Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q2 2017 Earnings Presentation
35 slides from Smith & Nephew's earnings presentation, July 2017
Slide 1: Investor Presentation July – September 2017
Investor Presentation July – September 2017
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”, “i
Slide 3: About Smith & Nephew
About Smith & Nephew 100 Smith & Nephew is a diversified advanced medical technology FTSE100 A constituent of the UK’s Shares S&N has paid a dividend to FTSE100, our shares are traded shareholders on its Ordinary business that supports in London and New York. Shares every year since 1937. healthcare
Slide 4: Today: a company of pioneers for over 150 years
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. 50 1896 1914 1856 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 Bioactives NAVIO™ Surgical System Other Su
Slide 6: Our markets…
Our markets… We have a balanced global footprint… 15,000 Employees
Slide 7: Our leading position
Our leading position Zimmer Arthrex Convatec Other Biomet 29-33% Other 5-9% 34-36% DePuy Mitek** 12-16% Stryker Acelity 19-21% Advanced 17-21% Hip & Knee Sports Wound 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 87% 89% 85% 1055 74% 75% 4,351 1020 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, Administrators Surgeons 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: 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 * Excluding Clinical Therapies Higher Growth: Sports Medicine Joint Repair, Trauma & Extremities, Advanced Wound Bioactives a
Slide 15: Q2 revenue growth of 3% underlying
Q2 revenue growth of 3% underlying* Geographical growth Revenue split Product franchise growth Sports Medicine 5% Joint Repair 2% Arthroscopic Enabling Tech -4% US Trauma & Extremities 7% Other Surgical 11% Knees 4% -1% Other Est Hips -1% 2% AWC 0% 13% Emerging AWB 14% AWD -5% 0% 5% 10% 15% -5% 0% 5
Slide 16: H1 2017 revenue growth of 3% underlying
H1 2017 revenue growth of 3% underlying Geographical growth Revenue split Product franchise growth Sports Medicine 6% Joint Repair Arthroscopic Enabling Tech 2% US -3% Trauma & 6% Extremities Other Surgical 9% Knees 5% 0% Est OUS Hips 0% 2% AWC -4% Emerging AWB 12% 15% AWD 0% 5% 10% 15% -5% 5% 15% U
Slide 17: 2017 guidance reiterated; ongoing tax rate 1% lower
2017 guidance reiterated; ongoing tax rate 1% lower Sales growth: Trading profit margin: Tax rate(2): 2017 Underlying: 3% to 4% 20-70bp improvement Around 22% Reported(1): 2.5% to 3.5% (previously: around 26%) Medium - Underlying sales growth: Trading profit margin: Tax rate(2): term Consistent grow
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 • Commerc
Slide 20: Focus on Execution in Established Markets
Focus on Execution in Established Markets A more agile structure armed with the right tools… A structure fit to implement our Tools and initiatives to execute strategy better • Organisational structure fully in place • Improve salesforce excellence • Commercial operations simplified • Drive better p
Slide 21: Emerging Markets - a pillar of higher growth
Emerging Markets - a pillar of higher growth Return to sustainable double digit growth Growth potential supported by secular Emerging Markets returned to growth* growth trends 25% • China: double digit growth expected for 20% full year with improved channel 15% management 10% • Gulf States: Tender o
Slide 22: 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 • Prioritisation and harmonisation of • Our comprehensiv
Slide 23: Innovation in robotics-assisted surgery
Innovation in robotics-assisted surgery NAVIO expansion continues at pace… Total Knee application …robotics becoming Other highlights mainstream expands opportunity • FDA approval for Total • 2016: >50% growth Knee indication for our • Improving utilisation per JOURNEY II, GENESIS◊ II installed unit
Slide 24: A stronger Smith & Nephew
A stronger Smith & Nephew • iple growth drivers 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 op
Slide 25: Appendices
Appendices >t smith&nephew 25
Slide 26: Franchise revenue analysis
Franchise revenue analysis 2016 2017 Full Q1 Q2 Q3 Q4 Q1 Q2 Year Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Sports Medicine, Trauma & OSB 5 4 4 1 3 4 480 3 Sports Medicine Joint Repair 11 10 8 5 8 7 152 5 Arthroscopic Enabling Technologies 4 4 2 (3) 2 (1) 151 (4) Traum
Slide 27: Regional revenue analysis
Regional revenue analysis 2016 2017 Full Q1 Q2 Q3 Q4 Q1 Q2 Year Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Geographic regions US 8 4 2 0 3 1 582 2 Other Established Markets 4 1 0 (3) 0 1 408 -1 Established Markets 6 3 1 (1) 2 1 990 1 Emerging Markets (6) (2) 6 3 0 12 2
Slide 28: H1 trading income statement
H1 trading income statement 2017 Growth $m Revenue 2,336 0% 3% underlying growth 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 28
Slide 29: 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% 7
Slide 30: 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 pro
Slide 31: 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
Slide 32: 2017 technical guidance
2017 technical guidance Guidance As of February 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 Sim
Slide 33: 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 34: 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 Smith & Nephew plc Olivia Balogun 15 Adam Street Investor Relations
Slide 35: Supporting healthcare professionals for over 150 years
a! ° 74 smith&nephew Supporting healthcare professionals for over 150 years