Earnings call transcript: Smith & Nephew Q1 2025 sees steady growth and innovation

Smith & Nephew reported its first-quarter 2025 earnings, showcasing a revenue of $1.4 billion, with underlying growth at 3.1%, surpassing its guidance. The company faced a 1.2% reported growth due to a 150 basis points foreign exchange headwind. Despite challenges, the company’s stock saw a modest increase of 0.23%, reflecting steady investor confidence in its strategic direction and innovation focus.

Key Takeaways

• Underlying revenue growth exceeded guidance at 3.1%.
• The U.S. market showed robust growth of 3.6%.
• New product launches and innovations are key growth drivers.
• The company closed four manufacturing plants to streamline operations.
• Full-year revenue growth guidance set at around 5%.

Company Performance

Smith & Nephew demonstrated resilience in Q1 2025, with underlying revenue growth exceeding expectations at 3.1%. The U.S. market led with a 3.6% increase, while other established markets grew by 5%. However, emerging markets faced a 1.7% decline, mainly due to challenges in China. The company’s strategic focus on innovation and efficiency is evident in its operational shifts and new product launches.

Financial Highlights

• Revenue: $1.4 billion, up by 3.1% underlying growth.
• Reported growth: 1.2% after foreign exchange headwinds.
• U.S. growth: 3.6%; Other established markets: 5%; Emerging markets: -1.7%.

Outlook & Guidance

Smith & Nephew projects full-year revenue growth of around 5% and margin guidance between 19-20%. The company anticipates sequential quarterly growth improvement and expects the impact of tariffs and challenges in China to diminish by 2025. Strategic initiatives include new product launches and a focus on innovation-driven growth.

Executive Commentary

• "2025 is a key year of delivery," said Deepak Nag, CEO, highlighting the importance of strategic execution.
• "We feel good about how we’re positioned across regions and businesses," Nag added, emphasizing confidence in the company’s market stance.
• "The long-term tailwinds of commercial improvements and innovation-driven growth are continuing to come through," Nag stated, reinforcing the focus on sustainable growth.

Risks and Challenges

• Foreign exchange fluctuations continue to impact reported growth.
• Supply chain adjustments following plant closures could pose short-term disruptions.
• The ongoing tariff impact is estimated at $15-20 million.
• The decline in China sales, though expected to stabilize, remains a concern.
• Competitive pressures in the orthopedics and wound management markets.

Smith & Nephew remains focused on leveraging its innovative product portfolio and operational efficiencies to drive growth amid market challenges.

Full transcript - Smith & Nephew PLC (SN) Q1 2025:

Jerry, Call Coordinator: Ladies and gentlemen, welcome to the Smith and Nephew Q1 Trading Report. My name is Jerry, and I will be coordinating your call today. Certain statements in this presentation are forward looking statements. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in those statements due to a variety of factors.

More information about these factors is contained in the company’s filings with the Securities and Exchange I will now hand over to Deepak Nag to begin. Please go ahead.

Deepak Nag, CEO, Smith & Nephew: Thank you. Good morning. I’m joined here with by our Chief Financial Officer, John Rogers. I’m pleased to report a good start to the year. We achieved 3.1% underlying revenue growth in the first quarter, that was ahead of the guidance we provided in February, with consistent performance across all of our business units.

Sports Medicine and Advanced Wound Management continue to perform well in established markets, and U. S. Recon is maintaining the improvement that we saw in 2024. We have successfully absorbed known headwinds, including a two forty basis points headwind in China and there being one fewer trading day. As we get into the detail of the quarter, you’ll see that we’re building on the operational and commercial improvements of the 12 Plan, which has brought better product availability, better commercial execution and the focus and accountability of the business unit model.

Those foundations are enabling innovation driven growth across our key platforms. To highlight a few, Cori, EVOS, REGENETEN and our negative pressure wound therapy portfolio all delivered strong double digit growth in the quarter and are visibly driving the broader segment growth rates. We’re also delivering further innovations at a rapid pace. Later, I’ll discuss new product launches that are expanding our offerings in the high growth categories of foams dressings and cementless knees. Additionally, I’ll share new clinical evidence related to Xinuum and rotator cuff repair.

Overall, this quarter keeps us on track for our full year guidance, which remains unchanged on both revenue growth and trading margin. We should see higher growth in the remaining nine months, giving a lower trading day effect on growth for the full year and the peak of the China headwinds having passed and continued fundamental progress in our commercial delivery, particularly at Fifth Seasons. The drivers of the guided step up in profitability have been in place for some time now, and we should see the benefits of our cost savings and network optimization flow through to the P and L. John will come back later to the effects of the recently announced tariffs in our business. But to summarize for 2025, we expect to absorb the impact within our existing margin guidance.

And first, John will take you through the detail of

John Rogers, CFO, Smith & Nephew: the floor. John? Thank you, Deepak, and good morning, everyone. So revenue for the quarter was $1,400,000,000 with a 3.1% underlying growth and 1.2% reported after 150 basis points headwind in foreign exchange. Those growth rates include the effect of one fewer trading day than in the first quarter of twenty twenty four, which, if considered proportionately, reduced growth by around 1.7 percentage points.

Growth was largely consistent across the business units, and I’ll come to the detail in a moment. Looking by region, growth was stronger in Established Markets with 3.6% growth in The U. S. And 5% in other Established Markets. The 1.7% decline in emerging markets was due to the continuing headwinds in China, which we believe have now peaked.

Growth in the other emerging markets was much stronger at 14.7%. For the business units, I’ll start with orthopaedics, which grew by 3.2% in the quarter and 5.1% excluding China. As indicated with the full year results, we’ve changed our reporting practice around robotics to be more in line with our orthopaedics peers. As of this quarter, robotics consumable sales are now recorded under the procedure where they’re used, while capital and service revenue remain in other recon. Growth rates are all on a comparable basis.

In U. S. Recon, the sequential trend in the headline underlying growth numbers mainly reflects trading days. Normalizing for that, U. S.

Recon maintained the improved performance from the previous quarter. The dynamics continue to be encouraging with customer churn moving to being net favorable in Q4 and maintaining that in Q1 and a pipeline of competitive conversions building for the rest of 2025. On the product portfolio, Catalyst Stem continues to perform well against our plans with excellent feedback from existing and competitive customers. Outside The U. S, recon growth reflects the expected slow quarter in China, with distributors continuing to reduce their inventory of implants.

The overall level in the channel has come down significantly, and we expect it to reach a normal level again in the middle of the year. Excluding China, OUS growth was healthier at around four points higher in knees and seven points higher in hips. Other recon grew by 46.6%, driven by robotics, reflecting both growth in units placed and a high proportion of outright capital sales in the quarter’s business mix. Trauma and Extremities grew by 6.3%. As in recent quarters, the EVOS plating system was the primary major growth driver.

The growth contribution of the ATOS shoulder is increasingly significant, and we continue to develop the platform. We’ll launch a stemless implant in The U. S. In the coming quarters, and we also aim to introduce planning solutions in half two as part of Choreograph with execution on Choreograph to follow 2026. Coming back to U.

S. Recon growth. This slide shows a time series of underlying growth, both as we report and adjusted for trading days. Adjusting for days gives a more representative measure of our progress from quarter to quarter, particularly with the three day swing from the two extra trading days versus the prior year in Q4 twenty twenty four to one fewer day in Q1 twenty twenty five. We are also now reflecting the new reporting of Robotics consumables.

As I mentioned earlier, you can see that we have maintained the improvement from Q4. Our expectation is for further improvement in average daily sales growth as we move through 2025, supported by product availability, the improvements we’ve made in commercial execution and the benefits of key growth products for Catrifestem and Cori. Sports Medicine and ENT grew by 2.4%, largely reflecting the headwind from China. This was due to lower year on year pricing from BBP in Joint Repair and early effects in arthroscopic enabled technologies as we proactively manage the channel ahead of the expected implementation in the second half of the year. We believe we are now past the peak of the China headwind.

Comparisons in joint repair will become easier in Q2, with the effect fully lapping midyear. Although the AET implementation is still to come, it should be a smaller overall drag. At the same time, consistent performance from key launches and growth drivers continued in the rest of the world, even after the strong finish to 2024, and this should be increasingly reflected in headline growth as we move through the year. For Q1, Joint Repair grew by 2.910.6% excluding China. REGENETEN remains a key driver with strong double digit growth.

We added further to the evidence base with the publication of a two year follow-up from a randomized controlled trial of rotator cuff repairs augmented with Regeneten, showing significantly lower retail rates compared with repair alone. There was also good momentum from new product launches, including Qfix Nautilus and the developing foot and ankle repair business. Arthroscopic and Navient Technologies grew by 3.3, excluding China. There was solid performance across multiple categories with double digit growth from both video and wearable FarSeal. FarSeal is an application of our cabulation technology in orthopedics procedures and is a leading example of commercial synergy in our portfolio.

ENT grew by 7.8%, marking a return to more normalized growth after Q4. This growth was led by the tonsil and abnormal business with the Halo one for the caplation intracapsular tonsillectomy technique. We also continued the rollout of the ARRIS Wand, which further extends the use of Caplation technology into turbinate reduction with launches in Europe and emerging markets. I’ll finish with Advanced Wound Management, which grew by 3.8% in the quarter. Advanced Wound Care grew 2.5% with high single digit growth in Foam Dressings.

We continue to develop our Foams portfolio and in early stages of launching a leave in AG Plus surgical into The U. S. Market. Bioactives had a slower quarter as expected with a decline of 2%. While Skin Substitutes remained in double digit growth, this has started to moderate as the benefit of the Graphics plus launch eases.

There was also a slow quarter percentile after a strong finish to Q4, again reflecting wholesaler stocking patterns. A reminder, we expect AWB growth for full year to be in the low single digits. Lastly, Advanced Wound Devices saw impressive growth of 15.7%, mainly driven by the negative pressure wound therapy with double digit growth from both PICO and RENEZUS. I’ll finish with our outlook. As you can see on the slide, it’s unchecked.

There’s clearly a lot of interest in the implications of the tariffs announced by the U. S. Government, the situation remains dynamic. But to give you some sense of our business mix, just over half our revenue is from The U. S, of which around two thirds is manufactured domestically.

We also manufacture in Costa Rica, The UK, Malaysia, China and Switzerland. We’re working to mitigate tariffs on products and raw materials imported in The U. S. As far as we can. In particular, we have global manufacturing network that we can leverage in terms of mix and supply routes.

Our approach is not to rely on external factors, but there still may also be some mitigation for foreign exchange, and we are engaging with industry groups like Abiomed to explore the potentials for exemptions. Based on the tariffs as currently announced and including those coming into effect after the current pause, we expect a net impact of around 15,000,000 to $20,000,000 which we expect to be able to absorb in our unchanged full year guidance. And with that, I’ll turn

Deepak Nag, CEO, Smith & Nephew: back to Deepa. Thank you, John. It’s a good first quarter, building on the operational and commercial improvements of the 12 Plan, better product availability, commercial execution and the focus and accountability of the business unit model have established strong foundations for sustainably improved performance. As I said out at the beginning, innovation also continues to be a key component of our growth story, and you can see that playing out across our businesses. In Orthopedics, EVOS, Atos, Catalystem and Cori are all growing well.

In Sports and ENT, there’s regenerative, the foot and ankle portfolio and the multiple applications And in Advanced Wound Management, we had good growth in foams, skin substitutes and negative pressure. And we’re continuing to build on that with a high cadence of innovation, delivering further new products and new clinical evidence in the quarter. In recon, we further developed our cementless knee offering with the addition of the Legion Medial Stabilized Inserts, which received five ten clearance. These are designed to provide surgeons with stability and improved kinematics while aligning Legion with three major market trends in knees: the shift to medial stabilized inserts, which are now used in over thirty percent of procedures and the trends towards robotics and cementless fixation.

In Mood, Elivin AG Surgical is in the early stages of its U. S. Launch, adding a new antimicrobial dressing to our foams portfolio, including new silicone technology for gentle adhesion. We’re continuing to innovate in this category as a high growth segment within AWC. On clinical evidence, Obsidian continues to demonstrate exceptional long term performance.

A report from the Australian National Registry reveals a twenty year survival rate in total hip arthroplasty of ninety four point one percent, which is the highest among all bearing combinations. This corroborates similar results and peer reviewed publications from the National Joint Registry in The UK and is powerful evidence of our proprietary technology. For REGENETEN, building support for adoption and coverage through clinical evidence is a key part of our growth story. We added significant new data in the quarter with two year follow-up data from a randomized controlled trial and full thickness rotator cuff repair. REGENETEN showed a highly statistically significant reduction in the retail rate with a sixty five percent lower relative risk compared to RUPERALONE.

With the combination of increasing penetration in rotator cuff, supported by evidence and the addition of new clinical applications in ligaments and foot and ankle, REGENETEN is set to continue as a long term growth driver for the company. I’ve said many times that 2025 is a key year of delivery, and 3.1% growth in Q1 is a good first step. When I look at the moving parts, the long term tailwinds of commercial improvements and innovation driven growth are continuing to come through, while the two headwinds of China and trading days have both peaked. This is a good setup for the rest of 2025 and beyond, and I look forward to updating you further as we move through the year. And now we can move to your questions.

Jerry, Call Coordinator: Thank We will now have our first question from Richard Fulton from Goldman Sachs. Please go ahead.

Deepak Nag, CEO, Smith & Nephew: Good morning. Thanks very

Richard Fulton, Analyst, Goldman Sachs: much for taking my questions. Two please. The first one is on the phasing of growth through the year. On your full year call, you shared some reasonably detailed thoughts on how to think about phasing. Has anything changed in your view as you move through Q1?

And can you maybe remind us of how you see top line growth progressing in Q2 and beyond? That’s the My second question is a product question on REGENETEN. I mean, could you maybe give us a little bit more color on what is driving growth within that product family? How big it is in your portfolio today?

And then following the five ten clearance for the extra articular ligament repair at the end of last year, how much traction are you seeing there? And how could that how big could that opportunity be over time? Thank you.

Deepak Nag, CEO, Smith & Nephew: Sure. I’ll maybe take a quick shot at the Ujen and I’ll turn to John to color. But generally speaking, Q1 was our lowest growth quarter as this is what we guided to at full year. And because of the receding impact of the headwind from China as we flow through the year, and the impact the unfavorable impact of trading base also falling away, we should have growth pick up in sequentially in each of the quarters going through. So we expect in sports, for growth ex China to continue at near double digits, and in wound, as well across all the categories to continue to build as we go through the quarter.

In orthopedics, what we have guided to is specifically in The U. S. Recon side for sequential improvement quarter on quarter as we get to market growth levels by Q4 of this year. You’ve been refined and we are on track to achieving that. So I’ll let John color for the details beyond that, but

John Rogers, CFO, Smith & Nephew: you should expect sequential improvement as we

Deepak Nag, CEO, Smith & Nephew: flow through the year. In terms of Regenitan, last year, most of REGENETEN utilization was in the shoulder. We’ve indicated that REGENETEN is a platform technology, and we expect to develop evidence for appropriate use of that in other joints. What we have found now is roughly 10% of our utilization of REGENETEN is actually in, now foot and ankle, which is a change relative to where we were last year. And that points to increasing utilization of REGENETEN, not only with further penetration into shoulder to rotator cuff repair, but also now increasing adoption of other joints and foot and ankles as the second category.

So we expect REGENETEN to be a meaningful growth driver as we called out, that it’s now a material part of growth story.

John Rogers, CFO, Smith & Nephew: And maybe just to add a little bit of color on the growth trajectory. I mean, I think Deepak’s covered some of the key component parts, but we always said that Q1 would be a little bit soft. We guided to the 1% to 2%, obviously delivering 3.1 so a little bit of beat in Q1. We expect to see a step up in Q2. And then in all likelihood, I think Q3 will be a little bit of a further step up.

So we’ll see another step up in Q3. And then Q4 will actually step back a little bit because obviously we had a very strong Q4 in 2024. But generally speaking, that’s the shape of the growth trajectory, all of which of course aggregates to around 5% growth for the year overall.

Richard Fulton, Analyst, Goldman Sachs: Great. Thank you very much.

Analyst: Thank you, Richard.

Jerry, Call Coordinator: Thank you. Next, we will have Julien Dumoulin from Jefferies. Please go ahead. SMITH:]

Julien Dumoulin, Analyst, Jefferies: Hi, good morning, Deepak. Good morning, John. Thanks for taking my question. I have two. The first one relates to the performance of the recon business outside of The U.

S. So it would be interesting if you could shed more light on what’s going on outside of The U. S. So obviously your performance in The U. S.

Is improving by the day, but maybe at the expense of what’s happening outside of The U. S. So maybe if you you shed more light on what’s happening there that would be helpful. And the second question relates to more of housekeeping question in light of the market swings in FX. Could you just remind us of what your expectations would be at this stage for the margin impacts on your guide or FX impact, sorry, on your margin this year?

I think you have a hedging policy in place that probably delays some of the potential benefits from a weaker dollar, but any color there would be helpful. Helpful. Thank you.

John Rogers, CFO, Smith & Nephew: Yes. So just on the your last question on the margin impact. I think we said at the prelims, we expected ForEx for the year to be broadly neutral. Obviously, since then, there’s been a weakening of the dollar. And we think that’s going to translate into a tailwind of twenty, twenty five bps, something of that nature for the full year.

Of course, that could change the price and quite volatile market environment, but 20 to 25 bps or so. In terms of the question on the OUS orthopedics, I mean, saw 2.7% growth for the quarter, so it seems reasonably healthy. Knees, slightly positive. It’s a little bit more challenged, but certainly good growth in other recon of plus 46%. So good Cori sales in the quarter.

But overall, we’re very comfortable with the trajectory. We should see Q2 be relatively similar to Q1, and then we should see a step up in Q3 come through is the expectation.

Deepak Nag, CEO, Smith & Nephew: Yes. And OUS needs, just to remind you again, as was in the slides, is ex China, it’s up 4% in knees and 7% in hips. Yes.

John Rogers, CFO, Smith & Nephew: Exactly. And to your point, Deepak, that explains the step up as we go into Q3 as we see the China impact starting to annualize effectively through Q2, hence why we see a step up in Q3 and Q4.

Julien Dumoulin, Analyst, Jefferies: Super helpful. Thank you, guys.

Deepak Nag, CEO, Smith & Nephew: Thanks, Julian.

Jerry, Call Coordinator: Thank you. We will next have Jack Reynolds Clark from RBC Capital Markets. Please go ahead.

Jack Reynolds Clark, Analyst, RBC Capital Markets: Hi, Thanks for taking the questions. Two

John Rogers, CFO, Smith & Nephew: for me Hey, Jack.

Jack Reynolds Clark, Analyst, RBC Capital Markets: Hey. So starting with revenue guide. So obviously Q1 is stronger than expected. I’m just wondering kind of how is Q2 shaping up so far? John, you talked about a step up in Q2.

Are you seeing that kind of come through? And then should we be thinking about potential upside to that kind of around 5% underlying revenue guide, given that you’re not expecting things really to slow down through the remainder of the year? And then the second question was just on tariffs. Could you talk a little bit more about the offsets you’re implementing, I. E, give a bit of detail around the operational offsets and kind of what these comprise and how much you might be able to implement price increases?

Deepak Nag, CEO, Smith & Nephew: Sure. In terms of revenue guide, obviously, we’re not commenting on subsequent quarters, but we’ve maintained our revenue guidance of around 5% for the full year. And given that we exited 3.1%, you can expect that growth should step up in subsequent quarters for us to attain the revenue guide. And we feel good about how we’re positioned really right across the portfolio when you look at our business across regions. We’ve already commented on China.

But look at all the established markets, emerging markets, we feel good about how we’re positioned there and we look across our businesses. We feel really good about our position there. In particular, in orthopedics and especially in The U. S. Recon part, which was the last bit of our business, we were expecting to turn around this year.

We feel good about how we’re positioned, how we performed in the quarter in terms of maintaining the momentum from Q4. And as we look at the rest of the year, we’re particularly encouraged by the fact that the churn in surgeons has reduced. Now that started to minimize towards the end of Q3 and really turned positive. In other words, a net gain of surgeons in Q4 and that picture was maintained in Q1. And that sets us up nicely for the rest of the year.

The contrast to that is in years past where we had surgeon churned in the negative territory in the beginning of the year, of course would create challenges for the balance of the year. So we feel good about how we’re positioned to achieve the top line per the guidance we provided. In terms of tariffs, what we’re focused on is mitigating actions for that. We actually have, John pointed out, we’ve got a manufacturing network that gives us a measure of flexibility in terms of how we supply the market, how we direct product flows in order to minimize the impact of tariffs. And we’ve given you a sense of what the impact is going to be net of the mitigations that we can foresee operationally.

And in terms of the longer term, obviously we are we’ve got the manufacturing sites where we’ve got it, and there’s differing levels of exposure across our businesses. In orthopedics, we’re relatively well positioned because of our manufacturing presence in Memphis, which is our major orthopedics manufacturing center. But we also have Malaysia ramping up at the same time that allows us to actually position ourselves depending on how retaliatory tariffs go into effect. So there’s a very dynamic picture, as John said. So we’ll have to figure out how we balance where we manufacture and how we supply markets from which factories supply the market.

So those are some of the things underneath the

John Rogers, CFO, Smith & Nephew: headline of mitigations. And maybe just to sort of help you and to clarify in terms of our guidance number. The bottom end of our range is based on the current, what I might describe as the 10% base case scenario, so basically 10% plus of course China and the bottom end assumes that being in place for the remainder of the year. The upper end of our range, the £20,000,000 assumes the reversion to the announced rates coming through on July and that of course includes the China retaliatory rate as well. So just to be clear what we’ve assumed in giving you that guidance number.

Jack Reynolds Clark, Analyst, RBC Capital Markets: That’s great. Thank you.

Jerry, Call Coordinator: Thank you. We will now have Lisa Cleve from Bernstein. Please go ahead.

Lisa Cleve, Analyst, Bernstein: Hi. Could you just give us a little bit more guidance guidance on the margin progression around the Malaysia ramp up and then specifically the I think you were going to see closing down four plants for those all in Europe. Just trying to understand in terms of the progression of your COGS this year and also potentially in the next year, how to think about that? Then second on tariffs, thank you for the guidance on that. It’s very helpful.

Between The U. S. And Europe, I mean, it seems U. S, China, you’re pretty well positioned. U.

S. And Europe, my understanding is there’s a bit more back and forth. Think if I’m not I think I’m right that there’s a fair amount of sports medicine that goes from The U. S. Into Europe.

Just thinking through in a worst case scenario where things ramp up with Europe, how well positioned you are to mitigate that?

Deepak Nag, CEO, Smith & Nephew: Sure. I’ll take that. Hi, Lisa. So first, in terms of margin progression, what we’ve said in 2025 is the step up in margin will come through the benefits of the network actions we’ve taken in orthopedics coming through this year. So we’ve closed four plants as you alluded to, and three of them were in Europe, 1 in China is how that lays out.

And that’s an important part. In other words, the taking out of fixed costs associated with those plants is where the benefit comes in. And what we’re done is transfer the production that was occurring in those plants into either Memphis or Malaysia. What’s important to keep in mind is these plants were specialized by particular SKUs. So it’s not like we had four factories producing everything, right?

So there were particular SKUs being produced in these factories, and which we’ve transferred, as I said, into Malaysia and into Memphis. So from a margin progression standpoint, it’s the overall costs coming out that contributes to that and the benefits of that production coming through in Malaysia where we have lower labor costs and in Memphis where we’ve got scale, greater scale that we had in those factories translating into better COGS. So that’s the benefit that we see coming through in 2025 as a key underpin for the step up in the back half of the year. Regarding tariffs, in terms of U. S.

And Europe, I mean roughly the way to think about it is, we’ve got China, we’ve got Costa Rica and we’ve got Malaysia. And roughly two thirds of the tariff impacts come from China. So China, you’ve got high tariff levels, relatively low volumes in terms of where the impact is. Costa Rica is relatively high volumes, but relatively low not that low, but lower tariff levels. And Malaysia, somewhere in between.

So as we think through this now between U. S. And Europe, in terms of sports medicine, most of the volumes actually come from Costa Rica. So they’re not relative to U. S.

And Europe, they’re not necessarily going to be impacted. So we do have a factory in Mansfield in Massachusetts that does supply the world impact that would impact Europe along with other geographies. But the volume is out of Costa Rica for sports medicine. And so in general, I would say for your modeling, you should take a look at China, Costa Rica and Malaysia as the principal sources of impact.

Lisa Cleve, Analyst, Bernstein: Super. Thank you.

Deepak Nag, CEO, Smith & Nephew: Thanks, Lisa.

Jerry, Call Coordinator: Thank you. We will next have Hassan Iwoku from Barclays. Please go ahead.

Hassan Iwoku, Analyst, Barclays: Hi, good morning. Thank you for taking my questions. I have three please. Firstly, on margin, Deepak at the full year you pointed to tightening the range at the Q1 stage. Appreciate things are changing very rapidly.

But given the 15,000,000 to €20,000,000 impact from tariffs or around 30 basis points, is the lower end now more realistic? Secondly, on growth, which was stronger than your expectation at the full year, can you talk about any updated views on hospital utilization for the rest of the year? And also any competitive dynamics that you’re observing given some launches in hips at some of your peers? And then finally, can you talk about the strength replacements in the quarter and what is driving this regionally? Also given the restatement of consumable revenue, can you provide the growth in consumable revenue in the quarter that has now moved to recon and whether this was meaningfully different to underlying growth in the recon business prior to the restatement?

Thank you.

Deepak Nag, CEO, Smith & Nephew: Sure. Hassan. So in terms of margin, no, we’ve set a range of 19% to 20 We’ve said you should think somewhere in the middle of that as the expected outcome, was kind of our commentary and that hasn’t changed. And you can work out now what that means, given that we’ve said that, in the face of a tariff impact of 15,000,000 to $20,000,000 So bottom line, no change in the guide or no change in expected outcome. Second, in terms of growth being stronger, as I said, we’ve anchored to around 5% at the beginning of the year and we reiterated that guidance and implied within that as a step up.

And I’ve already answered that previously, which is it’s expected to come across all of our businesses and indeed all of our geographies. In terms of the competitive picture in hips, we actually feel very good about how we’re positioned with Catalystem. As you’ll recall, until recently, we didn’t have a short stem offering, which basically meant we had limited participation in the direct to anterior approach. That’s now an increasingly a bigger part of hip procedures, particularly in The United States. With the launch of Catalystem, we now have the ability to better participate in that growing portion of the market.

And our early results, quarter plus into the launch, we couldn’t be happier with the level of uptake and the type of feedback we’ve received, not only from our own surgeons, but also from competitive surgeons as well. So really, really nice uptake of Catalystem, which we believe will be a growth driver and we feel very, very good about how we’re positioned relative to competitors there. In terms of utilization in the overall procedures, historically, I’ve said, I’ve shied away from commenting directly in terms of what’s happening in the recon market in The U. S. Because we’ve had performance challenges.

And when you’re in that position, it can be hard to parse what’s going on in the market versus what’s you. And given we’re still in that recovery path, I’m loath to comment independently from our vantage point beyond what we see in terms of reports and everything else that everyone else sees. So still loath to comment on that. But generally speaking, I feel good about our ability to progress relative to market in each quarter and exiting the year at market levels. And so we remain committed to that.

In terms of core replacements, very, very pleased with the mix, the geographic mix, as you alluded to, in particular, we’ve been quite strong OUS over the last few years. The picture in The U. S. Has continued to improve and that improved also in Q1. We’re encouraged by not only that, the strength relative strength in The U.

S, but also where we’re placing them. We’re placing them in hospital settings, we’re placing them in ASCs. And as important as placements are, utilization is really the thing that we’re looking for because it’s not about just placing quarries, it’s about whether they’re being used. And that utilization rate continues to remain very healthy in the face of increasing placements that goes to show the level of uptake we’re having with CORI. In terms of how we’re doing this, we’re not restating the numbers, we’re simply reporting utilization within the relevant category to bring ourselves more in line with peers.

We obviously are providing the breakdown, So you can compare ourselves any which way you’d like. So there’s no there’s perfect transparency to how we’re commenting on the numbers. So overall in terms of consumables, a very healthy uptake in terms of utilization, which is what the consumables number tells you. There’s a little bit of a mix thing that John commented on, which is we had a bit more capital placements. So outright sales versus placed capital in this quarter.

That does tend to vary from quarter to quarter just based on the individual contract dynamics. So there’s not much to read into that. But what you should take away from the growth in consumables overall is that the CORIs that we are placing are getting utilized, which is a sign of health that we’re looking for. So overall, very pleased with the type of picture that’s evolving on robotics.

John Rogers, CFO, Smith & Nephew: And just to maybe give you a little bit more color, Hassan, on the size of the consumables piece and the impact it has been sort of shifting it from other recon into knees and hips. Just from a knees point of view, I mean, it’s relatively de minimis. So the numbers under the new reporting regime for Q4 versus Q1 is 4.2 playing, 4.6 in new money if you like, and then 4.1 playing, 3.6 in old money. So it really doesn’t make much of a difference on The U. S.

Hips. In relation to knees, obviously where it’s a bigger impact, we’re shifting somewhere in the region of sort of 5,000,000 to $6,000,000 from other recon into U. S. Knees. And so the Q4 number we talked about in old money was around two percent and in new money is around 3%.

If you remember at the time, we said it would make roughly a 1% plus contribution, so the Q4 number shifts from 2% to 3% in old versus new money and the Q1 number roughly sort of 1.5 or so to 2.5%. Again, the 1% addition. So that helps you sort of size the movement.

Jerry, Call Coordinator: Thank you. We will next have Keane Slutskin from Deutsche Bank. Please go ahead.

John Rogers, CFO, Smith & Nephew: Good morning, guys. Can you hear me? Yes. Lovely, clear.

Keane Slutskin, Analyst, Deutsche Bank: Great. Just a quick one, John, just on The U. S. Recon. I seem to recall you saying at the sort of roundtable in February that The U.

S. Knees needed to be sort of 2% in Q1 and sort of to exit at 3% in order to kind of really be on track to return to market growth. Could you just confirm that was the case? And on the adjusted measures you’ve given for the trading days,

Deepak Nag, CEO, Smith & Nephew: would it be fair to say you’re there and thereabouts?

John Rogers, CFO, Smith & Nephew: Spot on. I I think we said from an ADS basis, we want it to be around sort of we said we’d be consistent Q4 on to Q1 at around sort of 2% or so, and then we’d expect to see that 2% grow on an ADS basis through Q2, through Q3, and we would plan to exit the year at around 4% or so. And in fact, the numbers as we’re reporting today confirm that trajectory and we remain confident in looking forward to our pipeline and Deepak’s comments earlier on about the account wins and account losses and the continued positive trends that we’re seeing there that we remain on track to deliver that improvement trajectory through the remainder of this year.

Keane Slutskin, Analyst, Deutsche Bank: Great. Thanks. And just John, sorry, I just missed something you mentioned earlier, where you’re talking about sort of the sort of scenarios that play out to get you to the lower and the upper end of that 19% to 20% range. I appreciate Deepak gave us sort of a view that you’re probably going to come somewhere in the middle. But just could you just relay those scenarios?

Sorry, I completely missed it. You were sort of suggesting something around what gets you to 19% versus 20%?

John Rogers, CFO, Smith & Nephew: Yes. The bottom so just to be clear, the range on tariffs is 15,000,000 to £20,000,000 The bottom end of the range is based on what I describe as being the current 10% base case. So most countries on a 10% tariff China, on 145% the retaliatory, 125% of China, etcetera. If that’s in place for the remainder of this year, that gives you the bottom end of the range. The top end of the range, the £20,000,000 assumes on July that none of these issues are resolved and we revert back to the tariffs as announced.

And again, I won’t go through all the details, but that’s largely the China remaining in place and clearly Malaysia kicks up 24%, Costa Rica goes up a little bit and so on and so forth. So the tariffs as announced as we would revert to all else being equal on July, That represents the top end of the range. So hopefully that gives you the bounce at both the bottom and the top end of what we provided.

Deepak Nag, CEO, Smith & Nephew: Okay. All right. Thanks guys.

Jerry, Call Coordinator: Thank you. We will next take David Adlington from JPMorgan. Please go ahead.

Deepak Nag, CEO, Smith & Nephew0: Hey, guys. Thanks for the question. So firstly, just on China. Maybe you could just remind us of where China peaked as a percentage of sales and where you’ve come down to as of this quarter in terms of percentage of sales? And following on from that, does it still make commercial sense to maintain a presence in China?

And then secondly, just to fully clarify, John, because I might have been a bit stupid this morning. But when you talk about the range and the top of the end of guidance that you just pointed to, are you talking about 15% to 20% as in the impacts of the tariffs or the 19% to 20% margin range that you’ve given? Thanks.

John Rogers, CFO, Smith & Nephew: I’m talking about the tariffs, David. The bottom end being 15%, the top end being $20,000,000 Yes, right. Understood. Perfect.

Deepak Nag, CEO, Smith & Nephew: Dollars 20,000,000 and tariff impact, just to be clear. So regarding China, David, so today when we talk about the China impact fading away, so we’ve seen the peak in Q1. And what we mean by that now is China was previously for us about 7% of sales. This year, when we look at our budget, it’s down to about 1.7%

John Rogers, CFO, Smith & Nephew: to 1.8% of sales. For Q1, we’re about 1.9. For the full year, we think it will be about 2.4%.

Deepak Nag, CEO, Smith & Nephew: Yes. Thank you, John. So China is now a significantly smaller portion of our business. So when we talk about now AET part of our sports business coming under VBP, that gets implemented we think in the back half of the year. The impact of that is significantly lower than joint repair, because it is a smaller portion of our business and China overall is now quite a smaller proportion of our overall business.

So hopefully that gives you a little bit of a picture about the reducing proportion of China within our book of business. In terms of commercial steps to counter that in China, obviously, we’ve got some practice of this, if you will. We implemented changes in our go to market model in China following the implementation of EVP and recon. And when that came through in sports, we were informed by our experience of recon side that we applied. Suffice it to say that we’re applying the lessons as we go forward and at the end of the day to make a business now at a significantly lower price level be profitable for us.

And that involves a series of steps that we’ve got to make in country in order to make the business profitable there. But we’ve got experience not doing this, having gone through this a couple of times.

John Rogers, CFO, Smith & Nephew: David, just maybe just to help give you a little bit more shape on the China sector as well, because this is obviously a key driver for our improving performance on the top line as we progress through the year and indeed also on the margin as well. In Q1, we were year on year, we were down roughly 50% in China. And we think that’s the peak of the China impact. To give you a little bit of a guide in Q2, we’re forecasting to be down 35% to 40% in Q3, down 30% and in Q4, down 10% to 15%. So you can see it’s having less and less of an impact as we progress through the year, which correspondingly helps our top line and equally helps the drop through in terms of our profitability.

Deepak Nag, CEO, Smith & Nephew0: And just to clarify, mean, you profitable in China currently in any of the businesses?

Deepak Nag, CEO, Smith & Nephew: Yes. So just I was going to come back to that actually. As a result of the commercial steps we’ve taken, when you look at the profitability of our affiliate in China, it’s kind of middle of the road when you look at country level profitability across our geographic mix. So in other words, we are profitable with our current book of business. And in terms of league tables, it’s kind of middle to maybe a little bit on the upper end of the range when you look at the country mix.

Deepak Nag, CEO, Smith & Nephew0: Great. Thank you.

Jerry, Call Coordinator: Thank you. We will next have Veronika Dubajova from Citi. Please go ahead.

Deepak Nag, CEO, Smith & Nephew1: Hi, guys. Good morning and thanks for taking my questions. Most have been asked and answered already, but maybe just two. One, I guess, just looking into 2026 and the tariff impact as it annualizes out on the worst case scenario, is there any more mitigation that you can do, John, as you think about 2026? Or should we be taking the number you’ve given us for this year and doubling it for next year as far as tariffs are concerned?

That’s my first question. And then my second question is, no one’s asked about what would be spent all the time on ortho, but just the strength in devices, if you can talk to what’s driving it and how sustainable you feel that is through the rest of the year? Thank you, guys.

John Rogers, CFO, Smith & Nephew: Maybe if I come to the tariff one and talk on the AWD. Look, I mean, there’s slightly obvious, there’s a lot of moving parts on tariff, a lot of uncertainty out there, but as you’d expect, you know, we’ve done all the scenario planning, positive, negative, different variations, permutations and combinations and so forth. I think without getting drawn into a huge amount of detail on unpicking that, I think what we can feel reasonably confident of is when we’ve looked at all those in the round and we’ve combined that with of course our improving margin trajectory and the savings that we’ve got coming through, both operational savings as well as what we can do from a very specific tariff mitigation point of view, then we’re comfortable that we’ll continue to see an increasing margin come through in 2026 and

Deepak Nag, CEO, Smith & Nephew: beyond. Right. And regarding devices, just to orient you, it’s both our single use, that’s PICO, and our traditional use product portfolio in Redisys and of course there’s some other products like Leaf that are included in there. And all of those products are growing. Very encouraged by the performance there.

PICO has had a long track record of delivering growth. And so Q1 just builds upon the trajectory that we’ve built up over time. So it’s a picture of continuing performance. With Renesas, now, it too was a growth driver, but we’ve got very solid kind of performance of Renesas as well in Q1, as we adapt our business model within that category. We expect that to be a more meaningful growth driver as we get into subsequent quarters.

So very pleased with how we’re positioned there and how we’re starting to perform. And Leaf is another component of devices. It’s still a relatively small part of our overall portfolio, but it’s been a nice growth driver for us. Hopefully, you’ll hear us talk more about it as we go through the future. But overall, all of the product portfolio is growing nicely within that category.

Deepak Nag, CEO, Smith & Nephew1: Great. Thank you, guys.

Deepak Nag, CEO, Smith & Nephew: Thanks, Veronica.

Jerry, Call Coordinator: Thank you. We will next have Dylan Van Haeften from Stifel. Please go ahead.

Deepak Nag, CEO, Smith & Nephew2: Hi, guys. Good morning. So just on the first one, just on the current working capital and with ortho, because from my understanding, you guys have at least a couple of years of working capital theoretically in ortho. Does that help you offset some of the tariff impacts? And is that sort of embedded into this number?

Deepak Nag, CEO, Smith & Nephew: Short answer is yes. But I wouldn’t get too carried away with the favorable impact of inventory because the devil, if you will, is in the details and it’s in the SKU mix, right? So, what we have, actually, and you’ve heard me comment on this before, which is one of the challenges we have is not only do we have high inventory, we started at the beginning of the 12.5% back in 2022 with the wrong mix, you will, right? We produce not quite, the right assortment of products given our underlying demand, which means that our inventory our new the new production now, the new inventory putting up is much, much healthier and we’ve given you some proxies to assess that. But the base inventory level will grow into over time.

So you put those pieces together. Yes, at a high level, it does help you having a bunch of inventory. But the truth is that there’s devils in the detail. And as we get produce the right mix of products to cater demand, that will be hit with the level of tariffs that we’ve got today. But you’re right, at a first level, the inventory does kind of help you.

Deepak Nag, CEO, Smith & Nephew2: And just one follow-up. Just thinking about sort of progression into the year, are you guys at all concerned about any consumer dynamics? And could you maybe just remind us the rough ortho private payer and co pay exposure is? And if you are at all concerned, any change of behavior there could change growth dynamics for the market?

Deepak Nag, CEO, Smith & Nephew: Look, I think the operative word here is dynamic, or uncertain. I mean there’s clearly enough uncertainty of dynamics here. But so here’s how we put it. There’s an underlying demand that’s driven by demographics. If you look at kind of our mix of businesses that go through kind of Medicare versus commercial that kind of helps you think about the relative exposure in each of our businesses.

At the end of the day, the demand for our products are based on medical need and underlying kind of demographic factors. So demand is likely to be there. But of course, particularly in The U. S, things like copay and other things do determine the level of the ability for patients to access that care. So yes, there is some level of concern.

And going back to some of the questions that people asked earlier on top line would be based on how we out turned in Q1 where we raise our guidance for the full year. Part of the reason why we haven’t is in fact to take some of these uncertainties into account.

Deepak Nag, CEO, Smith & Nephew2: Awesome. Thanks for taking my questions.

John Rogers, CFO, Smith & Nephew: Yes.

Jerry, Call Coordinator: Thank you. We will next have Robert Davies from Morgan Stanley. Please go ahead.

Analyst: Good morning. Thanks for taking my questions. I had three. The first one was just in terms of the China phasing that you gave, the sort of down 50%, which is progressing towards minus 10 over the years. Just be curious in terms of the visibility.

Give us a bit more color perhaps in terms of where that comes from, what’s the underlying assumption in that trajectory over the year? The second one was just on I know you mentioned some manufacturing or factory closures in different places. Just wondered if there’s anything more to do on that. And that sort of ties in with the third question, which is just where we are big picture on the 12 plan. What are the key elements of the 12 plan you still have got to achieve?

And are there any additional opportunities that you’ve come across over the last year relative to what you started out with? Thank you.

Deepak Nag, CEO, Smith & Nephew: Sure. So in terms of factory closures, the work the hard work around closing of factories, people impact associated with it, all of those things, that’s already done. So all of that done work was completed in 2023 and the early part of twenty twenty four. So what we’re expecting now in terms of the financial impact of that, as I indicated earlier, is when we transfer the production into our remaining facilities in Orthopaedics, Memphis and Malaysia, that we will see the benefits of basically the better cost position we have at those factories coming through. And of course, the fixed costs coming out of our cost base of the factories that we closed.

So that is we’re on track to seeing those financial benefits come through. So there’s no more, if you will, operational work that needs to be around factory closures. In terms of the 12 plan, the essentially there’s ongoing work from, what we embarked upon as part of the program that needs to progress, and the benefits that accumulate. But there’s no new initiatives that we need to kick off. It’s just a continued, kind of execution of the work that we identified and really embedding the new ways of working, the new rigor, the new culture of accountability that we’ve built in the organization that I’m very pleased with how that’s gotten, kind of embedded within the organization.

So in effect, taking the improvements that we’ve already made around 12 plan and making that stick. We’ve always said once the program kind of formally concludes as it has, the full benefits of that will flow through in the remaining year, and that’s the year in 2025. ’1 of those examples is related to the factory closures that you asked about. But there’s some of those in each of the other 11 elements of the plan. What we had said last year is we faced increased level of headwinds compared to what we started at the initiation of the 12 plan.

Inflation, a higher level of inflation for longer than we assumed. VBP in sports, that was not a factor at all at the time that we announced the program that ended up being highly material, for us. So we had to look for ways to offset those increasing headwinds. Some of those were going deeper and further than we originally envisioned in some of the elements of the 12 plan. In other ways, we had to look more deeply into our cost structure.

And when John came on board, we kicked off a zero based budgeting, kind of approach that allowed us to go after higher level of cost savings and more productivity, which is one of the elements of 12.5. We just went deeper as a result of some of the work we did there. So we have in fact, already done that in order to address the higher level of headwinds that we saw, relative to when we kicked off the program. So I feel very good about not only what these initiatives have delivered already, as we highlighted in our full year, but also how we’re set up now to see the accumulated benefits of those coming through in 2025. So all that going well.

And maybe, John, you

John Rogers, CFO, Smith & Nephew: can take the question around the phasing. Mean, Robert, I’m reluctant to give you even more breakdown on what is now a relatively small part of our business in terms of the phasing Q1. Mean, I’ve already given you quite a lot of detail, but just to help shape things a little bit. Obviously, the ortho side, we expect to see a reasonably strong recovery in our ortho as we work through the channel challenges. So we were down quite significantly in Q1.

We expect of to continue to be down in Q2, but on improving trajectory. Q3, a little bit down, but maybe flat and then a little bit positive in Q4. So as we fully work through those channel adjustments. Force medicine, it’s the same pattern of recovery through the year, but there’s a number of different dynamics there. There’s the annualization of the joint recovery piece as you go through the second quarter.

And then of course, there’s the impact of the AETVP in the second half. So that means that the actual movement in our sports, whilst it remains negative through the year, it’s an negative trajectory. So call it around 50% down in Q1 and then improving, getting less negative as we progress through the year, but still exiting negative because of the impact of AET. And then in fact, we look at our wound business and of course our EMT business, both of those remain in reasonably pretty healthy growth actually in quite strong performance. So that gives you a little bit of the component parts that shape up the overall trajectory that I described earlier.

Analyst: That’s great, very helpful. Thank you both.

Deepak Nag, CEO, Smith & Nephew: Absolutely. So that was our last question. So appreciate all of the interest, all the questions. Just to summarize, we’ve got a great start to Q1 and we’re set up well for continued delivery through 2025 and I look forward to updating you as we progress through the year. So thank you very much.

Jerry, Call Coordinator: Ladies and gentlemen, this concludes today’s call. Thank you for joining. You may now disconnect your lines.

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