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Smith & Nephew sees improving health in market as sales pick up
HEALTHCARE giant Smith & Nephew pointed to signs of increasing stability as its third quarter results beat market forecasts.
The group, Europe's leading maker of replacement knees and hips, has been hit by patients in the United States opting not to have elective surgery during the recession.
However, sales have now started to pick up, and S&N said the market shows early signs of stabilising. "We saw the volumes in the US market particularly increase a little bit over the second quarter sequentially, so (there has been) a couple of per cent increase in volumes, so that was a good sign," said chief executive David Illingworth.
"Market conditions remain challenging, but are showing some early signs of stabilising."
S&N, which has its Advanced Wound Management business based in Hull, said revenue during July to September was up one per cent on an underlying basis at $915m (552m). Analysts had been expecting an average of $908m.
Trading profit grew 22 per cent to $208m, which Mr Illingworth said was thanks to improved operating efficiency.
"We continue to invest in new products and medical education programmes and are well positioned as market conditions improve," said Mr Illingworth.
Advanced Wound Management, which employs about 1,000 in Hull and more than 90 in Gilberdyke, gave the group's strongest performance. Compared to flat sales in Orthopaedics and a one per cent increase in Endoscopy, the division grew underlying sales by three per cent to $217m.
Advanced Wound Management's sales growth was in line with the market rate, which S&N said reflected "softer market conditions". The division's president, Roger Teasdale, said this was down to distributors and wholesalers slashing inventories, plus governments driving tough bargains on pricing.
"In terms of all parts of our business, Advanced Wound Management has probably been most resilient," he said. "The type of hard-to-heal chronic wounds are not really (affected by) discretionary (spending). Our business is probably the most robust and insulated, but the actual economies of inventories and pricing, we are still affected by these pressures."
In Europe, sales of its Negative Pressure Wound Therapy (NPWT) – which applies suction to a wound to encourage tissue repair – helped lift sales by eight per cent. S&N has had recent success in Germany, the UK and Australia, where it has been defending NPWT's intellectual property. However, US revenues fell by five per cent as it was harder hit by destocking and pricing.
The group said work is underway on installing a second production line at its new manufacturing facility in China, where it is supplying Allevyn foam for its moist healing dressings. Mr Teasdale said as well as cutting manufacturing costs, this will help it break into the Chinese market.
S&N said its was able to lift the division's trading margin by 4.6 per cent to 21.8 per cent, which it said reflected tough cost control and its programme to improve earnings. S&N also slashed $129m off its net debt over the quarter, taking it to $1.08bn.
Analysts at Evolution Securities said they were a "strong set of results", ahead of its forecasts.
"The company continues to deliver on its Earnings Improvement Programme which is producing back-ended improvement as management predicted," they said. "Trading margin improved across all divisions above our expectations, with Advanced Wound Management particularly strong."
Breakthrough in helping victims
Smith & Nephew recently launched a ground-breaking new product in Europe to treat burns victims and road accident injuries.
The Acticoat Flex wound dressing, which was designed at S&N's Hull plant, provides innovative infection control and prevention.
The product will be used to treat larger, more difficult to heal wounds with a flexible dressing. It can be used to treat difficult areas such as the face, hands and limbs.
The wound dressing consists of a large sheet coated in Silcryst nanocrystalline silver. Silver has long been recognised as a useful treatment to prevent infection.
Both products received a good reception following their launch in Canada late last year.
Dr Sarvesh Logsetty, director of Manitoba Firefighters Burn Unit and a Professor at the University of Manitoba, said the dressings are particularly suited for treating patients with wounds highly susceptible to infection.
"These dressings are preferable when treating wounds in areas of the body that require a high level of conformability and when it is important to minimise trauma to the wound when removing the dressing," he said.
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Wednesday 23 May 2012
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