So good morning, and welcome to the Smith & Nephew Full Year 2022 Results Presentation. I'm Deepak Nath, Chief Executive Officer. And joining me is Anne-Francoise Nesmes, who is the CFO of the company. So I'm pleased to report a good finish to 2022. Underlying growth rate accelerated versus the first nine months with all of our franchises contributing. We've continued to outperform in sports and wound management, which generate together 60% of group sales. We're still early in our work to fix orthopaedics. And although growth improved there, too, it will take some time for us to get to where we want to be. The company is well positioned going into 2023, and we're transforming the way we're operating Smith & Nephew through our 12-point plan, driving greater rigor and execution as we deliver our strategy for growth. Delivery of the 12-point plan is progressing, and our KPIs are already moving in the right direction, and I'll share some of that data with you later. But with improving operations and a good exit to 2022, we expect both faster growth and margin expansion in the coming year. We're also updating our midterm targets. On growth, we feel very good about the outlook. We're continuing to execute well in our outperforming businesses. And the fix of orthopaedics is underway, and we're delivering a high cadence of innovation. For the margin, the macro environment has been more challenging than me or anyone else expected back in 2021. Inflation has been higher, and global supply chains have stayed disrupted for longer. And our midterm goals reflect offsetting most of that additional pressure through a range of cost actions. However, it's also and moving the date of our margin target back by a year. Shortly, I'll cover how we'll deliver the targets of consistent 5% growth or above and at least a 20% trading margin by 2025. I see the delivery and more importantly, the fundamental improvements we're making required to achieve them as the first step and our ambition to transform Smith & Nephew. But first, I'll begin with the highlights of our full year numbers. So revenue was up -- was at $5.2 billion, and that's 4.7% growth on an underlying basis with one less trading day in 2021. Reported growth was at 0.1%. Trading profit was $901 million, which is a 17.3% trading margin. And we generated $444 million in trading cash flow, which is a 49% conversion. Adjusted earnings per share grew 1.1% to $0.818, We're proposing an unchanged dividend of $0.375 for 2022. I'll now pass you to Anne-Francoise to go through the detail of today's results before back to discuss our outlook in more detail. Anne-Francoise?

Thank you, Deepak, and good morning, everyone. I always wonder why nobody sits on the first row. So hopefully, you can see me behind the lectern here. So I'll start by covering the fourth quarter revenue, which was $1.4 billion, which represents a 6.8% underlying growth. As Deepak said, all three franchises contributed to the strong finish. And the factors behind that included reduced VBP headwind in the quarter and the contribution of new products. We've also made progress with the availability -- with product availability, which has limited our growth in recent quarters. Our internal supply chain performance is starting to improve. And while there are still challenges in the availability of external inputs like semiconductor, resin, sterilization capacity, we're seeing some easing. Looking by geography, the performance was broad-based. The U.S. grew by 4.8%. Other established markets grew 7.3%, and emerging markets grew 12.1%. We acceleration in emerging markets reflects largely a return to growth in China, which represents 6% of our group sales. And while VBP was still a headwind in Q4, there was also an easier prior year comparator due to the inventory adjustments and the provision that we took back in Q4 2021. The renewed COVID waves in China as the country changed its approach to new outbreaks and an initial limited impact in Q4 to increase as we move into January 2023. So we do expect a more noticeable headwind in Q1. I'll now go into the detail of each franchise, and I'll start with Orthopaedics, which grew 4.1% underlying. Now this is the part of our business which is the most -- which is impacted by VBP. Without China, growth in the quarter would have been one percentage point higher in Knees, two percentage points higher in Hips and 0.4 points higher in…

Thank you, Anne-Francoise. So as you know, we issued the midterm guidance last about a little over a year ago. And since then, a lot has changed. The macro environment has been more challenging for everyone with higher inflation and longer disruption, as I said earlier, to our supply chains, and that continued all the way through 2022. We've also made progress. We started the implementation of our 12-point plan that's fundamentally transformed how we operate as a company. Our new midterm goals reflect both the changes in the macro environment over the last year and also the actions we are taking to offset the pressures and drive higher top line growth. On revenue, we're now targeting underlying growth consistently at 5% or higher. That's above historic levels. And in a moment, I'll show you the building blocks of how we are making that change. We're also targeting trading margin in excess of 20% in 2025 and beyond. Clearly, the margin guidance implies a nonlinear path over the next three years. Thus, due to the higher inflation headwinds, as assumed in 2023 and productivity gains from operations coming more towards the end of the period, particularly around manufacturing, we do still expect to make year-on-year improvements throughout this period, and that's only the first step. From beyond 2025, we'll be in a fundamentally changed position. We'll have a choice of how much we want to reinvest on more growth opportunities and how much we allow to flow into further margin expansion. We'll probably go into the detail of how we do that. I just want to anchor and remind you of our fundamental competitive position. I have no doubt that we have the right to win and all three franchises. In Orthopaedics, that comes from a full product portfolio and…

Gentlemen, to my right.

Thanks for the questions. Jack-Reynolds Clark from RBC. Really useful margin guidance bridge for the midterm guidance. Just wondering if you could give us a bit more information on the timing of those components. And then thinking about 2023 margin, how do you see phasing progressing through the year?

Yes. So I can open I'll turn it over to Anne-Francoise. As I mentioned, we expect to start to see benefits even in 2023. Some of the actions around G&A and sales and marketing you should expect to see the benefit starting in 2023. Manufacturing, we're actually already underway in terms of optimizing our network and starting to balance our capacity with demand. You'll see some of it in 2023. But as I mentioned, the full impact of our network optimization will happen more in the outer years of this plan. The growth leverage part of margin you should start to see in 2023 as we progress through the year. You'll see growth to the levels that we've guided to, and that will start to fall through into March and then we'll continue to accumulate over the life of the plan. So that's the mix. The cost actions around G&A, the marketing starting to hit in '23 and beyond operating leverage also in '23 start to accumulate impact of manufacturing network more back-end loaded. Do you want to cover that, Anne-Francoise?

No, we can move to the '23 question, Jack, which clearly, you should expect a similar pattern to what we've seen historically with the second slight, a stronger second half, in part due to the fact that we were lapping VBP in the first half as well. And as we work through the savings and the component of the 12-point plan the benefits start delivering more as well towards the back end of the year. So that's what you should expect.

Thank you.

Thank you. Hassan Al-Wakeel, Barclays. I have two, please. So firstly, if I can ask on midterm targets, particularly the rationale for the 5% plus organic growth ambition and your increased confidence here. I appreciate you had a stronger 2022 and particularly at the end of the year. But as you show in your chart, this is meaningfully higher than what you've achieved historically. So how do you break up the 5% by segment in geography in terms of the market growth that you see and the expectation for Smith & Nephew and your growth and share gains, or at least stabilization of share, maybe in orthopaedics? And then secondly, thank you for the helpful data on the launch intensity. Do you have this data over a shorter time period, maybe three years instead of the 5? Or put another way by business division, that would be really helpful. And is that percentage lower in Orthopaedics versus some of the other businesses? And do you think you need to accelerate the cadence of launches in Orthopaedics? And then on the 25 new products that you expect this year, I'd love a bit more color in terms of the vision, whether you think it's iterative or are there any step changes there?

Yes, sure. So let me take those in turn. In terms of drivers of growth, what gives us the confidence in terms of growth. We remarked that 2022, particularly in Q4, all franchises contributed to the growth, and we expect that also going forward. We talked about the recent outperformance in wound, long-term outperformance in sports will continue to undergird our growth into the future. And we're well positioned there in terms of execution, in terms of our products we already have in our portfolio and the pipeline that we have behind that, which has not contributed to growth in the recent past. That's the change that we're expecting between the recent past and what we navigate to the future. And there, we have never had a lineup of factors that we have today. First, CORI. We are the only true second-gen robotic platform in orthopaedics. So we're at a kind of an important moment in time in orthopaedics, well, the utilization of robotics or the interest in robotics is just increased with all players kind of having a robotic offering. So it's in that context that we're launching CORI. And we feel very, very good about how we're positioned relative to competing offerings. As I mentioned, there is a set of features and benefits that are already on CORI that are already differentiated relative to the competition. I talked about revision. We're the only robotic platform to have revision indication. We're the only robotic platform to offer soft issue balancing for the knee, which is an important consideration. And then there's a lineup of further benefits beyond that. So we believe quarry will be a growth driver. It hasn't been as big a driver because we've been supply constrained. And here, it's less of the logistics issues that are…

And if I may just add in terms of the R&D as well allocation, all franchises have the pipeline coming through. So there's no disproportionate element of investment behind one of the other. There's a program behind all franchisees to drive the price.

Great. Good morning. Kyle Rose from Canaccord. I wanted to build on Hassan's question about the medium-term confidence within orthopaedics. If I look historically, you have had product gaps, particularly when we think about some areas of robotics and then on the cementless knee. When you think about the sustainability of the turnaround and growth of the orthopaedics, how much of that is just a pricing component in getting a better pricing aspect versus taking true mix from a market share perspective? And then secondarily, in the Advanced Wound Devices side of the business, for several years now, you've called out robust growth within PICO. It would be helpful to frame out the size of that business relative to RENASYS. Then also, I think it was maybe back in 2019, there was some bullishness just around contract wins in the United States with respect to RENASYS. You're obviously continue to see positivity there, at least in the commentary you're talking about today. So how should we think about the U.S. negative pressure wound business moving forward?

Thanks for the question, Kyle. So I'll take those or at least start with those. The first one around Orthopaedics. There's a role for price, right? Pricing is one of the elements of the 12.5%, particularly strategic pricing, where we haven't been as disciplined around price as a company strategic pricing as we could have been. So there is an aspect to that, that we're working on. But that alone isn't going to reset our fortunes in orthopaedics. A very important component of that is mix that's going to drive share recapture or share growth in orthopaedics. So it's an important aspect of how we get back to growth. As you noted, historically, we've had gaps in our portfolio. We didn't have a robotic system. We didn't have a cementless offering, and the list can go on and on. And while no company has got it all and we don't have a perfect lineup. We have more in our bag than we've ever had before. We have more in our hands to drive growth than we ever had before. And that's a change in terms of our position today relative to the recent past in Orthopaedics. But we have to fix our execution, which really has held us back, which is why the first bucket under the 12-point plan is Fix Orthopaedics, and that's a deliberate choice for us, right? Five of the initiatives under the 12-point plan are geared towards in one way or another fixing orthopaedics. And there's multiple components to that. There's a logistics component where we've gotten out of step that has impacted our ability to supply the market to have product available to customers when they need that. We're well on a journey. LIFR is one of the measures that I called out, but there's…

No, you've covered the PICO, RENASYS. I'd just say because you've referred to the past as well, that portfolio has grown very significantly and double-digit in recent quarters as well. So yes.

One thing -- sorry, I forgot to mention this Kyle. We've made remarks around supply issues across our business. And that actually has impacted our negative pressure business, particularly around our traditional business. And here, it's about semiconductor availability, among other components, right? And so we've posted good numbers despite that, but that has been a pacing factor for us in that business. And of course, we see continued disruptions through our supply chains. Any one category, there's some improvement from one quarter to the next, and we generally see a slightly better picture for 2023 versus '22, but generally still very much challenged. But I did want to highlight that we're operating in a supply-constrained environment in that business. But we've continued to do well, do all this by that. I've lost track of the order of when that went up, so I'll leave it to others to pause that.

All right. Thanks for taking my questions. Sebastien Jantet from Liberum. Two questions. One around overall kind of what the midterm revenue guidance. Can you give us a sense of the price assumptions that you baked into that revenue guidance across the kind of board? And then secondly, still on the revenue guidance. You talked about exiting some low-return markets. Are those -- should we think of those as being material in terms of revenues? Or should we think of the gross revenue being higher than the 5%?

Yes. We expect -- I mean, there's a mix of price and volume. Historically, we've seen price deflation in our business to the tune of 1% or 2% historically. We see slightly better than that here. Obviously, here in the immediate past, we've been able to pass through some of our price increases. We've called that out, of course, in previous quarters. And that is quite a contrast to how the med tech business typically operates. Going forward, we expect to continue to try and pass through the exceptional price increases that we've seen that honestly is a once-in-a-generation type increases. But in the end, in terms of revenue growth, it's going to have to come, as I said, from mix and volume and continued performance relative from a share standpoint. That's ultimately what's going to drive growth. So that's the first point to that. The second point that I'd like to call out is from a midterm revenue growth perspective, we see again all of the franchises contributing to that growth over the midterm. Orthopaedics is where we need to kind of bring that level of revenue growth in line with markets. So there's an implied share recapture in the numbers that we've guided to. So the numbers that we've said about 5% to 6% for the year and 5-plus percent beyond taking into account all of these factors is the net of all of the things that you see price, volume, share, cash, all of the pack.

Hi. [indiscernible] from HSBC. Thanks for taking my questions. I have two, please. First of all, on CORI, I know you don't like to announce installed base, but I know you closely follow the installed base as well as the KPIs. So some color on that would be great. And second, on the waterfall chart on orthopaedics, that was a powerful chart. Thanks for showing that. I would guess it would look different in the other two segments, Sports Medicine and AWM, but how would it look if you were to put it out? And do you see similar risks such as what we've seen in Orthopaedics and VBP in other segments? And the -- this one is for Francoise. In light of the increase in leverage and continued interest in M&A. Do you -- how do you see the capital policy should we continue to assume the $250 million to $300 million buyback as well as yes, that line of dividends going forward.

Okay. Let me address those. On CORI, the last number that we reported is 500 plus. In terms of our installed base, we expect to place more than 300 units in 2023. Most of 2022, we're in a very supply-constrained situation, as I mentioned earlier, that really paced our ability to place CORI, and not that they'll be completely out of the woods from a supply standpoint in 2023, but we expect to place over 300 in '23. So hopefully, that gives you a bit of a calibration. That's how we think about it. What we look at internally isn't just placements. It's the quality of those placements, where we're putting them, what kind of utilization we get from them and are we advancing our commercial objectives in terms of how we introduce and get CORI adopted into the market. But you asked about placements. So that's kind of how that breaks out. When we look at a bridge like that into the other franchises, there isn't a dramatic effect like VBP, right, in those other franchises. You asked about whether we think VBP will be a factor in those other franchises. It's difficult to predict kind of what the government in China will do versus one category versus other. So don't expect VBP in the near term in those categories. But of course, should it come, we will adapt as we have adapted in Orthopaedics. So hopefully, that addresses the second part of your question. And in terms of the factors, as I mentioned, we've been executing well commercially in those other two franchises. It doesn't mean we're perfect. It doesn't mean there are opportunities, not opportunities for acceleration. We've called those out right, in the 12-point plan. So continued high level of commercial execution, continued improvements in that…

Although I will finish on the -- picking up on the dramatic. Actually, if you look at Wound in particular, you will see that the margin, and you can find -- you can see that in our segment reporting in the annual report, the margin on Wound is actually above 2019. So Wound has delivered. And therefore, I think it's important to understand that the drag on the profitability has been mostly driven by Orthopaedics. Hence, our focus on that. But the other franchises are performing well with Wound, in particular, being back on number of 2019 level and sports being there by ad revenue only given the pressure on the cost of these for sports. So now the final question was on buyback and whether we are committed to buyback. We remain committed to buybacks and we did $158 million in 2022. And if you recall, when we reframed our capital allocation policy in December '21, we also sign posted to our leverage our target leverage of 2x to 2.5x. We're currently at the bottom of the range given the challenging macro environment the effects of COVID on our profit recovery and also the working capital buildup that you've seen in 2022. So as a result, we paused the buyback, and we'll continue to keep this under review in '23.

We've got two questions on the phone as well. So let me take one in the room and another one from the phone.

Thanks. David Adlington, JPMorgan. Three questions, please. So firstly, just on your midterm revenue guide changing from four to six to more than five. Just wondered explicitly how your pricing assumptions have changed from 15 months ago, how -- very explicitly how they change from being silly a headwind to maybe a slight tailwind. Secondly, just in terms of the inventory uplift. Just wondered how that's going to flow through to gross margins through this year and how we should be thinking about gross margin developing through the year? And then thirdly, just in terms of technical one, on the FX margin headwind, 100 basis points. That was 75 basis points back in Q3. I would expect that to get better rather than worse. Just wondering what happened on the FX side.

Do you want to take those, Anne-Francoise?

So on the FX, as you know, we fix 12 months. So there's always a quarter that rolls forward. So that's the main change in terms of the assumption. In terms of the inventory uplift, the impact on gross margin is the impact of inflation. There's actually to impact its inflation. So if you see that our inventory is now higher cost effectively in your standard cost and your cost of goods as you sell the stock is higher cost. So that puts that what we talk about. And that's why inflation phase through a P&L at a different rate than what you see may happen in the external environment because you've built inventory at a higher cost and that will flow through the P&L over time. I think it also reflects that as we look to reduce inventory, a lot of the efforts is around better supply and demand alignment, is also better discipline in our factories, and it's about better managing the capacity. That's why the network optimization, the productivity, LEAN in operations is super important to mitigate that and to offset the pressure that we would see otherwise in the cost of goods line. And the pricing you want me to? So as we said earlier, price in the long term is not the driver of the revenue growth. The driver of the revenue growth is about better commercial execution and the new products, the innovation. In '23, in the short term, there is a price lever as we continue to look for the offset of inflation. It's not the lever in the midterm outlook. However, it's important to say, we won't rest on our laurels. Part of the 12-point plan as a pricing component it's about strategic pricing. How do we launch new products, how do we make sure our contracts compliances improved, et cetera? But the lever of growth in the midterm is really about gaining market share, launching our products and continuing to capitalize on the growth drivers we've set in place in the last few years.

Maybe just come back on the gross margin point. I mean, in terms of the direction of travel for gross margin in '23, how should we be thinking about that impact in terms of the inventory uplift?

So you'll continue to see pressure on the gross margin, which is why we say in particular the network optimization, the off savings flow in '24 and '25 in particular. So that's the element of the plan with the savings deliver later in the period.

Question on the phone.

Thank you. Our first phone question is from the line of Veronika Dubajova of Citi. Veronika, please go ahead.

Hi, good morning. And thank you guys for taking my questions. I hope you can hear me well. I have three, please. One, can we just start with the 5% to 6% organic sales growth guidance for 2023. And I would love to hear from you what that assumes for sort of procedure volumes or utilization. And Deepak, if you can comment on how the year has started related to that, that would be super helpful. Then my second question is on the midterm margin target. You had made some comments about how the improvements would be back-end loaded. Would just love for you to be a bit more specific. If we do assume you're at 17.5% in 2023, how should we think about the remaining 250 basis points being split between 2024 and 2025? And maybe just related to that, for Anne-Francoise. What is the assumption that you're making about some of the inflationary headwinds that we've seen on the cost of goods sold that's embedded into that 20%? I'm thinking sourcing like freight, logistics costs and raw materials. Thank you, guys.

Sure, Veronika. So I'll take the first two around the 5% to 6% kind of midterm revenue. As I indicated there is -- it is spread across the franchises in terms of what the drivers of that growth are. We've talked about kind of the price and the volume components of it. And within Orthopaedics, we do expect procedures to return to normal, honestly, in 2022. We were less able to capitalize on the return to normalcy in terms of procedure volumes for the reasons we've talked about in the past. But we don't see the procedure volume or the market procedure volume being kind of the rate limiting step for us. Or said differently, we expect that more or less procedures are back to normal, and we will be operating within that world. It doesn't mean that hospital systems around the world are challenged for labor shortages or other things, right? And we don't yet know whether there'll be another spike in COVID and how that will impact procedures. But our assumption for 5% to 6% is built on essentially procedure volumes in the world being as they are today and us being able to better participate in that than we have in the recent past. So that's the anchor to the 5% to 6%. But as I mentioned, not just about Orthopaedics. It's going to fuel the growth that's continued outperformance in Wound and Sport. So we don't need to blame at that point. The second, in terms of margin. I wouldn't take a straight line from 17.5% to 20% plus, Veronika. So there will be, I would say -- nor will it be a step change where it's 17.5% and kind of go flat and then all of a sudden magic happens in 2025. So I wouldn't…

And the final question was on inflation. So clearly, we had to make assumptions. We don't have a crystal ball, as you heard me say some at times. We assume a continued inflation in '23 in part of the discussion we are just having earlier that it continues to flow from the cost we've seen in '22. So higher inflation in '23 and then '24, '25 in assumes and beyond that the inflation more direct. What do I mean by that? I'm not going to give a precise number. But clearly, that would be still higher than what we had experienced in the pre-COVID world, but moderate inflation is our assumption as we put out the guidance.

Being told, we do have more time for one more question back in the room. I thought Veronika was going to be the last one. One more question in the room.

Okay. So I think we'll leave it at that. So thank you very much for your interest and attention, and look forward to seeing you back here next quarter. So thank you.