Okay, that's my cue. 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-Françoise Nesmes, who's the CFO of the company. 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 orthopedics, and although growth improved there too, it will take some time for us to get to where we wanna be. The company is well-positioned going into 2023, and we're transforming the way we're operating Smith & Nephew through our twelve-point plan, driving greater rigor and execution as we deliver our strategy for growth.
Delivery of the twelve-point plan is progressing. Our KPIs are already moving in the right direction, and I'll share some of that data with you later. 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. In the fix of orthopedics 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. Global supply chains have stayed disrupted for longer. Our midterm goals reflect offsetting most of that additional pressure through a range of cost actions.
However, it's also 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 in our ambition to transform Smith & Nephew. First, I'll begin with the highlights of our full year numbers. Revenue 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 GBP 0.375 for 2022. I'll now pass you to Anne-Françoise to go through the detail of today's results before I come back to discuss our outlook in more detail. Anne-Françoise?
Thank you, Deepak. Good morning, everyone. I always wonder why nobody sits on the first row. Hopefully you can see me behind the lectern here. I'll start by covering the fourth quarter revenue, which was $1.4 billion, which represents a 6.8% underlying growth. Deepak said, all three franchises contributed to the strong finish. The factors behind that included a reduced VBP headwind in the quarter and the contribution of new products. We've also made progress with product availability, which has limited our growth in recent quarters. Our internal supply chain performance is starting to improve. 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 market grew 7.3%, emerging markets grew 12.1%. Acceleration in emerging markets reflects largely a return to growth in China, which represents 6% of our group sales. While VBP was still a headwind in Q4, there was also an easier prior 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 had an initial limited impact in Q4, increased as we moved into January 2023, we do expect a more noticeable headwind in Q1. I'll now go into the detail of each franchise, I'll start with orthopedics, which grew 4.1% underlying. Now, this is the part of our business which is impacted by VBP.
Without China, growth in the quarter would have been 1 percentage point higher in knee, 2 percentage points higher in hip. 0.4 points higher in trauma and extremities. That aside, innovation across the portfolio is a key part of our picture and our performance. Recent launches are already contributing to the growth, and together with our robust pipeline are improving our growth outlook for the coming years. In hips and knees, we've advanced with our plan to improve our performance, including new products launches. First, our cementless total knee, LEGION CONCELOC, continued to ramp up with strong sequential growth. With this as an option, we have an impressive knee portfolio. We have the unicompartmental knee, we have the OXINIUM surface technology, we have cemented and cementless options, and the robotics platform uniquely covering all of total, uni and revision knee surgery.
Our implant availability also improved over the previous quarter. Overall growth is not yet where we aim it to be, but we're in a better position here than we were when we initiated the twelve-point plan, and we expect further improvement in the coming quarters. Other recon, which includes CORI, was faced by component availability for much of the year. However, we still made progress in 2022, both in developing the technology and expanding the utilization of CORI. We had a series of major FDA clearance, including a unique revision indication, the unique Digital Tensioner, the hip software, and porous knee. We expect a similar cadence of clearances in 2023. This is part of our robust pipeline of innovation that will continue to drive growth in the coming quarters.
On penetration for CORI, we also expanded our install base by around 25% in the year and the volume of knee procedures by around 50% globally. We should see adoption accelerate in 2023 as supply improve, and we expect our install base to grow by more than 300 units in the year. Finally, trauma and extremities return to growth at 0.6% in the quarter, helped by the rollout of EVOS large plates following our launch in the U.S. in Q2. Our trauma offerings is now complete and we're positioned to compete in RFPs and tenders. Market exits, such as the one we did in China trauma, are value creating but also do represent a short-term headwind in the quarter.
Now moving to sports medicine and the ENT franchise, which grew by 9.2% despite a challenged supply chain. Joint repair grew 11.5% with double-digit growth in both shoulder and knee. REGENETEN has been a multi-year driver of growth. We've continued to invest in new indication, in new regions and evidence, and we are now seeing growth re-accelerate. There's also significant further potential for REGENETEN as we launch in Japan, in China and India in 2023. AT grew 4.2%, driven by both the core AT and WEREWOLF FASTSEAL and a softer prior comparator. ENT grew 1.7% as the post-COVID recovery in tonsil and adenoid procedure volumes continued. As I said earlier, this is in the context of headwinds from semiconductor resin shortage, sterilization capacity constraints, a very strong performance.
Finally, in Advanced Wound Management grew 8% underlying, the recent pattern of balanced performance in the quarter across all regions and all categories continued. In Advanced Wound Care, Europe and Asia Pacific showed particularly strong growth, as did our skin substitutes business in Bioactive. Advanced Wound Devices grew 14.9% with double-digit growth from our single-use negative pressure product PICO. Our traditional platform, RENASYS, is another product that was limited early in the year by component availability. The situation improved in Q4 and RENASYS returned to more significant growth as a result. We also reached a significant milestone as we obtained 510(k) clearance from the FDA for RENASYS EDGE in the U.S.. Now I'll move on to the detail of the full-year financials.
Revenue for the full year was $5.2 billion, up 4.7% on an underlying basis compared to 2021. Revenue was flat at 0.1%. Reported revenue, sorry, was flat at 0.1% due to foreign exchange headwinds of 460 basis points, given the strength of the U.S. dollar compared to other major currencies. As you see on the chart here, sports medicine and wound shown 6.7% and 6.4% growth respectively. Orthopedics grew 1.9%. This full-year growth rate also reflect one fewer trading day than in 2021, as Deepak mentioned earlier.
Now, having covered revenue in detail for Q4, for Q4 and the full year, I'll now move to the summary of our P&L before expanding on some of the key elements of the P&L. The underlying gross profit was $3.7 billion, resulting in a gross margin of 71%, which is a decrease of 10 basis point. You have to understand there were significant moving parts behind that. For this year, the headwind of raw materials inflation that we've talked about, our gross margin level was offset by price increases and other movements in inventory valuation. The SG&A line here in the P&L reflects higher inflation in freight and logistics, as well as sales and marketing expenditure levels returning to normal after COVID.
Trading profit was $901 million with the trade pressure increased as the year progressed and ultimately came to 210 basis points for the full year. We worked hard to offset the headwinds. Notably, we were able to drive price increases, improving margin by 80 basis points. Then we had quite a lot of activities. On the slide here, maybe it's too much of a summary, but there's a lot of moving parts behind the net pricing and the net cost savings you see here of 130 basis points. In particular, the 130 basis points reflect the benefits of significant cost reductions and operating leverage offsetting labor inflation.
Looking further down the P&L, adjusted earnings per share grew by 1% to $0.811, that's primarily driven by lower net financial expenses and a lower tax rate due to adjustments in respect of prior years. Looking at our cash flow, we generated trading cash flow of $444 million in the period, with trading cash conversion at 49%, which is disappointing and lower than our typical level. We do expect our trading cash conversion to return to more normal historical levels in 2023, however. The change in 2022 was mainly due to a higher inventory, which you can see in the capital outflow of $477 million. We wanted to illustrate and explain the change in the inventory and what drove the inventory growth.
The largest single contributor of inventory growth was strategic raw material buying as part of managing through the unpredictable availability of some materials. You can also see here the impact on inflation on the average value of our inventory. In addition to some increases that we made to support growth, would it be building inventory ahead of new product launches, increasing safety stocks or building stock in markets where we expect the growth to accelerate for existing products. Clearly, we recognize that the starting point at the end of 2021 was already too high, and particularly in orthopedics. This is why inventory is one of the key focus area in the twelve-point plan, and we expect to reduce inventory back.
The effect of that is the leverage ratio finished at 2x adjusted EBITDA, which is similar to recent level and in line with our target of 2x-2.5 x. Now I move to the outlook for 2023. You will have seen this morning that we're guiding for underlying revenue growth of 5%-6%. Within that, we expect continuation of the above market growth in sports medicine and advanced wound management, and we also expect further improvement in orthopedics. This will be driven by better commercial execution and growth from new products as we continue to implement the twelve-point plan. There will be phasing effects through the year. We're seeing the renewed COVID waves in China impacting surgical volumes. Therefore, we also still have another quarter before we fully lap VBP during Q2.
That means that Q1 will be slower with acceleration as the year progresses and the China headwinds subside. On trading margin, we expect the 2023 trading margin to be above 2022 level and at least at 17.5%. There's a lot of moving parts behind the margin, and as you can see on the chart on the right, there's several components building that margin. We'll continue to see margin headwinds from the macro environment, which remains uncertain. We more than expect, sorry, to offset those headwinds. That will come from a combination of positive operating leverage and productivity improvements under the twelve-point plan, including specific cost actions that we're setting out today.
Looking at the detail on the chart on the right, you can see that transactional effects will be a headwind of around 100 basis points from the dollar strength in 2022. There's also continued raw material cost inflation, and some of that is a delayed impact as we work through inventory that's based on higher purchase prices. We'll partially offset this through pricing actions and productivity improvement in COGS and manufacturing. Higher than usual staff cost from wage adjustments in the second half of 2022 and the usual merit increase in 2023 will largely be offset by commercial and G&A savings. Revenue leverage will provide the remaining offset. Taking all these variables into account, we expect trading margin expansion year-on-year. We've also updated today our midterm guidance, and I'll hand you back to Deepak to cover that.
Thank you, Anne-Françoise. As you know, we issued the midterm guidance 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. That continued all the way through 2022. We've also made progress. We've started the implementation of our twelve-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. 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. That's due to the higher inflation headwinds 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. That's only the first step. For 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. Before I go into the detail of how we do that, I just wanna anchor and remind you of our fundamental competitive position. I have no doubt that we have the right to win in all three franchises.
In orthopedics, that comes from a full product portfolio and technology. We have highly differentiated implants, particularly in knees and also with OXINIUM, as Anne-Françoise mentioned. We've got platform technologies and robotics with unique indications and assets on our CORI platform. In sports, we have a full offering with leading positions across joint repair, enabling technologies, and biologics. There are also clear synergies between orthopedics and ENT, for example, in the ASC channel. In wound, which is the heritage of Smith & Nephew, we've got the broadest portfolio across all segments with biologics, devices, films, and dressings. We've got a leading position in negative pressure. We also have strong clinical evidence for our portfolio that sets us apart from the value segment of wound.
Our twelve-point plan that we introduced in July of 2022 is fundamentally changing the way we operate as a company to drive that higher growth and also to improve our productivity. It's central to how we'll be addressing our remaining challenges. We've been held back by supply chain constraints that resulted in product availability issues and by execution, and that's mainly in orthopedics. Some of that is, of course, related to external factors like semiconductors, particularly impacting CORI. A lot of it actually is in our hands, both on the growth side and on profitability. On slide 22, that's the slide that we're on, summarizes the initiatives as we set out back in November. Seven of these levers are primarily growth enablers from strengthening our commercial foundations, particularly in orthopedics, driving each franchise, and accessing the cross franchise opportunity that I mentioned in ASCs.
The other five are around productivity across our manufacturing, procurement, and value and cash processes. We walk through the detail of our growth and margin bridges out to 2025, you'll see each of these initiatives contributing. I'll start with revenue. While we're targeting consistent 5%+ underlying growth, this slide puts that into context of our recent history. 2020 and 2021 were dominated by COVID disruption. If we look to the 4 years before that, our average growth rate was a little bit under 3%. Our midterm guidance, therefore, represents a move to consistently higher rate than Smith & Nephew has delivered in the past. I pointed 3 building blocks that'll help us get there. First, we're fixing orthopedics.
As we rewire our commercial delivery, we'll more consistently realize the full potential of our technology than we really have been able to manage up to now. The second building block is continuing the strength of sports medicine and our wound management franchise. Sports has been high performing for many years now, but the recent performance of wound is a clear step up from where we were in 2019 and prior. Just maintaining this outperformance from here, therefore, contributes to consistently higher growth rate than the past. Thirdly, there's the return on our renovation. The company took a strategic decision over the last several years to increase our spend in R&D. We're now seeing the return of that higher investment coming through in the form of a revitalized portfolio and a greater growth combination coming from new products.
I'll get into each of these in turn. On Orthopedics, the process of fixing the foundations is now well underway. We've said from the beginning that this would take two years to work through in full. Our KPIs are already starting to move in the right direction with early and ongoing improvements in product supply. Two metrics are shown on the slide. There's a bunch of others that we look at, of course, internally. The first is simply the value of overdue orders. We had already brought that down in Q3. I'd made mention of that in our release. There was even further reduction of more than 20% during Q4. In total, Orthopedics overdue orders are now sitting more than 35% below the peak in the first half of the year.
The second metric we look at around availability is LIFR, which is Line Item Fill Rate, that measures the % of customer orders that are completely filled, line items in an order that are completely filled. It's an indicator of how well we're meeting demand. Now, these are bumpy data because we tend to look at this on a biweekly or a monthly basis, there are variations from month to month. They are impacted by external factors. For example, we had an ice storm come through Memphis the last part of December, that significantly impacted the numbers for that peak and peak beyond. It is important that we're taking a look at this at a high frequency. What you can see is non-set LIFR of Orthopedics is on an improving path.
It's not at target yet, which would target a set of what we consider to be in good industry practice. We've made more than 75% progress towards the level from the trough that we saw in 2021. Within that, we further prioritized our strategic products, and these are in better condition again. U.S. LIFR for our JOURNEY II Knee has made more than 80% progress from trough to target. Both our POLARSTEM and Hips and EVOS SMALL trauma have reached their targets already. There's clearly more to do to make product availability more reliable, but the early KPIs are encouraging. As supply improvements continue, sales rep time will be freed up, and customer confidence will continue to build. We believe that we'll be in a better position to pursue new business.
The continuing strength of Sports and Wound are the second building block in stepping up our growth rate. Sports has already been outperforming the market for many years, as I noted, and we expect to continue that. When I look at the reasons for the outperformance, they're sustainable and fundamental. There's commercial excellence built on deep understanding of our customers, established customer relationships, and a steady stream of innovation across procedures. New segment development in Biologics, where we're just getting started, and of course, successful integration of acquired assets. Looking forward, we're continuing to deliver a high cadence of new products across our major categories of knee and shoulder repair, including fixation technologies and biologics, and of course, the adjacencies in the Arthroscopic Tower. In short, the innovation pipeline continues to be productive and broad, feeding into a commercial channel that executes at a high level.
That all gives us confidence that the franchise can keep delivering more of the same financially. Advanced Wound Management's outperformance is more recent. It was in 2021 that this franchise moved to above-market performance and higher growth than in previous years. That means that just maintaining performance from here is going to be additive to the group growth rate compared to recent history. Again, there are good reasons to expect that the franchise can sustain and even build on the recent growth rate. Firstly, the step-up in performance has been based on sustainable and fundamental drivers. Part of that is commercial execution. The organization is focused on our differentiated strengths, such as the unique portfolio breadth among our larger peers and evidence-based selling that differentiates us from the smaller value players. There's also an attractive portfolio mix.
We have a leading position in the high-growth negative pressure wound therapy segment. We've also driven bioactives growth structurally higher by scaling up and successfully integrating our skin substitutes acquisition from 2019. There are still opportunities for further growth, again, particularly in negative pressure. In the traditional segment, we can win more share. Today, we have less than 10% share of the $1.7 billion market, with our larger competitors selling much of it through single-source contracts. We've already been converting accounts as contracts expire, and RENASYS EDGE creates a further opportunity for us to address the broader market. The single-use opportunity is more about market expansion, and we're ideally placed to access that with our PICO's number one position.
The segment is expected to keep growing in the teens in the next 5 years, and we believe a multiple of today's size is possible just through increased use in surgical incisions. The third building block of higher growth is innovation. Put simply, we've allocated more capital to R&D than we have in the past, which should drive more innovation, and we're now seeing the returns of that coming through. That step up in investment has been significant. Over the last 3 years, our R&D spend has been 25% higher relative to sales than it was in 2017. That included maintaining our commitment both through COVID and as our sales later recovered. To give you a sense of how central to our model innovation is, more than 60% of revenue growth in 2022 came from products that we launched in the 5 years prior.
That's also a clear step up from less than 40% of growth in 2021 coming from new products. We expect this proportion to remain at least at 50% in 2023. You can also see the change in the absolute number of launches. We expect 25 product launches in 2023, which is a clear step up from an average of about 18 in the period 2017-2022. It isn't just about numbers. We're bringing key strategic products to the market across all of our franchises. For example, in 2021 and 2022, we entered the cementless category with LEGION CONCELOC. With more cementless launches still to come, we added a range of applications also to CORI, including a unique knee revision indication. We're the only robotic platform to carry that.
Launched our next generation meniscal repair device, FAST-FIX FLEX. I have to say that with lozenges in my throat. That will continue in 2023. We'll further build on CORI's functionality, including the unique Knee Tensioner for soft tissue balancing. We'll launch the next generation of RENASYS, as I just mentioned, and AETOS, which will be our entry into next generation shoulder. I'll now move on to profitability. To think about how to reach our target of a trading margin in excess of 20% in 2025, it's useful to look at what factors have taken us to our current level. The pressures are in three groups. First, there have been one-time rebasing efforts, which are transactional exchange, foreign exchange, and VBP. Clearly, we don't know how foreign exchange will develop from here, but VBP is a permanent market change.
Secondly, there's the balance of cost inflation, pricing, and leverage. For most of the last 3 years, we've had continuation of the past price deflation, higher cost inflation, and underlying growth that hasn't been high enough to offset those factors. During COVID, the decision was taken to maintain the size of the organization, so the cost base was not adjusted at that time, and we retained excess manufacturing capacity. Thirdly, there's been dilution from our growth investments, both from a rising R&D spend, as I talked about just now, and initial dilution from M&A since 2020. These are investments that we decided to maintain, again, through COVID as part of our strategic focus on growth. When we look by franchise, it's really orthopedics that's caused most of the group margin decline. Repeating the analysis shows that the same factors have been amplified here in orthopedics.
Of the one-time factors, orthopedics is more affected by dollar strength, given the dominance of Memphis manufacturing. VBP, of course, is specific to orthopedics. On inflation and leverage, orthopedics revenue has been slower to recover since COVID. That has meant less of a growth offset for the recent cost inflation and the price deflation that was a feature of the market up to 2022. That has again left us with excess costs. Putting all that together, there are a few important observations. First, whether you look at the group margin or orthopedics, only minority of the pressure over the last three years has come from rebasing efforts. Secondly, most of the rest either reflects lower revenue growth than the past or is due to our decisions to invest for higher growth in the future.
With the higher growth that we're now positioned to deliver, we'll be better placed to drive the positive operating leverage that Anne-Françoise mentioned. Thirdly, many of these headwinds should abate going forward or fall away entirely, particularly after 2023. VBP will fully annualize during the first half of this year. Inflation is expected to moderate after this year. We don't intend for our R&D spend to further rebase upwards. That leads us to the bridge to the 2025 margin target. There'll still be a further transactional FX headwind in 2023, but as I said, VBP stops being an incremental headwind as we move through this year. We do not assume that inflation goes away in 2023.
As I set out in our 2020 in our guidance, it will be a headwind again this year. After that, we expect it to moderate. We're going to offset that pressure through productivity and cost actions. That includes the network optimization initiative that we already announced in the twelve-point plan. Also a detailed set of cost actions mainly focused on OpEx. Together, we will deliver over $200 million in annual savings by 2025. The final lever is growth. In the past, you've seen our growth leverage often consumed by price deflation and cost inflation. However, our twelve-point plan initiative to optimize pricing, put together with cost savings offsetting the cost inflation, will mean that you'll see structurally higher growth falling through in margin leverage out to 2025.
From 2025 onwards, we'll be operating as a fundamentally changed company, and this has been the goal of our strategy and investments in recent years. We'll be able to now, then rather, choose how much we re-reinvest in more growth and how much we allow to drop through to further margin expansion. Clearly, the productivity and cost improvements are an important component of our plans. I'll share a little more detail about what to expect. We've identified a broad set of actions with cost levers reaching across manufacturing, sales and marketing, and G&A. The plan is to deliver at pace with the full benefit coming in three years. In COGS and manufacturing, the rollout of Lean will bring simpler processes, more standardization, and reduced scrap.
There are also still opportunities from optimizing our network where we have overcapacity, particularly in orthopedics, and from sourcing materials and components. All of this comes under the productivity initiatives of the twelve-point plan. Sales and marketing and the markets levers will be a second big block. As I mentioned, the level of revenue growth in the last three years has left us with excess costs. Each commercial team is committed to further new savings to bring our cost base back into balance. Look at country mix in each franchise, including exiting business lines when they're unattractive in a particular market. Trauma in China that we've called out is one of those examples, and there are others in Europe as well that we've already acted on in 2022. We've identified further opportunities over the next couple of years. Finally, there's corporate and G&A.
Again, there are potential savings from procurement, including in distribution. As with the commercial costs, we've also committed to savings in our corporate and administrative costs. In total, these actions will generate over $200 million of annual cost savings by 2025. Some elements will take time, particularly, as you can imagine, in manufacturing. While savings will already benefit us in 2023, they will also be somewhat back-end loaded, with around half of the expected benefits coming in the final year. With that, I'm pleased to bring you these updated targets this morning. They represent a realistic outlook and a commitment to meaningfully improve Smith & Nephew's financial performance. The twelve-point plan is starting to deliver, transforming the way we operate and bringing greater rigor and improved execution.
As we continue to work through the two-year life of the plan, we'll see the operational and financial benefits continue to accumulate in growth, profitability, and cash generation. The benefit are of a multi-year investment innovation is coming through. There's much more detail behind that that we'd like to share. I'm sure some of you will be at AAOS. You're welcome to join our booth and tour to see some of our recent launches and our near-term pipeline in orthopedics. We'll also be holding a capital markets event later in the year, where we'll focus much more on the developing growth opportunities across our franchises. We've had great technology in Smith & Nephew for a long time. This wave of innovation can take us a whole different level.
We'll be in touch shortly about a date for our capital markets day. We'd be delighted if you could join us. Now we can move to your questions. This gentleman to my right.
Hi there, and thanks for taking the questions. I'm 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. Thinking about 2023, margin, how do you see phasing progressing through the year?
Yeah. I can open and I'll turn it over to Anne-Françoise. 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 benefits starting in 2023. Manufacturing, where 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. That will start to fall through into margin. It'll continue to accumulate over the life of the plan. That's the mix. You know, the cost actions around G&A, the marketing starting to hit in 2023 and beyond. Operating growth leverage also in 2023 and start to accumulate, impact of manufacturing network, more back-end loaded. Do you want to color that in Anne-Françoise?
No, we should then move to the 2023 question, Jack, which clearly you should expect a similar pattern to what we've seen historically with a second, a slight, a stronger second half, in part due to the fact that we were lapping VBP in the first half as well. As we work through the savings and the component of the twelve-point plan, the benefits start delivering more as well towards the back end of the year. That's what you should expect.
Thank you.
Who is next?
Thank you. Hassan Al-Wakeel, Barclays. I have two, please. Firstly, if I can ask on midterm targets, particularly the rationale for the 5% + organic growth ambition and your increased confidence here. Appreciate you had a stronger 2022 and particularly the end of the year. As you show in your chart, this is meaningfully higher than what you've achieved historically. How do you break up the 5% by segment and 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 orthopedics? Secondly, thank you for the helpful data on the launch intensity.
Do you have this data over a shorter time period, maybe 3 years instead of the 5 years? Put another way by business division? That would be really helpful. Is that percentage lower in orthopedics versus some of the other businesses? Do you think you need to accelerate the cadence of launches in orthopedics? On the 25 new products that you expect this year, I'd love a bit more color in terms of division, whether you think it's, you know, iterative or are there any step changes there? Thank you.
Yeah, sure. 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. 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. We're well positioned there in terms of our execution, in terms of our products we already have in our portfolio and the pipeline that we have behind that. In orthopedics, 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. 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 orthopedics. We're at a kind of an important moment in time in orthopedics, while the utilization of robotic or the interest in robotics has just increased with all players kind of having a robotic offering. 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's 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 tissue balancing for the knee, which is an important consideration. There's a lineup of further benefits beyond that. We believe CORI will be a growth driver.
It hasn't been as big a driver because we've been supply constrained. Here it's less of the logistics issues that I've flagged previously around orthopedics impacting product availability. Here it's truly, you know, broader supply chain impacts such as semiconductor availability that's impacted our ability to place as many CORI systems. As those ameliorate, as we see that ameliorate in 2023 and beyond, we expect CORI to be a driver. Then in EVOS, we've called for EVOS, and Anne-Françoise mentioned that we now have with EVOS SMALL, a full offering of EVOS to be able to go into RFPs and to contract to really start to compete effectively in the trauma market. It'll be a growth driver for us.
Of course, you've got a full portfolio in knee where we have the only truly kinematic knee on the market, the highly differentiated material in OXINIUM that we've had for some period of time. The combination of these factors is what gives me confidence that orthopedics will continue to add to growth in our hands, right. That's the first part of where the growth is gonna come from, dissected by segments. The second, in terms of launch intensity. There's different ways of measuring R&D vitality, as you know. We've chosen a 5-year timeframe. You could look at 3 years. Will the numbers change? Of course. We say 60% of our growth comes from products launched in the last 5 years. If you narrow it down to 3 years, it'll be a different proportion.
The point we're trying to illustrate is that innovation remains a key driver of growth in our business. In terms of what do the numbers say, just to highlight again what I said in my remarks. Over the period 2017 to 2022, on average, we launched 18 products. Again, the number of products is one thing. It's about the revenue that each one contributes, and of course, you can parse that all different ways. 18 products was roughly the number of new products we launched during that time. We expect in 2023 to launch 25 products. We have a pretty good view as to what's gonna happen in 2024. Suffice it to say, we expect to maintain that intensity into the future.
That intensity of launches and growth coming from new products, whether you define it as five years or three years, we expect innovation to drive growth. The third piece of your question, Hassan, around kinda disaggregating further within each of the franchises. I think I got into it in some detail. What's important, again, to go back to orthopedics is, we've had some recent innovations come into our bag, right? Where we haven't seen the full impact of that yet commercially. Some of the indications that I mentioned on CORI, relatively new. Cementless offering. It, you know, it's first of other launches to come. You know, that's about a year and some change in terms of us of it being into our bag.
There's of course more to come, in that, in that regard. Whether you look at implant technology or you look at what's coming down the pike in terms of robotics and robotics enablement in orthopedics, we've got a lot coming down the pike. You asked for how that breaks up by year and, and by segment. I would refer you to Capital Markets Day, that's coming later in the year, where we'll detail out what that looks like. If you go to AAOS, you'll get a pretty good sense as to at least what the orthopedics part of that pipeline looks over the near future, because in the booth kinda setting, you're only able to talk about the near-term pipeline.
As a newcomer coming into this space, as I take a look at where we've been and the really, the sheer number of new factors coming in, I get excited as a new person coming in because we've never before as a company had that portfolio, particularly in orthopedics. Of course, we've been well-positioned in the other segments. Hopefully that addresses your questions. Great. Thank you.
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 or the other. You know, there's a program behind all franchises to drive the price.
Great. Good morning. Kyle Rose from Canaccord Genuity. I wanted to build on Hassan's question about the medium-term confidence within orthopedics. If I look historically, you know, you have had product gaps, you know, particularly when we think about some areas of robotics and then on the cementless knee. When you think about, you know, the sustainability of the turnaround and growth within orthopedics, how much of that is just a pricing component in getting a better pricing aspect versus taking true mix from a market share perspective? Secondarily, you know, in the advanced wound devices side of the business, you know, for several years now, you've called out, you know, robust growth within PICO.
It would be helpful to, you know, frame out the size of that business relative to, you know, RENASYS. Then also, I think it was maybe back in 2019, there was some bullishness just around contract wins in the U.S. with respect to RENASYS. You're obviously, you know, continue to see positivity there, at least in the commentary you're talking about today. How should we think about the U.S. negative-pressure wound business moving forward?
Thanks for the questions, Kyle. I'll take those, or at least start with those. The first one, around orthopedics. There's a role for price, right? Pricing is one of the elements of the twelve-point plan, particularly strategic pricing, where we haven't been as disciplined around price as a company, strategic pricing, as we could have been. There's an aspect to that we're working on. But that alone isn't gonna resurrect our fortunes in orthopedics. A very important component of that is mix that's gonna drive share recapture or share growth in orthopedics. That'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. 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've ever had before. That's a change in terms of our position today relative to the recent past in orthopedics. We have to fix our execution, which really has held us back, which is why the first bucket under the twelve-point plan is fix orthopedics, and that's a deliberate choice of words, right? Five of the initiatives under the twelve-point plan are geared towards, in one way or another, fixing orthopedics. There's multiple components to that.
There is 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've called out, but there's a whole bunch of other measures that we look at to make sure that we're improving in that regard, right? There's a lot underneath that to get right. The second piece is on the factory side, on the supply side, right, where we've often judged ourselves by schedule attainment, but we're now gonna layer on mix attainment as well so that we're actually producing to demand.
We have a robust demand planning process that's planned down to the right level, and we've got a supply response and a factory that's producing to the right level of demand, right. There's things on the operations side, there's things on the logistics side, as I mentioned. Then there's a third piece around commercial delivery. Historically, partly because we've had these gaps, we've tended to reward retention versus growth. We reward growth, and we rolled that out again this year. It's not done in isolation. It's done in the context where we've brought about changes to how we rewire that business or how we operate that business. It's not fully done. It's a work in progress. The new incentive scheme that we've rolled out is built on that, on that kind of foundation.
Coming back to your question around where we need to see it in terms of geography, U.S. is a key part of it, where we need to execute our turnaround in terms of our operations there. All geographies contribute to it. We talked about being thoughtful in terms of where we invest to compete, right? We've called out that previously. We've made decisions to exit certain markets or certain business lines. China trauma is one of them. We've called out certain markets in Europe, where we've exited lines, and we'll continue to take a look at that, right? That we are actually driving not just growth, but actually profitable growth, and that's one of the levers into that. Hopefully that addresses your first question.
The second question, in terms of PICO versus RENASYS, both are important drivers. Obviously, there's differences of single use versus traditional negative therapy. The size for us is fairly similar, at least in terms of our book of business. You've seen the numbers, so negative pressure continues to be a driver of growth. What I get excited about is obviously we see an opportunity to continue to execute well, and to continue to take share as we have been. There's also opportunities now for market expansion across these categories, and that's a super exciting place to be in a category like that. Anything to add before I close?
No, you've covered the PICO RENASYS. I'll just say, because you've referred to the past as well, you know, that portfolio has grown very significantly and that will digit in recent quarters as well.
Yeah. One thing, sorry, I forgot to mention this, Kyle. you know, we've made remarks around supply issues across our business, that actually has impacted our Negative-pressure business, particularly around our traditional business. Here it's about semiconductor availability among other components, right? we've posted good numbers despite that, but that has been a pacing factor for us in that business. Of course, you know, we see continued disruptions to our supply chains. You know, any one category, there's some improvement from one quarter to the next. you know, we generally see a slightly better picture for 2023 versus 2022, but generally still very much challenged. I did wanna highlight that we're operating in a supply constrained environment in that in that business. We've continued to do well despite that.
I've lost track of the order of when the hands went up, I'll leave it to others to parse that.
All right. Thanks for taking my questions. Seb Jantet from Panmure Liberum. Two questions. One around overall kind of the midterm revenue guidance. Can you give us a sense of the price assumptions that you've baked into that revenue guidance across the kind of board? Secondly, still on the revenue guidance, you talked about exiting some low return markets. Should we think of those as being material in terms of revenue? Should we think of the gross revenue being higher than the 5%?
Yeah. I mean, there's a mix of price and volume. Historically, we've seen price deflation in our business to the tune of, you know, 1% or 2% historically. We're seeing 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. That is quite a contrast to how the MedTech business typically operates. Going forward, you know, we expect to continue to try and pass through the exceptional price increases that we've seen that, you know, honestly are once in a generation type increases.
In the end, in terms of revenue growth, it's gonna have to come, as I said, from mix, and volume and continued performance relative from a share standpoint. That's ultimately what's gonna drive driver growth. 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. Orthopedics is where we need to kind of bring that level of revenue growth in line with market. There's an implied share recapture in the numbers that we've guided to.
The numbers that we've said about 5%-6% for the year, and 5%+ beyond take into account all of these factors. There's a net of all of the things that we see, price, volume, share, capture, all of the factors brought into it.
Hi, Sezgi Oezener from HSBC. Thanks for taking my questions. I have three, please. First of all, on CORI. I know you don't like to announce install base, but I know you closely follow the install base as well as the KPIs. Some color on that will be great. Second, on the waterfall chart on orthopedics, 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? Do you see similar risks such as what we've seen in orthopedics and VBP in other segments? The last question, this one is for Anne-Françoise.
In light of the increase in leverage, and continued interest in M&A, how do you see the capital policy? Should we continue to assume the $250 million-$300 million buyback as well as flat line of dividends going forward?
Okay. Let me address those. On CORI, the last number that we reported is 500 + 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. Not that they'll be completely out of the woods from a supply standpoint in 2023, but we expect to place over 300 in 2023. Hopefully, that gives you a bit of a calibration as to 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. You asked about placements, so that's kinda 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, which is one category versus another. We don't expect VBP in the near term in those categories.
Of course, should it come, we will adapt as we've adapted in orthopedics. Hopefully that addresses that second part of your question. In terms of the factors, as I mentioned, we've been executing well commercially in those other two franchises. Doesn't mean we're perfect and doesn't mean there are opportunities for acceleration. We've called those out, right, in the twelve-point plan. Continued high level of commercial execution, continued improvements in that will, you know, of the portfolio that we have, will be a key driver of growth. Innovation is a key part of it. It's less dramatic than in orthopedics because we've got CORI, which is a new platform that's coming in, new way of doing things in the industry.
There is innovation in both negative pressure and wound and in sports. Whether it's innovation across new categories, biologics is a significant investment area for us in sports, right? That's still early innings in terms of what we can do with regenerative, in terms of getting that broadly adopted into the market. We're investing in biologics, continue to invest in biologics and sports. On in wound, negative pressure is an important investment category for us. You know, we've got a broad portfolio already, and we're making targeted investments, whether it's in biologics or in skin substitutes, in wound as well. There are, you know, fairly robust pipelines in those areas as well.
As I mentioned, we look forward to giving you a lot more visibility into those categories as well as Capital Markets Day . Not that we're trying to be coy here, it's just there's a lot of detail to go into there as well. The waterfall looks a bit less dramatic if you were to create that in sports and in wound, right. I think your second question was for Anne-Françoise.
Yeah. Although I will finish on the—p ick up on the dramatic. If you look at wound in particular, you will see that the margin, and you can see that on our segmental reporting in the annual report. The margin on wound is actually above 2019. Wound has delivered. Therefore, I think it's important to understand that the drag on the profitability has been mostly driven by orthopedics, hence our focus on that. The other franchise are performing well, with wound in particular being back and above 2019 level, and sports being there, but at revenue only, given the pressure on the COGS for sports. Now the final question was on buyback and whether we're committed to buyback. We remain committed to buybacks, and we did $158 million in 2022.
If you recall, when we reframed our capital allocation policy in December 2021, we also signposted to our leverage, our target leverage of 2x-2.5x. We're currently at the bottom of the range, given the, you know, the challenging macro environment, the effects of, you know, COVID on our profit recovery, and also the working capital buildup that you've seen in 2022. As a result, we paused the buyback and we'll continue to keep this under review in 2023.
Thanks very much.
We've got two questions on the phone as well. Maybe take one in the room and another one from the phone.
Thanks. David Adlington, J.P. Morgan. 3 questions, please. Firstly, just on your midterm revenue guide of changing it from 4%-6% to more than 5%, just wondered explicitly how have your pricing assumptions changed from 15 months ago? How, very explicitly, how they changed from being presumably a headwind to maybe a slight tailwind. Secondly, just in terms of the inventory uplift. Just wondered how that's gonna flow through to gross margins through this year and how we should be thinking about gross margins developing through the year. Thirdly, just in terms of technical one, on the FX margin headwind, 100 basis points. That's was 75 basis points back in Q3. I would expect that to get better rather than worse. Just wondering what's, what happened on the FX side.
Do you wanna take those, Anne-Françoise?
As on the FX, as you know, we fixed 12 months, so there's always a quarter that rolls forward. That's the main change on in terms of the assumption. In terms of the inventory uplift, the impact on gross margin is the impact of inflation. Well, there's actually two impact, but it's inflation. If you see that our inventory is now higher cost, effectively means that your standard cost and your cost of goods as you sell the stock is higher cost. That puts. That's what we talk about. That's why inflation phased through a P&L at a different rate than what you see may happen in the external environment.
You know, because you've built inventory at a higher cost. That will flow through a P&L over time. I think it also reflects that as we put, as we look to reduce inventory, a lot of the efforts is around better supply and demand alignment. It's also better discipline in our factories. 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. On pricing-
Price.
You want me to-
Go on.
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 2023, 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. You know, part of the twelve-point plan has a pricing component, but it's about strategic pricing. You know, how do we launch new products? How do we make sure our contracts you know, contracts compliance is improved, et cetera.
The lever of growth in the midterm is really about, you know, gaining market share, launching our products, and continuing to capitalize on the growth drivers we've set in place in the last few years.
Perfect. May just come back on the gross margin point. I mean, in terms of the direction of travel and for gross margin in 2023, how should we be thinking about that impact in terms of the inventory uplift?
You'll continue to see pressure on the gross margin, which is why we say in particular the network optimization, the up savings flow in 2024 and 2025 in particular. That's that element of the plan where 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. Veronica, 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%-6% organic sales growth guidance for 2023? Would love to hear from you what that assumes for sort of procedure volumes or utilization. Deepak, if you can comment on how the year has started related to that would be super helpful. My second question is on the midterm margin target. Deepak, 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? Maybe just related to that for Anne-Françoise, 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 through things like freight, logistics costs and raw materials. Thank you, guys.
Sure. Hi, Veronika. I'll take the first two around the 5% - 6% kinda midterm revenue. As I indicated, 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. Within orthopedics, 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.
Uh, but we don't see, um, the, uh, procedure volume or the market procedure volume being kind of the, the, 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 aren't challenged for labor shortages or, uh, other things, uh, right? And we don't yet know, you know, whether there'll be another spike in COVID or, and how that will impact procedures. But our assumption for five to six is built on essentially procedure volumes, uh, in the, in the, in the world being as they are today and us being able to better participate in that than we have in the recent past.
That's the anchor to the 5%-6%, but as I mentioned, it's not just about orthopedics that's gonna fuel the growth, it's continued outperformance in wound and sports. We don't need to belabor that point. The second, in terms of margin, I wouldn't take a straight line from 17.5% to 20 %+ Veronika. There will be, I would say, nor will it be a step change where it's 17.5% and kinda go flat, and then all of a sudden magic happens in 2025. I wouldn't do that either. I'm not saying a lot when I say that, although perhaps my second statement also has information contained in that.
I would expect, as I mentioned, I'll go back to kind of where we started the Q&A, which is there are elements of our margin expansion that will come in, you know, chunks sequentially from one quarter to the next. Revenue growth driving margin expansion, you should expect. Of course, there's a seasonality to our business, right? Particularly in orthopedics, you need to kind of factor that out, right? Typically, our second half of the year is higher margin than the first half of the year. Against that backdrop, you should expect the operating leverage element of margin expansion to happen sequentially.
In terms of cost, it's a bit dependent on how quickly you execute on the G&A actions and, you know, whether it's the market exits or the sales and marketing kind of adjustments that we need to make. That's a little bit in our hands in terms of how quickly we execute. That is more of a near to medium term lever that fuel that. Some of it, as I said, in 2023, and you'll see, of course, the annualized impact of that in 2024. That's more near term. In terms of the manufacturer, as Anne-Françoise just answered, the network optimization. Look, we're sitting on excess capacity in orthopedics, right?
We need to go through steps in order to put that into balance from a network standpoint, and that will take time and to fully deliver into a P&L. You should expect more in the 2025 timeframe to fully benefit. Having said that, as I mentioned, there are in our, in under the umbrella of rewiring orthopedics, as we look to improve logistics, improve how we do demand planning, how we do supply planning, and how we schedule things in the factory, you should expect some benefit also in the 2023 and 2024 timeframe.
Most of those benefits will come in the form of improved LIFR and therefore improved availability into the market, in terms of product availability into the market, that will get reflected in the operating leverage part of it, particularly in orthopedics, right? Over time, as we talk about inventory is a topic for us, particularly in orthopedics. We started off not in a great place in 2021. We further added to it for understandable factors in 2022, we've got to take steps as we rewire the business to better utilize capital in orthopedics, right? That is one of the key elements of our work plan, twelve-point plan under the bucket of improved kind of commercial execution. That will pay dividends ultimately in lower inventory or lower days of inventory, which is a key metric. We'll come back and report on how we're doing in that in due time.
The final question was on inflation. Clearly, we've had to make assumptions. We, we don't have a crystal ball, as you heard me say some at times. We assume a continued inflation in 2023, in part for the discussion we were just having earlier that it continues to flow from the costs we've seen in 2022. Higher inflation in 2023 and then 2024, 2025 assumes, and beyond that the inflation moderates. What do I mean by that? I'm not gonna 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.
I'm being told we do have more time for one more question back in the room. I thought Veronika was gonna be the last one. One more question in the room. Okay. I think we'll leave it at that. Thank you very much for your interest and attention, and I look forward to seeing you back here next quarter. Thank you.