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1、Annual Report and Accounts 1999PerformanceInnovationTrust26Smith&Nephew 1999Combined CodeThe Board considers that the companyhas complied throughout the year with theCombined Code of Best Practice onCorporate Governance.The BoardThe Board meets regularly during the year and is responsible for the st
2、rategicdirection,policies and overall managementof the group.There is a clear division ofresponsibilities between the Chairman and Chief Executive.The Board consistsof an independent non-executiveChairman,three executive directors andfive independent non-executive directors.All directors have full a
3、nd timely access to all relevant information and independentprofessional advice.The Board is assisted by the followingcommittees:The Audit Committee The AuditCommittee monitors the operation andeffectiveness of the internal financialcontrols and ensures that the accountsmeet statutory and other requ
4、irements.The Remuneration Committee TheRemuneration Committee sets the pay and benefits of the executive directors and other members of the ExecutiveCommittee and approves their terms of employment.The Nominations Committee TheNominations Committee oversees plansfor management succession andrecommen
5、ds appointments to the Board.The Charities and Community CommitteeThe Charities and Community Committeeco-ordinates environmental,charity andcommunity programmes.The Executive Committee The ExecutiveCommittee assists the Chief Executive inthe day-to-day management of the group.The Scientific Advisor
6、y Panel TheScientific Advisory Panel provides anindependent perspective on the newproduct development process fromresearch to manufacture and comprisesleading authorities from the scientificcommunity.Membership of Board committees and of the Executive Committee is shown withthe biographical details
7、of directors onpages 24 and 25.DirectorsAll directors are subject to re-election atleast every three years,and in accordancewith the Articles of Association,Alan Fryer,Peter Hooley and Sir Timothy Lankesterretire by rotation and,being eligible,offer themselves for re-election at theforthcoming AGM.D
8、udley Eustace wasappointed Deputy Chairman with effectfrom 10 November 1999 and Chairmanfrom 1 January 2000 and will be proposed for re-election at the AGM.No director had a material beneficialinterest in any contract involving thecompany or its subsidiaries in 1999.ShareholdersThe group issues summ
9、ary financialstatements in place of full annual accountsunless shareholders request the latter.Thesummary financial statement is receivedby over 90%of shareholders.At the halfyear,an interim report is sent to allshareholders.There is a regular dialoguewith individual institutional shareholderstogeth
10、er with results presentations twice ayear.There is an opportunity for individualshareholders to question directors at theAGM and the company regularly respondsto letters from shareholders on a range of issues.Internal controlThe Board is responsible for themaintenance of the groups system ofinternal
11、 control and for reviewing itseffectiveness.It has established anongoing process of identifying,evaluatingand managing key risks by a system offunctional reports to the Board,the reviewof internal financial controls by the AuditCommittee,augmented by risk reports tobe completed by each business unit
12、 andreviewed by the Chief Executive andFinance Director.These procedures will enable the Board to report on the effectiveness of its system of internal control for 2000.Share capitalThe company has been informed of thefollowing interests in its ordinary sharecapital as at 22 February 2000:Sanford C
13、Bernstein 6.82%Sun Life and Provincial Holdings 6.13%Hermes 4.04%Fidelity 3.97%T Rowe Price Associates 3.15%Legal&General 3.12%At the AGM,the company will be seekinga renewal of its current permission fromshareholders to purchase its own shares.No shares have been purchased orcontracted for or are t
14、he subject of anoption under the expiring authority.AuditorsErnst&Young have expressed theirwillingness to continue as auditors and aresolution proposing their reappointmentwill be put to the AGM.Corporate governanceSmith&Nephew 199927The Remuneration CommitteeThe Remuneration Committee comprisesSir
15、 Brian Pearse(Chairman),Sir AnthonyCleaver,Sir Timothy Lankester and Dr RolfStomberg.Remuneration policyThe Remuneration Committee aims toensure that remuneration packages arecompetitive enough to attract,retain andmotivate executive directors and ExecutiveCommittee members of a calibre thatmeets th
16、e groups needs,and that theyreflect the groups performance againstfinancial objectives.In framing its policythe committee has given full considerationto the requirements set out in Schedule Aof the Combined Code.It is advised byindependent consultants and uses datafrom external research into compani
17、es ofsimilar size,technologies and internationalcomplexity.Remuneration throughout thegroup is designed to be competitive locally.The principal components of remunerationfor executive directors and ExecutiveCommittee members are:Basic salary and benefits Basic salaryreflects the responsibility of th
18、e job andindividual performance.The company alsoprovides private healthcare cover and acompany car or allowance.Performance-related bonus The companyoperates an annual bonus scheme basedon three criteria for executive directors:annual growth in adjusted basic earningsper share,annual growth in adjus
19、ted basicearnings per share measured at constantaverage exchange rates and return onoperating capital employed.Over time,achievement of targets should produce abonus of 30%of annual salary with amaximum of 100%for over achievementagainst targets that would demonstrablygenerate a step change in perfo
20、rmance.Bonuses are not pensionable.Share options and long-term incentivesExecutive directors have been eligible forgrants of share options under executiveshare option schemes,subject to amaximum value of four times salary in anyten-year period.The company operates a long-termincentive plan(LTIP)for
21、executive directorsand members of the Executive Committee.Under this plan,shares are transferred toparticipants depending on the companysperformance in relation to a comparatorgroup of 58 other companies,using totalshareholder return(TSR)over a three-yearperiod as the prime measure.The maximumvalue
22、of shares awarded will not exceedthe participants current annual rate ofbasic salary at the date the award ismade.Shares will only be transferred tothe participants if the companys TSRperformance is at or above the medianperformance of the comparator companiesand if there has been real growth in the
23、companys adjusted earnings per share inthe same three-year period.At the medianlevel,25%of the award shares will vest.If the companys performance is ranked in the top quartile,all the shares will vest.If the companys performance liesbetween the median and the top quartile,the proportion of shares ve
24、sting will varyon a straight-line basis.The earnings per share performancetarget for the 1997 award has not beenmet.As a result the award has lapsed and no shares will be transferred toparticipants.The following outstanding conditionalawards have been granted under the LTIP:MaximumMaximumnumbernumbe
25、rof sharesof sharesyear to 31 December19991998C.J.ODonnell183,040161,263A.R.Fryer134,502108,435P.Hooley116,959102,874Under the executive share option schemes,options granted since 1997 may notnormally be exercised unless the companysaverage annual growth in adjusted basicearnings per share has excee
26、ded that ofthe UK retail price index by 2%in anyperiod of three consecutive financial yearsfrom the date of grant.Executive optionsare not offered at a discount.Directors continue to be eligible toparticipate in the savings related shareoption scheme.Service contracts Executive directors areappointe
27、d on contracts terminable by thecompany on not more than 12 monthsnotice and by the director on six monthsnotice.Non-executive directors are appointed forterms of three years.Their remuneration is determined by the Board on therecommendation of the NominationsCommittee.Pensions Executive directors p
28、articipate in the defined benefit Smith&Nephew UKPension Fund and Smith&Nephew UKExecutive Pension Scheme,under whichnormal retirement is at age 62 andpension has been accrued in the year atan annual rate of 1/30 of final pensionablesalary,up to a limit of two thirds of finalpensionable salary.Pensi
29、ons in paymentare guaranteed to increase by 5%perannum or inflation if lower.The companyand the trustees of the pension plans have a policy of granting discretionaryincreases,particularly at times of highinflation.Death in service cover of fourtimes salary and spouses pension at therate of two third
30、s of the members pensionare provided on death.Transfer values on leaving service would be calculated onthe minimum funding requirement basiswith allowance for pension increases inline with price inflation.A supplementarydefined contribution plan partiallycompensates for the Inland Revenueearnings ca
31、p on final pensionable salary.Remuneration report28Smith&Nephew 1999Directors emoluments and pensionsSalariesAnnualPensionTotalTotal&feesBenefitsbonusentitlements19991998000000000000000000Chairman(non-executive)J.H.Robinson(to 31 December 1999)156156154Deputy Chairman(non-executive)D.G.Eustace(from
32、10 November 1999)2121ExecutiveC.J.ODonnell313726617603337A.R.Fryer230819618452263P.Hooley2021517243432240J.R.Blair(to 31 December 1998)450Non-executiveSir Anthony Cleaver242423Dr N.J.Lane292928Sir Timothy Lankester242423Sir Brian Pearse242423Dr R.W.H.Stomberg2424231,04730634781,7891,564John Robinson
33、 received an annual fee of 156,000 as Chairman,including a non-executive directors fee of 24,000.Dudley Eustace was appointed Chairman from 1 January 2000 and receives an annual fee of 150,000 including a non-executivedirectors fee of 24,000.The figure for pension entitlements consists of any increa
34、se in accrued pension benefit in the year(excluding inflation),together with acontribution of 41,000 to a supplementary plan for Peter Hooley.During 1999 executive directors paid contributions to the pensionplans as follows:Christopher ODonnell 15,000,Alan Fryer 11,000 and Peter Hooley 4,000.The acc
35、umulated total amount of the accrued pension benefit for directors as of 31 December 1999 was as follows:ChristopherODonnell 75,000(1998 57,000),Alan Fryer 117,000(1998 96,000)and Peter Hooley 20,000(1998 17,000).Jack Blair retired on 31 December 1998.The Remuneration Committee retains the discretio
36、n of allowing the vesting of his LTIP awardof up to a maximum of 36,145 shares in respect of 1998 if the performance conditions are met.The ages of the executive directors are set out on page 24.Remuneration reportSmith&Nephew 199929Directors share optionsRange ofexercisableNumber ofMarketNumber ofd
37、ates ofoptionsGrantedpriceProfit onoptionsAverageoptions held1 JanduringExerciseat date ofexercise31 Decexerciseat 31 Dec1999the yearExercisedpriceexercise(p)1999price(p)1999C.J.ODonnell367,862367,8621.679/1994-8/2006A.R.Fryer228,33930,000137.00190.5016,0502,800123.20197.752,087195,5391.689/1994-8/2
38、006P.Hooley405,362405,3621.559/1994-8/2006The range in the market price of the companys shares during the year was 150p to 217.5p and the market price at 31 December 1999was 208p.All outstanding options at 31 December 1999 were below 208p.The total profit on exercise of options during the year was18
39、,137 as set out above(1998 89,004:Alan Fryer 65,468,John Robinson 23,536).Directors interests31 December 19991 January 1999Beneficial interests of the directors in the companys ordinary sharesSharesOptionsSharesOptionsC.J.ODonnell19,490367,86217,885367,862A.R.Fryer69,993195,53966,873228,339P.Hooley5
40、,000405,3625,000405,362Sir Anthony Cleaver16,78216,782Dr N.J.Lane2,9342,838Sir Timothy Lankester6,3891,803Sir Brian Pearse20,00010,000Dr R.W.H.Stomberg1,0351,014There was no change in the interests of directors between 31 December 1999 and 23 February 2000.The register of directors interests,which i
41、s open to inspection at the companys registered office,contains full details of directorsshareholdings and share options.By order of the Board,23 February 2000Michael ParsonSecretary30Smith&Nephew 1999Trading resultsSales during the year amounted to1,120m,a 6%increase.Adjusting forcurrency and putti
42、ng acquisitions anddisposals on a like-for-like basis,this was an underlying growth of 8%,animprovement on the 5%of recent years led by the strong performance in ourorthopaedics business.Pre-tax profit before exceptional itemsamounted to 171m,an increase of12%coming from improved sales growthand pro
43、grammes to improve operatingmargins.Margins were stronger,nearly 1%ahead before 0.3%of transactionalcurrency costs,in an operatingenvironment where sales prices overallimproved slightly.Margin improvement reflects ourestablished programme of cost andefficiency savings and the managementand workforce
44、 restructuring started at theend of 1998,which together delivered costsavings of 27m and more than offset theimpact of cost inflation.After a number of years in which therelative strength of sterling and the USdollar have adversely affected the group,the negative impact on profit abated in theyear t
45、o a more modest 2m 4m fromadverse transactional currency offset by a2m translational gain.Nevertheless overthe last three years currency has taken38m off our profit base.199518.0199617.6199715.7199814.6199915.0Margins%Operating profit before exceptional items to salesThe effect of acquisitions in th
46、e secondhalf of the year was broadly neutral,whereas the bracing disposal diluted pre-tax profit by 2%.Exceptional itemsDuring the year we launched ourprogramme to rationalise manufacturingfacilities worldwide to concentrateproduction on fewer centres.Our woundmanagement,casting and bandaging andcon
47、sumer healthcare businesses are in theprocess of closing their Australian andCanadian factories and we areconstructing a new casting manufacturingfacility in Mexico.We have also exitedmanufacturing of orthopaedics products in France.We expect the manufacturingrationalisation programme to produce cos
48、tand efficiency savings of 25m a year by2002 with benefits starting to feed throughin 2000.This together with themanagement and workforce restructuringlargely completed in 1999 will yield thecost savings needed to meet our goal ofa three percentage point increase inunderlying operating margins by 20
49、01.Last year we charged 18m by way ofan exceptional item for the cost of therestructuring and rationalisationprogrammes.This year we have provided34m and over the next two years weexpect to charge a further 24m as wecomplete the programme.The totalexpenditure of 76m is anticipated toprovide annual b
50、enefits of 40m by 2002.The sale of the bracing business in themiddle of the year realised an exceptionalgain of 63m after charging 34m ofgoodwill previously set off against reserveson the original acquisition of the business.We have also provided 5m to integrateExogen,acquired in September,with ouro
51、rthopaedics business.Because of delays in obtaining regulatoryapproval for Dermagraft,we have provided7m against the cost of the jointarrangement with Advanced TissueSciences(ATS)in respect of the product.We have also provided 6m against ourequity investment in ATS.The result is a net exceptional ga
52、in of11m,increasing profit before tax to182m,compared with 135m last year.EPS and taxationEarnings per share before exceptionalitems were 10.72p,a 12%increase on1998.The underlying tax charge of 51mremains at 30%.Tax on exceptional itemsamounted to a net charge of 26m.This is higher than the net exc
53、eptional gain dueto the write back of goodwill previously set off against reserves on the originalacquisition of the bracing business,andthe write down of asset values involved in the manufacturing rationalisationprogramme and in respect of ourinvolvements with ATS not beingdeductible for tax purpos
54、es.Dividends and shareholders fundsThe recommended final dividend of 4.0pper ordinary share,together with theinterim dividend of 2.5p,makes a total forthe year of 6.5p,an increase of 0.3p on1998.The cost of dividends will be 73m,representing 61%of earnings beforeexceptional items.Retained profit of
55、32m has been taken to reserves,and shareholders funds havealso been augmented by 4m of newshares issued for share options and 34mof goodwill on the bracing business on itsdisposal previously set off against reserveson acquisition.Currency translation of4m was charged to reserves.The netmovement in s
56、hareholders funds was anincrease of 66m.EmployeesThe average number of employeesduring the year declined 9%to 11,213largely as a result of the managementand work force restructuring programmeand the disposal of the bracingbusiness.As a consequence sales peremployee improved 17%to 100,000,compared wi
57、th a total staff cost peremployee increase of 9%.InvestmentCapital expenditure of 65m on tangibleand intangible fixed assets amounted to6%of sales,lower than recent years.The principal projects were the continuedrenovation and expansion of facilities atFinancial reviewSmith&Nephew 199931Hull,further
58、 investment in hospital basedsurgical instruments for orthopaedicimplants and the completion of year 2000information technology projects.We continue to invest 4%of sales in R&Das well as investing in sales and marketingworldwide and in enhancing our cost-competitiveness.The Dermagraftprogramme invol
59、ved revenue investment of 8m in 1999.Year 2000 and the euroThe conversion of our systems to copewith the changeover to the year 2000went satisfactorily.Our transactionalsystems converted on time and the workwith suppliers and customers has provenworthwhile.The revenue cost ofconversion was 5m spread
60、 over 1998and 1999 and 15m of capital expenditureon systems renewal was brought forwardinto these years to ensure year 2000compliance.The group trades in all 11 Europeancountries which have adopted the euro.The cost of modifications to administrationand systems as a result of the newcurrency is not
61、expected to be significant.Cash flow and facilitiesConversion of operating profit to operatingcash flow was 79%,an improvement onlast years 65%.This was after 18m ofoutgoings on the management andworkforce restructuring and manufacturingrationalisation programmes and onacquisition integration costs.
62、Of the netproceeds of 122m from the disposal ofthe bracing business,42m was applied in acquisitions,the principal of which wasExogen acquired in September and 9mwas paid for further Dermagraft rights.Net cash flow and movement in netborrowings during the year were:mOperating cash flow133Interest,tax
63、 and dividends(127)Disposals net of acquisitions71Issues of share capital4Net cash flow81Exchange adjustments(9)Opening net borrowings(50)Closing net cash22The groups year end position of net cashbalances and thus no gearing providesconsiderable financing flexibility.Capital structure and treasury p
64、olicyThe directors have established a set ofpolicies to manage funding,currency andinterest rate risks.The group only usesfinancial instruments to manage thefinancial risks associated with underlyingbusiness activities and their financing.Our policy is to ensure that there issufficient funding and f
65、acilities in place tomeet foreseeable borrowing requirements.Unused bank facilities amounted to425m of which 140m were committed.1995201996101997101998101999NilGearing%Our policy is to protect shareholdersfunds by matching foreign currencyassets,including acquisition goodwill,with foreign currency l
66、iabilities wherepracticable.These liabilities take the formof either borrowings or currency swaps.At the year end group borrowings were78m,mainly in foreign currency.Cashand bank balances were 100m.Currencyswaps amounted to 484m,of which80%were to re-denominate internalborrowings into US dollars.Mos
67、t group borrowings are due within oneyear and take advantage of short-terminterest rates.We use interest rate swapsto protect borrowing costs and thedifferentials between borrowing anddeposit rates,fixing interest rates on majorexposures by the beginning of the financialyear.At the year end the majo
68、rity ofinterest costs and differentials have beenprotected through to December 2000 withsome protection carrying over into 2003.The group trades in over 90 countries and as a consequence manages 250mof foreign currency transactions usingforward foreign exchange contracts.Our policy is for firm commi
69、tments to befully covered and forecasts to be coveredbetween 50%and 90%for up to oneyear.There are therefore no currencyexposures on monetary assets andliabilities that could give rise to materialgains or losses in the profit and lossaccount.It is group policy for operatingunits not to hold unhedged
70、 monetaryassets or liabilities other than in theirfunctional operating currencies.It is company policy to ensure thatsuppliers are paid within agreed terms.At the year end the companys tradecreditors amounted to 2m the equivalentof 21 days credit.Peter HooleyFinance Director32Smith&Nephew 1999Direct
71、ors responsibilities for theaccountsThe directors are required by company lawto prepare accounts for each financial yearthat give a true and fair view of the state of affairs of the company and of the groupas at the end of the financial year and ofthe results of the group for the year.Inpreparing th
72、e accounts,suitableaccounting policies have been used andapplied consistently,and reasonable andprudent judgements and estimates havebeen made.Applicable accountingstandards have been followed.Thedirectors have satisfied themselves frominternal forecasts and available bankfacilities that the group c
73、ontinues as agoing concern.The directors are also responsible for thegroups system of internal financial controls.These are designed to give reasonableassurance that proper procedures exist forthe maintenance of adequate accountingrecords,safeguarding the assets of thegroup and for preventing and de
74、tectingfraud and other irregularities.To this end thecompany has identified and documentedminimum internal financial controlstandards.Annual budgets are preparedand approved by the directors,and thedirectors have reserved capital expenditureand treasury authority levels to the Boardand its delegated
75、 committees.The groupoperates a system of regular monthlyreporting including revised profit and cashforecasts.Business risks are identified andmonitored on a regular basis.The groupoperates an internal audit function whichmonitors the adequacy of internal financialcontrols and systems and compliance
76、 withgroup standards.The internal auditor givesa report to the Audit Committee and theAudit Committee reviews the operation andeffectiveness of internal financial controlsand reporting of the group.Report of the auditors to the membersof Smith&Nephew plcWe have audited the accounts on pages33 to 55
77、which have been prepared underthe historical cost convention and on thebasis of the accounting policies set out onpage 38.Respective responsibilities of directors and auditors As described on this page,the companys directors are responsiblefor the preparation of the accounts inaccordance with applic
78、able UnitedKingdom law and accounting standards.Our responsibilities,as independentauditors,are established in the UnitedKingdom by statute,the Auditing PracticesBoard,the Listing Rules of the LondonStock Exchange and by our professionsethical guidance.We report to you our opinion as towhether the a
79、ccounts give a true and fairview and are properly prepared inaccordance with the Companies Act.We also report to you if,in our opinion,thedirectors report is not consistent with theaccounts,if the company has not keptproper accounting records,if we have not received all the information andexplanatio
80、ns we require for our audit,or if the information specified by law or theListing Rules regarding directorsremuneration and transactions with thecompany is not disclosed.We read the other information in theAnnual Report and Accounts and considerwhether it is consistent with the auditedaccounts.We con
81、sider the implications forour report if we become aware of anyapparent misstatements or materialinconsistencies with the accounts.We review whether the corporategovernance statement on page 26 reflectsthe companys compliance with the sevenprovisions of the Combined Codespecified for our review by th
82、e StockExchange,and we report if it does not.We are not required to consider whetherthe Boards statements on internal controlcover all risks and controls,or form anopinion on the effectiveness of either thecompanys corporate governanceprocedures or its risk and controlprocedures.Basis of audit opini
83、on We conducted our audit in accordance with AuditingStandards issued by the AuditingPractices Board.An audit includesexamination,on a test basis,of evidencerelevant to the amounts and disclosures in the accounts.It also includes anassessment of the significant estimatesand judgements made by the di
84、rectors inthe preparation of the accounts,and ofwhether the accounting policies areappropriate to the groups circumstances,consistently applied and adequatelydisclosed.We planned and performed our audit so as to obtain all the information andexplanations which we considerednecessary in order to prov
85、ide us withsufficient evidence to give reasonableassurance that the accounts are free frommaterial misstatement,whether caused byfraud or other irregularity or error.Informing our opinion we also evaluated theoverall adequacy of the presentation ofinformation in the accounts.Opinion In our opinion t
86、he accounts give a true and fair view of the state of affairsof the company and of the group as at 31 December 1999 and of the profit of thegroup for the year then ended and havebeen properly prepared in accordancewith the Companies Act 1985.Ernst&YoungRegistered auditorLondon,23 February 2000Direct
87、ors responsibilities for theaccounts and auditors reportSmith&Nephew 19993319991998for the year ended 31 December 1999Notes million millionTurnover1,2Continuing operations1,075.7977.8Discontinued operations44.275.61,119.91,053.4Operating profit1,2Continuing operations:Before exceptional items162.014
88、4.4Exceptional items*3(51.7)(17.9)110.3126.5Discontinued operations5.59.7115.8136.2Discontinued operations:Net profit on disposals*362.9Profit on ordinary activities before interest178.7136.2Interest receivable/(payable)43.4(1.7)Profit on ordinary activities before taxation 182.1134.5Taxation777.340
89、.8Attributable profit for the year104.893.7Dividends872.569.2Retained profit for the year2232.324.5Basic earnings per ordinary share109.39p8.42pDiluted earnings per ordinary share109.37p8.40pResults before exceptional items(*)Profit before taxation9170.9152.4Adjusted basic earnings per ordinary shar
90、e1010.72p9.58pGroup profit and loss account34Smith&Nephew 199919991998at 31 December 1999Notes million millionFixed assetsIntangible assets1174.028.3Tangible assets12270.5291.7Investments1316.614.4361.1334.4Current assetsStocks14237.6242.4Debtors15281.1278.6Cash and bank16100.549.9619.2570.9Creditor
91、s:amounts falling due within one yearBorrowings1658.086.6Other creditors17312.4289.0370.4375.6Net current assets248.8195.3Total assets less current liabilities609.9529.7Creditors:amounts falling due after more than one yearBorrowings1620.212.8Provisions for liabilities and charges1838.031.458.244.25
92、51.7485.5Capital and reservesCalled up share capital:Equity share capital20111.8111.4Non-equity share capital200.30.3Share premium account22118.3114.3Profit and loss account22321.3259.5551.7485.5Approved by the Board on 23 February 2000Dudley Eustace Chairman Peter Hooley Finance DirectorGroup balan
93、ce sheetSmith&Nephew 19993519991998for the year ended 31 December 1999Notes million millionNet cash inflow from operating activities*23198.1161.9Interest received10.38.1Interest paid(6.9)(9.8)Net cash inflow/(outflow)from returns on investmentsand servicing of finance3.4(1.7)Tax paid(60.1)(20.6)141.
94、4139.6Capital expenditure and financial investmentCapital expenditure(67.1)(69.3)Disposal of fixed assets8.77.4Trade investment(6.7)(65.1)(61.9)Acquisitions and disposalsAcquisitions25(50.9)(21.2)Disposals121.84.870.9(16.4)Equity dividends paid(70.3)(69.0)Cash inflow/(outflow)before use of liquid re
95、sources and financing76.9(7.7)Management of liquid resources23(72.3)1.5FinancingIssues of ordinary share capital4.43.0Net decrease in borrowings and currency swaps23(24.1)(2.4)Net cash(outflow)/inflow from financing(19.7)0.6Decrease in cash23(15.1)(5.6)*After 18.5m(1998 9.5m)of outgoings on rational
96、isation programme and acquisition integration costs.Group cash flow36Smith&Nephew 1999Group statement of total recognised gains and losses19991998for the year ended 31 December 1999 million millionProfit for the financial year104.893.7Currency translation differences on foreign currency net investme
97、nts(4.0)(3.3)Total gains and losses related to the year100.890.4Group reconciliation of movements in shareholders funds19991998for the year ended 31 December 1999 million millionProfit for the financial year104.893.7Dividends72.569.2Retained profit for the year32.324.5Exchange adjustments(4.0)(3.3)I
98、ssue of shares4.43.0Goodwill on disposals33.5Net addition to shareholders funds66.224.2Opening shareholders funds485.5461.3Closing shareholders funds551.7485.5Statement of gains and lossesMovements in shareholders fundsSmith&Nephew 19993719991998at 31 December 1999Notes million millionFixed assetsTa
99、ngible assets128.19.8Investments13413.9413.9422.0423.7Current assetsDebtors15476.8662.0Cash and bank1677.224.0554.0686.0Creditors:amounts falling due within one yearBorrowings1628.955.0Other creditors17299.8369.3328.7424.3Net current assets225.3261.7Total assets less current liabilities647.3685.4Cre
100、ditors:amounts falling due after more than one yearBorrowings164.55.8Provisions for liabilities and charges180.91.35.47.1641.9678.3Capital and reservesCalled up share capital:Equity share capital20111.8111.4Non-equity share capital200.30.3Share premium account22118.3114.3Profit and loss account22411
101、.5452.3641.9678.3Approved by the Board on 23 February 2000Dudley Eustace Chairman Peter Hooley Finance DirectorParent company balance sheet38Smith&Nephew 1999The accounts have been prepared underthe historical cost convention and inaccordance with Financial ReportingStandards 15 and 16 and other app
102、licableaccounting standards.Consolidation The consolidated accountsinclude the accounts of the company andthe accounts of all the subsidiary andassociated undertakings during the yearended 31 December 1999 for the periodsduring which they were members of thegroup.Foreign currencies Balance sheet ite
103、ms ofoverseas companies and foreign currencyborrowings are translated into sterling atthe year end rates of exchange.Profit andloss items and the cash flows of overseassubsidiary and associated undertakingsare translated at the average rates for theyear.Forward currency contracts entered into in res
104、pect of contracted and anticipatedamounts payable on purchasetransactions are accounted for as hedges.Changes in the fair value of these forwardcontracts are recognised in the profit andloss account on the ultimate sale of theitem purchased.Exchange differences on the translation atclosing rates of
105、exchange of the openingnet assets,including acquisition goodwill,of overseas subsidiary and associatedundertakings are recorded as adjustmentsto reserves.Where foreign currencyborrowings or swaps are used to financeor hedge group equity investments,thedifference on translation of theseborrowings or
106、swaps is offset as anadjustment to reserves.The differencesarising between the translation of profits ataverage and closing rates of exchange arealso recorded as adjustments to reserves.All other exchange differences are dealtwith in arriving at profit before taxation.Intangible fixed assets Goodwil
107、l,representing the excess of purchaseconsideration over fair value of net assetsacquired prior to 31 December 1997,waswritten off direct to reserves in the year ofacquisition.Goodwill acquired since 1January 1998 is capitalised and written offover a period not exceeding 20 years.Goodwill previously
108、written off to reservesis included in the calculation of profits andlosses on disposals.Purchased patents,know-how,trademarks,licences and distribution rights arecapitalised and amortised over a periodnot exceeding 20 years.Tangible fixed assets Tangible fixed assetsare stated at cost and,except for
109、 freeholdand long leasehold land(leases 50 yearsor over),are depreciated as wastingassets.Freehold and long leaseholdbuildings are depreciated on a straight-linebasis at between 1%and 5%per annum.Short leasehold land and buildings(leasesof under 50 years)are depreciated byequal annual instalments ov
110、er the term of the lease.Plant and equipment aredepreciated over lives ranging betweenthree and 20 years by equal annualinstalments to write down the assets totheir estimated disposal value at the endof their working lives.Assets held under finance leases arecapitalised as tangible fixed assets andd
111、epreciated accordingly.The capitalelement of future lease payments isincluded in borrowings and interest ischarged to profit before taxation on areducing balance basis over the term of the lease.Investments Associated undertakings arethose companies in which the group has a beneficial interest of 50
112、%or less in theequity capital and where the groupexercises significant influence overcommercial and financial policy decisions.The consolidated balance sheet includesthe groups share of the underlying netassets of associated undertakings.Tradeinvestments are stated at the lower of costand the recove
113、rable amount.Stocks Finished goods and work inprogress are valued at factory cost,including appropriate overheads,on a first-in first-out basis.Raw materials are valuedat purchase price and all stocks arereduced to net realisable value where lower.Deferred taxation Deferred taxation isprovided under
114、 the liability method ontiming differences between tax andaccounting treatments where these arelikely to crystallise in the foreseeablefuture.Deferred taxation is not provided on undistributed profits retained overseas.Financial instruments Currency swapsentered into to match foreign currencyassets
115、with foreign currency liabilities aretranslated into sterling at the year end rateof exchange.Changes in the principalvalues of currency swaps are matched inreserves against changes in the values ofthe related assets.Interest rate swapsused to protect interest costs and incomeare accounted for as he
116、dges.Changes inthe values of interest rate swaps are offsetagainst the interest in the period relating to the hedge.The group has takenadvantage of the dispensation of notdisclosing short term debtors andcreditors as financial instruments.Research and development Revenueexpenditure on research and d
117、evelopmentis written off as incurred.Post-retirement benefits The groupsmajor pension plans are of the definedbenefit type.For these plans,costs arecharged to operating profit so as tospread the expense of providing futurepensions to employees over their workinglives with the group.Where definedcont
118、ribution plans operate thecontributions to these plans are chargedto operating profit as they becomepayable.Where the group provideshealthcare benefits after retirement theexpected cost of these is charged tooperating profit over the employeesworking lives with the group.Accounting policiesNote 1 Se
119、gmental analysis OperatingOperatingOperatingOperatingTurnoverprofitassetsTurnoverprofitassets199919991999199819981998Analysis by activity million million million million million millionMedical devices889.592.7581.8809.9102.9573.5Consumer healthcare186.217.666.2167.923.659.01,075.7110.3648.0977.8126.
120、5632.5Discontinued operations44.25.5(6.5)75.69.7(5.2)1,119.9115.8641.51,053.4136.2627.3Exceptional costs of 51.7m(1998 17.9m)have been charged as follows:medical devices 42.0m(1998 16.3m)and consumerhealthcare 9.7m(1998 1.6m).Analysis by geographic originUnited Kingdom286.437.6160.3274.839.6177.1Con
121、tinental Europe243.311.888.3242.39.479.6America561.248.7324.3484.265.8292.9Africa,Asia and Australasia191.812.275.1163.911.782.91,282.7110.3648.01,165.2126.5632.5Discontinued operations44.25.5(6.5)75.69.7(5.2)1,326.9115.8641.51,240.8136.2627.3Less intragroup sales(207.0)(187.4)1,119.9115.8641.51,053
122、.4136.2627.3Exceptional costs of 8.6m have been charged to the UK(1998 5.3m),3.0m to Continental Europe(1998 4.7m),31.4m toAmerica(1998 5.2m)and 8.7m to Africa,Asia and Australasia(1998 2.7m).19991998Analysis of turnover by geographic market million millionUnited Kingdom205.8190.6Continental Europe2
123、12.4204.7America459.3414.5Africa,Asia and Australasia198.2168.01,075.7977.8Discontinued operations44.275.61,119.91,053.4Analysis of turnover by productOrthopaedics276.4237.7Endoscopy192.8173.9Wound management230.8212.1Casting,support and ENT189.5186.2Medical devices889.5809.9Consumer healthcare186.2
124、167.91,075.7977.8Discontinued operations44.275.61,119.91,053.4Notes to the accountsSmith&Nephew 199939Note 2 Operating profitContinuing DiscontinuedContinuing DiscontinuedoperationsoperationsTotaloperationsoperationsTotal199919991999199819981998 million million million million million millionTurnove
125、r1,075.744.21,119.9977.875.61,053.4Cost of sales459.220.4479.6418.135.2453.3Gross profit616.523.8640.3559.740.4600.1Marketing,selling and distribution(330.7)(10.5)(341.2)(298.6)(18.7)(317.3)Administration(118.8)(6.8)(125.6)(95.1)(10.5)(105.6)Research and development(44.2)(1.0)(45.2)(41.6)(1.5)(43.1)
126、Other(12.5)(12.5)2.12.1Operating profit110.35.5115.8126.59.7136.2Operating profit includes loss on sales of fixed assets of 1.9m(1998 gain of 1.9m).Results of continuing operations have been stated after charging exceptional costs of 51.7m(1998 17.9m),which have beenallocated in total as follows:cos
127、t of sales 12.0m(1998 5.7m),marketing,selling and distribution 6.4m(1998 2.7m),administration 20.8m(1998 9.5m)and other 12.5m(1998 nil).19991998Operating profit is stated after charging:million millionDepreciation 50.348.6Amortisation of goodwill 1.80.3Amortisation of other intangibles 4.00.8Excepti
128、onal asset provisions 28.6Operating lease rentals for land and buildings8.29.2Auditors remuneration1.11.1Payments made to the groups auditors for non-audit services amounted to 0.5m(1998 0.4m)in the UK and 0.8m(1998 0.8m)outside the UK.Of these payments 0.8m(1998 0.7m)relate to taxation services and
129、 0.5m(1998 0.5m)to statutory and othercertifications and accountancy services.Unrecognised gains and losses relating to forward foreign exchange contracts in respect of anticipated purchases over the next 12months amounted to 3.9m and 2.2m respectively.The groups policy on currency risk management i
130、s set out on page 31.Thegroups operating units hold no material unhedged monetary assets or liabilities other than in their functional operating currency.Note 3 Exceptional itemsOperating exceptional items comprise the cost of the manufacturing rationalisation begun in April 1999 of 34.0m,a 6.5m pro
131、visionagainst the cost of intangible fixed assets as set out in Note 11,a 6.0m provision against the groups equity investment in AdvancedTissue Sciences Inc as set out in Note 13 and acquisition integration costs of 5.2m,principally in connection with the Exogen businessacquired in September 1999.In
132、 1998 exceptional costs of 17.9m were incurred on a management and work force restructuringprogramme.The net profit on disposal relates to the sale of the bracing business in July 1999 for cash consideration of 121.8m.The net profitcomprises a gain of 96.4m on net assets realised less 33.5m of acqui
133、sition goodwill previously written off to reserves.Notes to the accounts40Smith&Nephew 1999Smith&Nephew 199941Note 4 Interest19991998 million millionInterest receivable10.38.1Interest payable:On bank borrowings6.19.2On other borrowings0.80.66.99.83.4(1.7)Interest payable on currency swaps amounting
134、to 25.8m(1998 24.8m)has been set off against interest receivable.At 31 December 1999 the group held sterling interest bearing assets of 560m on which interest has been fixed on 390m at 5.7%for one year and 37m on which interest has been fixed for a further three years at 5.6%,a weighted average of 5
135、.7%for a weightedaverage period of 1.2 years.The remainder was cash balances held on short term deposit at floating rates.The group also held 14mof foreign currency interest bearing assets as cash or on short term deposit at floating rates.The groups interest bearing liabilities at 31 December 1999
136、included 409m of US dollars and 80m of euros on which interest hasbeen fixed for one year on 288m of US dollars and 62m of euros at weighted average rates of 5.7%and 3.0%respectively.Interesthas also been fixed on 34m of euros for a further three years at 3.6%.The remaining interest bearing liabilit
137、ies totalled 62m ofvarious currencies of which the largest was 16m of Australian dollars on which interest has been fixed at 6.0%for one year.Whereinterest has not been fixed the rates are typically based on the three month interest rate relevant to the currency concerned.Details offinancial instrum
138、ents as defined by Financial Reporting Standard 13 are set out in Notes 13,15,16 and 20.At 31 December 1999 unrecognised gains and losses on the value of interest rate swaps were 3.2m and 3.3m respectively(1998 gains 7.8m,losses 3.6m).Unrecognised gains of 2.4m will be realised in 2000 and 0.8m betw
139、een 2001 and 2003.Unrecognised losses on interest rate swaps will be realised in 2000.The unrecognised net losses on interest rate swaps at 31December 1998 were realised in 1999.The groups interest rate risk management policy is set out on page 31.Note 5 EmployeesThe average number of employees duri
140、ng the year was:19991998United Kingdom2,9733,209Continental Europe1,6021,618America3,3704,123Africa,Asia and Australasia3,2683,40611,21312,356Staff costs during the year amounted to:million millionWages and salaries232.1234.7Social security costs25.125.5Other pension costs(Note 28)9.17.8266.3268.0No
141、te 6 Directors emolumentsAggregate emoluments of the directors,including pension entitlements of 78,000(1998 151,000),were 1,789,000(1998 1,564,000).The emoluments of the highest paid director excluding pension entitlement were 586,000(1998 350,000).The accrued pensionbenefit of the highest paid dir
142、ector at the end of the year was 75,000(1998 29,000).Information concerning individual directors emoluments,pension entitlements,shareholdings and share options is shown on pages 27 to 29.Note 7 Taxation19991998 million millionUnited Kingdom:Corporation tax at 30.25%(1998 31%)29.739.4Double taxation
143、 relief(7.0)Deferred taxation(3.8)(3.2)25.929.2Overseas:Current taxation12.115.8Tax on gain on disposal35.5Deferred taxation3.8(2.7)Adjustments in respect of prior years(1.5)51.411.677.340.8The tax charge has been reduced by 9.5m(1998 4.9m)as a consequence of the exceptional costs of the rationalisa
144、tionprogramme and acquisition integration costs and increased by 35.5m(1998 nil)as a result of the exceptional profit on disposal,leaving the tax charge on ordinary activities at 51.3m(1998 45.7m).If full provision had been made for deferred tax,the tax charge would have increased by 5.7m(1998 5.8m)
145、as follows:19991998 million millionFixed asset timing differences 2.03.1Other timing differences3.72.75.75.8Note 8 Dividends19991998 million millionOrdinary interim of 2.5p(1998 2.4p)paid 8 December 199927.826.7Proposed ordinary final of 4.0p(1998 3.8p)payable 2 June 200044.742.572.569.2Non-equity p
146、reference dividends amounting to 13,000 were paid(1998 10,000).Notes to the accounts42Smith&Nephew 1999Smith&Nephew 199943Note 9 Results before exceptional itemsIn order to provide a trend measure of underlying performance,profit before taxation is adjusted below to exclude exceptional items,and bas
147、ic earnings per share has been recalculated as set out in Note 10.19991998 million millionProfit on ordinary activities before taxation182.1134.5Adjustments:Discontinued operations:net gain on disposal(62.9)Continuing operations:exceptional items51.717.9(11.2)17.9Profit before taxation and exception
148、al items170.9152.4Taxation on profit before exceptional items51.345.7Note 10 Earnings per ordinary shareBasic earnings per ordinary share of 9.39p(1998 8.42p)are based on profit on ordinary activities after taxation and preferencedividends of 104.8m(1998 93.7m)and on 1,116m ordinary shares being the
149、 basic weighted average number of shares in issueduring the year(1998 1,113m).The calculation of diluted earnings per ordinary share is based on basic earnings as defined above and on 1,119m ordinary shares(1998 1,115m)calculated as follows:SharesShares19991998millionmillionBasic weighted average nu
150、mber of shares1,1161,113Weighted average number of shares under option 1615Number of shares that would have been issued at fair value(13)(13)Diluted weighted average number of shares1,1191,115Diluted earnings per ordinary share9.37p8.40pThe calculation of adjusted basic earnings per ordinary share i
151、s based on the basic weighted average number of shares,together with basic earnings as defined above,adjusted to exclude exceptional items as follows:1999 1998 million millionBasic earnings104.893.7Discontinued operations:net gain on disposal(62.9)Continuing operations:exceptional items51.717.9Excep
152、tional taxation 26.0(4.9)Adjusted basic earnings119.6106.7Adjusted basic earnings per ordinary share10.72p9.58pNote 11 Intangible fixed assetsGoodwillOtherTotalGroup million million millionCost:At 1 January 19997.624.932.5Exchange adjustment0.40.61.0Acquisitions41.19.350.4Additions7.37.3Discontinued
153、 operations(1.2)(1.2)At 31 December 199949.140.990.0Amortisation:At 1 January 19990.33.94.2Exchange adjustment0.10.1Charge for the year1.84.05.8Exceptional provision6.56.5Discontinued operations(0.6)(0.6)At 31 December 19992.113.916.0Net book amounts:At 31 December 199947.027.074.0At 31 December 199
154、87.321.028.3The cost of intangible fixed assets includes 15.5m in respect of milestone payments to Advanced Tissue Sciences Inc for a 50%interest in the intellectual property rights for Dermagraft.A 6.5m provision has been taken against this investment.This has been basedon current projections of pr
155、oduct sales over the expected life cycle of the technology,which include annual sales increasing significantlyabove the long term average applicable GDP growth rates in the first ten years and declining thereafter.Resultant net cash flows havebeen discounted at an appropriate rate.Note 12 Tangible f
156、ixed assetsLand and buildingsPlant andIn course offreeholdleaseholdequipment constructionTotalGroup million million million million millionCost:At 1 January 199985.615.1443.532.6576.8Exchange adjustment0.70.12.80.33.9Additions0.80.532.423.957.6Disposals(3.3)(1.6)(26.9)(0.6)(32.4)Discontinued operati
157、ons(0.2)(3.2)(8.6)(12.0)Transfers 0.10.338.5(38.9)At 31 December 199983.711.2481.717.3593.9Depreciation:At 1 January 199914.84.0266.3285.1Exchange adjustments0.11.61.7Charge for the year1.20.648.550.3Exceptional provision3.612.516.1Disposals(1.4)(0.4)(20.0)(21.8)Discontinued operations(1.1)(6.9)(8.0
158、)At 31 December 199918.23.2302.0323.4Net book amounts:At 31 December 199965.58.0179.717.3270.5At 31 December 199870.811.1177.232.6291.7Fixed assets include land with a cost of 5.8m(1998 7.2m)that is not subject to depreciation.Leases with less than 50 years to runamounted to 5.1m(1998 7.6m).Included
159、 in the amounts above are assets held under finance leases with a net book amount of3.0m(1998 3.4m).Notes to the accounts44Smith&Nephew 1999Smith&Nephew 199945Note 12 Tangible fixed assets continuedParent companyThe opening net book amount of 9.8m represented 1.9m land and buildings and 7.9m plant a
160、nd equipment,with a cost of 2.5mand 17.1m respectively.Movements in the year comprised 2.0m of additions and 2.3m of disposals.The depreciation charged in theyear was 1.4m(1998 1.4m).The closing net book value of 8.1m represented plant and equipment with a cost of 17.1m.Note 13 InvestmentsGroupGroup
161、ParentassociatedtradeGroupsubsidiaryundertakingsinvestmentstotal undertakings million million million millionAt 1 January 19990.613.814.4413.9Exchange adjustment0.10.40.5Acquisitions6.76.7Transfers1.01.0Exceptional provision(6.0)(6.0)At 31 December 19990.715.916.6413.9Principal subsidiary and associ
162、ated undertakings are listed on pages 54 and 55.Trade investments are US dollar denominated andinclude an 8%equity investment in Advanced Tissue Sciences Inc,quoted on the Nasdaq exchange in the US.An exceptional provisionof 6.0m has been taken to state the carrying cost of this investment at 13.1m,
163、equivalent to$4.90 per share.The quoted marketprice of the company at 31 December 1999 and 22 February 2000 was$2.50 and$8.50 respectively.Note 14 StocksGroupGroup19991998 million millionRaw materials and consumables52.156.9Work in progress16.117.9Finished goods and goods for resale169.4167.6237.624
164、2.4Note 15 DebtorsGroupGroupParentParent1999199819991998 million million million millionAmounts falling due within one year:Trade and other debtors241.8233.12.41.4Amounts owed by subsidiary undertakings466.7653.4Prepayments and accrued income23.619.97.47.2Advance corporation tax3.3265.4256.3476.5662
165、.0Amounts falling due after more than one year:Pension prepayments(Note 28)5.75.8Other debtors2.79.4Deferred taxation(Note 19)7.37.10.3281.1278.6476.8662.0Other debtors falling due after more than one year are non interest bearing,denominated in various currencies and are stated at fair value.46Smit
166、h&Nephew 1999Notes to the accountsNote 16 BorrowingsGroupGroupParentParent1999199819991998Net borrowings million million million millionGross borrowings:Due within one year58.086.628.955.0Due after one year20.212.84.55.878.299.433.460.8Cash and bank(100.5)(49.9)(77.2)(24.0)(22.3)49.5(43.8)36.8Gross
167、borrowingsBank loans and overdrafts75.995.433.059.3Other loans wholly repayable within five years:512%US dollar convertible bonds 20000.21.10.21.1Other1.82.20.20.42.03.30.41.5Other loans wholly repayable after five years0.30.778.299.433.460.8Bank loans and overdrafts represent drawings under committ
168、ed and uncommitted facilities of 170m and 320m respectively.150m ofthe committed facilities expire within one year.Borrowings secured on fixed and current assets were 1.7m(1998 2.2m).Borrowingsare shown at fair value.The groups liquidity risk management policy is set out on page 31.The group and par
169、ent company have currency swaps which are revalued at year end exchange rates and have maturities ranging from1999 to 2005.For the group,gross sterling equivalents of 477.6m(1998 442.3m)receivable and 484.3m(1998 450.1m)payable have been netted.The balance of 6.7m is included as 4.4m in cash and ban
170、k and as 11.1m in borrowings(1998 2.7m incash and bank and 10.5m in borrowings).For the parent company,gross sterling equivalents of 446.5m(1998 406.1m)receivableand 453.9m(1998 415.7m)payable have been netted,the balance of 7.4m(1998 9.6m)is included as 3.7m in cash andbank and as 11.1m in borrowin
171、gs(1998 0.9m in cash and bank and 10.5m in borrowings).Currency swaps comprise floatinginterest rate contracts and forward foreign exchange contracts and are used for hedging foreign investments.The 512%US dollar convertible bonds are convertible into ordinary shares at 109p per share at a fixed exc
172、hange rate of US dollar1.4202 to 1.If not converted the bonds are repayable by 18 December 2000.Smith&Nephew 199947Note 16 Borrowings continuedGroupGroupParentParent1999199819991998Gross borrowings are repayable as follows:million million million millionWithin one year:Bank loans and overdrafts57.58
173、6.228.755.0Other loans0.50.40.2Total within one year58.086.628.955.0Bank loans and overdrafts:After one year and within two years3.54.32.54.3After two years and within five years14.94.91.818.49.24.34.3Other loans:After one year and within two years0.30.3After two years and within five years1.22.60.2
174、1.5After five years0.30.71.83.60.21.5Total after one year20.212.84.55.878.299.433.460.8In addition to the above gross borrowings,other financial liabilities are 0.3m being 512%undated cumulative preference shares as setout in Note 20.Note 17 Other creditorsGroupGroupParentParent1999199819991998 mill
175、ion million million millionTrade creditors128.5128.42.42.0Amounts owed to subsidiary undertakings221.2295.8Social security costs and other taxes14.816.30.30.2Accruals and deferred income49.741.611.09.0Current taxation74.760.220.219.8Ordinary share dividends44.742.544.742.5312.4289.0299.8369.3Note 18
176、 Provisions for liabilities and chargesRationalisationRetirementand integrationhealthcareOtherTotalGroup million million million millionAt 1 January 199914.38.58.631.4Exchange adjustments0.20.20.10.5Profit and loss account17.00.710.928.6Utilisation(13.3)(0.6)(8.6)(22.5)At 31 December 199918.28.811.0
177、38.0At 31 December 1999 rationalisation and integration provisions included acquisition integration of 3.6m(1998 0.6m).The retirementhealthcare provision is long term in nature,as is the timing of its utilisation.All other provisions are expected to be utilised within three years.There are no provis
178、ions for contractual amounts and hence none is treated as a financial instrument.Parent companyThe movement in provisions for liabilities and charges in the year from 1.3m to 0.9m represented expenditure of 0.4m.48Smith&Nephew 1999Notes to the accountsNote 19 Deferred taxationGroup millionAt 1 Janua
179、ry 19997.1Exchange adjustment0.2At 31 December 19997.3Deferred tax asset/(liability)is analysed as follows:FullFullAmountAmountpotentialpotentialprovidedprovidedliabilityliability1999199819991998Group million million million millionFixed asset timing differences(3.3)(0.3)(30.2)(28.3)Other timing dif
180、ferences10.67.416.220.47.37.1(14.0)(7.9)Parent companyThe parent company has a full potential deferred tax liability of 1.5m represented by fixed asset timing differences.The full potentialdeferred tax liability in 1998 of 2.8m was represented by fixed asset timing differences.Note 20 Called up shar
181、e capitalSharesShares1999199919981998Authorised000 million000 millionOrdinary shares 10p1,495,500149.51,495,500149.5512%cumulative preference shares 14500.54500.5150.0150.0Allotted,issued and fully paidSharesEquity capital:ordinary shares 10p000 millionAt 1 January 19991,114,270111.4Share options an
182、d convertible bonds3,2750.4At 31 December 19991,117,545111.8Non-equity capital:512%cumulative preference shares 1At 1 January 1999 and 31 December 19992690.3Total called up share capital at 31 December 1999112.1The 512%cumulative preference shares are denominated in sterling and are shown at fair va
183、lue.They are non-voting and carrypreferential rights to dividends and distribution on winding up.Smith&Nephew 199949Note 21 Share option schemesAt 31 December 1999 25,464,000(1998 24,369,000)of the authorised but unissued ordinary shares of 10p were reserved in respectof the following options:Exerci
184、se SharesExercisableprices perthe subjectin stagesshare rangeof optionsbetweenbetween000Employee share option schemes2000-2005123.2p-156.0p7,421Executive share option schemes2000-200993.5p-195.5p18,04325,464Note 22 ReservesShareProfit andpremium loss accountGroup million millionAt 1 January 1999114.
185、3259.5Exchange adjustment(4.0)Retained profit for the year32.3Share options and convertible bonds4.0Goodwill on disposals33.5At 31 December 1999118.3321.3Net exchange losses of 9.5m(1998 gains of 1.8m)arising on foreign currency net borrowings have been taken directly to reserves.The cumulative amou
186、nt of goodwill(before merger relief of 116.0m)charged to reserves is 368.8m(1998 398.4m).The decreaseis due to the goodwill written back to reserves on the disposal of the bracing business of 33.5m and exchange on acquisitions madeprior to 31 December 1998 of 3.9m.ShareProfit andpremium loss account
187、Parent company million millionAt 1 January 1999114.3452.3Retained loss for the year(40.8)Share options and convertible bonds4.0At 31 December 1999118.3411.5In accordance with the exemption permitted by Section 230(3)of the Companies Act 1985,the parent company has not presented itsown profit and los
188、s account.The attributable profit for the year dealt with in the accounts of the parent company is 31.7m(1998 70.5m).50Smith&Nephew 1999Notes to the accountsNote 23 Cash flow statement19991998Reconciliation of operating profit to net cash flow from operating activities million millionOperating profi
189、t115.8136.2Depreciation and amortisation56.149.7Exceptional asset write downs28.6Loss/(profit)on sale of tangible fixed assets1.9(1.9)Rationalisation and integration costs(18.5)(9.5)Decrease/(increase)in stocks0.6(20.5)Increase in debtors(14.2)(8.3)Increase in creditors and provisions27.816.2Net cas
190、h inflow from operating activities198.1161.9Opening netExchangeClosing netborrowingsCash flowadjustmentsborrowingsAnalysis of net borrowings million million million millionCash47.2(21.7)(1.7)23.8Overdrafts(11.7)6.6(5.1)35.5(15.1)(1.7)18.7Borrowings due within one year(64.4)19.1(0.7)(46.0)Borrowings
191、due after one year(12.8)(2.3)(0.9)(16.0)(41.7)1.7(3.3)(43.3)Net currency swaps(7.8)7.3(6.2)(6.7)Liquid resources:cash deposits72.372.3(49.5)81.3(9.5)22.3Cash and bank at 31 December 1999 totals 100.5m(1998 49.9m)and comprises cash 23.8m(1998 47.2m),liquid resources72.3m(1998 nil)and currency swaps o
192、f 4.4m(1998 2.7m)as detailed in Note 16.Reconciliation of net cash flow to movement in net borrowings19991998for the year ended 31 December 1999 million millionChange in cash in the year(15.1)(5.6)Change in liquid resources72.3(1.5)Change in net currency swaps7.3(7.3)Change in borrowings16.89.7Chang
193、e in net cash/borrowings from cash flows81.3(4.7)Exchange adjustments(9.5)1.8Change in net cash/borrowings in the year71.8(2.9)Opening net borrowings(49.5)(46.6)Closing net cash/(borrowings)22.3(49.5)DisposalsThe net assets of the bracing business disposed of in the year comprised fixed assets 4.6m,
194、stocks 8.5m,debtors 10.2m andcreditors and provisions 6.1m.During the year the business contributed 2.6m of the groups net operating cash flows and incurredcapital expenditure amounting to 0.9m.Smith&Nephew 199951Note 24 Currency translationThe exchange rates used for the translation of currencies t
195、hat have the most significant impact on the group results were:AverageAverageYearYearraterateend rateend rate1999199819991998US dollar1.621.661.611.66French franc10.049.7810.559.29German mark2.992.923.142.77Australian dollar2.492.652.462.71South African rand9.879.219.929.79Note 25 AcquisitionsThe pr
196、incipal acquisitions during the year were the Exogen orthopaedic business acquired in September 1999 and an intangible fixedasset addition of 9.3m in Advanced Tissue Sciences in January 1999.Under the acquisition method of accounting the impact on theconsolidated balance sheet of acquisitions in the
197、 year was:Net book value millionIntangible fixed assets9.3Tangible fixed assets0.5Current assets4.5Current liabilities(4.5)9.8Goodwill41.1Cash consideration50.9There were no fair value adjustments with respect to the acquisitions.Note 26 Financial commitmentsGroup capital expenditure contracted but
198、not provided for in these accounts amounted to 2.1m(1998 4.9m).Under the groups joint arrangement with Advanced Tissue Sciences for the treatment of diabetic foot ulcers and other wound indications,amounts of up to 6m could become payable in the future,subject to achievement of certain milestones re
199、lated to regulatory and reimbursement approvals,with further amounts payable on future regulatory,reimbursement and sales milestones,providing profits exceed certain minimum levels.The annual commitments of the group under operating leases were:Land andLand andOtherOtherbuildingsbuildingsassetsasset
200、s1999199819991998Operating leases which expire:million million million millionWithin one year1.71.02.21.6After one year and within five years3.44.65.66.1After five years2.33.17.48.77.87.7Note 27 Contingent liabilitiesGroupGroupParentParent1999199819991998 million million million millionGuarantees in
201、 respect of subsidiary undertakings borrowings17.315.1Other3.58.53.58.53.58.520.823.6The group is party to legal proceedings in the normal course of business which it is considered will not result in any material adverseeffect.Note 28 Post-retirement benefitsThe group sponsors pension plans for its
202、employees in most of the countries in which it has major operating companies.In thosecountries where there is no company-sponsored pension plan,the state benefits are considered adequate.Employees retirementbenefits are the subject of regular management review.The groups major pension plans are of t
203、he defined benefit type.The group also operates defined contribution type plans appropriate tolocal circumstances.Pension plans are established under the laws of the relevant territory with their assets held in separate trust fundsor by insurance companies.The pension cost for the groups defined ben
204、efit plans have been determined by independent qualified actuaries,using the projectedunit method to give a substantially level percentage cost on the current and expected future pensionable payroll.The excess of planassets over plan liabilities is amortised,using the percentage of payroll method,ov
205、er the weighted average of expected pensionablepayroll and remaining service lives of current employees in the plan.The actuarial assumptions used vary according to localcircumstances,the most significant being those in the UK and the US:UKUS%per%per annumannumReturn on investments8.59.0Increase in
206、pensionable earnings5.06.0Increase in pensions3.5nilIncrease in dividend income5.1n/aInflation3.53.0Average remaining service lives10.0 years13.2 yearsNotes to the accounts52Smith&Nephew 1999Smith&Nephew 199953Note 28 Post-retirement benefits continuedAt the date of the most recent actuarial valuati
207、ons(which took place between October 1997 and January 1999)the aggregate marketvalue of the assets of the groups major defined benefit plans was 256m(1998 234m).The actuarial value of plan assetsrepresented 103%of plan liabilities for accrued benefits,including allowance for projected future increas
208、es in salaries.Included in debtors due after more than one year is a prepayment of 5.7m(1998 5.8m)relating to the excess funding of certaingroup pension plans.Included in creditors is an accrual of 12.0m(1998 9.3m)relating to the deferred funding of certain grouppension plans.At the balance sheet da
209、te the unamortised balance of the actuarial value of plan assets over liabilities not recognised in the groupaccounts was 12.7m(1998 19.1m).The group recharges the groups UK pension schemes with the costs of administration and independent advisers borne by the group.The total amount recharged in the
210、 year to 31 December 1999 was 0.5m(1998 0.4m).The amount receivable at 31 December 1999was 0.1m(1998 0.1m).The costs of providing healthcare benefits after retirement of 0.7m(1998 0.7m)are determined by independent qualified actuaries.The unfunded liability of 8.8m(1998 8.5m)in respect of the accrue
211、d healthcare benefits is included in provisions.The principalactuarial assumptions that are most significant in determining the cost of providing healthcare benefits are those in the UK and the US:UKUS%per%per annumannumInterest rate5.59.0Medical cost inflation6.57.5Principal subsidiary undertakings
212、The information provided below is given for principal subsidiary undertakings in accordance with Section 231(5)(a)of the Companies Act1985.A full list will be appended to the companys next annual return.Country of operationActivityand incorporation%ownedUnited KingdomSmith&Nephew Healthcare LimitedM
213、edical devicesUnited Kingdom100%Smith&Nephew Homecraft LimitedMedical devicesUnited Kingdom100%Smith&Nephew Medical LimitedMedical devicesUnited Kingdom100%Smith&Nephew Medical Fabrics Limited*Medical devicesUnited Kingdom100%TJ Smith&Nephew LimitedMedical devicesUnited Kingdom100%Smith&Nephew Consu
214、mer Products LimitedConsumer healthcareUnited Kingdom100%Continental EuropeSmith&Nephew GmbHMedical devicesAustria100%Smith&Nephew SA-NVMedical devicesBelgium100%Smith&Nephew A/SMedical devicesDenmark100%Smith&Nephew OYMedical devicesFinland100%Smith&Nephew SAMedical devicesFrance100%Smith&Nephew Gm
215、bHMedical devicesGermany100%Smith&Nephew Orthopaedics GmbHMedical devicesGermany100%Smith&Nephew LimitedMedical devices&consumer healthcareIreland100%Smith&Nephew SrlMedical devicesItaly100%Smith&Nephew BVMedical devicesNetherlands100%Smith&Nephew A/SMedical devicesNorway100%Smith&Nephew LdaMedical
216、devicesPortugal100%Smith&Nephew SAMedical devicesSpain100%Smith&Nephew ABMedical devicesSweden100%Smith&Nephew AGMedical devicesSwitzerland100%AmericaSmith&Nephew IncMedical devices&consumer healthcareCanada100%Smith&Nephew SA de CVMedical devicesMexico100%Smith&Nephew IncMedical devicesPuerto Rico1
217、00%Smith&Nephew IncMedical devicesUnited States100%*Owned directly by the parent companySubsidiary and associatedundertakings54Smith&Nephew 1999Smith&Nephew 199955Principal subsidiary undertakings continuedCountry of operationActivityand incorporation%ownedAfrica,Asia and AustralasiaSmith&Nephew Pty
218、 LimitedMedical devices&consumer healthcareAustralia100%Smith&Nephew LimitedMedical devices&consumer healthcareHong Kong100%Smith&Nephew Healthcare LimitedMedical devicesIndia100%PT Smith&Nephew Healthcare Medical devices&consumer healthcareIndonesia100%Smith&Nephew KKMedical devicesJapan100%Smith&N
219、ephew LimitedMedical devicesKorea100%Smith&Nephew Healthcare Sdn BerhadMedical devices&consumer healthcareMalaysia100%Smith&Nephew LimitedMedical devices&consumer healthcareNew Zealand100%Smith&Nephew Pakistan(Pvt)LimitedMedical devices&consumer healthcarePakistan97%Smith&Nephew Pte LimitedMedical d
220、evices&consumer healthcareSingapore100%Smith&Nephew LimitedMedical devices&consumer healthcareSouth Africa100%Smith&Nephew LimitedMedical devicesThailand100%Smith&Nephew FZE Medical devicesUnited Arab Emirates100%Principal associated undertakings and other arrangementsThe group owns 49%of Eurocienci
221、a CA,a Venezuelan healthcare company,which has a share capital of 0.2m(1998 0.2m).There are no debt securities attributable to the groups interest.The group has interests in two joint arrangements with Advanced Tissue Sciences Inc,one relating to products for the treatment of diabetic foot ulcers an
222、d other wound indications,and the other to cartilage replacement.19991998199719961995Profit and loss account million million million million millionTurnoverContinuing and acquired operations1,075.7977.8961.2980.2902.8Discontinued operations44.275.686.989.0123.51,119.9 1,053.41,048.11,069.21,026.3Ope
223、rating profitContinuing and acquired operations:Before exceptional items162.0144.4154.4177.1169.9Exceptional items*(51.7)(17.9)(1.8)(4.4)(14.6)Discontinued operations5.59.710.210.815.1115.8136.2162.8183.5170.4Profit/(loss)on disposals*62.9(6.5)0.911.0Profit before interest178.7136.2156.3184.4181.4In
224、terest receivable/(payable)3.4(1.7)(3.9)(5.7)(4.6)Profit before taxation182.1134.5152.4178.7176.8Taxation77.340.838.758.064.0Profit after taxation104.893.7113.7120.7112.8Ordinary dividends72.569.269.066.562.3Retained profit32.324.544.754.250.5Basic earnings per ordinary share9.39p8.42p10.24p10.92p10
225、.29pDiluted earnings per ordinary share 9.37p8.40p10.22p10.86p10.24pDividends per ordinary share6.50p6.20p6.20p6.00p5.65pResults before exceptional items(*):Profit before taxation170.9152.4160.7182.2180.4Adjusted earnings per ordinary share10.72p9.58p11.00p11.21p11.04pOperating profit(before excepti
226、onal items)to sales15.0%14.6%15.7%17.6%18.0%Research and development costs to sales4.0%4.1%4.0%3.9%3.6%Capital investment(including intangibles)to sales5.8%6.6%7.1%6.7%6.8%Group five year summary56Smith&Nephew 1999Smith&Nephew 19995719991998199719961995Balance sheet million million million million m
227、illionFixed assets 361.1334.4302.0277.3278.7Working capital206.3232.0235.8233.4259.3Provisions(38.0)(31.4)(29.9)(32.3)(51.3)Capital employed529.4535.0507.9478.4486.7Called up share capital112.1111.7111.5111.0110.5Reserves439.6373.8349.8324.4294.2Capital and reserves551.7485.5461.3435.4404.7Net(cash)
228、/borrowings(22.3)49.546.643.082.0529.4535.0507.9478.4486.7Operating profit(before exceptional items)to average capital employed31%30%33%39%40%Gearingnil10%10%10%20%Cash flowCash inflow from operating activities198.1161.9181.7189.3180.3Capital expenditure and financial investment(65.1)(61.9)(66.8)(63
229、.4)(61.8)133.0100.0114.9125.9118.5Interest,tax and dividends(127.0)(91.3)(113.0)(106.3)(133.4)Acquisitions and disposals70.9(16.4)(8.0)(42.6)(73.8)Issues of share capital4.43.04.35.211.3Net cash flow81.3(4.7)(1.8)(17.8)(77.4)Exchange adjustments(9.5)1.8(1.8)56.8(9.6)Opening net borrowings(49.5)(46.6
230、)(43.0)(82.0)5.0Closing net cash/(borrowings)22.3(49.5)(46.6)(43.0)(82.0)Analysis of shareholdingsThe number of shareholders as at 31 December 1999 was 28,285.ShareholdersSharesShareholders range:%1,000 and under31.90.41,001 to 5,00046.32.95,001 to 10,00011.82.110,001 to 100,0007.74.6Over 100,0002.3
231、90.0Held by:Individuals83.87.3Institutions and companies16.292.7Financial calendarAnnual General Meeting11 April 2000Payment of 1999 final dividend2 June 2000Interim results announced8 August 2000Payment of 2000 interim dividend6 December 2000Full year results announcedmid February 2001Annual report
232、 postedearly March 2001Annual General Meeting3 April 2001Final dividendThe ordinary shares will trade ex-dividend on both the London and New York Stock Exchanges from 2 May 2000 and the record datewill be 8 May 2000 in respect of this years proposed final dividend to be paid on 2 June 2000.Ordinary
233、sharesPayment of cash dividendsShareholders who wish their dividends to be paid directly to a bank or building society and who have not already completed a BACSmandate should contact the companys registrars.Dividend re-investment planThe company has a dividend re-investment plan that offers sharehol
234、ders the opportunity to invest their cash dividends in Smith&Nephew shares,which are purchased in the market at competitive dealing costs.Application forms for re-investing the 1999 finaldividend are available from Lloyds TSB Registrars,telephone 01903 854287,who administer the plan on behalf of the
235、 company.Applications for re-investment should be returned to the companys registrars by 15 May 2000.UK capital gains taxFor the purposes of capital gains tax the price of ordinary shares on 31 March 1982 was 28.67p.RegistrarsLloyds TSB Registrars are the companys registrars and maintain the share r
236、egister.Any enquiries about shareholdings in Smith&Nephew should be directed to:Lloyds TSB RegistrarsThe CausewayWorthingWest Sussex BN99 6DATelephone:0870 600 3996Correspondence should refer to Smith&Nephew marked for the attention of Team 54 Reference 530 and state clearly the registeredname and a
237、ddress of the shareholder.Information for shareholders58Smith&Nephew 1999Smith&Nephew 199959Smith&Nephew share priceThe companys share price is quoted daily in national newspapers,as well as on Ceefax and Teletext and whereit is updated at intervals throughout theday.The Financial Times Cityline Ser
238、vice,telephone 0891 434043,provides an up to the minute share price.A fee ischarged for this service.Low-cost dealing serviceA postal facility that provides a simple low-cost method of buying and selling Smith&Nephew shares is available through:Hoare Govett Limited250 BishopsgateLondon EC2M 4AATelep
239、hone:020 7678 8300American depositary receipts(ADRs)Smith&Nephews ordinary shares aretraded on the New York Stock Exchange(symbol:SNN)in the form of AmericanDepositary Shares,evidenced by ADRs.ADRs are issued by the Bank of New Yorkwhich acts as depositary.Each AmericanDepositary Share represents te
240、n ordinaryshares.Voting rights as a shareholder areexercised through the depositary.All enquiries regarding ADR holderaccounts and payment of dividendsshould be addressed to:Bank of New YorkChurch Street StationPO Box 11258New YorkNew York 10286-1258Smith&Nephew ADR priceThe companys ADR price is qu
241、oted dailyin the Wall Street Journal and can beobtained from the official New York StockExchange website().Global BuyDIRECTA Global BuyDIRECT plan for Smith&Nephews ADR programme will be availablein March from the Bank of New York.Global BuyDIRECT is a direct ADRpurchase/sale and dividend re-investm
242、entplan for ADR investors who are resident inthe US.This plan enables existing andfirst-time investors to invest directly inADRs with reduced brokeragecommissions and service costs.For furtherinformation,contact the Bank of New Yorkon 1-888-BNY-ADRS(toll-free)or .Annual General MeetingThe companys 6
243、3rd Annual GeneralMeeting is to be held on 11 April 2000 at 11.00 am at the London Marriott Hotel,Grosvenor Square,London W1A 4AW.Notice of the meeting is enclosed with anaccompanying letter from the Chairman.Registered officeSmith&Nephew plcHeron House15 Adam StreetLondon WC2N 6LARegistered in Engl
244、and No.324357AdvisersSolicitors:Ashurst Morris CrispAuditors:Ernst&YoungStockbrokers:Cazenove&CoDresdner KleinwortBensonWorld Wide WebThe companys address on the web iswww.smith-.Recent pressreleases are on the website together withthe latest annual and interim reports.TrademarksThe product names referred to in thisdocument are trademarks owned by orlicensed to members of the Smith&Nephew group.Smith&Nephew plcHeron House15 Adam StreetLondon WC2N 6LA