Smith & Nephew plc · LSE:SN.
Smith & Nephew — H1 2009 Earnings Presentation
30 slides from Smith & Nephew's earnings presentation, August 2009
Slide 1: 2009 Half Year Results
2009 Half Year Results Strong profit performance in challenging markets 0
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 "Outlook" are forward- looking sta
Slide 3: David Illingworth, Chief Executive
David Illingworth Chief Executive
Slide 4: Q2 highlights - good progress in challenging markets
Q2 highlights - good progress in challenging markets • Reported Q2 revenues - $926m • Trading margin 22.9% up 310 basis points • Orthopaedics impacted by deferred procedures • Endoscopy - strong growth in repair off-set by weaker capital equipment markets • Advanced Wound Management – good sales and
Slide 5: Market conditions
Market conditions • Orthopaedics – Evidence of elective procedure deferrals – Long term, demographic driven demand unchanged • Endoscopy – Capital revenues impacted heavily by economic conditions – Procedural slowdown for elective procedures • Advanced Wound Management – Continued growth – Case for
Slide 6: Q2 2009 - Orthopaedics
Q2 2009 - Orthopaedics Global revenues - $531m in Q2, $1,039m in H1 - US hip revenue growth 2% R3™ Acetabular - US knee revenue growth 4% Cup with OXINIUM™ European revenues fall by 8% impacted by slower Femoral Head markets and adverse mix TRIGEN™ INTERTAN™ Trauma grows 2% globally, 4% in the US In
Slide 7: Orthopaedics - H2 growth drivers
Orthopaedics - H2 growth drivers • Surgeon training returning to more normal levels Surgeon training in the US • Investment in instrument sets for recon and trauma KLEOS USA, total surgeons trained per 6 • Strong product portfolio month period – R3™ acetabular cup 1800 DPA period 1600 – LEGION™ knee
Slide 8: Q2 2009 - Endoscopy
Q2 2009 - Endoscopy •BICEPTOR™ Tenodesis system launch - Biceps tendon is repaired in 1 in 8 Revenues $187m in Q2, 2% decline rotator cuff procedures - $366m revenues in H1 •Multi-year sales training Knee and shoulder repair products drive growth, repair plan in progress grows by 10% outside US Hip
Slide 9: Endoscopy - H2 growth drivers
Endoscopy - H2 growth drivers • Global leader in arthroscopy/sports medicine • Expanding product portfolio • BICEPTOR™ Tenodesis System for biceps • BIOSURE™ Interference Screw • New RF resection products in H2 • Blades for small joint and shoulders launched BICEPTOR™ Tenodesis System • US sales for
Slide 10: Q2 2009 - Advanced Wound Management
Q2 2009 - Advanced Wound Management •Chinese factory officially open Revenues grow 4% to $208m •RENASYS™ pump launched in 13 - $386m for H1 countries Product launches •ALLEVYN™ has 30%+ -ALLEVYN™ GENTLE BORDER Ag market share WW -ALLEVYN™ GENTLE Ag NPWT IP gains building growth platform Margin grows
Slide 11: Advanced Wound Management – H2 growth drivers
Advanced Wound Management – H2 growth drivers • Build on recent product launches – ALLEVYN™ GENTLE BORDER Ag – ALLEVYN™ GENTLE Ag • US and European revenue momentum • NPWT distribution channels established – IP position strengthening – Expanding product range – Billing over 1000 accounts ALLEVYN™ Ag
Slide 12: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 13: Income statement Q2 2009
Income statement Q2 2009 Second Quarter Half Year 2008 2009 Growth 2008 2009 $m $m Reported Underlying $m $m Revenue 1,000 926 (7)% 0% 1,911 1,791 Trading profit 198 212 7% 17% 380 395 Restructuring and acquisition costs (17) (15) (32) (31) Inventory revaluation - - (15) - Amortisation of acquisitio
Slide 14: Income statement Q2 2009
Income statement Q2 2009 Second Quarter Half Year 2008 2009 2008 2009 $m $m $m $m Profit before taxation 157 176 283 322 Taxation (54) (58) Tax Rate* 31.8% (97) (106) Attributable profit 103 118 186 216 Add back: Amortisation of acquisition intangibles 7 8 17 16 Restructuring & acquisition costs 17
Slide 15: Revenue growth by business segment Q2 2009
Revenue growth by business segment Q2 2009 Actual Currency Underlying Quarter 2* % % % Orthopaedics (6) 6 - Endoscopy (9) 7 (2) Advanced Wound (9) 13 4 Management Group (7) 7 - * Q2 2009 comprises 63 trading days (2008 – 64 trading days) 14
Slide 16: Underlying revenue growth by geography & business segment Q2 2009
Underlying revenue growth by geography & business segment Q2 2009 US Growth Europe Growth ROW Growth Total Growth Quarter 2 $m % $m % $m % $m % Orthopaedics 290 2 149 (8) 92 7 531 - Endoscopy 83 (10) 62 4 42 7 187 (2) Advanced Wound Management 39 - 111 3 58 8 208 4 Group 412 (1) 322 (3) 192 7 926 -
Slide 17: Profitability by business segment Q2 2009
Profitability by business segment Q2 2009 Second Quarter Half Year Revenue Trading Profit Margin Margin 2009 $m $m % % Orthopaedics 531 129 24.4 23.9 Endoscopy 187 43 22.7 22.0 Advanced Wound Management 208 40 19.1 17.0 Total 926 212 22.9 22.0 2008 Orthopaedics 567 126 22.3 22.9 Endoscopy 205 40 19.
Slide 18: Free cash flow Q2 2009
Free cash flow Q2 2009 Second Quarter Half Year 2008 2009 2008 2009 $m $m $m $m Trading profit 198 212 380 395 Share based payment 5 6 10 10 Depreciation and amortisation 56 62 108 118 Capital expenditure (73) (89) (134) (131) Movements in working capital and provisions (32) (56) (91) (129) Trading
Slide 19: 2009 outlook
2009 outlook • Revenue growth – Market growth rates subject to macroeconomic uncertainty – Relative to market: guidance unchanged except for the increased impact of market weakness in Ortho on higher specification products • Continued material scope for margin improvement • Tax rate 31.8%, Interest
Slide 20: David Illingworth, Chief Executive
David Illingworth Chief Executive
Slide 21: Conclusion
Conclusion Orthopaedics • High specification products disproportionately impacted by the economy. Recovery will bring substantial upside • Traditional products continue to do very well Endoscopy • Repair performing well • New product launches Advanced Wound Management • US focus • NPWT opportunity P
Slide 22: Questions?
i smith&nephew Questions?
Slide 23: We are smith&nephew
>KWe are smith&nephew
Slide 24: Appendices
i smith&nephew Appendices
Slide 25: Quarterly revenues
Quarterly revenues Smith & Nephew Key Product Line Revenues in $m at Average Rates and Underlying Growth* 2008 2009 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Growth* Growth* Growth* Growth* Revenue Growth* Revenue Growth* Revenue Growth* % % % % $m % $m % $m % Orthopaedics Reconstruction Knees 1% 9% 10% 9% 759 7%
Slide 26: Exchange rates
Exchange rates $:€ Q2/08 FY/08 Q1/09 Q2/09 Period end 1.58 1.39 1.33 1.41 Average 1.56 1.46 1.30 1.36 $:£ Period end 1.99 1.44 1.43 1.65 Average 1.97 1.84 1.43 1.54 Percentage of Revenue by Geographic Market: Q2 % United States 45 United Kingdom 7 Other Europe 27 Other 21 25
Slide 27: Analysis of restructuring and acquisition costs
Analysis of restructuring and acquisition costs P&L Charge Cash Spend Q2 Total to date Q2 Total to date $m $m $m $m EIP – cash costs* 8 82 11 75 – asset w/offs 6 21 n/a n/a Plus Integration – cash costs** - 90 6 83 – asset w/offs 1 14 n/a n/a * Target $125m over three years ** Target $60-80m, plus $
Slide 28: 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 Second Quarter Half Year 2008 2009 2008 2009 $m $m $m $m Free cash flow 55 11 97 64 Add back: capital expenditure 73 89 134 131 Net cash inflow from operating activities (IAS 7) 128 100 231 195 27
Slide 29: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2008 62 64 63 63 252 2009 61 63 63 64 251 28
Slide 30: New products 2009
New products 2009 Q1 Q2 Q3 Q4 BIRMINGHAM™ Mid Head R3™ Metal (US) R3™ Ceramic (US) Resection (OUS) PROMOS™ Total Shoulder PERI-LOC™ Screws & Trays LEGION™ Primary Porous System Cap TRIGEN™ Semi-extended Tibia INTERTAN™ CHS VLP Foot Locked Plating System Nail Insertion Instruments XL Hip Scopes BICEP