Smith & Nephew Plc 1997 Preliminary Results.

LONDON--(BUSINESS WIRE)--Feb. 26, 1998--Smith & Nephew plc, the leading worldwide healthcare group, today announced its 1997 preliminary results.

Key points

- Underlying sales up 5%, with America's sales recovery maintained at 7%. - Pre-tax profits down 12%, largely due to currency impact. - EPS down 2% to 11.00p. - Dividend increased to 6.2p. - Cost reduction and efficiency program absorbs pricing pressures. - Dermagraft launched in UK, Canada and Finland. FDA panel recommendation opens the way for US launch.

Trading results

This year's results have been considerably affected by the strength of sterling and the US dollar. A disappointing financial result obscures a creditable performance by all of our businesses in generally difficult market conditions. Pre-tax profit before exceptional items amounted to 161 million pounds, a 12% decline on the previous year. Exchange rate impact reduced profits by 21 million pounds. This has been particularly severe as most of our manufacturing is in the UK and US, with exports feeding into European and Asian markets where currencies have been weaker. This affects our margins in the short term, but does not undermine our market strength or our ability to win and retain business. At constant exchange rates the sales picture was altogether more positive. Sales of 1,048 million pounds represented an underlying growth of 5%.

Profits were also affected by the 5 million pound launch costs of Dermagraft, our new biotechnology product for healing diabetic foot ulcers, launched in the UK, Canada and Finland.

On average, prices maintained their 1996 levels. Management placed considerable emphasis on cost reduction and these programs delivered savings of over 30 million pounds in 1997 such that underlying margins were not adversely affected.

Earnings per share before exceptional items were 11.00p - a decrease of 2%. Currency had an adverse effect of 12% on EPS.

Exceptional items totaling 8 million pounds were incurred during the year on a number of discontinued operations and on the integration of an acquisition.

Tax

The tax charge on profit before exceptional items fell from 32% to 24% following the savings in advance corporation tax that arise from paying the year's dividends as foreign income dividends.

Dividend

The board recommends a final dividend of 3.8p, making a total for the year of 6.2p compared to 6.0p in 1996. The dividend will be payable to shareholders on the register at the close of business on June 5, 1998. It will be paid as a foreign income dividend and the scrip offer will be suspended for this dividend.

Operating review

Products:

Wound management grew by an underlying 9% - led by outstanding performances from the Allevyn chronic wound range, post-operative dressings and medical first aid products. Our continuing gains in market share are based on an increasingly advanced product range with clear advantages over competitors and we are confident of moving from world No. 2 to market leadership by the end of the decade. In December, we broadened our range by acquiring a number of sophisticated wound care products from the Swedish group Perstorp.

In casting and support, where we are world leader, sales grew 3%. Good growth in the US and Asia was offset by public spending constraints in Europe. However, the synthetic splinting product we acquired from Parker Medical in 1996 had a good year in Europe, particularly in Germany.

Sales of orthopedic trauma and implant products rose 5%, broadly in line with the market. We maintained our world No. 2 position in trauma and achieved growth in our new knee products, both the Profix and Genesis II systems. We also increased sales in our Spectron hip and Ilizarov external fixation systems. Endoscopy had another good year with sales growth of 10%. The continuing success of the EP-1 endoscopic surgical shaver and Acufex hand-held instruments enabled further gains in market share to be made, strengthening our world leadership in arthroscopy.

Consumer healthcare achieved worldwide sales growth of 5% with good performances from Simple toiletries and Elastoplast, both up 7%.

Geographic:

In America sales grew by 7%, maintaining the performance reported at the half year. In the UK, sales growth was 3%, although our consumer and wound management businesses grew well. Continental Europe was affected by public spending constraints, but our 2% growth for the year was an improvement on the flat sales performance of the first half year. Sales in the Africa, Asia and Australasia region grew 8% overall. Asia remained our fastest-growing region, although growth slowed to 13%.

Developing biological solutions

Smith & Nephew's continued success depends on new products that improve, simplify and reduce the cost of patient care. To meet this requirement, we maintain a focused and innovative R&D program, investing 4% of turnover each year. Our New Technology business has the responsibility to take advantage of new advances and bring to market new products for the two main arms of our business; in the broad field of orthopedics where we are already overall market leader, and wound management, where we are currently world No. 2.

Our first biotechnology-based product, and the first to emerge from our joint venture with Advanced Tissue Sciences (ATS) of California, is Dermagraft. This is the world's first bioengineered human tissue product that can be stored ready for immediate use. Developed for the 1.5 billion pounds market for treating hard to heal chronic diabetic foot ulcers, it brings major benefits in healing rates, efficacy and cost compared with existing treatments. In 1997, we launched Dermagraft in the UK, Canada and Finland, with positive acceptance of its benefits. The worldwide roll-out will continue through 1998. In the US, the FDA advisory committee hearing at the end of January recommended Dermagraft for final FDA approval and we plan to launch there in the second quarter of this year.

Following the success of Dermagraft, we have extended our joint venture with ATS to cover most other wounds such as pressure sores and leg ulcers. Launch of new applications for the product will follow with the necessary regulatory approvals. In orthopedics, we are also working on radical approaches to the repair of cartilage, ligaments and other tissue types. Our program of tissue-engineered cartilage with ATS has reached the pre-clinical stage and we hope to move to clinical work during the year.

Prospects

Sales in the US, our most important market, continue to improve. We can also expect to see European sales advancing from this year onwards, although EMU convergence measures will still have an impact and the Asian economic crises are likely to cast a shadow over the region for the next two years. In 1998, we see further significant adverse currency effects impacting margins.

We reaffirm our commitment to increasing long-term shareholder value. Our cost reduction program, which exceeded 30 million pounds in 1997, will continue to protect competitiveness and underlying margins. We will continue to outperform most of our competitors by making effective use of our strong market positions, broad range and excellent innovative products. Committed to maintaining technological leadership through a strong R&D program, we have high expectations for our extended joint venture with Advanced Tissue Sciences. The global roll-out of Dermagraft will proceed through 1998.

John Robinson Chairman

Smith & Nephew shares trade on the London Stock Exchange. Shares are quoted on the SEAQ System, and prices may be accessed on the Reuter Equities 2000 Service under the symbol SMN.L, on Bloomberg under the symbol SN/, and on Quotron under the symbol SMU.EU. For further information, visit Smith & Nephew's web page at http:\\www.smithnephew.com. -0-

For tabular information please call Taylor Rafferty Associates at 212-889-4350

CONTACT: Chris O'Donnell 

Smith & Nephew Plc

011-44-171-836-7922

or

Brian Rafferty

Taylor Rafferty Associates

212-889-4350