snn_Current_Folio

Our culture pillars:

» Care

» Collaboration

» Courage

» Our people page 24

» Financial review page 36

“In-line with corporate governance best practice, the Board has heightened its focus on Smith+Nephew’s new ‘Life Unlimited’ purpose, culture pillars and wider stakeholders.”

Roberto Quarta

Chair

UNITED STATES

SECURITIES AND EX CHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

INFORMATION FOR SHAREHOLDERS (Mark One)


◻	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934


☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019


◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


◻	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-14978

Smith & Nephew plc

(Exact name of Registrant as specified in its charter)

England and Wales

(Jurisdiction of incorporation or organization)

Building 5, Croxley Park, Hatters Lane, Watford, Hertfordshire WD18 8YE

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name on each exchange on which registered
American Depositary Shares Ordinary Shares of 20¢ each	SNN	New York Stock Exchange New York Stock Exchange*

*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

Indicate the number of outstanding shares of each of the issuer’s class of capital or common stock as of the close of the period covered by the annual report: 885,207,373 Ordinary Shares of 20¢ each

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ☒ No ◻

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Yes ◻ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.


Large Accelerated Filer ☒	Accelerated Filer ◻	Non-accelerated filer ◻
Emerging growth company ◻

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. Yes ◻ No ◻

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.


◻ U.S. GAAP		☒ International Financial Reporting Standards as issued by the International Accounting Standards Board
		◻ Other

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ◻ Item 18 ◻

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ◻ No ◻

+Performance

Group revenue KPI $5,138m		Earnings per share (EPS) 68.6¢ -10%	Adjusted Earnings per share1 (EPSA) 102.2¢ +1%
Reported +4.8%	Underlying1 +4.4%
Dividend per share KPI 37.5¢ +4%		Operating profit $815m -6%	Trading profit1 $1,169m +4%
Return on invested KPI capital1 (ROIC) 10.5% -200bps		Operating profit margin 15.9% -170bps	Trading profit margin1 KPI 22.8% -10bps
R&D expenditure $292m +19%		Cash generated from operations $1,370m +24%	Trading cash flow1 $970m +2%

			» Full financial highlights + trend page 36

1These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS on pages 200–204.

At a glance

We are a leading portfolio medical technology company

Who we are



Our purpose Life Unlimited. Smith+Nephew exists to restore people’s bodies, and their self-belief. » Page 16	Our culture Our cultural pillars guide our behaviours and build winning spirit: » Care » Collaboration » Courage » page 24	Our strategy Five strategic imperitives form our value creation plan for the medium term. » page 8	1 Achieve the full potential of our portfolio 2 Transform the business through enabling technologies 3 Expand in high- growth segments 4 Strengthen talent and capabilities 5 Become the best owner

17,500+

employees supporting customers in over

100

countries, supporting healthcare professionals
for more than

160

years

Group revenue

$5,138m

Revenue by franchise

We operate through three global franchises (see pages 18–23).

Revenue by geography

We serve customers in established and emerging markets.

We serve our customers through the global franchises
Orthopaedics Orthopaedics includes an innovative range of Hip and Knee Implants used to replace diseased, damaged or worn joints, robotics-assisted enabling technologies that empower surgeons, and Trauma products used to stabilise severe fractures and correct bone deformities.	Sports Medicine & ENT Our Sports Medicine & ENT (Ear, Nose and Throat) businesses offer advanced products and instruments used to repair or remove soft tissue. They operate in growing markets where unmet clinical needs provide opportunities for procedural and technological innovation.	Advanced Wound Management Our Advanced Wound Management portfolio provides a comprehensive set of products to meet broad and complex clinical needs, to help healthcare professionals get CLOSER TO ZERO human and economic consequences of wounds.

» pages 18-19	» pages 20-21	» pages 22-23
Innovation Smith+Nephew delivers innovation that aims to improve quality of life. New products and business models empower healthcare professionals with options to improve patient outcomes. We develop technology through our global R&D programme, and additionally acquire exciting products where we can add value through technical or commercial acumen.	Manufacturing & quality Smith+Nephew takes great pride in its manufacturing expertise and maintains focus on delivering products that are safe and effective for patients.	19% more invested in R&D in 2019

Culture

In-line with corporate governance best practice, the Board has heightened its focus on Smith+Nephew’s new ‘Life Unlimited’ purpose, culture pillars and wider stakeholders. We closely monitor the executive team’s work to embed the new culture, visiting sites and meeting and talking directly to employees as well as reviewing the results of employee engagement surveys. This work is led by our Compliance & Culture Committee.

Performance

The Board is acutely aware that financial performance is still the principal metric that determines if a company is delivering shareholder value.

In 2019 Smith+Nephew delivered significantly improved revenue growth over the prior year. At the same time, we continued to invest in the business, and completed and integrated a number of acquisitions. The Board endorses the management team’s stated ambition to sustain positive momentum in 2020 whilst continuing to invest for the medium-term.

The Board is pleased to recommend a Final Dividend of 23.1¢ per share. This, together with an Interim Dividend of 14.4¢ per share, will give a total distribution of 37.5¢ per share for 2019, representing year-on-year growth of 4% in the declared full year dividend. This equates to 28.94p per share. In addition to these distributions, shareholders benefitted from a 28.3% increase in the share price over the course of 2019.

Remuneration

We set out our new Remuneration Policy on page 86 of this Annual Report, and will present this for shareholder approval at the Annual General Meeting in April 2020.

The policy is designed to increase strategic alignment to drive top-line profitable and sustained growth, to simplify our remuneration framework and to make it more aspirational to incentivise and drive outstanding performance.

Angie Risley, the Chair of our Remuneration Committee, conducted an extensive shareholder engagement programme, meeting nearly half of our shareholders by value. We are very grateful to all of you who took the time to meet with her and comment on our proposals. We have made some changes reflecting the comments she received and look forward to your support.

Board changes

During 2019 Ian Barlow and Michael Friedman retired from the Board. Ian served as our Senior Independent Director and previously as Chair of the Audit Committee. Michael chaired our Compliance & Culture Committee. I thank them both for their leadership and service. Robin Freestone has succeeded Ian and Marc Owen has succeeded Michael.

2019 was a year of good progress and we enter the new decade as a strong and ambitious Company with a clear and unifying purpose. None of this would be possible without the dedication of our employees and the engagement of our shareholders. On behalf of the Board, I thank both groups for their continued support during what we believe is going to be an exciting new phase for Smith+Nephew.

Yours sincerely,

Roberto Quarta

Chair

Positive 2019 performance

The Group delivered good growth in 2019, with revenue up 4.8% on a reported basis and 4.4% on an underlying basis. Highlights included the double-digit growth from Sports Medicine Joint Repair and China. I was equally pleased with our progress turning around franchises that have underperformed in the past, such as Arthroscopic Enabling Technologies.

We built momentum across the year, and at the same time were able to continue to invest behind our commercial teams and acquisitions to support sustained success over the medium-term. We launched a number of important new products, and brought new technologies and expertise into the business through acquisitions. You will find more detail on all these areas in this report.

The operating profit margin of 15.9% reflects restructuring and acquisition costs. The trading profit margin of 22.8% reflects savings realised under the Accelerating Performance and Execution (APEX) programme offset by re-investment in the business, including more in R&D, and dilution from acquisitions.

2020 priorities

2019 showed that we are on the right path. In 2020 our emphasis is on sustaining the positive momentum.

Our first priority remains commercial execution. All of our franchises are expected to build on 2019, with additional benefits coming from cross franchise opportunities such as the growing ambulatory surgery segment in the US, our strength in the Emerging Markets, and bringing greater rigour to product launches and portfolio management.

Second, we are renewing our commitment to innovation and to bringing the best technology to customers. This means taking our R&D programmes up a level. There are a number of important launches planned for the year, including a new robotics platform. We will also continue to bring new technologies in through acquisitions, such as Tusker Medical, which completed in January 2020 and which gives us a unique technology in the ENT segment, an important area of opportunity for us. We plan to invest more in R&D, both to accelerate the cadence of launches, and to position us at the forefront of converging surgical technologies in areas such as digital health and regenerative medicine.

Third, we see opportunities to drive excellence across our operational backbone. These include operating an optimal facility footprint, driving lean manufacturing methods across our network, identifying opportunities within our supply chain to deliver world-class service levels, and building an ever-more efficient support infrastructure.

We also believe that we can be more responsive to the challenges facing society in areas where we can make a meaningful difference, and have updated our Sustainability Strategy for 2020 and beyond.

Enhancing stakeholder value

2019 has been one of the most successful years in Smith+Nephew’s history and I congratulate and thank our employees for this. However, I have been clear that it is only the start of our transformation. I want us to consistently deliver to high standards, becoming one of the most innovative and fastest growing companies in our medical technology space.

Achieving this requires us to be more agile so that we can move faster and become easier to do business with from our customers’ perspective. In this way we will enhance our value to all our stakeholders over the medium-term and help transform the quality of life for more patients.

Yours sincerely,

Roland Diggelmann

Chief Executive Officer

Review of strategy

Our strategic imperatives

Five strategic imperatives form the basis of our value creation plan for the medium-term. They are designed to help us grow together; not just as a Company, but as a global team, and to do so in an efficient and effective way.

Grow

Together

Effectively

Achieve the full potential
of our portfolio

Strengthen talent
and capabilities

Become the
best owner

Transform the business
through enabling technologies

Expand in high-growth
segments


1	Achieve the full potential of our portfolio This strategic imperative is focused on improving execution to accelerate organic performance. In 2019 we delivered reported revenue growth of 4.8%, a significant improvement over the previous year (2018: 3%).
“Our strong Emerging Markets performance is built upon a deep understanding of our customers and markets developed over many years of service.” Myra Eskes President of Asia Pacific	At the start of 2019 we introduced a new commercial model organised around three global franchises. This new model provides greater insight into customers’ needs, and allows us to bring the full resources of our franchises to meet these. We performed strongly in a number of our higher growth segments in 2019. Sports Medicine & ENT was up 7.0% in 2019, led by a stand out performance from Sports Medicine Joint Repair which delivered double-digit growth in every quarter. Our Emerging Markets business delivered 16.1% revenue growth, and now accounts for 19% of Group revenue. Our R&D team benefitted from greater investment, and launched multiple new platforms and products (see page 28), supporting improved performance at a franchise level, such as in Arthroscopic Enabling Technologies (see page 20). This, coupled with a renewed focus on driving excellence across Quality and Regulatory Affairs, is allowing us to bring new products to market faster across the globe. Our second largest market China grew strongly in 2019, up 24% on a reported basis and 30% on an underlying basis, and is now our second largest market behind the US.
	Reported revenue growth 4.8%


	2019	$5,138m


	2018	$4,904m


	2017	$4,765m



	Review of strategy continued
	2			Transform the business through enabling technologies This strategic imperative focuses on acquiring and developing leading enabling technologies to transform procedures.
				Smith+Nephew is developing a unique approach to create enabling platforms that are both multi-procedural and multi-franchise. In 2019 we announced our strategy to bring together advanced technologies in robotics, digital surgery, and machine learning as well as augmented reality to empower surgeons to improve clinical outcomes. Important steps during the year included the purchase of the Brainlab Orthopaedic Joint Reconstruction business, which will enable us to bring hip navigation to our robotics customers. The two companies are also undertaking an R&D partnership. We launched a new version of our robotics-assisted NAVIO system, NAVIO◊ 7.0, to improve efficiency. And we announced a new robotics R&D centre in Pittsburgh, US, which will open in the first half of 2020. Other areas of focus include orthobiologics, where we recognise the synergy with devices and surgical procedures, forming a Biologics and Regenerative Medicine R&D team in 2019 dedicated to development of innovative orthobiologic products.

				Reduced the number of steps by 40% NAVIO 7.0 incorporates improvements that reduce the number of surgical workflow steps by over 40%. “The potential of computer assisted surgery with robotics is to provide faster, more accurate, reproducible results that enable surgeons to restore quality of life to more patients.” Skip Kiil President of Orthopaedics




	3			Expand in high- growth segments This strategic imperative focuses on accelerating portfolio growth, strengthening our established leadership positions, and driving meaningful synergies.
				In 2019 we acquired a number of valuable technologies that strengthen our portfolio today, and boost our R&D expertise and programmes. Our largest acquisition was Osiris Therapeutics, Inc. (Osiris) for $660 million, which completed in April. Osiris is a fast-growing company delivering regenerative medicine products, including skin, bone-graft and articular cartilage substitutes. The Osiris portfolio has improved the overall growth outlook for Advanced Wound Bioactives. Other acquisitions included Ceterix Orthopaedics, Inc., enhancing our leading position in meniscal repair (see page 20), and the LEAF◊ Patient Monitoring System, supporting our pressure injury prevention strategy (page 23). The Brainlab Orthopaedic Joint Reconstruction business (OJR) and Atracsys fusionTrack 500 optical tracking camera acquisitions brought core enabling technologies that we are integrating into our next generation robotics-assisted surgical platform. We are also investing in developing a turnkey service to support healthcare providers seeking to move orthopaedic cases into ambulatory surgery centers (ASCs) and other outpatient settings. Smith+Nephew is well positioned to assist healthcare providers make the transition as our Sports Medicine franchise has been supporting ASC-based procedures since these centers first appeared and we are a leader in orthopaedic implants and enabling technologies, including robotics. The LENS 4K Surgical Imaging System, a new surgical video platform launched in 2019, is designed for use in ASC and multi-surgery settings.
				“Our M&A strategy is to pursue growth enhancing acquisitions, both in the segments we already operate in, and in adjacent segments where there is attractive growth and a good strategic fit.” Phil Cowdy Chief Business Development and Corporate Affairs Officer



	Review of strategy continued
	4			Strengthen talent and capabilities This strategic imperative focuses on developing a winning culture to improve retention and attract talent.
				In late 2018 we introduced a new corporate purpose ‘Life Unlimited’ and new culture pillars of Care, Collaboration and Courage. These define who we are as a Company and as employees, and create an environment that sets us up for collective success. A new visual brand identity, launched in 2019, both emphasised and underpinned these changes. In 2019 we introduced ‘Winning Behaviours’, a new behavioural competency framework directly linked to the culture pillars to help employees understand how they can demonstrate our culture on a daily basis. We strive to create a working environment that is inclusive and welcomes diversity. New initiatives in 2019 included delivering inclusion training to our top 100 leaders and embedding inclusion in all our leadership development programmes. A strong and consistent culture engages and motivates employees. 2019 was the first year that we used the Gallup Global Engagement Survey to measure progress, and we were pleased that 84% of employees participated. More details of our people and culture programmes can be found on page 24.
				45% of attendees to our Elevate women leadership programme achieved a promotion or changed role in 2019.
				“Our culture pillars are grounded in the service of patients and practitioners and guide employees to work together and encourage continuous learning and improvement.” Elga Lohler Chief Human Resources Officer

Life Unlimited

Underpinned by our culture pillars:

Care

A culture of empathy and understanding for each other, our customers and patients.

Collaboration

A culture of teamwork, based on mutual trust and respect.

Courage

A culture of continuous learning, innovation and accountability.


5			Become the best owner This strategic imperative focuses on driving operational transformation through improved agility, and organisation simplification to deliver profitable growth.
Operating profit margin 15.9% -170 bps Trading profit margin 22.8% -10 bps “We are striving to transform and simplify the organisation, while maintaining our commitments to act ethically and deliver products that are safe and effective for patients.” Melissa Guerdan Chief Quality and Regulatory Affairs Officer			Smith+Nephew strives to deliver products of the highest quality at the right cost whilst maintaining high standards in ethics and compliance. We consistently seek to improve our performance in these areas. Our Accelerating Performance and Execution (APEX) programme, initiated at the end of 2017, is nearing its conclusion and is now expected to deliver annualised benefits of $190 million, $30 million more than originally expected, for a one-off cost of $290 million, $50 million more than originally planned. In 2019 APEX both helped offset the price erosion that is a natural part of our business, and contributed to our trading profit margin of 22.8%. The 2019 operating profit margin includes APEX and acquisition costs. Cash generated from operations was $1,370 million and trading cash flow was $970 million with a good 83% trading profit to cash conversion ratio. In 2020 we expect to sustain the improved performance achieved in 2019, an important step in realising our medium-term ambition to consistently outgrow our markets. In 2019 we updated our Code of Conduct and Business Principles, which governs the way we operate, and all employees received training on this (see page 26). Our Quality and Regulatory Affairs function continued to focus on improving overall Company compliance while supporting our growth objectives by delivering multiple new product approvals as well as registering hundreds of existing products in new markets (see page 31).
			We are proud of our manufacturing expertise.

Our growing markets



	Smith+Nephew competes in large and attractive markets The medical device and supplies segment of the global healthcare industry is worth more than $400 billion per annum. Within this, Smith+Nephew’s product segments are worth around $38 billion, growing at approximately 4% annually.

This growing demand is driven by lifestyle related health conditions, such as diabetes and obesity, becoming ever more prevalent, as well as improvements to life expectancy meaning that there are increasingly more patients in the world. In the emerging markets, these factors are compounded by economic development driving demand, particularly in China and India.

At the same time, governments around the world are trying to reduce the cost of healthcare, especially in hospitals, resulting in a constant downward pressure on pricing. Medical device companies are under pressure to continue to innovate, and also to provide evidence supporting both the clinical and economic benefits of products.

Clinical innovations, financial incentives and patient preferences are also prompting hospitals and health systems to move certain inpatient procedures to outpatient settings. In 2020, nearly 60 percent of US outpatient surgeries will take place in an ambulatory care setting, an increase of 46 percent since 2005.1

The US is expected to continue to lead the medical device industry reaching US$300 billion in annual sales by 2030.2 By this stage, China and India, who are both growing at twice the overall market rate, are expected to be in the top five markets, with over US$200 billion and US$40 billion of sales respectively.2 By 2040, there could be as many as 110 million diabetics in China, and nearly 70 million in India.3 The emerging middle class will also demand more choice over healthcare and have greater expectations of quality of life.

A highly regulated industry

The medical device sector is one of the world’s most heavily regulated industries.

Strict business principles govern the way industry interacts with healthcare professionals and government officials globally, including the AdvaMed Code of Ethics and the MedTech Europe Code of Ethical Business Practice.

Anti-bribery and corruption legislation, including the UK Bribery Act and the US Foreign Corrupt Practices Act, also apply to Smith+Nephew’s global business. There is also a strong focus on compliance and cost control in emerging markets, especially in China. For more information on our approach to compliance see page 26.

National regulatory authorities govern the design, development, approval, manufacture, labelling, marketing and sale of healthcare products. They also review data supporting the products to ensure they are safe and perform as intended.

The majority of countries require products to be authorised or registered prior to entering the market, and such authorisation or registration needs to be subsequently maintained. For example, the US Food and Drug Administration (FDA) continues to conduct increasingly rigorous reviews of technical documentation on the safety and the performance of medical devices for approval. Moreover, the European Union Medical Device Regulations (MDR) came into force in May 2017 with full implementation across Europe from May 2020, imposing tougher requirements of market entry and post-market surveillance of medical devices.

Smith+Nephew’s major regulatory authorities include the US FDA, the Medicines and Healthcare products Regulatory Agency (MHRA) in the UK, the Ministry of Health, Labour and Welfare in Japan, the National Medical Products Administration (NMPA) in China, and the Australian Therapeutic Goods Administration (TGA).

Inspections and audits by these authorities continue to increase year-on-year and involve significant and continued financial and resource investment by Smith+Nephew to respond appropriately.

Geo-political factors

On 31 January 2020, the UK left the European Union (EU), a process known as ‘Brexit’. The UK and EU have entered a transition period which is due to run until 31 December 2020, during which the trading arrangements relating to areas such as tariffs and regulation remain largely the same for the medical technology industry as before the UK’s exit.

During 2020, the UK government and the EU intend to negotiate the future relationship between them. If a new arrangement is agreed, it is expected to take affect at the end of the transition period. Smith+Nephew’s preparations for the UK exiting the EU include transferring certain product registrations from BSI UK to BSI Netherlands and building safety stock. We continue to closely follow the negotiations and have the ability, if required, to make adjustments in our supply chain to protect the Group from the impact of new arrangements after 31 December 2020.

In early 2020, the US and China reached a phase one trade agreement, which alleviates some risk of additional tariffs on exports between the two countries. However, the additional tariffs on some medical devices being exported between the two countries remain in place while both governments begin a second round of negotiations.

In the US, the Medical Device Excise Tax, which had been deferred from 2016 to 2019, was permanently repealed effective 1 January 2020.

The importance of seasonality

There tends to be a higher volume of orthopaedic and sports medicine procedures during the winter months when accidents and sports-related injuries are more frequent. Elective procedures tend to slow down in the summer months due to holidays. Advanced Wound Management is less impacted by seasonality due to the nature of the products.

At Smith+Nephew, the majority of our business is in the northern hemisphere, including approximately 50% in the US and 20% in Europe. In the US, out-of-pocket costs for health insurance plans are tied to medical expenses in a calendar year. As a result, households that have reached their annual deductible amount and/or annual out-of-pocket cap before year’s end will find it to be cost-effective to schedule necessary procedures later in that year rather than delaying into the next year.

References

Becker’s ASC Review: 4 trends driving change in healthcare.

KPMG: Medical devices 2030: Making a power play to avoid the commodity trap.

TranslateMedia: How China and India are disrupting the global healthcare sector.

Competition

Smith+Nephew’s three global franchises have several major competitors which differ with respect to product focus, geographic reach and scale. For example, our main surgical competitors are larger in scale and tend to be more exposed to the US, whereas the majority of our key wound competitors are not US-centric.

In our Orthopaedic franchise we are one of four leading players, competing against US-based companies Stryker, Zimmer Biomet and DePuy Synthes (a Johnson & Johnson company). In Sports Medicine, Smith+Nephew holds a leading position behind Arthrex (US), and also competes against Stryker and DePuy Synthes.

We are the second largest global Advanced Wound Management business. In the Advanced Wound Care sub-segment we compete with Mölnlycke (Sweden) and ConvaTec (UK). In Advanced Wound Devices, we are the primary challenger to Negative Pressure Wound Therapy incumbent Acelity (US), which was acquired by 3M in 2019. In our Advanced Wound Bioactives franchise, we have leadership positions in our respective categories.

Market size1

Orthopaedics

Sports Medicine2

Advanced Wound
Management

Hip and
Knee Implants

Trauma and
Extremities

$14.8bn

$6.2bn

$5.3bn

$9.4bn

+3%

+4%

+5%

+4%

Smith+Nephew

12%

Smith+Nephew

26%

Smith+Nephew

14%

Zimmer Biomet

32%

DePuy Synthes3

42%

Arthrex

33%

3M4

19%

Stryker

22%

Stryker

27%

Stryker

11%

Mölnlycke

DePuy Synthes3

19%

Zimmer Biomet

11%

DePuy Synthes3

13%

ConvaTec

Others

15%

Others

12%

Others

17%

Others

51%

Data used in 2019 estimates generated by Smith+Nephew is based on publicly available sources and internal analysis and represents an indication of market shares and sizes.

Representing repair products and arthroscopic enabling technologies, and excluding ENT.

A division of Johnson & Johnson.

3M acquired Acelity in 2019.

Our business model

Value creation is driven by our purpose,
culture pillars and strategic imperatives

Our resources	» Creating value through

Our people & culture Attracting, developing and retaining the best employees is important. We strive to build a purpose-driven culture based on strong and authentic values. Ethics & compliance Committed to doing business the right way, compliance is embedded in the way we work. Sales & marketing Supporting customers through highly specialised sales teams with in-depth technical product knowledge that surgeons and nurses value greatly. Manufacturing & quality Operating global manufacturing efficiently and to high standards to ensure quality and competitiveness. Medical education Supporting the safe and effective use of our products through medical education. Research & development Innovation is part of our culture and we are increasing the amount we invest in new products. Sustainability We focus on three aspects of sustainability; economic prosperity, social responsibility and environmental stewardship. » See page 24 for our resources	Purpose-driven culture Having a clear purpose gives employees a sense of belief and determination. This supports a strong culture which improves performance across the business both in terms of financial and non-financial value. » See page 24 to read about our purpose at work in the business	Strong product portfolio We have market-leading technology across our broad range of products. We deploy our capital to drive continued innovation from our R&D programmes and invest in product and technology acquisitions which improve outcomes and widen access to life-changing care. » See pages 18-23 to read more about our products at work.
	Life Unlimited
	Strategic imperatives Our five strategic imperatives are fundamental to how we focus the resources of the business to maximise commercial impact in our markets. They form the basis of our value creation plan for the medium term. » See page 8 to read about our strategy in action and how it creates value	Customer centricity Serving our customers is at the heart of our business model. We have a global franchise model led by management who are specialists in their areas. This keeps us close to our customers, ensuring we can anticipate and meet their needs. » See pages 18-23 to read more about the performance across our franchise areas

» Value delivered in 2019

Revenue	Operating profit	Trading profit1	Efficiency savings
$5,138m	$815m	$1,169m	$80m
Dividend	Jobs	Practitioner training instances	Philanthropic donations
$318m	17,637	110,000+	$13m

» See page 36 for our financial review

Shareholders

In 2019 we were pleased to deliver a 4% increase in dividend, in-line with our progressive policy. Shareholders also benefitted from a 28.3% increase in share price over the year.

Patients

Our products are used in more than 100 countries to improve the quality of life of patients. We strive to widen access to such technology, with 19% of revenue now coming from the Emerging Markets.

Customers

We continue to bring new, innovative products to customers, and support these with clinical evidence, as well as delivering professional development training to healthcare professionals around the world.

Employees

In 2019 we improved our employee engagement and promoted diversity and inclusion.

Communities

We aim to work in a sustainable, ethical and responsible manner, supporting local charities, and reducing our environmental footprint.

» See page 24 for our resources

These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS on pages 200–204.

Our franchises

Orthopaedics

Enhancing quality of life

Smith+Nephew’s Orthopaedics franchise includes an innovative range of Hip and Knee Implants used to replace diseased, damaged or worn joints, robotics-assisted enabling technologies that empower surgeons, and Trauma products used to stabilise fractures and correct bone deformities.

Performance

		2019		2018
Franchise revenue		$2,222m		$2,168m
Franchise profit		$666m		N/A

	2019 Revenue		2019 Reported growth	2019 Underlying growth*
Knee Implants	$1,042m		2.5%	4.4%
Hip Implants	$613m		0.0%	2.1%
Other Recon	$79m		27.9%	12.6%
Trauma	$488m		2.4%	4.3%

Knee Implants

Smith+Nephew’s specialised knee replacement systems include leading products for total, partial and patellofemoral joint resurfacing procedures.

The JOURNEY◊ II Total Knee Arthroplasty system is demonstrated to replicate normal knee positions, shapes, and motions.1–3 The LEGION◊/GENESIS◊ II Total Knee System is a comprehensive system which includes the LEGION Revision Knee System, designed to offer surgeons improved options to deal with the complexities associated with revision knee arthroplasty. Both of these systems feature VERILAST◊ Technology, our advanced hard-wearing bearing surface of OXINIUM◊ Oxidized Zirconium with highly cross-linked polyethylene.

Hip Implants

Smith+Nephew’s range of specialised products for reconstruction of the hip joint include the ANTHOLOGY◊ Hip System, SYNERGY◊ Hip System and the POLAR3◊ Total Hip Solution. In Q4 2019 we announced OR3O◊, our new Advanced Dual Mobility system. All these systems feature VERILAST.

The diversity of our portfolio exemplifies our commitment to providing surgeons with implant and instrumentation options that meet the specific demands of their patients and preferred surgical approach. We also market the BIRMINGHAM HIP◊ Resurfacing (BHR) System, an important option for surgeons treating suitable patients.

Smith+Nephew’s portfolio includes the REDAPT◊ Revision Hip System. The REDAPT Fully Porous and Modular Acetabular Cups with CONCELOC◊ Technology is designed to allow ingrowth through an additive, or 3D printing, manufacturing process which produces a porous implant designed to mimic the structure of cancellous bone.

Other Reconstruction

The NAVIO◊ Surgical System utilises real-time imaging (without the need for a pre-operative CT scan), hand-held robotics and a portable cart. NAVIO offers both partial and total knee options that include the first and only robotics-assisted bi-cruciate retaining knee procedure commercially available.

We enhanced our offering in 2019 with the acquisition of Brainlab’s Orthopaedic Joint Reconstruction business. The transaction included the Brainlab hip software, and we expect to introduce a new hip application in early 2020. For more details on our digital surgical robotics ecosystem see page 10.

This franchise also includes Smith+Nephew’s diverse portfolio of bone cement and accessory options.

“With high quality products utilising differentiated materials and backed by strong data, our Orthopaedics franchise is well-positioned for further growth.”

Skip Kiil

President of Orthopaedics

Trauma

In Trauma, the TRIGEN◊ INTERTAN◊ hip fracture system allows patients to experience lower risk of implant failure and non-union, reduced post-operative pain, faster time to fracture union, and a proven high return to pre-fracture status.4 The EVOS◊ SMALL Plating System is an expansive, user friendly system with multiple fixation options including non-locking, locking, variable-angle locking, optimised plate contours and screw trajectories as well as a low profile construct designed to give patients stability and flexibility. For extremities and limb restoration, our range includes the TAYLOR SPATIAL FRAME◊ External Fixator as well as plating systems and soft tissue repair products.

Our performance in 2019

Our Orthopaedics franchise delivered 4.0% underlying revenue growth* in 2019, an improvement over the 3% growth in 2018.

Knee Implants revenue growth was led by demand for our JOURNEY II and LEGION Revision knee systems and was strongest outside of the US.

Hip Implants revenue growth was led by demand for the POLAR3 total hip solution, with its class-leading survivorship data. The REDAPT Revision Hip System also drove performance in this franchise in 2019.

Other Reconstruction delivered double-digit revenue growth, and benefitted from strong capital sales in the fourth quarter.

Trauma revenue improved on 2018 led by sustained double-digit growth from the INTERTAN Intertrochanteric Antegrade Nail and the roll-out of the EVOS System across the year.

References

Murakami K, Hamai S, Okazaki K, et al. Knee kinematics in bi-cruciate stabilized total knee arthroplasty during squatting and stair-climbing activities. J Orthop. 2018;15:650-654.

Grieco TF, Sharma A, Dessinger GM, Cates HE, Komistek RD. In Vivo Kinematic Comparison of a Bicruciate Stabilized Total Knee Arthroplasty and the Normal Knee Using Fluoroscopy. J Arthroplasty. 2018;33(2):565-571.

Iriuchishima T, Ryu K. A comparison of Rollback Ratio between Bicruciate Substituting Total Knee Arthroplasty and Oxford Unicompartmental Knee Arthroplasty. J Knee Surg. 2018;31(6):568-572.

Data on file with Smith+Nephew. 05036 V2 TRIGEN INTERTAN Claims Brochure 0817.

These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS on pages 200–204.

OR3O◊
We are excited to be launching OR3O◊, our new Advanced Dual Mobility system incorporating our proprietary VERILAST technology, giving us access to an important product segment that we have not been active in.

Our franchises continued

Sports Medicine & ENT

operates in growing markets where unmet clinical needs provide opportunities for procedural and technological innovation.

Innovative technology for minimally invasive surgery

Smith+Nephew’s Sports Medicine & ENT franchise operates in growing markets where unmet clinical needs provide opportunities for procedural and technological innovation.


Performance

		2019		2018
Franchise revenue		$1,536m		$1,461m
Franchise profit		$489m		N/A

	2019 Revenue		2019 Reported growth	2019 Underlying growth*
SMJR	$794m		10.8%	12.3%
AET	$591m		-1.5%	0.8%
ENT	$151m		4.9%	6.7%

Sports Medicine Joint Repair (SMJR)

In Sports Medicine Joint Repair, our technologies, instruments and implants enable surgeons to perform minimally invasive surgery of the joints, including the repair of soft tissue injuries and degenerative conditions of the shoulder, knee, hip and small joints.

For shoulder repair, we market products primarily for Rotator Cuff Repair (RCR) and instability repair, two of the most common sports medicine procedures. Key shoulder repair products include suture anchors such as the open-architecture HEALICOIL◊ Suture Anchor, SUTUREFIX◊ and Q-FIX◊ All-Suture Anchors. The portfolio also includes suture passers such as FIRSTPASS◊. The REGENETEN◊ Bioinductive Implant enhances the body’s natural healing response to support growth of new tendon-like tissue,1–2 further enhancing our RCR portfolio.

In knee repair, the NOVOSTICH◊ PRO Meniscal Repair System, acquired in 2019, addresses complex meniscal tear patterns not adequately served by other repair systems, including horizontal cleavage tears affecting approximately one-third of meniscal repair patients.3 It is highly complementary to our FAST-FIX◊ 360 Meniscal Repair System, which addresses vertical tears, the most commonly repairable meniscal injury. For ligament reconstructions, our portfolio gives surgeons multiple tools to perform single and complex repairs. This includes fixed and adjustable loop devices (ENDOBUTTON◊ and ULTRABUTTON◊), interference screws (BIOSURE◊), as well as a reconstruction guide system (ACUFEX◊ EXTRA-ARTICULAR).

Smith+Nephew offers implants made from a variety of biocompatible materials, including next-generation anchors made of soft, all-suture material and REGENESORB◊, an advanced biocomposite.

Arthroscopic Enabling Technologies (AET)

AET products facilitate the practice of arthroscopic surgery. These include high definition imaging solutions, industry leading energy-based and mechanical resection platforms, and fluid management and access technologies. Our platforms work in concert to facilitate access to various joint spaces, visualise the patient’s anatomy, resect degenerated or damaged tissue and prepare the joint for a soft tissue repair.

The WEREWOLF◊ and QUANTUM 2◊ COBLATION◊ Controllers enable surgeons to remove soft tissue precisely4 and control bleeding in a variety of arthroscopic procedures. COBLATION Technology, and the FLOW 50◊ Wand, have demonstrated faster patient recovery5 and better long-term patient outcomes5–7 in knee procedures compared to mechanical debridement. Launched in 2019, the WEREWOLF FLOW 90◊ Wand with FLOW~IQ◊ Technology brings this technology to shoulder repair.

Adding to our DYONICS◊ PLATINUM Blades portfolio in 2019, the BONECUTTER◊, 3.5mm PLATINUM INCISOR◊ PLUS and 3.5mm PLATINUM SYNOVATOR◊ Blades show significantly faster resection rates and lower to no incidents of clogging compared with competitive blades.8

“We are proud that through our leadership and innovation we are helping to bring the benefits of soft tissue repair to many more patients every year.”

Brad Cannon

President of Sports Medicine & ENT

Our LENS 4K Surgical Imaging System offers exceptional image quality, connectivity and workflow integration to benefit ambulatory and multi-specialty surgical centres.

Ear, Nose & Throat (ENT)

In ENT, our COBLATION Plasma Technology, which has been used to remove tonsils and adenoids for over 15 years, has an ability to remove tissue at low temperatures with minimal damage to surrounding tissue.9 The technology is also marketed for use in turbinate and laryngeal procedures.

Our ENT portfolio also includes the RAPID RHINO◊ product line which features a wide range of dissolvable and removable postoperative nasal dressings, as well as a comprehensive portfolio of epistaxis solutions.

Our performance in 2019

Our Sports Medicine & ENT franchise achieved 7.0% underlying revenue growth* in 2019, an improved performance over the 2% growth in 2018.

Sports Medicine Joint Repair delivered four straight quarters of double-digit growth. Performance was consistent across both our knee and shoulder repair ranges, including growing contributions from the recently acquired REGENETEN Bioinductive Implant for rotator cuff repair and NOVOSTITCH Meniscal Repair System.

Arthroscopic Enabling Technologies finished the year strongly with recent product launches, including the WEREWOLF FLOW 90 Wand with FLOW~IQ Technology, new mechanical resection blades, and the LENS 4K Surgical Imaging System, all contributing to an improved growth profile.

In ENT we continued to successfully convert surgeons conducting tonsil and adenoid procedures with traditional surgery approaches to using our COBLATION technology. In Q1 2020 we acquired Tusker Medical, Inc., developer of Tula, a new system for in-office delivery of ear tubes to treat recurrent or persistent ear infections which is highly complementary to our existing ENT portfolio, with the same customer and patient populations.

References

Schlegel TF, et al. J Shoulder Elbow Surg. 2918; 27; 242-251.

Bokor DJ, et al. MLTJ. 2016;6(1):16-25.

Metcalf MH, Barrett GR. AJSM. 2004;32(3):675-680.

Amiel D, et al. Arthroscopy. 2004;20(5):503-510.

Spahn G, et al. Knee Surg Sports Traumatol Arthrosc. 2008;16(6):565–573.

Spahn, G, et al. Arthroscopy. 2010;26(Suppl 9):S73-80.

Spahn G, et al. Knee Surg Sports Traumatol Arthrosc. 2016;24(5):1560-1568.

Competitive testing report 15007992.

Woloszko J, et al. Proc of SPIE. 2003;4949:341-352.

2018 SmartTRAK US Meniscal Repair Fixation market report.

These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS on pages 200–204.


NOVOSTITCH◊ PRO
There are currently more than 1.2 million meniscal tears treated surgically in the US each year with only 15–20% of the cases receiving a meniscal repair, rather than removal.10 With products like NOVOSTITCH◊ PRO and FAST-FIX 360, we see the opportunity to double this proportion in the medium term.

Our franchises continued

Advanced Wound Management

operates in growing markets where unmet clinical needs provide opportunities for procedural and technological innovation.

Reducing the human and economic burden of wounds

Smith+Nephew’s extensive Advanced Wound Management portfolio is designed to meet broad and complex clinical needs, helping healthcare professionals get ‘CLOSER TO ZERO’ human and economic consequences of wounds.


Performance

		2019		2018
Franchise revenue		$1,380m		$1,275m
Franchise profit		$370m		N/A

	2019 Revenue		2019 Reported growth	2019 Underlying growth*
AWC	$714m		-3.5%	-0.2%
AWB	$424m		32.3%	-0.4%
AWD	$242m		12.8%	15.7%

Advanced Wound Management

With the prevalence of chronic wounds in the UK alone growing at around 12% annually1 and increasing pressure on resources, there is a need for consistent, intuitive clinical practice that promotes both prevention and healing and provides structured and measureable outcomes.

Smith+Nephew promotes best practice guidelines, including the globally recognised T.I.M.E. principles, which were first published in 2003 and later revised as the T.I.M.E. clinical decision support tool (CDST) in 2019, offering a systematic approach to wound healing.2 T.I.M.E. is an acronym representing the critical barriers to wound healing: Tissue non-viable, Infection/ inflammation, Moisture imbalance, and Edge of wound non-advancing.

T.I.M.E. is the most recognised assessment tool in wound care,2 and having supported T.I.M.E. since its inception, Smith+Nephew is uniquely positioned to provide customers with a set of comprehensive products in Advanced Wound Care (AWC), Advanced Wound Bioactives (AWB) and Advanced Wound Devices (AWD) across each T.I.M.E. based clinical need.

Advanced Wound Care (AWC)

Our AWC range covers several segments aimed at helping improve outcomes in the Infection and Moisture balance clinical goals of T.I.M.E.

In infection management, our silver-based ACTICOAT◊ Antimicrobial Barrier Dressings, DURAFIBER◊ Ag Absorbent Gelling Silver Fibrous Dressing, and ALLEVYN◊ Ag Antimicrobial Foam Dressing, provide clinicians with a range of solutions to address individual patient needs in managing wound infection.

In exudate or moisture management, our products are designed to respond to varying levels of wound exudate providing appropriate wound fluid absorption, lock in and evaporation properties to promote an optimal wound healing environment. Our key growth brand in this space is the ALLEVYN range with two focus variants; ALLEVYN Gentle Border Foam Dressing, a range of versatile foam dressings to suit multiple wound types, and ALLEVYN LIFE Foam Dressing, our most advanced dressing, uniquely differentiated by its distinct quadrilobe shape and with the EXUMASK◊ Change Indicator, the dressing last up to 1.9 times longer than other foam dressings.3

The AWC range also includes film and post-operative dressings, skincare products and gels. Leading brands include OPSITE◊ Film Dressings, IV3000◊ Moisture Responsive Intravenous Catheter Dressing, and the PROSHIELD◊ Skin Care and SECURA◊ Skin Care ranges.

Advanced Wound Bioactives (AWB)

Our AWB portfolio covers key product segments aimed at helping improve outcomes in the tissue viability and wound edge advancement clinical goals of T.I.M.E.

“Our broad portfolio helps healthcare providers prevent and treat wounds as well as conserve resources for healthcare systems.”

Simon Fraser

President of Advanced Wound Management

AWB topical biologics and skin substitutes provide a unique approach to debridement, dermal repair, and tissue regeneration. Our portfolio includes Collagenase SANTYL◊ Ointment 250 units/gram, our most significant product by sales in this segment, as well as REGRANEX◊ (becaplermin) gel 0.01%, OASIS◊ Wound Matrix and OASIS ULTRA Tri-Layer Matrix, a naturally-derived, extracellular matrix replacement product indicated for the management of both chronic and traumatic wounds.

Expanding our skin substitute product range, GRAFIX◊ Cryopreserved Placental Membrane and STRAVIX◊ Cryopreserved Umbilical Tissue, acquired in 2019 with Osiris, are intended for application directly to acute and chronic wounds and as surgical cover or wrap to support soft tissue repair. For more information on this acquisition see page 11.

Advanced Wound Devices (AWD)

In AWD, our portfolio helps improve outcomes in the tissue viability, moisture balance, and wound edge advancement clinical goals of T.I.M.E.2

The PICO◊ 7 Single Use Negative Pressure Wound Therapy System (sNPWT) with AIRLOCK◊ Technology brings the effectiveness of traditional NPWT in a modern, small portable system, and is applicable for both open wounds and closed incisions. We expanded the range in 2019 with the launch of PICO 7Y sNPWT, enabling the utilisation of two dressings concurrently from one pump, in practice allowing for two wounds to be addressed at the same time, as well as with the launch of PICO 14 sNPWT, a variant that can be used to treat a wound for up to 14 days. New 2019 guidance from the UK’s National Institute for Health and Care Excellence (NICE) states that PICO sNPWT should be considered as an option for closed surgical incisions in patients who are at high risk of surgical site infections (SSIs).4

Our AWD portfolio also includes the LEAF◊ Patient Monitoring System, acquired in 2019, a wireless, patient wearable sensor that monitors patient position and orientation to automate and document the management of prescribed patient turn protocols. This is an important tool in a hospital’s pressure injury prevention strategy.

The AWD portfolio also includes our traditional RENASYS◊ Negative Pressure Wound Therapy System and the VERSAJET◊ Hydrosurgery System, a surgical debridement device.

Our performance in 2019

Our Advanced Wound Management franchise delivered 2.2% underlying revenue growth* in 2019, an improvement over the flat growth in 2018.

Advanced Wound Care declined in 2019. Whilst we improved performance in Europe across the year, this was offset by price pressure in the US.

Advanced Wound Bioactives performance improved over 2018. Reported growth reflects the acquisition of Osiris which has also improved the underlying growth profile from -6% in 2018.

Advanced Wound Devices delivered four quarters of double-digit growth. This reflected continued strong demand for PICO and an increasing contribution from RENASYS across the year.

References

Guest J F, Vowden K, Vowden P. The economic burden that acute and chronic wounds impose on an average clinical commissioning group/health board in the UK. J Wound Care 2017; 26(6):292-303.

Moore Z, Dowsett C, Smith G, et al. TIME CDST: an updated tool to address the current challenges in wound care. J Wound Care 2019; 28(3):154-161.

Joy H, et al. A collaborative project to enhance efficiency through dressing change practice. J Wound Care 2015;24(7):312,314-7.

NICE Medical Technology Guidance MTG43. PICO Negative Pressure Wound Dressings for closed surgical incisions. May 9th 2019 https://www.nice.org.uk/

* These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS on pages 200–204.

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A new model
of care

Throughout 2019 Smith+Nephew and a panel of clinicians in the UK started implementing a new digital clinical decision support tool (CDST), a patient-centric approach to offer a systematic, holistic and multidisciplinary daily practice that aims to improve outcomes.

Designed to help ensure clinical decision making follows best practice, the CDST also helps to ensure product selection is appropriate, reducing waste and optimising clinical outcomes, as well as potentially releasing nurse time.2

Our resources

Our people & culture

A culture of Care, Collaboration and Courage

Smith+Nephew has a proud history of more than 160 years of improving health around the world. Whilst we have grown significantly from our beginnings as a small family pharmacy in Hull, England, our caring spirit has remained the same.

Our culture of Care, Collaboration and Courage defines who we are as a Company and as employees, and creates an environment that sets us up for collective success. A strong and consistent culture engages and motivates employees, creates a community where they understand our strategy and purpose, makes them feel valued for their contributions to it, and drives behaviours that help us realise our business ambitions.

2019 was the first year that we used the Gallup Global Engagement Survey to measure how well our employees are engaged, and to determine where we need to focus and improve the employee experience. This decision to prioritise and measure engagement, rather than satisfaction, was driven by our new culture.

More than 14,300 – or 84% – of our employees gave feedback about the state of engagement at Smith+Nephew. Our scores were highest where we have focused our efforts: sense of purpose, pride, and commitment to quality work, with more to do in the areas of recognition and development. Every manager received a results report for his or her team, and worked with them to set action plans for improvement.

Care

Our culture pillar of Care means that we show empathy and understanding for each other, our customers and patients, and our communities. We anticipate their needs and deliver the highest levels of innovation and service.

Smith+Nephew is committed to caring for its employees, providing benefits such as employee assistance and wellness programmes. In 2019, we increased our focus on promoting mental health awareness, piloting mental health first aid training to volunteer employees in the UK.

We encourage employees to support external community or charity initiatives by providing a full day of paid time for volunteering. In 2019, employees donated more than 10,000 hours to support worthy initiatives outside of work. Some groups use this time for team building activities. For example, our team in South Korea volunteered for Habitat for Humanity during the year, helping low-income people access better housing. Increasing the number of employees using volunteering time is one of the objectives of our new social responsibility strategy, described in more detail in our 2019 Sustainability Report.


	Committed to our employees
	Smith+Nephew is committed to caring for its employees, providing benefits such as employee assistance and wellness programmes.

Collaboration

Our culture pillar of Collaboration aims to foster successful teamwork based on mutual trust and respect. Through transparent and respectful communication, we are motivated by a shared purpose and understand the impact of our individual contributions on our collective goals.

This commitment to communication starts at the top. On a quarterly basis, the Chief Executive Officer and members of the executive team lead a live global webcast. This includes updates on the business and gives employees around the world the chance to ask questions in real-time.

We encourage networking through various groups and activities as it fosters a strong culture of Collaboration across the business. This includes our Young Professionals (SNYP) network set up by employees in Memphis (US), which has grown into a global initiative scheduling both professional development opportunities and social activities.

Our peer-to-peer recognition programme – called Going the Extra Mile (GEM) – gives employees the opportunity to say ‘thank you’ to colleagues.

We strive for a culture where everyone is working collaboratively, has a voice, is heard and is respectful of other’s needs. Building inclusion and embracing diversity is vital and strengthens our business as the variety of perspectives, experience and work styles enhance creativity and innovation. We are committed to employment practices based on equal opportunities, regardless of race, ethnicity, gender, sexual orientation, socio-economic status, age, physical abilities, religious beliefs, political beliefs, or other ideologies.

In 2019 we recruited through more channels in order to improve diversity across new hires and we are exploring the use of technology to remove bias or subjectivity from our hiring processes. We also delivered inclusion training to our top 100 leaders and in all our leadership development programmes, as well as to our Talent Acquisition and HR teams involved in recruiting. We continued to develop our female leaders in 2019, with up to 200 female employees enrolling in our ‘Elevate’ female leaders programme each month, and 45% of participants achieved a promotion or new role during the year.

Courage

Our culture pillar of Courage encourages continuous learning, innovation and accountability. By staying curious, thinking big and having the humility to challenge our conventional ways of thinking, we push the boundaries of our industry, and we do so ethically and with integrity.

Every year, Smith+Nephew sets out clear and measurable Group objectives based upon our strategic imperatives, which are directly linked to personal objectives of all employees. This enables employees to clearly see how their efforts contribute to the overall success of the business, which drives execution, accountability and engagement.

In 2019 we launched ‘Winning Behaviours’, a behavioural competency framework directly linked to our culture pillars of Care, Courage and Collaboration. It supports employee development by helping employees understand how they can demonstrate our culture on a daily basis. Our recruitment and assessment approach, and our performance management and talent management processes, all directly align to these Winning Behaviours.

Smith+Nephew’s compensation strategy supports high-performance and accountability across both financial and cultural performance metrics. A robust compensation framework is vital in attracting, retaining, and motivating high calibre people, driving better business results across an equitable work environment. Our UK Gender Pay ratios improved in 2019 (see page 119) and we are Living Wage Accredited in the UK, voluntarily paying above the government required minimum. We also offer an all-employee share plan scheme to the majority of employees globally.

The Board’s Compliance & Culture Committee closely monitors our programmes to embed the new culture, visiting sites and meeting and talking directly to employees, as well as reviewing the Gallup results. More details of the Committee’s 2019 activities can be found on page 80, alongside its 2020 plans to assess the culture and track progress.

Total employees1

17,637

Senior managers2,3 and above

947

Board of Directors

Male

58%

Female

42%

Male

70%

Female

30%

Male

67%

Female

33%

1Number of employees at 31 December 2019 including part time employees and employees on leave of absence.

2Senior managers and above include all employees classed as Directors, Senior Directors, Vice Presidents, Executive Officers and includes all statutory directors and Directors of our subsidiary companies.

3For 2019 we have updated our definition of senior managers to include employees classed as Director and above but who do not have direct reports.

» For more information about how we are putting people first, download our Sustainability Report from our website

Our resources continued

Ethics & Compliance

Smith+Nephew has a strong reputation for integrity and ethical conduct

At Smith+Nephew we are committed to integrity, honesty and professionalism in all aspects of our business.

Code of Conduct and Business Principles

We believe that it is a privilege to provide products and services for patients and healthcare professionals. We believe that everyone who works for us – or on our behalf – shares the responsibility for upholding our reputation for integrity and ethical conduct, and that the sustainability of our business depends on doing things the right way.

Our Code of Conduct and Business Principles governs the way we operate, taking into account ethical, social, environmental, legal and financial considerations as part of Smith+Nephew’s operating methods. We have a robust whistle-blowing system in all jurisdictions where we operate, which is benchmarked against industry metrics.

Global Compliance Programme

Smith+Nephew has implemented what we believe to be a world-class Global Compliance Programme that helps our businesses comply with applicable laws and regulations.

As part of the programme, we provide resources and tools to guide employees to make decisions that comply with the law, local industry codes and our Code of Conduct. Significant interactions with healthcare professionals and government officials are reviewed and approved in advance, and we regularly assess existing and emerging risks in the countries in which we operate.

Compliance controls at Smith+Nephew are also reviewed regularly, and we conduct audits, supported by data analytics, with central and local monitoring.

We work with third parties who adhere to business principles and health, safety, social and environmental standards consistent with our own. New distributors and other higher-risk third parties are subject to screening, compliance training and certification.

Senior leaders, including all Vice Presidents and above, are required to complete an annual certification to the Chief Executive Officer to confirm the implementation of required policies. Managers and employees complete an annual compliance certification and conflict of interest disclosure.

The programme is reviewed and developed regularly.

An ethical employer

At Smith+Nephew, we recruit, employ and promote employees on the sole basis of the qualifications and abilities needed for the work to be performed. We do not tolerate discrimination on any grounds and provide equal opportunity based on merit.

We do not use any form of forced, compulsory or child labour. Smith+Nephew supports the Universal Declaration of Human Rights of the United Nations, respecting the human rights, dignity and privacy of individuals and their right to freedom of association, freedom of expression and the right to be heard.

As a global medical technology business, we recognise our responsibility to take a robust approach to preventing slavery and human trafficking. Smith+Nephew is committed to preventing such activities in all of its corporate operations and in its supply chains. Our full policy on modern slavery is available on our website.

Sales & marketing

Customers are at the heart of our business model

Healthcare professionals are our customers, and they can range from orthopaedic surgeons to wound care nurses, general practitioners and other clinicians, but increasingly also economic stakeholders such as purchasing professionals in hospitals and healthcare insurers.

Smith+Nephew has a global franchise structure with dedicated global presidents of Orthopaedics, Sports Medicine & ENT and Advanced Wound Management leading customer facing activities. Each president has global upstream marketing responsibility as well as commercial responsibility for the US, our largest market. The franchises share global commercial support teams in the areas of medical education, sales training, marketing services and healthcare economics.

Aligned with and supporting the franchises are presidents and regional commercial organisations for Europe, Middle East and Africa (EMEA), and Asia Pacific (APAC). Under these presidents are country clusters, based on geographic proximity, critical mass of revenue, and similar go-to-market strategies. They are led by managing directors with business unit leads for each franchise.

Our sales representatives are highly trained and skilled individuals. Depending on their area of specialism, representatives in our surgical businesses will not only know the devices that they sell, but also have a detailed knowledge of the surgical instruments used to implant them, and specific understanding of the various surgical techniques a customer might use.

Once a sales representative is trained and certified, they typically spend the majority of their time working directly with and supporting customers to aid in the safe and effective use of our advanced medical technologies, or identifying and contacting new customers.

In Advanced Wound Management, sales representatives have deep knowledge of how clinicians seek to prevent and treat wounds, as well as an understanding of the economic benefits of using our products within treatment protocols.

We pride ourselves on giving customers a high standard of service and invest in developing our sales and marketing organisation. In 2019 we renewed this commitment by introducing a new Global Commercial Training and Education structure, which delivers a more consistent content and curriculum-based approach, coupled with deep commercial training specialisation in key markets.


	Award winning training
	Our training team has won many awards for its training programmes, especially for its use of digital and mobile technology.



		Purpose Life Unlimited captures the essence of our purpose to improve the health issues that hinder people from living their lives to the fullest. We design and make technology that takes the limits off living, and we help healthcare professionals achieve the same goal. Together we improve life, while also improving performance.
Strategic report
At a glance	2
Chair’s statement	4
Chief Executive Officer’s review	6
Review of strategy	8
Our growing markets	14
Our business model	16
Our franchises	18
Our resources	24
Sustainability	32
Chief Financial Officer’s review	36
Financial review	38
Risk report	40

Governance in action
Letter from the Chair	52
Board leadership and purpose	54
Nomination & Governance Committee report	69
Audit Committee report	72
Compliance & Culture Committee report	80
Directors’ Remuneration report	86

Accounts
Statement of Directors’ responsibilities	122
Report of Independent Registered Public Accounting Firm	123
Critical judgements and estimates	130
Group income statement	131
Group statement of comprehensive income	131
Group balance sheet	132
Group cash flow statement	133
Group statement of changes in equity	134
Notes to the Group accounts	135
Company financial statements	185
Notes to the Company accounts	187

Other information
Group information	193
Other information	198	» People + Culture page 24
Shareholder information	205	» People + Culture page 24