Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q3 2014 Earnings Presentation
37 slides from Smith & Nephew's earnings presentation, 2014
Slide 1: 2014 Third Quarter Results
2014 Third 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: Q3 2014 highlights
Q3 2014 highlights Third Quarter 2014 2013 Underlying Key Comments growth $m $m % • Q3 revenues +3% underlying (+12% Revenue reported) Advanced Surgical Devices 816 696 4 Advanced Wound ‐ Sports Medicine Joint Repair +11% 332 331 -1 Management ‐ Advanced Wound Bioactives +14% Group 1,148 1,027 3 ‐ E
Slide 5: Q3 revenue growth
Q3 revenue growth Geographic growth Revenue split Product franchise growth 1% Knee 2% US Hip 1% ASD Joint Repair 11% Enab Tech 3% -2% Trauma 8% Est OUS Other ASD AWM AWM -1% EM/IM 20% -4% 0% 4% 8% 12% 16% 20% 24% -4% -2% 0% 2% 4% 6% 8% 10% 12% Underlying change (%) Underlying change (%) Note: ‘Other
Slide 6: Knee and Hip Implants
Knee and Hip Implants • Revenue performance ‐ Knees: global +1%, US +3%, OUS -2% ($198m) ‐ Hips: global +1%, US +6%, OUS -2% ($152m) • Commentary ‐ S&N US Recon growth improved sequentially ‐ VERILAST◊ Technology for Hips campaign ‐ REDAPT◊ Revision system ‐ JOURNEY◊ II BCS and CR continued strong g
Slide 7: Sports Medicine and Trauma & Extremities
Sports Medicine and Trauma & Extremities • Revenue performance ‐ Sports Medicine Joint Repair +11% ($152m) ‐ Arthroscopic Enabling Technologies (AET) +3% ($144m) ‐ Trauma & Extremities +8% ($124m) • Commentary ‐ Good Sports Medicine Joint Repair growth across all geographies and product areas EVOS◊
Slide 8: Advanced Wound Management
Advanced Wound Management • Revenue performance ‐ Advanced Wound Care -3% ($207m) ‐ Advanced Wound Devices -17% ($43m) ‐ Advanced Wound Bioactives +14% ($82m) • Commentary REGRANEX ‐ Sequential improvement in AWC, still impacted Platelet-derived growth by weak US performance factor therapy ‐ Strong
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 4. 2014 outlook 10
Slide 11: Revenue growth by business segment Q3 2014
Revenue growth by business segment Q3 2014 Underlying Acquisitions Currency Reported Quarter 3* % % % % Advanced Surgical Devices 4 13 - 17 Advanced Wound Management (1) 1 - - Group 3 9 - 12 * Q3 2014 comprises 63 trading days (2013 – 63 trading days) 11
Slide 12: Revenue and underlying growth by geography & business segment Q3 2014
Revenue and underlying growth by geography & business segment Q3 2014 ASD AWM $816m Emerging $332m Emerging markets markets $131m $42m US US $110m $395m Other Other Established Established Markets Markets $290m $180m 21% 19% 5% (2)% 4% (8)% (1)% (1)% US Other Est Mkts Emerging markets Total US Other
Slide 13: Profitability by business segment Q3 2014
Profitability by business segment Q3 2014 Third Year to Quarter Date Trading Revenue Margin Margin Profit 2014 $m $m % % Advanced Surgical Devices 816 187 22.8 Advanced Wound Management 332 59 17.9 Group 1,148 246 21.4 21.7 2013 Advanced Surgical Devices 696 157 22.5 Advanced Wound Management 331 65
Slide 14: Group efficiency programmes
Group efficiency programmes Optimising Structural efficiency programme Functions • Benefits to date approaching $145m Driving Procurement Savings Simplifying Group optimisation programme Operating Model • Four major levers of change >$120m benefits over 4 yrs Optimising Locations 14
Slide 15: Income statement Q3 2014 (adjusting items)
Income statement Q3 2014 Third Quarter Quarterly growth 2014 2013 Underlying Reported $m $m Revenue 1,148 1,027 3% 12% Trading profit 246 222 3% 10% Restructuring and rationalisation (12) (11) costs Adjusting items Acquisition and integration costs (35) (9) Amortisation of acquisition (39) (22) inta
Slide 16: Income statement Q3 2014
Income statement Q3 2014 Third Quarter 2014 2013 $m $m Profit before taxation and associates 153 178 Associate - - Profit before taxation 153 178 Taxation (51) (56) Tax rate* 28% Attributable profit 102 122 Add back: Adjusting items from previous slide 86 42 Acquisition costs reported in interest 2
Slide 17: Free cash flow Q3 2014
Free cash flow Q3 2014 Third Quarter 2014 2013 $m $m Trading profit 246 222 Share based payment 7 6 Depreciation and amortisation 75 71 Capital expenditure (96) (74) Movements in working capital and provisions (74) (34) Trading cash flow 158 191 Restructuring, rationalisation, acquisition & other (6
Slide 18: 2014 Outlook
2014 Outlook • Sales and margin guidance unchanged ‐ strong Q4 sales comparative in ASD • Exchange guidance updated • Bioventus loan note interest • Confirmation of tax rate guidance given at Q2 18
Slide 19: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 20: Mid-tier – new emerging markets business model
Mid-tier – new emerging markets business model… Mid-tier commercial model Independent Mid-tier sales organisation Good quality products Dedicated at lower prices leadership Common shared Different business services model Manufacturing & design efficiency Different service model Separate sales Differ
Slide 21: ...ready to drive a full range of products
...ready to drive a full range of products… Existing and new Mid-tier products Adler trauma range PLUS New product recon range development Existing products Licensing & ASD Mid-tier distribution Existing products Future AWM Mid-tier acquisitions 21
Slide 22: …over the coming years
…over the coming years Hip system • PLUS knee Recon • PLUS hip Knee system • Plates & screws Nail range Trauma • Ex-fix system • Adler trauma range New plate range ACL kit • Low cost camera Sports Med • ACL joint repair range Various treatment kits New camera • Exudate products Foam range AWM • Drap
Slide 23: Bioventus update
Bioventus update • Strategy and Commercial ‐ focus on Orthobiologics ‐ solid commercial performance ‐ increased investment in R&D • Acquisitions ‐ Pfizer’s BMP portfolio ‐ OsteoAMP® tissue based bone biologic product • Financial ‐ repaid $188m cash (Smith & Nephew loan note and interest) ‐ retain 49
Slide 24: Q3 Summary
Q3 Summary • Q3 performance • Results reflect changing profile of Smith & Nephew ‐ good momentum in higher growth franchises ‐ strong Emerging Market execution ‐ lower growth franchise performance encouraging, more to do ‐ acquisitions supplementing organic growth ‐ established new lower cost busine
Slide 25: Questions
>¢ smith&nephew Questions
Slide 26: We are smith&nephew
+“ We are smith&nephew
Slide 27: Appendices
>¢ smith&nephew Appendices
Slide 28: Q3 2014 financials
Q3 2014 financials Q3 2014 Q3 2013 Key comments $m $m Revenue • Revenue ASD 816 696 Underlying growth of 3% AWM 332 331 • Trading Profit Group 1,148 1,027 Underlying growth of 3% Trading Profit ASD 187 157 • Group Margin AWM 59 65 Margin of 21.4% - 20 bps lower than 2013 Group 246 222 Group Margin 2
Slide 29: YTD 2014 financial highlights
YTD 2014 financial highlights Year to Date Year to Date 2014 2013 $m $m Key comments Revenue • Revenue ASD 2,384 2,197 Underlying growth of 2% AWM 984 979 Group 3,368 3,176 • Trading Profit Trading Profit Underlying growth of 1% ASD 552 511 AWM 178 184 • Group Margin Group 730 695 Margin of 21.7% -
Slide 30: Underlying revenue growth by geography & business segment Q3 2014
Underlying revenue growth by geography & business segment Q3 2014 Emerging & International Established Markets Markets Group US OUS Total Total Total Quarter 3 Revenue $m $m $m $m $m Advanced Surgical Devices 395 290 685 131 816 Advanced Wound Management 110 180 290 42 332 Group 505 470 975 173 1,14
Slide 31: Product line revenues and underlying growth
Product line revenues and underlying growth 2013 2014 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Growth Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % % $m Advanced Surgical Devices Knee Implants (6) (1) 2 5 - - 2 198 1 Hip Implants (6) (1) 3 2 (1) - 3 152 1 Trauma 8 2 2 5 4 (1) 7 124 8 Sp
Slide 32: Analysis of restructuring costs
Analysis of restructuring costs P&L Charge Cash Spend Previous Previous Total Q3 Total to date Q3 Total to date Total to Date to Date Structural Efficiency $m $m $m $m $m $m Programme Cash costs 134 7 141 128 8 136 Asset w/offs 21 - 21 n/a - n/a Total 155 7 162 128 8 136 Group Optimisation $m $m $m
Slide 33: Reminder of 2014 technical guidance
Reminder of 2014 technical guidance Guidance Full year Restructuring costs $50m – 60m Acquisition and integration costs c. $100m Amortisation of acquisition intangibles $120m – 140m Interest payable c. 3%(1) Other finance costs no change Bioventus loan note interest receivable Loan note settled Oct-
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 Third Quarter 2014 2013 $m $m Free cash flow 52 125 Add back: capital expenditure 96 74 Net cash inflow from operating 148 199 activities (IAS 7) 34
Slide 35: 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 2015 61 63 63 64 251 35
Slide 36: Exchange rates
Exchange rates Q3/13 FY/13 Q1/14 Q2/14 Q3/14 $:€ Period end 1.35 1.38 1.38 1.36 1.27 Average 1.32 1.33 1.37 1.37 1.33 $:£ Period end 1.61 1.66 1.66 1.70 1.62 Average 1.55 1.56 1.65 1.68 1.67 36
Slide 37: 2014 key new products progression
2014 key new products progression Q3 2014 Q4 2014 • Navio for JOURNEY◊ UNI (BlueBelt commercial Knee and Hip agreement) • LEGION◊ Inserts 10/12mm Implants • LEGION◊ Hinge Knee (EU) Sports Medicine/ • DYONICS Power Consumables • SUTUREFIX◊ All-Suture Anchor for shoulder Arthroscopic • SUTUREFIX ULTRA