Smith & Nephew plc · LSE:SN.

Smith & Nephew — Q3 2007 Earnings Presentation

33 slides from Smith & Nephew's earnings presentation, 2007

  1. Slide 1: Q3 2007 Results

    Q3 2007 Results Enabling people to live healthier, more active lives 0

  2. 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

  3. Slide 3: David Illingworth, Chief Executive

    David Illingworth Chief Executive

  4. Slide 4: Q3 financial highlights

    Q3 financial highlights • Revenues increase by 10% to $845m • Outpacing the market in Reconstructive segment – revenues up 11% • Trauma & Clinical Therapies 11% revenue growth • Endoscopy revenues outside US up 17%, overall up 9% • Advanced Wound Management – US growth 9%, globally 8% • Margin stren

  5. Slide 5: Q3 business highlights

    Q3 business highlights • A quarter of good performance • 10 year anniversary for BHR™ • 3 knee systems approved as gender specific • Balanced growth and momentum in Advanced Wound Management • EIP events – Factory to be built in China – ACTICOAT™ agreement • DOJ settled 4

  6. Slide 6: Adrian Hennah, Chief Financial Officer

    Adrian Hennah Chief Financial Officer

  7. Slide 7: Income statement Q3 2007

    Income statement Q3 2007 Third Quarter Percentage growth Year to Date 2006 2007 Actual Underlying 2006 2007 $m $m $m $m Revenue 679 845 24% 10% 2,008 2,402 Trading profit 132 169 28% 19% 388 484 Legal settlement - (30) - (30) Restructuring and integration costs - (26) - (48) Inventory revaluation -

  8. Slide 8: Income statement Q3 2007

    Income statement Q3 2007 Third Quarter Percentage Year to Date growth 2006 2007 Actual 2006 2007 $m $m $m $m Profit before taxation 131 39 389 328 Taxation (39) (26) (116) (113) Profit from continuing operations 92 13 273 215 Discontinued operations - - 332 - Attributable profit 92 13 605 215 Add ba

  9. Slide 9: Revenue growth by business segment 2007

    Revenue growth by business segment 2007 Actual Currency Acquisitions Underlying Quarter 3 % % % % Reconstruction 43 (3) (29) 11 Trauma and Clinical Therapies 21 (2) (8) 11 Endoscopy 12 (3) - 9 Advanced Wound Management 15 (6) (1) 8 Group 24 (3) (11) 10 Year to Date Reconstruction 30 (3) (13) 14 Trau

  10. Slide 10: Underlying revenue growth by geography & business segment

    Underlying revenue growth by geography & business segment 2007 US Growth Europe Growth ROW Growth Total Growth Quarter 3 $m % $m % $m % $m % Reconstruction 152 15 112 4 49 4 313 11 Trauma and Clinical Therapies 102 10 33 10 21 19 156 11 Endoscopy 85 2 52 20 39 14 176 9 Advanced Wound Management 40 9

  11. Slide 11: Profitability by business segment Q3 2007

    Profitability by business segment Q3 2007 - - - - - - - - - - - - Q3 - - - - - - - - - - - YTD 2007 Revenue Trading Profit Margin Margin $m $m % % Reconstruction - excluding Plus 249 63 25.3 25.4 - Plus 64 10 15.6 15.9 Trauma and Clinical Therapies - excluding Plus 146 28 19.2 18.9 - Plus 10 - - - E

  12. Slide 12: Share buy back

    Share buy back • 20m shares bought back for $247m in Q3 • In total c.44m shares bought back for c.$537m at 26 October • Two year programme on track 11

  13. Slide 13: Q4 outlook for 2007

    Q4 outlook for 2007 • Revenue growth – Reconstruction – exceeds market growth – Trauma – Fixation close to market growth; clinical therapies lower than ytd – Endoscopy – arthroscopy steady, visualisation & DOR volatile – Advanced Wound Management – excluding NPWT, slightly above served market • Marg

  14. Slide 14: David Illingworth, Chief Executive

    David Illingworth Chief Executive

  15. Slide 15: Reconstruction

    Reconstruction % $m Q3 07 Q3 06 Growth Pre-Plus • Continues to outperform market Revenue 249 219 11 • Global hip growth 20%, US hips US 145 126 15 35% Outside US 104 93 4 • Knees grew at 5% worldwide, 4% in the US Trading profit 63 50 • Plus Integration on track Margin % 25.3 22.8 • Building EIP fou

  16. Slide 16: Trauma & Clinical Therapies

    Trauma & Clinical Therapies % $m Q3 07 Q3 06 Growth Pre-Plus • Fixation volumes strong Revenue 146 129 11 • #1 in bone stim, growth above US 102 93 10 market Outside US 44 36 14 • Fixation now a full service offering Fixation 94 84 9 • Joint fluid market under Clinical Therapies 52 45 15 pressure Tr

  17. Slide 17: Endoscopy

    Endoscopy % $m Q3 07 Q3 06 Growth Revenue 176 157 9 • Arthroscopy market strong US 85 83 2 • Knee and shoulder repair Outside US 91 74 17 performing well Arthroscopy 142 124 11 • Resection growing in mid single DOR/Visualisation 34 33 2 digits Trading profit 34 27 • Margin up over 200 basis points M

  18. Slide 18: Advanced Wound Management

    Advanced Wound Management % $m Q3 07 Q3 06 Growth Pre-BlueSky • US revenue growth sustained Revenue 198 174 8 • Silver product range expanded US 38 35 9 • Manufacturing reorganisation Outside US 160 139 8 in progress • Margin up 90 basis points Trading profit 37 31 • Global BlueSky launch in 2008 Ma

  19. Slide 19: In summary

    In summary • A quarter of good performance • BHR™ - 10th anniversary • Balanced growth and momentum in Advanced Wound Management • Clear measurable progress with EIP 18

  20. Slide 20: We are smith&nephew

    >KWe are smith&nephew

  21. Slide 21: Appendices

    i smith&nephew Appendices

  22. Slide 22: Exchange rates

    Exchange rates €:$ 12/05 Q3/06 12/06 Q3/07 Period end 1.18 1.27 1.32 1.42 Average 1.24 1.28 1.27 1.37 £:$ 12/05 Q3/06 12/06 Q3/07 Period end 1.72 1.87 1.96 2.04 Average 1.81 1.90 1.86 2.02 21

  23. Slide 23: Analysis of restructuring and acquisition costs

    Analysis of restructuring and acquisition costs P&L Charge Cash Cost Q3 YTD Q3 YTD $m $m $m $m EIP (4) (30) (9) (24) Plus – Integration (22) (24) (3) (5) - inventory revln (45) (45) - - Macrotexture - - 15 6 Other income/(costs) - 6 - (17) (71) (93) 3 (40) 22

  24. Slide 24: Free cash flow Q3 2007

    Free cash flow Q3 2007 Q3 YTD 2006 2007 2006 2007 $m $m $m $m Operating profit 128 53 380 339 Share based payment 4 6 13 19 Depreciation and Amortisation 44 116 121 211 Capital expenditure (55) (34) (185) (139) Working capital movements (64) 14 (143) (28) Trading cash flow 57 155 186 402 Restructuri

  25. Slide 25: Reconciliation of free cash flow to IAS 7 net cash flow

    Reconciliation of free cash flow to IAS 7 net cash flow from operating activities Quarter 3 YTD 2006 2007 2006 2007 $m $m $m $m Free cash flow 14 58 57 150 Add back: capital expenditure 55 34 185 139 Net cash inflow from operating activities (IAS 7) 69 92 242 289 24

  26. Slide 26: Plus and BlueSky

    Plus and BlueSky Third Quarter Percentage Growth Year to Date Percentage Growth 2006 2007 Actual CER 2006 2007 Actual CER $m $m $m $m Revenue Plus - 74 - 102 BlueSky - 2 - 3 Smith & Nephew 679 769 2008 2297 Total Smith & Nephew 679 845 24 10 2008 2402 20 11 Trading Profit Plus - 10 - 14 BlueSky - (3

  27. Slide 27: Plus revenue by business segment

    Plus revenue by business segment 2006 2007 Q1 Q2 Q3 Q4 2006 Q1 Q2 Q3 $m $m $m $m $m $m $m $m Revenue Reconstruction 66 69 60 77 272 86 79 64 Trauma and Clinical Therapies 8 8 8 9 33 9 8 10 Total 74 77 68 86 305 95 87 74 Underlying Growth (%) Reconstruction 11 11 9 16 12 19 11 3 Trauma and Clinical T

  28. Slide 28: Quarterly revenues

    Quarterly revenues Smith & Nephew Key Product Line Revenues, excluding Plus, in $m at Average Rates Quarterly and Underlying Growth* 2006 2007 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth Revenue Growth $m % $m % $m

  29. Slide 29: New products 2007

    New products 2007 Q1 Q2 Q3 Q4 LEGION™ CoCr (OUS) JOURNEY™ DEUCE™ Bi-compartmental bi-cruciate retaining knee replacement TRIGEN™ TAN/FAN instrument upgrades CAPTION™ Disposable Platelet Concentrator (limited release) KINSA™ Suture Anchor for Large Cannulated Screws Rotator Cuff repair TRIGEN™ META N

  30. Slide 30: Plus guidance (given March 2007)

    Plus guidance (given 12 March 2007) • EPSA – Broadly neutral in 2007 – Accretive in 2008 and beyond • Return on invested capital – Exceeds WACC in third full year • Year three synergies – Costs: Equivalent to at least 15% of acquired cost base – Revenue: Approximately 15% of current acquired revenue

  31. Slide 31: Earnings Improvement Programme Principal Financial Effects

    Earnings Improvement Programme Principal Financial Effects (given 3 May 2007) • Group trading margin increase averaging at least 1% p.a. to end 2010 – Net of an increase in R&D spend from 4.3% of sales in 2006 to c. 5% of sales – Includes both EIP and other improvements (except Plus) – Assumes no ch

  32. Slide 32: Earnings Improvement Programme Principal Financial Effects

    Earnings Improvement Programme Principal Financial Effects (given 3 May 2007) • Costs expected to be incurred broadly evenly over three years – but provisioning will be more uneven • Not providing a break-down of targets by GBU, but – Around half improvement in Ortho – Much of the remainder in Wound

  33. Slide 33: Blue Sky Guidance (given May 11)

    Blue Sky Guidance (given May 11) The acquisition of Blue Sky is expected to dilute Smith & Nephew’s 2007 earnings by around 1%, to be broadly neutral in 2008, and to be accretive from 2009 onwards. The impact in 2007 will be to reduce the trading margin of the Advance Wound Management business by ap

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