Recently, according to the British "Mail on Sunday report", the global orthopedic giant Smith & Nephew has been severely warned by shareholders due to poor performance. Smith & Nephew's shareholders have lost patience with the strategic development speed of CEO Deepak Nath and declared: If the company's performance cannot be improved, Deepak Nath will be dismissed, and Smith & Nephew will also face the split of the orthopedic department.

It is reported that Smith & Nephew's stock price has fallen by as much as 44% in the past five years. As this year's performance has not "cleared up", shareholders' emotions are difficult to appease, further putting pressure on Deepak Nath.

Smith & Nephew was founded in the UK in 1856. This old company with a long history of more than 100 years has three main businesses: orthopedics, sports medicine and otolaryngology, and advanced wound management. At present, Smith & Nephew is a world leader in the four major fields of orthopedic joint reconstruction, advanced wound management, sports medicine and trauma.

After years of development, Smith & Nephew also has many star products: Genesis II total knee system (launched in 1996, with more than 750,000 implants), Oxinium black crystal femoral condyle (patented by Smith & Nephew, won the ASM Award, the highest award in the international materials category in 2005), Journey II XR knee replacement system (new product in 2017).

Why does a century-old company with stable development for many years and a number of star products face a series of storms?

This can be traced back to 2019. 2019 is a watershed year for Smith & Nephew. From 2015 to 2019, Smith & Nephew's position in the field of orthopedics was very solid, and it has always ranked fifth in the global orthopedics ranking. However, after entering 2019, Smith & Nephew gradually entered a period of weakness, especially orthopedics as its core business, which only maintained single-digit growth, which further widened the gap between Smith & Nephew and companies such as Stryker, Medtronic, Zimmer Biomet, and Johnson & Johnson.

In order to save the company's performance, Smith & Nephew began to urgently look for new growth points, and a number of acquisitions were also implemented, such as Ceterix, NuVasive, Integra Lifesciences Holdings Corporation's limb orthopedic business and other heavyweight acquisitions and mergers. At the same time, Smith & Nephew also made a major internal change. In the past five years, Smith & Nephew has successively welcomed four experienced CEOs.

Deepak Nath, who is facing the dismissal storm this time, took office in July 2022. Deepak Nath is also a very experienced leader. Before joining Smith & Nephew, he worked for Siemens Healthineers, Amgen, McKinsey, and Abbott, and he also has senior management experience in many companies.

However, since Deepak Nath took office, Smith & Nephew's recovery strategy has not achieved good results. Berenberg analysts have also expressed concerns about the prospects for Smith & Nephew's financial improvement in the coming year. It has been more than two years since Smith & Nephew launched its transformation plan, and the slow progress has also raised questions about the potential impact of management strategy in the medium term.

In addition, in the first half of this year, there was also a storm of salary increase for Smith & Nephew executives, which further intensified the conflict between the two sides. It was caused by Deepak Nath's insistence on raising his salary to more than 9 million pounds, which was strongly opposed by shareholders. At the shareholders' meeting, 43% of shareholders voted against the proposal and proposed that if Nath's goal was successfully achieved, he would receive a salary of up to 11.8 million US dollars next year, an increase of 28.9% over the current highest salary of 9.2 million US dollars.

In addition to the turmoil at Smith & Nephew's headquarters, this year, there were also news of the departure of senior executives in Smith & Nephew Greater China. Its managing director Hu Hai left Smith & Nephew and sought external development opportunities. At present, Hu Hai has not yet announced where his next stop will be, and Smith & Nephew has not yet officially announced a new successor.

Hu Hai had previously mentioned that China is currently Smith & Nephew's second largest market in the world, the largest market in a single country, and the fastest growing market in the world. China plays a pivotal role in the global market. But looking at Smith & Nephew's financial report, it is not difficult to see that its revenue in China has stalled.

In the first half of 2024, Smith & Nephew's global revenue was approximately US$2.827 billion, a year-on-year increase of 3.4%, of which the revenue in the Chinese market was approximately US$112 million, a year-on-year decrease of 8.9%.

In terms of business segments: Sports Medicine and Otolaryngology achieved a revenue growth of 7.6%, excluding the Chinese market, and an increase of 11.0% on a fundamental basis; Sports Medicine Joint Repair Business Revenue increased by 6.0%, excluding the Chinese market, and an increase of 11.8% on a fundamental basis, especially the knee repair product portfolio achieved good growth, and REGENETEN bio-inductive implants achieved strong double-digit growth.

The impact of centralized procurement on orthopedic device companies is huge. After centralized procurement, the overall price has declined, and the share of orthopedics in Smith & Nephew China has gradually declined. Sports medicine has become Smith & Nephew's largest business unit in China. However, it is worth noting that with the full implementation of centralized procurement (VBP) in May 2024, 29 of the 31 provinces have begun to implement it as of the end of the quarter. Therefore, it is expected that the challenges of volume-based procurement will continue in the second half of this year.

However, China is still one of the key areas for Smith & Nephew to develop in the future. This year, Smith & Nephew officially announced the launch of the "China Business Strategic Growth Plan", which comprehensively planned the business focus and strategic goals of Smith & Nephew in China in the next three years. At the same time, Smith & Nephew also reorganized the business structure in China, merged the China Sports Medicine and Orthopedics Divisions, and established the Orthopedics Comprehensive Division.

Smith & Nephew, which is in a declining stage, still faces many problems. Under pressure, can Deepak Nath withstand the pressure, find new growth points, and lead Smith & Nephew back to the glory 19 years ago? Let's wait and see.

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