Smith & Nephew profits shrink amid major fall in Bioventus shareholding

Smith & Nephew saw profits drop more than $300 million last year due to increases in inventory costs.

The FTSE 100 medical product designer revealed that its accrued profit fell to $223 million in 2022 after making $524 million last year on a recovery from elective surgeries such as knee and hip implants.

While underlying revenues continued to grow across all divisions of the Watford-based company, total sales remained flat at $1.37 billion, mainly due to a stronger US dollar.

In the same period, revenues were impacted by a $109 million charge related to the stock slump of Bioventus, in which Smith & Nephew is a major stakeholder, and the execution of its volume-based buyback program in China.

Margins were further under pressure due to higher restructuring costs and stockpiling to minimize disruption to the supply of raw materials and components.

Despite disappointing results, Smith & Nephew Shares were up 5.3 percent Tuesday afternoon at 1,223.5 pence in response to a positive outlook.

Commodity inflation is expected to continue to grow this year, but the company expects sales growth, increased productivity and cost-cutting measures to result in a higher trading profit margin.

After 2023, the group aims for consistent underlying sales growth of 5 percent or more and a trading profit margin of at least 20 percent by 2025.

At the heart of achieving those goals is executing the 12-point plan, which includes resolving issues within the orthopedics department and driving growth across the various franchises, such as advanced wound management.

Deepak Nath, the company’s CEO, said the strategy is “starting to bear fruit, and as we progress through the two-year life of the plan, we expect further operational and financial benefits, including a reduction in inventory levels and the conversion from cash to back to historic levels.”

Smith & Nephew is publishing its annual results four days after announcing that business heavyweight Rupert Soames has been appointed as its new chairman.

Soames, the grandson of wartime Prime Minister Sir Winston Churchill, helped transform the outsourcing giant during his eight-year tenure.

When he arrived, Serco’s reputation had been tarnished by numerous scandals, including one involving the British government being overcharged for a contract to electronically tag prisoners.

To turn things around, the company cut costs, sold struggling divisions, narrowed its focus on winning public sector contracts and expanded its reach into North America and Asia.

Within six years, Smith & Nephew’s revenues rose again and it began paying dividends again.

The Covid-19 pandemic then provided a rocket booster to the company’s growth as it won contracts to run call handling activities for the NHS Test and Trace program and about a fifth of all test sites in England and Northern Ireland.