Smith & Nephew plc · LSE:SN.
Smith & Nephew — H1 2004 Earnings Presentation
40 slides from Smith & Nephew's earnings presentation, August 2004
Slide 1: Smith & Nephew 2004 second quarter & interim results
Smith & Nephew 2004 second quarter & interim results: Underlying sales growth was 10% across the world and we helped thousands more people get back to 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 planned growth in our business and in our operating margins discussed under “Outlook” are forw
Slide 3: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive 3
Slide 4: Agenda
Agenda • Highlights Chris O’Donnell • Financial results Peter Hooley • Business review Chris O’Donnell • Endoscopy Jim Taylor • Questions and answers All figures are for the first six months of each year unless otherwise stated 4
Slide 5: Highlights H1 2004
Highlights H1 2004 • Maintaining sales and EPS momentum • Orthopaedics growing strongly in US • Endoscopy sales recovery in US • Wound Management slower against strong comparative 2003 quarter for US enzyme debriders • Market fundamentals remain strong • Expect stronger H2 from new product pipeline
Slide 6: Peter Hooley, Finance Director
Peter Hooley Finance Director 6
Slide 7: Financial results H1 2004
Financial results H1 2004 • Underlying sales growth* 10% • Comprising Q2 sales growth* of 8% and Q1 of 12% • Operating margin** improves 1% to 19% • EPS growth 14%** ($ growth 30%) • Expecting a strong H2 and confirming full year targets * Excluding the effect of translation into sterling and acquis
Slide 8: Trading results
Trading results Full year Half Year 2003 2003 2004 £m £m £m 1179 +6% Sales 577 609 + 6% Profit before amortisation and exceptionals 221 +13% EBITA 103 116 +13% 27 Joint Venture and Associate 13 11 248 116 127 (6) Interest (4) 2 242 +15% 112 129 +15% 18.49 +15% EPS before amortisation and exceptional
Slide 9: Results in US dollars – half years
Results in US dollars – half years 2003 2004 Reported sales $931m $1115m +20% Earnings per ADS $0.69 $0.90 +30% Note: Smith & Nephew’s reported sales and earnings per ADS before goodwill amortization and exceptional items translated into US dollars at the average rates of exchange for the respective
Slide 10: Cash flow – half years
Cash flow – half years 2003 2004 £m £m Trading cash flow 58 47 Rationalisation and integration (5) (2) Operating cash flow 53 45 Joint venture 3 6 Interest, tax and dividends (54) (43) Acquisitions less disposals (18) (75) Net cash flow (16) (67) Currency 4 21 Opening debt (277) (127) Closing debt (
Slide 11: Trading results
Trading results Second Quarter 2003 2004 £m £m Sales 300 307 +2% Profit before amortisation and exceptionals EBITA 58 60 +3% Joint Venture and Associate 7 6 65 66 Interest (2) 1 63 67 +7% EPS before amortisation and exceptionals 4.76p 5.08p +7% 11
Slide 12: Geographic sales growth 2004
Geographic sales growth 2004 Total Growth US Growth Europe Growth ROW Growth Quarter 2 £m % £m % £m % £m % Orthopaedics 145 14 88 18 35 11 22 6 Endoscopy 75 6 44 8 19 2 12 7 Wound Management 87 3 19 (15) 47 8 21 11 307 8 151 10 101 7 55 8 Half Year Orthopaedics 287 15 175 20 67 10 45 8 Endoscopy 150
Slide 13: Key product growths 2004
Key product growths 2004 H1 Sales Q2 H1 £m Orthopaedics - knees 16% 20% 110 - hips 14% 16% 80 - trauma 9% 10% 74 - clinical therapies 33% 32% 28 Endoscopy - Repair 10% 13% 39 - Visualisation 15% 12% 27 - Blades 3% 4% 41 - Radio frequency 0% 3% 14 Wound Management - ALLEVYN™ 15% 17% 44 - ACTICOAT™ 49
Slide 14: Sales growth 2004
Sales growth 2004 Underlying Acquisitions Currency Sales Days Reported Quarter 2 % % % % % Orthopaedics 14 4 (10) - 8 Endoscopy 6 - (8) - (2) Wound Management 3 - (6) - (3) 8 2 (8) - 2 Half Year Orthopaedics 15 3 (10) 3 11 Endoscopy 7 - (9) 3 1 Wound Management 5 - (6) 3 2 10 1 (8) 3 6 14
Slide 15: Profitability
Profitability - - - - - - - - - Q2 - - - - - - - - - H1 Sales EBITA Margin Margin £m £m % % 2004 Orthopaedics 145 34 23.3 23.0 Endoscopy 75 14 19.0 19.1 Advanced Wound Management 87 12 13.4 12.4 307 60 19.4 19.0 2003 Orthopaedics 133 31 23.1 22.5 Endoscopy 77 15 20.2 18.8 Advanced Wound Management 9
Slide 16: Quarterly phasing
Quarterly phasing Full Year 2003 2004 2003 Q1 Q2 Q3 Q4 Q1 Q2 Sales growths (underlying) 16% Ortho 14% 18% 16% 16% 17% 14% 4% Endo 3% 7% 2% 4% 8% 6% 9% Wound 7% 9% 10% 9% 7% 3% 11% 9% 12% 10% 10% 12% 8% £1,179m Sales value £277m £300m £289m £313m £302m £307m £221m Operating profit* £45m £58m £51m £67
Slide 17: Chris O'Donnell, Chief Executive
Chris O’Donnell Chief Executive 17
Slide 18: Growth dynamics remain strong
Growth dynamics remain strong • Baby boomer demographics • Increasing consumer awareness and demand • Strong technology platform converting into product launches • Positive healthcare economic benefits for our products • Significant margin enhancement opportunities • Value creation through organic g
Slide 19: Orthopaedics
Orthopaedics Delivering growth ahead of market H1 growth 15% Market growth 13% H1 • Sales force investment +14% • MMT growing at 22%, adds 4% to Q2 growth • Macrotexture revisions manageable • New products 24% of sales Note: All sales growths are on an underlying basis 19
Slide 20: Endoscopy
Endoscopy Sales growth recovering H1 growth 7% Arthroscopy market growth 8% - 2003 Q2 H1 • Global growth 6% 7% • US growth recovering` 8% 7% • New products 24% of sales • Blade re-use stabilised • New camera growing well Note: All sales growths are on an underlying basis 20
Slide 21: Advanced Wound Management
Advanced Wound Management Sales robust but impacted by US debriders H1 growth 5% Market growth 12% - 2003 Q2 H1 • Global growth 3% 5% • Global growth ex US debriders 9% 10% • OUS growth 9% 10% • US growth ex-debriders 10% 15% • US + enzyme debriders -15% -10% • Actives replacing traditional products
Slide 22: Second half growth drivers
Second half growth drivers • Market growth strong: 8-13% • Innovation driven product ramp up: – Minimally invasive knee programme – Progressive scan camera – Wound Superbrands • Sales force investment in Ortho starting to deliver • New product roll out adds extra momentum 22
Slide 23: Summary & outlook – increased H2 momentum
Summary & outlook – increased H2 momentum • Ortho market continues fundamentally strong • Smith & Nephew expect to lead growth going forward • Good growth prospects in Endo/Wound • Continued margin improvement from price/mix/volume leverage • Underlying mid-teens EPS target confirmed • Expect a stro
Slide 24: Endoscopy Business
Endoscopy Business Jim Taylor President, Endoscopy 5 August 2004
Slide 25: H1 2004 performance highlights
H1 2004 performance highlights Underlying sales growth of 7% Recovery in US sales growth to 7% International sales growth at 7% Repair growing at 13% 25
Slide 26: No. 1 in Arthroscopy - Worldwide
No. 1 in Arthroscopy - Worldwide 2003 Arthroscopy market $1.2bn Others 7% Arthrocare 7% Smith & Nephew 29% Stryker 12% Arthrex 14% Mitek (J&J) 17% Linvatec 14% (Conmed) 75% of business in Arthroscopy 25% Visualisation & Endoscopy 26
Slide 27: Arthroscopic and Endoscopic Technologies
Arthroscopic and Endoscopic Technologies Resection (market leader) Repair (Knee No 1; Shoulder No 3) Visualization/Digital OR (No 3) • Mechanical Resection • ACL/PCL Repair • Cameras • Hand Instruments • Rotator Cuff • Light sources • Radiofrequency Systems • Shoulder Instability • Rigid scopes (Ora
Slide 28: H1 business development highlights
H1 business development highlights 24% of sales from new products 21 new products launched Digital OR driving disposables and repair products Acquisition of Reed Medical Segmentation: Digital OR, spine, arthroscopy Patent dispute • Potential sales impact in 2004 $5 million • Impact reduced by conver
Slide 29: Endoscopy market drivers
Endoscopy market drivers Longer living, more active population Patient preference for endoscopic procedures Improving payor outlook driven by supporting clinical outcomes Increase in surgeon training Ambulatory surgery centers New soft tissue repair technology 29
Slide 30: Endoscopy – our key building blocks
Endoscopy – our key building blocks Ability to leverage Endoscopy technology Largest global salesforce Strong technology platform Surgeon partnerships and education 30
Slide 31: Endoscopy - near term drivers
Endoscopy - near term drivers Digital OR Visualisation platform Expand leadership in resection Minimally invasive spine Further innovation in repair 31
Slide 32: Expanding Digital OR capability
Expanding Digital OR capability Integrated OR that helps to maximize performance/efficiencies: • Centralized Equipment Control System (Voice and Touch Panel) • Surgical Information and Image Management Solutions • Multi-Media Networking and Digital Video Solutions Q1 acquisition of Reed Medical • A/
Slide 33: 300 Series Camera System
300 Series Camera System Launched H1 2004: sets new standard in image resolution Flexible 3-chip visualization system for all endoscopic procedures • Two new camera control units • Industry’s first progressive scan autoclavable camera • New scopes and couplers • New digital capture system • Backward
Slide 34: Arthroscopic resection
Arthroscopic resection New POWERMAX™ Shaver Handpiece • Power-enhanced shaver handpiece • Weighs 50% less with 25% more power • Improved ergonomics; hand controls • Global launch H1 2004 SCULPTOR™ Ablation Probes • Monopolar treatment of soft tissue in joint- related injuries • Consistent and aggres
Slide 35: Reprocessing of single-use devices
Reprocessing of single-use devices Impact of reuse may have stabilised • Campaigns having impact on customers Aggressive anti-reprocessing campaigns • Education campaign to clinical community, including hospital administration • Educated sales force • Increased Association support • Other industry o
Slide 36: Minimally Invasive Spine
Minimally Invasive Spine Increase penetration of spinal repair The IDET™ Procedure • Chronic lower back pain associated with contained herniated discs • Modifies collagen tissue • Pauza study; Outstanding Paper, 2003 NASS; Published in The Spine Journal, Volume 4, Number 1. 27-35, 2004 New ELECTROTH
Slide 37: Innovation in Arthroscopic shoulder and knee repair
Innovation in Arthroscopic shoulder and knee repair TWINFIX™ shoulder repair • Bioabsorbables and titanium options • Used in open, mini-open and arthroscopic procedures • ULTRABRAID™ high-strength surgical suture for attaching soft tissue to bone FAST-FIX™ Meniscal Repair System • Transformed menisc
Slide 38: Innovation in Arthroscopic shoulder and knee repair
Innovation in Arthroscopic shoulder and knee repair CLEAR-TRAC™ Complete Cannula System • Comprehensive system for arthroscopic access • Full range of sizes to meet all surgical needs WHIPKNOT™ Soft Tissue Cinch • New product used in ACL reconstruction procedures SURETAC™ III System • Updated design
Slide 39: Keys to success
Keys to success Share gain and market expansion • Expand Digital O.R. base • Continued arthroscopic innovation • Strong repair growth • Aggressively combat reprocessing and reuse • Spine therapy adoption New product and procedure introduction Sales force investment and segmentation Maximize financia
Slide 40: We are smith&nephew
sf We are smith&nephew