Covidien is launching a new restructuring plan that will put more emphasis on contract manufacturing and move more manufacturing close to end markets. Growth in the so-called BRIC (Brazil, Russia, India, and China) nations is a particular goal. The medical device and supplies manufacturer is a captive plastics processor and a major buyer of medical plastics.
Innovation centers will be opened by the company next year in Brazil, Turkey and India as part of its new, and still emerging, strategy. While its sales in less-developed countries are currently quite low, profit margins are higher than in major markets. In 2012, 55% of Covidien's sales were in the United States, 16% were in the Euro zone, 11% were in Japan and the remainder were in other countries.
Covidien's corporates headquarters are in Dublin, Ireland. U.S. headquarters are in Mansfield, MA.
In a notice of restructuring filed with the Securities and Exchange Commission, Covidien said its plan will focus on “reducing corporate expense, expanding the use of shared services in low-cost locations, outsourcing services where appropriate, streamlining the company’s organizational structure, consolidating manufacturing locations, consolidating and optimizing distribution centers, and expanding low-cost country sourcing." The restructuring program extends through the end of 2018.
It's the company's fourth restructuring since it was spun off from Tyco International in 2007. Covidien divested its pharmaceutical division in July and now focuses on products such as endomechanical instruments (laparoscopic instruments and surgical staplers) and soft tissue repair products, including sutures, mesh and biosurgery products. Growth in its medical supplies segment is essentially flat, while sales of medical devices are growing 2-5% a year.
In its last full fiscal year, Covidien had net sales of $11.9 billion and net income of $1.9 billion. One significant headwind challenging profit margins this year are unfavorable foreign currency exchange rates in the BRIC zone, particularly India. Resins and plastic parts are the two most most important materials purchased by Covidien, according to its most recent 10K report filed with the SEC. The number of facilities operated by Covidien dropped from 67 in 2007 to 41 in September. The new restructuring program will result in more closings. Employment dropped from 28,600 in 2007 to 21,600 in September.