FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of
1934
February 9, 2004
Commission File Number 001-14978
SMITH & NEPHEW plc
(Registrant's name)
15 Adam Street
London, England WC2N 6LA
(Address of registrant's principal executive offices)
[Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.]
Form 20-F X Form 40-F
--- ---
[Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1).]
Yes No X
--- ---
[Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7).]
Yes No X
--- ---
[Indicate by check mark whether by furnishing the information
contained in this Form, the registrant is also thereby furnishing information
to the Commission pursuant to Rule 12g3-2 (b) under the Securities Exchange
Act of 1934.]
Yes No X
--- ---
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- n/a.
Total Pages: 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Smith & Nephew plc
(Registrant)
Date: February 9, 2004 By: /s/ Paul Chambers
---------------------
Paul Chambers
Company Secretary
2
[logo] Smith&Nephew
5 February 2004
Strong Performance in Orthopaedics
Leads Growth at Smith & Nephew
Smith & Nephew plc (LSE: SN, NYSE:SNN) announces its unaudited preliminary
results for the year ended 31 December 2003.
Key Points
o Sales grew an underlying 11% to (GBP)1.2bn
o Orthopaedics underlying sales growth 16%
o Operating margin* improved to 18.7% from 17.8%
o Earnings per share* growth of 15% to 18.49p
o Strong cash generation reduces gearing to 20%
*Before goodwill amortisation and exceptional items
Chairman Dudley Eustace commented: "The markets on which the company focuses
continue to demonstrate robust growth, benefiting from an ageing population
and active lifestyles."
Sir Christopher O'Donnell, Chief Executive, said: "I am very pleased with our
revenue growth and operating performance in 2003. Once again, our Orthopaedics
business performed strongly, maintaining its position as the world's fastest
growing orthopaedic implant company. We were also able to meet our margin
improvement targets from ongoing cost and efficiency savings.
"Looking forward, we expect an acceleration of growth within our Orthopaedics
business and improved growth rates from our Endoscopy business, supported by
the launch of two important new products. Continuing innovation within our
Advanced Wound Management portfolio should sustain our growth rates in this
market.
"With a positive industry backdrop for each of the businesses, Smith & Nephew
is well placed to sustain its underlying mid-teens EPSA growth target going
forward."
2
Enquiries
Investors
Peter Hooley Tel: +44 (0)20 7401 7646
Smith & Nephew Finance Director
Investors/Media
Angie Craig UK Tel: +44 (0)20 7401 7646
Smith & Nephew Corporate Affairs Director US Tel: +1 212 850 5756
Financial Dynamics-London
David Yates Tel: +44 (0)20 7831 3113
Financial Dynamics-New York Tel: +1 212 850 5626
Deborah Arden-Jones
A live presentation and conference call for global analysts to discuss the
company's results will be held in London at the City Presentation Centre, 4
Chiswell Street, Finsbury Square, London EC1Y 4UP at 3 pm GMT today. Analysts
outside the UK are invited to join the meeting via conference call.
The meeting will also be broadcast live on the web and will be available on
demand shortly following the close of the meeting at
http://www.smith-nephew.com/prelims. The presentation can be found on our
website: http://www.smith-nephew.com/prelims. High-resolution photographs are
available to the media free of charge at www.newscast.co.uk
3
Full Year 2003 Consolidated Results
In 2003 Smith & Nephew achieved Group turnover of nearly (GBP)1.2bn.
Underlying sales growth was 11%, reduced by 2% of adverse currency and 3% from
discontinued operations. Selling price increases accounted for nearly 2% of
underlying sales growth.
Profit before goodwill amortisation, exceptional items and tax amounted to
(GBP)242m, a 15% increase over 2002. This comprised (GBP)221m of operating
profit, (GBP)22m profit from the BSN joint venture and (GBP)5m from the
interest in AbilityOne before it was sold, less (GBP)6m of interest costs.
Profit before tax and after goodwill amortisation and exceptional items was
(GBP)230m, compared with (GBP)178m in 2002.
Operating profit margin improved to 18.7% from 17.8% in 2002 as a result of
cost and efficiency savings. This improvement was achieved after absorbing the
increased costs of funding the pension deficit and the costs associated with
acquiring the additional half of the Advanced Tissue Sciences, Inc., (ATS)
joint venture.
EPS, Tax, Exceptional Items and Cash Flow
After an ordinary tax charge of 29%, earnings per share before goodwill
amortisation and exceptional items ("EPSA") were 18.49p (92.45p per American
Depositary Share "ADS"), an increase of 15%. Basic unadjusted earnings per
share were 15.92p (79.60p per ADS), compared with 12.11p in 2002.
Had Smith & Nephew's results been reported in US dollars translated at average
rates of exchange ($1.65 in 2003; $1.51 in 2002), reported Group turnover and
earnings per ADS before goodwill amortisation and exceptional items would have
been as follows:
Reported Group Turnover $1.9bn +16%
Earnings per ADS $1.52 +26%
Exceptional items included a gain of (GBP)32m on the disposal of our
interest in AbilityOne, (GBP)8m of rationalisation and integration costs
mainly associated with the acquisition in 2002 of ORATEC Interventions, Inc,
and (GBP)18m of net costs of mounting the bid for Centerpulse. The net
exceptional item was therefore a gain of (GBP)6m on which the tax charge was
(GBP)12m. This high tax figure is due to the tax allowable costs relating to
the AbilityOne gain and Centerpulse being significantly lower than the book
costs.
Operating cash flow before rationalisation and acquisition integration
outgoings and Centerpulse costs was (GBP)170m, which represents 77% of
operating profit. Net debt was reduced by (GBP)104m from net cash flow and
by (GBP)46m from currency benefits, due to the weaker US dollar. Net debt
closed at (GBP)127m and gearing at 20%.
Dividend
The Board has recommended a final dividend of 3.10p, which together with the
interim dividend of 1.85p, makes a total for the year of 4.95p. The final
dividend will
4
be paid on 14 May 2004 to shareholders on the register at the
close of business on 23 April 2004. Shareholders may participate in the
company's dividend reinvestment plan.
Operating Review
Smith & Nephew introduced a new corporate brand identity during the year that
reinforces the company's profile and visibility in its specialist markets and
reflects the new Smith & Nephew that has emerged from four years of strategic
transformation. The brand emphasises the company's commitment to advanced
medical devices that help healthcare professionals treat patients more
effectively and allow them to return to their normal lives faster.
We continue to invest both in technologies that differentiate the Group from
its competitors and in sales forces to rapidly commercialise products in the
marketplace. Led by OXINIUM, our revolutionary orthopaedic bearing material,
as well as DERMAGRAFT, our bio-engineered human skin, we believe our strategy
of innovation will continue to drive our growth. We invested 6% of sales in
research and development across the business and 20% of sales were from new
products, defined as those introduced within the last three years. We continue
to invest in future technology opportunities, particularly bio-resorbable
materials, tissue engineering and non-invasive healing devices.
In the business reviews that follow, the sales growth percentages are in
underlying terms, that is they exclude the effects of currency translation and
acquisitions. We believe that underlying sales growth is meaningful because it
provides a consistent year-on-year measurement of business performance. Group
turnover and operating profit by business segment is set out in Note 1 of the
preliminary results.
Orthopaedics
Orthopaedics sales rose by 16%, demonstrating share gains in a market growing
at an estimated underlying 13% (excluding spine) and a performance that
continues to outpace the competition. Sales pricing in Orthopaedics
contributed approximately 3% to this growth. New products as a percentage of
sales were 25%.
The decision to create separate divisions for Reconstructive and Trauma was a
strategic move to generate greater customer focus. With experienced managers
responsible for sales, marketing and product development in each, we believe
that divisionalisation has resulted in increased momentum for Smith & Nephew
in Trauma in the US. During the year the business recruited 60 dedicated
Trauma sales representatives, with further plans for expansion in 2004 in the
US.
Reconstructive implant sales grew by 19%, following our aggressive expansion
of OXINIUM products into the market. The OXINIUM bearing material continues to
be a great success and has helped surgeons successfully treat younger implant
patients due to its wear reduction properties.
More than 30,000 knees made of OXINIUM have now been implanted into patients
and by the end of the year it was accounting for 40% of knee units being sold
by the
5
business in the US. Our Knee sales were up 24%, with our joint fluid therapy
product SUPARTZ contributing 3% to this growth.
Our Hips sales grew at 16% from the continued solid performance of our SYNERGY
and ECHELON platform systems and the introduction in 2003 of femoral heads
made of OXINIUM, which by the end of the year were accounting for 35% of hip
heads sold in the US.
Our Trauma sales grew by 10% and in the US were up by 13%. These results were
helped by excellent performances from the EXOGEN ultrasound bone stimulation
product, which was up 22%, and the JET-X unilateral fixator introduced in
2003.
The 2002 expansion of our reconstructive implant manufacturing facilities in
Memphis, Tennessee, came fully on stream in 2003.
We continue to see a manageable level of revision surgeries of our
macrotextured knee femoral component, with the number of reported revisions at
the end of January at 147.
Moving forward we believe Orthopaedics is well placed to step up its
underlying sales growth into high teens in 2004. This is based on our strong
product introduction programme, including a ceramic-on-ceramic hip and a
revision knee made of OXINIUM, as well as the continued penetration of the
entire OXINIUM family of products globally. We also believe, based on a strong
exit rate in 2003, that continued investment in US sales specialisation and
new products will drive accelerated growth in Trauma.
Endoscopy
Endoscopy sales grew by 4% with a disappointing decline of 2% in the US, its
largest market, but double-digit growth was achieved outside the US.
Nevertheless, the business increased its operating margins during the year
from good expense control and by accelerating the integration of the ORATEC
acquisition.
The business was adversely affected in the US by two market issues - increased
reprocessing and re-use of arthroscopic resection blades and decreased
business from one of its largest customers, HealthSouth. With respect to blade
re-use, we have launched an educational campaign that features research
highlighting the risks of this practice to hospitals and clinicians in the US.
The issue of blade re-use is expected to continue in 2004 but the impact on
the growth of the business is expected to moderate.
Endoscopy's sales growth was also affected by its decision to defer two
product launches into 2004 - the digital scanning camera and the next
generation varicose vein removal system. Clinical evaluations identified the
opportunity to make improvements prior to broader launch. Both of these
products are currently being rolled out into the marketplace and we expect
them to increase overall sales growth.
6
Sales of our knee and shoulder repair products grew by 18%, while ORATEC
products produced 17% growth, helping us to maintain our market leadership
position in arthroscopy with a market share of 29%.
Jim Taylor was appointed President of the Endoscopy business in November,
replacing Ron Sparks, who left to take up another post. Mr Taylor was formerly
head of Smith & Nephew's international markets.
Under new leadership, we believe the Endoscopy business is well placed to
regain sales momentum to high single digits from our programme to combat the
re-use of blades in the US and a strong product launch programme, particularly
the new camera system.
Advanced Wound Management
Advanced Wound Management sales grew by 9%, maintaining its leadership
position with 20% of the market for advanced treatments for hard-to-heal
wounds. It further developed the concept of wound bed preparation as a new
clinical and scientific platform and DERMAGRAFT and TRANSCYTE bio-engineered
human tissue products were integrated successfully into the US business.
DERMAGRAFT achieved its target with sales of (GBP)7m. Sales of our ALLEVYN
family of products continued to grow strongly at 20% and ACTICOAT, our
silver-based antimicrobial dressing, accelerated its sales growth to 55%.
To meet current and future demand, we completed the first phase of a
manufacturing expansion plan at our advanced wound care plant in Largo,
Florida, and the construction phase of our facilities expansion in Hull,
England.
The Group launched a new enzymatic wound bed preparation product, GLADASE,
following the termination of a supply arrangement for our previous US product,
SANTYL. This adversely impacted sales in the second half of 2003 and will
continue to do so in 2004 as we switch to the new product.
In January 2004 we announced the acquisition of VERSAJET, a fluid jet
debridement system, from HydroCision Inc., to add to our growing range of
advanced wound bed preparation products.
Advanced Wound Management is well placed to grow its business in high single
digits in 2004 from the growing penetration of its advanced wound care
products in the market, despite the first-half impact from the changeover to
GLADASE.
BSN Medical and AbilityOne
BSN again grew its profits and improved its operating margins. Towards the end
of the year BSN announced the acquisition of the fracture casting and
splinting business of DePuy, Inc., a Johnson & Johnson company, funded by its
own bank facilities. This furthers our strategy to establish BSN as a major
independent medical supplies company.
7
During the year we sold our remaining interest in the AbilityOne Corporation
rehabilitation business for (GBP)52m in cash.
Outlook
The markets on which the Group focuses continue to demonstrate robust growth
and will benefit for many years to come from an ageing population, active
lifestyles and the development of less invasive techniques in orthopaedics and
endoscopic surgery. Our continuing innovation in advanced wound care products
and the potential for further penetration of moist wound healing and wound bed
preparation techniques should fuel expansion of this market.
Smith & Nephew continues to achieve strong sales growth in these markets and
is demonstrating its ability to grow market share in Orthopaedics and maintain
market leadership in Endoscopy and Advanced Wound Management. We believe that
we are well placed to achieve strong underlying sales growth in 2004 and we
will continue to invest in expanding our sales force, with 10% growth planned
in 2004. We also intend to invest in research and development and
manufacturing capacity where necessary and pursue acquisitions that strengthen
our long-term prospects.
Our aim is to accelerate underlying sales growth within the Orthopaedics
business to high teens and to grow Endoscopy and Advanced Wound Management
sales in high single digits. We also aim to increase operating margins by
around 1%.
With a positive backdrop for each of our businesses, we believe we are
well-placed to sustain our underlying mid-teens EPSA growth target going
forward.
Employees
We would like to thank all Smith & Nephew employees around the world for their
contributions to our achievements in 2003, and in particular, for the
commitment each of them bring to their role in helping patients around the
world get back to their normal lives. We especially thank Group Technology
Director and Group Executive Committee ("GEC") member Dr. Alan Suggett for his
years of contribution and wish him much success in retirement. Dr. Peter
Arnold assumed the role of Group Technology Director at the beginning of the
year and joins the GEC. Peter Huntley, formerly Group Director of Business
Development and a member of GEC, has assumed the role of head of international
markets and will lead 22 country markets for the Orthopaedics, Endoscopy and
Wound Management businesses.
US Investors
In order to facilitate further investment by US investors, the company changed
the ratio of its ADSs, traded on the New York Stock Exchange, from one ADS for
every 10 ordinary shares to one ADS for every 5 ordinary shares on 15 December
2003. For the ADS holder, the ratio change had the same effect as a
two-for-one stock split and should serve to improve liquidity in the company's
ADS's traded in the United States. There was no change to the company's
ordinary shares.
8
To facilitate more timely communication with this growing group of investors,
the company has also established a US investor relations contact in New York
in addition to its primary function in London.
US investors on our share register increased from 22% to 30% in 2003.
Reporting
The company announced that beginning in 2004 it will report its results on a
quarterly basis, in line with its peer group, which is almost exclusively
based in the US. Quarterly information for 2003 is included later in this
document. The company will also combine its UK Annual Report and Accounts and
US Form 20-F into one document, commencing with our 2003 report due to be
distributed in March 2004.
About Us
Smith & Nephew (LSE: SN, NYSE:SNN) is one of the world's leading medical
device companies, specialising in Orthopaedics, Endoscopy and Advanced Wound
Management products. Smith & Nephew ranks as the global leader in arthroscopy
and advanced wound management and is the fastest growing full-line
orthopaedics company in the world.
Smith & Nephew is dedicated to helping improve people's lives. The company
prides itself on the strength of its relationships with its surgeon and
professional healthcare customers, with whom its name is synonymous with the
high standards of performance, innovation and trust. The company has over
7,000 employees and operates in 32 countries around the world, generating
sales of nearly (GBP)1.2 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 planned growth in our business and in our
operating margins discussed under "Outlook" are forward-looking statements.
These statements, as well as the phrases "aim", "plan", "intend",
"anticipate", "well-placed", "believe", "estimate", "expect", "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 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 20-F, 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
9
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
10
SMITH & NEPHEW plc
2003 PRELIMINARY RESULTS continued
Unaudited Group Profit and Loss Account for the Year Ended 31 December 2003
---------------------------------------------------------------------------
Notes 2003 2002
(GBP)m (GBP)m
Turnover 1
Continuing operations 1,178.9 1,083.7
Discontinued operations 2 - 26.2
------- -------
Group turnover 1,178.9 1,109.9
Share of joint venture 163.9 155.0
------- -------
1,342.8 1,264.9
======= =======
Operating profit 1
Continuing operations
- before goodwill amortisation and exceptional items 220.7 196.0
- goodwill amortisation* (18.5) (17.5)
- exceptional items - Centerpulse costs* 3 (17.6) -
- exceptional items - other* 3 (4.8) (29.9)
-------- --------
179.8 148.6
Discontinued operations 2 - 2.1
-------- --------
179.8 150.7
Share of operating profit of the joint venture
- before exceptional items 22.7 19.6
- exceptional items* 4 (2.7) (2.6)
-------- --------
199.8 167.7
Share of operating profit of the associated undertaking 4.8 4.9
-------- --------
204.6 172.6
Net profit on disposals of discontinued operations* 2 - 18.0
Net profit on disposal of the associated undertaking* 5 31.5 -
-------- --------
Profit on ordinary activities before interest 236.1 190.6
Interest payable 6 (6.0) (12.7)
-------- --------
Profit on ordinary activities before taxation 230.1 177.9
Taxation 7 82.0 65.8
-------- --------
Attributable profit for the year 148.1 112.1
Ordinary dividends 8 46.1 44.6
-------- --------
Retained profit for the year 102.0 67.5
======== ========
Basic earnings per ordinary share 9 15.92p 12.11p
Diluted earnings per ordinary share 9 15.82p 12.02p
*Results before goodwill amortisation and exceptional items 10
Profit before taxation (GBP)242.2m (GBP)209.9m
Adjusted basic earnings per ordinary share 18.49p 16.02p
Adjusted diluted earnings per ordinary share 18.38p 15.89p
11
SMITH & NEPHEW plc
2003 PRELIMINARY RESULTS continued
Abridged Unaudited Group Balance Sheet as at 31 December 2003
-------------------------------------------------------------
Restated(B)
2003 2002
(GBP)m (GBP)m
Fixed assets
Intangible fixed assets 269.4 317.2
Tangible fixed assets 257.6 255.8
Investment in joint venture(A) 121.6 115.0
Investment in associated undertaking - 8.5
Investments 5.0 5.0
------ -----
653.6 701.5
------ -----
Working capital
Stocks 230.6 229.5
Debtors 334.5 280.7
Cash 26.0 22.5
Creditors (317.2) (313.1)
------ -------
273.9 219.6
Borrowings (196.5) (316.1)
Provisions - deferred taxation (61.9) (56.0)
- other (28.3) (32.1)
------ -------
Shareholders' funds 640.8 516.9
====== =======
(A) Investment in joint venture comprises goodwill (GBP)70.7 million,
share of gross tangible assets of (GBP)104.8 million less share of
gross liabilities (GBP)53.9 million.
(B) 2002 figures have been restated for the adoption of UITF 38 (Note 11).
Abridged Unaudited Movement in Shareholders' Funds
--------------------------------------------------
For the Year Ended 31 December 2003
-----------------------------------
Restated(B)
2003 2002
(GBP)m (GBP)m
Opening shareholders' funds as previously reported 517.3 404.6
Adjustment on adoption of UITF 38 (0.4) 0.4
Attributable profit 148.1 112.1
Dividends (46.1) (44.6)
Exchange adjustments 3.8 9.1
Goodwill on disposals 8.2 30.0
Movement in investment in own shares and related accruals 1.4 (0.8)
Movements relating to the QUEST - (2.3)
Issue of shares 8.5 8.4
------ -------
Closing shareholders' funds 640.8 516.9
====== =======
12
SMITH & NEPHEW plc
2003 PRELIMINARY RESULTS continued
Abridged Unaudited Group Cash Flow for the Year Ended 31 December 2003
----------------------------------------------------------------------
Restated
2003 2002
(GBP)m (GBP)m
Operating profit 179.8 150.7
Depreciation and amortisation(C) 80.2 94.4
Working capital and provisions (45.5) (34.1)
------- ------
Net cash inflow from operating activities(D) 214.5 211.0
Capital expenditure and financial investment (71.4) (85.4)
------- ------
Operating cash flow 143.1 125.6
Joint venture dividend 6.8 3.9
Interest (3.8) (10.2)
Taxation (52.2) (52.3)
Dividends (45.1) (43.5)
Acquisitions (4.3) (206.3)
Disposals 52.4 71.8
Joint venture formation - 5.7
Own shares purchased (1.3) (2.4)
Issue of shares 8.5 6.1
------ --------
Net cash inflow/(outflow) 104.1 (101.6)
Exchange adjustments 45.7 68.2
Opening net debt (276.9) (243.5)
------- --------
Closing net debt (127.1) (276.9)
======= ========
Gearing 20% 54%
(C) 2002 figures include (GBP)17.5 million provision on the Group's equity
investment in Advanced Tissue Sciences, Inc.
(D) After (GBP)9.6 million (2002 - (GBP)19.3 million) of outgoings on
rationalisation, acquisition integration and divestment costs and
(GBP)17.0 million on Centerpulse transaction costs.
Net debt includes (GBP)43.4m of net currency swap assets (2002 - net
currency swap assets of (GBP)16.7m).
Unaudited Statement of Total Recognised Gains and Losses
--------------------------------------------------------
For the Year Ended 31 December 2003
-----------------------------------
2003 2002
(GBP)m (GBP)m
Attributable profit 148.1 112.1
Currency translation differences on foreign currency net investments 3.8 9.1
------ ------
Total recognised gains and losses 151.9 121.2
====== ======
13
SMITH & NEPHEW plc
NOTES TO THE 2003 PRELIMINARY RESULTS
1. Segmental performance for the year ended 31 December 2003 was as follows:
Group Turnover by business segment
2003 2002 Underlying
(GBP)m (GBP)m sales growth
%
Orthopaedics 525.4 470.2 +16
Endoscopy 300.0 291.8 +4
Advanced Wound Management 353.5 321.7 +9
------- ------- ------
Continuing operations 1,178.9 1,083.7 +11
======= ======= ======
Group Operating Profit by business segment
2003 2002
(GBP)m (GBP)m
Orthopaedics 118.7 98.2
Endoscopy 59.5 53.8
Advanced Wound Management 42.5 44.0
------- -----
220.7 196.0
Goodwill amortisation (18.5) (17.5)
Exceptional items (22.4) (29.9)
------- ------
Continuing operations 179.8 148.6
======= ======
Group Turnover by geographic market
2003 2002 Underlying
(GBP)m (GBP)m sales growth
%
Europe* 369.9 318.7 +10
America 632.3 610.5 +11
Africa, Asia and Australasia 176.7 154.5 +11
-------- -------- -------
Continuing operations 1,178.9 1,083.7 +11
======== ======== =======
* Includes United Kingdom sales of (GBP)98.7 million (2002 - (GBP)87.3 million).
Underlying sales growth is sales calculated by eliminating the effects of
translational currency, acquisitions and disposals.
14
SMITH & NEPHEW plc
NOTES TO THE 2003 PRELIMINARY RESULTS continued
2. Discontinued operations in 2002 represent the results and net profit on
disposal of the rehabilitation business to AbilityOne.
3. Operating exceptional items within continuing operations include
(GBP)17.6 million of costs, net of a break fee of (GBP)10.8
million, written off as a consequence of the unsuccessful public offers
to purchase Centerpulse AG and InCentive Capital AG. Other exceptional
items comprise (GBP)4.8 million of acquisition integration costs
(2002 - (GBP)29.9 million: comprising (GBP)8.4 million of
acquisition integration costs, (GBP)17.5 million provision against
the Group's equity investment in Advanced Tissue Sciences, Inc. and
(GBP)4.0 million costs of rationalisation consequent on the
contribution of businesses to BSN Medical and manufacturing
rationalisation).
4. The group's share of exceptional items of the joint venture relates to
manufacturing rationalisation costs of BSN Medical.
5. Net profit on disposal of the associated undertaking represents the
disposal of the 21.5% equity interest in AbilityOne in September 2003.
This comprised a gain of (GBP)39.7 million less (GBP)8.2 million of
acquisition goodwill previously set-off against reserves.
6. Interest includes (GBP)1.5 million (2002 - (GBP)1.6 million) in
respect of the group's share of the net interest charge of BSN Medical
and (GBP)0.7 million (2002 - (GBP)0.9 million) in respect of the
Group's share of the net interest charge of AbilityOne.
7. Taxation of (GBP)70.2 million (2002 - (GBP)61.6 million) arises on
the profit before goodwill amortisation and exceptional items, an
effective rate of 29% (2002 - 29%) of which (GBP)6.8 million (2002 -
(GBP)5.7 million) arises in BSN Medical and (GBP)1.3 million (2002
- (GBP)1.0 million) arises in AbilityOne. Taxation on the net gain on
disposal is (GBP)16.1 million (2002 - (GBP)16.9 million) and tax
relief of (GBP)4.3 million (2002 - (GBP)12.7 million) arises as a
consequence of the exceptional costs of rationalisation and acquisition
integration of which (GBP)0.8 million (2002 - (GBP)0.6 million) is
in BSN Medical.
8. A final dividend of 3.10 pence per ordinary share is recommended (2002
- 3.00 pence per ordinary share) which, together with the interim
dividend of 1.85 pence per ordinary share (2002 - 1.80 pence) paid on
12 September 2003, makes a total for the year of 4.95 pence (2002 -
4.80 pence). The final dividend is payable on 14 May 2004 to
shareholders whose names appear on the register at the close of
business on 23 April 2004. Shareholders may participate in the dividend
re-investment plan.
9. The basic average number of ordinary shares in issue was 930 million
(2002 - 926 million). The diluted average number of ordinary shares
in issue was 936 million (2002 - 933 million).
15
SMITH & NEPHEW plc
NOTES TO THE 2003 PRELIMINARY RESULTS continued
10. Profit before taxation, goodwill amortisation and exceptional items and
adjusted earnings per ordinary share are calculated as follows:
2003 2002
(GBP)m (GBP)m
Profit on ordinary activities before taxation 230.1 177.9
Adjustments:
Continuing operations: goodwill amortisation 18.5 17.5
Continuing operations: exceptional items - Centerpulse costs 17.6 -
Continuing operations: exceptional items - other 4.8 29.9
Share of joint venture exceptional items 2.7 2.6
Net profit on disposals of discontinued operations - (18.0)
Net profit on disposal of the associated undertaking (31.5) -
------ -------
Profit before taxation, goodwill amortisation and exceptional items 242.2 209.9
Taxation on profit before goodwill amortisation and exceptional items (70.2) (61.6)
------ -------
Earnings before goodwill amortisation and exceptional items 172.0 148.3
======= ========
Adjusted basic earnings per ordinary share 18.49p 16.02p
======= ========
Adjusted diluted earnings per ordinary share 18.38p 15.89p
======= ========
11. The adoption of UITF 38 has required the investment in own shares and
related accruals to be reclassified in the balance sheet as a result of
which prior period amounts have been restated.
12. This financial statement does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The financial
information for the year ended 31 December 2002 has been extracted from
the full financial statements of Smith & Nephew plc which have been
filed with the Registrar of Companies. The auditor's report on those
accounts was unqualified.
Approved by the Board on 5 February 2004
16
SMITH & NEPHEW plc
2003 QUARTERLY RESULTS
Quarter Quarter Quarter Quarter
One Two Three Four Full Year
(GBP)m (GBP)m (GBP)m (GBP)m (GBP)m
Turnover
Orthopaedics 126.4 133.6 126.5 138.9 525.4
Endoscopy 71.9 76.9 72.2 79.0 300.0
Advanced Wound Management 78.9 89.6 90.2 94.8 353.5
------ -------- -------- -------- ---------
Continuing 277.2 300.1 288.9 312.7 1,178.9
====== ======== ======== ======== =========
Operating Profit
Orthopaedics 27.5 30.9 25.4 34.9 118.7
Endoscopy 12.4 15.5 13.1 18.5 59.5
Advanced Wound Management 5.2 11.6 12.4 13.3 42.5
------ -------- ------- --------- ---------
45.1 58.0 50.9 66.7 220.7
Share of BSN 4.7 5.2 6.6 6.2 22.7
Share of AbilityOne 1.8 1.6 1.4 - 4.8
Interest payable (1.8) (2.2) (1.7) (0.3) (6.0)
------ -------- ------- --------- ---------
Profit before taxation, goodwill amortisation and 49.8 62.6 57.2 72.6 242.2
exceptional items
Goodwill amortisation (4.7) (4.7) (4.6) (4.5) (18.5)
Exceptional items (4.7) (0.2) 12.7 (1.4) 6.4
------ -------- ------- --------- ---------
Profit before taxation 40.4 57.7 65.3 66.7 230.1
Taxation on profit before exceptional items (14.3) (18.3) (16.7) (20.9) (70.2)
Taxation on exceptional items 1.0 0.7 (14.0) 0.5 (11.8)
------ -------- ------- --------- ---------
27.1 40.1 34.6 46.3 148.1
====== ======== ======= ========= =========
Average shares 928 930 930 931 930
Basic earnings per ordinary share 2.92p 4.31p 3.72p 4.97p 15.92p
Adjusted basic earnings per ordinary share 3.83p 4.76p 4.35p 5.55p 18.49p
Underlying sales growth
Orthopaedics 14% 18% 16% 16% 16%
Endoscopy 3% 7% 2% 4% 4%
Advanced Wound Management 7% 9% 10% 9% 9%
------ -------- ------- --------- ---------
9% 12% 10% 10% 11%
====== ======== ======= ========== ==========