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
August 5, 2002
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 whether the registrant by furnishing the
information contained in this Form 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: 15
1 August 2002
CONTINUED STRONG GROWTH FOR SMITH & NEPHEW
Smith & Nephew, the global advanced medical devices company, announces its
interim results for the half year ended 29 June 2002.
Key points:
o Underlying sales up 14%
o Acquisitions added another 4% to sales
o Profit before tax and exceptional items up 13%
o EPS before exceptional items up 11%, underlying EPS up 18%
o Further progress expected in second half
Dudley Eustace, Chairman, said : "All businesses are performing well and demand
for our products continues to be strong worldwide. Our sales performance was
robust in all our businesses and our Orthopaedics division was again the fastest
growing manufacturer of hip and knee implants. We are therefore well placed to
make further progress in the second half and beyond."
Enquiries:
Chris O'Donnell, Chief Executive Tel: +44 (0)20 7401 7646
Smith & Nephew plc
Peter Hooley, Finance Director Tel: +44 (0)20 7401 7646
Smith & Nephew plc
Margaret Stewart, Group Director Corporate Affairs Tel: +44 (0)20 7401 7646
Smith & Nephew plc
Jonathan Birt Tel: +44 (0)20 7831 3113
Financial Dynamics
A presentation for analysts will be held at the City Presentation Centre, 4
Chiswell Street, Finsbury Square, London EC1Y 4UP at 9.30am today. A
tele-conference call for analysts will be held at 3pm today: please call Mo
Noonan at Financial Dynamics on +44 (0)20 7831 3113 for details. The morning
meeting will be webcast as will the tele-conference at 3pm on
www.smith-nephew.com/interimreport. High resolution photographs are available to
the media free of charge at www.newscast.co.uk
2
Trading Results and Overview
Our markets throughout the world continued to be strong in the first half of
2002 and Smith & Nephew sustained its pace of growth. Demand for our products in
orthopaedics, endoscopy and advanced wound management continues to be strong.
For the third year running our orthopaedics business was the fastest growing
implant company.
Sales in our ongoing businesses again performed strongly, rising 17%. Within
this, underlying growth was 14%, aided by our programme of new product launches
and investment in sales forces. Sales price increases accounted for 1-1/2% of
underlying growth. Adverse currency translation reduced overall sales growth by
1%.
We are also selectively making acquisitions to augment our business base, and
these accounted for 4% of reported sales growth in the first half. As part of
this acquisition programme, we purchased ORATEC Interventions, Inc., in March,
in order to gain a strong base in radio frequency technology for minimally
invasive surgery.
In March, we completed our restructuring programme with the disposal of
Rehabilitation to AbilityOne for GBP71m paid in cash, plus a 21-1/2%
retained interest in the enlarged company so as to benefit from the substantial
value we believe will be created by combining the two businesses.
Ongoing margins of 16-1/2% are after absorbing 1% of dis-synergies from last
year's divestments and Rehabilitation this year and from incorporating goodwill
amortisation on the ORATEC acquisition.
Profit before tax and exceptional items amounted to GBP94m, an increase of
13%. This comprises GBP87m of operating profit from ongoing operations,
GBP2m of profit from discontinued operations (principally Rehabilitation),
an GBP11m share of the profits of BSN Medical and AbilityOne, less GBP6m
of interest cost. Amortisation of acquisition goodwill charged to operating
profit was GBP8m, of which GBP2m related to ORATEC.
3
Earnings per share, exceptional items and cash flow
The effective ordinary tax charge was 32%, resulting in earnings per share
before exceptional items of 6.89p, an 11% increase. Adjusting for the dilutive
effects of the disposals this and last year, the formation of the BSN Medical
joint venture and from incorporating goodwill amortisation on the acquisition of
ORATEC, the underlying increase in earnings per share before exceptional items
was 18%.
Exceptional items comprise profit on disposals of GBP19m, principally
Rehabilitation, less GBP9m of rationalisation and acquisition integration
costs and an GBP8m write down in the value of our equity investment in
Advanced Tissue Sciences, Inc.
Operating cash flow was GBP38m after GBP9m of outgoings on
rationalisation and acquisition integration. The net cost of acquisitions,
principally ORATEC, was GBP194m and the proceeds from disposing of
Rehabilitation were GBP71m. Net debt closed at GBP350m after benefiting
from GBP28m of currency translation.
Dividend
An interim dividend of 1.80 pence per share (2001 : 1.75 pence) will be paid on
15 November 2002 to shareholders on the register at the close of business on 18
October 2002. Shareholders may participate in the company's dividend
reinvestment plan.
Operating Review
Orthopaedics
Demand for hip and knee replacements and for trauma products shows no sign of
diminishing. Our orthopaedics business achieved increased underlying growth of
20%, maintaining its position as the fastest growing manufacturer of orthopaedic
implants.
4
Hip and knee implants grew at 27% and trauma sales grew 8%. New products Oxinium
and Supartz contributed 10% to implant sales growth, and took knees to a notable
37% growth. Hip sales grew at 16%.
Additional Oxinium knee components were launched in both the Genesis and Profix
ranges. We continued to invest in computer aided surgery, where we achieved a
510k approval from the FDA for knee procedures and extended our agreement for
the development of software and instrumentation with Medtronic.
The forthcoming retirement of Larry Papasan as President of the Orthopaedics
division and the appointment on 1 May of David Illingworth as his successor were
announced.
Endoscopy
The requirement for minimally invasive surgery for injuries, mainly caused by
sport, remains strong. Endoscopy achieved an underlying sales growth of 10% in
the first half, with the acquisition of ORATEC at the end of March contributing
an additional 6% to this. Arthroscopic repair performed strongly and Trivex, our
technique for varicose vein removal, also made a useful impact.
Integration of ORATEC is proceeding to plan, with cost savings on target. We
have already launched a bipolar radio-frequency resection system to complement
ORATEC's monopolar tissue shrinkage products.
We continue to improve the percentage of new products to sales in Endoscopy and
to date this year have achieved 15%. The addition of the new radio-frequency
products from ORATEC and our FasT-Fix and TwinFix suturing devices will
accelerate this still further.
Both the new headquarters in Andover, Massachusetts, and our extended Mansfield,
Massachusetts, manufacturing facility are now fully operational.
5
Advanced wound management
The growing population of elderly people underpins the strong demand for our
advanced wound healing products, a market we continue to lead. Sales in advanced
wound management grew at an underlying 11%, with a further 8% arising at the
half year from the acquisitions of Beiersdorf's advanced wound management
business and Acticoat last year.
Our lead product Allevyn again demonstrated strong sales growth of 23% and we
continue to develop this range to meet new needs. Our burns products continue to
do well and the global rollout of Acticoat, the silver-based dressing, is being
met with enthusiasm by wound management specialists and nurses.
Dermagraft, our bio-engineered dermis for patients with hard to heal diabetic
foot ulcers, received initial reimbursement approval in the US in April. Sales
and extension of reimbursement coverage across the US are meeting their
respective targets.
BSN Medical joint venture
At BSN, trading and integration rationalisation remains on target, with a
consequential improvement in profitability to a 12% margin.
Outlook
We are pleased with the progress of the Group and particularly with the strong
growth and increased market share in orthopaedics. Our investment in new
products and strengthened sales force is paying off. Our underlying margins
continue to improve and we expect this to continue in the second half of the
year.
The medical devices sector continues to demonstrate strong growth
characteristics and we expect to make further progress in the second half of the
year and beyond.
6
SMITH & NEPHEW plc
2002 INTERIM RESULTS continued
Unaudited Group Profit and Loss Account
for the Half Year Ended 29 June 2002
Year 2001
2001 2002 Restated#
GBP m Notes GBP m GBP m
Turnover 1,2
943.0 Ongoing operations 531.9 454.1
35.3 Operations contributed to the joint venture - 35.3
------- ------ ------
978.3 Continuing operations 531.9 489.4
103.4 Discontinued operations 3 26.2 58.4
------- ------ ------
1,081.7 Group turnover 558.1 547.8
123.6 Share of joint venture 79.3 41.9
------- ------ ------
1,205.3 637.4 589.7
======= ====== ======
Operating profit
Ongoing operations
160.4 - before exceptional items 87.1 77.7
(19.3) - exceptional items* 5 (15.3) (14.0)
------- ------ ------
141.1 71.8 63.7
Operations contributed to the joint venture
3.6 - before exceptional items 2 - 3.6
(1.8) - exceptional items* 5 - -
------- ------ ------
142.9 Continuing operations 71.8 67.3
11.1 Discontinued operations 3 2.1 6.9
------- ------ ------
154.0 73.9 74.2
Share of operating profit of the joint venture
12.8 - before exceptional items 2 9.4 4.0
(5.0) - exceptional items* 6 (1.3) (2.5)
------- ------ ------
161.8 82.0 75.7
- Share of operating profit of the associated
undertaking 3 1.4 -
------- ------ ------
161.8 83.4 75.7
49.2 Discontinued operations - net profit on disposals* 3 19.0 47.1
------- ------ ------
211.0 Profit on ordinary activities before interest 102.4 122.8
(17.4) Interest 7 (6.3) (9.5)
------- ------ ------
193.6 Profit on ordinary activities before taxation 96.1 113.3
64.0 Taxation 8 45.5 41.2
------- ------ ------
129.6 Attributable profit 50.6 72.1
42.9 Ordinary dividends 9 16.7 16.1
------- ------ ------
86.7 Retained profit 33.9 56.0
======= ====== ======
14.07p Basic earnings per ordinary share 10 5.46p 7.84p
13.95p Diluted earnings per ordinary share 10 5.42p 7.76p
Results before exceptional items (*)
GBP170.5m Profit before taxation 11 GBP93.7m GBP82.7m
12.83p Adjusted basic earnings per ordinary share 10 6.89p 6.20p
12.72p Adjusted diluted earnings per ordinary share 10 6.84p 6.14p
# See note 13
7
SMITH & NEPHEW plc
2002 INTERIM RESULTS continued
Abridged Group Balance Sheet as at 29 June 2002
Year 2001
2001 2002 Restated#
GBP m Notes GBP m GBP m
Fixed assets
187.8 Intangible assets 332.8 186.5
245.0 Tangible assets 248.9 233.5
114.0 Investment in joint venture/A/ 2 112.4 135.3
- Investment in associated undertaking/B/ 3 7.5 -
25.7 Investments 17.7 26.1
------- ------ ------
572.5 719.3 581.4
------- ------ ------
Working capital
232.2 Stocks 241.6 224.5
263.2 Debtors 280.4 277.3
(21.7) Creditors - acquisition consideration (18.2) (23.1)
(302.8) - other (303.1) (290.5)
------- ------ ------
170.9 200.7 188.2
(55.4) Provisions - deferred taxation (54.8) (55.6)
(39.9) - other (37.2) (47.3)
------- ------ ------
648.1 828.0 666.7
======= ====== ======
404.6 Share capital and reserves 477.9 369.1
243.5 Net borrowings 350.1 297.6
------- ------ ------
648.1 828.0 666.7
======= ====== ======
A Investment in joint venture comprises goodwill GBP71.3 million and share
of gross assets of GBP107.8 million less share of gross liabilities
GBP66.7 million.
B Investment in associated undertaking comprises goodwill GBP15.9 million
and share of gross assets of GBP12.5 million less share of gross
liabilities GBP20.9 million.
Abridged Movement in Shareholders' Funds
for the Half Year Ended 29 June 2002
Year 2001
2001 2002 Restated#
GBP m GBP m GBP m
268.0 Opening shareholders' funds as previously reported 404.6 329.6
- Adjustments on adoption of FRS 19 - (61.6)
------- ------ ------
268.0 Opening shareholders funds - restated 404.6 268.0
129.6 Attributable profit 50.6 72.1
(42.9) Dividends (16.7) (16.1)
(8.8) Exchange adjustments 6.0 (8.5)
17.9 Goodwill on disposals/operations contributed to the joint venture 30.0 17.9
31.8 Unrealised gain on formation of the joint venture - 31.8
(2.1) Movements relating to the QUEST (0.4) -
11.1 Issue of shares 3.8 3.9
------- ------ ------
404.6 Closing shareholders' funds 477.9 369.1
======= ====== ======
# See note 13
8
SMITH & NEPHEW plc
2002 INTERIM RESULTS continued
Abridged Group Cash Flow for the Half Year Ended 29 June 2002
Year 2001
2001 2002 Restated#
GBP m GBP m GBP m
154.0 Operating profit 73.9 74.2
60.3 Depreciation and amortisation/C/ 43.9 30.4
(22.4) Working capital and provisions (38.9) (42.1)
------- ------ ------
191.9 Net cash inflow from operating activities/D/ 78.9 62.5
(72.6) Capital expenditure and financial investment (41.2) (31.0)
------- ------ ------
119.3 Operating cash flow 37.7 31.5
- Joint venture dividend 2.2 -
(16.5) Interest (5.2) (9.3)
(76.2) Tax (29.7) (33.4)
(42.0) Dividends (26.8) (25.8)
(69.3) Acquisitions (193.5) (59.0)
61.7 Disposals 71.8 61.7
12.6 Joint venture formation 5.7 (4.2)
9.0 Issues of ordinary share capital 3.4 3.9
------- ------ ------
(1.4) Net cash outflow (134.4) (34.6)
(5.8) Exchange adjustments 27.8 (26.7)
(236.3) Opening net borrowings (243.5) (236.3)
------- ------ ------
(243.5) Closing net borrowings (350.1) (297.6)
======= ====== ======
C Includes goodwill amortisation of GBP8.1 million (GBP10.4 million for
full year 2001 and GBP4.5 million at the half year) and GBP8.0 million
exceptional write down against the group's equity investment in Advanced
Tissue Sciences, Inc.
D After GBP9.1 million (GBP23.5 million for full year 2001 and GBP12.2
million at the half year) of outgoings on rationalisation, acquisition
integration and divestment costs.
Statement of Total Recognised Gains and Losses
for the Half Year Ended 29 June 2002
Year 2001
2001 2002 Restated#
GBP m GBP m GBP m
129.6 Attributable profit 50.6 72.1
31.8 Unrealised gain on formation of the joint venture - 31.8
(8.8) Currency translation differences on foreign currency net investments 6.0 (8.5)
------- ------ ------
152.6 Total recognised gains and losses 56.6 95.4
======= ====== ======
# See note 13
9
SMITH & NEPHEW plc
NOTES TO THE 2002 INTERIM RESULTS
1. Segmental performance for the half year ended 29 June 2002 was as follows:
Group Turnover by product
Year
2001 2002 2001 Underlying
GBP m GBP m GBP m sales growth
404.6 Orthopaedics 235.8 199.4 20%
252.8 Endoscopy 141.7 123.2 10%
285.6 Advanced Wound Management 154.4 131.5 11%
------- ----- ----- ---
943.0 Ongoing operations 531.9 454.1 14%
===
35.3 Operations contributed to the joint venture - 35.3
103.4 Discontinued operations 26.2 58.4
------- ----- -----
1,081.7 558.1 547.8
======= ===== =====
Group turnover by geographic market
Year
2001 2002 2001 Underlying
GBP m GBP m GBP m sales growth
268.4 Europe* 155.6 130.6 13%
534.9 America 303.1 257.6 14%
139.7 Africa, Asia and Australasia 73.2 65.9 15%
------- ----- ----- ---
943.0 Ongoing operations 531.9 454.1 14%
===
35.3 Operations contributed to the joint venture - 35.3
103.4 Discontinued operations 26.2 58.4
------- ----- -----
1,081.7 558.1 547.8
======= ===== =====
* Includes United Kingdom sales of GBP40.8 million (GBP77.5 million for
full year 2001 and GBP37.0 million at the half year).
Underlying sales growth is sales growth adjusted to eliminate the effect
of translational currency, acquisitions and disposals.
10
SMITH & NEPHEW plc
NOTES TO THE 2002 INTERIM 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 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
disposal of GBP17.2 million is stated after deducting GBP30.0 million
of goodwill previously written off to reserves on acquisition. The
remaining gain of GBP1.8 million relates to adjustments in respect of
previous disposals. 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 consideration of GBP190.6 million. The fair value of assets
acquired was GBP26.9 million and goodwill arising was GBP163.7 million.
5. Operating exceptional items within ongoing operations comprise an
GBP8.0 million write down against the group's equity investment in
Advanced Tissue Sciences, Inc., GBP3.1 million costs of rationalisation
consequent on the contribution of businesses to BSN Medical and
manufacturing rationalisation (2001 half year GBP8.7 million; full year
GBP10.4 million) and GBP4.2 million of acquisition integration costs
(2001 half year GBP5.3 million; full year 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 GBP0.8 million (2001 - GBP0.2 million) in respect of
the group's share of the net interest charge of BSN Medical and GBP0.3
million (2001 - nil) in respect of the group's share of the net
interest charge of AbilityOne.
8. The tax charge is based on an estimated effective rate of 32% on the
full year's results before exceptional items and includes GBP15.6
million in respect of the net exceptional items. Of the total, GBP37.7
million relates to overseas taxation, GBP2.6 million relates to the
group's share of the tax of BSN Medical and GBP0.3 million relates to
the group's share of the tax of AbilityOne.
9. An interim dividend of 1.80 pence per ordinary share (2001 - 1.75 pence
per ordinary share) will be paid on 15 November 2002 to all
shareholders on the register at the close of business on 18 October
2002. Shareholders may participate in the dividend reinvestment plan.
10. The basic average number of ordinary shares in issue was 926 million
(2001 - 920 million). The diluted average number of ordinary shares in
issue was 933 million (2001 - 929 million).
11. Results before exceptional items state profit before taxation before
charging the cost of exceptional items and the net profit on the
disposal of discontinued operations. Adjusted earnings per ordinary
share is based on the attributable profit before accounting for these
items and associated taxation thereon.
11
SMITH & NEPHEW plc
NOTES TO THE 2002 INTERIM RESULTS continued
12. The interim financial information 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 2001. The financial information
contained in this interim statement does not constitute statutory
accounts as defined in Section 240 of the Companies Act 1985.
13. Half year 2001 comparative figures have been restated for the adoption
in the 2001 full year results of Financial Reporting Standard 19 and
Urgent Issues Task Force Abstract 31.
14. The financial information for the year ended 31 December 2001 has been
extracted from the full annual accounts of the group which have been
filed with the Registrar of Companies. The auditors' report on those
accounts was unqualified.
Independent Review Report to Smith & Nephew plc
We have been instructed by the company to review the financial information for
the six months ended 29 June 2002 which comprises the Group Profit and Loss
Account, Abridged Group Balance Sheet, Abridged Group Cash Flow Statement,
Statement of Total Recognised Gains and Losses, Abridged Movement in
Shareholders' Funds and the related notes 1 to 14. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the interim report in accordance with the
Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.
We conducted our review in accordance with guidance contained in Bulletin
1999/4 'Review of interim financial information' issued by the Auditing
Practices Board for use in the United Kingdom. A review consists principally
of making enquiries of group management and applying analytical procedures to
the financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a
lower level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 29 June 2002.
Ernst & Young LLP
London 1 August 2002
12
LIST OF EXHIBITS
Exhibit Description of Document
------- -----------------------
A Certificate pursuant to Section 1350 of Chapter 63 of Title 18
of the United States Code by the Chief Executive of Smith &
Nephew plc
B Certificate pursuant to Section 1350 of Chapter 63 of Title 18
of the United States Code by the Finance Director of Smith &
Nephew plc
EXHIBIT A
Certificate Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code by the
Chief Executive of Smith & Nephew plc
I, Christopher J. O'Donnell, the Chief Executive of Smith & Nephew plc,
certify that (i) this periodic report on Form 6-K fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934
and (ii) the information contained in this periodic report on Form 6-K fairly
presents, in all material respects, the financial condition and results of
operations of the issuer.
/s/ Christopher J. O'Donnell
Date: August 1, 2002 -----------------------------
Christopher J. O'Donnell
Chief Executive
Smith & Nephew plc
EXHIBIT B
Certificate Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code by the
Finance Director of Smith & Nephew plc
I, Peter Hooley, the Finance Director of Smith & Nephew plc, certify that (i)
this periodic report on Form 6-K fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the
information contained in this periodic report on Form 6-K fairly presents, in
all material respects, the financial condition and results of operations of
the issuer.
/s/ Peter Hooley
Date: August 1, 2002 ----------------------------
Peter Hooley
Finance Director
Smith & Nephew plc