Smith & Nephew plc · LSE:SN.
Smith & Nephew — FY2015 Earnings Presentation
42 slides from Smith & Nephew's earnings presentation, March 2016
Slide 1: Investor Presentation February - March 2016
Investor Presentation 1 February - March 2016
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 • Smith & Nephew is a diversified advanced medical technology business that supports healthcare professionals in more than 100 countries to improve the quality of life for their patients. • We have c.15,000 employees around the world. • Annual sales in 2015 were more than $4.6 b
Slide 4: Our business
Our business ALLEVYN™ Life Advanced Foam Wound Dressings PICO™ Negative Pressure Wound Therapy Collagenase SANTYL™ Ointment Enzymatic debrider AWC AWD JOURNEY™ II BCS Bi-Cruciate Stabilised Knee RAPID RHINO◊ System NASASTENT◊ AWB Dissolvable Nasal Dressing Knees Other Surgical $4.6bn Businesses reve
Slide 5: Our global presence
Our global presence 18.56 winpesecen ne uc a 7 v4 Albania Georgia Portugal Austria Germany Romania / Belarus Greece Russia Belgium Serbia oo Bulgari aa ~~ Slovaki Croatia i e Czech Repul i Denmark ‘Singapore South Korea Sri Lanka Taiwan Thailand Vietnam Paraguay Peru Puerto Rico Uruguay Venezuela So
Slide 6: Our leading position
Our leading position Convatec Other 8% 15% Zimmer Other Acelity Biomet 36% 20% Stryker Hip & Knee 35% Advanced 19% Implants Wound Other 12% Management Molnlycke Arthrex Stryker 13% 29% 11% 11% Coloplast DePuy Synthes 19% 4% 21% Sports Medicine* Segment Size: $14bn Zimmer Biomet Segment Size: $7bn Gr
Slide 7: Our market growth drivers
Our market growth drivers Demographics Emerging markets Technology Prevalence Lifestyle 7 Economics
Slide 8: Market realities and opportunities
Market realities and opportunities • Procedure demand continues to increase – demographic and disease led – fuelled by expanded access in emerging markets • Still room for innovation – demonstrate clinical benefit or cost reduction • Ability to pay continues to decrease in established markets – aust
Slide 9: Our performance
Our performance Revenue Trading profit Free cash flow $4.62bn +2%* $1,055m +3%* 22.9% margin $308m -5%CAGR 4,617 637 1,055 552 521 527 4,351 4,270 4,137 987 969 308 3,962 961 965 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Adjusted earnings per share (EPSA) Dividend pe
Slide 10: Our customers
Our customers Physicians, Healthcare Retail GPs systems, consumers, Patients Procurement groups Nurses, Nurse specialists Payers, Administrators Surgeons 10
Slide 11: Strategic Priorities
Strategic Priorities • Winning in Established Markets • Accelerating development in Emerging Markets • Innovating for value • Simplifying and improving our operating model • Supplement organic growth through acquisitions 11
Slide 12: Capital allocation framework
Capital allocation framework Reinvest for Progressive Acquisitions Return organic dividend in line with excess to growth policy strategy shareholders 1 2 3 4 Maintain strong balance sheet to ensure solid investment grade credit metrics 12
Slide 13: Future – a rebalanced Smith & Nephew
Future – a rebalanced Smith & Nephew 2011* Future Lower Higher Growth Growth 65% Improving 67% Strengthening Creating Higher Lower Growth Growth 35% 33% Proportion of Revenue Higher Growth: Sports Medicine Joint Repair, ArthroCare, Trauma & Extremities, * Excluding Clinical Therapies Gynaecology, Ad
Slide 14: Group optimisation plan – four levers
Group optimisation plan – four levers Optimising Develop best in class global support functions Functions • Increasing overall Driving efficiency / Drive savings and capability investments Procurement Savings agility • Liberating resources to Simplifying re-invest in Simplify our management structur
Slide 15: Group optimisation plan – financial implications
Group optimisation plan – financial implications • Benefits – generate annual savings of at least $120 million – a four year plan, now ahead of schedule, with annualised benefits of $100m • Restructuring costs – about $150 million costs over four years – As at December 2015, $105m has been incurred
Slide 16: Q4 and Full Year Performance
Q4 and Full Year Performance 16
Slide 17: FY revenue growth of 4% underlying
FY revenue growth of 4% underlying Regional growth Revenue split Product franchise growth Sports Medicine Joint Repair 7% Arthroscopic Enabling Tech 0% 5% US Trauma & 2% Extremities Other Surgical 10% Knees 5% 1% Est OUS Hips 0% AWC 8% 7% Emerging AWB 11% -3% AWD 0% 4% 8% 12% -5% 5% 15% Underlying c
Slide 18: Q4 revenue growth of 5% underlying
Q4 revenue growth of 5% underlying Geographical growth Revenue split Product franchise growth Sports Medicine 9% Joint Repair Arthroscopic Enabling Tech 9% US 3% Trauma & Extremities 0% Other Surgical 13% Knees 6% 2% Hips Est OUS 1% 4% AWC 16% Emerging AWB 2% Excluding China 15% 14% AWD 0% 5% 10% 15
Slide 19: Progress on our Strategic Priorities in 2015
Progress on our Strategic Priorities in 2015 • Strong US dynamic (AWM turn-around, Recon, Sports Med) Established Markets • Europe stabilised • Increased focus on commercial excellence • Strong double digit growth ex China Emerging Markets Shareholder Value • Acquisitions in Russia, Colombia, mid-ti
Slide 20: Our 2016 guidance
Our 2016 guidance Established Markets Revenue growth Emerging Optimising Maintain good underlying growth Markets Cash Innovation Trading margin development Delivering returns Continued margin improvement; through more than offset by FX and Blue Belt capital Simplification allocation framework EPSA g
Slide 21: Strategic Updates: M&A, Innovation, Blue Belt, Recon, Syncera, Emerging Markets
Strategic Updates: M&A, Innovation, Blue Belt Technologies Acquisition, Recon, Syncera and Emerging Markets 21
Slide 22: Building a strong M&A track record
Building a strong M&A track record Enterprise Value: $0.8bn Enterprise Value: $1.5bn Three full years since acquisition First full year since acquisition • Provided scale to our US wound • Integration completed management business • Results tracking to plan • Transaction delivered results ahead of p
Slide 23: Pioneering innovative technologies and models
Pioneering innovative technologies and models Sports Medicine Hip & Knee Wound • Leading knee , hip • VERILAST™ • ALLEVYN™ Life TODAY: and shoulder technology • PICO™ Drive growth with portfolios • JOURNEY™ II family • SANTYL™ differentiated products • COBLATION™ & • ZUK uni knee DYONICS™ • Rotator
Slide 24: Advanced Wound management: Disease lens is driving our view of innovation
Advanced Wound management: Disease lens is driving our view of innovation Care Diagnosis Data Driven Prevention Treatment Coordination & Detection Healthcare & Monitoring • Deep • Point of care • Healing • Clinical • Best-in-class tissue diagnostics technologies algorithms medical injury education d
Slide 25: Blue Belt Technologies and Navio system
Blue Belt Technologies and Navio system • Blue Belt Technologies is a leader in the fast-growing area of robotic-assisted surgical technologies • Navio® surgical system provides robotics-assistance and CT-free intra-operative visualisation, offering – clinical benefits include high degree of implant
Slide 26: Complementary Products and Pipeline
Complementary Products and Pipeline Blue Belt Technologies What Smith & Nephew brings Most successful partner Current Navio System JOURNEY Uni, ZUK offering STRIDE™ Uni Knee Global reach Total knee arthroplasty Established compatible products R&D Revision knee Clinical and marketing strength program
Slide 27: Reconstruction – focused on areas of growth
Reconstruction – focused on areas of growth • Pioneering products – VERILAST◊ is a unique bearing surface – JOURNEY◊ II is designed to provide higher levels of patient satisfaction • Differentiated marketing – speaking to surgeons and their patients – US marketing campaigns with measurable returns •
Slide 28: The Syncera solution
The Syncera solution Value 1 Hip/Knee implant solutions for progressive customers Products from Smith & Nephew addressing the vast Clinically proven 2 majority of primary joint procedures Automation Customer interfaces using innovative technology to 3 reduce cost while improving efficiency Full supp
Slide 29: Successful launch of Syncera
Successful launch of Syncera Milestones reached Early experiences • Moved from pilot to full launch • Targeting of accounts • Reference sites trained and fully • Collaboration operational with Syncera • Opportunities for cross-selling • Customer accounts doing > 3,000 annualised procedures • Bundled
Slide 30: Accelerating development in Emerging Markets
Accelerating development in Emerging Markets Quarterly revenue development 30% SUPPORTIVE MARKET CONTEXT: Revenue as proportion of group (%) • economic growth 25% FY 2015 • higher healthcare spending OUR ACTIONS: 15% 20% • expansion of premium product range Q1 • mid-tier strategy • medical education
Slide 31: Leading in the Emerging Markets
Leading in the Emerging Markets Direct Mid-tier Presence presence Strategic milestones 2011 Today 2011 Today China ✓ ✓ ✓ ✓ Leading position, continued strong growth India ✓ ✓ X ✓ Acquisition of Sushrut-Adler, new factory in 2016 Brazil Acquisition of Politec Saude (AWM) and PCE (ASD), X ✓ X X improv
Slide 32: Mid-tier – new emerging markets business model
Mid-tier – new emerging markets business model… Mid-tier commercial model Independent Mid-tier sales organisation Good quality products Dedicated at lower prices leadership Common shared Different business services model Manufacturing & design efficiency Different service model Separate sales Differ
Slide 33: Appendices
Appendices >¢ smith&nephew 33
Slide 34: Franchise revenue analysis
Franchise revenue analysis 2014 2015 Full Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Full year Year Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % % % $m % Sports Medicine, Trauma & 2 6 7 5 5 5 4 2 5 1,881 4 OSB Sports Medicine Joint Repair 5 9 11 8 8 9 7 4 9 606 7 Arthrosc
Slide 35: Regional revenue analysis
Regional revenue analysis 2014 2015 Full Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Full year Year Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % % % $m % Geographic regions US (2) 4 2 - 1 1 4 4 9 2,217 5 Other Established Markets 1 (3) (2) (1) (1) (2) 3 1 2 1,702 1 Establi
Slide 36: Trading income statement - half and full year
Trading income statement - half and full year H1 H2 Full Year 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m Revenue 2,272 2,220 2,362 2,397 4,634 4,617 Cost of goods sold (566) (538) (577) (589) (1,143) (1,127) Gross profit 1,706 1,682 1,785 1,808 3,491 3,490 Gross profit margin 75.1% 75.8% 75.6%
Slide 37: EPSA and EPS – half and full year
EPSA and EPS – half and full year H1 H2 Full Year 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m Trading profit 512 484 587 571 1,099 1,055 Interest receivable 2 7 4 6 6 13 Interest payable (23) (11) (24) (17) (47) (28) Other finance costs (7) (5) (5) (6) (13) (11) Share of results from associate (
Slide 38: Free cash flow – half and full year
Free cash flow – half and full year H1 H2 Full Year 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m Trading profit 512 484 587 571 1,099 1,055 Share based payment 13 16 16 16 29 32 Depreciation and amortisation 148 140 159 170 307 310 Capital expenditure (161) (161) (197) (214) (358) (375) Movements
Slide 39: 2016 Technical guidance
2016 Technical guidance Guidance Full year Restructuring costs c. $50m Acquisition and integration costs c. $10m Amortisation of acquisition intangibles c. $140m Income from associates Slightly negative Interest payable(1) ~ 3% Other finance costs c. $10m Tax rate on Trading result 26.5% or slightly
Slide 40: Management
Management Olivier Bohuon Chief Executive Officer Olivier joined the Board and was appointed Chief Executive Officer in April 2011. Olivier has had extensive international experience within a number of pharmaceutical and healthcare companies. Prior to joining Smith & Nephew, he was President of Abbo
Slide 41: Investor Relations Contacts
Investor Relations Contacts Ingeborg Øie Kate Gibbon VP, Investor Relations Investor Relations Manager E: ingeborg.oie@smith-nephew.com E: kate.gibbon@smith-nephew.com T: +44 (0) 207 960 2285 T: +44 (0) 207 960 2339 Smith & Nephew plc 15 Adam Street London WC2N 6LA T: +44 (0) 207 401 7646 41
Slide 42: Smith & Nephew
a! ° 74 smith&nephew Supporting healthcare professionals for over 150 years