18th Jul 2018 17:11
LONDON (Alliance News) - Around GBP572 million was wiped off Smiths Group PLC's total market value after the engineer said its sales in its medical division would take a hit, which could add to calls for a break-up of the company.
Smiths Group shares were the worst performer in the FTSE 100 on Wednesday, closing down 7% at 1,627.00 pence each.
Smiths Medical division is expected to suffer a 2% revenue decline in the full-year to the end of July. The performance was hit by the loss of two contracts in the US.
The division, which is the company's largest, makes medical devices such as tracheostomy tubes, chest drainage catheters and pressure monitoring products.
Smiths Medical's products were temporarily suspended in Europe, after one of its suppliers had been decertified for some products, and they remain suspended.
Moreover, ahead of the EU medical device regulation - which comes into force in 2020 - one of the company's service providers was having that certification power removed for some products, Smiths said.
"A full year trading update reveals a hit from new EU medical device regulations, compounded by the loss of two contracts in the US, will see the medical division underperform. The rest of its operations, which include oil services and detection technology, are doing well," said AJ Bell's Russ Mould.
Smiths also said revenue for the 11 months to the end of June grew by 3% on the underlying basis, helped by good performances from John Crane, Smiths Detection, Smiths Interconnect and Flex-Tek units.
The prior year, revenue dropped by 1.0% on the underlying basis.
Smiths also noted that it remains in discussions regarding the potential combination of its medical division with medical technology retailer ICU Medical Inc, but there can be no certainty that a transaction will be concluded.
"With the group now back in growth, we expect financial 2019 to be another year of progress," Smiths said in the statement. "We remain confident that over the medium term we will achieve sustainable organic revenue growth above our chosen markets."
Smith Group operates in five units: John Crane, Smiths Medical, Smiths Detection, Smiths Interconnect and Flex-Tek.
Mould noted that due to Smiths' diversified operations it should, in theory, benefit in that if one unit underperforms then another "come to the rescue". However, he suggested that this does not appear to be the case as focus is magnified on the weaker unit as opposed to progress made elsewhere.
"Today's news may only add to calls for a break-up of the group and the company is continuing discussions about a potential combination of its medical arm with ICU Medical," Mould added.
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