TIDMSN.
RNS Number : 7586Q
Smith & Nephew Plc
01 March 2021
1 March 2021
Smith & Nephew plc (the "Company")
Annual Financial Report
The following documents have today been posted or otherwise made
available to shareholders:
1. 2020 Annual Report
2. Notice of 2021 Annual General Meeting ("AGM")
3. Form of Proxy for the 2021 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
https://data.fca.org.uk/#/nsm/nationalstoragemechanism . The 2020
Annual Report on Form 20-F was filed with the SEC earlier
today.
Documents are also available on the Company's website www.smith-nephew.com/annualreport 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, WD18 8YE.
Compliance with Disclosure and Transparency Rule 6.3.5 ("DTR
6.3.5") - Extracts from the 2020 Annual Report
The information below, which is extracted from the 2020 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 2020 Annual Report. All page numbers and
cross-references in the extracted information below refer to page
numbers in the 2020 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 2020 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 215-219 could
cause the Group's business, nancial 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 signi cant could also materially adversely affect
Smith+Nephew's business, nancial position or results of
operations.
Business continuity and business change
The COVID-19 pandemic
Widespread outbreaks of infectious diseases, such as the
COVID-19 pandemic, create uncertainty and challenges for the Group.
The challenges created by the COVID-19 pandemic include, but are
not limited to, declines in and cancellations of elective
procedures at medical facilities and the resulting increase in
commercial execution risk, disruptions at manufacturing facilities
and disruptions in supply and other commercial activities due to
travel restrictions and government restrictions on exports. The
length, severity and geographical variation of the outbreak and
pace of recovery are not clear and there could be an increased
impact on us depending on these factors. By franchise, the impact
of the COVID-19 pandemic has been most pronounced on our
Orthopaedics and Sports Medicine & ENT businesses. The negative
impact on these businesses was principally driven by lower levels
of elective surgery (including a signi cant reduction in knee and
hip implant procedures in Orthopaedics and nose and throat
procedures in ENT). Our Advanced Wound Management franchise was
also signi cantly negatively affected, with the negative impact
principally due to deferrals of elective surgery, temporary
closures of wound clinics and falling numbers in long- term care
facilities, many of which were closed to new residents as a result
of the COVID-19 pandemic.
The impact of the COVID-19 pandemic on our businesses worldwide
has been strongly correlated with lockdown restrictions and the
easing thereof. Despite rebounds in some markets, including China,
sales volumes have continued to lag in others, such as the United
Kingdom. Any additional restrictions placed on elective procedures
would have an adverse impact on the Group's revenue growth and
operating and trading pro t margins. The extent of the impact would
depend on the length, severity and geographical variation of
restrictions on elective procedures.
The impacts of the COVID-19 pandemic and related response
measures worldwide, including those described above, have had and
may continue to have an adverse effect on global economic
conditions, as well as on our business, results of operations, cash
ows and nancial condition and the COVID-19 pandemic may also have
the effect of heightening many of the other risk factors described
below.
Commercial execution
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. Signi cant product innovations,
technical advances or the intensi cation of price competition by
competitors could adversely affect the Group's operating results.
Some of these competitors may have greater nancial, marketing and
other resources than Smith+Nephew. These competitors may be able to
initiate technological advances in the eld, 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 nancial 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.
Additional commercial execution risks include medical facilities
stopping or severely restricting sales rep access due to ongoing
COVID-19 precautions and the COVID-19 pandemic driving a shift from
clinic to home care.
Relationships with healthcare professionals
The Group seeks to maintain effective and ethical working
relationships with physicians and medical personnel who assist in
the 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
pro t could be materially adversely affected.
Pricing and reimbursement
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, including as a result of nancial pressure
on governments and hospitals caused by the COVID-19 pandemic, which
may have an adverse impact on revenue and operating pro t. During
2020, reimbursement codes were more widely interpreted to provide
for remote delivery of healthcare services. Provisions in United
States healthcare legislation which previously imposed signi cant
taxes on medical device manufacturers were permanently repealed
effective 1 January 2020. There may also be an increased risk of
adverse changes to government funding policies arising from
deterioration in macroeconomic 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 United States. Failure to do so could result
in nes or loss of future funding.
New product innovation, design & development, including
intellectual property
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. COVID-19 has resulted in limitations on ability to
conduct live product trials. Furthermore, there has been an adverse
impact on relationships with healthcare professionals involved in
R&D, marketing and sale of products and services, due to
limited access to such professionals as a result of restricted
hospital access, shutdowns and travel restrictions imposed in
response to the COVID-19 pandemic.
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.
Cybersecurity
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,
including as a result of increased levels of remote working due to
the COVID-19 pandemic. There is increasing government focus on
cybersecurity including changes in the regulatory environment.
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.
Legal and compliance risks including international regulation,
product liability claims and loss of reputation
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 United Kingdom Bribery
Act and the United States 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. In
this regard, the Group is investigating allegations of possible
violations of anti -corruption laws in India and responding to
related requests for information from the SEC. It is not possible
to predict the nature, scope or outcome of the investigations,
including the extent to which, if at all, this could result in any
liability to the Group.
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 GDPR, US state privacy laws including California Consumer
Privacy Act (CCPA), and the recent invalidation of the EU-U.S.
Privacy Shield by the Court of Justice of the European Union,
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
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 United States, 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 2020, a provision of $336m 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.
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 (the risk of
which has been heightened due to the COVID-19 pandemic). 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.
Political and economic
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 macroeconomic conditions. The impact of COVID-19 on
global and regional economic conditions affects our global
business. The ongoing effects of the COVID-19 pandemic on global
economies and financial markets could trigger a recession or
slowdown which would significantly reduce customer capital spending
and customer financial strength. Economic conditions worldwide
continue to create several challenges for the Group, including the
United States 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 in the Emerging
Markets. These factors could have an increased impact on growth in
the future.
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 remains a level of political and regulatory uncertainty in
the United Kingdom following the exit from the European Union and
new trade agreement between the UK and Europe. Remaining risks
relate to the appointment of the Review Bodies by the Medicines and
Healthcare products Regulatory Agency (MHRA) as the UK's standalone
medicines and medical devices regulator, effective 1 January 2021,
and the related introduction of new legislation in the UK, the
provisions of which remain to be clarified. Further MHRA guidance
is anticipated in the coming months. Also, supply chain risks,
specifically border delays, continue into 2021. Smith+Nephew needs
to prepare for new regulations within the United Kingdom, which
accounts for approximately 4% of global Group revenue. There is
also uncertainty around United States-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 United States, the United Kingdom,
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
United States 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 United States 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 operating
profit by a policy of transacting forward foreign currency
contracts when firm commitments exist. 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 still exposed to
medium to long-term adverse movements in the strength of currencies
compared to the United States Dollar. The Group uses the United
States Dollar as its reporting currency. The United States 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 180.
Global supply chain
The Group's manufacturing production is concentrated at main
facilities in Memphis, Mansfield, Columbia and Oklahoma City in the
United States, Hull and Warwick in the United Kingdom, Aarau in
Switzerland, Tuttlingen in Germany, Suzhou and Beijing in China and
Alajuela in Costa Rica. If major physical disruption took place at
any of these sites, it could adversely affect the results of
operations. Further, disruptions which have taken place at these
sites as a result of the COVID-19 pandemic (including government
restrictions on imports and exports and decreased access to supply
channels due to travel restrictions) have had and may continue to
have an adverse effect on the results of operations. Physical loss
and consequential loss insurance is carried to cover major physical
disruption to these sites but is subject to limits and deductibles,
generally does not cover COVID-19 pandemic related disruptions, 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. Disruptions in the supply chains and
operations of our suppliers as a result of the COVID-19 pandemic
could result in an increase in our costs of production and
distribution. 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. Interruption of supply caused by these or
other factors has had and may continue to have a negative impact on
Smith+Nephew's revenue and operating profit.
The Group will, from time to time, including as part of the
Accelerating Performance and Execution (APEX) programme or
operations and commercial excellence 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 an initial expected three-year transition period until
May 2020. Due to the COVID-19 pandemic, the European Commission
published a formal proposal in April 2020, announcing the delay to
the implementation by 12 months to 26 May 2021. The regulation
includes new requirements for the manufacture, supply and sale of
all CE marked products sold in Europe (ie those products that
conform with health, safety and environmental protection standards
within the European Economic Area) and requires the re-registration
of all medical devices, regardless of where they are manufactured.
Smith+Nephew expects there will be significant capacity constraints
under the new European system, given the small number of notified
bodies certified under MDR to date. This could cause delays for
medical device approvals for the industry more broadly and may
result in delays for patients. Other critical features of the
system are also far from completion and many of the major
implementing acts remain to be completed. The European Commission
has taken some important steps to aid implementation, including
delaying the EU database (EUDAMED) and passing a Corrigendum to
give a longer implementation timeline for certain Class 1R devices
(ie reusable surgical instruments), which helps address certain of
the capacity constraint concerns. 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.
Quality and regulatory
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.
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 United States, the Medicines
and Healthcare products Regulatory Agency in the United Kingdom,
the Ministry of Health, Labour and Welfare in Japan, the National
Medical Products 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 with an initial expected
three-year transition period until May 2020. Due to the COVID-19
pandemic, the European Commission published a formal proposal in
early April 2020, announcing the delay to the implementation by 12
months, to 26 May 2021. The increase in the time required by
Notified Bodies to review product submissions and site quality
systems' certification time has had and may continue to have an
adverse impact on our ability to meet customer demand.
The trend is towards more stringent regulation and higher
standards of technical appraisal. Specifically, there are more
stringent local requirements for clinical data across APAC markets.
Such controls have become increasingly demanding to comply with and
management believes that this trend will continue. Privacy laws
(including Health Insurance Portability and Accountability Act of
1996 (HIPAA) in the United States and GDPR in the United Kingdom)
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.
Mergers and acquisitions
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. The COVID-19 pandemic and
measures imposed in response to it have introduced additional
risks. Conducting due diligence processes remotely presents
potential risks that some information is not fully assessed.
Similarly, integrations become more complex without physical
on-site presence.
Talent management
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. During 2020, the
COVID-19 pandemic has increased the risk to the health and
wellbeing of our personnel. Uncertainty, threat of illness and
restricted travel, work and personal activities have affected
people globally. We have seen increased absenteeism due to
COVID-19. 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.
Appendix B - Directors' Responsibility Statement pursuant to
Disclosure and Transparency Rule 4
The following statement is extracted from page 139 of the 2020
Annual Report and is repeated here for the purposes of compliance
with DTR 6.3.5. This statement relates solely to the 2020 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 22.2 to the
2020 Annual Report on page 204), 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
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