Smith & Nephew has reported that its trading activities have been adversely affected in China due to the ongoing economic downturn in the country.

The FTSE 100 medical product manufacturer has revised its full-year revenue growth forecast down from an expected 5 to 6 percent to 4.5 percent, a move that led to a significant drop in its stock price, which fell by 12.5 percent, or 137p, closing at 961p.

The company indicated that there has been a decline in market demand for its orthopaedic products, including hip and knee implants, among Chinese consumers.

Once viewed as a robust growth area for UK businesses, China’s economy has slowed considerably due to strict COVID-19 lockdown measures and ongoing challenges in the real estate sector.

Recent statistics revealed that China’s GDP grew by 4.6 percent for the quarter ending September, falling short of the government’s 5 percent goal and below pre-pandemic growth levels that often exceeded 6 percent.

This demand slowdown has prompted various sectors, from healthcare to manufacturing, to issue warnings about their future outlooks.

Furthermore, the Chinese government’s initiative to enhance competitiveness in pharmaceutical tendering through a volume-based procurement approach has negatively impacted the market for medical supplies.

This strategy has led to reduced pricing for medical products at the municipal and provincial levels, presenting challenges for Smith & Nephew. Initially intended to increase sales volumes to offset lower pricing, Smith & Nephew has stated that these volume increases have yet to materialize, with expectations for these issues to persist into 2025.

For the third quarter, the company reported a revenue increase of 4 percent, totaling $1.41 billion for the period ending September 28.

Analysts from Stifel noted that the latest developments rekindle discussions regarding perceived weaknesses in Smith & Nephew’s internal financial modeling.

Based in Watford, Hertfordshire, Smith & Nephew is one of the largest medical technology companies globally, employing around 18,500 staff members and operating in over 100 countries. The company encompasses specialized divisions in orthopaedics, sports medicine, ear, nose, and throat care, as well as wound management.

CEO Deepak Nath acknowledged that the challenging trading conditions in China have overshadowed the positive performance emerging from the sports medicine segment. He is actively working to enhance Smith & Nephew’s outcomes amidst fluctuating market conditions and a high turnover rate within the management team. His strategy includes reducing backlogged orders, introducing new products, and boosting productivity to achieve $200 million in annual savings by 2025.

Nath stated, “We continue to make progress on long-term growth drivers, which encompass robotics integration and product innovation, alongside enhancements in productivity.”

“While the updated forecast acknowledges the challenges affecting our surgical divisions in China, we are confident that our transformation toward a higher-growth enterprise is progressing effectively.”

In July, Swedish activist investor Cevian Capital disclosed its investment in Smith & Nephew, asserting that the company possesses “fundamentally appealing businesses” in expanding markets but needs to implement operational improvements. Cevian, which holds a 5 percent stake, emphasized that there are opportunities for cost reductions across various business segments and highlighted the need to resolve lingering challenges within orthopaedics.