Smith & Nephew underlying growth remains slow, as expected

Smith & Nephew's growth slowed a little in the second quarter as expected but earnings beat forecasts and the medical products group said it remained on course for the full year.

The hip and knee replacement group, which replaced chief executive Olivier Bohuon with Namal Nawana in May and in the same month replaced it full year sales guidance after a weak first quarter, reported 4% growth in revenues to $1.25bn for the second quarter to 30 June, with underlying growth of just 2%.

This meant sales, which had risen 5% in the first half, were up 4% for the half-year to $2.4bn, with half of growth coming from a forex tailwind.

Former Johnson & Johnson executive Nawana reconfirmed the full year guidance for 3-4% revenue growth and improved profit margins.

"In my first few weeks at Smith & Nephew I have reviewed our businesses and operations and validated that we have an excellent product portfolio with numerous best-in-class medical technologies. We are now focused on energising and organising the business to accelerate growth," he said.

Positives from the second quarter were the return to growth for established-market products, with "improved dynamics" across Hip and Knee Implants and a stronger than expected performance from Sports Medicine and improved demand in Europe for Advanced Wound Devices but "soft" end markets, further offset by Trauma weakness.

The underlying 'trading profit' measure showed growth to $507m from $493m, which was ahead of the $504m expected by analysts, while adjusted earnings per share edged up to 43.7 cents from 43.0, beating the consensus forecast of 42.0, in part thanks to a slightly better tax rate.

Operating profit margin slipped to 15.3% from 17.7%, reflecting $58m costs of APEX programme, while the trading profit margin falling to 20.8% from 21.1%.

The APEX programme, standing for Accelerating Performance and Execution and the brainchild of Nawana's predecessor was said to be on track to deliver an annual benefits of $160m by 2022 for a one-off cost of $240m.

Net debt stood at $1.4bn at the half year, after $418m of cash was generated from operations.

Broker Numis said it was awaiting an update from Nawana in terms of his early thoughts on strategy.