The Role of Circular Supply Chains. Kristine Kalaijian, Director Sustainability Philips North America April 27, 2016

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1 The Role of Circular Supply Chains Kristine Kalaijian, Director Sustainability Philips North America April 27, 2016

2 We strive to make the world healthier and more sustainable through innovation We re aiming to improve the lives of three billion people a year by 2025

3 Present in More Than +100 Countries Philips has 60 R&D sites and manufacturing in all continents North America Employees: 22,989 R&D centers: 20 Manufacturing sites: 32 Asia Employees: 40,049 R&D centers: 10 Manufacturing sites: 21 Latin America Employees: 7,910 R&D centers: 2 Manufacturing sites: 6 EMEA Employees: 34,417 R&D centers: 28 Manufacturing sites: 28 1 Source: Philips Annual Report 2014.

4 Making a difference across the health continuum 275 million patients tracked with our patient monitors in 2015 Last year 6.5 million people improved their oral health with our oral healthcare products 21 petabytes of imaging study data managed for healthcare providers 1,000,000 patients monitored in their homes every day 101 million lives improved globally through access to diagnostic X-Ray 250 million appliances sold each year making homes healthier Hundreds of thousands of people tracking their health with ActiveLink

5 We are unlocking value through circular economy principles For a sustainable world, we see the transition from a linear to a circular economy a business necessity for now and the future. A circular economy aims to decouple economic growth from the use of natural resources and ecosystems by using those resources more effectively. We work on recycling, improving product recyclability, refurbishment and new business models.

6 The four enablers for a circular economy business models design collaboration reverse logistics

7 Philips believes that global trends make a circular economy a business necessity for now and the future. Here are a few examples

8 The global trends that make a circular economy a business necessity for now and the future Challenges Resource availability and pricing Increase in middle class consumers

9 The global trends that make a circular economy a business necessity for now and the future Opportunities Big data Changing legislation and governance Changing models of consumer consumption Moving from transaction to relationship

10 Strategies and activities within our businesses

11 Circular Economy Strategy Health Systems Trade-in Higher and faster socket retention Parts Harvesting Certified quality parts for re-use Lower service costs Refurbished Systems Protect price points Additional market segments Valueadding services From servicing equipment to servicing customers

12 Refurbishing solutions for MRI systems Philips Healthcare, 2014 Due to limited MRI renting capacity in the University Clinic in Lübeck,the Gross Grönau radiology department decided to purchase their own MRI system while keeping their budget considerations into account. MRI systems in the Diamond Select program provide access to performance levels of latest state-of-the-art Philips technology for a more affordable price. With the Diamond Select program, this relatively small radiology practice did not exceed their budget, whilst they are able to set themselves apart from the other clinics. Philips gives pre-owned certified components a second life: the 3000 kilo magnet is refurbished and certified for serviceability period of at least 10 years, and the system is fully upgradeable. The refurbished MRI systems reduce up to 50% energy consumption by PowerSave over comparable systems.

13 Circular Economy Personal Health Business Recycled plastics Reduce environmental footprint Cost savings Service / repair Reduce cost of non-quality Increase customer touch points Business models Cascaded use Repurpose market returns Parts harvesting Enter new markets e.g. Africa Access over ownership Capture business in new market segments, e.g. hospitality

14 SENSEO Up - Built from Recycled Plastics Inner frame (not visible) 40% Post Industrial Recycled glass fiber reinforced polypropylene Baseplate 90% recycled ABS from Post Consumer E-waste Total: 13% recycled plastics / 20% cost savings

15 Circular Economy Strategy Lighting Solutions Light as a Service Market leadership in Lighting Performance Contracts Design Upgradeability, serviceability Portfolio of indoor & outdoor lums Sales tools Develop value calculators per segment for customer discussions 2 nd hand market Develop market for used parts and lums reuse for overall credibility

16 Light-as-a-service North America Lighting upgrade to 25 parking garages in WMATA (Washington DC, USA) transit system Over LED fixtures with wireless controls Ownership of the installation remains with Philips 11 year initial contract for managed services Improved modular product design to support maintenance and upgradeability

17 For a sustainable world, the transition from a linear to a circular economy is essential. A circular economy aims to decouple economic growth from the use of natural resources by using these resources more effectively. Fransvan Houten, CEO, Philips

18 Procurement Strategies and activities Procurement is a key driver in the transition toward embracing the concept of circular economy

19 Circular Procurement Different Levels Design-in Philosophy - DfX Suppliers located at manufacturing Non-product procurement

20 Design-in Modularity Core remains the same Upgradability Re-use previous design as much as possible 20 Philips North America

21 Suppliers in House Supplier at Philips manufacturing site Authorized repair center Recycle, reuse Saves time, money, carbon footprint 21 Philips North America

22 Non-Product Circular Procurement Asset Recover HP IT Hardware 1 HP pre-defined Selected laptops 2 Initial User Usage Phase 3 Refurbishment 4 Second User Usage Phase 5 Third User Usage Phase 6 E-Waste

23 HP Asset Recovery Services Program at Philips Managed so far over 60,000 assets across 22 countries and 4 continents Covers activities from data wiping through marketing and recycling Remarketed 90% Full recycling service for remaining 10%

24 Our partnerships include:

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26 Driving circular thinking in Philips through Generating proof points & metrics Thought leadership and collaborations Driving internal engagement Embedding in Philips processes

27 The Closed Loops of the Circular Economy 1. Service Maintenance & repair agreements for Philips Equipment. Service support based on specific requirements which allows to optimize customer and financial result. Technology upgrades; The latest software releases to keep technology current and extends the life of medical systems Parts supply Manufacturing Distribution User Mining/materials manufacturing Collection Service Refurbish Reverse Supply Chain Recycle Part harvesting Building Blocks Design Collaboration New business model 2. Refurbishment A process of returning a product to good working condition by replacing or repairing major components that are faulty or close to failure or EOL, and making cosmetic changes to update the appearance of a product, such as cleaning, changing its fabric, painting or refinishing it 3. Part Harvesting Part harvesting is the activity of harvesting components and parts that are recovered from equipment for redistribution as spares, parts for servicing and maintenance or resold to return. It saves costs by reducing the requirement for purchasing brand new components 4. Recycling Functional recycling: A process of recovering materials for their original purpose or for other purposes, excluding energy recovery. Downcycling: A process of converting materials into new materials of lesser quality. Upcycling: A process of converting materials into new materials of higher quality and increased functionality

28 Refurbishing Solutions for MRI Systems Systems rebuilt and tested according to manufacturers specifications New vacuum components Customized configuration Latest software upgrades Latest hardware upgrades Original parts 60-85% of new price Same guarantee as new