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Jefferies London Healthcare ConferenceJulie Brown, CFO
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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Agenda
1. Our business and strategic priorities
2. Progress to date
3. Insight into recent announcements
– ArthoCare
– Group optimisation
– Syncera
– Mid-Tier Strategy in Emerging Markets
4. Summary
3
Our business
Advanced Wound Management
Knee Implants
Hip Implants
Trauma
ArthroscopicEnabling Technologies
Other
Sports Medicine (Joint Repair)
FAST FIX 360™ Meniscal Repair System 4
$4.35bnrevenues
(2013)
ALLEVYN™Wound Dressings
DYONICS™ PLATINUM Shaver Blades
PICO™ Negative Pressure Wound Therapy
ANTHOLOGY™Primary Hip System
VERILAST™
30-year wear claim
VISIONAIRE™ Patient Matched Instrumentation
PERI-LOC™Periarticular Locked Plating System
TRIGEN™ INTERTAN Intertrochanteric Antegrade Nail
Collagenase SANTYL OintmentEnzymatic debrider
HEALICOIL PK Suture Anchor
Our position – leading share and a diversified business
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Data: 2013 Estimates generated by Smith & Nephew based upon public sources and internal analysis*Acquisition of Systagenix by KCI completed Oct 2013*Sports Medicine consists of Repair, Access & Resection
Segment Size: $14.0bn
Growth: 3%
Segment Size: $4.3bn
Growth: 6%
Segment Size: $4.9bn
Growth: 7%
Segment Size: $6.7bn
Growth: 4%
Zimmer
23%
DePuy
20%
Stryker
19%
Biomet
12%
S&N
11%
Other
15%
Hip & Knee Implants
Arthrex
28%
S&N
25%
DePuy Mitek
15%
Stryker
10%
Conmed
5%
Other
17%
Sports Medicine
DePuy
Synthes
47%
Stryker
22%
S&N
10%
Biomet
6%
Zimmer
6%
Other, 9%
Trauma & Extremities
KCI
22%
S&N
20%
Molnlycke
12%
Convatec
8%
Other
38% Advanced Wound
Management
What drives underlying market growth?
Prevalence Lifestyle
Technology
Economics
Emerging markets
Demographics
6Diabetes
Strategic Priorities
• Winning in Established Markets
• Accelerating development in Emerging Markets
• Innovating for value
• Simplifying and improving our operating model
• Supplement organic growth through acquisitions
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Capital allocation framework
Reinvest for organic growth
Progressive dividend policy
Acquisitions in line with strategy
Return excess to shareholders
Maintain strong balance sheet to ensure solid investment grade credit metrics
1 2 3 4
8
Agenda
1. Our business and strategic priorities
2. Progress to date
3. Insight into recent announcements
– ArthoCare
– Group optimisation
– Syncera
– Mid-Tier Strategy in Emerging Markets
4. Summary
9
Progressing our Strategic Priorities
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Sh
are
ho
lde
r V
alu
e
Increased R&D. Launch momentum. Strong pipeline.
China. Distributor acquisitions. Mid-tier.Emerging Markets
Established Markets Focused investment & management. Greater efficiency.
Innovation
More agile and efficient. Group optimisation plan.Simplification
Acquisitions 13 deals, $2.8bn consideration (at H1)
Rebalancing Smith & Nephew
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Lower Growth
65%
Higher Growth
• Sports Medicine Joint Repair
• ArthroCare
• Trauma & Extremities
• Gynecology
• Advanced Wound Bioactives
• Advanced Wound Devices
• Emerging markets (all franchises)
Lower Growth
• Enabling Technologies (Established mkts)
• Reconstruction (Established mkts)
• Advanced Wound Care (Established mkts)
* Excluding Clinical Therapies ** H1 2014 including proforma ArthroCare for full period
Franchises / Geographies
Lower Growth
50%
Proportion of Revenue
2011* 2014 H1**
Higher Growth
50%
Lower Growth
65%
Higher Growth
35%
Agenda
1. Our business and strategic priorities
2. Progress to date
3. Insight into recent announcements
– ArthoCare
– Group Optimisation
– Syncera
– Mid-Tier Strategy in Emerging Markets
4. Summary
12
Great fit for Smith & Nephew
ArthroCare - compelling strategic rationale
– Creates a comprehensive product portfolio
– Arthroscopic Enabling Technologies (COBLATION™)
– Joint Repair (Shoulder)
– Opportunities to drive greater revenue
– sales force enhancement
– geographic penetration outside US
– options in ENT
– Strong pipeline and R&D
– COBLATION & Joint Repair expertise
– new product development resources
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Simplify our management structure
Drive savings and capability investmentsDriving
Procurement Savings
Optimising Functions
Develop best in class global support functions
SimplifyingOperating Model
Group optimisation plan – four levers
• Increasing overall efficiency/ agility
• Liberating resources to re-invest in critical areas to drive growth
Rationalise property portfolioOptimising Locations
14
The Syncera solution
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Hip/Knee implant solutions for progressive customers
Products from Smith & Nephew addressing the vast majority of primary joint procedures
Customer interfaces using innovative technology to reduce cost while improving efficiency
High levels of service and support
Transparent prices driving substantial benefit for providers Attractive economics
Value
Clinically proven
Automation
Full support
1
2
3
4
5
Mid-tier – new emerging markets business model…
16
Independent Mid-tier sales organisation
Dedicated leadership
Different business model
Separate sales channels
Collaboration with premium-tier organisation
Different brand
Common shared
services
Mid-tier commercial model
Good quality products at lower prices
Manufacturing &design efficiency
Streamlinedsales & marketing
Different servicemodel
Agenda
1. Our business and strategic priorities
2. Progress to date
3. Insight into recent announcements
– ArthoCare
– Group optimisation
– Syncera
– Mid-Tier Strategy in Emerging Markets
4. Summary
17
• Delivering on our Strategic Priorities
– re-balancing the growth profile
– enhancing the returns through cost and tax optimisation
– generating cash flow for value creating acquisitions or shareholder returns
18
Summary
Questions
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