Medical products company Smith & Nephew (SN.) was one of the biggest fallers in the FTSE 100 on 3 August, dropping 2% to £112.95 despite raising full year revenue guidance after the replacement knee and hip maker missed first half profit expectations.

The shares made a new three month low and sit around 25% below where they traded three years ago. The weak share price action may also reflect investor fatigue as the expected recovery in pent-up demand for elective surgeries and easing supply chain disruptions are taking longer to filter through into higher earnings.

Higher marketing costs and input inflation weighed on trading profit which fell 5% year on year to $417 million compared with company compiled consensus analyst expectations of $442 million.

Underlying first half revenue to 1 July increased 7.3% to $2.7 billion while reported revenue grew 5.2% on adverse foreign exchange impacts.

The trading profit margin as a proportion of revenue fell to 15.3% from 16.9% in 2022.

RAISED FULL YEAR GUIDANCE

The company said it expects a clear ‘step-up’ in both trading margin and cash generation in the second half of the year and raised full year revenue growth guidance by one percentage point to between 6% and 7%.

The company kept its full year profit guidance unchanged with an expected trading margin of ‘at least’ 17.5%.

Chief executive Deepak Nath commented: ‘I am pleased to report strong first half revenue growth across our business. The continued outperformance in Sports Medicine and Advanced Wound Management - representing 60% of our business - has continued.

‘In Orthopaedics, our actions to improve product supply and execution have increased our ability to benefit from strong elective procedure volumes. Overall, these results have given us the confidence to increase our full year revenue growth guidance.’

Net debt increased by 13% to $2.65 billion with committed facilities of $3.7 billion. The company expects to end 2023 with an unchanged leverage ratio of two times net debt to earnings before interest, tax, depreciation and amortisation.

Reflecting the increased interest rate environment, interest expenses increased to $44 million from $32 million in 2022.

The company also announced that chief financial officer Françoise Nesmes has told the board of her intention to step down in the second quarter of 2024. The search for a replacement has been initiated.

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