Smith & Nephew plc · LSE:SN.
Smith & Nephew — H1 2010 Earnings Presentation
30 slides from Smith & Nephew's earnings presentation, August 2010
Slide 1: 2010 Half Year Results - Good progress
2010 Half Year Results - Good progress 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
Q2 highlights - good progress • Q2 revenues - $959m, up 4% 2200 1954 2000 1791 • Orthopaedics grows 1% 1800 1600 – European Reconstruction 1400 Revenues grows 3% 1200 926 959 1000 – Trauma revenues grow 2% 800 600 • Endoscopy – revenues up 9% 400 another strong quarter 200 0 • Advanced Wound Managem
Slide 5: Q2 highlights - good progress (trading margin)
Q2 highlights - good progress • Trading profit $226m up 7% 30 23.5 24.4 22.9 • Trading margin 23.5% up 60bps 22.0 Trading Margin % 20 • 89% of trading profit converted to cash 10 • EPSA increased by 11% to 17.1¢ • Interim dividend up 10% at 6¢ per 0 share 30¢ per ADS Q2 2009 Q2 2010 H1 2009 H1 2010
Slide 6: Q2 2010 - Orthopaedics
Q2 2010 - Orthopaedics • FDA Approval for VERILAST™ 30 year claim • VISIONAIRE™ approaching Global revenues - $535m in Q2 up 1%, $1,101m in H1 10,000 procedures Reconstruction grows 2% • >3000 surgeons trained by KLEOS™ - US knee revenue growth up 2% • SURESHOT™ multiple - US hip revenue growth off
Slide 7: Orthopaedics H2 - 2010 Growth Drivers
Orthopaedics H2 - 2010 Growth Drivers • Chief Operating Officer on board • VERILAST (the pairing of OXINIUM™ + XLPE) offering for knees • Specialist Japanese product approvals • BIRMINGHAM HIP™ Resurfacing System specialist reps • Expanded SURESHOT roll-out • China sales growth and training • “Sales
Slide 8: Q2 2010 - Endoscopy
Q2 2010 - Endoscopy • Over 600 surgeons trained outside the US in Q2 • New product development program delivers new products including TWINFIX™ Revenues $206m in Q2, 9% growth Ultra for rotator cuff and - $422m revenues in H1 BIOSURE™ SYNC for tibia/anterior cruciate Arthroscopy grows at 11% ligamen
Slide 9: Endoscopy H2 - 2010 Growth Drivers
Endoscopy H2 - 2010 Growth Drivers • Product launches from fast track development program • Spring Fellows Program “The Wider Scope of Arthroscopy” • Senior Vice President of Research & Development hired • Local sales force and surgeon training courses • US sales force target of 65% direct employees
Slide 10: Q2 2010 - Advanced Wound Management
Q2 2010 - Advanced Wound Management • 6 product launches including DURAFIBER™ for cavity wounds Revenue $218m up 5%, $431m for H1 • US network rationalisation making impact Consistent performance in the US revenue up 7% • Largo facility sold Europe revenues up 4% in tougher markets • Suzhou producin
Slide 11: Advanced Wound Management - H2 2010 Growth Drivers
Advanced Wound Management – H2 2010 Growth Drivers • US long term care partnership drives customer focus • Continuous stream of product launches and global roll-outs • Sales force investment for Negative Pressure Wound Therapy • Negative Pressure Wound Therapy dressing extensions • Emerging market i
Slide 12: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 13: Income statement Q2 2010
Income statement Q2 2010 Second Quarter Quarterly Half Year 2009 2010 Growth 2009 2010 $m $m Reported Underlying $m $m Revenue 926 959 4% 4% 1,791 1,954 Trading profit 212 226 7% 7% 395 476 Restructuring and acquisition costs (15) (10) (31) (12) Amortisation of acquisition intangibles / (8) (9) (16)
Slide 14: Income statement Q2 2010
Income statement Q2 2010 Second Quarter Half Year 2009 2010 2009 2010 $m $m $m $m Profit before taxation 176 202 322 436 Taxation (58) (65) Tax rate* 31.4% (106) (140) Attributable profit 118 137 216 296 Add back: Amortisation of acquisition intangibles / 8 9 16 17 impairments Restructuring & acquis
Slide 15: Revenue growth by business segment Q2 2010
Revenue growth by business segment Q2 2010 Actual Currency Underlying % % % Quarter 2* Orthopaedics 1 - 1 Endoscopy 10 (1) 9 Advanced Wound Management 5 - 5 Group 4 - 4 * Q2 2010 comprises 64 trading days (2009 – 63 trading days) 14
Slide 16: Underlying revenue growth by geography & business segment Q2 2010
Underlying revenue growth by geography & business segment Q2 2010 US Growth Europe Growth ROW Growth Total Growth Quarter 2 $m % $m % $m % $m % Orthopaedics 287 (1) 141 1 107 5 535 1 Endoscopy 86 2 65 10 55 22 206 9 Advanced Wound Management 41 7 109 4 68 7 218 5 Group 414 1 315 4 230 9 959 4 15
Slide 17: Profitability by business segment Q2 2010
Profitability by business segment Q2 2010 Second Quarter Half Year Revenue Trading Profit Margin Margin 2010 $m $m % % Orthopaedics 535 132 24.6 25.0 Endoscopy 206 48 22.9 22.0 Advanced Wound Management 218 46 21.4 24.9 Total 959 226 23.5 24.4 2009 Orthopaedics 531 129 24.4 23.9 Endoscopy 187 43 22.
Slide 18: Free cash flow Q2 2010
Free cash flow Q2 2010 Second Quarter Half Year 2009 2010 2009 2010 $m $m $m $m Trading profit 212 226 395 476 Share based payment 6 6 10 11 Depreciation and amortisation 62 54 118 114 Capital expenditure (89) (59) (131) (133) Movements in working capital and provisions (56) (25) (129) (78) Trading
Slide 19: 2010 outlook
2010 outlook • Revenue growth: – Ortho: improvement driven by recent launches, strong clinical data and focus on operational performance – Endo: ahead of market in arthroscopy – Wound: ahead of market • Margin: material improvement over 2009 level 18
Slide 20: David Illingworth, Chief Executive
David Illingworth Chief Executive
Slide 21: Conclusion
Conclusion Orthopaedics • Reconstruction – strategy unchanged • Trauma – improving and more upside to come Endoscopy • Strong performance in Arthroscopy • Resection rejuvenating Advanced Wound Management • Markets under pressure, performing well • Negative Pressure Wound Therapy excellent medium ter
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 2009 2010 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Growth* Growth* Growth* Growth* Growth* Revenue Growth* Revenue Growth* % % % % % $m % $m % Orthopaedics Reconstruction Knees 5% 1% 2% 5% 3% 210 9% 194 3% Hi
Slide 26: Exchange rates
Exchange rates $:€ Q2/09 FY/09 Q1/10 Q2/10 Period end 1.41 1.43 1.35 1.26 Average 1.36 1.39 1.38 1.27 $:£ Period end 1.65 1.61 1.52 1.52 Average 1.54 1.56 1.56 1.49 Percentage of Revenue by Geographic Market: Q2 % United States 43 United Kingdom 7 Other Europe 26 Other 24 100 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 * 10 112 5 102 - 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 $60-80m, plus $15m costs of
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 2009 2010 2009 2010 $m $m $m $m Free cash flow 11 119 64 250 Add back: capital expenditure 89 59 131 133 Net cash inflow from operating activities (IAS 7) 100 178 195 383 27
Slide 29: 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 28
Slide 30: New products 2010
New products 2010 Q1 Q2 Q3 Q4 LEGION™ HA Porous Tibials GENESIS™ II ECO instruments VLP™ FOOT variable-angle LEGION™ RH Hinge – Limited locking plate system Release TRIGEN™ SURESHOT™ Distal Targeting System FOOTPRINT Ultra Suture Anchor RT PLUS™ Offset Stems MIS Hip Stem BIORAPTOR™ Knotless Suture T