McKesson Corporation 2016 Investor Day June 29, 2016
McKesson Corporation 2016 Investor Day
June 29, 2016
2016 Investor Day Agenda
2
Craig Mercer – Senior Vice President, Investor Relations John Hammergren – Chairman and Chief Executive Officer Pat Blake – Executive Vice President, Group President Technology Solutions James Beer – Executive Vice President, Chief Financial Officer
Q&A: New Company
Break
Paul Julian – Executive Vice President, Group President Distribution Solutions Mark Walchirk – President, U.S. Pharmaceutical Nick Loporcaro – President, McKesson Specialty Health Stanton McComb – President, McKesson Medical-Surgical Marc Owen – Chairman, Celesio Management Board
Q&A: McKesson Distribution Solutions
Break
James Beer – Executive Vice President, Chief Financial Officer
Q&A: Wrap-Up
Closing Remarks
3
Forward-Looking Statements
Some of the information in this presentation is not historical in nature and may constitute forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied by such statements. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, those described in the Company’s annual, quarterly and current reports (i.e., Form 10-K, Form 10-Q and Form 8-K) as filed or furnished with the Securities and Exchange Commission (SEC). You are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date such statements were first made. To the degree financial information is included in this presentation, it is in summary form only and must be considered in the context of the full details provided in the Company’s most recent annual, quarterly or current report as filed or furnished with the SEC. The Company’s SEC reports are available at www.mckesson.com under the “Investors” tab. Except to the extent required by law, the Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.
GAAP / Non-GAAP Reconciliation
In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials in this presentation include non-GAAP information. McKesson also presents its financial results on a constant currency basis. The Company conducts business worldwide in local currencies, including Euro, British pound and Canadian dollar. As a result, the comparability of the financial results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. The Company believes the presentation of non-GAAP measures provides useful supplemental information to investors with regard to its core operating performance as well as comparability of financial results period-over-period. A reconciliation of the non-GAAP information to GAAP, and other related information is available in the tables accompanying each period’s earnings press release, materials furnished to the SEC, and posted to www.mckesson.com under the “Investors” tab.
Welcome
John Hammergren
Chairman and Chief Executive Officer
4
5
Combination Creates Substantial Shareholder Value
Strong partner in Blackstone with a shared focus on value creation, including agreed path to an IPO and tax-efficient exit of McKesson’s investment
Enhances MTS’ market opportunity, capabilities and scale
McKesson to receive ~$1.25 billion in cash at close of transaction while retaining an ~70% equity stake in the jointly-governed company
Targeting in excess of $150 million of annual synergies with potential to capture further opportunities
New focused company with peers in the healthcare technology industry, as opposed to healthcare distribution services
McKesson’s Executive Committee Diverse and Experienced Leadership
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Pat Blake President
EVP & Group President 20 years
James Beer Chief Financial Officer
3 years
John H. Hammergren Chief Executive Officer, President & Chairman
20 years
Paul Julian EVP & Group President
20 years
Lori Schechter EVP, General Counsel &
Chief Compliance Officer 4 years
Kathy McElligott Chief Information Officer/ Chief Technology Officer
1 year
Bansi Nagji EVP, Corporate Strategy & Business Development
1 year
Jorge Figueredo EVP, Corporate Human Resources
& Administration 8 years
McKesson At A Glance Delivering Better Health for More Than 180 Years
7 Financial data reported for Fiscal Year ended March 31, 2016; Operational and employee data reflected as of March 31, 2016
68,ooo
year history of serving customers
183
Delivering
of all prescription medicine in
North America
1/3
$190B in revenues
employees worldwide
Order accuracy
$3.7B in operating cash flow
More than
13,000 owned and banner pharmacies
>99%
Evolving Healthcare Environment
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Generics Consolidation Specialty
Healthcare Industry – A Great Investment
9
Unsustainable healthcare spend requires innovative approaches,
new demands, improved outcomes
Value-based care
Changing demographics
Track Record Of Success
10
Operational excellence commitment is
embraced by all
Leading positions in key markets
Customer-first
attitude infuses entire company
Poised For Continued Growth
11
Right Markets Right Assets Right Culture
Strong Financials • Nimble, cost-effective organization • Robust cash flow generation • Strategic deployment of capital;
balanced investment strategy
Specialty
Retail Pharmacy
Global Reach
Scale
Supply Chain
Global Procurement & Sourcing
McKesson Technology Solutions and Announced New Company with Change Healthcare
Pat Blake
Executive Vice President, Group President, Technology Solutions
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13
Recent MTS Accomplishments
Generated 11% of Total McKesson Adjusted Operating Profit2
New 5-year, $139M DoD Contract • Secure messaging • Patient engagement solutions
Delivered 12% Adjusted Operating Profit Growth in FY161
Expanded Adjusted Operating Profit Margin1 by 612 bps from FY13 to FY16
1 FY16 MTS Adjusted Operating Margin excludes gain on sale of our nurse triage business and is expressed in constant currency, versus FY13 Adjusted Earnings (Non-GAAP) value. 2 FY16 MTS Adjusted Operating Profit excludes gain on sale of our nurse triage business and is expressed in constant currency; growth figures compared to FY15 Adjusted Earnings (Non-GAAP) value.
Innovative Partnership with Blue Cross Blue Shield of Arizona
Evolving Through A Dynamic Market
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Driving Innovation
• Expanded adjusted operating margin from 12.6% to 18.7% over last three years1
• Operating margin expected to exceed 20% in FY17
• Serving over 300 MCOs including 24 of top 25 health plans; 4K hospitals; 630K providers; and 50K pharmacies
• Continuing to scale as the nationwide service provider for the CommonWell Health Alliance
• Investing and partnering to bring leading value-based care technology to market
Operational Excellence
• Bookings growth in mid-teens year-over-year
• Extending and integrating our solutions across the portfolio
• Advancing connectivity, value-based reimbursement and pharmacy solutions
Expanding Scale and Customer Solutions
Investing for Growth
1 FY16 MTS Adjusted Operating Margin excludes gain on sale of our nurse triage business and is expressed in constant currency, versus FY13 Adjusted Earnings (Non-GAAP) value.
• Creates a new company positioned to address industry’s emerging and most pressing challenges
• Experienced management team comprised of leaders from both McKesson and Change Healthcare
• Significant value for customers by bringing together full suite of end-to-end payment and claims solutions, as well as robust portfolio of financial, clinical and operational IT products and services
• Creates growth opportunities from cross-selling and combined expertise
• Expected to generate in excess of $150 million of synergies by the second year following the close of the transaction
• Unlocks value through singular focus on healthcare technology and technology-enabled services
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Compelling Strategic Rationale
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Healthcare Industry Trends Support Strategic Rationale For Combination
• Reimbursement and administration requirements growing in scope and complexity
• 12% of every healthcare dollar consumed by claims submission and reimbursement
• Health plans and providers need more effective solutions to address value-based care
Outsource and automate for scale and specialization
• $360 billion spent on administrative services
• Up to $270 billion in costs potentially attributable to waste and abuse
• Financial pressure on providers and managed care organizations as they balance increasing patient volumes and complexity with lower margins
Focus on Efficiency Increasing Complexity
Avoid waste and streamline administration
• By 2018, 50% of fee-for-service Medicare payments to be tied to quality or value through models such as accountable care organizations or bundled payments
• Shift to managed care for most medically complex and costly patients (Medicare, Medicaid)
• Consumers taking increased responsibility for financial implications of care decisions
Leverage content, connectivity and analytics to support transition
Shift to Value-Based Care
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Combined Company Will Be Favorably Positioned To Address Critical And Complex Industry Challenges
Improve Experience & Outcomes
Reduce Cost & Complexity
Enable Value-Based
Care
NewCo
• Comprehensive solutions to support revenue performance, claims management and payment accuracy
• Empowers payers and providers to simplify administration and support financial health
Integrated Reimbursement Management
• Integrated quality/risk analytics, clinical decision support and value-based payment capabilities that leverage extensive connectivity
• Enables payers and providers to scale value-based reimbursement, and accelerate adoption of models such as bundled payments
Network-Enabled Value
• Transparency, member engagement, patient access, care coordination and payment solutions are leveraged together to improve the consumer experience and enhance outcomes
Consumer/Patient Engagement
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Combination Creates A New Healthcare Technology Company With Leading Capabilities
OVERVIEW Focused on improving patient safety, reducing cost and variability of care, and better managing revenue streams
Leading provider of software and analytics, network solutions and technology-enabled services
COMPANY
Contributes four businesses: • McKesson Health Solutions (MHS) • Connected Care and Analytics (CCA), excluding
RelayHealth Pharmacy (RHP) • Imaging and Workflow Solutions (IWS) • Business Performance Services (BPS)
• Contributes substantially all of its businesses, except for pharmacy switch and prescription routing business
EMPLOYEES MHS, CCA, IWS and BPS: ~10,000 people ~7,000 people, of which ~2,000 are seasonal
LOCATIONS Multiple locations including: Alpharetta, GA; Newton, MA; Vancouver, Canada
Multiple locations including: Nashville, TN; Atlanta, GA; San Francisco, CA
McKesson Technology Solutions
NewCo
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Breadth Of Complementary Capabilities Creates Opportunity To Deliver Significant Value To Customers
• Medicare and Medicaid Engagement
• Payment Integrity Solutions
• Clinical Claims Management
• Claims, Eligibility and Electronic Remittance Advice Network
• Provider Network Management
• Communication and Payment Services
• Value-Based Care Analytics
• Patient Access Suite and Services
• Clinical Information Exchange
• Cost and Quality Analytics
• Imaging Workflow and Intelligence
• InterQual Clinical Decision Support
• Claims, Denials and Payments Management
• Revenue Cycle Outsourcing
Providers
Capabilities to verify patient eligibility, deliver clinically appropriate care,
submit claims and manage payments across the revenue cycle
Payers
Comprehensive solutions to address member engagement, payment
accuracy, network management and the transition to value-based payments
Consumers
Digital tools to access personal health information, engage with providers,
and make smart choices about quality, cost and convenience
• Cost and Quality Transparency
• Consumer Education and Health & Wellness Alerts
• Patient Portal
• Financial Responsibility Estimation
• Online/Mobile Payment
McKesson Technology Solutions
NewCo
New Company Summary
James Beer
Executive Vice President, Chief Financial Officer
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Transaction Summary
Transaction Structure
• McKesson contributes all MTS businesses, except for RHP and EIS businesses. Businesses contributed: MHS, CCA (excluding RHP), BPS, IWS
• Change Healthcare contributes all businesses, except for its pharmacy switch and prescription routing business
Financials
• Pro forma combined revenue of approximately $3.4 billion (FYE 3/31/16) • Expect synergies in excess of $150 million by the second year following
the close of the transaction • Received commitments for $6.1 billion of funded debt, with proceeds to be
used to repay ~$2.7 billion of existing Change Healthcare debt, ~$1.25 billion in cash payments to McKesson, ~$1.75 billion in cash payments to Change Healthcare, and the remainder to be used for transaction-related expenses
Ownership • McKesson: ~70% • Change Healthcare: ~30%
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Transaction Summary (continued)
Management and Governance
• Governance will be shared jointly between McKesson and Change Healthcare
• CEO: Neil de Crescenzo, Change Healthcare’s current CEO • Chairman of the Board: John H. Hammergren, Chairman and CEO of
McKesson • Board of directors (10): CEO; appointees from McKesson (3); appointees
from Change Healthcare (3); independent directors (3; one McKesson nominated, one Change Healthcare nominated, one joint McKesson/Change Healthcare nominated)
• Experienced management team comprised of leaders from both McKesson and Change Healthcare
Timing
• Transaction expected to close in first half of calendar 2017 • McKesson and Change Healthcare to take steps to launch an initial
public offering in the months following the close of the transaction, subject to market conditions
• McKesson plans to subsequently exit its investment in a tax-efficient manner
Closing • Subject to closing conditions, including antitrust clearance and
completion of audited financial statements of the MTS businesses being contributed to the new company
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New Company Q&A
McKesson Distribution Solutions
Paul Julian
Executive Vice President Group President Distribution Solutions
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Medical surgical supplies distribution
and services in the U.S.
Distribution Solutions: Core Operations
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$188B in revenues and $4.5B in adjusted operating profit1 in FY16
North America Pharmaceutical Distribution and
Services
Medical-Surgical Distribution and
Services
International Pharmaceutical Distribution and
Services
Global Procurement and Sourcing
1 Reflects non-GAAP information calculated on an Adjusted Earnings basis, excluding Cost Alignment Plan charges recognized in Q4 FY16 and the gain on the sale of ZEE Medical in Q2 FY16, and is expressed in constant currency.
Pharmaceutical distribution,
technology and services in the U.S.
and Canada
Celesio pharmaceutical
distribution and retail operations
Enterprise-wide sourcing
organization
Distribution Solutions Leadership Team
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Nick Loporcaro President
McKesson Specialty Health 13 years
Jack Fragie President
Global Procurement and Sourcing
34 years
Emilie Ray President
McKesson Pharmacy Technology & Services
16 years
Paul C. Julian EVP, Group President Distribution Solutions
20 years
Marc Owen Chairman
Celesio Management Board 14 years
Stanton McComb President
McKesson Medical-Surgical 13 years
Alain Champagne President
McKesson Canada 6 years
Mark Walchirk President
McKesson U.S. Pharmaceutical 15 years
FY16 Milestones Strong Execution Across Distribution Solutions
28 1 Sempora Coop Study 2016
Announced >$4 billion in Strategic Acquisitions
3,865
4,610 stores
~200 Canadian Banner Pharmacies
Executing on Global Procurement Synergies
Significant Growth in
North America Specialty
Businesses
PSS Integration Completed Exceeded Business Case
Added
Expanded Health Mart from
Deepened Customer
Relationships Albertsons
and AHOLD Gesundleben Banner from German
Subsidiary GEHE Wins:
Best Banner Format in 20161
to
FY16 Achievements Across Distribution Solutions
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North America International
• Continued to expand our base in independent retail and health systems in the U.S.
• 21% year-over-year growth in OneStop
• #2 generics purchaser in Canada
• Leading position in community oncology
• Medical-Surgical year-over-year growth driven by surgery centers, lab, physician office and home care
• Divested non-core ZEE Medical business
• Began process of combining pharmacy technology businesses under new business unit (Pharmacy Technology & Services)
• Pharmacy Technology & Services achieved a 5% Customer Net Promoter score improvement year-over-year
• Announced >$3.5B in acquisitions led by Rexall, Biologics and Vantage Oncology (closed Biologics and Vantage Oncology effective 4/1/16)
• Exceeded Year 1 synergy expectations
• Launched innovative platform to build global data analytics capabilities
• Continued private label leadership with expertise spanning more than 10 years
Global Procurement & Sourcing
• Business exceeded expectations in FY16 on a constant currency basis
• Industry position maintained or strengthened in major countries
• Announced ~$1.0B in acquisitions across Europe in retail and wholesale
Driving Operational Excellence Across Distribution Solutions
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~50K Orders Processed Daily
>2.3M Lines Per Day
99.98% Order Accuracy Across North America Distribution and Services
$220M+ in Six Sigma-Related Savings Across North America
International Distribution and Services
>1% Increase in Automation Rate
99.92% Inventory Accuracy
~7% Increase in Lines for Medical and Surgical Supplies Shipped
Across North America Distribution and Services
~9% Increase in Lines Processed Across U.S. Pharmaceutical
Europe • Pharmaceutical spend expected to grow
approximately 5% CAGR 2015-2020 • Specialty will grow to represent nearly 50%
of total spend by 2020
Driving Business Growth In Global Markets Market Overview1
31
1 IMS Institute for Healthcare Informatics Global Use of Medicines Report 2015-2020 (April 2016). IMS Institute for Healthcare Informatics Use of Medicines Report US 2015-2020 (April 2016). IMS Health Market Prognosis Summary Q1 2016 - North America. Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.
Global
• Global pharmaceutical market will grow approximately 6% CAGR 2015-2020
• Growing population of elderly and chronically ill
• Innovative therapies to fight disease states
-2
0
2
4
6
8
10
12
14
0
100
200
300
400
500
600
700
Sales (USD Billion) % Change
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Overall North American Market
North America
• Pharmaceutical spend expected to grow approximately 7% CAGR 2015-2020
• More than one-third of growth will be in specialty in the U.S. from 2015-2020
• First biosimilar launched in the U.S. and four launched in Canada
Global Distribution Footprint
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North America • Best-in-class distribution network for
pharmaceuticals and medical-surgical supplies • Ongoing investments in established distribution
network
Europe • Supply pharmacies and hospitals across
Western Europe • Continued investment in distribution centers
and automation
Showcasing Innovation And Expansion In Retail
33 Market data as of March 31, 2016
A Global Footprint
13,000+ owned and banner pharmacies globally
• United States: More than 4,600 Health Mart stores
• Canada: More than 2,100 banner stores
• Europe: More than 6,500 owned, managed and banner pharmacies
Expanding Services
• Payer access and programs for independent pharmacies
• Patient adherence and claims management
• Automated pharmacy solution stats
• Reimbursement optimization
• European Pharmacy Network (EPN)
Spotlight: Rexall Health To Expand Pharmacy Solutions In Canada
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• New channel, new view of innovative pharmacy care
• Strong talent pool and expanding knowledge to strengthen capabilities and service across segments
• Independent customers remain confident in McKesson’s commitment and value proposition
• Broader reach through expanded footprint in growing geographies
• Enhanced generic sourcing opportunities to benefit diverse customers
• Innovative pharmacy programs benefit full range of pharmacy models and patients
Note: Rexall Health acquisition has not yet closed and is subject to regulatory approval.
Expand Independent Banners Presence Unique Integrated Service Offering Helps Drive Above-market Banner Growth
35
+ +Expanding
Professional Services
Enhancing Shared
Services
Increasing Private Label Sales
Grew Store Count
4% increase in SKUs
Our Distinctive Competitive Advantage: Better Business Health for Independent Pharmacies
~200
Servicing
Independent Pharmacies
>2,100
Increased National Footprint
Leveraging Global
Collaboration
+
Global Procurement And Sourcing
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McKesson Global Procurement & Sourcing
• Enterprise-wide sourcing and procurement responsibility overseen by experienced leaders
• Excellent progress with manufacturer discussions in FY16
• Several key agreements closed and worldwide partnerships established
• Expect synergies of $275-$325 million by end of FY17, more than one year ahead of original business case
Spotlight: McKesson And Walmart Sourcing Agreement
37
McKesson and Walmart to jointly source generic pharmaceuticals, driving efficiencies and
adding scale and value for both companies
Place Text Here
Expanded distribution agreement
Natural next step for two companies with more than 20-year history of working together
Co-sourcing partnership will be made operational in late FY17
Potential to expand relationship in the future
Global Private Label Offerings Strategic Value And Expertise Provides Opportunities Across the Portfolio
38
Advance opportunities in global medical-surgical supplies based on U.S. scale
Manage opportunities in U.S. and Canada and consider longer-term opportunities in Europe
Increase private label OTC penetration in new and existing geographies and categories
OTC
Medical Supplies
Generics
Driving Innovation And Partnering With Manufacturers
39
High Efficiency Best-in-class network; organized for quality, efficiency and speed
Delivering Value
High Efficiency Best-in-class network; organized for quality, efficiency and speed
Customer Locations Spanning Market Channels
Data and Analytics
• Product commercialization • Consulting and data analytics • Clinical research capabilities • Patient access and support • Risk evaluation mitigation • Optimized pharmacy replenishment • Supply chain economics and safety • Forecasting and data visibility
>100K
Proprietary Generics and Private Label Programs
Supporting Pharmaceutical Development Life Cycle
Services
Leading The Transformation To Value-Based Reimbursement (VBR)
40
Market leading tools and capabilities that position us as best-in-class
Proven results and thought leadership
15 new VBR agreements in FY16
Demographics and Increase in Chronic Diseases
U.S. Specialty Market Grew 15% In 2015
Continued Growth Expected Through 20201
41
1 IMS Institute for Healthcare Informatics Global Use of Medicines Report 2015-2020 (April 2016). IMS Institute for Healthcare Informatics Use of Medicines Report US 2015-2020 (April 2016). Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.
Innovative Products coming to market, with largest share coming from oncology
U.S. and Europe Pharmaceutical Markets
Specialty
2015 2020
Spending on Specialty Medicines Doubled in the past five years and is expected to continue growing
Focus on data and analytics
Market Dynamics And Investments Driving McKesson’s North American Specialty Growth
42
Comprehensive Portfolio of Offerings Leader in Community Oncology Services throughout the Oncology Continuum of Care Well Positioned for Continued Growth
Manufacturer Services Services span a drug’s life cycle
Biologics
Differentiated Physician Offerings US Oncology Network
Vantage Oncology
Distribution Multiple distribution channels: open market; limited; exclusive
Strategic Focus in Specialty
Delivering Better Health
43
• Executing on cost alignment plan and business process initiatives
• Partnering with manufacturers to deliver value and to drive procurement synergies
• Integrating acquisitions
• Expanding retail pharmacy footprint and services
• Leading drug delivery channels and manufacturer programs
• Optimizing supply chain through the use of automation
• Innovating in oncology research
• Deploying capital globally
• Enhancing capabilities to support specialty commercialization and growth
• Broadening private label solutions
• Growing retail pharmacy footprint and solutions
• Implementing and optimizing efficiency projects globally
Operational Excellence
Driving Innovation
Expanding Scale and Customer Solutions
Investing for Growth
U.S. Pharmaceutical
Mark Walchirk
President U.S. Pharmaceutical
U.S. Pharmaceutical Committed to Delivering Better Health
45
Operational Excellence
Expanding Scale and Customer Solutions
Investing for Growth
Driving Innovation
Industry Landscape Healthcare Continues to be a Dynamic and Growing Industry
46
1 Congressional Budget Office, March 2015 2 IMS Health Medicines Use and Spending in the U.S.: A Review of 2015 and Outlook to 2020, April 2016 3 IMS Health National Sales Perspectives. December 2015; sales in year prior to expiry for 2010-2015; MAT Sept 2015 sales shown for 2016-2020 4 IMS Health Market Prognosis USA for the period of 2016-2020, March 2016 Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.
10,000 New Medicare Beneficiaries Enrolled Every Day1
Generic CAGR 2016 to 20204
$87 Billion of brand sales at risk from 2016 to 20203
Generic Launches
9.3%
Brand CAGR 2016 to 20204 6.7%
4.4 Billion Prescriptions Dispensed in 20152
Leading Portfolio Of Services And Products Strong Core Business with a Broad Value Proposition
47
Independent & Small Chain Pharmacy • Health Mart • Proprietary generics and
private label programs • Managed care
contracting • Pharmacy technology • Clinical services • Inventory management
solutions
National Retail Pharmacy • Efficient and flexible
distribution network • Proprietary generics and
private label programs • Inventory management
solutions • Clinical services • Pharmacy technology • Central fill / High volume
solutions
Health Systems
• Proprietary generics and private label programs
• Inventory management solutions
• 340B program management
• Clinical / Operational consulting
• Pharmacy technology • Packaging
Driving Value For National Retail Pharmacies Recent Partnerships Continue to Prove the Value of Our Model
48
Quality and Service that Exceed Customer Expectations
Customized Solutions to Meet Customer Needs
Differentiated Value-added Services
Expanding Customer Relationships
Renew and Retain Key Customers
Selectively Target New Growth
Broad Offerings For Health Systems Delivering Customizable, Scalable Solutions to Our Customers
49
• Data and technology solutions
• Supply chain and inventory management expertise
• Pharmacy consulting services
• Cost containment and revenue enhancement services
• Specialty consulting
• 340B support / Macro Helix
Solutions-Led Approach Federal Department of Veterans Affairs Department of Defense
Health Systems Strategic partnerships with the nation’s leading health systems and alliances
Alternate site Tailored capabilities for long-term care and specialty pharmacies
Leveling The Playing Field For Independents Health Mart is the Largest Network of Independent Pharmacies in the U.S.
50
Health Mart Store Count
3,096 3,281 3,865
4,610
FY13 FY14 FY15 FY16
Focused Strategy
Access to preferred networks
Drive patients into store
Expand store revenue
Strategic Partner To Manufacturers Enabling High-Quality, Reliable Business Operations
51
Serve a large and growing customer
base of pharmacies, hospitals and clinics
Deliver industry-leading supply chain
excellence and business insights
Drive increased penetration through generic programs
and launch capabilities
Provide solutions and capabilities that
meet customers’ evolving needs
Growth Service Broad
Channel Access
Value-Added
Services
Our Generics Programs Continue To Drive Value
52
Strong Compliance and Growth
OneStop Proprietary Generics Program
Competitive Pricing, Choice and Industry-Leading Service Levels
OneStop Growth in FY16
100+ Manufacturers
>10 Years of Leadership in NorthStar Private Label
+21%
Expert Product Sourcing and Deep Relationships with
Continue To Make Investments In Our Established Distribution Network
53
NRDC Model National Re-Distribution
Center operational since FY13
Technology Increases automation and productivity
Ongoing Investment Maintaining state-of-the-art
distribution network
Investments Drive Operational Excellence
Our People United Around Our Commitment to Better Health
54
Positioned For Continued Success
55
Driving Innovation
• Industry-leading service levels
• Efficient, high-accuracy financial transaction processing
• Our people, infrastructure and investments drive operational excellence
• Expanded Health Mart franchise, services and solutions
• Industry-recognized and award-winning workflow, inventory and 340B customer technology solutions
• Innovative, internally-developed, fit-for-purpose business technology
• Provide unique services, technology and capabilities to customers
Operational Excellence
• Productivity gains through technology and automation investments
• Solutions-led approach combining distribution with unique service capabilities
• State-of-the art distribution network with ongoing capital investment
Expanding Scale and Customer Solutions
Investing for Growth
• Enhanced offerings to drive value for customers and manufacturer partners
• Consistent investment in our business for continued growth
McKesson Specialty Health
Nick Loporcaro
President McKesson Specialty Health
McKesson Specialty Health Uniquely Servicing Stakeholder Needs
57
Operational Excellence
Expanding Scale and Customer Solutions
Investing for Growth
Driving Innovation
U.S. Specialty Health Market Poised for Continued Growth
58
Specialty Driving More Than 1/3 of All New Growth Through 20201
• Rapid growth across specialties, including oncology
• Channel growth in both specialty pharmacy and specialty distribution
• Increasing drug development in similar therapeutic classes
• Increased emphasis on quality, cost containment and value-based care
Evolving Needs of Providers, Payers and Manufacturers
U.S. Specialty Pharmaceutical Market Spend 20151
26%
23%
12%
Oncology
Infectious Disease
20%
19%
Multiple Sclerosis
Other Specialty
Late Stage R&D Pipeline Compounds* by Top Therapy Areas1
Vaccines
51%
4%
Oncology
15% 5%
Dermatology
Neurology
25%
All Others
Auto-Immune
* New Active Substances (Filed, Phase 3, Phase 2)
1 IMS Health National Sales Perspectives Jan 2016 and Medicines Use and Spending in the U.S. (April 2016) Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.
McKesson Specialty Health Thriving in an Increasingly Complex Market
59
More Than 750K Prescriptions
Dispensed Nationwide
Mid-teen Year-over-Year Revenue Growth in FY16
• >3,400 Oncologists
• >5,000 Other Specialists
Expanding Footprint Across Specialties
>650 Payer Relationships
iKnowMedSM
Ranked #1 Oncology EHR >1,600 Users
Nearly 1,500 Phase 1 to Phase 4 Clinical Trials to Date
Clinical Research
+
McKesson Specialty Health data as of March 31,2016
Award-Winning Operational Excellence Delivering Exceptional Service Every Day
60
• >22,000 lines processed per day
• >6,400 shipments processed per day
• 99.96% order accuracy
• 99.99% inventory accuracy
• >80M vaccine doses delivered to >40K providers annually in support of the CDC’s Vaccines for Children program
• Certified by Benchmark Portal as a Center of Excellence
• Ranked Top 10 Call Center of 35,000 in North America
• Processes >25M claims annually with a 99.99% accuracy rate1
Distribution Operations1 Reimbursement, Access, and Co-Pay Programs
1 McKesson Specialty Health data as of March 31, 2016
Manufacturer Solutions Supporting Manufacturers Across Product Life Cycle
61
Manufacturer
Patient
Provider Payer
Clinical Development
Pre-Launch / Launch
Growth Maturity
1
2 3
1 • Clinical Trial Research / Site Management • Clinical Trial Logistics
2
• Prescriber and Pharmacy Outreach and Education
• Reimbursement, Access and Patient Assistance Programs (PAP)
• Patient Co-Pay Programs
• Patient Adherence and Clinical Management Services
• Drug Safety - REMS Program Design and Operations
• Health Economics and Outcomes Research
3 • Specialty Distribution • Outsourced Logistics / 3PL
• Specialty Pharmacy • Market Analytics and Insights
Connecting Manufacturers to Stakeholders
Immuno-Oncology Advancing the Fourth Pillar in Cancer Therapy
62
• >30 immuno-oncology trials to-date
• Nearly 500 patients enrolled to-date
Clinical Development
• >50 initiatives reaching >1,600 practice personnel
• >40 live speaker programs and regional symposia
Clinical Education
• Provided tailored clinical management services
• >8,700 patients on immuno-oncology therapy
Clinical Management
• Program to-date has supported >7,000 cases
Market Access and Patient Assistance Services • Multi-channel presence
• Group purchasing organization (GPO) contracting
• Cold-chain shipping
Supply Chain
• Real-time market analytics to assess and support product uptake
Market Analytics
McKesson Specialty Health data estimated as of March 31, 2016
Biosimilars Strong Position and Early Experience Driving Success
63
Early Success
Significant adoption in Onmark and Unity GPO-affiliated practices as compared to industry
>$35B
Largest Physician Networks
Strong Manufacturer Partnerships
End-to-end Patient Support Services
• Pivotal Clinical Trials
• Key Opinion Leaders
• Robust Provider Education Campaign
• Patient Assistance Program (PAP) Administration
Established Payer
Relationships
Market uptake will depend on regulatory, legal and commercial factors
1 IMS Health Delivering on the Potential of Biosimilar Medicines (March 2016) Note: IMS expressly reserves all rights, including rights of further copying, distribution and republication. McKesson does not warrant or represent the accuracy of IMS data or McKesson’s interpretations of IMS Health data. Any subsequent use or interpretation of this data will be the liability of the receiving party and not of McKesson or IMS Health.
Zarxio ®
Positioned for Future Growth
in annual originator sales exposed to biosimilar competition by 20201
End-To-End Oncology Solutions Integrating Care at the Community Level
64
In-Office Dispensing Network
Expanding the Oncology Ecosystem
OncologyRx Care Advantage
Payer Partnerships And Solutions Leading the Charge to Value-based Care
65
Cost-effective clinical pathways with
network-wide adoption
Value PathwaysTM Powered by NCCN1
Clinical decision support tool enabling
pathways adherence
Clear Value PlusSM
Care management and patient support across different sites of care
Innovent Oncology
Advance care planning program honoring patients’
end-of-life wishes
My Choices, My Wishes®
Value-based Care Solutions Leveraged by Our Practices
Proprietary Suite of Solutions Positioning Practices to Grow Value-based Care Partnerships with Payers
CareLyticsTM
Practice and population management technology
platform
1 NCCN - National Comprehensive Cancer Network
Deep Expertise Across Specialty Portfolio
66
Driving Innovation
• Leveraging new technologies to further optimize distribution and patient support services
• Transforming care delivery to achieve optimal outcomes
• Aligning our organization to key stakeholder needs
• Leveraging our highly unique physician network model to drive collaboration and evolution in the community setting
• Pioneering new tools, agreements, and care delivery models in a value-based world
Operational Excellence
• Forming strategic partnerships
• Further expanding on the full suite of solutions that we offer providers, payers and manufacturers
Expanding Scale and Customer Solutions
Investing for Growth
• Making smart acquisitions to advance our strategy
McKesson Medical-Surgical
Stanton McComb
President McKesson Medical-Surgical
McKesson Medical-Surgical Driving Value for Customers
68
Operational Excellence
Expanding Scale and Customer Solutions
Investing for Growth
Driving Innovation
Driving Business Growth In A Dynamic Market
69
Large and growing non-acute market1
>$20B
Consumerism2
• 74% of consumers with $3K+ deductible solicit pricing information
• 6 of top 10 attributes for primary care clinics focus on convenience for consumers
By 2018, 50% of Medicare payments tied to risk and 90% of fee- for-service tied to quality4
Retail clinics to grow 23%
through 20193
Shift to lower cost, non-acute care settings
Home Care Products
5.5% market growth5
1 GHX Market Intelligence, 2014; IMS Health Data, 2014 2 Advisory Board 2016 Trends, March 2015 3 2015 HIDA Horizon Report, “Primary Care Evolution: Care Settings Shift To Meet Consumer Demands” 4 Advisory Board “Six most important trends to watch in 2016”, February 2016 5 U.S. Market for Home Care Products 2014-19 Growth Rate, HIDA 2015 Extended Care Market Report
Leader Across Alternate Site Markets
70
Market Leader for the Ambulatory and Post-Acute Care Continuum
Physician Office
Emergency Room
Hospice
Durable Medical Equipment
Lab Testing
Home Health Agencies
Rehabilitation Facilities
Long-Term Care
Ambulatory Surgery Centers
Urgent Care
Excellence In Operations Leading Supply Chain Capabilities Drive Customer Satisfaction
71
McKesson Delivery Model • 52% more private fleet customers • Optimized over 38 million miles
Quality in Operations Defect rate continues to improve to best-in-class levels
Leadership across the value chain
FY15 FY16
Patient Home Delivery More than 14 million direct-to-consumer shipments
Customer Satisfaction 4 consecutive quarters of rising Net Promoter Scores
16% reduction in DPMO1
1 DPMO = Defects per million orders
Expanding Scale And Customer Solutions Integration has Established Scalable Platform and Offering
72
Integration Complete Exceeded PSS business case
McKesson Brand Broad, cost-effective offering including Generics, OTC and Lab
Leading Sales Channel 1,500+ tenured sales reps
“The depth of knowledge and experience McKesson brings to my system is unmatched in the industry.” – Large Medical Group in Mid-Atlantic
"McKesson is a strategic partner that takes manufacturer and distributor relationships to another level. Their expertise in the non-acute market is unrivaled."
– Top Global Medical-Surgical Manufacturer
Manufacturer Partnerships Strong growth for preferred suppliers
Innovation Through Digital Sales And Marketing Three Keys to Success
73 1 U.S. unique open rate, click-through rate metrics from IBM Silverpop 2015 Marketing Metrics Benchmarks Study 2 DME = Durable Medical Equipment
Merchandising
E-Commerce
Digital Marketing
~250% growth in sales from email campaigns; key metrics exceed industry benchmarks1
Online tools promoting McKesson Brand and our preferred vendors
Tailored e-commerce solutions for online retailers and DME2 providers with next-day patient home delivery
Investing To Drive Growth In Priority Segments
74 1 “The Value of Clinical Laboratory Services” American Clinical Laboratory Association, 2014
• Developing medical-surgical, Rx and lab formulary
• Investing in health systems sales force
• Delivering analytics to understand costs
Health Systems
• Increasing physician employment • Coordinating care across continuum
• Developing supplier portfolio
• Leveraging sales support model with lab specialists
• Enhancing lab-specific service model
Laboratory
• Lab tests guide more than 70% of medical decisions1
• Shift in testing from central lab to point-of-care
Extending Capabilities In Medical-Surgical
75
Driving Innovation
• Use automation to further optimize supply chain
• Reduce cost-to-serve
• Leverage scalable platform and channel for preferred suppliers
• Expand digital capabilities for retailer partners
• Enhance online sales channels
Operational Excellence
• Extend lab capabilities into new markets
• Grow private label offering
• Enable seamless, transparent supply chain for health systems
Expanding Scale and Customer Solutions
Investing for Growth
Celesio
Marc Owen
Chairman Celesio Management Board
Celesio Core Operations
1 U.S. Census Bureau International Database (2015) Note: Celesio completed the sale of its Brazilian operations on May 31, 2016. 77
• Extensive network across 13 countries in Europe
• Leader in pharmaceutical distribution
• Strong retail presence with more than 6,500 owned, managed and banner pharmacies
• Relatively fragmented industries
• Population of nearly 350 million in the markets we serve1
Highlights
Celesio Senior Management
78
Marc Owen Chairman
Celesio Management Board 14 years
Tilo Köster Chief Legal / Compliance Officer
24 years
Brian Tyler Chief Operating Officer
19 years
Alain Vachon Chief Financial Officer
27 years
Celesio Broad Value Proposition across Europe
79
Operational Excellence
Expanding Scale and Customer Solutions
Investing for Growth
Driving Innovation
European Pharmaceutical Industry Landscape
80
0
50
100
150
200
250
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Overall European Market Sales (USD Billion)
Stable, Growing Market
Increasing Generics Penetration
Demographics, Chronic Disease and New Therapies
Source: IMS Health Market Prognosis Summary Europe 2016-2020, March 2016
Operational Excellence Driving Business Improvement
81
Operational Excellence
• Inventory accuracy
99.92% • >1% increase in
automation rate • NRDC model
introduced in France • Targeting >3%
improvement in supply chain cost per unit
• Six Sigma projects ongoing and new projects initiated
Global Procurement And Sourcing Continue to Coordinate with London Office to Drive Efficiencies
82
Investment In IT Platform Driving Future Operational Success
83
Multi-year investment in ERP implementation will align systems with McKesson and help drive global procurement and distribution efficiencies
Country-Level Data Customers
Market Data
Suppliers
Broad Retail Footprint Across Europe
84
IRELAND
UNITED KINGDOM
FRANCE
GERMANY
NORWAY
SWEDEN
BELGIUM
NETHERLANDS
ITALY
Note: Brocacef is a joint venture where Celesio has an equity interest of 45%.
European Pharmacy Network Strong Network of Owned, Franchise and Co-Op Pharmacies
85
Customer-Centric Approach Across All Offerings
Owned Pharmacies Franchise Partner Cooperations and Independents
• Consistent European brand • A differentiated pharmacy
concept
• Common store appearance • New technology and
product focus helps drive store traffic
• Lloyds’ concept elements customized for pharmacies
• Focusing on specialty services and product categories
EPN: Expertise And Services Drive Success Performance of Converted Pharmacies Validates Concept
86
Expert Knowledge
Category Management
Marketing Services
Management Services
Global Sourcing and Procurement
Investing In Innovation
87
Innovation driving connected care for patients in Sweden
and the UK
Online Doctor
Unique value proposition to hospitals and
manufacturers to further penetrate hospital
market
Hospital Solutions
Automated assembly system (integrated to a wholesale branch) to assemble individual
patient prescriptions in mass in the UK
Prescription Assembly
Patient Support Services
M&A investment in UK to complement existing homecare solutions with more advanced services
Homecare Solutions
Tailored patient support programs in Norwegian Vitusapotek pharmacies
Announced Acquisitions
M&A Activity Is A Future Growth Driver
88
• Further Consolidation
• Channel Expansion
• Geographic Expansion
Potential Opportunities
Note: Belmedis, Bupa Home Healthcare and Sainsbury’s acquisitions have not yet closed and are subject to regulatory approvals.
g r o u p
Strong Platform For Growth
89
Driving Innovation
Operational Excellence
Expanding Scale and Customer Solutions
Investing for Growth
• Focus on distribution network optimization, including increasing automation and introducing new models
• Expanding retail pharmacy footprint and services across Europe with EPN initiative
• Expanding dispensing services in the United Kingdom
• Continue to create manufacturer programs in order to expand offerings across supply chain
• Driving online doctor programs to allow connectivity in patient care
• Further consolidation opportunities in key Western European markets
• Enhancing capabilities to support specialty commercialization and growth
• Growing private label solutions
• Investing in new channels to increase value proposition (Specialty, Homecare, Long Term Care)
• Driving forward existing projects and initiating Six Sigma pilots
90
McKesson Distribution Solutions Q&A
Financial Update
James Beer
Executive Vice President, Chief Financial Officer
Agenda
93
Drivers Of Value Creation Segment Financial Reviews – Distribution Solutions
– Technology Solutions
Operating Cash Flow Capital Deployment Priorities FY17 Outlook
McKesson Drives Sustained Value Creation
94
Portfolio Approach to Capital
Deployment
Experienced and Tenured Management Team
Public policy agenda supports greater access and improved efficiency
Favorable demographics in North America and Europe
Market-leading positions
Global footprint and sourcing scale
Retail pharmacy networks
Specialty distribution and services
Attractive Healthcare Market
Well-positioned Businesses
Internal investments
Strategic M&A
Share repurchases
Dividends
Long track record of delivering results
Operational excellence
Financial discipline
95
Distribution Solutions
Scaled and Diversified Portfolio with Multiple Profit Levers
Distribution Solutions: FY16 Performance
96
• Expanded Retail Pharmacy Footprint to >13K Stores
• Deepened Customer Relationships
• Significantly Grew North America Specialty Businesses
9% Year-over-Year Constant Currency Revenue Growth
Contributed Significantly to Operating Cash Flow Expansion
Announced in Strategic Acquisitions
$4B+
Ahead of Schedule on Procurement-Related Synergies from Celesio Acquisition
21% Growth in OneStop in FY16
Note: Rexall Health and Sainsbury’s acquisitions have not yet closed and are subject to regulatory approval.
Distribution Solutions: FY17 Revenue Outlook
97
Distribution Solutions
North America Pharmaceutical Distribution and
Services
Medical-Surgical Distribution and
Services
International Pharmaceutical Distribution and
Services
Revenue growth expected to increase by high-single digits
driven by market growth and
acquisitions
Expect to deliver high-single digit revenue growth
Expected to deliver mid-single digit revenue growth
Revenues are anticipated to grow low-double digits
on a constant currency basis
Distribution Solutions: FY17 Financial Drivers
98
Scaled Leadership Positions
Across Diversified Portfolio of Businesses
Global Sourcing Expertise and Innovative Sourcing Programs
Operational Excellence and Innovation
Focus on Higher-Growth Businesses
Acquisition Accretion and Synergies Demonstrated Track Record of Success
A focus on long-term operating profit expansion
Steady Margins Expected Despite Generic Pricing and Customer Consolidation Headwinds
99
Technology Solutions
Diversified Portfolio with Improved Margin and Recurring Profit Streams
Technology Solutions: FY16 Performance
100
in Adjusted Operating Margin1 Despite EHR Challenges
288 Basis Point Expansion
Steady Revenue Growth Across Non-EHR Businesses2
Support Shift to Value-based Care
~80% of FY16 Operating Profit
from Well-positioned Payer, Connectivity and Imaging Businesses
Healthy Operating Cash Flow Expansion
1 FY16 TS Adjusted Operating Margin, excluding the Cost Alignment Plan and the gain on sale of nurse triage and expressed in constant currency versus FY15 Adjusted Earnings (Non-GAAP) value. 2 Excludes Enterprise Information Solutions and adjusted to excluded divested businesses.
Sources of Operating Profit
Primarily Transaction and Subscription-based
Operating Profit
Technology Solutions: FY17 Financial Drivers
101
Scaled Leadership Positions to Meet Market Needs
Executing Against Newly Optimized Portfolio
Focus on Higher-growth Areas and Driving Long-term Margin Expansion
FY17 Adjusted Operating Margin Goal of “Low 20% Range”
FY17 Revenue Down Slightly Due to EHR Platform
Payer, Relay Pharmacy, Imaging and Revenue Cycle Management Solutions are Positioned to Drive Steady Long-term Growth
Annual Operating Cash Flows And Net Income Expanded Over Time
102
($ Billions) Operating Cash Flow
1 Reflects Adjusted Net Income information calculated on an Adjusted Earnings (Non-GAAP) basis as reported (and recast) for the fiscal years 2010 to 2015. FY 2016 Adjusted Net Income excludes the Cost Alignment Plan and gains on sale of the two businesses and is expressed in constant currency. 2 Projected growth excludes cash payments related to the Cost Alignment Plan and a settlement agreement with the U.S. Drug Enforcement Administration and the U.S. Department of Justice as previously disclosed in April 2015, and as outlined in the Q4 FY16 earnings conference call on May 4, 2016.
FY15 – FY16
18%
FY16 – FY172
15% $1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0 Operating Cash Flow
Net Income
Adjusted Net Income 1
Investing Today To Drive Long-Term Growth A Portfolio Approach to Capital Deployment
103
$677M in Internal
Investments
$4+B in Acquisitions
Announced
$1.5B in Cash
Returned to Shareholders via Share Buybacks
17% Increase in Quarterly Dividend
$1.6B in Long-term
Debt Repayments
1 As reported in Q1-Q4 FY16 earnings press releases. 2 As reported in our FY10 to FY16 Annual Reports as filed on Form 10-K.
>$25 Billion2 Deployed During FY10 – FY16
FY16 Milestones1
FY17 Capital Deployment Priorities
104
Continuing Our Portfolio Approach to Capital Deployment
• Commit $700 to $800 million to internal investment
• Execute on FY16 announced acquisitions
• Evaluate additional M&A opportunities
• Assume WASO at 228M
• Pay dividend • Maintain investment-grade rating; manage
debt capacity accordingly
Drivers Of FY17 Earnings Outlook
105
• Furthering our global scale and sourcing capabilities
• Continuing to grow our generics business and expand customer relationships
• Executing on acquisition synergies and capturing acquisition accretion
• Driving organic growth across our diversified businesses in the U.S., Canada and Europe
• Delivering growth and margin expansion from our payer, Relay Pharmacy, imaging and revenue cycle management solutions
• Providing additional value-added products and services across both segments
• Executing on the Cost Alignment Plan
• Deploying capital consistent with our portfolio approach
Opportunities Considerations
Delivering Financial Performance Updated FY17 Earnings Outlook of $13.43 to $13.931
106
• Branded and generic pricing trends • Revenue mix • Nature of generic launches • Regulatory environment • Reimbursement pressure • Acquisition close timing • WBA proposed acquisition of RAD • Evolving market for hospital software
• Favorable industry demographics • Procurement scale • Expanding customer relationships • Growth in specialty • Acquisition accretion and synergies • Execution on Cost Alignment Plan • Capital deployment • Operational excellence
1 FY17 Outlook excludes anticipated charges of approximately $40 to $50 million, or 12 to15 cents per diluted share, related to the Cost Alignment Plan.
Delivering Better Financial Health
107
• Continued investments in supply-chain automation
• Global scale and best practices
• On-boarding expanded customer relationships
• Expanding retail pharmacy footprint and services
• Leading drug delivery channels and manufacturer programs
• Driving transformation to value-based care
• Solutions for retail pharmacies
• Portfolio approach to capital deployment
• Enhancing capabilities to support specialty commercialization and growth
• Private label solutions
• Acquisition integration
• Consistent internal reinvestment
Operational Excellence
Driving Innovation
Expanding Scale and Customer Solutions
Investing for Growth
108
Wrap-Up Q&A and Summary
We Expect $13.43 To $13.931 Per Diluted Share In FY17, Which Excludes Approximately 12 To 15 Cents In Expected Charges From Adjusted Earnings Related To The Cost Alignment Plan
110
The Fiscal 2017 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:
• Distribution Solutions revenue growth is expected to increase by high single digits driven by market growth and acquisitions.
• We expect North America pharmaceutical distribution and services will deliver high single digit revenue growth in Fiscal 2017.
• International pharmaceutical distribution and services revenues are anticipated to grow low-double digits on a constant currency basis in Fiscal 2017.
• Medical-Surgical distribution and services is expected to deliver mid-single digit revenue growth in Fiscal 2017.
• Fiscal 2017 branded drug price trends in the U.S. market are expected to be modestly below those experienced in Fiscal 2016.
• We expect a nominal contribution to our Fiscal 2017 results from generic pharmaceuticals that increase in price.
• We expect the profit contribution from the launch of new oral generic pharmaceuticals in the U.S. market will decrease year-over-year.
• Technology Solutions revenues are expected to be down slightly year-over-year driven by anticipated revenue decline in our hospital software business.
• Proceeds from anticipated antitrust litigation settlements are estimated at $140 million, pre-tax, for Fiscal 2017, compared to $76 million, pre-tax, in Fiscal 2016.
• Fiscal 2017 pre-tax charges associated with our Cost Alignment Plan are expected to be between $40 million and $50 million and are excluded from our Fiscal 2017 outlook of $13.43 to $13.93 per diluted share.
• The guidance range assumes a full-year adjusted tax rate of approximately 31.0%, which may vary from quarter to quarter.
1 Current guidance range reflects adjustments related to the early adoption of a new accounting standard for share-based compensation and incremental foreign currency exchange effects.
We Expect $13.43 To $13.931 Per Diluted Share In FY17, Which Excludes Approximately 12 To 15 Cents In Expected Charges From Adjusted Earnings Related To The Cost Alignment Plan (continued)
111
The Fiscal 2017 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:
• Property acquisitions and capitalized software expenditures are expected to be between $700 million and $800 million.
• We assume that our ownership position in Celesio will be approximately 76% for Fiscal 2017.
• We expect the impact of foreign currency exchange rate movements will have a net unfavorable impact of approximately 3 cents per diluted share1 year-over-year as modest improvements in the Euro / USD average rate will be more than offset by the GBP / Euro average rate when compared to the prior year.
• Weighted average diluted shares used in the calculation of earnings per share are expected to be approximately 228 million for the year.
• Cash flow from operations is expected to increase approximately 15% year-over-year, excluding approximately $270 million in cash payments expected in Fiscal 2017 related to the Cost Alignment Plan and a settlement agreement with the U.S. Drug Enforcement Administration and the U.S. Department of Justice as disclosed in April 2015.
• Based on acquisitions announced as of March 31, 2016:
– We expect amortization of acquisition-related intangible assets of approximately $1.36 per diluted share.
– We expect acquisition expenses and related adjustments of 30 cents per diluted share.
– We expect LIFO inventory-related charges of 48 cents per diluted share.
• The Fiscal 2017 guidance range does not include the impact of any potential new acquisitions or divestitures, impairment or incremental material restructuring charges, or any potential claim or litigation reserve adjustments beyond those disclosed in the Form 8-K as filed on March 18, 2016.
1 Current guidance range reflects adjustments related to the early adoption of a new accounting standard for share-based compensation and incremental foreign currency exchange effects.
113
McKESSON CORPORATIONRECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2016 - 2010(unaudited)
(in millions, except per share amounts)
(a) Certain computations may reflect rounding adjustments (b) Adjusted Earnings per share on a Constant Currency basis for FY16 was $12.21 per diluted share, which excludes the foreign currency exchange effect of $0.13 per diluted
share.
As Reported (GAAP)
Amortizationof Acquisition-
Related Intangibles
AcquisitionExpenses and
RelatedAdjustments
Claim and Litigation Reserve
AdjustmentsLIFO-Related Adjustments
AdjustedEarnings
(Non-GAAP)
Gross profit 11,416$ 7$ -$ -$ 244$ 11,667$ Operating expenses (7,668) 423 110 - - (7,135) Restructuring charges (203) - - - - (203) Other income, net 58 1 4 - - 63 Interest expense (353) - - - - (353)
3,250 431 114 - 244 4,039 Income tax expense (908) (136) (36) - (95) (1,175)
2,342 295 78 - 149 2,864
(52) - - - - (52)
2,290$ 295$ 78$ -$ 149$ 2,812$
9.84$ 1.27$ 0.34$ -$ 0.63$ 12.08$ (b)
Diluted weighted average common shares 233 233 233 - 233 233
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)
Year Ended March 31, 2016
Income from continuing operations before income taxes
Income from continuing operations after taxIncome from continuing operations, net of tax, attributable to noncontrolling interests
Income from continuing operations, net of tax, attributable to McKesson Corporation
As Reported (GAAP)
Amortizationof Acquisition-
Related Intangibles
AcquisitionExpenses and
RelatedAdjustments
Claim and Litigation Reserve
AdjustmentsLIFO-Related Adjustments
AdjustedEarnings
(Non-GAAP)
Gross profit 11,411$ 9$ 1$ -$ 337$ 11,758$ Operating expenses (8,443) 483 223 150 - (7,587) Other income, net 63 2 - - - 65 Interest expense (374) - - - - (374)
2,657 494 224 150 337 3,862 Income tax expense (815) (157) (78) - (131) (1,181)
1,842 337 146 150 206 2,681
(67) - - - - (67)
1,775$ 337$ 146$ 150$ 206$ 2,614$
7.54$ 1.43$ 0.63$ 0.64$ 0.87$ 11.11$ Diluted weighted average common shares 235 235 235 235 235 235
Year Ended March 31, 2015
Income from continuing operations before income taxes
Income from continuing operations after taxIncome from continuing operations, net of tax, attributable to noncontrolling interests
Income from continuing operations, net of tax, attributable to McKesson Corporation
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)
114
McKESSON CORPORATIONRECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2016 - 2010(unaudited)
(in millions, except per share amounts)
(a) Certain computations may reflect rounding adjustments.
As Reported (GAAP)
Amortizationof Acquisition-
Related Intangibles
AcquisitionExpenses and
RelatedAdjustments
Claim and Litigation Reserve
AdjustmentsLIFO-Related Adjustments
AdjustedEarnings
(Non-GAAP)
Gross profit 8,352$ 11$ 3$ -$ 311$ 8,677$ Operating expenses (5,913) 308 155 68 - (5,382) Other income, net 32 - 14 - - 46 Interest expense (300) - 46 - - (254)
2,171 319 218 68 311 3,087 Income tax expense (757) (115) (69) (15) (121) (1,077)
1,414 204 149 53 190 2,010
5 (7) (2) - - (4)
1,419$ 197$ 147$ 53$ 190$ 2,006$
6.08$ 0.85$ 0.63$ 0.23$ 0.81$ 8.60$ Diluted weighted average common shares 233 233 233 233 233 233
Income from continuing operations before income taxes
Income from continuing operations after taxIncome from continuing operations, net of tax, attributable to noncontrolling interests
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)
Income from continuing operations, net of tax, attributable to McKesson Corporation
Year Ended March 31, 2014
As Reported (GAAP)
Amortizationof Acquisition-
Related Intangibles
AcquisitionExpenses and
RelatedAdjustments
Claim and Litigation Reserve
AdjustmentsLIFO-Related Adjustments
AdjustedEarnings
(Non-GAAP)
Gross profit 6,881$ 13$ -$ -$ 13$ 6,907$ Operating expenses (4,534) 196 (10) 72 - (4,276) Other income, net 34 - - - - 34 Impairment of equity investment (191) - - - - (191) Interest expense (240) - 11 - - (229)
1,950 209 1 72 13 2,245 Income tax expense (587) (76) (6) (27) (5) (701)
1,363 133 (5) 45 8 1,544
- - - - - -
1,363$ 133$ (5)$ 45$ 8$ 1,544$
5.69$ 0.56$ (0.02)$ 0.19$ 0.03$ 6.45$ Diluted weighted average common shares 239 239 239 239 239 239
Year Ended March 31, 2013
Income from continuing operations before income taxes
Income from continuing operations after taxIncome from continuing operations, net of tax, attributable to noncontrolling interests
Income from continuing operations, net of tax, attributable to McKesson Corporation
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)
115
McKESSON CORPORATIONRECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2016 - 2010(unaudited)
(in millions, except per share amounts)
(a) Certain computations may reflect rounding adjustments.
As Reported (GAAP)
Amortizationof Acquisition-
Related Intangibles
AcquisitionExpenses and
RelatedAdjustments
Claim and Litigation Reserve
AdjustmentsLIFO-Related Adjustments
AdjustedEarnings
(Non-GAAP)
Gross profit 6,435$ 17$ -$ -$ 11$ 6,463$ Operating expenses (4,289) 167 26 149 - (3,947) Other income, net 20 - - - - 20 Interest expense (251) - - - - (251)
1,915 184 26 149 11 2,285 Income tax expense (521) (71) (10) (89) (4) (695)
1,394 113 16 60 7 1,590
- - - - - -
1,394$ 113$ 16$ 60$ 7$ 1,590$
5.56$ 0.45$ 0.07$ 0.24$ 0.03$ 6.35$ Diluted weighted average common shares 251 251 251 251 251 251
Year Ended March 31, 2012
Income from continuing operations before income taxes
Income from continuing operations after tax
Income from continuing operations, net of tax, attributable to McKesson Corporation
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)
Income from continuing operations, net of tax, attributable to noncontrolling interests
As Reported (GAAP)
Amortizationof Acquisition-
Related Intangibles
AcquisitionExpenses and
RelatedAdjustments
Claim and Litigation Reserve
AdjustmentsLIFO-Related Adjustments
AdjustedEarnings
(Non-GAAP)
Gross profit 5,828$ 16$ -$ -$ 3$ 5,847$ Operating expenses (4,041) 115 43 213 - (3,670) Other income, net 35 - (16) - - 19 Interest expense (222) - 25 - - (197)
1,600 131 52 213 3 1,999 Income tax expense (503) (51) (16) (64) (1) (635)
1,097 80 36 149 2 1,364
- - - - - -
1,097$ 80$ 36$ 149$ 2$ 1,364$
4.17$ 0.30$ 0.14$ 0.57$ 0.01$ 5.19$ Diluted weighted average common shares 263 263 263 263 263 263
Income from continuing operations, net of tax, attributable to McKesson Corporation
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)
Year Ended March 31, 2011
Income from continuing operations before income taxes
Income from continuing operations after taxIncome from continuing operations, net of tax, attributable to noncontrolling interests
116
McKESSON CORPORATIONRECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED EARNINGS (NON-GAAP)
FOR FISCAL 2016 - 2010(unaudited)
(in millions, except per share amounts)
(a) Certain computations may reflect rounding adjustments.
As Reported (GAAP)
Amortizationof Acquisition-
Related Intangibles
AcquisitionExpenses and
RelatedAdjustments
Claim and Litigation Reserve
AdjustmentsLIFO-Related Adjustments
AdjustedEarnings
(Non-GAAP)
Gross profit 5,527$ 21$ -$ -$ 8$ 5,556$ Operating expenses (3,558) 97 - (20) - (3,481) Other income, net 43 - - - - 43 Interest expense (187) - - - - (187)
1,825 118 - (20) 8 1,931 Income tax expense (605) (46) - 8 (3) (646)
1,220 72 - (12) 5 1,285
- - - - - -
1,220$ 72$ -$ (12)$ 5$ 1,285$
4.46$ 0.26$ -$ (0.04)$ 0.02$ 4.70$ Diluted weighted average common shares 273 273 - 273 273 273
Income from continuing operations, net of tax, attributable to McKesson Corporation
Diluted earnings per common share from continuing operations, net of tax, attributable to McKesson Corporation (a)
Year Ended March 31, 2010
Income from continuing operations before income taxes
Income from continuing operations after taxIncome from continuing operations, net of tax, attributable to noncontrolling interests
117
(unaudited)
McKESSON CORPORATIONRECONCILIATION OF GAAP SEGMENT FINANCIAL RESULTS TO ADJUSTED EARNINGS (NON-GAAP) - BY ADJUSTMENT TYPE
FOR FISCAL 2016 - 20010
(in millions)
Distribution Solutions
Technology Solutions Corporate Total
Distribution Solutions
Technology Solutions Corporate Total
Distribution Solutions
Technology Solutions Corporate Total
Distribution Solutions
Technology Solutions Corporate Total
As Reported (GAAP):Revenues 187,999$ 2,885$ -$ 190,884$ 175,976$ 3,069$ -$ 179,045$ 134,062$ 3,330$ -$ 137,392$ 119,046$ 3,150$ -$ 122,196$
Income from continuing operations before interest expense and income taxes 3,553 519 (469) 3,603 3,047 438 (454) 3,031 2,472 448 (449) 2,471 2,195 330 (335) 2,190
Pre-Tax Adjustments:Amortization of acquisition-related intangibles 391$ 40$ -$ 431$ 445$ 48$ 1$ 494$ 256$ 62$ 1$ 319$ 148$ 60$ 1$ 209$ Acquisition expenses and related adjustments 112 - 2 114 212 - 12 224 120 18 34 172 47 7 (64) (10) Claim and litigation reserve adjustments - - - - 150 - - 150 68 - - 68 72 - - 72 LIFO-related adjustments 244 - - 244 337 - - 337 311 - - 311 13 - - 13 Total pre-tax adjustments 747$ 40$ 2$ 789$ 1,144$ 48$ 13$ 1,205$ 755$ 80$ 35$ 870$ 280$ 67$ (63)$ 284$
Adjusted Earnings (Non-GAAP): Revenues 187,999$ 2,885$ -$ 190,884$ 175,976$ 3,069$ -$ 179,045$ 134,062$ 3,330$ -$ 137,392$ 119,046$ 3,150$ -$ 122,196$
Income from continuing operations before interest expense and income taxes 4,300$ 559$ (467)$ 4,392$ 4,191$ 486$ (441)$ 4,236$ 3,227$ 528$ (414)$ 3,341$ 2,475$ 397$ (398)$ 2,474$
Distribution Solutions
Technology Solutions Corporate Total
Distribution Solutions
Technology Solutions Corporate Total
Distribution Solutions
Technology Solutions Corporate Total
As Reported (GAAP):Revenues 119,424$ 3,029$ -$ 122,453$ 108,889$ 2,915$ -$ 111,804$ 105,578$ 2,847$ -$ 108,425$
Income from continuing operations before interest expense and income taxes 2,219$ 360$ (413)$ 2,166$ 1,897$ 266$ (341)$ 1,822$ 1,988$ 346$ (322)$ 2,012$
Pre-Tax Adjustments:Amortization of acquisition-related intangibles 121$ 63$ -$ 184$ 70$ 61$ -$ 131$ 51$ 67$ -$ 118$ Acquisition expenses and related adjustments 24 1 1 26 41 - (14) 27 - - - - Claim and litigation reserve adjustments 149 - - 149 213 - - 213 - - (20) (20) LIFO-related adjustments 11 - - 11 3 - - 3 8 - - 8 Total pre-tax adjustments 305$ 64$ 1$ 370$ 327$ 61$ (14)$ 374$ 59$ 67$ (20)$ 106$
Adjusted Earnings (Non-GAAP): Revenues 119,424$ 3,029$ -$ 122,453$ 108,889$ 2,915$ -$ 111,804$ 105,578$ 2,847$ -$ 108,425$
Income from continuing operations before interest expense and income taxes 2,524$ 424$ (412)$ 2,536$ 2,224$ 327$ (355)$ 2,196$ 2,047$ 413$ (342)$ 2,118$
Year Ended March 31, 2010
Year Ended March 31, 2015 Year Ended March 31, 2014 Year Ended March 31, 2013
Year Ended March 31, 2012
Year Ended March 31, 2016
Year Ended March 31, 2011
118
McKESSON CORPORATION
FOR FISCAL 2016 (unaudited)
(in millions, except per share amounts)
SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION REVENUES, OPERATING PROFIT AND OPERATING PROFIT MARGIN BY SEGMENT
(a) During the fourth quarter of FY16, the Company approved a restructuring plan to reduce its operating expenses ("Cost Alignment Plan") and recorded pre-tax charges of $161 million and $51 million within our Distribution Solutions segment and Technology Solutions segment in the GAAP operating results.
(b) Baseline (Non-GAAP) for FY16 excludes from Adjusted Earnings (Non-GAAP) charges relates to the Cost Alignment Plan and gains on the sale of two businesses recorded in FY16.
As Reported (GAAP)
AdjustedEarnings
(Non-GAAP)Cost Alignment Plan Charges (a)
Sale of Businesses
Baseline(Non-GAAP) (b)
REVENUESDistribution Solutions 187,999$ 187,999$ -$ -$ 187,999$ Technology Solutions 2,885 2,885 - - 2,885
Revenues 190,884$ 190,884$ -$ -$ 190,884$
FOREIGN CURRENCY EFFECTSDistribution Solutions 4,402$ 4,402$ -$ -$ 4,402$ Technology Solutions 11 11 - - 11
Foreign currency effects 4,413$ 4,413$ -$ -$ 4,413$
REVENUES IN CONSTANT CURRENCYDistribution Solutions 192,401$ 192,401$ -$ -$ 192,401$ Technology Solutions 2,896 2,896 - - 2,896
Revenues in constant currency 195,297$ 195,297$ -$ -$ 195,297$
OPERATING PROFITDistribution Solutions 3,553$ 4,300$ 161$ (52)$ 4,409$ Technology Solutions 519 559 51 (51) 559
Operating profit 4,072$ 4,859$ 212$ (103)$ 4,968$
FOREIGN CURRENCY EFFECTSDistribution Solutions 56$ 85$ 2$ -$ 87$ Technology Solutions (17) (17) - - (17)
Foreign currency effects 39$ 68$ 2$ -$ 70$
OPERATING PROFIT IN CONSTANT CURRENCYDistribution Solutions 3,609$ 4,385$ 163$ (52)$ 4,496$ Technology Solutions 502 542 51 (51) 542
Operating profit in constant currency 4,111$ 4,927$ 214$ (103)$ 5,038$
STATISTICS Operating profit as a % of revenues
Distribution Solutions 1.89% 2.29% 2.35%Technology Solutions 17.99% 19.38% 19.38%
Operating profit as a % of revenues (Constant Currency)Distribution Solutions 1.88% 2.28% 2.34%Technology Solutions 17.33% 18.72% 18.72%
Year Ended March 31, 2016