investor presentation january – march 2021
TRANSCRIPT
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 growthand 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 materiallyfrom 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 depthand 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 continuityplans as a result of COVID-19; economic and financial conditions in the markets we serve, especially those affecting health care providers, payers andcustomers (including, without limitation, as a result of COVID-19); price levels for established and innovative medical devices; developments in medicaltechnology; regulatory approvals, reimbursement decisions or other government actions; product defects or recalls or other problems with qualitymanagement systems or failure to comply with related regulations; litigation relating to patent or other claims; legal compliance risks and relatedinvestigative, remedial or enforcement actions; disruption to our supply chain or operations or those of our suppliers (including, without limitation, as aresult 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 toadapt to market developments; relationships with healthcare professionals; reliance on information technology and cybersecurity; and numerous othermatters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. Please refer to the documentsthat Smith+Nephew has filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, includingSmith+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 informationavailable to Smith+Nephew as of the date of the statement. All written or oral forward-looking statements attributable to Smith+Nephew are qualified bythis caution. Smith+Nephew does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances orin Smith+Nephew's expectations. The terms ‘Group’ and ‘Smith+Nephew’ are used for convenience to refer to Smith & Nephew plc and its consolidatedsubsidiaries, 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 cashconversion ratio, EPSA, leverage ratio, and underlying growth are non-IFRS financial measures. The non-IFRS financial measures in this announcement areexplained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS in our Fourth Quarter and Full Year 2020Results announcement dated 18 February 2021. 2
3
1856Thomas James Smith
opened a chemist shop in Hull,UK and develops a new method
for refining cod liver oil
1986Key acquisitions of Richards Medical Company in Memphis, specialists in orthopaedic products
and DYONICS, an arthroscopy specialists based in Andover
1995Acquired
Acufex Microsurgical Inc, making us a market leader in arthroscopic surgicaldevices
1999We were listed on the New York Stock
Exchange and in 2001 became a constituent member of the UK FTSE-100 index
2001OXINIUM◊, a new material that
improves performance and increases the service life of total joint
replacement systems, firstintroduced
2011PICO◊, the first pocket-sized, single-use
system, revolutionizes the negative pressure wound therapymarket
2013JOURNEY◊II BCS sets a new standard inknee
implant performance,designedto empower patients to return
to an activelifestyle
We exist to restore people’sbodies and their self-belief by using technologies to take the limits off living.
We call this purpose “LifeUnlimited”
2014Acquired ArthrocareCorp.
to expand our sports medicine portfolio
2020We are proud of what we do
and value our 17,500 employeeswho make thispossible
1953We developed a special low-temperatureplaster 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 importantindustrial products
1937We were listed on the
London stock exchange 1928We produced an
experimental bandage ElastoplastTM
1896Horatio Nelson Smith
entered into apartnership with his uncleformingTJ Smith & Nephew
1914Days after the outbreak of WW1, we received an order to provide
surgical and field dressing supplies to French
army within 5months
During WW1, staff grew from 50 to 1,200
From50To1200
Over 100
17,500+
◊Trademark of Smith & Nephew, ©2020 Smith & Nephew
1856Smith+Nephew
established
Todayand growing
Our history
2019Expanding in technologies of the future, investing inOrthopaedics,
Biologics and Digital Surgery.
4
100Smith+Nephew is a portfolio medical technology business that has been trading for over 160 years, and operates in more than 100 countries
A constituent of the UK’s FTSE 100, with ADRstraded on the New York Stock Exchange
FTSE 100
Annual sales in 2020 were $4.6 billion
$4.6bn
S+N has a progressive dividend policy, and has paid a dividend every year since 1937
Shares
We have around 18,000 employees globally
~18,000
A portfolio medical technology business
5
Other Recon
Advanced Wound Care
Advanced WoundBioactives
Arthroscopic Enabling Technologies
Sports MedicineJoint Repair Trauma
Hips
Knees
Advanced Wound Devices
ALLEVYN◊ LIFEAdvanced Foam Wound Dressings
Collagenase SANTYL◊ Ointment Enzymatic debrider
CORI◊Surgical System
COBLATION◊Wand
REGENETEN◊Bioinductive Implant
PICO◊
Negative Pressure Wound Therapy
JOURNEY◊ II BCSBi-Cruciate
StabilisedKnee System
$4.6bnRevenues
(2020)OR3O◊
Dual Mobility
EVOS◊ SMALLPlating System
ENT
Leading positions in attractive markets
Zimmer Biomet33%
Stryker22%
DePuy Synthes
19%
Smith+Nephew
11%
Others15%
Arthrex33%
Smith+Nephew
26%
DePuy Mitek13%
Stryker11%
Others17%
3M19%
Smith+Nephew
14%
Molnlycke9%
Convatec7%
Others51%
Data used in 2020 estimates generated by Smith+Nephew is based on publicly available sources and internal analysis and represents an indication of market shares1 A division of Johnson & Johnson.
$12.6bn market+2% 2017-19 average growth
-15% 2020 growth
$4.6bn market+5% 2017-19 average growth
-12% 2020 growth
$9.1bn market+5% 2017-19 average growth
-3% 2020 growth
#4 position #2 position #2 position
Hip & Knee Implants Sports Medicine Advanced Wound Management
6
1
1
Our performance
7* Underlying growth percentage after adjusting for the effect of currency translation, acquisitions and disposals.** 2020 net debt includes lease liabilities.
$4,560m -12.1%*
64.6¢
Revenue
Adjusted earnings per share (EPSA)
Trading cash conversion
Net debt
$683m 15.0% margin
37.5¢
Trading profit
Dividend per share
4669 4765 49045138
4560
2016 2017 2018 2019 2020
1020 1048 1123 1169
683
2016 2017 2018 2019 2020
82.694.5 100.9 102.2
64.6
2016 2017 2018 2019 2020
30.835.0 36.0 37.5 37.5
2016 2017 2018 2019 2020
15501281
1104
16001926
2016 2017 2018 2019 2020
75%90% 85% 83%
101%
2016 2017 2018 2019 2020
101%
$1,926m**
Priorities for 2021 – Strategy and COVID
9
Return to top-line growth and recapture momentum
Drive further operational improvement
Continue to respond effectively to COVID
1
2
3
Return to top-line growth and recapture momentum
Clear strategy for growth• New commercial model • New commercial leadership • Portfolio enhanced through
M&A
Investment in innovation• Step up in R&D investment
New Leadership Team
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
What we have achieved Driving sustainable revenue growth
10
Delivering pipeline of innovationKey late stage projects
11
Orthopaedics
Sports Medicine & ENT
Advanced Wound Management
Recently launched growth drivers Key 2021 projects*
OR3O Dual mobility Porous Knee systemHip & Knee implants HARMONY Modular Trays New Hip & Knee instruments Streamlined instrument set for THA and TKA
CORI TKARI.HIP Navigation on CORI
Tissue balancing for robotic-assisted TKA
Robotics & digital surgery
CORI TensionerHip 7 Navigation on Kick
EVOS Large Frag/Periprosthetic Broadening EVOS trauma plate portfolioTrauma & Extremities Digital Taylor Spatial Frame
Hip Capsular Blades/Hip Pack
HEALICOIL Knotless PEEK
INTELLIO Connected Tower
FASTFIX FLEX
DOUBLEFLO
Next generation meniscal repair
Arthroscopic tower fluid management
Sports Medicine Joint Repair
Arthroscopic Enabling Technologies
ENT
REGENETEN Expansion Product and region expansion
TULA
HALO WEREWOLF ENT Wand
PICO PROTECT
Lyopreserved biotissue
Next generation single-use NPWT
Advanced Wound Bioactives
Advanced Wound Devices
GRAFIX, PL XC & PL CORE
STRAVIX, PL & MESHED
Lyopreserved biotissue
LEAF 2.0PICO Region and Indication Expansion
Clinical Decision Support
Blue indicates products from recent acquisitions
Next generation Patient monitoring system
ARIA Home PT Remote physical therapy module
Porous offering for Knee portfolio
Navigation assisted Hip procedures
Increased efficiency in External fixation
*All innovation launches coming after completing relevant regulatory review, clearance and approval processes
Advanced Wound Care
Demonstrated launch excellenceGrowth inflections from new products in recent years
12
3.9%
-5.4%
-28.9%
9.8%4.4%
Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020
OR3O launch Q4 2019 6%
8%
14.0%
Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019 Q3 2019
-2%
-4%
-1.1%-2.1%
0.8%
5.1%
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019
FLOW 90 launch Q2 2019
LENS 4K launch Q3 2019
REGENETEN acquired end 2017
US Hips growth vs peers Sports Medicine Joint Repair quarterly growth
AET quarterly growth
PICO 7 sNPWT
PICO annual sales
2011 2013 2015 2017 2019
REGENETENBioinductive Implant
OR3O Dual Mobility
LENS 4KSurgical Imaging System
FLOW 90 Wand
Drive further operational improvementOperations transformation and process efficiencies
13
• Five year operations efficiency plan, with work started in late 2019• Targeting c.$200m of annualised cost savings• Restructuring costs of c.$350m in total, by end of 2023
Process efficiencies• Simplify end-to-end processes• Improve commercial execution and product launches• Invest in IT and Digital solutions
Operations transformation• Continuing manufacturing network optimisation• Outsourcing of warehousing and distribution• Process transformation, with Lean deployment and greater automation
Continue to respond effectively to COVID
14
• Flexible and updated working environments
• COVID secure sites with deployment of social distancing technology
• Control discretionary costs while COVID outbreak continues
• Support customers in person and remotely
• Transform medical education, with new online platform in 2021
Customers Employees Cost control
15
• COVID-19 impact expected to continue into H1 2021, timing of recovery unclear
• We expect substantial underlying revenue growth compared to 2020, with faster recovery in Established Markets
− Hips to continue to outperform Knees− Sports Medicine & ENT to rebound strongly− AWM growth trajectory to improve
• Trading margin elements compared to 2019:
− Ongoing COVID-19 impact on gross margin − Dilution from investment in R&D (c.100bps), M&A (c.150bps)− FX headwind (c.100bps)
• Tax rate on trading results in the range of 18-19%
2021 outlook
Sustainability targets
16
People Planet 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.
To check our progress, please view the Annual Sustainability Report on
Smith+Nephew’s website.
www.smith-nephew.com/sustainability
Q4 revenue: $1,326m, -7.1% underlying, -5.8% reported
18
Product franchise growth
Global
US
Other Established Markets
Emerging Markets
Revenue split
Geographical growth
US$689m
Other Established Markets
$425m
Emerging Markets$212m
-14.9%
-6.2%
-4.9%
-7.1%
+0.2%
-9.9%
-2.1%
-4.4%
-33.1%
-5.0%
-0.3%
-5.2%
-1.3%
-45.6%
-0.5%
-16.2%
-10.2%
Arthroscopic Enabling Technologies
Orthopaedics
Hips
Knees
Advanced Wound Management
AWC
AWB
AWD
ENT
Sports Medicine, ENT
TraumaOther Recon
Sports Medicine Joint Repair
FY revenue: $4,560m, -12.1% underlying, -11.2% reported
19
Product franchise growth
Global
US
Other Established Markets
Emerging Markets
Revenue split
Geographical growth
US$2,339m
Other Established Markets
$1,450m
Emerging Markets$771m
-16.8%
-12.3%
-10.1%
-12.1%
-4.8%
-10.5%
-7.5%
-8.1%
-29.7%
-12.4%
-10.2%
-13.0%
-5.1%
-26.1%
-7.4%
-21.0%
-14.0%
Arthroscopic Enabling Technologies
Orthopaedics
Hips
Knees
Advanced Wound Management
AWC
AWB
AWD
ENT
Sports Medicine, ENT
TraumaOther Recon
Sports Medicine Joint Repair
2020 quarterly underlying sales development by region
20
US Other established markets Emerging markets
• Limited restrictions on elective surgery reintroduced in some states
• Patient cancellations due to positive COVID tests and staff shortages also affected surgery volumes
• Overall performance stable from Q3, with mixed trends by market
• UK and Japan strengthened; France and Italy slowed
• New restrictions in some markets into 2021
• Continued strong end-user demand in China
• Latin America and India remain under significant restrictions, some improvement in South Africa
Full year revenue by franchise
21
2020$m
2019$m
Reported growth
Underlying growth
Group 4,560 5,138 (11.2%) (12.1%)
Orthopaedics 1,917 2,222 (13.7%) (14.0%)
Sports Medicine & ENT 1,333 1,536 (13.2%) (13.0%)
Advanced Wound Management 1,310 1,380 (5.1%) (8.1%)
22
2020$m
2019$m
Reportedgrowth
Underlying growth
Revenue 4,560 5,138 (11.2%) (12.1%)
Cost of goods sold (1,375) (1,326)
Gross profit 3,185 3,812 (16.4%)
Gross profit margin 69.9% 74.2%
Selling, general and admin (2,223) (2,375)
Research and development (279) (268)
Trading profit 683 1,169 (41.6%)
Trading profit margin 15.0% 22.8%
IFRS operating profit 295 815 (63.8%)
IFRS operating profit margin 6.5% 15.9%
Adjusted earnings per share ("EPSA") 64.6¢ 102.2¢ (36.8%)
Earnings per share ("EPS") 51.3¢ 68.6¢ (25.2%)
Dividend per share 37.5¢ 37.5¢ -
Full year trading income statement
2020$m
2019$m
Trading profit 683 1,169
Share based payment 26 32
Depreciation and amortisation 397 368
Lease liability repayments (55) (46)
Capital expenditure (443) (408)
Movements in working capital and other 82 (145)
Trading cash flow 690 970
Trading cash conversion 101% 83%
Restructuring, acquisition, legal and other (216) (54)
Net interest paid (59) (52)
Taxation refunded/(paid) 22 (150)
Free cash flow 437 714
Full year free cash flow
24
Technical guidance
27
February 2021
Foreign exchange and acquisitions
Translational FX impact on revenue growth(1) 2.8%
Acquisition impact on revenue growth 1.7%
Non-trading items
Restructuring costs $140-150m
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 c. $5m
Net interest(2) $75-80m
Other finance costs c. $15m
Tax rate on trading result 18-19%
(1) Based on the foreign exchange rates prevailing on 5th February 2021(2) Includes interest associated with IFRS 16 Leases
Franchise revenue analysis
2019 2020
Q1Growth
%
Q2Growth
%
Q3Growth
%
Q4Growth
%
Full Year
Growth %
Q1Growth
%
Q2Growth
%
Q3Growth
%
Q4Growth
%
Full YearRevenue
$m
Full Year
Growth %
Orthopaedics 3.9 3.6 3.4 5.1 4.0 (8.3) (34.0) (2.8) (10.2) 1,917 (14.0)
Knee Implants 4.1 4.3 4.6 4.7 4.4 (10.6) (46.9) (9.5) (16.2) 822 (21.0)
Hip Implants 2.4 2.9 2.6 0.7 2.1 (8.6) (26.9) 7.1 (0.5) 567 (7.4)
Other Reconstruction 6.9 3.5 1.5 31.6 12.6 19.4 (51.5) (3.1) (45.6) 68 (26.1)
Trauma 4.8 2.8 2.2 7.0 4.3 (7.1) (11.1) (1.4) (1.3) 460 (5.1)
Sports Medicine & ENT 5.3 5.6 6.9 10.1 7.0 (9.5) (33.3) (4.5) (5.2) 1,333 (13.0)
Sports Medicine Joint Repair 11.0 11.9 12.2 14.0 12.3 (7.1) (32.0) (2.7) (0.3) 710 (10.2)Arthroscopic Enabling Technologies (1.1) (2.1) 0.8 5.1 0.8 (11.2) (32.1) (1.6) (5.0) 517 (12.4)
ENT 4.2 6.3 5.3 10.7 6.7 (15.2) (44.0) (24.8) (33.1) 106 (29.7)
Advanced Wound Management 4.1 1.2 2.1 1.9 2.2 (4.0) (17.6) (6.1) (4.4) 1,310 (8.1)
Advanced Wound Care 2.4 (1.3) (2.3) 0.4 (0.2) (6.7) (14.6) (6.9) (2.1) 647 (7.5)
Advanced Wound Bioactives (0.7) (1.9) 2.8 (1.9) (0.4) (8.6) (18.7) (4.5) (9.9) 431 (10.5)
Advanced Wound Devices 16.6 16.3 15.4 15.4 15.9 13.0 (23.7) (6.9) 0.2 232 (4.8)
Total 4.4 3.5 4.0 5.6 4.4 (7.6) (29.3) (4.2) (7.1) 4,560 (12.1)
28All revenue growth rates are on an underlying basis and without adjustment for number of selling days.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
29
2019 2020
Q1Growth
%
Q2Growth
%
Q3Growth
%
Q4Growth
%
Full YearGrowth
%
Q1Growth
%
Q2Growth
%
Q3Growth
%
Q4Growth
%
Full YearRevenue
$m
Full YearGrowth
%
US 4.0 2.3 2.7 4.2 3.3 (4.7) (31.8) 0.9 (4.9) 2,339 (10.1)
Other Established Markets(1) (0.1) (1.3) (0.3) 2.4 0.2 (6.3) (30.8) (6.2) (6.2) 1,450 (12.3)
Established Markets 2.2 0.9 1.5 3.5 2.1 (5.4) (31.4) (1.8) (5.4) 3,789 (11.0)
Emerging Markets 15.3 16.2 16.0 16.6 16.1 (17.9) (20.2) (14.5) (14.9) 771 (16.8)
Total 4.4 3.5 4.0 5.6 4.4 (7.6) (29.3) (4.2) (7.1) 4,560 (12.1)
(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
Trading days per quarter
30
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 63 64 63 60 250