2008 Third Quarter Results. Sustainable profitable growth

Transcription

1 2008 Third Quarter Results Sustainable profitable growth 0

2 Forward looking statements This presentation contains certain "forwardlooking statements" within the meaning of the US Private Securities Litigation Reform Act of In particular, statements regarding expected revenue growth and trading margins discussed under "Outlook" are forwardlooking statements as are discussions of our product pipeline. These statements, as well as the phrases "aim", "plan", "intend", "anticipate", "wellplaced, "believe", "estimate", "expect", "target", "consider" and similar expressions, are generally intended to identify forwardlooking statements. Such forwardlooking statements involve known and unknown risks, uncertainties and other important factors (including, but not limited to, the outcome of litigation, claims and regulatory approvals) that could cause the actual results, performance or achievements of Smith & Nephew, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forwardlooking statements. Please refer to the documents that Smith & Nephew has filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, including Smith & Nephew's most recent annual report on Form 20F, for a discussion of certain of these factors. All forwardlooking statements in this presentation are based on information available to Smith & Nephew as of the date hereof. All written or oral forwardlooking statements attributable to Smith & Nephew or any person acting on behalf of Smith & Nephew are expressly qualified in their entirety by the foregoing. Smith & Nephew does not undertake any obligation to update or revise any forwardlooking statement contained herein to reflect any change in Smith & Nephew's expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based. 1

3 David Illingworth Chief Executive

4 Q3 highlights Reported revenues up by 10% to $930 million Orthopaedics revenues grew by 6%, 9% excluding the impact of Plus Reconstruction growth driven by strong contribution from knees Trauma changes in the US deliver a second quarter of increased revenue growth Endoscopy US shows strengthening revenue growth rate Advanced Wound Management grew above market rate Trading profit $174 million, 18.7% of revenues EIP targets unchanged EPSA increased by 3% to 12.2 sustainable profitable growth 3

5 Q3 Orthopaedics Global revenues of $513m grow 6% (9% excluding Plus impact) Hip revenue growth 3% Knee revenue growth 10% Trauma revenue growth 5% (9% excluding Plus impact) US Trauma sales force performs well Margin 19.9% impacted by Plus and compliance costs Enhanced global compliance program Additional sizes of BHR in the US will commence in Q4 Early Intervention Knee platform (JOURNEY BCS, DEUCE and Uni) continue to gain momentum Launch of INTERTAN Side Plate and PERILOC Plate for Hip Fracture market complements our extensive nail line Sound performance Orthopaedics 4

6 Q3 Endoscopy US sales organisation changes start to drive improved rate of growth Revenues $195m, growth of 8%, 9% outside US Repair grows 17% and exceeds resection revenues Visualisation revenues grow 9% Litigation and intellectual property activity dampens margin Global launch of bioabsorbable BIOSURE HA Interference screw Outside US training for future growth Endoscopy US delivers sequential revenue improvement 5

7 Q3 Advanced Wound Management Exudate management grows 6% driven by ALLEVYN Revenues of $222m and global growth of 8% Outside US grows 9% US revenues grow 8% NPWT increases billed accounts 25% in the period Margin 17.2% as investment in NPWT continues Infection management growth of 13% driven by silver range China factory on track Advanced Wound Management Growth above market and steady progress with NPWT 6

8 Advanced Wound Management China factory 7

9 Adrian Hennah Chief Financial Officer

10 Income statement Q Third Quarter $m $m % Growth Reported Underlying Year to Date $m $m Revenue % 7% 2,402 2,841 Trading profit % 1% Legal settlement (30) (30) Restructuring and acquisition costs (26) (26) (48) (58) Inventory revaluation* (34) (44) (15) Amortisation of acquisition intangibles* (11) (13) (19) (30) Operating profit* Net interest cost (13) (16) (14) (49) Other finance income/(cost) (1) 3 (1) Share of results of associates 1 Profit before taxation* Trading margin % 20.0% 18.7% 20.1% 19.5% *2007 restated for finalisation of Plus acquisition accounting 9

11 Income statement Q Profit before taxation* Third Quarter $m $m Year to Date $m $m Taxation* (26) (45) Tax Rate 31.4%** (110) (142) Attributable profit Add back: Amortisation of acquisition intangibles* Restructuring & acquisition costs Legal settlement Inventory revaluation* Tax on excluded items* (21) (6) (33) (17) Adjusted attributable profit Adjusted earnings per share ( EPSA ) EPSA Growth 3% *2007 restated for finalisation of Plus acquisition accounting ** Excluding restructuring and rationalisation costs, acquisition related costs, amortisation of acquisition intangibles and legal settlements (in 2007) 10

12 Revenue growth by business segment Q Underlying Quarter 3 * Actual % Currency % Acquisitions % Underlying % Excluding Sales Practice Changes ** % Orthopaedics 9 (3) 6 9 Endoscopy 11 (3) 8 8 Advanced Wound Management 11 (3) 8 8 Group 10 (3) 7 9 * Q comprises 63 trading days ( trading days) ** Adjust for the impact of Plus sales lost due to unacceptable sales practices in parts of Europe 11

13 Underlying revenue growth by geography & business segment Q Underlying Quarter 3 US $m Growth % Europe $m Growth % ROW $m Growth % Total $m Growth % Excluding Sales Practice Changes % Orthopaedics (5) Endoscopy AWM Group

14 Profitability by business segment Q Orthopaedics Endoscopy Advanced Wound Management Total Q3 Revenue $m Trading Profit $m Margin % YTD Margin % Orthopaedics Endoscopy Advanced Wound Management Total

15 Share Buy Back 16.3m shares bought back in 2008 for $193m Total of 68.2m shares bought back, returning cash of $833m to shareholders Decision to defer programme in light of financial market instability 14

16 Committed Debt Facilities Facility Description Size Maturity Drawn at end Q3 Revolving Credit Facility $1.5bn May 2012 $0.36bn Term Loan $1bn May 2012 $1bn 15

17 2008 outlook Revenue growth Ortho close to market growth in USA, impacted by Plus issues in Europe Endoscopy continue to grow slightly below the market Advanced Wound Management excluding NPWT, at or slightly above served market EIP on track. Impact from Plus sales practice changes, NPWT investment, compliance costs. Plus sales practice changes to reduce revenues by c.$100m in a full year, somewhat less in 2008 sustainable profitable growth 16

18 David Illingworth Chief Executive

19 Summary Good quarter of solid progress Knee portfolio delivering good growth US Trauma revenues improved US Endoscopy revenues improved Advanced Wound Management and NPWT growth rate EIP continued progress Uncertain economic conditions We have The right products The right people In growing markets 18

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21 Appendices

22 Quarterly revenues Smith & Nephew Key Product Line Revenues in $m at Average Rates and Underlying Growth* Orthopaedics Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Growth* Growth* Growth* Growth* Growth* Growth* Growth* Revenue Growth* % % % % % % % $m % Reconstruction Knees 12% 7% 5% 10% 9% 1% 9% % Hips 23% 29% 20% 14% 21% 4% 7% 157 3% Trauma 13% 10% 9% 7% 10% 2% 4% 108 5% Clinical therapies 33% 25% 15% 11% 20% (2)% 6% 62 10% Endoscopy Arthroscopy 10% 12% 11% 7% 10% 7% 10% 155 8% Visualisation 20% 9% 2% 6% 9% (5)% 12% 38 9% Advanced Wound Management Exudate Management 11% 8% 17% 14% 12% 6% 15% 67 6% Infection Management 8% 17% 6% 3% 9% (1)% 9% 29 13% Smith & Nephew 12% 12% 10% 8% 10% 2% 8% 930 7% * All revenue growths are on an underlying basis as previously reported, excluding the effects of acquisitions and currency translation 21

23 New products 2008 Q1 Q2 VERILAST Technology Q3 BHR 2mm Incremental Heads for US CAPTION Disposable Platelet Concentrator Europe InterTAN CHS Q4 PiGALILEO Mini System R3 Acetabular Cup System Patient Matched Program (Phase II Extended Evaluation) PERILOC Small Fragment Screws & Trays CAPTION Disposable Platelet Concentrator US JETX Bar Quick Clamps ELITE Hip Instrument System PERILOC VLP (International release) HD Small Joint Scopes ELECTROBLADE BONECUTTER 5.5 New TWINFIX anchor designs New Hip Access System New TRUREPAIR products New scopes/couplers DoubleRow System for RC repair JOURNEY Unicompartmental knee New Small Joint anchors ALLEVYN GENTLE range (Europe) New resorbable interference screw line for ACL/PCL repair PERILOC PFP New NPWT range extension ALLEVYN Ag Silver Dressing (Europe) Orthopaedic Reconstruction ALLEVYN GENTLE range (US) Orthopaedic Trauma Endoscopy ALLEVYN new variants to sacrum & heel dressings Advanced Wound Management ACTICOAT range extensions 22

24 Exchange rates Q3/07 FY/07 Q3/08 :$ Period end Average :$ Period end Average Percentage of Revenue by Geographic Market: Q3 % YTD % United States United Kingdom 8 9 Other Europe Other

25 Analysis of restructuring and acquisition costs EIP P&L Charge Q3 Total to date $m $m Cash spend Q3 Total to date $m $m cash costs* asset w/offs 3 7 n/a n/a Plus Integration cash costs** asset w/offs 8 15 n/a n/a * Target $125m over three years ** Target $6080m 24

26 Free cash flow Q Trading profit Share based payment Depreciation and amortisation Capital expenditure Movements in working capital and provisions Trading cash flow Restructuring, rationalisation & acquisition costs Legal settlement Macrotextured claim payments Operating cash flow Net interest paid Taxation paid Free cash flow Third Quarter 2007 $m (34) (42) 155 (12) (30) (13) (57) $m (64) (18) (3) 159 (15) (46) (139) (106) 402 Year to Date 2007 $m 19 (46) (30) (14) (168) $m (198) (84) 453 (61) (9) 383 (46) (142)

27 Reconciliation of free cash flow to IAS 7 net cash flow from operating activities Third Quarter $m $m Year to Date $m $m Free cash flow Add back: capital expenditure Net cash inflow from operating activities (IAS 7)

28 Business days per quarter Q1 Q2 Q3 Q4 Full Year