The revival of Smith & Nephew is beginning to take hold, the FTSE 100 medical equipment maker’s chief executive has said after posting better-than-expected fourth-quarter results.
Underlying revenue rose 6.4 per cent to $1.46 billion in the final three months, leaving revenue up 7.2 per cent to $5.55 billion over the year, which was ahead of guidance issued a year ago.
Trading profit rose 7.6 per cent to $970 million, with margins up to 17.5 per cent, up from 17.3 per cent a year earlier, which was in line with forecasts.
Smith & Nephew, based in Watford, Hertfordshire, is one of the world’s biggest and oldest medical technology companies. The group employs about 18,000 people in more than 100 countries, making joint replacements, sports medicine and wound treatments.
It was founded in Hull in 1856, where it is investing more than $100 million in a new research and development and manufacturing facility on the city’s outskirts. It plans to “break ground” in the next few months before the site becomes fully operational in 2026.
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Deepak Nath, who became Smith & Nephew’s third boss in quick succession when he took charge in April 2022, has been seeking to revive the company’s inconsistent trading performance.
He has been focused on cutting overdue orders, launching new products and making productivity improvements to generate more than $200 million of annual savings by 2025.
Nath, 51, a former president of the Siemens Healthineers diagnostics business, said that “actions to transform Smith & Nephew have begun to translate into meaningful financial outcomes. We delivered revenue growth ahead of guidance for the full year and made important improvements to our trading profit margin against a challenging macro-environment.”
It includes a slowdown in the Chinese market, where distributors are reducing inventory in sports medicine ahead of Beijing’s new volume-based procurement programme.
“We hadn’t anticipated that in our planning,” Nath said, adding: “But overall, though, China is still a growth market for us in sports.”
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The sector has also been grappling with the Chinese government’s anti-corruption investigation in healthcare.
Despite that, revenue in Smith & Nephew’s sports medicine and ear, nose and throat business unit grew 10 per cent last year.
In its orthopaedics business, which Nath is focused on fixing, revenue rose 5.7 per cent, but the recovery in the United States has been slower, especially in US knee implants.
In the wound management business, its other major product unit, revenue was up 6.4 per cent.
Nath said that almost half of its growth last year was from products launched in the last five years, showing “our investment in innovation continues to deliver”.
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Last year it completed 20 new product launches.
Productivity has been boosted by standardising its pricing strategies across its portfolio and it has been making procurement savings to offset cost inflation.
The company reiterated its mid-term targets of underlying revenue growth of “consistently 5 per cent-plus” and at least 20 per cent trading profit margin in 2025.
For 2024, Smith & Nephew issued guidance of revenue growth between 5 per cent to 6 per cent and its trading profit margin is expected to be at least 18 per cent.
The encouraging update left shares in the company up 2.4 per cent, or 26¾p, at £11.52¼p, leaving them down 4.3 per cent over the past 12 months.
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Analysts at Barclays said: “Overall, whilst the organic beat was expected by investors post peer reporting, in-line profitability and reiterated mid-term targets are likely taken well by the market, given investor concerns on the margin.”
