TIDMSN.
RNS Number : 0015U
Smith & Nephew Plc
28 July 2022
Smith+Nephew Second Quarter and First Half 2022 Results
28 July 2022
Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology
company, reports results for the second quarter and first half
ended 2 July 2022:
2 July 3 July Reported Underlying
2022 2021 growth growth
$m $m % %
------ ------ -------- ----------
Second Quarter Results(1,2)
Revenue 1,293 1,335 -3.1 1.2
------ ------ -------- ----------
Half Year Results(1,2)
Revenue 2,600 2,599 - 3.5
Operating profit 242 239
Operating profit margin (%) 9.3 9.2
EPS (cents) 20.2 23.4
Trading profit 440 459
Trading profit margin (%) 16.9 17.6
EPSA (cents) 38.1 38.8
Q2 Trading Highlights (1,2)
-- Q2 revenue of $1,293 million (2021: $1,335 million), up 1.2%
on an underlying basis (down 3.1% on a reported basis including
430bps FX headwind) with one fewer trading day than equivalent
prior-year period
-- Orthopaedics revenue declined -1.1% (-4.9% reported)
reflecting execution and supply chain challenges, and China VBP
-- Sports Medicine & ENT up 1.9% (-2.4% reported) with
growth significantly impacted by the COVID-related lockdown in
China
-- Advanced Wound Management up 3.8% (-1.3% reported) with all regions and segments contributing
H1 Highlights (1,2)
-- H1 revenue of $2,600 million (2021: $2,599 million), up 3.5%
on an underlying basis (flat on a reported basis including 350bps
FX headwind)
-- Operating profit of $242 million (2021: $239 million)
-- Trading profit of $440 million (2021: $459 million). Trading
profit margin of 16.9% (2021: 17.6%) reflects higher input
inflation
-- $125 million of 2022 share buyback programme completed to date
-- Interim dividend of 14.4c, in-line with prior year
2022 Full Year Outlook(1,2)
-- Unchanged full-year underlying revenue growth guidance of 4.0% to 5.0%
-- Trading profit margin now expected to be around 17.5%,
reflecting prolonged impact of the inflationary environment and
continued external supply challenges
Strategic Highlights (1,2)
-- Comprehensive action plan underway to drive excellence in
execution supporting Strategy for Growth, focused on:
o Fixing Orthopaedics
o Improving productivity
o Accelerating growth in Advanced Wound Management and
Sports Medicine & ENT
-- Continued cadence of new product launches and investment in R&D pipeline
Deepak Nath, Chief Executive Officer, said:
"After only a few months at Smith+Nephew it is clear to me that
we have many more opportunities than challenges. Our fundamental
competitive position is strong, and we have a clear right to win in
all three franchises through product differentiation and
proprietary platform technologies. And, importantly, delivery is
well on-track in two of the three franchises, providing 60% of our
revenue.
"Orthopaedics continues to be held back by execution and supply
chain challenges. In the last three months, I have reviewed the
business and, together with the team, we have developed a
comprehensive plan to drive better execution at pace.
"Our focus is on delivering our transformational strategy. We
will drive operational benefits in Orthopaedics, as soon as this
year, and build on our strong positions in Advanced Wound
Management and Sports Medicine & ENT. I am confident in our
ability to transform Smith+Nephew into a structurally higher-growth
business delivering greater value for all our stakeholders."
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 on the Smith+Nephew website at
https://www.smith-nephew.com/results/ .
Enquiries
Investors
Andrew Swift +44 (0) 1923 477433
Smith+Nephew
Media
Charles Reynolds +44 (0) 1923 477314
Smith+Nephew
Susan Gilchrist / Ayesha Bharmal +44 (0) 20 7404 5959
Brunswick
Notes
1. Unless otherwise specified as 'reported' or 'organic' 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 2021 period.
'Organic revenue growth' reconciles to reported revenue growth,
the most directly comparable financial measure calculated in
accordance with IFRS, by only making the 'constant currency
exchange effect' adjustment described below.
'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 measure 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 2022
Results
Delivering our Transformational Strategy for Growth
Smith+Nephew has a clear Strategy for Growth. Through this we
will compound our outperformance in Advanced Wound Management and
Sports Medicine & ENT, and regain momentum in Orthopaedics. Our
ambition is to transform to a structurally higher-growth
company.
Our Strategy for Growth is based on three pillars.
-- First, Strengthen the foundations of Smith+Nephew. A solid
base in commercial and manufacturing will enable us to serve
customers sustainably and simply, and deliver the best from our
core portfolio.
-- Second, Accelerate our growth profitably, through more robust
prioritisation of resources and investment, and with continuing
customer focus.
-- Third, continue to Transform ourselves for higher long-term
growth, through investment in innovation and acquisitions.
Better Execution at Pace
In recent years we have consistently demonstrated successful
execution across Sports Medicine and improved performance from
Advanced Wound Management. Following investment, Orthopaedics has a
strong portfolio with differentiated products and enabling
technologies, but recent performance has been held back by
execution and supply chain challenges.
To take the business forward and deliver on our Strategy for
Growth pillars to Strengthen and Accelerate, we have in the last
three months developed a comprehensive plan to drive better
execution at pace, focused on:
-- Fixing Orthopaedics
-- Improving productivity
-- Accelerating growth in Advanced Wound Management and Sports Medicine & ENT
Among the actions to address these are the following:
-- Rewiring Orthopaedics commercial delivery and winning share
with our current portfolio through greater focus on differentiated
products and procedural innovations and more detailed customer
segmentation, aligning sales resources and incentives with the
greatest growth opportunities
-- Streamlining the reconstruction portfolio to reduce the
number of implant systems in each category and focus sales on lead
brands
-- Improving asset utilisation by establishing clear principles
on where instrument sets are placed, along with use of digital
planning tools
-- Rebuilding demand planning process through closer
collaboration between operations and commercial, improving short
and long-term planning signals
Along with strengthening Orthopaedics, we see significant
opportunities to invest further behind our well performing Advanced
Wound Management and Sports Medicine & ENT franchises.
Our actions are focused on maximising the value of our strong
portfolio, where we already have leading technology across the
franchises. The plan includes clear accountability to ensure
sustained impact. We have a refreshed leadership team across
Orthopaedics and Global Operations with area specific experience
and track record. There is a high cadence of interactions for the
responsible teams under the oversight of the Chief Executive
Officer. Each area has specific action plans with meaningful KPIs
to track progress and ensure accountability.
First Half Delivery of Strategy
We continue to invest behind our manufacturing and supply chain
operations to drive productivity. During the first half we opened
our new high technology orthopaedics manufacturing facility in
Malaysia and announced plans for a new R&D and manufacturing
facility for Advanced Wound Management in the UK. We are also
closely managing the impact of the widely reported global shortages
of some raw materials and components.
Our commitment to innovation is central to our Strategy for
Growth and we continue to invest behind recent product launches and
in our R&D programme. New product launches in the first half
included expanding the robotics-enabled CORI Surgical System by
bringing both cementless total knee and total hip arthroplasty onto
the platform. Other new innovations include the WOUND COMPASS
Clinical Support App, a comprehensive digital support tool for
health care professionals that aids wound assessment and
decision-making to help reduce practice variation.
We have continued to deliver successful acquisitions, bringing
novel and disruptive technologies into our portfolio. In January we
acquired Engage Surgical, owner of the only cementless partial knee
system commercially available in the US. The system will have an
application on CORI in the future.
S econd Quarter 2022 Trading Update
Our second quarter revenue was $1,293 million (2021: $1,335
million), up 1.2% year-on-year on an underlying basis. On a
reported basis this represented a decline of -3.1%, including a
430bps headwind from foreign exchange (primarily due to the
strength of the US Dollar). The second quarter comprised 63 trading
days, one less than the equivalent period in 2021.
Two of our three franchises delivered revenue growth in the
quarter, with Sports Medicine & ENT up 1.9% (-2.4% reported)
and Advanced Wound Management up 3.8% (-1.3% reported). Growth from
Sports Medicine was significantly impacted by the recent
COVID-related lockdowns in China. Advanced Wound Management
delivered growth across all regions and segments. Revenue from
Orthopaedics declined -1.1% (-4.9% reported). This performance
reflects the implementation of the previously disclosed hip and
knee volume-based-procurement (VBP) programme in China.
Revenue growth in our Established Markets was up 1.2% (-3.2%
reported). Within this, the US delivered 2.0% revenue growth (2.0%
reported) while Other Established Markets was flat (-11.4%
reported) reflecting a weak quarter in Asia-Pacific. Emerging
Markets revenue was up 0.8% (-3.0% reported) with the expected
China performance offset by strong growth in India, Middle East and
Latin America as COVID-related restrictions eased.
Second Quarter Consolidated Revenue Analysis
2 July 3 July Reported Underlying Acquisitions Currency
2022 2021 growth growth(i) /disposals impact
Consolidated revenue by franchise $m $m % % % %
------------------------------------- ------ ------ -------- ---------- ------------- --------
Orthopaedics 530 557 -4.9 -1.1 - -3.8
-------------------------------------- ------ ------ -------- ---------- ------------- --------
Knee Implants 223 226 -1.3 2.7 - -4.0
Hip Implants 149 161 -7.7 -3.7 - -4.0
Other Reconstruction(ii) 23 21 6.0 10.8 - -4.8
Trauma & Extremities 135 149 -8.9 -6.0 - -2.9
Sports Medicine & ENT 381 391 -2.4 1.9 - -4.3
-------------------------------------- ------ ------ -------- ---------- ------------- --------
Sports Medicine Joint Repair 206 211 -2.3 2.1 - -4.4
Arthroscopic Enabling Technologies 140 147 -5.0 -0.5 - -4.5
ENT (Ear, Nose and Throat) 35 33 8.4 11.2 - -2.8
Advanced Wound Management 382 387 -1.3 3.8 - -5.1
-------------------------------------- ------ ------ -------- ---------- ------------- --------
Advanced Wound Care 178 186 -4.4 3.3 - -7.7
Advanced Wound Bioactives 134 132 1.8 2.4 - -0.6
Advanced Wound Devices 70 69 0.9 7.9 - -7.0
Total 1,293 1,335 -3.1 1.2 - -4.3
-------------------------------------- ------ ------ -------- ---------- ------------- --------
Consolidated revenue by geography
-------------------------------------- ------ ------ -------- ---------- ------------- --------
US 690 677 2.0 2.0 - -
Other Established Markets(iii) 374 422 -11.4 - - -11.4
Total Established Markets 1,064 1,099 -3.2 1.2 - -4.4
Emerging Markets 229 236 -3.0 0.8 - -3.8
Total 1,293 1,335 -3.1 1.2 - -4.3
-------------------------------------- ------ ------ -------- ---------- ------------- --------
(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 franchise declined -1.1% (-4.9%
reported) in the second quarter. Excluding China, Orthopaedics grew
by around 2%.
Knee Implants revenue was up 2.7% (-1.3% reported) and Hip
Implants revenue was down -3.7% (-7.7% reported). Our performance
was impacted by execution and supply chain challenges, and China
VBP. We delivered modest growth across our primary cemented total
knee systems, driving benefit from the recovery in elective surgery
volumes. We also continued to roll-out the launch of the LEGION
CONCELOC Cementless Total Knee System.
Other Reconstruction revenue growth was 10.8% (6.0% reported)
with strong demand for the CORI Surgical System.
In Trauma & Extremities revenue declined -6.0% (-8.9%
reported) with growth in hip fracture offset by our decision not to
participate in the broader roll-out of provincial trauma tenders in
China. We continue to invest behind the EVOS Plating System,
including launching EVOS Large in the second half of the year.
Sports Medicine & ENT
Sports Medicine & ENT delivered revenue growth of 1.9%
(-2.4% reported). Excluding China, growth would have been around
5%.
Sports Medicine Joint Repair revenue was up 2.1% (-2.3%
reported) in the quarter, reflecting the previously mentioned
COVID-lockdown impact in China offsetting performance elsewhere,
which was led by good growth from our knee repair portfolio in
Established Markets, as levels of physical activity normalise.
Arthroscopic Enabling Technologies revenue declined -0.5% (-5.0%
reported) with growth across fluid management and video offset by
continued softness in core COBLATION and patient positioning.
ENT revenue was up 11.2% (8.4% reported) reflecting the
continued recovery in procedure volumes from the impact of COVID
and successful price increases in the US.
Advanced Wound Management
Advanced Wound Management revenue growth was 3.8% (-1.3%
reported).
Advanced Wound Care revenue was up 3.3% (-4.4% reported)
including good growth from our infection management portfolio and a
strong quarter in Emerging Markets and Japan, Australia and New
Zealand.
Advanced Wound Bioactives revenue was up 2.4% (1.8% reported)
driven by our skin substitutes portfolio.
Advanced Wound Devices revenue was up 7.9% (0.9% reported),
reflecting continued strong growth from our PICO single-use
Negative Pressure Wound Therapy System .
First Half 2022 Consolidated Analysis
Smith+Nephew results for the first half ended 2 July 2022:
Reported
2022 2021 growth
$m $m %
--------------------------------------------------------- ------ ------ --------
Revenue 2,600 2,599 -
------ ------ --------
Operating profit 242 239 1
Acquisition and disposal related items 1 12
Restructuring and rationalisation costs 63 77
Amortisation and impairment of acquisition intangibles 105 87
Legal and other 29 44
------ ------ --------
Trading profit(i) 440 459 -4
------ ------ --------
c c
Earnings per share ('EPS') 20.2 23.4 -14
Acquisition and disposal related items (0.2) (2.2)
Restructuring and rationalisation costs 5.8 7.2
Amortisation and impairment of acquisition intangibles 9.4 7.7
Legal and other 2.9 2.7
------ ------ --------
Adjusted Earnings per share ('EPSA')(i) 38.1 38.8 -2
------ ------ --------
(i) See Other Information on pages 32 to 35
First Half 2022 Analysis
Our first half revenue was $2,600 million (H1 2021: $2,599
million), up 3.5% on an underlying basis and flat on a reported
basis, including a foreign exchange headwind of 350bps. The first
half comprised 127 trading days, one fewer than the equivalent
period in 2021.
The Group reported an operating profit of $242 million (H1 2021:
$239 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 $440 million in the first half (H1 2021: $459
million), with a trading profit margin of 16.9% (H1 2021: 17.6%).
The margin decline reflects higher input inflation in freight and
logistics, the impact of China VBP, as well as sales and marketing
expenditure levels returning to more normal levels (see Note 2 to
the Interim Financial Statements for global franchise trading
profit).
Restructuring costs, primarily related to the Operations and
Commercial Excellence programme, totalled $63 million in the first
half, with incremental benefits recognised of around $25
million.
Cash generated from operations was $227 million (H1 2021: $459
million) and trading cash flow was $154 million (H1 2021: $404
million) as we saw adverse working capital movements, driven
primarily from inventory including from spot buying of raw
materials and components to secure supply and mitigate the risk of
shortages, and as we continued to invest in capital expenditure,
including progressing changes to our manufacturing network (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 35% (H1 2021: 88%), which is
expected to improve in the second half of 2022 as inventory
balances stabilise and other working capital movements phase
out.
The net interest charge within reported results was $32 million
(H1 2021: $39 million) with the charge lower than prior year due to
debt repayments made in the second half of 2021 and the first half
of 2022. The Group's net debt, excluding lease liabilities, at 2
July 2022 was $2,197 million (see Note 7 to the Interim Financial
Statements) with committed facilities of $3.7 billion.
On 18 January 2022 the Group completed the acquisition of Engage
Uni, LLC (operating as Engage Surgical) for a provisional fair
value consideration of $131 million (see Note 6 to the Financial
Statements for further detail). The provisional fair value of
assets acquired included $44 million for intangible assets and $84
million for goodwill.
Our reported tax for the period ended 2 July 2022 was a charge
of $27 million (H1 2021: $18 million). The tax rate on trading
results for the period ended 2 July 2022 was 17.6% (H1 2021: 18.3%)
(see Note 4 to the Interim Financial Statements and Other
Information on pages 32 to 35 for further details on taxation).
Basic earnings per share ('EPS') was 20.2c (40.4c per ADS) (H1
2021: 23.4c per share). Adjusted earnings per share ('EPSA') was
38.1c (76.2c per ADS) (H1 2021: 38.8c per share).
Share Buyback
In December 2021 we announced an updated capital allocation
policy to prioritise the use of cash as follows:
1. Invest in innovation to drive organic growth, and to meet our
sustainability targets and further embed our ESG agenda
2. Acquire new technologies and expand in higher growth
segments, that have a strong strategic fit and meet our financial
criteria
3. Maintain investment grade credit metrics, our existing
progressive dividend policy, and an optimal balance sheet
position
4. Return surplus capital to shareholders through a regular
annual buyback, with circa $250 million to $300 million of buybacks
proposed in 2022
The share buyback commenced on 22 February 2022. To date $125
million of the 2022 buyback has been completed, with the 7.8
million shares repurchased representing 0.9% of our year end 2021
share count.
Interim Dividend
Consistent with previous periods, the interim dividend is set by
a formula and is equivalent to 40% of the total dividend for the
previous year. The interim dividend for the first half of 2022 is
therefore 14.4c per share (28.8c per ADS), in line with last year
(H1 2021: 14.4c per share). This equates to 12.0p per share at
prevailing exchange rates as of 22 July 2022. This dividend is
payable on 26 October 2022 to shareholders whose names appear on
the register at the close of business on 30 September 2022 (see
Note 5 to the Interim Financial Statements for further detail).
2022 Full Year Outlook
In February we announced our guidance for 2022 targeting
underlying revenue growth of 4.0% to 5.0% with an expansion in
trading profit margin of around 50bps for the full year.
Our revenue growth guidance for 2022 is unchanged at 4.0% to
5.0% (around
-0.2% to +0.8% o n a reported basis, including a foreign
exchange headwind of 420bps based on exchange rates prevailing on
22 July 2022). As previously disclosed we expect revenue growth to
be stronger in the second half than the first half of 2022.
In terms of trading profit margin, we now expect the trading
profit margin to be around 17.5%, reflecting prolonged impact of
the inflationary environment and continued external supply
challenges.
We expect the tax rate on trading results for 2022 to be around
18%, subject to any material changes to tax law, or other one-off
items.
Forward calendar
The Q3 Trading Report will be released on 3 November 2022.
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 18,000 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 franchises 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 2021.
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 Twitter , 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 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 health care 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 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 dispositions, 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; 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, 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 US Patent
and Trademark Office.
First Half Consolidated Revenue Analysis
2 July 3 July Reported Underlying Acquisitions Currency
2022 2021 growth Growth(i) /disposals impact
Consolidated revenue by franchise $m $m % % % %
------------------------------------- ------ ------ -------- ---------- ------------ --------
Orthopaedics 1,071 1,097 -2.3 0.7 - -3.0
-------------------------------------- ------ ------ -------- ---------- ------------ --------
Knee Implants 454 438 3.8 7.3 - -3.5
Hip Implants 298 315 -5.5 -2.2 - -3.3
Other Reconstruction(ii) 43 47 -8.3 -5.3 - -3.0
Trauma & Extremities 276 297 -7.1 -4.9 - -2.2
Sports Medicine & ENT 778 764 1.8 5.2 - -3.4
-------------------------------------- ------ ------ -------- ---------- ------------ --------
Sports Medicine Joint Repair 426 409 4.1 7.7 - -3.6
Arthroscopic Enabling Technologies 281 293 -4.1 -0.6 - -3.5
ENT (Ear, Nose and Throat) 71 62 14.2 16.1 - -1.9
Advanced Wound Management 751 738 1.7 5.8 - -4.1
-------------------------------------- ------ ------ -------- ---------- ------------ --------
Advanced Wound Care 360 361 -0.4 5.7 - -6.1
Advanced Wound Bioactives 252 247 2.0 2.3 - -0.3
Advanced Wound Devices 139 130 7.2 12.9 - -5.7
Total 2,600 2,599 - 3.5 - -3.5
-------------------------------------- ------ ------ -------- ---------- ------------ --------
Consolidated revenue by geography
------------------------------------- ------ ------ -------- ---------- ------------ --------
US 1,350 1,317 2.5 2.5 - -
Other Established Markets(iii) 778 831 -6.4 2.6 - -9.0
Total Established Markets 2,128 2,148 -0.9 2.6 - -3.5
Emerging Markets 472 451 4.5 7.8 - -3.3
Total 2,600 2,599 - 3.5 - -3.5
-------------------------------------- ------ ------ -------- ---------- ------------ --------
(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
2022 HALF YEAR CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Unaudited Group Income Statement for the Half Year ended 2 July
2022
Half year Half year
2022 2021
Notes $m $m
----------------------------------------------- ----- --------- ---------
Revenue 2 2,600 2,599
Cost of goods sold (773) (806)
------------------------------------------------ ----- --------- ---------
Gross profit 1,827 1,793
Selling, general and administrative expenses (1,411) (1,383)
Research and development expenses (174) (171)
------------------------------------------------ ----- --------- ---------
Operating profit 2 242 239
Interest income 3 3
Interest expense (35) (42)
Other finance costs (5) (9)
Share of results of associates (1) 10
Gain on disposal of interest in associate 3 - 22
------------------------------------------------ ----- --------- ---------
Profit before taxation 204 223
Taxation 4 (27) (18)
------------------------------------------------ ----- --------- ---------
Attributable profit(A) 177 205
------------------------------------------------ ----- --------- ---------
Earnings per share(A)
Basic 20.2c 23.4c
Diluted 20.2c 23.3c
------------------------------------------------ ----- --------- ---------
Unaudited Group Statement of Comprehensive Income for the Half
Year ended 2 July 2022
Half year Half year
2022 2021
$m $m
------------------------------------------------------------------------ --------- ---------
Attributable profit(A) 177 205
Other comprehensive income
Items that will not be reclassified to income statement
Remeasurement of net retirement benefit obligations 60 25
Taxation on other comprehensive income (15) (11)
------------------------------------------------------------------------- --------- ---------
Total items that will not be reclassified to income statement 45 14
------------------------------------------------------------------------- --------- ---------
Items that may be reclassified subsequently to income statement
Exchange differences on translation of foreign operations (99) (23)
Net gains on cash flow hedges 12 33
Taxation on other comprehensive income (1) (4)
------------------------------------------------------------------------- --------- ---------
Total items that may be reclassified subsequently to income statement (88) 6
------------------------------------------------------------------------- --------- ---------
Other comprehensive income for the period, net of taxation (43) 20
------------------------------------------------------------------------- --------- ---------
Total comprehensive income for the period(A) 134 225
------------------------------------------------------------------------- --------- ---------
A Attributable to the equity holders of the parent and wholly
derived from continuing operations.
Unaudited Group Balance Sheet as at 2 July 2022
2 July 31 December 3 July
2022 2021 2021
Notes $m $m $m
----------------------------------------------------------- ----- ------- ----------- -------
ASSETS
Non-current assets
Property, plant and equipment 1,460 1,513 1,453
Goodwill 3,022 2,989 2,991
Intangible assets 1,316 1,398 1,494
Investments 10 10 10
Investment in associates 185 188 136
Other non-current assets 15 15 26
Retirement benefit assets 170 182 156
Deferred tax assets 168 201 225
------------------------------------------------------------ ----- ------- ----------- -------
6,346 6,496 6,491
----------------------------------------------------------- ----- ------- ----------- -------
Current assets
Inventories 1,990 1,844 1,750
Trade and other receivables 1,219 1,184 1,212
Current tax receivable 34 106 93
Cash at bank 7 516 1,290 1,387
------------------------------------------------------------ ----- ------- ----------- -------
3,759 4,424 4,442
----------------------------------------------------------- ----- ------- ----------- -------
TOTAL ASSETS 10,105 10,920 10,933
------------------------------------------------------------ ----- ------- ----------- -------
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 175 177 177
Share premium 615 614 614
Capital redemption reserve 20 18 18
Treasury shares (106) (120) (140)
Other reserves (434) (346) (323)
Retained earnings 5,125 5,225 4,985
------------------------------------------------------------ ----- ------- ----------- -------
Total equity 5,395 5,568 5,331
------------------------------------------------------------ ----- ------- ----------- -------
Non-current liabilities
Long-term borrowings and lease liabilities 7 2,281 2,848 2,916
Retirement benefit obligations 67 127 151
Other payables 91 67 81
Provisions 41 35 197
Deferred tax liabilities 113 144 137
------------------------------------------------------------ ----- ------- ----------- -------
2,593 3,221 3,482
----------------------------------------------------------- ----- ------- ----------- -------
Current liabilities
Bank overdrafts, borrowings, loans and lease liabilities 7 612 491 650
Trade and other payables 1,013 1,096 1,046
Provisions 287 322 209
Current tax payable 205 222 215
------------------------------------------------------------ ----- ------- ----------- -------
2,117 2,131 2,120
----------------------------------------------------------- ----- ------- ----------- -------
Total liabilities 4,710 5,352 5,602
------------------------------------------------------------ ----- ------- ----------- -------
TOTAL EQUITY AND LIABILITIES 10,105 10,920 10,933
------------------------------------------------------------ ----- ------- ----------- -------
Unaudited Condensed Group Cash Flow Statement for the Half Year
ended 2 July 2022
Half year Half year
2022 2021
$m $m
-------------------------------------------------- --------- ---------
Cash flows from operating activities
Profit before taxation 204 223
Net interest expense 32 39
Depreciation, amortisation and impairment 309 294
Share of results of associates 1 (10)
Gain on disposal of interest in associate - (22)
Share-based payments expense (equity-settled) 23 23
Net movement in post-retirement obligations 2 (4)
Movement in working capital and provisions (344) (84)
--------------------------------------------------- --------- ---------
Cash generated from operations 227 459
Net interest and finance costs paid (33) (38)
Income taxes refunded/(paid) 13 (58)
--------------------------------------------------- --------- ---------
Net cash inflow from operating activities 207 363
--------------------------------------------------- --------- ---------
Cash flows from investing activities
Acquisitions, net of cash acquired (97) (259)
Capital expenditure (173) (175)
Purchase of investments - (1)
Distribution from associate 2 4
--------------------------------------------------- --------- ---------
Net cash used in investing activities (268) (431)
--------------------------------------------------- --------- ---------
Net cash outflow before financing activities (61) (68)
--------------------------------------------------- --------- ---------
Cash flows from financing activities
Proceeds from issue of ordinary share capital 1 2
Proceeds from own shares 5 4
Purchase of own shares (133) -
Payment of capital element of lease liabilities (27) (28)
Equity dividends paid (202) (203)
Cash movements in borrowings (357) (73)
Settlement of currency swaps 9 (4)
--------------------------------------------------- --------- ---------
Net cash used in financing activities (704) (302)
--------------------------------------------------- --------- ---------
Net decrease in cash and cash equivalents (765) (370)
Cash and cash equivalents at beginning of year 1,285 1,751
Exchange adjustments (8) (2)
--------------------------------------------------- --------- ---------
Cash and cash equivalents at end of period(B) 512 1,379
--------------------------------------------------- --------- ---------
B Cash and cash equivalents at the end of the period are net of
overdrafts of $4m (3 July 2021: $8m).
Unaudited Group Statement of Changes in Equity for the Half Year
ended 2 July 2022
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 profit(A) - - - - - 177 177
Other comprehensive income(A) - - - - (88) 45 (43)
Equity dividends paid - - - - - (202) (202)
Share-based payments recognised - - - - - 23 23
Taxation on share-based payments - - - - - (1) (1)
Purchase of own shares(C) - - - (133) - - (133)
Cost of shares transferred to
beneficiaries - - - 18 - (13) 5
Cancellation of treasury shares(C) (2) - 2 129 - (129) -
Issue of ordinary share capital - 1 - - - - 1
------------------------------------ ------- ------- ---------- -------- -------- -------- ------
At 2 July 2022 175 615 20 (106) (434) 5,125 5,395
------------------------------------ ------- ------- ---------- -------- -------- -------- ------
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 2021 177 612 18 (157) (329) 4,958 5,279
Attributable profit(A) - - - - - 205 205
Other comprehensive income(A) - - - - 6 14 20
Equity dividends paid - - - - - (203) (203)
Share-based payments recognised - - - - - 23 23
Taxation on share-based payments - - - - - 1 1
Cost of shares transferred to
beneficiaries - - - 17 - (13) 4
Issue of ordinary share capital - 2 - - - - 2
------------------------------------ ------- ------- ---------- -------- -------- -------- ------
At 3 July 2021 177 614 18 (140) (323) 4,985 5,331
------------------------------------ ------- ------- ---------- -------- -------- -------- ------
A Attributable to the equity holders of the parent and wholly derived from continuing operations.
C During the half year ended 2 July 2022 8.2m ordinary shares
were purchased at a cost of $133m and 7.8m shares were cancelled
(2021: no ordinary shares were purchased or 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 2021 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 2021.
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 continued uncertainty as to the future impact on the
financial performance and cash flows of the Group as a result of
the COVID pandemic has been considered as part of the Group's
adoption of the going concern basis for its Interim Financial
Statements for the period ended 2 July 2022, 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 2 July
2022 was $2,197 million (see Note 7) with committed facilities of
$3.7 billion. The Group has $50 million of private placement debt
due for repayment in the second half of 2022. EUR488 million of
term loans are due for repayment in the first half of 2023 and $105
million of private placement debt is due for repayment in the
second half of 2023. $1,210 million 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 COVID or other downturns 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 further waves of
restrictions on elective procedures. 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 2021. 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 2021 Annual
Report of the Group on pages 60-67.
Management has not identified a principal risk for COVID,
because the business continuity and business change risk includes a
risk for widespread outbreaks of infectious diseases. In addition,
management coordinated its response to COVID through a Crisis
Management Team that was convened within the existing business
continuity and incident management framework. Management also noted
that COVID is changing the nature of other principal risks.
Examples of these changes include, but are not limited to:
government restrictions on exports during a pandemic increase
supply risk; increased levels of remote working may increase
cybersecurity risk; financial pressure on governments and hospitals
caused by COVID increases the likelihood of pricing and
reimbursement risk; restrictions on elective surgery increase
commercial execution risk; and COVID has increased the risk to our
people's health and wellbeing.
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 2021. The Group's
statutory financial statements for the year ended 31 December 2021
have been delivered to the Registrar of Companies.
New accounting standards effective 2022
A number of new amendments to standards are effective from 1
January 2022 but they do not have a material effect on the Group's
financial statements.
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 2023 and
earlier application is permitted; however, the Group has not early
adopted them in preparing these Interim Financial Statements.
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 2 July 2022 were: valuation of inventories;
liability provisioning and impairment. These are consistent with 31
December 2021 and there has been no change in the methodology of
applying these critical estimates since the year ended 31 December
2021.
Management have considered the impact of the continuing
uncertainty from COVID:
Valuation of inventories
Management have assessed the continuing impact of COVID on the
provision for excess and obsolete inventory, specifically
considering the impact of lower sales demand and increased
inventory levels. Management have not changed their methodology for
calculating the provision since 31 December 2021, nor is a 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 $430 million at 31 December 2021 to
$483 million at 2 July 2022. The provision for excess and obsolete
inventory is not considered to have a range of potential outcomes
that is significantly different to the $483 million at 2 July
2022.
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 2022
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 considered whether there had been any changes to
the number and value of claims since 31 December 2021 due to COVID
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 2 July 2022 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:
. The impact of climate change on the going concern assessment
and the viability of the Group over the next three years;
a. The impact of climate change on the cash flow forecasts used
in the impairment assessments of non-current assets including
goodwill; and
b. 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
franchises and the chief operating decision maker monitors
performance, makes operating decisions and allocates resources on a
global franchise basis. Accordingly, the Group has concluded that
there are three reportable segments. Franchise presidents have
responsibility for upstream marketing, driving product portfolio
and technology acquisition decisions, and full commercial
responsibility for their franchises in the US. Regional presidents
in EMEA and APAC are responsible for the implementation of the
global franchise strategy in their respective regions.
The Executive Committee ('ExCo') comprises the Chief Financial
Officer ('CFO'), the franchise presidents, the regional presidents
and 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 franchises (Orthopaedics, Sports Medicine & ENT, and
Advanced Wound Management) and determines the best allocation of
resources to the franchises. 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.
P ayment 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
2022 2021
$m $m
---------------------------------- --------- ---------
Segment revenue
Orthopaedics 1,071 1,097
Sports Medicine & ENT 778 764
Advanced Wound Management 751 738
----------------------------------- --------- ---------
Revenue from external customers 2,600 2,599
----------------------------------- --------- ---------
Disaggregation of revenue
The following table shows the disaggregation of Group revenue by
product franchise:
Half year Half year
2022 2021
$m $m
------------------------------------- --------- ---------
Knee Implants 454 438
Hip Implants 298 315
Other Reconstruction 43 47
Trauma & Extremities 276 297
-------------------------------------- --------- ---------
Orthopaedics 1,071 1,097
-------------------------------------- --------- ---------
Sports Medicine Joint Repair 426 409
Arthroscopic Enabling Technologies 281 293
ENT (Ear, Nose & Throat) 71 62
-------------------------------------- --------- ---------
Sports Medicine & ENT 778 764
-------------------------------------- --------- ---------
Advanced Wound Care 360 361
Advanced Wound Bioactives 252 247
Advanced Wound Devices 139 130
-------------------------------------- --------- ---------
Advanced Wound Management 751 738
-------------------------------------- --------- ---------
Total 2,600 2,599
-------------------------------------- --------- ---------
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 franchises
are sold to wholesalers and intermediaries, while products in the
other franchises 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 franchises,
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 2022 Half year 2021
Established Established
Markets (D) Emerging Markets Total Markets (D) Emerging Markets Total
$m $m $m $m $m $m
----------------- ---------------- ---------------- ------ ---------------- ---------------- ------
Orthopaedics,
Sports Medicine
& ENT 1,474 375 1,849 1,495 366 1,861
Advanced Wound
Management 654 97 751 653 85 738
------------------ ---------------- ---------------- ------ ---------------- ---------------- ------
Total 2,128 472 2,600 2,148 451 2,599
------------------ ---------------- ---------------- ------ ---------------- ---------------- ------
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 $1,350 million (2021: $1,317 million), China
revenue for the half year was $166 million (2021: $183 million) and
UK revenue for the half year was $95 million (2021: $91
million).
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
2022 2021
$m $m
--------------------------------------------------------- --------- ---------
Segment profit
Orthopaedics 193 204
Sports Medicine & ENT 227 214
Advanced Wound Management 217 228
---------------------------------------------------------- --------- ---------
Segment trading profit 637 646
Corporate costs (197) (187)
---------------------------------------------------------- --------- ---------
Group trading profit 440 459
Acquisition and disposal related items (1) (12)
Restructuring and rationalisation expenses (63) (77)
Amortisation and impairment of acquisition intangibles (105) (87)
Legal and other (29) (44)
---------------------------------------------------------- --------- ---------
Group operating profit 242 239
---------------------------------------------------------- --------- ---------
Acquisition and disposal related items:
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.
For the half year ended 3 July 2021 costs primarily relate to
the acquisition and integration of the Extremity Orthopaedics
business of Integra LifeSciences Holdings Corporation ('Extremity
Orthopaedics') and prior year acquisitions.
Restructuring and rationalisation costs:
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.
For the half year ended 3 July 2021 these costs relate to the
implementation of the Accelerating Performance and Execution (APEX)
programme that was announced in February 2018 and the Operations
and Commercial Excellence programme that was announced in February
2020.
Amortisation and impairment of acquisition intangibles:
For both the half years ended 2 July 2022 and 3 July 2021
charges relate to the amortisation and impairment of intangible
assets acquired in material business combinations.
Legal and other:
For the half years ended 2 July 2022 and 3 July 2021 charges
relate to legal expenses for ongoing metal-on-metal hip claims.
These charges for the half year to 2 July 2022 were partially
offset by a credit of $7 million relating to insurance recoveries
for ongoing metal-on-metal hip claims.
The half years ended 2 July 2022 and 3 July 2021 also include
costs for implementing the requirements of the EU Medical Device
Regulation (MDR) which came into effect in May 2021.
3. Gain on disposal of interest in associate
For the half year ended 2 July 2022 no gain on disposal of
interest in associate was separately recorded (half year to 3 July
2021: $22 million) as no significant transactions took place which
impacted the Group's equity holding. At the period end, the Group's
shareholding was approximately 28.5%, slightly reduced from the
29.3% at 31 December 2021 due to the exercise of employee share
options.
4. Taxation
Tax rate
Our reported tax for the period ended 2 July 2022 was a charge
of $27 million, with an effective tax rate of 13.2% (H1 2021: $18
million, effective tax rate of 8.1%). The relatively low effective
rate of 8.1% in H1 2021 is explained by the non-taxable credit
relating to the Bioventus investment, and a one-off increase in
deferred tax assets resulting from the increase in the UK
corporation tax rate due to take effect from 1 April 2023.
OECD BEPS 2.0 - Pillar Two
The OECD Pillar Two Model Rules introduce a global minimum
corporate tax rate of 15% applicable to multinational enterprise
(MNEs) groups with global revenue over EUR750 million. All
participating OECD members are required to incorporate these rules
into national legislation. Substantial work remains to be completed
by the OECD and national governments on detailed implementation but
these rules are likely 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.
5. Dividends
The 2021 final dividend totalling $202 million was paid on 11
May 2022. The 2022 interim dividend of 14.4 US cents per ordinary
share was approved by the Board on 27 July 2022. This dividend is
payable on 26 October 2022 to shareholders whose names appear on
the register at the close of business on 30 September 2022. 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
10 October 2022. Shareholders may participate in the dividend
re-investment plan and elections must be made by 10 October
2022.
6. Acquisitions
Half year ended 2 July 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. This acquisition
strongly supports Smith+Nephew's Strategy for Growth by
transforming our business through innovation and acquisition, while
also providing differentiation for our customers.
The maximum consideration, all payable in cash, is $135 million
and the provisional fair value consideration is $131 million and
includes $32 million 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 provisional 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.
The cash outflow from acquisitions in H1 2022 of $97 million (H1
2021: $259 million) comprises payments of consideration of $89
million (H1 2021: $237 million) relating to acquisitions in the
current period and payments of deferred and contingent
consideration of $8 million (H1 2021: $22 million) relating to
acquisitions completed in prior periods.
The carrying value of goodwill increased from $2,989 million at
31 December 2021 to $3,022 million at 2 July 2022. The acquisition
in the half year ended 2 July 2022 increased goodwill by $84
million, this was partially offset by foreign exchange movements of
$51 million.
For the half year ended 2 July 2022 the contribution from Engage
Surgical to revenue and to profit was immaterial. If the business
combination had occurred at the beginning of the year the
contribution to revenue and profit would not have been materially
different.
Year ended 31 December 2021
On 4 January 2021, the Group completed the acquisition of the
Extremity Orthopaedics business of Integra LifeSciences Holdings
Corporation ('Extremity Orthopaedics'). The acquisition
significantly strengthens the Group's extremities business by
adding a
combination of a focused sales channel, complementary shoulder
replacement and upper and lower extremities portfolio, and a new
product pipeline. The transaction comprised the acquisition of the
entire issued share capital of two wholly owned US subsidiaries of
Integra LifeSciences Holdings Corporation group and certain assets
of the Extremity Orthopaedics business held both in and outside the
US. The maximum consideration is $240 million and the fair value of
consideration is $236 million and includes no deferred or
contingent consideration.
The goodwill represents the control premium, the acquired
workforce and the synergies expected from integrating Extremity
Orthopaedics into the Group's existing business, and is expected to
be partly deductible for tax purposes.
The fair value of assets acquired and liabilities assumed are
set out below:
Extremity Orthopaedics
$m
------------------------------------------- ----------------------
Intangible assets - Product-related 101
Intangible assets - Customer-related 11
Property, plant & equipment 22
Inventory 41
Other payables (23)
Net deferred tax liability (12)
-------------------------------------------- ----------------------
Net assets 140
Goodwill 96
-------------------------------------------- ----------------------
Consideration (net of nil cash acquired) 236
-------------------------------------------- ----------------------
The product-related intangible assets were valued using an
excess earnings methodology with the key inputs being revenue,
profit and discount rate.
7. Net debt
Net debt as at 2 July 2022 is outlined below. The repayment of
lease liabilities is included in cash flows from financing
activities in the cash flow statement.
2 July 31 December 3 July
2022 2021 2021
$m $m $m
---------------------------------------------------------- -------- ----------- --------
Cash at bank 516 1,290 1,387
Long-term borrowings (2,154) (2,707) (2,781)
Bank overdrafts, borrowings and loans due within one year (562) (435) (596)
Net currency swap asset 3 - -
Net interest rate swap asset - - 1
----------------------------------------------------------- -------- ----------- --------
Net debt (2,197) (1,852) (1,989)
----------------------------------------------------------- -------- ----------- --------
Non-current lease liabilities (127) (141) (135)
Current lease liabilities (50) (56) (54)
----------------------------------------------------------- -------- ----------- --------
Net debt including lease liabilities (2,374) (2,049) (2,178)
----------------------------------------------------------- -------- ----------- --------
The movements in the period were as follows:
Opening net debt as at 1 January (2,049) (1,926) (1,926)
Cash flow before financing activities (61) 186 (68)
Non-cash additions to lease liabilities (8) (53) (12)
Proceeds from issue of ordinary share capital 1 2 2
Proceeds from own shares 5 12 4
Purchase of own shares (133) - -
Equity dividends paid (202) (329) (203)
Exchange adjustments 73 59 25
----------------------------------------------------------- -------- ----------- --------
Net debt including lease liabilities (2,374) (2,049) (2,178)
----------------------------------------------------------- -------- ----------- --------
The Group has $50 million of private placement debt due for
repayment in the second half of 2022. EUR488 million of term loans
are due for repayment in the first half of 2023 and $105 million of
private placement debt is due for repayment in the second half of
2023.
8a. 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
------------------------------- ---------------------------
2 July 31 December 3 July 2 July 31 December 3 July
2022 2021 2021 2022 2021 2021 Fair value
$m $m $m $m $m $m level
----------------------------- -------- ----------- -------- ------ ----------- ------ ----------
Financial assets at fair
value
Forward foreign exchange
contacts 64 37 24 64 37 24 Level 2
Investments 10 10 10 10 10 10 Level 3
Contingent consideration
receivable 20 20 35 20 20 35 Level 3
Currency swaps 3 2 2 3 2 2 Level 2
Interest rate swaps - - 1 - - 1 Level 2
------------------------------ -------- ----------- -------- ------ ----------- ------
97 69 72 97 69 72
----------------------------- -------- ----------- -------- ------ ----------- ------
Financial assets not measured
at fair value
Trade and other receivables 1,057 1,046 1,054
Cash at bank 516 1,290 1,387
------------------------------ -------- ----------- --------
1,573 2,336 2,441
----------------------------- -------- ----------- --------
Total financial assets 1,670 2,405 2,513
------------------------------ -------- ----------- --------
Financial liabilities at fair
value
Acquisition consideration (100) (84) (121) (100) (84) (121) Level 3
Forward foreign exchange
contracts (34) (17) (21) (34) (17) (21) Level 2
Currency swaps - (2) (2) - (2) (2) Level 2
------------------------------ -------- ----------- -------- ------ ----------- ------
(134) (103) (144) (134) (103) (144)
----------------------------- -------- ----------- -------- ------ ----------- ------
Financial liabilities not
measured at fair value
Acquisition consideration (16) (7) (20)
Bank overdrafts (4) (5) (8)
Bank loans (508) (859) (900)
Corporate bond (993) (993) (993)
Private placement debt in a
hedge relationship - - (121)
Private placement debt not in
a hedge relationship (1,210) (1,285) (1,355)
Trade and other payables (954) (1,053) (963)
------------------------------ -------- ----------- --------
(3,685) (4,202) (4,360)
----------------------------- -------- ----------- --------
Total financial liabilities (3,819) (4,305) (4,504)
------------------------------ -------- ----------- --------
At 2 July 2022 the book value and market value of the corporate
bond were $993 million and $800 million respectively (31 December
2021: $993 million and $962 million). At 2 July 2022 the book value
and fair value of the private placement debt were $1,210 million
and $1,141 million respectively (31 December 2021: $1,285 million
and $1,316 million).
In 2020 the Group applied the interest rate benchmark reform
amendments retrospectively to hedging relationships that existed at
1 January 2020 or were designated thereafter and that are directly
affected by interest rate benchmark reform. The Group has a
revolving credit facility of $1,000 million and private placement
notes of $25 million which are subject to IBOR reform. In 2021 the
Group changed the interest rates on its revolving credit facility
to SOFR (Secured Overnight Financing Rate) with no material impact
arising. The Group expects that the interest rates for the private
placement notes will also be changed to SOFR and that no material
gain or loss will arise as a result.
There were no transfers between Levels 1, 2 and 3 during the
half year ended 2 July 2022 and the year ended 31 December 2021.
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 bond
issued in October 2020 is 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 2 July 2022 and the year
ended 31 December 2021 for financial instruments measured using
Level 3 valuation methods are presented below:
2 July 31 December
2022 2021
$m $m
------------------------------------ ------ -----------
Investments
At 1 January 10 9
Additions - 2
Fair value remeasurement - (1)
------------------------------------ ------ -----------
10 10
------------------------------------ ------ -----------
Contingent consideration receivable
At 1 January 20 37
Remeasurements - 1
Receipts - (18)
------------------------------------ ------ -----------
20 20
------------------------------------ ------ -----------
Acquisition consideration liability
At 1 January (84) (128)
Arising on acquisitions (32) -
Payments 8 23
Remeasurements 8 21
------------------------------------ ------ -----------
(100) (84)
------------------------------------ ------ -----------
8b. 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. These have increased
since 31 December 2021 by 180bps to 3.7% and 200bps to 4.7%
respectively. The remeasurement gain of $353m was partially offset
by a remeasurement loss of $293m from a decrease in asset
performances.
9. 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
2022 2021 2021
------------------- --------- --------- ---------
Average rates
------------------- --------- --------- ---------
Sterling 1.30 1.38 1.39
Euro 1.09 1.18 1.20
Swiss Franc 1.06 1.09 1.10
-------------------- --------- --------- ---------
Period end rates
------------------- --------- --------- ---------
Sterling 1.20 1.35 1.38
Euro 1.04 1.13 1.18
Swiss Franc 1.04 1.10 1.08
-------------------- --------- --------- ---------
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 2021
Annual Report.
By order of the Board:
Deepak Nath Chief Executive Officer 28 July 2022
Anne-Françoise Nesmes Chief Financial Officer 28 July 2022
INDEPENT REVIEW REPORT TO SMITH & NEPHEW PLC
Conclusion
We have been engaged by the company to review the condensed
consolidated set of financial statements in the interim financial
report for the period ended 2 July 2022 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 2 July 2022 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted for
use in the UK, IAS 34 Interim Financial Reporting as issued by the
International Accounting Standards Board 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
28 July 2022
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
2022 2021 growth growth & disposals impact
$m $m % % % %
---------------------------------- --------- --------- -------- ---------- ------------ -------
Segment revenue
Orthopaedics 1,071 1,097 (2.3) 0.7 - (3.0)
Sports Medicine & ENT 778 764 1.8 5.2 - (3.4)
Advanced Wound Management 751 738 1.7 5.8 - (4.1)
----------------------------------- --------- --------- -------- ---------- ------------ --------
Revenue from external customers 2,600 2,599 - 3.5 - (3.5)
----------------------------------- --------- --------- -------- ---------- ------------ --------
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 profit(1) tax(2) Taxation(3) profit(4) operations(5) per share(6)
$m $m $m $m $m $m c
------------------ ------- --------- ------ ----------- ------------------ ---------------- --------------
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
other(7) - 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
------------------- ------- --------- ------ ----------- ------------------ ---------------- --------------
Cash
Profit generated
Operating before Attributable from Earnings
per
Revenue profit(1) tax(2) Taxation(3) profit(4) operations(5) share(6)
$m $m $m $m $m $m c
------------------ ------- --------- -------- ----------- ----------------- ---------------- --------
Half year 2021
Reported 2,599 239 223 (18) 205 459 23.4
------------------- ------- --------- -------- ----------- ----------------- ---------------- --------
Acquisition and
disposal related
items - 12 (19) (1) (20) 15 (2.2)
Restructuring and
rationalisation
costs - 77 77 (14) 63 43 7.2
Amortisation and
impairment of
acquisition
intangibles - 87 87 (19) 68 - 7.7
Legal and
other(7) - 44 48 (24) 24 90 2.7
Lease liability
payments - - - - - (28) -
Capital
expenditure - - - - - (175) -
------------------ ------- --------- -------- ----------- ----------------- ---------------- --------
Half year 2021
Adjusted 2,599 459 416 (76) 340 404 38.8
------------------- ------- --------- -------- ----------- ----------------- ---------------- --------
(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
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.
For the half year ended 3 July 2021 costs primarily relate to
the acquisition and integration of the Extremity Orthopaedics
business of Integra LifeSciences Holdings Corporation ('Extremity
Orthopaedics') and prior year acquisitions.
Adjusted profit before tax for the half year ended 3 July 2021
additionally excludes g ains associated with the transaction
resulting in the dilution of the Group's shareholding in Bioventus
as detailed in Note 3 to the Interim Financial statements and
acquisition costs incurred by Bioventus.
Restructuring and rationalisation costs: 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.
For the half year ended 3 July 2021 these costs relate to the
implementation of the Accelerating Performance and Execution (APEX)
programme that was announced in February 2018 and the Operations
and Commercial Excellence programme that was announced in February
2020.
Amortisation and impairment of acquisition intangibles: For both
the half years ended 2 July 2022 and 3 July 2021 charges relate to
the amortisation and impairment of intangible assets acquired in
material business combinations.
Legal and other: For the half years ended 2 July 2022 and 3 July
2021 charges relate to legal expenses for ongoing metal-on-metal
hip claims. These charges for the half year to 2 July 2022 were
partially offset by a credit of $7 million relating to insurance
recoveries for ongoing metal-on-metal hip claims.
For the half year ended 3 July 2021 taxation also includes the
effect of an increase in deferred tax assets on non-trading items
resulting from the prospective UK tax rate increase from 19% to 25%
effective from 1 April 2023. Trading cash flow additionally
excludes $7 million of cash funding to closed defined benefit
pension schemes.
The half years ended 2 July 2022 and 3 July 2021 also include
costs for implementing the requirements of the EU Medical Device
Regulation (MDR) which came into effect in May 2021.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR FFFVIDAIDFIF
(END) Dow Jones Newswires
July 28, 2022 02:00 ET (06:00 GMT)
Smith & Nephew (LSE:SN.)
Graphique Historique de l'Action
De Mar 2024 à Avr 2024
Smith & Nephew (LSE:SN.)
Graphique Historique de l'Action
De Avr 2023 à Avr 2024
