15.1 Net debt
Net debt comprises borrowings and credit balances on currency swaps less cash at bank.
|
|
|
2017 |
|
2016 |
|
|
|
|
$ million |
|
$ million |
|
|
Bank overdrafts and loans due within one year |
|
27 |
|
86 |
|
|
Long-term bank borrowings and finance leases |
|
300 |
|
440 |
|
|
Private placement notes |
|
1,123 |
|
1,124 |
|
|
Borrowings |
|
1,450 |
|
1,650 |
|
|
Cash at bank |
|
(169) |
|
(100) |
|
|
(Debit)/credit balance on derivatives – currency swaps |
|
(2) |
|
1 |
|
|
Credit/(debit) balance on derivatives – interest rate swaps |
|
2 |
|
(1) |
|
|
Net debt |
|
1,281 |
|
1,550 |
|
Borrowings are repayable as follows:
|
|
|
Within |
|
Between |
|
Between |
|
Between |
|
Between |
|
|
|
|
|
|
|
|
one year or |
|
one and |
|
two and |
|
three and |
|
four and |
|
After |
|
|
|
|
|
|
on demand |
|
two years |
|
three years |
|
four years |
|
five years |
|
five years |
|
Total |
|
|
|
|
$ million |
|
$ million |
|
$ million |
|
$ million |
|
$ million |
|
$ million |
|
$ million |
|
|
At 31 December 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans |
|
13 |
|
– |
|
300 |
|
– |
|
– |
|
– |
|
313 |
|
|
Bank overdrafts |
|
14 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
14 |
|
|
Private placement notes |
|
– |
|
124 |
|
– |
|
264 |
|
125 |
|
610 |
|
1,123 |
|
|
|
|
27 |
|
124 |
|
300 |
|
264 |
|
125 |
|
610 |
|
1,450 |
|
|
At 31 December 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans |
|
22 |
|
– |
|
300 |
|
– |
|
135 |
|
– |
|
457 |
|
|
Bank overdrafts |
|
62 |
|
– |
|
– |
|
– |
|
– |
|
– |
|
62 |
|
|
Finance lease liabilities |
|
2 |
|
2 |
|
3 |
|
– |
|
– |
|
– |
|
7 |
|
|
Private placement notes |
|
– |
|
– |
|
125 |
|
– |
|
264 |
|
735 |
|
1,124 |
|
|
|
|
86 |
|
2 |
|
428 |
|
– |
|
399 |
|
735 |
|
1,650 |
|
15.2 Assets pledged as security
Assets are pledged as security under normal market conditions. Secured borrowings and pledged assets are as follows:
|
|
|
2017 |
|
2016 |
|
|
|
|
$ million |
|
$ million |
|
|
Finance lease liabilities – due within one year |
|
– |
|
2 |
|
|
Finance lease liabilities – due after one year |
|
– |
|
5 |
|
|
Total amount of secured borrowings |
|
– |
|
7 |
|
|
Total net book value of assets pledged as security: |
|
|
|
|
|
|
Property, plant and equipment |
|
– |
|
5 |
|
|
|
|
– |
|
5 |
|
15.3 Liquidity risk exposures
The Board has established a set of policies to manage funding and currency risks. The Group uses derivative financial instruments only to manage the financial risks associated with underlying business activities and their financing.
Liquidity risk is the risk that the Group is not able to settle or meet its obligations on time or at a reasonable price. The Group’s policy is to ensure that there is sufficient funding and facilities in place to meet foreseeable borrowing requirements. The Group manages and monitors liquidity risk through regular reporting of current cash and borrowing balances and periodic preparation and review of short and medium-term cash forecasts, having regard to the maturities of investments and borrowing facilities.
The Group has available committed facilities of $2.4bn (2016: $2.4bn). The interest payable on borrowings under committed facilities is either at fixed or floating rates. Floating rates are typically based on the LIBOR (or other reference rate) relevant to the term and currency concerned.
The Company is subject to restrictive covenants under its principal facility agreements. These financial covenants are tested at the end of each half year for the 12 months ending on the last day of the testing period. As of 31 December 2017, the Company was in compliance with these covenants. The facilities are also subject to customary events of default, none of which are currently anticipated to occur.
The Group’s committed facilities are:
|
Facility |
|
Date due |
|
|
$80 million 2.47% Senior Notes |
|
November 2019 |
|
|
$45 million Floating Rate Senior Notes |
|
November 2019 |
|
|
$300 million bilateral, term loan facility |
|
April 2020 |
|
|
$75 million 3.23% Senior Notes |
|
January 2021 |
|
|
$1.0 billion syndicated, revolving credit facility |
|
March 2021 |
|
|
$190 million 2.97% Senior Notes |
|
November 2021 |
|
|
$75 million 3.46% Senior Notes |
|
January 2022 |
|
|
$50 million 3.15% Senior Notes |
|
November 2022 |
|
|
$105 million 3.26% Senior Notes |
|
November 2023 |
|
|
$100 million 3.89% Senior Notes |
|
January 2024 |
|
|
$305 million 3.36% Senior Notes |
|
November 2024 |
|
|
$25 million Floating Rate Senior Notes |
|
November 2024 |
|
|
$75 million 3.99% Senior Notes |
|
January 2026 |
|
15.4 Year end financial liabilities by contractual maturity
The table below analyses the Group’s year end financial liabilities by contractual maturity date, including contractual interest payments and excluding the impact of netting arrangements:
|
|
|
Within one |
|
Between |
|
Between |
|
|
|
|
|
|
|
|
year or on |
|
one and |
|
two and |
|
After |
|
|
|
|
|
|
demand |
|
two years |
|
five years |
|
five years |
|
Total |
|
|
|
|
$ million |
|
$ million |
|
$ million |
|
$ million |
|
$ million |
|
|
At 31 December 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-derivative financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdrafts and loans |
|
27 |
|
– |
|
300 |
|
– |
|
327 |
|
|
Trade and other payables |
|
873 |
|
1 |
|
1 |
|
2 |
|
877 |
|
|
Private placement notes |
|
36 |
|
161 |
|
476 |
|
647 |
|
1,320 |
|
|
Acquisition consideration |
|
36 |
|
50 |
|
69 |
|
5 |
|
160 |
|
|
Derivative financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency swaps/forward foreign exchange contracts – outflow |
|
2,737 |
|
– |
|
– |
|
– |
|
2,737 |
|
|
Currency swaps/forward foreign exchange contracts – inflow |
|
(2,739) |
|
– |
|
– |
|
– |
|
(2,739) |
|
|
|
|
970 |
|
212 |
|
846 |
|
654 |
|
2,682 |
|
|
At 31 December 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-derivative financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Bank overdrafts and loans |
|
86 |
|
– |
|
435 |
|
– |
|
521 |
|
|
Trade and other payables |
|
807 |
|
– |
|
– |
|
– |
|
807 |
|
|
Finance lease liabilities |
|
3 |
|
3 |
|
3 |
|
– |
|
9 |
|
|
Private placement notes |
|
36 |
|
36 |
|
491 |
|
800 |
|
1,363 |
|
|
Acquisition consideration |
|
38 |
|
30 |
|
46 |
|
16 |
|
130 |
|
|
Derivative financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Currency swaps/forward foreign exchange contracts – outflow |
|
2,284 |
|
– |
|
– |
|
– |
|
2,284 |
|
|
Currency swaps/forward foreign exchange contracts – inflow |
|
(2,285) |
|
– |
|
– |
|
– |
|
(2,285) |
|
|
|
|
969 |
|
69 |
|
975 |
|
816 |
|
2,829 |
|
The amounts in the tables above are undiscounted cash flows, which differ from the amounts included in the balance sheet where the underlying cash flows have been discounted.
15.5 Finance leases
|
Accounting policy Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. All other leases are classified as operating leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Assets held under finance leases are capitalised as property, plant or equipment and depreciated accordingly. Minimum lease payments are apportioned between the finance expense and the reduction in the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. |
Future minimum lease payments under finance leases together with the present value of the minimum lease payments are as follows:
|
|
|
2017 |
|
2016 |
|
|
|
|
$ million |
|
$ million |
|
|
Within one year |
|
– |
|
3 |
|
|
After one and within two years |
|
– |
|
3 |
|
|
After two and within three years |
|
– |
|
3 |
|
|
After three and within four years |
|
– |
|
– |
|
|
After four and within five years |
|
– |
|
– |
|
|
After five years |
|
– |
|
– |
|
|
Total minimum lease payments |
|
– |
|
9 |
|
|
Discounted by imputed interest |
|
– |
|
(2) |
|
|
Present value of minimum lease payments |
|
– |
|
7 |
|
In 2017, the Group terminated its finance lease. Present value of minimum lease payments can be split out as: $nil (2016: $2m) due within one year, $nil (2016: $5m) due between one to five years and $nil (2016: $nil) due after five years.
Liquidity and capital resources
The Group’s policy is to ensure that it has sufficient funding and facilities to meet foreseeable borrowing requirements.
At 31 December 2017, the Group held $155m (2016: $38m, 2015: $102m) in cash net of bank overdrafts. The Group had committed facilities available of $2,425m at 31 December 2017 of which $1,425m was drawn. Smith & Nephew intends to repay the amounts due within one year using available cash and drawing down on the longer-term facilities.
The principal variations in the Group’s borrowing requirements result from the timing of dividend payments, acquisitions and disposals of businesses, timing of capital expenditure and working capital fluctuations. Smith & Nephew believes that its capital expenditure needs and its working capital funding for 2018, as well as its other known or expected commitments or liabilities, can be met from its existing resources and facilities. The Group’s net debt decreased from $1,550m at the beginning of 2017 to $1,281m at the end of 2017, representing an overall decrease of $269m.
The Group’s planned future contributions are considered adequate to cover the current underfunded position in the Group’s defined benefit plans.