Review from our Chairman and Chief Executive
Full Year Results and Dividend
Group Revenue
Group Trading profit
Adjusted earnings per share3
Full year results
Smith & Nephew increased reported revenues by 13% to $3,801 million compared to last year. The underlying sales growth was 6% after adjusting for the effects of acquisitions of 5% and currency translation of 2%.
Underlying trading profit for the year was up 6% to $776 million with a trading margin of 20.4%, slightly below the 21.0% achieved last year, due to consolidating the lower margin Plus revenues and lost sales, our investment in the NPWT market and approximately $30 million of additional compliance costs. These cost pressures have been largely offset by the benefits from our EIP, where our initiatives are progressing well both in their planning and execution.
The net interest charge for the year was $66 million. The tax charge was $187 million including tax on adjusting items. The effective tax rate for the year excluding adjusting items was 30.6%1.
Adjusted attributable profit2 was $493 million (2007: $480 million) and attributable profit was $377 million (2007: $316 million).
Adjusted earnings per ordinary share ("EPSA")3 rose by 7%4 to 55.6¢ (278.0¢ per American Depositary Share ("ADS")). Reported basic earnings per share rose by 25% to 42.6¢ (213.0¢ per ADS).
We are a cash generative business, with trading cash flow5 of $612 million compared with $602 million a year ago. This is a trading profit to cash conversion ratio of 79% compared with 85% in 2007. We have reduced our net borrowings from a reported peak of $1,505 million at the end of June 2008 to $1,332 million at the year end and our principal loan facility of $2.5 billion runs until May 2012.
Share buy-back programme
The Group purchased 16 million of its own shares during the year at a cost of $193 million. In the light of current conditions in the financial markets we decided in September 2008 to suspend our share buy-back programme. There has been no change in our long term target balance sheet, our expectations of cash generation or our acquisition policy. We will keep the programme under review going forward.
Dividend
The second interim dividend has been declared at 8.12¢ per share, a 10% increase in line with our current dividend policy, and will be paid on 8 May 2009 to shareholders whose names appear on the Register of Members at the close of business on 17 April 2009. Shareholders may participate in the Company's dividend reinvestment plan.
The Sterling equivalent per ordinary share will be set following the record date. Shareholders may elect to receive their dividend in either Sterling or US Dollars and the last day for election will be 15 April 2009. The recent strengthening of the US Dollar against Sterling is likely to result in a significant increase in the Sterling equivalent dividend over the prior year.
Together with the first interim dividend of 4.96¢ per share (24.8¢ per ADS) this makes a total declared dividend of 13.08¢ per share (65.4¢ per ADS) for the year 2008, up 10%.
Notes
- The effective tax rate is on profit before restructuring and rationalisation expenses, acquisition related costs and amortisation and impairment of acquisition intangibles.
- Adjusted attributable profit is before the expenses of restructuring and rationalisation, acquisition related costs, amortisation and impairment of acquisition intangibles and taxation thereon.
- Adjusted earnings per ordinary share (“EPSA”) is stated before restructuring and rationalisation expenses, acquisition related costs, amortisation and impairment of acquisition intangibles, legal settlement (in 2007) and taxation thereon. A calculation of EPSA is provided in Note 2 to the Summary Financial Statement.
- Adjusted earnings per ordinary share (“EPSA”) growth is as reported and not underlying.
- Trading cash flow is cash generated from operations less capital expenditure but before the costs of macrotextured settlements, acquisition related costs and restructuring and rationalisation expenses.