Q3 2021 Smith & Nephew PLC Trading Statement Call
Secondly, we know there are still issues in orthopedics.
But we are addressing them.
The launch of unused cement less knee.
Filling a major product gap and we're working through the supply chain challenge.
And thirdly.
We've taken a strategic step to strengthen our commercial model.
Orthopedics and sports Medicine franchises will now be under a single leader this aligns with some of the important growth opportunities in the markets.
Namely a trend to decentralization and specialization and will better leverage Smith <unk> nephew strength.
I will cover those changes shortly.
First time Francoise will take you through the details of the quarter.
Over to you on consoles.
Good morning, everyone and thank you Roland and I always felt with another view of the third quarter.
Revenue in the quarter was $1 $3 billion.
With five 5% reported growth and two 3% underlying right.
The number of trading days was unchanged versus prior year, which is different from Q1, and Q2, which had additional days.
You can see on slide four our growth rate versus 2020 by Crunch on my son region.
Also in management was the fastest franchise up 10, 9%.
We also recorded positive year on year growth for both emerging market I don't know the sublease market.
Of course rates, reflecting pump different fees in the prior year. Comparative for example, you may recall that the U S had returned to growth ahead of other regions in Q3 2020.
Of course, the comparison to 2019, we still have a pool and you will find more detail in our release.
In the U S procedure volumes were impacted from August by outbreaks of the downtown area, particularly in tronc replacement ink.
Increased COVID-19 hospitalization and health care staff shortages resulted in lower elective procedure volumes.
And of course, that's just 2019 was therefore slower than in quarters, one and two although he was improving as we exited the quarter. Despite the supply chain challenges.
Our business outside of the U S, which represents around half of our revenue continued to recover and move closer to pre COVID-19 levels Europe accelerated I mean emerging markets in <unk>.
Young Latina America return to growth over 2019.
Looking specifically at China sales remained above 2019 with healthy end market growth.
Iva.
As in previous quarters, our growth was still impacted by China, where adjustments ahead of MVP implementation.
The detailed financial planning a negotiation point limitations are still ongoing.
I'll now move on to the detail by franchise, starting with orthopedics on slide five.
The decline of five five months.
Reflecting the headwinds of the desktop unions in the U S.
Fly constraints, we flagged to you in July on the channel adjustments ahead WPZ in China.
The supply constraints men, who could not fully benefit from the need a need market rebound outside of the U S.
Which you see reflected in the growth rate.
We have a number of actions to address the challenges and Roland will cover shortly.
And on the reconstruction of rollout of course continued with the European launch event housing yoga.
And trauma and extremities declined by four 2%. This segment now includes a U S extremities business, which are more which is a more legacy decline.
In sports Medicine joint repair grew by nine 5%, even with a 14 impacted by downtime in the U S. Recently.
Recent launches of phosphate six flags and helicoid Notley are both performing ahead of our plan on it.
It's encouraging to see me repair recovering to close to pre COVID-19 levels.
In <unk>, we announced the launch of the way I will pass it along.
Which feel blood vessels during procedures, such as total joint replacements. Unfortunately, then you won't bring our leading radio frequency technology from sports may be seen to an orthopaedic surgery applications.
This is an example of a portfolio leverage opportunities between our sports and orthopedics businesses, which we'll uncover more in a moment.
EMEA and tea growth was mainly driven by our tons go on I don't know if beside from Asia Pacific region.
Procedure volumes in the U S and Europe, I'll say recovery.
We're starting to see signs of an increase in the number of infections in the U S have small children return to school.
We are expecting increased demand 14 kind of semi procedures to follow and to drive demand for too long.
Yeah.
I mean, it's also with management, we delivered above market growth and the strong performance of the franchise I've seen across the regions and across the brands in recent quarters.
Reflecting the broad based improvement in commercial execution.
You know as long as one can be acceleration in Europe continued on the U S reached double digit growth over 2019.
Bioactive growth was largely driven by central in the quarter with floor surgical procedures in the U S affecting skin substitute volume.
And finally advanced once device benefited from our market expansion strategy for Pico and continued share gains and hospital conversions for rent.
U S.
We are pleased to see the performance of the franchise transformed over the last two years.
I'll finish with the outlook.
Recall that in July we repaid recalibrated on 2020, one guidance of 10% to 13% underlying revenue growth.
<unk> margin of 18% to 19%.
We frequently over the year now gone and we are in a position to be more specific.
We now expect both underlying revenue growth on the trading margin to be at the low end of the guidance ranges.
These reflect the revenue impact of the downtown area I'm from surgery volumes in Q3, which we expect to improve in Q4.
The ongoing supply constraints.
On the margin impact of higher cost inflation, partially offset by discretionary cost controls.
Clearly the guidance implies a lower underlying growth rate in the fourth quarter than in the first nine months of the yet he.
This is mostly due to the fact that they're all full fewer trading days in the fourth quarter of 2020.
With that I'll hand over to Roland.
Yeah.
Thank you Juan Pablo.
So when I look at the balance of the portfolio.
We're paying them more positives and negatives and this slide shows the contribution of each part of the business, that's where our growth so far this year and it compares to 2019.
Sports Medicine, and advanced wound management are above pre COVID-19 levels, which is great were very confident they will continue to outperform.
M. T is still a drag on gross but that's largely a market effect and it's starting to move in the right direction.
And the combination of commercial execution innovation.
And also value, creating M&A is really delivering this profitable acceleration that we want.
In orthopedics, where we aren't there yet.
With me is continuing to be the main headwind.
Some of the differences the market jointly placement has proven more sensitive to fluctuations as the Covid pandemic and then we have GBP in China, which is an additional headwind on.
That's specific to the franchise.
More optimistically.
Some new growth drivers are still in the early days of delivery such as the rollout of course.
And the entry into the extremities segment, and then of course, the launch of our cement with me.
However, there is still execution factors that need to improve.
And I'd like to talk about the actions, we're taking to address these.
So on the next page first we're tackling the supply chain challenges.
We've made really good progress on the factors that are in our hands.
Importantly.
I've also appointed a new head of operations with direct experience in our market who is leading the response.
He has a particular expertise in orthopedics.
We felt these primarily in orthopedics and D. Although some aspects also affecting other categories.
So the initial challenge was a productive life from Memphis.
Which is our main global orthopedics facility.
Excuse me.
The combination.
One of our.
National Labor market.
And specific local competition for people and created some temporary staffing shortages.
That's improving now we've significantly stepped up recruitment and retention with hiring fairs and additional incentives training.
Training and ramp up of <unk>.
New staff to full productivity takes a bit of time, but that is well underway.
And the second challenge was around disruption logistics, so actually moving finished products around the market.
This has also improved although some bumping is remains from global freight availability.
System improvements are helping here.
We're in the process of moving to a specialized logistics partner in the U S. After doing that in Europe as well.
And then finally and I think it's been widely reported.
There are increasing global shortages that inflation on some raw materials and components and particularly in electronics.
What the changes are likely to persist for a while.
But we're taking action to mitigate the impacts we've engaged with suppliers.
The new lead times, we've adjusted our production schedules and ERP systems to work with that.
And we're also looking in a broader context to protect supply by seeking prioritization for medical applications.
So in summary, I'm very confident in the team and in this plant.
Secondly, moving to the next slide we are strengthening our commercial model.
As we slowly come out of Covid pandemic.
I believe it's the right moment to make a change.
And I've been thinking about this for some time I've taken the decision to bring our orthopedic and sports medicine franchise together under a single leader.
This change applies to our global marketing and to the U S commercial teams.
The changing customer and market dynamics have created new high growth opportunities for us.
And the new structure will leverage our leadership in sports medicine, and a broad orthopedics portfolio.
And I believe position us to go after these targets more effectively.
Just a couple of examples here.
We know that care is becoming more decentralized I think this has been widely reported more orthopedic procedures are moving to the ASC or to outpatient settings.
Excuse me.
And we've seen that Covid has actually accelerated that.
Our sports Medicine franchise already has deep relationships with the centers that are starting to place hip and knees.
[laughter].
Then in orthopedics, we also see further specialization foot and ankle surgeons offer specialized in bone.
In both bone and arthroscopic repair that gives us another opportunity.
And then also in capital equipment.
We can take more of an integrated approach to selling out of digital surgery portfolio, including Corey.
And the updated arthroscopic towers.
When the two sales forces work together to pursue opportunities like these having both franchises under the same leadership will enable greater coordination, but also a more unified centralization.
And I believe this combined surgical business will be.
It will be led by our president of sports Medicine in E&C.
We've taken that franchise with strong profitable growth and leadership in many categories.
And some of you know Brad Turner has been with US for nine years and previously successfully led you Europe and also global marketing and also orthopedic has broad orthopedic excuse.
Under his leadership.
Expect the team to drive strong commercial excellence throughout and also identify efficiencies overtime.
Now we've addressed it.
Large gap in our orthopedics portfolio.
And I'm very pleased to announce that the launch of our cement less knee option is now underway. The first U S surgery.
With leaching controller were performed in October successful.
The conflict technology.
Using three D printing of titanium to generate the network a pause where initially bone fixation occurs.
You can see on the right side of the slide.
This technology is already proven in use in hips was I read that revision system, we're now bringing it to lease for the first time.
Now this is just the initial steps will continue to develop the family of products.
Plan to add the domestic implant to Corey.
Our next generation robotic surgery system in 2022.
We're also working on bringing some of the.
Other parts of our portfolio of course, and we're initiating clinical studies to seek approval.
In other regions of the world.
In commercial terms that instrumentalist gives us access to a key segment.
More than 400 minimum value in the U S.
And growing faster than the rest of the market growing at double digit rates actually.
Also by filling the one gap in our offering a better positions us to pursue new businesses with the portfolio as a whole.
And on top of the organizational changes. This launch is really an important step in returning to me the knee business. The market grows we expect the benefits to be visible in 2022.
So in summary, and looking at 2020 one after nine months.
I'm delighted by the performance of the sports Medicine, and advanced wound management franchises.
Which together all right around 60% of our total business.
We're showing that we can drive strong and profitable growth.
Bring consistent commercial execution, together with internal innovation and high quality acquisitions.
And I'm confident that this will continue.
Turning towards the Phoenix.
Supply chain challenges have been disappointing with force.
We've made good progress here on addressing the issues under our control and there's more work to be done.
And there's new operations leadership team is now fully engaged.
The decision to strength, our commercial model, it's something that I've been reflecting on for some time.
It is.
Playing to our strength and without end markets recovering now was the right moment to make that change.
This I believe is the right strategy to return to above market growth.
On innovation.
Can't say enough I'm really excited about Rover pipeline, starting to rollout a cement less knee is an important milestone of course and there's more to follow across all of the franchises.
Finally.
We look forward to talking more about the topics, we've highlighted today and what we're doing to win in each part of the business.
We have a meet the management event scheduled for December 16, and looking forward to engaging more with you then.
And with that.
I'd be happy to take your questions now thank you.
Thank you if you would like to ask a question. Please press star followed by one and I tend to think he pack and then if you change your mind. Please press star followed by Chase.
Okay.
Our first question today comes from Tom Jones of buying back tell me. Your line is open. Please go ahead with your question. Thank you.
Good morning, and thank you for taking my questions I'll I'll keep it to just to the first thing I just wanted to clarify on your sort of expected performance in Q4, obviously with you haven't gotten 14% growth in the first nine months and guiding to 10% for the full year implies quite some significant deceleration.
Keith or maybe even just slightly more than.
The four seven days would have what would account for so I just wanted to make sure. There was nothing beyond comp effects and the selling days that gives you any cause for concern across any of your franchisees that would lead you to expect but perhaps looked out on an average daily sales basis.
Deceleration in Q4 versus Q3.
And then the second question was just on the sort of logistics and raw material.
Issues that are affecting your business.
To what extent do you think these are things that are affecting everybody and therefore, just the market that is kind of being restrained or are there. Some areas, where you think youll being disproportionately impacted by these issues and are perhaps as a result, losing a little bit of share.
Just trying to kind of tease out whether it's somebody that's affecting everybody equally and that full unwind.
When these issues resolve or was this something specific to Smith <unk> nephew that unfortunately affecting you disproportionately.
Okay.
Thank you Tom Thanks for the question on quarter four.
I can make it very short this is before selling days theres nothing else everything else, we factored in and then we've also mentioned obviously.
There is like the coffee variant the delta ovarian phase to be B P. In China, but as I said everything is factored in so nothing that we haven't covered yet.
On the logistics question I'll.
I'll just give you a couple of examples of some of the raw material shortages that we see its the resin. It's it's silicone its electronic components some of the circuit.
So good boards.
I think it's been widely reported I can't speak for our competitors, but I would expect that they've seen the same whether it'd be seeing it in the same context and with the same rigor I cannot comment on them. But these are mainly those are the areas, where we're seeing global supply challenges and we see.
Those also across different industries, so it didn't come as a surprise.
We're going we're very close with our suppliers and with our sub suppliers. We're really trying to get ahead of this and looking at the lead times are factoring this into our manufacturing plants.
To absorb this typically where small buyers in the big scheme of broader industries of these raw materials. We typically also have an ability to pay.
So I think we were in whether we're in a.
We're in good shape here.
In the broader context, we're also looking to seek for a priority for medical applications and medical products as an industry and as individual company.
For for raw materials shortages to be actually then prioritized due to the medical device industry. So there's a lot going on here are quite a few moving parts.
Perfect and maybe just to follow up on the on the raw material side, if you had to kind of try and split the impact.
The challenges you're saying how much of it is it's kind of a price effect in <unk>.
How much of it is just simply an available and it doesn't matter what you pay you can't get hold of it.
Yeah, that's a good question, Tom and I think.
You will appreciate that this is of course. These are these are moving targets. Initially when there is a shortage. What you do is you you pay for.
You you you pay more.
And then there's some elements where literally there is there is a bigger short teaching and.
When when raw material has to be allocated. So this is this is moving I think we're going to see this for quite some time until the global supply chain actually again.
But I believe overall, we have a relatively good handle over there because we have.
As you would expect we have a long lasting suppliers there will need to be qualified and validated. So we know we know very well what the sources are.
And maybe just one final question on this before I get back in the queue pricing.
But I think the general message is that there's not much you can do on the pricing side, but is that starting to change a told are there any areas of your business, where you have been able to feed our you know these cost pressures through into into higher prices.
Well, we've seen of course, where we're seeing some inflation.
On the materials and I'm afraid.
On pricing we haven't seen.
More.
Announced pricing pressure in this period.
Excuse me I think we what we are seeing of course now with.
That some of our customers of course or so.
Affected by some supply issues. So I think price becomes actually the smaller part maybe it's really availability that looks at.
Two into the center of the discussion.
Okay perfect. That's all very helpful I'll get back in the queue. Thanks very much. Thank you. Thank you Tom.
The second question of today comes from Lisa Clive of Bernstein. Your line is open. Please go ahead. Thank you.
Hey, Thanks, I guess.
The question about.
Thank you.
So again I'm sitting on my understanding of the surgeon.
With patterns they tend to be very loyal to their main manufacturers.
You haven't seen that much product in the market what have your knee surgeons doing have they been using another manufacturer for that segment of their knee procedures have they been sticking with I guess nothing that didn't need more than their peers I'm just trying to understand whether this launch.
Two.
I guess regaining volumes.
You can see the incremental volume growth.
Or whether you may benefit from the higher ASP.
That one models.
Thank you for the question sorry, I missed the name, but the line was a little bit blurred there but.
Now.
What we've seen so far.
Our customer base.
Some customers continue to use our products when they just use the cement adoption. They do this because they are very familiar with the product.
The surgical technique and everything and they like they like the product and the features some that then use to mentally lease from from competitors.
And I think Thats Bose, where we see the opportunities going forward.
We have two very well established brands in the market in the U S with Legion in Germany too.
Bose with cemented options only and as we move into cement that will give those those searching the option to use the mentalist is on the same known brands with the same.
Product philosophy, and surgical technique and then in addition, they will allow us to actually compete in Memphis markets, which were not competing today.
And that has prevented us from from approaching some larger centers, who would not take a system onboard that doesn't offer both options. So we see opportunities with existing customers and we see opportunities with new customers.
Okay, and then just a follow up.
We've seen this resurgence in that class.
Yes.
I'm trying to understand.
How to layer in the adoption of <unk>.
Got it.
Very good.
First is the adoption of the Metlife I E.
From one another or noticed the victim Atlas happening and procedures that are using whereby.
Yeah, very good question actually and I think that in a way that can be separate but they can also go hand in hand.
I think the cemented option does not prevent us from from Korea, or robotics of course and of course, if the systems are all proprietary so you can only use Corey we Saturday implants.
But what we've seen is with.
Advent of robotics, we have also seen that chase to cement lists and the simple reason is that.
Cement less centrally as Quaker because you don't need to wait for the bone cement to harden intra operatively that gives you anywhere between eight to 10 minutes and the time advantage and that's why the cement with me have been used more in robotics.
Again here, we see opportunities.
As we bring cement Lewis with.
The cement adoption onto Corey.
Great and then Walmart.
High level question I do think about that.
Ambulatory surgery center, that's happening in the U S.
Can you explain to me, where the incremental volumes in the assay that's coming from is it started getting too.
What are they doing.
Procedure in a hospital, who know about it.
But our relationship with Athene and it just sits at that point out in which case, it's not really much of an opportunity for us.
Sure sure because I assume that that's starting with equity tariffs that have caught manufacturer or is it.
No more surgeons historically worked in an ASC setting like sports medicine doctors doing more.
Sure.
Thank you Sir.
Yeah.
Yes. Thank you that's a really good question I think it's both actually.
A sudden shifts from the from obviously the standard hospital to outpatient or ASC.
This has been accelerated through Covid as you would expect patients prefer to go to an outpatient setting same day surgery of course is more attractive what are you all.
Also seeing is a shift to I would say that the younger the easiest to operate patients who actually can be operated on doing going for same day surgery.
And what we have what we have seen is actually.
The number of.
Procedures done in ASC is about doubling in this period of.
So the trend is paying will continue to to to persist.
And then of course that gives opportunities to physicians.
Two to operate in a season the number of Asp's has been growing.
Really rapidly over the last several years I think.
We now have more or the same amount of <unk> in the U S. As we have hospitals and we continue to see that shift from from a low base of course, we think that for total knees them. The number of knees performed in AUC is probably between 10 and 15%.
We've seen this as I said, we've seen this number double.
And the big advantage for US is of course, we know those aac's, where our sports medicine franchise with calling in those these are our core customers.
Four four for sports Medicine interventions and then in addition, I think we continue to see some specialization, which is also fostered by by Acs where.
Physicians continue to specialize on certain procedures.
Market their skills.
And then it also leads to a further shift into the Decentrally environment.
But just the last follow up.
Obviously, they took more procedures getting done.
U S D.
Do you think you have a higher market share today in the ASC setting.
Hospital.
And would your knee replacement and New York life.
It's probably about equal at this stage, that's why we see we see opportunities to better leverage this room adjoined approach.
And really leveraging the contacts and the relationships we have through the sports medicine franchise. So in summary, I would say that market changed probably about equal maybe even a bit less.
Because again dac's tend to favor it.
Yeah.
Interest form option.
Hi, Thanks very much.
Thank you.
[laughter].
Our next question today comes from Hasan <unk> of Barclays.
I found your line is open. Please go ahead.
Thank you very much I have two questions. Please so firstly can you provide an update on your take out from the recent China tend to Ah results, where do you expect the impact to shake out for Smith, <unk> nephew and bought dropped through do you expect from that.
Cops and any offsets that you have.
And then to follow up on that one you know what are your expectations around further national tenders to the trauma or indeed sports Med and then secondly could.
Could you talk a bit about your expectations around the backlog of procedures as we look into next year and to what extent do you think supply challenges that you face.
This year will restrict your ability to fully realize this demands as things stand today. Thank you.
Thank you Hassan.
N V B P.
This all continues to be quite fresh so we will certainly be able to give you a more detailed update.
Full year, so the expectation is and what we've seen is distributors ordering.
Ordering patterns change in anticipation of lower prices. So the inventories have been reduced.
Think that for now this is something to the tune of about 20 to 30 million for us.
And then the big.
Of course, what we have.
While we are doing now is engaging in negotiations with the distributors.
On how to move the business going forward.
This is this is ongoing we know that the tender will.
The V B P tender will come into effect next year.
In March so we have that time to negotiate a deal.
Pricing with the distributors were obviously also looking at I would go to market, we will as soon as they make adjustments there to to reduce the cost to serve the market.
And and then take it from there.
National tender.
There've been regional tenders on trauma. So my expectation is that this will indeed be rolled out a national trauma tender.
And the same.
In the same fashion I do not expect that for sports for the simple reason that it is a.
A more complex business there is less national competition.
And it is a.
Business studies.
It made up both by arthroscopic buy the towers, the enabling technologies the joint repair. So it's it's a more complex business. So I don't see that supports at least at this stage until it's a smaller business overall.
Which probably won't lead itself to to to attendance.
Hum on the backlog.
Obviously, the backlog is there it's difficult to quantify.
Because we don't have access to individual patient data.
But there's different studies here that probably.
That I summarized.
As follows I'd say in the U S. The backlog typically gets worked on quite quickly. The incentives are lined it's a for profit market hospitals physicians are making money with total joint replacements. So the backlog typically has probably worked down and maybe two to three months.
We're probably seeing a longer backlog in our central European markets probably around.
Maybe six to nine months.
It's higher in the in the U K. This has been published it's probably in excess of 12 to even 24 months in the UK.
And then it's very difficult to lifting to go backlog and some of the Asian markets.
With different different patterns.
Maybe just one correction sodium as EVP the impact.
That we've seen even in the third quarter is more to the extent of $10 million, sorry, I said 20 to 32, the 10 million. So I wanted to correct that.
That's that's very helpful. Thank you Roland and maybe just a follow up I mean, what are the offsets that you have in China and what drop through should we expect from the cockpit to Abbott and I guess in this context and also in relation to the supply constraints.
You know what are the building blocks and fuel mind for 2022 in terms of margins.
The pushes and pulls and and to what extent should we still expect meaningful margin expansion.
Looking into 2022 based on what you know today.
Yes, so I'll try to answer that China. So.
Later, there will be a drop through but as I said, it's too early to quantify we will give you more details in our full year and once we were going through to their negotiations with other distributors I think there's quite a few moving parts there.
Certainly the distribution channels will need to be adjusted and we're working on this the marching toward the distributions will be adjusted our go to market will change and and we will certainly that's one of the levers that we have this is how we actually market and sell in the market itself.
What we've previously previously said I think you did about 50% drop through is truly a modeling assumption at this stage. So we will come back with more details. There are other opportunities of course is a further investments and shifts to more and sports which is going very well.
To further build out our <unk>, our wound management franchise, which is also performing so we have opportunities in China and then.
Last but not least of course.
The potential in China continues to be very large the volumes are expected to continue to increase over many years as access to health care.
It is continuously improved and also as we continue to see an aging population are not very different from other markets.
But I think that will also continue to fuel.
The need for in particular towards replacement.
And I guess Ah shall.
Can I pick up the question on unlocking and Roland if I may.
Yeah, Hi.
Right.
Clearly E haynesville for thinking about 2020 teens guidance.
They said he said when you look at 2021, and we've articulated how large an impact and we've talked about our R&D.
R&D investment, which will continue we've talked about the dilution from M&A, which means you should expect to stop them starting to lessen.
Of course there.
Thanks.
We can has been a headwind okay now I should turn into a town Halloween and then of course, there's a I think you were talking about and I think we're talking about eylea and nickel and nickel, where the effects of inflation umbrella Mikael. So that's kind of moving a unrelated to mitigate as much as we can.
And they kind of stuck in Egypt can you continue to and try and margin improvement.
Yeah.
And.
The one thing I might as well take the question on when do we return to pre Covid.
Imaging.
Clearly.
You know what you mean 50, a normalization of many factors.
<unk> being one of the supply chain.
Michael inflation that have resulted from that.
And currently as a result of all the things we haven't seen the operating leverage that you would expect.
To drive that.
You know, we will get back to pre COVID-19.
Yeah.
And I think.
Coming out of actually come out.
Very helpful. Thank you both.
Yeah.
Cal rise of kind of quote do you have the next question. Please go ahead. Thank you.
Great. Thank you for taking the questions.
So a lot's been asked but I wanted to touch on two areas specifically, one maybe could you just help give us some additional commentary around core and what you're seeing in the market and both what you see now, but then maybe you could talk about how you see the market evolving and I'm just trying to understand.
With with J&J launching their system as well we've got all the major ortho players with a robotic system on the market do you see true differentiation.
Capable of a shifting share from the robotics side and then number two is maybe talk about a little bit of in the U S. On the wound care devices side are you seeing early signs of pull through from some of the tenders on the device side into the broader wound care business or is that something that that we can expect in the future.
Yes. Thank you thanks for the question.
I'm Cory.
We've seen good continued adoption.
And it's really encouraging I think.
We've now also launched in EMEA and Asia, We've had sales in India as well. So we see some good adoption with Corey and I think absolutely.
There is differentiation potential in robotics now first of all as I mentioned. These systems are all closed so every implant system or provider has its own.
In robotics.
So that makes it an interesting.
Approach to the market because you can argue.
Either through implants or through robotics capabilities.
And I think that's that offers a differentiation potential in that case.
We have a very different approach in that we have a handheld system.
We have a bearing approach.
Importantly, I think also it doesn't require a pre a pre.
Surgery C T.
And the startup times, indeed or are actually very very short. So altogether. We believe we have a truly differentiated solution here and with a cement less knee option I think we also have no additional asset.
Two market so more to come.
And I think it's actually a good thing that all of the four big players now have their own robotic system, because robotics intra state and I think the differentiation. It's clear that it will also continue to to widen the gap to the smaller players who don't have robotics.
Great.
On wound care have been.
Really really very pleased with the development in wound care.
In the U S outside the U S. A very strong focus on execution and focus on commercial.
On commercial activities.
I mean, hence focus on larger tenders from C suite.
And and some distinct wins and some ideas. So we're seeing that coming through not everything has been able to come through due to the circumstances.
Some of that market is still depressed like them devices because of the lower surgical.
Volumes, but overall.
Is doing very well and we're seeing some of that pull through happening.
Yeah.
Our next question comes in from Veronica W. Haver of Goldman Sachs. Your line is open. Thank you.
Excellent good morning, Hi, I'm, French sauce, and Roland three questions from me please.
One I wanted to push it a little bit on the three organization had enough of ortho and sports medicine and for those of US on this call who've been covering your stock for a while I remember at that time, but this is the structure of it and actually that decision was taken four or five years ago to do that.
It's actually seem to drive some improved performance.
This is at the time, so I'm kind of curious why you aren't going back team that all structure and how you're thinking about the risks of disruption over the next 12 months or so as you integrate that we integrate the two businesses together and if you can also just confirm that skip kill if leaving that would be great.
So that's my first question. My second question is pushing a little bit on the ortho performance. Yeah. Appreciate obviously the market softened, but if I look at again at your performance comp adjusted relative to where Stryker and J&J have reported you arent, losing market share pretty substantially in all segments of our pitch to me.
Except for you ahead.
If you can maybe break out for us what impact do you think within that the supply issues.
Versus underlying momentum that would be helpful.
And just maybe a quick thought on why you think that.
Performance outside of the U S is still poor relative to what everyone else has reported and then my last question is just on V. B piece, you're pulling back I. Appreciate you guys are still trying to figure out the pricing dynamic but maybe.
Maybe a quick comment on where you think your volume market share will settle out because from the data that we see it looks like you have actually lost some volume share through the tendering process. So if you can confirm that or if I'm doing something incorrectly on that and let me know.
Yeah.
Thank you Veronica.
Let me start with the real work I think you're absolutely right. They used to be a time. When this was together I think the markets have evolved.
Markets have changed we continue to see that trend to decentralization that I've mentioned and it has actually accelerated quite remarkably through the pandemic I don't think it will go back.
If you talk to Big Health care systems, it's all about managing the patients in the appropriate setting and whatever can be done in a decentralized setting will be done in a decentralized settings.
There's also been a big advancements in surgical techniques.
Improvements around the surgical procedures smaller incisions shorter lengths of stay same day surgery, and then also improvements on the material sold together I think.
George replacement is now firmly moving into an outpatient or even the same day setting.
And I think that's one of the main reasons, we also see the specialization.
And of course that is different in different markets, but certain specialization of course happens around foot and ankle around these around shoulders, where you see surgeons performing only these surgeries.
In this and that to me, but then across the different options, so doing ACO as well as to knee replacement and so again that also lends itself to.
Special Atlas and I think we have a great opportunity here because we are a very strong player in sports because we are calling them too.
The agencies in the U S.
I'd also make clear that.
This doesn't mean that we are combining the sales forces.
That doesn't need to be so I think the disruption will be actually very minimal if none.
It's really aligning way, we can and providing a common incentives.
Kind of how we address common surgeon customers.
Yeah.
Customers are still distinctly different we will continue to run a separate sales forces.
Yes, skip is leaving that's correct yes.
He has.
Decided to pursue an opportunity outside of Smith <unk> nephew and at this stage I also wanted to thank him for his contribution in the last three years and really driving very different momentum through two orthopedics.
The orthopedics performance in the quarter I think he was he was a softer performance in the quarter, you're absolutely right I would say knees, where we see is what we've mentioned no new issue, it's the cement less knee gap.
It was a faster growth in that subsegment of cement us where we are until today. There has not been able to play so that has caused this market share.
Hips outside the U S. It is mainly a supply issue.
We haven't been able to supply our customers as we want it so.
It's a mixed impact then I would say probably half.
Half is portfolio in the past this is a supply.
Finally on V B P on for Matt.
Keeping hambro Atlanta quantifying them until the supply impact on me, that's not precise science and to be able to on current car owners.
It's come in helping huh.
It's not it's not a science.
You make it the best that we can you know what.
We believe the supply headwind what was around $20 million to $30 million.
Uh huh.
Uh huh.
Uh huh.
Okay.
Alright, two in California.
No no not at all thank you and as far as third question around Pvp in the volumes.
We have been awarded the volumes that we were expecting I haven't seen this to be less than than before matter of course.
We also have to think of these volumes in a way a right to play.
This has now been we've all been you know what.
In a way validated as vendors.
Those who have been awarded the Pvp tenders.
And I think the volumes has got two things shake out, but we look at this as a minimum volumes.
And and to the expectations that we've had prior I don't see I don't see our volumes dropping through the PPP.
That's that's very helpful and can I just quickly follow up on that.
On the need for a cement license. She obviously that will be a few health I mean, you asked but not necessarily meal U S markets, where do you think you need to do outside of the U S to improve beginning in.
Montana or is that really just a supply issue and as that resolved do you think Oh, you asked me about small cell in Peru.
Yeah. So I think it's the combination of two I think we will have opportunities with the mentalist.
But indeed, the trend to cement less is more pronounced in the U S.
And the pricing differential is also higher in the U S from cement cemented then in particular in Europe, but the options to have some influence will of course help us in Europe.
Especially around large centers.
Large public health care system.
Hum.
Then supply of course is an element and that will help them you need to get that we need to get that right.
And finally, we will also.
Supported by the further rollouts with Corey.
The entire robotics platform.
Because of course predominantly this is being used for.
For the soldiers.
Got it thank you Beth.
Thank you Veronika.
A final question on the line comes from David Adlington of Jpmorgan. David Your line is open. Please go ahead. Thank you.
Thanks, Robert I mean, my quick question can answer it, but maybe I'll just push a little bit further.
Want to give.
A lot of color around next year, but just maybe high level, you've got an 18% base for this year and I think historically put it towards ethics tailwind for next year to 40 to 50 basis points. The first question is.
Is that 40 to 50 basis points tailwind still stand where we are today.
And then I support our offense, that's why you mentioned it but you pointed towards return to low Twenty's margins. If you get back to you with 2019 volumes.
I think it will be that next year, maybe some.
Hollywood coming to that what do you think it will be that an extra one offs and.
And even with the V P P.
Do you still think that stems that that sort of low twenty's margin, but they sort of volume. Thank you.
So that's I think the first question.
Question, you're right to say, we are not giving guidance on <unk> yet.
Our practices.
And to reiterate what I sat down and yet we that this class humor to TEP.
For next year.
Tons of them.
The macroeconomic environment inflation inflation question as everybody has seen it.
Pi and the global supply challenges.
Which we look to offset the one you should expect to see continued margin improvement year on year.
But we will not be back to pre COVID-19 levels.
In terms of getting back to pre COVID-19 levels, it's really dependent not only guests don't reenter stepping back to volume that the economy. The world has been significantly disrupted.
I think we all think not just about.
Miles level itself.
So the normalization and of trading competition.
And you know what will happen to inflationary pressure.
We need to add back on a more direct route to V. P. P to your point.
There's quite a few a few moving.
In terms of stuff every time to pre COVID-19 level.
It remains our ambition, but we need to see some normalization and affect some of the pressures we see today and then finally in terms of the effect.
Tailwind for for next year I can say.
Agencies are suffering like me.
Mobility.
But more to come on that.
Yeah.
Perfect and then maybe just one quick follow up I mean on the supply chain issue.
If demand does come back.
We have a supply chain resolved quickly enough do you think in order to be able to meet increased demand.
So as we've outlined in the presentation.
Based on those three components to the supply chain you see there was a neighbor.
Vote, and articulate the Labour manifesto ATP not precisely call announcements related.
Crazy, we're making progress.
And then there was Halloween network, you know distributional logistics, which were increasing.
For the third completing 19 of raw material challenges destruction.
<unk> I'm not familiar with it.
Harder to choose.
Our forecast.
There was an impact the global supply chain for many companies and that's the run rate. It sounds like you have a view and actually articulated with working with our suppliers. We started dosing in terms of our production planning.
The tests, all the time and that's some of that.
Doing what we can control in terms of breaking out the time.
Nothing like that.
I cannot unfortunately.
Okay, great. Thank you.
Okay.
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Thank you operator, and thank you everyone for dialing in.
Thank you for your questions and wish you all the best and we'll be in touch soon hopefully we'll.
Here and see you all around our meet the management. They are December 16th Thank you very much.
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