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2015 Third Quarter Trading Report and acquisition of Blue Belt Holdings, Inc
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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Third Quarter Trading Report
2%
6%
-2%
6%
10%
2%
-2%
4%
-5% 5% 15%
1%
4%
0% 4% 8% 12%
Emerging
Est OUS
US
AWD
AWB
AWC
Hips
Knees
Arthroscopic Enabling Tech
Sports Medicine Joint Repair
Trauma & Extremities
Other Surgical
17% 8%
Q3 revenue growth of 4% underlying
4
Regional growth Product franchise growth Revenue split
Underlying change (%) Underlying change (%)
Note: ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand, ‘Other Surgical’ includes Gynaecology and ENT,
Sports Medicine, Trauma & Other Surgical
• Revenue performance
‐ Sports Medicine Joint Repair +4% ($143m)
‐ Arthroscopic Enabling Technologies (AET) -2% ($132m)
‐ Trauma & Extremities +2% ($122m)
‐ Other Surgical Businesses* +10% ($50m)
• Commentary
‐ double digit growth in US Joint Repair; softness in China
‐ COBLATION◊ technology strong growth
‐ ENT portfolio developed with launch of NASASTENT
5
RAPID RHINO◊ NASASTENT◊ Dissolvable Nasal Dressing
* ‘Other Surgical Businesses’ includes Gynaecology and ENT
• Revenue performance
‐ Knees: global +6%, US +5%, OUS +8% ($205m)
‐ Hips: global -2%, US -1%, OUS -2% ($137m)
• Commentary
‐ Global Reconstruction grew at +3%
‐ JOURNEY◊ II delivered strong growth and ZUK◊ Uni Knee is ahead of plan
‐ flat hip growth excluding BHR◊ headwinds
Reconstruction
6
ZUK◊
Unicompartmental High Flex Knee
Advanced Wound Management
• Revenue performance
‐ Advanced Wound Care +6% ($188m)
‐ Advanced Wound Bioactives +2% ($84m)
‐ Advanced Wound Devices +17% ($44m)
• Commentary
‐ good AWC trends continue with strong US contribution
‐ continued impact of OASIS◊ reimbursement change on AWB growth
‐ strong PICO◊ growth
7
ALLEVYN◊ Life Foam Dressings
8
Acquisition of Blue Belt Holdings, Inc
Blue Belt Technologies and Navio system
• Blue Belt Technologies is a leader in the fast-growing area of robotic-assisted surgical technologies
• Navio® surgical system provides robotics-assistance and CT-free intra-operative visualisation, offering
– clinical benefits include high degree of implant placement accuracy along with soft-tissue balancing
– ease of use through hand-held robot and system portability
– attractive economics for customers
Navigation camera + proprietary computer cart
9 Robotic-controlled handpiece
Video demonstration: http://smithnephewlivesurgery.com/videos/journe
y-uni-knee-featuring-blue-belt-s-robotics-assisted-navio-surgical-system
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
10
Acquistion Financials
• $275m* acquisition financed from existing debt facilities
• Strong revenue growth from current products – 2015 revenue c. $19 million – expect growth in excess of 50% in the medium-term – significant upside as new products launched
• Financial impact – R&D investment will dilute trading profit margin by 60bps in 2016 – becoming profitable in 2018 – ROCE will exceed cost of capital in fourth full year of ownership
• Straight-forward integration
11 *Subject to any closing adjustments
Guidance and Summary
12
Guidance and foreign exchange
13
• Guidance – 2015 guidance maintained
• Foreign exchange
– Sustained strength of US dollar
– Translational impact: full year revenue headwind expected of 8%
– Transactional impact: 2015: Hedging strategy largely mitigates impact on margin 2016: Gross margin headwind of up to 100 basis points, partly offset by measures to optimise gross profit
• Group Optimisation and ArthroCare synergies continue to plan
Summary
• Q3 2015 performance
‐ 4% underlying revenue growth
‐ full year guidance maintained
• Blue Belt Technologies
‐ positions Smith & Nephew as a leader in the fast-growing area of robotic-assisted surgical technologies.
‐ reinforces our distinctive Recon strategy
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Questions
15
Appendices
YTD 2015(1) Q3 2015(1)
Revenue growth reconciliation
(1) Q3 2015 comprises 63 trading days (2014 – 63 trading days) YTD comprises 187 days (2014 – 188 days) (2) Constant exchange rates
Growth % Growth %
Underlying Underlying
Acquisitions Acquisitions
CER(2) CER(2)
Currency Currency
Reported Reported
4%
1%
5%
-9%
-4%
4%
4%
8%
-8%
0%
17
Franchise revenue analysis
18 All revenue growth rates are on an underlying basis * ‘Other Surgical Businesses’ includes Gynaecology and ENT
2014 2015
Q1 Q2 Q3 Q4 Full Year
Q1 Q2 Q3
Growth Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % % $m %
Sports Medicine, Trauma & OSB 2 6 7 5 5 5 4 447 2
Sports Medicine Joint Repair 5 9 11 8 8 9 7 143 4
Arthroscopic Enabling Technologies (2) (1) 3 2 1 (2) 1 132 (2)
Trauma & Extremities (1) 7 8 3 4 5 2 122 2
Other Surgical Businesses* 23 18 6 6 10 11 7 50 10
Reconstruction - 3 1 2 2 1 4 342 3
Knee Implants - 2 1 3 2 2 7 205 6
Hip Implants - 3 1 2 1 (1) 1 137 (2)
Advanced Wound Management - - (1) (2) (1) 1 7 316 6
Advanced Wound Care (6) (8) (3) (1) (4) 9 12 188 6
Advanced Wound Bioactives 8 21 14 16 15 5 6 84 2
Advanced Wound Devices 13 1 (17) (27) (9) (27) (9) 44 17
Group 1 3 3 2 2 3 5 1,105 4
Regional revenue analysis
19
‘Other Established Markets’ is Australia, Canada, Europe, Japan and New Zealand. All revenue growth rates are on an underlying basis
2014 2015
Q1 Q2 Q3 Q4 Full Year
Q1 Q2 Q3
Growth Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % % $m %
Geographic regions
US (2) 4 2 - 1 1 4 532 4
Other Established Markets 1 (3) (2) (1) (1) (2) 3 400 1
Established Markets (1) 1 - - - - 3 932 3
Emerging Markets 9 17 20 18 17 22 14 173 8
Group 1 3 3 2 2 3 5 1,105 4
Business days per quarter
20
Q1 Q2 Q3 Q4 Full Year
2014 62 63 63 63 251
2015 61 63 63 64 251
2016 64 64 63 60 251
Exchange rates
21
Q3/14 FY/14 Q1/15 Q2/15 Q3/15
$:€
Period end 1.27 1.21 1.09 1.12 1.12
Average 1.33 1.33 1.13 1.11 1.11
$:£
Period end 1.62 1.56 1.49 1.57 1.52
Average 1.67 1.65 1.51 1.53 1.55
22
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