is a British portfolio medical technology company that operates worldwide. The company develops, manufactures, markets and sells medical devices and services. Its segments include Orthopedics, Sports Medicine and Ear, Nose and Throat, as well as Advanced Wound Management.
Despite its leading market position and the favorable industry dynamics, Smith & Nephew has not generated shareholder value for many years – down 44% since Jan. 1, 2020 and off by 33% since its Jan. 1, 2021 post-Covid price. This is not surprising, and the reason seems obvious: operating margins in its largest business, Ortho. In 2019, Ortho had operating margins of 23%, which declined to 13% in 2020. They are now at 11% today.
Management has now released a 12-point plan of which a major component is fixing Ortho to regain momentum and win market share. While this is a step in the right direction and this management team may be able to successfully implement this plan, it is not going to happen with continued management turnover. It is impossible to implement a long-term operational plan when there is a new CEO every few years.
We expect that Cevian would look to assist in this endeavor from a board level because they take board seats in most of their activist positions. Currently, Cevian's professionals serve on the boards of 10 portfolio companies in six different countries. Given the firm's experience and the fact that it is the company's second-largest shareholder, we would expect that Cevian would be able to get a board seat here the way it does in most of its engagements – amicably or by invitation.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.