The moves cost S&N pounds 17m in the first half, but the efficiency gains mean there are more funds to invest in the core businesses.In recent months the shares have reversed their underperformance to the market. The group yesterday posted its first set of results since instigating a review to deal with that crisis.
Chris O’Donnell, the chief executive, has bundled together the struggling businesses to focus S&N on orthopaedics (hips and knees), keyhole surgery devices and “wound management” products such as burns grafts. JUDGING BY the recent performance of its shares, Smith & Nephew, the manufacturer of specialist bandages and replacement hips, has come off the sick list. Like the patients who benefit from its products, the shares took a tumble last year after regulators forced it to extend a skin graft research programme and its markets deteriorated. One is continental Europe, where lower revenue combined with a high fixed cost base sent profits tumbling by 74 per cent. The other is the consumer cycle, which must be near its peak.

On consensus full-year profit forecasts of pounds 37m the shares trade on a forward multiple of 20, a discount to larger rivals The margin deficiency explains the discount. The margin commitment and recent US success cannot take precedence over risk surrounding Saatchi’s markets The shares are expensive.. Meanwhile, relatively tiny Saatchi can’t enjoy its rivals’ economies of scale.There are other clouds on the Saatchi horizon, however. Saatchi is targeting double-digit margins and wants to hit 12 per cent by 2001.

The group’s larger competitors – Interpublic, Omnicom and WPP – have higher margins than that, but Saatchi is saddled with a punitive rent, adding a point to the margin, at its central London head office; a lease signed by the Saatchi brothers in 1988 and running until 2011. The strong economy there has seen the agency win $350m (pounds 217m) of billings, with business from Toyota and Procter & Gamble offsetting losses from Gillette and Anchor butter.The key figure yesterday was the margin, up from 8 to 8.5 per cent. The group lent some justification to the rise in its shares from 97p in the autumn to 217p yesterday as it posted a 21 per cent increase in underlying half-year profits to pounds 13.2m. It celebrated the figures by paying a maiden interim dividend.
Almost half of Saatchi’s revenues come from the US. That is hardly stunning earnings growth and given Inchcape’s markets, the shares are unlikely to motor forward for some time.. SAATCHI & SAATCHI, the advertising agency demerged from Cordiant at the end of 1997, has been enjoying its independence. Buoyed by a growing global advertising market, predicted to grow by 4.2 per cent this year, the agency has been winning new business and improving its margins.

It has also extended its range of related motor sales services. Naturally it has gone on to the Internet, and wholly owns the UK website of Autobytel, the US online motor trader, which has 350,000 regular users.WestLB Panmure expects pre-tax profits of pounds 87m and earnings of 60.4p this year, rising to pounds 93.5m and 63.6p next. The aim is to lift margins here from 8 per cent to 12 per cent.Inchcape says the real driver of earnings growth will be recovery in its markets. They couldn’t get any worse; the Hong Kong car market fell 34 per cent in the period, and Latin America plunged 45 per cent. With three- quarters of group sales sourced overseas, Inchcape has taken a battering.
In the UK, sales were affected by Inchcape’s refurbishment of 47 of its 57 dealerships.