REG - Smith & Nephew Plc - 3rd Quarter 2023 Trading Report
02/11/2023 07:16
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RNS Number : 1148S Smith & Nephew Plc 02 November 2023
Smith+Nephew Third Quarter 2023 Trading Report
Encouraging progress as 12-Point Plan actions drive revenue growth
2 November 2023
Smith+Nephew (LSE:SN, NYSE:SNN) trading update for the third quarter ended 30
September 2023.
Q3 Highlights(1,2)
· Q3 revenue of $1,357 million (2022: $1,250 million), representing
underlying revenue growth of 7.7%. Reported growth of 8.5% included an 80bps
FX tailwind
· Orthopaedics revenue up 8.3%, in part as product launches and
12-Point Plan-led improvements drove higher growth from Trauma &
Extremities
· Sports Medicine & ENT revenue up 11.1%, with continued good
growth across most markets offsetting weakness in China
· Advanced Wound Management revenue up 3.6%, with double-digit growth
from our negative pressure portfolio but a slower quarter from Advanced Wound
Bioactives
2023 Full Year Outlook(1,2)
· Underlying revenue growth currently expected to be towards the higher
end of guided range of 6.0% to 7.0%
· Trading profit margin now expected to be around 17.5%, reflecting
headwinds from China
Chief Financial Officer
· John Rogers, former Chief Financial Officer of WPP plc, announced as
Chief Financial Officer-designate with effect from 1 December 2023
· See separate announcement issued today for further information
Deepak Nath, Chief Executive Officer, said:
"We saw strong growth in the third quarter, continuing the momentum from the
first half of the year. Performance was broad-based, and I am particularly
pleased by the step-up in Orthopaedics as we start to see the real impact from
our improving execution under the 12-Point Plan.
"Our investment in innovation continues to bear fruit. During the quarter we
saw the first surgery with our new AETOS(◊) Shoulder System and launched our
leading REGENETEN(◊) Bioinductive Implant in India and Japan. We are gearing
up for the imminent launch of our RENASYS(◊) EDGE negative pressure wound
therapy in the US.
"Overall, I am encouraged that our actions to transform Smith+Nephew to a
consistently higher growth company are starting to deliver."
Enquiries
Investors
Andrew Swift +44 (0) 1923 477433
Smith+Nephew
Media
Charles Reynolds +44 (0) 1923 477314
Smith+Nephew
Susan Gilchrist / Ayesha Bharmal +44 (0) 20 7404 5959
Brunswick
Analyst conference call
A conference call to discuss Smith+Nephew's third quarter results will be held
today at 8.30am GMT / 4.30am EDT, details of which are available at
https://www.smith-nephew.com/en/about-us/investors#quarterly-reporting
(https://www.smith-nephew.com/en/about-us/investors#quarterly-reporting) .
Forward calendar
The full year results will be released on 27 February 2024.
Notes
1. All numbers given are for the quarter or nine months ended 30 September
2023 unless stated otherwise.
2. Unless otherwise specified as 'reported' all revenue growth throughout
this document is 'underlying' after adjusting for the effects of currency
translation and including the comparative impact of acquisitions and excluding
disposals. All percentages compare to the equivalent 2022 period.
'Underlying revenue growth' reconciles to reported revenue growth, the most
directly comparable financial measure calculated in accordance with IFRS, by
making two adjustments, the 'constant currency exchange effect' and the
'acquisitions and disposals effect', described below.
The 'constant currency exchange effect' is a measure of the increase/decrease
in revenue resulting from currency movements on non-US Dollar sales and is
measured as the difference between: 1) the increase/decrease in the current
year revenue translated into US Dollars at the current year average exchange
rate and the prior year revenue translated at the prior year rate; and 2) the
increase/decrease being measured by translating current and prior year
revenues into US Dollars using the prior year closing rate.
The 'acquisitions and disposals effect' is the measure of the impact on
revenue from newly acquired material business combinations and recent material
business disposals. This is calculated by comparing the current year, constant
currency actual revenue (which includes acquisitions and excludes disposals
from the relevant date of completion) with prior year, constant currency
actual revenue, adjusted to include the results of acquisitions and exclude
disposals for the commensurate period in the prior year. These sales are
separately tracked in the Group's internal reporting systems and are readily
identifiable.
Third quarter 2023 trading update
Our third quarter revenue was $1,357 million (2022: $1,250 million),
representing underlying revenue growth of 7.7%. Reported revenue growth was
8.5% including an 80bps foreign exchange tailwind. Q3 2023 comprised 63
trading days, in line with the comparable Q3 period in 2022.
Orthopaedics revenue was up 8.3% (8.8% reported), Sports Medicine & ENT up
11.1% (11.3% reported), and Advanced Wound Management up 3.6% (5.4% reported).
Revenue growth in our Established Markets was 7.4% (9.0% reported). Within
this, in the US, our largest market, we delivered 7.2% revenue growth (7.2%
reported). Other Established Markets revenue was up 7.8% (12.7% reported).
Emerging Markets revenue was up 9.2% (6.4% reported). Within this, China was a
headwind as a weaker quarter in Sports Medicine offset a return to growth in
Hip and Knee Implants as we fully lapped the impact of Volume Based
Procurement (VBP). Sports Medicine was impacted as the Chinese healthcare
system experienced a slowdown in capital sales and procedure volumes, as well
as by a more specific headwind as our distributors reduced inventory in
anticipation of VBP in this segment.
12-Point Plan update
We continued to make good progress in the quarter delivering on our 12-Point
Plan to fundamentally change the way we operate and transform business
performance. Through the 12-Point Plan we are working to fix performance in
our Orthopaedics business and improve our overall productivity, while
continuing to invest behind our well-performing Advanced Wound Management and
Sports Medicine & ENT business units.
In Orthopaedics, our actions to improve commercial execution and product
availability are starting to deliver clear returns. Trauma accelerated over
the first half, particularly in the US, building on our investments over
several years to complete the EVOS(◊) Plating System, and the work under the
12-Point Plan to deploy more instrument sets to drive implant pull-through. We
continue to make progress along a similar improvement path with our Hip and
Knee Implants business and expect improving results to follow in the coming
quarters.
We are also making progress in our productivity workstreams, for instance with
our Orthopaedics network optimisation programme. We have announced the closure
of two smaller facilities, consolidating production into our larger sites, and
also reduced the size of our contingent workforce.
In Advanced Wound Management, we have consistently driven strong growth from
our negative pressure wound therapy ('NPWT') business and are at the early
stages of rolling out the new RENASYS EDGE NPWT System, preparing for the US
launch. RENASYS EDGE brings an important new option to customers looking for
enhanced intuitiveness, simplicity and durability, especially important for
home-care settings.
We also continued to invest behind our Sports Medicine portfolio, for instance
launching our REGENETEN Bioinductive Implant in India and Japan. Through
REGENETEN we have built a leading position in regenerative medicine and, with
more than 100,000 procedures completed globally, have had a transformative
impact on the way surgeons approach rotator cuff procedures.
Consolidated revenue analysis for the third quarter
30 September 1 October Reported Underlying Acquisitions Currency
2023 2022 growth growth((i)) /disposals impact
Consolidated revenue by business unit by product $m $m % % % %
Orthopaedics 536 492 8.8 8.3 - 0.5
Knee Implants 223 210 6.3 5.7 - 0.6
Hip Implants 141 136 3.5 3.5 - -
Other Reconstruction((ii)) 29 18 61.7 58.5 - 3.2
Trauma & Extremities 143 128 11.1 10.4 - 0.7
Sports Medicine & ENT 425 382 11.3 11.1 - 0.2
Sports Medicine Joint Repair 232 209 11.4 11.3 - 0.1
Arthroscopic Enabling Technologies 134 131 2.1 1.7 - 0.4
ENT (Ear, Nose and Throat) 59 42 39.1 40.2 - -1.1
Advanced Wound Management 396 376 5.4 3.6 - 1.8
Advanced Wound Care 183 173 5.9 3.2 - 2.7
Advanced Wound Bioactives 130 136 -4.4 -4.8 - 0.4
Advanced Wound Devices 83 67 23.8 21.3 - 2.5
Total 1,357 1,250 8.5 7.7 - 0.8
Consolidated revenue by geography
US 719 671 7.2 7.2 - -
Other Established Markets((iii)) 385 341 12.7 7.8 - 4.9
Total Established Markets 1,104 1,012 9.0 7.4 - 1.6
Emerging Markets 253 238 6.4 9.2 - -2.8
Total 1,357 1,250 8.5 7.7 - 0.8
(i) Underlying growth is defined in Note 2 on page 2
(ii) Other Reconstruction includes robotics capital sales, our joint
reconstruction business and cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New
Zealand
Orthopaedics
In our Orthopaedics business unit, revenue was up 8.3% (8.8% reported). Knee
Implants grew 5.7% (6.3% reported), with performance driven by our JOURNEY
II(◊) Total Knee System with its proprietary OXINIUM(◊) bearing surface,
even though we experienced some supply constraints in the US where revenue
declined by -1.3%. Our work to improve product availability and to deploy
greater numbers of instrument sets is ongoing, with progress starting to come
through as we exited the quarter. Hip Implants grew 3.5% (3.5% reported) with
the POLAR3(◊) Total Hip Solution, with its class-leading survivorship data,
delivering good growth in the quarter. In the US, Hip Implants grew by 3.6%.
Other Reconstruction revenue grew 58.5% (61.7% reported) driven by our
robotics-assisted CORI(◊) Surgical System, with more than 25% of US knee
procedures utilising the system by quarter end. We have expanded CORI's
indications and added functionality in recent quarters and use in revision
surgeries, a unique capability, is approaching the overall utilisation. The
first procedures with the new saw solution were performed in the quarter, with
CORI being the only solution to offer robotics-assisted burring and saw
bone-cutting options. Trauma & Extremities grew 10.4% (11.1% reported),
with a strong US performance led by the EVOS Plating System. The launch of the
new AETOS Shoulder System is underway, with first surgeries completed in the
US in the quarter.
Sports Medicine & ENT
Our Sports Medicine & ENT business unit delivered revenue growth of 11.1%
(11.3% reported) in the quarter despite the softness in China noted earlier.
Within this, Sports Medicine Joint Repair delivered 11.3% (11.4% reported)
revenue growth, with a good quarter across shoulder, led by the REGENETEN
Bioinductive Implant, and knee repair. Arthroscopic Enabling Technologies
revenue was up 1.7% (2.1% reported). Revenue from ENT was up 40.2% (39.1%
reported), reflecting the continued recovery in tonsil and adenoid procedure
volumes and the clearance of backorders following our actions to improve
product availability.
Advanced Wound Management
Our Advanced Wound Management business unit delivered revenue growth of 3.6%
(5.4% reported). Advanced Wound Care revenue was up 3.2% (5.9% reported),
including good growth in Europe. Advanced Wound Bioactives revenue was down
-4.8% (-4.4% reported), reflecting a strong comparator. Additionally, there
were temporary delays to SANTYL(◊) shipments as we completed the transfer of
production to our Fort Worth facility in the US, and delivery was back to
normal levels by quarter-end. Advanced Wound Devices revenue was up 21.3%
(23.8% reported), with double-digit growth from both our traditional
RENASYS(◊) NPWT System and PICO(◊) Single-Use NPWT System.
2023 full year outlook
With one quarter remaining of 2023, we currently expect our underlying revenue
growth for the full year to be towards the higher end of our guided range of
6.0% to 7.0% (around
5.0% to 6.0% on a reported basis based on exchange rates prevailing on 27
October 2023). Relative to third quarter performance, in the fourth quarter we
expect higher growth in Advanced Wound Management mainly due to improvement in
Advanced Wound Bioactives, a continuation of our positive momentum in
Orthopaedics, and slower growth in Sports Medicine reflecting the headwinds in
China.
We now expect trading profit margin to be around 17.5% for the full year. As
previously guided, trading profit margin in the second half is expected to be
considerably stronger than the first half. Within that we expect to benefit
from the usual seasonal margin uplift, with the fourth quarter our strongest
revenue quarter, as well as the unwinding of one-time commercial costs from
the first half and our planned cost reductions. We also expect an increased
profit headwind from China from the market slowdown and as the channel
prepares for sports medicine VBP.
Consolidated revenue analysis for nine months to 30 September 2023
30 September 1 October Reported Underlying Acquisitions Currency
2023 2022 growth Growth((i)) /disposals impact
Consolidated revenue by business unit by product $m $m % % % %
Orthopaedics 1,638 1,564 4.8 5.9 - -1.1
Knee Implants 698 665 5.0 6.1 - -1.1
Hip Implants 444 434 2.4 3.9 - -1.5
Other Reconstruction((ii)) 80 61 31.3 32.0 - -0.7
Trauma & Extremities 416 404 2.9 3.9 - -1.0
Sports Medicine & ENT 1,268 1,159 9.3 11.1 - -1.8
Sports Medicine Joint Repair 689 634 8.6 10.3 - -1.7
Arthroscopic Enabling Technologies 428 412 3.7 5.1 - -1.4
ENT (Ear, Nose and Throat) 151 113 34.4 36.9 - -2.5
Advanced Wound Management 1,185 1,127 5.2 5.9 - -0.7
Advanced Wound Care 539 533 1.3 2.3 - -1.0
Advanced Wound Bioactives 404 388 4.1 4.0 - 0.1
Advanced Wound Devices 242 206 17.3 18.6 - -1.3
Total 4,091 3,850 6.3 7.5 - -1.2
Consolidated revenue by geography
US 2,191 2,022 8.4 8.4 - -
Other Established Markets((iii)) 1,191 1,119 6.5 7.8 - -1.3
Total Established Markets 3,382 3,141 7.7 8.2 - -0.5
Emerging Markets 709 709 - 4.3 - -4.3
Total 4,091 3,850 6.3 7.5 - -1.2
(i) Underlying growth is defined in Note 2 on page 2
(ii) Other Reconstruction includes robotics capital sales, our joint
reconstruction business and cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New
Zealand
About Smith+Nephew
Smith+Nephew is a portfolio medical technology company that exists to restore
people's bodies and their self-belief by using technology to take the limits
off living. We call this purpose 'Life Unlimited'. Our 19,000 employees
deliver this mission every day, making a difference to patients' lives
through the excellence of our product portfolio, and the invention and
application of new technologies across our three global business units of
Orthopaedics, Sports Medicine & ENT and Advanced Wound Management.
Founded in Hull, UK, in 1856, we now operate in more than 100 countries, and
generated annual sales of $5.2 billion in 2022. Smith+Nephew is a constituent
of the FTSE100 (LSE:SN, NYSE:SNN). The terms 'Group' and 'Smith+Nephew' are
used to refer to Smith & Nephew plc and its consolidated subsidiaries,
unless the context requires otherwise.
For more information about Smith+Nephew, please visit www.smith-nephew.com
(http://www.smith-nephew.com/) and follow us on X
(http://www.twitter.com/smithnephewplc) , LinkedIn
(http://www.linkedin.com/company/smith-%26-nephew) , Instagram
(https://www.instagram.com/smithnephewmeded/) or Facebook
(http://www.facebook.com/smithnephewplc) .
Forward-looking Statements
This document may contain forward-looking statements that may or may not prove
accurate. For example, statements regarding expected revenue growth and
trading profit margins, market trends and our product pipeline are
forward-looking statements. Phrases such as "aim", "plan", "intend",
"anticipate", "well-placed", "believe", "estimate", "expect", "target",
"consider" and similar expressions are generally intended to identify
forward-looking statements. Forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause
actual results to differ materially from what is expressed or implied by the
statements. For Smith+Nephew, these factors include: risks related to the
impact of Covid, such as the depth and longevity of its impact, government
actions and other restrictive measures taken in response, material delays and
cancellations of elective procedures, reduced procedure capacity at medical
facilities, restricted access for sales representatives to medical facilities,
or our ability to execute business continuity plans as a result of Covid;
economic and financial conditions in the markets we serve, especially those
affecting healthcare providers, payers and customers (including, without
limitation, as a result of Covid); price levels for established and innovative
medical devices; developments in medical technology; regulatory approvals,
reimbursement decisions or other government actions; product defects or
recalls or other problems with quality management systems or failure to comply
with related regulations; litigation relating to patent or other claims; legal
and financial compliance risks and related investigative, remedial or
enforcement actions; disruption to our supply chain or operations or those of
our suppliers (including, without limitation, as a result of Covid);
competition for qualified personnel; strategic actions, including acquisitions
and disposals, our success in performing due diligence, valuing and
integrating acquired businesses; disruption that may result from transactions
or other changes we make in our business plans or organisation to adapt to
market developments; relationships with healthcare professionals; reliance on
information technology and cybersecurity; disruptions due to natural
disasters, weather and climate change related events; changes in customer and
other stakeholder sustainability expectations; changes in taxation
regulations; effects of foreign exchange volatility; and numerous other
matters that affect us or our markets, including those of a political,
economic, business, competitive or reputational nature. Please refer to the
documents that Smith+Nephew has filed with the U.S. Securities and Exchange
Commission under the U.S. Securities Exchange Act of 1934, as amended,
including Smith+Nephew's most recent annual report on Form 20-F, which is
available on the SEC's website at www. sec.gov, for a discussion of certain of
these factors. Any forward-looking statement is based on information available
to Smith+Nephew as of the date of the statement. All written or oral
forward-looking statements attributable to Smith+Nephew are qualified by this
caution. Smith+Nephew does not undertake any obligation to update or revise
any forward-looking statement to reflect any change in circumstances or in
Smith+Nephew's expectations.
(◊) Trademark of Smith+Nephew. Certain marks registered in US Patent and
Trademark Office.
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