Smith & Nephew(US:SNN)2024-11-02 12:57Financial Data and Key Metrics - Revenue in Q3 2024 was $1.4 billion with 4% underlying growth, and reported growth was also 4% due to neutral foreign exchange impact [9] - Full-year 2024 underlying revenue growth is expected to be around 4.5%, below the previous guidance range of 5% to 6% [24] - Trading margin expansion for 2024 is expected to be up to 50 basis points, with a target trading margin of 19% to 20% in 2025 [25][27] Business Unit Performance - Orthopedics grew 2.3% underlying, with U.S. knees and hips growing 0.7% and 3.2% respectively [11] - Other Reconstruction grew by 13.7%, driven by robotics, capital, and consumables [14] - Trauma and Extremities grew by 3.3%, with the EVOS plating system showing strong double-digit growth [14] - Sports Medicine and ENT grew 3.9% underlying, with joint repair growth at 0.1% due to VBP headwinds in China [16] - Advanced Wound Management grew 6.5%, with Advanced Wound Care, Bioactives, and Advanced Wound Devices growing 3.4%, 8%, and 11% respectively [20][21][22] Market Performance - Established Markets showed strong performance with 4% growth in the U.S. and 6.8% in other established markets [10] - Emerging markets were broadly flat, with a disappointing quarter in China, which lowered overall OUS growth by around 5 percentage points in knees and hips [10][13] - China's impact on group growth shifted from neutral to a 2 percentage point headwind in Q3 [28] Company Strategy and Industry Competition - The 12-Point Plan has driven operational improvements, particularly in U.S. recon, with reduced customer churn and improved product availability [8][32] - Robotics adoption and innovation delivery remain key long-term growth drivers, with CORI utilization reaching almost one-third of U.S. knees [14][37] - The company expects to return to higher growth in Trauma and Extremities in Q4, driven by EVOS and the rollout of the AETOS shoulder [15][23] Management Commentary on Operating Environment and Future Outlook - Growth headwinds in China, particularly in Sports Medicine and Orthopedics, are expected to persist through 2024 and into 2025 [5][7] - The company remains optimistic about structural improvements in established markets, driven by the 12-Point Plan [8][29] - Full-year 2024 trading margin expansion is expected to be up to 50 basis points, with China headwinds likely to spill over into 2025 [25][26] Other Important Information - The company expects cash conversion to be around 85% for the full year, with continued improvement in 2025 [26][104] - Innovation investments are delivering growth, with new products from the last five years contributing almost half of total revenue growth in 2023 [37] Q&A Session Summary Question: Drivers of lower end-market demand in China Orthopedics and expectations for rebound [44] - The weaker-than-expected demand in China Orthopedics is due to reduced end-customer demand and slower adoption of robotics, with orders expected to remain low through Q4 and into 2025 [45][46] Question: Margin downgrade for 2025 and its relation to China [44] - The majority of the margin downgrade is driven by China, particularly the lack of volume uplift from Sports Medicine VBP and slower Orthopedics growth [47][53] Question: Revenue growth expectations for 2025 and operating leverage beyond 2025 [55] - Revenue growth for 2025 is expected to be around 5%, with continued margin expansion driven by cost savings and operational leverage [56][57] Question: Impact of VBP in China and potential market share loss [58] - The lack of volume growth in China is primarily a market effect, with some evidence of local competitors gaining share, though it is difficult to parse at this stage [58] Question: OUS knee performance and competitive dynamics [61][74] - OUS knee performance ex-China remains robust, with improvements in product availability and commercial execution driving growth [76][77] Question: Trauma franchise strength and competitive outlook [61] - The Trauma franchise is performing well, with strong growth from the EVOS plating system, though competitive activity is expected to increase [67][68] Question: Destocking impact in China and inventory visibility [92] - The company has reasonable visibility into distributor inventory, with destocking expected to continue through Q4 and into the first half of 2025 [93][94] Question: Assessment of the 12-Point Plan and potential strategic pivots [96] - The 12-Point Plan remains on track, with significant progress in operational metrics and cost savings, though China headwinds have impacted financial results [99][101] Question: ASC performance and pricing dynamics in the U.S. [115] - The company is performing well in ASCs, with low double-digit penetration in knees, though pricing sensitivity is higher in this channel [119][122] Question: SKU rationalization and product family consolidation [116] - The company has made progress in SKU rationalization, with a 40-45% reduction in SKUs, and aims to consolidate knee platforms over time [124][125] Question: Knee business growth expectations and hip business outlook [129] - The U.S. knee business is expected to return to market growth by the second half of 2025, while the hip business remains strong with new product launches [131][132] Question: Early feedback on RENASYS EDGE rollout [130] - Early feedback on RENASYS EDGE has been positive, with expectations for continued growth in 2025 [134]