SMITH & NEPHEW PLC Strong revenue growth and improved trading profit margin in 2023
12-Point Plan on track and starting to deliver financial outcomes
Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology business, reports results for the fourth quarter and full year ended 31 December 2023:
Download the announcement in full.
31 Dec | 31 Dec | Reported | Underlying | |||||
2023 | 2022 | growth | growth | |||||
$m | $m | % | % | |||||
Fourth Quarter Results1,2 | ||||||||
Revenue | 1,458 | 1,365 | 6.8 | 6.4 | ||||
Full Year Results1,2 | ||||||||
Revenue | 5,549 | 5,215 | 6.4 | 7.2 | ||||
Operating profit | 425 | 450 | ||||||
Operating profit margin (%) | 7.7 | 8.6 | ||||||
EPS (cents) | 30.2 | 25.5 | ||||||
Trading profit | 970 | 901 | ||||||
Trading profit margin (%) | 17.5 | 17.3 | ||||||
EPSA (cents) | 82.8 | 81.8 |
- Q4 revenue of $1,458 million (2022: $1,365 million), up 6.4% on an underlying basis. Reported growth of 6.8% was after 40bps FX tailwind
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Revenue of $5,549 million (2022: $5,215 million), up 7.2% on an underlying basis, ahead of guidance. Reported growth of 6.4% was after -80bps FX headwind
- Orthopaedics underlying growth up 5.7%, setting foundations for further improvement
- Sports Medicine & ENT underlying growth up 10.0%, including headwind from slow China market
- Advanced Wound Management delivered 6.4% underlying revenue growth, maintaining momentum from prior year
- Trading profit up 7.6% on a reported basis to $970 million (2022: $901 million) with 17.5% trading profit margin (2022: 17.3%), in line with guidance. Reported operating profit was $425 million (2022: $450 million)
- Cash generated from operations of $829 million (2022: $581 million) with improved trading cash flow of $635 million (2022: $444 million)
- EPSA 82.8¢ (2022: 81.8¢), EPS 30.2¢ (2022: 25.5¢)
-
Full year dividend of 37.5¢ per share (2022: 37.5¢ per share)
Strategic Highlights
- 12-Point Plan on-track with progress starting to translate into financial outcomes
- Innovation strategy driving higher growth and delivering a strong pipeline of new products
- Acquisition of CartiHeal, strengthening leadership in Sports Medicine biological healing
- Positive operating leverage and 12-Point Plan benefits expected to more than offset headwinds including continuing inflation, -70bps from China Volume Based Procurement (VBP) within Sports Medicine Joint Repair, and transactional foreign exchange
- 2024 guidance: underlying revenue growth expected in the range of 5.0% to 6.0% (4.6% to 5.6% reported), and trading profit margin expected to be at least 18.0%
- Midterm targets unchanged
Deepak Nath, Chief Executive Officer, said:
"I am pleased with our overall performance in 2023, as our actions to transform Smith+Nephew have begun to translate into meaningful financial outcomes. We delivered revenue growth ahead of guidance for the full year and made important improvements to our trading profit margin against a challenging macro-environment.
"Our 12-Point Plan is on track. While there is more to do to enhance our performance in US reconstruction, our Orthopaedics business is progressing along a clear improvement path. 2023 was another year of good growth for our Sports Medicine & ENT and Advanced Wound Management businesses.
"Our investment in innovation continues to deliver, with almost half of our 2023 growth coming from products launched in the last five years. We were pleased to add major launches in robotics, shoulder arthroplasty and negative pressure wound therapy to the portfolio during the year.
"We have entered 2024 as a fundamentally stronger business and look forward to delivering another year of robust growth and further margin expansion."
Analyst conference callAn analyst conference call to discuss Smith+Nephew's fourth quarter and full year results will be held 8.30am GMT / 3.30am EST on 27 February 2024, details of which can be found on the Smith+Nephew website at https://www.smith-nephew.com/en/about-us/investors.
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Notes
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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 2022 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. See Other Information on pages 34 to 38 for a reconciliation of underlying revenue growth to reported revenue growth.
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. - Certain items included in 'trading results', such as trading profit, trading profit margin, tax rate on trading results, trading cash flow, trading profit to trading cash conversion ratio, EPSA, leverage ratio and underlying growth are non-IFRS financial measures. The non-IFRS financial measures reported in this announcement are explained in Other Information on pages 34 to 38 and are reconciled to the most directly comparable financial measure prepared in accordance with IFRS. Reported results represent IFRS financial measures as shown in the Condensed Consolidated Financial Statements.
Group revenue in 2023 was $5,549 million (2022: $5,215 million), an increase of 7.2% on an underlying basis. This growth was ahead of our full year guidance published in February 2023 for growth between 5.0% to 6.0%, and reflects the strength of the portfolio with all three business units delivering underlying growth above 5% for the full year. Group reported growth of 6.4% reflected a -80bps headwind from foreign exchange primarily due to the strength of the US Dollar.
Our fourth quarter revenue was $1,458 million (2022: $1,365 million), up 6.4% on an underlying basis. Fourth quarter reported revenue growth was 6.8% after a 40bps foreign exchange benefit.
Trading profit for 2023 was up 7.6% on a reported basis to $970 million (2022: $901 million). The trading profit margin was 17.5% (2022: 17.3%), an improvement on the prior year and in line with our full year guidance. The operating profit was $425 million (2022: $450 million).
The strong revenue growth and improved trading profit margin in 2023 were built upon the early benefits from our actions to transform Smith+Nephew. The 12-Point Plan is on track, with progress beginning to translate into financial outcomes, and our innovation strategy is delivering a strong pipeline of new products that we expect to drive future performance.
Delivering our Strategy for Growth and 12-Point PlanSmith+Nephew's Strategy for Growth is based on three pillars:
- First, Strengthen the foundations of Smith+Nephew. A solid base in commercial and manufacturing will enable us to serve customers sustainably and efficiently, and deliver the best from our core portfolio.
- Second, Accelerate our growth profitably, through more robust prioritisation of resources and investment, and with continuing customer focus.
- Third, continue to Transform ourselves for higher long-term growth, through investment in innovation and acquisitions.
In July 2022 we announced our 12-Point Plan to fundamentally change the way Smith+Nephew operates, accelerating delivery of our Strategy for Growth and transforming to a consistently higher-growth company. The 12-Point Plan supports the first two pillars of the Strategy for Growth and is focused on:
- Fixing Orthopaedics, to regain momentum across hip and knee implants, robotics and trauma, and win share with our differentiated technology;
- Improving productivity, to support trading profit margin expansion; and
- Further accelerating growth in our already well-performing Advanced Wound Management and Sports Medicine & ENT business units.
Since inception we have measured our progress across the 12-Point Plan through a set of internal KPIs to drive accountability.
The 12-Point Plan is on track and starting to deliver financial outcomes. Work will continue in 2024, with further financial progress expected to follow across the year and in 2025.
Fixing OrthopaedicsWe have made solid progress on fixing much of Orthopaedics, and laid the foundations for further improvement. Overall, 2023 full year business unit growth was 5.7% underlying (4.8% reported), strongly ahead of last year's growth, which was 1.9% underlying (-2.0% reported). Performance has improved in Hip and Knee Implants outside of the US, and globally in Other Reconstruction (which includes robotics) and Trauma & Extremities. Recovery has been slower to come through in US Reconstruction, especially in US Knee Implants.
Product availability has been central to these variances in performance. By year end, across Orthopaedics, on the percentage of customer order lines filled (measured by line-item fill rates (LIFR)), we had closed more than 95% of the gap between the low point and our target of being in line with industry standard. Within this, in US Reconstruction there are still some areas of inconsistent product availability, which, together with slower than anticipated set deployments and some expected impact from sales force change, limited our ability to win new business. Through the 12-Point Plan we are continuing to address the factors that have undermined performance in US Reconstruction.
We are making headway on inventory through better sales and operations planning, improving forecasting and bringing the mix of what we manufacture into line with demand. By the end of 2023, inventory levels for all business units were starting to come down as we expanded recent product launches, consumed raw materials and completed and deployed new instrument sets. We turned a corner in 2023, and brought Days Sales of Inventory down by 5% for the year, after several years of increase, and expect to continue to drive improvement in 2024 and beyond.
A significant driver of the overall Orthopaedics improvements has been the new demand and supply planning process which has brought a deeper level of specificity and collaboration between our operations and commercial teams. We are also benefiting from our actions to improve logistics and redeploy implants and instrument sets from lower to higher-utilisation customers.
We have invested in improving our commercial execution. In 2023 we repositioned our offering and undertook deeper sales training for the Orthopaedics team, and enhanced our incentive plans to better align reward with performance, sales mix, robotic placement and implant pull-through.
These steps are expected to help us address the performance in Hip and Knee Implants in the US, which remains a priority. At the same time, they will also ensure we sustain the progress we have delivered elsewhere.
In Trauma & Extremities, where we have successfully addressed availability of product and instrument sets for our EVOS◊ Plating system, we are focused on maintaining the improved growth delivered in the second half of 2023.
Improving ProductivityWe have made good progress on our actions to improve productivity, contributing around 160bps to our 2023 trading profit margin. Actions have included updating and standardising pricing strategies across our portfolio and reducing days sales outstanding. We are also making procurement savings to help mitigate cost inflation and drive productivity. During 2023 we deployed an enhanced supplier selection process to identify and award business to suppliers that better align to the global business unit strategies and long-term performance metrics, and better aligned global category strategies to unlock the Smith+Nephew buying power and leverage, helping to drive volume to the most preferred suppliers and reduce cost.
In line with our plan, work on manufacturing optimisation is at an early stage, with the benefits from network simplification and cost and asset efficiencies expected to support our mid-term margin improvement targets. The underlying work is progressing, with KPIs tracking accordingly. For instance, conversion cost, which is total direct and indirect cost to convert raw materials into finished goods as a percentage of sales, started to come down in the second half of 2023.
A better aligned supply and demand process has enabled us to critically assess our manufacturing capacity. From a network perspective we are reducing excess capacity, having exited one small site in France and announced the closures of two more in China and Germany. Over the last two years we have also reduced hiring and our reliance on contingent workers.
Further accelerating growth in Advanced Wound Management and Sports Medicine & ENTThe important third pillar of the 12-Point Plan is focused on building on the consistent above-market performance of our Advanced Wound Management and Sports Medicine & ENT business units. Progress is also coming through across this workstream.
Our negative pressure wound therapy business is benefitting from focused additional resource behind our sales force, delivering strong growth in 2023 across both our traditional RENASYS◊ Negative Pressure Wound Therapy System and our single-use PICO◊ Negative Pressure Wound Therapy System.
We are pleased with our progress across Ambulatory Surgical Centers (ASCs), as we more than tripled the pace of cross-business unit deals between our Orthopaedics and Sports Medicine businesses in 2023. Under the 12-Point Plan we have developed a coordinated approach across these business units overseen by a dedicated strategic sales team. We are building on the strong position established by our Sports Medicine business, which is already the preferred choice for a large proportion of the ASC market, and successfully introducing our Orthopaedics portfolio. The CORI Surgical System offers a broad range of indications and specialised tools to help accommodate the high growth of outpatient/ASC hip and knee implant procedures, with around a quarter of US placements of our CORI◊ Surgical System in 2023 being with ASC customers.
Creating value through InnovationInnovation through our R&D programme is central to our higher growth ambitions. In 2023, approaching half of our full year underlying revenue growth came from products launched in the last five years. Encouragingly, some of our key growth platforms like our robotics-enabled CORI◊ Surgical System, our EVOS◊ trauma plating platform and our REGENETEN◊ Bioinductive Implant for biological healing are not only contributing to growth today, but also have multi-year runways still ahead of them as we expand applications and launch in new markets.
In 2023 we delivered a good cadence of new product launches, completing 20 with development finished on a further two ahead of launch in 2024.
We delivered a number of important enhancements to our robotics-assisted CORI Surgical System. The CORIDigital Tensioner, a proprietary device for soft tissue balancing in knee replacement, and the only tensioner for robotics-assisted surgery, helps make planning more objective and eliminates inconsistencies in surgery from current manual or mechanical tools. Personalized Planning powered by AI and the RI.INSIGHTS◊ Data Visualization Platform gives surgeons a better understanding of how pre-operative surgical plans and intra-operative decision-making link to post-operative outcomes. A saw solution added versatility to appeal to a broader range of surgeons, making CORI the only solution to offer robotics-assisted burring and saw bone-cutting options and an application for revision knee surgery.
We introduced our AETOS◊ Shoulder System, an important part of our growth plans for Trauma & Extremities which will enable Smith+Nephew to compete effectively in the $1.7 billion shoulder market, which, at around 9% CAGR, is one of the fastest growing segments in Orthopaedics.
In Advanced Wound Management, we are at the early stages of rolling out the new RENASYS◊ EDGE Negative Pressure Wound Therapy System. RENASYS EDGE brings an important new option to customers looking for enhanced intuitiveness, simplicity and durability, especially important for home-care settings.
We also continued to invest behind our Sports Medicine portfolio, for instance launching REGENETEN in China, India and Japan.
Acquisition of CARTIHEAL◊ AGILI-C◊ Cartilage Repair ImplantOur M&A programme focuses on augmenting our R&D programmes with acquisitions of exciting technologies to enhance the product portfolio. During the year we announced the acquisition of CartiHeal, the developer of the CARTIHEAL AGILI-C Cartilage Repair Implant, a novel sports medicine technology for cartilage regeneration in the knee. We announced the completion of this acquisition on 10 January 2024, paying $180 million, with up to a further $150 million contingent on future financial performance.
CARTIHEAL AGILI-C is an off-the-shelf one-step treatment for osteochondral (bone and cartilage) lesions with a broader indication than existing treatments. It is indicated to treat a wide patient population, including those with lesions in knees with mild to moderate osteoarthritis, a previously unaddressed condition, as well as the approximately 700,000 patients that receive cartilage repair annually in the US.
The combination of REGENETEN and CARTIHEAL AGILI-C strengthens our leadership in Sports Medicine products that enable biological healing. We expect to use our market development and commercialisation expertise, including that built through REGENETEN and our successful knee repair business, to establish a new standard of care with this novel technology.
Fourth Quarter 2023 Trading UpdateOur fourth quarter revenue was $1,458 million (2022: $1,365 million), up 6.4% on an underlying basis (reported revenue growth of 6.8% after 40bps foreign exchange tailwind). There were 60 trading days in the quarter, in-line with 2022.
Fourth Quarter Consolidated Revenue Analysis31 December
31 December
Reported
Underlying
Acquisitions
Currency
2023
2022
growth
growth(i)
/disposals
impact
Consolidated revenue by business unit by product
$m
$m
%
%
%
%
Orthopaedics
576
549
4.9
4.9
-
-
Knee Implants
242
234
3.6
3.6
-
-
Hip Implants
155
150
3.0
3.6
-
(0.6)
Other Reconstruction(ii)
31
26
19.9
19.0
-
0.9
Trauma & Extremities
148
139
6.2
5.8
-
0.4
Sports Medicine & ENT
462
430
7.3
7.1
-
0.2
Sports Medicine Joint Repair
256
235
8.9
8.8
-
0.1
Arthroscopic Enabling Technologies
161
154
4.0
3.7
-
0.3
ENT (Ear, Nose and Throat)
45
41
10.7
10.7
-
-
Advanced Wound Management
420
386
9.0
7.8
-
1.2
Advanced Wound Care
185
179
3.3
1.4
-
1.9
Advanced Wound Bioactives
149
133
12.8
12.5
-
0.3
Advanced Wound Devices
86
74
16.1
14.9
-
1.2
Total
1,458
1,365
6.8
6.4
-
0.4
Consolidated revenue by geography
US
788
742
6.2
6.2
-
-
Other Established Markets(iii)
420
385
9.0
6.1
-
2.9
Total Established Markets
1,208
1,127
7.2
6.2
-
1.0
Emerging Markets
250
238
5.1
7.6
-
(2.5)
Total
1,458
1,365
6.8
6.4
-
0.4
(i) Underlying growth is defined in Note 1 on page 3
(ii) Other Reconstruction includes robotics capital sales, our joint navigation business and bone cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New Zealand
Fourth Quarter Business Unit Performance OrthopaedicsOur Orthopaedics business unit delivered revenue growth of 4.9% underlying (4.9% reported) in the quarter.
Knee Implants grew 3.6% (3.6% reported) and Hip Implants grew 3.6% underlying (3.0% reported). Knee performance was led by our JOURNEY II◊ Knee System. Hip growth was led by our POLAR3◊ Total Hip Solution and R3 Acetabular System. Double-digit growth in Knee Implants in Europe and China was offset by performance in the US, a decline of -3.8%, which reflected some areas of inconsistent product availability, slower than anticipated set deployments and the expected impact from sales force change. In Hip Implants we delivered double-digit growth in Europe offset by 1.1% growth in the US.
Other Reconstruction delivered revenue growth of 19.0% underlying (19.9% reported) with strong growth across robotics including a record quarter of placements of our CORI Surgical System in the US and following the launch of CORI in China last quarter.
Trauma & Extremities revenue was up 5.8% underlying (6.2% reported) with double-digit growth in the US as we successfully drive greater adoption of the EVOS◊ Plating System now availability has improved.
Sports Medicine & ENTOur Sports Medicine & ENT business unit delivered underlying revenue growth of 7.1% (7.3% reported) in the quarter. Excluding China, where the sector faces a headwind from distributors reducing inventory in anticipation of the Volume Based Procurement (VBP) programme, Sports Medicine & ENT grew 8.7% on an underlying basis (9.1% reported).
Sports Medicine Joint Repair delivered 8.8% underlying revenue growth (8.9% reported) led by strong double-digit growth from REGENETEN. Excluding China, Sports Medicine Joint Repair grew 12.0% underlying (12.5% reported).
Arthroscopic Enabling Technologies revenue grew 3.7% underlying (4.0% reported), with good growth from our COBLATION◊ resection range and patient positioning portfolio.
ENT revenue was up 10.7% underlying (10.7% reported) led by our tonsil and adenoid business where we have seen a return to more normalised procedure volumes after Covid.
Advanced Wound ManagementOur Advanced Wound Management business unit delivered underlying revenue growth of 7.8% (9.0% reported).
Advanced Wound Care revenue grew 1.4% underlying (3.3% reported) with good growth across our foam dressing and infection management portfolios offset by skin care.
Advanced Wound Bioactives delivered revenue growth of 12.5% underlying (12.8% reported), with strong growth from SANTYL◊ as our channel restocked following the temporary delay to shipments reported last quarter.
Advanced Wound Devices revenue was up 14.9% underlying (16.1% reported) driven by double-digit growth from both our traditional RENASYS◊ Negative Pressure Wound Therapy System and our single-use PICO◊ Negative Pressure Wound Therapy System.
Fourth Quarter Geographic PerformanceGeographically, revenue from our Established Markets was up 6.2% underlying (7.2% reported). Within this, the US was up 6.2% underlying (6.2% reported) and Other Established Markets was up 6.1% underlying (9.0% reported). Emerging Markets revenue growth of 7.6% underlying (5.1% reported) included the impact of the VBP headwind in Sports Medicine in China.
Full Year 2023 Consolidated AnalysisSmith+Nephew results for the year ended 31 December 2023:
Reported
2023
2022
growth
$m
$m
%
Revenue
5,549
5,215
6.4
Operating profit
425
450
Acquisition and disposal related items
60
4
Restructuring and rationalisation costs
220
167
Amortisation and impairment of acquisition intangibles
207
205
Legal and other
58
75
Trading profit(i)
970
901
7.6
¢
¢
Earnings per share ('EPS')
30.2
25.5
18.2
Acquisition and disposal related items
7.3
15.1
Restructuring and rationalisation costs
20.7
15.8
Amortisation and impairment of acquisition intangibles
18.6
18.4
Legal and other
6.0
7.0
Adjusted Earnings per share ('EPSA')(i)
82.8
81.8
1.3
- See Other Information on pages 34 to 38
Our full year revenue was $5,549 million (2022: $5,215 million), up 7.2% on an underlying basis. Reported growth was 6.4% including a foreign exchange headwind of -80bps.
The gross profit was $3,819 million (2022: $3,675 million) with gross margin 68.8% (2022: 70.5%). Operating profit was $425 million (2022: $450 million) after acquisition and disposal related items, restructuring and rationalisation costs, amortisation and impairment of acquisition intangibles and legal and other items (see Other Information on pages 34 to 38).
Trading profit was up 7.6% on a reported basis to $970 million (2022: $901 million), with a trading profit margin of 17.5% (2022: 17.3%). The 20bps margin expansion reflects benefits of c. 160bps from productivity improvements and c. 110bps from revenue growth leverage offset by headwinds of c. -130bps from input cost inflation and c. -120bps from transactional foreign exchange (see Note 2 to the Financial Statements for global business unit trading profit).
Acquisition and disposal-related items primarily relate to the acquisition of CartiHeal and impairment of Engage Surgical's goodwill, partially offset by credits relating to remeasurement of contingent consideration from prior year acquisitions. During 2023, management evaluated the commercial viability of Engage's partial knee system products and concluded that they should be discontinued. A total of $109 million of Engage's assets and liabilities were written off as a result of this action (see Note 2 to the Financial Statements).
Restructuring costs totalled $220 million, including costs related to the efficiency and productivity work underway across the Group under the 12-Point Plan. Overall, incremental benefits of around $68 million were recognised during the year.
The net interest charge within reported results was $98 million (2022: $66 million) which reflects a full year of interest expense on our debut €500 million Euro bond issued in October 2022 and higher drawings on the Group's revolving credit facility.
Reported tax for the year to 31 December 2023 was a charge of $27 million (2022: charge of $12 million) with the low charge being attributed to tax credits on non-trading items such as restructuring and rationalisation expenses and amortisation of acquisition intangibles. The tax rate on trading results for the year to 31 December 2023 was 16.2% (2022: 16.3%) (see Note 4 to the Financial Statements and Other Information on pages 34 to 38 for further details on taxation).
Adjusted earnings per share ('EPSA') was 82.8¢ (165.6¢ per ADS) (2022: 81.8¢ per share). Basic earnings per share ('EPS') was 30.2¢ (60.4¢ per ADS) (2022: 25.5¢ per share), reflecting restructuring costs, acquisition and disposal related items, amortisation and impairment of acquisition intangibles and legal and other items incurred.
Cash generated from operations was $829 million (2022: $581 million) and trading cash flow was $635 million (2022: $444 million). The increase was primarily driven by reduced working capital outflow as inventory began to fall by year-end (see Other Information on pages 34 to 38 for a reconciliation between cash generated from operations and trading cash flow). As a result of the working capital movement, the trading profit to cash conversion ratio improved to 65% (2022: 49%).
In 2023 the Group concluded a refinancing of our $1 billion revolving credit facility (RCF). The RCF maturity has been extended to 2028 with options to extend to 2030. The Group also repaid $130 million of private placement debt. $405 million of private placement debt will mature in 2024. The Group's net debt, excluding lease liabilities, at 31 December 2023 was $2,577 million with committed facilities of $3.6 billion (see Note 6 to the Financial Statements).
DividendThe Board is recommending a Final Dividend of 23.1¢ per share (46.2¢ per ADS) (2022: 23.1¢ per share). Together with the Interim Dividend of 14.4¢ per share (28.8¢ per ADS), this will give a total distribution of 37.5¢ per share (75.0¢ per ADS), unchanged from 2022. Subject to confirmation at our Annual General Meeting, the Final Dividend will be paid on 22 May 2024 to shareholders on the register at the close of business on 2 April 2024.
OutlookThe Group is today providing guidance for 2024 and reconfirming its midterm targets.
2024 Guidance
For 2024 we are targeting another year of strong revenue growth and a further expansion of trading profit margin.
For revenue, we expect to deliver underlying revenue growth in the range of 5.0% to 6.0%. Within this, we expect continued strong growth from our Sports Medicine & ENT and Advanced Wound Management business units, and further improvement in Orthopaedics as we continue to execute on the 12-Point Plan. On a reported basis the guidance equates to a range of around 4.6% to 5.6% based on exchange rates prevailing on 21 February 2024.
In terms of phasing, we expect the first quarter revenue growth rate to reflect the tough US comparator from the good start to 2023, as well as a slower quarter from Advanced Wound Bioactives following the strong fourth quarter and one less trading day year-on-year. We expect the business to return to higher growth across the remainder of the year.
We expect to deliver a trading profit margin of at least 18.0%. Within this, headwinds are expected to include continuing inflation, a -70bps impact from China VBP within Sports Medicine Joint Repair, and around -30bps from transactional foreign exchange, plus a small impact from the acquisition of CartiHeal. We expect to more than offset these headwinds through positive operating leverage from revenue growth and productivity improvements and cost saving initiatives from the 12-Point Plan.
As in prior years, we expect the trading profit margin to be higher in the second half than in the first half, although with a less marked step up than in 2023.
The tax rate on trading results for 2024 is forecast to be in the range of 19% to 20%, subject to any material changes to tax law or other one-off items.
Midterm targets
Our midterm targets are unchanged. The Group is focused on delivering underlying revenue growth of consistently 5%+ and expanding our trading profit margin.
We continue to target at least 20% trading profit margin in 2025. While headwinds such as persistent inflation, foreign exchange movements and China VBP in Sports Medicine Joint Repair make that a demanding target, we do expect to see an increasing impact from the 12-Point Plan, including the benefits of our manufacturing optimisation programme, which are expected to flow through strongly in 2025.
Forward calendarThe Q1 2024 Trading Report will be released on 1 May 2024.
About Smith+NephewSmith+Nephew is a portfolio medical technology business focused on the repair, regeneration and replacement of soft and hard tissue. We exist 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 18,000 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 business units of Orthopaedics, Sports Medicine & ENT and Advanced Wound Management.
Founded in Hull, UK, in 1856, we now operate in more than 100 countries, and generated annual sales of $5.5 billion in 2023. 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 X, LinkedIn, Instagram or Facebook.
Forward-looking StatementsThis document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading profit 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: conflicts in Europe and the Middle East, economic and financial conditions in the markets we serve, especially those affecting healthcare 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 and financial 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 disposals, 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; relationships with healthcare professionals; reliance on information technology and cybersecurity; disruptions due to natural disasters, weather and climate change related events; changes in customer and other stakeholder sustainability expectations; changes in taxation regulations; effects of foreign exchange volatility; 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, which is available on the SEC's website at www. sec.gov, 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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Smith & Nephew plc published this content on 27 February 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 March 2024 09:24:04 UTC.
