£147m of cuts at Smith & Nephew fail to lift profits

 
Adam Hignett
SHARES in UK medical equipment manufacturer Smith and Nephew rallied yesterday, despite a decline in profits over the course of 2014, brought about by increased sales and administration costs.

The 158-year-old company has been implementing a change of strategy in recent years aimed at rebalancing the firm by strengthening its higher growth platforms, which now represent more than half the business, up from just 35 per cent in 2011.

Particular focus for company rebalancing has been towards emerging markets which saw the development of the company’s Latin American business and the establishment of a new commercial structure to market and expand the firms mid-tier value products for these markets.

But despite attempts to improve efficiency through a project which the company claims has achieved annualised savings of $146m (£95.2m) since 2011, this was not enough to prevent an annual 10 per cent rise in sales and administration costs knocking $2.5bn off revenues.

The increased costs reversed the profits made from the two per cent increase in revenue for the year which came in at $4.6bn, leading to an 11 per cent fall in annual profit before tax to $714m.

Profit before tax in the final quarter was also down on an annualised basis with profits coming in at £212m as opposed to £232 in 2013.

Despite falling profits the board recommended an eight per cent year-on-year increase in the dividend.

CEO Olivier Bohuon said: “Our 2014 performance reflects the choices we have made to invest in transforming the growth profile of Smith & Nephew.”

Shares in the company closed up 2.57 per cent yesterday, on the results.