Smith & Nephew Plc · LSE:SN.
Smith & Nephew — Q2 2012 Earnings Presentation
35 slides from Smith & Nephew's earnings presentation, 2012
Slide 1: 2012 Second Quarter Results
2012 Second Quarter Results >ésm ith&nephew
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: Q2 2012 Highlights
Q2 2012 Highlights • Reported Q2 revenues $1,029m, up 2% underlying – Bioventus transaction now completed • Trading profit $234m, up 6% underlying • Trading profit margin 22.7%, up 80 bps • EPSA 18.1¢ • Moved to net cash of $150m • Step-change in dividend – interim up 50% and new progressive policy
Slide 5: Q2 Revenue growth
Q2 Revenue growth Geographic growth Revenue split Product franchise growth Knee 3% US 2% Hip -5% ASD Joint Repair 10% Enab Tech -4% Est OUS Trauma 3% 1% Other ASD AWM AWM 4% 10% EM/IM 12% 8% 4% 0% -6% -4% -2% 0% 2% 4% 6% 8% 10% Underlying change (%) Underlying change (%) 5 Note: ‘Other ASD’ includes
Slide 6: Advanced Surgical Devices – Knee and Hip Implants
Advanced Surgical Devices – Knee and Hip Implants • Revenue performance – Knees: global +3%, US +3%, OUS +3% ($219m) – Hips: global -5%, US -6%, OUS -4% ($165m) • Commentary – knee growth, against very strong comparable – launched LEGION◊ Hinge Knee System – continued MoM headwinds for hips LEGION◊
Slide 7: Advanced Surgical Devices – Sports Medicine and Trauma
Advanced Surgical Devices – Sports Medicine and Trauma • Revenue performance – Sports Medicine Joint Repair +10% ($127m) – Arthroscopic Enabling Technologies -4% ($98m) – Trauma +3% ($116m) • Commentary – Joint Repair returns to double digit growth VLP◊ Foot – better quarter for Trauma Percutaneous
Slide 8: Advanced Wound Management
Advanced Wound Management • Revenue performance – Exudate Management +4% ($69m) – Infection Management 0% ($32m) – other AWM (including NPWT) +5% ($154m) • Commentary – double market growth in slightly weaker markets ALLEVYN◊ Life – 11 new products, including ALLEVYN◊ Life – NPWT portfolio growing s
Slide 9: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 10: Income statement Q2 2012
Income statement Q2 2012 Second Quarter Quarterly growth Half Year 2012 2011 Underlying Reported 2012 2011 $m $m $m $m Revenue 1,029 1,077 2% (4%) 2,108 2,132 Trading profit 234 236 6% (1%) 486 477 Restructuring and rationalisation costs (14) (1) (20) (2) Amortisation of acquisition intangibles (10)
Slide 11: Income statement Q2 2012
Income statement Q2 2012 Second Quarter Half Year 2012 2011 2012 2011 $m $m $m $m Profit before taxation and associates 209 222 442 450 Profit on disposal 251 - 251 - Associate (1) - (1) - Profit before tax 459 222 692 450 Taxation (167) (69) Tax rate* 30.2% (239) (141) Attributable profit 292 153 4
Slide 12: Revenue growth by business segment Q2 2012
Revenue growth by business segment Q2 2012 Reported Currency Disposal Underlying Quarter 2* % % % % Advanced Surgical Devices (5) 3 4 2 Advanced Wound Management (1) 5 - 4 Group (4) 3 3 2 * Q2 2012 comprises 63 trading days (2011 – 63 trading days) 12
Slide 13: Underlying revenue growth by geography & business segment Q2 2012
Underlying revenue growth by geography & business segment Q2 2012 Emerging and Established Markets International Markets Group US Growth Other Growth Total Growth Total Growth Total Growth Quarter 2 $m % $m % $m % $m % $m % Advanced Surgical Devices 363 2 317 - 680 1 94 10 774 2 Advanced Wound Manag
Slide 14: Profitability by business segment Q2 2012
Profitability by business segment Q2 2012 Second Quarter Half Year Revenue Trading Profit Margin Margin 2012 $m $m % % Advanced Surgical Devices 774 177 22.8 23.5 Advanced Wound Management 255 57 22.4 21.6 Group 1,029 234 22.7 23.0 2011 $m $m % % Advanced Surgical Devices 819 177 21.6 22.6 Advanced
Slide 15: Free cash flow Q2 2012
Free cash flow Q2 2012 Second Quarter Half Year 2012 2011 2012 2011 $m $m $m $m Trading profit 234 236 486 477 Share based payment 11 9 20 16 Depreciation and amortisation 68 64 138 128 Capital expenditure (72) (60) (130) (133) Movements in working capital and provisions 44 (7) (37) (40) Trading cas
Slide 16: Dividend
Dividend • 50% increase on 2011 interim dividend, to 9.9c per share • Move to progressive dividend policy going forward • Future interim dividends normally 40% of the total dividend in the previous year 16
Slide 17: 2012 outlook
2012 outlook • No change from February Outlook 17
Slide 18: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 19: Strategic Priorities
Strategic Priorities • Winning in Established Markets • Accelerating development in Emerging Markets • Innovating for value • Simplifying and improving our operating model • Supplement organic growth through acquisitions 19
Slide 20: Actions and execution (i)
Actions and execution (i) • Established management teams Winning in • Formed ASD: significant US restructuring, Europe on-track Established Markets • AWM refined business models • Strengthened management team Accelerating development • Created uniquely focused organisation in Emerging Markets • Intr
Slide 21: Actions and execution (ii)
Actions and execution (ii) Supplementing organic • Strong recent track record growth through • Strengthened team and skill set Acquisitions • Disciplined review of opportunities • New R&D evaluation process established Innovating for value • Maintained high pace of innovation • Increasing investment
Slide 22: Actions and execution (iii)
Actions and execution (iii) • Establishing operational functions with experienced management Simplifying and Improving • Process improvement programmes operating model • COGS improvement programmes: (e.g. manufacturing footprint, supply, SKUs portfolio) • Annual savings at least $150m Financial Impl
Slide 23: Summary
Summary • Completed a good first half – growing revenue and meeting trading profit margin commitments • Strategic Priorities progress – focused and disciplined execution – first benefits coming through • Dividend increase – reflects financial strength, strong cash-flow and our confidence in deliveri
Slide 24: Questions
>¢ smith&nephew Questions
Slide 25: We are Smith & Nephew
+“ We are smith&nephew
Slide 26: Appendices
>¢ smith&nephew Appendices
Slide 27: Bioventus Transaction – Trading Impact
Bioventus Transaction – Trading Impact The trading results included in the group results of the businesses included in the Bioventus transaction are as follows: Q1 Q2 Q3 Q4 Full Year US OUS US OUS US OUS US OUS US OUS Total 2011 $m $m $m $m $m $m $m $m $m $m $m Revenue 46 9 51 10 50 10 52 9 199 38 2
Slide 28: Bioventus Transaction – Q2 Impact
Bioventus Transaction – Q2 Impact Impact on balance sheet and income statement captions: Reconciliation of impact on Q2 EPSA: Pre- Bioventus transaction impact Reported Impact $m $m $m $m Net interest Trading profit impact of two (2) 2 - (9) (payable)/receivable months’ US trading disposed of Share
Slide 29: Product line revenues and underlying growth
Product line revenues and underlying growth 2011 2012 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Advanced Surgical Devices Reconstruction Knee Implants 5 7 6 2 5 6 219 3 Hip Implants (2) 0 (2) (2) (1) (2) 165 (5) Trauma 6 4 4 (2) 3 (1) 116 3
Slide 30: Definitions of product lines
Definitions of product lines Category Products Included Advanced Surgical Devices Reconstruction Knee Implants Knee implants Hips Implants Hip implants Knee Repair, Shoulder Repair, Hip Repair, Extremities Repair (including Hip and Sports Medicine Joint Repair Extremities Blades, RF and Instruments)
Slide 31: Exchange rates
Exchange rates Q2/11 FY/11 Q1/12 Q2/12 $:€ Period end 1.45 1.29 1.33 1.27 Average 1.44 1.39 1.31 1.28 $:£ Period end 1.60 1.55 1.60 1.57 Average 1.63 1.60 1.57 1.58 Q2 Revenue by Geographic Market % United States 40 United Kingdom 7 Other Europe 25 Other 28 31 100
Slide 32: Analysis of restructuring costs
Analysis of restructuring costs P&L Charge Cash Spend Q2 Total to date Q2 Total to date Restructuring $m $m $m $m Cash costs* 14 46 10 35 Asset w/offs* - - n/a n/a All restructuring costs incurred in Q1 and Q2 2012 are reflected in ‘selling, general and administrative expenses’ in the Group’s Income
Slide 33: 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 Second Quarter Half Year 2012 2011 2012 2011 $m $m $m $m Free cash flow 172 136 268 275 Add back: capital expenditure 72 60 130 133 Net cash inflow from operating 244 196 398 408 activities (IAS 7) 33
Slide 34: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2011 64 63 63 60 250 2012 64 63 63 61 251 34
Slide 35: 2012 key new products progression
2012 key new products progression Q1 Q2 Q3 • POLARCUP◊ Dual Mobility Hip Knee and Hip Implants System (US launch) • LEGION◊ Hinge Knee System • HEALICOIL◊ PK Suture Anchor Sports Medicine • ENDOBUTTON CL◊ Ultra 10mm • CLANCY◊ Flexible Drill System Fixation Device Joint Repair • ACUFEX PINPOINT◊ Anat