Smith & Nephew's much-anticipated second quarter financial report was released today, with strong numbers and a new company strategy outlined for the future.
With mega-mergers on the rise in the orthopedic and spine device market place, and Smith & Nephew's headquarters in London, the company is a prime target for United States-based companies looking to merge and move their headquarters overseas. But Smith & Nephew CEO Olivier Bohuon won't partner with just anybody, and made it clear in a report earlier this week that the company isn't looking for a takeover just yet.
Here are 10 things to know about Smith & Nephew's financial report:
1. Company revenue was up 3 percent underlying and 7 percent on a reported basis, reaching $1.1 million. The company's performance was led by the sports medicine joint repair, trauma and extremities and orthopedic reconstruction business lines, which grew significantly over the previous quarter.
2. The company reported a 6 percent increase in trading profit, reaching $255 million. The trading profit increased 10 percent on a reported basis and the trading profit margin was 22.3 percent, up 70bps.
3. Smith & Nephew completed it's acquisition of ArthroCare during the second quarter. The acquisition strengthens the company's sports medicine business, which is part of the company's strategy for future growth. The second quarter financial report includes one month of trading from ArthroCare. Smith & Nephew's knee implant franchise was up 2 percent, reporting a 4 percent growth in the United States market. The global hip implant franchise was up 3 percent and sports medicine joint repair had a 9 percent revenue growth for the quarter. The company's trauma and extremities franchise reported 7 percent growth and other segments, including ArthroCare's ENT and other gynecology business, grew revenue 18 percent in the quarter.
4. Revenue was up 1 percent in the United States, but fell three percent in other established markets. However, the company's revenue in emerging and international markets was up 17 percent in the second quarter with strong numbers across focused markets such as China, India, South Africa and the Middle East. The company plans to transform their organization in established markets through focused investment and greater efficiency. In the second quarter, the company began streamlining the European business model by moving to a single general manager for each country under a new "Head of Europe."
5. In the emerging and international markets, the company built an entrepreneurial business to maximize growth through both premium and mid-tier products to more customers. During the first half of 2014, 14 percent of the company's revenue came from emerging markets, up from 8 percent in 2010. The company expects to continue this momentum by delivering more products and benefits from organic investments nd acquisitions in these markets.
6. Trading cash flow was $179 million with a trading profit to cash conversion ratio at 70 percent.
7. Net debt for the quarter reached $1.9 million, up significantly from $216 million at the end of the first quarter. The increase is due to the ArthroCare acquisition closing.
8. In the second half of 2014, the company plans to release several new products and work on new ways to serve customers in light of the economic burden placed on healthcare systems. The new products will be focused in the trauma and extremities and sports medicine markets.
9. By the end of the quarter, the company achieved nearly $140 million in annualized savings by simplifying and improving its operating model, and is commencing a program to realize another $120 million in savings. These efforts bring Smith & Nephew close to the 2011 program goal of generating $150 million in annual savings. The new program will ensure the company's ability to invest in growth opportunities.
10. The company has been investing in an innovative commercial solution for orthopedic reconstruction that serves a different value proposition for customers. Syncera offers customers two clinically proven primary hip and knee implants combined with technology that streamlines the supply chain and logistics as well as enables technical support in the operating room. The company feels this new model has the potential to generate savings for the customers, and after receiving feedback the company plans to start shipping its first product shortly.