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Acquisition of Plus Orthopedics 12 th March 2007

Acquisition of Plus Orthopedics - Smith & Nephew · Acquisition of Plus Orthopedics ... This presentation contains certain "forward-looking statements" within the meaning of the

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Acquisition of Plus Orthopedics

12th March 2007

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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.

Sir Christopher O’DonnellChief Executive

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Our strategy for acquisitions

• Seek value-enhancing acquisitions

– Unique/additive technologies

– Improved channels to market

• Particular focus on emerging markets for biological repair of cartilage and bone

• Maintain balance sheet flexibility to deliver on opportunities

David IllingworthChief Operating Officer

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Introduction to Plus Orthopedics

• Founded in 1991

• Based in Switzerland

• Original business in cementless hips

• Among the top players in hips in Germany, the world’s 3rd largest orthopaedics market

• Strong player in knees in Germany

• Manufacturing in Switzerland and China

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Acquisition highlights

• Purchase price of $889m, including debt

• Revenues of $300m in 2006 growth of 16% over 2005

• Profit before interest and tax of $36m in 2006 growth of 33% over 2005

All CHF / US$ conversions at $1 = CHF 1.221

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Benefits

• Strengthens European and Asian distribution

• Excellent European product portfolio

– European designed cementless hip stems

– Hinged, fixed and mobile knees

• Complementary product range

• Highly synergistic business

• Earnings accretive from 2008

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Opportunities

• Increased leverage of combined sales force

– In Europe and Asia

• Production

– increased manufacturing leverage

– capacity utilisation

• Marketing and sales infrastructure efficiencies

• Focused integration resources to deliver benefits

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Complementary products

• Hinged knee

• Mobile bearing knee

• Threaded acetabular cup

• Shoulder implants

• Toe implants RT-Plus hinged kneeBICON-Plusthreaded acetabular cup

Cementless, rectangular, dual-taper straight stem

Ring locking Bi-polar head

Metal (CoCr) headsBOFOR CupCementless Revision cupPROMOS modular shoulder

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Global market – new #4 in reconstruction

29%

22%

20%

12%

11%6%

DePuy (J&J)

Smith & Nephew/PO

Other

Biomet

Stryker

Zimmer

Source: Company reports/internal research

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Plus sales force locations

Adrian HennahChief Financial Officer

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Financial highlights - 1

• Purchase price including debt CHF 1,086m* (US$ 889m)

• Financed entirely from bank borrowings – facility in place

$ million 2006 2005 Growth

Revenue 300 258 16%

EBIT 36 27 33%

EBITDA 62 48 29%

Price / EBIT 25x

Price / EBITDA 14x

Price / Revenue 3xAll

* CHF numbers have been converted into US Dollars at CHF 1.221 = $1

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Financial highlights -2

• 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

• Cost of synergies

– Cash costs estimated at 1.5x – 2.0x year three cost savings

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Summary

• Exciting addition to global Orthopaedic Reconstruction business

– takes Smith & Nephew to global #4

• Step change in Europe – doubles our business

• Complementary European focussed product range

• Strengthened channels to market

• Earnings accretive from 2008

Appendix

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Proforma revenue by geography 2006

1003,079Total

18569ROW

371,125Europe

451,385USCombined (proforma)

100300Total

722ROW

86258Europe

720USPlus

100919Total1002,779Total

19173ROW20547ROW

25232Europe31867Europe

%USDm%USDm56514USReconstruction491,365USSmith & Nephew Total

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Plus Orthopedics – summary income statement

CHF million 2006 2005

Revenue 367 315

Cost of sales (122) (105)

Gross profit 245 210

Operating expenses (202) (178)

Share of profit of associates 1 1

EBIT 44 33

Financial expenses (net) (19) (6)

Profit before tax 25 27

Tax (8) (9)

Profit for the year 17 18

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Plus Orthopedics – summary balance sheetCHF million 2006 2005

Fixed assets: tangible 108 92intangible 34 20investments 9 8total 151 120

Other non-current assets 28 7Trade working capital 145 144Other working capital (32) (28)Deferred taxation (net) 20 17Employee benefit obligation (19) (23)Other non-current liabilities (31) (18)

262 219

Financed by:Equity 76 56Net debt 186 163

262 219