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
06, 2017
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
---
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[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.
Smith & Nephew plc (the "Company")
Annual Financial Report
The
following documents have today been posted or otherwise made
available to shareholders:
1. 2016
Annual Report
2.
Notice of 2017 Annual General Meeting ("AGM")
3. Form
of Proxy for the 2017 Annual General Meeting
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 2016 Annual Report on Form 20-F will be filed with the SEC
today.
Documents
are also available on the Company's website at http://www.smith-nephew.com/annual-report-2016/
and http://www.smith-nephew.com/AGM/
in hard copy to shareholders and ADS holders, 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 2016 Annual Report
The
information below, which is extracted from the 2016 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 9 February 2017 (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 2016 Annual Report. All page numbers and
cross-references in the extracted information below refer to page
numbers in the 2016 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 2016 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 170 to 172
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 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 for two years
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
2016, economic conditions worldwide continued to create several
challenges for the Group, including deferrals of joint replacement
procedures, heightened pricing pressure, significant declines in
capital equipment expenditures at hospitals (notably in China) and
increased uncertainty over the collectability of government debt,
particularly those in the Emerging Markets and certain the
oil-dependent Gulf States. 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. During 2016, the outcome of the UK
referendum regarding the EU and the pending change in
administration in the United States have added to political
uncertainty.
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 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 and 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 114.
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, La Aurora and Alajuela in Costa
Rica, Puschino in Russia 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 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, outsource the manufacture of
components and finished products to third parties and will
periodically relocate the manufacture of product and/or processes
between existing facilities. While these are planned activities,
with these transfers there is a risk of disruption to
supply.
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. During 2015, developments in the
Group's metal-on-metal hip implant claims led to a $203m charge
being recognised relating to known and future claims.
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 we operate. Our international
operations are governed in part by the UK Bribery Act and the US
Foreign Corrupt Practices Act (FCPA) which prohibit us or our
agents from making, or offering, improper payments to government
officials and other persons for the purpose of obtaining or
maintaining business or product approvals. Enforcement of such
legislation has increased in recent years with significant fines
and penalties being imposed on companies and individuals. Our
international operations, particularly in the Emerging Markets,
expose the Group to the risk that our employees or agents will
engage in prohibited activities.
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 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.
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 and Group medical device regulation and
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. 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 102 of the 2016 Annual
Report and is repeated here for the purposes of compliance with DTR
6.3.5. This statement relates solely to the 2016 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 Group; and
−
the Strategic Report and Directors' Report includes a fair review
of the development and performance of
the business and the financial position of the Group, together
with a description of
the principal risks and uncertainties that they face.
Appendix C - Related Party Transactions
During
the period 1 January 2016 to 17 February 2017, there were no
transactions, loans, or proposed transactions between the Company
and any related parties which were material to either the Company
or the related party, or which were unusual in their nature or
conditions (see also Note 23.2 to the 2016 Annual Report on page
160).
Susan Swabey
Company
Secretary
Smith
& Nephew plc
6 March
2017
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
06, 2017
By: /s/
Susan Swabey
-----------------
Susan
Swabey
Company
Secretary