Investor Presentation October - December 2020
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 profit 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: risks related to the impact of COVID-19, such as the depth and longevity of its impact, government actions and other restrictive measures taken in response, material delays and cancellations of elective procedures, reduced procedure capacity at medical facilities, restricted access for sales representatives to medical facilities, or our ability to execute business continuity plans as a result of COVID-19; economic and financial conditions in the markets we serve, especially those affecting health care providers, payers and customers (including, without limitation, as a result of COVID-19); 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 (including, without limitation, as a result of COVID-19); 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; relationships with healthcare professionals; reliance on information technology and cybersecurity; 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, leverage ratio, 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 and First Half 2020
Results announcement dated 29 July 2020. | 2 |
Our history
1856 | 1896 | 1914 | ||||
Days after the outbreak of WW1, | ||||||
Thomas James Smith | Horatio Nelson Smith | we received an order to provide | ||||
1856 | opened a chemist shop in Hull, | entered into apartnership | surgical and field dressing | From50 | ||
UK and develops a new method | with his uncleforming | supplies to French | ||||
Smith+Nephew | for refining cod liver oil | TJSmith & Nephew | army within 5months | To1200 | ||
established | 1986 | During WW1, staff grew | ||||
from 50 to 1,200 | ||||||
Key acquisitions of Richards Medical Company | 1937 | |||||
in Memphis, specialists in orthopaedic products | ||||||
and DYONICS, an arthroscopy specialists | We were listed on the | |||||
based in Andover | 1953 | London stock exchange | 1928 | |||
1995 | We developed a special low-temperatureplaster | We produced an | ||||
for the Everest climbers on the 1953 expedition. | experimental bandage | |||||
Acquired | ||||||
It enabled them to send back their camera films, sealed | ElastoplastTM | |||||
Acufex Microsurgical Inc, | ||||||
and airtight!. This same research led to the development | ||||||
making us a market leader in | ||||||
of importantindustrial products | ||||||
arthroscopic surgicaldevices | ||||||
2001 | ||||||
1999 | ||||||
We were listed on the New York Stock | OXINIUM◊, a new material that | |||||
Exchange and in 2001 became a constituent | improves performance and increases | |||||
member of the UK FTSE-100 index | the service life of total joint | |||||
replacement systems, firstintroduced |
2014 | 2013 | 2011 | |||
Acquired ArthrocareCorp. | JOURNEY◊ II BCS sets a new standardinknee | PICO◊, the first pocket-sized,single-use | |||
to expand our sports | implant performance,designed | system, revolutionizes the negative | |||
medicine portfolio | to empower patients to return | pressure wound therapymarket | |||
17,500+ | to an activelifestyle | ||||
2019 | 2020 | We exist to restore people'sbodies and their self-belief | |||
Expanding in technologies of the | We are proud of what we do | ||||
future, investing inOrthopaedics, | and value our 17,500 employees | by using technologies to take the limits off living. | |||
Biologics and Digital Surgery. | who make thispossible | We call this purpose "LifeUnlimited" |
◊Trademark of Smith & Nephew, ©2020 Smith & Nephew
Over | Today | |||||
100 | and growing | |||||
3 | ||||||
100
Smith+Nephew is a global Medical Device portfolio company, that has been trading for over 160 years, and operates in more
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
than 100 countries
$5.1bn | ~17,500 |
Annual sales in 2019 | We have around 17,500 |
were $5.1 billion | employees globally |
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A portfolio medical device company
ALLEVYN◊ LIFE | Advanced |
Advanced Foam | |
Wound Dressings | Wound Care |
Collagenase | Advanced |
SANTYL◊ Ointment | Wound |
Enzymatic debrider | Bioactives |
ENT | $5.1bn | |||
Arthroscopic | Revenues | |||
COBLATION◊ | Enabling | (2019) | ||
Wand | Technologies |
REGENETEN◊ | Sports Medicine | |
Bioinductive Implant | Joint Repair | Other Recon |
Advanced | PICO◊ | ||
Negative Pressure | |||
Wound Devices | Wound Therapy | ||
JOURNEY◊ II BCS | |||
Bi-Cruciate | |||
Stabilised | |||
Knees | Knee System | ||
POLAR3◊ | |||
Hips | Total Hip | ||
Solution | |||
EVOS◊ SMALL | |||
Trauma | Plating System | ||
NAVIO◊
Surgical
System
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Leading positions in stable growing markets
Hip & Knee Implants
$14.8bn market
(growth +3%)
Others | |
15% | |
Zimmer | |
Smith+ | Biomet |
Nephew | 32% |
12% |
DePuy | Stryker |
Synthes | |
22% | |
19% | |
#4 position
Sports Medicine
$5.3bn market
(growth +5%)
Others
17%
DePuy | Arthrex |
Synthes | 33% |
13% | |
Stryker | Smith+ |
11% | |
Nephew | |
26% |
#2 position
Advanced Wound Management
$9.4bn market
(growth +4%)
3M
19%
Others
51%Smith+
Nephew
14%
Molnlycke
Convatec 9%
7%
#2 position
1) | Data used in 2019 estimates generated by Smith & Nephew is based on publicly available sources and internal analysis and represents an indication of market shares | 6 |
2) | DePuy Synthes is a division of Johnson & Johnson. |
Our performance
Revenue
$5,138m +4.4%*
5138
4904
4634 4669 4765
2015 2016 2017 2018 2019
Adjusted earnings per share (EPSA)
102.2¢ | +5% CAGR | |||||||
85.1 | 82.6 | 94.5 | 100.9 | 102.2 | ||||
2015 2016 2017 2018 2019
Trading profit
$1,169m | 22.8% margin | ||||
1169 | |||||
1099 | 1123 | ||||
1020 | 1048 | ||||
2015 2016 2017 2018 2019
Dividend per share
37.5¢ | +5% CAGR | |||||
35.0 | 36.0 | 37.5 | ||||
30.8 | 30.8 | |||||
2015 2016 2017 2018 2019
Trading cash conversion
83%
85% | 90% | 85% | 83% | |||
75% | ||||||
2015 2016 2017 2018 2019
Net debt
$1,600m
1361 | 1550 | 1600 | ||
1281 | 1104 | |||
2015 2016 2017 2018 2019
* Underlying growth percentage after adjusting for the effect of currency translation, acquisitions and disposals.
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Our enterprise strategic imperatives
Achieve the full | Transform the business | Expand in high-growth | Strengthen talent and | Become the best owner |
potential of our | through enabling | segments | capabilities | |
portfolio | technologies | |||
GROW | TOGETHER | EFFECTIVELY |
6%
4%
2%
0%
Year on year % underlying revenue growth
H1 2018 | H2 2018 | H1 2019 | H2 2019 |
Performance improved over the course of the 2019, with 3.9% underlying revenue growth in the first half and 4.9% in the second half. All three global franchises delivered an improved revenue growth performance over the prior year
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Meaningful new revenue growth drivers accumulating across the portfolio in 2020
New launches from internal R&D
CORI Surgical | INTELLIO Connected | COBLATION◊ |
System | Tower | HALO Wand |
US launch | US launch | US launch |
announced | announced | |
Q1 2020 | ||
July 2020 | July 2020 | |
+ pipeline
Adding growth through M&A
Tuck-ins in high growth areas
Extremity Orthopaedics business
Digital technology acquisitions
Adding value to recent acquisitions
CE Mark for | CE Mark for | Bioactives salesforce selling |
REGENETEN◊ | NOVOSTITCH◊ PRO | Grafix/Stravix |
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Integra Orthopaedic Extremities acquisition - expanding in high growth segment
Comprehensive portfolio of
extremities assets
ShoulderAnkle
Titan Modular Shoulder | Cadence Total Ankle |
System 2.5 | System |
Upper extremities | Lower extremities |
Freedom Wrist | Panta 2 TTC Arthrodesis |
Arthroplasty System | Nail System |
US market estimated to grow 6-7% per annum
Deal benefits
- Purchase price $240m
- $90m sales in 2019
- Accretive to S+N's weighted average market growth rate
- Adds team of Extremities specialists with established distribution
- Expect double digit revenue growth
- Dilutive to trading profit 2021, 2022
- ROIC to reach or exceed WACC in year 5
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2020 quarterly underlying sales development by region
US | Other established | Emerging markets |
markets | ||
- Continued recovery in elective procedures
- Elective procedure restrictions being relaxed in Texas; restrictions now lifted in all other states
• | Germany, France return to | • | Year-on-year growth in China, |
growth | procedures >80% of normal | ||
• | Australia, Japan procedures at | • | India, Latin America, South |
~90% of normal in early Oct | Africa yet to show significant | ||
recovery |
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Q3 recovery, visibility still limited
Quarterly Group underlying
revenue growth | • | COVID-19 significant uncertainty continues |
- geographical variation and local restrictions | ||
- most healthcare systems better prepared | ||
- assuming impact continues into H1 2021 | ||
• Full year 2020 guidance remains withdrawn | ||
• Focused on delivering growth, investments sustained | ||
- R&D programme | ||
- recent M&A (short-term dilution) | ||
• Negative operating leverage while volumes reduced | ||
- reviewing operational efficiency plans | ||
• | Transactional FX headwind |
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Q3 revenue:
$1,200m, -4.2% underlying, -3.7% reported
Revenue split | Franchise performance |
Geographical performance
Orthopaedics | -2.8% | ||||||||||
Knees | -9.5% | ||||||||||
Hips | 7.1% | ||||||||||
Other Recon | -3.1% | ||||||||||
Trauma | -1.4% | ||||||||||
Sports Medicine, ENT | -4.5% | ||||||||||
Sports Medicine Joint Repair | -2.7% | ||||||||||
Arthroscopic Enabling Technologies | -1.6% | ||||||||||
ENT | -24.8% | ||||||||||
Advanced Wound Management | -6.1% | ||||||||||
AWC | -6.9% | ||||||||||
AWB | -4.5% | ||||||||||
AWD | -6.9% | ||||||||||
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Updated APEX targets
Become the best owner
APEX - Jan 2018 | APEX - 2020 update |
Initial targets: | Updated targets: |
Benefits of $160m p.a. by 2022 | Benefits of $190m p.a. |
Total one-off costs of $240m | Total one-off costs of $290m |
~75% of benefits, >75% of costs by 2020 | Closing in full by end of 2020 |
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Excellence through the value chain
Become the best owner
Operations transformation | Commercial transformation |
Key initiatives: | Key initiatives: | ||
• | Optimised manufacturing network | • Increasing share of direct distribution | |
• Rollout of lean methodology | • | Sales training and excellence | |
• | Distribution network and supply | • | Enhancing professional education |
chain opportunities |
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Appendices
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Franchise revenue analysis
2019 | 2020 | ||||||||
Q1 | Q2 | Q3 | Q4 | Full Year | Q1 | Q2 | Q3 | Q3 | |
Growth | Growth | Growth | Growth | Growth | Growth | Growth | Revenue | Growth | |
% | % | % | % | % | % | % | $m | % | |
Orthopaedics | 3.9 | 3.6 | 3.4 | 5.1 | 4.0 | (8.3) | (34.0) | 512 | (2.8) |
Knee Implants | 4.1 | 4.3 | 4.6 | 4.7 | 4.4 | (10.6) | (46.9) | 219 | (9.5) |
Hip Implants | 2.4 | 2.9 | 2.6 | 0.7 | 2.1 | (8.6) | (26.9) | 156 | 7.1 |
Other Reconstruction | 6.9 | 3.5 | 1.5 | 31.6 | 12.6 | 19.4 | (51.5) | 19 | (3.1) |
Trauma | 4.8 | 2.8 | 2.2 | 7.0 | 4.3 | (7.1) | (11.1) | 118 | (1.4) |
Sports Medicine & ENT | 5.3 | 5.6 | 6.9 | 10.1 | 7.0 | (9.5) | (33.3) | 350 | (4.5) |
Sports Medicine Joint Repair | 11.0 | 11.9 | 12.2 | 14.0 | 12.3 | (7.1) | (32.0) | 186 | (2.7) |
Arthroscopic Enabling Technologies | (1.1) | (2.1) | 0.8 | 5.1 | 0.8 | (11.2) | (32.1) | 136 | (1.6) |
ENT | 4.2 | 6.3 | 5.3 | 10.7 | 6.7 | (15.2) | (44.0) | 28 | (24.8) |
Advanced Wound Management | 4.1 | 1.2 | 2.1 | 1.9 | 2.2 | (4.0) | (17.6) | 338 | (6.1) |
Advanced Wound Care | 2.4 | (1.3) | (2.3) | 0.4 | (0.2) | (6.7) | (14.6) | 163 | (6.9) |
Advanced Wound Bioactives | (0.7) | (1.9) | 2.8 | (1.9) | (0.4) | (8.6) | (18.7) | 117 | (4.5) |
Advanced Wound Devices | 16.6 | 16.3 | 15.4 | 15.4 | 15.9 | 13.0 | (23.7) | 58 | (6.9) |
Total | 4.4 | 3.5 | 4.0 | 5.6 | 4.4 | (7.6) | (29.3) | 1,200 | (4.2) |
All revenue growth rates are on an underlying basis and without adjustment for number of selling days. | 20-Nov-20 | 17 |
The 2019 growth rates for the Advanced Wound Care, Advanced Wound Bioactives and Advanced Wound Devices franchises have been re-presented in order to present consistent analysis to the 2020 results. |
There has been no change in growth for the Advanced Wound Management franchise or the total Group in any period for 2019.
Regional revenue analysis
2019 | 2020 | ||||||||
Q1 | Q2 | Q3 | Q4 | Full Year | Q1 | Q2 | Q3 | Q3 | |
Growth | Growth | Growth | Growth | Growth | Growth | Growth | Revenue | Growth | |
% | % | % | % | % | % | % | $m | % | |
US | 4.0 | 2.3 | 2.7 | 4.2 | 3.3 | (4.7) | (31.8) | 630 | 0.9 |
Other Established Markets(1) | (0.1) | (1.3) | (0.3) | 2.4 | 0.2 | (6.3) | (30.8) | 372 | (6.2) |
Established Markets | 2.2 | 0.9 | 1.5 | 3.5 | 2.1 | (5.4) | (31.4) | 1,002 | (1.8) |
Emerging Markets | 15.3 | 16.2 | 16.0 | 16.6 | 16.1 | (17.9) | (20.2) | 198 | (14.5) |
Total | 4.4 | 3.5 | 4.0 | 5.6 | 4.4 | (7.6) | (29.3) | 1,200 | (4.2) |
(1) Other Established Markets' are Australia, Canada, Europe, Japan and New Zealand.
All revenue growth rates are on an underlying basis and without adjustment for number of selling days
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H1 trading income statement
2020 | 2019 | |
$m | $m | |
Revenue | 2,035 | 2,485 |
Cost of goods sold | (640) | (646) |
Gross profit | 1,395 | 1,839 |
Gross profit margin | 68.5% | 74.0% |
Selling, general and admin | (1,089) | (1,178) |
Research and development | (134) | (129) |
Trading profit | 172 | 532 |
Trading profit margin | 8.5% | 21.4% |
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H1 EPSA and EPS
2020 | 2019 | Growth | |
$m | $m | % | |
Trading profit | 172 | 532 | (68%) |
Net interest payable | (21) | (25) | |
Other finance costs | (7) | (6) | |
Share of results from associate | (3) | (3) | |
Adjusted profit before tax | 141 | 498 | (72%) |
Taxation on trading result | (24) | (98) | |
Adjusted attributable profit | 117 | 400 | |
Weighted average number of shares (m) | 874 | 874 | |
Adjusted earnings per share ("EPSA") | 13.4¢ | 45.8¢ | (71%) |
Earnings per share ("EPS") | 11.5¢ | 35.3¢ | (67%) |
Dividend per share | 14.4¢ | 14.4¢ | 0% |
H1 2020 tax
rate(1): 17.0%
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- Tax rate on trading result
Trading days per quarter
Q1 | Q2 | Q3 | Q4 | Full year | |
2019 | 63 | 63 | 63 | 62 | 251 |
2020 | 62 | 63 | 63 | 64 | 252 |
2021 | 64 | 64 | 63 | 60 | 251 |
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Sustainability Targets
PeoplePlanet
Products
Creating a lasting positive impact on our communities
Between 2020 and 2030, contribute 1 million volunteer hours to the communities in which we live and work.
Empower and promote the inclusion of all.
A medical technology business with a positive impact
Achieve an 80% absolute reduction in total life cycle greenhouse gas emissions by 2050, beginning by implementing 100% renewable electricity (e.g. solar or wind) plans at our facilities in Memphis (US) and Malaysia by 2022, and at all of our strategic manufacturing facilities by 2025.
Achieve zero waste to landfill at our facilities in Memphis (US) and Malaysia by 2025 and at all of our strategic manufacturing facilities by 2030.
Innovating sustainably
By 2022, include sustainability review in New Product Development phase reviews for all new products and product acquisitions.
By 2025, incorporate at least 30% post-consumer recycled content into all packaging materials.
By 2025, complete supply chain assessment of all suppliers and subsequent tier levels to assure compliance with our sustainability requirements.
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Smith & Nephew plc published this content on 20 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 November 2020 18:04:01 UTC