REG - Smith & Nephew Plc - Q1 2023 Trading Update

Smith & NephewAnnouncement

26/04/2023 07:00

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RNS Number : 4494X  Smith & Nephew Plc  26 April 2023

 

Smith+Nephew First Quarter 2023 Trading Update

26 April 2023

 

 

Smith+Nephew (LSE:SN, NYSE:SNN) trading update for the first quarter ended 1
April 2023.

 

Highlights(1,2)

 

·    Q1 revenue $1,356 million (2022: $1,306 million), up 6.9% on an
underlying basis and up 3.8% on a reported basis (including -310bps foreign
exchange impact)

 

·    Continued strong growth from Sports Medicine & ENT and Advanced
Wound Management and improved performance from Orthopaedics

o  Sports Medicine & ENT revenue up 10.0% underlying

o  Advanced Wound Management revenue up 7.9% underlying

o  Orthopaedics revenue up 3.9% underlying

 

·    Established Markets revenue up 10.0% underlying as procedure volumes
strengthened, offsetting Emerging Markets, where revenue was down -7.3% due to
the expected impact in China from volume-based procurement (VBP) and Covid

 

·    Continued cadence of new product launches contributing to growth

 

·    Full year 2023 guidance unchanged, underpinned by ongoing delivery of
12-Point Plan

 

Deepak Nath, Chief Executive Officer, said:

 

"I'm pleased with our revenue performance in the first quarter as we delivered
growth across all three franchises, including improvement in Orthopaedics.

"We saw strong elective procedure volumes in our Established Markets early in
the quarter, which our surgical businesses are now better placed to benefit
from. We are consistently seeing accelerated adoption of robotics and the new
CORI(◊) Digital Tensioner adds further differentiation to our platform and
will support better outcomes for patients.

"We are still in the early phases of the two-year life-cycle of our 12-Point
Plan and are focused on driving transformation."

 

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
An analyst conference call to discuss Smith+Nephew's first quarter results
will be held at 8.30am BST / 3.30am EDT on Wednesday 26 April 2023, details of
which can be found on the Smith+Nephew website at
https://www.smith-nephew.com/en/about-us/investors/financial-resources#quarterly-reporting
(https://www.smith-nephew.com/en/about-us/investors/financial-resources#quarterly-reporting)
.

 

Notes

 

1.   All numbers given are for the quarter ended 1 April 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 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.

Forward calendar

 

Results for the first half of 2023 will be released on 3 August 2023.

 

 

 

First quarter trading update

Our first quarter revenue was $1,356 million (2022: $1,306 million), up 6.9%
on an underlying basis. Reported revenue growth was 3.8% including a -310bps
headwind from foreign exchange.

The first quarter comprised 64 trading days, in line with the equivalent
period in 2022.

Consolidated revenue analysis for the first quarter

                                               1 April              2 April              Reported            Underlying             Acquisitions            Currency
                                               2023                 2022                 growth              growth((i))            /disposals              impact
 Consolidated revenue by franchise             $m                   $m                   %                   %                      %                       %
 Orthopaedics                                   548                  541                  1.3                 3.9                    -                       -2.6
 Knee Implants                                  237                  231                  2.3                 5.0                    -                       -2.7
 Hip Implants                                   152                  149                  1.8                 4.6                    -                       -2.8
 Other Reconstruction((ii))                     23                   20                   16.3                19.7                   -                       -3.4
 Trauma & Extremities                           136                  141                  -3.2                -0.8                   -                       -2.4

 Sports Medicine & ENT                          422                  396                  6.5                 10.0                   -                       -3.5
 Sports Medicine Joint Repair                   228                  220                  3.8                 7.3                    -                       -3.5
 Arthroscopic Enabling Technologies             149                  141                  5.6                 9.1                    -                       -3.5
 ENT (Ear, Nose and Throat)                     45                   35                   26.9                30.8                   -                       -3.9

 Advanced Wound Management                      386                  369                  4.7                 7.9                    -                       -3.2
 Advanced Wound Care                            175                  182                  -3.4                1.0                    -                       -4.4
 Advanced Wound Bioactives                      136                  118                  14.9                15.2                   -                       -0.3
 Advanced Wound Devices                         75                   69                   8.4                 12.9                   -                       -4.5

 Total                                          1,356                1,306                3.8                 6.9                    -                       -3.1

 Consolidated revenue by geography
 US                                             737                  659                  11.8                11.8                   -                       -
 Other Established Markets((iii))               404                  404                  -                   7.0                    -                       -7.0
 Total Established Markets                      1,141                1,063                7.3                 10.0                   -                       -2.7
 Emerging Markets                               215                  243                  -11.5               -7.3                   -                       -4.2
 Total                                          1,356                1,306                3.8                 6.9                    -                       -3.1

 

(i)   Underlying growth is defined in Note 2 on page 2

(ii)  Other Reconstruction includes robotics capital sales, our joint
navigation business and cement

(iii) Other Established Markets are Australia, Canada, Europe, Japan and New
Zealand

 

Overview of the first quarter

All three franchises contributed to the encouraging first quarter as we
maintained our growth momentum from the end of 2022. Sports Medicine & ENT
and Advanced Wound Management again delivered strong growth and Orthopaedics
also delivered an improved performance. We continued to be held back by supply
challenges in some raw materials and components, and expect this to remain a
headwind during 2023.

Group trading was driven by a good quarter in the Established Markets. The US,
our largest market, grew 11.8% (11.8% reported), and Other Established Markets
grew 7.0% (flat on a reported basis reflecting a -700bps impact from foreign
exchange). Overall, we saw a stronger environment for elective procedures in
our Established Markets as healthcare systems saw higher volumes than
anticipated, particularly in the early part of the quarter. This benefitted
our surgical businesses which are now better placed as a result of our work to
improve product supply and commercial execution.

In Emerging Markets, the -7.3% decline (-11.5% reported) was the result of a
slower quarter in China, as expected. Here growth continued to be impacted by
the implementation of the previously disclosed hip and knee VBP programme,
with an additional effect from the renewed Covid waves that began in late
2022. These resulted in reduced procedure volumes and slower shipments into
the channel for much of the quarter. The headwind from VBP will continue until
Q2 2023. Emerging Markets excluding China delivered growth in the quarter, led
by performance in India and Latin America.

Orthopaedics

Our Orthopaedics franchise delivered revenue growth of 3.9% (1.3% reported) in
the quarter. Excluding China, Orthopaedics grew by 9.0% underlying.

Knee Implants was up 5.0% (2.3% reported) and Hip Implants was up 4.6%

(1.8% reported). We continued to benefit from our differentiated portfolio of
Knee Implants including double-digit growth from JOURNEY II(◊) and strong
momentum from the new cementless total knee LEGION CONCELOC(◊). Hip Implants
performance was led by double-digit growth from our OR3O(◊) Dual Mobility
Hip System. During the quarter we announced new data supporting improved
outcomes from our VISIONAIRE(◊) Patient-Specific Instrumentation for total
knee arthroplasty compared with conventional instrumentation.

Other Reconstruction revenue was up 19.7% (16.3% reported), including strong
growth from our CORI Surgical System. We are benefiting from recent expansion
of CORI, including offering the only robotics-assisted revision knee
indication. We continue to invest behind the CORI platform and are at the
early stages of introducing our new CORI Digital Tensioner. This is a
proprietary device for soft tissue balancing in knee replacement, and is the
only tensioner for robotic assisted surgery that enables surgeons to measure
the ligament tension in a knee prior to cutting bone. This allows surgeons to
accurately measure gaps in the patient's knee using quantifiable data and
helps make planning more objective and eliminates inconsistencies in surgery
from current manual or mechanical tools.

In Trauma & Extremities revenue was down -0.8% (-3.2% reported). A strong
quarter of growth in the US was offset by the continued impact of the
previously disclosed decision to exit this segment in China. We expect Trauma
& Extremities growth to accelerate as the year progresses as we lap market
exits made in 2022 and continue to drive the EVOS(◊) Plating System.

Sports Medicine & ENT

Our Sports Medicine & ENT franchise delivered revenue growth of 10.0%
(6.5% reported).

Revenue in Sports Medicine Joint Repair was up 7.3% (3.8% reported).
Performance was led by our shoulder repair portfolio, including double-digit
growth from our REGENETEN(◊) Bioinductive Implant. During the quarter we
introduced the UltraTRAC(◊) QUAD ACL Reconstruction Technique, bringing
together new tendon harvest and preparation guides with our family of
ULTRABUTTON(◊) Adjustable Fixation Devices. These technologies work together
to provide an innovative procedural solution, expanding Smith+Nephew's ability
to address surgeon graft preference in knee repair.

Arthroscopic Enabling Technologies revenue was up 9.1% (5.6% reported), with a
good quarter in video, COBLATION(◊) and patient positioning.

ENT delivered revenue growth of 30.8% (26.9% reported), reflecting the post
Covid recovery in tonsil and adenoid procedure volumes. During the quarter we
announced new evidence demonstrating that COBLATION Technology can accelerate
patient recovery with fewer complications compared with total tonsillectomy
techniques.

Advanced Wound Management

We delivered revenue growth of 7.9% (4.7% reported) from our Advanced Wound
Management franchise.

Advanced Wound Care revenue was up 1.0% (-3.4% reported), including a solid
performance across most major regions against a strong prior year comparator.

Advanced Wound Bioactives revenue was up 15.2% (14.9% reported) driven by
sustained double-digit growth from our skin substitutes portfolio.

Advanced Wound Devices revenue was up 12.9% (8.4% reported) as we continued to
deliver good growth across both our PICO(◊) and RENASYS(◊) Negative
Pressure Wound Therapy Systems.

 

12-Point Plan update

In July 2022 we announced our 12-Point Plan to fundamentally change the way we
operate and deliver results. The 12-Point Plan is focused on:

·    Fixing Orthopaedics, to regain momentum across hip and knee implants,
robotics and trauma, and win share with our differentiated technology;

·    Improving productivity, to support trading profit margin expansion;
and

·    Further accelerating growth in our already well-performing Advanced
Wound Management and Sports Medicine & ENT franchises.

On productivity, we have finalised the associated costs for our manufacturing
network and go-to-market optimisation workstream. In aggregate, the benefits
from these actions are expected to result in more than $200 million of annual
savings by 2025, as disclosed last quarter, for around $275 million of
restructuring costs over three years.

 

Outlook

Full year guidance for 2023 is unchanged, with targets of 5.0% to 6.0%
underlying revenue growth (around 5.0% to 6.0% reported based on exchange
rates on 20 April 2023) and a trading profit margin of at least 17.5%.

 

About Smith+Nephew

Smith+Nephew is a portfolio medical technology business 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 franchises of
Orthopaedics, Advanced Wound Management and Sports Medicine & ENT.

 

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 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 dispositions, 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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