Smith & Nephew Management Discusses Q1 2012 Results - Earnings Call Transcript

Smith & Nephew (SNN)

Q1 2012 Earnings Call

May 03, 2012 3:30 am ET

Executives

Olivier Bohuon - Chief Executive officer, Director and Chairman of Disclosures Committee

Adrian Hennah - Chief Financial Officer, Executive Director, Member of Disclosures Committee and Member of Risk Committee

Analysts

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Michael K. Jungling - Morgan Stanley, Research Division

Veronika Dubajova - Goldman Sachs Group Inc., Research Division

Edward Ridley-Day - BofA Merrill Lynch, Research Division

Thomas M. Jones - Berenberg Bank, Research Division

Ingeborg Øie - Jefferies & Company, Inc., Research Division

Navid Malik - Cenkos Securities plc., Research Division

Christoph Gretler - Crédit Suisse AG, Research Division

Julien Dormois - Exane BNP Paribas, Research Division

Yi-Dan Wang - Deutsche Bank AG, Research Division

Presentation

Operator

is 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's, 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; litigation relating to patent or other claims; legal compliance risks; and related investigative remedial or enforcement actions, strategic actions, including acquisitions and dispositions; our success in integrating acquired businesses and disruption that may result from changes we make in our business plans or organization to adapt to market developments, and numerous other matters that affect us on our market, including those of political, economic, business or competitive nature. Please refer to the documents that Smith & Nephew's have 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 or 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 statements to reflect any change in circumstance or in Smith & Nephew's expectations.

Good day, ladies and gentlemen, and welcome to today's conference call. Today's conference is being recorded. At this time, I would like to hand the call over to today's speakers, Mr. Olivier Bohuon, and Mr. Adrian Hennah. Please go ahead, sir.

Olivier Bohuon

Thank you. Good morning, everyone. I'm Olivier Bohuon, I'm the Chief Executive Officer of Smith & Nephew, and welcome to our first quarter results call. I will cover the highlights and then hand over to Adrian Hennah, our CFO, to take you through the numbers. Whenever Adrian is finished, I will update you on the progress we are making to reshape Smith & Nephew to deliver against our strategic priority. And as usual, we'll take questions at the end.

Smith & Nephew has had a good first quarter of 2012, building on our achievements in Q4 last year. We saw the first results of our actions to make Smith & Nephew more fit and more effective. We grew revenue, increased profits and improved our trading profit margin. We continued investing and maintain our high rate of product launches, while implementing the necessary efficiency programs. Our Q1 revenues were up an underlying 3% to $1,079 billion. This was in line with our expectations.

Trading profit increased 5% to $252 million, giving a 50-basis points improvement in our trading profit margin to 23.3%. This reflects the initial results of restructuring improvements we are making, as well as the benefits of the phasing of some costs from Q1 into Q2, and Adrian will talk more about this. Adjusted earnings per share were $0.195, an increase of 6% on last year's $0.184. We continue to generate good cash flow, and our net debt was $28 million at the end of the quarter, down from $351 million last year.

This slide shows our underlying growth in the quarter. It's a complex slide, but I will try to explain it, on the left-hand side, geographically, and on the right, by product franchise. There's a lot of information, but it provides a single snapshot of the quarter. Looking at the left-hand side, we are now analyzing our geographic revenues between the established market, i.e., U.S., Europe, Canada, Japan, Australia and New Zealand, and in the other hand, our emerging and international markets. This is consistent with 2 of our 5 strategic priorities, which will allow you to understand better and track our progress over the coming years.

For me, our geographic diversity is a clear positive as we are not solely dependent on a single economy. About 40% of our global revenues come from the U.S., where revenues grew by 2%. Revenues from our other established market grew by 3%, while our growth in our emerging and international market was double-digit. Specifically, the growth in the BRIC countries was over 20%. We also have a broad product range. We are not just about hip and knee implants, which only account for just over 1/3 of our revenues. This is shown on the chart on the right. Here, you can see the relative performance of our global product franchises in particular. This clearly illustrates the good results in knee implants, Sports Medicine Joint Repair and Advanced Wound Management.

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