Smith and Nephew’s full-year revenue grew 5.3% in 2024 to $5.8bn on an underlying basis. Growth was broad-based across divisions and regions. Total revenue was slightly ahead of previously lowered guidance.
The same was true of trading profit (underlying EBITA) margins which improved from 17.5% to 18.1% with cost savings and scale benefits more than offsetting inflation and pricing pressure in China. Overall trading profit grew 8% to $1.1bn.
Free cash flow jumped from $129mn to $551mn benefitting from a significant improvement in cash generation from operations as well as lower capital expenditure. Net debt decreased marginally to $2.7bn.
Looking ahead China headwinds are expected to constrain underlying revenue growth to 1-2% in the first quarter with around 5% expected for 2025 as a whole. Full-year underlying trading margin of 19-20% is anticipated, weighted towards the second half.
The recommended final dividend was 23.1c bringing the full-year total to 37.5c, unchanged from the prior year.
The shares rose 5.5% following the announcement.
Our view
Smith & Nephew’s final results gave investors some much needed respite with all regions bar China enjoying a strong finish to the year.
But earlier changes in the way China buys its medical devices are still likely to impact growth in the current quarter. Its bulk-buying approach drives down the prices Smith & Nephew can charge. But looking beyond that the comparatives should start to get easier.
The medical device maker operates through three segments; Orthopaedics - offering hip and knee replacements, Sports Medicine - a soft tissue repair business, and Wound Management - providing materials to manage injuries and prevent infection.
The Orthopaedics division has been a problem child for the group, hampered by a lack of scale. Operational improvements have had some success in overseas markets and there’s hope that can be replicated in the US.
An ageing population and growing affluence in emerging markets are both tailwinds for surgical procedure growth. But Smith & Nephew is not just sitting and waiting for the market to drive its sales growth. It's continuing to develop, acquire, and launch new products, cross-sell its wide product range across its territories, and introduce existing products into new areas of treatment.
We see innovation as its biggest weapon for targeting higher market share. The group’s negative pressure wound therapy products continue to evolve as management targets a multi-year growth opportunity. Its regenerative therapies for sports injuries are also seeing strong sales momentum.
But while there are some structural growth opportunities, the group does face some challenges.
Rebuilding margins is proving harder than expected, largely due to the issues with China. Underlying operating margin targets have been pushed further down the road again and are materially behind the original recovery plan.
Market forecasts suggest a prospective yield of 3.1%, but as ever there can be no guarantees especially if business doesn’t accelerate as anticipated in the second half of this year.
These continued disappointments are reflected in the valuation which sits some way below the long-term average. Investors could be rewarded if Smith & Nephew steps up its game and makes good on its promises. But the market will need to see a string of evidence that productivity is improving before getting too excited, and further setbacks can’t be ruled out.
Smith & Nephew key facts
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