London, UK -- (MARKET WIRE) -- May 3, 2007 --Smith & Nephew reports strong first quarter and announces earnings improvement programme
3 May 2007
Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical technology business, announces its results for the quarter ended 31 March 2007.
Q1 highlights
- Revenue up 12%* to $744 million
- Trading profit up 19% to $148 million
- EPSA** up by 18% to 11.2c**
- Good performance across all businesses
- Orthopaedic Reconstruction revenue up 15%*, maintaining
momentum and outperforming the market
- First mover advantage in hip resurfacing generated US hip
growth of 40%
- Orthopaedic Trauma & Clinical Therapies revenue achieves an
outstanding 19%* growth, leading the market in both segments
- Endoscopy increases revenue growth to 12%*
- Advanced Wound Management revenue grows at 4%* after adjusting
for the effect of tissue engineering and 2%* before adjusting
- Reported revenue growth 16%, profit before tax up 7%
- Basic earnings per share were 9.7c compared with 44.3c in the
comparable period which included the gain on sale of BSN Medical
Earnings Improvement Programme
- Earnings improvement programme details provided today
- Expect trading margin growth averaging at least 1% each year until
end 2010
Commenting on the first quarter, Sir Christopher O'Donnell, Chief Executive of Smith & Nephew, said:
"These are excellent first quarter results, driven by favourable market
conditions and a strong contribution from new products; particularly our hip
resurfacing product, BHRa, and two new knee systems. All our businesses are
performing well but these results benefit from lower comparators from Q1 last
year. The outlook for the year is unchanged."
And Chief Operating Officer David Illingworth added:
"Our Earnings Improvement Programme is already underway and we are encouraged by
the progress made to date. We believe this programme will deliver material
improvements to trading margin in each of our businesses in the coming years,
considerably enhancing our earnings and providing significant value to
shareholders over the medium term."
An analyst presentation and conference call to discuss the Company's first
quarter results will be held at 11.45am BST / 6.45am EST today, Thursday 3 May.
This will be broadcast live on the web and will be available on demand shortly
following the close of the call at
http://www.smith-nephew.com/Q107. If
interested parties are unable to connect to the web, a listen-only service is
available by calling +44 (0)20 7138 0815 in the UK or +1 (718) 354 1171 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 call details.
* Unless otherwise specified as 'reported', all revenue increases
throughout this document are underlying increases after adjusting
for the effects of currency translation and the impact of
acquisitions. See note 3 for a reconciliation of these measures to
results reported under IFRS.
** EPSA in 2007 is EPS adjusted for the costs of the Earnings
Improvement Programme, amortisation of acquisition intangibles and
tax thereon. In 2006, adjustments were also made for the fair value
loss on hedge and profit on disposal of the joint venture less
taxation thereon. See note 2.
Enquiries
Investors
Adrian Hennah +44 (0) 20 7401 7646
Chief Financial Officer
Smith & Nephew
Liz Hewitt +44 (0) 20 7401 7646
Group Director Corporate Affairs
Smith & Nephew
Media
David Yates / Deborah Scott +44 (0) 20 7831 3113
Financial Dynamics - London
Jonathan Birt +1 (212) 850 5634
Financial Dynamics - New York
Introduction
The markets in which we operate have generally been favourable in the first
quarter. The US market has continued to strengthen, but some major European
countries and Japan continue to be challenging as a result of healthcare
spending constraints.
Orthopaedic Reconstruction again exceeded market growth rates as revenues from
products launched last year had continued momentum. Revenues from the
BIRMINGHAM HIPa Resurfacing ("BHRa") system in the US were particularly strong.
Trauma and Clinical Therapies had an excellent quarter as a combination of new
product revenues and sales force effectiveness took hold. Endoscopy has
significantly improved its growth rate in the quarter and Advanced Wound
Management has maintained its progress with a very strong US performance.
Work towards completion of our CHF 1,086 million ($889 million) acquisition of
Plus Orthopedics Holding AG ("Plus"), the private Swiss orthopaedic company that
we announced on 12 March 2007, is progressing well and completion is expected in
the summer. After this acquisition Smith & Nephew is expected to rank fourth in
the global orthopaedic reconstruction market and will have considerable
opportunities to leverage the combined sales forces and product ranges. We
expect the Plus Orthopedics acquisition to be broadly EPSA neutral this year and
to be accretive thereafter.
This statement includes details of our Earnings Improvement Programme ("EIP")
first announced last year which is expected to deliver significant enhancement
to trading margins in the coming years.
First Quarter Results
Revenue in the quarter was $744 million. This represents growth of 16% as
reported and an underlying growth rate of 12% after adjusting for movements in
currency when compared to the same period last year.
Trading profit in the quarter was $148 million, representing growth of 19%.
Trading margin increased to 19.9%, and interest and finance income was $4
million.
The Group trading margin at 19.9% in the quarter reflected the heavier expenses
which are characteristic of this quarter. Advanced Wound Management's improved
trading margin at 15.4% showed the benefit of early EIP activities when compared
with the same quarter last year.
The tax charge was at the estimated effective rate for the full year of 31%.
Attributable profit before the costs of EIP, amortisation of acquisition
intangibles and taxation thereon was $106 million.
Adjusted earnings per share was 11.2c (56.0c per American Depositary Share, "ADS
"), which was 18% higher than in the prior year.
Basic earnings per share was 9.7c (48.5c per ADS) compared with 44.3c (221.5c
per ADS) in 2006, which included the profit on disposal of the joint venture.
Orthopaedic Reconstruction
Reconstruction revenues at $262 million grew by 15% compared to the first
quarter last year, well ahead of the global market which grew at 9%.
Reconstruction revenues in the US grew by 20% in the quarter as BHRa continued
to make revenue contributions above our expectations. Outside the US growth was
9%, with much improved growth in hips in France and Germany. Knee growth
improved in the UK and Australia. New products generated 21% of revenues
reflecting the success of last year's product launches.
Knee revenue growth was 12% for the quarter as the success of our JOURNEYa Bi-
Cruciate Stabilised Knee System introduced last year continued. Within the US,
revenue growth increased by 10% and outside the US revenues grew 14%, the second
successive quarter of above average growth as the benefit of new product
introductions spread to other markets.
Hip revenues continued the strong growth momentum seen in Q4 2006 growing by 23%
in the quarter. In the US hip revenues grew by 40%. BHRa was a major
contributor to hip revenue growth in the US where the market is developing
faster than we had expected. We remain ahead of our expectations with BHRa and
have now trained a large pool of surgeons who are regularly using it. Outside
the US hip revenue growth was 5%.
Orthopaedic Trauma and Clinical Therapies
Trauma revenue growth strengthened considerably this quarter at $136 million
growing by 19% relative to the same period last year and led the market. Growth
in the US improved to 18% as the focus on sales force effectiveness gained
traction and revenues outside the US were up 21%. Strong revenue growth for
fixation products combined with excellent progress for Clinical Therapies and
had a particularly strong quarter. New products generated 42% of revenues.
Fixation product revenues grew by 13% in line with the market. There was a
marked improvement in growth in the US to 15% and outside the US revenues grew
by 10%. The quarter's revenue growth again benefited from the continued success
of our PERI-LOCa Periarticular locked plating system and JET-Xa.
Clinical Therapies revenue growth was 33% with a particularly strong
contribution from the EXOGEN 4000+a unit introduced last year. Following the
worldwide licensing agreement with Q-Med AB in Sweden last year we have
integrated the DUROLANE® products and continue to work with Q-Med AB towards
pre-market approval of the product in the US although this is not now expected
this year.
Endoscopy
Endoscopy revenue growth of 12% to $177 million is a welcome return to double
digit sales growth and close to estimated market growth rates. US revenues grew
by 6%, a little slower than expected, but balanced by strong growth outside the
US of 19%, with UK, Japan and Australia performing particularly well. New
products generated 27% of revenue.
Repair revenues grew strongly at 22% and equalled resection revenues for the
first time. Knee, shoulder and hip arthroscopy all made major contributions to
this growth, with the BIORAPTORa and TWINFIXa product families and KINSAa Suture
Anchors for shoulders all making major contributions.
Visualisation and Digital Operating Room revenues grew well at 20% benefiting in
part from higher sales ahead of a new camera launch and positively reflecting
the uneven pattern of revenues in this market.
Resection products increased by 4% in the quarter and were particularly strong
outside the US, increasing by 12%.
The trading margin of 18.6% reflects the impact of revenue mix, particularly the
higher level of visualisation and Digital Operating Room revenues. The
re-organisation of US manufacturing facilities, a 20 month project, was
successfully completed shortly after the end of the quarter.
Advanced Wound Management
Our strategy for our Advanced Wound Management business has three areas of
focus: the product portfolio, an effective cost structure and to significantly
increase our share of the US market. Actions are already underway to address
structural cost and continue strong revenue growth in the US.
Advanced Wound Management revenues grew to $169 million, slightly below market
growth but up 4% relative to the first quarter last year excluding the effect of
the exit from tissue engineering, up 2% if this is included. US revenue growth
at 10% was particularly strong and continued the improved performance seen in
the last quarter of 2006. Revenue growth in Europe was slower as expected due
to high revenues in the UK in the last quarter of 2006 and revenues in Japan
were impacted by downward pricing pressure. New products generated 12% of
revenues in the quarter.
ALLEVYNa dressings had another strong quarter with revenues increasing by 10%
benefiting from a wider product range. Within infection management, our
IODOSORBa product grew strongly but ACTICOATa antimicrobial silver dressings
continued to be affected by low price competition.
We signed a worldwide distribution agreement with Covalon Technologies Ltd in
the quarter, providing a new technology and strengthening the product portfolio.
Earnings Improvement Programme
Last year we announced that a substantial Earnings Improvement Programme was in
the research and planning stages. This programme is designed to continue our
investment at a level which will maintain above market revenue growth rates and
to drive a renewed focus on costs. The balance of these two elements is
expected to bring considerable trading margin improvement.
The programme currently includes 12 workstreams. These workstreams include
leveraging infrastructure, for example through shared IT and procurement
resources, creating more efficient and effective sales and marketing teams and
an increase in the level of low cost sourcing and manufacturing. The
workstreams are across the business as a whole although the impact will be
stronger in some areas than others. We expect that around one half of the total
margin improvement will be in the Orthopaedics businesses, the next largest
benefit in Advanced Wound Management, and a smaller but still significant
opportunity in Endoscopy.
We expect trading margin to increase by an average of at least 1% each year for
the next four years. This increase is net of an expected increase in research
and development expenditure from 4.3% to about 5% of revenues and before the
effects of the acquisition of Plus Orthopedics. Trading profit is therefore
expected to increase by at least $100 million in 2009 and at least $150 million
in 2010 as a result of margin improvements. The costs of the programme, which
will be largely incurred over the first three years and will be reported
separately in the income statement after trading profit, are expected to be $125
million in cash costs and $75 million in non-cash costs. There will also be a
modest increase in capital expenditure to above historic levels.
The initial progress from the EIP work already underway is encouraging and we
expect the programme to provide considerable value to shareholders.
Outlook
Global market conditions continue to be favourable driven by underlying
demographic trends which are creating strong demand for our products.
The strong revenue performance in the first quarter is slightly flattered by a
relatively weak 2006 comparator, particularly in Reconstruction and Clinical
Therapies. We are likely to experience a competitor for BHRa in the second half
of the year when the comparators are stronger. Endoscopy's high revenue growth
from visualisation and Digital Operating Room in the first quarter reflects the
uneven nature of that part of the business and will not be as strong in the rest
of the year. Advanced Wound Management is expected to continue the improvement
already seen in the US but will continue to experience slower growth in the UK
and Japan.
Trading margin is expected to benefit from the EIP this year. We continue to
expect the Plus Orthopedics acquisition to be broadly EPSA neutral this year and
to become accretive thereafter. Our expectations for 2007 revenues, trading
profit and earnings have not changed since the start of the year.
We expect the EIP to increase trading margin by an average of at least 1% per
annum until the end of 2010, including a significant increase in 2007, followed
by larger increases in subsequent years. In 2010 this margin improvement
equates to at least an additional $150 million in trading profit. We expect the
cash costs of the programme to be incurred broadly evenly over three years, but
we expect provisions charged to the profit and loss account to be earlier and
more uneven.
The underlying growth in the business, coupled with the EIP and the Plus
Orthopedics acquisition, means that Smith & Nephew is well positioned for strong
revenue performance and trading margin improvement for 2007 and beyond.
About us
Smith & Nephew is a global medical technology business, specialising in
Orthopaedic Reconstruction, Orthopaedic Trauma and Clinical Therapies, Endoscopy
and Advanced Wound Management products. 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 has over 8,800
employees and operates in 31 countries around the world generating annual sales
of $2.8 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 names registered at the US Patent and Trademark Office.
DUROLANE(R) is a trademark of Q-Med AB.
DERMAGRAFT(R) is a trademark of Advanced BioHealing Inc.
SMITH & NEPHEW plc
2007 QUARTER ONE RESULTS
Unaudited Group Income Statement for the 3 months to 31 March 2007
Notes 2007 2006
$m $m
Revenue 3 744 643
Cost of goods sold (192) (175)
Selling, general and administrative (372) (315)
expenses
Research and development expenses (32) (29)
_____ _____
Trading profit 4 148 124
Earnings improvement programme - 5 (17) -
restructuring costs
Amortisation of acquisition intangibles (4) (2)
_____ _____
Operating Profit 4 127 122
Interest receivable 4 7
Interest payable (2) (4)
Other finance income 2 1
Loss on hedge of the sale proceeds of the - (3)
joint venture
_____ _____
Profit before taxation 131 123
Taxation 8 (40) (38)
_____ _____
Profit from continuing operations 91 85
Discontinued operations: Net profit on 9 - 332
disposal of the joint venture
_____ _____
Attributable profit 91 417
_____ _____
Earnings per share 2
Including discontinued operations:
Basic 9.7c 44.3c
Diluted 9.6c 44.1c
Continuing operations:
Basic 9.7c 9.0c
Diluted 9.6c 9.0c
Unaudited Group Statement of Recognised Income and Expense for
the 3 months to 31 March 2007
2007 2006
$m $m
Translation differences 4 26
Cumulative translation adjustment on disposal of - (14)
the joint venture
Losses on cash flow hedges (1) (2)
Actuarial gains on defined benefit pension plans 20 37
Taxation on items taken directly to equity (7) (12)
_____ _____
Net income recognised directly in equity 16 35
Attributable profit 91 417
_____ _____
Total recognised income and expense 107 452
_____ _____
Unaudited Group Balance Sheet as at 31 March 2007
31 Dec Notes 31 1
March April
2006 2007 2006
$m $m $m
ASSETS
Non-current assets
635 Property, plant and equipment 631 600
831 Intangible assets 831 687
10 Investments 10 10
110 Deferred tax assets 108 149
_____ _____ _____
1,586 1,580 1,446
Current assets
619 Inventories 652 585
680 Trade and other receivables 636 609
346 Cash and bank 349 421
_____ _____ _____
1,645 1,637 1,615
_____ _____ _____
3,231 TOTAL ASSETS 3,217 3,061
_____ _____ _____
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent
189 Called up equity share capital 189 188
329 Share premium account 341 317
- Treasury shares (80) -
(1) Own shares (1) (1)
1,657 Accumulated profits and other 1,708 1,333
reserves
_____ _____ _____
2,174 Total equity 11 2,157 1,837
Non-current liabilities
15 Long-term borrowings 21 16
154 Retirement benefit obligation 134 173
3 Other payables due after one year 3 14
34 Provisions - due after one year 31 55
35 Deferred tax liabilities 38 21
_____ _____ _____
241 227 279
Current liabilities
119 Bank overdrafts and loans due within 123 136
one year
421 Trade and other payables 422 473
49 Provisions - due within one year 52 70
227 Current tax payable 236 266
_____ _____ _____
816 833 945
_____ _____ _____
1,057 Total liabilities 1,060 1,224
_____ _____ _____
3,231 TOTAL EQUITY AND LIABILITIES 3,217 3,061
_____ _____ _____
Unaudited Condensed Group Cash Flow Statement for the 3 months to 31 March 2007
2007 2006
$m $m
Net cash inflow from operating activities
Profit before taxation 131 123
Less: Net interest receivable (2) (3)
Depreciation and amortisation 45 36
Share based payment expense 7 4
Movement in working capital and provisions (53) (71)
_____ _____
Cash generated from operations A 128 89
Net interest received 2 3
Income taxes paid (32) (27)
_____ _____
Net cash inflow from operating activities 98 65
Cash flows from investing activities
Acquisitions (4) (4)
Disposal of joint venture B - 551
Capital expenditure (38) (58)
_____ _____
Net cash used in investing activities (42) 489
_____ _____
Cash flow before financing activities 56 554
Cash flows from financing activities
Proceeds from issue of ordinary share capital 12 3
Purchase of treasury shares (65) -
Cash movements in borrowings 5 (270)
Settlement of currency swaps (2) 2
_____ _____
Net cash used in financing activities (50) (265)
Net increase in cash and cash equivalents 6 289
Cash and cash equivalents at beginning of period 291 65
Exchange adjustments - 6
_____ _____
Cash and cash equivalents at end of period C 297 360
_____ _____
A After $6 million (2006 - $8 million) unreimbursed by insurers
relating to macrotextured knee revisions, $10 million (2006 - nil)
of bid related costs and $5 million (2006 - $8 million) of outgoings
on restructuring, rationalisation and acquisition integration costs.
B Discontinued operations accounted for nil (2006 - $551 million) of
net cash flow from investing activities.
C Cash and cash equivalents at the end of the period are net of
overdrafts of $52 million (2006 - $61 million).
NOTES
1. The financial information for the three months has been prepared on
the basis of the accounting policies set out in the full annual
accounts of the Group for the year ended 31 December 2006.
The 2006 full annual accounts were restated to correct for a change
in the method of calculating the elimination of intra-group profit
carried in inventory, reclassification of certain indirect
production overhead expenses from selling, general and
administrative expenses to cost of goods sold and a voluntary change
in accounting policy for death-in-service benefits. These
restatements have been reflected in the 2006 three month
Unaudited Group Income Statement, Unaudited Group Statement of
Recognised Income and Expense, Unaudited Group Balance Sheet and
Unaudited Condensed Group Cash Flow Statement.
The financial information contained in this document does not
constitute statutory accounts as defined in section 240 of the
Companies Act 1985. The auditors have issued an unqualified opinion
on the Group's statutory financial statements for the year ended 31
December 2006, which will be delivered to the Registrar of Companies
after approval by shareholders on 3 May 2007.
2. Adjusted earnings per ordinary share ("EPSA") is a trend measure
which presents the long-term profitability of the Group excluding
the impact of specific transactions that management considers as
affect the Group's short-term profitability. The Group presents
this measure to assist investors in their understanding of trends.
Adjusted attributable profit is the numerator used for this measure.
On 8 February 2007, the Group announced its intention to undertake a
share buy back programme of up to $1.5 billion over the next two
years. This followed an assessment of the medium term capital needs
of the Group both internally and for acquisitions in which
management determined that shareholder value and balance sheet
efficiency would be enhanced by returning capital to shareholders.
As at 31 March 2007, 6,440,000 ordinary shares had been purchased at
a cost of $80 million.
EPSA has been calculated by dividing adjusted attributable profit by
the weighted (basic) average number of ordinary shares in issue of
943 million (2006 - 941 million). The diluted weighted average
number of ordinary shares in issue is 947 million (2006 - 945
million).
2007 2006
$m $m
Attributable profit 91 417
Adjustments:
Earnings improvement programme - restructuring 17 -
costs
Amortisation of acquisition intangibles 4 2
Net profit on disposal of the joint venture - (332)
Loss on hedge of the sale proceeds of the joint - 3
venture
Taxation on excluded items (6) (1)
_____ _____
Adjusted attributable profit 106 89
_____ _____
Adjusted basic earnings per share 11.2c 9.5c
Adjusted diluted earnings per share 11.2c 9.4c
3. Revenue by segment for the three months to 31 March 2007 was as
follows:
2007 2006 Underlying
growth in
revenue
$m $m %
Revenue by business segment
Reconstruction 262 221 15
Trauma and Clinical Therapies 136 112 19
Endoscopy 177 153 12
Advanced Wound Management 169 157 2
_____ _____ _____
744 643 12
_____ _____ _____
Revenue by geographic market
United States 369 319 15
Europe D 240 203 8
Africa, Asia, Australasia and Other 135 121 11
America
_____ _____ _____
744 643 12
_____ _____ _____
D Includes United Kingdom revenue of $67 million (2006 - $54 million).
Responsibility for the Group's spinal products was transferred from
the endoscopy business to the trauma and clinical therapies business
with effect from 1 January 2007. Revenue, trading profit and
operating profit relating to spinal products is now reported within
the trauma and clinical therapies segment and comparative figures
have been restated.
Underlying revenue growth is calculated by eliminating the effects of
translational currency and acquisitions. Reported growth reconciles
to underlying growth as follows:
Reported Constant Acquisitions Underlying
growth currency effect growth in
in exchange revenue
revenue effect
% % % %
Reconstruction 19 (4) - 15
Trauma and 21 (2) - 19
Clinical
Therapies
Endoscopy 16 (3) (1) 12
Advanced Wound 8 (6) - 2
Management
_____ _____ _____ _____
16 (4) - 12
_____ _____ _____ _____
4. Trading and operating profit by segment for the three months to 31
March 2007 was as follows:
2007 2006
$m $m
Trading Profit by business segment
Reconstruction 66 56
Trauma and Clinical Therapies 23 19
Endoscopy 33 30
Advanced Wound Management 26 19
_____ _____
148 124
____ _____
Operating Profit by business segment
Reconstruction 58 54
Trauma and Clinical Therapies 21 19
Endoscopy 30 30
Advanced Wound Management 18 19
_____ _____
127 122
_____ _____
5. The earnings improvement programme's restructuring costs of $17
million in 2007 comprise redundancy costs and consultancy fees.
6. On 12 March 2007 the Group announced that it had agreed the purchase
of Plus Orthopaedics Holding AG ("Plus"), a private Swiss
orthopaedic company, for a total of CHF 1,086 million ($889 million)
in cash, including assumed debt. Completion of the agreement is
conditional on receipt of competition clearances which are expected
within three months. Plus reported revenues of CHF 367 million
($300 million) in 2006 and profit before interest and taxation of CHF
44 million ($36 million). The acquisition will be financed
by bank borrowings.
7. The cumulative number of revisions of the macrotextured knee product
was 1,006 on 31 March 2007 compared with 999 at 31 December 2006.
This represents 41% of the total implanted. Settlements with
patients have been achieved in respect of 937 revisions (31 December
2006 - 923 settlements). Costs of $118 million are in dispute with
insurers and are provided for in full. $36 million of provision
remains to cover future settlement costs.
8. Taxation of $46 million (2006 - $39 million) on the profit before
restructuring costs, the loss on hedge of the sale proceeds of the
joint venture and discontinued operations is at the full year
estimated effective rate. Of the $40 million (2006 - $38 million)
taxation charge $28 million (2006 - $26 million) relates to overseas
taxation.
9. On 23 February 2006 the Group sold its 50% interest in the BSN
Medical joint venture for cash consideration of $562 million. The
net profit of $332 million on the disposal of the joint venture is
after a credit of $14 million for cumulative translation adjustments
and $26 million of transaction costs. A further $1 million of
transaction costs, $3 million of indemnity provision and a $23
million release of taxation provisions relating to this transaction
was recorded in the year ended 31 December 2006. The Group's
discontinued operations earnings per share in 2006 was basic 35.3c
and diluted 35.1c.
10. No dividends were paid in the quarter in 2007 or 2006. The second
interim dividend for 2006 of 6.71 US cents per ordinary share was
declared by the Board on 8 February 2007 and is accrued within trade
and other payables. All shareholders will receive the sterling
equivalent of 3.41 pence per ordinary share. This is payable on 11
May 2007 to shareholders whose names appear on the register at the
close of business on 20 April 2007. Shareholders may participate in
the dividend re-investment plan.
11. The movement in total equity for the three months to 31 March 2007
was as follows:
2007 2006
$m $m
Opening equity as at 1 January 2,174 1,435
Attributable profit 91 417
Equity dividends accrued (63) (57)
Exchange adjustments 4 12
Losses on cash flow hedges (1) (2)
Actuarial gains on defined benefit pension 20 37
plans
Share based payment recognised in the income 7 4
statement
Taxation on items taken directly to equity (7) (12)
Purchase of treasury shares (80) -
Issue of ordinary share capital 12 3
_____ _____
Closing equity 2,157 1,837
_____ _____
12. Net cash as at 31 March 2007 comprises:
2007 2006
$m $m
Cash and bank 349 421
Long-term borrowings (21) (16)
Bank overdrafts and loans due within one year (123) (136)
Net currency swap (liabilities)/assets E (2) 2
_____ _____
203 271
_____ _____
The movements were as follows:
Opening net cash/(net debt) as at 1 January 210 (306)
Cash flow before financing activities 56 554
New finance leases (7) -
Proceeds from issue of ordinary share capital 12 3
Purchase of treasury shares (65) -
Exchange adjustments (3) 20
_____ _____
Closing net cash 203 271
_____ _____
E Net currency swap liabilities of $2 million (2006 - $2 million
assets) comprises nil (2006 - $3 million) of current asset
derivatives within trade and other receivables and $2 million (2006 -
$1 million) of current liability derivatives within trade and other
payables.
INDEPENDENT REVIEW REPORT TO SMITH & NEPHEW plc
Introduction
We have been instructed by the company to review the financial information for
the three months ended 31 March 2007 which comprises Group Income Statement,
Group Statement of Recognised Income and Expense, Group Balance Sheet, Condensed
Group Cash Flow Statement and the related notes 1 to 12. We have read the other
information contained in the interim report for quarter one and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' Responsibilities
The interim report for quarter one, including the financial information
contained therein, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the interim report for
quarter one in accordance with the Listing Rules of the Financial Services
Authority which require that the accounting policies and presentation applied to
the interim figures should be consistent with those applied in preparing the
preceding annual accounts except where any changes, and the reasons for them,
are disclosed. The accounting policies are consistent with those that the
directors intend to use in the next annual accounts.
Review Work Performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Standards on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the three months
ended 31 March 2007.
Ernst & Young LLP
London
3 May 2007
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