Smith & Nephew plc (SNN) Q1 2022 Earnings Report, Transcript and Summary

Hello, and welcome to the Smith & Nephew First Quarter Results 2022. My name is Lauren, and I will be coordinating your call today. Certain statements in this presentation are forward-looking statements. These statements are based on management's current expectations and subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in those statements due to a variety of factors. More information about these factors is contained in the company's filings with the Securities and Exchange Commission. There will be opportunity for questions at the end of the presentation. [Operator Instructions] I will now hand you over to your host, Deepak Nath, CEO, to begin. Deepak, please go ahead.

Thank you. Good morning, and welcome to the Smith & Nephew first quarter call. I'm delighted to be speaking to you for the first time as Chief Executive Officer. I've been in my post for less than a month, so these good results belong to the rest of the team. In a moment, I'll hand over to our Chief Financial Officer, Anne-Francoise Nesmes. She'll present the detail of the quarter and also take your questions at the end. Before that though, I'd like to share a few thoughts on why I've taken the role, what I've been working on so far and what I expect Smith & Nephew to do. Firstly, why Smith & Nephew? When I looked at the company from the outside, there were many things that attracted me, it's the reputation and history and also the strong culture and technology. The shared purpose of Life Unlimited resonates deeply with me. I've spent most of my career in health care, and the focus on enabling the best possible outcomes for patients has been at the heart of my work. I also have a real passion for technology and science. And I'm excited by the prospect of driving still more innovation with the team and delivering more value to patients and shareholders. So what I've been doing? My first month has been primarily learning about the company. In my first 2 weeks, I was in Memphis, at our largest orthopedics manufacturing facility, our advanced wound management center in Fort Worth, a robotics center in Pittsburgh, and of course, our global headquarters here in the U.K. I've been meeting colleagues and customers, seeing our manufacturing and distribution network for myself and getting my hands on the technology. There's still more to see to build up the picture of where we have opportunities and challenges. And I'll be able to say more about my immediate priorities when we get to our first half results. Third is what I came here to do. Smith & Nephew has set out a clear strategy for growth with medium-term financial commitments, which I fully embrace. Strengthening the foundations like our supply chain, accelerating growth profitably with how we target resources and transforming long-term growth with innovation and acquisitions, these are the right components. Now it's time to get them done at pace. My role is to bring out the best in Smith & Nephew and deliver on the targets of consistent 4% to 6% organic revenue growth by 2024, with a trading margin at or above 21%. So for today, I'm pleased to see a good start to 2022. To take you through the detail of that, I'll hand over to Anne-Francoise.

Thank you, Deepak. And once again, welcome. Welcome to Smith & Nephew, and I very much look forward to working with you. . Moving to the business of the day. I know it's a busy day of results for you today. So being respectful of your time, we'll keep the call to 45 minutes. First, I'd like to highlight some encouraging trends in the quarter that I'll explain in more detail shortly. 2 of our 3 franchises, Sports Medicine and ENT and Advanced Wound Management, are continuing to perform well, with recent launches increasingly contributing to growth. We're also strengthening the base in orthopedics with the rollout of the cementless knee offering in the U.S. We've seen an improvement across elective procedure categories as the effects of the Omicron wave diminished in the U.S. and Europe, and particularly in areas that had previously been slower to recover like knees and ENT. And as Deepak mentioned, the growth in the first quarter is a good start towards our 2022 targets. Moving to the detail. Group revenue was $1.3 billion in the quarter, with 5.9% underlying growth and a 3.3% reported growth. All regions and franchises grew over the first quarter of 2021. Looking by geography, our established markets businesses recovered strongly from the impact of COVID wave at the start of the year. In the U.S., infections fell quickly from the peak in mid-January. Unless procedures volume recovered, our business accelerated through February and into March, growing 3.1% for the quarter as a whole. Other Established Markets grew 5.9%, mainly driven by Europe, with the U.K. and Southern Europe rebounding strongly. Europe, as you know, had been slower to recover from the impact of COVID on procedures, but revenue is now approaching pre-COVID levels again. Emerging markets revenue grew 14.3%. Within that, China saw a return of COVID outbreaks and local lockdowns in some cities late in the quarter. But our China business still grew, with delays to the implementation of the hip and knee VBP tender more than offsetting the COVID headwind. Our expectation is for the rollout of VBP in Q2, and we've seen the first provinces going live. The emerging markets, excluding China, continued to recover, with strong double-digit growth across India, the Middle East, and Africa and Latin America. By franchise, orthopedics returned to growth at 2.6%, Sports Medicine and ENT grew 8.6% and Advanced Wound Management grew 8%. I'll now cover in detail each franchise, starting with orthopedics on Slide 6. Our knee business rebounded strongly, driven by recovering primarily knee replacement volumes, with evidence of postponed procedures returning. The small decline for hips reflects a strong comparator in Q1 2021 and also a market that had been more resilient in knees throughout the pandemic. Rolling out aging counselor cementless knee is a key project for this year, as you know. Cementless is performing well in term of cases and set deployment. And surgeon feedback around procedure speed and quality of fixation has been excellent. Other reconstruction fell 19%, also largely reflecting a strong quarter 1 2021. And Trauma and Extremities declined 3.8%, with varying performance by region and category. Looking forward, we've continued to develop our offering, with 510(k) clearance of cementless knee software on our robotics platform achieved in April, and this will be available to core customers as a software upgrade, and we're now preparing for the launch. We saw another strong performance from the Sports Medicine and ENT franchise as shown on Slide 7. On Sport Medicine, I'd like to call out 2 trends. Firstly, there's a strong recovery in the knee repair market. This was one of the areas most impacted by COVID and is now benefiting more as established markets return to normal levels of physical activity. The contribution of recent launches is also increasingly important. Fast Fix Flex, WeWork, Facil and Helikon Atlas are continuing to grow strongly and are making a meaningful contribution to the overall sports medicine growth rate. Our first topic enabling technology was a mixed picture this quarter. We put growth in some areas like feed management and video, but softer quarter in corporation and patient positioning. And ENT grew more than 20% as case volumes continued to recover in nose and throat procedures, along with ongoing surgeon weakness. And moving to Slide 8. Advanced Wound management growth was broad-based, with consistent strong performance across the segment and region. Advanced Wound Care was particularly strong in Europe with double-digit growth in the region. By category, global growth was driven by living portfolio as well as film dressings, which are more associated with surgical procedure volumes. Bioactives included another good quarter for Santo, with improvement in the long-term care channel, adding to the better execution of the recent quarters. Skin substitutes improved as the quarter progressed. Clinical evidence -- and as you know, clinical evidence is an important part of our strategy in wound. And we've added further differentiation, with data published in March showing that compared to leading competitors, our product graphics, high recurrence rate for diabetic foot ulcers, one of the major categories of chronic wounds. And finally, Advanced Wound Devices grew 18.6%, again driven by both PECO and Renesas negative pressure wound therapy. As indicated by Deepak earlier, advancing our strategy for growth remains our focus. And Slide 9 shows an example of our good progress this year on each of our value builders. For instance, on productivity, we've implemented a new go-to-market model for orthopedics in China. We started work on our portfolio simplification initiatives, and we're making progress improving our supply chain. On commercial execution, we focused on launching flawlessly and at scale. The Legion console rollout is underway. And we're preparing for the key launches later in the year, including the next-generation shoulder and negative pressure wound therapy products. We've also started the delivery of our key innovation projects for 2022, with clearances for the hip module, which is our advanced planning software for hip surgery, and for cementless knee indication for robotic-assisted surgery on core. And of course, M&A has continued with our acquisition of Engage Surgical in January, bringing the only cementless partial knee system commercially available in the U.S. And I'll now finish with our guidance for 2022, which is unchanged. We continue to target underlying revenue growth of 4% to 5% and trading margin expansion of around 50 basis points. 5.9% underlying growth in the first quarter is a good start, even if it's just one starter, and there are still work to do towards the full year goal. You'll see that the range implies average daily sales continuing to build throughout the year. That is in line with our assumption of volumes not being materially constrained by COVID outbreaks for the rest of 2022. It's also consistent with the improvements in orthopedics momentum that we expect as the year progresses, including offsetting the headwind of VBP from the second quarter onwards. On the trading margin, I know inflation is an important topic in the market. And as a reminder, it is one of the headwinds included in the full year guidance. Clearly, there's still volatility around various components and raw materials. But the view of the headwinds we gave in February was based on the range of assumptions, which we continue to manage. And with that, I'll hand back to Deepak.

Thank you, Anne-Francoise. So it's good to see the positive start to the year. We're making progress on the strategy. And the environment is moving closer to normal, whether you look at elective procedures coming back or a return to a well attended AAOS in March. For myself, I'm enjoying getting into the details of the business. I heard a lot from the outside about the quality of Smith & Nephew's technology. And it's that together with the strength of our talent that has really stood out in our first few weeks. So I'm starting to build up a picture of how we can drive greater performance and value. And I'm looking forward to discussing this more in due course and meeting you all in person. And now we can move to your questions with Anne-Francoise taking the lead.

[Operator Instructions] Our first question comes from Patrick Wood from Bank of America.

I'll keep it to one given the time. Just curious, you talked a little bit about the sequential growth through the quarter. And it sounds like certainly, for North America, you saw a sequential acceleration, particularly in February and March. Was that also the case in EM? I know China is its own specific component. But maybe ex China, EM in general and EMEA, do you see a sequential improvement as the quarter went on?

thanks for the question. So clearly, the growth improved in the quarter on the basic -- for 2 factors. One, as we were coming out of the Omicron impact, we saw the U.S. recovering I guess, from late January into February. Europe, a little bit later. And then in terms of the other markets, it really depended. I mentioned in the presentation that China was impacted later in the quarter. Shanghai came and a few other cities came into lockdown. And that will be hard to predict, as you know, how that way will evolve. Certainly, we had a strong performance in India and in Middle East, Africa. We had seen a little bit of impact earlier as well in ANZ. But throughout the quarter, I would say the performance was improving. And it reflects both the lessening impact of COVID. But as we've mentioned before, the fact the hospital have adapted their procedures, and therefore, we do see the return of elective surgeries.

Our next question comes from Hassan Al-Wakeel from Barclays.

I have 2, please. Firstly, if I can ask you, Deepak, first, thanks for your comments, and I look forward to your update in the first half. I wonder if I can ask for your initial impressions of the business since you have joined. Where you think Smith & Nephew performs well? Where there is upside? And what's really needed to drive an acceleration in the top line at a very high level over the medium term? And secondly, Anne-Francoise, on guidance, clearly, a very strong start to the year. I wonder if you could walk me through the puts and takes when thinking about the full year guidance range and whether the expectation of growth momentum building over the course of the year still stands.

Thank you, Hassan, for the questions. So I'll go first. So a little less than a month in, so I'm still making my ways -- my way around the company, informing our views as you can imagine. But what I'd note is, as I look at the opportunities before us and compared to the challenges that we faced, I'm struck by the fact that we have far more opportunities than we do challenges. The first observation I had was really I was struck by the energy and optimism of the team. Admittedly, it's been a few challenging years, and I expect it to be met with some weariness. But it was actually quite the opposite. What I found where teams were super energized and poised to deliver. The other thing was, I was struck by the strength of our portfolio and innovation. And I heard that articulated by the company prior to joining. And as I've had a chance to engage with our products and to see firsthand the innovation that is encompassing the products and what I see in terms of our near-term pipeline, I was super impressed by what I saw. For example, I spent time in our Pittsburgh facility, our Center of Excellence in robotics. And I was really struck by the energy of the team, the spirit of innovation that's housed there and really the mindset that we have. And I think we have an opportunity to better communicate that to our customers and to other stakeholders as well. The third area really was around talent. Many of the folks that I met kind of deeper, a couple of levels deeper into the organization have joined us in the last 2 years or so. And they've notably joined us from larger competitors and really from other leading companies. And the fact that we've been able to attract talent into our company based on our reputation, our culture and our products, I think, bodes well. And I'm excited to be a part of it. And the -- as we committed -- we delivered a strategy -- or communicated strategy back in December. And I fully month in embraced that strategy. And my focus really is on driving performance and driving execution against our strategy to deliver on our midterm commitment, so 4% to 6% underlying consistent growth and above -- at or above 21% margin by 2024.

So I guess that's a good segue talking about performance to pick up on Hassan's question on the guidance. It's a pity we're not able to make in December the roundtable we had for. I hope we'll get to meet face-to-face here in 2022. But clearly, on the guidance, we -- one quarter is not enough to change the full year picture, and you would expect me to say that. But clearly, we're confirming our guidance today. And whilst the recovery from Omicron in established market was a little faster than we'd expected, there are now new restrictions in China. And therefore, we do expect the impact to be sort of neutral for the year. But importantly its when you look at our guidance, it does assume a continuing buildup on the momentum. And when we look at the numbers internally, we do see we have to increase the average day sales throughout the rest of the year. And therefore, that assumes that volumes are not materially constrained by COVID. And as you know, there's still also headwinds to come in terms of the VBP in China, for instance, from Q2 onwards. So clearly, a good start, but confirming -- helping us confirm being on track for the guidance for the full year. That's at revenue level. I'm sure you'd want me to cover as well as the margin and the guidance on the margin. And the -- again, here, we are not changing our guidance. We are continuing to expect to deliver around 50 basis point expansion. And that will be driven by operating leverage from the revenue and driving efficiencies and productivity to offset the significant headwinds in terms of cost inflation and the impact of the China VBP tender.

Our next question comes from David Adlington from JPMorgan.

Sorry to focus on the negatives. But maybe we could just give a bit more color in terms of what was happening in terms of both trauma, where I will expect to see more of a recovery in that business as the economies recovered. Also AET, where I think you called out COBLATION and patient positioning has been particular headwinds, just to color on that would be useful. And then just a follow-up on pricing. I just wonder to give your latest update in terms of where you are in terms of pricing given the cost inflation environment.

You are indeed picky, David. We're very pleased with our progress in the quarter. But you are picking on 2 important point. And AET was clearly slow in the quarter. And it's a mixed picture because we had a strong quarter in areas like fleet management and video, but a softer quarter in core COBLATION and patients positioning. But what we've seen is a strong recovery in knee repair procedures in particular. And therefore, procedure volume should help AET as we progress through the year. On trauma, again, it's a bit of a mixed picture. We -- the performance has been varied by region and categories. So there's a number of factors that have contributed to the slower quarter. But again, as we look forward, we're continuing to integrate the extremities business. Integra, that's almost finished. And therefore, we're looking forward to launching the next-generation shoulder later in the year. And then on pricing, I mean, clearly, it's an important area to focus on. Many of us have not worked in an inflationary environment. And we're being -- traditionally, our industry, as you know, has been more -- has seen more price erosion. So we need to change that. We are very focused on understanding what cost, what activities we can pass on. Now as you know, and you've heard us say, we cannot pass on 100% of the price inflation or the cost input inflation that we see. But we are active where we can. To give you a few example, we've increased list prices where we can. We've certainly added, for instance, inflation clauses in new contracts. And outside of the areas where we have long-term contracts, we've been able as well to push price increases. And E&T is, for instance, a category where I would say we've had some early successes with pricing. So as I said, it's early to say by how much we'll benefit at a group level. And we cannot pass from 100% of the higher cost. And as we say, inflation will still be a headwind in the year. But we are certainly very active and looking to mitigate where we can.

Maybe just as a follow-up. Was price still negative in the first quarter? And do you expect it to turn positive?

So it was in line with historical averages.

Perfect. And then maybe just one quick follow-up. In terms of -- you've given us the FX impacts, updated from the top line. Just wondered if you have any updates on the margin.

So as you know, we do usually see the impact of FX more on the revenue and not so much on the margin. At this stage, we don't see -- and as well, we hedge for about 12 months in advance. So it's very -- it's neutral and not relevant to the guidance we've given for this year because 2022 is mostly hedged.

Our next question comes from the line of Jack Reynolds-Clark from RBC Capital Markets.

Congratulate on the results. I was just wondering how much has growth in ASCs contributed to growth in the quarter? I mean, I guess the commentary from elsewhere, it's been quite a positive driver. So have you been able to ride this wave and -- to take market share?

I mean, clearly, ASC is an area of growth. And we've seen, with COVID, the acceleration in terms of the move to ASC. Now we're not going to comment specifically in the quarter because I think it's about the trend. And for us, ASC has always been important. We have seen in terms of the joint replacement procedures, it's in the low double-digit. The growth has been in the low double-digit. And that's continued to double over the year. As you know, in ASC, the procedures, the proportion of procedures is higher in knees and hips. And for us, certainly, in sport, about 40% of our procedures are taking place in ASCs. It's hard to quantify, and we haven't quantified what's our target to date, neither the peers. But clearly, we would believe that the ASC shares in joint replacement is similar to our overall share. And importantly, as well, what I'd add to that is the cementless knee is important in the ASC setting. You know it's a slow up for a procedure time, a lower risk for the patient. And therefore, it's a real opportunity in the ASC setting.

Okay. Great. And then I guess just one quick other one, if I can squeeze it in. How are you seeing staffing shortages that develops in the industry?

So that has a -- that is a good question, and there is a -- not that the other one was a bad question. Sorry, Jack. Clearly, that has been a topical issue in many markets, but I would say more in the U.S., where the U.S. has seen a shortage of staffing and nurses. Now that's a pre-COVID trend. So whilst COVID has accelerated the trend of nurses deciding to retire or move on and also staff was on as well, particularly in December, there was a longer-term trend pre-COVID of -- in the U.S. where it was becoming harder to train, recruit and retain nursing staff. And hospitals are adapting. They're using, as we've discussed before, what they call traveling nurses. They're doing what they can to mitigate. And -- but that remains the constraint on hospitals in the U.S. Because even once you're fully staffed, you need the time for the team to get together and work at speed and quality as well, of course, in a hospital setting. So that remains a feature of the industry, and it's something that the hospitals need to work through.

Our next question comes from the line of Veronika Dubajova from Goldman Sachs.

I will keep it to 2, please. One, just want to follow up on some of the pricing conversation, Anne-Francoise. So I'm just curious if you're seeing any signs of accelerating pricing pressure at all within hips and knees. I think the more we speak to hospitals, they're obviously facing some pretty difficult environment. Financially, you touched upon some of the higher wage growth. And we are increasingly getting the sense that hips and knees and -- are back on the agenda in terms of a source of cost savings. So just curious if you've noticed anything at all. And maybe just kind of related to that, in the ASC piece, whether you are starting to have conversations that -- ASC pricing, that diverges from one, the inpatient pricing looks like. So that's my first question. And my second question is for Deepak. Apologies. But I know you said you believe it very much shared the strategy and the targets. I guess the one thing you haven't touched upon is the shape of the portfolio. And I think with prior management teams, that's definitely been one of the big conversations. So I'm just curious if you have any initial thoughts as you're spending time with the business on the shape of the current portfolio and whether, as a newcomer into the business, that makes sense strategically for you.

So I'll take the price, Veronika. Very, very rude of me. The -- no, I mean the answer is no. We have not seen additional pricing pressure on hips and knees, to your question. And to my previous answer, we are discussing where we can. We're managing. And there's been no change to the trend yet. And I do think -- actually, customers, hospitals understand it's a different environment. And our commercial teams also understand it's a different environment. So I think, no, we haven't seen any changes at this point in time. Deepak, your portfolio view?

Great. Veronika, it's good to speak with you again in this different context. So thanks for the question. Obviously, I'm here less than a month so it would be premature for me to comment. But I'll reiterate that when the strategy was set forth in December, it was on the basis of looking at it quite thoroughly and analyzing the various options. And at the time, we put forward a strategy based on those considerations and have had a chance to engage with that and assessed that early on, I, as I indicated earlier, fully embrace that. And but I also have indicated is I see significant opportunity with the portfolio that we do have. I think we can execute better and drive a greater level of performance with what we've got. And that remains my near-term focus. So I'll kind of leave it at that, Veronika.

Our next question comes from the line of Tom Jones from Berenberg.

I have 2 questions. And first of all, welcome to the business, Deepak. The first question is just on supply chains really. I just wondered if -- or you could explain to what extent growth in Q1 was hampered by lack of raw material, lack of production in any sense, but also, whether there was any kind of boost to revenues in any of the franchises that came from resolution of previous supply chain bottlenecks. I recall you had a bit of an issue getting hold of glue in your wound business. And I just wondered if some of the European performance was a bit of a catch-up effect from resolving that particular supply chain bottleneck. And then my second question is just to go back to an earlier question actually on the run rate growth. I mean I would assume January as a whole fairly soft considering Omicron was in full flight in that particular month. So to get to sort of 6% for the quarter does imply kind of growth was trending in the sort of high single-digit range towards the end of the quarter. Is that the kind of momentum you think you can carry on into and through Q2? Or is that too optimistic an assumption? It's difficult for us because the comps in Q2 are kind of all over the place. You were down 30% in Q2 2020 and then up 30% something in Q2 2021. So the comp isn't much help really. So just be kind of interesting to get a feel for what the kind of exit rate from the quarter was in terms of revenue momentum or sort of days per sales, however you want to phrase it.

Hopefully, it's the revenue and the comps that are all over the place, not us. So in terms of -- your question around supply chain, clearly, we've continued to work on supply chain and making good progress on the elements that are specific to Smith & Nephew that we can control. the issues we've talked about before in Memphis in terms of staffing level, that's resolving. We're continuing to work on the sales operation, planning, et cetera. So good progress on tracking to the plans we had. Now you also mentioned the raw material, that's more linked to global supply chain disruptions. We do continue to see disruptions in electro components or electromechanical components. And the situation remains volatile and difficult to forecast. Now having said that, our teams are working hard to prioritize with our suppliers. So we've got control towers in place, involving relationship with our top suppliers, making sure we're very agile. We do spot buys. But it's clear that disruptions continue and have impacted the quarter. We haven't pulled it out because, clearly, the effects have been offset by other good trading. But that remains a constant factor that we're working day in, day out. And the factories have got to adapt all the time to make sure we respond to any disruptions we'll see. Now you -- was there be a catch-up in Q1 from that? It's not that significant, but it's fair to say that in Europe, in EMEA, in wound, as you point out, there's a little element of that, which we have not quantified. Now when you look at the growth rate by quarter and variability, now -- so it does assume -- so the exit rate in the quarter had improved, was slightly offset by China, but was improving in the U.S. and EMEA, as I said earlier in the call. And our guidance assumes building momentum throughout the year in terms of the average daily sales and continuing to build momentum in the second half of the year, particularly as we launch new products. I'd also say that you've got to take into account that in -- from Q2 onwards, you have the impact of the VBP. So -- and finally, I would say that what should return compared to last year is the seasonality of the business where Q3 is usually a little bit -- is impacted in the EMEA by everybody going on holiday. But apart from that, so you would expect the normal seasonality we've seen traditionally. So overall, it does mean increasing momentum and continuing to build on the good first quarter.

Good. And then maybe one just follow-up question to David is on the AET business. It did seem that the capital equipment type areas of the business were perhaps a little bit weaker than the consumable type areas of the business. Is that a reflection of the pressure on hospitals that Veronika referred to? Or is that just sort of normal quarter-on-quarter variation? Just wonder if there's anything we should be concerned about the hospital CapEx environment.

No. I was actually interjecting because I guess the assumption is not correct. It's not a decline in capital. It's actually consumables. When I referred to the softer quarter in COBLATION, et cetera, that is consumable. So we're not concerned in terms of the capital aspect. And as I said, new repair procedures are coming back, recovering. And therefore, we see procedure volume should help that franchise going forward for that segment.

Our next question comes from the line of Kyle Rose from Canaccord Genuity.

I wanted to ask on the M&A landscape and the appetite for M&A. Obviously, you did the Engage Surgical deal, so congratulations on that. But I'm just wondering, should we expect M&A to slow down in the near term as Deepak ramps up to speed and get more of a sense of the business? Or is there any appetite for M&A maybe more in the near term?

Yes. I'll take that, Kyle. So the strategy that we articulated included acquisitions and M&A as a key component. And we've been active in that area, as you know, and we will remain active. So it's a key component strategy. And we don't expect there to be a change just because I have now come on board. As I mentioned, the strategy is in place, and we're focused on executing, I guess, all elements of that strategy, and that includes the acquisition piece.

Great. And then just one follow-up. Just can you remind us of the timing of when we should see the cementless knee in the Engage Surgical on Category, at least with respect to the United States markets?

We're in the process of rolling that out, as you know. But getting the indication, we're looking at 2023. And we'll get back to you in terms of the quarter. But right now, we're targeting 2023.

Our next question comes from Oliver Metzger from ODDO BHF.

2 questions from my side. One is on spot and joint repair. So you talked about procedural recovery in knee repair. Just to understand the dynamics. Do you see an overall recovery of contact sports-related injuries? Or was this strong year-on-year momentum driven more by, let's say, now we saw ski season, which basically did not take place the year before, at least in Europe? Second question is on Advanced Wound Care. So also, Tom mentioned very impressive momentum. So you mentioned Europe performing pretty well. Could you comment at which level you have seen the underlying market development in the first quarter?

So in terms of the sports med performance in knee, we have seen a strong recovery. And it's really driven by the return to normal levels of activity. The activities that didn't happen in the past, that's gone. Unfortunately or fortunately for some people did not get injured. So to your example, it's really a return to sports. It's really a return of people going skiing and being a little -- being prudent sometimes. And that's really linked, to your point, to the return of normal levels of physical activity. But I think as well in the future, more and more contribution of our new products. On Wound in Europe, it's -- in our performance was strong across the various categories, but particularly in terms of ALLEVYN. I think we haven't seen all of the competitors' data so it's a little bit hard to compare relative to our peers. But we feel that the European performance was strong in the wound franchise.

Our next question comes from Julien Dormois from BNP Paribas.

And congrats on the new role. Most of my have been answered. But I would just -- could you please remind us what could be the impact of VBP on your business in the coming quarters, because I think you provided some information in the past? And also wondering whether the actual implementation by the various provinces has led to anything surprising on your side? Or is it very much along the lines of what you expected?

So the -- in terms of the VBP, by the end of the quarter, I think from memory, it was 3 provinces had launched. And now the rollout is continuing as expected in the knees and hip. And as we've mentioned, we've estimated the impact of VBP to be about 60 basis points headwind on the margin. Clearly, it's a significant headwind on the revenue for [indiscernible], but we've taken actions to mitigate in terms of our go-to-market model and the price. So we'll continue to refine the estimate as we go through the year. But in terms of your question, it was early days. It was towards the end of March that the provinces started implementing. And we haven't seen anything that surprised us. Actually last week, Deepak and I had a call with the Chinese team, with the team in China, and they didn't flag anything that would be of concern. So very much everything rolling out as expected.

This is the end of the Q&A session. So I'll now hand back over to Deepak Nath for any closing remarks.

Thank you all for attending our call. I appreciate your interest and engagement. I look forward to seeing you all over the coming weeks. So with that, we'll end the call. Thank you.

Thank you.

This concludes today's...