Margin recovers at Smith and Nephew

2nd Feb 2012 07:04

Trading profit margin recovered at Smith and Nephew in the fourth quarter as the medical devices maker boosted revenue and cut costs.Smith & Nephew (S&N) saw revenue rise 3.66% to $1,106m in the final three months of 2011 from $1,067m in the corresponding quarter of last year, a tad below market expectations of $1,115m. Underlying revenue growth was 3% year-on-year.Profit before tax declined to $210m from $258m the year before, but the group preferred to flag up trading profit, which edged up to $279m from $278m the year before, as this enabled it to highlight an improvement in trading margin to 25.2%, from 19.8% in the preceding quarter. The company had been targeting a margin of 24% in the fourth quarter.Trading margin over the full year, however, declined by two percentage points to 22.5%, but the group expects to achieve a modest increase in trading profit margin in 2012.The orthopaedics division showed signs of getting back on its feet again, with fourth quarter revenue steady on a year-on-year (YOY) comparison at $586m (2010: $584m), but was 5% higher once 2010's five extra sales days are stripped out. Trading profit margin in this division increased to 23.0% from 15.6% in the third quarter. Revenue growth in the endoscopy division was more eye-catching, rising 7% year-on-year to $249m. Revenue growth was 3% in the US, 8% in Europe and 10% across the rest of the world.The advanced wound management's revenue was up by 8% YOY to $271m in the quarter, growing by more than twice the estimated global market rate of 3%, S&N said. Trading profit margin improved from 27.5% to 27.9%."Our Endoscopy and Advanced Wound Management businesses delivered strong revenue growth and excellent trading profit margins, with Advanced Wound Management growing at more than twice the market rate," said Olivier Bohuon, S&N's Chief Executive Officer. "In Orthopaedics, our rigorous management actions led to a significant improvement in Q4 [fourth quarter] profitability," he added.The group confirmed that cash costs of its restructuring efforts will be $160m, while there will also be non-cash costs of $40m. "We expect more than half the costs and about half the benefits to be achieved by the end of 2012. $26m of these costs were incurred in the quarter," the company revealed.Fourth quarter basic earnings per share (EPS) surged to 20.5 cents from 15.6 cents the year before. Adjusted EPS inched up to 21.9 cents from 21.6 cents in the fourth quarter of 2010. The final dividend has been whacked up by one-tenth to 10.8 cents. Looking ahead, the group is not expecting any let-up in the tough market conditions in 2012. It expects its sports medicine franchise to perform slightly ahead of the market, while the advance wound management business should also continue to grow above the market rate.The orthopaedic reconstruction unit's sales are expected to grow at close to the market rate, while the orthopaedic trauma unit, which is dealing with a reduction in royalty income from the US, revenue is expected to slightly trail that of the market.The market applauded the recovery in margins and the shares rose 33p to 645.5p in the first two hours of trading. jh