Smith & Nephew’s revival is taking hold, according to the chief executive of the FTSE 100 medical products maker after it posted better-than expected fourth-quarter financial results.
The underlying revenue increased by 6.4 percent to $1.46 Billion in the last three months. This brings the revenue for the entire year up by 7.2 percent to $5.55 Billion, exceeding the guidance given a year earlier.
Trading profit increased 7.6% to $970 Million, margins rose to 17.5%, up from 17.3% a year ago, and was in line forecasts.
Smith & Nephew, based in Watford (Hertfordshire), is one of the oldest and largest medical technology companies. The group has about 18,000 employees in over 100 countries. They make joint replacements, sports medicines and wound treatments.
Hull was founded in 1856. It is now investing over $100 million into a new manufacturing and research facility in the city’s suburbs. The company plans to “break the ground” within the next few weeks before the site is fully operational by 2026.
Deepak Nath has tried to improve the inconsistent trading performance of Smith & Nephew since he became its third boss, in rapid succession, in April 2022.
He has focused on reducing overdue orders and launching new products, as well as improving productivity to generate annual savings of more than $200,000,000 by 2025.
Nath, 51 and a former Siemens Healthineers Diagnostics president, stated that “actions taken to transform Smith & Nephew are beginning to yield meaningful financial results.” We exceeded our full-year revenue guidance and improved our trading margin in a difficult macro environment.
This includes a slowdown on the Chinese market where distributors are reducing their inventory of sports medicine in preparation for Beijing’s new program of volume-based purchasing.
Nath added: “But in general, China remains a growing market for us.”
In addition, the sector is also grappling with China’s anticorruption investigation of healthcare.
Despite this, Smith & Nephew’s Sports Medicine and Ear, Nose and Throat business unit grew by 10 percent last year.
The revenue growth in its orthopaedics division, where Nath is focusing, was 5.7 percent, but recovery in the United States, particularly in knee implants, has been slower.
The wound management unit, the company’s other major product division, saw a revenue increase of 6.4%.
Nath stated that nearly half of the growth in its business last year came from products introduced in the past five years. This shows “our investment in innovative technology continues to pay off”.
In the last year, 20 new products were launched.
Standardising pricing strategies has increased productivity and procurement has been reduced to counter cost inflation.
The company reiterated that its mid-term target is to achieve a revenue growth “consistently above 5 percent” by 2025 and a trading profit margin of at least 20%.
Smith & Nephew has set a revenue growth target of between 5 and 6 percent for 2024. Its trading profit margin will be at least 18%.
The shares of the company rose 2.4 per cent or 26 3/4p to £11.52 1/4p. They are down 4.3 percent over the last 12 months.
Barclays analysts said that investors were expecting the organic beat, but the in-line profit and the reiterated mid-term goals are likely to be well received by the market given the investor concern on the margin.