Smith & Nephew PLC 6-K, filed Aug 3, 2023
Smith & Nephew PLC (SNN)
6-K
2023-08-03
For: 2023-08-03
View Original
Added on
July 04, 2026
About this 6-K
Smith & Nephew PLC filed this 6-K on August 3, 2023.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of
1934
August 03,
2023
Commission
File Number 001-14978
SMITH & NEPHEW plc
(Registrant's
name)
Building 5, Croxley Park,
Hatters Lane, Watford, Hertfordshire, WD18 8YE,
England
(Address
of registrant's principal executive offices)
[Indicate
by check mark whether the registrant files or will file
annual
reports
under cover Form 20-F or Form 40-F.]
Form
20-F
X
Form 40-F
---
---
[Indicate
by check mark if the registrant is submitting the Form 6-K
in
paper
as permitted by Regulation S-T Rule 101(b)(1).]
Yes
No X
---
---
[Indicate
by check mark if the registrant is submitting the Form 6-K
in
paper
as permitted by Regulation S-T Rule 101(b)(7).]
Yes
No X
---
---
[Indicate
by check mark whether by furnishing the information
contained
in this
Form, the registrant is also thereby furnishing information to
the
Commission
pursuant to Rule 12g3-2 (b) under the Securities Exchange Act
of
1934.]
Yes
No X
---
---
If
"Yes" is marked, indicate below the file number assigned to
the
registrant
in connection with Rule 12g3-2 (b) : 82- n/a.
Smith+Nephew Second Quarter and First Half 2023
Results
Strong H1 growth with FY revenue guidance raised, 12-Point Plan on
track
3 August 2023
Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology
company, reports results for the second quarter and first half
ended 1 July 2023:
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1 July
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2 July
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Reported
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Underlying
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2023
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2022
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growth
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growth
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$m
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$m
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%
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%
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Second Quarter Results1,2
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Revenue
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1,379
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1,293
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6.6
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7.8
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Half Year Results1,2
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Revenue
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2,734
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2,600
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5.2
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7.3
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Operating
profit
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275
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242
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Operating
profit margin (%)
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10.0
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9.3
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EPS
(cents)
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19.7
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20.2
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Trading
profit
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417
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440
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Trading
profit margin (%)
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15.3
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16.9
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EPSA
(cents)
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34.9
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38.1
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Q2 Trading
Highlights1,2
●
Q2
revenue of $1,379 million (Q2 2022: $1,293 million), up 7.8%
on an underlying basis (6.6% on a reported basis including -120bps
FX headwind)
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Orthopaedics revenue up 5.8%
(4.6% reported), reflecting higher procedure
volumes, accelerating robotics adoption
and reduced China VBP headwind
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Sports Medicine & ENT up
12.0% (10.4% reported), with strong growth across both
shoulder and knee repair
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Advanced
Wound Management up 6.2% (5.5% reported), led by double-digit
growth from our negative pressure wound therapy
portfolio
H1
Highlights1,2
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H1 revenue of $2,734 million (H1
2022: $2,600 million), up 7.3% on an underlying basis (5.2% on a
reported basis including -210bps FX
headwind)
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Operating
profit of $275 million (H1 2022: $242 million)
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Trading profit of $417 million
(H1 2022: $440 million). Trading profit margin of 15.3% (H1 2022:
16.9%), reflecting expected seasonality and higher input
inflation, transactional
FX and increased sales and marketing
to drive growth
●
Cash generated from operations
$215 million (H1 2022: $227 million). Trading cash flow $110
million (H1 2022: $154 million), primarily due
to inventory
increase
●
Interim
dividend of 14.4¢, in line with prior year
2023 Full Year
Outlook1,2
●
Increased
full year underlying revenue growth guidance of 6.0% to 7.0%
(previously 5.0% to 6.0%)
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Unchanged
trading profit margin guidance, expected to be at least
17.5%
Strategic
Highlights1,2
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Progress
building foundations for sustainable higher growth through 12-Point
Plan:
o
Significant
improvement in product availability and commercial execution in
Orthopaedics
o
Productivity
improvements delivered with inventory reductions to
follow
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Work
to further accelerate growth in Advanced Wound Management
and
Sports Medicine & ENT on track
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Increased
cadence of new product launches to drive future higher
growth
Chief Financial Officer to step down in Q2 2024
●
Anne-Françoise
Nesmes has informed the Board of her intention to step down as
Chief Financial Officer during the second quarter of 2024. The
exact timing of her departure will be announced in due
course
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The
Board has initiated an external search for her
successor
●
See
separate announcement issued today for further
information
Deepak Nath, Chief Executive Officer, said:
"I am pleased to report strong first half revenue growth across our
business. The continued outperformance in Sports Medicine and
Advanced Wound Management - representing 60% of our business - has
continued. In Orthopaedics, our actions to improve product supply
and execution have increased our ability to benefit from strong
elective procedure volumes. Overall, these results have given us
the confidence to increase our full year revenue growth
guidance.
"Margin development in the first half was in line with our
expectations. In the second half, we expect a clear step up in both
trading margin and cash generation as we begin to see the benefit
of productivity gains and start bringing down inventory
levels.
"Importantly, we continue to build the foundations
for sustainable higher growth through our 12-Point Plan, with
product availability improving and a high cadence of innovation. So
far this year we have launched 13 new products, with major launches
underway in high growth segments including robotics, shoulder
replacement and negative pressure wound
therapy."
Analyst conference call
An analyst conference call to discuss Smith+Nephew's second quarter
and first half results will be held at 8.30am BST / 3.30am EDT, details
of which are available at https://www.smith-nephew.com/en/about-us/investors#quarterly-reporting.
Enquiries
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Investors
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Andrew Swift
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+44 (0) 1923 477433
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Smith+Nephew
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Media
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Charles Reynolds
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+44 (0) 1923 477314
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Smith+Nephew
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Susan Gilchrist / Ayesha Bharmal
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+44 (0) 20 7404 5959
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Brunswick
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Notes
1.
Unless otherwise specified as 'reported' all revenue growth
throughout this document is 'underlying' after adjusting for the
effects of currency translation and including the comparative
impact of acquisitions and excluding disposals. All percentages
compare to the equivalent 2022 period.
'Underlying
revenue growth' reconciles to reported revenue growth, the most
directly comparable financial measure calculated in accordance with
IFRS, by making two adjustments, the 'constant currency exchange
effect' and the 'acquisitions and disposals effect', described
below. See Other Information on pages 32 to 35 for a reconciliation
of underlying revenue growth to reported revenue
growth.
The
'constant currency exchange effect' is a measure of the
increase/decrease in revenue resulting from currency movements on
non-US Dollar sales and is measured as the difference between: 1)
the increase/decrease in the current year revenue translated into
US Dollars at the current year average exchange rate and the prior
year revenue translated at the prior year rate; and 2) the
increase/decrease being measured by translating current and prior
year revenues into US Dollars using the prior year closing
rate.
The
'acquisitions and disposals effect' is the measure of the impact on
revenue from newly acquired material business combinations and
recent material business disposals. This is calculated by comparing
the current year, constant currency actual revenue (which includes
acquisitions and excludes disposals from the relevant date of
completion) with prior year, constant currency actual revenue,
adjusted to include the results of acquisitions and exclude
disposals for the commensurate period in the prior year. These
sales are separately tracked in the Group's internal reporting
systems and are readily identifiable.
2.
Certain items included in 'trading results', such as trading
profit, trading profit margin, tax rate on trading results, trading
cash flow, trading profit to cash conversion ratio, EPSA and
underlying growth are non-IFRS financial measures. The
non-IFRS financial measures reported in this announcement are
explained in Other Information on pages 32 to 35 and are reconciled
to the most directly comparable financial measures prepared in
accordance with IFRS. Reported results represent IFRS financial
measures as shown in the Condensed Consolidated Interim Financial
Statements.
Smith+Nephew Second Quarter Trading and First Half 2023
Results
Delivering our transformational Strategy for Growth
Smith+Nephew delivered a strong trading performance in the first
half of 2023, with revenue of $2,734 million (H1 2022: $2,600
million). This represented growth of 7.3% on an underlying basis,
ahead of our expectations. On a reported basis, revenue growth was
5.2%, including a translational foreign exchange headwind of
-210bps.
All three business units contributed to this positive result. In
Sports Medicine & ENT and Advanced Wound Management,
our outperformance from recent years continued. In
Orthopaedics, our actions to improve product availability and
commercial execution are starting to have a positive impact and we
were better placed to participate in a strong environment for
elective procedures in the first half.
As we approach the halfway point of the 12-Point Plan, we are on
track to build the foundations for sustainable higher growth. Our
high cadence of innovation has also continued with major launches
in high growth segments, including robotics, shoulder replacement
and negative pressure wound therapy.
Making progress across our 12-Point Plan
In July 2022 we announced our 12-Point Plan to fundamentally change
the way we operate and transform business performance. The 12-Point
Plan is focused on:
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Fixing
Orthopaedics, to regain
momentum across hip and knee implants, robotics and trauma, and win
share with our differentiated technology;
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Improving
productivity, to support
trading profit margin expansion; and
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Further
accelerating growth in our already well-performing
Advanced Wound Management and Sports Medicine & ENT business
units.
We have made considerable progress in our work to fix the
foundations of our Orthopaedics business unit.
On product availability, we have reduced our overdue orders by
around 50% from the peak in the first half of 2022 and improved the
percentage of customer order lines that are filled, measured by
line-item fill rates (LIFR). In the US we are around 85% of the way
towards reaching industry-standards for non-instrument set LIFR. A
significant driver of these improvements has been the new demand
and supply planning process which brings a deeper level of
specificity and collaboration between our operations and commercial
teams. We are also benefiting from our actions to improve logistics
and redeploy implants and instrument sets from lower to
higher-utilisation customers.
We continued to improve our commercial execution as well. In the
first half we repositioned our offering, streamlined the
organisation, simplified our commercial process and invested in
deeper sales training for the Orthopaedics team. We are
starting to see the benefits of our enhanced incentive plan, which
better rewards performance, sales mix, robotic placement and
implant pull-through.
We are also making good progress on improving productivity,
including successfully updating and standardising pricing controls
across our portfolio and reducing days sales outstanding. We expect
inventory levels to start to fall in the second half of the year as
we roll out recent product launches, consume raw materials and
complete and deploy new instrument sets.
In line with our plan, our work on manufacturing optimisation is at
an earlier stage, and the benefits from network simplification and
cost and asset efficiencies should flow through later in the plan,
supporting our mid-term margin improvement targets.
As previously disclosed, in aggregate we expect the benefits from
our productivity actions to result in more than $200 million of
annual savings by 2025 for around $275 million of restructuring
costs over three years.
The important third element of the 12-Point Plan is focused on
building on our consistent above-market performance from our
Advanced Wound Management and Sports Medicine & ENT business
units. Progress is also coming through across this workstream. Our
negative pressure wound therapy business is benefitting from
focused additional resource behind our sales force, delivering
strong growth, and the pace of cross-business unit deals
into Ambulatory Surgical Centers (ASCs) has more than doubled in
2023.
Increasing our cadence of innovation
Innovation is central to our higher growth ambitions. In February
we announced our expectation for 25 new product launches in 2023, a
significant increase from our recent average of 18 per year. At the
half year we had completed 13 launches and are on track for our
full year target.
In Orthopaedics, we continue to expand our robotics-assisted
CORI◊ Surgical
System.
In April we added the CORI Digital Tensioner, a proprietary device
for soft tissue balancing in knee replacement, and the only
tensioner for robotics-assisted surgery. This helps make planning
more objective and eliminates inconsistencies in surgery from
current manual or mechanical tools.
In May we brought additional data management capability onto CORI
with the introduction of Personalized Planning powered by AI and
the RI.INSIGHTS Data Visualization Platform. These two
solutions transform data into contextual intelligence by enabling
surgeons to better understand how pre-operative surgical plans and
intra-operative decision-making link to post-operative
outcomes.
In June we received 510(k) clearance from
the United States Food and Drug Administration (FDA) for
a saw solution on CORI, which we
expect to roll out from the fourth quarter. This feature adds
versatility, appealing to a broader range of surgeons, and makes
CORI the only solution to offer robotics-assisted burring and saw
bone-cutting options. This development was accelerated as part of
the 12-Point Plan. It is another step in our journey of adding features
and functionality as we continue to build out CORI at
pace.
We are in the early stages of introducing our
AETOS◊ Shoulder
System, an important part of our growth plans for Trauma &
Extremities. AETOS is designed with both patient and surgeon
benefits in mind. For example, the MetaStem aligns with the market
trend towards minimally invasive short stem devices. Short stems
are easier to implant, have improved bone preservation, and are a
better fit to anatomy. AETOS will enable Smith+Nephew to compete
effectively in the $1.3 billion shoulder market, which, at around
9% CAGR, is one of the fastest growing segments in
Orthopaedics.
In Sports Medicine, we introduced the UltraTRAC◊ QUAD
ACL Reconstruction Technique, bringing together new tendon harvest
and preparation guides with our family of
ULTRABUTTON◊ Adjustable
Fixation Devices. These technologies work together to provide an
innovative procedural solution, expanding Smith+Nephew's ability to
address surgeon graft preference in knee
repair.
In Advanced Wound Management, we are at the early stages of
releasing the new RENASYS◊ EDGE
Negative Pressure Wound Therapy System. This is designed to reduce
inefficiency and complexity and features an improved user interface
for enhanced intuitiveness and simplicity and a durable pump built
to offer virtually maintenance-free use.
We also continue to invest in the production of clinical evidence,
which we view as an increasingly important differentiator. During
the first half, we announced new evidence demonstrating that
COBLATION◊ Technology
can accelerate ENT patient recovery with fewer complications
compared with total tonsillectomy techniques. We also highlighted
new data supporting improved outcomes from our
VISIONAIRE◊ Patient-Specific
Instrumentation for total knee arthroplasty compared with
conventional instrumentation.
Second Quarter 2023 Trading
Update
Our second quarter revenue was $1,379 million (Q2 2022: $1,293
million), up 7.8% year-on-year on an underlying basis. On a
reported basis this represented growth of 6.6%, including a
translational -120bps headwind from foreign exchange (primarily due
to the strength of the US Dollar). The second quarter comprised 63
trading days, in line with the equivalent period in
2022.
Orthopaedics delivered revenue growth of 5.8% (4.6% reported), an
acceleration from the first quarter. This was driven by the
increase in elective procedure volumes as well
as accelerated growth from our
robotics business. We also annualised the impact of hip and knee
implant Volume Based Procurement (VBP) in China during the
quarter.
Sports Medicine & ENT delivered growth of 12.0% (10.4%
reported) and Advanced Wound Management revenue grew 6.2% (5.5%
reported), as both continued to perform strongly, building on their
innovative and broad portfolios and excellent commercial
execution.
This good overall performance was achieved despite some continued
supply chain challenges. In Orthopaedics, disruptions delayed the
completion and deployment of some instrument sets, and we saw some
component shortages in Sports Medicine.
Revenue growth in our Established Markets was up 7.1% (6.8%
reported). Within this, the US delivered 6.3% revenue
growth (6.3% reported)
and Other Established Markets 8.5%
revenue growth (7.8% reported), as elective procedure volumes stayed
strong across Europe and Asia-Pacific. Emerging Markets revenue was up
11.0% (5.5% reported), resulting from volume recovery in China
following the Covid-related restrictions at the start of the
year.
Second Quarter Consolidated Revenue Analysis
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1 July
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2 July
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Reported
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Underlying
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Acquisitions
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Currency
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2023
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2022
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growth
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growth(i)
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/disposals
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impact
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Consolidated revenue by business unit by product
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$m
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$m
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%
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%
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%
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%
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Orthopaedics
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554
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530
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4.6
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5.8
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-
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-1.2
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Knee
Implants
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238
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223
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6.6
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7.8
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-
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-1.2
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Hip
Implants
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152
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149
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1.9
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3.4
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-
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-1.5
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Other Reconstruction(ii)
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27
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23
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20.4
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21.0
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-
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-0.6
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Trauma
& Extremities
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137
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135
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1.4
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2.5
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-
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-1.1
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Sports Medicine & ENT
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422
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381
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10.4
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12.0
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-
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-1.6
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Sports
Medicine Joint Repair
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229
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206
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10.9
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12.5
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-
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-1.6
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Arthroscopic
Enabling Technologies
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145
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140
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3.2
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4.6
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-
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-1.4
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ENT
(Ear, Nose and Throat)
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48
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35
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36.2
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38.9
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-
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-2.7
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Advanced Wound Management
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403
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382
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5.5
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6.2
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-
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-0.7
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Advanced
Wound Care
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181
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178
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1.6
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2.7
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-
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-1.1
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Advanced
Wound Bioactives
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138
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134
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3.2
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3.1
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-
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0.1
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Advanced
Wound Devices
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84
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70
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20.0
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21.4
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-
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-1.4
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Total
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1,379
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1,293
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6.6
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7.8
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-
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-1.2
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Consolidated revenue by geography
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US
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734
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690
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6.3
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6.3
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-
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-
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Other Established Markets(iii)
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403
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374
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7.8
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8.5
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-
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-0.7
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Total Established Markets
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1,137
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1,064
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6.8
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7.1
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-
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-0.3
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Emerging
Markets
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242
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229
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5.5
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11.0
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-
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-5.5
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Total
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1,379
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1,293
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6.6
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7.8
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-
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-1.2
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(i)
Underlying growth is defined in Note 1 on page 3
(ii)
Other Reconstruction includes robotics capital sales, our joint
reconstruction business and cement
(iii)
Other Established Markets are Europe, Canada, Japan, Australia and
New Zealand
Orthopaedics
Revenue from our Orthopaedics business
unit was up 5.8% (4.6% reported) in the second
quarter. Orthopaedics grew by 7.7%
underlying excluding China, where we saw a reduced headwind from
VBP as this impact annualised.
Knee Implants revenue was up 7.8% (6.6%
reported) and Hip
Implants revenue was up 3.4% (1.9%
reported). Knee performance was led by our kinematic JOURNEY
II◊ Knee
System and LEGION◊ Revision
Knee System. Hip growth was led by our POLAR3◊ Total
Hip Solution, OR3O◊ Dual
Mobility Hip System and REDAPT◊ Revision
Hip System. Other
Reconstruction revenue growth was 21.0%
(20.4% reported). We delivered strong growth from our
robotics-assisted CORI Surgical System across a wide range of
healthcare facilities, including ASCs, and more than half of CORI
sales included applications for both knee and hip
procedures. In Trauma &
Extremities revenue growth was 2.5%
(1.4% reported), a step up from the first quarter with a strong
performance from US Trauma as we drove sales of the EVOS◊ Plating
System. We expect growth to accelerate further across the year as
we continue to roll-out EVOS, expand the launch of the new AETOS
Shoulder System, and lap local market exits made in
2022.
Sports Medicine & ENT
Sports Medicine & ENT delivered strong revenue growth
of 12.0% (10.4% reported).
Sports Medicine Joint Repair revenue was up
12.5% (10.9%
reported) in the quarter with good growth
across our knee and shoulder repair portfolios. We delivered strong
double-digit growth from our REGENETEN◊ Bioinductive
Implant. Arthroscopic
Enabling Technologies revenue grew 4.6% (3.2%
reported), driven by our WEREWOLF◊ Fastseal COBLATION
system and mechanical resection,
offsetting a slower quarter in video. ENT revenue
was up 38.9% (36.2% reported), reflecting the continued recovery in
tonsil and adenoid procedure volumes.
Advanced Wound Management
Advanced Wound Management revenue growth was 6.2% (5.5%
reported).
Advanced Wound Care revenue was up 2.7% (1.6%
reported), including good growth from our foams and film portfolio
and a strong quarter in Europe. Advanced Wound
Bioactives revenue was up 3.1% (3.2%
reported), led by our skin substitutes portfolio, where there is
strong clinical evidence supporting the use of our
GRAFIX◊ Membrane. Advanced
Wound Devices revenue was up 21.4% (20.0%
reported), with continued strong growth from both our single-use
PICO◊ Negative
Pressure Wound Therapy System and our traditional
RENASYS◊ Negative
Pressure Wound Therapy System.
First Half 2023 Consolidated Analysis
Smith+Nephew results for the first half ended 1 July
2023:
|
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
Reported
|
|
|
|
|
2023
|
|
2022
|
|
growth
|
|
|
|
|
$m
|
|
$m
|
|
%
|
|
|
Revenue
|
|
2,734
|
|
2,600
|
|
5.2
|
|
|
Operating profit
|
|
275
|
|
242
|
|
|
|
|
Acquisition
and disposal related items
|
|
(17)
|
|
1
|
|
|
|
|
Restructuring
and rationalisation costs
|
|
46
|
|
63
|
|
|
|
|
Amortisation
and impairment of acquisition intangibles
|
|
102
|
|
105
|
|
|
|
|
Legal
and other
|
|
11
|
|
29
|
|
|
|
|
Trading profit(i)
|
|
417
|
|
440
|
|
-5
|
|
|
|
|
¢
|
|
¢
|
|
|
|
|
Earnings per share ('EPS')
|
|
19.7
|
|
20.2
|
|
-2
|
|
|
Acquisition
and disposal related items
|
|
0.1
|
|
(0.2)
|
|
|
|
|
Restructuring
and rationalisation costs
|
|
4.6
|
|
5.8
|
|
|
|
|
Amortisation
and impairment of acquisition intangibles
|
|
9.1
|
|
9.4
|
|
|
|
|
Legal
and other
|
|
1.4
|
|
2.9
|
|
|
|
|
Adjusted Earnings per share ('EPSA')(i)
|
|
34.9
|
|
38.1
|
|
-8
|
|
|
|
|
|
|
|
|
|
|
(i) See Other
Information on pages 32 to 35
First Half 2023 Analysis
Our first half revenue was $2,734 million (H1 2022: $2,600
million), up 7.3% on an underlying basis and up 5.2% on a reported
basis, including a translational foreign exchange headwind of
-210bps. The first half comprised 127
trading days, in line with the equivalent period in
2022.
The Group reported an operating profit of $275 million (H1 2022:
$242 million) after acquisition and disposal related items,
restructuring and rationalisation costs, amortisation and
impairment of acquisition intangibles and legal and other items
incurred in the first half (see Other Information on pages 32 to
35).
Trading profit was $417 million in the first half (H1 2022: $440
million), with a trading profit margin of 15.3% (H1 2022: 16.9%).
The margin decline reflects persistent inflation, a transactional
foreign exchange headwind and increased sales and marketing, partly
offset by productivity improvements (see Note 2 to the Interim
Financial Statements for global business unit trading
profit).
Restructuring costs related to the efficiency and productivity work
underway across the Group totalled $46 million (see Note 2 to the Interim
Financial Statements).
Cash generated from operations was $215 million (H1 2022: $227
million) and trading cash flow was $110 million (H1 2022: $154
million), with the year on year reduction primarily driven by
working capital movements due to increased inventory. This included
stock to support acceleration in negative pressure wound therapy,
accumulation of both products and instrument sets due to supply
constraints for a small number of components holding back
completion and deployment, and increased factory inventory from
spot buying of raw materials, as well as inventory growth tracking
the overall growth of revenue.
Looking ahead, we expect inventory days to decrease as we deliver
growth in negative pressure wound therapy; the reliability of
global supply chains continues to improve; instrument sets are
completed and deployed; and we reduce production volumes relative
to sales (see Other Information on pages 32 to 35 for a
reconciliation between cash generated from operations and trading
cash flow). The trading profit to cash conversion ratio was 26% (H1
2022: 35%), which is expected to improve in the second half of 2023
as the above factors take effect.
The net interest charge within reported results was $44 million (H1
2022: $32 million), with the change due to an increase in net debt
year on year and an increase in the overall weighted average
interest rate given the prevailing higher rate
environment. The Group's net debt, excluding
lease liabilities, increased from $2,339 million at 31 December
2022 to $2,656 million at 1 July 2023 (see Note 6 to the Interim
Financial Statements), with committed facilities of $3.7 billion.
We expect to finish 2023 with leverage of 2.0x, unchanged
year-on-year.
Our reported tax for the period ended 1 July 2023 was a charge of
$39 million (H1 2022: $27 million). The tax rate on trading results
for the period ended 1 July 2023 was 17.4% (H1 2022: 17.6%) (see
Note 3 to the Interim Financial Statements and Other Information on
pages 32 to 35 for further details on taxation).
Basic earnings per share ('EPS') was 19.7¢ (39.4¢ per
ADS) (H1 2022: 20.2¢ per share). Adjusted earnings per share
('EPSA') was 34.9¢ (69.8¢ per ADS) (H1 2022: 38.1¢
per share).
Interim Dividend
The interim dividend is 14.4¢ per share (28.8¢ per ADS),
in line with 2022. This equates to 11.2p per share at
prevailing exchange rates as of 28 July 2023. This dividend is
payable on 1 November 2023 to shareholders whose names appear on
the register at the close of business on 6 October 2023 (see Note 4
to the Interim Financial Statements for further
detail).
2023 Full Year Outlook
In February we announced our guidance for 2023
targeting both revenue growth and trading
profit margin above 2022.
Following our strong first half revenue growth, we are upgrading
our underlying revenue growth target for the full year to be in the
range of 6.0% to 7.0% (previously 5.0% to 6.0%). On a reported
basis the updated guidance equates to a range of around 6.0% to
7.0% based on exchange rates prevailing on 28 July
2023.
For trading profit margin, we continue to expect to deliver at
least 17.5%. We expect a significant step up in margin in the
second half driven by typical seasonality, combined with positive
operating leverage from revenue growth and the accumulating
benefits of productivity improvements, which more than offset the
continuing headwinds from raw material cost inflation, higher wages
and a -120bps headwind from transactional foreign
exchange.
The tax rate on trading results for 2023 is now forecast to be
around 17% subject to any material changes to tax law or other
one-off items (previously around 19%).
Forward calendar
The Q3 Trading Report will be released on 2 November
2023.
Smith+Nephew will be holding a Meet the
Management event in London
on 29 November 2023. More details will be published in due
course.
About Smith+Nephew
Smith+Nephew is a portfolio medical technology company that exists
to restore people's bodies and their self-belief by using
technology to take the limits off living. We call this purpose
'Life Unlimited'. Our 19,000 employees deliver this mission every
day, making a difference to patients' lives through the
excellence of our product portfolio, and the invention and
application of new technologies across our three global
business units of Orthopaedics, Sports Medicine & ENT and
Advanced Wound Management.
Founded in Hull, UK, in 1856, we now operate in more than 100
countries, and generated annual sales of $5.2 billion in 2022.
Smith+Nephew is a constituent of the FTSE100 (LSE:SN, NYSE:SNN).
The terms 'Group' and 'Smith+Nephew' are used to refer to Smith
& Nephew plc and its consolidated subsidiaries, unless the
context requires otherwise.
For more information about Smith+Nephew, please
visit www.smith-nephew.com and
follow us on LinkedIn, Instagram or Facebook.
Forward-looking statements
This document may contain forward-looking statements that may or
may not prove accurate. For example, statements regarding expected
revenue growth and trading profit margins, market trends and our
product pipeline are forward-looking statements. Phrases such as
"aim", "plan", "intend", "anticipate", "well-placed", "believe",
"estimate", "expect", "target", "consider" and similar expressions
are generally intended to identify forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause actual
results to differ materially from what is expressed or implied by
the statements. For Smith+Nephew, these factors include: risks
related to the impact of Covid, such as the depth and longevity of
its impact, government actions and other restrictive measures taken
in response, material delays and cancellations of elective
procedures, reduced procedure capacity at medical facilities,
restricted access for sales representatives to medical facilities,
or our ability to execute business continuity plans as a result of
Covid; economic and financial conditions in the markets we serve,
especially those affecting healthcare providers, payers and
customers (including, without limitation, as a result of Covid);
price levels for established and innovative medical devices;
developments in medical technology; regulatory approvals,
reimbursement decisions or other government actions; product
defects or recalls or other problems with quality management
systems or failure to comply with related regulations; litigation
relating to patent or other claims; legal and financial compliance
risks and related investigative, remedial or enforcement actions;
disruption to our supply chain or operations or those of our
suppliers (including, without limitation, as a result of Covid);
competition for qualified personnel; strategic actions, including
acquisitions and disposals, our success in performing due
diligence, valuing and integrating acquired businesses; disruption
that may result from transactions or other changes we make in our
business plans or organisation to adapt to market developments;
relationships with healthcare professionals; reliance on
information technology and cybersecurity; disruptions due to
natural disasters, weather and climate change related events;
changes in customer and other stakeholder sustainability
expectations; changes in taxation regulations; effects of foreign
exchange volatility; and numerous other matters that affect us or
our markets, including those of a political, economic, business,
competitive or reputational nature. Please refer to the documents
that Smith+Nephew has filed with the U.S. Securities and Exchange
Commission under the U.S. Securities Exchange Act of 1934, as
amended, including Smith+Nephew's most recent annual report on Form
20-F, which is available on the SEC's website at www. sec.gov, for
a discussion of certain of these factors. Any forward-looking
statement is based on information available to Smith+Nephew as of
the date of the statement. All written or oral forward-looking
statements attributable to Smith+Nephew are qualified by this
caution. Smith+Nephew does not undertake any obligation to update
or revise any forward-looking statement to reflect any change in
circumstances or in Smith+Nephew's expectations.
◊ Trademark
of Smith+Nephew. Certain marks registered in US Patent and
Trademark Office.
First Half Consolidated Revenue Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July
|
|
2 July
|
|
Reported
|
|
Underlying
|
|
Acquisitions
|
|
Currency
|
|
|
|
|
2023
|
|
2022
|
|
growth
|
|
Growth(i)
|
|
/disposals
|
|
impact
|
|
|
Consolidated revenue by product by business unit
|
|
$m
|
|
$m
|
|
%
|
|
%
|
|
%
|
|
%
|
|
|
Orthopaedics
|
|
1,102
|
|
1,071
|
|
2.9
|
|
4.8
|
|
-
|
|
-1.9
|
|
|
Knee
Implants
|
|
475
|
|
454
|
|
4.4
|
|
6.4
|
|
-
|
|
-2.0
|
|
|
Hip
Implants
|
|
303
|
|
298
|
|
1.9
|
|
4.0
|
|
-
|
|
-2.1
|
|
|
Other Reconstruction(ii)
|
|
51
|
|
43
|
|
18.5
|
|
20.4
|
|
-
|
|
-1.9
|
|
|
Trauma
& Extremities
|
|
273
|
|
276
|
|
-0.9
|
|
0.8
|
|
-
|
|
-1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sports Medicine & ENT
|
|
843
|
|
778
|
|
8.4
|
|
11.0
|
|
-
|
|
-2.6
|
|
|
Sports
Medicine Joint Repair
|
|
457
|
|
426
|
|
7.2
|
|
9.8
|
|
-
|
|
-2.6
|
|
|
Arthroscopic
Enabling Technologies
|
|
293
|
|
281
|
|
4.4
|
|
6.8
|
|
-
|
|
-2.4
|
|
|
ENT
(Ear, Nose and Throat)
|
|
93
|
|
71
|
|
31.6
|
|
34.9
|
|
-
|
|
-3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Wound Management
|
|
789
|
|
751
|
|
5.1
|
|
7.0
|
|
-
|
|
-1.9
|
|
|
Advanced
Wound Care
|
|
356
|
|
360
|
|
-1.0
|
|
1.8
|
|
-
|
|
-2.8
|
|
|
Advanced
Wound Bioactives
|
|
274
|
|
252
|
|
8.7
|
|
8.7
|
|
-
|
|
-
|
|
|
Advanced
Wound Devices
|
|
159
|
|
139
|
|
14.2
|
|
17.2
|
|
-
|
|
-3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2,734
|
|
2,600
|
|
5.2
|
|
7.3
|
|
-
|
|
-2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue by geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
1,471
|
|
1,350
|
|
9.0
|
|
9.0
|
|
-
|
|
-
|
|
|
Other Established Markets(iii)
|
|
807
|
|
778
|
|
3.7
|
|
7.7
|
|
-
|
|
-4.0
|
|
|
Total Established Markets
|
|
2,278
|
|
2,128
|
|
7.1
|
|
8.5
|
|
-
|
|
-1.4
|
|
|
Emerging
Markets
|
|
456
|
|
472
|
|
-3.3
|
|
1.7
|
|
-
|
|
-5.0
|
|
|
Total
|
|
2,734
|
|
2,600
|
|
5.2
|
|
7.3
|
|
-
|
|
-2.1
|
|
(i)
Underlying growth is defined in Note 1 on page 3
(ii)
Other Reconstruction includes robotics capital sales, our joint
reconstruction business and cement
(iii) Other Established Markets are
Europe, Canada, Japan, Australia and New
Zealand
2023 HALF YEAR CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Unaudited Group Income Statement for the Half Year ended 1 July
2023
|
|
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
|
|
2023
|
|
2022
|
|
|
|
Notes
|
|
$m
|
|
$m
|
|
Revenue
|
|
2
|
|
2,734
|
|
2,600
|
|
Cost
of goods sold
|
|
|
|
(836)
|
|
(773)
|
|
Gross profit
|
|
|
|
1,898
|
|
1,827
|
|
Selling,
general and administrative expenses
|
|
|
|
(1,457)
|
|
(1,411)
|
|
Research
and development expenses
|
|
|
|
(166)
|
|
(174)
|
|
Operating profit
|
|
2
|
|
275
|
|
242
|
|
Interest
income
|
|
|
|
18
|
|
3
|
|
Interest
expense
|
|
|
|
(62)
|
|
(35)
|
|
Other
finance costs
|
|
|
|
-
|
|
(5)
|
|
Share
of results of associates
|
|
|
|
(20)
|
|
(1)
|
|
Profit before taxation
|
|
|
|
211
|
|
204
|
|
Taxation
|
|
3
|
|
(39)
|
|
(27)
|
|
Attributable profitA
|
|
|
|
172
|
|
177
|
|
Earnings per shareA
|
|
|
|
|
|
|
|
Basic
|
|
|
|
19.7¢
|
|
20.2¢
|
|
Diluted
|
|
|
|
19.7¢
|
|
20.2¢
|
Unaudited Group Statement of Comprehensive Income for the Half Year
ended 1 July 2023
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2023
|
|
2022
|
|
|
|
$m
|
|
$m
|
|
Attributable profitA
|
|
172
|
|
177
|
|
Other comprehensive income
|
|
|
|
|
|
Items that will not be reclassified to income
statement
|
|
|
|
|
|
Remeasurement
of net retirement benefit obligations
|
|
(61)
|
|
60
|
|
Taxation
on other comprehensive income
|
|
17
|
|
(15)
|
|
Total
items that will not be reclassified to income
statement
|
|
(44)
|
|
45
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to income
statement
|
|
|
|
|
|
Exchange
differences on translation of foreign operations
|
|
16
|
|
(99)
|
|
Net
losses on cash flow hedges
|
|
12
|
|
12
|
|
Taxation
on other comprehensive income
|
|
(2)
|
|
(1)
|
|
Total
items that may be reclassified subsequently to income
statement
|
|
26
|
|
(88)
|
|
Other comprehensive loss for the period, net of
taxation
|
|
(18)
|
|
(43)
|
|
Total comprehensive income for the periodA
|
|
154
|
|
134
|
A Attributable
to the equity holders of the parent and wholly derived from
continuing operations.
Unaudited Group Balance Sheet as at 1 July 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 July
|
|
31 December
|
|
2 July
|
|
|
|
|
|
2023
|
|
2022
|
|
2022
|
|
|
|
Notes
|
|
$m
|
|
$m
|
|
$m
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
|
1,421
|
|
1,455
|
|
1,460
|
|
Goodwill
|
|
|
|
3,049
|
|
3,031
|
|
3,022
|
|
Intangible
assets
|
|
|
|
1,180
|
|
1,236
|
|
1,316
|
|
Investments
|
|
|
|
8
|
|
12
|
|
10
|
|
Investment
in associates
|
|
|
|
27
|
|
46
|
|
185
|
|
Other
non-current assets
|
|
|
|
9
|
|
12
|
|
15
|
|
Retirement
benefit assets
|
|
|
|
84
|
|
141
|
|
170
|
|
Deferred
tax assets
|
|
|
|
188
|
|
177
|
|
168
|
|
|
|
|
|
5,966
|
|
6,110
|
|
6,346
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
2,411
|
|
2,205
|
|
1,990
|
|
Trade
and other receivables
|
|
|
|
1,269
|
|
1,264
|
|
1,219
|
|
Current
tax receivable
|
|
|
|
8
|
|
37
|
|
34
|
|
Cash
at bank
|
|
6
|
|
190
|
|
350
|
|
516
|
|
|
|
|
|
3,878
|
|
3,856
|
|
3,759
|
|
TOTAL ASSETS
|
|
|
|
9,844
|
|
9,966
|
|
10,105
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
Equity attributable to owners of the Company
|
|
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
175
|
|
175
|
|
175
|
|
Share
premium
|
|
|
|
615
|
|
615
|
|
615
|
|
Capital
redemption reserve
|
|
|
|
20
|
|
20
|
|
20
|
|
Treasury
shares
|
|
|
|
(107)
|
|
(118)
|
|
(106)
|
|
Other
reserves
|
|
|
|
(433)
|
|
(459)
|
|
(434)
|
|
Retained
earnings
|
|
|
|
4,963
|
|
5,026
|
|
5,125
|
|
Total equity
|
|
|
|
5,233
|
|
5,259
|
|
5,395
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
Long-term
borrowings and lease liabilities
|
|
6
|
|
2,633
|
|
2,712
|
|
2,281
|
|
Retirement
benefit obligations
|
|
|
|
67
|
|
70
|
|
67
|
|
Other
payables
|
|
|
|
49
|
|
90
|
|
91
|
|
Provisions
|
|
|
|
88
|
|
84
|
|
41
|
|
Deferred
tax liabilities
|
|
|
|
7
|
|
36
|
|
113
|
|
|
|
|
|
2,844
|
|
2,992
|
|
2,593
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Bank
overdrafts, borrowings, loans and lease liabilities
|
|
6
|
|
407
|
|
160
|
|
612
|
|
Trade
and other payables
|
|
|
|
955
|
|
1,098
|
|
1,013
|
|
Provisions
|
|
|
|
219
|
|
243
|
|
287
|
|
Current
tax payable
|
|
|
|
186
|
|
214
|
|
205
|
|
|
|
|
|
1,767
|
|
1,715
|
|
2,117
|
|
Total liabilities
|
|
|
|
4,611
|
|
4,707
|
|
4,710
|
|
TOTAL EQUITY AND LIABILITIES
|
|
|
|
9,844
|
|
9,966
|
|
10,105
|
Unaudited Condensed Group Cash Flow Statement for the Half Year
ended 1 July 2023
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2023
|
|
2022
|
|
|
|
$m
|
|
$m
|
|
Cash flows from operating activities
|
|
|
|
|
|
Profit
before taxation
|
|
211
|
|
204
|
|
Net
interest expense
|
|
44
|
|
32
|
|
Depreciation,
amortisation and impairment
|
|
297
|
|
309
|
|
Share
of results of associates
|
|
20
|
|
1
|
|
Share-based
payments expense (equity-settled)
|
|
19
|
|
23
|
|
Net
movement in post-retirement obligations
|
|
(3)
|
|
2
|
|
Movement
in working capital and provisions
|
|
(373)
|
|
(344)
|
|
Cash
generated from operations
|
|
215
|
|
227
|
|
Net
interest and finance costs paid
|
|
(39)
|
|
(33)
|
|
Income
taxes (paid)/refunded
|
|
(63)
|
|
13
|
|
Net
cash inflow from operating activities
|
|
113
|
|
207
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Acquisitions,
net of cash acquired
|
|
(15)
|
|
(97)
|
|
Capital
expenditure
|
|
(167)
|
|
(173)
|
|
Distribution
from associate
|
|
-
|
|
2
|
|
Net
cash used in investing activities
|
|
(182)
|
|
(268)
|
|
Net
cash outflow before financing activities
|
|
(69)
|
|
(61)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Proceeds
from issue of ordinary share capital
|
|
-
|
|
1
|
|
Proceeds
from own shares
|
|
1
|
|
5
|
|
Purchase
of own shares
|
|
-
|
|
(133)
|
|
Payment
of capital element of lease liabilities
|
|
(28)
|
|
(27)
|
|
Equity
dividends paid
|
|
(201)
|
|
(202)
|
|
Cash
movements in borrowings
|
|
146
|
|
(357)
|
|
Settlement
of currency swaps
|
|
(4)
|
|
9
|
|
Net
cash used in financing activities
|
|
(86)
|
|
(704)
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(155)
|
|
(765)
|
|
Cash
and cash equivalents at beginning of year
|
|
344
|
|
1,285
|
|
Exchange
adjustments
|
|
(6)
|
|
(8)
|
|
Cash and cash equivalents at end of periodB
|
|
183
|
|
512
|
B Cash
and cash equivalents at the end of the period are net of overdrafts
of $7m (2 July 2022: $4m).
Unaudited Group Statement of Changes in Equity for the Half Year
ended 1 July 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
Share
|
|
redemption
|
|
Treasury
|
|
Other
|
|
Retained
|
|
Total
|
|
|
|
capital
|
|
premium
|
|
reserve
|
|
shares
|
|
reserves
|
|
earnings
|
|
equity
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
At
1 January 2023
|
|
175
|
|
615
|
|
20
|
|
(118)
|
|
(459)
|
|
5,026
|
|
5,259
|
|
Attributable profitA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
172
|
|
172
|
|
Other comprehensive incomeA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
26
|
|
(44)
|
|
(18)
|
|
Equity
dividends paid
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(201)
|
|
(201)
|
|
Share-based
payments recognised
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
19
|
|
19
|
|
Taxation
on share-based payments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1
|
|
1
|
|
Cost
of shares transferred to beneficiaries
|
|
-
|
|
-
|
|
-
|
|
11
|
|
-
|
|
(10)
|
|
1
|
|
At 1 July 2023
|
|
175
|
|
615
|
|
20
|
|
(107)
|
|
(433)
|
|
4,963
|
|
5,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
Share
|
|
redemption
|
|
Treasury
|
|
Other
|
|
Retained
|
|
Total
|
|
|
|
capital
|
|
premium
|
|
reserve
|
|
shares
|
|
reserves
|
|
earnings
|
|
equity
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
At
1 January 2022
|
|
177
|
|
614
|
|
18
|
|
(120)
|
|
(346)
|
|
5,225
|
|
5,568
|
|
Attributable profitA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
177
|
|
177
|
|
Other comprehensive incomeA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(88)
|
|
45
|
|
(43)
|
|
Equity
dividends paid
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(202)
|
|
(202)
|
|
Share-based
payments recognised
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
23
|
|
23
|
|
Taxation
on share-based payments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1)
|
|
(1)
|
|
Purchase of own sharesC
|
|
-
|
|
-
|
|
-
|
|
(133)
|
|
-
|
|
-
|
|
(133)
|
|
Cost
of shares transferred to beneficiaries
|
|
-
|
|
-
|
|
-
|
|
18
|
|
-
|
|
(13)
|
|
5
|
|
Cancellation of treasury sharesC
|
|
(2)
|
|
-
|
|
2
|
|
129
|
|
-
|
|
(129)
|
|
-
|
|
Issue
of ordinary share capital
|
|
-
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1
|
|
At 2 July 2022
|
|
175
|
|
615
|
|
20
|
|
(106)
|
|
(434)
|
|
5,125
|
|
5,395
|
A
Attributable to the equity holders of the parent and wholly derived
from continuing operations.
C During the half year ended 1 July
2023 no ordinary shares were purchased or cancelled (H1 2022: 8.2m
ordinary shares were purchased at a cost of $133m and 7.8m shares
were cancelled).
Notes to the Condensed Consolidated Interim Financial
Statements
1. Basis of preparation and accounting
policies
Smith
& Nephew plc (the 'Company') is a public limited company
incorporated in England and Wales. In these condensed consolidated
interim financial statements ('Interim Financial Statements'),
'Group' means the Company and all its subsidiaries.
These
Interim Financial Statements have been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted for use in the UK. As
required by the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority, these Interim Financial Statements
have been prepared applying the accounting policies and
presentation that were applied in the preparation of the Company's
annual accounts for the year ended 31 December 2022 which were
prepared in accordance with UK-adopted International Accounting
Standards. The Group has also prepared its accounts in accordance
with IFRS as issued by the International Accounting Standards Board
(IASB) effective as at 31 December 2022. IFRS as adopted in the UK
differs in certain respects from IFRS as issued by the IASB.
However, the differences have no impact for the periods
presented.
The
uncertainties as to the future impact on the financial performance
and cash flows of the Group as a result of the current challenging
economic environment have been considered as part of the Group's
adoption of the going concern basis for its Interim Financial
Statements for the period ended 1 July 2023, in which context the
Directors reviewed cash flow forecasts prepared for a period of at
least 12 months from the date of approval of these Interim
Financial Statements. Having carefully reviewed those forecasts,
the Directors concluded that it was appropriate to adopt the going
concern basis of accounting in preparing these Interim Financial
Statements for the reasons set out below.
The
Group's net debt, excluding lease liabilities, at 1 July 2023 was
$2,656m (see Note 6) with committed facilities of $3.7bn. The Group
has $105m of private placement debt due for repayment in
the second half of 2023. $100m of private placement debt is due for
repayment in the first half of 2024. $1,160m of private placement
debt is subject to financial covenants. The principal covenant on
the private placement debt is a leverage ratio of <3.5x which is
measured on a rolling 12-month basis at half year and year end.
There are no financial covenants in any of the Group's other
facilities.
The
Directors have considered various scenarios in assessing the impact
of the economic environment on future financial performance and
cash flows, with the key judgement applied being the speed and
sustainability of the return to a normal volume of elective
procedures in key markets, including the impact of a significant
global recession, leading to lower healthcare spending across both
public and private systems. Throughout these scenarios, which
include a severe but plausible outcome, the Group continues to have
headroom on its borrowing facilities and financial covenants. The
Directors believe that the Group is well placed to manage its
financing and other business risks satisfactorily and have a
reasonable expectation that the Group has sufficient resources to
continue in operational existence for the forecast period. Thus
they continue to adopt the going concern basis for accounting in
preparing these Interim Financial Statements.
The
principal risks and uncertainties that the Group is exposed to are
consistent with those as at 31 December 2022. The principal risks
and uncertainties continue to be: business continuity and business
change; commercial execution; cybersecurity; global supply chain;
legal and compliance; mergers and acquisitions; new product
innovation, design and development including intellectual property;
political and economic; pricing and reimbursement; quality and
regulatory; talent management; and taxation and foreign exchange.
Further detail on these risks can be found in the 2022 Annual
Report of the Group on pages 71-77.
The
financial information contained in this document does not
constitute statutory financial statements as defined in sections
434 and 435 of the Companies Act 2006. The auditors issued an
unqualified opinion that did not contain a statement under section
498 of the Companies Act 2006 on the Group's statutory financial
statements for the year ended 31 December 2022. The Group's
statutory financial statements for the year ended 31 December 2022
have been delivered to the Registrar of Companies.
New accounting standards effective 2023
A
number of new amendments to standards are effective from 1 January
2023 but they do not have a material effect on the Group's
financial statements except for
Deferred Tax related to Assets
and Liabilities arising from a Single Transaction -Amendment to IAS
12, which the Group has
adopted.
The
amendments narrow the scope of the initial recognition exemption to
exclude transactions that give rise to equal and offsetting
temporary differences such as leases.
The
Group previously accounted for deferred tax on leases where the
deferred tax asset or liability was recognised on a net basis.
Following the amendments, the Group has recognised a separate
deferred tax asset in relation to its lease liabilities and a
deferred tax liability in relation to its right-of-use assets.
However, there is no impact on the balance sheet because the
balances qualify for offset under paragraph 74 of IAS 12. There was
also no impact on the opening retained earnings as at 1 January
2023 as a result of the change.
The
policy for recognising and measuring income taxes in the interim
period is consistent with that applied in the comparative interim
period except for the changes outlined above as a result of the
Group's adoption of the amendments to IAS 12.
The
change in accounting policy will also be reflected in the Group's
consolidated financial statements for the year ending 31 December
2023.
Accounting standards issued but not yet effective
A
number of new standards and amendments to standards are effective
for annual periods beginning after 1 January 2024 and earlier
application is permitted; however, the Group has not early adopted
them in preparing these Interim Financial Statements.
The
Group is adopting the mandatory temporary exception from the
recognition and disclosure of deferred taxes arising from the
jurisdictional implementation of the Pillar Two model rules which
will take effect for the Group from 1 January 2024.
Critical judgements and estimates
In
determining and applying accounting policies, judgement is often
required in respect of items where the choice of specific policy,
accounting estimate or assumption to be followed could materially
affect the reported results or net asset position of the Group; it
may later be determined that a different choice would have been
more appropriate. The Group's significant accounting policies which
required the most use of management's estimation in the half year
ended 1 July 2023 were: valuation of inventories; liability
provisioning and impairment. These are consistent with 31 December
2022 and there has been no change in the methodology of applying
these critical estimates since the year ended 31 December
2022.
Management
have considered the impact of the current challenging economic
environment in:
Valuation of inventories
Management
have assessed the current challenging economic environment on the
provision for excess and obsolete inventory, specifically
considering the impact of increased inventory levels. Management
have not changed their methodology for calculating the provision
since 31 December 2022, nor is any change in the key assumptions
underlying the methodology expected in the next 12 months.
Primarily due to higher inventory levels, the provision has
increased from $504m at 31 December 2022 to $576m at 1 July 2023.
The provision for excess and obsolete inventory is not considered
to have a range of potential outcomes that is significantly
different to the $576m at 1 July 2023. The provision has a high
degree of estimation uncertainty given the range of products and
sizes, with a potential range of reasonable outcomes that could be
material over the longer term.
Liability provisioning
The
recognition of provisions for legal disputes related to
metal-on-metal cases is subject to a significant degree of
estimation. Provision is made for loss contingencies when it is
considered probable that an adverse outcome will occur and the
amount of the loss can be reasonably estimated. In making its
estimates, management takes into account the advice of internal and
external legal counsel. Provisions are reviewed regularly and
amounts updated where necessary to reflect developments in the
disputes. The value of provisions may require future adjustment if
experience such as number, nature or value of claims or settlements
changes. Such a change may be material in the second half of 2023
or thereafter. The ultimate liability may differ from the amount
provided depending on the outcome of court proceedings and
settlement negotiations or if investigations bring to light new
facts. Management has considered whether there have been any
changes to the number and value of claims since 31 December 2022
due to current challenging economic environment and to date have
not identified any changes in trends. If the experience changes in
the future the value of provisions may require
adjustment.
Impairment
Management
have assessed the non-current assets held by the Group at 1 July
2023 to identify any indicators of impairment. Where an impairment
indicator has arisen, impairment reviews have been undertaken by
comparing the expected recoverable value of the asset to the
carrying value of the asset. The recoverable amounts are based on
cash flow projections using the Group's base case scenario in its
going concern models, which was reviewed and approved by the Board.
No material impairments were identified as a result of the
impairment reviews undertaken.
Climate change considerations
The
impact of climate change has been considered as part of the
assessment of estimates and judgements in preparing the Group
accounts. The climate change scenario analyses undertaken this year
in line with TCFD recommendations did not identify any material
financial impact.
The
following considerations were made in respect of the interim
financial statements:
a)
The
impact of climate change on the going concern assessment and the
viability of the Group over the next three years;
b)
The
impact of climate change on the cash flow forecasts used in the
impairment assessments of non-current assets including goodwill;
and
c)
The
impact of climate change on the carrying value and useful economic
lives of property, plant and equipment.
2. Business segment information
The
Group's operating structure is organised around three global
business units (previously referred as franchises) and the chief
operating decision maker monitors performance, makes operating
decisions and allocates resources on a global business unit basis.
Accordingly, the Group has concluded that there are three
reportable segments.
The Executive Committee ('ExCo') comprises the
Chief Financial Officer ('CFO'), the business unit presidents,
certain heads of function, and is chaired by the Chief Executive
Officer ('CEO'). ExCo is the body through which the CEO uses the
authority delegated to him by the Board of Directors to manage the
operations and performance of the Group. All significant operating
decisions regarding the allocation and prioritisation of the
Group's resources and assessment of the Group's performance are
made by ExCo, and whilst the members have individual responsibility
for the implementation of decisions within their respective areas,
it is at the ExCo level that these decisions are made. Accordingly,
ExCo is considered to be the Group's chief operating decision maker
as defined by IFRS 8 Operating
Segments.
In
making decisions about the prioritisation and allocation of the
Group's resources, ExCo reviews financial information for the three
business units and determines the best allocation of resources to
the business units. Financial information for corporate costs is
presented on a Group-wide basis. The ExCo is not provided with
total assets and liabilities by segment, and therefore these
measures are not included in the disclosures below. The results of
the segments are shown below.
2a. Revenue by business segment and
geography
Revenue
is recognised as the performance obligations to deliver products or
services are satisfied and is recorded based on the amount of
consideration expected to be received in exchange for satisfying
the performance obligations. Revenue is recognised primarily when
control is transferred to the customer, which is generally when the
goods are shipped or delivered in accordance with the contract
terms, with some transfer of services taking place over time.
Substantially all performance obligations are performed within one
year. There is no significant revenue associated with the provision
of discrete services.
Payment
terms to our customers are based on commercially reasonable terms
for the respective markets while also considering a customer's
credit rating. Appropriate provisions for returns, trade discounts
and rebates are deducted from revenue. Rebates primarily comprise
chargebacks and other discounts granted to certain customers.
Chargebacks are discounts that occur when a third party purchases
product from a wholesaler at its agreed price plus a mark-up. The
wholesaler in turn charges the Group for the difference between the
price initially paid by the wholesaler and the agreed price. The
provision for chargebacks is based on expected sell-through levels
by the Group's wholesalers to such customers, as well as estimated
wholesaler inventory levels.
Orthopaedics and Sports Medicine & ENT
Orthopaedics
and Sports Medicine & ENT consists of the following businesses:
Knee Implants, Hip Implants, Other Reconstruction, Trauma &
Extremities, Sports Medicine Joint Repair, Arthroscopic Enabling
Technologies and ENT. Sales of inventory located at customer
premises and available for customers' immediate use are recognised
when notification is received that the product has been implanted
or used. Substantially all other revenue is recognised when control
is transferred to the customer, which is generally when the goods
are shipped or delivered in accordance with the contract terms.
Revenue is recognised for the amount of consideration expected to
be received in exchange for transferring the products or
services.
In
general our business in Established Markets is direct to hospitals
and ambulatory surgery centers whereas in the Emerging Markets we
generally sell through distributors.
Advanced Wound Management
Advanced
Wound Management consists of the following businesses: Advanced
Wound Care, Advanced Wound Bioactives and Advanced Wound Devices.
Substantially all revenue is recognised when control is transferred
to the customer, which is generally when the goods are shipped or
delivered in accordance with the contract terms. Revenue is
recognised for the amount of consideration expected to be received
in exchange for transferring the products or services. Appropriate
provisions for returns, trade discounts and rebates are deducted
from revenue, as explained above.
The
majority of our Advanced Wound Management business, and in
particular products used in community and homecare facilities, is
through wholesalers and distributors. When control is transferred
to a wholesaler or distributor, revenue is recognised accordingly.
The proportion of sales direct to hospitals is higher in our
Advanced Wound Devices business in Established
Markets.
Segment
revenue reconciles to statutory revenue from continuing operations
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2023
|
|
2022
|
|
|
|
$m
|
|
$m
|
|
Segment revenue
|
|
|
|
|
|
Orthopaedics
|
|
1,102
|
|
1,071
|
|
Sports
Medicine & ENT
|
|
843
|
|
778
|
|
Advanced
Wound Management
|
|
789
|
|
751
|
|
Revenue
from external customers
|
|
2,734
|
|
2,600
|
|
|
|
|
|
|
Disaggregation of revenue
The
following table shows the disaggregation of Group revenue by
product by business unit:
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2023
|
|
2022
|
|
|
|
$m
|
|
$m
|
|
Knee
Implants
|
|
475
|
|
454
|
|
Hip
Implants
|
|
303
|
|
298
|
|
Other
Reconstruction
|
|
51
|
|
43
|
|
Trauma
& Extremities
|
|
273
|
|
276
|
|
Orthopaedics
|
|
1,102
|
|
1,071
|
|
Sports
Medicine Joint Repair
|
|
457
|
|
426
|
|
Arthroscopic
Enabling Technologies
|
|
293
|
|
281
|
|
ENT
(Ear, Nose & Throat)
|
|
93
|
|
71
|
|
Sports Medicine & ENT
|
|
843
|
|
778
|
|
Advanced
Wound Care
|
|
356
|
|
360
|
|
Advanced
Wound Bioactives
|
|
274
|
|
252
|
|
Advanced
Wound Devices
|
|
159
|
|
139
|
|
Advanced Wound Management
|
|
789
|
|
751
|
|
Total
|
|
2,734
|
|
2,600
|
The
following table shows the disaggregation of Group revenue by
geographic market and product category. The disaggregation of
revenue into the two product categories below reflects that in
general the products in the Advanced Wound Management business unit
are sold to wholesalers and intermediaries, while products in the
other business units are sold directly to hospitals, ambulatory
surgery centers and distributors. The further disaggregation of
revenue by Established Markets and Emerging Markets reflects that
in general our products are sold through distributors and
intermediaries in the Emerging Markets while in the Established
Markets, with the exception of the Advanced Wound Care and
Bioactives, products are in general sold direct to hospitals and
ambulatory surgery centers. The disaggregation by Established
Markets and Emerging Markets also reflects their differing economic
factors including volatility in growth and outlook.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half year 2023
|
|
Half year 2022
|
||||||||
|
|
|
Established
Markets (D)
|
|
Emerging Markets
|
|
Total
|
|
Established
Markets (D)
|
|
Emerging Markets
|
|
Total
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
Orthopaedics,
Sports Medicine & ENT
|
|
1,584
|
|
361
|
|
1,945
|
|
1,474
|
|
375
|
|
1,849
|
|
Advanced
Wound Management
|
|
694
|
|
95
|
|
789
|
|
654
|
|
97
|
|
751
|
|
Total
|
|
2,278
|
|
456
|
|
2,734
|
|
2,128
|
|
472
|
|
2,600
|
D
Established Markets comprises US, Australia, Canada, Europe, Japan
and New Zealand.
Sales
are attributed to the country of destination. US revenue for the
half year was $1,471m (H1 2022: $1,350m), China revenue for the
half year was $123m (H1 2022: $166m) and UK revenue for the half
year was $96m (H1 2022: $95m).
No
individual customer comprises more than 10% of the Group's external
sales.
2b. Trading profit by business
segment
Trading
profit is a trend measure which presents the profitability of the
Group excluding the impact of specific transactions that management
considers affect the Group's short-term profitability and the
comparability of results. The Group presents this measure to assist
investors in their understanding of trends. The Group has
identified the following items, where material, as those to be
excluded from operating profit when arriving at trading profit:
acquisition and disposal related items; amortisation and impairment
of acquisition intangibles; significant restructuring programmes;
gains and losses arising from legal disputes; and other significant
items.
Segment
trading profit is reconciled to the statutory measure
below:
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2023
|
|
2022
|
|
|
|
$m
|
|
$m
|
|
Segment profit
|
|
|
|
|
|
Orthopaedics
|
|
174
|
|
193
|
|
Sports
Medicine & ENT
|
|
224
|
|
227
|
|
Advanced
Wound Management
|
|
223
|
|
217
|
|
Segment
trading profit
|
|
621
|
|
637
|
|
Corporate
costs
|
|
(204)
|
|
(197)
|
|
Group
trading profit
|
|
417
|
|
440
|
|
Acquisition
and disposal related items
|
|
17
|
|
(1)
|
|
Restructuring
and rationalisation expenses
|
|
(46)
|
|
(63)
|
|
Amortisation
and impairment of acquisition intangibles
|
|
(102)
|
|
(105)
|
|
Legal
and other
|
|
(11)
|
|
(29)
|
|
Group
operating profit
|
|
275
|
|
242
|
|
|
|
|
|
|
Acquisition and disposal related items
For
the half year ended 1 July 2023, credits relate to the
remeasurement of deferred and contingent consideration for prior
year acquisitions. These were partially offset by costs of
integration for prior year acquisitions.
For
the half year ended 2 July 2022, costs primarily relate to the
acquisition and integration of Engage Surgical and prior year
acquisitions. These costs were partially offset by credits relating
to remeasurement of deferred and contingent consideration for prior
year acquisitions.
Restructuring and rationalisation costs
For
the half year ended 1 July 2023, these costs primarily relate to
the efficiency and productivity elements of the 12-Point Plan and
the Operations and Commercial Excellence programme that was
announced in February 2020.
For
the half year ended 2 July 2022, these costs primarily relate to
the Operations and Commercial Excellence programme that was
announced in February 2020.
Amortisation and impairment of acquisition intangibles
For
both the half years ended 1 July 2023 and 2 July 2022, charges
relate to the amortisation and impairment of intangible assets
acquired in material business combinations.
Legal and other
For
the half years ended 1 July 2023 and 2 July 2022, charges relate to
legal expenses for ongoing metal-on-metal hip claims. These charges
for the half year ended 1 July 2023 were partially offset by the
release of a provision for an intellectual property dispute. For
the half year to 2 July 2022, charges were partially offset by a
credit of $7m relating to insurance recoveries for ongoing
metal-on-metal hip claims.
The
half years ended 1 July 2023 and 2 July 2022 also include costs for
implementing the requirements of the EU Medical Device Regulation
that was effective from May 2021 with a transition period to May
2024.
3. Taxation
Tax rate
Our
reported tax for the period ended 1 July 2023 was a charge of $39m,
with an effective tax rate of 18.5% (H1 2022: $27m, effective tax
rate of 13.2%).
OECD BEPS 2.0 - Pillar Two
The
OECD Pillar Two Globe Rules introduce a global minimum corporate
tax rate of 15% applicable to multinational enterprise groups with
global revenue over €750m. All participating OECD members are
required to incorporate these rules into national legislation. On 2
February 2023, the OECD published its Agreed Administrative
Guidance for the Pillar Two Globe Rules providing greater detail on
the application of the rules. On 23 May 2023, the International
Accounting Standards Board (IASB) amended IAS 12 to introduce a
mandatory temporary exception to the accounting for deferred taxes
arising from the jurisdictional implementation of the Pillar Two
model rules. On 19 July 2023, the UK Endorsement Board adopted the
IASB amendments to IAS 12. The Group will be subject to the Pillar
Two Model Rules which is expected to result in an increase in our
Group tax rate from 2024 onwards. The Group does not meet the
threshold for application of the Pillar One transfer pricing
rules.
4. Dividends
The
2022 final dividend totaling $201m was paid on 17 May 2023. The
2023 interim dividend of 14.4 US cents per ordinary share was
approved by the Board on 3 August 2023. This dividend is payable on
1 November 2023 to shareholders whose names appear on the register
at the close of business on 6 October 2023. The sterling equivalent
per ordinary share will be set following the record date.
Shareholders may elect to receive their dividend in either Sterling
or US Dollars and the last day for election will be 16 October
2023. Shareholders may participate in the dividend re-investment
plan and elections must be made by 16 October 2023.
5. Acquisitions
Half year ended 1 July 2023
No
acquisitions were made for the half year ended 1 July
2023.
The
cash outflow from acquisitions in H1 2023 of $15m (H1 2022: $97m)
comprises payments of consideration of $nil (H1 2022: $89m)
relating to acquisitions in the current period and payments of
deferred and contingent consideration of $15m (H1 2022: $8m)
relating to acquisitions completed in prior periods.
The
carrying value of goodwill increased from $3,031m at 31 December
2022 to $3,049m at 1 July 2023 due to foreign exchange
movements.
Year ended 31 December 2022
On
18 January 2022, the Group completed the acquisition of 100% of the
share capital of Engage Uni, LLC (doing business as Engage
Surgical), owner of the only cementless unicompartmental (partial)
knee system commercially available in the US.
The
maximum consideration, all payable in cash, was $135m and the
provisional fair value consideration was $131m and included $32m of
contingent consideration. The goodwill represents the control
premium, the acquired workforce and the synergies expected from
integrating Engage Surgical into the Group's existing business. The
majority of the consideration is expected to be deductible for tax
purposes.
The
fair value of assets acquired and liabilities assumed are set out
below:
|
|
|
|
|
|
|
Engage Surgical
|
|
|
|
$m
|
|
Intangible
assets - Product-related
|
|
44
|
|
Property,
plant & equipment
|
|
2
|
|
Inventory
|
|
2
|
|
Trade
and other payables
|
|
(1)
|
|
Net
assets
|
|
47
|
|
Goodwill
|
|
84
|
|
Consideration (net of $nil cash acquired)
|
|
131
|
The
product-related intangible assets were valued using a
relief-from-royalty methodology with the key inputs being revenue,
profit and discount rate.
6. Net debt
Net
debt as at 1 July 2023 is outlined below. The repayment of lease
liabilities is included in cash flows from financing activities in
the cash flow statement.
|
|
|
|
|
|
|
|
|
|
|
1 July
|
|
31 December
|
|
2 July
|
|
|
|
2023
|
|
2022
|
|
2022
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
Cash at bank
|
|
190
|
|
350
|
|
516
|
|
Long-term borrowings
|
|
(2,489)
|
|
(2,565)
|
|
(2,154)
|
|
Bank overdrafts, borrowings and loans due within one
year
|
|
(357)
|
|
(111)
|
|
(562)
|
|
Net currency swap asset
|
|
1
|
|
-
|
|
3
|
|
Net interest rate swap liability
|
|
(1)
|
|
(13)
|
|
-
|
|
Net debt
|
|
(2,656)
|
|
(2,339)
|
|
(2,197)
|
|
Non-current lease liabilities
|
|
(143)
|
|
(147)
|
|
(127)
|
|
Current lease liabilities
|
|
(50)
|
|
(49)
|
|
(50)
|
|
Net debt including lease liabilities
|
|
(2,849)
|
|
(2,535)
|
|
(2,374)
|
|
|
|
|
|
|
|
|
|
Reconciliation of net cash flow to movement in net debt including
lease liabilities
|
|
|
|
|
|
|
|
Net cash flow from cash net of overdrafts
|
|
(155)
|
|
(930)
|
|
(765)
|
|
Settlement of currency swaps
|
|
4
|
|
(3)
|
|
(9)
|
|
Net cash flow from borrowings
|
|
(146)
|
|
396
|
|
357
|
|
Change in net debt from net cash flow
|
|
(297)
|
|
(537)
|
|
(417)
|
|
IFRS 16 lease liabilities
|
|
3
|
|
1
|
|
19
|
|
Exchange adjustment
|
|
(19)
|
|
47
|
|
73
|
|
Corporate bond issuance expense
|
|
(1)
|
|
3
|
|
-
|
|
Change in net debt in the year
|
|
(314)
|
|
(486)
|
|
(325)
|
|
Opening net debt
|
|
(2,535)
|
|
(2,049)
|
|
(2,049)
|
|
Closing net debt
|
|
(2,849)
|
|
(2,535)
|
|
(2,374)
|
The Group has $105m of private placement debt due for
repayment in the second half of 2023 and $100m of private placement
debt due for repayment in the first half of 2024.
7a. Financial instruments
The
following table shows the carrying amounts and fair values of
financial assets and financial liabilities, including their levels
in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount
|
|
Fair value
|
|
|
||||||||
|
|
|
1 July
|
|
31 December
|
|
2 July
|
|
1 July
|
|
31 December
|
|
2 July
|
|
|
|
|
|
2023
|
|
2022
|
|
2022
|
|
2023
|
|
2022
|
|
2022
|
|
Fair value
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
level
|
|
Financial assets at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contacts
|
|
44
|
|
46
|
|
64
|
|
44
|
|
46
|
|
64
|
|
Level 2
|
|
Investments
|
|
8
|
|
12
|
|
10
|
|
8
|
|
12
|
|
10
|
|
Level 3
|
|
Contingent consideration receivable
|
|
18
|
|
18
|
|
20
|
|
18
|
|
18
|
|
20
|
|
Level 3
|
|
Currency swaps
|
|
1
|
|
1
|
|
3
|
|
1
|
|
1
|
|
3
|
|
Level 2
|
|
|
|
71
|
|
77
|
|
97
|
|
71
|
|
77
|
|
97
|
|
|
|
Financial assets not measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
1,122
|
|
1,123
|
|
1,057
|
|
|
|
|
|
|
|
|
|
Cash at bank
|
|
190
|
|
350
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
1,312
|
|
1,473
|
|
1,573
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
1,383
|
|
1,550
|
|
1,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration
|
|
(50)
|
|
(78)
|
|
(100)
|
|
(50)
|
|
(78)
|
|
(100)
|
|
Level 3
|
|
Forward foreign exchange contracts
|
|
(28)
|
|
(42)
|
|
(34)
|
|
(28)
|
|
(42)
|
|
(34)
|
|
Level 2
|
|
Currency swaps
|
|
-
|
|
(1)
|
|
-
|
|
-
|
|
(1)
|
|
-
|
|
Level 2
|
|
Interest rate swaps
|
|
(1)
|
|
(13)
|
|
-
|
|
(1)
|
|
(13)
|
|
-
|
|
Level 2
|
|
|
|
(79)
|
|
(134)
|
|
(134)
|
|
(79)
|
|
(134)
|
|
(134)
|
|
|
|
Financial liabilities not measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration
|
|
(7)
|
|
(14)
|
|
(16)
|
|
|
|
|
|
|
|
|
|
Bank overdrafts
|
|
(7)
|
|
(6)
|
|
(4)
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
(145)
|
|
-
|
|
(508)
|
|
|
|
|
|
|
|
|
|
Corporate bond not in a hedge relationship
|
|
(994)
|
|
(994)
|
|
(993)
|
|
|
|
|
|
|
|
|
|
Corporate bond in a hedge relationship
|
|
(540)
|
|
(516)
|
|
-
|
|
|
|
|
|
|
|
|
|
Private placement debt not in a hedge relationship
|
|
(1,160)
|
|
(1,160)
|
|
(1,210)
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
(918)
|
|
(1,040)
|
|
(954)
|
|
|
|
|
|
|
|
|
|
|
|
(3,771)
|
|
(3,730)
|
|
(3,685)
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
(3,850)
|
|
(3,864)
|
|
(3,819)
|
|
|
|
|
|
|
|
|
At
1 July 2023, the book value and market value of the USD corporate
bond were $994m and $804m respectively (31 December 2022: $994m and
$783m), the book value and market value of the EUR corporate bond
were $540m and $553m respectively (31 December 2022: $516m and
$531m). At 1 July 2023 the book value and fair value of the private
placement debt were $1,160m and $1,071m respectively (31 December
2022: $1,160m and $987m).
There
were no transfers between Levels 1, 2 and 3 during the half year
ended 1 July 2023 and the year ended 31 December 2022. For cash and
cash equivalents, short-term loans and receivables, overdrafts and
other short-term liabilities which have a maturity of less than
three months, the book values approximate the fair values because
of their short-term nature. Long-term borrowings are measured in
the balance sheet at amortised cost. The corporate bonds issued in
October 2020 and October 2022 are publicly listed and a market
price is available. The Group's other long-term borrowings are not
quoted publicly, their fair values are estimated by discounting
future contractual cash flows to net present values at the current
market interest rates available to the Group for similar financial
instruments as at the year end. The fair value of the private
placement notes is determined using a discounted cash flow model
based on prevailing market rates. The fair value of currency swaps
is determined by reference to quoted market spot rates. As a
result, foreign forward exchange contracts and currency swaps are
classified as Level 2 within the fair value hierarchy.
The
fair value of contingent acquisition consideration is estimated
using a discounted cash flow model. The valuation model considers
the present value of risk adjusted expected payments, discounted
using a risk-free discount rate. The expected payment is determined
by considering the possible scenarios, which relate to the
achievement of established milestones and targets, the amount to be
paid under each scenario and the probability of each scenario. As a
result, contingent acquisition consideration is classified as Level
3 within the fair value hierarchy.
The
fair value of investments is based upon third party pricing models
for share issues. As a result, investments are considered Level 3
in the fair value hierarchy.
The
movements in the half year ended 1 July 2023 and the year ended 31
December 2022 for financial instruments measured using Level 3
valuation methods are presented below:
|
|
|
|
|
|
1 July
|
31 December
|
|
|
2023
|
2022
|
|
|
$m
|
$m
|
|
Investments
|
|
|
|
At 1 January
|
12
|
10
|
|
Additions
|
-
|
2
|
|
Fair value remeasurement
|
(4)
|
-
|
|
|
8
|
12
|
|
|
|
|
|
Contingent consideration receivable
|
|
|
|
At 1 January
|
18
|
20
|
|
Remeasurements
|
-
|
-
|
|
Receipts
|
-
|
(2)
|
|
|
18
|
18
|
|
|
|
|
|
Acquisition consideration liability
|
|
|
|
At 1 January
|
(78)
|
(84)
|
|
Arising on acquisitions
|
-
|
(32)
|
|
Payments
|
7
|
20
|
|
Remeasurements
|
22
|
19
|
|
Discount unwind
|
(1)
|
(1)
|
|
|
(50)
|
(78)
|
7b. Retirement benefit obligations
The
discount rates applied to the future pension liabilities of the UK
and US pension plans are based on the yield on bonds that have a
credit rating of AA denominated in the currency in which the
benefits are expected to be paid with a maturity profile
approximately the same as the obligations. The UK discount rate has
increased since 31 December 2022 by 40bps to 5.2% while the US
discount rate decreased since 31 December 2022 by 10bps to 5.2%.
The remeasurement loss of $61m recognised in Other Comprehensive
Income (OCI) was principally made up of a $58m loss recorded due to
the conclusion of the UK Defined Benefit Fund buy-in as noted
below.
During
the half year ended 1 July 2023, the Trustees concluded a full
buy-in of the UK Defined Benefit Fund. The transaction resulted in
a $58m loss being recognised in OCI with nil cash impact. In
October 2022, US Pension Plan members were notified that Smith
& Nephew Inc. would begin the termination process for the plan.
This process is expected to be finalised by 2024.
8. Exchange rates
The
exchange rates used for the translation of currencies into US
Dollars that have the most significant impact on the Group results
were:
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Full year
|
|
Half year
|
|
|
|
2023
|
|
2022
|
|
2022
|
|
Average rates
|
|
|
|
|
|
|
|
Sterling
|
|
1.23
|
|
1.23
|
|
1.30
|
|
Euro
|
|
1.08
|
|
1.05
|
|
1.09
|
|
Swiss
Franc
|
|
1.10
|
|
1.05
|
|
1.06
|
|
Period end rates
|
|
|
|
|
|
|
|
Sterling
|
|
1.27
|
|
1.21
|
|
1.20
|
|
Euro
|
|
1.09
|
|
1.07
|
|
1.04
|
|
Swiss
Franc
|
|
1.11
|
|
1.08
|
|
1.04
|
Directors' Responsibilities Statement
The
Directors confirm that to the best of their knowledge:
●
this set of condensed consolidated Interim
Financial Statements has been prepared in accordance with IAS
34 Interim Financial
Statements as adopted for
use in the UK and IAS 34 Interim Financial
Statements as issued by
the International Accounting Standards Board;
and
●
that the interim management report herein
includes a fair review of the information required
by:
a. DTR
4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b. DTR
4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of
the current financial year and that have materially affected the
financial position or performance of the enterprise during that
period, and any changes in the related party transactions described
in the last annual report that could do so.
There
have been no changes in the Board of Directors of Smith &
Nephew plc to those listed in the Smith & Nephew plc 2022
Annual Report.
|
|
|
|
|
By order of the Board:
|
|
|
|
|
|
|
|
Deepak Nath
|
Chief Executive Officer
|
3 August 2023
|
|
Anne-Françoise Nesmes
|
Chief Financial Officer
|
3 August 2023
|
|
|
|
|
INDEPENDENT REVIEW REPORT TO SMITH & NEPHEW PLC
Conclusion
We have been engaged by Smith & Nephew plc ("the Company") to
review the condensed consolidated set of financial statements in
the interim financial report for the period ended 1 July 2023 which
comprises the Group Income Statement, Group Statement of
Comprehensive Income, Group Balance Sheet, Condensed Group Cash
Flow Statement, Group Statement of Changes in Equity and the
related explanatory notes.
Based on our review, nothing has come to our attention that causes
us to believe that the condensed consolidated set of financial
statements in the interim financial report for the period ended 1
July 2023 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the
UK and the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK
FCA").
Basis for conclusion
We conducted our review in accordance with International Standard
on Review Engagements (UK) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity
("ISRE (UK) 2410") issued for use in the UK. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the interim financial report and consider
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed consolidated
set of financial statements.
A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those
performed in an audit as described in the Basis for conclusion
section of this report, nothing has come to our attention that
causes us to believe that the directors have inappropriately
adopted the going concern basis of accounting, or that the
directors have identified material uncertainties relating to going
concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the Group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
Group will continue in operation.
Directors' responsibilities
The interim financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the interim financial report in accordance with the DTR
of the UK FCA.
As disclosed in note 1, the latest annual financial statements of
the Group are prepared in accordance with UK-adopted international
accounting standards. The Group also prepared those annual accounts
in accordance with IFRS as issued by International Accounting
Standards Board ('IASB').
The directors are responsible for preparing the condensed
consolidated set of financial statements included in the interim
financial report in accordance with IAS 34 as adopted for use in
the UK and in addition to complying with their legal obligation to
do so, have also applied IAS 34 as issued by the IASB to
them.
In preparing the condensed set of financial statements, the
directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the
condensed consolidated set of financial statements in the interim
financial report based on our review. Our conclusion, including our
conclusions relating to going concern, are based on procedures that
are less extensive than audit procedures, as described in the Basis
for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Paul Nichols
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
3 August 2023
Other
information
Definitions of and reconciliation to measures included within
adjusted "trading" results
These Interim Financial Statements include financial measures that
are not prepared in accordance with IFRS. These measures, which
include trading profit, trading profit margin, tax rate on trading
results, EPSA, ROIC, trading cash flow, free cash flow, trading
profit to trading cash conversion ratio, leverage ratio, and
underlying revenue growth, exclude the effect of certain cash and
non-cash items that Group management believes are not related to
the underlying performance of the Group. These non-IFRS financial
measures are also used by management to make operating decisions
because they facilitate internal comparisons of
performance to historical results.
Non-IFRS financial measures are presented in these Interim
Financial Statements as the Group's management believe that they
provide investors with a means of evaluating performance of the
business segments and the consolidated Group on a consistent basis,
similar to the way in which the Group's management evaluates
performance, that is not otherwise apparent on an IFRS basis, given
that certain non-recurring, infrequent, non-cash
and other items that management does not otherwise believe are
indicative of the underlying performance of the consolidated Group
may not be excluded when preparing financial measures under IFRS.
These non-IFRS measures should not be considered in
isolation
from, as substitutes for, or superior to financial measures
prepared in accordance with IFRS.
Underlying revenue growth
'Underlying revenue growth' is used to compare the revenue in a
given period to the previous period on a like-for-like basis.
Underlying revenue growth reconciles to reported revenue growth,
the most directly comparable financial measure calculated in
accordance with IFRS, by making two adjustments, the 'constant
currency exchange effect' and the 'acquisitions and disposals
effect', described below.
The 'constant currency exchange effect' is a measure of the
increase/decrease in revenue resulting from currency movements on
non-US Dollar sales and is measured as the difference between: 1)
the increase/decrease in the current year revenue translated into
US Dollars at the current year average exchange rate and the prior
year revenue translated at the prior year rate; and 2) the
increase/decrease being measured by translating current and prior
year revenues into US Dollars using the prior year closing
rate.
The 'acquisitions and disposals effect' is the measure of the
impact on revenue from newly acquired material business
combinations and recent material business disposals. This is
calculated by comparing the current year, constant currency actual
revenue (which includes acquisitions and excludes disposals from
the relevant date of completion) with prior year, constant currency
actual revenue, adjusted to include the results of acquisitions and
exclude disposals for the commensurate period in the prior year.
These sales are separately tracked in the Group's internal
reporting systems and are readily identifiable.
Reported revenue growth, the most directly comparable financial
measure calculated in accordance with IFRS, reconciles to
underlying revenue growth as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling Items
|
||
|
|
|
Half year
|
|
Half year
|
|
Reported
|
|
Underlying
|
|
Acquisitions
|
|
Currency
|
|
|
|
2023
|
|
2022
|
|
growth
|
|
growth
|
|
& disposals
|
|
impact
|
|
|
|
$m
|
|
$m
|
|
%
|
|
%
|
|
%
|
|
%
|
|
Segment revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orthopaedics
|
|
1,102
|
|
1,071
|
|
2.9
|
|
4.8
|
|
-
|
|
(1.9)
|
|
Sports
Medicine & ENT
|
|
843
|
|
778
|
|
8.4
|
|
11.0
|
|
-
|
|
(2.6)
|
|
Advanced
Wound Management
|
|
789
|
|
751
|
|
5.1
|
|
7.0
|
|
-
|
|
(1.9)
|
|
Revenue
from external customers
|
|
2,734
|
|
2,600
|
|
5.2
|
|
7.3
|
|
-
|
|
(2.1)
|
Trading profit, trading profit margin, trading cash flow and
trading profit to cash conversion ratio
Trading profit, trading profit margin (trading profit expressed as
a percentage of revenue), trading cash flow and trading profit to
trading cash conversion ratio (trading cash flow expressed as a
percentage of trading profit) are trend measures, which present the
profitability of the Group. The adjustments made exclude the impact
of specific transactions that management considers affect the
Group's short-term profitability and cash flows, and the
comparability of results. The Group has identified the following
items, where material, as those to be excluded from operating
profit and cash generated from operations when arriving at trading
profit and trading cash flow, respectively: acquisition and
disposal related items arising in connection with business
combinations, including amortisation of acquisition intangible
assets, impairments and integration costs; restructuring events;
and gains and losses resulting from legal disputes and uninsured
losses. In addition to these items, gains and losses that
materially impact the Group's profitability or cash flows on a
short-term or one-off basis are excluded from operating profit and
cash generated from operations when arriving at trading profit and
trading cash flow. The cash contributions to fund defined benefit
pension schemes that are closed to future accrual are excluded from
cash generated from operations when arriving at trading cash flow.
Payment of lease liabilities is included within trading cash
flow.
Adjusted earnings per ordinary share ('EPSA')
EPSA is a trend measure, which presents the profitability of the
Group excluding the post-tax impact of specific transactions that
management considers affect the Group's short-term profitability
and comparability of results. The Group presents this measure to
assist investors in their understanding of trends. Adjusted
attributable profit is the numerator used for this measure and is
determined by adjusting attributable profit for the items that are
excluded from operating profit when arriving at trading profit and
items that are recognised below operating profit that affect the
Group's short-term profitability. The most directly comparable
financial measure calculated in accordance with IFRS is basic
earnings per ordinary share (EPS).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
|
|
generated
|
|
|
|
|
|
|
|
Operating
|
|
before
|
|
|
|
Attributable
|
|
from
|
|
Earnings
|
|
|
|
Revenue
|
|
profit1
|
|
tax2
|
|
Taxation3
|
|
profit4
|
|
operations5
|
|
per share6
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
¢
|
|
Half year 2023 Reported
|
|
2,734
|
|
275
|
|
211
|
|
(39)
|
|
172
|
|
215
|
|
19.7
|
|
Acquisition
and disposal related items
|
|
-
|
|
(17)
|
|
(8)
|
|
9
|
|
1
|
|
6
|
|
0.1
|
|
Restructuring
and rationalisation costs
|
|
-
|
|
46
|
|
49
|
|
(10)
|
|
39
|
|
50
|
|
4.6
|
|
Amortisation
and impairment of acquisition intangibles
|
|
-
|
|
102
|
|
102
|
|
(22)
|
|
80
|
|
-
|
|
9.1
|
|
Legal and other7
|
|
-
|
|
11
|
|
14
|
|
(2)
|
|
12
|
|
34
|
|
1.4
|
|
Lease
liability payments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(28)
|
|
-
|
|
Capital
expenditure
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(167)
|
|
-
|
|
Half year 2023 Adjusted
|
|
2,734
|
|
417
|
|
368
|
|
(64)
|
|
304
|
|
110
|
|
34.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
|
|
generated
|
|
|
|
|
|
|
|
Operating
|
|
before
|
|
|
|
Attributable
|
|
from
|
|
Earnings
|
|
|
|
Revenue
|
|
profit1
|
|
tax2
|
|
Taxation3
|
|
profit4
|
|
operations5
|
|
per share6
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
¢
|
|
Half year 2022 Reported
|
|
2,600
|
|
242
|
|
204
|
|
(27)
|
|
177
|
|
227
|
|
20.2
|
|
Acquisition
and disposal related items
|
|
-
|
|
1
|
|
-
|
|
(2)
|
|
(2)
|
|
11
|
|
(0.2)
|
|
Restructuring
and rationalisation costs
|
|
-
|
|
63
|
|
63
|
|
(13)
|
|
50
|
|
59
|
|
5.8
|
|
Amortisation
and impairment of acquisition intangibles
|
|
-
|
|
105
|
|
105
|
|
(23)
|
|
82
|
|
-
|
|
9.4
|
|
Legal and other7
|
|
-
|
|
29
|
|
32
|
|
(6)
|
|
26
|
|
57
|
|
2.9
|
|
Lease
liability payments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(27)
|
|
-
|
|
Capital
expenditure
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(173)
|
|
-
|
|
Half year 2022 Adjusted
|
|
2,600
|
|
440
|
|
404
|
|
(71)
|
|
333
|
|
154
|
|
38.1
|
1 Represents
a reconciliation of operating profit to trading
profit.
2 Represents
a reconciliation of reported profit before tax to trading profit
before tax.
3 Represents
a reconciliation of reported tax to trading
tax.
4 Represents
a reconciliation of reported attributable profit to adjusted
attributable profit.
5 Represents
a reconciliation of cash generated from operations to trading cash
flow.
6 Represents
a reconciliation of basic earnings per ordinary share to adjusted
earnings per ordinary share (EPSA).
7 The
ongoing funding of defined benefit pension schemes that are closed
to future accrual is not included in management's definition of
trading cash flow as there is no defined benefit service cost for
these schemes.
Acquisition and disposal related items
For the half year ended 1 July 2023, credits relate to the
remeasurement of deferred and contingent consideration for prior
year acquisitions. These were partially offset by costs of
integration for prior year acquisitions. Adjusted profit before tax
for the half year ended 1 July 2023 additionally excludes
acquisition and disposal items related to the Group's shareholding
in Bioventus.
For the half year ended 2 July 2022, costs primarily relate to the
acquisition and integration of Engage Surgical and prior year
acquisitions. These costs were partially offset by credits relating
to remeasurement of deferred and contingent consideration for prior
year acquisitions.
Restructuring and rationalisation costs
For the half year ended 1 July 2023, these costs primarily relate
to the efficiency and productivity elements of the 12-Point Plan
and the Operations and Commercial Excellence programme that was
announced in February 2020. Adjusted profit before tax for the half
year ended 1 July 2023 additionally excludes restructuring costs
related to the Group's shareholding in Bioventus.
For the half year ended 2 July 2022, these costs primarily relate
to the Operations and Commercial Excellence programme that was
announced in February 2020.
Amortisation and impairment of acquisition intangibles
For both the half years ended 1 July 2023 and 2 July 2022, charges
relate to the amortisation and impairment of intangible assets
acquired in material business combinations.
Legal and other
For the half years ended 1 July 2023 and 2 July 2022, charges
relate to legal expenses for ongoing metal-on-metal hip claims.
These charges for the half year ended 1 July 2023 were partially
offset by the release of a provision for an intellectual property
dispute. For the half year to 2 July 2022, charges were partially
offset by a credit of $7m relating to insurance recoveries for
ongoing metal-on-metal hip claims.
The half years ended 1 July 2023 and 2 July 2022 also include costs
for implementing the requirements of the EU Medical Device
Regulation that was effective from May 2021 with a transition
period to May 2024.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Smith
& Nephew Plc
(Registrant)
Date: August
03, 2023
By: /s/
Helen Barraclough
-----------------
Helen
Barraclough
Company
Secretary