Smith & Nephew plc · LSE:SN.
Smith & Nephew — Q2 2011 Earnings Presentation
34 slides from Smith & Nephew's earnings presentation, 2011
Slide 1: 2011 Second Quarter Results
2011 Second Quarter Results Strong revenue growth, gaining share in a challenging environment
Slide 2: Forward looking statements
Forward looking statements This document contains certain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan"
Slide 3: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 4: Q2 2011 highlights
Q2 2011 highlights • Reported Q2 revenues – $1,077m up 5% underlying • Orthopaedics up 4% – Reconstruction grows above market rate, driven by knees – Trauma delivering consistently good performance • Endoscopy up 5% – strong US performance, Europe weaker • Advanced Wound Management up 8% - NPWT stro
Slide 5: Q2 2011 – Orthopaedics
Q2 2011 – Orthopaedics • Knees: market leading performance continues • Commercial promotion of VERILAST™ hips • Global revenues $588m in Q2, 4% growth • Trauma: launched - US +4%, Europe +2%, RoW +6% SURESHOT™ Humeral • Global Reconstruction growth +3% • Clinical Therapies: - Global knees +7% (US +1
Slide 6: Q2 2011 - Endoscopy
Q2 2011 - Endoscopy • Strong US, Europe weaker • 8 new products launched • TENET acquisition completed • Global Revenues $231m in Q2, 5% growth • Major medical education – US +5%, Europe 0%, RoW +9% events including Brazil, • Arthroscopy growth +6% Japan, US - Repair +10% - Resection +1% • Visualisa
Slide 7: Q2 2011 - Advanced Wound Management
Q2 2011 - Advanced Wound Management • 9 new product introductions including ALLEVYN GB Multisite • PICO launched in Europe, ANZ and Canada - excellent • Outperforming global market growth rate customer feedback • Global Revenues $258m, 8% growth • European austerity – market growth c. 1% – US +14%,
Slide 8: Adrian Hennah, Chief Financial Officer
Adrian Hennah Chief Financial Officer
Slide 9: Income statement Q2 2011
Income statement Q2 2011 Second Quarter Quarterly Half Year 2010 2011 Growth 2010 2011 $m $m Reported Underlying $m $m Revenue 959 1,077 12% 5% 1,954 2,132 Trading profit 226 236 5% (3%) 476 477 Restructuring and rationalisation costs (10) (1) (12) (2) Amortisation of acquisition intangibles / (9) (
Slide 10: Income statement Q2 2011
Income statement Q2 2011 2010 2011 2010 2011 $m $m $m $m Profit before taxation 202 222 436 450 Taxation (65) (69) Tax rate* 30.8% (140) (141) Attributable profit 137 153 296 309 Add back: Amortisation of acquisition intangibles / 9 9 17 18 impairments Restructuring & acquisition costs 10 1 12 2 Tax
Slide 11: Revenue growth by business segment Q2 2011
Revenue growth by business segment Q2 2011 Actual Currency Underlying Reported % % % Quarter 2* Orthopaedics 10 (6) 4 Endoscopy 12 (7) 5 Advanced Wound Management 18 (10) 8 Group 12 (7) 5 * Q2 2011 comprises 63 trading days (2010 – 64 trading days) 11
Slide 12: Underlying revenue growth by geography & business segment Q2 2011
Underlying revenue growth by geography & business segment Q2 2011 US Growth Europe Growth ROW Growth Total Growth Quarter 2 $m % $m % $m % $m % Orthopaedics 298 4 164 2 126 6 588 4 Endoscopy 89 5 75 - 67 9 231 5 Advanced Wound Management 48 14 125 2 85 14 258 8 Group 435 5 364 2 278 9 1,077 5 12
Slide 13: Profitability by business segment Q2 2011
Profitability by business segment Q2 2011 Blue Sky Adjusted Second Quarter Half Year Half Year Revenue Trading Profit Margin Margin Margin 2011 $m $m % % % Orthopaedics 588 130 22.0 23.0 Endoscopy 231 47 20.6 21.5 Advanced Wound Management 258 59 23.0 21.6 Total 1,077 236 21.9 22.4 2010 Orthopaedics
Slide 14: Free cash flow Q2 2011
Free cash flow Q2 2011 Second Quarter Half Year 2010 2011 2010 2011 $m $m $m $m Trading profit 226 236 476 477 Share based payment 6 9 11 16 Depreciation and amortisation 54 64 114 128 Capital expenditure (59) (60) (133) (133) Movements in working capital and provisions (25) (7) (78) (40) Trading ca
Slide 15: 2011 outlook
2011 outlook • No change in 2011 revenue outlook - Above market growth in Orthopaedic Reconstruction, Endoscopy repair/resection and Advanced Wound Management; consistent improvement in Orthopaedic Trauma • No change in medium-term margin outlook - Further efficiency improvements broadly match inves
Slide 16: Olivier Bohuon, Chief Executive Officer
Olivier Bohuon Chief Executive Officer
Slide 17: My findings – strong foundations
My findings – strong foundations • Good market demographics • Performed well over the last 4 years – Focused on biggest markets • Healthy business – Strong cash generation – Innovative and agile within business units – Customer-centric with specialised service • Diversified – geographically and port
Slide 18: But… …market challenges exist
But… …market challenges exist • Some cyclical challenges, some structural • Market concentration with higher competitive Share of Voice • Environment is difficult/complex – Price erosion – Reimbursement – Outcomes – Complexity of systems in place • Growth in mature markets slowing down 18
Slide 19: New Strategic Framework
New Strategic Framework • Focus in established markets • Grow in emerging markets • Innovate for value • Simplify our operating model • Supplement the organic growth through acquisitions 19
Slide 20: Existing growth drivers - NPWT
Existing growth drivers - NPWT RENASYS ™ PICO™ Website: www.mypico.co 20
Slide 21: Emerging markets growth
Emerging markets growth • Structure: Emerging International Markets Markets Focused Other • Countries/regions: China, India, Brazil, Central and Latin Russia America, Eastern Europe, MENA, South Africa, South East Asia, South Korea, etc. • Products Entire S&N product portfolio 21
Slide 22: R&D investment and direction
R&D investment and direction • Current R&D Model – 2010 $151m • Going forward – Increase in resources – Greater discipline in resource allocation • Focused investment – Emerging markets – Minimally invasive, particularly biomaterials – Patient matched – NPWT 22
Slide 23: Simplified operating model
Simplified operating model Emerging International Established Markets1 Markets3 Markets Advanced2 Advanced Focused Other Surgical Wound Devices Management R&D Marketing/Regulations Global functions Notes 1. US, Canada, Europe, Japan, Australia and New Zealand 2. Orthopaedic Reconstruction, Sports Me
Slide 24: Growth through acquisitions
Growth through acquisitions • Organic growth needs to be supplemented by acquisitions • Strong platform to make acquisitions – Management strength / capability – Platform is ready (sales channels, operations/logistics) – Financial strength • Actively looking for opportunities 24
Slide 25: Summary
Summary • Executing to meet expectations, consistently • Investing for tomorrow to exceed expectations Invest • Aspiring to be the best company with which to do business and for which to work 25
Slide 26: Questions
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Slide 27: We are smith&nephew
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Slide 28: Appendices
Appendices >t smith&nephew 28
Slide 29: Quarterly revenues
Quarterly revenues Smith & Nephew Key Product Line Revenues in $m at Average Rates and Underlying Growth 2010 2011 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Growth* Growth* Growth* Growth* Growth* Revenue Growth* Revenue Growth* % % % % % $m % $m % Orthopaedics Reconstruction Knees 9% 3% 6% 4% 5% 224 5% 220 7% Hi
Slide 30: Exchange rates
Exchange rates $:€ Q2/10 FY/10 Q1/11 Q2/11 Period end 1.26 1.34 1.41 1.45 Average 1.27 1.32 1.37 1.44 $:£ Period end 1.52 1.57 1.60 1.60 Average 1.49 1.54 1.60 1.63 Percentage of Revenue by Geographic Market: Q2 % United States 40 United Kingdom 7 Other Europe 27 Other 26 100 30
Slide 31: 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 * 1 117 1 110 - 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 i
Slide 32: 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 2010 2011 2010 2011 $m $m $m $m Free cash flow 119 136 250 275 Add back: capital expenditure 59 60 133 133 Net cash inflow from operating activities (IAS 7) 178 196 383 408 32
Slide 33: Business days per quarter
Business days per quarter Q1 Q2 Q3 Q4 Full Year 2010 64 64 63 60 251 2011 64 63 63 60 250 33
Slide 34: New products 2011
New products 2011 Q1 Q2 Q3 Q4 SMF™ Short Modular Femoral Hip System LEGION™ XLPE Inserts ACTICOAT™ Ortho SURESHOT™ Humeral SCOLISCORETM AIS VISIONAIRE™ Technology for DUROLANE® -SJ Prognostic test TC Plus Specialty Blades for Small Joint Anatomic ACL Guides BIOSURE™ HEALICOIL Screw LEGION Narrow and