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Smith+Nephew Fourth Quarter and Full Year 2020 Results

Building on our investments and focused on growth

18 February 2021

Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology business, reports results for the fourth quarter and full year ended 31 December 2020.

Acrobat Download a copy of the full announcement (PDF)

 

31 Dec

31 Dec

Reported

Underlying

 

2020

2019

growth

growth

 

$m

$m

%

%

Fourth Quarter Results1,2

 

 

 

 

Revenue

1,326

1,407

 -5.8 

 -7.1 

 

 

 

 

 

Full Year Results1,2

 

 

 

 

Revenue

4,560

5,138

 -11.2 

 -12.1 

Operating profit

295

815

 

 

Operating profit margin (%)

6.5

15.9

 

 

EPS (cents)

51.3

68.6

 

 

 

 

 

 

 

Trading profit

683

1,169

 

 

Trading profit margin (%)

15.0

22.8

 

 

EPSA (cents)

64.6

102.2

 

 


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
    • Hip Implant outperformance in US as OR3O roll-out continues
    • Positive reception to CORI robotics system in first full quarter post-launch
    • Sports Medicine Joint Repair included strong growth from REGENETEN
    • 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.

 

Enquiries

Investors

 

Andrew Swift,

+44 (0) 1923 477433

Smith+Nephew

 

 

 

Media

 

Charles Reynolds

+44 (0) 1923 477314

Smith+Nephew

 

 

 

Susan Gilchrist / Ayesha Bharmal

+44 (0) 20 7404 5959

Brunswick

 

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.

Smith+Nephew Fourth Quarter Trading and Full Year 2020 Results

Overview of 2020

In 2020 the Group faced unprecedented challenges as COVID-19 disrupted our business in every market. Trading across the year was impacted, with the second quarter being particularly badly affected as healthcare systems shut down elective procedures to focus on providing treatment to COVID-19 patients.

Throughout the year we prioritised the health and safety of employees, continued to support our customers and communities, and at the same time undertook important work to strengthen the Group. This included record investment in R&D, launching multiple new products including digital and robotic surgical systems, and making strategic acquisitions in higher growth segments such as extremities.

The combination of the lower revenue and the sustained commitment to investment, including the increase in R&D, had an impact on margin, and consequently earnings, for the year.

Fourth Quarter 2020 Trading Update

Our fourth quarter (Q4) revenue was $1,326 million (2019: $1,407 million), a -7.1% decline on an underlying basis. Revenue was down -5.8% on a reported basis, including a 130bps benefit from foreign exchange.

Unless specified as ‘reported’ all revenue growth rates throughout this document are underlying increases/decreases after adjusting for the effects of currency translation and the impact of acquisitions and disposals. All percentages compare to the equivalent 2019 period. Q4 2020 comprised 64 trading days, two more than the comparable Q4 2019 period.

Overview of the Fourth Quarter 2020

Q4 revenue performance reflected the impact of increased rates of COVID-19 infection from mid-October onwards. This was felt particularly in the US and Europe, where more procedures were postponed following the reintroduction of restrictions. Encouragingly, the overall effect on our business was less severe than seen earlier in the year as healthcare systems maintained non-COVID care at a higher rate than in Q2.

Our Established Markets declined -5.4% (-3.5% reported) in Q4. Within this, the US, our largest market globally, was down -4.9% (-4.9% reported) and Other Established Markets was down -6.2% (-1.3% reported).

Emerging Markets revenue was down -14.9% (-16.0% reported) as significant COVID-related restrictions in India and many Latin American markets impacted performance. In China we continued to generate strong end-user demand although this was offset by some shifts in stocking patterns in the quarter.

As in previous months, the impact of COVID was most pronounced on our Orthopaedic Reconstruction, Sports Medicine and ENT businesses, driven by lower levels of elective surgery. Our Advanced Wound Management and Trauma businesses remained more resilient.

Fourth Quarter Consolidated Revenue Analysis

 

31 December 

31 December 

Reported

Underlying

Acquisitions

Currency

 

2020

2019(i)

growth

Growth(ii)

/disposals

impact

Consolidated revenue by franchise

$m

$m

%

%

%

%

Orthopaedics

 545

 600

 -9.1 

 -10.2 

 -

 1.1

Knee Implants

 237

 279

 -15.1 

 -16.2 

 -

 1.1

Hip Implants

 162

 160

 1.2

 -0.5 

 -

 1.7

Other Reconstruction(iii)

 16

 30

 -44.6 

 -45.6 

 -

 1.0

Trauma

 130

 131

 -0.7 

 -1.3 

 -

 0.6

 

 

 

 

 

 

 

Sports Medicine & ENT

 408

 424

 -3.9 

 -5.2 

 -

 1.3

Sports Medicine Joint Repair

 223

 221

 1.0

 -0.3 

 -

 1.3

Arthroscopic Enabling Technologies

 158

 163

 -3.5 

 -5.0 

 -

 1.5

ENT (Ear, Nose and Throat)

 27

 40

 -32.0 

 -33.1 

 -

 1.1

 

 

 

 

 

 

 

Advanced Wound Management

 373

 383

 -2.8 

 -4.4 

 -

 1.6

Advanced Wound Care

 183

 182

 0.6

 -2.1 

 -

 2.7

Advanced Wound Bioactives

 122

 135

 -9.8 

 -9.9 

 -

 0.1

Advanced Wound Devices

 68

 66

 2.4 

 0.2 

 -

 2.2

 

 

 

 

 

 

 

Total

 1,326

 1,407

 -5.8 

 -7.1 

 -

 1.3

 

 

 

 

 

 

 

Consolidated revenue by geography

 

 

 

 

 

 

US

 689

 724

 -4.9 

 -4.9 

 -

 -

Other Established Markets(iv)

 425

 431

 -1.3 

 -6.2 

 -

 4.9

Total Established Markets

 1,114

 1,155

 -3.5 

 -5.4 

 -

 1.9

Emerging Markets

 212

 252

 -16.0 

 -14.9 

 -

 -1.1 

Total

 1,326

 1,407

 -5.8 

 -7.1 

 -

 1.3

(i)   Included within the Q4 2019 analysis is a reclassification of $2 million of revenue formerly included in the Advanced Wound Care franchise which is now included in the Advanced Wound Bioactives franchise in order to present consistent analysis to the Q4 2020 results. There has been no change in total revenue for the quarter ended 31 December 2019

(ii)  Underlying growth is defined in Note 1 on page 3

(iii)  Other Reconstruction includes robotics capital sales, the OJR business acquired from Brainlab and bone cement

(iv) Other Established Markets are Europe, Canada, Japan, Australia and New Zealand

 

Fourth Quarter Franchise Performance

Orthopaedics

Revenue declined -10.2% (-9.1% reported) in our Orthopaedics franchise in the quarter. Within this, Knee Implants was down -16.2% (-15.1% reported) and Hip Implants down -0.5% (+1.2% reported). The robust Hip Implant performance included good growth from the REDAPT Revision Hip System and a growing contribution from the recently launched OR3O Dual Mobility Hip System, helping us outperform the market in the US during the quarter. The pattern we saw earlier in the year of Hip Implants outperforming Knee Implants continued as hip procedures were prioritised since they are often more debilitating and there are more emergency cases, as well as the on-going drag on knee performance ahead of the launch of our cementless knee. Other Reconstruction revenue was down -45.6% (-44.6% reported). This includes the first full quarter of sales of our new handheld robotics platform, the CORI Surgical System, following the US launch. We saw encouraging uptake from both new and existing customers with reported revenue reflecting early prioritisation of upgrades, contract structures, and timing of shipping orders. In Trauma revenue declined -1.3% (-0.7% reported), similar to Q3, with the EVOS System again performing strongly and generating double–digit growth in the quarter.

Sports Medicine & ENT

Revenue from our Sports Medicine & ENT franchise was down -5.2% (-3.9% reported) in the quarter, with Sports Medicine Joint Repair -0.3% (+1.0% reported), Arthroscopic Enabling Technologies -5.0% (-3.5% reported) and ENT
-33.1% (-32.0% reported). Sports Medicine Joint Repair was driven by our continued strength in shoulder repair, including strong growth for REGENETEN and a good start from HEALICOIL KNOTLESS Suture Anchor launched in September. ENT continued to be impacted by caution over restarting procedures and lower rates of ENT infections.  

Advanced Wound Management

Revenue from our Advanced Wound Management franchise declined -4.4% (-2.8% reported). Advanced Wound Care (AWC) declined by -2.1% (+0.6% reported). Our focus on commercial execution led to an improved performance across most regions, offset by a slow quarter in Asia Pacific related to the stocking-patterns described above. The Advanced Wound Bioactives (AWB) decline of -9.9% (-9.8% reported) reflected the phasing of sales of SANTYLaround year-end. End-market demand for the acquired skin substitute products GRAFIX and STRAVIX grew in the quarter. Advanced Wound Devices (AWD) delivered revenue growth of +0.2% (+2.4% reported), led by growth from our traditional negative pressure product RENASYS in the US.

Full Year 2020 Consolidated Analysis

Smith+Nephew results for the year ended 31 December 2020:

 

 

 

Reported

 

2020

2019

growth

 

$m

$m

%

Revenue

 4,560

 5,138

 -11.2 

Operating profit

 295

 815

 -64 

Acquisition and disposal related items

 4

 32

 

Restructuring and rationalisation costs

 124

 134

 

Amortisation and impairment of acquisition intangibles

 171

 143

 

Legal and other

 89

 45

 

Trading profit(i)

 683

 1,169

 -42 

 

¢

¢

 

Earnings per share ('EPS')

 51.3

 68.6

 -25 

Acquisition and disposal related items

 (0.1)

 3.4

 

Restructuring and rationalisation costs

 9.6

 12.5

 

Amortisation and impairment of acquisition intangibles

 14.3

 12.6

 

Legal and other

 5.7

 5.1

 

UK tax litigation

 (16.2)

 -

 

Adjusted Earnings per share ('EPSA')(i)

 64.6

 102.2

 -37 

(i) See Other Information on pages 36 to 39

 

Full Year 2020 Analysis

Our full year revenue was $4,560 million (2019: $5,138 million), down -12.1% on an underlying basis. On a reported basis revenue declined -11.2%, including a foreign exchange headwind of -20bps and 110bps benefit from acquisitions.

Group trading profit was $683 million in 2020 (2019: $1,169 million). The trading profit margin was 15.0% (2019: 22.8%). This reflects the impact of COVID-19 with lower gross margins resulting from factory underutilisation and an increase in provisions, and negative leverage from SG&A costs, as well as increased investment in R&D and dilution from foreign exchange and acquisitions, offset by savings realised from short term mitigating actions and our efficiency programmes.

Global franchise trading profit performance was impacted by COVID-19, with each franchise profit declining year-on-year. The impact was greatest in our Orthopaedics and Sports Medicine & ENT franchises as they were more exposed to the postponement of elective procedures (see Note 2 to the Condensed Consolidated Financial Statements (Financial Statements) for further detail). 

The APEX efficiency programme, initiated at the end of 2017, incurred restructuring costs of $49 million in 2020. APEX is now substantially complete and, when finalised, will have delivered annualised benefits of around $190 million, $30 million more than originally guided, for a one-off cost of around $290 million, $50 million more than originally planned.

A new programme focused mostly on driving efficiencies in our operations and supply chain and, to a lesser extent, on improvements in our commercial organisation, is now under way, as discussed below. This incurred costs of $75 million in 2020.

Reported operating profit of $295 million (2019: $815 million) was after restructuring costs, as well as acquisition and disposal related items, amortisation and impairment of acquisition intangibles and legal and other items incurred in the year (see Other Information on pages 36 to 39).

Cash generated from operations was $972 million (2019: $1,370 million) and trading cash flow was $690 million (2019: $970 million) (see Other Information on pages 36 to 39 for a reconciliation between cash generated from operations and trading cash flow). The trading profit to cash conversion ratio was 101% (2019: 83%) as a result of working capital movements.

Smith+Nephew has a strong balance sheet with access to significant liquidity and continues to adopt the going concern basis in preparing these Financial Statements (see Note 1 and Note 6 to the Financial Statements for further detail).

In October we closed our debut USD bond with proceeds of $1 billion (before expenses and underwriting discounts). This provided attractive long-term funding which will be used to invest in delivering the Group’s strategic imperatives.

At 31 December 2020, the Group had net debt of $1.7 billion (excluding lease liabilities), compared to committed facilities of $4.5 billion (see Note 6 to the Financial Statements for a reconciliation of net debt). The leverage ratio was 1.8x at year-end (see Other Information on pages 36 to 39).

Reported tax for the year to 31 December 2020 was a credit of $202 million (2019: charge of $143 million). This reflects refunds and tax credits due to the successful UK tax litigation outcome (see Note 3 to the Financial Statements), releases of provisions following the conclusion of tax audits and other settlements, and deductibility of non-trading items partially offsetting trading profits. The tax rate on trading results for the year to 31 December 2020 was 11.3% and included a one-off benefit from the tax provision releases (2019: 19.1%) (See Note 3 to the Financial Statements and Other Information on pages 36 to 39 for further details on taxation).

Adjusted earnings per share (‘EPSA’) was 64.6¢ (129.2¢ per ADS) (2019: 102.2¢). Basic earnings per share (‘EPS’) was 51.3¢ (102.6¢ per ADS) (2019: 68.6¢), reflecting restructuring costs, acquisition and disposal related items, amortisation and impairment of acquisition intangibles and legal and other items incurred, partially offset by the reported tax credit of $202 million. 

Dividend

The Board, having reflected upon the resilience of the business and the strength of our balance sheet, is recommending a Final Dividend of 23.1¢ per share (46.2¢ per ADS). 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 2019 and in line with our progressive dividend policy. Subject to confirmation at our Annual General Meeting, the Final Dividend will be paid on 12 May 2021 to shareholders on the register at the close of business on 6 April 2021.

 

2020 Strategic Highlights

Launching New Innovation

Smith+Nephew is an innovation-led business. In 2020 we invested a record $307 million in R&D, up 5.1% year-on-year, and delivered several important product launches.

In Orthopaedics this included a new handheld robotics platform, the CORI Surgical System, available for both unicompartmental and total knee arthroplasty. We launched RI.HIP NAVIGATION for total hip arthroplasty, designed to help maximise accuracy and reproducibility by delivering patient-specific component alignment. We also launched the JOURNEY II Unicompartmental Knee System, an important option as partial knee procedures are less invasive and reduce the amount of natural bone removed.

In Sports Medicine we introduced the INTELLIO Connected Tower Solution, which wirelessly connects and remotely controls multiple Sports Medicine systems from outside the sterile field. We believe this is an ideal solution for both hospitals and Ambulatory Surgery Centers (ASC) where space is at a premium. The HEALICOIL KNOTLESS Suture Anchor, featuring our advanced biocomposite REGENESORB Material, expanded our advanced healing solutions for rotator cuff repair.

We also developed new offerings for the growing ASC segment, which we view as a strategic cross-franchise opportunity where we are well-positioned as an established leader through our Sports Medicine franchise. In 2020 we launched Positive Connections, a unique combination of leading technologies, partnerships, programmes and training to benefit patients and healthcare providers. This includes ARIA, a digital care management platform that promotes engagement between patients and providers to support the overall patient experience before and after surgery.

Acquisitions

Investing in businesses and technologies in higher-growth segments is at the core of our acquisition strategy.

In September 2020 we announced the $240 million acquisition of the Extremity Orthopaedics business of Integra LifeSciences Holdings Corporation. This acquisition, which was completed in January 2021, will significantly strengthen our extremities business by adding a combination of a focused sales channel, complementary shoulder replacement and upper and lower extremities portfolio, and an exciting new product pipeline.

In Q1 2020 we acquired Tusker Medical, Inc., the developer of Tula, a new system for in-office delivery of ear tubes to treat recurrent or persistent ear infections. This FDA-approved ‘Breakthrough-designated Device’ is the first system that can be used to place ear tubes in young children using local anaesthesia in the physician-office setting. Tula is highly complementary to our existing ENT portfolio, with the same customer and patient populations. Other acquisitions in 2020 included two digital technology products that formed the basis for ARIA.

Delivering Record-levels Of Medical Education

In 2020 a record 185,000 healthcare professionals attended our courses globally during the year, with nearly 80% delivered virtually compared to just 11% during 2019. Our new online global medical education programme was accredited by the Royal College of Surgeons of England. Launched in response to COVID-19, the programme was designed to support the development of surgeons by providing educational webinars on the safe and effective use of Smith+Nephew products as well as surgical techniques.

2021 Priorities

Our three priorities for 2021 build on the work undertaken and investments made in 2020 and are underpinned by our long-term Strategic Imperatives.

  1. Return to top-line growth and recapture momentum
  2. Deliver further operational improvement across the Group
  3. Continue to respond effectively to COVID-19

Return to Top-line Growth and Recapture Momentum

Our first priority for 2021 is to return to top-line growth and recapture the momentum we were building prior to COVID-19, with the ultimate aim of increasing earnings through operating leverage. This priority aligns with the first three of our Strategic Imperatives targeted at improving revenue growth.

Our focus is to drive higher returns from our differentiated product portfolio. Our recent experience of launching innovative products demonstrates that our emphasis on commercial excellence can enhance growth. Many of our recent new product launches are at early stages, and there is considerable scope to expand them both to new customers, and into new markets. As an example, later this year our new robotics platform CORI will launch in Europe and India, important markets for surgical robotics. 

In 2021 we expect to again invest more in R&D as we continue to develop innovation that improves outcomes for patients and customers and meets unmet clinical needs. We have a strong pipeline across the franchises with many launches planned, including further digital technologies, subject to completion of necessary regulatory reviews, clearances and approvals. These include a cementless knee, a next-generation single-use negative pressure wound therapy system and upgrades to our robotics and connected tower platforms. We also have a significant programme of innovation planned for China, including new products made in China for China.

We also expect to make progress in delivering value from recently acquired assets. In particular there are opportunities to drive synergistic growth in Trauma & Extremities, Sports Medicine Joint Repair, ENT and Advanced Wound Bioactives. For instance, the acquired Sports Medicine products REGENETEN and NOVOSTITCH, which have been well received in the US, are only at the start of their launch in other markets. The Extremity Orthopaedics business, acquired in January 2021, is expected to deliver strong growth, and the Tula System has the potential to transform tympanostomy tube treatment of children as ENT surgeries restart.

Our business development team continues to seek further value-creating opportunities focused on high growth segments.

Deliver Further Operational Improvement Across The Group

Our second priority for 2021 is to drive further operational improvement across Smith+Nephew in order to provide more resources for investment in the mid-term, including in R&D. This priority aligns to our Strategic Imperative to become the best owner.

We are now taking the next step in improving our long-term efficiency, continuing a programme to transform our operations. This is expected to deliver around $200 million of annualised benefits by 2025 for a one-off cost of around $350 million.

One major component of the programme is to continue to optimise our manufacturing network, including introducing digital technologies and lean manufacturing. As previously announced, we are building a new facility in Malaysia, which will provide additional capacity in a low-cost location to support future growth. We have expanded our site in Costa Rica and are transforming it into a multi-franchise facility to manufacture PICO sNPWT for the US market. We have also completed the transfer of Bioactives manufacturing from Curaçao to our facility in Texas, US.

A second component under way is the outsourcing of our global warehousing and distribution functions in the US and Europe to a specialist third party partner. We expect to benefit from the greater scale and expertise of our partner, including their advanced warehouse automation.

We will also focus on other process efficiencies. We have already made progress on commercial optimisation, having completed buy-outs of a number of third-party sellers in some markets. Doing this brings us closer to our individual sales representatives and to our customers, as well as removing an additional layer of cost. In addition, we aim to simplify end-to-end processes in all parts of our business.

Continue To Respond Effectively To COVID-19

Protecting and supporting our employees remains our priority in our response to COVID-19. We are developing new ways to work, and have initiated a Workplace Unlimited programme to address employees’ needs for flexible working. We continue to invest in safety at our sites, such as wearable sensor technology to encourage social distancing.

We are also focused on how we can best support our customers in person and virtually. This includes innovating in how we deliver medical education for customers to support the safe and effective use of our products. In 2021 we will launch Education Unlimited, a new global website platform with medical education resources spanning all our franchises.

We remain determined to balance discretionary costs while at the same time preparing for recovery. As examples, travel remains restricted and company meetings have been moved online.  

Outlook

The impact of COVID-19 is likely to continue during the first half of 2021, and while there is still uncertainty on the timing of recovery, we have maintained our readiness and ability to respond.

In terms of revenue, we expect to deliver substantial underlying growth in 2021 compared to 2020. Within this, we expect our Hip Implants business to continue to outperform Knee Implants, our Sports Medicine & ENT franchise to perform strongly as markets recover, and for Advanced Wound Management’s growth trajectory to improve as recent commercial changes continue to deliver benefits.

In terms of profit margin, we expect an improved performance in 2021 over the prior year. Relative to 2019 (the year before COVID-19), we anticipate a headwind from the continuing impact of reduced production volumes on gross margin as well as dilution of around 100bps from the increased investment in R&D and around 150bps from the acquisitions completed in 2020 and so far in 2021. Foreign exchange will be an additional headwind of around 100bps.

The tax rate on trading results for 2021 is forecast to be in the range of 18-19%. This is subject to any material changes to tax law or other one-off items.

Forward calendar

The Q1 Trading Report will be released on 11 May 2021.

 

About Smith+Nephew

Smith+Nephew is a portfolio medical technology business that exists 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 franchises 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 $4.6 billion in 2020. 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 TwitterLinkedIn, Instagram or Facebook.

 

Forward-looking Statements

This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading 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: risks related to the impact of COVID-19, such as the depth and longevity of its impact, government actions and other restrictive measures taken in response, material delays and cancellations of elective procedures, reduced procedure capacity at medical facilities, restricted access for sales representatives to medical facilities, or our ability to execute business continuity plans as a result of COVID-19; economic and financial conditions in the markets we serve, especially those affecting health care providers, payers and customers (including, without limitation, as a result of COVID-19); 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 compliance risks and related investigative, remedial or enforcement actions; disruption to our supply chain or operations or those of our suppliers (including, without limitation, as a result of COVID-19); competition for qualified personnel; strategic actions, including acquisitions and dispositions, 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; 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, 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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