TIDMSN.
RNS Number : 8227X
Smith & Nephew Plc
02 May 2019
Smith & Nephew First Quarter 2019 Trading Report
Building momentum through broad-based organic growth and
acquisitions
2 May 2019
Smith & Nephew plc (LSE:SN, NYSE:SNN) trading report for the
first quarter ended 30 March 2019.
Highlights(1,2,3)
-- Improved organic revenue growth across Smith & Nephew
o Q1 revenue of $1,202 million (2018: $1,196 million), up 4.4%
on an underlying basis (0.5% reported growth after -3.9% foreign
exchange headwind)
o All three global franchises accelerated, delivering growth
ahead of FY 2018 as we started to benefit from our new commercial
model
o Mid-teens growth from the Emerging Markets, led by a strong
quarter in China
-- Rapid progress in M&A strategy, securing additional
growth drivers and building our technology base
o Ceterix Orthopaedics broadens leading portfolio in knee
meniscal repair
o Osiris Therapeutics to accelerate growth in Advanced Wound
Bioactives
o Leaf Patient Monitoring System supports unique pressure injury
prevention portfolio
o Brainlab orthopaedic navigation business adds to digital
surgery and robotics ecosystem
-- 2019 guidance updated: Increasingly confident that underlying
revenue growth will be in the upper half of the guidance range of
2.5% to 3.5%; expected trading profit margin unchanged in the range
of 22.8% to 23.2%
Commenting on the quarter, Namal Nawana, Chief Executive
Officer, said:
"It's been a good start to 2019 across the whole of Smith &
Nephew.
"All three global franchises delivered improved organic growth
as we continued to improve execution; important confirmation that
each has the potential to perform sustainably at or above their
markets.
"At the same time, we've made well-judged acquisitions that
bring in new technologies to strengthen leadership positions across
the business, which we expect to further accelerate growth over
time.
"While recognising that further work remains to achieve the full
potential of our portfolio, we are encouraged with our progress
towards sustainably delivering above-market growth."
Enquiries
Investors
Andrew Swift +44 (0) 20 7960 2285
Smith & Nephew
Media
Charles Reynolds +44 (0) 1923 477314
Smith & Nephew
Charis Gresser / Nick Beswick +44 (0) 20 7404 5959
Brunswick
Analyst meeting and conference call
An analyst meeting and conference call to discuss Smith &
Nephew's first quarter results will be held at 8.30am BST / 3.30am
EST on Thursday 2 May 2019, details of which can be found on the
Smith & Nephew website at
http://www.smith-nephew.com/results.
Notes
1. All numbers given are for the quarter ended 30 March 2019 unless stated otherwise.
2. Unless specified as 'reported' all revenue growth throughout
this document is 'underlying' after adjusting for the effects of
currency translation and the impact of acquisitions and disposals.
All percentages compare to the equivalent 2018 period.
Underlying revenue growth is used to compare the revenue in a
given period to the comparative period on a like-for-like basis.
Underlying revenue growth reconciles to reported revenue growth,
the most directly comparable financial measure calculated in
accordance with IFRS, by making adjustments for the effect of
acquisitions and disposals and the impact of movements in exchange
rates (currency impact), as described below.
The effect of acquisitions and disposals measures the impact on
revenue from newly acquired material business combinations,
technologies 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.
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
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.
3. Following the Group's announcement that from 1 January 2019
it would report quarterly revenue for three global franchises of
Orthopaedics, Sports Medicine & ENT, and Advanced Wound
Management, replacing the previous structure, on 25 March 2019
Smith & Nephew published its Re-presented Historical Quarterly
Revenue Analysis in order to assist future comparability with
historical data.
Forward calendar
Results for the first half of 2019 will be released on 31 July
2019.
About Smith & Nephew
Smith & Nephew is a portfolio medical technology business
that exists to restore people's bodies, and their self-belief.
Smith & Nephew has leadership positions in Orthopaedics,
Advanced Wound Management and Sports Medicine, more than 16,000
employees and a presence in more than 100 countries. Annual sales
in 2018 were $4.9 billion. Smith & Nephew is a member of the
FTSE100 (LSE:SN, NYSE:SNN). For more information about Smith &
Nephew, please visit our corporate website www.smith-nephew.com and
follow us on Twitter, LinkedIn or Facebook.
Forward-looking Statements
This document may contain forward-looking statements that may or
may not prove accurate. For example, statements regarding expected
revenue growth and trading margins, market trends and our product
pipeline are forward-looking statements. Phrases such as "aim",
"plan", "intend", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions
are generally intended to identify forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause actual
results to differ materially from what is expressed or implied by
the statements. For Smith & Nephew, these factors include:
economic and financial conditions in the markets we serve,
especially those affecting health care providers, payers and
customers; price levels for established and innovative medical
devices; developments in medical technology; regulatory approvals,
reimbursement decisions or other government actions; product
defects or recalls or other problems with quality management
systems or failure to comply with related regulations; litigation
relating to patent or other claims; legal compliance risks and
related investigative, remedial or enforcement actions; disruption
to our supply chain or operations or those of our suppliers;
competition for qualified personnel; strategic actions, including
acquisitions and dispositions, our success in performing due
diligence, valuing and integrating acquired businesses; disruption
that may result from transactions or other changes we make in our
business plans or organisation to adapt to market developments; and
numerous other matters that affect us or our markets, including
those of a political, economic, business, competitive or
reputational nature. Please refer to the documents that Smith &
Nephew has filed with the U.S. Securities and Exchange Commission
under the U.S. Securities Exchange Act of 1934, as amended,
including Smith & Nephew's most recent annual report on Form
20-F, for a discussion of certain of these factors. Any
forward-looking statement is based on information available to
Smith & Nephew as of the date of the statement. All written or
oral forward-looking statements attributable to Smith & Nephew
are qualified by this caution. Smith & Nephew does not
undertake any obligation to update or revise any forward-looking
statement to reflect any change in circumstances or in Smith &
Nephew's expectations.
Trademark of Smith & Nephew. Certain marks registered US
Patent and Trademark Office.
First quarter trading update
Our first quarter revenue was $1,202 million (2018: $1,196
million), up 4.4% on an underlying basis. Reported growth of 0.5%
includes a -3.9% foreign exchange headwind.
As previously announced, from 1 January 2019 the Group will
report quarterly revenue for three global franchises of
Orthopaedics, Sports Medicine & ENT, and Advanced Wound
Management, replacing the previous franchise structure. The Group's
revenue reporting by geography is unchanged. The updated reporting
approach is in line with International Financial Reporting Standard
(IFRS) 8 Operating Segments that require companies' segment
reporting to reflect the way in which performance is monitored,
operating decisions are made and resources are allocated.
Unless specified as 'reported' all revenue growth rates
throughout this document are underlying increases/decreases after
adjusting for the effects of currency translation and the impact of
acquisitions and disposals. All percentages compare to the
equivalent 2018 period.
Q1 2019 comprised 63 trading days, the same as Q1 2018.
Consolidated revenue analysis for the first quarter
30 March 31 March Reported Underlying Acquisitions Currency
2019 2018(i) growth Growth(ii) /disposals impact
Consolidated revenue by franchise $m $m % % % %
------------------------------------- -------- -------- -------- ---------- ------------ --------
Orthopaedics 546 544 0.2 3.9 - -3.7
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Knee Implants 261 259 0.6 4.1 - -3.5
Hip Implants 152 155 -1.5 2.4 - -3.9
Other Reconstruction(iii) 14 13 2.4 6.9 - -4.5
Trauma 119 117 1.3 4.8 - -3.5
Sports Medicine & ENT 368 362 1.9 5.3 0.3 -3.7
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Sports Medicine Joint Repair 188 175 7.7 11.0 0.7 -4.0
Arthroscopic Enabling Technologies 145 152 -4.8 -1.1 - -3.7
ENT (Ear, Nose and Throat) 35 35 1.7 4.2 - -2.5
Advanced Wound Management 288 290 -0.5 4.1 - -4.6
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Advanced Wound Care 176 183 -3.5 2.0 - -5.5
Advanced Wound Bioactives 59 59 -0.1 0.4 - -0.5
Advanced Wound Devices 53 48 10.3 16.4 - -6.1
Total 1,202 1,196 0.5 4.4 - -3.9
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Consolidated revenue by geography
------------------------------------- -------- -------- -------- ---------- ------------ --------
US 568 545 4.2 4.0 0.2 -
Other Established Markets(iv) 415 446 -6.8 -0.1 - -6.7
Total Established Markets 983 991 -0.8 2.2 0.1 -3.1
Emerging Markets 219 205 6.8 15.3 - -8.5
Total 1,202 1,196 0.5 4.4 - -3.9
-------------------------------------- -------- -------- -------- ---------- ------------ --------
(i) Revenue by franchise for the quarter ended 31 March 2018 has
been re-presented to align with the new global franchise structure
effective from 1 January 2019. There has been no change in total
revenue for the quarter ended 31 March 2018
(ii) Underlying growth is defined in Note 2 on page 2
(iii) Other Reconstruction includes capital sales from robotics and cement sales
(iv) Other Established Markets are Australia, Canada, Europe, Japan and New Zealand
Franchise highlights for the first quarter
All three of our global franchises delivered improved growth in
the first quarter as our new franchise-led commercial model and
strengthened leadership team brought greater focus on serving
customers with our portfolio of leading technologies.
Orthopaedics
Our Orthopaedics franchise delivered 3.9% revenue growth.
Revenue from Knee Implants was up 4.1%, above the global market
growth rate. Growth was strongest outside of the US, led by demand
for our JOURNEY II and LEGION REVISION knee systems.
Hip Implants revenue growth was 2.4%, continuing the improved
trajectory established in the second half of 2018. Demand for the
POLAR3 total hip solution, with its class-leading survivorship
data, and the REDAPT Revision System continued to drive this
franchise.
Other Reconstruction (which comprises capital sales from
robotics and cement sales) delivered revenue growth of 6.9%,
reflecting a particularly strong Q1 2018 surgical cement
comparable. We secured our first NAVIO surgical robotics system
sale in Japan in the quarter following recent regulatory
approval.
In March, we made a number of announcements to reinforce our
strategy to support customers through a multi-asset digital surgery
and robotic ecosystem. These included:
-- NAVIO 7.0, the next version of software used with our
handheld robotic surgical system, which is expected to launch in
the second half of 2019 subject to FDA clearance.
-- Our next generation surgical robotics platform, which is
expected to enter full commercial release in 2020.
-- A partnership with Brainlab, a global pioneer of
software-driven medical technology, to accelerate our research and
development in the areas of digital surgery and augmented reality
and robotics.
-- The purchase of the Brainlab orthopaedic navigation business,
which we will integrate with our NAVIO robotic platform in due
course. This acquisition is expected to complete in the second
quarter of 2019.
Trauma revenue growth was 4.8%. Our plates and screws business
drove the acceleration, including the continued roll-out of EVOS
Small. Further components of the EVOS system are in development,
with wrist plates due to launch in the second half of this
year.
Sports Medicine & ENT
Our Sports Medicine & ENT franchise delivered 5.3% revenue
growth.
Sports Medicine Joint Repair delivered 11.0% revenue growth, its
best quarterly performance for four years. All regions contributed
to this, with a stand out quarter in China as adoption of minimally
invasive techniques accelerates. In the US, our shoulder repair
portfolio continues to perform strongly. In January 2019 we added a
further growth driver with the acquisition of Ceterix Orthopaedics,
the developer of the NovoStitch Pro Meniscal Repair System, a
unique technology that expands our leadership position in knee
meniscal repair.
Arthroscopic Enabling Technologies declined -1.1%. Although the
softness in resection seen in previous quarters continued, overall
this was an improved performance on recent quarters. We expect new
product launches to help return this business to growth during the
second half of 2019.
ENT delivered 4.2% growth, a similar performance to the second
half of 2018. The primary driver of this was our COBLATION
technology for tonsil and adenoid procedures.
Advanced Wound Management
Our Advanced Wound Management franchise delivered 4.1% revenue
growth.
Advanced Wound Care revenue growth was 2.0%. In line with recent
quarters, this reflected good growth in the US, led by ALLEVYN Life
and our pressure injury prevention strategy, offset by continued
weakness in some European markets. On 17 April 2019 we completed
the acquisition of Leaf Healthcare and its wireless Patient
Monitoring System to monitor the orientation and activity of
patients susceptible to pressure ulcers. This followed a successful
two-year partnership.
Advanced Wound Bioactives delivered a 0.4% increase in revenue.
This included double-digit growth from REGRANEX after the US FDA
approved removal of the boxed warning from the label at the end of
2018. In March 2019, we announced the acquisition of Osiris
Therapeutics, a fast-growing company delivering regenerative
medicine products, including skin substitutes. We expect Osiris to
improve the growth outlook for Advanced Wound Bioactives as well as
provide longer-term innovations in additional channels and
indications. The acquisition completed on 17 April 2019.
Advanced Wound Devices continued to deliver double-digit growth,
with Q1 revenue up 16.4%. This reflected continued good growth from
our Single Use Negative Pressure Wound Therapy System PICO and an
increasing contribution from our traditional system RENASYS .
Regional performance in the first quarter
We delivered revenue growth of 2.2% from our Established Markets
in the first quarter. Within this, revenue from the US, our largest
single market, was up 4.0%, as we sustain the improvement achieved
in the second half of 2018. Other Established Markets revenue
declined -0.1%.
Performance in the Emerging Markets was good, with revenue up
15.3%. We accelerated growth in China, our largest Emerging Markets
business, to more than 20% in the quarter, and Latin America and
India also delivered strong quarters.
2019 outlook
Our 2019 guidance is for year-on-year improvement in underlying
revenue growth and trading profit margin.
Following the growth achieved in the first quarter, we are
increasingly confident that we will deliver 2019 underlying growth
in the upper half of the guidance range of 2.5% to 3.5%.
The reported revenue growth rate is expected to be in the range
of 2.9% to 3.9% including a 40 basis points impact from foreign
exchange rates prevailing on 26 April 2019 and the Ceterix, Osiris
and Leaf acquisitions.
We continue to expect 2019 trading profit margin to be in the
range of 22.8% to 23.2%.
We continue to expect the tax rate on trading results for 2019
to be in the range 19% to 21%, subject to any material changes to
tax law, or other one-off items.
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TSTBFLLBKEFEBBB
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