Smith & Nephew 2018 revenue up 3%, profits drop amid restructuring: 8 things to know

Spinal Tech

Smith & Nephew reported 3 percent revenue growth for 2018 after launching a new operating model.


Eight key notes:

1. Underlying revenue was up 2 percent for the full year, but a 1 percent foreign exchange tailwind helped boost the revenue to $4.9 billion, a 3 percent growth on a reported basis.

2. Smith & Nephew launched a new operating model, and reported restructuring and rationalization costs hit $120 million for the full year. The Accelerating Performance and Execution program realized benefits in 2018 P&L of around $60 million, and the company reported strides in manufacturing, warehousing and distribution as well as general and administrative expenses and commercial effectiveness. By 2022, the company expects to realize an annual benefit of $160 million.

3. The company reported an operating profit of $863 million, after taking the restructuring costs into account, a 7.6 percent drop from $934 million in 2017. Smith & Nephew reported cash generated from operations was $1.1 billion and net debt was $1.1 billion at the end of the year, a decrease from 2017.

4. During the fourth quarter, Smith & Nephew reported around $1.2 billion in consolidated revenue, a 1 percent increase over the same period last year. The sports medicine, trauma and other business reported $528 million in revenue, a 2 percent growth. Reconstruction reported a 1 percent revenue growth to $429 million, with knee implant revenue up 1 percent and hip implant revenue increasing 2 percent.

5. Smith & Nephew's management does not believe the United Kingdom's decision to leave the European Union will have a significant impact on it's ability to do business, as the U.K. accounts for around 5 percent of global revenue and most manufacturing takes place outside the U.K. and E.U.

6. In 2019, Smith & Nephew aims to hit 2.5 percent to 3.5 percent revenue growth and estimates tax rate will be in the range of 19 percent to 21 percent for the year.

7. With the new year, Smith & Nephew launched five strategic imperatives for value creation in the medium term, including:

• Focusing on platform-specific plans, ASCs and emerging markets with special attention on China and Latin America
• Acquiring and developing technologies, including robotics, imaging and augmented reality
• Accelerating portfolio growth, strengthening leadership and driving synergies organically as well as with mergers and acquisitions and partnerships
• Improving retention and attracting new talent
• Transforming operations and organization specifications that will drive meaningful margin expansion

These pillars are part of the company's new global commercial model, which charges the president of each specialized global marketing franchise — orthopedics, sports medicine/ENT and wound care. The franchise presidents have commercial responsibility for the U.S., while other leaders and regional commercial organizations support the company internationally.

8. Smith & Nephew also launched a new brand purpose titled "Life Unlimited" with three cultural pillars: care, collaboration and courage. The company aims to inspire employees to work together and focus on continuous learning and improvement.



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