Morning, everybody. Welcome to Haemonetics 2016 Investor Day. A special welcome to those who are joining us by means of the internet. I'm going to put up our cautionary language here, slide two. We remind you that some of the information that we'll present today, some of our statements are forward-looking, and they involve risk and uncertainty. You should take a look at this slide at your convenience, as well as the recent public filings in which we put more details. Today, from now through 10:30 A.M., we're going to do our formal presentations, and this is the part that is webcast. This will be our CFO and our CEO in the reverse order. Those participating by website will see the same slides at the same time as those here in the room will see. Instead of handing out paper, we are posting this entire presentation to our website.
We're going to post it as the last slide is passed around 10:30 A.M. We'll put the whole presentation up. You'll be able to go in, download it, print it, whatever we need to do with it. After a 15-minute break, we will have our franchise reviews. The four franchises and the leaders are listed up here. We will not webcast that portion. Because of some of the content being confidential or proprietary, we're not going to make those slides available. We'll have a 60-minute Q&A right here in this room. All three of these things are right here in this room. After that, we'll break for lunch. Everybody from management will be available for lunch, and hopefully, if there are any questions you didn't ask in Q&A, you'll have access to management.
All right, with that, I'd like to turn it over to our CEO, Ronald Gelbman.
Thank you. Good morning to everybody. The question I get this morning is, are you looking forward to going back to Florida? Which is a good question because for seven months, I've had the question of when are you going to name a CEO? How do you know and why are you so confident that the new CEO will embrace the strategy that you're working on? How do you know we're not going to have to wait six months for the new CEO to learn the business, meet the people, and start driving Haemonetics forward? Well, we've answered all three questions in Chris Simon. What I want to do is, without further ado, is invite Chris up. Chris is going to say a few words to you. I'm going to describe the strategy.
Chris has been busy extracting himself from his other responsibilities and is now going to focus full time, of course, on Haemonetics. Today, we're just going to both work together for the presentation. Chris will be available during the full Q&A also. Without further ado, I'm going to invite Christopher Simon up.
Thanks. Good morning, and thanks for coming to Boston. I'm delighted to see you and get a chance to meet you. As Ron said, I'm Christopher Simon, and effective this coming Monday, I'll take over as the President and CEO of Haemonetics, a position I'm very much looking forward to. The question that's all on your mind, that's been on my mind for the last couple of weeks and months is, why Haemonetics? After 23 years as a consultant and well down the path of a successful career, why jump in on this one? The short answer is because I believe in the intrinsic long-term value that Haemonetics represents. I've had the opportunity to work with Ron and the management team and the board over the better part of the last 6 months to help develop a strategic plan that we think will create real long-term value.
I didn't want to pass up on the opportunity to jump in and be able to realize that and turn that into a specific action agenda and make a bunch of things happen here for the people of Haemonetics, for their customers, and for all of you as shareholders. I'm excited about it. Obviously, we're facing into some real challenges, so there's a lot of work to do. It's an unfortunate situation, and it's going to take time to get right. I think we have the base elements of a plan to be able to do that. I'm going to spend a lot of time this summer digging in, understanding the underlying performance, getting a chance to really know this team, and putting some flesh around the action agenda that is the implementation of the strategic plan.
I'll be back out to see you later this summer with answers to all the questions I know you're going to have. Thanks again for coming today. Looking forward to the discussion.
Okay, thanks. We're excited. We're excited to pass the baton. We're excited for Chris. As you noted on his slide, no doubt, he owns the strategy along with us, and we're just looking forward to next Monday, where Chris is with us full time and moving us ahead and trying to create the value that all of us know exists in Haemonetics. I want to leave you with three main messages today, and you will hear this, hopefully, woven all through the presentations. Number one, we're changing our strategy, and we're going to be managing and resources franchises differently. Managing and resources franchises differently is the key to number one message. Number two, we will have a lean and focused operating model, which I'll describe to you in a few minutes. Emphasis on lean and focused.
The third message is we have initiatives in place that will start immediately to drive sustainable change and productivity. Our goal is not just to have just annual tweaking, but to have sustainable change that we know will drive this corporation. Now, we think these three actions will provide a foundation for strategy, which will drive short-term and long-term shareholder value. It will evolve, right? Strategies are not meant to be chiseled in cement and never changed. Markets changes, technology changes, competition changes, and we've got to keep evolving. This management team will evolve. There will be tweaks on this current strategy. There'll be additions to the strategy. I don't want you to think that it will never change. In fact, it will continue to evolve. We've had the strategy review.
I've said this a number of times on calls and a number of times personally with many of you, it was six months. Chris and I have been together for six months now. We've spent a lot of time together. Chris has spent a lot of time with the management team, and we feel as though we have vetted the business to the best of our ability to do so. As I've also said, every part was reviewed, everything has been on the table, and we're trying to make the best decisions to take a challenging business and move it forward. Here's an overall and quick assessment of our portfolio. We looked at it in terms of markets. Which franchises do we have that participate in growth markets? The markets continue to grow.
We have a significant presence, and we think that for the foreseeable future, the growth will be in those markets. Those are our two franchises of plasma and hemostasis management. Potential growth opportunities. Every strategy needs a couple of bets that it's making, may or may not pay off, but the market potential could be there, and that is what we call the franchise now of cell processing. It's not a perfect name for the franchise, but it will evolve and we'll work that through. I'll explain what we're talking about with cell processing in a moment. Last is maturing markets. Zero or negative growth, poor competitive position, and technology not what you would like it to be compared to competition. That is our donor business, and that is apheresis and whole blood. We will take you through that today.
We'll tell you the good, bad, and the less attractive parts of that donor business. As you step back and as I step back and look at it's a pretty good place to be, where you've got two strong franchises that are growing in this medical device area in high single digits and low double digits. It's a terrific situation for us. We've just got to figure out how to deal with some of the other parts of the portfolio. I want to talk today, and everybody who will be speaking today is going to be talking about our tremendous strength in software and device connectivity. Some additional strategic issues that were identified, declining gross profit. You've seen that.
Part of that is due to the donor business, particularly apheresis, but it's also part of the growth of plasma, which has a lower gross profit than some of our other businesses do. We have capacity issues in some plants. Again, primarily donor. As that volume declines, that creates some challenges for us in some of our plans. We can deal with that. Our operating expenses are too high. They're not too high if our gross profit was 60% or 70%, but they are too high with our current gross margin. We're going to take care of that, and I'm going to outline for you what we're doing in that area. Lastly, the spending has been on all of our franchises. For a company our size, that means some franchises are getting starved. Plasma and hemostasis management can't get starved.
We've got to focus the spending we have, particularly in R&D, on those two franchises. Implications, I just gave you most of this, but the highest growth potential gets the highest dollars behind it, where we think we have some interesting opportunities, not yet totally proven out, we're going to have what we call measured investment. The donor franchise will continue to play an important role in generating cash. I think there's this belief out there that the whole donor business is unprofitable. Why don't you do something with it? It's just a total drag on Haemonetics. Actually, it's just not the case. It is a drag on our top line, but as far as generating cash and EBITDA, which will allow us to take that cash, spend it on our franchises, drive shareholder value, it's actually, right now, a fairly valuable franchise for us.
Here's the software and device connectivity coming through again. I guess the other big message for you folks that I have talked about over the seven months is, we're not locked into this Arm to Arm transforming the industry that we've talked about for a number of years. That's not who we're going to be. Let's move on to the second part, a flatter, more integrated management structure, primarily in the commercial area and the R&D area. With franchises having a greater prominence, and you'll hear from our franchise leaders today, but with franchises having a greater prominence, working directly and closely with our global sales organization, we believe we will be able to drive our businesses to grow at an even faster rate, particularly TEG. Plasma is a different kind of business with just a concentrated number of large customers. Most of it is in North America.
It is a different business. The other product lines, the franchises have to work with the sales group to make our numbers, and that's what we're committed to do, is have those groups work together. What I've tried to do is push decision-making down to as close to the customer as possible. Decision-making needs to be close to the customer. When you do that, and one of the things that I've talked a lot about is when you increase responsibility for groups, they need to accept the accountability. When you increase responsibility, there needs to be an increase in accountability, and that's what we continue to drive, is doing what we say we're going to do. Productivity and sustainable change. I think all of you have seen annual cost-cutting exercises. I've been a part of a number of them in my career.
They only tend to last for a year. They're not very sustaining. We try to do it differently, and that's what I've said to you in the second bullet up there. In every single function, in every country and every facility, we are going to look at our footprint, and we're going to try to change the way we do business and take out costs. Right now, we have plans to extract costs, which we will cover with you in FY 2017, and we're developing plans right now for 2018 and 2019 because we want to be able to capture more ways to take operating expenses out of this business. Having said that, we cannot compromise on quality and compliance. Cost-cutting without thinking about the quality of the products that we're delivering to our customers is just a short-term exercise that will lead you nowhere good.
We are not compromising on quality. The path to better growth, which is what you want and which is what we want. Let me talk to you a little bit about this path. Right now, and you'll hear this term probably more than you want to, but we call it facing the realities of our portfolio. This is the hand we're dealt. We have some really good cards that we're anxious to play, and we have some cards that are challenging, but we need to face the reality, and hope is not a good strategy. We're not going to be hoping that the whole blood market changes, or we're going to be hoping that double dose is not really going to stick. They'll want to come back to single. We're not hoping that because we don't believe it will happen.
We see this as a journey, not a sprint. Everything can't be fixed in a year. You go through these situations, and you try to maximize your strengths and minimize your weaknesses, but it can't be done in a 12-month period. As good as I think Chris is and as good as I think the management team is, they're going to need a runway to continue to work through some of the challenges. I don't know any other way to do it. We can't try to do everything at the same time. In our efforts to please ourselves, to please you, to please the board. The urge is, let's spin as many plates as we can spin. At the end of the day, you spin too many plates start hitting the ground. We're just not going to try to do that.
We're going to try to be methodical, to work through the situation. We have a focused plan with appropriate flexibility. We want to try to, whatever the scale is, 0 to 10 on predictable and credible, we want to be a 10 on predictable and credible. That begins and ends with doing what we say we're going to do. It's as simple as that. It's a message that I've preached for seven months now. Do what you say you're going to do. We'll drive decision-making down. We will give people more responsibility. We don't have to have everything coming from the top. You folks run your business. My message to the franchise folks and to Byron and the sales group is run your business and just do what you said you were going to do.
I don't want to say that we're finished with strategy because there's always going to be strategy that comes up every year and should come up. The key word is execution, and we need to execute, and keep executing. We need to be results-oriented. Let me tell you a little bit more about the journey. Some of it's a little repetitive, but let me tell you a little bit about the journey. We started this at the beginning of October of last year, and most of our efforts were to stabilize the organization, have lots of employee communication, which I've described to you some of the things that we have done to listen to our employees, to listen to our salespeople.
I guess as an old sales rep, my inclination always is to call sales reps or Skype with sales reps, which I've done now, and hear what's happening between the sales rep and customers. It's always proved to be great learning, and it was great learning for me over this seven months. Keep listening to our salespeople. We talked about clear expectations. We talked about management accountability. We've done our reviews. I've talked to you about our strong markets, our technologies, where we're going to be investing. We're going to talk to you more about TEG 6s and Galaxy. Our donor franchise. The donor franchise has some profitable products, some profitable geographies, some terrific relationships with customers around the world. We're going to continue all of that. What we're not going to continue is chasing revenue at all costs.
We're not going to set up to do business in a country for a few thousand USD, or maybe we're actually losing money when you look at it. Chad's going to talk to you about that. We're just not going to do that anymore. We are not chasing a revenue dollar everywhere unless it's profitable for us. The other theme you'll hear about donor is we're going to manage it separately. Our direction to Chad has been, you need to set up your business in a way where you're keeping your expenses as low as you can because we want operating income out of the donor franchise. Does that mean we'll never invest another $0.10 in the donor business? No. If Chad brings the right things to us that has a good return on invested capital, we'll invest in it.
The number 1 metric for the donor business is provide operating income. We've talked about focusing on the franchises, right-sizing the organization. You'll hear more towards the end of my talk and in Chris Lindop's talk about the right-sizing that will begin very soon. We just talked about donor separation. It needs to be complete in the timeframe that you're looking at right now. We need to focus on business-changing cost reductions, not just cost reductions. We need to do business differently, particularly in donor. Also during this timeframe, continued plasma growth. We should be out there with Galaxy and with NextGen DMS, which Tom McCurdy will be talking to you about. NextGen DMS, which is off to a really good start with our largest customer and with a few other customers also. This also fits into this whole area of software and connectivity.
Also we'll talk to you a little bit about what we call apps, which is just our way to individualize how Galaxy looks and feels in different centers. TEG 6s, Krista Thompson will go through that with you to talk to you about where we are now with our addressable market, our technologies, new indications, clinical data, economic data. There's a lot to be done with TEG 6s. Finally, business development. We need to be constantly looking for licensing and acquisition opportunities. We need to target attractive and growing end markets. Not markets that are flat that we think we can transform, markets that have growth and that we feel good about the growth. We'll focus on adjacencies. We'll also look to add new franchises.
I'm going to give you a brief overview of the franchises before you hear from the franchise leaders. Plasma, I think most of you know it pretty well, $16 billion is the end market for plasma-derived pharmaceuticals. $600 million is the market in which we compete, and collections are growing 8%. Every year, we think they will continue to grow 8%. You can read different things of 6%-8%, 7%-9%, but we're roughly in the high single digits for collections, which is what's important for us. Here is the Galaxy Next Gen and the apps that I talked about. Tom will take you through this and the importance of the value that we're going to drive for our customers. Hemostasis management.
Our customer is the clinician in the hospital, and of course, this is the bleeding and clotting, and we're trying to provide clinicians with a better and functional view of a patient's hemostasis. Here's the addressable market, $360 million. Those are the core markets underneath, which make up the $360 million. We see tremendous expansion, and that this really came out during our strategic review. We see tremendous expansion opportunities. Again, Krista will talk to you about the market expansion drivers, what will take it from $360 million to $1.5 billion. We think that is realistic. There are some estimates out there that are larger than that, but look, this isn't perfect science. If it's $1 billion, the $1.5 billion turns out to be optimistic.
I think we're all going to still be happy that TEG 6s is out there with a high market share in a $1 billion market. Here's our lineup of products, the 5000, which has been out in the market for a while. I would urge you folks to talk to Krista while you're here. The 5000 is a terrific instrument, but it requires lots of pipetting. The TEG 6s requires lots of putting a cartridge in the machine. The difference is huge. If you ever sat for a moment, if you ever wanted to look at, we can send you a video of what is required to use the 5000 and the pipetting. You'll know how valuable the information is because there's a lot of work that goes into making the 5000 work in your lab.
After you have that demo, you can look at what it takes to load a cartridge, I think you'll be as impressed as I've been. The TEG Manager, again, I don't want to downplay the importance of this whole software and connectivity piece. The TEG Manager just is terrific for labs and clinicians as far as being able to keep track of what's happening to your patients, no matter where you are. We see strong double-digit revenue growth every year for TEG. Cell processing, just a little brief on that, and then Howard Rosen will give you more details. It's the Cell Saver Elite 7 rollout. The limited market release, customers were very complimentary. Again, what did they talk about most? The software. What we want to do is regain our market leadership position. We're number two in the market.
We want to be number one in the market. A potentially exciting new therapy is on the horizon. You folks probably know it as well or better than I do, this whole area of CAR T-cell therapy. There are 50-plus clinical trials going on in the U.S. right now. Most of them are in the area of leukemia for children, but people believe, not know, but believe that it will have a wide range of potential indications. If all that turns out to be true, it actually turns out that our Cell Saver Elite is used in this process because you need to wash the patient's cells, and you probably need to wash it two or three times in that process. It could be interesting. We are already heavily involved with one of the industry leaders who is working in this area.
Again, it is one of these bets that you want to have a measured investment in and see where that market takes itself. We have talked to you about BloodTrack and HaemoBank, this whole point, what we call point of care transfusion management through the software and also the bank. It has an encouraging start. It has a little bit of a longer sales cycle. We are going to see. We are going to keep plugging away for now and see if we can continue to drive this business, if that sales cycle leads us to an outlook that we want to share even more information with you. Finally, donor, which is getting a lot of attention today. Part of it is facing the realities. As I have told you will hear that until I make you sick over it is about facing the realities.
You can see for yourself and you know for yourself, that is the market. We accept that that is the market. The question is, what do we do in the face of that market? We think in FY 2017, the top line is probably going to be $290 million. That is a sizable decline from FY 2016. We just cannot change that. The product line is very complex, and we need to eliminate as much of that complexity as we can and simplify it and only keep what is profitable. We sell in so many geographies. You will see the statistics from Chad, it is just amazing how many geographies we sell in. We are not going to do that anymore. It has got to be profitable, it has got to be cash positive.
That is the constant message to Chad and his folks is, it has got to be profitable, it has got to be cash positive. We are going to manage it differently, as I have been saying. We are going to reduce the complexity. We are going to reduce cost of goods. We have to keep pushing to reduce cost of goods, particularly for donor, across all of our product lines, particularly for our strategy in the donor business. Third, we have to decrease operating expenses and align with what customers value. On the left, you see our three-point plan. On the right, we will outline shortly. I will give you the short answer in a moment. We have got to significantly reduce operating costs. Further reductions in FY 2018 and 2019. It will be managed separately. We still have lots of options with that business.
It's throwing off really good cash flow right now. We will also talk to you in a moment about the kind of savings that you can expect to see this year. Future growth. What can I tell you about the future growth? For those franchises, we feel good about saying it's going to continue to grow in high single digits, low double digits, when you put those franchises together. Very attractive franchises. Operating margin has the potential to grow faster than revenue. It's this balance between feeding these two franchises, but also returning operating income and value for our shareholders. We'll have to walk that line of imbalance between continued heavy investment and also producing operating income. We will continue to leverage our great strength in software and device connectivity.
Donor, we know the revenues are going to decline in FY17. Then we expect to see some that decline be not so swift. We're going to get a lot of the bad things that are happening behind us. We think over this horizon, we will see some leveling off. Don't want to be too optimistic about that. We don't want to plan for it to level off, but we think it's likely that it would level off. Again, it's all about operating income. It's all about operating income to fuel plasma and hemostasis management. Our cost targets in FY17, we're going to take $40 million in costs out of the business in 2017. We're not going to provide a number today for what we're going to do in 2018 and 2019, but the goal is to make those two years have significant cost reductions also.
Chris Lindop's going to go through that in a little more detail. For starters this year, we're going to be pulling $40 million out of the business. I'm going to wrap up. I hope that I was clear today on what our strategy is. We're going to manage and resource our franchises differently. We will be flexible. One of the questions you like to ask a lot is, for all of your franchises, are you flexible in how you're going to deal with them? Are you open to all kinds of different ways of managing and resourcing them? The answer is yes. We're always open to that. We'll be lean, we'll be focused, and we will drive sustainable change. We'll be more productive, fewer resources being chewed up, less operating expenses, lower cost of goods. Same message at the end. Here's our strategy. Two great franchises.
One franchise drives operating income, it's all going to evolve. It's going to keep doing it. Execution and a continuing look at the strategy on how to deal with some of the franchises versus other franchises. With that, I'm going to bring up Chris Lindop. Thank you so much for your attention.
Thank you, Ron, good morning, everyone, and welcome. I'm going to cover briefly the elements of our guidance for FY 2017 and just remind you that, as we've told you previously, FY 2017 will have a top and bottom line headwind from currency, around about 200 basis points in our growth rate on the top line. We are comparing ourselves to FY 2016 that had an extra week in it, about 1.7% headwind to growth as you look at 2017 compared to 2016. With that, let's take a quick look at how we see revenue playing out in FY 2017 as compared to our finish in FY 2016 of $910 million. As you can see, consistent with Ron's remarks, we're anticipating good growth from Plasma and Hemostasis Management.
Plasma growing nominally in the high single digits, in constant currency, 8%-10%, once again, with a 1.7% growth headwind. Hemostasis Management, in constant currency, in the low 20s growth, once again, with a headwind. Cell Processing, declining year-over-year, primarily because of the ongoing headwinds with the OrthoPAT product category, which is continuing to decline. The big news that we shared with you last week is that the donor franchise will decline significantly with three major drivers. In Japan, we anticipate share loss as a result of a conversion to double-dose plateletpheresis, that will present some adversity for us. In North America, specifically in the U.S., we've seen business in the double red cell product category trading long-term contracts signed, price given up, and to some extent, share lost.
Of course, whole blood, very specifically in North America, we'll continue to see declines in demand for transfusion of red cells, and that will affect our whole blood franchise. That is encompassed in that rather large decline that we see in FY 2017. As Ron said, we believe that the apheresis trends that we're seeing will moderate in the future in this franchise. Currency on the top line is a relatively big headwind for us, as I mentioned, and the 53rd week comparison adds to that adversity. That brings us to a guidance range of $850 million-$875 million for the business as a whole. Turning now to operating income guidance. As Ron mentioned, we set off as we faced into the challenges of FY 2017 to drive significant cost savings throughout the business, $40 million in all.
We're taking on board the mix of revenue adversity in the constant currency margin mix that I've highlighted here. This is really the $27 million or so of specific donor headwinds that I shared with you on the conference call last week, offset by margin contribution from our growth franchises, which of course, also includes investment behind those growth franchises to make sure that they continue to move forward. In FY 2016's results, the $119 million that I have here as a starting point for this waterfall, we did not pay a full short-term variable compensation. Our plan was tied to better performance, therefore, our variable compensation was tied to that. We now have planned in FY 2017 for a full variable compensation, that's part of how those dollars are being redeployed into the business.
The 53rd week and currency, I shared with you the quantification of those items as they affect the bottom line of the business in FY 2017. Those are highlighted there as part of this cascade. Looking at the full P&L. Down to the bottom line guidance, $1.40-$1.50 per share. Importantly, I think if you look at the operating income comparison year-over-year, obviously showing a decline within the range that we've presented. In constant currency, that is adjusted for the currency headwind that we're seeing on the bottom line, in fact, operating income increases 3%-8% within this range. As we pass beyond this phase of significant currency adversity for a company with our revenue mix around the world, we believe that there's an opportunity to see a better operating performance on a comparative basis in FY 2018 and beyond.
With regard to the transformation that we've discussed, that Ron mentioned, that I've included in the guidance, we're going to spend some cash to get after that. About $26 million in total, of which 17 relates to pure severance costs, reductions in force across the business in every aspect of what we're doing, back office and in regions. Exit costs, which are associated with those decisions. Other enabling costs, transformation costs that will be spent, dollars that will be spent to enable the changes that we have to make to get after these savings. As Ron said, this is a down payment, the first year of a three-year program in which we envision continuing to drive efficiency and productivity into the operating structure of the business, through fundamentally changing the way that we go after our goals and get after the business that we have.
With that's a relatively brief summary of the guidance. I'll hand the agenda back to Ron.
Okay. Thanks, Chris. As you can see, we're going to have a full Q&A at the end. You'll be able to ask all your questions at that point. I just wanted to summarize at the end, because a lot of this is tough news. This is a challenging business. I am really optimistic. I've done this a number of times in my Johnson & Johnson career. I really believe that we are on the right path. At the end of the day, it comes down to people. It also comes down to the other cards you're dealt with are good franchises. We have both. We're tremendously optimistic about Christopher Simon and what Chris can bring to the business, knowing our strategy. Next Monday morning, we can all feel great because I'll be a board member only next Monday morning.
We can all feel great that the transition is seamless. We will start implementing the changes, actually, we're doing that this week, we will continue it seamlessly under Chris. The board is really very optimistic and very enthusiastic about having Chris as our new CEO. The other part for me is I've gotten to know our management team really well over these past seven months, and I think when you see the four franchise leaders make their presentations and talk about what they are doing with their franchises, I'm hoping you will share that same optimism. It won't be done in a year, but I hope you will believe that it can be done. The elements are there. Good people are there. Good franchises are there.
We just got to figure out how to play all the cards in our hand, and I think we pretty much have. That's my message. We're going to go ahead and take a break now, and we look forward to seeing you back in a few minutes, and we will start the franchise reviews.