1st Aug 2014 11:21
LONDON (Alliance News) - Smith & Nephew PLC Friday raised its interim dividend and reiterated confidence in its outlook for the full year, even though pretax profit declined in the second quarter to June 28 due to costs related to its acquisition of ArthroCare Corp in May.
The medical devices company proposed an interim dividend of 11.0 cents, up from 10.4 cents in the previous year.
Smith & Nephew posted a pretax profit of USD128 million in the quarter, down from USD188 million a year earlier, despite seeing revenue rise to USD1.15 billion from USD1.07 billion. It was hit by acquisition costs of USD55 million, and USD30 million in amortisation.
In the half year, the company posted a pretax profit of USD349 million, down from USD392 million, even as revenue rose to USD2.22 billion from USD2.15 billion.
The company benefited from one month of trading from ArthroCare, which Smith & Nephew said performed in line with expectations. It expressed optimism for the prospects of its expanded Sports Medicine business.
Although the company was optimistic about its prospects, it was cautious about its RENASYS# negative pressure wound therapy system. After the period end, the company was required to halt distribution of RENASYS#. The company said it needs to secure new regulatory clearances from the US Food and Drug Administration for some design enhancements. Smith & Nephew said that assuming this process takes the rest of the year, revenue for 2014 will be reduced by around USD30 million, which will hit profit.
Smith & Nephew booked a USD25 million provision in the second quarter for costs related to this process.
Advanced Surgical Devices revenue was USD810 million for the quarter, up from UDS741 million a year earlier, driven by 4% growth in the US, and 19% growth in emerging and international markets, offsetting a flat performance in its other established markets.
Profit margin in this segment improved to 23.7%, from 22.9%, due to the company's efficiency programmes, although this was offset by the roll out of new products.
Smith & Nephew said that it has been investing in a new model for orthopaedic reconstruction called 'Syncera', which offers two of its hip and knee implants combined with new technology to streamline the supply chain and allow technical support in the operating room. It expects this model to create "significant savings for the customer."
In a call with journalists, Chief Executive Officer Olivier Bohuon said that Syncera is expected to start shipping in the coming weeks, and the product is not intended to cannibalise its existing customer base, but to address a new type of customer.
In Advanced Wound Management, revenue was broadly flat at USD337 million in the quarter, as 7% growth in the US and 13% growth in the emerging and international markets was offset by an 8% decline in other established market. Within this segment, Advanced Wound Care revenue was down 8%, which the company partly blamed on its execution, and further de-stocking by wholesalers.
Smith & Nephew said it expects to see market conditions in the first half continue through the rest of the year, with established markets remaining broadly stable with signs of improvement, and emerging and international markets offering opportunities for stronger growth.
It expects its Advanced Wound Management franchise to grow below the market rate for the full year.
"With half of our revenues now coming from higher growth markets, and a more focused structure, we are well placed to take advantage of the many further opportunities we see," Bohuon said in a statement.
Berenberg maintained its Hold rating for the company, saying that whilst the results were better than its estimates, the company's performance was "tempered somewhat" by the FDA issues with RENASYS#.
"This should be a temporary issue, so is not significant to the longer term, in our view, and should not detract from what were otherwise reasonably strong results," Berenberg said.
Berenberg noted that it thinks Smith & Nephew's share price is still to some degree supported by hopes that it will attract a bidder. The company has been the subject of takeover speculation for many years, most recently with suggestions that it might be pursued by US device maker Medtronic Inc, after Stryker Corp said in May that it does not plan to make an offer for the company.
Bohuon told journalists that he expects the company to remain a "significant target" for potential bidders, although he said that there had not been any specific pressure from shareholders to court a takeover.
Shares in Smith & Nephew were trading up 1.9% at 1,045.00 pence Friday morning, the biggest gainer on the FTSE 100.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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