$3.8 Billion
KEY EXECUTIVES:
David J. Illingworth, CEO
Adrian Hennah, CFO
Jeff Adams, Sr. VP of Global Operations
Joseph M. DeVivo, President, Reconstruction
Mark Augusti, President, Trauma and Clinical Therapies
Michael Frazette, President, Endoscopy
NO. OF EMPLOYEES: 9,757
GLOBAL HEADQUARTERS:London, United Kingdom
Against the backdrop of the slowdown in the global economy and a number of industry-wide and company-specific issues, Smith & Nephew increased reported revenues by 13 percent to $3.8 billion compared to last year, with underlying sales growth of 6 percent. All of the orthopedic giant’s divisions reported sales growth for the year. Profit before taxation was $564 million, compared with $469 million in 2007. Adjusted profit rose 3 percent to $493 million in 2008 from $480 million in 2007. A total of 44 percent of sales came from the United States, with 36 percent from Europe, and other regions made up the balance. Research and development expenses as a percentage of revenue fell from 4.2 percent in 2007 to 4 percent in 2008.
In May 2008, the company uncovered what it termed “unacceptable selling practices” in the former Plus Orthopedics Holding AG businesses (which Smith & Nephew had acquired a year prior). Compensating for these sales practices would reduce revenue by about $100 million for a full year, the company reported. During 2008, Smith & Nephew estimated it lost $64 million of sales due to these issues. In January, the company announced that it had reached an agreement with the vendors of Plus to reduce the total original purchase of $889 million (at the then prevailing exchange rates) by $141 million.
According to the company’s management, the “the strategic logic behind the acquisition remains intact” and, with this settlement behind them, they anticipate a better performance in Europe for the current fiscal year.
Some analysts argued that the issues should have been revealed during due diligence investigations. The company eventually uncovered the practices when it began integrating the unit and then quickly moved to recoup some of its money on the deal by delivering notices of claims against the four private vendors of the business.
Overall, despite the Plus corporate intrigue, solid performance remained.
During fiscal 2008, in the company’s Orthopedic Reconstruction unit (located in Memphis, Tenn.), the knee franchise performed strongly, driven by the new Journey Active Knee Solutions and Legion Total Knee System family of products. In hips, the Birmingham Hip Resurfacing System grew in the United States, with the steep early adoption growth curve flattening to a more normal growth path in the second half, the company reported. In the United States, Reconstruction grew revenues by 9 percent to $2.2 billion. Europe was significantly impacted by the Plus issues, and but for this, would have grown by 5 percent, company officials said. To increase management efficiency and operations, the company formed a single orthopedics business by combining its Reconstruction and Trauma businesses in July 2008.
Orthopedic Trauma grew by an annual rate of 4 percent (9 percent excluding Plus impact). The company claimed the restructuring of management in the United States and new sales force incentives improved performance.
Clinical Therapies grew by 4 percent (8 percent excluding Plus), driven by sales growth from the Exogen 4000+ Ultrasound Bone Healing System and Durolane Hyaluronic Acid Stabilized Single Injection.
During the year, the company formed a dedicated Biologics business focused on advanced, locally delivered biological therapies to promote healing and pain relief.
Sales for the company’s Endoscopy division, headquartered in Andover, Mass., grew by 8 percent to $800 million, reflecting another strong performance in Europe and the rest of the world.
Advanced Wound Management grew by 7 percent to $843 million, its best growth performance in the last five years, according to Smith & Nephew. Within Infection Management and Exudate Management, growth was driven by the extension of the company’s Allevyn brand to new products. This move bolstered strong performance across Europe, the company’s largest market. Smith & Nephew also launched its line of Negative Pressure Wound Therapy products in March 2008. According to the company, the U.S. wound care market, where performance this year has been mixed, is the largest in the world and will be a significant focus for 2009.
So far for 2009, in the first quarter, revenues were $865 million, compared to $911 million in 2008. This represents an underlying growth of 4 percent on the same period last year, after adjusting for movements in currency of 9 percent, the company reported. In orthopedics, the recent market growth numbers point to a slowing of the market. Endoscopy, as company officials expected, proved to be most exposed to the economic slowdown.
“Our businesses are proving resilient, but not immune to the weak global economy,” said David Illingworth, CEO. “We grew underlying sales for the quarter by 4 percent, with a strong performance in Advanced Wound Management. We achieved growth in trading profit of 12 percent at constant currency and an increase in trading margin of over 1 percent through a combination of our Earnings Improvement Program and prudent cost control. Economic conditions continue to be difficult creating a mixed backdrop, but our businesses are well positioned.”
Also this year, Roger Teasdale was named the president of the firm’s Advanced Wound Management business. Teasdale, 42, has been with Smith & Nephew for 20 years, and most recently served as senior vice president of Advanced Wound Care. He replaced Joe Woody, who left the company after three years to pursue other opportunities.