Smith & Nephew’s boss has been warned that he is in the ‘last chance saloon’ and must turn the company around.
Activist investors have given Deepak Nath, the US-based chief executive of the medical equipment giant, two months to demonstrate improvements.
Shareholders have run out of patience with the pace of his strategy, The Mail on Sunday understands.
They will pressure Nath to resign in the New Year unless he proves that the FTSE 100 firm has made operational improvements by the time that the company’s full-year results are announced in February.
Smith & Nephew, founded in Hull in 1856, develops technology for surgeries such as repairing soft tissue injuries and degenerative joint conditions.
It is chaired by Rupert Soames, 65, who is the former boss of outsourcer Serco and is Sir Winston Churchill’s grandson.
Borrowed time: Deepak Nath
Smith & Nephew is made up of three divisions: sports medicine, wound management, and orthopaedics.
Its sports medicine and wound management arms are both considered to be the second best in the world for those specialisms.However, investors have lobbied for a shake-up in the orthopaedics division. Shareholders also want the company to slash central costs and overhaul its troubled Chinese business.
Shares in the company are down nearly 7 per cent this year and have tumbled 42 per cent in the past five years.
Overall profit margins are around 17 per cent – much lower than at its competitors, which include Johnson & Johnson and Stryker.
The company’s largest shareholder is asset manager BlackRock with 5 per cent, while activist hedge funds Cevian Capital and Harris Associates are also top-ten holders.
Cevian has not made its intentions for Smith & Nephew public, but under founder Christer Gardell, it has developed a fearsome reputation.
The hedge fund is best known for its role in trying to split up German steel giant ThyssenKrupp back in 2018. Ulrich Lehner, ThyssenKrupp chairman at the time, accused the activist investors involved of ‘psycho-terror’ tactics to force the resignation of several senior executives.
Dan Coatsworth, an investment analyst at investment platform AJ Bell said: ‘Investors are notoriously impatient and time is running out for Smith & Nephew chief Deepak Nath to provide evidence that the current turnaround programme is the right one.
‘The longer Smith & Nephew’s share price stays weak, the greater the likelihood that Nath’s days are numbered.’
Smith & Nephew has seen fast chief executive turnover, notching up four bosses in five years. Nath was hired in April 2022 to replace Roland Diggelmann, who left by ‘mutual agreement’ after less than three years.
A former Siemens executive, Nath launched a plan to attempt to boost shareholder value, but investors have been unimpressed with the results. Some 43 per cent opposed a plan to raise his pay to more than £9 million at the company’s annual meeting this year amid disappointment at his performance.
But it is understood that the high chief executive salary could be beneficial in attracting Nath’s successor if he is ousted.
A Smith & Nephew spokeswoman said: ‘Over the last two years, we have delivered revenue growth significantly above historical levels and increased profitability. There is clear momentum across the business, with sharper operational and commercial execution, including returning US hip and knee implants to growth. We are totally focused on delivering shareholder value.’
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