Smith & Nephew Plc · LSE:SN.
Smith & Nephew — FY2011 Earnings Presentation
41 slides from Smith & Nephew's earnings presentation, February 2012
Slide 1: 2011 Full Year Results
2011 Full Year Results Good progress, building a business fit and effective for the future
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: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer 3
Slide 4: 2011 Full Year highlights
2011 Full Year highlights Revenue • All business units delivered growth 5 − Orthopaedics: knee market leadership Revenue ($bn) 4 − Endoscopy: new products and sales execution drive repair and 3 resection growth 2 − AWM: revenue over $1bn, growing at over double market rate 1 • Strong cash generation
Slide 5: Q4 2011 highlights
Q4 2011 highlights • Reported Q4 revenues – $1,106m up 3% underlying and up 4% reported – Orthopaedics flat (0)%: solid performance against a tough comparable – Endoscopy up 7%: strong European performance continues – Advanced Wound Management up 8%: completes another excellent year • Trading profit
Slide 6: Q4 2011 – Orthopaedics
Q4 2011 – Orthopaedics • Market conditions unchanged − Southern Europe weaker • Knees: market leadership • Global revenues $586m in Q4, 0% growth continues, US sales - US +0%, Europe -7%, RoW +10% annualising • Global Reconstruction growth +0% • Trauma: mixed - Global knees +2% (US +0%, OUS +4%) per
Slide 7: Q4 2011 - Endoscopy
Q4 2011 - Endoscopy • European strength continues • Repair franchise − shoulder, hip growth continues • Global Revenues $249m in Q4, 7% growth − FAST-FIX™ 360 drives – US +3%, Europe +8%, RoW +10% knees • Arthroscopy growth +9% • Resection growth: new DYONICS™ PLATINUM - Repair +12% blades - Resecti
Slide 8: Q4 2011 - Advanced Wound Management
Q4 2011 - Advanced Wound Management • 10 new product introductions − PICO™ US approval • Good performance in • Global Revenues $271m, 8% growth Europe and RoW • US performance reflects – US +0%, Europe +9%, RoW +12% strong comparator • Exudate Management +4%, Infection Management • Global market rem
Slide 9: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 10: Income statement Q4 2011
Income statement Q4 2011 Fourth Quarter Quarterly Full Year 2010 2011 Growth 2010 2011 $m $m Reported Underlying $m $m Revenue 1,067 1,106 4% 3% 3,962 4,270 Trading profit 278 279 - (1%) 969 961 Restructuring and rationalisation costs (2) (33) (15) (40) Legal provision - (23) - (23) Amortisation of
Slide 11: Income statement Q4 2011
Income statement Q4 2011 Fourth Quarter Full Year 2010 2011 2010 2011 $m $m $m $m Profit before taxation 258 210 895 848 Taxation (76) (70) Tax rate* 29.3% (280) (266) Attributable profit 182 140 615 582 Add back: Amortisation of acquisition intangibles 9 9 34 36 Restructuring & acquisition costs 2
Slide 12: Revenue growth by business segment Q4 2011
Revenue growth by business segment Q4 2011 Actual Currency Underlying Reported % % % Quarter 4* Orthopaedics - - - Endoscopy 7 - 7 Advanced Wound Management 8 - 8 Group 4 (1) 3 Full Year Orthopaedics 5 (3) 2 Endoscopy 10 (4) 6 Advanced Wound Management 12 (5) 7 Group 8 (4) 4 12 * Q4 2011 comprises 6
Slide 13: Underlying revenue growth by geography & business segment Q4 2011
Underlying revenue growth by geography & business segment Q4 2011 US Growth Europe Growth ROW Growth Total Growth Quarter 4 $m % $m % $m % $m % Orthopaedics 311 - 149 (7) 126 10 586 - Endoscopy 97 3 79 8 73 10 249 7 Advanced Wound Management 53 - 127 9 91 12 271 8 Group 461 1 355 1 290 11 1,106 3 Fu
Slide 14: Profitability by business segment Q4 2011
Profitability by business segment Q4 2011 Blue Sky Adjusted Fourth Quarter Full Year Year to Date Revenue Trading Profit Margin Margin Margin 2011 $m $m % % % Orthopaedics 586 135 23.0 21.3 Endoscopy 249 69 27.6 23.6 Advanced Wound Management 271 75 27.9 24.3 Total 1,106 279 25.2 22.5 2010 Orthopaed
Slide 15: Free cash flow Q4 2011
Free cash flow Q4 2011 Fourth Quarter Full Year 2010 2011 2010 2011 $m $m $m $m Trading profit 278 279 969 961 Share based payment 4 7 21 30 Depreciation and amortisation 77 69 254 270 Capital expenditure (107) (121) (307) (321) Movements in working capital and provisions (30) (53) (112) (102) Tradi
Slide 16: Bioventus – transaction overview
Bioventus – transaction overview • Creation of a new entity, to be owned 51% by Essex Woodlands and 49% by Smith & Nephew • The new entity will comprise Smith & Nephew’s existing Clinical Therapies and Biologics business, along with $20 million cash contributed by Essex Woodlands and a $(160) millio
Slide 17: Bioventus transaction – financial effects
Bioventus transaction – financial effects • In 2011, the Clinical Therapies and Biologics division generated sales of $237 million and trading profit of $48 million, with net operating assets of $99 million • The US business, which will transition immediately on closing of the transaction, generated
Slide 18: New Segmental Analysis - Profitability by business segment pro forma 2011
New Segmental Analysis - Profitability by business segment pro forma 2011 2011 Reported Basis Indicative: 2011 Reported under 2012 pro forma basis Full Year Full Year Revenue Trading Profit Margin Revenue Trading Profit Margin 2011 $m $m % 2011 $m $m % Orthopaedics 2,312 492 21.3 Endoscopy 939 222 2
Slide 19: Underlying revenue growth by geography & business segment pro forma 2011
Underlying revenue growth by geography & business segment pro forma 2011 2011 Reported Basis US Growth Europe Growth ROW Growth Total Growth Full Year $m % $m % $m % $m % Orthopaedics 1,204 2 622 (1) 486 7 2,312 2 Endoscopy 363 3 294 5 282 12 939 6 Advanced Wound Management 189 6 493 4 337 13 1,019
Slide 20: 2012 outlook
2012 outlook • Revenue - Reconstruction close to market rate - Trauma slightly below market rate - Sports Medicine/Arthroscopy slightly above market rate - Advanced Wound Management above market rate • Modest improvement on 2011 margin 20
Slide 21: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer 21
Slide 22: Strategic Priorities
Strategic Priorities • Established markets • Emerging markets • Innovate for value • Simplify and improve our operating model • Supplement the organic growth through acquisitions 22
Slide 23: Progress update
Progress update Acquisitions Simplify and Innovate for Established operating Emerging Markets Markets improve model value Actions • ASD US: Restructured • ASD Europe: Regional and Country heads appointed • AWM Europe: Refined sales model • Emerging Markets: President hired • Emerging m
Slide 24: Liberating resources
Liberating resources Expense Actions Cost of goods Review manufacturing facility portfolio Product portfolio rationalisation Continue field based capital improvement General and Efficiencies from combination of Orthopaedics and Endoscopy Administrative − streamline US operations expenses − assessing
Slide 25: Financial implications
Financial implications • Benefits – generate annual savings of at least $150 million – roughly ¼ COGS and ¾ SG&A – about half benefits achieved by end 2012 – intention to deliver sustainable trading profit margin of around 24% in medium term, before US Medical Device Levy • Restructuring costs – abo
Slide 26: Management team substantially complete
Management team substantially complete CEO Chief Financial President President President President Officer ASD AWM Emerging Mkts International Mkts Strategy + Human Chief Technology Corporate Legal Planning Resources Officer Development Company Corporate Compliance Secretary Affairs Chief Executive
Slide 27: Fast Fix 360™ Meniscal Repair System
Fast Fix 360™ Meniscal Repair System 27
Slide 28: PICO™, canister-free disposable NPWT
PICO™, canister-free disposable NPWT 28
Slide 29: Our business - 2011
Our business - 2011 Geographic Product franchise Advanced Wound Emerging/International Management (24%) Markets (11%) Knee Implants (20%) US (41%) Other (6%) Hip Implants (17%) Arthroscopic Enabling Technologies (10%) Established OUS (48%) Sports Medicine Trauma Joint Repair (12%) (11%) 29 ‘Other’ i
Slide 30: Market and business outlook
Market and business outlook • Macro economic backdrop remains challenging – established markets: impact seen on patient and payer behaviour − opportunities exist: need to demonstrate clinical and cost benefits – emerging markets potential intact • Our strategic priorities are clear − management team
Slide 31: Questions
>¢ smith&nephew Questions
Slide 32: We are smith&nephew
+“ We are smith&nephew
Slide 33: Appendices
>¢ smith&nephew Appendices
Slide 34: Quarterly revenues
Quarterly revenues Smith & Nephew Key Product Line Revenues in $m at Average Rates and Underlying Growth 2010 2011 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 35: Quarterly revenues: Definitions of product categories
Quarterly revenues Definitions of product categories Category Products Included Advanced Surgical Devices Reconstruction Knees Knee implants Hips Hip implants Trauma Fixation, Plates, Screws Clinical Therapies Exogen, Supartz, Durolane, Other CT Knees Repair, Shoulder Repair, Hip Repair, Extremities
Slide 36: Quarterly Revenues Pro forma 2011 in 2012 format
Quarterly Revenues Pro forma 2011 in 2012 format 2011 Reported Basis Indicative: 2011 Reported under 2012 pro forma basis 2011 2011 Full Year Full Year Revenue Growth* Revenue Growth* $m % $m % Orthopaedics Advanced Surgical Devices Reconstruction Reconstruction Knees 869 5% 869 5% Knees Hips 705 (1
Slide 37: Exchange rates
Exchange rates $:€ Q4/10 FY/10 Q1/11 Q2/11 Q3/11 Q4/11 FY/11 Period end 1.34 1.34 1.41 1.45 1.34 1.29 1.29 Average 1.36 1.32 1.37 1.44 1.41 1.35 1.39 $:£ Period end 1.57 1.57 1.60 1.60 1.56 1.55 1.55 Average 1.58 1.54 1.60 1.63 1.61 1.57 1.60 Percentage of Revenue by Geographic Market: Q4 FY % % Uni
Slide 38: 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 * 7 125 5 119 - asset w/offs - 30 n/a n/a Plus Integration - cash costs ** - 95 1 95 - asset w/offs - 28 n/a n/a * Target $125m ** Target $60-80m, plus $15m costs of i
Slide 39: Analysis of restructuring costs
Analysis of restructuring costs P&L Charge Cash Spend Q4 Total to date Q4 Total to date $m $m $m $m Restructuring - cash costs* 26 26 9 9 - asset w/offs* - - n/a n/a * Target $160m cash costs and $40m asset write-offs 39
Slide 40: 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 2010 2011 2010 2011 $m $m $m $m Free cash flow 150 108 552 521 Add back: capital expenditure 107 121 307 321 Net cash inflow from operating activities (IAS 7) 257 229 859 842 40
Slide 41: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2010 64 64 63 60 251 2011 64 63 63 60 250 2012 64 63 63 61 251 41