Smith & Nephew plc Announces 1st Quarter Results

LONDON--(Marketwire - April 30, 2009) -

Smith & Nephew 2009 Q1 results - a good performance in slower markets


30 April 2009


Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical technology
business, announces its results for the first quarter ended 28 March
2009.


                              3 months* to
                        28 Mar 29 Mar
                          2009   2008   Underlying
                          USDm   USDm     increase %1

Revenue                    865    911        4
Trading profit2            183    182       12
Operating profit2          159    142
Trading margin (%)        21.2   20.0      120 bps
EPSA (cents)3             13.1   12.8
EPS (cents)               11.1    9.3

Business Unit revenue

Orthopaedics               508    528        4
Endoscopy                  179    194        0
Advanced Wound Management  178    189        9



* Q1 2009 comprises 61 trading days (2008 - 62 trading days)


Q1 Commentary

  - Reported revenue was USD865 million, underlying growth of 4%

  - Reported trading profit USD183 million, up 12% underlying

  - EPSA increased to 13.1 cents

  - Orthopaedics grew revenues by 4% in slower markets

  - Endoscopy delivered flat revenues due to anticipated weak markets
    for capital products

  - Advanced Wound Management grew revenues by 9%, with a balanced
    contribution by product and geography

  - Trading margin improved 120 basis points to 21.2%

  - End of Deferred Prosecution Agreement, continued investment in
    global compliance programme



Commenting on the first quarter, David Illingworth, Chief Executive of
Smith & Nephew, said:"Our businesses are proving resilient, but not immune
to the weak
global economy. We grew underlying sales for the quarter by 4%, with a
strong performance in Advanced Wound Management. We achieved growth in
trading profit of 12% at constant currency and an increase in trading
margin of over 1% through a combination of our Earnings Improvement
Programme and prudent cost control.

Economic conditions continue to be difficult creating a mixed back
drop, but our businesses are well positioned. We are fully engaged in
our Earnings Improvement Programme and our strategy to deliver
continued earnings growth for our shareholders is working."


Analyst presentation and conference call


An analyst presentation and conference call to discuss Smith & Nephew's
first quarter results will be held at 8.30am BST/3.30am EST today,
Thursday 30 April. This will be broadcast live on the company's website
and will be available on demand shortly following the close of the call
at http://www.smith-nephew.com/Q109. A podcast will also be available
at the same address. If interested parties are unable to connect to the
web, a listen-only service is available by calling +44 (0) 20 8322 2048
in the UK or +1 866 432 7175 in the US. Analysts should contact
Samantha Hardy on +44 (0)20 7960 2257 or by email
at samantha.hardy@smith-nephew.com for conference details.


Notes

1 Unless otherwise specified as 'reported', all revenue increases
  throughout this document are underlying increases after adjusting for
  the effects of currency translation. See note 3 to the financial
  statements for a reconciliation of these measures to results reported
  under IFRS.


2 A reconciliation from operating profit to trading profit is given in
  note 4 to the financial statements. The underlying increase in
  trading profit is the increase in trading profit after adjusting for
  the effects of currency translation.


3 Adjusted earnings per ordinary share ("EPSA") growth is as reported,
  not underlying, and is stated before restructuring and
  rationalisation costs, acquisition related costs, amortisation of
  acquisition intangibles and taxation thereon. See note 2 to the
  financial statements.


4 All numbers given are for the quarter ended 28 March 2009 unless
  stated otherwise.




Enquiries


Investors
Liz Hewitt           +44 (0) 20 7401 7646
Phil Cowdy
Smith & Nephew


Media
Jon Coles            +44 (0) 20 7404 5959
Justine McIlroy
Brunswick - London


Cindy Leggett-Flynn  +1 (212) 333 3810
Brunswick - New York



First Quarter Results


Smith & Nephew has delivered a good performance this quarter in slower
markets.


We generated revenues of USD865 million, compared to USD911 million in
2008. This represents an underlying growth of 4% on the same period
last year, after adjusting for movements in currency of 9%. In
addition, there was one less sales day than in the comparative period
in 2008, which if corrected for, our underlying revenue growth would
have been about 1% higher.


In Orthopaedics the recent market growth numbers point to a slowing of
the market. Endoscopy, as expected, has proved to be most exposed to
the economic slowdown, particularly for capital product sales, while
Advanced Wound Management has been the most resilient.


Trading profit in the quarter was USD183 million, representing strong
underlying growth of 12%. The Group trading margin increased by 120
basis points to 21.2%. The margin reflects prudent cost control and
continued progress in our Earnings Improvement Programme ("EIP").


The net interest charge was USD10 million. The average interest rate for
the period was approximately 3.5%.


The tax charge was at the estimated effective rate for the full year of
31.8% on profit before restructuring and rationalisation costs,
acquisition related costs and amortisation of acquisition intangibles.
Attributable profit before the costs of restructuring and
rationalisation, acquisition related costs and amortisation of
acquisition intangibles and taxation thereon was USD116 million.


Adjusted earnings per share was 13.1c (65.5c per American Depositary
Share, "ADS"). Basic earnings per share was 11.1c (55.5c per ADS)
compared with 9.3c (46.5c per ADS) in 2008.


Trading cash flow (defined as cash generated from operations less
capital expenditure but before the costs of macrotextured settlements,
acquisition related costs and restructuring and rationalisation costs)
was USD128 million in the quarter reflecting a trading profit to cash
conversion rate of 70%.


Net debt decreased by USD228 million in the quarter to USD1,104 million.
During the quarter we received CHF159 million in cash settlement
following the agreement with the vendors of Plus.


Orthopaedics


Orthopaedics (consisting of Reconstruction, Trauma and Clinical
Therapies) grew revenues by 4% in the quarter to USD508 million.
Geographically, Orthopaedics grew by 3% in the US, fell by 2%
in Europe and grew by 16% in the rest of the world.


Orthopaedic Reconstruction revenues grew at 3%. We estimate that the
market grew at 4%, reflecting some softening in volumes over 2008. In
the US our growth was 3%, in Europe growth fell by 1% and in rest of
the world growth remained strong at 13%.


We saw the end of the Deferred Prosecution Agreement and
have successfully implemented a more robust compliance programme which
we have been rolling out globally across all our businesses.


Global knee growth was 5%, with a solid performance from our newer
products, particularly in Japan where OXINIUM# Oxidised Zirconium was
recently introduced.


Global hip growth was 2%. This was largely due to the US, where we
experienced a weaker BIRMINGHAM HIP# Resurfacing System performance.
The progress in our other hip products was encouraging, including the
launch of our R3# Acetabular System.


Orthopaedic Trauma revenues grew by 6% to USD100 million in the quarter,
with growth of 7% in the US, where our advanced products, such as
PERI-LOC# Peri-Articular Locked Plating System and TRIGEN# INTERTAN#
 Nail, have continued to sell well, although our exterior fixation
products have been weaker. In Europe a large UK order in the first
quarter of 2008 was not repeated this year.


Clinical Therapies grew revenues by 2% as economic conditions impacted
the sales of some products.


In Europe, we announced the rationalisation of our premises
in Switzerland with the closure of one site.


The trading margin for Orthopaedics in the quarter was 23.4%, a
reduction of 30 basis points.


Endoscopy


Endoscopy revenues were flat on the prior year at USD179 million. As
anticipated, our Endoscopy business, particularly capital-related
sales, were affected by the macro economic impact on hospitals and
patients.


US revenues fell by 4%, Europe grew by 2% and the rest of the world
grew by 8%.


By business segment, Arthroscopy grew by 3% and Visualisation fell by
12%. Within Arthroscopy we have maintained good growth in repair
products with the launch of new products such as the bioabsorbable
OSTEORAPTOR# Anchor for use in the shoulder and hip, although resection
has experienced continued weakness. In the US, and increasingly in
other regions, hospitals continue to reduce or defer capital purchases.


Endoscopy achieved a trading margin of 21.3%, an increase of 70 basis
points.


Advanced Wound Management


Advanced Wound Management grew revenues by 9% to USD178 million,
compared to the market rate of 5%.  US revenues grew by 8%, with growth
in both our advanced wound care and NPWT segments, supported by
some US wholesaler re-stocking. European revenues grew at 6% to USD95
million, with some macro economic weakness evident in eastern Europe.
Our revenues in the rest of the world increased by 15%.


Our Infection Management product range revenues grew by 31%, with an
improved ACTICOAT# performance, and Exudate Management grew by 9%.


Negative Pressure Wound Therapy ("NPWT") contributed approximately 2%
to the overall Advanced Wound Management growth in revenues. We
continued our drive to expand customer choice by launching our RENASYS#
 enhanced pump range and new disposable products at the end of the
quarter. We have continued to demonstrate the strength of our
intellectual property position with progress in the US and Germany.


We announced in the quarter the consolidation of our UK wholesale
distribution arrangements in order to reduce cost and enhance customer
service levels. In our second quarter there will be some net
de-stocking in the UK supply chain as a result of this consolidation.


Advanced Wound Management significantly increased its trading margin to
14.6% from 9.0% in the comparable quarter. The comparative quarter
included significant NPWT launch costs.


Outlook


As anticipated, Smith & Nephew is proving resilient, but not immune to
the global slowdown. Our businesses are well positioned, we are fully
engaged in our EIP and our strategy to deliver sustainable earnings is
working.


Our Orthopaedic businesses have a long history of out-performing the
market through our innovative products and high levels of customer
service. In the short term, we expect our first quarter relative
performance to the market to continue. We expect an increase in
competitive pressures on our US Clinical Therapies business as the year
progresses.


In Endoscopy we continue to expect to generate good growth in our
repair segment, although we see hospitals continuing to reduce or defer
capital purchases.


Advanced Wound Management, excluding NPWT, is expected to grow at
around the market rate for the full year. In NPWT we are making
significant progress by launching enhanced products and defending our
intellectual property.


In the second quarter there is one less sales day than last year and
the timing of Easter has had some effect on our European Advanced Wound
Management business.


Our strong first quarter margin performance, through a combination of
our EIP and maintaining prudent cost control, demonstrates progress
towards meeting our trading margin target.


The underlying demographic and other growth drivers remain favourable
and will continue to create strong long term demand for our products
and sustainable growth for our shareholders.



About Us


Smith & Nephew is a global medical technology business, specialising in
Orthopaedics, including Reconstruction, Trauma and Clinical Therapies;
Endoscopy and Advanced Wound Management. Smith & Nephew is a global
leader in arthroscopy and advanced wound management and is one of the
leading global orthopaedics companies.


Smith & Nephew is dedicated to helping improve people's lives. The
Company prides itself on the strength of its relationships with its
surgeons and professional healthcare customers, with whom its name is
synonymous with high standards of performance, innovation and trust.
The Company operates in 32 countries around the world. Annual sales in
2008 were USD3.8 billion.


Forward-Looking Statements


This press release contains certain "forward-looking statements" within
the meaning of the US Private Securities Litigation Reform Act of 1995.
In particular, statements regarding expected revenue growth and trading
margins discussed under "Outlook" are forward-looking statements as are
discussions of our product pipeline. These statements, as well as the
phrases "aim", "plan", "intend", "anticipate", "well-placed","believe",
"estimate", "expect", "target", "consider" and similar
expressions, are generally intended to identify forward-looking
statements. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors (including, but not
limited to, the outcome of litigation, claims and regulatory approvals)
that could cause the actual results, performance or achievements of
Smith & Nephew, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by
such forward-looking statements. Please refer to the documents that
Smith & Nephew has filed with the U.S. Securities and Exchange
Commission under the U.S. Securities Exchange Act of 1934, as amended,
including Smith & Nephew's most recent annual report on Form 20F, for a
discussion of certain of these factors.


All forward-looking statements in this press release 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.


# Trademark of Smith & Nephew. Certain marks registered US Patent and
Trademark Office.

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