Smith & Nephew plc · LSE:SN.
Smith & Nephew — FY2010 Earnings Presentation
34 slides from Smith & Nephew's earnings presentation, February 2011
Slide 1: 2010 Full Year Results
2010 Full Year Results strong finish to the year 1
Slide 2: Forward looking statements
Forward looking statements This document contains certain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan"
Slide 3: John Buchanan, Chairman
John Buchanan Chairman sustainable profitable growth
Slide 4: Four years of successful delivery
Four years of successful delivery 2006 2010 • Revenues $2,779m $3,962m 5% underlying CAGR • Trading profit $571m $969m 14% CAGR • EPSA 45.2¢ 73.6¢ 13% CAGR • Dividend 10.8¢ 15.8¢ 10% CAGR • Cash conversion 64% 85% much achieved and much more to come 4
Slide 5: Dave Illingworth, Chief Executive Officer
Dave Illingworth Chief Executive Officer sustainable profitable growth
Slide 6: Financial highlights - 2010 and Q4
Financial highlights - 2010 and Q4 • Revenues – $3962m, 4% growth for the year – $1067m, +5% ADS 4,500 25.0% Margin Revenue $m at constant currency 2010 avg rate • 24.0% 4,000 – 24.5% for the year, up 180 basis points (23.9% and 120 excluding Blue Sky) 3,500 23.0% – 26.0% for the quarter, up 220 bas
Slide 7: Business highlights - 2010 and Q4
Business highlights - 2010 and Q4 • Orthopaedics – Reconstruction • Strong momentum in second half BIORAPTOR™ Knotless Suture Anchor • Knee growth above market rate globally for year +5% • +10% ADS Q4 globally – Trauma – Growth in every quarter • +10% ADS in Q4 – Clinical Therapies - $200m revenues
Slide 8: Advanced Wound Management – a transformation
Advanced Wound Management – a transformation FY 2006 FY 2010 Revenue $m 698 912 RENASYS™ EZ Revenue growth % 1 7 Trading Profit $m 114 233 ALLEVYN™ AG Margin % 16.3 25.6 ALLEVYN™ GENTLE BORDER OPSITE™ POST OP VISIBLE sustainable profitable growth 8
Slide 9: Advanced Wound Management – review of 2010 and Q4
Advanced Wound Management – review of 2010 and Q4 2010 achievements • Revenues grew at c. twice market rate • NPWT gains momentum Revenues of $912m FY +7% and $251m Q4 +7% ADS and market share • Product launches US revenues grew FY +11% Q4 +17% including ALLEVYN™ gentle border range Europe FY +5%, R
Slide 10: Orthopaedics – review of 2010 and Q4
Orthopaedics – review of 2010 and Q4 2010 achievements • VERILAST 30 year wear claim FDA approved • VISIONAIRE™ exceeds 10,000 procedures - driving knee revenues • “Rediscover Your Go” campaign Global revenues FY $2.2bn up 2%, Q4 $584m +5% ADS delivers results • Ceramicized metal data from Reconstru
Slide 11: Endoscopy – review of 2010 and Q4
Endoscopy – review of 2010 and Q4 2010 achievements • OUS revenues exceed $500m for the year – Europe up 7% – ROW up 17% • 5000+ surgeons trained including in Revenues $855m FY + 7%, Q4 $232m +6% ADS China • US salesforce now two thirds direct First arthroscopy sales contract from Arthroscopy grows
Slide 12: 2010 Summary
2010 Summary • Market conditions continued to be tough as expected • Revenue growth ‐ Advanced Wound Management - outgrows market - NPWT momentum ‐ Reconstruction - knees great result, hips making good progress • Innovation - driving mix, offsetting price changes ‐ Trauma - strengthens as salesforce
Slide 13: 2010 achievements
2010 achievements Orthopaedics Endoscopy Advanced Wound Management • FDA approval for 30 year wear claim York Surgical Skills Centre for VERILAST • • New product introductions • VISIONAIRE exceeds 10,000 completed and fully utilised including expanded ALLEVYN procedures • RF resection penetrating ra
Slide 14: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer sustainable profitable growth
Slide 15: Income statement Q4 2010
Income statement Q4 2010 Fourth Quarter Full Year 2009 2010 Growth 2009 2010 $m $m Reported Underlying $m $m Revenue 1,066 1,067 0% 0% 3,772 3,962 Trading profit 254 278 9% 9% 857 969 Restructuring and acquisition costs (24) (2) (68) (15) Amortisation of acquisition intangibles (41) (9) (66) (34) Op
Slide 16: Income statement Q4 2010
Income statement Q4 2010 Fourth Quarter Full Year 2009 2010 2009 2010 $m $m $m $m Profit before taxation 175 258 670 895 Taxation (47) (76) Tax rate*28.6% (198) (280) Attributable profit 128 182 472 615 Add back: Amortisation of acquisition intangibles / 41 9 66 34 impairments Restructuring & acquis
Slide 17: Revenue growth by business segment Q4 2010
Revenue growth by business segment Q4 2010 Reported Currency Underlying ADS % % % % Quarter 4* Orthopaedics (2) 1 (1) 5 Endoscopy 1 (1) - 6 Advanced Wound Management 3 1 4 7 Group - - - 5 Full Year Orthopaedics 3 (1) 2 Endoscopy 8 (1) 7 Advanced Wound Management 8 (1) 7 Group 5 (1) 4 * Q4 2010 compr
Slide 18: Underlying revenue growth by geography & business segment Q4 2010
Underlying revenue growth by geography & business segment Q4 2010 US Growth Europe Growth ROW Growth Total Growth Quarter 4 $m % $m % $m % $m % Orthopaedics 311 (1) 160 (4) 113 3 584 (1) Endoscopy 94 (4) 73 (3) 65 14 232 - Advanced Wound Management 54 17 117 (1) 80 5 251 4 Group 459 - 350 (3) 258 6
Slide 19: Profitability by business segment Q4 2010
Profitability by business segment Q4 2010 Fourth Quarter Full Year Revenue Trading Profit Margin Margin 2010 $m $m % % Orthopaedics 584 147 25.2 24.4 Endoscopy 232 62 26.3 23.3 Advanced Wound Management 251 69 27.5 25.6 Total 1,067 278 26.0 24.5 2009 Orthopaedics 593 142 23.9 23.8 Endoscopy 230 65 2
Slide 20: Free cash flow Q4 2010
Free cash flow Q4 2010 Fourth Quarter Full Year 2009 2010 2009 2010 $m $m $m $m Trading profit 254 278 857 969 Share based payment 3 4 18 21 Depreciation and amortisation 70 77 246 254 Capital expenditure (117) (107) (318) (307) Movements in working capital and provisions 74 (30) (32) (112) Trading
Slide 21: Outlook for 2011
Outlook for 2011 • Revenue growth: – Ortho: continued above market growth from recent launches and from focus on operational performance – Endo: ahead of market in arthroscopy – Wound: ahead of market, driven by NPWT • Margin: continued significant efficiency improvement used to fund additional inve
Slide 22: Dave Illingworth, Chief Executive Officer
Dave Illingworth Chief Executive Officer sustainable profitable growth
Slide 23: Our consistent strategy has delivered results
Our consistent strategy has delivered results Ortho Endo AWM Outperform our markets through: • Product innovation Customer-led • Medical education • Customer service Continued focus on operational margin and cash Efficient generation enabling increased investment in the business Investing for growth
Slide 24: Growth drivers – 2011 and beyond
Growth drivers – 2011 and beyond Orthopaedics Endoscopy Advanced Wound Management • SUPARTZ link to ‘Rediscover Your • In–house incubator collaboration • NPWT product development, Go’ campaign for knees for product development with differentiation and scale up • Co-located multi-discipline ‘Tiger cu
Slide 25: Market and business outlook
Market and business outlook • Healthcare systems globally face continued challenges • Demographics drive underlying growth • Emerging markets offer continued potential • Customer proximity is the key to innovation • Great people executing our plans • Investing for the longer term much achieved and m
Slide 26: Questions?
+ smith&nephew Questions?
Slide 27: We are smith&nephew
+ smith&nephew >cWe are smith&nephew
Slide 28: Appendices
+ smith&nephew Appendices
Slide 29: Quarterly revenues
Quarterly revenues Smith & Nephew Key Product Line Revenues in $m at Average Rates and Underlying Growth 2009 2010 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year Growth* Growth* Growth* Growth* Growth* Growth* Growth* Growth* Revenue Growth* Growth* % % % % % % % % $m % % Orthopaedics Reconstruction Kn
Slide 30: Exchange rates
Exchange rates $:€ Q4/09 FY/09 Q1/10 Q2/10 Q3/10 Q4/10 FY/10 Period end 1.43 1.43 1.35 1.26 1.37 1.34 1.34 Average 1.48 1.39 1.38 1.27 1.30 1.36 1.32 $:£ Period end 1.61 1.61 1.52 1.52 1.58 1.57 1.57 Average 1.63 1.56 1.56 1.49 1.55 1.58 1.54 Percentage of Revenue by Geographic Market: Q4 FY % % Uni
Slide 31: Analysis of restructuring and acquisition costs
Analysis of restructuring and acquisition costs P&L Charge Cash Spend Q4 Total to date Q4 Total to date $m $m $m $m EIP - cash costs * 2 115 4 108 - asset w/offs - 26 n/a n/a Plus Integration - cash costs ** - 95 - 92 - asset w/offs - 28 n/a n/a * Target $125m ** Target $60-80m, plus $15m costs of i
Slide 32: Reconciliation of free cash flow to IAS 7 net cash flow from operating activities
Reconciliation of free cash flow to IAS 7 net cash flow from operating activities Fourth Quarter Full Year 2009 2010 2009 2010 $m $m $m $m Free cash flow 189 150 401 552 Add back: capital expenditure 117 107 318 307 Net cash inflow from operating activities (IAS 7) 306 257 719 859 32
Slide 33: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2009 61 63 63 64 251 2010 64 64 63 60 251 2011 64 63 63 60 250 33
Slide 34: New Borrowing Facility
New Borrowing Facility Commenced December 2010 Comprises 5 year revolving credit facility of $1bn Existing term loan of $1bn maturing in May 2012 reduced to $500m Cancellation of revolving credit facility of $1.5bn maturing in May 2012 34