Smith+Nephew (LSE:SN) confirmed its growth stock potential to me with its recently released 2022 results. The medical device-making company reiterated its commitment to its core growth strategy, despite a couple of indifferent figures in the 2022 results mix.
Most notable of these figures was a fall in trading profit to $901m in 2022, from $936m in 2021. This accompanied a drop in trading profit margin to 17.3% in 2022, from 18.0% in 2021.
However, according to the company, these numbers partly reflected higher inflation in freight and logistics. They also reflected the impact of China’s volume-based procurement process and the return of sales and marketing to more normal levels.
More positive, though, was revenue increasing by 4.7% on an underlying basis in 2022 from the previous year to $5.215bn. Also positive was fourth quarter 2022 revenue of $1.365bn, 6.8% higher than in the same quarter the previous year. On an underlying basis, this was the strongest quarter of revenue growth in the year.
Growth strategy
The company has a 12-point plan to drive its ‘Strategy for Growth’ across three key elements of its business.
The first element involves regaining momentum across hip and knee implants, robotics and trauma in its Orthopaedics business. It also involves winning share with its differentiated technology. Smith+Nephew has already rolled out the robotics-assisted CORI Surgical System and the OXINIUM portfolio of hip and knee implants.
The second element is focused on improving productivity across its business lines to expand its trading profit margin. The company expects these efforts to result in more than $200m of annual savings by 2025. The cost associated with this initiative will be reported alongside its Q1 results on 26 April.
The third element is directed toward accelerating growth in its Advanced Wound Management and Sports Medicine & ENT (Ear, Nose and Throat) franchises. In Sports Medicine, the company is targeting the expansion of its REGENETEN biologics platform, among other products. For ENT, Smith+Nephew is in the early stages of rolling out its unique Tula System for in-office delivery of ear tubes.
Innovation remains key to Smith+Nephew
At the heart of the growth strategy remains innovation. More than 60% of Smith+Nephew’s revenue growth in 2022 came from products launched in the last five years.
In Orthopaedics, the company expanded its robotics-enabled CORI Surgical System by bringing cementless total knee and total hip arthroplasty onto its platform. It also became the first company to receive FDA (Food & Drug Administration) 510(k) clearance for a revision knee indication using a robotics-assisted platform.
In Sports Medicine, the company announced evidence supporting its REGENETEN Bioinductive Implant. In Advanced Wound Management, the company introduced the WOUND COMPASS Clinical Support App. This is a digital support tool for healthcare professionals that helps reduce practice variation.
More operational and financial benefits to come
According to Smith+Nephew’s chief executive officer, Deepak Nath, the company is fundamentally changing the way it operates to drive higher growth and improve productivity with its 12-point plan.
I think Smith+Nephew may offer a great growth stock opportunity sooner rather than later. There is, however, a difference between announcing ambitious development plans and implementing them in the optimal way. Therefore, before buying the stock, I would like to see the company’s Q1 results on 26 April to see how its plans are progressing.
