Smith & Nephew Plc · LSE:SN.
Smith & Nephew — Smith+Nephew — Q4 2023 Earnings Presentation
32 slides from Smith & Nephew's earnings presentation, Feb 27, 2024
Slide 1: Fourth Quarter and Full Year 2023
Fourth Quarter and Full Year 2023
Slide 2: Forward looking statements and non-IFRS measures
Forward looking statements and non-IFRS measures This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading profit margins, market trends and our product pipeline are forward-looking statements. Phras
Slide 3: Summary
Summary FY revenue growth ahead of guidance at 7.2% • 5.7% growth in Orthopaedics: Strong T&E and OUS recon; partially offset by US recon c • 10.0% growth in Sports Medicine and ENT, despite headwind from slow China market • 6.4% growth in Advanced Wound Management, maintaining momentum from prior y
Slide 4: FY 2023 financial highlights
FY 2023 financial highlights Revenue Trading profit Trading margin $5,549m $970m 17.5% 7.2% underlying growth* 7.6% reported growth + 20bps (2022: 17.3%) 6.4% reported growth (2022: $901m) Trading cash flow EPSA DPS $635m 82.8¢ 37.5¢ 65% trading cash conversion (2022: 81.8¢) (2022: 37.5¢) (2022: 49%
Slide 5: Q4 2023 Revenue
Q4 2023 Revenue 5
Slide 6: Q4 2023 Broad-based growth across businesses and regions
Q4 2023 Growth by Business Unit* Group 6.4% Orthopaedics 4.9% Broad-based $576m Sports Med & ENT growth across $462m 7.1% businesses and AWM $420m 7.8% regions Growth by Region* Total revenues of $1,458m +6.4% underlying Group 6.4% +6.8% reported US $788m 6.2% Other Established Markets 6.1% $420m Em
Slide 7: Orthopaedics: Foundations set for further improvement
Orthopaedics Foundations set for further improvement Revenue ($m) +4.9% $549m $576m +5.8% 148 139 Revenue of $576m: 26 +19.0% 31 Knees: US -3.8%, OUS +14.1% 150 155 +4.9% underlying* +3.6% Hips: US +1.1%, OUS +6.9% +4.9% reported 234 +3.6% 242 Q4'22 Q4'23 Knees Hips Other Recon** T&E Q4 sales factor
Slide 8: Sports Medicine and ENT: Consistently strong multi-year growth
Sports Medicine and ENT Consistently strong multi-year growth Revenue ($m) +7.1% $430m $462m 45 41 +10.7% Revenue of $462m: 154 +3.7% 161 +7.1% underlying* +7.3% reported 235 +8.8% 256 Q4'22 Q4'23 SMJR AET ENT Q4 sales factors Future drivers ◊ • Further market penetration of REGENETEN and developmen
Slide 9: Advanced Wound Management: Benefitting from broad portfolio
Advanced Wound Management Benefitting from broad portfolio Revenue ($m) +7.8% $420m $386m 86 74 +14.9% Revenue of $420m: +12.5% 149 +7.8% underlying* 133 +9.0% reported 179 +1.4% 185 Q4'22 Q4'23 AWC AWB AWD Q4 sales factors Future drivers • AWC growth driven primarily by foam dressings and anti-infe
Slide 10: FY 2023 Financials
FY 2023 Financials 10
Slide 11: FY revenue growth by Business Unit
FY revenue growth by Business Unit $m (39) Revenue ($m) 2,214 1,729 1,606 5,549 Reported growth 4.8% 8.8% 6.2% (0.8%) 6.4% Underlying growth 5.7% 10.0% 6.4% 7.2% 11
Slide 12: FY trading income statement
FY trading income statement FY 2023 FY 2022 Reported $m $m growth Revenue 5,549 5,215 6.4% Cost of goods sold (1,626) (1,511) Gross profit 3,923 3,704 5.9% Gross profit margin 70.7% 71.0% Selling, general and admin (2,653) (2,503) 6.0% Research and development (300) (300) (0.1)% Trading profit 970 9
Slide 13: FY 2023 trading margin bridge
FY 2023 trading margin bridge FY 2023: +20bps yoy H2 2023: +200bps yoy 13
Slide 14: FY operating profit and EPSA
FY operating profit and EPSA FY 2023 FY 2022 Reported $m $m growth IFRS operating profit 425 450 (5.4%) IFRS operating profit margin 7.7% 8.6% Adjusted earnings per share ("EPSA") 82.8¢ 81.8¢ 1.3% Earnings per share ("EPS") 30.2¢ 25.5¢ 18.2% Dividend per share 37.5¢ 37.5¢ - 14
Slide 15: FY cash flow
FY cash flow Trading cash conversion 65% FY 2023 FY 2022 $m $m Trading profit 970 901 Share based payment 39 40 Depreciation and amortisation 375 392 Lease liability repayments (52) (54) Capital expenditure (427) (358) Movements in working capital and other (270) (477) Trading cash flow 635 444 Trad
Slide 16: Inventory days improved in H2 2023
Inventory days improved in H2 2023 Total monthly inventory and DSI* $2,411m $2,395m $2,205m Group inventory and DSI began to fall in H2 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Inventory DSI DSI broadly unchanged for 2023 overall Orthopaedics monthly inventory and DSI Inventory for all business units fall
Slide 17: Strong balance sheet
Strong balance sheet Leverage 2.0x 2.1x ratio: $m 17 Net debt includes lease liabilities
Slide 18: 2024 outlook
2024 outlook • Targeting underlying revenue growth of 5-6%: • Orthopaedics improvement from better execution in US Recon, and rollout of key launch products • Continued strong performance in Sports ex-China and AWM; headwind from Sports VBP • Trading margin of at least 18.0%: • Margin expansion driv
Slide 19: 2024 progress sets up for mid-term margin delivery
2024 progress sets up for mid-term margin delivery At least 2025 20% influences: At least 18% 17.5% • Productivity and 12PP savings • Revenue leverage • Manufacturing network Similar to savings flow through to c. (30)bps P&L 2023 c. (70)bps • Ongoing but moderating input cost inflation • VBP impact
Slide 20: 12-Point Plan update and strategy
12-Point Plan update and strategy 20
Slide 21: 12-Point Plan outcomes on track overall
12-Point Plan outcomes on track overall Delivery at end of 2023 Better implant availability Rewire Orthopaedics Win market share Streamline our recon Fixing Initiatives commercial delivery with our technology portfolio Improved asset utilisation Orthopaedics 1-5 1 initiative 3 initiatives T&E, CORI
Slide 22: Ongoing execution improvements in Orthopaedics
Ongoing execution improvements in Orthopaedics Orthopaedics challenges Implant and capital availability narrowed in 2023 continuing to improve Implant availability approaching goal: Key priorities: Peer relative US Ortho non-set LIFR**(%) 2023 revenue performance* Target US OUS Bring set deployment
Slide 23: Higher growth underpinned by innovation delivery
Higher growth underpinned by innovation delivery New evidence and launches for existing platforms Underlying revenue growth 2016-23 Final results of REGENETEN RCT*: Significantly lower re-tear rates at 12 months: 8.3% vs Historic growth COVID disruption Consistently higher growth 25.8% (p=0.01) for
Slide 24: Mid-term growth uplift across multiple segments
Mid-term growth uplift across multiple segments Moving to higher mid-term growth vs history Performance drivers Highlighted projects Share gain in Plates & Screws Trauma & Extremities EVOS, AETOS Expansion into Shoulder replacement Other Reconstruction Accelerated robotics adoption and deployments C
Slide 25: Summary
SN Summary ,- N
Slide 26: Technical guidance
Technical guidance February 2024 Foreign exchange and acquisitions Translational FX impact on revenue growth(1) c.(0.4)% Acquisition impact on revenue growth - Non-trading items Restructuring costs c. $95-100m Acquisition and integration $5-10m European Medical Device Regulation (MDR) $10-15m compli
Slide 27: Q4 consolidated revenue analysis by Business Unit
Q4 consolidated revenue analysis by Business Unit Q4 Q4 Reported Underlying Acquisitions/ Currency 2023 2022 Growth growth disposals impact $m $m % % % % Orthopaedics 576 549 4.9% 4.9% - 0.0% Knee Implants 242 234 3.6% 3.6% - 0.0% Hip Implants 155 150 3.0% 3.6% - (0.6%) Other Reconstruction 31 26 19
Slide 28: FY consolidated revenue analysis by Business Unit
FY consolidated revenue analysis by Business Unit FY FY Reported Underlying Acquisitions/ Currency 2023 2022 Growth growth disposals impact $m $m % % % % Orthopaedics 2,214 2,113 4.8% 5.7% - (0.9%) Knee Implants 940 899 4.7% 5.5% - (0.8%) Hip Implants 599 584 2.5% 3.8% - (1.3%) Other Reconstruction
Slide 29: Quarterly revenue analysis by Business Unit
Quarterly revenue analysis by Business Unit 2022 2023 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth % % % % % % % % % % Orthopaedics 2.6 (1.1) 2.1 4.1 1.9 3.9 5.8 8.3 4.9 5.7 Knee Implants 12.2 2.7 7.4 5.5 6.8 5.0 7.8 5.7 3.6 5.5 Hi
Slide 30: Quarterly revenue analysis by region
Quarterly revenue analysis by region 2022 2023 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 FY Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth % % % % % % % % % % US 3.1 2.0 6.0 4.8 4.0 11.8 6.3 7.2 6.2 7.8 Other Established Markets(1) 5.9 0.0 0.4 7.3 3.3 7.0 8.5 7.8 6.1 7.3 Established M
Slide 31: Full year EPSA
Full year EPSA FY 2023 FY 2022 Reported $m $m growth Trading profit 970 901 7.6% Net interest payable (98) (65) Other finance costs (1) (1) Share of results from associates (9) 17 Adjusted profit before tax 862 852 1.1% Taxation on trading result (140) (139) Adjusted attributable profit 722 713 1.2%
Slide 32: Trading days per quarter
Trading days per quarter Q1 Q2 Q3 Q4 Full year 2021 64 64 63 60 251 2022 64 63 63 60 250 2023 64 63 63 60 250 2024 63 64 63 62 252 2025 62 63 63 63 251 32