Hip and knee equipment maker Smith & Nephew (SN.) reported revenues of $1.25bn for the third quarter to 30 September, up 4% on a like-for-like basis and better than consensus expectations. The shares traded up 8p to £17.15.
GAINING MOMENTUM
As a result of the company’s new commercial model, the business has been gaining momentum in underlying growth prompting an upgrade in expectations for full year revenue growth of 3.5% to 4.5%.
However due to increased investment in the business, foreign exchange rate headwinds and acquisitions, the company has downgraded its trading profit margin to the bottom end of the previous range of 22.8% to 23.2%.
Consensus analyst expectations were bang in the middle of the range at 23%, and will therefore likely be downgraded in light of the new guidance.
ALL CHANGE AT THE TOP
Investors will also need to digest the change of leadership after chief executive Namal Nawana stepped down on 21 October to be replaced by Roland Diggelman, who was previously chief executive officer of Swiss Pharma giant Roche Diagnostics and also a non-executive director of Smith & Nephew.
Mr. Nawana is credited with radically changing the company's culture and re-organising the business into a simplified structure of three global franchises: orthopaedics, sports medicine and advanced wound management.
The business has started to see the financial benefits of the new structure, so there is no reason why a new head will change what seems to be working, but it does introduce some uncertainty into the equation. Mr Nawana is sticking around until the end of the year to ensure a smooth handover.
Analysts at broker Shore Capital commented, ‘we are interested to hear the views of new CEO Roland Diggelmann, particularly with respect to M&A and the appetite for larger deals as we believe M&A is necessary for above market growth rates.’
CONTINUING ABOVE MARKET GROWTH
Sports Medicine Joint Repair experienced strong underlying growth of 11.7%, the third consecutive quarter of double digit growth. Advanced Wound Devices also saw strong underlying growth of 15.4%, supported by the company’s traditional negative pressure system called Renasys.
Knee and hip replacement saw good sales momentum delivering 4.6% and 2.6% growth respectively.
Emerging markets were the strongest region, reporting underlying growth of 16%.
