Smith & Nephew plc Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Orthopaedics Focus: Moving from a broad fixing plan to a narrower focus on sharper commercial execution in the U.S. New leadership with Craig Gaffin as President of Orthopaedics. Progress in supply issues, implant availability, and sales force structure. OUS, Hips and Knees segments have delivered double-digit growth.
• 12-Point Plan Progress: Positive progress in Q1 including implant supply above target, better capital deployment, productivity improvements, and growth in Sports Medicine and Advanced Wound Management.
• Recent Developments: Launched RENASYS EDGE Negative Pressure Wound Therapy System, updated CORI Robotics software, refreshed foot and ankle portfolio, and sponsorships for Sports Medicine to promote brand and products.

Segment Performance

• Orthopaedics: Q1 revenue growth of 4.4%, ahead of prior year's 3.9%. Strong growth in Trauma & Extremities, OUS, Knees and Hips and other recon, partially offset by weakness in U.S. Knees and Hips. Revenue contribution to the group from Orthopaedics is significant.
• Sports Medicine & ENT: Achieved mid-single-digit growth. Excluding China, grew at 6.7%. Sports Medicine Joint Repair up 7.7% led by shoulder repair portfolio and REGENETEN Bioinductive Implant. ENT revenue grew 9%. Revenue contribution from Sports Medicine & ENT is a notable part of the group's portfolio.
• Advanced Wound Management: Revenue declined by 2% due to SANTYL volatility and tough comps. Advanced Wound Care down 0.5%, Advanced Wound Bioactives down 9.8%, Advanced Wound Devices grew 8.7% led by PICO device. Advanced Wound Management has its own revenue contribution dynamics within the group.

Guidance

• Full-year underlying revenue growth expected to be 5% to 6%.
• Trading margin expected to reach at least 18% for the year, with higher margin in the second half than the first half.
• Confidence in maintaining guidance despite Q1 performance, with expectations of growth in Orthopaedics and Sports Medicine & ENT, and return to growth in Advanced Wound Management.

Risks

• Volatility in SANTYL sales due to production runs and lumpy order patterns into the wholesaler channel.
• Impact of China VBP on Sports Medicine & ENT, with expected headwinds starting from May.
• Uncertainty around LCDs draft guidance affecting certain wounds like diabetic foot ulcers and chronic wounds, with both positive and negative impacts on the portfolio.

Question and Answer

Q: About U.S. joints improvement tracking and inflection A: Deepak discussed that while there have been improvements in supply and commercial execution elements, commercial execution in the U.S. has been slower. Expecting improvement in Q2 and beyond as all operational improvements translate into better financial performance.

Q: On SANTYL weakness and rebound A: John and Deepak explained that SANTYL's weakness is due to production transition last year causing shipments to be pushed, but no change in end user demand. Expecting a bounceback in Q2 and consistent growth through Q3 and Q4.

Q: On LCDs impact A: Deepak said there are puts and takes with the LCDs draft guidance, but overall it doesn't fundamentally change the prospects in bioactives, with details on particular product impacts to be referred to the IR team.