2002 Credit Suisse First Boston
   Healthcare Conference

         November 13, 2002
John Hammergren

    Chairman and
Chief Executive Officer
Safe Harbor Clause

Some of the information in this presentation
may constitute forward-looking statements
which are subje...
Agenda For Today’s Presentation
  Market and Strategy Overview

  Business Unit Review

  Summary
McKesson Investment Highlights

  Positive momentum in Pharmaceutical Solutions
  and Information Solutions: revenue growt...
Largest Healthcare Services Company

                         Medical-
                          Medical-
     Pharmaceuti...
McKesson Solutions Improve
Quality and Reduce Cost
                Pharmaceutical and medical-                     Clinica...
Favorable Market Factors Drive
McKesson Growth

 Aging population consumes more drugs, supplies
 More sophisticated popula...
Strong Q2 FY03 Results
                                                                    2nd Quarter
               ($ i...
Seven Quarters of Momentum

                              FY01                                 FY02                     FY...
Agenda For Today’s Presentation

  Market and Strategy Overview

  Business Unit Review

  Summary
Business Metrics Drive Results
                                Financial Success

                             To achieve ...
Supply Businesses Across All Sites

                                                         McKesson
                    ...
Pharmaceutical Solutions: Strong
Growth and Expanding Margins

  U.S. pharmaceutical distribution revenues up
  17%

  Gen...
Pharmaceutical Solutions Margin
Momentum
                                 9 Consecutive Quarters of Y-O-Y Operating Margin...
Pharmaceutical Solutions DC
  Productivity

                      1.40
                              ($Billions)
         ...
Pharmaceutical Solutions Operating
                      Leverage

                               4.00%
Operating Expenses...
Balanced Profit Components in
Pharmaceutical Solutions
  Inventory Profit               Related products and services
    ...
Significant Generics Opportunity
Branded pharmaceuticals going off patent

                                 $52B


       ...
Generics Gross Profit Drivers

 Better sell margin

 Margin expansion through buying leverage

 “Formulary” fees

 Portfol...
Pharmaceutical Solutions: Levers to
Expand Operating Margins
   Product Sourcing
   Six Sigma
   Increased Generics Sales
...
Medical-Surgical Solutions Strategic
Value


  Strategic role delivering supply chain
  solutions

  Strategic presence in...
McKesson Medical-Surgical:
 Not A Market Issue

                           FY00    FY01    FY02   Q1FY03 Q2FY03
Gross Prof...
McKesson Medical-Surgical:
What We’re Doing
 Install experienced leadership with track record for
 successful turnaround a...
Information Solutions Market
Leadership

                                                         Employee
   Financial   ...
Customer Needs Drive Demand for IT
Solutions
                 Processes
IT Demand                                   Clinic...
Information Solutions: Expanding
Margin and Clinical Momentum

  Revenues up 16%, software up 20%

  Operating margin up 3...
Information Solutions Operating
Margin Momentum
                                                              +309 bp
  9....
Information Solutions Positive Outlook


  Growing Demand for Clinical Products

  McKesson Positioned for Clinical Leader...
Agenda For Today’s Presentation

  Market and Strategy Overview

  Business Unit Review

  Summary
FY00 to FY03 Achievements

Highest revenue growth and largest operating
margin expansion in pharmaceutical distribution
in...
McKesson Differentiated Solutions

  Presbyterian Healthcare

  Spartanburg Health Systems

  Solaris Health Systems

  OT...
Goals for Delivering Sustained
Financial Performance
  Industry-leading solutions and margin
  expansion in Pharmaceutical...
2002 CSFB Healthcare Conference
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2002 CSFB Healthcare Conference

  1. 1. 2002 Credit Suisse First Boston Healthcare Conference November 13, 2002
  2. 2. John Hammergren Chairman and Chief Executive Officer
  3. 3. Safe Harbor Clause Some of the information in this presentation may constitute forward-looking statements which are subject to various uncertainties and could cause actual results to differ materially from those projected or implied. These uncertainties are described in the Company’s reports and exhibits filed with the Securities and Exchange Commission.
  4. 4. Agenda For Today’s Presentation Market and Strategy Overview Business Unit Review Summary
  5. 5. McKesson Investment Highlights Positive momentum in Pharmaceutical Solutions and Information Solutions: revenue growth and margin expansion Turnaround underway in Medical-Surgical Solutions Seven quarters of EPS momentum and improving return on committed capital Demographics, economics and public policy drive demand for McKesson products and services
  6. 6. Largest Healthcare Services Company Medical- Medical- Pharmaceutical Information Pharmaceutical Information Surgical Surgical Solutions Solutions Solutions Solutions Solutions Solutions $46 billion in $2.7 billion in $1 billion in revenues revenues revenues US and Hospitals Most comprehensive Canadian HIT product line: Physician pharma software, services, offices distribution outsourcing Nursing homes Hospital and New clinical offering retail Long-term care includes decision automation facilities support, order entry and digital medical Pharmacy imaging outsourcing Health Solutions
  7. 7. McKesson Solutions Improve Quality and Reduce Cost Pharmaceutical and medical- Clinical, financial and surgical distribution to all sites resource management systems for hospital and Automated drug IDNs dispensing for retail and hospital pharmacies Physician portal Pharmacy outsourcing Solution for Medication Safety Specialty pharmaceutical distribution HIT outsourcing Services for payors, patients and manufacturers Unique Conversations with Customers At Higher Levels
  8. 8. Favorable Market Factors Drive McKesson Growth Aging population consumes more drugs, supplies More sophisticated population demands higher quality Employer and government focus on higher quality Costs and incentives drive increased use of generics Pharmacist and nurse shortage widens Costs and quality concerns lead to increased disease management Expanding pipeline of higher-tech drugs
  9. 9. Strong Q2 FY03 Results 2nd Quarter ($ in millions, except EPS) FY03 FY02 Revenues $10,282 $8,915 +15% Operating Profit Pharmaceutical Solutions $ 227 $ 179 +27% Medical-Surgical Solutions 2 24 - 92% Information Solutions 24 14 +79% Net Income $ 124 $ 96 +29% Diluted Earnings per Share $ 0.42 $ 0.32 +31% Note: Before special items and discontinued operations, not including sales to customers’ warehouses
  10. 10. Seven Quarters of Momentum FY01 FY02 FY03 Q1 Q4 Q1 Q2 Q3 Q4 Q2 Revenue 17% 16% 19% 20% 16% 19% 15% Y-O-Y 41% 41% 45% 58% 55% EPS 35% 31% Y-O-Y 18.0% 18.7% 19.4% 20.4% 22.0% 22.4% 22.9% ROCC All results exclude warehouse sales, special items and discontinued operations discontinued and include impact of FAS 142 in FY02
  11. 11. Agenda For Today’s Presentation Market and Strategy Overview Business Unit Review Summary
  12. 12. Business Metrics Drive Results Financial Success To achieve the best financial performance in the industry Employee Satisfaction Customer Satisfaction Metric-Driven Execution To provide an environment To have the most satisfied that attracts and retains customers in the industry outstanding talent Business Process Success To fulfill our commitments to our customers and to each other
  13. 13. Supply Businesses Across All Sites McKesson McKesson McKesson McKesson McKesson Health McKesson McKesson McKesson McKesson Health McKesson Medication Medication Pharmaceutical Automation Solutions Medical Surgical Pharmaceutical Automation Solutions Medical Surgical Management Management Distribution Retail Pharmacy Medical Pharmacy and Primary Care Management Medication Repackaging Hospital / Extended Care Software and Management Institutional Informatics Acute Care Services Services International Specialty Pharmaceutical Services End-to-End Continuum of Services Multiple Points of Leverage Comprehensive North American Distribution
  14. 14. Pharmaceutical Solutions: Strong Growth and Expanding Margins U.S. pharmaceutical distribution revenues up 17% Generic sales slow market growth but drive margin expansion Operating margin up 20 bp driven by generics, strong pricing and increased sales of related products and services McKesson Canada revenues up 14% with margin expansion
  15. 15. Pharmaceutical Solutions Margin Momentum 9 Consecutive Quarters of Y-O-Y Operating Margin Expansion 3.50% +55 bp in FY01 and FY02 3.25% Operating Margin % of Revenues +36 bp 3.00% 2.75% +70 bp +22 bp +20 bp 2.50% +20 bp +34 bp +29 bp 2.25% +24 bp +17 bp -13 bp 2.00% 1.75% 1.50% 1.25% 1.00% Q1 Q2 Q3 Q4 FY03 FY02 FY01
  16. 16. Pharmaceutical Solutions DC Productivity 1.40 ($Billions) 1.20 CAGR 37% Annual Revenue/DC 1.00 0.80 0.60 0.40 0.20 0.00 FY98 FY99 FY00 FY01 FY02 FY03 EST Note: Excludes Alaska and Hawaii
  17. 17. Pharmaceutical Solutions Operating Leverage 4.00% Operating Expenses % of Revs 3.42% 3.50% 3.08% 2.91% 3.00% 2.50% 2.00% FY01 FY02 FY03 YTD
  18. 18. Balanced Profit Components in Pharmaceutical Solutions Inventory Profit Related products and services McKesson Canada Nadro Branded product sourcing Specialty Pharmaceuticals Price increases Automation Special programs Repackaging Collaborative agreements Disease Management Pharmacy Outsourcing Generic product sourcing Payor Services Zee Medical
  19. 19. Significant Generics Opportunity Branded pharmaceuticals going off patent $52B Should drive significant generic growth and margin expansion • McKesson OneStop program <$10B • 20,000 pharmacy outlets • Generic Rx GP$ and margin higher than that of branded Rx 1998-2000 2001-2006 (proj.) Source: IMS and analyst reports; internal McKesson analysis
  20. 20. Generics Gross Profit Drivers Better sell margin Margin expansion through buying leverage “Formulary” fees Portfolio opportunities with manufacturers Free goods/credits
  21. 21. Pharmaceutical Solutions: Levers to Expand Operating Margins Product Sourcing Six Sigma Increased Generics Sales Grow Packaging Capabilities and Penetration Automation Market Expansion and Cross Selling Growth of Related Products and Services Significant Momentum in FY03 and Beyond
  22. 22. Medical-Surgical Solutions Strategic Value Strategic role delivering supply chain solutions Strategic presence in alternate site market Potential for shareholder value creation
  23. 23. McKesson Medical-Surgical: Not A Market Issue FY00 FY01 FY02 Q1FY03 Q2FY03 Gross Profit Margin 19.63 19.18 19.46 19.26 18.72 % Revenues Operating Profit Margin 4.22 3.40 3.49 2.84 0.28 % Revenues
  24. 24. McKesson Medical-Surgical: What We’re Doing Install experienced leadership with track record for successful turnaround and augment with resources Improve financial and operating processes Execute DC network consolidation Complete ERP system implementation Increase private brand sales Stabilize this year with margin improvement expected in FY04
  25. 25. Information Solutions Market Leadership Employee Financial Solution Employee Financial Solution Market Share Market Share Expertise Strength Portfolio Expertise Strength Portfolio $1 billion 60% of health Most comprehensive 6,300 revenues systems employees Best-of-class 15% of 82% of covered 1,250 R&D •Software revenue goes lives • PACS 850 customer to R&D •Services Largest / most support investment •Outsourcing profitable 500 clinicians •Consulting International HIT •Content business •Connectivity
  26. 26. Customer Needs Drive Demand for IT Solutions Processes IT Demand Clinical Needs Drivers Reduce variability Care Delivery Improve MD connectivity Reduce medical errors Revenue Cycle Needs Improve cash flow Core Billing & Reduce rework Process Claims Analyze financial performance Improvements Resource Management Needs Standardization of supplies Purchasing & Improve order management Supply Improve product movement
  27. 27. Information Solutions: Expanding Margin and Clinical Momentum Revenues up 16%, software up 20% Operating margin up 309 bp to 8.78% Software bookings up 43% Horizon Expert Orders GA on schedule by 12/31/02 20 Horizon Expert Orders sales to date 10 in implementation by fiscal year end
  28. 28. Information Solutions Operating Margin Momentum +309 bp 9.00% 6 consecutive quarters of Y-O-Y 8.50% Operating Margin expansion 8.00% +296 bp 7.50% 7.00% +855 bp 6.50% +534 bp 6.00% +502 bp 5.50% 5.00% +290 bp 4.50% 4.00% Q1 Q2 Q3 Q4 Q1 Q2 FY02 FY03
  29. 29. Information Solutions Positive Outlook Growing Demand for Clinical Products McKesson Positioned for Clinical Leadership Margin Expansion Strategies Improving revenue mix Leveraging existing infrastructure
  30. 30. Agenda For Today’s Presentation Market and Strategy Overview Business Unit Review Summary
  31. 31. FY00 to FY03 Achievements Highest revenue growth and largest operating margin expansion in pharmaceutical distribution industry over the past 2-1/2 years Largest increase in customer satisfaction, more new product introductions and largest operating margin expansion in healthcare information technology industry over past 3 years EPS growth above 30% for seven consecutive quarters despite erosion in medical-surgical segment operating margin
  32. 32. McKesson Differentiated Solutions Presbyterian Healthcare Spartanburg Health Systems Solaris Health Systems OTN Wal-Mart Together Rx Card
  33. 33. Goals for Delivering Sustained Financial Performance Industry-leading solutions and margin expansion in Pharmaceutical Solutions Clinical leadership, continued new product innovation and continued margin expansion in Information Solutions Financial turnaround and return to historical operating margins in Medical-Surgical Solutions Value Creation for Customers and Shareholders

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