Monthly Archives: April 2017

Stocks in Focus: Smith & Nephew

This week I am looking at Smith & Nephew, a leading UK-based global manufacturer of medical devices, following a transitional year bringing the business back to growth. The company operates across three specialist divisions: Reconstruction (hips and knees), Advanced Wound Management and Sports Medicine & Trauma.

The group has faced a number of setbacks in recent years, many of which stemmed from a flawed corporate structure of separately operated ‘silo’ divisions, which led to restricted innovation. This allowed competitors to catch up and take market share, although the company still enjoys a top 5 position across all the categories it operates in.

Management was then put in to question last year with the announcement that the CEO, Olivier Bouhon, had been diagnosed with cancer and would require treatment across much of the year. In addition to this, it was revealed that the CFO, Julie Brown, would be leaving to join Burberry after 3 ½ years with the company.

Despite these challenges, Smith & Nephew recently published positive full year results, demonstrating a return to growth and an encouraging outlook for the future, particularly within Sports Medicine. The internal restructuring of the business is now complete, which promises improved execution across the divisions and a stronger pipeline of new products. Olivier Bouhon (CEO) is now back at the helm and has recently announced the appointment of a new CFO, Graham Baker, who has 20 years’ experience at AstraZeneca and is expected to be a good addition to the board.

With a better structure in place and strong management team behind it, Smith & Nephew should now be well positioned to take advantage of an era where an ageing population and active younger generation mean health solutions are more essential than ever. Nevertheless, competition remains fierce and management will need to continue to drive innovation within key growth areas to keep ahead in this market.

http://www.nwbrown.co.uk/library/

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Stocks in Focus: Hilton Food Group

This week I am looking into Hilton Food Group further to its recently published full year results for 2016. Hilton was established as a meat packing facility in Huntingdon in 1994. Since then it has grown to build processing and packing facilities and factories across Europe, with the business focusing on helping customers improve processes and become more efficient. More recently they have expanded further overseas through joint ventures with supermarket group Woolworths in Australia and food retail group Sonae in Portugal.

Following the results, which were above expectations thanks to strong volume growth in the UK, Ireland and Australia, I spoke with Robert Watson (CEO) and Nigel Majewski (CFO). The model for expanding into new territories is interesting. To develop the relationship with Sonae, Hilton initially sent a consultancy team to Portugal to review their current processes and systems. The consultancy period gave Hilton the opportunity to demonstrate their business case and as with the arrangement with Woolworths in Australia, Sonae went on to sign a full joint venture to redevelop its production facilities. While the core business is focussed on the processing and packing of meat, Hilton have been able to respond to their customers’ needs in wide range of fresh food preparation and packaging solutions, as shown with their fresh pizza range in Sweden.

Hilton now operates as a more diverse business geographically, with the ability to offer customers a more extensive range of solutions.  Expanding too far from the core business could create some challenges, but management remain optimistic that Hilton will be able to steer through these challenges and remain in a strong market position.

http://www.nwbrown.co.uk/library/

Stocks in Focus: GlaxoSmithKline

This week I am looking at GlaxoSmithKline (GSK) following the appointment of a new Chief Executive, Emma Walmsley, on Monday 3 April. She takes over from Sir Andrew Whitty, who steps down after nearly 10 years in the role, and inherits a business that has recently diversified away from its core Pharmaceuticals division and towards its Consumer Health and Vaccine divisions (following an asset swap with Novartis). Nonetheless, Pharmaceuticals remains the largest division and the focus of this article.

The pharmaceuticals industry relies on heavy investment in research and development to create new treatments. This pipeline is essential as older products lose their patent protections and generic alternatives come into the market, driving down pricing. The development process is expensive, as a drug needs to go through a rigorous process to gain approval. The skill of the new Chief Executive will be to select at an early stage those drugs with a strong likelihood of gaining approval and thereby recouping the development costs and to avoid those that have a low possibility of succeeding.

The UK’s exit from the EU will throw up further uncertainties as the European Medicines Agency currently approves drugs across all 28 member states.  It is possible that a new UK regulator could drive companies away from developing drugs in the UK, forcing them instead to focus on Europe.

The long-term prospects for pharmaceutical companies remains their ability to develop successful new drugs and to get those drugs through expensive clinical trials. GSK has a strong pipeline with a number of drugs expected to gain FDA approval this year. Ms Walmsley’s role as Chief Executive will be to guide the company through the aforementioned uncertainties and focus on the specific treatments and markets that will generate growth over the long term.

http://www.nwbrown.co.uk/library/