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Smith & Nephew plc : Smith & Nephew | Smith & Nephew First Quarter 2012 Results

05/03/2012 | 05:59am US/Eastern
Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical technology business, announces its results for the first quarter ended 31 March 2012.
3 Months* to
31 Mar
    2012
$m
Underlying
    change
%
2 Apr
2011
$m
Revenue1
1,079
3
1,055
Trading profit2
252
5
241
Operating profit2
236
231
Trading margin (%)
23.3
50bps
22.8
EPSA (cents)3
19.5
18.4
EPS (cents)
18.0
17.5
Divisional revenue1
Advanced Surgical Devices global
839
3
823
Advanced Wound Management global
240
5
232

* Q1 2012 comprised 64 trading days (2011 - 64 trading days)


Q1 Financial Highlights
  • Revenue $1,079 million, up 3% on an underlying basis
  • Trading profit was $252 million, up 5% on an underlying basis
  • Trading profit margin of 23.3%, up 50 bps
  • EPSA was up 6% to 19.5¢
  • Net debt at $28 million, down from $351 million a year ago
  • Strong revenue, profit and trading profit margin performance from both Advanced Surgical Devices and Advanced Wound Management
  • Continued good growth in Knee Implants and momentum in Negative Pressure Wound Therapy
  • Further progress delivering against each of our five strategic priorities

Commenting on Q1, Olivier Bohuon, Chief Executive Officer of Smith & Nephew, said: "Smith & Nephew has had a good first quarter.  We grew revenue, increased profit and improved our trading profit margin.  We saw the first results of our actions to make Smith & Nephew more fit and effective.

"2012 is a critical year for implementing our new strategic priorities. Our plans to progress the structural changes, additional investments and, of course, greater efficiencies, are now underway.  Throughout Smith & Nephew, at every level, there is a clear sense of direction, as we work to reshape the Group for future growth."


Analyst presentation and conference call An analyst presentation and conference call to discuss Smith & Nephew's first quarter and preliminary results will be held at 8.30am GMT/3.30am EST today, 3 May.  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/Q112. 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 3364 5381 (passcode 6423551) in the UK or +1646 254 3365 (passcode 6423551) in the US.  Analysts should contact Jennifer Heagney on +44 (0) 20 7960 2255 or by email at jennifer.heagney@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 4 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 5 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, amortisation of acquisition intangibles and taxation thereon.  See note 2 to the financial statements.
  4. All numbers given are for the quarter ended 31 March 2012 unless stated otherwise.
  5. References to market growth rates are estimates generated by Smith & Nephew based on a variety of sources.

Enquiries
Investors 
Phil Cowdy 
+44 (0) 20 7401 7646 
Smith & Nephew 
Media 
Charles Reynolds
+44 (0) 20 7401 7646
Smith & Nephew
Andrew Mitchell / Justine McIlroy
+44 (0) 20 7404 5959
Brunswick

First Quarter Results Smith & Nephew delivered a good financial performance in the first quarter of 2012, increasing revenue to $1,079 million, representing 3% growth on an underlying and 2% on a reported basis year-on-year.

Both our Advanced Surgical Devices ("ASD") and Advanced Wound Management ("AWM") global divisions grew revenue, profit and trading profit margins in the quarter. 

Product highlights included 6% growth in revenue from our global Knee Implant franchise and another strong quarter from our Negative Pressure Wound Therapy ("NPWT") portfolio.  We believe that we have now taken around 20% of the European NPWT market.

Consistent with our strategic priorities, we are now providing geographic growth data for both our Established Markets (US, Europe, Canada, Japan, Australia and New Zealand), where we increased revenue by 2% in the quarter, and our Emerging and International Markets, which were 12% ahead.  In the BRIC countries we delivered revenue growth in excess of 20%.

Our trading profit was $252 million, up 5% from $241 million in 2011.  This was ahead of expectations, resulting in a Group trading profit margin of 23.3%, 50 bps ahead of last year.  This improvement is in part a reflection of the actions we are taking to reshape Smith & Nephew beginning to take effect, although there is also a benefit from some cost phasing which will reverse in Q2.

The net interest charge for the period was $2 million.  The tax rate for the quarter, and estimated effective rate for the full year, was 30.1% on profit before restructuring and rationalisation costs and amortisation of acquisition intangibles.  Adjusted attributable profit of $174 million is before these items and taxation thereon.

Adjusted earnings per share was 19.5¢ (97.5¢ per American Depositary Share, "ADS") compared to 18.4¢ last year.  Basic earnings per share was 18.0¢ (90.0¢ per ADS) (2011: 17.5¢).

Trading cash flow (defined as cash generated from operations less capital expenditure, but before restructuring and rationalisation costs and legal settlement) was $192 million in the quarter, reflecting a trading profit to cash conversion ratio of 76%.  Net debt decreased to $28 million from $351 million a year ago.

As previously announced, in February we reached settlements with the U.S. Securities and Exchange Commission and U.S. Department of Justice in connection with their investigation of the medical device industry, and paid $22 million in fines and profit disgorgement.  The Group had previously provided for this payment in Q4 2011.


Progress Delivering Against Strategic Priorities In our Q4 and Full Year statement in February we gave details of the actions we had taken in 2011 to deliver against our strategic priorities and reshape Smith & Nephew to be fit and effective for the future.  We have made further progress in the first quarter of 2012. 

For instance, we continue to invest in improving efficiency, and have commenced a significant Process Optimisation project in Europe. Our operations here have a diverse range of processes and IT systems. This multi-year project will develop common processes across our business, supported by a single transactional and reporting system, to enable faster, and better informed, decision making.

The Group also invested further to support our strategic priority to be market leaders across the BRIC nations.  This included strengthening our Emerging Markets team with the appointment of a new General Manager for Brazil and senior operations and logistics personnel, and we established a new headquarters for our Emerging Markets and International Markets teams in Dubai.

We opened a new innovation and training centre in Memphis, which we will use to deliver best-in-class surgeon training programmes.  This is a multi-disciplinary facility, including implant, trauma and sports medicine, reflecting our belief that there is much to be gained by more closely sharing learning and innovation between specialisms.  We also enjoyed a successful American Academy of Orthopaedic Surgeons Annual Meeting in San Francisco, launching a number of new products and successfully demonstrating the breadth of our portfolio to a wide range of customers.

Finally, the Group has also been delivering on our priority to supplement and support organic growth through acquisition.  In the period we added a number of small complementary technologies such as the acquisition of biomechanical company LifeModeler, whose software shortens the time taken to develop new products using a virtual model of the human body.  Similarly, the purchase of the ADERMA
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