Smiths Medical's profits advanced
significantly in a period of strong market demand. Sales grew by
12% to £453m, outpacing the market growth rate of 6% in all
core areas. Operating profit climbed by 10% to £93m. Margins
remained at a high 21%. There were buoyant sales in growth areas
such as needle protection and infusion, where
Smiths products offer both superior performance and innovation.
The division also benefited from increased spending by the UK National
Health Service (NHS).
The division operates in markets characterised by high levels
of technological innovation. In order to increase market share
and maintain high margins, Smiths Medical invests in research
and development and regularly introduces new, value-added products.
A number of long-term market trends support growing demand for
the division's devices. In particular, many of Smiths Medical's
businesses benefit from the health industry's growing belief that
single use of devices such as tracheostomy tubes reduces risks
of cross-infection.
A heightened awareness of the danger to hospital staff from contaminated
needles boosted sales of needle protection devices during the
year. In April 2001, the US Needlestick Safety and Prevention
Act became effective, making needle protection compulsory. The
Portex subsidiary experienced a dramatic increase in sales to
hospitals across the US. Notably, it was selected to supply needle
protection devices to the 1,850 hospitals
controlled by Premier, a leading US alliance of hospitals.
In the ambulatory infusion business, a reputation for quality,
reliability and innovation helped generate increased sales. Supply
agreements with US healthcare groups Gentiva Health Services,
Broadlane and Premier are expected to lead to the sale of more
than 5,000 Deltec ambulatory infusion pumps over the next five
years. Once new pumps are installed, sales of related disposable
items can be expected to follow quickly.
At the same time, Graseby's hospital infusion business was assisted
by growth in NHS spending. Sales of vascular access ports also
remained strong.
Airway Management, the largest business unit,
experienced strong sales of procedure kits for anaesthetists.
Steps were taken to build Airway Management's sales and marketing
community and to develop new products and services. The unified
portfolio opens important global opportunities. In particular,
it is anticipated that many existing UK products will be launched
in the US in the near future, and vice versa.
Strategic reorganisation
Smiths Medical has been reorganised
into nine global business units in order to sharpen customer focus,
to specialise in specific therapies, to strengthen global market
positions in identified healthcare sectors, and to accelerate
the assessment of new opportunities. The nine business units are:
Airway Management, Pain Management, Needle Protection, Temperature
Management, Critical Care Monitoring, Hospital Infusion, Ambulatory
Infusion, Vascular Access and Women's Healthcare.
The division pursued a policy of investing in markets where
there is sustainable growth. In August, Portex acquired the
Point-Lok Needle Protection Device, a versatile protection product
that can be used on a variety of needle types. Eschmann Equipment
was sold in June, as its specialisation in capital equipment
for hospitals did not fit with the division's core strategy.
Action was taken to reduce costs, with further production transferred
to the division's lower-cost facility in
Tijuana, Mexico. Cost-effective, high quality manufacturing
remains an important part of Smiths Medical's strategy. It means
that profitability can be maintained while the division invests
heavily in new product development.
Detailed strategy
Smiths Medical now has
a stronger global product range and an organisational structure
that is more closely focused on meeting customer requirements.
There is a detailed strategy to concentrate on growth markets,
to seek manufacturing efficiencies and to increase the pace
of new product introductions. Product and marketing strategies
are now coordinated on a global basis. Management has been strengthened
in the areas of national accounts and corporate sales.
With the expansion of the healthcare sector throughout the
developed world, Smiths Medical is confident that the market
for single-use devices will continue to grow. Against this background,
actions taken to focus and to energise the division, along with
prudent cost control, should lead to continued strong earnings
growth.
