Medical devices woes weigh on British conglomerate Smiths Group
We’ll send you a myFT Daily Digest email rounding up the latest Europe news every morning.
Changes to European Union rules on medical devices would hit sales of some of FTSE 100 engineering conglomerate Smiths Group’s products in Europe, the company said on Wednesday, sending its shares down 7 per cent in early trading.
Ahead of the new EU medical device regulation coming into force in 2020, one of Smiths’ “service providers” — which can test and certify products — was having that certification power removed for some products, Smiths said in a trading update.
Opaque language in Smiths’ statement hid “an issue familiar to all in the financial services industry — new European regulations having a major negative impact on the industry being regulated,” analysts at Investec said in a note. “The . . . service providers are the testing houses that can certify products for CE marking, and their numbers are being cut, at the same time as the new regulations require re-certification of all products leading to an increased workload,” Investec added.
The change has led to the temporary suspension of some of Smiths Medical’s products in Europe which, combined with the termination of two contracts in the US, meant full-year revenues were now likely to fall by 2 per cent year-on-year and there would be no recovery in margins from the first half of the year.
While better than expected performance in other parts of the business helped underlying revenues across the group return to growth, Investec added: “the downside is that the long-promised growth in Medical has again been missed”.
Medical devices is narrowly Smith’s single largest business, with a portfolio of products that includes infusion pumps and mechanical ventilators. It has been struggling to shore up revenues, however, with reported revenues dropping 5 per cent in the first half of its financial year and holding flat on an underlying basis.
The sprawling nature of Smiths’ business has made it vulnerable to break-up speculation, although its chief executive Andrew Reynolds Smith has insisted his mandate is to build rather than split the group. In May however, Smiths revealed it had held early-stage discussions with a US-listed company ICU Medical about a potential merger of their medical device businesses, after exploring for some time options for the unit.
Smiths has provided no update on the talks since, but added on Wednesday:
Excluding the impact of these one-off disruptions, the division is delivering good underlying growth underpinned by the growing contribution of new products launched in the year.
Get alerts on Europe when a new story is published