SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of
1934
March 2, 2020
Commission
File Number 001-14978
SMITH & NEPHEW
plc
(Registrant's
name)
Building 5, Croxley Park,
Hatters Lane, Watford, Hertfordshire, WD18 8YE,
England
(Address
of registrant's principal executive offices)
[Indicate
by check mark whether the registrant files or will file
annual
reports
under cover Form 20-F or Form 40-F.]
Form
20-F
X
Form 40-F
---
---
[Indicate
by check mark if the registrant is submitting the Form 6-K
in
paper
as permitted by Regulation S-T Rule 101(b)(1).]
Yes
No X
---
---
[Indicate
by check mark if the registrant is submitting the Form 6-K
in
paper
as permitted by Regulation S-T Rule 101(b)(7).]
Yes
No X
---
---
[Indicate
by check mark whether by furnishing the information
contained
in this
Form, the registrant is also thereby furnishing information to
the
Commission
pursuant to Rule 12g3-2 (b) under the Securities Exchange Act
of
1934.]
Yes
No X
---
---
If
"Yes" is marked, indicate below the file number assigned to
the
registrant
in connection with Rule 12g3-2 (b) : 82- n/a.
2
March 2020
Smith & Nephew plc (the "Company")
Annual Financial Report
The
following documents have today been posted or otherwise made
available to shareholders:
2.
Notice
of 2020 Annual General Meeting ("AGM")
3.
Form
of Proxy for the 2020 AGM
In accordance with Listing Rule 9.6.1 a copy of
each of these documents has been uploaded to the National Storage
Mechanism and will be available for viewing shortly
at http://www.morningstar.co.uk/uk/NSM.
The 2019 Annual Report on Form 20-F was filed with the SEC earlier
today.
Documents are also available on the Company's website
at www.smith-nephew.com/annualreport2019 and www.smith-nephew.com/AGM,
in hard copy to shareholders and ADS holders and free of charge,
upon request to Corporate Affairs, Smith & Nephew plc, Building
5, Croxley Park, Hatters Lane, Watford, Hertfordshire, WD18
8YE.
Compliance with Disclosure and Transparency Rule 6.3.5 ("DTR
6.3.5") - Extracts from the 2019 Annual Report
The
information below, which is extracted from the 2019 Annual Report,
is included solely for the purpose of complying with DTR 6.3.5 and
the requirements it imposes on how to make public, Annual Financial
Reports and is the material required by DTR 6.3.5 to be
communicated to the media in unedited full text through a
Regulatory Information Service. This material is not a
substitute for reading the full 2019 Annual Report. All page
numbers and cross-references in the extracted information below
refer to page numbers in the 2019 Annual Report.
The
information contained in this announcement does not constitute the
Group's statutory accounts, but is derived from those statutory
accounts. The statutory accounts for the year ended 31
December 2019 have been approved by the Board and will be delivered
to the Registrar of Companies following the Company's AGM.
The auditor has reported on those statutory accounts and their
report was unqualified, with no matters by way of emphasis, and did
not contain statements under Section 498(2) of the Companies Act
2006 (regarding adequacy of accounting records and returns) or
under Section 498(3) of the Companies Act 2006 (regarding provision
of necessary information and explanations).
Appendix A - Risk factors
Risk factors
There are known and unknown risks and uncertainties relating to
Smith+Nephew's business. The factors listed on pages 194-197 could
cause the Group's business, financial position and results of
operations to differ materially and adversely from expected and
historical levels. In addition, other factors not listed here that
Smith+Nephew cannot presently identify or does not believe to be
equally significant could also materially adversely affect
Smith+Nephew's business, financial position or results of
operations.
Highly competitive markets
The Group competes across a diverse range of geographic and product
markets. Each market in which the Group operates contains a
number of different competitors, including specialised and
international corporations. Significant product innovations,
technical advances or the intensification of price competition by
competitors could adversely affect the Group's operating results.
Some of these competitors may have greater financial, marketing and
other resources than Smith+Nephew. These competitors may be able to
initiate technological advances in the field, deliver products on
more attractive terms, more aggressively market their products or
invest larger amounts of capital and research and development
(R&D) into their businesses. There is a possibility of further
consolidation of competitors, which could adversely affect the
Group's ability to compete with larger companies due to
insufficient financial resources. If any of the Group's businesses
were to lose market share or achieve lower than expected revenue
growth, there could be a disproportionate adverse impact on the
Group's share price and its strategic options. Competition exists
among healthcare providers to gain patients on the basis of
quality, service and price. There has been some consolidation in
the Group's customer base and this trend is expected to continue.
Some customers have joined group purchasing organisations or
introduced other cost containment measures that could lead to
downward pressure on prices or limit the number of suppliers in
certain business areas, which could adversely affect Smith+Nephew's
results of operations and hinder its growth potential.
Continual development and introduction of new products
The medical devices industry has a rapid rate of new product
introduction. In order to remain competitive, the Group must
continue to develop innovative products that satisfy customer needs
and preferences or provide cost or other advantages. Developing new
products is a costly, lengthy and uncertain process. The Group may
fail to innovate due to low R&D investment, a R&D skills
gap or poor product development. A potential product may not be
brought to market or not succeed in the market for any number of
reasons, including failure to work optimally, failure to receive
regulatory approval, failure to be cost-competitive, infringement
of patents or other intellectual property rights and changes in
consumer demand. The Group's products and technologies are also
subject to marketing attack by competitors. Furthermore, new
products that are developed and marketed by the Group's competitors
may affect price levels in the various markets in which the Group
operates. If the Group's new products do not remain competitive
with those of competitors, the Group's revenue could
decline.
The Group maintains reserves for excess and obsolete inventory
resulting from the potential inability to sell its products at
prices in excess of current carrying costs. Marketplace changes
resulting from the introduction of new products or surgical
procedures may cause some of the Group's products to become
obsolete. The Group makes estimates regarding the future
recoverability of the costs of these products and records a
provision for excess and obsolete inventories based on historical
experience, expiration of sterilisation dates and expected future
trends. If actual product life cycles, product demand or acceptance
of new product introductions are less favourable than projected by
management, additional inventory writedowns may be
required.
Proprietary rights and patents
Due to the technological nature of medical devices and the Group's
emphasis on serving its customers with innovative products, the
Group has been subject to patent infringement claims and is subject
to the potential for additional claims. Claims asserted by third
parties regarding infringement of their intellectual property
rights, if successful, could require the Group to expend time and
significant resources to pay damages, develop non-infringing
products or obtain licences to the products which are the subject
of such litigation, thereby affecting the Group's growth and
profitability. Smith+Nephew attempts to protect its intellectual
property and regularly opposes third party patents and trademarks
where appropriate in those areas that might conflict with the
Group's business interests. If Smith+Nephew fails to protect and
enforce its intellectual property rights successfully, its
competitive position could suffer, which could harm its results of
operations. In addition, intellectual property rights may not be
protectable to the same extent in all countries in which the Group
operates.
Dependence on government and other funding
In most markets throughout the world, expenditure on medical
devices is ultimately controlled to a large extent by governments.
Funds may be made available or withdrawn from healthcare budgets
depending on government policy. The Group is therefore largely
dependent on future governments providing increased funds
commensurate with the increased demand arising from demographic
trends.
Pricing of the Group's products is largely governed in most markets
by governmental reimbursement authorities. Initiatives sponsored by
government agencies, legislative bodies and the private sector to
limit the growth of healthcare costs, including price regulation,
excise taxes and competitive pricing, are ongoing in markets where
the Group has operations. This control may be exercised by
determining prices for an individual product or for an entire
procedure. The Group is exposed to government policies favouring
locally sourced products. The Group is also exposed to changes in
reimbursement policy, tax policy and pricing which may have an
adverse impact on revenue and operating profit. Provisions in US
healthcare legislation which previously imposed significant taxes
on medical device manufacturers were permanently repealed effective
1 January 2020. There may be an increased risk of adverse changes
to government funding policies arising from deterioration in
macro-economic conditions from time to time in the Group's
markets.
The Group must adhere to the rules laid down by government agencies
that fund or regulate healthcare, including extensive and complex
rules in the US. Failure to do so could result in fines or loss of
future funding.
World economic conditions
Demand for the Group's products is driven by demographic trends,
including the ageing population and the incidence of osteoporosis
and obesity. Supply of, use of and payment for the Group's products
are also influenced by world economic conditions which could place
increased pressure on demand and pricing, adversely impacting the
Group's ability to deliver revenue and margin growth. The
conditions could favour larger, better capitalised groups, with
higher market shares and margins. As a consequence, the Group's
prosperity is linked to general economic conditions and there is a
risk of deterioration of the Group's performance and finances
during adverse macro-economic conditions.
Economic conditions worldwide continue to create several challenges
for the Group, including the US Administration's approach to trade
policy, heightened pricing pressure, significant declines in
capital equipment expenditures at hospitals and increased
uncertainty over the collectability of government debt,
particularly those in the Emerging Markets. These factors could
have an increased impact on growth in the future.
Widespread outbreaks of infectious diseases, such as the
coronavirus (COVID-19) outbreak create uncertainty and challenges
for the Group. The challenges created by the COVID-19 virus
outbreak include, but are not limited to, declines in elective
procedures at hospitals, disruptions at manufacturing facilities in
China, and disruptions in supply and other commercial activities
due to travel restrictions. The length and severity of the outbreak
and pace of recovery are not clear and there could be an increased
impact on the Group depending on these factors.
Political uncertainties, including Brexit
The Group operates on a worldwide basis and has distribution
channels, purchasing agents and buying entities in over 100
countries. Political upheaval in some of those countries or in
surrounding regions may impact the Group's results of operations.
Political changes in a country could prevent the Group from
receiving remittances of profit from a member of the Group located
in that country or from selling its products or investments in that
country. Furthermore, changes in government policy regarding
preference for local suppliers, import quotas, taxation or other
matters could adversely affect the Group's revenue and operating
profit. War, economic sanctions, terrorist activities or other
conflict could also adversely impact the Group. These risks may be
greater in Emerging Markets, which account for an increasing
portion of the Group's business.
There remain heightened levels of political and regulatory
uncertainty in the UK following the result of the referendum in
June 2016 to leave the European Union. As of the date of this
report, there remains uncertainty as to the UK's future trade and
regulatory relationship with the EU. This may adversely impact
trading performance across the sector. Regulatory uncertainty forms
the most significant risk presently; the ability for us to continue
to manufacture and register our products in a compliant manner for
global distribution is key. Smith+Nephew has taken steps to prepare
for the various Brexit scenarios, including moving certain of its
product certifications from UK-based notified bodies to notified
bodies based in the EU. The UK accounts for approximately 5% of
global Group revenue and the majority of our manufacturing takes
place outside the UK and EU. There is also uncertainty around
US-China trade relations, which has resulted in tariffs on some
medical devices being exported between the two
countries.
Currency fluctuations
Smith+Nephew's results of operations are affected by transactional
exchange rate movements in that they are subject to exposures
arising from revenue in a currency different from the related costs
and expenses. The Group's manufacturing cost base is situated
principally in the US, the UK, China, Costa Rica and Switzerland,
from which finished products are exported to the Group's selling
operations worldwide. Thus, the Group is exposed to fluctuations in
exchange rates between the US Dollar, Sterling and Swiss Franc and
the currency of the Group's selling operations, particularly the
Euro, Chinese Yuan, Australian Dollar and Japanese Yen. If the US
Dollar, Sterling or Swiss Franc should strengthen against the Euro,
Australian Dollar and the Japanese Yen, the Group's trading margin
could be adversely affected. The Group manages the impact of
exchange rate movements on revenue and cost of goods sold by a
policy of transacting forward foreign currency commitments when
firm purchase orders are placed. In addition, the Group's policy is
for forecast transactions to be covered between 50% and 90% for up
to one year. However, the Group is exposed to medium to long-term
adverse movements in the strength of currencies compared to the US
Dollar. The Group uses the US Dollar as its reporting currency. The
US Dollar is the functional currency of Smith & Nephew plc. The
Group's revenues, profits and earnings are also affected by
exchange rate movements on the translation of results of operations
in foreign subsidiaries for financial reporting purposes. See
'Liquidity and capital resources' on page 39.
Manufacturing and supply
The Group's manufacturing production is concentrated at main
facilities in Memphis, Mansfield, Columbia and Oklahoma City in the
US, Hull and Warwick in the UK, Aarau in Switzerland, Tuttlingen in
Germany, Suzhou and Beijing in China, Alajuela in Costa Rica and
Curaçao, in Dutch Caribbean. If major physical disruption took
place at any of these sites, it could adversely affect the results
of operations.
Physical loss and consequential loss insurance is carried to cover
such risks but is subject to limits and deductibles and may not be
sufficient to cover catastrophic loss. Management of orthopaedic
inventory is complex, particularly forecasting and production
planning. There is a risk that failures in operational execution
could lead to excess inventory or individual product
shortages.
The Group is reliant on certain key suppliers of raw materials,
components, finished products and packaging materials or in some
cases on a single supplier. These suppliers must provide the
materials in compliance with legal requirements and perform the
activities to the Group's standard of quality
requirements.
A supplier's failure to comply with legal requirements or otherwise
meet expected quality standards could create liability for the
Group and adversely affect sales of the Group's related products.
The Group may be forced to pay higher prices to obtain raw
materials, which it may not be able to pass on to its customers in
the form of increased prices for its finished
products.
In addition, some of the raw materials used may become unavailable,
and there can be no assurance that the Group will be able to obtain
suitable and cost effective substitutes. Any interruption of supply
caused by these or other factors could negatively impact
Smith+Nephew's revenue and operating profit.
The Group will, from time to time including as part of the APEX
programme, outsource or insource the manufacture of components and
finished products to or from third parties and will periodically
relocate the manufacture of product and/or processes between
existing and/or new facilities. While these are planned activities,
with these transfers there is a risk of disruption to
supply.
Natural disasters can also lead to manufacturing and supply delays,
product shortages, excess inventory, unanticipated costs, lost
revenues and damage to reputation. In addition, new environmental
regulation or more aggressive enforcement of existing regulations
can impact the Group's ability to manufacture, sterilise and supply
product. In addition, our physical assets and supply chains are
vulnerable to weather and climate change (eg sea level rise,
increased frequency and severity of extreme weather events, and
stress on water resources).
Requirements of global regulatory agencies have become more
stringent in recent years and we expect them to continue to do so.
The Group's Quality and Regulatory Affairs team is leading a major
Group-wide programme to prepare for implementation of the EU
Medical Devices Regulation (MDR), which came into force in May
2017, with a three-year transition period until May 2020. The
regulation includes new requirements for the manufacture, supply
and sale of all CE marked products sold in Europe and requires the
reregistration of all medical devices, regardless of where they are
manufactured.
The Group operates with a global remit and the speed of
technological change in an already complex manufacturing process
leads to greater potential for disruption. Additional risks to
supply include inadequate sales and operational planning and
inadequate supply chain capacity to support customer demand and
growth.
Attracting and retaining key personnel
The Group's continued development depends on its ability to hire
and retain highly-skilled personnel with particular expertise. This
is critical, particularly in general management, research, new
product development and in the sales forces. If Smith+Nephew is
unable to retain key personnel in general management, research and
new product development or if its largest sales forces suffer
disruption or upheaval, its revenue and operating profit would be
adversely affected. Additionally, if the Group is unable to
recruit, hire, develop and retain a talented, competitive
workforce, it may not be able to meet its strategic business
objectives.
Product liability claims and loss of reputation
The development, manufacture and sale of medical devices entail
risk of product liability claims or recalls. Design and
manufacturing defects with respect to products sold by the Group or
by companies it has acquired could damage, or impair the repair of,
body functions. The Group may become subject to liability, which
could be substantial, because of actual or alleged defects in its
products. In addition, product defects could lead to the need to
recall from the market existing products, which may be costly and
harmful to the Group's reputation. There can be no assurance that
customers, particularly in the US, the Group's largest geographical
market, will not bring product liability or related claims that
would have a material adverse effect on the Group's financial
position or results of operations in the future, or that the Group
will be able to resolve such claims within insurance limits. As at
31 December 2019, a provision of $315m is recognised relating to
the present value of the estimated costs to resolve all unsettled
known and unknown anticipated metal-on-metal hip implant claims
globally. See Note 17 to the Group accounts for further
details.
Regulatory standards and compliance in the healthcare
industry
Business practices in the healthcare industry are subject to
regulation and review by various government authorities. In
general, the trend in many countries in which the Group does
business is towards higher expectations and increased enforcement
activity by governmental authorities. While the Group is committed
to doing business with integrity and welcomes the trend to higher
standards in the healthcare industry, the Group and other companies
in the industry have been subject to investigations and other
enforcement activity that have incurred and may continue to incur
significant expense. Under certain circumstances, if the Group were
found to have violated the law, its ability to sell its products to
certain customers could be restricted.
International regulation
The Group operates across the world and is subject to extensive
legislation, including anti-bribery and corruption and data
protection, in each country in which the Group operates. Our
international operations are governed by the UK Bribery Act and the
US Foreign Corrupt Practices Act which prohibit us or our
representatives from making or offering improper payments to
government officials and other persons or accepting payments for
the purpose of obtaining or maintaining business. Our international
operations in the Emerging Markets which operate through
distributors increase our Group exposure to these
risks.
The Group is also required to comply with the requirements of the
EU General Data Protection Regulation (GDPR), which imposes
additional obligations on companies regarding the handling of
personal data and provides certain individual privacy rights to
persons whose data is stored and became effective on 25 May 2018.
As privacy and data protection have become more sensitive issues
for regulators and consumers, new privacy and data protection laws,
such as the GDPR, continue to develop in ways we cannot predict.
Ensuring compliance with evolving privacy and data protection laws
and regulations on a global basis may require us to change or
develop our current business models and practices and may increase
our cost of doing business. Despite those efforts, there is a risk
that we may be subject to fines and penalties, litigation, and
reputational harm in connection with our European activities as
enforcement of such legislation has increased in recent years on
companies and individuals where breaches are found to have
occurred. Failure to comply with the requirements of privacy and
data protection laws, including GDPR, could adversely affect our
business, financial condition or results of
operations.
Operating in multiple jurisdictions also subjects the Group to
local laws and regulations related to tax, pricing, reimbursement,
regulatory requirements, trade policy and varying levels of
protection of intellectual property. This exposes the Group to
additional risks and potential costs.
Regulatory approval
The international medical device industry is highly regulated.
Regulatory requirements are a major factor in determining whether
substances and materials can be developed into marketable products
and the amount of time and expense that should be allotted to such
development.
National regulatory authorities administer and enforce a complex
series of laws and regulations that govern the design, development,
approval, manufacture,
labelling, marketing and sale of healthcare products. They also
review data supporting the safety and efficacy of such products. Of
particular importance is the requirement in many countries that
products be authorised or registered prior to manufacture,
marketing or sale and that such authorisation or registration be
subsequently maintained. The major regulatory agencies for
Smith+Nephew's products include the Food and Drug Administration
(FDA) in the US, the Medicines and Healthcare products Regulatory
Agency in the UK, the Ministry of Health, Labour and Welfare in
Japan, the State Food and Drug Administration in China and the
Australian Therapeutic Goods Administration. At any time, the Group
is awaiting a number of regulatory approvals which, if not
received, could adversely affect results of operations. In 2017,
the EU reached agreement on a new set of Medical Device Regulations
which entered into force on 25 May 2017. These have a three-year
transition period and therefore, will apply in EU Member States
from 26 May 2020.
The trend is towards more stringent regulation and higher standards
of technical appraisal. Such controls have become increasingly
demanding to comply with and management believes that this trend
will continue. Privacy laws (including HIPAA in the US and GDPR in
the UK) and environmental regulations have also become more
stringent. Regulatory requirements may also entail inspections for
compliance with appropriate standards, including those relating to
Quality Management Systems or Good Manufacturing Practices
regulations. All manufacturing and other significant facilities
within the Group are subject to regular internal and external audit
for compliance with national medical device regulation and Group
policies. Payment for medical devices may be governed by
reimbursement tariff agencies in a number of countries.
Reimbursement rates may be set in response to perceived economic
value of the devices, based on clinical and other data relating to
cost, patient outcomes and comparative effectiveness. They may also
be affected by overall government budgetary considerations. The
Group believes that its emphasis on innovative products and
services should contribute to success in this environment. Failure
to comply with these regulatory requirements could have a number of
adverse consequences, including withdrawal of approval to sell a
product in a country, temporary closure of a manufacturing
facility, fines and potential damage to Company
reputation.
Failure to make successful acquisitions
A key element of the Group's strategy for continued growth is to
make acquisitions or alliances to complement its existing business.
Failure to identify appropriate acquisition targets or failure to
conduct adequate due diligence or to integrate them successfully
would have an adverse impact on the Group's competitive position
and profitability. This could result from the diversion of
management resources from the acquisition or integration process,
challenges of integrating organisations of different geographic,
cultural and ethical backgrounds, as well as the prospect of taking
on unexpected or unknown liabilities. In addition, the availability
of global capital may make financing less attainable or more
expensive and could result in the Group failing in its strategic
aim of growth by acquisition or alliance.
Relationships with healthcare professionals
The Group seeks to maintain effective and ethical working
relationships with physicians and medical personnel who assist in
the research and development of new products or improvements to our
existing product range or in product training and medical
education. If we are unable to maintain these relationships our
ability to meet the demands of our customers could be diminished
and our revenue and profit could be materially adversely
affected.
Reliance on sophisticated information technology and
cybersecurity
The Group uses a wide variety of information systems, programmes
and technology to manage our business. The Group also develops and
sells certain products that are or will be digitally enabled
including connection to networks and/or the internet. Our systems
and the systems of the entities we acquire are vulnerable to a
cyber attack, theft of intellectual property, malicious intrusion,
loss of data privacy or other significant disruption. Our
systems have been and will continue to be the target of such
threats. Cybersecurity is a multifaceted discipline covering
people, process and technology. It is also an area where more can
always be done; it is a continually evolving practice. We have a
layered security approach in place to prevent, detect and respond,
in order to minimise the risk and disruption of these intrusions
and to monitor our systems on an ongoing basis for current or
potential threats. There can be no assurance that these measures
will prove effective in protecting Smith+Nephew from future
interruptions and as a result the performance of the Group could be
materially adversely affected.
Financial reporting, compliance and control
Our financial results depend on our ability to comply with
financial reporting and disclosure requirements, comply with tax
laws, appropriately manage treasury activities and avoid
significant transactional errors and customer defaults. Failure to
comply with our financial reporting requirements or relevant tax
laws can lead to litigation and regulatory activity and ultimately
to material loss to the Group. Potential risks include failure to
report accurate financial information in compliance with accounting
standards and applicable legislation, failure to comply with
current tax laws, failure to manage treasury risk effectively and
failure to operate adequate financial controls over business
operations.
Other risk factors
Smith+Nephew is subject to a number of other risks, which are
common to most global medical technology groups and are reviewed as
part of the Group's Risk Management process.
Appendix B - Directors' Responsibility Statement pursuant to
Disclosure and Transparency Rule 4
The
following statement is extracted from page 122 of the 2019 Annual
Report and is repeated here for the purposes of compliance with DTR
6.3.5. This statement relates solely to the 2019 Annual Report and
is not connected to the extracted information set out in this
announcement.
The
Directors confirm that, to the best of each person's
knowledge:
-
the
financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole; and
-
the
Strategic Report and Directors' Report include a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
Appendix C - Related Party Transactions
Except
for transactions with associates (see Note 23.2 to the 2019 Annual
Report on page 184), no other related party had material
transactions or loans with Smith & Nephew over the last three
financial years.
Susan Swabey
Company
Secretary
Smith
& Nephew plc
Tel:
01923 477317
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Smith
& Nephew Plc
(Registrant)
Date: March
2, 2020
By: /s/
Susan Swabey
-----------------
Susan
Swabey
Company
Secretary