Smith & Nephew plc · LSE:SN.
Smith & Nephew — Smith+Nephew — FY2021 Earnings Presentation
40 slides from Smith & Nephew's earnings presentation, March 2022
Slide 1: Investor Presentation January – March 2022
Investor Presentation January – March 2022
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: Our history
Our history 1914 1856 1896 Days after the outbreak of WW1, Thomas James Smith Horatio Nelson Smith we received an order to provide opened a chemist shop in Hull, entered into apartnership surgical and field dressing 1856 UK and develops a new method with his uncleforming supplies to French From 50 S
Slide 4: FTSE 100 Shares $5.2bn
100 FTSE 100 A constituent of the UK’s FTSE 100, with ADRs Shares S+N has a progressive dividend policy, and has Smith+Nephew is a traded on the New York paid a dividend every portfolio medical Stock Exchange year since 1937 technology business that has been trading for over 160 years, and operates
Slide 5: A portfolio medical technology business
A portfolio medical technology business ALLEVYN◊ LIFE PICO◊ Advanced Advanced Negative Pressure Advanced Foam Wound Dressings Wound Care Wound Devices Wound Therapy JOURNEY◊ II BCS Bi-Cruciate Collagenase Advanced Stabilised SANTYL◊ Ointment Wound Knee System Knees Enzymatic debrider Bioactives ENT
Slide 6: Leading positions in attractive markets
Leading positions in attractive markets Sports Medicine Orthopaedics Advanced Wound Hip and Knee Implants Trauma and Extremities Management $5.3bn $14.1bn $12.2bn $10.3bn +13% 2021 growth rate +11% 2021 growth rate +10% 2021 growth rate +11% 2021 growth rate 2017-19 2017-19 2017-19 2017-19 +5% avera
Slide 7: Our performance
Our performance Revenue Trading profit Trading cash conversion $5,212m +10.3%* $936m 18.0% margin 88% 5212 1169 5138 1123 1048 101% 4904 936 90% 88% 85% 83% 4765 683 4560 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Adjusted earnings per share (EPSA) Dividend per share
Slide 8: Advancing the Strategy for Growth in 2022
Advancing the Strategy for Growth in 2022 8
Slide 9: Strategy for Growth
Strategy for Growth An inflection point – transforming to a structurally higher growth company Innovation led Productivity & Financial performance Capital Allocation Commercial commitment discipline • Existing strong portfolio Excellence driven • Pipeline of disruptive • Consistent 4-6% organic • In
Slide 10: Solid long-term demand drivers intact
Solid long-term demand drivers intact Prevalence Growth in lifestyle related health conditions Emerging markets Economic development driving healthcare access Lifestyle Higher levels of physical activity later in life Decentralised care Shift to outpatient settings accelerated by COVID Demographics
Slide 11: Strategy for Growth
Strategy for Growth Three simple strategic imperatives Transform our business through Transform innovation and acquisition Accelerate profitable growth through Accelerate prioritisation and customer focus Strengthen the foundation to serve Strengthen customers sustainably and simply 11
Slide 12: Delivering our strategic imperatives
Delivering our strategic imperatives Key value builders driving the growth strategy Strengthen Accelerate Transform • Optimise manufacturing and supply Productivity • Efficiencies through simplification • Maximise strong current portfolio Commercial execution • Tailor commercial approach to evolving
Slide 13: Productivity: Ongoing opportunities
Productivity: Ongoing opportunities Driving sustained improvements Activities Timing Addressing supply issues: • Progress on staffing and backorders in 2021, Resolving and mitigating staffing, logistics, gradual improvement expected through H1 2022 material shortage challenges • Responding to extern
Slide 14: Commercialising the 2021 pipeline
Commercialising the 2021 pipeline New growth drivers added across the franchises Key projects delivered in 2021* Recon & Robotics New Hip and CORI Surgical System LEGION CONCELOC RI.HIP Knee Instruments (EU, AUS) Cementless Total Knee Navigation on System CORI Trauma & Extremities EVOS◊ LARGE SMART
Slide 15: Deliver next wave of innovation across the portfolio
Deliver next wave of innovation across the portfolio Balance of incremental innovation and disruptive technology Key 2022 projects* Hip & Knee implants New Knee instruments Single use instrumentation for TKA RI.HIP MODELER Advanced planning application for Hip surgery OrthopaedicsStaffing Robotics &
Slide 16: Engage Surgical: Continuing the bolt-on M&A strategy
Engage Surgical: Continuing the bolt-on M&A strategy Furthering differentiation of the knee portfolio • Transforms the standard of care: • The only cementless partial knee available in the US • Expands in a high-growth category: • US partial knee market c.$300m, growing 4%; cementless expected to ta
Slide 17: 2022 outlook
2022 outlook • Targeting underlying revenue growth of 4.0%-5.0%, with stronger growth in H2: − Continued mitigation of global supply chain challenges − Continued Omicron impact into January − Improving momentum in Orthopaedics and ENT through the year • Trading margin expansion of around 50bps: − 20
Slide 18: Trading margin components
Trading margin components Strengthen Accelerate Transform Enhanced operating leverage from higher At or above growth 21% External market dynamics Around 50bps 18.0% c. -60bps expansion c. -125 bps Note: Bars are directional and not to scale 18
Slide 19: Revised capital allocation policy
Revised capital allocation policy Smith+Nephew will use the following capital allocation framework to prioritise the use of cash: 1. Invest 2. Acquire • in innovation to drive organic growth; Invest Acquire • new technologies and expand in higher growth • to meet our segments, that have a sustainabi
Slide 20: Q4 and FY 2021 Financials
Q4 and FY 2021 Financials 20
Slide 21: Q4 2021: Growth despite COVID spike and trading days
Q4 2021: Growth despite COVID spike and trading days* $1,346m, +1.5% reported, +0.3% underlying** Franchise growth Geographical growth Group 0.3% Group 0.3% Orthopaedics US -2.6% -0.4% $552m $708m Sports Med & ENT Other Established Markets 2.4% -2.4% $416m $409m AWM Emerging Markets 2.4% 8.0% $378m
Slide 22: Orthopaedics
Orthopaedics $552m: +1.2% reported, -2.6% underlying* Sales factors • Omicron outbreaks, China destocking, supply Revenue ($m) constraints remained headwinds in quarter -2.6% • Core trauma business remained more resilient $545m $552m • Other recon growth driven by robotics sales 130 -7.4% 144 Growth
Slide 23: Sports Medicine & ENT
Sports Medicine & ENT $416m: +2.1% reported, +2.4% underlying* Sales factors • Sports Medicine procedures impacted by Omicron late in the quarter Revenue ($m) • Recent launches performing strongly across Joint Repair and AET +2.4% $408m $416m • Adult ENT business above pre-COVID levels +33.0% 36 Gro
Slide 24: Advanced Wound Management
Advanced Wound Management $378m: +1.5% reported, +2.4% underlying* Sales factors • Double-digit US AWC growth, slower quarter in Europe Revenue ($m) ◊ • Strong performance of SANTYL ; sequential +2.4% improvement for skin substitutes $373m $378m • NPWT growth driven by US and APAC region Growth refl
Slide 25: Full year trading income statement
Full year trading income statement 2021 2020 Reported $m $m growth Revenue 5,212 4,560 14.3% Cost of goods sold (1,507) (1,375) Gross profit 3,705 3,185 16% Gross profit margin 71.1% 69.9% Selling, general and admin (2,459) (2,223) Research and development (310) (279) Trading profit 936 683 37% Trad
Slide 26: Full year revenue growth
Full year revenue growth Balanced growth contributions across franchises Reported growth 12.5% 17.0% 14.2% 14.3% Underlying growth 6.4% 14.6% 11.8% 10.3% 26
Slide 27: Full year trading margin vs 2020
Full year trading margin vs 2020 Operating leverage offsetting cost headwinds +390bps -40bps -30bps -20bps 27
Slide 28: Full year operating profit and EPSA
Full year operating profit and EPSA 2021 2020 Reported $m $m growth IFRS operating profit 593 295 101% IFRS operating profit margin 11.4% 6.5% Adjusted earnings per share ("EPSA") 80.9¢ 64.6¢ 25% Earnings per share ("EPS") 59.8¢ 51.3¢ 17% Dividend per share 37.5¢ 37.5¢ - 28
Slide 29: Full year cash flow
Full year cash flow Trading cash conversion at 88% 2021 2020 $m $m Trading profit 936 683 Share based payment 41 26 Depreciation and amortisation 395 397 Lease liability repayments (59) (55) Capital expenditure (408) (443) Movements in working capital and other (77) 82 Trading cash flow 828 690 Trad
Slide 30: Strong balance sheet
Strong balance sheet Leverage 1.8x 1.6x ratio: 30 Net debt includes lease liabilities
Slide 31: Appendices
Appendices 31
Slide 32: Technical guidance
Technical guidance February 2022 Foreign exchange and acquisitions Translational FX impact on revenue growth(1) c. -1.4% Acquisition impact on revenue growth - Non-trading items Restructuring costs $100-110m Acquisition and integration costs $20-30m European Medical Device Regulation (MDR) complianc
Slide 33: Franchise revenue analysis
Franchise revenue analysis 2020 2021 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year Full Year Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % % % $m % Orthopaedics (8.3) (34.0) (2.8) (10.2) (14.0) 1.6 43.4 (5.9) (2.6) 2,156 6.4 Knee Implants (10.6) (46.9) (9.
Slide 34: Regional revenue analysis
Regional revenue analysis 2020 2021 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year Full Year Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % % % $m % US (4.7) (31.8) 0.9 (4.9) (10.1) 7.1 51.3 (2.5) (0.4) 2,658 10.5 Other Established Markets(1) (6.3) (30.8) (6
Slide 35: Q4 consolidated revenue analysis
Q4 consolidated revenue analysis Q4 Q4 Reported Underlying Acquisitions/ Currency 2021 2020 growth growth disposals impact Consolidated revenue by franchise $m $m % % % % Orthopaedics 552 545 1.2 (2.6) 4.6 (0.8) Knee Implants 232 237 (2.0) (1.1) - (0.9) Hip Implants 151 162 (7.0) (6.1) - (0.9) Other
Slide 36: Full year consolidated revenue analysis
Full year consolidated revenue analysis FY FY Reported Underlying Acquisitions/ Currency 2021 2020 growth growth disposals impact Consolidated revenue by franchise $m $m % % % % Orthopaedics 2,156 1,917 12.5 6.4 4.3 1.8 Knee Implants 876 822 6.6 5.1 - 1.5 Hip Implants 612 567 7.8 5.8 - 2.0 Other Rec
Slide 37: Full year EPSA
Full year EPSA 2021 2020 Reported $m $m growth Trading profit 936 683 37% Net interest payable (74) (56) Other finance costs (9) (5) Share of results from associates 4 14 Adjusted profit before tax 857 636 35% Taxation on trading result (147) (72) Adjusted attributable profit 710 564 26% Weighted av
Slide 38: Trading days per quarter
Trading days per quarter Q1 Q2 Q3 Q4 Full year 2019 63 63 63 62 251 2020 62 63 63 64 252 2021 64 64 63 60 251 2022 64 63 63 60 250 38
Slide 39: Our sustainability strategy
Our sustainability strategy People Planet Products Creating a lasting positive impact on our A medical technology business with a Innovating sustainably communities positive impact 8,000 hours of employee volunteering in the All sites in Memphis (US) began sourcing Started to develop our packaging r
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