- Revenue Growth: Q4 revenue reached $1.7 billion (6.2% underlying growth), with full-year revenue of $6.2 billion (5.3% underlying), exceeding guidance despite China headwinds.
- Trading Profit Expansion: Full-year trading profit hit $1.2 billion ($162 million increase), driving 160 bps margin expansion to 19.7% and 60 bps gross margin improvement to 70.9%.
- 2026 Guidance: Anticipates 8% organic trading profit growth to $1.3 billion, 6% revenue growth, and $800 million free cash flow, with Q3/Q4 growth weighted at 7.5–8% due to product launches like LANDMARK.
- Inventory Rationalization: Group DSI reduced by 51 days (including 21 days excluding portfolio rationalization), led by Orthopaedics, with further declines expected in 2026.
- China Market Recovery: Joint Repair China headwinds annualized out; Sports business recovery expected via inventory management, while AET/ENT VBP impacts annualize by year-end 2026.
Segmental Performance
The company's three business units, Sports Medicine & ENT, Orthopaedics, and Wound, all grew by over 5%. Sports Medicine & ENT and Joint Repair within Orthopaedics had a strong year, while Orthopaedics saw meaningful progress in the U.S. reconstruction business, particularly in Hips and Trauma. The company's innovation strategy paid off, with over 60% of its growth coming from products launched in the last 5 years.
Guidance and Outlook
Looking ahead to FY '26, the company expects around 6% organic revenue growth, with each business unit contributing to this growth. The company is also expected to launch 16 new products, which are anticipated to drive above 50% growth. Trading profit is expected to grow by around 8% on an organic basis, reaching $1.3 billion, including some dilution from the Integrity acquisition. The company's guidance implies a continuation of its strong performance, driven by innovation, new product launches, and revenue leverage.
Valuation and Metrics
Using the company's current valuation metrics, we can assess what's priced in. The current P/E Ratio stands at 31.68, indicating a relatively high valuation. However, the company's ROIC stands at 6.64%, and ROE is at 9.14%, indicating a decent return on capital. The EV/EBITDA ratio is 12.48, which is reasonable for a company with a strong market position. The Dividend Yield is 2.14%, providing a relatively stable income stream. With the expected growth in revenue and trading profit, the company's valuation appears reasonable, but investors should continue to monitor the company's progress in executing its strategy.