2014 Third Quarter Results

Transcription

1 2014 Third Quarter 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 Q highlights Revenue Third Quarter Underlying growth $m $m % Advanced Surgical Devices Advanced Wound Management Group 1,148 1,027 3 Trading profit Advanced Surgical Devices Advanced Wound Management Group Trading Profit Margin 21.4% 21.6% EPSA Key Comments Q3 revenues +3% underlying (+12% reported) Sports Medicine Joint Repair +11% Advanced Wound Bioactives +14% Emerging Markets +20% ArthroCare integration progressing well Recon led by +6% US Hips Trading profit margin 21.4% EPSA 19.5 (up +14%) EM mid-tier model, Bioventus update 4

5 Q3 revenue growth Geographic growth Revenue split Product franchise growth Knee 1% 2% US Hip 1% ASD Joint Repair 11% Enab Tech 3% -2% Est OUS Trauma Other ASD 8% AWM AWM -1% 20% EM/IM -4% 0% 4% 8% 12% 16% 20% 24% -4% -2% 0% 2% 4% 6% 8% 10% 12% Underlying change (%) Underlying change (%) Note: Other ASD +6% includes ArthroCare s ENT franchise, Est OUS is Australia, Canada, Europe, Japan and New Zealand 5

6 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 growth REDAPT Revision femoral system 6

7 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 Coblation technology lifting AET growth EVOS MINI Plating System Investments and launches driving improved Trauma momentum 7

8 Advanced Wound Management Revenue performance Advanced Wound Care -3% ($207m) Advanced Wound Devices -17% ($43m) Advanced Wound Bioactives +14% ($82m) Commentary Sequential improvement in AWC, still impacted by weak US performance Strong PICO growth; offset by US NPWT REGRANEX Platelet-derived growth factor therapy REGRANEX developing favourably 12 months into the re-launch 8

9 Julie Brown Chief Financial Officer

10 Agenda items 1. Revenue and profitability by business segment 2. Group income statement 3. Cash flow outlook 10

11 Revenue growth by business segment Q Underlying Acquisitions Currency Reported Quarter 3* % % % % Advanced Surgical Devices Advanced Wound Management (1) Group * Q comprises 63 trading days ( trading days) 11

12 Revenue and underlying growth by geography & business segment Q ASD $816m Emerging markets $131m AWM $332m Emerging markets $42m US $395m US $110m Other Established Markets $290m Other Established Markets $180m 21% 19% 5% (2)% 4% (8)% (1)% (1)% US Other Est Mkts Emerging markets Total US Other Est Mkts Emerging markets Total 12

13 Profitability by business segment Q Revenue Third Quarter Trading Profit Margin Year to Date Margin 2014 $m $m % % Advanced Surgical Devices Advanced Wound Management Group 1, Advanced Surgical Devices Advanced Wound Management Group 1,

14 Group efficiency programmes Structural efficiency programme Benefits to date approaching $145m Group optimisation programme Four major levers of change >$120m benefits over 4 yrs Optimising Functions Driving Procurement Savings Simplifying Operating Model Optimising Locations 14

15 Adjusting items Income statement Q Third Quarter Quarterly growth Underlying Reported $m $m Revenue 1,148 1,027 3% 12% Trading profit % 10% Restructuring and rationalisation costs (12) (11) Acquisition and integration costs (35) (9) Amortisation of acquisition intangibles (39) (22) Legal and other - - Operating profit Net interest (costs)/income (5) 1 Other finance costs (2) (3) Profit before taxation and associates Trading margin (%) 21.4% 21.6% 15

16 Income statement Q Third Quarter $m $m Profit before taxation and associates Associate - - Profit before taxation Taxation (51) (56) Tax rate* 28% Attributable profit Add back: Adjusting items from previous slide Acquisition costs reported in interest 2 - Taxation on excluded items (16) (10) Adjusted attributable profit Adjusted earnings per share ("EPSA") Earnings per share ("EPS") Q3 EPSA Growth 14% * Forecast full year rate excluding adjusting items 16

17 Free cash flow Q Third Quarter $m $m Trading profit Share based payment 7 6 Depreciation and amortisation Capital expenditure (96) (74) Movements in working capital and provisions (74) (34) Trading cash flow Restructuring, rationalisation, acquisition & other (60) (11) Operating cash flow Net interest paid (9) (2) Taxation paid (37) (53) Free cash flow Closing Net Debt (1,880) (222) 17

18 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

19 Olivier Bohuon Chief Executive Officer

20 Mid-tier new emerging markets business model Mid-tier commercial model Independent Mid-tier sales organisation Good quality products at lower prices Dedicated leadership Manufacturing & design efficiency Common shared services Different business model Different service model Different brand Separate sales channels Streamlined sales & marketing Collaboration with premium-tier organisation 20

21 ...ready to drive a full range of products Existing and new Mid-tier products PLUS recon range Adler trauma range New product development Existing products ASD Mid-tier Licensing & distribution Existing products AWM Mid-tier Future acquisitions 21

22 over the coming years Recon PLUS knee PLUS hip Knee system Hip system Trauma Plates & screws Ex-fix system Adler trauma range Nail range New plate range Sports Med Low cost camera ACL joint repair range ACL kit New camera Various treatment kits AWM Exudate products Drapes Burn treatments Foam range Retail range Mid-tier base Filling the portfolio Accelerating growth 22

23 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% of investor equity 23

24 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 business models 24

25 Questions

26 26

27 Appendices

28 Q financials Q Q $m $m Revenue ASD AWM Group 1,148 1,027 Trading Profit ASD AWM Group Group Margin 21.4% 21.6% Operating Profit Key comments Revenue Underlying growth of 3% Trading Profit Underlying growth of 3% Group Margin Margin of 21.4% - 20 bps lower than 2013 EPSA 14% growth on prior year at 19.5 per share PBT EPSA

29 YTD 2014 financial highlights Revenue Year to Date 2014 Year to Date 2013 $m $m ASD 2,384 2,197 AWM Key comments Revenue Underlying growth of 2% Group 3,368 3,176 Trading Profit ASD AWM Group Group Margin 21.7% 21.9% Operating Profit PBT Trading Profit Underlying growth of 1% Group Margin Margin of 21.7% - 20bps lower than 2013 EPSA 7% growth on prior year at 57.6 per share EPSA

30 Underlying revenue growth by geography & business segment Q Established Markets Emerging & International Markets Group US OUS Total Total Total Quarter 3 Revenue $m $m $m $m $m Advanced Surgical Devices Advanced Wound Management Group ,148 Quarter 3 Growth % % % % % Advanced Surgical Devices 5 (2) Advanced Wound Management (8) (1) (4) 19 (1) Group 2 (2)

31 Product line revenues and underlying growth 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) 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) 207 (3) Advanced Wound Devices (17) Advanced Wound Bioactives Group ,148 3 All revenue growth rates are on an underlying basis 31

32 Analysis of restructuring costs P&L Charge Cash Spend Previous Total to Date Q3 Total to date Previous Total to Date Q3 Total to date Structural Efficiency Programme $m $m $m $m $m $m Cash costs Asset w/offs 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 $12m total charged in Q3, $6m are reflected in selling, general and administrative expenses and $6m 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. 32

33 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-14 Associate: Bioventus contribution no change Effective tax rate (2) c.28% (1) Net interest charge of around $10m in Q4 (2) Excluding acquisition related costs, restructuring and rationalisation costs, amortisation of acquisition intangibles, and legal and other items. 33

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

35 Business days per quarter Q1 Q2 Q3 Q4 Full Year

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

37 2014 key new products progression Q Q Knee and Hip Implants Navio for JOURNEY UNI (BlueBelt commercial agreement) LEGION Hinge Knee (EU) LEGION Inserts 10/12mm Sports Medicine/ Arthroscopic Enabling Technologies SUTUREFIX All-Suture Anchor for shoulder SUTUREFIX ULTRA Hip Anchor DYONICS Pulse wireless ipad image data management DYONICS Power Consumables ULTRATAPE Suture System Ambient KVac IFS and KVac Wand (EU) Trauma & Extremities HAT-TRICK Lesser toe repair system D-RAD SMART PACK Single-Use Volar Distal Radius Plating System (wrist plating system) TRIGEN INTERTAN Gold Instrument Set EVOS MINI Plating System Advanced Wound Management DURATOUCH larger size ALLEVYN variants rebrand RELICARE (Japan) ELECT mid-tier foam range 37