Smith & Nephew – Profits Slip But Trading Improving

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In 2022, Smith & Nephew’s (LON:SN) like for like revenues were up 4.7% to $5.2bn, ignoring currency movements.

This was helped by improved trading in the final quarter across all divisions, with Sports Medicine & ENT (Ear Nose and Throat) performing particularly strongly. A 4.1% increase in fourth quarter Orthopaedics revenues was driven by a return to growth in hip implants and a 5.5% increase in knee implant sales, where momentum in new products continues to build.

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Despite the higher revenues, trading profit (underlying operating profit) was down 3.7% to $901m due to factors including higher inflation, and a rebound in sales and marketing expenditure. This was a margin of 17.3% against earlier guidance of 17.5%.

This year the group is targeting underlying revenue growth between 5 and 6%, and trading profit margins of at least 17.5%

Free cash flow was down to $110m from $469m, largely due to a build-up of inventory. Smith & Nephew ended 2022 with net debt of $2.3bn, excluding lease liabilities.

A final dividend of $0.231 per share has been proposed, unchanged from last year. Share buy backs remain on hold.

The shares were up 3.8% in early trading.

Smith & Nephew's Earnings

Derren Nathan, head of equity research at Hargreaves Lansdown

“Smith & Nephew’s struggles to return to profit growth continue, with already downgraded margin guidance for 2022 effectively being pushed out another year as inflation continues to bite.

However, an uptick in top line growth at the end of 2022 across all divisions is encouraging. Despite ongoing downward pressure on pricing from the previously highlighted procurement policy in China, work to fix the Orthopaedics division, Smith & Nephew’s largest, is starting to bear fruit.


Smith and Nephew continues to innovate and this is its biggest weapon for targeting higher market share. In Orthopaedics we see its cementless knee systems and work in robotic surgery as core differentiators.

Advanced Wound Management and Sports Medicine/ENT are already performing strongly, again backed by evidence based novel products. Smith & Nephew has set out some ambitious medium term targets, albeit lower than previously guided.

The key goals are to maintain consistent revenue growth of above 5% and expand margins to over 20% by 2025. If it can achieve these we see scope for a re-rating but there is still work to do, and most likely further investment. Given the increase in net debt levels we would therefore expect growth in shareholder distributions to remain modest for the time being.”

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