Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q3 2006 Earnings Presentation
24 slides from Smith & Nephew's earnings presentation, November 2006
Slide 1: 2006 Q3 Results
2006 Q3 Results Enabling people to live healthier, more active lives 1
Slide 2: Forward looking statements
Forward looking statements This presentation contains certain "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995. In particular, statements regarding expected revenue growth and trading margins discussed under "Outlook" are forward-looking stat
Slide 3: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive
Slide 4: Introduction
Introduction • New products drive stronger growth • Signs of strengthening US market – particularly reconstruction • Healthcare spending constraints remain a challenge in some European markets • Systematic review of margin improvement opportunities underway 4
Slide 5: Business highlights Q3 2006
Business highlights Q3 2006 • Group revenue growth up 10% to $679m • Trading profit increased 15% to $134m • Good performance across all divisions • Reconstruction revenue grows strongly at 13% • Trauma revenue grows at an improved 15% • Endoscopy achieves increased revenue growth of 13% • Advanced
Slide 6: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 7: Income statement Q3 2006
Income statement Q3 2006 Third Quarter Percentage Q3 YTD growth 2005 2006 Actual CER 2005 2006 $m $m $m $m Revenue 612 679 11% 10% 1,882 2,008 Trading profit 117 134 15% 13% 370 399 Restructuring costs (44) 0 (44) 0 Amortisation of acquisition (2) (4) (8) (8) intangibles Operating profit 71 130 318
Slide 8: Income statement Q3 2006
Income statement Q3 2006 Third Quarter Percentage Q3 YTD growth 2005 2006 Actual 2005 2006 $m $m $m $m Profit before taxation 71 133 323 400 Taxation (18) (40) (95) (120) Profit from continuing 53 93 228 280 operations Discontinued operations 9 0 24 332 Attributable profit 62 93 252 612 Add back: Am
Slide 9: Revenue growth by business segment 2006
Revenue growth by business segment 2006 Actual Currency CER Quarter 3 % % % Orthopaedic Reconstruction 13 0 13 Orthopaedic Trauma 15 0 15 Endoscopy 14 (1) 13 Advanced Wound 3 (2) 1 Management Group 11 (1) 10 Q3 YTD Orthopaedic Reconstruction 8 1 9 Orthopaedic Trauma 12 0 12 Endoscopy 8 1 9 Advanced
Slide 10: CER revenue growth by geography & business segment 2006
CER revenue growth by geography & business segment 2006 Growt Europ Growt Growt Growt US ROW Total Quarter 3 h e h h h $m $m $m % $m % % % Orthopaedic 126 14 51 11 42 11 219 13 Reconstruction Orthopaedic Trauma 90 13 19 27 16 9 125 15 Endoscopy 86 14 41 6 34 19 161 13 Advanced Wound 35 (2) 93 0 46 6
Slide 11: Profitability by business segment Q3 2006
Profitability by business segment Q3 2006 - - - - - - - - - Q3 - - - - - - - - - Q3 YTD Revenue Trading Margin Margin $m Profit % % $m 200 6 Orthopaedic 219 52 23.7 25.4 Reconstruction Orthopaedic Trauma 125 24 19.2 18.8 Endoscopy 161 28 17.4 18.0 Advanced Wound 174 30 17.2 15.0 Management 679 134 1
Slide 12: Free cash flow Q3 2006
Free cash flow Q3 2006 Third Quarter Q3 YTD 2005 2006 2005 2006 $m $m $m $m Operating profit 71 130 318 391 Share based payment 4 4 11 13 Depreciation, amortisation and 70 44 142 121 impairment Capital expenditure (44) (55) (153) (185) Working capital movements (35) (78) (180) (195) Cash generated f
Slide 13: 2006 outlook at Q3
2006 outlook at Q3 • Reconfirm full year guidance from H1 • At end Q3 rates, no impact of currency translation for full year 13
Slide 14: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive
Slide 15: Reconstruction – Q3 2006
Reconstruction – Q3 2006 Q3 YTD US 14% 7% Outside US 11% 11% Global 13% 9% Knees 15% 11% • Much improved quarter in US and OUS • Modest market recovery in US, Hips conditions remain11% 6%in some challenging European countries • New product launches contribute to revenue growth • Outstanding knee gro
Slide 16: Trauma – Q3 2006
Trauma – Q3 2006 Q3 YTD US 13% 12% Outside US 18% 11% Global 15% 12% Fixation 12% 10% Clinical • Growth momentum continues 20% 18% Therapies •New product success contributes to growth • Sustained Clinical Therapies growth • DUROLANE integration progressing well PERI-LOC™ Superior Distal Clavicle pla
Slide 17: Endoscopy – Q3 2006
Endoscopy – Q3 2006 Q3 YTD US 14% 8% Outside US 12% 9% Global 13% 9% Repair 22% 20% • Very strong quarter in US led by new DOR/ products 20% 8% Visualisation • Strong growth continues for Repair • Solid resection growth continues • Strong order book for DOR delivers outstanding quarter Digital Opera
Slide 18: Advanced Wound Management – Q3 2006
Advanced Wound Management – Q3 2006 Q3 YTD US ex DERMAGRAFT 14% 11% ™ US incl. DERMAGRAFT (2)% (3)% ™ Outside US 2% 2% • Revenues remain on track Global 1% 1% • Healthcare spending constraints continue ALLEVYN™ to affect growth OUS10% 9% • ACTICOAT™ growth hit by low price silver Wound bed prep 12%
Slide 19: Summary
Summary • Encouraged by modest improvement in US market growth in reconstruction • European market conditions remain challenging • Reconstruction benefiting from new product successes • Strengthening performance from Trauma business • Improved Endoscopy growth fuelled by strong Repair and DOR growth
Slide 20: We are smith&nephew
We are smith&nephew 150 Wreee For generations.
Slide 21: Appendix
>¢ smith&nephew Appendix 150 years Innovation. For generations.
Slide 22: Reconciliation of free cash flow to IAS net cash flow from operating activities
Reconciliation of free cash flow to IAS 7 net cash flow from operating Third Quarter Q3 YTD activities 2005 2006 2005 2006 $m $m $m $m Free cash flow 50 14 78 57 Add back: capital expenditure 44 55 153 185 Deduct: dividends received from JV (1) 0 (12) 0 Net cash inflow from operating 93 69 219 242 a
Slide 23: Exchange rates
Exchange rates € : $ 12/04 06/05 12/05 03/06 06/06 09/06 Period End 1.359 1.197 1.180 1.211 1.279 1.267 H1 05 Q2 05 Q3 05 H1 06 Q2 06 Q3 06 YTD Average 1.270 1.236 1.258 1.243 1.282 1.279 1.255 £:$ 12/04 06/05 12/05 03/06 06/06 09/06 Period End 1.920 1.771 1.717 1.733 1.848 1.869 H1 05 Q2 05 Q3 05 H
Slide 24: Quarterly revenues
Quarterly revenues Smith & Nephew Key Product Line Revenues in $m at Average Rates Quarterly and Underlying Growth* 2005 2006 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth $m % $m % $m % $m % $m % $m %