investor presentation november december 2016 - corporate · bandage –climbers elastoplasttm 2001...
TRANSCRIPT
Investor Presentation November – December 2016
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.
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About Smith & Nephew
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.
A constituent of the UK’s FTSE100, our shares are traded in London and New York.
FTSE100 S&N has paid a dividend to shareholders on its Ordinary Shares every year since 1937.
Shares
Annual sales in 2015 were more than $4.6 billion.
$4.6bn We have around 15,000 employees around the world.
15,000
100
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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.
Smith & Nephew supports healthcare professionals in their daily efforts to improve the lives of their patients.
™Trademark of Smith & Nephew ©2015 Smith & Nephew 64549
1856 We are
established
TODAY
1856 Thomas James Smith
opened a chemist shop in Hull, UK and develops a new method for refining cod liver oil
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
50 FROM
TO
1,200 1986
key acquisitions of Richards Medical Company in Memphis, specialists in orthopaedic products and
Dyonics, an arthroscopy specialist based in Andover
1937 we were listed on the
London stock exchange
1995 acquired Acufex Microsurgical Inc, making us a market leader in arthroscopic surgical devices
1928 we produced an experimental
bandage – ElastoplastTM
2001 Oxinium™, a new material
that improves performance and increases the service
life of total joint replacement systems, first introduced
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
2013 JOURNEY™ II BCS sets a new standard in knee implant performance, designed to
restore more normal motion
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
15,000+ PRESENT DAY
Over
100
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
During WW1, staff grew from 50 to 1,200
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Our business
Advanced Wound Care
Advanced Wound Bioactives
Other Surgical Businesses
Arthroscopic Enabling Technologies
Sports Medicine Joint Repair
Trauma
Hips
Knees
Advanced Wound Devices
ALLEVYN™ Life Advanced Foam Wound Dressings
Collagenase SANTYL™ Ointment Enzymatic debrider
NAVIO™ Surgical System
AMBIENT™ SUPER MULTIVAC™ COBLATIION™ Wand
SUTUREFIX™ Ultra Suture Anchor
PICO™ Negative Pressure
Wound Therapy
JOURNEY™ II BCS Bi-Cruciate
Stabilised Knee System
$4.6bn Revenues (2015)
REDAPT™ Revision Femoral
System
TRIGEN™ INTERTAN™ Intertrochanteric
Antegrade Nail
5
We have a balanced global footprint
Emerging/ International Markets (15%)
Established OUS (37%)
US (48%)
2015 Split of Revenues
Our markets…
15,000 Employees
Our leading position
Hip & Knee Implants
Sports Medicine*
Advanced Wound
Management
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
Other 15%
Stryker
19%
Zimmer Biomet
35%
DePuy Synthes**
21%
Arthrex 30%
Zimmer Biomet 3%
DePuy Mitek**
15%
Linvatec 5%
Other 13%
Stryker 11%
Other 37%
Convatec 8%
Acelity 21%
Molnlycke 12%
Coloplast 4%
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Our market growth drivers
Demographics Emerging Markets Technology
Economics Prevalence Lifestyle
8
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
Fuelled by expanded access in emerging markets
Demonstrate clinical
benefit or cost
reduction
Regulatory, clinical data,
manufacturing know-how,
patents
Alternative, less costly solutions
Austerity, reduced prices
Mid-tier model
to access emerging markets
Syncera value
solutions – pioneering
model
Customer relationships, distribution channels,
capital
Demographic and disease
led
9
Our performance Trading profit Revenue
$4,634m +4%* $1,099m +5%* 23.7% margin
Trading cash conversion
Net Debt
$1,361m
Adjusted earnings per share (EPSA)
85.1c +3%CAGR
85%
* Underlying growth percentage after adjusting for the effect of currency translation, acquisitions and disposals.
Dividend per share
30.8c +15%CAGR
10
Adjusted earnings per share (EPSA) Dividend per share
4,270
4,137
4,351
4,617 4,634
2011 2012 2013 2014 2015
961 965 987
1,055
1,099
2011 2012 2013 2014 2015
74.5 75.7 76.9
83.2 85.1
2011 2012 2013 2014 2015
17.4
26.1 27.4 29.6 30.8
2011 2012 2013 2014 2015
138 288 253
1,613 1,361
2011 2012 2013 2014 2015
87%
104% 89%
74% 85%
2011 2012 2013 2014 2015
Our customers
Retail consumers, Patients
Payers, Administrators
Healthcare systems, Procurement groups
Nurses, Nurse specialists
Physicians, GPs
Surgeons
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Strategic priorities
Winning in Established Markets
Accelerating development in Emerging Markets
Innovating
Simplifying and improving our operating model
Supplement organic growth through acquisitions
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for value
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
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Future – a rebalanced Smith & Nephew
2011* Future
Lower Growth
65%
Higher Growth
35%
Higher Growth
67%
Lower Growth
33%
Proportion of Revenue
Improving Strengthening
Creating
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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)
* Excluding Clinical Therapies
Simplify our management structure
Drive savings and capability investments Driving
Procurement Savings
Optimising Functions
Develop best in class global support functions
Simplifying Operating Model
• Increasing overall efficiency
• Liberating resources to re-invest in critical areas to drive growth
Rationalise property portfolio Optimising Locations
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Group optimisation plan – four levers
Q3 and 9 Month 2016 Performance & Full Year Guidance
16
6%
0%
2%
0% 5% 10%
Emerging
Est OUS
US
AWD
AWB
AWC
Hips
Knees
Arthroscopic Enabling Tech
Sports Medicine Joint Repair
Trauma & Extremities
Other Surgical
5%
-3%
-2%
0%
4%
12%
1%
2%
8%
-5% 5% 15%
Q3 revenue growth of 2% underlying
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Geographical growth Product franchise growth Revenue split
Underlying change (%) Underlying change (%)
Note: ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand
-1%
1%
5%
-5% 0% 5% 10%
Emerging
Est OUS
US
AWD
AWB
AWC
Hips
Knees
Arthroscopic Enabling Tech
Sports Medicine Joint Repair
Trauma & Extremities
Other Surgical
5%
-1%
-3%
1%
6%
-4%
3%
10%
-5% 5% 15%
9 month 2016 (YTD) revenue growth of 3% underlying
18
Geographical growth Product franchise growth Revenue split
Underlying change (%) Underlying change (%)
Note: ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand
15%
• 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)
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Full year guidance
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Strategic Updates: Recent M&A Update, Syncera, Innovation, Recon, and Emerging Markets
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
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
Complementary products and pipeline
Navio System
STRIDE™ Uni Knee
Current offering
R&D programme
Medium-term opportunities
Total knee arthroplasty
Revision knee
Bi-cruciate retaining knee
Total hip arthroplasty Sports medicine
Most successful partner
JOURNEY Uni, ZUK
Global reach
Established compatible products
Clinical and marketing strength
JOURNEY II for BCR in development
Deep customer base and expertise
Blue Belt Technologies What Smith & Nephew brings
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The Syncera solution
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Hip/Knee implant solutions for progressive customers
Products from Smith & Nephew addressing the vast majority of primary joint procedures
Customer interfaces using innovative technology to reduce cost while improving efficiency
High levels of service and support
Transparent prices driving substantial benefit for providers Attractive economics
Value
Clinically proven
Automation
Full support
1
2
3
4
5
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
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Not all Models are Different. Most are the same. One is unique.
Pioneering innovative technologies and models
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Sports Medicine
• Leading knee , hip
and shoulder portfolios
• COBLATION™ & DYONICS™
• Rotator Cuff Solution
• WEREWOLF™ • Regenerative e.g.
BST-CarGel
Segment-leading
growth
Hip & Knee
• VERILAST™ technology
• JOURNEY™ II family • ZUK uni knee
• Syncera™ model • NAVIO™ system • REDAPT™ revision
hip
Segment-leading
growth
Wound
• ALLEVYN™ Life • PICO™ • SANTYL™
• RENASYS™ TOUCH • Solutions based
models
Segment-leading growth
TODAY: Drive growth with
differentiated products
FUTURE: Accelerate growth with disruptive innovations
and solutions
Note: excludes mid-tier, ENT, and Trauma & Extremities portfolios 26
Advanced Wound Management: Disease lens is driving our view of innovation
27
Treatment Prevention Diagnosis
& Detection
Care Coordination & Monitoring
• Point of care diagnostics
• Risk stratification tools
• Biosensors
• Deep tissue injury detection
• Healing technologies
• Bioactive debridement
• Anti-infectives
• Next Generation negative pressure
Data Driven Healthcare
• Clinical algorithms
• Outcomes tracking
• Products designed for patient transition
• Best-in-class medical education
• Data-driven best practices
• Real-world cost effectiveness models
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
0%
5%
10%
15%
20%
25%
30%
Accelerating development in Emerging Markets
Quarterly revenue development
SUPPORTIVE MARKET CONTEXT: • economic growth • higher healthcare spending OUR ACTIONS: • expansion of premium product
range • mid-tier strategy • medical education • further acquisitions
8%
15%
29
Re
ven
ue
as
pro
po
rtio
n o
f gro
up
(%
)
2010 2011 2012 2013 2014 2015
FY 2015
Q1 2010
China – improvements expected in H2
30
Smith & Nephew sales trajectory in China
2014 2015 2016
FY Q1 Q2 Q3 Q4 Q1 Q2 H2e
Reconstruction
Sports Medicine
Trauma
Advanced Wound Management
Mid-tier – new emerging markets business model
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Independent Mid-tier sales organisation
Dedicated leadership
Different business model
Separate sales channels
Collaboration with premium-tier organisation
Different brand
Common shared
services
Mid-tier commercial model
Good quality products at lower prices
Manufacturing & design efficiency
Streamlined sales & marketing
Different service model
Appendices
32
Franchise revenue analysis
33 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)
2015 2016
Q1 Q2 Q3 Q4 Full Year
Q1 Q2 Q3
Growth Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % % $m %
Sports Medicine, Trauma & OSB 5 4 2 5 4 5 4 457 4
Sports Medicine Joint Repair 9 7 4 9 7 11 10 140 8
Arthroscopic Enabling Technologies (2) 1 (2) 3 - 4 4 147 2
Trauma & Extremities 5 2 2 - 2 (7) (6) 122 1
Other Surgical Businesses* 11 7 10 13 10 19 14 48 12
Reconstruction 1 4 3 4 3 7 3 351 2
Knee Implants 2 7 6 6 5 9 5 213 4
Hip Implants (1) 1 (2) 1 - 4 - 138 -
Advanced Wound Management 1 7 6 8 6 - (3) 311 (1)
Advanced Wound Care 9 12 6 4 8 - (7) 185 (2)
Advanced Wound Bioactives 5 6 2 16 7 (4) 4 80 (3)
Advanced Wound Devices (27) (9) 17 14 (3) 11 1 46 5
Group 3 5 4 5 4 4 2 1,119 2
Regional revenue analysis
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‘Other Established Markets’ is Australia, Canada, Europe, Japan and New Zealand. All revenue growth rates are on an underlying basis
2015 2016
Q1 Q2 Q3 Q4 Full Year
Q1 Q2 Q3
Growth Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % % $m %
Geographic regions
US 1 4 4 9 5 8 4 540 2
Other Established Markets (2) 3 1 2 1 4 1 401 -
Established Markets - 3 3 6 3 6 3 941 1
Emerging Markets 22 14 8 2 11 (6) (2) 178 6
Group 3 5 4 5 4 4 2 1,119 2
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2016 2015
$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 483 512
Trading profit margin 20.8% 22.5%
H1 Trading income statement
* includes the effect of transactional exchange impacting year-on-year margin by around 190bps
Growth
2016 2015 Reported CER Underlying
$m $m
Trading profit 483 512 -6% -4% -3%
Net interest payable (24) (21)
Other finance costs (6) (7)
Share of results from associate - (3)
Adjusted profit before tax 453 481
Taxation (119) (131) Tax rate 26.3%
Adjusted attributable profit 334 350
Number of shares – million 894 894
Adjusted earnings per share ("EPSA")
37.4¢ 39.1¢ -4% -2%
Earnings per share ("EPS") 27.0¢ 33.0¢
36
H1 EPSA and EPS
H1 Free cash flow
37
2016 2015
$m $m
Trading profit 483 512
Share based payment 14 13
Depreciation and amortisation 147 148
Capital expenditure (174) (161)
Movements in working capital and provisions (215) (130)
Trading cash flow 255 382
Trading cash conversion 53% 75%
2015 includes $99m cash receipt on Arthrex legal claim
Restructuring, rationalisation, acquisition & other (49) 36
Operating cash flow 206 418
Net interest paid (24) (17)
Taxation paid (87) (72)
Free cash flow 95 329
Management
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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 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 2013. 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 2016.
Investor Relations Contacts
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Ingeborg Øie
VP, Investor Relations
T: +44 (0) 207 960 2285
Smith & Nephew plc
15 Adam Street
London
WC2N 6LA
T: +44 (0) 207 401 7646
Kate Gibbon
Investor Relations Manager
T: +44 (0) 207 960 2339
