2014 Fourth Quarter & Full year Results

Transcription

1 2014 Fourth Quarter & Full year Results

2 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", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. For Smith & Nephew, these factors include: economic and financial conditions in the markets we serve, especially those affecting health care providers, payers and customers; price levels for established and innovative medical devices; developments in medical technology; regulatory approvals, reimbursement decisions or other government actions; product defects or recalls; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; strategic actions, including acquisitions and dispositions, our success in performing due diligence, valuing and integrating acquired businesses; disruption that may result from transactions or other changes we make in our business plans or organisation to adapt to market developments; and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. Please refer to the documents that Smith & Nephew has filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, including Smith & Nephew's most recent annual report on Form 20-F, for a discussion of certain of these factors. Any forward-looking statement is based on information available to Smith & Nephew as of the date of the statement. All written or oral forward-looking statements attributable to Smith & Nephew are qualified by this caution. Smith & Nephew does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Smith & Nephew's expectations. 2

3 Olivier Bohuon Chief Executive Officer

4 EPSA (cents) Revenues ($bn) 2014 Full Year results Revenues Revenue growth +2% underlying to $4,617m 22.9% margin EPSA increase +8% to EPSA $683m free cash flow** investments in growth platforms acquisition of ArthroCare * 76.9 FY dividend up 8% to 29.6 *Restated for IAS19. ** Before Capex

5 2014 investing to transform Smith & Nephew Established Markets Emerging Markets Premium Mid tier / Value Generic / Local Innovation Simplification Acquisitions JOURNEY II Knee System 5

6 Shareholder Value 2015 reaping the benefits Established Markets Continued Reconstruction momentum Improvement in AWC and Europe Syncera value solutions expansion Emerging Markets Currently 15% of revenues, aspire to 25% Continued China dynamic, improve in LatAm Mid tier growth Innovation Focused on disruptive products / commercial models Good product launch cadence Strong pipeline Simplification Single MD model drives greater agility and efficiency Group Optimisation plan benefits Tax rate improvement Acquisitions Track record established (15 deals, $2.8bn) ArthroCare integration benefits Desire undiminished 6

7 Future a rebalanced Smith & Nephew 2011* Future Lower Growth 65% Higher Growth 35% Improving Strengthening Creating Proportion of Revenue Higher Growth 67% Lower Growth 33% Higher Growth: Sports Medicine Joint Repair, ArthroCare, Trauma & Extremities, Gynaecology, Advanced Wound Bioactives and Devices, Emerging markets (all franchises) * Excluding Clinical Therapies Lower Growth: Arthroscopic Enabling Technologies, Reconstruction and Advanced Wound Care (all Established markets) 7

8 Q highlights Revenue Fourth Quarter Underlying growth $m $m % Advanced Surgical Devices Advanced Wound Management Group 1,249 1,175 2 Trading profit Advanced Surgical Devices Advanced Wound Management Group Trading Profit Margin 26.1% 24.8% EPSA Key Comments Q4 revenues +2% underlying (+6% reported) Emerging Markets +18% Advanced Wound Bioactives +16% Sports Medicine Joint Repair +8% US Recon growing above market ArthroCare progressing to plan Trading profit margin 26.1% (+130bps) EPSA 25.6 (up +9%) Final dividend 18.6 (2013: 17.0 ) 8

9 Q4 revenue growth Geographic growth Revenue split Product franchise growth Knee 3% 0% US Hip 2% ASD Joint Repair 8% -1% Est OUS Enab Tech Trauma 2% 3% Other ASD 18% EM/IM AWM AWM -2% -4% 0% 4% 8% 12% 16% 20% -4% -2% 0% 2% 4% 6% 8% 10% Underlying change (%) Underlying change (%) Note: Other ASD +6% includes Gynaecology and ArthroCare s ENT franchise, Est OUS is Australia, Canada, Europe, Japan and New Zealand 9

10 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 Syncera progressing well ANTHOLOGY Primary Hip System with VERILAST Technology 10

11 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 Continued strong double digit growth in Extremities EVOS MINI Plating System 11

12 Q4 Advanced Wound Management Revenue performance Advanced Wound Care (AWC) -1% ($210m) Advanced Wound Devices -27% ($42m) Advanced Wound Bioactives (AWB) +16% ($83m) Commentary Sequential improvement in AWC Strong PICO growth; offset by US RENASYS PICO Single Use Negative Pressure Wound Therapy AWB delivered on the FY guidance of mid-teens growth 12

13 Julie Brown Chief Financial Officer

14 Agenda items 1. Revenue and income statement 2. Profitability by segment and trading margin 3. Cash flow and capital allocation 4. Changes to reporting Guidance 14

15 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 * Q comprises 63 trading days ( trading days) 15

16 Adjusting items Q4 income statement Fourth Quarter Full Year $m $m $m $m Revenue 1,249 1,175 4,617 4,351 Trading profit Underlying growth 7% 1, Underlying growth 3% Restructuring and rationalisation costs (30) (22) (61) (58) Acquisition and integration costs (25) (12) (118) (31) Amortisation of acquisition intangibles (36) (23) (129) (88) Legal and other (8) Operating profit Net interest (costs)/income (10) 1 (22) 4 Other finance costs (4) (4) (11) (11) Profit before taxation and associates Trading margin (%) 26.1% 24.8% 22.9% 22.7% 16

17 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

18 Q4 income statement (continued) Fourth Quarter Full Year $m $m $m $m Profit before taxation and associates Associate - - (2) (1) Profit before taxation Taxation (52) (70) Tax rate* 27.7% (213) (246) Attributable profit Add back: Adjusting items from earlier slide Acquisition costs reported in interest Taxation on excluded items (32) (10) (71) (40) Adjusted attributable profit Adjusted earnings per share ("EPSA") Q4 EPSA growth 9% Earnings per share ("EPS") * Full year rate on Trading results 18

19 Q4 profitability by business segment Fourth Quarter Full Year Revenue Trading profit Margin Revenue Trading profit Margin 2014 $m $m % Advanced Surgical Devices Advanced Wound Management Group 1, $m $m % 3, , ,617 1, Advanced Surgical Devices Advanced Wound Management Group 1, , , ,

20 Group trading margin bridge ( ) Group Optimisation Manufacturing ASD strategy efficiency Device levy Price/ COGS R&D Emerging markets Sales teams 22.5% 22.9% 2011 Efficiencies & headwinds Investments

21 $m 2014 Cash flow and capital allocation Reinvest for organic growth Progressive dividend policy Acquisitions in line with strategy Return excess to shareholders , (500) (253) 683 (375) (250) (1,000) (1,572) (1,500) (2,000) (1,613) Dec-13 FCF pre capex Capex Dividends Acquisitions Share buy back Other Dec-14 21

22 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 wider business performance 22

23 Our guidance delivering shareholder value Established Markets Emerging Markets Revenue growth Maximising Cash Innovation Simplification Acquisitions Trading margin improvement EPSA growth Delivering returns through capital allocation 23

24 Olivier Bohuon Chief Executive Officer

25 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

26 Questions

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28 Appendices

29 Q financial highlights Q Q $m $m Revenue ASD AWM Group 1,249 1,175 Trading Profit ASD AWM Group Group Margin 26.1% 24.8% Operating Profit Key comments Revenue Underlying growth of 2% Trading Profit Underlying growth of 7% Group Margin Margin of 26.1%, 130 bps higher than 2013 EPSA 9% growth on prior year at 25.6 per share PBT EPSA

30 Full year 2014 financial highlights Revenue Full Year 2014 Full Year 2013 $m $m ASD 3,298 3,015 AWM 1,319 1,336 Group 4,617 4,351 Trading Profit ASD AWM Group 1, Group Margin 22.9% 22.7% Operating Profit PBT Key comments Revenue Underlying growth of 2% Trading Profit Underlying growth of 3% Group Margin Margin of 22.9%, 20 basis points higher than last year. EPSA 8% growth on prior year at 83.2 per share EPSA

31 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 contribution None Effective tax rate Slightly above 27% 31

32 Underlying revenue growth by geography & business segment Q Established Markets Emerging & International Markets Group US OUS Total Total Total Quarter 4 Revenue $m $m $m $m $m Advanced Surgical Devices Advanced Wound Management Group , ,249 Quarter 4 Growth % % % % % Advanced Surgical Devices Advanced Wound Management (9) (2) (5) 22 (2) Group - (1)

33 Product line revenues and underlying growth Advanced Surgical Devices Q1 Q2 Q3 Q Full Year Q1 Q2 Q3 Q4 Full Year Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth Revenue Growth % % % % % % % % $m % $m % Knee Implants (6) (1) Hip Implants (6) (1) 3 2 (1) Trauma (1) Sports Medicine Joint Repair Arthroscopic Enabling Technologies (7) - (1) (1) (2) (2) (1) Other ASD Advanced Wound Management Advanced Wound Care (6) (8) (3) 210 (1) 805 (4) Advanced Wound Devices (17) 42 (27) 192 (9) Advanced Wound Bioactives Group , ,617 2 All revenue growth rates are on an underlying basis 33

34 Free cash flow Q4 and FY 2014 Fourth Quarter Full Year $m $m $m $m Trading profit , Share based payment Depreciation and amortisation Capital expenditure (118) (125) (375) (340) Movements in working capital and provisions (241) (94) Trading cash flow Trading cash conversion 113% 96% 74% 89% Restructuring, rationalisation, acquisition & other (98) (24) (195) (79) Operating cash flow Net interest paid (12) (1) (33) (6) Taxation paid (72) (60) (245) (265) Free cash flow Closing Net Debt (1,613) (253) 34

35 Reconciliation of free cash flow to IAS 7 net cash flow from operating activities Fourth Quarter Full Year $m $m $m $m Free cash flow Add back: capital expenditure Net cash inflow from operating activities (IAS 7)

36 Analysis of restructuring costs Structural Efficiency Programme Previous Total to Date Q4 Total to date Previous Total to Date Q4 Total to date $m $m $m $m $m $m Cash costs Asset w/offs n/a n/a n/a Total Group Optimisation Plan $m $m $m $m $m $m Cash costs Asset w/offs n/a - n/a Total Of the $30m total charged in Q4, $28m are reflected in selling, general and administrative expenses and $2m are reflected in cost of goods sold in the Group Income Statement. Structural Efficiency target of $160m cash costs and $40m asset write-offs. Group Optimisation target of $150m total costs. 36

37 Business days per quarter Q1 Q2 Q3 Q4 Full Year

38 Exchange rates Q4/13 FY/13 Q1/14 Q2/14 Q3/14 Q4/14 FY/14 $: Period end Average $: Period end Average