Summary Financial Statement
Notes
Notes to the Summary Financial Statements
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The Summary Financial Statement has been derived from the Consolidated Financial Statements of Smith & Nephew plc and its subsidiaries (collectively known as the 'Group'). The financial information contained herein has been prepared on the basis of the accounting policies as set out in the annual accounts of the Group for the year ended 31 December 2008. The Group prepares its annual accounts on the basis of International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board (IASB), IFRS as adopted by the European Union (EU) and in accordance with the provisions of the Companies Act 1985. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact for the periods presented.
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Adjusted earnings per ordinary share ("EPSA") is a trend measure which presents the long-term profitability of the Group excluding the impact of specific transactions that management considers as affect the Group's short-term profitability. The Group presents this measure to assist investors in their understanding of trends. Adjusted attributable profit is the numerator used for this measure.
EPSA has been calculated by dividing adjusted attributable profit by the weighted (basic) average number of ordinary shares in issue of 886 million (2007 - 923 million). The diluted weighted average number of ordinary shares in issue is 890 million (2007 – 928 million).
Notes 2008 $million 2007 $million Attributable profit for the year 377 316 Acquisition related costs 7 61 111 Restructuring and rationalisation costs 5 34 42 Legal settlement 9 - 30 Amortisation and impairment of acquisition intangibles 13 51 30 Taxation on excluded items (30) (49) Adjusted attributable profit 493 480 Adjusted basic earnings per ordinary share 55.6¢ 52.0¢ Adjusted diluted earnings per ordinary share 55.4¢ 51.7¢ -
Revenue by segment for the year to 31 December 2008 was as follows:
2008 $million 2007 $million Underlying growth in revenue % Revenue by business segment Orthopaedics 2,158 1,858 5 Endoscopy 800 732 8 Advanced Wound Management 843 779 7 3,801 3,369 6 Revenue by geographic market United States 1,657 1,550 6 Europe (f) 1,398 1,177 3 Africa, Asia, Australasia & Other America 746 642 13 3,801 3,369 6 - Includes United Kingdom revenue of $321 million (2007 – $309 million).
The Reconstruction and Trauma and Clinical Therapies segments reported separately in the annual accounts of the Group for the year ended 31 December 2007 are now combined into a single reporting segment named Orthopaedics. This reflects the unification of the management reporting structure for these businesses that was announced earlier in the year. Revenue, trading profit and operating profit comparative figures have consequently been restated.
Underlying revenue growth is calculated by eliminating the effects of translational currency and acquisitions. For business combinations completed in the prior year, prior year revenue is adjusted to include a full year of revenue from the sales of products acquired, calculated by adding back revenue from sales of products in the period prior to the Group's ownership.
Reported growth in revenue % Constant currency exchange effect % Acquisitions effect % Underlying growth in revenue % Orthopaedics 16 (2) (9) 5 Endoscopy 9 (1) - 8 Advanced Wound Management 8 (1) - 7 13 (2) (5) 6 -
Trading profit is a trend measure which presents the long-term profitability of the Group excluding the impact of specific transactions that management considers as affect the Group's short-term profitability. The Group presents this measure to assist investors in their understanding of trends. Operating profit reconciles to trading profit as follows:
Notes 2008 $million 2007 $million Operating profit 630 493 Acquisition related costs 7 61 111 Restructuring and rationalisation expenses 5 34 42 Legal settlement 8 - 30 Amortisation and impairment of acquisition intangibles 13 51 30 Trading profit 776 706 Trading and operating profit by business segment for the year to 31 December 2008 were as follows:
2008 $million 2007 $million Trading Profit Orthopaedics 481 423 Endoscopy 166 147 Advanced Wound Management 129 136 776 706 2008 $million 2007 $million Operating Profit Orthopaedics 382 243 Endoscopy 146 141 Advanced Wound Management 102 109 630 493 -
Restructuring and rationalisation costs comprise $34 million (2007 - $45 million) relating to the earnings improvement programme, mainly redundancy, consultancy and manufacturing rationalisation costs and in 2007 a release of $3 million relating to the write back of prior year’s provisions.
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On 31 May 2007 the Group completed the acquisition of Plus Orthopedics Holding AG ("Plus"), a private Swiss orthopaedic company for a total of CHF1,086 million ($889 million) in cash, including assumed debt. This has been integrated into the Group's Orthopaedics business segment.
At 31 December 2007 the cost of the Plus acquisition was allocated on a provisional basis to the assets acquired and liabilities assumed on acquisition. In 2008, fair value adjustments were revised to reflect improved knowledge of the Plus business. As a result of the final allocation of the purchase price that was completed by 31 May 2008 in accordance with the time line stipulated in IFRS 3 Business Combinations goodwill was increased by $24 million, intangible assets were decreased by $27 million and other assets increased by $3 million. Accordingly the balance sheet as at 31 December 2007 has been adjusted. These fair value adjustments had a negligible affect on the income statement presented for the year to 31 December 2007.
In 2009 Smith & Nephew reached an agreement with the vendors of Plus to reduce the total original purchase price by CHF159 million from CHF1,086 million ($889 million at the then prevailing rates) paid in May 2007. As part of the agreement the parties have resolved their disputes on the contractual purchase price adjustments. In addition, Smith & Nephew is releasing the vendors from substantially all of their warranties, including those relating to taxation, under the original purchase agreement and has dropped all existing claims under the original warranties.
We have concluded that this is a non-adjusting post balance sheet event that will be recorded in Quarter One 2009. This event has no impact on the income statement.
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Acquisition related costs comprise $46 million relating to Plus integration (2007 - $51 million), $15 million (2007 - $64 million) relating to the utilisation of the Plus inventory stepped-up to fair value on acquisition and in 2007 a release of $4 million relating to an over provision of bid related costs from 2006.
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The legal settlement of $30 million in 2007 relates to the civil settlement agreed with the US Department of Justice following an industry wide investigation.
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The cumulative number of revisions of the macrotextured knee product was 1,044 on 31 December 2008 compared with 1,040 at the end of Quarter Three 2008. This represents 35% of the total implanted. Settlements with patients have been achieved in respect of 997 revisions (Quarter Three 2008 - 994 settlements). $30 million of provision remains to cover future settlement costs.
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Taxation of $217 million (2007 - $202 million) for the year on the profit before restructuring and rationalisation costs, acquisition related costs, the legal settlement and amortisation and impairment of acquisition intangibles is at the full year effective rate of 30.6% (2007 - 29.6%). In 2008, a taxation benefit of $30 million (2007 - $49 million) arose on restructuring and rationalisation costs, acquisition related costs, the legal settlement and amortisation and impairment of acquisition intangibles. Of the $187 million (2007 - $153 million) taxation charge for the year, $144 million (2007 - $114 million) relates to overseas taxation.
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The 2008 first interim dividend of $44 million being 4.96 US cents per ordinary share was paid on 7 November 2008. A second interim dividend for 2008 of 8.12 US cents per ordinary share has been declared by the Board and will be payable on 8 May 2009 to shareholders whose names appear on the register at the close of business on 17 April 2009. 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 15 April 2009. Shareholders may participate in the dividend re-investment plan.
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As at 31 December 2008, 68,240,200 (2007 - 51,955,000) ordinary shares had been purchased under the share buy-back programme that commenced in February 2007. The cost of the shares purchased in 2008 was $193 million (2007 - $640 million).
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During Quarter Four 2008 the Group incurred a $14 million impairment charge against one of the intangible assets acquired as part of the purchase of OsteoBiologics Inc., in July 2006. This charge has been reported under the category of amortisation and impairment of acquisition intangibles within the selling, general and administrative expenses line in the income statement.
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The movement in total equity for the year was as follows:
2008 $million 2007 $million Opening total equity as at 1 January 1,816 2,174 Attributable profit 377 316 Equity dividends paid (109) (104) Translation adjustments (99) 47 Net gains/(losses) on cash flow hedges 4 (14) Actuarial losses on defined benefit pension plans (215) (22) Share based payment recognised in the income statement 24 23 Taxation on items taken directly to equity 71 8 Proceeds from own shares 4 - Purchase of treasury shares (193) (640) Issue of ordinary share capital 19 28 Closing total equity as at 31 December 1,699 1,816 -
Net debt as at 31 December comprises:
2008 $million 2007 $million Cash and bank 145 170 Long-term borrowings (1,358) (36) Bank overdrafts and loans due within one year (115) (1,442) Net currency swap liabilities (g) (4) (2) (1,332) (1,310) The movements in the year were as follows:
2008 $million 2007 $million Opening (net debt)/net cash as at 1 January (1,310) 210 Cash flow before financing activities 261 (537) New finance leases - (7) Facility fee capitalised into borrowings 2 (6) Debt and finance leases acquired with Plus - (181) Proceeds from issue of ordinary share capital 19 28 Purchase of treasury shares (193) (640) Proceeds from own shares 4 - Equity dividends paid (109) (105) Exchange adjustments (6) (72) Closing net debt as at 31 December (1,332) (1,310) - Net currency swap liabilities of $4 million (2007 - $2 million) comprise of derivatives which are included within trade and other payables.