Q4_Full_Year_Folio

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

February 8, 2018

 

Commission File Number 001-14978

 

SMITH & NEPHEW plc

(Registrant’s name)

 

15 Adam Street

London, England, WC2N 6LA

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F          Form 40-F __

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).

 

Yes                          No 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).

 

Yes                          No 

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing information to the Commission pursuant to Rule 12g3-2 (b) under the Securities Exchange Act of 1934.

 

Yes                          No 

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2 (b) : 82-  n/a.

 

 

 

 


 

 

Smith & Nephew plc

 

INDEX TO EXHIBITS

 

Item 1.  Press release entitled “Smith & Nephew Fourth Quarter and Full Year 2017 Results”, dated February 8, 2018.

 

 

 


 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

Smith & Nephew plc

 

 

(Registrant)

 

 

 

 

 

 

Date: February 8, 2018

By:

/s/ Susan Swabey

 

 

Susan Swabey

 

 

Company Secretary

 

 

 

 


 

Picture 3

Smith & Nephew Fourth Quarter and Full Year 2017 Results

8 February 2018

 

Smith & Nephew plc (LSE:SN, NYSE:SNN) results for the Fourth Quarter and Full Year to 31 December 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported

 

Trading2

 

 

31 Dec

 

31 Dec

 

Reported

 

31 Dec

 

31 Dec

 

Underlying

 

 

2017

 

2016

 

growth

 

2017

 

2016

 

growth

 

    

$m

    

$m

    

%

    

$m

    

$m

    

%

Fourth Quarter Results1

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

1,278

 

1,222

 

 5

 

1,278

 

1,222

 

 2

 

Full Year Results1

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

4,765

 

4,669

 

 2

 

4,765

 

4,669

 

 3

Operating profit

 

934

 

801

 

 

 

 

 

 

 

 

Trading profit

 

 

 

 

 

 

 

1,048

 

1,020

 

 

Operating/trading profit margin (%)

 

19.6

 

17.2

 

 

 

22.0

 

21.8

 

 

EPS/ EPSA (cents)

 

87.8

 

88.1

 

 

 

94.5

 

82.6

 

 

 

2017 Full Year Highlights1

·

Underlying revenue up 3% and trading profit margin up 20bps to 22.0%, in line with guidance

o

Reported revenue growth of 2% is after -1% reduction from the disposal of Gynaecology business in 2016 and no FX impact

o

Operating profit margin of 19.6%, up 240bps from more favourable non-trading items

·

Performance driven by market-beating growth from Knee Implants and double-digit growth in Emerging Markets, offset by softness in AET and European Advanced Wound Care

·

Trading cash flow of $940 million, up from $765 million in 2016, with higher trading profit to cash conversion ratio of 90%

·

Tax rate on trading results reduced by 670bps to 17.1%, including benefit from one-off US tax settlement (12.7% reported tax rate)

·

EPSA up 14% to 94.5¢ reflecting improved trading and tax rate (EPS flat at 87.8¢)

·

ROIC4 improved 280bps to 14.3%

·

Full year dividend up 14% to 35.0¢ per share

 

Guidance1

·

Revenue expected to increase 3%-4% underlying (around 7%-8% reported3)

·

Trading profit margin expected to improve by a further 30-70bps

·

Tax rate on trading results expected to be 20%-21% following US tax reform

·

Accelerating Performance and Execution (APEX) programme initiated to drive an annualised benefit of $160 million by 2022 through better execution and efficiency for a one-off cost of $240 million

 

Olivier Bohuon, Chief Executive Officer of Smith & Nephew, said:

 

“We delivered on our promises to improve the top and bottom line in 2017. Our Knee Implants franchise delivered a standout performance and we returned to double-digit growth in the Emerging Markets. Our healthy balance sheet, good cash generation and increased dividend demonstrate the robust foundations underpinning our business.

 

“In 2018 I expect Smith & Nephew to build on 2017 by delivering another year of improved performance driven by our strong product portfolio and pipeline of innovative products.

 

“Looking further ahead, our greater focus on commercial execution gives us confidence we will outgrow our markets and the new APEX programme supports our expectation of improved trading profit margin.”

1


 

 

 

Analyst conference call

 

An analyst meeting and conference call to discuss Smith & Nephew’s results for the year ended 31 December 2017 will be held today, Thursday 8 February 2018 at 9:00am GMT / 4:00am EST. This will be webcast live and available for replay shortly after. The details can be found on the Smith & Nephew website at www.smith-nephew.com/results.

 

Enquiries

 

 

 

Investors

 

Ingeborg Øie

+44 (0) 20 7960 2285

Smith & Nephew

 

 

 

Media

 

Charles Reynolds

+44 (0) 20 7401 7646

Smith & Nephew

 

 

 

Ben Atwell / Simon Conway

+44 (0) 20 3727 1000

FTI Consulting

 

 

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 2016 period.

Underlying revenue growth is used to compare the revenue in a given period to the comparative 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 adjustments for the effect of acquisitions and disposals and the impact of movements in exchange rates (currency impact), as described below.

The effect of acquisitions and disposals measures the impact on revenue from newly acquired business combinations and recent business disposals. This is calculated by comparing the current year, constant currency actual revenue (which include acquisitions and exclude 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.

Currency impact measures 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 current year revenue translated into US Dollars at the current year average rate and the prior year revenue translated at the prior year average rate; and 2) the increase/decrease being measured by translating current and prior year revenue into US Dollars using a constant fixed rate.

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 Note 9 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.

3.

Reported growth rate assumes exchange rates prevailing at 2 February 2018.

4.

Return On Invested Capital (ROIC) is defined on page 95 of Smith & Nephew’s 2016 Annual Report.

 

 

 

2


 

 

Smith & Nephew Fourth Quarter Trading and Full Year 2017 Results

 

Review of 2017

 

Group revenue for the Full Year 2017 was $4,765 million (2016: $4,669 million), an increase of 3% on an underlying basis, in line with guidance. The 2% reported growth rate includes a -1% reduction from the disposal of the Gynaecology business in 2016 and there was no impact from foreign exchange.

 

In 2011 we set five strategic priorities that have shaped a fundamental management and operational restructuring of the Group as a foundation to improving its growth and profit profile.  Through these priorities we seek to drive our commercial execution in the Established and Emerging Markets, invest in innovation that drives value, simplify and improve our operating model, and supplement organic growth through acquisitions.

 

Commercial execution

 

At a global franchise level, the highlights were Knee Implants, with revenue up 5% beating the 2% market growth rate, and Trauma and Extremities, up 4%, a notable improvement on 2016. Advanced Wound Management revenue was up 2%, with 13% revenue growth from Advanced Wound Devices partially offset by soft European Advanced Wound Care performance. Arthroscopic Enabling Technologies (AET) revenue was down -3%, but we expect performance to gradually improve during 2018 as we complete the full market rollout of new COBLATION and camera systems. 

 

In our Established Markets revenue was up 1% in 2017. Within this, our business in the United States, representing 48% of global revenue, grew 2%. Other Established Markets growth was flat.

 

Our Emerging Markets business, which now represent 16% of global revenue, delivered 12% revenue growth in 2017, a significant improvement over the flat performance of 2016. In China, our largest Emerging Markets country, we delivered double-digit revenue growth through better execution and channel management. In the oil-dependent Gulf States we returned to growth by focusing on securing more private healthcare business to compensate for the reduction in government tenders. We are well positioned to continue to drive strong growth from the Emerging Markets over the medium term.

 

Innovating for Value

 

Our strong new product portfolio reflects our decision of a few years ago to increase investment in R&D and technology acquisitions.

In robotics, NAVIO is a unique and compelling proposition and we are successfully extending its indications and taking it to new geographies, such as India. We launched the total knee arthroplasty (TKA) application and completed the world’s first robotics-assisted bi-cruciate retaining total knee replacement procedures using the new JOURNEY II XR.

In the Emerging Markets we continued to build our mid-tier portfolio. We extended the ANTHEM Total Knee System and ORTHOMATCH Universal Instrumentation Platform into more markets, including Russia and Saudi Arabia, and introduced a new Cruciate Retaining (CR) variant. 

We are also focusing on building a greater evidence-base to demonstrate the clinical and health economic effectiveness of our products. In 2017 PICO benefited from new clinical evidence showing its effectiveness at reducing the incidence of surgical site infections. Our TRIGEN INTERTAN hip fracture system also performed strongly supported by new clinical evidence.

 

3


 

 

The new EU Medical Device Regulations came into force in 2017 and will apply from May 2020 after a transitional period of three years. We are working to implement the requirements, notably as regards clinical evidence and other data to support existing products and new product launches. We expect to incur costs associated with implementation during this period which will be recorded outside trading profit owing to their scale and one-off nature.

 

Finally, we continue to develop new business models to address changing or unmet customer needs. During 2017 we ran the first study of our innovative Episode of Care Assurance Program (eCAP) that combines our hip and knee implants with PICO and ACTICOAT Flex 7 Antimicrobial Barrier Dressings. The first results showed eCAP delivering a 97% decrease in hospital readmission rates following total joint replacement surgery (based on 1,380 joint arthroplasties with only two readmissions, a readmission rate of only 0.145% as compared to published rates of 5.3% or more).

 

Delivering compelling acquisitions

 

During the year we strengthened our technology and product portfolio further with the acquisition of Rotation Medical, the developer of a novel tissue regeneration technology for shoulder rotator cuff repair. Its bioinductive implant is highly complementary to our Sports Medicine portfolio, serving an unmet clinical need and providing a compelling new treatment option for our customers.

 

In addition to this acquisition, in 2017 we also signed agreements to distribute two exciting technologies: a unique wireless patient monitoring system for pressure ulcer/injury prevention in the US from Leaf Healthcare; and MolecuLight i:XTM, a handheld point-of-care imaging device that uses fluorescence imaging to display potentially harmful concentrations of bacteria in wounds in real-time. 

 

Accelerating Performance and Execution programme (APEX)

 

As announced with our Third Quarter 2017 Results, we believe that we now have the appropriate Group structure to allow us to strengthen our competitive position by driving further opportunities to accelerate performance through better execution, while at the same time realising more savings through greater efficiency.

 

We have completed our assessment of these opportunities and started to implement a programme called APEX - Accelerating Performance and Execution.

 

APEX is expected to deliver an annualised benefit of $160 million by 2022, with around three-quarters of this expected by 2020, for a one-off cash cost of up to $240 million, of which a charge of around $100 million is expected in 2018.

 

APEX has three workstreams:

1.

Manufacturing, Warehousing and Distribution

We have already made significant improvements over the last two years, and see further opportunities to simplify in line with best practices to reduce overall cost, while improving quality and delivery through:

·

A best practice facility footprint with larger manufacturing hubs supported by speciality facilities where appropriate

·

A product portfolio that meets the needs of our customers and complies with regulations, while minimising cost, complexity and inventory

·

A supply chain that is streamlined and efficient so that we are positioned to achieve the highest levels of delivery at benchmark cost

4


 

 

2.

General and Administrative (G&A) Expenses

We have improved our G&A expense ratio over the last five years, but with our global function structure we are now able to identify additional areas of opportunity to reduce costs and improve service through:

·

Best-in-class Global Business Services that includes a full-spectrum of support services delivered quickly and efficiently, enabling full focus on our customers and business objectives

·

Service hubs in locations that align to our regional needs and deliver the best value for money

·

System infrastructure that drives maximum efficiency, including rationalisation of legacy IT systems and adopting a ‘cloud-first’ strategy

 

3.

Commercial Effectiveness

Whilst the commercial opportunities and competitive environment continue to evolve with changing customer expectations, new go-to-market approaches and price pressure, we expect to improve overall productivity and accelerate top line growth through:

·

Increased sales and marketing effectiveness

·

Selective refinement of structures and territories to meet customer and market demands

·

Being more responsive to customers’ use of tenders and changing service level demands

·

More accurate demand forecasting to improve inventory management

 

Fourth Quarter Consolidated Revenue Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

31 December 

    

31 December 

    

Reported

    

Underlying

    

Acquisitions

    

Currency

 

 

2017

 

2016

 

growth

 

Growth(i)

 

/disposals

 

impact

Consolidated revenue by franchise

 

$m

 

$m

 

%

 

%

 

%

 

%

Sports Medicine, Trauma & Other

 

519

 

495

 

 5

 

 2

 

 1

 

 2

Sports Medicine Joint Repair

 

173

 

159

 

 9

 

 6

 

 1

 

 2

Arthroscopic Enabling Technologies

 

167

 

168

 

-1 

 

-3 

 

 -

 

 2

Trauma & Extremities

 

128

 

120

 

 7

 

 5

 

 -

 

 2

Other Surgical Businesses(ii)

 

51

 

48

 

 5

 

 4

 

 -

 

 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconstruction

 

423

 

400

 

 6

 

 4

 

 -

 

 2

Knee Implants

 

266

 

247

 

 8

 

 6

 

 -

 

 2

Hip Implants

 

157

 

153

 

 3

 

 1

 

 -

 

 2

 

 

 

 

 

 

 

 

 

 

 

 

 

Advanced Wound Management

 

336

 

327

 

 3

 

 -

 

 -

 

 3

Advanced Wound Care

 

187

 

186

 

 1

 

-3 

 

 -

 

 4

Advanced Wound Bioactives

 

97

 

97

 

 1

 

 -

 

 -

 

 1

Advanced Wound Devices

 

52

 

44

 

18

 

14

 

 -

 

 4

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1,278

 

1,222

 

 5

 

 2

 

 -

 

 3

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated revenue by geography

 

 

 

 

 

 

 

 

 

 

 

 

US

 

624

 

614

 

 2

 

 1

 

 1

 

 -

Other Established Markets(iii)

 

445

 

428

 

 4

 

-1 

 

 -

 

 5

Emerging Markets

 

209

 

180

 

16

 

14

 

 -

 

 2

Total

 

1,278

 

1,222

 

 5

 

 2

 

 -

 

 3

 

(i)

Underlying growth is defined in Note 1 on page 2

(ii)

Reported growth reflects the divestment of the Gynaecology business in August 2016

(iii)

Other Established Markets are Europe, Canada, Japan, Australia and New Zealand

5


 

 

 

Fourth Quarter 2017 Trading Update

 

Our Q4 revenue was $1,278 million (2016: $1,222 million), up 5% on a reported basis including a foreign exchange tailwind of 3%. Excluding this, underlying revenue growth was 2% in the quarter.

 

The fourth quarter 2017 comprised 60 trading days, in line with the same period of 2016.

 

Fourth Quarter 2017 Franchise Highlights

 

Sports Medicine Joint Repair delivered 6% revenue growth in the quarter driven by a good performance from our shoulder repair portfolio. Revenue from Arthroscopic Enabling Technologies was down -3% as the softness in resection seen in previous quarters continued. We expect growth from the newer WEREWOLF COBLATION and LENS visualisation systems to offset the drag from legacy resection increasingly through 2018.

 

In Trauma & Extremities we grew revenue by 5%. This included strong growth from the Emerging Markets, despite not benefitting from Middle East tenders, as our recently launched ATLAS nail was well received. The INTERTAN nail continues to attract new customers in Established Markets, supported by its excellent clinical evidence.

 

Our Other Surgical Businesses franchise delivered revenue growth of 4% in the quarter. This included another good quarter from our Ear, Nose & Throat (ENT) business and continued growth in our robotics NAVIO Surgical System, including further sales in the US, Asia-Pacific and Europe.

 

We delivered 4% revenue growth across our Reconstruction business in the quarter, completing an excellent second half of 2017. This was led by Knee Implants, where revenue was up 6% as JOURNEY II continued to drive growth, as did recent additions to the LEGION Revision Knee System. Our Hip Implants franchise delivered consecutive quarters of growth, up 1%, as we benefited from the new REDAPT Revision and POLARSTEM Cementless Stem systems.

 

Advanced Wound Care revenue was down -3%. End-market demand remained broadly consistent with previous quarters, with the exception of the UK, where we have subsequently adapted our business.

 

Advanced Wound Bioactives revenue was flat in the quarter. As expected SANTYL delivered growth in the second half of the year and the reimbursement environment for OASIS® remained a headwind for the franchise.

 

Advanced Wound Devices finished the year strongly, as we delivered 14% revenue growth in the quarter driven by the continued success of our single-use disposable negative pressure wound therapy (sNPWT) device PICO.

 

Fourth Quarter Regional Performance

 

In the US revenue was up 1% in fourth quarter, but down -1% across our Other Established Markets. Revenue growth was 14% across the Emerging Markets.

6


 

 

Full Year 2017 Results

 

Smith & Nephew results for the Full Year ended 31 December 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported

 

 

 

2017

 

2016

 

growth

 

 

    

$m

    

$m

    

%

 

Revenue

 

4,765

 

4,669

 

 2

 

Operating profit

 

934

 

801

 

17

 

Acquisition and disposal related items

 

(10)

 

 9

 

 

 

Restructuring and rationalisation costs

 

 -

 

62

 

 

 

Amortisation and impairment of acquisition intangibles

 

140

 

178

 

 

 

Legal and other

 

(16)

 

(30)

 

 

 

Trading profit (non-IFRS)

 

1,048

 

1,020

 

 3

 

 

 

¢

 

¢

 

 

 

Earnings per share “EPS”

 

87.8

 

88.1

 

 -

 

Acquisition and disposal related items

 

(0.9)

 

(22.2)

 

 

 

Restructuring and rationalisation costs

 

 -

 

5.4

 

 

 

Amortisation and impairment of acquisition intangibles

 

11.4

 

13.4

 

 

 

Legal and other

 

(0.1)

 

(2.1)

 

 

 

US tax reform

 

(3.7)

 

 -

 

 

 

Adjusted Earnings per share “EPSA”

 

94.5

 

82.6

 

14

 

 

 

 

 

 

 

 

 

 

Full Year 2017 Analysis

 

Trading profit for the year was $1,048 million (2016: $1,020 million), and the trading profit margin was 22.0% (2016: 21.8%), up 20bps, in-line with guidance.

 

Reported operating profit for 2017 of $934 million, up from $801 million in 2016, was after integration and acquisition costs, as well as amortisation and impairment of acquisition intangibles and legal and other items (see Note 9 to the Condensed Consolidated Financial Statements). The year-on-year increase primarily reflected a gain of $54 million from the settlement of an intellectual property matter, no restructuring charges and lower amortisation and impairment of acquired intangibles in 2017.

 

The net interest charge within reported results was $51 million (2016: $46 million). Net debt was $1,281 million at year-end, a decrease of $269 million from $1,550 million at 31 December 2016, mainly reflecting our free cash flow from improved cash conversion (see Note 7 for a reconciliation of net debt).

 

The tax rate on trading results for the year to 31 December 2017 was 17.1% (2016: 23.8%). This was lower than the originally guided rate of around 26% mainly due to a one-off benefit following the conclusion of a US tax audit, further progress in improving our tax rate, tax provision releases following expiry of statute of limitations and a beneficial geographical mix of profits. The reduction in the reported tax rate to 12.7% (2016: 26.2%) included the $32 million net benefit in 2017 from US tax reform, the lower tax rate on trading results and the impact of the disposal of the Gynaecology business in 2016.

 

Adjusted earnings per share (‘EPSA’) was up 14% at 94.5¢ (189.0¢ per ADS) (2016: 82.6¢) as a result of the one-off tax benefits along with improvements in trading profit margin and the tax rate on trading. Basic earnings per share (‘EPS’) was 87.8¢ (175.6¢ per ADS), in line with the previous year (2016: 88.1¢).

 

Cash generated from operating activities was $1,273 million (2016: $1,035 million), reflecting the higher profit-before-tax in the period. Trading cash flow was $940 million (2016: $765 million) (see Note 9 for a reconciliation between cash generated from operating activities and trading cash flow).

7


 

 

The trading profit to cash conversion ratio was 90% (2016: 75%), an improvement driven primarily by working capital management.

 

As the result of the improved operating profit and a stable asset base we saw an increase in Return On Invested Capital (ROIC) from 11.5% in 2016 to 14.3% in 2017.

 

Dividend

 

The Board is pleased to recommend a Final Dividend of 22.7¢ per share (45.4¢ per ADS). This, together with an Interim Dividend of 12.3¢ per share (24.6¢ per ADS), will give a total distribution of 35.0¢ per share (70.0¢ per ADS) in 2017. The 14% year-on-year growth in the declared full year dividend reflects the strong growth in adjusted earnings per share. The Final Dividend will be paid on 9 May 2018 to shareholders on the register at the close of business on 6 April 2018.

 

Outlook

 

We expect the overall dynamics in our markets to be similar in 2018 to those seen in 2017. Against this backdrop, the Group expects to continue to build on 2017 and again deliver an improved performance in 2018 driven by our strong product portfolio and pipeline of innovative products.

 

In terms of revenue, we expect our underlying growth to be in the range of 3% to 4%. On a reported basis this equates to a range of around 7% to 8% at exchange rates prevailing on 2 February 2018 and including the impact of the Rotation Medical acquisition.

 

In terms of trading profit margin, in 2018 we expect to drive a further 30-70bps improvement over the previous year.

 

As a result of the recently enacted US tax reform, we expect a tax rate on trading results in the range 20% to 21%, barring any changes to tax legislation or other one-off items.

 

Our healthy balance sheet, good cash generation and increased dividend demonstrate the robust foundations underpinning our business. Looking further ahead, our greater focus on commercial execution gives us confidence we will outgrow our markets and the new APEX programme supports our expectation of improved trading profit margin.

 

8


 

 

Forward calendar

 

The Q1 Trading Report will be released on 3 May 2018.

 

About Smith & Nephew

 

Smith & Nephew is a global medical technology business dedicated to supporting healthcare professionals in their daily efforts to improve the lives of their patients. With leadership positions in Orthopaedic Reconstruction, Advanced Wound Management, Sports Medicine and Trauma & Extremities, Smith & Nephew has more than 15,000 employees and a presence in more than 100 countries. Annual sales in 2017 were $4.8 billion. Smith & Nephew is a member of the FTSE100 (LSE:SN, NYSE:SNN).

 

For more information about Smith & Nephew, please visit our corporate website www.smith-nephew.com, follow @SmithNephewplc on Twitter or visit SmithNephewplc on Facebook.com.

 

Forward-looking Statements

 

This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. For Smith & Nephew, these factors include: economic and financial conditions in the markets we serve, especially those affecting health care 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 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 dispositions, our success in performing due diligence, valuing and integrating acquired businesses; disruption that may result from transactions or other changes we make in our business plans or organisation to adapt to market developments; and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. Please refer to the documents that Smith & Nephew has filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, including Smith & Nephew's most recent annual report on Form 20-F, for a discussion of certain of these factors. Any forward-looking statement is based on information available to Smith & Nephew as of the date of the statement. All written or oral forward-looking statements attributable to Smith & Nephew are qualified by this caution. Smith & Nephew does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or in Smith & Nephew's expectations.

 

 Trademark of Smith & Nephew. Certain marks registered US Patent and Trademark Office.

9


 

 

 

 

Full Year Consolidated Revenue Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

31 December 

    

31 December 

    

Reported

    

Underlying

    

Acquisitions

    

Currency

 

 

2017

 

2016

 

growth

 

Growth(i)

 

/disposals

 

impact

Consolidated revenue by franchise

 

$m

 

$m

 

%

 

%

 

%

 

%

Sports Medicine, Trauma & Other

 

1,926

 

1,907

 

 1

 

 3

 

-2 

 

 —

Sports Medicine Joint Repair

 

627

 

587

 

 7

 

 6

 

 -

 

 1

Arthroscopic Enabling Technologies

 

615

 

631

 

-3 

 

-3 

 

 -

 

 -

Trauma & Extremities

 

495

 

475

 

 4

 

 4

 

 -

 

 -

Other Surgical Businesses(ii)

 

189

 

214

 

-11 

 

 7

 

-19 

 

 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconstruction

 

1,583

 

1,529

 

 4

 

 3

 

 -

 

 1

Knee Implants

 

984

 

932

 

 6

 

 5

 

 -

 

 1

Hip Implants

 

599

 

597

 

 -

 

 -

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Advanced Wound Management

 

1,256

 

1,233

 

 2

 

 2

 

 -

 

 -

Advanced Wound Care

 

720

 

719

 

 -

 

 -

 

 -

 

 -

Advanced Wound Bioactives

 

342

 

342

 

 -

 

 -

 

 -

 

 -

Advanced Wound Devices

 

194

 

172

 

13

 

13

 

 -

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4,765

 

4,669

 

 2

 

 3

 

-1 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated revenue by geography

 

 

 

 

 

 

 

 

 

 

 

 

US

 

2,306

 

2,299

 

 -

 

 2

 

-2 

 

 -

Other Established Markets(iii)

 

1,678

 

1,679

 

 -

 

 -

 

 -

 

 -

Emerging Markets

 

781

 

691

 

13

 

12

 

 -

 

 1

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4,765

 

4,669

 

 2

 

 3

 

-1 

 

 -

 

(i)

Underlying growth is defined in Note 1 on page 2

(ii)

Reported growth reflects the divestment of the Gynaecology business in August 2016

(iii)

Other Established Markets are Europe, Canada, Japan, Australia and New Zealand

10


 

 

2017 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Unaudited Group Income Statement for the year to 31 December 2017

 

 

 

 

 

 

 

 

 

    

 

    

2017

    

2016

 

 

Notes

 

$m

 

$m

Revenue

 

2

 

4,765

 

4,669

Cost of goods sold

 

 

 

(1,248)

 

(1,272)

Gross profit

 

 

 

3,517

 

3,397

Selling, general and administrative expenses

 

 

 

(2,360)

 

(2,366)

Research and development expenses

 

 

 

(223)

 

(230)

Operating profit

 

9

 

934

 

801

Interest income

 

 

 

 6

 

 6

Interest expense

 

 

 

(57)

 

(52)

Other finance costs

 

 

 

(10)

 

(16)

Share of results of associates

 

 

 

 6

 

(3)

Profit on disposal of business

 

6

 

 -

 

326

Profit before taxation

 

 

 

879

 

1,062

Taxation

 

3

 

(112)

 

(278)

Attributable profitA

 

 

 

767

 

784

Earnings per shareA

 

 

 

 

 

 

Basic

 

9

 

87.8¢

 

88.1¢

Diluted

 

 

 

87.7¢

 

87.8¢

 

 

Unaudited Group Statement of Comprehensive Income for the year to 31 December 2017

 

 

 

 

 

 

 

    

2017

    

2016

 

 

$m

 

$m

Attributable profitA

 

767

 

784

Other comprehensive income

 

 

 

 

Items that will not be reclassified to income statement

 

 

 

 

Remeasurement of net retirement benefit obligations

 

64

 

(81)

Taxation on other comprehensive income

 

(9)

 

10

Total items that will not be reclassified to income statement

 

55

 

(71)

 

 

 

 

 

Items that may be reclassified subsequently to income statement

 

 

 

 

Exchange differences on translation of foreign operations

 

181

 

(134)

Fair value remeasurement of available for sale asset

 

(10)

 

10

Net (gains)/losses on cash flow hedges

 

(24)

 

 5

Total items that may be reclassified subsequently to income statement

 

147

 

(119)

Other comprehensive income/(loss) for the year, net of taxation

 

202

 

(190)

Total comprehensive income for the yearA

 

969

 

594

 

A

Attributable to the equity holders of the parent and wholly derived from continuing operations.

11


 

 

Unaudited Group Balance Sheet as at 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

31 Dec

 

31 Dec

 

    

 

    

2017

    

2016

 

 

Notes

 

$m

 

$m

ASSETS

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

 

 

 

1,049

 

982

Goodwill

 

 

 

2,371

 

2,188

Intangible assets

 

 

 

1,371

 

1,411

Investments

 

 

 

21

 

25

Investment in associates

 

 

 

118

 

112

Other non-current assets

 

 

 

16

 

 -

Retirement benefit assets

 

 

 

62

 

 -

Deferred tax assets

 

 

 

127

 

97

 

 

 

 

5,135

 

4,815

Current assets

 

 

 

 

 

 

Inventories

 

 

 

1,304

 

1,244

Trade and other receivables

 

 

 

1,258

 

1,185

Cash at bank

 

7

 

169

 

100

 

 

 

 

2,731

 

2,529

TOTAL ASSETS

 

 

 

7,866

 

7,344

 

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

Equity attributable to equity holders of the parent

 

 

 

 

 

 

Share capital

 

 

 

178

 

180

Share premium

 

 

 

605

 

600

Capital redemption reserve

 

 

 

17

 

15

Treasury shares

 

 

 

(257)

 

(432)

Other reserves

 

 

 

(228)

 

(375)

Retained earnings

 

 

 

4,329

 

3,970

Total equity

 

 

 

4,644

 

3,958

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Long-term borrowings

 

7

 

1,423

 

1,564

Retirement benefit obligations

 

 

 

131

 

164

Other payables

 

 

 

128

 

82

Provisions

 

 

 

97

 

134

Deferred tax liabilities

 

 

 

97

 

94

 

 

 

 

1,876

 

2,038

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Bank overdrafts and loans

 

7

 

27

 

86

Trade and other payables

 

 

 

957

 

884

Provisions

 

 

 

129

 

147

Current tax payable

 

 

 

233

 

231

 

 

 

 

1,346

 

1,348

Total liabilities

 

 

 

3,222

 

3,386

TOTAL EQUITY AND LIABILITIES

 

 

 

7,866

 

7,344

 

 

12


 

 

Unaudited Condensed Group Cash Flow Statement for the year to 31 December 2017

 

 

 

 

 

 

 

 

2017

 

2016

 

 

$m

 

$m

Cash flows from operating activities

 

  

 

  

Profit before taxation

 

879

 

1,062

Net interest payable

 

51

 

46

Depreciation, amortisation and impairment

 

460

 

478

Share of results from associates

 

(6)

 

 3

Profit on disposal of business

 

 -

 

(326)

Share-based payments expense

 

31

 

27

Net movement on post-retirement obligations

 

(40)

 

(85)

Movement in working capital and provisions

 

(102)

 

(170)

Cash generated from operating activities 

 

1,273

 

1,035

Net interest and finance costs paid

 

(48)

 

(45)

Income taxes paid

 

(135)

 

(141)

Net cash inflow from operating activities

 

1,090

 

849

 

 

 

 

 

Cash flows from investing activities

 

  

 

  

Acquisitions, net of cash acquired

 

(159)

 

(214)

Capital expenditure

 

(376)

 

(392)

Purchase of investments

 

(8)

 

(2)

Proceeds on disposal of business net of tax (2016: tax of $118m)

 

 -

 

225

Net cash used in investing activities

 

(543)

 

(383)

Net cash inflow before financing activities

 

547

 

466

 

 

 

 

 

Cash flows from financing activities

 

  

 

  

Proceeds from issue of ordinary share capital

 

 5

 

10

Proceeds from own shares

 

 5

 

 6

Purchase of own shares

 

(52)

 

(368)

Equity dividends paid

 

(269)

 

(279)

Cash movements in borrowings

 

(147)

 

127

Settlement of currency swaps

 

24

 

(25)

Net cash used in financing activities

 

(434)

 

(529)

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

113

 

(63)

Cash and cash equivalents at beginning of period

 

38

 

102

Exchange adjustments

 

 4

 

(1)

Cash and cash equivalents at end of periodB

 

155

 

38

 

B

Cash and cash equivalents at the end of the period are net of overdrafts of $14 million (31 December 2016: $62 million).

13


 

 

Unaudited Group Statement of Changes in Equity for the year to 31 December 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

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 2017

 

180

 

600

 

15

 

(432)

 

(375)

 

3,970

  

3,958

Attributable profitA

 

-

 

-

 

-

 

-

 

-

 

767

  

767

Other comprehensive incomeA

 

-

 

-

 

-

 

-

 

147

 

55

  

202

Equity dividends paid

 

-

 

-

 

-

 

-

 

-

 

(269)

  

(269)

Share-based payments recognised

 

-

 

-

 

-

 

-

 

-

 

31

  

31

Taxation on share-based payments

 

-

 

-

 

-

 

-

 

-

 

(3)

  

(3)

Purchase of own sharesC

 

-

 

-

 

-

 

(52)

 

-

 

 -

  

(52)

Cost of shares transferred to beneficiaries

 

-

 

-

 

-

 

26

 

-

 

(21)

  

 5

Cancellation of treasury sharesC

 

(2)

 

-

 

 2

 

201

 

-

 

(201)

  

 -

Issue of ordinary share capital

 

-

 

 5

 

-

 

-

 

-

 

-

  

 5

At 31 December 2017

 

178

 

605

 

17

 

(257)

 

(228)

 

4,329

  

4,644

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

Capital 

    

 

    

 

    

 

    

 

 

 

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