Smith & Nephew PLC (LON:SN) FY17 revenues of $4.77bn and trading profit of $1,048m were slightly below consensus estimates despite a strong Q4, which saw a reported 5% y-o-y growth. EPS exceeded consensus estimates. S&N’s emerging market business retained its star billing for growth across all its geographies. A core focus of the business now appears to be improvement via the newly named, but broad-ranging APEX cost reduction and efficiency programme. Last year’s announcement on the retirement of its CEO seems to have taken on a slow and steady route to CEO transition, with the high-level commitment, involvement and execution on the APEX programme.
Emerging markets justify their billing
Full-year 2017 reported revenues of $4.77bn were up a reported 2% compared to FY16, driven by continued strength in knee implants. Emerging markets retained their prime billing with an underlying 12% revenue growth for the full year. China, S&N’s largest emerging market, demonstrated double-digit revenue growth, and the oil price-related revenue deferral weakness in the Gulf states of 2016 now seems to have been resolved. There was a $326m one-off benefit that helped EPS of 94.5c beat analysts’ consensus estimates.
FY18 guidance builds on 2017
Back in Q317, S&N guided that FY profits would be towards the lower end of its previously announced range. Having now hit that, investors should have confidence in the FY18 guidance of 3-4% underlying revenue growth, an improvement in trading profit margin of between 30bp and 70bp, and a tax rate of between 20% and 21% (from c 25%). The 3% underlying growth in revenues for 2017 was mirrored by a similar growth in trading profit further down the income statement. This suggests the potential for cost savings from scale and synergies from the broad-ranging APEX programme. It is hoped that APEX will result in $160m annual by 2022.
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