Smith & Nephew Reports Strong 1Q:04 Financials Driven by Further Penetration of Oxinium Sales
BY JOHN CHOPACK, MAY 10, 2004
Sir Christopher O'Donnell, CEO of Smith & Nephew, held an analyst call to discuss the Company's progress throughout the first 90 days of 2004. The Company reported revenues of '302 million which was a 12% increase in underlying sales growth (excluding foreign currency translation, acquisitions and an extra day of sales). Operating margin improved to 18.6% during the 1Q:04 from 16.3% during the 1Q:03.
Smith & Nephew Orthopaedics division continues to be the fastest growing segment of the Company. Orthopaedic revenues totaled '142 million which was a 17% increase in underlying sales from the 1Q:04. Knee sales remain strong increasing by 24% overall, 27% within the U.S. and 20% outside the U.S. Hip revenues also outpaced the overall growth in revenues increasing by 18% during the 1Q:04. The Company's Oxinium material has been the clear driver of the strong performance in both hip and knee product sales. Oxinium products now represent 40% of total knee arthroplasty, 60% of unicompartmental and 40% of femoral heads that are being sold within the U.S. Revenues are being driven by premium pricing of the material combined with penetration of new surgeon accounts.
Although the launch of Oxinium has had a significant positive impact on revenue growth, it has had some hiccups. The launch of a press-fit femoral knee component has gone very poorly. The Oxinium/Bone interface has not bonded in a percentage of patients leading to very early revisions between 6-12 months. To date, management reported that 295 revisions have been made. Smith & Nephew is working had to manage the situation and is confident the Company's insurance coverage is adequate to cover the legal repercussions.
Management is guiding for high-teens growth for Orthopaedics and high single digits for Endoscopy and Wound Management. This should drive at least a 1% improvement in operating margin.
