Smith & Nephew Plc · LSE:SN.
Smith & Nephew — H1 2003 Earnings Presentation
50 slides from Smith & Nephew's earnings presentation, 2003
Slide 1: The Interim Results of smith&nephew for 2003
* The Interim Results of smith&nephew for 2003: reduced pain, faster recovery, more cost-effective treatments. Sales growth was 11% and we helped thousands of people get back to active lives.
Slide 2: Chris O'Donnell, Chief Executive
*smith&nephew Chris O’Donnell Chief Executive
Slide 3: Presentation agenda
*smith&nephew Presentation agenda • Results introduction • The figures • Business review • Summary • Orthopaedics business report • Centerpulse transaction update • Our new corporate brand • Appendix
Slide 4: Continuing growth in H1 2003
*smith&nephew Continuing growth in H1 2003 • Strong Orthopaedics growth – on track • Endoscopy overcoming tough half in US • Wound Management recovering momentum • Product launch programme maintained • Market conditions remain favourable • Further progress expected in H2
Slide 5: Peter Hooley, Finance Director
*smith&nephew Peter Hooley Finance Director
Slide 6: Trading highlights H1 2003
*smith&nephew Trading highlights H1 2003 • Underlying sales growth 11% • Margin targets again achieved • EPS growth up 11%* • Excellent performance in Orthopaedics * Before goodwill and exceptional items
Slide 7: Trading results H1
*smith&nephew Trading results H1 2002 2003 £m £m Sales Ongoing 532 577 + 9% Divested 26 - £558m £577m Profit before exceptionals and amortisation Ongoing 95 103 + 8% Divested 2 - Joint Venture and Associate 11 13 108 116 Interest (6) (4) £102m £112m EPS before exceptionals and amortisation 7.76p 8.5
Slide 8: Sales Growth H1 2003
*smith&nephew Sales Growth H1 2003 Underlying Acquisitions Currency Reported % % % % Orthopaedics 16 - (6) 10 Endoscopy 5 5 (5) 5 Advanced Wound Management 8 - 1 9 11 1 (3) 9
Slide 9: Geographical underlying sales growth H1 2003
*smith&nephew Geographical underlying sales growth H1 2003 Total Growth Americas Growth Europe Growth AAA Growth £m % £m % £m % £m % Orthopaedics 260 16 167 18 55 10 38 18 Endoscopy 149 5 90 0 42 17 17 7 Advanced Wound 168 8 55 13 85 6 28 6 Management 577 11 312 12 182 9 83 11
Slide 10: EBITA margins H1 2003
*smith&nephew EBITA margins H1 2003 2003 % Previous year (restated) 17.9 Pensions (0.7) Dermagraft (0.8) Underlying improvement 1.5 17.9
Slide 11: Business unit profitability H1
*smith&nephew Business unit profitability H1 Sales EBITA Margin £m £m % 2003 Orthopaedics 260 58 22.5 Endoscopy 149 28 18.8 Advanced Wound Management 168 17 10.0 577 103 17.9 2002 Orthopaedics 236 51 21.7 Endoscopy 142 21 15.1 Advanced Wound Management 154 23 14.6 532 95 17.9
Slide 12: Cash flow H1
*smith&nephew Cash flow H1 2002 2003 £m £m Trading cash flow 47 58 Rationalisation and integration (9) (5) Operating cash flow 38 53 Joint venture 8 3 Interest, tax and dividends (62) (54) Acquisitions less disposals (119) (18) Net cash flow (135) (16) Currency 28 4 Opening debt (243) (277) Closing
Slide 13: Other items H1
*smith&nephew Other items H1 2002 2003 £m £m • Capital expenditure 41 29 • Depreciation 28 28 • Goodwill amortisation 8 9 • Currency in EBITA - transactional cost (benefit) 1 (1) - translational cost 1 4 (average rate $1.61) • Taxation 29½% 29% • Exceptional items net Disposal gain 19 - ATS write do
Slide 14: Chris O'Donnell, Chief Executive
*smith&nephew Chris O’Donnell Chief Executive
Slide 15: Sustainable growth drivers
*smith&nephew Sustainable growth drivers • Continued favourable demographics • Healthcare spending trends remain positive in our major markets • Increasing demand for people to regain their lives • Strong technology platform drives product launches • Significant margin enhancement opportunity • Crea
Slide 16: Orthopaedics
*smith&nephew Orthopaedics • H1 underlying growth of 16% • High demand for our products continues – US growth 18%, outside US 13% • Hip and knee implants grow 20% • Divisionalisation creates trauma momentum • Trauma grows by 11% • Knee OXINIUM™ components reach 36% of our sales (US) • Hip OXINIUM fe
Slide 17: Endoscopy
*smith&nephew Endoscopy • H1 underlying growth of 5% • Strong sales outside US at 14%, US flat • US sales affected by blade reuse and HealthSouth disruptions • Repair continues strong growth of 17% • ORATEC - adds 5% to sales • New products will benefit H2 sales growth – New high definition camera –
Slide 18: Advanced Wound Management
*smith&nephew Advanced Wound Management • Underlying sales growth 8% with momentum increasing • US growth at 16% despite supply side issues • Europe recovering from slow start • ALLEVYN™ foam dressing sales growing 18% • ACTICOAT™ silver dressing success continues at 50% growth • DERMAGRAFT™ dermal
Slide 19: New products 2003
*smith&nephew New products 2003 Q1 Q2 Q3 Q4 OXINIUM™ Femoral Heads JET X™ Unilateral External Fixation Mini Incision Knee (Technique New TRIVEX™ System (Endo) (Ortho) device (Ortho) and instrumentation) (Ortho) SURETAC™ III System (Endo) Mini Incision Hip (Technique and instrumentation ) (Ortho) VIS
Slide 20: Summary – sustaining momentum
*smith&nephew Summary – sustaining momentum • Continuing strong markets worldwide • Smith & Nephew fundamental strengths remain • Orthopaedics sustains strong growth • Endoscopy new products to impact H2 • Wound Management momentum in H2 • Outlook remains positive • Confirm underlying mid-teens EPS
Slide 21: Orthopaedics Business Report
*smith&nephew Orthopaedics Business Report Dave Illingworth, President - Orthopaedics
Slide 22: H1 2003 performance highlights
*smith&nephew H1 2003 performance highlights • Industry-leading global sales growth at 16%* • Sustaining sales growth at or above market rates in all segments • Continuing to gain market share particularly in Reconstructive segments • New product momentum: 26% of sales from new products • Operating
Slide 23: Smith & Nephew Orthopaedics
*smith&nephew Smith & Nephew Orthopaedics • Strong technology and innovation platform • Focus on delivering implant and instrument launches • Sales force investment and leverage continues • Margin improvement programs progressing well • Creating value through organic growth complemented by acquisiti
Slide 24: H1 2003 global orthopaedics market
*smith&nephew H1 2003 global orthopaedics market • Overall market continues to grow in the mid teens • Price is still attractive • Favourable mix shift continues (see US data below) S&N Avg Penetration Saturation Competitor Penetration XLPE Hip 75% 90% 85% Cementless hips 61% 75% 65% Revision Hips 9
Slide 25: Served Market Growth vs. Competition
*smith&nephew Served Market Growth vs. Competition* 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Stryker DePuy Zimmer Biomet S&N Synthes Centerpulse * H1 Constant Currency Company Estimate
Slide 26: Geographic snapshot
*smith&nephew Geographic snapshot S&N Ortho H1 sales growth* by region 20 18 18 15 10 10 5 0 AAA Europe Americas * Constant Currency
Slide 27: Divisional Strategy
*smith&nephew Divisional Strategy Improved focus • Sustain reconstructive momentum • Improve trauma performance Improved customer satisfaction • More knowledgeable technical sales force • Total attention to customer speciality Increased speed of doing business • Products to market faster • More resp
Slide 28: Reconstructive Division – Knees
*smith&nephew Reconstructive Division Knees • The company’s performance in Knees continues to be driven by the rollout of new technology, including OXINIUM™ and the ACCURIS™ Uni System, as well as the continued growth and improved focus of our sales force. Estimated market growth: 16% Our growth: 23
Slide 29: Reconstructive Division – Knees near term drivers
*smith&nephew Reconstructive Division Knees – near term drivers • Continued rollout / placement of OXINIUM™ implants • OXINIUM unicompartmental femoral launch • ACHIEVECAS™ computer-assisted total knee application • Mini-incision knee technique/training • Direct-To-Consumer and Practice Enhancement
Slide 30: Reconstructive Division – Hips
*smith&nephew Reconstructive Division Hips • The company’s performance in Hips continues to be driven by the rollout and penetration of new technology, including OXINIUM™ femoral heads, XLPE as well as the continued growth and improved focus within our sales force. Estimated market growth: 13% Our g
Slide 31: Reconstructive Division – Hips near-term drivers
*smith&nephew Reconstructive Division Hips – near-term drivers • OXINIUM™ femoral heads – continued rollout • ACHIEVECAS™ computer-assisted hip application (software and instruments) • Mini-incision hip technique/training • Additional revision components • Direct-To-Consumer and Practice Enhancement
Slide 32: Direct-to-consumer and practice enhancement
*smith&nephew Direct-to-consumer and practice enhancement • DTC campaign objectives • Practice Enhancement • Awareness of OXINIUM™ and joint • Adjunct to DTC replacement • Attract revenue generating • Trend toward patient involvement patients in treatment • Build surgeon reputation in • Drive patien
Slide 33: Innovative marketing: DTC television commercial and local ads
*smith&nephew Innovative marketing: DTC television commercial and local ads
Slide 34: Trauma Division
*smith&nephew Trauma Division • The company’s success in Trauma continues to be driven by growth in the TRIGEN™ IM Nailing System, EXOGEN™ 3000, Web-based software for the TAYLOR SPATIAL FRAME™ and the recent launch of our new JET-X™ Unilateral fixator. The division has added 34 sales reps in H1. Es
Slide 35: Trauma Division near-term drivers
*smith&nephew Trauma Division Near-term drivers • Continued rollout of the JET-X™ Unilateral Fixator platform – Including variations • Asian specific IMHS • TRIGEN™ line additions • HA coated pins • Productivity gains for new reps – Advanced training • Continued sales force growth ™Trademark of Smit
Slide 36: Summary: Focused growth, technology, superior financials
*smith&nephew Summary: FOCUSED GROWTH TECHNOLOGY SUPERIOR FINANCIALS
Slide 37: Summary: Focused growth
*smith&nephew Summary: FOCUSED GROWTH • Fastest growing company Divisionalization Sales force specialization TECHNOLOGY Specialized service for customers Geographic market targets Speed of Innovation SUPERIOR FINANCIALS
Slide 38: Summary: Technology
*smith&nephew Summary: FOCUSED GROWTH TECHNOLOGY • ¼ of revenue from new products Provides competitive differentiation Innovation expanding market base SUPERIOR FINANCIALS Active acquisition search
Slide 39: Summary: Superior financials
*smith&nephew Summary: FOCUSED GROWTH TECHNOLOGY SUPERIOR FINANCIALS • +1 Point Margin Improvement Volume and Cost Productivity Logistics to improve asset turns Margin expansion over 3 years – 25% pre-amortisation goal
Slide 40: Chris O'Donnell, Chief Executive
*smith&nephew Chris O’Donnell Chief Executive
Slide 41: Centerpulse transaction update
*smith&nephew Centerpulse transaction update • Smith & Nephew – the right partner for Centerpulse • Significant value enhancing combination • Considering options
Slide 42: Smith & Nephew brand
*smith&nephew Smith & Nephew brand • Modernises more than 20 year old brand • Out of date for our transformed company • Market research – not perceived as cohesive brand in marketplace • Strong business benefits – Leverage scale – Improve visibility & presence in markets – Increase brand value of Sm
Slide 43: We are smith&nephew
*We are smith&nephew Our purpose: Helping people regain their lives Our vision: To be the best in helping people regain their lives by repairing and healing the human body
Slide 44: We are smith&nephew – values and personality
*We are smith&nephew Our values - Performance Innovation Trust Our personality - Responsive Confident Energetic Honest Personable
Slide 45: Appendix
*smith&nephew Appendix
Slide 46: The shape of Smith & Nephew H1 2003
*smith&nephew The shape of Smith & Nephew H1 2003 Businesses Geography Wound Management Africa, Asia £168m & Australasia Advanced treatments for hard to heal wounds £83m Japan 4% 14% 29% Orthopaedics America £260m £312m 45% Hip & knee implants 32% and trauma products 54% 26% Europe UK £182m 8% Endos
Slide 47: Sales Growth H1 2003
*smith&nephew Sales Growth H1 2003 Excluding the impact of currency US ROW Underlying Acquisitions Total Underlying Acquisitions Total % % % % % % Orthopaedics 18 - 18 13 - 13 Endoscopy - 7 7 14 - 14 Advanced Wound Management 16 - 16 7 - 7 12 2 14 11 - 11
Slide 48: Market Analysis
*smith&nephew Market Analysis Orthopaedics Advanced Wound Management Other 13% Smith & Nephew Stryker 19% Others 26% 21% Centerpulse 7% Smith & Nephew J&J 16% 8% DePuy 19% Synthes 9% 3M 11% KCI Biomet 11% Zimmer 14% Convatec 12% 14% • Market (ex spine) £5.2bn + 13% • Market £1.5bn + 12% • Smith & Ne
Slide 49: Market Analysis - Endoscopy
*smith&nephew Market Analysis - Endoscopy Endoscopy Others 7% Olympus 19% Bard 5% • The total Endoscopy market is Medtronic 5% £3bn and growing at 6% Linvatec 4% Boston Scientific • Arthroscopy is a major segment of Stryker 6% 11% the total Endoscopy market with a Storz 8% value of £650m and growing
Slide 50: Disclaimer
*smith&nephew Disclaimer United States of America The offer for Centerpulse shares is being made in the United States only through a prospectus/offer to exchange, which is part of a registration statement filed with the SEC by Smith & Nephew Group. Centerpulse shareholders who are US persons or are