Blueprint
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 04, 2019
Commission
File Number 001-14978
SMITH & NEPHEW
plc
(Registrant's
name)
15 Adam
Street
London, England WC2N 6LA
(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.
4
March 2019
Smith & Nephew plc (the "Company")
Annual Financial Report
The
following documents have today been posted or otherwise made
available to shareholders:
1.
2018 Annual Report
2.
Notice of 2019 Annual General Meeting ("AGM")
3.
Form of Proxy for the 2019 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 2018 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/annualreport2018 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, 15 Adam
Street, London WC2N 6LA.
Compliance with Disclosure and Transparency Rule 6.3.5 ("DTR
6.3.5") - Extracts from the 2018 Annual Report
The information below, which is
extracted from the 2018 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. It should be
read in conjunction with the Company's Press Release issued on 7
February 2019 (available at www.smith-nephew.com/investor-centre/).
Together these constitute 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 2018 Annual Report. All page
numbers and cross-references in the extracted information below
refer to page numbers in the 2018 Annual
Report.
The
information contained in this announcement and in the Press Release
does not constitute the Group's statutory accounts, but is derived
from those statutory accounts. The statutory accounts for the
year ended 31 December 2018 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 188-191 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
lR&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 write- downs may be
required.
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 have been suspended since 2016 but
may be reinstated. 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.
During
2018, economic conditions worldwide continued to create several
challenges for the Group, including the US Administration's changed
approach to trade policy, deferrals of procedures, 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 tempered the overall growth of the
Group's global markets and could have an increased impact on growth
in the future.
Political uncertainties
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, the triggering
of Article 50 in March 2017 and the general election in June 2017.
As of the date of this report, there remains uncertainty as to the
UK's future 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, 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 and Oklahoma City in the US, Hull and Warwick
in the UK, Aarau in Switzerland, Tuttlingen in Germany, Devrukh in
India, Suzhou and Beijing in China, Alajuela in Costa Rica,
Puschino in Russia and Curacao, 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 and perform the activities to the Group's standard of
quality requirements. A supplier's failure to 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
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.
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
lMDR), 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.
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.
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.
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 2018, a provision of $192m 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.
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.
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 lFDA) in the US, the Medicines and Healthcare
products Regulatory Agency in the UK, the Ministry of Health,
Labour and Welfare in Japan, the China Food and Drug Administration
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 fully 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. 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 towards 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
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 connected to networks
and/or the internet. Our systems are vulnerable to a cyber attack,
malicious intrusion, loss of data privacy or any other significant
disruption. Our systems have been and will continue to be the
target of such threats. We have systems in place 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.
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 116 of the 2018 Annual
Report and is repeated here for the purposes of compliance with DTR
6.3.5. This statement relates solely to the 2018 Annual Report and
is not connected to the extracted information set out in this
announcement or the Press Release.
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 2018 Annual
Report on page 177), 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
04, 2019
By: /s/
Susan Swabey
-----------------
Susan
Swabey
Company
Secretary