Smith & Nephew (SN) chief executive Olivier Bohuon says the hip and knee group is "at the start of a new and exciting phase" in its 158-year history. Last year operating profit fell to $749m ($810m in 2013) due to slugglish growth - underlying revenue rose 2 per cent - and a slew of costs relating to a restructuring programme and the $1.7bn (£1.1bn) acquisition of ArthroCare. But Mr Bohoun now expects all the upheaval to bear fruit in the form of faster growth and higher margins.
Investors will be keen to see if the group can improve the performance of its flagging Advanced Wound Management (AWM) division. An ongoing tussle with US regulators over the hi-tech dressing product Renasys has hindered growth there: sales of advanced wound devices fell by more than a quarter in the final quarter. Growth in the advanced wound care unit also stalled, with fourth-quarter sales down 1 per cent. In fact, the entire division is underperforming the wider market. Segmental revenue dipped 2 per cent to $335m even as global market grew by about 4 per cent.
Thanks to the ArthroCare deal, however, Smith & Nephew's sports medicine joint-repair franchise - part of the dominant Advanced Surgical Devices (ASD) division - is in better health. A number of new product launches pushed final-quarter revenue up 8 per cent. Sales in the division as a whole grew 4 per cent to $914m in the fourth quarter, thanks to a strong performance from emerging markets.
Shares in Smith & Nephew have rallied 37 per cent over the past year. In a very buoyant market for mergers and acquisitions, that reflects support from Smith & Nephew's profile as a prime takeover target for Michigan-based medical devices company Stryker (US: SYK). Just before Christmas, rumours swirled that Stryker was planning an imminent bid for the London-listed group, but none has yet emerged.
Broker Numis Securities expects pre-tax profit of $1.16bn in 2015, giving EPS of 94.7ȼ, up from $1bn and 81.9ȼ last year.
| SMITH & NEPHEW (SN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,194p | MARKET VALUE: | £11bn | |
| TOUCH: | 1,194-1,195p | 12-MONTH HIGH: | 1,211p | LOW: 859p |
| DIVIDEND YIELD: | 1.6% | PE RATIO: | 32 | |
| NET ASSET VALUE: | 452ȼ* | NET DEBT: | 40% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (ȼ) | Dividend per share (ȼ) |
|---|---|---|---|---|
| 2010 | 3.96 | 895 | 69.3 | 15.8 |
| 2011 | 4.27 | 848 | 65.3 | 17.4 |
| 2012 | 4.14 | 1092 | 80.4 | 26.1 |
| 2013 | 4.35 | 802 | 61.7 | 27.4 |
| 2014 | 4.62 | 714 | 56.1 | 29.6 |
| % change | +6 | -11 | -9 | +8 |
Ex-div: 16 Apr Payment: 6 May *Includes intangible assets of $3.77bn, or 422ȼ a share £1=$1.52 | ||||
