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A good financial performance while strengthening the business

Dear Shareholder

Smith & Nephew proudly supports healthcare professionals in their daily efforts to improve the lives of their patients. We do this by taking a pioneering approach to the design of our products and services, by striving to ensure wider access to our advanced technologies, and by enabling better outcomes for patients and healthcare systems. In doing so, we drive growth and create value for our stakeholders.

In 2014, we made great progress. We drove a much improved performance in US Hip and Knee Implants and maintained our momentum in Sports Medicine Joint Repair and Trauma & Extremities. Advanced Wound Bioactives, acquired at the end of 2012, again produced double-digit growth. Our continued investment in Emerging & International Markets drove revenues up 17%.

Performance in Europe was weaker and Advanced Wound Management was held back by a distribution hold on RENASYS◊ in the US, and I am confident that we have taken actions that will deliver a better 2015 across these areas. Additionally, the Phase 3 trial results for HP802 were a disappointment, but we remain committed to developing pioneering Advanced Wound Bioactives treatments.

The Group generated a good increase in revenues and trading profit, and an 8% uplift in EPSA. I am pleased by the changing mix of the business, as we successfully rebalance by strengthening our higher growth platforms. These now represent more than half of our revenue, up from just 35% three years ago.

Pioneering design

Smith & Nephew has a long history of pioneering design, dating back to our foundations in the 19th century. In 2014, we launched many exciting products, including a cruciate retaining version of our JOURNEY◊II natural-motion knee, a first-of-its-kind DYONICS PLAN surgical planning tool for hip arthroscopy, and the HAT-TRICK Lesser Toe Repair System. We continued to invest more in R&D, over 5% of revenue, and have a strong pipeline for 2015 and beyond. For us, innovation is not just about products. It is also about how we do business. We seek new ways to serve our customers. In 2014, we pioneered a new commercial solution for Orthopaedic Reconstruction that fulfils the unmet needs of customers searching for a different value proposition. Called Syncera◊, this offers clinically proven primary hip and knee implants combined with cutting-edge technology to streamline the extensive support process. Syncera has the potential to generate significant savings for the customer. We are encouraged by the contracts signed and prospective customers.

Widening access

In the Emerging & International Markets we have built an entrepreneurial business resourced to maximise the significant opportunities we see. In 2014, it generated more than $600 million revenue, with China, our largest market, growing revenue at over 30%. 15% of Group revenue came from these markets in 2014, up from 8% in 2010.

In 2014, we established a new commercial structure to market and expand our midtier value product ranges. This will provide wider access to our advanced technologies, helping us support an ever greater number of customers in delivering affordable healthcare.

Enabling better outcomes

We provide high quality products and medical education to help drive better clinical outcomes. During 2014, we saw strong and rising demand for unique products such as our hard-wearing VERILAST◊ Hips and Knees, VISIONAIRE◊ patient-matched instrumentation and the PICO◊ portable disposable Negative Pressure Wound Therapy system. These, and many other advanced Smith & Nephew products, also enable healthcare professionals to treat more patients faster, improving the economic outcome for the healthcare system payers.

Strengthening our platform

In recent years, we have successfully supplemented our organic growth through acquisitions. Healthpoint Biotherapeutics gave us a leading position in Advanced Wound Bioactives, the fastest growing segment of Advanced Wound Management. We have also completed a number of acquisitions in the Emerging & International Markets, strengthening our platform by adding products, manufacturing, distribution and sales teams.

ArthroCare, completed in May 2014, has strengthened our Sports Medicine business. Its technology and products significantly enhance our portfolio, and we will use our global presence to drive substantial new growth. The integration is progressing well.

Enhanced efficiency

By simplifying and improving our operating model we are increasing our agility and efficiency. In 2011, we announced a programme to generate annual savings of $150 million. By 31 December 2014, we had achieved annualised savings of $146 million, enabling investment in the Emerging & International Markets, R&D and other growth opportunities.

In 2014, we announced a further programme to realise at least another $120 million of annual savings. This work is progressing well. For instance, we are rationalising our global property portfolio and found major savings through better procurement processes. These savings will more directly benefit the bottom line.

Great Place to Work

Achieving recognition as a Great Place to Work is important to me. It means having a workplace where employees are proud and excited to come each day because they are doing work that makes a difference for customers and patients. During 2014, I was proud to congratulate our colleagues in Spain for being the first country to achieve this distinction from the Great Place to Work Institute – and it will not be the last. Also, our sustainability performance was recognised again as we retained our rankings in both the FTSE4Good and Dow Jones Sustainability indices. Acting sustainably and responsibly to deliver long-term benefits to society is important. It is our employees who earn these awards, and I thank them for their efforts.

I am pleased with our momentum in 2014 as we delivered a good financial performance while strengthening the business, and you will find more details on our successful actions on pages 42 to 53. Whilst the journey to reshape Smith & Nephew continues, we enter 2015 stronger and more efficient and I am excited by our prospects for accelerating growth in 2015 and beyond. 

 

Yours sincerely, 

 

Signature

Olivier Bohuon

Chief Executive Officer

 

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Annual General Meeting 2015

Notice of AGM and Chairman's letter

The Annual General Meeting will be held on Thursday, 9 April 2015.

10 April 2014