BERNSTEIN 33 RD ANNUAL STRATEGIC DECISIONS CONFERENCE

Transcription

1 BERNSTEIN 33 RD ANNUAL STRATEGIC DECISIONS CONFERENCE JUNE 2, 2017 OMAR ISHRAK CHAIRMAN & CEO

2 FORWARD LOOKING STATEMENT This presentation contains forward-looking statements which provide current expectations or forecasts, including those relating to market and sales growth, growth strategies, financial results, use of capital, product development and introduction, partnerships, regulatory matters, restructuring initiatives, mergers/acquisitions/divestitures and related effects, accounting estimates, working capital adequacy, competitive strengths and sales efforts. They are based on current assumptions and expectations that involve uncertainties or risks. These uncertainties and risks include, but are not limited to, those described in the filings we make with the U.S. Securities and Exchange Commission (SEC). Actual results may differ materially from anticipated results. Forward-looking statements are made as of today's date, and we undertake no duty to update them or any of the information contained in this presentation. Financial Data Certain information in this presentation includes calculations or figures that have been prepared internally and have not been reviewed or audited by our independent registered public accounting firm. Use of different methods for preparing, calculating or presenting information may lead to differences and such differences may be material. This presentation contains financial measures and guidance, including free cash flow figures (defined as operating cash flows less property, plant and equipment additions), revenue, margin and growth rates on a constant currency, constant week basis, and adjusted EPS, all of which are considered non-gaap financial measures under applicable SEC rules and regulations. We believe these non-gaap measures provide a useful way to evaluate our underlying performance. Medtronic calculates forward-looking non-gaap financial measures based on internal forecasts that omit certain amounts that would be included in GAAP financial measures. For instance, forward-looking revenue growth and EPS projections exclude the impact of foreign currency exchange fluctuations. Forward-looking non-gaap EPS guidance also excludes other potential charges or gains that would be recorded as non-gaap adjustments to earnings during the fiscal year, such as amortization of intangible assets and acquisition-related, certain tax and litigation, and restructuring charges or gains. Medtronic does not attempt to provide reconciliations of forward-looking non-gaap EPS guidance to projected GAAP EPS guidance because the combined impact and timing of recognition of these potential charges or gains is inherently uncertain and difficult to predict, and is unavailable without unreasonable efforts. In addition, we believe such reconciliations would imply a degree of precision and certainty that could be confusing to investors. Such items could have a substantial impact on GAAP measures of financial performance. Detail concerning how all non-gaap measures are calculated, including all GAAP to non-gaap reconciliations, are provided in the Appendix to this presentation. 33 rd Annual Bernstein Strategic Decisions Conference June 2,

3 MISSION TENET 1 Medtronic is a technology company and one that is dedicated to improving patient outcomes 33 rd Annual Bernstein Strategic Decisions Conference June 2,

4 BROAD AND DIVERSE MEDICAL TECHNOLOGY DIVERSIFICATION ACROSS BUSINESS UNITS & GEOGRAPHIES BUSINESS UNIT DIVERSIFICATION Innovation to Address Multiple Disease States & Conditions GEOGRAPHIC DIVERSIFICATION Cardiac and Vascular Group Minimally Invasive Therapies Group FY17: $29.7B FY17: $29.7B Diabetes Group Restorative Therapies Group U.S. Non-U.S. Developed Emerging Markets 4 33 rd Annual Bernstein Strategic Decisions Conference June 2,

5 FOCUSED LONG-TERM COMMITMENTS DRIVING SHAREHOLDER VALUE EXECUTING ON A BROAD, SUSTAINABLE GROWTH PLATFORM REVENUE GROWTH Robust product portfolio and leading market share across disease states Broad geographic diversity Value-based healthcare leader 70 million patients served in FY17 MID-SINGLE DIGIT CONSTANT CURRENCY REVENUE GROWTH EPS LEVERAGE Covidien synergies on track for a minimum of $850M by FY18 Driving operating margin improvement over longer-term beyond Covidien synergies DOUBLE-DIGIT CONSTANT CURRENCY EPS GROWTH CAPITAL ALLOCATION Purposeful capital deployment Substantial cash returns to shareholders and disciplined reinvestment >50 PERCENT FREE CASH FLOW RETURNED TO SHAREHOLDERS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

6 CORE SET OF UNIVERSAL HEALTHCARE NEEDS HAS EXPANDED BEYOND CLINICAL OUTCOMES ALONE Improve clinical outcomes Expand access Optimize costs and efficiencies 33 rd Annual Bernstein Strategic Decisions Conference June 2,

7 STRATEGY TO CAPTURE HEALTHCARE GROWTH OPPORTUNITIES HEALTHCARE NEEDS Improve Clinical Outcomes Expand Access Optimize Cost & Efficiency GROWTH STRATEGIES Therapy Innovation Globalization Economic Value VALUE-BASED HEALTHCARE PRINCIPLES GOVERN OUR GROWTH STRATEGIES Expected to Sustain Consistent, Mid-Single Digit Growth 33 rd Annual Bernstein Strategic Decisions Conference June 2,

8 THERAPY INNOVATION DEVELOP NEW THERAPIES AND COMPLEMENTARY OFFERINGS TO ADDRESS UNMET CLINICAL NEEDS, EXPAND PENETRATION, AND CREATE VALUE 33 rd Annual Bernstein Strategic Decisions Conference June 2,

9 FULL PIPELINE SUSTAINS NEW THERAPIES GROWTH FY18 LVAD Destination Therapy Approval (US) Azure Pacemaker (US) Avalus Surgical Valve Resolute ONYX TM (Japan) TAVR Intermediate Risk indication expansion (US) Surgical Robotics System LigaSure L-Hook Vessel Sealer / Divider Capnostream 35 Portable Respiratory Monitor OLIF indication expansion Refresh Synergy TLIF (Voyager 5.5 / Titanium Cages) Intellis Spinal Cord Stimulator InductOs (re-launch EU) ipro 3 Guardian Connect with Guardian Sensor 3 (US) MiniMed 670G (OUS) Sugar.IQ with Watson (US) MiniMed 670G (US) Hybrid Closed Loop System LAUNCHING CoreValve Evolut PRO 3 rd gentavr valve 3T MRI TM ICD (Japan) Visia AF MRI (Japan) CoreValve Evolut R (Japan) HawkOne (6F) (EU) CoreValve Evolut R 34mm TAVR valve Visia AF MRI (US) Resolute ONYX TM (US) next gen DES Micra Leadless Pacemaker (US) LigaSure Vessel Sealing Instruments Signia TM Powered Stapler Valleylab FT10 Energy Platform StealthStation TM S8 Solera Fenestrated Screw US (Indication Expansion) Axium Prime Stealth-Midas Rialto SI Fusion System Elevate / Voyager MAZOR Robotics Partnership MiniMed 670G Customer Training Launch Guardian Connect with Enhanced Enlite Sensor (OUS) MiniMed 630G (US) with Enlite CGM sensor CVG MITG RTG Diabetes Note: Relative positioning of products on pipeline is not intended to signify relative approval / launch timing. 33 rd Annual Bernstein Strategic Decisions Conference June 2,

10 TECHNOLOGY PLATFORMS FOR THE FUTURE Leadless CRM Transcatheter Mitral Valves LVAD Systems Stroke Therapies Neurostimulation Advancement s Advanced Surgical Tools and Robotics Capsule Endoscopy Solutions Closed Looped System for Diabetes Management CGM in Standard Use For patients to realize the full value of these exciting new therapies, Economic Value as well as Clinical Value must be developed 33 rd Annual Bernstein Strategic Decisions Conference June 2,

11 GLOBALIZATION DEVELOP TAILORED SOLUTIONS TO EXPAND ACCESS FOR ALL 33 rd Annual Bernstein Strategic Decisions Conference June 2,

12 UNLOCKING THE EMERGING MARKET OPPORTUNITY Large Opportunity Today in Premium Segment Existing technology Out-of-pocket payment or reimbursement established Comparable margins to developed markets PREMIUM VALUE UNDERSERVED The penetration of existing therapies into emerging markets represents the single largest opportunity in MedTech Longer-Term Opportunity in Value and Underserved Segments TRADITIONAL MARKET DEVELOPMENT Education & Training Distribution Reach + 1 CHANNEL OPTIMIZATION 2 PUBLIC PARTNERSHIPS 3 PRIVATE PARTNERSHIPS STRATEGIC GROWTH DRIVERS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

13 UNLOCKING THE EMERGING MARKET OPPORTUNITY MEDTRONIC S DIFFERENTIATED STRATEGIES CHANNEL OPTIMIZATION PARTNERSHIP MODEL CHANGE CHINA DISTRIBUTOR TRANSITIONS TURKEY PANAMA INDIA ACCOUNT-BY-ACCOUNT TRANSITIONS BRAZIL SAUDI ARABIA SLOVAKIA PUBLIC PARTNERSHIPS RUSSIA SOLE SOURCE SUPPLIER: CORONARY STENTS & BALOONS FOR ACS CHINA CHENGDU: DIABETES & DIALYSIS PRIVATE PARTNERSHIPS ABRAAJ STRATEGIC PARTNERSHIP INDIA AND SEA MANAGED SERVICES 33 rd Annual Bernstein Strategic Decisions Conference June 2,

14 UNLOCKING THE EMERGING MARKET OPPORTUNITY CONSISTENT DOUBLE-DIGIT GROWTH ACROSS DIVERSIFIED MARKETS Billions ($) Medtronic Emerging Market Revenue 19% 1 20% 1 17% 1 COV Revenue Added 2 14% 1 12% 1 Low-Double Digit Low-Double 3 Digit 3 FY17: ~$4B Diversified Emerging Market Revenue FY17 Other Asia ~5% Central & Eastern EU ~10% Latin America ~20% India ~5% Greater China ~40% % Reptd 21% Reptd 14% Reptd 11% Reptd 23% Reptd 43% Reptd 7% Reptd FY11 FY12 FY13 FY14 FY15 FY16 FY17 Middle East & Africa ~20% 1. Growth on a constant currency basis 2. FY15 emerging markets revenue reflects partial year (FQ4) Covidien contribution. FY16 includes Covidien for full-year 3. Growth on a constant currency, constant week basis. 33 rd Annual Bernstein Strategic Decisions Conference June 2,

15 ECONOMIC VALUE & VALUE-BASED HEALTHCARE DEVELOP NEW INTEGRATED HEALTH SOLUTIONS AND BUSINESS MODELS TO WIN IN A VALUE-BASED HEALTHCARE ENVIRONMENT 33 rd Annual Bernstein Strategic Decisions Conference June 2,

16 SERVICES AND SOLUTIONS: DRIVING ANNUITY REVENUE CLMS & ORMS ENABLING FUTURE VALUE-BASED HEALTHCARE CATH LAB & OPERATING ROOM MANAGED SERVICES Managing cath labs and operating rooms in hospitals around the world STRONG GROWTH IN MANAGED SERVICE ACCOUNTS Long-term growth partnership with providers Incremental device revenue by expanding patient access Driving annuity revenue growth with longterm contracts Annualizing at ~$120M in service revenue Global scale and broadening product offerings Proven results for providers: 25-35% increase in lab capacity Enhanced operational efficiency Contain and manage costs # of Contracts Operating Rooms (ORMS) Cath Labs (CLMS) NGC Acquired Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2015 FY2016 FY rd Annual Bernstein Strategic Decisions Conference June 2,

17 FOCUSED ON EMERGING VALUE-BASED HEALTHCARE MEDTRONIC SIGNATURE PROGRAMS 1 THERAPY OPTIMIZERS EPISODIC BUNDLES 2 3 CHRONIC CARE MANAGEMENT TYRX Infection Control Orthopedic Solutions Diabetes Respiratory Compromise CABG Obesity 33 rd Annual Bernstein Strategic Decisions Conference June 2,

18 DRIVING SHAREHOLDER VALUE 33 rd Annual Bernstein Strategic Decisions Conference June 2,

19 DELIVERING MARGIN EXPANSION GOING BEYOND COVIDIEN SYNERGIES Covidien Synergies Utilizing systems and structures at scale across the enterprise to drive margin expansion COGS Reduction Operating Margin Expansion On track to deliver minimum of $850M in COV synergies COV synergies catalyst for long tail of leverage opportunities beyond FY18 G&A Leverage 33 rd Annual Bernstein Strategic Decisions Conference June 2,

20 DELIVERING ON COVIDIEN SYNERGIES AND BEYOND FY16-FY18: ON TRACK FOR A MINIMUM OF $850M IN COST SAVINGS Shared supplier rationalization CVG ~$60M PV integration FY16 FY17 ~ $600M+ Elimination of redundant roles / expenses Sourcing ~$300M Freight reductions through common contracts Supply Chain Optimization ~$65M Integrated transportation and logistics & dist. center footprint Non-Operations Facilities ~$100M Consolidation of >100 facilities globally (sales offices, corporate offices, back offices) Enabling Functions ~$240M Against Savings Goal: Benefits Harmonization ~($50)-(70)M FY18E $ M Value engineering & make vs. buy Plant Network Optimization ~$5M Functional Delivery Model Evolution ~$130M Service delivery optimization: Centers of excel. / shared serv. Common ERP System (SAP) ~$10M Completed In Progress FY19 FY21+ Leverage / Cost Savings Opportunities beyond Covidien Synergies through FY21 Strategic sourcing initiatives: global supply base, cost modeling, value engineering Manufacturing and distribution center operating leverage enabled by lean techniques Global footprint optimization: manufacturing, distribution centers, admin sites End-to-end integrated supply chain Functional delivery model transformation Expansion of shared services Systems integration & automation 33 rd Annual Bernstein Strategic Decisions Conference June 2,

21 FOREIGN EXCHANGE EXPECTED TO MODERATE INTO FY18 Annual FX Impact / Guidance 3.0% 2.0% 1.0% Operating Margin Improvement Masked by Foreign Exchange Headwinds Delivering strong, constant currency operating margin improvement FY16: ~100 bps improvement 1 FY17: ~100 bps improvement 1 1 Billions ($) (0.5) (1.0) (1.5) (2.0) ($1.5B) Revenue ($34M) +$75M $175M 2 FY16 FY17 FY18E 0.0% -1.0% -2.0% 1 0% FY16: ~(20) bps decline FY17: ~(10) bps decline FX has significantly diluted operational performance $0.00 ($0.10) EPS FY16 FY17 FY18E ($0.05) 2 ($0.10) 2 ($0.20) ~($0.17) Non-GAAP Non-GAAP Constant Currency ($0.30) ($0.40) ($0.50) ($0.47) 1. Approximation based on a constant currency, constant week basis. 2. As of Q4FY17 earnings call. 33 rd Annual Bernstein Strategic Decisions Conference June 2,

22 PURPOSEFUL CAPITAL DEPLOYMENT PLAN FOCUSED ON SHAREHOLDER RETURNS AND DISCIPLINED REINVESTMENT Free Cash Flow Returns to Shareholders Dividends Share Repurchases Balance Sheet Cash Reinvestment Debt Paydown Targeting A Credit Profile Tuck-In M&A / Investments 33 rd Annual Bernstein Strategic Decisions Conference June 2,

23 GENERATING SIGNIFICANT FREE CASH FLOW GROWTH ROUGHLY IN LINE WITH EARNINGS OVER MULTI-YEAR PERIOD Free Cash Flow 6.0 $5.6B Accessible cash mix increased significantly (from ~35% to ~55%) with Covidien transaction Billions ($) 4.0 $4.2B Important to view free cash flow growth over multi-year period Extraordinary items (or lack thereof) can significantly impact growth in a given year 2.0 Current growth affected by restructuring and other expenses associated with the Covidien transaction Management focused on driving working capital improvements 0.0 FY16 FY17 Free cash flow (FCF) defined as operating cash flow, less capital expenditures 33 rd Annual Bernstein Strategic Decisions Conference June 2,

24 39 YEARS OF INCREASING DIVIDEND DIVIDEND EXPECTED TO GROW IN-LINE WITH EARNINGS GROWTH $2.00 $1.75 Dividend Payout Ratio now ~40% 1 Dividend up +13% in FY17 50% 45% Dividend per Share $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 Dividend Payout Ratio 1 Dividend per Share Recent Large Increases 40% 35% 30% 25% 20% Payout Ratio $0.00 FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 15% 18% Dividend Per Share CAGR over 39 Year History Member of S&P 500 Dividend Aristocrats 1. On a non-gaap basis. Calculated as annual dividend per share divided by prior year non-gaap earnings per share. 33 rd Annual Bernstein Strategic Decisions Conference June 2,

25 STRONG TRACK RECORD OF RETURNING CAPITAL TO SHAREHOLDERS PURPOSEFULLY SUPPLEMENTING DIVIDEND WITH SHARE REPURCHASE 100% Total Payout Ratio 1 Since FY12 Payout Ratio 1 includes contribution from $5B incremental share repurchase commitment 80% Net Share Repurchases Dividends 86% 60% 72% 40% 65% 53% 58% 55% 20% 0% FY12 FY13 FY14 FY15 FY16 FY17 1. Payout ratio calculated as dividends plus net share repurchases divided by adjusted net income. 33 rd Annual Bernstein Strategic Decisions Conference June 2,

26 DISCIPLINED PLATFORM FOR STRATEGIC M&A STRONG ACQUISITION TRACK RECORD Cardiac & Vascular Minimally Invasive Therapies M&A Focus Restorative Therapies Diabetes Therapy Innovation: Build around core customer groups Globalization: Value segment expansion; business model innovation Economic Value: Integrated health solutions across care continuum M&A Guidelines Minimal to no net EPS dilution for tuck-ins Clear financial value proposition Mid-teens riskadjusted return hurdle Building M&A and Strategic Investments Track Record FY17: FY15 FY16 FY17 OsteoCool TM Closed 5 tuck-in acquisitions and several strategic investments, totaling ~$1.5B 33 rd Annual Bernstein Strategic Decisions Conference June 2,

27 PT CARE / DVT / NI DIVESTITURE TO CARDINAL HEALTH STRATEGIC PORTFOLIO MANAGEMENT; POSITIONED TO DRIVE GROWTH ~$6B asset sale to Cardinal Health Divesting businesses that are lower growth/lower margin Enables investment over the long-term in higher returning internal and external opportunities aligned with our growth strategies Immediate positive impact to revenue growth and margins with modest nearterm dilution Improves the sustainability of our growth commitments Use of proceeds consistent with our stated capital allocation strategy 33 rd Annual Bernstein Strategic Decisions Conference June 2,

28 PORTFOLIO MANAGEMENT STRONG CROSS GROUP SYNERGIES Focused Divisions CRHF SCA Arrhythmia Heart Failure AF Coronary and Structural Heart CAD Hypertension Heart Disease Aortic & Peripheral Vascular Aortic & Venous Disease CAD PAD Surgical Solutions Thoracic Colorectal GYN General Surgery Lung / Gastrointestinal Cancer Patient Monitoring & Recovery Respiratory & Monitoring Renal Care Solutions Bariatric Spine Spinal Deformity Degenerative Spinal Conditions Brain Stroke Movement Disorders Pain Chronic and Cancer Pain Specialty Therapies Intensive Insulin Management Type 1 Non-Intensive Diabetes Therapies Pre-Diabetes Type 2 Diabetes Service & Solutions Integrated Care Solutions Groups CVG MITG RTG Diabetes Comorbidity Integrated Technology Corporate Synergies Clinical / Regulatory Expertise Sales to Large Entities (Governments / Providers) Global Manufacturing / Operations / Distribution Corporate Infrastructure 33 rd Annual Bernstein Strategic Decisions Conference June 2,

29 FOCUSED LONG-TERM COMMITMENTS DRIVING SHAREHOLDER VALUE EXECUTING ON A BROAD, SUSTAINABLE GROWTH PLATFORM REVENUE GROWTH Robust product portfolio and leading market share across disease states Broad geographic diversity Value-based healthcare leader 70 million patients served in FY17 MID-SINGLE DIGIT CONSTANT CURRENCY REVENUE GROWTH EPS LEVERAGE Covidien synergies on track for a minimum of $850M by FY18 Driving operating margin improvement over longer-term beyond Covidien synergies DOUBLE-DIGIT CONSTANT CURRENCY EPS GROWTH CAPITAL ALLOCATION Purposeful capital deployment Substantial cash returns to shareholders and disciplined reinvestment >50 PERCENT FREE CASH FLOW RETURNED TO SHAREHOLDERS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

30 APPENDIX

31 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

32 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

33 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

34 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

35 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

36 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

37 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

38 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

39 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

40 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

41 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

42 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

43 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,

44 NON-GAAP RECONCILIATIONS 33 rd Annual Bernstein Strategic Decisions Conference June 2,