Smith & Nephew hits back at claims it massaged profit margins
Embattled hip and knee implant maker Smith & Nephew has hit back at a report claiming that it deployed aggressive accounting techniques to bolster its profit margins, rejecting it “in the strongest possible terms”.
Dragoneye, which compiles research for short sellers, accused the London-listed healthcare firm of inappropriately deferring its costs and failing sufficiently to account for stock write-offs in its financial reports.
The research outfit, which is based in the UK and bills itself as a “financial detective” that uncovers “hidden opportunities and unforeseen risks”, alleged that the firm’s accounting techniques have led Smith & Nephew to inflate its profit margin by 1.7 percentage points.
Dragoneye also claimed that Smith & Nephew’s inventory had risen to its highest level in two decades, while inventory write-offs are at their lowest level since 2019.
The researchers estimated that assuming write-offs had been the same as the three year average, last year’s trading profit would have been $60m (£45m) lower than the $425m (£325m) reported in its full-year results.
But Smith & Nephew has denied Dragoneye’s claims, with a spokeswoman telling Morning Wire: “The assertions made in relation to Smith & Nephew’s trading profit margin are factually incorrect. We reject in the strongest terms any suggestion that we have undertaken any accounting practices outside industry good practice.”
Market reaction to the Dragoneye report has been muted, with company’s stock price nudging up 0.2 per cent on Monday.
But its shares are down 43 per cent since hitting an all time high in September 2019. The languid performance has triggered speculation that could look to shift its listing to the US, where it earns most of its revenues.