Smith & Nephew Plc · LSE:SN.
Smith & Nephew — H1 2015 Earnings Presentation
35 slides from Smith & Nephew's earnings presentation, Sep 20, 2015
Slide 1: Q2 Revenue and H1 2015 Results
Q2 Revenue and H1 2015 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: H1 2015 highlights
H1 2015 highlights First Half Key Comments 2015 2014 Underlying • H1 revenues +4% underlying (+2% growth reported) ‐ Advanced Wound Care +11% $m $m % ‐ strong Emerging Markets +18% ‐ Recon improvement led by Knees ‐ Sports Medicine Joint Repair +8% Revenue 2,272 2,220 4 • Technology and distribution
Slide 5: Q2 revenue growth of 5% underlying
Q2 revenue growth of 5% underlying Geographical growth Revenue split Product franchise growth Sports Medicine Joint Repair 7% Arthroscopic 1% Enabling Tech 4% US 2% Trauma & Extremities 7% Other Surgical Knees 7% 3% Est OUS Hips 1% 12% AWC 6% Emerging AWB 11% 14% -9% AWD 0% 5% 10% 15% -10% 0% 10% Un
Slide 6: Sports Medicine, Trauma & OSB
Sports Medicine, Trauma & OSB • Q2 Revenue performance ‐ Sports Medicine Joint Repair +7% ($150m) ‐ Arthroscopic Enabling Technologies (AET) +1% ($142m) ‐ Trauma & Extremities +2% ($125m) ‐ Other Surgical Businesses* +7% ($52m) • Commentary ‐ one year since the ArthroCare acquisition EVAC◊ 70 XTRA ‐
Slide 7: Reconstruction
Reconstruction • Q2 Revenue performance ‐ Knees: global +7%, US +7%, OUS +7% ($221m) ‐ Hips: global +1%, US +3%, OUS -1% ($153m) • Commentary ‐ global Reconstruction sequentially improved to +4% ‐ US VERILAST◊ Technology for Hips and Knees campaign starting to benefit sales ‐ ZUK acquisition for US
Slide 8: Advanced Wound Management
Advanced Wound Management • Q2 Revenue performance ‐ Advanced Wound Care +12% ($193m) ‐ Advanced Wound Bioactives +6% ($89m) ‐ Advanced Wound Devices -9% ($43m) • Commentary ‐ AWM at +7% returned to above market growth ‐ improving AWC trend sustained PICO◊ Single Use Negative Pressure Wound ‐ AWB: S
Slide 9: Julie Brown, Chief Financial Officer
Julie Brown Chief Financial Officer
Slide 10: H1 Financial Highlights
H1 Financial Highlights Growth 2015 2014 Reported Underlying(1) Revenue $2,272m $2,220m 2% 4% Trading Profit $512m $484m 6% 6% Trading Margin 22.5% 21.8% EPSA 39.1¢ 38.1¢ 3% Trading cash flow $382m $257m Free cash flow $329m $72m (1) Growth at constant exchange rates, adjusted for acquisitions and d
Slide 11: Q2 and H1 Revenue growth
Q2 and H1 Revenue growth Q2 2015(1) H1 2015(1) Growth % Growth % Underlying 5% Underlying 4% Acquisitions 6% Acquisitions 7% CER(2) 11% CER(2) 11% Currency -9% Currency -9% Reported 2% Reported 2% (1) Q2 2015 comprises 63 trading days (2014 – 63 trading days) H1 comprises 124 days (2014 – 125 days)
Slide 12: H1 Trading income statement
H1 Trading income statement 2015 2014 $m $m Revenue 2,272 2,220 Cost of goods sold (566) (538) Gross profit 1,706 1,682 Gross profit margin 75.1% 75.8% Selling, general and admin (1,084) (1,078) Research and development (110) (120) Trading profit 512 484 Trading profit margin 22.5% 21.8% 12
Slide 13: H1 Adjusting items to IFRS Operating Profit
H1 Adjusting items to IFRS Operating Profit 2015 2014 $m $m Comments Trading profit 512 484 Acquisition related costs (13) (58) • ArthroCare integration and emerging market deals Restructuring and rationalisation (19) (19) • Group Optimisation programme Amortisation of acquisition intangibles (78) (
Slide 14: H1 EPSA and EPS
H1 EPSA and EPS H1 Growth 2015 2014 Reported CER $m $m Trading profit 512 484 6% 13% Interest receivable 2 7 Interest payable (23) (11) Other finance costs (7) (5) Share of results from associate (3) (2) Profit before taxation 481 473 Taxation (131) (133) Tax rate* 27.2% Adjusted attributable profit
Slide 15: H1 Free cash flow
H1 Free cash flow H1 2015 2014 $m $m Trading profit 512 484 Share based payment 13 16 Depreciation and amortisation 148 140 Capital expenditure (161) (161) Movements in working capital and provisions (130) (222) Trading cash flow 382 257 Trading cash conversion 75% 53% Restructuring, rationalisation
Slide 16: H1 Cash flow and capital allocation
H1 Cash flow and capital allocation Return Reinvest for Progressive Acquisition excess to organic dividend in line with share- growth 1 policy 2 strategy 3 holders 4 0 (200) (400) (600) (800) $m 490 (161) (1,000) (1,200) (1,400) (1,600) (166) (16) - (47) (1,513) (1,800) (1,613) Dec-14 FCF pre Capex
Slide 17: Our guidance
Our guidance Established Markets Revenue growth Emerging Optimising Higher underlying growth than 2014 Cash Markets Innovation Trading margin improvement Delivering returns through Year-on-year improvement in margin capital Simplification allocation EPSA growth at CER Acquisitions Improving operatio
Slide 18: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 19: Winning in Established Markets
Winning in Established Markets Advanced Wound Care improvement • Actions taken ‐ new leadership at global and regional level ‐ greater product focus (e.g. ALLEVYN◊ Life) ‐ in US, restructuring of sales teams ‐ in Europe, refocused teams • Outcome seen ALLEVYN◊ Life ‐ underlying improvement delivered
Slide 20: Winning in the Established Markets
Winning in the Established Markets Reconstruction - focused on areas of growth • Pioneering products – VERILAST◊ is a unique bearing surface – JOURNEY◊ II is designed to provide higher levels of patient satisfaction • Differentiated marketing – speaking to surgeons and their patients – US marketing
Slide 21: Successful first 12 months for Syncera
Successful first 12 months for Syncera Milestones reached Early experiences • Moved from pilot to full launch • Targeting of accounts • Reference sites trained and fully • Collaboration operational with Syncera • Opportunities for cross-selling • Customer accounts doing > 3,000 annualised procedures
Slide 22: Accelerating development in Emerging Markets
Accelerating development in Emerging Markets Quarterly revenue development 30% SUPPORTIVE MARKET CONTEXT: Revenue as proportion of group (%) • economic growth 25% Today • higher healthcare spending OUR ACTIONS: 16% 20% • expansion of premium product range Q1 • mid-tier strategy • medical education 1
Slide 23: Leading in the Emerging Markets
Leading in the Emerging Markets Direct Mid-tier Presence presence Strategic milestones 2011 Today 2011 Today China ✓ ✓ ✓ ✓ Leading position, continued strong growth India ✓ ✓ X ✓ Acquisition of Sushrut-Adler, new factory in 2016 Brazil Acquisition of Politec Saude (AWM) and PCE (ASD), X ✓ X X improv
Slide 24: Summary
Summary • Strong Q2 and H1 performance ‐ planned performance coming through ‐ sustained improvement in franchises and regions ‐ efficiency programmes progressing to plan ‐ strengthening through acquisitions • Outlook ‐ improving underlying revenue growth, margin and earnings ‐ full year guidance unc
Slide 25: Questions
Questions a 5 e 7.4 smith&nephew Supporting healthcare professionals for over 150 years
Slide 26: Appendices
>t smith&nephew Appendices
Slide 27: Adjusting items
H1 income statement H1 2015 2014 $m $m Revenue 2,272 2,220 Trading profit 512 484 Restructuring and rationalisation costs (19) (19) Adjusting items Acquisition and integration costs (13) (58) Amortisation of acquisition intangibles (78) (54) Legal and other 37 10 Operating profit 439 363 Net interes
Slide 28: H1 income statement (continued)
H1 income statement (continued) H1 2015 2014 $m $m Profit before taxation and associates 414 351 Associate (3) (2) Profit before taxation 411 349 Taxation (116) (110) Tax rate* 27.2% Attributable profit 295 239 Add back: Adjusting items from earlier slide 73 121 Adjusting items reported in interest
Slide 29: Franchise revenue analysis
Franchise revenue analysis 2014 2015 Full Q1 Q2 Q3 Q4 Q1 Q2 Year Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Sports Medicine, Trauma & OSB 2 6 7 5 5 5 469 4 Sports Medicine Joint Repair 5 9 11 8 8 9 150 7 Arthroscopic Enabling Technologies (2) (1) 3 2 1 (2) 142 1 Trauma
Slide 30: Regional revenue analysis
Regional revenue analysis 2014 2015 Full Q1 Q2 Q3 Q4 Q1 Q2 Year Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Geographic regions US (2) 4 2 - 1 1 549 4 Other Established Markets 1 (3) (2) (1) (1) (2) 426 3 Established Markets (1) 1 - - - - 975 3 Emerging Markets 9 17 20 1
Slide 31: 2015 Technical guidance
2015 Technical guidance Guidance Full year Restructuring costs1 c. $80m Acquisition and integration costs1 $13m+ Non-recurring charges (RENASYS and HP802) 1 $15m Amortisation of acquisition intangibles ~ $150m Interest payable 1,2 $45m - $50m Other finance costs1 < $15m Bioventus loan note interest
Slide 32: Analysis of restructuring costs
Analysis of restructuring costs P&L Charge Cash Spend Previous Previous H1 Total to date H1 Total to date Total to Date Total to Date Group Optimisation $m $m $m $m $m $m Plan Cash costs 48 15 63 39 21 60 Asset w/offs - - - n/a n/a n/a Total 48 15 63 39 21 60 Structural Efficiency $m $m $m $m $m $m
Slide 33: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2014 62 63 63 63 251 2015 61 63 63 64 251 33
Slide 34: Exchange rates
Exchange rates Q2/14 FY/14 Q1/15 Q2/15 $:€ Period end 1.36 1.21 1.09 1.12 Average 1.37 1.33 1.13 1.11 $:£ Period end 1.70 1.56 1.49 1.57 Average 1.68 1.65 1.51 1.53 34
Slide 35: Smith & Nephew
o/. A 74 smith&nephew Supporting healthcare professionals for over 150 years 35