Smith & Nephew plc Q3 FY2024 earnings call

• Continued progress on the 12-Point Plan, with Orthopedics showing improvements and U.S. recon commercial execution leading to reduced customer churn. - Emerging markets, particularly China, posed challenges with slower growth in Orthopedics and Sports Medicine due to VBP and end market demand. - Innovation played a role in growth, with new products like CATALYSTEM in Recon and patient-specific instrumentation in Extremities. - Operational metrics such as product availability and capital remained strong, with key KPIs for implant availability and overdue orders improving.

Revenue in the quarter was $1.4 billion with 4% underlying growth. Orthopedics grew 2.3% underlying, with positive growth in U.S. knees (0.7%) and hips (3.2%) following operational and commercial improvements. Sports Medicine and ENT grew 3.9% underlying, with joint repair affected by VBP in China but other regions showing strong growth. Advanced Wound Management grew 6.5% in the quarter, representing its best quarter of the year with broad-based strength across regions and categories.

For 2024, underlying revenue growth is expected to be ~4.5% with trading margin expansion of up to 50 basis points. For 2025, trading margin is expected to be between 19% and 20% due to continued VBP margin pressure but long-term structural growth from 12-Point Plan initiatives. Growth headwinds from China are expected to subside in 2025 as market dynamics evolve.

• Slower development of VBP volume benefits in China creating margin pressure. - China market headwinds impacting revenue growth and margin. - Uncertainty surrounding robotics adoption and competitive dynamics in the Trauma segment.

Q: On China Orthopedics drivers and rebound, A: Lower end market demand and muted robotics adoption were factors; rebound is expected but uncertain.

Q: On China Sports VBP volume expansion, A: Timing of volume uplift is uncertain but expected as the market evolves.

Q: On margin downgrade, A: The majority of the margin downgrade is attributed to China sports VBP and ortho volumes.

Q: On 2025 revenue growth, A: Revenue growth is broadly in line with ~5% as China headwinds diminish.

Q: On VBP in China share loss, A: It is a market effect with some local product uptake observed.

Q: On CORI installations, A: CORI is continuing to place well with approximately one-third of knees going through CORI.

Q: On destocking in China inventory, A: There is reasonable visibility, and the inventory mismatch is expected to persist for a few quarters.

Q: On strategy pivot, A: 2025 is a pivotal year for margin impact, and confidence remains in the progress of the 12-Point Plan.

Q: On ASC U.S. knees percentage and pricing, A: ASC knees are in the low double-digit range, and there is price sensitivity in ASCs.

Q: On knee business return to growth, A: Expectation is for the knee business to enter positive territory in 2025.

Q: On RENASYS EDGE feedback, A: Early feedback on RENASYS EDGE has been positive, and progress is well underway with double-digit growth expected.