26th Jul 2018 18:37
LONDON (Alliance News) - Smith & Nephew PLC on Thursday reported a rise in interim revenue but a fall in profit, as it progressed a programme designed to generate annualised cost savings of USD50 million.
Revenue for the first half of the year rose 4.3% to USD2.44 billion from USD2.34 billion, though pretax profit slipped 11% to USD341 million from USD383 million.
The revenue growth included a foreign exchange tailwind of 3%, with sales up 1% on an underlying basis.
Established Markets returned to growth, Smith & Nephew said, with "improved dynamics" across Hip and Knee Implants and strong performance from Sports Medicine and Advanced Wound Devices.
Nonetheless, the medical devices maker said it remains on track to deliver its full-year underlying revenue growth guidance of 2% to 3%, and a trading profit margin "at or above" that achieved in 2017.
In the half, the Accelerating Performance & Execution programme, initiated at the end of 2017, incurred restructuring costs - primarily cash - of USD58 million. Smith & Nephew said the actions undertaken should, however, result in annualised benefits of more than USD50 million.
Smith & Nephew declared a dividend of 14 cents per share for the half, up 14% on last year.
"In my first few weeks at Smith & Nephew, I have reviewed our businesses and operations and validated that we have an excellent product portfolio with numerous best-in-class medical technologies. We are now focused on energising and organising the business to accelerate growth," said Chief Executive Namal Nawana.
Berenberg said the results were an example of "when not bad its good", adding that they were "nothing stellar" but still in line with or even better than consensus.It expressed relief at Smith & Nephew's guidance reiteration, as the recent appointment of Namal Nawanda as chief executive officer had created speculation as to whether he would "reset expectations".
The medical company operates three broad divisions: sports medicine, trauma & other; reconstruction; and advanced wound management.
In its second quarter the company's sports medicine division recorded revenue of USD502 million, up 5% from USD480 million, in line with Brenberg's expectations. Within that division, revenue from its trauma & extremities franchise dropped 4% while all other franchise revenues increased.
Reconstruction, including Smith & Nephew's hip and knee reconstruction franchises, recorded 4% revenue growth to USD414 million from USD396 million but still fell short of Berenberg's USD262 million prediction.
"Knee is the company’s largest franchise and has historically been one of its better performing units. Hence this return to market growth is perhaps slightly concerning," said analysts at Berenberg.
The company's advanced wound management franchises performed USD10 million ahead of Berenberg's expectations, reaching USD329 million from USD582 million. This accounted for most of the difference between Smith & Nephew's financial results and Berenberg's predictions.
Berenberg expressed the view that commercial execution will be the main driver behind Smith & Nephew's earnings.
"The challenge is figuring out how to improve the commerciality of the business without causing more damage than benefit. Business and employees can be resistant to change, human nature tends to mean as much, but change is definitely needed," the analysts said.
Berenberg maintained both its Hold rating on Smith & Nephew and its GBP13.70p target price.
Shares in Smith & Nephew closed up 3.0% at 1,361.00p on Thursday.
Related Shares:
Smith & Nephew