- Full 2007 Annual Report
- Annual Report
Review from our Chairman and Chief Executive
Business Reviews
In the business reviews that follow the revenue growth percentages are in underlying terms, that is they exclude the effects of currency translation and the effects of acquisitions. Underlying revenue growth provides a consistent year-on-year measurement of business performance. Revenue, trading profit and operating profit by business segment is set out in Note 3 and Note 4 of the Summary Financial Statement.
Orthopaedic Reconstruction
Revenues grew by 13% to a total of $1,240 million, making this the 5th consecutive year of above market growth which in 2007 grew by an estimated 9%. The active informed patient segment is the focus of this business and the segment in which the Company continues to have a clear competitive advantage.
Reconstruction revenues in the US at $618 million grew by 18% benefiting from continued BHR° procedure adoption. Outside the US Reconstruction revenues grew by 7%. Trading margin for the year was 23.8%, 160 basis points lower than in 2006.
Hip revenue growth remained strong at 21% worldwide. In the US hip revenues grew by 37% as BHR enjoyed a continuing high level of acceptance and benefited towards the end of the year from the publication of the Australian registry data which showed that the BHR has superior survival rates to all other hip resurfacing products.
Worldwide knee revenue growth was 9%, with knee growth in the US of 7% affected by the focus of the sales force on BHR but towards the end of the year an improved balance in the sales force’s focus drove some recovery in knee revenues. JOURNEY° Bi Cruciate Stabilised Knee System and JOURNEY DEUCE° Bi-Compartmental Knee System revenues both grew well. Outside the US knee revenues grew 11%.
In September 2007 an industry wide settlement was agreed with the US Department of Justice. As part of the settlement a Monitor was put in place for 18 months. Smith & Nephew Reconstruction continues to work closely and co-operatively with him and his team. The business is co-operating fully with the Securities and Exchange Commission in their informal investigation into industry wide relationships with surgeons in some European countries.
Orthopaedic Trauma and Clinical Therapies
Trauma and Clinical Therapies revenues grew by 13% to $618 million with growth in the US of 13% and outside the US of 15%. Trading margin for the year was 20.7%, 110 basis points over 2006, as the benefits of the EIP driven reorganisation begin to be realised.
Fixation product revenues grew by 10% worldwide, compared to estimated market growth of 10%, and by 11% in the US, and 7% outside the US. Revenues from TRIGEN° INTERTAN° Nails and the PERI LOC° Locked Plating System, including the new VLP ranges, drove growth. The Company is determined to improve this level of growth to above the market and is focused on measures to improve the quality of service to customers, especially in the US.
Clinical Therapies revenue growth was 20% with a strong contribution from the EXOGEN 4000+° Ultrasound Bone Healing System which grew revenues well above the market growth rate. The joint fluid therapies market continued to be impacted by reimbursement pricing pressure causing a slowing of revenue growth in this market segment.
Endoscopy
Endoscopy revenues grew to $732 million, an increase of 10%. This is the first year of double digit revenue growth in Endoscopy for five years. This growth has been fuelled by investment outside the US in the sales force and marketing, and by the increasing focus on arthroscopy. Revenues grew by 15% outside the US and 4% in the US. Smith & Nephew continue to see very good opportunities in the markets in Europe and Asia. Trading margin for the year was 20.1%, 110 basis points over 2006.
Arthroscopy revenues grew by 10%, slightly behind our current estimate of market growth due to the focus on the slower resection segment. Repair revenues at 16% continue to outpace resection growth where revenues grew by mid single digits.
Digital Operating Room (“DOR”) and Visualisation revenues grew by 9%. The new HD camera, launched earlier in the year, has been well received in the market.
Advanced Wound Management
In 2007 a series of management actions have been taken to restructure Advanced Wound Management. These actions include the announcement of the move to China of a significant proportion of manufacturing, the renegotiation of supply contracts and the elimination of some management positions. Momentum is now building in this business and Smith & Nephew continues to see substantial potential.
Revenues grew by 5% to $779 million. US revenue growth was 9%. Outside the US revenues grew by 4% against a background of tighter European healthcare budgets. Trading margin for the year was 17.5%, 120 basis points over last year as management actions taken as part of the EIP realise benefits.
Revenues in the exudate management segment grew above the market at 13% benefiting from a strong performance from the ALLEVYN° dressings range and the launch of ALLEVYN Ag Absorbent Silver Barrier Dressing in September 2007. Infection management grew more slowly as a result of lower US demand. The surgical segment continued to grow strongly, from a small base, driven by the VERSAJET° Hydrosurgery System and achieved over 45% growth.