Smith & Nephew PLC (SNN) 2004 Q1 法說會逐字稿

Thanks very much for your patience ladies and gentlemen, and welcome to your Smith and Nephew First Quarter Results Conference Call. This call is going to be with Christopher O'Donnell, your Chief Executive Officer and Mr. Peter Hooley, your Finance Director of Smith & Nephew. Your lines remain on listen-only throughout the call; however, if you need assistance you simply dial star, followed by zero and an operator will be happy to assist you. So without further ado, I'm going to hand you over to your chairperson, Sir Christopher O'Donnell.

Thank you very much Barney and good afternoon to everybody in the UK and Europe, and good morning to everybody in the U.S. Thank you for joining us on the first, First Quarter Smith & Nephew Conference Call. We're very pleased to have you with us.

I'd like to introduce the call and then Peter will go through his usual detail of the results. Well first of all, we'd like to say how pleased I am at how strong trading has been in the first quarter. Orthopaedics has accelerated sales growth, particularly in the U.S. Endoscopy is returning to its former momentum, and advanced wound management had good underlying growth. Profit has grown strongly on the back of this sales growth and much better manufacturing efficiencies this year. For the results of growth momentum, I believe we're in really good shape to meet our targets going forward.

We've also introduced a number of innovative new products this year, as well as made a number of important technology acquisitions in each of our businesses, the principle of which is the MMT Hip Resurfacing product in our orthopaedic business. Our next results conference call will be on the 5th of August when we will be announcing our Quarter Two results. Now that we've gone through quarterly reporting, we will not be doing a pre-post briefing that we used to do at the end of June prior to the half-year close. We'll be reporting regularly on a quarterly basis.

I'll now turn the call over to Peter Hooley, who will run through the results and reaffirm guidance for this year. I'll be happy to take questions at the end of this. Peter?

Thank you Chris, and hello everyone. Total sales of groups operations was 102 million for quarter one. Decrease of 9% on Q1 last year and is also 8% of adverse currency translation, visibly the U.S. dollar falling from average rates of one per (inaudible) in Q1 a year ago, 1.8 for this quarter.

(Inaudible) sales growth isn't 9%, but we have (inaudible) on the leap year, because our reporting calendar (inaudible).

I'm afraid we do have a ...

(Noise interference )

Hello?

OK, carry on the call Peter.

Right, this is worth 5% of sales growth in the quarter, meeting true underlying sales growth at 12%. (Inaudible) for sales growth or after adjusting for the extra sales days, adverse currency and for the very small amount of MMT sales in Q1 this year. A reconciliation of reported to underlying sales growth is set out of the (inaudible) note one in the quarterly accounts, thus, overall grew underlying sales growth of 12%.

Orthopaedics sales grew 17%, again demonstrating share gains in the market growing at an estimated 13%, but its excluding spine. Sales growth inside the U.S. was 23% for ortho and outside the U.S. sales grew 9%. Sales pricing contributed 4% to U.S. growth and was flat outside the U.S. Knee sales grew 24%, 27% within the U.S. and 20% outside the U.S. Hip sales grew 18%, 19% within the U.S. and 17% outside the U.S. Trauma sales grew by 10%, within the U.S., trauma growth was 18%, but was flat outside the U.S., basically because last year we had a sizable tender in the Middle East in Q1.

We are now reporting knee and trauma sales, exclusive of SUPARTZ and EXOGEN of these are being sold through our specialists clinical sales force. SUPARTZ and EXOGEN are principally U.S. products and grew 31%. Reported revisions of the macrotextured femoral knee component withdrawn from the market last August stood at 295 at the end of April. We are working closely with our surgeons and their patients where revisions are required and we have already reached mutually satisfactory settlements with patient in respect to well over half of these revisions. We continue to believe the product withdrawal remains manageable in business terms.

Turning now to Endoscopy. Sales were up 8% compared to Q1 a year ago. U.S. sales grew 6% of the blades, access and visualization products return to growth and sales outside the U.S. grew 11%. Repair products continue to grow strongly at 19%. The our tech radio frequency products grew 7%, access and blades grew 5%, the latter benefiting from the launch of our new light-weight and more powerful piece POWERMAX.

Visualization returned to growth following the launch of the new progressive scanning cameras at the end of the quarter. Advanced Wound Management sales grew 7%. Outside the U.S. sales growth was again strong at 11%, but as anticipated, sales in the U.S. declined as we commence the switch to a new enzyme debrider product in that market. While U.S. sales in fact declined 5%, excluding enzyme debriders, U.S. sales were up 17%. Overall ALLEVYN, continued to grow stronger at 19%, ACTICOAT further accelerated sales growth of 70%, and DERMAGRAFT grew 61%.

EBITDA grew 25%, significantly ahead of reported sales growth from a 2% point increase in the margin. This was largely a factor of Q1 last year, being an unduly low margin quarter, because of volume and plant-up starts inefficiency at wound management a year ago. But we continue to guide for at least a 1% margin improvement for full year 2004 over 2003 from leverage and general efficiencies.

The VSM (ph) joint venture conditions to widen its margins and we are looking for profits growth of just under 10% this year. The benefit of that acquisition of GI & J's (ph) casting business did not come through until next year. After the MMT acquisition, our interest charge will something like a million for the full year. The tax charge is based on our estimate for the full year of 29% on profit before goodwill amortization and exceptional items.

The average number of shares rose just over a half a percent to 934 million, making EPSA 4.74P a 24% increase. I suggest you use 937 million of the average number of shares for the full year. Anticipating the question what reported sales in EPSA growth would have been had we done a U.S. dollar consolidation, the answer is that there would have been 17% higher at 26% of sales, of 42% for EPSA growth.

Net debt closed at 151 million after spending 70 million on MMT and other small acquisitions. For the full year we expecting operating cash flow to be above a 70% conversion of EBITDA again, which works down to a closing net debt of around 50 million, seeing the dollar 1.84. This has been a strange start to the year and we continue to guide to high teens sales growth orthopaedics, and high single-digit sales growth for endoscopy and wound management for the full year. And at least a 1% increase in operating margin overall. To give you some guidance on currency, if the dollar remains at 1.77, 1.78, and the euro at 149, the full-year effect will be to reduce underlying sales growth by around 6%, against that, however, don't forget the benefit of the MMT acquisition to the top line. And with that I'll hand you back to Chris.

Well thanks very much Peter. And with that, I think you can see that we're in very good shape going forward and we've got real momentum for growth. We indicated that our full-year 2003 results, we except with accelerated growth within orthopaedics this year. And I'm very pleased we're off to an excellent start with all segment of the business performing nicely.

Oxinium continues to drive sales and in the U.S. at this stage is used in some 40% of ephemerals (ph), 60% plus of unique compartmental (ph) knees, and over 40% of femoral heads. We're looking forward to introducing a new revision component made of Oxsidian later this year.

We're also pleased within the U.S. of trauma growth was sustained at 18% underlying growth rate, giving us confidence that our trauma business will accelerate its growth for the year. We've already started having sales people this year in quarter one with 23 of those being trauma sales people. Endoscopy's strong recovery bodes well for the remainder of the year, and I'm pleased with the progress of the new product launches so far in 2004. Surgeon acceptance of the new progressive scanning camera has been excellent, as well as the response to the TRIFEX (ph) launch. And Jim Taylor (ph) has done an excellent, excellent job of focusing this business going forward.

As Peter alluded to earlier, ALLEVYN, ACTICOAT and DERMAGRAFT all continue to grow extremely well with advanced wound management. While the U.S. sales in quarter one were impacted and expected by the loss of our COLAGENAISE (ph) enzyme debrider product, the growth of the business, excluding this impact is excellent. I'm also pleased with the technology acquisition program executed in the first quarter, and we look forward with confidence to quarter two and the rest of the year. And with that, I'm now going to return the call to the operator to set the call up to answer your questions. Barney, would you please put in place the procedures for asking questions.

Thank you Sir Christopher and anybody has a question, just key a star-one on your telephone now. And you could ask your question or comment by just keying star-one. OK, we've got questions coming in now.

And the first questions from Mr. Ed Godber, please go ahead.

Thanks very much for letting me through and congratulations on the results. I just, first of all, some clarity because from the line I couldn't hear the properly, you said in the EPSA, if you had been reported in dollars, what the growth would have been, I couldn't catch that number. And also when you gave Chris, when you gave an outline of New York city and penetration rate, if you could just repeat those. But then I'd also just like a general view on how you feel the endoscopy market and the U.S. seems to have turned around so quickly.

Peter, can you repeat the (inaudible)?

OK, right. A medical in doing a U.S. consolidation sales growth and EPS growth of at least 17% higher, basically taking them up to 26% sales growth and 42% for EPSA growth.

OK, Oxinium, I'll re-read this. Oxinium in the U.S. of this stage is used in some 40% of knee femorals, 60% plus of unicompartmental knees, and over 40% of femoral heads. We are planning to introduce a knee revision component made of Oxinium later this year. OK?

Yep.

Now, in the general tender of the U.S. market, as you know, the key reason why our sales in Endo were down 4% last year, was particularly the growth in blade reuse. During the year, we put together a spacesalu (ph) information pack across the top for our customers about the dangers and the unsafe nature of reuse. And also, we made this available to the media. We made it available to patient advocacy groups and for the loss of intense of that boat, into talking to our customers about this.

Our view is that broadly, we have stabilized the situation that may be a very small decline in the market this year due to reuse, but it will be small. Additionally, what we've done is bring to the market new products in this sector, most notably the Powermax lightweight related driver, essentially the shaver system itself. It's more powerful than the Writer (ph), than our previous model other than anything else on the marketplace.

And this something that really, really helps the surgeon. For an arthroscopic surgeon, this is his primary daily tool. This is a really, really excellent device for him to use. And you've seen some share gain accruing to us, so in blade terms, we're up year-over-year. Clearly, we suffered in the camera marketplace by the delayed launch of our camera system. It is a significant technological step forward as a genuine high-definition camera system. It took us longer to get fit to be both backward and forward compatible with the existing components, which is a huge strength in our building (ph) after the market.

We are going to do great reception for it. That didn't just in thank thereof camera in visualization sales, but obviously, since it's the core part of the digital operating room, it also slowed that initiative in the back quarter, back two quarters of last year. So, is starting to see all of that picking back up, although we've only had the benefit so far of about a month and a bit, say all of the new camera in reality, and we'll go through evaluation phases, so we won't see the full benefits 'til the second half of the year. So those are very positive.

Code south was a negative influence year-on-year two double 0 three. It's a neutral influence this year. Code south is continuing to trade, continuing to use products, but isn't putting in significant capital goods. That's being done by other providers, and we're working hard to gain our fair share of that business. So, I think things have really turned to crogren endoscopy. I'm very pleased with what the team has done there, and I look forward to continued reviews from that business.

OK, thank you.

On the next question, it's from Bill Plockanie (ph), sorry for the pronunciation. Please go ahead.

Great, thank you. Good Morning.

Morning, Bill.

Just a couple questions, first of all, on the ceramic-on-ceramic product, when do you expect U.S. approval in introduction of that, and then I was wondering if you could give us an absolute number on where you stand with your Ortho distribution, and Endoscopy. Thank you.

Let me answer the first part of that, Bill. Whether we've guided people to the launch of the ceramic-on-ceramic product around the middle of the year, and that remains our guidance. I wasn't too sure what you meant by the Ortho and Endo distribution, what do you mean by that?

Number of reps that you have on the street?

The number of reps we have on the street from memory, I believe we've got the exact numbers, but broadly it's I think, you're referring to the U.S. presumably, it's around 575 for, for the end of last year, around 364, and don't, and roughly not quite you can double those for the low line. In 2004, we're looking at a, probably a 10% plus increase across the board with a much stronger increasing ortho-could be between 15% and 20%. Did I give you the guidance you need?

Yes, thank you, and then one more question if I may, just some clarity on the litigation with arthro care and what that could potentially mean.

The litigation that arthro carries is continuing, I think it would probably continue for a long time. The present state of play is that we believe that the judge is going to grant an injunction against a couple of our products in the founding near future. There will be a time where we can make sure the surgeons are able to continue to carry out surgery transition period, where we'll immediately appeal against this injunction. It is our aim to take this case to appeal, and we will continue with it.

The impact of the injunction, we do not believe will be material, (inaudible) all, particularly since we are going to launch the sculptar monopolo probe(ph), which we think will be an extremely effective replacement for the bipolar systems, which are colored by the injunction.

Great, thank you and congratulations on the good quarter.

Thanks very much, Bill.

Thank you. The next question is from Catherine Mache (ph). Please go ahead.

Great, thanks. Can you hear me OK?

Yeah, we can hear you Catherine, thank you. Could you hear the rest of the call?

Yeah, there was just an echo in the beginning, but it all got cleared up. I just wanted to confirm one number though, the recall on the excinian metano(ph) now stands at 295, was that the number you said?

That right, yes.

Where do you see that going, because we have been seeing it continuing to ramp out? Where do you see that number kind of settling out, and starting to see a decline?

What we are seeing is that the majority of the revision results doably (ph) post six months to around the 12 month period. The method we think that number will continue to run at some level, through the 12-month anniversary of the withdrawal in August. It's really, really odd to be deterministic about exactly at what level. It is clear that the surface interface with the bone is not working from day one, in a minority of patients.

What we're concentrating on is to get the patients revised as quickly as possible. It may be that that is bringing forward revisions because we are working very energetically to get this sorted out for the patients and the surgeon, we get everybody back to their normal lives. And as you've noticed from the statement, we've actually reached a settlement when necessary with more than half the revision cases, so we think the situation is very manageable, but we think we're going to see a continued run-on of revisions of micro-texture (ph), certainly throughout.

Quick, can you just help us get that same comfort level that the insurance that you have in place is going to be adequate if this number continues to ramp, and I don't know if it goes to five or six hundred, or whatever the number is, so that we know if there's all these settlements that this will be covered through your insurance.

As restated that we don't see a financial risk to the Company. We see things as highly manageable from a business point of view in that the way we have conducted ourselves with the surgeons has enabled us to, if anything, build as well as maintain the strong relationship we have with our implanting surgeons, and they're very, very responsive to the way we've dealt with this. But from a financial point of view, we are satisfied with that adequate coverage in terms of liability insurance.

OK, and then Peter, Just some product specifics, I think you said 31% growth for sue parts and exogen, is that a combined number? Can you give us a sense of the breakdown in growth year-over-year between the two products?

Yep, just a moment. I'll look at my computer printout which is from, focus me eyes, right, exgen grew up 30% and sue parts go up 40%. You've got to knock off 5%, cause those will come off the computer, so 30 minus five is 25, and 40 minus five is 35. Yes.

I'm sorry, why are we knocking off five?

Sales days. (inaudible) lowering numbers.

So 40 is the reported and then the 35 indicated the sue parts as the underlying?

Yeah, the underlying sue parts is 35 and the underlying exogen is 25.

(inaudible) for basis, 30 watts, which is the number you gave. All the numbers we've given everybody are underlying corrective facilities and currency.

And then could you give us the same thing for the spine business, some more tech?

Spine business?

Thank you. The next question if from-

Hold on Barney, we're just looking for a number.

Sorry.

Let me just work that out, a number (inaudible).

We'll move to the next question, Peter will pull this number out.

OK, please go ahead to that.

It's Annette Lawson (ph) from Carnegie. I have a couple of questions regarding your wound care business. I wonder if you could get some flavor to the nice growth that you saw in the non-U.S. business, and specifically I'm interested in whether you have seen any negative effect in Germany from the healthcare reform off of the (inaudible) where you saw in general for the industry in the fourth quarter.

Well, let me deal with this look under the other way around. Germany is a really tough market for any product which is related to doctor visits because, as you know, there's no co-payment system introduced for doctor visits. And in February and March, I think there's one or there might be two-

Let me introduce for doctor visits and in February and March, I think there's one or maybe two free visits per quarter, but after that you have to pay. So February and March, doctor visits were significantly down and most businesses suffer to some extent. We didn't see a particularly dramatic impact on our wound business, but you'd slide down a bit.

Wound growth, I think we actually quote this, outside the U.S. was 11%. Japan and the U.K. were particularly strong and Germany was relatively weaker. But it was certainly a strong part, strong growth picture for us. Usually what happens with these king of co-pay things is they have a big, big impact, when they're first introduced and the impact pales away. But I think we won't see a pick up catching back for the industry as a whole, the shortfall in the first quarter in Germany. OK?

OK. Could you also comment on what was the reason for the acceleration of the growth for Acticoat? I know it's in the launch phase but you accelerated the growth compared to last reporting.

We were just getting into Australia with Acticaot, it's a sensational product. It really really knocks the infection out of wounds without using antibiotics and therefore running risks of MRSA etc. People are just recognizing it efficacy. We year-on-the-year had approval on the drug tariff in the U.K. in the quarter three of last year. So we'll be getting some benefit from that. It's had tremendous acceptance in the U.K. and tremendous acceptance in U.S., Australia, Canada, in the burn sector and in the chronic wound sector. We have yet to get it approved in Japan. That's going to take awhile. OK?

OK. Thank you very much.

In response to the question on spine, the -(inaudible)

The spine sales went down on adjusted sales today basis by 20% .

Principally, the principle impact of that was workers' comp in California. Where the changes in workers' comp in California certainly we've had a one step down in the sales of Ida (ph). OK? Can we reach the next question, please?

Yes, the next question is from Hans Fostrum (ph). Please go ahead.

Good afternoon, gentlemen. Congratulations on the very good set of numbers.

Thank you, Hans.

I had three questions, and I just want to appreciate your answer to Catherine's previous question relating to the oxinium and knee recall but I just want to get a better sense of the dynamics going forward of the (inaudible) rates. You mentioned at one point in your answer that you have seeing certain patients that are all fine. Have you got a sense or given that several of your patients have passed the six to twelve month period, how large a portion of patients operated on let's say a year and a half ago are fine, with regards to any problems.

And secondly, can you also give a sense toward the sales ramp (inaudible) the implants since their launch. Should we assume that the sales of the product were at the peak once this product was pulled off the market or is there any reason to believe that the product would not be selling at its peak once it was pulled off the market in August last year.

Basically we don't have absolutely point data on when products are incond (ph). What I can tell you in general terms is Profix was introduced early the beginning of 2001. And Genesis was launched the back end of 2001 and then both of them ran on until the product was withdrawn, but Profix and Genesis versions in August 2002. So, the peak sales were in quarters one, two and to some extent the beginning of three, all of 2003. So we would expect to be seeing on that basis, approximately highest level of recall runned round about now. That's probably as good guidance as I can give you really, Hans.

OK. You don't have any sense for the proportion of patients that have been operated on let's say out of 2002 and -

No, we don't have that data because of the way the system actually works. The things are shipped from the factory and then they are held. We can't absolutely identify dates sufficiently accurately to be useful. We've got general idea. The general idea is the biggest majority of produces were sold in 2003 between January and August. What we have seen, if you work it out, is we've seen a revision rate probably of around ten a week. We've seen it set up over the last few weeks to a bit above that, that the sort of rate that we are seeing, that's the best guidance we can give you. We don't know when the turning point will come exactly.

What should I observe from the fact that you had this product on the market in patients in early 2002 yet was not called off the market until August 2003?

What you should infer is that there was a pretty slow sales build up. And actually one of the things that's rather strange about this is, we did not see any problems in this product until, at all, until right at the back end of 2001, I think we say the first revision. Then we saw another one in the first quarter of 2002. Then we saw a rapid clutch of them. So, it's really at that point we withdrew the product. We withdrew it when the revision rate was I think about half a percent.

And have you come to any more clarity as to the actual cause for why the material does not bond with the bone?

No. It is clear that it is not bonding with the bone in a minority of patients and that becomes evident pretty clearly to those patients and effectively they need revision. But it is bonding to the bone in the majority of patients.

And is there any pattern in terms of the type of patient that---?

Nothing that we're able to see. We were, as you can imagine, we were employing batteries of scientist, surgeons, statisticians, and so far there is absolutely no pattern that is evident. The numbers, although they, you might say, they're getting to be significant, if you start splitting the numbers up into subsets there aren't sufficient numbers to draw any conclusions from.

What is it that makes you so successful in actually reaching settlements with you patients? What is that you're offering?

We're very proactive. We've been saying consistently, we're working very very strongly with the surgeons and we're working with the patients to get surgeries scheduled effectively and get them back to their normal lives as quickly as we can. And where it's appropriate, we're reaching settlements with the patients.

And should we then understand that this is fully absorbed by (inaudible), or is that a part of the cost?

You should understand that it is being dealt with through the private liability insurance.

OK, and just one question on a separate topic. What was your U.S. retail growth, excluding the discontinuation of Collagenase.

(inaudible) Frank.

Did he say 17?

Seventeen percent, excluding Collagenase. It was terrific growth. It's Dermagraft, it's a leading and (inaudible) very strong in the U.S.

OK, great. Thanks very much.

Thank you, Andy.

Thank you. The next question is from Ms. Edang Wang (ph).

Yes, it's Edang Wang (ph) from Deutsche Bank. I was wondering if you could perhaps comment on the trauma business. Fantastic performance in the U.S., flat sales outside of the U.S., because of the large contract you had. Would you be able to tell us when that contract - the effects of that contract would run out, and what was the growth excluding that contract?

(inaudible). The best number really to give you, I think is, if we exclude that contract from both sides, and I'll try to do this - sales, underlying sales growth outside of the U.S. was 8%.

Right, OK.

And the contract was essentially was a greater one that effect last year. So I'm not certain there's (inaudible), which we would accept outside the U.S.

We're very excited by the trend of individualization (ph). I think this has been a really, really good initiative. It's really only up and running strongly in the U.S. at this point in time. It will start to roll out outside the U.S., but the U.S. is the main target, the main opportunity. The leader of the business is Scott Flora, who is doing a terrific job leading that business. He took responsibility for that.

Steve Hirsch is leading our reconstructing business. He's doing a great job on that. And we're seeing the benefits of focus in both of those businesses. The task to Steve was to keep the growth going in the recon business. He's accomplishing that.

The task for Scott was to step up the growth in the trauma business, and he's doing a really excellent job at that going forward. This year is a year of getting the additional salespeople in place, of splitting out the clinical therapies sales teams. We're well with that. We're going to add around 80 people - 80 salespeople between those two sales forces, and we're seeing very strong coming through there. And we'll see a strong product pipeline coming into place in 2005, so I'm extremely pleased with the trauma business.

And so when does the - the contract, is that just a Q1 effect? If I remember back to your full-year numbers, the ...

No, it's substantially a Q1 effect.

So, in Q2, we should see that - the OUF trauma sales growth bounce back to an underlying level.

It won't have the adverse impact of the tender, but we're not giving any specific guidance by quarter.

Right. OK.

What we were looking to do for the trauma for the whole of the year - it grew 10% last year, if I'm correct. We're looking to get it up to the mid-teens, and that remains the guidance.

OK, now, just touching back on the full-year numbers you reported, from memory I seem to remember that in the second half of last year, your U.S. trauma grades (ph) also accelerated to a high-teens level. Was that just at the very back end of last year, rather than the second half of last year?

It was pretty progressive during the year. I mean, I don't think we've actually got it split out by quarter, but certainly it was in the second half of the year, and it had a strong finish.

On the basis now that we are stripping out Exogen from trauma, trauma last year within the U.S. grew 14% in the second half. And I think the number, we might have talked previously, we were recognizing - it was a 17% number we'd been talking about.

Yes.

So on an apples on apples, basis, the 14% in the second half of last year, and it's now 18% in the first quarter of this year.

OK. OK, that's great. Now, in terms of your margin guidance, you had guided for at least a 1% improvement. Is that for the remaining three quarters, or should we apply that to the full-year number.

That is for the full year.

OK, given that you have achieved so much in Q1, that doesn't leave you with very challenging goals for the rest of the year.

This is a big market, it's a growing market. Great sales and an underlying growth rate like this is pretty good stuff. In recon, we're leading the market. The clinical therapy guys are doing a super job, and the trauma growth is very - I don't think that's a small achievement, Edang (ph).

No, I'm saying that you've achieved a lot in Q1. That doesn't leave you very much to do for the rest of the year.

I wish that was true, but we're going to carry away at the same rate in the interest to wrap it up, a bit.

But we have actually said at least 1%, when previously we were saying around 1%, and you can read that how you like.

OK, thank you. That's very helpful.

(inaudible) code for (inaudible).

Thank you. The next question is from Milton Shue (ph), if you'd like to go ahead.

Hi, good afternoon, Peter and Chris.

Good afternoon, Milton.

Right, two questions. First on Oxinium. Where do you ultimately see this penetrating? Is this going to be sort of the next highly-crossing poly, where what was a premium technology turns to be the gold standard?

I think there are a couple of things with regard to Oxinium. The first thing is, all the numbers we're giving are our penetration rates in the U.S., and the penetration rates outside the U.S., with the exception of the unicompartmentals are very, very low. So we've got a good opportunity to step those up.

I think we are still some way from necessarily being able to establish Oxinium as a gold standard, but I think it is being increasingly recognized that this is the treatment of choice for younger patients, particularly in the - in the unicompartmental, where they're primary knees. And we believe that Oxinium will be an outstanding material for revision knees.

In hips, there are some other choices, but we believe that Oxinium and cross-linked poly should be the gold standard in that.

So we're working towards that. I don't think we're quite there yet, but that's certainly an aim that we have in mind.

So, in your minds, modeling this going forward, you're already at 40% and the technology has been out for a couple of years. Can this go to 60, 70?

The kind of guidance we've been giving is between 50 and 60 for primary knees, and probably for hips. It'll depend on what happens to ceramic in ceramic, but they are estimates. And - but we still have some way to go in terms of penetration. What is happening, with the strength of our recon business and the strengthening of our sales force there is that increasingly we're seeing the ability for us to open new accounts for Oxinium, and then bring our cobalt chrome products behind, because they have the other benefits of being of ease and speed in surgery, minimally invasive incision programs that we have for hip and knee, enabled us to give a complete and very, very solid product offering.

So they're a flagship product at this stage, and certainly they're recognized for certain categories of patients - young patients, particularly, nickel sensitive patients, absolutely, and we are seeing quite a substantial usage in heavy patients, obese patients, particularly, in the U.S. So there are some segments, particularly in the knee, it's very, very strong.

And we'd expect to see some continued increase in penetration, but probably at the slower growth rate than in the past.

OK, thanks. And my second question is in trauma. Can you just give us a sense of - or a preview, some of the new product technologies you'll be rolling out over the next 12 months? And secondly, you posted some very strong trauma numbers - is, Peter, maybe you could give us a sense of how much of this was market share gains versus dollar increases

In terms of new product, this year, we're building our platforms in IMHS and in nails. We're looking at - and we're filling out the (inaudible) line. We do have some products in the pipeline for next year, but I think we'd rather keep our powder dry on those at this point in time. You may also - very, very strong for us at this point in time. We're going to work very hard to bring those to the market, but we'll keep our powder dry on the other things we plan to introduce in 2005.

Milton, this is Sirhan, so I'll take your question in terms of mix and price. I don't have price written down by individual product lines, but I would say that in the U.S. that products basically has been roughly moving forward about 3% in trauma, and the other thing that has moved trauma is a mix effect that's been JetX, which is a significant - when you look at the schedule, you see JetX is very much a new product this year relative to this time last year. And that's shifted it directly up about 4%, actually.

OK, is that helpful?

Just the last part about the competitive share gains.

I think it's hard to call, but I think you have seen that J&J share - sales were fairly weak, and actually so were the (inaudible). So I think we're probably gaining some share in both of those areas.

OK, thank you.

Thank you. And the next question will be from Lacman Tallet (ph). Please go ahead.

Hi, it's Lacman Tallet from UBS. Just a couple of quick questions, firstly, in orthopedics. Can you give us a sense of the growth rate you're seeing or able to achieve in the M&T business that you acquired, just to give us a sense of the impact of that business.

And secondly, in wounds, can you just say a little bit more about the Dermagraft rollout, and if you have any new expectations for when you see that breaking even?

OK, yes, go on.

Yes, the guidance, which would be in sort of the bank, but basically we see M&T growing at 25% on a sort of current calendar basis.

OK.

And that's - as we get the rollout going, as well as in the existing markets. Dermagraft, very encouraging. I think we're up about 60% year on year in Dermagraft, which is good going. And it's continuing to make excellent penetration in the U.S. marketplace. Our sales force is well behind it, and we're very pleased with the progress.

OK, thanks very much.

Thank you. And the next question in the queue is from Patrice Collette (ph). Please ask your question.

Hello, it's Patrice Collette from Capital. Just a quick precision - what are these - I understood earlier on where the (inaudible) took place early 2002. I suppose you meant early 2003, and we had the recording August, 2003. And the second question, I have (inaudible) to order surgeons back in the second quarter front in second quarter 2003, and the proportion of Profix was much higher than for Genesis II.

Has it evolved the same way up to now, or has it balanced out now between the the Profix and the Genesis?

Well, there's still a lag effect because Genesis was introduced much later. And thank you for pointing out, I was using the wrong years. I was a year out in what I said there. And basically we're seeing the late (ph) of Genesis - I'm speaking (inaudible), but broadly the Profix rate is something slightly above 10%, and the Genesis rate is about 7% at this point in time. Say, quarter four of last year, that probably was considerably lower in terms of Genesis, so there is some catch-up going on. And I think we did say at the time that this is - it does not appear to be sensitive to the design of the product. It appears to be the surface.

OK, thank you.

Thank you, Patrice.

OK, we've got no further questions in the queue.

OK, then in that case, we'll terminate the call. Thank you, everybody, for participating. Thank you for some very good questions. And we'll look forward to talking to you individually. If anybody wishes to speak to Peter, he'll be available today and tomorrow and during next week.

And our next conference call will be on August the 5th, for second quarter and half-year results. Thank you all for participating.

Thank you, ladies and gentlemen. That now concludes your conference call. Thank you for joining us.