Smith & Nephew Plc · LSE:SN.
Smith & Nephew — FY2003 Earnings Presentation
51 slides from Smith & Nephew's earnings presentation, 2004
Slide 1: Preliminary Results 2003
The Preliminary Results of smith&nephew for * 2003 show sustained growth in a strong medical technology industry. Underlying sales growth was 11% and we helped people all over the world get back to active lives
Slide 2: Forward looking statements
*smith&nephew 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 planned growth in our business and in our operating margins discussed under “Out
Slide 3: Introduction - Dudley Eustace, Chairman
*smith&nephew Dudley Eustace Chairman 2 Introduction
Slide 4: Presentation agenda
*smith&nephew Presentation agenda • Introduction Dudley Eustace • 2003 Results Peter Hooley • Strategic Review Chris O’Donnell • Q&A Session All 3
Slide 5: Smith & Nephew 2003
*smith&nephew Smith & Nephew 2003 • Challenging but successful year • Excellent orthopaedics sales growth • Product development and sales force investment delivering results • Market prospects remain positive • Sustaining growth and improving margin • Well placed to meet targets 4
Slide 6: 2003 Results - Peter Hooley
*smith&nephew Peter Hooley Finance Director 5 2003 Results
Slide 7: Trading highlights
*smith&nephew Trading highlights • Underlying sales** growth 11% • Orthopaedics underlying sales growth 16% • Operating margin improved to 18.7% - on target • EPSA growth 15%* ($ growth 26%*) • Strong cash generation reduces gearing * Before goodwill amortisation and exceptional items **Excluding th
Slide 8: Trading results
*smith&nephew Trading results 2002 2003 £m £m Sales Ongoing 1084 1179 + 9% Divested 26 - 1110 1179 + 6% Profit before amortisation and exceptionals Ongoing operating profit 196 221 +13% Divested 2 - Joint Venture and Associate 25 27 EBITA 223 248 Interest (13) (6) 210 242 +15% EPS before amortisatio
Slide 9: Results in US Dollars
*smith&nephew Results in US Dollars 2002 2003 Reported sales $1675m $1939m +16% Earnings per ADS $1.21 $1.52 +26% Note: Smith & Nephew’s reported sales and earnings per ADS before goodwill amortisation and exceptional items translated at the average rate of exchange for the year. 8
Slide 10: Business Sales Growth
*smith&nephew Business Sales Growth Underlying Acquisitions Currency Reported % % % % Orthopaedics 16 - (4) 12 Endoscopy 4 2 (3) 3 Advanced Wound Management 9 - 1 10 11 - (2) 9 • Orthopaedics (knees +24%, hips +16%, trauma +10%) • Endoscopy (US -2%, ROW +14%, ligament repair +18% and ORATEC™ +17%) •
Slide 11: Geographical sales growth
*smith&nephew Geographical sales growth Total Growth America Growth Europe Growth AAA Growth £m % £m % £m % £m % Orthopaedics 525 16 342 19 108 8 75 13 Endoscopy 300 4 180 (1) 81 13 39 9 Advanced Wound 354 9 110 8 181 10 63 10 Management 1,179 11% 632 11% 370 10% 177 11% Note: All sales growths are
Slide 12: Operating margin
*smith&nephew Operating margin 2003 % Previous year 17.8 Divestment mix 0.3 18.1 Pensions (0.7) Tissue engineering/ATS JV (0.6) Underlying improvement 1.9 18.7 11
Slide 13: Business unit analysis
*smith&nephew Business unit analysis Sales Operating profit* Margin £m £m % 2003 Orthopaedics 525 119 22.6 Endoscopy 300 59 19.8 Advanced Wound Management 354 43 12.0 1,179 221 18.7 2002 Orthopaedics 470 98 20.9 Endoscopy 292 54 18.4 Advanced Wound Management 322 44 13.7 1,084 196 18.1 *Before goodw
Slide 14: Cash flow
*smith&nephew Cash flow 2002 2003 £m £m Trading cash flow 145 170 Centerpulse costs - (17) Rationalisation and integration (19) (10) Operating cash flow 126 143 Joint venture 10 6 Interest and tax (62) (56) Free cash flow 74 93 Dividends (44) (45) Divestments and shares 75 60 Acquisitions (206) (4)
Slide 15: Retained profit and capital employed
*smith&nephew Retained profit and capital employed 2002 2003 £m £m £m £m Profit Tax Profit Tax Profit before amortisation and exceptional items 210 62 242 70 Tax rate 29% 29% Amortisation (18) - (18) - Profit before exceptional items 192 62 224 70 Exceptional items (14) 4 6 12 Profit before tax 178
Slide 16: Other items
*smith&nephew Other items 2002 2003 £m £m Capital expenditure - 7½%/6% of sales 85 73 Depreciation - 5% of sales 57 60 Goodwill amortisation 18 18 Currency in profit - Transactional gain (cost) (1) 3 - Translational (cost) (4) (7) UK & US pension plan charges - SSAP 24 basis 8 14 - FRS 17 basis 8 15
Slide 17: Quarterly phasing 2003
*smith&nephew Quarterly phasing 2003 Q1 Q2 Q3 Q4 FYr Sales growths Growths Ortho 14% 18% 16% 16% 16% Endo 3% 7% 2% 4% 4% Wound 7% 9% 10% 9% 9% 9% 12% 10% 10% 11% Sales value £277m £300m £289m £313m £1,179m Sales Phasing 23% 25% 25% 27% 100% Operating profit* £45m £58m £51m £67m £221m Margin 16.3% 19
Slide 18: Quarterly reporting
*smith&nephew Quarterly reporting • Historically stronger in Q2 & Q4 – both sales and margin • For 2004 – 3 more sales days in Q1, 3 less in Q4 – Endoscopy’s pick up in sales growth should be gradual across the quarters – Enzyme debrider switch in US likely to slow AWM H1 sales growth by (2%) and in
Slide 19: 2003 Summary
*smith&nephew 2003 Summary • Industry drivers remain positive • Smith & Nephew demonstrates strength and consistency • Excellent Orthopaedics performance • Solid Advanced Wound Management results • US market issues affect Endoscopy business • Underlying mid-teens EPS target achieved/US$ +26% • Achie
Slide 20: Strategic Review - Chris O'Donnell
*smith&nephew Chris O’Donnell Chief Executive 19 Strategic Review
Slide 21: Positive market dynamics
*smith&nephew Positive market dynamics • Ageing population – baby boomers emerging • Lifestyle trends – Increasingly active lifestyles – increased injuries – More obesity – more product applications • Demand for improved outcomes • Technology evolution • Increased healthcare spending • Consumer awar
Slide 22: Baby boomers 'increase' market growth
*smith&nephew Baby boomers ‘increase’ market growth % of the population aged over 60 US 2000 Australia 2040* Canada UK France Germany Sweden Japan Italy 0 10 20 30 40 50 21 *Projection Source: Centre for Strategic and International Studies
Slide 23: Smith & Nephew Strategy
*smith&nephew Smith & Nephew Strategy • Exploit positive market dynamics • Build on technology leadership positions • Drive innovative product pipeline • Invest in sales force development • Pursue synergistic technology acquisitions • Develop Smith & Nephew brand 22
Slide 24: Smith & Nephew Strategy
*smith&nephew Smith & Nephew Strategy • Three core businesses strongly positioned – Excellent long term growth prospects – Strong proprietary positions – Genuinely global market presence • Common focus on tissue repair – Key to Smith & Nephew brand 23
Slide 25: Developing the brand
*smith&nephew Developing the brand “Repair and heal the human body” Research: Understand mechanisms of tissue repair Development: Initiate, accelerate or improve repair Technology: Innovative technologies to deliver healing Orthopaedics Endoscopy AWM Bone & Joint Cartilage, Ligaments, Tendons Dermal
Slide 26: Delivering the brand
*smith&nephew Delivering the brand “Performance, innovation and trust” Sales force, service Education and training “Partnerships” with and technical programmes medical profession expertise Customers 25
Slide 27: Orthopaedics
*smith&nephew Orthopaedics Knee & hip implants & trauma products 2003 Orthopaedic market (exc spine) £5.9bn Orthopaedic market growth 13% Smith & Nephew growth 16% Competitor Analysis Other 14% Zimmer 21% Smith & Nephew 8% Synthes 9% Stryker 19% Biomet 11% DePuy (J&J) 18% Well positioned in strongly
Slide 28: Growth in Orthopaedics
*smith&nephew Growth in Orthopaedics Key building blocks for bone & joint repair - OXINIUM™ • Unique technology - EXOGEN™ - SUPARTZ™ • Innovative product pipeline • Focused divisions, Reconstruction & Trauma • Sales force investment – US and Japan key markets 27
Slide 29: Smith & Nephew leads growth of served market
*smith&nephew Smith & Nephew leads growth of served market 4 Yr. CAGR* 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Stryker DePuy Zimmer Biomet S&N Synthes Centerpulse *Company estimates; Sales growth measured in constant currency 28
Slide 30: Growth in Reconstruction
*smith&nephew Growth in Reconstruction Near-term drivers • OXINIUM™ roll-out plus revision femoral • Ceramic on Ceramic hip • New TANDEM BiPolar™ hip • MIS/CAS roll-out in hips and knees 29
Slide 31: Growth in Trauma
*smith&nephew Growth in Trauma Near-term drivers • Increased sales force dedication and productivity – Gains in Level 1 Trauma Centers • Roll out platform line extensions – TRIGEN™ Nails – IMHS systems – JET-X™ fixators • Accelerate EXOGEN™ sales investment 30
Slide 32: Growth in Orthopaedics
*smith&nephew Growth in Orthopaedics 2004 – a year of acceleration • Benefits of divisionalisation – new products/sales strength • Global roll-out of OXINIUM™ line extensions • MIS/CAS – delivers better patient healing/outcomes • Trauma product and sales force expansion Forward plan: Innovative prod
Slide 33: Endoscopy
*smith&nephew Endoscopy Soft tissue resection and repair products, cameras and equipment for minimally invasive surgery 2003 Arthroscopy market £743m Arthroscopy market growth 8% Smith & Nephew growth 8% Competitor Analysis Arthroscopy Market Others 7% Arthrocare 7% Smith & Nephew 29% Stryker 12% Ar
Slide 34: Growth in Endoscopy
*smith&nephew Growth in Endoscopy Key building blocks for endoscopic repair • Strong focus on arthroscopy repair – shoulder, knee & hip • Unique technology – Mechanical and RF resection – Bioresorbable fixation – RF controlled shrinkage – Progressive scan cameras • New Spine Division – Focus on disc
Slide 35: Growth in Endoscopy
*smith&nephew Growth in Endoscopy Near term drivers • Expand leadership in resection – POWERMAX™ lightweight handpiece – Aggressively combat blade reprocessing – Radio frequency & electromechanical innovation – Vascular developments • Further innovation in repair – Meniscal repair – Suture anchors –
Slide 36: Aggressively combat blade reprocessing
*smith&nephew Aggressively combat blade reprocessing • Step-up in reuse in US in past 12 months • Independent evidenced-based study – Reprocessed blades contaminated with DNA and protein – Reprocessed blades visibly and functionally compromised • Smith & Nephew education campaign to clinical communi
Slide 37: Growth in Endoscopy
*smith&nephew Growth in Endoscopy Near term - innovation • Progressive scan camera system – Ahead of the competition • New generation TRIVEX™ – Accelerate penetration of vascular repair • Minimally invasive spine – New generator and probes • DIGITAL OR™ – Expanding capability for enhanced growth 36
Slide 38: Future growth in Endoscopy
*smith&nephew Future growth in Endoscopy 2004 – Regaining momentum • Aggressively combat reprocessing and reuse • Major product launches in Q1 – particularly new camera • Continued sales force investment • Growth of repair and international markets Forward plan: Accelerate US arthroscopy, develop Sp
Slide 39: Advanced Wound Management
*smith&nephew Advanced Wound Management Treatments for hard to heal wounds 2003 AWM market £1.6bn AWM market growth 12% Smith & Nephew growth 9% Competitor Analysis Smith & Nephew Others 26% 20% 3M 10% KCI Convatec 12% 18% J&J 14% Starting to unlock demographic/unconverted market potential 38
Slide 40: Future growth in Advanced Wound Management
*smith&nephew Future growth in Advanced Wound Management £7bn potential Key drivers Technology Unconverted markets Improved outcomes Quality of life Health economics Demographics Nursing shortages £1.6bn 39
Slide 41: Growth in Advanced Wound Management
*smith&nephew Growth in Advanced Wound Management Key building blocks for wound repair • Unique technology - ALLEVYN™ - ACTICOAT™ - DERMAGRAFT™ • Knowledge driven innovation • Health economic benefit focus • Wound bed preparation concepts lead the market 40
Slide 42: Advanced Wound Management Smith & Nephew advantage
*smith&nephew Advanced Wound Management Smith & Nephew advantage Patient Decision presents support Systemic stabilisation Wound bed preparation Healing Patient Aftercare/ discharged prevention 41
Slide 43: Growth in Advanced Wound Management
*smith&nephew Growth in Advanced Wound Management Near term – innovation • VISITRAK™ digital wound measurement system • VERSAJET™ specialised fluid jet wound debridement system • CADESORB™ wound bed preparation agent • GLADASE™ new enzymatic wound debrider 42
Slide 44: Future growth in Advanced Wound Management
*smith&nephew Future growth in Advanced Wound Management 2004 - Continued momentum • Major brands build growth • DERMAGRAFT™ sales expansion • Pipeline delivers increased new product introductions • Global infrastructure enables margin leverage Forward plan: Innovation to expand market and capture s
Slide 45: Outlook 2004
*smith&nephew Outlook 2004 • Well placed to increase sales growth • New products continue to generate growth • Sales force expansion globally 10% • Acceleration to high teens growth in Orthopaedics • High single digit growth for Endoscopy and Advanced Wound Management • Operating margin improvement
Slide 46: Summary
*smith&nephew Summary • Strongly positioned in major growth markets • Focused on tissue repair • Technology leadership • Innovative product pipeline • Market expansion opportunities • Synergistic technology acquisitions Helping people regain their lives by repairing the human body 45
Slide 47: We are smith&nephew
>t We are smith&nephew
Slide 48: Appendix
Appendix >t smith&nephew 47
Slide 49: The shape of Smith & Nephew 2003
*smith&nephew The shape of Smith & Nephew 2003 Businesses Geography Wound Management Africa, Asia £354m & Australasia Advanced treatments for hard to heal wounds £177m Japan 5% 30% Orthopaedics America 15% £525m £632m 45% Hip & knee implants and trauma products 31% 54% 25% Europe UK £370m 8% Endosco
Slide 50: New products 2003
*smith&nephew New products 2003 Q1 Q2 Q3 Q4 Mini Incision Knee OXINIUM™ Femoral Heads JET X™ Unilateral External (Technique and SURETAC™ III System (Endo) (Ortho) Fixation device (Ortho) instrumentation (Ortho) OXINIUM™ DIGITAL OR™ - expanded SURETAC™ III System (Endo) Unicompartmental femoral centr
Slide 51: New products 2004
*smith&nephew New products 2004 Q1 Q2 Q3 Q4 Ceramic on Ceramic hip OXINIUM™ Revision Femoral Computer Aided Surgery for TANDEM BI-POLARS™ (Ortho) (Ortho) (Ortho) knees – Version 2 (Ortho) ACCORD™ cable system REFLECTION™ Revision Cup TRIGEN™ Humeral Nail – new Asian IMHS (Ortho) (Ortho) (Ortho) vari