3rd May 2007 11:00
Smith & Nephew Plc03 May 2007 Smith & Nephew reports strong first quarter and announces earnings improvementprogramme 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 ofSmith & Nephew, said: "These are excellent first quarter results, driven by favourable marketconditions and a strong contribution from new products; particularly our hipresurfacing product, BHRa, and two new knee systems. All our businesses areperforming well but these results benefit from lower comparators from Q1 lastyear. 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 bythe progress made to date. We believe this programme will deliver materialimprovements to trading margin in each of our businesses in the coming years,considerably enhancing our earnings and providing significant value toshareholders over the medium term." An analyst presentation and conference call to discuss the Company's firstquarter 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 shortlyfollowing the close of the call at http://www.smith-nephew.com/Q107. Ifinterested parties are unable to connect to the web, a listen-only service isavailable by calling +44 (0)20 7138 0815 in the UK or +1 (718) 354 1171 in theUS. Analysts should contact Samantha Hardy on +44 (0)20 7960 2257 or by emailat [email protected] 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 InvestorsAdrian Hennah +44 (0) 20 7401 7646Chief Financial OfficerSmith & Nephew Liz Hewitt +44 (0) 20 7401 7646Group Director Corporate AffairsSmith & Nephew MediaDavid Yates / Deborah Scott +44 (0) 20 7831 3113Financial Dynamics - London Jonathan Birt +1 (212) 850 5634Financial Dynamics - New York Introduction The markets in which we operate have generally been favourable in the firstquarter. The US market has continued to strengthen, but some major Europeancountries and Japan continue to be challenging as a result of healthcarespending constraints. Orthopaedic Reconstruction again exceeded market growth rates as revenues fromproducts launched last year had continued momentum. Revenues from theBIRMINGHAM HIPa Resurfacing ("BHRa") system in the US were particularly strong.Trauma and Clinical Therapies had an excellent quarter as a combination of newproduct revenues and sales force effectiveness took hold. Endoscopy hassignificantly improved its growth rate in the quarter and Advanced WoundManagement has maintained its progress with a very strong US performance. Work towards completion of our CHF 1,086 million ($889 million) acquisition ofPlus Orthopedics Holding AG ("Plus"), the private Swiss orthopaedic company thatwe announced on 12 March 2007, is progressing well and completion is expected inthe summer. After this acquisition Smith & Nephew is expected to rank fourth inthe global orthopaedic reconstruction market and will have considerableopportunities to leverage the combined sales forces and product ranges. Weexpect the Plus Orthopedics acquisition to be broadly EPSA neutral this year andto be accretive thereafter. This statement includes details of our Earnings Improvement Programme ("EIP")first announced last year which is expected to deliver significant enhancementto trading margins in the coming years. First Quarter Results Revenue in the quarter was $744 million. This represents growth of 16% asreported and an underlying growth rate of 12% after adjusting for movements incurrency 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 $4million. The Group trading margin at 19.9% in the quarter reflected the heavier expenseswhich are characteristic of this quarter. Advanced Wound Management's improvedtrading margin at 15.4% showed the benefit of early EIP activities when comparedwith 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 acquisitionintangibles 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 (221.5cper 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 firstquarter 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 continuedto make revenue contributions above our expectations. Outside the US growth was9%, with much improved growth in hips in France and Germany. Knee growthimproved in the UK and Australia. New products generated 21% of revenuesreflecting 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 secondsuccessive quarter of above average growth as the benefit of new productintroductions 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 majorcontributor to hip revenue growth in the US where the market is developingfaster than we had expected. We remain ahead of our expectations with BHRa andhave now trained a large pool of surgeons who are regularly using it. Outsidethe US hip revenue growth was 5%. Orthopaedic Trauma and Clinical Therapies Trauma revenue growth strengthened considerably this quarter at $136 milliongrowing by 19% relative to the same period last year and led the market. Growthin the US improved to 18% as the focus on sales force effectiveness gainedtraction and revenues outside the US were up 21%. Strong revenue growth forfixation products combined with excellent progress for Clinical Therapies andhad a particularly strong quarter. New products generated 42% of revenues. Fixation product revenues grew by 13% in line with the market. There was amarked improvement in growth in the US to 15% and outside the US revenues grewby 10%. The quarter's revenue growth again benefited from the continued successof our PERI-LOCa Periarticular locked plating system and JET-Xa. Clinical Therapies revenue growth was 33% with a particularly strongcontribution from the EXOGEN 4000+a unit introduced last year. Following theworldwide licensing agreement with Q-Med AB in Sweden last year we haveintegrated the DUROLANE(R) products and continue to work with Q-Med AB towardspre-market approval of the product in the US although this is not now expectedthis year. Endoscopy Endoscopy revenue growth of 12% to $177 million is a welcome return to doubledigit sales growth and close to estimated market growth rates. US revenues grewby 6%, a little slower than expected, but balanced by strong growth outside theUS of 19%, with UK, Japan and Australia performing particularly well. Newproducts generated 27% of revenue. Repair revenues grew strongly at 22% and equalled resection revenues for thefirst time. Knee, shoulder and hip arthroscopy all made major contributions tothis growth, with the BIORAPTORa and TWINFIXa product families and KINSAa SutureAnchors for shoulders all making major contributions. Visualisation and Digital Operating Room revenues grew well at 20% benefiting inpart from higher sales ahead of a new camera launch and positively reflectingthe uneven pattern of revenues in this market. Resection products increased by 4% in the quarter and were particularly strongoutside the US, increasing by 12%. The trading margin of 18.6% reflects the impact of revenue mix, particularly thehigher level of visualisation and Digital Operating Room revenues. There-organisation of US manufacturing facilities, a 20 month project, wassuccessfully completed shortly after the end of the quarter. Advanced Wound Management Our strategy for our Advanced Wound Management business has three areas offocus: the product portfolio, an effective cost structure and to significantlyincrease our share of the US market. Actions are already underway to addressstructural cost and continue strong revenue growth in the US. Advanced Wound Management revenues grew to $169 million, slightly below marketgrowth but up 4% relative to the first quarter last year excluding the effect ofthe exit from tissue engineering, up 2% if this is included. US revenue growthat 10% was particularly strong and continued the improved performance seen inthe last quarter of 2006. Revenue growth in Europe was slower as expected dueto high revenues in the UK in the last quarter of 2006 and revenues in Japanwere impacted by downward pricing pressure. New products generated 12% ofrevenues in the quarter. ALLEVYNa dressings had another strong quarter with revenues increasing by 10%benefiting from a wider product range. Within infection management, ourIODOSORBa product grew strongly but ACTICOATa antimicrobial silver dressingscontinued to be affected by low price competition. We signed a worldwide distribution agreement with Covalon Technologies Ltd inthe quarter, providing a new technology and strengthening the product portfolio. Earnings Improvement Programme Last year we announced that a substantial Earnings Improvement Programme was inthe research and planning stages. This programme is designed to continue ourinvestment at a level which will maintain above market revenue growth rates andto drive a renewed focus on costs. The balance of these two elements isexpected to bring considerable trading margin improvement. The programme currently includes 12 workstreams. These workstreams includeleveraging infrastructure, for example through shared IT and procurementresources, creating more efficient and effective sales and marketing teams andan increase in the level of low cost sourcing and manufacturing. Theworkstreams are across the business as a whole although the impact will bestronger in some areas than others. We expect that around one half of the totalmargin improvement will be in the Orthopaedics businesses, the next largestbenefit in Advanced Wound Management, and a smaller but still significantopportunity in Endoscopy. We expect trading margin to increase by an average of at least 1% each year forthe next four years. This increase is net of an expected increase in researchand development expenditure from 4.3% to about 5% of revenues and before theeffects of the acquisition of Plus Orthopedics. Trading profit is thereforeexpected to increase by at least $100 million in 2009 and at least $150 millionin 2010 as a result of margin improvements. The costs of the programme, whichwill be largely incurred over the first three years and will be reportedseparately in the income statement after trading profit, are expected to be $125million in cash costs and $75 million in non-cash costs. There will also be amodest increase in capital expenditure to above historic levels. The initial progress from the EIP work already underway is encouraging and weexpect the programme to provide considerable value to shareholders. Outlook Global market conditions continue to be favourable driven by underlyingdemographic trends which are creating strong demand for our products. The strong revenue performance in the first quarter is slightly flattered by arelatively weak 2006 comparator, particularly in Reconstruction and ClinicalTherapies. We are likely to experience a competitor for BHRa in the second halfof the year when the comparators are stronger. Endoscopy's high revenue growthfrom visualisation and Digital Operating Room in the first quarter reflects theuneven nature of that part of the business and will not be as strong in the restof the year. Advanced Wound Management is expected to continue the improvementalready seen in the US but will continue to experience slower growth in the UKand Japan. Trading margin is expected to benefit from the EIP this year. We continue toexpect the Plus Orthopedics acquisition to be broadly EPSA neutral this year andto become accretive thereafter. Our expectations for 2007 revenues, tradingprofit 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% perannum until the end of 2010, including a significant increase in 2007, followedby larger increases in subsequent years. In 2010 this margin improvementequates to at least an additional $150 million in trading profit. We expect thecash costs of the programme to be incurred broadly evenly over three years, butwe expect provisions charged to the profit and loss account to be earlier andmore uneven. The underlying growth in the business, coupled with the EIP and the PlusOrthopedics acquisition, means that Smith & Nephew is well positioned for strongrevenue performance and trading margin improvement for 2007 and beyond. About us Smith & Nephew is a global medical technology business, specialising inOrthopaedic Reconstruction, Orthopaedic Trauma and Clinical Therapies, Endoscopyand Advanced Wound Management products. Smith & Nephew is a global leader inarthroscopy and advanced wound management and is one of the leading globalorthopaedics companies. Smith & Nephew is dedicated to helping improve people's lives. The Companyprides itself on the strength of its relationships with its surgeons andprofessional healthcare customers, with whom its name is synonymous with highstandards of performance, innovation and trust. The Company has over 8,800employees and operates in 31 countries around the world generating annual salesof $2.8 billion. Forward-Looking Statements This press release contains certain "forward-looking statements" within themeaning of the US Private Securities Litigation Reform Act of 1995. Inparticular, statements regarding expected revenue growth and trading marginsdiscussed under "Outlook" are forward-looking statements as are discussions ofour 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 identifyforward-looking statements. Such forward-looking statements involve known andunknown risks, uncertainties and other important factors (including, but notlimited to, the outcome of litigation, claims and regulatory approvals) thatcould cause the actual results, performance or achievements of Smith & Nephew,or industry results, to differ materially from any future results, performanceor achievements expressed or implied by such forward-looking statements. Pleaserefer to the documents that Smith & Nephew has filed with the U.S. Securitiesand Exchange Commission under the U.S. Securities Exchange Act of 1934, asamended, including Smith & Nephew's most recent annual report on Form 20F, for adiscussion of certain of these factors. All forward-looking statements in this press release are based on informationavailable to Smith & Nephew as of the date hereof. All written or oralforward-looking statements attributable to Smith & Nephew or any person actingon behalf of Smith & Nephew are expressly qualified in their entirety by theforegoing. Smith & Nephew does not undertake any obligation to update or reviseany forward-looking statement contained herein to reflect any change in Smith &Nephew's expectation with regard thereto or any change in events, conditions orcircumstances 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 643Cost of goods sold (192) (175)Selling, general and administrative expenses (372) (315)Research and development expenses (32) (29) _____ _____Trading profit 4 148 124Earnings improvement programme - restructuring costs 5 (17) -Amortisation of acquisition intangibles (4) (2) _____ _____Operating Profit 4 127 122Interest receivable 4 7Interest payable (2) (4)Other finance income 2 1Loss on hedge of the sale proceeds of the joint venture - (3) _____ _____Profit before taxation 131 123Taxation 8 (40) (38) _____ _____Profit from continuing operations 91 85 Discontinued operations: Net profit on disposal of the joint venture 9 - 332 _____ _____Attributable profit 91 417 _____ _____ Earnings per share 2Including discontinued operations:Basic 9.7c 44.3cDiluted 9.6c 44.1cContinuing operations:Basic 9.7c 9.0cDiluted 9.6c 9.0c Unaudited Group Statement of Recognised Income and Expense for the 3 months to31 March 2007 2007 2006 $m $m Translation differences 4 26Cumulative translation adjustment on disposal of the joint venture - (14)Losses on cash flow hedges (1) (2)Actuarial gains on defined benefit pension plans 20 37Taxation on items taken directly to equity (7) (12) _____ _____Net income recognised directly in equity 16 35Attributable profit 91 417 _____ _____Total recognised income and expense 107 452 _____ _____ Unaudited Group Balance Sheet as at 31 March 2007 31 Dec Notes 31 March 1 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 reserves 1,708 1,333 _____ _____ _____ 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 one year 123 136 421 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 123Less: Net interest receivable (2) (3)Depreciation and amortisation 45 36Share based payment expense 7 4Movement in working capital and provisions (53) (71) _____ _____Cash generated from operations A 128 89Net interest received 2 3Income taxes paid (32) (27) _____ _____Net cash inflow from operating activities 98 65 Cash flows from investing activitiesAcquisitions (4) (4)Disposal of joint venture B - 551Capital expenditure (38) (58) _____ _____Net cash used in investing activities (42) 489 _____ _____ Cash flow before financing activities 56 554 Cash flows from financing activitiesProceeds from issue of ordinary share capital 12 3Purchase 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 289Cash and cash equivalents at beginning of period 291 65Exchange 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 costs 17 - 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 venture - 3 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 America 135 121 11 _____ _____ _____ 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 growth in currency effect in revenue revenue exchange effect % % % % Reconstruction 19 (4) - 15 Trauma and Clinical Therapies 21 (2) - 19 Endoscopy 16 (3) (1) 12 Advanced Wound Management 8 (6) - 2 _____ _____ _____ _____ 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 plans 20 37 Share based payment recognised in the income statement 7 4 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 forthe three months ended 31 March 2007 which comprises Group Income Statement,Group Statement of Recognised Income and Expense, Group Balance Sheet, CondensedGroup Cash Flow Statement and the related notes 1 to 12. We have read the otherinformation contained in the interim report for quarter one and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept 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 informationcontained therein, is the responsibility of, and has been approved by, thedirectors. The directors are responsible for preparing the interim report forquarter one in accordance with the Listing Rules of the Financial ServicesAuthority which require that the accounting policies and presentation applied tothe interim figures should be consistent with those applied in preparing thepreceding annual accounts except where any changes, and the reasons for them,are disclosed. The accounting policies are consistent with those that thedirectors 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 Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies and presentation have beenconsistently applied, unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review Conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the three monthsended 31 March 2007. Ernst & Young LLPLondon 3 May 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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