Smith & Nephew Reports Orthopedic Revenues Total $867 Million , Up 16% from 2003
BY JOHN CHOPACK, FEBRUARY 9, 2004
Smith & Nephew (SNN) reported that revenues totaled $1.9 billion during 2003 which was an 11% increase in underlying sales over 2002. Underlying orthopedic revenues increased by 16% during 2003, totaling $867 million. The Orthopedic growth of 16% was 7% faster than the Advanced Wound Management Division and 12% faster then the Endoscopy Division. Management was clear in highlighting that Oxinium was a significant driver of orthopedic growth. To date, Oxinium accounts for 40% of all femoral knee units and 30% of all femoral heads. The increased penetration of Oxinium reconstructive products drove a 24% increase in knee sales and a 19% increase in hips.
However, it was not all good for Smith & Nephew's Oxinium introduction. During the year SNN introduced a cementless Oxinium femoral component featuring a unique macrotexture. The macrotextured Oxinium cementless femoral components have been the source of a 147 revision surgeries as of the end of January/2004 and is no longer being marketed by Smith & Nephew. While cemented femoral knees may be the norm outside the U.S., domestic surgeons prefer to use cementless femoral components. SNN is currently only offering a cemented Oxinium femoral component, effectively missing out on a large portion of the U.S. knee market. However, we expect SNN to correct its problems with its macrotexture Oxinium femoral component and re-introduce a cementless Oxinium femoral component in the near future.
Another forthcoming revenue driver is likely to be the introduction of a ceramic-on-ceramic hip in the U.S. market place. Although SNN would be the fourth to market in the U.S. behind Stryker Corp., Wright Medical and Encore Medical, it would be the only company with FDA approval to market both a ceramic coated knee and a ceramic-on-ceramic hip, each of which is used to reduce wear debris and increase implant longevity. Such a reconstructive product portfolio is likely to grab substantial attention in the orthopedic marketplace.
In addition to posting solid revenue growth during 2003, SNN was successful in improving operating efficiency as operating margin improved from 17.8% during 2002 to 18.7% during 2003. This helped support a 26% increase earnings per share ($ U.S) which totaled $1.52 for 2003.
Smith & Nephew recently revised its ratio of American Depository Shares (ADSs) to ordinary SNN shares from 1 ADS/10 Ordinary Shares to 1 ADS/5 Ordinary Shares on December 15, 2003. Additionally, SNN will begin reporting on a quarterly basis common to its U.S. based competitors. Each of these actions should help facilitate U.S. investor enthusiasm by increasing liquidity and financial visibility.
