TIDMSN.
RNS Number : 7068R
Smith & Nephew Plc
31 October 2019
Smith+Nephew Third Quarter 2019 Trading Report
Positive momentum across all three global franchises
31 October 2019
Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology
business, announces its trading report for the third quarter ended
28 September 2019.
Highlights
Strong Q3 revenue growth, building on the progress made in the
first half
-- Q3 revenue up 4.0% on an underlying basis; reported growth
was 6.5% as 390bps benefit of acquisitions outweighed 140bps
currency headwind
-- Orthopaedics delivered 3.4% revenue growth, maintaining good
momentum established in the first half
-- Sports Medicine & ENT accelerated from strong first half, delivering 6.9% revenue growth
-- Advanced Wound Management revenue up 2.1%, an improvement from second quarter
-- Continued mid-teens growth from the Emerging Markets, led by
another quarter of strong growth in China
-- Osiris delivered a second quarter of double-digit growth following acquisition
Full year guidance updated
-- Underlying revenue growth expected to be in the range 3.5% to 4.5%
-- Trading profit margin expected to be around 22.8%
Change of Chief Executive Officer
-- On 21 October 2019 it was announced that Roland Diggelmann
has been appointed Chief Executive Officer, effective 1 November
2019, replacing Namal Nawana
Graham Baker, Chief Financial Officer, said:
"We're pleased to have delivered organic revenue growth of 4% in
the third quarter, a further step towards growing at or above our
markets.
"We've built momentum across the first nine months of the year
and, at the same time, continued to invest behind our commercial
teams and acquisitions to support sustained success over the
medium-term. As a result, we're confident to increase 2019 revenue
guidance again."
Enquiries
Investors
Andrew Swift +44 (0) 1923 477433
Smith+Nephew
Media
Charles Reynolds +44 (0) 1923 477314
Smith+Nephew
Charis Gresser / Ayesha Bharmal +44 (0) 20 7404 5959
Brunswick
Analyst conference call
A conference call to discuss Smith+Nephew's third quarter
results will be held today at 10.00am GMT / 6.00am EDT, details of
which can be found at www.smith-nephew.com/results.
Forward calendar
The full year results will be released on 20 February 2020.
Notes
1. All numbers given are for the quarter or nine months ended 28
September 2019 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 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 and
recent material business disposals. This is calculated by comparing
the current year, constant currency actual revenue (which include
acquisitions and exclude 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 to assist comparability with historical data.
Third quarter 2019 trading update
Our third quarter revenue was $1,246 million (2018: $1,169
million), up 4.0% on an underlying basis. Reported growth of 6.5%
includes a 140bps foreign exchange headwind and a 390bps benefit
from acquisitions.
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.
Q3 2019 comprised 63 trading days, in line with the comparable
Q3 2018 period.
Consolidated revenue analysis for the third quarter
28 September 29 September Reported Underlying Acquisitions Currency
2019 2018(i) growth Growth(ii) /disposals impact
Consolidated revenue by
franchise $m $m % % % %
----------------------------- ------------ ------------ -------- ---------- ------------ --------
Orthopaedics 524 505 3.6 3.4 1.1 -0.9
------------------------------ ------------ ------------ -------- ---------- ------------ --------
Knee Implants 240 232 3.7 4.6 - -0.9
Hip Implants 145 142 1.6 2.6 - -1.0
Other Reconstruction(iii) 19 13 41.5 1.5 40.8 -0.8
Trauma 120 118 1.2 2.2 - -1.0
Sports Medicine & ENT 365 345 5.9 6.9 0.5 -1.5
------------------------------ ------------ ------------ -------- ---------- ------------ --------
Sports Medicine Joint Repair 190 171 11.6 12.2 0.9 -1.5
Arthroscopic Enabling
Technologies 138 138 -0.6 0.8 - -1.4
ENT (Ear, Nose and Throat) 37 36 4.0 5.3 - -1.3
Advanced Wound Management 357 319 11.9 2.1 11.7 -1.9
------------------------------ ------------ ------------ -------- ---------- ------------ --------
Advanced Wound Care 176 184 -4.1 -1.8 - -2.3
Advanced Wound Bioactives 119 81 47.2 2.1 45.4 -0.3
Advanced Wound Devices 62 54 13.9 15.4 0.7 -2.2
Total 1,246 1,169 6.5 4.0 3.9 -1.4
------------------------------ ------------ ------------ -------- ---------- ------------ --------
Consolidated revenue by
geography
----------------------------- ------------ ------------ -------- ---------- ------------ --------
US 624 569 9.7 2.7 7.0 -
Other Established
Markets(iv) 382 393 -2.8 -0.3 0.5 -3.0
Total Established Markets 1,006 962 4.6 1.5 4.3 -1.2
Emerging Markets 240 207 15.5 16.0 1.4 -1.9
Total 1,246 1,169 6.5 4.0 3.9 -1.4
------------------------------ ------------ ------------ -------- ---------- ------------ --------
(i) Revenue by franchise for the quarter ended 29 September 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 29 September 2018
(ii) Underlying growth is defined in Note 2 on page 2
(iii) Other Reconstruction includes robotics capital sales, the
orthopaedic joint reconstruction business acquired from BrainLab
and cement
(iv) Other Established Markets are Europe, Canada, Japan,
Australia and New Zealand
Franchise Highlights for the Third Quarter
Smith+Nephew's franchise-led operating model is driving growth
by bringing a greater focus to serving customers with our portfolio
of leading technologies. Our three global franchises are
Orthopaedics, Sports Medicine & ENT, and Advanced Wound
Management.
Orthopaedics
Our Orthopaedics franchise delivered 3.4% revenue growth in the
quarter, as we maintained the good momentum established in the
first half of the year.
Revenue from Knee Implants was up 4.6%, once again led by demand
for JOURNEY II and LEGION Revision knee systems.
Hip Implants revenue was up 2.6%, driven by demand for POLAR3
Total Hip Solution and REDAPT Revision Hip System.
Other Reconstruction delivered revenue growth of 1.5%. Strong
growth from our robotics-assisted NAVIO Surgical System was offset
by a strong pro forma comparable period in Q3 2018 from the
BrainLab orthopaedic joint reconstruction business acquired on 31
May 2019. During the quarter we completed the acquisition of
Atracsys Sàrl, whose fusionTrack 500 optical tracking camera will
be a core enabling technology for our next generation
robotics-assisted surgical platform.
Trauma revenue growth was 2.2%. We continued to build on recent
additions to the EVOS System, and launched the EVOS WRIST Plating
System. The TRIGEN INTERTAN Intertrochanteric Hip Fracture Nail
continued to perform strongly, and we introduced an innovative
assurance programme to further support this product.
Sports Medicine & ENT
Our Sports Medicine & ENT franchise accelerated from its
strong first half performance, delivering 6.9% revenue growth in
the third quarter.
Sports Medicine Joint Repair delivered 12.2% revenue growth, its
third consecutive quarter of double digit growth. Our performance
was strong across both our knee and shoulder repair ranges, and
across all regions. We announced new performance data supporting
the recently acquired NOVOSTITCH Meniscal Repair System.
Arthroscopic Enabling Technologies returned to growth this
quarter, with revenue up 0.8%. New products, including the WEREWOLF
COBLATION FLOW 90 Wand with FLOWIQ Technology, which brings this
technology to shoulder repair, and new mechanical resection blades,
have started to meaningfully contribute to growth. We launched the
LENS 4K Surgical Imaging System late in the quarter.
ENT delivered 5.3% growth as we continued to successfully
convert hospitals to using our COBLATION technology when conducting
tonsil and adenoid procedures.
Advanced Wound Management
Our Advanced Wound Management franchise delivered 2.1% revenue
growth, an improvement from the previous quarter.
Advanced Wound Care declined -1.8%, similar to the previous
quarter. Performance in Europe improved over recent quarters, an
early consequence of contract and tender wins, although this was
offset by price pressure in the US.
Advanced Wound Bioactives delivered 2.1% growth, a marked
improvement over the first half. The recently acquired Osiris
portfolio continues to perform strongly, delivering double digit
growth.
Advanced Wound Devices delivered another quarter of strong
growth, with revenue up 15.4%. Performance was supported by our
traditional negative pressure system RENASYS in the US. We
completed the US launch of PICO 7Y Single Use Negative Pressure
Wound Therapy System with AIRLOCK Technology during the quarter,
which enables the utilisation of two dressings concurrently from
one pump, allowing for two wounds or incisions to be addressed
simultaneously.
Regional Performance in the Third Quarter
We delivered revenue growth of 1.5% from Established Markets in
the third quarter. Both the US, up 2.7%, and Other Established
Markets, down -0.3%, delivered improved performances over the
previous quarter.
Performance in the Emerging Markets remained strong, with
revenue up 16.0%. We again delivered a stand-out performance in
China.
Change of Chief Executive Officer
On 21 October 2019 we announced the appointment of Roland
Diggelmann as the Company's new Chief Executive Officer from 1
November 2019, replacing Namal Nawana. Roland was previously Chief
Executive Officer of Roche Diagnostics and a Non-Executive Director
of Smith+Nephew. Namal will be employed and provide advice and
assistance to Roland in his new role until 31 December 2019 to help
ensure a smooth transition.
Full Year Guidance Updated
The Group's underlying revenue growth in the first nine months
of 2019 was 3.9%, driven by our teams across all three global
franchises.
As a result of this sustained improved performance, we have
raised full year guidance by 50bps, and now expect underlying
revenue growth in the range of 3.5% to 4.5% for 2019.
The reported revenue growth rate is expected to be in the range
of 3.9% to 4.9% including a 230bps reduction from foreign exchange
rates prevailing on 25 October 2019 and a 270bps increase from the
Ceterix, Osiris, Leaf, BrainLab OJR and Atracsys acquisitions.
We now expect 2019 trading profit margin to be around 22.8%,
which is the lower end of the previously guided range and around
40bps improvement over 2018, excluding the prior year, one-off
legal settlement (of 50bps). This reflects our decision to continue
to invest in opportunities to support medium-term growth, dilution
from the acquisitions, and a small foreign exchange headwind in the
second half of 2019.
We continue to expect the tax rate on trading results for 2019
to be in the range of 19% to 21%, subject to any material changes
to tax law or other one-off items.
Consolidated revenue analysis for nine months to 28 September
2019
28 September 29 September Reported Underlying Acquisitions Currency
2019 2018(i) growth Growth(ii) /disposals impact
Consolidated revenue by
franchise $m $m % % % %
--------------------------- ------------ ------------ -------- ---------- ------------ --------
Orthopaedics 1,622 1,598 1.5 3.6 0.4 -2.5
---------------------------- ------------ ------------ -------- ---------- ------------ --------
Knee Implants 763 749 2.0 4.3 - -2.3
Hip Implants 453 453 - 2.7 - -2.7
Other Reconstruction(iii) 49 43 14.7 3.6 13.5 -2.4
Trauma 357 353 0.9 3.3 - -2.4
Sports Medicine & ENT 1,112 1,074 3.5 5.9 0.4 -2.8
---------------------------- ------------ ------------ -------- ---------- ------------ --------
Sports Medicine Joint
Repair 573 523 9.5 11.7 0.8 -3.0
Arthroscopic Enabling
Technologies 428 443 -3.5 -0.8 - -2.7
ENT (Ear, Nose and Throat) 111 108 3.2 5.3 - -2.1
Advanced Wound Management 997 938 6.3 2.3 7.3 -3.3
---------------------------- ------------ ------------ -------- ---------- ------------ --------
Advanced Wound Care 530 555 -4.5 -0.5 - -4.0
Advanced Wound Bioactives 291 226 28.7 0.5 28.6 -0.4
Advanced Wound Devices 176 157 12.1 15.9 0.4 -4.2
Total 3,731 3,610 3.4 3.9 2.2 -2.7
---------------------------- ------------ ------------ -------- ---------- ------------ --------
Consolidated revenue by
geography
--------------------------- ------------ ------------ -------- ---------- ------------ --------
US 1,827 1,704 7.2 3.0 4.2 -
Other Established
Markets(iv) 1,199 1,268 -5.4 -0.6 0.2 -5.0
Total Established Markets 3,026 2,972 1.8 1.5 2.5 -2.2
Emerging Markets 705 638 10.4 15.9 0.4 -5.9
Total 3,731 3,610 3.4 3.9 2.2 -2.7
---------------------------- ------------ ------------ -------- ---------- ------------ --------
(i) Revenue by franchise for the nine months ended 29 September
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 nine months ended 29 September 2018
(ii) Underlying growth is defined in Note 2 on page 2
(iii) Other Reconstruction includes robotics capital sales, the
orthopaedic joint reconstruction business acquired from BrainLab
and cement
(iv) Other Established Markets are Europe, Canada, Japan,
Australia and New Zealand
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 16,000+ 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 $4.9 billion in 2018. 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: 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.
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and Trademark Office.
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END
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