TIDMSN.
RNS Number : 6401Y
Smith & Nephew Plc
06 March 2017
GENERAL TEXT AMMENT
The following amendment has been made to the Annual Financial
Report announcement released on 6 March 2017 at 13:04 under RNS No
6303Y.
In paragraph 2, 'Documents are also available on the Company's
website at http://www.smith-nephew.com/annualreport2016' has been
amended.
All other details remain unchanged.
The full amended text is shown below.
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
This information is provided by RNS
The company news service from the London Stock Exchange
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