20-F: Smith & Nephew Exceeds 2025 Targets, Unveils Ambitious RISE Strategy

Smith & Nephew plc reports strong financial performance in 2025, surpassing targets with significant growth in revenue, profit, and cash flow, while launching a new strategic plan for accelerated future growth.

Summary

• Reported revenue increased by 6.1% to $6,164 million in 2025, with underlying revenue growth of 5.3%, exceeding the guided target of around 5%.
• Operating profit rose by 20.7% to $794 million, and trading profit increased by 15.5% to $1,211 million, both reflecting a 160bps margin improvement.
• Cash generated from operations grew by 24.4% to $1,549 million, and free cash flow surged by 52.5% to $840 million, well above the initial guidance of over $600 million.
• Adjusted Return on Invested Capital (ROIC) improved by 90bps to 8.3%, despite a -160bps headwind from portfolio rationalization.
• Basic earnings per share (EPS) increased by 53% to 72.1 cents, and adjusted earnings per share (EPSA) rose by 21% to 102.0 cents.
• A final dividend of 24.1 cents per ordinary share is recommended, bringing the total distribution for 2025 to 39.1 cents per share, a 4.3% increase.
• The company completed a $500 million share buyback program in the second half of 2025.
• The 12-Point Plan transformation, initiated in 2022, has been successfully completed, creating a stronger business foundation.
• A new 'RISE' strategy was launched in December 2025, focusing on Reach, Innovate, Scale, and Execute, with ambitious 2028 financial targets.
• The acquisition of Integrity Orthopaedics, a developer of rotator cuff repair technology, was completed in January 2026 for an initial $225 million cash payment, plus up to $225 million in contingent payments.
• An inventory portfolio rationalization program was announced in December 2025, expected to reduce gross inventory and release $500 million of capital employed over time, resulting in a $159 million non-cash excess and obsolescence provision in 2025.
• A $109 million reversal of an impairment charge relating to the investment in Bioventus was recognized in 2025 due to improved operating performance and share price recovery.
• The $1,000 million Revolving Credit Facility (RCF) maturity date was extended to 2030, and total commitments were increased to $1,125 million in February 2026.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong positive report. The company exceeded its 2025 financial targets, successfully completed a major transformation plan, and outlined an ambitious yet achievable new strategy with clear financial goals. The focus on innovation, strategic acquisitions, and improved capital efficiency, coupled with strong cash generation and a share buyback, indicates robust operational health and a clear path for future value creation, despite some anticipated headwinds.

Positives

• Reported revenue grew by 6.1% to $6,164 million, with underlying growth of 5.3%, surpassing the 2025 target.
• Operating profit increased by 20.7% to $794 million, and trading profit grew by 15.5% to $1,211 million.
• Operating profit margin and trading profit margin both improved by 160bps, reaching 12.9% and 19.7% respectively.
• Cash generated from operations increased by 24.4% to $1,549 million.
• Free cash flow significantly increased by 52.5% to $840 million, exceeding guidance.
• Adjusted ROIC improved by 90bps to 8.3%, demonstrating enhanced capital efficiency.
• Basic EPS rose by 53% to 72.1 cents, and Adjusted EPS (EPSA) increased by 21% to 102.0 cents.
• A $500 million share buyback was completed in H2 2025, returning value to shareholders.
• The 12-Point Plan transformation was successfully completed, creating a stronger business foundation.
• Orthopaedics revenue grew by 5.7% (5.1% underlying), with strong performance in the US and Other Established Markets.
• Sports Medicine & ENT delivered 6.0% revenue growth (5.2% underlying), with strong performance outside China.
• Advanced Wound Management achieved 6.7% revenue growth (5.6% underlying), driven by positive momentum.
• More than 60% of 2025 underlying revenue growth came from products launched in the last five years, highlighting successful innovation.
• R&D investment was maintained at $296 million, with 15 new products launched in 2025.
• The acquisition of Integrity Orthopaedics strengthens the shoulder repair portfolio and is expected to be accretive to trading profit margin by 2028.
• A $109 million reversal of impairment charge on the Bioventus investment reflects improved performance and share price recovery.
• Adjusted leverage ratio improved to 1.7x, better than the revised target of 2x, reinforcing financial resilience.
• The $1,000 million Revolving Credit Facility (RCF) maturity date was extended to 2030, and total commitments increased to $1,125 million, enhancing liquidity.
• Achieved a 71% reduction in Scope 1 and Scope 2 GHG emissions since 2019, exceeding the 2025 target of 70%.
• 95% of total manufacturing waste was diverted from landfill.
• Employee engagement score climbed to 4.33, with 95% participation in the Global Engagement Survey, earning the Gallup Exceptional Workplace Award for the second consecutive year.
• Management assessed internal control over financial reporting as effective as of December 31, 2025.

Negatives

• The inventory portfolio rationalization program resulted in a $159 million non-cash excess and obsolescence provision in 2025.
• Gross profit margin decreased to 68.0% in 2025 from 69.6% in 2024, impacted by inflationary pressures and the inventory provision.
• The acquisition of Integrity Orthopaedics is expected to be $20 to $25 million dilutive to trading profit in 2026.
• Headwinds are expected in 2026 from inventory revaluation, tariffs, US Advanced Wound Management reimbursement changes, and ENT Volume Based Procurement (VBP) in China.
• US Knee Implants growth was held back by ongoing portfolio rationalization and a widening product gap, representing less than 9% of Group revenue.
• China's Volume Based Procurement (VBP) program impacted Sports Medicine Joint Repair and is expected to affect Arthroscopic Enabling Technologies and ENT in 2026.

Risks

• Potential disruption to manufacturing or distribution facilities from major physical events or unavailability of critical system infrastructure and applications.
• Disruptions to the global supply chain due to geopolitical events, changes in trade policy, tariffs, conflicts (e.g., Ukraine, Middle East), and increased costs of raw materials, freight, and labor.
• Reliance on certain key or single suppliers for raw materials, components, and finished products, leading to potential supply challenges.
• Failures in operational execution, such as inadequate management, forecasting, and production planning for inventory, leading to excess inventory or product shortages.
• Increased costs and potential disruption from outsourcing or insourcing manufacturing and relocating production between facilities.
• Pace of development and expansion of environmental and sustainability regulations globally, impacting manufacturing, sterilization, and product supply.
• Fluctuations in salary and wage costs for employees and contractors due to increased cost of living, market forces, and inflation.
• Capacity constraints and delays in regulatory responses from agencies like the FDA and notified bodies, potentially delaying medical device approvals.
• Supplier failure to comply with legal, regulatory, or quality requirements, leading to reputational harm and liability.
• Inability to pass on increased costs (raw materials, freight, sustainability improvements, compliance) to customers due to pricing pressures and healthcare budget constraints.
• Failure to effectively execute the new RISE strategy, including cross-functional alignment, accountability, and stakeholder engagement.
• Inability to keep pace with significant product innovation and technical advances by competitors, leading to loss of market share.
• Highly competitive markets with larger competitors having greater financial, marketing, and R&D resources.
• Consolidation of customers into buying groups and price-driven procurement processes (e.g., China VBP), leading to downward pressure on prices.
• Trade policy uncertainty (tariffs, restrictions) adversely affecting planning, forecasting, and investment decisions.
• Inability to maintain ethical working relationships with healthcare professionals due to regulatory considerations or access restrictions.
• Failure to meet customer and other stakeholder sustainability requirements and expectations, potentially impacting financial performance or leading to loss of customers.
• Dependence on government and other funding for medical devices, with potential for budget withdrawals or reduced reimbursement levels.
• Increased exposure to changes in reimbursement policy, tax policy, and pricing due to financial pressure on governments and hospitals.
• Inability to verify the provenance of raw materials, components, and products in the supply chain due to complexity and increased regulation.
• Failure to protect and enforce intellectual property rights, leading to competitive disadvantage.
• Vulnerability of information systems and digitally enabled products to cyber-attacks, theft of intellectual property, data privacy breaches, or other significant disruptions.
• Risks associated with Artificial Intelligence (AI) technologies, including regulatory uncertainty, data accuracy and bias, data privacy breaches, unexpected outcomes, and intense competition.
• Legal proceedings, including product liability claims (e.g., metal-on-metal hip claims) and intellectual property disputes, which could result in substantial damages, fines, or reputational harm.
• Investigations into allegations of possible violations of anti-corruption laws (e.g., in India) and related requests for information from the SEC, with uncertain nature, scope, or outcome.
• Deterioration of business performance or global economic conditions reducing business flexibility, restricting access to adequate debt funding, or causing a deterioration in credit rating.
• Potential for significant tax rate changes or broadening of the tax base in key jurisdictions (e.g., OECD Pillar Two, US tax legislation).

Future Outlook

The company expects underlying revenue growth to accelerate to around 6% for the full year 2026, equating to approximately 7.8% reported growth based on prevailing exchange rates. Trading profit growth is forecast to be around 8%. Free cash flow is projected to be around $800 million, and ROIC is expected to be greater than 10% in 2026, excluding the impact of the Integrity Orthopaedics acquisition. The tax rate on trading results for 2026 is forecast to be in the range of 19.0% to 20.0%. For 2028, the company targets an organic revenue compound annual growth rate (CAGR) of 6-7%, trading profit CAGR of 9-10%, free cash flow over $1 billion, and adjusted ROIC of 12-13%.

Management Comments

• "After three years of delivery, we are now ready to RISE." Rupert Soames, Chair
• "2025 was a pivotal year for Smith+Nephew. We delivered a strong set of full year results, including good revenue growth and significant improvements in profitability, cash generation and return on invested capital." Deepak Nath, CEO
• "We have now completed our three-year 12-Point Plan transformation, creating a fundamentally stronger business and a springboard for future growth." Deepak Nath, CEO
• "RISE is our roadmap to reach more patients, unlock new categories of innovation, scale through strategic investment, and execute efficiently." Deepak Nath, CEO
• "We expect continued strong cash generation and to reach over $1 billion free cash flow by 2028, with 12-13% adjusted Return on Invested Capital (ROIC), significantly above our cost of capital." Deepak Nath, CEO
• "We enter 2026 with strong momentum and a clear roadmap. Despite extraordinary headwinds... we expect continued revenue acceleration and trading profit growth." John Rogers, CFO
• "Our ambition is clear: to deliver sustainable, compounding value creation for our shareholders while advancing our commitment to helping patients live Life Unlimited." John Rogers, CFO
• "Our R&D programme has played an essential role in transforming our revenue growth profile. In recent years, we have delivered a steady cadence of new products that have built out our existing portfolio and often transformed the standard of care." Vasant Padmanabhan, President Research & Development, ENT and Emerging Markets
• "TENDON SEAM enhances Smith+Nephews extensive shoulder repair offering... and will be an important building block in our ambition to become the global leader in Sports Medicine." Scott Schaffner, President Sports Medicine
• "Our Advanced Wound Management vision remains consistent, to Shape Whats Possible in Wound Care." Rohit Kashyap, President Advanced Wound Management & Global Commercial Operations

Industry Context

StockSavvy.ai notes that Smith & Nephew operates in global medical technology markets valued at over $50 billion annually, driven by long-term trends such as an aging population, increased physical activity, and rising incidence of lifestyle-related health issues. The company's focus on innovation, particularly in AI and biotechnology, aligns with broader industry advancements. The shift towards decentralized care, with more procedures moving to Ambulatory Surgery Centers (ASCs), presents a significant opportunity, which Smith & Nephew is addressing with its CORI Surgical System and dedicated ASC sales team. The industry faces challenges from government efforts to lower healthcare costs, including price control policies and Volume Based Procurement (VBP) in emerging markets like China, which has impacted the company's Sports Medicine and ENT segments. The highly regulated nature of the medical device sector creates barriers to entry but also demands continuous compliance and adaptation to evolving standards like the EU Medical Device Regulation.

Comparison to Industry Standards

• Smith & Nephew's relative Total Shareholder Return (TSR) over the past three years (+22%) has far outperformed its MedTech peer group (median -6%), indicating strong market performance compared to competitors like Stryker, Zimmer Biomet, and DePuy Synthes.
• The company's CEO pay is currently below the lower quartile of its MedTech benchmark peer group, which includes companies such as Alcon Inc., Bausch + Lomb Corporation, Baxter International Inc., and Boston Scientific Corporation, despite Smith & Nephew's revenue and global employee headcount being at or above the median of this group.
• In Orthopaedic Hip and Knee Implants, Smith & Nephew holds a 9% global market share, competing against larger players like Zimmer Biomet (31%), Stryker (26%), and DePuy Synthes (18%).
• In the Trauma & Extremities market, Smith & Nephew holds a 4% global market share, significantly smaller than Stryker (25%) and DePuy Synthes (23%).
• In Sports Medicine, Smith & Nephew holds a leading position with 25% global market share, behind Arthrex (35%) and ahead of Stryker (13%) and DePuy Synthes (9%).
• In Advanced Wound Management, Smith & Nephew has the second-largest business globally with 14% market share, comparable to Solventum (14%) and competing with Mlnlycke (10%) and ConvaTec (6%).
• The company's OXINIUM Technology for total hip arthroplasty has demonstrated the highest survivorship rate (94.1%) among all bearing combinations over a 20-year period in the Australian Orthopaedic Association National Joint Replacement Registry (AOANJRR), outperforming industry standards.
• The REGENETEN Bioinductive Implant has shown a three times lower re-tear rate than with repair alone in rotator cuff repair, and the CARTIHEAL AGILI-C Implant demonstrated an 87% lower relative risk of Total Knee Arthroplasty or Osteotomy at four years compared to standard of care, indicating superior clinical outcomes for these innovative products.
• The PICO single-use Negative Pressure Wound Therapy (sNPWT) system demonstrated a 63% reduction in surgical site infections and complications compared to standard care in a meta-analysis of 19 studies, suggesting better outcomes and cost-effectiveness than alternative sNPWT systems.

Management Changes

Corporate Governance

Legal Proceedings

• Approximately 192 metal-on-metal hip claims are pending globally as of December 2025, primarily related to the BHR product (withdrawn in 2014) and R3 Acetabular System (withdrawn in 2012).
• A provision of $97 million is recognized for the estimated costs to resolve all known and anticipated metal-on-metal hip claims, a reduction from $113 million in 2024.
• The company is investigating allegations of possible violations of anti-corruption laws in India and responding to related requests for information from the United States Securities and Exchange Commission (SEC).
• The Group engages in litigation with various competitors and others over claims of patent infringement and other intellectual property matters, with outcomes rarely certain and costs often significant.

Related Party Transactions

• No material trading transactions with associates were disclosed for 2025, 2024, or 2023, other than those already included in the financial statements.
• Remuneration of Executive Officers (including Executive Directors and Non-Executive Directors) for 2025 totaled $40 million, including short-term employee benefits, share-based payments, and pension/post-employment benefits.

Stakeholder Impact

• **Shareholders**: Expected to benefit from increased revenue and trading profit growth, higher free cash flow, improved ROIC, and a progressive dividend policy, along with the $500 million share buyback. The proposed remuneration policy aims to align executive interests with long-term shareholder value creation.
• **Patients**: The new RISE strategy aims to reach 5 million more patients by 2028 through innovation in products like REGENETEN, AGILI-C, PICO, and the new LANDMARK Knee System, enhancing the standard of care and improving patient outcomes.
• **Customers (Healthcare Professionals & Institutions)**: Will benefit from a strengthened product portfolio, continued innovation, and improved commercial execution. The focus on Ambulatory Surgery Centers (ASCs) and digital solutions like CORI and TESSA aims to provide more efficient and effective surgical options. The inventory rationalization program is designed to offer a simpler and more efficient product range.
• **Employees**: The company's commitment to a high-performing, inclusive culture, evidenced by improved engagement scores and the Gallup Exceptional Workplace Award, aims to foster a positive work environment. The revised remuneration policy seeks to attract and retain top talent, ensuring leadership stability.
• **Suppliers**: The company's ESG strategy emphasizes responsible sourcing and compliance with sustainability requirements, potentially requiring suppliers to adapt to new policies and data reporting, which could increase their costs.
• **Creditors**: The improved adjusted leverage ratio (1.7x) and extended Revolving Credit Facility maturity (2030) enhance the company's financial resilience and ability to meet its obligations, reinforcing investment-grade credit ratings.
• **Communities & Environment**: The company is committed to achieving net zero Scope 1 & 2 GHG emissions by 2040 (70% reduction by 2025 achieved) and Scope 3 by 2045, and diverting 95% of manufacturing waste from landfill, contributing positively to environmental sustainability. Product donations support underserved communities.

Next Steps

• Implement the new 'RISE' strategy focusing on Reach, Innovate, Scale, and Execute.
• Accelerate development to close the product gap in US Knee Implants, with the launch of the new LANDMARK Knee System expected in H2 2026.
• Continue to deliver new product launches, with more than 75 planned over the next five years.
• Integrate Integrity Orthopaedics and its TENDON SEAM technology into the Sports Medicine portfolio.
• Expand AI-enabled solutions to augment customer service, improve employee self-service, and optimize inventory across the distribution and stocking network in 2026.
• Adopt a single global Enterprise Resource Planning (ERP) platform to drive simplification and standardization of processes.
• Continue to drive Group-wide productivity improvements and reinvest gains into innovation and commercial capabilities.
• Submit a new Remuneration Policy to shareholders for approval at the 2026 Annual General Meeting.
• Introduce new all-employee share plans (Smith+Nephew Global Employee Share Purchase Plan and Smith+Nephew UK Share Incentive Plan) for shareholder approval at the 2026 AGM.
• Continue to monitor and address geopolitical risks, cybersecurity threats, and business continuity management in 2026.
• Expand the material controls assurance program in 2026 to meet new UK Corporate Governance Code requirements.

Key Dates

Recommendation

The filing presents a compelling case for a 'strong buy' recommendation. Smith & Nephew has demonstrated exceptional execution in 2025, exceeding key financial targets and successfully completing its 12-Point Plan. The new 'RISE' strategy provides a clear, ambitious roadmap for accelerated growth and improved returns through innovation, strategic investment, and operational efficiency, with concrete 2028 targets for revenue, profit, cash flow, and ROIC. The acquisition of Integrity Orthopaedics strengthens a high-growth segment, and the significant increase in free cash flow, coupled with a share buyback and debt facility extension, underscores robust financial health and capital allocation discipline. While some headwinds exist, the company's proven ability to manage challenges, strong innovation pipeline, and commitment to ESG excellence position it favorably for sustained long-term value creation. The proposed executive remuneration changes, though significant, are designed to align with competitive US MedTech market practices, crucial for retaining top talent that has driven this transformation.

Keywords

Medical Technology, Orthopaedics, Sports Medicine, Advanced Wound Management, SEC Filing, Financial Results, Revenue Growth, Profitability, Cash Flow, ROIC, RISE Strategy, Innovation, Acquisition, Integrity Orthopaedics, Revolving Credit Facility, Share Buyback, Inventory Rationalization, ESG, Net Zero, Corporate Governance, Remuneration Policy, Cybersecurity, AI, Supply Chain, Regulatory Compliance, Bioventus