A profit warning is not how Olivier Bohoun would have wanted to exit Smith & Nephew (SN.), but it’s unlikely this disappointment will be his legacy. Instead, Mr Bohoun will be remembered for his vociferous defence of Smith & Nephew’s portfolio – in seven years he has never wavered from his opinion that the company is greater than the sum of its parts.
But not all agree. Activist investor Elliott Advisors is just one of the high-profile names calling for a break-up. It argues that the integration of several multi-million dollar acquisitions in the last few years has not paid off and has distracted attention from the group’s highest-quality assets. First-quarter numbers suggest it might have a point: group revenues were flat on a like-for-like basis, owing to a weak performance in the advanced wound business, which accounts for a quarter of the top line. Thus management has trimmed full-year sales guidance from 3 to 4 per cent growth to 2 to 3 per cent, while trading profit margins are expected to be flat on last year.
Those numbers look more depressing when compared with Smith & Nephew’s London-listed peer ConvaTec (CTEC), which recently reported 4 per cent growth in revenues in the first quarter, driven by one of the products in its advanced wound care franchise. Meanwhile, US-peer Coloplast delivered 8 per cent organic growth in its first half and upgraded annual expectations as momentum accelerated in its own wound care products.
Still, we don’t think the potential for Smith & Nephew’s products should be overlooked. In the first quarter, the number of surgeons trained to use the NAVIO surgical robot was up 30 per cent, which should translate to good sales growth in the second half. In sports medicine, joint repair – a rapidly growing sector – Smith & Nephew’s products are among the best in the world and revenues here rose 6 per cent on a like-for-like basis.
