UK devices group Smith & Nephew has posted a strong set of results for the fourth quarter despite taking a major earnings hit because of a £80 million provision taken to cover the cost of litigation arising from an S&N macrotextured knee product withdrawn from the market in 2003.
The money has been set aside after some of its insurers refused to pay compensation claims from patients. So far S&N has paid out £17 million to settle 510 claims, while around 250 cases have still to be resolved.
As a result, net income collapsed 96% to just £2 million but pre-tax profits before goodwill and exceptional items was £83 million, a 15% increase over the fourth quarter last year. Sales for the quarter climbed 6% to £332 million, with strong growth across the board – including orthopaedics (up 20%), endoscopy (up 16%), and advanced wound management (up 5%).
What impressed analysts most, however, was the way S&N performed in the US, where around half of its business is done, and its ability to grow in expanding markets.
The company concluded by noting that sales are expected to increase by 12% to 13% in 2005, and plans are afoot to expand the S&N sales force in the USA even further. Earnings for the full year are forecast to rise by between 14% and 16%.
S&N’s share price didn’t move much when the results came out and the $80 million charge had been announced previously. However the stock has risen some 17% over the last year, and with an ever more ageing yet active population, the future looks rosy for the firm.