Q2 Revenue and H1 2015 Results - Smith+Nephew · Advanced Wound Management • Q2 Revenue...
Transcript of Q2 Revenue and H1 2015 Results - Smith+Nephew · Advanced Wound Management • Q2 Revenue...
Q2 Revenue and H1 2015 Results
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.
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Chief Executive Officer
Olivier Bohuon
H1 2015 highlights
Key Comments
• H1 revenues +4% underlying (+2% reported)
‐ Advanced Wound Care +11% ‐ strong Emerging Markets +18% ‐ Recon improvement led by Knees ‐ Sports Medicine Joint Repair +8%
• Technology and distribution acquisitions
• Trading profit margin 22.5%
• EPSA 39.1¢ (up 3%)
• Interim dividend 11.8¢ (2014 11.0¢)
First Half
2015 2014 Underlying
growth
$m $m %
Revenue 2,272 2,220 4
Trading profit 512 484 6
Trading Profit Margin 22.5% 21.8%
EPSA 39.1¢ 38.1¢
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Emerging
Est OUS
US
AWD
AWB
AWC
Hips
Knees
Arthroscopic Enabling Tech
Sports Medicine Joint Repair
Trauma & Extremities
Other Surgical
11%
6%
12%
1%
7%
7%
2%
1%
7%
-10% 0% 10%
Q2 revenue growth of 5% underlying
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Geographical growth Product franchise growth Revenue split
Underlying change (%) Underlying change (%)
3%
4%
0% 5% 10% 15%
Note: ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand, ‘Other Surgical’ includes Gynaecology and ENT.
-9% 14%
Sports Medicine, Trauma & OSB
• Q2 Revenue performance
‐ Sports Medicine Joint Repair +7% ($150m)
‐ Arthroscopic Enabling Technologies (AET) +1% ($142m)
‐ Trauma & Extremities +2% ($125m)
‐ Other Surgical Businesses* +7% ($52m)
• Commentary
‐ one year since the ArthroCare acquisition
‐ Sports Medicine Joint Repair and AET benefitting from ArthroCare integration
‐ ENT business generating good growth and improving outlook
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EVAC◊ 70 XTRA Adenotonsillectomy Wand
* ‘Other Surgical Businesses’ includes Gynaecology and ENT
• Q2 Revenue performance
‐ Knees: global +7%, US +7%, OUS +7% ($221m)
‐ Hips: global +1%, US +3%, OUS -1% ($153m)
• Commentary
‐ global Reconstruction sequentially improved to +4%
‐ US VERILAST◊ Technology for Hips and Knees campaign starting to benefit sales
‐ ZUK acquisition for US market
‐ first patients implanted with new ANTHEM◊ Knee System
Reconstruction
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ANTHEM◊ Knee System
Advanced Wound Management
• Q2 Revenue performance
‐ Advanced Wound Care +12% ($193m)
‐ Advanced Wound Bioactives +6% ($89m)
‐ Advanced Wound Devices -9% ($43m)
• Commentary
‐ AWM at +7% returned to above market growth
‐ improving AWC trend sustained
‐ AWB: SANTYL◊ growth partially off-set by OASIS◊
‐ AWD dynamic unchanged: expect to re-enter US traditional market during 2016 with next generation products
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PICO◊ Single Use Negative Pressure Wound
Therapy
Chief Financial Officer
Julie Brown
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Growth
2015 2014 Reported Underlying(1)
Revenue $2,272m $2,220m 2% 4%
Trading Profit $512m $484m 6% 6%
Trading Margin 22.5% 21.8%
EPSA 39.1¢ 38.1¢ 3%
Trading cash flow $382m $257m
Free cash flow $329m $72m
H1 Financial Highlights
(1) Growth at constant exchange rates, adjusted for acquisitions and disposals
H1 2015(1) Q2 2015(1)
Q2 and H1 Revenue growth
11 (1) Q2 2015 comprises 63 trading days (2014 – 63 trading days) H1 comprises 124 days (2014 – 125 days) (2) Constant exchange rates
Growth % Growth %
Underlying Underlying
Acquisitions Acquisitions
CER(2) CER(2)
Currency Currency
Reported Reported
5%
6%
11%
-9%
2%
4%
7%
11%
-9%
2%
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2015 2014
$m $m
Revenue 2,272 2,220
Cost of goods sold (566) (538)
Gross profit 1,706 1,682
Gross profit margin 75.1% 75.8%
Selling, general and admin (1,084) (1,078)
Research and development (110) (120)
Trading profit 512 484
Trading profit margin 22.5% 21.8%
H1 Trading income statement
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H1 Adjusting items to IFRS Operating Profit
2015 2014
$m $m Comments
Trading profit 512 484
Acquisition related costs (13) (58) • ArthroCare integration and emerging market deals
Restructuring and rationalisation (19) (19) • Group Optimisation programme
Amortisation of acquisition intangibles (78) (54) • Increase driven by ArthroCare deal
Legal and other items 37 10 • Legal settlement, curtailment gain, US RENASYS◊
IFRS Operating profit 439 363
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H1 EPSA and EPS H1 Growth
2015 2014 Reported CER
$m $m
Trading profit 512 484 6% 13%
Interest receivable 2 7
Interest payable (23) (11)
Other finance costs (7) (5)
Share of results from associate (3) (2)
Profit before taxation 481 473
Taxation (131) (133) Tax rate* 27.2%
Adjusted attributable profit 350 340
Number of shares – million 894 893
Adjusted earnings per share ("EPSA") 39.1¢ 38.1¢ 3% 10%
Earnings per share ("EPS") 33.0¢ 26.8¢
* Forecast full year rate on Trading results
H1 Free cash flow
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H1
2015 2014
$m $m
Trading profit 512 484
Share based payment 13 16
Depreciation and amortisation 148 140
Capital expenditure (161) (161)
Movements in working capital and provisions (130) (222)
Trading cash flow 382 257
Trading cash conversion 75% 53%
Restructuring, rationalisation, acquisition & other 36 (37)
Operating cash flow 418 220
Net interest paid (17) (12)
Taxation paid (72) (136)
Free cash flow 329 72
(1,613) (1,513)
490
-
(161)
(166) (16)
(47)
(1,800)
(1,600)
(1,400)
(1,200)
(1,000)
(800)
(600)
(400)
(200)
0
Dec-14
Net Debt
FCF pre
capex
Capex Dividends Acquisitions Share buy
back
Other Jun-15
Net Debt
H1 Cash flow and capital allocation
16
$m
Reinvest for organic growth
Progressive dividend policy
Acquisition in line with strategy
Return excess to share-holders 1 2 3 4
EPSA growth at CER
Trading margin improvement
Established Markets
Revenue growth
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Emerging Markets
Innovation
Simplification
Acquisitions
Optimising Cash
Delivering returns through capital
allocation
Our guidance
Higher underlying growth than 2014
Improving operational efficiency
Year-on-year improvement in margin
Chief Executive Officer
Olivier Bohuon
Winning in Established Markets
Advanced Wound Care improvement
• Actions taken
‐ new leadership at global and regional level
‐ greater product focus (e.g. ALLEVYN◊ Life)
‐ in US, restructuring of sales teams
‐ in Europe, refocused teams
• Outcome seen
‐ underlying improvement delivered in H1 2015
‐ confident in sustained growth
Strategy delivering improved results 19
ALLEVYN◊ Life
Standard Heel
Winning in the Established Markets
Reconstruction - focused on areas of growth
• Pioneering products – VERILAST◊ is a unique bearing surface – JOURNEY◊ II is designed to provide higher levels of
patient satisfaction
• Differentiated marketing – speaking to surgeons and their patients – US marketing campaigns with measurable returns
• Widening access – strong Established Market business supporting
Emerging Markets
• Disruptive model – Syncera
JOURNEY◊ II
Active Knee Solutions
Growing above the market in the US last 12 months 20
Milestones reached
• Moved from pilot to full launch
• Reference sites trained and fully operational with Syncera
• Customer accounts doing > 3,000 annualised procedures
• Material US pipeline and OUS plans ongoing
• Technology platform: S2 software acquired, reviewing additions
Early experiences
• Targeting of accounts
• Collaboration
• Opportunities for cross-selling
• Bundled payments
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Successful first 12 months for Syncera
We have the right innovation at the right time
0%
5%
10%
15%
20%
25%
30%
Accelerating development in Emerging Markets
Quarterly revenue development
SUPPORTIVE MARKET CONTEXT: • economic growth • higher healthcare spending OUR ACTIONS: • expansion of premium product
range • mid-tier strategy • medical education • further acquisitions
8%
16%
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Rev
en
ue
as
pro
po
rtio
n o
f g
rou
p (
%)
2010 2011 2012 2013 2014 2015
Today
Q1 2010
Leading in the Emerging Markets
23 23
Direct Presence
Mid-tier presence
Strategic milestones
2011 Today 2011 Today
✓ ✓ ✓ ✓ Leading position, continued strong growth
✓ ✓ X ✓ Acquisition of Sushrut-Adler, new factory in 2016
X ✓ X X Acquisition of Politec Saude (AWM) and PCE (ASD), improved revenue growth
X ✓ X ✓ Acquisition of DeOst and DC (distribution and manufacturing)
✓ ✓ X ✓ Well established with strong market position
X ✓ X X Acquisition of Plato, accelerated market share gains
✓ ✓ X X Government partnership to improve wound treatment
✓ ✓ X X Expanded share in regional tenders
China
India
Brazil
Russia
South Africa
Mexico
Turkey
Saudi Arabia
Summary
• Strong Q2 and H1 performance
‐ planned performance coming through
‐ sustained improvement in franchises and regions
‐ efficiency programmes progressing to plan
‐ strengthening through acquisitions
• Outlook
‐ improving underlying revenue growth, margin and earnings
‐ full year guidance unchanged
‐ on-track with our strategy to invigorate the growth profile of Smith & Nephew
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Questions
Appendices
H1 income statement
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H1
2015 2014
$m $m
Revenue 2,272 2,220
Trading profit 512 484
Restructuring and rationalisation costs (19) (19)
Acquisition and integration costs (13) (58)
Amortisation of acquisition intangibles (78) (54)
Legal and other 37 10
Operating profit 439 363
Net interest (costs)/income (18) (7)
Other finance costs (7) (5)
Profit before taxation and associates 414 351
Ad
just
ing
ite
ms
H1 income statement (continued)
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H1
2015 2014
$m $m
Profit before taxation and associates 414 351
Associate (3) (2)
Profit before taxation 411 349
Taxation (116) (110) Tax rate* 27.2%
Attributable profit 295 239
Add back:
Adjusting items from earlier slide 73 121
Adjusting items reported in interest (3) 3
Taxation on excluded items (15) (23)
Adjusted attributable profit 350 340
Adjusted earnings per share ("EPSA") 39.1¢ 38.1¢
Earnings per share ("EPS") 33.0¢ 26.8¢
* Forecast full year rate on Trading results
Franchise revenue analysis
29 All revenue growth rates are on an underlying basis * ‘Other Surgical Businesses’ includes Gynaecology and ENT
2014 2015
Q1 Q2 Q3 Q4 Full Year
Q1 Q2
Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % $m %
Sports Medicine, Trauma & OSB 2 6 7 5 5 5 469 4
Sports Medicine Joint Repair 5 9 11 8 8 9 150 7
Arthroscopic Enabling Technologies (2) (1) 3 2 1 (2) 142 1
Trauma & Extremities (1) 7 8 3 4 5 125 2
Other Surgical Businesses* 23 18 6 6 10 11 52 7
Reconstruction - 3 1 2 2 1 374 4
Knee Implants - 2 1 3 2 2 221 7
Hip Implants - 3 1 2 1 (1) 153 1
Advanced Wound Management - - (1) (2) (1) 1 325 7
Advanced Wound Care (6) (8) (3) (1) (4) 9 193 12
Advanced Wound Bioactives 8 21 14 16 15 5 89 6
Advanced Wound Devices 13 1 (17) (27) (9) (27) 43 (9)
Group 1 3 3 2 2 3 1,168 5
Regional revenue analysis
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‘Other Established Markets’ is Australia, Canada, Europe, Japan and New Zealand. All revenue growth rates are on an underlying basis
2014 2015
Q1 Q2 Q3 Q4 Full Year
Q1 Q2
Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % $m %
Geographic regions
US (2) 4 2 - 1 1 549 4
Other Established Markets 1 (3) (2) (1) (1) (2) 426 3
Established Markets (1) 1 - - - - 975 3
Emerging Markets 9 17 20 18 17 22 193 14
Group 1 3 3 2 2 3 1,168 5
2015 Technical guidance
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Guidance Full year
Restructuring costs1 c. $80m
Acquisition and integration costs1 $13m+
Non-recurring charges (RENASYS and HP802) 1 $15m
Amortisation of acquisition intangibles ~ $150m
Interest payable 1,2 $45m - $50m
Other finance costs1 < $15m
Bioventus loan note interest receivable None
Associate: Bioventus contribution1 Slightly negative
Tax rate on Trading result Slightly above 27% (27.2%)
1 updated since 2015 guidance given at Q4 2014 Results 2 assuming no future acquisitions
Analysis of restructuring costs
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Of the $19m total charged in H1, $19m are reflected in ‘selling, general and administrative expenses’ and $0m 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.
P&L Charge Cash Spend
Previous
Total to Date H1 Total to date
Previous Total to Date
H1 Total to date
Group Optimisation Plan
$m $m $m $m $m $m
Cash costs 48 15 63 39 21 60
Asset w/offs - - - n/a n/a n/a
Total 48 15 63 39 21 60
Structural Efficiency Programme
$m $m $m $m $m $m
Cash costs 141 4 145 139 - 139
Asset w/offs 21 - 21 n/a n/a n/a
Total 162 4 166 139 - 139
Business days per quarter
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Q1 Q2 Q3 Q4 Full Year
2014 62 63 63 63 251
2015 61 63 63 64 251
Exchange rates
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Q2/14 FY/14 Q1/15 Q2/15
$:€
Period end 1.36 1.21 1.09 1.12
Average 1.37 1.33 1.13 1.11
$:£
Period end 1.70 1.56 1.49 1.57
Average 1.68 1.65 1.51 1.53
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