Smith & Nephew, a leading British medical technology company, has been facing challenges in recent years despite its global market presence and strong brand perception. With Cevian Capital acquiring a 5.11% stake in the company, there is potential for a turnaround that could significantly enhance long-term shareholder value.
Smith & Nephew operates in three key segments – Orthopedics, Sports Medicine and ENT, and Advanced Wound Management. While the company maintains a dominant market position in each segment, its profitability profile presents a concern. In particular, the Orthopedics segment, which accounts for 40% of the company’s revenue, has seen a decline in operating margins from 23% in 2019 to 11% today.
The decline in operating margins within the Orthopedics segment can be attributed to issues in supply chain management, logistics, and manufacturing. The complexity of the Orthopedics business, with the need for timely delivery of implants, components, and specific tools, has posed significant challenges for the company. Moreover, a high turnover rate in management over the past five years has further compounded the company’s difficulties in implementing long-term operational plans.
Cevian Capital’s acquisition of a stake in Smith & Nephew brings a new perspective to the table. As a long-term, hands-on owner of European-listed companies, Cevian is known for its operational performance focus. With an average holding period of four to five years, Cevian aims to enhance the long-term value of the companies it invests in through active ownership.
Smith & Nephew has the potential to revitalize its Orthopedics segment and improve its operating margins under Cevian’s guidance. By leveraging Cevian’s expertise in operational improvements and board-level engagement, the company could regain momentum and win back market share. With Cevian’s track record of assisting companies in enhancing operations, there is a strong possibility of restoring the Orthopedics division’s margins to pre-pandemic levels or even surpassing industry peers.
One of the key strengths that Cevian brings to the table is its long-term mindset and commitment to driving sustainable value creation. By aligning strategic objectives with operational improvements, Cevian can help Smith & Nephew navigate through the current challenges and emerge as a stronger player in the medical technology industry.
Smith & Nephew stands at a crucial juncture where strategic intervention is essential to unlock its full potential. With Cevian Capital’s active involvement and focus on operational excellence, the company has a significant opportunity to revitalize its business and deliver long-term value to its shareholders. By addressing the underlying issues in the Orthopedics segment and fostering a culture of operational efficiency, Smith & Nephew can embark on a path towards sustainable growth and profitability in the years to come.