UPDATE 2-Smith & Nephew sees emerging markets bright in tough 2013

Thu Feb 7, 2013 7:00am EST

* Q4 trading profit $272 mln vs $279 mln

* Emerging market sales deliver 14 percent growth, Europe and U.S. tough

* Says 2012 market conditions to continue in 2013

* Shares up 0.5 pct

By Paul Sandle

LONDON, Feb 7 (Reuters) - Artificial joints maker Smith & Nephew PLC said emerging markets would help counter slow European and United States trade in 2013, as it posted a drop in fourth-quarter profits after rivals' new products hurt its knee implant business.

Having cut jobs and reorganised to reduce reliance on those slower markets, the company saw emerging market sales deliver 14 percent growth - against just 1 percent in the U.S. and 2 percent in Europe - while revenue in China rose 30 percent.

"We expect the market conditions seen in 2012 broadly to continue in 2013," Smith & Nephew said in a statement.

The British company, which competes with Johnson & Johnson , Zimmer and Stryker in implants, said overall trading profit was $272 million for the three months to end-December, down from $279 million a year ago, but up 2 percent excluding the impact of currency and acquisitions.

The fourth-quarter results beat market expectations on both the top and bottom line, and shares in the group, which have risen by 4 percent since the start of 2013, were 0.5 percent higher at 709 pence by 1051 GMT.

Chief Executive Olivier Bohuon said he did not expect business to improve in the United States and Europe, where the market for replacement knees and hips has been weak for a number of years. Patients in the United States in particular have been skipping non-essential operations because they are reluctant to take time off work for surgery in the difficult economic climate.

"We do not see any changes in dynamic in the U.S. in 2013," Bohuon told reporters. "Pricing has been down last year, as we were expecting, by about minus 3 percent, and that's what we believe will happen this year also."

Bohuon said the group's orthopaedic reconstruction business was likely to grow more slowly than the rest of the market until it launched new products towards the end of year. Its knee implant business was set back by the launch of new products by rivals.

However Smith & Nephew's advanced wound therapy unit, which includes treatments to speed up healing, grew by 4 percent, beating a flat market.

Berenberg analyst Tom Jones said overall it was a decent finish to 2012: "In a business this diversified it is hard to have everything firing on all cylinders at once and one should not let this tarnish what was otherwise a reasonably solid performance in our view." he said.

The group posted revenue of $1.08 billion, slightly down on a year ago, and adjusted earnings per share were 21.6 cents, down from 21.9 cents in the fourth quarter.

Analysts were expecting revenue of $1.07 billion, trading profit of $260 million and adjusted earnings per share of 20.4 cents, according to a company-compiled consensus.

It raised its final dividend by 50 percent, in line with the raise at the half-year stage, to 16.2 cents a share.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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