Smith & Nephew revenues and profits impacted by COVID-19

Smith & Nephew plc

Smith & Nephew plc (LON:SN), the global medical technology business, reports results for the fourth quarter and full year ended 31 December 2020:

     31 Dec
2020
$m
31 Dec
2019
$m
Reported
growth
%
Underlying
growth
%
Fourth Quarter Results1,2     
Revenue 1,3261,407 -5.8  -7.1 
      
Full Year Results1,2     
Revenue 4,5605,138 -11.2  -12.1 
Operating profit 295815  
Operating profit margin (%) 6.515.9  
EPS (cents) 51.368.6  
      
Trading profit 6831,169  
Trading profit margin (%) 15.022.8  
EPSA (cents) 64.6102.2  

Notes

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. See Other Information on pages 36 to 39 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.

2.    Certain items included in ‘trading results’, such as trading profit, trading profit margin, tax rate on trading results, trading cash flow, trading profit to 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 36 to 39 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.

2020 Full Year Highlights

·    Full Year revenue $4,560 million, down -11.2% reported and -12.1% underlying

·    Trading profit margin 15.0% reflected lower gross margins, negative leverage from SG&A costs and increased R&D investment

·    Operating profit margin of 6.5% included restructuring costs related to efficiency programmes

·    Cash generated from operations $972 million (2019: $1,370 million), trading cash flow $690 million (2019: $970 million), trading profit to cash conversion ratio 101% (2019: 83%)

·    Increased R&D investment, with recent product launches performing well

·    Delivered acquisitions in extremities, ENT and ASC segments, securing new innovation to support sustainable growth

·    Full Year 2020 dividend distribution of 37.5¢ per share, unchanged from 2019, reflecting confidence in the business and strength of the balance sheet 

2021 Priorities

·    Return to top-line growth and recapture momentum, driven by our differentiated product portfolio and pipeline, additional investment in R&D, and recent acquisitions

·    Deliver further operational improvement across the Group, including in manufacturing and supply chain, freeing up resources for future investment

·    Continue to respond effectively to COVID-19, enhancing flexible working for employees, supporting customers and maintaining cost control measures

2021 Outlook

·    The outlook reflects the likely continuation of COVID-19 impact during the first half of 2021 and the uncertainty regarding the timing and pace of recovery

Q4 2020 Highlights

·    Q4 revenue $1,326 million, down -5.8% reported and -7.1% underlying, as new COVID-19 restrictions impacted elective surgeries in many markets

·    Q4 slowdown less severe than Q2 decline as healthcare systems adapted to manage COVID-19 patients while maintaining some level of elective surgeries

·    Decisions to maintain investment and focus on recovery readiness drove momentum across the Group

o  Hip Implant outperformance in US as OR3O roll-out continues

o  Positive reception to CORI robotics system in first full quarter post-launch

o  Sports Medicine Joint Repair included strong growth from REGENETEN 

o  Improved underlying trajectory in Advanced Wound Management in US and Europe

Roland Diggelmann, Chief Executive Officer, said:

“In 2020 we continued to strengthen Smith+Nephew through increased investment in R&D, new product launches and strategic acquisitions in our higher growth segments. We achieved this while also managing unprecedented disruption from COVID-19. The resilience of the business and strength of the balance sheet also meant we are able to maintain our progressive dividend policy.

“We start 2021 with three clear priorities: to return to top-line growth and recapture momentum; to drive further operational improvement; and to continue to respond effectively to COVID-19. We will build on the progress we are starting to make in areas where we have recently invested and introduced innovation. We will again invest more in R&D and I am excited by the pipeline of new technologies approaching launch, and by the potential of our recent acquisitions.”

Analyst conference call

An analyst conference call to discuss Smith+Nephew’s fourth quarter and full year results will be held at 8.30am BST / 3.30am EST on 18 February 2021, details of which can be found on the Smith & Nephew website at http://www.smith-nephew.com/results.

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