Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q1 2008 Earnings Presentation
32 slides from Smith & Nephew's earnings presentation, Dec 7, 2008
Slide 1: 2008 First Quarter Results
2008 First Quarter Results Enabling people to live healthier, more active lives
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 “Q1 business highlights”, “Orthopa
Slide 3: David Illingworth, Chief Executive
David Illingworth Chief Executive sustainable profitable growth
Slide 4: Q1 business highlights
Q1 business highlights • Harmonisation of Plus sales practices reduces revenues in Europe • Fundamentals strong and actions in progress – Good performance in Reconstruction in the US – Trauma in Europe delivers strong performance (excluding Plus), US operational changes underway – Endoscopy performs
Slide 5: Reconstruction – Q1
Reconstruction – Q1 $m % % Q1 08 Growth Growth * * • Outperforming market Q1 08 Q1 07 growth Revenue 377 2 15 ex Plus Hips – US 74 11 40 • Strong US performance – Global 174 4 23 Knees– US 89 5 10 • Excellent AAOS driven by – Global 190 1 12 innovative products • Europe difficult in some Plus areas
Slide 6: Reconstruction - outlook
Reconstruction - outlook • Complete Plus integration • New products – R3™ development from excellent base – VERILAST™ reduces wear – LEGION™ knee platform • Expanding sales force LEGION™ Knee • OXINIUM™ approval in System Japan First choice in solutions for the active/informed reconstruction patient
Slide 7: Trauma & Clinical Therapies – Q1
Trauma & Clinical Therapies – Q1 $m % % Q1 08 Growth Growth * * • Revenue growth excluding Q1 08 Q1 07 Plus 5% Revenue 151 - 19 Fixation 100 2 13 • Europe strong US 56 1 15 • US fixation slower OUS 44 2 10 • EXOGEN™ leading the market Clinical 51 (2) 33 • DUROLANE® excellent in Therapies Europe • Un
Slide 8: Trauma & Clinical Therapies - outlook
Trauma & Clinical Therapies - outlook • Revitalise sales channels – Accelerate sales force expansion – Collaboration between trauma and reconstruction – Address under penetrated market segments • Leverage Plus in Europe – Gain critical mass – Expand range of PERI-LOC™ VLP Distal Tibia Plate salesfor
Slide 9: Endoscopy – Q1
Endoscopy – Q1 $m % % Q1 08 Growth Growth * * • Strong OUS growth continues Q1 08 Q1 07 Revenue 194 4 12 • US management actions US 86 (3) 6 progressing well Outside US 108 11 19 • Visualisation focused on more Arthroscopy 160 7 10 profitable segments DOR/ • Underlying margin up 230 Visualisatio n 3
Slide 10: Endoscopy - outlook
Endoscopy - outlook • Focus on US sales channel development • Strong OUS business • New product introductions • Operational excellence ULTRA FAST-FIX™ Meniscal Repair System First choice provider for arthroscopy solutions 10
Slide 11: Advanced Wound Management – Q1
Advanced Wound Management – Q1 $m % % Q1 08 Growth Growth*† * Q1 07 • NPWT – V1STA™ launched in Q1 08 March – building rental Revenue 189 2 2 income streams US 33 (13) 10 • US resources focused on Outside US 156 6 0 NPWT • European and ROW revenues strong • Margin reduced by NPWT launch rowth is at
Slide 12: Advanced Wound Management - outlook
Advanced Wound Management - outlook • Wider and deeper customer reach for NPWT • NPWT account development • Commercialise new products – ALLEVYN™ Ag & ALLEVYN™ GENTLE BORDER • Widest range of wound products in the market V1STA™ Negative Pressure Wound Therapy • EIP oninnovation Global track leader i
Slide 13: Adrian Hennah, CFO
Adrian Hennah CFO sustainable profitable growth
Slide 14: Income statement Q1 2008
Income statement Q1 2008 First quarter 2007 2008 $m $m Revenue 744 911 Trading profit 148 182 Restructuring and acquisition (17) (15) costs Inventory revaluation - (15) Amortisation of acquisition (4) (10) intangibles Operating profit 127 142 Net interest income/(cost) 2 (16) Other finance income 2
Slide 15: Income statement Q1 2008
Income statement Q1 2008 First Quarter 2007 2008 $m $m Profit before taxation 131 126 Taxation (40) (43) Attributable profit 91 83 Add back: Amortisation of acquisition 4 10 intangibles Restructuring & acquisition 17 15 costs Inventory revaluation - 15 Tax on excluded items (6) (9) Adjusted attribut
Slide 16: Revenue growth by business segment Q1 2008
Revenue growth by business segment Q1 2008 Underlyi ng Acquisiti Underlyi Actual Currency Excludin Quarter 1 * ons ng % % g Plus % % products % Reconstruction 44 (7) (35) 2 8 Trauma and Clinical 11 (3) (8) - 5 Therapies Endoscopy 10 (6) - 4 4 Advanced Wound 12 (8) (2) 2 2 Management Group 22 (6) (14
Slide 17: Underlying revenue growth by geography & business segment
Underlying revenue growth by geography & business segment US Q1Europ Growt 2008Growt ROW Growt Total Growt Quarter 1 h e h h h $m $m $m % $m % % % Reconstruction 168 7 145 (9) 64 20 377 2 Trauma and Clinical 96 1 34 (2) 21 4 151 - Therapies Endoscopy 86 (3) 68 10 40 14 194 4 Advanced Wound 33 (13) 1
Slide 18: Profitability by business segment Q1
Profitability by business segment Q1 2008 - - - - - - - - - - - Q1 - - - - - - - - - - - Revenu Trading Underlyin Margin e Profit g Change % 2008 $m $m bps Reconstruction 377 95 25.2 240 Trauma and Clinical Therapies 151 30 19.9 260 Endoscopy 194 40 20.6 230 Advanced Wound Management 189 17 9.0 (600
Slide 19: 2008 outlook
2008 outlook • Revenue growth – Recon – on track for above market growth, before impact of Plus sales practice changes – Trauma – fixation to improve to market growth by year-end; Europe impacted by Plus sales practice changes – Endoscopy – no change – Advanced Wound Management – no change • Margin
Slide 20: David Illingworth, Chief Executive
David Illingworth Chief Executive sustainable profitable growth
Slide 21: Summary
Summary • Decisive action on Plus issues in Europe • Good first quarter results – Growing markets – Attractive market positions – Good people – Great products and an exciting pipeline – EIP delivering benefits as expected sustainable profitable growth 21
Slide 22: Questions?
>¢ smith&nephew Questions?
Slide 23: We are smith&nephew
We are smith&nephew
Slide 24: Appendices
>¢ smith&nephew Appendices
Slide 25: Exchange rates
Exchange rates Q1/07 FY/07 Q1/08 €:$ Period end 1.33 1.46 1.58 Average 1.32 1.37 1.50 £:$ Period end 1.96 1.99 1.99 Average 1.96 2.00 1.98 Percentage of Revenue by Geographic % Market: United States 42 United Kingdom 9 Other Europe 30 Other 19 25 100
Slide 26: Quarterly revenues
Quarterly revenues mith & Nephew Key Product Line Revenues in $m at Average Rates and Underlying Growth* 2007 2008 Q1 Q2 Q3 Q4 Full Year Q1 Growth* Growth* Growth* Growth* Growth* Revenue Growth* % % % % % $m % Orthopaedic Reconstruction Knees 12% 7% 5% 10% 9% 190 1% Hips 23% 29% 20% 14% 21% 174 4%
Slide 27: Analysis of restructuring and acquisition costs
Analysis of restructuring and acquisition costs P&L Cash Charge spend Total to Q1 Q1 date $m $m $m EIP – cash costs* 8 49 12 – asset w/offs - 4 n/a Plus Integration – cash costs** 6 52 13 * Target – asset$125m w/offs over three years 1 6 n/a ** Target $60-80m 27
Slide 28: Free cash flow Q1 2008
Free cash flow Q1 2008 First Quarter 2007 2008 $m $m Operating profit 127 142 Share based payment 7 5 Depreciation and amortisation 45 62 Inventory step-up utilisation - 15 Capital expenditure (38) (61) Separate out working capital movements as: – Movement in inventory (31) (43) – Other movements in
Slide 29: 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 First Quarter 2007 2008 $m $m Free cash flow 60 42 Add back: capital expenditure 38 61 Net cash inflow from operating activities 98 103 (IAS 7) 29
Slide 30: Share buy back
Share buy back • 7.2m shares bought back for $91m in Q1 • In total c. 59.2m shares bought back for c. $731m to end of last week 30
Slide 31: New products 2008
New products 2008 Q1 Q2 Q3 Q4 VERILAST™ Technology Patient Matched Program JET-X™ Bar Quick Clamps JOURNEY™ ELECTROBLADE Unicompartmental knee BONECUTTER™ 5.5 (US, EU, AUS) CAS BHR™ PiGALILEO™ R3™ Acetabular Cup New Hip Access System Hip Resurfacing System System (EU, AUS) CAPTION™ Disposable Biceps
Slide 32: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2007 64 63 63 61 251 2008 62 64 63 63 252 2009 61 63 63 65 252 32