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Chief Financial Officer's Review

2021 performance

Group revenue in 2021 was $5,212 million, an increase of 14.3% on a reported basis and an increase of 10.3% on an underlying basis.1

Whilst we saw some recovery, the COVID pandemic continued to impact the business throughout the year. The US market is getting closer to pre-COVID levels. Our other markets are recovering at varying paces, mostly depending on their healthcare structure and COVID waves. Other headwinds in 2021 included supply chain constraints and channel adjustments ahead of the volume-based procurement implementation for hip and knee implants in China.

Our Sports Medicine & ENT and Advanced Wound Management franchises represented almost 60% of our 2021 revenue with both franchises performing above pre-COVID levels. The growth in these franchises in 2021 was driven by strong commercial execution, investment in innovation and acquisitions. The performance of these franchises helped offset the near-term challenges in our Orthopaedics franchise.

The 2021 reported gross profit was $3,669 million. Gross margin improved from 69.4% in 2020 to 70.4% in 2021. This reflects improved operating leverage from revenue growth partially offset by higher input costs, supply chain costs and channel adjustments ahead of China volume-based procurement implementation. The prior year also included the impact of COVID with lower gross margins resulting from factory under-utilisation and an increase in inventory provisions.

The reported operating profit for 2021 was $593 million, a 101% increase from the previous year, reflecting improved trading compared to 2020 along with discretionary cost control. Compared to pre-COVID levels, there were headwinds from higher logistics and freight costs, ongoing COVID related negative leverage from fixed costs and the implementation of China volume-based procurement. In addition, we have made clear strategic choices to invest in R&D, bolt-on acquisitions and new product launches.

Trading profit for the year was $936 million and the trading profit margin1 was 18.0%. Our Sports Medicine & ENT and Advanced Wound Management franchises delivered higher trading profit than 2020, with Advanced Wound Management also showing significant growth over 2019. The trading profit of our Orthopaedics franchise is below 2020 as a result of the headwinds noted above and our investment choices which impacted the trading profit margin in Orthopaedics proportionally more.

Capital allocation

Our new Capital Allocation Framework is aimed at supporting our strategy, whilst also maintaining greater balance sheet efficiency with shareholder returns.

The first priority is to continue to invest in innovation and our sustainability agenda, and the second is acquisitions. These are in line with our strategic goal to drive revenue, and are essential for the sustainable growth of earnings and free cash flow. We’ll do that while maintaining our current commitments to our equity and bond holders, with investment grade credit metrics, and by continuing our progressive dividend policy.

Our confidence in our growth outlook and strong cash generation means that even after these investments and commitments, we expect to have excess cash available. We are therefore making a new commitment to return the surplus to shareholders in the form of a regular annual buy-back. This will start in 2022, when we expect around $250 million to $300 million to be returned.

Finally, we’ve built into our capital allocation process regular reviews of the opportunity to optimise our balance sheet and maintain efficiency while meeting our commitments and investment needs.


Smith+Nephew is subject to various taxes in the many countries in which the Group operates. We seek to pay the correct amount of tax in line with local tax laws in each jurisdiction.

During 2021, we made global tax payments of $725 million (2020: $637 million). This comprises $259 million of taxes borne by Smith+Nephew (corporate income taxes, employer social security contributions and customs duties) and $466 million of taxes collected from employees and customers on behalf of governments (employee income taxes and social security contributions and net indirect tax payable).

Balance sheet data and net debt

Our balance sheet remains strong. Key movements are outlined below.

Overall, goodwill and intangible assets decreased by $27 million. Goodwill increased by $61 million as a result of acquisitions of $96 million which was partially offset by foreign exchange movements of $35 million.

Intangible assets decreased by $88 million primarily because of amortisation and impairment of $239 million and foreign currency movements of $15 million being partially offset by acquisitions of $112 million and additions of $56 million. The acquisition of intangible assets relates to the Extremity Orthopaedics acquisition and additions primarily related to software.

Other non-current assets increased by $175 million primarily due to an increase of $64 million in property, plant and equipment, an $80 million increase in investment in associates and a $49 million increase in retirement benefit assets.

The increase in the investment in associates primarily relates to gains on dilution of our interest in Bioventus ($75 million).

Current assets decreased by $240 million primarily due to a $472 million decrease in cash at bank, relating to the Extremity Orthopaedics acquisition and repayment of debt. This was partially offset by a $153 million increase in inventories, partly driven by inventories acquired from Extremity Orthopaedics. Ensuring we carry optimum levels of inventory remains a focus of the Global Operations team.

Non-current liabilities decreased by $824 million primarily due to a $430 million reclassification of borrowings to current liabilities to reflect repayments due in 2022, and a $259 million decrease in provisions mainly due to a reclassification to current liabilities. Current liabilities increased by $443 million primarily related to the movements described above which were partially offset by scheduled debt repayments.

Cash flow data

Cash generated from operations of $1,048 million is after paying out $28 million of acquisition and disposal related items, $108 million of restructuring and rationalisation expenses and $111 million for legal and other items.

Trading cash flow¹ increased by $138 million driven by improved trading performance. Although trading cash flow increased in 2021, free cash flow¹ decreased by $27 million as the prior year included $22 million net tax refunds, primarily from a UK tax litigation matter, compared to net tax payments of $97 million in the current year.

There was no share buy-back in 2021 as the programme was suspended in light of COVID. During the year ended 31 December 2020, the Group purchased a total of 0.6 million ordinary shares at a cost of $16 million.

1 These non-IFRS financial measures are explained and reconciled to the most directly comparable financial measure prepared in accordance with IFRS on pages 218–222.

2 Net debt is reconciled in Note 15 to the Group accounts.


The APEX programme that was announced in February 2018 and the Operations and Commercial Excellence programme that was announced in February 2020, incurred restructuring costs of $113 million in 2021, with additional benefits recognized in the 2021 income statement of around $40 million. The APEX programme was completed in 2021. This programme delivered annualised benefits of around $190 million, $30 million more than originally guided, for a one-off cost of around $300 million, $60 million more than originally planned.

Earnings per share

Basic earnings per share (EPS) was up 17% to 59.8¢ reflecting our improved trading performance. Adjusted earnings per share1 (EPSA) was up 25% at 80.9¢, reflecting the improved trading performance and the lower tax trading rate.


The 2020 final dividend of 23.1¢ per ordinary share totalling $203 million was paid on 12 May 2021. The 2021 interim dividend of 14.4¢ per ordinary share totalling $126 million was paid on 27 October 2021.

Return on invested capital

Return on invested capital1,3 (ROIC) is a measure of the return generated on capital invested by the Group. It encourages compounding reinvestment within the business and discipline around acquisitions. ROIC increased from 7.1% in 2020 to 7.3% in 2021 as a result of higher operating profit. ROIC remains substantially lower than our historic results given the impact of the pandemic.

Liquidity and capital resources

At 31 December 2021, the Group held $1,285 million (2020: $1,751 million) in cash net of bank overdrafts. The Group’s debt facilities comprise a USD $1,000 million corporate bond, EUR term loans totalling $859 million, a $1,000 million revolving credit facility and $1,285 million private placement debt. The Group had committed available facilities of $4.1 billion at 31 December 2021 of which $3.1 billion was drawn.

The Group’s net debt2 increased from $1,926 million at the beginning of 2021 to $2,049 million at the end of 2021, representing an overall increase of $123 million due to the Extremity Orthopaedics acquisition and repayment of private placement debt.

The principal variations in the Group’s borrowing requirements result from the timing of dividend payments, acquisitions and disposals of businesses, timing of capital expenditure and working capital fluctuations.

There are a number of agreements that take effect, alter or terminate upon a change in control of the Company or the Group following a takeover, such as bank loan agreements and Company share plans. None of these are deemed to be significant in terms of their potential impact on the business of the Group as a whole. The Company does not have contracts or other obligations which individually are essential to the business.

Smith+Nephew believes that its capital expenditure needs and its working capital funding for 2022, as well as its other known or expected commitments or liabilities, can be met from its existing resources and facilities. At 31 December 2021, the Group had committed capital expenditure and purchase obligations of $52 million and $333 million respectively.

Going concern

The Directors have considered various scenarios in assessing the continuing impact of COVID on future financial performance and cash flows. Throughout these scenarios, which include a severe but plausible outcome, the Group continues to have headroom on its borrowing facilities and financial covenants.

The Directors have a reasonable expectation that the Company and the Group are well placed to manage their business risks and to continue in operational existence for the period to 1 July 2023. Accordingly, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements.


Our guidance assumes that demand is largely unconstrained by COVID after Q1 and that the global supply chain challenges are likely to continue throughout 2022. We expect revenue growth to be stronger in the second half than the first half of 2022.

For revenue, we are targeting underlying growth of 4.0% to 5.0% in 2022. Within this, we expect Orthopaedics momentum to improve through the year, for our Sports Medicine & ENT franchise to again perform strongly including recovery in ENT, and for Advanced Wound Management to deliver growth against a strong comparator. On a reported basis the guidance equates to a range of around 2.6% to 3.6%, with a foreign exchange headwind of 140bps based on exchange rates prevailing on 11 February 2022.

For trading profit margin we expect to deliver around 50bps of expansion in 2022. This will be driven by efficiencies from operating leverage and productivity and improvement in the margin of acquired assets that will more than offset significant anticipated headwinds of around 125bps from input cost inflation and around 60bps from China VBP implementation.

The tax rate on trading results for 2022 is forecast to be in the range 17% to 18% subject to any material changes to tax law or other one-off items.


Anne-Françoise Nesmes
Chief Financial Officer