Micron surges after one of the biggest beats in U.S. semis history
Smith & Nephew (LON:SN)'s Q117 demonstrated a return to double-digit growth in emerging markets, with China growing 14% in the quarter. Alongside completion of its restructuring and focus on the execution of improved innovation and efficiency, we believe this improvement in emerging markets will keep S&N on track to meet its current revenue growth (3-4%) and trading profit margin targets for FY17.
Q1 driven by improvement in emerging markets
Reported revenues of $1.1bn were flat compared to 2016. Underlying sales grew 3% in Q1 vs 2% in Q416. Growth in established markets grew just 1% due to ongoing headwinds in parts of Europe, while growth in emerging markets in Q1 returned to double-digits (12% underlying). China, which was particularly weak in 2016, grew 14%. Key revenue drivers included advanced wound devices (+16%), driven by its disposable negative pressure wound therapy device PICO, sports medicine (+7%), trauma & extremities (+5%), other surgical business, which includes ENT and NAVIO (+7%) and knee implants (+5%). Growth in trauma & extremities is significant as it was one of the worst performers in 2016 due to weakness in China, the UK and Germany. Advanced wound care (+1%) continues to be affected by destocking in China and weakness in some European markets and advanced wound bioactives by distributor stocking patterns of SANTYL (-8%). S&N expects a better performance in H217 as new SANTYL effectiveness data in treating pressure ulcers will be available, which should improve uptake.
All parts in place to deliver on 2017 expectations
S&N completed its restructuring in 2016 and we now expect it to be able to deliver its target revenue growth in 2017 (3-4% underlying) and improved trading profit margin (20-70bp) as it focuses on innovation and improved efficiency. Areas we believe will be important to S&N include the uptake of its recent product launches (eg REDAPT and POLARSTEM in hip implants, LENS camera and WEREWOLF COBLATION systems). Of particular interest is the upcoming full market release of the total knee application on its NAVIO robotics-assisted surgery system.
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