Smith & Nephew Plc · LSE:SN.
Smith & Nephew — Q3 2008 Earnings Presentation
28 slides from Smith & Nephew's earnings presentation, November 2008
Slide 1: 2008 Third Quarter Results
2008 Third Quarter Results Sustainable profitable growth 1
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 stat
Slide 3: David Illingworth, Chief Executive
David Illingworth Chief Executive
Slide 4: Q3 highlights
Q3 highlights • Reported revenues up by 10% to $930 million • Orthopaedics revenues grew by 6%, 9% excluding the impact of Plus – Reconstruction growth driven by strong contribution from knees – Trauma changes in the US deliver a second quarter of increased revenue growth • Endoscopy US shows streng
Slide 5: Q3 Orthopaedics
Q3 Orthopaedics •Additional sizes of BHR™ in the US will Global revenues of $513m grow 6% (9% commence in Q4 excluding Plus impact) •Early Intervention Knee Hip revenue growth 3% platform (JOURNEY™ BCS, DEUCE™ and Uni) Knee revenue growth 10% continue to gain Trauma revenue growth 5% (9% excluding m
Slide 6: Q3 Endoscopy
Q3 Endoscopy •US sales organisation changes start to Revenues $195m, growth of 8%, 9% outside drive improved US rate of growth Repair grows 17% and exceeds resection •Global launch of revenues bio-absorbable BIOSURE™ HA Visualisation revenues grow 9% Interference screw Litigation and intellectual pr
Slide 7: Q3 Advanced Wound Management
Q3 Advanced Wound Management •Exudate management grows 6% driven Revenues of $222m and global growth of 8% by ALLEVYN™ Outside US grows 9% •Infection US revenues grow 8% management NPWT increases billed accounts 25% in the growth of 13% period driven by silver range Margin 17.2% as investment in NPW
Slide 8: Advanced Wound Management China factory
Advanced Wound Management China factory 8
Slide 9: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 10: Income statement Q3 2008
Income statement Q3 2008 Third Quarter Year to Date 2007 2008 % Growth 2007 2008 $m $m Reporte Underlyi $m $m d ng Revenue 845 930 10% 7% 2,402 2,841 Trading profit 169 174 3% 1% 484 554 Legal settlement (30) - (30) - Restructuring and acquisition (26) (26) (48) (58) costs Inventory revaluation* (34
Slide 11: Income statement Q3 2008
Income statement Q3 2008 Third Quarter Year to Date 2007 2008 2007 2008 $m $m $m $m Profit before taxation* 54 119 332 402 Taxation* (26) (45) Tax Rate 31.4%** (110) (142) Attributable profit 28 74 222 260 Add back: Amortisation of acquisition intangibles* 11 13 19 30 Restructuring & acquisition cos
Slide 12: Revenue growth by business segment Q3
Revenue growth by business segment Q3 2008 Underlyi ng Acquisiti Underlyi Excludin Actual Currency g Sales Quarter 3 * ons ng % % Practice % % Changes ** % Orthopaedics 9 (3) - 6 9 Endoscopy 11 (3) - 8 8 Advanced Wound 11 (3) - 8 8 Management Group 10 (3) - 7 9 * Q3 2008 comprises 63 trading days (2
Slide 13: Underlying revenue growth by geography & business segment Q3 2008
Underlying revenue growth by geography & Underlyi business segment Q3 2008 ng Growt Europ Growt Growt Growt US ROW Total Excludin Quarter 3 h e h h h $m $m $m g Sales % $m % % % Practice Change s% Orthopaedics 277 9 147 (5) 89 21 513 6 9 Endoscopy 92 7 57 6 46 13 195 8 8 AWM 42 8 120 7 60 11 222 8 8
Slide 14: Profitability by business segment Q3 2008
Profitability by business segment Q3 2008 - - - - - - - - - - - - - Q3 - - - - - - - - ---- YTD Trading Revenue Margin Margin Profit $m % 2008 $m % Orthopaedics 513 103 19.9 22.0 Endoscopy 195 33 17.1 19.0 Advanced Wound 222 38 17.2 13.7 Management Total 930 174 18.7 19.5 2007 Orthopaedics 469 101 2
Slide 15: Share Buy Back
Share Buy Back • 16.3m shares bought back in 2008 for $193m • Total of 68.2m shares bought back, returning cash of $833m to shareholders • Decision to defer programme in light of financial market instability 15
Slide 16: Committed Debt Facilities
Committed Debt Facilities Facility Description Size Maturity Drawn at end Q3 Revolving Credit $1.5bn May 2012 $0.36bn Facility Term Loan $1bn May 2012 $1bn 16
Slide 17: 2008 outlook
2008 outlook • Revenue growth – Ortho – close to market growth in USA, impacted by Plus issues in Europe – Endoscopy – continue to grow slightly below the market – Advanced Wound Management – excluding NPWT, at or slightly above served market • EIP on track. Impact from Plus sales practice changes,
Slide 18: David Illingworth, Chief Executive
David Illingworth Chief Executive
Slide 19: Summary
Summary • Good quarter of solid progress – Knee portfolio delivering good growth – US Trauma revenues improved – US Endoscopy revenues improved – Advanced Wound Management and NPWT growth rate • EIP continued progress • Uncertain economic conditions • We have – The right products – The right people
Slide 20: We are smith&nephew
We are smith&nephew
Slide 21: Appendices
>¢ smith&nephew Appendices
Slide 22: 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 Q2 Q3 Growth* Growth* Growth* Growth* Growth* Growth* Growth* Revenue Growth* % % % % % % % $m % Orthopaedics Reconstruction Knees 12% 7% 5% 10% 9% 1% 9% 177 10
Slide 23: New products 2008
New products 2008 Q1 Q2 Q3 Q4 BHR™ 2mm Incremental Heads for US PiGALILEO™ Mini System CAPTION™ Disposable Platelet Concentrator - Europe VERILAST™ Technology InterTAN CHS Patient Matched Program PERI-LOC™ Small R3™ Acetabular Cup (Phase II - Extended Fragment Screws & System Evaluation) Trays CAPTI
Slide 24: Exchange rates
Exchange rates Q3/07 FY/07 Q3/08 €:$ Period end 1.42 1.46 1.46 Average 1.39 1.37 1.51 £:$ Period end 2.04 1.99 1.84 Average 2.03 2.00 1.89 Percentage of Revenue by Geographic Q3 YTD Market: % % United States 44 42 United Kingdom 8 9 Other Europe 27 29 Other 21 20 100 100 24
Slide 25: Analysis of restructuring and acquisition costs
Analysis of restructuring and acquisition costs P&L Charge Cash spend Total to Total to Q3 Q3 date date $m $m $m $m EIP – cash costs* 9 64 6 58 – asset w/offs 3 7 n/a n/a Plus Integration – cash costs** 8 69 12 57 – asset w/offs 8 15 n/a n/a * Target $125m over three years ** Target $60-80m 25
Slide 26: Free cash flow Q3 2008
Free cash flow Q3 2008 Third Quarter Year to Date 2007 2008 2007 2008 $m $m $m $m Trading profit 169 174 484 554 Share based payment 6 7 19 17 Depreciation and amortisation 56 56 144 164 Capital expenditure (34) (64) (139) (198) Movements in working capital and provisions (42) 7 (106) (84) Trading c
Slide 27: 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 Third Quarter Year to Date 2007 2008 2007 2008 $m $m $m $m Free cash flow 58 98 150 195 Add back: capital expenditure 34 64 139 198 Net cash inflow from operating 92 162 289 393 activities (IAS 7) 27
Slide 28: 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 28