Q2 Revenue and First Half 2017 Results - Corporate · Q2 revenue growth of 3% underlying* 5...
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Q2 Revenue and First Half 2017 Results
Transcript of Q2 Revenue and First Half 2017 Results - Corporate · Q2 revenue growth of 3% underlying* 5...
Q2 Revenue and First Half 2017 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 or other problems with quality management systems or failure to comply with related regulations; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; disruption to our supply chain or operations or those of our suppliers; competition for qualified personnel; 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
Chief Executive Officer
Olivier Bohuon
Half Year 2017 highlights
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Comments
• Revenue +3% underlying (0% reported)‐ Emerging Markets +12%‐ Knees +5%‐ Advanced Wound Devices +15%
• Trading profit margin 21.1% (+30bps)
• EPSA 43.0¢ (+15% reported)
• Interim dividend 12.3¢
• H1 confirms our confidence in full year guidance
Half Year
2017Reported growth
Underlyinggrowth
$m
Revenue 2,336 0% 3%
Trading profit 493 2%
Trading profit margin 21.1% 30bps
EPSA 43.0¢ 15%
Operating profit 414 16%
Operating profit margin
17.7% 240bps
EPS 37.0¢ 37%
Emerging
Other Est
US
AWD
AWB
AWC
Hips
Knees
Arthroscopic Enabling Tech
Sports MedicineJoint Repair
Trauma & Extremities
Other Surgical
14%
0%
2%
-1%
4%
11%
7%
-4%
5%
-5% 0% 5% 10% 15%
Q2 revenue growth of 3% underlying*
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Geographical growth Product franchise growthRevenue split
Underlying change (%) Underlying change (%)
13%
-1%
2%
-5% 0% 5% 10% 15%
* Underlying growth is not adjusted for the impact of one fewer selling day in Q2 2017 compared to Q2 2016‘Other Est’ is Australia, Canada, Europe, Japan and New Zealand ‘Other Surgical’ includes ENT and robotics sales (excluding implant sales)
Sports Medicine, Trauma & OSB
• Q2 revenue performance
‐ Sports Medicine Joint Repair +5% ($152m)
‐ Arthroscopic Enabling Technologies (AET) -4% ($151m)
‐ Trauma & Extremities +7% ($127m)
‐ Other Surgical Businesses* +11% ($50m)
• Commentary
‐ recently launched products drive Sports Medicine Joint Repair
‐ continued softness in resection impacting AET
‐ Trauma benefitted from a tender in Gulf States
‐ Total Knee application launched on NAVIO◊ with strong interest
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TRIGEN◊ INTERTAN◊
Intertrochanteric Antegrade Nail
* ‘Other Surgical Businesses’ includes ENT and robotics sales (excluding implant sales)
• Q2 revenue performance
‐ Knees: global +4%, US +5%, OUS +3% ($246m)
‐ Hips: global -1%, US -1%, OUS 0% ($150m)
• Commentary
‐ continued good growth in global Knees
‐ new additions to LEGION Revision System launched
‐ further additions to REDAPT◊ Revision portfolio
Reconstruction
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LEGION◊
Revision Knee System
Advanced Wound Management
• Q2 revenue performance
‐ Advanced Wound Care +2% ($177m)
‐ Advanced Wound Bioactives 0% ($92m)
‐ Advanced Wound Devices +14% ($49m)
• Commentary
‐ AWC trend improving as China returned to growth;
continued US strength
‐ AWB: SANTYL◊ returned to growth
‐ PICO◊ continued strong trend in AWD
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ACTICOAT◊ FlexAntimicrobial Barrier Dressing
Chief Financial Officer
Graham Baker
H1 trading income statement
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2017 Growth
$m
Revenue 2,336 0%
Cost of goods sold -603
Gross profit 1,733 2%
Gross profit margin 74.2% +140bps
Selling, general and admin -1,133
Research and development -107
Trading profit 493 2%
Trading profit margin 21.1% +30bps
3% underlying growth
H1 2017 trading margin
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Year-on-year trading margin movement
Key trading margin drivers
H1 2016 H1 2017
20.8%21.1%
Gross margin SG&A margin impact
Off-setting
+30bps
H1 2016 COGS charges
H1 2016 SG&A benefits
Price erosion
Manufacturing and supply
chain efficiencies
Cost inflation
Group Optimisation
+30bps
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H1 IFRS reconciliation
2017 2016 Growth
$m $m
Trading profit 493 483 2%
Trading margin 21.1% 20.8% +30bps
Acquisition related costs -2 -6
Restructuring and rationalisation - -35
Amortisation of acquisition intangibles -65 -67
Legal and other items -12 -18
IFRS Operating profit 414 357 16%
Operating margin 17.7% 15.3% +240bps
H1 EPSA growth 15%, driven by tax
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Tax rate: 19%including one-off
2017 Growth
$m
Trading profit 493 2%
Net interest payable -25
Other finance costs -4
Adjusted profit before tax 464 2%
Taxation -88
Adjusted attributable profit 376 13%
Number of shares – million 874
Adjusted earnings per share ("EPSA") 43.0¢ 15%
Earnings per share ("EPS") 37.0¢ 37%
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H1 trading cash conversion increased to 66%
2017 2016 Growth
$m $m
Trading profit 493 483 2%
Share based payment 15 14
Depreciation and amortisation 154 147
Capital expenditure -178 -174
Movements in working capital and other -157 -215
Trading cash flow 327 255 28%
Trading cash conversion 66% 53%
Restructuring, legal, acquisition & other -67 -49
Operating cash flow 260 206 26%
Net interest paid -25 -24
Taxation paid -62 -87
Free cash flow 173 95 82%
1,550 1,597
351178
162 32 - 26
800
1,000
1,200
1,400
1,600
1,800
31 Dec-16
Net Debt
FCF pre
capex
Capex Dividends Acquisitions Capital
return
Other 1 Jul-17
Net Debt
Net debt and capital allocation
15
$m
1Reinvest fororganic growth
2 3Return excessto shareholders
Progressive dividend policy
Acquisitions inline with strategy
2017 guidance reiterated; ongoing tax rate 1% lower
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(1) Based on exchanges rates prevailing on 21 July 2017. (2) Tax rate on trading result
Sales growth:Underlying: 3% to 4%
Reported(1): 2.5% to 3.5%
Trading profit margin:
20-70bp improvement
Tax rate(2):
Around 22%
(previously: around 26%)
Underlying sales growth:
Consistent growth above market
Trading profit margin:
Ongoing improvement
Tax rate(2):
Around 25%
2017
Medium -term
Chief Executive Officer
Olivier Bohuon
Our strategic priorities
Winningin
EstablishedMarkets
Acceleratingdevelopment in
Emerging Markets
Innovating Simplifying
& improvingour operatingmodel
Supplementorganicgrowth through
acquisitions
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for value
Focus on Execution in Established Markets
A more agile structure armed with the right tools…
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• Improve salesforce excellence
• Drive better pricing and evidence
• Inventory management and supply chain initiatives
• Organisational structure fully in place
• Commercial operations simplified
• Global functions to drive excellence and efficiency
A structure fit to implement our strategy
Tools and initiatives to execute better
US shift towards day-case surgery
Portfolio breadth and differentiation in outpatient/ASC* setting
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• JOURNEY◊ II Total Knee System
• NAVIO◊ Robotics-assisted Surgical System
• VISIONAIRE◊ Cutting Guides
• VERILAST◊ Technology
Leading Sports Medicine portfolio
Outpatient ENT solutions
Differentiated Joint Replacement
offering
• Comprehensive line of products for ENT surgery used in outpatient
• COBLATION advanced RF technology that minimizes thermal damage
• Complete line of visualization, access, resection and repair products
• LENS◊ Surgical Imaging System
• WEREWOLF◊ COBLATION◊
System
* Ambulatory Surgery Centres provide same-day surgical care
Emerging Markets - a pillar of higher growth
Return to sustainable double digit growth
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-10%
-5%
0%
5%
10%
15%
20%
25%
2013 2014 2015 2016 2017
• China: double digit growth expected for full year with improved channel management
• Gulf States: Tender order in Q2, not expected to repeat in H2
• Latin America and South East Asia growing well
Growth potential supported by secular growth trends
Emerging Markets returned to growth*
* All revenue growth rates are on an underlying basis and without adjustment for number of selling days
Innovation in robotics-assisted surgery
NAVIO expansion continues at pace…
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• 2016: >50% growth• Improving utilisation per
installed unit• International: Multiple
robots sold in India
• FDA approval for Total Knee indication for our JOURNEY II, GENESIS◊ II and LEGION platforms
• Strong interest following full launch
• Full pipeline of further indications
Total Knee application expands opportunity
Other highlights…robotics becoming
mainstream
ArthroCare acquisition update
Meeting all our three-year targets
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• Integration completed ahead of time
• >$50m of additional sales from cross-selling
• $85m of total synergies on trading profit level
• A stronger Sports Medicine business
• Combined product pipeline delivering
• Key talent retained
A strengthened combined business
Synergies achieved ahead of time
Year 3 metrics met or exceeded
Summary
• H1: focus on execution
‐ focus on better execution driving improvements
‐ innovative products and technologies drive growth
• Guidance confirmed
‐ H1 results underpin our full year guidance
• Multiple drivers of future growth
‐ Sports Medicine leadership, Innovative Knee portfolio including robotics, PICO changing the NPWT landscape, Emerging Markets, M&A optionality
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Questions
Appendices
2017 technical guidance
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Guidance As of February 2017 Update
Restructuring costs Nil No change
Acquisition and integration costs c. $5m No change
Amortisation of acquisition intangibles c. $120m No change
Income from associates ~$0m No change
Net interest $50m - $55m No change
Other finance costs Similar to 2016 No change
Tax rate on Trading result c. 26% c. 22%
Foreign exchange and other
Impact of disposal of GYN business on revenue ~80bps No change
Impact of translational FX on revenue c. -1% +0.3%*
* Based on the foreign exchange rates prevailing on 21 July 2017
Franchise revenue analysis
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All revenue growth rates are on an underlying basis and without adjustment for number of selling days
2016 2017
Q1 Q2 Q3 Q4FullYear
Q1 Q2
Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % $m %
Sports Medicine, Trauma & OSB 5 4 4 1 3 4 480 3
Sports Medicine Joint Repair 11 10 8 5 8 7 152 5
Arthroscopic Enabling Technologies 4 4 2 (3) 2 (1) 151 (4)
Trauma & Extremities (7) (6) 1 (4) (4) 5 127 7
Other Surgical Businesses 19 14 12 15 15 7 50 11
Reconstruction 7 3 2 (2) 2 3 396 2
Knee Implants 9 5 4 0 4 5 246 4
Hip Implants 4 0 0 (6) (1) 0 150 (1)
Advanced Wound Management 0 (3) (1) (1) (1) 1 318 3
Advanced Wound Care 0 (7) (2) (3) (3) 1 177 2
Advanced Wound Bioactives (4) 4 (3) 1 0 (8) 92 0
Advanced Wound Devices 11 1 5 2 5 16 49 14
Group 4 2 2 (1) 2 3 1,194 3
Regional revenue analysis
29‘Other Established Markets’ is Australia, Canada, Europe, Japan and New ZealandAll revenue growth rates are on an underlying basis and without adjustment for number of selling days
2016 2017
Q1 Q2 Q3 Q4FullYear
Q1 Q2
Growth Growth Growth Growth Growth Growth Revenue Growth
% % % % % % $m %
Geographic regions
US 8 4 2 0 3 1 582 2
Other Established Markets 4 1 0 (3) 0 1 408 -1
Established Markets 6 3 1 (1) 2 1 990 1
Emerging Markets (6) (2) 6 3 0 12 204 13
Group 4 2 2 (1) 2 3 1,194 3
Business days per quarter
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Q1 Q2 Q3 Q4 Full Year
2016 64 64 63 60 251
2017 64 63 63 60 250
Year-on-year differences in the number of trading days typically impacts our surgical businesses in the Established Markets more than our wholesaler and distributor-supported businesses. We define trading days as week days adjusted for significant holidays in our principal countries.
Exchange rates
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Q2/16 FY/16 Q1/17 Q2/17
$:€
Period end 1.11 1.05 1.07 1.14
Average 1.13 1.11 1.07 1.10
$:£
Period end 1.33 1.23 1.25 1.30
Average 1.43 1.35 1.24 1.28
