second quarter and first half 2021 results
TRANSCRIPT
Second Quarter and First Half 2021 Results
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, 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; 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); 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); 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 Half Year 2021
Results announcement dated 29 July 2021.2
Key messages
3
Improved growth in Q2, as end markets continue to recover
On track for 2021 revenue and margin guidance
Delivering on our 2021 priorities:
• returning to top-line growth and recapturing momentum
• driving further operational improvement
• continuing to respond effectively to COVID
H1 2021 highlights
4*Underlying growth is a non-IFRS measure. Please see page 30 of this presentation for a reconciliation of underlying revenue growth to reported revenue growth.
Revenue$2,599m
21.3% underlying growth*
27.8% reported growth
Trading profit$459m
17.6% margin2020: $172m
EPSA38.8¢
2020: 13.4¢
DPS14.4¢
2020: 14.4¢
Q2 revenue by region$1,335m, 40.3% underlying, 48.2% reported
5
• Procedure volumes continued to recover as remaining restrictions lifted
• Surgical activity moving closer to normal, with variation by region
• Europe surgery volumes improved, despite restrictions early in the quarter
• Japan and Australia volumes slowing, with rising infection rates
• China end market volumes reflect maintained recovery, offset by distributor ordering patterns
• India, LatAm, Middle East volumes remain significantly COVID-affected
-4.7%
-31.8%
0.9%
-4.9%
7.1%
51.3%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
-6.3%
-30.8%
-6.2% -6.2%-1.8%
40.1%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
-17.9% -20.2%-14.5% -14.9%
21.8%16.2%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
Quarterly underlying sales development by region
US$677m
Other established markets$422m
Emerging markets$236m
Q2 2021 underlying growth vs 2020Reflect 2020 peak impact of COVID on our business
6
Franchise split Franchise growth
27.2%
50.9%
43.4%
40.3%
Orthopaedics$557m
Advanced Wound
Management $387m
Sports Med & ENT $391m
Orthopaedics
AWM
Sports Med & ENT
Total
Q2 2021 underlying growth vs Q2 2019Two out of three Franchises back to 2019 levels
7
Geographical growthFranchise growth
-5.3%
-3.5%
2.3%
-1.0%
5.1%
1.3%
-6.2%
-1.0% Group
Emerging Markets
Other Established Markets
USOrthopaedics
AWM
Sports Med & ENT
Group
Orthopaedics $557m, 43.4% underlying*
8
Revenue performance
* Underlying growth rates are versus Q2 2020**Other reconstruction’ includes robotics capital sales, the orthopaedic joint reconstruction business acquired from Brainlab, and cement
Underlying growth by
quarter
Knees $226m +58.8% (US +75.6%, OUS +42.4%)
Hips $161m +37.2% (US +61.3%, OUS +18.4%)
Other Reconstruction** $21m +64.0%
Trauma & Extremities $149m +28.2%
Orthopaedics $557m +43.4%
-8.3%
-34.0%
-2.8%
-10.2%
1.6%
43.4%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
Highlights
• Hips supported by ongoing OR3O rollout
• CORI◊
launched in India and Australia; regulatory approval in Japan
• EVOS◊, External Fixation and Extremities driving Trauma & Extremities
growth
Sports Medicine & ENT$391m, 50.9% underlying*
9
Revenue performance
Sports Medicine Joint Repair
$211m +55.9%
Arthroscopic EnablingTechnologies
$147m +45.5%
ENT $33m +45.2%
Sports Medicine & ENT $391m +50.9%
Underlying growth by
quarter
-9.5%
-33.3%
-4.5% -5.2%
10.4%
50.9%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
* Underlying growth rates are versus Q2 2020
Highlights
• Strong recovery in both shoulder and meniscal repair
• US launches of FAST-FIX◊
FLEX in meniscal repair, and DOUBLEFLO◊
fluid management system
• Tonsil and ear tube markets showing slower recovery
Advanced Wound Management $387m, 27.2% underlying*
10
Revenue performance
Advanced Wound Care $186m +20.6%
Advanced Wound Bioactives
$132m +29.9%
Advanced Wound Devices $69m +42.8%
Advanced Wound Management
$387m +27.2%
Underlying growth by
quarter
-4.0%
-17.6%
-6.1% -4.4%
9.3%
27.2%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
* Underlying growth rates are versus Q2 2020
Highlights
• All regions contributed to strong AWC growth
• Bioactives growth from acquired skin substitute products GRAFIX◊
and
STRAVIX◊
• RENASYS◊
continuing to win business in post-acute setting
11
H1 2021 financials
H1 revenue by franchiseAll franchises recovering
12
Reported growth 27.4% 32.9% 23.2% 27.8%
Underlying growth 19.2% 28.0% 18.0% 21.3%
H1 revenue by regionAll regions recovering
13
Reported growth 29.1% 27.2% 25.1% 27.8%
Underlying growth 26.0% 15.7% 19.2% 21.3%
14
2021$m
2020$m
Reportedgrowth
Revenue 2,599 2,035 27.8%
Gross profit 1,836 1,395 32%
Gross profit margin 70.6% 68.5%
Selling, general and admin (1,229) (1,089)
Research and development (148) (134)
Trading profit 459 172 166%
Trading profit margin 17.6% 8.5%
IFRS operating profit/(loss) 239 (5)
IFRS operating profit/(loss) margin 9.2% (0.2)%
Adjusted earnings per share ("EPSA") 38.8¢ 13.4¢ 189%
Earnings per share ("EPS") 23.4¢ 11.5¢ 104%
Dividend per share 14.4¢ 14.4¢ -
H1 trading income statementProfit recovering in line with expectations
2021$m
2020$m
Trading profit 459 172
Share based payment 23 15
Depreciation and amortisation 201 187
Lease liability repayments (28) (24)
Capital expenditure (175) (188)
Movements in working capital and other (76) (137)
Trading cash flow 404 25
Trading cash conversion 88% 14%
Restructuring, acquisition, legal and other (148) (112)
Net interest paid (38) (21)
Taxation paid (58) (31)
Free cash flow 160 (139)
H1 cash flowTrading cash conversion 88%
15
Strong balance sheet
16
Net debt includes lease liabilities
Leverage ratio:
1.8x 1.6x
17
• Targeting underlying revenue growth of 10-13%
− Hips to continue to outperform Knees
− Sports Medicine & ENT to rebound strongly
− AWM momentum to continue
• Trading margin range of 18-19%
− COVID impact on gross margin; partial offset from efficiency programmes
− Dilution relative to 2019 from investment in R&D (c.100bps), initial dilution from completed M&A (c.150bps)
− FX headwind relative to 2019 (c.100bps)
• Tax rate on trading results in the range of 18-19%
• Targets assume surgery volumes largely
unconstrained by COVID in H2 2021
Reconfirming 2021 outlook
18
Priorities for 2021
Priorities for 2021Return to top-line growth and recapture momentum
Driving sustainable revenue growth
19
Maximising portfolio potential
• Driving higher return from portfolio and growing recent launches
• Continuing to drive commercial excellence across franchises
Delivering value of the acquired assets
• Driving synergistic growth in Trauma & Extremities, Joint Repair, ENT and Bioactives
• Adding further value-creating opportunities focused on high-growth segments
Launching expanded pipeline of innovation
• High cadence of product launches across the franchises
• Further increase in R&D investment
Increased M&A activity from 2019 onwardsDelivering value from our acquired assets
20
Extremities and digital surgery Tucking in growth assets Extending the portfolio offering
Extremity Orthopaedics acquired from Integra LifeSciences
Sports Medicine& ENT
OrthopaedicsAdvanced Wound
Management
Progress with operational execution and growthDelivering value from our acquired assets
21
• Business case primarily driven by technology development
• S+N implants made available on KICK Navigation systems
• Bringing RI.HIP and RI.KNEE software to CORI
• Key project milestones expected to be met by end 2021
Extremity Orthopaedics
• S+N reps training on shoulder and ankle replacements from Q1
• New Extremities reps selling S+N trauma products
• Extremities portfolio growing well ahead of legacy trauma
• Targeting 2022 launch for next-generation shoulder*
Q1 2018 Q3 2018 Q1 2019 Q3 2019 Q1 2020 Q3 2020 Q1 2021
Quarterly REGENETEN sales
H1
2019
H2
2019
H1
2020
H2
2020
H1
2021
Trading profit by half yearSales
growth
Commercial synergies
Delivering innovation
Driving margin
* All innovation launches coming after relevant regulatory review, clearance and approval processes
Key pipeline progress in 2021Launching expanded pipeline of innovation
22
FAST-FIX◊ FLEXMeniscal Repair System
• Launch announced July 2021, first patients treated
• Bendable device gives better access to certain areas of the meniscus
• Enables access and treatment of ~43% of tears in stable adult knees
• Expected to help growth of the category, and extend differentiation of our Joint Repair portfolio
DOUBLEFLOInflow/Outflow Pump
• Launch announced April 2021
• Inflow and Outflow pumps for better control of fluid management
• Links to INTELLIO Connected Tower, can be controlled wirelessly through LENS App
• Enhances competitiveness of the tower as a whole
CORISurgical System
• Launched in India and Australia in Q2 2021; regulatory approval in Japan
• Addition of RI.HIP software to CORI, targeted for H2 2021*
• CORI Tensioner, for gap balancing in total knee replacements, targeted for H2 2021*
* All innovation launches coming after relevant regulatory review, clearance and approval processes
Drive further operational improvementProgress towards our five-year operations efficiency plan
23
Penang, Malaysia
Manufacturing network optimisation
✓ Announced plans to sell or close five smaller factories
✓ Changes will simplify the network, enable greater efficiency
✓ Construction of large-scale, high-technology facility in Malaysia almost complete, production to start in 2022
Key messages
24
Improved growth in Q2, as end markets continue to recover
On track for 2021 revenue and margin guidance
Delivering on our 2021 priorities:
• returning to top-line growth and recapturing momentum
• driving further operational improvement
• continuing to respond effectively to COVID
Appendices
25
Technical guidance
26
July 2021
Foreign exchange and acquisitions
Translational FX impact on revenue growth(1) c.2.5%
Acquisition impact on revenue growth c.1.9%
Non-trading items
Restructuring costs $145-155m
Acquisition and integration costs $35-45m
European Medical Device Regulation (MDR) compliance costs c. $60m
Other
Amortisation of acquisition intangibles $170-180m
Income from associates $15-20m
Net interest(2) c. $75m
Other finance costs c. $15m
Tax rate on trading result 18-19%
(1) Based on the foreign exchange rates prevailing on 23rd July 2021(2) Includes interest associated with IFRS 16 Leases
Franchise revenue analysis
2020 2021
Q1Growth
%
Q2Growth
%
Q3Growth
%
Q4Growth
%
Full YearGrowth
%
Q1Growth
%
Q2Growth
%
Q2Revenue
$m
Orthopaedics (8.3) (34.0) (2.8) (10.2) (14.0) 1.6 43.4 557
Knee Implants (10.6) (46.9) (9.5) (16.2) (21.0) (10.3) 58.8 226
Hip Implants (8.6) (26.9) 7.1 (0.5) (7.4) 9.1 37.2 161
Other Reconstruction 19.4 (51.5) (3.1) (45.6) (26.1) 17.7 64.0 21
Trauma & Extremities (7.1) (11.1) (1.4) (1.3) (5.1) 12.0 28.2 149
Sports Medicine & ENT (9.5) (33.3) (4.5) (5.2) (13.0) 10.4 50.9 391
Sports Medicine Joint Repair (7.1) (32.0) (2.7) (0.3) (10.2) 12.0 55.9 211
Arthroscopic Enabling Technologies (11.2) (32.1) (1.6) (5.0) (12.4) 11.7 45.5 147
ENT (15.2) (44.0) (24.8) (33.1) (29.7) (4.6) 45.2 33
Advanced Wound Management (4.0) (17.6) (6.1) (4.4) (8.1) 9.3 27.2 387
Advanced Wound Care (6.7) (14.6) (6.9) (2.1) (7.5) 4.5 20.6 186
Advanced Wound Bioactives (8.6) (18.7) (4.5) (9.9) (10.5) 26.7 29.9 132
Advanced Wound Devices 13.0 (23.7) (6.9) 0.2 (4.8) (3.2) 42.8 69
Total (7.6) (29.3) (4.2) (7.1) (12.1) 6.2 40.3 1,335
27All revenue growth rates are on an underlying basis and without adjustment for number of selling days.
Regional revenue analysis
28
2020 2021
Q1Growth
%
Q2Growth
%
Q3Growth
%
Q4Growth
%
Full YearGrowth
%
Q1Growth
%
Q2Growth
%
Q2Revenue
$m
US (4.7) (31.8) 0.9 (4.9) (10.1) 7.1 51.3 677
Other Established Markets(1) (6.3) (30.8) (6.2) (6.2) (12.3) (1.8) 40.1 422
Established Markets (5.4) (31.4) (1.8) (5.4) (11.0) 3.4 46.8 1,099
Emerging Markets (17.9) (20.2) (14.5) (14.9) (16.8) 21.8 16.2 236
Total (7.6) (29.3) (4.2) (7.1) (12.1) 6.2 40.3 1,335
(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
Q2 consolidated revenue analysis
29
Q22021
Q22020
Reportedgrowth
Underlying growth
Acquisitions/disposals
Currency impact
Consolidated revenue by franchise $m $m % % % %
Orthopaedics 557 364 53.0 43.4 3.5 6.1
Knee Implants 226 137 65.5 58.8 - 6.7
Hip Implants 161 112 43.6 37.2 - 6.4
Other Reconstruction 21 12 72.1 64.0 - 8.1
Trauma & Extremities 149 103 44.3 28.2 11.4 4.7
Sports Medicine & ENT 391 247 58.5 50.9 - 7.6
Sports Medicine Joint Repair 211 129 63.6 55.9 - 7.7
Arthroscopic Enabling Technologies 147 96 53.0 45.5 - 7.5
ENT 33 22 51.8 45.2 - 6.6
Advanced Wound Management 387 290 33.5 27.2 - 6.3
Advanced Wound Care 186 144 29.4 20.6 - 8.8
Advanced Wound Bioactives 132 101 30.6 29.9 - 0.7
Advanced Wound Devices 69 45 52.6 42.8 - 9.8
Total 1,335 901 48.2 40.3 1.4 6.5
H1 consolidated revenue analysis
30
Half year2021
Half year2020
Reportedgrowth
Underlying growth
Acquisitions/disposals
Currency impact
Consolidated revenue by franchise $m $m % % % %
Orthopaedics 1,097 861 27.4 19.2 4.2 4.0
Knee Implants 438 367 19.5 15.8 - 3.7
Hip Implants 315 249 26.6 21.9 - 4.7
Other Reconstruction 47 33 40.2 35.3 - 4.9
Trauma & Extremities 297 212 40.2 19.6 17.0 3.6
Sports Medicine & ENT 764 575 32.9 28.0 - 4.9
Sports Medicine Joint Repair 409 301 35.9 31.0 - 4.9
Arthroscopic Enabling Technologies 293 223 31.7 26.5 - 5.2
ENT 62 51 20.5 16.6 - 3.9
Advanced Wound Management 738 599 23.2 18.0 - 5.2
Advanced Wound Care 361 302 19.5 12.2 - 7.3
Advanced Wound Bioactives 247 192 29.0 28.4 - 0.6
Advanced Wound Devices 130 105 23.5 16.9 - 6.6
Total 2,599 2,035 27.8 21.3 1.8 4.7
Trading days per quarter
31
Q1 Q2 Q3 Q4 Full year
2019 63 63 63 62 251
2020 62 63 63 64 252
2021 64 64 63 60 251
2022 64 63 63 60 250
H1 EPSA
32
2021$m
2020$m
Reported growth
Trading profit 459 172 167%
Net interest payable (39) (21)
Other finance costs (5) (7)
Share of results from associates 1 (3)
Adjusted profit before tax 416 141 195%
Taxation on trading result (76) (24)
Adjusted attributable profit 340 117
Weighted average number of shares (m) 876 874
Adjusted earnings per share ("EPSA") 38.8¢ 13.4¢ 189%
Our sustainability strategy and 2020 highlights
8,000 hours of employee volunteering in the
communities in which we live and work.
Target: between 2020 and 2030, contribute 1 million
volunteer hours.
$4.7 million product donations to underserved
communities.
Target: between 2020 and 2030, donate $125 million in
products.
Eight Global Employee Inclusion Groups were
established. Our senior leaders and managers
were trained on inclusion.
Target: empower and promote the inclusion of all.
33
All sites in Memphis (US) began sourcing
renewable electricity, which consumes over 40%
of the Group’s electricity.
Target: achieve an 80% absolute reduction in total life
cycle greenhouse gas emissions by 2050, beginning by
implementing 100% renewable electricity plans at our
facilities in Memphis (US) and Malaysia, and at all of our
strategic manufacturing facilities by 2025.
1,853 tonnes: We sent 7% less waste to landfill
during 2020 compared to the previous year.
Target: 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.
Started to develop our packaging reduction
roadmap, as well as our packaging sustainability
strategy.
Target: by 2025, incorporate at least 30% post-
consumer recycled content into all non-sterile packaging
materials, as well as incorporating packing materials
from sustainable sources for new packaging parts.
We have started risk mapping our supply chain.
Target: to complete the assessment of all suppliers by
2025, including subsequent tier levels, to assure
compliance with our sustainability requirements.
Initiated sustainability reviews within New
Product Development.
Target: by 2022, include sustainability review in New
Product Development phase reviews for all new
products and product acquisitions.
PeopleCreating a lasting positive impact on our
communities
PlanetA medical technology business with a
positive impact
ProductsInnovating sustainably