Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q1 2015 Earnings Presentation
43 slides from Smith & Nephew's earnings presentation, June 2015
Slide 1: Investor Presentation April - June 2015
Investor Presentation April - June 2015
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 • Global medical devices company ‐ Headquartered in UK, operates more than 100 countries ‐ Sales of over $4.6 billion in 2014 ‐ Around 14,000 employees worldwide ‐ $15.7 billion market capitalisation (29 April 2015) • History ‐ Founded in Hull, UK in 1856 by Thomas James Smith ‐
Slide 4: Our business
Our business Collagenase SANTYL Ointment ALLEVYN™ Enzymatic debrider Wound Dressings VISIONAIRE™ Advanced Wound Patient Matched Management Instrumentation PICO™ Negative Pressure Wound Therapy Knee Implants VERILAST™ Other Surgical $4.6bn 30-year wear claim Businesses revenues Arthroscopic (2014) AN
Slide 5: A global business
A global business Emerging/International Markets (15%) US (43%) 2014 Revenue Established OUS (42%) Established markets Emerging and International markets 5 Source: 2014 Split of revenues, Smith & Nephew
Slide 6: Our position – leading share and a diversified business
Our position – leading share and a diversified business Biomet Biomet Other Other 6% 12% Zimmer 8% 14% 6% DePuy Zimmer Hip & Knee Synthes** Stryker Trauma & DePuy 21% Extremities Synthes** 23% Implants 23% 47% 11% Others Stryker 12% 10% 19% 19% Arthrex Stryker 29% Other 11% Segment Size: $5bn 36% Ad
Slide 7: What drives underlying market growth?
What drives underlying market growth? 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: 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 10
Slide 11: 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 11
Slide 12: 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 13: Group optimisation plan – four levers
Group optimisation plan – four levers Optimising Develop best in class global support functions Functions • Increasing overall efficiency Driving Drive savings and capability investments / agility Procurement Savings • Liberating resources to Simplifying re-invest in Simplify our management structur
Slide 14: Group optimisation plan – financial implications
Group optimisation plan – financial implications • Benefits – generate annual savings of at least $120 million – a four year plan, with half of benefits achieved by end of 2015 • Restructuring costs – about $150 million costs over four years – about 85% incurred by end of 2015 14
Slide 15: Full Year Results & Q1 Sales
Full Year Results & Q1 Sales 15
Slide 16: Full year 2014 financial highlights
Full year 2014 financial highlights Full Year Full Year 2014 2013 $m $m Key comments Revenue Advanced Surgical Devices 3,298 3,015 • Revenue Advanced Wound Management 1,319 1,336 Underlying growth of 2% Group 4,617 4,351 • Trading Profit Trading Profit Underlying growth of 3% Advanced Surgical Devic
Slide 17: Our guidance – delivering shareholder value
Our guidance – delivering shareholder value Established Markets Revenue growth Emerging Maximising Markets Cash Innovation Trading margin improvement Delivering returns through capital Simplification allocation EPSA growth Acquisitions 17
Slide 18: Q1 revenue growth of 3% underlying
Q1 revenue growth of 3% underlying Geographical growth Revenue split Product franchise growth Sports Medicine Joint Repair 9% Arthroscopic Enabling Tech -2% 1% US Trauma & 5% Extremities Other Surgical 11% Knees 2% -2% Est OUS Hips -1% 9% AWC 5% Emerging 22% AWB -27% AWD -4% 0% 4% 8% 12% 16% 20% -20
Slide 19: Strategic Updates: Recon, Syncera and Mid-Tier in Emerging Markets
Strategic Updates: Recon, Syncera and Mid-Tier in Emerging Markets 19
Slide 20: Reconstruction - innovative product development
Reconstruction - innovative product development Implant systems OR and inventory efficiency JOURNEY™ II Knee REDAPT™ hip revision VISIONAIRE™ Disposable Instruments Bearing surfaces Augmented instrumentation REDAPT™ hip revision NavioTM Surgical System OXINIUM™-on-OXINIUM VERASENSETM Sensor Technolo
Slide 21: 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 22: A technology enabled solution
A technology enabled solution Improving OR and logistics efficiency with ongoing customer support • Technology that streamlines supply chain and logistics operations • Automatic ordering and product replenishment • Point-of-care automated tools • Comprehensive pre-launch training and support at worl
Slide 23: 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 24: Acquisition of ArthroCare
Acquisition of ArthroCare 24
Slide 25: Overview of ArthroCare
Overview of ArthroCare – Leading developer, manufacturer and marketer of Coblation technology used in a variety of minimally-invasive surgical procedures – ArthroCare’s products are the standard of care for shoulder procedures (sports medicine) and ENT – Focused and dedicated sales and distribution
Slide 26: Compelling strategic rationale
Compelling strategic rationale • A comprehensive resection & repair portfolio with exciting prospects – combination of radio frequency & mechanical resection creates fuller offering – ArthroCare’s shoulder repair innovation strongly complements our knee expertise • Opportunities to drive greater rev
Slide 27: A premier sports medicine business
A premier sports medicine business ArthroCare Smith & Nephew • Coblation Technology • DYONICS™ Shaver Blades and Burrs for – Ambient Family of RF Wands knee, shoulder, hip and extremities Resection – Topaz RF Wands for extremities • ELECTROBLADE™ – dual function device • Atlantech handheld Instrumen
Slide 28: Transaction financials
Transaction financials • Purchase price – $48.25 per share or $1.7 billion, in cash – premium of 20% to ArthroCare’s 90-day volume weighted average price per share – 15.7x EV/adjusted 2012 EBITDA • Returns – return on capital employed will exceed cost of capital in the third full year of ownership •
Slide 29: ArthroCare – guidance
ArthroCare – guidance • Synergies – revenue & cost synergies to add $85 million to trading profit in 2017, including net revenue synergies ˃$50 million in 2017 • Costs – estimated $60 million integration costs – approx. $40 million transaction costs incurred in 2014 • EPSA impact – broadly neutral i
Slide 30: Appendices
Appendices > smith&nephew 30
Slide 31: Q1 2015 Sports Medicine, Trauma & OSB
Q1 2015 Sports Medicine, Trauma & OSB • Revenue performance ‐ Sports Medicine Joint Repair +9% ($144m) ‐ Arthroscopic Enabling Technologies (AET) -2% ($140m) ‐ Trauma & Extremities +5% ($123m) ‐ Other Surgical Businesses* +11% ($47m) • Commentary Q-FIX◊ ‐ ArthroCare integration completed All Suture
Slide 32: Q1 2015 Reconstruction
Q1 2015 Reconstruction • Revenue performance ‐ Knees: global +2%, US +3%, OUS +2% ($209m) ‐ Hips: global -1%, US -1%, OUS -1% ($151m) OXINIUM◊ • Commentary More than one million joints ‐ JOURNEY◊ II continued strong growth ‐ new VERILAST◊ Technology for Hips and Knees campaign in the US started well
Slide 33: Q1 2015 Advanced Wound Management
Q1 2015 Advanced Wound Management • Revenue performance ‐ Advanced Wound Care +9% ($178m) ‐ Advanced Wound Bioactives +5% ($75m) ‐ Advanced Wound Devices -27% ($37m) • Commentary ‐ improving trend in AWC ALLEVYN◊ Life ‐ AWB exhibited increased seasonality Standard Heel ‐ strong PICO◊ growth; offset
Slide 34: Q1 2015 Franchise revenue analysis
Q1 2015 Franchise revenue analysis 2014 2015 Q1 Q2 Q3 Q4 Full Year Q1 Growth Growth Growth Growth Growth Revenue Growth % % % % % $m % Sports Medicine, Trauma & OSB 2 6 7 5 5 454 5 Sports Medicine Joint Repair 5 9 11 8 8 144 9 Arthroscopic Enabling Technologies (2) (1) 3 2 1 140 (2) Trauma & Extremi
Slide 35: Q1 2015 Regional revenue analysis
Q1 2015 Regional revenue analysis 2014 2015 Q1 Q2 Q3 Q4 Full Year Q1 Growth Growth Growth Growth Growth Revenue Growth % % % % % $m % Geographic regions US (2) 4 2 - 1 510 1 Other Established Markets 1 (3) (2) (1) (1) 422 (2) Established Markets (1) 1 - - - 932 - Emerging Markets 9 17 20 18 17 172 2
Slide 36: Adjusting items
Q4 and Full Year income statement Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Revenue 1,249 1,175 4,617 4,351 Underlying Underlying Trading profit 325 292 1,055 987 growth 7% growth 3% Restructuring and rationalisation costs (30) (22) (61) (58) Adjusting items Acquisition and integratio
Slide 37: Q4 and Full Year income statement (continued)
Q4 and Full Year income statement (continued) Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Profit before taxation and associates 212 232 716 803 Associate - - (2) (1) Profit before taxation 212 232 714 802 Taxation (52) (70) Tax rate* 27.7% (213) (246) Attributable profit 160 162 501 556
Slide 38: 2015 Technical guidance
2015 Technical guidance Guidance Full year Restructuring costs < $125m Acquisition and integration costs < $10m HP802 costs $5m Amortisation of acquisition intangibles ~ $150m Interest payable ~ 3% Other finance costs < $10m Bioventus loan note interest receivable None Associate: Bioventus contribut
Slide 39: Q4 and Full Year free cash flow
Q4 and Full Year free cash flow Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Trading profit 325 292 1,055 987 Share based payment 9 5 32 28 Depreciation and amortisation 95 86 310 296 Capital expenditure (118) (125) (375) (340) Movements in working capital and provisions 55 23 (241) (94)
Slide 40: Reconciliation of free cash flow to IAS 7 net cash flow from operating activities
Reconciliation of free cash flow to IAS 7 net cash flow from operating activities Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Free cash flow 184 196 308 527 Add back: capital expenditure 118 125 375 340 Net cash inflow from operating 302 321 683 867 activities (IAS 7) 40
Slide 41: 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 42: Investor Relations Contacts
Investor Relations Contacts Phil Cowdy Charles Reynolds SVP, Corporate Affairs and Strategic Director of Corporate Communications Planning E: charles.reynolds@smith-nephew.com E: phil.cowdy@smith-nephew.com T: +44 (0) 207 960 2212 T: +44 (0) 207 960 2296 Ingeborg Øie Smith & Nephew plc VP, Investor
Slide 43: smith&nephew
> smith&nephew o/. A 74 smith&nephew Supporting healthcare professionals for over 150 years