Smith+Nephew Second Quarter and
First Half 2024 Results
12-Point Plan driving first half
revenue growth, trading margin expansion and stronger cash flow.
Full year guidance unchanged
1 August 2024
Smith+Nephew (LSE:SN, NYSE:SNN), the
global medical technology company, reports results for the second
quarter and first half ended 29 June 2024:
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29
June
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1
July
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Reported
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Underlying
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2024
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2023
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growth
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growth
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$m
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$m
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%
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%
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Second Quarter Results1,2
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Revenue
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1,441
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1,379
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4.6
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5.6
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Half Year Results1,2
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Revenue
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2,827
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2,734
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3.4
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4.3
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Operating profit
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328
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275
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19.5
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Operating profit margin
(%)
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11.6
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10.0
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EPS (cents)
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24.5
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19.7
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24.6
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Trading profit
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471
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417
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12.8
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Trading profit margin (%)
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16.7
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15.3
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EPSA (cents)
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37.6
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34.9
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7.7
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Q2
Trading Highlights1,2
·
Q2 revenue of $1,441 million (Q2 2023: $1,379
million), up 5.6% (4.6% on a reported basis including -100bps FX
headwind)
·
Orthopaedics revenue up 5.8% (4.9% reported), with
good growth across Hip and Knee Implants outside the US, Other
Reconstruction and Trauma & Extremities; further progress in
addressing performance in US Hip and Knee Implants
·
Sports Medicine & ENT up 7.6% (6.3% reported),
with strong growth across all segments; continued headwind from
China sports medicine VBP
·
Advanced Wound Management up 3.3% (2.3% reported),
returning to growth with all segments contributing
H1
Highlights1,2
·
H1 revenue of $2,827 million (H1 2023: $2,734
million), up 4.3% (3.4% on a reported basis including -90bps FX headwind)
·
Operating profit of $328 million (H1 2023: $275
million), up 19.5% reported
·
Trading profit up 12.8% to $471 million (H1 2023:
$417 million)
·
Trading profit margin expansion to 16.7% (H1 2023:
15.3%), around the top of our guided range, reflecting positive
operating leverage and 12-Point Plan benefits
·
Cash generated from operations $368 million (H1
2023: $215 million)
·
Significant improvement in trading cash flow
conversion at 60% (H1 2023: 26%), trading cash flow increased to
$284 million (H1 2023: $110 million)
·
Adjusted earnings per share ('EPSA') up 7.7% to
37.6¢ (H1 2023: 34.9¢). Basic earnings per share ('EPS') was 24.5¢
(H1 2023: 19.7¢)
·
Interim dividend of 14.4¢, in line with prior
year
Outlook1,2
·
2024 guidance unchanged: underlying revenue growth
expected in the range of 5.0% to 6.0% (4.4%
to 5.4% reported), and trading profit
margin expected to be at least 18.0%
·
Midterm targets unchanged
Strategic Highlights1,2
·
12-Point Plan benefits driving improved financial
performance:
o Orthopaedics turnaround delivering strong results across
Trauma & Extremities, Other Reconstruction and Hip and Knee
Implants outside of the US. Performance from Hip and Knee Implants
in the US expected to improve through the second half of
2024
o Productivity improvements supporting trading margin expansion;
further savings identified
o Advanced Wound Management and Sports Medicine & ENT on
track for another year of strong growth
·
Sustained high cadence of new product launches to
drive future higher growth
Deepak Nath,
Chief Executive Officer, said:
"Today's results are further evidence of the
good progress we are making transforming Smith+Nephew into a higher
growth and more profitable business.
"Across the majority of
Orthopaedics, which was our underperforming business unit, we are
now consistently achieving growth rates well above historical
levels. The methods we employed in achieving these successes give
me confidence that we will also turn around US Hip and Knee
Implants and we expect to see a step up through the second half of
the year.
"Our investment in innovation
continues to deliver. In the first half of 2024, we delivered
several major launches and product enhancements. For example, we
continued to expand our CORI◊ Surgical System, which is
now a recognised leader in robotics-assisted surgery. We also
achieved full commercial launch of our AETOS◊ Shoulder
System, addressing one of the fastest growing segments in
Orthopaedics, and US regulatory approval for our new
CATALYSTEM◊ Hip System.
"Our progress is also showing
through in our double-digit trading profit growth and margin
expansion, driven by positive operating leverage and efficiency
initiatives. I am pleased to see this profit growth translate into
cash flow, with our first-half trading cash flow up more than 150%
year-on-year.
"Our
guidance for the full year remains unchanged. There is still more
work to be done and we expect to see further progress in the second
half of the year."
Analyst conference call
An analyst conference call to discuss
Smith+Nephew's second quarter and first half results will be held
today at 8.30am BST /
3.30am EDT, details of which are available on the Smith+Nephew
website at https://www.smith-nephew.com/en/who-we-are/investors.
Enquiries
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Investors
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Andrew Swift
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+44 (0) 1923 477433
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Smith+Nephew
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Media
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Charles Reynolds
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+44 (0) 1923 477314
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Smith+Nephew
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Susan Gilchrist / Ayesha
Bharmal
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+44 (0) 20 7404 5959
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Brunswick
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Notes
1. Unless
otherwise specified as 'reported' all revenue growth throughout
this document is 'underlying' after adjusting for the effects of
currency translation and including the comparative impact of
acquisitions and excluding disposals. All percentages compare to
the equivalent 2023 period.
'Underlying revenue growth'
reconciles to reported revenue growth, the most directly comparable
financial measure calculated in accordance with IFRS, by making two
adjustments, the 'constant currency exchange effect' and the
'acquisitions and disposals effect', described below. See Other
Information on pages 33 to 37 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 33 to 37 and are reconciled to the most
directly comparable financial measures prepared in accordance with
IFRS. Reported results represent IFRS financial measures as shown
in the Condensed Consolidated Interim Financial
Statements.
Smith+Nephew Second Quarter Trading and First Half 2024
Results
Stepping up performance and meeting our
commitments
Smith+Nephew delivered second
quarter revenue of $1,441 million (Q2 2023: $1,379 million), up
5.6% on an underlying basis. On a reported basis, revenue growth
was 4.6%, including a translational foreign exchange headwind of
-100bps. Our second quarter trading performance improved from the
first quarter, as expected, with positive growth across all three
business units.
First half revenue was $2,827
million (H1 2023: $2,734 million), up 4.3% on an underlying basis,
and 3.4% on a reported basis including a translational foreign
exchange headwind of -90bps.
Trading profit for the first half
was up 12.8% on a reported basis to $471 million
(H1 2023: $417 million). The trading profit margin expansion to
16.7% (H1 2023: 15.3%) was around the top end of our guided range,
driven by positive operating leverage and 12-Point Plan
productivity improvements. The operating profit was $328 million
(H1 2023: $275 million). Cash generated from operations was $368
million (H1 2023: $215 million) and trading cash flow increased to
$284 million (H1 2023: $110 million), with 60% trading cash
conversion (H1 2023: 26%). This is a significant improvement on the
prior year, and trading cash conversion is expected to return to
historical levels of around 85% for the full year.
12-Point Plan driving improved performance
In 2022, we announced our 12-Point
Plan to fundamentally change the way we operate and transform
business performance. We continue to make significant progress
across our workstreams, which is translating into improved
financial performance, with more benefits expected to come through
in the second half of 2024 and beyond.
The first area of focus for the
12-Point Plan is fixing
Orthopaedics, to regain momentum across hip and knee
implants, robotics and trauma, and win share with our
differentiated technology.
Progress has been made in the key
areas that had been holding back performance. We had dramatically
improved implant availability by the end of 2023 and, by the end of
the second quarter of 2024, instrument set availability as well.
Both were far below industry standards at the start of the 12-Point
Plan, and are now at or above target levels. We are confident that
we are on the right path to reduce Days Sales of Inventory (DSI),
and after an initial build-up of inventory to support product
launches in the early part of 2024, we were starting to see DSI
reduce as we exited the first half.
In terms of commercial execution, we
have turned around our Trauma business, which is now a significant
growth driver built upon our new EVOS◊ Plating System,
and we have entered a high growth category in Orthopaedics with the
launch of the AETOS Shoulder System. We have strengthened our
position in robotics, growing the installed base, including a
record quarter of US sales in the second quarter across a wide
customer base, including academic medical centres and Ambulatory
Surgery Centers (ASCs). We have also made significant progress
simplifying our portfolio, with a third of our global hip and knee
brands now phased out.
As a result of the 12-Point Plan, we
are now delivering higher growth from our Orthopaedics business
unit, driven by reconstruction outside of the US, robotics and
Trauma.
The improvement has been slower to
come through in the US but there are encouraging signs of progress.
The new leadership, appointed at the end of the first quarter, has
proven US commercial turnaround experience. Customer service and
satisfaction have improved, new growth-orientated incentive plans
have been rolled out and employee turnover has returned to
low-levels. Important key product launches have been delivered,
including ten new features on our CORI Surgical System since 2022.
We are confident that this last remaining underperforming area of
the business, representing around 15% of the Group as a whole, is
set to deliver an improving performance through the second half of
2024.
The second area of focus for the
12-Point Plan is improving
productivity, to support trading profit margin
expansion.
Since the start of the plan, we have
driven portfolio pricing and made significant procurement savings
to help mitigate cost inflation. Our manufacturing optimisation
workstream is progressing, with the benefits from network
simplification and cost and asset efficiencies expected to support
our mid-term margin improvement targets. Our drive to reduce
conversion cost, which is total direct and indirect cost to convert
raw materials into finished goods as a percentage of sales, is
ahead of target. From a network perspective we are reducing excess
capacity, having announced the closure of four smaller orthopaedics
facilities.
Our progress across these
workstreams has been solid, contributing around 160bps to our 2023
full year trading profit margin and around 190bps to the 2024 first
half trading profit margin, offsetting significant margin headwinds
including from inflation and China VBP.
We continue to seek opportunities to
make our business more efficient, offsetting ongoing margin
headwinds such as persistent inflation,
foreign exchange movements and China VBP.
Building on the existing work of the 12-Point Plan, we have
identified further saving opportunities. Including the initial $200
million of 12-Point Plan savings announced in 2023, total saving
opportunities are now between $325 million and $375 million, phased
from 2023 through to 2027. These savings are across all areas of
our business, from manufacturing and procurement to warehouse and
distribution, to business support and sales and marketing. There
are over 40 initiatives, across seven workstreams, embedded into
our future plans. These savings initiatives will contribute to
delivering our commitment to expanding our trading profit margin in
2024 and 2025.
The third and final area of focus
for the 12-Point Plan is further
accelerating growth in our already well-performing Advanced
Wound Management and Sports Medicine & ENT business units.
These businesses, which together represent around 60% of Group
revenue, have multi-year track records of market
out-performance.
Through the 12-Point Plan we have
brought additional resource to support expansion of our
Negative Pressure Wound Therapy business,
and delivered a major new platform in
RENASYS◊ EDGE.
We have also accelerated
cross-business unit deals between our Orthopaedics and Sports
Medicine businesses. Under the 12-Point Plan we have developed a
coordinated approach overseen by a dedicated strategic sales team
targeting ASCs. The pace of cross division deals has more than
trebled since 2022, and the total number of deals closed in the
first half was ahead of our target.
In July we announced an exclusive
partnership with Healthcare Outcomes Performance Company (HOPCo), a
leader in musculoskeletal (MSK) value-based care and outcomes
management to support ASC customers across our Orthopaedic and
Sports Medicine businesses with digital health and AI-powered
analytics platforms. Planned integration with intraoperative data
from our CORI Surgical System will provide surgeons and healthcare
providers with enhanced analytics enabling personalised surgical
planning, intra-operative decision-making, and PROMS tracking and
optimisation.
Improving organisational effectiveness
In 2023, we reorganised our global
commercial operating model around our three business units of
Orthopaedics, Sports Medicine & ENT, and Advanced Wound
Management in order to drive more agile decision making and greater
accountability. We have started to see the benefits of this
move.
Annual central corporate
costs in 2023, covering Finance, IT, Human Resources, Global
Business Services and Legal (as well as other central departments),
were $403 million. Following the reorganisation, from the second
half of 2024 central costs directly attributable to business units
will be directly allocated to each business unit, with the
objective of driving greater business unit accountability and
efficiency. A small proportion of the corporate costs will continue
to be held centrally, reflecting the centralised infrastructure
required to support the Group and run a public limited
company.
Sustaining our high cadence of innovation
Our investment in innovation is
another major driver of our sustained higher revenue growth. In
2023 almost half of our growth came from products launched in the
last five years. In the first half of 2024 we continued to expand
our portfolio with major new platforms and product enhancements
that address unmet clinical needs and support our higher growth
ambitions.
In Orthopaedics, we continued to expand
our portfolio, including new implant systems for hips and shoulder,
and building out our robotics-assisted CORI Surgical
System.
We announced 510(k) clearance for
the CATALYSTEM Primary Hip System. The system is designed to
address the evolving demands of primary hip surgery including the
increased adoption of anterior approach procedures and the
expanding role of ASCs. Commercial launch is scheduled for the
second half of 2024.
We announced new
CORIOGRAPH◊ Pre-Operative Planning and Modeling
Services, making CORI the only orthopaedic robotic-assisted system
to offer either intraoperative image-free or image-based
registration for knee implants, enabling the surgeon to choose
whether or not to perform a pre-operative MRI scan. This is one of
a number of distinct features for CORI, including supporting
revision knee procedures and offering both burr and saw cutting
options.
We moved to full commercial launch
of the AETOS Shoulder System in the US, and announced 510(k)
clearance for its use with ATLASPLAN◊ 3D Planning
Software and Patient Specific Instrumentation for total shoulder
arthroplasty. AETOS will enable Smith+Nephew to compete effectively
in the $1.7 billion shoulder market, which, at around 9% CAGR, is
one of the fastest growing segments in Orthopaedics.
In Sports Medicine, we completed the
acquisition of CartiHeal, the developer of the CARTIHEAL
AGILI-C◊ Cartilage Repair Implant, a novel sports
medicine technology for cartilage regeneration in the knee. The
integration of the CARTIHEAL AGILI-C business is on track,
including progress across sales force training, medical education
and reimbursement.
We continue to invest behind our
Arthroscopic Enabling Technology. During the second quarter we
introduced the INTELLIO◊ SHIFT System, which combines
our leading COBLATION◊ and DYONICS◊ resection
technologies into a single controller and a multifunctional foot
pedal, simplifying the operating room experience for
surgeons. We also launched an updated INTELLIO cart, updated
software for the INTELLIO Tablet, which serves as both a control
device and image storage for the INTELLIO Tower, and introduced the
EVO◊ 4K Image Management System.
In ENT, we launched the ARIS◊
COBLATION Turbinate Reduction Wand. This utilises Smith+Nephew's
advanced COBLATION Plasma Technology to provide a minimally
invasive way to reduce hypertrophic turbinates, a condition that
requires 350,000 procedures per annum in the US.
In Advanced Wound Management, we launched
the RENASYS EDGE Negative Pressure Wound Therapy System. This is
designed to reduce inefficiency and complexity and features an
improved user interface for enhanced intuitiveness and simplicity
and a durable pump built to offer virtually maintenance-free use.
The launch commenced in the US and will be expanded to Europe in
the second half.
We also continued our high cadence
of incremental innovation in skin substitutes, with the launch of
GRAFIX◊ PLUS in the second quarter, an easier-to-handle
new version in our lead product family, targeting the growing
post-acute market.
Second quarter 2024 trading update
Our second quarter revenue was
$1,441 million (Q2 2023: $1,379 million), up 5.6% year-on-year on
an underlying basis. On a reported basis this represented growth of
4.6%, including a translational -100bps headwind from foreign
exchange (primarily due to the strength of the US Dollar). The
second quarter comprised 64 trading days, one more than the
equivalent period in 2023.
Consolidated revenue analysis for the second
quarter
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29
June
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1
July
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Reported
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Underlying
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Acquisitions
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Currency
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2024
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2023
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growth
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growth(i)
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/disposals
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impact
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Consolidated revenue by business unit by
product
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$m
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$m
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%
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%
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%
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%
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Orthopaedics
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581
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554
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4.9
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5.8
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-
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(0.9)
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Knee Implants
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240
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238
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1.0
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2.1
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-
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(1.1)
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Hip Implants
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156
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152
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2.8
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4.0
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-
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(1.2)
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Other
Reconstruction(ii)
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32
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27
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17.1
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17.8
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-
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(0.7)
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Trauma & Extremities
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153
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137
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11.4
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11.8
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-
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(0.4)
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Sports Medicine & ENT
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448
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|
422
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6.3
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|
7.6
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|
-
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(1.3)
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Sports Medicine Joint
Repair
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239
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|
229
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4.7
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6.0
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-
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(1.3)
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Arthroscopic Enabling
Technologies
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155
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145
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7.3
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8.7
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-
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(1.4)
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ENT (Ear, Nose and
Throat)
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54
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48
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10.8
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11.6
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-
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(0.8)
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|
|
|
|
|
|
|
|
|
|
|
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Advanced Wound Management
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412
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|
403
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2.3
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3.3
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-
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(1.0)
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|
Advanced Wound Care
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183
|
|
181
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1.6
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3.0
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-
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(1.4)
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Advanced Wound Bioactives
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139
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|
138
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0.7
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0.7
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-
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-
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Advanced Wound Devices
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90
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|
84
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6.6
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8.0
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-
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(1.4)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total
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1,441
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1,379
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4.6
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5.6
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-
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(1.0)
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|
|
|
|
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|
|
|
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Consolidated revenue by geography
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US
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760
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734
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3.6
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3.6
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-
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-
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Other Established
Markets(iii)
|
|
421
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403
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4.4
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6.9
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-
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(2.5)
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Total Established Markets
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1,181
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1,137
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3.9
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4.8
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-
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(0.9)
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Emerging Markets
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260
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|
242
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|
7.6
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9.5
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|
-
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(1.9)
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|
Total
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1,441
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1,379
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4.6
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5.6
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-
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(1.0)
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(i) Underlying growth
is defined in Note 1 on page 3
(ii) Other Reconstruction
includes robotics capital sales, our joint reconstruction business
and cement
(iii) Other Established Markets are
Europe, Canada, Japan, Australia and New Zealand
Orthopaedics
Revenue from our Orthopaedics business unit was up 5.8%
(4.9% reported) in the second quarter, driven by our actions to
improve operational performance.
Knee Implants grew 2.1% (1.0%
reported) and Hip Implants
grew 4.0% underlying (2.8% reported).
In Knee Implants, growth was driven
by our cementless, revision and partial knee systems and Hip growth
was led by our POLAR3◊ Total Hip Solution and
R3◊ Acetabular System.
We continue to deliver strong growth
outside of the US across both segments, even against tougher
comparative periods, with underlying growth of 6.6% in Knee
Implants and 7.7% in Hip Implants in the second quarter. In the US,
Knees declined
-1.7% while Hips returned to growth, up 1.0%. As stated above, we
have made good progress with the remaining operational and
commercial challenges in the US and expect performance to improve
through the second half of the year.
Other Reconstruction revenue
growth was 17.8% (17.1% reported), led by the strongest quarter of
US sales yet from our robotics-assisted CORI Surgical System,
including into both academic medical centres and ASCs.
Trauma & Extremities revenue growth was 11.8% (11.4% reported), with double-digit
growth in the US led by the EVOS Plating System. The launch of the
new AETOS Shoulder System is progressing well.
Sports Medicine & ENT
Sports Medicine & ENT delivered revenue growth of 7.6% (6.3% reported). Excluding
China, Sports Medicine & ENT grew 11.0% on an underlying basis
(9.9% reported). Here the sector faces a headwind from the Volume
Based Procurement (VBP) programme in China, which commenced in May
2024, with 29 of 31 Provinces having implemented by quarter end. We
expect the VBP headwind to persist throughout the second half of
the year.
Sports Medicine Joint Repair revenue was up 6.0% (4.7% reported) with good growth across
our knee repair portfolio and strong double-digit growth from our
REGENETEN◊ Bioinductive Implant. Excluding China, Sports
Medicine Joint Repair grew 11.8% underlying (10.7%
reported).
Arthroscopic Enabling Technologies revenue grew 8.7% (7.3% reported), driven by our
WEREWOLF◊ FASTSEAL COBLATION system fluid management,
and better video capital sales on improved third-party supply, as
expected.
ENT revenue was up 11.6% (10.8%
reported), reflecting strong tonsil and adenoid procedure
volumes.
Advanced Wound Management
Advanced Wound Management revenue growth was 3.3% (2.3% reported).
Advanced Wound Care revenue was
up 3.0% (1.6% reported), including good growth from our foams and
infection management portfolios and a strong quarter in the Middle
East and Emerging Markets.
Advanced Wound Bioactives revenue was up 0.7% (0.7% reported). Growth came from a
sequential recovery in SANTYL◊, along with a more
normalised prior year comparator. As previously stated,
quarter-to-quarter variability has been a long-term feature of
SANTYL, and we expect further improvement for the rest of the year.
Offsetting SANTYL was a slower second quarter for skin substitute
product GRAFIX, ahead of the launch of GRAFIX PLUS.
Advanced Wound Devices revenue
was up 8.0% (6.6% reported), led by strong growth from our
single-use PICO◊ Negative Pressure Wound Therapy System,
LEAF◊ Patient Monitoring System and VERSAJET◊
Hydrosurgery System.
Growth by Region
Revenue growth in our Established
Markets was up 4.8% (3.9% reported). Within this, the US delivered
3.6% revenue growth (3.6% reported) and Other Established Markets
6.9% revenue growth (4.4% reported). Emerging Markets revenue was
up 9.5% (7.6% reported), with strong double-digit growth across the
Middle East, India and Latin America.
First Half 2024 Consolidated Analysis
Smith+Nephew results for the first
half ended 29 June 2024:
|
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
Reported
|
|
|
|
|
2024
|
|
2023
|
|
growth
|
|
|
|
|
$m
|
|
$m
|
|
%
|
|
|
Revenue
|
|
2,827
|
|
2,734
|
|
3.4
|
|
|
Operating profit
|
|
328
|
|
275
|
|
19.5
|
|
|
Acquisition and disposal related
items
|
|
-
|
|
(17)
|
|
|
|
|
Restructuring and rationalisation
costs
|
|
62
|
|
46
|
|
|
|
|
Amortisation and impairment of
acquisition intangibles
|
|
87
|
|
102
|
|
|
|
|
Legal and other
|
|
(6)
|
|
11
|
|
|
|
|
Trading profit(i)
|
|
471
|
|
417
|
|
12.8
|
|
|
|
|
¢
|
|
¢
|
|
|
|
|
Earnings per share ('EPS')
|
|
24.5
|
|
19.7
|
|
|
|
|
Acquisition and disposal related
items
|
|
0.2
|
|
0.1
|
|
|
|
|
Restructuring and rationalisation
costs
|
|
5.8
|
|
4.6
|
|
|
|
|
Amortisation and impairment of
acquisition intangibles
|
|
7.8
|
|
9.1
|
|
|
|
|
Legal and other
|
|
(0.7)
|
|
1.4
|
|
|
|
|
Adjusted Earnings per share
('EPSA')(i)
|
|
37.6
|
|
34.9
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
(i) See Other Information on pages 33 to
37
First Half 2024 Analysis
Our first half revenue was $2,827
million (H1 2023: $2,734 million), up 4.3% on an underlying basis
and up 3.4% on a reported basis, including a translational foreign
exchange headwind of -90bps. The first half comprised 127 trading
days, in line with the equivalent period in 2023.
Operating profit was $328 million
(H1 2023: $275 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 33 to
37).
Trading profit for the first half
was up 12.8% on a reported basis to $471 million (H1 2023: $417
million). The trading profit margin strengthened by 140bps to 16.7%
(H1 2023: 15.3%), driven by positive operating leverage from
revenue growth and productivity improvements and cost saving
initiatives from the 12-Point Plan which more than offset headwinds
from continuing inflation, China VBP within Sports Medicine Joint
Repair, transactional foreign exchange and the acquisition of
CartiHeal (see Note 2 to the Interim Financial Statements for
global business unit trading profit).
Restructuring costs related to the
efficiency and productivity work underway across the Group totalled
$62 million (see Note 2 to the Interim Financial Statements). Going
forward, and beyond the guided total restructuring costs of around
$275 million associated with the 12-Point Plan, restructuring costs
are anticipated to be significantly lower.
The business is increasingly focused
on cash and working capital improvement. Cash generated from
operations was $368 million (H1 2023: $215 million) and trading
cash flow was $284 million (H1 2023: $110 million), with the year
on year increase primarily driven by favourable working capital
movement (see Other Information on pages 33 to 37 for a
reconciliation between cash generated from operations and trading
cash flow). The trading profit to cash conversion ratio was 60% in
the first half, significantly better than the prior year period (H1
2023: 26%), and is expected to return to historical levels of
around 85% for the full year due to the expected continued
improvement in working capital. Free cash flow of $39 million (H1
2023: outflow of $82m) reflects the better trading cash conversion,
partially offset by restructuring costs related to the 12-Point
Plan.
Of particular focus is our work on
inventory. After an initial build-up of inventory to support
product launches in the early part of the year, we are starting to
see DSI across Orthopaedics and Advanced Wound Management reduce,
and stabilise in Sports Medicine & ENT. In particular, our
overall 'Inventory Health' is improving, with a significant
reduction in the number of units of slow-moving SKUs in
Orthopaedics, by around 9% since the start of 2024. Our improved
Sales, Inventory and Operations Planning process, introduced in
2023 as part of the 12-Point Plan, has been an important enabler of
this reduction.
There remains a significant amount
of work to do to reduce inventory levels and given this and the
relatively slow churn of some products, reduction in absolute
inventory levels will take time. Nonetheless, we expect to see a
material reduction in our DSI by 10-15% by year-end, with absolute
inventory levels being slightly down year-on-year.
The net interest charge within
reported results was $61 million (H1 2023: $44 million), with the
change due to an increase in net debt year on year and an increase
in the overall weighted average interest rate given the prevailing
higher rate environment. The Group's net debt, including lease
liabilities, increased from $2,776 million at 31 December 2023 to
$3,086 million at 29 June 2024 mainly due to the CartiHeal
acquisition of around $180 million and payment of the final
dividend ($202 million), partially netted off by free cash flow
generated of $39 million (see Note 6 to the Interim Financial
Statements), with committed facilities of $4.5 billion. The net
debt to adjusted EBITDA ratio at the half year was 2.2x. We expect
this ratio to be around 2.0x at year-end.
Our reported tax for the period
ended 29 June 2024 was a charge of $39 million (H1 2023: $39
million). The first half tax rate on trading results of 17.8% (H1
2023: 17.4%) was calculated using full year projections, applied to
trading profits for the first half and includes non-recurring tax
credits arising in this period. The applicable rate of corporate
income tax has been applied to the actual non-trading items in the
period on an item-by-item basis. See Note 3 to the Interim
Financial Statements and Other Information on pages 33 to 37 for
further details on taxation.
Basic earnings per share ('EPS') was
24.5¢ (49.0¢ per ADS) (H1 2023: 19.7¢ per share). Adjusted earnings
per share ('EPSA') was 37.6¢ (75.2¢ per ADS) (H1 2023: 34.9¢ per
share).
Interim Dividend
The interim dividend is 14.4¢ per
share (28.8¢ per ADS), in line with 2023. This dividend is
payable on 8 November 2024 to shareholders whose names appear on
the register at the close of business on 4 October 2024 (see Note 4
to the Interim Financial Statements for further detail).
Capital Allocation Framework
Reflecting the progress made under
the 12-Point Plan and the improving outlook for the Group, we are
today announcing an updated Capital Allocation Framework, which we
use to prioritise the use of cash and inform our investment
decisions.
Our first priority remains investing
in the business to drive organic growth and meet our sustainability
targets.
There is increasing visibility and
focus on improving our Return on Invested Capital (ROIC) at the
business unit level through allocation of central costs and our
drive to improve working capital. In particular, there is an
opportunity to improve ROIC for our Orthopaedics business unit,
hence improving ROIC at a Group level. We anticipate improved
returns year-on-year at the end of 2024, with more to come in 2025
and beyond. We will continue to prioritise investment in those
areas where we expect to see the highest incremental returns on
invested capital.
The second priority is also
unchanged, and is to invest in acquisitions, targeting new
technologies in high growth segments with strong strategic fit that
meet our financial criteria.
Our first two priorities will ensure
continued investment in innovation and sustained higher revenue
growth.
The third priority is to maintain an
optimal balance sheet and appropriate dividend. Here we will
continue to target investment grade credit ratings. We are updating
our target leverage ratio to around 2x net debt to adjusted EBITDA
(previously 2.0x to 2.5x). We have a progressive dividend policy
and from 2025 onwards we expect a payout of around 35% to 40% of
EPSA. The interim payment will be 40% of the prior full year. We
expect the 2024 total dividend to be flat year-on-year.
Our final priority remains to return
any surplus capital to shareholders, via a share buyback subject to
the above balance sheet metrics.
Outlook
Our guidance for 2024 is
unchanged.
For revenue, we expect to deliver
another year of strong growth in the range of 5.0% to 6.0%
underlying. On a reported basis the guidance equates to a range of
around 4.4% to 5.4% based on exchange rates prevailing on 26 July
2024.
We expect higher revenue growth in
the second half than the first. Within this, we expect a stronger
second half from Orthopaedics, underpinned by an improvement in US
Hip and Knee Implants. We expect Sports Medicine to continue to
deliver strong growth outside of China, with VBP remaining a
headwind. ENT growth will reflect a strong H2 2023 comparator. We
expect an improvement in Advanced Wound Management with further
growth recovery from Advanced Wound Bioactives. In terms of
phasing, there are two additional trading days in the fourth
quarter over the same prior year period, albeit we expect the
impact of these additional days to be less than proportionate given
their timing.
We expect to expand our trading
profit margin to at least 18.0%. Within this, headwinds include
continuing inflation, a -70bps impact from China VBP within Sports
Medicine Joint Repair, and around -50bps from foreign exchange,
plus a small impact from the acquisition of CartiHeal. We expect to
more than offset these headwinds through positive operating
leverage from revenue growth and productivity improvements and cost
saving initiatives from the 12-Point Plan.
As in prior years, we expect the
trading profit margin to be higher in the second half than in the
first half, although with a less marked step up than in
2023.
The tax rate on trading results for
2024 is forecast to be in the range of 19% to 20%, subject to any
material changes to tax law or other one-off items.
Midterm targets
Our midterm targets are
unchanged. The Group is focused on delivering underlying
revenue growth of consistently 5%+ and expanding our trading profit
margin.
We continue to target at least 20%
trading profit margin in 2025. While headwinds such as persistent
inflation, foreign exchange movements and China VBP in Sports
Medicine Joint Repair make that a demanding target, we do expect to
see an increasing impact from the 12-Point Plan, including the
benefits of our manufacturing optimisation programme and other
productivity improvements, which are expected to flow through in
2025.
Forward calendar
The Q3 Trading Report will be
released on 31 October 2024.
About Smith+Nephew
Smith+Nephew is a portfolio medical
technology business focused on the repair, regeneration and
replacement of soft and hard tissue. We exist 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 business units of Orthopaedics, Sports
Medicine & ENT and Advanced Wound Management.
Founded in Hull, UK, in 1856, we now
operate in more than 100 countries, and generated annual sales of
$5.5 billion in 2023. 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
X,
LinkedIn,
Instagram
or Facebook.
Forward-looking
statements
This document may contain forward-looking statements that may
or may not prove accurate. For example, statements regarding
expected revenue growth and trading profit margins, market trends
and our product pipeline are forward-looking statements. Phrases
such as "aim", "plan", "intend", "anticipate", "well-placed",
"believe", "estimate", "expect", "target", "consider" and similar
expressions are generally intended to identify forward-looking
statements. Forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause
actual results to differ materially from what is expressed or
implied by the statements. For Smith+Nephew, these factors include:
conflicts in Europe and the Middle East, economic and financial
conditions in the markets we serve, especially those affecting
healthcare providers, payers and customers; price levels for
established and innovative medical devices; developments in medical
technology; regulatory approvals, reimbursement decisions or other
government actions; product defects or recalls or other problems
with quality management systems or failure to comply with related
regulations; litigation relating to patent or other claims; legal
and financial compliance risks and related investigative, remedial
or enforcement actions; disruption to our supply chain or
operations or those of our suppliers; competition for qualified
personnel; strategic actions, including acquisitions and disposals,
our success in performing due diligence, valuing and integrating
acquired businesses; disruption that may result from transactions
or other changes we make in our business plans or organisation to
adapt to market developments; relationships with healthcare
professionals; reliance on information technology and
cybersecurity; disruptions due to natural disasters, weather and
climate change related events; changes in customer and other
stakeholder sustainability expectations; changes in taxation
regulations; effects of foreign exchange volatility; and numerous
other matters that affect us or our markets, including those of a
political, economic, business, competitive or reputational nature.
Please refer to the documents that Smith+Nephew has filed with the
U.S. Securities and Exchange Commission under the U.S. Securities
Exchange Act of 1934, as amended, including Smith+Nephew's most
recent annual report on Form 20-F, which is available on the SEC's
website at www. sec.gov, for a discussion of certain of these
factors. Any forward-looking statement is based on information
available to Smith+Nephew as of the date of the statement. All
written or oral forward-looking statements attributable to
Smith+Nephew are qualified by this caution. Smith+Nephew does not
undertake any obligation to update or revise any forward-looking
statement to reflect any change in circumstances or in
Smith+Nephew's expectations.
◊ Trademark of Smith+Nephew.
Certain marks registered in US Patent and Trademark
Office.
Consolidated revenue analysis for the first
half
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
June
|
|
1
July
|
|
Reported
|
|
Underlying
|
|
Acquisitions
|
|
Currency
|
|
|
|
|
2024
|
|
2023
|
|
growth
|
|
Growth(i)
|
|
/disposals
|
|
impact
|
|
|
Consolidated revenue by business unit by
product
|
|
$m
|
|
$m
|
|
%
|
|
%
|
|
%
|
|
%
|
|
|
Orthopaedics
|
|
1,149
|
|
1,102
|
|
4.2
|
|
5.1
|
|
-
|
|
(0.9)
|
|
|
Knee Implants
|
|
480
|
|
475
|
|
1.0
|
|
1.9
|
|
-
|
|
(0.9)
|
|
|
Hip Implants
|
|
311
|
|
303
|
|
2.4
|
|
3.7
|
|
-
|
|
(1.3)
|
|
|
Other
Reconstruction(ii)
|
|
59
|
|
51
|
|
17.2
|
|
17.9
|
|
-
|
|
(0.7)
|
|
|
Trauma & Extremities
|
|
299
|
|
273
|
|
9.4
|
|
9.8
|
|
-
|
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sports Medicine & ENT
|
|
888
|
|
843
|
|
5.4
|
|
6.5
|
|
-
|
|
(1.1)
|
|
|
Sports Medicine Joint
Repair
|
|
483
|
|
457
|
|
5.8
|
|
6.9
|
|
-
|
|
(1.1)
|
|
|
Arthroscopic Enabling
Technologies
|
|
304
|
|
293
|
|
3.6
|
|
4.8
|
|
-
|
|
(1.2)
|
|
|
ENT (Ear, Nose and
Throat)
|
|
101
|
|
93
|
|
9.4
|
|
10.4
|
|
-
|
|
(1.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Wound Management
|
|
790
|
|
789
|
|
0.1
|
|
0.7
|
|
-
|
|
(0.6)
|
|
|
Advanced Wound Care
|
|
357
|
|
356
|
|
0.3
|
|
1.3
|
|
-
|
|
(1.0)
|
|
|
Advanced Wound Bioactives
|
|
262
|
|
274
|
|
(4.5)
|
|
(4.5)
|
|
-
|
|
-
|
|
|
Advanced Wound Devices
|
|
171
|
|
159
|
|
7.3
|
|
8.3
|
|
-
|
|
(1.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2,827
|
|
2,734
|
|
3.4
|
|
4.3
|
|
-
|
|
(0.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenue by geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
1,493
|
|
1,471
|
|
1.5
|
|
1.5
|
|
-
|
|
-
|
|
|
Other Established
Markets(iii)
|
|
841
|
|
807
|
|
4.2
|
|
5.8
|
|
-
|
|
(1.6)
|
|
|
Total Established Markets
|
|
2,334
|
|
2,278
|
|
2.5
|
|
3.0
|
|
-
|
|
(0.5)
|
|
|
Emerging Markets
|
|
493
|
|
456
|
|
8.0
|
|
10.5
|
|
-
|
|
(2.5)
|
|
|
Total
|
|
2,827
|
|
2,734
|
|
3.4
|
|
4.3
|
|
-
|
|
(0.9)
|
|
(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
2024 HALF YEAR
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Unaudited
Group Income Statement for the Half Year ended 29 June
2024
|
|
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
|
|
2024
|
|
2023
|
|
|
|
Notes
|
|
$m
|
|
$m
|
|
Revenue
|
|
2
|
|
2,827
|
|
2,734
|
|
Cost of goods sold
|
|
|
|
(853)
|
|
(836)
|
|
Gross profit
|
|
|
|
1,974
|
|
1,898
|
|
Selling, general and administrative
expenses
|
|
|
|
(1,509)
|
|
(1,457)
|
|
Research and development
expenses
|
|
|
|
(137)
|
|
(166)
|
|
Operating profit
|
|
2
|
|
328
|
|
275
|
|
Interest income
|
|
|
|
9
|
|
18
|
|
Interest expense
|
|
|
|
(70)
|
|
(62)
|
|
Other finance costs
|
|
|
|
(12)
|
|
-
|
|
Share of results of
associates
|
|
|
|
(2)
|
|
(20)
|
|
Profit before taxation
|
|
|
|
253
|
|
211
|
|
Taxation
|
|
3
|
|
(39)
|
|
(39)
|
|
Attributable profitA
|
|
|
|
214
|
|
172
|
|
Earnings per shareA
|
|
|
|
|
|
|
|
Basic
|
|
|
|
24.5
|
|
19.7
|
|
Diluted
|
|
|
|
24.5
|
|
19.7
|
Unaudited
Group Statement of Comprehensive Income for the Half Year ended 29
June 2024
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2024
|
|
2023
|
|
|
|
$m
|
|
$m
|
|
Attributable profitA
|
|
214
|
|
172
|
|
Other comprehensive
income
|
|
|
|
|
|
Items that will not be reclassified to income
statement
|
|
|
|
|
|
Remeasurement of net retirement
benefit obligations
|
|
9
|
|
(61)
|
|
Taxation on other comprehensive
income
|
|
(2)
|
|
17
|
|
Total items that will not be
reclassified to income statement
|
|
7
|
|
(44)
|
|
|
|
|
|
|
|
Items that may be reclassified subsequently to income
statement
|
|
|
|
|
|
Cash flow hedges - forward exchange
contracts
|
|
|
|
|
|
Gains arising in the
period
|
|
33
|
|
27
|
|
Gains reclassified to income
statement in the period
|
|
(18)
|
|
(15)
|
|
Exchange differences on translation
of foreign operations
|
|
(82)
|
|
27
|
|
Net investment hedge
|
|
17
|
|
(11)
|
|
Taxation on other comprehensive
income
|
|
(2)
|
|
(2)
|
|
Total items that may be reclassified
subsequently to income statement
|
|
(52)
|
|
26
|
|
Other comprehensive loss for
the period, net of taxation
|
|
(45)
|
|
(18)
|
|
Total comprehensive income for the
periodA
|
|
169
|
|
154
|
A Attributable to
the equity holders of the parent and wholly derived from continuing
operations.
Unaudited
Group Balance Sheet as at 29 June 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
June
|
|
31
December
|
|
1 July
|
|
|
|
|
|
2024
|
|
2023
|
|
2023
|
|
|
|
Notes
|
|
$m
|
|
$m
|
|
$m
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
|
|
1,441
|
|
1,470
|
|
1,421
|
|
Goodwill
|
|
|
|
3,104
|
|
2,992
|
|
3,049
|
|
Intangible assets
|
|
|
|
1,112
|
|
1,110
|
|
1,180
|
|
Investments
|
|
|
|
9
|
|
8
|
|
8
|
|
Investment in associates
|
|
|
|
15
|
|
16
|
|
27
|
|
Other non-current assets
|
|
|
|
17
|
|
18
|
|
9
|
|
Retirement benefit assets
|
|
|
|
67
|
|
69
|
|
84
|
|
Deferred tax assets
|
|
|
|
319
|
|
274
|
|
188
|
|
|
|
|
|
6,084
|
|
5,957
|
|
5,966
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
2,491
|
|
2,395
|
|
2,411
|
|
Trade and other
receivables
|
|
|
|
1,355
|
|
1,300
|
|
1,269
|
|
Current tax receivable
|
|
|
|
44
|
|
33
|
|
8
|
|
Cash at bank
|
|
6
|
|
568
|
|
302
|
|
190
|
|
|
|
|
|
4,458
|
|
4,030
|
|
3,878
|
|
TOTAL ASSETS
|
|
|
|
10,542
|
|
9,987
|
|
9,844
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY AND LIABILITIES
|
|
|
|
|
|
|
|
|
|
Equity attributable to owners of the Company
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
175
|
|
175
|
|
175
|
|
Share premium
|
|
|
|
615
|
|
615
|
|
615
|
|
Capital redemption
reserve
|
|
|
|
20
|
|
20
|
|
20
|
|
Treasury shares
|
|
|
|
(82)
|
|
(94)
|
|
(107)
|
|
Other reserves
|
|
|
|
(457)
|
|
(405)
|
|
(433)
|
|
Retained earnings
|
|
|
|
4,934
|
|
4,906
|
|
4,963
|
|
Total equity
|
|
|
|
5,205
|
|
5,217
|
|
5,233
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
Long-term borrowings and lease
liabilities
|
|
6
|
|
3,275
|
|
2,319
|
|
2,633
|
|
Retirement benefit
obligations
|
|
|
|
82
|
|
88
|
|
67
|
|
Other payables
|
|
|
|
96
|
|
35
|
|
49
|
|
Provisions
|
|
|
|
71
|
|
48
|
|
88
|
|
Deferred tax liabilities
|
|
|
|
36
|
|
9
|
|
7
|
|
|
|
|
|
3,560
|
|
2,499
|
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Bank overdrafts, borrowings and
lease liabilities
|
|
6
|
|
380
|
|
765
|
|
407
|
|
Trade and other payables
|
|
|
|
1,024
|
|
1,055
|
|
955
|
|
Provisions
|
|
|
|
152
|
|
233
|
|
219
|
|
Current tax payable
|
|
|
|
221
|
|
218
|
|
186
|
|
|
|
|
|
1,777
|
|
2,271
|
|
1,767
|
|
Total liabilities
|
|
|
|
5,337
|
|
4,770
|
|
4,611
|
|
TOTAL EQUITY AND LIABILITIES
|
|
|
|
10,542
|
|
9,987
|
|
9,844
|
Unaudited
Group Cash Flow Statement for the Half Year ended 29 June
2024
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2024
|
|
2023
|
|
|
|
$m
|
|
$m
|
|
Cash flows from operating activities
|
|
|
|
|
|
Profit before taxation
|
|
253
|
|
211
|
|
Net interest expense
|
|
61
|
|
44
|
|
Depreciation, amortisation and
impairment
|
|
273
|
|
286
|
|
Loss on disposal of property, plant
and equipment and software
|
|
6
|
|
11
|
|
Share-based payments expense
(equity-settled)
|
|
20
|
|
19
|
|
Share of results of
associates
|
|
2
|
|
20
|
|
Net movement in post-retirement
obligations
|
|
7
|
|
(3)
|
|
Increase in inventories
|
|
(119)
|
|
(204)
|
|
(Increase)/decrease in trade and
other receivables
|
|
(44)
|
|
3
|
|
Decrease in trade and other payables
and provisions
|
|
(91)
|
|
(172)
|
|
Cash generated from
operations
|
|
368
|
|
215
|
|
Interest received
|
|
6
|
|
6
|
|
Interest paid
|
|
(65)
|
|
(45)
|
|
Income taxes paid
|
|
(71)
|
|
(63)
|
|
Net cash inflow from operating
activities
|
|
238
|
|
113
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Acquisitions, net of cash
acquired
|
|
(186)
|
|
(15)
|
|
Capital expenditure
|
|
(172)
|
|
(167)
|
|
Purchase of investments
|
|
(1)
|
|
-
|
|
Investment in associates
|
|
(1)
|
|
-
|
|
Net cash used in investing
activities
|
|
(360)
|
|
(182)
|
|
Net cash outflow before financing
activities
|
|
(122)
|
|
(69)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Payment of capital element of lease
liabilities
|
|
(27)
|
|
(28)
|
|
Proceeds from borrowings due within
one year
|
|
-
|
|
146
|
|
Settlement of borrowings due within
one year
|
|
(400)
|
|
-
|
|
Proceeds from borrowings due after
one year
|
|
1,000
|
|
-
|
|
Proceeds from own shares
|
|
1
|
|
1
|
|
Settlement of currency
swaps
|
|
-
|
|
(4)
|
|
Equity dividends paid
|
|
(202)
|
|
(201)
|
|
Net cash inflow/(outflow) from
financing activities
|
|
372
|
|
(86)
|
|
|
|
|
|
|
|
Net
increase/(decrease) in cash and cash equivalents
|
|
250
|
|
(155)
|
|
Cash and cash equivalents at
beginning of year
|
|
300
|
|
344
|
|
Exchange adjustments
|
|
(5)
|
|
(6)
|
|
Cash and cash equivalents at end of
periodB
|
|
545
|
|
183
|
B Cash and cash
equivalents at the end of the period are net of overdrafts of $23m
(1 July 2023: $7m).
Unaudited Group
Statement of Changes in Equity for the Half Year ended 29 June
2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
Share
|
|
redemption
|
|
Treasury
|
|
Other
|
|
Retained
|
|
Total
|
|
|
|
capital
|
|
premium
|
|
reserve
|
|
shares
|
|
reservesC
|
|
earningsD
|
|
equity
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
At 1 January 2024
|
|
175
|
|
615
|
|
20
|
|
(94)
|
|
(405)
|
|
4,906
|
|
5,217
|
|
Attributable
profitA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
214
|
|
214
|
|
Other comprehensive
incomeA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(52)
|
|
7
|
|
(45)
|
|
Equity dividends paid
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(202)
|
|
(202)
|
|
Share-based payments
recognised
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
20
|
|
20
|
|
Cost of shares transferred to
beneficiaries
|
|
-
|
|
-
|
|
-
|
|
12
|
|
-
|
|
(11)
|
|
1
|
|
At
29 June 2024
|
|
175
|
|
615
|
|
20
|
|
(82)
|
|
(457)
|
|
4,934
|
|
5,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
Share
|
|
redemption
|
|
Treasury
|
|
Other
|
|
Retained
|
|
Total
|
|
|
|
capital
|
|
premium
|
|
reserve
|
|
shares
|
|
reservesC
|
|
earningsD
|
|
equity
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
At 1 January 2023
|
|
175
|
|
615
|
|
20
|
|
(118)
|
|
(459)
|
|
5,026
|
|
5,259
|
|
Attributable
profitA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
172
|
|
172
|
|
Other comprehensive
incomeA
|
|
-
|
|
-
|
|
-
|
|
-
|
|
26
|
|
(44)
|
|
(18)
|
|
Equity dividends paid
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(201)
|
|
(201)
|
|
Share-based payments
recognised
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
19
|
|
19
|
|
Taxation on share-based
payments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1
|
|
1
|
|
Cost of shares transferred to
beneficiaries
|
|
-
|
|
-
|
|
-
|
|
11
|
|
-
|
|
(10)
|
|
1
|
|
At
1 July 2023
|
|
175
|
|
615
|
|
20
|
|
(107)
|
|
(433)
|
|
4,963
|
|
5,233
|
A Attributable to the
equity holders of the parent and wholly derived from continuing
operations.
C Other reserves comprises gains and
losses on cash flow hedges, net investment hedges, foreign exchange
differences on translation of foreign operations and net changes on
fair value of trade investments. The cumulative translation loss
within Other reserves at 29 June 2024 was $395m (1 January 2024:
$313m, 1 July 2023: $360m). Net investment
hedge reserve at 29 June 2024 was $66m
deficit (1 January 2024: $83m deficit, 1 July 2023: $76m
deficit)
D Within retained
earnings is a capital reserve of $2,266m (1 January 2024: $2,266m,
1 July 2023: $2,266m).
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 2023 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 2023.
IFRS as adopted in the UK differs in certain respects from IFRS as
issued by the IASB. However, the differences have no impact for the
periods presented.
The uncertainties as to the future impact on the
financial performance and cash flows of the Group as a result of
the current challenging economic environment have been considered
as part of the Group's adoption of the going concern basis for its
Interim Financial Statements for the period ended 29 June 2024, 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 29 June 2024 was $2,902m (see Note 6) with committed facilities
of $4.5bn. The Group has $305m of private
placement debt due for repayment in the second half of 2024. No
debt is due for repayment in the first half of 2025. $930m of
private placement debt is subject to financial covenants. The
principal covenant on the private placement debt is a leverage
ratio of <3.5x which is measured on a rolling 12-month basis at
half year and year end. There are no financial covenants in any of
the Group's other facilities.
The Directors have considered various scenarios in
assessing the impact of the economic environment on future
financial performance and cash flows, with the key judgement
applied being the speed and sustainability of the return to a
normal volume of elective procedures in key markets, including the
impact of a significant global recession, leading to lower
healthcare spending across both public and private systems.
Throughout these scenarios, which include a severe but plausible
outcome, the Group continues to have headroom on its borrowing
facilities and financial covenants. The Directors believe that the
Group is well placed to manage its financing and other business
risks satisfactorily and have a reasonable expectation that the
Group has sufficient resources to continue in operational existence
for a period of at least 12 months from the date of approval of
these Interim Financial Statements period. Thus they continue to
adopt the going concern basis for accounting in preparing these
Interim Financial Statements.
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. An unqualified
opinion was issued 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 2023. The Group's
statutory financial statements for the year ended 31 December 2023
have been delivered to the Registrar of Companies.
New accounting
standards effective 2024
A number of new amendments to standards are
effective from 1 January 2024 but they do not have a material
effect on the Group's financial statements.
The Group is adopting the mandatory temporary
exception from the recognition and disclosure of deferred taxes
arising from the jurisdictional implementation of the Pillar Two
model rules which took effect for the Group from 1 January
2024.
Accounting
standards issued but not yet effective
A number of new standards and amendments to
standards are effective for annual periods beginning after 1
January 2024 and earlier application is permitted; however, the
Group has not early adopted them in preparing these Interim
Financial Statements.
Critical judgements
and estimates
The Group prepares its consolidated financial
statements in accordance with IFRS Accounting Standards as issued
by the IASB and IFRS adopted in the UK, the application of which
often requires judgements and estimates to be made by management
when formulating the Group's financial position and results. Under
IFRS, the Directors are required to adopt those accounting policies
most appropriate to the Group's circumstances for the purpose of
presenting fairly the Group's financial position, financial
performance and cash flows.
The Group's significant accounting policies which
required the most use of management's estimation in the half year
ended 29 June 2024 were: valuation of inventories; liability
provisioning and impairment. The critical estimates are consistent
with those reflected in the Group's consolidated financial
statements for the year ended 31 December 2023.
Climate change
considerations
The impact of climate change has been considered as
part of the assessment of estimates and judgements in preparing the
Group accounts. The climate change scenario analyses undertaken
this year in line with TCFD recommendations did not identify any
material financial impact.
The following considerations were made in respect of
the interim financial statements:
a. The impact of climate change on the going
concern assessment;
b. The impact of climate change on the cash
flow forecasts used in the impairment assessments of non-current
assets including goodwill; and
c. The impact of climate change on the
carrying value and useful economic lives of property, plant and
equipment.
2. Business segment
information
The Group's operating structure is organised around
three global business units (previously referred to as franchises)
and the chief operating decision maker monitors performance, makes
operating decisions and allocates resources on a global business
unit basis. Accordingly, as described in Note 2 to the most recent
annual report, the Group has concluded that there are three
reportable segments.
Segment revenue reconciles to statutory revenue from
continuing operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2024
|
|
2023
|
|
|
|
$m
|
|
$m
|
|
Segment revenue
|
|
|
|
|
|
Orthopaedics
|
|
1,149
|
|
1,102
|
|
Sports Medicine & ENT
|
|
888
|
|
843
|
|
Advanced Wound Management
|
|
790
|
|
789
|
|
Revenue from external
customers
|
|
2,827
|
|
2,734
|
|
|
|
|
|
|
2a. Disaggregation of
revenue
The following table shows the disaggregation of
Group revenue by product by business unit:
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
|
2024
|
|
2023
|
|
|
|
$m
|
|
$m
|
|
Knee Implants
|
|
480
|
|
475
|
|
Hip Implants
|
|
311
|
|
303
|
|
Other Reconstruction
|
|
59
|
|
51
|
|
Trauma & Extremities
|
|
299
|
|
273
|
|
Orthopaedics
|
|
1,149
|
|
1,102
|
|
Sports Medicine Joint
Repair
|
|
483
|
|
457
|
|
Arthroscopic Enabling
Technologies
|
|
304
|
|
293
|
|
ENT (Ear, Nose &
Throat)
|
|
101
|
|
93
|
|
Sports Medicine & ENT
|
|
888
|
|
843
|
|
Advanced Wound Care
|
|
357
|
|
356
|
|
Advanced Wound Bioactives
|
|
262
|
|
274
|
|
Advanced Wound Devices
|
|
171
|
|
159
|
|
Advanced Wound Management
|
|
790
|
|
789
|
|
Total
|
|
2,827
|
|
2,734
|
The following table shows the disaggregation of
Group revenue by geographic market and product category. The
disaggregation of revenue into the two product categories below
reflects that in general the products in the Advanced Wound
Management business unit are sold to wholesalers and
intermediaries, while products in the other business units are sold
directly to hospitals, ambulatory surgery centers and distributors.
The further disaggregation of revenue by Established Markets and
Emerging Markets reflects that in general our products are sold
through distributors and intermediaries in the Emerging Markets
while in the Established Markets, with the exception of the
Advanced Wound Care and Bioactives, products are in general sold
direct to hospitals and ambulatory surgery centers. The
disaggregation by Established Markets and Emerging Markets also
reflects their differing economic factors including volatility in
growth and outlook.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half year
2024
|
|
Half year
2023
|
|
|
|
Established
MarketsE
|
|
Emerging
Markets
|
|
Total
|
|
Established
MarketsE
|
|
Emerging
Markets
|
|
Total
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
Orthopaedics, Sports Medicine &
ENT
|
|
1,647
|
|
390
|
|
2,037
|
|
1,584
|
|
361
|
|
1,945
|
|
Advanced Wound Management
|
|
687
|
|
103
|
|
790
|
|
694
|
|
95
|
|
789
|
|
Total
|
|
2,334
|
|
493
|
|
2,827
|
|
2,278
|
|
456
|
|
2,734
|
E 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 $1,493m (H1 2023: $1,471m), China
revenue for the half year was $112m (H1 2023: $123m) and UK revenue
for the half year was $103m (H1 2023: $96m).
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 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
|
|
|
|
2024
|
|
2023
|
|
|
|
$m
|
|
$m
|
|
Segment profit
|
|
|
|
|
|
Orthopaedics
|
|
192
|
|
174
|
|
Sports Medicine & ENT
|
|
275
|
|
224
|
|
Advanced Wound Management
|
|
215
|
|
223
|
|
Segment trading profit
|
|
682
|
|
621
|
|
Corporate costs
|
|
(211)
|
|
(204)
|
|
Group trading profit
|
|
471
|
|
417
|
|
Acquisition and disposal related
items
|
|
-
|
|
17
|
|
Restructuring and rationalisation
expenses
|
|
(62)
|
|
(46)
|
|
Amortisation and impairment of
acquisition intangibles
|
|
(87)
|
|
(102)
|
|
Legal and other
|
|
6
|
|
(11)
|
|
Group operating profit
|
|
328
|
|
275
|
|
|
|
|
|
|
Acquisition and disposal related items
For the half year ended 29 June
2024, credits related to the remeasurement of deferred and
contingent consideration for prior year acquisitions were offset by
costs of integration for current and prior year
acquisitions.
For the half year ended 1 July
2023, credits relate to the remeasurement of deferred and
contingent consideration for prior year acquisitions. These were
partially offset by costs of integration for prior year
acquisitions.
Restructuring and rationalisation costs
For the half year ended 29 June
2024, these costs primarily relate to the efficiency and
productivity elements of the 12-Point Plan.
For the half year ended 1 July
2023, these costs primarily relate to the efficiency and
productivity elements of the 12-Point Plan and the Operations and
Commercial Excellence programme that was announced in February
2020.
Amortisation and impairment of acquisition
intangibles
For both the half years ended 29
June 2024 and 1 July 2023, charges relate to the amortisation and
impairment of intangible assets acquired in material business
combinations.
Legal and other
For the half years ended 29 June
2024 and 1 July 2023, charges relate to legal expenses for ongoing
metal-on-metal hip claims. For the half year ended 29 June 2024
these expenses were offset by a decrease of $12m in the provision
that reflects the decrease in the present value of the estimated
costs to resolve all other known and anticipated metal-on-metal hip
claims.
The charges for the half year ended
1 July 2023 were partially offset by the release of a provision for
an intellectual property dispute.
The half years ended 29 June 2024
and 1 July 2023 also include costs for implementing the
requirements of the EU Medical Device Regulation that was effective
from May 2021 with a transition period to May 2024.
3. Taxation
Tax rate
Our reported tax for the period
ended 29 June 2024 was a charge of $39m, with an effective tax rate
of 15.4% (H1 2023: $39m, effective tax rate of 18.5%).
OECD BEPS 2.0 - Pillar Two
The OECD Pillar Two GloBE Rules
(Pillar Two) introduce a global minimum corporate tax rate of 15%
applicable to multinational enterprise groups with global revenue
over €750m. All participating OECD members are required to
incorporate these rules into national legislation. The Pillar Two
rules will apply to the Group for its accounting period commencing
1 January 2024. On 23 May 2023, the International Accounting
Standards Board (IASB) amended IAS 12 to introduce a mandatory
temporary exception to the accounting for deferred taxes arising
from the jurisdictional implementation of the Pillar Two model
rules. On 19 July 2023, the UK Endorsement Board adopted the IASB
amendments to IAS 12.
The Group has performed an
assessment of its potential exposure to Pillar Two income taxes
based on forecast financial data and considers that the rules will
result in an increase in the Group tax rate. It is estimated that
the Pillar Two income tax would increase the Group tax rate by
around 2% and would predominantly arise in Switzerland, Singapore
and Costa Rica, countries in which the Group has significant
operations. The final Pillar Two impact in 2024 will depend on
factors such as revenues, costs and foreign currency exchange rate
impacts by jurisdiction.
The Group is adopting the mandatory
temporary exception from the recognition and disclosure of deferred
taxes arising from the jurisdictional implementation of the Pillar
Two model rules.
The Group does not meet the
threshold for application of the Pillar One transfer pricing
rules.
4. Dividends
The 2023 final dividend totaling
$202m was paid on 22 May 2024. The 2024 interim dividend of 14.4
US cents per ordinary share was approved by
the Board on 31 July 2024. This dividend is payable on 8 November
2024 to shareholders whose names appear on the register at the
close of business on 4 October 2024. 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 18 October 2024.
Shareholders may participate in the dividend re-investment plan and
elections must be made by 18 October 2024.
5. Acquisitions
Half year ended 29
June 2024
On 9 January 2024, the Group
completed the acquisition of 100% of the share capital of CartiHeal
(2009) Ltd (CartiHeal), the developer of CARTIHEAL AGILI-C, a novel
sports medicine technology for cartilage regeneration in the knee.
The acquisition of this disruptive technology supports our strategy
to invest behind our successful Sports Medicine & ENT business
unit.
The fair value of the consideration
amounted to $231m. This is comprised of contingent consideration of
$49m, which represents the discounted value of $150m of
consideration contingent upon the achievement of a single future
financial performance milestone in the next 10 years, and initial
cash consideration of $180m adjusted for cash acquired and other
liabilities assumed, of which $18m was transferred in to escrow to
be released in equal instalments to the seller in 12 and 18 months
from completion.
The fair value of assets acquired and liabilities
assumed are set out below:
|
|
|
|
|
|
|
CartiHeal (2009)
Ltd
|
|
|
|
$m
|
|
Intangible assets - product-related
and trade name
|
|
84
|
|
Inventory
|
|
1
|
|
Cash
|
|
6
|
|
Other liabilities
|
|
(2)
|
|
Trade and other payables
|
|
(1)
|
|
Net deferred tax
liability
|
|
(3)
|
|
Net assets
|
|
85
|
|
Goodwill
|
|
146
|
|
Consideration
|
|
231
|
The goodwill represents the control premium,
acquired workforce and the synergies expected from integrating
CartiHeal into the Group's existing business.
The product-related intangible assets and the trade
name were valued using a relief-from-royalty methodology with the
key inputs being revenue, profit and discount rate.
For half year ended 29 June 2024, the contribution
from CartiHeal to the Group's revenue and profit was
immaterial.
The cash outflow from acquisitions in H1 2024 of
$186m (H1 2023: $15m) comprises payments of consideration of $177m
net of cash acquired (H1 2023: nil) relating to acquisitions in the
current period and payments of deferred and contingent
consideration of $9m relating to acquisitions completed in prior
periods.
The carrying value of goodwill increased from
$2,992m at 31 December 2023 to $3,104m at 29 June 2024 due to
acquisition of CartiHeal, partially offset by foreign exchange
movements.
Year ended 31
December 2023
No acquisitions were completed in the year ended 31
December 2023.
6. Net
debt
Net debt as at 29 June 2024 is outlined below. The
repayment of lease liabilities is included in cash flows from
financing activities in the cash flow statement.
|
|
|
|
|
|
|
|
|
|
|
29
June
|
|
31
December
|
|
1
July
|
|
|
|
2024
|
|
2023
|
|
2023
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
Cash at bank
|
|
568
|
|
302
|
|
190
|
|
Long-term borrowings
|
|
(3,143)
|
|
(2,175)
|
|
(2,489)
|
|
Bank overdrafts and borrowings due
within one year
|
|
(328)
|
|
(710)
|
|
(357)
|
|
Net currency swap
assets/(liabilities)
|
|
1
|
|
(1)
|
|
1
|
|
Net interest rate swap
assets/(liabilities)
|
|
-
|
|
7
|
|
(1)
|
|
Net debt excluding lease
liabilities
|
|
(2,902)
|
|
(2,577)
|
|
(2,656)
|
|
Non-current lease
liabilities
|
|
(132)
|
|
(144)
|
|
(143)
|
|
Current lease liabilities
|
|
(52)
|
|
(55)
|
|
(50)
|
|
Net debt
|
|
(3,086)
|
|
(2,776)
|
|
(2,849)
|
|
|
|
|
|
|
|
|
The Group has $305m of private
placement debt due for repayment in the second half of 2024 and no
debt due for repayment in the first half of 2025.
In March 2024 the Group issued two corporate bonds:
$650m (before expenses and underwriting discounts) of notes bearing
an interest rate of 5.4% repayable in 2034; and $350m (before
expenses and underwriting discounts) of notes bearing an interest
rate of 5.15% repayable in 2027.
7a. Financial
instruments
The following table shows the carrying amounts and
fair values of financial assets and financial liabilities,
including their levels in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
amount
|
|
Fair value
|
|
|
|
|
|
29
June
|
|
31
December
|
|
1
July
|
|
29
June
|
|
31
December
|
|
1
July
|
|
|
|
|
|
2024
|
|
2023
|
|
2023
|
|
2024
|
|
2023
|
|
2023
|
|
Fair value
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
level
|
|
Financial assets at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange
contacts
|
|
34
|
|
25
|
|
44
|
|
34
|
|
25
|
|
44
|
|
Level
2
|
|
Investments
|
|
9
|
|
8
|
|
8
|
|
9
|
|
8
|
|
8
|
|
Level
3
|
|
Contingent consideration
receivable
|
|
18
|
|
18
|
|
18
|
|
18
|
|
18
|
|
18
|
|
Level
3
|
|
Currency swaps
|
|
1
|
|
2
|
|
1
|
|
1
|
|
2
|
|
1
|
|
Level
2
|
|
Interest rate swaps
|
|
7
|
|
7
|
|
-
|
|
7
|
|
7
|
|
-
|
|
Level
2
|
|
|
|
69
|
|
60
|
|
71
|
|
69
|
|
60
|
|
71
|
|
|
|
Financial assets not measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other
receivables
|
|
1,214
|
|
1,163
|
|
1,122
|
|
|
|
|
|
|
|
|
|
Cash at bank
|
|
568
|
|
302
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
1,782
|
|
1,465
|
|
1,312
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
1,851
|
|
1,525
|
|
1,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration -
contingent
|
|
(78)
|
|
(32)
|
|
(50)
|
|
(78)
|
|
(32)
|
|
(50)
|
|
Level
3
|
|
Forward foreign exchange
contracts
|
|
(16)
|
|
(25)
|
|
(28)
|
|
(16)
|
|
(25)
|
|
(28)
|
|
Level
2
|
|
Currency swaps
|
|
-
|
|
(3)
|
|
-
|
|
-
|
|
(3)
|
|
-
|
|
Level
2
|
|
Interest rate swaps
|
|
(7)
|
|
-
|
|
(1)
|
|
(7)
|
|
-
|
|
(1)
|
|
Level
2
|
|
|
|
(101)
|
|
(60)
|
|
(79)
|
|
(101)
|
|
(60)
|
|
(79)
|
|
|
|
Financial liabilities not measured at fair
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition consideration -
deferred
|
|
(20)
|
|
(4)
|
|
(7)
|
|
|
|
|
|
|
|
|
|
Bank overdrafts
|
|
(23)
|
|
(2)
|
|
(7)
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
-
|
|
(303)
|
|
(145)
|
|
|
|
|
|
|
|
|
|
Corporate bond not in a hedge
relationship
|
|
(1,491)
|
|
(995)
|
|
(994)
|
|
|
|
|
|
|
|
|
|
Corporate bond in a hedge
relationship
|
|
(1,027)
|
|
(555)
|
|
(540)
|
|
|
|
|
|
|
|
|
|
Private placement debt not in a
hedge relationship
|
|
(930)
|
|
(1,030)
|
|
(1,160)
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
(999)
|
|
(1,026)
|
|
(918)
|
|
|
|
|
|
|
|
|
|
|
|
(4,490)
|
|
(3,915)
|
|
(3,771)
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
(4,591)
|
|
(3,975)
|
|
(3,850)
|
|
|
|
|
|
|
|
|
At 29 June 2024, the book value and market value of
the USD corporate bonds were $1,979m and $1,813m respectively (31
December 2023: $995m and $826m), the book value and market value of
the EUR corporate bond were $539m and $555m, (31 December
2023: $555m and $586m).
At 29 June 2024 the book value and fair value of the
private placement debt were $930m and $857m respectively (31
December 2023: $1,030m and $959m).
There were no transfers between Levels 1, 2 and 3
during the half year ended 29 June 2024 and the year ended 31
December 2023. For cash and cash equivalents, short-term loans and
receivables, overdrafts and other short-term liabilities which have
a maturity of less than three months, the book values approximate
the fair values because of their short-term nature. Long-term
borrowings are measured in the balance sheet at amortised cost. The
corporate bonds issued in October 2020, October 2022 and March 2024
are publicly listed and a market price is available. The Group's
other long-term borrowings are not quoted publicly, their fair
values are estimated by discounting future contractual cash flows
to net present values at the current market interest rates
available to the Group for similar financial instruments as at the
year end. The fair value of the private placement notes is
determined using a discounted cash flow model based on prevailing
market rates. The fair value of currency swaps is determined by
reference to quoted market spot rates. As a result, foreign forward
exchange contracts and currency swaps are classified as Level 2
within the fair value hierarchy.
The fair value of contingent acquisition
consideration is estimated using a discounted cash flow model. The
valuation model considers the present value of risk adjusted
expected payments, discounted using a risk-free discount rate. The
expected payment is determined by considering the possible
scenarios, which relate to the achievement of established
milestones and targets, the amount to be paid under each scenario
and the probability of each scenario. As a result, contingent
acquisition consideration is classified as Level 3 within the fair
value hierarchy.
The fair value of investments is based upon third
party pricing models for share issues. As a result, investments are
considered Level 3 in the fair value hierarchy.
The movements in the half year ended 29 June 2024
and the year ended 31 December 2023 for financial instruments
measured using Level 3 valuation methods are presented below:
|
|
|
|
|
|
29
June
|
31
December
|
|
|
2024
|
2023
|
|
|
$m
|
$m
|
|
Investments
|
|
|
|
At 1 January
|
8
|
12
|
|
Additions
|
1
|
-
|
|
Fair value remeasurement
|
-
|
(4)
|
|
|
9
|
8
|
|
|
|
|
|
Contingent consideration receivable
|
|
|
|
At 1 January
|
18
|
18
|
|
Receipts
|
-
|
-
|
|
|
18
|
18
|
|
|
|
|
|
Contingent acquisition consideration
liability
|
|
|
|
At 1 January
|
(32)
|
(78)
|
|
Arising on acquisitions
|
(49)
|
-
|
|
Payments
|
9
|
13
|
|
Remeasurements
|
2
|
33
|
|
Discount unwind
|
(8)
|
-
|
|
|
(78)
|
(32)
|
7b. Retirement benefit
obligations
The discount rates applied to the future pension
liabilities of the UK, Germany and Switzerland pension plans are
based on the yield on bonds that have a credit rating of AA
denominated in the currency in which the benefits are expected to
be paid with a maturity profile approximately the same as the
obligations. The UK discount rate has increased since 31 December
2023 by 60bps to 5.1% while the Germany discount rate increased
since 31 December 2023 by 50bps to 3.6%. The remeasurement gain of
$9m recognised in Other Comprehensive Income (OCI) was principally
made up of a $9m gains on remeasurement of plan obligations in the
UK, US, Germany and Switzerland.
In October 2022, US Pension Plan members were
notified that Smith & Nephew Inc. (SNI) would begin the
termination process for the US Plan. In December 2023, Fidelity
& Guaranty Life was selected to take over responsibility for
the remaining US Pension Plan obligation and administration upon
termination. A premium amount of $245m was paid in cash by the US
Plan on 4 January 2024 to settle the annuity purchase agreement
with Fidelity & Guaranty Life. Certain active employees and
terminated vested participants elected to receive a lump sum in
exchange for their plan benefit of $80m. This resulted in $4m of
settlement costs which were recognised in 2023, representing the
difference between defined benefit obligation (DBO) and the lump
sums paid to members in December 2023. A $2m credit was recorded in
first half of 2024 linked to the annuity purchase contract
concluded with Fidelity & Guaranty Life on 4 January 2024.
On 26 February 2024, the remaining liability of $5m
was transferred to Pension Benefit Guaranty Corporation (PBGC) for
a payment of $2m. A discount rate of 5.3% based on market
conditions on 26 February 2024 was used to calculate the settlement
impact and a further credit of $3m was recorded in first half of
2024.
8. Exchange
rates
The exchange rates used for the
translation of currencies into US Dollars that have the most
significant impact on the Group results were:
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Full year
|
|
Half year
|
|
|
|
2024
|
|
2023
|
|
2023
|
|
Average rates
|
|
|
|
|
|
|
|
Sterling
|
|
1.26
|
|
1.24
|
|
1.23
|
|
Euro
|
|
1.08
|
|
1.08
|
|
1.08
|
|
Swiss Franc
|
|
1.12
|
|
1.11
|
|
1.10
|
|
Japanese Yen
|
|
0.0066
|
|
0.0071
|
|
0.0074
|
|
Period end rates
|
|
|
|
|
|
|
|
Sterling
|
|
1.27
|
|
1.27
|
|
1.27
|
|
Euro
|
|
1.07
|
|
1.10
|
|
1.09
|
|
Swiss Franc
|
|
1.11
|
|
1.19
|
|
1.11
|
|
Japanese Yen
|
|
0.0062
|
|
0.0071
|
|
0.0069
|
9.
Contingencies
The Company and its subsidiaries
are party to various legal proceedings, some of which include
claims for substantial damages. The outcome of these proceedings
cannot readily be foreseen, but except as described herein
management believes none of them is likely to result in a material
adverse effect on the financial position of the Group. The Group
provides for outcomes that are deemed to be probable and can be
reliably estimated. There is no assurance that losses will not
exceed provisions or will not have a significant impact on the
Group's results of operations in the period in which they are
realised.
10. Subsequent
events
On 24 July 2024, the Group announced its intention
to close the Warwick manufacturing site. The closure is expected to
complete by the end of 2024 and the Group expects to incur losses
amounting to approximately $75m out of which around $60m relates to
impairment of goodwill and will be recorded in the second half of
2024.
11. Principal
risks and uncertainties
The principal risks and uncertainties that the Group
is exposed to are consistent with those as at 31 December 2023. The
principal risks and uncertainties continue to be: legal and
compliance; quality and regulatory; political and economic; foreign
exchange; pricing and reimbursement; cybersecurity; global supply
chain; mergers and acquisitions; new product innovation, design and
development including intellectual property; strategy and
commercial execution; and talent management. Further detail on
these risks can be found in the 2023 Annual Report of the Group on
pages 69-77.
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.
Rick Medlock did not submit himself for re-election
as a director at the Company's annual general meeting and ceased to
be a director on 30 April 2024. There have been no other changes to
the Board of Directors of Smith & Nephew plc since the
publication of the Smith & Nephew plc 2023 Annual Report.
|
|
|
|
|
By order of the Board:
|
|
|
|
|
|
|
|
Deepak Nath
|
Chief Executive Officer
|
31 July 2024
|
|
John Rogers
|
Chief Financial Officer
|
31 July 2024
|
|
|
|
|
INDEPENDENT REVIEW REPORT TO SMITH & NEPHEW
PLC
Conclusion
We have been engaged by the company
to review the condensed set of financial statements in the interim
financial report for the period ended 29 June 2024 which comprises
the Group Income Statement, the Group Statement of Comprehensive
Income, the Group Balance Sheet, the Group Cash Flow Statement, the
Group Statement of Changes in Equity and related notes 1 to
11.
Based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the interim financial report for the
period ended 29 June 2024 is not prepared, in all material
respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency
Rules ("the DTR") of the United Kingdom'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" issued by the Financial
Reporting Council for use in the United Kingdom (ISRE (UK) 2410). A
review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. 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.
As disclosed in note 1, the annual
financial statements of the group are prepared in accordance with
United Kingdom adopted international accounting standards. The
condensed set of financial statements included in this interim
financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim
Financial Reporting".
Conclusion 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 to suggest 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 are not 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 entity to cease
to continue as a going concern.
Responsibilities of the directors
The directors are responsible for
preparing the interim financial report in accordance with the DTR
of the UK FCA.
In preparing the interim financial
report, 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
company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the interim financial
report, we are responsible for expressing to the group a conclusion
on the condensed set of financial statements in the interim
financial report. Our Conclusion, including our Conclusion Relating
to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use
of our report
This report is made solely to the
company in accordance with ISRE (UK) 2410. Our work has been
undertaken so that we might state to the company those matters we
are required to state to it in an independent review 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 formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
31 July 2024
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. These non-IFRS measures
may also not be directly comparable to similarly described measures
used by other companies.
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
|
|
|
|
2024
|
|
2023
|
|
growth
|
|
growth
|
|
&
disposals
|
|
impact
|
|
|
|
$m
|
|
$m
|
|
%
|
|
%
|
|
%
|
|
%
|
|
Segment revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orthopaedics
|
|
1,149
|
|
1,102
|
|
4.2
|
|
5.1
|
|
-
|
|
(0.9)
|
|
Sports Medicine & ENT
|
|
888
|
|
843
|
|
5.4
|
|
6.5
|
|
-
|
|
(1.1)
|
|
Advanced Wound Management
|
|
790
|
|
789
|
|
0.1
|
|
0.7
|
|
-
|
|
(0.6)
|
|
Revenue from external
customers
|
|
2,827
|
|
2,734
|
|
3.4
|
|
4.3
|
|
-
|
|
(0.9)
|
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).
Compound Annual
Growth Rate ('CAGR')
CAGR is defined as the compound annual growth
rate and shows the annualised average rate of revenue growth
between a number of given years, assuming growth takes place at an
exponentially compounded rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
|
|
generated
|
|
|
|
|
|
|
|
Operating
|
|
before
|
|
|
|
Attributable
|
|
from
|
|
Earnings
|
|
|
|
Revenue
|
|
profit1
|
|
tax2
|
|
Taxation3
|
|
profit4
|
|
operations5
|
|
per share6
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
¢
|
|
Half year 2024 Reported
|
|
2,827
|
|
328
|
|
253
|
|
(39)
|
|
214
|
|
368
|
|
24.5
|
|
Acquisition and disposal related
items
|
|
-
|
|
-
|
|
1
|
|
-
|
|
1
|
|
1
|
|
0.2
|
|
Restructuring and rationalisation
costs
|
|
-
|
|
62
|
|
63
|
|
(13)
|
|
50
|
|
88
|
|
5.8
|
|
Amortisation and impairment of
acquisition intangibles
|
|
-
|
|
87
|
|
87
|
|
(19)
|
|
68
|
|
-
|
|
7.8
|
|
Legal and
other7
|
|
-
|
|
(6)
|
|
(5)
|
|
-
|
|
(5)
|
|
26
|
|
(0.7)
|
|
Lease liability payments
|
|
-
|
|
-
|
|
|
|
|
|
-
|
|
(27)
|
|
-
|
|
Capital expenditure
|
|
-
|
|
-
|
|
|
|
|
|
-
|
|
(172)
|
|
-
|
|
Half year 2024 Adjusted
|
|
2,827
|
|
471
|
|
399
|
|
(71)
|
|
328
|
|
284
|
|
37.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
|
|
|
generated
|
|
|
|
|
|
|
|
Operating
|
|
before
|
|
|
|
Attributable
|
|
from
|
|
Earnings
|
|
|
|
Revenue
|
|
profit1
|
|
tax2
|
|
Taxation3
|
|
profit4
|
|
operations5
|
|
per share6
|
|
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
$m
|
|
¢
|
|
Half year 2023 Reported
|
|
2,734
|
|
275
|
|
211
|
|
(39)
|
|
172
|
|
215
|
|
19.7
|
|
Acquisition and disposal related
items
|
|
|
|
(17)
|
|
(8)
|
|
9
|
|
1
|
|
6
|
|
0.1
|
|
Restructuring and rationalisation
costs
|
|
-
|
|
46
|
|
49
|
|
(10)
|
|
39
|
|
50
|
|
4.6
|
|
Amortisation and impairment of
acquisition intangibles
|
|
-
|
|
102
|
|
102
|
|
(22)
|
|
80
|
|
-
|
|
9.1
|
|
Legal and
other7
|
|
-
|
|
11
|
|
14
|
|
(2)
|
|
12
|
|
34
|
|
1.4
|
|
Lease liability payments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(28)
|
|
-
|
|
Capital expenditure
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(167)
|
|
-
|
|
Half year 2023 Adjusted
|
|
2,734
|
|
417
|
|
368
|
|
(64)
|
|
304
|
|
110
|
|
34.9
|
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 29 June 2024,
credits related to the remeasurement of deferred and contingent
consideration for prior year acquisitions were offset by costs of
integration for current and prior year acquisitions.
For the half year ended 1 July 2023,
credits relate to the remeasurement of deferred and contingent
consideration for prior year acquisitions. These were partially
offset by costs of integration for prior year
acquisitions.
Adjusted profit before tax for the
half year ended 29 June 2024 and 1 July 2023 additionally excludes
acquisition and disposal items related to the Group's shareholding
in Bioventus.
Restructuring and rationalisation costs
For the half year ended 29 June 2024,
these costs primarily relate to the efficiency and productivity
elements of the 12-Point Plan.
For the half year ended 1 July 2023,
these costs primarily relate to the efficiency and productivity
elements of the 12-Point Plan and the Operations and Commercial
Excellence programme that was announced in February
2020.
Adjusted profit before tax for the
half year ended 29 June 2024 and 1 July 2023 additionally excludes
restructuring costs related to the Group's shareholding in
Bioventus.
Amortisation and impairment of acquisition
intangibles
For both the half years ended 29 June
2024 and 1 July 2023, charges relate to the amortisation and
impairment of intangible assets acquired in material business
combinations.
Legal and other
For the half years ended 29 June 2024
and 1 July 2023, charges relate to legal expenses for ongoing
metal-on-metal hip claims. For the half year ended 29 June 2024
these expenses were offset by a decrease of $12m in the provision
that reflects the decrease in the present value of the estimated
costs to resolve all other known and anticipated metal-on-metal hip
claims.
The charges for the half year ended 1
July 2023 were partially offset by the release of a provision for
an intellectual property dispute.
The half years ended 29 June 2024 and
1 July 2023 also include costs for implementing the requirements of
the EU Medical Device Regulation that was effective from May 2021
with a transition period to May 2024
Free
cash flow
Free cash flow is a measure of the
cash generated for the Group to use after capital expenditure
according to its Capital Allocation Framework, it is defined as the
cash generated from operations less capital expenditure and cash
flows from interest and income taxes. A reconciliation from cash
generated from operations, the most comparable IFRS measure, to
free cash flow is set out below:
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
|
2024
|
|
2023
|
|
|
$m
|
|
$m
|
|
Cash generated from
operations
|
368
|
|
215
|
|
Capital expenditure
|
(172)
|
|
(167)
|
|
Interest received
|
6
|
|
6
|
|
Interest paid
|
(65)
|
|
(45)
|
|
Payment of lease
liabilities
|
(27)
|
|
(28)
|
|
Income taxes paid
|
(71)
|
|
(63)
|
|
Free
cash flow
|
39
|
|
(82)
|
Leverage ratio
The leverage ratio is net debt
including lease liabilities to adjusted EBITDA. Net debt is
reconciled in Note 6. Adjusted EBITDA is defined as trading profit
before depreciation and impairment of property, plant and equipment
and amortisation and impairment of other intangible assets,
goodwill and trade investments. The calculation of the leverage
ratio is set out below:
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Full year
|
|
|
|
|
2024
|
|
2023
|
|
|
|
|
$m
|
|
$m
|
|
|
Net debt including lease
liabilities
|
|
3,086
|
|
2,776
|
|
|
|
|
|
|
|
|
|
Trading profit
|
|
1,023
|
|
970
|
|
|
Depreciation of property, plant and
equipment
|
|
310
|
|
306
|
|
|
Amortisation of other intangible
assets, impairment of goodwill and trade investments
|
|
137
|
|
139
|
|
|
Impairment of property, plant and
equipment
|
|
31
|
|
31
|
|
|
Adjustment for items already excluded
from trading profit
|
|
(120)
|
|
(119)
|
|
|
Adjusted
EBITDA1
|
|
1,381
|
|
1,327
|
|
|
Leverage ratio
(x)1
|
|
2.2
|
|
2.1
|
|
1
Leverage ratio for half year 2024 has been
calculated based on Adjusted EBITDA for the rolling 12 months ended
29 June 2024.