Smith & Nephew shares drop 13% after China slowdown hits revenue

Smith & Nephew has cut its full-year targets for revenue owing to a slowdown in demand in China.
The FTSE 100medical manufacturer has reduced its guidance for revenue growth from between 5 per cent and 6 per cent to 4.5 per cent because it said it had been held back by China, prompting its share price to decline by 13.33 per cent, or 146.4p, to 951.6p.
The market for medical goods in China has been knocked by the country’s push to create more competitive tenders for pharmaceuticals and devices through its so-called value-based procurement programme.
The drive has reduced prices paid by cities and provinces for products and has created a headwind for Smith & Nephew.
The company has reported that its third-quarter revenues fell by 4 per cent to $1.41 billion for the quarter ended September 28.
Smith & Nephew, based in Watford, Hertfordshire, is one of the world’s largest medical technology companies, employing about 18,500 people and operating in more than a hundred countries. The group operates a number of specialist divisions including orthopaedics, sports medicine, ear, nose and throat, and wound management.
Deepak Nath, chief executive, said trading in China was a “significant headwind” that had masked strong performance in the group’s sports medicine division. He added: “We continue to deliver on longer-term growth drivers, including robotics adoption and product innovation, as well as improving productivity.
“While the revised outlook reflects the headwinds across our surgical businesses in China, we remain convinced that our transformation to a higher-growth company, with the ability to drive operating leverage through to the bottom line, is on the right course.”
The Swedish activist investor Cevian Capital confirmed that it had built a stake in Smith & Nephew in July, saying that the company was running “fundamentally attractive businesses” in growing markets but needed to push through operational improvements. It said there were cost savings that could be achieved across its different business areas and that the company needed to address “the remaining challenges in orthopaedics”.
Analysts at Stifel said the update also “revives debate on the perceived weakness” in the company’s internal modelling of its financial position.