Smith & Nephew Plc – Final Results

Smith+Nephew Fourth Quarter and Full Year 2021 Results  

Meeting our 2021 guidance with a clear Strategy for Growth

22 February 2022

Smith+Nephew (LSE:SN, NYSE:SNN), the global medical technology business, reports results for the fourth quarter and full year ended 31 December 2021:

Full Year Financial Highlights ^1,2

Revenue of $5,212 million (2020: $4,560 million), up 14.3% on a reported basis and 10.3% on an underlying basis

• Sports Medicine & ENT and Advanced Wound Management revenue above pre-COVID levels
• Performance in Orthopaedics impacted by supply chain constraints

Operating profit of $593 million (2020: $295 million), up 101%

Trading profit of $936 million (2020: $683 million) with trading profit margin of 18.0% (2020: 15.0%)

• 300bps margin uplift reflects improved trading impact and discretionary cost control offset by higher logistics costs

Cash generated from operations of $1,048 million (2020: $972 million) with trading cash flow of $828 million (2020: $690 million)

EPS up 17% to 59.8¢, EPSA up 25% to 80.9¢

Full year dividend of 37.5¢ per share, in line with 2020 and 2019

Appointment of New Chief Executive Officer

Smith+Nephew today announced that Dr Deepak Nath has been appointed as the Company's new Chief Executive Officer, succeeding Roland Diggelmann, who will step down by mutual agreement. Deepak will take up the role on 1 April 2022 and Roland will leave on 31 March 2022. See separate announcement issued today for further information.

2021 Strategic Highlights

• Strategy for Growth launched, driven by improved productivity and commercial execution, innovation and acquisitions
• Increased investment in R&D enabled significant new product launches, including cementless knee system, expansion of robotics platform, meniscal repair system and sports medicine tower upgrade
• Strengthened commercial model with Orthopaedics and Sports Medicine & ENT franchises brought under one leadership team to better address higher growth opportunities
• Commitment to achieve net zero emissions across our operations globally by 2045
• Updated capital allocation framework maintaining higher investment in innovation to drive growth and returns to shareholders with a progressive dividend policy and new regular annual share buy-backs commencing in 2022

Outlook ^1,2

Through our Strategy for Growth we are targeting consistent 4% to 6% underlying  revenue growth by 2024, structurally ahead of historical levels, and a trading profit margin of at least 21% by 2024 with further improvements thereafter

For 2022 we are targeting underlying revenue growth in the range 4.0% to 5.0% (around 2.6% to 3.6% reported)

• Guidance assumes some ongoing impact from COVID, with Omicron a Q1 headwind and hospital staffing shortages likely to continue throughout 2022
• Global supply constraints also likely to continue
• Growth expected to be stronger in the second half than the first half of 2022

For trading profit margin we are targeting around 50bps of expansion in 2022, reflecting efficiencies from operating leverage, productivity and improvement in the margin of acquired assets partially offset by headwinds of around 125bps from input cost inflation and around 60bps from implementation of volume-based procurement in China

Tax rate on trading results expected to be in the range of 17% to 18%

Q4 Trading Highlights ^1,2

Q4 revenue of $1,346 million (2020: $1,326 million), up 1.5% on a reported basis and 0.3% on an underlying basis

Q4 performance reflects four fewer trading days than Q4 2020 (2021: 60 days) and COVID Omicron variant impact on elective surgeries

Growth in Sports Medicine & ENT and Advanced Wound Management franchises offset by Orthopaedics, in line with recent quarters

Roland Diggelmann, Chief Executive Officer, said:

“We finished 2021 with a solid fourth quarter, despite nearly a week less trading than in 2020 and the impact of Omicron, which affected the typical quarter-end pick up in average daily sales.

“For the full year we delivered on our guidance commitments on both the top and bottom line. We are beginning to see our step up in R&D investment bear fruit, and all three franchises contributed to our double-digit revenue growth. Pleasingly, our Sports Medicine & ENT and Advanced Wound Management franchises delivered revenue above pre-COVID 2019 levels. Performance was held back by global supply chain challenges, which particularly impacted our Orthopaedics franchise.

“Looking to the future, we have set out our new Strategy for Growth with an ambition to transform to a structurally higher growth company, including clear medium-term revenue and trading profit margin targets. 2022 will be an important step on this journey as we continue to strengthen the business and invest behind innovation, while working to offset near-term headwinds. Smith+Nephew is well placed to continue to take advantage of the opportunities we see to drive shareholder returns, including through a new share buy-back programme.”