At an ‘inflection point’, Smith & Nephew predicts that faster growth will follow current challenges
Smith & Nephew released medium term orientation, predicting that it can operate despite the current headwinds to emerge as a higher growth company that generates consistent organic sales increases of 4% to 6% by 2024.
UK medical technology company Smith & Nephew has suffered a difficult pandemic, with business-specific issues compounding industry-wide challenges caused by COVID-19. Yet CEO Roland Diggelmann, after two years in office, now believes Smith & Nephew is at an inflection point and is confident enough in the platform he established during his tenure to predict growth that exceeds historical levels.
“Over the past few years, we’ve added new growth engines, we’ve restructured our business model, and we’ve incorporated a new culture. We are now on the verge of transforming into a company with higher structural growth. Diggelmann said on Investor Day last week.
The expected 4% to 6% organic growth is based on the belief that Smith & Nephew can maintain its recent profitable growth in wound care and sports medicine, while restoring the momentum its orthopedic franchise had before it was introduced. it does encounter many problems.
Smith & Nephew saw orthopedic device sales rebound after winter wave of COVID-19 but recovery below analysts’ expectations. Second quarter sales are down 6% compared to the same period of 2019. The slow recovery, which continued in the third trimester, reflected the fact that Smith & Nephew has issues specific to its business, in addition to a host of challenges facing the orthopedic industry at large. Diggelmann put an optimistic turn to the situation.
“There are still challenges in orthopedics, but in reality they are quite narrow. What we need to correct are the short-term supply constraints, which have halted the progress we have had in hips and trauma. , then the current slow growth in the knees. I think it’s important to remember that [slow growth] came after many years of outperforming and when we fill the portfolio void with the cementless knee rollout we will be very successful, ”said Diggelmann.
Later in his presentation, Diggelmann explained in more detail the current state of specific and industry-wide challenges. Smith & Nephew’s specific supply issues related to the staffing of its Memphis, Tenn plant. After stepping up recruitment, Diggelmann expects production to improve as new staff level up.
Smith & Nephew has also faced specific logistical challenges, but the backlog of finished products it needs to deliver to customers is decreasing, according to Diggelmann. While warning that “there could still be disruption due to external freight disruption,” the CEO said the challenges specific to Smith & Nephew are expected to be fully resolved in the first half of next year.
Even if Smith & Nephew achieves this goal, the company, like its peers, is still facing supply challenges in 2022.
“It’s a little more difficult to predict the widely reported global shortages of certain raw materials and components, such as electronics,” said Diggelmann. “We are closely managing supply issues – on a case-by-case basis – and have streamlined our processes to be more opportunistic and act quickly when additional supply becomes available.”
Supply chain issues are one of a series of issues that include healthcare workers and inflation plaguing Smith & Nephew and its orthopedic rivals such as Johnson & Johnson, Stryker, and Zimmer Biomet. The confluence of factors has led companies to predict a relatively slow recovery from the delta variant wave even before the spike in omicron cases raised the prospect of further delays for non-emergent procedures.
Successive waves of COVID-19 have created significant backlogs of patients awaiting hip and knee surgery, particularly in some European markets, and raised the possibility that medical technology companies will benefit from an increase in procedures as healthcare capacity improves.
Smith & Nephew CFO Anne-Françoise Nesmes noted the backlog but downplayed the prospect of its rapid conversion into medical technology sales.
“There is more recovery to come from COVID. For joint replacement, we still expect to see an advantage at some point in pent-up demand as health systems catch up, although sadly we all know the newer variants of COVID are a reminder of just how badly. it is difficult to predict when the recovery will take place, “Nesmes said.” Our assumption is that the wait list will be processed over time, but the speed will vary by market and will generally be very gradual. “
The company’s growth forecasts do not depend on pent-up demand.
The remarks prepared by Smith & Nephew in the mid-term update lacked discussion of the 2021 forecast, reflecting the fact that the company believes it is still on track to deliver the forecast it made at the time of its third quarter results. At that time, Smith & Nephew said it planned to hit the low end of its forecast for 10-13% full-year sales growth. Smith & Nephew grew 14% in the first nine months of the year.