Smith & Nephew plc · LSE:SN.
Smith & Nephew — FY2013 Earnings Presentation
42 slides from Smith & Nephew's earnings presentation, February 2014
Slide 1: 2013 Fourth Quarter and Full Year Results
2013 Fourth Quarter and Full Year Results
Slide 2: Forward looking statements
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", "in
Slide 3: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 4: 2013 Full Year Highlights
2013 Full Year Highlights Revenues 4.5 • Revenue growth (+4% underlying to Revenues ($bn) $4,351m) 4.0 • 22.7% margin, as expected 3.5 • EPSA increase (+3% to 76.9¢) 2011 2012 2013 = Clinical Therapies disposal • Free cash flow (before capex) $867m EPSA – increased dividend and share buy-back 80 76.
Slide 5: Q4 2013 Highlights
Q4 2013 Highlights Fourth Quarter Key Comments underlying 2013 2012 growth • Q4 revenues up 9% reported, up 6% $m $m % underlying Revenue – Reconstruction continues improving Advanced Surgical Devices 818 797 5 – good growth across most franchises Advanced Wound Management 357 280 10 Group 1,175 1,0
Slide 6: Q4 Revenue growth
Q4 Revenue growth Geographic growth Revenue split Product franchise growth 5% Knee 9% US Hip 2% ASD Joint Repair 11% Enab Tech -1% 1% Trauma 5% Est OUS Other ASD AWM AWM 10% 16% EM/IM 0% 5% 10% 15% 20% -5% 0% 5% 10% 15% Underlying change (%) Underlying change (%) 6 Note: ‘Other ASD’ +27%, ‘Est OUS’
Slide 7: Advanced Surgical Devices – Knee and Hip Implants
Advanced Surgical Devices – Knee and Hip Implants • Revenue performance – Knees: global +5%, US +11%, OUS -2% ($236m) – Hips: global +2%, US 0%, OUS +4% ($175m) • Commentary – further performance improvement, Reconstruction global +4% – JOURNEY◊ II BCS and VERILAST◊ drive US knees – Hips (ex BHR◊) g
Slide 8: Advanced Surgical Devices – Sports Medicine and Trauma
Advanced Surgical Devices – Sports Medicine and Trauma • Revenue performance – Sports Medicine Joint Repair +11% ($138m) – Arthroscopic Enabling Technologies (AET) -1% ($121m) – Trauma +5% ($128m) • Commentary – all key geographies contribute to Sports Medicine performance – Trauma benefits from str
Slide 9: Advanced Wound Management
Advanced Wound Management • Revenue performance – Advanced Wound Care 0% ($225m) – Advanced Wound Devices +17% ($61m) – Advanced Wound Bioactives +52% ($71m) • Commentary – launched DURAFIBER◊ Ag in Europe REGRANEX◊ – Negative Pressure Wound Therapy strategy delivering Platelet-derived growth factor
Slide 10: Julie Brown, Chief Financial Officer
Julie Brown Chief Financial Officer
Slide 11: Agenda items
Agenda items 1. Revenue and profitability analysis by business segment 2. Group income statement 3. Group cash flow and update on Capital Allocation policy 4. 2014 Guidance 11
Slide 12: Revenue growth by business segment Q4 2013
Revenue growth by business segment Q4 2013 Underlying Bioventus Acquisitions Currency Reported Quarter 4 % % % % % Advanced Surgical Devices 5 (1) - (1) 3 Advanced Wound Management 10 - 19 (1) 28 Group 6 (1) 5 (1) 9 Underlying Bioventus Acquisitions Currency Reported Full Year % % % % % Advanced Sur
Slide 13: Underlying revenue growth by geography & business segment Q4 2013
Underlying revenue growth by geography & business segment Q4 2013 Emerging Emerging markets markets $118m $38m US US $382m $121m ASD Revenue AWM Other Other Established $818m $m Established $357m Markets Markets $318m $198m 23% 16% 19% 9% 10% 6% 5% Growth 3% 3% 0% % US OUS Established Emerging Total
Slide 14: Profitability by business segment Q4 2013
Profitability by business segment Q4 2013 Fourth Full Quarter Year ASD AWM Group ASD AWM Group 2013 Revenue ($m) 818 357 1,175 3,015 1,336 4,351 Trading profit ($m) 201 91 292 712 275 987 Margin (%) 24.6 25.3 24.8 23.6 20.6 22.7 2012 Revenue ($m) 797 280 1,077 3,108 1,029 4,317 Trading profit ($m) 2
Slide 15: Income statement Q4 2013
Income statement Q4 2013 Fourth Quarter Quarterly growth Full Year 2013 2012* Underlying Reported 2013 2012* $m $m $m $m Revenue 1,175 1,077 6% 9% 4,351 4,137 Trading profit 292 272 8% 7% 987 965 Restructuring and rationalisation costs (22) (35) (58) (65) Acquisition and integration costs (12) (11)
Slide 16: Income statement Q4 2013
Income statement Q4 2013 Fourth Quarter Full Year 2013 2012* 2013 2012* $m $m $m $m Profit before taxation, disposals and associates 232 213 803 837 Profit on disposal - - - 251 Associate - - (1) 4 Profit before taxation 232 213 802 1,092 Taxation (70) (73) Tax rate** 29.2% (246) (371) Attributable
Slide 17: Capital allocation framework
Capital allocation framework Reinvest for Progressive Acquisitions Return organic dividend in line with excess to growth policy strategy shareholders 1 2 3 4 Maintain strong balance sheet to ensure solid investment grade credit metrics 17
Slide 18: Our capital allocation policy in practice
Our capital allocation policy in practice… Cash bridge FY 2013 Reinvest Progressive Acquisitions Return for organic dividend in line with excess to 800 growth 1 policy 2 strategy 3 shareholders 4 600 867 400 200 (340) 0 (239) (200) (74) 47 $m (400) (288) (253) (226) (600) (800) Net debt at FCF pre c
Slide 19: 2014 Guidance
2014 Guidance • Market conditions in the second half of 2013 are expected to continue in 2014 • Revenue growth at product franchise level relative to market: – Recon: continuing our recent improvement; approaching market rate – Trauma & Extremities: at the market rate, with a stronger second half –
Slide 20: 2014 technical guidance (excluding Arthrocare)
2014 technical guidance (excluding Arthrocare) Metric 2014 Expectation Restructuring costs (income statement/cash) $40m – 50m Acquisition related costs $10m –15m + Amortisation of acquisition intangibles $90m – 100m Interest payable c. 4% plus facility fees Other finance costs $8m – 11m Bioventus lo
Slide 21: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 22: Winning in Established Markets
Winning in Established Markets • 2013 highlights – AWM segment out-performance continues – ASD re-energized through specific investments and new products • 2014 developments – finish integration of Healthpoint – additional targeted investment for growth – further refinement of commercial structures
Slide 23: Accelerating development in Emerging Markets
Accelerating development in Emerging Markets • 2013 highlights 2013 S&N revenue growth (contribution) – China successful model – organic and inorganic investment – mid-tier strategy in place Established Markets EM/IM (50%) (50%) • 2014 developments – build on 2013 acquisitions – implement mid-tier c
Slide 24: Simplifying and improving the operating model
Simplifying and improving the operating model • 2013 highlights – Suzhou plant extension being equipped – new IT systems implemented – $150m structural efficiency programme delivering • 2014 developments Manufacturing facility extension – review commenced for further Suzhou, China efficiencies 24
Slide 25: Innovating for value
Innovating for value R&D $m • 2013 highlights 231 – 23 new AWM products 151 167 171 – successful launch of JOURNEY◊ II BCS – mid-tier portfolio 2010 2011 2012 2013 – new medical education websites R&D % 5.3% 3.9% 4.1% • 2014 developments 3.8% – R&D investment now evident in near-term pipeline 2010 2
Slide 26: Healthpoint – first 12 months
Healthpoint – first 12 months 2013 Performance Outlook • Business • 2014 – strong growth of 47% – Santyl dynamics – added sales reps – Regranex re-launched – HP802 programme on plan – Oasis reimbursement challenges • Integration • Future – integration plan on track – HP802 launch 2017 – synergy bene
Slide 27: Supplementing organic growth through acquisitions
Supplementing organic growth through acquisitions • 2013 acquisitions completed – Plato (Turkey – ASD) – Sushrut-Adler (India – Trauma, ASD) – Politec Saúde (Brazil – AWM) • 2014 developments – unchanged acquisition criteria – disciplined approach 27
Slide 28: Sir John Buchanan
Sir John Buchanan S&N P&L 2005-13 S&N cashflow • Revenue +71% (7% CAGR) • Total trading cash flow of $5.9bn • Trading profit +91% (8% CAGR) – dividends $1.1bn • EPSA +81% (8% CAGR) – share buy-backs $1.1bn 1000 900 800 700 600 500 400 300 200 28 Smith & Nephew - Share Price FTSE 100 - Index Value (R
Slide 29: Q4 Summary – building momentum
Q4 Summary – building momentum • Strong finish to 2013 – stronger operational and financial platform • 2014 – recent investments drive growth across franchises – funded by greater efficiency benefits – further investments directed to higher growth segments 29
Slide 30: Questions
>¢ smith&nephew Questions
Slide 31: We are smith&nephew
+“ We are smith&nephew
Slide 32: Appendices
>¢ smith&nephew Appendices
Slide 33: Financial highlights FY 2013
Financial highlights FY 2013 2013 2012 Key Comments $m $m • Revenue Revenue Underlying growth of 4% ASD 3,015 3,108 • Trading Profit AWM 1,336 1,029 Underlying growth of 5% Group 4,351 4,137 • Group Margin Trading Profit Margin of 22.7% - 60 bps lower than prior year ASD 712 728 AWM 275 237 • EPSA G
Slide 34: Product line revenues and underlying growth
Product line revenues and underlying growth 2012 2013 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth Revenue Growth % % % % % % % % $m % $m % Advanced Surgical Devices Reconstruction Knee Implants 6 3 (1) 2 3 (6) (1) 2 236 5 865 0 H
Slide 35: Underlying revenue growth by geography & business segment Q4 2013
Underlying revenue growth by geography & business segment Q4 2013 Emerging and International Established Markets Markets Group US OUS Total Total Total Quarter 4 Revenue $m $m $m $m $m Advanced Surgical Devices 382 318 700 118 818 Advanced Wound Management 121 198 319 38 357 Group 503 516 1,019 156
Slide 36: Underlying revenue growth by geography & business segment full year 2013
Underlying revenue growth by geography & business segment full year 2013 Emerging and International Established Markets Markets Group US OUS Total Total Total Full Year Revenue $m $m $m $m $m Advanced Surgical Devices 1,391 1,204 2,595 420 3,015 Advanced Wound Management 471 722 1,193 143 1,336 Grou
Slide 37: Analysis of restructuring costs
Analysis of restructuring costs P&L Charge Cash Spend Previous Previous Q4 Total to date Q4 Total to date Total to Date Total to Date Restructuring $m $m $m $m $m $m Cash costs 112 16 128 103 15 118 Asset w/offs 15 6 21 n/a n/a n/a Total 127 22 149 103 15 118 Of the $22m total charged in Q4, $19m ar
Slide 38: Free cash flow Q4 2013
Free cash flow Q4 2013 Fourth Quarter Full Year 2013 2012 2013 2012 $m $m $m $m Trading profit 292 272 987 965 Share based payment 5 5 28 34 Depreciation and amortisation 86 71 296 281 Capital expenditure (125) (78) (340) (265) Movements in working capital and provisions 23 (12) (94) (16) Trading ca
Slide 39: Reconciliation of free cash flow to IAS 7 net cash flow from operating activities
Reconciliation of free cash flow to IAS 7 net cash flow from operating activities Fourth Quarter Full Year 2013 2012 2013 2012 $m $m $m $m Free cash flow 196 174 527 637 Add back: capital expenditure 125 78 340 265 Net cash inflow from operating 321 252 867 902 activities (IAS 7) 39
Slide 40: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2012 64 63 63 61 251 2013 62 64 63 62 251 2014 62 63 63 63 251 40
Slide 41: Exchange rates
Exchange rates Q4/12 FY/12 Q1/13 Q2/13 Q3/13 Q4/13 FY/13 $:€ Period end 1.32 1.32 1.28 1.30 1.35 1.38 1.38 Average 1.30 1.28 1.32 1.31 1.32 1.36 1.33 $:£ Period end 1.63 1.63 1.52 1.52 1.61 1.66 1.66 Average 1.61 1.58 1.55 1.54 1.55 1.62 1.56 41
Slide 42: 2014 key new products progression
2014 key new products progression 2013 Key launches H1 2014 • JOURNEY◊ II BCS Knee System • SMF Monolithic Hip Stem • REDAPT◊ Hip Revision Femoral System (Europe) Knee and Hip Implants • Universal Instruments • JOURNEY◊ II range expansion • POLARSTEM◊ Cementless Stem System for hips (US) • R3◊ small