Investor Presentation July - September 2019
Forward looking statements and non-IFRS measures
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 or other problems with quality management systems or failure to comply with related regulations; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; disruption to our supply chain or operations or those of our suppliers; competition for qualified personnel; 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. The terms 'Group' and 'Smith+Nephew' are used for convenience to refer to Smith & Nephew plc and its consolidated subsidiaries, unless the context requires otherwise.
Certain items included in 'trading results', such as trading profit, trading profit margin, tax rate on trading results, trading cash flow, trading profit to cash conversion ratio, EPSA and underlying growth are non-IFRS financial measures. The non-IFRS financial measures in this announcement are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS in our Second Quarter Results announcement dated 31 July 2019.
2
100
Smith & Nephew is a
global Medical Device portfolio company,
FTSE100
A constituent of the UK's FTSE100, with ADRs traded on the New York Stock Exchange
Shares
S&N has a progressive dividend policy, and has paid a dividend every year since 1937
that has been trading for over 160 years, and operates in more than 100 countries
$4.9bn | ~16,500 |
Annual sales in 2018 | We have around 16,500 |
were $4.9 billion | employees globally |
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A portfolio medical device company
ALLEVYN◊LIFE | Advanced | Advanced | PICO◊ | |
Advanced Foam | Negative Pressure | |||
Wound Dressings | Wound Care | Wound Devices | Wound Therapy | |
Collagenase | Advanced | JOURNEY◊II BCS | ||
Bi-Cruciate | ||||
Wound | ||||
SANTYL◊Ointment | Stabilised | |||
Enzymatic debrider | Bioactives | Knees | Knee System | |
ENT | $4.9bn | |||
Arthroscopic | Revenues | POLAR3◊ | ||
(2018) | Total Hip | |||
COBLATION◊ | Enabling | Hips | Solution | |
Wand | Technologies |
REGENETEN◊Bioinductive Implant
Sports Medicine | ||
Joint Repair | Other Recon | Trauma |
TRIGEN◊INTERTAN◊
Intertrochanteric
Antegrade Nail
NAVIO◊
Surgical
System
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Our performance
Revenue
$4,904m+2%*
4904
4765
4617 46344669
2014 2015 2016 2017 2018
Adjusted earnings per share (EPSA)
100.9¢+5%CAGRTrading Profit
$1,123m 22.9% margin
1123
1099
10551048
1020
2014 2015 2016 2017 2018
Dividend per share
36.0¢+5%CAGRTrading cash conversion
85%
85% | 90% | 85% | |||
75% | |||||
74% | |||||
2014 2015 2016 2017 2018
Net Debt
$1,104m
83.2 85.1 82.6
94.5 100.9
29.630.8 30.8
35.0 36.0
1613 | 1361 | 1550 | |
1281 | |||
1104 | |||
2014 | 2015 | 2016 | 2017 | 2018 | 2014 | 2015 | 2016 | 2017 | 2018 |
* Underlying growth percentage after adjusting for the effect of currency translation, acquisitions and disposals.
2014 2015 2016 2017 2018
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Q2 2019 revenue:
$1,283m, 3.5% underlying, 3.1% reported
Revenue split
Emerging Markets
$246m
US
$635m
Other
Established Markets
$402m
Geographical growth
Global | 3.5% | |||||||||||
Established Markets | 0.9% | |||||||||||
US | 2.3% | |||||||||||
Other Established Markets | -1.3% | |||||||||||
Emerging Markets | 16.2% | |||||||||||
-5.0% | 0.0% | 5.0% | 10.0% | 15.0% | 20.0% |
Product franchise growth
Orthopaedics | 3.6% | |||||
Knees | 4.3% | |||||
Hips | 2.9% | |||||
Other Recon | 3.5% | |||||
Trauma | 2.8% | |||||
Sports Medicine, ENT | 5.6% | ||||
Sports Medicine Joint Repair | 11.9% | ||||
Arthroscopic Enabling Technologies -2.1% | |||||
ENT | 6.3% | ||||
Advanced Wound Management | 1.2% | ||||||||||||||
AWC | -1.7% | ||||||||||||||
AWB | -1.2% | ||||||||||||||
AWD | 16.0% | ||||||||||||||
-5.0% | 0.0% | 5.0% | 10.0% | 15.0% | 20.0% |
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H1 2019 revenue:
$2,485m, 3.9% underlying, 1.8% reported
Revenue split
Emerging Markets
$465m
US
$1,203m
Other
Established Markets
$817m
Geographical growth
Global | 3.9% | |||||||||||
Established Markets | 1.5% | |||||||||||
US | 3.1% | |||||||||||
Other Established Markets | -0.7% | |||||||||||
Emerging Markets | 15.8% | |||||||||||
-5.0% | 0.0% | 5.0% | 10.0% | 15.0% | 20.0% |
Product franchise growth
Orthopaedics | 3.7% | |||||
Knees | 4.2% | |||||
Hips | 2.7% | |||||
Other Recon | 5.0% | |||||
Trauma | 3.8% | |||||
Sports Medicine, ENT | 5.4% | ||||
Sports Medicine Joint Repair | 11.5% | ||||
Arthroscopic Enabling Technologies -1.6% | |||||
ENT | 5.3% | ||||
Advanced Wound Management | 2.4% | ||||||||||||
AWC | 0.1% | ||||||||||||
AWB | -0.6% | ||||||||||||
AWD | 16.2% | ||||||||||||
-5.0% | 0.0% | 5.0% | 10.0% | 15.0% | 20.0% |
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2019 Guidance
2019 | Sales growth: | Trading profit margin: | Tax rate: |
Underlying: 3.0% to 4.0% | 22.8% to 23.2% | 19% to 21%(2) |
Reported: 3.6% to 4.6%(1)
Medium | Sales growth: | Trading profit margin: | Tax rate: | ||
Consistent growth | Ongoing improvement | 19% to 21%(2) | |||
term | |||||
above market | |||||
- Based on the foreign exchange rates prevailing on 25 July 2019
(2)Tax rate on trading result | 8 |
Strategic imperatives for the company
Grow | Together | Effectively | ||
1 | 2 | 3 | 4 | 5 |
Achieve the | Transform | Expand in | Strengthen | Become the |
full potential | the business | high-growth | talent and | best owner |
of our portfolio | through | segments | capabilities | |
enabling | ||||
technologies |
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New commercial model: creation of global franchises
Chief
Executive
Officer
President, | President, | Chief | President, | Chief | |||||||||||||
President, | Sports | Advanced | President, | President, | Financial | President, | |||||||||||
Global | RA/QA | ||||||||||||||||
Orthopaedics | Medicine & | Wound | EMEA | APAC | Officer, GBS | R&D | |||||||||||
Operations | Officer | ||||||||||||||||
ENT | Mgmt | & IT | |||||||||||||||
Chief | Chief | Chief Legal |
Bus. Dev. | ||
Human | and | |
and Corp. | ||
Resources | Compliance | |
Affairs | ||
Officer | Officer | |
Officer | ||
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Moving from robotic-assisted surgery to a digital ecosystem
NAVIO™
Surgical System
Launch of NAVIO 7.0 in | Launch of next-generation |
H2 2019 | platform, with Brainlab hip |
and knee software |
- Brainlab hip software on
NAVIO | Introduction of robotic arms |
- Ecosystem incorporatingstand-alone robotic arms, augmented reality
- Expansion into sports medicine and other clinical specialties
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Executing on M&A strategy
Acquisition of Orthopaedic Joint Reconstruction Business
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The pillars of a new purpose-driven culture
Life Unlimited
Care | Collaboration | Courage |
A culture of empathy and | A culture of team, | A culture of continuous learning, |
understanding for each other, | based on mutual trust and respect | innovation and accountability |
our customers and patients | ||
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APEX summary
- Benefits of$160m p.a.by 2022
- Totalone-offcosts (mainly cash) up to $240m (c.150% of annualisedrun-ratebenefits)
- Period:2018 - 2022, with around 75% of benefits and >75% of costs by 2020
- Benefitsunderpin medium-term margin guidance
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Appendices
15
Technical guidance
July 2019 | |
Foreign exchange and other revenue impact | |
Impact of translational FX on revenue(1) | (2.0%) |
Acquisition impact on revenue | +2.6% |
Non-trading items | |
Restructuring costs | c. $100-120m |
Acquisition and integration costs | c. $30-40m |
European Medical Device Regulation (MDR) compliance costs | c. $50m |
Other | |
Amortisation of acquisition intangibles | c. $140-150m |
Income from associates | c. $5m |
Net interest(2) | $50-55m |
Other finance costs | c. $15m |
Tax rate on trading result | 19%-21% |
(1) | Based on the foreign exchange rates prevailing on 25 July 2019 | |
(2) | Excludes interest associated with IFRS 16 leases | 16 |
Franchise revenue analysis
2018 | 2019 | |||||||
Q1 | Q2 | Q3 | Q4 | Full year | Q1 | Q2 | Q2 | |
Growth | Growth | Growth | Growth | Growth | Growth | Revenue | Growth | |
% | % | % | % | % | % | $m | % | |
Orthopaedics | 0 | 1 | 5 | 4 | 3 | 3.9 | 552 | 3.6 |
Knee Implants | 2 | 3 | 4 | 3 | 3 | 4.1 | 262 | 4.3 |
Hip Implants | (2) | 1 | 4 | 4 | 2 | 2.4 | 156 | 2.9 |
Other Reconstruction | 30 | 27 | 43 | 45 | 36 | 6.9 | 16 | 3.5 |
Trauma | (2) | (5) | 3 | 1 | (1) | 4.8 | 118 | 2.8 |
Sports Medicine & ENT | 1 | 3 | 3 | 2 | 2 | 5.3 | 379 | 5.6 |
Sports Medicine Joint Repair | 5 | 7 | 8 | 8 | 7 | 11.0 | 194 | 11.9 |
Arthroscopic Enabling Technologies | (5) | (1) | (2) | (4) | (3) | (1.1) | 146 | (2.1) |
ENT | 6 | 5 | 5 | 3 | 5 | 4.2 | 39 | 6.3 |
Advanced Wound Management | (2) | 1 | 1 | 2 | 0 | 4.1 | 352 | 1.2 |
Advanced Wound Care | 0 | 2 | 1 | 2 | 1 | 2.0 | 177 | (1.7) |
Advanced Wound Bioactives | (12) | (6) | (7) | (3) | (6) | 0.4 | 114 | (1.2) |
Advanced Wound Devices | 2 | 9 | 11 | 14 | 9 | 16.4 | 61 | 16.0 |
Total | 0 | 2 | 3 | 3 | 2 | 4.4 | 1,283 | 3.5 |
All revenue growth rates are on an underlying basis and without adjustment for number of selling days. | 17 |
2018 growth by franchise has been re-presented to align with the new global franchise structure effective from 1 January |
2019. There has been no change in total growth for any period presented.
Regional revenue analysis
2018 | 2019 | ||||||||
Q1 | Q2 | Q3 | Q4 | Full | Q1 | Q2 | |||
Year | |||||||||
Growth | Growth | Growth | Growth | Growth | Revenue | Growth | Revenue | Growth | |
% | % | % | % | % | $m | % | $m | % | |
US | (2) | 1 | 4 | 3 | 1 | 568 | 4.0 | 635 | 2.3 |
Other Established Markets(1) | (2) | 1 | (1) | 0 | 0 | 415 | (0.1) | 402 | (1.3) |
Total Established Markets | (2) | 1 | 2 | 2 | 1 | 983 | 2.2 | 1,037 | 0.9 |
Emerging Markets | 9 | 6 | 10 | 8 | 8 | 219 | 15.3 | 246 | 16.2 |
Total | 0 | 2 | 3 | 3 | 2 | 1,202 | 4.4 | 1,283 | 3.5 |
(1) Other Established Markets' are Australia, Canada, Europe, Japan and New Zealand. | 18 |
All revenue growth rates are on an underlying basis and without adjustment for number of selling days |
H1 trading income statement
2019 | 2018 | ||||
$m | $m | ||||
Revenue | 2,485 | 2,440 | 3.9% underlying growth | ||
Cost of goods sold | (646) | (651) | |||
Gross profit | 1,839 | 1,789 | |||
Gross profit margin | 74.0% | 73.3% | |||
Selling, general and admin | (1,178) | (1,168) | |||
Research and development | (129) | (114) | |||
Trading profit | 532 | 507 | |||
Trading profit margin | 21.4% | 20.8% | +60bps growth | ||
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H1 EPSA and EPS
Full Year
2019 | 2018 | Growth | |||
$m | $m | ||||
Trading profit | 532 | 507 | 5% | ||
Net interest payable | (25) | (25) | |||
Other finance costs | (6) | (7) | |||
Share of results from associate | (3) | 2 | |||
Adjusted profit before tax | 498 | 477 | |||
Taxation on trading result | (98) | (96) | 2019 tax rate*: 19.7% | ||
Adjusted attributable profit | 400 | 381 | |||
Weighted average number of shares (m) | 874 | 873 | |||
Adjusted earnings per share ("EPSA") | 45.8¢ | 43.7¢ | 5% | ||
Earnings per share ("EPS") | 35.3¢ | 31.4¢ | 13% | ||
Dividend per share | 14.4¢ | 14.0¢ | 3% | ||
- Tax rate on trading result
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H1 free cash flow
Full Year
2019 | 2018 | |
$m | $m | |
Trading profit | 532 | 507 |
Share based payment | 17 | 18 |
Depreciation and amortisation | 188 | 171 |
Lease liability repayments | (23) | - |
Capital expenditure | (153) | (178) |
Movements in working capital and other | (156) | (131) |
Trading cash flow | 405 | 387 |
Trading cash conversion | 76% | 76% |
Restructuring, acquisition, legal and other | (38) | (147) |
Net interest paid | (24) | (26) |
Taxation paid | (68) | (95) |
Free cash flow | 275 | 119 |
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Trading days per quarter
Q1 | Q2 | Q3 | Q4 | Full Year | |
2017 | 64 | 63 | 63 | 60 | 250 |
2018 | 63 | 64 | 63 | 61 | 251 |
2019 | 63 | 63 | 63 | 62 | 251 |
2020 | 62 | 63 | 63 | 64 | 252 |
Year-on-year differences in the number of trading days typically impacts our surgical businesses in the Established Markets more than our wholesaler and distributor-supported businesses. | |
We define trading days as weekdays adjusted for significant holidays in our principal countries. | 22 |
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Smith & Nephew plc published this content on 31 July 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 July 2019 14:24:01 UTC