Smith & Nephew plc · LSE:SN.
Smith & Nephew — Investor Presentation (June 2013)
40 slides from Smith & Nephew's investor presentation, June 2013
Slide 1: Investor Presentation May/June 2013
Investor Presentation May/June 2013
Slide 2: Forward looking statements
Forward looking statements This document contains certain 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"
Slide 3: About Smith & Nephew
About Smith & Nephew • Global medical devices company ‐ Headquartered in UK, operates in 90 countries ‐ Sales of $4.1 billion in 2012 ‐ 10,500 employees worldwide ‐ $10 billion market capitalisation • History ‐ Founded in Hull, UK in 1856 by Thomas James Smith PICO◊, Negative ‐ Successful healthcare
Slide 4: Our business
Our business ALLEVYN◊ VERILAST◊ VISIONAIRE◊ RENASYS◊ GO Wound Dressings 30-year wear claim Patient Matched Instrumentation Negative Pressure Wound Therapy Advanced Wound Management ANTHOLOGY◊ Primary Hip System Knee Implants $4.1bn DYONICS◊ PLATINUM Shaver Blades Other revenues (2012) Arthroscopic H
Slide 5: A global business
A global business Emerging/International Markets (12%) US (40%) 2012 Revenue Established OUS (48%) 5 Source: 2012 Split of revenues, Smith & Nephew
Slide 6: Our position – leading share and a diversified business
Our position – leading share and a diversified business Other 16% Zimmer 23% Other S&N Zimmer 9% 11% Hip & Knee 6% Biomet Implants 6% DePuy Synthes Biomet DePuy S&N Trauma 50% 12% 20% 10% Stryker Other 18% 20% Arthrex KCI 26% Stryker Other 24% 18% 30% Arthrocare Advanced 5% Sports Wound Mkt Size: $1
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 $4.1bn +2%* $965m +6%* 23.3% margin $637m +22% 4,270 969 961 965 637 4,137 857 552 776 521 3,962 401 3,801 3,772 277 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Adjusted earnings per share (EPSA) Dividend per share
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: Winning in Established Markets
Winning in Established Markets 2012 S&N revenues • 2012 highlights (geographic split) – ASD restructuring – AWM realignment – Bioventus Established Markets (88%) • 2013 developments – Trauma and Extremities investment EM/IM (12%) – continued NPWT expansion – integration of Healthpoint on track – fur
Slide 12: Accelerating development in Emerging Markets
Accelerating development in Emerging Markets 2012 S&N revenue growth • 2012 highlights (contribution) – China successful model – significant structural and talent investment – refined the new R&D model for EM/IM (41%) mid-tier Established Markets (59%) • 2013 developments – organic and inorganic inv
Slide 13: Innovating for value
Innovating for value R&D $m +2% • 2012 highlights 171 167 – 32 new AWM products 155 152 151 – ASD launch new platforms HEALICOIL◊ PK 2008 2009 2010 2011 2012 – registrations for EM/IM Suture Anchor – Centre for Innovation, Memphis R&D % • 2013 developments 4.0% 4.1% 3.8% 3.9% 4.1% – increased invest
Slide 14: Simplifying and improving the operating model
Simplifying and improving the operating model • 2012 highlights – 3% COGS reduction – manufacturing footprint – Linhe closed – Suzhou expanded • 2013 developments – process improvement projects – portfolio rationalization Manufacturing facility extension Suzhou, China 14
Slide 15: Supplementing organic growth through acquisitions
Supplementing organic growth through acquisitions • 2012 highlights Collagenase SANTYL Ointment Enzymatic debrider – strengthened team – Healthpoint Biotherapeutics – small bolt-ons • 2013 developments LifeMOD software – unchanged acquisition criteria – many opportunities – disciplined approach 15 A
Slide 16: 2012 Full Year Highlights
2012 Full Year Highlights Margin 25 Trading profit margin (%) 24 23.3 • Delivering against Strategic Priorities 23 22.5 • Financials 22 21 – revenue growth (+2% underlying to 20 $4,137 million) 2011 2012 – margin improvement (+80bps to 23.3%) EPSA – EPSA increase (+2% to 75.7¢) 80 75.7 74.5 – signif
Slide 17: 2012 Full Year Revenue growth
2012 Full Year Revenue growth Geographic growth Revenue split Product franchise growth Knee 3% 2% US Hip -3% ASD Joint Repair 8% Enab Tech -2% 1% Est OUS Trauma 3% Other ASD 4% AWM AWM 11% EM/IM 0% 4% 8% 12% -5% 0% 5% 10% Underlying change (%) Underlying change (%) 17 Note: ‘Other ASD’ +5%
Slide 18: Q1 2013 Results
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Slide 19: Q1 2013 Highlights
Q1 2013 Highlights • Reported Q1 revenues $1,075m – up 1% underlying (including acquisitions/excluding divestments) – our investments driving growth – Healthpoint excellent first quarter • Trading profit $241m, 22.4% trading profit margin • EPSA 18.5¢, down 4% due to Bioventus dilution • Acquisition
Slide 20: Q1 2013 Revenue growth
Q1 2013 Revenue growth Geographic growth Revenue split Product franchise growth -6% Knee 4% US -6% Hip ASD Joint Repair 4% Enab Tech -7% -5% Trauma 8% Est OUS Other ASD AWM AWM 12% 19% EM/IM -8% -4% 0% 4% 8% 12% 16% 20% -10% -5% 0% 5% 10% 15% Underlying change (%) Underlying change (%) 20 Note: ‘Oth
Slide 21: 2013 outlook
2013 outlook • Full year outlook for Group as a whole unchanged • Revenue growth at product franchise level – Healthpoint – Knee/Hip Implants • Margin – US Medical Device excise tax, Healthpoint and investments – partially off-set by efficiency programmes • Q2 specific guidance 21
Slide 22: Q1 summary
Q1 summary • Revenue and trading profit in-line with expectations • Areas of focused investment delivering: – Trauma building momentum – taking share in NPWT – growth in Emerging and International Markets – Healthpoint started well 22
Slide 23: Capital and Distribution Policy
Capital and Distribution Policy
Slide 24: 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 24
Slide 25: What does this mean in practice?
What does this mean in practice? Disciplined use of cash in-line with strategy 2012 cash bridge Reinvest for Progressive Acquisitions organic dividend in line with growth 1 policy 2 strategy 3 1,000 800 902 600 400 (265) (186) 200 $m 0 (200) (138) 181 (400) (288) (782) (600) Net debt at Dec'11 FCF p
Slide 26: What does this mean for investors?
What does this mean for investors? • Ordinary dividends – 2012 final $147m – 2013 interim $94m* – Total $241m • New share buyback $300m • Total to be returned in the order of $0.5 billion • Cash distributions in 2013 could approach 3x the prior year 26 *Subject to Board approval and calculated as 40
Slide 27: Capital allocation priorities
Capital allocation priorities • Appropriate and prudent approach • Investing for future growth and enhancing distribution to shareholders • Reinforcing our commitment to disciplined use of cash 27
Slide 28: Appendices
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Slide 29: Q1 2013 Advanced Surgical Devices – Knee and Hip Implants
Q1 2013 Advanced Surgical Devices – Knee and Hip Implants • Revenue performance • Knees: global -6%, US -5%, OUS -8% ($219m) • Hips: global -6%, US -8%, OUS -4% ($167m) • Commentary • same broad trends as in recent quarters – Hips (ex BHR) global -3% • US launch of JOURNEY◊ II BCS Knee System • incr
Slide 30: Q1 2013 Advanced Surgical Devices – Sports Medicine and Trauma
Q1 2013 Advanced Surgical Devices – Sports Medicine and Trauma • Revenue performance* • Sports Medicine Joint Repair +4% ($120m) • Arthroscopic Enabling Technologies (AET) -7% ($110m) • Trauma +8% ($124m) • Commentary • Joint Repair performed well • AET weak capital sales impact continues Modular Ra
Slide 31: Q1 2013 Advanced Wound Management
Q1 2013 Advanced Wound Management • Revenue performance • Advanced Wound Care +1% ($200m) • Advanced Wound Devices +26% ($48m) • Advanced Wound Bioactives +49% ($67m) • Commentary • global market growth, including bioactives, 2% • market share gains in NPWT • Healthpoint • growth driven by strong sa
Slide 32: Income statement Q1 2013
Income statement Q1 2013 First Quarter Quarterly growth 2013 2012* Underlying Reported $m $m Revenue 1,075 1,079 1% 0% Trading profit 241 252 0% (4)% Restructuring and rationalisation costs (8) (6) Acquisition and integration costs (5) - Amortisation of acquisition intangibles (21) (10) Operating pr
Slide 33: Income statement Q1 2013
Income statement Q1 2013 First Quarter 2013 2012* $m $m Profit before taxation and associates 206 231 Associate (2) - Profit before taxation 204 231 Taxation (61) (72) Tax rate** 29.8% Attributable profit 143 159 Add back: Restructuring & rationalisation costs 8 6 Acquisition and integration costs 5
Slide 34: Underlying revenue growth by geography & business segment Q1 2013
Underlying revenue growth by geography & business segment Q1 2013 Emerging and Established Markets International Markets Group US Growth Other Growth Total Growth Total Growth Total Growth Quarter 1 $m % $m % $m % $m % $m % Advanced Surgical Devices 345 (2) 319 (7) 664 (5) 96 16 760 (2) Advanced Wou
Slide 35: Product line revenues and underlying growth
Product line revenues and underlying growth 2012 2013 Q1 Q2 Q3 Q4 Full Year Q1 Growth Growth Growth Growth Revenue Growth Revenue Growth % % % % $m % $m % Advanced Surgical Devices Reconstruction Knee Implants 6 3 (1) 2 874 3 219 (6) Hip Implants (2) (5) (4) (2) 666 (3) 167 (6) Trauma* (1) 3 2 7 474
Slide 36: Free cash flow Q1 2013
Free cash flow Q1 2013 First Quarter 2013 2012 $m $m Trading profit 241 252 Share based payment 9 9 Depreciation and amortisation 69 70 Capital expenditure (55) (58) Movements in working capital and provisions (46) (81) Trading cash flow 218 192 Restructuring, rationalisation & acquisition costs (27
Slide 37: 2013 key new products progression
2013 key new products progression Q1 Q2 • JOURNEY◊ II BCS Knee System • REDAPT◊ Hip Revision Femoral Knee and Hip Implants • SMF Monolithic Hip Stem System (Europe) Sports Medicine Joint Repair • FASTFIX◊ 360 (Japan) • Active Heel◊ Traction Boot • Foot & Ankle Instruments • ALL◊ 28 Foot and Ankle po
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 Head of Corporate Affairs Director of Corporate Communications E: phil.cowdy@smith-nephew.com E: charles.reynolds@smith-nephew.com T: +44 (0) 207 960 2296 T: +44 (0) 207 960 2212 Kim Gunthorp Investor Relations Manager Smith & Nephew plc E: kim
Slide 40: We are Smith & Nephew
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