USA - Smith & Nephew in shift to low-cost countries

Smith & Nephew will make more of its artificial hips and knees in low-cost countries such as China to reduce a cost burden that pushed third-quarter profits down by almost a tenth.

Shares in Smith & Nephew fell as much as 7.5 per cent after trading margins at the FTSE 100 company’s orthopaedics division fell more than expected, from 22.2 per cent a year ago to 15.6 per cent.

Olivier Bohuon, who became chief executive earlier this year, said he was “disappointed” with the performance at the division as he unveiled plans to cut costs by at least $150m a year across the group.

Smith & Nephew conducts most of its manufacturing in the US and western Europe and less than a fifth in low-cost locations. But the group said it was reviewing the “best configuration of our manufacturing portfolio” in the face of “persistent pricing pressures in our established markets”.

As well as increasing the proportion of sourcing from emerging markets, Smith & Nephew also plans to shake up its product offerings in them. “We have not had the right portfolio,” Mr Bohuon said of its emerging markets operations. “We have been offering too many high-tech products and discounting them, so we are losing margin.”

The group wants to offer cheaper, lower-specification products in middle-income countries as it gears up to increase annual sales from emerging markets by the middle of the decade.

Other efficiency measures include scrapping a number of senior European posts.

Alistair Gray and Andrew Jack

The Financial Times

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