Smith & Nephew plc

And welcome to the Smith & Nephew Q1 2024 results presentation. As mentioned, I'm Deepak Nath. I'm the Chief Executive Officer. And joining me for his first set of company results is our new Chief Financial Officer, John Rogers. Underlying revenue growth was in line with our expected phasing for 2024, with mid-single-digit growth from orthopedics and sports medicine and ENT was partially offset by advanced wound management. As we guided in February, our overall performance reflects tough US comparators from the stronger environment for elective procedures that we saw in Q1 of 2023. The expected quarterly volatility in Santel and one less trading day. In orthopedics, despite the headwinds mentioned, Q1 revenue growth of 4.4% was actually ahead of the prior year's 3.9%. This is a result of strong growth in trauma and extremities, OUS knees and hips, and other recon. And that was partially offset by weakness in US knees and hips. In US recon, we're addressing the product supply and commercial execution challenges that have held us back. And with strengthened leadership significant strides in capital availability, improved customer service, and with changes to our Salesforce structure delivering better execution, we expect to start to see an improving performance in U.S. recon. Sports medicine and ENT achieved mid-single-digit growth in the quarter, and while China remains a headwind, sports medicine joint repair delivered a robust performance. This was supported by prior product launches and further market penetration of our bioactive implant, Regenitin, which remains a key driver of growth. I've mentioned Santel's impact on Q1. For the rest of advanced wound management, trading in advanced wound care and advanced wound devices was in line with our expectations, with our single-use PICO device continuing to drive strong growth across negative pressure wound therapy. So for the remainder of the year, we expect continued growth in orthopedics and sports medicine and ENT, despite the continued headwind of China VBP, and for advanced wound management to return to growth. All of this underpins our confidence in maintaining our guidance for the full year. So I'll now pass you on to John to go through the detail of today's results before I come back to discuss our strategic progress. John?

Good morning, everyone. Thank you, Deepak. Turning to our revenue performance in Q1. So revenue in the quarter was $1.4 billion with 2.9% underlying growth, 2.2% reported after 70 basis points headwind from foreign exchange. One less trading day mathematically represents about 1.5% headwind to growth, And this impacts our surgical business actually more than our wound business, which is wholesalers in the channel. Geographically, our established markets grew by 1.3%, with the U.S. down 0.6% due to the factors Deepak has just touched upon, and revenue from our other established markets grew by 4.8%. Business performance in our emerging markets delivered strong growth of 11.6%, driven by double-digit growth in orthopedics. Turning now to business unit performance, starting with orthopedics, which grew by 4.4% in the quarter. Global knees and hips grew by 1.7% and 3.4% respectively. In OUS, we delivered double-digit growth in knees and hips, reflecting the benefit of improved product supply and commercial execution driven by the 12-point plan. We believe this is above market growth for the third quarter in a row. U.S. recon was slower, in part due to tough comparators from Q1 2023, but also reflecting the execution and supply issues which have held back performance in recent quarters. While we've made good progress in operational improvements from the 12-point plan, we see further scope to improve commercial execution, and Deepak will talk more about this in a moment. Other reconstruction grew revenue by 18%. aided by further strong growth from the Corrie surgical system. We continue to benefit from Corrie's unique features and versatility, and the broad adoption picture for Corrie remains positive. Trauma and extremities continues to play an important part in our orthopaedics growth story, Revenue grew by 7.8% in Q1, with strong growth in the U.S., reflecting the continued ramp-up of the EVOS plating system, followed improved product availability and capital deployments for mid-2023. During the course of we announced full commercial availability of the new ETOS shoulder system in the U.S., along with 510K clearance for its use with UltraPlan 3D planning software, ETOS addresses one of the fastest-growing segments in orthopedics, and early customer reaction has been very positive. Sports medicine and ENT is a very attractive part of our portfolio and has demonstrated consistently high levels of growth for many years. The business delivered underlying revenue growth of 5.5% in Q1, excluding China, where the sector was adjusting to the volume-based procurement program. Sports medicine and ENT grew at 6.7%. Revenue in sports medicine joint repair was up 7.7%, with performance led by our shoulder repair portfolio, including double-digit growth from our Regeniton bioinductive implants. In February, we showcased our newly acquired Cartilaginous Repair Implant at the AAOS annual meeting. Both the Jilisi and Regenitent demonstrate our leadership in products that enable biological healing for sports medicine and improve patient outcomes versus the current standard of care. Arthroscopic enabling technologies revenue grew by 1%, with a good quarter in coagulation and patient positioning, offset by softness in our video capital sales caused by third-party supply issues which we have now resolved. ENT delivered revenue growth of 9%, led by our tonsil and adenoid business, and representing more normalized procedure volumes. We are in the early stages of launching the ARIS coblation turbinate reduction wand, which uses our advanced coblation plasma technology to provide a minimally invasive way to reduce hypertrophic turbinates, a condition that requires 350,000 procedures per annum in the U.S. Looking now at advanced wound management, revenue declined by 2%, driven by the volatility in santal sales that Deepak noted earlier and some tough comps. I think it's worth pointing out here that volatility in santal is not a new thing. Because of the timing of production runs and lumpy order patterns into the wholesaler channel, we tend to see quarter-on-quarter variations. These tend to average out, of course, over the year. Advanced wound care revenue was down 0.5% with good growth from our phone dressings and infection management portfolios, offset by negative growth in skin care and films. In April, we announced new evidence support in leave-in-life phone dressings role in pressure injury prevention. Advanced wound biotics revenue was down 9.8% in the quarter, reflecting the volatility in Santal just mentioned. Advanced wound devices revenue grew by 8.7%, led by good growth from our single-use PICO negative pressure wound therapy system. Turning now to Outlook. With a solid Q1 behind us and our expectations for growth across the business for the remainder of the year unchanged, we are very confident in our guidance for underlying revenue growth, 5% to 6% for the full year. Within orthopaedics, you should expect continued good growth in trauma and extremities, OUS, knees and hips, and other recon, together with improvements in US recon and continued rollout of key products. We also expect further strong growth in sports medicine outside of China. As we said in February, EVP for some sports medicine products is the main headwind, with close to 2% of group sales within scope and implementation expected from May onwards. In advance through management, we expect high growth for the year overall, but potential volatility in AWB quarter on quarter, as I've just covered. Overall, this amounts to another strong year expected for the portfolio as a whole. In terms of phasing, there will be one more training day in Q2. Q3 will be unchanged on the prior year, and Q4 will have two additional days, making a total of two extra days for the full year. We also expect meaningful trading margin expansion and to reach at least 18% of the year in terms of phasing. As in prior years, trading margins are expected to be higher in half two and half one, although, as we said at the prelims, with a less marked step up than in 2023. And to give you a little bit of a better sense of margins for half one, I'd expect us to be around 75 to 125 basis points ahead of half one last year. Before I hand back to Deepak, since I joined Smith & Nephew, I've been asked for my views on the company, and I thought today would be a good opportunity just to share with you my experience so far. I joined the company in late December 2023 and was formally appointed CFO at the start of April, so I've been in the role now for about four weeks. Let me just first say I'm immensely grateful to Anne-Françoise for completing the 2023 year-end process and, frankly, allowing me to focus on what has been a very comprehensive onboarding process. In particular, I've been able to travel extensively and meet colleagues and to engage with them about the business. I think in total I visited at least nine of our key locations, met with many of our leadership team, hundreds if not thousands of our colleagues, as well as spending a lot of time with Deepak, our ex-co, our senior leadership team, and the finance team, of course. My first impressions of Smith & Nephew have frankly confirmed many of the views on the business that I had before joining the company. First, I think the business has a strong product portfolio across our business units, across wound, sports and ortho. A good example of that, frankly, is in Pittsburgh a couple of weeks back with our robotics team and fantastic to hear about some of the future developments that we've got planned for our Cori platform. Second, the Smith and Nephew culture, I think, is particularly strong. We have three pillars that support our culture, care, collaboration and courage. I see a huge alignment in our business on our purpose of life unlimited and how our products, you know, in the hands of our healthcare partners help millions of patients every year. And this was actually particularly brought to life recently when I visited. Carl spoke to our wound R&D team. And just the enthusiasm and the focus on patient outcomes that that team alone has in our business was great to hear, great to see. Third, I think the 12-point plan has landed here. really well in the business and is being implemented with rigor and pace not seen in the business historically. And the fact that we're starting to see real operational improvements from this work is also incredibly encouraging. And fourth, we do have a strong portfolio. Overall, sports, despite VVP in China, is expected to show consistent growth this year. Woon, despite some of the volatility of Santill that we've made reference to and the soft Q1, we will see good recovery through the remainder of this year. And actually, Ortho, at the total business unit level, is delivering growth in Q1 higher than this time last year, with the OUS business growing by double digits. Now, the challenge, of course, is our U.S. ortho business, where our performance is yet to turn, despite improvement in implant and set availability. But we do expect the actions that Deepak will take you through in more detail in a moment will start to translate into stronger performance over time. As I said earlier, I'm confident we can deliver the 5% to 6% revenue growth that we've guided to this year. So overall, still lots to go for, lots of opportunities, more work to do, but certainly some very positive signs which give me great confidence for the future of Smith & Nephew. I'm really pleased to be here. I've really enjoyed working with Deepak and the team over the last few months, and I'm looking forward to a strong year ahead. And with that, I'll hand you back to Deepak.

Thank you, John, and it's really, really great to have you on the team as well. So, I'd like to now update you on our current focus areas, areas focused for orthopedics, the 12-point plan, and some recent commercial and product developments. So I want to spend a bit more time on orthopedics and talk about how we're moving from a broad, fixing orthopedics plan to a narrower focus on sharper commercial execution in the U.S. Our overarching aim is delivering sustained, profitable growth over the long term, as Smith and Nephew has done in the past. The chart on the right shows our orthopedic segments as a percentage share of the total group. You can see that our OUS hips and knee segments have both delivered double-digit growth, reflecting improved product supply and better commercial execution coming together from the 12-point plan. You can also see that revenue growth in U.S. hips and knees declined during the quarter. Clearly, at around 15% of total grew, U.S. hips and knees are important. But I would also point out that outside of the U.S., at 13% of our group, our OUS hips and knees segment is outperforming the market. As an aside, I remind you that we disclose our robotic capital sales and consumable sales within our other recon segment. And that gives you a clearer view of performance. This is not the same across our peers disclosure, making direct comparison more difficult. The points on the left of the slide show the progress we're making on key focus areas. Orthopedics has a new leadership team with Craig Gaffin succeeding Brad Cannon as president of Orthopedics. Brad spent 11 years with Smith & Nephew and made significant contributions to developing a business during his tenure, which of course includes the initiatives under the 12-point plan. Craig Gaffin joined us five years ago and has been instrumental in turning around our trauma and extremities business, which is now outperforming the market. With proven U.S. commercial execution experience, we believe he is the right person to take our orthopedics business forward and deliver the sharper commercial execution that we need in U.S. Recon. We've made great progress in resolving supply issues over the last year. Implant availability is now consistently good, and SETS supply and deployment are getting closer to our targets. Our legacy supply issues stemmed from a disconnect between manufacturing, production, and customer demand. We now have an embedded sales and operational planning process that we make sure we manufacture the right components and implants that are needed so that the sets can be completed, deployed, and capital demand can be met. We're continuing to strengthen our field team by covering the remaining gaps in our territories and have improved our compensation plan that rewards growth, as I've indicated before. We expect a new growth-oriented structure to deliver increasing benefits as it becomes a settled way of doing business. Overall, the new plan, with its heightened focus on profitable growth, is being well-received. Customer service is obviously within our broader set of KPIs. Recent customer satisfaction surveys are demonstrating quarterly sequential improvements, with particularly marked increases in ordering and delivery and customer service interactions. Finally, as I've said before, our key strength in orthopedics is the quality of our products, with sustained innovation at the heart of how we create value. In 2023, around half of our revenue growth came from products launched over the past five years. We have a number of exciting launches planned for the coming months, and I will touch on some of those later. Turning to the 12-point plan and how we're doing here, well, it's only been two months since I last updated you. We've made further progress in Q1. Positive progress in Q1 includes OrthoLifer, product and cash efficiency initiatives, robotics momentum, set deployment and utilization, and better spend management. In orthopedics, our implant supply performance at the end of March was above target. We were more effectively deploying and turning capital, with set turns over 20% higher than they were at the start of the plan. We're also making good progress in productivity. Q1 saw improved manufacturing conversion costs, Our factory optimization program is on track, and we have instilled better price discipline and controls across the portfolio. The third pillar of the plan is to grow our sports medicine and advanced wound management business units, and these are developing well. We've seen acceleration in negative pressure wound therapy. We've talked about PICO's performance today, and I'll give some details about the launch of Renesas Edge now. We've also more than tripled the pace of cross-business unit deals in ASCs. So in summary, as I said in February, with a plan of this scale, there will always be elements that move at different speeds. But taken as a whole, we remain on track, and the plan is delivering very real improvements to the business. Let me now touch on some recent and upcoming commercial and product developments. We've continued to develop our key growth opportunities this year, including new clinical evidence to support product efficacy, launches on our existing products, and new innovations. In April, we strengthened our advanced wound devices portfolio with the launch of our next-generation Renesas Edge negative pressure wound therapy system for treating chronic wounds, which are estimated to cost $33 billion a year and affects around 8 million people. Renesas Edge brings an important new option to customers looking for enhanced intuitiveness, simplicity, and durability, and is especially important for home care settings. Cori is another platform where we can keep adding further growth drivers, and we've added additional functionality with version 2.0 of the RI knee robotic software. This provides AI-powered reference values to guide planning alongside surgeon preferences. Our innovation delivery is also about successive waves of technology. In sports medicine, we're refreshing our foot and ankle portfolio, introducing a suite of solutions designed for treating soft tissue conditions, including ankle instability and Achilles tendon ruptures. We're also excited about our new Catalyst hip stem system with launch plan towards the end of the year. Catalyst is a short stem implant designed to address the popular direct anterior approach for hip placements. In April, the UK's NICE reconfirmed its guidance supporting the use of our single-use piconegative pressure wound treatment device for closed surgical incisions. And in patients who are at high risk of surgical site complications. We've also announced new evidence supporting a leave-in-life foam dressings role in pressure injury prevention. Since the start of the year, we've initiated two new sponsorships to promote our sports medicine business. We've been named as a preferred sports medicine technology partner for UFC, the world's premier mixed martial arts organization. Under the terms of the multi-year partnership, we can promote our brand through UFC's global presence, highlighting the repair, regeneration, and recovery of sports medicine injuries through our advanced technologies. We're also pleased to announce that we'll be sponsoring both men's and women's tennis players during some of the most high-profile matches at Wimbledon this summer. So in summary, a solid performance in Q1, despite the expected phasing headwinds. Much of the business is performing strongly, OUS recon, trauma and extremities, sports medicine joint repair, and negative pressure wound therapy. As we move through Q2, our collective focus remains on addressing the remaining areas of weakness in U.S. knees and hips, and on driving further operational and financial improvements across the business. So thank you for listening. With that, I'll hand you back to the moderator for Q&A.

Thank you. If you would like to ask a question, please press the star followed by one on your telephone keypad. If for any reason you would like to remove that requestion, please press star followed by two to remove your request to speak. And again, to ask a question, please press star followed by one. We'll pause for a moment while questions are registered. we will take the first question from Jack Reynolds-Clark from RBC Capital Markets.

Hi there, thank you for taking the questions. Three for me, please.

Hi, Jack.

Hi there. So just starting with US joints, do you want to do some detail about the improvements you're making here? I was wondering how the improvements are tracking versus your initial expectations when you're expecting an inflection here in the level of growth? Then on Santill, obviously appreciating you called this out kind of ahead of time. But was the level of weakness here kind of in line with what you're expecting? Has the weakness troughed? And do you expect a rebound kind of in getting Q2 and through the remainder of the year? And then my last question is on the kind of the LCDs news out last week. Can you talk us through your current thinking about how this latest draft would impact St. Matthew? Thank you.

Sure, I'll take those in turn, Jack. So, first, in terms of the US needs, it's clearly there's been improvements in the key building blocks of our transformation plan, which starts with improvements in supply and product availability, our ability to connect supply and demand, commercial execution, and our innovation. So most of those elements have actually tracked relative to plan. Commercial execution is the one area in the U.S. where it has been slower. So the combination of all of these elements coming together, translating into financial performance, has been a bit slower to come than we expected. But we do remain very optimistic. that as we move through Q2 and into the rest of the year, that all the operational improvements that we've seen will translate into better financial performance. On the central question, the transition of manufacturing into Fort Worth last year, during that transition process, our shipments in Q3 were delayed. were pushed out into Q4. And as we signaled at our year-end results, we expected to start Q1 soft on the basis of that push out. In general, the central business is quite volatile over a long period of time. And so it's not weakness in end-user demand. It's really volatility driven by production kind of how the production process actually runs. And of course, we go through distributors here that adds another layer of volatility to it. But there is no change to demand for Santal at the end user. And as we said, we expect to get into a growth mode in bioactives as well for the balance of the year.

I mean, Jack, I'm just looking at sort of our forecast for the full year. And notwithstanding the fact that we say this is sort of inter-quarter, you know, it can be lumpy for the reasons we've given. You know, we're showing we're expecting growth for the full year that's not sort of a million miles off our overall guidance for the four years. So that demonstrates that we expect to see a little bit of a bounce back come through in Q2 and then consistent growth through Q3 and Q4.

And regarding LCDs, of course, there's a draft guidance here. We'll see how it all shakes out here. It does impact a subset of the types of wounds, in particular diabetic foot ulcers and certain chronic wounds. On balance, there's puts and takes here. There's as many reasons to be excited about what that entails as there are opportunities to have a more negative portfolio. Overall, on balance, I think it doesn't fundamentally change our position and our prospects in bioactives. We can go through the details here around particular impacts on on particular products within our portfolio and indications entail, and I'll refer you to our IR team for that. But the headline is there are puts and takes here in general that does not change our prospects within that category.

Okay, perfect. That's super clear. Thanks very much.

Absolutely.

Thank you, Jack. Your next question comes from Caitlin Cronin of Canaccord United. Thank you.

Hi, thanks for taking the question.

Just to go further into the US Recon performance, I understand that the supply and needs has really been challenged with Oxymium, and even if that's improving, I understand there's lag in performance, but what was the issue with HIPS? Was it purely comp and execution related?

Yeah, Caitlin, thanks for the question. So, yeah, as you flagged, we had – challenges with the Xenium supply and, in general, supply of the particular SKUs and products that are used in the U.S. in certain markets were impacted and, in fact, were slow to recover with the improvements that really came through at the end of the year. So, first, we prioritized, of course, replenishing our our implants and then to actually start to build sets so the delivery of sets to fuel new growth actually came at the very end of the year and there is a lag caitlin as you can appreciate between when you place that capital and it starts to turn into a steady state business right and as you know that's primarily knees and as we indicated various points last year the supply situation with hips did get better earlier in the year. The common thread here is around commercial execution. Specifically, we had a certain amount of churn with our sales force. We were expecting some of that. It actually happened later in the year than we were expecting because the market in general was actually better in the first part of the year in terms of how we experienced it. So that resulted in a number of gaps across our territories through the course of 2023. We have more or less covered those now as we start through the year, and as we look ahead through balance of Q2 and Q3 and Q4, we expect to, in the U.S., bring together all the improvements around supply and the innovations that we've brought forward, the commercial processes that we've improved, the new growth-oriented commercial plan that we've put in place, and, of course, now territories that we've now filled, all of those things to come together to translate into financial performance that we have seen outside the U.S. as well.

Awesome. And then just a quick one on foot and ankle. You pointed out, you know, SportsMed portfolio refresh. Any plans to refresh yours? recon side of your foot and ankle offense?

So we've got a pipeline as well in foot and ankle. So we will call out particular kind of new product introductions as they come to market. So we've got quite a robust pipeline. Innovation has been key to orthopedics across the board. I flagged some of the more salient ones that are relevant for the current year. So you should look for us to kind of give you updates as those programs mature.

Great. Thanks so much.

Yeah. Thank you. Your next question comes from Hassan from Berkeley. Your line is now open.

And thank you for taking my questions. I have three, please. Firstly, can you maybe talk about the OUS hips and knee business, which to your point, Deepak, is outperforming the market? What do you put this down to and what are the key takeaways for the U.S. business that gives you confidence here? Secondly, on guidance. I guess given the softer start to the year, at least versus expectations, is the lower end of the guidance range on growth more likely? And what are the key risks to your mind to get to the upper end of the range? And then finally, you note that you've changed the compensation plan for reps. Are you seeing the churn of sales reps stabilize here? Thank you.

Sure, I'll take those in turn. OUS As we've said, the transformation plan for orthopedics, we label this as fixing orthopedics in the 12-point plan. And there is a number of elements to that, right? As I said, it's fixing supply or product availability. It's continued investment in innovation, accelerating some programs, reprioritizing programs. It was about commercial execution. And then, of course, all the improvements we're making in the factories. So all of those added up to us fixing orthopedics writ large. OUS, we brought all of these operational improvements together, together with enhancements in commercial in a way that's translated into financial performance that is readily discernible. In the U.S., as I indicated, the product availability topic The improvements came later in the year because the particular SKUs and particular products that are in the U.S. were slower to recover. Part of it was Xenium. Most of it was Xenium, but there are other factors there at work as well. So those improvements came later in the year in 23 relative to some of the portfolio that's relevant for OUS. So that's the key difference here is in terms of the product set that's more relevant in OUS markets versus the U.S. markets. and the bringing together of all of these different strands of improvement and translation to financial performance. So, what I expect to see in the U.S. is inherently all of these factors also coming together in the U.S. and the way they came together in OUS markets. Of course, there's differences in markets, the dynamics are different, the competitive position is different and so forth, right? But I expect a similar kind of trajectory to manifest in the U.S. as it did OUS. The particular factors here really are around some of the sales churn that occurred and when it occurred during the course of the year. And as I mentioned, those territory gaps impeded our ability to offset the normal churn that happens in this business with new business. So we had the normal amount of churn, and we just weren't able to offset that with new business as we normally would. But as we look ahead into the new year, in the balance of the year, and we look at our pipeline, I feel confident that we'll be able to see the turnaround in U.S. performance as you've seen elsewhere. And in terms of the guide for the year, it's important to note that Q1 came in in line with our expectations. This is how we had planned the year. in terms of phasing, and therefore the range that we indicated of 5% to 6% growth was taking into account the kind of Q1 results that we presented here. So I wouldn't read into it that we're now somehow on the lower end of the range as a result of Q1. In fact, this Q1 came in just as we had planned for it. In terms of comp plan, this is more relevant to the U.S. in particular, where we needed to move off of a more retention-oriented comp plan to a growth-oriented comp plan. We expected some churn to come out of that. As I've indicated in other calls, because the market, particularly in Q1, was so strong, we didn't see that level of churn early in the year. And in terms of where we expect to net out. This sales churn is a key part of the business. It's tied to performance management, a tighter level of performance management we expect to instill as we move to a more rigorous and disciplined commercial organization. So it's not the case that we're necessarily looking to churn off to zero, but it's more about managing how that churn occurs. So I remain bullish about our prospects. and managing through that and returning into a growth posture and the balance of the year.

And just to build on Deepak's comments on guidance, I think you asked the question, what do we see as being the key risks? for the year. I think we've really already called out the key risk and area of uncertainty is obviously the impact of China and VBP. We expect that to start to impact us from May onwards of this year. And as we've already highlighted, we expect that to be a sort of a reflecting in our forecast, a 5% headwind to our overall sort of sports joint repair business. So we've already factored that into our overall outlook for the year at the 5% to 6%, but that's probably the one key area of uncertainty as it plays out through the year. Perfect.

Thank you.

Yeah. Thank you. We now have Julian Dormos from Jefferies. The line is now open.

Yeah, hi. Good morning, Deepak. Good morning, John, and welcome to Just Me, Son, Nephew. My first question is basically a follow-up on Jack's question about the U.S. performance. So do you believe that you could return into positive territory in U.S. needs from Q2 onwards, or is it more reasonable to think about this being more an H2 thing? Second question is, could you please elaborate on your prospects for the next-gen Renesas edge, typically reminding us of what could be the addressable market here, and what is your current market share at the moment. And the third question is, unless I missed it, I see no mention of the 2025 guidance, so just making sure that you are still very comfortable with the 2025 guidance as you have indicated previously.

Julian, so thanks for the questions. First, I'll start with the last one first. There's no mention of it because there's no change to our guidance. It remains where we've left it, which is expect to achieve a 20% margin in 2025 with consistent 5 plus percent growth. So there is no change to that. That's why we haven't called it out. In terms of U.S. needs, we've guided the market to 5% to 6%. We don't necessarily break that out by business unit or by quarter. But when you do the math in terms of where we are today, and what needs to happen in order to get to 5% to 6% growth. We expect each of our businesses to contribute to that. And when you do the math of it, basically, what you are able to back out is that the U.S. recon business needs to be a contributor to growth, i.e., get into positive territory, which is what we're expecting. And I think, oh, Rene says, I knew I missed one thing there, Julian. So Renesas Edge is our new entry. Fundamentally, it's about easier to use, more durable, more reliable are kind of the key features of Renesas Edge. We are about a 10% player within this category, and it's about a – a little over $1.5, $1.6, $1.7 billion market that we're launching into. So here it's about really our post-acute setting is what we're focused on with Renesas Edge. And it's one of the elements of the 12-point plan that we've called out. So in this quarter, we gave prominence to PICO, which has been a big growth driver for us in moon, and we're expecting that Renesas will be a significant driver for negative pressure as we move into the rest of the year as well.

Okay, that's very helpful. Thank you. Just a quick follow-up on that. The 1.5 to 1.7 billion market, does that exclude the single-use negative pressure market or is the negative pressure market as a whole including the... It's a traditional negative pressure market, yeah. Okay, that's great. Thank you very much, guys. Yeah.

We now have Veronica Dupajava from Citi.

Hi guys, good morning and thank you for taking my questions. I will keep it to two. My first one is on this first half on trading profit margin guidance that you've given this morning and your thoughts on what this implies for the back half of the year. And first of all, thank you for giving us some clarity on where you think the first half comes in. I'm just trying to understand, I mean, I think historically you've talked about a two to 300 basis step up, H1 to H2. Obviously, if you were to deliver only that, I think in the second half of the year, you'd end up at the margin that was a little bit down year on year. And so I just wanted to confirm that your expectation is that you can indeed improve margins on a year-on-year basis in the back half of the year as well. Apologies, because you've just given us H1, and I'm asking you about H2, but I think it's quite an important point. And maybe, John, if you can just remind us of the drivers of that margin improvement year-in-year in the back half of the year, that would be super helpful. And then my second question is just on the management changes in orthopedics, DPAC. I think quite a lot of people surprised by Brad's departure. I don't know if he can share any color. And then maybe just give us an update on what you are seeing in terms of Salesforce turnover in Q1 versus Q4 last year. Thank you, guys.

Sure. John, you want to take the margin and I'll come back and comment on that.

Yeah, thanks. Thanks for the question. Look, I think the guidance is, dare I say, sort of super clear. You know, first half, we're expecting the first half margin year on year to go up by 75 to 125 basis points. somewhere in that range, and we're expecting the full year margin to be north of 18%. So I'll let you do the maths on what that means for the second half of the year. But to your point, you know, you talked about the half-on-half increase, and last year we delivered 4.1 percentage points increase, half-on-half. We said very clearly, though, at the prelims, it wouldn't be that big step up for 2024. But in the past, we've delivered somewhere on average between sort of three percentage points and three to four percentage points. So I'll let you do the math, but we're very clear that we expect the margin to outturn for the full year at 18%. Just in terms of what are the key drivers for that? There's a couple of key things that we set out in the prelims, one of which is the productivity savings that we see coming through as part of our 12-point plan, particularly in the manufacturing area, some great work being done on lean and how do we create a lean manufacturing operation. And, of course, the revenue leverage coming through, particularly given that we've got, of course, two additional days in the last quarter. There will be some offsets there. So, again, I mentioned earlier on, uh the impact of the bp uh in china so that would be one one offset but taking all those things in the round uh we remain confident in our ability to deliver 18 plus for the full year regarding um personnel obviously um you know we don't as a typical practice comment on individual um personnel decisions um having said that you know brad um

had spent 11 years with Smith & Nephew, had tremendous contributions to the company during his tenure here across both sports medicine and in orthopedics through a variety of roles. And it was an amicable parting. And one of the things that Brad's done is actually develop talent and Craig was a member of Brad's leadership team. He was part of a succession plan. And now as we focus on the remaining parts of orthopedics that we need to turn around, U.S. Commercial is one of them. And in the choice of Craig to succeed Brad, we're appointing a leader who's a proven leader with a spike in U.S. Commercial. and we're looking forward to him carrying us through the rest of the journey from a transformation perspective.

Excellent. And, Deepak, anything you can share on the turnover in the sales force more broadly after the fourth quarter?

Oh, yeah, yeah. Yeah, yeah. So the key here, as I indicated, Veronica, we had expected turnover on the back of the – a transition to a growth-oriented plan, right? The key is to manage that turnover. There was a timing effect in terms of when that occurred in 2023. I'd also previously talked about gaps in certain territories in certain parts of the United States through much of 23. We were kind of slow to cover those gaps. But as we turn the page into Q1, we essentially have on board a full strength in terms of the US organization. As you well know, depending on when those territories get filled, it takes a while for REFs to become productive and to lap the losses. So we're in the throes of that in Q1. But in contrast, the last year, we now have the organization that we need. It's not to say that the churn is going to go to zero, but we do expect to operate with the full strength through the bulk of the year.

Excellent. Thank you guys so much.

Thanks, Veronica.

Thank you. Your next question comes from Dylan Van Haften of CFO.

Excellent. Good morning, guys. Thanks for taking my questions. So just two for me, both on the LCD changes. So just first, I think when I saw the headline, my general thinking was this is probably a net gain for Smith & Nephew. And I think, Deepak, you spoke specifically about some puts and takes. Could you just maybe reflect on those for me so I can kind of understand what I'm missing? And then secondly, are customers destocking, awaiting a final decision, or Should we expect a couple of weaker quarters given some of the channel volatility, or is that all pretty managed on your end? Thank you.

Short answer is it's pretty well managed, just for the benefit of everybody. So those LCDs particularly impact diabetic foot ulcers and venous leg ulcers, right? And together they comprise about – 35 to 50% of our portfolio within that. So, as you mentioned, on the plus side, you know, we've got products that actually have great clinical data behind them, right? And so, in that sense, we expect to benefit from the fact that there's some that are covered and others that are not. Of course, there are certain categories of graphics or subtypes. that we expect not to be covered by this. So it depends on kind of how the translation of draft goes in and what gets finalized there. But in our reading, when you look at the categories that are impacted, I called out the two, the foot ulcers, the setting, right, hospital, physician office, home, and the particular subcategories within that. You know, overall, like I said, there are puts and takes, and based on this, we don't see a need to kind of materially change our outlook for this category. In terms of volatility, we're not necessarily seeing the stocking. We're not anticipating that. So, in general, we expect that this will this kind of work itself out during the course of the year. So we're not in particular calling volatility here.

Excellent. Thank you very much. Sure thing.

Thank you, Dylan. Your next question comes from David Adlington of J.P. Morgan.

My question's been asked already, but maybe just a follow-up on Corrie, which we haven't talked about very much. She had a few quarters now of a very different growth profile. I just wondered if you could give us some color in terms of what's behind the strong acceleration there.

David, I couldn't acoustically hear you. Would you mind repeating the question?

We've had a few quarters now of a very much stronger growth profile there. Right, right. Okay, thank you.

Yeah, so as you know, great quarter again. It's our other recon number that kind of captures Corey's sales. um i continue to be pleased with the traction we're getting uh with corey when you look at its resonance across a range of settings whether academic medical centers hospitals afcs uh single unit deals multi-unit deals uh across the board uh very very pleased uh with the level with the kind of reception we're getting we're placing corey's kind of at a you know, in a proportion that's higher than our kind of overall share within orthopedics, right? That's also quite encouraging. And what is also important to point out that the story has just started here with Corey. And, in fact, we've brought forward new and added functionality, right? In addition to burring, which is, of course, differentiated and burring-based approaches differentiated in the market, we also added song capability, right, to this. We also signal that we will be bringing forward pre-op planning capability to add to the only platform in the market that is image-free. And then there's a whole pipeline of Corey on the HIP side as well, and we remain actually very optimistic about his prospects and shoulder. So we're just getting started with Corey. We talked about some of the AI-powered technologies. planning capability we brought to market, the tensioner, the ability to do soft tissue balancing before cuts, which is highly unique in the market. All of these things are adding to the kind of reception, the kind of resonance that we're seeing with Corey. We're even in last year, the market leading robotic platform. across EMEA. We've only built upon that position. So there's great things to come. It's one of our growth drivers in orthopedics. So once we're past some of the supply and the product availability challenges and retooling the commercial organization, which as I've indicated, you know, well along that journey, OUS, we're poised to do that, particularly on the commercial side in the U.S. You should start to see that catalyzed even more growth in the U.S.,

Maybe just follow up there. You mentioned your strength in EMEA. Has that been a driver of your strength in XUS?

It's part of it. It's part of it, David. But actually, I mean, OUS, it's a bit of an antiquated term, I guess, right? It's the whole rest of the world. So there's markets where we perform well and there's markets where we don't perform well. But overall, EMEA is one of the growth drivers there. And Corey is a key component to that. But it's not just that. In fact, there are other markets besides EMEA where we continue to do well there. So it is pretty broad-based when we say OUS. But as you correctly observed, Corey is a key part of that.

Thank you. We now have Seiji Ozuna from HSBC.

Hi, hope you can hear me. Thanks for taking my questions. I will also have two, please. One on sports medicine. Thanks for quantifying your expectation that when it comes to industry, you expect about 5% to 6% impact on sports medicine. Just to understand this better, what kind of a pricing impact do you expect initially? And in terms of volume, what's the volume impact you're looking for? And what's the share of the VBP deal that you're expecting to get on your side? And my second question, again, actually relates to Corey and the U.S. You mentioned Just our understanding was in the U.S. about 15% even north of that of the operations already are in robotics. So will the delay in U.S. recovery have an impact on your robotics sales? Or is the interest towards Cori in the U.S. still strong? Can you differentiate between the robotic use and otherwise use? when you're dealing with the supply shortages within the U.S., such as, for example, prioritizing clients that have Cori so that they remain longer with you?

Yeah, sure. Let me take that. So, first of all, just to clarify, with the part of our portfolio that we flagged will be impacted by sports BVP. It's joint repair, and it's 5% of joint repair in China in terms of what? our exposure is, right? So I just want to clarify that. In terms of how that we see it playing out, we talked about the timeframe. In terms of the price level of impact, we've got some sense now as to what the price level is. We've indicated that on previous calls, it's kind of in line with what we saw in orthopedics. right, in terms of the difference between what we see to end-user pricing versus what we actually see around impact. So, generally in line with kind of what we saw in orthopedics. In terms of the volume offset, we haven't particularly guided you to that, and so it would be a little bit too much to help us to kind of go into it. So we've given you an indication as to the impact of our business. So as we call that 5%, we've given you an indication to a group level, what the margin impact from these price moves are likely to be, which is around 70 bps in the year. So hopefully that gives you a sense for both the scale of impact to our business in China and how that translates to a group level impact. Turning now to Corey, So our utilization, the last number we gave you, is about a quarter of our knee business currently flows through Cori, and that utilization rate has remained, has been growing even as our installed base is growing. So it basically tells you that where we're placing Cori, we're seeing utilization, which is the play that we are running. In terms of how we prioritize our customers, obviously, That's a commercially sensitive type of information. I hope you understand what I want to go into on this call. But in general, as I said in my earlier response to David's question, I am very pleased with the traction that we're getting with Corey across markets, and in particular a question that's related to the U.S., in the U.S. market across a range of settings. In terms of the supply challenges you talked about, We are largely on the other side of those. So our replenishment, even for U.S.-specific categories, is at our target now as we start the year, right? We kind of got to that point towards the end of last year, later than for some of the other categories. And in terms of set deployment, which really fuels new growth, those sets are starting to flow. We're not yet at target levels there, but we expect to be here in the coming months. And so we're largely on the other side of product availability. So to some extent, that question of whether we prioritize Corey customers or not is a bit moot because now we don't expect availability to keep our progress. So coming back to kind of the key message here, Great traction with Cori in the United States. It's a catalyst for growth, has resonance across a range of settings, and we expect it to be a key growth driver for us as we move forward.

Just to clarify, the quarter of new business flowing to Cori is a global ratio, or how does it differ, or U.S. from the U.S.?

It's the U.S., is that statistic. So that's typically what we disclose. The market practices vary. In general, the U.S. tends to be higher than OUS, but we haven't specifically broken our utilization of OUS.

Okay, that's the U.S. ratio. Thank you.

Yep.

Thank you. As we have no more questions, I'd like to hand it back to Deepak for any final remarks.

Great. So thank you very much. As we indicated, it's a solid start to Q1. We remain committed to achieving our targets for the year. We've reconfirmed our outlook. And as addressed in the question today, as far as 2025, we remain committed to achieving the 20% margin target and 5 plus percent growth. So thank you very much for your attention and looking forward to coming back next week.