TIDMSN.
RNS Number : 0364M
Smith & Nephew Plc
06 May 2020
Smith+Nephew First Quarter 2020 Trading Report
Navigating unprecedented challenges while preparing for the
future
6 May 2020
Smith+Nephew (LSE:SN, NYSE:SNN) trading report for the first
quarter ended 28 March 2020.
Q1 trading (1,2)
-- Q1 revenue $1,134 million (2019: $1,202 million), down -7.6%
on an underlying basis, consistent with 30 March trading update
-- Reported growth down -5.7% including a 3.4% benefit from
acquisitions and -1.5% foreign exchange headwind
-- Performance of all three global franchises held back by
impact of COVID-19 to varying degrees dependent on geography and
exposure to elective procedures
COVID-19 response
-- Focused on three priorities - the health and safety of
employees and protecting jobs; supporting customers and
communities; and ensuring the sales force and supply chain are
ready as markets recover
-- Cost control measures to realise significant savings of up to $200 million underway
-- Strong balance sheet and good liquidity, with net debt of
$1.8 billion at quarter end compared to $3.4 billion of committed
facilities
April trading and preparing for the future (1,2)
-- April revenue down around -47% on an underlying basis,
reflecting suspension of elective procedures in most markets,
somewhat offset by improving trading in China
-- Elective surgeries starting to return in some markets,
including the US, although pace and extent is varied and uncertain
across geographies
-- Q2 revenue and first half trading margin expected to be
substantially down on prior year, as previously announced
-- 2020 guidance remains withdrawn due to continuing uncertainty regarding impact of COVID-19
Roland Diggelmann, Chief Executive Officer, said:
" Countries and healthcare systems around the world are facing
an unprecedented challenge, and we are seeing a significant
short-term impact on Smith+Nephew. I would like to thank everyone
at Smith+Nephew who has adapted and worked tirelessly to protect
colleagues, support our customers and communities, and prepare the
business for the future.
"The recovery in China is encouraging, as is the restart of
elective surgeries in many other countries, and especially within
the US. While there is still much uncertainty, Smith+Nephew has the
financial strength to withstand this period and, as demand
increases, we are ready to step up and support customers through
our robust supply chain, innovative products and some new ways of
working.
"Looking to the medium-term, we have a proven strategy that will
continue to guide our choices. We remain committed to our ambition
to consistently outgrow our markets at the same time as delivering
ongoing improvements to trading profit margin."
Enquiries
Investors
Andrew Swift +44 (0) 1923 477433
Smith+Nephew
Media
Charles Reynolds +44 (0) 1923 477314
Smith+Nephew
Susan Gilchrist / Ayesha Bharmal +44 (0) 20 7404 5959
Brunswick
Analyst conference call
An analyst conference call to discuss Smith+Nephew's first
quarter results will be held at 8.30am BST / 3.30am EDT on
Wednesday 6 May 2020, 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 28 March 2020 unless stated otherwise.
2. Unless otherwise specified as 'reported' all revenue growth
throughout this document is 'underlying' after adjusting for the
effects of currency translation and including the comparative
impact of acquisitions and excluding disposals. All percentages
compare to the equivalent 2019 period.
'Underlying revenue growth' reconciles to reported revenue
growth, the most directly comparable financial measure calculated
in accordance with IFRS, by making two adjustments, the 'constant
currency exchange effect' and the 'acquisitions and disposals
effect', described below.
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.
The 'acquisitions and disposals effect' is the measure of the
impact on revenue from newly acquired material business
combinations 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.
These sales are separately tracked in the Group's internal
reporting systems and are readily identifiable.
Forward calendar
Results for the first half of 2020 will be released on 29 July
2020.
First quarter trading update
Our first quarter revenue was $1,134 million (2019: $1,202
million), down -7.6% on an underlying basis, in line with our
expectations announced on 30 March 2020. Reported growth was down
-5.7% including a 3.4% benefit from acquisitions and -1.5% foreign
exchange headwind. Q1 2020 comprised 62 trading days, one fewer
than Q1 2019.
Consolidated revenue analysis for the first quarter
28 March 30 March Reported Underlying Acquisitions Currency
2020 2019(i) growth Growth(ii) /disposals impact
Consolidated revenue by franchise $m $m % % % %
------------------------------------- -------- -------- -------- ---------- ------------ --------
Orthopaedics 497 546 -9.0 -8.3 0.6 -1.3
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Knee Implants 230 261 -11.9 -10.6 - -1.3
Hip Implants 137 152 -10.0 -8.6 - -1.4
Other Reconstruction(iii) 21 14 53.6 19.4 36.5 -2.3
Trauma 109 119 -8.3 -7.1 - -1.2
Sports Medicine & ENT 328 368 -11.0 -9.5 0.1 -1.6
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Sports Medicine Joint Repair 172 188 -8.6 -7.1 0.1 -1.6
Arthroscopic Enabling Technologies 126 145 -12.7 -11.2 - -1.5
ENT (Ear, Nose and Throat) 30 35 -16.3 -15.2 - -1.1
Advanced Wound Management 309 288 7.3 -4.0 13.1 -1.8
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Advanced Wound Care 158 174 -8.9 -6.7 - -2.2
Advanced Wound Bioactives 91 61 49.5 -8.6 58.4 -0.3
Advanced Wound Devices 60 53 11.6 13.0 0.9 -2.3
Total 1,134 1,202 -5.7 -7.6 3.4 -1.5
-------------------------------------- -------- -------- -------- ---------- ------------ --------
Consolidated revenue by geography
------------------------------------- -------- -------- -------- ---------- ------------ --------
US 581 568 2.2 -4.7 6.9 -
Other Established Markets(iv) 379 415 -8.7 -6.3 0.1 -2.5
Total Established Markets 960 983 -2.4 -5.4 4.1 -1.1
Emerging Markets 174 219 -20.5 -17.9 0.8 -3.4
Total 1,134 1,202 -5.7 -7.6 3.4 -1.5
-------------------------------------- -------- -------- -------- ---------- ------------ --------
(i) Included within the Q1 2019 analysis is a reclassification
of $2 million of revenue formerly included in the Advanced Wound
Care franchise which is now included in the Advanced Wound
Bioactives franchise in order to present consistent analysis to the
Q1 2020 results. There has been no change in total revenue for the
quarter ended 30 March 2019
(ii) Underlying growth is defined in Note 2 on page 2
(iii) Other Reconstruction includes robotics capital sales, the
joint reconstruction business acquired from Brainlab and cement
(iv) Other Established Markets are Australia, Canada, Europe,
Japan and New Zealand
Overview of the first quarter
The performance of all three of our global franchises was held
back by the impact of COVID-19 in the quarter, to varying degrees
dependent on geography and exposure to elective procedures.
The impact was greatest in China, where revenue was down almost
50% for the period.
Trading conditions in January and February outside of China had
been in line with our expectations at the start of the year.
However, in March, elective surgeries began to be restricted in
most other markets. In particular, this quickly became a
significant headwind for our Hip Implants and Knee Implants
businesses and Sports Medicine & ENT franchise.
As a result of these factors, revenue from our Established
Markets declined -5.4% overall in the first quarter, with the US
down -4.7% and Other Established Markets down -6.3%. Revenue was
down -17.9% in our Emerging Markets.
Orthopaedics
Revenue declined -8.3% in our Orthopaedics franchise in the
first quarter. Within this, Knee Implants was down -10.6% and Hip
Implants down -8.6%. Our performance in revisions remained solid,
with our hip REDAPT Revision System delivering growth in the
quarter. Trauma is less exposed to elective surgery, but there was
a reduction in overall surgery levels which contributed to a -7.1%
revenue decline. Other Reconstruction delivered revenue growth of
19.4%, reflecting a strong start to the year in robotics capital
sales, although by the end of the quarter capital spending was also
under pressure.
Sports Medicine & ENT
Revenue from our Sports Medicine & ENT franchise was down
-9.5% in the quarter with all three businesses impacted by the
reduction in elective procedures. Sports Medicine Joint Repair and
Arthroscopic Enabling Technologies revenue declined -7.1% and
-11.2% respectively. Demand for recently launched innovative
products such as the NOVOSTITCH Pro Meniscal Repair System, and
WEREWOLF FLOW 90 Wand with FLOWIQ Technology remained strong where
suitable procedures occurred. ENT revenue declined -15.2%. We
continued preparations to launch Tula, a new system for in-office
delivery of ear tubes to treat recurrent or persistent ear
infections, following our acquisition of Tusker Medical in
January.
Advanced Wound Management
Revenue from our Advanced Wound Management franchise declined
-4.0%. Within this our businesses experienced differing levels of
impact, with Advanced Wound Bioactives, at -8.6%, the worst
affected. Advanced Wound Care revenue was down -6.7%, with the
COVID-19 related restrictions in the Asia-Pacific region the
largest drag on performance. Advanced Wound Devices delivered 13%
revenue growth led by strong demand for our Negative Pressure Wound
Therapy portfolio.
Response to COVID-19
Smith+Nephew has been responding to COVID-19 since January 2020,
first in China, and then across all of our markets globally.
Throughout this period we have prioritised the health and safety of
employees and protecting jobs, supporting our customers and
communities, and ensuring the business is well prepared to respond
as elective surgeries start to return.
Employees
No jobs have been lost amongst our 17,500 strong workforce as a
result of COVID-19. We have continued to manufacture our critical
products and supply customers as they strive to improve the quality
of life of patients.
We have taken many measures to safeguard employees, including
temporarily closing offices and supporting working from home
wherever possible, restricting travel and meetings, and
implementing split shifts and temperature checks at our
manufacturing facilities. We have delivered remote working tools
including employee well-being resources, and created a "My Remote
Life" social channel.
For our sales force, for whom a proportion of their income is
typically commission based, we are ensuring that they retain a
significant percentage of regular income and have enhanced digital
training on technical product knowledge and business skills.
Whilst workplace restrictions may be lifted at the city, state
or country level, we will re-open our offices only when we are
confident that we can maintain what we feel are satisfactory
standards to ensure the health and safety of our employees and
customers.
Customers
We have continued to serve customers to the best of our ability
while respecting any local restrictions. In particular, our Trauma
and Reconstruction teams have supported urgent patient cases, and
our Advanced Wound Management teams have kept product flowing to
customers in both hospital and community care settings.
We have also launched new services for customers. For example,
in March we launched a new digital education programme designed to
support the development of surgeons by providing educational
webinars on the safe and effective use of Smith+Nephew products as
well as surgical techniques. More than 11,000 healthcare
professionals attended in the first month. In the US we have
launched a 24/7 helpline where both patients and clinicians can
access information on our Advanced Wound Management portfolio and
get immediate answers to questions on the proper use of our
products as well as wound-related education, with the intent of
easing the burden on healthcare providers.
Communities
Smith+Nephew is actively engaging in its communities, making
donations of product and personal protective equipment, and
supporting employee volunteering, including registered healthcare
professionals who wish to return to front line care.
We are using our manufacturing expertise to support the fight
against COVID-19. For example, in the UK we have been working with
the University of Oxford and King's College London to develop a
low-cost ventilator, and in the US we have repurposed part of our
manufacturing facility in Memphis to assemble face shields.
Cost control
In response to COVID-19, Smith+Nephew initiated actions to
realise significant savings of up to $200 million from areas such
as travel, events, advertising, promotion and consultancy, as well
as freezing all but the most crucial new hires. We are also slowing
some planned capital expenditure.
In April, we extended these measures to include temporarily
reducing production at some manufacturing facilities to manage
stock levels. We have introduced special 'pandemic leave' to help
ensure employees are not financially disadvantaged as a result.
At this stage we are protecting the majority of R&D
investment and remain committed to developing and launching
meaningful innovation this year and beyond.
We continue to monitor market developments, and have identified
additional potential savings if they become required.
Strong balance sheet and good liquidity
Smith+Nephew has a strong balance sheet with access to
significant liquidity. At the end of the first quarter, the Group
had net debt of $1.8 billion (excluding lease liabilities),
compared to already committed facilities of $2.9 billion, as well
as a further $550 million of Senior Notes which will be drawn down
in June 2020. The Group has no debt maturing in 2020. The $200
million increase in net debt since the year-end reflects
acquisitions and seasonal working capital movements.
Smith+Nephew's principal covenant, which relates only to our
private placement debt, is leverage ratio <3.5x. This is
measured on a rolling 12-month basis at the half-year and year-end.
At 31 December 2019 our leverage ratio was 1.2x (see note 15 of the
2019 Annual Report, and the Group's 20-F filings, for further
details of Smith+Nephew's financing).
April trading and preparing for the future
Smith+Nephew's underlying revenue declined approximately -47% in
April. This reflects the impact of restriction of movement orders
and suspension of elective surgeries in most of our markets,
somewhat offset by improved performance in China where elective
procedures have started again but have not yet reached pre-COVID-19
levels.
As we enter May there is considerable variation regarding the
pace of reintroduction of elective procedures. While a number of US
states and European countries have slowly started to reintroduce
these, and some more have announced plans to do so in the near
future, others have not and some parts of the world are even
tightening lock-down restrictions.
Smith+Nephew is closely tracking this variation in approach
across our markets and preparing accordingly. This includes
adapting to new working practices regarding access to site of care
settings, the use of personal protective equipment, and utilising
digital technologies to provide support remotely.
We also have a number of initiatives underway to assist
customers as they return to more normal activities. These include a
major online showcase of our Sports Medicine and Orthopaedic
portfolios and the launch of our new robotics platform. We are also
focusing on supporting healthcare providers seeking to increase
access to orthopaedic cases in ambulatory surgery centers (ASCs).
Our recently launched Positive Connections ASC service gives us an
innovative offering in this area as we expect this shift to
accelerate with patients choosing the ASC over inpatient stays.
Outlook
On 30 March Smith+Nephew withdrew its 2020 guidance. As
previously announced, we expect that second quarter revenue and
first half trading margin will be substantially down on the prior
year.
It remains difficult to determine how long the situation will
last and the profile of recovery in each market, as well as the
speed at which elective surgeries will return, and the rescheduling
of postponed procedures. We are ready to meet the increasing demand
through our sales force and supply chain as each market recovers
but, given the ongoing uncertainty, we will not provide updated
2020 guidance at this time.
Looking to the medium-term, we have a proven strategy that will
continue to guide our choices. We remain committed to our ambition
to consistently outgrow our markets at the same time as delivering
ongoing improvements to our trading profit margin.
About Smith+Nephew
Smith+Nephew is a portfolio medical technology business that
exists to restore people's bodies and their self-belief by using
technology to take the limits off living. We call this purpose
'Life Unlimited'. Our 17,500+ employees deliver this mission every
day, making a difference to patients' lives through the excellence
of our product portfolio, and the invention and application of new
technologies across our three global franchises of Orthopaedics,
Advanced Wound Management and Sports Medicine & ENT.
Founded in Hull, UK, in 1856, we now operate in more than 100
countries, and generated annual sales of $5.1 billion in 2019.
Smith+Nephew is a constituent of the FTSE100 (LSE:SN, NYSE:SNN).
The terms 'Group' and 'Smith+Nephew' are used to refer to Smith
& Nephew plc and its consolidated subsidiaries, unless the
context requires otherwise.
For more information about Smith+Nephew, please visit
www.smith-nephew.com and follow us on Twitter , LinkedIn ,
Instagram 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: risks
related to the impact of COVID-19, such as the depth and longevity
of its impact, government actions and other restrictive measures
taken in response, material delays and cancellations of elective
procedures, reduced procedure capacity at medical facilities,
restricted access for sales representatives to medical facilities,
or our ability to execute business continuity plans as a result of
COVID-19; economic and financial conditions in the markets we
serve, especially those affecting health care providers, payers and
customers (including, without limitation, as a result of COVID-19);
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
(including, without limitation, as a result of COVID-19);
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.
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END
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