Smith & Nephew suffers nasty fall

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Smith & Nephew PLC (LON:SN) saw its shares slide in early deals as it caught the market on the hop with a disappointing set of results.

Shares in the wound care and knee and hip implants specialist were down 5% at 1,489p, making them the worst performers in the FTSE 100 after it reported a 7.1% underlying fall in revenue for the final quarter of 2020 to US$1,326mln from US$1,407mln the year before.

The company said the COVID-19 pandemic continued to have an impact on trading performance as hip and knee replacement operations the world over were delayed as health organisations focused on the more immediate problem of coping with the coronavirus.

Full-year revenue was down an underlying 12.1% to US$4,560mln, while profit before tax slumped to US$246mln from US$743mln in 2019.

The full-year dividend has been maintained at 37.5 cents.

“In 2020 we continued to strengthen Smith & Nephew through increased investment in R&D, new product launches and strategic acquisitions in our higher-growth segments. We achieved this while also managing unprecedented disruption from COVID-19. The resilience of the business and strength of the balance sheet also meant we are able to maintain our progressive dividend policy,” said Roland Diggelmann, chief executive of Smith & Nephew.

“We start 2021 with three clear priorities: to return to top-line growth and recapture momentum; to drive further operational improvement, and to continue to respond effectively to COVID-19. We will build on the progress we are starting to make in areas where we have recently invested and introduced innovation. We will again invest more in R&D and I am excited by the pipeline of new technologies approaching launch, and by the potential of our recent acquisitions,” he added.

Russ Mould, the investment director at AJ Bell, was quick to point out that the pandemic had not been universally positive for operators in the healthcare sector.

“As today’s results from Smith & Nephew reveal that is not necessarily the case. This is because the coronavirus response has swamped other areas of patient care, particularly the elective surgeries which require Smith & Nephew’s replacement prosthetic hips and knees,” Mould said.

“The company may have outlined a priority to get back to top-line growth in 2021 but for all the grand talk, this is entirely out of the company’s hands and really depends on the course of the pandemic.

“It will also be difficult for the market to judge, when the recovery comes, if it is being artificially inflated by delayed procedures or represents the true underlying picture.

“Costs are something within Smith & Nephew’s compass but lower volumes can only partially be offset by cost control measures. Ultimately it could take time for Smith & Nephew to fully get back on its feet,” Mouls said.

 

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