Smith & Nephew Plc · LSE:SN.
Smith & Nephew — Q2 2023 Earnings Presentation
35 slides from Smith & Nephew's earnings presentation, Aug 3, 2023
Slide 1: Second Quarter and Half Year 2023
Second Quarter and Half 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 Strong Q2 growth across business units and regions • Underlying Orthopaedics dynamics improving and poised for acceleration, momentum in Sports Medicine and AWM continues • H1 trading profit reflects expected seasonality, cost pressures, investments in sales and marketing Raising 2023 revenu
Slide 4: Q2 2023 revenue
Q2 2023 revenue 4
Slide 5: Q2 2023: Balanced growth across business units and regions
Business unit growth Group 7.8% Orthopaedics Q2 2023: $554m 5.8% Balanced Sports Med & ENT $422m 12.0% growth across AWM 6.2% $403m business units and regions Geographical growth $1,379m, +7.8% underlying* Group 7.8% +6.6% reported US 6.3% $734m Other Established Markets 8.5% $403m Emerging Markets
Slide 6: Orthopaedics
Orthopaedics Revenue ($m) +5.8% $554m: +5.8% underlying*, $530m $554m +4.6% reported +2.5% 137 135 +21.0% 27 23 Knees: US +2.8%, OUS +14.4% 149 +3.4% 152 Hips: US +4.3%, OUS +2.4% 223 +7.8% 238 Q2'22 Q2'23 Knees Hips Other Recon** T&E Q2 sales factors Future drivers • Final quarter of VBP growth hea
Slide 7: Sports Medicine & ENT
Sports Medicine Revenue ($m) & ENT +12.0% $422m: +12.0% underlying*, $381m $422m +10.4% reported 48 35 +38.9% 145 140 +4.6% +12.5% 229 206 Q2'22 Q2'23 SMJR AET ENT Q2 sales factors Future drivers ◊ • Continued strong growth across both shoulder and knee repair, despite • REGENETEN region and indicat
Slide 8: Advanced Wound Management
Advanced Wound Revenue ($m) Management $403m: +6.2% underlying*, +6.2% $403m +5.5% reported $382m 70 +21.4% 84 134 +3.1% 138 178 +2.7% 181 Q2'22 Q2'23 AWC AWB AWD Q2 sales factors Future drivers • AWC growth driven by foam dressings, strong quarter in Europe • Ongoing focus on commercial execution a
Slide 9: H1 2023 Financials
H1 2023 Financials 9
Slide 10: H1 revenue by business unit
H1 revenue by business unit (53) Reported growth 2.9% 8.4% 5.1% (2.1%) 5.2% Underlying growth 4.8% 11.0% 7.0% 7.3% 10
Slide 11: H1 trading income statement
H1 trading income statement H1 2023 H1 2022 Reported $m $m growth Revenue 2,734 2,600 5% Cost of goods sold (826) (758) 9% Gross profit 1,908 1,842 4% Gross profit margin 69.8% 70.9% Selling, general and admin (1,340) (1,253) 7% Research and development (151) (149) 1% Trading profit 417 440 (5%) Tra
Slide 12: H1 2022 to H1 2023 trading margin bridge
H1 2022 to H1 2023 trading margin bridge Significant headwinds partially offset by 12-Point Plan 12
Slide 13: H1 operating profit and EPSA
H1 operating profit and EPSA H1 2023 H1 2022 Reported $m $m growth IFRS operating profit 275 242 13% IFRS operating profit margin 10.0% 9.3% Adjusted earnings per share ("EPSA") 34.9¢ 38.1¢ (8%) Earnings per share ("EPS") 19.7¢ 20.2¢ (2%) Dividend per share 14.4¢ 14.4¢ - 13
Slide 14: FY cash flow
FY cash flow Trading cash conversion 26% H1 2023 H1 2022 $m $m Trading profit 417 440 Share based payment 19 23 Depreciation and amortisation 195 195 Lease liability repayments (28) (27) Capital expenditure (167) (173) Working capital outflow driven by increased Movements in working capital and othe
Slide 15: H1 2023 inventory bridge
H1 2023 inventory bridge Drivers of future DSI improvement: DSI: 526 546 $m Consumption of NPWT inventory through growth Accelerating set deployment as component shortfalls are filled Tighter controls on raw material buying as global supply chains improve Base inventory to grow below revenue through
Slide 16: Net debt position
Net debt position Leverage 2.0x 2.3x ratio: Net debt at 1 July 2023 16 Net debt includes lease liabilities
Slide 17: Increasing growth outlook for 2023
Increasing growth outlook for 2023 • Targeting underlying revenue growth of 6-7%: (previously 5-6%) • Reflects strong growth in H1; further expected Historical trading margin seasonality operational improvements in Orthopaedics; continued outperformance of Sports Medicine and AWM +240bps +420bps 25.
Slide 18: H1 2023 to H2 2023 trading margin bridge
H1 2023 to H2 2023 trading margin bridge Seasonal margin expansion and productivity gains At least +250bps +270 to c.(80) bps 300 bps 15.3% Trading margin guidance for FY23 remains unchanged. Individual elements shown are illustrative approximations based on a number of assumptions. 18
Slide 19: 12-Point Plan update
12-Point Plan update 19
Slide 20: Transforming Smith+Nephew
Transforming Smith+Nephew Moving to a consistently higher growth rate Rebuilding profitability Building blocks : 1 Fixing Orthopaedics foundations Continuing strength of Sports 2 Medicine and AWM 3 Returns on innovation investments 20
Slide 21: Progress against our two year 12-Point Plan
Progress against our two year 12-Point Plan Overall Fixing Improving Accelerating progress Orthopaedics productivity Sports & AWM 1 point 2 points 1 point 50% Rewire Orthopaedics 75% Improve value and 50% Scale Negative Pressure commercial delivery cash processes Wound Therapy c.45% 3 points 1 point
Slide 22: Ortho product availability KPIs moving closer to goals
Ortho product availability KPIs moving closer to goals Orthopaedics US overdue orders* Orthopaedics US non-set LIFR**(%) Focus now on instrument set Target deployments: • Rollout initially held back by component availability, and has been a short-term bottleneck c.50% reduction c. 85% progress • Tra
Slide 23: Maintaining high cadence of innovation in 2023
Maintaining high cadence of innovation in 2023 25 product launches expected in 2023 2017-22 average: 18 Robotics: Trauma & Extremities: CORI saw solutions AETOS Shoulder System 13 • Launched in June 2023 following 510(k) clearance • Simple saw-based method within the current CORI TKA workflow delive
Slide 24: Improving organisational effectiveness
Improving organisational effectiveness Global business units to drive customer centricity, efficiency, performance From To Customer centricity diluted by franchise Specialised and focused global execution regional/country focus driven by customer needs Matrixed structure impeding agility and Single
Slide 25: Summary
Summary Strong Q2 growth across business units and regions Raising 2023 revenue guidance, margin maintained 12-point plan delivering sustainable improvement 25
Slide 26: Appendices
Appendices 26
Slide 27: 12-Point Plan initiatives
12-Point Plan initiatives Fixing Improving Accelerating Orthopaedics productivity Sports & AWM Initiatives 1-5 Initiatives 6-10 Initiatives 11-12 Improve value and cash processes Scale Negative Pressure Wound Therapy Rewire Orthopaedics commercial delivery • Rebuild demand planning process • Standar
Slide 28: Technical guidance
Technical guidance August 2023 Foreign exchange and acquisitions Translational FX impact on revenue growth(1) c. 0.1% Acquisition impact on revenue growth - Non-trading items Restructuring costs c. $180-190m Acquisition and integration (credit) $(10-15)m European Medical Device Regulation (MDR) comp
Slide 29: Q2 consolidated revenue analysis
Q2 consolidated revenue analysis Q2 Q2 Reported Underlying Acquisitions/ Currency 2023 2022 Growth growth disposals impact Consolidated revenue by business $m $m % % % % unit by product Orthopaedics 554 530 4.6% 5.8% - (1.2%) Knee Implants 238 223 6.6% 7.8% - (1.2%) Hip Implants 152 149 1.9% 3.4% -
Slide 30: H1 consolidated revenue analysis
H1 consolidated revenue analysis H1 H1 Reported Underlying Acquisitions/ Currency 2023 2022 Growth growth disposals impact Consolidated revenue by business $m $m % % % % unit by product Orthopaedics 1,102 1,071 2.9% 4.8% - (1.9%) Knee Implants 475 454 4.4% 6.4% - (2.0%) Hip Implants 303 298 1.9% 4.0
Slide 31: Business unit revenue analysis
Business unit revenue analysis 2022 2023 Full Q1 Q2 Q3 Q4 Q1 Q2 Q2 Year Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Orthopaedics 2.6 (1.1) 2.1 4.1 1.9 3.9 5.8 554 Knee Implants 12.2 2.7 7.4 5.5 6.8 5.0 7.8 238 Hip Implants (0.7) (3.7) (1.0) 4.9 (0.2) 4.6 3.4 152 Other R
Slide 32: Regional revenue analysis
Regional revenue analysis 2022 2023 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q2 Growth Growth Growth Growth Growth Growth Growth Revenue % % % % % % % $m US 3.1 2.0 6.0 4.8 4.0 11.8 6.3 734 Other Established Markets(1) 5.9 0.0 0.4 7.3 3.3 7.0 8.5 403 Established Markets 4.1 1.2 3.9 5.7 3.7 10.0 7.1 1,137 Emergin
Slide 33: Full year EPSA
Full year EPSA H1 2023 H1 2022 Reported $m $m growth Trading profit 417 440 (5%) Net interest payable (44) (32) Other finance costs 3 (2) Share of results from associates (8) (2) Adjusted profit before tax 368 404 (9%) Taxation on trading result (64) (71) Adjusted attributable profit 304 333 (9%) We
Slide 34: 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 2023 64 63 63 60 250 2024 64 63 63 60 250 34
Slide 35: Life Unlimited
Life Unlimited 35