Smith & Nephew PLC (SNN) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Smith & Nephew 2004 Q4 and preliminary results presentation. Today’s conference will be recorded and will be linked to a live event. Before the presentation begins, Courtney Wenn will read the Safe Harbor statement.

This conference call contains certain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. In particular, statements regarding planned growth in our business and in our operating margins discussed under outlook are forward-looking statements as are discussions of our product pipeline. These statements, as well as the phrases “anticipate”, “well-placed”, “believe”, “estimate”, “expect”, “target”, “consider” and other 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 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 conference call 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.

I will now pass you on to Dudley Eustace, Chairman of Smith and Nephew.

- - Our president of orthopedics will give you a more detailed review of our orthopedics business, its progress and its future. Then the meeting will be opened up for questions. At that point, I will just disappear to the side here and let the experts handle all of your difficult questions.

Christopher O’Donnell: Smith and Nephew has made very substantial progress in 2004. Our markets continue to expand. Orthopedics has been particularly strong and our own growth has been that with the market in the fifth year in a row. I’d particularly like to congratulate David Illingworth and his team for their achievement in breaking the $1 billion mark on their orthopedic sales. But before you get nice and warm and fuzzy, David, this is a pretty demanding audience, and they’ll be wanting to know when the next billion dollars is going to come along. I’ll leave it to them to quiz you later on.

Endoscopy and mood management has also benefited from good growth in their markets for their (inaudible) technology, technologies and sales force investment. We continue to build on the strength of the Smith and Nephew brand. Our growing markets and our position in them has trimmed our considerable growth in sales, margin and earnings for the year.

The final quarter closed particularly positively giving us excellent momentum going into 2005 and setting the platform for another year of 15’s earnings growth in 2005.

That’s my sum total of my introduction. I’d like to pass it over to Peter Hooley to take you through the nuts and bolts of the financial results. Peter.

Thank you, Dudley, and good day everyone. Yes, I think we can say that we finished the year strongly. Each of our targets with EPS growth at 14 percent, this, notwithstanding, significant adverse translation in currency in quarter four and, also, the full year. As usual, I will talk in underlying sales growth terms that is exclusive of the effects of translation of currency and the hip resurfacing product that we required with MMT in the first quarter and in quarter four collecting for the three less sales days in 2004, compared to 2003.

Let me say that this underlying growth is 14 percent in quarter four with orthopedics growth at 20 percent, endoscopy growth at 16 percent and with management’s growth at 5 percent. Q4 growth of 14 percent compares with 12 in Q3, 8 in Q2 and 12 in Q1. It averages out that way at 11.5 percent for the full year.

Operating margin came in strongly in quarter four on the back of what is our biggest sales quarter with a 20 percent margin being achieved for the full year.

EPSA growth was 14 percent, both for quarter four and for the full year.

As announced in December, we have taken an 80 million sterling exceptional pre-tax charge against disputed probable liability insurance coverage in respect for our obligations to patients requiring macrotextured revisions. I will be covering this later on. This slide summarizes our pro forma results given the profit before tax, amortization and exceptional license terms. Reported sales increased 6 percent in quarter four while the underlying sales growth was 14 percent, and I’ll deal with this reconciliation in a couple of slides later on.

The margin increase of 1.6 percent on the back of our largest sales quarter and, then, positive interest this year with 6 percent reported sales into profit growth of 15 percent and EPSA growth of 14 percent. This is similarly reflected in the (inaudible) with EPSA growth of 14 percent meeting our mid-teens underlying growth call.

As you know, these results have been achieved after translation of currency adversely affecting quarterly sales by something like 7 percent, due to the dollars weakness. The dollar this year, that’s a 2004 average of 1.84, compared to 1.65 in 2003. How do we do a U.S. dollar consolidation in line with our U.S. peers? Our EPSA growth would have, in fact, been 26 percent for the full year and 25 percent for the full quarter.

Here we have the usual buildup to underlying sales growth. Starting with reported of 6 percent in Q4, we need to correct for the three sales days in quarter four this year, the 5 percent adverse currency in quarter four and, then, the 2 percent benefit which we got from incorporating the sales of acquired BHR product, acquired at MMT right at the beginning of the year. As you can see, this gives 14 percent underlying sales growth and you can see this product is broadly repeated for the full year, apart from their being (inaudible) less currency on those sales days, in fact, for the full year.

Orthopedics growth has tracked 17 percent in Q1, 14 in Q2, then rising to 19 in Q3 and rising again to 20 percent in Q4 making 17 percent for the full year.

Endoscopy has tracked 8, 6 and 8 percent across the earlier quarters with a strong step-up in Q4 of 16 percent from visualization and repair, particularly in the United States. This has enabled endoscopy to average 9 percent for the full year.

As we know, we’re manageable and just have to cope with switching over its enzyme debrider product line in the U.S., which is now behind us. Absent this effect, we’re 5 percent on the line growth and would, in fact, have been 9 percent for the full year.

Bell’s (ph) pricing was positive by about .5 percent across the group in Q4.

In orthopedics, their recon and trauma lines, pricing was 4 percent positive in the U.S.A. in Q4. Outside the U.S., also, all those prices are basically flat and endo’s and rooms pricing was just slightly positive in Q4.

Profit line sales and profit line sales growth will be given in the divisional slides which will be covered by Chris initially, then by David.

I’d like to go back in the appendix, you’ve got the usual geographical slides. It’s nice to say that U.S. growth is 19 percent in Q4 and the rest of the world and Europe grew 9 and 10 percent, respectively. I should say that orthopedics U.S. growth in Q4 was 26 percent.

Turning now to profitability, profitability closed strongly in Q4, enabling us to exceed our 20 percent margin target. Looking at the full year, orthopedics has been investing and building up its trauma and clinical therapist’s sales forces and this absorbs some of its margin potential, but, none the same, a decent margin progression. Whereas, endo wound (ph) has seen the benefits of leverage on cost and efficiency coming through except for endoscopy on this year. That’s in 2004, has had to absorb the loss of sales and costs associated with RF product, which was injuncted earlier in the year.

Turning to cash flow, after averaging 72 percent over the last three years, the conversion of trading profit into cash was 58 percent in 2004. This reflects the requirement to invest heavily in orthopedic instrumentation and inventory to deliver the increased growth, which we’ve already seen in 2004 and to keep it going in 2005. We have, as a matter of policy, increased our buffer stocks of implants and trauma products to support, not only our growth, but also to enhance customer service levels in the industry. In 2004 we placed something like 1600 instruments at MIS and general insets in hospitals for orthopedics. For 2005, we are stocked up for ceramic hip launch and for (inaudible) new locking plate launch in the first half of 2005.

Cash this year has also been impacted by the need to find out settlements of patients in respect to their macrotextured revisions. This financing amounted to $17 million at the end of the year. This outflow will continue in 2005. That’s the number I have for you today, in 2005 this could be around 40 million Sterling for the full year, if we don’t manage to resolve matters with insurance in 2005. Just to state the obvious, this is a cash outflow which relates to the 18 million provision, it’s not additional to it.

Interest and tax is lower because interest was negative in 2003 and was positive in 2004, a practical swing of 9 million, because in 2003 we paid 16 million of capital gains tax on the Ability I (ph) disposal. Cash tax continues to benefit from acquisition and other attributes.

After the dividends from the joint venture, pre-cash flow was over 100 million, 106 million in fact. The MMT acquisition, along with a subsequent distributor buyout, accounted for 74 million of the acquisition cost total, the remainder comprises Reed General and VersaJet (ph) purchases that endoscopy and new management made earlier in the year. As you can see, gearing (ph) closed down 15 percent.

Here’s a good old accounting slide, here we reconcile our pro forma reporting, or profit before amortization and exceptionals, with the statutory profit figures, both before and after tax. I wont’ go into detail because I think you’ll be able to follow it or I hope you will.

The recommended final dividends of 3.2P makes 5.1P for the full year, which is covered full times by EPSA. As you can see, it costs 48 million. We can take profit to reserves, taking relatively minimal movements of capital reserves to arrive at shareholders funds of 727, add debt to that to arrive at capital employed at 839. Although you can see that we’ve earned an average return of capital employed of 34 percent, continuing our rising trend.

As we go over the exceptional charge to cover the consequences of our product liability insurance, insurers declining coverage on the macrotextured revision surgeries, the circumstances remain, essentially, as when we announced the situation on the 20th of December. The number of revisions stands at 76, 5 at the end of January. This figure is not the increase that it perhaps seems compared to the 676 at the end of November. This is because it includes an element of year-end catch-up in notification of surgeries from prior periods. Tracking the actual revisions back to their surgery dates reveals a manageable average of 24 revisions a month over the last three months. We’ve now settled with patients in respect to 510 revisions and this has cost 49 million and that figure includes legal costs. A lot of this amount, 17 million, was being disputed by insurance at the end of January.

Discussions are pending with insurers, but it is too early and not possible to say what the outcome will be other than to repeat that we refute the grounds cited for declining coverage and are pursuing all avenues to enforce our coverage rights.

In summary, our 2003 EPSA and our debt by quarters under IFRS. This is presented in the pro forma we intend to adopt going forward, namely, earnings before intangible asset amortization and what we, today, call “exceptionals” for which, under IFRS, will be called “material items”.

The main presentational changes are that the joint venture goes below the line after tax and the pension cost is split between operating cost and finance cost. We’ve got the reconciliation on the left-hand side and you’ve got the new presentation on the right-hand side. The main substantive change to profit is the incorporation of the expensing of the fair value of share-based payments that share options and grounds over the investing period which is three years. This book expense was 5 million in 2004. Adjusted EPS was 1.5 percent in both 2003 and 2004 when computer under IFRS. Henceforth, all discussions and guidance on 2005 will be in IFRS terms.

On the patent of our trading in 2004, we’ve just seen quarter four as the biggest quarter and quarter one is our smallest. Margins reflect this, with us lower in Q1 and higher in Q4. In reported terms, remember there were three more sales days in Q1 and three less in Q4 in 2004. The underlying sales growth figures at the top are adjusted to reflect this.

Note the translation rates, with 50 percent of our sales in the U.S., 20 percent in Europe, 10 percent in Sterling and 20 percent in the rest of the world. I’ll just say that again slowly because for your model you’ll find this helpful. 50 percent of our sales are in the U.S., 20 in Europe, 10 in Sterling and 20 in the rest of the world. You should, hopefully, be able to model currency going forward.

Before leaving 2004, I’ll just draw your attention to the appendix where we have, as I said, the geographical analysis and we also have a list that covers the other items that you guys normally ask for. I’ll just draw attention to, a most relevant one in terms of going forward, and that is our capital expenditure to sales ratio which increased to 8 percent this year, largely invested in instruments to orthopedics. We see this same 8 percent being the same in 2005.

Finally, now turning to 2005 and, again, please remember all comments are under IFRS, our strong momentum in 2004 enables us to continue to target high team sales growth in orthopedics and high single-digit sales growth in endoscopy and mood management. We are less expecting to see a pickup in the group underlying growth rate in 2005 and for this to occur reasonably uniformly in underlying terms across the quarters in 2005. Q1 will have two less sales days due to Easter, Q2 will have two more. We see EBITDA margin progression of .5 percent fairly uniformly across the year and we’re looking to have full-year margin of 20.5 percent as we continue to invest in product and sales force growth. Interest, less IFRS financing costs, will net out at around 3 million positive in 2005. The joint venture will now be reported net of its interest and it’s slightly higher tax charge, which means something like 60 million net for 2005. Plus, I’m not expecting the group tax rate to be 29.5 percent under IFRS on group profits before tax. Group, there being before the JV, and amortization and exceptionals. The number of shares will average 940 across 2005 starting with 938 million in Q1.

Finally, just to repeat what I said earlier, the highlight number we will talk to from now on that moves from profit before tax, amortization and exceptionals under UK GAAP to an earnings basis under IFRS, namely, profit after tax but before amortization and under which IFRS will be calling material items.

With that, I’ll hand you over to Chris.

Chris O’Donnell: Thanks very much, Peter. Good afternoon, ladies and gentlemen, here in London and good morning to everybody on the conference call from North America. I’m very pleased to be here today to report that we’ve delivered on our 2004 targets, done so very strongly. In the process we’ve recorded two firsts. The chairman referred to one of them which was achievement of 1 billion dollars worth of sales in orthopedics and I’d like to join the chairman in congratulating David and his team. He’ll talk to you about how that’s been done and where it leaves us for the future, too. Also, this is the first time as a group that Smith and Nephew has broken through the 20 percent operating margin level. Not only do we get strong sales growth, but we are achieving new landmarks in terms of margin.

What I’d like to do now is to talk to you in terms of the overall strategy of the business, how we see that going forward and then I’ll touch on each of the businesses in turn. Obviously, as you all know, we believe that we’re very well positioned in strongly growing markets. Demographics is the biggest driver but, increasingly, consumer awareness of interest in advanced technologies such as our technologies is playing a very important part in countries around the world. We see substantial opportunities for innovation through the products and services we bring to the market and for market expansion. We don’t just believe in taking share off of our competitors. We look to bring products to market that improve the quality of people’s lives and, by so doing, actually expand the market. When we talk through our new products, you can surely see that that is the case.

We are growing organically with our prime mechanism of growth. We’re also looking to do adjunct acquisitions. We did three in 2004, all right at the beginning, of which MMT, with the Birmingham hip resurfacing product was, by far, the most significant.

We are continuing to invest in expanding our sales force and in focusing it on high-growth market segments. We’re being particularly successful using that model in orthopedics and you’ll see in here how that is developing in our other businesses. We have a very strong new product pipeline. Our new products across the business represented more than 20 percent of our sales this year in 2004. I think we have a stronger flow of new products into the market place in 2005. That is one of the reasons that gives us confidence in projecting a higher sales increase in 2005 than in previous years. We have a very strong brand and we look to build on that strength across all our businesses.

I’ll move now to talk about the individual businesses. I’ll go first to orthopedics. I’d just like to run through very quickly some highlights because, obviously, David is going to take some time on this. A very important point for us, and we are this week, basically, the second half of the orthopedic group represent that the market has reported. I think that we are very clear that, on a constant currency basis, the market growth continues at around 13 percent. We see hips a bit below this and we see knees growing faster above it, but we do not see any sign of market growth weakening. Clearly, we’re delivering growth ahead of the market with a 20 percent global growth performance in quarter four driving a 17 percent total year performance and an outstanding 25 percent growth in the U.S. in quarter four being very clear market-leading performance. The drivers, as David will tell you, are obsidian new products and the BHR hip which, as yet, we only have in the markets outside the U.S. and Japan. I believe we’ve gained share in virtually all segments and virtually all geographies in orthopedics this year. I’ll leave David to tell you that full story.

Moving now to endoscopy, we believe the market growth rate in 2004 has been around 8 percent, very similar to 2003, in arthroscopy, which is our biggest segment. But I’m pleased to say we’ve stepped up to above that growth rate in this business in 2004 after what you all know was a slower 2003. I’m pleased with the excellent outturn delivered by the management team in endoscopy with a stunning 16 percent growth in the fourth quarter to close the year, broadly similar inside and outside the U.S. This brings the market growth to very close to 10 percent. It comes in at 9 percent recorded. New products, particularly our new camera systems and the momentum that gave prodigital operating room drove these results.

Importantly, and I’ll look at this a bit more on the following page, our repair business, that’s our knee and shoulder repair, primarily, has grown very strongly over the last couple of years. We’ve given you the quarterly split on the trend here and when we move through to look at our principle product segments, you see that that has now become our biggest single segment, overtaking resection blades and being a much stronger inherent grower as we dedicate a substantial amount of our R&D investment into innovation in this area.

Visualization, clearly, has generated some stunning numbers. We’ve now got our camera systems configured for both U.S. and international standards. We’re focusing on the digital operating room, which the camera is the key, and we’re very proud of the growth we’ve generated in the back part of the year. Blades are showing steady growth, at least to say, at 3 percent for the year and Peter has already alluded to the fact that our radio frequency sales, which were down year-on-year, actually that’s the bi-polar part of the sales, was impacted by the injunction that we received from a U.S. court. Our mono-polar product introduction midway through the year has almost caught all of that back, which is a very strong achievement from our team in endoscopy.

Prospects for endoscopy for 2005, well, we believe there’s a lot more mileage in our progressive scan camera and its ability to help us deliver enhanced digital operating room growth. We have expanded our capabilities, both in sales and project teams in the digital operating room area, and we expect this to continue to grow strongly for us.

In repair, you’ll have seen that we launched additional new products in quarter four and in quarter one in the shoulder sector. This will help us maintain and, hopefully, improve the growth rate there, along with a conviction that hip arthroscopy is going to become an important sector in this market. We have the instruments now to access the hip and we’re going to spend more time working with surgeons on procedure training. It’s very small at this point in time, but we think it’s a very good long term growth potential.

We do plan to expand the sales force and to specialize it, particularly in the digital operating room area, both in the U.S. and internationally, where, I think you all know, the penetrating of arthroscopic treatments is lower than it is in the domestic U.S.

Moving to wound management, the market growth here on a like-for-like basis is 8 percent. If you add in the newer trend in equipment-based solutions for Wenn Care, then it rises to 12 percent. Against this, our performance has been held back by the switch out of the debrider product in the U.S., so our global growth was 5 percent for both the quarter and the full-year. But if you add back, as Peter said, the debrider sales, then you’re looking at a 7 percent quarter and a 9 percent year. We believe we’re at a good exit position in wound management going into 2005 to hit our target for that area which is high single digits.

New products were 19 percent of sales, which is very high for wound management. This is a business with very long product life cycles. To hit high teens in new product introductions is a very significant achievement and bodes well for the future.

We do have a plan here to expand our U.S. sales force and, again, to pickup on specialization opportunities.

We’re going to focus on continuing to develop our super brands, Allevyn, the leading product in the moist wound healing marketplace, it retains very strong growth, 15 percent for the year; Acticoat, the leading product in the silver sector, 47 percent; and Dermagraft, the leader in the tissue engineering sector, 28 percent for the year.

What does all this mean for 2005? We see a significant global growth opportunity in Wenn management and particularly so in the U.S. We’ve been through a substantial assessment of the market as it sits today and the results of this is that we have focused worldwide our sales forces on driving Allevyn and Acticoat, particularly with the present concern about MRSA where the kill rate of Acticoat makes it a very effective treatment, almost alone among the silver-based products on the market. We have launched and refocused our U.S. sales force to enable us to drive growth in that market and we’re seeing the benefits of that. We’ve now got a targeted group focused on key account developments of Dermagraft ahead of our anticipation of Venus-Legals (ph) approval sometime in the backend of this year or early 2006.

I’d like to give you a snapshot of our global sales force position just to explain to you our strategy here. David will talk more about orthopedics where we’ve got a very effective segmentation into reconstructing joints, trauma and clinical therapies. In endoscopy we’ve have the world’s biggest sales force and world’s best sales force, in my view, in arthroscopy. We’re increasing that with digital operating room and other specialists where that is appropriate, but we’re finding that to be very effective.

In wound management the tissue viability sales force, again, it’s the world’s largest sales force in this category, is driving the super brand product forward, Allevyn and Acticoat, with a focused tissue engineering sales force in key markets like the U.S. Additionally, we do have specialty sales forces, in areas like burns, where in-depth in-services are required. So this is a very important development and you’ll see the majority of the investment took place in orthopedics in 2004. We’ll be increasing the rate of investment in both endoscopy and wound in 2005.

This is our chart of new products for 2005. It’s a very strong chart and David will talk about the principle products for orthopedics. Wound and endoscopy have strong product offerings in this area. I see this as being a very strong opportunity to enhance our growth position by going forward in this year and beyond. This is an important slate of new products. I’m not going to take the time to go through them at this point in time, but I’m sure we’ll have the opportunity on other occasions.

Finally, our outlook, we are serving growing and expanding markets and we’re playing our role in both of these. We have a very strong program of new product launches. We are continuing to invest in sales forces and market focus because we believe we can deliver enhanced growth potential and we expect to increase our sales growth by 1 to 1.5 percent in 2005 over 2004. This gives us great confidence, together with our .5 percent margin improvement, that we’re going to continue to achieve our mid-teens earnings growth targets.

That concludes the group level review. It now gives me great pleasure to ask David Illingworth to come to the podium here and talk to you about the successes of our orthopedic business in 2004. David.

Thank you very much. Mr. Chairman, I am happy to say, and I will commit to you on camera here today, that the next billion will not take anywhere near as long as the first billion. Also, Chris, thank you for inviting me to tell our team’s story here. Usually the chief executive calls on someone like me after a particularly tough year. It just shows a lot about Chris and I just appreciate you giving me the opportunity for what I think is going to be a very fun 10 minutes or so.

I want to share with you three aspects about the orthopedics business. First is the attractiveness of the market as I see it. Secondly is I’m going to expand on what Chris and Peter shared with respect to a very strong orthopedic performance in 2004 and, lastly, I want to talk a little bit about momentum. We’re, obviously, coming off a very strong performance in 2004 and I’m going to speak to what I see as our momentum in this industry.

All the data is not in yet, but our space, which includes hips, knee, trauma and some of the smaller segments, but growing areas, like bone stimulation and joint fluid therapy, is about $12 to $12.5 billion in size in 2004. On a cost and currency basis, we’ve seen the key markets growing at about 13 to 14 percent, led by knees at 15 percent and, by the way, that was 20 percent in the U.S. The interesting thing is that we see all these segments continue to grow in double digits. We pegged U.S. growth at somewhere around 17 percent, while the rest of the world is in the mid to high single digits. All in all, a continued very strong industry.

Within our demographic space, we are seeing increased penetration as friends tell friends about how an orthopedic treatment changed their life. My information is out there today with the Internet access, direct-to-consumer marketing and the like and this is growing the percentage of people in specific age brackets which are opting for orthopedic procedures.

The younger active patient, traditionally, would have to live a life of constant pain medication as they wait to get to an age where the orthopedic surgeon would opt for surgery. Treatments like the uni-compartment knee, resurfaced hips, two-parts joint fluid therapy, oxinium, these are bringing new options to these patients and they help grow and expand our industry space.

Prices, in aggregate - - moving on to prices - - have been modestly strong in 2004 and we see them to be slightly up in 2005. We are clearly aware of the financial pressure, the various stake holders in the healthcare industry and system are under. We are focusing our efforts, concentrating our efforts on new technologies that provide economic benefits in terms of longer-lasting implants and easier to use instruments that make the procedural outcomes more effective. This can drive price and mix uplift and we expect those opportunities will remain in the industry. We also will focus on these areas.

As Chris indicated, orthopedics had a strong performance in 2004, which includes 17 percent underlying growth on a global basis. This growth rate took us past the $1 billion mark as a division, which is a significant milestone for our team and I congratulate my entire team on that accomplishment.

When you factor in the acquisition of Midland Medical Technologies and their 10 months of revenue, we posted 21 percent constant currency growth. All segments of our business gained share in 2004. I’m going to highlight several of those areas later.

New products, which, for us, mean those products launched in the last 36 months, represent a full fifth of our revenue and this has been a standing metric for several years recognizing that innovation drives performance.

It’s important to point out that minimally invasive procedures are a major focus and investment for our business. These are techniques and they are coupled with special training. They do drive revenue, but they’re not considered a new product as we formulate these numbers, because, at this point, they’re techniques verses a saleable product. We’ve invested in a variety of areas, including sales force expansion, manufacturing capacity, instrument sets and inventory. We’ve delivered improved operating margins this past year of just less than a full percentage point.

I love this chart. I hope I continue to love this chart. We do track our competitor’s performance just as many of you do, probably all of you do. According to our model, we were the fastest growing company in 2004 in the segments that we compete, again. In fact, this is the fifth consecutive year where Smith and Nephew orthopedics has led the market in growth. Most competitors posted very strong performance in 2004, which collectively drives this market growing at about 13 percent. If you include the impact of MMT, we did gain almost a full point of market share in 2004, which I believe is the ultimate demonstration of strong performance.

Geographically, we continue to post double digit growth across the world. The addition of Midland Medical Technology had a major effect in Asia-Pacific and the European markets. Our 22 percent organic growth in the United States likely leads the industry. We are equally pleased with acceding the market growth rates in the European and Asia-Pacific markets as well.

I’m going to go ahead and turn to the individual businesses. If we look at the hip business, we posted 31 percent growth, including the acquisition. Without MMT, we posted 15 percent global growth and 14 percent growth in the United States, outpacing the respective global market growth rates. In 2004, we expanded our revision offerings with our new Accord cable system, as well as several key revision components. We also trained over 650 surgeons on our MIS procedures, while launching 450 MIS hip sets. Most of those were in the second half of the year.

The big news was our acquisition of MMT, which has been a great addition to our business, particularly the UK, Continental Europe and Australia. As we mentioned previously, the Birmingham hip contributed 4 percent to our total orthopedic growth in 2004. We are the only company in this space that can now offer our surgeons all of the advanced bearing options, ceramic-on-ceramic, metal-on-metal, highly cross-linked polyethylene and oxinium. This puts us in an enviable position going forward.

Turning to knees, we grew 21 percent globally on a constant currency basis with 24 percent growth in the United States, both of which we believe led our industry which grew at 15 percent in 2004. The global knee market is now close to a $4 billion market space. Like on the hip side, we were active on MIS in this area as well. We trained over 650 surgeons on MIS knee techniques in 2004 and we deployed 650 instrument sets. We’re very pleased with the acceptance of our MIS knee systems and plan to continue this momentum in 2005 with the launch of our MIS profic system as well.

Oxinium continues to be a market share maker for us. It is truly a unique technology that continues to gain clinical acceptance through its superior wear characteristics.

As mentioned earlier, our fourth quarter underlying growth for knees was 23 percent globally and 25 percent in the U.S. all of which, I believe, indicates very strong momentum for us as we move into this year.

I am absolutely thrilled by our performance in trauma and also the progress in this business. The global growth for the year was 11 percent on a constant currency basis, but that really does not tell the complete story. We posted 17 percent growth in the United States, which for 2004 was the geography where we made specific investments and we had specific focus. We doubled the number of sales people in trauma to about 130 today. We increased our investment in medical education by almost 2X and we added focused marketing resources. This investment is paying off as we exited 2004 with 21 percent trauma growth in the United States. As we launch our plate-and-screw system later this month, we are arming our 130 specialists and 500 full-line reps with a full bag of trauma products for the first time in a long time and feel very good about how we are positioned.

Eighteen months ago we divisionalized, specialized our business, which most of you probably think as trauma and recon. It’s very important to point out that we also created an office space network which we call the “Clinical Division”, which is now a sales force of over 150 sales people strong. When you combine the sales force with focused marketing, reimbursement expertise, business management and great products, you create a business that currently is growing at over 44 percent globally and over 50 percent in the U.S. In 2004, our Clinical Division opened up over 5000 new accounts for Smith and Nephew, many of which have the potential to be joint patients in the future. I think another interesting statistic is, as we reported today, we exited the year with 62 percent growth in quarter four.

The last item I want to touch on is our momentum. We’ve had five years of industry-leading growth and share gain and can take that momentum into 2005. Thinking back to the chart Chris showed, quarter four of 2004 was our strongest performance of the last eight quarters on an underlying basis, and not a bad way to move into this calendar year. We will continue to invest in our sales force and continue to provide a focused and specialized service for our customers. This formula works and we’re going to continue it. You couple this strong and growing sales force with a truly unique product lineup and I can feel pretty good about where we’re positioned.

Let me remind you that with ceramic-on-ceramic, metal-on-metal, cross-link polyethylene and oxinium, we’re the only company that can offer all the advanced bearing options to our surgeon’s customers. Oxinium is a proprietary technology that has more runway and many more applications, like revision components.

The BHR business is still growing within existing markets and has the potential to expand in the United States and Japan with regulatory approvals.

To top all of this, we are launching some exciting products in 2005, including ceramic-on-ceramic, our locking compression plates and broader MIS and MIS computer assisted surgery applications.

Hopefully, you can tell I’m excited about 2004 and our momentum. I don’t have the time to go through our entire product lineup today, but, rather, I’d like to invite you to attend our AALS briefing on February 23rd. I would imagine that most of you are going to be there. This briefing will also be Web cast for those unable to attend and we are going to preview our entire new product lineup in much greater detail at that time.

The market for orthopedics is strong; it’s a fun place to be. As I’m reminded every day, the fact that what we do gives people their lives back. That is a good feeling. In 2004, we led this industry in growth and gained market share in all segments. We gained a point of market share in what many of you had told me was a very sticky market share space. Most importantly, we exited 2004 with very strong performance and I think we’re very well positioned to move into 2005. Thank you very much.

Chris O’Donnell: Thank you very much, David. That concludes the formal presentation so we’re now going to turn the meeting over to questions. This is a multi-locational meeting so we’re going to split the questions between questions from the room here in London, which we’ll take three to start with, and then we’ll take three from the conference call. We’ll alternate in this way. I’d be grateful if people would only ask a double-barreled question rather than anymore multiple barreled. Peter has already had his fun with IFRS, so I’m officially declaring that off-side as a question topic. If you want to ask any questions, we’re going to produce a 64-page Web site-based book on reconciliations with our annual report which will detail exactly how the whole thing works its way through. In overall terms, its not material, but it is important to make sure you do understand this from a modeling point of view. With that, I’m going to open the floor to questions.

Max Herman from ING. Just a couple of questions. Firstly, I know you mentioned a little bit about the Birmingham hip and the U.S. progress there that you had acceptance of filing and could you give us a little bit more detail in terms of the time lines there and an update? Secondly, just on the ceramic-on-ceramic launch in the U.S. and how does the product position with Stryker’s (ph) products and just what your expectations are? How does it fit in with your portfolio as well?

First, on the PMA submission, I can’t really give you any more information than we’ve already given. We’ve submitted the data. If I could predict how the FDA would respond, in any kind of certainty I would be more than happy to give you an answer but I can’t. We haven’t heard anything at this point. We’re answering their questions. We’re cautiously optimistic. We think we have a lot of very substantial data that we’ve submitted with over 20,000 procedures being done on this product. I think, really, there’s not a lot of news that I can give you. Clearly, nothing more than speculation.

Ceramic-on-ceramic, to us it’s a choice. We have positioned with the Stryker product. All the ceramic-on-ceramic products are made by one manufacturer. We source it from the same manufacturer that all the other companies do. We believe that it was important to have a full range of choices and that’s the reason why we added ceramic-on-ceramic to the portfolio. We still think that oxinium on polyethylene will continue to be our premium offering and chosen by many of our surgeons. We feel pretty deeply, based on what we know and the knowledge that we have, that it has superior wear characteristics. It really comes down to the choice. It comes down to the choice of a physician. The nice thing about it is we get to walk into any account anywhere in the world and tell the physician it does not matter which service you want to pick for your advanced bearing surface. You want it, we have it.

(inaudible)

Actually, I think that’s a good question. Let me just touch on it. The question was “does it improve our credibility”? The fact of the matter is we’re the only company in the industry that has oxinium because we have a proprietary position on it, which makes it everybody is taking shots at oxinium. The fact that now we don’t to defend oxinium the physician can make a choice, I think it does improve our credibility somewhat with that product.

Hans Bostrom from Goldman Sachs. Also two questions. David, could you expand a bit about the strategies in the endoscopy business, but I presume that it really relates to orthopedics, the hip arthroscopy effort that Chris was mentioning, and, maybe, Chris, you might want to answer that question? Secondly, could you also comment on why you are assuming that margins will really only improve by 50 basis points, I think, in 2005, especially if you are a very strong margin performance of most of the businesses at the end of 2004? It would seem logical that margins, actually, improve rather more than less than expected.

Chris O’Donnell: I think I’ll deal with that because businesses sometimes say to us, “Well, why is it you’re so successful in arthroscopies, mainly competitive”? Actually, the fact of the matter is its because we have a separate business, which a lot of the competitors don’t really have. Hip arthroscopy, at this stage, is a procedure that very few surgeons undertake. The hip is difficult to get into, but there is a growing clinical view that if you can repair libral (ph) tears in the hip, you can prevent early onset of ostio-arthritis. Some surgeons are doing significant numbers of hip arthroscopies, like 1000 a year, in a few centers around the world. We see this as a significant opportunity for it fits right into our endoscopy business rather than our orthopedic business. David is an expert on hip arthroscopy. The bottom line, and Peter can talk to you about the phasing of profitability as we’re not seeing it quarter by quarter, but what we have done is made a choice to make further investments in the business in view of the growth potential. That’s why we expect to drive 50 basis points rather than, broadly, 100 basis points.

Peter, do you just want to talk about the phasing of quarters?

Basically, you see the phasing of that .5 percent being even across the year as much as you can foresee that accruement. As Chris said, we have choices and we decided to invest in the business with other business around (inaudible) the margin.

Are we talking about a 50 basis point improvement quarter-on-quarter or year-on-year to quarters?

What I was trying to do was just remind you guys that the margins, basically, do reflect the seasonality of the business, the strong margin at the end of the year and weaker margins because of Q1. What you need to do, frankly, is add half of a percent to each of last year’s margins and that will give you the best guidance.

Leyman Brothers. Just a couple of questions, one is a bit longer term. Chris, do you see anything happening in terms of the orthopedic surgeons in terms of the younger surgeons coming through the level of pickup of medical technologies, anything happening in the demograhics of the doctors there which will effect growth outlook over the next three or four years? More specifically, on one of the products, the oxinium revision, which seems to be pushed back in terms of its launch over a period of time, I presume that not for marketing reasons? That, I presume, is a pretty profitable product that you expect it to be. Is there anything going on in terms of manufacturing or anything to do with the science there?

I don’t think we see anything in surgeon demographics that has alerted, grabbed our attention. But, now that you ask the question, it might be something we want to take a little closer look at because I think it’s an interesting question. I think the biggest change in healthcare is that the younger surgeons are dealing with lower reimbursement rates. I think efficiency is going to be demanded by these younger surgeons. I think they’re going to drive efficiencies in the healthcare system and we are going to be held accountable to come out with products that help them have those higher efficiency levels. I think that’s the one thing that they’re going to be demanding as a younger group.

I don’t think there’s really anything to read into the oxinium revision products at all. It is what it is and we’re excited about it.

Chris O’Donnell: Introducing revision products is a pretty sophisticated process and we want to make sure that it’s absolutely right in terms of getting in there in terms of the timing. I might offer one other reflection. I think that, maybe, if we look at orthopedic surgeons across arthroscopy and orthopedic joint replacement, what we have seen is younger surgeons going into arthroscopy. People, allegorically, say these are surgeons who never use of scalpel. Actually, what is happening is they have been treating patients for 10 or 15 years who may be coming up to the age when they’re looking for - - they have osteoarthritis, they need a uni-compartmental knee, or maybe a joint replacement, but, obviously, since they have the Smith and Nephew brand in front of them, it is an opportunity for us here, the clinical therapist sales force, the office space practitioners, which we can access, also, with our full line of orthopedic sales people. Our branding positioning and the spread of our products make us well-positioned if this trend becomes more established. I’d say it’s rather speculation at this point in time.

I think it’s a very, very good point that we believe we have the ability to work wider in the care space because of the three companies that we have and, also, the range of products that we have.

Chris O’Donnell: Can we move to taking some questions from the conference call now?

We will take our first question from Jason Widges of Lee Rink Swan. Please go ahead.

First question, you had very impressive U.S. orthopedic growth, but I also some very impressive overseas growth on a reported basis, is that just going into your territories or what is the basis of that growth this quarter?

Chris O’Donnell: Jason, you’re talking orthopedic growth specifically?

I’m talking about orthopedic growth where you had very solid double-digit growth.

I think it’s two major factors. There’s a bunch of little things that we think we did well, but I think the two major factors are that we focused on the countries where we thought we had the greatest leverage. We really did focus on those high-leverage countries, number one. Then, secondly, is the Birmingham hip gave us some really nice pull-through of other products. We have the ability now to go out and pickup large pieces of share and large percentage of customers that we didn’t have access to in the past and we had access to those customers over night. I think those are the two major factors that contributed to our growth overseas.

The hip is leading to sales share gains overseas, basically?

Yes.

I guess my second question would be - - you talked about your worldwide sales force growth this year, what are your target for 2005?

Chris O’Donnell: In general, on sales force, we tend to report after the event rather than before the event because we really don’t want to flag these things up too much to our competitors, but I think it’s probably fair to say that we’re going to increase in all sectors, isn’t it, David?

One of the analysts asked me earlier before the meeting started, now that we’ve added all these people, are we done? When you’re growing 20 percent in these big markets, you can’t be done. We have to be very thoughtful about how we add resources and, not only that, but try to get the productivity up of these sales people. That’s another key area that we’re working on. We’ve brought in some real talent into the organization that can help us understand how we can get greater productivity with our sales force.

Just an add-on to that, it sounds like you’re investing about 50 basis points back into the business that could have been shown to the bottom line. Can I assume that that’s going - - how should we be thinking about that? Is that mostly coming out of SG&A or from R&D?

Chris O’Donnell: You should be thinking about that broadly as additional investment into selling. It will obviously be spread around a little bit. A little bit will go into R&D, but selling is going to take a big piece of that. K

I think it is interesting, we did have to hold the orthopedic sales meeting earlier this year, just last month, and it was an extremely exciting event with over 1100 people there, very excited, talked through the new products, fully global. This is a huge step up in scale and delivery for Smith and Nephew compared with three years, or five years, ago. David’s point about the training need, the majority of this was training, product knowledge, talking through new products, how they’re handled, how the surgeons - - bringing surgeons in, talking to the sales force about the alternatives these products give the surgeon and how they benefit from the faster and simpler delivery of treatment. It was very, very impressive and we really have some great guys on the sales force.

We will take our next question from Milton Hsu with Bear Stearns.

Good afternoon. David, since you’re there, I’d like to just ask you a couple of questions on the DUS knee and hip market. If you could just give us a little bit more detail on where you think volume, mix and pricing, the three separate components of growth, how they kind of fall out within knees and, then, within hips?

Chris O’Donnell: We’re going to give Peter this question.

Price and recon and trauma, what we loosely call “(inaudible) price” is 4 percent positive in Q4. My estimate is that our mix for macros was about 1.5 percent, so you can just basically back those up, say 1 to 2 percent is (inaudible) to back that down and then you back that off on that later. It will give you your volume line number.

Okay. So, you’re just talking about orthopedics in general, but not specifically for knees and hips?

I don’t have it broken down for public consumption between hips and knees and trauma.

Milton, you’ll have to come back to Memphis and visit us to get those numbers from me.

We’ll get that set up right away. Second question is when I looked back to the last several quarters, on a constant currency growth basis, you guys have grown faster than the competition, albeit, off of a smaller base, but at what point do the larger competition say, “Well, listen, we’re losing a half point of share here every year”. Given in a contact set, a lot of these three new players could be onboard with ceramic-on-ceramic later this year and there might be less differentiation in products going forward.

I think if everybody here can keep a secret, we may have a couple more years of this stuff in front of us. It’s a question we ask ourselves, Milton, in all seriousness, and we’re a very strong force in this business now. We have great scale, great products, and we’re out executing. I’m a little less worried about what our competitors are thinking than how we execute. I think it really comes down to how we execute and how we innovate with products. I believe that we control our own destiny, our competitors don’t control ours. So that’s how we approach it.

Chris O’Donnell: I think that’s absolutely right. We’re in a position where our destiny is largely in our own hands and not that of our competitors. No competitor has a product line-up like Smith and Nephews and, actually, no competitor is in investing as strongly in building up focused sales forces. I think there are some keys there to our growth. We know some of these are real investments. The investment in the trauma sales force takes nine months to a year to get a trauma sales rep up to speed in terms of productivity, let alone improving the average level of productivity. We’ve made those investments. They’re costly to the bottom line but we believe we’re driving long-term value because of the product portfolio we’re sitting on and driving into the market.

Great. Thank you.

Steven Rogten (ph) with Piper Jaffray.

Thanks for taking the question. A couple of smaller areas are missing. In the clinical therapy side, you guys put up really good growth in the quarter and I’m curious, how much of that is that (inaudible) parts business benefiting from some of the trouble with the Cox II’s (ph) in the U.S.?

We made a pretty big push, advertising push, when the Cox II got themselves a little bit sideways. I honestly don’t know how much influence that was. I’m sure somebody in the business knows, but I don’t know off the top of my head.

Chris O’Donnell: We couldn’t see a point jump up, could we? We’ve seen a run pop over a period of time.

When you grow your business 50 percent, it hides a lot of things. You’re growing everywhere and it’s hard to attribute it to certain things sometimes. We just don’t have that amount of granularity in that business right now to really understand that piece of information.

But that is sort of trend you think is going to continue in that business?

Chris O’Donnell: Okay. Thank you. We’ll move back into the room here.

It’s Michael Jungling with Merrill Lynch. A couple of questions, first, it seems the orthopedic margin expansion in the fourth quarter of 2004, compared to the same period last year, has only got 50 basis points. I was quite surprised at that. Can you give us an indication of why that may be and, also, what the guidance is for 2005 EBITDA for orthopedics? As part B of that question, it seems that the growth that you’re achieving of 20 percent in constant currency is very much driven, also, by your increase in your sales force by 22 percent, so it seems you have to grow your sales force quite rapidly to achieve a 20 percent growth moving forward. Does that mean that the price you have to pay for growth will increase over the coming years?

The second question is, if you look at the guidance - -

Chris O’Donnell: That’s four now, Michael.

Orthopedics is quite clearly invested in the SG&A line to drive growth (inaudible) for driving in 2005. You’ll see that roll into 2005. The group is going to expand its margin by about half of a percent, so you won’t see orthopedics do much different than (inaudible). It’s getting charter investments in the business.

Chris O’Donnell: We’re talking about the investment profile and we are investing and we did invest, actually, in quarter four pretty substantially in orthopedics. I think the key thing, whether David will agree with me, is the investment that I just described in the trauma sales force. Remember, David said that we doubled our trauma sales people and that was the biggest single take on the trauma people we’ve even done. They are a direct sales force, not a commission-based. They are paid on commission, but they’re employees. Therefore, there’s a bigger take up cost while the training and getting up to speed program is going on. Therefore, increasing the trauma sales force does drop the sales per pound productivity, but that is not an infinite end of the whole program. I think, relatively speaking, that the mix going forward will not see such a huge jump up in the trauma sales force.

I think you’re absolutely correct. That is really the answer to the question, but it’s more complicated than that as well. We had to add an entire management layer as well. We didn’t have a management team for trauma. When we took away the trauma accounts from our full-line reps, we had to go through that dislocation as well. We are actually very, very pleased with the kind of performance we got knowing that it’s probably going to take us 18 months from the time we hire a new rep. From where we started a year ago, it was going to take us about 18 months to get up to a full productivity level. That was our guess at the time.

Chris O’Donnell: So we still see reinvestment going forward in orthopedics in trauma and recon and clinical therapists.

Chris, could you just refresh us a little bit more about why, in absolute terms, the fourth quarter is so much stronger than the other quarters? I know we’ve addressed this before, but could you just remind us about that?

Chris O’Donnell: I’m going to give that to Peter.

Peter, just given the very strong cash flow, the outlook statement, generally how the business is going at present times, the 5 percent increase in the dividends look pretty paltry. You made a specific point, it’s more than four times covered, could you give us a little more about dividend policy and could we expect the (inaudible) ratio to improve going forward?

You asked me about the seasonality of the quarter. Basically, surgeries tend to get themselves accelerated before the Christmas break and the winter weather. You can see quarter one is a slower quarter. It affects, basically, all sides of the surgery business whether its arthroscopy or whether its orthopedics. That is, basically, that.

Chris O’Donnell: Also, there is the capital spending in arthroscopy, these digital operating rooms and big camera systems, whether they are in full operating rooms. Hospital budgeting systems around the world tend to run with the calendar year so they tend to force decisions. We would say to you, if you’re running a model, don’t carry the endo growth forward from quarter four into quarter one because a big slug of it, 45 percent growth in visualization and digital operating rooms, is an unusually high number. It’s like a fourth quarter number.

Strategically, the digital comes out of the corporate structure. The strategy that you’re seeing is with the Smith and Nephew trauma form itself, basically from a conglomerate income stock that’s characteristic to one that is driven by in technology and one of the fastest growing markets, frankly, around and levels that you’ll find outside of structure have to reflect that and reflect the propensities our investors who are attracted to it. You are aware that we have changed investment characteristics at Smith and Nephew. One of the keys to that is that we do see opportunities going forward to invest in technology acquisitions. The classic being MMT. It’s that Smith and Nephew obviously found that it could (inaudible), it’s free cash flow, its year-end acquisitions and grow the business but with slightly different characteristics. But as we sit here today, our strategy is that. We will continue doing what we are doing and so the dividend will basically grow (inaudible).

Can you comment on the IP surrounding your locking plates and whether or not that would infringe those of your competitors? Secondly, can you talk about orthopedic reimbursements outside of U.S. and what you’ve seen in 2004 and your expectations for 2005?

The first question is simple. If we thought we had an infringement of IP, we wouldn’t be bringing out a locking plate system. We think we’re on very safe ground there and we’ve got a mega-launch planned over the next couple of months. We think it’s going to go quite well.

I think reimbursements are under pressure everywhere in the world. The healthcare systems are straining. You understand the economics associated with them. What we’re doing is trying to focus ourselves on those healthcare economics and come out with products that are going to help in some way, whether it’s time, ease of use, lower cost, and it’s a big piece of our strategy.

Chris O’Donnell: I think new products are the key to that. Every time you have a new product, you have an opportunity to bring a price to the market place. That’s one of the reasons we lay so much emphasis on new products as part of our growth. They are new new products, they’re not just a me-too. Actually, that really helps us in terms of our profit mix. It may not be light-for-light price, but it gives us an opportunity to deal with a real price.

Across all the businesses. I mean, if you can’t move your products forward, you can’t get the opportunity to re-pitch your price point. It is intricle to keeping it going.

Chris O’Donnell: It’s a tough environment, as David said, so we have to work. Okay. We’ll take some more calls from the conference call.

Just as a brief reminder for the members of the tele-conference, should you wish to ask a question, please press *1 on your telephone key pad. We will take our next question from Steven Lichtman with Bank of America Securities.

Good afternoon. My first question, for David, you mentioned earlier on the knee market that it is growing above the orthopedic average, just your thoughts beyond Smith and Nephew’s growth in particular? Any thoughts on why we’re seeing that strength in the overall knee market, anything that you could point to?

First of all, I think the procedure is becoming more accepted. Second, I think you’re seeing more minimally invasive surgeries being done and it is attracting a different type of patient. You also have varying surfaces that people believe will have longer wear associated with them, so the younger, more active patient is electing to have the surgery done. I think you’re also getting into a situation, now, where you’re getting more revision surgeries. So I think those are the major factors.

Great. Chris, real quickly, thoughts on the switch from Sandhill (ph) to Gladace (ph), any update there or any updated thoughts on that and how that’s going?

Chris O’Donnell: The Sandhill comparator is now washed out of the system. The last Sandhill that we sold was in December, 2003, so that’s completely out of the system. Gladace sales have commenced. They’re not at a high number in 2004, partly because of our reassessment of the market opportunity and our refocus of the sales force behind Allevyn and Acticoat. As you are aware, Steven, the silver market place is hotted up with greater acceptance of the need for wound bed preparation among wound care professionals and with increased product offerings from other companies. In our view, none of them exhibit the documented kill rate of Acticoat and don’t cope with things like MRSA. The interest level, the papers published and the influence of doctors represents a great opportunity for us and which we will be continuing as part of the mix, but not giving special priority. Sales for Gladace are in the low millions in 2004, but it’s not a product we’re particularly focusing on.

Okay. Great. Thank you guys.

There are no further questions from the tele-conference at this point.

Chris O’Donnell: Okay. Good. Can we turn to some other questions back here then. On the EPS guidance, what your accounting assumptions might be on that? I think it’s Sterling guidance, but what is the currency behind that? Are you converting all the bulls, for example?

Basically, we’re giving those numbers on a neutral currency basis. Frankly, today, the currency, 187, it is the same as the average of 184 and if you just re-translate it at 187, you’ve got about one percent. (inaudible)

Sean Justice (ph) with J P Morgan. Just a couple of questions. First, on the LCP launch, (inaudible) WAOS, but in terms of the timing of the launch, our we going to see an immediate impact on sales after its launch or is there a sampling period which means its going to be delayed until the second half? Second, on the MIS take up, I just wondered if there are any comments you can make in terms of - - in the previous calls you mentioned how you’d seen lots of surgeons from competing accounts taking great interest in your technique and instrumentation, has that actually led to a switching of competing accounts to your products? Is there any kind of comment that you can make there?

Let me take the second one first. I think we are gaining share in those markets and we believe some of that is by capturing those surgeons who want to use our products in the minimally invasive side. So, yes, I think we are gaining some share there.

The comment on the locking compression plates, we have a tough competitor out there. Synthese (ph) isn’t going to go quietly on this. They’re not going to let us just roll into their accounts, so we’re going to have a tough battle. What the take-up is going to be, we haven’t talked about that specifically, but we are going to be ready for a significant launch. We have the instrument sets ready. We have the product ready. We’re very excited about having a full bag of products in the hands of our trauma sales reps for the first time in a very long time. We will talk more about it at WAOS.

A quick question to David, two questions. The first question is if a simple analysis where you just plot the local currency growth rates over the various participants over the last three years and (inaudible) the industry has slowed from 17 percent in 2002 down to 15 percent in 2003 and you mentioned today the industry is growing at 13 percent, I’m not sure if you disagree with those growth rates, but if you do agree, what has caused the slowdown in the past two or three years and, then, what are your expectations for 2005? The second part of the question is can you give me an indication as to why hips are suddenly, for the industry, growing so much slower than knees? What is causing that?

Well, since you handled it so well this afternoon on TV, you might do it again.

Chris O’Donnell: I think, Michael, we don’t quite understand how you got up to 17 percent. I think the issue was looking at it in constant dollars, but not doing all the corrections. If you do a dollar-based calculation, you did get up to 17 percent. If you use another currency, like pound and euro, you end up that the actual growth rate didn’t get, really, up above, maybe, 14 at the highest. We don’t actually see this at a peak and coming back down again. The only thing I would say is our numbers do not include spine, so if your numbers include spine, we wouldn’t be as close to that because we’re looking at recon and trauma as our market monitors for that.

(cross-talk)

2003, our view was 13 percent and 2004 has been 13 percent. That’s taking year-over-year. We got into a lot of trouble just like you did, but it might have seemed as if it had popped up at the backend of 2003 when Strykers, ceramic-on-ceramic, seemed to really hit the numbers hard, but we did actually counsel many of you around that. That would anniversary itself. It seemed that that picked it up and then there was also a big shift in currency right at the backend of 2003. I suspect that some numbers - - we know the combination doesn’t give you absolutely clean numbers like we do, but some of it might have gotten a little muddled up.

Chris O’Donnell: I think, also, the issue was that there was a pop-up from Stryker, but there was a drop down in Center Poles (ph), particularly, particularly with falling prices in Europe.

There are some pricing corrections from Stryker as well on their ceramic products.

Chris O’Donnell: I think, Michael, there hasn’t been a big shift like that, but let’s address the other part of your question, structurally between hips and knees. We do think that industry as a whole had a big mix benefit from the hip programs, the ceramic-on-ceramic, the shift from cemented to uncemented, particularly in the U.S. it was favorable, cross link poly across the market place, obviously, our oxinium contributed to that at the industry level. There has been a big mix impact for the industry which, for most of the other players, has now gone away. We have the mix benefit going forward of ceramic-on-ceramic and the hip resurfacing coming in. I think we actually feel that what is going to happen is we’re going to see a higher separation, relatively speaking, of winners and losers in this market place. It goes with the products and the confidence to invest in the sales force so we’re going to be above the game line, to use the Rugby expression, and the others will be behind the game line. We see a bit of that sort of shape taking place this year. I think it’s our fault that for the industry mix it’s going to be lower, but for Smith and Nephew, actually, we’re very optimistic. It’s a good point to close on.

Thank you all for attending and whether you’re here or in other parts of the world and we look forward to 2005. Thank you for your continued confidence in us through the interesting ride in 2004. We will look forward to seeing you all in a year’s time. Thank you.