Second Quarter and First Half 2021 Results Forward looking statements and non-IFRS measures This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading profit margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to ...

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 01, 2021 Commission File Number 001-14978 SMITH & NEPHEW plc (Registrant's name) Building 5, Croxley Park, Hatters Lane, Watford, Hertfordshire, WD18 8YE, England (Address of registrant's principal executive offices) [Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.] | Form ...

```markdown Strategic Report [At a Glance](index=4&type=section&id=At%20a%20glance) This section overviews the company's 2020 performance, strategic priorities, culture, and core operations, highlighting COVID-19's market impact | Metric | 2020 Data | Change | Source Chunk | | :--- | :--- | :--- | :--- | | Group Revenue | $4,560 million | -11.2% (reported), -12.1% (underlying) | 10 | | Earnings Per Share (EPS) | 51.3 US cents | -25% | 10 | | Adjusted Earnings Per Share (EPSA) | 64.6 US cents | -37% | 10 | | Dividend Per Share | 37.5 US cents | Unchanged | 10 | | Operating Profit | $295 million | -64% | 10 | | Trading Profit | $683 million | -42% | 10 | | Return on Invested Capital (ROIC) | 7.1% | -340bps | 10 | | R&D Expenditure | $307 million | +5% | 10 | | Operating Cash Flow | $972 million | -29% | 10 | | Trading Cash Flow | $690 million | -29% | 10 | | Healthcare Professionals (HCPs) Trained | 185,000+ | +67% | 10 | | Product Donations | $4.7 million | | 10 | - The company has **18,000 employees**, supports healthcare professionals in **over 100 countries**, and has **over 160 years of history**[13](index=13&type=chunk) - The company's strategy comprises five core elements: maximizing portfolio potential, transforming business through enabling technologies, expanding in high-growth areas, strengthening talent and capabilities, and being the best owner[14](index=14&type=chunk) - The company's cultural pillars are Care, Collaboration, and Courage[14](index=14&type=chunk) - The company serves customers through three global franchises: Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) [Chair's Statement](index=7&type=section&id=Chair%27s%20statement) The Chair's statement notes disappointing 2020 performance due to COVID-19 and deferred surgeries, but highlights continued investment in R&D and acquisitions, CFO appointment, AGM adjustments, and dividend policy maintenance - 2020 revenue was significantly impacted by COVID-19 restrictions and deferred elective surgeries[25](index=25&type=chunk) - The company decided to maintain investment in product launches, R&D, and acquisitions, while protecting jobs[25](index=25&type=chunk) - Anne-Françoise Nesmes was appointed as the new Chief Financial Officer (CFO) in July 2020[27](index=27&type=chunk) - The Board recommended a final dividend of **23.1 US cents per share**, totaling **37.5 US cents per share** for 2020 (including interim dividend of **14.4 US cents**), maintaining the progressive dividend policy consistent with 2019[36](index=36&type=chunk) [Chief Executive Officer's Review](index=9&type=section&id=Chief%20Executive%20Officer%27s%20review) The CEO reviews 2020 COVID-19 challenges, emphasizing employee safety, customer support, community engagement, and sustained investment in R&D, new products, and strategic acquisitions, outlining 2021 priorities: revenue growth, operational improvement, and effective COVID-19 response - In 2020, the company invested a record **$307 million** in R&D and launched several key new products, including the CORI◊ Surgical System and INTELLIO◊ Connected Tower Solutions[50](index=50&type=chunk) - The company made strategic acquisitions in 2020, including the Tula® System (for ear infection treatment) and Integra LifeSciences' extremities orthopaedics business, to strengthen its position in high-growth areas[51](index=51&type=chunk) - The three priorities for 2021 are: restoring revenue growth and momentum, driving group-wide operational improvements, and continuing to effectively manage COVID-19[56](index=56&type=chunk)[62](index=62&type=chunk)[66](index=66&type=chunk) - The company plans to continue increasing R&D investment in 2021 and launch more innovative products, including a cementless knee system, a new generation single-use negative pressure wound therapy system, and upgrades to its robotics and connected tower platforms[59](index=59&type=chunk) - The company is implementing an operational transformation program, expected to deliver approximately **$200 million** in annual benefits by 2025, with one-off costs of approximately **$350 million**[62](index=62&type=chunk) [Responding to COVID-19](index=13&type=section&id=Responding%20to%20COVID-19) This section details the company's comprehensive response to the COVID-19 pandemic since January 2020, including prioritizing employee health and well-being, supporting customers and communities, and adapting to new work and market models through its "New Normal" program - The company prioritized employee health and well-being, did not lay off staff or use government furlough schemes due to COVID-19, and provided income protection and digital training for sales personnel[72](index=72&type=chunk)[79](index=79&type=chunk) - The company supported customers by launching digital education programs (attracting **over 11,000 HCPs** in the first month) and a 24/7 wound management hotline[84](index=84&type=chunk)[85](index=85&type=chunk) - The company actively supported communities by donating products and PPE, utilizing manufacturing expertise to produce **over one million face shields**, and developing a low-cost ventilator prototype[87](index=87&type=chunk)[88](index=88&type=chunk)[91](index=91&type=chunk) - The "New Normal" program includes "Workplace Unlimited" and "Go to Market" workstreams, aiming to adapt to post-pandemic market and workplace changes, with the "Workplace Unlimited" survey showing **over 7,000 employees** desiring increased work flexibility[89](index=89&type=chunk)[90](index=90&type=chunk)[93](index=93&type=chunk) [Our Global Markets](index=17&type=section&id=Our%20global%20markets) This section analyzes the global medical device market, including its size, growth drivers, strict regulatory environment, geopolitical influences, seasonality, and competitive landscape, emphasizing the pandemic's acceleration of the shift to outpatient care - The company operates in product segments valued at approximately **$38 billion**, with an average annual growth of about **4%** pre-pandemic[101](index=101&type=chunk)[109](index=109&type=chunk) - Long-term growth is driven by lifestyle-related health conditions (e.g., diabetes, obesity), increased physical activity, and extended life expectancy, with economic development in emerging markets also boosting demand[102](index=102&type=chunk) - COVID-19 accelerated the trend of shifting inpatient surgeries to outpatient settings and increased focus on telehealth[103](index=103&type=chunk)[108](index=108&type=chunk) - The medical device industry is highly regulated, including AdvaMed ethical codes, MedTech Europe business ethics codes, and anti-bribery and corruption legislation (e.g., UK Bribery Act and US Foreign Corrupt Practices Act)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Geopolitical factors (e.g., Brexit, US-China tariffs) and localization, price control policies impact the market[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) | Market Segment | 2020 Market Size | 2017-19 Average Growth | 2020 Growth | Company 2020 Market Share | | :--- | :--- | :--- | :--- | :--- | | Orthopaedic Hip and Knee Implants | $12.6 billion | +2% | -15% | 11% | | Trauma and Extremities | $6.5 billion | +4% | -4% | 7% | | Sports Medicine | $4.6 billion | +5% | -12% | 26% | | Advanced Wound Management | $9.1 billion | +5% | -3% | 14% | [Our Business Model](index=19&type=section&id=Our%20business%20model) This section outlines the company's "Life Unlimited" purpose-driven business model, creating value through cultural pillars and five strategic priorities, detailing how core resources like R&D, manufacturing, medical education, and sales support its product portfolio and customer-centric strategy - The company's value creation is driven by its purpose (Life Unlimited), cultural pillars (Care, Collaboration, Courage), and five strategic priorities[121](index=121&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) - Core resources include: attracting and developing talent, ethics and compliance, sustainability, R&D, manufacturing and quality, medical education, and sales and marketing[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) - The company possesses a market-leading technology product portfolio, driving continuous innovation through R&D and acquisitions[132](index=132&type=chunk) - Customer-centricity is core to the business model, ensuring proximity to customer needs through global franchises and regional models[133](index=133&type=chunk) | Metric | 2020 Data | | :--- | :--- | | Revenue | $4,560 million | | Operating Profit | $295 million | | Trading Profit | $683 million | | Efficiency Savings | approx. $40 million | | Training Instances | 185,000+ | | Product Donations | $4.7 million | | Volunteering Hours | 8,000 hours | | Dividends | $328 million | [Key Performance Indicators](index=21&type=section&id=Key%20Performance%20Indicators) This section lists the company's financial and non-financial Key Performance Indicators (KPIs) used to measure progress against strategic priorities, covering growth, talent, and management efficiency, and presents performance from 2018-2020 | Metric | 2018 | 2019 | 2020 | Change Description | | :--- | :--- | :--- | :--- | :--- | | Reported Revenue Growth | 3% | 4.8% | -11.2% | 2020 impacted by COVID-19, acquisitions contributed 110bps, FX impact -20bps | | Underlying Revenue Growth | 2% | 4.4% | -12.1% | 2020 impacted by COVID-19 restrictions and deferred elective surgeries | | Operating Profit Margin | 17.6% | 15.9% | 6.5% | 2020 impacted by restructuring costs, acquisition-related items, amortization, and legal fees | | Trading Profit Margin | 22.9% | 22.8% | 15.0% | 2020 revenue decline and continued investment impacted margin | | R&D Expenditure | $246 million | $292 million | $307 million | 2020 R&D investment protected, multiple new products launched | | Dividend Per Share | 36.0 US cents | 37.5 US cents | 37.5 US cents | 2020 consistent with 2019, progressive dividend policy maintained | | Return on Invested Capital (ROIC) | 12.5% | 10.5% | 7.1% | 2020 decreased due to lower operating profit | - Over **185,000 healthcare professionals** were trained in 2020, with nearly **80%** conducted virtually[138](index=138&type=chunk) - Employee engagement (Grand Mean score) improved by **0.32**, rising from the **34th percentile** to the **76th percentile** in Gallup's database, with an **89% participation rate**[140](index=140&type=chunk) - The APEX program (started late 2017) was largely completed in 2020, delivering approximately **$190 million** in annual benefits with one-off costs of about **$290 million**[142](index=142&type=chunk) - **$200 million** in COVID-19 related one-off cost savings were realized in 2020[145](index=145&type=chunk) - The operational transformation program is expected to deliver approximately **$200 million** in annual benefits by 2025, with one-off costs of about **$350 million**[146](index=146&type=chunk) - The Headline safety rate improved in 2020 to **0.30** (accidents per 200,000 hours worked)[143](index=143&type=chunk) - No significant regulatory actions or warning letters were received from the US FDA or other health authorities in 2020[144](index=144&type=chunk) [Financial Review](index=23&type=section&id=Financial%20review) This section provides a detailed review of the company's 2020 financial performance, including revenue, profit, EPS, balance sheet, cash flow, and liquidity, analyzing the impact of COVID-19, and offering a 2021 financial outlook with expected significant revenue growth and improved margins | Metric | 2020 ($ million) | 2019 ($ million) | Change ($ million) | | :--- | :--- | :--- | :--- | | Revenue | 4,560 | 5,138 | (578) | | Operating Profit | 295 | 815 | (520) | | Trading Profit | 683 | 1,169 | (486) | | Profit Before Tax | 246 | 743 | (497) | | Profit Attributable | 448 | 600 | (152) | | EPS | 51.3 US cents | 68.6 US cents | (17.3 US cents) | | EPSA | 64.6 US cents | 102.2 US cents | (37.6 US cents) | - Group revenue in 2020 was **$4.56 billion**, a reported decrease of **11.2%** and an underlying decrease of **12.1%**, primarily due to the COVID-19 pandemic, with Q2 revenue down nearly **30%**[151](index=151&type=chunk)[152](index=152&type=chunk) - The company maintained R&D investment and quickly identified and cut discretionary spending to mitigate the pandemic's impact[152](index=152&type=chunk)[153](index=153&type=chunk) | Market | 2020 Revenue ($ million) | 2019 Revenue ($ million) | Reported Growth Rate (%) | Underlying Growth Rate (%) | | :--- | :--- | :--- | :--- | :--- | | US | 2,339 | 2,551 | (8.3%) | (10.1%) | | Other Established Markets | 1,450 | 1,630 | (11.0%) | (12.3%) | | Emerging Markets | 771 | 957 | (19.4%) | (16.8%) | | Total | 4,560 | 5,138 | (11.2%) | (12.1%) | - The 2020 reported tax was a **$202 million credit** (compared to a **$143 million charge** in 2019), primarily due to successful UK tax litigation, release of provisions after tax audits, and lower profits[161](index=161&type=chunk) - The APEX program and the Operations and Commercial Excellence program generated **$124 million** in restructuring costs in 2020, delivering approximately **$40 million** in additional benefits[164](index=164&type=chunk) | Metric | 2020 ($ million) | 2019 ($ million) | Change ($ million) | | :--- | :--- | :--- | :--- | | Goodwill and Intangible Assets | 4,414 | 4,356 | 58 | | Other Non-Current Assets | 1,934 | 1,724 | 210 | | Current Assets | 4,664 | 3,219 | 1,445 | | Total Assets | 11,012 | 9,299 | 1,713 | | Total Equity | 5,279 | 5,141 | 138 | | Non-Current Liabilities | 4,045 | 2,594 | 1,451 | | Current Liabilities | 1,688 | 1,564 | 124 | | Total Liabilities | 5,733 | 4,158 | 1,575 | | Net Debt Including Lease Liabilities | 1,926 | 1,770 | 156 | - Cash flow from operating activities in 2020 was **$972 million**, trading cash flow was **$690 million**, and free cash flow was **$437 million**, all lower than in 2019[169](index=169&type=chunk)[170](index=170&type=chunk) - Return on Invested Capital (ROIC) decreased from **10.5%** in 2019 to **7.1%** in 2020, reflecting reduced operating profit[171](index=171&type=chunk) - In 2020, the company issued its first corporate bond, raising **$1 billion** at **2.032%** interest, due in 2030, further diversifying financing options[174](index=174&type=chunk) - 2021 Outlook: Significant underlying revenue growth and improved margins are expected, but the company will face continued gross margin impact from lower production volumes, increased R&D investment, dilutive effects from acquisitions, and foreign exchange headwinds[181](index=181&type=chunk)[182](index=182&type=chunk) [Sustainability Reporting](index=27&type=section&id=Sustainability%20reporting) This section outlines the company's "Life Unlimited" sustainability strategy, reporting 2020 progress across "People," "Planet," and "Products," including employee safety, community contributions, minimizing environmental impact, and sustainable innovation - The company's sustainability vision is "accelerating Life Unlimited through industry sustainability leadership," with a strategy based on the UN Sustainable Development Goals (SDGs)[185](index=185&type=chunk)[186](index=186&type=chunk) - For "People," the goal is to contribute **1 million volunteering hours** and **$125 million in product donations** by 2030; in 2020, **8,000 volunteering hours** and **$4.7 million in product donations** were contributed, and global Employee Inclusion Groups were established[190](index=190&type=chunk)[191](index=191&type=chunk) - For "Planet," the goal is an **80% absolute reduction** in greenhouse gas emissions by 2050 and zero waste to landfill at Memphis and Malaysia sites by 2025; in 2020, all Memphis facilities began using renewable wind power, accounting for **40%** of total group electricity, and **78%** of total waste was recycled[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - For "Products," the goal is to incorporate sustainability reviews into all new product development by 2022 and include at least **30% post-consumer recycled content** in non-sterile packaging materials by 2025; in 2020, a packaging sustainability strategy and supply chain risk mapping were initiated[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[206](index=206&type=chunk) - The Board supports the phased implementation of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, with relevant business risks already included in the risk register[204](index=204&type=chunk) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Scope 1 Direct Emissions (tonnes CO2e) | 9,754 | 9,888 | 9,956 | | Scope 2 Indirect Emissions (tonnes CO2e, location-based) | 63,191 | 67,324 | 67,886 | | Total Emissions (tonnes CO2e, location-based) | 72,945 | 77,212 | 77,842 | | Total Emissions (tonnes CO2e, market-based) | 40,132 | 67,040 | 76,431 | | Energy Consumption (GWh) | 212 | 213 | 209 | | CO2e (tonnes) / $ million Sales Revenue | 15.9 | 15.1 | 15.9 | | CO2e (tonnes) / Full-Time Employee | 3.9 | 4.3 | 4.7 | [Investing in Our People](index=31&type=section&id=Investing%20in%20our%20people) This section details the company's talent investment strategy, including enhancing employee engagement via Gallup surveys, prioritizing health and employment during COVID-19, ethical hiring, cultural pillars, flexible work models, diversity, and leadership development - The 2020 Gallup Global Employee Survey showed a significant increase in employee engagement, with the Grand Mean score improving by **0.32**, rising from the **34th percentile** to the **76th percentile**, and an **89% participation rate**[219](index=219&type=chunk) - The company prioritized employee health, well-being, and employment during COVID-19, with no layoffs or use of government furlough schemes, and provided special pandemic leave and enhanced employee assistance programs[222](index=222&type=chunk)[223](index=223&type=chunk) - The company is committed to ethical employment, hiring, employing, and promoting based on qualifications and abilities, not tolerating any form of discrimination, and supporting the UN Universal Declaration of Human Rights[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - The "Workplace Unlimited" program aims to rethink where and how work is done, offering flexible work models to meet employee needs, categorized into four roles: external mobile, community, hybrid, and non-mobile[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - In 2020, the company participated in the Gallup Inclusion Index for the first time and launched several inclusion and diversity initiatives, including global Employee Inclusion Groups (EIGs) and the "Together We Stand" program to promote racial diversity[243](index=243&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) - The company is committed to employee development, implementing a 70-20-10 development plan and "Winning Behaviours" framework; in 2020, **268 leaders** participated in leadership programs, and a new executive development program was successfully piloted[258](index=258&type=chunk)[259](index=259&type=chunk)[261](index=261&type=chunk)[265](index=265&type=chunk) [Delivering Innovation](index=39&type=section&id=Delivering%20innovation) This section highlights the company's continuous innovation in 2020 to address crises, including protecting R&D investment, launching new products, strategic acquisitions, and optimizing manufacturing efficiency, focusing on orthopaedics, sports medicine, and advanced wound management innovations, as well as outpatient surgical centers (ASC) and Brexit preparations - In 2020, the company invested **$307 million** in R&D and launched significant innovative products such as the CORI◊ Surgical System, RI.HIP NAVIGATION, and INTELLIO◊ Connected Tower Solutions[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk) - The company strengthened its position in high-growth segments through the acquisition of Tusker Medical, Inc. (Tula® System) and Integra LifeSciences' extremities orthopaedics business[280](index=280&type=chunk)[281](index=281&type=chunk)[283](index=283&type=chunk) - The ARIA digital care management platform, launched in 2020, focuses on Ambulatory Surgical Center (ASC) customers, aiming to connect patients and providers to support pre- and post-operative care[284](index=284&type=chunk)[297](index=297&type=chunk) - The company is implementing an operational transformation program, expected to deliver approximately **$200 million** in annual benefits by 2025, including optimizing the manufacturing network, introducing digital technologies, and lean manufacturing[306](index=306&type=chunk)[307](index=307&type=chunk)[314](index=314&type=chunk) - To address Brexit, the company developed comprehensive contingency plans, including increasing UK inventory by **six weeks** and registering for government freight schemes to ensure supply chain continuity[310](index=310&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk) [Medical Education](index=45&type=section&id=Medical%20education) This section outlines the company's commitment to empowering healthcare professionals through education and training to improve patient outcomes globally, highlighting accelerated virtual and blended learning opportunities and significant achievements in 2020 - In 2020, the company trained a record **186,000 healthcare professionals** globally, with nearly **80%** conducted virtually, compared to only **11%** in 2019[321](index=321&type=chunk)[325](index=325&type=chunk) - The company's new global digital medical education program received accreditation from the Royal College of Surgeons of England, attracting HCPs from **over 110 countries** in its first month[322](index=322&type=chunk)[323](index=323&type=chunk)[329](index=329&type=chunk) - In 2021, the company will launch "Education Unlimited," a global website platform providing medical education resources across Advanced Wound Management, Orthopaedics, Sports Medicine, and ENT[321](index=321&type=chunk) [Quality and Regulatory Affairs](index=46&type=section&id=Quality%20and%20Regulatory%20Affairs) This section describes the critical role of the company's Global Quality and Regulatory Affairs department in product lifecycle management, ensuring product safety, compliance, and actively responding to increasingly stringent global regulatory requirements, particularly the EU Medical Device Regulation (EU MDR) - The Global Quality and Regulatory Affairs department supports full product lifecycle management, ensuring product design, development, manufacturing, labeling, marketing, and sales comply with complex global regulations and laws[327](index=327&type=chunk) - The EU Medical Device Regulation (EU MDR) will be fully implemented in May 2021, introducing new requirements for all CE-marked products sold in Europe, for which the company has been preparing since 2017[330](index=330&type=chunk)[332](index=332&type=chunk) - The company views regulatory changes like EU MDR positively, as they enhance transparency in product innovation and performance, helping customers make informed decisions[331](index=331&type=chunk) [Serving Our Customers](index=47&type=section&id=Serving%20our%20customers) This section details the company's customer-centric business model, serving healthcare professionals with highly specialized products and services through three global franchises (Orthopaedics, Sports Medicine & ENT, Advanced Wound Management) and regional commercial structures, reviewing each business's 2020 performance - The company employs a global franchise structure, divided into Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management, each led by a Global President responsible for strategy and US commercial operations[335](index=335&type=chunk)[336](index=336&type=chunk)[338](index=338&type=chunk) - Commercial delivery is managed through regional structures, including the US, Europe, Middle East & Africa (EMEA), and Asia Pacific (APAC), with highly trained sales representatives possessing deep product and technical knowledge[340](index=340&type=chunk)[341](index=341&type=chunk)[343](index=343&type=chunk)[344](index=344&type=chunk) | Business Segment | 2020 Revenue ($ million) | 2019 Revenue ($ million) | Reported Revenue Growth (%) | Reported Profit Change (%) | | :--- | :--- | :--- | :--- | :--- | | Orthopaedics | 1,917 | 2,222 | -13.7% | -42% | | Sports Medicine & ENT | 1,333 | 1,536 | -13.2% | -37% | | Advanced Wound Management | 1,310 | 1,380 | -5.1% | -15% | - The Orthopaedics business was significantly impacted by COVID-19 in 2020, with revenue down **13.7%**, but the REDAPT◊ Revision Hip System and OR3O◊ Dual Mobility Hip System performed well, and the EVOS◊ Plating System showed strong performance[357](index=357&type=chunk) - Sports Medicine & ENT revenue decreased by **13.2%**, primarily due to reduced elective surgeries, with strong performance in shoulder repair, while ENT revenue saw a significant decline[378](index=378&type=chunk) - The Advanced Wound Management business showed greater resilience in 2020, with revenue down **5.1%**, led by the PICO◊ Single-Use Negative Pressure Wound Therapy (sNPWT) system[387](index=387&type=chunk) [Our Stakeholders](index=55&type=section&id=Our%20stakeholders) This section outlines the company's approach to stakeholders under Section 172 of the Companies Act 2006 and the UK Corporate Governance Code 2018, emphasizing the Board's consideration of employee, investor, environmental, community, government, regulatory, customer, and supplier perspectives and interests in decision-making - The Board considers the potential impact on stakeholders under Section 172 of the Companies Act 2006 and the UK Corporate Governance Code 2018, incorporating their views and interests into decision-making[392](index=392&type=chunk) - Key stakeholders include employees, investors, environment and community, government and regulators, customers, and suppliers[393](index=393&type=chunk)[394](index=394&type=chunk) - Despite the COVID-19 pandemic in 2020, the company engaged with key stakeholders virtually whenever possible[392](index=392&type=chunk) [Risk Report](index=56&type=section&id=Risk%20report) This section details the company's risk management process, governance framework, and key risks identified in 2020, including business continuity, commercial execution, cybersecurity, financial, global supply chain, legal and compliance, M&A, new product innovation, political economy, pricing and reimbursement, quality and regulatory, and talent management, also including the company's viability statement in the context of the pandemic - The company's enterprise risk management process is based on a holistic approach, aligned with strategic and operational objectives, managed through "top-down" and "bottom-up" processes, and regularly overseen by the Executive Committee and Board[397](index=397&type=chunk)[400](index=400&type=chunk) - Key risks in 2020 included: business continuity and change (COVID-19 disruption), commercial execution (competition, sales representative access), cybersecurity, financial (FX volatility, reporting accuracy), global supply chain (manufacturing disruption, supplier failure), legal and compliance (anti-corruption, data privacy, product liability), M&A (identification, due diligence, integration failure), new product innovation, design and development (R&D investment, IP), political and economic (global economy, Brexit, US-China tariffs), pricing and reimbursement (government funding, price pressure), quality and regulatory (EU MDR, regulatory standards), and talent management (loss of key talent, absenteeism)[409](index=409&type=chunk)[410](index=410&type=chunk)[411](index=411&type=chunk)[414](index=414&type=chunk)[415](index=415&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk) - The Board conducted a robust viability assessment and determined that the company has a reasonable expectation to continue operating and meet its liabilities as they fall due over the three-year period from January 1, 2021[425](index=425&type=chunk) - The viability statement is based on the strategic plan approved by the Board in February 2021, considering the impact of a severe but plausible combination of risks, including the pandemic[426](index=426&type=chunk)[428](index=428&type=chunk) Governance [Board Leadership and Purpose](index=66&type=section&id=Board%20Leadership%20and%20Purpose) This section, a letter from the Chair, outlines how the Board addressed COVID-19 challenges in 2020, including meeting format adjustments, changes in executive and non-executive teams, stakeholder and shareholder engagement, and hybrid arrangements for the 2021 AGM - All Board and committee meetings have been held virtually since March 2020 to accommodate COVID-19 restrictions[433](index=433&type=chunk) - Anne-Françoise Nesmes was appointed CFO in July 2020, Rick Medlock became Audit Committee Chair in September 2020, and Bob White and Katarzyna Mazur-Hofsaess joined as Non-Executive Directors, strengthening medical device experience[436](index=436&type=chunk)[438](index=438&type=chunk)[439](index=439&type=chunk)[445](index=445&type=chunk) - The Board conducted virtual "listening sessions" with employees and engaged with shareholders on ESG, culture, product quality, cybersecurity, climate change, and governance issues[446](index=446&type=chunk)[447](index=447&type=chunk) - The 2021 Annual General Meeting will adopt a hybrid format, encouraging remote shareholder participation to ensure safety[450](index=450&type=chunk) - The company complies with all provisions and principles of the 2018 UK Corporate Governance Code and meets NYSE and SEC requirements for foreign private issuers[453](index=453&type=chunk) [Board of Directors](index=69&type=section&id=Board%20of%20Directors) This section provides detailed information on the company's Board members, including the Chair, CEO, CFO, and independent Non-Executive Directors' professional backgrounds, experience, skills, and current appointments, highlighting their expertise in the medical device industry, financial management, and corporate governance - Roberto Quarta serves as Chair, bringing private equity and global governance experience, and led a comprehensive review of Board skills, knowledge, experience, and diversity[458](index=458&type=chunk)[459](index=459&type=chunk)[463](index=463&type=chunk)[464](index=464&type=chunk) - Roland Diggelmann serves as CEO, with **25 years of experience** in the medical device industry and deep understanding of the sector and healthcare environment[467](index=467&type=chunk)[468](index=468&type=chunk)[469](index=469&type=chunk)[470](index=470&type=chunk) - Anne-Françoise Nesmes serves as CFO, with senior financial leadership experience in FTSE 100 companies, specializing in operational excellence and cross-geography market management[472](index=472&type=chunk)[473](index=473&type=chunk)[474](index=474&type=chunk)[475](index=475&type=chunk) - Independent Non-Executive Directors include Erik Engstrom (technology transformation and business model innovation), Robin Freestone (financial expertise and M&A experience), John Ma (medical devices and emerging market growth), Katarzyna Mazur-Hofsaess (medical devices and orthopaedics industry leadership experience), and Rick Medlock (technology R&D and financial expertise)[477](index=477&type=chunk)[479](index=479&type=chunk)[482](index=482&type=chunk)[483](index=483&type=chunk)[488](index=488&type=chunk)[489](index=489&type=chunk)[491](index=491&type=chunk)[493](index=493&type=chunk)[497](index=497&type=chunk)[498](index=498&type=chunk) [Executive Team](index=74&type=section&id=Executive%20team) This section introduces the members of the company's Executive Committee, including presidents of business units and functional heads, detailing their responsibilities, skills, and experience, showcasing a strong leadership team supporting the CEO's daily management and group strategy implementation - The Executive Committee comprises the CFO, three franchise presidents, two regional presidents, and several functional heads, chaired by the CEO, responsible for the group's daily management[533](index=533&type=chunk) - Brad Cannon serves as President, Sports Medicine & ENT, with global orthopaedics and commercial leadership experience[527](index=527&type=chunk)[528](index=528&type=chunk) - Peter Coenen serves as President, EMEA, with extensive cross-cultural leadership and operational experience in the medical device industry[529](index=529&type=chunk)[530](index=530&type=chunk)[531](index=531&type=chunk) - Myra Eskes serves as President, APAC, with **over two decades** of enterprise-level experience in finance, manufacturing, operations, sales, and marketing[536](index=536&type=chunk)[537](index=537&type=chunk)[538](index=538&type=chunk) - Simon Fraser serves as President, Advanced Wound Management, with **over 25 years of experience** in medical devices, pharmaceuticals, and diagnostics[539](index=539&type=chunk)[540](index=540&type=chunk)[541](index=541&type=chunk) - Mark Gladwell serves as President, Operations & Global Business Services, with **over 20 years of experience** in manufacturing, supply chain, and operational excellence[544](index=544&type=chunk)[545](index=545&type=chunk)[546](index=546&type=chunk) - Melissa Guerdan serves as Chief Quality & Regulatory Affairs Officer, with **over 20 years of leadership experience** in quality and regulatory affairs across the pharmaceutical, medical device, and biologics industries[547](index=547&type=chunk)[548](index=548&type=chunk) - Skip Kiil serves as President, Orthopaedics, with extensive global commercial leadership experience in the orthopaedics market[549](index=549&type=chunk)[550](index=550&type=chunk)[551](index=551&type=chunk) - Elga Lohler serves as Chief Human Resources Officer, with **over 25 years of experience** in human resources, responsible for driving the company's human capital strategy[553](index=553&type=chunk)[554](index=554&type=chunk) - Catheryn O'Rourke serves as Chief Legal & Compliance Officer and Chief Risk Officer, responsible for global legal and compliance functions[558](index=558&type=chunk)[559](index=559&type=chunk) - Vasant Padmanabhan serves as President, R&D, with **over 25 years of experience** in R&D leadership, responsible for research and innovation, new product development, and clinical affairs[560](index=560&type=chunk)[561](index=561&type=chunk) [Division of Responsibilities](index=78&type=section&id=Division%20of%20responsibilities) This section details the division of responsibilities among the Board, Executive Committee, and their sub-committees, clarifying the specific roles of the Chair, CEO, CFO, and Company Secretary within the corporate governance structure to ensure effective strategy approval, performance oversight, and risk management - The Board is responsible for approving group strategy, overseeing performance, evaluating and monitoring risks, and being accountable to shareholders and stakeholders[570](index=570&type=chunk) - The Chair is responsible for establishing a balanced Board, presiding over meetings, ensuring Board effectiveness, facilitating communication, and engaging with stakeholders[567](index=567&type=chunk) - The CEO is responsible for developing and implementing group strategy, managing risks, developing the executive team, and daily business operations[568](index=568&type=chunk) - The CFO is responsible for ensuring effective financial reporting, managing global financial functions, and maintaining relationships with shareholders[569](index=569&type=chunk) - The Company Secretary is responsible for advising the Board on corporate governance matters and supporting the Chair and Non-Executive Directors[569](index=569&type=chunk) - The Board has sub-committees including the Audit Committee, Remuneration Committee, Nomination & Governance Committee, and Compliance & Culture Committee, responsible for oversight and approval in specific areas[571](index=571&type=chunk) - The Executive Committee is responsible for recommending and implementing strategy, approving budgets and three-year plans, and receiving reports from sub-committees such as monthly operational reviews, franchise/functional/regional leadership meetings, and new product development[573](index=573&type=chunk)[574](index=574&type=chunk) [Composition, Succession and Evaluation](index=83&type=section&id=Composition%2C%20Succession%20and%20Evaluation) This section presents the results of the 2020 Board effectiveness review, led internally by the Senior Independent Director, with recommendations for improvement, and details the Board development program and onboarding process for new directors, emphasizing adaptation to virtual work during the pandemic - The 2020 Board effectiveness review was led internally by Senior Independent Director Robin Freestone, assisted by the Company Secretary, concluding that the Board operates effectively[625](index=625&type=chunk) - The review proposed three main recommendations for improvement: inviting external experts to speak on industry and market competitiveness, ensuring Board proposals specifically consider potential stakeholder impact, and fostering informal interaction between Board members and the executive team in a virtual environment[626](index=626&type=chunk) - The Board development program focuses on enhancing directors' awareness and understanding of the business and stakeholders, conducted through virtual opportunities such as meeting robotic surgeons and strategic sessions with the executive team[633](index=633&type=chunk)[636](index=636&type=chunk) - The onboarding program for new directors (Anne-Françoise Nesmes, Rick Medlock, Bob White, and Katarzyna Mazur-Hofsaess) was tailored to their individual skills and experience, primarily conducted virtually[635](index=635&type=chunk)[637](index=637&type=chunk) [Nomination & Governance Committee Report](index=85&type=section&id=Nomination%20%26%20Governance%20Committee%20report) This section reports on the Nomination & Governance Committee's key activities in 2020, including Board composition, executive and non-executive director appointments, Board diversity strategy, succession planning, and oversight of corporate governance matters, emphasizing continuous attention to Board structure and talent development during the pandemic - In 2020, the Committee made four new Board appointments, including CFO Anne-Françoise Nesmes and three Non-Executive Directors (Rick Medlock, Bob White, Katarzyna Mazur-Hofsaess), to strengthen financial and medical device expertise[642](index=642&type=chunk)[643](index=643&type=chunk)[645](index=645&type=chunk)[646](index=646&type=chunk) - The Committee is committed to Board diversity, ensuring the Board possesses the necessary balance through a skills and experience matrix, including gender, ethnicity, industry, commercial, and international experience[651](index=651&type=chunk)[652](index=652&type=chunk)[654](index=654&type=chunk)[660](index=660&type=chunk) - The Committee continuously oversees succession planning below Board level and reviewed the diversity of the executive talent pipeline[656](index=656&type=chunk)[657](index=657&type=chunk) - The Committee reviewed the independence of Non-Executive Directors, potential conflicts of interest, and Board diversity, providing recommendations to the Board[658](index=658&type=chunk) [Audit, Risk and Control](index=88&type=section&id=Audit%2C%20Risk%20and%20Control) This section covers reports from the Audit Committee and Compliance & Culture Committee, detailing their responsibilities and 2020 activities in financial statements, internal controls, risk management, external auditor oversight, ethics and compliance, corporate culture, and sustainability, with a particular focus on the impact of COVID-19 [Audit Committee Report](index=88&type=section&id=Audit%20Committee%20report) The Audit Committee reports on its key work in 2020, including closely monitoring COVID-19's impact on financial statements, strengthening IT controls and cybersecurity, evaluating TCFD framework integration, and reviewing significant matters like inventory valuation, liability provisions, and impairment, also confirming external auditor independence and effectiveness - Rick Medlock assumed the role of Audit Committee Chair on September 1, 2020, and the Committee closely monitored the impact of COVID-19 on financial statements, including funding/liquidity and going concern[672](index=672&type=chunk)[673](index=673&type=chunk) - The Committee maintained focus on the IT control environment and cybersecurity, and monitored the IT control process improvement program[676](index=676&type=chunk) - The Committee considered the extent to which the Task Force on Climate-related Financial Disclosures (TCFD) framework is embedded in decision-making and assessed the financial statement impact of climate change, concluding no material impact[676](index=676&type=chunk) - Regarding significant financial statement matters, the Committee reviewed inventory valuation (excess and obsolete inventory provision increased to **$377 million** in 2020), liability provisions for metal-on-metal hip product litigation (**$336 million**), and intangible asset impairment reviews[683](index=683&type=chunk)[944](index=944&type=chunk)[1052](index=1052&type=chunk)[1054](index=1054&type=chunk) - The Committee confirmed the independence and effectiveness of KPMG as external auditor and approved the 2020 audit fees[689](index=689&type=chunk)[693](index=693&type=chunk)[706](index=706&type=chunk) - Key focus areas for 2021 include: monitoring ESG planning and reporting, continued oversight of risk management processes, monitoring the IT control improvement program, and further monitoring of COVID-19's impact on financial statements[682](index=682&type=chunk) [Compliance & Culture Committee Report](index=98&type=section&id=Compliance%20%26%20Culture%20Committee%20report) The Compliance & Culture Committee reports on its 2020 work, including virtual "listening sessions" with employees during the pandemic, overseeing Quality & Regulatory Affairs (especially EU MDR transition), ethics and compliance activities, corporate culture development, and sustainability program progress, emphasizing employee engagement and diversity initiatives - The Committee held **four meetings** in 2020 and engaged with global employees through virtual "Board/Employee Listening Sessions," gathering valuable insights on company culture and pandemic impact[774](index=774&type=chunk)[775](index=775&type=chunk) - The Committee oversaw Quality & Regulatory Affairs, including progress on the EU Medical Device Regulation (EU MDR) transition and results of external regulatory inspections[776](index=776&type=chunk)[782](index=782&type=chunk)[783](index=783&type=chunk) - The Committee oversaw ethics and compliance activities, including adherence to anti-bribery laws and data protection regulations (e.g., GDPR), and ensured rapid integration of newly acquired businesses into the company's compliance program[784](index=784&type=chunk)[785](index=785&type=chunk)[786](index=786&type=chunk)[787](index=787&type=chunk) - The 2020 Gallup Global Employee Survey results showed significant improvement in employee engagement, and the Committee received updates on the "New Normal" program and inclusion and diversity strategy, including the "Together We Stand" initiative[791](index=791&type=chunk)[792](index=792&type=chunk)[793](index=793&type=chunk) - The Committee regularly reviewed management's sustainability program, including adjustments to product targets (e.g., recycled content in non-sterile packaging materials) and alignment with investor/customer priorities[796](index=796&type=chunk)[802](index=802&type=chunk) [Our Approach to Stakeholders](index=102&type=section&id=Our%20approach%20to%20stakeholders) This section details how the company's Board interacts with key stakeholders—investors, employees, customers, suppliers, government, and regulators—in accordance with Section 172 of the Companies Act 2006 and the UK Corporate Governance Code 2018, highlighting communication and support measures during the COVID-19 pandemic - The Board interacts with investors through meetings, reviewing analyst reports, and the AGM; in 2020, executives held **81 meetings** with investors representing **51.72%** of share capital[822](index=822&type=chunk) - The Board engages with employees through Gallup surveys, culture and diversity updates, and "Board/Employee Listening Sessions," with a 2020 focus on the pandemic's impact on employee safety and well-being[825](index=825&type=chunk) - The company maintains contact with customers and suppliers through regular updates on product quality, regulatory affairs, and ethical compliance matters, as well as Board member interactions with customers and sales representatives[827](index=827&type=chunk) - The company interacts with government and regulatory bodies to ensure product safety and compliance with laws and regulations, with the Board regularly receiving updates on quality and regulatory affairs[828](index=828&type=chunk) - During the COVID-19 pandemic, the company prioritized employee health and safety, supported customers and patients, avoided layoffs or furloughs, maintained dividend payments, and strengthened its balance sheet[827](index=827&type=chunk) [Remuneration](index=106&type=section&id=Remuneration) This section details the company's remuneration policy and its 2020 implementation, including executive directors' compensation structure, annual bonus, and long-term incentive plan performance assessment, as well as non-executive directors' fees, also discussing COVID-19's impact on remuneration decisions and outlining 2021 priorities [Directors' Remuneration Report](index=106&type=section&id=Directors%27%20Remuneration%20report) This report details executive directors' remuneration in 2020, including base salary, annual bonus, and long-term incentive plan performance assessment; due to COVID-19, despite strong business objective performance, no annual bonuses were paid as financial targets were not met; the report also covers non-executive directors' fees, shareholdings, and CEO pay ratio - In 2020, company revenue was **$4.6 billion**, a reported underlying decrease of **11.2%**, and trading profit was **$683 million**, down **42%**, primarily due to the COVID-19 pandemic[835](index=835&type=chunk) - Despite strong performance against business objectives, CEO Roland Diggelmann and CFO Anne-Françoise Nesmes did not receive 2020 annual bonuses as financial targets for the 2020 Annual Incentive Plan were not met due to COVID-19[840](index=840&type=chunk)[841](index=841&type=chunk)[842](index=842&type=chunk)[898](index=898&type=chunk) - Awards under the 2018 Performance Share Plan (PSP) vested at **47% of target**, reflecting performance over the three-year period[844](index=844&type=chunk)[909](index=909&type=chunk) - The grant of 2021 Performance Share Plan (PSP) awards will be delayed by up to **three months** to set more meaningful and robust performance targets amidst ongoing COVID-19 uncertainty[846](index=846&type=chunk)[1200](index=1200&type=chunk) - Executive directors' and senior management's base salaries will remain unchanged in 2021, but lower-paid employees in China and certain other countries will receive increases based on local inflation rates[884](index=884&type=chunk) - In 2020, the CEO pay ratio to median employee pay was **29:1**, a significant decrease from **81:1** in 2019, primarily because the CEO did not receive a bonus[952](index=952&type=chunk) | Metric | 2020 ($) | 2019 ($) | | :--- | :--- | :--- | | Roland Diggelmann (CEO) Total Remuneration | 1,697,773 | 265,814 | | Anne-Françoise Nesmes (CFO) Total Remuneration | 370,058 | - | | Graham Baker (Former CFO) Total Remuneration | 266,307 | 2,851,048 | | Metric | 2020 ($ million) | 2019 ($ million) | Change (%) | | :--- | :--- | :--- | :--- | | Profit Attributable | 448 | 600 | -25% | | Dividends Paid | 328 | 318 | +3% | | Share Buybacks | 16 | 63 | -75% | | Total Group Remuneration Expenditure | 1,392 | 1,435 | -3% | [The Policy Report](index=128&type=section&id=The%20Policy%20report) This report outlines the shareholder-approved Directors' Remuneration Policy, detailing executive and non-executive directors' compensation structure, maximum levels, performance assessment framework, shareholding guidelines, recruitment and departure arrangements, and comparison with employee remuneration, aiming to align compensation with company strategy and shareholder interests - Key changes to the 2020 remuneration policy include: pension allowance for new executives reduced from **30% to 12%** (aligned with broader UK employees), annual cash and equity incentive plans merged into an Annual Incentive Plan (**50% cash, 50% deferred shares**), maximum annual opportunity for Performance Share Plan increased from **190% to 275%**, and introduction of post-cessation shareholding guidelines[975](index=975&type=chunk) - The maximum opportunity for the Annual Incentive Plan is **215% of base salary**, with **80%** based on financial performance (revenue growth and trading profit margin) and **20%** on business objectives[980](index=980&type=chunk) - The maximum annual opportunity for the Performance Share Plan is **275% of base salary**, with vesting conditions based on indexed TSR, Return on Invested Capital (ROIC), sales growth, and cumulative free cash flow, each weighted at **25%**[981](index=981&type=chunk) - Executive directors are required to hold shares equivalent to **300% of base salary** (CEO) and **200% of base salary** (CFO), and maintain this holding for **two years** post-cessation of employment[983](index=983&type=chunk)[1010](index=1010&type=chunk)[1015](index=1015&type=chunk) - The remuneration policy includes Malus and Clawback provisions, allowing for adjustment or recovery of bonuses and vested shares in the event of specific trigger events (e.g., misstatement of financial results, serious misconduct)[984](index=984&type=chunk) - Non-executive directors' annual fees include a basic annual fee and additional fees for committee chairs/Senior Independent Director, with a portion paid in shares to align with shareholder interests[1025](index=1025&type=chunk) Accounts [Statement of Directors' Responsibilities in Respect of the Annual Report and Financial Statements](index=139&type=section&id=Statement%20of%20Directors%27%20responsibilities%20in%20respect%20of%20the%20Annual%20Report%20and%20Financial%20Statements) This section states the Board's responsibility for preparing the Group and Parent Company financial statements in accordance with the Companies Act 2006 and IFRS, ensuring they present a true and fair view of the company's financial position and operating results, and for the integrity of internal controls and disclosures - The Board is responsible for preparing the Group and Parent Company financial statements in accordance with the Companies Act 2006, IFRS (as issued by the IASB and adopted by the EU), and UK accounting standards (FRS 101)[1034](index=1034&type=chunk) - The Board must ensure the financial statements give a true and fair view of the Group's and Parent Company's financial position and profit or loss, select appropriate accounting policies, make reasonable estimates, and assess the ability to continue as a going concern[1035](index=1035&type=chunk) - The Board confirms that the Annual Report and financial statements, taken as a whole, are fair, balanced, and understandable, providing the information needed for shareholders to assess the Group's position, performance, business model, and strategy[1040](index=1040&type=chunk) [Report of Independent Registered Public Accounting Firm](index=140&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP, as the independent registered public accounting firm, issued an unqualified opinion on the company's consolidated financial statements and internal control effectiveness as of December 31, 2020, also highlighting key audit matters related to metal-on-metal hip product provisions and orthopaedic inventory excess and obsolescence provisions - KPMG LLP issued an unqualified opinion on the company's consolidated financial statements and internal control effectiveness as of December 31, 2020, deeming them compliant in all material respects with IFRS and the "Internal Control—Integrated Framework (2013)"[1043](index=1043&type=chunk) - Key audit matters include: the assessment of provisions for metal-on-metal hip products (**$336 million** in 2020), which involves critical assumptions about claimant numbers and settlement outcomes, requiring a high degree of audit judgment and expertise[1052](index=1052&type=chunk)[1053](index=1053&type=chunk) - Key audit matters also include: the assessment of orthopaedic inventory excess and obsolescence (E&O) provisions (**$377 million** in 2020), which involves estimates of future inventory utilization, with increased volatility in historical sales data due to COVID-19, leading to high uncertainty in future utilization[1054](index=1054&type=chunk)[1055](index=1055&type=chunk) [Group Financial Statements](index=148&type=section&id=Group%20financial%20statements) This section presents the Group's core financial statements for 2018-2020, including the income statement, statement of comprehensive income, balance sheet, cash flow statement, and statement of changes in equity, reflecting the company's financial performance and structural changes under the impact of the COVID-19 pandemic | Metric | 2020 ($ million) | 2019 ($ million) | 2018 ($ million) | | :--- | :--- | :--- | :--- | | **Income Statement:** | | | | | Revenue | 4,560 | 5,138 | 4,904 | | Operating Profit | 295 | 815 | 863 | | Profit Before Tax | 246 | 743 | 781 | | Profit Attributable | 448 | 600 | 663 | | Basic EPS | 51.3 US cents | 68.6 US cents | 76.0 US cents | | Diluted EPS | 51.2 US cents | 68.4 US cents | 75.7 US cents | | Metric | 2020 ($ million) | 2019 ($ million) | 2018 ($ million) | | :--- | :--- | :--- | :--- | | **Balance Sheet:** | | | | | Property, Plant and Equipment | 1,449 | 1,323 | | | Goodwill | 2,928 | 2,789 | | | Intangible Assets | 1,486 | 1,567 | | | Inventories | 1,691 | 1,614 | | | Cash at Bank | 1,762 | 277 | | | Total Assets | 11,012 | 9,299 | | | Total Equity | 5,279 | 5,141 | | | Non-Current Liabilities | 4,045 | 2,594 | | | Current Liabilities | 1,688 | 1,564 | | | Total Liabilities | 5,733 | 4,158 | | | Metric | 2020 ($ million) | 2019 ($ million) | 2018 ($ million) | | :--- | :--- | :--- | :--- | | **Cash Flow Statement:** | | | | | Cash Flow from Operating Activities | 972 | 1,370 | 1,108 | | Cash Flow from Investing Activities | (606) | (1,251) | (378) | | Cash Flow from Financing Activities | 1,164 | 7 | (371) | | Net Increase/(Decrease) in Cash and Cash Equivalents | 1,493 | (76) | 182 | | Cash and Cash Equivalents at Year-End | 1,751 | 257 | 333 | - The Group adopted IFRS 16 Leases on January 1, 2019, using the modified retrospective approach, thus comparative information is not restated[1067](index=1067&type=chunk)[1068](index=1068&type=chunk)[1073](index=1073&type=chunk) [Notes to the Group Accounts](index=152&type=section&id=Notes%20to%20the%20Group%20accounts) This section provides detailed notes to the Group financial statements, covering accounting policies, key judgments and estimates, business segment information, operating profit, interest and finance costs, taxation, EPS, assets (PPE, goodwill, intangibles, investments, associates, inventories, receivables), liabilities (payables, cash and borrowings, provisions, retirement benefit obligations, share capital), and acquisitions and post-balance sheet events - The Group's going concern assessment considered the impact of COVID-19 on future financial performance and cash flows, based on Board-approved base case and severe downside cash flow forecasts[1083](index=1083&type=chunk)[1086](index=1086&type=chunk) - Key estimates include inventory valuation (excess and obsolete inventory provision increased to **$377 million** in 2020), liability provisions (metal-on-metal hip product litigation provision of **$336 million**), and intangible asset impairment[1095](index=1095&type=chunk)[1098](index=1098&type=chunk)[1100](index=1100&type=chunk)[1102](index=1102&type=chunk) - 2020 Group revenue is disclosed by business segment (Orthopaedics, Sports Medicine & ENT, Advanced Wound Management) and geographical region (established markets, emerging markets)[1119](index=1119&type=chunk)[1122](index=1122&type=chunk) - 2020 taxation was a **$202 million credit**, primarily due to successful UK tax litigation outcomes and release of provisions following tax audits[1157](index=1157&type=chunk)[1158](index=1158&type=chunk)[1159](index=1159&type=chunk) - Net debt (including lease liabilities) at the end of 2020 was **$1.926 billion**, an increase of **$156 million** from the end of 2019, mainly due to the corporate bond issuance[1244](index=1244&type=chunk)[1253](index=1253&type=chunk) - In 2020, the Group completed the acquisition of Tusker Medical, Inc., and post-balance sheet date, completed the acquisition of Integra LifeSciences Holdings Corporation's extremities orthopaedics business[1358](index=1358&type=chunk)[1380](index=1380&type=chunk) - In 2020, the Group's net retirement benefit obligation was **$30 million**, primarily comprising assets and liabilities of UK and US plans[1311](index=1311&type=chunk)[1318](index=1318&type=chunk) [Company Financial Statements](index=205&type=section&id=Company%20financial%20statements) This section presents the financial statements for the parent company, Smith & Nephew plc, including the balance sheet and statement of changes in equity, along with related notes, clarifying its financial position and accounting treatment as an investment holding company | Metric | 2020 ($ million) | 2019 ($ million) | | :--- | :--- | :--- | | **Fixed Assets:** | | | | Investments | 7,092 | 7,092 | | **Current Assets:** | | | | Debtors | 2,918 | 2,265 | | Cash at Bank | 1,629 | 163 | | **Current Liabilities:** | | | | Borrowings | (270) | (5) | | Other Creditors | (2,884) | (2,543) | | **Shareholders' Equity:** | | | | Share Capital | 177 | 177 | | Share Premium | 612 | 610 | | Retained Earnings | 2,414 | 2,291 | | Total Shareholders' Funds | 5,278 | 5,121 | - The parent company, Smith & Nephew plc's financial statements are prepared under the Companies Act 2006 and FRS 101 reduced disclosure framework, on a going concern basis[1389](index=1389&type=chunk)[1390](index=1390&type=chunk) - The company's profit attributable for 2020 was **$464 million** (2019: **$115 million**), with total distributable reserves of **$2.205 billion** (2019: **$2.050 billion**)[1386](index=1386&type=chunk) [Group Companies](index=209&type=section&id=Group%20companies) This section lists all of the Group's subsidiaries, associates, joint arrangements, and partnerships as of December 31, 2020, including their country of registration and registered office address, and identifies companies not wholly owned and those exempt from audit - The Group lists its global subsidiaries, associates, joint arrangements, and partnerships, including entities in the UK, rest of Europe, US, Africa, Asia, Australasia, and rest of Americas[1406](index=1406&type=chunk)[1407](index=1407&type=chunk)[1409](index=1409&type=chunk)[1411](index=1411&type=chunk) - All companies are **100% owned** unless otherwise stated, with share capital indirectly held by Smith & Nephew plc[1406](index=1406&type=chunk) - UK subsidiaries exempt from audit under Section 479A of the Companies Act 2006 are listed[1418](index=1418&type=chunk)[1419](index=1419&type=chunk) Other Information [Business Overview and Group History](index=214&type=section&id=Business%20overview%20and%20Group%20history) This section briefly reviews Smith+Nephew's **over 160-year history**, from a small pharmacy to a leading global medical technology company, focusing on its three global franchises: Orthopaedics, Advanced Wound Management, and Sports Medicine - Smith+Nephew has **over 160 years of history**, starting in 1856 when Thomas James Smith opened a pharmacy in Hull, UK[1420](index=1420&type=chunk) - Since 2019, the company's business has been organized around three global franchises: Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management[1420](index=1420&type=chunk) - The company was listed on the London Stock Exchange in 1937, the New York Stock Exchange in 1999, and became a FTSE 100 constituent in 2001[1422](index=1422&type=chunk) [Properties](index=214&type=section&id=Properties) This section outlines the Group's main properties and facilities worldwide, including headquarters, manufacturing, R&D, and office locations, emphasizing the strategic placement of its global operational facilities | Property Type | Location | Approximate Area (thousand sq ft) | | :--- | :--- | :--- | | Group Headquarters and Surgical Training Facility | Watford, UK | 60 | | Manufacturing and Office Facility | Memphis, Tennessee, USA | 968 | | Wound Management Manufacturing, R&D, and Office Facility | Hull, UK | 473 | | Manufacturing Facility | Suzhou, China | 288 | | Manufacturing Facility | Alajuela, Costa Rica | 270 | | Manufacturing Facility | Aarau, Switzerland | 116 | | Manufacturing Facility | Beijing, China | 109 | | Manufacturing Facility | Tuttlingen, Germany | 50 | - The Group's global operational strategy includes continuous evaluation of optimal facility placement, with orthopaedic manufacturing primarily in Memphis, advanced wound management facilities in Hull, and other key locations being leased[1425](index=1425&type=chunk) [Off-Balance Sheet Arrangements](index=215&type=section&id=Off-balance%20sheet%20arrangements) Management believes the Group has no off-balance sheet arrangements, as defined by Item 5E of SEC Form 20-F, that have or are reasonably likely to have a material adverse effect on the company's financial condition, results of operations, liquidity, or capital resources - Management believes the Group has no off-balance sheet arrangements that have or are reasonably likely to have a material adverse effect on the company's financial condition, results of operations, liquidity, or capital resources[1426](index=1426&type=chunk) [Risk Factors](index=215&type=section&id=Risk%20factors) This section details known and unknown risks and uncertainties that could materially adversely affect the company's business, financial condition, and results of operations, covering COVID-19, market competition, pricing and reimbursement, product innovation, cybersecurity, legal compliance, political economy, global supply chain, quality and regulatory, M&A, and talent management - The COVID-19 pandemic led to reduced elective surgeries, manufacturing and supply chain disruptions, and restricted commercial activities, adversely impacting the company's revenue growth and profit margins[1428](index=1428&type=chunk)[1429](index=1429&type=chunk) - The company faces a highly competitive market, where competitors' product innovation, price competition, market consolidation, and customer consolidation-driven price pressure could affect its operating performance[1430](index=1430&type=chunk) - The company relies on government and other funding sources, and changes in government policies, reimbursement policies, and healthcare cost containment measures could adversely affect revenue and operating profit[1433](index=1433&type=chunk)[1434](index=1434&type=chunk)[1435](index=1435&type=chunk) - New product development is costly, lengthy, and uncertain; failure to innovate continuously or infringement of intellectual property could harm the company's competitive position and profitability[1437](index

Fourth Quarter and Full Year 2020 Results Forward looking statements and non-IFRS measures This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading profit margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to i ...

Financial Data and Key Metrics Changes - Full year revenue was $4.6 billion, reflecting a 12.1% underlying decline and an 11.2% reported decline, primarily due to COVID-19 impacts [7][27] - Trading profits decreased by 42% to $683 million, resulting in a trading margin of 15% [28] - Adjusted earnings per share were $0.646, a decline of 37% compared to the previous year [29][36] Business Line Data and Key Metrics Changes - Orthopaedics, the largest franchise, saw a revenue decline of 14% to $1.9 billion [31] - Sports Medicine and ENT revenue declined by 13% to $1.3 billion [31] - Advanced Wound Management remained resilient with a decline of only 0.1% [31] Market Data and Key Metrics Changes - In the US, revenue was impacted by the second wave of COVID-19, with around 20 states implementing restrictions on elective surgeries [12][13] - Other established markets declined by 6.2%, with variations by country; UK and Japan improved while France and Italy saw slowdowns [14] - Emerging markets also faced declines, although China showed strong end-user demand [15] Company Strategy and Development Direction - The company plans to maintain investment in R&D and M&A to drive mid-term growth, with an intense period of new product launches planned for 2021 and beyond [6][48] - Focus on maximizing the potential of current product portfolio and delivering value from recent acquisitions [51][52] - A strong emphasis on operational improvements to free up resources for reinvestment [63] Management Comments on Operating Environment and Future Outlook - Management expects continued impact from COVID-19 into the first half of 2021, with uncertainty regarding the timing and extent of recovery [42] - Anticipated substantial underlying growth in 2021 compared to 2020, with established markets expected to recover faster than emerging markets [43] - Management remains optimistic about the pipeline of new technologies and the potential of recent acquisitions [71] Other Important Information - The company proposed to keep the full year dividend unchanged at $0.375 per share, reflecting resilience and a strong balance sheet [9][30] - Net debt increased to $1.9 billion, with a leverage ratio of 1.8 times adjusted EBITDA [40][41] Q&A Session Summary Question: R&D Spend and Clinical Data Needs - Management acknowledged the increasing need for clinical data and confirmed that R&D investment will be higher moving forward, currently at about 6% of sales [76][77] Question: Robotics Adoption - Adoption of the CORI system is expected to grow, with a focus on capturing market share despite entering the market later than competitors [78] Question: RENASYS Market Share - RENASYS previously reached about $100 million in market share, with expectations for further growth due to product quality [79] Question: 2021 Guidance - Management opted for general guidance due to COVID-19 uncertainties, emphasizing confidence in recovery once restrictions are lifted [87][88] Question: Inventory Obsolescence - An increase in inventory obsolescence provision was noted, driven by demand estimates, with no change in accounting policy [92][93] Question: Share Price Performance - Management suggested that external factors, including Brexit, may have contributed to underperformance relative to peers [95][96] Question: Cash and Capital Deployment - The company maintains a strong liquidity position and plans to reinvest in growth and pursue M&A opportunities [109] Question: CapEx Increase - CapEx increased in 2020 primarily due to investments in the Malaysia factory, with expectations for continued higher rates in 2021 [113][114]

Financial Data and Key Metrics Changes - Q3 revenue was $1.2 billion, a decline of 4.2% on an underlying basis and 3.7% on a reported basis [6][12] - The U.S. market returned to growth at 0.9% on an underlying basis, with revenue of $630 million [7][8] - Other Established Markets declined by 6.2% and Emerging Markets by 14.5% [7] Business Line Data and Key Metrics Changes - Orthopedics declined by 2.8% globally, with stronger performance in hips compared to knees [16] - Sports Medicine and ENT declined by 4.5% and Advanced Wound Management (AWM) by 6.1% [16] - Specific growth in Orthopedics was driven by emergency cases and the rollout of the OR3O Dual Mobility Hip System [17] Market Data and Key Metrics Changes - Established Markets showed mixed recovery, with Germany and France returning to growth, while the UK lagged [9][10] - In Asia Pacific, Australia and Japan saw procedure volumes recover to approximately 90% of normal levels [10] - Emerging Markets experienced varied performance, with China recovering strongly while other markets like India and South Africa remained under restrictions [11] Company Strategy and Development Direction - The company remains focused on long-term growth, continuing investments in R&D and M&A despite short-term challenges [14][24] - A conditional agreement to acquire Integra's orthopedics extremities business was announced, viewed as a high-growth category [24][25] - The company is enhancing its mid-term growth profile through product launches and digital technology capabilities [29][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the healthcare system's preparedness for COVID-19 impacts, although visibility remains limited [12][33] - The expectation is that the impact of COVID will continue into the first half of 2021, with full-year guidance withdrawn due to uncertainty [13] - The company aims to consistently outgrow its markets while improving trading profit margins [33] Other Important Information - The company has maintained its sales force without layoffs during the COVID-19 crisis, ensuring stability [93] - There is a focus on operational efficiency plans, particularly in manufacturing and supply chain [15] Q&A Session Summary Question: Differential between hip and knee growth - Management noted that both market factors and specific company factors contribute to the differential, with hips seeing more emergency cases [36] Question: Integra acquisition and expected returns - The acquisition is seen as a mix of technology and commercial capabilities, with a new shoulder system expected in 2022 [38] Question: Bond issue strategy - The company took advantage of low interest rates to diversify funding sources, moving away from reliance on bank loans [40] Question: Integra acquisition rationale - The acquisition complements the reconstruction business and provides access to the shoulder market, enhancing commercial capabilities [45] Question: U.S. Wound Care market trends - Management expects a good fourth quarter in Advanced Wound Management, driven by improvements in bioactives [47] Question: Wound Care market share and geographic mix - The company has a strong business in Europe, which has been more affected by COVID, but does not believe it has lost market share [51] Question: Margin outlook and foreign exchange impact - Transactional FX impact is expected to be around 50 basis points for both 2020 and 2021 [56] Question: Return to positive organic revenue growth - Management is optimistic about returning to growth that exceeds 2019 levels, depending on the management of COVID impacts [62] Question: Competitive dynamics in negative pressure market - The company believes it is well-positioned with strong products like PICO and is regaining market share in hospitals [68][71]

Smith & Nephew plc (NYSE:SNN) Q2 2020 Earnings Conference Call July 29, 2020 3:30 AM ET Company Participants Roland Diggelmann - CEO Ian Melling - Interim Chief Financial Officer Conference Call Participants Patrick Wood - Bank of America Merrill Lynch Kit Lee - Jefferies International Kyle Rose - Canaccord Genuity Christoph Gretler - Credit Suisse Julien Dormois - Exane BNP Paribas Michael Jungling - Morgan Stanley David Adlington - JPMorgan Chase Veronika Dubajova - Goldman Sachs International Tom Jones - ...

Smith Nephew Second Quarter and First Half 2020 Results Forward looking statements and non-IFRS measures This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "wellplaced", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intende ...

Smith & Nephew plc (NYSE:SNN) Q4 2019 Earnings Conference Call February 20, 2020 4:00 AM ET | --- | |--------------------------------------------------------------| | | | Company Participants | | Roland Diggelmann - CEO Graham Baker - CFO | | Conference Call Participants | | David Adlington - JPMorgan Michael Jungling - Morgan Stanley | | | | Kyle Rose - Canaccord Veronika Dubajova - Goldman Sachs | | Tom Jones - Berenberg | | Kit Lee - Jefferies | | Ed Ridley - Redburn | | Chris Gretler - Credit Suisse | | ...

Smith Nephew Fourth Quarter and Full Year 2019 Results Forward looking statements and non-IFRS measures This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "wellplaced", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended ...