Smith & Nephew Plc · LSE:SN.
Smith & Nephew — Q2 2016 Earnings Presentation
43 slides from Smith & Nephew's earnings presentation, August 2016
Slide 1: Investor Presentation July – September 2016
Investor Presentation July – September 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 products…
Our products… ALLEVYN™ Life Advanced Foam Wound Dressings PICO™ Negative Pressure Collagenase SANTYL™ Ointment Wound Therapy Enzymatic debrider Advanced Wound Advanced Wound Care Devices Advanced JOURNEY™ II XR Wound Bioactives Bi-Cruciate RAPID RHINO◊ Retaining Knee NASASTENT◊ Knees System Dissolva
Slide 5: Our markets…
Our markets… 2015 Split of Revenues Emerging/ Established International OUS (37%) Markets (15%) We have a balanced global footprint 15,000 US (48%) Employees
Slide 6: Our leading position
Our leading position 10% Acelity 21% Zimmer Biomet Other 35% Other 15% 37% Hip & Knee Advanced Implants Wound Others Management 18% 13% Stryker Arthrex 19% Coloplast DePuy 30% Stryker 4% Convatec Synthes** Molnlycke 11% 8% 21% Sports 12% Medicine* Segment Size: $14bn, Zimmer Segment Size: $7bn, Biom
Slide 7: Our market growth drivers
Our market growth drivers Demographics Emerging markets Technology “By 2050, the number of people over the age of 65 around the world will have tripled to nearly 1.5 billion” 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 Trading cash conversion $4,634m +4%* $1,099m +5%* 23.7% margin 85% 4,617 4,634 1,099 104% 87% 89% 85% 1,055 74% 4,351 4,270 987 4,137 961 965 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Adjusted earnings per share (EPSA) Dividend
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 Advanced Wound
Slide 14: Group optimisation plan – four levers
Group optimisation plan – four levers Optimising Develop best in class global support functions Functions • Increasing overall Driving Drive savings and capability investments efficiency Procurement Savings • Liberating resources to Simplifying re-invest in Simplify our management structure critical
Slide 15: Group optimisation plan – financial implications
Group optimisation plan – financial implications • Benefits – generate annual savings of at least $120 million by the end of 2017 – a four year plan, now ahead of schedule, with annualised benefits of $110m (as at June 2016) • Restructuring costs – about $150 million costs over four years – As at Ju
Slide 16: Q2 and H1 2016 Performance
Q2 and H1 2016 Performance >t smith&nephew 16
Slide 17: H1 2016 revenue growth of 3% underlying
H1 2016 revenue growth of 3% underlying Geographical growth Revenue split Product franchise growth Sports Medicine 10% Joint Repair Arthroscopic 6% Enabling Tech US 4% Trauma & Extremities -6% Other Surgical 16% Knees 7% 2% Est OUS Hips 2% -4% AWC 1% Emerging AWB -4% AWD 6% -8% -4% 0% 4% 8% -10% 0%
Slide 18: Q2 revenue growth of 2% underlying
Q2 revenue growth of 2% underlying Geographical growth Revenue split Product franchise growth Sports Medicine 10% Joint Repair Arthroscopic 4% Enabling Tech US 4% Trauma & Extremities -6% Other Surgical 14% Knees 5% 1% Est OUS Hips 0% -7% AWC -2% 4% Emerging AWB 1% AWD -4% -2% 0% 2% 4% 6% -10% 0% 10
Slide 19: Guidance
Guidance Updated outlook • H2 sales ‐ H1 trends continue in Sports Medicine and Reconstruction ‐ partial improvements in China; Gulf States remain challenging ‐ four fewer sales days in H2 • Translational foreign exchange revenue impact of 0% in H2 and -1% in FY • Full year margin ‐ Guidance relatin
Slide 20: Strategic Updates: Recent M&A Update, Syncera, Innovation, Recon, and Emerging Markets
Strategic Updates: Recent M&A Update, Syncera, Innovation, Recon, and Emerging Markets 20
Slide 21: ArthroCare – two year update
ArthroCare – two year update strengthened Sports Medicine business integration completed ahead of time $65m cost synergies delivered accelerated growth in Established Markets successful product launches ‐ such as our Rotator Cuff Repair Solutions strong and exciting combined pipeline ‐ i
Slide 22: Blue Belt – six month update
Blue Belt – six month update 6 months post acquisition: successful integration strong operational performance expansion of indications: approval of Total Knee first Total Knee case on NAVIO full commercial launch of Total Knee on-track for 2017 Expecting >50% sales growth for full year 22
Slide 23: 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 24: 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 25: Syncera
Syncera • Interest in Syncera continues to exceed expectations ‐ CJR is stimulating additional interest ‐ but conservative market segment • Good engagement with providers on future models of healthcare • Broadening remit of Syncera team ‐ pure Syncera solutions ‐ unique supporting technologies, risk
Slide 26: 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 27: 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 tissue • Point of care • Healing • Clinical • Best-in-class injury detection diagnostics technologies algorithms medical e
Slide 28: 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 29: 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 30: China – improvements expected in H2
China – improvements expected in H2 Smith & Nephew sales trajectory in China 2014 2015 2016 FY Q1 Q2 Q3 Q4 Q1 Q2 H2e Reconstruction Sports Medicine Trauma Advanced Wound Management 30
Slide 31: 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 Differe
Slide 32: Appendices
Appendices >¢ smith&nephew 32
Slide 33: H1 and Q2 Revenue growth
H1 and Q2 Revenue growth H1 2016(1) Q2 2016(1) Growth % Growth % Underlying 3% Underlying 2% Acquisitions 1% Acquisitions 1% CER(2) 4% CER(2) 3% Currency -2% Currency -1% Reported 2% Reported 2% (1) H1 comprises 128 days (2015 – 124 days) Q2 2016 comprises 64 trading days (2015 – 63 trading days) 33
Slide 34: H1 Trading margin drivers
H1 Trading margin drivers H1 Trading margin history Selected H1 2016 margin drivers Transactional exchange 22.5% ~190 bps in Gross Profit 21.8% 20.8% Margin impact of sales decline in China & Gulf States Blue Belt investment Group Optimisation & acquisition benefits 2014 2015 2016 34
Slide 35: Franchise revenue analysis
Franchise revenue analysis 2015 2016 Full Q1 Q2 Q3 Q4 Q1 Q2 Year Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Sports Medicine, Trauma & 5 4 2 5 4 5 487 4 OSB Sports Medicine Joint Repair 9 7 4 9 7 11 147 10 Arthroscopic Enabling (2) 1 (2) 3 - 4 160 4 Technologies Trauma
Slide 36: Regional revenue analysis
Regional revenue analysis 2015 2016 Full Q1 Q2 Q3 Q4 Q1 Q2 Year Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Geographic regions US 1 4 4 9 5 8 582 4 Other Established Markets (2) 3 1 2 1 4 429 1 Established Markets - 3 3 6 3 6 1,011 3 Emerging Markets 22 14 8 2 11 (6) 18
Slide 37: H1 Trading income statement
H1 Trading income statement 2016 2015 $m $m Revenue 2,328 2,272 Cost of goods sold (632) (566) Gross profit 1,696 1,706 Gross profit margin* 72.8% 75.1% Selling, general and admin (1,100) (1,084) Research and development (113) (110) Trading profit 483 512 Trading profit margin 20.8% 22.5% 37 * inclu
Slide 38: H1 EPSA and EPS
H1 EPSA and EPS Growth 2016 2015 Reported CER Underlying $m $m Trading profit 483 512 -6% -4% -3% Net interest payable (24) (21) Other finance costs (6) (7) Share of results from associate - (3) Adjusted profit before tax 453 481 Taxation (119) (131) Tax rate 26.3% Adjusted attributable profit 334 3
Slide 39: H1 Free cash flow
H1 Free cash flow 2016 2015 $m $m Trading profit 483 512 Share based payment 14 13 Depreciation and amortisation 147 148 Capital expenditure (174) (161) Movements in working capital and provisions (215) (130) Trading cash flow 255 382 Trading cash conversion 53% 75% Restructuring, rationalisation, a
Slide 40: 2016 Technical guidance (unchanged)
2016 Technical guidance (unchanged) Guidance Full year Restructuring costs c. $50m Acquisition and integration costs c. $10m Amortisation of acquisition intangibles c. $140m Income from associates Slightly negative Net interest payable c. $45m Other finance costs c. $10m Tax rate on Trading result 2
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 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 42
Slide 43: Smith & Nephew
a! ° 74 smith&nephew Supporting healthcare professionals for over 150 years