* CEO sees continuing tax-driven inversion deals in sector
* Low-cost hips and knees to address 5-10 pct of U.S. market
* Q2 revenue $1.15 billion vs consensus $1.14 billion
* Trading profit $255 million vs consensus $250 million
(Updates and recasts with further share price gains)
By Ben Hirschler
LONDON, Aug 1 Smith & Nephew (S&N),
Europe's largest maker of artificial joints, expects continued
deal-making in the medical technology sector but has not come
under pressure from investors to sell out, its chief executive
said on Friday.
Olivier Bohuon, who has eschewed a wave of mergers sweeping
the industry, said S&N had a bright future as a standalone group
after reporting improved second-quarter results that came in
just ahead of analyst expectations.
The British company is no stranger to bid talk, having been
touted as a target, on and off, ever since receiving an approach
from Unilever in 1968.
But the deal rumours have lately grown louder, with a wave
of U.S. healthcare companies now striving to move their tax
bases abroad in a tactic known as "inversion".
Reports that Stryker was considering such a move on
S&N in May sent its shares surging, only for the U.S. rival to
rule out bidding for six months.
S&N shares were up again on Friday, gained 3.7 percent by
While Bohuon sees no strategic case for getting bigger in
orthopaedics for the sake of it, he acknowledged that inversion
deals were likely to continue.
"Are we going to remain independent? It is not up to me to
tell you that - I don't have the answer. But I believe we have a
good future, we have great growth in front of us, we have a
number of new programmes and I believe success is here," he told
reporters in a conference call.
"I don't have any specific pressure from shareholders at
The company reported a 10 percent rise in second-quarter
trading profit as it regained momentum after a weak start to the
year, despite problems in wound management.
It made a quarterly trading profit of $255 million on
revenue of $1.15 billion, up 7 percent from a year earlier.
A company-supplied survey of analysts had forecast trading
profit of $250 million on revenue of $1.14 billion. Adjusted
earnings per share of 20.4 cents, up from 18.0 cents a year,
also came in above an expected 19.4 cents.
S&N took a $25 million provision for problems associated
with its Renasys negative pressure wound therapy product and
said it expected a $30 million hit to revenue this year.
"This should be a temporary issue, so is not significant to
the longer term, in our view, and should not detract from what
were otherwise reasonably strong results," said Tom Jones, an
analyst at Berenberg Bank, which has a "hold" rating on S&N
Bohuon also unveiled a new "no frills" service for U.S.
customers that will slash the cost of buying its replacement
hips and knees.
The so-called Syncera service is designed to strengthen
S&N's position in a highly competitive market and appeal to
between 5 and 10 percent of U.S. hospitals that cannot afford
its full-service offering.
By stripping away some traditional costs, such as sending a
company technician to attend procedures, U.S. customers using
Syncera could cut costs by 40 to 50 percent.
S&N said it expected to start shipping the first product
under the new system shortly, adding that its profit margins
would remain broadly similar since operating costs under Syncera
would be sharply lower.
Bohuon said he remained confident in the company's prospects
this year, although the wound management business was expected
to grow more slowly than the wider market.
(Editing by Tom Pfeiffer and David Holmes)