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 11, 2003
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
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[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: 12
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 11, 2003 By: /s/ Paul Chambers
-------------------
Paul Chambers
Company Secretary
2
7 February 2003
For release at 12 noon
SMITH & NEPHEW SUSTAINS STRONG GROWTH
Smith & Nephew plc, the global medical devices company, announces its
preliminary results for the year ended 31 December 2002.
Key Points
o Underlying sales growth 14%
o Acquisitions add another 4% to sales growth
o Pre-goodwill amortisation earnings per share up 15%*
o Orthopaedics underlying growth at market leading 20%
o Outlook remains positive
*Before exceptional items
Dudley Eustace, Chairman, said: "Smith & Nephew has again delivered a strong
performance in its business segments of Orthopaedics, Endoscopy, and Advanced
Wound Management. We are pleased with our results, as innovation in our
product offering and investment in our sales forces continues to deliver
above-market sales growth. Market growth remains buoyant and demographics and
lifestyle trends are positive. Against this background, we believe that we can
continue to deliver sustainable sales growth as well as improve our operating
margins."
Enquiries
Peter Hooley, Finance Director Tel: +44 (0) 20 7401 7646
Smith & Nephew plc
Angie Craig, Corporate Affairs Director Tel: +44 (0) 20 7401 7646
Smith & Nephew plc
David Yates Tel: +44 (0) 20 7831 3113
Financial Dynamics
A presentation for analysts will be held simultaneously at the City
Presentation Centre, 4 Chiswell Street, Finsbury Square, London EC1Y
4UP at 2pm GMT today and the Sheraton in New Orleans at 8am CST.
The meetings will be webcast live and will be
available on demand shortly after the close
of the meetings at
http://www.smith-nephew.com/prelims
The presentation may also be heard by dialling +44 (0)20 7984 7576
(for Europe); (913) 981 5542 (for US)
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
Trading results
In 2002 we achieved our targets within the Orthopaedics, Endoscopy, and
Advanced Wound Management markets. Each of Smith & Nephew's businesses
strengthened its positions in the markets in which it operates through a
combination of sales growth, new products and technology acquisitions.
Ongoing sales for the year rose a total of 15%, 14% from underlying sales
growth, 4% from businesses acquired during the year, less 3% of adverse
currency. Selling price increases accounted for approximately 1% of underlying
sales growth. BSN Medical, our joint venture with Beiersdorf AG, and
AbilityOne Corporation ("AbilityOne"), the rehabilitation business in which we
hold a 21 1/2% interest, traded successfully.
During the course of the year we acquired Oratec Interventions, Inc., a
leading radio frequency (RF) arthroscopy and spinal business. We also acquired
the remaining half of our Dermagraft and TransCyte joint arrangements from
Advanced Tissue Sciences, Inc., ("ATS") and completed our restructuring
programme by disposing of our rehabilitation business to AbilityOne.
Profit before exceptional items and tax amounted to GBP192m, a 13%
increase on 2001. This comprised GBP196m of operating profit from ongoing
operations, before GBP18m of goodwill amortisation, GBP2m profit from
discontinued operations, GBP25m profit from the BSN Medical joint venture
and interest in AbilityOne, less GBP13m of interest costs.
We achieved an ongoing operating margin before exceptional items of 16.5%,
despite the dissynergies of the restructuring divestments of this and last
year. The underlying margin increased by 0.7%. Before goodwill amortisation
the margin was 18.1%.
EPS, tax, exceptional items and cash flow
Earnings per share before exceptional items were 14.13p, an increase on 2001
of 10% and before goodwill amortisation they were 16.02p, an increase of 15%.
Adjusting for the dilutive effects of the disposals, the underlying increase
in earnings per share before exceptional items was 19%.
Exceptional items include an GBP18m gain on the disposal of
Rehabilitation, less GBP15m of rationalisation and acquisition integration
costs. Additionally, we wrote off the whole of our GBP17m holding of ATS
shares following its filing for bankruptcy. The net exceptional loss was
therefore GBP14m on which there was a GBP4m tax charge because of the
disposal gain.
Operating cash flow was GBP123m after GBP19m of rationalisation and
acquisition integration outgoings, which is a profit to cash conversion ratio
of 72% before those items. The proceeds of the divestments of GBP72m were
predominantly for Rehabilitation, which partly offset the total cost of
acquisitions of GBP206m. Net debt closed at GBP277m.
Dividend
The Board recommends a final dividend of 3.00p, which together with the
interim dividend of 1.80p, makes a total for the year of 4.80p. The dividend
will be paid on 16 May 2003 to shareholders on the register at the close of
business on 22 April 2003. Shareholders may participate in the company's
dividend reinvestment plan.
Reporting
To bring us in line with our peer group medical technology companies, most of
which are in the US, we have commenced reporting operating profit before the
amortisation of goodwill and earnings per share before exceptional items and
such amortisation. We are also reporting operating profit segmented between
our global business units on the same basis. This discloses operating margins
at Orthopaedics of 21%, at Endoscopy of 18% and at Advanced Wound Management
of 14%.
Operating review
Market growth remains buoyant and demographics and lifestyle trends remain
positive industry indicators. Healthcare expenditure continues to grow in all
our major markets. Technology is expanding the marketplace through the growth
of less invasive and longer lasting surgical techniques and implants. With the
introduction of new orthopaedic bearing materials, led by Oxinium from Smith &
Nephew, surgeons are increasingly treating younger patient groups. New
techniques continue to simplify and make procedures faster, and less invasive
techniques in orthopaedics and endoscopy are taking hold as patients
increasingly drive demand. Technology advancements in treating hard-to-heal
wounds are driving strong growth in the active healing sector of the advanced
wound management market.
Our strategy of innovation and differentiation within our product portfolio
continues to drive sustainable sales growth. We also continue to invest in our
sales forces. During the year Orthopaedics increased their sales force by 12%,
Advanced Wound Management by 4%, while Endoscopy, including ORATEC, added 30%.
We plan to continue to increase our sales forces on average by 10% each year
for the foreseeable future.
To meet the demand created by sales growth in recent years, we completed two
manufacturing projects in 2002. Orthopaedics enlarged its manufacturing
facilities in Memphis, Tennessee, by about a third with the building of a
stand-alone knee manufacturing plant. Endoscopy increased manufacturing space
in two factories and moved its headquarters to a new facility in Andover,
Massachusetts. In addition, we commenced a project to expand manufacture of
our Advanced Wound Management products in Largo, Florida.
We invested 5 1/2% of sales revenue in research and development across our
businesses. In 2002, 18% of sales were from products introduced in the last
three years. Our group focus on unique methods to repair and heal the human
body has led to group wide research in three fields: bioresorbable materials
to facilitate healing and surgical reconstruction; tissue engineering to help
replace, repair and regenerate damaged tissue; and non-invasive devices to
stimulate tissue repair.
Orthopaedics
Orthopaedics sales rose by an underlying 20%, and its performance continued to
outpace the market. Reconstructive implant sales grew by an impressive 20%,
boosted by continued surgeon response to the Oxinium knee products added to
the portfolio in 2002. We once again recorded industry-leading growth in this
sector, led by knee growth of 33%, 10% of which was contributed by the
introduction of our joint fluid therapy product, Supartz. Hip sales grew
strongly at 17% led by the continued growth in revision procedures, increased
penetration of our cross linked polyethylene liners and continued strength in
our platform hip systems including Synergy and Echelon. Trauma grew at 10%.
Sales pricing in Orthopaedics increased by 2%.
The Oxinium knee has been an outstanding success since its launch in 2001. We
have continued to invest in the Oxinium platform with a femoral hip head
launched this week, and in computer assisted surgery where we have received
regulatory approval for hip, knee and trauma applications. A unicompartmental
knee made of Oxinium will also be introduced in the second half of 2003.
We are creating two divisions within our orthopaedic business, Reconstruction
and Trauma. This initiative is aimed at sustaining our industry leading
performance by improving the focus on these separate market sectors. This
structure will enable us to bring technology to market faster and increase our
customer responsiveness and satisfaction. Each division will have
responsibility for developing global strategy and its own product development,
marketing and sales functions. They will share common manufacturing and
support organisations. The sales forces in major US cities will be specialised
into separate reconstructive and trauma units on a phased basis beginning in
the first quarter of this year.
Endoscopy
Endoscopy sales grew at an underlying 10%, with strong growth coming from
outside the US. The company acquired the ORATEC minimally invasive joint and
spine business in the year, which added 9% to sales growth and has given us a
leading position in radio frequency technology in arthroscopy.
Knee and shoulder ligament repair products grew particularly strongly at 21%,
making the group the market leader in arthroscopic repair. New repair products
were launched during the year to strengthen our position in the arthroscopy
market, including TwinFix, a specialised shoulder repair device, and FastFix,
a meniscal repair technique. New bioresorbable screws for ligament fixation
also performed well.
Electroblade has brought us a unique product that combines simultaneous
mechanical resection and radiofrequency coagulation of soft tissue. We also
introduced a bipolar cutting and ablation system for the Vulcan generator
platform and a thermal decompression catheter for herniated spinal discs. The
Digital Operating Room concept continued to gain ground with installations in
leading hospitals.
Advanced Wound Management
In its first full year of focus as an advanced wound management business, we
strengthened our world-leading position in advanced treatments for
hard-to-heal wounds. Underlying sales
growth was 11%, with the Allevyn product range achieving 21%. We have
successfully integrated into the business the advanced wound products of
Beiersdorf and the Acticoat silver product for burns acquired in 2001, and
these products are growing strongly.
Towards the end of the year, we secured 100% ownership of the Dermagraft and
TransCyte joint arrangement by acquiring ATS's 50% share. Reimbursement for
Dermagraft continues to progress well, with 88% of the outpatient population
now covered in the US. Sales of Dermagraft in its US launch year achieved
GBP3m.
Outlook
The markets on which we focus continue to demonstrate robust growth. Smith &
Nephew is achieving sales growth that outpaces the industry, and is
demonstrating its ability to grow share and position within the Orthopaedics,
Endoscopy, and Advanced Wound Management markets. In 2003, we will see the
impact of our strong ongoing sales and profit growth on our reported results
without the impact of divestments.
We have a leading range of technology and products that repair and heal the
human body. We will maintain our progress by investing in new and
differentiated technologies which bring benefits to patients, and in the
specialist sales forces to bring these products to the medical community. We
will continue to invest in our businesses by increasing sales force strength,
adding manufacturing capacity and enhancing new product development to
generate vigorous growth. We will also acquire businesses or technologies that
strengthen our long-term prospects.
We remain confident of delivering sustainable growth and believe we are well
placed to achieve our mid-teens underlying pre-goodwill amortisation EPS
growth target going forward.
SMITH & NEPHEW plc
2002 PRELIMINARY RESULTS continued
Group Profit and Loss Account for the Year Ended 31 December 2002
-----------------------------------------------------------------
Notes 2002 2001
GBPm GBPm
Turnover 1
Ongoing operations 1,083.7 943.0
Operations contributed to the joint venture 2 - 35.3
------- -------
Continuing operations 1,083.7 978.3
Discontinued operations 3 26.2 103.4
------- -------
Group turnover 1,109.9 1,081.7
Share of joint venture 155.0 123.6
------- -------
1,264.9 1,205.3
======= =======
Operating profit 1
Ongoing operations
- before goodwill amortisation and exceptional items 196.0 170.8
- goodwill amortisation+ (17.5) (10.4)
- exceptional items* 5 (29.9) (19.3)
------- -------
148.6 141.1
Operations contributed to the joint venture
- before exceptional items - 3.6
- exceptional items* 5 - (1.8)
------- -------
Continuing operations 148.6 142.9
Discontinued operations 3 2.1 11.1
------- -------
150.7 154.0
Share of operating profit of the joint venture
- before exceptional items 19.6 12.8
- exceptional items* 6 (2.6) (5.0)
------- -------
167.7 161.8
Share of operating profit of the associated undertaking 4.9 -
------- -------
172.6 161.8
Discontinued operations - net profit on disposals* 3 18.0 49.2
------- -------
Profit on ordinary activities before interest 190.6 211.0
Interest payable 7 (12.7) (17.4)
------- -------
Profit on ordinary activities before taxation 177.9 193.6
Taxation 8 65.8 64.0
------- -------
Attributable profit for the year 112.1 129.6
Ordinary dividends 9 44.6 42.9
------- -------
Retained profit for the year 67.5 86.7
======= =======
Basic earnings per ordinary share 10 12.11p 14.07p
Diluted earnings per ordinary share 10 12.02p 13.95p
Profit before exceptional items (*) GBP192.4m GBP170.5m
Profit before goodwill amortisation and exceptional items (*+) 11 GBP209.9m GBP180.9m
Basic earnings per ordinary share before exceptional items (*) 14.13p 12.83p
Basic earnings per ordinary share before goodwill amortisation 16.02p 13.96p
and exceptional items (*+)
SMITH & NEPHEW plc
2002 PRELIMINARY RESULTS continued
Abridged Group Balance Sheet as at 31 December 2002
2002 2001
GBPm GBPm
Intangible fixed assets 317.2 187.8
Tangible fixed assets 255.8 245.0
Investment in joint venture (A) 115.0 114.0
Investment in associated undertaking(B) 8.5 -
Investments 8.2 25.7
----- -----
704.7 572.5
----- -----
Stocks 229.5 232.2
Debtors 280.7 266.8
Cash 22.5 26.4
Creditors (315.9) (342.8)
----- -----
216.8 182.6
Borrowings (316.1) (255.2)
Provisions - deferred taxation (56.0) (55.4)
- other (32.1) (39.9)
----- -----
Shareholders funds 517.3 404.6
===== =====
Currency swap assets and liabilities previously reported within cash and
borrowings have been reclassified to debtors and creditors respectively and
comparative figures have been restated.
(A) Investment in joint venture comprises goodwill GBP70.3 million, share
of gross tangible assets GBP106.2 million less share of gross
liabilities GBP61.5 million.
(B) Investment in associated undertaking comprises goodwill GBP15.4
million less share of net liabilities GBP6.9 million.
Abridged Movement in Shareholders' Funds
for the Year Ended 31 December 2002
2002 2001
GBPm GBPm
Opening shareholders funds 404.6 268.0
Attributable profit 112.1 129.6
Dividends (44.6) (42.9)
Exchange adjustments 9.1 (8.8)
Goodwill on disposals/operations
contributed to the joint venture 30.0 17.9
Unrealised gain on formation of the joint venture - 31.8
Movements relating to the QUEST (2.3) (2.1)
Issue of shares 8.4 11.1
----- -----
Closing shareholders' funds 517.3 404.6
===== =====
SMITH & NEPHEW plc
2002 PRELIMINARY RESULTS continued
Abridged Group Cash Flow for the Year Ended 31 December 2002
2002 2001
GBPm GBPm
Operating profit 150.7 154.0
Depreciation, amortisation and exceptional write-off+ 94.4 60.3
Working capital and provisions (35.8) (22.4)
----- -----
Net cash inflow from operating activities* 209.3 191.9
Capital expenditure and financial investment (86.1) (72.6)
----- -----
Operating cash flow 123.2 119.3
Joint venture dividend 3.9 -
Interest (10.2) (16.5)
Taxation (52.3) (76.2)
Dividends (43.5) (42.0)
Acquisitions (206.3) (69.3)
Disposals 71.8 61.7
Joint venture formation 5.7 12.6
Issues of ordinary share capital 6.1 9.0
----- -----
Net cash outflow (101.6) (1.4)
Exchange adjustments 68.2 (5.8)
Opening net debt (243.5) (236.3)
----- -----
Closing net debt (276.9) (243.5)
===== =====
Gearing 54% 60%
+ Includes goodwill amortisation of GBP17.5 million (2001 -
GBP10.4 million) and GBP17.5 million write-off of the group's
equity investment in Advanced Tissue Sciences, Inc.
* After GBP19.3 million (2001 - GBP23.5 million) of outgoings on
rationalisation, acquisition integration and divestment costs.
Net debt includes GBP16.7m of net currency swap assets (2001 - net
currency swap liabilities of GBP14.7m)
Statement of Total Recognised Gains and Losses
for the Year Ended 31 December 2002
2002 2001
GBPm GBPm
Attributable profit 112.1 129.6
Unrealised gain on formation of the joint venture - 31.8
Currency translation differences on foreign currency
net investments 9.1 (8.8)
----- -----
Total recognised gains and losses 121.2 152.6
===== =====
SMITH & NEPHEW plc
NOTES TO THE 2002 PRELIMINARY RESULTS
1. Segmental performance for the year ended 31 December 2002 was as follows:
Group turnover by business segment
2002 2001 Underlying
GBPm GBPm sales growth
Orthopaedics 470.2 404.6 20%
Endoscopy 291.8 252.8 10%
Advanced Wound Management 321.7 285.6 11%
------- ----- ---
Ongoing operations 1,083.7 943.0 14%
======= ===== ===
Group operating profit by business segment
2002 2001
GBPm GBPm
Orthopaedics 98.2 87.9
Endoscopy 53.8 46.8
Advanced Wound Management 44.0 36.1
------- -----
196.0 170.8
Goodwill amortisation (17.5) (10.4)
Exceptional items (29.9) (19.3)
------- -----
Ongoing operations 148.6 141.1
====== =====
Group turnover by geographic market
2002 2001 Underlying
GBPm GBPm sales growth
Europe* 318.7 268.4 12%
America 610.5 534.9 15%
Africa, Asia and Australasia 154.5 139.7 16%
------- ----- ---
Ongoing operations 1,083.7 943.0 14%
======= ===== ===
* Includes United Kingdom sales of GBP87.3 million (2001 - GBP77.5 million).
Underlying sales growth is sales growth adjusted to eliminate the effect of translational
currency, acquisitions and disposals.
SMITH & NEPHEW plc
NOTES TO THE 2002 PRELIMINARY RESULTS continued
2. On 1 April 2001, the casting and bandaging and traditional woundcare
businesses were contributed to a joint venture with Beiersdorf AG called
BSN Medical in return for a 50% equity interest. The results of these
businesses prior to contribution represent operations contributed to the
joint venture in the group profit and loss account.
3. On 27 March 2002, the rehabilitation business was disposed of to
AbilityOne Corporation (AbilityOne) for GBP71.3 million cash and a
21.5% equity interest in the combined business. AbilityOne is accounted
for as an associated undertaking under the net equity method. The results
of rehabilitation prior to disposal represent discontinued operations.
The net profit on disposals of GBP18.0 million is stated after
deducting GBP30.0 million of goodwill previously written off to
reserves on acquisition. Discontinued operations in 2001 also include the
results and net profit on disposal of the ear, nose and throat business.
4. On 28 March 2002, ORATEC Interventions, Inc., a company that applies
radio frequency energy to treat joint and spine disorders, was acquired
for a net cost of GBP191.2 million. The fair value of assets acquired
was GBP25.5 million and goodwill arising was GBP165.7 million. On
27 November 2002, the group acquired the remaining 50% interest in the
Dermagraft joint arrangements it held with Advanced Tissue Sciences, Inc.
5. Operating exceptional items within ongoing operations comprise a
GBP17.5 million write down against the group's trade investment in
Advanced Tissue Sciences, Inc., GBP4.0 million costs of
rationalisation consequent on the contribution of businesses to BSN
Medical and manufacturing rationalisation (2001 - GBP10.4 million)
and GBP8.4 million for the acquisition integration costs relating to
Oratec and Dermagraft (2001 - GBP8.9 million). Operating exceptional
items within operations contributed to the joint venture in 2001
represented manufacturing rationalisation costs.
6. The group's share of exceptional items of the joint venture relates to
manufacturing rationalisation costs of BSN Medical.
7. Interest includes GBP1.6 million (2001 - GBP0.9 million) in
respect of the group's share of the net interest charge of BSN Medical
and GBP0.9 million (2001 - nil) in respect of the group's share of
the net interest charge of AbilityOne.
8. Taxation of GBP61.6 million (2001 - GBP52.3 million) arises on
the profit before goodwill amortisation and exceptional items, an
effective rate of 29% (2001 - 29%) of which GBP5.7 million (2001 -
GBP3.9m) arises in BSN Medical and GBP1.0 million (2001 - nil)
arises in AbilityOne. Taxation on the net gain on disposal is GBP16.9
million (2001 - GBP17.7 million) and tax relief of GBP12.7
million (2001 - GBP6.0 million) arises as a consequence of the
exceptional costs of rationalisation and acquisition integration of which
GBP0.6 million (2001 - GBP1.4 million) is in BSN Medical.
9. A final dividend of 3.0 pence per ordinary share is recommended (2001 -
2.9 pence per ordinary share) which, together with the interim dividend
of 1.8 pence per share (2001 - 1.75 pence) paid on 15 November 2002,
makes a total for the year of 4.8 pence (2001 - 4.65 pence). The final
dividend is payable on 16 May 2003 to shareholders whose names appear on
the register at the close of business on 22 April 2003. Shareholders may
participate in the dividend re-investment plan.
SMITH & NEPHEW plc
NOTES TO THE 2002 PRELIMINARY RESULTS continued
10. The basic average number of ordinary shares in issue was 926 million
(2001 - 921 million). The diluted average number of ordinary shares in
issue was 933 million (2001 - 929 million).
11. Profit before goodwill amortisation and exceptional items states profit
on ordinary activities before taxation before charging goodwill
amortisation and exceptional items and before the net profit on the
disposal of discontinued operations. Earnings per ordinary share before
goodwill amortisation and exceptional items is based on the attributable
profit before accounting for these items and taxation on the exceptional
items.
12. This financial statement does not constitute the statutory accounts. It
has been extracted from the statutory accounts of Smith & Nephew plc on
which the auditors have given an unqualified report but which have not
yet been filed with the Registrar of Companies.
7 February 2003