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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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27Philips Medical Systems
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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