Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q1 2013 Earnings Presentation
37 slides from Smith & Nephew's earnings presentation, May 2013
Slide 1: 2013 First Quarter Results
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Slide 2: Forward looking statements
Forward looking statements This document contains certain 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"
Slide 3: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 4: Q1 2013 Highlights
Q1 2013 Highlights • Reported Q1 revenues $1,075m – up 1% underlying (including acquisitions/excluding divestments) – our investments driving growth – Healthpoint excellent first quarter • Trading profit $241m, 22.4% trading profit margin • EPSA 18.5¢, down 4% due to Bioventus dilution • Acquisition
Slide 5: Q1 Revenue growth
Q1 Revenue growth Geographic growth Revenue split Product franchise growth -6% Knee 4% US -6% Hip ASD Joint Repair 4% Enab Tech -7% -5% Trauma 8% Est OUS Other ASD AWM AWM 12% 19% EM/IM -8% -4% 0% 4% 8% 12% 16% 20% -10% -5% 0% 5% 10% 15% Underlying change (%) Underlying change (%) 5 Note: ‘Other ASD
Slide 6: Advanced Surgical Devices – Knee and Hip Implants
Advanced Surgical Devices – Knee and Hip Implants • Revenue performance – Knees: global -6%, US -5%, OUS -8% ($219m) – Hips: global -6%, US -8%, OUS -4% ($167m) • Commentary – same broad trends as in recent quarters – Hips (ex BHR) global -3% – US launch of JOURNEY◊ II BCS Knee System – increasing i
Slide 7: Advanced Surgical Devices – Sports Medicine and Trauma
Advanced Surgical Devices – Sports Medicine and Trauma • Revenue performance* – Sports Medicine Joint Repair +4% ($120m) – Arthroscopic Enabling Technologies (AET) -7% ($110m) – Trauma +8% ($124m) • Commentary – Joint Repair performed well – AET weak capital sales impact continues Modular Rail Syste
Slide 8: Advanced Wound Management
Advanced Wound Management • Revenue performance – Advanced Wound Care +1% ($200m) – Advanced Wound Devices +26% ($48m) – Advanced Wound Bioactives +49% ($67m) • Commentary – global market growth, including bioactives, 2% – market share gains in NPWT – Healthpoint – growth driven by strong sales orga
Slide 9: Julie Brown, Chief Financial Officer
Julie Brown Chief Financial Officer
Slide 10: Agenda items
Agenda items 1. Revenue, income statement and cash flow 2. Capital and distribution policy 3. 2013 Outlook 10
Slide 11: Revenue growth by business segment Q1 2013
Revenue growth by business segment Q1 2013 Underlying Bioventus Healthpoint Currency Reported Quarter 1* % % % % % Advanced Surgical Devices (2) (6) - (1) (9) Advanced Wound Management 12 - 21 (1) 32 Group 1 (4) 4 (1) - * Unadjusted for trading days: Q1 2013 comprises 62 trading days (2012 – 64 trad
Slide 12: Income statement Q1 2013
Income statement Q1 2013 First Quarter Quarterly growth 2013 2012* Underlying Reported $m $m Revenue 1,075 1,079 1% 0% Trading profit 241 252 0% (4)% Restructuring and rationalisation costs (8) (6) Acquisition and integration costs (5) - Amortisation of acquisition intangibles (21) (10) Operating pr
Slide 13: Income statement Q1 2013
Income statement Q1 2013 First Quarter 2013 2012* $m $m Profit before taxation and associates 206 231 Associate (2) - Profit before taxation 204 231 Taxation (61) (72) Tax rate** 29.8% Attributable profit 143 159 Add back: Restructuring & rationalisation costs 8 6 Acquisition and integration costs 5
Slide 14: Profitability by business segment Q1 2013
Profitability by business segment Q1 2013 First Quarter Revenue Trading Profit Margin 2013 $m $m % Advanced Surgical Devices 760 184 24.3 Advanced Wound Management 315 57 17.9 Group 1,075 241 22.4 2012 $m $m % Advanced Surgical Devices 839 202 24.1 Advanced Wound Management 240 50 20.8 Group 1,079 2
Slide 15: Free cash flow Q1 2013
Free cash flow Q1 2013 First Quarter 2013 2012 $m $m Trading profit 241 252 Share based payment 9 9 Depreciation and amortisation 69 70 Capital expenditure (55) (58) Movements in working capital and provisions (46) (81) Trading cash flow 218 192 Restructuring, rationalisation & acquisition costs (27
Slide 16: Capital and distribution policy
Capital and distribution policy • Capital allocation framework • What does this mean in practice? • What does this mean for investors? 16
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: What does this mean in practice?
What does this mean in practice? Disciplined use of cash in-line with strategy 2012 cash bridge Reinvest for Progressive Acquisitions organic dividend in line with growth 1 policy 2 strategy 3 1,000 800 902 600 400 (265) (186) 200 $m 0 (200) (138) 181 (400) (288) (782) (600) Net debt at Dec'11 FCF p
Slide 19: What does this mean for investors?
What does this mean for investors? • Ordinary dividends – 2012 final $147m – 2013 interim $94m* – Total $241m • New share buyback $300m • Total to be returned in the order of $0.5 billion • Cash distributions in 2013 could approach 3x the prior year 19 *Subject to Board approval and calculated as 40
Slide 20: 2013 outlook
2013 outlook • Full year outlook for Group as a whole unchanged • Revenue growth at product franchise level – Healthpoint – Knee/Hip Implants • Margin – US Medical Device excise tax, Healthpoint and investments – partially off-set by efficiency programmes • Q2 specific guidance 20
Slide 21: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 22: Q1 summary
Q1 summary • Revenue and trading profit in-line with expectations • Areas of focused investment delivering: – Trauma building momentum – taking share in NPWT – growth in Emerging and International Markets – Healthpoint started well 22
Slide 23: 2013 growth drivers
2013 growth drivers • Continuation of Q1 growth drivers – Orthopaedic Reconstruction • Innovate for value – spending more on R&D • Acquisitions – building our platform in India and Brazil 23
Slide 24: Capital allocation priorities
Capital allocation priorities • Appropriate and prudent approach • Investing for future growth and enhancing distribution to shareholders • Reinforcing our commitment to disciplined use of cash 24
Slide 25: Questions
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Slide 26: We are smith&nephew
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Slide 27: Appendices
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Slide 28: Underlying revenue growth by geography & business segment Q1 2013
Underlying revenue growth by geography & business segment Q1 2013 Emerging and Established Markets International Markets Group US Growth Other Growth Total Growth Total Growth Total Growth Quarter 1 $m % $m % $m % $m % $m % Advanced Surgical Devices 345 (2) 319 (7) 664 (5) 96 16 760 (2) Advanced Wou
Slide 29: Product line revenues and underlying growth
Product line revenues and underlying growth 2012 2013 Q1 Q2 Q3 Q4 Full Year Q1 Growth Growth Growth Growth Revenue Growth Revenue Growth % % % % $m % $m % Advanced Surgical Devices Reconstruction Knee Implants 6 3 (1) 2 874 3 219 (6) Hip Implants (2) (5) (4) (2) 666 (3) 167 (6) Trauma* (1) 3 2 7 474
Slide 30: Advanced Wound Management Definitions of new business unit product lines
Advanced Wound Management Definitions of new business unit product lines Business unit Products Included Exudate management products, predominantly the ALLEVYN◊ family, infection management products including ACTICOAT◊ and IODOSORB◊, IV and post- Advanced Wound Care operative dressings such as IV300
Slide 31: Advanced Wound Management: revenue analysis
Advanced Wound Management: revenue analysis The table below provides the 2011/2012 Advanced Wound Management revenues and underlying growth under the new business unit reporting basis for 2013 and the phasing for Healthpoint Biotherapeutics 2011 2012 Full Year Q1 Q2 Q3 Q4 Full Year Revenue Growth Re
Slide 32: Advanced Surgical Devices: revenue analysis
Advanced Surgical Devices: revenue analysis The table below provides 2012 revenue analysis of small changes to our Advanced Surgical Devices franchise reporting basis 2012 Q1 Q2 Q3 Q4 Full Year Previously Current Previously Current Previously Current Previously Current Previously Current announced h
Slide 33: 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 80 8 88 64 15 79 Asset w/offs 11 - 11 n/a n/a n/a Total 91 8 99 64 15 79 Of the $8m total charged in Q1, $7m are reflected
Slide 34: 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 2013 2012 $m $m Free cash flow 137 96 Add back: capital expenditure 55 58 Net cash inflow from operating 192 154 activities (IAS 7) 34
Slide 35: Exchange rates
Exchange rates Q1/12 FY/12 Q1/13 $:€ Period end 1.33 1.32 1.28 Average 1.31 1.28 1.32 $:£ Period end 1.60 1.63 1.52 Average 1.57 1.58 1.55 35
Slide 36: 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 36
Slide 37: 2013 key new products progression
2013 key new products progression Q1 Q2 • JOURNEY◊ II BCS Knee System • REDAPT◊ Hip Revision Femoral Knee and Hip Implants • SMF Monolithic Hip Stem System (Europe) Sports Medicine Joint Repair • FASTFIX◊ 360 (Japan) • Active Heel◊ Traction Boot • Foot & Ankle Instruments • ALL◊ 28 Foot and Ankle po