CVS Health Corporation · NYSE:CVS
CVS Health — Investor Day (December 2014)
42 slides from CVS Health's investor day presentation, Dec 16, 2014
Slide 1: Maximizing Value For All Stakeholders
Maximizing Value For All Stakeholders Dave Denton Executive Vice President & Chief Financial Officer
Slide 2: Non-GAAP Financial Measures
Non-GAAP Financial Measures Free Cash Flow & Cash Available For Adjusted Earnings Per Share Enhancing Shareholder Value Net cash provided by operating Income before income tax provision activities + Amortization - Additions to property and - Adjusted income tax provision equipment - Earnings allocat
Slide 3: Agenda
Agenda Delivering on our Promises in 2014 Looking Ahead: 2015 Guidance Review Driving Sustainable Enterprise Growth ©2014 CVS Health Confidential & Proprietary 3
Slide 4: Focused on Enhancing Shareholder Value
Focused on Enhancing Shareholder Value Generating Productive Op Optimizing g Si ifi Significant t Long-term Capital Free Cash Growth Allocation Flow Enhanced Shareholder Value ©2014 CVS Health Confidential & Proprietary 4
Slide 5: We've Made the Right Moves in 2014 and Continue to Drive Shareholder Value
We’ve Made the Right Moves in 2014 and Continue to Drive Shareholder Value Revenues & Driving top- and bottom-line results through an enterprise focus Operating Profit Earnings Per Expect E t to t deliver d li Adj Adjusted t d EPS att high-end hi h d off iinitial iti l ttargets t Share Inclusi
Slide 6: 2014 Guidance Remains Unchanged
2014 Guidance Remains Unchanged Full year 2014 Full-year Net Revenue Growth ~ 9.0% to 9.5% Adjusted EPS From $4.47 to $4.50 Continuing Operations Year-over-year Growth ~ 12.75% to 13.50% F Free Cash C h Fl Flow $5 7 to $6 $5.7 $6.0 0 billion Year-over-year Growth Up 30% to 36% Notes: 1. Adjusted EPS
Slide 7: Strong Top-line Growth and Solid Margins Driving Operating Profit Growth
Strong Top-line Growth and Solid Margins Driving Operating Profit Growth … Key drivers: Consolidated Operating Profit ($, billions) • Enterprise prescription dispensing 10% share gains 8.8 8.0 • Specialty pharmacy • Coram acquisition • Rebate economics • Generic launches and improved purchasing • Ex
Slide 8: And Generating Substantial Free Cash Flow
… And Generating Substantial Free Cash Flow Key drivers: Free Cash Flow ($, billions) • Enterprise prescription dispensing 33% share gains 5.9 • Specialty pharmacy 4.4 • Coram acquisition • Rebate economics • Generic launches and improved purchasing • ExtraCare & Store Brands 2013 2014E Free cash fl
Slide 9: Well-laddered Debt Maturities Core to Strong Balance Sheet
Well-laddered Debt Maturities Core to Strong Balance Sheet Debt Maturity Profile (Bonds) ($, billions)) 1.3 1.2 1.3 1.3 1.2 1.1 0.7 0.8 0.7 0.6 0.6 0.5 0 0.5 05 0.5 00 0.0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2027 2037 2039 2041 2043 ©2014 CVS Health Confidential & Proprietary 9
Slide 10: Well-laddered Debt Maturities Core to Strong Balance Sheet
Well-laddered Debt Maturities Core to Strong Balance Sheet Debt Maturity Profile (Bonds) ($, billions)) 1.3 1.2 1.3 1.3 • Modified long-term debt 1.2 1.1 structure in 2014 to take 07 0.7 0.7 0.8 advantage of low interest 0.6 0.5 0.6 0.5 0.5 rates 0.0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Slide 11: Strong Balance Sheet is Enabling Flexibility
Strong Balance Sheet is Enabling Flexibility Adjusted Debt & Adjusted Debt Debt-to-EBITDA to EBITDA Targeting adjusted debt-to- (Analyst Day 2013) EBITDA ratio of 2.7X, consistent 35 2.9 with credit ratings TDA 30 2.8 on) Target = 2.70 2 70 • Able Abl tot issue i debt d bt tto maintain i t i Adjuste
Slide 12: Strong Balance Sheet is Enabling Flexibility
Strong Balance Sheet is Enabling Flexibility Adjusted Debt & Adjusted Debt Debt-to-EBITDA to EBITDA Targeting adjusted debt-to- (Current Model) EBITDA ratio of 2.7X, consistent 35 2.9 with credit ratings TDA 30 2.8 on) Target = 2.70 2 70 • Able Abl tot issue i debt d bt tto maintain i t i Adjusted d
Slide 13: $41 Billion Available to Enhance 2014 Through 2018 Returns
$41 Billion Available to Enhance 2014 Through 2018 Returns +$10 ~$39 ($8) billion billion $41 billion ~$31 $31 billion billion Operating Free Incremental Cash Net Capex Cash Flow Cash Flow Debt Available ©2014 CVS Health Confidential & Proprietary 13
Slide 14: Efficient Cash Deployment 2014 Through 2018
Efficient Cash Deployment 2014 Through 2018 Cash Available For Enhancing g Shareholder Value $41 billion Dividends Share Return on Repurchases Target payout ratio Invested Capital of 35% by 2018 $4 billion to $5 Drive ROIC with billion per year value-enhancing ~18% implied projects dividend CAGR Val
Slide 15: $7.7 Billion Available for Returns in 2014
$7.7 Billion Available for Returns in 2014 Effective allocation of cash Cash Available & Capital Allocation ($, billions) a ailable through: available thro gh • 22% increase of annual dividend 7.7 7.7 • Payout y ratio estimated to be at least 27% at year-end Share 4.0 repurchases • Acquisition of Co
Slide 16: Solid History of Enhancing Returns
Solid History of Enhancing Returns Annual Dividend per Share Share Repurchases ($) ($, billions) 17 Total 1 10 1.10 33% 4.3 CAGR 0.90 4.0 4.0 0.65 3.0 0 50 0.50 0.35 1.5 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014E ©2014 CVS Health Confidential & Proprietary 16
Slide 17: 2015 Capital Deployment to Include Dividend Increase and Further Repurchases
2015 Capital Deployment to Include Dividend Increase and Further Repurchases 2015 Annual Dividend • Increasing 27%, 27% from $1.10 to $1.40 $1 40 $1.40 2015 Share • A new, additional $10 billion Repurchases share repurchase program has been approved $6 • Now $12.7 billion authorized billion and rema
Slide 18: Substantial Increases in Dividends and Share Repurchases Continuing Solid Returns
Substantial Increases in Dividends and Share Repurchases Continuing Solid Returns Annual Dividend per Share Share Repurchases ($) ($, billions) 27% 50% 1.40 6.0 1.10 1 10 4.3 4.0 4.0 0.90 0.65 3.0 0.50 0 50 0.35 1.5 2010 2011 2012 2013 2014 2015E 2010 2011 2012 2013 2014E 2015E More than $ $7 billio
Slide 19: Agenda
Agenda Delivering on our Promises in 2014 Looking Ahead: 2015 Guidance Review Driving Sustainable Enterprise Growth ©2014 CVS Health Confidential & Proprietary 19
Slide 20: 2015 Guidance: Healthy Enterprise Growth
2015 Guidance: Healthy Enterprise Growth Full-year 2015 Net Revenue Growth 7.0% to 8.25% Adjusted EPS $5.05 to $5.19 Year-over-year Growth 12.50% to 15.75% GAAP Diluted EPS $4.77 to $4.91 Note: 1. EPS growth estimates do not include a $521 million loss on early extinguishment of debt (approximately
Slide 21: 2015 Guidance: Substantial Free Cash Flow
2015 Guidance: Substantial Free Cash Flow in billions Full-year 2015 Operating Cash Flow $7.6 to $7.9 Gross Capital Expenditures ($2.3) to ($2.2) Sale-leaseback Proceeds $0.6 to $0.5 Net Capital Expenditures Approximately ($1.7) Free Cash Flow $5.9 to $6.2 Year-over-year Growth Flat to 7% Notes: 1.
Slide 22: 2015 Guidance: Solid Retail Outlook Despite Tobacco Headwind
2015 Guidance: Solid Retail Outlook Despite Tobacco Headwind Full-year 2015 Net Revenue Growth 1.25% to 2.50% Same store sales (0.5)% (0 5)% to 0.75% 0 5% Same store adjusted scripts 4.0% to 5.0% Gross Profit Margin g Flat to up p Operating Expense (% of revenue) Modest improvement Operating Profit
Slide 23: 2015 Guidance: Strong PBM Outlook
2015 Guidance: Strong PBM Outlook Full-year 2015 Net Revenue Growth 11.0% to 12.25% Total Adjusted Claims 1.13 billion to 1.15 billion Gross Profit Margin Modest decline Operating Expense (% of revenue) Modest Improvement Operating Profit Growth 6.75% to 10.75% Operating Profit Margin Down 5 bps to
Slide 24: Key Items to Consider in Guidance
Key Items to Consider in Guidance • Impact of health care reform • Specialty p yggrowth • Timing of generic launches • Benefits from Red Oak Sourcing and Coram • Dilutive impact of exit from tobacco category ©2014 CVS Health Confidential & Proprietary 24
Slide 25: Generics Remain a Large Opportunity
Generics Remain a Large Opportunity Total Brand Market Sales of Expected Generic Launches ($, billions) 24.4 Abilify Ne i m Nexium 16 16.5 14.7 Copaxone Celebrex 12.3 Cymbalta Gleevec Diovan Crestor Lidoderm N Namenda d Lovaza Zetia 5.8 Niaspan Seroquel XR Viagra Aciphex 2013 2014E 2015E 2016E 2017E
Slide 26: Break-open Benefit Currently Expected to Reaccelerate in 2015 and 2016
Break-open Benefit Currently Expected to Reaccelerate in 2015 and 2016 Total Brand Market Sales of Expected Generic Launches in Break Break-open open Period ($, billions) 22.7 17.9 13.6 8.7 9.6 2013 2014E 2015E 2016E 2017E Generic Nexium not a significant contributor to margins in 2015 Note: 1. 2013
Slide 27: Red Oak Sourcing to Add Incremental Value in 2015
Red Oak Sourcing to Add Incremental Value in 2015 • Three ways in which the venture with Cardinal Health can provide value to CVS Health: – Fixed quarterly payments from Cardinal … $1 billion over 10 years • Recognizes R i th the greater t relative l ti purchasing h i power off CVS H Health lth – Ca
Slide 28: Tobacco Exit Will Continue to Dilute Profits In 2015
Tobacco Exit Will Continue to Dilute Profits In 2015, In Line with Expectations • Annual impact of … – $2 billion in lost revenues ($1.5 billion from tobacco; rest from basket) – ~ 17¢ per share … about 8¢ in 2014 • Incremental impactp in 2015 of… – $1.1 billion in lost revenues – Between 8¢ and 9¢
Slide 29: Timing Factors to Influence Quarterly Profit Cadence in 2015
Timing Factors to Influence Quarterly Profit Cadence in 2015 • Timing of break-open generics • Exit from tobacco category • Welcome season investments • 2014 benefit from finalization of California Medicaid rates • Benefits from Red Oak Sourcing Cadence of 2015 p profit growth g significantly g y ba
Slide 30: 2015 Q1 Guidance: Solid EPS Growth Despite Timing Factors
2015 Q1 Guidance: Solid EPS Growth Despite Timing Factors Q1 2015 Net Revenue Growth 8.5% to 10.0% Adjusted EPS $1.06 to $1.09 Year-over-year Growth 4.0% to 7.25% GAAP Diluted EPS $0.99 to $1.02 ©2014 CVS Health Confidential & Proprietary 30
Slide 31: 2015 Q1 Guidance: Segment Performance Reflects Impact of Timing Factors
2015 Q1 Guidance: Segment Performance Reflects Impact of Timing Factors Q1 2015 Net Revenue Growth 1.5% to 3.0% acy (0 5)% to 1.0% (0.5)% 1 0% Retaiil Pharma Same store S t sales l Same store adjusted scripts 4.0% to 5.0% Operating Profit Growth (1 5)% to 0 (1.5)% 0.5% 5% macy Net Revenue Growth 14.
Slide 32: Agenda
Agenda Delivering on our Promises in 2014 Looking Ahead: 2015 Guidance Review Driving Sustainable Enterprise Growth ©2014 CVS Health Confidential & Proprietary 32
Slide 33: Long-term Growth Driven by Growing Enterprise Share of Pharmacy Dispensing
Long-term Growth Driven by Growing Enterprise Share of Pharmacy Dispensing Growth in PBM covered lives remains important • Increased share drives value for payors and their members We also have significant opportunities to drive value for all payor partners Claims adjudication Managed Only ©2014 CVS
Slide 34: Long-term Growth Driven by Growing Enterprise Share of Pharmacy Dispensing
Long-term Growth Driven by Growing Enterprise Share of Pharmacy Dispensing Growth in PBM covered lives remains important • Increased share drives value for payors and their members We also have significant opportunities to drive value for all payor partners Specialty Mail order Traditional PBM Claim
Slide 35: Long-term Growth Driven by Growing Enterprise Share of Pharmacy Dispensing
Long-term Growth Driven by Growing Enterprise Share of Pharmacy Dispensing Growth in PBM covered OTC products lives remains important Medicare Part D CVS/minuteclinic • Increased share drives value for payors and their Infusion services members Specialty ConnectTM Pharmacy Advisor® Only … We also ha
Slide 36: Steady State Targets Affirmed
Steady State Targets Affirmed Five-year CAGR (2013-2018) Net Revenue Growth 9% to 13% Operating Profit Growth 7% to 9% Preliminary Adjusted EPS Growth 6% to 8% Average Annual Cash Available for Enhancing Shareholder Value Approximately $8 billion Share Repurchase Contribution 4% to 6% Final Adjusted
Slide 37: Capital Allocation Priorities Guide Use of Cash
Capital Allocation Priorities Guide Use of Cash Organic Growth Operational p Investments • Sto Store eggrowth o t aand d remodels e ode s • Continued technology improvements Maintain capital structure Capital Structure • Credit rating of BBB+ • 2.7X 2 7X Adj Adjusted t dDDebt-to-EBITDA bt t EBITDA D
Slide 38: Positioned for Today, Preparing for Tomorrow
Positioned for Today, Preparing for Tomorrow Delivering on our promises Made the Right Moves Gained share/increased enterprise dispensing volume Unique value-building blocks driving enterprise growth Still … Onl Only CVS Driving business decisions with enterprise mindset Looking Ahead … Solid long-t
Slide 39: Appendix
Appendix ¥CVvSHealth
Slide 40: 2015 Guidance: Consolidated Income Statement
2015 Guidance: Consolidated Income Statement Full-year 2015 Corporate Segment Expense $785 million to $800 million Intercompany Eliminations (% off combined bi d segmentt revenues)) ~ 10.6% Gross Profit Margin Notably down Operating Expense (% of consolidated revenue) Notable improvement Operating P
Slide 41: 2015 Guidance: Consolidated Income Statement
2015 Guidance: Consolidated Income Statement Full-year 2015 Net Interest Expense $540 million to $550 million Effective Tax Rate ~ 39.3% Weighted Average Shares ~ 1.12 billion Consolidated Amortization ~ $520 million Consolidated Depreciation & Amortization ~ $2.0 billion Notes: 1. Weighted average
Slide 42: Steady State Targets: Key Assumptions to Keep in Mind
Steady State Targets: Key Assumptions to Keep in Mind Anticipated Impact F Favorable bl iindustry d t demographics d hi Utili ti Utilization Generic pipeline Gross margin Utilize compelling scale Gross margin Retail share gains / SG&A leverage Operating profit Net-new Net new PBM contracts Mix/volum