REG - Smith & Nephew Plc - Smith+Nephew Third Quarter 2024 Trading Report
31/10/2024 07:00
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RNS Number : 3158K Smith & Nephew Plc 31 October 2024
Smith+Nephew Third Quarter 2024 Trading Report
31 October 2024
Smith+Nephew (LSE:SN, NYSE:SNN) trading update for the third quarter ended 28
September 2024.
Q3 Highlights(1,2)
( )
· Q3 revenue of $1,412 million (Q3 2023: $1,357 million),
representing 4.0% revenue growth (underlying and reported)
o Excluding China, Group growth was 5.9% (underlying and reported).
China impacted by worse than expected headwinds across our surgical businesses
o Operational and commercial improvements from 12-Point Plan on track
across the rest of the business, with financial improvements coming through
· Orthopaedics revenue up 2.3% (2.4% reported), with US Hip and
Knee Implants both delivering revenue growth
· Sports Medicine & ENT revenue up 3.9% (3.7% reported), with
strong growth from Sports Medicine across Established Markets partially offset
by VBP-related headwind in China
· Advanced Wound Management revenue up 6.5% (underlying and
reported), an acceleration over the first half
Outlook(1,2)
· For the full year 2024, underlying revenue growth is now expected
to be around 4.5% (previously 5.0% to 6.0%), primarily due to the impact of
China headwind. For trading profit margin in 2024, we are now expecting growth
of up to 50bps compared to last year's 17.5% (previously at least 18.0%),
reflecting the reduced operating leverage from slower revenue growth
· For 2025, given the updated 2024 outlook and, in particular,
uncertainty around ongoing China headwinds, we now expect to expand our
trading profit margin significantly to between 19.0% and 20.0%, driven by the
continued delivery of the
12-Point Plan improvements
Deepak Nath, Chief Executive Officer, said:
"We delivered encouraging growth in most segments and markets in the third
quarter as the 12-Point Plan drove further financial improvements. We are
making progress in both Hip and Knee Implants in the US, although there is
more to do. China VBP was a significant headwind that masked Sports Medicine's
strong performance across the rest of the world. Advanced Wound Management
delivered its best quarter this year, with all segments performing well.
"We continue to deliver on longer term growth drivers, including robotics
adoption and product innovation, as well as improving productivity. While the
revised outlook reflects the headwinds across our surgical businesses in
China, we remain convinced that our transformation to a higher growth company,
with the ability to drive operating leverage through to the bottom line, is on
the right course."
Enquiries
Investors
Andrew Swift +44 (0) 1923 477433
Smith+Nephew
Media
Charles Reynolds +44 (0) 1923 477314
Smith+Nephew
+44 (0) 20 7404 5959
Susan Gilchrist / Ayesha Bharmal
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 on the
Smith+Nephew website at https://www.smith-nephew.com/en/who-we-are/investors
(https://www.smith-nephew.com/en/who-we-are/investors) .
Forward calendar
The full year results will be released on 25 February 2025.
Notes
1. All numbers given are for the quarter or nine months ended 28 September
2024 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 2023 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 2024 trading update
Our third quarter revenue was $1,412 million (Q3 2023: $1,357 million),
representing underlying revenue growth of 4.0%. Reported revenue growth was
also 4.0% with no foreign exchange impact. Q3 2024 comprised 63 trading days,
in line with the comparable Q3 period in 2023.
Orthopaedics revenue was up 2.3% (2.4% reported), Sports Medicine & ENT up
3.9% (3.7% reported), and Advanced Wound Management up 6.5% (6.5% reported).
Revenue growth in our Established Markets was 5.0% (5.2% reported). Within
this, in the US we delivered 4.0% revenue growth on both an underlying and
reported basis, and Other Established Markets revenue was up 6.8% (7.5%
reported). Emerging Markets revenue was down -0.1% (-1.2% reported).
We continued to make progress delivering against the 12-Point Plan. Hip
Implants and Knee Implants both delivered revenue growth in the US reflecting
the operational progress in product supply and sharper commercial execution.
However, there is still more to do in what was an area of significant weakness
identified during the diagnostic phase of the 12-Point Plan. Reconstruction
maintained its good momentum in Other Established Markets, with growth
accelerating over the first half.
Sports Medicine continued to deliver strong growth across the Established
Markets, and Advanced Wound Management delivered its best quarter this year,
with all segments contributing.
Emerging Markets performance reflected a weaker than expected quarter in China
across our surgical businesses. In Sports Medicine, we saw the expected price
impact of the Volume Based Procurement (VBP) programme, but with the related
volume benefits yet to come through. In Orthopaedics, slower in-market demand
and consequent impact on our channel were also a headwind. We expect both
these China headwinds will continue into 2025. Excluding China, Group growth
for the quarter was 5.9% on both an underlying and reported basis.
New product launches
We maintained our high cadence of innovation in the quarter, expanding our
portfolio with launches that address unmet clinical needs and support our
higher growth ambitions.
We announced 510(k) clearance and completed the first cases for the
CATALYSTEM(◊) Primary Hip System. The system is designed to address the
evolving demands of primary hip surgery including the increased adoption of
anterior approach procedures and the expanding role of Ambulatory Surgery
Centers (ASCs).
We also continued to build our portfolio of tools to support surgeons. We
introduced TOTAL ANKLE(◊) Patient-Matched Guides to help surgeons plan and
perform total ankle replacement procedures. Total ankle replacements are
historically uncommon, but this is a high-growth market bolstered by the
rising prevalence of osteoarthritis in adults and influenced by growing
patient preference for joint preservation and restoration. After quarter end
we announced a co-marketing agreement with JointVue for its patented
OrthoSonic™ 3D Surgery Planning Technology, offering surgeons using our
CORI(◊) Surgical System for robotic-assisted knee arthroplasty opportunities
to improve patient satisfaction and operating room efficiency.
Consolidated revenue analysis for the third quarter
28 September 30 September Reported Underlying Acquisitions Currency
2024 2023 growth growth((i)) /disposals impact
Consolidated revenue by business unit by product $m $m % % % %
Orthopaedics 549 536 2.4 2.3 - 0.1
Knee Implants 222 223 -0.9 -0.9 - -
Hip Implants 146 141 4.1 4.0 - 0.1
Other Reconstruction((ii)) 33 29 13.8 13.7 - 0.1
Trauma & Extremities 148 143 3.5 3.3 - 0.2
Sports Medicine & ENT 441 425 3.7 3.9 - -0.2
Sports Medicine Joint Repair 232 232 -0.2 0.1 - -0.3
Arthroscopic Enabling Technologies 154 134 15.0 15.0 - -
ENT (Ear, Nose and Throat) 55 59 -6.7 -6.8 - 0.1
Advanced Wound Management 422 396 6.5 6.5 - -
Advanced Wound Care 190 183 3.5 3.4 - 0.1
Advanced Wound Bioactives 140 130 7.9 8.0 - -0.1
Advanced Wound Devices 92 83 11.0 11.0 - -
Total 1,412 1,357 4.0 4.0 - -
Consolidated revenue by geography
US 748 719 4.0 4.0 - -
Other Established Markets((iii)) 414 385 7.5 6.8 - 0.7
Total Established Markets 1,162 1,104 5.2 5.0 - 0.2
Emerging Markets((iv)) 250 253 -1.2 -0.1 - -1.1
Total 1,412 1,357 4.0 4.0 - -
(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, Japan, Australia/New Zealand and
Canada
(iv) Emerging Markets include China, Latin America, Middle East, South Africa
and Korea
Orthopaedics
In our Orthopaedics business unit, revenue was up 2.3% (2.4% reported).
Knee Implants declined -0.9% (-0.9% reported) and Hip Implants grew 4.0%
underlying (4.1% reported).
US Knee Implants returned to growth, up 0.7% (0.7% reported), and US Hip
Implants grew 3.2% (3.2% reported), as our 12-Point Plan actions to improve
product and set availability and commercial execution start to deliver the
expected improvements.
Outside the US, Knee Implants declined -2.8% (-2.9% reported) and Hip Implants
grew 5.0% (5.3% reported). Other Established Markets continued their recent
good momentum, with growth ahead of the first half. However, overall
performance was held back by China, where we have seen a period of reduced
end-customer demand. As a result, orders from our distribution partners
significantly slowed as they reduced their stock-levels in response,
particularly towards the end of the quarter, and our expectation is that
orders will remain low through the fourth quarter.
Overall, across our Established Markets, Knee Implants growth was driven by
our JOURNEY II(◊) Total Knee System with its proprietary OXINIUM(◊)
bearing surface, and by our cementless and revision systems. Hip growth was
led by our POLAR3(◊) Total Hip Solution and R3(◊) Acetabular System.
Other Reconstruction revenue grew 13.7% (13.8% reported) driven by sales of
our robotics-assisted CORI(◊) Surgical System and consumables, with
approaching one-third of US knee procedures utilising the system by quarter
end.
Trauma & Extremities grew 3.3% (3.5% reported). We delivered double-digit
growth from our EVOS(◊) Plating System offset by a slower quarter for some
legacy systems and, in particular, lower sales of whole surgical sets. The
launch of the new AETOS(◊) Shoulder System continued to progress well. We
expect higher growth to return in the fourth quarter.
Sports Medicine & ENT
Our Sports Medicine & ENT business unit delivered revenue growth of 3.9%
(3.7% reported). Excluding China, Sports Medicine & ENT grew 7.9% (7.7%
reported). The third quarter was the first full quarter since VBP
implementation, and the new pricing is now in place across all provinces. The
scale of the headwind reflects the expected price impact, but with the
anticipated volume benefits from higher utilisation yet to come through.
Sports Medicine Joint Repair growth of 0.1% revenue growth (declined -0.2%
reported), which reflects the China VBP impact. Growth was strong across all
other regions, with double-digit growth from our REGENETEN(◊) Bioinductive
Implant.
Arthroscopic Enabling Technologies revenue was up 15.0% (15.0% reported) with
strong growth across all categories of the arthroscopic tower, and from the
WEREWOLF(◊) FASTSEAL 6.0 Hemostasis Wand used in orthopaedic reconstruction.
The quarter also benefitted from a relatively soft prior year comparator.
Revenue from ENT declined -6.8% (-6.7% reported), with the growth rate
reflecting the strong 2023 comparator, as flagged last quarter. The underlying
demand for tonsil and adenoid procedures remained solid.
Advanced Wound Management
Our Advanced Wound Management business unit delivered revenue growth of 6.5%
(6.5% reported), a significant improvement over the first half across all
three segments.
Advanced Wound Care revenue was up 3.4% (3.5% reported), driven by strong
performances in foam dressings and infection management categories.
Advanced Wound Bioactives revenue was up 8.0% (7.9% reported), with
double-digit growth from our skin substitutes following the launch of GRAFIX
PLUS(◊) in the second quarter, an easier-to-handle new version in our lead
product family, targeting the growing post-acute market. SANTYL(◊) revenue
declined slightly in the quarter as we continued to see quarter-to-quarter
variability, a long-term feature of SANTYL, as previously stated.
Advanced Wound Devices revenue was up 11.0% (11.0% reported), with strong
growth from both our traditional RENASYS(◊) NPWT System and PICO(◊)
Single-Use NPWT System, and from our LEAF(◊) Patient Monitoring System as we
continue to expand the market in Pressure Injury Prevention.
Full year 2024 outlook
We expect to finish 2024 strongly, with an acceleration in revenue growth
driven by ongoing improvements in Orthopaedic Reconstruction, a return to
stronger growth for Trauma & Extremities and continued good growth from
Sports Medicine outside of China and Advanced Wound Management. We will also
benefit from two extra trading days, although we expect that benefit to be
less than proportional given when they fall. We expect China to remain a
headwind for the reasons described above.
As a result, we now expect underlying revenue growth of around 4.5% for the
full year 2024 (previously 5.0% to 6.0%). This equates to around 4.1% on a
reported basis based on exchange rates prevailing on 25 October 2024.
We continue to expect to deliver year-on-year expansion in our trading profit
margin, driven by productivity gains under the 12 Point Plan and operating
leverage, which together should more than offset headwinds from input cost
inflation and VBP. However, the impact of China in the second half is expected
to reduce the operating leverage gain. As a result, we now expect year-on-year
trading margin growth of up to 50bps compared to last year's 17.5% (previously
at least 18.0%).
2025 targets
We continue to expect the Group to make significant progress in 2025, both
sustaining the levels of revenue growth above pre-Covid levels, and in
significantly expanding our trading profit margin through operating leverage,
productivity improvements and cost reductions.
For 2025, given the updated 2024 outlook and, in particular, uncertainty
around ongoing China headwinds, we now expect to expand our trading profit
margin significantly to between 19.0% and 20.0%, driven by the continued
delivery of the 12-Point Plan improvements.
Consolidated revenue analysis for nine months to 28 September 2024
28 September 30 September Reported Underlying Acquisitions Currency
2024 2023 growth Growth((i)) /disposals impact
Consolidated revenue by business unit by product $m $m % % % %
Orthopaedics 1,697 1,638 3.6 4.2 - -0.6
Knee Implants 701 698 0.4 1.0 - -0.6
Hip Implants 457 444 3.0 3.8 - -0.8
Other Reconstruction((ii)) 92 80 16.0 16.4 - -0.4
Trauma & Extremities 447 416 7.3 7.6 - -0.3
Sports Medicine & ENT 1,330 1,268 4.9 5.6 - -0.7
Sports Medicine Joint Repair 715 689 3.8 4.6 - -0.8
Arthroscopic Enabling Technologies 459 428 7.2 8.1 - -0.9
ENT (Ear, Nose and Throat) 156 151 3.2 3.7 - -0.5
Advanced Wound Management 1,212 1,185 2.2 2.6 - -0.4
Advanced Wound Care 547 539 1.4 2.0 - -0.6
Advanced Wound Bioactives 402 404 -0.5 -0.5 - -
Advanced Wound Devices 263 242 8.6 9.2 - -0.6
Total 4,239 4,091 3.6 4.2 - -0.6
Consolidated revenue by geography
US 2,241 2,191 2.3 2.3 - -
Other Established Markets((iii)) 1,255 1,191 5.3 6.1 - -0.8
Total Established Markets 3,496 3,382 3.4 3.7 - -0.3
Emerging Markets((iv)) 743 709 4.7 6.7 - -2.0
Total 4,239 4,091 3.6 4.2 - -0.6
(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, Japan, Australia/New Zealand and
Canada
(iv) Emerging Markets include China, Latin America, Middle East, South Africa
and Korea
About Smith+Nephew
Smith+Nephew is a portfolio medical technology business focused on the repair,
regeneration and replacement of soft and hard tissue. We exist 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 18,000 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 $5.5 billion in 2023. 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
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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: conflicts in Europe and
the Middle East, economic and financial conditions in the markets we serve,
especially those affecting healthcare providers, payers and customers; 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; 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.
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