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VOL. 126 | NO. 243 | Wednesday, December 14, 2011

Smith & Nephew Lays Off 80 in Memphis

By Aisling Maki

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Smith & Nephew Inc. on Tuesday, Dec. 13, said the company had cut about 80 jobs at its Memphis-based orthopedics unit, where the London-based medical device manufacturer employs more than 2,000 workers.

The layoffs are a result of organizational restructuring to eliminate the duplication of roles, combining Smith & Nephew’s Memphis-based Orthopaedic Reconstruction and Trauma division with its Andover, Mass.-based Endoscopy division to form a new division that will be known as the Advanced Surgical Devices Division.

“With that, we were able to look at operational requirements and identify duplication in roles,” Smith & Nephew spokesman Andrew Burns told The Daily News. “If you couple with that the tough or challenging economic environment, regulatory environment and ongoing cost of pressure in our established market, it was having a negative impact on growth across the entire health care industry and Smith & Nephew is no exception.”

Burns said the layoffs are in "various departments."

As part of the restructuring, Joseph DeVivo, the company’s Memphis-based president of Orthopaedic Reconstruction and Trauma, left Smith & Nephew in August.

The new combined division is led by Andover-based Mike Frazzette, who has served as president of the endoscopy division since 2006.

“It’s a single division with two locations, and we remain heavily invested in Memphis – there’s no change there,” Burns said. 

In November, Smith & Nephew reported strong third-quarter revenue growth, but said its Memphis-based orthopedics division underperformed for the period ending Oct. 1, as evidenced by trading margins of 15.6 percent compared with 22.2 percent in Q3 2010.

Smith & Nephew CEO Olivier Bohuon at the time released a statement saying that although the company had delivered top-line revenue growth, he was “disappointed with our margin performance, with Orthopaedics overshadowing excellent performances in Endoscopy and Advanced Wound Management. We are taking the steps necessary to reduce a cost base in Orthopaedics that is too high for ongoing market conditions. I expect to see material improvements from Q4 onwards and am confident that the group will deliver a Q4 trading profit margin above 24 percent.”

The company cited three principal reasons for its softer orthopedics division margins in the last quarter, starting with continued pressure on the gross margin from its sales mix. Top-line growth was driven by products and geographical markets where the company achieved lower margins.

Orthopedics also experienced an unusually high level of periodic costs in Q3 –including legal, inventory and receivables – totaling about $10 million.

In addition, Smith & Nephew cited modest growth and continuing pricing pressures in established markets, necessitating a lower orthopedics cost base.

However, the company said its new combined orthopedics and endoscopy management team would work to implement tighter controls over spending, which it hopes will improve its orthopedics margin.

Smith & Nephew last month said it had established the leadership team for the new Advanced Surgical Devices division and has started to reorganize its structure and operating model to meet the requirements of established markets.

Burns said the new model will also allow Smith & Nephew “to invest more in emerging markets, where there’s greater potential for growth right now.”

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