REG - Smith & Nephew Plc - Half-year Report
03/08/2023 07:00
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RNS Number : 1354I Smith & Nephew Plc 03 August 2023
Smith+Nephew Second Quarter and First Half 2023 Results
Strong H1 growth with FY revenue guidance raised, 12-Point Plan on track
3 August 2023
Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology company,
reports results for the second quarter and first half ended 1 July 2023:
1 July 2 July Reported Underlying
2023 2022 growth growth
$m $m % %
Second Quarter Results(1,2)
Revenue 1,379 1,293 6.6 7.8
Half Year Results(1,2)
Revenue 2,734 2,600 5.2 7.3
Operating profit 275 242
Operating profit margin (%) 10.0 9.3
EPS (cents) 19.7 20.2
Trading profit 417 440
Trading profit margin (%) 15.3 16.9
EPSA (cents) 34.9 38.1
Q2 Trading Highlights(1,2)
· Q2 revenue of $1,379 million (Q2 2022: $1,293 million), up 7.8% on an
underlying basis (6.6% on a reported basis including -120bps FX headwind)
· Orthopaedics revenue up 5.8% (4.6% reported), reflecting higher
procedure volumes, accelerating robotics adoption and reduced China VBP
headwind
· Sports Medicine & ENT up 12.0% (10.4% reported), with strong
growth across both shoulder and knee repair
· Advanced Wound Management up 6.2% (5.5% reported), led by
double-digit growth from our negative pressure wound therapy portfolio
H1 Highlights(1,2)
· H1 revenue of $2,734 million (H1 2022: $2,600 million), up 7.3% on an
underlying basis (5.2% on a reported basis including -210bps FX headwind)
· Operating profit of $275 million (H1 2022: $242 million)
· Trading profit of $417 million (H1 2022: $440 million). Trading
profit margin of 15.3% (H1 2022: 16.9%), reflecting expected seasonality and
higher input inflation, transactional FX and increased sales and marketing to
drive growth
· Cash generated from operations $215 million (H1 2022: $227 million).
Trading cash flow $110 million (H1 2022: $154 million), primarily due to
inventory increase
· Interim dividend of 14.4¢, in line with prior year
2023 Full Year Outlook(1,2)
· Increased full year underlying revenue growth guidance of 6.0% to
7.0% (previously 5.0% to 6.0%)
· Unchanged trading profit margin guidance, expected to be at least
17.5%
Strategic Highlights(1,2)
· Progress building foundations for sustainable higher growth through
12-Point Plan:
o Significant improvement in product availability and commercial execution
in Orthopaedics
o Productivity improvements delivered with inventory reductions to follow
o Work to further accelerate growth in Advanced Wound Management and
Sports Medicine & ENT on track
· Increased cadence of new product launches to drive future higher
growth
Chief Financial Officer to step down in Q2 2024
· Anne-Françoise Nesmes has informed the Board of her intention to
step down as Chief Financial Officer during the second quarter of 2024. The
exact timing of her departure will be announced in due course
· The Board has initiated an external search for her successor
· See separate announcement issued today for further information
Deepak Nath, Chief Executive Officer, said:
"I am pleased to report strong first half revenue growth across our business.
The continued outperformance in Sports Medicine and Advanced Wound Management
- representing 60% of our business - has continued. In Orthopaedics, our
actions to improve product supply and execution have increased our ability to
benefit from strong elective procedure volumes. Overall, these results have
given us the confidence to increase our full year revenue growth guidance.
"Margin development in the first half was in line with our expectations. In
the second half, we expect a clear step up in both trading margin and cash
generation as we begin to see the benefit of productivity gains and start
bringing down inventory levels.
"Importantly, we continue to build the foundations for sustainable higher
growth through our 12-Point Plan, with product availability improving and a
high cadence of innovation. So far this year we have launched 13 new products,
with major launches underway in high growth segments including robotics,
shoulder replacement and negative pressure wound therapy."
Analyst conference call
An analyst conference call to discuss Smith+Nephew's second quarter and first
half results will be held at 8.30am BST / 3.30am EDT, details of which are
available at
https://www.smith-nephew.com/en/about-us/investors#quarterly-reporting
(https://www.smith-nephew.com/en/about-us/investors#quarterly-reporting) .
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 2022 period.
'Underlying revenue growth' reconciles to reported revenue growth, the most
directly comparable financial measure calculated in accordance with IFRS, by
making two adjustments, the 'constant currency exchange effect' and the
'acquisitions and disposals effect', described below. See Other Information on
pages 32 to 35 for a reconciliation of underlying revenue growth to reported
revenue growth.
The 'constant currency exchange effect' is a measure of the increase/decrease
in revenue resulting from currency movements on non-US Dollar sales and is
measured as the difference between: 1) the increase/decrease in the current
year revenue translated into US Dollars at the current year average exchange
rate and the prior year revenue translated at the prior year rate; and 2) the
increase/decrease being measured by translating current and prior year
revenues into US Dollars using the prior year closing rate.
The 'acquisitions and disposals effect' is the measure of the impact on
revenue from newly acquired material business combinations and recent material
business disposals. This is calculated by comparing the current year, constant
currency actual revenue (which includes acquisitions and excludes disposals
from the relevant date of completion) with prior year, constant currency
actual revenue, adjusted to include the results of acquisitions and exclude
disposals for the commensurate period in the prior year. These sales are
separately tracked in the Group's internal reporting systems and are readily
identifiable.
2. Certain items included in 'trading results', such as trading profit,
trading profit margin, tax rate on trading results, trading cash flow, trading
profit to cash conversion ratio, EPSA and underlying growth are non-IFRS
financial measures. The non-IFRS financial measures reported in this
announcement are explained in Other Information on pages 32 to 35 and are
reconciled to the most directly comparable financial measures prepared in
accordance with IFRS. Reported results represent IFRS financial measures as
shown in the Condensed Consolidated Interim Financial Statements.
Smith+Nephew Second Quarter Trading and First Half 2023 Results
Delivering our transformational Strategy for Growth
Smith+Nephew delivered a strong trading performance in the first half of 2023,
with revenue of $2,734 million (H1 2022: $2,600 million). This represented
growth of 7.3% on an underlying basis, ahead of our expectations. On a
reported basis, revenue growth was 5.2%, including a translational foreign
exchange headwind of -210bps.
All three business units contributed to this positive result. In Sports
Medicine & ENT and Advanced Wound Management, our outperformance from
recent years continued. In Orthopaedics, our actions to improve product
availability and commercial execution are starting to have a positive impact
and we were better placed to participate in a strong environment for elective
procedures in the first half.
As we approach the halfway point of the 12-Point Plan, we are on track to
build the foundations for sustainable higher growth. Our high cadence of
innovation has also continued with major launches in high growth segments,
including robotics, shoulder replacement and negative pressure wound therapy.
Making progress across our 12-Point Plan
In July 2022 we announced our 12-Point Plan to fundamentally change the way we
operate and transform business performance. The 12-Point Plan is focused on:
· 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.
We have made considerable progress in our work to fix the foundations of our
Orthopaedics business unit.
On product availability, we have reduced our overdue orders by around 50% from
the peak in the first half of 2022 and improved the percentage of customer
order lines that are filled, measured by line-item fill rates (LIFR). In the
US we are around 85% of the way towards reaching industry-standards for
non-instrument set LIFR. A significant driver of these improvements has been
the new demand and supply planning process which brings a deeper level of
specificity and collaboration between our operations and commercial teams. We
are also benefiting from our actions to improve logistics and redeploy
implants and instrument sets from lower to higher-utilisation customers.
We continued to improve our commercial execution as well. In the first half we
repositioned our offering, streamlined the organisation, simplified our
commercial process and invested in deeper sales training for the Orthopaedics
team. We are starting to see the benefits of our enhanced incentive plan,
which better rewards performance, sales mix, robotic placement and implant
pull-through.
We are also making good progress on improving productivity, including
successfully updating and standardising pricing controls across our portfolio
and reducing days sales outstanding. We expect inventory levels to start to
fall in the second half of the year as we roll out recent product launches,
consume raw materials and complete and deploy new instrument sets.
In line with our plan, our work on manufacturing optimisation is at an earlier
stage, and the benefits from network simplification and cost and asset
efficiencies should flow through later in the plan, supporting our mid-term
margin improvement targets.
As previously disclosed, in aggregate we expect the benefits from our
productivity actions to result in more than $200 million of annual savings by
2025 for around $275 million of restructuring costs over three years.
The important third element of the 12-Point Plan is focused on building on our
consistent above-market performance from our Advanced Wound Management and
Sports Medicine & ENT business units. Progress is also coming through
across this workstream. Our negative pressure wound therapy business is
benefitting from focused additional resource behind our sales force,
delivering strong growth, and the pace of cross-business unit deals into
Ambulatory Surgical Centers (ASCs) has more than doubled in 2023.
Increasing our cadence of innovation
Innovation is central to our higher growth ambitions. In February we announced
our expectation for 25 new product launches in 2023, a significant increase
from our recent average of 18 per year. At the half year we had completed 13
launches and are on track for our full year target.
In Orthopaedics, we continue to expand our robotics-assisted CORI(◊)
Surgical System.
In April we added the CORI Digital Tensioner, a proprietary device for soft
tissue balancing in knee replacement, and the only tensioner for
robotics-assisted surgery. This helps make planning more objective and
eliminates inconsistencies in surgery from current manual or mechanical
tools.
In May we brought additional data management capability onto CORI with the
introduction of Personalized Planning powered by AI and the RI.INSIGHTS Data
Visualization Platform. These two solutions transform data into contextual
intelligence by enabling surgeons to better understand how pre-operative
surgical plans and intra-operative decision-making link to post-operative
outcomes.
In June we received 510(k) clearance from the United States Food and Drug
Administration (FDA) for a saw solution on CORI, which we expect to roll out
from the fourth quarter. This feature adds versatility, appealing to a broader
range of surgeons, and makes CORI the only solution to offer robotics-assisted
burring and saw bone-cutting options. This development was accelerated as part
of the 12-Point Plan. It is another step in our journey of adding features and
functionality as we continue to build out CORI at pace.
We are in the early stages of introducing our AETOS(◊) Shoulder System, an
important part of our growth plans for Trauma & Extremities. AETOS is
designed with both patient and surgeon benefits in mind. For example, the
MetaStem aligns with the market trend towards minimally invasive short stem
devices. Short stems are easier to implant, have improved bone preservation,
and are a better fit to anatomy. AETOS will enable Smith+Nephew to compete
effectively in the $1.3 billion shoulder market, which, at around 9% CAGR, is
one of the fastest growing segments in Orthopaedics.
In Sports Medicine, we introduced the UltraTRAC(◊) QUAD ACL Reconstruction
Technique, bringing together new tendon harvest and preparation guides with
our family of ULTRABUTTON(◊) Adjustable Fixation Devices. These technologies
work together to provide an innovative procedural solution, expanding
Smith+Nephew's ability to address surgeon graft preference in knee repair.
In Advanced Wound Management, we are at the early stages of releasing the new
RENASYS(◊) EDGE Negative Pressure Wound Therapy System. This is designed to
reduce inefficiency and complexity and features an improved user interface for
enhanced intuitiveness and simplicity and a durable pump built to offer
virtually maintenance-free use.
We also continue to invest in the production of clinical evidence, which we
view as an increasingly important differentiator. During the first half, we
announced new evidence demonstrating that COBLATION(◊) Technology can
accelerate ENT patient recovery with fewer complications compared with total
tonsillectomy techniques. We also highlighted new data supporting improved
outcomes from our VISIONAIRE(◊) Patient-Specific Instrumentation for total
knee arthroplasty compared with conventional instrumentation.
Second Quarter 2023 Trading Update
Our second quarter revenue was $1,379 million (Q2 2022: $1,293 million), up
7.8% year-on-year on an underlying basis. On a reported basis this represented
growth of 6.6%, including a translational -120bps headwind from foreign
exchange (primarily due to the strength of the US Dollar). The second quarter
comprised 63 trading days, in line with the equivalent period in 2022.
Orthopaedics delivered revenue growth of 5.8% (4.6% reported), an acceleration
from the first quarter. This was driven by the increase in elective procedure
volumes as well as accelerated growth from our robotics business. We also
annualised the impact of hip and knee implant Volume Based Procurement (VBP)
in China during the quarter.
Sports Medicine & ENT delivered growth of 12.0% (10.4% reported) and
Advanced Wound Management revenue grew 6.2% (5.5% reported), as both continued
to perform strongly, building on their innovative and broad portfolios and
excellent commercial execution.
This good overall performance was achieved despite some continued supply chain
challenges. In Orthopaedics, disruptions delayed the completion and deployment
of some instrument sets, and we saw some component shortages in Sports
Medicine.
Revenue growth in our Established Markets was up 7.1% (6.8% reported). Within
this, the US delivered 6.3% revenue growth (6.3% reported) and Other
Established Markets 8.5% revenue growth (7.8% reported), as elective procedure
volumes stayed strong across Europe and Asia-Pacific. Emerging Markets revenue
was up 11.0% (5.5% reported), resulting from volume recovery in China
following the Covid-related restrictions at the start of the year.
Second Quarter Consolidated Revenue Analysis
1 July 2 July Reported Underlying Acquisitions Currency
2023 2022 growth growth((i)) /disposals impact
Consolidated revenue by business unit by product $m $m % % % %
Orthopaedics 554 530 4.6 5.8 - -1.2
Knee Implants 238 223 6.6 7.8 - -1.2
Hip Implants 152 149 1.9 3.4 - -1.5
Other Reconstruction((ii)) 27 23 20.4 21.0 - -0.6
Trauma & Extremities 137 135 1.4 2.5 - -1.1
Sports Medicine & ENT 422 381 10.4 12.0 - -1.6
Sports Medicine Joint Repair 229 206 10.9 12.5 - -1.6
Arthroscopic Enabling Technologies 145 140 3.2 4.6 - -1.4
ENT (Ear, Nose and Throat) 48 35 36.2 38.9 - -2.7
Advanced Wound Management 403 382 5.5 6.2 - -0.7
Advanced Wound Care 181 178 1.6 2.7 - -1.1
Advanced Wound Bioactives 138 134 3.2 3.1 - 0.1
Advanced Wound Devices 84 70 20.0 21.4 - -1.4
Total 1,379 1,293 6.6 7.8 - -1.2
Consolidated revenue by geography
US 734 690 6.3 6.3 - -
Other Established Markets((iii)) 403 374 7.8 8.5 - -0.7
Total Established Markets 1,137 1,064 6.8 7.1 - -0.3
Emerging Markets 242 229 5.5 11.0 - -5.5
Total 1,379 1,293 6.6 7.8 - -1.2
(i) Underlying growth is defined in Note 1 on page 3
(ii) Other Reconstruction includes robotics capital sales, our joint
reconstruction business and cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New
Zealand
Orthopaedics
Revenue from our Orthopaedics business unit was up 5.8% (4.6% reported) in the
second quarter. Orthopaedics grew by 7.7% underlying excluding China, where we
saw a reduced headwind from VBP as this impact annualised.
Knee Implants revenue was up 7.8% (6.6% reported) and Hip Implants revenue was
up 3.4% (1.9% reported). Knee performance was led by our kinematic JOURNEY
II(◊) Knee System and LEGION(◊) Revision Knee System. Hip growth was led
by our POLAR3(◊) Total Hip Solution, OR3O(◊) Dual Mobility Hip System and
REDAPT(◊) Revision Hip System. Other Reconstruction revenue growth was 21.0%
(20.4% reported). We delivered strong growth from our robotics-assisted CORI
Surgical System across a wide range of healthcare facilities, including ASCs,
and more than half of CORI sales included applications for both knee and hip
procedures. In Trauma & Extremities revenue growth was 2.5% (1.4%
reported), a step up from the first quarter with a strong performance from US
Trauma as we drove sales of the EVOS(◊) Plating System. We expect growth to
accelerate further across the year as we continue to roll-out EVOS, expand the
launch of the new AETOS Shoulder System, and lap local market exits made in
2022.
Sports Medicine & ENT
Sports Medicine & ENT delivered strong revenue growth of 12.0% (10.4%
reported).
Sports Medicine Joint Repair revenue was up 12.5% (10.9% reported) in the
quarter with good growth across our knee and shoulder repair portfolios. We
delivered strong double-digit growth from our REGENETEN(◊) Bioinductive
Implant. Arthroscopic Enabling Technologies revenue grew 4.6% (3.2% reported),
driven by our WEREWOLF(◊) Fastseal COBLATION system and mechanical
resection, offsetting a slower quarter in video. ENT revenue was up 38.9%
(36.2% reported), reflecting the continued recovery in tonsil and adenoid
procedure volumes.
Advanced Wound Management
Advanced Wound Management revenue growth was 6.2% (5.5% reported).
Advanced Wound Care revenue was up 2.7% (1.6% reported), including good growth
from our foams and film portfolio and a strong quarter in Europe. Advanced
Wound Bioactives revenue was up 3.1% (3.2% reported), led by our skin
substitutes portfolio, where there is strong clinical evidence supporting the
use of our GRAFIX(◊) Membrane. Advanced Wound Devices revenue was up 21.4%
(20.0% reported), with continued strong growth from both our single-use
PICO(◊) Negative Pressure Wound Therapy System and our traditional
RENASYS(◊) Negative Pressure Wound Therapy System.
First Half 2023 Consolidated Analysis
Smith+Nephew results for the first half ended 1 July 2023:
Half year Half year Reported
2023 2022 growth
$m $m %
Revenue 2,734 2,600 5.2
Operating profit 275 242
Acquisition and disposal related items (17) 1
Restructuring and rationalisation costs 46 63
Amortisation and impairment of acquisition intangibles 102 105
Legal and other 11 29
Trading profit((i)) 417 440 -5
¢ ¢
Earnings per share ('EPS') 19.7 20.2 -2
Acquisition and disposal related items 0.1 (0.2)
Restructuring and rationalisation costs 4.6 5.8
Amortisation and impairment of acquisition intangibles 9.1 9.4
Legal and other 1.4 2.9
Adjusted Earnings per share ('EPSA')((i)) 34.9 38.1 -8
(i) See Other Information on pages 32 to 35
First Half 2023 Analysis
Our first half revenue was $2,734 million (H1 2022: $2,600 million), up 7.3%
on an underlying basis and up 5.2% on a reported basis, including a
translational foreign exchange headwind of -210bps. The first half comprised
127 trading days, in line with the equivalent period in 2022.
The Group reported an operating profit of $275 million (H1 2022: $242 million)
after acquisition and disposal related items, restructuring and
rationalisation costs, amortisation and impairment of acquisition intangibles
and legal and other items incurred in the first half (see Other Information on
pages 32 to 35).
Trading profit was $417 million in the first half (H1 2022: $440 million),
with a trading profit margin of 15.3% (H1 2022: 16.9%). The margin decline
reflects persistent inflation, a transactional foreign exchange headwind and
increased sales and marketing, partly offset by productivity improvements (see
Note 2 to the Interim Financial Statements for global business unit trading
profit).
Restructuring costs related to the efficiency and productivity work underway
across the Group totalled $46 million (see Note 2 to the Interim Financial
Statements).
Cash generated from operations was $215 million (H1 2022: $227 million) and
trading cash flow was $110 million (H1 2022: $154 million), with the year on
year reduction primarily driven by working capital movements due to increased
inventory. This included stock to support acceleration in negative pressure
wound therapy, accumulation of both products and instrument sets due to supply
constraints for a small number of components holding back completion and
deployment, and increased factory inventory from spot buying of raw materials,
as well as inventory growth tracking the overall growth of revenue.
Looking ahead, we expect inventory days to decrease as we deliver growth in
negative pressure wound therapy; the reliability of global supply chains
continues to improve; instrument sets are completed and deployed; and we
reduce production volumes relative to sales (see Other Information on pages 32
to 35 for a reconciliation between cash generated from operations and trading
cash flow). The trading profit to cash conversion ratio was 26% (H1 2022:
35%), which is expected to improve in the second half of 2023 as the above
factors take effect.
The net interest charge within reported results was $44 million (H1 2022: $32
million), with the change due to an increase in net debt year on year and an
increase in the overall weighted average interest rate given the prevailing
higher rate environment. The Group's net debt, excluding lease liabilities,
increased from $2,339 million at 31 December 2022 to $2,656 million at 1 July
2023 (see Note 6 to the Interim Financial Statements), with committed
facilities of $3.7 billion. We expect to finish 2023 with leverage of 2.0x,
unchanged year-on-year.
Our reported tax for the period ended 1 July 2023 was a charge of $39 million
(H1 2022: $27 million). The tax rate on trading results for the period ended 1
July 2023 was 17.4% (H1 2022: 17.6%) (see Note 3 to the Interim Financial
Statements and Other Information on pages 32 to 35 for further details on
taxation).
Basic earnings per share ('EPS') was 19.7¢ (39.4¢ per ADS) (H1 2022: 20.2¢
per share). Adjusted earnings per share ('EPSA') was 34.9¢ (69.8¢ per ADS)
(H1 2022: 38.1¢ per share).
Interim Dividend
The interim dividend is 14.4¢ per share (28.8¢ per ADS), in line with
2022. This equates to 11.2p per share at prevailing exchange rates as of 28
July 2023. This dividend is payable on 1 November 2023 to shareholders whose
names appear on the register at the close of business on 6 October 2023 (see
Note 4 to the Interim Financial Statements for further detail).
2023 Full Year Outlook
In February we announced our guidance for 2023 targeting both revenue growth
and trading profit margin above 2022.
Following our strong first half revenue growth, we are upgrading our
underlying revenue growth target for the full year to be in the range of 6.0%
to 7.0% (previously 5.0% to 6.0%). On a reported basis the updated guidance
equates to a range of around 6.0% to 7.0% based on exchange rates prevailing
on 28 July 2023.
For trading profit margin, we continue to expect to deliver at least 17.5%. We
expect a significant step up in margin in the second half driven by typical
seasonality, combined with positive operating leverage from revenue growth and
the accumulating benefits of productivity improvements, which more than offset
the continuing headwinds from raw material cost inflation, higher wages and a
-120bps headwind from transactional foreign exchange.
The tax rate on trading results for 2023 is now forecast to be around 17%
subject to any material changes to tax law or other one-off items (previously
around 19%).
Forward calendar
The Q3 Trading Report will be released on 2 November 2023.
Smith+Nephew will be holding a Meet the Management event in London on 29
November 2023. More details will be published in due course.
About Smith+Nephew
Smith+Nephew is a portfolio medical technology company that exists to restore
people's bodies and their self-belief by using technology to take the limits
off living. We call this purpose 'Life Unlimited'. Our 19,000 employees
deliver this mission every day, making a difference to patients' lives
through the excellence of our product portfolio, and the invention and
application of new technologies across our three global business units of
Orthopaedics, Sports Medicine & ENT and Advanced Wound Management.
Founded in Hull, UK, in 1856, we now operate in more than 100 countries, and
generated annual sales of $5.2 billion in 2022. Smith+Nephew is a constituent
of the FTSE100 (LSE:SN, NYSE:SNN). The terms 'Group' and 'Smith+Nephew' are
used to refer to Smith & Nephew plc and its consolidated subsidiaries,
unless the context requires otherwise.
For more information about Smith+Nephew, please visit www.smith-nephew.com
(http://www.smith-nephew.com/) and follow us on 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: risks related to the
impact of Covid, such as the depth and longevity of its impact, government
actions and other restrictive measures taken in response, material delays and
cancellations of elective procedures, reduced procedure capacity at medical
facilities, restricted access for sales representatives to medical facilities,
or our ability to execute business continuity plans as a result of Covid;
economic and financial conditions in the markets we serve, especially those
affecting healthcare providers, payers and customers (including, without
limitation, as a result of Covid); price levels for established and innovative
medical devices; developments in medical technology; regulatory approvals,
reimbursement decisions or other government actions; product defects or
recalls or other problems with quality management systems or failure to comply
with related regulations; litigation relating to patent or other claims; legal
and financial compliance risks and related investigative, remedial or
enforcement actions; disruption to our supply chain or operations or those of
our suppliers (including, without limitation, as a result of Covid);
competition for qualified personnel; strategic actions, including acquisitions
and disposals, our success in performing due diligence, valuing and
integrating acquired businesses; disruption that may result from transactions
or other changes we make in our business plans or organisation to adapt to
market developments; relationships with healthcare professionals; reliance on
information technology and cybersecurity; disruptions due to natural
disasters, weather and climate change related events; changes in customer and
other stakeholder sustainability expectations; changes in taxation
regulations; effects of foreign exchange volatility; and numerous other
matters that affect us or our markets, including those of a political,
economic, business, competitive or reputational nature. Please refer to the
documents that Smith+Nephew has filed with the U.S. Securities and Exchange
Commission under the U.S. Securities Exchange Act of 1934, as amended,
including Smith+Nephew's most recent annual report on Form 20-F, which is
available on the SEC's website at www. sec.gov, for a discussion of certain of
these factors. Any forward-looking statement is based on information available
to Smith+Nephew as of the date of the statement. All written or oral
forward-looking statements attributable to Smith+Nephew are qualified by this
caution. Smith+Nephew does not undertake any obligation to update or revise
any forward-looking statement to reflect any change in circumstances or in
Smith+Nephew's expectations.
(◊) Trademark of Smith+Nephew. Certain marks registered in US Patent and
Trademark Office.
First Half Consolidated Revenue Analysis
1 July 2 July Reported Underlying Acquisitions Currency
2023 2022 growth Growth((i)) /disposals impact
Consolidated revenue by product by business unit $m $m % % % %
Orthopaedics 1,102 1,071 2.9 4.8 - -1.9
Knee Implants 475 454 4.4 6.4 - -2.0
Hip Implants 303 298 1.9 4.0 - -2.1
Other Reconstruction((ii)) 51 43 18.5 20.4 - -1.9
Trauma & Extremities 273 276 -0.9 0.8 - -1.7
Sports Medicine & ENT 843 778 8.4 11.0 - -2.6
Sports Medicine Joint Repair 457 426 7.2 9.8 - -2.6
Arthroscopic Enabling Technologies 293 281 4.4 6.8 - -2.4
ENT (Ear, Nose and Throat) 93 71 31.6 34.9 - -3.3
Advanced Wound Management 789 751 5.1 7.0 - -1.9
Advanced Wound Care 356 360 -1.0 1.8 - -2.8
Advanced Wound Bioactives 274 252 8.7 8.7 - -
Advanced Wound Devices 159 139 14.2 17.2 - -3.0
Total 2,734 2,600 5.2 7.3 - -2.1
Consolidated revenue by geography
US 1,471 1,350 9.0 9.0 - -
Other Established Markets((iii)) 807 778 3.7 7.7 - -4.0
Total Established Markets 2,278 2,128 7.1 8.5 - -1.4
Emerging Markets 456 472 -3.3 1.7 - -5.0
Total 2,734 2,600 5.2 7.3 - -2.1
(i) Underlying growth is defined in Note 1 on page 3
(ii) Other Reconstruction includes robotics capital sales, our joint
reconstruction business and cement
(iii) Other Established Markets are Europe, Canada, Japan, Australia and New
Zealand
2023 HALF YEAR CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Unaudited Group Income Statement for the Half Year ended 1 July 2023
Half year Half year
2023 2022
Notes $m $m
Revenue 2 2,734 2,600
Cost of goods sold (836) (773)
Gross profit 1,898 1,827
Selling, general and administrative expenses (1,457) (1,411)
Research and development expenses (166) (174)
Operating profit 2 275 242
Interest income 18 3
Interest expense (62) (35)
Other finance costs - (5)
Share of results of associates (20) (1)
Profit before taxation 211 204
Taxation 3 (39) (27)
Attributable profit(A) 172 177
Earnings per share(A)
Basic 19.7¢ 20.2¢
Diluted 19.7¢ 20.2¢
Unaudited Group Statement of Comprehensive Income for the Half Year ended 1
July 2023
Half year Half year
2023 2022
$m $m
Attributable profit(A) 172 177
Other comprehensive income
Items that will not be reclassified to income statement
Remeasurement of net retirement benefit obligations (61) 60
Taxation on other comprehensive income 17 (15)
Total items that will not be reclassified to income statement (44) 45
Items that may be reclassified subsequently to income statement
Exchange differences on translation of foreign operations 16 (99)
Net losses on cash flow hedges 12 12
Taxation on other comprehensive income (2) (1)
Total items that may be reclassified subsequently to income statement 26 (88)
Other comprehensive loss for the period, net of taxation (18) (43)
Total comprehensive income for the period(A) 154 134
A Attributable to the equity holders of the parent and wholly
derived from continuing operations.
Unaudited Group Balance Sheet as at 1 July 2023
1 July 31 December 2 July
2023 2022 2022
Notes $m $m $m
ASSETS
Non-current assets
Property, plant and equipment 1,421 1,455 1,460
Goodwill 3,049 3,031 3,022
Intangible assets 1,180 1,236 1,316
Investments 8 12 10
Investment in associates 27 46 185
Other non-current assets 9 12 15
Retirement benefit assets 84 141 170
Deferred tax assets 188 177 168
5,966 6,110 6,346
Current assets
Inventories 2,411 2,205 1,990
Trade and other receivables 1,269 1,264 1,219
Current tax receivable 8 37 34
Cash at bank 6 190 350 516
3,878 3,856 3,759
TOTAL ASSETS 9,844 9,966 10,105
EQUITY AND LIABILITIES
Equity attributable to owners of the Company
Share capital 175 175 175
Share premium 615 615 615
Capital redemption reserve 20 20 20
Treasury shares (107) (118) (106)
Other reserves (433) (459) (434)
Retained earnings 4,963 5,026 5,125
Total equity 5,233 5,259 5,395
Non-current liabilities
Long-term borrowings and lease liabilities 6 2,633 2,712 2,281
Retirement benefit obligations 67 70 67
Other payables 49 90 91
Provisions 88 84 41
Deferred tax liabilities 7 36 113
2,844 2,992 2,593
Current liabilities
Bank overdrafts, borrowings, loans and lease liabilities 6 407 160 612
Trade and other payables 955 1,098 1,013
Provisions 219 243 287
Current tax payable 186 214 205
1,767 1,715 2,117
Total liabilities 4,611 4,707 4,710
TOTAL EQUITY AND LIABILITIES 9,844 9,966 10,105
Unaudited Condensed Group Cash Flow Statement for the Half Year ended 1 July
2023
Half year Half year
2023 2022
$m $m
Cash flows from operating activities
Profit before taxation 211 204
Net interest expense 44 32
Depreciation, amortisation and impairment 297 309
Share of results of associates 20 1
Share-based payments expense (equity-settled) 19 23
Net movement in post-retirement obligations (3) 2
Movement in working capital and provisions (373) (344)
Cash generated from operations 215 227
Net interest and finance costs paid (39) (33)
Income taxes (paid)/refunded (63) 13
Net cash inflow from operating activities 113 207
Cash flows from investing activities
Acquisitions, net of cash acquired (15) (97)
Capital expenditure (167) (173)
Distribution from associate - 2
Net cash used in investing activities (182) (268)
Net cash outflow before financing activities (69) (61)
Cash flows from financing activities
Proceeds from issue of ordinary share capital - 1
Proceeds from own shares 1 5
Purchase of own shares - (133)
Payment of capital element of lease liabilities (28) (27)
Equity dividends paid (201) (202)
Cash movements in borrowings 146 (357)
Settlement of currency swaps (4) 9
Net cash used in financing activities (86) (704)
Net decrease in cash and cash equivalents (155) (765)
Cash and cash equivalents at beginning of year 344 1,285
Exchange adjustments (6) (8)
Cash and cash equivalents at end of period(B) 183 512
B Cash and cash equivalents at the end of the period are net of
overdrafts of $7m (2 July 2022: $4m).
Unaudited Group Statement of Changes in Equity for the Half Year ended 1 July
2023
Capital
Share Share redemption Treasury Other Retained Total
capital premium reserve shares reserves earnings equity
$m $m $m $m $m $m $m
At 1 January 2023 175 615 20 (118) (459) 5,026 5,259
Attributable profit(A) - - - - - 172 172
Other comprehensive income(A) - - - - 26 (44) (18)
Equity dividends paid - - - - - (201) (201)
Share-based payments recognised - - - - - 19 19
Taxation on share-based payments - - - - - 1 1
Cost of shares transferred to beneficiaries - - - 11 - (10) 1
At 1 July 2023 175 615 20 (107) (433) 4,963 5,233
Capital
Share Share redemption Treasury Other Retained Total
capital premium reserve shares reserves earnings equity
$m $m $m $m $m $m $m
At 1 January 2022 177 614 18 (120) (346) 5,225 5,568
Attributable profit(A) - - - - - 177 177
Other comprehensive income(A) - - - - (88) 45 (43)
Equity dividends paid - - - - - (202) (202)
Share-based payments recognised - - - - - 23 23
Taxation on share-based payments - - - - - (1) (1)
Purchase of own shares(C) - - - (133) - - (133)
Cost of shares transferred to beneficiaries - - - 18 - (13) 5
Cancellation of treasury shares(C) (2) - 2 129 - (129) -
Issue of ordinary share capital - 1 - - - - 1
At 2 July 2022 175 615 20 (106) (434) 5,125 5,395
A Attributable to the equity holders of the parent and wholly derived from
continuing operations.
C During the half year ended 1 July 2023 no ordinary shares were purchased
or cancelled (H1 2022: 8.2m ordinary shares were purchased at a cost of $133m
and 7.8m shares were cancelled).
Notes to the Condensed Consolidated Interim Financial Statements
1. Basis of preparation and accounting policies
Smith & Nephew plc (the 'Company') is a public limited company
incorporated in England and Wales. In these condensed consolidated interim
financial statements ('Interim Financial Statements'), 'Group' means the
Company and all its subsidiaries.
These Interim Financial Statements have been prepared in accordance with IAS
34 Interim Financial Reporting as adopted for use in the UK. As required by
the Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority, these Interim Financial Statements have been prepared applying the
accounting policies and presentation that were applied in the preparation of
the Company's annual accounts for the year ended 31 December 2022 which were
prepared in accordance with UK-adopted International Accounting Standards. The
Group has also prepared its accounts in accordance with IFRS as issued by the
International Accounting Standards Board (IASB) effective as at 31 December
2022. IFRS as adopted in the UK differs in certain respects from IFRS as
issued by the IASB. However, the differences have no impact for the periods
presented.
The uncertainties as to the future impact on the financial performance and
cash flows of the Group as a result of the current challenging economic
environment have been considered as part of the Group's adoption of the going
concern basis for its Interim Financial Statements for the period ended 1 July
2023, in which context the Directors reviewed cash flow forecasts prepared for
a period of at least 12 months from the date of approval of these Interim
Financial Statements. Having carefully reviewed those forecasts, the Directors
concluded that it was appropriate to adopt the going concern basis of
accounting in preparing these Interim Financial Statements for the reasons set
out below.
The Group's net debt, excluding lease liabilities, at 1 July 2023 was $2,656m
(see Note 6) with committed facilities of $3.7bn. The Group has $105m of
private placement debt due for repayment in the second half of 2023. $100m of
private placement debt is due for repayment in the first half of 2024. $1,160m
of private placement debt is subject to financial covenants. The principal
covenant on the private placement debt is a leverage ratio of <3.5x which
is measured on a rolling 12-month basis at half year and year end. There are
no financial covenants in any of the Group's other facilities.
The Directors have considered various scenarios in assessing the impact of the
economic environment on future financial performance and cash flows, with the
key judgement applied being the speed and sustainability of the return to a
normal volume of elective procedures in key markets, including the impact of a
significant global recession, leading to lower healthcare spending across both
public and private systems. Throughout these scenarios, which include a severe
but plausible outcome, the Group continues to have headroom on its borrowing
facilities and financial covenants. The Directors believe that the Group is
well placed to manage its financing and other business risks satisfactorily
and have a reasonable expectation that the Group has sufficient resources to
continue in operational existence for the forecast period. Thus they continue
to adopt the going concern basis for accounting in preparing these Interim
Financial Statements.
The principal risks and uncertainties that the Group is exposed to are
consistent with those as at 31 December 2022. The principal risks and
uncertainties continue to be: business continuity and business change;
commercial execution; cybersecurity; global supply chain; legal and
compliance; mergers and acquisitions; new product innovation, design and
development including intellectual property; political and economic; pricing
and reimbursement; quality and regulatory; talent management; and taxation and
foreign exchange. Further detail on these risks can be found in the 2022
Annual Report of the Group on pages 71-77.
The financial information contained in this document does not constitute
statutory financial statements as defined in sections 434 and 435 of the
Companies Act 2006. The auditors issued an unqualified opinion that did not
contain a statement under section 498 of the Companies Act 2006 on the Group's
statutory financial statements for the year ended 31 December 2022. The
Group's statutory financial statements for the year ended 31 December 2022
have been delivered to the Registrar of Companies.
New accounting standards effective 2023
A number of new amendments to standards are effective from 1 January 2023 but
they do not have a material effect on the Group's financial statements except
for
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction -Amendment to IAS 12, which the Group has adopted.
The amendments narrow the scope of the initial recognition exemption to
exclude transactions that give rise to equal and offsetting temporary
differences such as leases.
The Group previously accounted for deferred tax on leases where the deferred
tax asset or liability was recognised on a net basis. Following the
amendments, the Group has recognised a separate deferred tax asset in relation
to its lease liabilities and a deferred tax liability in relation to its
right-of-use assets. However, there is no impact on the balance sheet because
the balances qualify for offset under paragraph 74 of IAS 12. There was also
no impact on the opening retained earnings as at 1 January 2023 as a result of
the change.
The policy for recognising and measuring income taxes in the interim period is
consistent with that applied in the comparative interim period except for the
changes outlined above as a result of the Group's adoption of the amendments
to IAS 12.
The change in accounting policy will also be reflected in the Group's
consolidated financial statements for the year ending 31 December 2023.
Accounting standards issued but not yet effective
A number of new standards and amendments to standards are effective for annual
periods beginning after 1 January 2024 and earlier application is permitted;
however, the Group has not early adopted them in preparing these Interim
Financial Statements.
The Group is adopting the mandatory temporary exception from the recognition
and disclosure of deferred taxes arising from the jurisdictional
implementation of the Pillar Two model rules which will take effect for the
Group from 1 January 2024.
Critical judgements and estimates
In determining and applying accounting policies, judgement is often required
in respect of items where the choice of specific policy, accounting estimate
or assumption to be followed could materially affect the reported results or
net asset position of the Group; it may later be determined that a different
choice would have been more appropriate. The Group's significant accounting
policies which required the most use of management's estimation in the half
year ended 1 July 2023 were: valuation of inventories; liability provisioning
and impairment. These are consistent with 31 December 2022 and there has been
no change in the methodology of applying these critical estimates since the
year ended 31 December 2022.
Management have considered the impact of the current challenging economic
environment in:
Valuation of inventories
Management have assessed the current challenging economic environment on the
provision for excess and obsolete inventory, specifically considering the
impact of increased inventory levels. Management have not changed their
methodology for calculating the provision since 31 December 2022, nor is any
change in the key assumptions underlying the methodology expected in the next
12 months. Primarily due to higher inventory levels, the provision has
increased from $504m at 31 December 2022 to $576m at 1 July 2023. The
provision for excess and obsolete inventory is not considered to have a range
of potential outcomes that is significantly different to the $576m at 1 July
2023. The provision has a high degree of estimation uncertainty given the
range of products and sizes, with a potential range of reasonable outcomes
that could be material over the longer term.
Liability provisioning
The recognition of provisions for legal disputes related to metal-on-metal
cases is subject to a significant degree of estimation. Provision is made for
loss contingencies when it is considered probable that an adverse outcome will
occur and the amount of the loss can be reasonably estimated. In making its
estimates, management takes into account the advice of internal and external
legal counsel. Provisions are reviewed regularly and amounts updated where
necessary to reflect developments in the disputes. The value of provisions may
require future adjustment if experience such as number, nature or value of
claims or settlements changes. Such a change may be material in the second
half of 2023 or thereafter. The ultimate liability may differ from the amount
provided depending on the outcome of court proceedings and settlement
negotiations or if investigations bring to light new facts. Management has
considered whether there have been any changes to the number and value of
claims since 31 December 2022 due to current challenging economic environment
and to date have not identified any changes in trends. If the experience
changes in the future the value of provisions may require adjustment.
Impairment
Management have assessed the non-current assets held by the Group at 1 July
2023 to identify any indicators of impairment. Where an impairment indicator
has arisen, impairment reviews have been undertaken by comparing the expected
recoverable value of the asset to the carrying value of the asset. The
recoverable amounts are based on cash flow projections using the Group's base
case scenario in its going concern models, which was reviewed and approved by
the Board. No material impairments were identified as a result of the
impairment reviews undertaken.
Climate change considerations
The impact of climate change has been considered as part of the assessment of
estimates and judgements in preparing the Group accounts. The climate change
scenario analyses undertaken this year in line with TCFD recommendations did
not identify any material financial impact.
The following considerations were made in respect of the interim financial
statements:
a. The impact of climate change on the going concern assessment and the
viability of the Group over the next three years;
b. The impact of climate change on the cash flow forecasts used in the
impairment assessments of non-current assets including goodwill; and
c. The impact of climate change on the carrying value and useful economic
lives of property, plant and equipment.
2. Business segment information
The Group's operating structure is organised around three global business
units (previously referred as franchises) and the chief operating decision
maker monitors performance, makes operating decisions and allocates resources
on a global business unit basis. Accordingly, the Group has concluded that
there are three reportable segments.
The Executive Committee ('ExCo') comprises the Chief Financial Officer
('CFO'), the business unit presidents, certain heads of function, and is
chaired by the Chief Executive Officer ('CEO'). ExCo is the body through which
the CEO uses the authority delegated to him by the Board of Directors to
manage the operations and performance of the Group. All significant operating
decisions regarding the allocation and prioritisation of the Group's resources
and assessment of the Group's performance are made by ExCo, and whilst the
members have individual responsibility for the implementation of decisions
within their respective areas, it is at the ExCo level that these decisions
are made. Accordingly, ExCo is considered to be the Group's chief operating
decision maker as defined by IFRS 8 Operating Segments.
In making decisions about the prioritisation and allocation of the Group's
resources, ExCo reviews financial information for the three business units and
determines the best allocation of resources to the business units. Financial
information for corporate costs is presented on a Group-wide basis. The ExCo
is not provided with total assets and liabilities by segment, and therefore
these measures are not included in the disclosures below. The results of the
segments are shown below.
2a. Revenue by business segment and geography
Revenue is recognised as the performance obligations to deliver products or
services are satisfied and is recorded based on the amount of consideration
expected to be received in exchange for satisfying the performance
obligations. Revenue is recognised primarily when control is transferred to
the customer, which is generally when the goods are shipped or delivered in
accordance with the contract terms, with some transfer of services taking
place over time. Substantially all performance obligations are performed
within one year. There is no significant revenue associated with the provision
of discrete services.
Payment terms to our customers are based on commercially reasonable terms for
the respective markets while also considering a customer's credit rating.
Appropriate provisions for returns, trade discounts and rebates are deducted
from revenue. Rebates primarily comprise chargebacks and other discounts
granted to certain customers. Chargebacks are discounts that occur when a
third party purchases product from a wholesaler at its agreed price plus a
mark-up. The wholesaler in turn charges the Group for the difference between
the price initially paid by the wholesaler and the agreed price. The provision
for chargebacks is based on expected sell-through levels by the Group's
wholesalers to such customers, as well as estimated wholesaler inventory
levels.
Orthopaedics and Sports Medicine & ENT
Orthopaedics and Sports Medicine & ENT consists of the following
businesses: Knee Implants, Hip Implants, Other Reconstruction, Trauma &
Extremities, Sports Medicine Joint Repair, Arthroscopic Enabling Technologies
and ENT. Sales of inventory located at customer premises and available for
customers' immediate use are recognised when notification is received that the
product has been implanted or used. Substantially all other revenue is
recognised when control is transferred to the customer, which is generally
when the goods are shipped or delivered in accordance with the contract terms.
Revenue is recognised for the amount of consideration expected to be received
in exchange for transferring the products or services.
In general our business in Established Markets is direct to hospitals and
ambulatory surgery centers whereas in the Emerging Markets we generally sell
through distributors.
Advanced Wound Management
Advanced Wound Management consists of the following businesses: Advanced Wound
Care, Advanced Wound Bioactives and Advanced Wound Devices. Substantially all
revenue is recognised when control is transferred to the customer, which is
generally when the goods are shipped or delivered in accordance with the
contract terms. Revenue is recognised for the amount of consideration expected
to be received in exchange for transferring the products or services.
Appropriate provisions for returns, trade discounts and rebates are deducted
from revenue, as explained above.
The majority of our Advanced Wound Management business, and in particular
products used in community and homecare facilities, is through wholesalers and
distributors. When control is transferred to a wholesaler or distributor,
revenue is recognised accordingly. The proportion of sales direct to hospitals
is higher in our Advanced Wound Devices business in Established Markets.
Segment revenue reconciles to statutory revenue from continuing operations as
follows:
Half year Half year
2023 2022
$m $m
Segment revenue
Orthopaedics 1,102 1,071
Sports Medicine & ENT 843 778
Advanced Wound Management 789 751
Revenue from external customers 2,734 2,600
Disaggregation of revenue
The following table shows the disaggregation of Group revenue by product by
business unit:
Half year Half year
2023 2022
$m $m
Knee Implants 475 454
Hip Implants 303 298
Other Reconstruction 51 43
Trauma & Extremities 273 276
Orthopaedics 1,102 1,071
Sports Medicine Joint Repair 457 426
Arthroscopic Enabling Technologies 293 281
ENT (Ear, Nose & Throat) 93 71
Sports Medicine & ENT 843 778
Advanced Wound Care 356 360
Advanced Wound Bioactives 274 252
Advanced Wound Devices 159 139
Advanced Wound Management 789 751
Total 2,734 2,600
The following table shows the disaggregation of Group revenue by geographic
market and product category. The disaggregation of revenue into the two
product categories below reflects that in general the products in the Advanced
Wound Management business unit are sold to wholesalers and intermediaries,
while products in the other business units are sold directly to hospitals,
ambulatory surgery centers and distributors. The further disaggregation of
revenue by Established Markets and Emerging Markets reflects that in general
our products are sold through distributors and intermediaries in the Emerging
Markets while in the Established Markets, with the exception of the Advanced
Wound Care and Bioactives, products are in general sold direct to hospitals
and ambulatory surgery centers. The disaggregation by Established Markets and
Emerging Markets also reflects their differing economic factors including
volatility in growth and outlook.
Half year 2023 Half year 2022
Established Markets ((D)) Emerging Markets Total Established Markets ((D)) Emerging Markets Total
$m $m $m $m $m $m
Orthopaedics, Sports Medicine & ENT 1,584 361 1,945 1,474 375 1,849
Advanced Wound Management 694 95 789 654 97 751
Total 2,278 456 2,734 2,128 472 2,600
D Established Markets comprises US, Australia, Canada, Europe, Japan and
New Zealand.
Sales are attributed to the country of destination. US revenue for the half
year was $1,471m (H1 2022: $1,350m), China revenue for the half year was $123m
(H1 2022: $166m) and UK revenue for the half year was $96m (H1 2022: $95m).
No individual customer comprises more than 10% of the Group's external sales.
2b. Trading profit by business segment
Trading profit is a trend measure which presents the profitability of the
Group excluding the impact of specific transactions that management considers
affect the Group's short-term profitability and the comparability of results.
The Group presents this measure to assist investors in their understanding of
trends. The Group has identified the following items, where material, as those
to be excluded from operating profit when arriving at trading profit:
acquisition and disposal related items; amortisation and impairment of
acquisition intangibles; significant restructuring programmes; gains and
losses arising from legal disputes; and other significant items.
Segment trading profit is reconciled to the statutory measure below:
Half year Half year
2023 2022
$m $m
Segment profit
Orthopaedics 174 193
Sports Medicine & ENT 224 227
Advanced Wound Management 223 217
Segment trading profit 621 637
Corporate costs (204) (197)
Group trading profit 417 440
Acquisition and disposal related items 17 (1)
Restructuring and rationalisation expenses (46) (63)
Amortisation and impairment of acquisition intangibles (102) (105)
Legal and other (11) (29)
Group operating profit 275 242
Acquisition and disposal related items
For the half year ended 1 July 2023, credits relate to the remeasurement of
deferred and contingent consideration for prior year acquisitions. These were
partially offset by costs of integration for prior year acquisitions.
For the half year ended 2 July 2022, costs primarily relate to the acquisition
and integration of Engage Surgical and prior year acquisitions. These costs
were partially offset by credits relating to remeasurement of deferred and
contingent consideration for prior year acquisitions.
Restructuring and rationalisation costs
For the half year ended 1 July 2023, these costs primarily relate to the
efficiency and productivity elements of the 12-Point Plan and the Operations
and Commercial Excellence programme that was announced in February 2020.
For the half year ended 2 July 2022, these costs primarily relate to the
Operations and Commercial Excellence programme that was announced in February
2020.
Amortisation and impairment of acquisition intangibles
For both the half years ended 1 July 2023 and 2 July 2022, charges relate to
the amortisation and impairment of intangible assets acquired in material
business combinations.
Legal and other
For the half years ended 1 July 2023 and 2 July 2022, charges relate to legal
expenses for ongoing metal-on-metal hip claims. These charges for the half
year ended 1 July 2023 were partially offset by the release of a provision for
an intellectual property dispute. For the half year to 2 July 2022, charges
were partially offset by a credit of $7m relating to insurance recoveries for
ongoing metal-on-metal hip claims.
The half years ended 1 July 2023 and 2 July 2022 also include costs for
implementing the requirements of the EU Medical Device Regulation that was
effective from May 2021 with a transition period to May 2024.
3. Taxation
Tax rate
Our reported tax for the period ended 1 July 2023 was a charge of $39m, with
an effective tax rate of 18.5% (H1 2022: $27m, effective tax rate of 13.2%).
OECD BEPS 2.0 - Pillar Two
The OECD Pillar Two Globe Rules introduce a global minimum corporate tax rate
of 15% applicable to multinational enterprise groups with global revenue over
€750m. All participating OECD members are required to incorporate these
rules into national legislation. On 2 February 2023, the OECD published its
Agreed Administrative Guidance for the Pillar Two Globe Rules providing
greater detail on the application of the rules. On 23 May 2023, the
International Accounting Standards Board (IASB) amended IAS 12 to introduce a
mandatory temporary exception to the accounting for deferred taxes arising
from the jurisdictional implementation of the Pillar Two model rules. On 19
July 2023, the UK Endorsement Board adopted the IASB amendments to IAS 12. The
Group will be subject to the Pillar Two Model Rules which is expected to
result in an increase in our Group tax rate from 2024 onwards. The Group does
not meet the threshold for application of the Pillar One transfer pricing
rules.
4. Dividends
The 2022 final dividend totaling $201m was paid on 17 May 2023. The 2023
interim dividend of 14.4 US cents per ordinary share was approved by the Board
on 3 August 2023. This dividend is payable on 1 November 2023 to shareholders
whose names appear on the register at the close of business on 6 October 2023.
The sterling equivalent per ordinary share will be set following the record
date. Shareholders may elect to receive their dividend in either Sterling or
US Dollars and the last day for election will be 16 October 2023. Shareholders
may participate in the dividend re-investment plan and elections must be made
by 16 October 2023.
5. Acquisitions
Half year ended 1 July 2023
No acquisitions were made for the half year ended 1 July 2023.
The cash outflow from acquisitions in H1 2023 of $15m (H1 2022: $97m)
comprises payments of consideration of $nil (H1 2022: $89m) relating to
acquisitions in the current period and payments of deferred and contingent
consideration of $15m (H1 2022: $8m) relating to acquisitions completed in
prior periods.
The carrying value of goodwill increased from $3,031m at 31 December 2022 to
$3,049m at 1 July 2023 due to foreign exchange movements.
Year ended 31 December 2022
On 18 January 2022, the Group completed the acquisition of 100% of the share
capital of Engage Uni, LLC (doing business as Engage Surgical), owner of the
only cementless unicompartmental (partial) knee system commercially available
in the US.
The maximum consideration, all payable in cash, was $135m and the provisional
fair value consideration was $131m and included $32m of contingent
consideration. The goodwill represents the control premium, the acquired
workforce and the synergies expected from integrating Engage Surgical into the
Group's existing business. The majority of the consideration is expected to be
deductible for tax purposes.
The fair value of assets acquired and liabilities assumed are set out below:
Engage Surgical
$m
Intangible assets - Product-related 44
Property, plant & equipment 2
Inventory 2
Trade and other payables (1)
Net assets 47
Goodwill 84
Consideration (net of $nil cash acquired) 131
The product-related intangible assets were valued using a relief-from-royalty
methodology with the key inputs being revenue, profit and discount rate.
6. Net debt
Net debt as at 1 July 2023 is outlined below. The repayment of lease
liabilities is included in cash flows from financing activities in the cash
flow statement.
1 July 31 December 2 July
2023 2022 2022
$m $m $m
Cash at bank 190 350 516
Long-term borrowings (2,489) (2,565) (2,154)
Bank overdrafts, borrowings and loans due within one year (357) (111) (562)
Net currency swap asset 1 - 3
Net interest rate swap liability (1) (13) -
Net debt (2,656) (2,339) (2,197)
Non-current lease liabilities (143) (147) (127)
Current lease liabilities (50) (49) (50)
Net debt including lease liabilities (2,849) (2,535) (2,374)
Reconciliation of net cash flow to movement in net debt including lease
liabilities
Net cash flow from cash net of overdrafts (155) (930) (765)
Settlement of currency swaps 4 (3) (9)
Net cash flow from borrowings (146) 396 357
Change in net debt from net cash flow (297) (537) (417)
IFRS 16 lease liabilities 3 1 19
Exchange adjustment (19) 47 73
Corporate bond issuance expense (1) 3 -
Change in net debt in the year (314) (486) (325)
Opening net debt (2,535) (2,049) (2,049)
Closing net debt (2,849) (2,535) (2,374)
The Group has $105m of private placement debt due for repayment in the second
half of 2023 and $100m of private placement debt due for repayment in the
first half of 2024.
7a. Financial instruments
The following table shows the carrying amounts and fair values of financial
assets and financial liabilities, including their levels in the fair value
hierarchy.
Carrying amount Fair value
1 July 31 December 2 July 1 July 31 December 2 July
2023 2022 2022 2023 2022 2022 Fair value
$m $m $m $m $m $m level
Financial assets at fair value
Forward foreign exchange contacts 44 46 64 44 46 64 Level 2
Investments 8 12 10 8 12 10 Level 3
Contingent consideration receivable 18 18 20 18 18 20 Level 3
Currency swaps 1 1 3 1 1 3 Level 2
71 77 97 71 77 97
Financial assets not measured at fair value
Trade and other receivables 1,122 1,123 1,057
Cash at bank 190 350 516
1,312 1,473 1,573
Total financial assets 1,383 1,550 1,670
Financial liabilities at fair value
Acquisition consideration (50) (78) (100) (50) (78) (100) Level 3
Forward foreign exchange contracts (28) (42) (34) (28) (42) (34) Level 2
Currency swaps - (1) - - (1) - Level 2
Interest rate swaps (1) (13) - (1) (13) - Level 2
(79) (134) (134) (79) (134) (134)
Financial liabilities not measured at fair value
Acquisition consideration (7) (14) (16)
Bank overdrafts (7) (6) (4)
Bank loans (145) - (508)
Corporate bond not in a hedge relationship (994) (994) (993)
Corporate bond in a hedge relationship (540) (516) -
Private placement debt not in a hedge relationship (1,160) (1,160) (1,210)
Trade and other payables (918) (1,040) (954)
(3,771) (3,730) (3,685)
Total financial liabilities (3,850) (3,864) (3,819)
At 1 July 2023, the book value and market value of the USD corporate bond were
$994m and $804m respectively (31 December 2022: $994m and $783m), the book
value and market value of the EUR corporate bond were $540m and $553m
respectively (31 December 2022: $516m and $531m). At 1 July 2023 the book
value and fair value of the private placement debt were $1,160m and $1,071m
respectively (31 December 2022: $1,160m and $987m).
There were no transfers between Levels 1, 2 and 3 during the half year ended 1
July 2023 and the year ended 31 December 2022. For cash and cash equivalents,
short-term loans and receivables, overdrafts and other short-term liabilities
which have a maturity of less than three months, the book values approximate
the fair values because of their short-term nature. Long-term borrowings are
measured in the balance sheet at amortised cost. The corporate bonds issued in
October 2020 and October 2022 are publicly listed and a market price is
available. The Group's other long-term borrowings are not quoted publicly,
their fair values are estimated by discounting future contractual cash flows
to net present values at the current market interest rates available to the
Group for similar financial instruments as at the year end. The fair value of
the private placement notes is determined using a discounted cash flow model
based on prevailing market rates. The fair value of currency swaps is
determined by reference to quoted market spot rates. As a result, foreign
forward exchange contracts and currency swaps are classified as Level 2 within
the fair value hierarchy.
The fair value of contingent acquisition consideration is estimated using a
discounted cash flow model. The valuation model considers the present value of
risk adjusted expected payments, discounted using a risk-free discount rate.
The expected payment is determined by considering the possible scenarios,
which relate to the achievement of established milestones and targets, the
amount to be paid under each scenario and the probability of each scenario. As
a result, contingent acquisition consideration is classified as Level 3 within
the fair value hierarchy.
The fair value of investments is based upon third party pricing models for
share issues. As a result, investments are considered Level 3 in the fair
value hierarchy.
The movements in the half year ended 1 July 2023 and the year ended 31
December 2022 for financial instruments measured using Level 3 valuation
methods are presented below:
1 July 31 December
2023 2022
$m $m
Investments
At 1 January 12 10
Additions - 2
Fair value remeasurement (4) -
8 12
Contingent consideration receivable
At 1 January 18 20
Remeasurements - -
Receipts - (2)
18 18
Acquisition consideration liability
At 1 January (78) (84)
Arising on acquisitions - (32)
Payments 7 20
Remeasurements 22 19
Discount unwind (1) (1)
(50) (78)
7b. Retirement benefit obligations
The discount rates applied to the future pension liabilities of the UK and US
pension plans are based on the yield on bonds that have a credit rating of AA
denominated in the currency in which the benefits are expected to be paid with
a maturity profile approximately the same as the obligations. The UK discount
rate has increased since 31 December 2022 by 40bps to 5.2% while the US
discount rate decreased since 31 December 2022 by 10bps to 5.2%. The
remeasurement loss of $61m recognised in Other Comprehensive Income (OCI) was
principally made up of a $58m loss recorded due to the conclusion of the UK
Defined Benefit Fund buy-in as noted below.
During the half year ended 1 July 2023, the Trustees concluded a full buy-in
of the UK Defined Benefit Fund. The transaction resulted in a $58m loss being
recognised in OCI with nil cash impact. In October 2022, US Pension Plan
members were notified that Smith & Nephew Inc. would begin the termination
process for the plan. This process is expected to be finalised by 2024.
8. Exchange rates
The exchange rates used for the translation of currencies into US Dollars that
have the most significant impact on the Group results were:
Half year Full year Half year
2023 2022 2022
Average rates
Sterling 1.23 1.23 1.30
Euro 1.08 1.05 1.09
Swiss Franc 1.10 1.05 1.06
Period end rates
Sterling 1.27 1.21 1.20
Euro 1.09 1.07 1.04
Swiss Franc 1.11 1.08 1.04
Directors' Responsibilities Statement
The Directors confirm that to the best of their knowledge:
· this set of condensed consolidated Interim Financial Statements
has been prepared in accordance with IAS 34 Interim Financial Statements as
adopted for use in the UK and IAS 34 Interim Financial Statements as issued by
the International Accounting Standards Board; and
· that the interim management report herein includes a fair review
of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the enterprise during that period, and any changes
in the related party transactions described in the last annual report that
could do so.
There have been no changes in the Board of Directors of Smith & Nephew plc
to those listed in the Smith & Nephew plc 2022 Annual Report.
By order of the Board:
Chief Executive Officer 3 August 2023
Deepak Nath
Anne-Françoise Nesmes Chief Financial Officer 3 August 2023
INDEPENDENT REVIEW REPORT TO SMITH & NEPHEW PLC
Conclusion
We have been engaged by Smith & Nephew plc ("the Company") to review the
condensed consolidated set of financial statements in the interim financial
report for the period ended 1 July 2023 which comprises the Group Income
Statement, Group Statement of Comprehensive Income, Group Balance Sheet,
Condensed Group Cash Flow Statement, Group Statement of Changes in Equity and
the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated set of financial statements in the
interim financial report for the period ended 1 July 2023 is not prepared, in
all material respects, in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK and the Disclosure Guidance and Transparency
Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK
FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other information
contained in the interim financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed consolidated set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the interim
financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements of the Group
are prepared in accordance with UK-adopted international accounting standards.
The Group also prepared those annual accounts in accordance with IFRS as
issued by International Accounting Standards Board ('IASB').
The directors are responsible for preparing the condensed consolidated set of
financial statements included in the interim financial report in accordance
with IAS 34 as adopted for use in the UK and in addition to complying with
their legal obligation to do so, have also applied IAS 34 as issued by the
IASB to them.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
consolidated set of financial statements in the interim financial report based
on our review. Our conclusion, including our conclusions relating to going
concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Paul Nichols
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
3 August 2023
Other information
Definitions of and reconciliation to measures included within adjusted
"trading" results
These Interim Financial Statements include financial measures that are not
prepared in accordance with IFRS. These measures, which include trading
profit, trading profit margin, tax rate on trading results, EPSA, ROIC,
trading cash flow, free cash flow, trading profit to trading cash conversion
ratio, leverage ratio, and underlying revenue growth, exclude the effect of
certain cash and non-cash items that Group management believes are not related
to the underlying performance of the Group. These non-IFRS financial measures
are also used by management to make operating decisions because they
facilitate internal comparisons of
performance to historical results.
Non-IFRS financial measures are presented in these Interim Financial
Statements as the Group's management believe that they provide investors with
a means of evaluating performance of the business segments and the
consolidated Group on a consistent basis, similar to the way in which the
Group's management evaluates performance, that is not otherwise apparent on an
IFRS basis, given that certain non-recurring, infrequent, non-cash
and other items that management does not otherwise believe are indicative of
the underlying performance of the consolidated Group may not be excluded when
preparing financial measures under IFRS. These non-IFRS measures should not be
considered in isolation
from, as substitutes for, or superior to financial measures prepared in
accordance with IFRS.
Underlying revenue growth
'Underlying revenue growth' is used to compare the revenue in a given period
to the previous period on a like-for-like basis. Underlying revenue growth
reconciles to reported revenue growth, the most directly comparable financial
measure calculated in accordance with IFRS, by making two adjustments, the
'constant currency exchange effect' and the 'acquisitions and disposals
effect', described below.
The 'constant currency exchange effect' is a measure of the increase/decrease
in revenue resulting from currency movements on non-US Dollar sales and is
measured as the difference between: 1) the increase/decrease in the current
year revenue translated into US Dollars at the current year average exchange
rate and the prior year revenue translated at the prior year rate; and 2) the
increase/decrease being measured by translating current and prior year
revenues into US Dollars using the prior year closing rate.
The 'acquisitions and disposals effect' is the measure of the impact on
revenue from newly acquired material business combinations and recent material
business disposals. This is calculated by comparing the current year, constant
currency actual revenue (which includes acquisitions and excludes disposals
from the relevant date of completion) with prior year, constant currency
actual revenue, adjusted to include the results of acquisitions and exclude
disposals for the commensurate period in the prior year. These sales are
separately tracked in the Group's internal reporting systems and are readily
identifiable.
Reported revenue growth, the most directly comparable financial measure
calculated in accordance with IFRS, reconciles to underlying revenue growth as
follows:
Reconciling Items
Half year Half year Reported Underlying Acquisitions Currency
2023 2022 growth growth & disposals impact
$m $m % % % %
Segment revenue
Orthopaedics 1,102 1,071 2.9 4.8 - (1.9)
Sports Medicine & ENT 843 778 8.4 11.0 - (2.6)
Advanced Wound Management 789 751 5.1 7.0 - (1.9)
Revenue from external customers 2,734 2,600 5.2 7.3 - (2.1)
Trading profit, trading profit margin, trading cash flow and trading profit to
cash conversion ratio
Trading profit, trading profit margin (trading profit expressed as a
percentage of revenue), trading cash flow and trading profit to trading cash
conversion ratio (trading cash flow expressed as a percentage of trading
profit) are trend measures, which present the profitability of the Group. The
adjustments made exclude the impact of specific transactions that management
considers affect the Group's short-term profitability and cash flows, and the
comparability of results. The Group has identified the following items, where
material, as those to be excluded from operating profit and cash generated
from operations when arriving at trading profit and trading cash flow,
respectively: acquisition and disposal related items arising in connection
with business combinations, including amortisation of acquisition intangible
assets, impairments and integration costs; restructuring events; and gains and
losses resulting from legal disputes and uninsured losses. In addition to
these items, gains and losses that materially impact the Group's profitability
or cash flows on a short-term or one-off basis are excluded from operating
profit and cash generated from operations when arriving at trading profit and
trading cash flow. The cash contributions to fund defined benefit pension
schemes that are closed to future accrual are excluded from cash generated
from operations when arriving at trading cash flow. Payment of lease
liabilities is included within trading cash flow.
Adjusted earnings per ordinary share ('EPSA')
EPSA is a trend measure, which presents the profitability of the Group
excluding the post-tax impact of specific transactions that management
considers affect the Group's short-term profitability and comparability of
results. The Group presents this measure to assist investors in their
understanding of trends. Adjusted attributable profit is the numerator used
for this measure and is determined by adjusting attributable profit for the
items that are excluded from operating profit when arriving at trading profit
and items that are recognised below operating profit that affect the Group's
short-term profitability. The most directly comparable financial measure
calculated in accordance with IFRS is basic earnings per ordinary share (EPS).
Cash
Profit generated
Operating before Attributable from Earnings
Revenue profit(1 ) tax(2 ) Taxation(3 ) profit(4 ) operations(5 ) per share(6 )
$m $m $m $m $m $m ¢
Half year 2023 Reported 2,734 275 211 (39) 172 215 19.7
Acquisition and disposal related items - (17) (8) 9 1 6 0.1
Restructuring and rationalisation costs - 46 49 (10) 39 50 4.6
Amortisation and impairment of acquisition intangibles - 102 102 (22) 80 - 9.1
Legal and other(7) - 11 14 (2) 12 34 1.4
Lease liability payments - - - - - (28) -
Capital expenditure - - - - - (167) -
Half year 2023 Adjusted 2,734 417 368 (64) 304 110 34.9
Cash
Profit generated
Operating before Attributable from Earnings
Revenue profit(1 ) tax(2 ) Taxation(3 ) profit(4 ) operations(5 ) per share(6 )
$m $m $m $m $m $m ¢
Half year 2022 Reported 2,600 242 204 (27) 177 227 20.2
Acquisition and disposal related items - 1 - (2) (2) 11 (0.2)
Restructuring and rationalisation costs - 63 63 (13) 50 59 5.8
Amortisation and impairment of acquisition intangibles - 105 105 (23) 82 - 9.4
Legal and other(7) - 29 32 (6) 26 57 2.9
Lease liability payments - - - - - (27) -
Capital expenditure - - - - - (173) -
Half year 2022 Adjusted 2,600 440 404 (71) 333 154 38.1
(1 ) Represents a reconciliation of operating profit to
trading profit.
(2 ) Represents a reconciliation of reported profit before
tax to trading profit before tax.
(3 ) Represents a reconciliation of reported tax to trading
tax.
(4 ) Represents a reconciliation of reported attributable
profit to adjusted attributable profit.
(5 ) Represents a reconciliation of cash generated from
operations to trading cash flow.
(6 ) Represents a reconciliation of basic earnings per
ordinary share to adjusted earnings per ordinary share (EPSA).
(7 ) The ongoing funding of defined benefit pension schemes
that are closed to future accrual is not included in management's definition
of trading cash flow as there is no defined benefit service cost for these
schemes.
Acquisition and disposal related items
For the half year ended 1 July 2023, credits relate to the remeasurement of
deferred and contingent consideration for prior year acquisitions. These were
partially offset by costs of integration for prior year acquisitions. Adjusted
profit before tax for the half year ended 1 July 2023 additionally excludes
acquisition and disposal items related to the Group's shareholding in
Bioventus.
For the half year ended 2 July 2022, costs primarily relate to the acquisition
and integration of Engage Surgical and prior year acquisitions. These costs
were partially offset by credits relating to remeasurement of deferred and
contingent consideration for prior year acquisitions.
Restructuring and rationalisation costs
For the half year ended 1 July 2023, these costs primarily relate to the
efficiency and productivity elements of the 12-Point Plan and the Operations
and Commercial Excellence programme that was announced in February 2020.
Adjusted profit before tax for the half year ended 1 July 2023 additionally
excludes restructuring costs related to the Group's shareholding in Bioventus.
For the half year ended 2 July 2022, these costs primarily relate to the
Operations and Commercial Excellence programme that was announced in February
2020.
Amortisation and impairment of acquisition intangibles
For both the half years ended 1 July 2023 and 2 July 2022, charges relate to
the amortisation and impairment of intangible assets acquired in material
business combinations.
Legal and other
For the half years ended 1 July 2023 and 2 July 2022, charges relate to legal
expenses for ongoing metal-on-metal hip claims. These charges for the half
year ended 1 July 2023 were partially offset by the release of a provision for
an intellectual property dispute. For the half year to 2 July 2022, charges
were partially offset by a credit of $7m relating to insurance recoveries for
ongoing metal-on-metal hip claims.
The half years ended 1 July 2023 and 2 July 2022 also include costs for
implementing the requirements of the EU Medical Device Regulation that was
effective from May 2021 with a transition period to May 2024.
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