Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q3 2015 Earnings Presentation
40 slides from Smith & Nephew's earnings presentation, December 2015
Slide 1: Investor Presentation October - December 2015
Investor Presentation October - December 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 (28 October 2015) • History ‐ Founded in Hull, UK in 1856 by Thomas James Smith
Slide 4: Our business
Our business Collagenase SANTYL Ointment Enzymatic debrider ALLEVYN™ Life 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 (201
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 Other Zimmer Other, Biomet 9% 15% 12% Zimmer Biomet Stryker 23% Trauma & Stryker Hip & Knee 35% 19% Implants Extremities DePuy Synthes 10% Convatec 11% DePuy Others 47% 8% Synthes 12% Arthrex 21% Stryker 29% Other Acelity 11% Segment Size: $5bn
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: Q3 Revenue
Q3 Revenue >¢ smith&nephew 15
Slide 16: Q3 revenue growth of 4% underlying
Q3 revenue growth of 4% underlying Regional growth Revenue split Product franchise growth Sports Medicine Joint Repair 4% Arthroscopic Enabling Tech -2% 4% US Trauma & 2% Extremities Other Surgical 10% Knees 6% 1% Est OUS Hips -2% AWC 6% 2% Emerging AWB 8% 17% AWD 0% 4% 8% 12% -5% 5% 15% Underlying
Slide 17: Guidance and foreign exchange
Guidance and foreign exchange – Guidance – 2015 guidance maintained – Foreign exchange – Sustained strength of US dollar – Translational impact: full year revenue headwind expected of 8% – Transactional impact: 2015: Hedging strategy largely mitigates impact on margin 2016: Gross margin headwind of
Slide 18: Strategic Updates: Recon, Blue Belt Technologies Acquisition, Syncera and Emerging Markets
Strategic Updates: Recon, Blue Belt Technologies Acquisition, Syncera and Emerging Markets 18
Slide 19: 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 20: Innovative product development
Innovative product development Implant systems OR and inventory efficiency JOURNEY™ II Knee REDAPT™ hip revision VISIONAIRE™ Disposable Instruments Augmented instrumentation REDAPT™ hip revision NavioTM Surgical System VERASENSETM Sensor Technology 20
Slide 21: 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 22: 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 23: 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 24: Successful first 12 months for Syncera
Successful first 12 months for 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
Slide 25: 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% Today • higher healthcare spending OUR ACTIONS: 16% 20% • expansion of premium product range Q1 • mid-tier strategy • medical education 1
Slide 26: 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 27: 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 28: Appendices
Appendices >¢ smith&nephew 28
Slide 29: Q3 Sports Medicine, Trauma & Other Surgical
Q3 Sports Medicine, Trauma & Other Surgical • Revenue performance ‐ Sports Medicine Joint Repair +4% ($143m) ‐ Arthroscopic Enabling Technologies (AET) -2% ($132m) ‐ Trauma & Extremities +2% ($122m) ‐ Other Surgical Businesses* +10% ($50m) RAPID RHINO◊ NASASTENT◊ • Commentary Dissolvable Nasal Dress
Slide 30: Q3 Reconstruction
Q3 Reconstruction • Revenue performance ‐ Knees: global +6%, US +5%, OUS +8% ($205m) ‐ Hips: global -2%, US -1%, OUS -2% ($137m) ZUK◊ • Commentary Unicompartmental High Flex Knee ‐ Global Reconstruction grew at +3% ‐ JOURNEY◊ II delivered strong growth and ZUK◊ Uni Knee is ahead of plan ‐ flat hip g
Slide 31: Q3 Advanced Wound Management
Q3 Advanced Wound Management • Revenue performance ‐ Advanced Wound Care +6% ($188m) ‐ Advanced Wound Bioactives +2% ($84m) ‐ Advanced Wound Devices +17% ($44m) • Commentary ALLEVYN◊ Life ‐ good AWC trends continue with strong US contribution Foam Dressings ‐ continued impact of OASIS◊ reimbursement
Slide 32: Franchise revenue analysis
Franchise revenue analysis 2014 2015 Full Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % $m % Sports Medicine, Trauma & OSB 2 6 7 5 5 5 4 447 2 Sports Medicine Joint Repair 5 9 11 8 8 9 7 143 4 Arthroscopic Enabling Technologies (2) (1) 3 2 1
Slide 33: Regional revenue analysis
Regional revenue analysis 2014 2015 Full Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % $m % Geographic regions US (2) 4 2 - 1 1 4 532 4 Other Established Markets 1 (3) (2) (1) (1) (2) 3 400 1 Established Markets (1) 1 - - - - 3 932 3 Emerging
Slide 34: H1 Trading income statement
H1 Trading income statement 2015 2014 $m $m Revenue 2,272 2,220 Cost of goods sold (566) (538) Gross profit 1,706 1,682 Gross profit margin 75.1% 75.8% Selling, general and admin (1,084) (1,078) Research and development (110) (120) Trading profit 512 484 Trading profit margin 22.5% 21.8% 34
Slide 35: H1 EPSA and EPS
H1 EPSA and EPS H1 Growth 2015 2014 Reported CER $m $m Trading profit 512 484 6% 13% Interest receivable 2 7 Interest payable (23) (11) Other finance costs (7) (5) Share of results from associate (3) (2) Profit before taxation 481 473 Taxation (131) (133) Tax rate* 27.2% Adjusted attributable profit
Slide 36: 2015 Technical guidance
2015 Technical guidance Guidance Full year Restructuring costs1 c. $80m Acquisition and integration costs1 $13m+ Non-recurring charges (RENASYS and HP802) 1 $15m Amortisation of acquisition intangibles ~ $150m Interest payable 1,2 $45m - $50m Other finance costs1 < $15m Bioventus loan note interest
Slide 37: H1 Free cash flow
H1 Free cash flow H1 2015 2014 $m $m Trading profit 512 484 Share based payment 13 16 Depreciation and amortisation 148 140 Capital expenditure (161) (161) Movements in working capital and provisions (130) (222) Trading cash flow 382 257 Trading cash conversion 75% 53% Restructuring, rationalisation
Slide 38: 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 39: 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 40: >¢ smith&nephew
>¢ smith&nephew o/. A 74 smith&nephew Supporting healthcare professionals for over 150 years