REG - Smith & Nephew Plc - Final Results
25/02/2025 07:00
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RNS Number : 2885Y Smith & Nephew Plc 25 February 2025
Smith+Nephew Fourth Quarter and Full Year 2024 Results
Transformative 12-Point Plan delivering higher revenue growth, margin
expansion, strong cash flow and better returns; further step-up in performance
expected in 2025
25 February 2025
Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology business,
reports results for the fourth quarter and full year ended 31 December 2024:
31 Dec 31 Dec Reported Underlying
2024 2023 growth growth
$m $m % %
Fourth Quarter Results(1,2)
Revenue 1,571 1,458 7.8 8.3
Full Year Results(1,2)
Revenue 5,810 5,549 4.7 5.3
Operating profit 657 425 54.6
Operating profit margin (%) 11.3 7.7
EPS (cents) 47.2 30.2 56.3
Cash generated from operations 1,245 829 50.2
Trading profit 1,049 970 8.2
Trading profit margin (%) 18.1 17.5
EPSA (cents) 84.3 82.8 1.7
Free cash flow 551 129 327.1
Deepak Nath, Chief Executive Officer, said:
"Smith+Nephew's transformation remains on track with the 12-Point Plan
increasingly delivering better financial performance. Revenue growth is
consistently above historical levels following operational and commercial
improvements. Changes to our organisational structure are driving increased
accountability at the Business Unit level. Operating leverage and productivity
improvements are supporting margin expansion despite significant sector-wide
headwinds. Working capital discipline and asset utilisation have driven strong
cash flow generation and better returns.
"We finished the year strongly and US Reconstruction was again sequentially
better. Our innovation continued to deliver, with more than 60% of revenue
growth in 2024 coming from products launched in the last five years. We have
launched nearly 50 new products over the last three years and have an exciting
pipeline for 2025.
"There is much more to be done, but we have made solid progress fixing the
foundations and expect a step-up in returns in 2025, including significant
margin expansion. We are confident that this will be the year when
transformation starts to unlock substantial value for our shareholders."
Full Year Highlights(1,2)
· 12-Point Plan actions driving strong revenue growth and second year
of trading margin expansion, offsetting headwinds from inflation and China
· Around 410bps of incremental costs savings and a near 9% net
reduction in total workforce delivered across 2023 and 2024
· 2024 revenue of $5,810 million (2023: $5,549 million), with
underlying revenue growth of 5.3%. Reported growth of 4.7% was after -60bps FX
headwind
· Recent product launches were a major contributor to higher growth,
with many at early stages of roll-out, and exciting pipeline to come
· Trading profit grew 8.2% to $1,049 million (2023: $970 million) with
18.1% trading profit margin, up 60bps (2023: 17.5%). Reported operating profit
improved to $657 million (2023: $425 million)
· Significant improvements in cash generated from operations at $1,245
million (2023: $829 million), trading cash flow at $999 million (2023: $635
million) and trading cash conversion, up to 95% (2023: 65%). Free cash flow
increased to $551 million (2023: $129 million)
· Adjusted Return on Invested Capital (ROIC) improved to 7.4% (2023:
5.9%), with further progress expected in 2025
· Restructuring charges down significantly to $123 million (2023: $220
million)
· Increase in EPSA to 84.3¢ (2023: 82.8¢) and EPS to 47.2¢ (2023:
30.2¢)
· Full year dividend of 37.5¢ per share (2023: 37.5¢ per share)
Q4 Trading Highlights(1,2)
· Q4 revenue of $1,571 million (2023: $1,458 million), with underlying
revenue growth of 8.3%, which includes the benefit of two extra trading days.
Reported growth of 7.8% was after -50bps FX headwind
· Strong finish to year in all regions except China
· US Reconstruction performance continued to improve. Underlying and
reported revenue growth was 5.4% for Knee Implants and 7.6% for Hip Implants
· China headwind sustained across Sports Medicine Joint Repair and
Reconstruction, as expected, reducing the Group underlying revenue growth rate
by -280bps
Outlook(1,2)
· For 2025 we are targeting another year of strong revenue growth and a
significant step-up in trading profit margin
· 2025 underlying revenue growth expected to be around 5% (reported
growth of around 4.8%); first quarter underlying revenue growth expected to be
in the range of 1% to 2% primarily due to continued China headwinds and one
less trading day, with acceleration thereafter
· Full year trading profit margin expected in the range of 19.0% to
20.0%; with margin stronger in the second half than the first as impact of
China headwinds reduce and operational savings are delivered
· Continued momentum and efficiency gains expected to drive further
margin expansion beyond 2025
Analyst conference call
An analyst conference call to discuss Smith+Nephew's fourth quarter and full
year results will be held 8.30am GMT / 3.30am EST on 25 February 2025, details
of which can be found on the Smith+Nephew website at
https://www.smith-nephew.com/en/about-us/investors
(https://nam11.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.smith-nephew.com%2Fen%2Fabout-us%2Finvestors&data=05%7C01%7CSarah.Carne%40smith-nephew.com%7C89f1c0752f66495266ee08dbcb57436e%7C273106dc287842ebb7c8069dcf334687%7C0%7C0%7C638327347876797741%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=cuP0zhcVP90ZXeubHQFyZCXoFHaGZyxlIvTTAgMH2N0%3D&reserved=0)
.
Enquiries
Investors
Andrew Swift +44 (0) 1923 477433
Smith+Nephew
Media
Charles Reynolds +44 (0) 1923 477314
Smith+Nephew
Susan Gilchrist / Ayesha Bharmal +44 (0) 20 7404 5959
Brunswick
Notes
1. Unless otherwise specified as 'reported' 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 37 to 43 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 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 trading cash conversion ratio, free cash flow, adjusted ROIC, EPSA,
leverage ratio and underlying growth are non-IFRS financial measures. The
non-IFRS financial measures reported in this announcement are explained in
Other Information on pages 37 to 43 and are reconciled to the most directly
comparable financial measure prepared in accordance with IFRS. Reported
results represent IFRS financial measures as shown in the Condensed
Consolidated Financial Statements.
Smith+Nephew Fourth Quarter Trading and Full Year 2024 Results
Smith+Nephew's transformative 12-Point Plan is delivering revenue growth
consistently above historical levels, improved trading profit margin in the
face of significant headwinds, strong and substantially improved cash
generation and increased ROIC. Much of the 12-Point Plan is complete, and we
have addressed the structural weaknesses that were holding back the Group.
There is much more to be done to drive productivity and asset efficiency to
their full potential, with significant additional benefit expected to follow
in 2025 and beyond.
Delivering higher revenue growth
Group revenue in 2024 was $5,810 million (2023: $5,549 million), reflecting
underlying revenue growth of 5.3%. Reported growth of 4.7% reflected a -60bps
headwind from foreign exchange primarily due to the strength of the US Dollar.
We delivered a strong finish to the year, with fourth quarter underlying
revenue growth of 8.3% and revenue of $1,571 million (2023: $1,458 million).
Fourth quarter reported revenue growth was 7.8% after a -50bps foreign
exchange headwind.
The fourth quarter performance was ahead of our expectations driven by a
strong finish to the year, particularly in US Sports Medicine, ENT and
Advanced Wound Bioactives, and the benefit of two extra trading days. The
Group is now operationally and commercially more able to benefit from better
demand, as we saw at the end of the quarter. As a result, we realised more of
a benefit to our surgical businesses from the two extra trading days than we
expected to see during the holiday season. US Hip Implants and US Knee
Implants both delivered a sequential improvement in performance in absolute
terms and on an adjusted day sales basis. China remained a headwind in the
quarter, as expected, reducing the fourth quarter Group underlying revenue
growth rate by -280bps.
Improved trading profit margin, cash generation and ROIC
Trading profit for 2024 was up 8.2% to $1,049 million (2023: $970 million).
The trading profit margin was 18.1% (2023: 17.5%), a 60bps improvement on the
prior year. Operating profit increased to $657 million (2023: $425 million).
Over the last two years we have delivered an 80bps uplift in trading profit
margin. This was achieved as productivity savings of around 410bps and
operating leverage of around 390bps offset major headwinds of around -490bps
from input cost inflation and merit, around -140bps from foreign exchange and
around -90bps from China.
Improving cash flow has been an area of specific focus, with good progress
made in 2024. Cash generated from operations was $1,245 million (2023: $829
million) and trading cash flow was $999 million (2023: $635 million), with
significantly better trading cash conversion of 95% (2023: 65%). We have also
reduced restructuring costs year-on-year to $123 million (2023: $220 million).
Free cash flow increased to $551 million (2023: $129 million).
We have increased visibility and focus on improving our ROIC at the Business
Unit level through allocation of central costs and our drive to improve
working capital. ROIC increased year-on-year by 150bps to 7.4%, reflecting the
progress made under the 12-Point Plan. Going forward, we will continue to
focus on driving further improvement in our ROIC.
Delivering our Strategy for Growth and 12-Point Plan
Smith+Nephew's Strategy for Growth is based on three pillars:
· First, Strengthen the foundations of Smith+Nephew. A solid base in
commercial and manufacturing will enable us to serve customers sustainably and
efficiently, and deliver the best from our core portfolio.
· Second, Accelerate our growth profitably, through more robust
prioritisation of resources and investment, and with continuing customer
focus.
· Third, continue to Transform ourselves for higher long-term growth,
through continued investment in innovation and acquisitions.
In July 2022 we announced our 12-Point Plan to fundamentally change the way
Smith+Nephew operates, accelerating delivery of our Strategy for Growth and
transforming to a consistently higher-growth company. The 12-Point Plan
supports the first two pillars of the Strategy for Growth and is focused on:
· Fixing Orthopaedics, to regain momentum across hip and knee implants,
robotics and trauma, and win share with our differentiated technology;
· Improving productivity, to support trading profit margin expansion;
and
· Further accelerating growth in our already well-performing Advanced
Wound Management and Sports Medicine & ENT business units.
There is clear evidence of the expected operational and financial outcomes
coming through across the Group. Revenue growth is consistently above
historical levels, built on improved product supply and better commercial
execution. Productivity is improving with two years of margin expansion
reflecting operating leverage and efficiency savings which have more than
offset major headwinds. We have improved our capital intensity and cash
conversion supported by the better profitability, improving inventory
management and reduced restructuring costs. We have reengineered our ability
to match production to demand and are reducing capacity in our manufacturing
network. We have delivered a near 9% net reduction in our total workforce
since the start of the 12-Point Plan. More than 1,000 of these role reductions
were in 2024, with the majority taking place in the final quarter of the year.
The transformation programme remains on track and there is much more to focus
on, with further financial benefits supporting trading margin expansion
expected to follow this year and beyond.
12-Point Plan: Delivering higher revenue growth
Through delivery of the 12-Point Plan we have transformed the revenue growth
profile of Smith+Nephew. This progress has been achieved against some major
headwinds, including the underperformance in our US Orthopaedics business and
the pressures of Volume Based Procurement (VBP) programmes in China across
both our Reconstruction and Sports Medicine Joint Repair segments.
The progress was underpinned by 12-Point Plan initiatives that addressed a
number of key issues that were holding back performance. We have significantly
improved product and instrument set availability, which were far below
industry standards, and have now exceeded target levels. Overdue orders have
improved significantly, falling by 90% since 2022. The percentage of sets that
are available reached target at the start of the year, and improved further
during 2024. We also made significant progress simplifying our portfolio, with
a third of global hip and knee brands now phased out.
We have also improved our commercial execution. We have turned around
performance in Trauma, which is now a significant growth driver built upon our
new EVOS(◊) Plating System, and improved Orthopaedics outside the US. US
Orthopaedics is now also on a clear improvement path. Here we have introduced
new management, customer service and satisfaction levels have improved, new
growth-oriented incentive plans are in place and employee turnover has
returned to low-levels. We strengthened our position in robotics with a series
of new features, and the installed base now exceeds 1,000 systems.
Sports Medicine has been outperforming its market for many years built on
sustainable and fundamental factors including commercial excellence, a steady
stream of innovation across procedures, new segment development in tissue
regeneration and successful integration of acquired assets. Whilst we
continued to face significant VBP headwinds in China in 2024, the overall
trajectory for Sports Medicine remains encouraging.
In Advanced Wound Management we have delivered improved performance in recent
years based on better commercial execution focused on our differentiated
strengths, such as our unique portfolio breadth and evidence-based selling.
Performance in 2024 was driven by our leading position in the high-growth
Negative Pressure Wound Therapy (NPWT) segment.
12-Point Plan: 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. In 2024, central costs attributable to business units were
directly allocated to each business unit, with the objective of driving
greater business unit accountability and efficiency, with each business unit
having full profit and loss and capital accountability. These decisions are
already driving more informed investment decisions in areas such as IT. A
small proportion of the corporate costs continue to be held centrally,
reflecting the centralised infrastructure required to support the Group and
run a publicly listed company.
These changes will support our drive to improve our ROIC at the business unit
level through allocation of central costs and improved working capital.
12-Point Plan: Creating value through innovation
Smith+Nephew's innovation pipeline is a significant contributor to our
transformation to being a higher growth business. In 2024, more than 60% of
underlying revenue growth came from products launched in the last five years.
In 2023, new products accounted for around half of our underlying revenue
growth.
We maintained our recent high cadence of launches, with 16 new products in
2024, bringing our total of new products to nearly 50 over the last three
years. Many of these new platforms are driving growth today and have
multi-year runways still ahead of them as we expand indication and
applications and launch in new markets.
Major launches in 2024 included the CATALYSTEM(◊) Primary Hip System
designed to address the evolving demands of primary hip surgery, including the
increased adoption of anterior approach procedures. We moved to full
commercial launch of the AETOS(◊) Shoulder System in the US, enabling us to
compete effectively in the fast-growing $1.7 billion shoulder market, and
continued to build out the platform adding planning software and a stemless
anatomic total shoulder option. We announced new CORIOGRAPH(◊) Pre-Operative
Planning and Modelling Services for the CORI(◊) Surgical System, making it
the only orthopaedic robotic-assisted system to offer either intraoperative
image-free or image-based registration for knee implants. This is one of a
number of unique features for CORI, including supporting revision knee
procedures, a first-of-its-kind digital tensioner for robotics-assisted knee
surgery for soft tissue balancing and offering both burr and saw cutting
options.
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. We have made good
progress on market development activities in the first year of ownership,
including clinical strategy and reimbursement milestones. We have shown with
REGENETEN(◊) that we have the market development and commercialisation
expertise to acquire regenerative technologies and successfully establish a
new standard of care. In ENT, we launched the ARIS(◊) COBLATION(◊)
Turbinate Reduction Wand. This utilises our 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 NPWT System.
This is designed to reduce inefficiency and complexity and features an
improved user interface for enhanced intuitiveness and simplicity and a
durable pump built to offer virtually maintenance free use. We also 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.
An exciting pipeline of further innovation
In 2025 we expect to launch a number of exciting new products. These include
next-generation digital video-based navigation in the arthroscopic tower, a
new intramedullary nail and further extensions to the CORI Surgical System and
AETOS Shoulder System.
Investing in clinical evidence
Clinical, scientific, and real-world evidence continue to play a critical role
in our go-to-market strategy, with compelling and differentiating data
supporting key brands in 2024. This included the first randomised controlled
trial with the REGENETEN(◊) Bioinductive Implant, market-leading 20-year
survivorship data for OXINIUM(◊) with highly cross-linked polyethylene among
all total hip replacement bearing combinations, and impressive early results
for the OR3O(◊) Dual Mobility Hip, LEGION CONCELOC(◊) Cementless Knee, and
revision total knee arthroplasty using CORI. A systematic review and
meta-analysis showed that meniscal repair in selected patients aged ≥40
years had good success rates and patient-reported outcomes, similar to those
in patients aged <40 years, supporting our leading meniscal repair
business. We also published new data supporting the use of PICO(◊) Single
Use Negative Pressure Wound Therapy (NPWT) to reduce surgical site infections
and using the ALLEVYN(◊) LIFE Dressing in a pressure injury prevention
protocol.
12-Point Plan: Cost efficiency and margin expansion
We have made significant productivity improvements through the 12-Point Plan,
delivering around 410bps of incremental costs savings across 2023 and 2024.
Our trading profit margin has expanded by 80 bps since 2022, driven by revenue
leverage from the higher revenue growth and operational efficiencies,
successfully making progress despite major headwinds from inflation, foreign
exchange and China.
Since 2022 we have improved our Sales, Inventory & Operations Planning
(SIOP) process. This is a dynamic process that has brought better alignment of
production plans and commercial delivery. Further productivity improvements
are expected to come through in 2025 as we benefit from costs savings from our
decision to shut four smaller Orthopaedics manufacturing facilities and our
reductions in workforce.
Looking beyond 2025, we expect our work to better align production and
commercial delivery along with capacity reduction, and the timing of lower
costs passing through inventory, to support further margin expansion.
12-Point Plan: Improved cash generation and ROIC
In 2024 we made good progress improving both our trading and free cash flow by
reducing our capital expenditure, working capital and restructuring costs, and
we expect to make further progress in 2025. Through the 12-Point Plan we have
improved our order to cash and asset utilisation, and started to address our
high inventory. By the end of 2024, we had reduced our Day Sales of Inventory
(DSI) by 20 days year-on-year, with DSI down across all business units.
Further inventory improvements will be an area of continued focus in 2025 to
further enhance working capital and ROIC.
Group ROIC increased year-on-year by 150bps to 7.4% in 2024, reflecting
progress made under the 12-Point Plan. We anticipate further improvement in
2025. We will continue to prioritise investment in areas where we expect to
see the highest incremental returns on invested capital.
Better working capital movements resulted in significant improvement in
trading cash flow to $999 million (2023: $635 million), and the trading profit
to cash conversion ratio improved to 95% (2023: 65%). We reduced our
restructuring costs to $123 million, down from $220 million in 2023, and
expect a further reduction in 2025 as 12-Point Plan charges come to an end.
This was a driver behind the significant increase in free cash flow to $551
million in 2024 (2023: $129 million).
Fourth Quarter 2024 Trading Update
Our fourth quarter revenue was $1,571 million (2023: $1,458 million), with
underlying revenue growth of 8.3% (reported growth of 7.8% after -50bps
foreign exchange headwind). There were 62 trading days in the quarter, two
more than Q4 2023. As stated above, the fourth quarter performance was ahead
of our expectations driven by a strong finish to the year.
Geographically, our Established Markets underlying revenue growth was 10.6%
(reported growth 10.5%). Within this, the US underlying revenue growth was
11.9% (reported growth 11.9%) and Other Established Markets underlying revenue
growth was 8.2% (reported growth 7.9%). The Emerging Markets underlying
revenue decline of -2.3% (reported decline -5.1%) reflected the headwinds in
China in Reconstruction and Sports Medicine Joint Repair.
Fourth Quarter Consolidated Revenue Analysis
31 December 31 December Reported Underlying Acquisitions Currency
2024 2023 growth growth((i)) /disposals impact
Consolidated revenue by business unit by product $m $m % % % %
Orthopaedics 608 576 5.5 6.0 - (0.5)
Knee Implants 246 242 1.7 2.4 - (0.7)
Hip Implants 161 155 4.0 4.7 - (0.7)
Other Reconstruction((ii)) 39 31 23.7 23.9 - (0.2)
Trauma & Extremities 162 148 9.4 9.5 - (0.1)
Sports Medicine & ENT 494 462 7.1 7.8 - (0.7)
Sports Medicine Joint Repair 267 256 4.4 5.3 - (0.9)
Arthroscopic Enabling Technologies 173 161 7.9 8.5 - (0.6)
ENT (Ear, Nose and Throat) 54 45 19.6 19.4 - 0.2
Advanced Wound Management 469 420 11.7 12.2 - (0.5)
Advanced Wound Care 187 185 1.2 1.9 - (0.7)
Advanced Wound Bioactives 179 149 20.1 20.3 - (0.2)
Advanced Wound Devices 103 86 19.9 20.6 - (0.7)
Total 1,571 1,458 7.8 8.3 - (0.5)
Consolidated revenue by geography
US 881 788 11.9 11.9 - -
Other Established Markets((iii)) 453 420 7.9 8.2 - (0.3)
Total Established Markets 1,334 1,208 10.5 10.6 - (0.1)
Emerging Markets((iv)) 237 250 (5.1) (2.3) - (2.8)
Total 1,571 1,458 7.8 8.3 - (0.5)
(i) Underlying growth is defined in Note 1 on page 3
(ii) Other Reconstruction includes robotics capital sales and bone cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New
Zealand
Fourth Quarter Business Unit Performance
Orthopaedics
Our Orthopaedics business unit delivered underlying revenue growth of 6.0%
(reported growth 5.5%) in the quarter.
Knee Implants underlying revenue growth was 2.4% (reported growth 1.7%) and
Hip Implants underlying revenue growth was 4.7% (reported growth 4.0%). Knee
Implants growth was driven by our JOURNEY II(◊) Total Knee System and by our
cementless and revision systems. Hip Implants growth was led by our
POLAR3(◊) Total Hip Solution and R3(◊) Acetabular System.
Our US Reconstruction business continued to build momentum as we increasingly
benefit from the 12-Point Plan actions to improve product and set availability
and commercial execution. US Knee Implants underlying revenue growth was 5.4%
(reported growth 5.4%) and US Hip Implants underlying revenue growth was 7.6%
(reported growth 7.6%) in the quarter, both sequentially improving over the
third quarter.
Outside the US, Knee Implants underlying revenue decline was -1.3% (reported
decline -2.8%) and Hip Implants underlying revenue growth was 1.2% (reported
decline -0.6%). As expected, China remained a significant headwind to overall
growth. Here, our distribution partners have continued to reduce their
holdings of implants, following slow end-customer demand earlier in the year.
Inventory in the channel has come down significantly, but is not yet at
normalised levels, and as indicated previously, the largely-paused ordering is
likely to continue through the first quarter of 2025. Other Established
Markets continued its recent good momentum, delivering its best quarterly
performance of the year.
Other Reconstruction delivered another good quarter of growth, with underlying
revenue growth of 23.9% (reported growth 23.7%). This included strong growth
across robotics including another record quarter of placements of our CORI
Surgical System.
Trauma & Extremities underlying revenue growth was 9.5% (reported growth
9.4%), returning to its recent stronger growth profile following a slower
third quarter, as expected. Performance continued to be driven by the EVOS
Plating System with a growing contribution to growth coming from the roll-out
of the new AETOS Shoulder System.
Sports Medicine & ENT
Our Sports Medicine & ENT business unit delivered underlying revenue
growth of 7.8% (reported growth 7.1%). Excluding China, Sports Medicine &
ENT underlying revenue growth was 14.0% (reported growth 13.1%). The segment
continued to face a headwind from the Sports Medicine Joint Repair VBP
programme in China, which commenced in May 2024. We expect this VBP headwind
to persist throughout the first half of 2025, as previously flagged. We also
expect an additional VBP process on mechanical resection blades and COBLATION
wands within Arthroscopic Enabling Technologies in the second half of 2025,
which we expect to be around a $25 million revenue headwind in 2025 from price
impact and channel adjustments.
Sports Medicine Joint Repair underlying revenue growth was 5.3% (reported
growth 4.4%) led by strong double-digit growth from REGENETEN. Excluding
China, Sports Medicine Joint Repair underlying revenue growth was 15.9%
(reported growth 15.0%).
Arthroscopic Enabling Technologies underlying revenue growth was 8.5%
(reported growth 7.9%), with good growth from our COBLATION resection range
and patient positioning portfolio.
ENT underlying revenue growth was 19.4% (reported growth 19.6%), a significant
increase from the previous quarter. This acceleration reflects some catch-up
after slow procedure volumes in the third quarter and a more normal
comparator. Growth was led by our tonsil and adenoid business.
Advanced Wound Management
Our Advanced Wound Management business unit delivered underlying revenue
growth of 12.2% (reported growth 11.7%), its strongest quarter of growth in
2024.
Advanced Wound Care underlying revenue growth was 1.9% (reported growth 1.2%)
with good growth across our foam dressing and infection management portfolios
offset by skin care.
Advanced Wound Bioactives delivered underlying revenue growth of 20.3%
(reported growth 20.1%). The growth rate reflects typical quarterly volatility
in the category with strong double-digit growth in skin substitutes following
the launch of GRAFIX PLUS. We delivered mid-single digit growth from
SANTYL(◊).
Advanced Wound Devices underlying revenue growth was 20.6% (reported growth
19.9%) driven by both our traditional RENASYS Negative Pressure Wound Therapy
System and our single-use PICO Negative Pressure Wound Therapy System.
Full Year Trading
Group revenue in 2024 was $5,810 million (2023: $5,549 million), with
underlying revenue growth of 5.3%. Reported growth of 4.7% reflected a -60bps
headwind from foreign exchange primarily due to the strength of the US Dollar.
Geographically, our Established Markets underlying revenue growth was 5.5%
(reported growth 5.2%). Within this, US underlying revenue growth was 4.8%
(reported growth 4.8%) and Other Established Markets underlying revenue growth
was 6.7% (reported growth 6.0%). Emerging Markets underlying revenue growth of
4.3% (reported growth 2.2%) included the impacts of the China headwinds
described above.
Full Year Consolidated Revenue Analysis
31 December 31 December Reported Underlying Acquisitions Currency
2024 2023 growth Growth((i)) /disposals impact
Consolidated revenue by business unit by product $m $m % % % %
Orthopaedics 2,305 2,214 4.1 4.6 - (0.5)
Knee Implants 947 940 0.7 1.3 - (0.6)
Hip Implants 619 599 3.2 4.0 - (0.8)
Other Reconstruction((ii)) 131 111 18.2 18.5 - (0.3)
Trauma & Extremities 608 564 7.9 8.1 - (0.2)
Sports Medicine & ENT 1,824 1,729 5.5 6.2 - (0.7)
Sports Medicine Joint Repair 982 945 4.0 4.8 - (0.8)
Arthroscopic Enabling Technologies 632 588 7.4 8.2 - (0.8)
ENT (Ear, Nose and Throat) 210 196 6.9 7.3 - (0.4)
Advanced Wound Management 1,681 1,606 4.7 5.1 - (0.4)
Advanced Wound Care 735 725 1.4 2.0 - (0.6)
Advanced Wound Bioactives 581 553 5.1 5.1 - -
Advanced Wound Devices 365 328 11.5 12.2 - (0.7)
Total 5,810 5,549 4.7 5.3 - (0.6)
Consolidated revenue by geography
US 3,123 2,979 4.8 4.8 - -
Other Established Markets((iii)) 1,707 1,611 6.0 6.7 - (0.7)
Total Established Markets 4,830 4,590 5.2 5.5 - (0.3)
Emerging Markets((iv)) 980 959 2.2 4.3 - (2.1)
Total 5,810 5,549 4.7 5.3 - (0.6)
(i) Underlying growth is defined in Note 1 on page 3
(ii) Other Reconstruction includes robotics capital sales and bone cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New
Zealand
Full Year Business Unit Performance
Orthopaedics
Our Orthopaedics business unit delivered underlying revenue growth of 4.6%
(reported growth 4.1%) for the full year.
Knee Implants underlying revenue growth was 1.3% (reported growth 0.7%) and
Hip Implants underlying revenue growth was 4.0% (reported growth 3.2%).
Knee Implants and Hip Implant growth was driven by performance in Other
Established Markets and a significant improvement in the US over the course of
the year. These changes reflected the operational progress in product supply
and sharper commercial execution following the 12-Point Plan. Performance was
held back by China, where we saw reduced end-customer demand in the second
half of the year, resulting in orders from our distribution partners
significantly slowing as they reduced stock-levels in response. 2024 Knee
Implants growth was driven by our JOURNEY II Total Knee System and by our
cementless and revision systems. Hip growth was led by our POLAR3 Total Hip
Solution and R3 Acetabular System.
Other Reconstruction underlying revenue growth was 18.5% (reported growth
18.2%) for the full year. Performance principally reflects sales of our
robotics-assisted CORI Surgical System and consumables.
Trauma & Extremities underlying revenue growth was 8.1% (reported growth
7.9%) for the full year. Following 12-Point Plan actions to improve product
supply and turnaround performance in Trauma & Extremities, this business
was a significant growth driver in 2024. Progress was driven by our investment
to build out the EVOS Plating System. We also continued to successfully
roll-out the launch of the AETOS Shoulder System, entering a high growth
category in Orthopaedics.
Sports Medicine & ENT
Our Sports Medicine & ENT business unit delivered underlying revenue
growth of 6.2% (reported growth 5.5%) for the full year. Sports Medicine &
ENT underlying revenue growth was 10.0% (reported growth 9.3%) excluding
China, where the implementation of VBP was a headwind, as noted above.
Sports Medicine Joint Repair underlying revenue growth was 4.8% (reported
growth 4.0%) for the full year. Outside of China, Sports Medicine Joint Repair
had another strong year driven by our knee repair portfolio and the REGENETEN
Bioinductive Implant. Excluding China, Sports Medicine Joint Repair underlying
revenue growth was 11.3% (reported growth 10.6%).
Arthroscopic Enabling Technologies underlying revenue growth was 8.2%
(reported growth 7.4%). This was significantly ahead of the prior year, driven
by our arthroscopic tower and COBLATION technologies.
ENT underlying revenue growth was 7.3% (reported growth 6.9%). Growth was led
by our tonsil and adenoid business.
Advanced Wound Management
Our Advanced Wound Management business unit delivered underlying revenue
growth of 5.1% (reported growth 4.7%) in 2024.
Advanced Wound Care underlying revenue growth was 2.0% (reported growth 1.4%).
Growth was driven by good performances in foam dressings and infection
management categories.
Advanced Wound Bioactives underlying revenue growth was 5.1% (reported growth
5.1%). SANTYL(◊) delivered growth for the full year, although we continued
to see quarter-to-quarter variability, a long-term feature of this product. We
delivered double-digit growth from our skin substitutes business following the
launch of GRAFIX PLUS.
Advanced Wound Devices underlying revenue growth was 12.2% (reported growth
11.5%). This was driven by both our traditional RENASYS Negative Pressure
Wound Therapy System and our single-use PICO Negative Pressure Wound Therapy
System, and from our LEAF(◊) Patient Monitoring System as we continued to
expand the market in pressure injury prevention.
Full Year 2024 Consolidated Analysis
Smith+Nephew results for the year ended 31 December 2024:
Reported
2024 2023 growth
$m $m %
Revenue 5,810 5,549 4.7
Operating profit 657 425 54.6
Acquisition and disposal related items 94 60
Restructuring and rationalisation costs 123 220
Amortisation and impairment of acquisition intangibles 187 207
Legal and other (12) 58
Trading profit((i)) 1,049 970 8.2
¢ ¢
Earnings per share ('EPS') 47.2 30.2
Acquisition and disposal related items 11.2 7.3
Restructuring and rationalisation costs 10.8 20.7
Amortisation and impairment of acquisition intangibles 16.6 18.6
Legal and other (1.5) 6.0
Adjusted Earnings per share ('EPSA')((i)) 84.3 82.8 7.7
(i) See Other Information on pages 37 to 43
Full Year 2024 Analysis
Group revenue for 2024 was $5,810 million (2023: $5,549 million), reflecting
underlying revenue growth of 5.3%. Reported growth of 4.7% reflected a -60bps
headwind from foreign exchange primarily due to the strength of the US Dollar.
The gross profit was $3,996 million (2023: $3,819 million) with a gross profit
margin of 69.6% (2023: 68.8%). Operating profit increased to $657 million
(2023: $425 million) after acquisition and disposal related items,
restructuring and rationalisation costs, amortisation and impairment of
acquisition intangibles and legal and other items (see Other Information on
pages 37 to 43).
Trading profit was up 8.2% to $1,049 million (2023: $970 million), with a
trading profit margin of 18.1% (2023: 17.5%). The 60bps margin expansion
reflects the benefits of revenue leverage and manufacturing, distribution and
operating expense savings offset by input cost inflation and China VBP (see
Note 2 to the Financial Statements for global business unit trading profit).
Acquisition and disposal-related items primarily relate to impairment of BHR
goodwill, discontinuation of certain products and integration costs relating
to the CartiHeal acquisition (see Note 2 to the Financial Statements).
Restructuring costs significantly decreased year-on-year to $123 million
(2023: $220 million), and included costs related to the efficiency and
productivity work underway across the Group under the 12-Point Plan.
The net interest charge within reported results was $121 million (2023: $98
million) which reflects the recent maturities of low coupon debt and the
increased interest rate environment.
Reported tax for the year to 31 December 2024 was a charge of $86 million
(2023: $27 million). The tax rate on trading results was 19.1% (2023: 16.2%)
(see Note 3 to the Financial Statements and Other Information on pages 37 to
43 for further details on taxation).
Adjusted earnings per share ('EPSA') increased to 84.3¢ (168.6¢ per ADS)
(2023: 82.8¢ per share). Basic earnings per share ('EPS') was 47.2¢ (94.4¢
per ADS) (2023: 30.2¢ per share), reflecting restructuring costs, acquisition
and disposal related items, amortisation and impairment of acquisition
intangibles and legal and other items incurred.
Cash generated from operations was up significantly to $1,245 million (2023:
$829 million) and trading cash flow was up to $999 million (2023: $635
million). The increase was primarily driven by lower working capital costs,
including in inventory, and higher payables. Capital expenditure was also
lower versus an elevated level of investment in 2023 (see Other Information on
pages 37 to 43 for a reconciliation between cash generated from operations and
trading cash flow). As a result of the working capital movement, the trading
profit to cash conversion ratio improved to 95% (2023: 65%).
The Group's net debt, excluding lease liabilities, was $2,513 million at 31
December 2024, with access to committed facilities of $4.1 billion (see Note 6
to the Financial Statements). Our adjusted leverage ratio for 2024 was 1.9x.
Dividend and Capital Allocation Framework
The Board is recommending a Final Dividend of 23.1¢ per share (46.2¢ per
ADS) (2023: 23.1¢ per share). Together with the Interim Dividend of 14.4¢
per share (28.8¢ per ADS), this will give a total distribution of 37.5¢ per
share (75.0¢ per ADS), unchanged from 2023. Subject to confirmation at our
Annual General Meeting, the Final Dividend will be paid on 28 May 2025 to
shareholders on the register at the close of business on 28 March 2025.
The appropriate use of capital on behalf of shareholders is important to
Smith+Nephew. In July 2024, we announced an updated capital allocation
framework 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. The second priority is also unchanged,
and is to invest in acquisitions, targeting new technologies in high growth
segments with a strong strategic fit that meet our financial criteria. The
third priority is to maintain an optimal balance sheet and appropriate
dividend. Here we will continue to target investment grade credit ratings with
a target leverage ratio of around 2x net debt to adjusted EBITDA. 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.
Our final priority remains to return any surplus capital to shareholders, via
a share buyback subject to the above balance sheet metrics.
2025 Outlook
For 2025 we are targeting another year of revenue growth above historical
levels and a significant step-up in trading profit margin.
For revenue, we expect to deliver underlying revenue growth of around 5%.
Within this, we expect ongoing improvement from US Reconstruction and
continued strong growth from Sports Medicine outside of China, ENT and
Advanced Wound Management offset by the impact of the anticipated China VBP
extension into Arthroscopic Enabling Technologies (estimated $25 million
revenue headwind in 2025). There will be one fewer trading day in 2025 than in
2024. The guidance equates to reported growth of around 4.8% based on exchange
rates prevailing on 19 February 2025.
In terms of phasing, we expect the headwinds from China to continue in
Reconstruction for the first quarter, and in Sports Medicine Joint Repair into
the second quarter as we lap VBP implementation. We expect that some of the
strong finish to 2024, particularly in US Sports Medicine and Advanced Wound
Bioactives, will normalise in the first quarter. In addition, we have one
fewer trading day in each of the first and second quarters versus 2024, then
one extra day in the fourth quarter. As a result of these factors, we expect
first quarter underlying revenue growth to be in the range of 1% to 2% and
then be higher across the remainder of the year.
We expect to deliver a trading profit margin of between 19% to 20%. This
significant step-up will be driven by operating leverage, cost reductions and
the benefits of our network optimisation programme. These benefits are
expected to more than offset headwinds from China and cost inflation.
We expect trading profit margin to be stronger in the second half than the
first as the impact of China headwinds reduce and operational savings are
delivered.
We expect trading cash conversion of 80% to 90% and restructuring costs of
around $45 million in 2025.
The tax rate on trading results for 2025 is forecast to be in the range of 19%
to 20%, subject to any material changes to tax law or other one-off items.
Forward calendar
The Q1 2025 Trading Report will be released on 30 April 2025.
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 17,000 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 around 100 countries, and
generated annual sales of $5.8 billion in 2024. 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
(http://www.smith-nephew.com/) and follow us on X
(http://www.twitter.com/smithnephewplc) , LinkedIn
(http://www.linkedin.com/company/smith-%26-nephew) , Instagram
(https://www.instagram.com/smithnephewmeded/) or Facebook
(http://www.facebook.com/smithnephewplc) .
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.
2024 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Group Income Statement for the year ended 31 December 2024
2024 2023
Notes $m $m
Revenue 2 5,810 5,549
Cost of goods sold (1,764) (1,730)
Gross profit 4,046 3,819
Selling, general and administrative expenses (3,100) (3,055)
Research and development expenses (289) (339)
Operating profit 2 657 425
Interest income 24 34
Interest expense (145) (132)
Other finance costs (28) (7)
Share of results of associates (10) (30)
Profit before taxation 498 290
Taxation 3 (86) (27)
Attributable profit for the year(A) 412 263
Earnings per ordinary share(A)
Basic 47.2 30.2
Diluted 47.0 30.1
Group Statement of Comprehensive Income for the year ended 31 December 2024
2024 2023
$m $m
Attributable profit for the year(A) 412 263
Other comprehensive income
Items that will not be reclassified to income statement
Remeasurement of net retirement benefit obligations 16 (89)
Taxation on other comprehensive income (1) 18
Total items that will not be reclassified to income statement 15 (71)
Items that may be reclassified subsequently to income statement
Cash flow hedges - forward exchange contracts
Gains arising in the year 38 23
Gains recycled to income statement in the year (1) (25)
Exchange differences on translation of foreign operations (124) 56
Taxation on other comprehensive income (5) -
Total items that may be reclassified subsequently to income statement (92) 54
Other comprehensive loss for the year, net of taxation (77) (17)
Total comprehensive income for the year(A) 335 246
A Attributable to the equity holders of the Company and wholly derived
from continuing operations.
Group Balance Sheet as at 31 December 2024
31 December 31 December
2024 2023
Notes $m $m
ASSETS
Non-current assets
Property, plant and equipment 1,422 1,470
Goodwill 3,026 2,992
Intangible assets 1,032 1,110
Investments 9 8
Investments in associates 7 16
Other non-current assets 24 18
Retirement benefit assets 63 69
Deferred tax assets 350 274
5,933 5,957
Current assets
Inventories 2,387 2,395
Trade and other receivables 1,381 1,300
Current tax receivable 34 33
Cash and cash equivalents 6 619 302
4,421 4,030
TOTAL ASSETS 10,354 9,987
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 175 175
Share premium 615 615
Capital redemption reserve 20 20
Treasury shares (66) (94)
Other reserves (497) (405)
Retained earnings 5,018 4,906
Total equity 5,265 5,217
Non-current liabilities
Long-term borrowings and lease liabilities 6 3,258 2,319
Retirement benefit obligations 79 88
Other payables 95 35
Provisions 95 48
Deferred tax liabilities 31 9
3,558 2,499
Current liabilities
Bank overdrafts, borrowings, loans and lease liabilities 6 63 765
Trade and other payables 1,128 1,055
Provisions 108 233
Current tax payable 232 218
1,531 2,271
Total liabilities 5,089 4,770
TOTAL EQUITY AND LIABILITIES 10,354 9,987
Group Cash Flow Statement for the year ended 31 December 2024
2024 2023
$m $m
Cash flows from operating activities
Profit before taxation 498 290
Net interest expense 121 98
Depreciation, amortisation and impairment 645 683
Loss on disposal of property, plant and equipment and software 22 18
Share-based payments expense (equity-settled) 40 39
Share of results of associates 10 30
Pension costs less cash paid 16 3
Increase in inventories (42) (178)
Increase in trade and other receivables (81) (49)
Decrease/(increase) in trade and other payables and provisions 16 (105)
Cash generated from operations 1,245 829
Interest received 22 8
Interest paid (140) (104)
Income taxes paid (140) (125)
Net cash inflow from operating activities 987 608
Cash flows from investing activities
Acquisitions, net of cash acquired (186) (21)
Capital expenditure (381) (427)
Purchase of investments (1) -
Investment in associates (1) -
Net cash used in investing activities (569) (448)
Cash flows from financing activities
Payment of capital element of lease liabilities (55) (52)
Proceeds from borrowings due within one year - 326
Settlement of borrowings due within one year (705) (151)
Proceeds from borrowings due after one year 1,000 -
Proceeds from own shares 1 -
Settlement of currency swaps - 4
Equity dividends paid (327) (327)
Net cash used in financing activities (86) (200)
Net increase/(decrease) in cash and cash equivalents 332 (40)
Cash and cash equivalents at beginning of year 300 344
Exchange adjustments (15) (4)
Cash and cash equivalents at end of year(B) 617 300
B Cash and cash equivalents at the end of the year are net of bank
overdrafts of $2m (2023: $2m).
Group Statement of Changes in Equity for the year ended 31 December 2024
Capital
Share Share redemption Treasury Other Retained Total
capital premium reserve shares reserves(C) earnings(D) equity
$m $m $m $m $m $m $m
At 1 January 2024 175 615 20 (94) (405) 4,906 5,217
Attributable profit for the year(A) - - - - - 412 412
Other comprehensive income(A) - - - - (92) 15 (77)
Equity dividends declared and paid - - - - - (327) (327)
Share-based payments recognised - - - - - 40 40
Taxation on share-based payments - - - - - (1) (1)
Cost of shares transferred to beneficiaries - - - 28 - (27) 1
At 31 December 2024 175 615 20 (66) (497) 5,018 5,265
Capital
Share Share redemption Treasury Other Retained Total
capital premium reserve shares reserves(C) earnings(D) equity
$m $m $m $m $m $m $m
At 1 January 2023 175 615 20 (118) (459) 5,026 5,259
Attributable profit for the year(A) - - - - - 263 263
Other comprehensive income(A) - - - - 54 (71) (17)
Equity dividends declared and paid - - - - - (327) (327)
Share-based payments recognised - - - - - 39 39
Cost of shares transferred to beneficiaries - - - 24 - (24) -
At 31 December 2023 175 615 20 (94) (405) 4,906 5,217
A Attributable to the equity holders of the Company and wholly derived
from continuing operations.
C Other reserves comprises gains and losses on cash flow 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 31 December 2024 was $520m (2023: $396m, 2022: $452m).
D Within retained earnings is a non-distributable capital reserve of
$2,266m (2023: $2,266m, 2022: $2,266m) which arose as a result of the Group's
reorganisation in 2008.
Notes to the Condensed Consolidated 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 financial
statements ('Financial Statements'), 'Group' means the Company and all its
subsidiaries. The financial information herein has been prepared on the basis
of the accounting policies as set out in the Annual Report of the Group for
the year ended 31 December 2024. The Group has prepared its accounts in
accordance with UK-adopted International Accounting Standards. The Group has
also prepared its accounts in accordance with International Financial
Reporting Standards (IFRS Accounting Standards) as issued by the International
Accounting Standards Board (IASB) effective as at 31 December 2024. IFRS as
adopted in the UK differs in certain respects from IFRS Accounting Standards
as issued by the IASB. However, the differences have no impact for the periods
presented.
The preparation of accounts in conformity with IFRS requires management to use
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the accounts and the reported amounts of revenues and expenses during the
year. The accounting policies requiring management to use significant
estimates and assumptions are discussed below. Although these estimates are
based on management's best knowledge of current events and actions, actual
results ultimately may differ from those estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to estimates are
recognised prospectively.
The uncertainties as to the future impact on the financial performance and
cash flows of the Group as a result of the current economic environment have
been considered as part of the Group's adoption of the going concern basis in
these financial statements, 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 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 financial statements for the
reasons set out below.
The Group had access to $617m of cash and cash equivalents at 31 December
2024. The Group's net debt, excluding lease liabilities, at 31 December 2024
was $2,513m with access to committed facilities of $4.1bn with an average
maturity of 5.5 years.
At the date of approving these financial statements the funding position of
the Group has remained unchanged and the cash position is not materially
different. The Group does not have any debt that is due for repayment in 2025.
$625m of private placement debt is subject to financial covenants. The
principal covenant on the private placement debt is a leverage ratio of
<3.5 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, including
the impact of a significant global economic downturn, 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 have a reasonable expectation that the Company and the Group are
well placed to manage their business risks, have sufficient funds to continue
to meet their liabilities as they fall due and to continue in operational
existence for a period of at least 12 months from the date of the approval of
the financial statements. The financial statements have therefore been
prepared on a going concern basis.
Accordingly, the Directors continue to adopt the going concern basis (in
accordance with the guidance 'Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting' issued by the FRC) in preparing
these financial statements.
The principal risks that the Group is exposed to will be disclosed in the
Group's 2024 Annual Report. These are: strategy and commercial execution;
cybersecurity; global supply chain; legal and compliance; mergers and
acquisitions; new product innovation, design and development including
intellectual property; political and economic; pricing and reimbursement;
quality and regulatory; talent management; and financial markets.
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 for the years ended 31 December 2024 or 2023 but is derived
from those accounts. Statutory accounts for 2023 have been delivered to the
registrar of companies and those for 2024 will be delivered in due course. The
auditor has reported on those accounts; their report was (i) unqualified, (ii)
did not include a reference to any matters to which the auditor drew attention
by way of emphasis without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
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 2025 and earlier application is permitted;
however, the Group has not adopted them early in preparing these 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.
Management regularly reviews, and revises as necessary, the accounting
judgements that significantly impact the amounts recognised in the financial
statements and the estimates that are considered to be critical estimates due
to their potential to give rise to material adjustments in the Group's
financial statements in the next financial year. The Group's accounting
policies do not include any critical judgements. The critical accounting
estimate with a significant risk of a material change to the carrying value of
assets and liabilities within the next year is impairment of Orthopaedics CGU
as outlined below. In addition, other estimates have also been identified that
are not considered to be critical in respect of the provision for excess and
obsolete inventory and liability provisioning for legal disputes relating to
metal-on-metal cases.
Management have considered the impact of the uncertainties around the current
economic environment below.
Impairment
In carrying out impairment reviews of intangible assets and goodwill, a number
of significant assumptions have to be made when preparing cash flow
projections. These include the future rate of market growth, discount rates,
the market demand for the products acquired, the future profitability of
acquired businesses or products, levels of reimbursement and success in
obtaining regulatory approvals. If actual results should differ or changes in
expectations arise, impairment charges may be required which would adversely
impact operating results. The Orthopaedics CGU is sensitive to a reasonably
possible change in assumptions, in particular the projected trading profit
margin. For other intangible assets and goodwill CGUs, this critical estimate
is not considered to have a significant risk of material adjustment in 2025 or
thereafter based on sensitivity analyses undertaken (as outlined below).
Current economic environment impact assessment: Management have assessed the
non-current assets held by the Group at 31 December 2024 to identify any
indicators of impairment as a result of current economic environment. Where an
impairment indicator has arisen, impairment reviews have been undertaken by
comparing the expected recoverable value of the asset to the carrying value of
the asset. The recoverable amounts are based on cash flow projections using
the Group's base case scenario in its going concern models, which was reviewed
and approved by the Board.
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 financial statements:
a. The impact of climate change on the going concern assessment and the
viability of the Group over the next three years.
b. The impact of climate change on the cash flow forecasts used in the
impairment assessments of non-current assets including goodwill.
c. The impact of climate change on the carrying value and useful economic
lives of property, plant and equipment.
While there is currently no material medium term impact expected, the Group
closely monitors climate-related risks given the changing nature of these
risks and management consider the impact of climate change as part of the
decision making process and continue to assess the impact on judgements and
estimates, and on preparation of the consolidated financial statements.
2. Business segment information
The Group's operating structure is organised around four global business units
(Orthopaedics, Sports Medicine, ENT and Advanced Wound Management) and the
chief operating decision maker monitors performance, makes operating decisions
and allocates resources on a global business unit basis. Business unit
presidents have responsibility for upstream marketing, driving product
portfolio and technology acquisition decisions, full commercial responsibility
and for the implementation of their business unit strategy globally.
Accordingly, the Group consists of four operating segments.
The Group has concluded that Sports Medicine and ENT meet the aggregation
criteria and therefore, these operating segments have been aggregated into a
single operating segment. In applying the aggregation criteria prescribed by
IFRS 8 Operating Segments, management made certain judgements pertaining to
the economic indicators relating to these operating segments including those
relating to the similarities in the expected long-term market growth rates,
the geographic and operational risks and the competitive landscape that these
segments operate in. Therefore, in accordance with IFRS 8, the Group has three
operating segments which are also reportable segments.
The Executive Committee ('ExCo') comprises the Chief Financial Officer
('CFO'), the business unit presidents and certain heads of function, and is
chaired by the Chief Executive Officer ('CEO'). ExCo is the body through which
the CEO uses the authority delegated to him by the Board of Directors to
manage the operations and performance of the Group. All significant operating
decisions regarding the allocation and prioritisation of the Group's resources
and assessment of the Group's performance are made by ExCo, and while the
members have individual responsibility for the implementation of decisions
within their respective areas, it is at the ExCo level that these decisions
are made. Accordingly, ExCo is considered to be the Group's chief operating
decision maker as defined by IFRS 8 Operating Segments.
In making decisions about the prioritisation and allocation of the Group's
resources, ExCo reviews financial information for the business units and
determines the best allocation of resources to the business units. This
information is prepared substantially on the same basis as the Group's IFRS
financial statements aside from the adjustments described in Note 2b. In 2024,
the Group changed the segment trading profit measure presented to the ExCo by
allocating directly attributable corporate costs to business units. Financial
information for corporate costs relating to centalised infrastructure costs
such as compliance and group functions is presented on a Group-wide basis. The
ExCo is not provided with total assets and liabilities by segment, and
therefore these measures are not included in the disclosures below. The
results of the segments are shown below.
2a. Revenue by business segment and geography
Revenue is recognised as the performance obligations to deliver products or
services are satisfied and is recorded based on the amount of consideration
expected to be received in exchange for satisfying the performance
obligations. Revenue is recognised primarily when control is transferred to
the customer, which is generally when the goods are shipped or delivered in
accordance with the contract terms, with some transfer of services taking
place over time. Substantially all performance obligations are fulfilled
within one year. There is no significant revenue associated with the provision
of services.
Payment terms to our customers are based on commercially reasonable terms for
the respective markets while also considering a customer's credit rating.
Appropriate provisions for returns, trade discounts and rebates are deducted
from revenue. Rebates primarily comprise chargebacks and other discounts
granted to certain customers. Chargebacks are discounts that occur when a
third-party purchases product from a wholesaler at its agreed price plus a
mark-up. The wholesaler in turn charges the Group for the difference between
the price initially paid by the wholesaler and the agreed price. The provision
for chargebacks is based on expected sell-through levels by the Group's
wholesalers to such customers, as well as estimated wholesaler inventory
levels.
Orthopaedics and Sports Medicine & ENT (Ear, Nose & Throat)
Orthopaedics and Sports Medicine & ENT consists of the following
businesses: Knee Implants, Hip Implants, Other Reconstruction, Trauma &
Extremities, Sports Medicine Joint Repair, Arthroscopic Enabling Technologies
and ENT. Sales of inventory located at customer premises and available for
customers' immediate use are recognised when notification is received that the
product has been implanted or used. Substantially all other revenue is
recognised when control is transferred to the customer, which is generally
when the goods are shipped or delivered in accordance with the contract terms.
Revenue is recognised for the amount of consideration expected to be received
in exchange for transferring the products or services.
In general our business in Established Markets is direct to hospitals and
ambulatory surgery centers whereas in the Emerging Markets we generally sell
through distributors.
Advanced Wound Management
Advanced Wound Management consists of the following businesses: Advanced Wound
Care, Advanced Wound Bioactives and Advanced Wound Devices. Substantially all
revenue is recognised when control is transferred to the customer, which is
generally when the goods are shipped or delivered in accordance with the
contract terms. Revenue is recognised for the amount of consideration expected
to be received in exchange for transferring the products or services.
Appropriate provisions for returns, trade discounts and rebates are deducted
from revenue, as explained above.
The majority of our Advanced Wound Management business, and in particular
products used in community and homecare facilities, is through wholesalers and
distributors. When control is transferred to a wholesaler or distributor,
revenue is recognised accordingly. The proportion of sales direct to hospitals
is higher in our Advanced Wound Devices business in Established Markets.
Segment revenue reconciles to statutory revenue from continuing operations as
follows:
2024 2023
$m $m
Reportable segment revenue
Orthopaedics 2,305 2,214
Sports Medicine & ENT 1,824 1,729
Advanced Wound Management 1,681 1,606
Revenue from external customers 5,810 5,549
Disaggregation of revenue
The following table shows the disaggregation of Group revenue by product by
business unit:
2024 2023
$m $m
Knee Implants 947 940
Hip Implants 619 599
Other Reconstruction 131 111
Trauma & Extremities 608 564
Orthopaedics 2,305 2,214
Sports Medicine Joint Repair 982 945
Arthroscopic Enabling Technologies 632 588
ENT (Ear, Nose and Throat) 210 196
Sports Medicine & ENT 1,824 1,729
Advanced Wound Care 735 725
Advanced Wound Bioactives 581 553
Advanced Wound Devices 365 328
Advanced Wound Management 1,681 1,606
Total 5,810 5,549
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, which 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.
2024 2023
Established Markets(E) Emerging Markets Total Established Markets(E) Emerging Markets Total
$m $m $m $m $m $m
Orthopaedics, Sports Medicine & ENT 3,366 763 4,129 3,184 759 3,943
Advanced Wound Management 1,464 217 1,681 1,406 200 1,606
Total 4,830 980 5,810 4,590 959 5,549
E Established Markets comprises the US, Australia, Canada, Europe, Japan
and New Zealand.
Sales are attributed to the country of destination. US revenue for 2024 was
$3,123m (2023: $2,979m), China revenue for 2024 was $210m (2023: $275m) and UK
revenue for 2024 was $226m (2023: $201m).
No single customer generates revenue greater than 10% of the consolidated
revenue.
2b. Trading profit by business segment
The segment profit measure presented to the ExCo is the segment trading
profit. The Group has identified the following items, where material, as those
to be excluded from operating profit when arriving at segment trading profit:
corporate costs; acquisition and disposal-related items; significant
restructuring programmes; amortisation and impairment of acquisition
intangibles; gains and losses arising from legal disputes; and other
significant items.
In 2024, the Group changed the segment trading profit measure presented to the
ExCo by allocating directly attributable corporate costs to business units
except for corporate costs relating to centralised infrastructure costs such
as compliance and group functions. Accordingly, 2023 operating segment results
have been restated for comparative purposes.
Segment trading profit is reconciled to the statutory measure below:
2024 2023
$m $m
Segment profit
Orthopaedics 265 251
Sports Medicine & ENT 437 394
Advanced Wound Management 399 372
Segment trading profit 1,101 1,017
Corporate costs(1) (52) (47)
Acquisition and disposal related items(2) (94) (60)
Restructuring and rationalisation expenses (123) (220)
Amortisation and impairment of acquisition intangibles(2) (187) (207)
Legal and other(2) 12 (58)
Operating profit 657 425
Interest income 24 34
Interest expense (145) (132)
Other finance costs (28) (7)
Share of results of associates (10) (30)
Profit before taxation 498 290
1 In 2024 and 2023, corporate costs include centralised infrastructure
costs such as compliance and group functions.
2 During 2024, the Group announced its intention to close the Warwick
manufacturing site that manufactures Birmingham Hip Resurfacing (BHR)
products. As a result, a total of $68m of BHR assets and liabilities were
written off, which mainly includes goodwill of $63m (included in acquisition
and disposal-related items).
During 2023, management evaluated the commercial viability of Engage products
and concluded that they should be discontinued. A total of $109m of Engage's
assets and liabilities were written off as a result of this action, which
includes goodwill of $84m (included in acquisition and disposal-related
items), intangible assets of $37m (included in amortisation and impairment of
acquisition intangibles), inventory of $21m (included in legal and other),
partially offset by remeasurement of contingent consideration of $33m
(included in acquisition and disposal-related items).
Acquisition and disposal-related items
For the year ended 31 December 2024, costs primarily relate to impairment of
BHR goodwill, disposal of certain products and integration costs relating to
CartiHeal.
For the year ended 31 December 2023, costs primarily relate to the acquisition
of CartiHeal and impairment of Engage goodwill, partially offset by credits
relating to remeasurement of contingent consideration for prior year
acquisitions.
Restructuring and rationalisation costs
For the years ended 31 December 2024 and 2023, these costs include efficiency
and productivity elements of the 12-Point Plan and the Operations and
Commercial Excellence programme. These costs primarily consist of severance,
business advisory services, asset write-offs, contractual terminations and
integration and dual running costs.
Amortisation and impairment of acquisition intangibles
For the years ended 31 December 2024 and 2023, these costs relate to the
amortisation and impairment of intangible assets acquired in material business
combinations.
Legal and other
For the year ended 31 December 2024, the credit mainly relates to a $28m
reduction in the provision for ongoing metal-on-metal hip claims as a result
of decrease in the present value of the estimated costs to resolve all known
and anticipated metal-on-metal hip claims, partially offset by legal expenses
for ongoing metal-on-metal hip claims.
For the year ended 31 December 2023, charges primarily relate to legal
expenses for ongoing metal-on-metal hip claims partially offset by a decrease
of $8m 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 and by the release of a provision for an intellectual property dispute.
The years ended 31 December 2024 and 2023 also include costs for implementing
the requirements of the EU Medical Device Regulation which came into effect in
May 2021 with a transition period to May 2024.
3. Taxation
Reported tax for the year ended 31 December 2024 was a charge of $86m (2023:
$27m charge). The reported tax charge is higher than 2023 due to an increase
in reported profits.
Pillar Two
The OECD Pillar Two GloBE Rules (Pillar Two) introduce a global minimum
corporation tax rate of 15% applicable to multinational enterprise groups with
global revenue over €750m. The Pillar Two Rules applied to the Group for its
accounting period
ended 31 December 2024 and the Pillar Two current tax charge for the period is
approximately $8m.
The Group is adopting the IAS12 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 of 23.1 US cents per ordinary share totalling $202m
was paid on 22 May 2024. The 2024 interim dividend of 14.4 US cents per
ordinary share totalling $125m was paid on 8 November 2024.
A final dividend for 2024 of 23.1 US cents per ordinary share has been
proposed by the Board and will be paid, subject to shareholder approval, on 28
May 2025 to shareholders whose names appear on the Register of Members on 28
March 2025. The sterling equivalent per ordinary share will be set following
the record date. The ex-dividend date is 27 March 2025 and the final day for
currency and dividend reinvestment plan ('DRIP') elections is 6 May 2025.
5. Acquisitions
Year ended 31 December 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 is 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 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.
The cash outflow from acquisitions in 2024 of $186m (2023: $21m) comprises
payments of consideration of $177m net of cash acquired (2023: $nil) relating
to acquisitions in the current year and payments of deferred and contingent
consideration of $9m relating to acquisitions completed in prior years.
The goodwill represents the control premium, acquired workforce and the
synergies expected from integrating CartiHeal into the Group's existing
business.
The carrying value of goodwill increased from $2,992m at 31 December 2023 to
$3,026m at 31 December 2024. The acquisition in the year ended 31 December
2024 increased goodwill by $146m, this was partially offset by goodwill
impairment of $65m and foreign exchange movements of $47m.
For the year ended 31 December 2024, the contribution from CartiHeal to the
Group's revenue and profit was immaterial. If the business combination had
occurred at the beginning of the year the contribution to revenue and profit
would not have been materially different.
Year ended 31 December 2023
No acquisitions were completed in the year ended 31 December 2023.
During 2023, management evaluated the commercial viability of Engage products
and concluded that they should be discontinued. Refer to note 2b for further
details.
6. Net debt
Net debt comprises borrowings and credit balances on currency swaps less cash
and cash equivalents.
31 December 31 December
2024 2023
$m $m
Bank overdrafts, borrowings and loans - current 2 710
Corporate bond 2,498 1,550
Private placement notes 625 625
Borrowings 3,125 2,885
Cash and cash equivalents (619) (302)
Credit balance on derivatives - currency swaps 1 1
Credit/(debit) balance on derivatives - interest rate swaps 6 (7)
Net debt excluding lease liabilities 2,513 2,577
Non-current lease liabilities 135 144
Current lease liabilities 61 55
Net debt 2,709 2,776
The Group has available committed facilities of $4.1bn (2023: $3.6bn). At the
date
of approving these financial statements the funding position of the Group has
remained unchanged and the cash position is not materially different.
The Group does not have any debt that is due for repayment in 2025.
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
2024 2023 2024 2023 Fair value
$m $m $m $m level
Financial assets measured at fair value
Forward foreign exchange contacts 46 25 46 25 Level 2
Investments 9 8 9 8 Level 3
Contingent consideration receivable - 18 - 18 Level 3
Interest rate swaps 10 7 10 7 Level 2
Currency swaps 1 2 1 2 Level 2
66 60 66 60
Financial assets not measured at fair value
Trade and other receivables 1,190 1,163
Cash and cash equivalents 619 302
1,809 1,465
Total financial assets 1,875 1,525
Financial liabilities measured at fair value
Acquisition consideration - contingent (84) (32) (84) (32) Level 3
Forward foreign exchange contracts (16) (25) (16) (25) Level 2
Interest rate swaps (16) - (16) - Level 2
Currency swaps (2) (3) (2) (3) Level 2
(118) (60) (118) (60)
Financial liabilities not measured at fair value
Acquisition consideration - deferred (21) (4)
Bank overdrafts (2) (2)
Bank loans - (303)
Corporate bond not in a hedge relationship (1,492) (995)
Corporate bond in a hedge relationship (1,006) (555)
Private placement debt not in a hedge relationship (625) (1,030)
Trade and other payables (1,084) (1,026)
(4,230) (3,915)
Total financial liabilities (4,348) (3,975)
At 31 December 2024, the book value and market value of the 2020 USD corporate
bond were $995m and $836m respectively (2023: $995m and $826m), the book value
and market value of the $650m 2024 USD corporate bond maturing in 2034 were
$628m and $642m respectively, the book value and market value of the $350m
2024 USD corporate bond maturing in 2027 were $348m and $352m respectively,
the book value and market value of the EUR Corporate bond were $527m and $547m
respectively (2023: $555m and $585m). The book value and fair value of the
private placement debt were $625m and $573m respectively (2023: $1,030m and
$959m).
There were no transfers between Levels 1, 2 and 3 during the year ended 31
December 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 forward exchange contracts is calculated by reference to
quoted market forward exchange rates for contracts with similar maturity
profiles. The fair value of interest rate swaps is determined by reference to
quoted market interest rates. The fair value of currency swaps is determined
by reference to quoted market spot rates. As a result, foreign forward
exchange contracts, interest rate swaps 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
expected payment, discounted using a risk-adjusted 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 year ended 31 December 2024 and the year
ended 31 December 2023 for financial instruments measured using Level 3
valuation methods are presented below:
2024 2023
$m $m
Investments
At 1 January 8 12
Additions 1 -
Fair value remeasurement - (4)
At 31 December 9 8
Contingent consideration receivable
At 1 January 18 18
Transferred to receivables (18) -
At 31 December - 18
Contingent acquisition consideration liability
At 1 January (32) (78)
Arising on acquisitions (49) -
Payments 6 13
Remeasurements (9) 33
At 31 December (84) (32)
7b. Retirement benefit obligations
The discount rate applied to the future pension liabilities of the UK plan is
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 100bps to 5.5%. The remeasurement gain of $16m
recognised in Other Comprehensive Income (OCI) was principally made up of a
$15m 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. 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.
Following the US buyout, members move to having a direct relationship with
Fidelity & Guaranty Life with SNI no longer retaining any obligation for
the settlement of accrued member benefits.
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:
2024 2023
Average rates
Sterling 1.28 1.24
Euro 1.08 1.08
Swiss Franc 1.14 1.11
Japanese Yen 0.0066 0.0071
Year end rates
Sterling 1.25 1.27
Euro 1.04 1.10
Swiss Franc 1.10 1.19
Japanese Yen 0.0064 0.0071
9. Post balance sheet events
There have been no events between the balance sheet date, and the date on
which the financial statements were approved by the Board, which would require
adjustment to the financial statements or any additional disclosures.
Other information
These financial statements include financial measures that are not prepared in
accordance with International Financial Reporting Standards (IFRS). This
additional information presented is not uniformly defined by all companies
including those in the Group's industry. Accordingly, it may not be comparable
with similarly titled measures and disclosures by other companies.
Additionally, certain information presented is derived from amounts calculated
in accordance with IFRS but is not itself a measure defined under IFRS. Such
measures should not be viewed in isolation or as an alternative to the
equivalent GAAP measure. The non-IFRS measures
discussed in this document are set out below.
Performance measures
Non-IFRS measure Purpose Definition Closest equivalent IFRS measure Reconciled on
Underlying revenue growth Underlying revenue growth is used to compare revenue in a given year to the Underlying revenue growth reconciles to reported revenue growth, the most Revenue growth 39
previous year on a like-for-like basis. This measure is used by both directly comparable financial measure calculated in accordance with IFRS, by
management and the investor community. making two adjustments, the 'constant currency exchange effect' and the
'acquisitions and disposals effect'.
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.
Trading profit Trading profit is used in conjunction with operating profit to assess the Trading profit is operating profit excluding the impact of acquisition and Operating profit 40
performance and profitability of the Group. It is a key internal and external disposal related items arising in connection with business combinations,
metric used by the investor community to assess our performance. It is our including amortisation of acquisition intangible assets, impairments and
segment performance measure in accordance with IFRS 8 Operating Segments. 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 on a short-term or
one-off basis are excluded.
Trading profit margin This measure is used to assess the performance and profitability of the Group. Trading profit margin is trading profit divided by revenue. Operating profit margin 40
It is a key external metric used by the investor community to assess our
performance.
Performance measures (continued)
Non-IFRS measure Purpose Definition Closest equivalent IFRS measure Reconciled on
Trading profit before tax Trading profit before tax is used in conjunction with profit before tax to Trading profit before tax is profit before tax excluding impact of acquisition Profit before tax 40
assess performance and profitability of the Group. This measure is intended to and disposal related items arising in connection with business combinations,
enable the users to assess the performance of the Group by excluding items including amortisation of acquisition intangible assets, impairments and
that impact the short-term profitability of the Group. 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 on a short-term or
one-off basis are excluded.
Trading taxation Trading taxation is used in conjunction with taxation to assess taxation that Trading taxation is taxation excluding the impact of acquisition and disposal Taxation 40
corresponds to trading profit before tax. This metric is used by both related items arising in connection with business combinations, including
management and the investor community. 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 on a short-term or one-off
basis are excluded.
Trading attributable profit This metric is used in the calculation of adjusted basic earnings per share. Trading attributable profit is attributable profit excluding the impact of Attributable profit 40
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 on a
short-term or one-off basis are excluded.
Adjusted earnings per share ('EPSA') EPSA is a trend measure. The Group presents this measure to assist investors Adjusted earnings per share is trading attributable profit divided by the Basic earnings per share 40
in their understanding of trends. weighted average number of shares outstanding. This is the same denominator
used when calculating basic earnings per share.
Trading cash flow Trading cash flow is used in conjunction with cash generated from operations Trading cash flow is cash generated from operations excluding the impact of Cash generated from operations 40
to assess the conversion of trading profit into cash. It is key external acquisition and disposal related items arising in connection with business
metric used by the investor community and is a key performance measure for combinations, including integration costs; restructuring events; and gains and
management. losses resulting from legal disputes and uninsured losses. In addition to
these items, gains and losses that materially impact the Group's cash flows on
a short-term or one-off basis are excluded. Trading cash flow includes payment
of capital element of lease liabilities and capital expenditure as presented
in the Group cash flow statement.
Trading cash conversion This measure is used to assess the conversion of trading profit into cash. It Trading cash conversion is trading cash flow divided by trading profit. Cash generated from operations 40
is a key external metric used by the investor community and is a key
performance measure for management.
Other measures
Non-IFRS measure Purpose Definition Closest equivalent IFRS measure Reconciled on
Free cash flow Free cash flow is a measure of the cash generated for the Group to use after Free cash flow is cash generated from operations less capital expenditure, Cash generated from operations 41
capital expenditure according to its Capital Allocation Framework. This metric payment of lease liabilities and cash flows from interest and income taxes.
is used by both management and investor community.
Adjusted EBITDA Adjusted EBITDA is used in the calculation of adjusted leverage ratio. Adjusted EBITDA is attributable profit excluding taxation, share of results of Attributable profit 42
associates, other finance costs, interest expense, interest income,
acquisition and disposal related items, restructuring and rationalisation
costs, amortisation and impairment of acquisition intangibles, legal and other
costs, depreciation and impairment of property, plant and equipment and
amortisation and impairment of other intangible assets.
Adjusted leverage ratio Adjusted leverage ratio is used in the calculation relating to debt covenants. We calculate adjusted leverage ratio by dividing net debt by adjusted EBITDA. Leverage ratio 42
Net debt is defined as total borrowings less cash and cash equivalents in the
(using IFRS measures)
statement of financial position. Total borrowings include bank overdrafts,
borrowings, loans and lease liabilities and long-term borrowings and lease
liabilities.
Adjusted return on invested capital ('Adjusted ROIC') Adjusted ROIC is a metric used by investor community and is a measure of the Adjusted ROIC is defined as operating profit (before amortisation and Return on invested capital ('ROIC') (using IFRS measures) 43
return generated on capital invested by the Group. It provides a metric for impairment of acquisition intangibles) less adjusted taxes/((opening net
long-term value creation and encourages compounding reinvestment within the operating assets + closing net operating assets)/2).
business and discipline around acquisitions with low returns and long payback.
Adjusted ROIC is a key performance measure under the Performance Share
Program.
Underlying revenue
Reported revenue growth, the most directly comparable financial measure
calculated in accordance with IFRS, reconciles to underlying revenue growth as
follows:
Reconciling Items
Reported Underlying Acquisitions Currency
2024 2023 growth growth & disposals impact
$m $m % % % %
Segment revenue
Orthopaedics 2,305 2,214 4.1 4.6 - (0.5)
Sports Medicine & ENT 1,824 1,729 5.5 6.2 - (0.7)
Advanced Wound Management 1,681 1,606 4.7 5.1 - (0.4)
Revenue from external customers 5,810 5,549 4.7 5.3 - (0.6)
Cash
Profit generated
Operating before Attributable from Earnings
profit(1 ) tax(2 ) Taxation(3 ) profit(4 ) operations(5 ) per share(6 )
$m $m $m $m $m ¢
2024 Reported 657 498 (86) 412 1,245 47.2
Acquisition and disposal related items(8) 94 106 (9) 97 3 11.2
Restructuring and rationalisation costs 123 123 (29) 94 151 10.8
Amortisation and impairment of acquisition intangibles(8) 187 187 (42) 145 - 16.6
Legal and other(7,8) (12) (6) (7) (13) 36 (1.5)
Lease liability payments - - - - (55) -
Capital expenditure - - - - (381) -
2024 Non-IFRS 1,049 908 (173) 735 999 84.3
Cash
Profit generated
Operating before Attributable from Earnings
profit(1 ) tax(2 ) Taxation(3 ) profit(4 ) operations(5 ) per share(6 )
$m $m $m $m $m ¢
2023 Reported 425 290 (27) 263 829 30.2
Acquisition and disposal related items(8) 60 78 (14) 64 16 7.3
Restructuring and rationalisation costs 220 223 (42) 181 124 20.7
Amortisation and impairment of acquisition intangibles(8) 207 207 (45) 162 - 18.6
Legal and other(7,8) 58 64 (12) 52 145 6.0
Lease liability payments - - - - (52) -
Capital expenditure - - - - (427) -
2023 Non-IFRS 970 862 (140) 722 635 82.8
(1 ) Represents a reconciliation of operating profit to
trading profit.
(2 ) Represents a reconciliation of reported profit before
tax to trading profit before tax.
(3 ) Represents a reconciliation of reported tax to trading
tax.
(4 ) Represents a reconciliation of reported attributable
profit to trading 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.
(8 ) During 2024, the Group announced its intention to close
the Warwick manufacturing site that manufactures Birmingham Hip Resurfacing
(BHR) products. As a result, a total of $68m of BHR assets and liabilities
were written off, which mainly includes goodwill of $63m (included in
acquisition and disposal-related items).
During 2023, management evaluated the commercial viability of Engage products
and concluded that they should be discontinued. A total of $109m of Engage's
assets and liabilities were written off as a result of this action, which
includes goodwill of $84m (included in acquisition and disposal-related
items), intangible assets of $37m (included in amortisation and impairment of
acquisition intangibles), inventory of $21m (included in legal and other),
partially offset by remeasurement of contingent consideration of $33m
(included in acquisition and disposal-related items).
Acquisition and disposal related items
For the year ended 31 December 2024, costs primary related to impairment of
BHR goodwill,
disposal of certain products and integration costs relating to integration of
CartiHeal. Trading profit before tax additionally excludes losses related to
the Group's shareholding in Bioventus. This primarily includes the Group's
share of loss recognised by Bioventus in its financial statements.
For the year ended 31 December 2023, costs primary related to the acquisition
of CartiHeal and impairment of Engage goodwill, partially offset by credits
relating to remeasurement of contingent consideration for prior year
acquisitions. Trading profit before tax additionally excludes losses of $18m
related to the Group's shareholding in Bioventus. This primarily
includes the Group's share of loss recognised by Bioventus in its financial
statements.
Restructuring and rationalisation costs
For the year ended 31 December 2024 and 2023, these costs relate to the
efficiency and productivity elements of the 12-Point Plan and the Operations
and Commercial Excellence programme. These costs primarily consist of
severance, business advisory services, asset write-offs, contractual
terminations and integration and dual running costs.
In 2023, trading profit before tax additionally excludes $3m of restructuring
costs related to the Group's share of results of associates.
Amortisation and impairment of acquisition intangibles
For the years ended 31 December 2024 and 2023, these costs relate to the
amortisation and impairment of intangible assets acquired in material business
combinations.
Legal and other
For the year ended 31 December 2024, the credit mainly relates to a $28m
reduction in the provision for ongoing metal-on-metal hip claims as a result
of decrease in the present value of the estimated costs to resolve all known
and anticipated metal-on-metal hip claims, partially offset by legal expenses
for ongoing metal-on-metal hip claims.
Trading profit before tax additionally excludes $6m of finance costs for the
unwind of discount relating to the provision for metal-on-metal hip claims.
For the year ended 31 December 2023, charges primarily relate to legal
expenses for ongoing metal-on-metal hip claims partially offset by a decrease
of $8m in the provision that reflects the present value of the estimated cost
to resolve all other known and anticipated metal-on-metal hip claims, and by
the release of a provision for an intellectual property dispute.
For the years ended 31 December 2024 and 2023, charges also include the 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
A reconciliation from cash generated from operations, the most comparable IFRS
measure, to free cash flow is set out below:
2024 2023
$m $m
Cash generated from operations 1,245 829
Capital expenditure (381) (427)
Interest received 22 8
Interest paid (140) (104)
Payment of lease liabilities (55) (52)
Income taxes paid (140) (125)
Free cash flow 551 129
Adjusted leverage ratio
The calculation of the adjusted leverage ratio is set out below. Adjusted
leverage ratio is calculated using metrics similar to those used in the debt
covenant calculation.
2024 2023
$m $m
Net debt including lease liabilities 2,709 2,776
Attributable profit 412 263
Taxation 86 27
Share of results of associates 10 30
Other finance costs 28 7
Interest expense 145 132
Interest income (24) (34)
Acquisition and disposal-related items 94 60
Restructuring and rationalisation costs 123 220
Amortisation and impairment of acquisition intangibles 187 207
Legal and other (12) 58
Depreciation of property, plant and equipment 325 306
Impairment and amortisation of other intangible assets and impairment of 67 51
property, plant and equipment
Adjusted EBITDA 1,441 1,327
Adjusted leverage ratio 1.9 2.1
Leverage ratio (using closest equivalent IFRS measures)
The leverage ratio using closest equivalent IFRS measures is not based on
measures used in the calculation of debt covenants and is not used by
management internally. This measure is not used for the Company's covenant in
its private placement debt.
2024 2023
$m $m
Bank overdrafts, borrowings, loans and lease liabilities 63 765
Long-term borrowings and lease liabilities 3,258 2,319
Total borrowings 3,321 3,084
Attributable profit 412 263
Leverage ratio 8.1 11.7
Adjusted return on invested capital
The calculation of adjusted return on invested capital and is set out below:
2024 2023
$m $m
Attributable profit for the year 412 263
Share of results of associates 10 30
Other finance costs 28 7
Interest expense 145 132
Interest income (24) (34)
Amortisation and impairment of acquisition intangibles 187 207
Taxation adjustment(1) (73) (77)
Operating profit before amortisation and impairment of acquisition intangibles 685 528
less adjusted taxes
Total equity 5,265 5,217
Accumulated amortisation and impairment of acquisition intangibles net of 1,470 1,365
associated tax
Retirement benefit assets (63) (69)
Investments (9) (8)
Investments in associates (7) (16)
Right-of-use assets (173) (185)
Cash and cash equivalents (619) (302)
Long-term borrowings and lease liabilities 3,258 2,319
Retirement benefit obligations 79 88
Bank overdrafts, borrowings, loans and lease liabilities 63 765
Net operating assets 9,264 9,174
Average net operating assets(2) 9,219 8,907
Adjusted return on invested capital 7.4% 5.9%
(1 ) Being the taxation on amortisation and impairment of
acquisition intangibles, interest income, interest expense, other finance
costs and share of results of associates.
(2 ) (Opening net operating assets + closing net operating
assets)/2.
Return on invested capital (using closest equivalent IFRS measures)
The calculation of return on invested capital using closest equivalent IFRS
measures is set out below:
2024 2023
$m $m
Attributable profit 412 263
Long term borrowings and lease liabilities 3,258 2,319
Bank overdrafts, borrowings, loans and lease liabilities 63 765
Investments (9) (8)
Investments in associates (7) (16)
Retirement benefit assets (63) (69)
Retirement benefit obligations 79 88
Total equity 5,265 5,217
Invested capital at end of the year 8,586 8,296
Average invested capital for the year 8,441 8,149
Return on invested capital using IFRS measures 4.9% 3.2%
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