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VOL. 128 | NO. 30 | Wednesday, February 13, 2013

Year of Change for Smith & Nephew

By MICHAEL WADDELL

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On the heels of laying off 63 employees in Memphis and as it grapples with challenging business conditions locally and worldwide, London-based medical device maker Smith & Nephew sees a bright spot in the Bluff City: the new Centre for Innovation.

In reporting fourth quarter and year-end earnings last week, company officials touted the opening of the new center at its Goodlett Farms facility as one highlight from 2012.

“I believe that medical innovation and training go hand-in-hand, and we opened our new state-of-the-art medical training facility in Memphis in the U.S.,” CEO Olivier Bohuon told analysts during a conference call last week.

The 62,000-square-foot facility opened during the first quarter of 2012 as a multi-disciplinary facility that includes joint reconstruction, sports medicine and trauma. The facility enables surgeons from different specialties and locations to share learning and innovation.

The center features an auditorium with a seating capacity of 140, five conference rooms, 17 labs – including a 10-station lab – and two classrooms.

“We had approximately 700 surgeons come through the Innovation Centre for medical education programs in 2012,” said Andrew Burns, group director of marketing communications in Memphis. “We should easily hit that number again in 2013.”

Also in 2012, more than 400 members of the company’s sales team traveled to Memphis for numerous training sessions, ranging from one day to three weeks at a time. While most visitors were from the United States, the company also provided education to multiple groups from Europe, Asia and South America.

Otherwise, the company reported that fourth quarter earnings declined on a sluggish European market, and it forecast lower profitability in 2013.

The company reported revenues of $1.08 billion for the fourth quarter, a 3 percent drop compared to $1.11 billion during the same period a year earlier. For the full year, the company’s revenues totaled $4.14 billion compared to $4.27 billion in 2011.

Revenues for the company’s Advanced Surgical Devices division, which is located at the Goodlett Farms Parkway facility, were $797 million in the fourth quarter compared to $835 million during the same period in 2011. For the full year, ASD revenues totaled $3.1 billion.

Bohuon described 2013 as a year of consolidation, and he expects the company’s margins this year to be slightly below the 23.3 percent achieved in 2012, partly due to the medical device tax that is part of the Affordable Care Act.

That tax was also partially responsible for Smith & Nephew cutting nearly 100 jobs in Memphis and Andover, Mass. The Affordable Care Act includes a 2.3 percent medical device tax, which took effect Jan. 1.

“The cost of the U.S. medical device excise tax is significant,” said Bohuon, adding that the tax will cost the company about $25 million in 2013. “While I believe that we will be able to absorb it completely over time, it is a material head wind this year.”

The new tax will cost the industry $30 billion over 10 years, but Bohuon stressed that Smith & Nephew has not raised prices to offset the new tax. He also contradicted earlier statements from officials in Andover that the recent layoffs were a result of the tax.

Bohuon said the cuts had “nothing to do with the Obamacare” and was simply the result of a mix of conditions the company identified more than a year ago. However, the company’s U.S. spokesman cited the medical device tax as one of the factors for the recent job cuts.

Company officials in Andover reiterated that statement this week while denying any contradictions.

“The statements are consistent, one being the global perspective provided by our CEO, and the other being a response specific to our U.S. business,” said Joe Metzger, senior vice president of corporate communications in Andover. “Smith & Nephew in the U.S. took a number of actions that resulted in the loss of less than a hundred positions in Tennessee and Massachusetts, citing a need to reduce costs locally to help absorb the impact of the new medical device excise tax.”

The cuts included 63 jobs in Memphis, 20 in Andover and 12 in Europe. The company also announced plans to shutter a facility in Belgium due the need to counter the effects of the continuing austerity measures in Europe.

“The actions are part of a three-year efficiency program or ‘value plan’ announced in late 2011 to ensure Smith & Nephew has the right cost base for prevailing market conditions,” Metzger said.

The company announced in February 2012 that it would reduce its 11,000-person global workforce by 7 percent over the next three years to save $150 million. About 320 layoffs have been completed.

Bohuon is optimistic the cost-cutting initiatives will continue to help the company.

“There is no doubt that we are benefiting from implementing our strategic priorities,” he said. “Our choices to invest in products and geographic areas of higher growth are enabling us to drive greater value from existing resources.”

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RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 84 84 5,157
MORTGAGES 103 103 6,812
FORECLOSURE NOTICES 15 37 1,593
BUILDING PERMITS 0 0 11,979
BANKRUPTCIES 60 105 5,405
BUSINESS LICENSES 28 28 2,089
UTILITY CONNECTIONS 97 97 7,155
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