Medical equipment maker Smith & Nephew (SN.) reported first-quarter revenues down 7.6% to $1.3bn, roughly as indicated in the 30 March statement, saying all three franchises were held back as elective procedures were suspended.
However, the shares traded up 2% to £16.21, taking the gain since 18 March to 40%.
RECENT TRADING
Underlying revenues were 47% lower in April reflecting restriction of movement orders, with most markets suspending non-emergency surgery, offset by some improvement in China where volumes are back to between 50% to 70% of pre-crisis levels.
For the first-quarter the biggest impact came from China with revenues down 50%, while outside the region business was in line with management’s expectations until March, when surgeries began to be restricted.
The Hip, Knee and Sports Medicine businesses saw the biggest headwinds.
Although the company expects surgeries to return soon in the US and other markets, management reiterated that second quarter revenues and profits are expected to be substantially down on the prior year. Full-year guidance was removed in March.
FIGHTING CORONAVIRUS
Manufacturing expertise has been used to support Oxford and King’s College London to develop a low-cost ventilator, while in the US some manufacturing capability has been re-purposed to assemble face shields.
The firm has made some changes to operations during the lockdown designed to assist healthcare providers looking to increase access to ambulatory surgery centres.
The shift to these services is expected to accelerate with patients choosing this type of service over staying in hospital.
COST CONTROL
The company has targeted $200m of cost savings from travel, event and promotion activities as well as freezing all but essential new hires. Capital expenditure has slowed and some temporary measures have been taken to reduce production in order to manage inventory levels.
However, research and development (R&D) investments have been maintained and the board is ‘committed to developing and launching meaningful innovation this year and beyond.’
Group net debt at quarter-end was $1.8bn excluding lease liabilities, comfortably under committed credit facilities of $2.9bn. In addition the firm has $550m of unutilised senior debt which will be drawn down in June.
Broker Shore Capital remains cautious ahead of lockdowns easing across a number of countries, saying that any sign of a second wave of the virus would leave non-emergency surgeries at risk.
READ MORE ABOUT SMITH & NEPHEW HERE
