Enabling people to live healthier, more active lives · Stryker Biomet Sythes DePuy Zimmer Smith &...
Transcript of Enabling people to live healthier, more active lives · Stryker Biomet Sythes DePuy Zimmer Smith &...
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Preliminary results announcement 2006
Enabling people to live healthier, more active lives
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Forward looking statementsThis 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 statements as are discussions of our product pipeline. These statements, as well as the phrases "aim", "plan", "intend", "anticipate", "well-placed”, "believe", "estimate", "expect", "target", "consider" and similar expressions, are generally intended to identify forward-looking statements. Such forward-looking 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 forward-looking 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 forward-looking statements in this presentation are based on information available to Smith & Nephew as of the date hereof. All written or oral forward-looking 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 forward-looking 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.
John BuchananChairman
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Introduction
• New management structure working well
• Excellent close to the year
• Good progress from all four businesses
• Return up to $1.5 billion capital to shareholders over two years
• Update on rigorous review of margin improvement opportunities
Sir Christopher O’DonnellChief Executive
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2006 – An eventful year
• Recon market– Dramatic slowdown– Growth rate halved
• Business structure– Divisionalised Ortho into Recon and
Trauma• Management progression
– New chairman, new CFO, COO• BSN divestment
– Successful but dilutes earnings• Biomet negotiations
– Lengthy but not fruitful• New products
– Strongest slate ever - particularly Recon
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Business highlights Q4 2006
• Group revenue growth up 11% to $771m
• Trading profit increased 17% to $183m
• Good performance across all divisions
• Reconstruction revenue grows with added momentum at 15%
• Trauma revenue growth improves again to 17%
• Endoscopy achieves revenue growth of 9%
• Advanced Wound Management revenue improves 3% and up 7% after adjusting for DERMAGRAFT®
All revenue increases are given at constant exchange ratesDERMAGRAFT® is a trademark of Advanced BioHealing Inc
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Strategy: growth
• Continued organic growth through innovation
– Clinical benefits for patients
– Value for healthcare systems
– Focus on younger, more active patients
• Targeting above market revenue growth in each sector
• Continued investment in R&D and innovation
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Strategy: acquisitions
• Seek value-enhancing acquisitions
– Unique/additive technologies
– Improved channels to market
• Particular focus on emerging markets for biological repair of cartilage and bone
– EXOGEN™ - proven, non-invasive bone repair
– TRU-FIT™ (OBI) – focal cartilage defects
• Maintain balance sheet flexibility to deliver on opportunities
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Biomet
• Opportunity to gain scale/improve margin
• Serious review and negotiations
• Identified substantial synergies with some unique to
Smith & Nephew
• Private equity bid at upper end of value
• Eventual outcome means no fundamental change to market structure/players
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Strategy: balance sheet
• BSN divestment has delivered net cash on balance sheet
• Aim to maintain investment grade credit rating
– Efficient balance sheet
– Flexibility for future acquisitions
• Intention to return up to $1.5 billion via share buyback over next two years
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Strategy: earnings improvement
• Smith & Nephew invests strongly in ortho growth and leads recon sector growth in 15 of last 16 quarters
• Continued investment in all businesses to maintain abovemarket growth
• Competitor ortho companies have leading edge margins in med-tech sector (30% plus). Endo/Wound companies have lower margins
• Clear scope for margin enhancement via Earnings Improvement Programme– extensive management effort– in-depth business analysis– final phase of planning– Biomet process extends delivery timeline
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Strategy: Advanced Wound Management
• Wound is the global market leader in the wound dressing sector
• Baby boomers have benefited Ortho Recon, but have yet to impact the wound sector
• 2006 a year of transition for Wound
– DERMAGRAFT® exit completed
– New business focus/model
– New management global/US
– Margin enhancement commenced
• Outlook – combination of growth and margin step-up to add significant shareholder value
DERMAGRAFT® is a trademark of Advanced BioHealing Inc.
Adrian HennahChief Financial Officer
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Income statement 20062005 2006 % growth % growth 2005 2006 % growth$m $m Actual CER $m $m CER
Restated Restated
Revenue 670 771 15% 11% 2552 2779 8%
Trading profit 156 183 17% 13% 517 571 9%
Restructuring costs (40) (84)
Bid related costs (20) (20)
Amortisation of acquisition intangibles (3) (6) (11) (14)
Operating profit 113 157 422 537
Net interest income 2 2 9 10
Other finance income (3) 2 (5) 6
Fair value of hedge of anticipated sales proceeds of J.V.
2 2 (3)
Profit before taxation 114 161 428 550
Trading margin 23.3% 23.7% 20.3% 20.5%
Q4 Full Year
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Income statement 2006% growth % growth
2005 2006 Actual 2005 2006 Actual$m $m $m $m
Restated Restated
Profit before taxation 114 161 428 550
Taxation (34) (40) (126) (156)
Profit from continuing operations 80 121 302 394
Discontinued operations 7 19 31 351
Attributable profit 87 140 333 745
Add back:
Amortisation of acquisition intangibles 3 6 11 14
Restructuring costs 40 84
Net profit on disposal of JV (19) (351)
Bid related costs 20 20 Fair value of hedge of anticipated sales proceeds of J.V.
(2) (2) 3
Tax on excluded items (12) (5) (29) (6)
Adjusted attributable profit 116 142 22% 397 425 7%
Adjusted EPS ("EPSA") 12.4¢ 15.2¢ 42.3¢ 45.2%
EPS 9.3¢ 14.9¢ 35.5¢ 79.2¢
Q4 Full Year
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Revenue growth by business segment 2006
(1)
Acq Effect
%
13013Trauma and Clinical Therapies
17(1)18Trauma and Clinical Therapies
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1
9
10
11
3
9
15
CER
%
9
3
10
11
15
10
14
18
Actual
%
Full Year
(1)Reconstruction
(1)Endoscopy
(2)Advanced Wound Management
(1)Group
(4)Endoscopy
(7)Advanced Wound Management
(3)Reconstruction
(4)Group
Currency
%Quarter 4
17
1365
139
355
357
514
374
40
97
100
137
US$m
8
(3)
7
13
9
10
(5)
4
14
16
Growth%
867
374
190
71
232
243
100
57
20
66
Europe$m
6
1
9
18
8
9
5
14
21
8
Growth%
547
185
120
69
173
154
52
33
21
48
ROW$m
12
6
14
13
16
18
9
20
30
22
Growth%
2779
698
665
497
919
771
192
187
141
251
Total$m
13Trauma and Clinical Therapies
17Trauma and Clinical Therapies
10Reconstruction
9Endoscopy
1Advanced Wound Management
8
15Reconstruction
9Endoscopy
3Advanced Wound Management
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Full Year
Growth%Quarter 4
CER revenue growth by geography &business segment 2006
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20.524.429119Trauma and Clinical Therapies
20.324.134141Trauma and Clinical Therapies
20.3
14.1
20.6
24.8
20.5
16.3
18.5
25.4
Margin%
Full Year- - - - - - - - - Q4 - - - - - - - - -
23.3156670
18.432174Advanced Wound Management
25.041164Endoscopy
25.454213Reconstruction
2005 Restated
23.7183771
20.840192Advanced Wound Management
21.440187Endoscopy
27.569251Reconstruction
2006
Margin%
Trading Profit$m
Revenue$m
Profitability by business segment 2006
19
550428161114Profit before taxation (10)(9)(2)(2)Interest received
10922Interest received
150949316Free cash flow(144)(112)(48)(33)Taxation paid
28419713947Operating cash flow
-25-13Dividends received from joint venture
28417213934Cash generated from operationsafter capital expenditure
(217)(240)(32)(71)Working capital movements(222)(200)(37)(47)Capital expenditure1691804838Depreciation, amortisation and impairment
141312Share based payment
2006$m
2006$m
2005$m
Restated
2005$m
Restated
Full YearFourth Quarter
Free cash flow 2006
20
Profit ($m) 2006 2005 2004 2003 Profit in Stock Elimination (2) (9) (8) Trading Profit (2) (9) (8) Finance Income (1) - - Taxation 1 3 3 Profit after Tax (2) (6) (5) Death-in-Service Liability after tax 3 3 1 Exchange difference (6) 3 (2) Equity Impact (5) - (6) Balance Sheet ($m) Inventories (61) (53) (49) (39) Death-in-Service Liability (16) (16) (20) (22) (77) (69) (69) (61) Taxation 25 22 22 20 Equity Impact (52) (47) (47) (41)
Restatement
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Restatement (2)
Total Q1 Q2 Q3 Q4$m
Reconstruction 1 - (3) (3) 7
Trauma and Clinical Therapies - - - - -
Endoscopy - - (2) (1) 3
Wound Management (3) (3) (1) 2 (1)
Trading profit (2) (3) (6) (2) 9
Finance costs (1) - - - (1)
Taxation 1 1 2 1 (3)
Profit after tax (2) (2) (4) (1) 5
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Capital structure
• Dividend
• Share Buy Back – up to $1.5 billion over two years
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2007 outlook
• Revenues – continued market outperformance
– Q1 growth lower than Q4 2006 exit rate
• Margins – anticipate slight improvement pre EIP in 2007
• Tax – 31% or thereabouts
David IllingworthChief Operating Officer
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Market comment
• Continued strengthening of US reconstructive market
• Mixed picture in European markets with continued constraints on healthcare spending
• Japanese market remains difficult but pressures reducing
• Overall, strong underlying demand for our products that offer clinical benefits
• For Q4 and year led industry for growth
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Stryker Biomet Sythes DePuy Zimmer Smith &Nephew
Global Orthopaedics Growth 4th Qtr FY
Source: Company reports/internal researchNote: Growths in constant currencySynthes growths are estimated as Q4 not yet reported
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FYQ4
10%12%10%12%9%
19%12%15%14%16%
Global
USOutside US
KneesHips
Reconstruction – Q4 2006
• US market recovery maintained, mixed situation OUS
• Growth rate improves in US and OUS
• Improved knee growth outside US
• Outstanding hip growth with BHR™ in US - ahead of plan at $16 million
• New products 16% of revenue in FY 2006 (16% in FY 2005)
BHR™ preserves patient’s bone compared to total hip replacement
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Reconstruction in 2007
• Market fundamentals remain strong
• Expect modest US market recovery to continue
• Leading the younger active patient segment – expanding market
• 2006 new products driving growth
• US BHR™ introduction gaining traction
• Innovation and technology attracting new customers
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Trauma and Clinical Therapies – Q4 2006
• Growth momentum continues
• PERI-LOC™ plates and INTERTAN™ nails drive growth
• Outstanding quarter for Clinical Therapies
• Successful integration of DUROLANE® JFT
• New products 26% of revenue in FY 2006(19% in FY 2005)
FYQ4
23%9%
13%15%13%
33%9%
17%26%14%
Global
USOutside US
FixationClinical Therapies
TRIGEN™ INTERTAN™ NailDUROLANE® is a trademark of Q-Med AB
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Trauma and Clinical Therapies in 2007
• Ageing population and active life styles underpin growth
• Customer focus strategy delivering benefits
• Complete year of full PERI-LOC™ range
• Extended nailing range (INTERTAN™ and TRIGEN™ Meta Nail) strengthens leadership position
• Thriving JFT (SUPARTZ® and DUROLANE®) and EXOGEN™ businesses
• Minimally invasive spine opportunities through more established channels
DUROLANE® is a trademark of Q-Med ABSUPARTZ® is a Trademark of the Seikagaku Corporation
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Endoscopy – Q4 2006
• Strong growth continues for Repair from success of shoulder knee and hip product portfolios
• Resection growth improves helped by new hand control and enhanced blade range
• Quieter quarter for DOR illustrates variability of sector
• Integration of OBI completed
• New products 28% of revenue in FY 2006 (24% in FY 2005)
FY*Q4*
38%21%9%11%7%
25%27%10%16%6%
Global
USOutside US
RepairDOR
KINSA™ Suture Anchor
* including OBI
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Endoscopy in 2007
• Patient demand for minimally invasive surgery
• Use strength of arthroscopy market position
• Continued success in fast growing repair segment
• New pump/new hand control to drive competitive conversions
• Benefit of 2006 new product launches
• Continued investment in new innovative products
• Develop OBI potential
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(3)%(4)%US incl. DERMAGRAFT®
FYQ4
13%9%1%3%
11%
19%9%3%6%
10%
Global
US ex DERMAGRAFT®
Outside US
ALLEVYN™Wound bed prep
Advanced Wound Management – Q4 2006
• Strong consecutive quarterly US growth
• Healthcare spending constraints OUS have continued to impact the business
• Excellent Wound Bed Prep growth despite low price silver competition effect on ACTICOAT™ growth
• ALLEVYN progress maintained
• VERSAJET™ growing at nearly double the rate of last year
• New products 13% of revenue in FY 2006 (14% in FY 2005)
ALLEVYN™ product range
DERMAGRAFT® is a trademark of Advanced BioHealing Inc.
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Advanced Wound Management in 2007
• US market penetration opportunity
• Obesity continues to add to diabetic patient population
• ALLEVYN™ leadership strengthened by updated product range
• Sustain rapid growth of VERSAJET™ hydrosurgery system
• Improved pace of new product introductions
• Significant margin improvement gains
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New products 2007
Advanced Wound ManagementEndoscopyOrthopaedic Reconstruction
ALLEVYN™ major new variant
ACTICOAT™ two new variants
HD Video Platform
ALLEVYN™ major new variantBIORAPTOR™ 2.3 OC suture anchor for the hip
KINSA™ OC Suture anchor for Instability repair in the shoulder
ENDOBUTTON™ Direct for Anatomic ACL fixationIV3000™ with strips and labels
PERI-LOC™ Type B PlatesKINSA™ Suture Anchor for Rotator Cuff repairLateral Hip Positioning SystemALLEVYN™ Shaped and sealed
– US
JET-X™ upgradesBIORAPTOR 2.3 OC suture anchor for the shoulder
CAPTION™ Disposable Platelet Concentrator (Limited Release)
Expanded CALAXO™ Osteoconductive screw sizes
JOURNEY™ CoCr (OUS, Japan)JOURNEY™ DEUCE™ Bi-compartmental bi-cruciateretaining knee replacement
Large Cannulated ScrewsAnatomic ACL instrument set for the knee
REFLECTION™ 3 Universal shell with interchangeable poly, metal, ceramic liners
LEGION™ CoCr (EU, Japan)LEGION™ system line extensions
TRIGEN™ META Nail (international release)
Q4Q3Q2Q1
Orthopaedic Trauma
Sir Christopher O’DonnellChief Executive
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Summary
• Global market conditions continue to be favourable
• 2006 new products plus 2007 introductions provide strong platform for growth
• Aiming for continued market outperformance
• Expect Earnings Improvement Programme to have a substantial impact across the business – announcement with Q1 results
• Strong appetite for exciting technology based acquisitions
Appendix
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Reconciliation of free cash flow to IAS 7net cash flow from operating activities
RestatedRestated
$m$m$m$m
37226913050Net cash inflow from operating activities (IAS 7)
2006200520062005
-
222
150
(25)
200
94
Full Year
(13)
47
16
Fourth Quarter
-Deduct: dividends received from JV
37Add back: capital expenditure
93Free cash flow
40
€ : $
12/04 Q4/05 12/05 Q4/06 12/06
Period end 1.36 - 1.18 - 1.32
Average 1.25 1.18 1.24 1.31 1.27
£ : $
12/04 Q4/05 12/05 Q4/06 12/06
Period end 1.92 - 1.72 - 1.96
Average 1.84 1.73 1.81 1.95 1.86
Exchange rates
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Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FYGrowth Growth Growth Growth Growth Growth Growth Growth Growth Growth
% % % % % % % % % %
Reconstruction
Knees 17% 20% 13% 12% 15% 9% 10% 15% 12% 12%Hips 12% 16% 10% 13% 13% 5% 2% 11% 19% 10%
Trauma amd Clinical Therapies
Fixation 14% 13% 15% 16% 14% 7% 9% 12% 9% 9%Clinical therapies 51% 42% 35% 31% 38% 12% 22% 20% 33% 23%
Endoscopy
Repair 21% 23% 23% 20% 21% 19% 18% 22% 27% 21%Visualisation & DOR 21% 3% 2% 8% 7% 1% 3% 20% -2% 5%Resection 0% 2% 3% 4% 2% 3% 0% 4% 6% 3%
Advanced Wound Management
ALLEVYN™ 13% 14% 12% 16% 13% 7% 9% 10% 9% 9%ACTICOAT™ 30% 33% 25% 16% 25% 20% 12% 1% 5% 9%DERMAGRAFT™ and related -25% -10% -25% 0 -16% -33% -85% -96% -100% -90%
Smith & Nephew 11.5% 12.0% 10.0% 11.0% 11.0% 6.0% 6.0% 10.0% 11.0% 8.0%
20062005
Quarterly revenuesSmith & Nephew Key Product Line Revenues in $m at Average Rates Quarterly and Underlying Growth*
* All revenue growths are on an underlying basis, excluding the effects of acquisitions, currency translation and variations in revenue days