Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical technology business, announces its results for the third quarter ended 28 September 2013.
| 3 months* to | 9 months to | ||||||
| 28 Sep 2013 $m |
29 Sep 2012 $m |
Underlying change % |
28 Sep 2013 $m |
29 Sep 2012 $m |
Underlying change % |
||
| Revenue1 | 1,027 |
952 | 5 | 3,176 |
3,060 |
3 | |
| Trading profit2 | 222 | 207 | 10 | 695 |
693 |
4 | |
| Operating profit2 | 180 |
187 |
575 |
633 |
|||
| Trading profit margin (%) | 21.6 |
21.7 |
(10)bps |
21.9 |
22.6 |
(70)bps |
|
| EPSA (cents)3 | 17.1 |
16.4 |
53.6 |
53.5 |
|||
| EPS (cents) | 13.6 |
14.7 |
43.6 |
64.9 |
|||
| Divisional revenue1 | |||||||
| Advanced Surgical Devices global | 696 |
698 |
3 | 2,197 |
2,311 |
0 | |
| Advanced Wound Management global | 331 |
254 |
12 | 979 |
749 |
11 | |
* Q3 2013 comprises 63 trading days (2012: 63 trading days)
** Underlying change includes the like-for-like Healthpoint growth and excludes impacts of the Bioventus transaction and currency translation
Q3 Financial Highlights
- Revenue of $1,027 million, up 5% on an underlying basis
- Trading profit of $222 million, up 10% on an underlying basis, giving a trading profit margin of 21.6%
- EPSA at 17.1 cents, up 4%
- Improved performance in Hip and Knee Implants and continued strong growth from Advanced Wound Management and Sports Medicine Joint Repair
- Emerging and International Markets delivered 20% revenue growth
- $300 million share buy-back programme on-track with $151 million spent to date
Commenting, Olivier Bohuon, Chief Executive Officer of Smith & Nephew, said:
“Smith & Nephew had a strong third quarter, delivering 5% growth in revenue and 10% growth in trading profit on an underlying basis. Our global performance in Hip and Knee Implants improved following successful new product introductions and increased investment. We generated 20% revenue growth across our Emerging and International Markets. Advanced Wound Management significantly outperformed its segment with another excellent quarter from Healthpoint Biotherapeutics, which we have now rebranded as Smith & Nephew.
“Our markets remain tough, but through implementing our strategic priorities we are meeting these challenges, investing where we see the greatest opportunities for growth, and successfully reshaping the Group for long-term success.”
Analyst conference call
An analyst conference call to discuss Smith & Nephew’s third quarter results will be held at 12.30pm GMT/8.30am EST today, Thursday 31 October. This will be broadcast live on the company’s website and will be available on demand shortly following the close of the call athttp://www.smith-nephew.com/Q313. During the presentation a listen-only service will be available by calling +44(0)20 3427 1907 in the UK or +1212 444 0895 in the US (passcode 3655939). Analysts should contact Jennifer Heagney on +44 (0) 20 7960 2255 or by email atjennifer.heagney@smith-nephew.com for conference call details.
Notes
- Unless otherwise specified as ‘reported’ all revenue growths throughout this document are underlying increases/decreases after adjusting for the effects of currency translation, and inclusion of the comparative impact of acquisitions and exclusion of disposals. See note 3 to the interim financial statements for a reconciliation of these measures to results reported under IFRS.
- A reconciliation from operating profit to trading profit is given in note 4 to the interim financial statements. The underlying growth in trading profit is the growth in trading profit after adjusting for the effects of currency translation, inclusion of the comparative impact of acquisitions and exclusion of disposals.
- Adjusted earnings per ordinary share (“EPSA”) growth is our reported trend measure and is stated before acquisition related costs, restructuring and rationalisation costs, amortisation of acquisition intangibles, profit on disposal of net assets held for sale and taxation thereon. See note 2 to the interim financial statements.
- Earnings per share for the three month and nine month periods ended 29 September 2012 have been restated following the adoption of the revised IAS 19 Employee Benefits standard. As a result of the restatement, basic and adjusted basic earnings per share for the three months ended 29 September 2012 decreased by 0.3¢ and 0.2¢ respectively and for the nine month period ended 29 September 2012 decreased by 0.7¢ and 0.7¢ respectively. See note 1 to the interim financial statements.
- All numbers given are for the quarter ended 28 September 2013 unless stated otherwise.
- 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
For a full copy of the announcement with accounts, please click here (PDF)
Third Quarter Results
Smith & Nephew had a strong third quarter, delivering 5% growth in revenue and 10% growth in trading profit on an underlying basis. Our global performance in Hip and Knee Implants improved following successful new product introductions and increased investment. We generated 20% revenue growth across our Emerging and International Markets. Advanced Wound Management significantly outperformed its segment with another excellent quarter from Healthpoint Biotherapeutics, which we have now rebranded as Smith & Nephew.
Our revenue was $1,027 million in the quarter, up 5% on an underlying basis year-on-year (2012: $952 million). There was a 2% foreign exchange headwind in Q3.
Trading profit was $222 million, up 10% underlying on last year (2012: $207 million), giving a Group trading profit margin of 21.6% (2012: 21.7%).
We delivered 3% revenue growth across our Established Markets, with US revenue growth of 5% and our Other Established Markets up 2%. In the Emerging and International Markets we generated 20% revenue growth.
After the period end, we completed two previously announced acquisitions. In Turkey we have acquired assets relating to the distribution of our Advanced Surgical Devices portfolio, significantly strengthening our position in this fast growing market. In India we have acquired Adler Mediequip Private Limited and, with it, the brands and assets of Sushrut Surgicals Private Limited, a leader in mid-tier, orthopaedic trauma products. This gives Smith & Nephew an entry point to India’s fast growing trauma segment and a well-established platform to develop products for the mid-tier across the Emerging and International Markets.
The net interest income for the period was $1 million (2012: $2 million). The tax rate for the quarter, and estimated effective rate for the full year, was 29.8% on profit before restructuring and rationalisation costs, acquisition related costs and amortisation of acquisition intangibles. Adjusted attributable profit of $154 million (2012: $147 million) is before these items and taxation thereon.
Adjusted earnings per share in the quarter grew 4% to 17.1¢ (85.5¢ per American Depositary Share, “ADS”), compared to 16.4¢ last year. Basic earnings per share was 13.6¢ (68.0¢ per ADS) (2012: 14.7¢).
Trading cash flow (defined as cash generated from operating activities less capital expenditure, but before acquisition related costs and restructuring and rationalisation costs) was $191 million in the quarter. The trading profit to cash conversion ratio of 86% (2012: 128%) reflects higher capital expenditure to support our growth plans and an increase in working capital.
In-line with our new capital allocation framework, announced on 2 May 2013, we have continued the $300 million share buy-back programme and had spent $151 million at the period end. The weighted average number of shares in issue during the quarter was 899 million.
The Group had $222 million net debt at the period end.
Advanced Surgical Devices global (“ASD”)
ASD delivered total revenue of $696 million in the quarter, up 3% underlying on the same period last year (2012: $698 million). Geographically, in our Established Markets revenue growth was flat. In our Emerging and International Markets ASD continues to perform strongly, increasing revenue by 24%. Like-for-like pricing pressure across our ASD markets was consistent with recent quarters.
Trading profit was $157 million (2012: $149 million). The trading profit margin of 22.5% (2012: 21.3%) was higher year-on-year as the benefits of our efficiency programmes came through strongly in the quarter, offsetting the impact of the US medical device excise tax and the cost of additional investments we have made.
Knee Implants revenue was up 2% and Hip Implants revenue up 3% in the quarter, much improved on both a sequential and year-on-year basis. The Q3 market growth rates were 4% for Knee Implants and 5% for Hip Implants.
This improved performance reflects the early successes of our new product launches and increased product marketing and education. We continue to be impacted by our relatively high exposure to the weak European market, our position in the product cycle and metal-on-metal headwinds.
In Knee Implants, sales of our JOURNEY◊II BCS Knee, launched in the US in March, are building momentum. We also saw a good performance from core knees featuring our VERILAST◊ bearing surface, following the recent direct-to-consumer US TV advertising campaign.
In Hip Implants, our core products, excluding metal-on-metal, grew at 4% with the REDAPT◊, ANTHOLOGY◊ and R3◊ hip systems all having good quarters.
We are continuing to make additional investments in medical education to support our products. For instance, in November we are hosting what we believe will be the first large-scale company-led meeting to combine Arthroplasty and Arthroscopy. “Global Insights – The Future of Hip & Knee Surgery” will focus on techniques, innovation, evidence and healthcare economics.
Our Sports Medicine Joint Repair franchise performed strongly, with revenue growth of 7% in the quarter driven by our FAST-FIX◊ 360 Meniscal Repair System. We have a strong new product pipeline with multiple launches due over the next 12 months. Revenue growth inArthroscopic Enabling Technologies was -1%, consistent with previous quarters.
Our Trauma franchise grew revenue by 2%, in-line with the previous quarter. We continue to invest in our strategy to increase the specialisation of our sales channel in this segment. In the US additional dedicated trauma and extremities sales reps are completing their training and entering the field, and we have a number of new products nearing launch. We expect to see performance improving as these factors come to bear.
Advanced Wound Management global (“AWM”)
AWM continued to deliver strong underlying growth, with revenue up 12% to $331 million (2012: $254 million). The estimated market growth rate was 3%.
Trading profit was $65 million (2012: $58 million), with the trading profit margin of 19.9% continuing to reflect our investments in sales and R&D (2012: 22.9%).
We achieved 22% revenue growth in the US following another good quarter from Advanced Wound Bioactives. Revenue was up 6% across our Other Established Markets, with Europe a little stronger than in previous quarters driven by an improved performance in Germany, the Nordics and Iberia. Our Emerging and International Markets revenue grew 8%.
In Advanced Wound Care, revenue was up 2% to $207 million. This was driven by an encouraging performance from our ALLEVYN◊ foam range across the Established Markets.
In Advanced Wound Devices, we increased revenue by 11% to $52 million. The growth rate mainly reflects a strong comparator and price pressures, including competitive bidding.
In Advanced Wound Bioactives, we again exceeded our expectations, growing revenue by 55% to $72 million. This growth rate was against a weak comparator. SANTYL◊had another strong quarter driven by our excellent commercial execution combined with additional sales reps entering the field, as well as some customer stocking. We completed the rebrand of Healthpoint Biotherapeutics to Smith & Nephew in the period. We continue to be pleased with the strong performance of this business and now expect that full year revenue growth will be above 40%.
Nine Months to 28 September 2013
For the nine month period, reported revenues were $3,176 million, up 3% on an underlying basis year-on-year (2012: $3,060 million).
Reported trading profit was $695 million (2012: $693 million) with the trading profit margin down 70 basis points at 21.9%, in-line with our expectations.
The net interest income was $3 million (2012: $nil). The tax charge of $176 million (2012: $298 million) is based upon an estimated effective rate for the full year of 29.8% on profit before restructuring and rationalisation costs, acquisition related costs and amortisation of acquisition intangibles. Adjusted attributable profit before these items and taxation thereon was $484 million (2012: $479 million) and attributable profit was $394 million (2012: $581 million).
Adjusted earnings per share in the period was 53.6¢ (268.0¢ per ADS) (2012: 53.5¢). Reported basic earnings per share was 43.6¢ (218.0¢ per ADS) (2012: 64.9¢).
Trading cash flow was $596 million, compared with $741 million a year ago, a trading profit to cash conversion ratio of 86% (2012: 107%).
Outlook
Our full year outlook for the Group as a whole is unchanged.
Our markets remain tough, but through implementing our strategic priorities we are meeting these challenges, investing where we see the greatest opportunities for growth, and successfully reshaping the Group for long-term success.
About Smith & Nephew
Smith & Nephew is a global medical technology business dedicated to helping improve people's lives. With leadership positions in Orthopaedic Reconstruction, Advanced Wound Management, Sports Medicine and Trauma, Smith & Nephew has around 11,000 employees and a presence in more than 90 countries. Annual sales in 2012 were more than $4.1 billion. Smith & Nephew is a member of the FTSE100 (LSE: SN, NYSE: SNN).
Forward-looking Statements
This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. For Smith & Nephew, these factors include: economic and financial conditions in the markets we serve, especially those affecting health care providers, payors and customers; price levels for established and innovative medical devices; developments in medical technology; regulatory approvals, reimbursement decisions or other government actions; product defects or recalls; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; strategic actions, including acquisitions and dispositions, our success in integrating acquired businesses, and disruption that may result from changes we make in our business plans or organisation to adapt to market developments; and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. 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 20-F, for a discussion of certain of these factors.
Any forward-looking statement is based on information available to Smith & Nephew as of the date of the statement. All written or oral forward-looking statements attributable to Smith & Nephew are qualified by this caution. Smith & Nephew does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Smith & Nephew's expectations.
◊ Trademark of Smith & Nephew. Certain marks registered US Patent and Trademark Office.