Post on 21-Jul-2019
First Quarter 2019 Trading Report
This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expectedrevenue 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 toidentify forward-looking statements. 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. For Smith & Nephew, thesefactors include: economic and financial conditions in the markets we serve, especially those affecting health care providers, payers andcustomers; 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 orfailure 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; competition for qualified personnel;strategic actions, including acquisitions and dispositions, our success in performing due diligence, valuing and integrating acquiredbusinesses; disruption that may result from transactions or other changes we make in our business plans or organisation to adapt to marketdevelopments; and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive orreputational nature. Please refer to the documents that Smith & Nephew has filed with the U.S. Securities and Exchange Commission underthe U.S. Securities Exchange Act of 1934, as amended, including Smith & Nephew's most recent annual report on Form 20-F, for adiscussion of certain of these factors. Any forward-looking statement is based on information available to Smith & Nephew as of the date ofthe statement. All written or oral forward-looking statements attributable to Smith & Nephew are qualified by this caution. Smith & Nephewdoes not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Smith &Nephew's expectations.
Certain items included in ‘trading results’, such as trading profit, trading profit margin, tax rate on trading results, trading cash flow, tradingprofit to cash conversion ratio, EPSA and underlying growth are non-IFRS financial measures. The non-IFRS financial measures in thisannouncement are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS in ourFirst Quarter Results announcement dated 2 May 2019.
Forward looking statements and non-IFRS measures
2
Namal NawanaChief Executive Officer
3
Q1 revenue: $1,202m +4.4% underlying, +0.5% reported
All revenue growth rates in the presentation are on an underlying basis and without adjustment for number of selling days, unless otherwise stated
Total
Advanced Wound Management
Sports Med & ENT
Orthopaedics
Q1 revenue franchise split Franchise growth
Orthopaedics$546m
Sports Med & ENT $368m
Advanced Wound Management
$288m
4.1%
5.3%
3.9%
4.4%
0.0% 2.0% 4.0% 6.0%
4
Q1 revenue: $1,202m +4.4% underlying, +0.5% reported
All revenue growth rates in the presentation are on an underlying basis and without adjustment for number of selling days, unless otherwise stated
Total
US
Other Established Markets
Emerging Markets
Q1 revenue geographic split Geographical growth
US$568m
Other Established Markets $415m
Emerging Markets$219m
‘Other Established Markets’ are Australia, Canada, Europe, Japan and New Zealand
15.3%
-0.1%
4.0%
4.4%
-5.0% 0.0% 5.0% 10.0% 15.0% 20.0%
5
Orthopaedics: $546m, +3.9% underlying
Q1 revenue performance• Knees: global +4.1%, US +1.6%, OUS +7.3%
• Hips: global +2.4%, US +4.0%, OUS +1.0%
• Other reconstruction* +6.9%
• Trauma: +4.8%
Commentary• Global Knees and US Hips growing above market
• Hips product supply issue improving
• EVOS™ plating system driving acceleration in Trauma
Knees $261m
Hips $152m
Q1 revenue split
LEGION™ Revision Total Knee
Replacement System
Trauma $119m
Other Recon $14m
6‘Other reconstruction’ comprises capital sales from robotics, and cement
Sports Medicine & ENT: $368m, +5.3% underlying
Q1 revenue performance• Sports Medicine Joint Repair +11.0%
• Arthroscopic Enabling Technologies -1.1%
• ENT +4.2%
Commentary• China driving acceleration in Joint Repair
• AET decline slowed, on track for return to growth
• Core COBLATION business driving ENT growth
SMJR $188m
AET $145m
ENT $35m
Q1 revenue split
7
NOVOSTITCH™ PRO Meniscal Repair System
Advanced Wound Management: $288m, +4.1% underlying
Q1 revenue performance• Advanced Wound Care +2.0%
• Advanced Wound Bioactives +0.4%
• Advanced Wound Devices +16.4%
Commentary• US continuing to drive overall AWC growth
• REGRANEX™ returned to growth after relaunch
• Double-digit growth for both PICO™ and RENASYS™
AWC $176m
AWB $59m
AWD $53m
Q1 revenue split
8
RENASYS TOUCHNegative Pressure
Wound Therapy
Executing on M&A strategy
9
Acquisition of Orthopaedic Joint Reconstruction Business
Moving from robotic-assisted surgery to a digital ecosystem
10
Launch of NAVIO 7.0 in H2 2019
Brainlab hip software on NAVIO
NAVIO™Surgical System
Launch of next-generation platform, with Brainlab hip and knee software
Introduction of robotic arms
Ecosystem incorporating stand-alone robotic arms, augmented reality
Expansion into sports medicine and other clinical specialties
NAVIO 7.0 software has not been cleared by the FDA for distribution in the United States and is not yet commercially available
Commercial leadership team fully appointed
Skip Kiil Brad Cannon Simon Fraser Max Colella
11
Myra Eskes
President, Orthopaedics
President, Sports Medicine
& ENT
President,Advanced Wound
Management
President, EMEA
President, APAC
Brad CannonPresident, Sports Medicine & ENT
12
Immediate, major commercial upgrades
• Increased the number of capital sales and
biologics specialists
• Redesigned territories and the incentives on
how teams sell together
• Introduced a simplified, performance-based
compensation plan
• Implemented enhanced sales process for lead
technologies
• Initiated the move from a product company to a
procedure/portfolio company13
Entering new segments, including recent tuck-in acquisitions
Current major S&N Joint Repair categories Recent Sports Medicine tuck-in acquisitions
Shoulder
Foot and Ankle
Hip
Knee
REGENETEN™: a novel tissueregeneration technology forshoulder rotator cuff repair
NOVOSTITCH™ PRO: a unique device for complex meniscal tear patterns
14
Ceterix broadens offering in meniscal repair
• Acquisition closed in January 2019
• Increases the number of repairable tear-types
• Scaling manufacturing
• Preparing for registrations in new geographies
• Evidence and education for greater adoption
15
Critical investments in core businesses
DYONICS™ PLATINUM
Series Blades
COBLATION™
FLOW90™ Wand
LENS™4K Surgical
Imaging System
Q2 2019 H2 2019
16
Well-positioned to benefitfrom market trends
• Favorable demographics
• Demand for rapid healing and recovery
• Shift in the point of care – move to ASCs
17
Graham BakerChief Financial Officer
18
Guidance
Sales growth:Underlying: 2.5% to 3.5%Reported: 2.9% to 3.9%(1)
Tax rate:19% to 21%(2)
Trading profit margin:22.8 to 23.2%
2019
Medium termTrading profit margin:Ongoing improvement
Tax rate:19% to 21%(2)
Sales growth:Consistent growth above
market
(1) Based on the foreign exchange rates prevailing on 26 April 2019(2) Tax rate on trading result
19
Questions
20
Appendices
21
Technical guidance
(1) Based on the foreign exchange rates prevailing on 26 April 2019
Guidance April 2019
Foreign exchange and other revenue impact
Impact of translational FX on revenue(1) (2.0%)
Acquisition impact on revenue +2.4%
Non-trading items
Restructuring costs c. $100-120m
Acquisition and integration costs c. $30-40m
European Medical Device Regulation (MDR) compliance costs c. $60m
Other
Amortisation of acquisition intangibles c. $130-140m
Income from associates c. $5m
Net interest $50-55m
Other finance costs c. $15m
Tax rate on trading result 19%-21%
22
Franchise revenue analysis
23All revenue growth rates are on an underlying basis and without adjustment for number of selling days
2018 2019
Q1 Q2 Q3 Q4FullYear
Q1
Growth Growth Growth Growth Growth Revenue Growth
% % % % % $m %
Orthopaedics 0 1 5 4 3 546 3.9
Knee Implants 2 3 4 3 3 261 4.1
Hip Implants (2) 1 4 4 2 152 2.4
Other Reconstruction 30 27 43 45 36 14 6.9
Trauma (2) (5) 3 1 (1) 119 4.8
Sports Medicine & ENT 1 3 3 2 2 368 5.3
Sports Medicine Joint Repair 5 7 8 8 7 188 11.0
Arthroscopic Enabling Technologies (5) (1) (2) (4) (3) 145 (1.1)
ENT 6 5 5 3 5 35 4.2
Advanced Wound Management (2) 1 1 2 0 288 4.1
Advanced Wound Care 0 2 1 2 1 176 2.0
Advanced Wound Bioactives (12) (6) (7) (3) (6) 59 0.4
Advanced Wound Devices 2 9 11 14 9 53 16.4
Total 0 2 3 3 2 1,202 4.4
Regional revenue analysis
24Other 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
2018 2019
Q1 Q2 Q3 Q4FullYear
Q1
Growth Growth Growth Growth Growth Revenue Growth
% % % % % $m %
US (2) 1 4 3 1 568 4.0
Other Established Markets(1) (2) 1 (1) 0 0 415 (0.1)
Total Established Markets (2) 1 2 2 1 983 2.2
Emerging Markets 9 6 10 8 8 219 15.3
Total 0 2 3 3 2 1,202 4.4
Trading days per quarter
25
Q1 Q2 Q3 Q4 Full Year
2017 64 63 63 60 250
2018 63 64 63 61 251
2019 63 63 63 62 251
Year-on-year differences in the number of trading days typically impacts our surgical businesses in the Established Markets more than our wholesaler and distributor-supported businesses. We define trading days as weekdays adjusted for significant holidays in our principal countries.