Medical technology company Smith & Nephew (SN.) has given investors a lot to digest with in-line full-year profit, a new growth plan, plus share buyback and a change at the top with chief executive Roland Diggelmann being replaced by Deepak Nath.
Overall, the reception was positive, and the shares gained 2.2% to £12.06 having lost around a fifth over the last year as elective surgeries were stymied by Covid-19 pressures.
Business appears to be getting back to normal with revenues to 31 December growing 14.3% to $5.21 billion while trading profit jumped 37% to $936 million, equating to a margin of 18%. Profitability improved due to improved trading and cost containment.
Underlying growth in revenues was 10.3% with Sports Medicine & ENT and Advanced Wound Management revenues now above pre-pandemic levels while Orthopaedics was impacted by supply chain constraints.
Adjusted earnings per share was 25% higher at $0.81.
NEW GROWTH PLAN
The company launched a ‘strategy for growth’ plan intended to improve productivity and commercial execution. The Orthopaedics and Sports Medicine & ENT franchises are being brought under a single leadership team to ‘better address growth opportunities’.
The medium-term financial goals are to consistently achieve underlying revenue growth of between 4% and 6% and increase the trading profit margin to at least 21% by 2024 with further improvements thereafter.
Management has guided for 2022 revenues to grow between 4% and 5% assuming hospital staff shortages and global supply chain issues remain throughout the year. Growth is expected to be second half weighted.
The firm is targeting a 0.5% improvement in the trading margin as efficiencies and operating leverage gains are offset by inflation cost pressures.
CHANGE AT THE TOP
The company said current chief Roland Diggelmann would step down by ‘mutual agreement’ on 31 March 2022 and be replaced by Deepak Nath on 1 April.
Russ Mould, investment director at AJ Bell commented: ‘The new man at the top is Deepak Nath who comes from the well-regarded but badly-named Healthineers unit within German multinational conglomerate Siemens.
‘Investors will be hoping Nath can repeat the growth and margin improvements he achieved within that business at Smith & Nephew.
‘He should at least enjoy a more favourable backdrop than Diggelmann faced, with strong demand expected as healthcare systems look to clear a substantial backlog of patients built up thanks to Covid.’
After recommending a final dividend of $0.23 per share, the annual dividend was unchanged at $0.37 per share and the company intends to start a new regular annual share buyback programme starting in 2022.
READ MORE ABOUT SMITH & NEPHEW HERE
Disclaimer: Financial services company AJ Bell referenced in this story owns Shares Magazine and the author Martin Gamble and editor Daniel Coatsworth own shares in AJ Bell.
