REG - Smith & Nephew Plc - Trading Statement

Smith & NephewAnnouncement

28/04/2022 07:00

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RNS Number : 6111J  Smith & Nephew Plc  28 April 2022

Smith+Nephew First Quarter 2022 Trading Update

Encouraging start to the year with all three franchises contributing to growth

 

 

28 April 2022

 

 

Smith+Nephew (LSE:SN, NYSE:SNN) trading update for the first quarter ended 2
April 2022.

 

Highlights(1,2)

 

·    Q1 revenue $1,306 million (2021: $1,264 million) up 3.3% on a
reported basis (including -2.6% currency effect) and up 5.9% on an underlying
basis

 

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

o  Sports Medicine & ENT revenue up 8.6% underlying

o  Advanced Wound Management revenue up 8.0% underlying

o  Orthopaedics revenue up 2.6% underlying

 

·    Established Markets revenue up 4.1% underlying as elective surgery
volumes recovered from Omicron impact at the start of the quarter

 

·    Emerging Markets revenue up 14.3% underlying, with double-digit
growth across India, the Middle East and Africa, and Latin America

 

·    Continued progress with new product development programme, including
US regulatory clearance for cementless knee software on our robotics-assisted
CORI(◊) Surgical System

 

·    Focused on our Strategy for Growth, including work on productivity
and commercial execution

 

·    Full year 2022 guidance unchanged

 

Deepak Nath, Chief Executive Officer, said:

 

"We are pleased with this encouraging start to the year. Sports Medicine &
ENT and Advanced Wound Management continued to deliver strong growth and
Orthopaedics produced an improved performance as elective procedure volumes
rebounded across our segments. The growing contribution from recent product
launches reflects the strength of our portfolio and innovation-led approach.

"Our Q1 performance puts us on track to deliver our guidance for this year.
2022 marks an important stepping-stone in our Strategy for Growth and towards
achieving our medium-term financial performance commitments. I am excited by
the prospect of driving delivery of the Strategy and bringing out the best in
Smith+Nephew to realise the full potential of the business."

 

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 Thursday 28 April 2022, details of
which can be found on the Smith+Nephew website at
http://www.smith-nephew.com/financialresults
(http://www.smith-nephew.com/financialresults) .

 

Notes

 

1.   All numbers given are for the quarter ended 2 April 2022 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 2021 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 2022 will be released on 28 July 2022.

 

First quarter trading update

Our first quarter revenue was $1,306 million (2021: $1,264 million), up 5.9%
on an underlying basis. Reported revenue growth was 3.3% including a -2.6%
headwind from foreign exchange.

The first quarter comprised 64 trading days, in line with the equivalent
period in 2021.

 

Consolidated revenue analysis for the first quarter

 

                                               2 April              3 April              Reported             Underlying             Acquisitions            Currency
                                               2022                 2021                 growth               growth((i))            /disposals              impact
 Consolidated revenue by franchise             $m                   $m                   %                    %                      %                       %
 Orthopaedics                                   541                  540                  0.3                  2.6                    -                       -2.3
 Knee Implants                                  231                  212                  9.3                  12.2                   -                       -2.9
 Hip Implants                                   149                  154                  -3.3                 -0.7                   -                       -2.6
 Other Reconstruction((ii))                     20                   25                   -20.6                -19.0                  -                       -1.6
 Trauma & Extremities                           141                  149                  -5.4                 -3.8                   -                       -1.6

 Sports Medicine & ENT                          396                  373                  6.1                  8.6                    -                       -2.5
 Sports Medicine Joint Repair                   220                  198                  10.9                 13.6                   -                       -2.7
 Arthroscopic Enabling Technologies             141                  146                  -3.3                 -0.8                   -                       -2.5
 ENT (Ear, Nose and Throat)                     35                   29                   20.7                 21.6                   -                       -0.9

 Advanced Wound Management                      369                  351                  5.1                  8.0                    -                       -2.9
 Advanced Wound Care                            182                  175                  3.9                  8.3                    -                       -4.4
 Advanced Wound Bioactives                      118                  116                  2.0                  2.3                    -                       -0.3
 Advanced Wound Devices                         69                   60                   14.4                 18.6                   -                       -4.2

 Total                                          1,306                1,264                3.3                  5.9                    -                       -2.6

 Consolidated revenue by geography
 US                                             659                  640                  3.1                  3.1                   -                           -
 Other Established Markets((iii))               404                  407                  -0.7                 5.9                   -                        -6.6
 Total Established Markets                      1,063                1,047                1.6                  4.1                   -                        -2.5
 Emerging Markets                               243                  217                  11.7                 14.3                  -                        -2.6
 Total                                          1,306                1,264                3.3                  5.9                   -                        -2.6

 

(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 an encouraging first quarter, with
continued strong growth from Sports Medicine & ENT and Advanced Wound
Management and an improved performance from Orthopaedics. Volumes returned
across elective procedure categories as the effects of the Omicron wave fell
away in the US and Europe early in the quarter and we benefitted from recent
new product launches. We continue to focus closely on managing the widely
reported global shortages of some raw materials and components.

 

Geographically, revenue growth was 4.1% (1.6% reported) in our Established
Markets and 14.3% (11.7% reported) in Emerging Markets.

 

The Established Markets recovered from the impact of the COVID wave at the
start of the year. In the US our business accelerated through February and
into March as procedure volumes returned, with revenue growing 3.1% (3.1%
reported) for the quarter. Revenue from our Other Established Markets was up
5.9% (-0.7% reported due primarily to FX movements in the Euro, Australian
Dollar and Japanese Yen) mainly driven by Europe, with the UK and Southern
Europe rebounding strongly.

 

In the Emerging Markets China saw a return of COVID outbreaks and local
lockdowns in some cities late in the quarter. Our China business still added
to Group growth with delays to the implementation of the Hip and Knee
volume-based-procurement (VBP) programme more than offsetting the COVID
headwind. The Emerging Markets excluding China continued to recover strongly,
with double-digit growth across India, the Middle East and Africa, and Latin
America.

Orthopaedics

We delivered revenue growth of 2.6% (0.3% reported) in our Orthopaedics
franchise in the first quarter.

 

Knee Implants was up 12.2% (9.3% reported) and Hip Implants was down -0.7%

(-3.3% reported). Knee Implants performance was driven by a strong recovery in
elective surgery volumes in the quarter. We saw the first contributions from
our recently launched  LEGION(◊) CONCELOC(◊) cementless knee and
announced the first surgery using our new JOURNEY(◊) II Medial Dished (MD)
System. The small decline for Hip Implants reflects a strong comparative
period and a market that had been more resilient than Knees in 2020 and 2021.

 

Other Reconstruction revenue was down -19.0% (-20.6% reported), largely
reflecting a strong Q1 2021. We continue to expand our CORI Surgical System
offering, launching in Japan in February and conducting the first hip surgery
and achieving US regulatory clearance for our cementless knee software in
April.

 

In Trauma & Extremities revenue was down -3.8% (-5.4% reported) reflecting
a varied performance by geography and product category.

 

Sports Medicine & ENT

Our Sports Medicine & ENT franchise delivered revenue growth of 8.6% (6.1%
reported).

Revenue in Sports Medicine Joint Repair was up 13.6% (10.9% reported), driven
by procedural recovery in knee repair which had been particularly impacted by
lower sport participation due to COVID. We also saw good momentum across
recent product launches including FASTFIX(◊) FLEX and HEALICOIL(◊)
Knotless.

 

Arthroscopic Enabling Technologies revenue was down -0.8% (-3.3% reported),
reflecting a good quarter in fluid management and video offset by a soft
quarter in COBLATION(◊) and patient positioning.

 

ENT delivered revenue growth of 21.6% (20.7% reported) driven by our tonsil
and adenoid business as procedure volumes continue to recover from the impact
of COVID.

Advanced Wound Management

We delivered revenue growth of 8.0% (5.1% reported) from our Advanced Wound
Management franchise.

 

Advanced Wound Care revenue was up 8.3% (3.9% reported), including
double-digit growth in Europe. All major product categories grew globally,
with the highest growth coming from film and foam dressings.

 

Advanced Wound Bioactives revenue was up 2.3% (2.0% reported) with good growth
from our enzymatic debrider SANTYL(◊). In skin substitutes we announced a
new study showing that, compared to leading competitors, GRAFIX(◊) Membrane
halved recurrence rates for diabetic foot ulcers, one of the major categories
of chronic wounds.

 

Advanced Wound Devices revenue was up 18.6% (14.4% reported) driven by both
our PICO(◊) and RENASYS(◊) Negative Pressure Wound Therapy Systems.

 

Outlook

Our first quarter trading results put us on track to meet our full year
guidance for 2022, which is unchanged.

 

As announced with our fourth quarter results, for 2022 we are targeting
underlying revenue growth of 4.0% to 5.0%. On a reported basis the guidance
equates to a range of around 1.3% to 2.3%, with a foreign exchange headwind of
270bps based on exchange rates prevailing on 22 April 2022.

 

For trading profit margin we are targeting around 50bps of expansion in 2022.
This will be driven by efficiencies from operating leverage and productivity
and improvement in the margin of acquired assets that will more than offset
significant anticipated headwinds from input cost inflation and China VBP
implementation.

 

In December 2021 we announced our Strategy for Growth and new mid-term
financial performance commitment, targeting consistent 4-6% organic revenue
growth by 2024, structurally ahead of historical levels, and rebuilding
trading margin, targeting at least 21% by 2024 with further improvements
thereafter. 2022 is an important stage in this journey and we are pleased with
the encouraging start to the year.

 

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 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 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 2021. 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 Twitter
(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 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
health care 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
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; 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, 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 US Patent and
Trademark Office.

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