Turnover passes the $1bn mark at S&N division

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TURNOVER at Smith & Nephew’s woundcare division crossed the $1bn (£632m) threshold for the first time in 2011, as the business benefits from innovations such as its negative pressure suction therapy.

The global medical devices firm yesterday highlighted the Hull-based division’s “excellent” performance, which helped make up for weak trading in orthopaedics.

Advanced wound management (AWM), which develops treatments for hard-to-heal wounds, delivered fourth quarter revenue growth of eight per cent, beating the market rate of three per cent.

Cost cuts helped the group restore margins in its fourth quarter after a tough third quarter, setting it back on course for what it expects will be a tough year ahead.

The group is cutting seven per cent or about 770 of its 11,000-strong workforce under plans to save $150m (£95m) a year. The company yesterday said it was too soon to say where jobs will go, but said it is committed to Hull.

“We expect continued tough market conditions in the coming year as global economic uncertainties continue to influence patient and payer decisions,” said chief executive Olivier Bohuon.

He said trading during the three months to the end of December exceeded its hopes. “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.”

S&N, Europe’s biggest maker of artificial knees and hips, reported trading profits of $279m in the fourth quarter, down one per cent but ahead of analysts’ expectations.

For the year as a whole, trading profits were down four per cent at $961m, while revenues increased four per cent to $4.2bn.

Trading margin of 25.2 per cent for its fourth quarter was a big improvement on the 19.8 per cent the company registered in its third quarter.

AWM reported revenues of $1.02bn for 2011, up seven per cent on $912m in 2010. Third quarter sales at the division hit $271m.

“Our belief that our products help to reduce both the human and economic cost of wounds, which has underpinned our strategic product development and marketing focus in the year, has been well received by our customers,” said the company.

The division launched 10 new products and line extensions during the quarter, and has been boosted by strong sales growth of its negative pressure wound therapy (NPWT).

In total, AWM added 35 new products and product varieties in 2011. “(We) expect to maintain this level of innovation throughout 2012,” said S&N.

One NPWT device, its Pico product, won approval in the US. The device is a portable, canister-free unit which lasts for seven days.

“We are seeing more focus on the economics of wound care which plays really well to the strengths of our business,” said a spokesman for the company.

“The Pico is a small, portable, negative pressure technology. With this technology you can go home and get on with your life for a week and it costs a fraction of the price. In wound care we’re pretty well positioned albeit the world is still difficult.”

He said it is too soon to say where the company will cut jobs, but added Hull will remain a key site for the group. So far 220 jobs have been cut globally.

“Hull is really important to S&N,” he said. “We have 150 years of heritage there; it’s the headquarters of the wound business; it did more than $1bn revenue for the first time ever in the year just gone.”

AWM grew fourth quarter revenues by nine per cent in Europe and 12 per cent in its rest of world territory, but US sales were flat, which S&N said reflected a strong quarter a year earlier.

The company expects its market-beating growth in AWM to continue in 2012, helped by NPWT, acquisitions and new products.

Endoscopy’s quarterly revenues increased seven per cent to $249m, helped by better business in sports medicine. However, orthopaedics revenues were flat at $586m as medical device makers see weak demand for replacement knees and hips.

Analysts at Investec said: “Smith & Nephew has delivered a good set of fourth quarter results. Not only were the numbers ahead of expectations, thanks to a stronger than expected margin performance, but guidance for 2012 is unchanged.

“The key risks to our target are that Smith & Nephew has a product recall or that austerity measures increase, impacting demand.”