Smith and Nephew ramps up divi

Medical devices specialist Smith & Nephew has whacked up its dividend as it embarks on a progressive dividend policy on the back of the success of its recent restructuring.

The group, which has been restructured to report along two divisional lines, Advanced Surgical Devices (ASD) and Advanced Wound Management (AWM), reported a slight decline in trading profit in the second quarter to $234m from $236m the year before, due to unhelpful exchange rate movements; with these stripped out, trading profit would have been up 6%. The trading profit margin in the second quarter improved by eight-tenths of a percentage point to 22.7%.

Second quarter operating profit at $210m was down from $226m the year before and below the $223m the market had been expecting.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Adjusted earnings per share were ahead of expectations, however, and were unchanged year-on-year at 18.1 cents; earnings per share had been forecast to slide to 15.8 cents.

Revenue slipped to $1,029m from $1,077m the year before, but once again those pesky exchange rate movements were largely to blame (along with the decision to spin off the Bioventus orthopaedic healing unit); the underlying change was a rise of 2%.

The ASD division saw an underlying improvement of 2% in revenue to $774m (2011: $819m), while the AWM division's revenue was up by an underlying 4% to $255m (2011: $258m).

The group said there was a strong performance from negative-pressure wound therapy and Sports Medicine Joint Repair during the quarter.

Trading conditions in what Smith & Nephew (S&N) terms Established Markets remained subdued in the quarter, with tiny signs of a revival being offset by Europe's continued slow descent. Top line growth in the US was 2%, while the rest of the Established Markets managed 1% growth; that was put in the shade by 10% growth in the Emerging and International Markets, with China, India and the Middle East all putting in good shifts.

The group had $150m net cash at the period end, against net debt of $28m at the end of the previous quarter and $346m at the end of the second quarter of last year. The group received $93m in net cash from the Bioventus transaction.

Sitting on all that cash the board has approved a step-change increase in the level of dividend pay-out and a move to a progressive dividend policy, which will see pay-outs increase broadly in line with underlying earnings.

The interim dividend has been bumped up by 50% this time round to 9.9 cents from 6.6 cents last year. That increase caught the market on the hop, as investment analysts had pencilled in a rise to 7.3 cents.

"We are performing in line with our expectations and our guidance for the full year, provided in February 2012, is unchanged," S&N said. "Emerging market economies have continued to perform strongly and the US is showing some signs of stabilisation, although we are not immune to the impacts of the macroeconomic uncertainties and continuing challenging economic environment across Europe," it added.

JH