Smith & Nephew Plc · LSE:SN.
Smith & Nephew — Q1 2010 Earnings Presentation
32 slides from Smith & Nephew's earnings presentation, April 2010
Slide 1: Q1 2010 - Momentum Continues
>¢ smith&nephew Q1 2010 - Momentum Continues
Slide 2: Forward looking statements
Forward looking statements This presentation contains certain "forwardlooking 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 "Outlook" are forwardlooking statem
Slide 3: Dave Illingworth, Chief Executive Officer
Dave Illingworth Chief Executive Officer sustainable profitable growth
Slide 4: Q1 2010 financial highlights
Q1 2010 financial highlights 9 Revenue Growth % 8 7 • Revenues $995m 6 5 – 9% growth for the quarter 4 3 • Trading profit $250m 2 – Trading margin 25.1% for the 1 0 quarter Q1 08 Q1 09 Q1 10 30 – up 390 basis points including Trading Margin % BlueSky agreement contribution of 25 220 basis points 20
Slide 5: Orthopaedics – Q1 2010
Orthopaedics – Q1 2010 Q1 achievements • LEGION™ and GENESIS™ drive knees • 2000+ VISIONAIRE™ procedures in Q1 Revenues $566m up 6% • R3™ Acetabular Cup and ANTHOLOGY ™ stem driving Reconstruction growth in hips • Hips +6% globally, US 8% • TRIGEN™ SURESHOT™ demand strong and growing post AAOS • Kne
Slide 6: Endoscopy – Q1 2010
Endoscopy – Q1 2010 Q1 achievements • Fast track new product development program • Major product launches at Revenues $216m, growth of 15% AAOS • ROW grows over 20% – TWIN FIX™ Ultra PK Suture Sports medicine up 17% driven by hips, knees and shoulder Anchor, BIORAPTOR™ Knotless Suture Anchor • FASTF
Slide 7: Advanced Wound Management – Q1 2010
Advanced Wound Management – Q1 2010 Q1 achievements • US distributor changes initiated • BlueSky purchase agreement closed out • Nucryst integration completed Revenues of $213m and global growth of 11% • ACTICOAT™ production transfer to Hull, UK announced US revenues grow 10%, Europe 12%, ROW 9% • C
Slide 8: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 9: Income statement Q1 2010
Income statement Q1 2010 First Quarter 2009 2010 Growth $m $m Reported Underlying Revenue 865 995 15% 9% Trading profit 183 250 37% 27% Restructuring and acquisition costs (16) (2) Amortisation of acquisition intangibles / (8) (8) impairments Operating profit 159 240 Net interest cost (10) (4) Other
Slide 10: Income statement Q1 2010
Income statement Q1 2010 First Quarter 2009 2010 $m $m Profit before taxation 146 234 Taxation (48) (75) Tax rate* 31.6% Attributable profit 98 159 Add back: Amortisation of acquisition intangibles / 8 8 impairments Restructuring & acquisition costs 16 2 Tax on excluded items (6) (2) Adjusted attrib
Slide 11: Revenue growth by business segment Q1 2010
Revenue growth by business segment Q1 2010 Actual Currency Underlying % % % Quarter 1* Orthopaedics 11 (5) 6 Endoscopy 21 (6) 15 Advanced Wound Management 20 (9) 11 Group 15 (6) 9 * Q1 2010 comprises 64 trading days (2009 – 61 trading days) 11
Slide 12: Underlying revenue growth by geography & business segment Q1 2010
Underlying revenue growth by geography & business segment Q1 2010 US Growth Europe Growth ROW Growth Total Growth Quarter 1 $m % $m % $m % $m % Orthopaedics 292 7 171 8 103 1 566 6 Endoscopy 90 9 72 16 54 23 216 15 Advanced Wound Management 39 10 114 12 60 9 213 11 Group 421 8 357 11 217 8 995 9 12
Slide 13: Profitability by business segment Q1 2010
Profitability by business segment Q1 2010 Revenue Trading Profit Margin 2010 $m $m % Orthopaedics 566 144 25.5 Endoscopy 216 45 21.1 Advanced Wound Management 213 61 28.5 Total 995 250 25.1 2009 Orthopaedics 508 119 23.4 Endoscopy 179 38 21.3 Advanced Wound Management 178 26 14.6 Total 865 183 21.2
Slide 14: Free cash flow Q1 2010
Free cash flow Q1 2010 First Quarter 2009 2010 $m $m Trading profit 183 250 Share based payment 4 5 Depreciation and amortisation 56 60 Capital expenditure (42) (74) Movements in working capital and provisions (73) (53) Trading cash flow 128 188 Restructuring, rationalisation & acquisition costs (11
Slide 15: 2010 outlook
2010 outlook • Revenue growth: – No change for Group as a whole – Recon: return to market growth during 2010 – Trauma: return to market growth over time – Endo: ahead of market in arthroscopy – Wound: ahead of market • Margin: material improvement over 2009 level sustainable profitable growth 15
Slide 16: Dave Illingworth, Chief Executive Officer
Dave Illingworth Chief Executive Officer sustainable profitable growth
Slide 17: Our strategic pillars for success
Our strategic pillars for success Outperform our markets through • Innovation Customer&led • Medical education • Customer service Continued focus on operational margin enabling Efficient increased investment in the business Drive new revenues from new opportunities / Investing for growth Biologics /
Slide 18: Customer-led – some examples for 2010
Customerled some examples for 2010 • Orthopaedics – KLEOS Surgeon training Customer&led – Chengdu training center – Lucerne training center – Healthcare economics – Eastern Europe distribution growth – Trauma product launches – Foot and ankle product line expansion – Expand DUROLANE® market presence
Slide 19: Efficient – some examples for 2010
Efficient some examples for 2010 • Orthopaedics – Beijing factory to open in Q2 Customer&led – Instrument set redesign – low cost – Inventory reduction/efficiency • Endoscopy – Enhanced US sales force productivity – S&N handheld application launch – Margin focus, manufacturing initiatives Efficient
Slide 20: Investing for growth – some examples for 2010
Investing for growth some examples for 2010 • Orthopaedics – KLEOS – train 8000 surgeons (4000 online) Customer&led – Extending training centers in China to 5 – HO move within Memphis, world class training facility – Use of Lucerne Surgical Center for Europe – US Direct to consumer campaign • Endosc
Slide 21: Q1 summary
Q1 summary • Healthcare systems globally face continued challenges • In Orthopaedics performance strengthening • Endoscopy benefiting from investment • Advanced Wound Management outperforming globally • Margin performance in line with our expectations sustainable profitable growth 21
Slide 22: Questions?
* smith&nephew Questions?
Slide 23: We are smith&nephew
>KWe are smith&nephew
Slide 24: Appendices
Appendices
Slide 25: BlueSky agreement
BlueSky agreement Original agreement provided for: • Deferred consideration on certain sales and other milestones • Reduction due to certain legal expenses incurred But unclear which legal expenses; hence all legal costs were charged to trading profit. Revised agreement: • Has no impact on the carry
Slide 26: Quarterly revenues
Quarterly revenues Smith & Nephew Key Product Line Revenues in $m at Average Rates and Underlying Growth 2009 2010 Q1 Q2 Q3 Q4 Full Year Q1 Growth* Growth* Growth* Growth* Growth* Revenue Growth* % % % % % $m % Orthopaedics Reconstruction Knees 5% 1% 2% 5% 3% 210 9% Hips 2% (1)% 2% 3% 1% 183 6% Trau
Slide 27: Exchange rates
Exchange rates $:€ Q1/09 FY/09 Q1/10 Period end 1.33 1.43 1.35 Average 1.30 1.39 1.38 $:£ Q1/09 FY/09 Q1/10 Period end 1.43 1.61 1.52 Average 1.43 1.56 1.56 Percentage of Revenue by Geographic Market: Q1 % United States 42 United Kingdom 7 Other Europe 29 Other 22 100 27
Slide 28: Notional levy on US 2009 revenue
Notional levy on US 2009 revenue Sales Sales Levy Class % $m $m Class 3 26% 429 10 Class 2 57% 954 22 Class 1 13% 213 5 Other 4% 68 0 Total 2009 US 100% 1,664 37 Sales • Notional levy calculated based on 2.3% of Class I, II and III products • Applicable from January 2013 • Levy is tax deductible. Le
Slide 29: Analysis of restructuring and acquisition costs
Analysis of restructuring and acquisition costs P&L Charge Cash Spend Q1 Total to date Q1 Total to date $m $m $m $m EIP cash costs * 2 102 5 97 asset w/offs 26 n/a n/a Plus Integration cash costs ** 95 92 asset w/offs 28 n/a n/a * Target $125m ** Target $6080m, plus $15m costs of investigating and r
Slide 30: 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 2009 2010 $m $m Free cash flow 53 131 Add back: capital expenditure 42 74 Net cash inflow from operating activities (IAS 7) 95 205 30
Slide 31: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2009 61 63 63 64 251 2010 64 64 63 60 251 31
Slide 32: New products 2010
New products 2010 Q1 Q2 Q3 Q4 LEGION™ HA Porous Tibials GENESIS™ II ECO instruments VLP™ FOOT variableangle locking plate system PERILOC™ Titanium LEGION™ RH Hinge – Limited Release JOURNEY™ CR – Limited TRIGEN™ SURESHOT™ Distal BIOSURE™ HEALICOIL Release RT PLUS™ Offset Stems Targeting System inter