Smith Nephew's Shares Surge by 9% due to Profit Enhancement from company Restructuring
Smith & Nephew's shares soared on Tuesday, boosted by impressive full-year sales and profits thanks to ongoing restructuring efforts. The FTSE 100 medical firm's share price increased by an impressive 9% to £11.37 per share.
In 2024, Smith & Nephew's overall revenues surged 4.7% to a staggering $5.8 billion. Underlying sales improved at an even greater rate, climbing 5.3% compared to the previous year. The stellar growth continued into the final quarter, with revenues jumping 7.8% and 8.3% on a statutory and underlying basis, respectively.
Trading profit for the year swelled by 8.2%, reaching an impressive $1 billion. This growth was thanks in part to a 60-basis-point rise in the trading profit margin, which now stands at a robust 18.1%. Pre-tax profit increased dramatically by 71.2% to $498 million. Moreover, cash generated from operations shot up 50.2% to $1.2 billion, defying predictions of a dividend increase.
Cost Savings & Restructuring
Smith & Nephew's 12-Point Plan has made a noticeable impact since its introduction in 2022. The plan aims to boost revenues and improve efficiency and has successfully delivered 410 basis points worth of incremental cost savings over the past two years. The company also reduced its workforce by 9% across this period.
The firm attributes its spectacular revenue growth to successful product launches and its robust innovation strategy. Products launched in the past five years made up more than 60% of 2024's sales increase. In fact, Smith & Nephew introduced 50 new products over the past three years, including 16 last year, with an exciting pipeline for 2025.
Smith & Nephew's CEO, Deepak Nath, expressed his satisfaction with the company's progress. He noted that Smith & Nephew's transformation remains on track with the 12-Point Plan increasingly delivering improved financial performance. Revenue growth is consistently above historical levels following operational and commercial improvements. Changes to the organizational structure are driving increased accountability at the business unit level.
Looking Forward
Underlying revenues are projected to rise by 5% in 2025, or 4.8% on a statutory basis. Analyst Adam Vettese of eToro anticipates a 1% to 2% increase in underlying sales growth during the first quarter due to ongoing pressures in China.
Smith & Nephew is targeting a full-year trading profit margin of 19% to 20%, with expectations for continued momentum and efficiency gains to drive further margin expansion beyond 2025.
In conclusion, Smith & Nephew's robust performance in 2024 and the anticipated growth in 2025 can be attributed to its effective cost-saving strategy, innovative product launches, and operational improvements.
Smith & Nephew's impressive profits in 2024 contributed to a significant increase in the FTSE 100's medical sector, with the FTSE 100 index showing a positive trend due to companies like Smith & Nephew.
Despite the 9% workforce reduction due to Smith & Nephew's restructuring efforts, the company's strong performances in 2024 and projected growth in 2025 have led to speculations about potential improvements in Smith & Nephew's profits by 2025, with some analysts predicting a trading profit margin of up to 20%.
Based on Smith & Nephew's success in launching innovative products in the past five years, contributing more than 60% to the company's revenue growth, analysts expect Smith & Nephew's shares on the FTSE 100 to remain stable and potentially increase further as new product launches in 2025 are anticipated.
