Smiths Group PLC · LSE:SMIN
Smiths — Smiths Medical — Investor Day (June 2010)
60 slides from Smiths's investor day presentation, Jun 23, 2010
Slide 1: Smiths Medical Investor Day
Smiths Medical Investor Day St. Paul, Minnesota, USA 23rd June 2010 Opportunities to create value www.smiths-medical.com © 2010 by Smiths Medical: © 2010 Proprietary by Smiths Data Data Medical: Proprietary | 1 www.smiths-medical.com
Slide 2: Observations on Smiths Medical: an attractive business model
Observations on Smiths Medical: an attractive business model Underlying defensive growth characteristics Operational platform has been transformed over past two years Gained sales momentum and increased margins to recent highs Strong brands and technologies with a reputation for quality Growth oppor
Slide 3: Key Themes for Today
Key Themes for Today Outline the business strategy and the key drivers of future growth Explore Smiths Medical’s strong competitive position in its markets Examine the technologies and business model Demonstrate how we are generating value through acquisitions Visit our manufacturing facility and pr
Slide 4: Agenda
Agenda 8:30 Welcome - Peter Turner 8:45 Market Context & Smiths Medical - Srini Seshadri, Stuart Morris-Hipkins 9:30 Break 9:45 Achieving Operational Excellence - Srini Seshadri, Rob White 10:10 Creating Value -Srini Seshadri, Stuart Morris-Hipkins 11.00 Q&A - All 11.30 Product Demonstrations + Site
Slide 5: Setting The Stage
Smiths Medical Setting The Stage 23 June 2010 © 2010 by Smiths Medical: Proprietary Data | 5
Slide 6: Smiths Medical: Bringing technology to life
Smiths Medical: Bringing technology to life Smiths Medical is a world leader in interventional devices and solutions which enable our customers and their patients to be safer, more pain free, healthier and more productive. © 2010 by Smiths Medical: Proprietary Data | 6
Slide 7: Balanced portfolio, in products, regions and people
Balanced portfolio, in products, regions and people £834M £834M ~7,500 ~ 12% Asia ~ 6% Asia ~ 30% Safety Devices ~ 23% EMEA ~ 34% EMEA ~ 40% Vital North ~ 40% Care America ~ 54% Americas ~ 30% Med ~ 31% Mexico Delivery 2009 Sales 2009 Sales Headcount Built for consistent profit delivery & presence a
Slide 8: Execution over past 24 months yielding results
Execution over past 24 months yielding results • Increased revenues ~20% from products less than 3 years old … NPI vitality Solid performance on core business (underlying) • Drove £5M +ve price in tough market conditions • ↑ R&D, sales and marketing effectiveness while ↓ G&A ~10% • Embedded value en
Slide 9: Smiths Medical … The investment case
Smiths Medical …The investment case • Sustained global demand for healthcare driven by age demographics, key diseases, rise in middle class • Smiths Medical well placed in lower risk, short residency, interventional devices Sales Growth 3-5% • A broad portfolio: hardware & consumables, hospital & al
Slide 10: Medical Device Market Context
Smiths Medical Medical Device Market Context 23 June 2010 © 2010 by Smiths Medical: Proprietary Data | 10
Slide 11: Global medical environment … great opportunity in complexity
Global medical environment … great opportunity in complexity … Smiths Medical well placed • Developing markets middle class ↑ ; ageing population ↑ Patient • Chronic respiratory, cancer & obesity related issues ↑ demographics • Outpatient ↑, hospital stays ↓ ; shift to new sites of care • HC Reform
Slide 12: Wide variation in regional demographics & healthcare market factors
Wide variation in regional demographics & healthcare market factors … good to be global & local Europe China • 9% GDP spend on HC • 6% GDP spend on HC • 400M population • 1.3B population • 17% > 65 • 8% > 65 • 2.25M hospital beds • 3M hospital beds • Govt & tender driven • Growing rapidly USA • 16%
Slide 13: Regulatory environment has stiffened in last 3 years
Regulatory environment has stiffened in last 3 years Increasingly connected & coordinated … inspections ↑ in number & intensity US FDA EUROPE CANADA JAPAN RoW Pre-Market CE Mark Licenses Registrations Registrations Approval Documentation EU Directives Well Enforced Well Enforced Well Enforced Regula
Slide 14: Reform efforts, price & cost pressures common around the world
Reform efforts, price & cost pressures common around the world for 20+ years US Europe Japan China India Patient volume Interventional Procedures Tax effects Reimbursement And the responses to these pressures are also well known Consolidate/reduce G&A “Value tier” product development Reinvest in R&D
Slide 15: Competitive landscape quite broad & fragmented
Competitive landscape quite broad & fragmented … potential for differentiation as well as consolidation Diversifieds investing in Medical Devices • Philips (Respironics) • GE (Vital Signs) 8B 7B 5B Large, multi-business, • Kimberly Clark (I-flow) consolidators • Moog (Infusion Pumps) Scale in key Sm
Slide 16: We compete with parts of a wide array of competitors
We compete with parts of a wide array of competitors who are themselves also multi-portfolio companies Overlap w/ Revenue EBIT margin R&D as % Recent Smiths of sales growth ~ $10B 21% 4% -1 to 2% ~ $2B 19% 3% 0 to 1% ~ $7B 23% 5% 2 to 6% ~ $4B 15% 6% 0 to 2% ~ $4B 14% 4% -4 to 5% ~ $4B 10% 3% 3 to 7
Slide 17: Introduction to Smiths Medical
Smiths Medical Introduction to Smiths Medical 23 June 2010 © 2010 by Smiths Medical: Proprietary Data | 17
Slide 18: Specialized in high margin, short-residency, interventional devices
Specialized in high margin, short-residency, interventional devices Surgical instruments Ophthalmic Urology Medication Renal/ Delivery Dialysis Wound management Patient monitoring Imaging Vital ~ £100B Smiths market ~ £4B Care In-vitro Cardiovascular diagnostics Safety Orthopaedics Devices Serving £
Slide 19: Well positioned in core markets … poised to grow
Well positioned in core markets … poised to grow Target market ~£4B Market size Market Smiths Medical Smiths Medical growth sales FY09 approx share Medication Vital Delivery Care Medication Delivery ~£1.2B 3-5% ~£205M 17% Vital Care ~£1.7B 2-4% ~£335M 20% Safety Devices ~£1.2B 3-5% ~£260M 22% Total
Slide 20: Broad product portfolio … relevant to multiple call points
Broad product portfolio … relevant to multiple call points inside and outside the hospital Hospitals & Clinics Surgery Centres & OEM Companies Home Care Providers 75% of sales 20% of sales 5% of sales • Oncology • Homecare distributors • Pharma companies • Intensive medicine • Homecare providers • M
Slide 21: Smiths Medical: Bringing Technology to Life
Smiths Medical: Bringing Technology to Life Our mission is to help healthcare professionals make every intervention successful. We focus on improved outcomes. We help deliver medication, provide vital care and keep people safe so that every intervention can succeed. Deliver Medication Provide Vital
Slide 22: A well balanced portfolio of technology & capital intensive product lines
Smiths Medical: A well balanced portfolio of technology & capital intensive product lines R&D as % of sales Capital Intensity Deliver Medication Provide Vital Care Keep People Safe • Hardware & long cycle proprietary • Mix of hardware / long cycle • 100% single use disposable consu
Slide 23: Deliver Medication: Market dynamics
Deliver Medication: Market dynamics Drivers • Growth of chronic conditions (e.g. pain, cancer) Market size: • Integration with hospital IT systems • Evolution to new sites of care ~ £1.2bn Trends • Wireless information flow Market growth: • High quality displays • Standardization: technology, platfo
Slide 24: Deliver Medication: Key brands
Deliver Medication: Key brands FY09 Sales: ~£205m • Drug delivery systems that allow complete patient mobility • Customers: Anaesthesia, Oncology & Pain Management • Key Competitors: Baxter & Hospira • Superior accuracy makes it No.1 for neonatal drug delivery • Customers: Anaesthesia & Paediatrics
Slide 25: Provide Vital Care: Market dynamics
Provide Vital Care: Market dynamics Drivers • Operations & intensive care beds growing Market size: • Rapid increase in respiratory diseases & obesity • Increasing demand for single use products ~ £1.7bn Trends • Increasing adoption of minimally invasive procedures Market growth: • Cost/benefit just
Slide 26: Provide Vital Care: Key brands
Provide Vital Care: Key brands FY09 Sales: ~£335m • Life saving products that keep you breathing • Customers: Anaesthesia & Intensive Care • Key Competitors: Covidien (Tyco), Teleflex & LMA Company • Delivers life saving fluids at the correct temperature • Customers: Anaesthesia, Intensive Care & Em
Slide 27: Keep People Safe: Market dynamics
Keep People Safe: Market dynamics Drivers • Cross selling with other IV & infusion systems Market size: • New markets: e.g. dental & pharmaceutical • Growth of HIV & other infectious diseases ~ £1.2bn Trends • Market moving towards passive, intuitive devices Market growth: • Countries adopting safet
Slide 28: Keep People Safe: Key brands
Keep People Safe: Key brands FY09 Sales: ~£260m Intravenous Catheters • Comprehensive range that saves lives by preventing cross infections Blood Sampling • Helps reduce estimated 2 million needle-stick injuries per year • Customers: Anaesthesia, Needle Protection Intensive Care & Infection Control
Slide 29: Depth & breadth in global medical company competencies
Depth & breadth in global medical company competencies R&D Sales & Marketing Financial Management • 350 engineers with design • Sales in 120 countries with ~ • Consistent global Oracle expertise in SW, electro- 1200 sales & marketing based financial system mechanical HW, single use personnel + ~ 500
Slide 30: Smiths Medical management team
Smiths Medical management team … combination of domain expertise, Smiths leadership development & new talent • 100% of leadership team new to Smiths or new in role since 2008 • Attracting top talent from leading companies • Diverse team with global operating experience in multiple regions • Strong d
Slide 31: How we run the business
How we run the business ... customer focus, product specialization, global processes • Finance • Operations • Supply Chain • Sourcing • Regulatory Functions & Quality Global • Legal • IT • Northern Europe • Infusion • Southern Europe • Safety • North America • Airway • Greater China • Temp & Pain Mg
Slide 32: Achieving Operational Excellence
Smiths Medical Achieving Operational Excellence 23 June 2010 © 2010 by Smiths Medical: Proprietary Data | 32
Slide 33: Multiple strategic initiatives in 2004–2007 stretched the business
Multiple strategic initiatives in 2004 – 2007 period stretched the business to the limit Vital Care & Safety backorders Medication Delivery backorders High SKU Count & Product Variety Low SKU Count & Modest Product Variety Oracle implementation Oracle implementation done FY09 Manufacturing rationali
Slide 34: Strategic priorities communicated to all employees and relentlessly executed
Strategic priorities communicated to all employees … and relentlessly executed Consistent focus from FY07-FY10 Status today Add critical leadership, then One global ops team with significant talent streamline operations & supply upgrades in place to drive further success chain organization Stop al
Slide 35: Designed and executed an operations excellence game plan
Designed and executed an operations excellence game plan Our vision was to achieve ... by breaking problems down operations excellence ... through phased projects • Global Chain streamlined to link Supply to Customer Demand Operations • Optimized set of resources designed to Excellence achieve compe
Slide 36: Implemented major programs to drive operational efficiency
Implemented major programs to drive operational efficiency Strengthen Linkage between Demand & Supply Poor Linkage between Demand & Supply Prior Today Region 1 Region 2 Global Product A B A B A A B B Demand Supply Supply Supply Chain Chain Chain Multiple ERP systems Product Factory A Factory B Facto
Slide 37: Reduced business complexity from P&L down to SKU level
Reduced business complexity from P&L down to SKU level High volume SKUs, Custom Trachs & Spare Parts 53% Price 4 +£5M # of P&Ls # of SKUs Deleted 2 47% Price ↑ & Cost ↓ Programs 1H ‘08 1H ‘10 1H ‘08 1H ‘10 Variable Cost Productivity +8% 52% ↓ 30% ↓ 12% ↓ Base Cost Productivity +5% 1H ‘05 1H ‘10 1H ‘
Slide 38: Drove common global ERP System to tie 40+ sites
Drove common global ERP System to tie 40+ sites & established scalable growth platform ~ 40 OrgPlus 100% % Completed Total Employees 100% # of systems Oracle Users 98% 1 External Revenue 98% FY06 FY10 Sites Complete 98% 100% 104% 7X 77% 1H ‘08 1H ‘10 1H ‘08 1H ‘10 1H ‘08 1H ‘10 1H ‘08 1H ‘10 # of Co
Slide 39: Inventory turns trending favourably
Inventory turns trending favourably • Continuous improvement targeting 3.4X finished goods and raw materials 3.0X • ERP provides global visibility of 2.4X inventory holdings • Driving raw materials down through vendor-managed purchasing • Further finished goods optimization targeted with new systems
Slide 40: Receivables … continued operational improvement
Receivables … continued operational improvement • Consistent improvement in DSO 65 both in North America and 59 57 Internationally Days Sales Outstanding • More scope ahead as we support system enhancements with global processes • Minimal credit losses, even through integration of acquired businesse
Slide 41: Executing on G&A reduction to reinvest in sales & marketing
Executing on G&A reduction to reinvest in sales & marketing • Sales force optimization & territory realignment G&A • Back office / shared services consolidation • Business unit / P&L reductions • Streamlining of support functions FY09 FY10 • Created and strengthened Global Product Management Sales &
Slide 42: Created a Single Company, Global Brand Coherence
Created a Single Company, Global Brand Coherence From 100+ company & product names 12 brand families © 2010 by Smiths Medical: Proprietary Data | 42
Slide 43: Consolidated, functionalized and streamlined RAQA organization globally
Consolidated, functionalized and streamlined RAQA organization globally Regions Global Alignment • One RAQA Organization • Common Policies & Procedures • Centralized Audits • Global Compliance Metrics • Common Technical Files • Registration Dossiers Organized Around Global Themes Compliance Regulato
Slide 44: Summary: Transformed the business in 3 years
Summary: Transformed the business in 3 years Leadership changes complete …focusing on next generation succession plan Operations optimized … working on “best in class” Manufacturing rationalizations stabilized … optimization potential Medex integration successful … benefits delivered Oracle implemen
Slide 45: Creating Value
Smiths Medical Creating Value 23 June 2010 © 2010 by Smiths Medical: Proprietary Data | 45
Slide 46: Focused on creating value
Focused on creating value Increasing technology spend effectiveness Growth initiatives in all three key segments Regional presence, customer relationships, China investment Investing to expand the core Reducing G&A to reinvest in sales & marketing © 2010 by Smiths Medical: Proprietary Data | 46
Slide 47: Increasing technology spend effectiveness
Increasing technology spend effectiveness Initiative: Focus resources on key portfolios Action Planned Outcome • Common global NPI process • Consistent approach to developing • Clear prioritization process and global new products metrics to measure NPI effectiveness • Improved speed to market • Redu
Slide 48: R&D as % of sales metric belies significant achievements
“R&D As % of sales” metric belies significant achievements Improved technology Funded Value & New Product spend effectiveness Quality Engineering Sales and prioritized new 3.6% 3.4% 3.7% product development R&D As % of Sales +50% Delivered 8% variable cost productivity 2008 2009 2010 Delivered £5m i
Slide 49: Growth Initiatives: Deliver medication
Growth Initiatives: Deliver medication Value Proposition • Hospital and homecare applications • Multi-therapy ‘smart’ infusion Ambulatory • Enhanced med error reduction Infusion • Improved user interface Next Gen Solis Range • Fast track global rollout • Wireless connectivity to Hospital IT systems
Slide 50: Growth Initiatives: Provide Vital Care
Growth Initiatives: Provide Vital Care Value Proposition • Reduction of Hospital Acquired Infections • Part of Airway solution to minimize VAP Airway • Extended usage times reduce cost SuctionPro72 & SACETT • Percutaneous tracheostomy for larger necks • Cost savings from simplified procedure • Award
Slide 51: Growth Initiatives: Keep people safe
Growth Initiatives: Keep people safe Value Proposition • Low profile port access for patient comfort Vascular • Safety mechanism to avoid needle-sticks Access • Smallest on the market – size of a dime GRIPPER Needle Range • CT identifier to confirm safe for pressure injection • Power injectability a
Slide 52: Regional game plan … be local in all key markets
Regional game plan … be local in all key markets Americas EMEA • Enhanced NPI impact • Enhanced NPI impact • Investment in sales effectiveness • Conversion to Safety • Increased focus outside Hospital • Investment in sales effectiveness • Partnering to address adjacencies • Distributor to Direct Str
Slide 53: Strong customer positions – ability to leverage portfolio
Strong customer positions – ability to leverage portfolio In 97% of the Supplier to healthcare Strong relationships with Top US Hospitals systems globally major distributors Management Account Mgt Sales Teams Key Account Specialists Specialists Clinical Ed Corporate Regional Product © 2010 by Smiths
Slide 54: Investment in China acquisition paying off
Investment in China acquisition paying off Acquired an excellent platform Investing in ~250 To drive in-China • Leading share position headcount locally & global sales growth ~25 in China for infusion • Excellent value tier ~140 £M technology ~10 • Strong sales, marketing, 3 R&D and mfg base 8 FY’08
Slide 55: Investing to expand the core
Investing to expand the core Target adjacencies ~£9bn CVCs & PICCs Anti-microbials Safety Safety EU Safety Humidification ~£4bn VC Chronic Respiratory Vital Care Patient Cooling Volumetric Infusion MD Informatics Medication Delivery Lower cost infusion Current Core Expanded Core Significant headroom
Slide 56: Already making inroads in higher growth segments
Already making inroads in higher growth segments Target adjacencies Examples of Market Entry CVCs & PICCs AgTiv Anti-microbials • Anti-microbial CVC Safety EU Safety • First move into anti-microbial • Expanding to other applications Humidification Theraheat Chronic Respiratory • Active Humidificatio
Slide 57: Margin improvement opportunities
Margin improvement opportunities Target margin range: 20% to 24% Opportunities Opportunities • New products • Demographics • Leveraging the portfolio • Emerging Markets Spend Growth External Internal • Sales Effectiveness • Healthcare Reform • Emerging Markets • Safety and HAI prevention penetration
Slide 58: Solid game plan in place for next 3 years
Solid game plan in place for next 3 years … continuous improvement, building on stable platform Regional marketing, sales effectiveness & key account focus Value tier portfolio for emerging markets growth Step change in global new products impact Drive operational excellence to best in class standar
Slide 59: Smiths Medical … The investment case
Smiths Medical …The investment case • Sustained global demand for healthcare driven by age demographics, key diseases, rise in middle class • Smiths Medical well placed in lower risk, short residency, interventional devices Sales Growth 3-5% • A broad portfolio: hardware & consumables, hospital & al
Slide 60: Questions?
Questions? www.smiths-medical.com © 2010 by Smiths Medical: © 2010 Proprietary by Smiths Data |Data Medical: Proprietary 60 www.smiths-medical.com