snn fy 2015 results presentation

7/25/2019 Snn Fy 2015 Results Presentation

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Full Year 2015 Results


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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 areforward-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-lookingstatements. Forward-looking statements involve known and unknown risks, uncertainties and other importantfactors that could cause actual results to differ materially from what is expressed or implied by the statements. ForSmith & Nephew, these factors include: economic and financial conditions in the markets we serve, especiallythose affecting health care providers, payers and customers; price levels for established and innovative medicaldevices; developments in medical technology; regulatory approvals, reimbursement decisions or other governmentactions; product defects or recalls or other problems with quality management systems or failure to comply withrelated 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; competitionfor qualified personnel; strategic actions, including acquisitions and dispositions, our success in performing duediligence, 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 othermatters that affect us or our markets, including those of a political, economic, business, competitive or reputationalnature. Please refer to the documents that Smith & Nephew has filed with the U.S. Securities and ExchangeCommission under the U.S. Securities Exchange Act of 1934, as amended, including Smith & Nephew's mostrecent annual report on Form 20-F, for a discussion of certain of these factors. Any forward-looking statement isbased 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 notundertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances

or in Smith & Nephew's expectations. 2


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Chief Executive OfficerOlivier Bohuon


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Full year 2015 highlights

Key Comments

Revenues +4% underlying (+0%reported)

Advanced Wound Care +8%

Recon +3% with Knees +5% Sports Medicine Joint Repair +7% Emerging Markets +11%

Five technology and distributionacquisitions

Trading profit margin 23.7% (+80bps) EPSA 85.1 (+2% reported, +9% CER)

Full year dividend 30.8 (up 4%)

Full Year

2015 2014Underlying

growth

$m $m %

Revenue 4,634 4,617 4

Trading profit 1,099 1,055 5

Trading Profit Margin 23.7% 22.9%

EPSA 85.1 83.2

4


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Progress on our Strategic Priorities in 2015

5

ShareholderVa

lue

Strong existing product portfolio and new models Attractive pipeline, both internal and acquired Creating single R&D function to focus pipeline development

Strong double digit growth ex China Acquisitions in Russia, Colombia, mid-tier

Emerging markets growth story remains intact

Emerging Markets

Established Markets Strong US dynamic (AWM turn-around, Recon, Sports Med) Europe stabilised Increased focus on commercial excellence

Innovation

Group optimisation plan delivering on benefits

Extending single MD model to US Establishing Global Business ServicesSimplification

Acquisitions Success of Arthrocare and Healthpoint acquisitions Emerging market deals strengthening position Attractive technologies - ZUK, Blue Belt Technologies


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Driving commercial excellence and pioneering

innovation

6

Commercial

Regional salesorganisations

Globalcommercialorganisation

GlobalR&D

GlobalOperations

Customer-facingfranchises

Businesssupport

functions

Single MD model in allEstablished and

Emerging countries

Commercial strategyUpstream marketing

Market accessSalesforce excellence

Pricing

FinanceHR

LegalCompliance

IT


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Pioneering innovative technologies and models

7

SportsMedicine

Leading knee , hipand shoulder

portfolios COBLATION &

DYONICS

Rotator CuffSolution

WEREWOLF

Regenerative e.g.BST-CarGel

Segment-leadinggrowth

Hip & Knee

VERILASTtechnology

JOURNEYII family ZUK uni knee

Syncera model NAVIO system

REDAPT revisionhip


Wound

ALLEVYN Life PICO

SANTYL

RENASYS TOUCH Solutions based

models


TODAY:

Drive growth withdifferentiated products

FUTURE:Accelerate growth withdisruptive innovations

and solutions

Note: excludes mid-tier, ENT, GYN and Trauma & Extremities portfolios


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Three full years since acquisition

Provided scale to our US woundmanagement business

Transaction delivered results aheadof plan

3-year sales CAGR >20%

Year three ROCE exceeds WACC

Building a strong M&A track record

8

First full year since acquisition

Integration completed

Results tracking to plan Cost synergies achieved

US Sports Medicine benefiting fromsales synergies

Enterprise Value: $0.8bn Enterprise Value: $1.5bn


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2%

9%

0% 5% 10% 15%

Excluding ChinaEmerging

Est OUS

US

AWD

AWB

AWC

Hips

Knees

ArthroscopicEnabling Tech

Sports MedicineJoint Repair

Trauma &Extremities

Other Surgical

15%

16%

4%

1%

6%

13%

0%

3%

9%

0% 10% 20%

Q4 revenue growth of 5% underlying

9

Geographical growth Product franchise growthRevenue split

Underlying change (%) Underlying change (%)

Note: Est OUS is Australia, Canada, Europe, Japan and New Zealand, Other Surgical includes Gynaecology and ENT.

14%2%


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Sports Medicine, Trauma & OSB

Q4 Revenue performance Sports Medicine Joint Repair +9% ($169m)

Arthroscopic Enabling Technologies (AET) +3% ($159m)

Trauma & Extremities +0% ($127m)

Other Surgical Businesses* +13% ($56m)

Commentary

both Joint Repair and AET benefitting from ArthroCareintegration

very strong US Joint Repair growth (+17%) led by shoulder

ENT and GYN generating good growth

10* Other Surgical Businesses includes Gynaecology and ENT

Comprehensive ProductOfferings for Rotator Cuff Repair


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Q4 Revenue performance

Knees: global +6%*, US +7%*, OUS +4%* ($248m)

Hips: global +1%, US +0%, OUS +1% ($163m)

Commentary continued strong growth in global Knees

ZUK sales ahead of guidance

Blue Belt Technologies acquisition completed andintegration off to a good start

Reconstruction

11* Excludes the effect of ZUK product acquisition

JOURNEYII BCSBi-Cruciate StabilisedKnee System


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Advanced Wound Management

Q4 Revenue performance Advanced Wound Care +4% ($196m)

Advanced Wound Bioactives +16% ($96m)

Advanced Wound Devices +14% ($43m)

Commentary sustainable improvement in AWC trend

AWB strong final quarter as expected

AWD benefitted from PICO growth

12

PICOSingle Use Negative Pressure Wound

Therapy


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Chief Financial OfficerJulie Brown


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14

Growth

2015 2014 Reported CER(1) Underlying(2)

Revenue $4,634m $4,617m 0% 8% 4%

Trading Profit $1,099m $1,055m 4% 10% 5%

Trading Margin 23.7% 22.9%

EPSA 85.1 83.2 2% 9%

Trading cash flow $936m $781m

Free cash flow $672m $308m

Full Year Financial Highlights

(1)Constant exchange rates(2)Growth at constant exchange rates, adjusted for acquisitions and disposals


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FY 2015(1)Q4 2015(1)

Q4 and Full Year Revenue growth

15(1)

Q4 2015 comprises 64 trading days (2014 63 trading days). Full year comprises 251 days (2014 251 days)(2)Constant exchange rates

Growth % Growth %

Underlying Underlying

Acquisitions Acquisitions

CER(2) CER(2)

Currency Currency

Reported Reported

5%

2%

7%

-6%

1%

4%

4%

8%

-8%

0%


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16

Full Year

2015 2014

$m $m

Revenue 4,634 4,617

Cost of goods sold (1,143) (1,127)

Gross profit 3,491 3,490

Gross profit margin 75.3% 75.6%

Selling, general and admin (2,170) (2,200)

Research and development (222) (235)

Trading profit 1,099 1,055

Trading profit margin 23.7% 22.9%

Full year trading income statement


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17

Group trading margin 2015

Trading margin history Selected 2015 margin drivers

2013 2014 2015

22.7%22.9%

23.7% Group optimisation

ArthroCare synergies

Price, mix and exchange

RENASYShold


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18

Full year IFRS profit adjusting itemsFull Year

2015 2014

$m $m


Acquisition related costs (12) (118)

Restructuring and rationalisation (65) (61)

Amortisation of acquisition intangibles (204) (129)

Legal and other items (190) 2

IFRS Operating profit 628 749


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19

Metal on metal

Majority of US metal-on-metal hip claims settled

Insurance covered majority of settlement

$25m net cash cost (incl. insurance receivable to date)

Q4 accounting charge of $203m

Represents cost of US settlement, net of insurance, and presentvalue of all other current and anticipated claims, before insurance

Excludes future legal charges

Group carries considerable product liability insurance

Legal settlements


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Full Year Growth

2015 2014 Reported CER

$m $m

Trading profit 1,099 1,055 4% 10%

Interest receivable 6 13

Interest payable (47) (28)

Other finance costs (13) (11)

Share of results from associate (5) (2)

Adjusted profit before tax 1,040 1,027

Taxation (279) (284) Tax rate* 26.8%

Adjusted attributable profit 761 743

Number of shares million 894 893

Adjusted earnings per share ("EPSA") 85.1 83.2 2% 9%

Earnings per share ("EPS") 45.9 56.1

20

Full year EPSA and EPS

* Full year rate on Trading results


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Full year free cash flow

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Full Year2015 2014

$m $m


Share based payment 29 32

Depreciation and amortisation 307 310Capital expenditure (358) (375)

Movements in working capital (141) (241)

Trading cash flow 936 781

Trading cash conversion 85% 74%

Restructuring, rationalisation, acquisition & other (91) (195)

Operating cashflow after capital expenditure 845 586

Net interest paid (36) (33)

Taxation paid (137) (245)

Free cash flow 672 308


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(1,613)(1,361)

1,030

-

(358)

(272) (71) (77)

(1,800)

(1,600)

(1,400)

(1,200)(1,000)

(800)

(600)

(400)

(200)

0

Dec-14Net Debt

FCF precapex

Capex Dividends Acquisitions Share buyback

Other Dec-15Net Debt

Cash flow and capital allocation

22

$m

Reinvest fororganicgrowth

Progressivedividendpolicy

Acquisitionin line withstrategy

Returnexcess toshare-holders1 2 3 4


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EPSA growth at CER

Trading margin development

EstablishedMarkets

Revenue growth

23

Emerging

Markets

Innovation

Simplification

Acquisitions

OptimisingCash

Deliveringreturnsthrough

capitalallocationframework

Our 2016 guidance

Maintain good underlying growth

Continued tax rate improvement

Continued margin improvement;

more than offset by FX and Blue Belt


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Chief Executive OfficerOlivier Bohuon


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Summary

2015 delivered acceleration in sales and improvement in profitability

sustained improvement in franchises and regions

strong execution of efficiency programmes

further strengthening through acquisitions

Outlook

continue the positive underlying revenue growth trend

in the medium term, we anticipate increasingly outperforming our markets

strategy continues to transform the profile of Smith & Nephew

25


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Questions


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Appendices


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2016 Technical guidance

28

Guidance Full year

Restructuring costs c. $50m

Acquisition and integration costs c. $10m

Amortisation of acquisition intangibles c. $140m

Income from associates Slightly negative

Interest payable(1) ~ 3%

Other finance costs c. $10m

Tax rate on Trading result 26.5% or slightly lower

(1)Long term borrowings were $1,434m at the end of 2015, pre Blue Belt.


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29

H1 H2 Full Year

2015 2014 2015 2014 2015 2014

$m $m $m $m $m $m

Revenue 2,272 2,220 2,362 2,397 4,634 4,617

Cost of goods sold (566) (538) (577) (589) (1,143) (1,127)

Gross profit 1,706 1,682 1,785 1,808 3,491 3,490

Gross profit margin 75.1% 75.8% 75.6% 75.4% 75.3% 75.6%

Selling, general and admin (1,084) (1,078) (1,086) (1,122) (2,170) (2,200)

Research and development (110) (120) (112) (115) (222) (235)

Trading profit 512 484 587 571 1,099 1,055

Trading profit margin 22.5% 21.8% 24.9% 23.8% 23.7% 22.9%

Trading income statement - half and full year


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30

IFRS profit adjusting items half and full year

H1 H2 Full Year

2015 2014 2015 2014 2015 2014

$m $m $m $m $m $m

Trading profit 512 484 587 571 1,099 1,055

Acquisition related costs (13) (58) 1 (60) (12) (118)

Restructuring and rationalisation (19) (19) (46) (42) (65) (61)

Amortisation of acquisition intangibles (78) (54) (126) (75) (204) (129)

Legal and other items 37 10 (227) (8) (190) 2

IFRS Operating profit 439 363 189 386 628 749


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H1 H2 Full Year2015 2014 2015 2014 2015 2014

$m $m $m $m $m $m

Trading profit 512 484 587 571 1,099 1,055

Interest receivable 2 7 4 6 6 13

Interest payable (23) (11) (24) (17) (47) (28)

Other finance costs (7) (5) (5) (6) (13) (11)

Share of results from associate (3) (2) (2) - (5) (2)

Adjusted profit before tax 481 473 559 554 1,040 1,027

Taxation (131) (133) (148) (151) (279) (284)

Adjusted attributable profit 350 340 411 403 761 743

Number of shares million 894 893 894 893 894 893

Adjusted earnings per share ("EPSA") 39.1 38.1 46.0 45.1 85.1 83.2

Earnings per share ("EPS") 33.0 26.8 12.9 29.3 45.9 56.131

EPSA and EPS half and full year


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Free cash flow half and full year

32

H1 H2 Full Year

2015 2014 2015 2014 2015 2014

$m $m $m $m $m $m

Trading profit 512 484 587 571 1,099 1,055

Share based payment 13 16 16 16 29 32

Depreciation and amortisation 148 140 159 170 307 310

Capital expenditure (161) (161) (197) (214) (358) (375)

Movements in working capital (130) (222) (11) (19) (141) (241)

Trading cash flow 382 257 554 524 936 781

Trading cash conversion 75% 53% 94% 92% 85% 74%

Restructuring, rationalisation,acquisition & other

36 (37) (127) (158) (91) (195)

Operating cash flow 418 220 427 366 845 586

Net interest paid (17) (12) (19) (21) (36) (33)

Taxation paid (72) (136) (65) (109) (137) (245)

Free cash flow 329 72 343 236 672 308


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Franchise revenue analysis

33All revenue growth rates are on an underlying basis* Other Surgical Businesses includes Gynaecology and ENT

2014 2015

Q1 Q2 Q3 Q4 FullYear

Q1 Q2 Q3 Q4 Full year

Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % % % % $m %

Sports Medicine, Trauma &OSB

2 6 7 5 5 5 4 2 5 1,881 4

Sports Medicine Joint Repair 5 9 11 8 8 9 7 4 9 606 7

Arthroscopic EnablingTechnologies (2) (1) 3 2 1 (2) 1 (2) 3 573 -

Trauma & Extremities (1) 7 8 3 4 5 2 2 - 497 2

Other Surgical Businesses* 23 18 6 6 10 11 7 10 13 205 10

Reconstruction - 3 1 2 2 1 4 3 4 1,487 3

Knee Implants - 2 1 3 2 2 7 6 6 883 5

Hip Implants - 3 1 2 1 (1) 1 (2) 1 604 -

Advanced Wound Management - - (1) (2) (1) 1 7 6 8 1,266 6

Advanced Wound Care (6) (8) (3) (1) (4) 9 12 6 4 755 8

Advanced Wound Bioactives 8 21 14 16 15 5 6 2 16 344 7

Advanced Wound Devices 13 1 (17) (27) (9) (27) (9) 17 14 167 (3)

Group 1 3 3 2 2 3 5 4 5 4,634 4


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Regional revenue analysis

34

Other Established Markets is Australia, Canada, Europe, Japan and New Zealand.All revenue growth rates are on an underlying basis

2014 2015Q1 Q2 Q3 Q4

FullYear

Q1 Q2 Q3 Q4 Full year

Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % % % % $m %

Geographic regions

US (2) 4 2 - 1 1 4 4 9 2,217 5

Other Established Markets 1 (3) (2) (1) (1) (2) 3 1 2 1,702 1

Established Markets (1) 1 - - - - 3 3 6 3,919 3

Emerging Markets 9 17 20 18 17 22 14 8 2 715 11

Group 1 3 3 2 2 3 5 4 5 4,634 4


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Analysis of restructuring costs

35

Of the $57m total charged in the full year, all $57m are reflected in selling, general and administrative expenses and nothing incost of goods sold in the Group Income Statement.

Structural Efficiency target of $160m cash costs and $40m asset write-offs.

Group Optimisation target of $150m total costs.

P&L Charge Cash Spend

PreviousTotal to Date

FY Total to datePrevious

Total to DateFY Total to date

Group OptimisationPlan

$m $m $m $m $m $m

Cash costs 48 57 105 39 45 84

Asset w/offs - - - n/a n/a n/a

Total 48 57 105 39 45 84

Structural EfficiencyProgramme

$m $m $m $m $m $m

Cash costs 141 8 149 139 7 146

Asset w/offs 21 - 21 n/a n/a n/a

Total 162 8 170 139 7 146


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Business days per quarter

36

Q1 Q2 Q3 Q4 Full Year

2014 62 63 63 63 251

2015 61 63 63 64 251

2016 64 64 63 60 251


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Exchange rates

37

Q4/14 FY/14 Q1/15 Q2/15 Q3/15Q4/1

5FY/15

$:

Period end 1.21 1.21 1.09 1.12 1.12 1.09 1.09Average 1.25 1.33 1.13 1.11 1.11 1.10 1.11

$:

Period end 1.56 1.56 1.49 1.57 1.52 1.48 1.48

Average 1.58 1.65 1.51 1.53 1.55 1.52 1.53


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snn fy 2015 results presentation

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