Smith & Nephew up as annual profits surge after US$84mln legal win against insurers

An US$84mln settlement from a long-running legal dispute with its insurers helped profits at Smith & Nephew PLC (LON:SN.) jump last year, sending its shares higher on Thursday.

The artificial hips and knees maker saw underlying revenue, which excludes currency movements, rise by 2% to US$4.9bn in 2018 (2017: US$4.8bn) – towards the lower end of its guidance.

READ: S&N on track to hit full-year expectations

But trading profits rose 7% to US$1.12bn (2017: US$1.05bn), largely down to the initial benefits of its APEX cost-cutting programme and the favourable legal settlement which boosted margins. Demand for its products in emerging markets, especially China, was also “strong”.

“We accelerated performance across 2018, with 3% underlying revenue growth in both the third and fourth quarters and a 7% uplift in full-year trading profit,” said chief executive Namal Nawana in his first full-year results presentation since taking the top job last May.

“We start 2019 with a strengthened organisation and a new growth-oriented operating model.”

Smith & Nephew has been in a dispute with its insurers since 2003 when it was forced to withdraw a knee implant which had been causing problems for some patients.

The FTSE 100 group’s main insurer committed to covering its share of the compensation costs, but some of its other, secondary insurers said they wouldn’t be paying out.

In terms of the outlook for 2019, the company expects revenue to rise by 2.5-3.5% this year, while profit margins should also rise slightly to between 22.8%-23.2%.

In a note to clients, analysts at UBS commented: “Although revenue guidance is slightly weak, we believe the combination of a margin beat this quarter and in the guidance is likely to be seen positively.”

The Swiss bank reiterated a ‘neutral’ rating and 1,390p price target on the stock.

In early afternoon trading, Smith & Nephew shares in London were 2.9% higher at 1,503.50p.

 – Adds share price, analyst comment – 

Story by ProactiveInvestors