Smith & Nephew(US:SNN)2025-02-25 15:16Financial Data and Key Metrics Changes - For the full year 2024, the company reported a revenue of $5.8 billion, representing a 5.3% increase on an underlying basis and a 4.7% increase on a reported basis [62] - The company achieved 60 basis points of margin expansion, with a trading margin of 18.1% for the year, slightly above previous guidance [67][72] - Cash conversion improved to 95%, significantly higher than the 65% achieved in 2023, with free cash flow increasing to $551 million [91][92] Business Line Data and Key Metrics Changes - Orthopedics grew by 4.3% for the year, while Sports Medicine and ENT grew by 6.2%, and Advanced Wound Management (AWM) grew by 5.1% [63] - In Q4, Orthopedics grew at 6%, with a notable 23.9% growth in other recon driven by robotics sales [41][44] - The Advanced Wound Management segment delivered its highest growth quarter of the year at 12.2%, with bioactives growth of 20.3% [56][57] Market Data and Key Metrics Changes - The US market showed strong performance with an 11.9% growth in Q4, while other established markets grew by 8.2% [40] - Emerging markets experienced a 2.3% decline, primarily due to headwinds in China, which negatively impacted both Recon and Sports Medicine Joint Repair [40][64] - The company expects continued challenges in China, forecasting a headwind of around 150 basis points for the full year 2025 [97] Company Strategy and Development Direction - The company is focused on the 12-Point Plan, which aims to improve operational performance and drive higher growth, with expectations for continued margin expansion in 2025 [9][10] - The transition to a global business unit model is intended to enhance accountability and commercial execution [30][80] - The company anticipates significant cost savings from manufacturing optimization and a zero-based budgeting approach, with expected savings between $325 million and $375 million [33][76] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving around 5% revenue growth in 2025, despite anticipated headwinds from China [9][96] - The company expects a significant step-up in profitability with trading margins projected between 19% and 20% for 2025 [98] - Management highlighted the importance of innovation, with over 60% of revenue growth in 2024 coming from products launched in the last five years [65][22] Other Important Information - The company plans to maintain its dividend at $0.375 per share [71] - A reduction in headcount by approximately 9% is expected to contribute to operational savings [36][77] - The company is committed to investing in organic growth and potential acquisitions while maintaining a leverage ratio around 2x adjusted EBITDA [95] Q&A Session Summary Question: What gives confidence that orthopedics will recover towards the end of Q1? - Management indicated that they expect Q1 to be the low watermark for inventories, with a recovery anticipated thereafter based on committed volumes in the tender business [110][113] Question: Are volumes in sports medicine ticking up as expected? - Management noted that the first half of the year will be impacted by the sports VBP on joint repair, with expectations for improvement in the second half [114] Question: What assurance is there that R&D spending won't be used to manage margins? - Management reassured that R&D spending will increase, emphasizing their commitment to innovation and efficiency in this area [109]