LONDON -- (Marketwire) -- 11/06/08 --
Smith & Nephew Q3 results - solid revenue growth across all our
businesses
6 November 2008
Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical technology
business, announces its results for the third quarter ended 27
September 2008.
3 months* to 9 months to
27 Sept 29 Sept 27 Sept 29 Sept
2008 2007 Underlying 2008 2007 Underlying
USDm USDm increase % USDm USDm increase %
Revenue 930 845 7 2,841 2,402 6
Trading 174 169 1 554 484 5
profit2
Operating 135 68 451 343
profit 2 5
Trading 18.7 20.0 19.5 20.1
margin (%)
EPSA (cents)3 12.2 11.8 39.0 35.4
EPS (cents)5 8.4 3.1 29.3 23.8
Business Unit
revenue1
Orthopaedics 513 469 6 1,608 1,308 5
Endoscopy 195 176 8 594 531 8
Advanced 222 200 8 639 563 7
Wound
Management
* Q3 2008 comprises 63 trading days (2007 - 63 trading days)
Q3 Commentary
- Reported revenue up 10% to USD930 million, underlying growth of 7%
(9% excluding Plus impact4)
- Reported trading profit USD174 million up 3%, up 1% underlying
- EPSA up by 3% to 12.2 cents
- Orthopaedics grew revenues by 6% (9% excluding Plus impact)
- Endoscopy delivered 8% revenue growth with improved US performance
- Advanced Wound Management again outperformed the market, benefiting
from a stronger US performance and NPWT activity
- Short-term margins impacted by Plus, NPWT investment and compliance
costs. EIP target unchanged.
Commenting on the third quarter, David Illingworth, Chief Executive of
Smith & Nephew, said:"This has been a solid quarter for Smith & Nephew.
Orthopaedic
Reconstruction growth was driven by our global knee franchise and we
are pleased with the continued improvement in US Trauma revenues. Our
US Endoscopy business saw a second quarter of sequential revenue growth
and in Advanced Wound Management we again outperformed the market.
Our sales performance in the first three quarters has been good and we
have continued to see resilient demand for our products. While the
world economic outlook is uncertain, I believe our innovative product
lines and the strong healthcare economic benefits that they bring,
position us well for continued sustainable profitable growth."
Analyst conference call
An analyst conference call to discuss Smith & Nephew's third quarter
results will be held at 1.30pm GMT/8.30am EST today, Thursday 6
November. 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/Q308. 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) 201 104 3230
in the UK or +1 866 924 9856 in the US. Analysts should contact Julie
Allen on +44 (0)20 7960 2254 or by email at
julie.allen@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 and acquisitions. 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 of
acquisition intangibles and taxation thereon. See note 2 to the
financial statements.
^4 Adjusted for the impact of Plus sales lost due to unacceptable
sales practices in parts of Europe.
^5 Operating profit and earnings per share for the comparative 3
months and 9 months ended 29 September 2007 have been adjusted for the
finalisation of IFRS 3 acquisition accounting for Plus and BlueSky. See
note 1 to the financial statements.
^6 All numbers given are for the quarter ended 27 September 2008
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
Third Quarter Results
Market conditions across our businesses during the quarter have
been resilient, with positive market trends in the US and the rest of
the world off-setting a softer European market.
We generated revenues of USD930 million, growth of 10% on a reported
basis and underlying growth of 7% on the same period last year, after
adjusting for movements in currency of 3%.
Trading profit in the quarter was USD174 million, representing
underlying growth of 1%. The Group trading margin was 18.7%. In the
short-term our margin is being impacted by ongoing lost sales from Plus
and our continuing investment in the attractive Negative Pressure Wound
Therapy ("NPWT") market, where billing accounts have grown
substantially on the previous quarter. As previously disclosed, we are
incurring significant incremental compliance costs in relation to our
US Orthopaedic Reconstruction business. In addition, we have decided to
roll out our enhanced global compliance programme, harmonising and
reinforcing our procedures across all our businesses and the regulatory
regimes in which we operate. We do not expect these costs to impact our
margin target for 2010 which continues to be unchanged.
The net interest charge was USD16 million.
The tax charge was at the estimated effective rate for the full year
of 31% 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 USD107 million.
Adjusted earnings per share increased by 3% to 12.2c (61.0c per
American Depositary Share, "ADS"). Basic earnings per share was 8.4c
(42.0c per ADS) compared with 3.1c (15.5c per ADS) in 2007.
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 USD180 million in the quarter reflecting a trading profit to cash
conversion rate of 103%.
Net debt decreased by USD113 million in the quarter to USD1,392 million.
The Group purchased 4 million of its own shares during the quarter at a
cost of USD46 million and since our programme began in early 2007 we
have purchased 68 million shares at a cost of USD833 million. However,
in light of the current conditions in the financial markets, we have
decided to suspend our share buyback programme. There has been no
change in our long term target balance sheet, our expectations of cash
generation or our acquisition policy. We will keep the programme under
review going forward.
Orthopaedics
Orthopaedics (which includes Reconstruction, Trauma and Clinical
Therapies) grew revenues by 6% in the quarter to USD513 million. This
was driven by our global knee franchise and the continued improvement
of the US Trauma business, offsetting the impact of Plus lost sales
(due to the previously announced unacceptable sales practices in parts
of Europe).
Geographically, Orthopaedics grew by 9% in the US, fell by 5%
in Europe (grew by 3% excluding Plus impact) and grew by 21% in the
rest of the world.
Orthopaedic Reconstruction revenues grew at 6%, compared to the market
rate of 7%. Excluding the Plus impact, we estimate Orthopaedic
Reconstruction grew at 8%. In the US, Reconstruction grew
at 8%. Within Europe we continue to work through the remaining issues
of the Plus integration.
Global hip growth was 3%, as BIRMINGHAM HIP* Resurfacing System
("BHR*") revenue growth in the US slowed after a very strong US launch
and the building of a significant market position. We are now in the
next phase of development and face a range of competitor responses to
our success with BHR, including the use of large metal-on-metal heads
on traditional hip stems. We are taking measures to address this,
including reinforcing the strong clinical data on BHR and introducing
additional BHR implant sizes.
Our global knee franchise, including the JOURNEY* Bi-cruciate
Stabilized Knee System and LEGION* Total Knee System, continued its
growth delivering 10% this quarter, reinforced by our marketing
campaigns and broad product ranges.
Orthopaedic Trauma revenues grew by 5% to USD108 million (9% excluding
Plus impact) in the quarter. In the US, Trauma revenues grew by 8%, up
from 4% in Q2 and 1% in Q1, reflecting the refocusing of our trauma and
full line orthopaedic sales teams. This continuing momentum, and our
strong product range, underpins our objective of
achieving trauma market growth rates in the US by the year end.
We've seen accelerated growth in the hip fracture segment due to strong
product performance of our TRIGEN* INTERTAN nail, as well as the
release of the PERI-LOC* PFP, our proximal femur locking plate system.
In addition, we have continued to invest in our intramedullary nail
franchise with the release of the TRIGEN* Humeral Nail System, and in
the external fixation space with recent extensions in our JET-X* brand
.
Clinical Therapies grew revenues by 10% (12% excluding Plus impact),
again driven by strong sales growth from our EXOGEN 4000+* Ultrasound
Bone Healing System and DUROLANE® Hyaluronic Acid Stabilised Single
Injection.
Across Orthopaedics, in the former Plus businesses, revenues in the
quarter were reduced by an estimated USD13 million and trading profits
by USD7 million due to our harmonisation of sales practices. We
continue to expect that the revenue impact in a full twelve month
period will be USD100 million.
The trading margin for Orthopaedics in the quarter was 19.9%, a
decrease of 170 basis points, as our operational improvements were
outweighed by the short-term impact of Plus lost sales and related
expenses, together with additional regulatory compliance costs, much of
which is in the US. In the full year, we expect the additional
compliance costs to be approximately USD30 million, of which two thirds
have been incurred to date.
Endoscopy
Endoscopy revenues increased by 8% to USD195 million with US sales
performance continuing to improve following the actions we have taken
throughout the year.
US revenues grew by 7%, up from 4% in Q2 and -3% in Q1. The
restructuring of the sales force by region, the increasing
specialisation of sales representatives and additional investment have
all contributed to this improvement. Revenues in Europe increased by 6%
and the rest of the world again delivered a strong performance at 13%.
By business, Arthroscopy grew 8% and Visualisation 9%. Within
Arthroscopy, as anticipated, we experienced strong growth in repair
products, with our knee, shoulder and developing hip ranges all selling
well. In Visualisation, our HD camera offering continues to be well
received and is driving growth.
This quarter we launched globally the bioabsorbable BIOSURE* HA
Interference Screw, expanding our knee repair range.
The trading margin of 17.1%, a decrease of 190 basis points, has been
affected by increased litigation costs, including the defence of our
intellectual property, and an increased investment in developing our US
sales force.
Advanced Wound Management
Advanced Wound Management again outperformed the market, benefiting
from an improvement in US revenue growth. Margins continued to
reflect our investment in the substantial Negative Pressure Wound
Therapy ("NPWT") opportunity.
Revenues grew by 8% to USD222 million, compared to the market rate of
7%. US revenues grew by 8%, continuing the improving trend from the
previous quarter. European revenues grew at 7% to USD120 million, with
some weakness in southern Europe being balanced elsewhere, and the rest
of the world increased by 11%.
Our Infection Management product range grew by 13%. We saw good
progress from the continued success of ALLEVYN* Ag dressings, which
were launched in late 2007. ALLEVYN Ag Heel will soon be launched,
supporting our strong position in this therapy sector. Exudate
Management grew by 6%, as positive European and Australian sales were
partially offset by weaker US performance.
In NPWT, we continue to make progress. Billing accounts were up 25% at
the period end on the previous quarter and customer feedback continues
to be strong. We are focused on bringing a continuous series of product
and service enhancements to customers.
Our new low cost manufacturing base in China remains on track with the
first teams of Chinese operators commencing training in Largo, Florida.
Advanced Wound Management's margin of 17.2%, an increase of 20 basis
points, reflects the margin improvements achieved to date through our
Earnings Improvement Programme ("EIP") offset by our ongoing global
investment in NPWT.
Year to Date Results
Reported revenues increased by 18% to USD2,841 million compared to the
same period last year, with underlying growth at 6%.
Reported trading profit for the year to date was up 14% to USD554
million with trading margin higher at 19.5%. The net interest charge
was USD49 million. The tax charge of USD142 million reflects the
estimated effective rate for the year of 31%. Adjusted attributable
profit of USD346 million is before the costs of restructuring and
rationalisation, acquisition related costs, amortisation of acquisition
intangibles and taxation thereon. Attributable profit was USD260
million.
EPSA rose by 10% to 39.0c (195.0c per ADS). Reported basic earnings per
share were 29.3c (146.5c per ADS).
Trading cash flow was USD453 million compared with USD402 million a year
ago. This is a trading profit to cash conversion ratio of 82% compared
with 83% a year ago.
The Group purchased 16 million of its own shares during the year to
date at a cost of USD193 million.
Outlook
In Orthopaedic Reconstruction we expect our US business to grow at
close to market growth rates for the remainder of 2008 and for our
European business to continue to be impacted by Plus.
Our Orthopaedic Trauma business is expected to return to market growth
rates in the US by the end of the year. We continue to expect that the
impact of harmonisation of selling practices in the former Plus
business will be USD100 million in revenue in the full twelve month
period.
We continue to expect Endoscopy to grow slightly behind the market in
2008.
Advanced Wound Management has grown at around market rate for the last
two quarters and we expect this to continue. In line with previous
guidance, we do not expect NPWT to earn a profit for the next few
quarters.
We remain confident with the longer term improvement our EIP
initiatives will have on our margins. In the short term, our margins
will continue to be impacted by Plus and our investment in NPWT.
