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.