Medtronic will target 4% annual increases in revenue through investments in higher-growth technology markets, according to an outline of its plans presented at its biennial investor gathering this week in New York City.
And to increase savings in global operations, Medtronic plans to continue consolidating its manufacturing footprint—down from 92 sites a few years ago to about 55 in the next few years—as well as reduce its supply chain base by about 50%. Currently the company maintains about 70 sites and plans to leverage contract manufacturing where appropriate.
As a result, the $30 billion medical equipment maker hopes to grow adjusted earnings per share by 8%, expand its underlying operating margin by 40 to 50 basis points, and return at least half of its free cash flow to shareholders, among other long-range financial goals. Medtronic also expects continued growth from its emerging market businesses.
“We have increased our focus on our core growth drivers, on allocating capital efficiently across our businesses, and on optimizing our portfolio,” said Karen Parkhill, Medtronic’s chief financial officer.
“And, as we execute and deliver on growth, leverage and cash flow conversion, we expect that to result in sustainable returns and durable value for our shareholders,” Parkhill said.
In fiscal year 2012, the company’s focus on growth markets represented less than one-quarter compared to traditional markets, according to a presentation by CEO Omar Ishrak. While today it’s a little over one-third, Medtronic hopes future growth markets—such as robotic surgery, neuro-modulation, mitral valve replacement and personal devices for diabetes—will shift to over half its focus by fiscal year 2022.
Internationally, Medtronic will look to transition to more direct-to-customer sales, with a strategy of terminating work with distributors and pursuing joint ventures and account-by-account changes, with a key focus on India, Brazil, Egypt and Saudi Arabia in the 2018 fiscal year.
In China, with 9% direct sales, the company will look to implement a platform model and complete two-invoice pilot programs in multiple provinces.
By automating end-to-end business processes, Medtronic hopes to reduce its number of distribution centers and administrative facilities by 15% to 20%, as well as consolidate its customer service and call centers.