Smith & Nephew plc · LSE:SN.
Smith & Nephew — Investor Presentation (December 2017)
38 slides from Smith & Nephew's investor presentation, December 2017
Slide 1: Investor Presentation November - December 2017
Investor Presentation Supporting healthcare November - December 2017 professionals for over 150 years
Slide 2: Forward looking statements
Forward looking statements This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as “aim”, “plan”, “in
Slide 3: About Smith & Nephew
About Smith & Nephew 100 Smith & Nephew is a diversified advanced medical technology FTSE100 A constituent of the UK’s FTSE100, our shares are traded Shares S&N has paid a dividend to shareholders on its Ordinary business that supports in London and New York. Shares every year since 1937. healthcare
Slide 4: Today
Smith & Nephew is a company of pioneers, extending access to advanced medical technologies and enabling better outcomes for patients globally. We’ve been doing this for over 150 years. 1856 1896 1914 50 days after the outbreak of WW1, FROM Thomas James Smith Horatio Nelson Smith entered we received
Slide 5: Our business
Our business PICO™ Negative Pressure Wound Therapy ALLEVYN™ Life Advanced Foam Wound Dressings Advanced Wound Collagenase Advanced Wound Devices JOURNEY™ II BCS SANTYL™ Ointment Care Bi-Cruciate Enzymatic debrider Stabilised Knees Knee System Advanced Wound $4.7bn Bioactives NAVIO™ Surgical Other Su
Slide 6: Our markets…
Our markets… We have a balanced global footprint… 6
Slide 7: Our leading position
Our leading position Convatec Other Zimmer Arthrex Other DePuy 5-9% Biomet 29-33% 34-36% Mitek** 12-16% Stryker Advanced Acelity 19-21% Hip & Knee Sports Wound 17-21% Implants Medicine* Management Other Molnlycke 9-13% DePuy Stryker Synthes** 9-13% 20-22% 9-11% 20-24% 14-18% Data: 2016 Estimates gen
Slide 8: Our market growth drivers
Our market growth drivers Emerging Markets Demographics Technology Prevalence Economics Lifestyle 8
Slide 9: Market realities and opportunities
Market realities and opportunities Procedure demand Still room for Ability to pay continues New business models Environment continues to increase innovation to decrease in slowly emerging, Complexities established markets but fragmented Demographic Fuelled by Demonstrate Austerity, Alternative, Sync
Slide 10: Our performance
Our performance Revenue Trading Profit Trading cash conversion $4,669m +2%* $1,020m -4%* 21.8% margin 75% 4,669 104% 4617 4,634 1099 1055 87% 89% 85% 1020 74% 75% 4,351 4,270 987 4,137 961 965 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 Adjusted earnings
Slide 11: Our customers
Our customers Nurses, Nurse specialists Healthcare systems, Retail consumers, Procurement groups Patients Payers, Surgeons Administrators Physicians, GPs 11
Slide 12: Strategic priorities
Strategic priorities Winning Accelerating Innovating Simplifying Supplement in Established development in for value and improving organic Markets Emerging Markets our operating growth through model acquisitions 12
Slide 13: Capital allocation framework
Capital allocation framework 1 Reinvest for 2 Progressive 3 Acquisitions in 4 Return excess organic growth dividend policy line with strategy To shareholders Maintain strong balance sheet to ensure solid investment grade credit metrics 13
Slide 14: Q3 revenue growth of 3% underlying
Q3 revenue growth of 3% underlying Geographical growth Revenue split Product franchise growth Sports Medicine 8% Joint Repair 2% Arthroscopic -3% Enabling Tech US Trauma & -2% Extremities Other surgical 6% 0% Knees 6% 1% Other Est Hips -1% AWC 9% 7% Emerging AWB 8% AWD 0% 5% 10% -5% 0% 5% 10% Note:
Slide 15: YTD revenue growth of 3% underlying
YTD revenue growth of 3% underlying Geographical growth Revenue split Product franchise growth Sports Medicine Joint Repair 7% Arthroscopic 2% Enabling Tech -3% Trauma & US Extremities 3% Other surgical 8% 0% Knees 5% 0% Other Est Hips 1% 11% AWC 0% Emerging AWB 12% AWD 0% 5% 10% 15% -5% 5% 15% Note
Slide 16: Further review of cost base
Further review of cost base Manufacturing, Warehousing and General & Admin expenses Distribution • leverage investments in systems • simplify and streamline and functions • meet future volume demand • move closer to best-in-class • maintain focus on quality expense ratios Sales force effectiveness •
Slide 17: 2017 guidance & medium term outlook
2017 guidance & medium term outlook Sales growth(1): Trading profit margin: Tax rate(3): 2017 20-70bp improvement Around 22% Underlying: 3% to 4%(2) Underlying sales growth: Trading profit margin: Tax rate(3): Medium - Consistent growth above Ongoing improvement Around 25% term market (1) We expect
Slide 18: 2011-2016: our journey here
2011-2016: our journey here We invested in our growth platforms We simplified the Group structure and our infrastructure and invested in talent • Stepped up R&D investment • Streamlined from four independent silos to a Organic • Built our presence in Emerging single group structure investments Marke
Slide 19: 2017–2018: driving improved execution
2017–2018: driving improved execution A structure fit to implement Tools to execute better Ongoing improvement our strategy programmes • Organisational structure is fully • Improve salesforce excellence • Research & Development in place • Drive better pricing • Strengthening supply chain • Commercia
Slide 20: Innovation remains at the heart of Smith & Nephew
Innovation remains at the heart of Smith & Nephew Driving innovation Strong product lines Global R&D function • JOURNEY◊ II Knee System • REDAPT Revision Hip System • Single group R&D strategy with focused organisation • NAVIO◊ Surgical System • Our comprehensive Joint Repair portfolio • Prioritisat
Slide 21: Innovation in robotics-assisted surgery
Innovation in robotics-assisted surgery Total Knee application …robotics becoming Other highlights expands opportunity mainstream • FDA approval for Total Knee • 2016: >50% growth indication for our JOURNEY • Improving utilisation per II, GENESIS◊ II and LEGION installed unit platforms • Internation
Slide 22: Rotation Medical acquisition
Rotation Medical acquisition • a novel tissue regeneration technology for shoulder rotator cuff repair • >650,000* rotator cuff procedures annually in US • helps tendons heal by inducing growth of new tendon-like tissue, offering the potential to prevent tear progression and reduce the incidence of
Slide 23: A stronger Smith & Nephew
A stronger Smith & Nephew A fundamentally …in a unique, strong, …with multiple drivers of transformed Group… global position… higher growth • Sports Medicine leadership • Innovative Knee portfolio including robotics • PICO changing the NPWT landscape • Emerging Markets • M&A optionality 23
Slide 24: Future – a rebalanced Smith & Nephew
Future – a rebalanced Smith & Nephew 2011* Future Lower Higher Growth Growth 65% 65% Improving Strengthening Creating Higher Lower Growth Growth 35% 35% Proportion of Revenue Higher Growth: Sports Medicine Joint Repair, Trauma & Extremities, Advanced Wound Bioactives and Devices, Emerging markets (a
Slide 25: Appendices
x smith&nephew Appendices
Slide 26: 2017 technical guidance
2017 technical guidance Guidance As of July 2017 Update Restructuring costs Nil No change Acquisition and integration costs c. $5m No change Amortisation of acquisition intangibles c. $120m No change Income from associates ~$0m No change Net interest $50m - $55m No change Other finance costs Similar
Slide 27: Franchise revenue analysis
Franchise revenue analysis 2016 2017 Full Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year Growth Growth Growth Growth Growth Growth Growth Growth Revenue % % % % % % % % $m Sports Medicine, Trauma & OSB 5 4 4 1 3 4 3 2 462 Sports Medicine Joint Repair 11 10 8 5 8 7 5 8 153 Arthroscopic Enabling Technologies 4 4 2 (3) 2 (
Slide 28: Regional revenue analysis
Regional revenue analysis 2016 2017 Full Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year Growth Growth Growth Growth Growth Growth Growth Growth Revenue % % % % % % % % $m Geographic regions US 8 4 2 0 3 1 2 2 545 Other Established Markets 4 1 0 (3) 0 1 -1 0 412 Established Markets 6 3 1 (1) 2 1 1 1 957 Emerging Markets
Slide 29: H1 2017 trading income statement
H1 2017 trading income statement 2017 ($m) Growth Revenue 2,336 0% Cost of goods sold -603 Gross profit 1,733 2% Gross profit margin 74.2% +140bps Selling, general and admin -1,133 Research and development -107 Trading profit 493 2% Trading profit margin 21.1% +30bps 29
Slide 30: Trading income statement Half and full year
Trading income statement Half and full year H1 H2 Full Year 2016 2015 2016 2015 2016 2015 $m $m $m $m $m $m Revenue 2,328 2,272 2,341 2,362 4,669 4,634 Cost of goods sold (632) (566) (640) (577) (1272) (1,143) Gross profit 1,696 1,706 1,701 1,785 3,397 3,491 Gross profit margin 72.8% 75.1% 72.7% 75.
Slide 31: H1 2017 EPSA
H1 2017 EPSA 2017 Growth $m % Trading profit 493 2% Net interest payable -25 Other finance costs -4 Adjusted profit before tax 464 2% Taxation -88 Adjusted attributable profit 376 13% Number of shares – million 874 Adjusted earnings per share ("EPSA") 43.0¢ 15% Earnings per share ("EPS") 37.0¢ 37% 3
Slide 32: EPSA and EPS Half and full year
EPSA and EPS Half and full year H1 H2 Full Year 2016 2015 2016 2015 2016 2015 $m $m $m $m $m $m Trading profit 483 512 537 587 1,020 1,099 Net interest payable (24) (21) (22) (20) (46) (41) Other finance costs (6) (7) (5) (6) (11) (13) Share of results from associate - (3) 2 (2) 2 (5) Adjusted profi
Slide 33: H1 2017 trading cash flow
H1 2017 trading cash flow 2017 2016 Growth $m $m % Trading profit 493 483 2% Share based payment 15 14 Depreciation and amortisation 154 147 Capital expenditure -178 -174 Movements in working capital and other -157 -215 Trading cash flow 327 255 28% Trading cash conversion 66% 53% Restructuring, leg
Slide 34: Free cash flow Half and full year
Free cash flow Half and full year H1 H2 Full Year 2016 2015 2016 2015 2016 2015 $m $m $m $m $m $m Trading profit 483 512 537 587 1,020 1,099 Share based payment 14 13 13 16 27 29 Depreciation and amortisation 147 148 153 159 300 307 Capital expenditure (174) (161) (218) (197) (392) (358) Movements i
Slide 35: Trading days per quarter
Trading days per quarter Q1 Q2 Q3 Q4 Full Year 2016 64 64 63 60 251 2017 64 63 63 60 250 2018 63 64 63 61 251 • Year-on-year differences in the number of trading days typically impacts our surgical businesses in the Established Markets more than our wholesaler and distributor-supported businesses. •
Slide 36: Management
Management Olivier Bohuon Chief Executive Officer Olivier joined the Board and was appointed Chief Executive Officer in April 2011. He resigned as a Member of the Nomination & Governance Committee on 3 February 2016. Olivier holds a doctorate from the University of Paris and an MBA from HEC, Paris.
Slide 37: Investor Relations Contacts
Investor Relations Contacts Ingeborg Øie Ghazaleh Mahdizadeh VP, Investor Relations Investor Relations Manager E: ingeborg.oie@smith-nephew.com E: ghazaleh.mahdizadeh@smith-nephew.com T: +44 (0) 207 960 2285 T: +44 (0) 207 960 2339 Nick Fridberg Olivia Balogun Strategic Planning & Investor Relations
Slide 38: Supporting healthcare professionals for over 150 years
+“ smith&nephew Supporting healthcare professionals for over 150 years
Smith & Nephew — Investor Presentation (December 2017) on 6ix