Filed Pursuant to Rule 424(b)(2)

Registration Statement No. 333-249255

 

The information in this preliminary prospectus supplement is not complete and may be changed. A shelf registration statement relating to these securities has become effective upon filing with the Securities and Exchange Commission. We are not using this prospectus supplement or the accompanying prospectus to offer to sell these securities or to solicit offers to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

 

Subject to Completion. Dated October 4, 2022

 

PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated October 2, 2020)

 

Smith & Nephew plc

 

€

 

 

€                 % Notes due 2029

 

 

 

 

This prospectus supplement relates to an offering of €          % Notes due 2029 (the “Notes”). Smith & Nephew plc (the “Company”, “we”, “our”, “us” or “Smith+Nephew”) will pay interest on the Notes on                of each year, beginning on             , 2023. The Notes will mature on          , 2029.

 

We may redeem the Notes, in whole or in part, at the times or during the periods and at the applicable redemption prices described herein. We may also redeem the Notes, in whole but not in part, at any time at 100% of their principal amount plus accrued interest upon the occurrence of certain tax events described herein. If a “Change of Control Repurchase Event” (as defined in “Description of Notes—Repurchase upon Change of Control Repurchase Event”) occurs, we will be required to offer to repurchase the Notes at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest to the date of repurchase unless the Notes have been previously redeemed or called for redemption.

 

The Notes will constitute unsecured and unsubordinated indebtedness of the Company and will rank equally with all other unsecured and unsubordinated indebtedness of the Company from time to time outstanding.

 

There is currently no public market for the Notes. Application will be made to list the Notes on the New York Stock Exchange.

 

See “Risk Factors” on page S-12 of this prospectus supplement and “Risk Factors” on page 2 of the accompanying prospectus for a discussion of certain factors you should consider before investing in the Notes.

 

Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

 

 

 

Price to Public(1) 

Underwriting
Discount 

Proceeds to
us (before
expenses)(2) 

Per Note                    %                       %                         %
Total for the Notes € € €
 
(1)Plus accrued interest, if any, from             , 2022 if settlement occurs after that date.

 

(2)See “Underwriting” beginning on page S-38 of this prospectus supplement for information on expenses and the underwriter reimbursement.

 

The underwriters expect to deliver the Notes in book-entry form only through the facilities of Clearstream Banking, S.A. (“Clearstream”) and Euroclear Bank SA/NV (“Euroclear”), as operator of the Euroclear system, against payment in immediately available funds on or about              , 2022.

 

 

Joint Bookrunning Managers

 

BofA Securities Mizuho SMBC Nikko

Sociéte Générale
Corporate & Investment Banking

 

Bookrunners

 

Bank of China HSBC J.P. Morgan Wells Fargo Securities
         

 

The date of this prospectus supplement is               , 2022.

 

 

 

table of Contents

 

 

 

Prospectus Supplement

 

Page

    

About This Document S-1
Forward-Looking Statements S-1
Incorporation of Documents by Reference S-3
Summary S-4
The Offering S-7
Risk Factors S-12
Selected Financial Information S-23
Capitalization S-25
Currency Conversion S-26
Use of Proceeds S-27
Description of Notes S-28
Taxation S-37
Underwriting S-38
Selling Restrictions S-40
Validity of the Notes S-43
Experts S-43

  

Prospectus

 

About This Prospectus 1
Smith & Nephew plc 1
Risk Factors 2
Forward-Looking Statements 5
Enforceability of Certain Civil Liabilities 7
Where You Can Find More Information About Us 7
Incorporation of Documents by Reference 7
Use of Proceeds 9
Capitalization 10
Legal Ownership 11
Description of Debt Securities 13
Clearance and Settlement 27
Certain United Kingdom and United States Federal Tax Considerations 31
Plan of Distribution 39
Legal Matters 41
Experts 41

 

 

 

i 

We have not, and the underwriters have not, authorized any other person to provide you with any information other than the information contained in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein and therein. Neither we nor the underwriters take responsibility for, or provide any assurance as to the reliability of, any different or additional information. Neither we nor the underwriters are making an offer to sell the Notes in any jurisdiction where the offer or sale of such Notes is not permitted. You should assume the information appearing in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein and therein are accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

Notice to Prospective Investors in the European Economic Area

 

Neither this prospectus supplement nor the accompanying prospectus is a prospectus for the purposes of Regulation (EU) 2017/1129.

 

PROHIBITION OF SALES TO EEA RETAIL INVESTORS. The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (the “EEA”). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II); or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the “Insurance Distribution Directive”) where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.

 

MiFID II product governance / Professional investors and ECPs only target market – Solely for the purposes of the manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in MiFID II; and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (an “EU distributor”) should take into consideration the manufacturer’s target market assessment; however, an EU distributor subject to MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturer’s target market assessment) and determining appropriate distribution channels.

  

Notice to Prospective Investors in the United Kingdom

 

Neither this prospectus supplement nor the accompanying prospectus is a prospectus for the purposes of Regulation (EU) 2017/1129 as it forms part of domestic law in the United Kingdom (the “UK”) by virtue of the European Union (Withdrawal) Act 2018, as amended by the European Union (Withdrawal Agreement) Act 2020 (the “EUWA”).

 

PROHIBITION OF SALES TO UK RETAIL INVESTORS. The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the UK. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client, as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law in the UK by virtue of the EUWA; or (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000, as amended (the “FSMA”) and any rules or regulations made under the FSMA to implement the Insurance Distribution Directive, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law in the UK by virtue of the EUWA (“UK MiFIR”). Consequently no key information document required by Regulation (EU) No 1286/2014 as it forms part of domestic law in the UK by virtue of the EUWA (the “UK PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the UK has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation.

 

The communication of this prospectus supplement, the accompanying prospectus and any other document or materials relating to the issue of the Notes offered hereby is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of section 21 of the FSMA. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. This document and such other documents and/or materials are for distribution only to persons who (i) have professional experience in matters relating to investments and who fall within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotion Order”)), (ii) fall within Article 49(2)(a) to (d) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are other persons to whom it may otherwise lawfully be made under the Financial Promotion Order (all such persons together being referred to as “relevant persons”). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this prospectus supplement, the accompanying prospectus and any other document or materials relates will be engaged in only with relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus supplement or the accompanying prospectus or any of their contents.

 

ii 

UK MiFIR product governance / Professional investors and ECPs only target market – Solely for the purposes of each manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is only ECPs, as defined in the UK Financial Conduct Authority Conduct of Business Sourcebook, and professional clients, as defined in UK MiFIR; and (ii) all channels for distribution of the Notes to ECPs and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a “UK distributor”) should take into consideration the manufacturers’ target market assessment; however, a UK distributor subject to the FCA Handbook Product Intervention and Product Governance Sourcebook (the “UK MiFIR Product Governance Rules”) is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels.

 

Stabilization – In connection with the issue of the Notes, Merrill Lynch International (the “Stabilization Manager”) (or persons acting on behalf of any Stabilization Manager(s)) may over allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, stabilization may not necessarily occur. Any stabilization action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may cease at any time, but it must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilization action or over allotment must be conducted by the relevant Stabilization Manager(s) (or person(s) acting on behalf of any Stabilization Manager(s)) in accordance with all applicable laws and rules.

 

Any stabilization action may have the effect of preventing or retarding a decline in the market price of the notes. They may also cause the price of the notes to be higher than the price that would otherwise exist in the open market in the absence of stabilization actions. The Stabilizing Manager may conduct these transactions in the over-the-counter market or otherwise. If the Stabilizing Manager commences any stabilization action, it may discontinue them at any time.

 

iii 

About This Document

 

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of the Notes we are offering and certain other matters relating to us and our results of operations and financial condition. The second part, the accompanying prospectus, gives more general information about securities we may offer from time to time, some of which does not apply to the Notes we are offering. Generally, when we refer to the prospectus, we are referring to both parts of this document combined. If the description of the Notes in the prospectus supplement differs from the description in the accompanying prospectus, the description in the prospectus supplement supersedes the description in the accompanying prospectus.

 

Forward-Looking Statements

 

The reports of Smith & Nephew plc and its subsidiaries (the “Group”) filed with, or furnished to, the Securities and Exchange Commission (“SEC”), including this prospectus supplement, the accompanying prospectus and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may contain ‘forward-looking statements’ within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, that may or may not prove accurate. For example, statements regarding expected revenue growth, 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 identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Accordingly, you should not unduly rely on any forward-looking statements.

 

Factors that may cause future results and outcomes to differ for us include:

 

·risks related to the impact of the COVID pandemic, such as the depth and longevity of its impact, government actions and other restrictive measures taken in response, material delays and cancellations of elective procedures, reduced procedure capacity at medical facilities, restricted access for sales representatives to medical facilities, or our ability to execute business continuity plans as a result of the COVID pandemic;

 

·economic and financial conditions in the markets we serve, especially those affecting healthcare providers, payers and customers (including, without limitation, as a result of the COVID pandemic), as well as general economic and geopolitical conditions (including, without limitation, the rate of inflation and interest rates in our markets as relevant to us and the impact of conflict between Russia and Ukraine and the related sanctions and impact on trade and commodity prices);

 

·price levels for established and innovative medical devices;

 

·developments in medical technology;

 

·regulatory approvals, reimbursement decisions or other government actions;

 

·dependence on government funding for medical devices;

 

·product defects or recalls or other problems with quality management systems or failure to comply with related regulations;

 

·litigation relating to patent, product liability or other claims;

 

·legal compliance risks and related investigative, remedial or enforcement actions;

 

·disruption to our supply chain or operations or those of our suppliers (including, without limitation, as a result of the COVID pandemic);

 

S-1 

 

·competition for qualified personnel;

 

·climate-change, sustainability and our customers’ views on our sustainability efforts;

 

·strategic actions, including acquisitions and dispositions and our success in performing due diligence, valuing and integrating acquired businesses;

 

·disruption that may result from transactions or other changes we make in our business plans or organization to adapt to market developments;

 

·relationships with healthcare professionals;

 

·reliance on information technology and cybersecurity;

 

·compliance with tax legislation across multiple jurisdictions and exposure to exchange rate volatility;

 

·numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature; and

 

·other factors discussed under “Risk Factors” and elsewhere in this document (including the documents incorporated by reference herein).

 

Other factors could also adversely affect our results or the accuracy of forward-looking statements in this prospectus supplement, and you should not consider the factors discussed here or in the accompanying prospectus, our annual report on Form 20-F for the year ended December 31, 2021, or other documents incorporated by reference herein, to be a complete set of all potential risks or uncertainties.

 

The forward-looking statements made in this prospectus supplement speak only as of the date of this prospectus supplement. We do not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances or expectations. You should, however, consult any further disclosures we make in other documents filed with the SEC that are incorporated by reference into this prospectus supplement. This discussion is provided as permitted by the U.S. Private Securities Litigation Reform Act of 1995.

 

S-2 

Incorporation of Documents by Reference

 

The SEC allows us to “incorporate by reference” the information we file with or furnish to them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus supplement and the accompanying prospectus and later information that we file with the SEC will automatically update or supersede this information. We incorporate by reference the documents listed below and any of our future filings made with the SEC under Sections 13(a), 13(c) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), until such time as all of the securities covered by this prospectus supplement have been sold:

 

·Our Annual Report on Form 20-F for the year ended December 31, 2021 filed with the SEC on March 7, 2022 (File No. 001-14978).

 

·Our Report on Form 6-K furnished to the SEC on July 28, 2022, which includes our interim consolidated results for the six month period ended July 2, 2022 (File No. 001-14978).

 

·All other documents we file pursuant to Section 13(a), 13(c), or 15(d) of the Exchange Act after the date of this prospectus supplement and prior to the termination of the offering of the Notes and, to the extent designated therein, reports furnished to the SEC on Form 6-K, in each case with effect from the date that such document or report is so filed or furnished.

 

We will provide without charge to each person, including any beneficial owner, to whom this prospectus supplement is delivered, upon his or her written or oral request, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus supplement other than exhibits which are not specifically incorporated by reference into those documents. You can request those documents from the below:

 

Smith & Nephew plc
Building 5, Croxley Park

Hatters Lane, Watford

Hertfordshire WD18 8YE
United Kingdom
Tel.: +44(0)1923 477 100

 

S-3 

 

Summary

 

The following summary contains basic information about this offering. It may not contain all the information that is important to you. The “Description of Notes” section of this prospectus supplement and the “Description of Debt Securities” section of the accompanying prospectus contain more detailed information regarding the terms and conditions of the Notes. The following summary is qualified in its entirety by reference to the detailed information appearing elsewhere or incorporated by reference in this prospectus supplement and in the accompanying prospectus. You should base your investment decision on a consideration of this prospectus supplement, the accompanying prospectus and the documents incorporated by reference therein, as a whole.

 

Overview

 

We are a leading portfolio medical technology company operating through three global franchises: Orthopedics, Sports Medicine & ENT (Ear, Nose and Throat) and Advanced Wound Management. Orthopedics offers 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 stabilize severe fractures and correct bone deformities. Our Sports Medicine & ENT businesses offer advanced products and instruments that enable surgeons to perform minimally invasive surgery of the joints, and which are used to repair or remove soft tissue. Our Advanced Wound Management portfolio offers an extensive set of products to meet broad and complex clinical needs, and help healthcare professionals reduce the human and economic consequences of wounds. We operate on a worldwide basis and have distribution channels in over 100 countries.

 

Our history dates back more than 160 years. As of December 31, 2021, we employed approximately 18,000 employees supporting customers in over 100 countries. Our principal executive office is located at Building 5, Croxley Park, Hatters Lane, Watford, Hertfordshire WD18 8YE and our telephone number is +44-(0)1923-477-100.

 

Our American Depositary Shares, representing our ordinary shares, are listed on the New York Stock Exchange under the symbol “SNN”. Our ordinary shares are admitted to trading on the London Stock Exchange under the symbol “SN”.

 

Strategic Initiatives

 

Strategy for Growth

 

In December 2021 we announced our Strategy for Growth. Through this we seek to compound our outperformance in Advanced Wound Management and Sports Medicine & ENT and regain momentum in Orthopedics.

 

The strategy is based on three pillars. First, we will seek to strengthen the foundations of Smith+Nephew. A solid base in supply chain operations and manufacturing will enable us to serve customers sustainably and simply, and deliver the best from our core portfolio. Second, we will seek to accelerate our growth profitably, through more robust prioritization of resources and investment, and with continuing customer focus. Third, we will seek to continue to transform ourselves for higher long-term growth, through investment in innovation and acquisitions.

 

Through our Strategy for Growth we are targeting consistent 4-6% underlying revenue growth by 2024, structurally ahead of historical levels. We also expect to rebuild our trading profit margin, targeting at or above 21% by 2024, with further improvements thereafter. These objectives are forward-looking statements, see “Forward-Looking Statements”. The strategy is underpinned by a refreshed capital allocation framework, including a new annual share buy-back program.

 

Our Strategy for Growth will be delivered through our four key value builders of productivity, commercial execution, innovation and acquisitions.

 

S-4 

 

Productivity

 

We continue to invest in our manufacturing capabilities and supply chain operations to drive productivity. We are also closely managing the impact of the widely reported global shortages of some raw materials and components. We are also stabilizing the Smith+Nephew specific supply challenges.

 

Beyond this we are seeking to build long-term efficiencies, including through the Operations and Commercial Excellence program. We have transferred storage and logistics operations to a specialist third-party logistics partner in Europe and plan to do so in Memphis, Tennessee, United States as well by the end of 2022. The new Orthopedics manufacturing facility in Malaysia opened in June 2022 and we have announced plans for a new R&D and manufacturing facility for Advanced Wound Management in the United Kingdom. We believe these changes will help create a more resilient network for supplying our customers.

 

In terms of efficiencies we are working to focus our commercial resources to better balance growth and margins. Smith+Nephew sells into more than 100 countries, but over 80% of revenue comes from the ten largest countries. Going forward we expect global launches will focus more narrowly on the largest markets first. We also are simplifying our portfolio, addressing multiple product lines serving the same clinical need as a result of previous acquisitions or legacy products in some categories. Through this we expect to reduce commercial costs, simplify distribution and enable better control of inventory.

 

Commercial execution

 

Our actions to drive commercial execution are focused on maximizing the value of our strong portfolio, where we already have leading technology across the franchises. We have a strong track record to build on, including in Advanced Wound Management where we have returned the European business to growth despite the maturity of the market and competition from low-cost regional players.

 

In Sports Medicine & ENT ‘selling the procedure’ rather than individual products has already been a core part of our strategy and we intend to replicate that success in Orthopedics. For instance, the launch of our uncemented total knee and the addition of the Engage uncemented partial knee gives us a strong suite of primary and revision knee implants supported by enabling technologies.

 

Innovation

 

Our commitment to innovation is central to our Strategy for Growth and we continue to invest in recent product launches and in our R&D program. New product launches in the first half of 2022 included expanding the robotics-enabled CORI◊ Surgical System by bringing both cementless total knee and total hip arthroplasty onto the platform. Other new innovations include the WOUND COMPASS◊ Clinical Support App, a comprehensive digital support tool for health care professionals that aids wound assessment and decision-making to help reduce practice variation.

 

Acquisitions

 

We have continued to deliver successful acquisitions, bringing novel and disruptive technologies into our portfolio. In January 2022, we acquired Engage Surgical, owner of the only cementless partial knee system commercially available in the United States. The system will have an application on CORI in the future.

 

Better Execution at Pace

 

In recent years we have consistently demonstrated successful execution across Sports Medicine & ENT and improved performance from Advanced Wound Management. Following investment, Orthopedics has a strong portfolio with differentiated products and enabling technologies, but recent performance has been held back by execution and supply chain challenges.

 

To take the business forward and deliver on our Strategy for Growth pillars to Strengthen and Accelerate, in July 2022 we announced a comprehensive plan to drive better execution at pace, focused on: (1) fixing Orthopedics; (2) improving productivity; and (3) accelerating growth in Advanced Wound Management and Sports Medicine & ENT.

 

S-5 

 

Among the actions to address these are the following: (1) rewiring Orthopedics commercial delivery and winning share with our current portfolio through greater focus on differentiated products and procedural innovations and more detailed customer segmentation, aligning sales resources and incentives with the greatest growth opportunities; (2) streamlining the reconstruction portfolio to reduce the number of implant systems in each category and focus sales on lead brands; (3) improving asset utilization by establishing clear principles on where instrument sets are placed, along with the use of digital planning tools; and (4) rebuilding demand planning process through closer collaboration between operations and commercial execution, improving short and long-term planning signals.

 

Along with strengthening Orthopedics, we see significant opportunities to invest further behind our well performing Advanced Wound Management and Sports Medicine & ENT franchises.

 

 

 

 

 

S-6 

 

The Offering

 

Issuer Smith & Nephew plc.
Notes €         aggregate principal amount of         % Notes due 2029.
  The Notes will be issued under an indenture dated as of October 14, 2020 (the “Indenture”) between us and The Bank of New York Mellon, London Branch, as trustee, and the terms of the securities will be set forth in an Officer’s Certificate to be dated         , 2022.
Ranking The Notes will constitute unsecured and unsubordinated indebtedness of Smith & Nephew plc and will rank equally with all of its other unsecured and unsubordinated indebtedness from time to time outstanding.
Issue Date              , 2022.
Maturity Date              , 2029.
Business Day Any day, other than a Saturday or Sunday, (1) which is not a day on which banking institutions in The City of New York or London are authorized or required by law, regulation or executive order to close and (2) on which the Trans-European Automated Real-time Gross Settlement Express Transfer system (the TARGET2 system), or any successor thereto, operates.
Interest Rate The Notes will bear interest at a rate of         % per annum.
Interest Payment Dates Interest on the Notes will be payable annually in arrears on         of each year, commencing on         , 2023.
Day Count The actual number of days in the period for which interest is being calculated and the actual number of days from and including the date from which interest begins to accrue for the period to, but excluding the next scheduled interest payment date. Following, unadjusted.
Optional Redemption

We may redeem the Notes, in whole or in part, at any time and from time to time as follows: (i) prior to the Par Call Date (as defined in “Description of Notes—Redemption—Optional Redemption”), at a redemption price equal to the greater of (A) 100% of the principal amount of the Notes to be redeemed, and (B) as determined by an independent investment bank selected by us, the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed (assuming for this purpose that such Notes matured on the Par Call Date and not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on an annual basis (assuming ACTUAL/ACTUAL (ICMA)) at the Comparable Government Bond Rate (as defined in “Description of Notes—Redemption—Optional Redemption”) plus the Spread (as defined in “Description of Notes—Redemption—Optional Redemption”) and (ii) on or after the Par Call Date, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus, in each case, accrued interest thereon to but excluding the date of redemption.

 

For more information, see “Description of Notes—Redemption—Optional Redemption.”

 

S-7 

 

Optional Tax Redemption

In the event of various tax law changes and other limited circumstances that require us to pay additional amounts (as described in “Description of Notes—Payment of Additional Amounts”), we may redeem all, but not less than all, of the Notes at a price equal to 100% of the principal amount of the Notes plus accrued interest thereon to but excluding the date of redemption.

 

For more information, see “Description of Notes—Redemption—Optional Tax Redemption.”

 

Additional Amounts

Subject to customary exceptions and limitations, we will pay additional amounts on the Notes as are necessary in order that the net payment by us of the principal, premium and interest on the Notes to a holder, after withholding or deduction for any and all present or future tax, assessment, levies, duties, assessments, imposts or other governmental charges of whatever nature imposed, assessed, levied or collected by or for the account of the government of any jurisdiction in which we are resident for tax purposes (presently the United Kingdom), will not be less than the amount that would have been received had no such withholding or deduction been required.

 

For more information, see “Description of Notes — Payment of Additional Amounts” in this prospectus supplement and “Description of Debt Securities — Payment of Additional Amounts” in the accompanying prospectus.

 

Repurchase upon Change of Control Repurchase Event

If a “Change of Control Repurchase Event” (as defined in “Description of Notes—Repurchase upon Change of Control Repurchase Event”) occurs, unless we have exercised our right to redeem all of the Notes as described under “Description of Notes— Redemption—Optional Redemption,” we will make an offer to repurchase the Notes at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase unless the Notes have been previously redeemed or called for redemption.

 

For more information, see “Description of Notes—Repurchase upon Change of Control Repurchase Event.”

 

 

S-8 

 

Certain Covenants

 

The Indenture governing the Notes contains certain restrictions, including restrictions on our ability to: (i) create or permit to exist any lien (other than permitted liens) on any of our property or assets, (ii) consolidate or merge with another entity and (iii) enter into certain sale and leaseback transactions. These restrictions are subject to a number of exceptions.

 

For more information, see “Description of Notes—Certain Covenants.”

 

Regular Record Dates for Interest

The close of business on the calendar day preceding each applicable interest payment date, whether or not such day is a Business Day. 

 

Currency of Payment

 

All payments of interest, principal, including payments made upon any redemption of the Notes, and additional amounts as described under “Description of Notes—Payment of Additional Amounts” will be made in euro. If the euro is unavailable to us due to the imposition of exchange controls or other circumstances beyond our control or if the euro is no longer being used by the then member states of the European Monetary Union that have adopted the euro as their currency or for the settlement of transactions by public institutions of or within the international banking community, then all payments in respect of the Notes will be made in U.S. dollars until the euro is again available to us and so used. In such circumstances, the amount payable on any date in euro will be converted into U.S. dollars on the basis of the then most recently available market exchange rate for euro, as determined by us in our sole discretion. Any payment in respect of the Notes so made in U.S. dollars will not constitute an event of default under the Notes or the indenture governing the Notes. See “Currency Conversion.”

 

Book-Entry Issuance, Clearance and
Settlement

Book-entry interests in the Notes will be issued in minimum denominations of €100,000 and in integral multiples of €1,000 in excess thereof.

 

The Notes will be issued in book-entry form and will be represented by one or more global notes deposited with, or on behalf of, a common depositary for Clearstream and Euroclear, and registered in the name of the nominee of the common depositary. Beneficial interests in the Notes will be shown on, and transfers will be effected only through, records maintained by Clearstream and Euroclear and their participants, and these beneficial interests may not be exchanged for certificated notes, except in limited circumstances. See “Description of Notes—Book-Entry System.”

 

 

S-9 

 

Use of Proceeds

We expect to receive approximately €             from the sale of the Notes, after deducting the underwriting discount and our net expenses related to this offering.

 

We intend to use the net proceeds from the sale of the Notes for general corporate purposes, including repayment of the amounts outstanding under our €265 million term loan due April 2023 and our €223 million term loan due May 2023, including fees and expenses related thereto. Affiliates of Mizuho International plc and SMBC Nikko Capital Markets Limited, underwriters of this offering, are the lenders to such term loan facilities and accordingly will receive substantially all of the net proceeds of this offering. See “Use of Proceeds” and “Underwriting.”

 

Trustee and Paying Agent

The Bank of New York Mellon, London Branch, as trustee and paying agent under the Indenture.

 

Security Registrar

The Bank of New York Mellon, as security registrar under the Indenture.

 

Further Issues

We may, without the consent of the holders the Notes, issue additional notes having the same ranking and same interest rate, maturity date, redemption terms and other terms as the Notes described in this prospectus supplement except for the price to the public, issue date and, in certain circumstances, the first interest payment date. Any such additional notes, together with the Notes offered by this prospectus supplement, will constitute a single series of securities under the Indenture relating to the Notes; provided that, if the additional notes are not fungible for U.S. federal income tax purposes with the Notes offered hereby, the additional notes will have a separate ISIN and Common Code or other identifying number. There is no limitation on the amount of notes or other debt securities that we may issue under that Indenture.

 

Risk Factors You should carefully consider all of the information in this prospectus supplement and the accompanying prospectus, which includes information incorporated by reference. In particular, you should evaluate the specific factors under “Risk Factors” beginning on page S-12 of this prospectus supplement and beginning on page 2 of the accompanying prospectus, as well as those disclosed under the heading “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2021, which is incorporated by reference in this prospectus supplement, for risks involved with an investment in the Notes.

 

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Listing

Application will be made for the Notes to be listed on the New York Stock Exchange.  

 

Issuer’s LEI

213800ZTMDN8S67S1H61

 

ISIN

XS2532473555

 

Common Code

253247355

 

Governing Law The Notes and the Indenture will be governed by the laws of the State of New York.

 

 

 

 

 

S-11 

Risk Factors

 

Prospective investors should consider carefully the risk factors incorporated by reference into this prospectus supplement and the accompanying prospectus as well as set out below in addition to the other information set out elsewhere in this prospectus supplement and the accompanying prospectus and reach their own views prior to making any investment decision with respect to the Notes. In particular, prospective investors should evaluate the specific factors under “Risk Factors” beginning on page 2 of the accompanying prospectus, as well as those discussed under the heading “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2019, which is incorporated by reference in this prospectus supplement and the accompanying prospectus, for risks involved with an investment in the Notes. If any of these risks actually occur, our business, financial condition and results of operations could suffer, and the trading price and liquidity of the Notes could decline, in which case you may lose all or part of your investment.

 

Risks Relating to the Group

 

Global Supply Chain

 

The Group’s manufacturing production is concentrated at main facilities in Memphis, Mansfield, Columbia and Oklahoma City in the US, Hull and Warwick in the UK, Aarau in Switzerland, Tuttlingen in Germany, Suzhou and Beijing in China and Alajuela in Costa Rica. If major physical disruption took place at any of these sites, it could adversely affect the results of operations. Further, disruptions which have taken place at these sites as a result of the ongoing COVID pandemic (including government restrictions on imports and exports and decreased access to supply channels due to travel restrictions) have had and may continue to have an adverse effect on the results of operations. Physical loss and consequential loss insurance is carried to cover major physical disruption to these sites but is subject to limits and deductibles, generally does not cover COVID pandemic related disruptions, and may not be sufficient to cover catastrophic loss. Management of orthopedic inventory is complex, particularly forecasting and production planning. There is a risk that failures in operational execution could lead to excess inventory or individual product shortages. Further, as part of the Group’s operations and commercial excellence program, we are transferring our warehouse and distribution services to third party suppliers. There is a risk that this transition, whilst planned, may adversely impact the supply of products to our markets.

 

As we continue to move our warehouse and distribution functions to an external supplier there is a risk that, if the transition does not go as planned, the supply of products to our markets will be disrupted and impact our performance.

 

The Group is reliant on certain key suppliers of raw materials, components, finished products and packaging materials or in some cases on a single supplier. Disruptions in the supply chains and operations of our suppliers as a result of the COVID pandemic could result in an increase in our costs of production and distribution. These suppliers must provide the materials in compliance with legal requirements and perform the activities to the Group’s standard of quality requirements. A supplier’s failure to comply with legal requirements or otherwise meet expected quality standards could create liability for the Group and adversely affect sales of the Group’s related products. The Group may be forced to pay higher prices to obtain raw materials, which it may not be able to pass on to its customers in the form of increased prices for its finished products. In addition, some of the raw materials used may become unavailable, and there can be no assurance that the Group will be able to obtain suitable and cost-effective substitutes. Interruption of supply caused by these or other factors has had and may continue to have a negative impact on Smith+Nephew’s revenue and operating profit.

 

The Group will, from time to time, including as part of the Operations and Commercial Excellence program, outsource or insource the manufacture of components and finished products to or from third parties and will periodically relocate the manufacture of product and/or processes between existing and/or new facilities. While these are planned activities, with these transfers there is a risk of disruption to supply.

 

Natural disasters can also lead to manufacturing and supply delays, product shortages, excess inventory, unanticipated costs, lost revenues and damage to reputation. In addition, new environmental regulation or more aggressive enforcement of existing regulations can impact the Group’s ability to manufacture, sterilize and supply product. In addition, our physical assets and supply chains are vulnerable to weather and climate change (e.g. sea level rise, increased frequency and severity of extreme weather events, and stress on water resources). Where such events impact a manufacturing facility, we may be unable to manufacture products. In this case, if there is no other facility that can manufacture the relevant products we may not be able to supply those products to our customers. The Group is exposed to increasing salary and wage costs for its manufacturing and distribution employees and contractors. These cost increases may adversely impact the Group’s performance.

 

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Requirements of global regulatory agencies have become more stringent in recent years and we expect them to continue to do so. The Group’s Quality and Regulatory Affairs team is leading a major Group-wide program to prepare for implementation of the EU Medical Devices Regulation (MDR), which came into force in May 2017, with an initial expected three-year transition period until May 2020. Due to the COVID pandemic, the European Commission published a formal proposal in April 2020, announcing the delay to the implementation by 12 months to 26 May 2021. The regulation includes new requirements for the manufacture, supply and sale of all CE marked products sold in Europe (i.e. those products that conform with health, safety and environmental protection standards within the European Economic Area) and requires the re-registration of all medical devices, regardless of where they are manufactured. Smith+Nephew expects there will be significant capacity constraints under the new European system, given the small number of notified bodies certified under MDR to date. This could cause delays for medical device approvals for the industry more broadly and may result in delays for patients. The European Commission has taken some important steps to aid implementation, including delaying the EU database (EUDAMED) and passing a Corrigendum to give a longer implementation timeline for certain Class 1R devices (i.e. reusable surgical instruments), which helps address certain of the capacity constraint concerns. The Group operates with a global remit and the speed of technological change in an already complex manufacturing process leads to greater potential for disruption. Additional risks to supply include inadequate sales and operational planning and inadequate supply chain or manufacturing capacity to support customer demand and growth.

 

Business continuity and business change

 

The COVID pandemic

 

Widespread outbreaks of infectious diseases, such as the COVID pandemic, create uncertainty and challenges for the Group. The challenges created by the ongoing COVID pandemic include, but are not limited to, declines in and cancellations of elective procedures at medical facilities, disruptions at manufacturing facilities and disruptions in supply and other commercial activities due to travel restrictions and government restrictions on exports. While vaccines have been widely rolled out in the UK and other parts of the world, as newer, more severe variants of COVID emerge, there remains uncertainty about the continued protection (and duration of protection) offered by such vaccines. The length, severity and geographical variation of the outbreak and pace of recovery are not clear and there could be an increased impact on us depending on these factors.

 

The impact of the ongoing COVID pandemic on our businesses worldwide has been strongly correlated with lockdown restrictions and the easing thereof. Any additional restrictions placed on elective procedures would have an adverse impact on the Group’s revenue growth and operating and trading profit margins. The extent of the impact would depend on the length, severity and geographical variation of restrictions on elective procedures. The impacts of the COVID pandemic and related response measures worldwide, including those described above, have had and may continue to have an adverse effect on global economic conditions, as well as on our business, results of operations, cash flows and financial condition and the ongoing COVID pandemic may also have the effect of heightening many of the other risk factors described below.

 

Sustainability

 

The impact of climate-related changes such as severe weather patterns, global temperature and sea level rises may lead to internal and external disruptions to our supply chain and manufacturing operations, leading to a negative impact on our business operations.

 

S-13 

Commercial execution

 

Highly competitive markets

 

The Group competes across a diverse range of geographic and product markets. Each market in which the Group operates contains a number of different competitors, including specialized and international corporations.

 

Significant product innovations, technical advances or the intensification of price competition by competitors could adversely affect the Group’s operating results. Some of these competitors may have greater financial, marketing and other resources than Smith+Nephew. These competitors may be able to initiate technological advances in the field, deliver products on more attractive terms, more aggressively market their products or invest larger amounts of capital and R&D into their businesses.

 

There is a possibility of further consolidation of competitors, which could adversely affect the Group’s ability to compete with larger companies due to insufficient financial resources. If any of the Group’s businesses were to lose market share or achieve lower than expected revenue growth, there could be a disproportionate adverse impact on the Group’s share price and its strategic options. Competition exists among healthcare providers to gain patients on the basis of quality, service and price.

 

There has been some consolidation in the Group’s customer base and this trend is expected to continue. Some customers have joined group purchasing organizations or introduced other cost containment measures that could lead to downward pressure on prices or limit the number of suppliers in certain business areas, which could adversely affect Smith+Nephew’s results of operations and hinder its growth potential.

 

Additional commercial execution risks include medical facilities stopping or severely restricting sales rep access due to ongoing COVID precautions and the ongoing COVID pandemic driving a shift from clinic to home care.

 

Relationships with healthcare professionals

 

The Group seeks to maintain effective and ethical working relationships with physicians and medical personnel who assist in the development of new products or improvements to our existing product range or in product training and medical education. If we are unable to maintain these relationships our ability to meet the demands of our customers could be diminished and our revenue and profit could be materially adversely affected.

 

Customer sustainability expectations

 

Our customers are setting sustainability requirements that they expect us to achieve. A failure to meet customers’ expectations may adversely impact upon our financial performance.

 

HCP interactions

 

COVID restrictions put in place by governments in the markets in which we operate, as well as by a number of our customers, access to HCPs for medical education purposes adversely impacts our ability to train HCPs on the safe and effective use of our products, and so our commercial execution.

 

Acquisitions

 

Challenges in integration of new acquisitions may arise following completion of the deals. This may lead to us not achieving the planned synergies and results from the acquisitions.

 

Pricing and reimbursement

 

Dependence on government and other funding

 

In most markets throughout the world, expenditure on medical devices is ultimately controlled to a large extent by governments. Funds may be made available or withdrawn from healthcare budgets depending on government policy. The Group is therefore largely dependent on future governments providing increased funds commensurate with the increased demand arising from demographic trends.

 

S-14 

Pricing of the Group’s products is largely governed in most markets by governmental reimbursement authorities. Initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare costs, including price regulation, excise taxes and competitive pricing, are ongoing in markets where the Group has operations. This control may be exercised by determining prices for an individual product or for an entire procedure.

 

The Group is exposed to government policies favoring locally sourced products. The Group is also exposed to changes in reimbursement policy, tax policy and pricing, including as a result of financial pressure on governments and hospitals caused by the ongoing COVID pandemic, which may have an adverse impact on revenue and operating profit. During 2020 and 2021, reimbursement codes were more widely interpreted to provide for remote delivery of healthcare services. There may also be an increased risk of adverse changes to government funding policies arising from deterioration in macroeconomic conditions from time to time in the Group’s markets.

 

The Group must adhere to the rules laid down by government agencies that fund or regulate healthcare, including extensive and complex rules in the US. Failure to do so could result in fines or loss of future funding.

 

Procurement processes

 

The COVID pandemic has led to more price driven approaches to customer procurement process and tenders, such as the value-based procurement process instigated in China. Further, non-clinical staff are becoming the key decision-makers in customer’s procurement processes, with our access to these decision-makers being limited with some customers. These changes are occurring at a time when the cost of inputs to our products is increasing. The effect of these procurement changes can adversely impact the pricing that we received for our products at the same time the cost of production is increasing.

 

New product innovation, design & development, including intellectual property

 

Continual development and introduction of new products

 

The medical devices industry has a rapid rate of new product introduction. In order to remain competitive, the Group must continue to develop innovative products that satisfy customer needs and preferences or provide cost or other advantages. Developing new products is a costly, lengthy and uncertain process. The Group may fail to innovate due to low R&D investment, a R&D skills gap or poor product development. A potential product may not be brought to market or not succeed in the market for any number of reasons, including failure to work optimally, failure to receive regulatory approval, failure to be cost-competitive, infringement of patents or other intellectual property rights and changes in consumer demand. The ongoing COVID pandemic has resulted in limitations on the ability to conduct live product trials. Furthermore, there has been an adverse impact on relationships with healthcare professionals involved in R&D, marketing and sale of products and services, due to limited access to such professionals as a result of restricted hospital access, shutdowns and travel restrictions imposed in response to the ongoing COVID pandemic.

 

The Group’s products and technologies are also subject to marketing attack by competitors. Furthermore, new products that are developed and marketed by the Group’s competitors may affect price levels in the various markets in which the Group operates. If the Group’s new products do not remain competitive with those of competitors, the Group’s revenue could decline. The Group maintains reserves for excess and obsolete inventory resulting from the potential inability to sell its products at prices in excess of current carrying costs. Marketplace changes resulting from the introduction of new products or surgical procedures may cause some of the Group’s products to become obsolete. The Group makes estimates regarding the future recoverability of the costs of these products and records a provision for excess and obsolete inventories based on historical experience, expiration of sterilization dates and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write-downs may be required.

 

All new products that we develop need to be designed and manufactured in a sustainable manner. A failure in this aspect may impact the willingness of customers to purchase the new products and adversely impact our ability to continue selling the products.

 

S-15 

Where we have critical gaps in our product portfolio that are not filled by new products there is a risk that we will lose market share to competitors that can offer a broader product portfolio.

 

Proprietary rights and patents

 

Due to the technological nature of medical devices and the Group’s emphasis on serving its customers with innovative products, the Group has been subject to patent infringement claims and is subject to the potential for additional claims. Claims asserted by third parties regarding infringement of their intellectual property rights, if successful, could require the Group to expend time and significant resources to pay damages, develop non-infringing products or obtain licenses to the products which are the subject of such litigation, thereby affecting the Group’s growth and profitability.

 

Smith+Nephew attempts to protect its intellectual property and regularly opposes third-party patents and trademarks where appropriate in those areas that might conflict with the Group’s business interests. If Smith+Nephew fails to protect and enforce its intellectual property rights successfully, its competitive position could suffer, which could harm its results of operations. In addition, intellectual property rights may not be protectable to the same extent in all countries in which the Group operates.

 

Cybersecurity

 

Reliance on sophisticated information technology and cybersecurity

 

The Group uses a wide variety of information systems, programs and technology to manage our business. The Group also develops and sells certain products that are or will be digitally enabled including connection to networks and/or the internet. Our systems and the systems of the entities we acquire are vulnerable to a cyber-attack, theft of intellectual property, malicious intrusion, loss of data privacy or other significant disruption. Our systems have been and will continue to be the target of such threats, including as a result of increased levels of remote working due to the ongoing COVID pandemic. There is increasing government focus on cybersecurity including changes in the regulatory environment.

 

Cybersecurity is a multifaceted discipline covering people, process and technology. It is also an area where more can always be done; it is a continually evolving practice. We have a layered security approach in place to prevent, detect and respond, in order to minimize the risk and disruption of these intrusions and to monitor our systems on an ongoing basis for current or potential threats. There can be no assurance that these measures will prove effective in protecting Smith+Nephew from future interruptions and as a result the performance of the Group could be materially adversely affected.

 

Legal and compliance risks including international regulation, product liability claims and loss of reputation

 

International regulation

 

The Group operates across the world and is subject to extensive legislation, including with respect to anti-bribery and corruption and data protection, in each country in which the Group operates. Our international operations are governed by the UK Bribery Act and the U.S. Foreign Corrupt Practices Act which prohibit us or our representatives from making or offering improper payments to government officials and other persons or accepting payments for the purpose of obtaining or maintaining business. Our international operations in the Emerging Markets which operate through distributors increase our Group exposure to these risks. In this regard, the Group is investigating allegations of possible violations of anti-corruption laws in India and responding to related requests for information from the SEC. It is not possible to predict the nature, scope or outcome of the investigations, including the extent to which, if at all, this could result in any liability to the Group.

 

The Group is also required to comply with the requirements of the EU General Data Protection Regulation (GDPR), which imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. As privacy and data protection have become more sensitive issues for regulators and consumers, new privacy and data protection laws, such as GDPR, U.S. state

 

S-16 

privacy laws including California Consumer Privacy Act (CCPA), and the invalidation of the EU-U.S. Privacy Shield by the Court of Justice of the European Union, continue to develop in ways we cannot predict. Ensuring compliance with evolving privacy and data protection laws and regulations on a global basis may require us to change or develop our current business models and practices and may increase our cost of doing business. Despite those efforts, there is a risk that we may be subject to fines and penalties, litigation and reputational harm in connection with our activities as enforcement of such legislation has increased in recent years on companies and individuals where breaches are found to have occurred. Failure to comply with the requirements of privacy and data protection laws, including GDPR, could adversely affect our business, financial condition or results of operations.

 

Operating in multiple jurisdictions also subjects the Group to local laws and regulations related to tax, pricing, reimbursement, regulatory requirements, trade policy and varying levels of protection of intellectual property. This exposes the Group to additional risks and potential costs.

 

Product liability claims and loss of reputation

 

The development, manufacture and sale of medical devices entail risk of product liability claims or recalls. Design and manufacturing defects with respect to products sold by the Group or by companies it has acquired could damage, or impair the repair of, body functions. The Group may become subject to liability, which could be substantial, because of actual or alleged defects in its products. In addition, product defects could lead to the need to recall from the market existing products, which may be costly and harmful to the Group’s reputation. There can be no assurance that customers, particularly in the US, the Group’s largest geographical market, will not bring product liability or related claims that would have a material adverse effect on the Group’s financial position or results of operations in the future, or that the Group will be able to resolve such claims within insurance limits. As at 31 December 2021, a provision of $289m is recognized relating to the present value of the estimated costs to resolve all unsettled known and unknown anticipated metal-on-metal hip implant claims globally.

 

Financial reporting, compliance and control

 

Our financial results depend on our ability to comply with financial reporting and disclosure requirements, comply with tax laws, appropriately manage treasury activities and avoid significant transactional errors and customer defaults (the risk of which has been heightened due to the COVID pandemic). Failure to comply with our financial reporting requirements or relevant tax laws can lead to litigation and regulatory activity and ultimately to material loss to the Group. Potential risks include failure to report accurate financial information in compliance with accounting standards and applicable legislation, failure to comply with current tax laws, failure to manage treasury risk effectively and failure to operate adequate financial controls over business operations.

 

Political and economic

 

World economic conditions

 

Demand for the Group’s products is driven by demographic trends, including the aging population and the incidence of osteoporosis and obesity. Supply of, use of and payment for the Group’s products are also influenced by world economic conditions which could place increased pressure on demand and pricing, adversely impacting the Group’s ability to deliver revenue and margin growth. The conditions could favor larger, better capitalized groups, with higher market shares and margins. As a consequence, the Group’s prosperity is linked to general economic conditions and there is a risk of deterioration of the Group’s performance and finances during adverse macroeconomic conditions. The impact of COVID on global and regional economic conditions affects our global business. The ongoing effects of the COVID pandemic on global economies and financial markets could trigger a recession or slowdown which would significantly reduce customer capital spending and customer financial strength. Economic conditions worldwide continue to create several challenges for the Group, including the U.S. Administration’s approach to trade policy, heightened inflation and pricing pressure (arising across the costs of raw materials, freight and employee salaries and wages), increasing tax rates, significant declines in capital equipment expenditures at hospitals and increased uncertainty over the collectability of government debt, particularly in the Emerging Markets. These factors could have an increased impact on growth in the future.

 

S-17 

The Group is subject to the impacts of increasing inflation and rising interest rates throughout the global economy.

 

We are increasingly seeing sustainability targets and public policies being promulgated in the markets in which we operate. A failure to meet these targets and policies could impact our sales and growth in those markets.

 

Political uncertainties

 

The Group operates on a worldwide basis and has distribution channels, purchasing agents and buying entities in over 100 countries. Political upheaval in some of those countries or in surrounding regions may impact the Group’s results of operations. Political changes in a country could prevent the Group from receiving remittances of profit from a member of the Group located in that country or from selling its products or investments in that country. Furthermore, changes in government policy regarding preference for local suppliers, import quotas, taxation or other matters could adversely affect the Group’s revenue and operating profit. War, economic sanctions, terrorist activities and conflicts (including the continuation and potential exacerbation of the Russia/Ukraine conflict) could also adversely impact the Group. These risks may be greater in Emerging Markets, which account for an increasing portion of the Group’s business.

 

There remains a level of political and regulatory uncertainty in the UK following the exit from the European Union and new trade agreement between the UK and Europe. Remaining risks relate to the introduction of new legislation in the UK, the provisions of which remain to be clarified. Further MHRA guidance is anticipated in the coming months. Smith+Nephew needs to prepare for new regulations within the UK, which accounts for approximately 4% of global Group revenue. There is also uncertainty around U.S.-China trade relations, which has resulted in tariffs on some medical devices being exported between the two countries. There is the potential for an adverse impact on the Group’s financial performance to the possible significant tax rate changes or the broadening of the tax base in key jurisdictions in which we operate. These include OECD and U.S. tax reform proposals. External changes in this manner may require the Group to adjust its operating model.

 

Currency fluctuations

 

Smith+Nephew’s results of operations are affected by transactional exchange rate movements in that they are subject to exposures arising from revenue in a currency different from the related costs and expenses. The Group’s manufacturing cost base is situated principally in the United States, the United Kingdom, China, Costa Rica and Switzerland, from which finished products are exported to the Group’s selling operations worldwide. Thus, the Group is exposed to fluctuations in exchange rates between the U.S. Dollar, Sterling and Swiss Franc and the currency of the Group’s selling operations, particularly the Euro, Chinese Yuan, Australian Dollar and Japanese Yen.

 

If the U.S. Dollar, Sterling or Swiss Franc should strengthen against the Euro, Australian Dollar and the Japanese Yen, the Group’s trading margin could be adversely affected. The Group manages the impact of exchange rate movements on operating profit by a policy of transacting forward foreign currency contracts when firm commitments exist. In addition, the Group’s policy is for forecast transactions to be covered between 50% and 90% for up to one year. However, the Group is still exposed to medium to long-term adverse movements in the strength of currencies compared to the U.S. Dollar. The Group uses the U.S. Dollar as its reporting currency. The U.S. Dollar is the functional currency of Smith & Nephew plc. The Group’s revenues, profits and earnings are also affected by exchange rate movements on the translation of results of operations in foreign subsidiaries for financial reporting purposes.

 

Quality and regulatory

 

Regulatory standards and compliance in the healthcare industry

 

Business practices in the healthcare industry are subject to regulation and review by various government authorities. In general, the trend in many countries in which the Group does business is towards higher expectations and increased enforcement activity by governmental authorities. While the Group is committed to doing business with integrity and welcomes the trend to higher standards in the healthcare industry, the Group and other companies in the industry have been subject to investigations and other enforcement activity that have incurred and may continue to incur significant expense. Under certain circumstances, if the Group were found to have violated the law, its ability to sell its products to certain customers may be restricted.

 

S-18 

Regulatory approval

 

The international medical device industry is highly regulated. Regulatory requirements are a major factor in determining whether substances and materials can be developed into marketable products and the amount of time and expense that should be allotted to such development. National regulatory authorities administer and enforce a complex series of laws and regulations that govern the design, development, approval, manufacture, labelling, marketing and sale of healthcare products. They also review data supporting the safety and efficacy of such products. Of particular importance is the requirement in many countries that products be authorized or registered prior to manufacture, marketing or sale and that such authorization or registration be subsequently maintained. The major regulatory agencies for Smith+Nephew’s products include the Food and Drug Administration (FDA) in the US, the Medicines and Healthcare products Regulatory Agency in the UK, the Ministry of Health, Labour and Welfare in Japan, the National Medical Products Administration in China and the Australian Therapeutic Goods Administration. At any time, the Group is awaiting a number of regulatory approvals which, if not received, could adversely affect results of operations. In 2017, the EU reached agreement on a new set of Medical Device Regulation which entered into force on 25 May 2017 with an initial expected three-year transition period until May 2020. Due to the COVID pandemic, the European Commission published a formal proposal in early April 2020, announcing the delay to the implementation by 12 months, to 26 May 2021. The increase in the time required by Notified Bodies to review product submissions and site quality systems’ certification time has had and may continue to have an adverse impact on our ability to meet customer demand.

 

The trend is towards more stringent regulation and higher standards of technical appraisal. Specifically, there are more stringent local requirements for clinical data across APAC markets. Such controls have become increasingly demanding to comply with and management believes that this trend will continue. Privacy laws (including Health Insurance Portability and Accountability Act of 1996 (HIPAA) in the United States and GDPR in the United Kingdom) and environmental regulations have also become more stringent. Regulatory requirements may also entail inspections for compliance with appropriate standards, including those relating to Quality Management Systems or Good Manufacturing Practices regulations. All manufacturing and other significant facilities within the Group are subject to regular internal and external audit for compliance with national medical device regulation and Group policies. Payment for medical devices may be governed by reimbursement tariff agencies in a number of countries. Reimbursement rates may be set in response to perceived economic value of the devices, based on clinical and other data relating to cost, patient outcomes and comparative effectiveness. They may also be affected by overall government budgetary considerations. The Group believes that its emphasis on innovative products and services should contribute to success in this environment. Failure to comply with these regulatory requirements could have a number of adverse consequences, including withdrawal of approval to sell a product in a country, temporary closure of a manufacturing facility, fines and potential damage to Company reputation.

 

Mergers and acquisitions

 

Failure to make successful acquisitions

 

A key element of the Group’s strategy for continued growth is to make acquisitions or alliances to complement its existing business. Failure to identify appropriate acquisition targets or failure to conduct adequate due diligence or to integrate them successfully would have an adverse impact on the Group’s competitive position and profitability. This could result from the diversion of management resources from the acquisition or integration process, challenges of integrating organizations of different geographic, cultural and ethical backgrounds, as well as the prospect of taking on unexpected or unknown liabilities. In addition, the availability of global capital may make financing less attainable or more expensive and could result in the Group failing in its strategic aim of growth by acquisition or alliance. The ongoing COVID pandemic and measures imposed in response to it have introduced additional risks. Conducting due diligence processes remotely presents potential risks that some information is not fully assessed. Similarly, integrations become more complex without physical on-site presence.

 

S-19 

Talent management

 

Attracting and retaining key personnel

 

The Group’s continued development depends on its ability to hire and retain highly-skilled personnel with particular expertise. This is critical, particularly in general management, research, new product development and in the sales forces. During 2020 and 2021, the COVID pandemic has increased the risk to the health and wellbeing of our personnel. Uncertainty, threat of illness and restricted travel, work and personal activities have affected people globally. If Smith+Nephew is unable to attract and retain key personnel in general management, research and new product development or if its largest sales forces suffer disruption or upheaval, its revenue and operating profit would be adversely affected. Additionally, if the Group is unable to recruit, hire, develop and retain a talented, competitive workforce, it may not be able to meet its strategic business objectives.

 

Environment and sustainability

 

Climate change related risks have the potential to impact the Group’s business model and performance. The impacts of climate change on our business will arise from new regulations and requirements placed on us by governments to obtain certain sustainability standards, international sustainability accords and agreements, and changing business practices and trends to accommodate climate-change risks. Further, the Group will be exposed to the physical impacts of climate change, which may impact the manufacture of our products and the supply chain to deliver them to our markets. The Group may need to adapt its business model and processes to accommodate the changes brought about by climate-related issues. If we do not reach the sustainability targets set by ourselves, by the governments in the markets where we operate, or by our customers, there may be an impact on our performance and ability to grow.

 

Risks Relating to the Notes

 

In addition to the following risk factors, you should read “Risk Factors—Risks Relating to the Debt Securities” in the accompanying prospectus.

 

Holders of the Notes will receive payments solely in euro except under the limited circumstances provided herein.

 

All payments of interest, principal, including payments made upon any redemption of the Notes, and additional amounts as described under “Description of Notes—Payment of Additional Amounts”, will be made in euro except under the limited circumstances provided herein. See “Currency Conversion.” We, the underwriters, the trustee and the paying agent with respect to the Notes will not be obligated to convert, or to assist any registered owner or beneficial owner of Notes in converting, payments of interest, principal, any redemption price or any additional amount in euro made with respect to the Notes into U.S. dollars or any other currency.

 

Holders of the Notes may be subject to certain risks relating to the euro, including the effects of foreign currency exchange rate fluctuations, as well as possible exchange controls.

 

The initial investors in the Notes will be required to pay for the Notes in euro. Neither we nor the underwriters will be obligated to assist the initial investors in obtaining euro or in converting other currencies into euro to facilitate the payment of the purchase price for the Notes.

 

An investment in any security denominated in, and all payments with respect to which are to be made in, a currency other than the currency of the country in which an investor in the Notes resides or the currency in which an investor conducts its business or activities (the “investor’s home currency”), entails significant risks not associated with a similar investment in a security denominated in the investor’s home currency. In the case of the Notes offered hereby, these risks may include the possibility of:

 

•significant changes in rates of exchange between the euro and the investor’s home currency; and

 

•the imposition or modification of foreign exchange controls with respect to the euro or the investor’s home currency.

 

We have no control over a number of factors affecting the Notes offered hereby and foreign exchange rates, including economic, financial and political events that are important in determining the existence, magnitude and longevity of these risks and their effects. Changes in foreign currency exchange rates between two currencies result from the interaction over time of many factors directly or indirectly affecting economic and political conditions in

 

S-20 

the countries issuing such currencies, and economic and political developments globally and in other relevant countries. Foreign currency exchange rates may be affected by, among other factors, existing and expected rates of inflation, existing and expected interest rate levels, the balance of payments between countries and the extent of governmental surpluses or deficits in various countries. All of these factors are, in turn, sensitive to the monetary, fiscal and trade policies pursued by the governments of various countries important to international trade and finance.

 

The exchange rates of an investor’s home currency for euro and the fluctuations in those exchange rates that have occurred in the past are not necessarily indicative of the exchange rates or the fluctuations therein that may occur in the future. Depreciation of the euro against the investor’s home currency would result in a decrease in the investor’s home currency equivalent yield on a note, in the investor’s home currency equivalent of the principal payable at the maturity of that note and generally in the investor’s home currency equivalent market value of that note. Appreciation of the euro in relation to the investor’s home currency would have the opposite effects. In addition, political uncertainty in the member states of the European Monetary Union that have adopted the euro, and fragmentation risk in the European Union, could create financial instability and have a negative impact on such states and global economies, which in turn could adversely affect the value of the euro and the price of the Notes.

 

The European Union or one or more of its member states may, in the future, impose exchange controls or modify any exchange controls imposed, which controls could affect exchange rates, as well as the availability of euro at the time of payment of principal of, interest on, or any redemption payment or additional amounts with respect to, the Notes.

 

Furthermore, the indenture is, and the Notes will be, governed by the laws of the State of New York. Under New York law, a New York state court rendering a judgment on the Notes would be required to render the judgment in euro. However, the judgment would be converted into U.S. dollars at the exchange rate prevailing on the date of entry of the judgment. Consequently, in a lawsuit for payment on the Notes, investors would bear currency exchange risk between the time a New York state court judgment is entered and the time the judgment is paid, and we cannot predict how long this would take. A federal court sitting in New York with diversity jurisdiction over a dispute arising in connection with the Notes would apply the foregoing New York law. In courts outside of New York, investors may not be able to obtain a judgment in a currency other than U.S. dollars. For example, a judgment for money in an action based on the Notes in many other U.S. federal or state courts ordinarily would be rendered in the United States only in U.S. dollars. The date used to determine the rate of conversion of euro into U.S. dollars would depend upon various factors, including which court renders the judgment and when the judgment is rendered.

 

This description of foreign exchange risks does not describe all the risks of an investment in securities, including, in particular, the Notes, that are denominated or payable in a currency other than an investor’s home currency. You should consult your own financial, legal and tax advisors as to the risks involved in an investment in the Notes.

 

The Notes permit us to make payments in U.S. dollars if we are unable to obtain euro, and market perceptions concerning the instability of the euro could adversely affect the value of the Notes.

 

If, as described under “Currency Conversion,” the euro is unavailable to us due to the imposition of exchange controls or other circumstances beyond our control or if the euro is no longer being used by the then member states of the European Monetary Union that have adopted the euro as their currency or for the settlement of transactions by public institutions of or within the international banking community, then all payments in respect of the Notes will be made in U.S. dollars until the euro is again available to us and so used. In such circumstances, the amount payable on any date in euro will be converted into U.S. dollars on the basis of the then most recently available market exchange rate for euro, as determined by us in our sole discretion. Any payment in respect of the Notes so made in U.S. dollars will not constitute an event of default under the Notes or the indenture governing the Notes. There can be no assurance that this exchange rate will be as favorable to holders of Notes as the exchange rate otherwise determined by applicable law. These potential developments, or market perceptions concerning these and related issues, could adversely affect the value of the Notes.

 

 

S-21 

Trading in the clearing systems is subject to minimum denomination requirements.

 

The Notes will be issued only in minimum denominations of €100,000 and integral multiples of €1,000 in excess thereof. It is possible that the clearing systems may process trades which could result in amounts being held in denominations smaller than the minimum denominations. If definitive notes are required to be issued in relation to such notes in accordance with the provisions of the relevant global notes, a holder who does not have the minimum denomination or an integral multiple of €1,000 in excess thereof in its account with the relevant clearing system at the relevant time may not receive all of its entitlement in the form of definitive notes unless and until such time as its holding satisfies the minimum denomination requirement.

 

The global notes are held by or on behalf of Euroclear and Clearstream and, therefore, holders of the Notes will have to rely on their procedures for transfer, payment and communication with us.

 

The Notes will be represented by one or more global notes, which will be held with a common depositary for Euroclear and Clearstream. Except in certain limited circumstances, holders of the Notes will not be entitled to receive certificated notes in exchange for interests in the global notes. While the Notes are represented by the global notes, holders of the Notes will be able to trade their beneficial interests only through Euroclear and Clearstream.

 

We will discharge our payment obligations under the Notes by making payments to or to the order of the common depositary for Euroclear and Clearstream for distribution to their accountholders. A holder of a beneficial interest in a global note must rely on the procedures of Euroclear and Clearstream to receive payments under the Notes. We have no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the global notes.

 

Holders of beneficial interests in the global notes will not have a direct right to vote in respect of the Notes. Instead, such holders will be permitted to act directly only to the extent that they are enabled in accordance with the procedures of Euroclear and Clearstream to appoint appropriate proxies.

 

We may not be able to repurchase the Notes upon a Change of Control Repurchase Event

 

If a “Change of Control Repurchase Event” (as defined in “Description of Notes—Repurchase upon Change of Control Repurchase Event”) occurs, we will be required to offer to repurchase the Notes at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase unless the Notes have been previously redeemed or called for redemption. If a “Change of Control Repurchase Event” occurs, there can be no assurance that we would have sufficient financial resources available to satisfy our obligations to repurchase the Notes or that the terms of other indebtedness will not preclude us from doing so. Our failure to repurchase the Notes as required under the Indenture governing such Notes would result in a default under the Indenture, which could result in other defaults under our and our subsidiaries’ various debt agreements and other arrangements and have material adverse consequences for us and the holders of the Notes. For more information, see “Description of Notes—Repurchase upon Change of Control Repurchase Event.”

 

S-22 

Selected Financial Information

 

The selected consolidated financial data for the Group set forth below as of and for the years ended December 31, 2021, 2020 and 2019 is derived from our audited consolidated financial statements, which can be found in our Annual Report on Form 20-F for the year ended December 31, 2021 and is incorporated by reference herein. The selected consolidated financial data for the Group set forth below as of and for the years ended December 31, 2018 and 2017 is derived from our audited consolidated financial statements, which can be found in our Annual Report on Form 20-F for the year ended December 31, 2018, which was filed with the SEC on March 4, 2019.

 

For the year ended December 31, 2021, the selected financial data has been prepared in accordance with UK-adopted International Accounting Standards and as issued by the International Accounting Standards Board (“IASB”). UK-adopted International Accounting Standards differs in certain respects from International Financial Reporting Standards (“IFRS”) as issued by the IASB.. However, the differences have no impact for the periods presented. For the years ended December 31, 2020, 2019, 2018 and 2017, the selected financial data has been prepared in accordance with IFRS in conformity with the requirements of the Companies Act 2006 and as issued by the IASB. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact for the periods presented below. The selected consolidated financial data set forth below as of and for the six month periods ended July 2, 2022 and July 3, 2021 is derived from our unaudited consolidated financial statements for the six month period ended July 2, 2022 contained in our Report on Form 6-K dated July 28, 2022, incorporated by reference herein. These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the United Kingdom. The unaudited consolidated financial statements include all adjustments which we consider necessary for a fair statement of our financial position and results of operations for those periods in accordance with IFRS. The results for the six month period ended July 2, 2022 are not necessarily indicative of the results that might be expected for the entire year ending December 31, 2022 or any other period. The selected consolidated financial information set forth below should be read in conjunction with our consolidated financial statements, the notes related thereto and the financial and operating data incorporated by reference into this prospectus supplement and the accompanying prospectus.

 

   For the Six Months
Ended		  For the Year Ended December 31,
   July 2,
2022		  July 3,
2021		  2021  2020 

2019(1) 

  2018  2017
   (in $ millions)
Income Statement Data                     
Revenue    2,600    2,599    5,212    4,560    5,138    4,904    4,765 
Cost of goods sold    (773)   (806)   (1,543)   (1,396)   (1,338)   (1,298)   (1,248)
Gross profit    1,827    1,793    3,669    3,164    3,800    3,606    3,517 
Selling, general and administrative expenses    (1,411)   (1,383)   (2,720)   (2,562)   (2,693)   (2,497)   (2,360)
Research and development expenses    (174)   (171)   (356)   (307)   (292)   (246)   (223)
Operating profit    242    239    593    295    815    863    934 
Interest income    3    3    6    6    10    8    6 
Interest expense    (35)   (42)   (80)   (62)   (65)   (59)   (57)
Other finance costs    (5)   (9)   (17)   (7)   (18)   (20)   (10)
Share of results of associates    (1)   10    9    14    1    (11)   6 
Gain on disposal of interest in associate    -    22    75    -    -    -    - 
Profit before tax    204    223    586    246    743    781    879 
Taxation    (27)   (18)   (62)   202    (143)   (118)   (112)
Attributable profit(2)    177    205    524    448    600    663    767 

_______________
(1)The Group has adopted IFRS 16 from January 1, 2019 using the modified retrospective approach. Under this approach, comparative information is not restated, which should be taken into account when comparing the financial information in the periods presented herein.

 

(2)Attributable to the equity holders of the Company and wholly derived from continuing operations.

 

S-23 

 

   As of  As of December 31,
   July 2,
2022		  2021  2020 

2019(1) 

  2018  2017
   (In $ millions)
Balance Sheet Data                  
Non-current assets   6,346    6,496    6,348    6,080    4,982    5,135 
Current assets    3,759    4,424    4,664    3,219    3,077    2,731 
Total assets    10,105    10,920    11,012    9,299    8,059    7,866 
Total equity    5,395    5,568    5,279    5,141    4,874    4,644 
Non-current liabilities    2,593    3,221    4,045    2,594    1,720    1,876 
Current liabilities    2,117    2,131    1,688    1,564    1,465    1,346 
Total liabilities    4,710    5,352    5,733    4,158    3,185    3,222 
Total equity and liabilities    10,105    10,920    11,012    9,299    8,059    7,866 

 

 

(1)The Group has adopted IFRS 16 from January 1, 2019 using the modified retrospective approach. Under this approach, comparative information is not restated, which should be taken into account when comparing the financial information in the periods presented herein.

 

 

   For the Six Months
Ended		  For the Year Ended December 31,
   July 2,
2022		  July 3, 2021  2021  2020 

2019(1) 

  2018  2017
   (In $ millions)
Cash Flows Data                     
Net cash inflow from operating activities    207    363    877    935    1,168    931    1,090 
Net cash used in investing activities    (268)   (431)   (691)   (606)   (1,251)   (378)   (543)
Net cash (used in)/from financing activities    (704)   (302)   (645)   1,164    7    (371)   (434)
Net (decrease)/increase in cash and cash equivalents    (765)   (370)   (459)   1,493    (76)   182    113 
Cash and cash equivalents at the end of the period(2)    512    1,379    1,285    1,751    257    333    155