Smith & Nephew plc (SN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Smith & Nephew PLC's Third quarter results presentation. [Operator Instructions] I must advise you that this conference is being recorded today on 29th of October 2020. Certain statements in this presentation are forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these 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. I would now like to hand the conference over to Roland Diggelmann. Please go ahead, sir.

Thank you, Nadia. Good morning, everyone, and welcome to Smith & Nephew's Third Quarter 2020 Trading Update. I am also joined today by Anne-Francoise Nesmes, who I'm very delighted to have with us for her first results call as a Chief Financial Officer. Let me to start with a few high level remarks. Firstly, very pleased with our progress in the third quarter and especially how the business and our employees have responded to the challenging circumstances. We've seen most of our global markets recover. Thanks to our work in Q2, we were actually ready. Our commitment to maintaining strong customer relationships, keeping our supply chain and manufacturing open and investing in both retaining, training our people is paying off. Anne-Francoise will take you through our Q3 performance by market and trading conditions, and then I'll cover the performance of the franchises. Stepping back from the quarter to look across the year, I'm also very pleased that we have continued to deliver on our strategy while also responding to COVID-19 effectively. We have made great progress before COVID. We had great momentum in the second half of 2019, and we've continued to -- the important work to transform the group. I am proud of the way the team has delivered on multiple fronts. Those include major product launches, M&A, R&D and pushing forward our people to run sustainability agendas. I will develop some of these themes with examples of what we've been doing to further enhance our midterm growth profile in the presentation later. But first, let me hand over to Anne-Francoise to lead up the review of the quarter.

Thank you, Roland. Good morning, everyone. As Roland said, it's my first results call with you, and I'd like to say that I'm delighted to be here at Smith & Nephew. And I also look forward to meeting you in person whenever it will be possible to do so again. Now moving to the numbers. Q3 revenue at $1.2 billion, declined by 4.2% on an underlying basis and 3.7% on a reported basis, in line with the announcement we made on the 1st of October. Pleasingly, the U.S., our largest market returned to growth in the quarter at 0.9% on an underlying basis, with revenue of $630 million. Of course, given the different recovery profiles, other established markets declined by 6.2% and emerging markets by 14.5%. Now looking into the detail of each region for Q3, we saw a general continuation of the patterns that had developed in Q2. As I mentioned before, as you can see on the slide, the U.S. business continued to improve and returned to growth for the quarter. And as a reminder, by the end of Q2, surgery had restarted in all states but with restrictions in some. By the end of Q3, the restrictions in Texas had been relaxed and lifted entirely everywhere else. The picture in other established markets is very mixed, markets that were fastest to recover initially have continued to lead the way. In Europe, for instance, Germany and France returned to growth in the quarter and Southern Europe also improved. However, as we saw in Q2, the U.K. continued to be slower to recover with surgical volumes still significantly below the prior year. For established markets in Asia Pacific, Australia procedure volumes recovered further to approximately 90% of normal level by early October. And Japan is now at similar level after lifting restrictions in the quarter. It is important to note though that there's still uncertainty in our established markets. We have seen some postponements and cancellations of procedures recently and it's not yet clear what the impact will be as new restrictions are being reintroduced. Additionally, the levels of growth in some European countries may reflect the systems working through the backlog of deferred treatments. Finally, looking at our emerging markets, they showed divergent performance. What looks like a relatively unchanged rate of decline over the quarter is in fact driven by markets entering and exiting restrictions at different times. Q1 weakness was driven by China, as we know the first market to have COVID restrictions, but China recovered strongly in Q2 and again, grew in Q3 as a whole. Capacity utilization remains over 80%. Q2 and Q3 weaknesses was instead driven by other emerging markets that were impacted by COVID later. These markets were still largely under restrictions as we completed Q3, for instance, India, South Africa and many Latin American markets have yet to show sign of recovery. Clearly, we are all interested in how the rest of 2020 and 2021 may develop. Unfortunately, visibility remains limited. As I've just explained, there is significant geographical variability, including local restrictions being introduced in some markets. In general, we do believe health care systems are better prepared than they were earlier in the year, and we do not expect the same global impact as we saw in Q2. However, we still expect some impact. While it's too early to quantify, we've seen increasing postponement of surgeries in the last few weeks in a number of European countries. As a result, our full year 2020 guidance remain withdrawn since the nature and the scope of any new restrictions to control COVID-19 through the year-end are not known. And listening to public health authorities and observing developments at delayed -- at this late stage of 2020, you will not be surprised to hear about our expectation is that the impact of COVID will continue in the first half of 2021. But having said all this, it's important to remember that our strategic focus remains on delivering long-term growth. And we are investing accordingly. We are continuing to prioritize our R&D investment. We have continued with M&A agenda, which brings additional short-term margin dilution. And naturally, you should also expect the negative operating leverage effects we described earlier in the year to continue whilst volumes are under pressure. As we said before, we have been preparing new operational efficiency plans, which I have been reviewing since I joined. A significant component of the plan is around manufacturing, but as you know, manufacturing and supply chain transformation takes time to execute. And finally, as you look into 2020 and 2021, I would like to remind you that the revenue headwinds from foreign exchange should result in a transactional headwind for the trading margin in both years. And with that, I'll hand back to Roland to cover our franchise performance and our strategic progress.

Thank you, Anne-Francoise. Moving on to the franchisees, indeed. All 3 showed significant improvement both over Q2 and over the June growth rate. Orthopaedics declined by 2.8% globally, Sports Med & ENT by minus 4.5% and AWM by minus 6.1%. Regional patterns within the franchises were largely similar to those of the group. Moving to Orthopaedics. We continue to see stronger performance in hips than in knees as well as a higher proportion of emergency cases in the head market surgeons also appear to be preferentially treating hips. For us at Smith & Nephew specifically, we're seeing additional strong growth from the rollout of our OR3O Dual Mobility Hip System. In July, we announced the U.S. launch of CORI, our new generation robotic surgery platform for total and uni-knee arthroplasty. Customer reaction from the new form factor has been overwhelmingly positive, as it meets the needs for a smaller, more portable robotic systems. Other reconstruction declined 3.1% in the quarter, including a return to growth in the U.S. that reflected recovering capital sales, along with the weak prior year quarter for the acquired Brainlab Orthopaedic Recon business. Trauma continues to improve with growth in the U.S. and Asia Pacific for the quarter as well as for plates and screws and our hip fracture business globally. In Sports Medicine, Joint Repair declined 2.7%, this was really driven by recovering elective surgery volumes, although lower than normal levels of competitive sports activity remained a drag on some specific knee procedures. In markets where procedure volumes are recovering, AET capital sales have also recovered. Our pipeline of business remains good. And we're seeing a step-up in evaluations, particularly around the LENS 4K imaging system. ENT has been slower to recover. Understandable caution from parents in particular has remained the drag on growth. However, we did start to see some improvements late in the quarter in the U.S. Our focus in ENT has been on readiness for the recovery with the rollout of HALO COBLATION Wands and training surgeon to use the Tula tympanostomy system. Revenue per Tula has been slow so far with lower infection rates as a result of COVID restrictions. We've effectively lost 12 months but we're continuing to invest, for example, in additional clinical studies and, of course, in market readiness. In Advance Wound Management, all 3 segments showed improvements over Q2 although as expected, recovery has been slower than in the surgical business. The factors include a higher proportion of sales coming from Europe, specific to us, restricted access to OR cases for non-essential staff in many regions, and key acute hospital staff remaining focused on COVID care. In AWC, we saw significant improvement in the U.S. and in Europe, including some European markets returning to growth. Bioactive sales declined 4.5%. Debridement and skin substitute market volumes were down by a single-digit percentage, with improvement in the -- late in the quarter. Advanced Wound Devices declined 6.9%, with the overall recovery, mainly driven by the U.S. I'd like to finish by spending some time on what we've done to enhance our midterm growth profile and in line with our strategic imperatives. In September, we announced a conditional agreement to acquire Integra's Orthopaedics Extremities business. Extremities is a market we viewed as attractive for some time. It's a high-growth category, with 6% to 7% growth in the U.S. Extremities market, clearly accretive to our current weighted average market growth rate. The asset is also synergistic with our existing business. As with many of our tuck-in acquisitions, we have the ability to sell the acquired portfolio through a significantly wider reaching channels than it's been sold through today. Our RENASYS sport sellers are already calling on surgeons that also perform shoulder arthroplasty. We'll now be able to sell them the Smith & Nephew shoulder. For our Trauma business, we're already calling foot and ankle surgeons and upper extremities. And the Integra products will further enhance our offering there. Any asset brings a team of extremities specialists into Smith & Nephew with an established distribution capabilities of their own that we can also benefit from. Finally, the transaction adds to our pipeline with the next-generation shoulder, bringing short stem and stemless technology into the portfolio and expected to launch in 2022. With these opportunities, we expect to drive double-digit revenue growth for the acquired products. You should see the Integra transaction in the context of the broader strategic progress we've made this year. We've been building on the progress of 2019 and establish further drivers of growth. Firstly, you've seen important product launches from our internal R&D. We cover the technical differentiation of CORI and INTELLIO at our analyst event in September. We've talked less about halo, but it's an important launch in ENT. Halo brings our last generation of COBLATION Technology to tonsil and adenoid surgery, ready for recovery in that part of the market. All 3 of these launches can also drive both capital and consumables. And we have a full pipeline still coming. To pick just 1 example, the next-generation of PICO, which we expect to launch in late '21, following regulatory clearances and the various approvals. Secondly, we've made further progress in adding growth through M&A, the recent Integra transaction and Tusker in January are examples of the tuck-in acquisition strategy that's familiar to you by now. We've also added to our digital technology capability. The MiJourney acquisition laid the foundation for ARIA, our digital platform to connect providers across the patient's episode of care and that we believe will enable the reduction of post-acute costs, improvement of clinical efficiencies and generation of value-based data sets. The technology has potentially broad applications but is particularly suited to the high-growth ASC segment. And finally, we continue to expand the acquired assets from previous years. We have successfully completed requirements for CE Mark in REGENETEN and NovoStitch Pro, most of which we acquired as U.S. assets. And then in Wound, we have now fully trained our U.S. Bioactives field force to sell Grafix and Stravix and start driving the revenue synergies of the Osiris acquisition. So between these various steps, we have put additional and meaningful midterm growth drivers in place across all 3 franchises. In summary, I return to my opening slide. Q3 was significantly better than Q2, and I would like to take this opportunity to also thank all of our employees globally for the way they have responded in these difficult and challenging times. And for remaining focused on supporting customers and patients through the crisis. COVID-19, as we all know, is not stopped. But we will continue to work on important measures to transform Smith & Nephew, and I'm very excited by our progress here. And finally, a word about the future. Smith & Nephew is now a company with a purpose and a plan. We focus on what we can control. This is commercial excellence, delivering on our R&D pipeline, building our culture and driving efficiency. The Smith & Nephew of today is more agile, and we have proven able to respond rapidly to changing circumstances. Looking further ahead, we're building a stronger company. We have a proven strategy, excellent management team and a robust balance sheet. When we move beyond COVID-19, we will remain committed to our midterm ambition to consistently outgrow our markets at the same time is delivering improvements to our trading profit margin. With that, I thank you for your attention. Anne-Francoise Nesmes and I would now be very happy to take your questions. Thank you.

[Operator Instructions] The first question comes from the line of Tom Jones from Berenberg.

I had a couple of questions. The first is I just wanted if you could shed a little bit more color on the differential between the hip and knee growth that you saw in the quarter? Do you think that's broadly reflective of the market? Or do you think there are some Smith & Nephew specific factors beyond OR3O that are playing into that? And I guess the question is, what do you think the sort of near term outlook for both the hip and knee businesses is? Do you expect that differential to continue? And the second question I had was really on Integra. Your guidance that you expect to exceed your WACC in year 5 is probably 1 to 2 years longer than usual. Does this just reflect the sort of the fact you're not expecting new shoulder until 2022? Or is it perhaps more symptomatic that good acquisitions are just getting a little bit harder to find, so you're having to push the boundaries of what's acceptable in terms of a ROIC-WACC spread and the time to achieve that positive spread?

Thank you, Tom. Thanks for the questions. I'll take the first one on hip and knee differentials. First, I think there is probably going to be a market factor than any specific factor to Smith & Nephew. So in hips, where we're seeing, we're seeing more emergency, reconstruction or also trauma. That's only a fact. There's probably surgeons that treat hips further than or more early than knees in a broader context. So from that end, we expect that differential to continue. And then on the portfolio specific side, as you pointed out, we've had great success with OR3O. It's still only at the beginning of the launch. So we expect that to continue to deliver strong growth numbers for us. And then on the knee side, we still don't have, and we're working hard on having a porous offering as well. So I think that will also continue to have a certain impact and underpin the differential. On the Integra acquisition, I think you're absolutely right. We have to differentiate between the type of acquisitions, of course. And if it's more technology based, in the case of Integra, I would say it's mixed technology. As you pointed out, we have a shoulder that's in development, which we're very excited about, which will only come in '22 and it's a commercial play as well because we acquire commercial capabilities. But typically, acquisitions in technology probably take a bit more time to return -- with a return on investment.

That's very helpful. And then maybe one quick follow-up maybe for Anne-Francoise, welcome to Smith & Nephew. I was just -- it's -- it was on the bond issue, really. I mean Smith & Nephew is a company that has historically relied more on bank debt than bond debt. So I just wondered if we should be reading anything into the fact you've been a little bit more aggressive on the bond side. Is that just about locking in attractive interest rates for long period of time? Or is that about reducing refinancing risk and pushing the maturity profile out quite some distance?

Thank you, Tom, for your question. Nice to meet you virtually, so to speak. So in terms of the bond, quite clearly, an element of the refinancing was opportunistic. The market, the interest rates are very low. And therefore, when we looked at our debt maturity profile and the market, we felt it was a good time to execute the strategy of diversifying our sources of funding. Because as you said, quite likely, we relied historically on bank loans and the profile was skewed to that. So we were opportunistic in terms of benefiting from a positive market environment. And therefore, we have a more diversified source of funds, which gives us the ability to execute our strategy.

The next question comes from the line of Kyle Rose from Canaccord.

Two from me. The first, I just wanted to see if you could give us a little more information regarding the Integra acquisition. I guess why was that the right mix of assets now? And then how you think about the opportunity with respect to future M&A? Do we expect more tuck-ins of a similar size? Or do you have any appetite to maybe take a bigger play? And then secondarily, on the U.S. market, specifically as it stands in Wound Care, if I remember correctly, you highlighted some positive contract wins on the AWD side, I think about this time last year. Have we started to see those impacts in the U.S. and then how should we think about the bioactive business, given you've got the sales force fully trained and engaged? How should the U.S. Wound Care business broadly, to trend as we think about exiting 2020 and into 2021?

Thank you, Kyle. Thanks for the questions. On Integra, I think you probably heard me earlier, where in the past, as well talk about complementing our strong reconstruction business with upper extremities and notably with the shoulder. So we've been looking at the market for some time. We always felt this would be very complementary to the portfolio. And I'm very excited about the development that's underway for a new shoulder system, stemless and with various options. So we felt that was the appropriate time. We pushed it through despite the current challenges, but we feel very, very comfortable with this. It also gives us a play -- an additional play in foot and ankle, which is great. And with that, it strengthens the commercial capabilities also, not just of the joint team, but also the trauma team. So I believe we have opportunities there. We acquire a full and commercial sales force in the U.S. and then we have some distributors in Europe and in the rest of the world, that also, I believe, we can leverage better in-house. So we feel very good about this acquisition, both strategically and in the current time frame. On U.S. Wound Care, indeed, some wins, which have taken -- will take a bit longer to materialize because of the current environment, as you would expect. But I feel very comfortable here. I think we'll have a good fourth quarter in AWM overall, and that will also be owned to some improvements in Bioactives, as you mentioned. We now have a fully trained sales force on both ends, the Smith & Nephew and the prior Osiris have been cross trained, and we have the ability to sell Bioactives now across. And I think that will help us. We also so have on the regulatory and the reimbursement front in the U.S., we will see some support for that.

The next question comes from the line of David Adlington from JPMorgan.

So 2, please. So firstly, just on Wound. You've had a couple of peers reports that have come in slightly better in terms of growth. I just wondered if you thought you were losing share or do nothing with respect to maybe your geographic mix is impacting your growth on the Wound Care side? And then secondly, just in terms of margins for the full year. Obviously, you pulled out the transactional impact from foreign exchange. Maybe just expand a little further on that and how we should be thinking about revenues and cost evolution through the second half, the full year margins?

Thank you. We don't typically comment on the margins on the third quarter. So I would try to give you a little color, but maybe Anne-Francoise can give you some general comments there. The first one on Wound, absolutely, we have a different mix, we have a strong business in Europe, which has been more affected by COVID, as you all know. I think that's one reason to bear in mind. We've seen some softness in Asia, some of that related to stocking patterns. I don't feel at this stage that we have enough data to say where this has had an impact on market share. I think we're well positioned. But the access to health care facilities over the -- during the COVID crisis, of course, remained challenging in some -- especially in some markets. And then, of course, in devices, we also, of course, see an impact from the lower number of elective surgeries.

So I'll take the question then Roland around margin to the extent. Whilst I say, I'll remind you around the cost savings we've put in place to mitigate the impacts of COVID-19. And we've talked about, and we indicated in May that we were targeting up to $200 million of savings in discretionary costs for the full year in 2020 versus our expectations or budget. We are delivering on that. We're delivering this target and really was in areas around variable pay, third-party commissions, travel, at consultancy. So some of that was directly linked to activities. And therefore, I would point out as well, you should not consider those savings as being structural in nature as you look at 2021. So that's in play, and that certainly been realized. And then the other element you need to think about for the full year is the transactional effect, which you mentioned and of course, some negative operating leverage from the fact that the volumes are reduced. But that just as well, if I may, since I'm on the topic of margin. I think it's important over time to focus on our volume and the revenue growth. We will look at efficiencies. We'll continue to be as efficient on driveway efficiencies, but the margin will move as we drive volume growth, and therefore, the strategic topics that Roland has covered are very critical, are important in terms of driving margin.

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

So my first one is sort of a follow-up on the question that David just asked around margins. I think Anne-Francoise, your predecessor talked about from memory, I think, 50 basis points of transactional FX impact. If you can just quickly clarify whether that number is the same or if it's changed? And if you have any insights into what it might look like in 2021, I think you alluded to maybe that there are being some continuation as we move into 2021? That would very much help us with our modeling. And my second question is a big picture question for Roland. Obviously, appreciate we are living in a very uncertain environment. And I think you made in your prepared remarks, the statement that you think COVID will probably be here through at least first half of 2021. I guess I'm just curious, in that context, how you're thinking about the group's ability to return to a positive organic revenue growth? And what do you think -- when might that come in your mind, is that really a second half 2021 event? Or might that happen sooner? I mean, I guess the comps in the first half will be very easy. But just kind of curious how you're thinking about that? And two, just what do you think you need to see to get to that sustainable positive organic revenue growth and I guess revenues getting above the state -- above the level where they were in 2019?

So whilst Roland thinks about the more forward looking question, I'll pick up the Forex. And you'd be glad to know there is consistency with my predecessor. I know normally, a CFO comes in and everything is new and changing. But he will be very consistent. You're right to say, Veronika, that the Forex is about 50 basis points in 2020, and we expect the same roughly in 2021. So Roland?

On the growth, of course, and the return to growth. I think that's, of course, the big question that we're all asking you. What we see, of course, is the continued impact of COVID. We have limited visibility like everyone else as to how long this will go. We're seeing very different guidance in recovery. We're seeing overall, I think, a very strong resilience in this industry overall when you look at elective surgeries, when you look at our return to activity level in Sports Med and Wound in general, so I'm generally optimistic. I don't have this -- I don't know how long the current crisis will continue. Clearly, it will be different in different parts of the world, and we've seen that. What we've also learned that thanks to the first wave is clearly that we have now, as all stakeholders, and I'm talking politics, society and large health care systems, health care delivery and also our industry, I think we've learned a great deal on how to manage parts of that crisis. I don't expect the same level of shutdowns and restrictions. And I also think we have very good protocols across the board now in place. That really aim at one thing that's providing patients with the care that they need. And that care, as you know, the fundamentals are there, they'll continue to be strong. They're supported by the global demographic trends, more aging population that needs more care, more access to health care facilities and health care in general in emerging markets. So I think the fundamentals are very good. And I would expect us to be able to return to growth that exceeds 2019 as soon as the COVID restriction -- or as soon as we have the ability to fully manage the COVID implant. I look at back in the second quarter and third quarter, we did grow despite some challenges in the U.S., in China, in Germany, and that fuels my optimism that despite the challenges as an industry, but also at Smith & Nephew, we have taken the right learnings, and we are able to grow in these circumstances.

That's very helpful. Just a quick follow-up, if I can, Roland. Is that -- one of your peers has been very optimistic about the backlog and they've quantified what they think is -- the backlog of canceled, delayed surgeries, patients in pain. What are your views on that? Do you share that optimism? And have you guys done any work on when you think we might get that vaccine? Is there -- what's the sort of bolus of demand that might appear once we get it? Or do you think that's not how it will play out?

Thanks, Veronika. Yes, of course, we -- as you can imagine, we're running at multiple scenarios. The challenge with those is, of course, we don't have the full visibility. So we have the scenarios in the drawers and know what they could lead to. But I just can't give you any numbers or data here because we just like everybody else, we don't have the visibility. Now specific to the backlog, absolutely, we've seen that. It's not a uniform pattern that we see. But of course, you have, especially in the private health care system, you build backlogs quicker, and they're being worked on faster. So those are the markets that actually responded and recovered fastest. And then again, the question, and we're talking with our customers, becomes what is backlog? What is really organic growth? And what's the mix? And over what period of time, can you address that? Clearly, what we're seeing in other health care systems, which are more public driven is the buildup of waiting list. So this is something that I think in the system inherent is unavoidable. We don't like to see this but at the same time, what it also gives you is the certainty that, of course, you're going to continue to see ongoing demand because that waiting list will have to be worked over sometimes pretty long periods of time. So it's a very mixed picture. I'm afraid I can't give you this crystal ball view that we all would like to have.

The next question comes from the line of Lisa Clive from Bernstein.

Apologies. Just as we think about -- could you maybe comment a bit on the competitive dynamics in the negative pressure market? And twofold, one, how you've been progressing and continue to increase your penetration on the hospital based sort of traditional negative pressure? And also, number 2, whether you've seen any competitive threats from the ConvaTec products that launched a while back?

Certainly. Thank you, Lisa. We believe that we are very well positioned in this marketplace. We believe that with PICO, we have really a very, very strong product. We have continued to invest in it. We will have the next-generation of people coming in late '21. We entered this crisis with the devices growing at double digits, and we were very confident that on the normal circumstances, we can carry that rate forward. Yes, of course, there is competition. I don't view this as a huge threat. We have good information on our product, what it does. We have the performance data. We have, in some cases, very specific clinical data that point to the effectiveness, the superiority of PICO. So that's what we continue to do is invest in value-based offerings. Document what we do in the clinical setting, and I feel really, really strong about our PICO franchise.

And then within the hospital setting, you obviously lost some momentum several years back when the product had to be withdrawn for a little bit due to some issues around FDA approval of an update. How has that progressed in terms of regaining market share?

Yes, you're absolutely right. I mean I think it's about regaining market share. I think it's both an opportunity for the hospital setting and the home health setting. In the hospitals, RENASYS was actually growing double-digit pre COVID. So we feel that we regained some momentum, and that we have put ourselves in a position to actually capture market share again.

The next question comes from the line of Oliver Metzger from Commerzbank.

First one is on the recovery in Hip Implants. Could you give us any idea what part of this increase was related to pent-up demand versus underlying development? My second question is on Integra. So can you also give us some indication how Integra has performed over the last 9 months now, including the negative impact related to the corona pandemic? So other potentially business, has shown a higher resilience to your core business?

Thank you, Oliver. On the first one, on the hip side, I think we've seen really good growth. It's really difficult to say whether that was pent-up or just organic, I think, for the most part of it, it is a mix. We are seeing that hips are being -- performed quicker by -- than knees in general. And I think with the OR3O, we really had a very strong launch and some positive effect on the rest of the hip franchise as well. And then, of course, hip surgery is also more prone to trauma, especially in the older population. So that also helps in that context. On the Integra data, I'll have to come back to you. I don't have those on top of my mind. What I know anecdotally is, of course, that there has been an impact, just like for everybody in the industry as well on the Integra Extremities franchise. But I don't have that number. I'll -- we'll get back to you. If that's okay?

But just as a reminder, Oliver, to just give some value context. We did put in the announcement that Integra generated $90 million of revenue in 2019 and traded a small lot. But they're reporting soon as well. So you'll get their data.

The next question comes from the line of Chris Gretler from Crédit Suisse.

I have 2 questions. The first also relates to Integra. Actually, could you provide a sales split into lower and upper extremities for that business? I notice now it's a relatively small market share, that you're buying there. Is there any appetite to grow that business and your relative market position via acquisition further on? Or is this basically kind of the picture that you have to necessary -- the picture have -- necessary to grow organically? So that would be the first question. And the second question, maybe just on October trading. If you maybe have some indication about the trends that you have seen just as of late. I was a bit surprised that the 3 months in Q3 were kind of not fairly stable. So I was just wondering whether you had a big enough indication for us how things are doing on a run-rate basis?

Thank you, Chris, for the questions. On Integra, firstly I'm afraid we're not giving breakdown at this stage. We may as we go further and we fully integrate the business. But from a business and strategic perspective, I think what it gives us is access to the shoulder market for the recon business. It gives us access to foot and ankle in other extremities, also in the Trauma business. So it's a great complementary business. It gives us a sales force that is dedicated and has access to specialists. It also gives us a crossover into Sports Med when you think about pure shoulder specialists that would do any surgery that is relative to shoulders. So there we can bridge nicely from Sports Med across the entire continuum and, if necessary, into the recon side of it. So that's really attractive. We continue to look at the market, of course, opportunistically. But right now with what we're going to be bringing in-house with Integra, I feel very good about our ability to play in this faster growing market of extremities and shoulders in particular. And then I'm very excited about the development that's underway with a great surgeon group. For a new shoulder design, stemless state of the art that will come to the market in '22. So that will be the little bit of patience, but the state of the development there is well advanced. On October trading's, we typically don't comment on individual months, I would say, it's been, I would say, a continuation at this stage. But remember, month-to-month variations can be pretty heavy. And then we're still not at the end of the month. So typically, we have quite a lot of activities towards month end. What we certainly also see now is more restrictions being applied in Europe, in particular. I am hopeful that they will not impact elective surgery overall at a large degree, but we will see, again, different restrictions being imposed. I believe that in Switzerland and Germany, there is a great ambition to continue with elective surgeries, also on the basis of the learnings from the first wave, whereas in other countries like Belgium, all elective surgeries have now just been suspended. But this information is just coming over the last few days. So you see that the situation is very fluid. And then I wouldn't read too much in the individual months. Same, by the way, holds true for POLAR3 because there, we have some very weak months typically as comparatives with the summer months and breaks. And this year, everything was a bit different in terms of the pattern and the rhythm. So we'll know more at the end of the year when we really have the full fourth quarter under our belt. And of course, we will know more about the ongoing COVID-19 situation.

The next question comes from the line of Michael Jungling from Morgan Stanley.

I have 3 questions. Firstly, on sales force. Can you talk about the sales force turnover in each of your 3 franchises since COVID hit you in Q1, Q2 of this year? Question #2 is also on sales force. What do you expect will happen to your sales force stability over the next 6 months with a view perhaps that these sales reps have mouths to feed and are looking for a more stable health care area? And then finally, also on sales force, can you please update me on the split now that you have for Ortho & Sports medicine between your own sales force and how much goes through distributor sales forces?

Michael, thanks for the questions. Yes. Of course, sales force very, very important to us. I am pleased to report that we have not had any layoffs, no furloughing as a matter of fact, in the organization. We took that decision very early in crisis. And of course, that was given to protect our sales force and to protect the strength of the organization. Since the attrition rate is well below last year's, as one would expect, but we've also taken many other measures in protecting our sales force. Especially around the U.S. where it's a heavy commission-based sales force, where, in some cases, we have advanced the commissions. We have ensured that even though the activity level dropped massively, that those people remain with us. And I'm very confident that they will also remain with us in the future. First of all, as we continue to see the recovery, they will see that there is great opportunities for them. At the same time, I think there's -- obviously, we did a lot as a company to support our sales force certainly, these are specialists. It's not that easy for them to shift from one to the other industry. So I think that's quite inherent. Now on the third question between direct and indirect. We have made a couple of deals, brought distributors in-house, strengthening the direct sales, especially in the U.S. We continue to look for opportunities also in other markets, some of the plans have been put on hold for now, but we'll continue to push to be more direct as we prefer, of course, to have the margin to the end user and have that contact with our customers. Now the breakdown specifically, I don't think we have been disclosing that. We might come back on that at a later stage, but I don't want to give any number at this stage.

Okay. And then finally, Roland, I think when these furloughing schemes were available earlier this year, I think I asked you this maybe in Q1 or the Q2 earnings call, I think you were reluctant to take on any benefits. If -- will this change this time around? If COVID gets worse, are you willing to take on government support schemes?

We would have to look at it on a case-by-case situation. Generally, I am not really a fan of this because it always puts you in a certain situation where you are indebted or you owe something. So that was an easy decision early on. I don't expect the second wave or whatever we call it, to be as heavy or as dramatic than the first wave. So that question probably or hopefully won't come up. But my position remains the same. We protect our organization. We don't lay off for COVID because we need each and every one for the recovery because the fundamentals in the business are sound, and we'll continue to see growth in number of procedures in the future. And we don't want to be dependent on government aid. So that's been my position. I don't see that changing in the circumstances.

The next question comes from the line of Julien Dormois from Exane.

I have 2 questions. One is on the U.S., especially the hospital group, the hospital systems in the U.S. which have started to reduce CapEx pretty heavily in Q2 and Q3, and which are obviously focused on protecting their cash flow given the context. Do you see that as a hurdle when it comes to the launch of CORI right now? And second leg of the question is, have you started to see some of your customers initiating discussion regarding some price concession on the device side of things? And the second question is a broader one, which is on the cost side of things. If and when we get into a world post-COVID, do you see an opportunity for some structural cost savings maybe in terms of maybe less traveling or maybe more remote or digital promotional activities, anything like this that you would start working on?

Thanks for the questions. Regarding the first question on top capital spend, I think indeed, there was obviously, at the height of the crisis, there was some caution around capital spend. I think I haven't come across any cancellations, it was rather deferrals. Remember, these hospital groups are very competitive. They mostly cater to the private market. They want to have the latest in technology. And with that, I do expect capital sales to take up again. CORI, in particular, I think we're very well positioned because we have a very differentiated solution, which has a much smaller footprint, is lighter, it's more mobile. And with that, we believe we also have a much better cost base and so I don't think that we'll see a negative impact. On the contrary, I think we could actually see a positive also with regards to ASCs and the growth and actually the readiness of CORI for ASCs. On the pricing side, it's been remarkably quiet so far. I haven't heard much on this side. I think this will all come with some delay. And I think everybody is right now -- continues to be focused on managing through the crisis. There has been some instances here and there. But nothing that would have been systemic. And then on the cost, Anne-Francoise, please chip in. I think, obviously, we've engaged with customers differently, much more through digital means, different technologies, medical education, big convention and events and travel has all been impacted. In every crisis, you have opportunities. We're going to build on that. We have trained I think more than 20,000 physicians online through new means. This is certainly something that will stay, that we'll continue to build on. We see more opportunities in end-to-end solutions with indeed digital tools, whether that's around identifying right patients for ASCs and managing through the reimbursement or accompanying the patients pre and post-surgery through also digital solutions. So there's a lot that will probably be accelerated and amplified through this crisis. And then, of course, there are some areas where potentially we'll see lower cost of travel, maybe of large conventions, of large meetings, that's certainly a possibility.

So, Julien I guess, I'll pick up the answer in English. Just to add to what Roland said, most of the savings we've achieved are variable costs. And they're not structural in nature, and therefore, it will be our decision, our choice to then balance cost control with our ability to take out in the recovery of the market and reinvesting. And while some activities will change in shape, we're quite clearly balancing that recovery and cost control to make sure we can grow and recover.

The next question comes from the line of Kit Lee from Jefferies.

Two questions from me, please. I think, firstly, just on France and Germany. You mentioned that the markets have returned to growth in Q3. But have you seen a softer recovery just towards the end of the quarter, just given the rising in fraction rates? Or is this not the case? And then my second question is on the Advanced Wound Care business. Can you just split the performance between the surgery and community channel, whether one is growing faster than the other? Or whether you see more pressure on one channel compared to the other?

Thanks for the question, Kit. I didn't quite get the second one. So I'll answer the first one and then maybe we can get back to that second question. So Germany and France, we've seen good recovery through the quarter that was really encouraging. And we didn't actually see a softening later in the quarter. I think this actually continues to perform well. What we now have, of course, is a slightly new situation with the latest announcements made as late as yesterday, in both France and Germany with further, I would say, further measures to contain COVID which we believe will, in some form, have an impact on, of course, elective surgery as well and possibly also on activity based surgeries. Now how much that will be? We don't know at this stage. As I mentioned, I think these countries have also learned, and they have also an ambition to continue to deliver care to their population beyond just looking after COVID-19 patients. And I think that's something that we've also experienced on the positive side. But what the impact will be? We don't know at this stage, the situation is fluid. We're observing it. We have our people on the ground, very close to our customers, and we certainly will be able to react again as we've had -- as we've done in the very recent past. I can see here, my team is helping me. The question was around AWC and then the relative growth between hospital and community channels? Is that your question, Kit?

Yes, that's right.

Okay. I'm afraid I don't have the data here, would have to come back. Sorry about that. I don't have that number globally.

Thank you. There are no further questions. I would like now to hand the conference over to Roland Diggelmann for closing remarks. Please go ahead.

Thank you, Nadia, and thank you, everybody, for taking the time. I wish you all the best and good fourth quarter to all of us. Thank you.

Thank you.

That does conclude our conference for today. Thank you for participating. You may all disconnect. Have a nice day.