Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q2 2014 Earnings Presentation
44 slides from Smith & Nephew's earnings presentation, 2014
Slide 1: 2014 Second Quarter Results
oe smith&nephew 2014 Second Quarter 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: Q2 2014 highlights
Q2 2014 highlights Second Quarter Key Comments Underlying 2014 2013 growth • Q2 revenues +3% underlying (+7% $m $m % reported) Revenue ‐ Recon improvement led by US Knees Advanced Surgical Devices 810 741 4 ‐ strong Emerging Markets +17%, Advanced Wound Management 337 333 0 ‐ Advanced Wound Bioactiv
Slide 5: Q2 revenue growth
Q2 revenue growth Geographic growth Revenue split Product franchise growth Knee 2% 4% US Hip 3% ASD Joint Repair 9% Enab -1% Tech -3% Est OUS Trauma 7% Other ASD AWM AWM 0% EM/IM 17% -4% 0% 4% 8% 12% 16% 20% -6% -4% -2% 0% 2% 4% 6% 8% 10% Underlying change (%) Underlying change (%) 5 Note: ‘Other AS
Slide 6: Advanced Surgical Devices – Knee and Hip Implants
Advanced Surgical Devices – Knee and Hip Implants • Revenue performance ‐ Knees: global +2%, US +4%, OUS +1% ($221m) ‐ Hips: global +3%, US +3%, OUS +2% ($167m) • Commentary ‐ S&N US Recon growth improved to +3% VERILAST◊ Technology ‐ JOURNEY◊ II BCS and CR strong growth for Hip Replacements ‐ Succe
Slide 7: Advanced Surgical Devices – Sports Medicine and Trauma
Advanced Surgical Devices – Sports Medicine and Trauma • Revenue performance ‐ Sports Medicine Joint Repair +9% ($141m) ‐ Arthroscopic Enabling Technologies (AET) -1% ($121m) ‐ Trauma & Extremities +7% ($129m) • Commentary ‐ Good Joint Repair growth across all geographies and product areas, includin
Slide 8: Advanced Wound Management
Advanced Wound Management • Revenue performance ‐ Advanced Wound Care -8% ($199m) ‐ Advanced Wound Devices +1% ($53m) ‐ Advanced Wound Bioactives +21% ($85m) • Commentary ‐ AWC impacted by weak US performance and PICO◊ some destocking as expected Launched in Japan ‐ US RENASYS◊ distribution suspende
Slide 9: Julie Brown, Chief Financial Officer
Julie Brown Chief Financial Officer
Slide 10: Agenda items
Agenda items 1. Revenue and profitability by business segment 2. Group income statement 3. Cash flow and capital allocation 4. 2014 outlook 10
Slide 11: Revenue growth by business segment Q2 2014
Revenue growth by business segment Q2 2014 Underlying Acquisitions Currency Reported Quarter 2* % % % % Advanced Surgical Devices 4 4 1 9 Advanced Wound Management - - 1 1 Group 3 3 1 7 * Unadjusted for trading days: Q2 2014 comprises 63 trading days (2013 – 64 trading days) 11
Slide 12: Underlying revenue growth by geography & business segment Q2 2014
Underlying revenue growth by geography & business segment Q2 2014 ASD AWM $810m Emerging $337m Emerging markets markets $42m $132m US US $125m $369m Other Other Established Established Markets Markets $170m $309m 19% 13% 7% (8)% 0% 4% 4% 0% US Other Est Mkts Emerging markets Total US Other Est Mkts
Slide 13: Profitability by business segment Q2 2014
Profitability by business segment Q2 2014 Second Half Year Quarter Trading Revenue Margin Margin Profit 2014 $m $m % % Advanced Surgical Devices 810 191 23.7 23.3 Advanced Wound Management 337 64 18.8 18.2 Group 1,147 255 22.3 21.8 2013 Advanced Surgical Devices 741 170 22.9 23.6 Advanced Wound Mana
Slide 14: Income statement Q2 2014
Income statement Q2 2014 Second Quarter Quarterly growth Half Year 2014 2013 Underlying Reported 2014 2013 $m $m $m $m Revenue 1,147 1,074 3% 7% 2,220 2,149 Trading profit 255 232 6% 10% 484 473 Restructuring and rationalisation costs (13) (17) (19) (25) Acquisition and integration costs (53) (5) (5
Slide 15: Income statement Q2 2014
Income statement Q2 2014 Second Quarter Half Year 2014 2013 2014 2013 $m $m $m $m Profit before taxation and associates 128 187 351 393 Associate - 1 (2) (1) Profit before taxation 128 188 349 392 Taxation (39) (59) Tax rate* 28.0% (110) (120) Attributable profit 89 129 239 272 Add back: Adjusting i
Slide 16: Free cash flow Q2 2014
Free cash flow Q2 2014 Second Quarter Half Year 2014 2013 2014 2013 $m $m $m $m Trading profit 255 232 484 473 Share based payment 7 8 16 17 Depreciation and amortisation 71 70 140 139 Capital expenditure (96) (86) (161) (141) Movements in working capital and provisions (58) (37) (222) (83) Trading
Slide 17: H1 cash flow and capital allocation
H1 cash flow and capital allocation Return Reinvest for Progressive Acquisitions excess to organic dividend in line with 1 2 3 4 share- growth policy strategy holders 0 (161) (253) 233 (500) (152) (1,000) $m (1,500) (2,000) (1,572) - (1,911) (6) (2,500) Dec-13 FCF pre capex Capex Dividends Acquisiti
Slide 18: 2014 outlook
2014 outlook • Confident in overall Group outlook ‐ AWM below market due to RENASYS in US • Margin guidance maintained • Tax rate guidance ‐ 2014 tax rate now expected to be 28.0% ‐ Outlook 150-200 bps improvement over next two years • ArthroCare guidance • Q3 comments ‐ Currency impact ‐ H2 cost ph
Slide 19: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 20: Progressing our Strategic Priorities
Progressing our Strategic Priorities Established Markets Focused investment & management. Greater efficiency. Emerging Markets Shareholder Value China, focus countries. Direct. Acquisitions. Mid-tier. Innovation Increased R&D. Launch momentum. Strong pipeline. Simplification More agile and efficient
Slide 21: Rebalancing Smith & Nephew
Rebalancing Smith & Nephew Proportion of Revenue Franchises / Geographies Lower Growth Lower • Reconstruction (Established Markets) Growth Lower Lower65% • Advanced Wound Care (Established Markets) Growth Growth • Enabling Technologies (Established Markets) 65% 50% Higher Growth • Emerging markets (
Slide 22: Reconstruction - addressing customer needs
Reconstruction - addressing customer needs • Complex market dynamics • Customer needs ‐ better outcomes from procedures ‐ greater access to benefits ‐ lower cost of delivery • Geographic trends ‐ Emerging markets: mid-tier demand ‐ Established markets: ‘admin-led’ accounts growth • Addressing these
Slide 23: Reconstruction - innovative product development
Reconstruction - innovative product development Implant systems OR and inventory efficiency JOURNEY◊ II Knee REDAPT◊ hip revision VISIONAIRE◊ Disposable Instruments Bearing surfaces Augmented instrumentation REDAPT™ hip revision NavioTM Surgical System OXINIUM◊-on-OXINIUM VERASENSETM Sensor Technolo
Slide 24: The Syncera solution
The Syncera solution Value 1 Hip/Knee implant solutions for progressive customers Products from Smith & Nephew addressing the vast Clinically proven 2 majority of primary joint procedures Automation Customer interfaces using innovative technology to 3 reduce cost while improving efficiency Full supp
Slide 25: Clinically proven products
Clinically proven products Knees: GENESIS™ II TKA Hips: SYNERGY™ / REFLECTION™ • Comprehensive primary cemented • Simple and efficient cementless hip knee system replacement system • Most widely sold Smith & Nephew • Most widely sold Smith & Nephew hip knee system worldwide combination worldwide • O
Slide 26: A technology enabled solution
A technology enabled solution Improving OR and logistics efficiency with ongoing customer support • Technology that streamlines supply chain and logistics operations • Automatic ordering and product replenishment • Point-of-care automated tools • Comprehensive pre-launch training and support at worl
Slide 27: Attractive economics
Attractive economics Customer Smith & Nephew • Macro pressure: increasing demand, • Alternative solution for a new set of decreasing reimbursement customers • Syncera benefits for customer • Estimate 5-10% of US market are ‐ supply chain efficiency savings interested in this commercial model ‐ reduc
Slide 28: Supplementing organic growth through acquisition
Supplementing organic growth through acquisition Foot & Ankle Product ASD deals AWM deals ADERMA NPWT IP Emerging market deals Portfolio LifeModeler Sushrut- Adler A2 Surgical Kalypto Plato Grup PCE Medical TENET Healthpoint Politec ArthroCare Medical 2010 2011 2012 2013 2014 M&A deals 0 2 4 5 2 $bn
Slide 29: ArthroCare
ArthroCare Strategic rationale Integration • Investing in high growth sports medicine • Solid trading performance • Complementary product fit • All integration workstreams on track - coblation technology • Commercial integration - shoulder repair ‐ rolling out single US commercial - ENT adjacency or
Slide 30: Q2 summary
Q2 summary • Q2 performance ‐ majority of franchises trading well ‐ ArthroCare completed and integration underway • Successful first three years ‐ Strategic Priorities successful model ‐ re-balancing to higher growth opportunities ‐ improving execution capabilities ‐ re-invigorating Smith & Nephew •
Slide 31: Questions
>¢ smith&nephew Questions
Slide 32: We are smith&nephew
+“ We are smith&nephew
Slide 33: Appendices
>¢ smith&nephew Appendices
Slide 34: Q2 2014 financials
Q2 2014 financials Q2 2014 Q2 2013 $m $m Key Comments Revenue • Revenue ASD 810 741 Underlying growth of 3% AWM 337 333 Group 1,147 1,074 • Trading Profit Underlying growth of 6% Trading Profit ASD 191 170 • Group Margin AWM 64 62 Margin of 22.3% - 70 bps higher than 2013 Group 255 232 Group Margin
Slide 35: H1 2014 financial highlights
H1 2014 financial highlights H1 2014 H1 2013 Key Comments $m $m • Revenue Revenue Underlying growth of 2% ASD 1,568 1,501 AWM 652 648 • Trading Profit Underlying growth flat Group 2,220 2,149 Trading Profit • Group Margin ASD 365 354 Margin of 21.8% - 20bps lower than 2013 AWM 119 119 Group 484 473
Slide 36: Update to 2014 technical guidance
Update to 2014 technical guidance Update At Feb’14 (incl. ArthroCare and Guidance (excluding ArthroCare) Group Optimisation) Restructuring costs $40m – 50m $50m – 60m Acquisition and integration costs $10m –15m + c. $100m Amortisation of acquisition intangibles $90m – 100m $120m – 140m Interest paya
Slide 37: Underlying revenue growth by geography & business segment Q2 2014
Underlying revenue growth by geography & business segment Q2 2014 Emerging & International Established Markets Markets Group US OUS Total Total Total Quarter 2 Revenue $m $m $m $m $m Advanced Surgical Devices 369 309 678 132 810 Advanced Wound Management 125 170 295 42 337 Group 494 479 973 174 1,14
Slide 38: ArthroCare historic revenue
ArthroCare historic revenue 2013 2014 Q2* Q3 Q4 Q1 Q2* Revenue Revenue Revenue Revenue Revenue $m $m $m $m $m ArthroCare Revenue Sports Medicine Joint Repair 6 19 22 21 14 Arthroscopic Enabling Technologies 12 36 43 41 28 Other ASD 11 29 29 26 19 Total Franchise Revenue 29 84 94 88 61 Accounting pol
Slide 39: Product line revenues and underlying growth
Product line revenues and underlying growth 2013 2014 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m Advanced Surgical Devices Reconstruction Knee Implants (6) (1) 2 5 - - 221 2 Hip Implants (6) (1) 3 2 (1) - 167 3 Trauma 8 2 2 5 4 (1) 129 7 Sport
Slide 40: Analysis of restructuring costs
Analysis of restructuring costs P&L Charge Cash Spend Previous Previous Total Q2 Total to date Q2 Total to date Total to Date to Date Structural Efficiency $m $m $m $m $m $m Programme Cash costs 134 - 134 127 1 128 Asset w/offs 21 - 21 n/a n/a n/a Total 155 - 155 127 1 128 Group Optimisation $m $m $
Slide 41: 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 Second Quarter Half Year 2014 2013 2014 2013 $m $m $m $m Free cash flow 46 69 72 206 Add back: capital expenditure 96 86 161 141 Net cash inflow from operating 142 155 233 347 activities (IAS 7) 41
Slide 42: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2013 62 64 63 62 251 2014 62 63 63 63 251 42
Slide 43: Exchange rates
Exchange rates Q2/13 FY/13 Q1/14 Q2/14 $:€ Period end 1.30 1.38 1.38 1.36 Average 1.31 1.33 1.37 1.37 $:£ Period end 1.52 1.66 1.66 1.70 Average 1.54 1.56 1.65 1.68 43
Slide 44: 2014 key new products progression
2014 key new products progression H1 2014 Q3 2014 • JOURNEY◊ II CR • VERASENSE for knees (an OrthoSensor product) Knee and Hip • POLARSTEM◊ Cementless Stem System for hips (US) • Navio for JOURNEY◊ UNI (BlueBelt commercial Implants • JOURNEY◊ II BCS Constrained insert agreement) • Hip Positioning Sy