Smith & Nephew Reports Flat 2015 Sales

This is the way 2015 ended for Smith & Nephew plc: Not with a bang, but a whimper. A considerable whimper.

The United Kingdom-based firm posted flat fourth-quarter and full-year sales, though the company reported underlying growth of 5 percent for the quarter and 4 percent for the year. Company officials, naturally, focused on the solid underlying growth data and claiming the firm finished the year strongly despite a mere $17 million revenue increase. “The group finished 2015 strongly, led by an excellent quarter in the U.S. across Sports Medicine, Knee Implants and our Advanced Wound Management businesses. At the same time, we successfully continued to grow our businesses in Europe and the Emerging Markets,” CEO Olivier Bohuon said. “For the full year we delivered higher underlying growth, trading profit margin and adjusted earnings year-on-year. Our strategy is producing an improved performance through focused innovation, better commercial execution and greater efficiency. We expect to deliver continued good underlying revenue growth in 2016 as we benefit from our investments in existing businesses, acquisitions, and pioneering technologies.”

Revenue totaled $1.25 billion in the three-month period ending Dec. 31, an $8 million increase from the same period in 2014. Full-year sales rose from $4.61 billion to $4.63 billion. Foreign exchange headwinds were partially offset by acquisitions, which added 2 percent to the reported Q4 growth rate.

Advanced Wound Bioactives posted the best fourth-quarter increase with a 16 percent sales growth (to $96 million). Sports Medicine Joint Repair and Knee proceeds each rose 6 percent (reported) to $169 million and $248 million, respectively. Sales were down in several reporting categories, with Advanced Wound Care suffering the largest loss — falling 7 percent to $196 million (reported). Bigwigs attributed the dropoff to a change in reimbursement for the Oasis product.

Arthroscopic Enabling Technologies revenue slipped 6 percent but rose 3 percent (underlying growth) to $159 million, due mainly to a beefed-up portfolio from Smith & Nephew’s purchase of ArthroCare. Hip sales slid 4 percent to $163 million (reported), but executives said solid growth in core hips was offset by declining sales of resurfacing systems. Trauma & Extremities sales declined 2 percent (reported) to $127 million in the quarter, thanks mostly to a slowdown in the company’s Chinese business. The Other Surgical Businesses franchise delivered a 9 percent sales growth, with Ear, Nose & Throat achieving better-than-expected gains.

Smith & Nephew’s U.S. revenue swelled 9 percent in Q4, with Sports Medicine Joint Repair, Knee Implants and all its Advanced Wound Management franchises performing strongly. Revenue in other established markets climbed 2 percent, as did proceeds in emerging markets, where sales slipped in China across the Sports Medicine, Trauma and Advanced Wound Care franchises.

Only one of Smith & Nephew’s reporting divisions sustained growth in 2015. The Sports Medicine, Trauma & Other sector increased sales 6 percent (reported) to $1.88 billion, fueled mainly by a staggering 39 percent surge in Other Surgical Businesses revenue (to $205 million). Sports Medicine Joint Repair proceeds jumped 5 percent (reported) to $606 million, while Arthroscopic Enabling Technologies sales rose 6 percent to $573 million. Trauma & Extremities revenue tumbled 2 percent to $497 million.

Reconstruction sales fell 3 percent ($1.48 billion), dragged down by an 8 percent deficit in hip implants ($604 million). Knee proceeds barely budged, climbing only $10 million to $883 million.

Advanced Wound Management sales decreased 4 percent (reported) to $1.26 billion, anchored by a 13 percent plunge in Advanced Wound Devices revenue and a 6 percent decline in Advanced Wound Care sales. The only franchise posting a gain was Advanced Wound Bioactives, which rose 7 percent to $344 million.

Trading profit was $1.09 billion for the full year, up $44 million compared to 2014. The trading profit margin was 23.7 percent (FY 2014: 22.9 percent), up 80 bps, reflecting the benefits from the Group optimization program and synergies from the ArthroCare acquisition.

Adjusted earnings per share rose 2 percent to 85.1 cents compared with 83.2 cents in 2014. Basic earnings per share was 45.9 cents, and trading cash flow was $936 million in 2015. Executives forecast the company’s trading profit margin to reach or exceed 24 percent this year, including the 60 bps dilution from investing in the Blue Belt Technologies product pipeline. However, profit margin could be reduced significantly — perhaps as much as 120 bps — based on currency headwinds and foreign exchange rates.