Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q1 2014 Earnings Presentation
32 slides from Smith & Nephew's earnings presentation, Jul 20, 2014
Slide 1: 2014 First Quarter Results
VERILAST◊ Technology for Hips RediscoverYourGo.com 2014 First 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: Q1 2014 Highlights
Q1 2014 Highlights First Quarter Key Comments Underlying 2014 2013 growth • Q1 revenues up 1% underlying $m $m % – US Recon/Sports Medicine soft with market Revenue – Emerging markets +9% (+12% ex Brazil), Advanced Surgical Devices 758 760 1 China ˃30% Advanced Wound Management 315 315 0 – AWD +13%
Slide 5: Q1 Revenue growth
Q1 Revenue growth Geographic growth Revenue split Product franchise growth 0% Knee -2% US Hip 0% ASD Joint Repair +5% Enab Tech -2% +1% Est OUS Trauma -1% Other ASD AWM AWM 0% +9% EM/IM -5% 0% 5% 10% -2% 0% 2% 4% 6% Underlying change (%) Underlying change (%) 5 Note: ‘Other ASD’ +23%, ‘Est OUS’ is A
Slide 6: Advanced Surgical Devices – Knee and Hip Implants
Advanced Surgical Devices – Knee and Hip Implants • Revenue performance – Knees: global 0%, US -1%, OUS +2% ($219m) – Hips: global 0%, US 0%, OUS 0% ($165m) • Commentary – US Knee segment growth slows from +9% (Q4) to +2% (Q1) – JOURNEY◊ II CR launch – VERILAST◊ Technology for Hips US TV campaign JO
Slide 7: Advanced Surgical Devices – Sports Medicine and Trauma
Advanced Surgical Devices – Sports Medicine and Trauma • Revenue performance – Sports Medicine Joint Repair +5% ($124m) – Arthroscopic Enabling Technologies (AET) -2% ($108m) – Trauma & Extremities -1% ($124m) • Commentary – strong pipeline of product launches across all franchises: – Joint Repair,
Slide 8: Advanced Wound Management
Advanced Wound Management • Revenue performance – Advanced Wound Care -6% ($189m) – Advanced Wound Devices +13% ($54m) – Advanced Wound Bioactives +8% ($72m) • Commentary – unusual combination of AWC distributor destocking IV 3000◊ Strips & Labels – strong contribution to AWD growth from PICO◊ and V
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 and cash flow 3. Group optimisation plan 4. 2014 outlook 5. ArthroCare update 10
Slide 11: Revenue growth by business segment Q1 2014
Revenue growth by business segment Q1 2014 Underlying Bioventus Acquisitions Currency Reported Quarter 1 % % % % % Advanced Surgical Devices 1 (1) 1 (1) - Advanced Wound Management - - - - - Group 1 (1) 1 (1) - 11
Slide 12: Underlying revenue growth by geography & business segment Q1 2014
Underlying revenue growth by geography & business segment Q1 2014 Emerging Emerging markets markets $108m $35m US US $340m $110m ASD Revenue AWM Other $1,073m Other Established $758m Established $315m Markets Markets $310m $170m 13% 3% 0% 0% 0% 0% 1% Growth +1% (4)% (2)% (1)% US Other Est Establishe
Slide 13: Profitability by business segment Q1 2014
Profitability by business segment Q1 2014 First Quarter ASD AWM Group 2014 Revenue ($m) 758 315 1,073 Trading profit ($m) 174 55 229 Margin (%) 22.9% 17.6% 21.3% 2013 Revenue ($m) 760 315 1,075 Trading profit ($m) 184 57 241 Margin (%) 24.3% 17.9% 22.4% 13
Slide 14: Income statement Q1 2014
Income statement Q1 2014 First Quarter Quarterly growth 2014 2013 Underlying Reported $m $m Revenue 1,073 1,075 1% - Trading profit 229 241 (5)% (5)% Restructuring and rationalisation costs (6) (8) Acquisition and integration costs (5) (5) Amortisation of acquisition intangibles (24) (21) Legal and
Slide 15: Income statement Q1 2014
Income statement Q1 2014 First Quarter 2014 2013 $m $m Profit before taxation and associates 223 206 Associate (2) (2) Profit before taxation 221 204 Taxation (71) (61) Tax rate* 28.9% Attributable profit 150 143 Add back: Restructuring & rationalisation costs 6 8 Acquisition and integration costs 5
Slide 16: Free cash flow Q1 2014
Free cash flow Q1 2014 First Quarter 2014 2013 $m $m Trading profit 229 241 Share based payment 9 9 Depreciation and amortisation 69 69 Capital expenditure (65) (55) Movements in working capital and provisions (164) (46) Trading cash flow 78 218 Restructuring, rationalisation & acquisition costs (14
Slide 17: Group optimisation plan – four levers
Group optimisation plan – four levers Optimising Develop best in class global support functions Functions • Increasing overall Driving efficiency/ agility Drive savings and capability investments Procurement Savings • Liberating resources to re- invest in critical Simplifying areas to drive Simplify
Slide 18: Group optimisation plan – financial implications
Group optimisation plan – financial implications • Benefits – generate annual savings of at least $120 million – a four year plan, with half of benefits achieved by end of 2015 • Restructuring costs – about $150 million costs over four years – around 85% incurred by end of 2015 • Subject to business
Slide 19: 2014 outlook
2014 outlook • Full year guidance confirmed for revenue and trading margin • Currency • Number of shares • New credit facility signed 19
Slide 20: ArthroCare – guidance reminder
ArthroCare – guidance reminder • Synergies – revenue & cost synergies to add $85 million to trading profit in 2017, including net revenue synergies ˃$50 million in 2017 • Costs – estimated $60 million integration costs – approx. $40 million transaction costs incurred in 2014 • EPSA impact – broadly
Slide 21: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 22: Summary
Summary • Group optimisation – efficiency benefits of $120m identified – investment directed to higher growth segments – management structure further simplified and focused • Outlook for 2014 unchanged 22
Slide 23: Questions
>¢ smith&nephew Questions
Slide 24: We are smith&nephew
+“ We are smith&nephew
Slide 25: Appendices
>¢ smith&nephew Appendices
Slide 26: Product line revenues and underlying growth
Product line revenues and underlying growth 2013 2014 Q1 Q2 Q3 Q4 Full Year Q1 Growth Growth Growth Growth Growth Revenue Growth % % % % % $m % Advanced Surgical Devices Reconstruction Knee Implants (6) (1) 2 5 - 219 - Hip Implants (6) (1) 3 2 (1) 165 - Trauma 8 2 2 5 4 124 (1) Sports Medicine Joint
Slide 27: Underlying revenue growth by geography & business segment Q1 2014
Underlying revenue growth by geography & business segment Q1 2014 Emerging & International Established Markets Markets Group US OUS Total Total Total Quarter 1 Revenue $m $m $m $m $m Advanced Surgical Devices 340 310 650 108 758 Advanced Wound Management 110 170 280 35 315 Group 450 480 930 143 1,07
Slide 28: Analysis of restructuring costs
Analysis of restructuring costs P&L Charge Cash Spend Previous Previous Q1 Total to date Q1 Total to date Total to Date Total to Date Restructuring $m $m $m $m $m $m Cash costs 128 6 134 118 9 127 Asset w/offs 21 - 21 n/a n/a n/a Total 149 6 155 118 9 127 Of the $6m total charged in Q1, $4m are refl
Slide 29: 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 First Quarter 2014 2013 $m $m Free cash flow 26 137 Add back: capital expenditure 65 55 Net cash inflow from operating 91 192 activities (IAS 7) 29
Slide 30: 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 30
Slide 31: Exchange rates
Exchange rates Q1/13 FY/13 Q1/14 $:€ Period end 1.28 1.38 1.38 Average 1.32 1.33 1.37 $:£ Period end 1.52 1.66 1.66 Average 1.55 1.56 1.65 31
Slide 32: 2014 key new products progression
2014 key new products progression Q1 2014 Q2 2014 • JOURNEY◊ II CR Knee and Hip Implants • VERASENSE for knees (an OrthoSensor product) • JOURNEY◊ II BCS Constrained insert • POLARSTEM◊ Cementless Stem System for hips (US) • DYONICS◊ PLAN Hip impingement planning system Sports Medicine/ • Hip Positi