Smith & Nephew(US:SNN)2024-02-28 06:13Financial Data and Key Metrics Changes - Revenue for 2023 was $5.5 billion, representing a 7.2% growth on an underlying basis and 6.4% on a reported basis, despite an 80 basis points headwind from foreign exchange [1] - Trading profit increased by 7.6% to $970 million, with a trading margin of 17.5%, consistent with guidance [1] - Adjusted earnings per share grew by 1.3% to $0.828, while basic earnings per share increased by 18% to $0.302 [21] Performance by Business Lines - Orthopaedics grew by 5.7% for the year, with specific growth of 4.9% in Q4 [17][6] - Sports Medicine and ENT grew by 10.9% for the year, with underlying revenue growth of 7.1% in Q4 [17][10] - Advanced Wound Management (AWM) grew by 6.4% for the year, with underlying revenue growth of 7.8% in Q4 [17][14] Performance by Markets - U.S. revenue grew by 6.2%, established markets rose by 6.1%, and emerging markets grew by 7.6% [5] - Growth in emerging markets was impacted by headwinds from Sports Medicine VBP implementation in China [5] Company Strategy and Industry Competition - The company expects underlying revenue growth of 5% to 6% for 2024, with improvements in Orthopaedics and continued strong performance in Sports Medicine and AWM [27] - The 12-Point Plan is central to improving overall performance, with significant progress noted in operational efficiency and product availability [33][34] - The company aims for a trading margin expansion to at least 18% in 2024, with a midterm target of at least 20% by 2025 [29][31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic headwinds, including input cost inflation and transactional FX, but expects to offset these through productivity improvements and operational leverage [29][30] - The implementation of China Sports Medicine VBP is anticipated to be a headwind, expected to impact growth by around 5 percentage points [13][27] Other Important Information - Trading cash flow for the full year was $635 million, with a trading cash conversion of 65% [22] - Net debt at the end of the year was $2.8 billion, with a leverage ratio of 2.1x adjusted EBITDA [25] Q&A Session Summary Question: What went wrong with the Knees performance in Q4? - The U.S. Knees specific SKUs were slow to come, particularly OXINIUM related, impacting replenishment and set delivery [61] - Expected turnover from performance management occurred later than anticipated, contributing to weaker performance [62] Question: Can you elaborate on manufacturing initiatives and expected cost savings? - The company is optimizing its manufacturing footprint, closing plants in Tuttlingen, Lyon, and Beijing, with volumes shifted to Memphis and Malaysia [66] - Significant margin benefits are expected from these changes, although specific savings figures were not disclosed [67] Question: How do you see margin phasing in 2024? - The company expects a more normalized year in terms of first half margin, with growth anticipated from H1 to H1 [68] - Factors affecting margin include previous one-off investments and matured productivity measures from the prior year [69]