Smith & Nephew plc (SNN) Q4 2013 Earnings Report, Transcript and Summary

Okay, well, good morning, everyone, and welcome to our first quarter and 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's sitting in the front row, John. 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 financial results 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 with 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 has been very successful acquisition of Healthpoint and our strong position in the emerging market. Added to this, our orthopedic reconstruction business improved throughout 2013 as we launched and invested behind our unique product. Our investment in management strongly outperformed the market for 6 years in a row. Financially, our top line grew 4% underlying, and EPS is 3%. We announced a clear capital allocation framework and have demonstrated how we've been 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 continue to invest where we see higher growth opportunities and focus on improving our efficiency. We built momentum across the groups 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 Orthopaedics Reconstruction business built on the improvements seen last quarter, driven by an 11 growth -- 11% growth in the U.S. 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. And U.S. has shown some signs of improvement. Europe remains, on the whole, challenging. And the emerging market remained strong. Our trading profit was $292 million given the trading profit margin 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, which gives the full year increase of 5%. So you know well this slide, capture 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 gross rates. In the U.S., 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 the second quarter in a row, all but one generated positive growth. I will now turn to look at different slide in more detail, starting with hip and knee implants. Our global recurring plant revenue grew by 4% in a market that we see grow at 6%. You see our growth this quarter: It was 5% in knees and it was 2% in hips, as further evidence that our performance has responded to our additional investments and the new product rollouts this year. The standout performance was in U.S. Knees with the growth of 11%. And this reflects our JOURNEY II BCS system continuing to be rolled out and the very positive surgery response we continue to receive. In addition, sales of knees with our unique VERILAST bearing surface continue to benefit from the TV campaign that we ran in the U.S. in the fall. In U.S. hips, we recently introduced POLARSTEM system as our 10 years of key product [ph] that I saw in Europe and is designed for the increasingly popular direct anterior approach for hip replacement. Outside the U.S., we have now started introducing JOURNEY II BCS in Europe, and we will progressively launched it during 2014. We believe it will help start improve our earnings performance in this region. Turning to Sports Medicine Joint Repair, which grew at 11% in the quarter. These results reflects a strong contribution across all key joint knees, shoulders and hips in all geographies. In the quarter, we extended our HEALICOIL range launching innovative next generation biocomposites Suture Anchor or for the repair. In Trauma and Extremities, we grew at 5% ahead of our expectations given the strong comparable in the U.S. Our emerging market business had a strong quarter, benefiting from the introduction of SURESHOT, our targeting system for nail fixation into several countries. In the U.S., the addition of Extremities sales reps we have hired in early 2013 are now becoming fully trained. And our Extremities business in the U.S. grew at over 20% in the quarter, small base. Turning to Advanced Wound Management, which grew at 10%. This is, again, double the market rate, which we think was increased to 5%, reflecting the greater use of bioactive therapeutics. Advanced Wound Care was flat. It was an encouraging 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 has been successful. We're winning targeted account in traditional Negative Pressure, increasing adoption of our unique [indiscernible] disposable product and expanding successfully into the emerging market. Advanced Wound Bioactives was again strong at 52% growth. This partly reflected the successful relaunch of REGRANEX. And now I'm going to move to Julie to give you the financials, and I'll come back later on.

Thanks, Olivier. Good morning, everyone. So turning to our Q4 results. I have 4 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, where 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. So firstly, let me start talking about the analysis in 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 segment 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 1 more day than the comparable period last year. And this benefited our growth rates 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 rates 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 U.S, and 16% growth in emerging markets. Advanced Wound Management grew by 10% worldwide with a major growth driver being the U.S. with 23% growth. Within the U.S. specifically, there were offsetting factors. Advanced Wound Bioactives grew by 52%, while 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 3/4 of our business and growth being driven by the ASD portfolio. Recent acquisitions have not materially impacted our emerging market 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 24.6 -- 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 investments behind our Knee and Trauma franchises. Advanced Wound Management profitability fell in the full year by 250 basis points, driven by price and mix of 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 benefits 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, represent 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'll also recall that we deliberately present 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 -- by showing our cash flow in 2013 and more detailed cash flow figures as shown in the appendix. So the businesses 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 2013 with a spend of $340 million. The interim dividend was paid $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. By the end of the year, we had repurchased 18.2 million shares to the value of $226 million. We have 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 U.S. Private Placement under an agreement that we signed in December. The funds with average fixed rate of 3.7% and the maturity of just over 9 years were used to repay drawings on our existing bank facility. So finally, on 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 U.S. 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, our revenue by franchise, we expect Orthopaedic Reconstruction to continue with its improved performance and grow at a rate approaching the markets; Trauma and 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 range 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. The 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. So 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 be $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. The tax rate will show some improvement, but still around 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 priority 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 product portfolio, building our platform, growing the emerging markets and in building a culture of continuous efficiency improvement. The established market represent the majority of our revenue. With the continuing backdrop of challenging conditions in many areas, I'm pleased with the progress we have made in 2013. Advanced Wound Management business continues to outperform, and the Healthpoint acquisition reinforced this trend. Advanced Surgical Devices has been reenergized, led by the U.S. 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 location, 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 targeting investment 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 the deal contributed to about half of our annual revenue growth in 2013. China continues to build standard and sets the expectation of what we would 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, focus on resources, be closer to the customers and offer these customers the product they want, either high end or mid-tier. We made significant investments in sales team and infrastructure, for example, in Mexico and the Middle East, where we completed the acquisition as set in Brazil and Turkey. In 2014, we'll build on these foundations. In the mid-tier, we're starting to create both a dedicated commercial platform, an increase in the number of upgraded products through developments or acquisitions. Finally, we always remain very focused on generating funds from returns on our investments. We know that our model works, and it's concrete which accretive 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 benefits in 2015. We also started the rollout of a major European-wide single IT and business integration platform replacing approaching 100 legacy systems. As Julie said, we're in the final year of our successful $150 million dollars structural efficiency program. As we have done this, we have learned more and seeing many additional opportunities. And I've 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 interesting new, innovative products establishing emerging market. Our investment in R&D continue to increase, operating now 5.3% of the company revenues. This commitment is starting to deliver. Our Trauma and Sports Medicine franchises at the strongest new product line some years. In our core Reconstruction business, we continue making a very significant level of R&D spend, focusing our investment in different technologies, not merely into products. I'm optimistic about the product pipeline. I look forward to seeing many of you at the WS where, in particular, we 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 wound care market, we knew it was a great acquisition. As I said earlier, it delivered year-on-year growth of 47%. Our integration is on track and as we achieve 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 Bioactive team to outperform again. To do so, they will have to manage a sensitive price volume dynamic and drive with the next launch. As many of you know, the reimbursement of [indiscernible] change in the U.S. has been [indiscernible] outpatient in 2014, which would prove headwind for our OASIS product. Beyond 2014, the future of Bioactives is very bright. Our venous leg treatment achieved HP802 is on track for a 2017 launch as expected. We're doing option for cross-selling our wound care devices and Bioactive products across all our dedicated sales team and looking at selling more Bioactive products outside of the U.S. And finally, we continue to look at developing or acquiring further products for the portfolio. We've completed 3 emerging market acquisitions in 2013. And have one in Brazil still to finalize. This brings distributions, supporting our strategy to be closer to our customer and products to serve the mid-tier. I'm pleased that we're building a strong track record of sourcing, negotiating and integrating transaction of various size 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 compound revenue growth of 7% and earnings per share of 8%, good by any standards. And great given that for over half of this period, the world was effectively in recession. Cash generation and metric vehicles, Sir John, as we recall, impressive. Over $5 billion generated, of which about half has been returned to the shareholders. And finally, share price performance up 90% over the period outperforming the FTSE 100, which was only risen about 7%. So, Sir John, I want to congratulate you. Thanks a lot.

Thank you.

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 strong business again, stronger business again. Our strategic priorities are working. The imperative guide our path, on the one hand, in continuing to improve our efficiency; and on the other, increasing our investment in tomorrow's growth drivers. These include 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 competitive 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 and criteria and offers significant synergies. The board of ArthroCare has recommended the transaction, and I've said and believed that it is in the best interest 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 to efficiency. We've met our financial expectations, and we have made successful acquisitions. Should we be satisfied? Perhaps. Are we satisfied? No. I can assure you that for me and my team, our mission is to do better and build a truly great company. So thanks a lot. That ends the formal presentation. And we'll be happy, as usual, to take your questions, starting with Yi-Dan this time with one question.

It's Yi-Dan Wang with 2 questions. The first question is on the orthopedics business, so good to see that U.S. Knees returned to market growth rates, but hips and the business outside of the U.S. 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 will be great, but just some commentary on that would be helpful.

Yes, we're also happy to see, as expected, by the way, a good dynamic in the recon business at Smith & Nephew, mainly driven by the knee and mainly driven by the U.S. Again, the growth was 11% for the quarter, driven by 2 things mainly, as I said. Number one is the investment we have done with the recent campaign, which have been very, very good actually, driving not only the surgeon to use more of our products, but also the patients to consult and also our team to be motivated. We have launched many, many competition programs. We have done in Copenhagen, a very huge meeting putting together hips and knees especially, as well as arthroscopic specialist 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. Hip, I think, is maybe a disappointment despite the launch of POLARSTEM, which was a gap in our portfolio. However, outside of the U.S., the growth has been other 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 U.S., because the knee dynamic will continue with the development of JOURNEY II BCS, which is what is going to be displayed at the WS, 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 see 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, or the fact that there were some people who wanted to use their insurance before the end of the year when -- I'm sure you have done it. And I've talked with many surgeons in the U.S., and they all said, "Yes, we have done those things this quarter." So it's artificially high. So that's why I'm always cautious about extrapolating this type of growth, which I think was 6% versus 4% before. So I think, as Julie said, don't see the market changes -- changing. So I think it will be as we have mentioned before, a low-single digit market, 3% or 4%. I don't know. But it will certainly not be, for me, a 6%. So that's what I can tell you about this. I see good momentum. And I tell you very -- through promise of the teams because they have the impression that there's some tough time going back with support for you with some money to invest because we've decided to make this investment, targeted investment.

Okay. So 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 were 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's 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 sort of 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 that impact on margin, I think, in the next couple of years. So I think those are the 2 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're going to do better in 2014 than 2013. So Adrian [ph] would have said slightly stronger. I don't know the word I'd use. What Julie just told you is very important. The work that we are now making -- and you remember we've mentioned that many times about our G&As and the weight of our G&As compared to our peers and the lack of S [ph] investment is really critical, of course. So Julie and -- we'll come back in Q1 with some very deep analysis of this that we'll share with you. But roughly, we work on a few things to try to improve and not to try to improve our G&As. Number one, 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 the number of cities. We work on finance transformation, optimization across the world. 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, work on this. So we are factoring this in Q1, and we'll be back on this one. So again, we will generate obviously more profit out of this. As Julie said this morning will be mainly used to reinvest in our business because again, we need this more investment in a few areas where we can be subscaled. And I give you the example of the Advanced Wound Care in the U.S. Why Advanced Wound Care in the U.S. is not doing well? I guess that would be a question. I can answer it now. Because I see that we have put a lot of resources and negative pressure to fight against the competition there and try to get the most out of the Negative Pressure, which I think will do well. We will win accounts every day. Remember the last announcement of the KCI has shown a result of minus 6%. We are going at 17% Negative Pressure Wound Therapy. So we 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, Bank of America. 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 can use when you say approaching? And for 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 investments? So, yes, we've seen a number of opportunities in the business that we wanted to put money behind. And you mentioned 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 support of instrument sets to support the JOURNEY II launch. And we found that it 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 -- I mean Olivier and I and the management team have decided consciously to invest in where we see growth drivers. The third area I'll 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 digits, we want to put the investment in to CapEx and to inventory to support those initiatives we've got in the business.

A follow-up in terms of the instrumentation sets. Do you feel that by the time you get to AAOS, you would have what you need in the market?

I think we still are 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 U.S. 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 sort of ballpark in 2014 also because we can see it at the moment being -- it has been a constraint on our growth. And we want to alleviate that constraint so that we can grow the business more effectively. Okay?

Most of the CapEx increase has been due to instrument sets that we have built to support the launch of that. That has really been the big one versus 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 -- because when we have the other way to do it. So coming back to your question on the markets, just looking at this history actually of the markets of reconstruction. If you think about '11 -- actually 2010, 3%; 2011, 1%; 2012, 3%; 2013, 3%. So it was ups and down. So I mean without making here rocket science, I think that's saying 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 has not -- and you have seen the guidance. It doesn't change when it's stable. But it will not be much bigger than that, and I don't think so. Now having said that, the emerging markets are offering a big growth potential. 85% of the growth in the emerging market is roughly coming from the ASD portfolio. Am I right, Julie?

Yes.

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 emerging markets, so there's big potential here. Europe has been weak, no doubt, again driven by Germany. We don't disclose the -- you commented that. But they're not showing the 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 a Julie said, we're going to launch progressively this JOURNEY II BCS product. We also have to say that we will take the fruits of the new organization that we have built some time ago within the sales force. We have also, as I said that during Q3, decide to invest more in Europe. We have it, call it booster plan, where we put some more money behind specific some areas. So, yes, I think this is -- 2013 -- '14 will be much better.

And just quickly on Sports Med in the fourth quarter...

Sports Med, I mean it's the best quarter we have ever made, I think. I mean it's a huge growth. It's 11% growth. I mean 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. I mean there's some nice things here. That's one of the reasons why -- coming back on ArthroCare. I know the question would come why you believe you will go from this 3% business close to a high-single digit because we know how to deal with that. And we have been consistently successful in this, within various business. So we are convinced that the revenue synergies will be there.

Tom Jones from Berenberg. A couple of questions, I wondered 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. I mean it sounds like you're taking us out for EIP 3, although I know you hate that term. When you rolled out EIP 2, you talked about a 24% margin target in the medium term. Now you never defined what medium term was. But it sounds like from Julie's comments, you're talking about the target being, I would guess, for '16, '17 timeframe, which back-referenced to the original EIP 2 would probably be mostly people's vision, a long-term target rather than a medium-term target. So I'm just interested to hear what's kind of changed in your thinking, and why perhaps you're pushing that target out a little bit? And then the final question, just a very quick clarification. Julie, on tax rate guidance for 2014, in the footnote you made reference to the guidance being excluding legal provision, I just wondered if that's just a typo or that's something we should be worried about?

That's definitely a typo.

On the -- let me come back on this 24% margin because I knew this would come. Nothing has changed here, nothing. EIP 1, EIP 2, EIP 3, I mean -- I think the EIP 2, if you remember the discussion of the EIP 2, was to help us to come back on a better margin, and again, to reach 24%. We can reach today -- actually, the quarter was 24.3%. 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'd tell you this, and this will happen. The question, and that's why Julie is questioning -- we have not decided yet during the year what type of investments we are going to make. Actually, compared to the first time we discussed this, we have a medical device tax, which cost us a significant piece of money, which is around 0.5% of trading margin roughly. So it's also -- we'll absorb this money. My view is that 24% can be reached. You remember you asked a question in Q3, Tom, I think, are you driven by the analyst? 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 we said is postponing the 24% margin in 2017 or what if it really 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 investment that we decide to do. Now the benefits of the EIP 3, as you call it, which is I think very different than 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 you can 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 and roughly with a good business dynamic, but a change of -- because we see now that when we put more money, it works. So 24% is a good reference. Now depending on what we decide to do in the year and we'll keep you aware of what's going on in the investment we do or not according to what is happening. On the price/volume mix, I think there's been roughly the same than the year before. There is no, no change. 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. Phil, I think in the U.S., there was not much difference. Advanced Wound Management has suffered, mainly driven not by government pressure, but by competition -- competitive -- [indiscernible] that the KCI approach for Negative Pressure. So I would say you can think about 3%, 4% negative price in established markets, in established market because in emerging market, we 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?

I'm most specifically interested in what's going into hips and knees and just trying to see whether accelerations coming from the volume side or from the mix side.

Yes, I think it's mostly coming 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 sort of price headwinds, certainly in recon that Olivier mentioned and across the business that we've seen before, at least in this table.

Do you think that's a typo?

It's a typo, yes, yes. I think it was the -- apparently, there's a typo saying that we've got a tax rate excludes illegal...

Okay, okay, okay. So just before -- can we take 2 or 3 question from the phone just to be fair with our colleagues not being able to make it? And then we'll go to you Veronika. Any questions from the phone?

[Operator Instructions] The first question on the phone from Bill Plovanic from Canaccord.

Couple of questions. First, on ArthroCare. Just what's their process, and then do you expect a second look from HSR in the U.S.? And then as you look at the European business for recon, so when do you expect an inflection point in that non-U.S. established markets business for the recon? And that's what I have.

I was guessing the question on ArthroCare. Again, ArthroCare, for us, it's a great deal. I mean 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 your board. I don't want to comment anything about any speculation or whatever because that doesn't bring us to anywhere. I mean are we going to have someone making it bigger? I don't know. And that's not my problem here. So what I want to say that we're very happy with what we have done. I think it's a good achievement. It's a great fit for the company, and we're very optimistic to see this deal going on.

In terms of the timelines, he's asking about...

The timelines, well, now the timelines is -- we expect to close this deal at the end -- at mid-2014, which means around month of June. Now, the next timeline, 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, what do you expect an inflection point for the European recon?

Well, I think that for the market, I don't expect a lot change in the mix, except for the fact that compared to 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 in the launch of new products. 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 products.

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

It started in -- at the end of 2013. We are now in the process of developing this across Europe, putting more instrument set and launching everywhere the product.

The next question comes from Matt Miksic from Piper Jaffray.

I had one follow-up, Olivier, on ArthroCare. You've had some familiarity, as you talked about on Monday, with the technology over -- well, 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're unable to do with the partner, putting this together with your business and what steps you'll take importantly to prevent your current team from being distracted from their above-market goal for growth in Sports Medicine in 2014. And I have a couple of follow-ups, if I may.

Okay, sure. So as you said, we know well the portfolio of ArthroCare. Just to remind you what makes the difference, we have -- it fills gaps, again, mainly in the shoulder fixation when we are very strong in the knee. That's number one. Number two -- and I will address all of the question later on. The number two is the Coblation. We have a license of the radio frequency Coblation technology. What ArthroCare brings us is the latest technology that we don't have, which will make a very serious difference between what we have in our hands and what will ArthroCare bring to us. And three, it's very simple. It's 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 know-how on non-invasive surgery in this ENT business. But they will remain there, so there is no business, for example, it will be separated. On the other one, there is no change either. I mean we are going to basically integrate the products in, which will be a plus for our reps. If I am 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 technology, it gives a wider scope and choice for the conductors. That's good stuff. If you bring in shoulder repair fixation, that's also good stuff. We have looked at that very deeply. You will always have -- and that's why I've 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 consequence in 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. I mean it's welcomed 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. A 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 markets or this is predominantly still kind of in the top tier markets through your branded Smith & Nephew or perhaps your branded Plus legacy products, Trauma versus Reconstruction. Any color you could provide will be helpful.

That's a good question actually. In China, specifically because you mentioned China, it's a mix of both. It's a strong high-tier dynamic. Gaining market share in the Asia account but also increasing the number of accounts. As you know, the country size 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, I mean, 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 developments in the mid-tier market with the Reconstruction that will come soon. I can tell you talking about the emerging market 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 model. We are also preparing in number of countries special units for the mid-tier. Again, mid-tier is -- we are in the mid-tier bringing a value range to the customer. Okay, you get it. So it's not being the mid-tier. We also can imagine a value range in the established market. But here it's -- we address the value range. The mid-tier was a value range area -- products for our customers. We have launched a new camera visualization, low-cost built in China, which works well. And actually, I was yesterday reading a paper that one of our guys, the head of the emerging market centers, yesterday saying -- he said and immediately said, "Oh, I 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 from the beginning. We're saying, we'll take some of the product we don't use anymore. For example, in the established market because they are 2, 3 years old and we launched them in the -- at exactly the same point. Do you remember in one of the first meeting 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 example I think I'm very proud of is the start of the acquisition of trauma, Sushrut-Adler in India, which is more business. But again, it's a good Trauma platform for the mid-tier. It's a good 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 then finally, if I could just clarify one question on your comments on the U.S. knee market. It sounds like you -- 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 or contributed to that fourth quarter that's not sustainable. This is -- there was sort of a catch-up in that quarter or for just, as you say, looking at the history and saying best to plan based on the last few years.

In the U.S. knee, again, let me go back to the history of the U.S. knee growth. In 2010, it was 4%. In 2011, 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 9% growth in Q4 of the U.S. knee market. So while 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 it's 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. Yes, so we'll go back to the room. I'm so sorry. We'll go there and then we'll go to you.

Great. Veronika Dubajova from Goldman Sachs. I have 3 questions. First one is on SANTYL. Can you discuss kind of your expectations for that mid-teen growth. Is that -- 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 kind of what's your expectation for composition of mix or volume versus price there? The second question is on gross margins where you saw some significant improvements in 2013 relative to '12. Julie, I'm just wondering if you can comment on what's driven that and kind of 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?

I'm going to say maybe I was not clear on the more competition. It was not what -- I wanted to say more competitive pressure. So we don't see any more competition coming. I mean, Coloplast is not for us a competitor in negative pressure. For example, I think that we have only 1 competitor, which is KCI. So that's it. Do we see more competitive pressure? Yes. Based on what? Not skills nor products, but price. And so that's what the data [ph] play. We are convinced that our portfolio within the RENASYS and the range of RENASYS, the PICO and the range of PICO because we have 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 a very good start. It was launched within September or October. I think. And we're very satisfied with the first launch. By the way, KCI has tried and then missed the launching in China. So we can show that we can do it. I think it will be a good success. Japan is doing well in the negative pressure, as you know. We are continuing our growth successfully, increasing new products. PICO will be introduced in -- I think will be in 2015 or '16. Phil, correct me if I'm wrong.

Could be '15.

Could be '15, so in Japan. So a number of good things coming. So on this point, why did you drive 15% [ph] I mean, you guys do not know what you said. The last year you were telling us 15% or mid-teen, and we grew almost 50% or 47%. Again, why did we grow around 50%? For 3 reasons. Price, I would say, mainly. Price increase was not decided yet when we discussed last year, when we did the acquisition, by the way. And when we presented the Q1 -- the Q4, I don't remember, if you kept keep that in mind, we said we 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 an inflection coming back next year on volume, which is reasonable. Volume driven by the fact that the account will start to rebuy with new price, number one. And number two, by the time that we have increased the coverage, as you know also, we have added almost 100 reps in the -- 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 as well. So all this together. The other good news, we have 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 good driver of 2014. And we have some headwinds, like I said, because of the reimbursement system of OASIS, which would certainly push down a bit OASIS. 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 a good guidance.

So I come back to the question on gross margin. So 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 our 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 around about 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 declines. 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. And 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 those down. 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 fall 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 discussion. I believe that this business is worth more than 24% margin. So we're not -- don't -- I just want you not to think that we are just focused on 24%, that's it, that's the limit. No, it's not. We can do better. Again, we can do better, but we need to do more top line because this will go down. So that's why we have these ups and downs. When 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 bit -- Veronika, I know you're patient, and you will see some great stuff appearing. Yes? So we'll take questions from one more person. So you and one more. Is that correct, Phil?

Yes, that's fine.

Because I'm cautiously [indiscernible]

It's Justin Smith from SocGen. 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 sort of compare that to the 5% to 6% ratio. There's a disconnect there. So could you help me understand that?

What I said that we were planning -- you're absolutely right. We were planning to -- number one, I said we want to go back to the industry standard, which was a 5% R&D on sales. That's what I said. We are at 5.3%, by the way, R&D on sale. If you exclude Healthpoint, which has obviously a different type of R&D, we are at 4.9%, I think 4.9%. So -- and that's 3 years, we still have 2 years to go. ArthroCare, by the way, is bringing us also a [ph] of R&D because ArthroCare R&D is roughly 8.9% R&D on sales. So that's increased 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 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 dedicated budget for R&D in the emerging market, which actually is slightly cheaper than what we're expecting at this time. We didn't know well what it means. Number two, we said that we wanted to reinvest. And I've said something, I remember it was $50 million of additional investments in the biomaterials in our ASD franchise. It costs less than this. We've done the investment. It is cheaper than that. So are we going to achieve $300 million? I'm not sure. Are we going to reach the 5-plus percent? Yes, that's done actually.

So to kind just understand, so you're basically saying on an underlying basis pre-M&A that it might not be $300 million, but there'll be certainly a back-end loaded increase in the R&D in '14 and '15?

Yes, yes, correct. I think we are -- we start at R&D, we are almost at 5%. We are 4.9% to date without Healthpoint -- sorry, without M&A, I mean.

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

Well, no. No, no. It's more actually we have invested more and more in wound management. We'll invest more in emerging market business. It's not that purely...

So do you see -- with this kind of back-end loaded increase in the underlying, do you see obviously opportunities there to -- I know we got price probably not as bad as it was. But you obviously see opportunities with increasing R&D in the next 2 years to become more of a price leader.

Yes. We think -- on like-for-like, we are -- apple-to-apple, we are increasing on a regular basis the amount of R&D, no doubt. And also something that you don't see, Justin, is a very interesting discussion we have had with the divisions during the budget is the improvement in terms of R&D productivity that we had. When we invested $1 now, it's much more than when we're investing $1 3 years ago in terms of efficiency. We have got a 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 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 1.5 billion is still the 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'd look at it. I think it will be quiet for a while now. It's a significant investment. We are still, however, looking for being closer to the market in the emerging market. We are still interested in bolt-on acquisitions, small stuff. We are still like to acquire interesting products, as we've mentioned for the Healthpoint, for example, these type of things. So yes, this is still very -- it's a very limited amount of money. We now have a mission, which is to make the best integration for -- of ArthroCare after closing. We have done it very well, I think, with Healthpoint. So we have learned a number of things, and we're very confident that this will happen very smoothly.

Just going back to 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 investments in emerging markets 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 will be more productive, so that's why you're not underinvested?

No doubt. That's a fact. And we knew that. We have done a serious analysis on this, and we're 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 2. I think we've also -- fair 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 in totality. So I think that's improving as well, the granularity in terms of looking at where we're getting a return.

One more? Martin.

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 that are obviously started to turn up and actually turns a little bit, but it's obviously still way below where it was? I know you 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 fields that now are there and the extension of the coverage that we have. So new accounts coming. And we also see a kind of feel -- a feeling that the accounts are starting to order again despite the price increase. So all these together, I don't say that SANTYL will grow 15%, I'm talking about 15% growth for the Healthpoint as a whole. As we say, REGRANEX is certainly a [indiscernible] but you know we are very confident that will -- this will happen.

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

Marginally, marginally.

Okay. And coming back to your comment on the reconstructive market. If I read you correctly, you are anticipating good knee growth in the U.S., although not 11%, you are seeing the BHR headwinds bottoming out in the U.S. and Europe. You think you're reaching an inflection 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 you're only going to approach because everything you said would appear to be more bullish than that?

Well, I said, yes -- no because....

Tell me where I'm misquoting you, please

No, no. I talked of market growth. I don't say -- I don't see that we will have in it [ph]. Europe is negative, big time. And so it will be better. Jonathan [ph] will be here. We are going to recover and try to be -- as we do in the -- as we did in the U.S., better than the market or at markets. So that's what we expect to do. Market in Europe will be what? 0 at best. I don't know if it's 0, but not going to be a big one. Europe is very important for us in terms of weight, as you know. U.S. will grow. That is true. But again, I don't think we would be in the double-digit figures, even if the -- 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 a market help. We know that. I mean, there's no secret here. It's 2 things in the market. We are surfing in this market with good new products and good investments. So obviously -- 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 have to 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 the things I just highlighted, which are basically what you said.

Yes, I said that cautioning -- I mean I'm cautious about this and I don't want to overpromise. I think it's what we said, the guidance is good. We'll be close to market. The close market will be over market actually.

Yes, very true.

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