service
– Re-engineered Quote to Cash processes
• structural and discretionary cost savings expected to amount to
EUR 150 million in 2009
• Managing working capital to maintain strong cash flow
• Committed to effective integration, synergy capture and growth of
acquisitions
20