Smith & Nephew plc (LON:SN), the global medical technology business, has announced that it expects a second quarter underlying1 revenue decline of around -29%. This is in line with our previously published outlook for underlying revenue for the quarter to be substantially down year on year, as major markets were impacted by the COVID-19 pandemic.
We are encouraged by the improving performance as the quarter progressed, with underlying revenue declines of -47% in April (as previously disclosed), -27% in May, and around -12% in June. Performance was correlated strongly with the easing of lockdown restrictions and resumption of elective surgeries. Nevertheless, there continues to be significant uncertainty and geographical variation. The impact of the COVID-19 pandemic has been most pronounced on our Orthopaedic Reconstruction, Sports Medicine and ENT businesses, driven by lower levels of elective surgery in the quarter. Our Advanced Wound Management and Trauma businesses have been more resilient.
As a result of the trading performance across the first and second quarters, we continue to expect that the first half trading margin will be substantially down on the prior year. An update on this, and our progress across the Group on controlling discretionary costs, will be included with our second quarter and first half results, which will be reported as planned on 29 July 2020.
Further to the announcement on 9 April 2020, Anne-Francoise Nesmes will join Smith & Nephew as Chief Financial Officer and join the Board as an Executive Director on 27 July 2020 (ref Listing Rule 9.6.12 R).
1. 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 Smith & Nephew’s internal reporting systems and are readily identifiable.