Life Unlimited
Annual Report and Accounts 2021
Strategic report
Our performance
1
Who we are
2
Chair’s statement
4
Chief Executive Ocer’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
Committeereport
92
Audit Committee report
96
Compliance & Culture
Committeereport
106
Stakeholder statement
110
Directors’ Remuneration report
114
Accounts
Statement of Directors’
responsibilities
137
Independent auditor’s
UKreport
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
Contents
Smith+Nephew is a portfolio medical
technology business focused on the
repair, regeneration and replacement
of so and hard tissue. We exist
to restore people’s bodies and their
self-belief by using technology to
take the limits o living. We call
this purpose
Life Unlimited
.
Our purpose
Smith+Nephew
Annual Report 2021
Our performance
$5,212m
Group revenue
59.8¢
+17%
Earnings per share (EPS)
80.9¢
+25%
Adjusted earnings
pershare
1
(EPSA)
Reported
14.3%
Underlying
1
10.3%
3 7. 5¢
Unchanged
Dividend per share
$593m
+101%
Operating profit
$936m
+37%
Trading profit
1
7. 3 %
+20bps
Return on invested capital
1
(ROIC)
11.4%
+490bps
Operating profit margin
18.0%
+300bps
Trading profit margin
1
$356m
+16%
R&D exp
en
diture
$1,048m
+8%
Cash generated
fromoperations
$828m
+20%
Trading cash flow
1
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.
1
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
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.
Advanced Wound
Management
Our Advanced Wound Management
portfolio provides a comprehensive
setof products to meet broad
andcomplex clinical needs, and
tohelp healthcare professionals
reduce thehuman and economic
consequences of wounds.
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 thatempower
surgeons, and Traumaproducts
used to stabilise severe fractures
and correct hard tissue deformities.
Sports Medicine
& ENT
Our Sports Medicine & Ear,
Nose and Throat (ENT) businesses
oer advanced products and
instruments usedto repair or
remove sotissue. They operate
ingrowing markets where
unmetclinical needs provide
opportunities forprocedural
andtechnological innovation.
»
See pages 42–47
Smith+Nephew
Annual Report 2021
2
Strengthen
the foundation to
serve customers sustainably and simply
Accelerate
profitable growth through
prioritisation and customer focus
Transform
our business through
innovation and acquisition
»
See page 7
Our culture pillars
»
Care
»
Collaboration
»
Courage
guideour behaviours
andbuild winning spirit
»
See pages 20–27
Innovation
Innovation is at the heart
ofSmith+Nephew. We deliver
newproducts that empower
healthcare professionals with
optionsto improvepatient
outcomes. We develop technology
through ourglobal Research &
Development (R&D)programme,
and alsoacquire exciting
technologies where we can add
valueand make ameaningful
dierence to our customers
andtheir 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 dierence to
ourcommunities, being a medical
technology business that
protectsour environment and
innovates sustainably.
Medical education
Smith+Nephew is committed to
educating and training healthcare
professionals on the safe and
eective use of our products.
Every year we provide tens of
thousands of surgeons and nurses
with opportunities to evaluate
thelatest evidence, and learn
innovative surgical techniques
andeective use of our
productsthrough our medical
education programmes.
»
See pages 28–35
»
See pages 48–57
»
See page 41
We invest in innovation, sustainability and medical education
tohelp build a better, healthier world.
1
2
3
Our Strategy for Growth
Strategic report
Governance
Accounts
Other information
3
Smith+Nephew
Annual Report 2021
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 Ocer
On 22 February 2022, the Board was
pleased to announce that Deepak Nath
had been appointed as the Company’s
newChief Executive Ocer, 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 Ocer’s departure and in
leading the business through the diculties
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 Ocer 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
anda 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
andexpertise to deliver this step-change
inperformance. 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
anumber of our shareholders during
theyear. 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
driveimproved 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
thenew 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 finaldividend of 23.1¢ per share,
whichtogether 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, oering 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
salesteam during a visit to Watford, as
wellas through virtual events. We continue
to be impressed by the strong culture
andbelief in Smith+Nephew’s purpose
ofLife Unlimited across the organisation.
Chair’s statement
4
Smith+Nephew
Annual Report 2021
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 theBoard, John Ma and Deepak Nath,
willbe ofAsian ethnicity.
Finally, on behalf of the whole Board,
Iwould 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.
Roberto Quarta
Chair
“ We are confident
thatDeepak and
the management
team willaddress
the issues that
have held the
business back.”
»
You can read
about sustainability
on pages 48–57
37. 5¢
dividend per share,
unchanged from
2020and2019.
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
5
Chief Executive Ocer’s review
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.
A solid step forward
»
You can read more
about ourculture
onpage20
“ Smith+Nephew is
at an inflection point,
with a clear ambition
and Strategy for
Growth.”
6
Smith+Nephew
Annual Report 2021
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
ofthe 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 enableus to serve
customers sustainably and simply, and
deliver the best from ourcore portfolio.
Second, we will
Accelerate
our
growthprofitably, 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
furtherimprovements thereaer.
The strategy is underpinned by a
refreshedcapital allocation framework,
including a new annual share buy-back,
which our Chief Financial Ocer
Anne-Françoise describes in detail
intheFinancial Review on page 17.
Strategy for Growth will be delivered
through the four key value builders of
productivity, commercial execution,
innovation and acquisitions.
Our Strategy for Growth
Strategy for Growth will be delivered through the four key value builders
Acquisitions
Commercial
execution
Innovation
Productivity
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
7
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Chief Executive Ocer’s review
continued
Productivity
Our actions to drive productivity include
optimising manufacturing and supply and
driving ongoing commercial eciencies
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
eciencies, 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 eciencies we are working
to focus our commercial resources to
better balance growth and margins.
Smith+Nephew sells into more than
100countries, but over 80% of revenue
comes from the ten largest. Going forward
global launches will focus more narrowly
onthe largest markets first. We also
intendto 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.
In July 2021 Roland
Diggelmann visited Dubai
tocelebrate the first
surgery in the region
usingSmith+Nephew’s
CORI
◊
Surgical System.
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.
8
Smith+Nephew
Annual Report 2021
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-oce delivery of ear tubes
to our ENT business, and an Extremities
Orthopaedics business to Trauma. We
willcontinue to use bolt-on acquisitions
toenhance our portfolio and pipeline.
In January 2022 we acquired Engage
Surgical, owner of the only cementless
partial knee system commercially
availablein the US.
New commercial model
Changing customer and market dynamics
have created new high-growth opportunities.
To take advantage of these, in Q4 2021
webrought our surgical franchises under
one leadership team mandated with driving
excellence in execution and identifying
eciencies 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
itsstrong 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
todrive 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
ofdelivering 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
thebest in leading this great Company
through its next exciting chapter.
Roland Diggelmann
Chief Executive Ocer
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.
9
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Marketplace
Competing in large
and attractive
mark e ts
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 ofan increasingly
prosperous middle classdriving 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
fromCOVID 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
andpost 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
in2021 and are likely to continue during
2022. For more details on risks see the
RiskReport 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
theway the industry interacts with
healthcare professionals and government
ocials globally, including the AdvaMed
Code ofEthics and the MedTech Europe
Code ofEthical Business Practice.
Anti-bribery and corruption legislation,
including the UK Bribery Act and the
USForeign 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
onour approach to compliance see
pa ge 27.
National regulatory authorities govern
the design, development, approval,
manufacture, labelling, marketing and
saleof 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
inJapan, 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
torespond appropriately. In addition, we are
required to respond to new regulations, such
as the European Union (EU) Medical Device
Regulation (MDR) which came intoeect
inMay 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 eect on 1 January 2021.
This includes commitment to zero taris
andzero quotas on all goods that comply
with the appropriate rules of origin. The
UK continues to negotiate agreements
to reproduce the eects of EU trade
agreements with third countries and
is also seeking Free Trade Agreements
or trade cooperation agreements
with a number ofnations. 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.
10
Smith+Nephew
Annual Report 2021
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 toslow down
in the summer months due toholidays.
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 USand20% 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-
eective 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 dier
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.
1 Data used in 2021 estimates generated by Smith+Nephew is based on publicly available sources and internal analysis
andrepresents 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.
$10.3bn
+11%
2021 growth rate
+5% -3%
2017–19 2020
average growth
growth
Trauma and
Extremities
2
Hip and
Knee Implants
Orthopaedics
Market size 2021
1
Sports Medicine³
Advanced Wound
Management
A
Smith+Nephew
11%
B
Zimmer Biomet
32%
C
Stryker
23%
D
DePuy Synthes
4
20%
E
Others
14%
A
Smith+Nephew
5%
B
DePuy Synthes
4
27%
C
Stryker
22%
D
Zimmer Biomet
12%
E
Others
34%
A
Smith+Nephew
27%
B
Arthrex
33%
C
Stryker
11%
D
DePuy Mitek
4
12%
E
Others
17%
A
Smith+Nephew
14%
B
3M
18%
C
Mölnlycke
9%
D
ConvaTec
6%
E
Others
53%
$5.3bn
+13%
2021 growth rate
+5% -12%
2017–19 2020
average growth
growth
$14.1bn
+11%
2021 growth rate
+2% -15%
2017–19 2020
average growth
growth
$12.2bn
+10%
2021 growth rate
+5% -5%
2017–19 2020
average growth
growth
A
C
B
D
E
A
C
B
D
E
A
C
B
D
E
A
C
B
D
E
11
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Business model
How we
create value
Value creation is driven by our purpose-driven
culture, strategy, customer-centricity,
strongproduct portfolio and commitment
tosustainability.
Our people & culture
Attracting, developing and retaining high
calibre employees is important. We strive
tobuild apurpose-driven culture based
onstrong andauthentic values.
»
See page 20 for more
Ethics & compliance
Committed to doing business the
rightway, compliance is embedded
in the waywe 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,
technologiesand services.
»
See page 28 for more
Value delivered in 2021
Life Unlimited
Purpose-driven culture
Having the clear purpose of Life
Unlimited gives employees a
sense of belief, determination
and a common goal.
Thissupports a strong culture
which drives performance across
the business both in terms of
financial and non-financial value.
Strategy for Growth
Focuses our eorts to
strengthenthe foundation,
accelerate profitable
growth andtransform our
business through innovation
and acquisition.
Creating value through
$5,212m
Group revenue
$593m
Operating profit
$936m
Trading profit
1
c.$40m
Eciency savings
»
Read more on
pages 20–27
»
Read more on
page 7
Our resources
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.
12
Smith+Nephew
Annual Report 2021
»
Read more on
pages 36–47
»
Read more on
pages 42–47
»
Read more on
pages 48–57
Manufacturing & quality
Operating global manufacturing
ecientlyandto high standards to
ensurequality and competitiveness.
»
See page 34 for more
Medical education
Supporting the safe and eective
useofourproducts through
medical education.
»
See page 41 for more
Sales & marketing
Supporting customers through highly
specialised sales teams with in-depth
technical product knowledge that
surgeonsand nurses value greatly.
»
See page 36 for more
Customer-centricity
Serving our customers is at
theheart of our business model.
We have a global franchise
and regional model led by
management who are specialists
intheir areas. This keeps us close
to our customers, ensuring we can
anticipate and meet their needs.
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
accessto life-changing care.
156,255
Practitioner
training instances
9%
Less waste to
landfill vs 2019
10,000
Hours volunteered
$329m
Dividend
Sustainability
Our sustainability strategy sets
challenging targets across the
threeareas of people, planet and
products. This means creating
a lasting positive dierence
to our communities, being a
medical technology business
thatprotects our environment,
andinnovates sustainably.
»
See pages 14–15 for more on our KPIs
13
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Key Performance Indicators
Measuring
our progress
Smith+Nephew uses a number of financial and non-financial
Key Performance Indicators (KPIs) totrack and evaluate
performance and delivery against its Strategy for Growth
and other business objectives. Those KPIs in the public
domain are consolidated below. Anumber of other KPIs
arecommercially sensitive andare notpublished.
Productivity and eciency
This KPI helps management and investors
measure our progress in drivinggreater
eciency to liberate resources for
reinvestment in future driversof growth.
Operations transformation
annualised target
$200m
We are undertaking a programme to
transform our operations. This is expected
todeliver around $200 million of annualised
benefits by 2025 for a one-o cost of
around$350 million.
Operations transformation
annualised progress
c.$40m
Incremental benefits realised in 2021
»
For more information see page 18
+14.3%
Revenue growth
Reported revenue growth
includes a foreign exchange
tailwind of 210bps and
190bps benefit from
acquisitions.
Revenue growth allows management and
investors to measure our relative performance.
We are committed to outgrowing our
markets in the medium term.
Revenue growth – reported
+10.3%
Whilst we saw some
recovery, the COVID
pandemic continued
toimpact the business
throughout the year.
Revenue growth – underlying
1
11.4%
Profit margin
Reported profit margin
reflects restructuring costs,
aswell as acquisition and
disposal related items,
amortisation and legal
andother items.
Profit margin allows management and investors
to determine our relative performance. We are
committed to delivering improvements in
themedium term.
Operating profit margin
18.0%
300bps margin upli
reflects improved trading
and discretionary cost
control oset by higher
logistics costs.
Trading profit margin
1
Financial Key Performance Indicators
7. 3 %
Return on invested capital
The higherROIC
in2021reflected
theincreased
operating profit.
ROIC allows management and investors
tomeasure the return generated on
capitalinvested, providing a metric
forlong-term value creation.
37. 5¢
Dividend per share
Total distribution
of37.5¢per share,
unchanged from
2020 and 2019.
Dividend payments allow investors
toreceive a cash return on their
investmentinSmith+Nephew.
1 These non-IFRS financial measures are explained
andreconciled to the most directly comparable
financial measure prepared in accordance with
IFRSonpages 218–222.
2019
2021
2020
4.4%
10.3%
-12.1%
2019
15.9%
2021
11.4%
2020
6.5%
2019
22.8%
2021
18.0%
2020
15.0%
2019
10.5%
2021
7.3%
2020
7.1%
2019
4.8%
2021
14.3%
2020
-11.2%
2019
37.5¢
2021
37.5¢
2020
37.5¢
14
Smith+Nephew
Annual Report 2021
Long-term sustainability targets
These KPIs allow management and
investorstomeasure progress against
ourlong-term sustainability targets
inthethreeareas of People, Planet
and Products.
Achieve net zero
Achieve net zero Scope 1 and Scope 2
greenhouse gases (GHGs)by 2040 and
Scope3 GHGs by 2045, beginning by
achieving a 70% reduction inScope 1
andScope 2 GHGs by 2025.
Scope 1 and 2 (market-based)^
30%
Reduction since 2019
Hours volunteered
10,000
Each year employees are encouraged
to use paid volunteering time
Waste to landfill
9%
Less waste to landfill versus 2019
Product donations
$1.4m
Each year we donate products to
supportunderserved communities
^ Please refer to page 57 for our emissions
reporting methodology, materiality
and scope.
»
For details of the actions we
areundertaking to meet our
commitments, seepages 50–52
Employee engagement score
The Gallup Global Engagement Survey allows
management and investors toassess how
well our employees areengaged, which is
akey driver ofbusiness performance.
Engagement
4.08
Our Grand Mean score of 4.08 positioned
usinthe 71st percentile in Gallup’s database
(2020: 76th percentile). 88% of employees
participated (2020: 89%).
»
For more information see page 21
Non-financial Key Performance Indicators
Our headline safety rate
improved in 2021. We adopt
the industry-standard OSHA
system torecord incidents
ofoccupational injury and
illhealth. Performance is
expressed as the number
ofincidents per 200,000
hours worked.
This KPI helps investors understand how we
support the safe and eective use of our products
through the provision of medical education.
Practitioner training instances
156,255
Quality and safety
This KPI allows management and investors
tounderstand if we are operating a safe
working environment at high standards.
Headline safety rate
Medical education
New product launches
This KPI helps us track the number of
on-time new product launches to drive
future revenue growth.
13
We executed 13 new product launches
in2021. See page 32 for major launches.
Acquisitions
This KPI tracks acquisitions that enhance
ourportfolio and pipeline, including
technology that can change the standard
ofcare and assets in high growth categories.
In January 2021 we acquired an Extremity
Orthopaedics business for $236 million,
including complementary shoulder
replacement andupper and lower
extremities portfolio, and an exciting
newproduct pipeline.
»
For more information
see pages 28–35
$356m
Investment in innovation
In 2021 we continued
to protect ourR&D
investment andlaunched
multiple newproducts
from ourorganic pipeline
and acquisitions.
This KPI allows management and investors
tounderstand how much is being invested
innew innovative products designed to
drivefuture revenue growth and profit.
»
For more information see page 41
»
For more see our
Sustainability Report
2019
0.49
2021
0.23
2020
0.30
2019
$
292m
2021
$356m
2020
$
307m
15
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Financial review
Group performance
2021
$ million
2020
$ million
Change
$ million
Revenue
5,212
4,560
652
Operating profit
593
295 298
Trading profit
1
936
683
253
Profit before tax
586
246
340
Attributable profit
524
448
76
EPS
59.8¢
51.3¢
8.5¢
EPSA
1
80.9¢
64.6¢
16.3¢
Non-IFRS measures
The underlying increase in revenue by market reconciles to reported growth, the most
directly comparable financial measure calculated in accordance with International
Financial Reporting Standards (IFRS), as follows:
2021
$ million
2020
$ million
Reported
growth
%
Underlying
growth
%
Reconciling items
Acquisitions/
Disposals
%
Currency
impact
%
US
2,658
2,339
13.6
10.5
3.1
–
Other Established Markets
2
1,.638
1,450
12.9
7.7
1.0
4.2
Total Established Markets
4,296
3,789
13.4
1.79.4
2.3
Emerging Markets
916
771
18.7
14.6
–
4.1
Total
5,212
4,560
14.3
10.3
1.9
2.1
Trading profit
1
reconciles to operating profit, the most directly comparable financial
measure calculated in accordance with IFRS, as follows:
2021
$ million
2021
%
2020
$ million
2020
%
Operating profit
593
11.4
295
6.5
Acquisition and disposal related items
7
0.1
4
0.1
Restructuring and rationalisation costs
113
2.2
124
2.7
Amortisation and impairment
of acquisition intangibles
172
3.3
171
3.7
Legal and other
51
1.0
89
2.0
Trading profit
936
18.0%
683
15.0%
2021 performance
Group revenue in 2021 was $5,212 million,
anincrease of 14.3% on a reported basisand
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 hipand 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 oset the near-term challenges
inour 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 oset
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
underutilisation 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
costsand the implementation of China
volume-based procurement. In addition,
we have made clear strategic choices
toinvest in R&D, bolt-on acquisitions
andnew product launches.
Strengthening our
foundation
1 These non-IFRS financial measures are explained and reconciled to the most directly
comparable financial measure prepared inaccordance with IFRS on pages 218–222.
2 Other Established Markets are Europe, Canada, Japan, Australia and New Zealand.
16
Smith+Nephew
Annual Report 2021
Trading profit for the year was $936 million
and the trading profit margin
1
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
eciency with shareholder returns.
The first priority is to continue to invest
ininnovation 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
aer 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
eciency while meeting our commitments
and investment needs.
Taxation
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
ineach jurisdiction.
“ Growth in 2021
was driven by
strong commercial
execution, investment
in innovation and
acquisitions.”
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
ofgovernments (employee income taxes
and social security contributions and
netindirect tax payable).
»
See more on our
franchises and
their performance
on pages 42–47
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
17
Financial review
continued
2021
$ million
2020
$ million
Change
$ million
Cash generated from operations
1,048
972
76
Trading cash flow
1
828
690
138
Free cash flow
1
410
437
(27)
2021
$ million
2020
$ million
Change
$ million
Goodwill and intangible assets
4,387
4,414
(27)
Other non-current assets
2,109
1,934
175
Current assets
4,424
4,664
(240)
Total assets
10,920
11,012
(92)
Total equity
5,568
5,279
289
Non-current liabilities
3,221
4,045
(824)
Current liabilities
2,131
1,688
443
Total liabilities
5,352
5,733
(381)
Total liabilities and equity
10,920
11,012
(92)
Net debt
2
including lease liabilities
2,049
1,926
123
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 oset 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 oset by acquisitions of
$112 million and additions of $56 million.
Theacquisition of intangible assets relates
to the Extremity Orthopaedics acquisition
and additions primarily related to soware.
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 oset by a
$153 million increase in inventories,
partly driven by inventories acquired
fromExtremity Orthopaedics. Ensuring we
carry optimum levels of inventory remains
afocus 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
tothe movements described above
which were partially oset by scheduled
debt repayments.
Cash flow data
Cash generated from operations of
$1,048 million is aer paying out $28 million
ofacquisition and disposal related items,
$108 million of restructuring and
rationalisation expenses and $111 million
forlegal 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 costof $16 million.
1 These non-IFRS financial measures are explained and reconciled to the most directly
comparable financial measure prepared inaccordance with IFRS on pages 218–222.
2 Net debt is reconciled in Note 15 to the Group accounts.
Eciency
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 recognised
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-o cost of
around $300 million, $60 million more
thanoriginally planned.
Earnings per share
Basic earnings per share (EPS) was up
17%to 59.8¢ reflecting our improved
trading performance. Adjusted earnings
per share
1
(EPSA) was up 25% at
80.9¢, reflecting the improved trading
performance and the lower tax
trading rate.
Dividends
The 2020 final dividend of 23.1¢ per
ordinary share totalling $203 million
waspaid on 12 May 2021. The 2021
interim dividend of14.4¢ per ordinary
share totalling $126 million waspaid
on27October 2021.
Return on invested capital
Return on invested capital
1,3
(ROIC)
isameasure of the return generated on
capital invested by the Group. It encourages
compounding reinvestment within the
business and discipline around acquisitions.
ROIC increased from 7.1%in2020 to
7.3%in 2021 as a result ofhigher operating
profit. ROIC remains substantially lower
than our historic results given the impact
ofthe pandemic.
3 ROIC is defined as:
Operating Profit less Adjusted Taxes
(Opening Net Operating Assets +
Closing Net Operating Assets)/2
18
Smith+Nephew
Annual Report 2021
Available debt facilities by maturity date ($m)
Liquidity and capital resources
At 31 December 2021, the Group held
$1,285million (2020: $1,751 million)
in cash netof bank overdras. 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 hadcommittedavailable
facilities of$4.1billion at 31 December
2021 ofwhich$3.1 billion was drawn.
The Group’s net debt
2
increased from
$1,926 million at the beginning of
2021 to$2,049 million at the end of
2021, representing an overall increase
of$123million due to the Extremity
Orthopaedics acquisition and repayment
ofprivate 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 eect, 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 thatits capital
expenditure needs and itsworking capital
funding for 2022, aswellasits other
knownor 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 itsborrowing facilities
andfinancial covenants.
The Directors have a reasonable
expectation that the Company and
the Group are wellplaced to manage
their business risks and tocontinue in
operational existence fortheperiod
to1 July 2023. Accordingly, the Directors
continue toadopt the going concern
basis inpreparing the consolidated
financial statements.
Outlook
Our guidance assumes that demand is largely
unconstrained by COVID aer 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 eciencies from
operating leverage and productivity and
improvement in the margin of acquired
assets that will more than oset significant
anticipated headwinds of around 125bps
from input cost inflation and around 60bps
from ChinaVBP implementation.
The tax rate on trading results for 2022
isforecast to be in the range 17% to18%
subject to any material changes totax
lawor other one-o items.
Anne-Françoise Nesmes
Chief Financial Ocer
430
2023
659
105
554
2022
305
125
2024
430
430
2025
1,000
1,000
2026
75
75
2027
140
140
2028
60
60
2029
100
100
2030
1,095
95
1,000
2031
155
2032
155
Revolving credit facility undrawn
USD corporate bond
EUR term loans
Private placement debt
Maturity by date
19
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
In the second year of the pandemic,
ourculture remained at the centre of
the frame as we continued to focus on
the health and safety of everyone at
Smith+Nephew, whilst engaging and
supporting employees as our markets
began to recover.
Our Global Crisis Management team
actively monitored and tracked the state
of pandemic recovery across the world,
putting in place global standards which
inmany cases exceeded local guidance,
forthe health and safety of our employees
and visitors. Employees whose roles could
be carried out at home continued to work
remotely for much of the year, and we
continued to support our site workers
in manufacturing, supply chain and
other functions with rigorous site safety
protocols and vaccination fairs. We oered
special pandemic leave to all employees
if required.
To keep employees engaged during these
challenging times, we placed a strong
focus on regular, two-way communication
across our business. Quarterly live global
webcasts continued, with plenty of time
allocated to open Q&A, listening sessions
continued on a number of engagement
topics such as inclusion and leadership
behaviours, and we focused on mental and
physical wellness in our communications
and corresponding benefits programmes.
It is our culture – of Care, Collaboration and
Courage – that really sets us apart. Through a
spirit of ownership and can-do attitude we work
together to win. We’re a company of people
whocare about each other, about our customers
and their patients, and about the communities
where we live and work.
We are a values-led
employer
Building a
winning culture
Smith+Nephew
Annual Report 2021
20
For the third year, we conducted our
annualGlobal Employee Survey using
theGallup Q12. With participation of
88% and a mean of 4.08, we maintained
our strong results from 2020 over the
course of a challenging year. Our results
and open comments reflected the impact
of COVID and other business challenges
such as constraints inthe global supply
chain and the resulting impact on our
business. We continued tosee strengths
inconnection to our Purpose – Life Unlimited
– and in our demonstration of respect and
ethical behaviours. ‘Myopinions count’
was among our highest scores, reflecting
our emphasis on valuing the individual,
inclusion and equity.
Managers were provided with their
individual survey scores and conducted
team sessions where the results were
discussed and actions agreed – both
to improve on opportunity areas and
to maintain strengths. These action
plans continued throughout the year
and are assessed at our annual Gallup
Accountability Check-in Survey to
determine whether employees are seeing
improvements basedon those plans.
“ Our culture guides every decision we make
and every action we take. It is more than
words – it is who we are at Smith+Nephew.”
“ Creating a more flexible andinclusive
working environment is not a one-time
fix, rather a journey ofevolution. It has
been great to see people have the
courage to try new things and help
shi our corporatemindset.”
Elga Lohler
Chief Human
Resources Ocer
Ghaz Mahdizadeh
Director Strategic
Projects
Our approach to hybrid working is
now being implemented worldwide by
dedicated country teams. Each country
tailors the frameworks to align to local
legislation, business demands and culture
while considering global consistency.
Putting flexibility into practice can look
dierent for every employee depending
ontheir personality, what team they
are in and their role. Because of this, we
encourage employees to shape their own
flexible work style in line with Workplace
Unlimited guidance to agree with their
manager and team colleagues.
Workplace
Unlimited
Flexibility in the workplace is an
evolvingjourney. We recognise that not
everyone isstarting from the same point.
Piloted at seven key global sites during
2021, Workplace Unlimited has created
a flexible framework and guidelines to
promote a more flexible and agile future
forall employees.
At Smith+Nephew, we define flexibility
asWHERE we work, WHEN we work,
andHOW we work.
WHERE
we work
Oering
flexibility in the
spaces in which
we work
HOW
we work
Oering
flexibility in our
ways of working
WHEN
we work
Oering
flexibility in
work patterns
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Nordics Commercial Hub
opensforbusiness
Our new Commercial Hub in Copenhagen,
Denmark, ocially opened in December.
The new workspace brings our Nordics
teams together into one central location,
allowing us to better serve our customers
and patients in the Nordics regions.
Creating this new hub was a great
opportunity to bring our Workplace
Unlimited principles to the design process
in terms of incorporating areas designed
around encouraging collaboration
(hubspaces), focused work (study spaces)
and networking and socialising (club spaces).
As more people work flexibly in remote
settings, we need to ensure our sites
are still working for us in the best way.
The Workplace Unlimited team at
our headquarters in Watford, UK, has
been oneof the first sites to adopt new
workspace principles and during 2021
triedout new layouts and technologies.
These changes included making oces
moreaccessible for all employees,
removing unnecessary desks and
personal storage to make room for
more collaboration spaces and creating
a comfortable wellness room for
when people want to take a moment
for themselves.
In September 2021 the Board, alongside
members of the Executive Committee,
visited Watford and saw these collaborative
spaces put into practice. Recognising the
need for traditional oce space to evolve,
the Board were pleased to see the
involvement of employees in shaping
theWorkplace Unlimited principles.
Flexible
workspaces
We are a values-led employer
continued
Smith+Nephew
Annual Report 2021
22
Smith+Nephew is committed to Inclusion,
Diversity & Equity and aims to create
an environment that values dierence,
where every individual can achieve their
fullest potential and be proud ambassadors
for Smith+Nephew, our customers and
their patients. In 2021, we updated our
definitions of Inclusion and Diversity and
added ‘Equity’ as an additional construct
toreflect our overarching ambition –
tocreate and foster a sense of belonging
andparity for our employees.
Inclusion,
Diversity & Equity
Our PRIDE EIG launched in June
to coincide with PRIDE Month,
with communications going
out to our employees to raise
awareness and provide education.
Towards the end of PRIDE
month, we also hosted a guest
speaker event, which was our
first global, intersectional event
that PRIDE co-delivered with
Veterans Unlimited. Our PRIDE
EIG became our fastest growing
EIG with membership surpassing
150 in thefirst weeks post-
launch. We also saw a successful
launch in the US of our UNITY EIG
that covers race and ethnicity,
with more UNITY chapters
forming in the months following.
Meanwhile, our UK UNITY EIG
received external recognition from
Investing in Ethnicity, leading to
Smith+Nephew achieving STAR
employer status, providing a
framework and benchmark to
accelerate meaningful, action-
based progress.
Inclusion in action
“ We’re focused on operationalising Inclusion,
Diversity &Equity so that our people have
the opportunity tothrive and achieve
their fullest potential, while contributing
to Smith+Nephew’s success.”
Natasha Berry
Vice President
Inclusive Culture,
Diversity & Equity
We now have nine Employee Inclusion
Groups (EIGs) that cover many areas
of diversity, such as gender, race and
ethnicity, veterans, mental health and
physical wellbeing, generations and
LGBTQ+. EIGs are voluntary, employee-
led groups that foster an inclusive culture
that supports diversity of thought,
background and perspective. Our EIGs
provide a network for employees to
engage and collaborate as part of a global
framework and be empowered to drive
local events and activities. Together these
groups have grown from launch in 2020
to have approximately 1,500 members
drawn from many countries and levels
ofSmith+Nephew.
1 Number of employees at 31 December 2021 including part time employees andemployees on leave of absence.
2 Senior managers and above include all employees classed as Directors, Senior Directors, Vice Presidents,
ExecutiveOcers and includes all statutory directors and Directors ofoursubsidiary companies.
Gender ratios
Overall, we saw an increase of female
representation insenior roles (from 30%
in2020 to 31% in 2021). The percentage
offemale Board members increased to 33%
inFebruary 2022 with the appointment
ofJoHallas as a Non-Executive Director.
Senior managers
andabove
2
Total employees
1
Board of Directors
1,088
11
18,369
42%
Female
58%
Male
27%
Female
73%
Male
31%
Female
69%
Male
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We are a values-led employer
continued
Our focus on mental health and physical
wellbeing has been a priority throughout
2021 as we recognise the importance
of supporting all our employees during
a significant period of challenge and
change. We have mobilised a number of
working groups and leveraged our CARE
EIG to continue to make this an absolute
priority. Internal events and campaigns
have been run, such as WELLFEST, which
focus on employee wellbeing, where we
have heard from senior leaders about their
ownpersonal experiences and challenges
asaresult of the pandemic.
Raising awareness
Building on the work started in 2020
toprovide education on inclusion to
ourpeople leaders we have also hosted
training events for our hiring managers
to enhance the interview process.
Sessions were delivered to over 2,700
leaders globally in multiple languages
throughout 2021 and continuing into 2022.
Our focus on inclusive hiring practices is
about ensuring our practices are free of
any potential biases. For example, we aim
to have diverseshortlists of candidates
for every role we hire into and a panel
of diverse interviewers supporting our
recruiting eorts.
We also actively work externally to
attractdiverse talent to Smith+Nephew.
In 2021, we were proud sponsors of a
number ofprogrammes and societies,
including the Scientist Mentoring Diversity
Program (SMDP), the National Society of
Black Engineers (NSBE) and the Society
of Women in Engineering (SWE), involving
our EIGs, as our brand ambassadors,
inactivities that promote recruitment
ofdiverse talent.
Leadership and
development
There have been many initiatives
delivered throughout 2021 to promote
the importance of mental health and
physical wellbeing, such as Mental Health
Awareness Week and World Mental Health
Day and two of our employees in the UK
started a regular podcast where they
openly share their own personal journeys
relating to mental health. Recognising the
importance of creating safe spaces for
our employees to speak up and say what’s
on their minds, we also ran listening and
sharing sessions led by members of our
Executive Committee, with over 300
employees attending from all functions
across the business. This provided an
opportunity for our employees to share
their insights about our culture and ways
we can enhance our Inclusion, Diversity
&Equity ambition.
Mark and Barry, members
of our UK, Ireland and
Nordics Commercial team
and members of our CARE
Employee Inclusion Group,
decided to start a company-
wide podcast covering topics
from addiction to trauma,
and featuring dierent guest
speakers each month, they’re
working to #breakthestigma
and remind us that
#ItsOkNotToBeOk.
Starting the
conversation
Mental health
#ItsOkNotToBeOk
In 2021 global health service
company Cigna awarded
Smith+Nephew the Cigna Well
Being Award for demonstrating
astrong commitment to improving
the health and wellbeing of its US
employees through a workplace
wellness programme.
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Annual Report 2021
Increasing female leadership
Increased representation of more
diversetalent across all management
levels is an important part of our strategy.
We continue to see progress in female
representation increasing the overall
percentage of female senior managers
from 30% to 31% during 2021. To help
accelerate progression, we provide
programmes for female employees,
including our Elevate programme designed
to support professional development,
while building engagement and retention
in our female talent pipeline. In addition,
we introduced a female sponsorship
programme in 2021, whereby members of
our Executive Committee sponsor female
talent at more senior levels to strengthen
the progression of female talent.
Aligned to our priority to continue to raise
awareness for under-represented groups
of employees, we have run events through
our EIGs where we hear from senior
leaders about their own career journeys
totraditionally non-diverse roles.
In 2021 Smith+Nephew was
recognised as one of the
World’s Top Female Friendly
Companies by Forbes and
independent research
company Statista Inc.
Leadership development
Development of Smith+Nephew leaders
is supported by formal, collaborative and
experiential learning helping them to make
connections between development and
their jobs. In 2021, a record 335 leaders
joined our Pioneer and Leadership Edge
programmes. To help leaders continue
to lead their teams eectively in a more
uncertain environment, the 2021 Pioneer
theme was ‘Leading High-Performing
(Hybrid) Teams’, and the Leadership Edge
theme was ‘Leading through Change
and Ambiguity’.
Executive development is supported via
the Executive Development Programme
that we piloted and launched last year.
22 senior leaders have participated in nine
courses oered by business schools with
each participant working on individual
business projects. In addition, in response to
an expressed need, this year we developed
and piloted Leadership Beginnings, a new
programme for first-time leaders.
In 2021, we ran a reverse
mentoring programme in which
33 pairs of mentors and mentees
took part. The aims of the
programme were to encourage
intergenerational connections
with participants who represented
dierent cultures, backgrounds
and disciplines, and to educate
mentees (senior leaders) in areas
of technology, new ways of
working, inclusion and diversity
andsocial media.
Reverse
mentoring
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To truly live our purpose of Life Unlimited,
wemust realise every employee’s full
potential. To achieve this, all our employees
have robust 70-20-10 development
plans, which take a blended approach to
learning and development: 70% through
experiential/on the job learning; 20% by
learning from others, for example through
coaching; and 10% from formal learning.
Our performance management process
aligns each individual’s objectives with our
strategy. With the continuing challenges
seen through 2021, and moves to hybrid
ways of working, we have provided
extra support to help people leaders
encourage more frequent feedback.
This included introducing a new global
feedback framework, and a supporting
e-learning module on how to deliver and
receive feedback, re-align objectives
andmanage performance conversations
inhybrid environments.
Supporting
learning
and growth
Beamery is a recruitment
marketing tool that allows us
to be more strategic in our
hiring, creating pools of talent
for future consideration, while
keeping candidates interested
and engaged with relevant
Company news and updates
on their areas ofinterest.
From launch inFebruary 2021,
we have built a community of
more than 15,000 candidates.
One example of thepower of
the network was in Memphis
where we used Beamery
toschedule 200+ people for
an on-site hiring event, filled all
available roles and continued
to re-engage with interested
candidates when new
openings arose.
Smith+Nephew’s compensation
strategysupports high performance
andaccountability across both financial
and cultural performance metrics.
A robust compensation framework
is vitalin attracting, retaining and
motivating high calibre people, driving
better business results across an equitable
work environment. We are Living Wage
Accredited in the UK, voluntarily paying
above the government required minimum.
We also oer a share save plan to the
majority of employees globally.
Developing key talent is critical to our
future success. Alongside our twice-yearly
talent review process we launched a
new High Value Role assessment tool
toprioritise and pressure test our most
critical roles and conducted deep dives
into critical talent topics, such as diversity.
We have also invested in getting to know
our key talent better, including introducing
virtual coees with the CEO.
We oer an intern programme to develop
apipeline for full-time positions as well as
to provide students with meaningful and
challenging work. In 2021, 42 interns from
China, US, India and Costa Rica took part
inthis programme.
Our online learning platform continues
to be the ‘go to’ place for quick bite-size,
self-paced learning for all Smith+Nephew
employees. With 42,000+ resources –
videos, courses, books, book summaries,
bootcamps, live events, etc. – the
platform can support learning needs in
the areas of leadership, technical and
professional development.
As we continue to evolve and improve
our culture, opportunities have been
identified (via our global employee survey)
for further engagement and development
of our employees, as well as greater
flexibility andnew ways of working.
In support of this,39 workshops were
conducted with 360 people leaders and
employees as well as interviews with our
Executive Committee with the insights
being used to inform current and future
development strategy.
Online resources
Creating a
talent network
We are a values-led employer
continued
Smith+Nephew
Annual Report 2021
26
Our Global Compliance Programme helps
our business to comply with applicable laws,
regulations and industry code requirements
in the markets in which we operate.
Our comprehensive programme includes
policies, guidance, role-based training,
monitoring and validation processes
supported by data analytics andreporting
channels. Our Compliance teams work
closely with business partners to ensure
that our programme evolves in parallel
withbusiness changes and emerging
risksin the sector.
We are committed to helping our employees
and third-party partners to do business
in the right way through simplification of
Compliance programme requirements and
by embedding key Compliance controls
into business processes. During 2021 we
updated our Global Policies and launched
anew interactive tool to improve employee
access to information about requirements
in our global markets. Through our global
intranet, we provide these and other
resources and tools to guide employees
tomake decisions that comply both
withthe law and our Code of Conduct.
Our business models require that we
workclosely with third-party partners,
and in many countries these partners
sell product on our behalf. We have a
well-established risk-based Third Party
Compliance Programme which includes
ongoing due diligence, training and
oversight of these partners.
We have multiple levels of ethics and
compliance oversight, including a Board
Compliance & Culture Committee, to
ensure managers, employees and business
partners act with integrity. We ensure
appropriate oversight of significant
interactions with healthcare professionals
or government ocials, and we comply
with all national and state transparency
reporting laws which require reporting
ofphysician compensation.
All employees have a responsibility to
report violations of our Code. This may
be done via their manager, directly
toCompliance, HR or Legal functions,
orthrough an externally managed
reporting channel where anonymous
reports may be made.
»
Our Code of Conduct and
Business Principles are available
at www.smith-nephew.com
Achieving results
with responsibility
“ We believe that it’s a privilege to provide products
andservices for patients and healthcare professionals.
And we believe that everyone who works for us – or
onour behalf – shares that responsibility by upholding
our reputation for integrity and ethical conduct.”
Alison Parkes
Chief Compliance
Ocer
At Smith+Nephew, we recruit, employ
andpromote employees on the sole basis
of the qualifications and abilities needed
for the work to be performed. We do not
tolerate discrimination on any grounds and
provide equal opportunity based on merit.
Smith+Nephew gives individuals with
disabilities fair consideration for all
vacancies against the requirements of the
role. Where possible, for any employee who
has a disability or who becomes disabled
while working for us, we make reasonable
adjustments and provide appropriate
training to ensure that they are supported
in their career. We are committed to
providing equal opportunities in recruitment,
promotion and career development for all
employees, including those with disabilities.
We do not use any form of forced,
compulsory or child labour. Smith+Nephew
supports the Universal Declaration of
Human Rights of the United Nations,
respecting the human rights, dignity
and privacy of individuals and their right
to freedom of association, freedom of
expression and the right to be heard.
As a global medical technology business,
we recognise our responsibility to take
a robust approach to preventing slavery
and human tracking. Smith+Nephew is
committed to preventing such activities
in all of its corporate operations and in
itssupply chains.
»
Our full policy on modern slavery
isavailable on our website.
An ethical
employer
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Our R&D model and structure provide for
customer and franchise focused innovation,
while leveraging assets and capabilities
across the enterprise. In 2021 weinvested
$356 million in R&D.
New products are developed using
arigorous phase-gate process starting
withbusiness case review and ending
withlaunch readiness review. We also
workclosely with our manufacturing
colleagues to embed sustainability
principles into our design and packaging.
Inspiration for new products comes
from observing our customers, working
with healthcare professionals on design
and development of new technologies,
acquiring technologies needing further
development and commercialisation,
andour co-development partners.
In 2021 we ocially
opened a new
state-of-the-art
robotics R&D center
in Pittsburgh, US, to
support innovation
and growth.
In v esting
ininnovation
Research &
Development
Smith+Nephew’s strategy includes striving
totransform our business through innovation
andacquisition.
In 2021 we invested a record amount into
ourR&D programmes, launched significant
newproducts, delivered value from recent
acquisitions and made progress on our
five-year programme todrive resilience
andeciency across our manufacturing
anddistribution network.
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Annual Report 2021
Acquisitions
The Tula System,
acquired in 2020,
gives ENT surgeons
an option to place
ear tubes in an
awake child during
an oce visit
without the need for
general anaesthesia.
Examples of new technologies recently
launched include the LEGION
◊
CONCELOC
◊
Cementless Total Knee System and the
FAST-FIX
◊
FLEX Meniscal Repair System,
respectively designed by our teams in
Memphis and Andover in the US.
We have also acquired technologies,
integrated them and brought them to
themarket. Examples include the CORI
Surgical System, our next-generation
robotics platform launched in 2020
following the success of the acquired
NAVIO
◊
system. Significant development
and performance enhancements were
implemented by our robotics teams in
Pittsburgh, US and Munich, Germany.
The close alignment between new
product development and clinical aairs
allows us to deliver clinical and economic
evidence of the value of our innovation.
In 2021 this included studies supporting
the REGENETEN
◊
Bioinductive Implant
for partial-thickness rotator cu tears,
RI.HIP NAVIGATION, our computer-guided
technology for total hip arthroplasty,
theIODOSORB
◊
0.9% Cadexomer Iodine
Range for chronic wounds and OXINIUM
◊
.
The Tula
®
System, acquired in January 2020,
is an in-oce solution that has thepotential
to transform tympanostomy tube treatment
of children as ENT surgery levels recover.
In January 2022 we acquired Engage
Surgical, owner of the only cementless
partial knee system commercially available
in the US. The Engage Surgical Partial Knee
System is a novel, modern cementless
knee implant to serve a resurgent segment
driven by the potential for better long-
term fixation through biologic integration,
shorter operating times and the shi to
Ambulatory Surgery Centers (ASCs). It is
optimised for robotics and will have an
application with the CORI Surgical System
inthe future (see page 39 for more on
Engage Surgical).
Smith+Nephew continues to use bolt-on
acquisitions to enhance our portfolio
andpipeline. This includes technology
thatcanchange the standard of care
andassets in high growth categories.
We are starting to see significant benefits
from a number of recent acquisitions.
The Osiris acquisition from 2019 is
transforming the growth profile of
Advanced Wound Bioactives as we train
theOsiris and SANTYL
◊
focused sales
forcesto cross-sell the portfolio. In Sports
Medicine, REGENETEN and NOVOSTITCH
◊
PRO
are delivering strong growth in the
US, andare only at the start of their launch
in other markets. In Orthopaedics, the
collaboration with Brainlab for robotics
anddigital surgery is proving successful.
The Extremity Orthopaedics business
acquired in January 2021 grew in2021
despite market conditions, andweare
excited by the potential forcross-selling
our respective portfolios and its new
product pipeline.
“ Innovation is critical to fulfilling our promise
of Life Unlimited. I am excited to see the
progress we are making in using technology
to provide meaningful solutions that improve
clinical outcomes and build economic value.”
Vasant Padmanabhan
President
Research &
Development
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Investing in innovation
continued
Our digital surgery ecosystem helps
customers to perform surgeries more
precisely and accurately, leading to better
patient outcomes. We provide connectivity
across the enabling technologies, from our
INTELLIO
◊
Connected Tower Solution to the
CORI Surgical System in robotics and Real
Intelligence suite of products. Our solutions
provide insights, derived from procedure
data, for better patient management,
and help patients prepare for and recover
from surgery.
INTELLIO
Connected Tower Solution
Uses a centralised app to
wirelessly connect and control
themajor components of an
arthroscopy surgical tower from
outside the sterile field, helping
tostreamline procedure support.
Recent advancements to the
INTELLIO Connected Tower
Solution include a new pump
and4K optimised scopes.
“The Real Intelligence ecosystem is a
game-changer for Smith+Nephew.
The orthopaedic space is becoming
atechnology space, and this
comprehensive suite of pre, intra and
post-operative solutions all designed
to work together is truly remarkable.
As a surgeon, I get a personalised
experience that gives me the
confidence and assurance I’m
performing the most precise and
ecient procedure for my patient.
What more can you ask for?”
Dr Jimmy Chow, of the
Orthopaedic Institute of the West
(Phoenix, Arizona, US)
Smith+Nephew is at the forefront
of bringing digital connectivity to
the operating room.
Building a digital ecosystem
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CORI
The CORI Surgical System is a small
and portable robotics platform,
making it ideal for Ambulatory
Surgery Centers (ASCs) and
outpatient surgery. Unlike other
robotic systems, the CORI system
reduces costs and radiation exposure
associated with preoperative CT
imaging, using instead image-free
smart mapping to build patient-
specific 3D models of the anatomy
in surgery.
RI.HIP NAVIGATION
RI.HIP NAVIGATION is designed
to help maximise accuracy
andreproducibility bydelivering
patient-specific component
alignment – a criticalfactor
forsurgeons whenassessing
individual hip implant cases.
RI.INSIGHTS
A premier web-based platform
designed to enable orthopaedic
surgeons to analyse their robotic
surgical experiences with
objectivedata to optimise surgical
planning and refine operative
eciencies. RI.INSIGHTS gives
surgeons access to anonymised
intra-op case data via a secure
portal, which can be reviewed
with independent post-op patient
outcomes, allowing surgeons to
gain and readily apply insights
from their robotics-assisted
surgical procedures.
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Investing in innovation
continued
LEGION CONCELOC
The LEGION CONCELOC
Cementless Total Knee System
combines CONCELOC Advanced
Porous Titanium (a patented,
proprietary, 3D printed porous
structure) and LEGION’s clinical
success treating over two million
patients to create a unique
modern cementless knee implant
to serve a resurgent segment
driven by the potential for better
long-term fixation through biologic
integration and shorter operating
times. This is the first release in a
multi-year rollout of our family of
cementless knee implant products.
SMART TSF
In Trauma & Extremities
theSMART TSF Circular Fixator
introduces enhanced digital
connectivity to our leading
external fixation TAYLOR SPATIAL
FRAME
◊
, used for limb correction,
lengthening and/or straightening.
WEREWOLF
◊
FASTSEAL
◊
6.0
WEREWOLF FASTSEAL 6.0
Hemostasis Wand brings
our leading radio-frequency
technology widely used in
sportsmedicine to orthopaedic
customers. Using low temperature
thermal energy, WEREWOLF
FASTSEAL 6.0 delivers hemostatic
sealing (via coagulation) during
open orthopaedic procedures
such as total joint arthroplasty.
Smith+Nephew’s is proud of its track
record of delivering innovative products
that help improve quality of life.
Major product
launches in 2021
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FAST-FIX FLEX
The FAST-FIX FLEX Meniscal
Repair System builds on our
leading position in this segment.
FAST-FIX FLEX is the only device
tooer a surgeon-guided,
bendable needle and sha
providing access to all zones of
themeniscus. Improving access
leads to a greater opportunity
torepair the meniscus rather
thanremove it.
INTELLIO
New enabling technologies
for INTELLIO Connected
Tower Solution with the
introduction of the DOUBLEFLO
◊
Inflow/Outflow Pump and
4KO
◊
(Optimised) Arthroscopes
andLaparoscopes. DOUBLEFLO
includes heads-up display
projection allowing surgeons
to focus on the patient rather
than equipment. 4KO Scopes
have a minimum 30% increase
in resolution compared to
our previous arthroscopes.
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Investing in innovation
continued
Sports Medicine products are primarily
manufactured at the Alajuela (Costa Rica)
and Mansfield (US) facilities. Our major
manufacturing sites for Advanced Wound
Management products are Hull (UK),
FortWorth (US), Columbia, Maryland (US)
and Suzhou (China).
We procure raw materials, components,
finished products and packaging materials
from suppliers globally. These include
metal forgings and castings, optical
and electronic sub-components,
active ingredients and semi-finished
goods, aswell as packaging materials.
Our procurement team aims to contract
to ensure value based on total spend
across the Group. We work closely with our
suppliers to ensure high quality, delivery
performance and continuity of supply.
We outsource certain parts of our
manufacturing processes where necessary
to obtain specialised expertise or to lower
cost without undue risk to our intellectual
property or quality. We monitor suppliers
through on-site assessments and
performance audits to ensure the required
levels of quality, service and delivery.
Smith+Nephew takes great pride
in its manufacturing expertise and
commitment to distributing innovative,
quality products globally.
Our Global Operations team supports
the delivery of the Group’s strategy by
ensuring that we respond eciently
to geographical growth, new product
development and changing regulatory
requirements. We operate manufacturing
facilities in countries across the globe,
and have central distribution facilities
in the US, Europe and Asia. Products for
our Orthopaedics franchise are primarily
manufactured at facilities in Memphis (US),
Aarau (Switzerland), Tuttlingen (Germany),
Beijing (China) and Warwick (UK). We are
currently building a new high technology
manufacturing facility in Penang (Malaysia).
Manufacturing
and quality
Manufacturing eciency
and supply chain
In 2019 we initiated a programme to
transform our operations. This programme
is expected to deliver around $200 million
of annualised benefits by 2025 for a
one-o cost of around $350 million.
These eciencies will help oset some
of the cost and price pressures that the
business regularly faces.
We continue to optimise our manufacturing
network, including introducing digital
technologies and lean manufacturing.
We expect to start production at our new
manufacturing facility in Malaysia well
ahead of our original schedule of late 2022.
During 2021 we faced a number of
product supply challenges. These included
stang shortages at our main global
orthopaedics facility in Memphis and logistics
challenges. We have transferred our global
warehousing and distribution function in
Europe to a specialist third-party partner
and are in the process of transferring the
function in the US. We expect to benefit
from the greater scale and expertise of
our partner, includingtheir advanced
warehouse automation.
We were also impacted by global shortages
of some raw materials and components,
such as electronics. Mitigating actions
included simplifying our processes to be
more opportunistic and moving quickly
when additional supply becomes available.
We are making progress on the
Smith+Nephew-specific supply chain
challenges and respond eectively to the
widely reported global shortages of some
raw materials and components, although
we expect supply chain challenges to
remain a headwind in 2022.
Smith+Nephew
Annual Report 2021
34
Quality and Regulatory Aairs
Our Quality and Regulatory Aairs function
supports full product life-cycle management
of Smith+Nephew’s global product portfolio
from design and development through
manufacturing and post-market surveillance.
These teams establish appropriate processes
and procedures to facilitate compliance with
complex global regulations and laws that
govern the design, development, approval,
manufacture, labelling, marketing and sale
ofhealthcare products.
The Quality and Regulatory Aairs teams
directly support expansion of our global
portfolio through the registration of new
products and existing products in new
markets, as well as ensuring compliance
with regulatory reporting standards.
The European Union Medical Device
Regulation (EU MDR) is a significant
regulatory change whereby medical
devices carrying a CE mark now face
greater scrutiny than ever before to ensure
they are eective and safe. Our Regulatory
Aairs team led our work to meet the
requirements for mandated compliance
bythe Date of Application, 26 May 2021.
The team continues to work with our
Notified Bodies to certify our portfolio
toEU MDR during the transition period
which finishes on the 25 May 2024.
Smith+Nephew’s facility in
Costa Rica is one of the key
locations supporting our Sports
Medicine franchise and is set to
become one of Smith+Nephew’s
first multi franchise centres
ofmanufacturing excellence.
It consists of 3,000 square metres
of high technology manufacturing
plant, 500 square metres of
warehouse certified by LEED,
themost widely used green
building rating system in the world,
and 1,750 dedicated employees
delivering more than five million
units every year.
Smith+Nephew’s presence in
Costa Rica goes back to 2014
andthe acquisition of Arthrocare,
which expanded Smith+Nephew’s
Sports Medicine portfolio.
Manufacturing
excellence in
Costa Rica
1,750
dedicated employees
delivering more than
5 million+
units every year
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
35
Smith+Nephew has a global franchise
structure with three franchises:
Orthopaedics, Sports Medicine & ENT
and Advanced Wound Management.
The franchise model is designed to ensure
that we have subject and market experts
leading specialist teams dedicated to
serving the specific requirements of our
customers. Our franchises are responsible
forstrategy, determining which products
wetake to market. The franchises work
closely with R&D to ensure we are
developing products that meet unmet
needs and with Global Operations to
ensure we haveappropriate availability.
Orthopaedics and Sports Medicine & ENT
are led by one leadership team under the
President Orthopaedics, Sports Medicine
& ENT and Americas, reporting to the
ChiefExecutive Ocer. This structure,
announced in November 2021, enables
usto leverage our strength in Sports
Medicine and our broad and innovative
Orthopaedics portfolio to drive better
performance. See page 37 for more
detailsof this structure.
Advanced Wound Management is led
by thePresident Advanced Wound
Management and Global Commercial
Operations, reporting to the Chief
ExecutiveOcer.
Our Global Commercial Operations
includemedical education, sales training,
marketing services and healthcare
economics and serves allourfranchises
and regions.
Healthcare professionals are our customers,
and they can range from orthopaedic surgeons
to wound care nurses, general practitioners and
other clinicians, but increasingly also economic
stakeholders such as purchasing professionals
in hospitals and healthcare insurers.
Serving healthcare
customers
Our franchise
model
36
Smith+Nephew
Annual Report 2021
Putting customers at the heart of our business
Three regional organisations
sell to our customers
Three franchises set
global product strategy
Europe, Middle East & Africa
Our EMEA commercial organisation
is headquartered in Zug, Switzerland.
The team is led by Peter Coenen,
PresidentEMEA Region
Our APAC commercial organisation
is headquartered in Singapore. It is led by
Myra Eskes, President APAC Region
In the US, our largest market, the commercial
teams are organised by franchise and led
bythe franchise presidents. The President
Orthopaedics, Sports Medicine & ENT and
Americas also leads our teamsinLATAM
and Canada
Asia Pacific
US/Americas
Orthopaedics
Sports Medicine
&ENT
44
Read more on
our franchise
42
Read more on
our franchise
Our customers:
– Surgeons
– Healthcare
systems
– Hospitals
– Nurses
– Payers
– Patients
Brad Cannon, President
Orthopaedics, Sports
Medicine & ENT and Americas
Advanced Wound
Management
46
Read more on
our franchise
Simon Fraser, President
Advanced Wound
Management and Global
Commercial Operations
“ We are proud of our performance and achievements
in EMEA over the past year, despite the challenges
we have faced. I was particularly delighted to attend
the EMEA launch of the CORI Surgical System and
I look forward to continuing to deliver customer-
focused innovation in 2022 and beyond.”
Peter Coenen
President
EMEA Region
“ We continued our growth trajectory in Asia Pacific
by executing on our strategy to launch new and
innovative products and to respond swily to
the evolving market dynamics. ”
Myra Eskes
President
APAC Region
37
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Q
+
A
Serving healthcare customers
continued
Q
What excites you the most
aboutyour franchises?
Brad:
Our businesses operate in large
attractive markets, the balance of trends
arefavourable for Smith+Nephew, there
are significant unmet customer needs –
from outcomes to economics to access,
leaving significant room for customer-
focused organisations to innovate
and perform.
We’re well positioned with strong
portfoliosthat are represented by frontier
technologies, like scalable biologics,
robotics, advanced materials and
biomechanics, and combination devices
toname a few. We’re focused on getting
themost out of our portfolio and position
by moving from a product-focused to a
procedure-focused portfolio medical
technology company. Wealso see
opportunity to globally strengthen our
commercial execution, accelerate by
entering new segments, andtransform
thestandard of care bydeveloping
newmarket categories.
Simon:
What gets me excited is the
potential for transformation we can
drivetoimprove quality of life for patients.
Thereis still significant unmet clinical
needand economic burden associated
withwounds. Clinical outcomes are not
improving and pressure injuries are the
onlyhospital acquired complication
thatare actually rising.
Discussing strategy, recent performance,
innovation and the future.
An interview with our
franchise presidents
This is a burden for healthcare systems
butalso creates two opportunities for
market expansion. The first is increased
usage of existing technology (such as
PICO
◊
in the prevention of surgical site
complication andfoam dressings to prevent
pressure injuries). The second is product
innovation that will improve the standard
ofcare by making the assessment and
treatment of wounds more predictable.
Q
Both Sports Medicine and
Advanced Wound Management
are back above pre-COVID
levels – what has driven this
strong performance?
Brad:
Sports Medicine spans a broad
patient population, not just athletes in
theprime of their careers. People of all
ages are more active than ever before and
whenever they seek treatment for an injury
or a degenerative condition, they expect
afast recovery and rapid return to activity.
Market segments like Sports Medicine
where demographics are favourable and
technology makes a dierence are good
places to be, and we are proud to be a
global leader. We oer a best-in-class
product portfolio, characterised by innovation.
We sell through a large, predominantly
direct distribution channel globally, we
emphasise market development and
wepromote a winning team culture that
reflects our company purpose and pillars.
These things are the keys to our success.
Simon Fraser
President Advanced
Wound Management
and Global
Commercial
Operations
Brad Cannon
President
Orthopaedics,
Sports Medicine
& ENT and
Americas
38
Smith+Nephew
Annual Report 2021
Simon:
Our recent performance
improvements mostly come from better
commercial execution. This is partly
peopledriven, as we have upgraded
talentwithin our existing team and added
afewkey hires. We also embarked on an
ambitious project to increase employee
engagement, making the Advanced Wound
Management team believe they absolutely
have the right towin again. In parallel to
this we refined our go-to-market strategy
that served asthe basis for our commercial
execution and improved our eciency.
Finally wehave launched new products
likenextgeneration PICO with significant
improvements and also made two
acquisitions – Osiris and Leaf – that are
delivering on their strategic rationales.
Q
How is the new franchise structure
going to improve performance,
especially in Orthopaedics?
Brad:
The new franchise structure will
improve performance in two ways. First,
we’re now organised to better align to
howour customers prioritise around their
patient’s needs. And second, we’ve created
deliberate connections between the
businesses for when our customers want
to work with us across multiple specialisms.
Let us focus on the impact for Orthopaedics
in particular. We simplified our structure to
two core businesses, one focused globally
on Joint Reconstruction and Robotics,
andthe other focused globally on Trauma
& Extremities. These businesses now work
with dedicated management teams who
are empowered to make faster decisions
and deliver better results. Both businesses
start with impressive portfolios that are
heavily dierentiated in critical capabilities
like robotics, Advanced Biomechanics
andMaterials, and across key procedural
categories in knees, hips, hip fracture,
longbone fractures, to name afew.
With streamlined and dedicated leadership
teams, and dierentiated portfolios,
ourcommercial organisations willbenefit
from increased communications and
accountability to fuel launches and
otherkey areas of commercial excellence.
We’ve also connected both businesses to
ourmarket leading Sports Medicine business
to better coordinate how we serve the trend
toward outpatient surgery in free-standing
centers such as ASCs. We’re excited
tounlock our full potential through the
improved execution that our new
structure enables.
Q
How important is innovation?
Brad:
Innovation is the core of what do
and underpins our commitment to Life
Unlimited. Even amid a global pandemic,
our new product development teams found
creative ways to keep key programmes
ontrack. Many of these launches are just
atthe start as we expand into new markets,
widen indications or develop new products
from platform technologies. And some
launches, such asour innovative Tula
System that makes in-oce ear tubes
possible for awake paediatric patients,
havebeen held up by COVID andwe
expectthem to break through in 2022.
Simon:
In a word, vital. We are developing
products that address the entire ecosystem
around a person’s wound and not just the
wound itself which for years has been the
focus of product innovation. Our innovation
will also help patients with compliance, and
we’re also developing clinical and practice
support tools to help with assessment and
therapeutic decision making. As part of
thisapproach, we expect digital tools and
artificial intelligence to contribute to new
approaches in preventing and treating
wounds and also to enable and accelerate
ashi to new sites of care.
Q
How exciting is
theacquisition of
Engage Surgical?
Brad:
This is incredibly exciting
asEngage Surgical gives us the
only cementless partial system
commercially available in the US.
Smith+Nephew is now the only
medical device company oering
both cemented and cementless
partial and total knee implants
inthe US.
This is important as we expect the
partial knee market to grow faster
than the total knee market and for
cementless partial knees to grow
ahead of overall partial knees,
inline with recent patterns seen
inthe cementless segment. For
patients a partial knee is a less
invasive procedure, oering faster
recovery and good results for
suitable patients. It is well-suited
for outpatient settings such as
ASCs, where we have established
strength, and also for robotics due
to the need for precise alignment.
With our unique and compelling
oering we expect to be able to
drive market expansion in the US,
and in other markets as regulatory
approvals are secured.
39
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Our EMEA and APAC commercial
organisations are also led by Presidents,
who serve on our Executive Committee
and report to the Chief Executive Ocer.
Again this is to ensure that the needs
of their customers are recognised and
appropriate resource dedicated to them.
Under the EMEA and APAC Presidents
arecountry clusters, based on geographic
proximity, critical mass of revenue, and
similar go-to-market strategies. They are
led by managing directors with business
unit leads for each franchise.
Highly trained and skilled
Our sales representatives are highly
trained and skilled individuals.
Depending on their area of specialism,
representatives in our surgical businesses
will not only know the products that they
sell, but also have a detailed knowledge
ofthe surgical instruments used to implant
them, and specific understanding of the
various surgical techniques a customer
might use.
Smith+Nephew sells through a regional
commercial structure, with dedicated
organisations covering the Americas,
Europe, Middle East and Africa (EMEA),
andAsiaPacific (APAC).
In the US, our largest market, the
commercial teams are organised by
franchise. These teams are also led
by theglobal franchise President who
has fullcommercial responsibility.
The President Orthopaedics, Sports
Medicine & ENT and Americas also
leadsour teams in Latin America
and Canada.
Commercial
delivery
Using technology transferred
from our leading sports
medicine system, the HALO
COBLATION Wand with the
WEREWOLF ENT System is the
only system with an all-in-one
device designed for both fine
dissection and debulking of
tissue in adenotonsillectomy,
which has been shown to result
in a gentler tonsillectomy.
*1
With an intracapsular
tonsillectomy technique,
clinical results show a less
painful recovery, less time
toanalgesia free, speedier
return to normal activity,
lesspost-operative bleeding
than total tonsillectomy,
andhappier parents.
2-5
Widening access
toour technology
Kelvin Kwong
MD
“ COBLATION
◊
technology has
revolutionised how intracapsular
tonsillectomy is performed. Much
more controlled dissection of
tonsillar tissue can be achieved
down to the thinnest layer of
fibrous capsule. The COBLATION
HALO
◊
wand is surely a step
forward with respect to more
ecient tissue removal, improved
dissection precision and easier
cleaning of the suction channel.
The COBLATION HALO Wand
hasbecome the technology
ofchoice for all intracapsular
tonsillectomies that I perform
for my patients. Since adopting
intracapsular tonsillectomy
for my patients, I have noticed
significantly faster recovery
from post-op pain and dramatic
reduction in secondary
post-tonsillectomy bleeding.”
* In comparison to monopolar electrocautery.
Serving healthcare customers
continued
»
A full list of references
can be found on page 236
Once a sales representative is trained and
certified, they typically spend the majority
of their time working directly with and
supporting customers in the safe and
eective use of our advanced medical
technologies, or identifying and
contacting new customers.
In Advanced Wound Management, sales
representatives have deep knowledge
ofhow clinicians seek to prevent and
treatwounds, as well as an understanding
of the economic benefits of using our
products within treatment protocols.
We pride ourselves on giving customers
a high standard of service and invest
in developing our sales and marketing
organisation. We are proud of our Global
Commercial Training and Education
structure, which delivers a consistent
content and curriculum-based approach,
coupled with deep commercial training
specialisation in key markets.
Smith+Nephew
Annual Report 2021
40
Medical
education
Smith+Nephew empowers healthcare
professionals with education and training
to help improve patient outcomes
across the globe. We provide innovative
learning programmes on surgical
techniques, the latest evidence, and the
safe and eective use of our products.
Partnering with professional societies,
fellowship programmes and thought
leaders, we aim to elevate the standard-of-
care across the therapeutic areas we serve.
With the 2021 launch of our new website,
Education Unlimited, customers can build
personalised learning journeys tailored
totheir speciality, experience, interests
andpreferred learning style.
We continue to embrace both in-person
and immersive technologies to deliver
education when and how customers
want it.
In addition, investments in advanced
digital technologies are also improving the
eectiveness and eciency of delivering
education. New innovative modalities
such as virtual reality, digital simulation
and remote proctoring create an engaging
learning environment that is cost-eective
and can be standardised globally. To further
enhance training capabilities globally,
Smith+Nephew will be opening new
advanced Learning and Innovation Centres
inEurope and Asia beginning in 2022.
Education on the way –
Mobile Simulation Lab in China
The Sports Medicine Medical Education
team in China recognised the need for
training in more rural areas of the country.
With the COVID pandemic, there was a
shi in surgeries from larger centres to
smaller, more remote hospital locations.
Inspired by the aim of providing access to
all who need it, the team came together
and created the Smith+Nephew Mobile
Simulation Lab to support healthcare
professionals’ arthroscopy learning needs.
In June 2021 the Mobile Simulation Lab
travelled through Gansu Province in
North-West China. The Sports Medicine
Medical Education team spent 21 days
covering 510km and successfully trained
over 140 healthcare professionals at
five hospitals.
156,255
healthcare professionals
attended our courses
in 2021 with 56%
of training delivered
virtually.
“ The challenges presented by the pandemic have served
as a catalyst for us to build engaging hybrid learning plans
intended to provide convenient access to education
globally. We will continue to innovate in education with
a focus on supporting superior clinical outcomes.”
Cynthia Walker
Senior Vice
President Medical
Education
41
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Performance
2021
2020
2019Franchise revenue
$2,156m
$1,917m
$2,222m
Franchise profit
$367m
$389m
$666m
2021
Revenue
2021
Reported
growth
2021
Underlying
growth*
Knee Implants
$876m
+6.6%
+5.1%
Hip Implants
$612m
+7.8%
+5.8%
Other Reconstruction
$92m
+34.1%
+32.2%
Trauma & Extremities
$576m
+25.4%
+5.6%
Franchise revenue
contribution
* 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.
Serving healthcare customers
continued
Smith+Nephew’s Orthopaedics franchise includes an
innovativerange of hip and knee implants used to replace
diseased, damagedorworn joints, robotics-assisted enabling
technologies that empower surgeons, and trauma products
usedto stabilise fractures andcorrect bone deformities.
Orthopaedics
to address global philosophies including
the ANTHOLOGY
◊
Hip System with a new
addition ANTHOLOGY AFIT
◊
. On the revision
side, the REDAPT
◊
Revision Hip System
also features CONCELOC Technology.
Bridging primary and revision hips is the
OR3O
◊
Advanced Dual Mobility System
featuring OXINIUM DH Technology.
Other Reconstruction
In 2021, we continued to expand our
RealIntelligence surgical and digital
ecosystem. The CORI
Surgical System is a
more ecient
†6
, CT free andeasily portable
robotics platform. CORI is now available
in 35 global markets as we continue
to expand our presence in key global
regions. We launched our RI.INSIGHTS
data management portal which
provides trends,case reports and global
data for optimised care management
and outcomes.
Trauma & Extremities
In Trauma, leading products include the
EVOS
◊
Plating System where we expanded
clinical indications in 2021 with large
fragment and periprosthetic systems and
TRIGEN
◊
INTERTAN
◊
Hip Fracture System,
which is backed by manyyears of strong
clinical evidence.
7,8
For Extremities, the launch of SMART TSF
expanded the capabilities of the TAYLOR
SPATIAL FRAME External Fixator.
In January 2021, we completed the
acquisition of an exciting Extremity
Orthopaedics portfolio which has
Knee Implants
In Knee Implants, Smith+Nephew’s
specialised systems include leading
products for total primary replacement
and revision, as well as partial and
patellofemoral joint resurfacing
procedures. The JOURNEY
◊
II Total Knee
Arthroplasty system is demonstrated
to replicate normal knee positions,
shapes and motions.
1–4
The JOURNEY II
Unicompartmental Knee (UK) System,
ourpartial knee with OXINIUM Technology,
has been well-received since its launch
in 2020. We continue to enhance our
knee portfolio pipeline of innovation.
Through 2021, we’ve paired our knee
systems with our Real Intelligence suite
ofenabling technology solutions and
ournext generation robotics platform,
theCORI Surgical System.
In November 2021 we announced
theUS launch of the LEGION CONCELOC
Cementless Total Knee System (TKS),
our first 3D Cementless Knee System.
LEGION CONCELOC leverages CONCELOC
Advanced Porous Titanium, a patented,
proprietary 3D printed porous structure
technology. This is the first release in
a multi-year rollout of our family of
cementless knee implant products.
Hip Implants
The Hip Implants portfolio is headlined
by the best performing cementless
construct
5,a
, the POLAR3
◊
Total Hip
Solution and oers a full breadth of stems
strengthened our business by adding
afocused sales channel, complementary
shoulder replacement and upper and
lowerextremities portfolio, and an
excitingnew product pipeline.
2021 performance
Orthopaedics performance was held back
by the consequences of COVID on elective
surgeries as well as near-term supply
constraints during 2021. Knee Implants
and Hip Implants performance was also
impacted by distributor ordering patterns
in China ahead of a new volume-based
procurement tendering programme. On a
reported basis, Orthopaedics revenue
was up 12.5% compared to 2020, but
down -2.9% against pre-COVID 2019
performance. Franchise profit was
down -5.7% against 2020 and -44.9%
against 2019.
We made good progress expanding recent
product launches into new markets and
to new customers in 2021. Our OR3O
DualMobility Hip System helped drive
growth in Hip Implants, and the CORI
Surgical System was launched into new
markets including Europe and Australia.
In late 2021 we launched the LEGION
CONCELOC Cementless Total Knee
System filling a gap in our portfolio and
the first release in a multi-year rollout
of cementless knee implant products.
The Extremity Orthopaedics business
acquired in January 2021 grew in 2021.
»
A full list of references can be found
on page 236
41%
42
Smith+Nephew
Annual Report 2021
I knew I needed surgery on my
rightknee, but I dreaded another
replacement like I’d experienced
onmy le.
When my le knee was replaced
some years ago (with technology
thatwasn’t from Smith+Nephew),
Isuered a great deal of pain aer
surgery. Rehab was dicult and
didn’t go as planned. I needed a
longseries of knee injections just
toget through it.
This time, my doctor oered me
something dierent. Dr Carvajal
in Miami, Florida, US, said he could
replace my right knee with CORI
Robotic-Assisted surgery, and
that I would be getting something
called a JOURNEY II Knee with
OXINIUM Technology.
Even at my now older age, I had
amuch easier time with recovery
and rehab aer my Smith+Nephew
replacement. I hadless pain overall
and regained mobility more quickly.
I could get back to doing things
for myself.
Isabel Herrera
Isabel was treated with a JOURNEY II
Knee with OXINIUM Technology
»
See page 236 for
testimonialreference
Now I’m walking and
smiling inMiami again
JOURNEY II Knee
with OXINIUM
Technology
EVOS Plating System
Designed to oer surgeons an all-inclusive,
expansive plating portfolio, the EVOS
PlatingSystem provides thesimplicity
oflogically organised instrumentation
withadvanced implant solutions for
MiniFragment, SmallFragment,
LargeFragment and Periprosthetic
plating systems.
Life Unlimited
The most important thing to me? Myindependence.
A year ago, Icouldn’t even stand on my own, letalone
takecare of my family andhome. Any attempt to
walkwaspainful and exhausting.
43
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Governance
Accounts
Other information
Performance
2021
2020
2019Franchise revenue
$1,560m
$1,333m
$1,536mFranchise profit
$459m
$306m
$489m
2021
Revenue
2021
Reported
growth
2021
Underlying
growth*
SMJR
$839m
+18 .2% +15.9%
AET
$590m
+14.1% +11 .7%
ENT
$131m
+23.3%
+20.6%
Franchise revenue
contribution
* 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 full list of references can be found
on page 236
Smith+Nephew’s Sports Medicine & ENT
franchise operates in growing markets where
unmet clinical needs provide opportunities
forprocedural and technological innovation.
Sports Medicine
& ENT
we launched FAST-FIX FLEX in 2021,
enabling all-zone all-inside meniscal
repair to treat tears previously
notaccessible.
12–14, a
This portfolio also
contains the NOVOSTITCH PRO Meniscal
Repair System, which addresses complex
meniscal tear patterns, including horizontal
cleavage tears aecting approximately
one-third ofmeniscal repair patients.
15
In Arthroscopic Enabling Technologies
(AET) our products facilitate the practice
of arthroscopic surgery. Our INTELLIO
Connected Tower Solution unites high-
definition imaging solutions, industry
leading energy-based and mechanical
resection platforms, and fluid management
and access technologies. The LENS
◊
4K
Surgical imaging system uses 4K UHD
image quality and network connectivity
in a 3-in-1 console for multi-speciality
environments. The WEREWOLF Controller
enables surgeons to remove so tissue
precisely
16,b
and control bleeding in a variety
of arthroscopic procedures. The newly
launched WEREWOLF FASTSEAL 6.0
Hemostasis Wand is for use in orthopaedic
procedures for hemostasis of so and hard
tissues bringing a technology widely used in
sports medicine to orthopaedic customers.
In Ear, Nose & Throat (ENT) our COBLATION
Plasma Technology, which has been used
to remove tonsils and adenoids for over
15years
17, 18
, has an ability to remove
tissueat low temperatures with minimal
damage to surrounding tissue.
19–23
We have a rich history of product
development, and our technologies,
instruments and implants enable surgeons
to perform minimally invasive surgery of
the joints, including the repair of so tissue
injuries and degenerative conditions of
theshoulder, knee, hip and small joints.
In Sports Medicine Joint Repair (SMJR),
for shoulder repair we market products
primarily for Rotator Cu Repair (RCR)
and instability repair, two of the most
common sports medicine procedures.
Advanced Healing Solutions for RCR
include the innovative REGENETEN
Bioinductive Implant, which supports
the body’s natural healing response to
facilitate new tendon-like tissue growth
and disrupt disease progression
1–5
and
the novel REGENESORB
◊
material, used
inanchors, which encourages the implant
to be absorbed and replaced by bone
within 24 months.
6–8
In 2021 we further
strengthened our Advanced Healing
Solutions portfolio as we continued the
roll-out of the HEALICOIL
◊
KNOTLESS
Suture Anchor, thatfeatures anopen
architecture to facilitate healing.
9,10
In recent years, arthroscopic repair
techniques have become more prevalent
and widely accepted for the treatment of
meniscal tears.
11
Our All Tears, All Repairs
Meniscal Repair Portfolio provides surgeons
with unsurpassed options and possibilities
for meniscal repair. Adding to the portfolio,
Evidence shows that COBLATION
Intracapsular Tonsillectomy (CIT)
procedures oer less pain, quicker
recoveryand a decreased risk of
post-operative bleeding with similar
outcomes than total tonsillectomies.
18–24
Smith+Nephew oers a full portfolio of
COBLATION Wands for CIT procedures.
Our Tula System provides an in-oce
solution for placement of tympanostomy
tubes. In addition, we market a range
of COBLATION technology enabled
procedures, dissolvable and removable
post-operative nasal dressings, as
well as a comprehensive portfolio of
epistaxis solutions.
2021 performance
Sports Medicine & ENT returned revenue
growth on a reported basis of 17.0%
compared to 2020 and 1.5% compared
to pre-COVID 2019. Profit was up
50.0% against 2020 and down -6.1%
against 2019.
In Sports Medicine, REGENETEN and
NOVOSTITCH delivered strong growth
inthe US, and are only at the start of
theirlaunch in other markets, and the
launches of HEALICOIL KNOTLESS
SutureAnchor and FAST-FIX FLEX
MeniscalRepair System and were both
well-received. In ENT the introduction
ofTula was impacted by COVID.
Serving healthcare customers
continued
30%
44
Smith+Nephew
Annual Report 2021
Then my knee got yanked in training,
and aer six months of dealing with
the pain, I went to Dr Dougherty
atAgility Center Orthopedics.
He toldme I needed surgery to
repaira bucket handle tear in the
meniscus of my right knee.
They didn’t cut me open with
a big incision – did it all withthe
NOVOSTITCH device by Smith+Nephew.
Within three months, I was back
onthe mat and competing. I was
thestate champion again in my
juniorand senior years.
Now I’ve moved on to MMA
(MixedMartial Arts) fighting.
I thinkofmyright knee as my
goodknee, andI’mstronger
than ever.
People ask me why I got into
MMAfighting. The stakes are
high–youcan get hurt – you’re
onyour ownin the cage. I love
allofthat. Also,the winning.
Cash Jones
Cash was treated for a
bucket handle tear with the
NOVOSTITCH device.
»
See page 236 for
testimonial reference
This is winning!
NOVOSTITCH PRO
REGENETEN
The REGENETEN Bioinductive Implant
is an advanced healing solution for biological
enhancement and tendon regeneration across
allrotator cu tear types. It stimulates the
body’s natural healing response to support
newtendon-like tissue growth and disrupt
rotator cu disease progression across
thetearspectrum.
1–5
Life Unlimited
I was a state champion wrestler in my freshman year
ofhigh school. I was winning every match, dominating
thecompetition.
45
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Serving healthcare customers
continued
Performance
2021
2020
2019Franchise revenue
$1,496m
$1,310m $1,380m
Franchise profit
$474m
$316m
$370m
2021
Revenue
2021
Reported
growth
2021
Underlying
growth*
AWC
$731m
+12.9%
+9.5%
AWB
$496m
+15.1% +14.8%
AWD
$269m
+16.0% +13.0%
Franchise revenue
contribution
* 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.
Smith+Nephew’s Advanced Wound Management franchise
visionis to continually shape what is possible in wound care.
Through our extensive portfolio, designed to meet broad and
complex clinical needs, we help healthcare professionals
solvethechallenges of preventing and healing wounds.
Advanced Wound
Management
comprehensive products across each
clinical need assessed within the
externallyrecognised TIME Clinical
DecisionSupport Tool.
11
In Advanced Wound Bioactives (AWB),
our products provide a unique approach
to debridement, dermal repair, and tissue
substitutes with considerable evidence
supporting their clinical application.
Collagenase SANTYL
Ointment (250 units/
gram) is the only FDA-approved biologic
enzymatic debridement agent available
in the US market. In our skin substitute
product range, GRAFIX
◊
Placental Membrane
and STRAVIX
◊
Umbilical Tissue retain the
extracellular matrix, growth factors and
native placental components to support
advanced so tissue repair. They are
intended for application directly to acute
and chronic wounds and as a surgical cover
or wrap. In addition, we oer OASIS
◊
Wound
Matrix which is a naturally-derived porcine
extracellular matrix replacement, used
inwound, burn, and surgical interventions.
In Advanced Wound Devices (AWD),
ourportfolio helps improve healing
outcomes in chronic wounds
12
, prevent
surgical site complications
13
and prevent
pressure injuries.
14
The PICO range of
singleuse negative pressure wound
therapy systems (sNPWT) brings the
eectiveness of traditional NPWT in asmall
portable system. This unique technology
is used on both chronic woundsand
In Advanced Wound Care (AWC)
ourportfolio includes products that are
designed to manage exudate and infection,
protect the skin and prevent pressure
injuries. In exudate management, our
products provide appropriate wound fluid
handling and absorption to help promote
an optimal wound healing environment.
1
Our ALLEVYN
◊
LIFE Foam Dressing is
uniquely dierentiated, with its EXUMASK
◊
change indicator and hyper-absorbent
lock away layer with EXULOCK
◊
technology
for odour control and fluid lock-in.
2–4
Theeectiveness of the ALLEVYN
range has been proven to deliver clinical
outcomes across 138 publications in
19countries onover 12,000 patients
andvolunteers.
5
In infection management, our key silver-
based ACTICOAT
◊
Antimicrobial Barrier
Dressings, DURAFIBER
◊
Ag Absorbent
Gelling Silver Fibrous Dressing, ALLEVYN
Ag Antimicrobial Foam Dressing, as well
asIODOSORB Cadexomer Iodine Ointment
provide clinicians with a range of solutions
to address bacterial burden, biofilm
andinfection.
6–10
Smith+Nephew continues to promote best
practice guidelines, including the globally
recognised TIME principles, oering a
systematic approach to wound healing.
11
Due to the breadth of our portfolio,
Smith+Nephew is strongly positioned
to provide customers withasetof
closed incisions. AWD also includes our
traditional RENASYS
◊
NegativePressure
Wound Therapy System, theLEAF
◊
PatientMonitoring System that supports
a hospital’s pressure injury prevention
strategy, and the VERSAJET
◊
Hydrosurgery
System, asurgical debridement device.
2021 performance
Advanced Wound Management delivered
revenue growth on a reported basis
of 14.2% compared to 2020 and 8.4%
compared to pre-COVID 2019. Profit was
up 50.0% against 2020 and up 28.1%
against 2019.
Advanced Wound Care growth was
drivenby foam dressings such as our
ALLEVYN Life range. The Osiris acquisition
is transforming the growth profile of
Advanced Wound Bioactives as we train
the Osiris and SANTYL focused sales forces
to cross-sell the portfolio. In Advanced
Wound Devices performance was driven
bydemand for our negative pressure
wound therapy portfolio, supported by
recovering levels ofelective surgery.
»
A full list of references can be found
on page 236
29%
46
Smith+Nephew
Annual Report 2021
Kurt experienced a lot of bruising
and swelling following surgery,
whichinhibited his rehabilitation.
When he required his other hip to be
replaced in 2021, he was prescribed
PICO sNPWT for his incision.
Kurt experienced far less bruising
andswelling post-operatively and
inhis own words PICO sNPWT
“made a huge dierence”. In an early
post-operative follow-up visit his
surgeon noted that Kurt’s recovery
was progressing well and without
anysurgical site complications.
13, a
On top of the benefits Kurt
experienced, a recently published
systematic review and meta-analysis
showed that PICO sNPWT also
significantly reduced the odds of
surgical site infections, the odds of
seroma, and the odds of dehiscence
(
p
< 0.05). A significant benefit of
these reduced odds was an almost
two-day reduction in length of stay,
suggesting potential for substantial
eciency gains across the healthcare
system.
13
The systematic review and
meta-analysis included 29 studies
on the outcomes of 5,614 patients.
It demonstrated that using PICO
sNPWT on closed surgical incisions
resulted in significant benefits for
patients across dierent surgical
specialities, including orthopaedic,
obstetric, cardiothoracic, colorectal,
vascular and breast surgery, from a
wide geographical distribution.
13
»
See page 236 for
testimonial reference
The PICO difference
ALLEVYN LIFE
Use of ALLEVYN Life Dressing inacommunity
setting helped tosignificantly reduce the
frequency of weekly dressing changes (47.1%)
and weekly dressing costs (58.7%)compared
with previous foam dressing, aswellasimprove
HCP and patientsatisfaction.
2
Life Unlimited
In 2018, Kurt underwent a total hip replacement
and his closed surgical incision was covered with
a conventional post-operative dressing.
PICO sNPWT
47
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Our sustainability strategy is built on our purpose –
Life Unlimited, our business strategy and our culture
pillars of Care, Collaboration and Courage.
Our sustainability strategy sets challenging
targets across the three areas of people,
planet and products. We strive to deliver
this to the communities where we live and
work through the application of our values:
–
We demonstrate
Care
by respecting
our global resources and striving to
protect the safety and wellbeing
ofour employees.
–
We demonstrate
Collaboration
by
working together with our partners
whoshare our commitment and
contribute to our communities through
individual and team volunteerism.
–
We demonstrate
Courage
by setting
ambitious goals to increase our
volunteerism, reduce waste and
greenhouse gas emissions and by
operating responsibly and sustainably.
Our sustainability strategy was developed
by our Sustainability Council and approved
by the Board in late 2019. The Compliance
&Culture Committee of the Board regularly
reviews our progress.
Our strategy is inspired by the United
Nations’ Sustainable Development
Goals(SDGs). It reflects the importance
of social, environmental and economic
aspects of sustainable development.
As aprofit-seeking enterprise, our
challenge is to focus our eorts on
meetingour economic objectives while
atthe same time optimising the social
impact and reducing the environmental
impact of our work.
Building a healthy
and sustainable future
48
Smith+Nephew
Annual Report 2021
Planet
A medical
technology business
with a positive impact
People
Creating a lasting
positive impact on
our communities
Products
Innovating
sustainably
Sustainability and
our business strategy
Smith+Nephew has been and remains
committed to working ina sustainable,
ethical and responsible manner everywhere
we do business. We are proud of our
achievements over many years, including
our recurring inclusion in leading indices,
such as FTSE4Good, ISS and the Dow Jones
Sustainability Index.
In 2021, we announced our Strategy
for Growth. At the heart of this is
innovation as we strive to create new
technologies that improve outcomes.
Delivery will be driven by our work on
productivity and by commercial excellence.
Optimised manufacturing and supply
chain will provide a solid foundation.
Our sustainability strategy supports these
value drivers by helping us to reduce
the resources we need, maintain a safe
workplace and help us give back to the
communities where we live and operate.
Our Strategy for Growth is underpinned
by our Capital Allocation Framework which
prioritises the use of cash. We revised
this in 2021, making our first priority to
continue to invest in innovation and our
sustainability agenda. You can read more
about our Strategy for Growth and capital
allocation on pages 7 and 17.
Our sustainability strategy includes challenging targets
set over the long term in three areas:
“ Smith+Nephew is proud of its sustainability
strategy and how we are working to create an
ever more positive impact on our communities,
our planet and through our products.”
»
Read more in our Sustainability Report
The impact of
climate change
One of the United Nations’ Sustainable
Development Goals (SDGs), is to
“takeurgent action to combat climate
change and its impacts”.
It is widely recognised that sustained
emission of greenhouse gases will
causefurther warming of the planet
whichcould have damaging social and
economic consequences. During 2021,
wehave continued to consider and mitigate
againstthe potential impact ofclimate
change on our business operations.
In 2021, we are reporting against the
Task Force on Climate-related Financial
Disclosures (TCFD) recommendations
(seepages 54–56) and the Sustainability
Accounting Standards Board (SASB)
framework (see pages 232–233) for our
sector ofMedical Equipment and Supplies.
During 2021, the Compliance & Culture
Committee and the Audit Committee
received updates on TCFD and SASB, and
we addeda sustainability risk register to
ourEnterprise Risk Management (ERM)
process. Aer assessing our business
activities, we have determined that
climatechange is not currently aPrincipal
Riskto the business; however, we will
continue to monitor this risk. We are
conducting scenario analyses and will
use the data to inform our decisions
andprioritise actions.
»
Read about our net zero commitment
on page 53
»
Read our TCFD disclosures
onpages 54–56
Andrya Clark
Senior Director
Sustainability
49
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Building a healthy and sustainable future
continued
People
Our targets Our progress in 2021
Between 2020 and 2030, contribute
1 million
volunteer hours to the
communities in which we live
and work.
10,000
Hours of volunteering in 2021.
Total since 2020 = 18,000
Between 2020 and 2030,
donate
$125 million
in products
to underserved communities.
$1.4m
Product donations in 2021.
Total since 2020 = $6.1m
Empower and promote the
inclusionof all
.
Nine
Global Employee Inclusion Groups
are now established, up from eight
in 2020.
Creating a lasting positive impact on our communities
Putting people first is the essence of our
purpose, Life Unlimited. Our people work
to help improve other people’s health
and wellbeing. We work to protect theirs,
by ensuring a healthy and safe working
environment. This has been highlighted
even more during the global pandemic.
More information on our actions to improve
workplace safety can be found in our 2021
Sustainability Report.
We encourage our people to volunteer
in our local communities, oer paid
volunteering time and match employee
charitable donations. During the pandemic,
we have oered additional volunteering
time to employees with healthcare training
who wanted to serve on the front line.
Our philanthropic activities during the
yeartotalled $1.56 million. This consisted
of $1.43 million in product donations and
$0.13 million from cash and matching
employee gis to qualified charities.
Our employee volunteering and product
donation strategies were again held
backby COVID in 2021.
Employee engagement is important
to us and is measured by the Gallup
Global Engagement Survey (see page 21).
Our Employee Inclusion Groups (EIGs)
continued to flourish during the year,
promoting inclusion (see page 23) and we
strengthened our wellness programmes,
with a focus on enabling healthy lifestyle
choices and good mental health.
Smith+Nephew Young
Professionals(SNYP)
SNYP is one of our EIGs focused on
developing our young professionals andthe
network jointly sponsored the third edition
of the Annual Sustainability Challenge
forSmith+Nephew sites across the globe.
The 2021 challenge winners were a team
from Memphis who championed an idea
toreplace some liquid propane gas (LPG)-
powered forkli trucks with more ecient
electric forklis. This promised significant
carbon and costsavings, moving us closer
to our net zero carbon commitment.
The winning idea isbeing looked at by
our maintenance andfacilities leadership
during 2022.
»
Read more about SNYP in the
2021Sustainability Report
COVID vaccinations
In 2021, we focused on helping colleagues
to access COVID vaccines, particularly
in countries where this was limited.
Our team in India led a successful COVID
vaccination drive, hosting six vaccination
days across the country for over 500
of our employees and their family
members. In Malaysia we organised a
cluster of vaccination programmes for
all employees in collaboration with the
21 adjacent factories, and we also held
vaccination clinics in Costa Rica and the US.
We continue to encourage employees to
become vaccinated, supporting education
programmes internally and reimbursing
vaccination costs where required.
In Malaysia we organised a COVID
vaccination drive
50
Smith+Nephew
Annual Report 2021
Our carbon reduction roadmap steps
We have been working with our global energy partner to develop acarbon
reduction roadmap aimed at delivering our sustainability targets in the
short, medium and long term.
These are defined as within one year, three years or more thanthree years.
Following a detailed carbon emissions benchmarking project,again with
ourglobal energy partner, the roadmap identified thefollowing initiatives:
1 32 4
Carbon emissions
benchmarking
Establish an accurate
benchmark for Scope 1 and 2
emissions.
Complete
Establish an accurate benchmark
for Scope 3 emissions.
Power purchase
agreements
Long term agreement
(10+ years) to buy power from
new renewable resources.
On-site renewables
Assess the potential for
renewables in Malaysia.
Complete
Implement solar generation
at Malaysia facility.
Energy eciency
Conduct energy eciency
studies at major sites.
Renewable energy
certificates
Procure renewable
energy certificates for
remaining consumption.
In order of priority
Planet
Our targets Our progress in 2021
Achieve
net zero
Scope 1 and Scope
2 GHGs by 2040 and Scope 3 GHGs
by 2045, beginning by achieving a
70% reduction in Scope 1 and Scope 2
GHGsby 2025.
Our target prior to September 2021:
Achieve an 80% absolute reduction
in total lifecycle greenhouse gas
emissions by 2050, beginning by
implementing
100% renewable
electricity
(eg solar or wind) plans at
our facilities in Memphis and Malaysia
by 2022, and at all our strategic
manufacturing facilities by 2025.
We have made a commitment to
achieve net zero by these dates.
A carbon roadmap for Scopes 1 and 2
through 2025 hasbeen developed and
one for Scope3 isbeing developed.
76,222 tonnes
CO
2
e emitted (location-based),
a 1% reduction since 2019.
46,797 tonnes
CO
2
e emitted (market-based),
a 30% reduction since 2019.
All
Sites in Memphis continued to
source renewable electricity.
Our new site in Malaysia is making
progress with options to both source
and generate renewable electricity
in 2022.
Achieve
zero waste to landfill
at our
facilities in Memphis and Malaysia
by 2025 and at all our strategic
manufacturing facilities by 2030.
1,829 tonnes
We sent 9% less waste to landfill
during2021 compared to 2019.
A medical technology business with a positive impact
Given the worldwide focus on the need to
protect our planet, we are mindful of the
importance of biodiversity, particularly
in some of the countries in which we
operate including Costa Rica and Malaysia.
From 2022, we shall consider the impact on
local biodiversity when approving capital
expenditure within our Operations.
We recognise water as a precious resource,
abundant in some areas but scarce in
others. We strive to save water at all our
locations with a focus on water-stressed
locations and aim to reduce the amount of
water used throughout the manufacture,
distribution and use of our products.
Our emissions have decreased since 2019
(our baseline year). In 2021, however,
we did see an annual increase in energy
usage and emissions as a result of the new
facility in Malaysia being commissioned.
Elsewhere, additional conditioning
and airfiltering to increase safety as
manufacturing operations continued during
the pandemic and some colder outside
temperatures were also responsible for
increases in power consumption.
Following a detailed carbon emissions
benchmarking project, we assessed
our Scope 1 and Scope 2 emissions and
formulated a carbon reduction roadmap
for key locations (see below), aimed at
reducing them by 70% by 2025 compared
to our 2019 baseline year. We are currently
assessing our Scope 3 emissions in order
toprepare a similar roadmap.
We continue to identify and implement
opportunities for waste reduction at
source, and to reuse, recycle and divert
waste from landfill. In 2021, we recycled
79% of our total waste, including waste
diverted to energy recovery.
51
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Building a healthy and sustainable future
continued
We aim to develop products with
sustainable attributes, increase access
tocare, improve our environmental
impactand reduce costs.
We have integrated a sustainability
reviewinto our NPD process to ensure
that we intentionally discuss, consider
andimplement sustainability and eciency
in our product design. This will ensure that
our future product portfolio becomes
one that has intentional consideration
for material and energy usage during
production, a reduced product footprint
forshipping and transportation, aswell
asrecyclability of waste products.
Packaging sustainability continues to
be a key area of importance, providing
a packaged product that minimises our
environmental impact. Over the last year,
ourglobal packaging community has
continued to support these eorts in a
limited capacity, while balancing COVID-
related packaging supply disruptions.
Additionally, we continue to leverage
our electronic Instructions For Use (IFU)
platform for our products that further
eliminates paper waste.
By 2025, we aim to have completed supply
chain assessments for all our suppliers.
We have a detailed five-year plan that
includes risk-based supplier assessments.
Supplier risk criteria include country,
commodity and spend, and we have
updated our global process for managing
Corporate Social Responsibility (CSR)
supplier risk.
Size matters in robotics
The development of the next generation
robotics system, CORI, represents a
significant reduction in dimensional and
weight footprint from its predecessor,
NAVIO. This redesign has dramatically
reduced the material and energy usage
during manufacturing as well as weight of
product for transportation. The handpiece
has also been redesigned to increase the
ease of cleaning and sterilisation, thereby
increasing the functional lifetime.
Reducing waste in AWM
A programme to reduce the packaging on
our biggest brand within AWM is underway.
By resizing the pouch, carton and case of
ALLEVYN bordered dressings we anticipate
a 25% reduction in the packaging materials
used to deliver dressings to patients.
This reduction in packaging will result in
less storage space being required and
the added environmental benefit of less
packaging waste for our customers.
»
Read more in the 2021
SustainabilityReport
Products
Our targets Our progress in 2021
By 2022, include sustainability review
in New Product Development (NPD)
phase reviews for
all new products
andproduct acquisitions.
Sustainability is now part of
ourNPDPhase Review process,
ensuring that we discuss, consider
and implement sustainability in
ourproduct design.
By 2025, incorporate
at least 30%
post-consumer recycled content into
all non-sterile packaging materials.
Initiated supplier discussions to
collaborate on material portfolio.
Developing a database to provide
visibility of all packaging materials and
their composition in order to assess
status and progress against target.
By 2025, incorporate packaging
materials from
sustainable sources
fornew packaging parts.
Established packaging sustainability
strategy and roadmap. Working
with our top packaging suppliers to
investigate and select more sustainable
materials for new packaging parts.
By 2025, complete supply chain
assessment of
all suppliers
,
including subsequent tier levels,
to assure compliance with our
sustainability requirements.
We have completed the internal
screening due diligence for 100%
ofourTier 1 suppliers.
Innovating sustainably
Re-sizing packing cases and
re-configuring pallets can increase
the load quantity anddeliver
environmental benefits.
52
Smith+Nephew
Annual Report 2021
Committed
to net zero
“ As a portfolio medical technology
company, Smith+Nephew’s purpose
is to restore and promote health and
wellbeing. We believe that this applies
not just to the benefits our products
deliver to patients, but also to the wider
health ofthe planet and society. Our net
zero pledge will help each ofusview our
actions here and now through the lens
of the long-term good we can do.”
Roland Diggelmann
Chief Executive Ocer
In 2021, we made a commitment to netzero.
It is in our roadmap to achieve net zero Scope
1 and Scope 2 greenhouse gasemissions
(GHGs) by 2040 and Scope3 GHGs by 2045.
We are on track to achieve a 70% reduction
in Scope 1 andScope 2 GHGs by 2025
compared toa2019 baseline.
Our facilities in Memphis, our single largest
manufacturing location, continued
to source electricity from renewable
windenergy, accounting for around 40%
ofour total electricity usage.
Our roadmap to net zero is outlined below.
These are our current targets and actions,
which will be updated in the coming years
as our plans develop.
»
Read about our carbon reduction
roadmap on page 51
70% reduction
in Scope 1 and 2
emissions by 2025
100% reduction
inScope 1 and 2
emissions by 2040
100% reduction
in Scope 3
emissions by 2045
What we are currently doing:
–
Conducting a detailed analysis of our energy usage data
–
Actioning our carbon reduction road map (see page 51)
–
Assessing our Scope 3 emissions
–
Sourcing renewable electricity for our manufacturing facility in Memphis and examining
options to both source and generate renewable electricity in Malaysia (see page 51)
–
Converting European and UK leased vehicles to an electric fleet
What we will do next:
–
Prepare a carbon reduction road map to reduce Scope 3 emissions by 2045
–
Implement renewable electricity at all of our strategic manufacturing sites
by 2025
–
Convert our remaining global fleet to electric vehicles
–
Encourage suppliers to set their own net zero targets
2019
2025
2040
2045
Roadmap to net zero
53
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
»
See page 96 for Audit Committee membership
»
See page 106 for Compliance &Culture
Committee membership
»
See pages 80–83 for Executive
Committee membership
Building a healthy and sustainable future
continued
Governance
The way in which we manage sustainability is directly linked to
our business strategy. Oversight of our sustainability strategy
is one of the Matters Reserved to the Board. The Board reviews
the sustainability strategy and its progress on a regular basis
andapproves the Sustainability Report annually.
The Board sets our risk appetite and monitors the application
ofour risk framework including strategy, execution and
outputs of risk reviews. Refer to the risk report on page 58
for more details on our risk management process and risk
governance framework. Climate-related risks are captured
in oursustainability riskregister and are mapped to our
Principal Risks.
The Compliance & Culture Committee, chaired by Marc
Owen, has oversight of sustainability, encompassing the
Group’s impacton employees, the environment, the local
communities inwhich itoperates, customers, suppliers and
other stakeholders. The Audit Committee, chaired by Rick
Medlock, is responsible for ensuring oversight of the process
by which risks relating to the Group and its operations are
managed and for reviewing the operating eectiveness of
the Group’s Risk Management process. Both Committees
receive regular updates on sustainability and climate-related
financial risks and opportunities, and the Audit Committee
assesses whether climate change has a material impact upon
our financialstatements by reviewing the possible impact of
dierentscenarios related to climate change.
Our Chief Executive Ocer, Roland Diggelmann, leads our
sustainability eorts while our Sustainability Council reviews the
development and implementation of sustainability initiatives
within the business at an operational level. The Council is set at
executive level to ensure a top-down approach to sustainability.
Smith+Nephew leaders consider sustainability risks and
opportunities in their decision making. Detailed information on
ourrisk governance framework can be foundon pages 58–59
ofthe Annual Report; detailed information on our sustainability
riskscan be found in our Sustainability Report.
TCFD reporting
»
Detailed information on our risk governance framework
can be foundon pages 58 and 59 ofthe Annual Report;
detailed information onoursustainability risks can be
found in our Sustainability Report.
Pages 54–56 set out Smith+Nephew’s disclosures per
therecommendations of the Task Force on Climate-related
Financial Disclosures (TCFD) framework.
Our sustainability governance framework
Board
Oversight of sustainability strategy and risk management programme.
Audit Committee
–
Oversight of the risk management
process and reviewing its
operating eectiveness.
–
Receives regular updates on
sustainability and climate-related
financial risks and opportunities.
–
Assesses whether climate change
has a material impact on our
financial statements.
Compliance & Culture
Committee
–
Oversight of sustainability policy
and performance.
–
Receives regular updates on
sustainability and climate-related
financial risks and opportunities.
Executive Committee
–
Management of sustainability
strategy implementation.
–
Ensures that sustainability risks
and opportunities are included
indecision-making.
Sustainability Council
–
Develops and implements our sustainability strategy.
–
Oversight of target-setting and achievement.
–
Membership includes: Human Resources, Global Operations, Quality and
Regulatory Aairs, Research & Development, Public Policy & Government
Aairs, Commercial, Finance, Procurement and Supply Chain.
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Smith+Nephew
Annual Report 2021
Strategy
Our sustainability strategy is directed by our business strategy
and built on our purpose – Life Unlimited, our Strategy for
Growth and our culture pillars of Care, Collaboration and
Courage. Our strategy, which was developed by our
Sustainability Council in 2019 and approved by the Board,
is inspired by the United Nations’ Sustainable Development Goals.
Our strategy reflects theimportance of social, environmental
and economic aspectsof sustainable development.
Our Principal Risks capture our climate-related risks in our
Enterprise Risk Management (ERM) process:
–
Business continuity and business change: severe weather
patterns, global temperature rise and sea-level rise; and
internal and external disruptions to our supply chainsuch
asmanufacturing disruptions.
–
Commercial execution: inability to satisfy customers’
sustainability requirements and expectations.
–
New product innovation, design & development including
intellectual property: sustainability in new products.
–
Political and economic: changes in public policy.
We address climate-related risk primarily through business
strategies in our global operations functions including facilities,
health & safety and business continuity management. Refer to
the Risk Management section on page 56 and the risk report
onpage 58 for more details on ourriskmanagement process.
Climate-related opportunities:
Climate-related opportunities are identified and addressed
through our sustainability strategy and programmes.
Through this process we have identified a number of
climate-related opportunities relating to energy sourcing,
energyeciency and packaging reduction initiatives.
In 2020, all our locations in Memphis began sourcing electricity
from renewable wind energy. We completed construction
ofour Malaysia facility in 2021, and are makingprogress with
options to both source and generate renewable electricity
in 2022.
In 2021, we aligned with the recommendations of the
Intergovernmental Panel on Climate Change and updated
ourlifecycle greenhouse gas (GHG) emissions target
from an80% reduction by 2050 to net zero by 2045.
We understand how important it is to balance environmental
initiatives with business activities and strive to reduce
emissions through newtechnology. We have conducted a
review ofour current state andcaptured related business
risksinourrisk register.
»
Refer topage 51 for details on
our carbon reduction roadmap
Scenario analysis:
During 2021, we took steps towards incorporating scenario
analysis into our sustainability strategy by undertaking
financialmodelling to provide a high-level understanding
of thepotential impact of climate change on our business.
This analysis did not include the impacts of regulatory
restrictions, but rather focused on the physical impacts
ofclimate change. Based on our high-level assessment, the
impactof a 2°C global temperature increase is not expected
to have a material impact on our business in terms of business
interruption. Focusing on our critical manufacturing sites,
wemodelled thepotential financial impact of three scenarios:
a5-metre sea-level rise; a global temperature rise of at least
4°C;and extreme weather. The modelling focused on the
materialimpacts on our business, was based on our current
business activities and assumed no mitigation.
Based on the analysis undertaken, global temperature rise
andextreme weather are not expected to have fundamental
impacts on our business model. However, the Group has a
numberof manufacturing sites in coastal locations which are
atlow elevations and these could be impacted by a 5-metre
sea-level rise. Further work is necessary to determine the full
impact and whether any remedial action is necessary and
in what time frame. Existing flood defences are expected
tomitigate any near-term impacts and the longer term
impacton the Group’s manufacturing footprint is an area of
focusbeing taken into account in our manufacturing strategy.
In 2022, we plan to undertake a more detailed analysis on
thesescenarios, which will incorporate all of our key locations,
contract manufacturers and single and sole source suppliers,
tobetter inform our strategic and financial planning.
In 2021, we continued to
source our electricity for
our Memphis locations
fromrenewable
wind energy.
55
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Building a healthy and sustainable future
continued
TCFD reporting
continued
Risk management
Metrics and targets
Climate-related risks are managed through our comprehensive
risk governance framework. At the top of our structure, the
Board sets our risk appetite and monitors the application of our
risk framework, including strategy, execution and outputs of risk
reviews by the business and the Group Risk Team. The Board
cascades our risk appetite throughout our organisation through
the Executive Committee, the risk owner community and our
management group. A formal ‘bottom-up’ exercise ensures
that risks are escalated back through the process to our Board
and are reflected in our Principal Risks as appropriate. Refer to
pages 58–59 for more detail.
We have published an annual sustainability report since 2001
detailing progress against our global targets. We have targets in
each of our priority areas: People, Planet and Products. Our key
climate-related metrics are greenhouse gas emissions and
waste to landfill. Our key targets in relation to these metrics
are net zero greenhouse gas emissions by 2045 and zero waste
to landfill at our strategic manufacturing facilities by 2030.
Detailed information about our targets and progress made
against those targets can be found on pages 50–52 of the
Annual Report and in our Sustainability Report.
The Remuneration Committee has determined that with
eect from 2022, 5% of the Annual Bonus Plan will be
dependent on the achievement of ESG targets linked to
oursustainability strategy.
We have mapped our Scope 1 and Scope 2 emissions and
are inthe process of mapping our Scope 3 emissions in order
to meet our updated target of reducing total life cycle GHG
emissions to net zero by 2045. In 2021, we also established
interim carbon reduction targets to 2025. Refer to page 53
fordetails on our Scope 1 and Scope 2 net zero roadmap.
In 2021, we worked with our global energy partner to model our
Scope 1 and Scope 2 emissions in line with scenarios limiting
global temperature rises to 2°C and 1.5°C. The outputs of
these analyses will be used to inform decisions and prioritise
actions. We have not disclosed our Scope 3 emissions as
we are in the process of assessing them. Our Scope 1 and 2
emissions are included and provided on page57 of the Annual
Report with more detailed information also available in our
Sustainability Report.
In 2021, our location-based and market-based Scope 1
andScope 2 emissions reduced by 1% and 30% respectively
compared to 2019 and we sent 9% less waste to landfill
compared to 2019.
In 2021, we undertook a
six-month trial of electric cars
compared to our traditional
internal combustion engine
(ICE) fleet to understand driver
satisfaction, environmental
impact, and reliability. As a
result we are now transitioning
to predominantly electric
vehicles in the UK fleet.
We have also implemented
this change in the Netherlands
and are currently extending
this to Denmark, Norway,
Finland, Sweden and Germany
with France, Italy, Spain, and
Portugal to follow.
Electric cars in Europe
Gary Carr
Manufacturing Director and
HullSite Leader, charging his
electric caron site in Hull (UK)
Climate-related risks:
We identify climate-related risks based on short-, medium-
andlong-term horizons. We consider short term to be within
oneyear, medium term to be within three years and long
term to be greater than three years. Short-term risks are
captured in our annual financial planning process; medium-
and long-term risks are captured within our global footprint
planning process. In 2021, we revised our annual and
three-year financial planning, and our capital expenditure
planning processes to begin to require climate-related risk
information and specific sustainability considerations.
In 2021, we added a sustainability risk register to our ERM
process. Aer assessing our business activities, we have
determined that climate change is not currently a Principal
Riskto the business as we do not expect climate change
to fundamentally alter the demand for our products or
ourability to manufacture and supply them. As outlined
onpage 55, our Principal Risks capture climate-related
risksin our ERM process.
Detailed information on our ERM process can be
found on page 58 of the Annual Report andin our
Sustainability Report.
»
SASB reporting on
pages232–233
In 2021, we are also reporting
against the SASB framework
for our sector ofMedical
Equipment and Supplies.
56
Smith+Nephew
Annual Report 2021
We report the carbon footprint of our
Scope 1 and 2 greenhouse gas (GHG)
emissions in tonnes of CO
2
equivalent
fromour business operations for the
yearended 31 December 2021. We are
including UK specific energy and emissions
data to satisfy the Streamlined Energy and
Carbon Reporting (SECR) requirements.
Our focus is on the areas of largest
environmental impact, including
manufacturing sites, warehouses, R&D sites
and oces. Smaller locations representing
less than 2% of our overall emissions are
not included. Acquisitions completed before
2021 are included in the data, with more
recent ones excluded. This is in-line with
our established policy for the integration
ofacquired assets.
Our GHG emissions reporting represents our
core business operations and facilities that fall
within the scope of our consolidated financial
statements. Primary data from energy
suppliers has been used wherever possible.
We report our emissions in two scopes:
–
Scope 1 figures include: Direct sources
of emissions which mainly comprise the
fuels we use on-site, such as gas and
heating oil, and fugitive emissions arising
mainly from the losses of refrigerant
gases. We have included UK vehicle
emissions from leased cars since 2020.
–
Scope 2 figures include: Indirect
sources of emissions such as purchased
electricity and steam we use at our sites.
CO
2
e reporting methodology, materiality and scope
Location-based emissions are calculated
in compliance with the WRI/WBCSD
GHG Protocol Corporate Accounting
and Reporting Standard and have been
calculated using carbon conversion factors
published by BEIS/Defra for 2021. We have
applied the emission factors most relevant
to the source data, including Defra 2021
(for UK locations), IEA 2019 (for overseas
locations) and for the US we have used the
most recently available US EPA ‘Emissions
& Generation Resource Integrated
Database’ (eGRID) for the regions in which
we operate. All other emission factors
forgas, oil, steam and fugitive emissions
are taken from Defra 2021.
In line with dual-reporting we also report
market-based emissions. These are
contractual or supplier-specific emission
factors that can be applied when procuring
low-carbon energy or siting facilities in areas
with lower emissions but also recognising
that this might be higher than the grid
average in some cases. Where market-
based factors were not available, we have
used ‘Residual Mix’ data for the EU locations
and IEA data for all other countries, except
the remaining US locations where the
eGRID factors were applied.
We have also implemented, or benefited
from, numerous energy eciency and
low-carbon energy measures during 2021.
Some of these savings include:
2021
2020
2019
UK
Global
(excluding UK)
Total
UK
Global
(excluding UK)
Total
UK
Global
(excluding UK)
Total
CO
2
e emissions (tonnes) from:
Direct emissions (Scope 1)
1
5,892
5,443
11,335
4,842
4,912
9,754
4,747
5,141
9,888
Indirect emissions (Scope 2)
(location-based)
3,900
60,987 64,887
3,968
59,223
63,191 4,911
62,413
67, 324
Total (location-based)
9,792
66,430
76,222
8,810
64,135
72,945
9,658
67, 554 77,212
Indirect emissions (Scope 2)
(market-based)
5,088
30,374
35,462
4,851
25,527
30,378
5,072
52,080
57,152
Total (market-based)
10,980
35,817
46,797
9,693
30,439
9,81940,132
57,221 67,040
Energy consumption to calculate
Scope 1+2 emissions (GWh)
49
183
232
43
169
212
16845
213
Intensity ratio (location-based):
CO
2
e (t) per $m sales revenue
14.7
15.9
15.1
CO
2
e (t) per full-time employee
4.0
3.9
4.3
1 UK vehicle data included in Scope 1 emissions since 2020.
2021 data includes recent acquisitions completed during 2020. Revenue: 2021:$5.2bn; 2020:$4.6bn; 2019: $5.1bn. Full-time employee data: 2021: 18,976; 2020: 18,581; 2019: 18,030.
independent energy audits; detailed
analysis of our energy usage data to identify
anomalies and saving opportunities; the
use of solar panels in India and China; a
Combined Heat and Power (CHP) (natural
gas fired) unit in Germany; Building Energy
Management Systems (BEMS) to control
equipment for maximum eciency; and the
use of time zones and setbacks. We have
also targeted the use of online ‘real time’
data to monitor energy usage to make
savings. We have a programme to replace
older inecient equipment with highly
ecient equipment, such as compressors,
chillers, pumps, fans and motors. This year
we have also started to convert our
company car fleet in Europe to battery
electric vehicles (BEVs) where appropriate.
In Memphis during 2021, we purchased
renewable energy certificates (RECs)
through Green Flex, a voluntary renewable
energy programme. Certified by
Green-e Energy, North America’s leading
certification programme for renewable
energy, Green Flex RECs are based on
wind power generated in the Midwest
US. Purchasing RECs gives buyers the
right to renewable energy and also
makes it possible to track ownership
of it. Our participation in this scheme
underscores our commitment to
supporting renewable energy and helps
to reduce our market-based carbon
emissions footprint.
57
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Risk report
Our risk governance
framework
At the very top of our structure is
our Board, setting our risk appetite
and monitoring the application of our
risk framework including strategy,
execution, and outputs of risk reviews
by the business and Group Risk Team.
The Board cascades our risk appetite
throughout our organisation through
the Executive Committee, risk owner
community and our management group.
A formal ‘bottom-up’ exercise ensures
that risks are escalated back through the
process to our Board and are reflected
in our Principal Risks as appropriate.
Providing guidance and rigour across
thisprocess is our Executive Committee
and the Group Risk Team.
At the third line of defence is our
InternalAudit Function, providing an
annual opinion on the eectiveness
ofour Risk Management process to
theExecutive Committee, chaired by
the Chief Executive Ocer, and then
totheBoard and its Committees.
Like all businesses,
we face risks and
uncertainties
Our risk management process
Successful identification and management
of existing and emerging risks is critical
tothe achievement of strategic objectives
and to the long-term success of any
business. Risk management is therefore
anintegral component of Smith+Nephew’s
Corporate Governance.
As in previous years our Enterprise Risk
Management (ERM) process is based on
a holistic approach to risk management.
Our belief is that the strategic and
operational benefits of proactively
managing risk are achieved when ERM is
aligned with the strategic and operational
goals of the organisation. Our process
andgovernance structure achieve this.
2021 has seen continuing improvement
of risk management. We added dedicated
Sustainability and Business Continuity
riskchampions and risk registers to the
ERM scope. We increased collaboration
between the Group Risk team and Business
Area Risk Champions to discuss emerging
risks more frequently. We improved
reporting by adding quarterly qualitative
updates on risk changes to the Audit
Committee. A formal ERM survey was
introduced in 2021 to identify improvement
opportunities for 2022.
Risk management life cycle
Annual improvement and refinement of
ourrisk management ensures that it remains
aligned with strategy and operations.
Our Risk Management Policy, sponsored
by our Chief Executive Ocer, is supported
by an Enterprise Risk Management Manual
and the Group Risk Team providing training
to Business Area Risk Champions. As in
prior years, risks continue to be managed
through a ‘top-down’ and ‘bottom-up’
process, with regular oversight from
the Executive Committee and quarterly
reports to the Board Committees.
An overview of our risk management
lifecycle is illustrated on this page.
2022 Risk Management Plan
Our work will continue to evolve in 2022
with a particular focus on strengthening
cross-functional risk management.
This will include deep diving into specific
risks with cross functional teams. We will
work with the new sustainability risk
champion to further develop the risk
register in this area. The Group Risk team
will also continue to influence decision
making through eective challenge.
1. Risk identification
2. Gross (inherent)
riskassessment
3. Current control
identification
4. Net (residual) risk
assessment
5. Risk response
planning
6. Risk reporting
7. Monitoring and review
58
Smith+Nephew
Annual Report 2021
Business Area Risk Champions
–
Carry out day-to-day risk
management activities.
–
Identify and assess risk.
–
Implement strategy and mitigating
actions to treat risk within
Business Area.
–
Lead regular risk register updates.
Executive Committee sitting
asGroup Risk Committee
–
Identifies and ensures the management
of risks that would prevent us from
achieving our objectives.
–
Appoints Business Area Risk Champions
who are accountable for applying
the Enterprise Risk Management
Policy and Framework toproduce
therisk deliverables.
–
Reviews external/internal
environmentfor emerging risks.
–
Reviews risk register updates from
Business Area Risk Champions.
–
Identifies significant risks and
assesseseectiveness of
mitigating actions.
Board of Directors
and Board Committees
–
The Board is responsible for regular
oversight of risk management, for
our annual strategic risk review and
for determining the risk appetite
the organisation is willing to take
inachieving its strategic objectives.
–
The Board monitors risks through
Board processes (Strategy Review,
Disclosures, M&A, Investments,
Disposals) and Committees
(Audit and Compliance & Culture).
–
The Audit Committee is responsible
for ensuring oversight of the process
by which risks relating to the Company
and its operations are managed and for
reviewing the operating eectiveness of
the Group’s Risk Management process.
Group Risk Team
–
Manages all aspects of the Group’s
approach to Enterprise Risk
Management including design
andimplementation of processes,
tools, andsystems to identify,
assess,measure, manage, monitor,
andreport risks.
–
Facilitates implementation and
co-ordination through Business
AreaRisk Champions.
–
Provides resources and training
tosupport process.
–
Reports regularly on risk to the
Executive Committee.
–
Prepares Board and Group Risk
Committee reports.
Internal Audit
–
Provides independent assurance
totheBoard and Audit Committee
onthe eectiveness of the Group’s
RiskManagement process.
–
Provides annual assessment
of eectiveness of Enterprise
Risk Management.
Board of
Directors and
Board Committees
Executive Committee
Business Area
Group Risk Team
Internal Audit
59
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Risk change from 2020 key
Increased risk
Reduced risk
No change
Risk report
continued
2021 Principal Risks
We assess our Principal Risks in terms of their
potential impact on our ability to deliver our
business strategy. These links are highlighted
across the following pages. The Principal Risks
arepresented inalphabetical order below.
The COVID impact is included within the
PrincipalRisks as appropriate rather than
beingseparately identified.
Business continuity and business change
Examples of risks
–
Ongoing COVID disruption
tomanufacturing, distribution
and supportfunctions globally or
regionallydue to subsequent waves.
–
Widespread outbreaks of infectious
diseases (other than COVID).
–
Natural disaster causes disruption
to manufacturing at single or
sole source facility (lack of
manufacturing redundancy).
–
Severe weather patterns, global
temperature rise and sea-level
rise caused byclimate change or
natural disaster causes damage
to manufacturing ordistribution
facilities, impacting ability to meet
customer demand.
–
Disruption to the business due to
criticalsystem infrastructure and
applications being unavailable.
–
Significant change prevents our
projectsand programmes achieving
theintended benefits and disrupts
existing business activities.
–
Failure to transform to achieve
oursustainability targets.
Actions taken by management
–
Pandemic global, regional, and local
crisis management governance in place.
–
Processes and guidance on how to
manage various scenarios associated
with the ongoing COVID pandemic.
–
Delivering Workplace Unlimited
‘NewNormal‘ programme.
–
Controlled and phased return
tooce approach.
–
Emergency and incident management
and business recovery plans in place
at major facilities and for key products
andkey suppliers.
–
IT disaster recovery policy in place.
–
Leadership taskforce established
toresolve cumulative impact of
globalsupply chain events.
–
Project management governance
andtoolkits and project steering
committee oversight to support
successful execution of programme
and projects.
–
Executive level sustainability
council oversees target setting
andmonitors progress.
Our business depends on our ability to plan for and
be resilient in the face of events that threaten one
or more of our key locations. Damage caused by
natural disasters and severe weather can and do
threaten our critical sites. Widespread outbreaks
ofinfectious diseases, such as the COVID pandemic,
create uncertainty and challenges forthe Group
andourcustomers.
Our business also requires continuous improvement
and depends on our ability to execute business
changeprogrammes. The pace and scope of our
business change initiatives may increase execution
risk for the change programmes as wellas for our
business-as-usual activities.
Oversight
Board
Link to Strategy
1. Strengthen
3. Transform
3
1
Change from 2020
60
Smith+Nephew
Annual Report 2021
3
2
1
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
»
Further information on our Strategy
forGrowth can be found on page 7
Commercial execution
Examples of risks
–
Failure to execute our strategy
adequately from high-level ambition
tospecific actions to make the
ambitiona reality.
–
Inability to keep pace with significant
product innovation and technical
advances to develop commercially
viable products.
–
Failure to engage eectively with
ourkey stakeholders to meet their
evolving needs leading to loss
of customers.
–
Failure to manage distributors
eectively leading to stocking
andcompliance issues.
–
Inability to satisfy customers’
sustainability requirements
and expectations.
–
Limited healthcare professional
accessto medical education.
–
Failure to achieve potential from
acquisitions due to integration
challenges.
Actions taken by management
–
Strategic planning process clearly
linkedto business and Group risk.
–
Continued new product launches and
monitoring of innovation pipeline.
–
Developed accessible sales
informationand training modules
forsales sta.
–
Improved healthcare professional
engagement model.
–
Policies and procedures to enhance
channel management implemented.
–
Virtual medical education processes
put in place.
–
Increased footprint of regional
training centres.
–
Deal-specific integration committee
toreview/approve integration plans
andmonitor ongoing processes.
The long-term success of our business depends on
setting the right strategic priorities and executing
on our plans to deliver those priorities in highly
competitive markets. This requires eective
communication and engagement with our customers,
the right structures and capabilities across the
Groupand the ability to adjust and refine strategic
priorities when necessary. Failure to set priorities
and execute on those priorities will impact our
abilityto continue togrowour business and
serveourcustomers.
Oversight
Board
Link to Strategy
1. Strengthen
2. Accelerate
1
2
Change from 2020
61
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Risk report
continued
2021 Principal Risks
continued
Cybersecurity
Examples of risks
–
Loss of intellectual property/major
dataprivacy breach or significant
impact on business operations.
–
Inadequate consideration of
cybersecurity in the design of
new products.
–
Disruption to business operations due
toa significant cybersecurity incident.
–
Increased government focus on
cybersecurity and changes in
regulatory environment.
Actions taken by management
–
Ensured every user has access to
and isusing a secure Virtual Private
Network (VPN) when connecting
toSmith+Nephewnetworks to
safeguardremote working.
–
Continued security awareness
activitiesincluding email communications,
intranet posts, visuals,videos and
more COVID-related email phishing
training activities.
–
Multi-factor authentication tools
reducethe likelihood of remote attacks.
–
Security information and event
management (SIEM) in place to
provide real-time analysis of security
alerts generated by applications
andnetwork hardware.
–
Regular penetration testing
and frequent vulnerability
scanning undertaken.
–
Endpoint protection and intrusion
detection/prevention implemented.
–
Security governance structure in
place including a Cybersecurity
Steering Committee.
–
Monitor developments from
governments and raise changes and
developments with Global IT Security.
–
Cybersecurity Maturity Programme
monitored by the Audit Committee.
We depend on a wide variety of information systems,
programs and technology to manage ourbusiness.
We also develop and sell certain products that are
or will be digitally enabled, including connection to
networks and/or theinternet.
Our systems and the systems of the entities we
acquire may be vulnerable to a cyber attack, the of
intellectual property, malicious intrusion, data privacy
breaches or other significant disruption. We have a
layered security approach in place to prevent, detect
and respond, to minimise the risk and disruption
ofanyintrusions and to monitor our systems on an
ongoing basis for current or potential threats.
Oversight
Audit Committee
Link to Strategy
1. Strengthen
1
Change from 2020
62
Smith+Nephew
Annual Report 2021
Global supply chain
Examples of risks
–
Disruption to manufacturing
ata single source facility (lack of
manufacturing redundancy).
–
Manufacturing and supply chain capacity
not adequate to support growth.
–
Risks associated with the transition
ofwarehouse and distribution activities
toexternal supplier impacting inbound
and outbound logistics.
–
Supplier failure impacts ability
tomeet customer demand
(singlesource supplier).
–
Inadequate sales and operational
planning impacts ability to meet
customer demand for product.
–
Excess inventory due toincorrect
demand forecasts, inaccurate
demand signals and unexpected
changesin demand.
–
Failure of suppliers and distribution
partners to achieve and maintain
regulatory compliance.
–
Increasing costs of raw materials
and freight.
–
Increasing salary and wage costs
for manufacturing and distribution
employees and contractors.
–
Severe weather patterns caused
by climate change causes damage
to manufacturing or distribution
facilities, impacting ability to meet
customer demand.
–
Disruption to the business due to
criticalsystem infrastructure and
applications being unavailable.
–
Critical material shortages leading
tosupply challenges.
–
Increased freight cycle times,
increasingin-network inventory
whiledisrupting customer supply.
–
Labour attrition and delays
in backfilling.
Actions taken by management
–
Delivering Global Operations
transformation programme to
optimisemanufacturing and
distribution centres and reduce
singlesource limitations.
–
Following Global Operations
projectmanagement governance
andtoolkits to support successful
execution of transformation
programmes.
–
Risk-based review programmes
undertaken for critical suppliers.
–
Business continuity plans
developedand alternative source
optionsidentified for critical suppliers.
–
Executive oversight of sales and
operational planning.
–
Increased coordination between
commercial, supply chain and logistics
toimprove forecast accuracy.
–
Comprehensive product quality
processes in place from design
tocustomer supply.
–
Supplier contract agreements achieve
and manage regulatory compliance.
–
Initiatives to improve manufacturing
eciency and reduce overhead costs.
–
IT disaster recovery policy in place.
–
Leadership taskforce established to
resolve cumulative impact of global
supply chain events.
Our ability to make products available tocustomers
inover 100 countries requires complexmanufacturing
and supply chain processes.Increased outsourcing,
more sophisticated materials, and the speed
of technological change inan already complex
manufacturing process leadsto greater potential
fordisruption in our supplychain. Supplier disruption,
capacity constraints and the regulatory environment
increase our exposure to supply chain disturbance.
Inflationary pressure on production and freight
costsincreases ourrisk of failing to achieve
accelerated profitable growth.
Oversight
Board
Link to Strategy
1. Strengthen
1
Change from 2020
63
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Strategic report
Governance
Accounts
Other information
Risk report
continued
2021 Principal Risks
continued
Mergers and acquisitions
Examples of risks
–
Failure to identify
appropriate acquisitions.
–
Failure to conduct eective
acquisitiondue diligence.
–
Failure to integrate newly acquired
businesses eectively, including
integration with Group standards,
policies and financial controls.
–
Failure to deliver on plans to achieve
theacquisition business case.
Actions taken by management
–
Acquisition activity aligned with
corporate strategy and prioritised
towards products, franchises
andmarkets identified to have
thegreatestlong-term potential.
–
Clearly defined investment
appraisal process based on range
ofvaluation metrics including return
on invested capital, in accordance
with Capital Allocation Framework
and comprehensive post-acquisition
review programme.
–
Detailed and comprehensive
cross-functional due diligence
undertaken prior to acquisitions
byexperienced internal and
externalexperts (includingthe
integration team).
–
Compliance risks included as part
ofdue diligence reviews, integration
plans and reporting for acquisitions.
–
Deal-specific integration committee
review, approval of integration plans
and monitoring of ongoing process.
–
Board reviews deals once a year.
As the Group grows to meet the needs of our
customers and patients, we recognise that we are
not able to develop all the products and services
required using internal resources and therefore need
toundertake mergers and acquisitions in order to
expand our oering and to complement our existing
business. In other areas, we may divest businesses
orproducts which are no longer core to ouractivities.
It is crucial for our long-term success that we make
theright choices around acquisitions anddivestments.
Failure to identify appropriate acquisition targets,
toconduct adequate due diligence or to integrate
them successfully or to deliver on the acquisition
business case would have an adverse impact
onourcompetitive position and profitability.
Oversight
Board
Link to Strategy
3. Transform
3
Change from 2020
Legal and compliance
Examples of risks
–
Failure to act in an ethical manner
consistent with our Code of Conduct
and Business Principles.
–
Violation of anti-corruption or
healthcare laws, breach by employee
orthird-party representative.
–
Misuse or loss of personal information
ofpatients, employees, research
subjects, consumers or customers
results in violations of data privacy
laws, including General Data
Protection Regulations.
–
The development, manufacture and
sale of medical devices entail risk
ofproduct liability claims or recalls.
Actions taken by management
–
Group Compliance and Culture
Committee oversees our ethical
andcompliance practices.
–
Global compliance programme,
policiesand procedures.
–
All employees required to undertake
annual training, including privacy,
andtocertify compliance on an
annualbasis with our Code of
Conductand Business Principles.
–
Issued an enhanced third-party
guidetodoing business with
Smith+Nephew.
–
Group monitoring and auditing
programmes in place.
–
Confidential independent reporting
channels for employees and third
parties to report concerns.
–
Monitoring new regulatory and
enforcement trends.
We are committed to doing business with integrity
and believe that ‘doing the right thing’ is part of our
mandate to operate. We operate in multiple countries
and regulatory authorities in each jurisdiction enforce
anincreasingly complex pattern of laws and regulations
that govern the design, development, approval,
manufacture, labelling, marketing, sale and operation
of both traditional and digital healthcare products
andservices.
Operating across this complex and dynamic legal and
compliance environment, which includes regulations
on bribery, corruption, and privacy, increases the risk of
fines, penalties, and reputational damage. We mitigate
this through legal and compliance policies, procedures,
training, and practices designed to prevent and detect
violations of law, regulations, and industry codes.
Oversight
Compliance &
Culture Committee
Link to Strategy
1. Strengthen
2. Accelerate
3. Transform
3
1
2
Change from 2020
64
Smith+Nephew
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New product innovation, design & development including intellectual property
Examples of risks
–
Failure to develop, partner or acquire a
competitively dierentiated innovation.
–
Insucient long-term planning to
respond to competitor disruptive
entries into marketplace.
–
Inadequate innovation due to low
Research & Development (R&D)
investment, R&D skills gap or ineective
product development execution.
–
Loss of market share due to critical
gapsin product portfolio not filled.
–
Loss of proprietary data due to natural
disasters or failure of Product Lifecycle
Management (PLM) systems.
–
Competitors may assert patents
orother intellectual property rights
against the Group or fail to respect
theGroup’s intellectual property rights.
–
Failure to ensure sustainability in
new products.
Actions taken by management
–
Continued product and technology
acquisitions and product launches.
–
Global R&D organisation and
governance framework providing
strategic direction for allocation of
R&D investment across all businesses.
Clear stage-gate process to continually
evaluate R&D investment decisions
anddevelopment of new products.
–
Cross-functional New Product
Design and R&D processes focused
on identifying new products and
potentially disruptive technologies
and solutions.
–
Replacing global PLM systems.
–
Monitored external market trends
andcollated customer insights to
develop product strategies.
–
Careful attention to intellectual
property considerations.
–
Sustainability criteria built into New
Product development processes.
Our new product innovation pipeline is becoming
larger and increasingly complex as we focus our eorts
on high growth markets and procedure innovation
using digital technologies such as connectivity,
predictive data analytics and biologics. Consequently,
we need to continue to better understand unmet
customer needs, drivers of surgical eciency
and patient outcomes, and new country/regional
regulations including requirements related to
cybersecurity. If Smith+Nephew fails to protect and
enforce its intellectual property rights successfully,
itscompetitive position could suer, which could
harmits results of operations.
Political and economic
Examples of risks
–
Global or regional recession and
increasing macroeconomic controls
due to COVID impact on customer
financial strength.
–
Global political and economic
uncertainty and conflict.
–
Failure to meet the sustainability
targets and public policy changes.
–
Implementation of healthcare reforms
and/or protectionist measures,
egUS/China trade, and regulations
inlocal markets.
–
Marketaccess rights.
–
Increases in import and labour costs.
–
Increases in taris and restrictions
onglobal trade.
–
UK and EU disagree over
implementation of Brexit.
–
Inflationary pressures impacting raw
materials, freight, salaries and wages.
Actions taken by management
–
Built sustainability strategy on
ourpurpose, business strategy,
and culture pillars, and tracked
and benchmarked targets within
the industry.
–
Sustainability Council monitors
public policy.
–
Continued engagement with
governments, administrations,
and regulatory bodies to enhance
education and advocacy eorts
with policymakers.
–
Actively participate in trade
associations to enhance
education andadvocacy eorts
with policymakers.
–
Ongoing engagement and monitoring/
lobbying on localisation initiatives.
We operate a global business and are exposed to
theeects of political and economic risks, changes
in the regulatory and competitive landscape, trade
policies, political upheaval, changes in government
policy regarding healthcare priorities, increasing
inflationary pressure and tax rates, preference
for localsuppliers, import quotas, war, economic
sanctions and terrorist activities.
Oversight
Board
Link to Strategy
3. Transform
3
Change from 2020
Oversight
Board
Link to Strategy
2. Accelerate
2
Change from 2020
65
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Governance
Accounts
Other information
Risk report
continued
2021 Principal Risks
continued
Quality and regulatory
Examples of risks
–
Transition to EU MDR impacts ability
tomeet customer demand.
–
Increase in time required by Notified
Bodies to review product submissions
and site quality systems’ certification
time for new products and EU MDR
changes impacts ability to meet
customer demand.
–
Defects in design or manufacturing
ofproducts supplied to, and sold by,
theGroup could lead to product recalls
or product removal or result in loss of
lifeormajor injury.
–
Significant non-compliance with policy,
regulations or standards governing
products and operations regarding
registration, design, manufacturing,
distribution, sales or marketing.
–
Failure to obtain proper approvals
forproducts or processes.
–
More stringent local requirements
forclinical data across APAC markets.
–
Changes to UK Medical Devices
regulation following Brexit.
Actions taken by management
–
EU MDR Steering Group regularly
monitors activities tocomply with
new requirements.
–
Regular engagement with Notified Body,
MHRA and regulatory representatives
to monitor regulatory changes and
understand interpretation of legislation.
–
Comprehensive and documented
product quality processes and controls
from design to customer distribution in
place, with the addition of cybersecurity
to new product development projects
for relevant products.
–
Standardised monitoring and
compliance with quality management
practices through our Global Quality
andRegulatory Aairs organisation.
–
Incident management teams in place
toprovide a timely response in the event
of an incident relating to patient safety.
–
Governance framework in place
forreporting, investigating and
responding to instances of product
safety and complaints.
–
Local clinical evidence requirements
are included in global new product
development projects.
Global regulatory bodies continue to increase their
expectations of manufacturers and distributors of
medical devices. Our products are used in the human
body and therefore patient safety is of paramount
importance. The European Medical Device Regulation
(EU MDR), the Medical Device Single Audit Programme
and multiple other global regulations and standard
changeshave increased the focus on clinical and
technical evidence, supplier controls and product
performance transparency.
Oversight
Compliance &
Culture Committee
Link to Strategy
1. Strengthen
1
Change from 2020
Pricing and reimbursement
Examples of risks
–
Reduced reimbursement levels
andincreasing pricing pressures.
–
Systemic challenge on number
ofelective procedures.
–
Lack of compelling health
economics data to support
reimbursement requests.
–
Unilateral price controls/reductions
imposed on medical devices.
–
Price-driven tendering/
procurement processes.
–
Volume-based procurement
inChinaand other markets.
–
Limited access to non-clinical
decision makers.
Actions taken by management
–
Developed innovative economic
product and service solutions
forbothestablished and
emerging markets.
–
Incorporated health economic
components into the design and
development of new products.
–
Sales training to improve capability
tocommunicate the clinical and
economic value proposition to
non-clinical decision makers.
–
Implementing innovative contracting
models designed to lessen the
risk ofadoption and coverage for
healthcareproviders and payers.
–
Increased engagement with payer
bodies to influence reimbursement
mechanisms to reward innovation.
–
Optimise portfolio mix and promote
dierentiated products.
–
Consideration of price increases.
Our success depends on our ability to sell our
productsprofitably, despite increasing pricing pressures
from customers and the availability of adequate
government funding to meet increasing demands
for our products arising from patient demographic
trends. The prices we charge are therefore impacted
by budgetary constraints and our ability to persuade
customers and governments of the economic value
of our products, based on clinical data, cost, patient
outcomes and comparative eectiveness.
We further face market changes, such as China
volume-based procurement, consolidation of
customers into buying groups, input cost inflation,
increasing professionalisation of procurement
departments and the commoditisation of entire
product groups, which continue to challenge prices.
We mitigate this through portfolio mix and promotion
of dierentiated products, including a compelling
clinical and economic value proposition.
Oversight
Board
Link to Strategy
1. Strengthen
2. Accelerate
1
2
Change from 2020
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Smith+Nephew
Annual Report 2021
Taxation and foreign exchange
Talent management
Examples of risks
–
Potential for significant tax rate
changes and/or base broadening
measures in key jurisdictions where
weoperate including OECD proposals
and US tax reform.
–
Failure to comply with current tax laws.
–
Transfer pricing policy not correctly
implemented or monitored.
–
Risk of adverse trading margins due to
fluctuating foreign currency exchange
rates between our main manufacturing
operations (the US, UK, Costa Rica
andChina) and where our products
are sold.
–
Changing legislation in the US
andother keymarkets may require
changestoouroperating model.
Actions taken by management
–
The Group Tax team continually
monitordevelopments in tax
legislation and obtain external
advicewhere relevant.
–
The Group Tax team, supported by
external advisors, work closely with
the business to implement agreed
processes and procedures.
–
A foreign exchange hedging programme
is operated and is overseen centrally
bythe Group Treasury team.
–
The Finance and Banking Committee
monitors ongoing treasury and
tax matters including foreign
exchange exposure.
–
Experienced Finance team.
–
Internal Audit and Audit
Committee oversight.
–
Seeking appropriate independent
third-party advice when required.
Examples of risks
–
Loss of key talent, high attrition
andlackof appropriate succession
planning in context of required
skillsetsfor future business needs.
–
Loss of competitive advantage
duetoan inability to attract
andretaintop talent.
–
Loss of intellectual capital
duetopoorretention of talent.
–
Failure to attract talented
andcapable candidates.
–
Increased talent movement globally
due to shiing personal work-life
balance priorities.
–
Increased salaries globally, particularly
in the Research & Development, Quality
and Regulatory Aairs, manufacturing
and distribution functions.
Actions taken by management
–
Talent planning and people
development processes well
established across the Group.
–
Talent and succession planning
discussed annually by the Board
and regularly by the Executive
Committee and Nomination &
Governance Committee.
–
Identification of high value roles and
ensuring that these roles are filled
withour high-performance individuals
with strong succession plans in place.
–
Developed strategic skills resourcing
plan by functional areas.
–
Provided employees with access
to tools and resources to manage
their emotional, physical, and
mental wellness.
–
Ongoing segmentation of specific job
roles and applying focused rewards
to ensure we are competitive and
attractive to candidates.
We operate a global business and are therefore
required to comply with tax legislation in multiple
jurisdictions and are also exposed to exchange
ratevolatility. Adverse changes to tax legislation,
including those driven by international agreements
such as the OECDproposed global minimum tax
rate, and volatilityin foreign currency exchange
ratescanimpact our results and it may not be
possibleto fullymitigate against them.
We recognise that people leadership, eective
succession planning and the ability to engage,
retainand attract talent is a key lever of success
forour business. Recruitment and retention of
top talent is a critical risk which requires a strong
engagement process. Failure to do so places our
abilityto execute the Groupstrategy and to be
eective in the chosen market/discipline at risk.
Oversight
Board
Link to Strategy
1. Strengthen
1
Change from 2020
Oversight
Audit Committee
Link to Strategy
1. Strengthen
1
Change from 2020
Replaces Finance Risk
67
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Governance
Accounts
Other information
How we assess our prospects
During the year, the Board has carried
out a robust assessment of the principal
risks aecting the Company, particularly
those which could threaten the business
model. These risks, and the actions
being taken to manage or mitigate them,
are explained in detail on pages 58–67
ofthisAnnual Report.
In reaching our Viability Statement
conclusion, we have undertaken the
following process:
–
The Audit Committee reviewed the Risk
Management process at their meetings
in February, April, July and December,
receiving presentations fromthe Group
Risk Team, explaining theprocesses
followed by management in identifying
and managing risk throughout
the business.
–
In May and October 2021, the Executive
Committee (ExCo) met as a Risk
Committee to review the 2021 Principal
Risks (the top-down risk review process),
The ExCo was asked to consider the
significant risks which they believed
could seriously impact the profitability
and prospects of the Company and the
principal risks that would threaten its
business model, future performance,
solvency or liquidity.
–
All ExCo members nominated the
RiskChampions and have worked
withthem to prepare risk registers.
The Risk Champions nominated by
the ExCo are senior, trained in risk
management and most of the team
have at least two years of experience
inthe Company.
–
Using the outputs from the Business
Area‘bottom-up’ risk identification
completed in September 2021 and
following ‘top-down’ discussions
withExCo, the most significant risks
aecting our organisation were
presented to ExCofor approval in
October as the dra2021 Principal
Risksfacing the Company.
–
ExCo agreed to retain 11 of the 12
Principal Risks from 2020. The Finance
Risk is replaced by a Taxation and
ForeignExchange risk.
–
ExCo considered the continuing impact
of COVID, including within the viability
scenario analysis.
–
In assessing our TCFD risks we
concludedthat climate related risks
arenot significant in our viability horizon
of three years. Nonetheless, we have
included an extreme weather event in
our Business Continuity and Business
Change scenario.
–
All relevant executives have attested
alignment to the Group’s Enterprise
Risk Management Process as part of
the annual certification on governance,
risk,and compliance.
–
The Board debated and agreed the
riskappetite for each of the Principal
Risks inJuly 2021.
–
Final Principal Risks were presented
tothe Audit Committee and the
BoardinFebruary 2022 for their
consideration and approval.
–
Throughout the year, a number
ofreviews into dierent risks were
conducted by the Board, the Audit
Committee and the Compliance
& Culture Committee looking into
the nature of the risks and how
theywere mitigated.
Assessment period
The Board have determined that the
three-year period to December 2024
is anappropriate period over which
toprovideits Viability Statement.
This period is aligned to the Group’s
Strategic Planning process and reflects
theBoard’s best estimate of the future
viability of the business.
Scenario testing
To test the viability of the Company,
we have undertaken a robust scenario
assessment of the Principal Risks,
whichcould threaten the viability
orexistence ofthe Company. These
havebeen modelled as follows:
–
In carrying out scenario modelling
ofthePrincipal Risks on the following
pagewe have also evaluated the
impactof a severe but plausible
combination of these risks occurring
over the three-year period. We have
considered and discussed a report
setting out the terms of our current
financing arrangements and potential
capacity for additional financing should
this be required in the event of one
ofthescenarios modelled occurring.
–
We are satisfied that we have robust
mitigating actions in place as detailed
onpages 58–67 of this Annual Report.
We recognise, however, that the long-
term viability of the Company could also
be impacted by other, as yet unforeseen,
risksor that the mitigating actions we
have put in place could turn out to be
lesseective than intended.
Viability Statement
Having assessed the Principal Risks,
theBoard has determined that we
have areasonable expectation that
the Company will be able to continue
in operation and meet its liabilities
as they fall due over a period of three
years from 1 January 2022. In our
long-term planning we consider
horizons of between five and ten years.
However, as most of our eorts are
focused on the coming three years,
wehave chosen this period when
considering our viability.
Our conclusion is based on the
Strategic Plan reviewed by the Board
in December 2021. We will continue
to evaluate any additional risks which
might impact the business model.
By order of the Board, on 22 February 2022.
Susan Swabey
Company Secretary
Risk report
continued
Our Viability Statement
68
Smith+Nephew
Annual Report 2021
2021 Scenarios modelled
Scenario 1: Further COVID business disruption and pricing and reimbursement pressures
COVID disruption to elective surgery, manufacturing, distribution
andsupport functions globally or regionally due to subsequent waves
leadingto a major loss of revenues and profits.
Action taken:
We have modelled global volume reduction of 10% for the
first six months of 2022, and a reduction of 5% for the last six months
of2022 with a similar assumption in 2023.
Reduced reimbursement levels and increasing pricing pressures.
Action taken:
We have modelled price erosion of 1% for 2022 and 1% to 2023.
Link to strategy
–
Accelerate profitable growth through prioritisation
and customer focus.
Link to Principal Risks
–
Business Continuity and Business Change.
–
Global Supply Chain.
–
Commercial Execution.
–
Political and Economic.
–
Pricing and Reimbursement.
Scenario 2: Operational risk
Inability to keep pace with significant product, innovation, and technical
advances to develop commercially viable products, losing significant
market share to the competition.
Action taken:
We have modelled 3% lower growth than planned for a key
product range in the US in 2023 and 2024.
Disruption to manufacturing at a single source facility – resulting in
ourinability to manufacture several key products for one year.
Action taken:
We have modelled the loss of strategic production
machinery, resulting in the loss of production and sales for several key
products for one year (2023).
Key Supplier Disruption – resulting in our inability to manufacture
andsupply a few key products for a full year.
Action taken:
We have modelled an interruption to receiving goods from
akey supplier for a period of one year in 2023.
Increases in raw materials, freight and labour costs.
Action taken:
We have modelled an increase in our input costs by an additional 5% in 2022 and 2023, due to continued inflationary pressures.
Product Liability Claim.
Action taken:
we have modelled a group of product liability claims resultingin a settlement agreement requiring cash payment in 2023
and2024, without any insurance coverage.
Link to strategy
–
Strengthen the foundation to serve customers sustainably and simply.
–
Transform our business through innovation and acquisition.
Link to Principal Risks
–
Commercial Execution.
–
New Product Innovation, Design & Development including
Intellectual Property.
–
Global Supply Chain.
–
Business Continuity and Business Change (weather related disruption).
–
Political and Economic.
–
Talent Management.
Scenario 3: Tax, foreign exchange, legal, regulatory and compliance risks
Data privacy failure – giving rise to a significant fine or loss.
Action taken:
We have modelled a one-o significant fine from regulator of2%ofrevenue or loss resulting from a data privacy issue in 2023.
Failure to obtain proper regulatory approvals for products or processes
impacting our ability to sell products.
Action taken:
We have modelled the complete loss of revenue from a
keyproduct eective in mid-2022 for two years, and returning to lower
volumes in mid-2024.
Risk of adverse trading margins due to fluctuating foreign currency
exchange rates across our markets.
Action taken:
We have modelled a reduction in profitability in 2023 and
2024 due to a weakening in other currencies relative to the US Dollar by 5%.
Link to strategy
–
Strengthen the foundation to serve customers sustainably and simply.
Link to Principal Risks
–
Legal and Compliance.
–
Quality and Regulatory.
–
Taxation and Foreign exchange.
Scenario 4: Cybersecurity
Disruption to business operations due to a significant
cybersecurityincident.
Action taken:
We have modelled one of our key regions being unable
toinvoice also aecting shipping and tracking of deliveries for one month
due to a disruption to our IT infrastructure in 2023.
Link to strategy
–
Strengthen the foundation to serve customers sustainably and simply.
Link to Principal Risks
–
Cybersecurity.
Scenario 5: Mergers and acquisitions
Failure to integrate newly acquired business eectively to achieve
expected growth.
Action taken:
We have modelled a scenario of zero growth in a recently
acquired business over the three-year period.
Link to strategy
–
Transform our business through innovation and acquisition.
Link to Principal Risks
–
Mergers and Acquisitions.
69
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Governance
Accounts
Other information
Our approach
to stakeholders
Our stakeholders
In accordance with section 172 of the Companies Act 2006 and the UK
Corporate Governance Code 2018, theBoard considers the potential impact
onthe Company’s key stakeholders and takes their views and interests into
account when making decisions. The Board also takes the opportunity to
engage with ourstakeholders, as appropriate. Whilst this was challenging
during 2021 dueto the COVID pandemic, virtual arrangements have been
made where possible with our main stakeholders. For further information on
how we engage with our main stakeholders see our section 172 statement
onpages 110–113.
Employees
Our employees are crucial
tothe success of our business
and many of our decisions have
an impact onthem. We believe
that anengaged workforce
isbetter for business.
See pages 20–27,
107and 110
Customers
and suppliers
Our business model creates
value through customer
centricity whilst working
in partnership with our
suppliers ensures we have
the right resources to
supportour growth.
See pages 36–41
and112
Governments
and regulators
We are subject to the laws
and regulations of many
governments and regulators
across the world and we work
to ensure product safety and
legal compliance in order to
achieve the full potential
of our portfolio.
See pages 35 and 113
Investors
Our equity investors are
the owners of our business
and it is important for
ustounderstand their
perspectives on capital
allocation and how the
Company is run.
See pages 111
and 222–230
Environment
andcommunity
People, Planet and Products are
at the heart of our Sustainability
strategy ensuring a positive
impact on our communities and
our environment and enabling
us to innovate sustainably.
See pages 48–57
and our 2021
Sustainability Report
70
Smith+Nephew
Annual Report 2021
Governance
Board leadership and purpose
Letter from the Chair
72
Board of Directors
75
Executive team
80
Division of responsibilities
Roles and composition
84
Corporate governance framework
85
Responsibilities of the Board
86
Composition, succession and evaluation
Board eectiveness review
90
Board development
91
Nomination & Governance Committee report
92
Audit, Risk and Control
Audit Committee report
96
Compliance & Culture
Committee report
106
Stakeholder statement
110
Remuneration
Directors’ Remuneration report
114
71
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
The Board continued to maintain the highest
standards of governance during the pandemic
working mostly remotely. We look forward
toengaging in person soon.
Executive Team
On 22 February 2022, we announced
theappointment of Deepak Nath
asChiefExecutive Ocer with eect
from1 April 2022 and that Roland
Diggelmann will be stepping down
on31 March 2022.
Roland has navigated Smith+Nephew
through the challenges presented
byCOVID over the past two years.
He hascontinued to develop the
Company’s strategy with a focus on
drivingacceleratedgrowth, through
investment in R&D and innovation, and
has sought toenhance operational
execution acrossthe business. On behalf
of our shareholders, the Board thanks
himforhisservice to the Company.
We are delighted to welcome Deepak
asSmith+Nephew’s incoming Chief
Executive Ocer. He is joining us at
aninflection point for the business and
willbeable to draw on his wealth of
experience leading major transformations
ininnovation-led businesses and
achievingmarket leadership to deliver
onthe Company’s significant potential
foraccelerated growth.
Deepak is a highly experienced global
healthcare leader with a track record
ofdelivering transformational growth.
He joins Smith+Nephew from Siemens
Healthineers where most recently
hewasPresident of the Diagnostics
business. He has also held leadership
rolesat AbbottLaboratories and Amgen.
Dear Shareholder
I am pleased to present the governance
section of our Annual Report, which
includes details about the Board and an
explanation of our individual roles and
responsibilities. We also summarise the
activities of the Board and the Chair of
each Board Committee discusses the
activities of that Committee during the
past year. In addition, we provide insight
into our stakeholder engagement.
Letter from the Chair
Governance
continued
Smith+Nephew
Annual Report 2021
72
Non-Executive team
We also welcomed one new Non-Executive
Director to the Board during 2021.
John Ma was appointed to the Board on
17 February 2021. John has an impressive
track record in medical device businesses
and his contribution provides value as
Smith+Nephew continues to develop
innovative ways to grow and serve our
markets with a focus towards Asia Pacific
regions. He is an established healthcare
leader and has strong experience of driving
market entry and growth within emerging
markets. Due to ongoing travel restrictions,
John has yet to meet his fellow directors
face to face, as he is based in Shanghai.
We very much hope that this will be
remedied in 2022.
Baroness Virginia Bottomley retired as
a Director at the 2021 Annual General
Meeting on 14 April 2021, following nine
years’ service.
Since year end, Jo Hallas has been
appointed to the Board on 1 February
2022 as an additional Non-Executive
Director. Jo has extensive international
management experience in global industrial
companies. She is Chief ExecutiveOcer
of Tyman plc, and has a track record of
driving growth and transformation whilst
embedding sustainability and building
corporate culture.
Board operations during 2021
Aer a long period of holding virtual Board
meetings, we were delighted that we were
able to meet physically for our September
2021 meeting. For our newly appointed
overseas directors, this was the first
time they were able to meet their fellow
Board members in person, although it was
still not possible for John Ma to join us in
person from Shanghai. Furthermore, we
are disappointed that we had to hold our
December meetings remotely, following
further restrictions due to theOmicron
variant. Although, the Board continues to
operate eectively via virtual meetings
through the use of technology, we all miss
the richer conversations and discussions
we were able to have when meeting each
other physically. Even though all new Board
members undertake tailored induction
programmes, nothing can replicate
the benefit of meeting our people and
physically handlingour products. We are
looking forward to returning to a full
programme ofphysical meetings in 2022.
From 1 April 2022
2
Board members
will be of Asian
ethnicity
33%
of our Board
isfemale
Changes to the Board
in2021/2022
John Ma was appointed to the
Board as Non-Executive Director
on17 February 2021.
Virginia Bottomley retired from the
Board as Non-Executive Director
on 14 April 2021.
Jo Hallas was appointed to the
Board as Non-Executive Director
on 1 February 2022.
Roland Diggelmann will leave the
Board as Chief Executive Ocer
on 31 March 2022.
Deepak Nath with join the Board
as Chief Executive Ocer on
1 April 2022.
»
Please see pages 75–79
for the fullbiography of
eachdirector
»
Please see pages 80–83
to read more about our
Executive team
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
73
Governance
continued
Letter from the Chair
continued
My retirement as Chair
In December this year, I shall complete
nineyears’ service as Non-Executive Director
of Smith+Nephew, having been appointed
Chair in April 2014. Robin Freestone, Senior
Independent Director, working with other
members of the Nomination & Governance
Committee, has therefore commenced
a search for a new Chair to lead your
Company through the next stage of its
development and an announcement will
bemade in due course. Our intention would
be that the new Chair will join the Board
as an additional Non-Executive Director in
time to allow for a few months’ transition
before I formally retire.
Stakeholders
You will read elsewhere in this report
onpages 110–113 how we have enhanced
the ways we ensure that weconsider
the views of our stakeholders inour
decision-making process and in particular
the continuation of the Board/employee
listening sessions ledbyMarc Owen and
the Compliance & Culture Committee.
Greater engagement with ourstakeholders
and our employees in particular is
providing the Board with richer context
and background for when we make major
decisions. Whilst most ofthese sessions
were held remotely throughout 2021,
wemanaged to hold one physical meeting
during 2021 with some of our employees
atour site inWatford, UK.
Shareholder engagement
Robin Freestone, our Senior Independent
Director, Marc Owen, Chair of our
Compliance & Culture Committee and I
have also met virtually with shareholders.
In addition to strategy and performance,
shareholders have been interested in
the Board’s oversight of stakeholder
engagement, theimpact of climate
change, product quality, cybersecurity,
governance, business ethics and inclusion
and diversity matters. Wewelcome such
conversations which areindicative of the
matters that arebecoming more important
not only toour shareholders but the
wider world and our other stakeholders.
Further information onthese topics can
befoundinthe Sustainability Report.
»
Read more on how we engage
with our stakeholders on page 110
Statement of Compliance
The Board is committed to the highest standards ofcorporate governance. We comply with all theprovisions and principles of the UK Corporate Governance Code 2018 (2018 Code).
TheCompany’s American Depositary Shares and bonds are listed onthe New York Stock Exchange (NYSE) and we aretherefore subject to the rules of the NYSE as wellasto the US securities
lawsand the rules oftheSecurities and Exchange Commission (SEC) applicableto foreign private issuers. We comply withthe requirements of the NYSE andSEC and haveno significant
dierences to report between theUS andUK corporate governance standards.
We explain in this ‘Governance’ section how we comply with and have applied the 2018 Code duringthe year. The2018 Code can be found at www.frc.org.uk/getattachment/88bd8c45-50ea-
4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf. We also explain howwehave complied with theFinancial Conduct Authority’s (FCA) Listing Rules, Disclosure &
Transparency Rules (DTRs) throughout the year.
Annual General Meeting
Our 2021 Annual General Meeting was held
as a hybrid meeting with a limited number
of UK based directors meeting physically
at our UK headquarters in Watford, and
other shareholders joining the meeting via
the Lumi technology platform. Our 2022
Annual General Meeting will also be a
hybrid meeting and we would encourage
shareholders either to attend in person or
to make use of the technology platform
or the telephone link to listen to the
proceedings, ask questions and vote.
Further details ofhow toaccess this event
are included intheNotice of Meeting.
On your behalf, I should like to thank
alltheBoard for their dedication and
considered approach during 2021 and
inparticular the assistance they provided
to new Board members. Ishould also like
tothank you, our shareholders, for your
patience during another challenging year
and we look forward to meeting with you
physically again, hopefully in April 2022.
Roberto Quarta
Chair
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Annual Report 2021
Board leadership and purpose
Board of Directors
Roberto Quarta (72)
Chair
Joined the Board in December 2013
and appointed Chair at the 2014 Annual
General Meeting.
Career and experience
Roberto is a graduate and a former Trustee of
the College of the Holy Cross, Worcester (MA),
US. He started his career at David Gessner
Ltd, before moving on to Worcester Controls
Corporation and then BTR plc. Between 1985
and 1989 he was Executive VP of Hitchiner
Manufacturing Co., Inc. He later returned to
BTR plc in 1989 as Divisional Chief Executive,
where he was appointed to the main board.
From here he moved to BBA Aviation plc,
asChief Executive Ocer and then as Chair,
until 2007. In 2001, he joined Clayton Dubilier
& Rice, LLC (CD&R) as Partner and is currently
Chair of CD&R Europe.
He has held several board positions, including
Non-Executive Director of Powergen plc,
Equant N.V., BAE Systems plc and Foster
Wheeler AG. His previous chairmanships
include Italtel S.p.A., Rexel SA, IMI plc and
SPIESA. Roberto was a member of the
Investment Committee of Fondo Strategico
Italiano S.p.A.
Other current appointments
–
Chair of WPP plc.
–
Partner at Clayton Dubilier & Rice, LLC
andChair of CD&R Europe.
Skills and competencies
Roberto’s career in private equity brings
valuable experience to Smith+Nephew,
particularly when evaluating acquisitions
and new business opportunities. He has an
in-depth understanding of diering global
governance requirements, having served
asadirector and chair of a number of UK
andinternational companies.
Nationality
American/Italian
Roland Diggelmann (54)
Chief Executive Ocer
Appointed in November 2019.
Previously Independent Non-Executive
Directorand Member of the Audit Committee
between 1 March 2018 until 21 October 2019.
Roland is based in Zug, Switzerland.
Roland Diggelmann served as Chief Executive
Ocer of the Company throughout 2021 and
will be leaving the Company on 31 March 2022.
Career and experience
Roland studied Business Administration at
theUniversity of Bern. In 1995, he joined Sulzer
Medica AG as Manager, Strategic Planning
and progressed into further senior roles over
the years until his appointment as Executive
Vice President, Sales Europe and Asia Pacific
from 2002 to 2004 for Sulzer Medica AG
(laterknown as Centerpulse AG).
Roland joined Zimmer Group in 2004, in the
roleof Managing Director of Zimmer Japan
andthen later in 2006 as Senior Vice President,
EMEA until 2008. Roland joined Roche
Diagnostics in 2008 starting as president of
Asia Pacific before assuming the role of Chief
Executive Ocer of the Diagnostics Division
of F. Homann-La Roche Ltd from 2012
untilSeptember 2018.
Other current appointments
–
Director of Heart Force AG.
–
NED of Sonova Holding AG.
Skills and competencies
Having spent his whole career in medical
devices, with 12 years at Sulzer and Zimmer,
Roland brings an in-depth knowledge of
the medical device industry and healthcare
environment, which is of great value to
Smith+Nephew.
Nationality
Swiss
C
Member of the Compliance
& Culture Committee
N
Member of the Nomination
& Governance Committee
R
Member of the
Remuneration Committee
Committee
Chair
Committee key
Member of the
Audit Committee
A
Deepak Nath (49)
Chief Executive Ocer elect
To take up appointment on 1 April 2022.
Career and experience
Deepak holds a BSc and MSc in Mechanical
Engineering and a PhD in Theoretical
Mechanics from the University of California,
Berkeley. In 1998 he joined the Lawrence
Livermore National Laboratory as a scientist
in the New Technologies Engineering Division/
Computational Physics Group. In 2000 he
moved to McKinsey & Company, where
he progressed to become an Engagement
Manager. In 2004 he le to join Amgen
rising to Director, R&D Strategic Operations
and Finance.
In 2007 Deepak joined Abbott Laboratories
Inc. in the Vascular division. He held roles of
increasing responsibility in R&D, marketing,
commercial and divisional leadership and rose
to become President of Abbott Vascular, then
one of the company’s largest businesses, and
an Executive Ocer of Abbott Laboratories.
Deepak joins Smith+Nephew from Siemens
Healthineers (2018–2022) where most
recently he was President of the Diagnostics
business segment responsible for $6 billion
ofrevenue and 15,000 employees.
Other current appointments
–
None.
Skills and competencies
Deepak has a track record of driving growth at
major healthcare companies through delivering
a significant improvement in execution and
building a strong results-focused culture.
Nationality
American
RN
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continued
Board of Directors
continued
Anne-Françoise Nesmes (50)
Chief Financial Ocer
Appointed in July 2020. Anne-Françoise
isbased in Watford, UK.
Career and experience
Anne-Françoise holds an MA degree in
Management Sciences from Grenoble Ecole
de Commerce and an MBA from Henley
Management College. She qualified as a
Chartered Management Accountant in 1996.
Anne-Françoise joined GlaxoSmithKline plc in
1997 where she worked for 16 years, holding
multiple senior roles, including Vice President
and Finance Controller, Europe (2003–2006),
Vice President Forecasting and Planning, US
Pharmaceutical (2006–2009) and Senior Vice
President Finance, Global Vaccines (2009–
2013). She demonstrates a high level of passion
towards life science companies where she has
spent the majority of her senior career. Anne-
Françoise served as Chief Financial Ocer for
Dechra Pharmaceuticals plc in 2013 where she
successfully implemented financial strategies
to support the growth of the business.
Most recently, she was Chief Financial Ocer
ofMerlin Entertainments Limited (formerly
Merlin Entertainments plc).
Other current appointments
–
NED and Chair of the Audit Committee
atCompass Group plc.
Skills and competencies
Anne-Françoise has worked as a senior finance
executive in global FTSE listed companies
for many years, which alongside a strong
business acumen and deep sector knowledge
provides her with the experience required
to be part of the Smith+Nephew leadership
team. She demonstrates a high competency
for delivering operational excellence across
dierent geographic markets and leading
large teams who are responsible for significant
budgets. She has an impressive background
and her ability to translate financial insights
into results helps guide Smith+Nephew.
Nationality
British/French
Erik Engstrom (58)
Independent Non-Executive Director
Appointed in January 2015.
Career and experience
Erik is a graduate of the Stockholm School
ofEconomics (BSc) and of the Royal Institute
of Technology in Stockholm (MSc). In 1988, he
graduated with an MBA from Harvard Business
School as a Fulbright Scholar. Erik commenced
his career at McKinsey & Company and then
worked in publishing, latterly as President and
Chief Operating Ocer of Random House Inc.
and as President and Chief Executive Ocer
of Bantam Doubleday Dell, North America.
In 2001, he moved on to be a partner at
General Atlantic Partners, a private equity
investment firm. Between 2004 and 2009,
he was Chief Executive Ocer of Elsevier,
the division specialising in scientific and
medical information and then from 2009
ChiefExecutive Ocer of RELX Group.
Other current appointments
–
Member of Bonnier Group’s Board.
–
Chief Executive Ocer of RELX Group.
Skills and competencies
Erik has successfully reshaped RELX Group’s
business in terms of portfolio and geographies.
He brings a deep understanding of how
technology can be used to transform a
business and insight into the development
ofnew commercial models that deliver
attractive economics. His experience
as a ChiefExecutive Ocer of a global
company gives him valuable insights as a
member of our Audit and Nomination &
Governance Committees.
Nationality
Swedish
Robin Freestone (63)
Senior Independent Director
Appointed Non-Executive Director in
September 2015 and subsequently appointed
Senior Independent Director in April 2019.
Career and experience
Robin graduated with a BA in Economics
from The University of Manchester and later
qualified and commenced his career as a
Chartered Accountant at Deloitte. He has
held a number of senior financial positions
throughout his career, including at ICI plc,
Henkel Ltd and at Amersham plc. Robin was
the Deputy Chief Financial Ocer and then
later the Chief Financial Ocer of Pearson
plc between 2006 and August 2015. He was
previously NED at eChem Ltd, Chair of the
100 Group and Senior Independent Director
and Chair of the Audit Committee of Cable &
Wireless Communications plc. Robin was also
previously Chair of the Audit Committee of
MoneySupermarket.com Group plc.
Other current appointments
–
NED and Chair of the Audit Committee
atCapri Holdings Ltd.
–
Chair of the ICAEW Corporate
Governance Committee.
–
Chair of the Board and Nomination Committee
of MoneySupermarket.com Group plc.
–
NED and Chair of Audit and Risk Committee
at Aston Martin Lagonda Global Holdings plc.
Skills and competencies
Robin has been a well-regarded FTSE 100
Chief Financial Ocer who has been heavily
involved with transformations, diversification
and risk management. His acquisition
experience in the healthcare sector brings
value to Smith+Nephew as it continues to
grow into dierent markets. He brings financial
expertise and insight as a member of the Audit
Committee and understands how to attract
and retain global talent as a member of the
Remuneration Committee. His experience as
a Chair brings a strong Senior Independent
Director to the Smith+Nephew Board.
Nationality
British
NA NRA
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Jo Hallas (52)
Independent Non-Executive Director
Appointed on 1 February 2022.
Career and experience
Jo is a Chartered Engineer with a degree in
Engineering from the University of Cambridge.
She also holds an MBA from INSEAD.
Jo commenced her career at Procter &
Gamble (P&G) and held increasingly senior
positions based in Germany, the US, Thailand
and the Netherlands. On completing her
MBA, she joined Bosch where she held a
business unit leadership role in their Power
Tools division. In 2009, Jo joined Invensys plc
to run their global heating controls business
unit including launching its first smart home
oer. She then moved to Spectris plc, where
she had responsibility for a portfolio of global
industrial technology businesses, as well as
for the Group’s digital strategy. Since 2019,
Jo has served as Chief Executive Ocer for
Tyman plc, the FTSE 250 international supplier
of engineered components to the doors
and windows industry, where she has made
sustainability a core foundation of the group’s
strategy. Jo was also previously Chair of the
Remuneration Committee for Norcros plc.
Other current appointments
–
Chief Executive Ocer of Tyman plc.
Skills and competencies
Jo has extensive international management
experience focused on business transformation
through both organic and acquisitive growth
in global industrial and consumer sectors.
She brings valuable expertise which will help
Smith+Nephew build upon and achieve our
strategic ambitions.
Nationality
British
John Ma (59)
Independent Non-Executive Director
Appointed on 17 February 2021.
John was appointed as a Member of the
Compliance & Culture Committee on
7 December 2021.
Career and experience
John graduated from Wayne State University
with an MSc and a Ph.D. in Materials Science
and Engineering. In 1995, John became a Manager
of International Operations at the Performed
Line Products Company. Aer five years he
joined GE Healthcare and became Vice President
and General Manager of their Global Product
Company in China. In 2002, John was promoted
and became responsible for GE Healthcare’s
commercial division across central China where
he successfully led sales, marketing and customer
service teams for their $200m diagnostics medical
imaging business. John has also held a number of
senior positions as President of Asia Pacific regions
at Pentair Inc., Vice President of Express Scripts
Inc., and Global Partner of Fosun Group. He initially
joined Fosun Pharma to lead their medical device
business and in 2014 became President of Fosun
Healthcare Holdings. He served as a key member
of their healthcare investment committee which
went on to establish a global presence across the
US, Europe, Israel and China. In 2017, John joined
Intuitive Surgical as their Senior Vice President
of Strategic Growth Initiatives. He has
previously served as a NED for both Haier
Electronics Group and Clinical Innovations LLC.
Other current appointments
–
Founder, Chair and Chief Executive Ocer
ofRonovo Surgical.
Skills and competencies
John has an impressive track record in medical
device businesses and his contribution provides
value as Smith+Nephew continues to develop
innovative ways to grow and serve our markets
with a focus towards Asia Pacific regions.
He is an established healthcare leader and has
strong experience of driving market entry and
growth within emerging markets.
Nationality
American
Katarzyna Mazur-Hofsaess (58)
Independent Non-Executive Director
Appointed in November 2020.
Katarzyna was appointed as a member of
the Compliance & Culture Committee on
7 April 2021.
Career and experience
Katarzyna qualified as a medical doctor (Ph.D.)
from the Medical University of Gdańsk, Poland
in 1987 and completed an Executive MBA
at the University of Minnesota, US, in 2002.
Katarzyna commenced her corporate career
in 1998 at Roche as a Business Unit Manager
prior to becoming General Manager for Poland
of Allergy Therapeutics plc. In 2001, Katarzyna
was recruited by Abbott Laboratories where
she successfully managed their diabetes care
division in Poland. Over the next nine years,
hercareer progressed at Abbott Laboratories to
Divisional Vice President for Europe. In 2010, she
continued her career at Zimmer as President of
their EMEA region. Following her appointment
as an executive committee member prior to
the Biomet acquisition, Katarzyna supported
the operations of the Zimmer Biomet portfolio
covering sales, marketing, logistics, and clinical
support. Since 2018, Katarzyna has served as
Chief Executive Ocer for the €2.7 billion EMEA
business of Fresenius Medical Care AG & Co.
KGaA, the German-listed renal care company.
Other current appointments
–
Chief Executive Ocer, EMEA, at Fresenius
Medical Care AG & Co. KGaA.
–
NED at Vifor Fresenius Medical Care Renal
Pharma Ltd.
Skills and competencies
Katarzyna demonstrates a true passion for
customer focus and maintains an impressive
track record in senior leadership within the
MedTech industry. She is a qualified medical
doctor (Ph.D.) with vast experience in medical
devices and orthopaedic sectors. Her Chief
Executive Ocer experience of a global
company and valuable industry knowledge
willhelp drive innovation and ensure the
continued development of Smith+Nephew.
Nationality
German/Polish
C C
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Board of Directors
continued
Rick Medlock (61)
Independent Non-Executive Director
Appointed in April 2020.
Career and experience
Rick graduated from Cambridge University
with a BA in Economics. In 1982, he joined
Arthur Andersen LLP where he qualified as
aChartered Accountant. Rick has had a highly
successful career as a strong commercial
ChiefFinancial Ocer in the technology
industry, working for a range of international
FTSE 100 and NASDAQ listed businesses during
periods of high growth. He has held anumber
of Chief Financial Ocer positions throughout
his career, including at NDS Group plc, Inmarsat
plc and Worldpay Group plc. Rick brings a
wealth of experience as a former NED and
Audit Committee Chair of several technology
driven businesses, such as Sophos Group plc,
Edwards Vacuum and Thus plc. Rick was also
previously Chair of BluJay Solutions Ltd, Chair
of Momondo Group and Chair of the Audit
Committee for LoveFilm UK Limited.
Other current appointments
–
NED and member of the Audit, Risk and
Compliance Committee at Datatec Ltd.
–
NED and Chair of the Audit Committee
at Deliveroo.
Skills and competencies
Rick has extensive experience and a deep
understanding of technology focused
R&D businesses. He has driven value and
transformation throughout his executive
career which will further reinforce the ability
ofSmith+Nephew to grow and develop
into new and existing markets. Rick brings
significant financial expertise as a well-
regarded former FTSE 100 Chief Financial
Ocer, NED and AuditCommittee Chair.
Nationality
British
Marc Owen (62)
Independent Non-Executive Director
Appointed in October 2017.
Career and experience
Marc graduated from Oxford University with
a BA and BCL in Law. In 1984 he was called to
the Bar, following four years at Corpus Christi
College Cambridge as a fellow and director of
studies in law. He decided upon a corporate
career and undertook an MBA at Stanford
University. Marc commenced his healthcare
and technology career at McKinsey & Company
where he progressed to senior partner and
eventually a founding partner of McKinsey’s
Business Technology Oce. In 2001, Marc
joined McKesson Corporation and served as
Executive Vice President and member of their
Executive Committee. He delivered strategic
objectives and led over 40 acquisitions and
divestments over a 10-year period. In late 2011
he headed McKesson Speciality Health, which
operates over 130 cancer centres across the
US and provides market intelligence, supply
chain services, patient access to therapy,
provider and patient engagement and clinical
trial support. In 2014, he was appointed
Chair of the European Management Board
atCelesio AG. He retired in March 2017 once
he had improved operations, set the strategy
andrecruited his successor.
Other current appointments
–
None.
Skills and competencies
Marc is a proven leader with an astute
strategic vision, capable of building significant
international healthcare businesses. He has
strong commercial healthcare expertise,
which the Board values deeply and makes
him ideally placed to Chair the Compliance
&Culture Committee.
Nationality
British
Angie Risley (63)
Independent Non-Executive Director
Appointed in September 2017.
Career and experience
Aer graduating from Exeter University, Angie
joined United Biscuits followed by Pizza Hut
(UK) Ltd as Human Resources Director, a joint
venture between PepsiCo, Inc. and Whitbread
plc. Aer five years she joined Whitbread plc,
becoming an Executive Director responsible
for HR and Corporate Social Responsibility
in 2004. Between 2007–2013 she was the
Group HR Director for Lloyds Banking Group,
joining J Sainsbury plc as Group HR Director
and a member of their Operating Board in
January 2013. Over the years, Angie has been
a member of the Low Pay Commission and has
held a number of Non-Executive Directorships
with Bia plc, Arriva and Serco Group plc, and
now Smith+Nephew. At Serco Group plc she
was the Chair of the Remuneration Committee.
Previously she has attended Remuneration
Committees of Whitbread plc, Lloyds Banking
Group, Arriva and now J Sainsbury plc.
Other current appointments
–
J Sainsbury plc Group HR Director and
member of their Operating Board.
Skills and competencies
Angie is a well-regarded FTSE 100 Human
Resources Director, proven Non-Executive
Director and Remuneration Committee Chair.
She has gained experience in a wide range of
sectors, including a regulated environment.
This diversity of experience is welcomed by the
Board and the Remuneration Committee.
Nationality
British
NCA RCA
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Bob White (59)
Independent Non-Executive Director
Appointed in May 2020.
Career and experience
Bob graduated from Cleveland State University
in 1985 with a BBA in Marketing and later
achieved an MBA from Case Western Reserve
University. He is a Fellow of the American
College of Healthcare Executives.
In 1986, Bob joined IBM Corporation and
progressed to become their Healthcare
Solutions General Manager in 1995 for EMEA
regions. Bob has held a number of senior Vice
President positions throughout his career,
including at Chemdex Corporation, Accelrys
Inc., SourceOne Healthcare Technologies,
Inc., GE Healthcare and Covidien as President
for Emerging Markets and President for
Respiratory and Monitoring Solutions. He then
became Senior Vice President and President
of Medtronic Asia Pacific, having led the
integration of Covidien Asia Pacific when
it was acquired by Medtronic plc in 2015.
Bob is currently a member of the Medtronic
Executive Committee.
Other current appointments
–
Executive Vice President and President,
Medical Surgical Portfolio at Medtronic plc.
Skills and competencies
Bob is an experienced leader with more
than25 years’ worth of industry relevant
experience. He is an influential and well-known
figure in the medical technology sector and has
an impressive track record in delivering growth
and fostering innovation. He brings valuable
global medical technology insight to the
Board,which will prove fundamental in helping
to shape and develop the future strategic
direction of Smith+Nephew.
Nationality
American
Susan Swabey (60)
Company Secretary
Appointed in May 2009
Career and experience
Susan holds an MA from Corpus Christi
CollegeOxford in Literae Humaniores
and is aFellow of The Chartered
Governance Institute.
Susan has over 35 years’ experience as
a Company Secretary in a wide range
of companies including Prudential plc,
Amershamplc and RMC Group plc. Her
work has covered board support, corporate
governance, remuneration, corporate
transactions, group risk management,
shareregistration, listing obligations,
corporatesocial responsibility, pensions,
insurance andemployee and executive
shareplans. Susan is a frequent speaker on
corporate governance and related matters.
Other current appointments
–
Chair of the CBI Companies Committee.
–
Chair of ShareGi, the share
donation charity.
Skills and competencies
Responsibility for board support and
corporategovernance, employee and
executive share plans and subsidiary
governance. Susan is based in
Watford, UK.
Nationality
British
RC
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continued
Executive team
The Chief Executive Ocer is supported in
the day-to-day management of the Group
by Anne-Françoise Nesmes, Chief Financial
Ocer, and a strong team of Executives.
Brad Cannon (54)
President Orthopaedics, Sports
Medicine & ENT and Americas
Joined Smith+Nephew in 2012 and has since
been the President of Smith+Nephew’s Europe
and Canada business, the Company’s Chief
Marketing Ocer, and now serves as the
President of Orthopaedics, Sports Medicine
&ENT and Americas business. Brad is based
inAndover, US.
Skills and experience
Brad was most recently the Chief Marketing
Ocer and prior to that the President of
Europe and Canada, where he successfully
led the commercial business in those regions.
He has previously served as the President
of Global Orthopaedic Franchises, leading
Smith+Nephew’s Reconstruction, Endoscopy,
Trauma and Extremities businesses. Prior to
Smith+Nephew, Brad worked in Medtronic
plc’s Spine and Biologics division. From 2009,
he was responsible for Medtronic plc’s Spine
International division and held positions
heading US sales and global commercial
operations. Brad is a graduate of Washington
and Lee University, and the Wharton School
ofBusiness at the University of Pennsylvania.
Nationality
American
Simon Fraser (54)
President Advanced
Wound Management and Global
Commercial Operations
Joined Smith+Nephew in January 2019 with
commercial leadership responsibility for Advanced
Wound Management and Global Commercial
Operations. Simon is based in Fort Worth, US.
Skills and experience
Simon brings more than 25 years of experience
across medical devices, pharmaceuticals and
diagnostics, including wound management.
Importantly, he is a purpose-driven and
accomplished business leader who has
successfully managed large, global commercial
organisations with full P&L responsibility while
growing business and earning market share.
Prior to joining Smith+Nephew, Simon was
Group Vice President of Dentsply Sirona’s Dental
Implant Global Business Unit. Prior to this Simon
was Vice President, US Commercial Infectious
Diseases including corporate accounts at Abbott
Laboratories. Simon joinedAbbott following
the acquisition of Alere Inc., where he had
three successful years as the President of Latin
America. Prior tothese roles, Simon had a 15-year
career with Johnson & Johnson, where he held
increasingly senior commercial roles spanning
surgical devices, wound management, implants
and pharmaceuticals including both global
strategic marketing and P&L responsibilities.
Nationality
American/Canadian
Our Executive Committee
Commercial and Functional leadership teams all report into the Chief Executive Ocer
Chief Executive Ocer
Commercial
–
President Advanced
Wound Management and
Global Commercial Operations
–
President Orthopaedics
and Sports Medicine & ENT
and Americas
–
President APAC Region
–
President EMEA Region
Functional
–
Chief Business Development
&Corporate Aairs Ocer
–
Chief Compliance Ocer
–
Chief Financial Ocer
–
Chief HR Ocer
–
Group General Counsel
–
President Global Operations
–
President Research
& Development
–
Chief Quality & Regulatory
Aairs Ocer
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Peter Coenen (60)
President EMEA Region
Joined Smith+Nephew in September 2020
with responsibility for Europe, the Middle
East and Africa (EMEA). Peter is based
inZug,Switzerland.
Skills and experience
Peter is an experienced cross-cultural leader
and is adept at delivering results by building
successful teams. Most recently, Peter was
President of Terumo Interventional Systems,
aJapan-based medical device company that
is part of the Terumo Corporation. In addition
tothis role, Peter also acted as Terumo’s
General Manager of its CEEMEA region
(Central and Eastern Europe, the Middle East
and Africa). During his seven-year tenure with
Terumo, Peter helped drive growth by more
than doubling both revenue and profitability.
Prior to Terumo, Peter held a number of senior
roles in Europe, the Middle East, Africa, Asia
and Latin America with Guidant Corporation,
Haemonetics Corporation and Boston
Scientific Corporation.
Peter has a wealth of operational experience
that will help drive business performance and
bolster the future success of the EMEA region.
Nationality
German
Myra Eskes (50)
President APAC Region
Joined Smith+Nephew in May 2019 with
responsibility for Asia Pacific. Myra is based
in Singapore.
Skills and experience
Myra is a strong and highly respected leader
with deep cross-cultural experience bringing
more than two decades of enterprise-
wide experience in finance, manufacturing,
operations, sales and marketing. Most recently,
Myra was President and Chief Executive
Ocer of GE Healthcare Southeast Asia,
Korea, Australia and New Zealand, reporting
directly to the Chief Executive Ocer as part
of the global management team. In this role,
she was responsible for the diagnostic and
interventional imaging, patient monitoring,
healthcare digital and life sciences businesses.
Prior to this, Myra led the GE Life Sciences
business for the Eastern & African growth
markets, covering Turkey, the Middle East,
Africa and Russia/Commonwealth of
Independent States (CIS) countries. There,
she drove growth in the region by working
with customers who were investing in life
sciences technologies and research, including
pharmaceutical diagnostics, bioprocessing,
services and in-vitro diagnostics. In addition
to her diverse operational experience in
complex and broad-based businesses around
the world, Myra has a proven track record of
driving strong revenue growth and increasing
profitability. She has created high performing
teams to deliver innovative medical devices
and life sciences solutions on three continents
and has a true passion for customers and
improving access to quality healthcare.
Nationality
Dutch
Helen Barraclough (43)
Group General Counsel
Joined Smith+Nephew in July 2013 as Chief
Counsel, APAC and Emerging Markets, before
her promotion in 2017 to Associate General
Counsel, Global Commercial. Helen became
Group General Counsel in January 2022 and
isresponsible for the Group Legal function
andalso serves as Chief Risk Ocer. Helen
is based in Watford, UK.
Skills and experience
Helen is a skilled leader with strong global
corporate and commercial experience who
hashelped Smith+Nephew to deliver its
strategic objectives and further embed our
cultural values. Helen started her career
with Allen & Overy LLP and prior to joining
Smith+Nephew also held senior legal roles
atWPP plc and Nomura International plc.
Helen holds a master’s degree in Law from
Cambridge University. She is also accredited
as a Chartered Governance Professional and
admitted as a Solicitor in England and Wales.
Nationality
British
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Strategic report
Governance
Accounts
Other information
Board leadership and purpose
continued
Executive team
continued
Paul Connolly (54)
President Global Operations
Joined Smith+Nephew on 11 October 2021
with responsibility for Global Manufacturing
and Engineering, Global Supply Chain,
GlobalProcurement, and Global Operational
Strategy and Transformation. Paul is based
inAndover, US.
Skills and experience
Prior to joining Smith+Nephew, Paul was Vice
President of Global Manufacturing Strategy
for The Goodyear Tire and Rubber Company
where he led footprint and capital planning to
drive performance and return on investment.
Previously, Paul was based in Brussels, Belgium,
leading Operations for Goodyear EMEA. He is a
proven customer-centric and people-focused
leader who brings more than 30 years of global
manufacturing and supply chain experience
at multinational companies, including DePuy,
Inc., and other Johnson & Johnson family
companies. Paul had a successful 20-year
career at Johnson & Johnson in progressively
senior roles in engineering, manufacturing,
supply chain, global operations and business
services. He has a strong track record
in delivering operational excellence and
transformation programmes.
Paul holds an undergraduate degree in
Engineering and a master’s degree in
Manufacturing Management, both from
the University of Ulster, and a Diploma
in Management Studies from Henley
Management College.
Nationality
American/Irish
Phil Cowdy (54)
Chief Business Development
&Corporate Aairs Ocer
Joined Smith+Nephew in 2008 as Director of
Investor Relations. From 2010 his responsibility
expanded as Head of Corporate Aairs,
including media, investor relations, global
brand and government aairs, together with
Strategic Planning. Between 2015 and 2018
he was also responsible for IT. In 2018 he
took on additional responsibility for Business
Development. Phil serves as the representative
of Smith+Nephew on the Board of Bioventus
Inc. Phil is based in Watford, UK.
Skills and experience
Prior to joining Smith+Nephew, Phil served
as a senior Director at Deutsche Bank AG
and predecessor firms for 13 years, providing
corporate finance and equity capital markets
advice to a variety of UK-based companies.
He qualified as a chartered accountant with EY.
Nationality
British
Mizanu Kebede (61)
Chief Quality & Regulatory
Aairs Ocer
Joined Smith+Nephew on 27 September 2021
with responsibility for Global Quality and
Regulatory Aairs, inclusive of the Portfolio
Compliance function. Mizanu is based in
Georgia, US.
Skills and experience
Mizanu brings more than 20 years of leadership
experience in Quality and Regulatory Aairs
across multiple sectors in operational,
commercial and strategic roles. Prior to
Smith+Nephew, Mizanu was the Senior Vice
President of Global Quality, Regulatory and
Product Safety at Avanos Medical, a spino
business of the Kimberly-Clark Corporation,
which focused on healthcare solutions for
chronic care and pain management.
Mizanu has a proven track record of building
high performance teams, driving change and
creating a competitive advantage through an
open and collaborative leadership style.He has
held several senior quality and regulatory
leadership roles within medical devices,
diagnostics and healthcare at multinational
companies including Life Technologies
Corporation, Johnson & Johnson and
STERIS Corporation.
Mizanu holds a master’s degree in Microbiology
and Immunology.
Nationality
American
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Elga Lohler (54)
Chief HR Ocer
Joined Smith+Nephew in January 2002
as Director of HR and has since held
progressively senior positions in Advanced
Wound Management, Operations, Corporate
Functions and Group. Elga became Chief
Human Resources Ocer in December 2015
and leads the Global Human Resources and
Internal Communication. Elga is based in Fort
Worth, US.
Skills and experience
Elga has more than 25 years’ Human Resources
experience. Prior to joining Smith+Nephew,
Elga held Human Resources roles at Transnet
SOC Ltd, Sensormatic (now Tyco International
plc) and Advanced Tissue Sciences, Inc.,
whichwas acquired by Smith+Nephew in
2002. Through these roles, Elga has developed
deep expertise in strategic planning and
development, organisational design and
eectiveness, acquisitions and integrations,
and transformational change in support of
business objectives. In her current role, Elga
is responsible for driving Smith+Nephew’s
human capital strategy across the enterprise
insupport of Smith+Nephew’s overall business
plan and strategic direction.
Elga holds an undergraduate degree in
Psychology and a Master’s degree in
Organisational Psychology, both from the
University of Witwatersrand in South Africa.
Nationality
American/South African
Vasant Padmanabhan (55)
President Research & Development
Joined Smith+Nephew in August 2016 and
isresponsible for Research and Innovation,
New Product Development, Clinical and
Medical Aairs, and Clinical Operations.
Vasant is based in Andover, US.
Skills and experience
Vasant is a medical technology executive
with over 25 years of global R&D leadership
experience. He holds a doctorate in Biomedical
Engineering and has a proven track record of
driving and delivering innovation from concept-
to-commercialisation. Prior to Smith+Nephew,
Vasant served as the Senior Vice President of
Technical Operations at Thoratec Corporation,
a leader in mechanical circulatory support
solutions for the treatment of heart failure.
In this role, he provided leadership to multiple
technical functions including global R&D,
Programme Management, Quality Aairs, and
Operations. Prior to Thoratec Corporation and
its successful acquisition by St. Jude Medical,
Inc. in 2015, Vasant had an 18-year career
at Medtronic plc, starting as a Sta Scientist
and, progressing through more senior roles,
ultimately becoming Vice President of
Connected Care R&D Operations (2008–2012)
and Vice President of Product Development
for the Implantable Defibrillator Business
(2012-2014). Vasant holds an MSc and a
Ph.D. in Biomedical Engineering from Rutgers
University and an MBA from the University of
Minnesota – Carlson School of Management.
Nationality
American
Alison Parkes (50)
Chief Compliance Ocer
Joined Smith+Nephew in April 1999 as
Technical Information Ocer in the AWM
UKbusiness and has since held progressively
senior positions in Quality, Pharmacovigilance,
Risk Management and Compliance.
Alison became Chief Compliance Ocer in
January 2022 and leads the Global Compliance
function. Alison is based in Fort Worth, US.
Skills and experience
Alison has more than 13 years’ compliance
experience. She served as the Compliance
Ocer for the Global Advanced Wound
Management business from April2010 to
August 2013, and as Compliance Ocer for
APAC and Emerging Markets from August
2013 to December 2018. Prior to moving
into her current role, Alison established
and led the Global Compliance Programme
Eectiveness &Improvement team and
has been instrumental in driving continuous
improvement in the Compliance Programme.
Alison holds an undergraduate degree in
Biochemistry and a PhD in Molecular Biology &
Genetics, both from the University of Sheeld.
Nationality
British
Executive team whose
tenureceased:
Mark Gladwell
President Operations & GBS
Served until 20 August 2021.
Melissa Guerdan
Chief Quality & Regulatory Aairs Ocer
Served until 10 September 2021.
Skip Kiil
President Orthopaedics
Served until 31 December 2021.
Catheryn O’Rourke
Chief Legal & Compliance Ocer
Served until 14 January 2022.
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Strategic report
Governance
Accounts
Other information
Division of responsibilities
Roles and composition
Whilst we all share collective responsibility for the activities of the Board, some of our roles have been defined in greater detail below.
Chief Executive Ocer
–
Developing and implementing
Group strategy.
–
Recommending the annual budget
and long-term strategic and
financial plan.
–
Ensuring coherent leadership of
the Group.
–
Managing the Group’s risk profile and
establishing eective internal controls.
–
Regularly reviewing organisational
structure, developing executive
team and planning for succession.
–
Ensuring the Chair and Board are
kept advised and updated regarding
key matters.
–
Maintaining relationships with
shareholders and advising the
Board accordingly.
–
Setting the tone at the top with
regard to culture, compliance and
sustainability matters.
–
Responsible for Environmental Social
and Governance matters.
–
Day-to-day running of the business.
Chief Financial Ocer
–
Supporting the Chief Executive Ocer
in developing and implementing the
Group strategy.
–
Leading the global finance function,
developing key finance talent and
planning for succession.
–
Ensuring eective financial reporting,
processes and controls are in place.
–
Recommending the annual budget
and long-term strategic and
financial plan.
–
Maintaining relationships
with shareholders.
Company Secretary
–
Providing independent advice
to the Board on matters of
corporate governance.
–
Supporting the Chair and
Non-Executive Directors.
–
Point of contact for investors on
matters of corporate governance.
–
Ensuring good governance practices
at Board level and throughout
the Group.
Non-Financial Reporting Regulations
In accordance with the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 information
can be found on the following pages of this 2021 Annual Report relating to the environment (pages 48–57 of this report and the 2021
Sustainability Report), social (pages 20–27 of this report and the 2021 Sustainability Report), anti-corruption and anti-bribery matters
(pages 27 and 49), employees (pages 20–27) and human rights (page 27).
Chair
–
Building a well-balanced Board.
–
Chairing Board meetings and setting Board agendas.
–
Ensuring eectiveness of the Board and enabling the
annual review of eectiveness.
–
Encouraging constructive challenge and facilitating
eective communication between Board members.
–
Promoting eective Board relationships.
–
Holding meetings with Non-Executive Directors in the
absence of Executive Directors.
–
Ensuring one-to-one discussions with each Board Member.
–
Ensuring appropriate induction and development
programmes.
–
Ensuring eective two-way communication and debate
with shareholders and stakeholders.
–
Promoting high standards of corporate governance.
–
Maintaining appropriate balance between stakeholders.
Senior Independent Director
–
Chairing meetings in the absence of the Chair.
–
Acting as a sounding board for the Chair on
Board-related matters.
–
Acting as an intermediary for the other Directors
where necessary.
–
Available to shareholders and stakeholders on matters
which cannot otherwise be resolved.
–
Leading the annual evaluation into the Board’s eectiveness.
–
Leading the search for a new Chair, if necessary.
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Our Board
Audit Committee
Provides independent
assessment of the
financial aairs of the
Company, reviews financial
statements and controls
oversight of the risk
management process
and key risks. Oversight of
sustainability matters.
Manages use of internal
and external auditors.
Remuneration Committee
Determines
Remuneration Policy and
packages for Executive
Directors and Executive
Ocers, having regard to
pay across our workforce.
Ensures alignment with
our purpose, values and
long-term strategy.
Nomination &
GovernanceCommittee
Reviews size, skills,
experience, knowledge
and composition of
the Board, succession
planning, diversity and
governance matters.
Compliance &
CultureCommittee
Reviews and monitors
and has oversight of
ethics and compliance,
quality and regulatory,
culture, sustainability
matters and metrics,
stakeholder relationships
and related legal matters
across the Group.
Ad hoc committees
Ad hoc committees may
be established to review
and approve specific
matters or projects.
»
See page 96
»
See page 114
»
See page 92
»
See page 106
The Board delegates certain matters, as follows, to Board Committees, consisting of senior executives:
Finance & Banking Committee
Approves banking and treasury matters, guarantees and Group
structure changes relating to mergers, acquisitions and disposals.
Disclosures Committee
Approves release of communications to investors and Stock
Exchanges. Reviews whether communications are inside information.
The Board delegates the day-to-day running of the business to Roland Diggelmann, Chief Executive Ocer, who is assisted in his role
bythe Executive Committee comprising the executive team shown on pages 80–83. The governance framework below outlines
theExecutive Committee responsibilities and the structure of sub-committees reporting into the Executive Committee.
Executive Committee
Recommends and implements strategy, recommends budget and three-year plan to the Board for approval, ensures liaison between commercial
and corporate functions, receives regular reports from sub-committees, monitors succession planning and talent pipeline below Board level,
reviews major investments, divestment and capital expenditure proposals and approves business development projects. During 2021, an
additional Committee named the Crisis Management team continued to manage the Company’s response to the COVID pandemic.
Monthly Business Review
Executive Committee
monthly meetings to
review commercial and
operating results against
budget, review key
initiatives and business
dashboards aligning
to deliver corporate
strategy.
Health, Safety &
Environment Committee
Oversees health, safety
and environmental
matters.
Franchise, Functional
and Regional Leadership
Meetings
Senior management
meetings to drive
performance across
eachfranchise,
function and region.
Investment Committee
Oversees Corporate
Development Strategy,
monitors status of
transactions and
approves various stages
in the merger, acquisition
and disposal process.
Global Benefits
Committee
Oversees all policies
andprocesses relating to
pensions and employee
benefit plans.
Quarterly Business Review
Wider group of senior
commercial and financial
leaders review quarterly
commercial and operating
results against budget,
identifying gaps and
agreeing remedial actions.
Group Ethics &
Compliance Committee
Reviews compliance
matters and country
business unit or function
compliance reports.
Inclusion, Diversity
&Equity Council
Implements strategies
to promote diversity
andinclusion.
New Product
Development Committee
Defines portfolio
allocation principles,
reviewing and challenging
current shape of
portfolio, identifying gaps
and opportunities and
re-prioritising segments
andgeographies.
Sustainability Council
Develop and implement
our sustainability
strategy.
Corporate governance framework
The Board is responsible to shareholders and stakeholders for approving the strategy of the Group, for overseeing the performance of
the Group and evaluating and monitoring the management of risk. Each member of the Board has access, collectively and individually,
tothe Company Secretary and is also entitled to obtain independent professional advice at the Company’s expense, should they
decide it is necessary in order to fulfil their responsibilities as Directors.
The Board delegates certain matters, as follows, to Board Committees, consisting of members of the Board:
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Strategic report
Governance
Accounts
Other information
Performance
continued
October
–
Discussed impact of supply chain
challenges on performance.
–
Noted Executive Committee
membership changes.
November
–
Reviewed financial business performance.
December
–
Reviewed financial business performance.
–
Received updates on APAC & China, Global
Operations, Quality & Regulatory Function,
Reconstruction & Robotics and Trauma
&Extremities.
–
Discussed impact of supply chain challenges
on performance.
–
Received corporate development updates.
–
Preliminarily discussed final dividend.
–
Noted Executive Committee
membership changes.
Division of responsibilities
continued
Responsibilities of the Board
The Schedule of Matters Reserved to the Board describes
the role and responsibilities of the Board more fully and can
be found on our website at www.smith-nephew.com.
Performance
–
Reviewing performance against strategy,
budgets and financial and business plans.
–
Overseeing Group operations and maintaining
asound system of internal control.
–
Determining the dividend policy and
dividend recommendations.
–
Approving the appointment and removal
of theExternal Auditor on the recommendation
ofthe Audit Committee.
–
Approving significant changes to accounting
policies or practices.
–
Overseeing succession planning at Board
and Executive Ocer level.
–
Approving the use of the Company’s shares
in relation to employee and executive share
incentive plans on the recommendation
oftheRemuneration Committee.
February
–
Considered COVID impact on the
Company’s business.
–
Reviewed financial performance.
–
Considered payment of final dividend.
–
Received update on financing, liquidity
anddebt capacity.
Early April
–
Reviewed financial performance.
–
Received update on Advanced
Wound Management.
–
Reviewed post-acquisition performance.
–
Noted upcoming Executive Committee
membership changes.
Late April
–
Reviewed financial performance.
–
Received update on Executive Committee
membership succession plans.
July
–
Approved and declared payment
ofinterim dividend.
–
Received updates on Orthopaedics franchise.
–
Reviewed financial performance.
–
Received update on Executive Committee
membership succession plans.
–
Received update on financing, liquidity
and insurance.
–
Reviewed and approved accounting
treatment of restructuring costs.
September
–
Reviewed financial performance.
–
Discussed impact of supply chain
challengeson performance.
–
Noted Executive Committee
membership changes.
Strategy
–
Approving the Group strategy including
major changes to corporate and
management structure.
–
Approving acquisitions, mergers,
disposals, capital transactions in excess
of $50 million.
–
Setting priorities for capital investment
acrossthe Group.
–
Approving annual budget, financial plan,
three-year business plan.
–
Approving major borrowings and finance
and banking arrangements.
–
Approving changes to the size and
structureof the Board and the
appointmentand removal ofDirectors
and the Company Secretary.
–
Approving Group policies relating
to sustainability, health and safety,
Code of Conduct and Code of Share
Dealingand other matters.
–
Approving the appointment and
removal ofkeyprofessional advisers.
February
–
Reviewed three-year strategic plan.
–
Reviewed and approved Budget.
–
Reviewed APEX restructuring plan,
the new restructuring plan and
the manufacturing plan.
–
Noted upcoming Board membership
changes.
Early April
–
Reviewed and approved three-year
strategic plan.
–
Noted retirement of Baroness Bottomley
laterthat day.
July
–
Received Corporate Development update.
–
Approved Codes of Share Dealing.
–
Reviewed new restructuring plan.
September
–
Discussed strategic review.
October
–
Discussed organisational changes.
–
Received business update from
Chief Executive Ocer.
–
Approved acquisition contract
amendment.
November
–
Noted organisational changes.
December
–
Reviewed revised corporate strategy.
–
Reviewed Budget and three-year
strategic plan.
–
Approved Capital Allocation Framework.
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Annual Report 2021
Shareholder communications
–
Approving preliminary announcement
of annual results, the publication of the
Annual Report, the half yearly report,
thequarterly Trading Reports, the release
of price-sensitive announcements and any
listing particulars, circulars or prospectuses.
–
Maintaining relationships and continued
engagement with shareholders.
February
–
Approved Preliminary Announcement 2020.
–
Approved the Annual Report for 2020.
–
Approved Notice of the 2021 Annual
General Meeting.
Early April
–
Received update on the 2021 Annual
GeneralMeeting to be held as a hybrid
meeting later that day.
Late April
–
Approved Q1 2021 Trading Report.
July
–
Approved H1 2021 Results Announcement
and Trading Report.
November
–
Approved Q3 2021 Trading Report.
December
–
Approved ‘Strategy for Growth’
announcement.
Risk
–
Overseeing the Group’s risk
management programme.
–
Regularly reviewing the risk register.
–
Overseeing risk management processes
(seepages 58–69 for further details).
February
–
Received Annual Risk Management update.
July
–
Reviewed the Enterprise Risk
Management Report.
Stakeholders
–
Overseeing and maintaining relationships
with stakeholders including shareholders,
employees, customers, suppliers,
regulatorsand governments.
–
Oversight of sustainability matters and
approving the Sustainability Report.
February
–
Approved Sustainability Report 2020.
–
Approved Modern Slavery Statement 2020.
March
–
Considered COVID impact upon employees
and customers.
July
–
Received APEX restructuring update.
–
Considered COVID impact on the Company’s
employees, customers and suppliers.
–
Received Investor activity update.
September
–
Received supply chain update.
–
Reviewed progress against sustainability
policy and approved commitment to
netzero target.
October
–
Received supply chain update.
November
–
Received supply chain update.
December
–
Reviewed investor perspectives.
Other matters
February
–
Authorised potential Conflicts
ofInterest Register.
–
Noted NED salaries and fees.
–
Received Legal update.
Early April
–
Received Legal update.
–
Noted routine reports.
July
–
Approved renewal of corporate
insurance brokers.
–
Received Legal update.
–
Noted routine reports.
September
–
Received Legal update.
–
Discussed findings from the 2021
ExternalBoard Eectiveness Review
undertaken by Tracy Long.
November
–
Approved amendment to the Finance &
Banking Committee Terms of Reference.
December
–
Noted routine reports.
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Strategic report
Governance
Accounts
Other information
Division of responsibilities
continued
Responsibilities of the Board
continued
Board and Committee attendance
Board
Committee
Audit
Remuneration
Nomination
& Governance
Compliance
& Culture
Total meetings
8 8 7 3 4
Appointed
Roberto Quarta
December 2013
8/8
–
7/7
–3/3
Virginia Bottomley
1
April 2012
2/2
–
2/23/3
1/1
Roland Diggelmann
March 2018
8/8
– – – –
Erik Engstrom
January 2015
8/8 8/8
–
3/3
–Robin Freestone
2
September 2015
7/8
8/8
7/72/3
–
John Ma
3
17 February 2021
7/8
1/1
Katarzyna Mazur-Hofsaess
4
November 2020
8/8
– – –
3/3
Rick Medlock
April 2020
8/8 8/8
– – –
Anne-Françoise Nesmes
July 2020
8/8
– – – –
Marc Owen
5
October 2017
8/8 8/8
–
2/3
4/4
Angie Risley
September 2017
8/8
–
7/7
–4/4
Bob White
May 2020
8/8
–
7/ 7
–4/4
1 Virginia Bottomley retired from the Board at the AGM 14 April 2021 aer 9 years of service.
2 Due to prior commitments, Robin Freestone was not in attendance at the October Board meeting, or the September Nominations & Governance Committee meeting, both of which
were convened at short notice. However, on both occasions he gave his comments to the Chair before the meeting.
3 John Ma joined the Board on 17 February 2021 and the Compliance & Culture Committee on 7 December 2021. Due to a prior commitment, John Ma was not in attendance at the
October Board meeting, which was convened at short notice. However, he gave his comments to the Chair before the meeting.
4 Katarzyna Mazur- Hofsaess joined the Compliance & Culture Committee on 7 April 2021.
5 Marc Owen was not in attendance at the September Nominations & Governance Committee meeting due to a prior commitment. However, he gave his comments to the Chair
before the meeting.
In advance of the Board and Committee
meetings, the Chair met with the
Non-Executive Directors in the absence
ofExecutive Directors. In addition, the
Chair held one-to-one discussions with
each Board Member throughout the year.
Independence of Directors
We require our Non-Executive Directors
toremain independent from management
so that they are able to exercise
independent oversight and eectively
challenge management. We therefore
continually assess the independence of
each of our Non-Executive Directors.
The Executive Directors have determined
that all our Non-Executive Directors are
independent in accordance with both
UKand US requirements. None of
our Non-Executive Directors or their
immediatefamilies has ever had a material
relationship with the Group. None of
them receives additional remuneration
apart from Directors’ fees, nor do they
participate in the Group’s share plans
or pension schemes. None of them
serve as directors of any companies or
aliates in which any other Director is
adirector. The Board considers all external
directorships prior to appointment,
reviewing any potential conflict of interests
and time commitment for both Executive
Directors and Non-Executive Directors.
Management of conflicts of interest
None of our Directors or their connected
persons, has any family relationship with
any other Director or Ocer, nor has a
material interest in any contract to which
the Company or any of its subsidiaries are,
or were, a party during the year or up to
11 February 2022.
Each Director has a duty under the
Companies Act 2006 to avoid a situation
in which they have or may have a direct
or indirect interest that conflicts or might
conflict with the interests of the Company.
This duty is in addition to the existing
duty owed to the Company to disclose
to the Board any interest in a transaction
or arrangement under consideration by
the Company.
If any Director becomes aware of any
situation which might give rise to a conflict
of interest, they must, and do, inform
the rest of the Board immediately and
the Board is then permitted under the
Company’s Articles of Association to
authorise such conflict. This information is
then recorded in the Company’s Register of
Conflicts, together with the date on which
authorisation was given. In addition, each
Director certifies on an annual basis that
the information contained in the Register
ofConflicts is correct.
When the Board decides whether or not
to authorise a conflict, only the Directors
who have no interest in the matter are
permitted to participate in the discussion
and a conflict is only authorised if the Board
believes that it would not have an impact
on the Board’s ability to promote the
success of the Company in the long term.
Additionally, the Board may determine
that certain limits or conditions must
be imposed when giving authorisation.
No actual conflicts have been identified,
which have required approval by the
Board. However, the situations that could
potentially give rise to a conflict of interest
have been identified and duly authorised
bythe Board and are reviewed at least
onan annual basis.
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Outside directorships
We encourage our Executive Directors
to serve as Non-Executive Directors of
external companies. We believe that the
work they do as Non-Executive Directors
of other companies has benefits for their
executive roles with the Company, giving
them a fresh insight into the role of a
Non-Executive Director. During 2021,
Roland Diggelmann was also a
Non-Executive Director of Accelerate
Diagnostics, Inc. listed on the NASDAQ.
He retired from that appointment on
7 May2021 and was appointed to Sonova
Holdings AG on 15 June 2021, listed on
theSIX Swiss Stock Exchange.
Anne-Françoise Nesmes is also a
Non-Executive Director of Compass
Groupplc listed on the London
Stock Exchange.
Re-appointment of directors
In accordance with the Code, all Directors
oer themselves to shareholders for
re-election annually, except those who
are retiring immediately aer the Annual
General Meeting. Each Director may be
removed at any time by the Board or
the shareholders.
Director indemnity arrangements
Each Director is covered by appropriate
directors’ and ocers’ liability insurance
and there are also Deeds of Indemnity in
place between the Company and each
Director. These Deeds of Indemnity mean
that the Company indemnifies Directors
in respect of any proceedings brought by
third parties against them personally in
their capacity as Directors of the Company.
The Company would also fund ongoing
costs in defending a legal action as they are
incurred rather than aer judgement has
been given. In the event of an unsuccessful
defence in an action against them,
individual Directors would be liable to repay
the Company for any damages and to
repay defence costs to the extent funded
bythe Company.
Purchase of ordinary shares
Prior to May 2020, in order to avoid
shareholder dilution, shares allotted
to employees through employee share
schemes were bought back on a quarterly
basis and subsequently cancelled as
statedin Note 19.2 to the Group accounts
onpage196. The share buy-back
programme was suspended in 2020
inlightof the COVID pandemic.
On 16 December 2021, we announced
a 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.
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Strategic report
Governance
Accounts
Other information
Composition, succession and evaluation
The Board eectiveness review in 2021
was externally facilitated by Dr Tracy Long
of Boardroom Review. Dr Long interviewed
each member of the Board, the Company
Secretary and the Chief Human Resources
Ocer, reviewed minutes, Board papers
and other Board documents, and attended
and observed the Board and Committee
meetings held remotely in July 2021.
She then prepared a report summarising
her findings, which she presented to the
Board for discussion in September at our
strategy meeting.
She observed that the Board has many
strengths. In particular, there is: a diversity
ofperspectives; strong global medical
devices knowledge on the Board; eective
finance, risk and governance controls;
andan environment where corporate
culture is openly discussed.
She did, however, identify a number
of areas for improvement, noting that
the inability to meet physically due to
COVID restrictions in the past two years
had impacted the ability of the Board to
resolve issues as eectively as we could
have done, had we been able to meet
physically. In particular, she observed that
the slower than expected recovery had
led to an increased focus on short-term
operational and supply chain issues and
less on strategic and portfolio matters.
She also noted that on some matters,
the Board lacked a shared view and this
impacted decision making. We discussed
her observations, recognising the challenges
sheidentified. We also discussed
succession planning at both Board and
Executive level, recognising thatRoberto
Quarta would complete 9years’ service
inDecember 2022, followed shortly
byRobin Freestone and ErikEngstrom
in2023 and 2024. As a resultof Dr Long’s
observations, the Board has agreed the
following actions for the next 12 months:
Recommendation 1 Recommendation 2 Recommendation 3
Focus on enhancing
communication
between the Board
andmanagement
team between
meetings, to develop
ashared purpose.
Commence the search
for a new Chair to
replace Roberto Quarta,
who will complete
nineyears’ service at
theendof 2022.
Ensure that Executive
succession planning
is discussed more
frequently by the Board.
The areas for attention identified in the 2020 review, which was internally facilitated
byRobin Freestone, the Senior Independent Director and supported by the Company
Secretary have been addressed as follows:
Actions identified
Action taken
It would be useful to have external
speakers presenting on industry and
market competitiveness to augment
the internal perspective provided
bymanagement.
The Board received a presentation
onsustainability reporting and
compliance with TCFD reporting
requirements from KPMG. Our brokers,
JPMorgan and Bank of America, briefed
the Board ahead of thecapital markets
day in December.
Further improvements could be made
to the measures in place to ensure that
the views of stakeholders are considered
at the time of every Board decision, by
ensuring that presenters to the Board
specifically address the potential impact
of Board proposals on stakeholders.
Each Board paper where a decision is
required includes a section specifically
addressing the potential impact on
stakeholders of that decision.
Arrangements should be made to
facilitate informal Board interaction
witheach other and the executive
team within a virtual environment to
supplement formal Board discussions.
During the year, the Board took the
opportunity to meet members of the
management team, both as part of the
Board/employee listening programme
and also with the aim of meeting the
nextgeneration of leaders.
The reviews in 2022 and 2023 will be facilitated internally and led by the Senior
Independent Director, supported by the Company Secretary. The 2024 review will
befacilitated externally.
Board eectiveness
review
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Board development
Timeline2021
Board development
June
–
Virtual meeting with our Robotics
R&D team.
–
Opportunity for Board to meet a group
of senior leaders and to hear about
theircurrent projects.
September
–
Strategy Review including presentations
from each of the franchises and regions.
–
Half-day visit to UK headquarters
in Watford to meet with sales
representatives, view new products
and experience the impact
ofWorkplace Unlimited.
October
–
Interactive session on climate change
andnew reporting requirements relating
toclimate change led by our auditors,
KPMG for members of the Audit and
Compliance &Culture Committees.
December
–
Received business updates from
ChiefExecutive Ocer and the
Executive team.
Board development programme
Our Board development programme
is directed to the specific needs and
interests of our Directors. We focus the
development sessions on facilitating a
greater awareness and understanding
of our business and stakeholders rather
than formal training in what it is to be a
Director. We value our visits to the dierent
Smith+Nephew sites around the world,
where we meet with the local managers of
our businesses and see the daily operations
in action. The opportunities for such visits
have been limited in 2021 due to travel
restrictions and social distancing measures.
We look forward to resuming these site
visits as soon as we are able.
We have, however, continued to provide
ourDirectors with both virtual and physical
opportunities to understand the business
better as follows:
–
At our Board meeting in June, our Chief
R&D Ocer, Vasant Padmanabhan and
his R&D team presented on the latest
developments in our Robotics strategy
following the recent launch of the
CORI platform.
–
At our Board meeting in September, the
Board spent half a day on-site at our UK
headquarters in Watford. They toured
our Expert Connect Centre and met
with some of our senior UK sales
representatives, handling and gaining
anunderstanding of some of our newest
products, and learning about current
go-to-market challenges. They also
met with other employees based
on-site in our corporate and customer
services functions and experienced
ourWorkplace Unlimited programme.
–
Members of our Compliance & Culture
Committee have held a number of
Board/employee listening sessions both
physically and virtually, where they have
talked with employees and heard from
them their views on what it means to
work for Smith+Nephew. These sessions
are discussed in more detail on pages 20
an d 107.
The Chair regularly reviews the
development needs of individual Directors
and the Board as a whole.
Induction for new Directors
During 2021, we concluded the
inductionprogrammes for Katarzyna
Mazur-Hofsaess and John Ma.
These programmes were tailored to
theirindividual skills and experiences,
andtheir roles on the Board. These
induction programmes included:
–
One-to-one meetings with senior
executives to understand the roles
played by our senior employees
andspecifically how we do things
atSmith+Nephew.
–
Meetings with our external advisers
for example Slaughter and May,
ourcorporate lawyers, KPMG LLP,
our auditor and Deloitte LLP, our
Remuneration Committee adviser
to explain the legal and regulatory
background to their role on our
Boardand how these matters are
approached atSmith+Nephew.
These programmes were delivered
virtuallydue to travel and meeting
restrictions. Once travel and meeting
restrictions are lied, our new Directors
look forward to continuing their induction
programmes with site visits, meeting
customers and employees, and getting
more familiar withour products.
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Governance
Accounts
Other information
Member
from
Meetings
attended
Roberto Quarta (Chair)
April 2014
3/3
Virginia Bottomley
1
April 2014
1/1
Erik Engstrom
April 2019
3/3
Robin Freestone
2
April 2019
2/3
Marc Owen
3
March 2020
2/3
Membership
Nomination & Governance
Committee report
Dear Shareholder,
I am pleased to present this review
of theactivities of the Nomination &
Governance Committee during 2021.
The Terms of Reference for the Nomination
& Governance Committee describe the
role and responsibilities of the Nomination
& Governance Committee more fully
andcanbe found on our website.
In 2021, we held three meetings. In
addition to members of the Committee,
theCompany Secretary and Chief
Executive Ocer also attended all
or some of the meetings.
Since the year end, we have also
discussedthe future structure of the
Boardand its committees and completed
our year-end governance processes.
Executive Team
During 2021, the Nomination & Governance
Committee reviewed the future leadership
of the Company. Whilst we appreciated
that Roland Diggelmann had navigated
the Company through the challenges
presented by COVID, we also recognised
that Smith+Nephew is at an inflection point
as we move into a new stage of growth and
that a new style of leadership was required
to take the Company forward. Assisted
by the search firm Russell Reynolds, we
commenced the search for a new Chief
Executive Ocer and are delighted that
Deepak Nath will be joining us in that
capacity on 1 April 2022. Deepak brings
a wealth of healthcare experience and a
track record of delivering transformational
growth, whilst overseeing major product
launches. We thank Roland for his service
to the Company and look forward to
welcoming Deepak as your new Chief
Executive Ocer shortly.
1 Virginia Bottomley retired from the Board and the Committee at the Annual General Meeting on 14 April 2021,
aer 9 years of service.
2 Robin Freestone was not in attendance at the September Nominations & Governance Committee meeting, which was
convened at short notice, due to a priorcommitment. However, he gave his comments to the Chair before the meeting.
3 Marc Owen was not in attendance at the September Nominations & Governance Committee meeting due
to a prior commitment. However, he gave his comments to the Chair before the meeting.
Composition, succession and evaluation
continued
“ We have a diverse
Board: 33%of the
Board are female
and from 1 April
2022 two Board
members will be
ofAsian ethnicity.”
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Executive Succession Planning
During 2021, the Board and the
Nomination & Governance Committee
have monitored the changes to the
organisational structure and approved
changes to key leadership roles.
Individual Directors have acted as a
sounding board for the executive team
when considering succession plans in key
areas. During the year, the Board discussed
succession plans for executives below
Board level on a number of occasions.
These plans included consideration
of diversity in the executive pipeline.
Pages80–83 gives details of the members
of the Executive Committee, 38% of whom
are female, one is of African heritage and
one is of Asian ethnicity. The Committee
will continue to monitor diversity in the
executive pipeline.
Diversity
We aim for our Board to have a wide
rangeof backgrounds, skills and
experiences. We also value a diversity
ofoutlook, approach and style in our
Boardmembers. We believe that a
balanced Board is stronger and better
equipped to consider matters from a
broader perspective, understanding
theviews of our stakeholders as well
asour shareholders and therefore
cometodecisions that have considered
a wider range of issues and perspectives
than would be the case in amore
homogenous Board.
We believe the Board’s composition
givesus the necessary balance of
diversity,skills,experience, independence
and knowledge to ensure we continue
torun the business eectively and deliver
sustainable growth. In order to ensure
thatour Board remains diverse, we analyse
the skills and experiences we require
against the skills and experiences on
our Board using the matrix on page
94. We review this matrix regularly to
ensurethat it is refreshed to meet the
changing needs of the Company.
Diversity is not simply a matter of gender,
ethnicity, social or other measurable
characteristics. Diversity of outlook
andapproach is harder to measure
than gender or ethnicity but is equally
important. A Board needs a range of skills
from technical adherence to governance
orregulatory matters to understanding
thebusiness in which we operate and
theneeds of our stakeholders. It needs
some members with a long corporate
memory and others who bring new
insightsfrom other fields.
To perform eectively, the Board needs
tobe both supportive and challenging.
When selecting new directors for
theBoard, we look for members with
suitable professional backgrounds, who
fitinand provide new perspectives.
We will continue to appoint our
Directorson merit, valuing the unique
contribution that they will bring to the
Board, regardless of gender, ethnicity
orany otherdiversity measure.
Non-Executive Directors
The Committee has reviewed the
composition of the Board and its
committees to ensure that it continues
to evolve to align with the new Strategic
Pillars and with the developing external
regulatory environment.
Prior to the retirement of Vinita Bali at the
end of 2020, we recognised the importance
of increasing ethnic diversity on the Board.
At the same time, we were looking to
appoint an additional Board member with
medical devices experience, specifically in
the Asia-Pacific region. We were therefore
delighted to announce the appointment
of John Ma on 17 February 2021 as an
additional Non-Executive Director. John is
an established leader within the MedTech
industry with a deep knowledge of the
Asia-Pacific region and of surgical robotics,
both significant areas of opportunity for
Smith+Nephew.
Aer nine years’ service, Baroness Virginia
Bottomley retired from the Board at the
Annual General Meeting in 2021.
We recognised that with her retirement,
the gender balance on the Board needed
tobe addressed and commenced a
searchfor an additional female director,
with UK-listed company experience.
On 25 January 2022, we announced the
appointment ofJo Hallas. Jo is a chartered
engineer with extensive international
management experience, focused
on business transformation through
both organic and acquisitive growth in
global industrial and consumer sectors.
She has a track record ofdriving growth
and transformation whilst embedding
sustainability and building corporate culture.
Russell Reynolds, an external search
firm, advised the Committee on
this appointment ensuring that we
were presented with a diverse set
ofcandidatesto consider.
Future composition of the Board
In recent years, we have strengthened
the Board’s medical devices knowledge
through the successive appointments of
Bob White, Katarzyna Mazur-Hofsaess and
John Ma. Each of these new appointments
has brought detailed knowledge of the
challenging markets in which we operate
in respectively in the US, EMEA and APAC
and especially China. Throughout 2021,
the Board has benefited immensely
from the detailed knowledge they have
brought, which has helped us when
supporting and challenging management.
For example, the rest of the Board looked
to them for guidance when considering
and approving the recent change to
bring the Orthopaedics and Sports
Medicine franchises under the single
leadership ofBrad Cannon. We have
also benefited from John Ma’s advice
relating to the Chinavolume-based
procurement programme.
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Strategic report
Governance
Accounts
Other information
Composition, succession and evaluation
continued
Nomination & Governance Committee report
continued
However, looking forward to the
futurecomposition of the Board, we are
mindful that I shall be retiring as Chair of
Smith+Nephew towards the end of the year.
Robin Freestone, our Senior Independent
Director, and Erik Engstrom will also be
retiring, when theirperiods of nineyears
are complete notlong aerwards.
We recognise that our combined departure
weakens the collective knowledge on
theBoard of the UK corporate governance
and listing regime. Of course, Rick Medlock,
our Chair of the Audit Committee, and
Angie Risley, our Chair of the Remuneration
Committee, both have very strong technical
understandings of the UK environment
intheir respective fields. Nevertheless, we
recognise that given the special situation
of Smith+Nephew as a UK listed company,
with a large part of our business overseas,
primarily in the US and China, it is important
that the Board’s knowledge of the UK
environment continues to be strengthened
through the appointment of both a Chair
and additional Non-Executive Directors who
are both internationally experienced and
have a solid background in UK corporate
governance. The recent appointment of
JoHallas bringing experience of UK boards
of global companies illustrates this.
We believe that the balance on the
Board of strong industry knowledge and
experience with a solid appreciation of
the UK environment will enable the Board
to continue to support and challenge
eectively in the years to come.
Governance
During the year, the Nomination &
Governance Committee also addressed
anumber of governance matters.
We received updates from the Company
Secretary on new developments in
corporate governance and reporting
inthe UK.
We reviewed the independence of our
Non-Executive Directors, considered
potential conflicts of interest and the
diversity of the Board and made
recommendations concerning these
matters to the Board.
Roberto Quarta
Chair of the Nomination
& Governance Committee
Our focus for 2022 will include:
•
Continued oversight of succession
planning below Board level.
•
Search for Chair to replace
Roberto Quarta.
Skills and experience matrix from 1 April 2022
CEO
Financial
International
Healthcare/
Medical Devices
Emerging
Markets
UK
Governance
Remuneration Gender
1
Ethnicity
2
Other
3
Roberto Quarta
M W
Deepak Nath
M A
Anne-Françoise Nesmes
F W
Erik Engstrom
M W
Robin Freestone
M W
Jo Hallas
F W
John Ma
M A
Katarzyna Mazur-Hofsaess
F W
Rick Medlock
M W
Marc Owen
M W
Angie Risley
F W
Bob White
M W
1
M
signifies male,
F
signifies female.
2
W
signifies of white ethnicity.
A
signifies of Asian ethnicity.3 Other signifies experience in a range of other areas including customer focus, investment markets, government aairs, sustainability, digital and business transformation.
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Annual Report 2021
Board composition
–
Reviewing the size and composition
ofthe Board.
–
Overseeing Board succession plans.
–
Recommending the appointment
of Directors.
–
Monitoring Board diversity.
February
–
Approved appointment of John Ma
as Non-Executive Director.
–
Approved additional external appointments
forRoland Diggelmann as Non-Executive
Director of Sonova AG and Robin Freestone
as Non-Executive Director of Aston Martin
Lagonda Global Holdings plc.
–
Approved the annual appointment of
Directorsserving in excess of six years.
–
Reviewed and updated the
Committee membership.
–
Noted the upcoming retirement
ofBaroness Bottomley.
September
–
Considered succession planning required
withregard to ensuring the promotion
of diversity of gender, social and ethnic
backgrounds on the Board as well as
US general commercial experience
andstrongUK-listed experience.
–
Noted intention of Company Secretary
toretireat 2022 Annual General Meeting.
December
–
Considered appointment of a new
Non-Executive Director withregard
toensuringthe promotion of diversity
ofgender on the Board as well as
strong UK-listed experience.
Corporate governance
–
Overseeing governance aspects of the
Boardand its Committees.
–
Overseeing the review into the
eectiveness ofthe Board.
–
Considering and updating the Schedule
of Matters Reserved to the Board
and the Terms of Reference of the
Board Committees.
–
Monitoring external corporate governance
activities and keeping the Board updated.
–
Overseeing the Board Development
Programme and the induction process
fornew Directors.
February
–
Reviewed and approved the Schedule
ofMatters Reserved to the Board
and the Terms of Reference of the
Board Committees.
Responsibilities of the
Nomination & Governance Committee
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Strategic report
Governance
Accounts
Other information
Member
from
Meetings
attended
Rick Medlock (Chair)
1
April 2020
8/8
Erik Engstrom
January 2015
8/8
Robin Freestone
1
September 2015
8/8
Marc Owen
October 2017
8/8
Audit, Risk and Control
Audit Committee report
Dear Shareholder,
I have now completed my first full
year as Chair of the Audit Committee.
In September 2021, I met my fellow
AuditCommittee members physically
forthe first time since my appointment
tothe Committee in April 2020.
In addition to discharging its role in
accordance with its Terms of Reference,
the Committee has met its commitments
to provide assurance in respect of
variousnon-routine matters.
During 2021, the Committee has:
–
Received an update from the
S+NSustainability team on the
new reporting requirements within
the Annual Report in relation to
TCFD andSASB. The Sustainability
Report wasalso included in the
Fair, Balancedand Understandable
Review undertaken bythe Internal
Audit function.
–
Continued vigilance over our IT control
environment and cybersecurity, which
was heightened during the pandemic.
The Audit Committee received an
update on the implementation of a new
automated tool that improves financial
corporate performance management.
The Committee also received a report
on S+N’s IT Security maturity plan
fromthe newly appointed Director
ofITGovernance, Risk & Compliance.
This will come back to the Committee
in 2022.
–
Reviewed and contributed to the
response from management on the
BEISconsultation on restoring trust
inaudit and corporate governance.
1 Designated financial experts under the SEC Regulations or recent and relevant financial experience under the UK Corporate
Governance Code. All deemed to be independent Directors.
Membership
“ During 2021 the
Committee focused on
sustainability reporting
and oversight of ourIT
control environment.”
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The APEX project completed during 2021
and the Audit Committee will continue to
receive an annual update in 2022 to ensure
the project continues to be monitored.
The Committee has continued to monitor
progress against themanufacturing
restructuring plan.
The Committee has been well briefed
bythe Company Secretary on the
impending transition from the FRC to
the Audit Regulatory and Governance
Authority (ARGA) and recommendations
will be considered when implemented.
During 2021, in accordance with
theCommittee’s Terms of Reference,
weengaged Grant Thornton UK LLP to
conduct areview into the eectiveness
of the Internal Audit function. This review
was carried out at the end of the year and
Grant Thornton presented their findings
to the Audit Committee in February 2022.
During 2022, the Committee will discuss
the extent to which these enhancements
should be implemented.
KPMG have now completed their seventh
year end audit and continue to provide
robust challenge to both management
and the Committee. Areas ofchallenge
byKPMG and theCommittee are
highlighted onpage100.
We have negotiated and will continue
tomonitor auditor fees. From 1 January
2022, a new senior lead partner, Paul
Nichols, willhead up our audit, following
therotation ofKamran Walji. We would
liketo thank KPMG and in particular,
MrWalji, fortheir work in conducting
sucharigorous audit, most of which
wasdone virtually.
Rick Medlock
Chair of the Audit Committee
The Terms of Reference of the Audit Committee
describe the role and responsibilities more fully and can
be found on our website at www.smith-nephew.com
Our focus for 2022 will include:
•
Monitoring ESG reporting, including
progress on TCFD, and embedding
sustainability into the business,
includingthe decision-making process
atthe Executive Committee to
the Board.
•
Continued oversight of risk
management process.
•
Continuing to monitor the governance
and maturity plan for our IT Controls.
•
Ensuring that we review and consider
allUK governance changes following
theestablishment of Audit Reporting
and Governance Authority (ARGA).
•
Reviewing the implementation of
recommendations from the external
review of the Internal Audit function.
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Strategic report
Governance
Accounts
Other information
Financial accounting
andreporting
–
Reviewing significant financial reporting
judgements and accounting policies and
compliance with accounting standards.
–
Ensuring the integrity of the financial
statements and their compliance with
UKandUS statutory requirements.
–
Ensuring the Annual Report and Accounts
are fair, balanced and understandable and
recommending their adoption by the Board.
–
Monitoring announcements relating to
theGroup’s financial performance.
Early February
–
Reviewed Q4 2020 accounting
andreporting matters.
–
Report from KPMG on 2020 results,
auditandSarbanes-Oxley (SoX).
–
Reviewed dra 2020 Annual Report,
includingreport of the Audit Committee.
–
Assessed compliance with UK and US
governance requirements.
Late February
–
Noted 2020 Annual Report including critical
estimates and reporting matters, confirming
fair, balanced and understandable, and
approved Audit Committee Report
contained within.
–
Approved dra 2020 full year
results announcement.
–
Received report from KPMG on 2020
statements – Unqualified Opinion.
–
Approved letter of representation for 2020.
–
Confirmed Going Concern and
Viability Statement.
–
Reviewed dra Q4 audited press release
andChief Financial Ocer presentation.
Early April
–
Debrief of 2020 Annual Report process
andreviewed plan and timetable for 2021.
–
Reviewed summary of Group
Company audits.
–
Approved Senior Finance Ocers Code
of Ethics.
Late April
–
Reviewed Q1 2021 accounting and
reporting matters. Reviewed and endorsed
2021 Q1 Trading Report, announcement
and presentation.
–
Noted KPMG’s update.
–
Noted restructuring principles.
July
–
Reviewed and endorsed H1 results,
announcement and presentation,
includinggoing concern.
–
Received report from KPMG on H1 results.
–
Noted revised ROIC methodology.
Audit, Risk and Control
continued
Audit Committee report
continued
Responsibilities of the
Audit Committee
Financial accounting
andreporting
continued
November
–
Reviewed accounting and reporting matters
for Q3 2021 Trading Report.
–
Reviewed and endorsed Q3 Trading Report
and announcement.
–
Noted update from KPMG on review of Q3
Trading Report.
December
–
Reviewed accounting and reporting
mattersfor 2021.
–
Reviewed and approved trading/
non-trading policy.
–
Reviewed 2021 Annual Report timeline
anddesign work.
–
Reviewed KPMG’s Audit and Controls update.
Risk management
–
On behalf of the Board, reviewing and
ensuringoversight of the processes by which
risks are managed, through regular functional
reports and presentations and reporting
any issues arising out of such reviews to
the Board.
–
Reviewing the process undertaken and
deep-dive work required to complete the
Viability Statement and recommending
itsadoption tothe Board.
–
Reviewing the impact of risk management
andinternal controls and working closely
withthe Compliance & Culture Committee.
–
Overseeing risk management processes
(seepages 58–67 for further details).
Early February
–
Received risk management update.
–
Review of Principal Risks through
endorsementof Viability Statement.
Early April
–
Received risk management update,
and reviewed heatmaps.
July
–
Received risk management update.
December
–
Received a risk management update
and reviewed principal risks and
risk appetite.
Internal audit
–
Agreeing Internal Audit plans and
reviewingreports of Internal Audit work.
–
Monitoring the eectiveness of the
InternalAudit function.
–
Reviewing the control observations made
by the Internal Auditor, the adequacy of
management’s response torecommendations
and the status ofanyunremediated actions.
Early February
–
Noted Internal Audit report.
–
Private meeting with the head of
Internal Audit.
Late February
–
Reviewed eectiveness of Internal
Auditincluding the collation of senior
stakeholders’ views.
–
Noted Internal Audit evaluation for 2020.
Early April
–
Received an update on progress andthe
2021Internal Audit Plan.
July
–
Reviewed progress on the 2021 Internal
Audit Plan.
–
Private meetings with the head of
InternalAudit.
September
–
Received an update on 2021 progress.
December
–
Reviewed progress against the
InternalAuditPlan and approved 2022
Internal AuditPlan and 2022 Internal
Audit Charter.
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External auditor
–
Overseeing the Board’s relationship
withtheexternal auditor.
–
Monitoring and reviewing the independence
and performance of the external auditor
andevaluating their eectiveness.
–
Making recommendations to the Board
forthe appointment or re-appointment
ofthe external auditor.
–
Monitoring and approving the external
auditor’s fees.
Early February
–
Approved 2020 external audit fees.
–
Approved 2020 external non-audit fees.
Late February
–
Reviewed eectiveness and independence
andconcluded their eectiveness.
–
Private meeting with external auditors.
Early April
–
Noted external audit plan for 2021.
–
Noted external auditor fees for 2021.
July
–
Approved external auditor engagement
letterand audit fees for 2021.
–
Approved letter of representation for
H1 2021.
–
Private meetings with the head of the
external auditors.
–
Noted external audit plan updates.
–
Received report from US audit partner.
September
–
Received update on external audit plan
–
Noted changes to incumbent Audit Partner
from 2022 Annual General Meeting.
Internal controls
–
Monitoring the eectiveness of internal
controls and compliance with the UK
CorporateGovernance Code 2018 and the
SoXAct, specifically sections 302 and 404.
–
Reviewing the operation of the Group’s
risk mitigation processes and the control
environment over financial risk.
Early February
–
Reviewed eectiveness of Internal Controls
over financial reporting and SoX.
Late February
–
Reviewed eectiveness of Internal Controls
over financial reporting and SoX.
–
Reviewed S302 and S906 certifications.
–
Received update on our internal ‘Minimal
Acceptable Practices’ (MAPs).
Early April
–
Considered SoX and MAPs Planning for
2021including S404 scope.
September
–
Considered SoX and MAPs progress.
November
–
Reviewed eectiveness of Internal Controls
over financial reporting and SoX.
December
–
Reviewed eectiveness of Internal Controls
over financial reporting and SoX.
–
Reviewed IT SOX control programme
Fraud and whistle-blowing
–
Receiving reports on the processes in place
toprevent fraud and to enable whistle-blowing.
–
If significant, receive and review reports of
potential fraud or whistle-blowing incidents.
Early February
–
Reviewed year-end report, including
fraud procedures.
Early April
–
Noted investigations report.
Other matters
–
Oversight of other matters, including
sustainability, IT governance, tax,
governance and cyber security.
Late February
–
Approved Terms of Reference
Early April
–
Reviewed Terms of Reference.
–
Noted ESG reporting processes
including TCFD.
–
Received treasury, pensions, insurance
andcovenant updates.
–
Received cybersecurity update including
maturity plan.
–
Received Project APEX and manufacturing
restructuring updates.
–
Approved the Company’s policy and
reporton Conflict Minerals for submission
to NYSE.
Late April
–
Noted IT governance controls.
–
Noted Audit Reform update.
July
–
Noted update on progress in reducing
thelevel of US receivables.
September
–
Received an update on IT
governance controls.
–
Update on tax matters.
–
Received an update on
sustainability matters.
–
Noted finance talent review.
December
–
Received updates on China accounting
and controls, cybersecurity, inventory
and governance.
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Accounts
Other information
Audit, Risk and Control
continued
Audit Committee report
continued
Significant matters related to the financial statements
We considered the following key areas of judgement in relation to the 2021 financial statements and at each half year
andquarterly trading report, which we discussed in all cases with management and the External Auditor:
Valuation of inventories
A feature of the Orthopaedics franchise (which accounts for
approximately 60% of the Group’s total inventory and approximately
80% of the total provision for excess and obsolete inventory) is the
high level of product inventory required, some of which is located at
customer premises and is available for customers’ immediate use.
Complete sets of products, including large and small sizes, have to
be made available in this way. These sizes are used less frequently
than standard sizes and towards the end of the product life cycle are
inevitably in excess of requirements. Adjustments to carrying value are
therefore required to be made to orthopaedic inventory to anticipate
this situation. These adjustments are calculated in accordance with a
formula based on levels of inventory compared with historical usage.
This formula is applied on an individual product line basis and typically
is first applied when a product group has been on the market for two
years. This method of calculation is considered appropriate based on
experience, but it does involve management estimation of customer
demand, eectiveness of inventory deployment, length of product lives,
phase-out of old products and eciency of manufacturing planning
systems. The ongoing impact of COVID on the provision for excess
andobsolete inventory has been assessed, specifically considering
theimpact of lower sales demand and increased inventory levels.
Our action
At each quarter end, we received reports from, and discussed with,
management the level of provisioning and material areas at risk.
The provisioning level was 21% at 31 December 2021 (18% as at
31 December 2020). We challenged the basis of the provisions and
concludedthat the proposed levels were appropriate and have been
consistently estimated.
Challenge by KPMG:
During 2021 KPMG challenged management’s approach to inventory
provisioning considering recovery of demand in 2021 aer the impact
of COVID in 2020.
Liability provisioning
The recognition of provisions for legal disputes is subject to a significant
degree of estimation. Provision is made for loss contingencies when
it is considered probable that an adverse outcome will occur and
the amount of the loss can be reasonably estimated. In making its
estimates, management takes into account the advice of internal and
external legal counsel and uses third-party actuarial modelling where
appropriate. Provisions are reviewed regularly and amounts updated
where necessary to reflect developments in the disputes. The ultimate
liability may dier from the amount provided depending on the outcome
of court proceedings and settlement negotiations orifinvestigations
bring to light new facts.
Our action
As members of the Board, we receive regular updates from the Chief
Legal & Compliance Ocer. These updates form the basis for the level of
provisioning. The Group carries a provision relating to potential liabilities
arising on its portfolio of metal-on-metal hip products of $289 million as
of 31 December 2021. We received detailed reports from management
on this position, including the actuarial model used to estimate the
provision, and challenged the key assumptions, including the number
of claimants and projected value of each claim. The provisions for legal
matters have decreased by $49 million during the year, primarily due
toutilisation of the metal-on-metal provision. We have determined that the
proposed levels ofprovisioning at year end of $320 million included within
‘provisions’ in Note17.1 in 2021 (2020:$369 million) were appropriate
inthecircumstances.
Challenge by KPMG:
KPMG challenged management’s assumptions in determining the
provisionsfor metal-on-metal hip claims including the work of
managementappointed actuaries.
Impairment
In carrying out impairment reviews of goodwill and acquisition
intangible assets, a number of significant assumptions have to be
madewhen preparing cash flow projections. These include the future
rate of market growth, discount rates, the market demand for the
products acquired, the future profitability of acquired businesses or
products, levels of reimbursement and success in obtaining regulatory
approvals. If actual results should dier or changes in expectations
arise, impairment charges may be required, which would adversely
impact operating results.
Our action
We reviewed management’s reports on the key assumptions with respect
to goodwill and acquisition intangible assets – particularly the forecast
future cash flows and discount rates used to make these calculations.
We challenged the downside sensitivity analyses undertaken. We concluded
that the carrying value of these assets is appropriately supported by the cash
flow projections. We have also considered the disclosure surrounding these
reviews, and concluded that the review and disclosure were appropriate.
Challenge by KPMG:
KPMG challenged management on the impairment conclusions and the
basis of the assessment.
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Other matters related to the
financialstatements
As well as the identified significant matters,
other matters that the Audit Committee
considered during 2021 were:
Going concern
The uncertainty as to the continued
impacton the financial performance
andcash flows of the Group as a result of
the ongoing COVID pandemic has been
considered as part of the adoption of
the going concern basis in these financial
statements. We reviewed three-year
projections as part of the Group’s Strategic
Plan, and also more detailed cash flow
scenarios to 1 July 2023 for going concern
purposes and concurred with management
that the continued adoption of the going
concern basis is appropriate.
Taxation
The Group operates in numerous tax
jurisdictions around the world and
is subject to factors that may aect
future tax charges. We annually review
policies and approve the principles for
management of tax risks. We review
quarterly reports from management
evaluating the existing tax profile, tax risks
and tax provisions. Based on a thorough
report from management of tax liabilities
and our challenge of the basis of any tax
provisions recorded, we concluded that
the levels of provisions and disclosures
were appropriate.
Post-retirement benefits
The Group has post-retirement defined
benefit pension schemes, which require
estimation in setting the assumptions.
We received a report from management
setting out their proposed assumptions
for the UK and US schemes and concurred
with management that these assumptions
were appropriate.
Climate change
The impact of climate change has
beenconsidered as part of our review
of the impairment testing of goodwill
and acquired intangible assets, and the
going concern assessment. We have also
considered the disclosures on climate
change and considered them appropriate.
Since the year end
Since the year end, we have also reviewed
the results for the full year 2021, Annual
Report and Accounts for 2021, and have
concluded that they are fair, balanced
and understandable. In coming to this
conclusion, we have considered the
description of the Group’s strategy and
key risks, the key elements of the business
model, which is set out on pages 12–13,
risks and the key performance indicators
and their link to the strategy.
External auditor
Independence of external auditor
Following a competitive tender in 2014,
KPMG was appointed external auditor
ofthe Company in 2015. We are satisfied
that KPMG are fully independent from
the Company’s management and free
from conflicts of interest. Our Auditor
Independence Policy, which ensures
that this independence is maintained,
isavailable on the Company’s website.
We believe that the implementation
of thispolicy helps ensure that auditor
objectivity and independence is
safeguarded. The policy also governs our
approach when we require our external
auditor to carry out non-audit services,
andall such services are strictly governed
bythis policy.
The Auditor Independence Policy also
governs the policy regarding audit partner
rotation with the expectation that the
audit partner will rotate at least every
five years. Kamran Walji stepped down
as audit partner at the conclusion of the
31 December 2021 audit. Paul Nichols
hasreplaced him as senior lead audit
partnerfor the 2022 audit.
The Audit Committee confirms it
hascomplied with the provision of the
Competition and Markets Authority
(CMA)Order 2014.
Eectiveness of external auditor
We conducted a review into the
eectiveness of the external audit as part
of the 2021 year-end process, in line with
previous years. We sought the views of
key members of the finance management
team, considered the feedback from this
process and shared it with management.
During the year, we also considered the
inspection reports from the Audit Oversight
Board in the UK and determined that
we were satisfied with the audit quality
provided by KPMG.
The Audit Committee regularly receives
feedback from KPMG, including at each
meeting where management present
theirsummary of critical accounting
estimates as at each quarter end.
Overall therefore, we concluded that
KPMG had carried out their audit for
2021 eectively.
The Audit Committee continues to
reviewthe eectiveness of the external
auditor, KPMG.
Appointment of external auditor
atAnnual General Meeting
Resolutions will be put to the Annual
General Meeting to be held on 13 April
2022 proposing the re-appointment
ofKPMG as the Company’s auditor and
authorising the Board to determine its
remuneration, on the recommendation
ofthe Audit Committee in accordance
withthe CMA Order 2014.
Disclosure of information to the auditor
In accordance with Section 418 of the
Companies Act 2006, the Directors
serving at the time of approving the
Directors’ Report confirm that, to the
best of their knowledge and belief, there
is no relevant audit information of which
the auditor, KPMG, is unaware and the
Directors also confirm that they have
taken reasonable steps to be aware of any
relevant audit information and, accordingly,
to establish that the auditor is aware of
such information.
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Governance
Accounts
Other information
Audit, Risk and Control
continued
Audit Committee report
continued
Non-audit fees paid to the auditor
Non-audit fees are subject to approval
in-line with the Auditor Independence
Policy which is reviewed annually and
forms part of the Terms of Reference
oftheAudit Committee.
The Audit Committee recognises the
importance of the independence of the
external auditor and ensures that the
auditor’s independence should not be
breached. The Audit Committee ensures
that the auditor does not receive a fee
fromthe Company or its subsidiaries
that would be deemed large enough to
impact its independence or be deemed
acontingent fee. The total fees for
permitted non-audit services shall be
nomore than 70% of the average of the
fees paid in the last three consecutive
financial years for the statutory audits
ofthe Company and its subsidiaries.
Any pre-approved aggregate, individual
amounts up to $25,000 may be authorised
by the Group Treasurer and Senior Vice-
President Group Finance respectively
and amounts up to $50,000 by the Chief
Financial Ocer. Any individual amount
over $50,000 must be pre-approved by the
Chair of the Audit Committee. If unforeseen
additional permitted services are required,
or any which exceed the amounts approved,
again pre-approval by the Chair of the
Audit Committee is required.
The following reflects the non-audit
fees incurred with KPMG in 2021, which
were approved by the Chair of the
Audit Committee.
2021
$ million
2020
$ million
Audit related services
0.1
0.4
The ratio of non-audit fees to audit fees for
the year ended 31 December 2021 is 0.01.
The ratio of non-audit fees to audit fees for
the year ended 31 December 2020 was 0.06.
Full details are shown in Note 3.2 to the
Notes to the Group accounts.
Audit fees paid to the auditor
Fees for professional services provided
byKPMG, the Group’s independent
auditorin each of the last two fiscal years,
ineach of the following categories were:
2021
$ million
2020
$ million
Audit fees
7.5
7.0
Audit related fees
0.1
0.4
Total
7.6
7.4
Internal audit
The Internal Audit team, which reports
functionally to the Audit Committee,
carries out risk-based reviews across
the Group. These reviews examine the
management of risks and controls over
financial, operational, commercial, IT
andtransformation programme activities.
The audit team, led by the Group Head
ofInternal Audit, consists of appropriately
qualified and experienced employees.
Third parties may be engaged to support
audit work as appropriate.
The Group Head of Internal Audit has direct
access to, and has regular meetings with,
the Audit Committee Chair and prepares
formal reports for Audit Committee
meetings on the activities and key findings
of the function, together with the status
of management’s implementation of
recommendations. The Audit Committee
has unrestricted access to all internal audit
reports, should it wish to review them.
During the year, the team completed
31risk-based audits and reviews across the
Group. These included: financial controls
eectiveness reviews across theEMEA,
APAC, US and LATAM regions; ITand
various programme assurance reviews
ranging from digital medical devices
security to IT controls eectiveness; and an
ERP pre-implementation review in Japan.
Group-level reviews included enterprise
risk management eectiveness, shared
services operations, fraud risk management
eectiveness and acquisitions integration.
Key issues noted during reviews included
the need for all controls to operate to
the correct frequency. Management has
taken swi action to implement Internal
Audit’s recommendations. The team was
able to continue to operate successfully
during the ongoing COVID pandemic.
Although it was not possible to travel,
extensive use was made of data extraction
and analysis techniques, supplemented
bydocumentation review and interviews.
The function carries out its work
inaccordance with the standards and
guidelines of the Institute of Internal
Auditors. Its performance is annually
assessed using a structured questionnaire,
allowing non-executive, executive and
senior management, plus the external
auditor, to comment on key aspects of
the function’s performance. The Audit
Committee, which re-approved the
function’s charter in December 2021,
hassatisfied itself that adequate, objective
internal audit standards and procedures
exist within the Group and that the
InternalAudit function is eective.
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Risk management programme
Whilst the Board is responsible for
ensuring oversight of strategic risks
relating to the Company, determining
an appropriate level of risk appetite,
and monitoring risks through a range of
Board and Board Committee processes,
the Audit Committee is responsible for
ensuring oversight of the processes by
which operational risks, relating to the
Company and its operations are managed
and for reviewing financial risks and the
operating eectiveness of the Group’s
RiskManagement process.
During the year, we reviewed our Risk
Management processes and progress
wasdiscussed at our meetings in February,
April, July, and December. We approved
the Risk Management programme
for 2021 and monitored performance
against that programme, specifically
reviewing the workundertaken by the risk
champions across the Group, identifying
the risks which could impact their areas
ofour business.
The Risk Management programme
followed the risk management policy
andmanual communicated company-
wide in 2021. This programme combines
a‘bottom-up’ approach (whereby risks
areidentified within business areas by local
risk champions working with their leadership
teams), with a ‘top-down’ approach
(whenthe Executive Committee meets as
the Risk Committee to consider the risks
facing the Group at an enterprise level).
Throughout the year, the Audit Committee
maintained oversight of this programme.
We reviewed the Principal Risks identified
and the heat maps prepared by
management showing how these risks
were being managed. We considered
where the risk profile was changing.
Since the year end, we have reviewed
areport from the Group Head of Internal
Audit into the eectiveness of the Risk
Management programme throughout
theyear. We considered the Principal Risks,
the actions taken by management to review
those risks and the Board risk appetite in
respect of each risk. We concluded that the
Risk Management process during 2021 and
up to the date of approval of this Annual
Report was eective. Work will continue in
2022 and beyond to continue to enhance
the process.
»
See pages 58–69 for our RiskReport
Viability Statement
We also reviewed management’s work in
conducting a robust assessment of those
risks which would threaten our business
model and the future performance or
liquidity of the Company, including its
resilience to the threats of viability posed
by those risks in severe but plausible
scenarios. Management have considered
various scenarios in assessing the impact
of COVID on future financial performance
and cash flows, with the key judgement
applied being the speed and sustainability
of the return to a normal volume of elective
procedures in key markets. This assessment
included stress and sensitivity analyses
of these risks to enable us to evaluate the
impact of a severe but plausible combination
of risks. We then considered whether
additional financing would be required in
such eventualities. Based on this analysis,
we recommended to the Board that it
could approve and make the Viability
Statement on page 68.
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Governance
Accounts
Other information
Audit, Risk and Control
continued
Responsibilities of theAudit Committee
continued
Evaluation of internal controls
Management is responsible for establishing
and maintaining adequate internal control
over financial reporting as defined in
Rule 13a–15(f) and 15d–15(f) under the
USSecurities Exchange Act of 1934.
There is an established system of internal
control throughout the Group and our
country business units. The main elements
of the internal control framework are:
–
The management of each country and
Group function is responsible for the
establishment, maintenance and review
of eective financial controls within their
business unit or function.
–
The Group’s IT organisation is responsible
for the establishment of eective IT
controls within the core financial systems
and underlying IT infrastructure.
–
The Financial Controls & Compliance
Group has responsibility for the review of
the eectiveness of controls operating
in the countries, functions and IT
organisation, either: by performing
testingdirectly; reviewing testing
performed in-country; or utilising a
qualified third party to perform this
management testing on its behalf.
–
The Group Finance Manual sets out
financial and accounting policies, and is
updated regularly. The Group’s Minimum
Acceptable Practices (MAPs) were
updated in 2020 with a new manual.
The business is required to self-assess
their level of compliance with the
MAPs on a regular basis and remediate
any gaps.
–
MAPs compliance is validated through
spot-checks conducted by the Financial
Controls & Compliance Group and
during both Internal Audit and external
audit visits. The technology solution
tofacilitate the real time monitoring
ofthe operation and testing of controls
has been partially implemented
in2021and this will be completed
in 2022.
–
There are clearly defined lines
ofaccountability and delegations
of authority.
–
The Internal Audit function executes
a risk-based annual work plan, as
approved by the Audit Committee.
–
The Audit Committee reviews reports
from Internal Audit on their findings
on internal financial controls, including
compliance with MAPs and from the
SVP Group Finance and the heads of
the Financial Controls & Compliance,
Taxation and Treasury functions.
–
The Audit Committee reviews regular
reports from the Financial Controls
& Compliance Group with regard to
compliance with the SoX Act including
the scope and results of management’s
testing and progress regarding any
remediation, as well as the aggregated
results of MAPs self-assessments
performed by the business.
–
Business continuity planning, including
preventative and contingency measures,
back-up capabilities and the purchase
of insurance.
–
Risk management policies and
procedures including segregation
of duties, transaction authorisation,
monitoring, financial and managerial
review and comprehensive reporting
and analysis against approved
standardsand budgets.
–
A treasury operating framework and
Group treasury team, accountable for
all treasury activities, which establishes
policies and manages liquidity and
financial risks, including foreign
exchange, interest rate and counterparty
exposures. Treasury policies, risk limits
and monitoring procedures are reviewed
regularly by the Audit Committee or
theFinance & Banking Committee,
onbehalf of the Board.
–
Our published Group tax strategy
which details our approach to tax
riskmanagement and governance,
taxcompliance, tax planning, the level
oftax risk we are prepared to accept
andhow we deal with tax authorities,
which is reviewed by the Audit
Committee on behalf of the Board.
–
The Audit Committee reviews the
Groupwhistle-blower procedures
toensure they are eective.
–
The Audit Committee continued
toreceive and review reports on the
progress of the Finance Transformation
element of the restructuring programme
during 2021, and the mitigation of
theassociated risks.
Going concern
The Group’s business activities, together
with the factors likely to aect its future
development, performance and position
areset out in the financial review on
pages16–19 and the Principal Risks
onpages 58–67.
The financial position of the Group, its
cashflows, liquidity position and borrowing
facilities are described on page 16–19.
In addition, the Notes to the Group
accounts include: the Group’s objectives,
policies and processes for managing its
capital; its financial risk management
objectives; details of its financial
instruments and hedging activities;
anditsexposure to credit risk and
liquidity risk.
The Group has considerable financial
resources and its customers and
suppliers are diversified across dierent
geographic areas. As a consequence,
the Directors believe that the Group
is well placed to manage its business
risk successfully despite the ongoing
uncertaineconomic outlook.
The continued uncertainty as to the
futureimpact on the financial performance
and cash flows of the Group as a result
ofthe COVID pandemic has been
considered as part of the adoption of
the going concern basis in these financial
statements. The Directors have a
reasonable expectation that the Group
has adequate resources to continue in
operational existence for the foreseeable
future. Thus they continue to adopt the
going concern basis for accounting in
preparing the annual financial statements.
Management also believes that the
Grouphas sucient working capital for
itspresent requirements.
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controls over financial, operational
(including quality management and
ethical compliance) processes operated
by the Group. The Board has delegated
responsibility for this review to the Audit
Committee. The Audit Committee, through
its Internal Audit function, reviews the
adequacy and eectiveness of internal
control procedures and identifies any
significant weaknesses and ensures these
are remediated within agreed timelines.
The latest review covered the financial
year to 31 December 2021 and included
the period up to the approval of this
AnnualReport. The main elements of
thisreview are as follows:
–
The Chief Executive Ocer and the
Chief Financial Ocer evaluated the
eectiveness of the design and operation
of the Group’s disclosure controls and
procedures as at 31 December 2021.
Based upon the evaluation, the Chief
Executive Ocer and Chief Financial
Ocer concluded on 22 February
2022 that the disclosure controls
and procedures were eective as
at31 December 2021.
–
Management is responsible for
establishing and maintaining adequate
internal control over financial reporting.
Management assessed the eectiveness
of the Group’s internal control over
financial reporting as at 31 December
2021 in accordance with the requirements
in the US under section 404 of the SoX
Act. In making that assessment, they used
the criteria set forth by the Committee
of Sponsoring Organizations of the
Treadway Commission in Internal Control-
Integrated Framework (2013). Based on
their assessment, management concluded
and reported that, as at 31 December
2021, the Group’s internal control over
financial reporting was eective based on
those criteria. Having received the report
from management, the Audit Committee
reports to the Board on the eectiveness
of controls. KPMG, an independent
registered public accounting firm, audited
the financial statements included in
the 2021 Annual Report, containing the
disclosure required by this item, issued an
attestation report on the Group’s internal
control over financial reporting as at
31 December 2021.
Code of Ethics for
Senior FinancialOcers
We have adopted a Code of Ethics for
Senior Financial Ocers, which applies
to the Chief Executive Ocer, the Chief
Financial Ocer, the SVP Group Finance
and the Group’s senior financial ocers.
There have been no waivers to any of
theCode’s provisions nor have there been
any substantive amendments to the
Code during 2021 or up until 22 February
2022. A copy of the Code of Ethics for
Senior Financial Ocers can be found
onour website.
In addition, every individual in the finance
function certifies to the Chief Financial
Ocer that they have complied with
theFinance Code of Conduct.
Evaluation of composition,
performance and eectiveness
ofthe Audit Committee
The composition, performance and
eectiveness of the Audit Committee
was evaluated this year. Its eectiveness
is also reviewed in conjunction with the
annual Board evaluation, which in 2021
was conducted by Dr Tracy Long of
Boardroom Review.
The review by the Audit Committee found
the following:
Composition
Whilst the Audit Committee
performs eectively,
thereisno gender diversity.
Rotating the membership
ofthe Committee could
give a broader range
ofperspectives and
backgrounds.
Performance
and
Eectiveness
The Audit Committee,
ledby the new Audit Chair,
performed highly, covered
alot of ground and paid
appropriate attention to
thekey risks impacting the
Company and the business.
This system of internal control has been
designed to manage rather than eliminate
material risks to the achievement of our
strategic and business objectives and can
provide only reasonable, and not absolute,
assurance against material misstatement
or loss. Because of inherent limitation,
our internal controls over financial
reporting may not prevent or detect all
misstatements. In addition, our projections
of any evaluation of eectiveness in
future periods are subject to the risk that
controls may become inadequate because
of changes in conditions, or that the
degree of compliance with the policies or
procedures may deteriorate. Entities where
the Company does not hold a controlling
interest have their own processes of
internal controls.
We have reviewed the eectiveness of the
Company’s internal controls over financial
reporting. The Company’s assessment
included documenting, evaluating
and testing the design and operating
eectiveness of its internal controls
over financial reporting. Based on this
evaluation, we have satisfied ourselves that
we are meeting the required standards
and that our internal control over financial
reporting is eective both for the year
ended 31 December 2021 and up to the
date of approval of this Annual Report.
No concerns were raised with us in 2021
regarding possible improprieties in matters
offinancial reporting.
This process complies with the
FRC’s‘Guidance on Risk Management,
InternalControl and Related Financial
and Business Reporting’ under the
UK Corporate Governance Code and
additionally contributes to our compliance
with the obligations under the SoX Act
and other internal assurance activities.
There has been no change during the
period covered by this Annual Report that
has materially aected, or is reasonably
likely to materially aect, the Group’s
internal control over financial reporting.
The Board is responsible overall for
reviewing and approving the adequacy
and eectiveness of the risk management
framework and the system of internal
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Strategic report
Governance
Accounts
Other information
Member
from
Meetings
attended
Marc Owen (Chair)
March 2018
4/4
Virginia Bottomley
1
April 2019
2/2
John Ma
2
7 December 2021
1/1
Katarzyna Mazur-Hofsaess
3
7 April 2021
3/3
Angie Risley
April 2020
4/4
Bob White
July 2020
4/4
Membership
Audit, Risk and Control
continued
Dear Shareholders,
I am pleased to report on the activities
of the Compliance & Culture Committee
in 2021. The Terms of Reference for
the Compliance & Culture Committee
describe the role and responsibilities of
thisCommittee more fully and can be
found on our website.
In 2021, we held four meetings.
Each meeting was attended by all
members of the Committee. The Company
Secretary, theChief Legal & Compliance
Ocer and theChief Quality & Regulatory
Aairs Ocer, Chief HR Ocer and
President of Global Operations (responsible
for sustainability) also attended all or
partofthe meetings by invitation.
Oversight of quality and
regulatorymatters
Product safety and eectiveness
is at the heart of our business.
Regulatory authorities across the world
enforce a complex series of laws and
regulations that govern the design,
development, approval, manufacture,
labelling, marketing and sale of healthcare
products. During the year, we received
summary reports and provided oversight
regarding the general quality and
regulatory activities of our business.
At each meeting, we received a report
onquality and regulatory matters
from theChief Quality & Regulatory
Aairs Ocer.
We reviewed the results of external
regulatory inspections and audits
conducted by the FDA and other
regulatory agencies. We also reviewed
results of internal quality audits and key
performance metrics associated with
critical quality and regulatory compliance
processes. We received reports regarding
work being undertaken to prepare our
manufacturing and design sites for
future inspections, and also received
updates on the important eorts to
ensure compliance with the EU Medical
Device Regulation. During the year we
also reviewed progress in areas of focus
such as vigilance reporting, acquisition
integrations, global regulatory agency
interactions and improvements to the
Global Quality Framework.
Compliance & Culture
Committee report
1 Virginia Bottomley retired from the Board and the Committee at the Annual General Meeting on 14 April 2021,
aer nine years’ service.
2 John Ma joined the Committee on 7 December 2021.
3 Katarzyna Mazur-Hofsaess joined the Committee on 7 April 2021.
“ The safety and
eectiveness
ofourproducts
isatthe heart
of ourbusiness.”
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Annual Report 2021
Oversight of culture
During 2021, the Company’s core
purpose of Life Unlimited was further
embedded, and with this, the supporting
culture pillars of Care, Collaboration and
Courage. Our strategic pillars provide
alignment across our business and stronger
understanding by employees of their role
insupporting our collective success.
The Committee was provided with
regular updates from the Chief HR Ocer
throughout 2021 on culture. The specific
actions for the year relating to culture,
which included: an engagement plan;
afocus on the culture pillar of Courage;
the continuation of Board/employee
listening sessions; a continued focus on
inclusion and diversity; and monitoring
success through participation in the
Gallupengagement survey.
Towards the end of 2020, I held a meeting
with UNITY, the race and ethnicity
Employee Inclusion Group, in the US
and reported back to the Committee in
February. Feedback from my meeting
included the need to provide better career
pathways for minority employees and
to include front line employees in future
Board/employee listening sessions.
Our 2021 Gallup global employee survey
results were shared with the Committee.
These results, which allow Smith+Nephew
to benchmark against similar companies
in our industry, showed an insignificant
decrease to the exponential improvement
between 2019 and 2020. This was in line
with other companies. We were incredibly
proud of these results following another
challenging year for Smith+Nephew due
tothe impact of COVID.
For specific issues where employees may
not feel comfortable articulating their
views, we have a whistle-blowing policy
andconfidential line, as discussed above.
Listening to the employee voice
Despite ongoing restrictions due to COVID,
the Committee continued tolisten to the
Employee Voice, meeting withgroups of
employees both virtually and physically.
In Q1 2021, Angie Risley, Bob White and I
met virtually with the R&D Robotics team
and were impressed by their enthusiasm
for the work they do. In June, the whole
Board had the opportunity to meet virtually
with senior leaders across the Company
and in September 2021, we held our first
physical Board meeting since February
2020. This meeting included a visit to
ourUK headquarters in Watford, where
we visited the Expert Connect Centre and
metkey members of our UKSales team
who demonstrated our newest technology.
We also met employees from our corporate
functions of legal, finance, tax and
communications and saw how Workplace
Unlimited was being implemented on-site.
Sustainability
Sustainability has been a focus for
everyone throughout the pandemic
and this became an agenda item
thatis receiving the focus it deserves.
We regularly review management’s
sustainability programme to ensure
alignment with our stakeholders’
expectations and monitor management’s
actions taken against our targets.
We received an update on the focus
of ourcustomers and investors on
sustainability and how Smith+Nephew
wasresponding to those enquiries.
We reviewed the reporting requirements
around climate change, particularly
reporting against the TCFD and SASB
frameworks, and approved our revised
carbon reduction target. We also approved
our modern slavery statement and the
conflict minerals filing.
The progress against the 2021
sustainability plan was monitored and
the2022 plan was reviewed and approved.
Since the year end, the Committee has
approved the 2021 Sustainability Report.
»
Read more on pages 48–57
Oversight of ethics and compliance
As stated in our Code of Conduct, the
sustainability of our business depends on
doing things the right way. This year we
maintained our oversight of ethics and
compliance programme activities within
our business and continued to review
external factors which could impact the
business. The Chief Legal & Compliance
Ocer provided regular reports
demonstrating the eectiveness of the
current programme as well as continuous
improvement eorts to ensure our ethics
and compliance programme activities
areevolving alongside our business.
During 2021 we received updates on
changes to our Global Policies and
the launch of a new interactive tool to
improveemployee access to information
about requirements in our global markets.
These changes are aligned with the revised
Code of Conduct launched in 2019 and our
strategic pillars to simplify our processes
and embed our culture within the business.
We are updated on allegations of
potentially significant improprieties and
the Company’s response to such matters,
and also receive an annual review of
trends in allegations and investigations.
During 2021 we received a report on
eectiveness testing of the whistle-blowing
process, which was conducted by the
Compliance team, and we also received
the findings of an Internal Audit review of
the eectiveness of ethics reporting and
investigations. Both reports demonstrated
that the organisation has established,
mature processes and controls over ethics
reporting and investigations.
We received regular updates on findings
from compliance verification activities
and the adaptation of processes to
accommodate restrictions and altered
riskprofiles resulting from the COVID
pandemic. This year we also received an
update on the progress of a continuous
improvement plan for the Compliance
Validation Assignment (CVA) programme
and noted significant improvements
including reduced report times and
increased collaboration and best-practice
sharing with other assurance providers.
During 2021 we received an update on
our privacy programme, with a specific
focus on our digital connected products
and services.
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Strategic report
Governance
Accounts
Other information
Audit, Risk and Control
continued
Compliance & Culture Committee report
continued
Our focus for 2022 will include:
•
Further physical Board/employee
listening sessions (pandemic
permitting) to enable the Board
to further monitor and assess the
corporate culture in other jurisdictions,
in particular post/through the next
stage of the pandemic.
•
Monitor the actions taken by
management following 2021’s Board/
employee listening sessions.
•
Review further employee feedback
gathered through the annual survey
and other mechanisms to ensure
the Board is aware of employees’
views and any actions required by
management from that feedback.
Recent survey results arediscussed
on page 21.
•
Continued oversight of the
Company’s sustainability programme,
including targets and monitoring
its roll-out to the organisation.
Monitoring the progress ofthe
Company’s commitment to
itsnetzero roadmap by 2045.
•
Commencing the programme for
the Committee and Board to meet
and receive direct feedback from
ourother stakeholders.
•
Ensure stakeholder considerations
continue to be embedded into all
Board’s decisions.
This year was my third report to you
asChair of the Compliance & Culture
Committee. Our progress continued
tobeimpacted by COVID and changes
inmanagement, but the journey has
continued. The Committee is pleased
tosee Smith+Nephew’s commitment
tonet zero emissions by 2045 and our
stakeholder programme. Please see
moreinformation about our roadmap
onpage53. The Committee and Board looks
forward to implementing that stakeholder
programme and meeting a wider range of
ourstakeholders to receive their feedback
in2022. On behalf of the Committee
members that have met our employees and
listened to their feedback about
Smith+Nephew I would like to thankthose
employees that participated thisyear.
Iamsorry that again we didn’t always
getto meet face to face, but
hope to againin the future.
Marc Owen
Chair of the Compliance
&CultureCommittee
Our Sales Representative showing
Marc Owen our new products.
108
Smith+Nephew
Annual Report 2021
Culture
–
Oversight of our relationship with
stakeholders, including the employee
voiceand sustainability.
–
Receiving and assessing regular functional
reports and presentations from the Chief
Human Resources Ocer.
February
–
Noted 2021 embedment plan for the
strategic imperatives and Board/employee
listening sessions.
April
–
Received an update on the Company’s
culture including a progress report on the
Gallup Accountability Survey.
July
–
Received an update on the Company’s
culture including a review of the Engagement
Survey results and noted the focus for the
next steps.
–
Received an update on two Board
listening sessions.
December
–
Received an update on the Company’s
culture progress.
–
Reviewed progress on Inclusion,
Diversity&Equity.
Quality and Regulatory
Aairs (Q/RA)
–
Overseeing the processes by which
regulatory and quality risks relating to
theCompany and its operations are
identified and managed.
–
Receiving and assessing regular functional
reports and presentations from the
ChiefQuality & Regulatory Aairs Ocer.
February
–
Reviewed Quality & Regulatory Aairs
report noting status of various Quality and
Regulatory Aairs metrics and initiatives.
April
–
Reviewed Quality & Regulatory Aairs
report noting status of various quality
andregulatory metrics and initiatives
including updates on EU MDR.
July
–
Reviewed Quality & Regulatory Aairs
report noting status of various quality
andregulatory metrics and initiatives.
Quality and Regulatory
Aairs (Q/RA)
continued
October
–
Reviewed the Global Quality & Regulatory
Aairs report, including an update on
the impact of Brexit and the MHRA
framework guidance.
December
–
Reviewed the Global Quality & Regulatory
Aairs report, including an update on the
workof the EU MDR team and impact
ofBrexitand Swexit.
Other matters
February
–
Approved updated Terms of Reference.
–
Noted upcoming Non-Executive Director
annual compliance training.
–
Approved 2020 Compliance &
Culture Report contained within 2020
Annual Report.
April
–
Noted the upcoming retirement of
BaronessBottomley following conclusion
of the Annual General Meeting on
14 April 2021.
December
–
Approved appointment of John Ma to
theCommittee on 7 December 2021.
Compliance
–
Overseeing ethics and compliance
programmes, strategies and plans.
–
Monitoring ethics and compliance process
improvements and enhancements.
–
Assessing compliance performance based
onmonitoring, auditing and internal and
external investigations data.
–
Reviewing allegations of significant
potentialcompliance issues.
–
Receiving reports from the Chief Legal
&Compliance Ocer.
February
–
Approval of the Modern Slavery Statement
forthe year ended 31 December 2020.
–
Received a Legal & Compliance
Report update.
April
–
Noted conflict mineral report and submission
to the SEC.
–
Received a Legal & Compliance
Report update.
July
–
Received a Legal & Compliance Report
update, including changes to the Compliance
Validation Assignments (CVA) programme.
December
–
Received a Legal & Compliance Report
including, update on the Global status
of new policies and code of conduct
refresher trainings.
Sustainability
–
Overseeing the sustainability strategy
andreviewing targets and metrics.
–
Receiving and assessing regular functional
reports from the President Operations.
February
–
Approved 2020 Sustainability Report
priortoBoard approval.
April
–
Received an update on sustainability
reporting requirements, relating to TCFD.
December
–
Reviewed materials presented by
KPMGonreporting on climate change
underthe TCFD Framework.
–
Approved net zero targets and noted
roadmap to achieve net zero.
–
Received an update on sustainability
mattersand progress.
Responsibilities of the
Compliance & Culture Committee
109
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Our Sales
Representative
demonstrates some
ofour new products.
Stakeholder statement
Directors’ duties
In accordance with section 172 of
the Companies Act 2006 and the UK
Corporate Governance Code 2018, the
Board considers the potential impact on
the Company’s key stakeholders and takes
their views and interests into account
when making decisions. All Board papers
requiring a Board decision include a section
discussing the potential impact on our
keystakeholders and how that decision
links into our business model and strategic
pillars where appropriate.
The Board also takes the opportunity
to engage with our stakeholders,
asappropriate. Whilst this has been
challenging during 2021 due to the
COVIDpandemic, virtual arrangements
havebeen made where possible.
Direct engagement with our stakeholders
supplements the information provided
informal Board presentations and
enrichesthe context for our decisions.
Employees
2021 Highlights
–
The Board continued to focus on the impact of the COVID pandemic
onemployees’ safety and wellbeing.
–
Members of the Board attended three virtual Board/Employee
listening sessions during the year. These sessions focused on our
R&D employees in Pittsburgh and high potential employees in
ourcorporate and commercial teams.
–
The September Board meeting incorporated a visit to our UK oces
in Watford, where the Board met with members of the corporate
functions, and the team running our Expert Connect Centre and
also our senior UK sales representatives, who demonstrated our
new technologies.
–
Positive results were maintained in the Gallup survey.
–
The Board were updated on the activities of our Employee Interest
Groups throughout the year, particularly relating to diversity,
mentalhealth and volunteering programmes.
2022 Actions
–
Additional Board/employee listening sessions, returning to physical
meetings as soon as practicable.
–
Continued monitoring of management actions relating to culture,
inclusion and diversity, with specific focus on the management
response on ethnic diversity.
Our employees are crucial to the success of the
business and many of the key decisions made by
theBoard have an impact on them. It is important
forustounderstand the employee perspective
andtaketheirviews into account. We believe that
anengagedworkforce is better for business.
Section 172 statement
Areas of interest
–
Talent.
–
Engagement with purpose of
Life Unlimited and our culture
pillars of Care, Collaboration
and Courage.
–
Innovation.
–
Society and the environment.
–
Strategy.
–
Customers.
How we engage
–
The Board discusses results
and next steps of annual
Gallup survey.
–
Updates on culture, people,
inclusion and diversity at
every Compliance & Culture
Committee meeting.
–
The Board meets with
employees on-site visits,
or virtually.
–
Board/employee
listening sessions.
106
Compliance &
Culture Committee
People
20
»
See pages 20–27
110
Smith+Nephew
Annual Report 2021
Investors
2021 Highlights
–
Executive Directors held 81 meetings with investors representing
61% of the Company’s Share Capital. In December, around 190
investors attended our virtual Meet the Management event.
–
Roberto Quarta, Robin Freestone and Marc Owen met with
shareholders. Their discussions focused on business and share price
performance as well as topics such as ESG, culture, product quality,
business ethics, cybersecurity, climate change, governance and
Board changes.
–
The 2021 Annual General Meeting was live-streamed to enable
shareholders to submit questions remotely during the meeting.
–
Continued to pay dividends, despite the COVID impact upon our
business, following rigorous stress testing.
2022 Actions
–
The Board will continue to be available to meet with shareholders.
Please contact the Company Secretary, if you have matters you
wishto raise with the Non-Executive team.
–
The 2022 Annual General Meeting will be held as a hybrid meeting,
physically in our auditorium at our headquarters in Watford and live
streamed, enabling shareholders to attend, voteand ask questions
inperson or remotely.
Our equity investors are the owners of our
businessandit is important for us to understand
theirperspectives on capital allocation and how
theCompanyis run.
Areas of interest
–
Strategy.
–
Performance.
–
Dividend.
–
Leadership.
–
Succession planning.
–
Remuneration.
How we engage
–
The Chair and Non-Executive
Directors are available to meet
with investors physically or
virtually on request.
–
The Board receives reports on
meetings taking place between
investors and Board members
and also reviews significant
changes to the share register
ateach Board meeting.
–
Board members receive regular
copies of analyst reports.
–
The Chief Executive Ocer and
Chief Financial Ocer meet
with investors.
Shareholder
information
222
Roberto Quarta, Chair has held eight virtual
meetings with our key investors during the
course of 2021. In two of these meetings,
he was joined by Marc Owen, Chair of our
Compliance & Culture Committee, who
also met separately with one other investor.
Our Senior Independent Director, Robin
Freestone, also met one investor in 2021.
The Board has seen a significant increase in
interest from our shareholders in sustainability
matters and in particular environmental
concerns and the impact of climate change on
our operations. We have reported against the
TCFD framework on pages 54–56 and have
undertaken scenario modelling looking at the
possible impact of a rise in temperature, a rise
in sea levels and extreme weather events on
our operations. Although, reporting against the
TCFD framework is now mandatory, we know
from our interactions with investors, that this
is something that you want. These interactions
have helped frame our approach to assessing
the potential impact of climate change
onourbusiness and how we report it.
Our investor engagement also showed us
thatsome shareholders were interested in
broader sustainability matters and required
usto reportagainst the SASB framework.
As a result of this engagement, during 2021
wetherefore began to view our operations
through a SASB lens and we have reported
onour progress against SASB this year.
The second area of investor interest has been
on the Company’s performance and its impact
on the share price. Naturally, this has also been
a concern for the Board. We have spent time
with management trying to understand the
root causes, some of which stem from external
factors including the impact of COVID on
the level of surgeries undertaken and global
shortages of raw materials, whilst others are the
result of internal factors, which have their origin
in the past. In our interactions with shareholders,
we have sought to reassure our investors that the
Board is working with management to resolve
these issues and to get business performance
back on track. The Board is delighted that
the Meet the Management Event held on
16 December wentsome way to responding
to investor concerns. The Board is happy to
continue to engage with investors throughout
thisongoing process.
»
Shareholder information
pages222–230
As a result of investor engagement in 2021, we are
now reporting on our progress against SASB
Engaging with our Investors
Our Enhanced
Packaging System
helps reduce
our impact on
the environment.
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Strategic report
Governance
Accounts
Other information
As described elsewhere, Smith+Nephew
has faced a number of issues during
2021 aecting our supply chain.
The Board has been disappointed that
our ability to deliver products to our
customers has been impacted. We
have been working with management
throughout to understand the underlying
causes for these issues and to
develop a roadmap to resolve them
and get back on track. Many of these
underlying causes stem from the global
supply situation aecting many other
companies, for example storms in
Memphis in the first part of the year,
theSuez Canal blockage in March 2021
and general supply issues consequent
upon the COVID pandemic. However,
we also recognise that we have been
impacted more than some of our
competitors, because of internal
issues that pre-dated the pandemic.
The Board has worked with management
and has overseen the work of the team
set up to address these issues. We were
delighted to welcome Paul Connolly
asour new Head of Global Operations
in October who presented tothe Board
atour December meeting.
When the Board visited our Watford
site in September, we heard from
some of our sales representatives how
the supply shortages were aecting
their customers and the measures
they were putting in place to support
our customers.
»
Compliance & Culture
Committee page 106
»
Serving healthcare customer
pages 36–41
Understanding how our sales representatives
support ourcustomers
Engaging with our customers and suppliers
“ Our sales representatives
demonstrated our products
and explained how they
supported our customers
during COVID.”
Stakeholder statement
continued
Section 172 statement
continued
Customers and suppliers
2021 Highlights
–
It has not been possible during 2021 due to COVID restrictions
fortheBoard to meet our customers on site visits or to accompany
oursales representatives.
–
The Board has been kept updated of the supply chain issues
aectingthe Company and the Orthopaedics franchise in particular,
during 2021 and have been actively engaged with management
toresolve these issues.
–
The Compliance & Culture Committee received regular reports
onthe transition to EU MDR, eective 26 May 2021.
–
In response to customer needs, the cementless knee was launched
in 2021.
–
Management has reported to the Board on the importance
ofclimate change to our customers and in turn how we
engage withoursuppliers to ensure they share our view on
sustainability matters.
2022 Actions
–
Board will meet with surgeons and hospitals when physical meetings
are again possible.
–
Board members will resume programme of spending time with sales
representatives in the field.
Our business model creates value through
customercentricity. The better we understand
theneeds of our customers, the better we are able
toserve them and this helps to grow our business.
Working in partnership with our suppliers ensures
wehave the right resources to support this growth.
Areas of interest
–
Acting in partnership
together, supporting their
needs and responding to
their requirements.
–
Acting ethically and fairly.
–
Ensuring product quality,
compliant with regulations.
–
Prompt and fair payment.
How we engage
–
Updates on product
quality, regulatory matters
and complaints.
–
Updates on ethical and
compliance matters
and complaints.
–
The Board meets with key
customers such as surgeons and
leading hospital administrators
during site visits and virtually.
–
The Board receives regular
updates on supplier and
customer relationships.
–
Individual Board
members accompany
sales representatives
visiting customers.
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Culture Committee
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Smith+Nephew
Annual Report 2021
Governments and regulators
2021 Highlights
–
The Company submitted a response to the UK government
consultation on restoring trust in audit and corporate governance.
–
The Compliance & Culture Committee received regular reports
fromMizanu Kebede, our new Chief Quality & Regulatory
Aairs Ocer, on the results of FDA inspections at our
manufacturing facilities.
2022 Actions
–
The Board and the Compliance & Culture Committee will continue
to maintain oversight of all matters pertaining to the Company’s
relationship with governments and regulators across the world.
We are subject to the laws and regulations of
manygovernments and regulators across the world
andunderstanding their requirements is important
forustoensure not only product safety and
compliancewith relevant legislation, but also in
linewithour firststrategic imperative to achieve
thefullpotential ofourportfolio.
Areas of interest
–
Product safety.
–
Compliance with local legal
andregulatory requirements.
–
Competition issues.
–
Social and economic concerns.
How we engage
–
Management is responsible
for ensuring compliance
with applicable laws and
regulations. Direct engagement
between the Board and our
regulators is therefore not
always appropriate.
–
Updates on product quality,
regulatory matters and
complaints at every meeting
of the Compliance &
Culture Committee.
–
Updates on ethical and
compliance matters, and
complaints at every meeting
of the Compliance &
Culture Committee.
–
The Chief Executive Ocer
meets with UK government
and regulators.
Quality & Regulatory
35
Further information about our relationship
with other stakeholders including the local
communities in which we operate and
our impact on the environments and the
impact of climate change on our business
can be found in the Sustainability Report
and on pages 48–57. The Compliance &
Culture Committee regularly received
updates on our sustainability programme
and our progress towards the achievement
ofour 2030 sustainability goals.
The Directors’ Report, prepared in
accordance with the requirements of the
Companies Act 2006 and the UK Listing
Authority’s Listing Rules comprising
pages1–113 and 222–238, was approved
bytheBoard on 22 February 2022.
Susan Swabey
Company Secretary
The Strategic Report, comprising pages
1–70 was approved by the Board on
22 February 2022.
Roland Diggelmann
Chief Executive
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Member
from
Meetings
attended
Angie Risley (Chair)
September 2017
7/7
Virginia Bottomley
1
April 2014
3/3
Robin Freestone
September 2015
7/7
Roberto Quarta
April 2014
7/7
Bob White
July 2020
7/7
Membership
Remuneration
Dear Shareholder,
2021 has been another challenging year
for Smith+Nephew. You will read elsewhere
in this Annual Report about the continued
challenges the business is facing and the
ongoing impact that the cancellation
of elective surgeries, sta shortages
and supply chain issues have had on our
performance. Despite these challenges,
we continue to be so appreciative of the
eorts and hard work from our employees
and management across the organisation,
focusing primarily on the safety of our
employees and customers. It has been
another tough year for all our stakeholders.
A massive thank you to our employees
foreverything they do.
The focus of the Remuneration Committee
during 2021, as always, has been on
continuing to ensure that we are able
to pay our employees and executives
appropriately in a way that both recognises
the performance of the Company and
also takes into account the competitive
positions of global pay arrangements.
Departure of Roland Diggelmann,
Chief Executive Ocer
As announced on 22 February 2022,
Roland and the Board came to a mutual
agreement that he would step down
asChief Executive Ocer with eect
from31 March 2022.
The Committee considered the treatment
to be applied to Roland’s remuneration
arrangements, in accordance with
the Remuneration Policy approved by
shareholders on 9 April 2020 and the
terms of his employment agreement.
Further details are provided on page 128
inthe Implementation Report. In summary,
the following treatment was applied:
–
Salary, benefits including life assurance,
and pension contributions will continue
to be made in the ordinary course during
his employment up to 31 March 2022.
–
He will receive payments in lieu of his
salary, health and dental benefits, car
allowance and pension contributions
inrespect of the balance of his mutually
agreed 12-month notice period up to
28 February 2023 (to reflect the Swiss
law requirement that the notice period
runs from the end of the month in
whichnotice is served).
Directors’ Remuneration
report
1 Virginia Bottomley retired from the Board and the Committee at the Annual General Meeting on 14 April 2021.
“ In 2021 we decided
to addsustainability
targets toour
Annual BonusPlan
for2022 onwards.”
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Deepak will participate in the Annual Bonus
Plan and Performance Share Programme,
in accordance with the Remuneration
Policy approved by the shareholders on
9 April 2020. The Company will pay pension
contributions in line with average pension
rates in the US workforce (currently 7.5%
of salary per annum), and he will receive
standard benefits, which are not materially
dierent in nature or value relative
to Roland.
Deepak will also receive buy-out awards
to the value of €7,501,150 ($8,544,560)
inrespect of outstanding incentives
that hewill forfeit on leaving his former
company. All awards have been provided
on a like-for-like basis in terms of the
value provided and their performance
and/or vesting periods. There has been
no acceleration of any awards and the
performance-based awards have not
beenreplaced with a non-performance
based award. An amount of up to $800,000
will be paid in cash in November 2022 in
respect of his forfeited 2022 cash bonus,
subject to the Committee’s assessment
of the targets attached to the cash bonus
forfeited at his previous company.
The buyout awards relating to the
performance-related awards will
continue to be subject to their original
performance conditions.
Further details may be found on page129.
Deepak will also be required to build up
a holding of Smith+Nephew shares
equivalent to three times his base salary.
Increase in salary of
Anne-Françoise Nesmes
The Committee reviewed the base salary
paid to Anne-Françoise. During 2021,
she took on increased responsibility for
our Global Business Services function,
in addition to her role as Chief Financial
Ocer. In recognition of this additional
responsibility, her base salary will
increaseby a total of 6.2%, of which 4%
is in acknowledgement of her expanded
role and 2.2% is in respect of an annual
payincrease, which is below the 2.9%
increase applying to the wider workforce.
Review of 2021 Performance
In 2021 the Group delivered financial
results in line with its full-year guidance
despite continued COVID disruption
to elective surgeries. Revenue was
$5,212 million, up 14.3% on a reported
basis and 10.3% on an underlying basis.
Operating profit was $593 million,
up 101% and the trading profit was
$936 million with a trading profit margin
of 18.0%, 300 basis points above 2020.
The strong performance of Sports
Medicine& ENT and Advanced Wound
Management helped oset the
near-term challenges in our Orthopaedics
franchise. These included supply chain
constraints and channel adjustments
ahead of the volume-based procurement
implementation for hip and knee
implants in China. We are stabilising
theSmith+Nephew-specific supply
chain challenges and worked to mitigate
thewidely reported global shortages
of some raw materials and components.
However, we expect supply constraints
toremain a headwind in 2022.
We launched our Strategy for Growth,
drivenby improved productivity and
commercial execution, innovation and
acquisitions, and announced medium-
term revenue and trading profit targets.
The recent step-up in investment in
R&D enabled us to introduce a number
of important new products, including a
cementless knee system, expansion of
robotics platform, meniscal repair system
and sports medicine tower upgrade.
We also strengthened our commercial
model with Orthopaedics and Sports
Medicine & ENT franchises brought under
one leadership team to better address
higher growth opportunities and announced
an updated capital allocation framework
maintaining higher investment in innovation
to drive growth and our progressive dividend
policy, with new regular annual share
buy-backs commencing in 2022.
–
The payout under the 2021 Annual
BonusPlan has been determined in the
normal manner, resulting in an overall
outcome of 83% of target resulting
ina bonus of CHF1,228,936 (see pages
122–123 for further details). This will be
delivered equally in cash and deferred
share awards as described on page 123.
–
Roland will be eligible to participate in
the Annual Bonus Plan for 2022, with
his opportunity pro-rated to reflect
the period of the year worked and
the outcome determined in the usual
manner at year-end.
–
Roland will be a “good leaver” for the
purposes of the Performance Share
Programme. As such, his awards will
bepro-rated for service and will remain
capable of vesting at the end of the
three-year performance period, subject
to meeting the relevant performance
conditions. He will be required to retain
any vested shares, net of tax, for a
further two-year period aer the vesting
date. He will not receive a Performance
Share Programme award in 2022.
–
He will be subject to non-compete
and non-solicitation restrictions until
28 February 2023.
–
All shares earned during Roland’s
employment as Chief Executive Ocer
willbe subject to a two-year holding
period post cessation of employment.
Appointment of Deepak Nath
As announced on 22 February 2022,
Deepak Nath will be appointed Chief
Executive Ocer with eect from
1 April 2022. Deepak will be based in
our Fort Worth oces in the US and will
be employed under a US employment
agreement in accordance with the
Remuneration Policy approved by
shareholders on 9 April 2020. He will
receive a base salary of $1,475,000 per
annum, which, based on exchange rates
at the time of agreement, was in line with
that received by Roland.
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Looking forward
– Remuneration Committee’s
focus for 2022
During 2022, the Remuneration
Committeeintends to:
•
Undertake a complete review of our
remuneration arrangements ahead
ofputting the Remuneration Policy
Report to shareholder vote in 2023
toensure it remains fit for purpose
ina changing business environment.
•
Continue to monitor business
performance against the targets
under our incentive plans.
•
Continue to oversee remuneration
arrangements across the Company as
a whole, monitoring wider employee
pay initiatives and our gender
pay performance.
Remuneration
continued
Directors’ Remuneration report
continued
Annual Bonus Plan
Performance against the financial targets
under the Annual Bonus Plan 2021 was
therefore close to target for both Revenue
and Trading Margin, resulting in a payout
of 91% against target in respect of the
financial objectives.
The Remuneration Committee reviewed the
performance of the Executive Directors
against their individual business objectives.
We concluded that Roland partially
achieved against his individual business
objectives both in terms ofwhathe did and
how he performed, whilst Anne-Françoise
achieved against her individual business
objectives in terms ofwhat she did and
exceeded interms ofhow she performed.
These ratings combined with performance
against the financial objectives resulted
in a bonus amounting to 83% of target
forRoland and 93% of targetfor
Anne-Françoise.
We also considered whether these
outcomes fairly represented the
performance of the Company and the
Executive Directors in 2021. Whilst we
acknowledged that the share price had
fallen during 2021, we also recognised
that the Company had delivered close
toits financial targets and there had
been no reputational risk issues during
the year. We therefore determined that
these outcomes were a fair representation
of performance and there was no need
toapply discretion to these figures.
During 2021, we took the decision to
formalise the business objectives within
our Annual Bonus Plan to recognise the
importance of ESG matters to our business.
Going forward, 5% of the Annual Bonus
Plan will be dependent onESG targets.
Performance Share Programme
Similarly, the Remuneration Committee
reviewed performance over the past three
years against the targets determined
in 2019 for the Performance Share
Programme and determined that these
awards should vest at 0%. This reflects
performance against the targets over
the three-year performance period since
1 January 2019. Neither Roland nor
Anne-Françoise was employed by the
Company in an executive role at the
time these awards were made in 2019
and therefore neither of them received
an award.
In early 2022, the Remuneration
Committee considered the performance
framework of the Performance Share
Plan Awards due to be made in 2022 and
were satisfied that the existing measures
– indexed TSR, return of invested capital,
sales growth and cumulative free cash
flow– remain appropriate.
Performance targets
In February 2021, the outlook for the
longerterm was uncertain so we therefore
delayed the approval of the performance
conditions for the Performance Share Plan
2021 until April 2021 and these awards
were made in May 2021. We shall be
adopting the same approach in 2022.
The wider workforce
The Remuneration Committee maintains
oversight of the pay arrangements
forthe wider workforce and is pleased
that our employees were not laid o
or placed on furlough as a result of the
pandemic. During 2021, we have seen
increased turnover in sta following the
macroeconomic trends across the markets
in which we operate. The Committee has
been monitoring the impact of this on
the workforce and levels of pay across
the organisation.
We have reviewed the gender pay ratio
and are delighted to note that we continue
to make positive progress year-on-year,
partly as a result of the new initiatives
focusing on inclusion and diversity, described
more fully on page 23. The Board and the
Remuneration Committee have monitored
these issues throughout the year.
Thank you for your continued support.
Angie Risley
Chair of the Remuneration Committee
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Measures in our variable pay plans
Performance measures in Annual Bonus Plan for 2022
Revenue (40%)
Top-line growth is essential for continued progress and long-term value creation.
Trading margin (40%)
Trading margin focuses on profit.
Business objectives (15%)
Individual business objectives linked to the strategic imperatives to ensure alignment across the Company.
ESG objectives (5%)
Doing the right thing with regard to our employees, the environment and other stakeholders ensures
asustainable business for the future.
Performance measures in our Performance Share Programme for 2022
Revenue growth (25%)
Top-line growth leading to value creation is a key goal for Smith+Nephew over the next three to five years.
Winning market share is important to create a competitive advantage for Smith+Nephew in driving growth.
Return on invested
capital (25%)
Provides focus on long-term eciency and profitability.
Bottom-line performance provides balance to revenue measure.
Important measure for our investors.
Cumulative free
cash flow (25%)
Essential to fund investment, pay down debt and take advantage of market opportunities.
Important measure for our investors and forms part of management conversations with the market.
TSR performance
against an Index (25%)
Total Shareholder Return (TSR) aligns Executive reward to the shareholder experience.
An indexed approach avoids an anomalous result which can arise if there is a small number of extreme outliers
in the Group.
Compliance statement
We have prepared this Directors’ Remuneration Report (the Report) in accordance with The Enterprise and Regulatory Reform Act 2012–2013 (clauses 81–84), sections 420 to 422 of the
Companies Act 2006 and The Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulations), The Companies (Directors’ Remuneration
Policy and Directors’ Remuneration Report) Regulations 2019 and The Companies (Miscellaneous Reporting) Regulations 2018. The Report also meets the relevant requirements of the
FinancialConduct Authority (FCA) Listing Rules.
Pages 118–135 is the annual report on remuneration (the Implementation Report). The Implementation Report will be put to shareholders for approval as anadvisory vote at the Annual
General Meeting on 13 April 2022. The Implementation Report explains how the Remuneration Policy was implemented during 2021. The following sections have been audited by KPMG LLP:
TheSingle Figure Tables on Remuneration including related notes (pages 120–128); details of awards made under the Performance Share Programme (pages124–127); Summary ofScheme
Interests during the year (page 127); Payments to former Directors (page 128); Payments made to other past Directors (page 128); Directors interests in ordinary shares (page130) andSenior
Management Remuneration (page 135).
The Directors’ Remuneration Policy Report (the Policy Report) was approved by shareholders at the Annual General Meeting on9 April 2020. This Policy Report can be found on our website
within the 2019 Annual Report and describes our Remuneration Policy as it relates to the Directors of the Company. All payments we make in relation to Directors of the Company will be
inaccordance with this Remuneration Policy. It is intended that the Policy will next be put to shareholders’ vote at the Annual General Meeting to be heldin 2023.
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Remuneration
implementation report
The Remuneration Committee presents
the Annual Report on Remuneration
(theImplementation Report) which
willbe put to shareholders for an
advisory vote at the Annual General
Meeting to beheld on 13 April 2022.
The Terms of Reference of the
Remuneration Committee describe
ourrole and responsibilities more fully
and can be found on our website:
www.smith-nephew.com.
The Remuneration Policy approved
byshareholders at the 2020 Annual
General Meeting may also be found
onour website in the 2019
Annual Report.
Work of the Remuneration
Committee in 2021
In 2021, we held 7 meetings and
determined 5 further matters by written
resolution. Each meeting was attended
by all members of the Committee.
The Chief Executive Ocer and the Chief
Human Resources Ocer, key members
of the finance function and the Company
Secretary also attended all or part of some
of the meetings, except when their own
remuneration was being discussed. We also
met with the independent remuneration
consultants, Deloitte LLP (Deloitte), the
remuneration advisors to the Committee.
Since the year end, we have reviewed
the financial results for 2021 against
thetargets under the short-term and
long-term incentive arrangements
jointlywith the Audit Committee.
We have also determined base salary
increases for Executive Directors and
Executive Ocers with eect from April
2022 and have determined the payouts
under the 2021 Annual Bonus Plan and
the vesting under the Performance
SharePlan 2019.
We have determined remuneration
arrangements for Deepak Nath, who will
be joining as Chief Executive Ocer on
1 April 2022, and termination arrangements
for Roland Diggelmann who will cease to
Chief Executive Ocer on 31 March 2022.
Finally, we approved the wording of the
Directors’ Remuneration Report.
Independent Remuneration
Committee advisors
During the year, the Committee received
information and advice from Deloitte.
Deloitte is a global firm, which provides
many services to the Company, including
tax and consultancy services. Deloitte
was appointed by the Committee following
a full tender process in 2018 to provide
remuneration advice to the Committee,
independent from management.
During the year, Deloitte provided advice
on market trends and remuneration
issues in general, attended Committee
meetings, assisted in the review of
the Directors’ Remuneration Report,
undertook calculations relating to the
TSRperformance conditions and advised
onannual bonus reviews impacted
by COVID.
The fees paid to Deloitte for advice to the
Committee during 2021, charged on a
time and expense basis, were £68,350
($94,001). Deloitte complies with the
Code of Conduct in relation to Executive
Remuneration Consulting in theUK
andtheCommittee issatisfied that their
adviceis objective and independent.
Remuneration
continued
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Determination of
Remuneration Policy
andpackages
–
Determination of Remuneration Policy
forExecutive Directors, Executive Ocers
andsenior executives.
–
Approval of individual remuneration
packages for Executive Directors and
Executive Ocers, at least annually,
andanymajor changes toindividual
packages throughout the year.
–
Consideration of remuneration policies
andpractices across the Group in particular
relating to CEO Pay Ratio and Gender Pay.
–
Approval of appropriate performance
measures for short-term and long-term
incentive plans for Executive Directors,
Executive Ocers and senior executives.
–
Determination of pay-outs under short-
term and long-term incentive plans for
Executive Directors, Executive Ocers
andsenior executives.
January
–
Approved principles for determining payouts
to Executive Directors and Executive Ocers
under the 2018 Performance SharePlan,
the2020 Annual Bonus Plan andthe 2020
Cash Incentive Plan.
–
Considered principles for setting the
targetsforthe Annual Bonus Plan 2021.
–
Approved principles in respect of
ExecutiveOcer Remuneration for 2021.
–
Approved grants of compensatory
Restricted Share Awards.
–
Noted share awards made.
Early February
–
Approved quantum of cash payments
andawards to Executive Directors and
Executive Ocers under the 2020 Annual
Bonus Plan, 2020 Cash Incentive Plan
and2018 Performance Share Plan.
–
Approved grants of Equity Incentive Awards.
–
Reviewed and approved remuneration
arrangements for Executive Directors
andExecutive Ocers in 2021.
–
Noted quantum of 2021 compensatory
Restricted Share Awards.
–
Approved retention awards for
Executive Ocers.
–
Noted Gender Pay Report and CEO
PayRatio figures.
–
Reviewed Chair of the Board’s pay.
–
Reviewed and approved Company
Secretary’s pay.
Determination of
Remuneration Policy
andpackages
continued
Late February
–
Approved financial targets for 2021
Annual Bonus Plan for Executive Directors,
ExecutiveOcers and senior executives.
–
Approved 2021 Remuneration Committee
Business Plan.
April
–
Reviewed and approved financial measures
and targets for 2021 Performance
Share Plan for Executive Directors
andExecutive Ocers.
–
Noted share awards made to Executive
Ocers, senior executives and
other employees.
–
Approved retirement arrangements
forExecutive Ocer.
July
–
Reviewed the schedule of plans
and targets for awards.
–
Noted share awards made to senior
executivesand other employees.
–
Reviewed Remuneration Strategy for
Executive Directors, Executive Ocers
andsenior executives.
September
–
Reviewed Remuneration Strategy for
Executive Directors, Executive Ocers
andsenior executives.
–
Reviewed schedule of plans and targets.
–
Noted share awards made to senior
executivesand other employees.
–
Approved retirement arrangements
forCompany Secretary.
December
–
Reviewed the performance against the
targetsunder the 2021 Annual Bonus
Plan, 2019 and 2020 Performance
Share Programme.
–
Noted principles for determining payouts
underthe 2019 Performance Share Plan
andthe 2021 Annual Bonus Plan.
–
Reviewed and approved financial and
non-financial targets and measures
forExecutive Ocers.
–
Reviewed the schedule of plans and targets.
–
Noted sign-on share awards and share
awards made to senior executives
and employees.
Oversight of all Company
Share Plans
–
Determination of the use of long-term
incentive plans and overseeing the use of
shares in executive and all employee plans.
Early February
–
Monitored adherence to shareholding
guidelines for Executive Directors,
ExecutiveOcers and senior executives.
July
–
Monitored adherence to shareholding
guidelines for Executive Directors,
ExecutiveOcers and senior executives.
–
Monitored dilution limits and the
number of shares available for use in
respect of discretionary and all-employee
share plans.
Reporting and engagement
with shareholders on
remuneration matters
–
Approval of the Directors’ Remuneration
Report ensuring compliance with
related governance provisions.
–
Continuation of constructive
engagement onremuneration matters
with shareholders.
Early February
–
Reviewed dra Directors’
Remuneration Report.
Late February
–
Approved Directors’ Remuneration Report.
July
–
Reviewed matters arising from Annual
General Meeting and proposals for
Investor engagement.
–
Noted Remuneration Committee dashboard.
Other matters
Early February
–
Audit Committee in attendance to answer
questions related to audited numbers
andprovide assurance.
–
Approved Terms of Reference.
December
–
Received an update on the external
market context and data.
Responsibilities of the
Remuneration Committee
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Single total figure on remuneration (audited)
The amounts for 2021 have been converted into US$ for ease of comparability using the exchange rates of £ to US$1.3753 and CHF to
US$1.0939 (2020: £ to US$1.2824 and CHF to US$1.0654).
Roland Diggelmann
Appointed 1 November 2019
Anne-Françoise Nesmes
Appointed 27 July 2020
2021
2020
20212020
Fixed pay
Base salary
$1,509,582
$1,470,275
$797,674
$324,211
Pension payments
$182,587
$176,433
$95,721
$38,905
Taxable benefits
$65,923
$51,065
$17,005
$6,942
Annual variable pay
Annual Incentive Plan/Annual Bonus Plan –
cash element
$672,167
–
$398,053
–
Annual Incentive Plan/Annual Bonus Plan –
equity element
$672,167
–
$398,053
–
Long-term variable pay
Performance Share Programme
–
–
––
Total
$3,102,426
$1,697,773
$1,706,506
$370,058
Base salary
The actual salary receivable for the year.
Pension payments
The value of the salary supplement in lieu of pension or contribution to any pension scheme
made by the Company.
Taxable benefits
The gross value of all taxable benefits (or benefits that would be taxable in the UK) received
inthe year.
Annual Incentive Plan –
cash element/Annual Bonus Plan
The value of the cash incentive payable for performance in respect of the relevant
financial year.
Annual Incentive Plan –
equity element/Annual Bonus Plan
The value of the equity element awarded in respect of performance in the relevant financial
year as described on page 122 of this report.
Performance Share Programme
The value of shares vesting that were subject to performance over the three-year period
ending on 31 December in the relevant financial year. For awards vesting in early 2022 this
isbased on an estimated share price of 1271.73p per share, which was the average price
ofashare over the last quarter of 2021.
Neither Mr Diggelmann nor Ms Nesmes held Performance Share Awards granted in 2019.
Total
The sum of the above elements.
All data is presented in our reporting currency of US Dollars (USD). Amounts for Roland Diggelmann have been converted from SwissFrancs
and from Sterling for Anne-Françoise Nesmes using average exchange rates. Given currency movements in 2021, thismaygive the impression
of changes that are misleading. Data is presented in local currency in the subsequent sections in theinterests offull transparency.
Remuneration
continued
Remuneration implementation report
continued
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Fixed pay
Base salary
Executive base salaries are usually reviewed in February each year, with any changes to take eect from 1 April. During 2021,
wedetermined that there would be no increase to the base salaries paid to the Executive Directors.
Roland Diggelmann’s base salary therefore remained at CHF1,380,000 and Anne-Françoise Nesmes’ base salary remained at
£580,000during 2021.
In February 2022, we reviewed the base salaries of the Executive Directors, noting that the average increase to base pay for employees
inSwitzerland and the United Kingdom was 2% and 2.9% respectively.
In February 2022, we reviewed Anne-Françoise Nesmes’ base salary, noting that her role had expanded during the year to include
responsibility for the Global Business Services function. Aer due consideration, we have awarded her a total increase in base salary
of6.2% with eect from 1 April 2022. 4% of this increase is in recognition of her increased responsibilities and 2.2% is in respect of
herannual salary review. The general increase to base pay for employees in the UK in 2022 is 2.9%.
As Roland Diggelmann is stepping down as Chief Executive Ocer, he will receive no increase in base pay.
As announced on 22 February, Deepak Nath’s base pay will be $1,475,000, aligned with Roland Diggelmann’s salary at the time
ofhisappointment. Therefore the base pay of our Executive Directors with eect from 1 April 2022 will be:
–
Deepak Nath $1,475,000
–
Anne-Françoise Nesmes £615,960
Pension payments
Roland Diggelmann participates in the Swiss Profond pension plan. He is employed under a Swiss contract, which is where he is
domiciled. During 2021, total Company pension contributions for Roland amounted to CHF166,914, which is equivalent to 12%
ofhisbase salary.
Anne-Françoise Nesmes receives a salary supplement of 12% of basic salary to apply towards her retirement savings, in lieu of
membership of one of the Company’s pension schemes. This is in line with the pension arrangement for the wider UK workforce.
When Deepak Nath joins the Company on 1 April 2022, he will receive pension contributions aligned with the wider US workforce
(currently 7.5% of his base salary).
Benefits
In 2021, our Executive Directors, Roland Diggelmann and Anne-Françoise Nesmes received death-in-service cover of seven-times basic
salary, of which four-times salary is payable as a lump sum, with the balance used to provide for any spouse and dependent persons.
Each Executive Director received health cover for themselves and their families, a car allowance and financial consultancy advice.
Thesame arrangements will apply in 2022. The following table summarises the value of benefits in respect of 2020 and 2021.
Roland Diggelmann
Anne-Françoise Nesmes
2021
2020
20212020
Health cover
CHF6,893
CHF6,893
£965
£444
Car and fuel allowance
CHF32,400
CHF32,400
£11,400
£4,969
Financial consultancy advice
£16,680
£7,175
–
–
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Annual incentives
Annual Bonus Plan 2021
Following the approval of the Remuneration Policy at the 2020 Annual General Meeting, the maximum opportunity under the Annual
Bonus Plan for Executive Directors is 215% of base salary, subject to satisfactory performance against the performance measures
detailed below. 50% of the award is paid in cash and 50% is deferred into shares which will vest aer three years.
The performance measures and weightings which applied to the Annual Bonus Plan 2021 were as follows:
Weighting
Threshold as a
percentage of
salary
Target as a
percentage of
salary
Maximum as a
percentage of
salary
Revenue
40%
12.8%
43%
86%
Trading margin
40%
12.8%
43%
86%
Business objectives
20%
6.4%
21.5%
43%
The 2021 targets for revenue and trading margin are shown below and were determined in February 2021
Threshold
Target
Maximum
Actual
1
Revenue
$4,905m
$5,332m
$5,759m
$5,277m
Trading Margin
16.6%
18%
19.2%
17.8%
1 At constant exchange rates. See page 218.
Financial objectives
The revenue target for 2021 is set by reference to our expectations for growth for the year. Threshold was set at 8 percentage points
below target and maximum was set at 8 percentage points above target.
The trading margin target was set by reference to budgeted trading profit margin for the year. Threshold and maximum were set
at85%and 115% of budgeted trading profit margin, divided by threshold and maximum revenue respectively.
This resulted in a payout of 91% of target against the financial objectives.
Accordingly, the following amounts have been earned by Roland Diggelmann and Anne-Françoise Nesmes for 2021 under the
AnnualBonus Plan in respect of their financial objectives.
Roland Diggelmann
CHF1,080,586
Anne-Françoise Nesmes
£454,159
As well as considering the monetary outcome of the formulaic calculation of these awards, the Committee considered that this
performance fairly represented the overall financial performance during the year.
Business objectives
In determining performance against the business objectives, the Executive Directors have been assessed on the same basis as applies
toallemployees across the Group using a four-point rating scale reflecting both what has been achieved and how it has been achieved.
Atthe beginning of the year, specific business objectives were determined relating to achievement of the corporate strategy. For 2021,
these objectives were Growth, People and Business processes as in 2020. Performance against these business objectives was
considered alongside how the Executive Directors performed in respect of our culture pillars of Care, Collaboration andCourage.
This includes consideration of performance against sustainability, compliance and quality metrics. Their overall performance has
beenassessed according to the extent to which the Executive Directors have met the expectations of the Board. The20% of
theAnnualBonus Plan which is attributable to business objectives will be paid out as follows:
Performance
% of base salary
Below expectations
Nil
Partially met expectations
6.4%
In-line with expectations
21.5%
Above expectations
43%
When setting business objectives for the upcoming year, the Board looks not only at the expected financial performance for the year,
butalso at the actions it expects the Executive Directors to carry out in the year to build a solid foundation for financial performance
over the longer term. In reviewing performance against these objectives at the end of the year, the Board is mindful that there is not
always anecessary correlation between financial performance and the achievement of business objectives. The table below sets out
how theChair and the Board have assessed how Roland Diggelmann and Anne-Françoise Nesmes have performed against the business
objectives of Growth, People and Business Processes.
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Roland Diggelmann
Anne-Françoise Nesmes
People
–
Achieved against target to continue to embed the culture pillars
andpurpose to drive engagement, maintaining strong 2020
engagement over the course of a challenging year evidenced
byGallup engagement survey results.
–
Partially achieved against target to strengthen ExCo eectiveness
and build a high-performance team due to ExCo turnover; successors
have been hired or promoted from within.
–
Achieved against target to drive increased inclusion and diversity
(gender) delivering improvement to gender balance at senior
management level.
–
Partially achieved against target to develop and retain key talent
dueto higher attrition.
–
Exceeded against target to strengthen finance talent and capabilities
in identifying issues, overseeing training and development, improving
alignment across functions, sponsoring recognition programme
andimproving diversity.
–
Achieved against target to establish key relationships as new
Chief Financial Ocer by building strong relationships across
Board, ExCo, broader senior leadership team, enterprise and
withexternal stakeholders.
Organisation and Process
–
Achieved against target to meet sustainability strategy goals
anddelivered milestones including roadmap to achieve our carbon
reduction target, embedding of sustainability reviews into new
product development (NPD) processes, recycling reduction and
supply chain assessment.
–
Achieved against target to continue to protect the organisation
fromCOVID, through successful management by crisis management
teams and the launch of flexible working programme.
–
Did not achieve against target to simplify our organisation and
end-to-end processes, as Global Operations transformation targets
were not fully met, and the remediation of the internal supply chain
issues is still underway.
–
Achieved against target to uphold the highest standards of
quality and compliance with new regulatory and quality strategy
deployed successfully.
–
Achieved against target to define Group enterprise resource
planningand digital strategies for medium to long term, delivering
ERPevaluation and workstream to define digital strategy.
–
Partially achieved against target to drive system improvement
by delivering strengthened financial control systems and finance
system roadmap.
–
Achieved against target to drive greater accountability and
visibility across organisation delivering key planning deliverables
and dashboards across commercial, operational and R&D areas
of business.
Customer
–
Partially achieved against new product development targets,
withsuccessful launch of major new products including porous
kneeand continuation of CORI roll-out but missed overall NPD
launchtarget due to supply chain challenges.
–
Partially achieved against target to deliver ASC strategy
with programme subsequently refocused under new
commercial structure.
–
Achieved target to invest in key areas of the business through
initiation of new medical education centres in Singapore and Munich.
–
Achieved against target to continue successful bolt-on acquisitions,
acquiring Extremity Orthopaedics business which has been
successfully integrated and grown.
–
Exceeded against target to continue successful bolt-on acquisitions,
supporting Extremity Orthopaedics integration and successfully
partnered with corporate development on M&A strategy.
This resulted in a calculated bonus achievement of 50% of
target in respect of Roland Diggelmann’s business objectives.
This resulted in a calculated bonus achievement of 100% of
targetin respect of Anne-Françoise Nesmes’ business objectives.
Therefore the total amount earned by Executive Directors in 2021 under the Annual Bonus Plan 2021 is:
Amount earned
in respect of
financial objectives
Amount earned
in respect of
business objectives
Total amount
earned
Total as percentage
of target
Total as percentage
of salary
Roland Diggelmann
CHF1,080,586
CHF148,350
CHF1,228,936
83%
89%
Anne-Françoise Nesmes
£454,159
£124,700
100%£578,859
93%
The Board has reviewed the formulaic calculation of these figures. Whilst we acknowledged that the share price had fallen by 15% during2021,
we also recognised that the Company had delivered close to its financial targets and there had been no reputational risk issues during
the year. We therefore determined this fairly represents the performance of the Company and of the Executive Directors during 2021.
50% of the total amount earned will be paid in cash and the remaining 50% will be deferred into shares which will vest aer three years.
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Annual incentives
continued
Annual Bonus Plan 2022
The maximum opportunity under the Annual Bonus Plan for Executive Directors will be 215% of base salary, subject to satisfactory
performance against the performance measures detailed below. 50% of the award will be paid in cash and 50% will be deferred into
shares which will vest aer three years.
The performance measures and weightings which apply to the Annual Bonus Plan 2022 are as follows:
Weighting
Threshold as a
percentage of
salary
Target as a
percentage of
salary
Maximum as a
percentage of
salary
Revenue
40%
12.8%
43%
86%
Trading margin
40%
12.8%
43%
86%
Business objectives
15%
4.8%
32.25%16.125%
ESG objectives
5%
1.6%
5.375%10.75%
For reasons of commercial sensitivity, we are unable to disclose the precise targets for revenue and trading margin for 2022 now,
whichare both set by reference to our expectations for growth for the year. They will be disclosed retrospectively in the 2022
Annual Report, when performance against those targets are determined.
In determining performance against the business objectives, the Executive Directors will be assessed on the same basis as applies
to allemployees across the Group using a four-point rating scale reflecting both what has been achieved and how it has been
achieved. At the beginning of the year, specific business objectives are determined relating to achievement of the corporate strategy.
These objectives will be Growth, People and Business processes as in 2021. Performance against these business objectives will be
considered alongside how the Executive Director performed in respect of our culture pillars of Care, Collaboration andCourage.
This includes consideration of performance against compliance and quality metrics. Their overall performance will beassessed
according to the extent to which the Executive Director has met the expectations of the Board. For 2022 onwards,
15% of the Annual Bonus Plan will be attributable to business objectives.
The remaining 5% of the Annual Bonus Plan will be attributable to Environmental, Social and Governance objectives aligned to the
Company’s sustainability strategy and the Executive Director’s area of responsibility.
The Annual Bonus Plan attributable to business objectives and ESG objectives will be paid out as follows:
Performance
% of base salary
Below expectations
Nil
Partially met expectations
6.4%
In-line with expectations
21.5%
Above expectations
43%
Long-term incentives
Performance Share Programme
Performance Share Programme 2019
Since the end of the year, the Committee has reviewed the vesting of conditional awards made to former Executive Directors in 2019
under the Performance Share Programme. Neither of the existing Executive Directors were employed as Executive Directors when the
awards were made in 2019. Vesting of the conditional awards made in 2019 was subject to performance against four equally weighted
performance measures – TSR, global revenue growth, cumulative free cash flow and return on invested capital – measured over a
three-year period commencing 1 January 2019.
TSR performance
25% of the award was based on the Company’s TSR performance relative to two equally weighted peer groups
against which the Company’s TSR performance was measured as follows:
–
A sector-based peer group based on those companies classified as the S&P 1200 Global Healthcare subset comprising medical
devices, equipment and supplies companies (ocial industry classifications of ‘Health Care Equipment and Supplies, Life Sciences
Tools & Services and Health Care Technology’). The Company’s was TSR was -2.4% against a median TSR for the peer group of 88.2%.
Therefore there was 0% payout against this element.
–
FTSE 100 constituents excluding financial services and commodities companies. This is in response to shareholders who assess our
performance not based on sector, but instead based on the index we operate in. The Company’s TSR was -2.4% against a median
TSRfor the peer group of 24.9%. There was therefore a 0% payout against this element.
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This part of the award therefore vested at 0% out of the 25% target.
Global revenue growth
25% of the award was based on global revenue growth. The threshold set in 2019 was $15,157 million
with a target of $15,577 million. Over the three-year period, the adjusted revenues in global revenue growth were $14,202 million.
These adjustments include translational foreign exchange and Board-approved M&A.
This part of the award therefore vested at 0% out of the 25% target.
Cumulative free cash flow performance.
25% of the award was based on cumulative cash flow performance, The target set in
2019was $2,210 million with maximum at $2,497 million. Over the three-year period, the adjusted cumulative free cash flow was
$1,680 million which was below threshold. These adjustments include items such as Board-approved mergers and acquisitions,
restructuring programmes and translational foreign exchange.
This part of the award therefore vested at 0% out of the 25% target.
Return on invested capital (ROIC)
25% of the award was based on return on invested capital defined as follows:
Operating profit
1
less adjusted taxes
2
(Opening net operating assets + closing net operating assets)
3
÷ 2
1 Operating profit is as disclosed in the Group income statement in the Annual Report.
2 Adjusted taxes represents our taxation charge per the Group income statement adjusted for the impact of tax on items not included in operating profit notably interest income and expense,
other finance costs and share of results of associates.
3 Net operating assets comprises net assets from the Group balance sheet (total assets less total liabilities) excluding the following items: investments, investments in associates,
retirementbenefit assets and liabilities, long-term borrowings, bank overdras, borrowings and loans, IFRS 16 lease liabilities and right-of-use assets, and cash at bank.
The target set in 2019 was an average over three years of 13.1% with maximum at 14.3%. The adjusted average ROIC measurement
forthe three years was 9.4% which was below threshold. These adjustments include Board-approved mergers and acquisitions.
This part of the award therefore vested at 0% of the 25% target.
In summary, the Performance Share Programme award made in 2019 vested at 0% of target as follows:
Threshold
Target
Maximum
Actual
Percentage
Vesting
TSR
Median
–
Upper Quartile
Below Median
0%
Global revenue growth
$15,157m
$15,577m $15,997m $14,202m
0%
Cumulative free cash flow
$1,923m
$2,210m
$2,497m
$1,680m
0%
Return on invested capital
11.8%
13.1%
14.3%
9.4%
0%
Neither of the existing Executive Directors were employed as Executive Directors when the awards were made in 2019.
As well as considering the monetary outcome of the formulaic calculation of these awards, the Committee considered whether
discretion should be applied to override these formulaic outcomes and concluded that the monetary outcomes were aligned with
thefinancial performance of the Company during the performance period and the intention of the Remuneration Policy.
Performance Share Programme 2021
In accordance with the Remuneration Policy approved by shareholders at the Annual General Meeting held on 9 April 2020,
performanceshare awards were granted to the Executive Directors under the Global Share Plan 2020 to a maximum value of 275%
ofsalary (137.5% for target performance) measured over the three financial years commencing 1 January 2021 against four equally
weighted performance measures: Indexed TSR, return on invested capital, Global revenue growth and cumulative free cash flow.
The performance conditions for these awards were determined in April 2021 and the awards were made in May 2021, as due to the
uncertainty caused by the pandemic it was not possible at an earlier stage to determine the impact COVID would have on the business
between 2021 and2023. The maximum payout under each element will only be for significant outperformance. On vesting, sucient
shares will be soldtocover taxation obligations and the Executive Directors will be required to hold the net shares for a further period
oftwo years.
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Long-term incentives
continued
Performance Share Programme
continued
TSR performance
25% of the award is based on the Company’s TSR performance measured against two equally weighted peer groups
as defined for the awards made in 2019.
TSR performance is relative to the two separate indices as follows:
Relative TSR
Award vesting as % of salary at date of grant
Sector Based Peer Group FTSE 100 Peer Group
Below the index
Nil Nil
Equalling the index
8.6% 8.6%
8% above the index
34.4% 34.4%
Awards will vest on a straight-line basis between these points. The maximum has been set significantly above target reflecting the
maximum opportunity for outperformance.
Global revenue growth
25% of the award is based on global revenue growth against the following targets:
Revenue growth over three-year period commencing 1 January 2021 Award vesting as % of salary
Below threshold
Nil
Threshold (–8% of target)
17.2%
Target – set by reference to our expectations
34.4%
Maximum or above (+8% of target)
68.8%
It is not possible to disclose precise targets for sales growth as this will give commercially sensitive information to our competitors
concerning our growth plans and is potentially price-sensitive information. This target, however, will be disclosed in the 2023 Annual
Report, when the Committee will discuss performance against the target. The maximum has been set significantly above target
reflecting the increased maximum opportunity for outperformance.
Return on invested capital (ROIC)
25% of the award is based on ROIC, as defined below:
Operating profit
1
less adjusted taxes
2
(Opening net operating assets + closing net operating assets)
3
÷ 2
1 Operating profit is as disclosed in the Group income statement in the Annual Report less amortisation of acquired intangible assets.
2 Adjusted Taxes represents our taxation charge per the Group income statement adjusted for the impact of tax on items not included in Adjusted Operating Profit notably amortisation of acquired
intangible assets, interest income and expense, other finance costs and share of results of associates.
3 Net Operating Assets comprises net assets from the Group balance sheet (Total assets less Total liabilities) excluding the following items: accumulated amortisation of acquired intangible assets,
Investments, Investments in associates, Retirement benefit assets and liabilities, Long-term borrowings, Bank overdras, borrowings and loans, IFRS 16 lease liabilities and right-of-use assets,
and Cash at bank.
The targets are:
ROIC (Year 3) Award vesting as % of salary
Below Threshold 9.8%
Nil
Threshold 9.8% (–2% of target)
17.2%
Target 11.8%
34.4%
Maximum or above 13.8% (+2% of target)
68.8%
Awards will vest on a straight-line basis between these points.
Cumulative free cash flow
25% of the award is based on cumulative cash flow performance defined for the awards made in 2019,
withthe following targets:
Cumulative free cash flow Award vesting as % of salary
Below $1,370m
Nil
$1,370m (–20% of target)
17.2%
$1,712m
34.4%
$2,054m or more (+20% of target)
68.8%
The maximum has been set significantly above target reflecting the maximum opportunity for outperformance.
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continued
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Performance Share Programme 2022
In early 2022, the Remuneration Committee considered the performance framework and determined the targets for the Performance
Share Programme awards due to be made in 2022. It was agreed that performance would be measured under the same four equally
weighted performance measures which applied in 2021 – indexed TSR, global revenue growth, ROIC and cumulative free cash flow.
However, the Committee considers that with COVID continuing to cause significant disruption and uncertainty to our business forecasts,
it is impractical at this time to set meaningful and robust performance targets until there is more clarity externally. The risk of setting
targets which, with subsequent hindsight, are either unrealistic or insuciently stretching is material. Therefore, the Committee will
delay granting the 2022 Performance Share Awards until May 2022, so that we can have a much clearer understanding of how COVID
is likely to impact our business over 2022-2024, This will enable a more rigorous target-setting process to be performed. The targets
forROIC and Cumulative Free Cash Flow will be disclosed at the time the awards are made.
TSR performance
25% of the award will be based on the Company’s TSR performance, measured against the same peer groups
astheawards made in 2021.
Revenue growth
25% of the award will be based on global revenue growth. It is not possible to disclose precise revenue targets at
thetime of the grant, as this would give commercially sensitive information to our competitors concerning our growth plans and
wouldbepotentially price-sensitive.
ROIC
25% of the award will be based on ROIC as defined for the awards made in 2021.
Cumulative free cash flow
25% of the award will be based on cumulative cash flow as defined for the awards made in 2021.
Details of outstanding awards made under the Performance Share Programme
Details of conditional awards over shares granted to Executive Directors subject to performance conditions are shown below.
Theseawards were granted under the Global Share Plan 2020. The performance conditions and performance periods applying
totheseawards are detailed below:
Date granted
Number of ordinary shares
under award at maximum Date of vesting
Roland Diggelmann
Anne-Françoise Nesmes
21 May 2020
21 May 2021
21 December 2020
21 May 2021
193,072
192,348
42,726
102,936
21 May 2023
21 May 2024
21 December 2023
21 May 2024
Summary of scheme interests awarded during the financial year (audited)
Director
Roland Diggelmann
Anne-Françoise Nesmes
Number of shares
Face value
Number of sharesFace value
Performance Share Programme award at maximum
(see pages 125–126)
192,348
£2,980,432.26
102,936
£1,594,993.32
Options under Employee ShareSave plans
1
109
£1,209.90
1,621
£17,993.10
1 The ShareSave options will mature and become exercisable aer a period of three years assuming all required saving contributions are made.
See Policy Table contained within the Annual Report 2020 on pages 128–137 on our website at www.smith-nephew.com fordetails
ofhow the above plans operate. Following approval of the 2020 Remuneration Policy, no Annual Equity Incentive Programme awards
were granted during 2021. The number of shares is calculated using the closing share price on the day before grant, which for the
Performance Share Programme award granted on 21 May 2021 was 1,549.5p. The ShareSave options granted on 14 September 2021
were based on a discounted option price of 1,110.0p, calculated as being a 20% discount of the average of the closing share price over
thethree business days preceding the plan invitation date (19 August 2021).
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Single total figure on remuneration
Chair and Non-Executive Directors (audited)
Director
Basic annual fee
1
Committee Chair/
Senior Independent
Director fee
Intercontinental
travel fee
Total
2021
2020
20212020
20212020
20212020
Roberto Quarta
£428,645
£427,069
–
£427,069–
––
£428,645
Virginia Bottomley
2
£18,173
£69,500
–
£18,173–
––
£69,500
Erik Engstrom
£69,500
£69,500
–
£69,500–
––
£69,500
Robin Freestone
£69,500
£69,500
£20,000
£20,000
–
–
£89,500
£89,500
John Ma
3
$113,472
–
$113,472–
––
––
Katarzyna Mazur-Hofsaess
£69,500
£10,500
–
£10,500–
––
£69,500
Rick Medlock
£69,500
£52,377
£20,000
£6,667
–
–
£89,500
£59,044
Marc Owen
$129,780
$129,780
$35,000
$35,000
$7,000
$7,000
$171,780
$171,780
Angie Risley
£69,500
£69,500
£20,000
£20,000
–
–
£89,500
£89,500
Bob White
$129,780
$89,780
–
$89,780–
––
$129,780
1 The basic annual fee includes shares purchased for the Chair and Non-Executive Directors in lieu of part of the annual fee, details of which can be found on the table below.
2 Virginia Bottomley retired as a Non-Executive Director with eect from 14 April 2021.
3 John Ma was appointed as a Non-Executive Director with eect from 17 February 2021.
Chair and Non-Executive Director fees
In February 2022 the Committee reviewed the fees paid to the Chair and determined that with eect from 1 April 2022 the fees paid
willremain unchanged:
Annual fee paid to the Chair £428,645 of which £107,161 paid in shares
Annual fee paid to Non-Executive Directors
£69,500 of which £6,500 paid in shares or $129,780 of which $9,780 paid
in shares
Intercontinental travel fee (per meeting)
£3,500 or $7,000
Fee for Senior Independent Director and Committee Chair
£20,000 or $35,000
Payments made to former Directors (audited)
No payments were made to former Directors in 2021.
Payments made to Roland Diggelmann since year end
Since the year end, we reached a mutual agreement with Roland Diggelmann that he would cease to be Chief Executive Ocer and a
member of the Board on 31 March 2022. In accordance with his employment agreement and with the Remuneration Policy approved
by shareholders on 9 April 2020, Roland Diggelmann will continue to receive his base salary of CHF1,380,000, pension payments and
benefits up to 28 February 2023. Such payments will cease or be reduced should Roland Diggelmann take an alternative remunerated
role elsewhere.
Roland Diggelmann will receive a cash payment of CHF614,468 and a deferred share award worth (at grant) CHF614,468 in respect
of his annual bonus relating to his service during 2021, as disclosed on pages 122–123. The deferred share award will vest on the third
anniversary of the date of grant. Roland will participate in the Annual Bonus Plan 2022 in respect of his service during 2022 from
1 January 2022 to 31 March 2022. Subject to the performance of the Company, this bonus will be paid in March 2023 – 50% in the
formof cash and 50% as a deferred share award which will vest aer three years in line with the Remuneration Policy.
Roland Diggelmann holds awards (in aggregate) over 385,420 shares under the Performance Share Programme. These shares will be
pro-rated to his date of leaving and vest subject to achievement of the relevant performance conditions, tested at the normal time.
He will not receive a performance-related share award in 2022. The maximum number of shares which could vest will be 191,050
exclusive of dividend equivalents.
Roland Diggelmann is required to comply with the non-compete and non-solicitation clauses in his employment agreement for
aperiodof 12 months up to 28 February 2023.
Remuneration
continued
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Remuneration arrangements agreed with Deepak Nath since year end
Deepak Nath will join the Company as Chief Executive Ocer and a member of the Board on 1 April 2022. Deepak Nath will be paid
inaccordance with the Remuneration Policy approved by shareholders on 9 April 2020.
Deepak Nath will receive a base salary of $1,475,000 per annum and will participate in the Annual Bonus Plan and Performance
ShareProgramme, in accordance with the Remuneration Policy. The Company will pay pension contributions reflecting average
pensionpayments for the wider US workforce (currently 7.5% of salary per annum). He will also receive standard benefits, which
arenotmaterially dierent in nature or value relative to those received by Roland Diggelmann.
His notice period will be six months from him and 12 months from the Company.
Deepak Nath will also receive buy-out awards in respect of outstanding incentives he will forfeit on leaving his former company.
All awards have been provided on a like-for-like basis in terms of the value provided and their performance and/or vesting periods.
There has been no acceleration of any awards and the performance-based awards have not been replaced with a non-performance
based award. Further details are provided below:
–
An amount of up to $800,000 will be paid in cash in November 2022 in respect of his forfeited 2022 cash bonus, subject to the
Committee’s assessment of the targets attached to the cash bonus forfeited at his previous company.
–
Deepak Nath held various performance-based share awards under arrangements made with his former employer, with an aggregate
face value of €5,258,828 ($5,990,331) as at 11 February 2022. These will be replaced with awards over Smith+Nephew shares of an
equivalent face value (calculated at the time that the replacement awards are granted). These awards will be capable of vesting at
varying dates between 2022 and 2025 (fully aligned with their original vesting dates), subject to meeting the original performance
conditions and continued employment.
–
Deepak Nath also held various restricted share awards under arrangements made with his former employer, with an aggregate
face value of €2,242,322 ($2,554,229) as at 11 February 2022. These will be replaced with awards over Smith+Nephew shares of an
equivalent face value (calculated at the time that the replacement awards are granted), which will vest on their original vesting dates
subject to continued employment.
–
No buy-out will be provided in respect of Deepak Nath’s long-term incentive award granted in November 2021 by his former employer.
The number and structure of certain of these awards (Deepak’s performance share awards at his former employer vested over a four-
year period) meant that it was not possible to provide compensation for these forfeited awards under the Company’s Global Share Plan.
Therefore, these awards will be granted under a one-o buy-out award agreement in accordance with Listing Rule 9.4.2(2). It is intended
that the buy-out agreement will be executed as soon as reasonably practicable aer Deepak becomes an employee of the Company.
No shares may be issued in connection with the buy-out agreement so shareholders’ existing holdings will not be diluted by the grant
ofthese awards.
Malus and clawback may apply to the awards in the event of a significant adverse change in the financial performance or reputation
ofthe Company, including corporate failure, or a significant loss by the Company in connection with Deepak’s conduct and/or Deepak’s
performance or misconduct. Clawback may take place up to three years from the vesting of an award.
If Deepak leaves, any unvested awards will normally lapse. However, if he leaves because of his ill-health, injury or disability, the sale
ofhisemploying company or business out of the Group, redundancy, the Company terminating his employment other than in the event of
summary dismissal or in such circumstances as the Committee will determine, his awards will not lapse. Performance-related awards will
vest following the end of the relevant performance period (to the extent that the relevant performance conditions have been satisfied)
and the restricted share awards will normally vest at the time Deepak leaves the Group. If Deepak dies in service, allawards will vest
at the time of his death (in the case of the performance-related awards, to the extent the Committee determines theperformance
conditions have been satisfied).
In the event of a change of control of the Company, these awards will vest early (in the case of the performance-related awards, to
the extent the Committee determines that the performance conditions have been satisfied), unless the Committee and the acquiring
company agree that the awards will be rolled over into equivalent awards in the acquiring company. In the event that there is a demerger
or other corporate event that will aect the value of the awards, the Committee may determine that the awards will vest on the same
basis as for a change of control.
If there is a variation in the Company’s share capital, a demerger or other corporate event that will aect the value of the awards, the
awards will be adjusted in the same way as awards held by executive directors under the Performance Share Programme. If any changes
are subsequently made to the buy-out agreement, any changes proposed to the advantage of Deepak will be subject to the same prior
shareholder approval requirements as awards granted under the Company’s Performance Share Programme. Awards granted under
thisagreement are not pensionable and transferable.
Deepak will not be expected to retain shares acquired under the awards post vesting in order to comply with his share ownership guideline.
Details of the awards granted under the buy-out agreement will be announced at the time of grant and included in the Company’s
Directors’ Remuneration report for the 2022 financial year.
129
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Accounts
Other information
Service contracts
Executive Directors are employed on rolling service contracts with notice periods of up to 12 months from the Company and six months from
the Executive Director. Further information can be found on page 135 of the Policy Report contained within the Annual Report 2020.
Outside directorships
Roland Diggelmann was a Non-Executive Director of Accelerate Diagnostics Inc until 7 May 2021. His remuneration for this role was paid
entirely in stock options, with his last stock option of 13,779 shares having been granted on 1 April 2020. These stock options vested and
became exercisable in 12 equal monthly instalments from 1 May 2020 at an option price of $8.33 and four monthly instalments vested
in2021. Roland was appointed a Non-Executive Director of Sonova Holding AG on 15 June 2021 and has not yet received any fees in
respect ofthis appointment during 2021.
Anne-Françoise Nesmes is a Non-Executive Director of Compass Group plc and received £115,624.97 in respect of this appointment
during 2021.
Directors’ interests in ordinary shares (audited)
Beneficial interests of the Executive Directors in the ordinary shares of the Company are as follows:
Roland Diggelmann
Anne-Françoise Nesmes
1 January
2021
31 December
2021
11 February
2022
1
1 January
2021
31 December
2021
11 February
2022
1
Ordinary shares
18,207
18,207
18,2072
–
–
–Share options
2,425
2,534
2,534
–
1,621
1,621
Performance Share Programme awards
3
193,072
385,420
385,420 42,726
145,662
145,662
1 The latest practicable date for this Annual Report.
2 The ordinary shares held by Roland Diggelmann on 11 February 2022 represent 20.28% of his base annual salary.
3 These share awards are subject to further performance conditions before they may vest, as detailed on page 125–126.
The beneficial interest of each Executive Director is less than 1% of the ordinary share capital of the Company.
Beneficial interests of the Chair and Non-Executive Directors in the ordinary shares of the Company are as follows:
Director
1 January 2021
(or date of
appointment
if later)
31 December 2021
(or date of
retirement
if earlier)
11 February
2022
1
Shareholding as %
of annual fee
2,3
Roberto Quarta
4
63,319
67,468 67,468
191.24
Virginia Bottomley
5
19,546 19,546
N/A N/A
Roland Diggelmann
18,207 18,207 18,207
20.28
Erik Engstrom
16,200 16,442 16,442
289.10
Robin Freestone
16,178
16,420 16,420
288.71
Jo Hallas
7
N/A N/A
– –
John Ma
4, 6
–
296 296
3.72
Katarzyna Mazur-Hofsaess
–
366 366
6.44
Rick Medlock
249
3,264 3,264
57.39
Anne-Françoise Nesmes
– – – –
Marc Owen
4
7,786
8,072 8,072
101.51
Angie Risley
4,769
5,011 5,011
88.11
Bob White
4
6,270
6,656 6,656
83.701 The latest practicable date for this Annual Report.
2 Calculated using the closing share price of 12.20p per ordinary share and $32.64 per ADS on 11 February 2022, and an exchange rate of £1:$1.3573.
3 All Non-Executive Directors in oce since 1 January 2020 held the required shareholding during the year. Due to their length of service some Non-Executive Directors
have not met their shareholding requirements, but this will continue to be monitored in accordance with the Remuneration Policy.
4 Roberto Quarta, John Ma, Marc Owen and Bob White hold some of their shares in the form of ADS.
5 Virginia Bottomley retired from the Board as a Non-Executive Director with eect from 14 April 2021.
6 John Ma was appointed Non-Executive Director with eect from 17 February 2021.
7 Jo Hallas was appointed Non-Executive Director with eect from 1 February 2022.
The beneficial interest of each Non-Executive Director is less than 1% of the ordinary share capital of the Company.
Remuneration
continued
Remuneration implementation report
continued
130
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Annual Report 2021
Chief Executive Ocer remuneration compared to employees generally
The percentage change in the remuneration of the Chief Executive Ocer between 2020 and 2021 compared to that of employees
generally was as follows:
Base salary %
change
2021
Benefits
% change
2021
Annual cash
bonus %
change
2021
Chief Executive Ocer
0% 0%
N/A
1
Chief Financial Ocer
0% 0%
N/A
1
Non-Executive Directors
2
0%
N/A N/A
Average for all employees
1.64%
N/A N/A
1 The percentage increase in bonus is not applicable as nil bonus was paid in 2020.
2 There was no change to the fees paid to Non-Executive Directors during 2021.
The average cost of wages and salaries for employees generally increased by 11.45% in 2021 (see Note 3.1 to the Group accounts).
Figures for annual cash bonuses are included in the numbers.
When considering remuneration arrangements for our Executive Directors, the Committee takes into account pay across the Group
inthe following ways:
–
Salary levels and increases for all employees including Executive Directors take account of the scope and responsibility of position,
the skills, experience and performance of the individual and general economic conditions within the relevant geographical market.
When considering increases to Executive Director base salaries, the Committee considers the average pay increases in the market
where the Executive Director is based.
–
All employees including the Executive Directors have performance objectives determined at the beginning of the year which cascade
down from the Strategic Imperatives for the Group.
–
The level of variable pay determined for all employees, whether in the form of shares or cash is dependent on performance against
these imperatives, both financially and personally.
–
Executive Directors participate in benefits plans and arrangements comparable to benefits paid to other senior executives in
the relevant geography. Executive Directors participate in the same senior executive incentive plans (currently the Annual Bonus
Plan and the Performance Share Programme) as other Executive Ocers and senior executives. The level of award reflects the
diering seniority of participants and the market where the Executive is located. Performance conditions for the Performance
Share Programme are the same for Executive Directors and Executive Ocers. Executives, however, have only three measures
withnoreference to ROIC. For the Annual Bonus Plan (ABP) Performance Measures apply to all Executives consistently, however,
weighting between Financials and Non-Financials diers based on the position.
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Other information
Chief Executive Ocer pay ratio
The regulations provide three options which may be used to calculate the pay for the employees at the 25th percentile, median and 75th
percentile. We have used option A (as set out in the Companies (Miscellaneous Reporting) Regulations 2018), following guidance issued
by some proxy advisers and institutional shareholders. The ratio has been calculated by comparing against the full-time equivalent pay
ofall UK employees within the Group including both our entities Smith & Nephew UK Limited and T.J.Smith and Nephew,Limited.
Option A calculates pay for all employees on the same basis as the single figure for remuneration calculated for Executive Directors.
The period for which the employee pay has been calculated under Option A is the calendar year 2021. Figures are calculated by
reference to 31 December 2021 using actual pay data from 1 January 2021 to 31 December 2021. The single figure for remuneration
for each employee includes earned salary, annual incentive, allowance, pension and benefits for 2021. Part-time employees have been
excluded for the purpose of calculations.
Comparisons have been made with employees at median (P50), lower (P25) and upper (P75) quartiles. We have used the actual salaries
paid to our employees in the UK. The values were listed lowest to highest and three percentiles were identified. We are confident this
methodology gives us the most reflective pay at the median. The Committee is satisfied that the individuals identified in the employee
comparison group appropriately reflect the employee pay profile at those quartiles, and that the overall picture presented by the ratios
isconsistent with our pay, reward and progression policies for UK employees.
The table below sets out the ratio at the median, lower and upper quartiles:
Year
P25 (lower
quartile)
P50
(median)
P75 (upper
quartile)
2019
116:1
81:1
51:1
2020
42:1
29:1 19:1
2021
71:1
49:1
32:1
In 2021 the ratio increased mainly due to the impact on bonuses during 2020 due to COVID.
The table below provides the total pay figure used for each quartile employee, and the salary component within this.
Component
CEO
1
P25 (lower
quartile)
P50
(median)
P75 (upper
quartile)
Salary
$1,509,582
$41,542
$63,469
$80,939
Total pay
$3,102,426
$43,790
$63,904
$96,134
1 Roland Diggelmann is paid in Swiss Francs and this figure was converted into US Dollars for comparative reasons using CHF to US$1.0939.
Relative importance of spend on pay
When considering remuneration arrangements for our Executive Directors and employees as a whole, the Committee also takes into
account the overall profitability of the Company and the amounts spent elsewhere, particularly in returning profits to shareholders
intheform of dividends and share buy-backs.
The following table sets out the total amounts spent in 2021 and 2020 on remuneration, the attributable profit for each year and the
dividends declared and paid in each year.
For the year to
31 December
2021
For the year to
31 December
2020
% change
Attributable profit for the year
$524m
$448m
17%
Dividends paid during the year
$329m $328m
0%
Share buy-back
1
$0m
$16m
-100%
Total Group spend on remuneration
$1,562m $1,392m
12%
1 Shares are bought in the market in respect of shares issued as part of the executive and employee share plans. The share buy-back programme for 2020 and 2021 has been suspended
in light ofthe COVID pandemic. On 16 December 2021, we announced a 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.
Remuneration
continued
Remuneration implementation report
continued
132
Smith+Nephew
Annual Report 2021
Total Shareholder Return
A graph of the Company’s TSR performance compared to that of the FTSE 100 index is shown below in accordance with Schedule 8
tothe Regulations.
Jan 2014
Jan 2012 Jan 2013
Jan 2015 Jan 2016
Jan 2018
Jan 2019
Jan 2022Jan 2021
Jan 2020
Jan 2017
Source: DataStream
Smith & Nephew plc
FTSE 100
Ten-year Total Shareholder Return
(measured in UK Sterling, based on monthly spot values)
400
350
300
250
200
150
100
50
0
As we also compare the Company’s performance to a tailored sector peer group of medical devices companies (see page 124),
whenconsidering TSR performance in the context of the Global Share Plan 2010 and Global Share Plan 2020, we feel that the following
graph showing the TSR performance of this peer group is also of interest.
Source: DataStream
Medical Devices comparators that are still trading for awards made since 2012
Jan 2014
Jan 2012 Jan 2013
Jan 2015 Jan 2016
Jan 2018
Jan 2019
Jan 2022Jan 2021
Jan 2020
Jan 2017
Smith & Nephew plc
Medical Devices
Ten-year Total Shareholder Return
(measured in US Dollars, based on monthly spot values)
1,600
1,400
1,200
1,000
800
600
400
200
0
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Governance
Accounts
Other information
Table of historic data
The following table details information about the pay of the Chief Executive Ocer in the previous 10 years:
Year
Long-term incentive vesting rates
against maximum opportunity
Chief Executive Ocer
Single figure of total
remuneration $
Annual Cash
Incentive payout
against maximum %
Performance
shares % Options %
2021
Roland Diggelmann
$3,102,426
41
– –
2020
Roland Diggelmann
$1,697,773
0
5
– –
2019
Roland Diggelmann
1
$265,814
– – –
2019
Namal Nawana
2
$4,489, 374
71
4
– –
2018
Namal Nawana
$2,883,632
69
– –
2018
Olivier Bohuon
3
$2,383,582
63
46.5
–
2017
Olivier Bohuon
$5,116,689
61
54
–
2016
Olivier Bohuon
$3,332,850
30
8 –
2015
Olivier Bohuon
$5,342,377
75
33.5
–
2014
Olivier Bohuon
$6,785,121
43
57
–
2013
Olivier Bohuon
$4,692,858
84
0 –
2012
Olivier Bohuon
$4,956,771
84
– –
1 Appointed Chief Executive Ocer on 1 November 2019.
2 Appointed Chief Executive Ocer on 7 May 2018 and resigned on 31 October 2019.
3 Retired as Chief Executive Ocer on 7 May 2018.
4 Calculated as 106.7% for Namal Nawana (disclosed on page 108 of the Company’s Annual Report for the year ended 31 December 2019), divided by the maximum potential payout of 150%.
5 Due to the impact of COVID upon the Chief Executive Ocer’s financial targets, a cash award of 0% was achieved.
Gender pay ratio
In 2021, the Committee reviewed our UK gender pay ratio. It was noted that today our gender pay gap is greater than we would like
ittobe, but we have seen an improvement in our mean pay gap in the UK. The mean pay gap has reduced from 22% in 2020to 20%
in2021 and the median pay gap has increased from 16% to 17% for the same period. We shall continue to review these figures.
Shareholding requirements
The Chief Executive Ocer is required to hold three times his salary in the form of shares and the Chief Financial Ocer is required to
hold two times her salary. Executive Directors have five years from their appointment within which to meet that holding requirement.
Due to the tenure of the Executive Directors, neither have met their shareholding requirements, but this will continue to be monitored
inaccordance with the Remuneration Policy.
Post cessation shareholding requirements
In addition, Executive Directors are expected to hold vested shares for up to two years post-vesting of the Performance Share
Programme and Deferred Bonus awards. They are expected to hold up to their shareholding requirement only. These shares are held
inthe Vested Share Account provided by the Company’s share plan administrator.
Statement of voting at Annual General Meeting
At the Annual General Meeting held on 14 April 2021, votes cast by proxy and at the meeting and votes withheld in respect of the
voteson the Directors’ Remuneration Report are noted below. In addition, votes cast by proxy and at the meeting and votes withheld in
respect of the votes on the Directors’ Remuneration Policy, which was last approved by shareholders on 9 April 2020 are noted below:
Resolution
Votes for
% for
Votes
against
% against
Total votes
validly cast
Votes
withheld
Approval of the Directors’ Remuneration report
(excluding policy)
662,280,244
99.46
3,589,474
0.54
665,869,718
1,512,622
Approval of the Directors’ Remuneration Policy
atthe 2020 Annual General Meeting
676 ,749,445
97.71
15,843,720
2.29
692,593,165 352,762
Remuneration
continued
Remuneration implementation report
continued
134
Smith+Nephew
Annual Report 2021
Senior management remuneration (audited)
The Group’s administrative, supervisory and management body (senior management) comprises for US reporting purposes,
ExecutiveDirectors and Executive Ocers. Details of the current Executive Directors and Executive Ocers are given on pages 75–83.
Compensation paid to senior management in respect of 2019, 2020 and 2021 was as follows:
2021
2020
2019
Total compensation (excluding pension emoluments, but including cash payments
under the performance-related incentive plans)
$15,795,000
$12,369,000
$17,020,000
Total compensation for loss of oce
–
–
$5,559,000
Aggregate amounts provided for under supplementary schemes
$1,454,000
$1,753,000 $1,564,000
As at 11 February 2022, senior management owned 383,714 shares and 6,133 ADSs, constituting less than 0.045% of the share capital
of the Company. For this purpose, the Group is defined as the Executive Directors, members of the Executive Committee, including the
Company Secretary and their Persons Closely Associated. Details of share awards granted during the year and held as at11 February
2022 by members of senior management are as follows:
Share awards
granted during
the year
Total share
awards held as at
11 February
2022
Equity Incentive Programme awards
180,200
196,726
Performance Share Programme awards at maximum
1,115,640
1,427,184
Performance Share Programme – Supplementary awards
150,290
82,966
Conditional Share Awards under the Global Share Plan 2020
79,779
167,740
Options under Employee ShareSave plans
2,540
5,635
The Smith+Nephew Employee Share Trust
Note 19.2 of these accounts states the movement in Treasury Shares and the Trust during 2021. No more shares are held within the
Trust than are required for the next six months of anticipated vestings. Any unvested shares held in the Trust are not voted upon at
shareholder meetings. No more than 5% of the issued share capital at 31 December 2021 is held within the Trust. At 31 December 2021
shares were held in the Trust representing 0.18% of the issued share capital.
Dilution headroom
The Remuneration Committee ensures that at all times the number of new shares which may be issued under any share-based plans,
including all-employee plans, does not exceed 10% of the Company’s issued share capital over any rolling 10-year period (of which up to
5% may be issued to satisfy awards under the Company’s discretionary plans). The Company monitors headroom closely when granting
awards over shares taking into account the number of options or shares that might be expected to lapse or be forfeited before vesting
orexercise. In the event that insucient new shares are available, there are processes in place to purchase shares in the market to
satisfy vesting awards and to net-settle option exercises.
Over the previous 10 years (2012 to 2021), the number of new shares issued under our share plans has been as follows:
All-employee share plans 7,644,197 (0.87% of issued share capital as at 11 February 2022)
Discretionary share plans
25,432,263 (2.89% of issued share capital as at 11 February 2022)
By order of the Board, on 22 February 2022
Angie Risley
Chair of the Remuneration Committee
135
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Statement of Directors’ responsibilities
137
Independent auditor’s UK report
138
Group financial statements
146
Notes to the Group accounts
150
Company financial statements
203
Notes to the Company accounts
205
Accou nts
136
Smith+Nephew
Annual Report 2021
The Directors are responsible for preparing
the Annual Report and Form 20-F and the
Group and Parent Company financial
statements inaccordance with applicable
law and regulations.
Company law requires the Directors
toprepare Group and Parent Company
financial statements for each financial
year. Under that law they are required to
prepare the Group financial statements in
accordance with UK-adopted international
accounting standards and applicable law and
have elected to prepare the Parent Company
financial statements in accordance with
UK accounting standards and applicable
law, including FRS 101 Reduced Disclosure
Framework. In addition the Directors have
also chosen to prepare the Group financial
statements in accordance with IFRS as
issued by the International Accounting
Standards Board (IASB).
Under company law the Directors must
notapprove the financial statements
unless they are satisfied that they give a
true and fair view of the state of aairs
ofthe Group and Parent Company and
oftheir profit or loss for that period.
Inpreparing each of the Group and
ParentCompany financial statements,
theDirectors are required to:
–
select suitable accounting policies
andthen apply them consistently;
–
make judgements and estimates
that arereasonable, relevant, reliable
and prudent;
–
for the Group financial statements,
statewhether they have been prepared
inaccordance with UK-adopted
international accounting standards
andIFRS as issued by the IASB;
–
for the Parent Company financial
statements, state whether applicable
UKAccounting Standards have been
followed, subject to any material
departures disclosed and explained
inthe Parent Company financial
statements;
–
assess the Group and Parent Company’s
ability to continue as a going concern,
disclosing, as applicable, matters
relatedto going concern; and
–
use the going concern basis of
accounting unless they either intend
toliquidate the Group or the Parent
Company or to cease operations,
orhaveno realistic alternative but
todo so.
The Directors are responsible for keeping
adequate accounting records that are
sucient to show and explain the Parent
Company’s transactions and disclose
withreasonable accuracy at any time the
financial position of the Parent Company
and enable them to ensure that its financial
statements comply with the Companies
Act 2006. They are responsible for such
internal control as they determine is
necessary to enable the preparation of
financial statements that are freefrom
material misstatement, whether due
tofraud or error, andhavegeneral
responsibility for taking such steps as are
reasonablyopen to them to safeguard the
assets of the Group and toprevent and
detect fraud and other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Strategic Report, Directors’
Report, Directors’ Remuneration
Report and Corporate Governance
Statement that comply with that
law and those regulations.
The Directors are responsible for
themaintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financialstatements may dier from
legislation in other jurisdictions.
Responsibility statement
oftheDirectors inrespect
ofthe AnnualReport
We confirm that to the best of
our knowledge:
–
the financial statements, prepared
in accordance with the applicable set
ofaccounting standards, give a true
andfair view of the assets, liabilities,
financial position and profit or loss of
theCompany and the undertakings
included in the consolidation taken
as a whole; and
–
the Strategic Report and Directors’
Report include a fair review of the
development and performance of the
business and the position of the issuer
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face.
The Strategic Report, which has
beenprepared in accordance with the
requirements of the Companies Act 2006,
comprises pages 1–70.
The Directors’ Report, prepared in
accordance with the requirements of the
Companies Act 2006 and the UK Listing
Authority’s Listing Rules, and Disclosure
Rules and Transparency Rules, comprising
pages 1–135 and 222–238, was approved
bythe Board and signed on its behalf.
We consider the Annual Report and
financial statements, taken as a whole,
arefair, balanced and understandable
andprovide the information necessary
forshareholders to assess the Group’s
position and performance, business
modeland strategy.
By order of the Board, on 22 February 2022
Susan Swabey
Company Secretary
Statement of Directors’ responsibilities in respect
of the Annual Report and Financial Statements
137
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Independent auditor’s report to the
members of Smith & Nephew Plc
1. Our opinion is unmodified
We have audited the financial statements
of Smith & Nephew plc (“the Company”) for
the year ended 31 December 2021 which
comprise the Group Income Statement,
Group Statement of Comprehensive
Income, Group Balance Sheet, Group
Cash Flow Statement, Group Statement
of Changes in Equity, Company Balance
Sheet, Company Statement of Changes
inEquity and the related notes.
In our opinion:
–
the financial statements give a true
andfair view of the state of the Group’s
and of the parent Company’s aairs
asat31 December 2021 and of the
Group’s profit for the year then ended;
–
the Group financial statements have
been properly prepared in accordance
with UK-adopted international
accounting standards;
–
the parent Company financial
statements have been properly prepared
in accordance with UK accounting
standards, including FRS 101 Reduced
Disclosure Framework; and
–
the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006.
Additional opinion in relation
toIFRSsasissued by the IASB
As explained in Note 1 to the Group
financial statements, the Group, in addition
to complying with its legal obligation to
apply UK-adopted international accounting
standards, has also applied IFRS as issued
by the International Accounting Standards
Board (IASB). In our opinion, the Group
financial statements have been properly
prepared in accordance with IFRS as
issuedby the IASB.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (“ISAs (UK)”) and applicable law.
Ourresponsibilities are described below.
We believe that the audit evidence
we haveobtained is a sucient and
appropriate basis for our opinion.
Our auditopinion is consistent with
ourreport to the Audit Committee.
We were first appointed as auditor by the
shareholders on 9 April 2015. The period of
total uninterrupted engagement is for the
7 financial years ended 31 December 2021.
We have fulfilled our ethical responsibilities
under, and we remain independent of
the Group in accordance with, UK ethical
requirements including the FRC Ethical
Standard as applied to listed public interest
entities. No non-audit services prohibited
bythat standard were provided.
2. Key audit matters: our assessment
of risks of material misstatement
Key audit matters are those matters
that, in our professional judgement,
were of most significance in the audit
of the financial statements and include
the most significant assessed risks of
material misstatement (whether or not
due to fraud) identified by us, including
those which had the greatest eect on:
the overall audit strategy; the allocation
of resources in the audit; and directing
the eorts of the engagement team.
We summarise below the key audit
matters, in decreasing order of audit
significance, in arriving at our audit
opinion above, together with our key audit
procedures to address those matters and,
as required for public interest entities,
our results from those procedures.
These matters were addressed, and
our results are based on procedures
undertaken, in the context of, and solely
for the purpose of, our audit of the financial
statements as a whole, and in forming
our opinion thereon, and consequently
are incidental to that opinion, and we do
not provide a separate opinion on these
matters. Our identification of key audit
matters remains unchanged from 2020.
138
Smith+Nephew
Annual Report 2021
Provision for metal-on-metal hip products
Riskvs 2020:
The risk
Our response
Subjective estimate
As discussed in note 17.1 to the financial statements, the Group
holds a provision of $289 million (2020: $336 million) in respect
of potential liabilities arising from the ongoing exposure to legal
claims for metal-on-metal hip products.
The estimate for this provision requires the Group to use an
actuarial model and make a number of key assumptions relating
to the number of claimants and settlement outcome. Given the
limited historical track record of metal-on-metal claims settled,
the eect of these matters is that, as part of our risk assessment,
we determined that the provision has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes
greater than our materiality for the financial statements as
a whole.
The financial statements (note 17.1) disclose the range estimated
by the Group.
Refer to
page 100
(Audit Committee Report),
page 186
(accounting policy) and
pages 152, 186–188
(financial disclosures)
Our procedures included:
–
Control operation:
We evaluated the design and implementation
and tested the operating eectiveness of certain internal controls
over the Group’s legal provision process. This included controls over
the Group’s review, challenge and assessment of the metal-on-
metal provision and related key assumptions including estimating
the number ofclaimants and the settlement outcomes.
–
Enquiry of lawyers:
We obtained correspondence directly from
the Group’s external counsel on the status of open metal-on-metal
court proceedings and settlement negotiations. We compared the
evaluation of the related exposure to the metal-on-metal claims
from external counsel to the Group’s assessments.
–
Our actuarial expertise:
We involved actuarial specialists with
relevant skills and knowledge, who assisted in challenging the
number of claimants and settlement outcomes used in statistical
projections in determining the provision, as well as the range
of reasonably possible outcomes determined by the Group, by
reference to historical data including settlement amounts, number
of new claimants, and experience of other cases. In addition, the
actuarial professionals assisted in evaluating whether the statistical
model applied by the Group is in line with actuarial professional
standards and industry practice for similar product liability claims.
We evaluated the scope, competency, and objectivity of the
Group’s experts involved in developing the actuarial model used
in the determination of the provision by considering the work they
were engaged to perform, their professional qualifications, and
reporting lines.
–
Assessing disclosures:
We assessed the Group’s disclosures in
respect of the metal-on metal hip provision, including disclosures
onhow sensitive the provision is to changes in key assumptions
andthe range of possible outcomes.
Our results
We found the level of provisioning and disclosures in respect of
metal-on-metal hip products to be acceptable (2020: acceptable).
139
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Strategic report
Governance
Accounts
Other information
Excess and Obsolescence (E&O) provision for Orthopaedics Inventory
Riskvs 2020:
The risk
Our response
Subjective estimate
The Group has high levels of Orthopaedics inventory that is available
for customers’ immediate use. Complete sets of products including
large and small sizes (which are used less frequently) have to be
made available to customers at their premises. An assessment
ismade by the Group to identify excess or obsolete inventory.
As a result, the Group has recognised a provision for excess and
obsolete inventory (E&O provision) for Orthopaedics which is
approximately 80% of the total E&O provision. As discussed in
note 12 to the consolidated financial statements, the Group’s
total E&O provision is $430 million (2020: $377 million).
The key input into this provision is the estimate of the future
utilisation of inventory on hand.
There was a high degree of subjectivity in assessing a number
ofthe assumptions applied by the Group in calculating the future
utilisation of inventory. Future utilisation is based on assumptions
of historical sales of inventory adjusted for internal or external
factors such as eectiveness of inventory deployment, length
of product lives and planned phase out of products which may
impact the demand for the product.
Refer to
page 100
(Audit Committee Report),
page173
(accounting policy) and
pages 151 and 173
(financial disclosures)
Our procedures included:
–
Control operation:
We evaluated the design and implementation
and tested the operating eectiveness of certain internal controls
over the Group’s process for assessing the E&O provision, including
controls over the key assumptions used to determine expected
future utilisation of Orthopaedics inventory.
–
Test of detail:
We assessed and challenged the key assumptions
used to determine the E&O provision through a combination
ofinterviews of finance and operations personnel and inspection
ofinternal budgets, including a selection of product plans to
assessthe impact of plans for phasing out product lines on
futureutilisation of Orthopaedics inventory.
–
Historical comparisons:
We evaluated the Group’s ability to
accurately estimate the E&O provision by comparing historically
recorded provisions to actual write-os and historically estimated
future utilisation to actual utilisation.
–
Sensitivity analysis:
We assessed the sensitivity of the key
assumptions, listed to the le, incorporating the recent volatility
in sales of inventory, to consider their impact on the Group’s
determination of the calculation of the provision recognised.
–
Assessing disclosures:
We assessed the adequacy of the Group’s
disclosures in respect of E&O provision.
Our results
The results of our testing were satisfactory, and we considered
thelevel of E&O provisions for orthopaedics inventory to be
acceptable(2020: acceptable).
Parent company financial statements only: Recoverability of Parent Company’s investment in subsidiaries
Riskvs 2020:
The risk
Our response
Low risk, high value
The carrying amount of the Parent Company’s investments
in subsidiaries held at cost less impairment represents 64%
(2020: 61%) of the Parent Company’s total assets.
We do not consider the valuation of these investments to be
at a high risk of significant misstatement, or to be subject to a
significant level of judgement. However, due to their materiality
in the context of the Parent Company financial statements as
awhole, this is considered to be the area which had the greatest
eect on our overall audit strategy and allocation of resources
inplanning and completing our Parent Company audit.
Refer to
page205
(accounting policy)
and
page 205
(financial disclosures)
We performed the tests below rather than seeking to rely on any of
the company’s controls because the annual assessment meant that
detailed testing is inherently the most eective means of obtaining
audit evidence. Our procedures included:
–
Test of detail:
Comparing a sample of the highest value investments
representing 98% (2020: 98%) of the total investment balance with
the relevant subsidiaries’ dra balance sheets to identify whether
their net assets, being an approximation of their minimum recoverable
amount, were in excess of their carrying amount andassessing
whether those subsidiaries have historically been profit-making.
–
Assessing subsidiary audits:
Assessing the work performed
bythe subsidiary audit teams on that sample of subsidiaries
andconsidering the results of their work, on those subsidiaries’
profits and net assets.
–
Comparing valuations:
For the investments where the carrying
amount exceeded the net asset value, comparing the carrying
amount of the investment with the expected value of the
businessbased on a suitable multiple of subsidiaries’ profits.
Our results
We found the Directors’ assessment of the recoverability of the
investment in subsidiaries to be acceptable (2020: acceptable).
Independent auditor’s UK report
continued
140
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3. Our application of materiality and
an overview of the scope of our audit
Materiality
Materiality for the group financial
statements as a whole was set at
$35 million, determined with reference
to a benchmark of Group profit before
tax, normalised to exclude this year’s
restructuring costs of $113 million, legal
& other charges of $51 million, a charge
of $7 million related to acquisition and
disposal related items as disclosed in
note 3 and gain on disposal of interest
in associate of $75 million, of which it
represented 5.13% (2020: 0.78% of group
revenue). In 2020, materiality for the group
financial statements as whole was set
at$36 million determined with reference
to a benchmark of Group revenue, of which
itrepresented 0.78%.
In the current period we have reverted to
an adjusted profit before tax benchmark
because the Group’s profits have substantially
recovered to pre-pandemic levels.
Materiality for the parent company
financial statements as a whole was set at
$32 million (2020: $32 million), determined
with reference to a benchmark of company
total assets, of which it represents 0.3%
(2020: 0.3%).
In line with our audit methodology, our
procedures on individual account balances
and disclosures were performed to a lower
threshold, performance materiality, so as
to reduce to an acceptable level the risk
that individually immaterial misstatements
in individual account balances add up to
a material amount across the financial
statements as a whole.
Performance materiality for the group
wasset at 75% (2020: 75%) of materiality
for the financial statements as a whole,
which equates to $26.2 million (2020:
$27 million), and 75% (2020: 75%) for
the parent company, which equates to
$24 million (2020: $24 million). We applied
this percentage in our determination
ofperformance materiality because we
did not identify any factors indicating
anelevated level of risk.
We agreed to report to the Audit Committee
any corrected or uncorrected identified
misstatements exceeding $1.8 million
(2020: $1.8 million), in addition to other
identified misstatements that warranted
reporting on qualitative grounds.
Scoping
Of the group’s 112 (2020: 121) reporting
components, we subjected 6 (2020: 7)
tofull scope audits for group purposes
and34 (2020: 34) to audits of specific
account balances and specified risk
focussed audit procedures focussed over
revenue, receivables and cash (6 (2020: 8)),
inventory (6 (2020: 5)) and property,
plantand equipment (1 (2020: nil)).
The latter were not individually financially
significant enough to require a full scope
audit for group purposes but did present
specific individual risks that needed to
be addressed.
The group team performed procedures
onthe items excluded from normalised
group profit before tax.
The components within the scope of
our work accounted for the percentages
illustrated opposite.
The remaining 16% (2020: 14%) of total
group revenue, 18% (2020: 12%) of group
profit before tax and 9% (2020: 8%)
oftotal group assets is represented by
72 (2020: 78) reporting components,
none of which individually represented
more than 4% (2020: 2%) of any of total
group revenue, group profit before tax
or total group assets. For these residual
components, we performed analysis at
anaggregated group level to re-examine
ourassessment that there were no
significant risks of material misstatement
within these.
The Group team instructed component
auditors as to the significant areas to
be covered, including the relevant risks
detailed above and the information
to bereported back. The Group team
approved the component materialities,
which ranged from $6 million to $29 million
(2020: $5 million to $28 million), having
regard to the mix of size and risk profile
of the Group across the components.
The work on 15 of the 40 components
(2020: 18 of the 41 components) was
performed by component auditors
andtherest, including the audit of
theparent company, was performed
bytheGroup team.
Group adjusted
PBT
Group materiality
$682m
2020
Group Revenue
$4,560m
$35m
2020
$36m
Group adjusted PBT
Group materiality
Whole financial
statements materiality
$35m
(2020: $36m)
Range of materiality
at components
$6m to $29m
(2020: $5m to $28m)
Misstatements reported
to the Audit Committee
$1.8m
(2020: $1.8m)
$
29
m$1.8m
$35m
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Strategic report
Governance
Accounts
Other information
Independent auditor’s UK report
continued
We were able to rely upon the Group’s
internal control over financial reporting
in several areas of our audit, where our
controls testing supported this approach,
which enabled us to reduce the scope
of our substantive audit work; in the
other areas the scope of the audit work
performed was fully substantive.
Due to the continued restrictions on travel
enacted as a response to the global COVID
pandemic, senior members of the Group
engagement team used video conferencing
to oversee the component auditor
work and had video discussions with
management of the component locations
in scope of the group audit. The Group
engagement team assessed the audit risk
and strategy and directed the audit work of
component auditors. The Group audit team
also evaluated the suciency of the audit
evidence obtained through discussions
with, and remote review of the audit
working papers of component teams in all
locations except China. Due to regulatory
restrictions, a remote file review was not
possible for the Chinese components;
therefore, the Group audit team increased
progress calls, obtained extended reporting
and held anexpanded closing meeting
with the Chinese component audit team
tounderstand, assess and challenge
theauditapproach and findings.
4. The impact of climate change
onour audit
In planning our audit, we considered
the potential impacts of climate
change on the Group’s business and its
financial statements.
The Group has set out in the Strategic
Report its commitment to achieving net
zero Scope 1 and Scope 2 greenhouse
gas emissions (GHGs) by 2040 and Scope
3 GHGs by 2045 and its commitment to
several other shorter-term targets.
As a part of our audit, we have performed
a risk assessment, including enquiries
of management, to understand how
the impact of commitments made by
the Group in respect of climate change,
as well as the physical or transition
risks of climate change, may aect
thefinancial statements and our audit.
There was no impact of this work on
ourkey audit matters.
Whilst the Group is still undertaking
work to quantify and assess the potential
impact of climate change on the business,
based on the procedures we performed in
reviewing and challenging the Group’s road
map for transitioning to net zero Scope
1 and Scope 2 GHGs, we did not identify
any significant risk in this period of climate
change having a material impact on the
Group’s critical accounting estimates.
This is due to the shorter-term nature of
certain estimates (inventory provisioning),
the nature of the estimate itself (metal on
metal liabilities) and the level of headroom
(impairment of goodwill and intangible
assets). In addition, we did not identify
any significant risks in this period to the
carrying value and useful economic lives
of property, plant and equipment caused
by the projected physical risks of climate
change or the transition to a net zero
operating model.
We have read the disclosures of climate-
related information in the annual report
and considered their consistency with
the financial statements and our audit
knowledge. We have not been engaged
to provide assurance over the accuracy
of the climate risk disclosures in the
Annual Report.
5. Going concern
The Directors have prepared the financial
statements on the going concern basis as
they do not intend to liquidate the Group or
the Company or to cease their operations,
and as they have concluded that the
Group’s and the Company’s financial
position means that this is realistic.
They have also concluded that there are
no material uncertainties that could have
cast significant doubt over their ability to
continue as a going concern for the period
to1 July 2023 (“the going concern period”).
We used our knowledge of the Group,
its industry, and the general economic
environment to identify the inherent risks
to its business model and analysed how
those risks might aect the Group’s and
Company’s financial resources or ability to
continue operations over the going concern
period. The risk that we considered most
likely to adversely aect the Group’s and
Company’s available financial resources
and metrics relevant to debt covenants
overthis period was an extended
downturn in elective surgery volumes
Group revenue
Group total assets
Group profit before tax
84%
2020
86%
91%
2020
92%
82%
2020
88%
Full scope for Group audit purposes 2021
Audit of specific account balances 2021
Full scope for Group audit purposes 2020
Audit of specific account balances 2020
Residual components
Full scope for group audit
purposes 2021
Audit of specific account
balances 2021
Full scope for group audit
purposes 2020
Audit of specific account
balances 2020
Residual components
68
16
20
14
16
9
8
18
12
66
40
38
51
54
63
69
19
19
Group revenue
Group profit before tax
Group total assets
Full scope for group audit
purposes 2021
Audit of specific account
balances 2021
Full scope for group audit
purposes 2020
Audit of specific account
balances 2020
Residual components
68
16
20
14
16
9
8
18
12
66
40
38
51
54
63
69
19
19
Group revenue
Group profit before tax
Group total assets
Full scope for group audit
purposes 2021
Audit of specific account
balances 2021
Full scope for group audit
purposes 2020
Audit of specific account
balances 2020
Residual components
68
16
20
14
16
9
8
18
12
66
40
38
51
54
63
69
19
19
Group revenue
Group profit before tax
Group total assets
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Smith+Nephew
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asaconsequence of COVID, leading
to asustained medium-term decline
inrevenue and profits.
We also considered less predictable
butrealistic second order impacts,
suchas supply chain issues restricting
theCompany’s ability to manufacture and
distribute product for an extended period,
adverse working capital movements,
including delays in customer payments,
new product liability claims giving rise
tosignificant claims and legal fees,
pricing and reimbursement pressures,
cost inflationary headwinds and currency
exchange volatility leading to a long-term
decline in revenue and profits.
We considered whether these risks could
plausibly aect the liquidity or covenant
compliance in the going concern period by
comparing severe, but plausible downside
scenarios that could arise from these
risks individually and collectively against
the level of available financial resources
and covenants indicated by the Group’s
financial forecasts.
Our procedures also included:
–
Critically assessing assumptions in
thebase case and downside scenarios,
particularly in relation to revenues and
its impact on forecast liquidity and
covenant compliance, by comparing
to historical trends in severe economic
situations (primarily 2020 financial
performance), overlaying knowledge
ofthe entity’s plans based on approved
budgets, as well as our knowledge
of the entity and the sector in which
it operates.
–
Considering whether the going concern
disclosure in note 1 to the financial
statements gives a full and accurate
description of the Directors’ assessment
of going concern, including the identified
risks, and related sensitivities.
Our conclusions based on this work:
–
we consider that the directors’ use of
thegoing concern basis of accounting
in the preparation of the financial
statements is appropriate;
–
we have not identified, and concur with the
directors’ assessment that there is not, a
material uncertainty related to events or
conditions that, individually orcollectively,
may cast significant doubton the Group’s
or Company’s ability to continue as a going
concern forthe going concern period;
–
we have nothing material to add or
draw attention to in relation to the
directors’ statement in note 1 to the
financial statements on the use of
thegoing concern basis of accounting
with no material uncertainties that may
castsignificant doubt over the Group
and Company’s use of that basis for
thegoingconcern period, and we found
thegoing concern disclosure in note 1
tobe acceptable; and
–
the related statement under the Listing
Rules set out on page 104 is materially
consistent with the financial statements
and our audit knowledge.
However, as we cannot predict all future
events or conditions and as subsequent
events may result in outcomes that are
inconsistent with judgements that were
reasonable at the time they were made,
the above conclusions are not a guarantee
that the Group or the Company will
continue in operation.
6. Fraud and breaches of laws
andregulations – ability to detect
Identifying and responding to risks of
material misstatement due to fraud
To identify risks of material misstatement
due to fraud (“fraud risks”) we assessed
events or conditions that could indicate
anincentive or pressure to commit fraud
or provide an opportunity to commit fraud.
Our risk assessment procedures included:
–
Enquiring of directors, the Audit
Committee, internal audit, compliance
ocers and inspection of policy
documentation as to the Group’s high-
level policies and procedures to prevent
and detect fraud, including the internal
audit function, and the Group’s channel
for “whistleblowing”, as well as whether
they have knowledge of any actual,
suspected or alleged fraud.
–
Reading Board and all relevant
committee minutes.
–
Inspecting management’s own fraud
risk assessment and considering the
applicability of identified risk factors.
–
Considering remuneration incentive
schemes (primarily the annual bonus
plan) and performance targets for
management and directors, including
revenue and trading margin targets
formanagement remuneration.
–
Using analytical procedures to identify
any usual or unexpected relationships.
–
Using our own forensic specialists to
assist us in identifying fraud risks based
on discussions of the circumstances of
the Group and Company.
We communicated identified fraud risk
factors throughout the audit team and
remained alert to any indications of
fraud throughout the audit. This included
communication from the Group audit team
to component audit teams of relevant fraud
risk factors identified at the Group level
and request to component audit teams
to report tothe Group audit team any
instances of fraud that could give rise to a
material misstatement at the group level.
As required by auditing standards and taking
into account our overall knowledge of the
control environment, we perform procedures
to address the risk of management override of
controls, in particular the risk that Group and
component management may be in a position
to make inappropriate accounting entries and
the risk of bias in accounting estimates and
judgements such as inventory provisioning.
On this audit we do not believe there is a
fraud risk related to revenue recognition
based on the following assessment:
–
The accounting for the majority of the
Group’s sales is non-complex, and subject
to limited levels of judgment with limited
opportunities for manual intervention
in the sales process to fraudulently
manipulate revenue. There is also a short
period of time between order and delivery.
–
Revenue related rebates and deductions
are relevant for sales made to distributors
in certain markets, and the calculation
of these includes a level of estimation
which may be subject to management
bias. However, given the materiality of the
respective accruals, their contractual terms,
and the historic profile of these deductions,
including frequency of settlement, we are
satisfied that there is no significant risk
offraud associated with these sales.
–
We are also satisfied that there are
no significant risks around fraudulent
sales to distributors, including channel
stung, given the materiality of these
arrangements, number and size of
agreements and levels of channel inventory.
We did not identify any additional fraud risks.
In determining the audit procedures, we
considered the results of our evaluation and
testing of the operating eectiveness of the
Group-wide fraud risk management controls.
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Strategic report
Governance
Accounts
Other information
Independent auditor’s UK report
continued
We also performed procedures including:
–
Identifying journal entries and other
adjustments to test for all full scope
components based on specific risk-based
criteria and comparing the identified
entries to supporting documentation.
These included those posted by senior
finance management, those posted
to unusual accounts, and those with
missing user identification; and
–
Assessing significant accounting
estimates for bias.
Identifying and responding to risks
ofmaterial misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations
that could reasonably be expected to have a
material eect on the financial statements
from our general commercial and sector
experience, through discussion with
thedirectors and other management
(as required by auditing standards), and from
inspection of the Group’s regulatory and
legal correspondence and discussed with the
directors and other management the policies
and procedures regarding compliance with
laws and regulations. We engaged forensic
specialists to assist inthe review of relevant
correspondence and attend discussions
with management on relevant matters.
As the Group is regulated, our assessment
of risks involved gaining an understanding
of the control environment including
theentity’s procedures for complying
withregulatory requirements.
We communicated identified laws and
regulations throughout our team and
remained alert to any indications of
non-compliance throughout the audit.
This included communication from the
group to component audit teams of
relevant laws and regulations identified
at the Group level, and a request for
component auditors to report to the group
team any instances of non-compliance
with laws and regulations that could give
rise to a material misstatement at group.
The potential eect of these laws and
regulations on the financial statements
varies considerably.
Firstly, the Group is subject to laws and
regulations that directly aect the financial
statements including financial reporting
legislation (including related companies
legislation), distributable profits legislation,
and taxation legislation and we assessed
the extent of compliance with these laws
and regulations as part of our procedures
on the related financial statement items.
Secondly, the Group is subject to many
other laws and regulations where the
consequences of non-compliance could
have a material eect on amounts or
disclosures in the financial statements,
forinstance through the imposition
of fines or litigation or the loss of the
Group’s license to operate. We identified
the following areas as those most likely
to have such an eect: Food and Drug
Administration regulations in the US and
the compliance of business practices with
the UK Bribery Act and the US Foreign
Corrupt Practices Act recognising the
regulated nature of the Group’s activities.
Auditing standards limit the required audit
procedures to identify non-compliance
with these laws and regulations to enquiry
of the directors and other management
and inspection of regulatory and legal
correspondence, if any. Therefore, if a
breach of operational regulations is not
disclosed to us or evident from relevant
correspondence, an audit will not detect
that breach.
We assessed the disclosures in the Risk
Factors included within Other Information
of the Annual Report on page 212 related
to allegations of possible violations of
anti-corruption laws in India compared
toour knowledge based on discussion
withthe Company’s external legal advisors
and review of documentation including
whistleblowing reports.
We discussed with the audit committee
other matters related to actual or
suspected breaches of laws or regulations,
for which disclosure is not necessary, and
considered any implications for our audit.
Context of the ability of the audit to detect
fraud or breaches of law or regulation
Owing to the inherent limitations of an
audit, there is an unavoidable risk that
wemay not have detected some material
misstatements in the financial statements,
even though we have properly planned
and performed our audit in accordance
with auditing standards. For example,
thefurther removed non-compliance with
laws and regulations is from the events
and transactions reflected in the financial
statements, the less likely the inherently
limited procedures required by auditing
standards would identify it.
In addition, as with any audit, there remained
a higher risk of non-detection of fraud,
as these may involve collusion, forgery,
intentional omissions, misrepresentations,
or the override of internal controls. Our audit
procedures are designed to detect material
misstatement. We are not responsible
for preventing non-compliance or fraud
and cannot be expected to detect non-
compliance with all laws and regulations.
7. We have nothing to report
ontheother information in the
AnnualReport
The directors are responsible for
theotherinformation presented in the
Annual Report together with the financial
statements. Our opinion on the financial
statements does not cover the other
information and, accordingly, we do
not express an audit opinion or, except
as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether, based on our financial statements
audit work, the information therein
ismaterially misstated or inconsistent
withthe financial statements or our
auditknowledge. Based solely on that
work we have not identified material
misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the
other information:
–
we have not identified material
misstatements in the strategic
reportand the directors’ report;
–
in our opinion the information given inthose
reports for the financial year isconsistent
with the financial statements; and
–
in our opinion those reports have
been prepared in accordance with
theCompanies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance
withthe Companies Act 2006.
Disclosures of emerging and principal
risks and longer-term viability
We are required to perform procedures
to identify whether there is a material
inconsistency between the directors’
disclosures in respect of emerging and
principal risks and the viability statement,
and the financial statements and our
audit knowledge.
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Annual Report 2021
Based on those procedures, we have
nothing material to add or draw attention
to in relation to:
–
the directors’ confirmation within the
viability statement on page 68 that they
have carried out a robust assessment
ofthe emerging and principal risks facing
the Group, including those that would
threaten its business model, future
performance, solvency and liquidity;
–
the Principal Risks disclosures describing
these risks and how emerging risks are
identified, and explaining how they are
being managed and mitigated; and
–
the directors’ explanation in the viability
statement of how they have assessed the
prospects of the Group, over what period
they have done so and why they considered
that period to be appropriate, and their
statement as to whether they have a
reasonable expectation that the Group
will be able to continue in operation and
meet its liabilities as they fall due over the
period of their assessment, including any
related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to review the viability
statement, set out on page 68 under
the Listing Rules. Based on the above
procedures, we have concluded that the
above disclosures are materially consistent
with the financial statements and our
audit knowledge.
Our work is limited to assessing these
matters in the context of only the knowledge
acquired during our financial statements
audit. As we cannot predict all future events
or conditions and as subsequent events may
result in outcomes that are inconsistent
with judgements that were reasonable at
the time they were made, the absence of
anything to report on these statements
is not a guarantee as to the Group’s and
Company’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures
to identify whether there is a material
inconsistency between the directors’
corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have Based
on those procedures, we have concluded
that each of the following is materially
consistent with the financial statements
and our audit knowledge:
–
the directors’ statement that they
consider that the Annual Report and
financial statements taken as a whole
is fair, balanced and understandable,
and provides the information necessary
for shareholders to assess the Group’s
position and performance, business
model and strategy;
–
the section of the Annual report
describing the work of the Audit
Committee, including the significant
issues that the Audit Committee
considered in relation to the financial
statements, and how these issues were
addressed; and
–
the section of the Annual Report that
describes the review of the eectiveness
of the Group’s risk management and
internal control systems.
We are required to review the part of
Corporate Governance Statement relating to
the Group’s compliance with the provisions
of the UK Corporate Governance Code
specified by the Listing Rules for our review.
We have nothing to report in this respect.
8. We have nothing to report on
theother matters on which we are
required to report by exception
Under the Companies Act 2006, we are
required to report to you if, in our opinion
–
adequate accounting records have
notbeen kept by the parent Company,
orreturns adequate for our audit have
not been received from branches not
visited by us; or
–
the parent Company financial
statements and the part of the
Directors’Remuneration Report to be
audited are not in agreement with the
accounting records and returns; or
–
certain disclosures of directors’
remuneration specified by law are
notmade; or
–
we have not received all the information
and explanations we require for our audit.
We have nothing to report in these respects.
9. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set
out on page 137, the directors are responsible
for: the preparation of the financial
statements including being satisfied that
they give a true and fair view; such internal
control as they determine is necessary
to enable the preparation offinancial
statements that are free frommaterial
misstatement, whether due to fraud or error;
assessing the Group and parent Company’s
ability to continue as a going concern,
disclosing, as applicable, matters related to
going concern; and usingthe going concern
basis of accounting unless they either
intend to liquidate the Group or the parent
Company or to cease operations, or have
no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue our opinion in
an auditor’s report. Reasonable assurance
is a high level of assurance, but does
notguarantee that an audit conducted
in accordance with ISAs (UK) will always
detect a material misstatement when
it exists. Misstatements can arise from
fraud or error and are considered material
if, individually or in aggregate, they could
reasonably be expected to influence
theeconomic decisions of users taken
onthe basis of the financial statements.
A fuller description of our responsibilities
is provided on the FRC’s website at
www.frc.org.uk/auditorsresponsibilities.
10. The purpose of our audit
workand to whom we owe
ourresponsibilities
This report is made solely to the Company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006 and the terms of our engagement
by the company. Our audit work has been
undertaken so that we might state to the
Company’s members those matters we
are required to state to them in an auditor’s
report, and the further matters we are
required to state to them in accordance with
the terms agreed with the company, and
for no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the Company and the Company’s members,
as a body, for our audit work, for this report,
or for the opinions we have formed.
Zulfikar Walji (Senior Statutory Auditor)
for and on behalf of KPMG LLP
Statutory Auditor
Chartered Accountants
15 Canada Square
London E14 5GL
22 February 2022
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Strategic report
Governance
Accounts
Other information
Group financial statements
Group income statement
Group statement of comprehensive income
Year ended
Year ended
Year ended 31 December 31 December 31 December
2021
2020
2019
Notes
$million $million $million
Attributable profit for theyear
1
524 448 600
Other comprehensive income:
Items that will not be reclassified to income statement
Remeasurement of net retirement benefit obligations
18 79 10
(14 )
Taxation on other comprehensive income
5 2
(22 )
(4 )
Total items that will not be reclassified to income statement 57 6
(12 )
Items that may be reclassified subsequently to income statement
Cash flow hedges– forward foreign exchange contracts
/(Gains
losses) arising in theyear (24 )
Losses/(gains) transferred to inventories for theyear 7
(6 )
(19 )
Exchange dierences on translation of foreign operations 21 21
(53 )
Taxation on other comprehensive income
5 4 –
(5 )
Total items that may be reclassified subsequently to income statement (5 ) 16
(17 )
Other comprehensive income for theyear, net of taxation
40 1 4
Total comprehensive income for theyear
1
564 449 604
1 Attributable to equity holders of the Company and wholly derived from continuing operations.
Year ended
Year ended
Year ended 31 December 31 December 31 December
2021
2020
2019
$million $million $million
Notes
Revenue
2 5,212 4,560 5,138
Cost of goods sold
(1,543 )
(1,396 )
(1,338 )
Gross profit
3,669 3,164 3,800
Selling, general and administrative expenses 3
(2,720 )
(2,562 )
(2,693 )
Research and development expenses
3
(356 )
(307 )
(292 )
Operating profit
2& 3 593 295 815
Interest income
4 6 6 10
Interest expense 4
(80 )
(62 )
(65 )
Other finance costs
4
(17 )
(7 )
(18 )
Share of results of associates
11 9 14 1
Gain on disposal of interest in associate
11 75 – –
Profit before taxation
586 246 743
Taxation
5 202
(62 )
(143 )
Attributable profit for theyear
1
524 448 600
Earnings per ordinary share
1
6
Basic
59.8 ¢ 51.3 ¢ 68.6 ¢
Diluted
59.7 ¢ 51.2 ¢ 68.4 ¢
The Notes on pages 150–202 are an integral part of these accounts.
146
Smith+Nephew
Annual Report 2021
The Notes on pages 1
50–
202 are an integral part of these accounts.Group balance sheet
At At
31 December 31 December
2021
2020
$million $million
Notes
Assets
Non-current assets
Property, plant and equipment
7 1,513 1,449
Goodwill
8 2,989 2,928
Intangible assets
9 1,398 1,486
Investments 9
10 10
Investments in associates
11 188 108
Other non-current assets
13 15 33
Retirement benefit assets
18 182 133
Deferred tax assets
5 201 202
6,496 6,348
Current assets
Inventories
12 1,844 1,691
Trade and other receivables
13 1,184 1,116
Current tax receivable 106 95
Cash at bank
15 1,290 1,762
4,424 4,664
Total assets
10,920 11,012
Equity and liabilities
Equity attributable to owners of the Company
Share capital
19 177 177
Share premium
614 612
Capital redemption reserve
18 18
Treasury shares
19
(120 )
(157 )
Other reserves
(346 )
(329 )
Retained earnings
5,225 4,958
Total equity
5,568 5,279
Non-current liabilities
Long-term borrowings and lease liabilities
15 2,848 3,353
Retirement benefit obligations
18 127 163
Other payables
14 67 94
Provisions
17 35 294
Deferred tax liabilities
5 144 141
3,221 4,045
Current liabilities
Bank overdras, borrowings, loans and lease liabilities
15 491 337
Trade and other payables
14 1,096 1,022
Provisions
17 322 123
Current tax payable 222 206
2,131 1,688
Total liabilities
5,352 5,733
Total equity and liabilities
10,920 11,012
The accounts were approved by the Board and authorised for issue on 22 February 2022 and are signed on its behalf by:
Roberto Quarta Roland Diggelmann Anne-Françoise Nesmes
Chair Chief Executive Ocer Chief Financial Ocer
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Annual Report 2
021
Strategic report
Governance
Accounts
Other information
Group financial statements
continued
Group cash flow statement
The Notes on pages 1
50–
202 are an integral part of these accounts.Year ended Year ended Year ended
31 December 31 December 31 December
2021
2020
2019
$million $million $million
Notes
Cash flows from operating activities
Profit before taxation 586 246 743
Net interest expense 4 74 56 55
Depreciation, amortisation and impairment
567 562 502
Loss on disposal of property, plant and equipment and soware 14 34 16
Share-based payments expense (equity-settled)
22 41 26 32
Share of results of associates
11
(9 )
(14 )
(1 )
Gain on disposal of interest in associate
11 – –
(75 )
Net movement in post-retirement benefit obligations – 1
(4 )
Increase in inventories
(151 )
(45 )
(204 )
(Increase)/decrease in trade and other receivables
209 30
(81 )
Increase 82 201
/(
decrease) in trade and other payables and provisions (103 )
Cash generated from operations
1
1,048 972 1,370
Interest received
6 2 4
Interest paid
(80 )
(61 )
(56 )
Income taxes (paid)/refunded
22
(97 )
(150 )
Net cash inflow from operating activities
877 935 1,168
Cash flows from investing activities
Acquisitions, net of cash acquired
(285 )
(170 )
(869 )
Capital expenditure
(408 )
(443 )
(408 )
Net (purchase)/proceeds from sale of investments
(2 )
(2 ) 23
Distribution from associate
11 4 9 3
Net cash used in investing activities
(691 )
(606 )
(1,251 )
Cash flows from financing activities
Proceeds from issue of ordinary share capital 2 2 2
Purchase of own shares –
(16 )
(63 )
Payment of capital element of lease liabilities
20
(59 )
(55 )
(46 )
Settlement of borrowings due within oneyear 5 )
20
( (267 )
(125 )
Proceeds from borrowings due aer oneyear
20 – 1,950 1,290
Settlement of borrowings due aer oneyear
20 –
(400 )
(740 )
Proceeds from own shares 12 9 9
Settlement of currency swaps 7
20
(4 )
(2 )
Equity dividends paid
19
(329 )
(328 )
(318 )
Net cash (used in)/from financing activities
1,164 7
(645 )
Net (decrease)/increase in cash and cash equivalents 1,493
(459 )
(76 )
Cash and cash equivalents at beginning ofyear
20 1,751 257 333
Exchange adjustments
20
(7 ) 1 –
Cash and cash equivalents at end ofyear
2
1,285 1,751 257
1 Includes $108 m (2020: $117 m, 201123 m) of outgoings on restructuring and rationalisation expenses36 m) of outgoings on acquisition and disposal related items
9: $
, $28
m (2020: $24
m, 2019: $and$111 m outflow (2020: $75 m outflow, 2019: $105 m inflow) of legal and other items.
2 Cash and cash equivalents is net of bank overdras of $5 m (2020: $11 m, 20
19: $20
m). 148
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Annual Report 2
021
Group statement of changes in equity
The Notes on page
50–s 1
202 are an integral part of these accounts.Capital
Share Share
redemption
Treasury
Other
Retained
Total
capital
premium
reserve shares
2
reserves
3
earnings
4
equity
$million $million $million $million $million $million $million
At 31 Decembe 177 608 18 4,625 4,874
r 2018
(214 )
(340 )
Attributable profit for theyear
1
Other comprehensive expense – – – – 16 4
(12 )
Equity dividends declared and paid – – – – –
(318 )
(318 )
Share-based payments recognised – – – – – 32 32
Taxation on share-based payments – – – – – 1 1
Purchase of own shares – – – – –
(63 )
(63 )
Cost of shares transferred to beneficiaries – – – 38 – 9
(29 )
Cancellation of treasury shares – – – 50 – –
(50 )
Issue of ordinary share capital
5
At 31 Decembe 177 610 18 4,849 5,141
r 2019
(189 )
(324 )
Attributable profit for theyear – – – – – 448 448
Other comprehensive income – – – – 6 1
(5 )
Equity dividends declared and paid – – – – –
(328 )
(328 )
Share-based payments recognised – – – – – 26 26
Taxation on share-based payments – – – – –
(4 )
(4 )
Purchase of own shares – – – – –
(16 )
(16 )
Cost of shares transferred to beneficiaries – – – 37 – 9
(28 )
Cancellation of treasury shares – – – 11 – –
(11 )
Issue of ordinary share capital – 2 – – – – 2
At 31 Decembe 177 612 18 4,958 5,279
r 2020
(157 )
(329 )
Attributable profit for theyear
1
Other comprehensive income – – – – 57 40
(17 )
Equity dividends declared and paid – – – – –
(329 )
(329 )
Share-based payments recognised – – – – – 41 41
Taxation on share-based payments – – – – – (1 )
(1 )
Cost of shares transferred to beneficiaries – – – 37 – 12
(25 )
Issue of ordinary share capital
5
At 31 Decemb 177 614 18
er 2021
(120 )
(346 ) 5,225 5,568
1 Attributable to equity holders of the Company and wholly derived from continuing operations.
2 Refer to Note 19.2 for further information.
3 Other reserves comprises gains and losses on cash flow hedges, foreign exchange dierences on translation of foreign operations and net changes on fair value of trade investments.
The cumulative translation loss within other reserves at 31 December 2021 was $350 m318 m loss).
(2020: $297 m
loss, 2019: $4 Within retained earnings is a capital reserve of $2,266 m (2020: $2,266 m, 2019: $2,266 m).
5 Issue of ordinary share capital in connection with the Group’s share incentive plans.
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Accounts
Other information
Group financial statements
continued
1
Basis of preparation
means the Company and all its subsidiaries. The principal activities of the Group are to develop, manufacture, market and sell medical
devices and services.
The Group has prepared its accounts in accordance with UK-adopted International Accounting Standards. The Group has also prepared
its accounts in accordance with IFRS as issued by the International Accounting Standards Board (IASB) eective as at 31 December 2021 .
IFRS as adopted in the UK diers in certain respects from IFRS as issued by the IASB. However, the dierences have no impact for the
periods presented.
The preparation of accounts in conformity with IFRS requires management to use estimates and assumptions that aect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the accounts and the reported
amounts of revenues and expenses during the year. The accounting policies requiring management to use significant estimates and
assumptions are: inventories, liability provisions and impairment. These are discussed in Note 1.2 below. Although these estimates
are based on management’s best knowledge of current events and actions, actual results ultimately may dier from those estimates.
Estimates andunderlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
The continued uncertainty as to the future impact on the financial performance and cash flows of the Group as a result of the COVID
pandemic has been considered as part of the Group’s adoption of the going concern basis in these financial statements, in which context
the Directors reviewed cash flow forecasts prepared for the period to 1 July 2023. The going concern period has been extended beyond
12 months to include scheduled and committed debt repayments in Q2 2023. Having carefully reviewed those forecasts, the Directors
concluded that it was appropriate to adopt the going concern basis of accounting in preparing these financial statements for the reasons
set out below.
The Group had access to $1,285m of cash and cash equivalents at 31 December 2021. The Group’s net debt, excluding lease liabilities,
at 31 December 2021 was $1,852m with access to committed facilities of $4.1bn with an average maturity of 4.6 years. At the date
ofapproving these consolidated financial statements, the funding position of the Group has remained unchanged and the cash position
is not materially dierent.
The Group has a €269m term loan and $125m of private placement debt due for repayment in 2022. $1,285m of private placement
debtis subject to financial covenants. The principal covenant on the private placement debt is a leverage ratio of <3.5x which is
measured on a rolling 12-month basis at half year and year end. Our leverage ratio including lease liabilities was 1.6x adjusted EBITDA
forthe 12 months to 31 December 2021. There are no financial covenants in any of the Group’s other facilities.
The Directors have considered various scenarios in assessing the impact of COVID on future financial performance and cash flows,
withthe key judgement applied being the sustainability of the return to a normal volume of elective procedures in key markets,
includingthe impact of a further extended wave of restrictions on elective procedures in 2022 and the subsequent recovery.
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, have
sucient funds to continue to meet their liabilities as they fall due and to continue in operational existence for the period to 1 July 2023.
The financial statements have therefore been prepared on a going concern basis.
Accordingly, the Directors continue to adopt the going concern basis in preparing these financial statements.
New accounting standards eective 2021
A number of new amendments to standards are eective from 1 January 2021 but they do not have a material eect on the Group’s
financial statements. Refer to Note 16 for further details on the impact of IBOR reform.
Accounting standards issued but not yet eective
A number of new standards and amendments to standards are eective for annual periods beginning aer 1 January 2021 and earlier
application is permitted; however, the Group has not early adopted them in preparing these consolidated financial statements.
Notes to the Group accounts
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Annual Report 2021
1.1
Consolidation
The Group accounts include the accounts of Smith & Nephew plc and its subsidiaries for the periods during which they were members
ofthe Group.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to aect those returns through its power over the entity. Subsidiaries are
consolidated in the Group accounts from the date that the Group obtains control and continue to be consolidated until the date
that such control ceases. Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated on consolidation. Allsubsidiaries have year ends which are co-terminous with the Group’s, with the
exception of jurisdictions whereby a dierent year end is required by local legislation.
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary and any related components
ofequity. Any resulting gain or loss is recognised in profit or loss. Any retained interest in the former subsidiary is measured at fair value.
1.2
Critical judgements and estimates
The Group prepares its consolidated financial statements in accordance with IFRS as issued by the IASB and IFRS adopted in the
UK, the application of which oen requires judgements and estimates tobe made by management when formulating the Group’s
financial position and results. Under IFRS, the Directors are required to adopt those accounting policies most appropriate to the
Group’scircumstances for the purpose of presenting fairly the Group’s financial position, financial performance and cash flows.
The Group’s accounting policies do not include any critical judgements. The Group’s accounting policies are set out in Notes 1–23
oftheNotes to the Group accounts. Of those, the policies which require the most use of management’s estimation are outlined below.
The critical estimates are consistent with 31 December 2020. Management have considered the impact of the continuing uncertainty
fromCOVID below.
Valuation of inventories
A feature of the Orthopaedics franchise (which accounts for approximately 60% of the Group’s total inventory and approximately
80% of the total provision for excess and obsolete inventory) is the high level ofproduct inventory required, some of which is located
at customer premises and is available for customers’ immediate use. Complete sets of products, including large and small sizes, have
to be made available in this way. These sizes are used less frequently than standard sizes and towards the end of the product life cycle
are inevitably in excess of requirements. Adjustments to carrying value are therefore required to be made to orthopaedic inventory to
anticipate this situation. These adjustments are calculated in accordance with a formula based on levels of inventory compared with
historical usage. This formula is applied on an individual product line basis and typically is first applied when a product group has been
on the market for two years. This method of calculation is considered appropriate based on experience, but it does require management
estimate in respect of customer demand, eectiveness of inventory deployment, length of product lives, phase-out of old products
andeciency of manufacturing planning systems. See Note 12 for further details.
COVID impact assessment: Management have assessed the continuing impact of COVID on the provision for excess and obsolete inventory,
specifically considering the impact of lower sales demand and increased inventory levels. Where possible, management have taken steps
to reduce manufacturing output and purchase levels to respond to actual demand. Management have not changed their accounting
policy since 31 December 2020, nor is a change in the key assumptions underlying the methodology expected in the next 12 months.
Primarily due to acquisitions, the provision has increased from $377m at 31 December 2020 to $430m at 31 December 2021.
The provision for excess and obsolete inventory is not considered to have a range of potential outcomes that is significantly dierent
tothe$430m at 31 December 2021 barring unforeseen changes in sales demand like those experienced in 2020.
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Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
1
Basis of preparation
continued
Liability provisioning
The recognition of provisions for legal disputes related to metal-on-metal cases is subject to a significant degree of estimation.
Provision is made for loss contingencies when it is considered probable that an adverse outcome will occur and the amount of
thelosscan be reasonably estimated. In making its estimates, management takes into account the advice of internal and external
legalcounsel. Provisions are reviewed regularly and amounts updated where necessary to reflect developments in the disputes.
The value of provisions may require future adjustment if experience such as number, nature or value of claims or settlements changes.
Such a change may be material in 2022 or thereaer. The ultimate liability may dier from the amount provided depending on the
outcome of court proceedings and settlement negotiations or if investigations bring to light new facts. See Note 17 for further details.
COVID impact assessment: Management considered whether there had been any changes to the number and value of claims
duetoCOVID and to date have not identified any changes in trends. If the experience changes in the future, the value of provisions
mayrequire adjustment.
Impairment
In carrying out impairment reviews of intangible assets and goodwill, a number of significant assumptions have to be made when
preparing cash flow projections. These include the future rate of market growth, discount rates, the market demand for the products
acquired, the future profitability of acquired businesses or products, levels of reimbursement and success in obtaining regulatory
approvals. If actual results should dier or changes in expectations arise, impairment charges may be required which would adversely
impact operating results. This critical estimate is not considered to have a significant risk of material adjustment in 2022 or thereaer
based on sensitivity analyses undertaken (as outlined below). See Notes 8 and 9 for further details on impairment reviews.
COVID impact assessment: Management have assessed the non-current assets held by the Group at 31 December 2021 to identify any
indicators of impairment as a result of the continuing impact of COVID. Where an impairment indicator has arisen, impairment reviews
have been undertaken by comparing the expected recoverable value of the asset to the carrying value of the asset. The recoverable
amounts are based on cash flow projections using the Group’s base case scenario in its going concern models, which was reviewed
andapproved by the Board. No material impairments were identified as a result of the impairment reviews undertaken.
1.3
Climate change considerations
The impact of climate change has been considered as part of the assessment of estimates and judgements in preparing the
Groupaccounts. The climate change scenario analyses undertaken this year in line with TCFD recommendations did not identify
anymaterial financial impact. The following considerations were made in respect of the financial statements:
•
The impact of climate change on the going concern assessment and the viability of the Group over the next three years.
•
The impact of climate change on the cash flow forecasts used in the impairment assessments of non-current assets including goodwill.
•
The impact of climate change on the carrying value and useful economic lives of property, plant and equipment.
1.4
Foreign currencies
Functional and presentation currency
The Group accounts are presented in US Dollars. The Company’s functional currency is US Dollars.
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group companies at exchange rates at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency
atthe exchange rate as atthe reporting date. Non-monetary items are not retranslated.
Foreign operations
Balance sheet items of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into US
Dollars on consolidation at the exchange rates at the reporting date. Income statement items and the cash flows of foreign operations
are translated ataveragerates as an approximation to actual transaction rates, with actual transaction rates used for large
one-o transactions.
Foreign currency dierences are recognised in ‘Other comprehensive income’ and accumulated in ‘Other reserves’ within equity.
These include: exchange dierences on the translation at closing rates of exchange of non-US Dollar opening net assets; the dierences
arising between the translation of profits into US Dollars at actual (oraverage, as an approximation) and closing exchange rates; to the
extent that the hedging relationship is eective, the dierence on translation of foreign currency borrowings or swaps that are used
tofinance or hedge the Group’s net investments in foreign operations; and the movement in the fair value of forward foreign exchange
contracts used to hedge forecast foreign exchange cash flows.
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The exchange rates used for the translation of currencies into US Dollars that have the most significant impact on the Group
results were:
2021
2020
2019
Average rates
Sterling
1.38
1.28 1.28
Euro
1.18
1.14
1.12
Swiss Franc
1.09
1.07
1.01
Year end rates
Sterling
1.35
1.37
1.32
Euro
1.13
1.23
1.12
Swiss Franc
1.10
1.14
1.04
2
Business segment information
The Group’s operating structure is organised around three global franchises and the chief operating decision maker monitors performance,
makes operating decisions and allocates resources on a global franchise basis. Accordingly, the Group has concluded that there are
threereportable segments.
Franchise presidents have responsibility for upstream marketing, driving product portfolio and technology acquisition decisions, and full
commercial responsibility for their franchises in the US. Regional presidents in EMEA and APAC are responsible for the implementation
ofthe global franchise strategy in their respective regions. During 2021, the Group transitioned from three franchise presidents to
two; with the franchise president of the Sports Medicine & ENT franchise also assuming responsibility for the Orthopaedics franchise.
There was no change to the manner in which the chief operating decision maker monitors performance, makes operating decisions
orallocates resources and accordingly the Group continues to have three reportable segments.
The Executive Committee (‘ExCo’) comprises the Chief Financial Ocer (‘CFO’), the franchise presidents, the regional presidents
and certain heads of function, and is chaired by the Chief Executive Ocer (‘CEO’). ExCo is the body through which the CEO uses the
authority delegated to him by the Board of Directors to manage the operations and performance of the Group. All significant operating
decisions regarding the allocation and prioritisation of the Group’s resources and assessment of the Group’s performance are made
byExCo, and while the members have individual responsibility for the implementation of decisions within their respective areas,
itisatthe ExCo level that these decisions are made. Accordingly, ExCo is considered to be the Group’s chief operating decision maker
asdefined byIFRS 8
Operating Segments
.
In making decisions about the prioritisation and allocation of the Group’s resources, ExCo reviews financial information for the three
franchises (Orthopaedics, Sports Medicine & ENT and Advanced Wound Management) and determines the best allocation of resources
to the franchises. This information is prepared substantially on the same basis as the Group’s IFRS financial statements aside from
the adjustments described in Note 2.2. Financial information for corporate costs is presented on a Group-wide basis. The ExCo
isnotprovided with total assets and liabilities by segment, and therefore these measures are not included in the disclosures below.
The results ofthe segments are shown below.
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Other information
Group financial statements
continued
Notes to the Group accounts
continued
2
Business segment information
continued
2.1
Revenue by business segment and geography
Accounting policy
Revenue is recognised as the performance obligations to deliver products or services are satisfied and is recorded based on the
amount of consideration expected to be received in exchange for satisfying the performance obligations. Revenue is recognised
primarily when control is transferred to the customer, which is generally when the goods are shipped or delivered in accordance
withthe contract terms, with some transfer of services taking place over time. Substantially all performance obligations are fulfilled
within one year. There is no significant revenue associated with the provision of services. Payment terms to our customers are based
on commercially reasonable terms for the respective markets while also considering a customer’s credit rating. Appropriate provisions
for returns, trade discounts and rebates are deducted from revenue. Rebates primarily comprise chargebacks and other discounts
granted to certain customers. Chargebacks are discounts that occur when a third-party purchases product from a wholesaler at
its agreed price plus a mark-up. The wholesaler in turn charges the Group for the dierence between the price initially paid by the
wholesaler and the agreed price. The provision for chargebacks is based on expected sell-through levels by the Group’s wholesalers
tosuch customers, as well as estimated wholesaler inventory levels.
Orthopaedics and Sports Medicine & ENT (Ear, Nose & Throat)
Orthopaedics and Sports Medicine & ENT consists of the following businesses: Knee Implants, Hip Implants, Other Reconstruction,
Trauma & Extremities, Sports Medicine Joint Repair, Arthroscopic Enabling Technologies and ENT. Sales of inventory located
atcustomer premises and available for customers’ immediate use are recognised when notification is received that the product
has been implanted or used. Substantially all other revenue is recognised when control is transferred to the customer, which is
generally when the goods areshipped or delivered in accordance with the contract terms. Revenue is recognised for the amount
ofconsideration expected tobe received inexchange fortransferring the products or services.
In general our business in Established Markets is direct to hospitals and ambulatory surgery centers whereas in the Emerging Markets
we generally sell through distributors.
Advanced Wound Management
Advanced Wound Management consists of the following businesses: Advanced Wound Care, Advanced Wound Bioactives and
Advanced Wound Devices. Substantially all revenue is recognised when control is transferred to the customer, which is generally
when the goods are shipped or delivered in accordance with the contract terms. Revenue is recognised for the amount of
consideration expected to be received in exchange for transferring the products or services. Appropriate provisions for returns,
tradediscounts and rebates are deducted from revenue, as explained above.
The majority of our Advanced Wound Management business, and in particular products used in community and homecare facilities,
isthrough wholesalers and distributors. When control is transferred to a wholesaler or distributor, revenue is recognised accordingly.
The proportion of sales direct to hospitals is higher in our Advanced Wound Devices business in Established Markets.
Segment revenue reconciles to statutory revenues from continuing operations as follows:
2021
2020
2019
$million $million $million
Reportable segment revenue
Orthopaedics
2,156
1,917
2,222
Sports Medicine & ENT
1,560
1,333
1,536
Advanced Wound Management
1,496
1,310
1,380
Revenue from external customers
5,212
4,560
5,138
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Disaggregation of revenue:
The following table shows the disaggregation of Group revenue by product franchise:
2021
2020
2019
$million $million $million
Revenue by product from continuing operations
Knee Implants
876
822
1,042
Hip Implants
612
567
613
Other Reconstruction
92
68
79
Trauma & Extremities
576
460
488
Orthopaedics
2,156
1,917
2,222
Sports Medicine Joint Repair
839
710
794
Arthroscopic Enabling Technologies
590
517
591
ENT (Ear, Nose and Throat)
131
106
151
Sports Medicine & ENT
1,560
1,333
1,536
Advanced Wound Care
731
647
701
Advanced Wound Bioactives
496
431
436
Advanced Wound Devices
269
232
243
Advanced Wound Management
1,496
1,310
1,380
Consolidated revenue from continuing operations
5,212
4,560
5,138
The following table shows the disaggregation of Group revenue by geographic market and product category. The disaggregation of
revenue into the two product categories below reflects that in general the products in the Advanced Wound Management franchises
are sold to wholesalers and intermediaries, while products in the other franchises are sold directly to hospitals, ambulatory surgery
centers and distributors. The further disaggregation of revenue by Established Markets and Emerging Markets reflects that in general our
products are sold through distributors and intermediaries in the Emerging Markets while in the Established Markets, with the exception
of the Advanced Wound Care and Bioactives franchises, products are in general sold direct to hospitals and ambulatory surgery centers.
The disaggregation by Established Markets and Emerging Markets also reflects their diering economic factors including volatility in
growth and outlook.
2021
2020
2019
Established
Markets
1
Emerging
Markets
Total
Established
Markets
1
Emerging
Markets
Total
Established
Markets
1
Emerging
Markets
Total
$million $million $million $million $million $million $million $million $million
Orthopaedics,SportsMedicine & ENT
2,969
747
3,716
2,619
631
3,250
2,986
772
3,758
Advanced Wound Management
1,327
169
1,496
1,170
140
1,310
1,195
185
1,380
Total
4,296
916
5,212
3,789
771
4,560
957 4,181
5,138
1 Established Markets comprises the US, Australia, Canada, Europe, Japan and New Zealand.
US revenue for 2021 was $2,658m (2020: $2,339m, 2019: $2,551m), China revenue for 2021 was $352m (2020: $318m, 2019: $336m)
and UK revenue for 2021 was $189m (2020: $166m, 2019: $211m).
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
2
Business segment information
continued
Contract assets and liabilities
The nature of our products and services do not generally give rise to contract assets as we do not typically incur costs to fulfil a contract
before a product or service is provided to the customer. The Group generally satisfies performance obligations within one year from
the contract inception date. There was no material revenue recognised in the current reporting period that related to carried-forward
contract liabilities (deferred income) or performance obligations satisfied in the previous year. There is no material revenue that is likely to
arise in future periods from unsatisfied performance obligations at the balance sheet date. Therefore, there are no associated significant
accrued income and deferred income balances at 31 December 2021. As of 31 December 2021, contract assets principally comprise
trade receivables and contract liabilities principally comprise rebates (as described in the accounting policy above). The accrual for
rebates at 31 December 2021 was $97m (2020: $97m) with $389m being recognised in revenue in 2021.
Major customers
No single customer generates revenue greater than 10% of the consolidated revenue.
2.2
Trading and operating profit by business segment
Trading profit is a trend measure which presents the profitability of the Group excluding the impact of specific transactions that
management considers aect the Group’s short-term profitability and the comparability of results. The Group presents this measure
toassist investors in their understanding of trends. The Group has identified the following items, where material, as those to be excluded
from operating profit when arriving at trading profit: acquisition and disposal related items; amortisation and impairment of acquisition
intangibles; significant restructuring programmes; gains and losses arising from legal disputes; and other significant items. Further detail
isprovided in Notes 2.3, 2.4, 2.5 and 2.6.
Segment trading profit is reconciled to the statutory measure below:
2021
2020
2019
$million $million
$ million
Segment profit
Orthopaedics
367
389
666
Sports Medicine & ENT
459
306
489
Advanced Wound Management
474
316
370
Segment trading profit
1,300
1,011
1,525
Corporate costs
(364)
(328)
(356)
Group trading profit
936
683
1,169
Acquisition and disposal related items
(7)
(4)
(32)
Restructuring and rationalisation expenses
(113)
(124)
(134)
Amortisation and impairment of acquisition intangibles
(172)
(171)
(143)
Legal and other
(51)
(89)
(45)
Group operating profit
593
295
815
2.3
Acquisition and disposal related items
For the year to 31 December 2021 costs primarily relate to the acquisition of Extremity Orthopaedics and prior year acquisitions,
partially oset by credits relating to remeasurement of deferred and contingent consideration for prior year acquisitions.
For the year to 31 December 2020 costs primarily relate to the acquisition of Tusker and prior year acquisitions, partially oset by
creditsrelating to remeasurement of contingent consideration for prior year acquisitions.
For the year to 31 December 2019 costs primarily relate to the acquisitions of Ceterix, Osiris, Leaf, Brainlab OJR and Atracsys.
2.4
Restructuring and rationalisation costs
For the years ended 31 December 2021, 2020 and 2019 these costs relate to the implementation of the Accelerating Performance
andExecution (APEX) programme that was announced in February 2018 and for the years ended 31 December 2021 and 2020 these
costs also include the Operations and Commercial Excellence programme announced in February 2020.
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2.5
Amortisation and impairment of acquisition intangibles
For the years ended 31 December 2021, 2020 and 2019 these costs relate to the amortisation and impairment of intangible assets
acquired in material business combinations.
2.6
Legal and other
For the year ended 31 December 2021 charges primarily relate to legal expenses for ongoing metal-on-metal hip claims. These charges
in the year to 31 December 2021 were partially oset by a credit of $35m relating to insurance recoveries for ongoing metal-on-metal
hip claims.
For the year ended 31 December 2020 charges primarily relate to legal expenses for ongoing metal-on-metal hip claims and an increase
of $17m in the provision that reflects the present value of the estimated costs to resolve all other known and anticipated metal-on-metal
hip claims.
For the year ended 31 December 2019 charges primarily relate to legal expenses for ongoing metal-on-metal hip claims and an
increaseof $121m in the provision that reflects the present value of the estimated costs to resolve all other known and anticipated
metal-on-metal hip claims. These charges in the year to 31 December 2019 were partially oset by a credit of $147m relating to
insurance recoveries for ongoing metal-on-metal hip claims.
The years ended 31 December 2021, 2020 and 2019 also include costs for implementing the requirements of the EU Medical Device
Regulation which came into eect in May 2021.
2.7
Non-current assets by geography
The following table presents the non-current assets of the Group based on their location:
2021
2020
2019
$million $million $million
United Kingdom
541
403
385
United States of America
4,125
4,093
4,034
Other
1,447
1,517
1,405
Total non-current assets of the consolidated Group
1
6,113
6,013
5,824
1 Non-current assets excludes retirement benefit assets and deferred tax assets.
3
Operating profit
Accounting policy
Research and development
Research expenditure is expensed as incurred. Internal development expenditure is only capitalised if the recognition criteria in
IAS38
Intangible Assets
have been satisfied. The Group considers that the regulatory, technical and market uncertainties inherent
inthe development of new products mean that in most cases development costs should not be capitalised as intangible assets
untilproducts receive approval from the appropriate regulatory body.
Payments to third parties for research and development projects are accounted for based on the substance of the arrangement.
If the arrangement represents outsourced research and development activities the payments are generally expensed except
in limited circumstances where the respective development expenditure would be capitalised under the principles established
inIAS38.By contrast, the payments are capitalised ifthearrangement represents consideration for the acquisition of intellectual
property developed at the risk of the third party.
Capitalised development expenditures are amortised on a straight-line basis over their useful economic lives from product launch.
Advertising costs
Advertising costs are expensed as incurred.
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
3
Operating profit
continued
2021
2020
2019
$million $million $million
Revenue
5,212
4,560
5,138
Cost of goods sold
1
(1,543)
(1,396)
(1,338)
Gross profit
3,669
3,164
3,800
Research and development expenses
2
(356)
(307)
(292)
Selling, general and administrative expenses:
Marketing, selling and distribution expenses
(2,013)
(1,773)
(1,911)
Administrative expenses
3,4,5,6
(707)
(789)
(782)
(2,720)
(2,562)
(2,693)
Operating profit
593
295
815
1 2021 includes $7m charge relating to legal and other items and $29m charge relating to restructuring and rationalisation expenses (2020: $6m charge relating to legal and other items and
$15m charge relating to restructuring and rationalisation expenses, 2019: $5m charge relating to legal and other items and $7m charge relating to restructuring and rationalisation expenses).
2 2021 includes $39m charge relating to legal and other items (2020: $28m, 2019: $24m) and $7m charge relating to acquisition and disposal related items (2020: $nil, 2019: $nil).
3 2021 includes $65m of amortisation of soware and other intangible assets (2020: $63m, 2019: $61m).
4 2021 includes $172m of amortisation and impairment of acquisition intangibles and $84m of restructuring and rationalisation expenses (2020: $171m of amortisation and impairment
ofacquisition intangibles and $109m of restructuring and rationalisation expenses, 2019: $143m of amortisation and impairment of acquisition intangibles and $127m of restructuring
andrationalisation expenses).
5 2021 includes $5m charge relating to legal and other items (2020: $55m charge, 2019: $16m charge).
6 2021 includes $nil acquisition and disposal related items (2020: $4m charge, 2019: $32m charge).
Note that items detailed in 1, 2, 4, 5 and 6 are excluded from the calculation of trading profit, the segments’ profit measure.
Operating profit is stated aer charging/(crediting) the following items:
2021
2020
2019
$million $million $million
Other operating income
(35)
– (147)
Amortisation of intangible assets
237
234
204
Impairment of intangible assets
2
12
2
Impairment of property, plant and equipment
1
5 4
Fair value remeasurement of trade investments
1
– 12
Depreciation of property, plant and equipment
1
326
311
292
Loss on disposal of property, plant and equipment and intangible assets
14
34
16
Advertising costs
81
66
85
1 The 2021 depreciation charge includes $56m (2020: $51m, 2019: $50m) related to right-of-use assets.
In 2021 other operating income comprises insurance recoveries for ongoing metal-on-metal hip claims (2020: $nil, 2019: insurance
recoveries for ongoing metal-on-metal hip claims). In 2021, $35m (2020: $nil, 2019: $147m) of other operating income was included
withlegal and other items, as explained in Note 2.6, and does not form part of trading profit, the segments’ profit measure.
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3.1
Sta costs and employee numbers
Sta costs during the year amounted to:
2021
2020
2019
Notes
$million $million $million
Wages and salaries
1,562
1,392
1,435
Social security costs
223
190
193
Pension costs (including retirement healthcare)
18
93
78
76
Share-based payments
22
41
26
32
1,919
1,686
1,736
During the year ended 31 December 2021, the average number of employees was 18,976 (2020: 18,581, 2019: 18,030).
3.2
Audit Fees – information about the nature and cost of services provided by the auditor
2021
2020
2019
$million $million $million
Audit services:
Group accounts
5.5
5.0
3.8
Local statutory audit pursuant to legislation
2.0
2.0
2.7
Other services:
Audit related services
0.1
0.4
0.3
Total auditor’s remuneration
7.6
7.4
6.8
Arising:
In the UK
3.5
3.6
3.0
Outside the UK
4.1
3.8 3.8
7.6
7.4
6.8
4
Interest and other finance costs
4.1
Interest income/(expense)
2021
2020
2019
$million $million $million
Interest income
6
6
10
Interest expense:
Bank borrowings
(3)
(4)
(7)
Private placement notes
(46)
(42)
(41)
Lease liabilities
(7)
(6) (6)
Corporate bond
(21)
(5)
–
Other
(3)
(5)
(11)
(80)
(62)
(65)
Net interest expense
(74)
(56)
(55)
4.2
Other finance costs
2021
2020
2019
$million $million $million
Notes
Retirement benefit net interest expense
18
(3)
(2) (2)
Unwinding of discount
(10)
(11)
(8)
Other
(4)
6
(8)
Other finance costs
(17)
(7)
(18)
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
5
Taxation
Accounting policy
The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or non-deductible.
It is calculated using tax rates that have been enacted or substantively enacted as at the balance sheet date.
The Group operates in numerous tax jurisdictions around the world. At any given time, the Group typically is involved in tax audits
and other disputes and will have other tax returns potentially subject to audit. Significant issues may take several years to resolve.
In estimating the probability and amount of any tax charge, management takes into account the views of internal and external
advisers and updates the amount of tax provision where considered appropriate. The ultimate tax liability may dier from the
amountprovided depending on factors including interpretations oftax law and settlement negotiations.
Deferred tax is recognised in respect of temporary dierences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognised: for temporary dierences related to investments in subsidiaries and associates where the Group is
able to control the timing of the reversal of the temporary dierence and it is probable that this will not reverse in the foreseeable
future; on the initial recognition of non-deductible goodwill; and on the initial recognition of an asset or liability in a transaction that
isnot a business combination and that, at the time of the transaction, does not aect the accounting or taxable profit.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which they
canbe used. Deferred tax assets are reviewed at each reporting date taking into account the recoverability of the deferred tax assets,
future profitability and any restrictions on use. The Group considers available evidence to assess future profitability over a reasonably
foreseeable time period, depending on the circumstances and typically a minimum of five years. Any material unrecognised deferred
tax assets are disclosed in Note 5.
Deferred tax is measured on an undiscounted basis, and at the tax rates that have been enacted or substantively enacted as at the
balance sheet date that are expected to apply in the periods in which the asset or liability is settled. It is recognised in the income
statement except when it relates to items credited or charged directly to other comprehensive income or equity, in which case
thedeferred tax is also recognised within other comprehensive income or equity respectively.
Deferred tax assets and liabilities are oset when they relate to income taxes levied by the same taxation authority, the Group
intends to settle its current tax assets and liabilities on a net basis, oset is permissible according to the relevant jurisdiction’s
taxlaws and that authority permits the Group to make a single net payment.
5.1
Taxation charge attributable to the Group
2021
2020
2019
$million $million $million
Current taxation:
UK corporation tax
14
16
27
Overseas tax
126
40
140
Current income tax charge
140
56
167
Adjustments in respect of prior periods
(33)
(191)
(11)
Total current taxation
107
(135)
156
Deferred taxation:
Origination and reversal of temporary dierences
(35)
(49)
(9)
Changes in tax rates
(14)
(12)
3
Adjustments to estimated amounts arising in prior periods
4
(6)
(7)
Total deferred taxation
(45)
(67)
(13)
Total taxation as per the income statement
62
(202)
143
Taxation in other comprehensive income
27
–
(2)
Taxation in equity
1
4
(1)
Taxation charge/(credit) attributable to the Group
90
(198)
140
160
Smith+Nephew
Annual Report 2021
The 2021 net prior period adjustment of $29m relates principally to provision releases following the resolution of tax audits and
uncertain tax matters, and other one-o items. The 2020 net prior period adjustment of $197m is explained predominantly by a $100m
current tax credit due to the successful outcome of UK tax litigation, releases of provisions following the conclusion of tax audits and loss
carry-backs to prior periods. The 2019 net prior period adjustment of $18m mainly relates to the expiry of statute of limitations and tax
accrual to tax return adjustments, partially oset by an increase in certain other tax provisions.
The total taxation charge as per the income statement of $62m includes a $85m net credit (2020: $274m net credit, 2019: $68m net
credit) as a consequence of restructuring and rationalisation related costs, acquisitions and disposal related items, amortisation and
impairment of acquisition intangibles, and legal and other charges. The 2020 net credit was significantly higher predominantly as a result
of refunds and future recoverable amounts recognised following the successful outcome of the UK tax litigation disclosed in the 2020
Annual Report ($142m), and also a one-o carry-back of losses attributable to non-trading costs to prior periods taxable at a higher rate.
Factors aecting future tax charges
The Group operates in numerous tax jurisdictions around the world and is subject to factors that may aect future tax charges including
transfer pricing, tax rate changes, tax legislation changes, tax authority interpretation, expiry of statute of limitations, tax litigation,
andresolution of tax audits and disputes.
At any given time the Group has unagreed years outstanding in various countries and is involved in tax audits and disputes, some of
which may take several years to resolve. Provisions are based on best estimates and management’s judgements concerning the likely
ultimate outcome of any audit or dispute. Management considers the specific circumstances of each tax position and takes external
advice, where appropriate, to assess the range of potential outcomes and estimate additional tax that may be due. Total tax liabilities
include $152m (2020: $162m) in relation to uncertain tax positions which relate to multiple issues across the jurisdictions in which the
Group operates. Other payables includes $14m (2020: $15m) of other interest on these provisions. There are $106m (2020: $95m) of tax
receivables relating to payments on account and repayments due in a number of jurisdictions, principally relating to the US.
The Group believes that it has made adequate provision in respect of additional tax liabilities that may arise from unagreed years, tax
audits and disputes, the majority of which relate to transfer pricing matters, as would be expected for a Group operating internationally.
However, the actual liability for any particular issue may be higher or lower than the amount provided, resulting in a negative or positive
eect on the tax charge in any given year. A reduction in the tax charge may also arise for other reasons such as an expiry of the relevant
statute of limitations. Depending on the final outcome of tax audits which are currently in progress, statute of limitations expiry or other
tax audits that may be commenced before that time and other factors, an impact on the tax charge could arise. While such an impact
can vary from year to year, these releases depend on factors which are uncertain, both as to outcome and timing. However, at the
current time, we believe the possibility of a material impact on the tax charge for 2022 is unlikely.
EU state aid
We did not make a provision in prior years for a future eect on our tax charge as a result of the European Commission (EC) decision that
certain aspects of the UK CFC financing exemption rules between 2013 and 2018 constituted illegal State Aid, as we neither considered
that it was more likely than not that any liability would arise, nor that any such liability could be quantified with sucient accuracy,
inorder to recognise any provision in respect of this matter. We did disclose a maximum potential liability of $155m.
At the EC’s request, HM Revenue and Customs (HMRC) requested from potentially aected companies certain information and facts
in order to review whether there may be a potential liability, were the EC’s position to be upheld, to which we fully responded in 2020.
On 29 June 2021, we received letters from HMRC confirming that, by reference to our facts and circumstances, they do not consider us
to be beneficiaries of State Aid with regard to the EC’s State Aid recovery proceedings. The letters also confirm that the EC has indicated
that they agree with HMRC’s conclusion. As a result of the letters received from HMRC, it is no longer required to consider any impact
ofthis matter on the past or future tax charge.
OECD BEPS 2.0 –Pillar Two
On 20 December 2021, the OECD released a framework for Pillar Two Model Rules which will introduce a global minimum corporate tax
rate of 15% applicable to multinational enterprise (MNEs) groups with global revenue over €750m. All participating OECD members are
required to incorporate these rules into national legislation to be eective from 1 January 2023. While substantial work remains to be
completed by the OECD and national governments on the detail of these rules, this is likely to result in an increase in our Group tax rate
from 2023 onwards.
The Group does not meet the threshold for application of the Pillar One transfer pricing rules.
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
5
Taxation
continued
The UK standard rate of corporation tax for 2021 is 19.0% (2020: 19.0%, 2019: 19.0%). Overseas taxation is calculated at the rates
prevailing in the respective jurisdictions. The table below reconciles the expected tax charge at the UK statutory rate with the actual
tax charge.
The UK Finance Act 2021 enacted an increase in the UK corporation tax main rate from 19% to 25% from 1 April 2023. The impact of
this rate change is reflected in the calculation of the taxation charge and tax in other comprehensive income, and in the tax reconciliation
and movement in deferred taxation below.
2021
2020
2019
$million $million $million
Profit before taxation
586
246
743
Expected taxation at UK statutory rate of 19.0% (2020: 19.0%, 2019: 19%)
111
47
141
Dierences in overseas taxation rates
(17)
(37)
5
Innovation reliefs
(12)
(9)
(8)
Tax losses and other deferred tax assets not recognised
7
15
–
Recognition of previously unrecognised tax losses
(2)
(45)
(2)
Expenses not deductible for tax purposes
1
22
29
18
Change in tax rates
2
(14)
(12)
3
Withholding tax on unremitted earnings 4
(4)
7 Adjustments in respect of prioryears³
(29)
(197)
(18)
Total taxation charge/(credit) as per the income statement
62
(202)
143
1 In 2021 this includes a $17m impact of non-taxable accounting gains recognised on UK-owned investments.
2 In 2021 the tax rate changes relate to an increase in deferred tax resulting from the increase in the UK corporation tax rate due to come into eect on 1 April 2023. The net impact to deferred
tax assets and liabilities is $6m which comprises $14m in the income statement as shown in the table above and $8m in other comprehensive income as shown in the table below.
3 The adjustments in respect of prior years are explained on page 161.
5.2
Deferred taxation
Movements in the main components of deferred tax assets and liabilities were as follows:
Inventory,
Accelerated
Retirement
Losses
provisions
tax
benefit
and other
andother
depreciation
Intangibles
obligations
tax attributes
dierences
Total
$million $million $million $million $million $million
At 31 December 2019
(37)
(221)
7
46
188
(17 )
Exchange adjustment
– – 2 – 8
10
Movement in income statement– currentyear
(23)
20
–
51
1 49
Movement in income statement– prioryears
(3)
3 – 3 3 6
Movement in other comprehensive income – – 2
(4)
– (2)
Movement in equity
– – – –
(4) (4)
Changes in tax rate
2 6 – – 4
12
Acquisitions
– 7
(17 )
– 23
1 At 31 December2020
(61)
(209)
61 5
123
203
Exchange adjustment
– – (7)
(1)
– (8)
Movement in income statement– currentyear
16
24
1 4
(10)
35
Movement in income statement– prioryears
(2)
10
(2) –
(10) (4)
Movement in other comprehensive income
– –
(15)
– (5)
(20)
Movement in equity
– – – –
(1) (1)
Changes in tax rate
– 6
(2)
6 (8)
10
Acquisitions
2 3 5
(22)
– (12)
At 31 December2021
(45)
(199)
57 (18)
130
189 162
Smith+Nephew
Annual Report 2021
Represented by:
2021
2020
$million $million
Deferred tax assets
201
202
Deferred tax liabilities
(144)
(141)
Net position at 31 December
57
61
The deferred tax asset of $189m (2020: $203m) relating to inventory, provisions and other dierences comprises deferred tax relating
to inventory of $116m (2020: $131m), provisions and other short-term temporary dierences of $65m (2020: $61m) and bad debt
provisions of $8m (2020: $11m).
The Group has gross unused trading and non-trading tax losses of $841m (2020: $725m), gross unused research and development
tax credits of $21m (2020: $46m) and gross unused capital losses of $108m (2020: $109m), available for oset against future profits.
None of these amounts are due to expire within 5 years from the balance sheet date.
A deferred tax asset of $130m (2020: $123m) has been recognised in respect of $508m (2020: $416m) of the trading and non-trading tax
losses and $21m (2020: $35m) of research and development tax credits. No deferred tax asset has been recognised on the remaining
unused tax losses as it is not probable that future taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date. In considering their recoverability, the Group assesses the likelihood of their
being recovered within a reasonably foreseeable timeframe, being typically a minimum of five years, taking into account the future
expected profit profile and business model of each relevant company or country, and any potential legislative restrictions on use.
Short-term timing dierences are generally recognised ahead of losses and other tax attributes as being likely to reverse more quickly.
6
Earnings per ordinary share
Accounting policy
Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders by the weighted average number of
ordinaryshares inissue during the year, excluding shares held by the Company in the Employees’ Share Trust or as treasury shares.
Diluted earnings per share
Diluted earnings per share is calculated by adjusting the basic earnings per share for the eect of conversion to ordinary shares
associated withdilutive potential ordinary shares, which comprise share options and awards granted to employees.
Adjusted earnings per share
Adjusted earnings per share (or adjusted basic earnings per share) is a trend measure which presents the long-term profitability
ofthe Group excluding the impact of specific transactions that management considers aects the Group’s short-term profitability.
The Group presents this measure to assist investors in their understanding of trends. Adjusted attributable profit is the numerator
used for this measure. The Group has identified the following items as those to be excluded when arriving at adjusted attributable
profit: acquisition and disposal related items including amortisation and impairment of acquisition intangible assets; significant
restructuring programmes; significant gains and losses arising from legal disputes and other significant items (including UK tax litigation)
and taxation thereon. Adjusted diluted earnings per share is calculated by adjusting the adjusted basic earnings per share for the
eect of conversion to ordinary shares associated with dilutive potential ordinary shares, which comprise share options and awards
granted to employees.
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Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
6
Earnings per ordinary share
continued
The calculations of the basic, diluted and adjusted earnings per ordinary share are based on the following attributable profit and numbers
of shares:
2021
2020
2019
$million $million $million
Earnings
Attributable profit for theyear
524
448
600
Adjusted attributable profit (see below)
710
564
893
Attributable profit is reconciled to adjusted attributable profit as follows:
2021
2020
2019
$million $million $million
Notes
Attributable profit for theyear
524
448
600
Acquisition and disposal related items
1
(73)
4
34
Restructuring and rationalisation costs
3
113
124
134
Amortisation and impairment of acquisition intangibles
2
9
172
171
143
Legal and other
3
59
91
50
UK tax litigation
5
–
(142)
– Taxation on excluded items
5
(85)
(132)
(68)
Adjusted attributable profit
710
564
893
1 Acquisition and disposal related items includes a $7m charge within operating profit (2020: $4m charge, 2019: $32m charge) and a $5m credit within share of result of associates
(2020: $nil, 2019: $2m charge) and a $75m gain on disposal of interest in associate (2020: nil, 2019: nil)). See details in Note 11.
2 In 2021 amortisation and impairment of acquisition intangibles includes a $172m charge within operating profit (2020: $171m charge within operating profit, 2019: $143m charge within
operating profit).
3 Legal and other charge in 2021 includes $51m (2020: $89m charge, 2019: $45m charge) within operating profit (refer to Note 2.6) and a $8m charge (2020: $8m charge, 2019: $5m charge)
within other finance costs for unwinding of the discount on the provision for known, anticipated and settled metal-on-metal hip claims globally. In 2020, other finance costs includes a credit
of$6m for interest on a tax refund relating to the UK tax litigation case (see Note 5).
The numerators used for basic and diluted earnings per ordinary share are the same. The denominators used for all categories of earnings
per ordinary share are as follows:
2021
2020
2019
Numberofshares(millions)
Basic weighted number of shares
877
875
874
Dilutive impact of share incentive schemes outstanding
1
2 3
Diluted weighted average number of shares
878
877 877
Earnings per ordinary share
Basic
59.8¢
51.3¢
68.6¢
Diluted
59.7¢
51.2¢
68.4¢
Adjusted:
Basic
80.9¢
64.6¢
102.2¢
Diluted
80.8¢
64.4¢
101.9¢
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7
Property, plant and equipment
Accounting policy
Property, plant and equipment
Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.
Depreciation is calculated to write o the cost of items of property, plant and equipment less their estimated residual values using
thestraight-line method over their estimated useful lives, and is ultimately recognised in profit or loss. Leased assets are depreciated
over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end
of the lease term. Freehold land is not depreciated. The estimated useful lives of items of property, plant and equipment is 3–20 years
and for buildings is 20–50 years.
Assets in course of construction are not depreciated until they are available for use.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
Finance costs relating to the purchase or construction of property, plant and equipment and intangible assets that take longer than
one year to complete are capitalised based on the Group weighted average borrowing costs. All other finance costs are expensed
as incurred.
Leased assets
The assessment of whether a contract is or contains a lease takes place at the inception of the contract. The assessment involves
whether the Group obtains substantially all the economic benefits from the use of that asset and whether the Group has the right
to direct the use of the asset. The Group allocates the consideration in the contract to each lease and non-lease component.
The non-lease component, where it is separately identifiable, is not included in the right-of-use asset.
The Group leases many assets including properties, motor vehicles and oce equipment. The Group availed itself of the exemptions
for short-term leases and leases of low-value items for leases other than those for properties and motor vehicles. The use of these
exemptions does not have a material impact. The Group recognises a right-of-use asset and a lease liability at the commencement
of the lease. The right-of-use asset is initially measured based on the present value of lease payments that are not paid at the
commencement date plus initial direct costs less any incentives received. The lease payments are discounted using an incremental
borrowing rate which is country-specific and reflective of the lease term. The right-of-use asset is depreciated over the shorter
ofthelease term or the useful life of the underlying asset.
Cash flows arising on lease interest payments are included in operating cash flows whereas cash flows arising on the capital
repayments of the lease liability are included in financing cash flows.
Impairment of assets
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances
indicate the carrying value may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order
to determine the extent of impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset,
theGroup estimates the recoverable amount of the cash-generating unit to which it belongs.
An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value-in-use.
In assessing value-in-use, its estimated future cash flow is discounted to its present value using a pre-tax discount rate that reflects
thecurrent market assessment of the time value of money and the risks specific to the asset.
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
7
Property, plant and equipment
continued
Plant and equipment
Assets in
Land and
course of
buildings
Instruments
Other
construction
Total
Notes
$ million
$ million
$ million
$ million
$ million
Cost
At 31 December2019
533
1,512
1,142
170
3,357
Exchange adjustment
15
45
26
–
86
Acquisitions
21
5 – 1 – 6
Additions
80
203
37
132
452
Disposals
(23)
( 74)
(21)
(1)
(119)
Impairment
(8)
–
(5)
– (13)
Transfers
14
(10)
64
(85)
(17)
At 31 December2020
616
1,676
1,244
216 3,752
Exchange adjustment
(9)
(53)
(16) (1)
(79)
Acquisitions
21
9 9 2 2
22
Additions
53
151
40
161
405
Disposals
(10)
(88)
(28)
2
(124)
Impairment
– –
(6)
– (6)
Transfers
29
(1)
46
(77)
(3)
At 31 December2021
688
1,694
1,282
303
3,967
Depreciation and impairment
At 1 January2020
155
1,095
2,034 784
–
Exchange adjustment
5
34
– 20
59
Charge for theyear
57
165
89
–
311
Impairment
(5)
–
(3)
– (8)
Disposals
(13)
(61)
(19)
–
(93)
At 31 December2020
199
1,233
871
–
2,303
Exchange adjustment
(4) (43)
(13)
–
(60)
Charge for theyear
62
178
86
–
326
Impairment
– –
(5)
– (5)
Disposals
(10)
(75)
(25)
–
(110)
Transfers
2 –
(1) (1)
– At 31 December2021
249
1,292
913
–
2,454
Net book amounts
At 31 December2021
439
402
369
303
1,513
At 31 December2020
417
443
373
1,449 216
Land and buildings includes land with a cost of $23m (2020: $22m) that is not subject to depreciation. Transfers from assets in course
of construction includes $3m (2020: $10m) of soware. Assets under construction reflect that the Group is undergoing investment
in its manufacturing facilities including its new facility in Malaysia and expanding existing facilities in Fort Worth (US) and Costa Rica.
Instrument transfers include $nil (2020: $7m) to inventory. Group capital expenditure relating to property, plant and equipment
contracted but not provided for amounted to $52m (2020: $56m). The amount ofborrowing costs capitalised in 2021 and 2020
was minimal.
Information about the Group’s right-of-use assets is outlined below:
Land and
buildings
Plant and
equipment
2021
$million $million
Additions
38
15
Depreciation charge in the year
43
13
Net book value at 31 December
160
31
166
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8
Goodwill
Accounting policy
Goodwill is not amortised but is reviewed for impairment annually. Goodwill is allocated to the cash-generating unit (CGU) that is
expected to benefit from the acquisition. The goodwill is tested annually for impairment by comparing the recoverable amount to
thecarrying value of the CGUs. The CGUs identified by management are at the aggregated product franchise levels of Orthopaedics,
Sports Medicine & ENT and Advanced Wound Management, in the way the core assets are used to generate cash flows.
If the recoverable amount of the CGU is less than its carrying amount then an impairment loss is determined to have occurred.
Any impairment losses that arise are recognised immediately in the income statement and are allocated first to reduce the
carryingamount of goodwill and then to the carrying amounts of the other assets of the CGU.
In carrying out impairment reviews of goodwill, a number of significant assumptions have to be made when preparing cash flow
projections. These include the future rate of market growth, discount rates, the market demand for the products acquired, the
future profitability of acquired businesses or products, levels of reimbursement and success in obtaining regulatory approvals.
If actual results should dier, or changes in expectations arise, impairment charges may be required which would adversely
impactoperating results.
2021
2020
$million $million
Notes
Cost and net book value
At 1 January
2,928
2,789
Exchange adjustment
(35)
43
Acquisitions
21
96
96
At 31 December
2,989
2,928
Management has identified four CGUs in applying the provisions of IAS 36
Impairment of Assets
: Orthopaedics, Sports Medicine & ENT, Advanced Wound Care & Devices and Bioactives.
For the purpose of goodwill impairment testing, the Advanced Wound Care & Devices and Bioactives CGUs have been aggregated
(Advanced Wound Management), as this is the level at which goodwill is monitored and level at which the economic benefits relating
tothe goodwill within these CGUs is realised.
Goodwill is allocated to the Group’s CGUs as follows:
2021
2020
$million $million
Orthopaedics
897
830
Sports Medicine & ENT
1,457
1,462
Advanced Wound Management
635
636
2,989
2,928
Impairment reviews were performed as of September 2021 and September 2020 by comparing the recoverable amount of each CGU
withits carrying amount, including goodwill. These were updated during December, taking into account any significant events that
occurred between September and December.
The continuing impact of COVID was considered in the goodwill impairment reviews and recoverable amounts were based on cash
flow projections using the Group’s base case scenario in its going concern models. Additionally, severe downside sensitivity analyses
have been undertaken on the base case scenario. No impairment was identified as a result of the impairment reviews and sensitivity
analyses undertaken.
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Other information
Group financial statements
continued
Notes to the Group accounts
continued
8
Goodwill
continued
For each CGU, the recoverable amounts are based on value-in-use which is calculated from pre-tax cash flow projections for three
years using data from the Group’s budget and strategic planning process, the results of which are reviewed and approved by the Board.
These projections exclude any estimated future cash inflows or outflows expected to arise from future restructurings. The three-year
period is in line with the Group’s strategic planning process. In determining the growth rates used in the calculations of the value-in-use,
management considered annual revenue growth. Projections are based on anticipated volume and value growth in the markets served
by the Group and assumptions as to market share movements. Each year the projections for the previous year are compared to actual
results and variances are factored into the assumptions used inthe current year.
The discount rates used in the value-in-use calculations reflect management’s assessment of risks specific to the assets of each CGU.
The discount rates are calculated using the weighted average cost of capital which includes a risk-free rate, based on government bond
yields, and an equity risk premium specifically adjusted to the medical technology industry.
8.1
Orthopaedics CGU
The cash flows used in the value-in-use calculation for the Orthopaedics CGU, which includes the Reconstruction and Trauma
businesses, reflects management’s distinctive orthopaedic reconstruction strategy, which combines cutting-edge innovation,
disruptivebusiness models and a strong Emerging Markets platform to drive our performance.
The compound annual revenue growth rate for the three-year period was 4.4% (2020: 11.7%) for the various components of
theOrthopaedics CGU. The prior year compound annual revenue growth rate included a recovery from COVID. The average growth
rateused to extrapolate the cash flows beyond the three-year period in calculating the terminal value is 2.0%(2020: 2.0%). The pre-tax
discount rate used in the Orthopaedics CGU value-in-use calculation reflects the geographical mix andis9.5% (2020: 9.4%).
8.2
Sports Medicine & ENT CGU
The value-in-use calculation for the Sports Medicine & ENT CGU reflects growth rates and cash flows consistent with management’s
strategy to rebalance Smith+Nephew towards higher growth areas such as Sports Medicine.
The compound annual revenue growth rate for the three-year period was 7.4% (2020: 12.2%) for the various components of the Sports
Medicine & ENT CGU. The prior year compound annual revenue growth rate included a recovery from COVID. The weighted average
growth rate used to extrapolate the cash flows beyond the three-year period in calculating the terminal value is 2.0% (2020: 2.0%).
Thepre-tax discount rate used in the Sports Medicine & ENT CGU value-in-use calculation reflects the geographical mix ofthe revenues
and is9.5% (2020: 9.4%).
8.3
Advanced Wound Management CGU
The aggregated Advanced Wound Management CGU comprises the Advanced Wound Care & Devices and Bioactives CGUs.
In performing the value-in-use calculation for this combined CGU, management considered the Group’s focus across the wound product
franchises, focusing on widening access to the customer, the higher added value sectors of healing chronic wounds and tissue repair
using bioactives, and by continuing to improve eciency.
The compound annual revenue growth rate for the three-year period was 5.0% (2020: 5.7%) for the various components of the
Advanced Wound Management CGU. The prior year compound annual revenue growth rate included a recovery from COVID.
The weighted average growth rate used to extrapolate the cash flows beyond the three-year period incalculating the terminal value
is 2.0% (2020: 2.0%). Thepre-tax discount rate used in the Advanced Wound Management CGU value-in-use calculation reflects
thegeographical mix and industry sector and is 9.5% (2020: 9.4%).
8.4
Sensitivity to changes in assumptions used in value-in-use calculations
The calculations of value-in-use for the identified CGUs are most sensitive to changes in discount and growth rates. Additionally,
thecalculation of value-in-use for the Orthopaedics CGU is sensitive to changes in trading margin. Management’s consideration of
thesesensitivities is set out below:
Growth of market and market share –
management has considered the impact of a variance in market growth and market share.
The value-in-use calculations show that if the assumed long-term growth rates were reduced to nil, the recoverable amount of
eachCGU wouldstill be greater than its carrying value.
Discount rate –
management has considered the impact of an increase in the discount rate applied to the value-in-use calculations.
This sensitivity analysis shows that for the recoverable amount of each CGU to be less than its carrying value, the discount rate would
have to be increased to 12.35% for the Orthopaedics CGU, 16.31% for the Sports Medicine & ENT CGU and 20.08% for the Advanced
Wound Management CGU. Such increases in discount rates are not considered to be reasonably possible.
Trading margin –
management has considered the impact of a decrease in the trading margin applied to the Orthopaedics value-in-use
calculation. This sensitivity analysis shows that for the recoverable amount of the Orthopaedics CGU to be less than its carrying value,
the trading margin would have to decrease by more than 440 basis points. Such a decrease in the Orthopaedics trading margin is not
considered to be reasonably possible.
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9
Intangible assets
Accounting policy
Intangible assets
Intangible assets acquired separately from a business combination (including purchased patents, know-how, trademarks, licences
anddistribution rights) are initially measured at cost. The cost of intangible assets acquired in a material business combination
(referred to as acquisition intangibles) is the fair value as at the date of acquisition. Following initial recognition, intangible assets are
carried at cost less anyaccumulated amortisation and any accumulated impairment losses. All intangible assets are amortised on a
straight-line basis over their estimated useful economic lives. The estimated useful economic life of soware ranges between three
and seven years. The estimated useful economic life of technology assets ranges between 6–20 years, product-related assets ranges
between 2–20 years, and customer and distribution assets ranges between 2–14 years. Internally-generated intangible assets are
expensed in the income statement as incurred. Purchased computer soware and certain costs of information technology projects
are capitalised as intangible assets. Soware that is integral to computer hardware is capitalised as plant and equipment.
Impairment of intangible assets
The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying
value may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the
extent of impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the
recoverable amount of the CGU to which it belongs. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less
costs to sell and its value-in-use. In assessing value-in-use, its estimated future cash flow is discounted to its present value using
apre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset.
In carrying out impairment reviews of intangible assets, a number of significant assumptions have to be made when preparing cash
flowprojections. These include the future rate of market growth, discount rates, the market demand for the products acquired,
the future profitability of acquired businesses or products, levels of reimbursement and success in obtaining regulatory approvals.
If actual results should dier, orchanges in expectations should arise, impairment charges may be required which would adversely
impact operating results.
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Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
9
Intangible assets
continued
Customerand
Assets
Product-
distribution
in course of
Technology
related related
Soware
construction
Total
Notes
$ million
$ million
$ million
$ million
$ million
$ million
Cost
At 1 January2020
428
2,189
428 208
38
3,291
Exchange adjustment
10
42
(7)
6 –
51
Acquisitions
57
4 – – –
61
Additions
– 1
25
26 26
78
Disposals
– – –
(3)
– (3)
Transfers
– – –
20
(10) 10
At 31 December2020
495
2,236
226
477
54
3,488
Exchange adjustment
(8)
(26)
(6)
(7)
(2)
(49)
Acquisitions
21
101
– –
11
– 112
Additions
– 1 4
27
24
56
Disposals
–
(1)
– (4)
(17)
(22)
Impairment
– – –
(4)
– (4)
Transfers
– – –
11
3 (8)
At 31 December2021
588
2,206
3,584 231 491
68
Amortisation and impairment
At 1 January2020
102 310
1,203
109 –
1,724
Exchange adjustment
4 –
36
2 (8)
34
Charge for the year
36
129
25
44 –
234
Impairment
– 5 – 7 –
12
Disposals
– – –
(2)
– (2)
At 31 December2020
142
1,373
361 126
–
2,002
Exchange adjustment
(3)
(20)
(4)
(7) –
(34)
Charge for the year
41
131
23
42
–
237
Impairment
– – –
(2)
– (2)
Disposals
– – –
(17)
– (17)
At 31 December2021
180
1,482
2,186 145
379
–
Net book amounts
At 31 December2021
408
724
86
112
68
1,398
At 31 December2020
353
863
100
116
54
1,486
Transfers into soware and assets in course of construction includes $3m (2020: $10m) of soware transferred from property,
plantand equipment. Group capital expenditure relating to soware contracted but not provided for amounted to $10m (2020: $9m).
Additions in 2020 include $7m of accrued capital spend. Amortisation and impairment of acquisition intangibles is set out below:
2021
2020
$million $million
Technolog y
41
37
Product-related
118
119
Customer and distribution related
13
15
Total
172
171
Management have assessed the acquisition intangible assets held by the Group to identifyany indicators of impairment as a result of
COVID. Where an impairment indicator has arisen, impairment reviews have beenundertaken by comparing the expected recoverable
value ofthe asset to the carrying value of the asset. There was no impairment charge booked in 2021 in relation to acquisition
intangibles (2020: $4m inrelation toan immaterial product asset in acquisition intangibles).
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The table below provides further detail on the largest intangible assets and their remaining amortisation period:
Remaining
Carrying value
amortisation
$million
period
Intangibles acquired as part of the ArthroCare acquisition
365
2–12 year s
Intangibles acquired as part of the Osiris acquisition
263
7 years
Intangibles acquired as part of the Healthpoint acquisition
216
1–6 years
10
Investments
Accounting policy
Investments, other than those related to associates, are initially recorded at fair value plus any directly attributable transaction costs
on the trade date. The Group has investments in unquoted entities and an entity that holds mainly unquoted equity securities, which
by their nature have no fixed maturity date or coupon rate. These investments are classed as fair value through profit or loss. The fair
value of these investments is based on the underlying fair value of the equity securities: marketable securities are valued by reference
to closing prices in the market; non-marketable securities are estimated considering factors including the purchase price; prices of
recent significant private placements of securities of the same issuer; and estimates of liquidation value. Changes in fair value based
on externally observable valuation events are recognised in profit or loss.
2021
2020
Notes
$million $million
At 1 January
9
7
Additions
2
2
Fair value remeasurement
(1)
– At 31 December
10
9
11
Investments in associates
Accounting policy
Investments in associates, being those entities over which the Group has a significant influence and which is neither a subsidiary
norajointventure, are accounted for using the equity method, with the Group recording its share of the associates’ profit and loss
andother comprehensive income. The Group’s share of associates’ profit or loss is included in one separate income statement line
andiscalculated aerdeduction of their respective taxes.
At 31 December 2021, the Group holds 29.2% (2020: 47.6%) of Bioventus Inc. (Bioventus) which is the holding company of Bioventus LLC.
The company’s headquarters is located in Durham, North Carolina, US, and its medical product development is focused around active
healing therapies and the surgical performance of orthobiologics. The active healing therapies product line supports accelerated and
more complete healing of bone fractures, and treats the chronic pain associated with osteoarthritis.
The profit aer taxation recognised in the income statement relating to Bioventus was $84m (2020: $14m) which comprises the Group’s
share of profit of $9m (2020: $14m) and $75m (2020: $nil) from two dilution gains which arose during the year as outlined below.
The balance sheet carrying value relating to Bioventus is $186m (2020: $105m). The Group’s ability to recover the value of its investment
isdependent upon the ongoing clinical and commercial success of these products. The carrying amount of this investment was reviewed
for impairment as at the balance sheet date. For the purposes of impairment testing, the recoverable amount of this investment was
based on its observable market value.
On 11 February 2021, Bioventus commenced trading on the Nasdaq Global Select Market via its holding company, Bioventus Inc.,
underthe symbol ‘BVS’. As a consequence of this public oering and the raising of $106m aer expenses through issuing new common
stock, the equity holding of the Smith+Nephew Group decreased from approximately 47.6% at 31 December 2020 to approximately
38.7% at 11 February 2021. Accordingly, there was a net (non-cash) gain on the dilution of the Group’s shareholding in Bioventus
of$22mreflecting the net impact of the reduction in the Group’s equity holding and the Group’s interest in the net proceeds.
On 29 October 2021, Bioventus acquired Misonix, Inc. in a cash-and-share transaction. As a consequence, the equity holding of the
Smith+Nephew Group decreased from 38.7% to 29.3% while the overall value of the investment increased. Accordingly, there was
anet(non-cash) gain on the dilution of the Group’s shareholding in Bioventus of $53m reflecting the net impact of the reduction
intheGroup’s equity holding and the higher overall value of the associate undertaking.
Between 30 October 2021 and 31 December 2021, Bioventus employee share options were exercised which reduced the Group’s
holding from 29.3% to 29.2%.
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Other information
Group financial statements
continued
Notes to the Group accounts
continued
11
Investments in associates
continued
The amounts recognised in the balance sheet and income statement for associates are as follows:
2021
2020
$million $million
Balance sheet
188
108
Income statement profit
9
14
Gain on disposal of interest in associate
75
–
Summarised financial information for significant associates
Set out below is the summarised financial information for Bioventus, adjusted for dierences with Group accounting policies. For the
2021 financial year, full-year information for Bioventus has not been released at the date of approval of these financial statements and is
market sensitive given Bioventus is now a publicly traded company. Accordingly, the summary financial information for 2021 is presented
for a nine-month period, with adjustments made for any significant transactions or events which may occur in the fourth quarter.
Accordingly, the 2021 balance sheet has been adjusted to reflect the opening balance sheet of Misonix, Inc., which was acquired by
Bioventus on 29 October 2021.
2021
2020
$million $million
Summarised statement of comprehensive income
Revenue
300
311
Attributable profit for theyear
22
19
Group adjustments
1
10
11
Total comprehensive profit
32
30
Group share of profit for theyear at 29.2% (2020: 47.6%)
9
14
2021
2020
$million $million
Summarised balance sheet
Non-current assets
1,021
283
Current assets
229
210
Non-current liabilities
(542)
(223)
Current liabilities
(191)
(117 )
Net assets
517
153
Non-controlling interest
–
(1)
Net equity attributable to owners
517
152
Group’s share of net assets at 29.2% (2020: 47.6%)
151
72
Group adjustments
1
35
33
Group’s carrying amount of investment at 29.2% (2020: 47.6%)
186
105
1 Group adjustments include an adjustment to align the useful life of intangible assets with Group policy.
During the year the Group received a $4m (2020: $9m) cash distribution from Bioventus.
At 31 December 2021, the Group held equity investments in two other associates (2020: two) with a carrying value of $2m (2020: $3m).
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12
Inventories
Accounting policy
Finished goods and work-in-progress are valued at factory cost, including appropriate overheads, on a first-in first-out basis.
Raw materials and bought-in finished goods are valued at purchase price. All inventories are reduced to net realisable value where
lower than cost. Inventory acquired aspart of a business acquisition is valued at selling price less costs to sell and a profit allowance
forselling eorts.
Orthopaedic instruments are generally not sold but provided to customers and distributors for use in surgery. They are recorded
as inventory until they are deployed at which point they are transferred to plant and equipment and depreciated over their useful
economic lives of between three and seven years.
A feature of the orthopaedic business is the high level of product inventory required, some of which is located at customer premises
and is available for customers’ immediate use (referred to as consignment inventory). Complete sets of product, including large and
small sizes, have to be made available in this way. These outer sizes are used less frequently than standard sizes and towards the
end of the product life cycle are inevitably in excess of requirements. Adjustments to carrying value are therefore required to be
made to orthopaedic inventory to anticipate this situation. These adjustments are calculated in accordance with a formula based on
levels of inventory compared with historical or forecast usage. This formula is applied on an individual product line basis and is first
applied when a product group has been on the market for two years. This method of calculation is considered appropriate based on
experience but it involves management judgements on eectiveness ofinventory deployment, length of product lives, phase-out
ofold products and eciency of manufacturing planning systems.
2021
2020
$million $million
Raw materials and consumables
424
370
Work-in-progress
79
61
Finished goods and goods for resale
1,341
1,260
1,844
1,691
Management have assessed the continuing impact of COVID on the provision for excess and obsolete inventory, specifically
considering theimpact of lower sales demand and increased inventory levels. Management have not changed their policy for calculating
theprovision since 31 December 2020, nor is a change in the key assumptions underlying the methodology expected in the next
12 months. As a result of decreased sales demand and increased inventory levels, of which the Extremity Orthopaedics acquisition
was a significant contributing factor, the provision has increased from $377m at 31 December 2020 to $430m at 31 December 2021.
The provision, however, reduced as a result of foreign exchange movements of$11m. The determination of the estimate of excess
and obsolete inventory is a critical accounting estimate and includes assumptions on the future usage of all dierent items of finished
goods. This estimate is notconsidered to havearange of potential outcomes that is significantly dierent to the $430m held at
31 December 2021.
The cost of inventories recognised as an expense and included in cost of goods sold amounted to $1,407m (2020: $1,129m, 2019: $1,147m).
No adverse manufacturing variances generated by factory specific shutdowns or reductions in scheduled production due to COVID
weredirectly expensed to cost of goods sold in 2021 (2020: $85m, 2019: $nil). In addition, $105m was recognised as an expense within
cost of goods sold resulting from inventory write-os and provision increases (2020:$144m, 2019:$70m).
Notwithstanding inventory acquired within acquisitions, no inventory is carried at fair value less costs to sell in any year.
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
13
Trade and other receivables
Accounting policy
Trade and other receivables are carried at amortised cost, less any allowances for uncollectable amounts. They are included
incurrentassets, except for maturities greater than 12 months aer the balance sheet date when they are classified as
non-current assets.
The Group manages credit risk through credit limits which require authorisation commensurate with the size of the limit and
which are regularly reviewed. Credit limit decisions are made based on available financial information and the business case.
Significant receivables are regularly reviewed and monitored at Group level. The Group has no significant concentration of credit risk,
with exposure spread over a large number of customers and geographies. Furthermore, the Group’s principal customers are backed
by government and public or private medical insurance funding, which historically represent a lower risk of default. The maximum
exposure to credit risk at the reporting date is the fair value of each class ofreceivable. The Group does not hold any collateral as
security. Allowance losses are calculated by reviewing lifetime expected credit losses using historic and forward-looking data on
credit risk. The Group performed the calculation of expected credit loss rates separately for customer groups which were segmented
based on common risk characteristics such as credit risk grade and type of customer (such as government and non-government).
2021
2020
$million $million
Trade and other receivables due within one year
Trade receivables
1,028
982
Less: loss allowance
(57)
(71)
Trade receivables– net
971
911
Derivatives– forward foreign exchange, currency swaps and interest rate contracts
39
24
Other receivables
95
100
Prepayments
79
81
1,184
1,116
Due aer more than one year
Other non-current assets
15
33
1,199
1,149
Other non-current assets primarily relate to long-term prepayments and contingent consideration. Trade receivables are classified
asloans and receivables. Management considers that the carrying amount of trade and other receivablesapproximates the fair value.
Allowance losses are calculated by reviewing lifetime expected credit losses using historic and forward-looking data on credit risk.
The loss allowance relating to other receivables is de minimis.
Management have assessed the impact of COVID on the expected credit loss allowance against trade receivables. Current and expected
collection of trade receivables since the start of the COVID pandemic has been reflected in country-specific expected credit loss models
on a reasonable and supportable basis where possible, taking into account macroeconomic factors such as government support.
The Group’s expected credit loss allowance decreased from $71m at 31 December 2020 to$57m at 31 December 2021. The loss
allowance expense for the year was $3m (2020: $25m, 2019: $15m).
The following table provides information about the ageing of and expected credit losses for trade receivables:
2021 Weighted
average loss
rate
2021 Loss
allowance
2021 Gross
carrying
amount
2020 Gross
carrying
amount
%
$million $million $million
Not past due
-0.3%
(2)
595
510
Past due not more than 3 months
-0.5%
(1)
217
220
Past due more than 3 months
-1.1%
(1)
88
88
Past due more than 6 months
-41.4%
(53)
128
164
(57)
1,028
982
Loss allowance
(57)
(71)
Trade receivables– net
971
911
The Group’s expected credit loss accounting policy includes guidance on how the expected credit loss percentages should be
determined; itdoes not include preset limits as the customer groups and risk profiles are not consistent across all of our markets.
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Each market determines their own percentages based on historic experience and future expectations, and in line with the
generalguidance inthe Group’s policy.
Movements in the loss allowance were as follows:
2021
2020
$million $million
At 31 December in prior year
71
59
Exchange adjustment
(3)
1
Net receivables provided during theyear
3
25
Utilisation of provision
(14)
(14)
At 31 December
57
71
Trade receivables include amounts denominated in the following major currencies:
2021
2020
$million $million
US Dollar
429
380
Sterling
34
34
Euro
201
198
Other
307
299
Trade receivables– net
971
911
14
Trade and other payables
2021
2020
$million $million
Trade and other payables due within oneyear
Trade and other payables
1,043
891
Derivatives– forward foreign exchange, currency swaps and interest rate contracts
19
59
Acquisition consideration
34
72
1,096
1,022
Other payables due aer oneyear
Acquisition consideration
57
93
Other payables
10
1 67
94
The acquisition consideration includes $84m (2020: $128m) contingent upon future events.
The acquisition consideration due aer more than one year is expected to be payable as follows: $18m in 2023, $15m in 2024,
$21min2025 and $3m in 2026 (2020: $33m in 2022, $32m in 2023, $15min2024, $8m in 2025, and $5m due in over five years).
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Strategic report
Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
15
Cash and borrowings
15.1
Net debt
Net debt comprises borrowings and credit balances on currency swaps less cash at bank.
2021
2020
$million $million
Bank overdras, borrowings and loans due within oneyear
435
279
Long-term bank borrowings
554
930
Corporate bond
993
992
Private placement notes
1,160
1,285
Borrowings
3,142
3,486
Cash at bank
(1,290)
(1,762)
Credit balance on derivatives– interest rate swaps
–
(2)
Net debt
1,852
1,722
Non-current lease liabilities
141
146
Current lease liabilities
56
58
Net debt including lease liabilities
2,049
1,926
Borrowings are repayable as follows:
Within
Between Between Between Between
oneyearor oneand twoand threeand fourand
Aer
ondemand
twoyears threeyears fouryears fiveyears fiveyears
Total
$million $million $million $million $million $million $million
At 31 December2021
Bank loans
305
554
– – – –
859
Bank overdras
5 – – – – – 5
Corporate bond
– – – – –
993 993
Private placement notes
125
105
430
–
75
550
1,285
Lease liabilities
1
56
33 33
23
18
47
210
491
692
463
23
93
1,590
3,352
At 31 December2020
Bank loans
1 – –
604
– 326
931
Bank overdras
11
– – – – –
11 Corporate bond
– – – – –
992 992
Private placement notes
267
– 125
105
430
625
1,552
Lease liabilities
1
58
44
30
21 215
15
47 337
773
461
451
15
1,664
3,701
1 The lease liabilities presented above of $210m (2020: $215m) are on an undiscounted basis. The lease liabilities on a discounted basis, as outlined above, are $197m (2020:$204m).
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15.2
Liquidity risk exposures
The Board has established a set of policies to manage funding and currency risks. The Group only uses derivative financial instruments
tomanage the financial risks associated with underlying business activities and their financing. Liquidity risk is the risk that the Group
is not able to settle or meet its obligations on time or at a reasonable price. The Group’s policy is to ensure that there is sucient funding
andfacilities in place to meet foreseeable borrowing requirements. The Group manages and monitors liquidity risk through regular
reporting of current cash and borrowing balances and periodic preparation and review of short andmedium-term cash forecasts,
havingregard to the maturities of investments and borrowing facilities. The Group has available committed facilities of $4.1bn
(2020:$4.5bn). During 2020, the Group issued its first corporate bond, in the form of $1bn (before expenses and underwriting discounts)
ofnotes bearing an interest rate of 2.032% repayable in 2030. A Euro term loan of €223m has been extended from May 2022 to mature
inMay 2023. In addition, $265m of private placement debt matured in 2021.
The interest payable on borrowings under committed facilities is either atfixedor floating rates. Euro floating rates are typically
basedonEURIBOR and US Dollar rates are typically based on the Secured Overnight Financing Rate (SOFR). The Company is subject
to financial covenants under its private placement agreements. The financial covenants are tested at the end of each half year for the
12 months ending on the last day of the testing period. As of 31 December 2021 the Company was in compliance with these covenants.
The facilities are also subject tocustomary events of default, none of which are currently anticipated to occur.
The Group’s committed facilities at 31 December 2021 are:
Facility
Date due
$75 million 3.46% Senior Notes
January 2022
€269 million bilateral, term loan facility
May 2022
$50 million 3.15% Senior Notes
November 2022
€265 million bilateral, term loan facility
April 2023
€223 million bilateral, term loan facility
May 2023
$105 million 3.26% Senior Notes
November 2023
$100 million 3.89% Senior Notes
January 2024
$305 million 3.36% Senior Notes
November 2024
$25 million Floating Rate Senior Notes
November 2024
$1.0 billion syndicated revolving credit facility
June 2025
$75 million 3.99% Senior Notes
January 2026
$140 million 2.83% Senior Notes
June 2027
$60 million 2.90% Senior Notes
June 2028
$100 million 2.97% Senior Notes
June 2029
$95 million 2.99% Senior Notes
June 2030
$1.0 billion 2.032% Corporate Bond
October 2030
$155 million 3.09% Senior Notes
June 2032
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
15
Cash and borrowings
continued
15.3
Year end financial liabilities by contractual maturity
The table below analyses the Group’s year end financial liabilities by contractual maturity date, including contractual interest payments
and excluding the impact of netting arrangements:
Withinone
Between Between
yearoron oneand twoand
Aer
demand
twoyears fiveyears fiveyears
Total
$million $million $million $million $million
At 31 December2021
Non-derivative financial liabilities:
Bank overdras and loans
310
554
– –
864
Corporate bond
20 20
61
1,077
1,178
Trade and other payables
1,043
– – –
1,043 Private placement notes
165
142
574
599
1,480
Acquisition consideration
35
19
42
–
96
Derivative financial instruments:
Currency swaps/forward foreign exchange contracts– outflow
2,322
– – –
2,322 Currency swaps/forward foreign exchange contracts– inflow
(2,342)
– – –
(2,342)
1,553
735
677
1,676
4,641
At 31 December2020
Non-derivative financial liabilities:
Bank overdras and loans
12
604
326
–
942
Corporate bond
20 20
61
1,102
1,203
Trade and other payables – –
1 891
892
Private placement notes
311
165
623
691
1,790
Acquisition consideration
72
34
59
5
170
Derivative financial instruments:
Currency swaps/forward foreign exchange contracts– outflow
2,581
– – –
2,581
Currency swaps/forward foreign exchange contracts– inflow
(2,544)
– – –
(2,544)
1,343
824
1,069
1,798
5,034
The amounts in the tables above are undiscounted cash flows, which dier from the amounts included in the balance sheet where the
underlying cash flows have been discounted.
15.4
Liquidity and capital resources
The Group’s policy is to ensure that it has sucient funding and facilities to meet foreseeable borrowing requirements.
At 31 December 2021, the Group held $1,285m (2020: $1,751m, 2019: $257m) in cash net of bank overdras. The Group had committed
facilities available of $4,144m at 31 December 2021 of which $3,144m was drawn.
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. 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. The Group’s net debt including leases increased from $1,926m at the beginning of 2021 to $2,049m at the end
of2021, representing an overall increase of $123m.
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16
Financial instruments and risk management
Accounting policy
Derivative financial instruments
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently remeasured at their fair value at subsequent balance sheet dates. Changes in the fair value of derivative financial
instruments that are designated and eective as cash flow hedges of forecast third party transactions are recognised in other
comprehensive income until the associated asset or liability is recognised. Amounts taken to other comprehensive income are
transferred to the income statement in the period in which the hedged transaction aects profit and loss. Where the hedged item
isthe cost of a non-financial asset, the amounts taken to other comprehensive income are transferred to the initial carrying value
ofthe asset.
On adoption of IFRS 9 on 1 January 2018, the Group elected to continue to apply the hedge accounting guidance in IAS 39
Financial
Instruments: Recognition and Measurement
. Changes in the fair values of hedging instruments that are designated and eective as
net investment hedges are matched in other comprehensive income against changes in value of the related net assets. Interest rate
derivatives transacted to fix interest rates on floating rate borrowings are accounted for as cash flow hedges and changes in the
fair values resulting from changes in market interest rates are recognised in other comprehensive income. Amounts taken to other
comprehensive income are transferred to the income statement when the hedged transaction aects profit and loss. Interest rate
derivatives transacted to convert fixed rate borrowings into floating rate borrowings are accounted for as fair value hedges and
changes in the fair values resulting from changes in market interest rates are recognised in the income statement. Any ineectiveness
on hedging instruments and changes in the fair value of derivative financial instruments that do not qualify for hedge accounting
arerecognised in the income statement within otherfinance costs as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for
hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in other comprehensive
income is retained there until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in other comprehensive income is transferred to the income statement.
16.1
Foreign exchange risk management
The Group operates in many countries and as a consequence has transactional and translational foreign exchange exposure. It is
Grouppolicy for operating units not to hold material unhedged monetary assets or liabilities other than in their functional currencies.
Foreign exchange variations aect trading results in two ways. Firstly, on translation of overseas sales and profits into US Dollars
andsecondly, transactional exposures arising where some, or all of the costs of sale are incurred in a dierent currency from the sale.
The principal transactional exposures arise as the proportion of costs in US Dollars, Sterling and Swiss Francs exceed the proportion
ofsales in each of these currencies and correspondingly the proportion of sales in Euros exceeds the proportion of costs in Euros.
The impact of currency movements on the cost of purchases is partly mitigated by the use of forward foreign exchange contracts.
The Group uses forward foreign exchange contracts, designated as cash flow hedges, to hedge forecast third-party trading cash flows
upto one year. When a commitment is entered into, forward foreign exchange contracts are normally used to increase the hedge
to 100% of the exposure. Cash flows relating to cash flow hedges are expected to occur within 12 months of inception and profits
and losses on hedges are expected to enter into the determination of profit (within cost of goods sold) within a further 12-month
period. The principal currencies hedged by forward foreign exchange contracts are US Dollars, Euros, Sterling and Singapore Dollars.
At 31 December 2021, the Group had contracted to exchange within one year the equivalent of $2.0bn (2020: $2.2bn). Based on
the Group’s net borrowings as at 31 December 2021, if the US Dollar were to weaken against all currencies by 10%, the Group’s
netborrowings would increase by$75m (2020: $84m) principally due to the Euro-denominated term loans.
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Strategic report
Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
16
Financial instruments and risk management
continued
If the US Dollar were to weaken by 10% against all other currencies, then the fair value of the forward foreign exchange contracts
as at 31 December 2021 would have been $44m lower (2020: $48m lower). Similarly, if the Euro were to weaken by 10% against all
other currencies, then the fair value of the forward foreign exchange contracts as at 31 December 2021 would have been $26m higher
(2020:$30m higher). Movements in the fair value of forward foreign exchange contracts would be recognised in other comprehensive
income or in the income statement.
A 10% strengthening of the US Dollar or Euro against all other currencies at 31 December 2021 would have had the equal but opposite
eect to the amounts shown above, on the basis that all other variables remain constant.
The Group’s policy is to hedge all actual foreign exchange exposures and the Group’s forward foreign exchange contracts are designated
as cash flow hedges. The net impact of transaction related foreign exchange on the income statement from a movement in exchange
rates on the value of forward foreign exchange contracts is not significant. In addition, the movements in the fair value of other financial
instruments used for hedging such as currency swaps for which hedge accounting is not applied osets movements in the values of
assets and liabilities and are recognised through the income statement. Hedge ineectiveness is caused by actual cash flows in foreign
currencies varying from forecast cash flows.
16.2
Interest rate risk management
The Group is exposed to interest rate risk on cash, borrowings and certain currency and interest rate swaps which are at floating rates.
When required the Group uses interest rate derivatives to meet its objective of protecting borrowing costs within parameters set
by theBoard. These interest rate derivatives are accounted for as cash flow hedges and, as such, changes in fair value resulting from
changes in market interest rates are recognised in other comprehensive income and accumulated in the hedging reserve, with the
fairvalue of the interest rate derivatives recorded in the balance sheet. Additionally, the Group uses interest rate swaps to reduce the
overall level of fixed rate debt, within parameters set by the Board. When used in this way, interest rate derivatives are accounted for
asfair value hedges. The fair value movement of the derivative is oset in the income statement against the fair value movement
intheunderlying fixed rate debt.
The Group’s revolving credit facility of $1,000m transitioned to SOFR in 2021 with no material impact arising. The Group’s floating rate
private placement notes of $25m are also subject to IBOR reform. The Group expects that the interest rates for the private placement
notes will also be changed to SOFR and that no material gain or loss will arise as a result.
Based on the Group’s gross borrowings and cash as at 31 December 2021, if interest rates were to increase by 100 basis points in all
currencies, then the annual net interest charge would increase by $3m (2020: $5m). A decrease in interest rates by 100 basis points
inallcurrencies would have an equal but opposite eect to the amounts shown above.
16.3
Credit risk management
The Group limits exposure to credit risk on counterparties used for financial instruments through a system of internal credit limits.
The financial exposure of a counterparty is determined as the total of cash and deposits, plus the risk on derivative instruments,
assessed as the fair value of the instrument plus a risk element based on the nominal value and the historic volatility of the market
value of the instrument. The Group does not anticipate non-performance of counterparties and believes it is not subject to material
concentration of credit risk as the Group operates within a policy of counterparty limits designed to reduce exposure to any
single counterparty.
The maximum credit risk exposure on derivatives at 31 December 2021 was $39m (2020: $24m), being the total debit fair values
onforward foreign exchange contracts and currency swaps. The maximum credit risk exposure on cash at bank at 31 December 2021
was$1,290m (2020: $1,762m). TheGroup’s exposure to credit risk on cash is mitigated as the amounts are held in a wide number
ofhighcredit quality financial institutions. Credit risk on trade receivables is detailed in Note 13.
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Annual Report 2021
The amounts relating to items designated as hedging instruments were as follows:
Carrying Carrying
Changes in
Hedge
Amounts reclassified
Nominal
amount amount
ineectivenessfair value
from hedging reserve
amount
assets
liabilities
in OCI in profit or loss to profit or loss Line item in
$million $million $million $million
$ million
$ million
profit or loss
At 31 December2021
Foreign currency risk
Forward exchange contracts
1
2,322
39
(19)
41
– 7
Cash flow hedges
Interest rate risk
Interest rate swaps
2
– – – – – – N/A
At 31 December2020
Foreign currency risk
Forward exchange contracts
1
2,581
22
(59)
(30)
–
(6)
Cash flow hedges
Interest rate risk
Interest rate swaps
2
(120)
2 – – – –
N/A
1 Presented in Trade and other receivables and Trade and other payables on the Balance Sheet.
2 Presented in Trade and other receivables on the Balance Sheet.
16.4
Net investment hedge
Part of the Group’s net investment in its Euro subsidiaries is hedged by €757m ($859m equivalent) of term loans which mitigate
theforeign currency risk arising from the subsidiaries’ net assets. The loans are designated as hedging instruments for the changes
inthevalue of the net investment that is attributable to changes in the EUR/USD spot rate.
To assess hedge eectiveness, the Group determines the economic relationship between the hedging instrument and the hedged item
by comparing changes in the carrying amount of the debt that is attributable to a change in the spot rate with changes in the investment
in the foreign operation due to movements in the spot rate (the oset method). The Group’s policy is to hedge the net investment only
tothe extent of the debt principal. Hedge ineectiveness occurs if the value of the Euro-denominated bank loan exceeds the value
ofthe Euro subsidiaries.
16.5
Currency and interest rate profile of interest bearing liabilities and assets
Short-term receivables and payables are excluded from the following disclosures.
Currency and interest rate profile of interest bearing liabilities:
Fixed rate liabilities
Weighted
average
Interest
Weighted
time
Gross
Currency
rate
Total
Floating
Fixedrate
average
forwhich
borrowings
swaps swaps liabilities
rate liabilities
liabilities
interestrate rateisfixed
$million $million $million $million $million
$ million
%
Years
At 31 December2021
US Dollar
(2,278)
(201)
–
(2,479)
(226)
(2,253)
2.7
6.5
Other
(864)
(136)
–
(1,000) (1,000)
– – –
Total interest bearing liabilities
(3,142)
(337)
(3,479) –
(1,226)
(2,253)
At 31 December2020
US Dollar
(2,548)
(240)
–
(2,788)
(391)
(2,397)
2.7
7.1
Other
(938)
(141)
– – –
(1,079) (1,079)
– Total interest bearing liabilities
(3,486)
(381)
–
(3,867)
(1,470)
(2,397)
In 2021, the Group also had liabilities due for deferred and contingent acquisition consideration (denominated in US Dollars, Swiss Francs
and Euros) totalling $91m (2020: $165m, 2019: $181m) on which no interest was payable (see Note 14). There were no othersignificant
interest bearing or non-interest bearing financial liabilities. Euro floating rates are typically based on EURIBOR and US Dollar rates are
typically based on SOFR. Theweighted average interest rate on floating rate borrowings as at31 December 2021 was less than 1%
(2020: less than 1%).
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
16
Financial instruments and risk management
continued
Currency and interest rate profile of interest bearing assets:
Cash
Currency
Interest rate
Floating
Fixed
atbank rateassets rateassets
swaps swaps
Totalassets
$million $million $million $million $million $million
At 31 December2021
US Dollar
1,156 135
–
1,291 1,291
– Other
134
202
–
336 336
– Total interest bearing assets
1,290
337
–
1,627 1,627
– At 31 December2020
US Dollar
1,648
139
2 1,789 1,787
2 Other
114
242
–
356 356
– Total interest bearing assets
1,762
381
2
2,145 2,143
2 Floating rates on assets are typically based on the short-term deposit rates relevant to the currency concerned.
16.6
Fair value of financial assets and liabilities
Accounting policy
Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial assets
andliabilities and non-financial assets acquired in a business combination (see Note 21).
When measuring the fair value of an asset or liability, the Group uses market observable data as far as possible. Fair values
are categorised into dierent levels in the fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level1:quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices
includedin Level1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices);
andLevel 3: inputsfor the asset or liability that are not based on observable data (unobservable inputs).
The Group recognises transfers between the levels of the fair value hierarchy at the end of the reporting period during which
thechange has occurred.
There has been no change in the classification of financial assets and liabilities, the method and assumptions used in determining fair
value and the categorisation of financial assets and liabilities within the fair value hierarchy from those disclosed in the Annual Report
forthe year ended 31 December 2020.
The Group enters into derivative financial instruments with financial institutions with investment grade credit ratings. The fair value
of forward foreign exchange contracts is calculated by reference to quoted market forward exchange rates for contracts with similar
maturity profiles. The fair value of currency swaps is determined by reference to quoted market spot rates. As a result, foreign forward
exchange contracts and currency swaps are classified as Level 2 within the fair value hierarchy. The changes in counterparty credit
risk had no material eect on the hedge eectiveness for derivatives designated in hedge relationships and other financial instruments
recognised at fair value. The fair value of investments is based upon third party pricing models for share issues. As a result, investments
are considered Level 3 in the fair value hierarchy. There were no transfers between Levels 1, 2 and 3 during 2021 and 2020. For cash
and cash equivalents, short-term loans and receivables, overdras and other short-term liabilities which have a maturity of less than
threemonths, the book values approximate the fair valuesbecause oftheir short-term nature.
Long-term borrowings are measured in the balance sheet at amortised cost. The corporate bond issued in October 2020 is publicly
listed and a market price is available. The Group’s other long-term borrowings are not quoted publicly, their fair values are estimated
bydiscounting future contractual cash flows to net presentvalues at the current market interest rates available to the Group for
similarfinancial instruments as at the year end. The fairvalue oftheprivate placement notes is determined using a discounted cash flow
model based on prevailing market rates.
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The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the
fairvalue hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value.
Carrying
amount
Fairvalue
Fairvalue–
hedging
instruments
Amortised
cost
Fair value
through
OCI
Fair value
through
profit
or loss
Other
financial
liabilities
Total
Level2 Level3
TotalAt31December2021 $million $million $million $million $million $million $million $million
$millionFinancial assets measured
atfairvalue
Forward foreign exchange contracts
37 37
– – – –
37 –
37 Investments
– – –
10
– 10
– 10 10
Contingent consideration receivable
– – –
20
– 20
– 20 20
Currency swaps
– – 2 – – 2 2 – 2
37
– 2
30
– 69
Financial liabilities measured
atfairvalue
Acquisition consideration
– – –
(84)
– (84)
– (84) (84)
Forward foreign exchange contracts
(17) (17)
– – – –
(17) –
(17)Currency swaps
– – –
(2)
– (2) (2)
– (2)
(17)
–
(2)
– (84)
(103)
Financial assets not measured
atfairvalue
Trade and other receivables
1,046
– – – –
1,046
Cash at bank
– – –
1,290
– 1,290
1,046
1,290
– – –
2,336
Financial liabilities not measured
atfairvalue
Acquisition consideration
– – – – (7) (7)
Bank overdras
– – – –
(5) (5)
Bank loans
– – – –
(859) (859)
Corporate bond
– – – –
(993) (993)
Private placement debt not in a hedge
relationship
– – – –
(1,285) (1,285)
Trade and other payables
– – – –
(1,053) (1,053)
– – – –
(4,202) (4,202)
At 31 December 2021, the book value and market value of the corporate bond were $993m and $962m respectively (2020: $992m and
$1,017m). At 31 December 2021, the book value and fair value of the private placement debt were $1,285m and $1,316m respectively
(2020: $1,552m and $1,642m).
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
16
Financial instruments and risk management
continued
During the year ended 31 December 2021, acquisition consideration decreased by $74m due to $49m of payments for acquisitions
made in the current year and prior years, and $25m of remeasurement and discount unwind. The fair value of contingent consideration
isestimated using a discounted cash flow model. The valuation model considers the present value of expected payment, discounted
using a risk-adjusted discount rate. The expected payment is determined by considering the possible scenarios, which relateto the
achievement of established milestones and targets, the amount tobe paid under each scenario and the probability ofeachscenario.
As aresult, contingent consideration is classified as Level 3 within the fair value hierarchy.
Carrying
amount
Fair value
Fairvalue–
hedging
instruments
Amortised
cost
Fair value
through
OCI
Fair value
through
profit
or loss
Other
financial
liabilities
Total
Level2 Level3
TotalAt31December2020 $million $million $million $million $million $million $million $million
$millionFinancial assets measured
atfairvalue
Forward foreign exchange contracts
20 20
– – – –
20 –
20 Investments
– – – 9 – 9 – 9 9
Contingent consideration receivable
– – –
37
– 37
– 37 37
Interest rate swaps
– – 2 – – 2 2 – 2
Currency swaps – – 2 – – 2 2 – 2
20
– 4
46
– 70
Financial liabilities measured
atfairvalue
Acquisition consideration
– – –
(128)
– (128)
– (128) (128)
Forward foreign exchange contracts
(57) (57)
– – – –
(57) –
(57)Currency swaps – – –
(2)
– (2) (2)
– (2)
(57)
–
(2)
– (128)
(187)
Financial assets not measured
atfairvalue
Trade and other receivables
986
– – – –
986 Cash at bank
– – –
1,762
– 1,762
986
1,762
– – – 2,748
Financial liabilities not measured
atfairvalue
Acquisition consideration
– – – –
(37) (37)
Bank overdras
– – – –
(11) (11)
Bank loans
– – – –
(931) (931)
Corporate bond
– – – –
(992) (992)
Private placement debt in a hedge
relationship
– – – –
(122) (122)
Private placement debt not in a
hedge relationship
– – – –
(1,430) (1,430)
Trade and other payables – – – –
(892) (892)
– – – –
(4,415) (4,415)
The fair value of contingent acquisition consideration is estimated using a discounted cash flow model. The valuation model considers
the present value of risk adjusted expected payments, discounted using a risk-free discount rate. The expected payment is determined
by considering the possible scenarios, which relate to the achievement of established milestones and targets, the amount to be paid
under each scenario and the probability of each scenario. As a result, contingent acquisition consideration is classified as Level 3 within
the fair value hierarchy.
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The fair value of investments is based upon third-party pricing models for share issues. As a result, investments are considered Level 3
inthe fair value hierarchy.
The movements in 2021 and 2020 for financial instruments measured using Level 3 valuation methods are presented below:
2021
2020
$ million
$ million
Investments
At 1 January
9
7
Additions
2
2
Fair value remeasurement
(1)
– At 31 December
10
9
Contingent consideration receivable
At 1 January
37
39
Remeasurements
1
–
Receipts
(18)
(2)
At 31 December
20
37
Acquisition consideration liability
At 1 January
(128)
(141)
Arising on acquisitions
–
(49)
Payments
23
51
Remeasurements
21
12
Discount unwind
–
(1)
At 31 December
(84)
(128)
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
17
Provisions and contingencies
Accounting policy
In the normal course of business the Group is involved in various legal disputes. Provisions are made for loss contingencies when it is
deemed probable that an adverse outcome will occur and the amount of the losses can be reasonably estimated. Where the Group is
the plainti in pursuing claims against third parties, legal and associated expenses are charged to the income statement as incurred.
The recognition of provisions for legal disputes is subject to a significant degree of estimation. In making its estimates, management
takes into account the advice of internal and external legal counsel. Provisions are reviewed regularly and amounts updated where
necessary to reflect developments in the disputes. The ultimate liability may dier from the amount provided depending on the
outcome of court proceedings or settlement negotiations or as new facts emerge. Insurance recoveries are recognised when the
inflow of benefits is virtually certain and are presented within other receivables.
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower
thanthe unavoidable cost of meeting its obligations under the contract.
A provision for rationalisation is recognised when the Group has approved a detailed and formal restructuring plan and the
restructuring either has commenced or has been announced publicly. Future operating losses are not provided for.
17.1
Provisions
Rationalisation
Legalandother
provisions
Metal-on-metal
provisions Total
$million
$million
$million
$million
At 1 January2020
40
315
62
417
Charge to income statement
124
17
10
151
Unwinding of discount
– 8 – 8
Utilised
(136)
(4)
(17 )
(157)
Acquisitions
– –
(3) (3)
Exchange adjustment
1 – – 1
At 31 December2020
29
336
52
417
Charge to income statement
115
–
13
128
Release to income statement
(2)
–
(1)
(3)
Unwinding of discount
– 8 – 8
Utilised
(124)
(55)
(13)
(192)
Exchange adjustment
– –
(1) (1)
At 31 December2021
18
289
50
357
Provisions– due within oneyear
18
263
41
322
Provisions– due aer oneyear
–
26
9 35
At 31 December2021
18
289
50
357
Provisions– due within oneyear
29
53
41
123
Provisions– due aer oneyear
–
283
11
294
At 31 December2020
29
336
52
417
The principal elements within rationalisation provisions relate to the implementation of the Accelerating Performance and Execution
(APEX) programme that was announced in February 2018, and the Operations and Commercial Excellence programme announced
inFebruary 2020.
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The Group has estimated a provision of $289m (2020: $336m) relating to the present value at 31 December 2021 of the estimated costs
toresolve all other known and anticipated metal-on-metal hip claims globally. The estimated value of the provision has been determined
using an actuarial model. Given the inherent uncertainty in assumptions including sensitivity to factors such as the number, outcome
and value of claims the actual costs may dier significantly from this estimate. A range of expected outcomes between the 25th and
90th percentile generated by the actuarial model would not give rise to a material adjustment. The potential for more adverse outcomes
exists and for example at the 95th percentile a charge similar to that incurred in 2019 ($121m) would be required in 2022 or thereaer.
The provision does not include any possible further insurance recoveries on these claims or legal fees associated with defending claims.
The Group carries considerable product liability insurance, and will continue to defend claims vigorously.
Management considered whether there had been any changes to the number and value of claims due to COVID and to date
havenotidentified any changes in trends. If the experience changes in the future the value of provisions may require adjustment.
The legal and other provisions mainly relate to various other product liability and intellectual property litigation matters.
All provisions are expected to be substantially utilised within five years of 31 December 2021 and none are treated as
financial instruments.
17.2
Contingencies
The Company and its subsidiaries are party to various legal proceedings, some of which include claims for substantial damages.
The outcome of these proceedings cannot readily be foreseen, but except as described herein management believes none of them
islikely to result in a material adverse eect on the financial position of the Group. The Group provides for outcomes that are deemed
to be probable and can be reliably estimated. There is no assurance that losses will not exceed provisions or will not have a significant
impact on the Group’s results of operations in the period in which they are realised.
17. 3
Legal proceedings
Product liability claims
The Group faces claims from time to time for alleged defects in its products and has on occasion recalled or withdrawn products from
the market. Such claims are endemic to the medical device industry. The Group maintains product liability insurance subject to limits
and deductibles that management believes are reasonable. All policies contain exclusions and limitations, however, and there can be
noassurance that insurance will be available or adequate to cover all claims.
This includes matters raising concerns about possible adverse eects of hip implant products with metal-on-metal (MoM) bearing
surfaces for which the Group has incurred and will continue to incur expenses to defend claims in this area. As of December 2021,
approximately 1,250 such claims were pending with the Group around the world. Most claims relate to the Group’s Birmingham Hip
Resurfacing (BHR) product and its two modular metal-on-metal components: the Birmingham Hip Modular Head (BHMH) and the
optional metal liner component of the R3 Acetabular System (R3ML). The BHMH and R3ML are no longer on the market: the R3ML was
withdrawn in 2012 and the BHMH was phased out in 2014. In 2015, the Group ceased oering smaller sizes of the BHR and restricted
instructions for BHR use in female patients. These actions were taken to ensure that the BHR is used only in those patient groups where
itcontinues to demonstrate strong performance.
Through the end of 2021, the Group’s US subsidiary has entered into several group, as well as individual, MoM related settlements in the
US without admitting liability. These matters principally related to the Group’s modular MoM hip components, which are no longer on the
market. On 5 April 2017, the Judicial Panel on Multidistrict Litigation (MDL) ordered Smith & Nephew BHR cases pending or later filed in
US federal court to be consolidated for pre-trial proceedings and transferred to the federal court in Baltimore, Maryland. As of December
2021, there were approximately 800 (out of approximately 1,250) cases pending. In England and Wales, the Group’s UK subsidiary
entered into a group settlement in 2017 to settle claims principally related to the Group’s modular MoM hip components, which are no
longer on the market. MoM hip implant claims against various companies in England and Wales were consolidated for trials under group
litigation orders in the High Court in London. As of December 2019, all the BHR lawsuits pending against the Group in England and Wales
had been discontinued. In addition to the one group and several individual settlements in the UK, the Group has settled about 50 cases
in13 other countries. The Group requested indemnity from its product liability insurers for most of these MoM hip implant settlements
and insurers have indemnified the Group to the limits of their respective applicable policies.
Litigation outcomes are dicult to predict and defence costs can be significant. The Group takes care to monitor the clinical evidence
relating to its products, including its metal hip implant products, to help ensure that its product oerings are designed to serve
patients’interests.
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
17
Provisions and contingencies
continued
Intellectual property disputes
The Group engages, as both plainti and defendant, in litigation with various competitors and others over claims of patent infringement
and other intellectual property matters. These disputes are heard in courts in the US and other jurisdictions and also before agencies
that examine patents. Outcomes are rarely certain and costs are oen significant.
Arthrex asserted suture anchor patents against Smith+Nephew in 2014 and 2015 in the US District Court for the Eastern District of
Texas. In February 2017, the parties reached a settlement resulting in the dismissal of all patent litigation. Smith+Nephew agreed to pay
additional payments contingent on the outcome of patent validity proceedings pending at the US Patent & Trademark Oce. In August
2019, the Court of Appeals for the Federal Circuit armed US Patent & Trademark Oce ruling invalidating one of the asserted Arthrex
patents. In October 2019, the Court of Appeals for the Federal Circuit vacated an earlier US Patent & Trademark Oce ruling invalidating
the other asserted Arthrex patent. The United States Supreme Court granted certiorari. The Supreme Court ruling allowed Arthrex
to petition the Director of the US Patent & Trademark Oce to review the decision invalidating the second asserted Arthrex patent.
The Acting Director of the US Patent & Trademark Oce declined Arthrex’s rehearing request in October 2021. The matter is currently
pending at the Federal Circuit.
17.4
Tax matters
At any given time the Group has unagreed years outstanding in various countries and is involved in tax audits and disputes, some of
which may take several years to resolve. Provisions are based on best estimates and management’s judgements concerning the likely
ultimate outcome of any audit or dispute. Management considers the specific circumstances of each tax position and takes external
advice, where appropriate, to assess the range of potential outcomes and estimate additional tax that may be due. The Group believes
that it has made adequate provision in respect of additional tax liabilities that may arise. See Note 5 for further details.
18
Retirement benefit obligations
Accounting policy
The Group sponsors defined benefit plans in a number of countries. A defined benefit pension plan defines an amount of pension
benefit that an employee will receive on retirement or a minimum guaranteed return on contributions, which is dependent on various
factors such as age, years of service and final salary. The Group’s obligation is calculated separately for each plan by discounting
theestimated future benefit that employees haveearned in return for their service in the current and prior periods. The fair value
ofany plan assets is deducted to arrive at the net liability.
The calculation of the defined benefit obligation is performed annually by external actuaries using the projected unit credit method.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses and the return on the plan assets in excess
of the discount rate net of the costs ofmanaging the plan assets. The Group recognises these immediately in other comprehensive
income (OCI) and all other expenses, such as service cost, net interest cost, administration costs and taxes, are recognised in the
income statement.
A number of key assumptions are made when calculating the fair value of the Group’s defined benefit pension plans. These
assumptions impact the balance sheet asset and liabilities, operating profit, finance income/costs and other comprehensive income.
The most critical assumptions are the discount rate, the rate of inflation and mortality assumptions to be applied to future pension
plan liabilities. The discount rate is based on the yield at the reporting date on bonds that have a credit rating of AA, denominated
in the currency in which the benefits are expected to be paid and have a maturity profile approximately the same as theGroup’s
obligations. In determining these assumptions management takes into account the advice of professional external actuaries
andbenchmarks its assumptions against external data.
The Group determines the net interest expense/income on the net defined benefit liability/asset for the period by applying the
discount rate used tomeasure the defined benefit obligation at the beginning of the annual period to the net defined benefit
liability/asset.
The Group also operates a number of defined contribution plans. A defined contribution plan is a pension plan under which the
Groupand employees pay fixed contributions to a third-party financial provider. The Group has no further payment obligations
oncethe contributions havebeenpaid. Contributions are recognised as an employee benefit expense when they are due.
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18.1
Retirement benefit net assets/(obligations)
The Group’s retirement benefit assets/(obligations) comprise:
2021
2020
$ million
$ million
Funded plans:
UK Plan
137
82
US Plan
40
47
Other plans
(18)
(50)
159
79
Unfunded plans:
Other plans
(91)
(94)
Retirement healthcare
(13)
(15)
55
(30)
Amount recognised on the balance sheet– liability
(127)
(163)
Amount recognised on the balance sheet– asset
182
133
The Group sponsors defined benefit pension plans for its employees or former employees in 14 countries and these are established
under the laws of the relevant country. Funded plans are funded by the payment of contributions and the assets are held by separate
trust funds or insurance companies. The provision of retirement and related benefits across the Group is kept under regular review.
Employees’ retirement benefits are the subject of regular management review. The Group’s defined benefit plans provide employees
with an entitlement to retirement benefits varying between 1.3% and 66.7% of final salary on attainment of retirement age. The level
ofentitlement is dependent on the years of service of the employee.
The Group’s two major defined benefit pension plans are in the UK and US. Both these plans were closed to new employees in 2003
anddefined contribution plans are oered to new joiners. The US and UK Plans were closed to future accrual in March 2014 and
December 2016 respectively.
The UK Plan operates under trust law and responsibility for its governance lies with a Board of Trustees. This Board is composed of
representatives of the Group, plan participants and an independent trustee, who act on behalf of members in accordance with the
termsofthe Trust Deed and Rules and relevant legislation. The UK Plan’s assets are held by the trust. Annual increases on benefits
inpayment aredependent on inflation.
The 2018 and 2020 court cases in relation to Guaranteed Minimum Pensions do not impact the UK Plan as members were not
contracted out ofthe State Earnings-Related Pension Scheme (SERPS) between 1990 and 1997.
The US Plan is governed by a US Pension Committee which comprises representatives of the Group. In the US, the Pension Protection
Act (2006) established both a minimum required contribution and a maximum deductible contribution. Failure to contribute at least
theminimum required amount will subject the Company to significant penalties, and contributions in excess of the maximum deductible
have negative tax consequences. The minimum funding requirement is intended to fully fund the present value of accrued benefits
overseven years.
There is no legislative minimum funding requirement in the UK. The Trust Deed of the UK Plan and the Plan Document of the US Plan
provide the Group with a right to a refund of surplus assets assuming the full settlement of plan liabilities in the event of a plan wind-up.
Furthermore, in the ordinary course of business the UK Board of Trustees and US Pension Committee have no rights to unilaterally
wind up, or otherwise augment the benefits due to members of the plans. Based on these rights, any net surplus in the UK and US Plans
isrecognised in full.
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
18
Retirement benefit obligations
continued
18.2
Reconciliation of retirement benefit obligations and pension assets
The movement in the Group’s pension benefit obligation and pension assets is as follows:
2021
2020
Obligation
Asset
Total
Obligation
Asset
Total
$million $million $million $million $million $million
Amounts recognised on the balance sheet at
beginning of the period
(1,714)
1,684
(30)
(1,572)
1,542
(30)
Income statement expense:
Current service cost
– (12)
–
(12)
(12)
(12)
Past service credit
(1)
–
(1)
5 –
5
Settlements
1
(1)
– 7
(7)
– Interest (expense)/income
(25) 25
–
(33) 33
–
Administration costs and taxes
(3)
–
(3)
(2)
–
(2)
Costs recognised in income statement
(40)
24
(16)
(35)
26
(9)
Remeasurements:
Actuarial gain due to liability experience
2 –
2 6 –
6
Actuarial gain/(loss) due to financial
assumptions change
43
–
43
(130)
–
(130)
Actuarial gain due to demographic assumptions
25
–
25
7 –
7
Return on plan assets greater than discount
rate
– 9
9
–
127
127
Remeasurements recognised in OCI
70
9
79
(117)
127
10
Cash:
Employer contributions
–
14
14
– 8
8
Employee contributions
(3)
3
–
(3)
3
–
Benefits paid directly by the Group
2 –
2 2 –
2
Benefits paid, taxes and administration costs
paid from scheme assets
– 79 (79)
–
68
(68)
Net cash
78
(62)
16
67
(57)
10
Exchange movements
24
(18)
6
(57)
46
(11)
Amount recognised on the balance sheet
(1,582)
1,637
55
(1,714)
1,684
(30)
Amount recognised on the balance sheet–
liability
(271)
144
(127)
(312)
149
(163)
Amount recognised on the balance sheet–
asset
(1,311)
1,493
182
(1,402)
1,535
133
Represented by:
2021
2020
Obligation
Asset
Total
Obligation
Asset
Total
$million $million $million $million $million $million
UK Plan
(819)
956
137
(881)
963
82
US Plan
(463)
503
40
(494)
541
47
Other Plans
(300)
178
(122)
(339)
180
(159)Total
(1,582)
1,637
55
(1,714)
1,684
(30)
All benefits are vested at the end of each reporting period. The weighted average duration of the defined benefit obligation at the end
ofthe reporting period is 18 years and 10 years for the UK and US Plans respectively.
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18.3
Plan assets
The market value of the US, UK and Other Plans assets are as follows:
2021
2020
2019
$million $million $million
UK Plan:
Assets with a quoted market price:
Cash and cash equivalents
4
10
3
Equity securities
84
91
103
Other bonds
50
49
44 Short dated credit fund
126
127
119
Liability driven investments
370
347
264
Diversified growth funds
89
89
97
723
713
630
Other assets:
Insurance contract
233
250
239
Market value of assets
956
963
869
US Plan:
Assets with a quoted market price:
Cash and cash equivalents
6
2 –
Equity securities
50
60
50
Government bonds– fixed interest
201
163
152
Corporate bonds
246
316
296
Market value of assets
503
541
498
Other Plans:
Assets with a quoted market price:
Cash and cash equivalents
5
5 4
Equity securities
55
51
47
Government bonds– fixed interest
5
9 6
Government bonds– index linked
4
4 4
Corporate and other bonds
11
10 10
Insurance contracts
33
37
41
Property
23
23
25
Other quoted securities
8
5 5
144
144 142
Other assets:
Insurance contracts
34
36
33
Market value of assets
178
180
175
Total market value of assets
1,637
1,684
1,542
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
18
Retirement benefit obligations
continued
No plans invest directly in property occupied by the Group or in financial securities issued by the Group.
Both the UK and US Plans hold a mixture of growth assets and matching assets. The growth assets of the UK and US Plans are invested
in a diversified range of industries across a broad range of geographies. The UK Plan matching assets include liability matching assets
and annuity policies purchased by the trustees, which aim to match the benefits to be paid to certain members from the plan and
therefore remove the investment, inflation and demographic risks in relation to those liabilities. The terms of the policy definethat the
contract value exactly matches the amount and timing of the pensioner obligations covered by the contract. In accordance with IAS
19R
Employee Benefits
, the fair value of the insurance contract is deemed to be the present value of the related obligations which is
discounted at the AA corporate bond rate.
18.4
Expenses recognised in the income statement
The total expense relating to retirement benefits recognised for the year is $93m (2020: $78m, 2019: $76m). Of this cost recognised
forthe year, $77m (2020: $69m, 2019: $66m) relates to defined contribution plans and $16m (2020: $9m, 2019: $10m) relates to
definedbenefit plans.
The cost charged in respect of the Group’s defined contribution plans represents contributions payable to these plans by the Group at
rates specified in the rules of the plans. These were charged to operating profit in costs of goods sold, selling, general and administrative
expenses, and research and development expenses. There were $nil outstanding payments as at31 December 2021 due to be paid
overto the plans (2020: $nil, 2019: $nil).
Defined benefit plan costs comprise service cost which is charged to operating profit in selling, general and administrative expenses
andnet interest cost and administration costs and taxes which are reported as other finance costs.
The defined benefit pension costs charged for the UK and US Plans are $nil (2020: $nil, 2019: $1m).
18.5
Principal actuarial assumptions
The following are the principal financial actuarial assumptions used at the reporting date to determine the UK and US defined benefit
obligations and expense.
2021
2020
2019
%perannum %perannum %perannum
UK Plan:
Discount rate
1.9
1.3
1.9
Future salary increases
n/a
n/a n/a
Future pension increases
3.4
2.9
3.0
Inflation (RPI)
3.4
2.9
3.0
Inflation (CPI)
2.7
2.1
2.2
US Plan:
Discount rate
2.7
2.4
3.2
Future salary increases
n/a
n/a n/a
Inflation
n/a
n/a n/a
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Actuarial assumptions regarding future mortality are based on mortality tables. The UK uses the S3NA with projections in line with
theCMI 2020 table and the US uses the PRI-2012 table with MP-2020 scale. The Directors have considered the impact of the COVID
pandemic and, at the present time, do not believe that there is sucient evidence to require a change in the long-term mortality
assumptions. The Directors will continue to monitor any potential future impact on the mortality assumptions used.
The current longevities underlying the values of the obligations in the defined benefit plans are as follows:
2021
2020
2019
years
years
years
Life expectancy at age 60
UK Plan:
Males
27.6
27.6 27.5
Females
30.1
30.1
30.0
US Plan:
Males
24.7
24.7
25.0
Females
26.8
26.8
27.2
Life expectancy at age 60 in 20years’ time
UK Plan:
Males
29.1
29.1
29.0
Females
31.5
31.5 31.4
US Plan:
Males
24.6
24.6
25.2
Females
27.3
27.3 27.8
18.6
Sensitivity analysis
The calculation of the defined benefit obligation is sensitive to the assumptions used. The following table summarises the increase/
decrease on theUK and US defined benefit obligation and pension costs as a result of reasonably possible changes in some of the
assumptions while holding all other assumptions consistent. The sensitivity to the inflation assumption change includes corresponding
changes to the future pension increase assumptions. The analysis does not take into account the full distribution of cash flows expected
under the plan.
Changes to the inflation assumption will not have any eect on the US Pension Plan as it was closed to future accrual in 2014 and it has
no other inflation-linked assumptions.
Increase in pension obligation Increase in pension cost
$ million
+50bps/+1yr
-50bps/-1yr
+50bps/+1 yr
-50bps/-1yr
UK Plan:
Discount rate
-70.0 80.0
-2.0
2.0 Inflation
71.0
-65.0
1.0
-1.0
Mortality
39.0
-38.0
1.0
–
US Plan:
Discount rate
-23.0
25.0
– –
Mortality
13.0
-14.0
– –
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Other information
Group financial statements
continued
Notes to the Group accounts
continued
18
Retirement benefit obligations
continued
18.7
Risk
The pension plans expose the Group to the following risks:
Interest rate risk
Volatility in financial markets can change the calculations of the obligation significantly as the calculation
ofthe obligation is linked to yields on AA rated corporate bonds. A decrease in the bond yield will increase
the measure ofplan liabilities, although this will be partially oset by increases in the value ofmatching
plan assets such as bonds and insurance contracts.
In the UK, the liability matching portfolio held in conventional and index-linked gilts was transferred
intoliability driven investments in order to reduce interest rate risk.
Inflation risk
The UK Plan is linked to inflation. A high rate of inflation will lead to a higher liability. This risk is managed
by holding inflation-linked bonds and an inflation-linked insurance contract in respect of some of the
obligation. In the UK, the liability matching portfolio held in conventional and index-linked gilts was
transferred into liability driven investments inorder to reduce inflation risk.
The UK Plan is closed to future accrual which reduces the exposure to this risk. The US Plan is also
closedtofuture accrual and has no other inflation-linkage thus eliminating the exposure to this risk.
Investment risk
If the return on plan assets is below the discount rate, all else being equal, there will be an increase
intheplan deficit.
In the UK, this risk is partially managed by a portfolio of liability matching assets and a bulk annuity,
together with adynamic de-risking policy to switch growth assets into liability matching assets over time.
The US Plan has a dynamic de-risking policy to shi plan assets from return-seeking (growth) assets to
liability matching assets over time. The US Pension Plan has an established glide path that is designed
tostabilise funding status by reducing the plan’s exposure to return-seeking assets.
Longevity risk
The present value of the plan’s defined benefit liability is calculated by reference to the best estimate
of the mortality of the plan participants both during and aer their employment. An increase in the life
expectancy of plan participants above that assumed will increase the benefit obligation.
The UK Plan, in order to minimise longevity risk, has entered into an insurance contract which covers
aportion ofpensioner obligations.
18.8
Funding
A full valuation is performed by actuaries for the Trustees/Pension Committee of each plan to determine the level of funding required.
Employer contribution rates, based on these full valuations, are agreed between the Trustees/Pension Committee of each plan and
the Group. The assumptions used in the actuarial valuations used for funding purposes may dier from the accounting assumptions
setout above.
UK Plan
The most recent full actuarial valuation of the UK Plan was undertaken as at 30 September 2020. Future accruals to the UK Plan ceased
as at 31 December 2016. Contributions to the UK Plan in 2021 were $7m (2020: $nil, 2019: $6m). This included supplementary payments
of $7m (2020: $nil, 2019: $6m).
Following the completion of the 30 September 2020 valuation, a dynamic contribution mechanism was agreed. Under that dynamic
contribution mechanism, no further contributions were required in 2021.
US Plan
The most recent full actuarial valuation of the US Plan was undertaken as at 1 January 2021. The next full actuarial valuation will
take place as at 1 January 2022. Future accruals to the US Plan ceased as at 31 March 2014. Contributions to the US Plan were $nil
(2020:$nil, 2019: $nil) which represented supplementary payments of $nil (2020: $nil, 2019: $nil).
There are no planned supplementary contributions to the US Plan for 2022.
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19
Equity
Accounting policy
Incremental costs directly attributable to the issue of ordinary shares, net of any tax eects, are recognised as a deduction
from equity.
When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable
costs, net of any tax eects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and
arepresented in the treasury share reserve. When treasury shares are sold or reissued subsequently, the amount received is
recognised as an increase inequity and the resulting surplus or deficit on the transaction is presented within share premium.
19.1
Share capital
Ordinary shares (20¢)
Deferred shares (£1.00)
Total
Thousand
$ million
Thousand
$ million
$ million
Authorised
At 31 December 2019
1,223,591
245
50
245 –
At 31 December 2020
1,223,591
245
50
245 –
At 31 December 2021
1,223,591
245
50
245 –
Allotted, issued and fully paid
At 1 January2019
887,952
177
50
177 –
Share options
350
– – – –
Shares cancelled
(3,095)
– – – –
At 31 December 2019
885,207
177
50
177 –
Share options
327
– – – –
Shares cancelled
(649)
– – – –
At 31 December 2020
884,885
177
50
177 –
Share options
306
– – – –
At 31 December 2021
885,191
177
50
177 –
The deferred shares were issued in 2006 in order to comply with English Company law. They are not listed on any stock exchange
andhave extremely limited rights and eectively have no value. These rights are summarised as follows:
–
The holder shall not be entitled to participate in the profits of the Company;
–
The holder shall not have any right to participate in any distribution of the Company’s assets on a winding-up or other distribution
except that aer the return of the nominal amount paid up on each share in the capital of the Company of any class other than
the deferred shares and the distribution of a further $1,000 in respect of each such share there shall be distributed to a holder
of a deferred share (foreach deferred share held) an amount equal to the nominal value of the deferred share;
–
The holder shall not be entitled to receive notice, attend, speak or vote at any general meeting of the Company; and
–
The Company may create, allot and issue further shares or reduce or repay the whole or any part of its share capital or other
capitalreserves without obtaining the consent of the holders of the deferred shares.
The Group’s objectives when managing capital are to ensure the Group has adequate funds to continue as a going concern and sucient
flexibility within the capital structure to fund the ongoing growth of the business and to take advantage of business development
opportunities including acquisitions.
The Group determines the amount of capital taking into account changes in business risks and future cash requirements. The Group
reviews its capital structure on an ongoing basis and uses share buy-backs, dividends and the issue of new shares to adjust the
retained capital.
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Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
19
Equity
continued
The Group considers the capital that it manages to be as follows:
2021
2020
2019
$million $million $million
Share capital
177
177 177
Share premium
614
612 610
Capital redemption reserve
18
18 18
Treasury shares
(120)
(157)
(189)
Retained earnings and other reserves
4,879
4,629
4,525
5,568
5,279
5,141
19.2
Treasury shares
Treasury shares represent the holding of the Company’s own shares in respect of the Smith & Nephew Employees’ Share Trust and
shares bought back as part of the share buy-back programme. In 2021, the Group purchased a total of nil shares (2020: 0.6m shares)
fora cost of $nil (2020: $16m).
The Smith & Nephew 2004 Employees’ Share Trust (Trust) was established to hold shares relating to the long-term incentive plans
referred to in the Directors’ Remuneration Report. The Trust is administered by an independent professional trust company resident
inJersey and is funded by a loan from the Company. The cost of the Trust is charged to the income statement as it accrues. A dividend
waiver is in place in respect of those shares held under the long-term incentive plans. The Trust only accepts dividends in respect of
nil-cost options and deferred bonus plan shares. The waiver represents less than 1% of the total dividends paid.
The movements in Treasury shares and the Employees’ Share Trust are as follows:
Employees’
Treasury
ShareTrust
Total
$million $million $million
At 1 January2020
169
20
189
Shares purchased
16
–
16 Shares transferred from treasury
(26) 26
–
Shares transferred to Group beneficiaries
(12)
(25)
(37)
Shares cancelled
(11)
–
(11)At 31 December 2020
136
21
157
Shares transferred from treasury
(30)
30
–
Shares transferred to Group beneficiaries
(13)
(24)
(37)
At 31 December2021
93
27
120
Employees’
Treasury
ShareTrust
Total
Number Number Number
ofshares ofshares ofshares
million
million
million
At 1 January2020
10.2
1.3
11.5
Shares purchased
0.6
–
0.6 Shares transferred from treasury
(1.5)
1.5
–
Shares transferred to Group beneficiaries
(0.8)
(1.6)
(2.4)
Shares cancelled
(0.6)
–
(0.6)At 31 December 2020
7.9
1.2
9.1
Shares transferred from treasury
(1.7) 1.7
–
Shares transferred to Group beneficiaries
(0.8)
(1.3)
(2.1)
At 31 December2021
5.4
1.6
7.0
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19.3
Dividends
2021
2020
2019
$million $million $million
The following dividends were declared and paid in theyear:
Ordinary final of 23.1¢ for 2020 (2019: 23.1¢, 2018: 22.0¢) paid 12 May 2021
203
202
192
Ordinary interim of 14.4¢ for 2021 (2020: 14.4¢, 2019: 14.4¢) paid 27 October 2021
126
126 126
329
328
318
A final dividend for 2021 of 23.1 US cents per ordinary share was proposed by the Board on 22 February 2022 and will be paid, subject
to shareholder approval, on 11 May 2022 to shareholders on the Register of Members on 1 April 2022. The estimated amount of this
dividend is $203m. The Group pursues a progressive dividend policy, with the aim of increasing the US Dollar value of ordinary dividends
over time broadly based on the Group’s underlying growth in earnings, while taking into account capital requirements and cash flows.
Future dividends will be dependent upon future earnings, the future financial condition of the Group and the Board’s dividend policy.
The Board reviews the appropriate level of total annual dividend each year at the time of the full year results. Smith & Nephew plc,
theParent Company of the Group, is a non-trading investment holding company which derives its distributable reserves from dividends
paid by subsidiary companies. The distributable reserves of the Parent Company approximate to the balance on the profit and loss
account reserve, less treasury shares and exchange reserves, which at 31 December 2021 amounted to $3,923m.
20
Cash flow statement
Accounting policy
In the Group cash flow statement, cash and cash equivalents includes cash at bank, other short-term liquid investments with original
maturities of three months or less and bank overdras. In the Group balance sheet, bank overdras are shown within bank overdras,
borrowings, loans and lease liabilities under current liabilities.
Analysis of net debt including lease liabilities
Borrowings
Cash
Overdras
Due within
oneyear
Due aer
oneyear
Net
currency
swaps
Net
interest
swaps
Total
$ million
$ million
$ million
$ million
$ million
$ million
$ million
At 1 January2019
365
(32)
(132)
(1,301)
(1)
(3)
(1,104)
Net cash flow/debt movement
(88)
12 125
(550)
2 –
(499)
Exchange adjustment
– – 1 –
(1)
3 3
At 31 December2019
277
(20)
(6)
(1,851)
–
–
(1,600)
IFRS 16 lease liabilities
– – –
(46)
– (124)
(170)
Net debt including lease
liabilities at 31 December 2019
277
(20)
(1,770) (52)
(1,975)
– –
Net cash flow/debt movement
1,484 9
(260) (1,285)
– (7)
(59)
Exchange adjustment
1 – 2
(2)
7 (79)
(71)
Corporate bond issuance expense
– – – 8 – – 8
IFRS 16 lease liabilities movement
– – –
(12)
– (22)
(34)
At 31 December2020
1,762
(11)
(326)
(3,353)
–
2
(1,926)
Net cash flow/debt movement
(466)
7 –
(162)
4 429
(188)
Exchange adjustment
(6)
(1)
–
72
(4)
(2)
59
Corporate bond issuance expense
– – – –
(1)
– (1)
IFRS 16 lease liabilities movement
– – 2 5 – – 7
Net debt including lease
liabilities at 31 December 2021
1,290
(5)
(486)
(2,848)
–
–
(2,049)
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Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
20
Cash flow statement
continued
Reconciliation of net cash flow to movement in net debt including lease liabilities
2021
2020
2019
$million $million $million
Net cash flow from cash net of overdras
(459)
1,493
(76)
Settlement of currency swaps
4
(7)
2 Net cash flow from borrowings
267
(1,545)
(425)
Change in net debt from net cash flow
(188)
(59)
(499)
IFRS 16 lease liabilities
7
(34)
(170)
Exchange adjustment
59
(71)
3
Corporate bond issuance expense
(1)
8 –
Change in net debt in theyear
(123)
(156)
(666)
Opening net debt
(1,926)
(1,770)
(1,104)
Closing net debt
(2,049)
(1,926)
(1,770)
Cash and cash equivalents
For the purposes of the Group cash flow statement cash and cash equivalents at 31 December 2021 comprise cash at bank net
ofbank overdras.
2021
2020
2019
$million $million $million
Cash at bank
1,290
1,762
277
Bank overdras
(5)
(11)
(20)
Cash and cash equivalents
1,285
1,751
257
The Group operates in over 100 countries around the world, some of which impose restrictions over cash movement. These restrictions
have only a minimal impact of the management on the Group’s cash.
Cash outflows/(inflows) arising from financing activities
Repayment
Borrowing
RepaymentProceeds from
Cash outflow/
Proceeds from own
of bank
of bank
Corporate
of lease
(inflow)
Purchase of
shares/issue of
loans
1
loans
1
Bond issue
liabilities
from otherDividends
own shares ordinary shares
Total
2021
$ million $ million $ million $ million $ million $ million $ million $ million $ million
Debt
267
– – – – –
59
4 330
Equity
– – – – –
329
– (14)
315
Total
267
–
–
59
4
329
–
(14)
645
2020
Debt
405
(950) (1,000)
55
(7)
– – –
(1,497)
Equity
– – – – –
328
16
(11)
333
Total
405
(950) (1,000)
55
(7)
328
16
(11)
(1,164)
2019
Debt
865
(1,290)
– – – –
46
2 (377)
Equity
– – – – –
318
63
(11)
370
Total
865
(1,290)
–
46
2 318
63
(11)
(7)
1 This includes drawdown and repayment of the syndicated revolving credit facility.
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21
Acquisitions
Accounting policy
The Group accounts for business combinations using the acquisition method when control is transferred to the Group.
The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. Any goodwill
thatarises is tested annually forimpairment. Any gain on a bargain purchase is recognised in profit or loss immediately.
Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified
asequity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value
ofthecontingent consideration are recognised in profit or loss.
Year ended 31 December 2021
On 4 January 2021, the Group completed the acquisition of the Extremity Orthopaedics business of Integra LifeSciences Holdings
Corporation (‘Extremity Orthopaedics’). The acquisition significantly strengthens the Group’s extremities business by adding a
combination of a focused sales channel, complementary shoulder replacement and upper and lower extremities portfolio, and a new
product pipeline. The transaction comprised the acquisition of the entire issued share capital of two wholly owned US subsidiaries
of Integra LifeSciences Holdings Corporation group and certain assets of the Extremity Orthopaedics business held both in and
outside the US. The maximum consideration is $240m and the fair value of consideration is $236m and includes no deferred
orcontingent consideration.
The goodwill represents the control premium, the acquired workforce and the synergies expected from integrating Extremity
Orthopaedics into the Group’s existing business, and is expected to be partly deductible for tax purposes.
The fair value of assets acquired and liabilities assumed are set out below:
Extremity
Orthopaedics
$million
Intangible assets – Product-related
101
Intangible assets – Customer-related
11
Property, plant and equipment
22
Inventory
41
Other payables
(23)
Net deferred tax liability
(12)
Net assets
140
Goodwill
96
Consideration (net of $nil cash acquired)
236
The product-related intangible assets were valued using an excess earnings methodology with the key inputs being revenue, profit
anddiscount rate. The cash outflow from acquisitions of $285m (2020: $170m) comprises payments of consideration of $236m
(2020:$117m) relating to the acquisition which completed in the current year and payments of deferred and contingent consideration
of$49m (2020: $53m) relating to acquisitions completed in prior years.
The carrying value of goodwill increased from $2,928m at 31 December 2020 to $2,989m at 31 December 2021. The acquisition in the
year ended 31 December 2021 increased goodwill by $96m, this was partially oset by foreign exchange movements of $35m.
For the year ended 31 December 2021 the contribution from Extremity Orthopaedics to revenue was $82m and to profit was immaterial.
If the business combination had occurred at the beginning of the year the contribution to revenue and profit would not have been
materially dierent.
Year ended 31 December 2020
On 23 January 2020, the Group completed the acquisition of 100% of the share capital of Tusker Medical, Inc. (‘Tusker’), a developer
of an innovative in-oce solution for tympanostomy (ear tubes) called Tula. The acquisition was deemed to be a business combination
within the scope of IFRS 3 Business Combinations. The acquisition supports the Group’s strategy to invest in innovative technologies
thataddress unmet clinical needs. The maximum consideration is $140m and the fair value of consideration is $139m andincludes
$6m of deferred consideration and $35m of contingent consideration. The goodwill represents the control premium, theacquired
workforce and the synergies expected from integrating Tusker into the Group’s existing business, and is not expected tobedeductible
for tax purposes. The acquisition accounting was completed in 2021 with no adjustments to the fair value disclosed inthe Group’s
2020Annual Report.
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Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
21
Acquisitions
continued
For the year ended 31 December 2020, the contribution to revenue and profit from Tusker was immaterial. If the business combination
had occurred at the beginning of the year, the contribution to revenue and profit would also have been immaterial.
The fair value of assets acquired and liabilities assumed are set out below:
Tusker
$ million
Intangible assets – Product-related
53
Property, plant and equipment
6
Other receivables 1
Trade and other payables
(6)
Non-current liabilities
(3)
Net deferred tax asset
5
Net assets
56
Goodwill
83
Consideration (net of $nil cash acquired)
139
During the year ended 31 December 2020, the Group also completed two other smaller acquisitions in the spheres of remote physical
therapy and arthroscopic enabling technology. The maximum aggregated consideration is $41m and the fair value of consideration is
$26m and includes $3m of deferred consideration and $17m of contingent consideration. The fair value of aggregate assets acquired is:
intangible assets of $8m, property and other net assets of $2m. The goodwill arising on these acquisitions is $16m, which is not expected
to be deductible for tax purposes, and is attributable to future iterations of the technologies and the synergies that can be expected
from integrating these acquisitions into the Group’s existing business.
For the year ended 31 December 2020, the contribution to revenue and profit from the business combinations was immaterial. If the
business combinations had occurred at the beginning of the year, the contribution to revenue and profit would have been immaterial.
Year ended 31 December 2019
The Group acquired five medical technology businesses deemed to be business combinations within the scope of IFRS 3
Business
Combinations
during the year ended 31 December 2019. The acquisition accounting for these business combinations was completed
in 2020 with no adjustments to the provisional fair value disclosed in the Group’s 2019 Annual Report other than in relation to the
OsirisTherapeutics, Inc. acquisition as outlined below.
On 22 January 2019, the Group completed the acquisition of 100% of the share capital of Ceterix Orthopaedics, Inc. (‘Ceterix’),
adeveloper of a meniscus repair system. The acquisition supports the Company’s strategy to invest in innovative technologies that meet
unmet clinical needs. The maximum consideration payable of $105m has a fair value of $96m, which includes deferred consideration of
$5m and contingent consideration of $47m. The fair value of the contingent consideration is determined fromthe acquisition agreement,
the risk adjusted cash flows from the Board-approved acquisition model and a risk-free discount rate of3.3%. The maximum contingent
consideration is $55m. The goodwill is attributable to the control premium, the acquired workforce and the synergies expected from
integrating Ceterix into the Group’s existing business.
On 17 April 2019, the Group completed the acquisition of 100% of the share capital of Osiris Therapeutics, Inc. (‘Osiris’), a fast-growing
company delivering regenerative medicine products including skin, bone gra and articular cartilage substitutes that will further
expand and dierentiate the Group’s Advanced Wound Management portfolio. This acquisition provides the Group with a fast-growing
portfolio with strong clinical evidence addressing critical needs in the skin substitute marketplace. It is one of the highest growth
and high potential markets in wound management, filling an important need not previously adequately addressed in our portfolio.
Cash consideration was $660m with no deferred or contingent consideration payable. The goodwill is attributable to the control
premium, the acquired workforce and the synergies that can be expected from integrating Osiris into the Group’s existing business.
During the year ended 31 December 2020, adjustments were made to the fair value of the provisions, net deferred tax liability and
tradeand other payables. These adjustments were made during the one-year measurement period in accordance with the requirements
ofIFRS 3. The net impact of these adjustments was $3m and has been reflected in the fair value of goodwill, reducing it from $301m
to$298m.
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Annual Report 2021
Also on 17 April 2019, the Group completed the acquisition of 85.5% of the share capital of Leaf Healthcare, Inc. (‘Leaf’), a developer of
theunique Leaf Patient Monitoring System for pressure injury prevention and patient mobility monitoring, which is highly complementary
to the Group’s existing wound portfolio. This acquisition brings the Group’s total shareholding in Leaf to 100%. The Group’s existing
holding of 14.5% of the share capital, with a carrying value of $6m, was remeasured to fair value resulting in a $1m gain which is
included in selling, general and administrative expenses in the income statement. The maximum consideration payable of $75m for
100% of theshare capital has a fair value of $52m, which includes deferred consideration of $4m and contingent consideration of $12m.
The fairvalue of the contingent consideration is determined from the acquisition agreement, the risk adjusted cash flows from the
Board-approved acquisition model and a risk-free discount rate of 3.0%. The maximum contingent consideration is $35m. The goodwill
isattributable to the control premium, the acquired workforce, future iterations of the technology and the synergies that can be
expected from integrating Leaf into the Group’s existing business.
On 31 May 2019, the Group completed the acquisition of the Brainlab Orthopaedic Joint Reconstruction business (‘Brainlab OJR’).
The acquisition supports the Group’s strategy to invest in best-in-class technologies that further its multi-asset digital surgery and
robotic ecosystem. The maximum consideration payable of $108m has a fair value of $107m, which includes contingent consideration
of$57m. The fair value of the contingent consideration is determined from the acquisition agreement, the risk adjusted cash flows
from the Board-approved acquisition model and a risk-free discount rate of 2.3%. The maximum contingent consideration is $58m.
The goodwill isattributable to the control premium, the acquired workforce, future iterations of the technology and the synergies
thatcan be expected from integrating the orthopaedic joint reconstruction business into the Group’s existing business.
On 1 July 2019, the Group completed the acquisition of 100% of the share capital of Atracsys Sàrl (‘Atracsys’), a Switzerland-based
provider of optical tracking technology used in computer-assisted surgery. The acquisition supports the Group’s long-term commitment
to develop its multi-asset digital surgery and robotics ecosystem to empower surgeons and improve clinical outcomes. The fair value of
consideration is $42m which includes $14m of deferred consideration and $5m of contingent consideration. The fair value of contingent
consideration is determined from the acquisition agreement, the risk-adjusted cash flows from the Board-approved acquisition model
and a risk-free discount rate of 2.3%. The maximum contingent consideration is $6m. The goodwill represents thecontrol premium,
theacquired workforce and the synergies expected from integrating Atracsys into the Group’s existing business.
Amounts allocated to goodwill arising on acquisitions during the year ended 31 December 2019 in the table below are not deductible
fortax purposes, except in the case ofthe Brainlab OJR acquisition.
For the year ended 31 December 2019, the contribution to revenue from the Ceterix, Leaf, Brainlab OJR and Atracsys business
combinations was immaterial and the contribution from the Osiris business combination was $114m. For the year ended 31 December
2019, the contribution to profit from the Ceterix, Leaf, Brainlab OJR, Osiris and Atracsys business combinations was immaterial.
If the business combinations had occurred at the beginning of the year, the contribution to revenue from the Ceterix, Leaf, Brainlab
OJRandAtracsys business combinations would have been immaterial and the contribution from the Osiris business combination
wouldhave been $160m. If the business combinations had occurred at the beginning of the year, the contribution to profit from
theCeterix, Leaf,Brainlab OJR, Osiris and Atracsys business combinations would have been immaterial.
The fair values of assets acquired and liabilities assumed are set out below:
Ceterix
Osiris
Leaf
Brainlab OJR
Atracsys
$ million $ million $ million $ million $ million
Intangible assets – Product-related
43
284
14
– 9
Intangible assets – Technology
– – –
75
– Intangible assets – Customer-related
– 9 1
80
– Property, plant and equipment
2 6 – – 1
Investments
– – –
17
– Other non-current assets – 4 – – –
Inventory
2 9 1 – 1
Trade and other receivables
1 – 1
49
1 Trade and other payables
(4)
– (34)
(1)
(1)
Provisions
– – –
(14)
– Non-current liabilities – – –
(7)
– Net deferred tax asset/(liability)
1 –
(56)
1 (1)
Net assets
45
338
16
84
11
Goodwill
49
298
37
2331
Consideration (net of cash acquired
1
)
94
636
53
107
42
1 Cash acquired is as follows: Ceterix: $2m; Osiris: $24m; Leaf: $1m; Brainlab OJR: $nil; and Atracsys: $nil.
201
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Group financial statements
continued
Notes to the Group accounts
continued
22
Other notes to the accounts
22.1
Share-based payments
Accounting policy
The Group operates a number of equity-settled executive and employee share plans. For all grants of share options and awards,
thefair value at the grant date is calculated using appropriate option pricing models. The grant date fair value is recognised over the
vesting period as an expense, with a corresponding increase in retained earnings.
The Group operates the following equity-settled executive and employee share plans: Smith & Nephew Global Share Plan 2010,
Smith & Nephew Global Share Plan 2020, Smith & Nephew ShareSave Plan (2012) and Smith & Nephew International ShareSave Plan
(2012). At 31 December 2021, 4,472,000 options (2020: 4,582,000, 2019: 4,519,000) were outstanding with a range of exercise prices
from 650to 1,541 pence.
At 31 December 2021, the maximum number of shares that could be awarded under the Group’s long-term incentive plans was
5,997,000 (2020: 4,704,000, 2019: 4,947,000). These include conditional share awards granted to senior employees and equity and
performance share awards granted to senior executives under the Global Share Plan 2010 and Global Share Plan 2020.
The expense charged to the income statement for share-based payments for the year is $41m (2020: $26m, 2019: $32m).
22.2
Related party transactions
Trading transactions
In the course of normal operations, the Group traded with its associates detailed in Note 11. The aggregated transactions, whichhave
not been disclosed elsewhere in the financial statements are $nil (2020: $nil, 2019: $nil).
Key management personnel
The remuneration of executive ocers (including Non-Executive Directors) during the year is summarised below:
2021
2020
2019
$million $million $million
Short-term employee benefits
16
12
18
Share-based payments expense 5
7
5 Pension and post-employment benefit entitlements 2
1
2 Compensation for loss of oce
–
– 6
24
19
31
Directors’ remuneration disclosures are included on pages 114–135.
Retirement benefit schemes
Details of the Group’s retirement benefit schemes are set out in Note 18.
23
Post balance sheet events
On 18 January 2022, the Group completed the acquisition of 100% of the share capital of Engage Uni, LLC (doing business as Engage
Surgical), owner of the only cementless unicompartmental (partial) knee system commercially available in the US. This acquisition
strongly supports Smith+Nephew’s Strategy for Growth by transforming our business through innovation and acquisition, while also
providing dierentiation for our customers.
This acquisition will be treated as a business combination under IFRS 3. The maximum consideration, all payable in cash, is $135m and
the provisional fair value consideration is $132m and includes $32m of contingent consideration. The provisional value of acquired net
tangible assets is not material and is not expected to have material fair value adjustments. The remaining consideration will be allocated
between identifiable intangible assets (product-related) and goodwill, with the majority expected to be goodwill representing the
control premium, the acquired workforce and the synergies expected from integrating Engage Surgical into the Group’s existing business.
The majority of the consideration is expected to be deductible for tax purposes.
202
Smith+Nephew
Annual Report 2021
Company balance sheet
Company financial statements
At31December At31December
2021
2020
Notes
$million $million
Fixed assets
Investments
2
7,092
7,092
Current assets
Debtors
3
2,852
2,918
Cash at bank
5
1,142
1,629
3,994
4,547
Creditors: amounts falling due within oneyear
Borrowings
5
(432)
(270)
Other creditors
4
(949)
(2,884)
(1,381)
(3,154)
Net current assets
2,613
1,393
Total assets less current liabilities
9,705
8,485
Creditors: amounts falling due aer oneyear
Borrowings
5
(2,707)
(3,207)
Total assets less total liabilities
6,998
5,278
Equity shareholders’ funds
Share capital
177
177
Share premium
614
612
Capital redemption reserve
18
18
Capital reserve
2,266
2,266
Treasury shares
(120)
(157)
Exchange reserve
(52)
(52)
Profit and loss account
4,095
2,414
Shareholders’ funds
6,998
5,278
The accounts were approved by the Board and authorised for issue on 22 February 2022 and signed on its behalf by:
Roberto Quarta Roland Diggelmann Anne-Françoise Nesmes
Chair Chief Executive Ocer Chief Financial Ocer
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
203
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Company financial statements
continued
Statement of changes in equity
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
Capital
Total
Share Share
redemption
Capital
Treasury
Exchange
Profitand
shareholders’
capital
premium
reserve reserve shares reserve
lossaccount funds
$ million
$ million
$ million
$ million
$ million
$ million
$ million
$ million
At 1 January2020
177
610
18
2,266
(189)
(52)
2,291
5,121
Attributable profit for theyear
–
–
–
–
–
–
464
464
Equity dividends paid in theyear
–
–
–
–
–
–
(328)
(328)
Share-based payments recognised
1
–
–
–
–
–
–
26
26
Cost of shares transferred to beneficiaries
–
–
–
–
37
–
(28)
9
New shares issued on exercise of share
options
–
2
–
–
–
–
–
2
Cancellation of treasury shares
–
–
–
–
11
–
(11)
–
Treasury shares purchased
–
–
–
–
(16)
–
–
(16)
At 31 December2020
177
612
18
2,266
(157)
(52)
2,414
5,278
Attributable profit for theyear
1,994
1,994 Equity dividends paid in theyear
–
–
–
–
–
–
(329)
(329)
Share-based payments recognised
1
–
–
–
–
–
–
41
41
Cost of shares transferred to beneficiaries
–
–
–
–
– 37
(25)
12
New shares issued on exercise of share
options
–
2
–
–
–
–
–
2 At 31 December2021
177
614
18
2,266
(120)
(52)
4,095
6,998
1 The Company operates a number of equity-settled executive and employee share plans. For all grants of share options and awards, the fair value as at the date of grant is calculated using
anappropriate option pricing model and the corresponding expense is recognised over the vesting period. Subsidiary companies are recharged for the fair value of share options that relate
totheiremployees. The disclosure relating tothe Company is detailed in Note 22.1 of the Notes to the Group accounts.
Further information on the share capital of the Company can be found in Note 19.1 of the Notes to the Group accounts.
The total distributable reserves of the Company are $3,923m (2020: $2,205m). In accordance with the exemption permitted by
Section408 of the Companies Act 2006, the Company has not presented its own profit and loss account. The attributable profit
fortheyear dealt with in the accounts oftheCompany is $1,994m (2020: $464m). The increase in attributable profit from the prior
yearis primarily due to higher dividends received from subsidiaries.
Fees paid to KPMG LLP for audit and non-audit services to the Company itself are not disclosed in the individual accounts because
Groupfinancial statements are prepared which are required to disclose such fees on a consolidated basis. The fees for the consolidated
Group are disclosed in Note3.2of the Notes to the Group accounts.
204
Smith+Nephew
Annual Report 2021
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
Notes to the Company accounts
1
Basis of preparation
Smith & Nephew plc (the Company) is a public limited company incorporated in England and Wales.
The separate accounts of the Company are presented as required by the Companies Act 2006. These financial statements and
accompanying notes have been prepared in accordance with the Financial Reporting Standard 101
Reduced Disclosure Framework
(‘Reduced Disclosure Framework’) for all periods presented. The financial information for the Company has been prepared on the same
basis as the consolidated financial statements, applying identical accounting policies as outlined throughout the Notes to the Group
accounts. The Directors have determined that the preparation of the Company financial statements on a going concern basis isappropriate
as the Company receives dividend cash receipts from its subsidiary undertakings which enable it to meet its liabilities asthey fall due.
In applying these policies, management is required to make estimates and assumptions that aect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the accounts and the reported amounts of revenues
and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events
andactions, actual results ultimately may dier from those estimates.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
–
A cash flow statement and related notes;
–
Comparative period reconciliations for share capital and tangible fixed assets;
–
Disclosures in respect of transactions with wholly-owned subsidiaries;
–
Disclosures in respect of capital management;
–
The eects of new but not yet eective IFRSs; and
–
Disclosures in respect of the compensation of key management personnel.
As the consolidated financial statements include the equivalent disclosures, the Company has also taken the exemptions under FRS 101
available inrespect of the following disclosures:
–
IFRS 2
Share Based Payments
in respect of Group-settled share-based payments; and –
Certain disclosures required by IFRS 13
Fair Value Measurement
and the disclosures required by IFRS 7
Financial Instrument Disclosures
.
The Company proposes to continue to adopt the Reduced Disclosure Framework of FRS 101 in its next financial statements.
2
Investments
Accounting policy
Investments in subsidiaries are stated at cost less provision for impairment.
2021
2020
$million $million
At 1 January and 31 December
7,092
7,092
Investments represent holdings in subsidiary undertakings. In accordance with Section 409 of the Companies Act 2006, a listing of all
entities invested in by the consolidated Group is provided inNote 8.
3
Debtors
2021
2020
$million $million
Amounts falling due within oneyear:
Amounts owed by subsidiary undertakings
2,795
2,836
Prepayments and accrued income
–
1
Current asset derivatives– forward foreign exchange contracts
37
20
Current asset derivatives– forward foreign exchange contracts– subsidiary undertakings
18
57
Current asset derivatives– currency swaps
2
2
Current asset derivatives– interest rate swaps
–
2
2,852
2,918
Allowance losses on amounts owed by subsidiary undertakings are calculated by reviewing 12-month expected credit losses using
historic and forward-looking data on credit risk. The loss allowance expense for the year was de minimis (2020: de minimis).
205
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Company financial statements
continued
Notes to the Company accounts
continued
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
4
Other creditors
2021
2020
$million $million
Amounts falling due within oneyear:
Amounts owed to subsidiary undertakings
881
2,790
Other creditors
12
15
Current liability derivatives– forward foreign exchange contracts
17
57
Current liability derivatives– forward foreign exchange contracts– subsidiary undertakings
37
20
Current liability derivatives– currency swaps
2
2
949
2,884
5
Cash and borrowings
Accounting policy
Financial instruments
Currency swaps are used to match foreign currency assets with foreign currency liabilities. They are initially recorded at fair value
andthen for reporting purposes remeasured to fair value at exchange rates and interest rates at subsequent balance sheet dates.
Changes in the fair value of derivative financial instruments are recognised in the profit and loss account as they arise.
2021
2020
$million $million
Bank loans, borrowing and overdras due within oneyear or on demand
432
270
Borrowings due aer oneyear
2,707
3,207
Borrowings
3,139
3,477
Cash at bank
(1,142)
(1,629)
Credit balance on derivatives – interest rate swaps
–
(2)
Net debt
1,997
1,846
All currency swaps are stated at fair value. Gross US Dollar equivalents of $337m (2020: $381m) receivable and $337m (2020:$381m)
payable have been netted. Currency swaps comprise foreign exchange swaps and were used in 2020 and 2019 tohedge intra-group loans.
6
Contingencies
2021
2020
$million $million
Guarantees in respect of subsidiary undertakings
–
–
The Company gives guarantees to banks to support liabilities and cross guarantees to support overdras.
The Company operated defined benefit pension plans in 2004 but at the end of 2005 its pension plan obligations were transferred to
Smith&Nephew UK Limited. The Company has provided guarantees to the trustees of the pension plans to support future amounts
duefromparticipating employers (see Note 18 of the Notes to the Group accounts).
7
Deferred taxation
The Company has gross unused capital losses of $84m (2020: $85m) available for oset against future chargeable gains. No deferred
taxasset has been recognised on these unused losses as they are not expected to be realised in the foreseeable future.
206
Smith+Nephew
Annual Report 2021
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
8
Group companies
In accordance with Section 409 of the Companies Act 2006,
a full list of subsidiaries, associates, joint arrangements, joint
ventures and partnerships are listed below as at 31 December
2021, including their country of incorporation. All companies
are 100% owned, unless otherwise indicated. The share capital
disclosed comprises ordinary shares which are indirectly held
bySmith & Nephew plc, unless otherwise stated.
Company name
Country of
operation and
incorporation
Registered
Oce
UK
Michelson Diagnostic Limited
3
( 7. 3%)
England & Wales
Kent
Neotherix Limited
3
(24.9%)
England & Wales
York
Smith & Nephew (Overseas) Limited
1,5
England & Wales
Watford
Smith & Nephew Beta Limited
2
England & Wales
Watford
Smith & Nephew China Holdings
UK Limited
1
England & Wales
Watford
Smith & Nephew Employees
Trustees Limited
2
England & Wales
Watford
Smith & Nephew ESN Limited
2
England & Wales
Watford
Smith & Nephew Extruded Films Limited
2
England & Wales
Hull
Smith & Nephew Finance
2
England & Wales
Watford
Smith & Nephew Finance Oratec
2
England & Wales
Watford
Smith & Nephew Group Services Limited England & Wales
Watford
Smith & Nephew Healthcare Limited
2
England & Wales
Hull
Smith & Nephew Investment
Holdings Limited
1
England & Wales
Watford
Smith & Nephew Lilia Limited
2
England & Wales
Watford
Smith & Nephew Medical Fabrics Limited
2
England & Wales
Watford
Smith & Nephew Medical Limited England & Wales
Hull
Smith & Nephew Nominee
Company Limited
2
England & Wales
Watford
Smith & Nephew Nominee Services Limited
2
England & Wales
Watford
Smith & Nephew Orthopaedics Limited
England & Wales
Watford
Smith & Nephew Pharmaceuticals Limited
2
England & Wales
Hull
Smith & Nephew Raisegrade Limited
1,2
England & Wales
Watford
Smith & Nephew Rareletter Limited
2
England & Wales
Watford
Smith & Nephew Trading Group Limited
1
England & Wales
Watford
Smith & Nephew UK Executive Pension
Scheme Trustee Limited
2
England & Wales
Watford
Smith & Nephew UK Limited
1,5
England & Wales
Watford
Smith & Nephew UK Pension Fund
Trustee Limited
2
England & Wales
Watford
Smith & Nephew USD Limited
1
England & Wales
Watford
Smith & Nephew USD One Limited
1
England & Wales
Watford
T.J.Smith and Nephew,Limited
England & Wales
Hull
The Albion Soap Company Limited
2
England & Wales
Watford
TP Limited
1
Scotland
Edinburgh
Company name
Country of
operation and
incorporation
Registered
Oce
Rest of Europe
Smith & Nephew GmbH
Austria
Vienna
ArthroCare Belgium BV
2
Belgium
Zaventem
Smith & Nephew S.A.-N.V
Belgium
Zaventem
Smith & Nephew A/S
Denmark
Hoersholm
Smith & Nephew Oy
Finland
Helsinki
Smith & Nephew France SAS
1
France
Neuilly-sur-
Seine
Smith & Nephew S.A.S.
France
Neuilly-sur-
Seine
Smith & Nephew Business Services GmbH
& Co. KG
1
Germany
Hamburg
Smith & Nephew Business Services
Verwaltungs GmbH
Germany
Hamburg
Smith & Nephew Deutschland (Holding)
GmbH
1
Germany
Hamburg
Smith & Nephew GmbH
Germany
Hamburg
Smith & Nephew Orthopaedics GmbH
Germany
Tuttlingen
Smith & Nephew Robotics GmbH
Germany
Munich
Smith & Nephew (Ireland) Trading Limited
Ireland
Dublin
Smith & Nephew S.r.l.
Italy
Milan
Smith & Nephew International S.A.
1
Luxembourg Luxembourg
Smith & Nephew (Europe) B.V.
1
Netherlands
Amsterdam,
2132NP
Smith & Nephew B.V.
Netherlands
Amsterdam,
2132NP
Smith & Nephew Nederland CV
Netherlands
Amsterdam,
2132NP
Smith & Nephew Operations B.V.
Netherlands
Amsterdam,
2132NP
Serda B.V.
3
(49.0%)
Netherlands
Amsterdam,
1105BP
Smith & Nephew AS
Norway
Oslo
Smith & Nephew sp. z.o.o.
Poland
Warsaw
Smith & Nephew Lda
Portugal
Lisbon
S&N ORION PRIME, S.A.
Portugal
Coimbra
DC LLC
Russian
Federation
Puschino
Smith & Nephew LLC
Russian
Federation
Moscow
Smith & Nephew S.A.U
Spain
Barcelona
Smith & Nephew Aktiebolag
Sweden
Molndal
Lumina Adhesives AB
3
(3.04%)
Sweden
Gothenburg
Atracsys Sàrl
Switzerland
Puidoux
Plus Orthopedics Holding AG
1
Switzerland
Zug
Smith & Nephew Manufacturing AG
Switzerland
Aarau
Smith & Nephew Orthopaedics AG
1
Switzerland
Zug
Smith & Nephew Schweiz AG
Switzerland
Zug
Smith & Nephew AG
Switzerland
Zug
Smith & Nephew Orthopaedics AG
Aarau Branch
6
Switzerland
Aarau
207
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Company financial statements
continued
Notes to the Company accounts
continued
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
Company name
Country of
operation and
incorporation
Registered
Oce
US
Arthrocare Corporation
United States
Wilmington
Ascension Orthopedics, Inc.
United States
Wilmington
Austin Miller Trauma LLC
United States
Wilmington
Centreville
Bioventus Inc.
3,7
(29.23%)
United States
Wilmington
Bioventus LLC
3,8
(20.96%)
United States
Wilmington
Blue Belt Holdings, Inc.
1
United States
Wilmington
Blue Belt Technologies, Inc.
United States
Philadelphia
Ceterix Orthopaedics, Inc.
United States
Wilmington
CRES Holdings, Inc.
3
(0.99%)
United States
Dover NBR
Healicoil, Inc.
United States
Wilmington
Hipco, Inc.
United States
Wilmington
Integrated Shoulder Collaboration, Inc.
United States
Wilmington
19808
Leaf Healthcare Inc.
United States
Wilmington
Memphis Biomed Ventures I, LP
3
(4.26%)
United States
Dover GD
Miach Orthopaedics, Inc
3
(10.09%)
United States
Dover GD
MiJourney, LLC
United States
Pennsylvania
Oratec Interventions, Inc. United States
Wilmington
Orthopaedic Biosystems Ltd., Inc.
United States
Phoenix
Osiris Therapeutics, Inc.
United States
Columbia
OsteoBiologics, Inc.
United States
Wilmington
Plus Orthopedics LLC
United States
Wilmington
Rotation Medical, Inc.
United States
Wilmington
Sinopsys Surgical, Inc.
3
(1.44%)
United States
Wilmington
Smith & Nephew Consolidated, Inc.
1
United States
Wilmington
Smith & Nephew, Inc.
1
United States
Wilmington
Surgical Frontiers Series I, LLC
3
(33.46%)
United States
Dover GD
Trice Medical Inc.
3
(3.3%)
United States
Wilmington
19808
Tusker Medical, Inc.
United States
Wilmington
19808
Africa, Asia, Australasia and Other Americas
Smith & Nephew Argentina S.R.L.
2
Argentina
Buenos Aires
Smith & Nephew Pty Limited
Australia
North Ryde
Smith & Nephew Surgical Holdings
Pty Limited
1,2
Australia
North Ryde
Smith & Nephew Surgical Pty Limited
2
Australia
North Ryde
Smith & Nephew Comercio de Produtos
Medicos LTDA
Brazil
São Paulo
Smith & Nephew Comercio de Produtos
Medicos LTDA, Diadema Branch
6
Brazil
Diadema
Smith & Nephew Comercio de Produtos
Medicos LTDA, Rio de Janeiro Branch
6
Brazil
Rio de
Janeiro
Smith & Nephew Comercio de Produtos
Medicos LTDA, São José dos Campos Branch
6
Brazil
São José
Smith & Nephew (Alberta) Inc.
2
Canada
Calgary
Smith & Nephew Inc.
1
Canada
Toronto
Company name
Country of
operation and
incorporation
Registered
Oce
Tenet Medical Engineering, Inc.
Canada
Calgary
Smith & Nephew Finance Holdings Limited
5
Cayman Islands
George Town
1104
TEAMfund, LP
3
(6.765%)
Cayman Islands
George Town
9008
ArthoCare Medical Devices (Beijing)
Co. Limited
4
China
Chao Yang
District,
Beijing
Plus Orthopedics (Beijing) Co. Limited
2
China
Shunyi
District,
Beijing
Smith & Nephew Medical (Shanghai) Limited
China
Shanghai
Ao Na Rd
Smith & Nephew Medical (Shanghai) Limited
Beijing Branch
6
China
Dong Cheng
Smith & Nephew Medical (Shanghai) Limited
Chengdu Branch
6
China
Wu Hou
Smith & Nephew Medical (Shanghai) Limited
Guangzhou Branch
6
China
Yue Xiu
Smith & Nephew Medical (Shanghai) Limited
Shanghai Branch
6
China
Jing’an
Smith & Nephew Medical (Shanghai) Limited
Shanghai Second Branch
6
China
Shanghai
Xin Jin Qiao
Rd
Smith & Nephew Medical (Suzhou) Limited
China
Suzhou CitySmith & Nephew Orthopaedics
(Beijing) Co., Ltd
China
Kechuang
Dongliujie
S&N Holdings SAS
1
Colombia
Bogota
Smith & Nephew Colombia S.A.S
Colombia
Bogota
ArthroCare Costa Rica Srl
Costa Rica
Alajuela
Smith & Nephew Curaçao N.V.
Curaçao
Willemstad
Smith & Nephew Beijing Holdings Limited
1
Hong Kong Hong Kong
Smith & Nephew Limited
Hong Kong Hong Kong
Smith & Nephew Suzhou Holdings Limited
1
Hong Kong Hong Kong
Adler Mediequip Private Limited
India
Pune
Smith & Nephew Healthcare Private Limited
India
Mumbai
Smith & Nephew KK
Japan
Tokyo
Smith & Nephew Chusik Hoesia
Korea,
Republic of
Seoul
Smith & Nephew Healthcare Sdn. Bhd
Malaysia
Kuala Lumpur
Smith & Nephew Operations Sdn. Bhd
Malaysia
Kuala Lumpur
Smith & Nephew Services Sdn. Bhd
Malaysia
Kuala Lumpur
Smith & Nephew S.A. de C.V.
Mexico
Mexico City
Smith & Nephew Limited
1
New Zealand
Auckland
Smith & Nephew Superannuation
Scheme Limited
New Zealand
Auckland
Smith & Nephew (Overseas) Limited
Philippines Branch
2,6
Philippines
Manila
Smith & Nephew, Inc. Puerto Rico
San Juan
Smith & Nephew Asia Pacific Pte. Limited
1
Singapore Singapore
Smith & Nephew Pte Limited
Singapore Singapore
8
Group companies
continued
208
Smith+Nephew
Annual Report 2021
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
Company name
Country of
operation and
incorporation
Registered
Oce
Smith & Nephew (Pty) Limited
1
South Africa
Westville
Smith & Nephew Pharmaceuticals
(Proprietary) Limited
2
South Africa
Westville
Smith & Nephew (Overseas) Limited
Taiwan Branch
6
Taiwan Taipei
Smith & Nephew Limited
Thailand
Huai Khwang
District,
Bangkok
Sri Siam Medical Limited
4
Thailand
Lumpini
Phatumwan,
Bangkok
Smith ve Nephew Medikal Cihazlar Ticaret
Limited Sirketi
Turkey
Istanbul
Smith & Nephew FZE
United Arab
Emirates
Jebel Ali,
Dubai
Smith & Nephew FZE (DHCC Branch)
6
United Arab
Emirates
HealthCare
City, Dubai
1 Holding company.
2 Dormant company.
3 Not 100% owned by Smith & Nephew Group.
4 In liquidation.
5 Directly owned by Smith & Nephew plc.
6 Branch of a company in Smith & Nephew Group.
7 Represents 29.23% voting rights and 8.27% economic interest.
8 Represents 20.96% economic interest.
Registered Oce addresses
UK
Watford
Building 5, Croxley Park, Hatters Lane, Watford,
Hertfordshire, WD18 8YE
Kent
Ground Floor, Eclipse House, Eclipse Park,
SittingbourneRoad, Maidstone, Kent, ME14 3EN
York
25, Carr Lane, York, YO26 5HT
Hull
101 Hessle Road, Hull, HU3 2BN
Edinburgh
4th Floor, 115 George Street, Edinburgh, EH2 4JN
Rest of Europe
Vienna
Concorde Business Park, 1/C/3 2320,
Schwechat, Austria
Zaventem
Ikaroslaan 45, Gebouw D, 1930 Zaventem, Belgium
Hoersholm
Slotsmarken 14, Hoersholm, DK-2970, Denmark
Helsinki
Ayritie 12 C, 01510, Vantaa, Finland
Neuilly-sur-Seine
40-52, Boulevard du Parc, 92200 Neuilly-sur-Seine,
France
Hamburg
Friesenweg 4, Haus 21, 22763, Hamburg, Germany
Munich
Konrad-Zuse-Platz 8, 81829, Munich, Germany
Tuttlingen
Alemannenstrasse 14, 78532, Tuttlingen, Germany
Dublin
13-18 City Quay, Dublin 2, D02 ED70, Ireland
Milan
Via de Capitani 2A, 20864, Agrate Brianza, MI, Italy
Luxembourg
1A, rue Jean Piret, L-2350, Luxembourg, Luxembourg
Amsterdam 2132NP
Bloemlaan 2, 2132NP, Hoofddorp, The Netherlands
Amsterdam 1105BP
Paasheuvelweg 25, 1105BP, Amsterdam,
TheNetherlands
Oslo
Nye Vakas vei 64, 1395, Hvalsted, Norway
Registered Oce addresses
Warsaw
Ul Osmanska 12, 02-823, Warsaw, Poland
Lisbon
Estrada Nacional no 10 ao Km. 131, Parque Tejo – Bloco
C, 2625-445 Forte de Casa, Vila Franca de Xira, Portugal
Coimbra
Rua Pedro Nunes, Instituto Pedro Nunes, Edificio IPN-D,
3030-199, Coimbra, Portugal
Moscow
2nd Syromyatnichesky Lane, Moscow, 105120,
RussianFederation
Puschino
8/1 Stroiteley Street, 142290, City of Puschino,
MoscowRegion, Russian Federation
Barcelona
Edificio Conata I, c/Fructuos Gelabert 2 y 4,
San Joan Despi – 08970, Barcelona, Spain
Molndal
PO Box 143, S-431 22 Molndal, Sweden
Gothenburg
Varbergsgatan 2A/412 65 Göteborg, Sweden
Puidoux
Route du Verney 20, 1070, Puidoux, Switzerland
Zug
Theilerstrasse 1A, 6300, Zug, Switzerland
Aarau
Schachenallee 29, 5000, Aarau, Switzerland
US
Wilmington
CT Corporation, 1209 Orange Street, Wilmington
DE 19801, USA
Wilmington
Centreville
Corporation Services Company, Suite 400, 2711,
Centreville Road, Wilmington DE, USA
Philadelphia
CT Corporation 1515 Market Street, Philadelphia,
PA 19102, USA
Dover NBR 850 New Burton Road, Suite 201, City of Dover,
County of Kent DE 19904, USA
Wilmington 19808
251 Little Falls Drive, Wilmington DE 19808, USA
Dover GD 160 Greentree Drive, Suite 101, Dover, DE, 19904, USA
Pennsylvania
63 Burke Road, Cranberry Township, Butler County PA
16066, USA
Phoenix
CT Corporation System, 3800 North Central Avenue,
Phoenix AZ 85012, USA
Columbia
7015 Albert Einstein Dr., Columbia, Howard County
MD 21046 USA
Africa, Asia, Australasia and Other Americas
Buenos Aires
Maipu 1300, 13th Floor, Buenos Aires, Argentina
North Ryde
85 Waterloo Road, North Ryde, NSW 2113, Australia
São Paulo
Av. das Nações Unidas, 14171- 23º andar – Torre
C-Crystal, Vila Gertrudes, São Paulo, CEP 043794-000,
Brazil
Diadema
Avenida Fagundes de Oliveira, 538, Piraporinha,
Mbigucci Diadema Business Park, Module B21 and B22,
City of Diadema São Paulo CEP 09950-300 Brazil
Rio de Janeiro Rua Francisco de Sousa e Melo, 1590, Galpao 3
Armazem 103 parte, Bairro Cordovil, Rio de Janeiro,
CEP21010-900, Brazil
São José
Rua Dionizio Chinelato, nº 100 Eldorado, City of São José
dos Campos, São Paulo, CEP 12238-578, Brazil
Calgary
3500-855-2 Street SW, Calgary AB T2P 4J8, Canada
Toronto
199, Bay Street, 4000, Toronto, Ontario M5L 1A9,
Canada
Georgetown 1104
c/o Maples Corporate Services Limited, P.O. Box 309,
Ugland House, Grand Cayman, KY1-1104,
Cayman Islands
209
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Company financial statements
continued
Notes to the Company accounts
continued
Excluding Note 8 ‘Group Companies’, the Parent Company financial statements of Smith & Nephew plc on pages
203–210 do not form part of the Smith & Nephew plc Annual Report on Form 20-F asfiled with the SEC.
Registered Oce addresses
Georgetown 9008
Walkers Corporate Limited, Cayman Corporate Centre,
27 Hospital Road, George Town, Grand Cayman,
KY1-9008, Cayman Islands
Chao Yang District,
Beijing
Room 17-021, Internal B17 floor, B3-24th floor, No 3
Xin Yuan South Rd, Chao Yang District, Beijing, China
Shunyi District,
Beijing
22 Linhe Avenue, Linhe Economic Development Zone,
Shunyi District, Beijing, 101300, China
Shanghai Ao Na Rd
Part B, 4th Floor, Tong Yong Building, No 188 Ao Na Rd,
Shanghai Free Trade Test Zone, Shanghai, China
Dong Cheng District Unit B1, 2/F, Tower A, East Gate Plaza No.9,
Dongshong Street Dong Cheng District, Beijing, China
Wu Hou District No 5. 15th Floor, Unit 1, Building, 1 Li Bao Building,
No 62 North Ke Hua Rd, Wu Hou District,
Chengdu, China
Yue Xiu District Room 2503, No 33, 6th Jian She Rd, Yue Xiu District,
Guang Zhou, China
Jing’an District
Unit 09, Nominal Level 12 (Actual Level 11), Central
Section of Bohua Square Oce Tower, No. 669 Xinzha
Road, Jing’an District, Shanghai, China
Shanghai Xin Jin
Qiao Rd
Room 102, Floor 1, Building 3 (B1), No. 1599, Xin Jin Qiao
Road China (Shanghai) Pilot Free Trade Zone, Shanghai,
China
Suzhou City 12, Wuxiang Road, West Area of Comprehensive
Bonded Zone, Suzhou Industrial Park, Suzhou City, SIP,
Jiangsu Province, China
Kechuang Dongliujie
No. 98 Kechuang Dongliujie, Beijing Economic
and Technical Development Area, Beijing, China
Bogota
Calle 100 No. 7 – 33 to 1 P3, Bogota D.C., Colombia
Alajuela
Building B32, 50 meters South of Revisión Téchnica
Vehicular, Province de Alajuela, Canton Alajuela,
Coyol Free Zone, District San José, Costa Rica
Willemstad
Pietermaai 15, PO Box 4905, Curaçao
Hong Kong
Unit 813 – 816, 8/F, Delta House, 3 On Yiu Street,
Shatin, New Territories, Hong Kong
Pune
Podium Floor Tower 4, World Trade Center S No1
Kharadi, Pune, Maharashtra-MH, 411014, India
Registered Oce addresses
Mumbai
501-B – 509-B Dynasty Business Park, Andheri Kurla
Road, Andheri East, Mumbai-59, Maharashtra, India
Tokyo
2-4-1, Shiba-Koen, Minato-Ku, Tokyo 105 0011, Japan
Seoul
13th Floor, ASEM Tower, Gangnam-gu 13th Floor,
ASEM Tower, 159-1 Samsung-dong, Seoul, Korea
Kuala Lumpur
Level 25, Menara Hong Leong, NO. 6 Jalan Damanlela
Bukit Damansara Kuala Lumpur W.P. 50490
Kuala Lumpur, Malaysia
Mexico City
Av. Insurgentes Sur, numero 1602, Piso No.7, Oficina 702,
Colonia Credito, Constructor, Delegacion Benito Juarez,
C.P. 03940, Mexico
Auckland
621 Rosebank Road, Avondale, Auckland, 1026,
NewZealand
Manila
6/F Alfaro St, Salcedo Village, Makati City, Metro Manila,
Philippines
San Juan
Edificio Cesar Castillo, Calle Angel Buonomo #361,
Hato Rey, 00917, Puerto Rico
Singapore
29 Media Circle, #06-05, Alice@Mediapolis, Singapore,
138565, Singapore
Westville
30 The Boulevard, Westway Oce Park, Westville,
3629, South Africa
Taipei
9F-2, No. 50, Sec. 1, Xinsheng South Road, Zhongzheng
District Taipei City 10059, Taiwan
Huai Khwang
District, Bangkok
16th Floor Building A, 9th Tower Grand Rama 9,
33/4 Rama 9 Road, Huai Khwang District, Bangkok,
10310, Thailand
Lumpini Phatumwan,
Bangkok
16th Floor, GPF Witthayu Tower A, 93/1 Wireless Road,
Lumpini, Phatumwan, Bangkok, 10330, Thailand
Istanbul
Mahmutbey Mahallesi, 2538. Sokak, Kısık Plaza Apt.
No:6/Z1, Istanbul, Bağcılar, Turkey
Jebel Ali, Dubai
PO Box 16993 LB02016, Jebel Ali, Dubai,
UnitedArabEmirates
HealthCare City,
Dubai
Floor 1, Building 52, Dubai Healthcare City, Dubai,
UnitedArab Emirates
9
Subsidiary undertakings exempt from audit
The following UK subsidiaries will take advantage of the audit exemption set out within Section 479A of the Companies Act 2006
for the year ended 31 December 2021:
–
Smith & Nephew China Holdings UK Limited
(Registration number: 9152387)
–
Smith & Nephew Investment Holdings Limited
(Registration number: 384546)
–
Smith & Nephew Trading Group Limited
(Registration number: 681256)
–
Smith & Nephew USD One Limited
(Registration number: 10428326)
–
TP Limited
(Registration number: SC005366)
8
Group companies
continued
210
Smith+Nephew
Annual Report 2021
Properties
The table below summarises the main properties which the Group uses and their approximate areas.
Approximatearea
(squarefeet000’s)
Group head oce and surgical training facility in Watford, UK
60
Manufacturing and oce facilities in Memphis, Tennessee, US
968
Wound management manufacturing, research and oce facility in Hull, UK
473
Surgical training and oce facilities in Memphis, Tennessee, US
292
Manufacturing facility in Suzhou, China
288
Manufacturing facility in Alajuela, Costa Rica
270
Manufacturing facility in Oklahoma City, Oklahoma, US
155
Oce facilities and laboratory space in Fort Worth, Texas, US
139
Manufacturing facility in Aarau, Switzerland
116
Oce facilities in Andover, Massachusetts, US
112
Manufacturing facility in Beijing, China
109
Manufacturing facility in Mansfield, Massachusetts, US
98
Business services centre in Pune, India
74
Research & development and oce facility in Austin, Texas, US
68
Research & development facility in Pittsburgh, Pennsylvania, US
65
Manufacturing facility in Columbia, Maryland, US
61
Business services centre in Wroclaw, Poland
52
Manufacturing facility in Tuttlingen, Germany
50
The Group Global Operations strategy includes ongoing assessment of the optimal facility footprint. The Orthopaedics manufacturing
facilities in Memphis are largely freehold, a portion of Tuttlingen and the Advanced Wound Management facilities in Hull are freehold
while other principal locations are leasehold. The Group has freehold and leasehold interests in real estate in other countries throughout
the world, but no other is individually significant to the Group. Where required, the appropriate governmental authorities have approved
the facilities.
Business overview and Group history
Since 2019, Smith+Nephew’s operations
have been organised into three global
franchises (Orthopaedics, Sports Medicine
& ENT andAdvanced Wound Management)
withinthemedical technology industry.
The Group has a history dating back more
than 160 years to the family enterprise
ofThomas James Smith who opened
asmallpharmacy in Hull, UK,in 1856.
Following his death in 1896, his nephew
Horatio Nelson Smith took over the
management of the business.
By the late 1990s, Smith+Nephew
hadexpanded into being a diverse
healthcare company with operations
across the globe, producing various
medical devices, personal care products
and traditional and advanced wound
care treatments. In 1998, Smith+Nephew
announced a major restructuring to focus
management attention and investment
on three global business units – Advanced
Wound Management, Endoscopy
andOrthopaedics – which oered
high growth and margin opportunities.
In 2011, the Endoscopy and Orthopaedics
businesses were brought together to
create an Advanced Surgical Devices
division. In 2015, the Advanced Wound
Management and Advanced Surgical
Devices divisions were brought together
toform a global business across nine
product franchises.
Smith+Nephew was incorporated and
listed on the London Stock Exchange in
1937 and in 1999 the Group was also listed
on the NewYork Stock Exchange. In 2001,
Smith+Nephew became a constituent
member of the FTSE 100 index in the UK.
This means that Smith+Nephew is included
inthetop 100 companies traded on the
London Stock Exchange measured in
termsof market capitalisation.
Today, Smith+Nephew is a public limited
company incorporated and headquartered
in the UK and carries out business around
the world.
Related party transactions
Except for transactions with associates
(seeNote 22.2 of Notes to the Group
accounts), no other related party had
material transactions or loans with
Smith+Nephew over the last three
financial years.
Group information
211
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Other information
There are known and unknown risks and
uncertainties relating to Smith+Nephew’s
business. The factors listed on pages
212–217 could cause the Group’s business,
financial position and results of operations to
dier materially and adversely from expected
and historical levels. In addition, other factors
not listed here that Smith+Nephew cannot
presently identify or does not believe to
be equally significant could also materially
adversely aect Smith+Nephew’s business,
financial position or results of operations.
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 aect 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 eect on the
results of operations. Physical loss and
consequential loss insurance is carried
to cover major physicaldisruption to
these sites but issubject to limits and
deductibles, generally does not cover
COVID pandemic related disruptions, and
may notbe sucient to cover catastrophic
loss. Management of orthopaedic 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
tothird party suppliers. There is a risk
that this transition, whilst planned,
mayadversely impact the supply of
products toour 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 ofthe COVID pandemic
could result in an increase in our costs of
production and distribution. These suppliers
must provide the materials in compliance
withlegal requirements and perform the
activities to the Group’s standard ofquality
requirements. A supplier’s failure to comply
with legal requirements or otherwise meet
expected quality standards could create
liability forthe Group and adversely aect
sales oftheGroup’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-eective 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 programme, 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, sterilise and supply
product. In addition, our physical assets and
supply chains are vulnerable to weather and
climate change (eg 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.
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 Aairs team is leading a
major Group-wide programme 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 (ie 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
Risk factors
212
Smith+Nephew
Annual Report 2021
timeline for certain Class 1R devices
(iereusable 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
tosupport 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)
oered by such vaccines. The length,
severity and geographical variation of
the outbreak and pace of recovery are
not clear and there could bean increased
impact on us depending onthese 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
theCOVID pandemic and related response
measures worldwide, including those
described above, have had and may continue
to have an adverse eect on global economic
conditions, as well as on our business, results
of operations, cash flows and financial
condition and the ongoing COVIDpandemic
may also have the eect of heightening many
ofthe other riskfactors 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.
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 dierent competitors,
including specialised and international
corporations.
Significant product innovations, technical
advances or the intensification of price
competition by competitors could adversely
aect 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 research and development
(R&D) into their businesses.
There is a possibility of further
consolidation of competitors, which
could adversely aect the Group’s ability
to compete with larger companies due
to insucient 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
onthe 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 organisations
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 aect 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 shi
from clinic to home care.
Relationships with healthcare professionals
The Group seeks to maintain eective
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
couldbe materially adversely aected.
Customer sustainability expectations
Our customers are setting sustainability
requirements that they expect us to
achieve. A failure to meet customers’
expectations may adversely impact
uponour financial performance.
HCP interactions
COVID restrictions put in place by
governments in the markets in which
weoperate, 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
eective use of our products, and so
ourcommercial execution.
Acquisitions
Challenges in integration of new acquisitions
may arise following completion of the deal.
This may lead to us not achieving the planned
synergies and results from the acquisition.
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.
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Strategic report
Governance
Accounts
Other information
Other information
continued
Risk factors
continued
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 favouring 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
totime 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
lossoffuture 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
sta 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 eect of these
procurement changes can adversely
impact the pricing that we received for
our products at the same time the cost
ofproduction is increasing.
New product innovation,
design & development, including
intellectual property
Continual development and introduction
ofnew 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 tomarket 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 ability to conduct live
product trials. Furthermore, there has been
an adverse impact on relationships with
healthcare professionals involved inR&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
theGroup’s competitors may aect 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
revenuecould 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 sterilisation dates and
expected future trends. If actual product
life cycles, product demand or acceptance
of new product introductions are less
favourable 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 product.
Where we have critical gaps in our
productportfolio that are not filled by
newproducts there is a risk that we will
lose market share to competitors that
canoer 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 licences
tothe products which are the subject
of such litigation, thereby aecting the
Group’s growth and profitability.
Smith+Nephew attempts to protect
itsintellectual 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
competitiveposition could suer, which
could harm its results of operations.
In addition, intellectual property rights
maynot be protectable tothe same
extent in all countries in whichthe
Group operates.
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Cybersecurity
Reliance on sophisticated information
technology and cybersecurity
The Group uses a wide variety of
information systems, programmes 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, the 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
inthe regulatory environment.
Cybersecurity is a multifaceted discipline
covering people, process and technology.
It is also an area where more can always
bedone; it is a continually evolving practice.
We have a layered security approach
inplace to prevent, detect and respond,
inorder to minimise 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
eective in protecting Smith+Nephew
from future interruptions and as a result
the performance of the Group could be
materially adversely aected.
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 US Foreign
Corrupt Practices Act which prohibit us or
our representatives from making or oering
improper payments togovernment ocials
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
withthe 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
whosedata 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, US state privacy laws
including California Consumer Privacy
Act (CCPA), and the invalidation ofthe
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
ofdoing business. Despite those eorts,
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
oncompanies and individuals where
breaches are found to have occurred.
Failure to comply with the requirements
ofprivacy and data protection laws,
including GDPR, could adversely aect
our business, financial condition or
resultsof 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
noassurance 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 eect 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 recognised relating to the present
value of the estimated costs to resolve all
unsettled known and unknown anticipated
metal-on-metal hip implant claims globally.
See Note 17 to the Group accounts for
further details.
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 ofwhich 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 tothe 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 eectively and failure
to operate adequate financial controls
overbusiness operations.
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Strategic report
Governance
Accounts
Other information
Other information
continued
Risk factors
continued
Political and economic
World economic conditions
Demand for the Group’s products
is drivenby demographic trends,
including the ageing 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 favour
larger, better capitalised 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 aects our
global business. The ongoing eects 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 US 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
inthe future.
We are increasingly seeing sustainability
targets and public policies being
promulgated in the markets in which
weoperate. A failure to meet these
targetsand policies could impact our
salesand 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
ofoperations. 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
forlocal suppliers, import quotas, taxation
or other matters could adversely aect the
Group’s revenue and operating profit. War,
economic sanctions, terrorist activities or
other 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
United States-China trade relations, which
has resulted in taris 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 US tax
reform proposals. External changes in this
manner may require the Group to adjust
itsoperating model.
Currency fluctuations
Smith+Nephew’s results of operations
are aected by transactional exchange
rate movements in that they are subject
to exposures arising from revenue in a
currency dierent from the related costs
and expenses. The Group’s manufacturing
cost base is situated principally in the US,
the UK, China, Costa Rica and Switzerland,
from which finished products are
exported to the Group’s selling operations
worldwide. Thus, the Group is exposed
tofluctuations in exchange rates between
the US 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 US Dollar, Sterling or Swiss Franc
should strengthen against the Euro,
Australian Dollar and the Japanese Yen,
theGroup’s trading margin could be
adversely aected. 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 US Dollar. The Group uses
the US Dollar as its reporting currency.
The US Dollar is the functional currency
of Smith & Nephew plc. The Group’s
revenues, profits and earnings are also
aected by exchange ratemovements
onthe translation of results of operations
in foreign subsidiaries for financial reporting
purposes. See ‘Liquidity and capital
resources’ on page178.
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
andother 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,
ifthe Group were found to have violated
the law, its ability to sell its products to
certain customers may be restricted.
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
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Annual Report 2021
and regulations that govern the design,
development, approval, manufacture,
labelling, marketing and sale of healthcare
products. They also review data
supporting the safety and ecacy of
such products. Of particular importance
is the requirement in many countries that
products be authorised or registered prior
to manufacture, marketing or sale and
that such authorisation 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 aect 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
tomeet 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 US and GDPR
in the UK) 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
toregular internal and external audit for
compliance with national medical device
regulation and Group policies. Payment
for medical devices may be governed by
reimbursement tari 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 eectiveness.
They may also be aected 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 organisations of
dierent 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.
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
aected people globally. If Smith+Nephew
is unable to attract and retain key
personnel in general management,
research and new product development
orif its largest sales forces suer disruption
or upheaval, its revenue and operating profit
would be adversely aected. 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
ourperformance and ability to grow.
Factors aecting results
of operations
Government economic, fiscal, monetary
and political policies are all factors that
materially aect the Group’s operation or
investments of shareholders. Other factors
include sales trends, currency fluctuations
and innovation. Each of these factors
isdiscussed further inthe‘Marketplace’
onpages 10–11, the ‘Financial review’ on
pages 16–19 and ‘Taxation information
forshareholders’ on pages 225–227.
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Strategic report
Governance
Accounts
Other information
Other information
continued
These financial statements include
financial measures that are not prepared
in accordance with International
Financial Reporting Standards (IFRS).
These measures, which include trading
profit, trading profit margin, tax rate on
trading results, EPSA, ROIC, trading cash
flow, free cash flow, trading profit to trading
cash conversion ratio, leverage ratio, and
underlying revenue growth, exclude the
eect of certain cash and non-cash items
that Group management believes are not
related to the underlying performance
of the Group. These non-IFRS financial
measures are also used by management
to make operating decisions because
they facilitate internal comparisons of
performance to historical results.
Non-IFRS financial measures are
presentedin these financial statements
as the Group’s management believe that
they provide investors with a means of
evaluating performance of the business
segments and the consolidated Group
ona consistent basis, similar to the
way inwhich the Group’s management
evaluates performance, that is not
otherwise apparent on an IFRS basis,
given that certain non-recurring,
infrequent, non-cash and other items
that management does not otherwise
believe are indicative of the underlying
performance of the consolidated Group
may not be excluded when preparing
financial measures under IFRS.
These non-IFRS measures should not
be considered in isolation from, as
substitutes for, or superior to financial
measures prepared inaccordance
with IFRS.
Payments of lease liabilities are included
in trading cash flow. IFRS 16 right-of-use
assets and IFRS 16 lease liabilities are
included in net operating assets in
arriving at ROIC.
Underlying revenue growth
‘Underlying revenue growth’ is used
tocompare the revenue in a given year to
the previous year on a like-for-like basis.
This is achieved by adjusting for the impact
of sales of products acquired in material
business combinations or disposed of
andfor movements in exchange rates.
Underlying revenue growth is considered
by the Group to be an important measure
of performance as it excludes those items
considered to be outside the influence
of local management. The Group’s
management uses this non-IFRS measure
in its internal financial reporting, budgeting
and planning to assess performance
on both a business and a consolidated
Group basis. Revenue growth atconstant
currency is important in measuring
business performance compared to
competitors and compared to the
growthofthemarket itself.
The Group considers that revenue from
sales of products acquired in material
business combinations results in a
step-up in growth in revenue in the year
of acquisition that cannot be wholly
attributed to local management’s eorts
with respect to the business in the year
of acquisition. Depending on the timing
of the acquisition, there will usually be
a further step change in the following
year. A measure of growth excluding the
eects of business combinations also
allows senior management to evaluate the
performance and relative impact of growth
from the existing business and growth
from acquisitions. The process of making
business acquisitions is directed, approved
and funded from the Group corporate
centre in-line with strategic objectives.
The material limitation of the underlying
revenue growth measure isthat it excludes
certain factors, described above, which
ultimately have a significant impact on
total revenues. The Group compensates
for this limitation by taking into account
relative movements in exchange rates
in its investment, strategic planning and
resource allocation. In addition, as the
evaluation and assessment of business
acquisitions is not within the control
of local management, performance of
acquisitions is monitored centrally until
thebusiness is integrated.
The Group’s management considers
that the non-IFRS measure of underlying
revenue growth and the IFRS measure
ofgrowth in revenue are complementary
measures, neither of which management
uses exclusively.
Underlying revenue growth reconciles to
reported revenue growth, the most directly
comparable financial measure calculated
in accordance with IFRS, by making two
adjustments, the ‘constant currency
exchange eect’ and the ‘acquisitions
anddisposals eect’, described below.
The ‘constant currency exchange eect’
is a measure of the increase/decrease
in revenue resulting from currency
movements on non-US Dollar sales and
is measured as the dierence between:
1) the increase/decrease in the current
year revenue translated into US Dollars
at the current year average exchange
rate and the prior revenue translated at
the prior year rate; and 2) the increase/
decrease being measured by translating
current andprior year revenues into US
Dollars using the prior year closing rate.
The ‘acquisitions and disposals eect’
isthe measure of the impact on revenue
from newly acquired material business
combinations and recent material
business disposals. This is calculated by
comparing the current year, constant
currency actual revenue (which includes
acquisitions and excludes disposals from
the relevant date of completion) with
prior year, constant currency actual
revenue, adjusted to include the results
ofacquisitions and exclude disposals for
the commensurate period in the prior year.
These sales are separately tracked in the
Group’s internal reporting systems and
arereadily identifiable.
Non-IFRS financial
information –
Adjustedmeasures
218
Smith+Nephew
Annual Report 2021
Reported revenue growth, the most directly comparable financial measure calculated in accordance with IFRS, reconciles to underlying
revenue growth as follows:
Reconciling items
2021
Reportedgrowth
Underlyinggrowth
Acquisitions/disposals
Currencyimpact
Consolidated revenue by franchise
%
%
%
%
Knee Implants
6.6
5.1
–
1.5
Hip Implants
7.8
5.8
–
2.0
Other Reconstruction
34.1
32.2
–
1.9
Trauma & Extremities
25.4
5.6
18.0
1.8
Orthopaedics
12.5
6.4
4.3
1.8
Sports Medicine Joint Repair
18.2
15.9
–
2.3
Arthroscopic Enabling Technologies
14.1
11.7
–
2.4
ENT (Ear, Nose and Throat)
23.3
20.6
–
2.7
Sports Medicine & ENT
17.0
14.6
–
2.4
Advanced Wound Care
12.9
9.5
–
3.4
Advanced Wound Bioactives
15.1
14.8
–
0.3
Advanced Wound Devices
16.0
13.0
–
3.0
Advanced Wound Management
14.2
11.8
–
2.4
Total
14.3
10.3
1.9
2.1
Reconciling items
2020
Reportedgrowth
Underlyinggrowth
Acquisitions/disposals
Currencyimpact
Consolidated revenue by franchise
%
%
%
%
Knee Implants
(21.1) (21.0)
–
(0.1)
Hip Implants
(7.5) ( 7.4)
–
(0.1)
Other Reconstruction
(12.9)
(26.1)
13.1 0.1
Trauma & Extremities
(5.7) (5.1)
–
(0.6)
Orthopaedics
(13.7)
(14.0)
0.6 (0.3)
Sports Medicine Joint Repair
(10.5) (10.2)
–
(0.3)
Arthroscopic Enabling Technologies
(12.6) (12.4)
–
(0.2)
ENT (Ear, Nose and Throat)
(29.9)
(29.7)
–
(0.2)
Sports Medicine & ENT
(13.2) (13.0)
–
(0.2)
Advanced Wound Care
(7.7) ( 7.5 )
–
(0.2)
Advanced Wound Bioactives
(1.1)
(10.5)
(0.1) 9.5
Advanced Wound Devices
(4.8) (4.8)
0.2
(0.2)
Advanced Wound Management
(5.1) (8.1)
3.1
(0.1)Total
(11.2)
(12.1)
1.1
(0.2)
Trading profit, trading profit margin, trading cash flow and trading profit to trading cash conversion ratio
Trading profit, trading profit margin (trading profit expressed as a percentage of revenue), trading cash flow and trading profit to trading
cash conversion ratio (trading cash flow expressed as a percentage of trading profit) are trend measures, which present the profitability
oftheGroup. The adjustments made exclude the impact of specific transactions that management considers aect the Group’s
short-term profitability and cash flows, and the comparability of results. The Group has identified the following items, where material,
as those to beexcluded from operating profit and cash generated from operations when arriving at trading profit and trading cash
flow, respectively: acquisition and disposal related items arising in connection with business combinations, including amortisation of
acquisition intangible assets, impairments and integration costs; restructuring events; and gains and losses resulting from legal disputes
and uninsured losses. In addition to these items, gains and losses that materially impact the Group’s profitability or cash flows on a
short-term or one-o basis are excluded from operating profit and cash generated from operations when arriving at trading profit and
trading cash flow. The cash contributions to fund defined benefit pension schemes that are closed to future accrual are excluded from
cash generated from operations when arriving at trading cash flow. Payment of lease liabilities is included within trading cash flow.
219
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Other information
continued
Non-IFRS financial information – Adjusted measures
continued
Adjusted earnings per ordinary share (EPSA)
EPSA is a trend measure, which presents the profitability of the Group excluding the post-tax impact of specific transactions that
management considers aect the Group’s short-term profitability and comparability of results. The Group presents this measure to
assist investors in their understanding of trends. Adjusted attributable profit is the numerator used for this measure and is determined
by adjusting attributable profit for the items that are excluded from operating profit when arriving at trading profit and items that are
recognised below operating profit that aect the Group’s short-term profitability. The most directly comparable financial measure
calculated in accordance with IFRS is basic earnings per ordinary share (EPS).
Operating
Profit before
Attributable
Cashgenerated
Earnings
Revenue
profit
1
tax
2
Taxation
3
profit
4
from operations
5
pershare
6
$million $million $million $million $million $million
¢
2021 Reported
5,212
593
586
(62)
524
1,048
59.8
Acquisition and disposal related items
–
7 (73) (3)
(76)
28
(8.8)
Restructuring and rationalisation costs
–
113 113
(22)
91
108 10.3
Amortisation and impairment of acquisition
intangibles
–
– 172 172
(38)
134
15.4
Legal and other
7
–
51
59
(22)
37
111
4.2
Lease liability payments
– – – –
– (59)
– Capital expenditure
– – – –
– (408)
– 2021 Adjusted
5,212
936
857
(147)
710
828
80.9
Acquisition and disposal related items:
For the year to 31 December 2021 costs primarily relate to the acquisition of Extremity
Orthopaedics and prior year acquisitions, partially oset by credits relating to remeasurement of deferred and contingent consideration
forprior year acquisitions. Adjusted profit before tax additionally excludes gains of $75m associated with the two transactions resulting
inthe dilution ofthe Group’s shareholding in Bioventus and $5m of other gains relating to the Bioventus IPO.
Restructuring and rationalisation costs:
For the year to 31 December 2021 these costs relate to the implementation of the Accelerating
Performance and Execution (APEX) programme that was announced in February 2018 and the Operations and Commercial Excellence
programme announced in February 2020.
Amortisation and impairment of acquisition intangibles:
For the year to 31 December 2021 charges relate to the amortisation and
impairment of intangible assets acquired in material business combinations.
Legal and other:
For the year ended 31 December 2021 charges primarily relate to legal expenses for ongoing metal-on-metal hip claims
and also includes costs for implementing the requirements of the EU Medical Device Regulation that was eective from May 2021.
These charges in the year to 31 December 2021 were partially oset by a credit of $35m relating to insurance recoveries for ongoing
metal-on-metal hip claims.
Trading cash flow additionally excludes $7m of cash funding to closed defined benefit pension schemes. Taxation also includes the
eectof an increase in deferred tax assets on non-trading items resulting from the prospective UK tax rate increase from 19% to 25%
eective from 1 April 2023.
Operating
Profit before
Attributable
Cashgenerated
Earnings
Revenue
profit
1
tax
2
Taxation
3
profit
4
from operations
5
pershare
6
$million $million $million $million $million $million
¢
2020 Reported
4,560
295
246
202
448
972
51.3
Acquisition and disposal related items
–
4 4
(5)
(1)
24
(0.1)Restructuring and rationalisation costs
–
124 124
(40)
84
117
9.6
Amortisation and impairment of acquisition
intangibles
–
171 171
(46)
125
–
14.3
Legal and other
7
–
89
91
(41)
50
75
5.7
UK tax litigation
– –
(142) (142)
– (16.2)
Lease liability payments –
– – – –
(55)
– Capital expenditure
–
– – – –
(443)
– 2020 Adjusted
4,560
683
636
(72)
564
690
64.6
220
Smith+Nephew
Annual Report 2021
Acquisition and disposal related items:
For the year to 31 December 2020 costs primarily relate to the acquisition of Tusker and prior
year acquisitions, partially oset by credits relating to remeasurement of contingent consideration for prior year acquisitions.
Restructuring and rationalisation costs:
For the year to 31 December 2020 these costs relate to the implementation of the Accelerating
Performance and Execution (APEX) programme that was announced in February 2018 and the Operations and Commercial Excellence
programme announced in February 2020.
Amortisation and impairment of acquisition intangibles:
For the year to 31 December 2020 charges relate to the amortisation and
impairment of intangible assets acquired in material business combinations.
Legal and other:
For the year ended 31 December 2020 charges primarily relate to legal expenses for ongoing metal-on-metal hip claims
and an increase of $17m in the provision that reflects the present value of the estimated costs to resolve all other known and anticipated
metal-on-metal hip claims. The year to 31 December 2020 also includes costs for implementing the requirements of the EU Medical
Device Regulation that was eective from May 2021.
UK tax litigation:
For the year ended 31 December 2020 the $142m tax credit in the table above relates to the successful outcome
ofthe UK tax litigation matter.
1 Represents a reconciliation of operating profit to trading profit.
2 Represents a reconciliation of reported profit before tax to trading profit before tax.
3 Represents a reconciliation of reported tax to trading tax.
4 Represents a reconciliation of reported attributable profit to adjusted attributable profit.
5 Represents a reconciliation of cash generated from operations to trading cash flow.
6 Represents a reconciliation of basic earnings per ordinary share to adjusted earnings per ordinary share (EPSA).
7 The ongoing funding of defined benefit pension schemes is not included in management’s definition of trading cash flow as there is no defined benefit service cost forthese schemes.
Free cash flow
Free cash flow is a measure of the cash generated for the Group to use aer capital expenditure according to its Capital Allocation
Framework, itisdefined as the cash generated from operations less capital expenditure and cash flows from interest and income taxes.
A reconciliation from cash generated from operations, the most comparable IFRS measure, to free cash flow issetout below:
2021
2020
2019
$million $million $million
Cash generated from operations
1
1,048
972
1,370
Capital expenditure
(408)
(443)
(408)
Interest received
6
2
4
Interest paid
(80)
(61)
(56)
Payment of lease liabilities
(59)
(55)
(46)
Income taxes (paid)/refunded
(97)
22
(150)
Free cash flow
410
437
714
1 See Group Cash Flow Statement on page 148.
Leverage ratio
The leverage ratio is net debt including lease liabilities to adjusted EBITDA. Net debt is reconciled in Note 15 to the Group accounts.
Adjusted EBITDA is defined as trading profit before depreciation of property, plant and equipment and amortisation of other intangible assets.
The calculation of the leverage ratio is set out below:
2021
2020
$million $million
Net debt including lease liabilities
2,049
1,926
Trading profit
936
683
Depreciation of property, plant and equipment
326
311
Amortisation of other intangible assets
65
63
Adjustment for items already excluded from trading profit
(11)
(7)
Adjusted EBITDA
1,316
1,050
Leverage ratio (x)
1.6
1.8
221
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Other information
continued
Non-IFRS financial information – Adjusted measures
continued
Return on invested capital
Return on invested capital (ROIC) is a measure of the return generated on capital invested by the Group. It provides a metric for
long-term value creation and encourages compounding reinvestment within the business and discipline around acquisitions with
lowreturns and long payback.
ROIC is defined as: Operating Profit less Adjusted Taxes/((Opening Net Operating Assets + Closing Net Operating Assets)/2).
2021
2020
2019
$million $million $million
Operating profit
593
295
863
Taxation
(62)
202
(118)
Taxation adjustment
1
(17)
(12)
(14)
Operating profit less adjusted taxes
514
485
731
Total equity
5,568
5,279
5,141
Retirement benefit assets
(182)
(133)
(106)
Investments
(10)
(9)
(7)
Investments in associates
(188)
(108) (103)
Right-of-use assets
(191)
(196)
(156)
Cash at bank
(1,290)
(1,762)
(277)
Long-term borrowings and lease liabilities
2,848
3,353
1,975
Retirement benefit obligations
127
163
136
Bank overdras, borrowings, loans and lease liabilities
491
337
72
Net operating assets
7,173
6,924
6,675
Average net operating assets
7,049
6,800
6,266
Return on invested capital
7.3%
7.1%
10.5%
1 Being the taxation on interest income, interest expense, other finance costs and share of results of associates.
Shareholder information
Ordinary shareholders
Registrar
All general enquiries concerning
shareholdings, dividends, changes
toshareholders’ personal details and
theAnnual General Meeting(the ‘AGM’)
should be addressed to:
Computershare Investor Services plc,
ThePavilions, Bridgwater Road,
Bristol,BS99 6ZZ.
Tel: 0370 703 0047
Tel: +44 (0) 117 378 5450
from outside the UK*
www.investorcentre.co.uk
* Lines are open from 8:30 am to 5:30 pm Monday to Friday,
excluding public holidays in England and Wales.
Shareholder communications
We make quarterly financial
announcements, which are madeavailable
through Stock Exchange announcements
and on the Group’s website
(www.smith-nephew.com). Copiesof
recent Annual Reports, press releases,
institutional presentations andaudio
webcasts are also available onthe website.
We send paper copies of the Notice
ofAnnual General Meeting and Annual
Report only to those shareholders and
ADSholders who have elected to receive
shareholder documentation by post.
Electronic copies of the Annual Report
andNotice of Annual General Meeting
areavailable on the Group’s website at
www.smith-nephew.com. Both ordinary
shareholders and ADS holders can request
paper copies of the Annual Report, which
the Company provides free of charge.
TheCompany will continue to send to
ordinary shareholders by post the Form
ofProxy notifying them of the availability
of the Annual Report and Notice of Annual
General Meeting on the Group’s website.
Ifyou elect to receive the Annual Report
and Notice of Annual General Meeting
electronically you are informed by email
ofthe documents’ availability on the
Group’s website. ADS holders receive
theForm of Proxy by post, but will not
receive a paper copy of the Notice of
Annual General Meeting.
Investor communications
The Company maintains regular dialogue
with individual institutional shareholders,
together with results presentations.
Toensure that all members of the Board
develop an understanding of the views
ofmajor investors, the Executive Directors
review significant issues raised by investors
with the Board. Non-Executive Directors
are sent copies of analysts’ and brokers’
briefings. There is an opportunity for
individual shareholders to put their
questions to the Directors at the Annual
General Meeting. The Company regularly
respondsto letters from shareholders
onarange of issues.
222
Smith+Nephew
Annual Report 2021
UK capital gains tax
For the purposes of UK capital gains
tax, the price of the Company’s ordinary
shareson 31 March 1982 was 35.04p.
Smith & Nephew plc share price
The Company’s ordinary shares are
quotedon the London Stock Exchange
under the symbol SN. The Company’s
shareprice is available on the Group’s
website (www.smith-nephew.com) and
atwww.londonstockexchange.com
wherethe live financial data is updated
witha15-minute delay.
American Depositary Shares
(‘ADSs’)and American Depositary
Receipts (‘ADRs’)
In the US, the Company’s ordinary shares
are traded in the form of ADSs, evidenced
by ADRs, on the New York Stock Exchange
under the symbol SNN. Each American
Depositary Share represents two ordinary
shares. J.P. Morgan Chase Bank N.A.
istheauthorised depositary bank for
theCompany’s ADR programme.
ADS enquiries
All enquiries regarding ADS holder
accounts and payment of dividends
shouldbe addressed to:
EQ Shareowner Services
P.O. Box 64504
St Paul, MN 55164-0504
US toll free phone: +1-800-990-1135
Online: Visit www.shareowneronline.com
and select ‘Contact Us’.
www.adr.com
Smith & Nephew plc ADS price
The Company’s ADS price can be obtained
from the ocial New York Stock Exchange
website at www.nyse.com andthe Group’s
website (www.smith-nephew.com) where
the livefinancial data is updated with
a 15-minute delay, and is quoted daily
intheWall Street Journal.
ADS payment information
The Company hereby discloses ADS
payment information for the year ended
31 December 2021 in accordance with
theSecurities and Exchange Commission
rules 12.D.3 and 12.D.4 relating to Form
20-F filings by foreign private issuers.
Thedepositary collects its fees for
deliveryand surrender of ADSs directly
from investors depositing shares or
surrendering ADSs for the purpose
ofwithdrawal or from intermediaries
actingfor them.
The depositary collects fees for making
distributions to investors, including
payment of dividends by the Company
bydeducting those fees from the
amountsdistributed or by selling a portion
ofdistributable property to pay the fees.
The depositary may collect its annual
feefor depositary services by deductions
fromcash distributions or by directly billing
investors or by charging the book-entry
system accounts of participants acting
forthem. The depositary may generally
refuse to provide fee-attracting services
until its fee for those services are paid.
During 2021, a fee of 1 US cent per ADS
was collected by J.P. Morgan Chase Bank
N.A. on the2020 final dividend paid in May
2021 and afee of 1 US cent per ADS was
collected on the 2021 interim dividend paid
in October. In the period 1 January 2021
to11 February 2022, the total programme
payments made by J.P. Morgan Chase
BankN.A. was $869,432.88.
Dividend history
Smith & Nephew plc has paid dividends
onits ordinary shares in every year since
1937. Following the capital restructuring
and dividend reduction in 2000, the
Group adopted a policy of increasing
its dividend cover (the ratio of EPSA,
asset out in the‘Selected financial data’,
to ordinary dividends declared for the
year). This wasintended to increase
the financing capability of the Group
for acquisitions andother investments.
From 2000 to2004, thedividend increased
in line withinflation and, in 2004, dividend
cover stood at 4.1times. Having achieved
this level ofdividend cover the Board
changed its policy, from that of increasing
dividends in line with inflation, to that
ofincreasing dividends for 2005 and aer
by 10%. Following the redenomination
of the Company’s share capital into US
Dollars, theBoard rearmed its policy
of increasingthe dividend by 10% a year
inUSDollar terms.
On 2 August 2012, the Board announced its
intention to pursue a progressive dividend
policy, with the aim of increasing the
USDollar value of ordinary dividends
overtime broadly based on the Group’s
underlying growth in earnings, while
takinginto account capital requirements
andcash flows.
At the time of the full year results, the
Board reviews the appropriate level of
totalannual dividend each year. TheBoard
intends that the interim dividendwill be
set by a formula and willbeequivalent to
40% of the total dividend for the previous
year. Dividends will continue tobedeclared
in US Dollars withan equivalent amount
inSterling payable tothose shareholders
whose registered address is in the UK,
orwhohavevalidly elected to receive
Sterling dividends.
Persons depositing or
withdrawing shares must pay
For
$5.00 (or less) per 100 ADSs
(or portion of 100 ADSs)
$0.05 (or less) per ADS
–
Issuance of ADSs, including issuances resulting
from a distribution of shares or rightsor
other property
–
Cancellation of ADSs for the purpose
ofwithdrawal, including if the deposit
agreement terminates
–
Any cash distribution to ADS registered holders,
including payment of dividend
$0.05 (or less) per ADS per calendar year
Registration or transfer fees
–
Depositary services
–
Transfer and registration of shares on
our shareregister to or from the name of
the depositary or its agent when shares
aredeposited or withdrawn
Taxes and other governmental charges
thedepositary or the custodian have
topayonanyADS or share underlying an
ADS,forexample, stock transfer taxes,
stampdutyorwithholding taxes
–
As necessary
Any charges incurred by the depositary
or its agents for servicing the
deposited securities
–
As necessary
223
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Shareholder information
continued
Dividends per share
Years ended 31 December
2021
2020
2019 2018
2017
Pence per share:
Interim
10.50
11.07
11.19
10.67
9.34
Final
17.02
1
16.62
18.66
16.9916.24
Total
27.52
27.69
29.85
27.6625.58
US cents per share:
Interim
14.40
14.40 14.40 14.00
12.30
Final
23.10
23.10 23.10
22.00
22.70
Total
37.50
37. 50 37.50
36.00
35.00
1 Translated at the Bank of England rate on 11 February 2022.
An interim dividend in respect of each
fiscalyear is normally declared in July or
August and paid in October or November.
Afinal dividend will be recommended
bythe Board of Directors and paid
subjectto approval by shareholders at
theCompany’s Annual General Meeting.
Future dividends of Smith & Nephew plc
will be dependent upon: future earnings;
the future financial condition of the
Group;the Board’s dividend policy; and
theadditional factors that might aect
thebusiness of the Group set out in
‘Specialnote regarding forward-looking
statements’ and ‘Risk Factors’.
Dividends per share
The table below sets out the dividends
perordinary share in the last five-years.
From 6 April 2018 dividends below
£2,000per tax year became tax free for
UKincome tax purposes and dividends
above £2,000 per tax year became subject to
UK personal income tax at the rate of7.5%
for basic rate taxpayers, 32.5% forhigher
rate taxpayers and 38.1% for additional
rate taxpayers. From 6 April 2022, the
rates of income tax applicable to dividend
income are set to increase by 1.25% for
each above rate. If you need to pay UK tax,
how you pay depends upon the amount
of dividend income you receive inayear.
If your dividend income is up to£10,000
you can request HMRC to change your tax
code so that the tax will be taken from your
wages or pension or you cancomplete a
self-assessment tax return. If your dividend
income is over £10,000 inthe tax year, you
will need to complete aself-assessment
tax return. This will apply to both cash
and dividend reinvestment plan(‘DRiP’)
dividends, although dividends paid on
shares heldwithin pensions and ISAs will
beunaected, remaining tax free.
five ordinary shares. TheADS facility is
sponsored by J.P. Morgan Chase Bank N.A.
acting as depositary.
All the ordinary shares, including
those heldby Directors and Executive
Ocers, rank pari passu with each other.
On 23 January 2006, the ordinary shares
of122/9p were redenominated as ordinary
shares of US 20 cents (following approval
byshareholders at the Extraordinary
General Meeting in December 2005).
Thenew US Dollar ordinary shares carry
thesame rights as the previous ordinary
shares. The share price continues to be
quoted in Sterling. In 2006, the Company
issued £50,000 of shares in Sterling
inorderto comply with English law.
Thesewere issued as deferred shares,
which arenot listed on any stock exchange.
Theyhave extremely limited rights and
therefore eectively have no value.
These shares are held by the Company
Secretary, although the Board reserves
theright to transfer them to a member
ofthe Board should it so wish.
Shareholdings
As at 11 February 2022, to the knowledge
ofthe Group, there were 14,346 registered
holders of ordinary shares, of whom
92hadregistered addresses in the US
and helda total of 155,407 ordinary
shares (0.017%ofthe total issued).
Because certain ordinary shares are
registered in thenames of nominees, the
number of shareholders with registered
addresses in the US is not representative
ofthe number of beneficial owners of
ordinary shares resident in the US.
As at 11 February 2022, 43,828,548
ADSsequivalent to 87,657,096 ordinary
shares or approximately 9.90% of
thetotal ordinary shares in issue, were
outstanding and wereheld by 87 registered
ADS holders.
Major shareholders
As far as is known to Smith+Nephew,
theGroup is not directly or indirectly owned
or controlled by another corporation or
byany Government and the Group has
notentered into arrangements, the operation
of which may at a subsequent date result
ina change in control of the Group.
Between 6 April 2016 and 6 April 2018
dividends below £5,000 per tax year
weretax free and dividends above
£5,000per tax year were subject
to personal income tax at the rates
referredto above.
Dividends paid prior to 6 April 2016,
included the associated UK tax credit
of10%, but excluded the deduction
ofwithholding taxes.
Since the second interim dividend for
2005,all dividends have been declared
inUS cents per ordinary share.
In respect of the proposed final dividend
forthe year ended 31 December 2021
of23.1 US cents per ordinary share,
therecord date will be 1 April 2022 and
thepayment date will be 11 May 2022.
TheSterling equivalent per ordinary
sharewill be set following the record date.
Shareholders may elect to receive their
dividend in either Sterling or US Dollars
andthe last day for election will be
19April2022. The ordinary shares will
trade ex-dividend on both the London
andNew York Stock Exchanges from
31March 2022.
The proposed final dividend of 23.1 US
cents per ordinary share, which together
with theinterim dividend of 14.4 US cents,
makesa total for 2021 of 37.5 US cents.
Share capital
The principal trading market for theordinary
shares is the London Stock Exchange.
The ordinary shares were listedon the
NewYork Stock Exchange on16 November
1999, trading in the formof ADSs evidenced
by ADRs. Each ADS represents two
ordinary shares from 14 October 2014,
before which time one ADS represented
224
Smith+Nephew
Annual Report 2021
As at 11 February 2022, the Company isnot
aware of any person who has a significant
direct or indirect holding of securities in
the Company, as defined in theDisclosure
and Transparency Rules (DTRs) of the
Financial Conduct Authority (FCA), other
than as shown above, and is not aware
of any persons holding securities which
may control the Company. There areno
securities in issue which have special rights
as to the control of the Company.
The table above shows the last
notification(s) received by the Company,
inaccordance with the FCA’s DTRs relating
tonotifiable interests in the voting rights
inthe Company’s issued share capital.
Purchase of ordinary shares
on behalf of the Company
At the AGM, the Company will be seeking
arenewal of its current permission from
shareholders to purchase up to 10% of its
own shares. Prior to May 2020, in order to
avoid shareholder dilution, shares allotted
to employees through employee share
schemes were bought back on a quarterly
basis and subsequently cancelled by the
Company. The share buy-back programme
was suspended in 2020 in light of the
COVID pandemic, therefore from 1 January
2021 to 11 February 2022, no purchases
bythe Company took place under the
share buy-back programme.
On 16 December 2021, we announced
a commitment to return surplus capital
to shareholders through a regular annual
share buy-back; expected to be in the
range of $250–300m in 2022.
The authority to purchase ordinary shares
isonly exercised if the Directors believe
that to do so would result in an increase
inearnings per share and would be likely
topromote the success of the Company
forthe benefit of its shareholders as
awhole.
Exchange controls and other
limitationsaecting security holders
There are no UK governmental laws,
decrees or regulations that restrict the
export or import of capital or that aect
the payment of dividends, interest or
otherpayments to non-resident holders
ofSmith& Nephew plc’s securities, except
for certain restrictions imposed from
time-to-time by Her Majesty’s Treasury
of the United Kingdom pursuant to
legislation, such as the United Nations Act
1946 and the Emergency Laws Act 1964,
against theGovernment or residents of
certain countries.
There are no limitations, either under
thelaws of the UK or under the Articles
ofAssociation of Smith & Nephew plc,
restricting the right of non-UK residents
to hold or to exercise voting rights in
respect of ordinary shares, except that
where any overseas shareholder has not
provided tothe Company a UK address
for the service of notices, the Company is
under noobligation to send any notice or
other document to an overseas address.
It is, however, the current practice of the
Company to send every notice or other
document to all shareholders regardless
ofthe country recorded in the register of
members, with the exception of details
ofthe Company’s dividend reinvestment
plan, which are not sent to shareholders
with recorded addresses in the US
and Canada.
Taxation information
forshareholders
The comments below are of a general
andsummary nature and are based
ontheGroup’s understanding of certain
aspects of current UK and US federal
income tax law and practice relevant to
the ADSs andordinary shares not in ADS
form. Thecomments address the material
US and UK tax consequences generally
applicable to a person who is the beneficial
owner of ADSs or ordinary shares and who,
for US federal income tax purposes, is a
citizen or resident of the US, a corporation
(or other entity taxable as a corporation)
created or organised in or under the
laws ofthe US (or any State therein or
the District of Columbia), or an estate or
trust the income of which is included in
gross income for US federal income tax
purposes regardless of its source (each
a US Holder). The comments set out
below do not purport to address all tax
consequences ofthe ownership of ADSs
or ordinary shares that may be material
to a particular holder and in particular do
not deal with the position of US Holders
who directly, indirectly or constructively
own 10% or more of the Company’s
issuedordinary shares. This discussion
does not apply to (i) US Holders whose
holding of ADSs or ordinary shares is
eectively connected with orpertains to
either a permanent establishment in the
UK through which aUS Holder carries on
a business in the UKor a fixed base from
which a US Holder performs independent
personal services inthe UK, or (ii) US
Holders whose registered address is inside
the UK. This discussion does not apply
to certain US Holders subject to special
rules, such as certain financial institutions,
tax-exempt entities, insurance companies,
broker-dealers and traders insecurities
that elect to use the mark-to-market
method of tax accounting, partnerships
or other entities treated aspartnerships
for US federal income taxpurposes, US
Holders holding ADSs orordinary shares
as part of a hedging, conversion or other
integrated transaction or US Holders whose
functional currency for US federal income
tax purposes isotherthan the US Dollar.
In addition, thecomments below do not
address thepotential application of the
provisions of the US Internal Revenue Code
known as the Medicare contribution tax,
any alternative minimum tax consequences,
any US federal tax other than income tax
or any US state, local or non-US (other
thanUK) taxes. The summary deals only
with US Holders who hold ADSs or ordinary
shares as capital assets for tax purposes.
The summary isbased on current UK
and US law and practice which is subject
to change, possibly with retroactive
eect. USHolders are recommended to
consult their own taxadvisers as to the
particular tax consequences to them of
the ownership ofADSs or ordinary shares.
Major shareholders
As at 31 December
2021
%*
2020
%*
2019
%*
11 February 2022
%*
BlackRock, Inc.
5.2
5.2 5.2 5.2
As at 31 December
11 February 2022
’000
2021
’000
2020
’000
2019
’000
BlackRock, Inc.
46,427
46,427 46,427 46,427
* Percentage of ordinary shares in issue, excluding Treasury shares.
225
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Strategic report
Governance
Accounts
Other information
Shareholder information
continued
temporarily non-UK residents may remain
subject to UK taxation of capital gains
ongains realised while non-resident.
For US federal income tax purposes, gains or
losses realised upon a taxable sale or other
disposition of ADSs or ordinary shares by US
Holders generally will be US source capital
gains or losses and will be long-term capital
gains or losses if the ADSs or ordinary shares
were held for more than one year. The amount
of a US Holder’s gain or loss will be equal to
the dierence between the amount realised
on the sale or other disposition and such
holder’s tax basis in the ADSs, or ordinary
shares, each determined in US Dollars.
Inheritance and estate taxes
HM Revenue & Customs imposes inheritance
tax on capital transfers whichoccur on death
and in the seven years preceding death.
HM Revenue &Customs considers that
the US/UK DoubleTaxation Convention on
Estate andGi Tax applies to inheritance tax.
Consequently, aUS citizen who is domiciledin
the US and is not a UK national or domiciled in
theUK will not besubject to UK inheritance
tax in respectof ADSs and ordinary shares.
A UK national who is domiciled in the USwill
be subject to UK inheritance tax butwill
be entitled to a credit for any US federal
estate tax charged in respect ofADSs and
ordinary shares in computing theliability
to UK inheritance tax. Specialrules apply
where ADSs and ordinary shares are business
property ofapermanent establishment
ofan enterprise situated in the UK.
US information reporting
and backup withholding
Payments of dividends on, or proceeds
from the sale of, ADSs or ordinary shares
that are made within the US or through
certain US-related financial intermediaries
generally will be subject to US information
reporting, and may be subject to backup
withholding, unless a US Holder is an
exempt recipient or, in the case of backup
withholding, provides a correct US taxpayer
identification number and certain other
conditions are met.
Any backup withholding deducted may
becredited against the US Holder’s US
federal income tax liability, and, where
thebackup withholding exceeds the
actualliability, theUS Holder may obtain
a refund by timely filing the appropriate
refund claim with the US Internal
Revenue Service.
US Holders who are individuals or certain
specified entities may be required to report
information relating to securities issued
bya non-US person (or foreign accounts
through which the securities are held),
subject to certain exceptions (including
anexception for securities held in accounts
maintained by US financial institutions).
USHolders should consult their tax advisers
regarding their reporting obligations with
respect to the ADSs orordinary shares.
UK stamp duty and stamp duty
reservetax
UK stamp duty is charged on documents
andin particular instruments for the
transfer of registered ownership of
ordinaryshares. Transfers of ordinary
shares in certificated form will generally
besubject to UK stamp duty at the rate
of½% of the consideration given for the
transfer with the duty rounded up to
thenearest £5.
UK stamp duty reserve tax (SDRT) arises
when there is an agreement to transfer
shares in UK companies ‘for consideration
in money or money’s worth’, and so an
agreement to transfer ordinary shares
formoney or other consideration may
giverise to a charge to SDRT at the rate
of½% (rounded up to the nearest penny).
The charge of SDRT will be cancelled,
andany SDRT already paid will be refunded,
if within six years of the agreement an
instrument of transfer isproduced to HM
Revenue & Customs andthe appropriate
stamp duty paid.
Transfers of ordinary shares into CREST
(anelectronic transfer system) are exempt
from stamp duty so long as the transferee
is a member of CREST who will hold the
ordinary shares as a nominee for the
transferor and the transfer is in a form
thatwill ensure that the securities become
held in uncertificated form within CREST.
Paperless transfers of ordinary shares
within CREST for consideration in money
ormoney’s worth are liable to SDRT
ratherthan stamp duty. SDRT on relevant
transactions will be collected by CREST
at½%, and this will apply whether or
notthe transfer is eected in the UK
andwhether or not the parties to it are
resident or situated in the UK.
TheCompany believes, and this discussion
assumes, that the Company was not a
passive foreign investment company for
itstaxable year ended 31 December 2021.
This discussion is based in part on
representations by the depositary and
assumes that each obligation under
thedeposit agreement and any related
agreement will be performed in accordance
with its terms. For purposes of US federal
income tax law, US Holders of ADSs will
generally be treated as owners of the
ordinary shares represented by the ADSs.
Taxation of distributions
in the UK and the US
The UK does not currently impose a
withholding tax on dividends paid by a
UKcorporation, such as the Company.
For US federal income tax purposes,
distributions paid by the Company
willgenerally be foreign source dividends
tothe extent paid out of the Company’s
current or accumulated earnings and
profits as determined for USfederal income
tax purposes. Because the Company does
not maintain calculations of its earnings
and profits under US federal income tax
principles, it is expected that distributions
generally will be reported toUS Holders as
dividends. Such dividends will not be eligible
for the dividends-received deduction
generally allowed tocorporate US Holders.
Dividends paid to certain non-corporate
USHolders of ordinary shares or ADSs
maybe subject to US federal income tax
atlower rates than those applicable to
other types of ordinary income if certain
conditions are met. Non-corporate US
Holders should consult their own tax
advisers to determine whether they are
subject to any special rules that limit their
ability to be taxed at these favourable rates.
Taxation of capital gains
US Holders, who are not resident for tax
purposes in the UK, will not generally
beliable for UK capital gains tax on any
capital gain realised upon the sale or other
disposition of ADSs or ordinary shares
unless the ADSs or ordinary shares are
heldin connection with a trade carried
onin the UK through a permanent
establishment (or in the case of individuals,
through a branch or agency). Furthermore,
UK resident individuals who acquire
ADSsor ordinary shares before becoming
226
Smith+Nephew
Annual Report 2021
UK legislation provides for a charge
tostamp duty (in the case of transfers)
orSDRT to be payable at the rate of 1.5%
of the consideration (or, in some cases,
thevalue of the shares concerned) where
ordinary shares are issued or transferred
tothe depositary or to certain persons
providing a clearance service (or their
nominees or agents) for the conversion
intoADRs and will generally be payable
bythe depositary or person providing
clearance service. In accordance with
theterms of the Deposit Agreement, any
tax orduty payable by the depositary on
deposits of ordinary shares will be charged
by the depositary to the party to whom
ADRs are delivered against such deposits.
Following litigation on the subject, HMRC
has accepted that it will no longer seek
toapply the 1.5% SDRT charge when new
shares are issued to a clearance service
ordepositary receipt system on the basis
that the charge was not compatible with
EU law. HMRC has confirmed that itwill
notreintroduce the 1.5% charge on the
issue of shares (and transfers integral to
theraising of capital) into clearance service
or depositary receipt systems following
theUK’s exit from the EU and the expiry
ofthe associated implementation period,
unless the relevant UK legislation is
amended. InHMRC’s view, the 1.5% SDRT
or stamp duty charge continues to apply
totransfers of shares into a clearance service
ordepositary receipt system unless they
are an integral part of an issue of share
capital. Specific professional advice should
be sought before paying the 1.5% SDRT or
stamp duty charge in any circumstances.
No liability for stamp duty or SDRT will
arise on any transfer of, or agreement
totransfer, an ADS or beneficial ownership
ofan ADS, provided that the ADS and
anyinstrument of transfer or written
agreement to transfer remains at all times
outside the UK, and provided further that
any instrument of transfer or written
agreement to transfer is not executed in
the UK and the transfer does not relate
toany matter or thing done or to be done
inthe UK (the location of the custodian
asaholder of ordinary shares not being
relevant in this context). In any other case,
any transfer of, or agreement to transfer,
an ADS or beneficial ownership of an ADS
could, depending on all the circumstances
of the transfer, give rise to a charge to
stamp duty or SDRT.
Articles of Association
The following summarises certain material
rights of holders of the Company’s ordinary
shares under the material provisions
oftheCompany’s Articles of Association,
being those which were adopted at the
2021 Annual General Meeting and English
law. This summary is qualified in its entirety
by reference to the Companies Act and
theCompany’s Articles of Association.
Inthe following description, a ‘shareholder’
is the person registered in the Company’s
register of members as the holder of
anordinary share.
The Company is incorporated under
thename Smith & Nephew plc and is
registered in England and Wales with
registered number 324357.
The Company’s ordinary shares may be
held in certificated or uncertificated form.
No holder of the Company’s shares will be
required to make additional contributions
of capital in respect of the Company’s
shares in the future. In accordance with
English law, the Company’s ordinary
sharesrank equally.
Directors
Under the Company’s Articles of
Association, a Director may not vote in
respect of any contract, arrangement,
transaction or proposal in which he or
she, or any person connected with him or
her, has any interest which is to his or her
knowledge a material interest other than
by virtue of his interests in securities of,
orotherwise in or through, the Company.
This is subject to certain exceptions
relating to proposals (a) indemnifying
him inrespect of obligations incurred on
behalf of the Company, (b) indemnifying
a third party in respect of obligations of
the Company for which the Director has
assumed responsibility under an indemnity
orguarantee, (c) relating to an oer of
securities in which he will be interested
asan underwriter, (d) concerning another
body corporate in which the Director
isbeneficially interested in less than 1%
ofthe issued shares of any class of shares
of such a body corporate, (e) relating to
anemployee benefit in which the Director
will share equally with other employees
and (f) relating to any insurance that the
Company is empowered to purchase for
the benefit of Directors of the Company in
respect of actions undertaken as Directors
(and/or ocers) of the Company.
A Director shall not vote or be counted
inany quorum present at a meeting
in relation to a resolution on which he
isnotentitled to vote.
The Board is empowered to exercise all
thepowers of the Company to borrow
money, subject to the limitation that the
aggregate amount of all monies borrowed
aer deducting cash and current asset
investments by the Company and its
subsidiaries shall not exceed the sum
of$8,500,000,000.
Any Director who has been appointed
bythe Board since the previous Annual
General Meeting of shareholders, either
tofill a casual vacancy or as an additional
Director, holds oce only until the
conclusion of the next Annual General
Meeting (notice of which was given aer
his or her appointment) and then shall be
eligible for re-election by the shareholders.
The Company’s Articles of Association
provide that all Directors are subject to
annual re-election in accordance with
theUK Corporate Governance Code.
Ifnotre-appointed, a Director retiring
atameeting shall retain oce until the
meeting appoints someone in his place,
orif it does not do so, until the conclusion
of the meeting.
The Directors are subject to removal
withor without cause by the Board or the
shareholders. Directors are not required
tohold any shares of the Company by
wayof qualification.
Under the Company’s Articles of
Association and English law, a Director
maybe indemnified out of the assets
oftheCompany against liabilities he
maysustain or incur in the execution
ofhis duties.
Rights attaching to ordinary shares
Under English law, dividends are payable
onthe Company’s ordinary shares only
outof profits available for distribution,
asdetermined in accordance with
accounting principles generally accepted
inthe UK and by the Companies Act 2006.
Holders of the Company’s ordinary shares
are entitled to receive final dividends
asmay be declared by the Directors
andapproved by the shareholders in a
general meeting, rateable according to the
amounts paid up on such shares, provided
that the dividend cannot exceed the
amount recommended by the Directors.
227
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Shareholder information
continued
The Company’s Board of Directors may
declare such interim dividends as appear
tothem to be justified by the Company’s
financial position.
If authorised by an ordinary resolution
ofthe shareholders, the Board may also
make a direct payment of a dividend in
whole or in part by the distribution of
specific assets (and in particular of paid
upshares or debentures of the Company).
Any dividend unclaimed aer 12 years
from the date the dividend was declared,
or became due for payment, will be
forfeited and will revert to the Company.
Provided that during this 12-year period,
atleast three dividends whether interim
orfinal on or in respect of the share
inquestion have become payable, and
provided further the Company has
takensteps which the Board considers
reasonable during this 12-year period
totrace the shareholder (including,
ifappropriate, engaging a professional
tracing agent) and has sent notice of
theBoard’s intention to sell the shares,
theBoard can sell the shares and use
suchproceeds for any purpose that
theBoard thinks fit.
There were no material modifications
tothe rights of shareholders under
the Company’s Articles of Association
during 2021.
Voting rights of ordinary shares
The Company’s Articles of Association
provide that voting at any General Meeting
ofshareholders is by a show of hands
unless a poll, which is a written vote, is
dulydemanded and held. On a show of
hands, every shareholder who is present
inperson at a General Meeting has one vote
regardless of the number of shares held.
Ona poll, every shareholder who is present
in person or by proxy has one vote for each
ordinary share held by that shareholder.
Apoll may be demanded by any of
the following:
–
The Chair of the meeting;
–
At least five shareholders present or by
proxy entitled to vote on the resolution;
–
Any shareholder or shareholders
representing in the aggregate not less
than one-tenth of the total voting rights
of all shareholders entitled to vote on
theresolution; or
–
Any shareholder or shareholders holding
shares conferring a right to vote on
theresolution on which there have
beenpaid-up sums in aggregate equal
tonotless than one-tenth of the
totalsumpaid up on all the shares
conferringthat right.
A Form of Proxy will be treated as giving
the proxy the authority to demand a
poll, orto join others in demanding one,
as above.
It is the Company’s usual practice to
voteby poll at Annual General Meetings.
The necessary quorum for a General
Meeting is two shareholders present in
person or by proxy carrying the right to
vote upon the business to be transacted.
Matters are transacted at General Meetings
of the Company by the processing and
passing of resolutions of which there are
two kinds; ordinary and special resolutions:
–
Ordinary resolutions include resolutions
forthe re-election of Directors, the
approval of financial statements, the
declaration of dividends (other than
interim dividends), the appointment
andre-appointment of auditors or
thegrant of authority to allot shares.
Anordinary resolution requires the
armative voteofa majority of
thevotesof those persons voting at
themeetings at whichthere is a quorum.
–
Special resolutions include resolutions
amending the Company’s Articles
ofAssociation, dis-applying statutory
pre-emption rights or changing the
Company’s name; modifying the rights
ofany class of the Company’s shares
atameeting of the holders of such class
orrelating to certain matters concerning
the Company’s winding-up. A special
resolution requires the armative
vote ofnot less than three-quarters of
the votes of the persons voting at the
meeting at which there is a quorum.
Annual General Meetings must be convened
upon advance written notice of21 days.
Other General Meetings mustbe convened
upon advance written noticeof at least
14-clear days. The days ofdelivery or
receipt of notice are not included. The notice
must specify the nature of the business
to be transacted. Meetings are convened
by the Board. Members with 5% of the
ordinary share capital of the Company
may requisition theBoard to convene
ameeting. Any twoMembers may call a
General Meeting inorder to appoint one or
more additional Directors in the event that
there are insucient Directors to be able
to call aGeneral Meeting, or where they
areunwilling to do so.
Variation of rights
If, at any time, the Company’s share
capitalis divided into dierent classes
ofshares, the rights attached to any class
may be varied, subject to the provisions
ofthe Companies Act, with the consent
inwriting of holders of three-quarters
innominal value of the issued shares
ofthatclass or upon the adoption of a
special resolution passed at a separate
meeting ofthe holders of the shares
ofthatclass. Atevery such separate
meeting, all the provisions ofthe Articles
ofAssociation relating toproceedings at
aGeneral Meeting apply, except that the
quorum is to be the number of persons
(which must be two ormore) who hold
orrepresent by proxy not less than one-
third in nominal value ofthe issued shares
of the class andat any such meeting apoll
may be demanded in writing by any person
or theirproxy who hold shares of that
class. Where a person ispresent by proxy
or proxies, he is treated as holding only
the shares in respect of which the proxies
areauthorised to exercise voting rights.
Rights in a winding-up
Except as the Company’s shareholders
have agreed or may otherwise agree,
uponthe Company’s winding-up, the
balance of assets available for distribution:
–
Aer the payment of all creditors
including certain preferential creditors,
whether statutorily preferred creditors
or normal creditors;
–
Subject to any special rights attaching
toany other class of shares; and
–
Is to be distributed among the holders
ofordinary shares according to the
amounts paid-up on the shares held
bythem. This distribution is generally
tobe made in US Dollars. A liquidator
may, however, upon the adoption
ofanyextraordinary resolution of the
shareholders and any other sanction
required by law, divide among the
shareholders the whole or any part
oftheCompany’s assets in kind.
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Annual Report 2021
Limitations on voting and shareholding
There are no limitations imposed by
Englishlaw or the Company’s Articles of
Association on the right of non-residents
or foreign persons to hold or vote the
Company’s ordinary shares or ADSs, other
than the limitations that would generally
apply to all of the Company’s shareholders.
Transfers of shares
The Board may refuse to register the
transfer of shares held in certificated
form which:
–
Are not fully paid (provided that it
shallnot exercise this discretion in
suchaway as to prevent stock market
dealings in the shares of that class
fromtaking place on an open and
proper basis);
–
Are not duly stamped or duly certified
orotherwise shown to the satisfaction
ofthe Board to be exempt from stamp
duty, lodged at the Transfer Oce
oratsuch other place as the Board
mayappoint and (save in the case
ofatransfer by a person to whom no
certificate was issued in respect of
theshares in question) accompanied
bythe certificate for the shares to
whichit relates, and such other evidence
as theBoard may reasonably require
toshow the right of the transferor to
makethe transfer and, if the instrument
of transfer is executed by some other
person on his behalf, the authority
ofthatperson so to do;
–
Are in respect of more than one class
ofshares; or
–
Are in favour of more than
four transferees.
Deferred shares
Following the re-denomination of share
capital on 23 January 2006, the ordinary
shares’ nominal value became 20 US cents
each. There were no changes to the rights or
obligations of the ordinary shares. Inorder
to comply with the Companies Act2006,
anew class of Sterling shares was created,
deferred shares, of which 50,000 shares
of £1 each were issued andallotted in
2006 as fully paid to theChief Executive
Ocer. These shares weresubsequently
transferred and arenow held by the
Company Secretary, although the Board
reserves the right to transfer them to a
member of the Board should it so wish.
These deferred shares have no voting or
dividend rights and onwinding-up are only
entitled to repayment at nominal value
only if all ordinary shareholders have
received the nominal value of their shares
plus an additional US$1,000 each.
Amendments
The Company does not have any special
rules about amendments to its Articles of
Association beyond those imposed by law.
Iran notice
Section 13(r) of the Exchange Act requires
issuers to make specific disclosure in
their annual reports of certain types of
dealings with Iran, including transactions or
dealings with Iranian government-owned
entities, aswell as dealings with entities
sanctioned for activities related to terrorism
or proliferation of weapons of mass
destruction, even when those activities
arenot prohibited by US law and do not
involve US persons.
The Group does not have a legal entity
based in Iran, but in 2021 it exported
certain medical devices to Iran, via
sales bynon-US entities, to a privately-
owned Iranian distributor for sale in Iran.
Sales bythe distributor were made to
hospitals that we understand are owned
orcontrolled by the Government of Iran.
The Group’s direct and indirect sales of
USorigin medical devices into Iran are
permitted pursuant to section 560.530(a)
(3)(i) of the Iranian Transactions and
Sanctions Regulations, and its indirect
salesof non-US origin medical devices
intoIran are made in accordance with
applicable law. The Group also provides
training to its distributor(s) and surgeons
inIran as necessary and ordinarily incident
to the safe and eective use of the medical
devices, which is also permitted by
applicable law.
In 2021, Smith+Nephew’s gross revenues
from sales to Iran were US$nil and net
losses were approximately US$0.0m.
The Group is reporting the entire gross
revenues and net losses for the activities
described above, which figures include
sales of US origin medical devices.
Althoughthe Group is not required to
disclose the sales of US origin medical
devices because such sales to Iran are
licensed under US law, the Group is
including sales of these devices in its total
gross revenue and net profit figures as it
does not separately break out revenues
and profits by country of origin.
About Smith+Nephew
The Smith+Nephew Group (the Group)
isaportfolio medical technology business
with leadership positions in Orthopaedics,
Advanced Wound Management and Sports
Medicine, and revenue of approximately
$5.2bn in 2021. Smith & Nephew plc
(theCompany) is the Parent Company
ofthe Group. It is an English public limited
company with its shares listed on the
premium list of the UK Listing Authority
and traded on the London Stock Exchange.
Shares are also traded on the New York
Stock Exchange in the form of American
Depositary Shares (ADSs).
This is the Annual Report of Smith
&Nephew plc for the year ended
31 December 2021. It comprises, in a
singledocument, the Annual Report and
Accounts of the Company in accordance
with UK requirements and the Annual
Report on Form 20-F in accordance
withthe regulations of the United States
Securities and Exchange Commission (SEC).
Smith+Nephew operates on a worldwide
basis and has distribution channels in
over100 countries. The Group is engaged
inasingle business activity, being the
development, manufacture and sale of
medical technology products and services.
In 2021, Smith+Nephew’s operations were
organised into three global franchises
(Orthopaedics, Sports Medicine & ENT,
andAdvanced Wound Management)
withinthe medical technology industry.
Smith+Nephew’s corporate website,
www.smith-nephew.com, gives additional
information on the Group, including an
electronic version of this Annual Report.
Information made available on this website,
or other websites mentioned in this
AnnualReport, are not and should not be
regarded as being part of, or incorporated
into, thisAnnual Report.
The terms ‘Group’ and ‘Smith+Nephew’
areused to refer to Smith & Nephew plc
and its consolidated subsidiaries, unless
thecontext requires otherwise.
For the convenience of the reader,
aGlossary of terms used in this document
isincluded on page 234.
The product names referred to in
thisdocument are identified by use of
capitalletters and the ◊ symbol (on first
occurrence on a particular page) and
aretrademarks owned byor licensed
tomembers of the Group.
229
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Annual Report 2021
Strategic report
Governance
Accounts
Other information
Shareholder information
continued
Presentation
The Group’s fiscal year end is 31 December.
References to a particular year in this
Annual Report are to the fiscal year,
unlessotherwise indicated. Except as the
context otherwise requires, ‘ordinary share’
or ‘share’ refer to the ordinary shares of
Smith & Nephew plc of 20 US cents each.
The Group Accounts of Smith & Nephew plc
in this Annual Report are presented inUS
Dollars. Solely for the convenience ofthe
reader, certain parts of this Annual Report
contain translations of amounts inUS
Dollars into Sterling at specified rates.
These translations should not be construed
as representations that the US Dollar
amounts actually represent such Sterling
amounts or could be converted into
Sterling at the rate indicated.
Unless stated otherwise, the translation
ofUS Dollars and cents to Sterling and
pence in this Annual Report has been made
at the Bank of England exchange rate on
the date indicated. On 11 February 2022,
the latest practicable date for this Annual
Report, theBank of England rate was
US$1.36 per £1.00.
The results of the Group, as reported in
USDollars, are aected by movements
inexchange rates between US Dollars
andother currencies.
The Group applied the average exchange
rates prevailing during the year to
translate the results of companies with
functional currency other than US Dollars.
The currencies which most influenced
these translations inthe years covered
bythis report were Sterling, Swiss Franc
and the Euro.
The Accounts of the Group in this Annual
Report are presented in millions (m) unless
otherwise indicated.
Special note regarding
forward-looking statements
The Group’s reports filed with, or furnished to,
the US Securities and Exchange Commission
(SEC), including this document and written
information released, or oral statements
made, to the public in the future by or on
behalf of the Group, contain ‘forward-
looking statements’ within the meaning of
the US Private Securities Litigation Reform
Act of 1995, that may or may not prove
accurate. For example, statements regarding
expected revenue growth and trading
profit margins discussed under ‘Outlook’
and ‘Strategic Priorities’, 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.
Forward-looking statements involve known
and unknown risks, uncertainties and other
important factors that could cause actual
results, to dier materially from what is
expressed or implied by the statements.
For Smith+Nephew, these factors include:
risks related to the impact of COVID, 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 COVID; economic and
financial conditions in the markets we
serve, especially those aecting healthcare
providers, payers and customers (including,
without limitation, as a result of COVID);
price levels for established and innovative
medical devices; developments in
medical technology; regulatory approvals,
reimbursement decisions or other
government actions; product defects or
recalls or other problems with quality
management systems or failure to comply
with related regulations; litigation relating
to patent or other claims; legal compliance
risks and related investigative, remedial
or enforcement actions; disruption to our
supply chain or operations or those of
oursuppliers (including, without limitation,
asa result of COVID); competition for
qualified personnel; strategic actions,
including acquisitions and dispositions,
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; and
numerous other matters that aect
us or our markets, including those of a
political, economic, business, competitive
or reputational nature; relationships with
healthcare professionals; reliance on
information technology and cybersecurity.
Specific risks faced by the Group
are described under ‘Risk factors’ on
pages 212–217 of this Annual Report.
Any forward-looking statement is based
on information available to Smith+Nephew
as of the date of the statement. All written
or oral forward-looking statements
attributable to Smith+Nephew are qualified
by this caution. Smith+Nephew does not
undertake any obligation to update or
revise any forward-looking statement
toreflect any change in circumstances
orinSmith+Nephew’s expectations.
Product data
Product data and product share estimates
throughout this report are derived from
avariety of sources including publicly
available competitors’ information,
internalmanagement information and
independent market research reports.
Documents on display
It is possible to read and copy documents
referred to in this Annual Report at
theRegistered Oce of the Company.
Documents referred to in this Annual
Report that have been filed with the
Securities and Exchange Commission in
theUS may be read and copied at the
SEC’spublic reference room located at
450Fih Street, NW, Washington DC 20549.
Please call the SEC at1-800-SEC-0330
forfurther information on the public
reference rooms and their copy charges.
The SEC also maintains a website at
www.sec.gov that contains reports and
other information regarding registrants
that file electronically with the SEC.
ThisAnnual Report on Form 20-F and
someof the otherinformation submitted
by the Group to the SEC may beaccessed
through the SEC website.
Corporate headquarters
and registered oce
The corporate headquarters is inthe
Smith & Nephew plc,
Building 5, Croxley Park,
Hatters Lane, Watford,
Hertfordshire, WD18 8YE,
United Kingdom.
Registered in England and Wales
No. 324357.
Tel. +44 (0)1923 477 100
www.smith-nephew.com
230
Smith+Nephew
Annual Report 2021
Cross-reference to Form 20-F
Part I
Page
Item 1
Identity of Directors, Senior Management
and Advisers
n/a
Item 2
Oer Statistics and Expected Timetable
n/a
Item 3
Key Information
A – (Reserved)
n/a
B – Capitalization and Indebtedness
n/a
C – Reason for the Oer and Use of Proceeds
n/a
D – Risk Factors
212–217
Item 4
Information on the Company
A – History and Development of the Company 205, 211, 229–230
B – Business Overview
2–67, 153–155
C – Organizational Structure
171–172, 207–210
D – Property, Plant and Equipment
165–166, 211
Item 4A
Unresolved Sta Comments
None
Item 5
Operating and Financial Review and Prospects
A – Operating results 1, 11, 14–19, 212–217
B – Liquidity and Capital Resources
19, 176–178, 197–198
C – Research and Development, Patents
and Licences, etc.
1, 28–35, 158
D – Trend Information
10 –11, 16–19, 211–217
E – Critical Accounting Estimates
151–152
Item 6
Directors, Senior Management and Employees
A – Directors and Senior Management
75–83
B – Compensation
114 –135
C – Board Practices
72–119
D – Employees
20–27, 159
E – Share Ownership
127–130, 202
Item 7
Major Shareholders and Related Party Transactions
A – Major shareholders
224–225
B – Related Party Transactions
202, 211
C – Interests of Experts and Counsel
n/a
Item 8
Financial information
A – Consolidated Statements and
OtherFinancial Information
146–202
Legal Proceedings
186–188
Dividends
223–224
B – Significant Changes
None
Item 9
The Oer and Listing
A – Oer and Listing Details
222–225
B – Plan of Distribution
n/a
C – Markets
222–224
D – Selling shareholders
n/a
E – Dilution
n/a
F – Expenses of the Issue
n/a
This table provides a cross-reference from the information
included in this Annual Report to the requirements of Form 20-F.
Part I
Page
Item 10
Additional Information
A – Share Capital
n/a
B – Memorandum and Articles of Association
227–229
C – Material Contracts
None
D – Exchange Controls
225
E – Taxation
225–227
F – Dividends and Paying Agents
n/a
G – Statement by Experts
n/a
H – Documents on Display
230
I – Subsidiary Information
207–210
Item 11
Quantitative and Qualitative Disclosure
aboutMarket Risk
179–185, 212–217
Item 12
Description of Securities other than Equity Securities
A – Debt Securities
n/a
B – Warrants and Rights
n/a
C – Other Securities
n/a
D – American Depositary Shares
223
Part II
Page
Item 13
Defaults, Dividend Arrearages and Delinquencies
None
Item 14
Material Modifications to the Rights of Security
Holders and Use of Proceeds
None
Item 15
Controls and Procedures
104–105
Item 16
(Reserved)
n/a
A – Audit Committee Financial Expert
96
B – Code of Ethics
105
C – Principal Accountant Fees and Services
102, 159
D – Exemptions from the Listing Standards
forAudit Committees
n/a
E – Purchases of Equity Securities by the
Issuerand Aliated Purchasers
196, 225
F – Change in Registrant’s Certifying Accountant
n/a
G – Corporate Governance
74
H – Mine Safety Disclosure
n/a
I – Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections
n/a
Part III
Page
Item 17
Financial Statements
n/a
Item 18
Financial Statements
137, 146–202,
218–222
Item 19
Exhibits
231
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Topic
Metric
2021 Reporting
Code
Aordability
and pricing
Ratio of weighted average rate of
net price increases (for all products)
to the annual increase in the US
Consumer Price Index.
S+N considers pricing disclosures to
be commercially sensitive. S+N does
not measure price increase relative
tothe US Consumer Price Index for
ourbusiness purposes.
HC-MS-240a.1
Description of how price information
for each product is disclosed to
customers or to their agents.
S+N uses several methods to disseminate
price information to customers,
includingquotes, agreements, responses
to requests for proposal, tender bid
submissions, discount and rebate
reporting and through large group
purchasing organisation/integrated
delivery network customers to
their members.
HC-MS-240a.2
Product safety
Number of recalls issued,
totalunits recalled.
In 2021, S+N reported 13 recalls globally.
A total of 23,832 units were impacted
globally. All impacted products were
either removed from the market or
corrected per the applicable regulations
and/or standards.
HC-MS-250a.1
List of products listed in the
FDA’s MedWatch Safety
Alerts for Human Medical
Products database.
S+N reports all data as required by FDA.
The MedWatch database is available at
https://www.fda.gov/safety/medwatch-
fda-safety-information-and-adverse-
event-reporting-program
HC-MS-250a.2
Number of fatalities related to
products as reported in the FDA
Manufacturer and User Facility
Device Experience (MAUDE).
S+N reports all data as required by FDA.
The FDA MAUDE database is available at
https://www.accessdata.fda.gov/scripts/
cdrh/cfdocs/cfmaude/search.cfm
HC-MS-250a.3
Number of FDA enforcement
actions taken in response
toviolations of current Good
Manufacturing Practices (cGMP),
by type.
In 2021, S+N received:
–
2 Form 483s.
–
0 Warning letters.
–
0 Seizures.
–
9 Recalls (FDA reportable events).
–
0 Consent decrees.
HC-MS-250a.4
Ethical
marketing
Description of code of ethics
governing promotion of o-label
useof products.
See the Product Promotion and
Scientific Disclosures section of our
Code of Conduct and Business Principles
(www.smith-nephew.com) and the Acting
with Integrity section of our Sustainability
Report for additional information.
HC-MS-270a.2
SASB reporting
232
Smith+Nephew
Annual Report 2021
Topic
Metric
2021 Reporting
Code
Product design
and lifecycle
management
Discussion of process to assess and
manage environmental and human
health considerations associated
with chemicals in products, and meet
demand for sustainable products.
Sustainability reviews are incorporated
in New Product Development phase
reviews for new products and acquisitions.
Additionally, regulatory changes regarding
chemicals in products are tracked and
actioned, as appropriate.
See our Sustainability Report for
more information.
HC-MS-410a.1
Total amount of products accepted
for takeback and reused, recycled, or
donated, broken down by: (1) devices
and equipment and (2) supplies.
S+N operates takeback schemes where
required by law. S+N does not measure
theamount of products reused or
recycled for our business purposes.
See the People section of our
Sustainability Report for information
onproduct donations.
HC-MS-410a.2
Supply chain
management
Percentage of (1) entity’s facilities
and (2) Tier 1 suppliers’ facilities
participating in third-party audit
programmes for manufacturing and
product quality.
All S+N direct and third-party
manufacturing locations are certified to
ISO13485. Additionally, all Tier 1 material
suppliers are compliant with ISO13485.
HC-MS-430a.1
Description of eorts to
maintain traceability within the
distribution chain.
All S+N products are labelled with
either Unique Device Identifiers or HIBC
barcodes to maintain traceability.
HC-MS-430a.2
Description of the management
of risks associated with the use of
critical materials.
Supply chain risks are captured within
S+N’s Enterprise Risk Management
process. Both Business continuity and
business change and Global supply
chainare identified as Principal Risks.
See our Risk Report on page 58 and our
Conflict Minerals Disclosure Report on
our website (www.smith-nephew.com)
for additional information.
HC-MS-430a.3
Business ethics
Total amount of monetary losses as a
result of legal proceedings associated
with bribery or corruption.
In 2021, S+N did not have monetary losses
due to legal proceedings associated with
bribery or corruption.
HC-MS-510a.1
Description of code of ethics
governing interactions with health
care professionals.
See our website
(www.smith-nephew.com) for our Code
of Conduct and Business Principles, our
Anti-Bribery Policy, our Annual Report,
and also the Acting with Integrity
section of our Sustainability Report
foradditional information.
HC-MS-510a.2
Activity metric
Number of units sold
by product category.
S+N considers the number of units
sold by product category to be
commercially sensitive.
HC-MS-000.A
»
You can learn more about our sustainability targets and strategy in our
2021 Sustainability Report at www.smith-nephew.com/sustainability
233
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
Glossary
Term
Meaning
ADR
In the US, the Company’s ordinary shares are traded in the
formofAmerican Depositary Shares evidenced byAmerican
Depositary Receipts (ADRs).
ADS
In the US, the Company’s ordinary shares are traded in the
formofAmerican Depositary Shares (ADSs).
Arthroscopic
Enabling
Technologies
A product group which includes a variety of technologies
suchasfluid management equipment for surgical access,
highdefinition cameras, digital image capture, scopes,
light sources and monitors to assist with visualisation
inside the joints,radio frequency, electromechanical and
mechanical tissueresection devices, andhand instruments
forremovingdamaged tissue.
Advanced
Wound
Bioactives
A product group which includes biologics and other bioactive
technologies that provide unique approaches todebridement
and dermal repair/regeneration, and regenerative
medicine products including skin, bone gra and articular
cartilage substitutes.
Advanced
Wound Care
A product group which includes products for the treatment
andprevention of acute and chronic wounds, including leg,
diabetic andpressure ulcers, burns and post-operative wounds.
Advanced
Wound
Devices
A product group which includes traditional and single-use
Negative Pressure Wound Therapy, a patient monitoring
systemfor pressure injury prevention and patient mobility
monitoring, andhydrosurgery systems.
AGM
Annual General Meeting of the Company.
Arthroscopy
Endoscopy of the joints is termed ‘arthroscopy’, with the
principalapplications including the knee and shoulder.
ASC
Ambulatory Surgery Center.
Basis Point
One hundredth of one percentage point.
Chronic
wounds
Chronic wounds are those with long or unknown healing times
including leg ulcers, pressure sores and diabetic foot ulcers.
Company
Smith & Nephew plc or, where appropriate, the Company’s
Boardof Directors, unless the context otherwise requires.
Companies
Act
Companies Act 2006, as amended, of England and Wales.
Emerging
Markets
Emerging Markets include Latin America, Asia (excluding Japan),
Middle East, Africa and Russia.
EPSA
Adjusted earnings per ordinary share as defined on page 220.
Endoscopy
Through a small incision, surgeons are able to see inside
thebodyusing a monitor and identify and repair defects.
ENT
Ear, Nose and Throat.
Established
Markets
Established Markets are United States of America, Europe,
Australia, New Zealand, Canada and Japan.
Euro or €
References to the common currency used in the majority
ofthecountries of the European Union.
FDA
US Food and Drug Administration.
Financial
statements
Refers to the consolidated Group Accounts
of Smith & Nephew plc.
FTSE 100
Index of the largest 100 listed companies on the London
StockExchange by market capitalisation.
Group or
Smith+Nephew
Used for convenience to refer to the Company and its
consolidated subsidiaries, unless the context otherwise requires.
Health
economics
A branch of economics concerned with issues related to
eciency, eectiveness, value and behaviour in the production
and consumption of health and healthcare.
Hip
Implants
A product group which includes specialist products for
reconstruction of the hip joint.
IFRIC
International Financial Reporting Interpretations as adopted
by the EU and as issued by the International Accounting
Standards Board.
Term
Meaning
IFRS
International Financial Reporting Standards issued by the
International Accounting Standards Board.
Knee
implants
A product group which includes an innovative range of
productsfor specialised knee replacement procedures.
LSE
London Stock Exchange.
MDR
Medical Device Regulation.
MHRA
The Medicines and Healthcare products Regulatory Agency
inthe UK.
Negative
Pressure
Wound
Therapy
A technology used to treat chronic wounds such as diabetic
ulcers, pressure sores and post-operative wounds through the
application of sub-atmospheric pressure to an open wound.
NHS
The UK National Health Service.
NYSE
New York Stock Exchange.
Orthopaedic
products
Orthopaedic reconstruction products include joint replacement
systems for knees, hips and shoulders and support products
suchas computer-assisted surgery and minimally invasive
surgery techniques. Orthopaedic trauma devices are used in
thetreatment of bone fractures including rods, pins, screws,
platesandexternal frames.
Other
Reconstruction
A product group which includes robotics-assisted surgery,
bonecement and accessory products.
OXINIUM
OXINIUM material is an advanced load bearing technology.
Itiscreated through a proprietary manufacturing process
thatenables zirconium to absorb oxygen and transform to a
ceramic on the surface, resulting in a materialthat incorporates
the features of ceramic and metal. Management believes
thatOXINIUM material usedin the production of components
ofknee and hip implants exhibits unique performance
characteristics dueto its hardness, low-friction and
resistancetoroughening and abrasion.
Parent
Company
Pound Sterling,
Sterling, £,
pence or p
References to UK currency. 1p is equivalent to one hundredth
of£1.
SEC
US Securities and Exchange Commission.
Sports
Medicine
Joint Repair
The Sports Medicine Joint Repair franchise includes instruments,
technologies and implants necessary toperformminimally
invasive surgery of joints.
Trading
results
Trading profit, trading profit margin (trading profit expressed
asapercentage of revenue), trading cash flow and trading
profitto trading cash conversion ratio (trading cash flow
expressed as a percentage of trading profit) are trend measures,
which present the profitability of the Group. The adjustments
made exclude theimpact of specific transactions that
management considers aect the Group’s short-term
profitability and cash flows, and comparability of results.
Refer to page 219 for further information.
Trauma &
Extremities
A product group which includes internal and external devices
used in the stabilisation of severe fractures anddeformity
correction procedures.
UK
United Kingdom of Great Britain and Northern Ireland.
Underlying
growth
Growth aer adjusting for the eects of currency translation
andthe inclusion of the comparative impact ofacquisitions
andexclusion of disposals.
US
United States of America.
US Dollars,
$, or cents or ¢
References to US currency. 1 cent is equivalent to one hundredth
of US$1.
Unless the context indicates otherwise, the following terms have
the meanings shown below:
234
Smith+Nephew
Annual Report 2021
Index
Accounting policies
150–202
Accounts presentation
230
Acquisitions
9, 29, 39, 199–201
Acquisition and disposal related items
156, 220–221
American Depositary Shares
223
Articles of Association
227–229
Audit fees
102, 159
Board
75–79
Business overview
2–3, 207–210
Business segment information
10–11, 42–47, 153–157
Cash and borrowings
176–178
Chair’s statement
4–5
Chief Executive Ocer’s review
6–9
Company balance sheet
203
Company notes to the accounts
205–210
Contingencies
186–188, 206
Critical judgements and estimates
151–152
Cross-reference to Form 20-F
231
Currency fluctuations
216
Currency translation
152–153
Deferred taxation
162–163
Directors’ Remuneration Report
114–135
Directors’ responsibility statement
137
Dividends
18, 197, 223–224
Earnings per share
1, 18, 163–164
Employee share plans
202
Executive team
80–83
Factors aecting results of operations
217
Financial instruments
179–185
Financial review
16–19
Free cash flow
221
Glossary of terms
234
Goodwill
167–168
Group balance sheet
147
Group cash flow statement
148
Group companies
207–210
Group history
211
Group income statement
146
Group notes to the accounts
152–202
Group overview
2–3, 211
Group statement of changes in equity
149
Group statement of comprehensive income
146
Independent auditor’s report
138–145
Intangible assets
169–171
Intellectual property disputes
188
Interest and other finance costs
159
Inventories
173
Investments
171
Investment in associates
171–172
Key Performance Indicators
14 –15
Legal and other
157, 220–221
Legal proceedings
187–188
Leverage ratio
221
Liquidity and capital resources
19, 177
Manufacturing and quality
34–35
Medical education
41
Net debt
176
New accounting standards
150
Operating profit
157–158
Other finance costs
159
Our approach to stakeholders
70, 110–113
Our global markets
10 –11
Outlook and trend information
10–11, 14–15, 16–19, 212–217
People/Employees
20–27
Post balance sheet events
202
Provisions
186–188
Property, plant and equipment
165–166
Regulation
10, 66
Related party transactions
202, 211
Research & development
28–35
Restructuring and rationalisation expenses
156, 220–221
Retirement benefit obligations
188–194
Return on invested capital (ROIC)
18, 222
Risk factors
212–217
Risk report
58–69
SASB reporting
232–233
Share-based payments
202
Share capital
195–196
Shareholder information
222–230
Sta costs and employee numbers
159
Stakeholder statement
110–113
Statement of compliance
74
Strategy for Growth
7
Sustainability
48–57
Taxation
160–163
Taxation information for shareholders
225–227
TCFD reporting
54–56
Total shareholder return
133
Trade and other payables
175
Trade and other receivables
174–175
Treasury shares
196
235
Smith+Nephew
Annual Report 2021
Strategic report
Governance
Accounts
Other information
References from Franchise areas
References from Commercial Delivery (page 40)
1 Smith+Nephew 2017. Coblation Dissection Versus
Monopolar Dissection – A Systematic Review and
Meta-analysis P/N 91999 Rev. A.
2 Kim JS et al. Can intracapsular tonsillectomy be an
alternative to classical tonsillectomy? A meta-analysis.
Otolaryngology – Head and Neck Surgery.
2017;157(2):178-89.
3 Francis DO et al. Postoperative bleeding and associated
utilization following tonsillectomy in children: A systematic
review and meta-analysis. Otolaryngology – Head and
Neck Surgery. 2017;156(3):442-55.
4 EA/ENT/COBLATION/002/v4.
5 Hoey AW, Foden NM, Hadjisymeou Andreou S, et al.
Coblation® intracapsular tonsillectomy (tonsillotomy) in
children: A prospective study of 500 consecutive cases
with long-term follow-up. Clinical Otolaryngology,
December 2017, Volume 42, Issue 6, Pages 1211–1217.
References from Orthopaedics (pages 42–43)
1 Murakami K, Hamai S, Okazaki K, et al. Knee kinematics
inbi-cruciate stabilized total knee arthroplasty during
squatting and stair-climbing activities. J Orthop.
2018;15:650–654.
2 Grieco TF, Sharma A, Dessinger GM, Cates HE, Komistek RD.
In Vivo Kinematic Comparison of a Bicruciate Stabilized
Total Knee Arthroplasty and the Normal Knee Using
Fluoroscopy. J Arthroplasty. 2018;33(2):565–571.
3 Iriuchishima T, Ryu K. A comparison of Rollback Ratio
between Bicruciate Substituting Total Knee Arthroplasty
and Oxford Unicompartmental Knee Arthroplasty.
J Knee Surg. 2018;31(6):568–572.
4 Carpenter RD, Brilhault J, Majumdar S, Ries MD. Magnetic
resonance imaging of in vivo patellofemoral kinematics
aer total knee arthroplasty. Knee. 2009;16(5):332–336.
5 National Joint Registry for England, Wales, Northern Ireland
and the Isle of Man. 18th Annual Report. 2021.
6 Smith+Nephew 2020. CORI and NAVIO Technical
Specification Comparison. Internal Report. ER0488 REV B.
7 Date A, Panthula M, Bolina A. Comparison of clinical and
radiological outcomes in intertrochanteric fractures treated
with InterTAN nail against conventional cephalomedullary
nails: a systematic review. Future Sci OA. 2020;7(1):FSO668.
8 Onggo JR, Nambiar M, Onggo JD, Ambikaipalan A, Singh PJ,
Babazadeh S. Integrated dual lag screws versus single lag
screw cephalomedullary nail constructs: a meta-analysis
and systematic review. Hip Int. 2021.
a We thank the patients and sta of all the hospitals in
England, Wales and Northern Ireland who have contributed
data to the National Joint Registry. We are grateful to
theHealthcare Quality Improvement Partnership (HQIP),
the NJR Steering Committee and sta at the NJR Centre
for facilitating this work. The views expressed represent
those of the authors and do not necessarily reflect those
ofthe National Joint Registry Steering Committee or
theHealth Quality Improvement Partnership (HQIP)
whodonotvouchfor how the information is presented.
† Compared to NAVIO Handheld Robotics.
References from Sports Medicine & ENT (pages 44–45)
1 Schlegel TF, Abrams JS, Bushnell BD, Brock JL, Ho CP.
Radiologic and clinical evaluation of a bioabsorbable
collagen implant to treat partial-thickness tears:
aprospective multicenter study. J Shoulder Elbow Surg.
2017. doi: http://dx.doi.org/10.1016/j.jse.2017.08.023.
2 Bokor DJ, Sonnabend D, Deady L et al. Evidence of
healingof partial-thickness rotator cu tears following
arthroscopic augmentation with a collagen implant:
a2-year MRI follow-up. MLTJ. 2016;6(1):16–25.
3 Van Kampen C, Arnoczky S, Parks P, et al. Tissue-engineered
augmentation of a rotator cu tendon using a reconstituted
collagen scaold: a histological evaluation in sheep.
Muscles Ligaments Tendons J. 2013;3(3):229–235.
4 Bokor DJ, Sonnabend DH, Deady L, et al. Healing of
partial-thickness rotator cu tears following arthroscopic
augmentation with a highly porous collagen implant:
a5-year clinical and MRI follow-up. Muscles, Ligaments
Tendons J 2019;9(3):338–347.
5 McElvany MD, Mcgoldrick E, Gee AO, Neradilek MB,
MatsenFA, 3rd. Rotator cu repair: published evidence on
factors associated with repair integrity and clinical outcome.
Am J Sports Med. 2015;43(2):491–500.
6 Vonhoegen J, John D, Hägermann C. Osteoconductive
resorption characteristics of a novel biocomposite suture
anchor material in rotator cu repair. Orthop Traumatol
Surg Res. 2019;14(1):12.
7 Smith+Nephew 2010. Micro-CT and histological evaluation
of specimens from resorbable screw study (RS-II / OM1-08)
24-month post-implantation. Internal Report
WRP-TE045-700-08.
8 Smith+Nephew 2016. Healicoil Regenesorb Suture Anchor
– a study to assess implant replacement by bone over a
2year period. NCS248.
9 Clark TR, Guerrero EM, Song A, O’Brien MJ, Savoie FH.
DoVented Suture Anchors Make a Dierence in Rotator
Cu Healing. Ann Sports Med Res. 2016, 3(3): 1068.
10 Chahla J, Liu JN, Manderle B, et al. Bony ingrowth of
coil-type open-architecture anchors compared with
screw-type PEEK anchors for the medial row in rotator
curepair: a randomized controlled trial. Arthroscopy.
2019 Dec3.
11 Konan S, Haddad F. Outcomes of Meniscal Preservation
Using All-inside Meniscus Repair Devices. Clin Orthop
RelatRes. 2010;468:1209–1213.
12 Smith+Nephew 2021.Validation, FAST-FIX FLEX.
InternalReport. 15010267 Rev A.
13 Smith+Nephew 2021.Validation, FAST-FIX FLEX.
Attachment B. Internal Report. 15010267 Rev A.
14 Smith+Nephew 2021.FAST-FIX FLEX-Surgeon Surveys.
Internal Memo.
15 Saliman, JD. Circumferential Compression Stitch for
Meniscus Repair. Arthroscopy Tech. 2013; V2(3); e257–262.
16 ArthroCare 2014.Comparative Performance of the
FLOW50 Wand and the Predicate Wands in Tissue Models.
P/N 52918-01.
17 Smith+Nephew 2017. Coblation Dissection Versus
Monopolar Dissection – A Systematic Review and
Meta-analysis P/N 91999 Rev. A.
18 Temple RH, Timms MS. Paediatric coblation tonsillectomy.
IntJ Pediatr Otorhinolaryngol. 2001;61(3):195–198.
19 Smith+Nephew 2019. HALO and PROCISE XP Peak
Electrode Temperature, ENC053 P/N 108740 Rev. A.
20 Roje Z, Racic G, Dogas Z, Pesutić Pisac V, Timms M.
Postoperative morbidity and histopathologic
characteristics of tonsillar tissue following coblation
tonsillectomy in children: A prospective randomized
single-blind study. Coll Antropol. 2009;33:293–298.
21 ArthroCare 2014. EVac 70 Xtra Comparative Thermal
Measurement Bench-top Study P/N 60735-01 Rev. A.
22 ArthroCare 2014. PROcise XP Comparative Thermal
Measurement Bench-Top Study P/N 60736-01 Rev. A.
23 Magdy EA, Elwany S, El-Daly AS, Abdel-Hadi M, Morshedy
MA. Coblation tonsillectomy: A prospective, double-blind,
randomised, clinical and histopathological comparison
withdissection-ligation, monopolar electrocautery and
laser tonsillectomies. J Laryngol Otol. 2008;122:282–290.
24 EA/ENT/COBLATION/002/v4.
a Compared to predicate device.
b Demonstrated ex vivo.
a subsidiary ofSmith+Nephew.
References from Advanced Wound Management
(pages 46–47)
1 Buzza K. Smith+Nephew 2018. Use of Moisture Vapour
Permeability (MVP) and Moisture Vapour Transmission
Rate(MVTR).
2 Rossington A, Drysdale K, Winter R. Clinical performance
and positive impact on patient wellbeing of ALLEVYN Life.
Wounds UK. 2013;9(4):91–95.
3 Smith+Nephew 20 June 2016.A Randomised Cross-Over
Clinical Evaluation to Compare Performance of ALLEVYN™
Life and Mepilex® Border Dressings on Patient Wellbeing-
Related Endpoints. Internal Report. CE/047/ALF.
4 Smith+Nephew 14 June 2012. Odour reducing properties
ofALLEVYN Life. Internal Report. DS/12/127/DOF.
5 Allen D. A systematic literature review of clinical
evidencefor ALLEVYN Wound Dressings (internal report).
2021;EA/AWM/ALLEVYN/001/v2.
6 Gago M, Garcia F, Gaztelu V, et al. A comparison of three
silver-containing dressings in the treatment of infected,
chronic wounds. Wounds. 2008;20(10):273–278.
7 Smith+Nephew 2015. Antimicrobial activity of DURAFIBER
Ag against bacteria, yeast and fungi commonly found in
wounds over a 7-day period. Internal Report. 1510009.
8 Smith+Nephew 2007. Antimicrobial Activity of ALLEVYN
AgAdhesive Dressing Against a Broad Spectrum of
Microorganisms. Internal Report. DOF 0703007.
9 Smith+Nephew 2018. Antimicrobial activity of IODOSORB
range against a broad spectrum of wound pathogens.
Internal Report. 1801001.
10 Fitzgerald DJ, Renick PJ, Forrest EC, et al. Cadexomer iodine
provides superior ecacy against bacterial wound biofilms
in vitro and in vivo. Wound Repair Regen. 2017;25(1):13–24.
11 Moore Z, Dowsett C, Smith G, et al. TIME CDST: an updated
tool to address the current challenges in wound care.
JWound Care 2019; 28(3):154–161.
12 Kirsner R et al. A prospective, randomized, controlled
clinical trial on the ecacy of a single-use negative pressure
wound therapy system, compared to traditional negative
pressure wound therapy in the treatment of chronic ulcers
of the lower extremities. Wound Rep Reg 2019; 27:
519–529.
13 Saunders C, Nherera LM, Horner A, Truman P. The incidence
of surgical site complications with PICO single-use negative
pressure wound therapy compared to conventional
dressings when used prophylactically on closed surgical
incisions: a systematic literature review and meta-analysis.
BJS Open, 2021; 00: 1–8.
14 Pickham D et al. Eect of a wearable patient sensor on care
delivery for preventing pressure injuries in acutely ill adults:
Apragmatic randomized clinical trial (LS-HAPI study).
Int J Nurs Stud. 2018; Apr; 80:12–19.
a Individual results will vary.
Patient testimonials (pages 43, 45, 47)
These patient testimonials represent the individual patient’s
own opinions, findings, beliefs and/or experiences. Individual
results will vary. Not everyone who receives a product
ortreatment will experience the same or similar results;
resultsmay vary depending on a number of factors, including
each patient’s specific circumstances and condition, and
compliance with the applicable Instructions for Use.
Smith+Nephew is not responsible for the selection of any
treatment by a healthcare professional to be used on a
particular patient. Smith+Nephew makes no representations,
warranties, guarantees or assurances as to the availability,
accuracy, currency or completeness of the information
presented or its contents.
236
Smith+Nephew
Annual Report 2021
Financial calendar
Annual General Meeting
The Company’s Annual General Meeting (‘AGM’)
willbeheld on
Wednesday, 13 April 2022
at
2:00pm
atour
Expert Connect Centre,
Building 5, CroxleyPark,Hatters Lane, Watford,
Hertfordshire, WD18 8YE
.
Shareholders can participate in the AGM electronically, should they wish
todoso. Please refer to the Notice of Meeting for detailed information
onhowto join the AGM electronically, vote and submit your questions.
Shareholders should note that electronic entry to the AGM will open at 1:30pm.
Given the easing of event restrictions, shareholders are welcome to attend
the AGM in person this year should they so choose. We will continue to take
measures to protect ouremployees and any shareholders in attendance.
These measures will include shareholders: (i) being required to provide
proofofanegative COVID test received within 48 hours prior to the meeting;
(ii)being required to sign a COVID declaration form at registration; (iii) being
subject to a temperature check; and (iv) being required to use hand sanitiser
before admittance. At all times a mask or visor covering the nose and
mouthmust beworn. Neither refreshments nor a lunch shall be provided.
The meeting will commence at 2:00pm with doors opening from 1.00pm.
Registered shareholders have been sent either a Notice of Annual General
Meeting or notification of availability of the Notice of Annual GeneralMeeting,
which contains further information on how to join themeeting.
The inks used are renewable, biodegradable
and emit fewer Volatile Organic Compounds
(VOCs) than mineral-oil inks. Theyare
based on high levels of renewable raw
materials such as vegetable oils and
naturally occurring resin. The inks do
not contain any toxic heavy metals and
therefore, do not pose a problem if
placed in landfill.
Designed and Produced by Radley Yeldar.
2022
Annual General Meeting
13 April
First quarter Trading Report
28 April
Payment of 2021 final dividend
11 May
Half year results announced
28 July¹
Third quarter Trading Report
3 November
Payment of 2022 interim dividend
October/November
2023
Full year results announced
February¹
Annual Report available
February/March
Annual General Meeting
April
1 Dividend declaration dates.
Smith & Nephew plc
Building 5, Croxley Park,
Hatters Lane, Watford,
Hertfordshire, WD18 8YE,
United Kingdom.
T +44 (0)1923 477100
enquiries@smith-nephew.com
www.smith-nephew.com