Smith & Nephew plc Q4 FY2024 earnings call

• The 12-Point Plan is delivering financial outcomes with 60 bps of margin expansion in 2024, 95% cash conversion, and higher ROIC. - Revenue has grown for 4 consecutive years above historical average, driven by innovation (over 60% of 2024 revenue growth from products launched in the last 5 years). - Implemented a global business unit model to enhance accountability and commercial execution. - Launched initiatives like AETOS Shoulder, CATALYSTEM, and advancements in CORI and Regeneten. - Cost savings program with $325-375M in savings, including closing orthopedics facilities and reducing headcount by ~9%.

Orthopedics: Grew 6% in Q4 with 8.1% excluding China. Trauma and Extremities grew 9.5%. US recon growth improved sequentially with better product availability. Sports Medicine and ENT: Grew 7.8%. Joint Repair faced VBP impact, while ENT grew 19.4%. Arthroscopic Enabling Technologies grew 8.5% but expects slower growth in 2025. Advanced Wound Management: Delivered 12.2% growth in Q4, driven by bioactives and devices.

• Expect revenue growth of around 5% in 2025. - Trading margin expected to expand to 19%-20% in 2025, driven by operating leverage and cost savings from manufacturing network optimization. - ROIC is expected to return above the cost of capital in 2025. - Continued margin accretion anticipated in 2026 and 2027.

• China headwinds: China cost 280 basis points of group growth in Q4, with ongoing challenges in Orthopedics and Sports Medicine. - Uncertainty in operational leverage and recovery in US markets. - Tariff risks and competitive dynamics in the Chinese market, including potential loss of share to local players.

Q: On China, what gives confidence in orthopedics recovery and sports volumes?

A: Deepak and John discuss China's market dynamics, noting softening end user demand in off-tender business, expecting Q1 to be the low watermark, and sports volumes being baked into 2025 forecasts.

Q: US hips and knees growth confidence?

A: Deepak cites supply improvements, commercial execution enhancements, reduced customer churn, and product growth drivers like CATALYSTEM and CORI.

Q: R&D confidence?

A: Deepak and John state innovation is key to growth, R&D spend not cut, and new products like AETOS Shoulder and CORI advancements are part of the portfolio.

Q: Headcount reduction and tariff risks?

A: Deepak talks about headcount reduction from factory closures and SG&A efficiencies, while John notes tariffs are dynamic with China being a key area but US operations are reasonably covered.

Q: Pricing and margin beyond 2025?

A: John and Deepak discuss normalizing pricing to historical levels, with 2025 expecting closer to normal, and margin expansion beyond 2025 driven by annualized cost savings and operational leverage.