Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology business, reports results for the fourth quarter and full year ended 31 December 2022:
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| 31 Dec |
| 31 Dec |
| Reported |
| Underlying |
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| 2022 |
| 2021 |
| growth |
| growth |
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| $m |
| $m |
| % |
| % |
| Fourth Quarter Results1,2 |
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| Revenue |
| 1,365 |
| 1,346 |
| 1.4 |
| 6.8 |
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| Full Year Results1,2 |
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| Revenue |
| 5,215 |
| 5,212 |
| 0.1 |
| 4.7 |
| Operating profit |
| 450 |
| 593 |
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| Operating profit margin (%) |
| 8.6 |
| 11.4 |
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| EPS (cents) |
| 25.5 |
| 59.8 |
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| Trading profit |
| 901 |
| 936 |
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| Trading profit margin (%) |
| 17.3 |
| 18.0 |
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| EPSA (cents) |
| 81.8 |
| 80.9 |
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Q4 Trading Highlights1,2
- Q4 revenue of $1,365 million (2021: $1,346 million) up 6.8% on an underlying basis (1.4% reported growth after 540bps FX headwind)
- Strongest quarterly underlying revenue growth of 2022 with all franchises and geographies contributing.
Full Year Financial Highlights1,2
- Revenue of $5,215 million (2021: $5,212 million), up 4.7% on an underlying basis (0.1% reported growth after 460bps FX headwind)
- Trading profit of $901 million (2021: $936 million) with 17.3% trading profit margin (2021: 18.0%) reflecting higher inflation (operating profit $450 million (2021: $593 million))
- Cash generated from operations of $581 million (2021: $1,048 million) with trading cash flow of $444 million (2021: $828 million), primarily due to increased inventory
- EPSA 81.8¢ (2021: 80.9¢), EPS 25.5¢ (2021: 59.8¢)
- $150 million of 2022 share buyback programme completed
- Full year dividend of 37.5¢ per share (2021: 37.5¢ per share)
2022 Strategic Highlights
- Transforming Smith+Nephew with our 12-point plan to improve execution and drive Strategy for Growth, focused on fixing Orthopaedics, improving productivity, and accelerating growth in Advanced Wound Management and Sports Medicine
- Good early progress including reducing overdue orders and improving order fulfilment
- Continued cadence of new product launches contributing to growth
Outlook1,2
- For 2023, we are targeting:
- Underlying revenue growth expected in the range of 5.0% to 6.0% (5.0% to 6.0% reported)
- Trading profit margin expected to be at least 17.5%
- Midterm targets updated:
- Targeting 5%+ underlying revenue growth driven by return on innovation investments and execution of 12-point plan; and
- Trading profit margin expansion to at least 20% in 2025 driven by productivity improvements
Deepak Nath, Chief Executive Officer, said:
“We made good progress during 2022 and ended the year in a much stronger position than we started. We continued to outperform in Sports Medicine & ENT and Advanced Wound Management and, even though we are early in our work to fix Orthopaedics, performance improved here too.
“With our 12-point plan, we are fundamentally changing the way Smith+Nephew operates to drive higher growth and improve productivity. It is starting to deliver, and, as we progress through the two-year life of the plan, we expect further operational and financial benefits, including a reduction in inventory levels and cash conversion to return to historic levels. We are benefiting from our increased investment in innovation, with more than 60% of growth in 2022 coming from products launched in the last five years.
“We will continue to face macroeconomic headwinds in 2023. However, I believe the drivers of further growth are in place, including leading technologies across all three franchises and a clear path to improved execution in Orthopaedics. We expect to deliver both faster revenue growth and margin expansion in the coming year, and are setting a solid foundation for our midterm ambitions as we transform to a consistently higher growth company.”
Analyst conference call
An analyst conference call to discuss Smith+Nephew’s fourth quarter and full year results will be held 8.30am GMT / 3.30am EST on 21 February 2023, details of which can be found on the Smith+Nephew website at https://www.smith-nephew.com/en/about-us/investors/financial-resources#quarterly-reporting.
Enquiries
| Investors |
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| Andrew Swift | +44 (0) 1923 477433 |
| Smith+Nephew |
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| Media |
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| Charles Reynolds | +44 (0) 1923 477314 |
| Smith+Nephew |
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| Susan Gilchrist / Ayesha Bharmal | +44 (0) 20 7404 5959 |
| Brunswick |
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Notes
- 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 2021 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 32 to 36 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 32 to 36 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 2022 Results
Group revenue in 2022 was $5,215 million, an increase of 4.7% on an underlying basis (reported growth of 0.1% after 460bps headwind from foreign exchange primarily due to the strength of the US Dollar).
We exited the year with good momentum, with fourth quarter revenue up 6.8% on an underlying basis (reported growth of 1.4% including a 540bps foreign exchange headwind). All three global franchises contributed to this strong finish to the year, and all accelerated revenue growth over the first nine months.
Trading profit for 2022 was $901 million (2021: $936 million) with the trading profit margin of 17.3% (2021: 18.0%) reflecting the higher inflation that impacted the business across the year and the previously disclosed China volume-based-procurement (VBP) programme. The operating profit was $450 million (2021: $593 million).
In July 2022 we announced our new 12-point plan to accelerate delivery of our Strategy for Growth and realise our ambition to transform to a consistently higher-growth company. We are making good progress embedding the plan and are seeing early improvements. We also continued to launch innovative new products to drive future growth.
Delivering our Strategy for Growth
Smith+Nephew’s Strategy for Growth, announced in December 2021, 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.
The 12-point plan supports the first two pillars of the Strategy for Growth and will improve business performance by maximising the opportunities we have built, and addressing the challenges. Through the 12-point plan we are fundamentally changing the way we operate and deliver results.
The 12-point plan 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 franchises.
Since July we have embedded the teams and structures to drive this work, established internal KPIs to drive accountability, and have made meaningful early progress in delivery. We expect to continue to accumulate operational and financial benefits as we progress through the two-year life of the plan during which we are changing how we approach our customers, overhauling our supply chain, managing costs differently and driving better accountability.
Looking beyond the 12-point plan, from 2025 we will have strengthened our foundations and we expect to be delivering a consistently higher level of revenue growth. This step change in performance has been the goal of our strategy and investments in recent years. This will provide a platform from which we can make choices regarding future levels of investment to drive growth and/or further margin expansion.
Fixing Orthopaedics
In recent years our Orthopaedics performance has been held back by poor operational systems and commercial execution. Through the 12-point plan we are focused on addressing these challenges, including improving logistics and updating our demand and supply planning process to bring a deeper level of specificity and collaboration between our operations and commercial teams. Commercially, we are focused on winning share with our current portfolio through greater focus on differentiated products and procedural innovations, such as the robotics assisted CORI◊ Surgical System and our OXINIUM◊ portfolio of hip and knee implants.
While there is still much work to be done, we are pleased with our progress, including reducing our overdue orders by 35% from the peak in the first half of the year and improving the percentage of customer orders that are completely filled, measured by line-item fill rates (LIFR). In the US we have made a significant step to move non-instrument set LIFR towards a more normal industry level, with 16 percentage points of progress year-on-year.
Improving Productivity
The efficiency and productivity elements of the 12-point plan bring in a range of actions across the areas of cost of goods from our Global Operations and sales & marketing and general & administrative costs from our commercial and corporate activities.
In our global operations we opened a new high technology orthopaedics manufacturing facility in Malaysia. We also announced plans for a new Advanced Wound Management facility in the UK. Further benefits are expected to come from driving lean methodologies across our manufacturing operations and pursuing opportunities for additional network optimisation reducing overcapacity and direct procurement savings.
Areas of commercial opportunity include market exits from some structurally unattractive markets, such as trauma in China which we exited in 2022, causing a one-year headwind to growth but improving our value creation as a result. We are targeting efficiencies across our commercial and corporate structures as well as savings from indirect procurement and distribution.
In aggregate, the benefits from these actions are expected to result in more than $200 million of annual savings by 2025. The work to finalise the associated cost is ongoing and will be reported alongside our Q1 results on 26 April 2023.
Further accelerating growth in Advanced Wound Management and Sports Medicine & ENT
Our Advanced Wound Management franchise has delivered above market performance since 2021 following extensive work to improve commercial execution, and we expect to build on this strong position going forward. Growth drivers include the depth of our portfolio and extensive evidence-base. Both are differentiators and we see significant opportunities for further growth, particularly in Negative Pressure Wound Therapy, where we are focusing resource under the 12-point plan.
Our Sports Medicine franchise has delivered above market growth consistently for many years, building on our reputation for innovation and breadth of portfolio. Many of the drivers for further growth are already in place. In Sports Medicine, these include expanding both our REGENETEN◊ biologics platform into new indications and our technology leadership by adding capability onto our surgical tower. For ENT, we have a favourably positioned tonsil and adenoid business and are in the early stages of the roll out of our unique Tula◊ System for in-office delivery of ear tubes.
Transforming through Innovation
Our commitment to innovation is central to our Strategy for Growth Transform pillar. More than 60% of revenue growth in 2022 came from products launched in the last five years. In 2022 we continued to launch new products and invest behind our R&D programme and clinical evidence to support future growth.
In Orthopaedics, we expanded our robotics-enabled CORI Surgical System by bringing both cementless total knee and total hip arthroplasty onto the platform. We also became the first company to receive FDA 510(k) clearance for a revision knee indication using a robotics-assisted platform and completed the first cases on CORI. Revisions account for around 10% of all knee procedures in the US.
In Sports Medicine, we announced encouraging evidence supporting our REGENETEN Bioinductive Implant, which delivered an 86% reduction in rotator cuff re-tear rates at 12 months in interim results from a randomised controlled trial.
In Advanced Wound Management, we introduced the WOUND COMPASS◊ Clinical Support App, a digital support tool for healthcare professionals that helps reduce practice variation. We also launched our DURAMAX◊ S Silicon Super Absorbent Dressing for high exuding wounds in Europe, where superabsorbers are one of the fastest growing categories of dressings.
We continued to make acquisitions, bringing novel and disruptive technologies into our portfolio. In January 2022 we acquired Engage Surgical, owner of the only cementless partial knee system commercially available in the US. The system will have an application on CORI in the future.
Finally, we made further investment behind medical education, including opening of a new Smith+Nephew Academy in Singapore. Our Academies in the US, Europe and now Asia Pacific, as well as our online resources, provide tens of thousands of surgeons and nurses with opportunities to evaluate the latest evidence, and learn innovative clinical techniques and effective use of our products through hands-on and state-of-the-art digital interactive learning experiences each year.
Supporting Net Zero
Our Strategy for Growth also embraces sustainability, and in 2022 we made progress against our commitment to achieve net zero carbon emissions by 2045. Our Scope 1 and Scope 2 greenhouse gas emissions were independently assured in 2022 and we have reported our 2021 baseline Scope 3 emissions for eight categories. We are developing our Scope 3 emissions reduction roadmap in preparation for submitting this to the Science Based Target Initiative (SBTi) for validation.
Fourth Quarter 2022 Trading Update
Our fourth quarter revenue was $1,365 million (2021: $1,346 million), up 6.8% on an underlying basis (reported revenue growth of 1.4% after 540bps foreign exchange headwind). There were the same number of trading days as in the comparable period (2022: 60 trading days).
Fourth Quarter Consolidated Revenue Analysis
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| 31 December |
| 31 December |
| Reported |
| Underlying |
| Acquisitions |
| Currency |
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| 2022 |
| 2021 |
| growth |
| growth(i) |
| /disposals |
| impact |
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| Consolidated revenue by franchise |
| $m |
| $m |
| % |
| % |
| % |
| % |
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| Orthopaedics |
| 549 |
| 552 |
| -0.4 |
| 4.1 |
| - |
| -4.5 |
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| Knee Implants |
| 234 |
| 232 |
| 0.6 |
| 5.5 |
| - |
| -4.9 |
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| Hip Implants |
| 150 |
| 151 |
| -0.2 |
| 4.9 |
| - |
| -5.1 |
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| Other Reconstruction(ii) |
| 26 |
| 25 |
| 3.5 |
| 7.7 |
| - |
| -4.2 |
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| Trauma & Extremities |
| 139 |
| 144 |
| -3.0 |
| 0.6 |
| - |
| -3.6 |
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| Sports Medicine & ENT |
| 430 |
| 416 |
| 3.2 |
| 9.2 |
| - |
| -6.0 |
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| Sports Medicine Joint Repair |
| 235 |
| 223 |
| 5.2 |
| 11.5 |
| - |
| -6.3 |
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| Arthroscopic Enabling Technologies |
| 154 |
| 157 |
| -1.7 |
| 4.2 |
| - |
| -5.9 |
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| ENT (Ear, Nose and Throat) |
| 41 |
| 36 |
| 12.3 |
| 17.0 |
| - |
| -4.7 |
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| Advanced Wound Management |
| 386 |
| 378 |
| 1.9 |
| 8.0 |
| - |
| -6.1 |
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| Advanced Wound Care |
| 179 |
| 181 |
| -1.1 |
| 7.9 |
| - |
| -9.0 |
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| Advanced Wound Bioactives |
| 133 |
| 128 |
| 3.8 |
| 4.3 |
| - |
| -0.5 |
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| Advanced Wound Devices |
| 74 |
| 69 |
| 6.6 |
| 14.9 |
| - |
| -8.3 |
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| Total |
| 1,365 |
| 1,346 |
| 1.4 |
| 6.8 |
| - |
| -5.4 |
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| Consolidated revenue by geography |
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| US |
| 742 |
| 708 |
| 4.8 |
| 4.8 |
| - |
| - |
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| Other Established Markets(iii) |
| 385 |
| 409 |
| -5.8 |
| 7.3 |
| - |
| -13.1 |
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| Total Established Markets |
| 1,127 |
| 1,117 |
| 0.9 |
| 5.7 |
| - |
| -4.8 |
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| Emerging Markets |
| 238 |
| 229 |
| 3.6 |
| 12.1 |
| - |
| -8.5 |
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| Total |
| 1,365 |
| 1,346 |
| 1.4 |
| 6.8 |
| - |
| -5.4 |
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(i) Underlying growth is defined in Note 1 on page 3
(ii) Other Reconstruction includes robotics capital sales, our joint navigation business and cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New Zealand
Fourth Quarter Franchise Performance
Orthopaedics
Our Orthopaedics franchise delivered revenue growth of 4.1% underlying (-0.4% reported) in the quarter. Excluding China, where growth continued to be impacted by the implementation of the previously disclosed hip and knee VBP programme, Orthopaedics grew by 5.3% underlying. This headwind to growth from VBP will continue until Q2 2023.
Knee Implants grew 5.5% (0.6% reported) and Hip Implants returned to growth, up 4.9% underlying (-0.2% reported). Knee performance was led by our JOURNEY II◊ knee system, and our new cementless total knee LEGION CONCELOC◊ continued to build momentum as we extended the launch to new customers. Hip growth was led by our POLAR3◊ Total Hip Solution and OR3O◊ Dual Mobility Hip System. Other Reconstruction revenue was up 7.7% underlying (3.5% reported) although component supply constraints continued to impact this segment. Trauma & Extremities delivered its first quarter of growth in 2022, with revenue up 0.6% underlying (-3.0% reported) despite the continuing headwind from our decision not to participate in the broader roll-out of provincial trauma tenders in China.
Sports Medicine & ENT
Our Sports Medicine & ENT franchise delivered underlying revenue growth of 9.2% (3.2% reported) in the quarter.
Within this, Sports Medicine Joint Repair delivered 11.5% underlying revenue growth (5.2% reported) with double-digit growth from both our knee and shoulder repair portfolios. Arthroscopic Enabling Technologies revenue was up 4.2% underlying (-1.7% reported), representing improved performance on recent quarters driven by double-digit growth from our COBLATION◊ resection range. Revenue from ENT was up 17.0% underlying (12.3% reported) driven by our tonsil and adenoid business.
Advanced Wound Management
Our Advanced Wound Management franchise delivered underlying revenue growth of 8.0% (1.9% reported).
Advanced Wound Care revenue was up 7.9% underlying (-1.1% reported) with growth coming from across product categories. Advanced Wound Bioactives revenue was up 4.3% underlying (3.8% reported), with sustained good growth from our skin substitutes portfolio. Advanced Wound Devices revenue was up 14.9% underlying (6.6% reported) driven by strong double-digit growth from our PICO◊ Single Use Negative Pressure Wound Therapy System.
Fourth Quarter Geographic Performance
Geographically, revenue from our Established Markets was up 5.7% (0.9% reported). Within this, the US was up 4.8% underlying (4.8% reported) and Other Established Markets was up 7.3% underlying against a weak comparable period (-5.8% reported). Emerging Markets revenue was up 12.1% underlying (3.6% reported).
Full Year 2022 Consolidated Analysis
Smith+Nephew results for the year ended 31 December 2022:
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| Reported |
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| 2022 |
| 2021 |
| growth |
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| $m |
| $m |
| % |
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| Revenue |
| 5,215 |
| 5,212 |
| 0.1 |
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| Operating profit |
| 450 |
| 593 |
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| Acquisition and disposal related items |
| 4 |
| 7 |
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| Restructuring and rationalisation costs |
| 167 |
| 113 |
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| Amortisation and impairment of acquisition intangibles |
| 205 |
| 172 |
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| Legal and other |
| 75 |
| 51 |
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| Trading profit(i) |
| 901 |
| 936 |
| -4 |
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| ¢ |
| ¢ |
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| Earnings per share ('EPS') |
| 25.5 |
| 59.8 |
| -57 |
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| Acquisition and disposal related items |
| 15.1 |
| (8.8) |
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| Restructuring and rationalisation costs |
| 15.8 |
| 10.3 |
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| Amortisation and impairment of acquisition intangibles |
| 18.4 |
| 15.4 |
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| Legal and other |
| 7.0 |
| 4.2 |
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| Adjusted Earnings per share ('EPSA')(i) |
| 81.8 |
| 80.9 |
| 1 |
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See Other Information on pages 32 to 36
Full Year 2022 Analysis
Our full year revenue was $5,215 million (2021: $5,212 million), up 4.7% on an underlying basis. Reported growth was 0.1% including a foreign exchange headwind of 460bps.
The reported gross profit was $3,675 million (2021: $3,669 million) with gross margin 70.5% (2021: 70.4%). Operating profit was $450 million (2021: $593 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 32 to 36).
Trading profit was $901 million (2021: $936 million), with a trading profit margin of 17.3% (2021: 18.0%). The margin decline reflects higher inflation in freight and logistics, the impact of China VBP, as well as sales and marketing expenditure levels returning to more normal levels (see Note 2 to the Financial Statements for global franchise trading profit).
Restructuring costs, primarily related to the Operations and Commercial Excellence programme and the other efficiency and productivity work underway, totalled $167 million, with incremental benefits recognised of around $80 million.
Cash generated from operations was $581 million (2021: $1,048 million) and trading cash flow was $444 million (2021: $828 million). This reflected adverse working capital movements driven primarily by inventory, and capital expenditure which included progressing changes to our manufacturing network. Inventory included strategic raw material buys, as part of managing disruption to certain global raw material and component supply, inflation raising the average value of our inventory, and increased inventory to support growth including new product launches, safety stock, or in markets where we expect growth acceleration (see Other Information on pages 32 to 36 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 deteriorated to 49% (2021: 88%). We expect a reduction in inventory levels, and for cash conversion to return to historic levels, as we deliver the 12-point plan.
The net interest charge within reported results was $66 million (2021: $74 million) which reflects higher interest on cash deposits and the maturity of private placement debt in both 2022 and 2021. In 2022 the Group repaid its €269 million, €223 million, and €265 million EUR term loan facilities. Additionally, $125 million of private placement debt matured in 2022. The repayment of the EUR term loan facilities was in part financed by the issuance of a debut EUR seven-year Corporate Bond (€500 million at 4.565%) in October 2022. The Group’s net debt, excluding lease liabilities, at 31 December 2022 was $2,339 million (see Note 7 to the Financial Statements) with committed facilities of $3.7 billion.
Included within share of results of associates is an impairment charge of $109 million (2021: $nil) related to the Group’s interest in Bioventus primarily due to a significant decrease in its share price (see Note 3 to the Financial Statements for further detail). In 2021 a $75 million gain on disposal of interest in associate was recorded resulting from two dilution gains in the Group’s interest in Bioventus. Both the impairment charge and dilution gain are excluded from trading results (see Other Information on pages 32 to 36 for further detail).
Reported tax for the year to 31 December 2022 was a charge of $12 million (2021: charge of $62 million) with the low charge being attributed to tax credits on significant non-trading items such as the Bioventus impairment and amortisation of acquisition intangibles. The tax rate on trading results for the year to 31 December 2022 was 16.3% (2021: 17.2%) and this is lower than guided due to adjustments in respect of prior periods (See Note 4 to the Financial Statements and Other Information on pages 32 to 36 for further details on taxation).
Adjusted earnings per share (‘EPSA’) was 81.8¢ (163.6¢ per ADS) (2021: 80.9¢). Basic earnings per share (‘EPS’) was 25.5¢ (51.0¢ per ADS) (2021: 59.8¢), reflecting restructuring costs, acquisition and disposal related items, amortisation and impairment of acquisition intangibles and legal and other items incurred.
Share Buyback
In December 2021 we announced an updated capital allocation policy to prioritise the use of cash. The 2022 share buyback programme commenced on 23 February 2022 and $150 million was completed by 12 August 2022. As macroeconomic conditions continued to be uncertain, including higher inflation, the Board decided it was prudent to delay further buybacks until conditions improved. We remain committed to returning surplus cash to shareholders over time.
Dividend
The Board is recommending a Final Dividend of 23.1¢ per share (46.2¢ per ADS) (2021: 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 2021. Subject to confirmation at our Annual General Meeting, the Final Dividend will be paid on 17 May 2023 to shareholders on the register at the close of business on 31 March 2023.
Outlook
The Group is today providing guidance for 2023 and updated midterm targets.
2023 Guidance
For 2023 we are targeting both revenue growth and trading profit margin above 2022 levels.
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 franchises, 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 5.0% to 6.0% based on exchange rates prevailing on 13 February 2023.
In terms of phasing, we expect the first quarter to be impacted by the renewed Covid waves in China reducing surgical-volumes, as well as the continuing headwind of VBP in Orthopaedics. We expect the business to accelerate from the second quarter for the remainder of the year.
For trading profit margin, we expect to deliver at least 17.5% as the positive operating leverage from revenue growth, productivity improvements and the early benefits of our cost saving initiatives more than offset continuing macroeconomic headwinds from raw material cost inflation, higher wages and a 100bps headwind from transactional foreign exchange.
The tax rate on trading results for 2023 is forecast to be around 19% subject to any material changes to tax law or other one-off items.
Midterm targets
For the midterm, the Group is focused on consistently delivering higher revenue growth while also expanding its trading profit margin.
Today we are updating our midterm targets, previously announced in December 2021, to reflect both our confidence in revenue growth and the actions underway to offset the current macroeconomic pressures and drive performance.
We are now targeting underlying revenue growth consistently 5%+ (previously 4-6%), driven by return on innovation investments and execution of the 12-point plan, and trading profit margin expansion to at least 20% in 2025, driven by productivity improvements (previously 21% in 2024).
Forward calendar
The Q1 Trading Report will be released on 26 April 2023.
About Smith+Nephew
Smith+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 19,000 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 $5.2 billion in 2022. 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 Twitter, LinkedIn, 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, 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; economic and financial conditions in the markets we serve, especially those affecting healthcare providers, payers and customers (including, without limitation, as a result of Covid); 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 (including, without limitation, as a result of Covid); 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; 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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