Smith & Nephew Plc · LSE:SN.
Smith & Nephew — FY2014 Earnings Presentation
38 slides from Smith & Nephew's earnings presentation, February 2015
Slide 1: 2014 Fourth Quarter & Full year Results
2014 Fourth Quarter & Full year 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: 2014 Full Year results
2014 Full Year results Revenues 5.0 • Revenue growth Revenues ($bn) 4.5 +2% underlying to $4,617m 4.0 • 22.9% margin 3.5 2012 2013 2014 • EPSA increase +8% to 83.2¢ EPSA 85 83.2 • $683m free cash flow** investments in growth platforms EPSA (cents) – 76.9 74.8* – acquisition of ArthroCare 75 – FY div
Slide 5: 2014 – investing to transform Smith & Nephew
2014 – investing to transform Smith & Nephew Established Markets Emerging Markets Premium Mid tier / Value Generic / Local Innovation Simplification Acquisitions JOURNEY II◊ Knee System 5
Slide 6: 2015 – reaping the benefits
2015 – reaping the benefits • Continued Reconstruction momentum Established Markets • Improvement in AWC and Europe • Syncera value solutions expansion • Currently 15% of revenues, aspire to 25% Emerging Markets Shareholder Value • Continued China dynamic, improve in LatAm • Mid–tier growth • Focuse
Slide 7: Future – a rebalanced Smith & Nephew
Future – a rebalanced Smith & Nephew 2011* Future Lower Higher Growth Growth 65% Improving 67% Strengthening Creating Higher Lower Growth Growth 35% 33% Proportion of Revenue Higher Growth: Sports Medicine Joint Repair, ArthroCare, Trauma & Extremities, * Excluding Clinical Therapies Gynaecology, Ad
Slide 8: Q4 2014 highlights
Q4 2014 highlights Fourth Quarter 2014 2013 Underlying Key Comments growth $m $m % • Q4 revenues +2% underlying (+6% Revenue reported) Advanced Surgical Devices 914 818 4 Advanced Wound ‐ Emerging Markets +18% 335 357 -2 Management ‐ Advanced Wound Bioactives +16% Group 1,249 1,175 2 ‐ Sports Medici
Slide 9: Q4 revenue growth
Q4 revenue growth Geographic growth Revenue split Product franchise growth 3% Knee 0% US Hip 2% ASD Joint Repair 8% Enab 2% Tech -1% Trauma 3% Est OUS Other ASD -2% AWM AWM EM/IM 18% -4% 0% 4% 8% 12% 16% 20% -4% -2% 0% 2% 4% 6% 8% 10% Underlying change (%) Underlying change (%) 9 Note: ‘Other ASD’ +
Slide 10: Q4 Hip and Knee Implants
Q4 Hip and Knee Implants • Revenue performance ‐ Hips: global +2%, US +8%, OUS -2% ($170m) ‐ Knees: global +3%, US +0%, OUS +5% ($235m) • Commentary ‐ VERILAST◊ Technology for Hips campaign and Direct Anterior Approach driving growth in the US ‐ FY Recon growth improved c. 3ppt compared to 2013 ANTH
Slide 11: Q4 Sports Medicine and Trauma & Extremities
Q4 Sports Medicine and Trauma & Extremities • Revenue performance ‐ Sports Medicine Joint Repair +8% ($159m) ‐ Arthroscopic Enabling Technologies (AET) +2% ($169m) ‐ Trauma & Extremities +3% ($129m) • Commentary ‐ ArthroCare integration on track and largely completed ‐ Resection lifting AET growth E
Slide 12: Q4 Advanced Wound Management
Q4 Advanced Wound Management • Revenue performance ‐ Advanced Wound Care (AWC) -1% ($210m) ‐ Advanced Wound Devices -27% ($42m) ‐ Advanced Wound Bioactives (AWB) +16% ($83m) • Commentary PICO Single Use Negative ‐ Sequential improvement in AWC Pressure Wound Therapy ‐ Strong PICO◊ growth; offset by
Slide 13: Julie Brown, Chief Financial Officer
Julie Brown Chief Financial Officer
Slide 14: Agenda items
Agenda items 1. Revenue and income statement 2. Profitability by segment and trading margin 3. Cash flow and capital allocation 4. Changes to reporting 5. 2015 Guidance 14
Slide 15: Q4 revenue growth by business segment
Q4 revenue growth by business segment Underlying Acquisitions Currency Reported Quarter 4* % % % % Advanced Surgical Devices 4 12 (4) 12 Advanced Wound Management (2) - (4) (6) Group 2 8 (4) 6 * Q4 2014 comprises 63 trading days (2013 – 62 trading days) 15
Slide 16: Q4 income statement
Q4 income statement Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Revenue 1,249 1,175 4,617 4,351 Underlying Underlying Trading profit 325 292 1,055 987 growth 7% growth 3% Restructuring and rationalisation costs (30) (22) (61) (58) Adjusting items Acquisition and integration costs (25) (
Slide 17: HP802 Update
HP802 Update • Assessment of programme undertaken ‐ decision to stop Phase III trials • One off costs expected of $33m ‐ $28m recognised in Q4 • We remain committed to investing in pioneering Advanced Wound Bioactive treatments 17
Slide 18: Q4 income statement (continued)
Q4 income statement (continued) Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Profit before taxation and associates 212 232 716 803 Associate - - (2) (1) Profit before taxation 212 232 714 802 Taxation (52) (70) Tax rate* 27.7% (213) (246) Attributable profit 160 162 501 556 Add back: Adj
Slide 19: Q4 profitability by business segment
Q4 profitability by business segment Fourth Quarter Full Year Trading Trading Revenue Margin Revenue Margin profit profit 2014 $m $m % $m $m % Advanced Surgical Devices 914 258 28.3 3,298 810 24.6 Advanced Wound Management 335 67 19.9 1,319 245 18.6 Group 1,249 325 26.1 4,617 1,055 22.9 2013 Advance
Slide 20: Group trading margin bridge (2011-14)
Group trading margin bridge (2011-14) Group Optimisation Manufacturing Device ASD strategy levy Price/ efficiency COGS R&D Emerging markets Sales teams 22.5% 22.9% 2011 Efficiencies & headwinds Investments 2014 20
Slide 21: 2014 Cash flow and capital allocation
2014 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 1,000 500 0 (375) (500) (253) $m 683 (250) (1,000) (1,572) (1,500) (1,613) (2,000) - 154 Dec-13 FCF pre capex Capex Dividends Acqui
Slide 22: Changes to reporting in 2015
Changes to reporting in 2015 Segmental reporting • Single segment disclosure • Trading margin for Group only Reporting calendar • Half and Full Year: no change to current reporting • Q1/Q3: Quarterly Trading report ‐ revenue numbers only (analysis by product franchise) ‐ narrative commentary on wide
Slide 23: Our guidance – delivering shareholder value
Our guidance – delivering shareholder value Established Markets Revenue growth Emerging Maximising Markets Cash Innovation Trading margin improvement Delivering returns through capital Simplification allocation EPSA growth Acquisitions 23
Slide 24: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 25: Summary
Summary • Continuing journey of transformation • Investing for higher growth and greater efficiency ‐ improving ‐ strengthening ‐ creating • 2015: improving underlying revenue growth, margin and tax rate • Increasing confidence in medium term outlook 25
Slide 26: Questions
>¢ smith&nephew Questions
Slide 27: We are smith&nephew
+“ We are smith&nephew
Slide 28: Appendices
>¢ smith&nephew Appendices
Slide 29: Q4 2014 financial highlights
Q4 2014 financial highlights Q4 2014 Q4 2013 $m $m Key comments Revenue • Revenue ASD 914 818 Underlying growth of 2% AWM 335 357 Group 1,249 1,175 • Trading Profit Underlying growth of 7% Trading Profit ASD 258 201 • Group Margin AWM 67 91 Margin of 26.1%, 130 bps higher than 2013 Group 325 292 • E
Slide 30: Full year 2014 financial highlights
Full year 2014 financial highlights Full Year Full Year 2014 2013 $m $m Key comments Revenue ASD 3,298 3,015 • Revenue AWM 1,319 1,336 Underlying growth of 2% Group 4,617 4,351 • Trading Profit Trading Profit Underlying growth of 3% ASD 810 712 • Group Margin AWM 245 275 Margin of 22.9%, 20 basis po
Slide 31: 2015 Technical guidance
2015 Technical guidance Guidance Full year Restructuring costs < $125m Acquisition and integration costs < $10m HP802 costs $5m Amortisation of acquisition intangibles ~ $150m Interest payable ~ 3% Other finance costs < $10m Bioventus loan note interest receivable None Associate: Bioventus contribut
Slide 32: Underlying revenue growth by geography & business segment Q4 2014
Underlying revenue growth by geography & business segment Q4 2014 Emerging & International Established Markets Markets Group US OUS Total Total Total Quarter 4 Revenue $m $m $m $m $m Advanced Surgical Devices 454 320 774 140 914 Advanced Wound Management 109 179 288 47 335 Group 563 499 1,062 187 1,
Slide 33: Product line revenues and underlying growth
Product line revenues and underlying growth 2013 2014 Full Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Full Year Year Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth Revenue Growth % % % % % % % % $m % $m % Advanced Surgical Devices Knee Implants (6) (1) 2 5 - - 2 1 235 3 873 2 Hip Implants (6) (
Slide 34: Free cash flow Q4 and FY 2014
Free cash flow Q4 and FY 2014 Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Trading profit 325 292 1,055 987 Share based payment 9 5 32 28 Depreciation and amortisation 95 86 310 296 Capital expenditure (118) (125) (375) (340) Movements in working capital and provisions 55 23 (241) (94) T
Slide 35: 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 Fourth Quarter Full Year 2014 2013 2014 2013 $m $m $m $m Free cash flow 184 196 308 527 Add back: capital expenditure 118 125 375 340 Net cash inflow from operating 302 321 683 867 activities (IAS 7) 35
Slide 36: Analysis of restructuring costs
Analysis of restructuring costs Previous Previous Q4 Total to date Q4 Total to date Total to Date Total to Date Structural Efficiency $m $m $m $m $m $m Programme Cash costs 141 - 141 136 3 139 Asset w/offs 21 - 21 n/a n/a n/a Total 162 - 162 136 3 139 Group Optimisation $m $m $m $m $m $m Plan Cash c
Slide 37: 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 37
Slide 38: Exchange rates
Exchange rates Q4/13 FY/13 Q1/14 Q2/14 Q3/14 Q4/14 FY/14 $:€ Period end 1.38 1.38 1.38 1.36 1.27 1.21 1.21 Average 1.36 1.33 1.37 1.37 1.33 1.25 1.33 $:£ Period end 1.66 1.66 1.66 1.70 1.62 1.56 1.56 Average 1.62 1.56 1.65 1.68 1.67 1.58 1.65 38