Smith & Nephew plc · LSE:SN.
Smith & Nephew — FY2004 Earnings Presentation
48 slides from Smith & Nephew's earnings presentation, Feb 3, 2005
Slide 1: Preliminary Results 2004
* The Preliminary Results of smith&nephew for 2004 demonstrate increasing momentum as we continue to provide excellent products and services to heal and repair the human body, returning people to 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 planned growth in our business and in our operating margins discussed under "Outlook" are forw
Slide 3: Dudley Eustace, Chairman
rg smith&nephew Dudley Eustace Chairman
Slide 4: Agenda
Agenda • Introduction Dudley Eustace • 2004 financial results Peter Hooley • Business review Chris O’Donnell • Orthopaedics Dave Illingworth • Questions and answers 4
Slide 5: 2004 - Substantial progress in growing markets
2004 -Substantial progress in growing markets • Continued favourable market conditions • Substantial sales, margin and earnings growth • Momentum going into 2005 5
Slide 6: Peter Hooley, Finance Director
Peter Hooley Finance Director 6
Slide 7: Fourth quarter financial highlights
Fourth quarter financial highlights • Underlying sales growth 14%; full year 11½% • Orthopaedics 20%, Endoscopy 16%, Wound Management 5% • Margin improves nearly 2% to 23%; full year 20% • EPSA growth 14% quarter and full year • £80m exceptional charge to cover disputed insurance for macrotexture re
Slide 8: Trading results 2004
Trading results 2004 Fourth Quarter Full Year 2003 2004 2003 2004 £m £m £m £m Sales 313 332 + 6% 1179 1249 + 6% EBITA 67 76 +14% 221 251 +14% Operating margin 21.3% 22.9% 18.7% 20.1% Joint venture and associate 6 6 27 24 Interest - 1 (6) 3 Profit before amortisation and exceptionals 73 83 +15% 242 2
Slide 9: Results in US dollars 2004
Results in US dollars 2004 - - - Fourth Quarter- - - - - - - - - Full Year- - - - - - 2003 2004 2003 2004 Reported sales* $543m $631m +16% $1939m $2300m +19% Earnings per ADS $0.48 $0.60 +25% $1.52 $1.95 +26% * Reported sales and earnings per ADS are before goodwill amortisation and exceptional item
Slide 10: Sales growth 2004
Sales growth 2004 Underlying Acquisitions Currency Sales Days Reported Quarter 4 % % % % % Orthopaedics 20 5 (7) (5) 13 Endoscopy 16 - (6) (5) 5 Wound Management 5 - (2) (5) (2) Group 14 2 (5) (5) 6 Full year Orthopaedics 17 4 (9) - 12 Endoscopy 9 - (7) - 2 Wound Management 5 - (5) - - Group 11½ 1½
Slide 11: Profitability 2004
Profitability 2004 - - - - - - - - - Q4 - - - - - - - - - Full Year Sales EBITA Margin Margin £m £m % % 2004 Orthopaedics 157 40 25.6 23.5 Endoscopy 83 20 24.3 20.3 Advanced Wound Management 92 16 17.0 14.4 332 76 22.9 20.1 2003 Orthopaedics 139 35 25.1 22.6 Endoscopy 79 19 23.4 19.8 Advanced Wound
Slide 12: Cash flow
Cash flow 2003 2004 £m £m Trading cash flow 170 145 Exceptional charges/Macrotexture (17) (17) Rationalisation and integration (10) (2) Operating cash flow 143 126 Joint venture 6 14 Interest and tax (56) (34) Free cash flow 93 106 Dividends (45) (47) Divestments and shares 60 4 Acquisitions (4) (85
Slide 13: Retained profit and capital employed
Retained profit and capital employed 2003 2004 £m £m £m £m Profit Tax Profit Tax Profit before amortisation and exceptional items 242 70 278 81 Tax rate 29% 29% Amortisation (18) - (20) - Profit before exceptional items 224 70 258 81 Exceptional items 6 12 (80) (28) Profit before tax 230 178 Taxatio
Slide 14: Macrotexture knee withdrawal
Macrotexture knee withdrawal • 2971 implanted before voluntary withdrawal in August 2003 • 765* revisions confirmed, of which 510* settled, total cost £49m*, of which £17m* is in dispute with our insurers • Primary insurer provided coverage until policy exhausted and as one of three first excess lay
Slide 15: International financial reporting standards (IFRS)
International financial reporting standards (IFRS) Commence as from 1 January 2005 Restatements for 2003 and 2004 Reconciliation UK GAAP 2003 2004 Pro forma before amortisation and other items* 2003 2004 Profit before tax, amortisation and other items* 242 278 EBITA 220 250 Tax thereon (70) (81) Int
Slide 16: Quarterly phasing under IFRS
Quarterly phasing under IFRS 2004 Q1 Q2 Q3 Q4 Sales growth (underlying) Ortho 17% 14% 19% 20% Endo 8% 6% 8% 16% Wound 7% 3% 6% 5% 12% 8% 12% 14% Sales value £302m £307m £307m £332m Operating profit* £56m £60m £59m £75m Margin 18.5% 19.3% 19.2% 22.7% Net Interest 1 - - 1 Profit before tax and JV 57 6
Slide 17: 2005 guidance
2005 guidance • Reporting under IFRS • Expecting high teens sales growth at Orthopaedics, and high single digit sales growths at Endoscopy and Wound Management • Expect group underlying sales growth rate to be reasonably uniform across the quarters • 2 less sales days in Q1, 2 more in Q2 • Planned m
Slide 18: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive 18
Slide 19: Smith & Nephew strategy
Smith & Nephew strategy • Well positioned in strongly growing markets • Opportunities for innovation and market expansion • Growth both organic and by acquisition • Sales force investment and segmentation • Strong new product pipeline • Build on brand strength 19
Slide 20: Orthopaedics
Orthopaedics Market growth 2003 and 2004 13%* Delivering growth ahead of market S&N Orthopaedics quarterly growth 25 • $1 billion in sales Q4 Full Year 20 Trend • Global growth 20% 17% 15 US growth 25% 22% 10 Outside US growth 11% 10% 5 • OXINIUM™ drives knee sales 0 • New product sales 18% for the
Slide 21: Endoscopy
Endoscopy Arthroscopy market growth 8%* in 2004 Sales growth momentum in 2004 after slower 2003 Q4 Full Year Repair sales quarterly growth • Global growth 16% 9% 25 US growth 17% 9% 20 Trend Outside US growth 15% 10% 15 • New products 23% of sales 10 • New camera and digital operating room 5 momentu
Slide 22: Endoscopy sales growth 2004
Endoscopy sales growth 2004 Full Year Q4 Sales Sales Q4 Full Year £m £m Endoscopy - repair 21% 16% 22 81 - visualisation 45% 22% 19 60 - blades 4% 3% 20 80 - radio frequency (8%) (2)% 6 26 22
Slide 23: Endoscopy growth in 2005
Endoscopy growth in 2005 • Progressive scan camera system • DIGITAL OR™ expanded capability • Shoulder repair- full product range • Hip arthroscopy – new procedure training • Sales force expansion/specialisation • Continued international growth 23
Slide 24: Advanced Wound Management
Advanced Wound Management Market growth 8%*, 12%* including KCI Q4 Full Year • Global growth 5% 5% US growth 2% (4)% Outside US growth 6% 8% • Global growth 7% 9% ex-debrider • New products 19% of sales • US sales force expansion/specialisation * Smith & Nephew estimate All sales growth numbers are
Slide 25: Wound Management sales growth 2004
Wound Management sales growth 2004 Full Year Q4 Sales Sales Superbrands Q4 Full Year £m £m ALLEVYN™ 17% 15% 23 87 ACTICOAT™ 42% 47% 6 21 DERMAGRAFT™ 21% 28% 2 8 25
Slide 26: Wound Management growth in 2005
Wound Management growth in 2005 • Global growth opportunity – particularly in the US • Enlarged, refocused sales force in US • Increased emphasis behind ALLEVYN™, ACTICOAT™ for MRSA • Targeted penetration of DERMAGRAFT™ accounts – dedicated sales force ahead of VLU approval 26
Slide 27: Worldwide market focused sales force
Worldwide market focused sales force 2004 2004 increase Orthopaedics – worldwide 1260 +22% • Reconstruction • Trauma • Clinical Therapies Endoscopy – worldwide 650 +3% • Arthroscopy • Digital Operating Room • Speciality Wound – worldwide 900 +3% • Tissue viability • Tissue engineering • Speciality 2
Slide 28: New products 2005
New products 2005 Q1 Q2 Q3 Q4 INTERTAN™ intramedullary PROFIX™ MIS knee GENESIS™ II OXINIUM™ knee Ceramic-on-ceramic hip nail (for proximal femoral instruments revision femoral fractures) PERI-LOC™ (interlocking CONDOR™ Digital Operating Disc Diagnostic System for EMPERION™ (modular hip plating syst
Slide 29: 2005 outlook
2005 outlook • Growing and expanding markets • New product launches • Sales force investment and market focus • Increased sales growth • Sustained mid-teens earning growth 29
Slide 30: Orthopaedics Business
Orthopaedics Business Dave Illingworth President, Orthopaedics 3 February 2005 30
Slide 31: Smith & Nephew Orthopaedics
Smith & Nephew Orthopaedics • Attractive market • Strong performance • Momentum • 70+ year history • Over 2,800 employees worldwide • Sales in 90 countries • Two main manufacturing locations 31
Slide 32: 2004 market recap
2004 market recap Served market* - $12 billion** Market growth estimates** Joint Fluid Therapy 5% Bone Sub Hips 32% Growth 4% Bone Stim 2% Hips 11% Shoulders 2% Knees 15% Cement 3% Trauma 11% Trauma 20% Knees Clinical therapies 12% 32% Total market 13% * markets in which Smith & Nephew Orthopaedics
Slide 33: Market outlook is strong
Market outlook is strong • Aging population (growth in the over 55 segment) – younger patients (the 33 – 55 year group) – revision procedures (fastest growing segment) • Increased demographic penetration – active lifestyles – better informed – treatment alternatives • Price – DRG up 3% in 05 – priva
Slide 34: 2004 performance
2004 performance • Industry-leading global sales growth at 17%*, 22% in the US • BHR hip resurfacing adds 4% to growth • Market share gains in all segments • New product momentum continues: 18% of sales from new products • Operating margin improvement * Underlying sales growth is sales calculated by
Slide 35: Fastest growing for the fifth year in a row
Fastest growing for the fifth year in a row 2004 Estimated Global Sales Growth* 20% 15% Average market growth 10% 5% 0% Stryker Biomet Synthes DePuy Zimmer S&N * Growth in served markets, measured in constant currency 35
Slide 36: Geographic snapshot
Geographic snapshot S&N Orthopaedic 2004 sales growth* by region 30% 25 25% 22 20% 15% 14 10% 5% 0% AAA Europe US * Growth in served markets, measured in constant currency Impact of BHR hip resurfacing 36
Slide 37: 2004 hip performance
2004 hip performance Strong performance continues, driven by growth and improved focus of our sales force and advanced technology, including OXINIUM™ heads, Birmingham Hip Resurfacing, MIS product expansions coupled with training, and Revision additions. Growth* Estimated 2004 market 11% Smith & Nep
Slide 38: 2004 knee performance
2004 knee performance Knee performance continues to be industry leading due to improved focus and growth of our sales force and advanced technology, including OXINIUM™, the ACCURIS™ Uni System and MIS product expansion coupled with training. Growth* Estimated 2004 market 15% Smith & Nephew worldwide
Slide 39: 2004 trauma performance
2004 trauma performance Success in Trauma continues to be driven by growth and focus of our sales force, increased medical education and continued success with the TRIGEN™ IM Nailing System, web-based software for the TAYLOR SPATIAL FRAME™, and our JET-X™ line of products Growth* Estimated 2004 mark
Slide 40: 2004 clinical therapies performance
2004 clinical therapies performance Key drivers are continued sales force growth, focus and specialization, and the continued success of Clinical’s flag ship products EXOGEN™ and SUPARTZ™ Growth* Estimated 2004 market 12% Smith & Nephew worldwide 44% Smith & Nephew US 51% * constant currency 40
Slide 41: Momentum in Orthopaedics
Momentum in Orthopaedics • Five years of industry leading sales growth • Sales force investment • Unique technology – OXINIUM™ – BHR hip resurfacing – EXOGEN™ – SUPARTZ™ • Innovative product pipeline – PERI-LOC™ – MIS/CAS – Ceramic-on-Ceramic 41
Slide 42: American Association of Orthopaedic Surgeons' Annual Meeting
We will be at the American Association of Orthopaedic Surgeons’ Annual Meeting in Washington DC from February 23rd to 25th and look forward to seeing you at our booth. Our briefing is at 8.00am EST on 23rd February. This briefing will be web cast. Please contact Angie Craig for details. 42
Slide 43: Smith & Nephew Orthopaedics
Smith & Nephew Orthopaedics • Attractive market • Strong performance • Continuing momentum 43
Slide 44: We are smith&nephew
>i We are smith&nephew
Slide 45: Appendix
Appendix rg smith&nephew 45
Slide 46: Geographic sales growth 2004
Geographic sales growth* 2004 US Growth Europe Growth ROW Growth Total Growth Quarter 4 £m % £m % £m % £m % Orthopaedics 94 26 36 15 27 7 157 20 Endoscopy 45 17 25 16 13 13 83 16 Wound Management 21 1 48 5 23 10 92 5 160 19 109 10 63 9 332 14 Full Year Orthopaedics 360 22 134 11 95 9 589 17 Endoscop
Slide 47: Orthopaedics sales growth 2004
Orthopaedics sales growth 2004 Q4 Full Year Sales Sales Q4 Full Year £m £m Orthopaedics - knees 23% 21% 56 214 - hips 14%* 15%* 43 161 - trauma 14% 11% 38 145 - clinical therapies 62% 44% 16 52 * Excluding BHR 47
Slide 48: Other items
Other items 2003 2004 £m £m Capital expenditure - 6%/8% of sales 73 102 Depreciation - 5% of sales 60 64 Goodwill amortisation 18 20 Currency in profit - Transactional gain 3 9 - Translational cost (7) (14) Net assets - SSAP 24 basis (55) (49) - FRS 17 basis (121) (124) Exceptional items (pre-tax) D