Smith & Nephew Plc SN. 3rd Quarter Results

  Smith & Nephew Plc (SN.) - 3rd Quarter Results

RNS Number : 0420Q
Smith & Nephew Plc
01 November 2012






Smith & Nephew Q3 Results



1 November 2012



Smith & Nephew plc (LSE: SN, NYSE: SNN), the global medical technology
business, announces its results for the third quarter ended 29 September 2012.



                                   3 months* to              9 months to
                              29 Sep 1 Oct Underlying  29 Sep 1 Oct Underlying
                                2012  2011     change    2012  2011     change
                                  $m    $m          %      $m    $m          %
Revenue^1                        952 1,032          1   3,060 3,164          2
Trading profit^2                 207   205         10     693   682          7
Operating profit^2               187   191                633   648
Trading profit margin (%)       21.7  19.8     190bps    22.6  21.5     110bps
EPSA (cents)^3                  16.6  16.2               54.2  52.6
EPS (cents)                     15.0  14.9               65.6  49.6


Divisional revenue^1
Advanced Surgical Devices
global                           698   774          0   2,311 2,416          2
Advanced Wound Management
global                           254   258          4     749   748          4



* Q3 2012 comprises 63 trading days (2011: 63 trading days).





Q3 Financial Highlights

· Revenue of $952 million, up 1% on an underlying basis

· Trading profit of $207 million, up 10% on an underlying basis

· Trading profit margin up 190 bps to 21.7% as efficiency benefits come
through

· Continued strong performance from Advanced Wound Management and Sports
Medicine Joint Repair

· EPSA at 16.6 cents, up 2%

· Sustained strong cash generation with net cash now $379 million



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



"I am pleased to report an underlying 10% increase in trading profit for the
quarter to $207 million. The benefits of our efficiency improvements have
helped to offset the impact of on-going tough conditions in Europe, and we
continued to make good commercial progress in the emerging markets. Our
Advanced Wound Management business continued to thrive, growing at twice the
market rate.



"Smith & Nephew's strategic priorities are about making choices for the long
term benefit of our business, by allocating resources to the areas where we
can achieve the greatest returns. I am confident that by following this
strategy we are shaping the Group to respond to the market conditions and
opportunities we face."





Analyst presentation and conference call



An analyst presentation and conference call to discuss Smith & Nephew's third
quarter results will be held at 12.30pm GMT/8.30am EST today, Thursday 1
November. This will be broadcast live on the company's website and will be
available on demand shortly following the close of the call at
http://www.smith-nephew.com/Q312. If interested parties are unable to connect
to the web, a listen-only service is available by calling +44 (0) 20 7136 2055
in the UK or +1 21 2444 0412 in the US (passcode 7433755). Analysts should
contact Jennifer Heagney on +44 (0) 20 7960 2255 or by email at
jennifer.heagney@smith-nephew.com for conference call details.



Notes



1 Unless otherwise specified as 'reported' all revenue
increases/decreases throughout this document are underlying
increases/decreases after adjusting for the effects of currency translation
and disposals. See note 4 to the financial statements for a reconciliation of
these measures to results reported under IFRS.



2 A reconciliation from operating profit to trading profit is given in
note 5 to the financial statements. The underlying increase in trading profit
is the increase in trading profit after adjusting for the effects of currency
translation and disposals.



3 Adjusted earnings per ordinary share ('EPSA') growth is as reported,
not underlying, and is stated before restructuring and rationalisation costs,
amortisation of acquisition intangibles, profit on disposal of net assets held
for sale and taxation thereon. See note 2 to the financial statements.



4 All numbers given  are for the quarter  ended 29 September 2012  unless 
stated otherwise.



5 References to market  growth rates are estimates  generated by Smith  & 
Nephew based on a variety of sources.





Enquiries



Investors
Phil Cowdy                        +44 (0) 20 7401 7646
Smith & Nephew
Media
Charles Reynolds                  +44 (0) 20 7401 7646
Smith & Nephew
Andrew Mitchell / Justine McIlroy +44 (0) 20 7404 5959
Brunswick



Third Quarter Results



Our revenue was $952 million in the quarter, up 1% on an underlying basis
year-on-year. On a reported basis revenue was down -8%, reflecting a -4%
negative currency impact and a -5% effect from the loss of revenues from the
old Biologics and Clinical Therapies business following the Bioventus
transaction.



Trading profit in the quarter was $207 million, up 10% underlying on last year
(2011: $205 million). This resulted in a Group trading profit margin of
21.7%, a strong performance, and 190 basis points ahead of 2011. This margin
improvement demonstrates the positive impact of the restructuring of Advanced
Surgical Devices against the weak comparable last year.



Conditions across our Established Markets remained challenging, particularly
in Europe which has further deteriorated from the previous quarter. We
delivered 2% growth in the US, in our other Established Markets we saw a -1%
decline and in the Emerging and International Markets, 6% growth.



The net interest receivable for the period was $2 million. The tax rate for
the quarter, and estimated effective rate for the full year, was 30.2% on
profit before restructuring and rationalisation costs and amortisation of
acquisition intangibles. Adjusted attributable profit of $149 million is
before these items and taxation thereon.



Adjusted earnings per share in the quarter grew 2% to 16.6¢ (83.0¢ per
American Depositary Share, "ADS"), compared to 16.2¢ last year (81.0¢ per
ADS). Basic earnings per share was 15.0¢ (75.0¢ per ADS) (2011: 14.9¢).



Trading cash flow (defined as cash generated from operations less capital
expenditure but before restructuring and rationalisation costs) was $264
million in the quarter, continuing its positive trend and reflecting a trading
profit to cash conversion ratio of 128% (2011: 102%).



The Group had $379 million net cash at the period end, against net cash of
$150 million at the end of Q2 2012 and net debt of $196 million at Q3 2011.





Advanced Surgical Devices global ("ASD")



ASD delivered total revenue of $698 million in the quarter, flat on last year
on an underlying basis (excluding a -3% currency headwind and -7% impact from
the Bioventus transaction) (2011: $774 million). Revenue in the US was flat,
whilst our other Established Markets declined by -1% and overall we saw weaker
market conditions, particularly in Europe. We achieved a 3% increase in the
Emerging and International Markets. This increase, lower than recent
quarters, mainly reflects distributor buying patterns and is against a strong
comparable. In China we continue to grow at over 20%.



Trading profit margin increased 330 basis points to 21.3% (2011: 18.0%) and
trading profit increased to $149 million, as the benefits from our actions to
restructure ASD come through against a weak comparable. The US restructuring
is well advanced and our programmes are fully underway in Europe, from which
we expect to deliver further efficiency benefits in the future.



Like-for-like price pressure across our Hip and Knee Implant and Trauma
franchises remained similar to previous quarters, at around -2%. Price
pressure was partially offset through mix gains.



Our Knee Implant franchise had a weaker quarter with a decline of -1% against
a strong comparable. This compares to an estimated market growth of 2%.
This reflects both the increased weakness in the European market where we have
a proportionately larger market position, and also our position in the knee
new product cycle. Our new JOURNEY# II system is in clinical evaluation and
full global market release is expected in late 2013 or early 2014. The
LEGION# Hinge Knee system with its leading kinematic design was launched in
the US last quarter and will be introduced in Europe early next year.



In Hip Implants, excluding our metal-on-metal products, revenues were flat, an
improvement on the prior quarter. The total hip market was estimated to be
flat at 0%. The focus areas of our traditional hip implant portfolio,
including the R3# Acetabular System, the POLARCUP# Dual Mobility Hip
System,the SMF# Short Modular Femoral Hip System and products featuring our
VERILAST# bearing technology, all saw good growth in revenue. Our new hip
revision system, REDAPT#, is currently in limited market release and is on
track to launch in the US in late Q4 2012.



Revenue across the whole hip franchise was down -4%. Sales of our BIRMINGHAM
HIP#Resurfacing System ("BHR") were down -36% compared with last year.



Our Sports Medicine Joint Repair franchise had a strong quarter, with revenue
up 8%. The US was particularly strong, with double digit revenue growth. In
the quarter we launched several new products. This included the
ENDOBUTTON#CL Ultra 10mm fixation device, which extends this leading range to
the growing number of surgeons who use the anatomic technique for anterior
cruciate ligament (ACL) knee repair. We also obtained US FDA clearance for
expanding the indications of six of our repair products, including HEALICOIL#
PK Suture Anchor and the OSTEORAPTOR#Suture Anchor for use in hip
arthroscopy.



Revenue in our Arthroscopic Enabling Technologies franchise fell by -3%,
consistent with the prior quarter, as customers reduced their capital spending
on visualisation equipment.



Revenue from our Trauma franchise was up 2%, which was the same as the overall
estimated market growth rate of 3% after the -1% impact of our expiring US
royalties, as previously highlighted. We have started implementing our
refined Trauma commercial model, as we increase our focus and resources to
address the opportunities we see in the high growth trauma and extremities
markets. In particular, we have started creating focused US sales teams to
serve our trauma and extremities customers and their differing requirements.





Advanced Wound Management global ("AWM")



AWM continued to deliver strong underlying growth, with revenue growing at 4%
(excluding a -6% currency impact) to $254 million (2011: $258 million), double
the estimated market rate of 2%. This was another good result set against a
slightly weaker market. In addition, we had a strong comparator quarter when
we benefitted from the effects of the consolidation of our distributor network
in Canada, which particularly impacted our Exudate and Infection Management
franchises.



The US achieved growth of 11%, driven by a very strong performance from
Negative Pressure Wound Therapy ("NPWT"). The Established Markets outside the
US were flat, we saw good performances from France, Germany and the Nordics,
but Spain was very weak, declining at over -20%. Our Emerging and
International Markets grew strongly at 15%. Exudate Management and Infection
Management declined in the quarter at -1% and -6% respectively.



Growth from our NPWT portfolio was very strong. We had a successful launch of
RENASYS# NPWT and VERSAJET# in Japan in the quarter and expect to gain
significant market share from our position in Japan as the market leader in
advanced wound care. More generally in NPWT we continue winning large
hospital accounts in the US and Europe. PICO# is now making a meaningful
contribution to our growth rate and revenues.

In total we added 10 new products and line-extensions in the quarter. Last
quarter we launched ALLEVYN# Life, which has been progressing well and we are
expanding into additional countries and adding to the range.

Smith & Nephew has entered into a global settlement agreement with Wake Forest
University that will resolve all existing NPWT patent litigation between the
two parties. The terms of the agreement are confidential.



The AWM trading margin was 250 basis points lower than the prior year at 22.9%
(2011: 25.4%) largely due to the settlement with Wake Forest University.
Trading profit in the quarter was $58 million (2011: $66 million).





Nine Months to 29 September 2012



For the period, reported revenues were $3,060 million, with underlying growth
up 2% compared to the same period last year (excluding a -2% currency headwind
and -3% impact of Bioventus transaction) (2011: $3,164 million).



Reported trading profit for the nine month period was $693 million (2011: $682
million) with the trading profit margin up 110 basis points to 22.6%.



The net interest charge was $nil. The tax charge of $298 million is based
upon an estimated effective rate for the full year of 30.2% on profit before
restructuring and rationalisation costs, amortisation of acquisition
intangibles and profit on disposal of net assets held for sale. Adjusted
attributable profit before these items and taxation thereon was $485 million
and attributable profit was $587 million.



EPSA increased year-on-year to 54.2¢ (271.0¢ per ADS) (2011: 52.6¢). Reported
basic earnings per share was 65.6¢ (328.0¢ per ADS), compared to 49.6¢ (248.0¢
per ADS) in the same period of 2011.



Trading cash flow was $741 million compared with $657 million a year ago.
This is a trading profit to cash conversion ratio of 107% compared with 96%.





Outlook



We do not see any change in the outlook for the Group as a whole for 2012;
however, we continue to see variation in performance at a product franchise
level. 



In Advanced Wound Management, we are seeing excellent growth relative to the
market, driven by NPWT market share gains. Conversely in hips we have seen
stronger and longer-lasting BHR headwinds and we are seeing a slightly lower
knee growth relative to market than we had expected. Sports Medicine and
Trauma continue performing in line with our expectations.



We are seeing significant challenges in Europe, where we have about 30% of our
revenues, and expect this to continue.



We have consistently been delivering on our trading profit margin improvement,
and our guidance for the full year is unchanged.





About Us



Smith & Nephew is a global medical technology business dedicated to helping
improve people's lives. With leadership positions in Orthopaedic
Reconstruction, Advanced Wound Management, Sports Medicine and Trauma, Smith &
Nephew has almost 11,000 employees and a presence in more than 90 countries.
Annual sales in 2011 were nearly $4.3 billion. Smith & Nephew is a member of
the FTSE100 (LSE: SN, NYSE: SNN).



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, payors
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
organisation to adapt to market developments; and numerous other matters that
affect us or our markets, including those of a political, economic, business
or competitive 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.





                                      

Unaudited Group Income Statement for the three months and nine months to 29
September 2012



3 Months 3 Months                                        9 Months 9 Months
    2011     2012                                  Notes     2012     2011
      $m       $m                                              $m       $m
   1,032      952 Revenue                              4    3,060    3,164
    (281)     (244) Cost of goods sold                         (780)     (844)
     751      708 Gross profit                              2,280    2,320
                    Selling, general and
    (517)     (481) administrative expenses                  (1,522)   (1,546)
                    Research and development
     (43)      (40) expenses                                   (125)     (126)
     191      187 Operating profit                     5      633      648
       1        4 Interest receivable                           7        3
      (3)       (2) Interest payable                             (7)       (9)
      (1)       (1) Other finance costs                          (3)       (4)
        -        5 Share of profit from associates               4         -
                    Profit on disposal of net assets            251
        -         - held for sale                       10                   -
     188      193 Profit before taxation                      885      638
     (55)      (59) Taxation                             8     (298)     (196)
     133      134 Attributable profit (A)                     587      442
                    Earnings per share (A)               2
   14.9¢     15.0¢ Basic                                     65.6¢    49.6¢
   14.9¢     14.9¢ Diluted                                   65.2¢    49.4¢



Unaudited Group Statement of Comprehensive Income for the three months and
nine months to 29 September 2012



3 Months 3 Months                                        9 Months 9 Months
    2011     2012                                            2012     2011
      $m       $m                                              $m       $m
     133      134 Attributable profit (A)                     587      442
                    Other comprehensive income:
    (108)       35 Translation adjustments                      20       (4)
      15           Net (losses)/gains on cash flow                        14
                (5) hedges                                       (7)
                    Actuarial losses on defined benefit
     (95)      (44) pension plans                               (63)      (82)
      28           Taxation on items taken directly to          20       25
                11 equity
                  Other comprehensive income for the                       
                    period, net of tax
    (160)       (3)                                             (30)      (47)
               131 Total comprehensive income for the
     (27)           period (A)                                  557      395



  Attributable to the equity holders of the parent and wholly derived from
A continuing operations.





Unaudited Group Balance Sheet as at 29 September 2012



31 Dec                                                   Notes 29 Sep 1 Oct
  2011                                                           2012  2011
    $m                                                             $m    $m
        ASSETS
        Non-current assets
   783 Property, plant and equipment                              764   787
 1,096 Goodwill                                                 1,103 1,151
   423 Intangible assets                                          400   402
     4 Other financial assets                                     167     5
    13 Investment in associates                             11    129    13
   223 Deferred tax assets                                        146   243
 2,542                                                          2,709 2,601
        Current assets
   859 Inventories                                                890   904
 1,037 Trade and other receivables                                953 1,024
   184 Cash and cash equivalents                            12    445   292
 2,080                                                          2,288 2,220
   125 Assets held for sale                                         -     -
 4,747 TOTAL ASSETS                                             4,997 4,821
        EQUITY AND LIABILITIES
        Equity attributable to equity holders of the
        parent:
   191 Share capital                                              192   191
   413 Share premium                                              467   410
  (766) Treasury shares                                           (746)  (771)
    91 Other reserves                                             104   126
 3,258 Retained earnings                                        3,625 3,101
 3,187 Total equity                                             3,642 3,057
        Non-current liabilities
    16 Long-term borrowings                                 12     16    16
   287 Retirement benefit obligations                             319   304
     8 Other payables due after one year                            8    11
    45 Provisions due after one year                               47    70
    66 Deferred tax liabilities                                    57    77
   422                                                            447   478
        Current liabilities
   306 Bank overdrafts and loans due within one year        12     53   473
   564 Trade and other payables due within one year               646   622
    78 Provisions due within one year                              50    33
   171 Current tax payable                                        159   158
 1,119                                                            908 1,286
    19 Liabilities directly associated with assets held             -     -
        for sale
 1,560 Total liabilities                                        1,355 1,764
 4,747 TOTAL EQUITY AND LIABILITIES                             4,997 4,821





Unaudited Condensed Group Cash Flow Statement for the three months and nine
months to 29 September 2012



      3       3                                                                9       9
Months Months                                                          Months Months
  2011   2012                                                            2012   2011
    $m     $m                                                              $m     $m
                Net cash inflow from operating activities
   188    193 Profit before taxation                                      885    638
     2     (2) Net interest payable/(receivable)                             -      6
    82     82 Depreciation and amortisation                               240    228
     -     (5) Share of profit from associates                              (4)      -
     -      - Profit on disposal of net assets held for sale             (251)      -
     7      9 Share based payment expense                                  29     23
    (8)     33 Movement in working capital and provisions                  (30)    (47)
   271    310 Cash generated from operations (B)                          869    848
    (2)      - Net interest paid                                            (3)     (6)
   (64)    (58) Income taxes paid                                          (216)   (229)
   205    252 Net cash inflow from operating activities                   650    613
                Cash flows from investing activities
     -      - Proceeds on disposal of net assets held for sale            103      -
     -      - Investment in associate                                     (10)      -
     -      - Acquisitions (net of $2m of cash acquired)                    -    (33)
   (67)    (57) Capital expenditure                                        (187)   (200)
   (67)    (57) Net cash used in investing activities                       (94)   (233)
   138    195 Cash flow before financing activities                       556    380
                Cash flows from financing activities
     2     34 Proceeds from issue of ordinary share capital                55     14
     -      - Proceeds from own shares                                      -      4
     -      - Purchase of own shares                                        -     (6)
     -      - Equity dividends paid                                       (97)    (88)
   (77)     (4) Cash movements in borrowings                               (258)   (231)
    (2)     (8) Settlement of currency swaps                                 (3)      -
   (77)     22 Net cash (used in)/from financing activities               (303)   (307)
    61    217 Net increase in cash and cash equivalents                   253     73
   215    196 Cash and cash equivalents at beginning of period            161    195
   (11)      4 Exchange                                                      3     (3)
                adjustments
   265    417 Cash and cash equivalents at end of period (C)              417    265

                                                                             

B Including cash outflows in the nine month period to 29 September 2012 of $37
  million (2011 -  $6 million) relating  to restructuring and  rationalisation 
  costs and a legal settlement of $22 million (2011 - $nil).

  

  Including cash outflows in  the three month period  to 29 September 2012  of 
  $11  million   (2011   -  $4   million)   relating  to   restructuring   and 
  rationalisation costs.
C Cash and cash equivalents at the end of the period are net of overdrafts  of 
  $28 million (1 October 2011 - $27 million, 31 December 2011 - $23 million).





Unaudited Group Statement of Changes in Equity for the nine months to 29
September 2012



                       Share   Share Treasury      Other Retained  Total
                     capital premium   shares* reserves** earnings equity
                          $m      $m       $m         $m       $m     $m
At 1 January 2012
(audited)                191     413     (766)         91    3,258  3,187
Total comprehensive
income (A)                 -       -        -         13      544    557
Equity dividends
paid/accrued               -       -        -          -     (186)   (186)
Share based payments
recognised                 -       -        -          -       29     29
Cost of shares
transferred to
beneficiaries              -       -       20          -      (20)      -
Issue of ordinary
share capital              1      54        -          -        -     55
At 29 September 2012     192     467     (746)        104    3,625  3,642
                       Share   Share Treasury      Other Retained  Total
                     capital premium   shares* reserves** earnings equity
                          $m      $m       $m         $m       $m     $m
At 1 January 2011
(audited)                191     396     (778)        116    2,848  2,773
Total comprehensive
income (A)                 -       -        -         10      385    395
Equity dividends
paid/accrued               -       -        -          -     (146)   (146)
Purchase of own
shares                     -       -       (6)          -        -     (6)
Share based payments
recognised                 -       -        -          -       23     23
Cost of shares
transferred to
beneficiaries              -       -       13          -       (9)      4
Issue of ordinary
share capital              -      14        -          -        -     14
At 1 October 2011        191     410     (771)        126    3,101  3,057



*  Treasury shares include shares held by the Smith & Nephew Employees'  Share 
   Trust.
** Other reserves  comprise gains  and losses  on cash  flow hedges,  exchange 
   differences on translation of foreign operations and the difference arising
   as a result of translating share capital  and share premium at the rate  on 
   the date of redenomination instead of the rate at the balance sheet date.
   Attributable to the equity  holders of the parent  and wholly derived  from 
A  continuing operations.





NOTES



1. These interim financial  statements have been  prepared in conformity  with 
   IAS 34 Interim Financial Reporting.  The financial information herein  has 
   been prepared on the basis of the accounting policies set out in the annual
   accounts of the Group for the year ended 31 December 2011. Smith &  Nephew 
   prepares its  annual  accounts  on the  basis  of  International  Financial 
   Reporting Standards  ("IFRS") as  issued  by the  International  Accounting 
   Standards Board ("IASB"), IFRS as adopted by the European Union ("EU")  and 
   in accordance  with the  provisions of  the Companies  Act 2006.  IFRS  as 
   adopted by the EU differs  in certain respects from  IFRS as issued by  the 
   IASB. However, the differences have no impact for the periods presented.
   The Group has adequate financial resources and its customers and  suppliers 
   are diversified across different  geographic areas. The directors  believe 
   that the Group is  well placed to manage  its business risk  successfully. 
   The directors have a reasonable  expectation that the Group has  sufficient 
   resources to continue in operational existence for the foreseeable future.
   Thus they  continue to  adopt the  going concern  basis for  accounting  in 
   preparing the interim financial statements.
   The financial information  contained in this  document does not  constitute 
   statutory accounts as defined in section  434 and 435 of the Companies  Act 
   2006. The auditors  issued an unqualified  opinion and did  not contain  a 
   statement under  section 498  of  the Companies  Act  2006 on  the  Group's 
   statutory financial statements for the  year ended 31 December 2011,  which 
   have been delivered to the Registrar of Companies.
2. Adjusted earnings  per ordinary  share ("EPSA")  is a  trend measure  which 
   presents the long-term profitability of  the Group excluding the impact  of 
   specific  transactions  that  management   considers  affect  the   Group's 
   short-term profitability.  The  Group  presents  this  measure  to  assist 
   investors in their understanding  of trends. Adjusted attributable  profit 
   is the numerator used for this measure.
   EPSA has been calculated  by dividing adjusted  attributable profit by  the 
   weighted (basic) average number of ordinary shares in issue of 895  million 
   (2011 -  891 million).  The diluted  weighted average  number of  ordinary 
   shares in issue is 900 million (2011 - 895 million).



 3 Months 3 Months                                       9 Months 9 Months
     2011     2012                                 Notes     2012     2011
       $m       $m                                             $m       $m
      133      134 Attributable profit                        587      442
                     Adjustments:
                     Restructuring and
        5       10 rationalisation costs               7       30        7
                     Amortisation of acquisition
        9       10 intangibles                                 30       27
                     Profit on disposal of net
        -        - assets held for sale               10     (251)        -
       (3)       (5) Taxation on excluded items          8       89       (7)
      144      149 Adjusted attributable profit               485      469
    16.2¢    16.6¢ Adjusted earnings per share              54.2¢    52.6¢
                     Adjusted diluted earnings per
    16.1¢    16.6¢ share                                    53.9¢    52.4¢



3. The Orthopaedics and Endoscopy business  units, reported separately in  the 
   annual accounts of the Group for the year ended 31 December 2011, have been
   combined into a  single operating entity  named Advanced Surgical  Devices. 
   This segmentation reflects the revised Group structure announced in  August 
   2011. Revenue,  trading  profit,  operating profit  and  total  assets  by 
   business segment comparative figures have been restated accordingly.



4. Revenue by segment  for the three  months and nine  months to 29  September 
   2012 was as follows:



 3 Months 3 Months                   9 Months 9 Months  Underlying growth
     2011     2012                       2012     2011     in revenue
       $m       $m                         $m       $m          %
                                                           3 Months 9 Months
             Revenue by business segment
      774           Advanced Surgical              2,416
                698 Devices              2,311                  -        2
                     Advanced Wound
      258      254 Management             749      748        4        4
    1,032      952                      3,060    3,164        1        2
                     Revenue by geographic
                     market
      421      378 United States        1,236    1,295        2        2
      497           Other Established              1,533
                460 Markets (D) (E)      1,474                 (1)        1
                     Emerging and
                     International
      114      114 Markets                350      336        6        9
    1,032      952                      3,060    3,164        1        2



 D Other Established Markets  comprises Canada, Europe,  Japan, Australia  and 
   New Zealand.
 E Includes United Kingdom nine  months revenue of $214  million (2011 -  $211 
   million) and three months revenue of $72 million (2011 - $71 million).



 Underlying revenue growth  by business segment  is calculated by  eliminating 
 the  effects  of  translational  currency  and  disposals.  Reported  growth 
 reconciles to underlying growth as follows:
                                          Constant
                             Reported    currency                Underlying
                            growth in    exchange    Disposals    growth in
                              revenue      effect      effect      revenue
                                    %           %           %            %
 9 Months
 Advanced Surgical                               2
 Devices                          (4)                        4            2
 Advanced Wound                                  4
 Management                        -                         -            4
                                  (3)           2           3            2
 3 Months
 Advanced Surgical                               3
 Devices                         (10)                        7            -
 Advanced Wound                                  6
 Management                       (2)                        -            4
                                  (8)           4           5            1



5. Trading  profit  is   a  trend   measure  which   presents  the   long-term 
   profitability of the  Group excluding the  impact of specific  transactions 
   that management considers affect the Group's short-term profitability. The
   Group presents this measure to  assist investors in their understanding  of 
   trends. Operating profit reconciles to trading profit as follows:



 3 Months 3 Months                                       9 Months 9 Months
     2011     2012                                 Notes     2012     2011
       $m       $m                                             $m       $m
      191      187 Operating profit                           633      648
                     Restructuring and
        5       10 rationalisation costs               7       30        7
                     Amortisation of acquisition
        9       10 intangibles                                 30       27
      205      207 Trading profit                             693      682



 Operating and trading profit by segment for the three months and nine  months 
 to 29 September 2012 were as follows:



           Operating Profit by business segment
 128 131 Advanced Surgical Devices            476 484
  63  56 Advanced Wound Management            157 164
 191 187                                      633 648
           Trading Profit by business segment
 139 149 Advanced Surgical Devices            528 510
  66  58 Advanced Wound Management            165 172
 205 207                                      693 682



6. Total assets by business segment as at 29 September 2012 were as follows:



 31 Dec                                      29 Sep 1 Oct

   2011                                        2012  2011

     $m                                          $m    $m
  3,396 Advanced Surgical Devices             3,506 3,495
    819 Advanced Wound Management               900   791
  4,215 Operating assets by business segment  4,406 4,286
    125 Assets held for sale                      -     -
    407 Unallocated corporate assets (F)        591   535
  4,747 Total assets                          4,997 4,821



   F                 Consisting of  deferred  tax  assets and  cash  and  cash 
                     equivalents.
7. Restructuring and rationalisation costs of $30 million (2011 - $7  million) 
   were incurred in the nine month period to 29 September 2012. These  relate 
   mainly to people costs associated  with the structural and process  changes 
   announced in August  2011. No costs  (2011 - $7  million) were incurred  in 
   relation to the earnings improvement programme which was completed in 2011.

   

   The charge in the three month period  to 29 September 2012 was $10  million 
   (2011 - $5 million). These relate  mainly to people costs associated  with 
   the structural and  process changes  announced in August  2011. No  costs 
   (2011 - $5 million) were incurred  in relation to the earnings  improvement 
   programme which was completed in 2011.



8.  Of the $298  million (2011 -  $196 million) taxation  charge for the  nine 
    months, $282 million (2011 - $156 million) relates to overseas  taxation. 
    Taxation of $209 million (2011 - $203 million) for the nine months on  the 
    profit before  restructuring and  rationalisation costs,  amortisation  of 
    acquisition intangibles and profit on disposal of net assets held for sale
    is at the full year effective rate. In 2012, a net taxation charge of $89
    million (2011  -  taxation benefit  of  $7  million) arose  on  profit  on 
    disposal of net assets held for sale after adjusting for restructuring and
    rationalisation costs and amortisation of acquisition intangibles.

    

    In March  2012, the  UK Government  announced  that the  UK tax  rate  for 
    accounting periods starting on  or after 1 April  2013 will be reduced  to 
    23%. The relevant legislation has been enacted in 2012. The deferred tax
    impact of this change will  result in a credit  which has been taken  into 
    account in calculating the  effective tax rate for  the year ending on  31 
    December 2012.
9.  The 2011 final dividend of $97 million was paid on 9 May 2012. The  first 
    interim dividend of 2012 of 9.90 US cents per ordinary share was  declared 
    by the  Board on  1 August  2012. This  was paid  on 30  October 2012  to 
    shareholders whose names appeared on the register at the close of business
    12 October 2012. The  sterling equivalent per ordinary  share was set  at 
    6.13 pence.
10. In January 2012, the  Group announced its intention  to sell the  Clinical 
    Therapies business ("CT business")  to Bioventus LLC ("Bioventus").  This 
    was completed on 4 May 2012 for a total consideration of $367 million  and 
    resulted in a profit before taxation of $251 million. The revenue of  the 
    CT business  in the  four month  period to  disposal was  $69 million  and 
    profit before taxation was  $12 million. The  details of the  transaction 
    are set out below:
                                                                           $m
    Loan note receivable from Bioventus (included within
    Other financial assets)                                               160
    Investment of 49% in Bioventus                                        104
    Cash                                                                  103
    Total consideration                                                   367
    Net assets of businesses disposed and disposal
    transaction costs                                                    (116)
    Profit before taxation                                                251
    

    Interest is due on the $160 million loan note from Bioventus and will
    accrue from the issue date. For the period to May 2014, interest will be
    added to the outstanding principal amount.
11. The movement in investment in associates  for the nine month period  ended 
    29 September 2012 is set out below:
                                                             29 Sep    1 Oct

                                                               2012     2011

                                                                 $m       $m
    Balance at 1 January                                         13       13
    Investment of 49% in Bioventus                              104        -
    Additional investment in Bioventus                           10        -
    Share of profit from associates                               4        -
    Dividends received                                           (2)        -
                                                                129       13



12. Net cash/(debt) as at 29 September 2012 comprises:
                                                  29 Sep 1 Oct

                                                    2012  2011

                                                      $m    $m
    Cash and bank                                    245   292
    Short-term investments                           200     -
    Cash and cash equivalents                        445   292
    Long-term borrowings                             (16)   (16)
    Bank overdrafts and loans due within one year    (53)  (473)
    Net currency swap assets (G)                       3     1
                                                     379  (196)
    The movements in the period were as follows:
    Opening net debt as at 1 January                (138)  (492)
    Cash flow before financing activities            556   380
    Proceeds from issue of ordinary share capital     55    14
    Proceeds from own shares                           -     4
    Purchase of own shares                             -    (6)
    Equity dividends paid                            (97)   (88)
    Exchange adjustments                               3    (8)
    Closing net cash/(debt)                          379  (196)



 G Net currency swap  assets of  $3 million (2011  - $1  million) comprise  $3 
   million (2011 - $2 million) of current assets derivatives within trade  and 
   other receivables  and  $nil  (2011  - $1  million)  of  current  liability 
   derivatives within trade and other payables.





INDEPENDENT REVIEW REPORT TO SMITH & NEPHEW plc



Introduction
We have been engaged by the Company to review the interim financial statements
in the  interim  financial report  for  the three  and  nine months  ended  29 
September 2012 which comprises the Group Income Statement, Group Statement  of 
Comprehensive  Income,  Group  Balance   Sheet,  Condensed  Group  Cash   Flow 
Statement, Group Statement of Changes in Equity and the related notes 1 to 12.
We have read the other information  contained in the interim financial  report 
and considered  whether it  contains any  apparent misstatements  or  material 
inconsistencies with the interim financial statements.



This report  is  made  solely  to the  company  in  accordance  with  guidance 
contained in  International  Standard  on  Review  Engagements  2410  (UK  and 
Ireland) "Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Auditing Practices Board. To the  fullest 
extent permitted by law, we do  not accept or assume responsibility to  anyone 
other than the company, for our work, for this report, or for the  conclusions 
we have formed.
Directors' Responsibilities
The interim financial report is the  responsibility of, and has been  approved 
by, the directors.  The directors  are responsible for  preparing the  interim 
financial report in accordance with  the Disclosure and Transparency Rules  of 
the United Kingdom's Financial Services Authority.
As disclosed  in note  1, the  annual financial  statements of  the Group  are 
prepared in  accordance with  IFRSs  as adopted  by  the European  Union.  The 
interim financial statements  included in this  interim financial report  have 
been  prepared  in  accordance  with  International  Accounting  Standard  34, 
"Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to  express to the Company  a conclusion on the  interim 
financial statements in the  interim financial report for  the three and  nine 
months ended 29 September 2012 based on our review.
Scope of Review
We conducted our review  in accordance with  International Standard on  Review 
Engagements (UK and  Ireland) 2410, "Review  of Interim Financial  Information 
Performed by the  Independent Auditor of  the Entity" issued  by the  Auditing 
Practices Board for use in the  United Kingdom. A review of interim  financial 
information consists of making enquiries, primarily of persons responsible for
financial and accounting  matters, and  applying analytical  and other  review 
procedures. A review is substantially less in scope than an audit conducted in
accordance with  International  Standards on  Auditing  (UK and  Ireland)  and 
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit.  Accordingly, 
we do not express an audit opinion.
Review Conclusion
Based on our  review, nothing  has come  to our  attention that  causes us  to 
believe that the interim financial statements in the interim financial  report 
for the three and nine months ended 29 September 2012 is not prepared, in  all 
material respects, in accordance with International Accounting Standard 34  as 
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
31 October 2012





                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


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