Raymond James Healthcare Conference Jay Saccaro | Chief Financial Officer March 6, 2018
Safe Harbor Statement This presentation includes forward-looking statements concerning Baxter’s financial results, business development activities (including the recent acquisition of Claris Injectables in July 2017), capital structure, cost savings initiatives, R&D pipeline including results of clinical trials and planned product launches and outlook for 2017 and 2020. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: demand for and market acceptance of risks for new and existing products, and the impact of those products on quality or patient safety concerns; product development risks; product quality or patient safety concerns; future actions of regulatory bodies and other governmental authorities, including FDA, the Department of Justice, the New York Attorney General and foreign regulatory agencies (including with respect to the granting of temporary importation approvals); failures with respect to compliance programs; future actions of third parties, including payers; U.S. healthcare reform and other global austerity measures; pricing, reimbursement, taxation and rebate policies of government agencies and private payers; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; global, trade and tax policies; accurate identification of and execution on business development and R&D opportunities and realization of anticipated benefits (including the recent acquisition of Claris Injectables); fluctuations in supply and demand (including as a result of natural disaster or otherwise); the availability of acceptable raw materials and component supply; the inability to create timely production capacity or other manufacturing supply difficulties; the ability to achieve the intended results associated with the separation of the biopharmaceutical and medical products businesses; the ability to enforce owned or in-licensed patents or the patents of third parties preventing or restricting manufacture, sale or use of affected products or technology; the impact of global economic conditions; fluctuations in foreign exchange and interest rates; any change in law concerning the taxation of income, including income earned outside the United States; actions taken by tax authorities in connection with ongoing tax audits; breaches or failures of the company’s information technology systems; loss of key employees or inability to identify and recruit new employees; the outcome of pending or future litigation; the adequacy of the company’s cash flows from operations to meet its ongoing cash obligations and fund its investment program; and other risks identified in Baxter’s most recent filing on Form 10-K and other Securities and Exchange Commission filings, all of which are available on Baxter’s website. Baxter does not undertake to update its forward-looking statements. 2
Strong 85+ year heritage of saving and global business sustaining lives with great people Established One of the most market trusted brands leadership across in medical products portfolio Unique opportunity to create shareholder value 3
Baxter Profile 2017 Revenue By Market By Global Business Unit 1 Renal Care ~$3.5B Medication Delivery ~$2.7B Pharmaceuticals ~$1.9B 43% $10.6 Nutrition ~$0.9B 57% U.S. Billion Advanced Surgery ~$0.7B International Acute Therapies ~$0.5B Other ~$0.5B Industry-Leading Global Continuous Operational Portfolio Presence Innovation Excellence 4 1 Totals may not foot due to rounding.
Delivering On Our Strategy Business Highlights 1 Building Momentum With Strong Executing On Pipeline And Strategic Operational Performance Opportunities To Optimize Portfolio ► ► Delivered 5% operational sales growth and 27% adjusted EPS Reallocating investment to higher-margin, faster-growing growth in full-year 2017 businesses ► ► Expanded full-year 2017 adjusted operating margin by Executing on a robust pipeline to accelerate launch cadence 240 basis points to 16.0% and provide meaningful innovations for patients and providers Increased full-year 2017 free cash flow 2 by 35% to $1.22 ► ► Augmenting growth in core markets through strategic billion portfolio additions $ Executing Disciplined Focus On Significantly Enhancing Balance Sheet Cost Management Flexibility To Deliver Value ► ► Targeting ~$975M in annual pretax savings by 2020 with 90% Generating improved cash flows through effective working to be realized by end of 2018 capital management and reduced capital expenditures ► ► Implementing optimized organizational structure, transforming Raised annual dividend by 23% and increased share buyback cost structure and eliminating waste authorization by $1.5 billion (~$2.3 billion total remaining) 3 Maintaining financial optionality with current net debt 4 to ► ► Driving efficiencies in functional areas, simplifying portfolio EBITDA 5 ratio near zero and optimizing manufacturing footprint 1 See www.baxter.com for information regarding non-GAAP financial metrics used in this presentation, including constant currency and operational sales, adjusted operating margin, adjusted diluted EPS and free cash flow. 2 Operating cash flow less 5 capital expenditures. 3 As of February 20, 2018. 4 Long-term debt and lease obligations and current maturities of long-term debt and lease obligations less cash and equivalents. 5 Earnings before interest, tax, depreciation and amortization expense..
Aspiration For Baxter 2020 Industry Leading Quality and Best Place to Patient Safety Work Performance Investing in quality systems Portfolio And and processes Innovation Management Improving key quality metrics Operational Excellence Strengthening relationships with global regulators Capital Ensuring the highest Allocation possible standards Accelerating Transformation Efforts To Achieve Top-Quartile Results 6
Industry Leading Performance Advancing Three Critical Drivers Portfolio And Operational Capital Innovation Excellence Allocation Management Drive Improved Performance And Value Creation To Help Deliver Top-Quartile Shareholder Returns 7
Advancing Our New Product Portfolio Generic Injectables Expansion Generating Clinical Evidence Strategic Portfolio Additions 1 Over 3,000 U.S. Patients New Pump Platforms New Indications Focused On High Potential, High Value Innovation 8 1 Proposed product acquisitions.
Transforming Cost Structure And Enhancing Operational Efficiency Zero-Based Organization Zero-Based Spending Rightsizing organization with reduced Employing disciplined cost spans & layers assessment to eliminate waste Portfolio Management Global Business Services Optimizing manufacturing footprint, Centralizing and streamlining R&D operations and supply chain network support functions Accelerating Profitability Through Seamless Execution Of Cost–Reduction Initiatives 9
Strategically Deploying Capital To Fuel Growth And Create Value Reinvestment in Net debt to EBITDA ratio near zero 1 ; targeting Business steady state of ~2.0x Raised annual dividend by 23% in 2017; Dividends targeting ~35% dividend payout ratio over time Increased share repurchase authorization BAX Share Repurchases by $1.5 billion (~$2.3 billion remaining) 2 Executing strategic acquisitions and M&A collaborations Optimizing Shareholder Value With Enhanced Flexibility To Reinvest In Business And Execute On M&A Opportunities 10 1 As of December 31, 2017. 2 As of February 20, 2018.
Rigorous Assessment Of Business Development And Licensing Opportunities Net Debt / EBITDA Drive category leadership Guidelines Enhance Baxter’s weighted average market growth rate Strategic Expand into strategic adjacencies from core growth Objectives ~2.0X businesses Extend channel presence and geographic footprint Future Steady State Accelerates top line growth, accretive to operating margin Targeting investment General Accretive to cash earnings in near term grade rating Financial Intend to preserve investment grade credit rating and Focused on Guidelines financial flexibility deployment of excess Double-digit internal rate of return and attractive ROIC cash to fund M&A opportunities and accelerate returns Maintaining Discipline To Maximize Value 11
Accelerating Growth Of Key Metrics Financial Outlook 1,2 Adjusted Adjusted Global Reported Free Cash Flow Operating Margin Diluted EPS Revenue $3.25 - $3.40 ~$2.0B ~$12B ~20.0% $2.72 - $2.80 $11.2B+ ~$1.4B 16.8%-17.0% ~$0.9B 13.6% $1.96 ~$10.2B 2016 2018 2020 2016 2018 2020 2016 2018 2020 2016 2018 2020 Actual Guidance Outlook Actual Guidance Outlook Actual Guidance Outlook Actual Guidance Outlook 13%-15% ~22% ~4% >600 bps 2016 – 2020 Increase 2016 – 2020 CAGR 2016 – 2020 CAGR 2016 – 2020 CAGR 3 1 See www.baxter.com for information regarding non-GAAP financial metrics used in this presentation, including constant currency and operational sales, 12 adjusted operating margin, adjusted diluted EPS and free cash flow. 2 2018 guidance was provided on February 1, 2018 and 2020 outlook was provided on July 26, 2017. 3 Constant currency
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