Smith & Nephew PLC (SNN) 2013 Q4 法說會逐字稿

Good morning, everyone, and welcome to our fourth-quarter and the full-year results presentation. I'm here with Julie Brown, our CFO; and I'd also like to welcome Sir John Buchanan, our Chairman, who is sitting in the front row.

I will cover the highlights and then hand over to Julie to take you through the numbers and guidance for 2014. When Julie has finished, I will come back and update you on the progress we have made this year on implementing our strategic priorities and some further thoughts on 2014. Just before we take questions at the end I will make some comments about the agreement to acquire ArthroCare we announced on Monday.

Last year, I said that 2013 would see Smith & Nephew increasing its investment in tomorrow's growth drivers. This is what we have done. The second half of 2013 started to show the benefits of this. I'm pleased with our performance this year. The main drivers of our growth have been the very successful acquisition of Healthpoint and our strong position in the emerging markets.

Added to this, our orthopedic reconstruction business improved throughout 2013 as we launched and invested [in] our unique product. Advanced wound management strongly outperformed the market for the sixth year in a row.

Financially, our top line grew 4% underlying, and EPSA 3%. We announced a clear capital allocation framework, and have demonstrated how we will be balanced and disciplined around the use of our cash flow for the benefit of shareholders.

We'll talk more about 2014 later in the presentation. In summary, we'll continue to invest; we will see higher growth opportunities, and focus on improving our efficiency. We built momentum across the Group through 2013, and expect to make further progress in the year ahead.

So now turning to the highlights of Q4. Smith & Nephew finished the year strongly. Revenue increased 9% reported and 6% underlying. Our orthopedic reconstruction business built on the improvements since last quarter driven by an 11% growth in US knees.

Sports medicine joint repair and advanced wound management also delivered double-digit sales growth. We had another successful quarter in the emerging and international markets, where we also completed acquisitions in Turkey, in India and in Brazil.

The market background remains mixed. The US has shown some signs of improvement. Europe remains on the whole challenging, and the emerging markets remain strong.

Our trading profit was $292 million, leaving a trading profit market of 24.8%, as expected. Adjusted earnings per share were $0.234, a 9% increase year on year. And finally, in line with our progressive policy, we are proposing a final dividend of $0.17 per share. This gives a full-year increase of 5%.

So you know well this slide. It captures our underlying growth in the quarter; on the left-hand side geographically, and on the right by product franchise. The quarter had one additional selling day ; an impact from 1% on growth rates.

In the US, we grew at 9%, and in the other established markets 1%. Advanced wound bioactives was again a significant contributor growing at 52%.

Our performance in the emerging and international markets was again strong, up 16%.

Looking at our global product franchises, it was pleasing to see that for a second quarter in a row, all but one generated positive growth.

I will now turn to look at each franchise in more detail starting with hip and knee implants.

Our global recon implant revenue grew by 4% in a market that we've seen grow at 6%. We see our growth this quarter, plus 5% in knees and plus 2% in hips, as further evidence that our performance has responded to our additional investments and the new products throughout this year.

The standout performance was in US knees with a growth of 11%, and this reflects our JOURNEY II BCS system continuing to be rolled out and the very positive surgeon response we continue to receive. In addition, sales of knees with our unique VERILAST bearing surface continued to benefit from the TV campaign that we ran in the US in the fall.

In US hips, we recently introduced the POLARSTEM system. System has over 10 years of clinical [data] in Europe, and is designed for the increasingly popular direct anterior approach for hip replacements.

Outside the US, we have now started increasing JOURNEY II BCS in Europe, and we'll progressively launch it during 2014. We believe it will help start to improve our knee performance in this region.

Turning to sports medicine joint repair, which grew at 11% in the quarter. These results reflect a strong contribution across all key joints, knees, shoulders and hips, and all geographies. In the quarter, we extended our HEALICOIL range, launching innovative next generation biocomposite suture anchor for shoulder repair.

In trauma and extremities, we grew at 5%, ahead of our expectations, given the strong comparable in the US. Our emerging markets business had a strong quarter, benefiting from the introduction of SURESHOT, our targeting system for nail fixation, into several countries.

In the US, the additional extremities sales, the reps we have hired in early 2013 are now becoming fully trained, and our extremities business in the US grew at over 20% in the quarter from a small base.

Turning to advanced wound management which grew at 10%, this is again double the market rate, which we think has increased to 5% reflecting the greater use of bioactive [therapeutics]. Advanced wound care was flat, with an increasing [performance] by ALLEVYN in Europe. We also introduced DURAFIBER AG antimicrobial dressing in Europe this quarter.

In advanced wound devices, we grew at 17%. The price pressure we have previously highlighted continues, but our negative pressure wound therapy strategy is being successful. We are winning targeted accounts in traditional negative pressure, increasing adoption of our unique PICO disposable product, and expanding successfully into the emerging markets.

Advanced wound bioactives was again strong at 52% growth. This partly reflected the successful re-launch of REGRANEX.

And now I'm going to [leave to] Julie talking to you about the financials, and I will come back later on.

Thanks, Olivier. Good morning, everyone. So turning to our Q4 results, I have four items to cover; revenue profitability analysis by business segment; our income statement; the Group cash flow and an update on capital allocation; and, finally, guidance for 2014.

By way of explanation, when I refer to underlying growth rates, I'm adjusting for the effects of currency translation, and including the comparative impact of acquisitions and disposals. I would like to add that I am not adjusting underlying growth rates for the additional sales days, but will clarify the impact they've had on our results.

But firstly, let me start talking about the analysis of revenue by business segment.

Revenue in the quarter grew by 6% on an underlying basis; and by division, advanced surgical devices grew by 5%, and wound by 10%. Bioventus reduced ASD segmental revenues by 1%. And after adjusting for acquisitions, reported Group sales growth was 5 percentage points over underlying growth, primarily due to the acquisition of Healthpoint.

Currency impacted the Group adversely by 1% due to movements on exchange compared with prior year. And in reported terms, our Group revenue in the quarter grew by 9%.

As Olivier mentioned, sales days impacted this headline performance as we had one more day than the comparable period last year, and this benefited our growth rate by 1 percentage point. This shows the full-year analysis of revenue growth with similar trends to the quarter. And finally bioactives added 2 percentage points of growth to the Group in both Q4 and the full year.

This slide shows revenue and growth rate by segment and by region for the quarter. Revenue is shown at the top half, and the growth rates are shown in the lower section.

Advanced surgical devices grew by 5% worldwide, with 3% growth in established markets, largely driven by the US, and 16% growth in emerging markets.

Advanced wound management grew by 10% worldwide, with the major growth driver being the US with 23% growth.

Within the US specifically there were offsetting factors. Advanced wound bioactives grew by 52%, but advanced wound care and devices combined declined by 2%.

As Olivier mentioned, our strong performance in emerging markets has continued with overall growth of 16%, with three-quarters of our business and growth being driven by the ASD portfolio. Recent acquisitions have not materially impacted our emerging markets growth in 2013.

Turning now to the trading margin by business segment. In the quarter, we saw margin dilution of 0.5%, but still margins were strong in Q4 at 24.8%.

Turning to the divisional segmentation for the full year, ASD improved profitability to 23.6%, largely driven by an efficiency program, partially offset by additional sales and marketing investment behind our knee and trauma franchises.

Advanced wound management profitability fell in the full year by 250 basis points, driven by price and mix at gross margin, coupled with investments in R&D and sales and marketing.

Turning to the income statement overall. Trading profit in the quarter was $292 million, an 8% increase on an underlying basis. Restructuring costs of $22 million were incurred related to our structural efficiency program; and this important initiative has now driven $131 million in annualized benefit, and continues to deliver slightly ahead of our plan.

During the quarter, we incurred $12 million of acquisition and integration costs relating to the emerging market and Healthpoint acquisitions, and the amortization of intangibles was consistent with previous quarters.

Turning to the full year, trading profit of $987 million represented an underlying increase of 5%.

Moving down the income statement. Our effective tax rate for the full year was 29.2%, slightly lower than the rate last year. And adjusted EPS in Q4 was $0.234, a 9% increase, consistent with the growth in trading profit. And adjusted EPS for the full year was $0.769, 3% higher than 2012.

I'd now like to update you on how we're applying our capital allocation framework.

You may recall our 1-2-3-4 model sets out the priorities for the use of our cash. You will also recall that we deliberately preserved headroom of around $1.5 billion for strategic acquisitions when we announced the share buyback last year. This gave us the headroom to acquire ArthroCare, as recently announced.

I'd now like to illustrate how we've applied this framework in sharing our cash flow -- and by showing our cash flow in 2013, and more detailed cash-flow figures are shown in the appendix.

The business had continued to generate strong cash generation with close to $0.9 billion of free cash flow before capital expenditure.

Trading cash conversion was strong at 96% in Q4 and 89% for the full year. And in line with our strategy, we have continued to reinvest to drive organic growth, and capital expenditure reached 8% of sales in 2014 with a spend of $340 million.

The interim dividend was paid at $93 million during the quarter, bringing total dividend payments to $239 million.

And in respect of acquisitions, $74 million in cash was paid during the year, with a further $30 million of consideration payable in 2014 relating to the emerging market deals that we've announced to date. And by the end of the year we had repurchased 18.2 million shares to the value of $226 million. We held a net debt position of $253 million at the end of the year, slightly below December 2012.

Now in January, the Group drew down $325 million of funding by our US private placement under an agreement that we signed in December. The funds, with average fixed rate of 3.7% and a maturity of just over 9 years, were used to repay drawings on our existing bank facility.

Finally, our outlook for 2014. We see the market conditions from the second half of 2013 as likely to continue into the current year. We expect the US to be stable with some signs of improvement, Europe to remain challenging, and emerging markets to continue to offer opportunities for higher growth.

In terms of our franchise, revenue by franchise, we expect orthopedic reconstruction to continue with its improved performance, and grow at a rate approaching the market; trauma & extremities to grow overall at the market rate with a stronger second half compared with the first half of the year; our sports medicine business, with its strong product pipeline, to deliver above market growth; and our advanced wound management business, with unique wide of leading products, will continue to deliver further growth ahead of the market. And within this, we expect advanced wound bioactives to grow at a rate in the mid teens.

Emerging market deals we completed in 2013 are expected to add less than 1% of growth to overall Group revenue. And exchange rates, if they continue at current rates, are expected to be broadly neutral in 2014.

In terms of trading margin, we expect an improvement in 2014, and here we will see the benefits of our efficiency program, partially offset by continued investment.

And whilst for the full year, we expect margin improvement, in the first quarter of 2014, we will see dilution, as the phasing of the investments will hit our income statement.

Finally, I would like to pick up on some technical guidance to help with your modeling. The guidance here does not include the recently announced ArthroCare transaction for which guidance was given earlier this week.

Restructuring costs are expected to $40 million to $50 million, representing the final full year of our efficiency program. Integration costs on completed deals to date are expected to be $10 million to $15 million in 2014.

We expect the annual charge for amortization of acquisition intangibles to be in the range $90 million to $100 million, slightly higher than 2013, due to the emerging market deals. And interest payable will be around 4%, with other finance costs $8 million to $11 million.

The Bioventus loan note is expected to generate interest of $11 million to $12 million, and our share of this associate will be negligible. And the tax rate will show some improvement, but still round to an average tax rate before exceptionals of 29%.

And with that, I would like to hand back to Olivier.

Thank you, Julie. So I hope by now you all know the strategic priorities of the Company, and I remain absolutely committed to these priorities.

In 2013, I'm pleased to report that we have made significant progress expanding our portfolio, building our platform, growing in the emerging market, and embedding a culture of continuous efficiency improvement.

The established market represents the majority of our revenue. With the continuing backdrop of challenging conditions in many areas, I'm pleased with the progress we've made in 2013.

Advanced wound management business continues to outperform. and the Healthpoint acquisition reinforces this strength. Advanced surgical devices has been re-energized, led by the US; first of all, by the efficiency program we undertook in 2012 to make it cleaner and more agile; secondly, by the additional investment in medical education, trauma and extremities sales team and marketing; and, finally, through new product launches.

2014 will be more of the same. By the end of the year, the integration of Healthpoint will be completed. We'll continue to make targeted investments in areas where we see higher growth opportunities, and refine our commercial and business models to maximize efficiency.

Emerging and international markets are vital areas, we're achieving double-digit growth; and again contributed to about half of our annual revenue growth in 2013.

China continues to be the standard and set the expectations of what we'll achieve elsewhere. In 2013, we delivered revenue of over $170 million, and grew at more than 30%. Globally, it becomes our sixth largest country by revenue.

2013 was another successful year as we executed the key elements of our emerging market strategy focused on resources, be closer to the customers, and offer these customers the products they want, either high end or mid-tier.

We made significant investments in sales teams and infrastructure, for example, in Mexico and the Middle East; and we completed the acquisition, as said, in Brazil and Turkey. And in 2014, we'll build on these foundations.

In the mid-tier, we are starting to create both a dedicated commercial platform and increase the number of [upgrade] products through development or acquisition.

Finally, we always remain very focused on generating financial returns on our investments. We know that our model works and have [come to reach] critical mass to generate margins similar to the one that we have in the established market.

Being a more efficient company, being a more agile company is not a single program; it is many things. It has become part of our culture and it is becoming continuous.

This year, we have moved forward on several fronts. Two key items are the first product line being moved to Suzhou plant extension in China. This project will be completed in 2014, and we'll see the full benefit in 2015. We also started the rollout of a major European-wide single IT and business intelligence platform, replacing approaching 100 legacy systems.

As Julie said, we're in the final year of our successful $150 million structural efficiency program. As we have done this, we have learnt more and seen many additional opportunities. And I have asked Julie to undertake a detailed review to see how we can extend this program, and we'll come back with much more details in Q1. As before, a strong bias will be to reinvest the savings to drive revenue growth.

During 2013, we have maintained our strong momentum of introducing new innovative products in established and emerging markets. Our investments in R&D continues to increase, representing now 5.3% of the Company revenue.

This commitment is starting to deliver. Our trauma and sports medicine franchise has the strongest new product line for some years. In our core reconstruction business, we continue making very significant levels of R&D spend, focusing our investment in different [shared] technologies, not merely "me-too" products.

I'm optimistic about the product pipeline and look forward at seeing many of you at the AAOS where, in particular, we'll showcase the next part of our JOURNEY II range.

Turning to acquisitions, the fifth strategic pillar. Healthpoint, now part of advanced wound bioactives, has had a great first 12 months. Given the due diligence and our clear knowledge of the wound care market, we knew this was a great acquisition.

As I said earlier, it delivered year-on-year growth of 47%. Our integration is on track and has already achieved synergies of $13 million of the planned $20 million 3-year target.

Julie has talked about our 2014 expectation of mid-teen percentage growth. Clearly, I will be encouraging our bioactives team to outperform again. To do so, they will have to manage the SANTYL price/volume dynamic and drive REGRANEX launch.

As many of you know, the reimbursement of skin substitutes changed in the US hospital outpatients in 2014, which will prove a headwind for our OASIS product.

Beyond 2014, the future of bioactives is very bright. Our venous leg ulcer treatment, HP802, is on track for a 2017 launch, as expected. We are reviewing options for cross selling our wound care devices and bioactive products across all our dedicated sales teams, and looking at selling more bioactive products outside of the US. And, finally, we consider to look at developing or acquiring further products for the portfolio.

We've completed three emerging market acquisitions in 2013 and have one in Brazil still to finalize. This brings us distribution, supporting our strategy to be closer to our customers, and products to serve the mid-tier. I'm pleased that we are building a strong track record of sourcing, negotiating and integrating transactions of various sizes successfully. Our approach for 2014 is unchanged, as you can see from the agreement with ArthroCare.

We announced in November that after 9 years on the Board of Smith & Nephew, our Chairman, Sir John Buchanan, will be stepping down. I'd like to take this opportunity to review his legacy, not just to flatter Sir John, but also to reinforce the long-term value that Smith & Nephew has generated to the shareholders.

Over those 9 years, we have delivered annual constant revenue growth of 7%, and earnings per share of 8%, good by any standard; and great, given that for over half of his period, the world was effectively in recession.

Cash generation, a metric very close to, Sir John, has been equally impressive. Over $5 billion generated of which about half has been returned to the shareholders.

And finally, share price performance of 90% over the period, outperforming the FTSE 100, which was only recently above 7%.

So, Sir John, I want to congratulate you. Thanks a lot.

So in summary, our business continues to strengthen. We have entered 2013 with a stronger platform than we left 2012, and we believe we now enter 2014 with a stronger business again.

Our strategic priorities are working. They are imperative to guide ourselves, on the one hand in continuing to improve our efficiency, and on the other increasing our investments into more growth drivers. This includes our existing portfolio, geographic investment, R&D, and making further acquisitions where appropriate.

2014 will be more of the same, and in terms of growth, I expect to see a more balanced contribution across our franchises. I cannot overstate the hard work going on at Smith & Nephew and the momentum we feel.

So a quick word now about ArthroCare. We see this, as I said on Monday, as a compelling transaction for Smith & Nephew, strategically and financially. ArthroCare's technology and highly complementary products will significantly reinforce our portfolio, and we'll use our global footprint to drive substantial new revenue growth.

Transaction meets all of our investment criteria and offers significant synergies. The Board of ArthroCare has recommended the transaction and have said they believe that it is in the best interests of the shareholders. We also have commitments from ArthroCare's largest shareholder, and we expect to complete the deal by the middle of 2014.

So 2013, a good year. We grew out our top line; we progressed the program's efficiency; we met our financial expectations and we have made successful acquisitions.

Should we be satisfied perhaps? Are we satisfied? No. I can assure that for me and my team, our ambition is to do better and build a truly great company.

So thanks a lot. That ends the formal presentation and we will be happy as usual to take questions, starting as usual with [Yi-Dan], this time with one question.

It's Yi-Dan Wang with two questions. The first question is on the orthopedic business. So good to see that US knees return to market growth rate, but hips and the business outside of the US lost share relative to its peers. So can you give us some sense of what's going on there and what your plans are to get that back on track?

And then the second question is to Julie. Good to see that you expect further margin improvement in 2014. Consensus currently has 23.6% in its forecast. Can you comment on whether you're happy with that; maybe even happier than consensus? That would be great. But just some comment around that would be helpful.

Thank you.

Yi-Dan, thank you. Yes, we are also happy to see, as expected by the way, a new dynamic in the recon business at Smith & Nephew, mainly driven by the knee and mainly driven by US.

Again, the gross was 11% for the quarter driven by two things mainly, as I said. Number 1 is the investments we have done in the DTC campaign which has been very, very good, actually, driving not only surgeon to use more of our products but also patients to consult and also our teams to be motivated to this.

We have launched many medical education programs. We have done in Copenhagen a very huge meeting putting together hips and knees specialists as well as arthroscopic specialists for 5 days, with all the key leaders of the world. And I think it's a new era for Smith & Nephew. The portfolio was very strongly valued by the specialists.

And hip I think is maybe a disappointment despite the launch of POLARSTEM, which was a gap in our portfolio. However, outside of the US, the growth has been over market; actually a little bit more than the market. Over market if you exclude the BHR impact.

I'm strongly convinced that 2014 will be a good year for hip and knee in the US, because the knee dynamic will continue to see development of JOURNEY II BCS, which was going to be displayed at the AAOS, the new generation of JOURNEY which we presented.

With the additional investment we have decided to do to really take this business strongly, I don't think that the market will be as good as what we have seen in Q4. That's something that we need to know. Q4 market has been artificially high due to the ObamaCare misunderstanding. I think was [a private person]; people wanted to use their insurance before the end of the year.

I'm sure you have done it, and I've talked with many surgeons in the US and they all said, yes, we have done lots of things this quarter, so it's especially high. So that's why I'm always cautious about extrapolating this type of growth which I think was 6% versus 4% before.

I think, as Julie said, we don't see the market changing, so I think it will be, as we have mentioned before, a low single-digit market. Was it 3%/4%? I don't know, but it would certainly not be for me at 6%.

So that's what I can tell you about this. I think momentum, and I tell you very [strong] (inaudible) of the teams, because they have the impression that that after some tough times, we are back with support for the euro, with some money to invest, because we have decided to make this investment, targeted investment.

[Straight] to the margin point, Yi-Dan. The first thing is I think I've got different consensus numbers to you because we've got consensus at about 23.2% for 2014. So just to first of all mention that.

So in terms of the margin, we definitely see 2014 being accretive on 2013, no question. And there are a couple of key points. I know some of you have asked me this before. I do see this business as being capable of a 24% sustainable margin.

As you know, we are delivering very strongly against the efficiency program that we put in place, and we've now got annualized benefits in place of $131 million. But we are also choosing to reinvest in the business and do what we feel is right for the business to deliver longer-term margin growth, and also revenue expansion.

So there are a couple of key things I'd like to mention. First of all is the underlying business performance is stronger in terms of the underlying efficiency of the business, and the structural and simplification initiatives that we've got going on in the business.

And the second thing is it's too early for us to be completely definitive about it, because as Olivier mentioned, we are undertaking a piece of work right now that will determine the impact on margin I think in the next couple of years.

So I think those are two the key points. Underlying efficiency is there. We've chosen to make investments. Definitely sustainable 24% margin is a possibility in this business.

Net-net, Yi-Dan. We are going to do better in 2014 than 2013. So [Adrian] would have said, slightly or strongly. I don't know what he would have used, but I think -- (multiple speakers).

I think it's important. What Julie just said is very important. The work that we are now making, and remember we have mentioned that many times about our G&As and the way the [four] G&As compare to our peers, and the lack of [S] investment is really critical, of course.

So Julie, and we'll come back in Q1 with a very deep analysis of this that we'll share with you. But roughly, we work on a few things to try to improve -- not to try, to improve our G&As.

Number 1, we work on procurement significantly. Procurement was doing a good job at Smith & Nephew, but we believe that there is much bigger scope to take care of with a number of [things].

We work on finance transformation. Optimization is a closer word. We work on [span] of control also of the staff. So we work on a number of things, and it will definitely be a very important exercise which has been announced now in the Company. We work on this, so we are fighting with this. In Q1, we'll be on this one.

So again, we will generate obviously more profit out of this, as Julie said. This money will be mainly used to reinvest in our business, because again as I said to you, we need this [small] investment in two areas where we can be [sub-scaled].

And I give you the example of the advance wound care in the US; why advanced wound care in the US is not doing well. I guess that will be a question. I [prefer] to answer it now.

But because I think that we have put a lot of resources on the negative pressure to fight against the competition there and try to get the most out of the negative pressure, which at least we do well. We win accounts every day. We -- remember the last announcement of the KCI has shown result of minus 6%. We are growing at 17%, the negative pressure wound therapy. So have done good things here.

I think that we have left behind a little bit the advanced wound care, and for example here we will need to invest a bit more in this business, for example.

Ed Ridley-Day; BofA; just a follow-on on the margin, Julie. Obviously, we saw the investment in your numbers in the CapEx. Could you talk a bit more about the -- just in the fourth quarter what drove that, the increase? And for the first quarter particularly, what you're going to be investing in. That will be my first question.

Secondly, just maybe to confirm when you talk about orthopedic market growth, are we talking 3% to 4%? Is that a number we use when you say approaching?

And thirdly, sports medicine. Clearly, the business is already doing very, very well. Can you talk about what particularly drove the acceleration in the fourth quarter?

Okay. Shall I take the margin and the investment? So, yes, we've seen a number of opportunities in the business that we've wanted to put money behind, and you mention CapEx as one example of this. Inventory is similar.

But CapEx, what we've put the money behind in Q4, first of all, as you know, we're moving some of our wound production from [Hull] to China, so there's been expansion in Suzhou to support that investment.

We're also investing heavily in supportive instrument sets to support the JOURNEY II launch, and we've found that is actually absolutely critical to get that right so that the launch can go smoothly and surgeons can get the experience of using JOURNEY II, because, once they've had the experience they want to repeat it. So we've put -- Olivier and I and the management team have decided consciously to invest in where we see growth drivers.

The third area I would probably call out with regard to CapEx is manufacturing facilities. So I was recently over in Memphis, and the rate at which the factory is being used in Memphis that supplies trauma products for emerging markets, we clearly need to extend the capability there and the capacity there in that manufacturing facility.

So I think as we've seen 16% growth in emerging markets, and throughout the year it's been very high double digit, we want to put the investment in to CapEx and to inventory to support those initiatives we've got in the business.

In terms of the [instrumentation sets] you would feel that by the time you get to AAOS, you'll have what you need in the market?

I think we're still at the stage where we're rolling out JOURNEY II in Europe. So obviously, it's gone very regionally, and we've started in the US at AAOS; I think you were there. And we're now in the process of rolling out JOURNEY II in Europe.

So you will still see us putting money into capital. So this year, we've spent 8% of our sales on capital. It's going to be in that ballpark in 2014 also, because we can see it at the moment being -- it has been a constraint on our growth. And want to alleviate that constraint so that we can grow the business more effectively.

Most of the CapEx increase has been due to instruments that we have built to support the launch of that. That has been really the big one and Suzhou [transfer]. But again, it's really -- we want them to be business linked and not limit our business potential because of this, which is -- [this one] the way to do it.

So coming back to your question on the markets. I was just looking at the history actually of the market of reconstruction. If you think about 2011 -- actually 2010, [3%]; 2011, 1%; 2012, 3%; 2013, 3%; so with ups and down. So without making here rocket science, I think that the thing that 3% will remain a good trend is what I believe strongly.

Why? Because again, it's -- those markets are maturing. The growth -- the price erosion is still there, and actually, it does not -- and you have seen the guidance, it doesn't change; it's really stable. But it will not be much bigger than that. I don't think so.

Now having said that, the emerging markets are offering a big potential. 85% of the growth in the emerging markets is roughly coming from the ASD portfolio. Am I right, Julie?

Yes.

So it's significant for us. There is a big growth here. I think it was about in the -- 18% or 20% for the growth of the reconstruction and ASD in the emerging markets, so there is big potential here.

Europe has been weak, no doubt again driven by Germany. We don't disclose the [comment] data, but they are not showing market going up. Frankly it's a big, difficult market.

We believe that next year, we are going to do better in Europe, mainly because, as Julie said, we're going to launch progressively this JOURNEY II BCS product. We also have to say that we will take the fruit of the organization that we have built some time ago; it's in the sales force. We have also -- I said that during Q3 decided to invest more in Europe. We have -- it's called a [booster] plan where we put some more money behind some specific areas. So, yes, I think this is a -- 2014 will be much better.

And just quickly on sports med, and (multiple speakers).

Sports med.

In the fourth quarter.

It's the best quarter we have ever made, I think. It's a huge growth. It's 11% growth; tremendous dynamic, driven by products, organization; focused on what matters. Portfolio, as I mentioned, is the best we have ever had in sports medicine. Thanks to the investment that we have done, we start to see the biocomposite materials, like the new HEALICOIL product that we have launched.

There is nice things here. That's one of the reasons why, coming back on our talk here, I know the question will come why you believe you will go from this [2%] business growth to a high single digit; because we know how to deliver that. And we have been consistently successful in this, within the [various] business, so we are convinced that the revenue synergies will be there.

Great. Thanks.

Tom Jones, Berenberg. A couple of questions. I wonder if you could just give us a bit of color on the mix, price volume dynamics within your hip and knee businesses.

The second question just harking back to the margin side, it sounds like your teeing us up for the EIP3, although I know you hate that term. When you rolled out EIP2, you talked about a 24% margin target in the medium term. You never defined what medium term was. But it sounds like from Julie's comments you're talking about that target being, I would guess, sort of 16 to 17 timeframe, which back referenced to the original EIP2, would probably be in most people's vision a long-term target rather than a medium-term target. So I'm just interested to hear what's changed in your thinking and why perhaps you're pushing that target out a little bit.

And then a final question, just a very quick clarification. Julie, on your tax rate guidance for 2014, in the footnote you make reference to the guidance being excluding a legal provision. I just wondered if that's just a typo or that's something we should be worried about (laughter).

That's definitely a typo.

Okay, Tom. Thank you for the questions; good questions. On the -- let me come back on this 24% margin because I knew this would come. Nothing has changed here, nothing.

EIP1, EIP2, EIP3, I think the EIP2, if you remember, the discussion of EIP2 was to help us to come back on better margin and again to reach 24%. We can reach -- today, actually, the quarter was 24.3%, but it's not difficult for us to do that. I can tell you next year will be 24%. If I want to tell you this, I tell you this, and this will happen.

The question, and that's why Julie is cautious, well, we have not decided yet during the year what type of investments we're going to make. Actually, compared to the first time we discussed this, we have had the medical device tax which cost us a significant piece of money, which is around 0.5% of trading margin, roughly. So it's also well absorbed this money.

My view is that 24% can be reached. You remember you have the question in Q3, Tom, I think are you driven by the analysts, and I think it was you asking the question. And I say, no, we are driven by our business and what we believe makes sense.

So I don't think what Julie said is postponing the 24% margin in 2017. [Whatever, no], it doesn't. What she said is 24% can be achieved this year. Are we going to make it? I don't know yet because that will depend on a number of factors, mainly the investments that will be targeted.

Now the benefit of the EIP3, as you call it, which I think is very different that the EIP, because here it's really going inside the companies to try to touch things which are not business linked. This will not generate a lot in 2014 except what procurement can give. Because imagine, when you talk about span of control, it means touching the organization, and that will take time; so most of this will come in 2015 and later.

So 2014 I would say [consider] it as usual, roughly, with a good business dynamic, but a change of -- because we see now that when put more money, it works.

So 24% is a good reference. Now depending on what we decide to do, [at the year end], we'll keep you aware of what's going on and the investments we'll do or not, according to what is happening.

On the price volume mix, I think they've been roughly the same than the year before. There is no change. Price erosion that has been -- is there? Yes. Price erosion has been roughly the same as what we have seen before. Very light in sports medicine. Stronger in reconstruction, hip and knee. Roughly equivalent in Europe. And in US there was not much difference.

Advanced wound management has [deferred], mainly driven not by government pressure but by competition -- competitive -- because the KCI approach for negative pressure.

So I would say you can think about 3%/4% negative price in established markets because the emerging markets have been driving the prices up in most of our areas, and so the volume can make the calculation.

[Phil], do you want to just add something?

(Inaudible - microphone inaccessible).

I think it's mostly come from volume and there's a little element of mix. Where we've put new innovations into the market we're still able to get some price premium; for instance, JOURNEY II. But most of it's come from volume because we're still seeing the same for the price headwinds, certainly in recon that already mentioned, and across the business that we've seen before, and it's stable.

(Inaudible - microphone inaccessible).

It's a typo, yes.

[Can you pick the] --? There was another question as well.

I think it was -- apparently there was a typo saying that we've got -- the tax rate excludes the legal (multiple speakers).

Oh good (laughter).

Instead of the legal --

Sorry. Just before, can we take two or three questions from the phone, just to be fair with our colleagues not being able to make it? And then, we go to (inaudible).

(Operator Instructions). Bill Plovanic, Canaccord.

Couple of questions, first on ArthroCare. Just was there a process, and then do you expect a second look from HSR in the US?

And then as you look at the European business for recon, so when do you expect an inflection point in that non-US established markets business for the recon?

That's what I have. Thank you.

All right, Bill. Thank you for asking the question. I was guessing there was a question on ArthroCare. Again, ArthroCare for us, it's a great deal. It's aligned to the strategy. We invest in high-growth businesses. We like also this ENT new business which is interesting for us.

I think that we have done our homework. We have a better price which is the right price. This has been approved by our Board, and I don't want to comment anything about any speculation or whatever, because that doesn't bring us to anywhere. Are we going to have someone making a [bid]? I don't know, and that's not my problem here.

So what I want to say that we're happy with what we have done. I think it's a good achievement. It's a great fit for the Company, and we are very optimistic to see this deal going on.

(Inaudible - microphone inaccessible) in terms of the timeline we're discussing about.

The timeline, well, now the timeline is we expect to close this deal at the end -- at mid-2014, which means around the month of June. We know the next timeline is the publication of the proxy merger which will happen in March. I think this is what we can tell you at this stage.

On the recon question, could you repeat it, Bill? I'm not sure I got it. You want to know what is the point of change in the European market. Is that correct?

Yes. When do you expect an inflection point for the European recon?

Well, I think that for the market, I don't expect a lot of change, except the fact the comparator of 2013 was very low, so it will definitely show some improvement, I hope, mainly in Germany.

For us, the inflection point will start now actually, because we are going to progress and launch a new product, so we expect to have a much better year in Europe in 2014 than what we have had in 2013. We have fixed the sales force. We have done this booster plan to invest, specifically in medical education, for example, and we have now durability of the new product.

And with the commercialization and JOURNEY II, that's what you're referring to, have you already been putting the instrument sets in the field, or does that commercialization begin in Q1, or is that something that already began in late 2013 for Europe?

Well, it has started at the end of 2013. We are now in the process of developing this across Europe, putting more instrument sets and launching everywhere the product.

Thank you very much.

Matt Miksic, Piper Jaffray.

I had one follow-up, Olivier, on ArthroCare. You've had some familiarity you talked about on Monday with the technology over the last several years in terms of licensing and distributing the technology. It would be helpful to understand what you'll do differently as a combined business to drive greater growth and penetration that you were unable to do as a partner, putting this together with your business, and what steps you will take importantly to prevent your current team from being distracted from their above-market goal for a growth in sports medicine in 2014. Then I have a couple follow-ups, if I may.

Okay. Yes, sure. So as you said, we know well the portfolio of ArthroCare. Just to remind you what makes a difference, we have -- it fills gaps, again, mainly in the shoulder fixation when we are very strong in the knee. That's number 1.

Number 2 -- and I will address all the question later on. The number 2 is the Coblation. You know we have a license of the radio frequency Coblation technology. What ArthroCare brings us is the latest technology that we don't which will make a very serious difference between what we have in our hands and what will ArthroCare bring to us.

And, 3, it's very simple; our network across the world and basically launching products of ArthroCare within our portfolio.

So will that be a disruption? I don't think so actually, because again, it's just -- excluding ENT, which will remain a separate entity because we don't have any expertise in ENT, however, we can bring a lot of our knowhow on non-invasive surgery in this ENT business, but they will remain there so there is no business disruption at all. It will be separated.

On the other one, there is no change either. We are going to basically integrate the products in, which will be a plus for our reps. If I'm a rep and I see I can have a full range for example of DYONICS blades, mechanical blades, and the other hand of Coblation, RF new technologies, it gives a wider scope and choice for the productors. That's good stuff. If you bring in shoulder repair fixation, that's also good stuff.

So we have looked at that very deeply. You will always have, and that's why I said on Monday that I don't expect to have synergies in terms of sales in 2014, that will start in 2015, but I don't see, for our own sales force any risk of disruption. The only disruption we can see is between now and the closing. As you know, in every type of acquisition, the reps start to think about what about me, whatever, and then you can have a slight drop in the business. And obviously, this will have consequences 2014.

As soon as this will be integrated, I don't see any issue. At the contrary, I think it will be a great booster. It's welcome by all our teams, and I don't see any reason to worry about our sports medicine business; at the contrary.

Great. That's very helpful. Follow-up on your emerging markets advanced surgical devices growth, and maybe if you could shed some light on the composition of that growth, particularly in China. If you could help us understand if this is representing a step-down, a strong step-down into the middle market, or if this is predominantly still in the top-tier market through branded Smith & Nephew, or perhaps your branded Plus legacy products Trauma versus reconstruction. Any color you could provide would be helpful.

That's a good question, actually. In China specifically, because you mention China, it's a mix of both. It's a strong high-tier dynamic; gaining market share in the (inaudible) account, but also increasing the number of accounts. As you know, the countryside is such that there's a lot of space to grow. That's what we do.

We also have, as you rightly said, our range of [ex-plus] product positioned in the mid-tier which are doing well, actually. After a difficult year/2 years ago, we see a pretty good recovery of this product in China.

In the rest of the world, in the international markets, it's mainly the high-tier products. We have not started yet a lot of development in the mid-tier market with the reconstruction. That will come soon. I can tell you, talking about the emerging markets mid-tier that this year has been a very critical year because we have the staff now is in place, we have a very dedicated R&D. We have management thinking about the business models. We're also preparing, a number of countries, special units for the mid-tier.

Again, mid-tier -- we are in the mid-tier bringing a value range to the customer. You get it? So it's not being the mid-tier. We also can imagine a value range in the established market.

But serious, we address the value range. The mid-tier was a value range product for our customers.

We have launched a new camera [visualization] at low cost based in China which works well. And actually, I was yesterday reading a paper that one of our guys, the head of the emerging markets, sent us yesterday saying -- he said, oh, I've read that Apple is thinking about developing IPhone 4 for the mid-tier of the emerging markets, which is good, but that's not rocket science. It's exactly what we have said for the business. We take some of the products; we don't use any more, for example, in the established markets because they are 2/3 years old, and we launch them in the -- that's exactly the same point. You remember, one of the first meetings I have had, it's exactly the strategy.

So I think we do well, and frankly, it's a good balance between the high-tier and the mid-tier. One of the examples I think I'm very proud of is the start of the acquisition of Shushrut that we have in India, which is small business, but again, it's a good trauma platform for the mid-tier. It's a great portfolio, dedicated for the moment mainly in India, but also we are going to extend this in different places.

So, yes, I think it's a good mix, I would say.

And finally, if I could just clarify one question on your comments on the US knee market. It sounds like -- well, you obviously had a very, very strong fourth quarter, but it sounds like you're expecting some moderation here going forward off of that strong growth. Was it something --? If you could clarify what you saw maybe that was unusually strong that contributed to that fourth quarter that's not sustainable. If this is -- if there was a catch-up in that quarter or if we're just, as you say, looking at the history and saying best to plan based on the last few years.

In the US knee, again, let me go back to the history of US knee growth. In 2010, it was 4%. In 2011, you remember, it was a disaster; it was minus 3%. In 2012, it was 2%. And in 2013, it is 4%. So -- and this 4% is mainly driven by a 9% growth in Q4 of the US market.

So what I'm just saying that, again, like the recon in general, I don't foresee this 9% in 2013 at all. So what I see is again a 3%/4% market, as usual.

I'm convinced, and you have seen also the comments of our peers explaining that this should not be extrapolated. I think this is true; it shouldn't be. It's for me mainly anticipation of surgery due to the unknown consequences of the ObamaCare. So that's what I -- maybe I'm wrong, but that's what I strongly believe.

Very helpful. Thanks.

Thank you. So we'll go back to the room.

Veronika Dubajova, Goldman Sachs & Co. I have three questions. First one is on SANTYL. Can you discuss your expectations for that [medicine pricing]. Are we fair to infer from that that significant price increase that you've put through last year, you're not going to be following that through with another one? And what's your expectation for composition of mix, of volume versus price there?

The second question's on gross margins where you saw some significant improvements in 2013 relative to 2012. Julie, I'm just wondering if you can comment on what's driven that and how you're thinking about that specific line into 2014.

And my last question is on your comment around more competition in the negative pressure wound therapy market. Olivier, are you happy with where the portfolio stands today, or do you think that you need to bring out PICO 3.0 to maintain your edge there?

Thank you.

So maybe I was not clear on the local positioning. It was not what it -- I wanted to say more competitive pressure than more competitive -- so we don't see any more competition coming. Coloplast is not for us a competitor in negative pressure. For example, I think that we have only one competitor, which is KCI.

Do we see more competitive pressure? Yes. Based on what -- not skill, nor products, but price. And so that's what [they anticipate]. We are convinced that our portfolio is RENAYSYS and the range of RENASYS of PICO in the range of PICO, because we have a now a number of new PICOs in the market; and going further we will have new PICOs. We are just very well equipped for that.

We have launched in China a negative pressure, so far, I touch wood, very successfully. We have very good start. It was launched in September or October, I think. And we're very satisfied with the first launch. By the way, KCI has tried, and missed the launching in China, so we can show that if we can do it, I think it will be a good success.

Japan is doing well with negative pressure, as you know. We are continuing our growth successfully, increasing new products. PICO will be introduced in -- I think it will be in 2015 or 2016. Phil, correct me if I'm wrong.

Could be 2015.

Could be 2015; so in Japan. So a number of good things coming.

So on Healthpoint, why did we drive mid-teen. You guys do not know what to say. Last year you were telling us 15%, or mid teens, and we grew at almost 50% or 47%.

Again, why did we grow around 50%? First it's really price, I would say, mainly. Price increase was not decided yet when we discussed last year. We did the acquisition, by the way.

And when we presented the Q1 -- the Q4, I don't remember if you've got that in mind. We said we would plan to make a price increase. We don't know what will be the reaction in terms of volume. We'll certainly see a very strong Q1. That we have seen, by the way, and that's why the comparator will be very strong for next year. And then we'll see some volume drop.

We have seen volume drop; not as much as we could have expected, but the volume drop exists. And actually, it's a negative trend in the SANTYL for the moment, and we see this as a reflection, coming back next year on volume, which is reasonable; volume driven by the fact that the account will start to rebuy with the new price, number 1; and number 2, by the time that we have increased the coverage, as you know also, we have added almost 100 reps in Healthpoint to cover more SANTYL.

I was mentioning in my presentation that we also think about cross selling some products using our own sales force to potentially sell some of the products of Healthpoint. So all this (inaudible).

The other good news we had the launch of REGRANEX, which has been launched in November. We're very happy with the launch of REGRANEX. So I think this will be also a growth driver of 2014. And we have some headwinds, as I said, because of the reimbursement system of [OASIS], which will certainly push down a bit. So net-net, there is no planned price increase next year, which doesn't mean that we'll not do one, or whatever, but at this stage, we are just counting on volume increase, and we believe that mid-teen is the guidance.

I'll come back to the question on gross margin. Yes, clearly, we're very focused on improving efficiency throughout the supply chain, and there are a number of things that have driven the improvement in margin. First of all, we've really improved the [S&OP] process around forecasting and manufacturing to forecasting. So we've improved that.

Supply chain efficiency with regard to looking at our supplier base and the rationalization of that supplier base, and also using low-cost manufacturers in Asia; as you've seen that we've started to migrate some of the wound production to China. So all this has delivered round about a 3% improvement in our cost of goods.

And we're very focused on doing this because we need to do this because you've got the price pressure. Overall in recon, as we've said, we've experienced around 3% price declines. In the business as a whole, it's around just over 1% price decline. So what we're doing is offsetting any issues with regard to price pressure with the margin, and hopefully with some margin improvement.

And then you asked me about the longer-term projections. I think we have addressed what you might call the easier things that you can tackle with regard to margin. We've also had a program of SKU rationalization. We had -- I think at one point we had over 90,000 SKUs and we've got it down to about 68,000. That's still a lot of SKUs. But then, of course, we're then in the process of trying to take these, and it gets more difficult, progressively more difficult because we're also doing the mid-tier.

So I think overall, I think the margin will offset the price war and broadly stay at a similar sort of level I would expect over the next few years.

You look at this margin. It's always the big discussion. I believe that this business is worth more than 24% margin. We are not -- don't -- I just want you not to think that we are just focusing on 24% and that's the limit. No, it's not. We can do better to begin with. To do better, we need to do more top line because this will go down.

So that's why we have these ups and downs where we say, no, we need to invest. We need to [trim] the top line. And then you will see a great business emerging, a great business. And I tell you, wait a little bit, Veronika, I know you're impatient, and you will see some great stuff appearing.

We'll take questions from one more person.

Justin Smith, Soc Gen. Just a couple. Olivier, just on R&D, I think 2.5 years ago when you took over, you spoke about an extra $300 million over the next 5 years. I compare that to the 5% to 6% ratio. There's a disconnect there. So could you help me understand that?

Well, I said that we were planning -- you're absolutely right. We were planning to -- you know what I said; we want to go back to the industry standard, which was 5% R&D on sales. That's what I said. We are at 5.3%, by the way R&D, and selling, if you exclude Healthpoint, which has obviously a different type of R&D, we are at 4.9%, I think 4.9%. So in that 3 years, we still have 2 years to go.

ArthroCare, by the way, is bringing us also [even half] R&D, because ArthroCare R&D is roughly 8.9% R&D on sales. So that increases again the scope. So I think we'll be over in 5 years this 5.5% or whatever.

Now I said $300 million. I didn't make the calculation, actually. I know that we are reaching $231 million of R&D now. What will be the situation in 5 years? Maybe certainly less than $300 million but at least we'll reach what we want.

And you know I told you, I remember very well, I said we want to invest in R&D in emerging markets. That will cost us some money. We have put money. We have a dedicated budget for R&D in the emerging markets which actually is slightly cheaper than what we're expecting at this time. We do know well what it means.

Number 2, we said that we wanted to invest, and I said something, remember, it was $50 million of additional investment in the biomaterials in our ASD franchise. It cost less than this. We have done the investment. It's cheaper than that.

So are we achieve $300 million? I'm not sure. Are we going to reach the 5%-plus? Yes. That's done, actually.

Can I just understand? So you're basically saying on an underlying basis pre M&A that it might not be $300 million, but there will be certainly a back-end loaded increase in the R&D in 2014 and 2015?

Correct. Actually, we are - we start R&D. We start R&D; we are almost at 5%. We are at 4.9% today without the Healthpoint -- sorry, without the M&A.

Okay. If I look at the absolute increase in R&D this year versus last year, it's basically just Healthpoint consolidation. Am I correct?

No. It's more. Actually, we have invested more in wound management; we invest more in emerging markets. It's not that purely.

Do you see with this back-end loaded increase in the underlying, do you see obviously opportunities then to --? I know price is probably not as bad as it was, but you obviously see opportunities with increasing R&D in the next 2 years, become more of a price leader.

Yes. On like for like, we are -- apple to apple, we are increasing on a [regular] basis the amount of R&D. No doubt.

Okay.

And also something that you don't see, Justin, a very interesting discussion we have had with the divisions during the budget; the improvement in terms of R&D productivity that we made. When we invest $1 now, it's much more than when we were investing $1 3 years ago in terms of efficiency. We have cut the number of things which are making a very different type of investment.

So again, it's not apple to apple because we are more efficient now with $1 than we were in the past.

And the second and final question, I know it's probably a bit early, but M&A is such an important part of your strategy. If everything goes to plan with ArthroCare, does anything change from a strategic perspective? Is GBP1.5 billion still a number we can think about on the long term? Or does it change anything? Or do you see more opportunities potentially to do more things after ArthroCare of that kind of size?

I don't know, frankly. And again, if something pops up, we'll look at it. I think it will be quiet for a while now. It's a significant investment. We're still, however, looking for being closer to the markets in the emerging markets. We're still interested in bolt-on acquisitions, small stuff. We still like to acquire interesting products, as we have mentioned, for the Healthpoint, for example, these type of things.

So, yes, this is a very limited amount of money. We now have a mission, which is to make the best integration of ArthroCare after closing. We have done it very well, I think, this Healthpoint. So we have learned a number of things and we are very confident that this will happen very smoothly.

Just to come back on the R&D numbers that you mentioned. The reported R&D has grown by 35%, but that obviously includes picking up the whole of Healthpoint. On a like for like, it's grown about 17%/18% R&D on an underlying basis. And approximately half, or just a bit more than half, is due to Healthpoint and HP802, and the other part is due to investment in emerging market R&D, Wound R&D and ASD R&D. So we're driving the underlying R&D in the business as well as investing in Healthpoint.

Right. But from what Olivier is saying, that still doesn't get you to $300 million, but you're saying that you're more productive so that's why you're not underinvested.

No doubt; that's a fact and we know that. We have done the serious analysis on this and we are much, much better.

Yes. We've looked at the amount we're spending on maintenance versus the amount we're spending on new products in R&D, and we've changed the balance. We're changing the balance between the two.

Then we've also tried to say that we've also got a much more rigorous process for looking at R&D investment and looking at the return on the investment we're getting on each of those projects and prioritizing it across the whole business. Rather than just in the divisions, we're looking at it in totality. So I think that's improving as well the granularity in terms of looking at where we're getting a return.

Martin Wales, UBS. Coming back to wound management, what gives you the confidence you can drive volumes so much in SANTYL given that the volumes have obviously started to turn up in absolute terms a little bit, but it's obviously still way below where it was. I know you've put more reps in, but what evidence do you have that we can't see that that business is doing well?

2013 has been lower than 2012 in volume. That's a fact. What makes me confident is the additional people we have put in the field, so now are there, and the extension of the coverage that we have, so new accounts coming. And we also see a kind of feeling that the accounts are starting to order again despite the price increase.

So all this together, I don't say that SANTYL will grow 15%. I am talking about 15% growth for the Healthpoint as a whole (multiple speakers). But we are very confident that this will happen.

And you're talking about internationalizing that business. Are you expecting any contribution internationally in 2014?

Marginally.

And coming back to your comments on the reconstructive market, if I read you correctly, you are anticipating good knee growth in the US, although not 11%;you are seeing the BHR headwinds bottoming out in the US. In Europe, you think you've reached an inflexion point. You're doing very well in emerging markets. Why are you only going to approach 3% market growth in 2014?

Why do we approach 3%?

Why are you only going to approach? Because everything you said would appear to be more bullish than that. Tell me where I'm misquoting you, please.

No, I talk about market growth. I don't say that we will -- Europe is negative, big time and so it will be better. JOURNEY II will be here. We are going to recover and try to be, as we did in the US, better than the market, or at market. So that's what we expect to do.

The market in Europe will be what? Zero at best? I don't know, but it will not be a big one.

Europe is very important for us in terms of weight, as you know. US, we grow, that is true. But again, I don't think we will be in the double-digit figures, even if month after month in the Q4 we have been showing an improvement actually better than what you have in the 11%, but again, I think there is a lot of this which is market help. We know that and there is no secret here. It is two things. It is the market; we are surfing on this market with good new products and good investment. So obviously this.

Now if you just say what is the dynamic, I don't think it will be much more than 3% to 4%. I think we must be cautious.

I'm more concerned about why you're going to still only approach market growth and not do better than market growth given all the things I just highlighted, which are basically what you said.

Yes. I said that cautiously, and I am cautious about this and I don't want to over-promise. I think it's what we said. The guidance is good. We'll be close to market; close to market; could be over market, actually.

Very true. Thank you very much.

Thank you, Martin.

Okay, ladies and gentlemen, thanks a lot, and see you in Q1.