Smith & Nephew (SNN) Q2 2012 Earnings Call August 02, 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 Veronika Dubajova - Goldman Sachs Group Inc., Research Division Yi-Dan Wang - Deutsche Bank AG, Research Division Edward Ridley-Day - BofA Merrill Lynch, Research Division Martin Wales - UBS Investment Bank, Research Division Michael K. Jungling - Morgan Stanley, Research Division Thomas M. Jones - Berenberg Bank, Research Division Ingeborg Øie - Jefferies & Company, Inc., Research Division Presentation Unknown Executive [Audio Gap]
OperatorGood morning, ladies and gentlemen, and welcome to the Smith & Nephew 2012 Q2 and Half Year Results. For your information, this conference is being recorded. At this time, I will turn the call over to your host today, Mr. Olivier Bohuon. Please go ahead, sir. Olivier Bohuon Good morning, everyone. This is Olivier Bohuon. I'm here with Adrian Hennah, and welcome to our second quarter results call. I will cover the highlights and then hand over to Adrian to take you through numbers. And when he has finished, I will update you on how we have progressed on delivering our strategic priorities. As usual, we'll take questions at the end. This quarter, Smith & Nephew again delivered underlying top line growth and an improved trading profit margin in challenging markets, completing a good first half. We are delivering on our financial commitment and implementing our strategic priorities to Smith & Nephew to provide the right commercial model, innovation and efficiencies to win in our market today and the future. Taking into account this combination, we're pleased to announced a substantial step change in our dividend. Our Q2 revenues were up an underlying 2% to $1.029 billion. This is against challenging markets, particularly in Europe. This revenue growth is after the formation if Bioventus, which we completed in the early part of Q2, and Adrian we'll take you through the financial implications. For us, the transaction realizes value for reinvestment in near-term opportunities while retaining access to the exciting area of orthobiologics. Trading profits increased 6% underlying, to $234 million, giving a 80 basis points improvement in our trading profit margin to 22.7%. This is evidence that the structural improvements we have made to our organization, particularly creating the Advanced Surgical Devices, are beginning to come through. Adjusted earnings per share were $0.181. Our cash generation remains excellent, and the group now has a net cash of $150 million.
We have consistently delivered revenue and earnings growth and strong cash generation in a challenging market for the last few years. This financial strength and our confidence in delivering against our strategic priorities has enabled us to announce a 50% increase in our dividend and a progressive policy for the future. Our focus on pursuing and evaluating acquisitions of a range of size to generate shareholder value and our ability to fund them is unchanged. Of course, the board will continues to keep under review the appropriate capital structure for the group, including the potential for capital returns to shareholders.This slide captures our underlying growth in the quarter. On the left-hand side, geographically; and on the right, by-product franchise. Geographically, our revenue growth rate in Q2 were very similar to those we achieved in Q1. In the U.S., we again grew at 2%. And the rest of our Established Markets, growth was slightly slower, reflecting the volatility of the macroenvironment in Europe. The growth in our emerging industrial market was again double digit with a very strong growth in China, India and in the Middle East. On the right, across our product franchises, hip implant sales reflect the ongoing metal-on-metal headwinds. But on a more positive note, sports medicine joint repair returned to double-digit growth and trauma had a much better quarter. I will now turn to look at each of these in more detail. First, looking at knee and hip implants. So our global knee implant growth was plus 3% tracking the overall market growth rate. This was in line with our guidance in the context of a very strong growth we achieved in the comparable period last year. As we said at our joint reconstitution seminar last month, we have now launched our LEGION hinge product. Not only that this filled a need in our portfolio, it's redefined the implication of what an inch knee should deliver for a patient. In the same seminar, we also announced the limited market release for our new next generation, the JOURNEY knee. Early feedback from both surgeon and patients have been very positive. In hips, the negative commentary on stem metal-on-metal total hips intensified, partly ahead of the hearing in June. Hence, sales of our BHR system were down globally 3%. Read the rest of this transcript for free on seekingalpha.com