Smith & Nephew SNATS, Inc. (SNN)

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Smith & Nephew Plc (SNN)

Q4 2010 Earnings Conference Call

February 10, 2011 05:00 AM ET


John Buchanan – Chairman

Dave Illingworth – CEO

Adrian Hennah – CFO


Asthak Malik – Matrix

Matt Miksic – Piper Jaffray

Julien Dormois – Exane

Ilan Chaitowitz – Redburn Partners

Florian Gaiser – Kepler Capital Markets


John Buchanan

Well, good morning and welcome, everybody. Before Dave and Adrian take you through the full year results, I thought, in the light of the other announcement this morning that I should say a few words. You’ve seen the announcement of the succession, CEO succession at Smith & Nephew and the announcement of Dave’s retirement. The board is very sorry to see Dave go.

Some evidence, I could go much beyond this. And that might come out with many questions you have. But this is what’s been happening under Dave’s tenure as CEO just to highlight one point, earnings per share 13% compound over the four years and we all recall this is probably the most difficult business environment and ever so been through. This is a stunning achievement and not at the expense of growth.

What Dave leaves behind, platforms from growth as for the business level, and a wider geographical footprint. Dave’s nine years at Smith & Nephew have been characterized by a customer oriented approach, and of course, aimed at creating shareholder value. You can see from those numbers the compounding of value under his tenure has been excellent. But Dave has also evolved the culture of the company, deepening the innovative skills that are so essential, and you’ll have more of that later, but also to focus on efficiency. Efficiency, not as a program but as a deeply embedded process in order to fund future growth opportunities. So, we thank Dave very much and we’ll have lots of time for celebration and wish him well for the future.

But looking to the future of Smith & Nephew, of course, we’re delighted to recruit an excellent successor from the healthcare segment, Oliver Bohuon, who has worked with GSK and more recently with Abbott in the States for a number of years, running their pharmaceutical business is an impressive health care professional. His leadership skills together with the team that Dave has created, the foundations for growth that have been established we’re very excited about.

The underlying foundations of this industry and the segments were an of course, enormously powerful, as demographic trend now expanded to the emerging markets. That, without skills set the leadership team that’s been developed and the products coming through make us really excited. So, we look forward to introducing you to Olivia in due course.

With those few remarks, let me pass it over to Dave and Adrian. Thank you.

Dave Illingworth

Well thank you. I did have a little bit of a nightmare last night. I kind of woke up in the middle of night thinking that I had arrived here this morning, it was just me and the sound guy, no one else was here. So, I’m glad to – I’m glad to see that you all made it in.

First of all, you know, we’ll, obviously make a couple of comments later on, but I do want to focus on the significant achievements of this company in the last quarter and the momentum that we have going in to 2011.

I’ll go ahead and run through those and we’re going to go through the normal process and then I’m going to hand it over to Adrian to take you through the numbers and then I’ll come back and talk about our industry, our strategy and give you some details about how we’re planning on delivering on our strategy in 2011.

So, starting out with the financial –with the highlights for 2010 and Q4, 2010 was a very, very good year for us. We gained momentum in the second half of the year as we had forecasted and expected and ended with a very strong finish having generated revenues just shy of US$4 billion and that represented 4% growth for the year. Our focus on our customers and on innovation paid off leading to our out performance of the market.

Now, the fourth quarter was particularly strong for us, pretty much across the board with revenues of over $1 billion and 5% average daily sales growth. I’m going to talk a little bit about average daily sales throughout the presentation and it’s because we uniquely had a significant fewer number of sales days in the fourth quarter than we had in the previous year.

We have delivered on our commitment to strengthen our margins across our businesses as all of you are aware and we’ve done this in the toughest market conditions that we’ve experienced from many years and we’ve done it while increasing our revenues with the majority of our businesses outperforming their respective markets. And the same time we’ve made major investments in our businesses. We achieved this by developing a culture capable of using efficiency to free-up resources which then allows us, the management team, to make high quality decisions and investments for a sustainable growth.

As a result we generated a margin of 26% in the quarter and 24.5% for the year giving us the flexibility to make choices that optimize investment with return and growth. Our adjusted earnings per share were 73.6 cents, an increase of 12% and we’re proposing a final dividend of 9.82 cents which is in line with our longstanding policy, an increase of 10%. We generated of over $500 million of free cash in the year reducing our debt to just under $0.5 billion and we reorganized our banking facilities at the end of the year.

Now, let me move on to look at the business highlights for the year and starting with Orthopedics. Our knee business end of the year with phenomenal momentum, for the year our knee business outperformed the market and saw revenues grow by 5% and had an extremely strong fourth quarter with 9% growth in the U.S. and 4% globally. Our trauma business continues its steady performance and has improved consistently throughout the year.

In Endoscopy, we maintained our strong momentum while we reshaped our U.S. sales force. Emerging markets was again a very bright spot in this business, it is notable that sports medicine repair had double digit growth for the year as well.

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