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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
Segment-leadinggrowth
Wound
ALLEVYN Life PICO
SANTYL
RENASYS TOUCH Solutions based
models
Segment-leadinggrowth
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
Trading profit 1,099 1,055
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
21
Full Year2015 2014
$m $m
Trading profit 1,099 1,055
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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