Smith & Nephew hobbled by Europe

Global medical technology business Smith & Nephew experienced hard times in Europe in the third quarter and expects these to continue.

Revenue in the three months to September 29th was up an underlying 1% but down an actual 7.8% at $952m from $1,032m the year before. Profit before tax eased to $188m from $193m the year before.

The Advance Wound Management (AWM) division outperformed the Advanced Surgical Devices (ASD) side of the business.

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AWM's revenue fell to $254m from $258m a year earlier, but with exchange rate fluctuations stripped out rose 4%.

The AWM trading margin was 2.5 percentage points (250 basis points) lower than the prior year at 22.9%,largely due to the settlement with Wake Forest University. Trading profit in the quarter was $58m, down from $66m in the third quarter of 2011.

ASD's revenue tumbled to $698m from $774m the year before, but would have been flat but for currency headwinds, which accounted for three percentage points of the fall, and the spin-off of Bioventus, which accounted for seven percentage points of the decline.

The group had $379m net cash at the period end, against net cash of $150m at the end of June and net debt of $196m a year earlier.

"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," said Olivier Bohuon, Chief Executive Officer of Smith & Nephew.

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

Broker Nomura said revenues were 2% below consensus expectations, while trading margins were more or less in line.

"Growth in knees has slowed to -1% (well below market rate of +2%), a

particular concern given knees have supported weak performance in hips over the past 8 quarters. Hips endured another very challenging quarter, with a -4% contraction (market rate of +0%)," the broker noted.

JH