FEWER ELECTIVE OPERATIONS
Pressure on hospitals from dealing with Covid-19 patients resulted in cancellations of scheduled hip and knee surgeries, impacting the sales of consumables the company makes.
Full-year revenues to 31 December 2020 dropped 12.1% to $4.56 billion on an underlying basis as the company flagged at its January trading update, but the trading profit margin of 15% was below the 15.7% expected by analysts.
The lower trading margin reflected lower gross margins and a negative operating leverage impact as well as increased research and development (R&D) spending.
The trading margin was significantly below the prior year's level of 22.8% as cost control measures only partially offset the fall in revenues.
BOUNCE BACK POTENTIAL
While acknowledging the uncertainty regarding the timing and speed of recovery, Smith & Nephew said it is starting the new year with three clear priorities; to return to revenue growth; drive operational improvement; and continue to respond effectively to Covid-19.
The company aims to deliver ‘substantial’ underlying revenue growth in 2021 compared with 2020. Hip replacements are expected to outperform knee replacements while Sports Medicine & ENT are expected to perform strongly as markets recover.
The consensus estimate for revenues for 2021 is $5.3 billion, according to data provider Refinitiv, implying growth of 16.2% and 3.5% growth against 2019.
In terms of margins, the firm expects an improvement compared with 2020 but relative to 2019 it will face headwinds from reduced production volumes and increased R&D as well as dilution from recent acquisitions.
The total impact is expected to be 3.5%, implying a 2021 margin of 19.3% before the effect of negative operating leverage.
AJ Bell investment director Russ Mould commented, ‘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.’
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