Smith & Nephew Seeks Acquisitions to Offset a Weaker Europe

Smith & Nephew Plc, Europe’s biggest maker of artificial hips and knees, is seeking acquisitions to fuel growth this year amid price pressure and slower sales in Europe.

Purchases “remain high on the agenda” as the company looks to offset slowing growth in its main markets, Chief Executive Officer Olivier Bohuon told reporters on a call today. The company is in “no rush” to make a large acquisition as Chief Financial Officer Julie Brown joined the company just this month, he said.

Smith & Nephew has said it may borrow money to buy assets in wound-care and minimally invasive surgery, and to expand in emerging markets. Profitability will decline this year as the introduction of a U.S. medical device tax and the acquisition of Healthpoint Biotherapeutics erode earnings, the London-based company said.

Trading profit, which excludes reorganization and acquisition costs, fell 2.5 percent to $272 million in the fourth quarter, compared with a year earlier, the U.K.’s biggest medical-device maker said today in a statement. Excluding divestments and currency effects, trading profit rose 2 percent. Earnings excluding some items were 21.6 cents a share, topping the 21-cent average estimate of 12 analysts surveyed by Bloomberg.

Margin Goal

Full-year trading profit was 23.3 percent of sales, beating the company’s forecast of a “modest increase” over the previous year’s 22.5 percent. The company forecast that the margin will decline this year due to restructuring and a U.S. medical-device tax, though it aims to later reach a 24 percent margin.

Smith & Nephew rose 0.7 percent to 710.50 pence at the close of trading in London, giving the company a market value of 6.4 billion pounds ($10 billion). The stock has gained 4.6 percent this year.

The company proposed a final dividend of 16.2 cents a share, bringing the total payout from 2012 profit to 26.1 cents a share.

Fourth-quarter sales fell 2.6 percent to $1.08 billion, beating the $1.07 billion average estimate of 11 analysts surveyed by Bloomberg. Revenue was reduced by the absence of the Biologics and Clinical Therapies business, which was spun out as Bioventus LLC in May. Smith & Nephew reports earnings in dollars, and the currency’s gains reduced revenue from business outside the U.S.

Hips, Knees

Sales of hips and knees improved during the quarter, with hip implants up 3 percent excluding the Birmingham implant business and knee implants up 2 percent. Sales from sports medicine joint repair and trauma both grew 7 percent during the quarter, the company said.

Sales at the wound business during the quarter advanced 4 percent in local-currency terms to $280 million while revenue from surgical devices rose 3 percent on that basis to $797 million, the company said.

The figures were “steady” given challenging markets, Lisa Clive, an analyst with Sanford C. Bernstein, said in an e-mail.

“The improvement in trauma was a particular highlight, as that has been a very tough market for them, so we were pleased to see that turnaround,” she said.

Last year, the company said it would reduce its 11,000-person workforce by 7 percent over three years to save $150 million a year.

In November, Smith & Nephew said it would buy Healthpoint for $782 million in cash to gain treatments for wounds that are difficult to heal.

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