Cost headwinds hit revenue, trading profit at Smith & Nephew

Smith & Nephew reported second quarter revenue of $1.29bn on Thursday, up 1.2% on an underlying basis but down 3.1% on a reported basis including a 430 basis point foreign exchange headwind.

The FTSE 100 company said orthopaedics revenue declined 1.1%, or by 4.9% on a reported basis, reflecting execution and supply chain challenges.

Sports Medicine and ENT were 1.9%, but down 2.4% on a reported basis, with growth “significantly impacted” by the Covid-related lockdown in China.

Advanced wound management grew 3.8%, but fell 1.3% on a reported basis, with all regions and segments contributing.

Smith & Nephew said revenue for the six months ended 2 July totalled $2.6bn, flat year–on-year but up an underlying 3.5%, while operating profit rose to $242m from $239m.

Its operating profit margin was 9.3%, compared to 9.2% a year ago, while earnings per share slipped to 20.2 cents from 23.4 cents.

The company’s trading profit totalled $440m, down from $459m, as its trading profit margin narrowed to 16.9% from 17.6%, reflecting higher input inflation.

Its board said it had completed $125m of its 2022 share buyback programme to date, and announced an interim dividend of 14.4 cents, in line with last year.

Looking ahead, Smith & Nephew left its full-year underlying revenue growth guidance unchanged at between 4% and 5%.

Its trading profit margin, meanwhile, was now expected to be around 17.5%, reflecting a prolonged inflationary impact and continued external supply challenges.

“After only a few months at Smith & Nephew it is clear to me that we have many more opportunities than challenges,” said chief executive officer Deepak Nath.

“Our fundamental competitive position is strong, and we have a clear right to win in all three franchises through product differentiation and proprietary platform technologies.

“And, importantly, delivery is well on-track in two of the three franchises, providing 60% of our revenue.”

Nath said orthopaedics continued to be held back by execution and supply chain challenges.

“In the last three months, I have reviewed the business and, together with the team, we have developed a comprehensive plan to drive better execution at pace.

“Our focus is on delivering our transformational strategy.”

The company would drive operational benefits in orthopaedics “as soon as this year”, and build on its positions in advanced wound management, and sports medicine and ENT.

“I am confident in our ability to transform Smith & Nephew into a structurally higher-growth business delivering greater value for all our stakeholders.”

At 0955 BST, shares in Smith & Nephew were down 10.83% at 1,075.5p.

Reporting by Josh White at Sharecast.com.