LONDON--(Marketwire - July 30, 2009) -
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Smith & Nephew Q2 and Half Year Results - strong profit performance in
challenging markets
30 July 2009
Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical technology
business, announces its results for the second quarter
ended 27 June 2009.
3 months* to 6 months** to
_______________________ ______________________
27 28 27 28
June June Underlying June June Underlying
2009 2008 change 2009 2008 change
USDm USDm % USDm USDm %
Revenue1 926 1,000 0 1,791 1,911 2
Trading profit2 212 198 17 395 380 15
Operating profit2 189 174 348 316
Trading margin (%) 22.9 19.8 310 bps 22.0 19.9 210 bps
EPSA (cents)3 15.4 14.0 28.5 26.8
EPS (cents) 13.4 11.6 24.5 20.9
Business Unit
revenue1
Orthopaedics 531 567 0 1,039 1,095 2
Endoscopy 187 205 -2 366 399 -1
Advanced Wound
Management 208 228 4 386 417 6
* Q2 2009 comprises 63 trading days (2008 - 64 trading days)
** H1 2009 comprises 124 trading days (2008 - 126 trading days)
Q2 Commentary
- Reported trading profit USD212 million, up 17% underlying
- EPSA increased 10% to 15.4 cents
- Orthopaedics continues to be impacted by deferred procedures
- Endoscopy achieved strong repair product sales off-set by the weak
capital related market
- Advanced Wound Management delivered another good sales and
profit performance
- Trading margin improved 310 basis points to 22.9%
- Interim dividend increased by 10% to 5.46c
Commenting on the second quarter, David Illingworth, Chief Executive of
Smith & Nephew, said:"As a result of the continual improvement in our
operational
efficiency we achieved growth in trading profit of 17% at constant
currency. A good achievement in weaker markets.
Our focus on products for younger more active patients has positioned
us well over several years. In the current environment this market
segment and these products are facing greater challenges. We are
confident that our strategy of market led innovation and high customer
service levels will position us to achieve above market growth in the
future. In the meantime, we are focused on executing our operational
improvement plans and delivering profit growth in these tough markets."
Analyst presentation and conference call
An analyst presentation and conference call to discuss Smith & Nephew's
second quarter results will be held at 9am GMT/4am EST today, 30 July.
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/Q209. 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 Binti
McEvaddy on +44 (0) 20 7960 2257 or by email at
binti.mcevaddy@smith-nephew.com for conference details.
Notes
1 Unless otherwise specified as 'reported', all revenue
increases/decreases throughout this document are underlying increases/
decreases 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 and acquisitions.
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 and
impairment of acquisition intangibles and taxation thereon. See note 2
to the financial statements.
4 All numbers given are for the quarter ended 27 June 2009
unless stated otherwise.
Second Quarter Results
Smith & Nephew has again achieved a strong profit
performance reflecting our focus on operational efficiency in the
current challenging market conditions.
We generated revenues of USD926 million, compared to USD1,000 million in
2008. On a reported basis this reflects a 7% adverse currency
movement. In addition, there was one less sales day than in the
comparative period in 2008. Adjusting for this, our underlying revenue
growth was about 1%.
Trading profit in the quarter was USD212 million, representing strong
underlying growth of 17% and the Group trading margin increased by 310
basis points to 22.9%. The margin improvement flows from progress in
our Earnings Improvement Programme ("EIP"), tight cost control and a
weaker comparative period.
The net interest charge was USD11 million. 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. Adjusted attributable
profit of USD136 million is before the costs of restructuring and
rationalisation, acquisition related costs and amortisation of
acquisition intangibles and taxation thereon.
Adjusted earnings per share increased by 10% to 15.4c (77.0c per
American Depositary Share, "ADS"). Basic earnings per share was 13.4c
(67.0c per ADS) compared with 11.6c (58.0c 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 USD135 million in the quarter reflecting a trading profit to cash
conversion rate of 64%.
Net debt increased in the quarter to USD1,205 million, primarily due to
dividend payments and currency movements.
A first interim dividend of 5.46c per share (27.3c per ADS) will be
paid on 3 November 2009 to shareholders on the register at the close of
business on 16 October 2009. This represents a 10% increase on the 2008
first interim dividend.
Orthopaedics
Orthopaedics (consisting of Reconstruction, Trauma and Clinical
Therapies) generated revenues of USD531 million in the quarter, which
was unchanged on the prior year on an underlying basis. Geographically,
Orthopaedics grew by 2% in the US and by 7% in the rest of the world
(other than Europe). In Europe our revenue fell by 8%, partly
reflecting the weaker local market conditions. Earlier this year we
strengthened our European management team and they are implementing a
series of operational improvements.
Orthopaedic Reconstruction revenues were unchanged on an underlying
basis with growth of 3% in the US. We estimate that the worldwide
market grew at 3%, reflecting a further softening in procedure
volumes. We recently opened a new training centre in Shanghai, China
as part of our investment in our emerging market business, which
continues to grow strongly.
Global knee growth was 1% and global hips fell by 1%. Our new
products, such as the R3# Acetabular System, continue to perform
well, as do our core hip and knee ranges. Our higher specification
and early intervention implant systems, such as BIRMINGHAM HIP#
Resurfacing System and the JOURNEY# Active Knee Solutions, have
a greater exposure to the impact of the global recession as we believe
that the rate of deferred procedures has been higher among younger,
privately insured patients, rather than the older, potentially
retired, population. The larger impact on the sales volume of our
higher specification products has a negative effect on our sales mix.
Orthopaedic Trauma revenues grew by 2%, with growth of 4% inthe US. We
estimate that the worldwide market grew by 7% in the
quarter. Sales of our external fixation products improved from the
first quarter and our advanced product lines continue to sell well.
Clinical Therapies revenues fell by 4%. DUROLANE® Hyaluronic Acid
Stabilised Single Injection is due to go to a FDA panel for hearing on
19 August.
Orthopaedics achieved a trading margin increase of 210 basis
points to 24.4%, mainly derived from improving operational
effectiveness, such as rationalising our global logistics facilities
and increased manufacturing and procurement efficiency.
Endoscopy
Endoscopy revenues were down 2% on the prior year to USD187 million,
as capital related sales continue to be weak, particularly in
the US and increasingly in Europe.
US revenues fell by 10%, Europe grew by 4% and the rest of the world
grew by 7%, led by strong contributions from Japan and Australia.
Visualisation sales continue to be affected by hospitals significantly
reducing capital purchases due to the macro economic climate, and fell
by 26%. Arthroscopy as a whole grew by 4%, driven by continued strong
Repair segment performance from our existing product portfolio and new
introductions such as the BICEPTOR# Tenodesis System, the first
all-arthroscopic procedure for biceps tendon repair. Resection was
weaker as it also suffered from a capital related reduction in spending
by customers. The second half should see the introduction of our next
generation of radiofrequency (RF) resection devices.
The trading margin for Endoscopy was 22.7%, up 340 basis points on
the prior year, benefiting from the closure of our manufacturing site
in Warsaw, Indiana and a range of operational improvements. Last year
the margin was reduced by higher than normal litigation and business
development spend.
Advanced Wound Management
Advanced Wound Management revenues grew 4% to USD208 million, compared
to a market rate of 4% which was slower than the market growth rate
during 2008. European revenue growth at 3% was reduced slightly by
the consolidation of our UK wholesale distribution arrangement, as
previously highlighted. US revenues were unchanged on an underlying
basis and the rest of the world grew by 8%.
Exudate Management grew by 3% and Infection Management 13%, supported
by the launches of ALLEVYN# GENTLE Ag and ALLEVYN# GENTLE BORDER Ag.
Negative Pressure Wound Therapy continues to make good progress as we
roll out our enhanced pump range, expand our dressings range, penetrate
new accounts and successfully defend our intellectual property
position.
In June we announced the opening of our new manufacturing facility
in Suzhou, China. The plant has been making test batches of product
for some weeks and this process will continue for a few months before
full scale production is started towards the end of the year.
Advanced Wound Management achieved a strong trading margin increase of
500 basis points to 19.1%, primarily driven by the significant benefit
of its extensive EIP initiatives, rigorous cost control and a weaker
comparative.
Half Year Results
Reported revenues were USD1,791 million, with underlying growth
at 2% compared to the same period last year.
Reported trading profit for the year to date was up 15% underlying to
USD395 million, with trading margin improving by 210 basis points
to 22.0%. The net interest charge was USD21 million. The tax charge of
USD106 million reflects the estimated effective rate for the year
of 31.8%. Adjusted attributable profit of USD252 million is before the
costs of restructuring and rationalisation, acquisition related costs,
amortisation of acquisition intangibles and taxation thereon.
Attributable profit was USD216 million.
EPSA rose by 6.3% to 28.5c (142.5c per ADS). Reported basic earnings
per share were 24.5c (122.5c per ADS).
Trading cash flow was USD263 million compared with USD273 million a year
ago. This is a trading profit to cash conversion ratio of 67% compared
with 72% a year ago.
Outlook
Our guidance is unchanged from the last quarter, except that we expect
our products which serve the younger more active patient segment to
continue to be disproportionately impacted by the current market
weakness.
Notwithstanding the challenging economic environment, our success in
continuing to deliver our EIP and maintaining tight cost discipline
gives us confidence in our ability to deliver a good outcome for the
full year.
We believe that our strategy of market led innovation and high customer
service levels will position us to achieve above market growth in the
future.
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.
DUROLANE® is a trademark of Q-Med AB.
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