Smith+Nephew expands margins and cash flow—What it means for shareholders

Smith+Nephew, a global leader in medical technology, has reported a strong financial performance for 2024, highlighting steady revenue growth, increased profitability, and record-breaking cash flow. The company’s ambitious 12-Point Plan has continued to deliver results, with enhanced operational efficiencies and strategic cost reductions driving improvements in its trading profit margin.

The medical device giant recorded a full-year revenue of $5.81 billion, reflecting an underlying revenue growth rate of 5.3%. The trading profit margin expanded to 18.1%, a 60-basis point increase over the previous year. Notably, cash flow generation reached $1.25 billion, marking a significant improvement in financial strength and operational efficiency.

The fourth quarter was particularly strong, with revenue growth of 8.3%, bolstered by increased demand for advanced wound management products, sports medicine innovations, and robotics-assisted surgical systems. Despite macroeconomic pressures, Smith+Nephew’s focus on driving sustainable long-term growth has positioned it well for another year of improved financial performance in 2025.

Revenue Growth Driven by Innovation and Market Expansion

Smith+Nephew’s consistent revenue growth rate reflects its ability to execute strategic business initiatives while navigating sector-wide challenges. The company saw significant momentum in key business segments, particularly in the U.S., where revenue increased by 11.9% in the fourth quarter. Growth was fueled by demand for knee and hip implants, surgical robotics, and negative pressure wound therapy systems.

Advanced Wound Management was one of the strongest-performing divisions, with a revenue growth rate of 12.2% in Q4. The success was driven by increased adoption of the RENASYS Negative Pressure Wound Therapy System, as well as the continued market penetration of GRAFIX PLUS, an innovative skin substitute for wound healing.

Despite strong performance in core markets, China remained a headwind, reducing the overall revenue growth rate by 280 basis points. The impact of the country’s Volume-Based Procurement (VBP) programme continued to pressure pricing in sports medicine and joint repair segments. However, Smith+Nephew remains optimistic about future opportunities, with long-term strategic investments in high-growth regions.

Expansion in Trading Profit Margin Despite Inflationary Pressures

Smith+Nephew’s ability to expand its trading profit margin amid inflationary pressures and global supply chain disruptions highlights the effectiveness of its cost-saving measures and operational efficiencies. For the full year, operating profit rose to $657 million, reflecting a substantial 54.6% increase from 2023.

Over the past two years, the company has successfully implemented productivity improvements, delivering 410 basis points in incremental cost savings. This was achieved through a combination of enhanced manufacturing efficiency, workforce reductions, and streamlined procurement processes. Despite external pressures such as raw material inflation and foreign exchange volatility, the company’s focus on operating leverage has allowed it to maintain steady margin growth.

A notable factor in the trading profit margin expansion has been Smith+Nephew’s investment in surgical robotics, with its CORI Surgical System seeing increased adoption. The advanced robotic platform, which now features pre-operative planning and modelling capabilities, has been a key driver of sales growth in knee and hip implants.

Cash Flow Generation Strengthens Balance Sheet and Shareholder Returns

One of the standout achievements for Smith+Nephew in 2024 was its remarkable cash flow generation, which reached $1.25 billion, a 50.2% increase compared to the previous year. Free cash flow surged to $551 million, underscoring the company’s disciplined approach to working capital management.

The significant improvement in cash flow generation was largely driven by better asset utilisation, inventory reductions, and a more efficient order-to-cash process. Restructuring costs also declined substantially, from $220 million in 2023 to $123 million in 2024, further contributing to stronger financial performance.

Enhanced liquidity has allowed the company to continue making strategic investments in high-growth areas while maintaining a stable dividend payout. Smith+Nephew has reiterated its commitment to sustaining long-term shareholder value through a balanced capital allocation strategy.

Driving Future Growth Through Innovation and Portfolio Expansion

Smith+Nephew has consistently prioritised innovation as a core driver of growth, with more than 60% of 2024’s revenue growth rate coming from products launched within the past five years. In total, the company introduced 16 new products in 2024, further strengthening its position in key medical technology segments.

The recent acquisition of CartiHeal AGILI-C, a breakthrough cartilage repair implant, has expanded the company’s sports medicine portfolio. Early market development efforts have yielded promising results, with clinical strategy and reimbursement milestones being met. Smith+Nephew’s track record of successfully commercialising regenerative medicine technologies positions CartiHeal AGILI-C as a potential long-term growth driver.

In orthopaedics, the full commercial launch of the AETOS Shoulder System has enhanced Smith+Nephew’s competitiveness in the $1.7 billion shoulder market. Additionally, the introduction of CATALYSTEM Primary Hip System, designed for anterior hip procedures, has reinforced the company’s leadership in hip replacement technologies.

Advanced wound management remains a key pillar of growth, with the launch of RENASYS EDGE NPWT System, a next-generation negative pressure wound therapy solution designed for simplified usability and enhanced efficiency. This segment is expected to continue its strong performance, supported by increased demand for innovative wound care solutions.

2025 Outlook: Sustained Growth and Margin Expansion

Looking ahead, Smith+Nephew has set ambitious targets for 2025, forecasting an underlying revenue growth rate of approximately 5%. Despite continued headwinds in China, the company expects strong momentum in its core U.S. and European markets, particularly in sports medicine, ENT, and advanced wound management.

The company is also targeting a trading profit margin between 19.0% and 20.0% in 2025, marking a significant step-up from 2024. This improvement will be driven by operational savings, increased efficiency in manufacturing, and the optimisation of its global supply chain. Additionally, continued investments in digital health and robotic-assisted surgery are expected to provide long-term growth opportunities.

With a strong balance sheet, improved cash flow generation, and a robust innovation pipeline, Smith+Nephew is well-positioned to sustain its upward trajectory. As the company continues executing its transformation strategy, shareholders and stakeholders can expect another year of steady progress and value creation.