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UK's Smith+Nephew sees improved margin amid strong demand

By Radhika Anilkumar

(Reuters) - British medical equipment maker Smith+Nephew forecast on Tuesday an improvement in profit margin this year after broadly matching market expectations for 2023 earnings, driven by strong growth at its orthopaedics and sports medicine segment.

The company, which makes orthopaedic implants and prosthetics, wound dressings, and other surgical materials, said its trading profit margin for 2024 was expected to be at least 18%, higher than the 17.5% achieved last year.

Smith+Nephew's trading profit came in at $970 million for the year ended Dec. 31, compared with the average analysts' expectation of $966 million, according to a company-provided consensus.

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Shares in the company rose as much as 5% in early trade.

Medical equipment makers have witnessed strong demand as people, especially older adults, return for elective surgeries such as joint replacements deferred during the pandemic.

Smith+Nephew's orthopaedics business grew almost 5.7%, as more customers opted for knee and hip implants, while its sports medicine segment grew 10% in 2023.

However, the China market continued to put pressure on its sports medicine division due to the government's volume based procurement policy, the company added.

The policy is expected to be a significant headwind in 2024, CEO Deepak Nath said.

The 2024 guidance looks to be broadly in-line with expectations, analysts at Barclays said in a note, adding that volume based procurement policy and impact from foreign exchange will have a 70 basis points and 30 basis points drag on 2024 margins, respectively.

Smith+Nephew, which uses the shipping lanes through the Suez Canal, said that disruptions in the Red Sea have led to longer shipping time, but did not affect its operations.

"We have adapted our production and our inventory levels to be able to address this," Nath added.

The company expects revenue to increase 5% to 6% on an underlying basis in 2024, compared with the 7.2% growth achieved in the previous year.

(This story has been corrected to fix the 2023 growth figures of orthopaedics and sports medicine in paragraph 6)

(Reporting by Radhika Anilkumar and Aby Jose Koilparambil in Bengaluru; Editing by Subhranshu Sahu and Tomasz Janowski)