Smith & Nephew(SNN) - 2025 Q2 - Quarterly Report

Smith+Nephew Second Quarter and First Half 2025 Results Financial and Operational Highlights The company reported strong H1 2025 results with accelerated revenue growth, margin expansion, and improved cash flow H1 & Q2 2025 Key Financial Metrics | Metric | H1 2025 | H1 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $2,961m | $2,827m | 4.7% (Reported) | | Underlying Revenue Growth | 5.0% | - | - | | Trading Profit | $523m | $471m | 11.2% | | Trading Profit Margin | 17.7% | 16.7% | +100 bps | | EPSA (cents) | 42.9¢ | 37.6¢ | 14.1% | | Free Cash Flow | $244m | $39m | 528.3% | | Metric | Q2 2025 | Q2 2024 | Change (%) | | Revenue | $1,553m | $1,441m | 7.8% (Reported) | | Underlying Revenue Growth | 6.7% | - | - | - The company announced a $500 million share buyback to be conducted in the second half of 2025, reflecting strong cash generation and balance sheet health[16][28] - Full-year 2025 guidance remains unchanged, with expected underlying revenue growth of around 5.0% and a trading profit margin between 19.0% and 20.0%[16][75][76] - The 12-Point Plan transformation is delivering sustained higher revenue growth, increased profitability, and better cash generation[14][16] Detailed Performance Review Performance was driven by the 12-Point Plan and new products, leading to margin expansion and strong cash flow - Products launched in the last five years contributed to three-quarters of the revenue growth in the first half of 2025[15][29] - The 12-Point Plan has driven operational improvements, leading to a 100bps trading profit margin expansion to 17.7% in H1 2025[21][25] - Cash generation significantly improved, with H1 trading cash flow up 71.5% to $487 million and free cash flow increasing to $244 million from $39 million in H1 2024[26][27] - Inventory management improved, with Day Sales of Inventory (DSI) reduced by 46 days year-on-year, resulting in a $69 million reduction in inventory value on a constant currency basis[27][69] Innovation and Clinical Evidence - Key product launches in H1 2025 included the LEGION medial stabilised inserts for knees, TRIGEN MAX Tibia Nailing System, and ALLEVYN Ag+ SURGICAL for wound management[30][34] - Received FDA clearance for CORIOGRAPH Pre-Operative Planning for total shoulder replacement, expanding the CORI Surgical System's capabilities to all major joint replacements[31] - Expanded the indication for the REGENETEN Bioinductive Implant to include extra-articular ligament injuries in the US, starting with hip capsule repair[32] - Published new clinical evidence supporting key products, including superior 20-year survivorship for OXINIUM Technology in hip replacements and lower re-tear rates with REGENETEN in rotator cuff repairs[36][37][39] Q2 2025 Business Unit and Geographic Performance Q2 2025 Underlying Revenue Growth by Business Unit | Business Unit | Q2 2025 Underlying Growth (%) | | :--- | :--- | | Orthopaedics | 5.0% | | Sports Medicine & ENT | 5.7% | | Advanced Wound Management | 10.2% | | Total | 6.7% | - Orthopaedics growth was driven by a sequential improvement in Reconstruction (3.1% underlying growth) and strong performance in Other Reconstruction (39.8% underlying growth) from CORI Surgical System sales[44][45][48] - Sports Medicine & ENT grew 10.2% (underlying) excluding China, which was impacted by Volume Based Procurement (VBP); Sports Medicine Joint Repair grew 13.7% outside of China[50][51] - Advanced Wound Management saw strong double-digit growth, led by a rebound in Advanced Wound Bioactives (18.6% underlying growth) and continued strength in Advanced Wound Devices (12.7% underlying growth)[56][57][58] Q2 2025 Underlying Revenue Growth by Geography | Geography | Q2 2025 Underlying Growth (%) | | :--- | :--- | | US | 8.7% | | Other Established Markets | 7.4% | | Emerging Markets | -0.2% | First Half 2025 Consolidated Analysis The company achieved 5.0% underlying revenue growth and a 100bps trading profit margin expansion to 17.7% H1 2025 Profit Reconciliation ($m) | Item | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Revenue | 2,961 | 2,827 | | Operating profit | 429 | 328 | | Trading profit | 523 | 471 | H1 2025 Earnings Per Share Reconciliation (cents) | Item | H1 2025 | H1 2024 | | :--- | :--- | :--- | | EPS (Basic) | 33.5 | 24.5 | | EPSA (Adjusted) | 42.9 | 37.6 | - The H1 trading profit margin increased by 100bps to 17.7%, driven by revenue leverage and savings from the 12-Point Plan, partially offset by inflation and China VBP[62] - By business unit, H1 trading profit margin increased 230bps in Orthopaedics, declined 130bps in Sports Medicine & ENT (due to China VBP), and increased 160bps in Advanced Wound Management[63] - Group net debt was stable at $2.7 billion as of June 28, 2025, with a net debt to adjusted EBITDA ratio of 1.8x[70] Capital Allocation, Dividend and Outlook The company announced a dividend increase and a $500 million share buyback while maintaining its full-year 2025 outlook - The interim dividend for 2025 is 15.0¢ per share, a 4.2% increase from the prior year[16][72] - A share buyback of $500 million is planned for the second half of 2025, enabled by strong cash generation[73][74] Full Year 2025 Guidance (Unchanged) | Metric | FY 2025 Guidance | | :--- | :--- | | Underlying Revenue Growth | ~5.0% | | Reported Revenue Growth | ~5.5% | | Trading Profit Margin | 19.0% to 20.0% | - The outlook includes an expected net negative impact of approximately $15 to $20 million from tariffs in 2025[77] 2025 Half Year Consolidated Interim Financial Statements Unaudited Financial Statements The interim statements show increased profit, stable total assets, and significantly improved operating cash flow - The Group Income Statement reports a profit of $293 million for H1 2025, compared to $214 million for H1 2024[85] - The Group Balance Sheet shows total assets of $10,692 million and total equity of $5,536 million as of June 28, 2025[87] - The Group Cash Flow Statement indicates net cash inflow from operating activities was $396 million in H1 2025, up from $238 million in H1 2024[88] - The Group Statement of Changes in Equity shows total equity increased from $5,265 million at the start of the year to $5,536 million at the end of H1 2025[90] Notes to the Condensed Consolidated Interim Financial Statements Basis of Preparation and Segment Information Financials are prepared under IAS 34 on a going concern basis, with results reported across three business segments - The interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting[93] - The Directors have adopted the going concern basis of accounting, concluding the Group has sufficient resources for at least 12 months from the approval date[94][96] H1 2025 Revenue by Reportable Segment ($m) | Segment | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Orthopaedics | 1,193 | 1,149 | | Sports Medicine & ENT | 923 | 888 | | Advanced Wound Management | 845 | 790 | | Total | 2,961 | 2,827 | H1 2025 Segment Trading Profit ($m) | Segment | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Orthopaedics | 151 | 119 | | Sports Medicine & ENT | 213 | 217 | | Advanced Wound Management | 187 | 162 | | Total Segment Trading Profit | 551 | 498 | Key Financial Notes (Tax, Dividends, Debt) The effective tax rate was 19.1%, an interim dividend was approved, and net debt remained stable at $2.75 billion - The reported tax charge for H1 2025 was $69m, with an effective tax rate of 19.1%; the Group forecasts a Pillar Two current tax charge of approximately $27m for the full year 2025[121][122] - An interim dividend of 15.0 US cents per ordinary share was approved by the Board on July 30, 2025, payable on November 7, 2025[124] - Net debt as of June 28, 2025 was $2,747 million, including lease liabilities; the company has committed facilities of $4.2 billion[95][133] - The company was in compliance with its principal financial covenant (leverage ratio <3.5x) on its private placement debt as of June 28, 2025[135] Other Information Non-IFRS Financial Measures This section defines and reconciles non-IFRS measures used by management to assess like-for-like performance - Underlying revenue growth adjusts reported revenue for constant currency exchange effects and the impact of acquisitions and disposals[166] - Trading profit is defined as operating profit excluding items such as acquisition-related costs, restructuring charges, and significant legal expenses[166] - A detailed reconciliation table is provided, showing the adjustments from IFRS measures (Operating Profit, Profit Before Tax, EPS) to their non-IFRS 'Trading' equivalents (Trading Profit, Trading Profit Before Tax, EPSA)[171] - Free cash flow is reconciled from 'cash generated from operations' by adjusting for capital expenditure, interest, lease payments, and taxes[183]