Q4 2023 Smith & Nephew PLC Earnings Call

[music].

Okay.

Deepak Nath: Okay. Good morning and welcome to the Smith & Nephew Q4 and Julia 23 results presentation. Deepak Nath, Chief Executive Officer, and joining me is Chief Financial Officer Anne-Françoise Nesmeth. As you know, this will be Anne-Françoise's last set of results for Smith & Nephew. It has been an absolute pleasure working with you. I'd like to thank her personally for all that she's done.

Good morning.

Welcome to the Smith <unk> nephew Q4.

In full year 'twenty results presentation.

<unk> Chief Executive Officer.

Joining me as Chief Financial Officer, and funds wasn't as Mrs.

As you know this will be enforced forces last set of results for Smith <unk> nephew.

It has been an absolute pleasure working with her and I'd like to think of personally for all that she has done and her time as CFO.

Deepak Nath: Thank you for taking the time to see us. I'd also like to take this opportunity to welcome our incoming CFO, John Rogers, who's here today in the audience. It brings a wealth of experience to the company, and I very much look forward to working with them. John will be up here with me going through the numbers that are the Q1 trading update. I'm pleased to report a good finish to 2023 with underlying revenue growth ahead of the guidance that we'd already raised during the year. And all three of our business units grew by over 5% for the full year, which is a clear demonstration. Scranton Bar Portfolio

I'd also like to take this opportunity to walk through our incoming CFO John Rogers.

Who's here today in the audience.

He brings a wealth of experience.

To the company in a very much look forward to working together.

John will be up here with me going through the numbers that our Q1 trading update in May.

I'm pleased to report a good finish to 2023 with underlying revenue growth ahead of the guidance that we had already raised during the year.

And all three of our business units grew by over 5% for the full year, which is a clear demonstration of the strength of our portfolio.

Sports Medicine, and E&P had a very good year accelerating to double digit growth despite a slow China market.

Deepak Nath: Sports medicine and ENT had a very good year, accelerating to double-digit growth despite a slow Chinese market, and Advanced Wound Management has also maintained its nomenclature. Fixing orthopedics is still a work in progress, but I'm encouraged by the progress of the 12-point plan and the higher overall growth that we've delivered. I'm also very pleased that we've achieved our target margin of 17.5% for the year, despite macro headwinds from inflation and transactional FX left. That included a significant year-on-year step up in the second half, and the organization showed what can be done, and Carl. The company is well positioned going into 2024. We continue to transform the way we operate Smith & Nephew. Dribes, and Accountable Business Units.

And advanced wound management has also maintained its momentum.

Fixing orthopedics is still a work in progress, but I'm encouraged by the $12 plan progress and the higher overall growth.

We've delivered.

I'm also very pleased that we've achieved our target margin of 17, 5% for the year. Despite.

Despite macro headwinds from inflation transactional FX.

That included a significant year on year step up in the second half.

And the organization showed what can be.

And cost discipline.

The company is well positioned going into 2024, we continue to transform the way we operate Smith <unk> nephew.

Mr drives.

And accountable business unit structure.

Our progress against the plan as laid the groundwork for.

Deepak Nath: Our progress against the plan has laid the groundwork for... better product availability and improved set deployment by the end of the year. Our innovation strategy is delivering a strong pipeline of new products to drive consistent high growth over the coming years, and our productivity... For 2024, we expect another year of good growth and margin expansion, and I'll come to the details in the Outlook section. So the improvements we've made to how we do business have already translated into stronger financial performance in 2023, which is 7.2% growth on an underlying basis, after an 80 for an. Trading profit increased by 7.6% to $970 million, trading margin, which, as I've just for the year. A nearly $200 million improvement in working capital outflow resulted in a trading cash flow of $635 million.

Better product availability and improving set deployments by the end of the year.

Our innovation strategy is delivering a strong pipeline of new products to drive consistent high growth over the coming years and our productivity.

Okay.

For 2024, we expect another year of good growth and margin expansion.

And I'll come to the detail in the outlook section.

So the improvements we've made to how we do business have already translated into stronger financial performance in 2023.

Revenue was $5 $5 billion, which is seven 2% growth on an underlying basis and 6%.

After an 80.

Anne-Francoise Nesmeth: At 65% conversion, this is a good improvement in 2022, but there is, of course, still more to come. Adjusted earnings per share grew 1.3% to 82.8 cents, and we're proposing an unchanged dividend of 37.5 cents for 2023. I'll now pass you to Anne-Francoise to go into the details of today's results before I come back to discuss our outlook and strategic progress. Thank you, Deepak. Good morning everyone.

Yes.

Trading profit increased by seven 6% to $970 million.

Trading margin, which as I've just mentioned.

For the year.

Our nearly 200 million dollar improvement in working capital outflow resulted in trading cash flow of $635 million.

At 65% conversion. This is a good improvement in 2022, but there is of course still more to come.

Anne-Francoise Nesmeth: As Deepak said, this is my last set of results, and I'm pleased to be presenting to you a good set of improving financial results. So I'll start by covering the fourth quarter numbers that Deepak mentioned. Revenue was $1.5 billion, with a 6.4% underlying growth and a 6.8% reported growth after 40 basis point benefits from it. The growth, as you can see, was across all of our regions and businesses, and factors behind the strong finish included the contribution of recent launches, better product availability, and the rebounding bioactives following the successful transfer of Santo Manufacturing to Fort Worth, which was completed in June. Looking at the performance by geography, growth in the quarter was broad-based, with the US growing by 6.2%, established markets rising by 6.1%, and Emerging Markets growing by 7.0.

Adjusted earnings per share grew one 3% to $82.08.

Proposing an unchanged dividend of 37 five for 2023.

I'll now pass you to Amtrust was to go into the detail of today's results before I come back to discuss our outlook and strategic progress and Francois.

Okay.

Okay.

Thank you Deepak and good morning, everyone. As <unk> said. This is my last set of results and I'm pleased to be presenting T. A great set of improving financial results SaaS.

So I'll start by covering the fourth quarter numbers that <unk> revenue was $1 5 million billion dollars with a six 4% underlying growth and a six 8% reported growth after a 40 basis point benefit from exchange rate.

The growth as you can see was across all of our regions and businesses.

It is behind the strong finish included the contribution of recent launches better product availability.

Rebounding by Iraqis following the successful transfer of central manufacturing to Fort Bliss, which were completed in Q3.

Looking at the performance by geography gross in the quarter was broad based with the U S growing by six 2% established markets rising by.

Anne-Francoise Nesmeth: Growth in emerging markets includes, of course, the headwinds ahead of sports medicine BBP implementation in China. I'll now move to the details by business units, as we traditionally do, starting with orthopedics, which grew 4.9% in the quarter. Global Heaps and Heaps grew by 3.6% with strong out-of-US growth, reflecting improved product supply and commercial execution. U.S. recon was a little slower, and this was due to a combination of factors which we're continuing to address through the 12-point plan.

Six 1%.

And emerging markets growing by seven 6%.

Pricing in emerging markets, including of course, the headwinds ahead of sports Medicine Pvp implementation in China.

I'll now move to the details by business units as we traditionally do stocking with orthopedics, which grew four 9% in the quarter.

Global hips or knees grew by three 6% with strong out of U S Grace reflective, reflecting improved product supply and commercial execution.

U S recon was a little slow out and this was due to a combination of factors, which we're continuing to address really the trough point plan.

There were still some areas with product availability impacted key U S. S. K used during the quarter before improving by yearend we will.

Anne-Francoise Nesmeth: There were still some areas where product availability impacted key US SKUs during the quarter before improving by year-end. We also made further progress in set deployments, although again there is a lag before this reflects in the cell. Slower set deployments earlier in the year were still costing us growth in a stronger market, and together with some anticipated rep turnover, this limited our ability to win new business and offset the usual revenue. So overall, our U.S. performance is not yet where we want it to be, and this remains a priority. Other reconstructions delivered revenue growth of 19%, rounding out a good year with a record number of quarry placements in the quarter. Fulia installations came in a little behind our target, mainly from a delayed ramp-up in the slower Chinese capital environment, but the broad adoption picture is very positive and running ahead of our recon share position.

Also made further progress in set deployments.

So again there is a lag before this reflects into the sales.

Slower set deployments earlier in the year, we're still costing us growth in the stronger market.

And together with some anticipated rep turnover this limited our ability to win new business and offset than usual revenue share.

So overall it all yes performance he's not yet where we want it to be and this remains a priority.

Although reconstructions delivered revenue growth of 19% rounding out a good year with a record number of <unk> placements in the quarter.

48 installations came in a little behind the target.

From a delayed ramp up in a slower China capital environment, but the broad adoption of <unk>.

Sure He's very positive on running ahead of all recon share position.

Utilization hit a new high in the quarter building on the over 25% of U S knees being placed with robotics at the end of Q3.

Anne-Francoise Nesmeth: Utilization hit a new high in the quarter, building on the over 25% of U.S. needs being placed with robotics at the end of the year. We're bringing Corrie to the full range of surgical settings, from ASCs to teaching institutions. And we see customers committing in scale, with around a third of our new installations in the US coming as part of multi-million units. And that's all underpinned by Cori being the most versatile system on the market, supporting a range of surgeon preferences and a broad suite of procedures. And if you remember, in 23, we added the new solution, the slow solution, to give surgeons the choice between milling and cutting for the first time with robotics. We added unique functionality with a digital tensioner, enabling them to measure soft tissue tension before cutting the bone, and we added a revision indication which is not available on any other major robotics platform.

We're bringing <unk> to the full range of surgical settings for Macy's to teaching institutions.

And we see customers committing in scale with around a third of all new installations and you're in the U S coming as part of multi million unit deals.

And that's all underpinned by core being the most versatile system on the market supporting a right range of surgeon preferences on the broad street of procedures.

If you remember in 'twenty three we added a new solution due to the social elution to give surgeons of the choice between meeting I'm cutting for the first time, we've robotic.

We added unique functionality with the digital pension, enabling them to measure soft tissue pension before catching the bone and.

And we would need a revision indication, which is not available on any other major but what do you expect full.

Anne-Francoise Nesmeth: And of course, there's more coming in 2024, including supporting both image-free and image-based planning as options. And it's clear that Corrie has a strong runway of growth ahead. And trauma and extremities continue to play an important part in the orthopedics growth stories. Revenue grew by 5.8% in Q4, with double-digit growth in the US, reflecting the continued ramp-up of the EVOS plating system following improved product availability and capital deployments earlier in the year. EVOS can be a multi-year growth opportunity, and we're adding a further driver in extremities with the full U.S. commercial launch of the ACLOS shoulder system announced earlier in the month. As you know, sports medicine is a very attractive area of our portfolio. A steady flow of innovation and improving product availability have generated consistently high levels of growth for many years. The business delivered on-line revenue growth of 7.1% in the quarter. Excluding China, where we face a headwind ahead of EBP, Sportsmedicine and ENT grew 8.7%.

And of course, there's more coming in 2024, including supporting both Eamich free and image based planning as option.

And it's clear that Corey as well.

Strong runway of growth ahead.

And trauma and extremities continues to play an important part in the use of PD ex wife's stories revenue grew by five 8% in Q4 with double digit growth in the U S. Reflecting the continued ramp up of vivo plating system following improved capital avail.

Product availability and capital deployment early in the year.

Yvonne can be of course, a multiyear growth opportunity and we're adding a further driving an extremely teeth with the full U S. Commercial launch of the HOS shoulder system.

Now it's early in the month.

As you know sports Med D C and he's a very attractive area of our portfolio the steady flow of innovation and improving productivity.

Our generic consistently high level of growth for many years.

Business delivered underlying revenue growth of seven 1% in the quarter.

Excluding China, where we face a headwind ahead of V. P sports Med D. C N N Yankee grew eight 7%.

Within sports Med D C. In joint repair grew eight 8% in the quarter and if we strip out China gross would have been 12%.

Anne-Francoise Nesmeth: Within sports medicine, joint repair grew 8.8% in the quarter, and if we strip out China, growth would have been 12%. Our Reginitin Bioinductive Implant was the largest growth driver across the sports portfolio and will remain a key focus in 2024 with increasing market penetration and the development of new applications. We also added a new growth opportunity with the acquisition of Carl T. Hill, which brings the GDC Carcillage Repair Implant into Smith & Nephew. This is a novel treatment for osteochondral lesions that promotes natural regeneration of the cartilage and restoration of the underlying bone.

Our original 10 buying duct T V was the largest growth driver across the sports portfolio and will remain a key focus in 2024 with increasing market penetration and the development of new applications.

We also added a new growth opportunity with the acquisition of coffee Hill.

Which brings the call can you say like J D. C calculated repaying plant introduced me sending this Q D.

This is a novel treatment for still controlling Asia, not promote natural regeneration of knee cartilage.

Restoration of the underlying voting it has a broad indication, including the previously unaddressed population with lesions in knees with mild to moderate arthritis as well as the approximately 700000 patients that receive copied us repair annually in the U S.

Anne-Francoise Nesmeth: It has a broad indication, including the previously unaddressed population with lesions in knees with mild to moderate arthritis, as well as the approximately 700,000 patients that receive cartilage repair annually in the U.S. Additionally, the product is backed by outstanding clinical evidence and is a great fit for our portfolio. However, China, WBP, will be a headwind in 2024. The tender process is now complete, and we expect implementation in the second quarter of 2024. For the year as a whole, we expect around a 5 percentage point headwind to growth in sports medicine joint repair. Orthoscopic enabling technologies revenue grew 3.7% on the line, with good growth from coblation, the resection range, and patient positioning portfolio, and China volumes returning to a more normal level after a slow Q3.

And importantly, the product is backed by outstanding clinical if he does and he's a great fit for our portfolio.

China will be <unk> will be a headwind in 2020 for the tender process is now complete and we expect implementation in the second quarter of 2024 for.

For the year as a whole we expect around a five percentage point headwind to growth in sports maybe seen drunk repair.

Our first skeptic, enabling technologies revenue grew three 7% underlying with good growth from correlation resection range on patient positioning portfolio.

And the China volumes, returning to a more normal level after a slow Q suite.

Anne-Francoise Nesmeth: As we expected, demand growth in ENT continued to moderate in Q4, as we lacked some of the COVID recovery post-COVID recovery. As a result, ENT revenue grew 10.7%, led by our consult and adrenal business, which represents a return to more normalized procedure volume. And finally, Advanced Wound Management delivered underlying revenue growth of 7.8% in the quarter. Advanced Wound Care revenue grew 1.4%, primarily driven by our Foam Dressing and Infection Management portfolios, both of which grew mid- to high-single day. Bioactives growth of 12.5% was due to a very strong quarter for slant oil following the temporary delays to shipment we saw in the third quarter after the manufacturing transfer to Fort Worth.

As we expected demand growth in the anti continued to moderate in Q4 as we lap some of the Covid recovery.

Post Covid recovery pricing as a result E. N T revenue grew 10, 7% led by our Thomasville and entering a business, which represents a return to more normalized procedure volumes.

I'm finally advanced wound management delivered underlying revenue growth of seven 8% in the quarter.

Skin care revenue grew one 4%, primarily driven by a foam dressing and infection management portfolio, both of which grew mid to high single digit.

Bioactive squares of 12, 5% was due to a very strong quarter for central following the temporary delays to shipment we saw in the third quarter after the manufacturing transfer to forthwith.

Anne-Francoise Nesmeth: The rebound in Q4 included some stoking above normal levels, so you should expect bioactive will see significantly lower growth rates in Q4 2024 as we approach normal. Finally, the ongoing implementation of our Advanced Wound Devices Acceleration Plan is reflected in the underlying revenue growth of 14.9%, with double-digit growth from both our traditional platform, Renesys, and our single-use PCOS. The outlook for our wool business is strong.

The rebound in Q4 included some stocking of both normal levels. So you should expect bioactive will see significantly lower growth rate in Q4 2024.

If I could on lives.

Finally, the ongoing implementation of all advanced wound devices acceleration plan is reflected in the underlying revenue growth of 14, 9% with double digit growth from both our traditional platform renesys on all single use P codes.

The outlook for wooden base nicely strong we have a good position in what is an underpenetrated market.

Anne-Francoise Nesmeth: We have a good position in what is an under-penetrated market and a high-growth market, with the broadest portfolio of products and number one or two positions in each segment and geography. We believe we're positioned to move the growth rate higher in the coming years, including through gaining share in negative pressure on biology. Digital solutions to support clinicians in product selection and demonstrating the value of our existing platform by using our broad commercial reach to build awareness of our clinical needs.

High growth market with the broadest portfolio of products, a number one or two positions in each segment and geography.

We believe we are positioned to move the growth rate higher in the coming years, including through gaining share in negative pressure on biologics.

Digital solutions to support clinics and clinicians in product selection.

And then long straining the value of our existing platform by them using a broad commercial reach to build awareness of our clinical evidence.

Okay.

Now I'll move to the full year financials.

Anne-Francoise Nesmeth: Now I'll move to the full year financials. And to bring all of this together, for the full year, revenue was $5.5 billion, up 7.2% versus 2022 on an underlying basis, which was ahead of our guidance, and up 6.4% on a reported basis. Performance was broad-based, with all three reporting segments delivering growth above our mid-term target for the whole group. As you can see in the chart, orthopaedics grew 5.7% for the year, sports medicine and ENT grew 10.9%, and AWM grew 6.4%. Now I'll move to the summary P&L, where I'll expand on some of the comments in the next few slides on key elements. The underlying gross profit was $3.9 billion, with a gross margin of 7.7%, which is a decrease of 30 basis points.

And to bring all of these together for the full year revenue was $5 $5 billion up seven 2% versus 2022 on an underlying basis, which was ahead of our guidance and up six 4% on a reported basis.

Performance was broad based with all three reporting segments delivering growth above our mid term target for the whole group as.

As you can see in the shop Orthopaedics grew five 7% for the year sports Med D. C. N N E. N. T grew 10, 9% on a Wm grew six 4%.

Now I'll move to the summary, P&L, where I'll expand on some of the commencing in the next few slides and all the key elements in the next few slides.

The underlying gross profit was $3 $9 billion with a gross margin of 7.7%, which is a decrease of 30 basis point.

Raw materials inflation was clearly a key headwind with offsets from price increases across the portfolio and productivity measures in manufacturing and procurement.

Anne-Francoise Nesmeth: Raw materials inflation was clearly a key headwind with offsets from price increases across the portfolio and productivity measures in manufacturing and procurement. Trading profit was $970m, and an increase of $69m with positive leverage across operating expenses resulting in 20 basis points of trading margin expansion to 17.5% for the full year, again in line with our guide. While R&D was down on a reported basis, investment in constant currency continued to grow.

Trading profit was $917 million, an increase of $69 million, we supposedly to believe rage across operating expenses, resulting in 20 basis points of trading margin expansion to 17, 5% for the full year again in line with our guidance.

While R&D was down on a reported basis investment in constant currency continued to grade.

On slide 13 shows a more detailed bridge explaining the components of the trading margin expansion.

Anne-Francoise Nesmeth: And slide 13 shows a more detailed bridge explaining the components of the trading margin expansion. As you can see, we absorbed some major microeconomic headwinds in the year. I already mentioned the continued high input cost inflation, which cost us around 130 basis points of margin. In addition, we had a significant transactional effects headwind of 120 basis points.

As you can see we absorbed some major macroeconomic headwinds in the year.

I already mentioned the continued high input cost inflation, which cost us around 130 basis points of margin.

In addition, we had significant transactional FX headwinds of 120 basis point.

Anne-Francoise Nesmeth: And that arose from the fact we have a higher share of our COGS in US dollars than in our revenue. And so the US dollar's strength in 2022 resulted in a P&L headwind that was delayed into 2023 by our hedging program. But we were able to achieve around 160 basis points with our productivity savings, including those coming through the 12-point plan, and a number of moving parts, add up to the remaining 110 basis points shown under Revenue Leverage and Other, with Volume Leverage and Price increases more than offsetting higher labor costs. I'd also like to highlight the progress we've made as 2023 progresses. The second half trading margin of 19.6% represented 200 basis points of expansion over the prior period, with leverage on all expense lines in the P&A.

And that arose from the fact, we have a higher share of our Cogs in U S dollar and in all of our revenue and so the U S. Dollar strengthening 2022 resorts. He didn't appear healthy P&L headwind that was delayed into 2023 by our hedging program.

But we were able to effect around 160 basis points without productivity savings, including those coming through the 12 point plan.

And a number of moving parts.

The up to the remaining 120 10 basis points shown on the revenue leverage on other with volume leverage on price increasing increases more than offsetting higher labor cost.

I also like to highlight the progress we've made as 2023 progressed the second half trading margin of 19, 6%, representing 200 basis points of expansion over the prior year, we leverage on all expense lines in the P&L and.

Anne-Francoise Nesmeth: And I'm encouraged by the close of the year, which shows that we can drive significant expansion through gross leverage, better productivity, and cost savings. Now, on slide 14, looking further down the P&L, adjusted earnings per share grew by 1.3% to 82.8%. That's below the growth in trading profit due to increased financial expense, reflecting both higher interest rates and the negative associates contribution in the year, while the trading tax rate was broadly unchanged from 2022 at 16.2%. Basic earnings per share grew 18% to 30.2%.

And I'm encouraged by that close to the year, which shows that we can drive significant expansion through gross leverage better productivity and cost discipline.

Now on slide 14, looking further down the P&L adjusted earnings per share grew by one 3% to 82.8 cents.

That's below the growth in trading profit due to increased financial expense, reflecting both higher interest rates on the negative associates contribution in the year one of the trading tax rate was broadly unchanged from 2022 at 16.2% basic.

Basic earnings per share grew 18% to 30.2 cents.

I'm moving to the cash flow statement, we generated trading cash flow of $635 million in the full year with trading cash conversion of 65%.

Anne-Francoise Nesmeth: Moving to the cash flow statement, we generated trading cash flow of $635 million in the full year, with trading cash conversion of 65%. The increase over 2022 was primarily driven by a significantly reduced working capital outflow. And this was mainly as a result of improving inventory trends as the year progressed, and I'll come back to that in a moment. However, there was a partial offset from higher CAPEX as we accelerated instrument set deployments, both for established products and to support our launches, and we expect CAPEX to remain at a level of around 8% of sales in 2024. We're committed to further improving trading cash flow going forward, so it was encouraging to see a return to a more normal level of cash conversion in the second half of 2020. Under free cash flow, restructuring, acquisition, legal, and other outflows largely relate to restructuring under the 12-point plan and EU MDR compliance.

The increase over 2022 was primarily driven by significantly reduced working capital outflow.

And this was mainly as a result of improving inventory trends as the year progressed and I'll come back to that in a moment.

There was a partial upset offset from higher capex as we accelerated instrument set deployments both for established products and to support launches.

We expect capex to remain a level of around 8% sales in 2024.

We are committed to further improve trading cash flow going forward. So it was encouraging to see a return to more normal level of cash conversion in the second half of 'twenty three.

And on the free cash flow restructuring acquisition legal and other outflows largely relate to restructuring under the 12 point plan and the E M D. Our compliance cost.

Anne-Francoise Nesmeth: And as you'll see in the technical guidance, we expect both of those items to be significantly lower in 2024, with the MDR project coming to an end in the first. Now, I'll cover the inventory, and as you can see, the long-term upward trend has now stabilised and started to come down later in the year, and we are also building launch capital in trauma. And addressing this has been a specific focus of the 12-point plan, particularly moving manufacturing volume and mix back into line. For 2023, we were able to bring orthopedics DSI down by 5% for the year as a whole, even as we continue to invest behind the roll-outs of EVOS and ACS. Pulling all of that together, we are increasingly confident that inventory days across the organization have now turned, and we expect ongoing improvement in the coming years. And to conclude on the financials, I'll cover Net Debt. Net Debt ended the year at $2.8 billion, which was an increase of $241 million.

And as you've seen the technical guidance, we expect both of those items to be significantly lower in 2024, we the MTR project coming to an end in the first half.

Now I'll cover the inventory and as you can see that the longer term upward trend has now stabilized and started to come down later in the year.

And also we'll building launch capital in trauma.

In addressing this has been a specific focus on the 12 point plan, particularly with moving manufacturing volume and mix back into line.

For 2023, we were able to bring orthopaedics DSI down by 5% for the year as a whole.

Even as we continue to invest behind the rollout of evil tornadoes.

Pulling all of that together, we are increasingly confident that inventory days across the organization have now turned and we expect ongoing improvements in the coming years.

And to conclude on the financials I'll cover net debt net debt ended the year at $2 $8 billion, which is an increase of $241 million.

Deepak Nath: The leverage ratio finished at 2.1 times adjusted EBITDA, which is broadly stable and comfortably within our range of 2 to 2.5 times. In 2023, we refinance our $1 billion revolving credit facility, which now matures in 2028, maintaining our strong funding position. And in 2024, we have just over $400 million of private placement debt maturing, with the majority in November. And with that, I'll hand over to Deepa. Thank you, Anne Francoise.

They leverage ratio finished at two one times adjusted EBITDA, which is borghi stable and comfortably within our range of two to two five times.

In 2023, we refinanced our $1 billion revolving credit facility, which now matures in 2028, maintaining our strong funding position.

In 2024, we have just over $400 million of private placement debt maturing with a majority in November.

And with that I'll hand back to Deepak.

Great.

Thank you and francoise, so I'll now cover our outlook for 2024, so we're guiding for underlying revenue growth of 5% to 6%.

Deepak Nath: So I'll now cover our outlook for 2024. We're guiding for underlying revenue growth of 5 to 6 percent. So within that, you should expect further progress in orthopedics, driven by improvements in supply and execution improvement, especially in US Recon, and the continued rollout of our key growth products. We also expect to continue our strong performance in sports outside of China and in advanced wound management. VBP for some sports medicine products will be the main headwind, with close to 2% of our group sales that are within scope and the implementation, as Anne-Francoise mentioned, expected in the second quarter.

So within that you should expect further progress in orthopedics.

Given by improvements in supply and execution improvement, especially in U S Recon and the continued rollout of our key growth products.

We also expect to continue our strong performance in sports.

Outside of China, and advanced wound management.

V V P for some sports medicine products will be the main headwind with close to 2% of our group sales are within scope and the implementation is Anne Francoise mentioned expected in the second quarter.

Deepak Nath: Overall, this amounts to another strong year expected for the portfolio as a whole, with revenue growth continuing above historical levels, even after the effects of sports BVP. However, there's also phasing to consider through the year with a number of factors driving slower growth in the first quarter. These include a strong U.S. comparator from higher than normal surgery volumes at the start of 2023, and a slower first quarter for bioactives as the strong Santel sales at the end of 2023 unwind. In addition, trading days will initially be a headwind before benefiting growth later in the year. There will be one fewer trading day in Q1, then one additional day in Q2, and two additional days in Q4, for a total of two extra days for the full year. We also expect meaningful trading profit, or trading margin expansion, to reach at least 18% for the year. There are a lot of moving parts behind that, and the chart on slide 19 shows the major components of the bridge.

Overall this amounts to another strong year.

<unk> for the portfolio as a whole with revenue growth continuing above historical levels, even after the effects of sports Pvp.

Pete.

This also phasing to consider through the year with a number of factors driving slower growth in the first quarter. These.

These include a strong U S comparator comparator from higher than normal surgery volumes at the start of 2023 and.

And a slower first quarter for bioactive as the strong shanteau sales at the end of 2023 onwards.

In addition, trading days will initially be a headwind before benefiting growth and.

Later in the year there'll be one fewer trading day in Q1 than one additional day in Q2 and two additional days in Q4 for a total of two extra days for the full year.

We also expect meaningful trading profit the trading margin expansion to reach at least 18% for the year.

There are a lot of moving parts behind that in the chart on slide 19 shows the major components of the bridge.

Deepak Nath: Macro headwinds should be lower than in 2023 but have not gone away. Input cost inflation will continue to be a headwind, much as it was in 2023, although the transactional effects will be a substantially smaller effect at around 30 basis points. China's sports medicine VVP will be an additional factor this year, and we expect around 70 basis points of headwind from lower pricing before any cost and revenue offsets. However, we expect to more than offset all of those headwinds, and that will come from the combination of productivity improvements under the 12-point plan, including the restructuring program we had presented a year ago, and positive operating leverage from our continued higher revenue growth than in the past. As in previous years, we expect the trading margin to be higher in the second half than in the first half, although with a less marked step up than in 2023. Our midterm margin target of at least 20% in 2025 is unchanged, and the progress we expect for 2024 will keep us on track.

Macro headwinds should be lower than in 2023, but have not gone away.

Input cost inflation will continue to be a headwind much as it was in 2023, although the transactional FX will be a substantially smaller effect at around 30 basis points.

China's sports Medicine, B V. P will be an additional factor this year and we expect around 70 basis points of headwind from lower pricing before any cost and revenue offsets.

However, we expect to more than offset all of those headwinds and that will come from a combination of productivity improvements under the 12 point plan, including the restructuring program you had presented a year ago and positive operating leverage from our continued higher revenue growth than in the past.

As in prior years, we expect the trading margin to be higher in the second half that in the first half, although with a less marked step up that in 2023.

Our midterm margin target of at least 20% in 2025 is unchanged and the progress we expect for 2024 will keep us on track.

There is clearly still a further step up to come and as we've said before 2025 is the biggest margin improvement year of our plan.

Deepak Nath: There's clearly still a further step up to come, and as we've said before, 2025 is the biggest margin improvement year on our planet. However, there are more headwinds than when we set this goal 18 months ago, particularly China BBP, transactional FX, and input cost inflation that has stayed higher for longer. However, we're also a much stronger and determined organization than we were as a result of the 12-point plan. There are a number of positives to consider. First, the incremental impact of input cost increases should be reduced.

There are more headwinds than we than when we set the skull 18 months ago, particularly China BBB.

Transactional FX and input cost inflation that has stayed higher for longer.

However, we're also a much stronger and determined organizations that we work as a result of the 12 point plant.

There are a number of offsetting Pos positives to consider.

First the incremental impact of input cost increases should reduce it.

Deepak Nath: At the same time, operating leverage from a higher level of growth than in the past should continue. So the net of operating leverage, OPEX savings, and input cost inflation should be similar to the pre-VBP and pre-FX effects that we benefit from in 2024. On top of that, one of the major headwinds for 2024 will fall away and will be replaced by an additional tailwind.

At the same time, the operating leverage from a higher level of growth than the past should continue so the net of operating leverage opex savings and input cost inflation should be similar to the pre be BP and pre FX effects that we benefit from in 2024.

On top of that one of the major headwinds for 'twenty 'twenty four will fall away and will be replaced by an additional tailwind.

Deepak Nath: Sports Medicine VVP will largely annualize and so not be a meaningful incremental effect in 2025. And then, in 2025, we should instead see the largest block of our cost savings, the bulk of the manufacturing savings, flow through into our P&L. The work on our footprint that underpins those savings is well advanced. Putting all of that together, the pre-VBP, pre-FX margin expansion in 2024 can broadly repeat itself in 2025, with the additional manufacturing savings further lifting the trading margin and continuing beyond 2025. As you know, the 12-point plan is central to how we're improving our overall performance. We'll reach the two-year duration in the second half of this year. So while we've made a lot of progress, there is still more to come. What I'd like to do is take a step back and look at the overall picture since the plant's inception.

Sports Medicine, EVP will largely annualized and so not to be a meaningful incremental effect in 2025.

And then in 2025, we should instead see the largest block of our cost savings the bulk of the manufacturing savings flow through into our P&L.

The work on our footprint that underpins those savings is well advanced.

Putting all of that together the pre BP pre FX margin expansion in 2024 can broadly repeat in 2025 with the additional manufacturing savings further lifting the trading margin and continuing beyond 2025.

As you know the 12 point plan is central to how were improving our overall performance.

We will reach to two years' duration in the second half of this year. So while we've made a lot of progress there is still more to come.

What I'd like to do is take a step back and look at the overall picture since the plan's inception.

On a plan of this many initiatives will always be elements moving at different speeds. Some work streams, just take longer by nature, and others will meet their milestones a little faster or slower than envisaged at the outset tick.

Deepak Nath: On a plan of this many initiatives, there'll always be elements moving at different speeds. Some work streams just take longer by nature, and others will meet their milestones a little faster or slower than envisaged at the outset. Taken as a whole, though, we're clearly on track for what we set out to do. There are now multiple positive trends in orthopedics. On the operations side, implant availability has dramatically improved since the start of the product plan and has now closed more than 95% of the gap between the trough level and our goal. We are also more effectively deploying and turning capital, with set turns at year-end more than 20% higher than at the start of the plan. Commercially, trauma and extremities have accelerated to become an important growth driver for the whole business unit. Co-replacements and utilization have accelerated upwards, and our OUS Recon business has now accelerated to be ahead of the market. There's more to do in U.S. reconnaissance, and I'll come back to that in a moment, but we're also making good progress in productivity.

Taken as a whole, though we're clearly on track for what we set out to do.

There are now multiple positive trends in orthopedics.

On the operation side implant availability has dramatically improved since the start of the plan and is now closed more than 95% of the gap between the trough level and our goal.

We're also more effectively deploying and turning capital, which set turns at year end more than 20% higher than at the start of the plan.

Commercially trauma and extremities sales accelerated to become an important growth driver for the whole business unit.

Corey placements and utilization have inflected upwards.

And our O U S. Recon business has now accelerated to be ahead of the market.

There is more to do in U S recon and I'll come back to that in a moment.

But we're also making good progress and productivity.

Deepak Nath: Inventory Days and Cash Conversions improved through 2023. And as Anne-Francoise set out, we turned the corner and were on a positive trajectory by year-end, with orthopedic DSI down 5% year-on-year after a period of several years of increase. Pricing excellence is another success area, with positive realized pricing across the business units since the second half of 2022. And we've been doing the hard work on manufacturing optimization, with the planned facility closures in Tüdingen, Beijing, and Lyon now underway. The third pillar of the 12-point plan is building on the performance of our sports medicine and advanced wound management business units, which are also developing well.

Inventory days and cash conversion.

Improved through 2023, and as Anne Francoise set out we turned the corner and go on a positive trajectory by yearend with orthopedics DSI down 5% year on year. After a period of several years of increases.

Pricing excellence is another success area with positive realized pricing across the business units since the second half of 2022.

And we've been doing the hard work on manufacturing optimization, the planned facility closures and tooling in Beijing and Leon now underway.

The third pillar of the 12 point plan is building on the performance of our sports Medicine, and advanced wound management business units.

These are also developing well.

We've seen early acceleration in the focus area of negative pressure wound therapy, and we've more than tripled the pace of cross unit business deals and Asc's.

Deepak Nath: We've seen early acceleration in the focus area of negative pressure wound therapy, and we've more than tripled the pace of cross-unit business deals in ASCs. There is a new headwind with Sports Medicine VBP, which we did not expect at the start of the plan, and we'll need to work through that in 2024. Improving execution in orthopedics is still an important part of the story. As I set out, there is good progress in much of the business and other areas where there is more work to do. In total, subsegments representing around 60% of orthopedic sales are now growing at or above the peer average, based on the second half of the year.

There is a new headwind with sports Medicine, Pvp, which we did not expect at the start of the plan and we'll need to work through that in 2024.

Improving execution in orthopedics is still an important part of the story as I set out there is good progress and much of the business and other areas, where there is more work to do in.

In total sucks sub segments, representing around 60% of orthopedics sales are now growing at or above the peer average based on the second half of the year much.

Deepak Nath: Much of that is attributable to the 12-point plan. We're starting to recover the share that we had lost in EMEA recon, supported by better implant availability. And we have a dedicated initiative to drive CORI that is producing growth ahead of what we can see from Pierce. Trauma and extremities performance reflects much improved consumables and capital availability and has become a new growth story in our portfolio, driven by the EVOS plating system and, more recently, the ATOS shoulder. U.S. Recon Robotics is growing as a whole and has returned to its 2019 sales level. Even so, we're still not satisfied with our U.S. recon growth, particularly in need.

Much of that is attributable to the 12 point plot.

We're starting to recover the share that we had lost in EMEA recall supported by better in plant availability and we have a dedicated initiative to drive Corey is producing growth ahead.

Ahead of what we can see from peers.

Trauma and extremities performance reflects much improved consumables and capital availability and has become a new growth story in our portfolio driven by the Evo is plating system and more recently <unk> shoulder.

U S. Recon robotics is growing as a whole and has returned to its 2019 sales level.

Even so we're still not satisfied with our U S recon growth, particularly in knees that remains a key focus in 2024 as we continue through the final year of the 12 point plan.

Deepak Nath: That remains a key focus in 2024 as we continue through the final year of the 12-point plan. A positive sign is that operational KPIs continue to develop favorably. By quarter end, overall implant availability was almost at our goal of being in line with industry standards, including in some previously softer categories such as auxinium, with increasingly limited areas still trailing. On the capital side, HIP set availability has now reached our target level for the first time in the life of the plant.

A positive sign is that operational kpis continued to develop favorably.

By quarter end overall implant availability was almost at our goal of being in line with industry standards, including and some previously softer categories, such as <unk>, which with increasingly limited areas still trailing.

On the capital side hip shut availability has now reached our target level for the first time in the life of the plan.

Niche sets are improving but still have further to go with our kpis of instrument orders filled now at the level, where it was for hips back in May of 2023.

Deepak Nath: Knee sets are improving but still have further to go, with our KPI of instrument orders filled now at the level where it was for hips back in May of 2023. The focus now is to convert that operational improvement into revenue growth, and three of our priorities for doing that are listed on the slide. Firstly, we need to complete the improvement of knee set deployment up to our target level and drive greater utilization of both knee and hip sets that are out there. There is a process we've already followed successfully in trauma and OUS recon.

The focus now is to convert that operational improvement into revenue growth.

In three of our priorities for doing that are listed on this slide.

Firstly, we need to complete the improvement of knee set deployment up to our target level and drive greater utilization of both knees and hips apps that are out there.

There is a process we've already followed successfully in trauma and O U S recon.

Set availability is getting better so from here, it's a matter of executing our growth plans, while maintaining the discipline around capital efficiency.

Deepak Nath: Set availability is getting better, so from here, it's a matter of executing our growth plans while maintaining the discipline around capital efficiency. Secondly, we need to drive consistent commercial excellence. Part of that is continuing to advance our product milestones through the 12-point plan. But the cultural and structural changes we've implemented in the last year are also critical. We expected some initial sales rep turnover after the incentive changes, and that did play out in some areas as the year progressed.

Secondly, we need to drive consistent commercial excellence part of that is continuing to advance our product milestones through the 12 point plan.

But the cultural and structural changes we implemented in the last year are also critical.

We expected some initial sales rep turnover after the incentive changes and that did play out in some areas as the year progress.

Deepak Nath: We've prepared for that with a recruitment pipeline already in place and expect the new growth-oriented structures should increase in benefit as they become a settled way of doing business. Finally, we need to continue to drive our long-term differentiators at the same time, particularly CORI. We now have the most versatile platform on the market, and as we continue to build our installed base and utilization, that will both reinforce our relationships with existing customers and help us with new business. More broadly, I'm pleased with what Smith & Nephew is already delivering in terms of growth. 7.2% revenue growth in 2023 is well above our historical average, even taking into account the stronger recon market. This achievement is in line with our aim to be a consistently higher growth company.

We've prepared for that with our recruitment pipeline already in place and expect the new growth oriented structures should increase in benefit as they become a subtle way of doing business.

Finally, we need to continue to drive our long term different differentiators at the same time.

Particularly Corey.

Now how the most versatile platform on the market and as we continued to build our installed base and utilization that will both reinforce our relationships with existing customers and help us with new business.

More broadly I'm pleased with what Smith, <unk> nephew is already delivering and trumps of growth.

Seven 2% revenue growth in 2023 is well above our historical average even taking into account the stronger recon market.

This achievement is in line with our aim to be a consistently higher growth company.

Deepak Nath: When I look at what's behind the acceleration, it's sustainable drivers and is aligned with our strategy. We talked at our November Meet the Management event about the central role of innovation. Through internal R&D and M&A, we're delivering successive waves of technology, including new legs for growth, for products already in the market and further launches at the beginning of their life cycle. In 2023, the innovation benefit was clearly visible again.

When I look at what's behind the acceleration is from sustainable drivers and is aligned with our strategy.

We talked at our November meet the management event about the central role of innovation.

Through internal R&D and M&A, we're delivering successive waves of technology, including new legs for growth for.

For products already in the market and further launches at the beginning of their life cycles.

In 2023, the innovation benefit was clearly visible again.

Deepak Nath: Almost 3.5 points, or close to half of our group growth, came from products launched in the last five years. That absolute contribution is on its own enough to take us above that for the previous average, even before the contributions of our existing portfolio or M&A. It's important that we maintain that momentum of innovation. It's not all about the dollar spent but where it's spent and how the technology is supported by clinical data. We've continued to develop our key growth opportunities in recent months, including new evidence and launches on our existing products and bringing forward the next wave of devices. Firstly, we added new evidence for Regenitin, publishing the final results of a randomized control trial that confirmed the promising interim signal from 2022. The study found that at one year, medium and large full-thickness rotator cuff tears treated with Regenitin had a statistically significant three-fold reduction in re-tear rate compared to the control arm, with no difference in the number of serious or minor complications.

Almost 3.5435 points are close to half of our group growth came from products launched in the last five years.

That absolute contribution is on its own enough to take us to above that for previous average even before the contributions of our existing portfolio or M&A.

It is important that we maintain that momentum of innovation.

It's not all about the dollar spend but where their spend and how the technology is supported with clinical data.

We've continued to develop a creek key growth opportunities in recent months, including new evidence and launches in our existing products and bringing forward. The next wave of devices.

Firstly, we added new evidence for regenerative publishing the final results of a randomized controlled trial that confirmed the promising interim signal from 'twenty to 'twenty two.

The study found that at one year medium and large full thickness rotator cuff tears treated with regenerate and had a statistically significant three fold reduction in retail rate compared to the control arm.

With no difference in the number of serious or minor complications.

This remains a multiyear growth opportunity for Smith, <unk> nephew with only single digit penetration a rotator cuff procedures today.

Deepak Nath: This remains a multi-year growth opportunity for Smith & Nephew with only single-digit penetration of rotator cuff procedures today. Bringing compelling clinical evidence like this is a key element of our plans to drive market access and increase that penetration globally. Cori is another platform where we can keep adding further growth drivers, and we showcase additional functionality in AAOS in 24, it's version 2 of the R.I.N.E. robotic software

Bringing compelling clinical evidence like this is a key element of our plans to drive market access and increase that penetration globally.

Korea is another platform, where we can keep adding further growth drivers and we showcase additional functionality and double AOS in 24. Its version two of the R. I need robotic software.

Deepak Nath: This provides AI-powered reference values to guide planning alongside surgeons' preferences. As I said, our innovation delivery is about successive waves of technology. We've also advanced two key devices from our next wave, acquiring Cardi Heels agility and announcing the full commercial availability of the Atos Total Shoulder at AAOS.

This provides AI powered powered reference values to guide planning alongside surgeon's preferences.

As I said, our innovation delivery is about successive waves of technology. We've also advanced two key devices from our next wave acquire.

Acquiring carty heels of Julie C and announcing the full commercial availability of the atonal total shoulder a double AOS.

Deepak Nath: These add important growth drivers to sports medicine, joint repair, and extremities, and both enable us to access significant new markets while leveraging our existing commercial organization. And importantly, the contribution of innovation will come across our entire portfolio. This is a slide we've shown before, showing how the key projects from our current generations of innovation align with our reporting segment. We've highlighted five areas where we expect to grow above historical levels in the coming years with innovation as a key driver. Those are trauma and extremities. Other Recon, ENT, and Sports Medicine.

These are important growth drivers to sports medicine joint repair and to extremities.

And both enable us to access significant new markets, while leveraging our existing commercial organizations.

And importantly, the contribution of innovation will come across our portfolio.

This is a slide we've shown before and how the key projects from our current generations of innovation aligned with our reporting segments.

We've highlighted five areas, where we expect to grow above historical levels in the coming years with innovation is a key driver those our trauma and extremities.

Other recon E N T and sports medicine.

Deepak Nath: Excluding the headwind as we move through VVP and, of course, Advancement Management. Taken as a whole, around 50% of group revenue is in these areas, with an outlook for higher growth. Overall, I'm pleased with our progress in 2023. The portfolio as a whole is performing well, with all three business units growing very nicely compared to history. And the team is working hard to drive improvement in the remaining areas where we can. Meeting financial commitments for the year was important to us. The organization had a heavy lift to deliver in the second half of the year, but we demonstrated what can be done when we put together operating leverage at higher growth, productivity measures, and rigorous cost assessments. We have gained momentum and made clear progress in strengthening, accelerating, and transforming Smith & Nephew.

Excluding the headwind as we move through EVP.

And of course advanced wound management.

Taken as a whole around 50% of group added revenue in these areas is in these areas with an outlook for higher growth.

Overall, I'm pleased with our progress in 2023.

Portfolio as a whole is performing well with all three business units growing very nicely compared to history and the team is working hard to implement to drive improvement in the remaining areas of weakness.

Meeting our financial commitments for the year was important to us.

The organization had a heavy lift to deliver in the second half of the year, but we demonstrated what can be done when we put together operating leverage at higher growth productivity measures and rigorous cost discipline.

<unk> gained momentum and made clear progress in strengthening accelerating and transforming Smith <unk> nephew.

Operator: In 2024, our opportunity will be to build on this, embed and expand the execution discipline we've gained through the 12-point plan, leverage our commercial model to better meet the needs of customers, and challenge ourselves to achieve greater levels of efficiency and excellence. So with that, we'll be happy to take your questions. Good morning. Veronika from Citi. Can you guys hear me?

In 2024, our opportunity will be to build on this and bed and expand execution discipline. We've gained through the 12 point plan leverage our commercial model to better meet the needs of customers and challenge ourselves to achieve greater levels of efficiency and excellence so with that.

We'd be happy to take your questions.

Okay.

Yeah.

Okay.

Good morning, Veronica from Citi can you guys hear me I can hear you. Okay fine perfect three questions for me. The first one is just on the nice performance obviously in the fourth quarter. It seems like things went a little bit backwards relative to your peers. So just would love to understand exactly what went wrong in Q4, and what you guys are doing.

Veronika Dubajova: I can hear you, Veronika. Okay. Fine. Perfect. Three questions for me. The first one is just about the performance on the knees.

Deepak Nath: Obviously, in the fourth quarter, it seems like things went a little bit backwards relative to your peers, so I would love to understand exactly what went wrong in Q4 and what you guys are doing about it as you move into 2024. So that's my first question. My second question is just on the manufacturing initiatives, and I think you promised DPAC that you would give us more this quarter in terms of what exactly is happening and what the expected cost savings are, so if you could elaborate on that just to give us a little bit more insight into what you're shutting down, where you're moving manufacturing to, and how much money that is going to save. And then my last question, and thank you for your comment on the phasing of growth in 2024, I'm going to ask a follow-up question, as you expect, which is the phasing of margins and how you guys are thinking about the margin improvement, you know, first half versus the second half. Obviously, bearing in mind the easy comp from H1 last year, but also appreciating that you have the VBP headwinds, probably more H1-weighted than 2H-weighted.

Added as you move into 2024. So that's my first question. My second question is just on the manufacturing initiatives and I think you promise Deepak that you would give us more this quarter in terms of what exactly is happening and what the expected cost savings are so if you could elaborate on that just to give us a little bit more insight into what youre shutting.

Down where you're moving manufacturing to you and how much money that is going to save and then my last question and thank you for your comment on the phasing of growth in 2024, I'm going to ask a follow up as you would expect which is the phasing of margins and how you guys are thinking about the margin improvement you know first half versus the second half obviously bearing in mind the easy.

Comp from H, one last year, but also appreciating that you have the V. P. P headwinds probably more H, one weighted than two age weighted.

U S knees.

Deepak Nath: U.S. needs: we'll start with product availability. Against the backdrop of overall improvement and actually to near-target levels overall in terms of life for the portfolio, U.S. need-specific SKUs were slow to come, particularly auxinium-related, and the benefits didn't start to flow through until really late September, late September. So that impacted not only replenishments but also sets. So set delivery, which we had targeted early in the year, didn't come through really well in Q4. So that impacted our ability to drive new growth. And typically, when you put in a set, it takes anywhere from 45 to 90 days before those sets start to turn at the target level.

Start with product availability.

Against the backdrop of overall improved improving and actually to your target levels overall in terms of like for for the portfolio U S knee specific skus worst slowed a communist, particularly auxilium related.

And the benefits didnt start to flow through until really.

September late September ish, so that impacted not only replenishment, but also sets so set delivery, which we had targeted early in the year didn't come through into really well into Q4.

So that impacted our ability to drive new growth and typically when you put a set takes anywhere from 45 to 90 days before those start to turn at target levels.

We had expected churn.

Deepak Nath: We had expected churn as we implemented performance management, tighter performance management, and incentives. I talked about that in previous forms. It was a bit later in the year than we expected because the first half of the year was quite frothy, and so the expected kind of turnover didn't materialize into the second half of the year. So what ended up happening was we had turnover, it came later in the year, set and replenishment availability was impacted by U.S. needs, and there's, of course, commercial performance that layered on top. So the combination of all of those effects led to a weaker-than-expected performance in the U.S. But when I look to the fundamentals of how we work our way out of it, first and foremost, the sets are flowing now. They came later in the year than we expected, but they are coming along. I think the chart that we had showed, relatively speaking, where hips are versus knees, right? My hips are pretty much at target levels.

As we implemented performance management.

Tighter performance management and incentives I talked about that in previous previous forms.

A bit later in the year than we expected because the first half of the year was the market was quite.

A quite frothy.

And so the expected kind of turnover didn't materialize into the second half of the year. So what ended up happening was we had turnover. It came later in the year set and replenishment available. It was impacted in U S knees and Theres of course commercial performance that layered on top so the combination of all of those effects.

Led to a weaker than expected performance in U S knees, but when I looked at the fundamental so far we are.

Work, our way out of it.

First and foremost.

This sets are flowing now that came later in the year than we expected, but they are flowing I think the chart that we had showed.

Relatively speaking where hips are versus knees right hips are pretty much at target levels. We're getting there on knees roughly speaking knees are where hips were kind of may of last year. When the hip performance started to turn so we as we go into 2024, we expect.

Deepak Nath: We're getting there on knees. Roughly speaking, knees are where hips were kind of in May of last year when the hip performance started to turn. So as we go into 2024, we expect the sets that we've got out there. We've got a much tighter process now in terms of where we allocate those sets. So part of the operational improvements that we've been making right over the last year and a half is much tighter discipline around sets, around where we deploy capital. And we're starting to see the benefit of that, right?

The sets that we've got out there and we've got a much tighter process now in terms of where we allocate those sets. So part of the operational improvements that we've been making right over the last year and a half is much tighter discipline around oran sets around where we deploy capital and we're starting to see the benefit of that right, So where we play.

Deepak Nath: So where we've placed sets, those are starting to turn, and we'll expect that to continue into that as we turn the sector. So improved product availability, the reps have shown that we'd expected as we indicated as a pipeline. So we're okay in terms of hiring the reps to offset that turnover. And on the back of those factors coming together in 24, I expect to see improved. So that's your first question.

Such those are starting to turn and we would expect that to continue into that as we've turned the corner.

So.

Improved product availability the direction that we had expected as we as I as we indicated as a pipeline. So we're okay in terms of hiring the reps to offset that turnover.

But on the back of those factors coming together in 'twenty four I expect to see improved improved knee performance. So that's your first question.

Your second question around.

Deepak Nath: Your second question concerns manufacturing optimization. So, we've always said 2025 was the big year for the benefits of our efforts to bring capacity in line with demand to start to pay off. The steps to get there are optimizing our footprint. I called out Tüdelingen, I called out Lyon, I called out Beijing, or the three big factories. We announced the closure.

Manufacturing optimization.

So we had always said 2025 was the big year for the benefits of our efforts to bring capacity in line with demand would start to pay off.

The steps to get there are optimizing our footprint I called out tooling and have called up me on I called out Beijing or the three big factories, we announced the closure.

Deepak Nath: They're at various stages of actually being closed, and volumes from those are being shifted into either Memphis or Malaysia. So all of these are orthopedics-related plans, which is where our issue actually is around. As those volumes get shifted into those sites, the benefit from a P&L standpoint will start to flow through into 2025. There's also a balance between Memphis and Malaysia in terms of what gets manufactured there.

They're at various stages of actually being closed and volumes from those being shifted into either Memphis or into Malaysia. So all of these are orthopedics related plots, which is where our issue actually is around capacity.

So as those volumes get shifted into those sites the benefit from a P&L standpoint will start to flow through.

Into 2025 that is also a balanced between Memphis and Malaysia in terms of what gets manufactured there. So there it's about cost and of course resiliency in terms of how we determine which skews getting manufactured there the combination of those should yield significant margin benefit.

Deepak Nath: So there it's about cost and, of course, resiliency in terms of how we determine which skews get manufactured. The combination of those should yield a significant margin benefit. I don't think we've called out exactly the number, but there's a little block here. You can bring out your rulers and maybe kind of dimensionalize it.

Don't think we've called out exactly the number but theres a little block there you can bring out your rulers and maybe kind of dimensionalize. It but would want to call out is that is the one big factor that you've been seeing twenty-three didn't see in 2024 and we've been.

Deepak Nath: But what we want to call out is that is the one big factor that you didn't see in 23, you didn't see in 2024. And we've been pretty consistent in our messaging around that. So the third question is around phasing, margin phasing. I'll start off, and maybe you can chime in.

Pretty consistent in art and our messaging around that.

So the third question.

So it is around phasing.

Margin phasing I'll start off and maybe you can you can chime in.

Anne Francoise.

As you say of easy comps from a margin standpoint for 2023, a lot went into to making sure that we are.

Deepak Nath: And Francoise, as you say, easy comps from a margin standpoint for 2023. A lot went into making sure that we overcame that in the second half of 2023. We said we would. But I don't think many people believed it.

Overcame that in the second half of 2023, we said we would I don't think many people believed it.

Deepak Nath: But we've got the results to show for it. Right? So we came in bang on where we said we were going to. That said, I would expect 24 to be more of a normalized year in terms of first half margin. To state the obvious, we will see growth from H1 to H1, so 24 to 23. And the step up between H1 and H2 will be more normalized, so you can kind of go through the history in terms of where the averages are around that. So we expect more of a normalized performance. We call that particular factor.

But we've got the results to show for it right. So we became in Bang on where we said we were going to come in.

That said I would expect 24 to be more of a normalized year.

In terms of first half margin.

To state the obvious we see we will see growth H one to H, one so 24 to 20.

<unk> to 'twenty, three and the step up between H, one to H two will be more normalized. So you can kind of go through the history in terms of where the averages are.

Around that so we expect more more of a normalized peak.

Kind of performance, we called that particular factors last year, a lot of it had to do with incentives.

Deepak Nath: Last year, a lot of it had to do with incentives and commissions that we paid. Some of it we had calibrated our quota to a certain market assumption, but the market was significantly higher than we calibrated to, so that resulted in a commission delta.

And commissions that we paid some of it we had calibrated our quota to a certain market assumption the market was significantly higher than be calibrated too. So that resulted in a commissions delta we had some one off investments last year, our run around commercial that we don't expect to repeat in.

Deepak Nath: We had some one-off investments last year around commercial that we don't expect to repeat this year. And, of course, all the productivity measures and our measures around cost discipline we started last year have now matured a year forward. So all of those will start to flow through to what we expect to be a normalized year. The one thing around growth, the top line, you asked about the margin phase in Veronika, but the top line, so we expect. The comps there are not easy, particularly on recon because we had a very strong market, as you know, particularly in Q1, so that will impact a little bit growth in Q1. And also for Santel, where as we transferred production over into Q4, into Fort Worth, there was an unusual ordering pattern in Q4 for Santel, and as a result of that, the stocking that happened in Q4, we'll expect, compared to Q4, Q1 Those two effects to call out in Q1 relative to growth. Anything you want to add to that, Ann Ponsonby?

And in this year and of course, all the productivity measures other measures around cost discipline.

We started last year, it's now matured at your forward. So all of those will start to flow through to what will we expect to be at normalized here. The one thing around growth. The topline you didn't you asked about margin patient Veronica, but the topline.

So we expect.

The comps there are not easy right, particularly on recall, because we had a very strong market as you know, particularly in Q1.

So that will impact a little bit of growth in Q1, and also for central where as we transfer production over into into Q4 and into Fort worth.

There was an unusual pat ordering pattern.

In Q4 percent all in as a result of that stocking that happened in Q4, we'll expect compare to Q4 Q1 will be it will be softer those two effects to call out.

In Q1 relative to growth anything you want to add to that enforcement genome marching base that may come back to to manufacturing.

Anne-Francoise Nesmeth: Actually, no, Martin, but if I may come back to manufacturing, because you focus very much on network optimization, so that's aligning capacity with volume. But there are other elements and a significant amount of work around the cost base. So if you look at the 12 point plan, working with our suppliers to get better raw material costs, being smarter, more discipline, so that's one. The other is around lean and looking at overheads and how we can do it. So if you've aligned your volumes, you're reducing your cost base, that's what takes time but delivers from 25 and 30. I think it's David Rose.

Cause you focus very much on the network optimization. So that's aligning capacity with voting. They are are the elements and a significant amount of work around the cost base. So you know if you look at the 12 point plan working with our suppliers to get you know.

Better raw material cost being smarter more disciplined so that's one the other is around lean and you know looking out of our heads and how can you say if you take Eva line your volumes Youre, reducing your cost base. That's what takes time the de Levered from 'twenty five 'twenty six.

I think as David was next.

Hi morning, David Adlington JP Morgan two questions brief just wondering if you could quantify your pricing expectations for 'twenty forwarded whether it is coming out there.

Deepak Nath: Hi morning, David Addington, David Morgan. Two questions, please. I just wondered if you could quantify your pricing expectations for 2024 and whether you're sort of coming out there. And then slightly longer term, so I know you've not quite delivered on 25 margins yet, but beyond 25, this is a set up here for further annualization of the cost savings on the manufacturing side, but also ongoing operating leverage so we get some further margin expansion beyond 25. Sure, 24, there are two things.

And that's things like longer term, so I know you're not quite lived on twenty-five margins, yet, but beyond 'twenty of ours is a setup here for further annualized <unk> of the cost savings on the manufacturing side.

But also ongoing operating Liberty so we get some further margin expansion beyond 25.

Sure 24, there's two things one is inflation related pricing so we expect.

Deepak Nath: One is inflation-related pricing, and we expect that to start to come down in terms of ability to pass through. So it'll be, we expect a lower impact of that in 24 compared to 24. Layered on top of that is our efforts around strategic pricing, which is really the substance of the pricing component of the 12-point plan where we've not been, as an organization, as mature relative to best-in-class in our strategic pricing efforts. We've made tremendous progress over the last year. We just had a review of that not too long ago, and I'm very pleased with the capabilities we've built up as an organization to take ourselves to the next level, and the benefits of that will start to flow into our P&L starting in 2024.

That start to come down in terms of our ability to pass through.

So it'll be we expect a lower lower impact of that in 24 compared to 23.

Layered on top is our efforts around strategic pricing, which is really the substance of the pricing component of the 12 point plan, where we've not been as an organization as mature.

Relative to our.

To.

To best in class around <unk> around our strategic pricing efforts, we've made tremendous progress over the last year. We just had a review of that not too long ago and very pleased with.

The capabilities, we have built up as an organization.

Two.

It did take ourselves to a next level on the benefits of that they'll start to flow.

Into our P&L starting in 2024, so you put those two effects net a little bit less than in 2023, but we expect to see pricing benefit as we move forward.

Deepak Nath: So you put those two effects together, net a little bit less than in 2023, but we expect to see pricing benefits as we move forward. As to how we think about the world after 2024, obviously, we're not giving specific guidance beyond 2025. We have reaffirmed 20-plus in 2025. The world doesn't end then, so we expect to continue to realize the benefits that will start to occur in 2025 as we move forward beyond. So continued improvement from 2025 onwards, but we're not guiding specifically to that. Thank you. Morning guys, it's Sam England from Berenberg.

And 'twenty two.

Two how do we think about the world. After 24, obviously, we're not giving specific guidance beyond 2025.

We have reaffirmed.

20, plus in 2025, the world doesn't end and so we expect to continue to realize the benefits of.

That that will start to accrue in 2025 as we move forward.

Beyond so continued improvement.

From from 'twenty to 'twenty five onwards, but we're not guiding specifically to those numbers.

Thank you.

Okay.

Morning, guys disarming Baron bag, Firstly, just to follow up on pricing and just the commentary around positive pricing across the portfolio.

Deepak Nath: Firstly, just to follow up on pricing, does the commentary around positive pricing across the portfolio mean that all three segments are positive, or just positive in aggregate across the group? And then can you dig into some of the drivers of the stronger growth in wound devices and negative pressure specifically, and on the 12-point plan initiatives, what's being sort of most impactful in driving the levels of growth that you're seeing there? Yeah. So pricing, as we indicated, it's not in the aggregate.

I mean, the all three segments were positive or just positive in aggregate across the group and then can you dig into some of the drivers of the stronger growth in wound devices at a negative pressure specifically and on the development plan initiatives, what's being sort of most impactful in driving the levels of growth that you're seeing there yeah. So pricing as we indicated.

It's not in the aggregate in fact, each of our businesses contributed to the positive so and it's actually quite.

Deepak Nath: In fact, each of our businesses contributed positively. So, and it's actually quite refreshing to see it was not, not only was it across each of the businesses, but also across geographies. The levels vary, right, depending on the geography, but it was quite broad-based.

Refreshing to see was not did not only was it across each of the businesses, but also across geographies that the levels vary right depending on the geography, but it was it was quite broad based so that's the.

Short answer to that.

To that question.

Secondly in terms of the negative.

Deepak Nath: So that's the short answer to that question. Secondly, in terms of negative pressure on the 12-point plan, we are launching Renesas, Renaissance Edge, and it's new product-driven growth. We're still in the very early stages of that, so we expect that to be a multi-year platform for growth, and so we expect to see continued traction, but it's a new product launch. This is Jack Nex.

Russia and the 12 point plan, we are launching renesys.

Renesys edge.

And it's your product.

Driven driven growth we're still in the very early stages for that so we expect that to be a multiyear.

Form four four for growth.

And so <unk>.

Expect to see continued traction, but it's new product launch much driven.

Yeah. This.

This is Jack next.

Alright.

Yeah.

Now you've got to microphone.

Gotcha.

Jack Nex: I was too keen. Thanks for taking the questions. I had three, please.

T K.

Thanks, taking the questions I had three please first on Pvp and.

Deepak Nath: First on BVP, you mentioned that that 70 basis point headwind is without any kind of mitigations. Could you just remind us what mitigations you may be able to implement and the kind of magnitude of those? Second on Corrie, as you mentioned, the placements in the year were slightly below your target. I'm just wondering if you're expecting a rebound in 2024 if you have a rebound already and whether you can kind of give us some color on your target for this year? And then my third question is on demand.

You mentioned that the 70 basis point headwind is without any kind of mitigation could you just remind us what mitigation you maybe I mean may be able to implement and kind of the magnitude of those.

Second on Corey.

As he mentioned the placements and the year was slightly below your target and I'm just wondering if you're expecting a rebound in twin 34, if you had a rebound already and whether you can kind of give us some color on your target for this year.

And then my third question is on demand and there's been a bit of kind of debate around.

Deepak Nath: There's been a bit of kind of debate around at a market level whether we're still having some COVID rebound, whether it's kind of secular drivers there. I was wondering if you could give us your kind of view of how you see that progressing through 2024. Yeah.

Our market level, whether we still having some some COVID-19 rebound whether it is kind of shut Sheila drivers that I was wondering if you could give us your kind of how do you see that progressing through 'twenty 'twenty four yeah. So regarding mitigating effects for V. P. It's it's.

Deepak Nath: So regarding mitigating effects for BVP, it's, you know, restructuring around our organization, how we go to market in response to VVP, the types of actions that you'd expect us to take when you're faced with that kind of an impact. We've been through that in orthopedics. We're able to offset some of the margin impact from price. Not all of it, of course, but there are things that you can commercially do in terms of, you know, your channel and how you go to market. And those are the steps we expect to take. But I do want to remind the group that in sports, what's impacted is joint repair and certain components of joint repair. Capital is not impacted.

No.

Restructuring around the organization, how we go to market in response to the EVP of the types of actions that you would expect us to take with you.

You're faced with that kind of the impact we've been through that and orthopedics, we're able to offset some of.

Some of the margin impact from price.

Not all of it of course, but there's things that you do commercially in terms of.

Your channel and how you go to market and those are the steps, we expect to take I do want to remind the group that.

And in sports, what's impacted us joint repair and certain components, Georgia per capital has not impacted will also read launching regenerative and China. So there's a bunch of factors that are going into it and so we will having experienced this with north of Phoenix, we kind of have a way to to adapt our commercial model.

Deepak Nath: We're also launching Regeniton in China, so there are a bunch of factors that are going into it. And so we will, having experienced this with orthopedics, we kind of have a way to adapt our commercial model. So that's the first. The second question is on, I think that was the second one. So Corey, we fell short. I'd said sitting here where I'm sitting, about 300. Last year, we came in at 240. The primary Delta there is China, but we had expected it to be more robust.

In response to this right. So so that's the first question.

The second question is on.

Corey I think that was the second one.

So cory be felt short I'd said sitting.

Sitting here, where I'm sitting at about 300.

Last year, we came in at two 240.

The primary Delta there is China.

We had expected a more robust.