The chief executive of medical device maker Smith & Nephew has rejected shareholder calls to break up the business, as the FTSE 100 group delivered forecast-beating earnings.
Deepak Nath said the board was committed to its strategy of improving the performance of its orthopaedics business, which makes replacement hip and knee joints, rather than spinning it off as at least three investors have proposed.
“We have a robust dialogue where we critically examine all facets of our business, including the portfolio, and we remain committed to driving shareholder value,” he said.
In results on Tuesday, the company reported a 4.7 per cent rise in revenues last year to $5.81bn, above average analyst estimates of $5.77bn. Adjusted earnings per share were up 1.7 per cent at 84.3 cents, against a consensus forecast of 83.1 cents.
Forecast revenue growth for this year is 5 per cent, with a trading profit margin of 19 to 20 per cent. Shares in Smith & Nephew rose as much as 8 per cent in early trading.
Cevian Capital, an activist shareholder, disclosed a 5 per cent stake in the company in July last year. It argued that it owns “fundamentally attractive businesses in structurally growing markets” but “has not generated shareholder value for many years”.
Smith & Nephew has four divisions: orthopaedics, sports medicine, ear nose and throat, and advanced wound management.
In November, three major investors told the Financial Times that it should spin off its orthopaedics division, which accounts for about 40 per cent of sales, if management could not improve its performance.
Smith & Nephew is two years into a three-year turnaround programme, but has faced a setback in its China business. Government policies to control the cost of healthcare have driven up to 70 per cent falls in the price of medical devices and more local competition.
Nath said it was “hard to recover” from the changes. “China was a relatively big market for us. We had a relatively good position within that market, and it was highly profitable,” he said.
The shareholder calls to break the company up come as the last large industrial conglomerate on the London market — Smiths Group — announced plans for a demerger under pressure from an activist investor, and London-listed DCC is also planning to sell its healthcare unit to focus on energy.
Nath said Smith & Nephew was not a “conglomerate” but rather a “portfolio of four businesses”.