Smith & Nephew warns on outlook for sales
ARTIFICIAL HIP and knee maker Smith & Nephew has warned over its full year sales outlook after reporting a mixed performance in its first quarter.
Shares in the FTSE 100-listed firm, which has an advanced wound care management division in Hull, fell as much as 8 per cent in early trading as it revealed underlying revenues failed to rise in the three months to March 31.
On a reported basis, sales rose 5 per cent to £882m, but this included a 5 per cent currency boost.
The firm now expects full-year underlying sales to increase by 2 to 3 per cent, having previously guided for growth in the range of 3 to 4 per cent.
Its trading profit margin is expected at or above the same level reported in 2017, rather than its previous target of growth of 30 to 70 basis points, the firm added.
Smith & Nephew saw a softening in some of its established markets across Europe, Canada, Japan, Australia and New Zealand, where revenues rose by 3 per cent and fell 2 per cent on an underlying basis.
Turnover jumped 15 per cent higher in its emerging markets, with 9 per cent underlying growth.
Outgoing chief executive Olivier Bohuon, who is due to step down on Monday, said: “Our businesses delivered a mixed performance in the first quarter.”
He added: “We expect trading conditions to return to more normal levels, which, combined with the continued roll-out of new products and our sustained emerging markets performance, gives us confidence in delivering an improving performance trend during the remainder of the year.”
Mr Bohuon is being succeeded next week by Namal Nawana – the former boss of medical diagnostics firm Alere and a previous executive at Johnson & Johnson.
He takes over amid pressure to boost performance at Smith & Nephew, with the group having recently faced calls from activist investor Elliott Advisors to sell off unwanted assets.
Mr Bohuon said the disappointing performance was mainly because of market weakness, citing changing insurance patterns in the United States and budget constraints in Europe hitting elective surgery volumes in Europe.
For example, the NHS cancelled some operations at the start of the year because of a shortage of capacity.
Mr Bohuon said trading has picked up since the end of the quarter.
“I see an improving trend; April is showing much better trading and coming back to normal levels, much better than we have seen in January, February and March,” he said.
Other areas of weakness included its advanced wound bioactives business, which focuses on difficult-to-treat wounds, where revenue was down 12 per cent.
Analyst Kit Lee at Jefferies, who has a ‘buy’ rating on the company, said the divisional trends were familiar but there were more negatives than positives in the update.
The medical technology firm is under pressure to improve margins and find new sources of growth as it competes with bigger rivals.
It is a constant presence on analysts’ lists of potential takeovers, with speculation that it could be acquired by a US competitor such as Stryker or be broken up.
Ian Forrest, investment research analyst at The Share Centre, said: “Medical devices group Smith & Nephew reported a 5 per cent increase in revenues for its first quarter although that was due entirely to a boost from favourable foreign exchange rates.
“The established markets saw a 2 per cent fall in underlying revenues with a slowdown in the bioactives business, which supplies wound care management products.
“However, emerging markets continued to be a source of growth with revenues up 9 per cent.”