Non-urgent surgery has taken a backseat during the coronavirus pandemic. Indeed, according to analysts at Morgan Stanley, elective procedures reduced by 50-90 per cent from late March into April. And the effects of that decline have been acute for Smith & Nephew (SN.), whose revenues plunged by almost a half last month.
Such a fall constituted a dramatic acceleration of the downward trend endured by the group – a provider of wound-care and medical equipment - during the first quarter of the year, when revenues slipped by 7.6 per cent to $1.1bn (£0.9bn). As previously conveyed, Smith & Nephew expects the current quarter’s sales and the first-half trading margin to be “substantially” lower year-over-year. Management has kept guidance for 2020 withdrawn.
That said, the group has put cost control measures in place to achieve savings of up to $200m – and it cited a strong balance sheet, with net debt of $1.8bn and $3.4bn of committed facilities. It also pointed to improving trading in China, and noted that elective surgeries are starting to pick up again in some markets – including the US.
Chief executive Roland Diggelmann said that as demand rebounds, “we are ready to step up and support customers through our robust supply chain, innovative products and some new ways of working”. However, much uncertainty remains.
For analysts at Goldman Sachs, the “single biggest area of discussion” for the shares from here is not the extent of the second-quarter contraction “but rather the pace of recovery as restrictions ease”. And, on this point, they remain cautious – suggesting that higher unemployment and social distancing are likely to cause issues beyond the immediate lockdown period. Morgan Stanley reckons that as the number of Covid-19 patients fall, elective procedures will return “over the coming months”.
