Core strategy benefits Smith & Nephew

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The Independent Online
SMITH & NEPHEW, the healthcare group, is reaping the benefit of focusing on four core areas with an 8 per cent increase in underlying profits for 1992.

Pre-tax profits, reported under the new FRS3 accounting standard, more than doubled from pounds 70.3m to pounds 154.6m. But that was distorted by a pounds 40.1m profit on the sale of the Nivea trademark in 1992, while the previous year's results were depressed by the pounds 19.8m cost of settling a patent dispute.

Operating profits from continuing businesses rose 8.1 per cent to pounds 146m, but the costs of restructuring and losses on disposals fell from pounds 40.5m to pounds 26.8m.

John Robinson, chief executive, said: 'We have virtually achieved the focus of the group we want.'

He added that, while sales had risen by 8 per cent to pounds 857.7m, turnover in the healthcare business, which accounts for 80 per cent of the group, rose by 11 per cent, of which price increases were only about 4 per cent.

The best performance was in trauma and arthroscopy, which includes hip and spine replacements as well as equipment for keyhole surgery, where sales rose 26 per cent. But the other three core areas - wound management, bandaging and support, and orthopaedic implants - also grew by more than 13 per cent.

Overall, the group's products have a 15 per cent share of the world market. Last year, sales in Europe of pounds 175.5m overtook the pounds 161.6m achieved in Britain, although Mr Robinson said European sales 'clearly should be higher'.

He said he did not expect the group to be hit badly by President Clinton's healthcare reforms, because many of its products are aimed at reducing the cost of treatment by cutting time in hospitals. 'There has been pressure on margins in many countries, for many years,' he added.

Margins were maintained at 17 per cent, while capital spending was pounds 51m - 6 per cent of sales. But the tax charge rose to 29 per cent, compared with an underlying rate of 27 per cent last time. That meant that growth in underlying earnings per share, which rose 4.5 per cent to 9.3p, lagged behind profits growth. The shares rose 2p to 155.5p.

Net debt fell from pounds 67.8m to pounds 42.7m, or 12 per cent of net assets. That will rise this year, partly because of the redemption of pounds 30m of convertible bonds due in May.

The group should be a beneficiary of the dollar's strength, with every 10 cent reduction in the exchange rate adding pounds 6m to pre-tax profits.

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