Second Quarter Trading and First Half 2016 Results

First half revenue increased 3%, led by 10% growth in Sports Medicine Joint Repair

Smith & Nephew plc (LSE: SN, NYSE:SNN) results for second quarter and first half ended 2 July 2016:

For a full copy of the announcement, with accounts, please click here (PDF 358 KB)

	Trading2				Reported
	2 July 2016	27 June 2015	Underlying growth		2 July 2016	27 June 2015	Reported growth
	$m	$m			$m	$m
Q2 Results1
Revenue	1,191	1,168	2%		1,191	1,168	2%
H1 Results1
Revenue	2,328	2,272	3%		2,328	2,272	2%
Trading profit	483	512	-3%
Operating profit					357	439	-19%*
Trading/operating profit margin (%)	20.8	22.5	-170bps		15.3	19.3	-400bps*
EPSA/ EPS (cents)	37.4	39.1			27.0	33.0

_{*H1 2015 includes a one-off $45 million gain from patent infringement judgment (see Note 8)}

Q2 Highlights¹

• Q2 revenue was $1,191 million, up 2% on an underlying and reported basis
• Revenue growth of 3% in the Established Markets, with US up 4%
• Emerging Markets revenue declined -2%, with double-digit growth in most markets offset by continued weakness in China and the Gulf States
• Strong revenue growth from Sports Medicine Joint Repair and Knee Implant franchises
• Blue Belt surgical robotics integration on-track, with first Total Knee case completed
• $350 million divestment of Gynaecology and associated $300 million share buy-back announced

H1 Highlights¹

• H1 revenue was $2,328 million, up 3% underlying and 2% on a reported basis, with -2% currency headwind partially offset by 1% benefit from acquisitions
• H1 Trading profit was $483 million, with Trading profit margin of 20.8% (2015 H1: 22.5%) primarily reflecting the expected significant first half transactional currency headwinds
• H1 operating profit was $357 million, with operating margin of 15.3%, a reduction of 400bps due primarily to a $45 million gain from legal judgement recognised in H1 2015
• Interim Dividend of 12.3¢ per share (2015: 11.8¢)

Olivier Bohuon, Chief Executive Officer of Smith & Nephew, said:

“Q2 saw the continuation of many of the trends seen in the previous period, including growth of 10% in Sports Medicine Joint Repair and 5% in Knee Implants. The Emerging Markets improved from the previous quarter, despite conditions in China and the Gulf States remaining challenging, as previously highlighted.  We expect our performance in China to begin to improve in the second half.

“For the first half of 2016 we delivered 3% revenue growth. The modest reduction in Trading profit was primarily due to the expected transactional currency headwind first signalled in 2015.

“The planned sale of our Gynaecology business demonstrates our disciplined strategic approach to capital deployment. More broadly, with strong core businesses, a growing pipeline of innovative products boosted by the recent acquisition of the robotics business Blue Belt Technologies, and more efficient operations, we are confident in our positioning and long-term prospects.”

Analyst conference call

An analyst meeting and conference call to discuss Smith & Nephew’s second quarter trading and first half 2016 results for the period ended 2 July 2016 will be held today, Thursday 28 July at 9.00am BST / 4.00am EDT. This will be webcast live and available for replay shortly after. The details can be found on the Smith & Nephew website at www.smith-nephew.com/results.

Enquiries 

Investors / Analysts
Ingeborg Øie
Smith & Nephew plc
+44 (0) 20 7960 2285 

Media
Charles Reynolds
Smith & Nephew plc
+44 (0) 20 7401 7646 

Ben Atwell / Matthew Cole
FTI Consulting
+44 (0) 20 3727 1000 

Notes

1. Unless otherwise specified as ‘reported’ all revenue growth throughout this document is ‘underlying’ after adjusting for the effects of currency translation and including the comparative impact of acquisitions and excluding disposals. All percentages compare to the equivalent 2015 period.
   
   Underlying revenue growth is used to compare the revenue in a given period to the comparative period on a like-for-like basis.  Underlying revenue growth reconciles to reported revenue growth, the most directly comparable financial measure calculated in accordance with IFRS, by making adjustments for the effect of acquisitions and disposals and the impact of movements in exchange rates (currency impact), as described below.
   
   The effect of acquisitions and disposals measures the impact on revenue from newly acquired business combinations and recent business disposals. This is calculated by comparing the current year, constant currency actual revenue (which include acquisitions and exclude disposals from the relevant date of completion) with prior year, constant currency actual revenue, adjusted to include the results of acquisitions and exclude disposals for the corresponding period in the prior year.
   
   Currency impact measures the increase/decrease in revenue resulting from currency movements on non-US Dollar sales and is measured as the difference between: 1) the increase/decrease in current year revenue translated into US Dollars at the current year average rate and the prior year revenue translated at the prior year average rate; and 2) the increase/decrease being measured by translating current and prior year revenue into US Dollars using a constant fixed rate.


2. Certain items included in ‘Trading results’, such as trading profit, trading profit margin, trading cash flow, EPSA and underlying growth are non-IFRS financial measures.  The non-IFRS financial measures reported in this announcement are explained in Note 8 and are reconciled to the most directly comparable financial measure prepared in accordance with IFRS. Reported results represent IFRS financial measures as shown in the Condensed Consolidated Interim Financial Statements.

Forward calendar

The Q3 Trading Report will be released on 3 November 2016.

About Smith & Nephew

Smith & Nephew is a global medical technology business dedicated to supporting healthcare professionals in their daily efforts to improve the lives of their patients. With leadership positions in Orthopaedic Reconstruction, Advanced Wound Management, Sports Medicine and Trauma & Extremities, Smith & Nephew has around 15,000 employees and a presence in more than 100 countries. Annual sales in 2015 were more than $4.6 billion. Smith & Nephew is a member of the FTSE100 (LSE:SN, NYSE:SNN).

For more information about Smith & Nephew, please visit our corporate website www.smith-nephew.com, follow @SmithNephewplc on Twitter or visit SmithNephewplc on Facebook.com.

Forward-looking Statements

_{This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. For Smith & Nephew, these factors include: economic and financial conditions in the markets we serve, especially those affecting health care providers, payers and customers; price levels for established and innovative medical devices; developments in medical technology; regulatory approvals, reimbursement decisions or other government actions; product defects or recalls or other problems with quality management systems or failure to comply with related regulations; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; disruption to our supply chain or operations or those of our suppliers; competition for qualified personnel; strategic actions, including acquisitions and dispositions, our success in performing due diligence, valuing and integrating acquired businesses; disruption that may result from transactions or other changes we make in our business plans or organisation to adapt to market developments; and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. 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. Any forward-looking statement is based on information available to Smith & Nephew as of the date of the statement. All written or oral forward-looking statements attributable to Smith & Nephew are qualified by this caution. Smith & Nephew does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Smith & Nephew's expectations.}

_{◊ Trademark of Smith & Nephew.  Certain marks registered US Patent and Trademark Office.}