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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

 

INFORMATION FOR SHAREHOLDERS (Mark One)

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

or

 

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

For the fiscal year ended December 31, 2021

or

 

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

or

 

Other information

XXX

Commission file number 1-14978

 

» Read more on
page 42-7

Board leadership and purpose

XX

Smith & Nephew plc

(Exact name of Registrant as specified in its charter)

 

England and Wales

(Jurisdiction of incorporation or organization)

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

(Address of principal executive offices)

 

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

 

Title of each class

    

Trading Symbol

    

Name on each exchange on which registered

American Depositary Shares

Ordinary Shares of 20¢ each

2.032% Notes due 2030

SNN

SNN 30

 

New York Stock Exchange

New York Stock Exchange*

New York Stock Exchange

* Not for trading, but only in connection with the first registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.See page 238 for
testimonial reference

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

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

 

Indicate the number of outstanding shares of each of the issuer’s class of capital or common stock as of the close of the period covered by the annual report: 885,190,622 Ordinary Shares of 20¢ each

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

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or

15(d) of the Securities Exchange Act of 1934    Yes       No   

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

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

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

Large Accelerated Filer  

Accelerated Filer  

Non-accelerated filer   

Emerging growth company   

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

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

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

 U.S. GAAP

  

International Financial Reporting Standards as issued by the International Accounting Standards Board

  

Other

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

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    Yes      No  

Graphic

+Life Unlimited

Annual Report and Accounts 2021

Contents

Our purpose

Smith+Nephew is a portfolio medical technology business focused on the repair, regeneration and replacement of soft and hard tissue. We exist to restore people’s bodies and their self-belief by using technology to take the limits off living. We call this purpose Life Unlimited.

Strategic report

Our performance

1

Who we are

2

Chair’s statement

4

Chief Executive Officer’s review

6

Marketplace

10

Business model

12

Key Performance Indicators

14

Financial review

16

We are a values-led employer

20

Investing in innovation

28

Serving healthcare customers

36

Building a healthy and sustainable future

48

Risk report

58

Our stakeholders

70

Governance

Letter from the Chair

72

Board leadership and purpose

75

Nomination & Governance Committee report

92

Audit Committee report

96

Compliance & Culture Committee report

106

Stakeholder statement

110

Directors’ Remuneration report

114

Accounts

Statement of Directors’ responsibilities

137

Report of Independent Registered Public Accounting Firm

138

Group income statement

146

Group statement of comprehensive income

146

Group balance sheet

147

Group cash flow statement

148

Group statement of changes in equity

149

Notes to the Group accounts

150

Company financial statements

203

Notes to the Company accounts

205

Other information

Group information

211

Other information

212

Shareholder information

222

Graphic

Smith+Nephew Annual Report 2021

Strategic report

Governance

Accounts

Other information

+

Our Performance

  

  

  

$5,212m

Group revenue

59.8¢ +17%

Earnings per share (EPS)

80.9¢ +25%

Adjusted earnings
per share1 (EPSA)

Reported

14.3%

Underlying1

10.3%

37.5¢ Unchanged

Dividend per share

$593m +101%

Operating profit

$936m +37%

Trading profit1

7.3% +20bps

Return on invested capital1
(ROIC)

11.4% +490bps

Operating profit margin

18.0% +300bps

Trading profit margin1

$356m +16%

R&D expenditure

$1,048m +8%

Cash generated
from operations

$828m +20%

Trading cash flow1

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.

A picture containing logo

Description automatically generated

Smith+Nephew Annual Report 2021

1

Who we are

We are a values-led employer +
Investing in innovation + Serving
healthcare customers + Building
a healthy and sustainable future

We serve our customers through
our three global franchises.

Orthopaedics

Orthopaedics includes an innovative range of Hip and Knee Implants used to replace diseased, damaged or worn joints, robotics-assisted and digital enabling technologies and services that empower surgeons, and Trauma products used to stabilise severe fractures and correct hard tissue deformities.

Sports Medicine
& ENT

Our Sports Medicine & Ear, Nose and Throat (ENT) businesses offer advanced products and instruments used to repair or remove soft tissue. They operate in growing markets where unmet clinical needs provide opportunities for procedural and technological innovation.

Advanced Wound

Management

Our Advanced Wound Management portfolio provides a comprehensive set of products to meet broad and complex clinical needs, and to help healthcare professionals reduce the human and economic consequences of wounds.

» See pages 42–47

Shape

Description automatically generated with medium confidence

2

Smith+Nephew Annual Report 2021

Strategic report

Governance

Accounts

Other information

Our Strategy for Growth

1

  

Strengthen the foundation to
serve customers sustainably and simply

2

Accelerate profitable growth through
prioritisation and customer focus

3

Transform our business through
innovation and acquisition

» See page 7

Our culture pillars

» Care

» Collaboration

» Courage

guide our behaviours

and build winning spirit

» See pages 20-27

We invest in innovation, sustainability and medical education
to help build a better, healthier world.

Innovation

Innovation is at the heart of Smith+Nephew. We deliver new products that empower healthcare professionals with options to improve patient outcomes. We develop technology through our global Research & Development (R&D) programme, and also acquire exciting technologies where we can add value and make a meaningful difference to our customers and their patients.

Sustainability

We strive to make a sustainable impact on health and wellbeing through a sustainability strategy with challenging targets across the three areas of people, planet and products. This means creating a lasting positive difference to our communities, being a medical technology business that protects our environment and innovates sustainably.

Medical education

Smith+Nephew is committed to educating and training healthcare professionals on the safe and effective use of our products. Every year we provide tens of thousands of surgeons and nurses with opportunities to evaluate the latest evidence, and learn innovative surgical techniques and effective use of our products through our medical education programmes.

» See pages 28-35

» See pages 48-57

» See page 41

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Description automatically generated

Smith+Nephew Annual Report 2021

3

Chair’s statement

Focused on
shareholder value

Dear Shareholder

In 2021 Group revenue recovered, approaching pre-pandemic levels, despite COVID and supply chain constraints holding back our performance. Margin and earnings also improved from 2020, but are still some way behind pre-pandemic levels. This is partly a matter of choice as the business made investments in areas such as increased R&D for new products and early-stage acquisitions, but also as a result of higher logistics and supply chain cost inflation.

Appointment of new Chief Executive Officer

On 22 February 2022, the Board was pleased to announce that Deepak Nath had been appointed as the Company’s new Chief Executive Officer, succeeding Roland Diggelmann, who will step down by mutual agreement on 31 March 2022. Deepak will take up the role on 1 April 2022.

Roland has provided important stability over the past two years following the previous Chief Executive Officer’s departure and in leading the business through the difficulties of COVID. His collegiate style of management has been well suited to the uncertainties created by early stages of COVID, particularly internally with employees. The Board determined however, and Roland agreed, that now is the right time for a new Chief Executive Officer to bring renewed energy and focus to deliver on the Company’s significant potential for accelerated growth.

Deepak has a wealth of experience leading healthcare businesses globally, delivering significant improvement in operations and execution to drive performance. Most recently he was President of Diagnostics at Siemens Healthineers, responsible for $6 billion of revenue and 15,000 employees. There he led a major programme to drive growth and margin expansion through improved execution and a strong results-focused culture.

  

  

In December we announced our Strategy for Growth and new targets for structurally higher revenue growth than historical levels alongside improved margins. The Board was deeply involved in setting this strategy, and believes that Deepak is a leader with the drive, experience and expertise to deliver this step-change in performance. We are delighted to welcome Deepak to Smith+Nephew.

I would like to thank Roland for his commitment and leadership during challenging times, and for the important work he has done to prepare Smith+Nephew for our next stage of development.

Shareholder returns

I and other members of the Board met a number of our shareholders during the year. One topic raised was the impact of recent performance on the share price. We are confident that Deepak and the management team will address the issues that have held the business back. This, combined with our continued investment in innovation, should help drive improved returns.

Along with the Strategy for Growth the Board was pleased to endorse an updated Capital Allocation Framework which balances ongoing investment in the business with maintaining our progressive dividend policy. The Board believes that the new commitment to return surplus capital to shareholders through a regular annual share buy-back, expected to be in the range of $250–$300 million in 2022, will be welcomed by shareholders.

Dividend

For 2021 the Board is recommending a final dividend of 23.1¢ per share, which together with the interim dividend of 14.4¢ per share, will give a total final distribution of 37.5¢ per share. This is in line with the 2020 and 2019 dividend distributions.

  

  

Annual General Meeting

Unfortunately COVID restrictions prevented us from welcoming shareholders in person to our 2021 Annual General Meeting (AGM). We were grateful to those shareholders who joined the meeting remotely to watch and listen to proceedings, ask questions and vote. We are hopeful that the 2022 meeting will be an opportunity to see shareholders face-to-face again, and we will also be providing an online option for those who prefer to join remotely, offering shareholders the best of traditional and new ways of participating. The meeting will be held at our state-of-the-art medical education Expert Connect Centre in Watford, UK, on Wednesday 13 April 2022. Please see the Notice of Meeting for important information on attending, including regarding COVID-related safety measures.

Sustainability and Culture

Another area of focus for shareholders has been sustainability. In 2021 Smith+Nephew committed to becoming Net Zero by 2045. Shareholders can read more about this and our wider ESG programmes, including our reporting in accordance with the Task Force on Climate-related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB) frameworks, in this report.

Despite the pandemic, the Board has maintained its contact with employees, including meeting members of our UK sales team during a visit to Watford, as well as through virtual events. We continue to be impressed by the strong culture and belief in Smith+Nephew’s purpose of Life Unlimited across the organisation.

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Governance

Accounts

Other information

“We are confident
that Deepak and the
management team
will address the issues
that have held the
business back.”

37.5¢

dividend per share,

unchanged from

2020 and 2019.

» You can read
about sustainability
on pages 48–57

Diversity is also important for the Board.
Collectively the Board has considerable
diversity of background and experience.
33% of our Board are female following
the appointment of Jo Hallas in February
2022, and from 1 April 2022 two
members of the Board, John Ma and
Deepak Nath, will be of Asian ethnicity.

Finally, on behalf of the whole Board, I
would like to thank all Smith+Nephew
employees for their continued dedication
to serving our customers and building
our business during 2021. While some of
the challenges we faced in 2021 will
persist into 2022, we are confident that
we have the leadership, strategy and
culture to realise better performance and
shareholder returns.

A picture containing shape

Description automatically generated

Roberto Quarta

Chair

Graphic

Smith+Nephew Annual Report 2021

5

Chief Executive Officer’s review

    

A solid step forward

Dear Shareholder

At Smith+Nephew, we share a purpose to deliver Life Unlimited for our customers and their patients.

Over the past year, we’ve demonstrated our culture time and again. We remained strong through a global pandemic, served our customers, cared for one another, progressed our Inclusion, Diversity & Equity programme, and brought life-changing products to market.

In our annual Global Employee Survey we saw a strong connection to our purpose and a continued commitment to respectful and ethical behaviour.

I am proud of our team and thank every employee for their contribution.

“Smith+Nephew is
at an inflection point,
with a clear ambition
and Strategy for
Growth.”

» You can read more
about our culture
on page 20

Graphic

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2021 Performance

2021 was a solid step forward as we delivered revenue of $5.2 billion, up 10.3% compared to 2020 on an underlying basis. Reported revenue grew 14.3%, including a foreign exchange benefit of 210 basis points, and 190 basis points from acquisitions.

Sports Medicine and Advanced Wound Management, representing about two-thirds of our business, delivered revenue above 2019 levels. Orthopaedics was held back as supply chain challenges prevented us from participating fully in the market recovery. The reopening of the ENT market was slow due to the impact of COVID and we expect this segment to accelerate in 2022.

I am pleased that we delivered on the guidance we set in April on both revenue and trading profit margin. Renewed COVID outbreaks meant that external conditions weren’t always ideal, however I’m proud of the dedication of our team in ensuring we met our commitments.

Looking beyond our financial performance, we achieved much else in 2021. We executed key launches, including our first cementless total knee, bringing life-changing technologies to our customers and their patients. We announced a Medical Education Centre in APAC and Innovation and Surgery Centre in EMEA to educate healthcare professionals on our products and help them hone their techniques. We expanded our pipeline of innovation, both through our own work and acquisitions. We made a commitment to net zero emissions by 2045. And we launched Workplace Unlimited to create a more flexible and inclusive workplace for all employees. You can read more about these initiatives and other examples of our progress in this report.

Strategy for Growth

In December we announced our Strategy for Growth. Through this we will compound our outperformance in Advanced Wound Management and Sports Medicine, and regain momentum in Orthopaedics.

The strategy is based on three pillars.

First, we will Strengthen the foundations of Smith+Nephew. A solid base in commercial and manufacturing will enable us to serve customers sustainably and simply, and deliver the best from our core portfolio.

Second, we will Accelerate our growth profitably, through more robust prioritisation of resources and investment, and with continuing customer focus.

Third, we will 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 least 21% by 2024, with further improvements thereafter.

The strategy is underpinned by a refreshed capital allocation framework, including a new annual share buy-back, which our Chief Financial Officer Anne-Françoise describes in detail in the Financial Review on page 17.

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

3

Transform

our business

through innovation

and acquisition

2

Accelerate

profitable growth through

prioritisation and customer focus

1

Strengthen

the foundation to serve customers

sustainably and simply

Strategy for Growth will be delivered through the four key value builders

Productivity

Commercial

execution

Innovation

Acquisitions

Our Strategy for Growth

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Smith+Nephew Annual Report 2021

7

Chief Executive Officer’s review continued

   

   

Productivity

Our actions to drive productivity include optimising manufacturing and supply and driving ongoing commercial efficiencies through simplification.

We expect our industry to continue to be impacted by the widely reported global shortages of some raw materials and components, such as electronics. We are closely managing such supply issues on a case-by-case basis, and have simplified our processes to be more agile when additional supply becomes available. We are also stabilising the Smith+Nephew specific challenges.

Beyond this we are building long-term efficiencies, including through the Operations and Commercial Excellence programme. The transfer to a specialist third-party logistics partner in Europe is complete, and in Memphis is due to complete later this year. The new Orthopaedics manufacturing facility in Malaysia is on track to supply ahead of our previous target of the end of 2022, and Costa Rica will shortly move to become a multi-franchise manufacturing facility. These changes will 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. Going forward global launches will focus more narrowly on the largest markets first. We also intend to simplify 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 maximising 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 Orthopaedics. For instance the launch of our uncemented knee gives us a strong suite of primary and revision knee implants supported by enabling technologies.

In July 2021 Roland
Diggelmann visited
Dubai to celebrate
the first surgery in
the region using
Smith+Nephew’s
CORI Surgical
System.

Graphic

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Innovation

Our commitment to innovation is central to our Strategy for Growth. In recent years we have stepped up our level of investment in R&D from 4.7% of sales in 2017 to 6.8% in 2021. In 2021 we launched multiple new products across the franchises and segments with our major launches described on pages 32–33.

The delivery in 2021 reflects only the early stages of the increased R&D investment. From here, we intend to Accelerate our business by launching flawlessly and to scale, and transform our longer-term outlook with investments in disruptive platform technologies with cross-franchise applications. These include robotics, with the further development of our CORI Surgical System, where we have already expanded into new geographies, and new indications, adding hip surgery for instance.

Acquisitions

The final value builder is acquisitions. We have acquired assets over recent years that move a number of our segments to structurally higher growth potential, including adding the Osiris skin substitutes to Advanced Wound Bioactives, the Tula system for in-office delivery of ear tubes to our ENT business, and an Extremities Orthopaedics business to Trauma. We will continue to use bolt-on acquisitions to enhance our portfolio and pipeline.

In January 2022 we acquired Engage Surgical, owner of the only cementless partial knee system commercially available in the US.

New commercial model

Changing customer and market dynamics have created new high-growth opportunities. To take advantage of these, in Q4 2021 we brought our surgical franchises under one leadership team mandated with driving excellence in execution and identifying efficiencies across the franchises. With this new approach we will build on our consistently strong performance in Sports Medicine and return our Orthopaedics franchise to a growth trajectory reflecting its strong portfolio.

Smith+Nephew enters 2022 with a clear strategy. Our market fundamentals are strong, and we are among the leading global players in all our franchises. We have a strong and innovative portfolio, and new products on the horizon from our investments in R&D and acquisitions. We have a proven track record in driving improved performance with two of our three franchises, representing around 60% of sales, and in Orthopaedics we are filling the portfolio gap that has held us back and we have clear plans to drive growth.

New leadership

As announced in February 2022, I will shortly be leaving Smith+Nephew. It has been a privilege to lead the Company over my time here. Working through the pandemic has obviously been a challenge for all of us but I’m proud of how the team pulled together, stayed committed to our purpose and kept working to transform the Company.

When I look at Smith+Nephew today, the Company is prepared for the opportunities in the coming years. We have acquired and integrated a range of new growth assets. We have put the commercial structures in place to serve the changing ways of delivering healthcare. And the deep pipeline of innovation that is now in place across the portfolio is truly impressive.

Smith+Nephew is at an inflection point, with a clear ambition and Strategy for Growth. I’d like to wish my successor all the best in leading this great Company through its next exciting chapter.

Graphic

Roland Diggelmann

Chief Executive Officer

The Extremity

Orthopaedics business

acquired in January 2021

grew in the year despite

market conditions.

13

We executed 13 new
product launches
in 2021. See page 32
for major launches.

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Smith+Nephew Annual Report 2021

9

Marketplace

Competing in large
and attractive
markets

 

Smith+Nephew competes in global markets worth around $42 billion, which are driven by long term trends and were growing at approximately 4% annually prior to 2020 and the impact of COVID.

   

   

Our long-term growth is driven by lifestyle related health conditions, such as increasing prevalence of diabetes and obesity, lifestyle choices such as greater levels of physical activity later in life, as well as improvements to life expectancy, which means that there are increasingly more patients in the world. In emerging markets, these factors have been compounded by economic development including the emergence of an increasingly prosperous middle class driving demand.

While the medical technology market has matured in recent years, changing customer and market dynamics have created new high-growth opportunities. In many countries care is becoming more decentralised, with more orthopaedics procedures moving to outpatient settings such as Ambulatory Surgery Centers (ASCs) in the US. This has long been a feature of the sports medicine market, but a growing percentage of orthopaedic joint replacement cases are now completed in such settings, bringing cost and time savings for healthcare providers.

The impact of COVID has accelerated this trend, as providers optimise outpatient facilities to keep patients separated from COVID patients, catch up on elective procedures and reduce cost. COVID has also accelerated the development and deployment of telehealth solutions for patient care over digital platforms pre and post procedure.

Governments are focused on reducing the cost of healthcare and are sensitive to price. Medical technology companies respond through new innovation and also provide evidence supporting both the clinical and economic benefits of products. At the same time the industry is faced with rising inflation and supply constraints across many raw materials and components.

These pressures increased markedly in 2021 and are likely to continue during 2022. For more details on risks see the Risk Report on page 58.

A highly regulated industry

The medical device sector is one of the world’s most heavily regulated industries. Regulations and industry codes govern the way the industry interacts with healthcare professionals and government officials globally, including the AdvaMed Code of Ethics and the MedTech Europe Code of Ethical Business Practice.

Anti-bribery and corruption legislation, including the UK Bribery Act and the US Foreign Corrupt Practices Act, also apply to Smith+Nephew’s global business. There is also a strong global focus on compliance in both established and emerging markets. For more information on our approach to compliance see page 27.

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

The majority of countries require products to be authorised or registered prior to entering the market, and such authorisation or registration needs to be subsequently maintained. Smith+Nephew’s major regulatory authorities include the US Food and Drug Administration (FDA), the Medicines and Healthcare products Regulatory Agency (MHRA) in the UK, relevant EU Competent Authorities, the Ministry of Health, Labour and Welfare in Japan, the National Medical Products Administration (NMPA) in China, and the Australian Therapeutic Goods Administration (TGA).

Inspections and audits by these authorities continue to increase year-on-year and involve significant and continued financial and resource investment by Smith+Nephew to respond appropriately. In addition, we are required to respond to new regulations, such as the European Union (EU) Medical Device Regulation (MDR) which came into effect in May 2021 (see page 35).

In the UK, products can continue to be placed on the market under the CE mark until 30 June 2023. The UK is in the process of developing a new regulatory system, with clarity on the new system expected in 2022.

Geopolitical factors

Following the UK’s departure from the EU, a new Trade and Cooperation Agreement came into effect on 1 January 2021. This includes commitment to zero tariffs and zero quotas on all goods that comply with the appropriate rules of origin. The UK continues to negotiate agreements to reproduce the effects of EU trade agreements with third countries and is also seeking Free Trade Agreements or trade cooperation agreements with a number of nations. In June 2021, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) agreed to open accession talks with the UK.

Many countries are adopting localisation policies that aim to increase domestic manufacturing, with the pandemic focusing greater attention on global supply chains and accelerating this trend. Some countries in key emerging markets remain focused on aggressively lowering healthcare costs and are implementing price-control policies with respect to government procurement of healthcare products. In China we saw this reflected in the introduction of Volume Based Procurement in Hip and Knee Implants in 2021.

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Other information

The importance of seasonality

There tends to be a higher volume of orthopaedic and sports medicine procedures during the winter months when accidents and sports-related injuries are more frequent. Elective procedures tend to slow down in the summer months due to holidays. Advanced Wound Management is less impacted by seasonality due to the nature of procedures and products. At Smith+Nephew, the majority of our business is in the northern hemisphere, including approximately 50% in the US and 20% in Europe.

In the US, out-of-pocket costs for health insurance plans are tied to medical expenses in a calendar year. As a result, households that have reached their annual deductible amount and/or annual out-of-pocket cap before the year’s end will find it to be cost-effective to schedule necessary procedures later in that year rather than delaying into the next year.

Competition

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

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

We are the second largest global Advanced Wound Management business in terms of revenue, with the broadest product range. In the Advanced Wound Care sub-segment we compete with Mölnlycke (Sweden) and ConvaTec (UK). In Advanced Wound Devices, we are the primary challenger to Negative Pressure Wound Therapy incumbent 3M. In our Advanced Wound Bioactives franchise, we have leadership positions in our respective categories.

Market size 20211

Orthopaedics

Hip and
Knee Implants

Trauma and
Extremities2

  

  

Sports Medicine3

  

  

Advanced Wound
Management

  

  

  

$14.1bn

$12.2bn

$5.3bn

$10.3bn

+11%

+10%

+13%

+11%

2021 growth rate

2021 growth rate

2021 growth rate

2021 growth rate

+2%  

-15%  

+5%  

-5%  

+5%  

-12%  

+5%  

-3%  

2017–19
average
growth

2020
growth

2017–19
average
growth

2020
growth

2017–19
average
growth

2020
growth

2017–19
average
growth

2020
growth

Graphic

Graphic

Graphic

Graphic

  

  

 A

Smith+Nephew

11%

  

  

 A

Smith+Nephew

5%

  

  

 A

Smith+Nephew

27%

  

  

 A

Smith+Nephew

14%

 B

Zimmer Biomet

32%

 B

DePuy Synthes4

27%

 B

Arthrex

33%

 B

3M

18%

 C

Stryker

23%

 C

Stryker

22%

 C

Stryker

11%

 C

Mölnlycke

9%

 D

DePuy Synthes4

20%

 D

Zimmer Biomet

12%

 D

DePuy Mitek4

12%

 D

ConvaTec

6%

 E

Others

14%

 E

Others

34%

 E

Others

17%

 E

Others

53%

1  Data used in 2021 estimates generated by Smith+Nephew is based on publicly available sources and internal analysis and represents an indication of market shares and sizes.

2  Following the acquisition of an Extremity Orthopaedics business in 2021 we have conducted a full review of market data and our disclosure now includes Trauma, Extremities, Foot & Ankle and Shoulder.

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

4  A division of Johnson & Johnson.

Smith+Nephew Annual Report 2021

11

Business model

How we

create value

Value creation is driven by our purpose-
driven culture, strategy, customer-
centricity, strong product portfolio and
commitment to sustainability.

Our resources

Our people & culture

Attracting, developing and retaining high
calibre employees is important. We strive
to build a purpose-driven culture based
on strong and authentic values.

» See page 20 for more

Ethics & compliance

Committed to doing business the right
way, compliance is embedded in the
way we work.

» See page 27 for more

Research & development

Innovation is at the heart of our business and we are sustaining our levels of investment in new products, technologies and services.

» See page 28 for more

Creating value through

Life Unlimited

Value delivered in 2021

$5,212m

$593m

$936m

c.$40m

Group revenue

Operating profit

Trading profit1

Efficiency savings

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.

Purpose-driven culture

Having the clear purpose of Life Unlimited gives employees a sense of belief, determination and a common goal. This supports a strong culture which drives performance across the business both in terms of financial and non-financial value.

Strategy for Growth

Focuses our efforts to
strengthen the foundation,
accelerate profitable
growth and transform our
business through innovation
and acquisition.

» Read more on

pages 20-27

» Read more on

page 7

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Manufacturing & quality

Operating global manufacturing
efficiently and to high standards to
ensure quality and competitiveness.

» See page 34 for more

Medical education

Supporting the safe and effective

use of our products through

medical education.

» See page 41 for more

Sales & marketing

Supporting customers through highly
specialised sales teams with in-depth
technical product knowledge that
surgeons and nurses value greatly.

» See page 36 for more

156,255

9%

10,000

$329m

Practitioner
training instances

Less waste to
landfill vs 2019

Hours volunteered

Dividend

» See pages 14–15 for more on our KPIs


strengthen the foundation,
accelerate profitable
growth and transform our
business through innovation
and acquisition.

Customer-centricity

Serving our customers is at
the heart of our business model.
We have a global franchise
and regional model led by
management who are specialists
in their areas. This keeps us close
to our customers, ensuring we can
anticipate and meet their needs.

» Read more on
pages 36-47

Strong product portfolio

We have market leading technology
across our broad range of products.
We deploy our capital to drive
continued innovation from our R&D
programmes and invest in product
and technology acquisitions which
improve outcomes and widen
access to life-changing care.

» Read more on
pages 42-47

Sustainability

Our sustainability strategy sets
challenging targets across the
three areas of people, planet and
products. This means creating
a lasting positive difference
to our communities, being a
medical technology business
that protects our environment,
and innovates sustainably.

» Read more on
pages 48-57

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Smith+Nephew Annual Report 2021

13

Key Performance Indicators

Measuring
our progress