Progress ReportJouko KarvinenCEO of Medical Systems

Forward Looking StatementsForward Looking Statements This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items (including, but not limited to, cost savings) in particular the outlook paragraph in this report. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, levels of consumer and business spending in major economies, changes in consumer tastes and preferences, changes in law, the performance of the financial markets, pension costs, the levels of marketing and promotional expenditures by Philips and its competitors, raw materials and employee costs, changes in exchange and interest rates (in particular, changes in the euro and the US dollar can materially affect results), changes in tax rates and future business combinations, acquisitions or dispositions and the rate of technological changes. Statements regarding market share, including as to Philips’ competitive position, contained in this document are based on outside sources such as specialized research institutes, industry and dealer panels in combination with management estimates. Where information is not yet available to Philips, those statements may also be based on estimates and projections prepared by outside sources or management. Rankings are based on sales unless otherwise stated.

Use of non-GAAP InformationIn presenting and discussing the Philips Group’s financial position, operating results and cash flows, management uses certain non-GAAP financial measures. These non-GAAP financial measures should not be viewed in isolation as alternatives to the equivalent GAAP measure and should be used in conjunction with the most directly comparable US GAAP measure(s). A discussion of the non-GAAP measures included in this document and a reconciliation of such measures to the most directly comparable US GAAP measure(s) are contained in this document.

Our Mission in Healthcare

Sense & SimplicityWe delight customers and consumers by improving their lives with advanced

technology that is easy to experience and designed around them

Philips Medical Systems provides products and services

that allow our customers to intently focus on the patient throughout the entire care cycle

Agenda

• Market developments

• Performance update

• Where do we go from here

• Care Cycle

The Medical Systems & Device Market

Main categoriesMedical equipment, services, devicesand supplies $ 290 billion worldwide,2005

• Long term growth Imagingand monitoring 4-5%

• IT in Healthcare 7%• Price erosion 2-3%

110

7531

74

Surgical Instruments, Devices andSuppliesIT in Healthcare

Diagnostic Imaging and Monitoring

Other Equipment & Services

B

BB

B

Sources: MedTech Insight, PMS internal analysis

Overall Market Share gain across geographies 2003 -2005, world, equipment orders, quarterly MAT

19%

20%

21%

22%

23%

Q12003

Q22003

Q32003

Q42003

Q12004

Q22004

Q32004

Q42004

Q12005

Q22005

Q32005

Q42005

Q12006

Source: various, Philips

Market Share Trends in more detail

2003-2005 Q1 2006

North America

EMEA

Asia PacificMR

CT

X-Ray

Ultrasound

Nuclear Medicine

Healthcare IT

Cardiac & Monitoring

IncreasingNo changeDecreasing

Q1 ’06 based on a comparison to Q1 ‘05

Agenda

• Market developments

• Performance update

• Where do we go from here

• Care Cycle

Performance Update

June 2005 we said

• Eleven consecutive quarters of margin improvement

• Will continue on this path beyond 14.4 % EBITA of 2004

– significant & quantified opportunities still ahead

• Next step expansion is also a path – growth opportunities mapped,

discussions ongoing– focus on improving care cycle,

build on existing strengths and differentiate

• Value creation driven, not just top line – our time table

May 2006 we say

• Two years of market shares gains• Return to margin improvements

– accelerate operational improvements

– accelerate low cost sourcing– drive service penetration & scope

• Next step expansion is also a path– acquired Stentor and Witt with

clear growth synergies– focus on improving care cycle,

build on existing strengths, and differentiate

• Value creation driven, not just top line continues to be our agenda

Philips Medical Systems

ImagingSystems

EUR 2.4 bln

CustomerServices

EUR 1.7 bln

Information,Ultrasound

andMonitoringSolutions

EUR 2.3 bln

Nuclear MedicineCTMRPETX-Ray

ConsultancyClinical servicesAsset managementMaintenance& Repair

Healthcare Informatics

Ultrasound &MonitoringCardiac Systems

Document services

2005 Revenues

Sales growth continues As do equipment orders

0

16

29

19

9

12

6

24

18

0

5

10

15

20

25

30

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2004 2005 2006

7

4

7

0

2

4

6

8

2003 2004 2005

0

1413

0

3

6

9

12

15

2003 2004 2005

Quarterly comparable sales growth % Quarterly currency comparable orders growth %

Full Year comparable sales growth % Full Year currency comparable orders growth %

43

54

56

7

8 8

0

3

6

9

12

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2004 2005 2006

Quarterly adjustments: Excludes MedQuist, Volumetrics settlement Q4 04 EUR 133 m, Stentor impact 2005: Q3 EUR 11 m, Q4 EUR 10 m, 2006: purch. acc. Q1 EUR 3 m.Full year adjustments: Excludes MedQuist, 2003 special items (See annual report), 2004 Volumetrics settlement EUR 133 m, 2005 Stentor impact EUR 21 m.

10.2%

13.5% 13.1%

0

100

200

300

400

500

600

700

800

900

2002 2003 2004 20058%

9%

10%

11%

12%

13%

14%

15%

10.7%

0.6%

7.2%5.8%

-40

60

160

260

360

460

560

660

760

2002 2003 2004 20051%

3%

5%

7%

9%

11%

13%

15%

9.2%

-19.8%

10.5% 10.1%6.7%7.8%7.3% 11.6%

13.1%

-400

-300

-200

-100

0

100

200

300

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2004 2005 2006

-20%

-15%

-10%

-5%0%

5%

10%

15%

20%

10.6%11.5%

12.2%

17.6%

12.2%

7.2%8.6% 7.8%

0

50

100

150

200

250

300

350

400

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2004 2005 2006

5%

10%

15%

20%

Full Year as reported Full Year adjusted

EBIT (in millions of euros)Quarterly as reported Quarterly adjusted

A Faster, More Efficient Supply Chain

IT spending as % Sales

3.8%3.0%

4.9%4.0%

0%

2%

4%

6%

8%

2003 2004 2005 Target

IT spending as % of sales

Equipment Direct Deliveries as % Sales (world)

73%79% 80%

26%32%

0%10%

20%30%40%50%

60%70%80%

90%100%

2002 2003 2004 2005 Target

Equipment Direct Deliveries as % Sales (world)

Net Capital Turnover

4.03.8

5.0

2.9

3.7

0

1

2

3

4

5

6

2002 2003 2004 2005 Target

Net Capital Turnover

Net Capital = Capital excluding Goodwill

40%45%

58%63%

70%

2002 2003 2004 2005 Target

150 135110 100

0

50

100

150

200

2003 2004 2005 Target

12

3949

60

010203040506070

2003 2004 2005 Target

166

222 230

140

100

0

50

100

150

200

250

2002 2003 2004 2005 Target

Supplier Owned Inventory (%) New Product Shipments

No. of Suppliers (80 % of BOM spend) Increase of Research FTE (indexed)

Accelerate Innovation & Integrate Supply Base

Margin expansionIn addition to continued improvements in supply management,supply chain and IT, high innovation rate etc. we will

Opportunity Action

Emerging Market GrowthAccelerate Philips – Neusoft JVAdd local for local acquisitions

Product Service MixContinue to Drive Contract Penetration Service Scope Increase

Channel ProductivitySingle Global Sales and Service OrganizationOptimize Direct/Indirect Channel Split

Imaging optimization Industrial and functional simplification

Low Cost Sourcing Accelerate Sourcing from Low Cost Areas

Philips Neusoft JV

Product Training in ChinaProduct Training in China

Product Launch in ChinaProduct Launch in China

Product Training in AsiaProduct Training in Asia

Product Launch in Asia

Jan 2006Jan 2006

Feb 2006Feb 2006

Mar 2006Mar 2006

June 2006Product Launch in Asia June 2006

• GXR Essenta (20% cost improvement)

Service growth driven by contract penetration

122

520107

100

ContractPenetration end 2003

Equipment & Services sales growth (currency adjusted)

ContractPenetration end 2004

ContractPenetration end 2005

indexed

70%

80%

90%

100%

110%

120%

130%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2003 2004 2005 2006

Medical Systems Total Equipment Services

Strong year on year improvement in contract penetration rate

Emergency Ultrasound in Pre-Hospital Markets

Emergency Ultrasound on Next Generation Advanced Life Supportbrings better remote care and transports key data to hospital

ALS and UltrasoundImaging on-site

PMS Sourcing from low-cost Countries is Increasing….

0.062.341.49

4.00

8.57

16.46

10.77

22.40

1.42

4.643.112.46

050

100150200250300350400450

Total (LCC) Asia-LessChina

EasternEurope

Mexico China Other0.00

5.00

10.00

15.00

20.00

25.00

% o

f tot

al B

OM

2005 2006 Target %2005 % target 2006

Agenda

• Market developments

• Performance update

• Where do we go from here

• Care Cycle

Meet Gerard Donovan….

Plant Administration Pharmacy$1,433

Foodservices

Lab$3,233

About that BillRadiology$1,290

Cardiology$3,943

Billing

Intensive Care$17,664

Operating Room$36,127

... and his 150 medical staff...

Medical technology continues totransform Healthcare

Imaging and Monitoringearlier diagnosis saves lives and reduces costs

Minimally invasive proceduresreducing patient trauma and costs

Healthcare ITRight Information at the right time

enables better treatment and lower costs

Molecular MedicinePreventing disease from happening

“Around 70% of the survival improvement inheart attack mortality is a result of changes in technology.”Cutler & McClellan, 2001 Sources: Russ Coile, Futurescan 2003, SG-2

Innovation drives profitable growth

New Philips GEMINI TFwith TruFlight PET technology

• True benefits of time of flight technology–20% better spatial and contrast resolution–Detects previously obscured tumors–Almost doubles patient throughput

• Creates a new benchmark in consistent image quality for large patients

• Boosts the sensitivity demanded by low count-rate MI applications(e.g. dynamic studies and more specific PET agents)

The new standard in speed, comfort, clarity and flexibility

Minimally Invasive procedures have taken the lead in treating obstructed heart arteries

USA

0

100

200

300

400

500

600

700

800

1991 1995 2000 2003

Proc

edur

es in

Tho

usan

ds

Open Heart Bypass

Interventional cardiacProcedures

stents, balloons

Source: American Heart Association, Statistical update, 2006

Expanding in Healthcare IT Full Enterprise IT portfolio

Xcelera

Clinical SpecialtySolutions

Intgris Allura

Imaging Modalities &Monitoring

ABC - A

Enterprise Solutions

Guaranteeing a consistent Experience

Agenda

• Market developments

• Performance update

• Where do we go from here

• Care Cycle

Focus on the Care Cycle – space to grow

$ 180 billion market

Information & Decision support IntensiveCare unitMonitoring

IntensiveCare unitMonitoring

Step downfacility

Monitoring

Step downfacility

Monitoring

Pre-Hospital/Ambulance

Monitoring

Pre-Hospital/Ambulance

Monitoring

DiagnosticsImaging

DiagnosticsImaging

Diagnostics

Follow Up

Treatment

HomeMonitoringHome

Monitoring

Operating roomMonitoringImaging

Operating roomMonitoringImaging

$ 10 billion market$ 90 billion market

Philips Schering Alliance

• Initial focusTo develop optical mammography for diagnosing breast cancer

• GoalTo jointly research, develop and commercialize a new technology – Optical Imaging

• 1st development projectCombines Schering’s omocinian (SF-64) optical agent with a Philips optical scanner

• Business modelPartners will share equally all investments plus all revenue in the alliance

• Alliance management A dedicated alliance management team in place

Therapy Monitoring

Molecular Diagnostics – Improvements across Care Cycles

Patient Stratification for

Personalized Treatment

Early DiagnosisRapid Results

Managementof Chronic

Disease

Monitoring for Relapse

Predisposition Testing & Screening

Priorities

Maximize Value

Creation

Strengthen current portfolio

Expand the business

Secure previous investments

Grow withImprovingMargins

Do it right is more important than do it nowAcquisition Approach• Growth opportunities

• No or time-limited margin dilution

• Quality of Management

• Clear commercial, clinical, and technology synergies

• Complementary position

• Strong market position

• Integration strategy part of acquisition decision

• Walk-away price set at discussion start

• A good alliance is an alternative to acquisition

Value Creation

Conclusions

In the past four 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