Medtronic 2014 Annual Report Download - page 3

We also sharpened our focus on the economic value of our offerings, translating our efforts into new value-based business
models, which promise to be the catalyst for large, new growth markets. We believe the shift to value-based healthcare is one of
the most fundamental changes in Medtronic and one of the most pivotal moves we are making as a leader in healthcare. We also
know this is something that we cannot do alone. We must work with physicians, hospital administrators, payers, and patients as
we help to recognize the value that comes from optimal long-term management of patients, including clinical and financial
outcomes.
In the U.S., we are seeing health systems looking at patient populations over a longer period of time, spanning multiple years.
The focus therefore turns to patient outcomes and how to best manage the patient over the long term. We are starting to deliver
broader value, not only at the time of the procedure, but through care coordination from the hospital to the patient’s home. Our
acquisition of Cardiocom was a significant step forward, as this uniquely distinguishes Medtronic with a proprietary patient
management technology platform.
We are also focused on increasing hospital operational efficiency – providing meaningful clinical and economic improvements
for customers, reducing costs associated with readmissions and post-acute care, and helping the system more effectively manage
populations of chronically ill patients. In Europe, through our unique cath lab managed services offering, we enter into long-
term contracts with hospitals to upgrade and more effectively manage their cath lab and hybrid operating rooms. The hospital
sees an improvement in cath lab efficiency and profitability, and physicians get access to the latest technology that can lead to
better patient outcomes. Medtronic benefits not only through the increased use of our technology, but also through incremental
service revenue, reduced pricing pressure, better inventory management, and more efficient use of our service personnel. We
have signed several long-term contracts with hospitals, and are in discussions with over 90 more hospitals in Europe.
Finally in FY14, I was pleased with the way our team worked together to deliver results in-line with our financial commitment
of mid-single digit revenue growth, 200 basis points of EPS leverage (after adjustments for currency and other one-time events)
and returning 50 percent of our free cash flow to shareholders. We are beginning to build a track record of consistency, but are
still early in our journey. I am particularly excited about our position as we enter FY15, having stabilized or mitigated major
recent issues and our readiness to leverage the strong growth platforms we are building in new therapies, emerging markets, and
value-based healthcare.
Achieving these results ultimately reflects the dedication and passion of more than 49,000 Medtronic employees living our
Mission every day, collaborating with our partners to deliver therapies and services to millions of people around the globe.
Transformation of Healthcare
As we move forward in our journey to lead the transformation of healthcare, our planned acquisition of Covidien is one of our
most exciting opportunities. This is a highly strategic and compelling acquisition, fully aligned with our Mission of alleviating
pain, restoring health, and extending life for patients around the world. It accelerates all three of our growth strategies – therapy
innovation, globalization, and economic value – and bolsters the long-term sustainability and consistency of our mid-single digit
revenue growth expectations. Combined, we can accelerate our common goal of addressing the universal healthcare needs of
improving clinical outcomes, expanding access, and optimizing cost and efficiency, thereby improving healthcare systems
around the world.
In therapy innovation, Covidien’s impressive array of industry-leading products enhances our existing portfolio, offers greater
breadth across clinical areas, and creates exciting entry points into new therapies. We also believe that Medtronic’s deep
clinical, regulatory, reimbursement, and market development expertise will help accelerate both their introduction, as well as
their rapid adoption, in markets around the world.
Our globalization strategy will benefit from the power of our combined companies. From a financial perspective, we will now
have a $3.8 billion emerging markets business that we are confident can sustain double-digit growth over an extended period of
time. Covidien has extensive emerging market R&D and manufacturing, while Medtronic has well-established clinical
expertise. These capabilities, applied across a much broader product offering, will significantly increase the number of attractive
solutions we can offer.
Finally, this transaction enhances Medtronic’s ability to deliver economic value to a broader range of stakeholders. The value
proposition of Covidien’s technologies primarily deliver hospital efficiency, while the value of Medtronic’s chronic disease
therapies are generally realized in post-acute settings. When combined, these complementary solutions will create a robust and
unmatched Integrated Health franchise. Our two organizations have a common philosophy around value-based healthcare and
we believe our industry-leading products, clinical and economic expertise, global footprint, and financial strength will position
us to be the preferred partner for physicians, hospital systems, patients, payers, and governments around the world.