Investor Presentation November December 2016

Transcription

1 Investor Presentation November December 2016

2 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, intend, anticipate, well-placed, believe, estimate, expect, target, consider and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. For Smith & Nephew, these factors include: economic and financial conditions in the markets we serve, especially those affecting health care providers, payers and customers; price levels for established and innovative medical devices; developments in medical technology; regulatory approvals, reimbursement decisions or other government actions; product defects or recalls; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; strategic actions, including acquisitions and dispositions, our success in performing due diligence, valuing and integrating acquired businesses; disruption that may result from transactions or other changes we make in our business plans or organisation to adapt to market developments; and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. Please refer to the documents that Smith & Nephew has filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, including Smith & Nephew s most recent annual report on Form 20-F, for a discussion of certain of these factors. Any forward-looking statement is based on information available to Smith & Nephew as of the date of the statement. All written or oral forward-looking statements attributable to Smith & Nephew are qualified by this caution. Smith & Nephew does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Smith & Nephew s expectations. 2

3 About Smith & Nephew 100 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. FTSE100 A constituent of the UK s FTSE100, our shares are traded in London and New York. Shares S&N has paid a dividend to shareholders on its Ordinary Shares every year since $4.6bn Annual sales in 2015 were more than $4.6 billion. 15,000 We have around 15,000 employees around the world. 3

4 Smith & Nephew is a company of pioneers, extending access to advanced medical technologies and enabling better outcomes for patients globally. We ve been doing this for over 150 years We are established 1856 Thomas James Smith opened a chemist shop in Hull, UK and develops a new method for refining cod liver oil 1986 key acquisitions of Richards Medical Company in Memphis, specialists in orthopaedic products and Dyonics, an arthroscopy specialist based in Andover 1995 acquired Acufex Microsurgical Inc, making us a market leader in arthroscopic surgical devices 15,000+ PRESENT DAY 1896 Horatio Nelson Smith entered into a partnership with his uncle forming TJ Smith & Nephew 1914 days after the outbreak of WW1, we received an order to provide surgical and field dressing supplies to the French army within 5 months 1937 we were listed on the London stock exchange 1953 we developed a special low-temperature plaster for the Everest climbers on the 1953 expedition. It enabled them to send back their camera films, sealed and airtight! This same research led to the development of important industrial products 2013 JOURNEY II BCS sets a new standard in knee implant performance, designed to restore more normal motion 1999 we were listed on the New York Stock Exchange and in 2001 became a constituent member of the UK FTSE-100 index 2011 PICO, the first pocket-sized, single-use system, revolutionizes the negative pressure wound therapy market During WW1, staff grew from 50 to 1, we produced an experimental bandage Elastoplast TM 50 FROM TO 1, Oxinium, a new material that improves performance and increases the service life of total joint replacement systems, first introduced Trademark of Smith & Nephew 2015 Smith & Nephew We are proud of what we do and value our 15,000 employees who make this possible We have been pioneering health solutions since 1856 and now have a presence in over 100 countries Over 100 Smith & Nephew supports healthcare professionals in their daily efforts to improve the lives of their patients. TODAY 4

5 Our business ALLEVYN Life Advanced Foam Wound Dressings PICO Negative Pressure Wound Therapy Collagenase SANTYL Ointment Enzymatic debrider Advanced Wound Care Advanced Wound Devices Knees JOURNEY II BCS Bi-Cruciate Stabilised Knee System NAVIO Surgical System Advanced Wound Bioactives Other Surgical Businesses $4.6bn Revenues (2015) Hips REDAPT Revision Femoral System AMBIENT SUPER MULTIVAC COBLATIION Wand Arthroscopic Enabling Technologies TRIGEN INTERTAN Intertrochanteric Antegrade Nail Trauma Sports Medicine Joint Repair SUTUREFIX Ultra Suture Anchor 5

6 Our markets 2015 Split of Revenues Emerging/ International Markets (15%) US (48%) Established OUS (37%) We have a balanced global footprint 15,000 Employees

7 Our leading position Other 15% Stryker 19% Hip & Knee Implants Zimmer Biomet 35% Arthrex 30% Sports Medicine* Zimmer Biomet 3% DePuy Mitek** 15% Linvatec 5% Other 37% Advanced Wound Management Convatec 8% Acelity 21% DePuy Synthes** 21% Other 13% Stryker 11% Molnlycke 12% Coloplast 4% 10% 23% 18% Data: 2015 Estimates generated by Smith & Nephew based upon public sources and internal analysis *Representing access, resection and repair products. ** A division of Johnson & Johnson 7

8 Our market growth drivers Emerging Markets Demographics Technology Prevalence Economics Lifestyle 8

9 Market realities and opportunities Procedure demand continues to increase Still room for innovation Ability to pay continues to decrease in established markets New business models slowly emerging, but fragmented Environment Complexities Demographic and disease led Fuelled by expanded access in emerging markets Demonstrate clinical benefit or cost reduction Austerity, reduced prices Alternative, less costly solutions Syncera value solutions pioneering model Mid-tier model to access emerging markets Regulatory, clinical data, manufacturing know-how, patents Customer relationships, distribution channels, capital 9

10 Our performance Revenue Trading profit Trading cash conversion $4,634m +4%* $1,099m +5%* 23.7% margin 85% 4,270 4,137 4,351 4,617 4, ,055 1,099 87% 104% 89% 74% 85% Adjusted earnings per share (EPSA) 85.1c +3%CAGR Dividend per share 30.8c +15%CAGR Net Debt $1,361m ,613 1, * Underlying growth percentage after adjusting for the effect of currency translation, acquisitions and disposals. 10

11 Our customers Healthcare systems, Procurement groups Nurses, Nurse specialists Retail consumers, Patients Surgeons Payers, Administrators Physicians, GPs 11

12 Strategic priorities Winning Accelerating Innovating Simplifying Supplement in Established Markets development in Emerging Markets for value and improving our operating model organic growth through acquisitions 12

13 Capital allocation framework 1 Reinvest for organic growth 2 Progressive dividend policy 3 Acquisitions in line with strategy 4 Return excess To shareholders Maintain strong balance sheet to ensure solid investment grade credit metrics 13

14 Future a rebalanced Smith & Nephew 2011* Future Lower Growth 65% Higher Growth 35% Improving Strengthening Creating Proportion of Revenue Higher Growth 67% Lower Growth 33% * Excluding Clinical Therapies Higher Growth: Sports Medicine Joint Repair, Trauma & Extremities, Advanced Wound Bioactives and Devices, Emerging markets (all franchises), COBLATION, Robotics. Lower Growth: Arthroscopic Enabling Technologies, Reconstruction and Advanced Wound Care (all Established markets) 14

15 Group optimisation plan four levers Optimising Functions Develop best in class global support functions Driving Procurement Savings Simplifying Operating Model Drive savings and capability investments Simplify our management structure Increasing overall efficiency Liberating resources to re-invest in critical areas to drive growth Optimising Locations Rationalise property portfolio 15

16 Q3 and 9 Month 2016 Performance & Full Year Guidance 16

17 Q3 revenue growth of 2% underlying Geographical growth Revenue split Product franchise growth Sports Medicine Joint Repair 8% 2% US Arthroscopic Enabling Tech Trauma & Extremities Other Surgical 2% 1% 12% Knees 4% 0% Est OUS Hips 0% 6% 0% 5% 10% Emerging AWC AWB AWD -2% -3% 5% -5% 5% 15% Underlying change (%) Underlying change (%) Note: Est OUS is Australia, Canada, Europe, Japan and New Zealand 17

18 9 month 2016 (YTD) revenue growth of 3% underlying Geographical growth Revenue split Product franchise growth Sports Medicine Joint Repair 10% 5% US Arthroscopic Enabling Tech Trauma & Extremities Other Surgical -4% 3% 15% Knees 6% 1% Est OUS Hips 1% -1% -5% 0% 5% 10% Emerging AWC AWB AWD -3% -1% 5% -5% 5% 15% Underlying change (%) Underlying change (%) Note: Est OUS is Australia, Canada, Europe, Japan and New Zealand 18

19 Full year guidance Revenue improvements in China, as guided; Gulf States remain challenging AWB full year revenue around 2015 level four fewer sales days in Q4 foreign exchange impact for full year of -1% Trading profit margin guidance relating to transactional fx & BlueBelt (-180bps) and GYN (-10 bps) unchanged Group Optimisation programme to deliver more than $120m annualised benefits H2 margin improves on H1, but impacted by lower revenue growth Financial updates successful resolution of tax issue leads to one-off 200bps improvement in expected trading tax rate to c. 24.5% $300m ongoing share buyback programme ($160m returned to shareholders to date) 19

20 Strategic Updates: Recent M&A Update, Syncera, Innovation, Recon, and Emerging Markets 20

21 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 including WEREWOLF and LENS sales synergies coming through e.g. faster Shoulder growth than in standalone businesses 21

22 Blue Belt six month update 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

23 Complementary products and pipeline Blue Belt Technologies What Smith & Nephew brings Current offering Navio System STRIDE Uni Knee Most successful partner JOURNEY Uni, ZUK Global reach R&D programme Total knee arthroplasty Revision knee Bi-cruciate retaining knee Established compatible products Clinical and marketing strength JOURNEY II for BCR in development Medium-term opportunities Total hip arthroplasty Sports medicine Deep customer base and expertise 23

24 The Syncera solution Value 1 Hip/Knee implant solutions for progressive customers Clinically proven 2 Products from Smith & Nephew addressing the vast majority of primary joint procedures Automation 3 Customer interfaces using innovative technology to reduce cost while improving efficiency Full support 4 High levels of service and support Attractive economics 5 Transparent prices driving substantial benefit for providers 24

25 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-sharing models, consultancy Not all Models are Different. Most are the same. One is unique. 25

26 Pioneering innovative technologies and models Sports Medicine Hip & Knee Wound TODAY: Drive growth with differentiated products Leading knee, hip and shoulder portfolios COBLATION & DYONICS VERILAST technology JOURNEY II family ZUK uni knee ALLEVYN Life PICO SANTYL FUTURE: Accelerate growth with disruptive innovations and solutions Rotator Cuff Solution WEREWOLF Regenerative e.g. BST-CarGel Syncera model NAVIO system REDAPT revision hip RENASYS TOUCH Solutions based models Segment-leading growth Segment-leading growth Segment-leading growth 26 Note: excludes mid-tier, ENT, and Trauma & Extremities portfolios 26

27 Advanced Wound Management: Disease lens is driving our view of innovation Prevention Diagnosis & Detection Treatment Care Coordination & Monitoring Data Driven Healthcare Deep tissue injury detection Point of care diagnostics Healing technologies Clinical algorithms Best-in-class medical education Bioactive debridement Outcomes tracking Biosensors Risk stratification tools Anti-infectives Next Generation negative pressure Products designed for patient transition Data-driven best practices Real-world cost effectiveness models 27

28 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 Widening access strong Established Market business supporting Emerging Markets Disruptive model Syncera JOURNEY II Active Knee Solutions Growing above the market in the US last 12 months 28

29 Revenue as proportion of group (%) Accelerating development in Emerging Markets Quarterly revenue development 30% FY 2015 SUPPORTIVE MARKET CONTEXT: economic growth higher healthcare spending 25% Q % 15% OUR ACTIONS: expansion of premium product range mid-tier strategy medical education further acquisitions 20% 15% 10% 5% % 29

30 China improvements expected in H2 Smith & Nephew sales trajectory in China FY Q1 Q2 Q3 Q4 Q1 Q2 H2e Reconstruction Sports Medicine Trauma Advanced Wound Management 30

31 Mid-tier new emerging markets business model Mid-tier commercial model Independent Mid-tier sales organisation Good quality products at lower prices Dedicated leadership Manufacturing & design efficiency Common shared services Different business model Different service model Different brand Separate sales channels Streamlined sales & marketing Collaboration with premium-tier organisation 31

32 Appendices 32

33 Franchise revenue analysis Q1 Q2 Q3 Q Full Year Q1 Q2 Q3 Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % $m % Sports Medicine, Trauma & OSB Sports Medicine Joint Repair Arthroscopic Enabling Technologies (2) 1 (2) Trauma & Extremities (7) (6) Other Surgical Businesses* Reconstruction Knee Implants Hip Implants (1) 1 (2) Advanced Wound Management (3) 311 (1) Advanced Wound Care (7) 185 (2) Advanced Wound Bioactives (4) 4 80 (3) Advanced Wound Devices (27) (9) (3) Group ,119 2 All revenue growth rates are on an underlying basis * Other Surgical Businesses includes ENT, Gynaecology (prior to divestment in August) and robotics sales (excluding implant sales) 33

34 Regional revenue analysis Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % $m % Geographic regions US Other Established Markets (2) Established Markets Emerging Markets (6) (2) Group ,119 2 Other Established Markets is Australia, Canada, Europe, Japan and New Zealand. All revenue growth rates are on an underlying basis 34

35 H1 Trading income statement $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 Trading profit margin 20.8% 22.5% * includes the effect of transactional exchange impacting year-on-year margin by around 190bps 35

36 H1 EPSA and EPS Growth Reported CER Underlying $m $m Trading profit % -4% -3% Net interest payable (24) (21) Other finance costs (6) (7) Share of results from associate - (3) Adjusted profit before tax Taxation (119) (131) Tax rate 26.3% Adjusted attributable profit Number of shares million Adjusted earnings per share ("EPSA") % -2% Earnings per share ("EPS")

37 H1 Free cash flow $m $m Trading profit Share based payment Depreciation and amortisation Capital expenditure (174) (161) Movements in working capital and provisions (215) (130) Trading cash flow Trading cash conversion 53% 75% Restructuring, rationalisation, acquisition & other (49) 36 Operating cash flow Net interest paid (24) (17) Taxation paid (87) (72) Free cash flow includes $99m cash receipt on Arthrex legal claim 37

38 Management Olivier Bohuon Chief Executive Officer Olivier joined the Board and was appointed Chief Executive Officer in April Olivier has had extensive international experience within a number of pharmaceutical and healthcare companies. Prior to joining Smith & Nephew, he was President of Abbott Pharmaceuticals, a division of Abbott Laboratories based in the US, where he was responsible for the entire business, including R&D, Global Manufacturing and global support functions. Olivier has extensive international healthcare leadership experience within a number of significant pharmaceutical and healthcare companies. His global experience provides the skillset required to innovate a FTSE100 company with a deep heritage and provide inspiring leadership. He is a Non-executive Director of Virbac group and Shire plc. Julie Brown Chief Financial Officer Julie joined the Board as Chief Financial Officer in February Julie is a Chartered Accountant and Fellow of the Institute of Taxation with international experience and a deep understanding of the healthcare sector. She trained with KPMG and then worked for AstraZeneca plc, where she served as Vice President Group Finance and more recently, as Interim Chief Financial Officer. She has previously held positions of Regional Vice President Latin America, Marketing Company President AstraZeneca Portugal and Vice President Corporate Strategy and Research and Development Chief Financial Officer. She is nominated for election as a new member of the Board of Directors of Roche Holding Ltd and Chair of the Audit Committee at the Annual General Meeting on 1 March

39 Investor Relations Contacts Ingeborg Øie VP, Investor Relations E: T: +44 (0) Kate Gibbon Investor Relations Manager E: T: +44 (0) Smith & Nephew plc 15 Adam Street London WC2N 6LA T: +44 (0)

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