London, UK -- (MARKET WIRE) -- February 8, 2007 --New Products Drive Market Outperformance at Smith & Nephew
8 February 2007
Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical
technology business, announces its results for the fourth
quarter and full year ended 31 December 2006.
Q4 Highlights and Share Buy-Back Programme
- Q4 revenue up 11%* to $771 million, driven by new
product launches
- Trading profit up 17% to $183 million
- EPSA** up by 23% to 15.1c**
- All businesses performing well;
- Orthopaedic Reconstruction revenue up 15%,
significantly outperforming the market
- Orthopaedic Trauma and Clinical Therapies
revenue further improving to 17% growth
- Endoscopy revenue up 9% after adjusting for
acquisitions
- Advanced Wound Management revenue up 3%, and up
7% after adjusting for the dilutive effect of
DERMAGRAFT(R)
- Share buy-back programme announced today of up to $1.5 billion
Full Year Highlights
- Group revenue up 8%* to $2.8 billion
- Trading profit at $571 million up 10%
- EPSA** increased 7% to 45.2c**
- Business revenue growths;
- Orthopaedic Reconstruction up 10%
- Orthopaedic Trauma and Clinical Therapies up 13%
- Endoscopy up 9%
- Advanced Wound Management up 1%, 5% ex DERMAGRAFT(R)
- Second interim dividend up 10% to 6.71c per share
Commenting on the results for 2006, Sir Christopher O'Donnell, Chief Executive
of Smith & Nephew, said:
"All of our businesses have performed well in the fourth
quarter and we closed the year strongly. Innovative new
products are driving our growth, enabling us to outperform the
market, particularly in Orthopaedic Reconstruction, where the
US market continued its modest recovery through the second
half.
Our fundamental strategy for growth in all our businesses,
including Advanced Wound Management, remains unchanged; we aim
to grow at above market growth rates by continued product and
business innovation, and it is our intention to couple this
with a major programme to enhance margins going forward. This
project is in the advanced planning stage and we will be making
a further announcement with our Q1 results when our plans are
fully formed. We continue to energetically seek acquisitions.
We were disappointed that our discussions with Biomet did not
lead to a transaction which we believe would have enhanced
shareholder value for Smith & Nephew.
We are announcing today a share buy-back programme of up to
$1.5 billion over the next two years which makes our balance
sheet more efficient whilst retaining our acquisition
capabilities.
We have a strong business going forward with new products
providing an excellent platform for continued growth."
An analyst presentation and conference call to discuss the
Company's fourth quarter results will be held at 1.00pm GMT /
8.00am EST today, Thursday 8 February. 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/
Q406. 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 7138 0814
in the UK or +1 (718) 354 1158 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
acquisitions. See note 3 for a reconciliation of these measures
to results reported under IFRS.
** EPSA is stated before bid related costs, the fair value
adjustment made on hedging the proceeds from the disposal of
the joint venture, taxation thereon, amortisation of
acquisition intangibles and the gain on the disposal of the
joint venture and in 2005 only restructuring and
rationalisation costs and taxation thereon. See note 2.
Percentage of new products to revenue is based on products
launched within the last three years.
Comparisons are against restated numbers. See note 13.
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 +44 (0) 20 7831 3113
Financial Dynamics - London
Jonathan Birt +1 (212) 850 5634
Financial Dynamics - New York
Introduction
All four of our businesses made good progress in the fourth
quarter. The US reconstructive market has continued to
strengthen driven by increased numbers of procedures. Outside
the US the picture has been more mixed as a number of countries
continue to take action to constrain healthcare spending.
Overall, however, market conditions across our businesses
continue to be characterised by strong demand for our
innovative products which offer both patient and healthcare
system benefits.
The creation of the two separate orthopaedic business units at
the start of the 2006 is now proving beneficial for customers
as well as strengthening our revenue growth. Endoscopy has
enjoyed a stronger year by delivering 9% revenue growth for the
year. Advanced Wound Management has completed a positive
transitional year with a new management team in place and
underlying revenue growth accelerating.
During the year we continued to acquire technologies
complementary to our businesses with the licensing agreement by
Orthopaedic Trauma and Clinical Therapies of DUROLANE® joint
fluid therapy and the purchase of OsteoBiologics, Inc ("OBI")
by Endoscopy. We continue to see excellent opportunities, of
varying sizes, which fit within our strategy of sustained
growth both organically and by acquisition.
We have undertaken an assessment of our medium term capital
needs both within the business and for acquisitions. Following
this assessment we believe that shareholder value and the
efficiency of our balance sheet will be enhanced by returning
capital to shareholders. In consequence we are announcing today
our intention to undertake a share buy back programme of up to
$1.5 billion over the next two years, dependent in particular
on the acquisition programme.
Restatements
Prior period comparatives have been restated as set out in Note 13.
Fourth Quarter Results
Revenue in the quarter was $771 million. This represents growth
of 15% as reported and underlying growth of 11% after adjusting
for movements in currency when compared to the same period last
year.
Trading profit in the quarter was $183 million, representing
reported growth of 17% and 13% at constant exchange rates. The
trading margin of 23.7% was 0.4% above the comparable period
last year after inventory write-offs relating to obsolete
stock, impacted trading margin by 1.3%.
Orthopaedic Reconstruction increased its margin in the quarter
after an additional $4 million inventory cost, equivalent to
1.6% of sales. Trauma and Clinical Therapies' margins were
slightly lower than Q4 last year, largely as a result of the
investment in the US sales force. Endoscopy's margins were
significantly lower in the quarter partly due to an extra $5
million inventory expense, equivalent to 2.7% of sales.
Advanced Wound Management's margins increased in the quarter, a
clear improvement.
The relatively low tax charge in Q4 reflects the adjustment of
the full year effective rate to 27.6% from 29.5%. Attributable
profit before fair value loss, amortisation of acquisition
intangibles, gain on disposal of joint venture, bid related
costs and taxation thereon is $142 million. EPSA was 15.1c
(75.5c per American Depositary Share, "ADS"), which was 22.8%
higher than in the prior year.
Orthopaedic Reconstruction
Reconstruction revenues at $251 million grew by 15% compared to
the fourth quarter last year, well ahead of the global market
which grew by 7%. Our flow of new product introductions
contributed to another improved quarter in the US with revenues
growing at 16%. Outside the US, despite the continuation of
difficult market conditions in Europe, we further improved our
growth with a 14% increase through stronger results in a number
of European markets and in Japan. New products generated 24% of
revenues.
Knee revenue grew at 12% compared to market growth of 8%. The
new JOURNEY* Bi-Cruciate Stabilised Knee System introduced
earlier in 2006 had a particularly strong quarter and our
LEGION*Revision Knee System continued to make good progress.
Within the US, revenue growth increased at the market rate of
10% and outside the US revenues grew by an improved 16%.
Hip revenues grew by an outstanding 19%, a further improvement
on the strong third quarter achievement of 11%. Outside the US
growth was 15%, and within the US hip revenues accelerated to
an exceptional 24%, ahead of the market which grew at 9%. The
introduction of the BHR* system in the US is now running ahead
of plan with 336 surgeons having been trained to date and US
revenues of $16m for the year, exceeding our expectations.
Orthopaedic Trauma and Clinical Therapies
Trauma and Clinical Therapies revenues grew to $141 million in
the quarter, an increase of 17% over the same period last year.
Growth in the US was 14% and growth outside the US improved to
26%, with particularly strong growth in Europe and Australia.
New products generated 38% of revenues.
Fixation product revenues grew in the US by 5% and outside the
US by 16%. In the US, in common with the market, external
fixator revenues were slow. We had excellent revenues from our
new products: TRIGEN* INTERTAN* nail for femoral fractures and
our upper extremity PERI-LOC* Periarticular Locked Plating
System.
Clinical Therapies growth accelerated to 33% with a
particularly strong quarter from the improved EXOGEN 4000+* low
frequency ultrasound bone-healing device which was launched in
the second quarter and a high growth rate for SUPARTZ® Joint
Fluid Therapy. The integration of the DUROLANE® Single
Injection Joint Fluid Therapy into the Smith & Nephew selling
and marketing network outside the US has been successful
following the worldwide licensing agreement in June with Q-Med
AB in Sweden and we continue to work towards pre-market
approval of the product in the US.
We have decided that customers of our minimal intervention
spinal products, including IDET IntraDiscal ElectroThermal
Therapy and discography, are better served by the sales
channels and increased resources available in our Clinical
Therapies business and the responsibility for this product
group has been transferred from our Endoscopy Division with
effect from January 2007.
Endoscopy
Endoscopy revenues grew by 9% after adjusting for OBI to $187
million in the quarter; a good performance given the strong
2005 comparator quarter. In the US revenues grew by 4% and
outside the US grew strongly by 16%, compared with a year ago.
New products accounted for 30% of revenues as a number of new
launches were well received in the marketplace.
Repair revenues again grew strongly at an improved 27%
supported by the success of shoulder, hip and knee repair
product portfolios. The CALAXO* Osteoconductive Interference
Screw and the BIORAPTOR* Suture Anchor for the hip launched
earlier in the year made good contributions to revenues. The
integration of OBI, acquired in July 2006, has been completed.
The resection business increased by 5% in the quarter, driven
by a new power hand piece and an enhanced range of surgical
blades and burrs but Digital Operating Room sales and
visualisation revenues declined marginally in the quarter.
Advanced Wound Management
The new management team appointed during 2006 is successfully
increasing both the revenue growth rate and margins. Good
progress has been made in the US and we expect continued growth
from this major market. After a challenging 18 months this
performance is a strong and encouraging sign for the future.
Advanced Wound Management revenues grew to $192 million, up 3%
relative to the fourth quarter of last year, an increase of 7%
after adjusting for DERMAGRAFT® and its related products. Our
new US management team has grown US revenues by 10%, after
adjusting for DERMAGRAFT. Revenue growth outside the US was 6%
reflecting continued tight market conditions, particularly in
the UK and Germany. New products accounted for 21% of revenues.
ALLEVYN* dressings increased by 9% with strong revenue growth
recorded for the improved versions of ALLEVYN ADHESIVE
dressings and ALLEVYN Heel. Wound bed preparation had an
excellent quarter with revenues increasing by 19% although
increased low price competition continues to restrict growth of
ACTICOAT* antimicrobial silver dressings.
Full Year Results
Reported revenues increased by 9% to $2,779 million compared to
the same period last year, with underlying growth at 8%.
Trading profit for the year was up 10% to $571 million. Trading
margin was higher at 20.5%. Interest and other finance income
was $16 million. The tax charge of $156 million reflects the
effective rate for the year of 27.6%. Attributable profit was
$745 million. Adjusted attributable profit of $425 million is
before fair value loss, amortisation of acquisition intangibles
of $14 million, the gain on the disposal of the joint venture,
bid related costs and taxation thereon.
EPSA was 45.2c (226c per ADS). This was 7% higher than last
year, having been negatively impacted by the dilution arising
on disposal of our joint venture with BSN and by the loss of
net interest income deriving from the dollar/sterling interest
rate differences. The total impact on EPSA growth of these
one-off items was 7% for the year. Reported basic earnings per
share were 79.2c (396c per ADS). A reconciliation of EPSA to
reported earnings per share is provided in note 2 to the
accounts.
Operating cash flow, defined as cash generated from operations
less capital expenditure, was $284 million. This is a trading
profit to cash conversion ratio of 64%, before $26 million of
pension payments to reduce pension plan deficits,
rationalisation and restructuring expenditure of $21 million,
$33 million of settlement payments to patients in respect of
macrotexture revisions which are not being reimbursed by
insurers and $4 million of bid related costs. This $284 million
of cash flow compares with $172 million a year ago.
The financial year 2006 requires us to comply with s404 of the
Sarbanes-Oxley Act of 2002 and as a result we have reviewed our
accounting treatments. Prior period profits, earnings and
balance sheets have been restated for the following items:
1. a change in the method of calculating the elimination of
intra-group profit carried in inventory, the effect of
which is to reduce the amount of overhead expense included
in inventory valuation;
2. a re-classification of certain indirect production overhead
expenses from Selling, general and administration expenses
to Cost of goods sold; and
3. a change in accounting policy for the recognition of
death-in-service benefits liability in the UK pension plan.
The impact of the restatements is shown in Note 13.
Dividend
The second interim dividend has been declared in the amount of
6.71c per share, a 10% increase in line with our current
dividend policy, and will be paid on 11 May 2007 to
shareholders on the register at the close of business on 20
April 2007. On this occasion the dividend will be paid as a
sterling equivalent of 3.41 pence per share to all
shareholders. Together with the first interim dividend of 4.10c
(20.5c per ADS) this makes a total declared dividend of 10.81c
per share (54.05c per ADS) for the year 2006. Shareholders may
participate in the company's dividend reinvestment plan.
Earnings Improvement Programme
At the time of our third quarter results we indicated our
intention to increase our focus on margin enhancement through a
rigorous and systematic review to identify areas for
improvement across our businesses. This Earnings Improvement
Programme is now in the advanced planning stage and we expect
to make a further announcement with our Quarter 1 results.
Outlook
Global market conditions continue to be favourable driven by
underlying demographic trends which continue to create strong
demand for our products. We will continue to capitalise on this
by focusing on innovative products that create value for health
services as well as delivering clinical benefits to patients
and we will seek good quality acquisitions which add value to
our businesses and to the group as a whole.
New products launched in 2006, together with further launches
expected during 2007, give us a strong platform to outperform
market growth in 2007 and beyond. The growth rate in Q1 2007 is
expected to be lower than that of Q4 2006 and is expected to
strengthen thereafter.
We will have a particular focus going forward on the delivery
of margin enhancement and we anticipate our Earnings
Improvement Programme will have a substantial impact across the
business in 2008 and 2009.
About Us
Smith & Nephew is a global medical technology business,
specialising in Orthopaedic Reconstruction, Orthopaedic Trauma,
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 8,800 employees and
operates in 33 countries around the world generating annual
sales approaching $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 marks registered US
Patent and Trademark Office.
DUROLANE® is a trademark of Q-Med AB.
DERMAGRAFT® is a trademark of Advanced BioHealing Inc.
SUPARTZ® is a Trademark of the Seikagaku Corporation
SMITH & NEPHEW plc
2006 QUARTER FOUR AND FULL YEAR RESULTS
Unaudited Group Income Statement for the 3 months and year
ended 31 December 2006
3 3 Notes Year Year
Months Months Ended Ended
2005 A, 2006 2005 A,
B 2006 B
$m $m $m $m
670 771 Revenue 3 2,779 2,552
(180) (221) Cost of goods sold (769) (701)
(299) (336) Selling, general and (1,319) (1,212)
administrative expenses
(35) (31) Research and development (120) (122)
expenses
_____ _____ _____ _____
156 183 Trading profit 4 571 517
- (20) Bid related costs 5 (20) -
(40) - Restructuring and 6 - (84)
rationalisation costs
(3) (6) Amortisation of acquisition (14) (11)
intangibles
_____ _____ _____ _____
113 157 Operating profit 4 537 422
2 4 Interest receivable 19 27
- (2) Interest payable (9) (18)
(3) 2 Other finance income/(costs) 6 (5)
2 - (Loss)/gain on hedge of the (3) 2
sale proceeds of the joint
_____ _____ venture _____ _____
114 161 Profit before taxation 550 428
(34) (40) Taxation 8 (156) (126)
_____ _____ _____ _____
80 121 Profit from continuing 394 302
operations
Discontinued operations:
- 19 Net profit on disposal of the 9 351 -
joint venture
7 - Share of results of the joint 9 - 31
venture
_____ _____ _____ _____
87 140 Attributable profit 745 333
_____ _____ _____ _____
Earnings per share
Including discontinued
operations:
9.3c 14.9c Basic 79.2c 35.5c
9.2c 14.8c Diluted 78.9c 35.3c
Continuing operations:
8.5c 12.9c Basic 41.9c 32.2c
8.5c 12.8c Diluted 41.7c 32.0c
A As restated for the change in reporting currency from Sterling
to US Dollars on 1 January 2006 - see Note 1.
B As restated - see Note 13.
Unaudited Group Statement of Recognised Income & Expense
for the 3 months and year ended 31 December 2006
3 3 Year Year
Months Months ended ended
2005 A, 2006 2006 2005 A,
B B
$m $m $m $m
(32) 16 Translation differences 59 (135)
- - Cumulative translation adjustment (14) -
on disposal of the joint venture
- (1) (Losses)/gains on cash flow hedges (4) 16
(11) (10) Actuarial gains/(losses) on 30 (14)
defined benefit pension plans
2 2 Taxation on items taken directly (11) 3
to equity
_____ _____ _____ _____
(41) 7 Net income/(expense) recognised 60 (130)
directly in equity
87 140 Attributable profit 745 333
_____ _____ _____ _____
46 147 Total recognised income and 805 203
expense
_____ _____ _____ _____
Unaudited Group Balance Sheet as at 31 December 2006
2006 2005 A,
B
Notes $m $m
ASSETS
Non-current assets
Property, plant and equipment 635 589
Intangible assets 831 673
Investments 10 10
Deferred tax assets 110 148
_____ _____
1,586 1,420
Current assets
Inventories 619 557
Trade and other receivables 680 620
Current asset derivatives - 10
Cash and bank 346 151
_____ _____
1,645 1,338
Held for sale - investment in joint venture - 218
_____ _____
TOTAL ASSETS 3,231 2,976
_____ _____
EQUITY AND LIABILITIES
Equity attributable to equity holders of
the parent
Called up equity share capital 189 203
Share premium account 329 299
Own shares (1) (4)
Accumulated profits and other reserves 1,657 937
_____ _____
Total equity 11 2,174 1,435
Non-current liabilities
Long-term borrowings 15 211
Retirement benefit obligation 154 206
Other payables due after one year 3 16
Provisions - due after one year 34 48
Deferred tax liabilities 35 48
_____ _____
241 529
Current liabilities
Bank overdrafts and loans due within one 119 227
year
Trade and other payables 419 452
Provisions - due within one year 49 91
Current liability derivatives 2 29
Current tax payable 227 213
_____ _____
816 1,012
_____ _____
Total liabilities 1,057 1,541
_____ _____
TOTAL EQUITY AND LIABILITIES 3,231 2,976
_____ _____
A As restated for the change in reporting currency from Sterling to
US Dollars on 1 January - see Note 1.
B As restated - see Note 13.
Unaudited Condensed Group Cash Flow Statement for the 3 months and
year ended 31 December 2006
3 3 Year Year
Months Months Ended Ended
2005 A, 2006 2006 2005 A,
B B
$m $m $m $m
Net cash inflow from operating
activities
114 161 Profit before taxation 550 428
(2) (2) Less: Net interest receivable (10) (9)
38 48 Depreciation, amortisation and 169 180
impairment
2 1 Share based payment expense 14 13
(71) (32) Movement in working capital and (217) (240)
provisions C
_____ _____ _____ _____
81 176 Cash generated from operations 506 372
2 2 Net interest received 10 9
(33) (48) Income taxes paid (144) (112)
_____ _____ _____ _____
50 130 Net cash inflow from operating 372 269
activities
Cash flows from investing
activities
(7) (3) Acquisitions (net of Loan Notes (85) (25)
issued of $15 million in 2006)
- - Cash acquired with acquisition 2 -
- (4) Disposal of joint venture D 537 -
13 - Dividends received from the joint - 25
venture D
(47) (37) Capital expenditure (222) (200)
_____ _____ _____ _____
(41) (44) Net cash used in investing 232 (200)
activities
_____ _____ _____ _____
9 86 Cash flows before financing 604 69
activities
Cash flows from financing
activities
8 8 Proceeds from issue of ordinary 16 19
share capital
(35) (39) Equity dividends paid (96) (91)
42 (18) Cash movements in borrowings (293) 34
1 (5) Settlement of currency swaps (10) (4)
_____ _____ _____ _____
16 (54) Net cash used in financing (383) (42)
activities
25 32 Net increase in cash and cash 221 27
equivalents
41 257 Cash and cash equivalents at 65 44
beginning of period
(1) 2 Exchange adjustments 5 (6)
_____ _____ _____ _____
65 291 Cash and cash equivalents at end 291 65
of period E
_____ _____ _____ _____
A As restated for the change in reporting currency from Sterling to
US Dollars on 1 January - see Note 1.
B As restated - see Note 13.
C After $33 million (2005 - $47 million) unreimbursed by insurers relating to
macrotextured knee revisions, $4 million (2005 - nil) of bid related costs, $21
million (2005 - $7 million) of outgoings on restructuring, rationalisation and
acquisition integration costs and $26 million of pension funding in excess of
current service cost (2005 - $86 million of special pension contributions).
D Discontinued operations accounted for $537 million (2005 - $25 million) of net
cash flow from investing activities.
E Cash and cash equivalents at the end of the period are net of overdrafts of
$55 million (2005 - $86 million).
NOTES
1. Except as detailed below and in Note 13, the financial information for the
three months and year 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
2005.
As the Group's principal assets and operations are in the US and the majority of
its operations are conducted in US Dollars, the Group changed its reporting
currency from Pounds Sterling to US Dollars with effect from 1 January 2006.
This lowers the Group's exposure to currency translation risk on its revenue,
profits and equity. The Company redenominated its share capital into US Dollars
on 23 January 2006 and will retain distributable reserves and declare dividends
in US Dollars. Consequently, its functional currency became the US Dollar.
Financial information for prior periods has been restated from Pounds Sterling
into US Dollars in accordance with IAS 21.
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 2005, which have been delivered to the
Registrar of Companies. The financial information for the year ended 31 December
2006 has been extracted from the Group's unaudited financial statements which
will be delivered to the Registrar of Companies in due course.
2. In order to provide a trend measure of underlying performance, attributable
profit is adjusted to exclude items which management consider may distort
comparability. Such items arise from events or transactions that fall within the
ordinary activities of the Group but which management believes should be
separately identified to help explain trends as they are exceptional in nature
or derive from specific accounting treatments.
Adjusted earnings per share ("EPSA") has been calculated by dividing adjusted
attributable profit by the weighted (basic) average number of ordinary shares in
issue of 941 million (2005 - 938 million). The diluted weighted average number
of ordinary shares in issue is 944 million (2005 - 943 million).
3 Months 3 Months Year Year
2005 2006 Ended Ended
2006 2005
$m $m $m $m
87 140 Attributable profit 745 333
Adjustments:
3 6 Amortisation of acquisition 14 11
intangibles
- 20 Bid related costs 20 -
40 - Restructuring and rationalisation - 84
costs
- (19) Net profit on disposal of the (351) -
joint venture
(2) - Loss/(gain) on hedge of the sale 3 (2)
proceeds of the joint venture
(12) (5) Taxation on excluded items (6) (29)
_____ _____ _____ _____
116 142 Adjusted attributable profit 425 397
_____ _____ _____ _____
12.3c 15.1c Adjusted earnings per share 45.2c 42.3c
12.3c 15.0c Adjusted diluted earnings per 45.0c 42.1c
share
3. Revenue by segment for the three months and year to 31 December
2006 was as follows:
3 3 Year Year Underlying growth
Months Months Ended Ended
2005 2006 2006 2005 in revenue
$m $m $m $m %
3 Months Year
Revenue by business
segment
213 251 Reconstruction 919 829 15 10
119 141 Trauma and Clinical 497 438 17 13
Therapies
164 187 Endoscopy 665 606 9 9
174 192 Advanced Wound 698 679 3 1
Management
____ ____ ____ ____ ____ ____
670 771 2,779 2,552 11 8
____ ____ ____ ____ ____ ____
Revenue by geographic
market
339 374 United States 1,365 1,259 10 8
203 243 Europe F 867 800 9 6
128 154 Africa, Asia, 547 493 18 12
Australasia & Other
____ ____ America ____ ____ ____ ____
670 771 2,779 2,552 11 8
____ ____ ____ ____ ____ ____
F Includes United Kingdom twelve months revenue of $255 million (2005 - $238
million) and three months revenue of $72 million (2005 - $60 million).
The Orthopaedics segment, that was reported in the full annual accounts of the
Group for the year ended 31 December 2005, has been split into two segments:
Reconstruction and Trauma and Clinical Therapies.
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 in currency effect growth in
revenue exchange revenue
effect
% % % %
Year
Reconstruction 11 (1) - 10
Trauma and Clinical 13 - - 13
Therapies
Endoscopy 10 (1) - 9
Advanced Wound Management 3 (2) - 1
_____ _____ _____ _____
9 (1) - 8
_____ _____ _____ _____
3 Months
Reconstruction 18 (3) - 15
Trauma and Clinical 18 (1) - 17
Therapies
Endoscopy 14 (4) (1) 9
Advanced Wound Management 10 (7) - 3
_____ _____ _____ _____
15 (4) - 11
_____ _____ _____ _____
4. Trading and operating profit by segment for the three months and
year to 31 December 2006 was as follows:
3 Months 3 Months Year Year
2005 2006 Ended Ended
2006 2005
$m $m $m $m
Trading Profit by business
segment
54 69 Reconstruction 233 206
29 34 Trauma and Clinical Therapies 101 90
41 40 Endoscopy 123 125
32 40 Advanced Wound Management 114 96
_____ _____ _____ _____
156 183 571 517
_____ _____ _____ _____
Operating Profit by business
segment
51 43 Reconstruction 200 196
29 34 Trauma and Clinical Therapies 101 90
41 40 Endoscopy 122 108
(8) 40 Advanced Wound Management 114 28
_____ _____ _____ _____
113 157 537 422
_____ _____ _____ _____
5. In 2006, $20 million was incurred in relation to the failed bid to purchase
Biomet Inc. This has been allocated in operating profit to the Reconstruction
business segment.
6. Restructuring and rationalisation costs in 2005 comprise a charge against
Advanced Wound Management of $68 million relating to the decision to exit
DERMAGRAFT® and related products and $16 million for the rationalisation of
Endoscopy manufacturing facilities.
7. The cumulative number of revisions of the macrotextured knee product was 999
on 31 December 2006 compared with 987 at the end of Quarter Three 2006. This
represents 34% of the total implanted. Settlements with patients have been
achieved in respect of 923 revisions (Quarter Three 2006 - 888 settlements).
Costs of $112 million are in dispute with insurers and are provided for in full.
$42 million of provision remains to cover future settlement costs.
8. Taxation of $162 million (2005 - $155 million) for the year on the profit
before restructuring and rationalisation costs, bid related costs, amortisation
of acquisition intangibles, the loss on hedge of the sale proceeds of the joint
venture and discontinued operations is at the full year effective rate of 27.6%
(2005 - 29.8%). In 2006, a taxation benefit of $6 million arose on the bid
related costs (2005 - $29 million on the restructuring and rationalisation
costs). Of the $156 million (2005 - $126 million) taxation charge for the year
$131 million (2005 - $101 million) relates to overseas taxation.
9. On 23 February 2006 the Group sold its 50% interest in the BSN joint venture
for cash consideration of $562 million. The net profit of $351 million on the
disposal of the joint venture is after a credit of $14 million for cumulative
translation adjustments, $27 million of transaction costs, provision for
indemnity of $3 million and release of taxation provisions of $23 million. In
2005 the share of results of the joint venture is after interest payable of $2
million and taxation of $11 million in the nine months to 1 October 2005 and a
dividend in Quarter Four 2005 of $7 million. The Group's discontinued operations
earnings per share for the year is: basic 37.3c (2005 - 3.3c) and diluted 37.2c
(2005 - 3.3c).
10. The 2006 first interim dividend of $39 million being 4.10 US cents per
ordinary share was paid on 10 November 2006. A second interim dividend for 2006
of 6.71 US cents per ordinary share has been declared by the Board and will be
payable on 11 May 2007 to shareholders whose names appear on the register at the
close of business on 20 April 2007. All shareholders will receive the Sterling
equivalent of 3.41 pence per ordinary share. Shareholders may participate in the
dividend re-investment plan.
11. The movement in total equity for the year was as follows:
2006 2005
$m $m
Opening equity as at 1 January 1,435 1,291
Attributable profit 745 333
Equity dividends paid (96) (91)
Exchange adjustments 45 (135)
(Losses)/gains on cash flow hedges (4) 16
Actuarial gains/(losses) on defined benefit 30 (14)
pension plans
Share based payment recognised in the income 14 13
statement
Taxation on items taken directly to equity (11) 3
Issue of ordinary share capital 16 19
_____ _____
Closing equity 2,174 1,435
_____ _____
12. Net cash/(net debt) as at 31 December 2006 comprises:
2006 2005
$m $m
Cash and bank 346 151
Long-term borrowings (15) (211)
Bank overdrafts and loans due within one year (119) (227)
Net currency swap liabilities (2) (19)
_____ _____
210 (306)
_____ _____
The movements in the year were as follows:
Opening net debt as at 1 January (306) (232)
Cash flows before financing activities 604 69
Loan Notes issued on acquisition (15) -
Proceeds from issue of ordinary share capital 16 19
Equity dividends paid (96) (91)
Exchange adjustments 7 (71)
_____ _____
Closing net cash/(net debt) 210 (306)
_____ _____
13. The prior year Income Statements and Balance Sheets have been restated for
the following items:
a) A change in the method of calculating the elimination of intra-group profit
carried in inventory, the effect of which is to reduce the amount of overhead
expense included in inventory valuation. The impact of correcting this error is
to reduce inventory at 31 December 2005 by $53 million and trading profit for
the year ended 31 December 2005 by $9 million.
b) A reclassification of certain indirect production overhead expenses from
Selling, general and administration expenses to Cost of goods sold. There is no
effect on inventory or trading profit. In the year ended 31 December 2005 cost
of goods sold is increased by $37 million and selling, general and
administrative expenses is reduced accordingly.
c) A change in accounting policy for the recognition of the death-in-service
benefits liability in the UK pension plan. Under IFRS alternative treatments are
permissable and a liability has been recorded in order to bring the IFRS
accounting policy into line with US GAAP and thereby eliminate a reconciling
item. There is an immaterial impact on trading profit and finance income in the
year ended 31 December 2005 and an increase of $16 million in Retirement benefit
obligation at 31 December 2005.
A summary of the restatement to the 2005 full year and Quarter Four 2005 is as
follows:
3 Months Year Ended
2005 2005
($ m, except per
share values)
Group Income Statement
(Increase) in Cost of goods sold (9) (46)
Decrease in Selling, general and 9 37
administrative expenses
_____ _____
(Decrease) in Trading profit - (9)
Decrease in Taxation - 3
_____ _____
(Decrease) in Attributable profit - (6)
_____ _____
Group Statement of Recognised Income and
Expense
Decrease in Actuarial losses on defined - 4
benefit plans
Increase in Translation differences - 3
(Decrease) in Taxation on items taken - (1)
directly to equity
(Decrease) in Attributable profit - (6)
_____ _____
Increase in Total recognised income and - -
expense
_____ _____
Earnings per Ordinary Share
Including discontinued operations:
Basic - (0.6c)
Diluted - (0.6c)
Continuing operations:
Basic - (0.6c)
Diluted - (0.6c)
Group Balance Sheet
(Decrease) in Inventories (53) (53)
(Increase) in Retirement benefit obligation (16) (16)
Increase in Deferred tax assets 17 17
Decrease in Deferred tax liabilities 5 5
_____ _____
(Decrease) in Equity (47) (47)
_____ _____
END
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