Following Q1 Report, Smith & Nephew Announces Entry Into India

Smith & Nephew plc, based in the United Kingdom, has agreed to acquire Adler Mediequip Pvt Ltd. and with it, the brands and assets of Sushrut Surgicals Pvt Ltd., which makes orthopedic trauma products in India for the India market. The financial terms of the deal were not disclosed.

This is Smith & Nephew’s entry point into India, which has a growing trauma segment.

“Through this important acquisition we are continuing to deliver on our strategic priorities to build leadership positions in the emerging markets, to supplement our organic growth through acquisitions, and to bring forward a mid-tier offering for these regions,” said Olivier Bohuon, CEO of Smith & Nephew. “Sushrut-Adler has a long and distinguished history, a reputation for quality products and a loyal customer base. Its trauma portfolio strongly complements our established positions in orthopedic reconstruction and sports medicine in India, giving us an enhanced platform from which to continue to build a sustainable business.”

Adler employs 116 people, and approximately 50 Sushrut employees (which include a sales force that directly supports the Adler business) will also transfer as part of the arrangement. Products include primarily trauma implants and instrumentation, but the companies also have spine and limb salvage portfolios.

Smith & Nephew makes orthopedic products as well as wound care management products. The company just released its first quarter 2013 results. Despite strong performance from its advanced wound management portfolio performed strongly (sales up 5 percent), growth for the first quarter was essentially flat, just shy of $1.1 billion. Pricing pressures and increased expenses caused a decline in first-quarter profit of 10 percent to $143 million, compared with $159 million a year earlier. The company’s knee and hip replacement business have been suffering from a combination of tough markets in the United States and Europe, and some product-specific issues. Revenue for the firm’s Advanced Surgical Devices division, which makes up 70 percent of the overall business, was down from a year ago at $760 million in the quarter compared with $839 million a year earlier). Emerging markets business grew revenue by 19 percent, driven by China and the Middle East.

“We will continue to invest in our growth products, franchises and geographies and maintain adequate headroom for further significant acquisitions,” Bohuon added. “We have increased the level of dividend and moved to a progressive policy. Further to these commitments, today we are announcing the start of a share buy-back program to return $300 million of surplus capital to our shareholders.”

The outlook for the rest of the year is unchanged, new Chief Financial Officer Julie Brown told analysts during a conference call.

“We do expect, however, to see some variation in performance at the product franchise level. In particular, Healthpoint [Biotherapeutics, the company’s recent wound care acquisition] is performing most strongly than we previously guided, and conversely, we’re seeing slightly lower hip and knee growth relative to the market than we had expected. In terms of margin, as you know, we expect to be below the 2012 level,” Brown said. “We expect the revenue trends of Q1 to continue into Q2. We expect the second half of the year to be stronger, as we benefit from new product introductions. The two sales days we lost in Q1 we will make up for in Q2 and in Q4 this year. And we expect Healthpoint growth to be over 20 percent for the full year. In terms of margin, the cost of this accelerated investment will start to come through in Q2, ahead of the benefits.”