Smith & Nephew plc (LON:SN, NYSE:SNN) trading update for the third quarter ended 28 September 2024.
Q3 Highlights1,2
· 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
Outlook1,2
· 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.”
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.
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
Smith & Nephew 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.
