Q2 Revenue and H1 2015 Results

Forward looking statements

This document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and trading margins, 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 differ materially from what is expressed or implied by the statements. For Smith & Nephew, these factors include: economic and financial conditions in the markets we serve, especially those affecting health care providers, payers and customers; price levels for established and innovative medical devices; developments in medical technology; regulatory approvals, reimbursement decisions or other government actions; product defects or recalls; litigation relating to patent or other claims; legal compliance risks and related investigative, remedial or enforcement actions; 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 organisation to adapt to market developments; and numerous other matters that affect us or our markets, including those of a political, economic, business, competitive or reputational nature. Please refer to the documents that Smith & Nephew has filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended, including Smith & Nephew's most recent annual report on Form 20-F, for a discussion of certain of these factors.

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 to reflect any change in circumstances or in Smith & Nephew's expectations.

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Chief Executive Officer

Olivier Bohuon

H1 2015 highlights

Key Comments

• H1 revenues +4% underlying (+2% reported)

‐ Advanced Wound Care +11% ‐ strong Emerging Markets +18% ‐ Recon improvement led by Knees ‐ Sports Medicine Joint Repair +8%

• Technology and distribution acquisitions

• Trading profit margin 22.5%

• EPSA 39.1¢ (up 3%)

• Interim dividend 11.8¢ (2014 11.0¢)

First Half

2015 2014 Underlying

growth

$m $m %

Revenue 2,272 2,220 4

Trading profit 512 484 6

Trading Profit Margin 22.5% 21.8%

EPSA 39.1¢ 38.1¢

4

Emerging

Est OUS

US

AWD

AWB

AWC

Hips

Knees

Arthroscopic Enabling Tech

Sports Medicine Joint Repair

Trauma & Extremities

Other Surgical

11%

6%

12%

1%

7%

7%

2%

1%

7%

-10% 0% 10%

Q2 revenue growth of 5% underlying

5

Geographical growth Product franchise growth Revenue split

Underlying change (%) Underlying change (%)

3%

4%

0% 5% 10% 15%

Note: ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand, ‘Other Surgical’ includes Gynaecology and ENT.

-9% 14%

Sports Medicine, Trauma & OSB

• Q2 Revenue performance

‐ Sports Medicine Joint Repair +7% ($150m)

‐ Arthroscopic Enabling Technologies (AET) +1% ($142m)

‐ Trauma & Extremities +2% ($125m)

‐ Other Surgical Businesses* +7% ($52m)

• Commentary

‐ one year since the ArthroCare acquisition

‐ Sports Medicine Joint Repair and AET benefitting from ArthroCare integration

‐ ENT business generating good growth and improving outlook

6

EVAC◊ 70 XTRA Adenotonsillectomy Wand

* ‘Other Surgical Businesses’ includes Gynaecology and ENT

• Q2 Revenue performance

‐ Knees: global +7%, US +7%, OUS +7% ($221m)

‐ Hips: global +1%, US +3%, OUS -1% ($153m)

• Commentary

‐ global Reconstruction sequentially improved to +4%

‐ US VERILAST◊ Technology for Hips and Knees campaign starting to benefit sales

‐ ZUK acquisition for US market

‐ first patients implanted with new ANTHEM◊ Knee System

Reconstruction

7

ANTHEM◊ Knee System

Advanced Wound Management

• Q2 Revenue performance

‐ Advanced Wound Care +12% ($193m)

‐ Advanced Wound Bioactives +6% ($89m)

‐ Advanced Wound Devices -9% ($43m)

• Commentary

‐ AWM at +7% returned to above market growth

‐ improving AWC trend sustained

‐ AWB: SANTYL◊ growth partially off-set by OASIS◊

‐ AWD dynamic unchanged: expect to re-enter US traditional market during 2016 with next generation products

8

PICO◊ Single Use Negative Pressure Wound

Therapy

Chief Financial Officer

Julie Brown

10

Growth

2015 2014 Reported Underlying(1)

Revenue $2,272m $2,220m 2% 4%

Trading Profit $512m $484m 6% 6%

Trading Margin 22.5% 21.8%

EPSA 39.1¢ 38.1¢ 3%

Trading cash flow $382m $257m

Free cash flow $329m $72m

H1 Financial Highlights

(1) Growth at constant exchange rates, adjusted for acquisitions and disposals

H1 2015(1) Q2 2015(1)

Q2 and H1 Revenue growth

11 (1) Q2 2015 comprises 63 trading days (2014 – 63 trading days) H1 comprises 124 days (2014 – 125 days) (2) Constant exchange rates

Growth % Growth %

Underlying Underlying

Acquisitions Acquisitions

CER(2) CER(2)

Currency Currency

Reported Reported

5%

6%

11%

-9%

2%

4%

7%

11%

-9%

2%

12

2015 2014

$m $m

Revenue 2,272 2,220

Cost of goods sold (566) (538)

Gross profit 1,706 1,682

Gross profit margin 75.1% 75.8%

Selling, general and admin (1,084) (1,078)

Research and development (110) (120)

Trading profit 512 484

Trading profit margin 22.5% 21.8%

H1 Trading income statement

13

H1 Adjusting items to IFRS Operating Profit

2015 2014

$m $m Comments

Trading profit 512 484

Acquisition related costs (13) (58) • ArthroCare integration and emerging market deals

Restructuring and rationalisation (19) (19) • Group Optimisation programme

Amortisation of acquisition intangibles (78) (54) • Increase driven by ArthroCare deal

Legal and other items 37 10 • Legal settlement, curtailment gain, US RENASYS◊

IFRS Operating profit 439 363

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H1 EPSA and EPS H1 Growth

2015 2014 Reported CER

$m $m

Trading profit 512 484 6% 13%

Interest receivable 2 7

Interest payable (23) (11)

Other finance costs (7) (5)

Share of results from associate (3) (2)

Profit before taxation 481 473

Taxation (131) (133) Tax rate* 27.2%

Adjusted attributable profit 350 340

Number of shares – million 894 893

Adjusted earnings per share ("EPSA") 39.1¢ 38.1¢ 3% 10%

Earnings per share ("EPS") 33.0¢ 26.8¢

* Forecast full year rate on Trading results

H1 Free cash flow

15

H1

2015 2014

$m $m

Trading profit 512 484

Share based payment 13 16

Depreciation and amortisation 148 140

Capital expenditure (161) (161)

Movements in working capital and provisions (130) (222)

Trading cash flow 382 257

Trading cash conversion 75% 53%

Restructuring, rationalisation, acquisition & other 36 (37)

Operating cash flow 418 220

Net interest paid (17) (12)

Taxation paid (72) (136)

Free cash flow 329 72

(1,613) (1,513)

490

-

(161)

(166) (16)

(47)

(1,800)

(1,600)

(1,400)

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

Dec-14

Net Debt

FCF pre

capex

Capex Dividends Acquisitions Share buy

back

Other Jun-15

Net Debt

H1 Cash flow and capital allocation

16

$m

Reinvest for organic growth

Progressive dividend policy

Acquisition in line with strategy

Return excess to share-holders 1 2 3 4

EPSA growth at CER

Trading margin improvement

Established Markets

Revenue growth

17

Emerging Markets

Innovation

Simplification

Acquisitions

Optimising Cash

Delivering returns through capital

allocation

Our guidance

Higher underlying growth than 2014

Improving operational efficiency

Year-on-year improvement in margin

Chief Executive Officer

Olivier Bohuon

Winning in Established Markets

Advanced Wound Care improvement

• Actions taken

‐ new leadership at global and regional level

‐ greater product focus (e.g. ALLEVYN◊ Life)

‐ in US, restructuring of sales teams

‐ in Europe, refocused teams

• Outcome seen

‐ underlying improvement delivered in H1 2015

‐ confident in sustained growth

Strategy delivering improved results 19

ALLEVYN◊ Life

Standard Heel

Winning in the Established Markets

Reconstruction - focused on areas of growth

• Pioneering products – VERILAST◊ is a unique bearing surface – JOURNEY◊ II is designed to provide higher levels of

patient satisfaction

• Differentiated marketing – speaking to surgeons and their patients – US marketing campaigns with measurable returns

• Widening access – strong Established Market business supporting

Emerging Markets

• Disruptive model – Syncera

JOURNEY◊ II

Active Knee Solutions

Growing above the market in the US last 12 months 20

Milestones reached

• Moved from pilot to full launch

• Reference sites trained and fully operational with Syncera

• Customer accounts doing > 3,000 annualised procedures

• Material US pipeline and OUS plans ongoing

• Technology platform: S2 software acquired, reviewing additions

Early experiences

• Targeting of accounts

• Collaboration

• Opportunities for cross-selling

• Bundled payments

21

Successful first 12 months for Syncera

We have the right innovation at the right time

0%

5%

10%

15%

20%

25%

30%

Accelerating development in Emerging Markets

Quarterly revenue development

SUPPORTIVE MARKET CONTEXT: • economic growth • higher healthcare spending OUR ACTIONS: • expansion of premium product

range • mid-tier strategy • medical education • further acquisitions

8%

16%

22

Rev

en

ue

as

pro

po

rtio

n o

f g

rou

p (

%)

2010 2011 2012 2013 2014 2015

Today

Q1 2010

Leading in the Emerging Markets

23 23

Direct Presence

Mid-tier presence

Strategic milestones

2011 Today 2011 Today

✓ ✓ ✓ ✓ Leading position, continued strong growth

✓ ✓ X ✓ Acquisition of Sushrut-Adler, new factory in 2016

X ✓ X X Acquisition of Politec Saude (AWM) and PCE (ASD), improved revenue growth

X ✓ X ✓ Acquisition of DeOst and DC (distribution and manufacturing)

✓ ✓ X ✓ Well established with strong market position

X ✓ X X Acquisition of Plato, accelerated market share gains

✓ ✓ X X Government partnership to improve wound treatment

✓ ✓ X X Expanded share in regional tenders

China

India

Brazil

Russia

South Africa

Mexico

Turkey

Saudi Arabia

Summary

• Strong Q2 and H1 performance

‐ planned performance coming through

‐ sustained improvement in franchises and regions

‐ efficiency programmes progressing to plan

‐ strengthening through acquisitions

• Outlook

‐ improving underlying revenue growth, margin and earnings

‐ full year guidance unchanged

‐ on-track with our strategy to invigorate the growth profile of Smith & Nephew

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Questions

Appendices

H1 income statement

27

H1

2015 2014

$m $m

Revenue 2,272 2,220

Trading profit 512 484

Restructuring and rationalisation costs (19) (19)

Acquisition and integration costs (13) (58)

Amortisation of acquisition intangibles (78) (54)

Legal and other 37 10

Operating profit 439 363

Net interest (costs)/income (18) (7)

Other finance costs (7) (5)

Profit before taxation and associates 414 351

Ad

just

ing

ite

ms

H1 income statement (continued)

28

H1

2015 2014

$m $m

Profit before taxation and associates 414 351

Associate (3) (2)

Profit before taxation 411 349

Taxation (116) (110) Tax rate* 27.2%

Attributable profit 295 239

Add back:

Adjusting items from earlier slide 73 121

Adjusting items reported in interest (3) 3

Taxation on excluded items (15) (23)

Adjusted attributable profit 350 340

Adjusted earnings per share ("EPSA") 39.1¢ 38.1¢

Earnings per share ("EPS") 33.0¢ 26.8¢

* Forecast full year rate on Trading results

Franchise revenue analysis

29 All revenue growth rates are on an underlying basis * ‘Other Surgical Businesses’ includes Gynaecology and ENT

2014 2015

Q1 Q2 Q3 Q4 Full Year

Q1 Q2

Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % $m %

Sports Medicine, Trauma & OSB 2 6 7 5 5 5 469 4

Sports Medicine Joint Repair 5 9 11 8 8 9 150 7

Arthroscopic Enabling Technologies (2) (1) 3 2 1 (2) 142 1

Trauma & Extremities (1) 7 8 3 4 5 125 2

Other Surgical Businesses* 23 18 6 6 10 11 52 7

Reconstruction - 3 1 2 2 1 374 4

Knee Implants - 2 1 3 2 2 221 7

Hip Implants - 3 1 2 1 (1) 153 1

Advanced Wound Management - - (1) (2) (1) 1 325 7

Advanced Wound Care (6) (8) (3) (1) (4) 9 193 12

Advanced Wound Bioactives 8 21 14 16 15 5 89 6

Advanced Wound Devices 13 1 (17) (27) (9) (27) 43 (9)

Group 1 3 3 2 2 3 1,168 5

Regional revenue analysis

30

‘Other Established Markets’ is Australia, Canada, Europe, Japan and New Zealand. All revenue growth rates are on an underlying basis

2014 2015

Q1 Q2 Q3 Q4 Full Year

Q1 Q2

Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % $m %

Geographic regions

US (2) 4 2 - 1 1 549 4

Other Established Markets 1 (3) (2) (1) (1) (2) 426 3

Established Markets (1) 1 - - - - 975 3

Emerging Markets 9 17 20 18 17 22 193 14

Group 1 3 3 2 2 3 1,168 5

2015 Technical guidance

31

Guidance Full year

Restructuring costs1 c. $80m

Acquisition and integration costs1 $13m+

Non-recurring charges (RENASYS and HP802) 1 $15m

Amortisation of acquisition intangibles ~ $150m

Interest payable 1,2 $45m - $50m

Other finance costs1 < $15m

Bioventus loan note interest receivable None

Associate: Bioventus contribution1 Slightly negative

Tax rate on Trading result Slightly above 27% (27.2%)

1 updated since 2015 guidance given at Q4 2014 Results 2 assuming no future acquisitions

Analysis of restructuring costs

32

Of the $19m total charged in H1, $19m are reflected in ‘selling, general and administrative expenses’ and $0m are reflected in ‘cost of goods sold’ in the Group Income Statement.

Structural Efficiency target of $160m cash costs and $40m asset write-offs.

Group Optimisation target of $150m total costs.

P&L Charge Cash Spend

Previous

Total to Date H1 Total to date

Previous Total to Date

H1 Total to date

Group Optimisation Plan

$m $m $m $m $m $m

Cash costs 48 15 63 39 21 60

Asset w/offs - - - n/a n/a n/a

Total 48 15 63 39 21 60

Structural Efficiency Programme

$m $m $m $m $m $m

Cash costs 141 4 145 139 - 139

Asset w/offs 21 - 21 n/a n/a n/a

Total 162 4 166 139 - 139

Business days per quarter

33

Q1 Q2 Q3 Q4 Full Year

2014 62 63 63 63 251

2015 61 63 63 64 251

Exchange rates

34

Q2/14 FY/14 Q1/15 Q2/15

$:€

Period end 1.36 1.21 1.09 1.12

Average 1.37 1.33 1.13 1.11

$:£

Period end 1.70 1.56 1.49 1.57

Average 1.68 1.65 1.51 1.53

35