Smith & Nephew reports 18.2% Net Income decline and 2.1 pp EBITDA Margin decline from 25.2% to 23.1%
04 Feb 2016 • About Smith & Nephew (
$SN.) • By InTwits
Smith & Nephew reported 2015 financial results today. Overall the company's long term financial model is characterised by the following facts:
- EBITDA Margin is declining: 23.1% in 2015 vs. 25.2% in 2014 vs. 27.1% in 2011
- Smith & Nephew has medium CAPEX intensity: 5 year average CAPEX/Revenue was 7.5%. At the same time it's in pair with industry average of 10.7%.
- CAPEX is quite volatile: 42.1 in 2015, 248 in 2014, 50.2 in 2013, 6.2 in 2012, 35.9 in 2011
- The company has business model with average profitability: ROIC is at 11.1%
- It operates with high leverage: Net Debt/EBITDA is 1.3x while industry average is 0.1x
Below you can find a comprehensive analysis of the key data driving the company's performance and stock price.
Smith & Nephew ($SN.) key annual financial indicators
| mln. $ | 2011 | 2012 | 2013 | 2014 | 2015 | 2015/2014 |
|---|
P&L
|
|---|
| Revenue | 4,270 | 4,137 | 4,351 | 4,617 | 4,634 | 0.4% |
| Gross Profit | 3,130 | 3,067 | 3,251 | 3,455 | 3,491 | 1.0% |
| SG&A | 2,101 | 2,050 | 2,210 | 2,471 | 2,641 | 6.9% |
| EBITDA | 1,157 | 1,152 | 1,171 | 1,162 | 1,070 | -7.9% |
| Net Income | 582 | 721 | 556 | 501 | 410 | -18.2% |
Balance Sheet
|
|---|
| Cash | 184 | 178 | 137 | 93 | 120 | 29.0% |
| Short Term Debt | 306 | 38 | 44 | 39 | 46 | 17.9% |
| Long Term Debt | 16 | 430 | 347 | 1,666 | 1,434 | -13.9% |
Cash flow
|
|---|
| Capex | 321 | 265 | 340 | 375 | 358 | -4.5% |
Ratios
|
|---|
| Revenue growth | 7.8% | -3.1% | 5.2% | 6.1% | 0.4% | |
| EBITDA growth | -2.9% | -0.4% | 1.6% | -0.8% | -7.9% | |
| Gross Margin | 73.3% | 74.1% | 74.7% | 74.8% | 75.3% | 0.5% |
| EBITDA Margin | 27.1% | 27.8% | 26.9% | 25.2% | 23.1% | -2.1% |
| Net Income Margin | 13.6% | 17.4% | 12.8% | 10.9% | 8.8% | -2.0% |
| SG&A, % of revenue | 49.2% | 49.6% | 50.8% | 53.5% | 57.0% | 3.5% |
| CAPEX, % of revenue | 7.5% | 6.4% | 7.8% | 8.1% | 7.7% | -0.4% |
| ROIC | 25.5% | 22.0% | 18.6% | 14.7% | 11.1% | -3.5% |
| ROE | 19.5% | 20.4% | 14.0% | 12.4% | 10.2% | -2.1% |
| Net Debt/EBITDA | 0.1x | 0.3x | 0.2x | 1.4x | 1.3x | -0.1x |
Revenue and profitability
Smith & Nephew's Revenue showed almost no change in 2015. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 3.6 pp from 9.4% to 5.8% in 2015.
Gross Margin increased slightly on 0.50 pp from 74.8% to 75.3% in 2015. SG&A as a % of Revenue increased on 3.5 pp from 53.5% to 57.0% in 2015.
Net Income marign decreased on 2.0 pp from 10.9% to 8.8% in 2015.
Capital expenditures (CAPEX) and working capital investments
Smith & Nephew's CAPEX/Revenue was 7.7% in 2015. The company showed small growth in CAPEX/Revenue of 1.3 pp from 6.4% in 2012 to 7.7% in 2015. For the last three years the average CAPEX/Revenue was 7.9%.
Return on investment
The company operates at low ROIC (11.12%) and ROE (10.24%). ROIC decreased on 3.5 pp from 14.7% to 11.1% in 2015. ROE decreased on 2.1 pp from 12.4% to 10.2% in 2015.
Leverage (Debt)
Company's Net Debt / EBITDA is 1.3x and Debt / EBITDA is 1.4x. Net Debt / EBITDA dropped on 0.1x from 1.4x to 1.3x in 2015. Debt dropped on 13.2% in 2015 while cash surged on 29.0% in 2015.
Valuation
Smith & Nephew's trades at EV/EBITDA 1.4x and P/E 0.3x while industy averages are 10.5x and 26.1x. Smith & Nephew's EV/(EBITDA-CAPEX) is 2.1x with the industry average at 4.7x.
Appendix 1: Peers in Health Care Equipment & Services
Below we provide Smith & Nephew benchmarking against other companies in Health Care Equipment & Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Tristel ($TSTL) | | 17.8% | -3.5% | 27.6% | 13.8% |
| Md Medical Group Invest ($MDMG) | 42.2% | 39.7% | 39.7% | 26.9% | |
| Ekf Diagnostics Holdings ($EKF) | 234.1% | 20.3% | 22.0% | 16.7% | |
| Lifeline Scientific Inc ($LSIC) | 9.6% | 18.7% | 10.2% | 6.0% | |
| Synergy Health ($SYR) | | 8.6% | 15.8% | 5.3% | 7.5% |
| |
|---|
| Median (10 companies) | 9.6% | 14.5% | 5.1% | 5.2% | 4.4% |
|---|
| Smith & Nephew ($SN.) | | -3.1% | 5.2% | 6.1% | 0.4% |
Top companies by Gross margin, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Tristel ($TSTL) | 63.5% | 67.9% | 66.4% | 69.8% | 69.5% |
| Immunodiagnostic Systems Hldgs ($IDH) | 74.7% | 74.7% | 73.1% | 68.1% | 62.5% |
| Omega Diagnostics Group ($ODX) | 59.6% | 63.0% | 62.6% | 63.6% | 63.4% |
| Lifeline Scientific Inc ($LSIC) | 63.8% | 60.6% | 59.8% | 61.3% | |
| Abbott Laboratories ($ABT) | 60.0% | 54.3% | 53.2% | 54.5% | 57.1% |
| |
|---|
| Median (10 companies) | 54.6% | 54.6% | 52.3% | 53.2% | 62.5% |
|---|
| Smith & Nephew ($SN.) | 73.3% | 74.1% | 74.7% | 74.8% | 75.3% |
Top companies by EBITDA margin, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Immunodiagnostic Systems Hldgs ($IDH) | 34.1% | | 35.3% | 34.1% | 23.6% |
| Md Medical Group Invest ($MDMG) | 44.4% | 41.7% | 28.0% | 28.9% | |
| Synergy Health ($SYR) | 28.0% | 26.0% | 26.4% | 25.8% | 24.3% |
| Abbott Laboratories ($ABT) | 22.6% | 21.8% | 19.6% | 20.5% | 21.3% |
| Tristel ($TSTL) | 11.8% | 17.0% | 13.7% | 20.1% | 22.9% |
| |
|---|
| Median (10 companies) | 15.8% | 17.0% | 14.9% | 19.1% | 22.9% |
|---|
| Smith & Nephew ($SN.) | 27.1% | 27.8% | 26.9% | 25.2% | 23.1% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Md Medical Group Invest ($MDMG) | 62.3% | 65.2% | 42.8% | 43.4% | |
| Puricore ($PURI) | 1.5% | 2.4% | 3.2% | 15.4% | |
| Synergy Health ($SYR) | 13.1% | 15.2% | 13.2% | 10.3% | 15.1% |
| Bioquell ($BQE) | 9.6% | 7.6% | 8.8% | 8.9% | |
| Abbott Laboratories ($ABT) | 3.8% | 8.4% | 5.8% | 5.3% | 5.4% |
| |
|---|
| Median (10 companies) | 8.3% | 5.7% | 4.5% | 5.2% | 5.8% |
|---|
| Smith & Nephew ($SN.) | 7.5% | 6.4% | 7.8% | 8.1% | 7.7% |
Top companies by ROIC, %
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Tristel ($TSTL) | 4.0% | 6.5% | 3.5% | 15.9% | 20.1% |
| Immunodiagnostic Systems Hldgs ($IDH) | 21.7% | | | 12.3% | 4.3% |
| Lifeline Scientific Inc ($LSIC) | 12.1% | 1.9% | 11.2% | 11.7% | |
| Md Medical Group Invest ($MDMG) | 45.2% | 19.9% | 9.5% | 11.0% | |
| Synergy Health ($SYR) | 9.2% | 8.0% | 8.5% | 9.1% | 9.1% |
| |
|---|
| Median (10 companies) | 10.7% | 4.3% | 5.3% | 8.7% | 9.1% |
|---|
| Smith & Nephew ($SN.) | 25.5% | 22.0% | 18.6% | 14.7% | 11.1% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Md Medical Group Invest ($MDMG) | 0.8x | 0.2x | 0.2x | 2.0x | |
| Synergy Health ($SYR) | 1.4x | 2.1x | 1.9x | 1.5x | 1.6x |
| Abbott Laboratories ($ABT) | 1.0x | 2.1x | 0.8x | 0.9x | 0.9x |
| Bioquell ($BQE) | -0.5x | -0.2x | -0.3x | -0.3x | |
| Lifeline Scientific Inc ($LSIC) | -3.6x | -4.4x | -0.6x | -0.3x | |
| |
|---|
| Median (9 companies) | -0.3x | 0.1x | -0.2x | -0.3x | -1.0x |
|---|
| Smith & Nephew ($SN.) | 0.1x | 0.3x | 0.2x | 1.4x | 1.3x |
