2014 Second Quarter 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

Q2 2014 highlights

4

Key Comments

• Q2 revenues +3% underlying (+7% reported)

‐ Recon improvement led by US Knees ‐ strong Emerging Markets +17%, ‐ Advanced Wound Bioactives +21% ‐ Sports Medicine Joint Repair +9% ‐ ArthroCare acquisition closed

• Trading profit margin 22.3%

• EPSA 20.4¢ (up 13%)

• Interim dividend 11.0¢ (up 6%)

• Strategy update

Second Quarter

2014 2013 Underlying

growth

$m $m %

Revenue

Advanced Surgical Devices 810 741 4

Advanced Wound Management 337 333 0

Group 1,147 1,074 3

Trading profit

Advanced Surgical Devices 191 170

Advanced Wound Management 64 62

Group 255 232 6

Trading Profit Margin 22.3% 21.6%

EPSA 20.4¢ 18.0¢

0%

7%

-1%

9%

3%

2%

-6% -4% -2% 0% 2% 4% 6% 8% 10%

Q2 revenue growth

5

Geographic growth Product franchise growth Revenue split

Underlying change (%) Underlying change (%)

Note: ‘Other ASD’ +18% includes ArthroCare’s ENT franchise, ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand

17%

-3%

4%

-4% 0% 4% 8% 12% 16% 20%

EM/IM

Est OUS

US

AWM

ASD

AWM

Other ASD

Trauma

Enab

Tech

Joint

Repair

Hip

Knee

Advanced Surgical Devices – Knee and Hip Implants

• Revenue performance

‐ Knees: global +2%, US +4%, OUS +1% ($221m)

‐ Hips: global +3%, US +3%, OUS +2% ($167m)

• Commentary

‐ S&N US Recon growth improved to +3%

‐ JOURNEY◊ II BCS and CR strong growth

‐ Successful VERILAST◊ Technology for Hips campaign

6

VERILAST◊ Technology

for Hip Replacements

Advanced Surgical Devices – Sports Medicine and Trauma

• Revenue performance

‐ Sports Medicine Joint Repair +9% ($141m)

‐ Arthroscopic Enabling Technologies (AET) -1% ($121m)

‐ Trauma & Extremities +7% ($129m)

• Commentary

‐ Good Joint Repair growth across all geographies and product areas, including one month of ArthroCare

‐ Trauma benefited from Middle East tender

‐ Strong pipeline of product launches in H2 7

HAT-TRICK◊

Lesser toe repair system

Advanced Wound Management

• Revenue performance

‐ Advanced Wound Care -8% ($199m)

‐ Advanced Wound Devices +1% ($53m)

‐ Advanced Wound Bioactives +21% ($85m)

• Commentary

‐ AWC impacted by weak US performance and some destocking as expected

‐ US RENASYS◊ distribution suspended

‐ SANTYL◊ benefitted from underlying volume growth and stocking

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PICO◊ Launched in Japan

Chief Financial Officer

Julie Brown

Agenda items

1. Revenue and profitability by business segment

2. Group income statement

3. Cash flow and capital allocation

4. 2014 outlook

10

Revenue growth by business segment Q2 2014

11

Underlying

Quarter 2* %

Advanced Surgical Devices

Advanced Wound Management

Group

4

-

3

Reported

%

9

7

1

* Unadjusted for trading days: Q2 2014 comprises 63 trading days (2013 – 64 trading days)

Acquisitions

%

4

-

3

Currency

%

1

1

1

7% (8)%

13%

0%

US Other Est Mkts Emerging markets Total

4%

0%

19%

4%

US Other Est Mkts Emerging markets Total

Underlying revenue growth by geography & business segment Q2 2014

12

ASD $810m

Emerging markets $132m

Other Established

Markets $309m

US $369m

US $125m

Emerging markets $42m

Other Established

Markets $170m

AWM $337m

Profitability by business segment Q2 2014

13

Second Quarter

Revenue Trading Profit

Margin

2014 $m $m %

Advanced Surgical Devices 810 191 23.7

Advanced Wound Management 337 64 18.8

Group 1,147 255 22.3

2013

Advanced Surgical Devices 741 170 22.9

Advanced Wound Management 333 62 18.7

Group 1,074 232 21.6

Half Year

Margin

%

23.3

18.2

21.8

23.6

18.3

22.0

Income statement Q2 2014

14

Second Quarter Quarterly growth

2014 2013 Underlying Reported

$m $m

Revenue 1,147 1,074 3% 7%

Trading profit 255 232 6% 10%

Restructuring and rationalisation costs (13) (17)

Acquisition and integration costs (53) (5)

Amortisation of acquisition intangibles (30) (22)

Legal and other (25) -

Operating profit 134 188

Net interest (costs)/income (4) 1

Other finance costs (2) (2)

Profit before taxation and associates 128 187

Trading margin (%) 22.3% 21.6%

Half Year

2014 2013

$m $m

2,220 2,149

484 473

(19) (25)

(58) (10)

(54) (43)

10 -

363 395

(7) 2

(5) (4)

351 393

21.8% 22.0%

Income statement Q2 2014

15

Second Quarter

2014 2013

$m $m

Profit before taxation and associates 128 187

Associate - 1

Profit before taxation 128 188

Taxation (39) (59) Tax rate* 28.0%

Attributable profit 89 129

Add back:

Adjusting items from previous slide 121 44

Acquisition costs reported in interest 2 -

Taxation on excluded items (30) (10)

Adjusted attributable profit 182 163

Adjusted earnings per share ("EPSA") 20.4¢ 18.0¢ Q2 EPSA Growth

13%

Earnings per share ("EPS") 10.0¢ 14.3¢

* Forecast full year rate excluding restructuring and rationalisation costs, acquisition and integration costs, amortisation of acquisition intangibles and legal and other.

Half Year

2014 2013

$m $m

351 393

(2) (1)

349 392

(110) (120)

239 272

121 78

3 -

(23) (20)

340 330

38.1¢ 36.5¢

26.8¢ 30.1¢

Free cash flow Q2 2014

16

Second Quarter

2014 2013

$m $m

Trading profit 255 232

Share based payment 7 8

Depreciation and amortisation 71 70

Capital expenditure (96) (86)

Movements in working capital and provisions (58) (37)

Trading cash flow 179 187

Restructuring, rationalisation & acquisition costs (23) (17)

Operating cash flow 156 170

Net interest paid (3) (2)

Taxation paid (107) (99)

Free cash flow 46 69

Closing Net Debt

Half Year

2014 2013

$m $m

484 473

16 17

140 139

(161) (141)

(222) (83)

257 405

(37) (44)

220 361

(12) (3)

(136) (152)

72 206

(1,911) (281)

(253)

(1,911)

233

-

(161) (152)

(1,572)

(6)

(2,500)

(2,000)

(1,500)

(1,000)

(500)

0

Dec-13 FCF pre capex Capex Dividends Acquisitions Share buy back Other Jun-14

H1 cash flow and capital allocation

17

$m

Reinvest for organic growth

Progressive dividend policy

Acquisitions in line with strategy

Return excess to share-holders 1 2 3 4

2014 outlook

• Confident in overall Group outlook

‐ AWM below market due to RENASYS in US

• Margin guidance maintained

• Tax rate guidance

‐ 2014 tax rate now expected to be 28.0%

‐ Outlook 150-200 bps improvement over next two years

• ArthroCare guidance

• Q3 comments ‐ Currency impact

‐ H2 cost phasing 18

Chief Executive Officer

Olivier Bohuon

Progressing our Strategic Priorities

20

Sh

are

ho

lde

r V

alu

e

Increased R&D. Launch momentum. Strong pipeline.

China, focus countries. Direct. Acquisitions. Mid-tier. Emerging Markets

Established Markets Focused investment & management. Greater efficiency.

Innovation

More agile and efficient. Group optimisation plan. Simplification

Acquisitions 13 deals, $2.8bn.

Rebalancing Smith & Nephew

Lower Growth

65%

Lower Growth

• Reconstruction (Established Markets)

• Advanced Wound Care (Established Markets)

• Enabling Technologies (Established Markets)

Higher Growth

• Emerging markets (all franchises)

• Sports Medicine Joint Repair

• ArthroCare

• Trauma & Extremities

• Gynecology

• Advanced Wound Bioactives

• Advanced Wound Devices

1 Excluding Clinical Therapies 2 H1 2014 including proforma ArthroCare for full period

Franchises / Geographies

Lower Growth

50%

Proportion of Revenue

2011 1 2014 H1 2

Higher Growth

50%

Lower Growth

65%

Higher Growth

35%

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Reconstruction - addressing customer needs

• Complex market dynamics

• Customer needs ‐ better outcomes from procedures

‐ greater access to benefits

‐ lower cost of delivery

• Geographic trends

‐ Emerging markets: mid-tier demand

‐ Established markets: ‘admin-led’ accounts growth

• Addressing these needs is about choice, not simply scale

22

Implant systems OR and inventory efficiency

REDAPT™ hip revision

Reconstruction - innovative product development

23

Bearing surfaces Augmented instrumentation

VERASENSETM Sensor Technology OXINIUM◊-on-OXINIUM

VISIONAIRE◊ Disposable Instruments JOURNEY◊ II Knee REDAPT◊ hip revision

NavioTM Surgical System

The Syncera solution

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Hip/Knee implant solutions for progressive customers

Products from Smith & Nephew addressing the vast majority of primary joint procedures

Customer interfaces using innovative technology to reduce cost while improving efficiency

High levels of service and support

Transparent prices driving substantial benefit for providers Attractive economics

Value

Clinically proven

Automation

Full support

1

2

3

4

5

Knees: GENESIS™ II TKA

• Comprehensive primary cemented knee system

• Most widely sold Smith & Nephew knee system worldwide

• Outstanding long-term survivorship ‐ 98.1% survivorship ‐ 15 year follow-up¹

Hips: SYNERGY™ / REFLECTION™

• Simple and efficient cementless hip replacement system

• Most widely sold Smith & Nephew hip combination worldwide

• Outstanding long-term survivorship ‐ 95.2% survivorship ‐ 12 year follow-up ²

1 UK National Joint Registry 2013 and Victor et al, Internat, Ortho, 2013 2 UK National Joint Registry, 2013

Clinically Proven, Market Relevant

25

Clinically proven products

• Technology that streamlines supply

chain and logistics operations

• Automatic ordering and product replenishment

• Point-of-care automated tools

• Comprehensive pre-launch training and support at world-class facilities

• Access to technical and live account support when needed

Improving OR and logistics efficiency with ongoing customer support

26

A technology enabled solution

27

Attractive economics Customer Smith & Nephew

• Macro pressure: increasing demand, decreasing reimbursement

• Syncera benefits for customer ‐ supply chain efficiency savings ‐ reduced waste ‐ effectively offering implant price

at a substantial discount to the average US implant price of $5,500 1

• Alternative solution for a new set of customers

• Estimate 5-10% of US market are interested in this commercial model ‐ Syncera solution co-exists with

traditional sales rep based service

• Smith & Nephew financial model ‐ reduction in sales & marketing

expense ‐ reduced capital & inventory ‐ reduced logistics expense

1 Smith & Nephew, The Millennium Research Group

Supplementing organic growth through acquisition

28

AWM deals ASD deals

Emerging market deals

M&A deals

$bn invested

TENET Medical

Healthpoint

ArthroCare

2010 2011 2012 2013 2014

Kalypto Medical

LifeModeler

ADERMA

Politec

Plato Grup

Sushrut-Adler

0.1 0.8 0.1 0 1.8

0 2 4 5 2

PCE

NPWT IP Portfolio

Foot & Ankle Product

A2 Surgical

ArthroCare

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Strategic rationale

• Investing in high growth sports medicine

• Complementary product fit

- coblation technology

- shoulder repair

- ENT adjacency

• Cross - selling opportunities

• Significant revenue and cost synergies

Integration

• Solid trading performance

• All integration workstreams on track

• Commercial integration

‐ rolling out single US commercial organisation

‐ Europe reporting lines changed

‐ emerging markets distributors being restructured

Q2 summary

• Q2 performance ‐ majority of franchises trading well ‐ ArthroCare completed and integration underway

• Successful first three years

‐ Strategic Priorities successful model ‐ re-balancing to higher growth opportunities ‐ improving execution capabilities ‐ re-invigorating Smith & Nephew

• Building a better Smith & Nephew

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Questions

32

Appendices

Q2 2014 financials

34

Q2 2014 Q2 2013

$m $m

Revenue

ASD 810 741

AWM 337 333

Group 1,147 1,074

Trading Profit

ASD 191 170

AWM 64 62

Group 255 232

Group Margin 22.3% 21.6%

Operating Profit 134 188

PBT 128 188

EPSA 20.4¢ 18.0¢

Key Comments

• Revenue Underlying growth of 3%

• Trading Profit Underlying growth of 6%

• Group Margin Margin of 22.3% - 70 bps higher than 2013

• EPSA 13% growth on prior year at 20.4¢ per share

H1 2014 financial highlights

35

H1 2014 H1 2013

$m $m

Revenue

ASD 1,568 1,501

AWM 652 648

Group 2,220 2,149

Trading Profit

ASD 365 354

AWM 119 119

Group 484 473

Group Margin 21.8% 22.0%

Operating Profit 363 395

PBT 349 392

EPSA 38.1¢ 36.5¢

Key Comments

• Revenue Underlying growth of 2%

• Trading Profit Underlying growth flat

• Group Margin Margin of 21.8% - 20bps lower than 2013

• EPSA 4% growth on prior year at 38.1¢ per share

Update to 2014 technical guidance

36

Guidance At Feb’14

(excluding ArthroCare)

Update (incl. ArthroCare and Group Optimisation)

Restructuring costs $40m – 50m $50m – 60m

Acquisition and integration costs $10m –15m + c. $100m

Amortisation of acquisition intangibles $90m – 100m $120m – 140m

Interest payable c. 4% plus fees c. 3%

Other finance costs $8m – 11m no change

Bioventus loan note interest receivable $11m – 12m no change

Associate: Bioventus contribution Nil no change

Effective tax rate* c.29% c.28%

* Excluding acquisition related costs, restructuring and rationalisation costs, amortisation of acquisition intangibles, and legal and other items.

Underlying revenue growth by geography & business segment Q2 2014

37

Established Markets

Emerging & International

Markets Group

US OUS Total Total Total

Quarter 2 Revenue $m $m $m $m $m

Advanced Surgical Devices 369 309 678 132 810

Advanced Wound Management 125 170 295 42 337

Group 494 479 973 174 1,147

Quarter 2 Growth % % % % %

Advanced Surgical Devices 4 - 2 19 4

Advanced Wound Management 7 (8) (2) 13 -

Group 4 (3) 1 17 3

ArthroCare historic revenue

39

* Q2 sales pro-rated to reflect the period under S&N ownership

2013 2014

Q2* Q3 Q4 Q1 Q2*

Revenue Revenue Revenue Revenue Revenue

$m $m $m $m $m

ArthroCare Revenue

Sports Medicine Joint Repair 6 19 22 21 14

Arthroscopic Enabling Technologies 12 36 43 41 28

Other ASD 11 29 29 26 19

Total Franchise Revenue 29 84 94 88 61

Accounting policy differences 1 1 1

Sales to S&N 6 7 7

Total Reported ArthroCare Revenue 91 102 96

Product line revenues and underlying growth

39 All revenue growth rates are on an underlying basis

2013 2014

Q1 Q2 Q3 Q4 Full Year Q1 Q2

Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % $m

Advanced Surgical Devices

Reconstruction

Knee Implants (6) (1) 2 5 - - 221 2

Hip Implants (6) (1) 3 2 (1) - 167 3

Trauma 8 2 2 5 4 (1) 129 7

Sports Medicine Joint Repair 4 6 7 11 7 5 141 9

Arthroscopic Enabling Technologies (7) - (1) (1) (2) (2) 121 (1)

Other ASD 6 10 11 27 14 23 31 18

Advanced Wound Management

Advanced Wound Care 1 1 2 - 1 (6) 199 (8)

Advanced Wound Devices 26 27 11 17 20 13 53 1

Advanced Wound Bioactives 49 35 55 52 47 8 85 21

Group 1 3 5 6 4 1 1,147 3

Analysis of restructuring costs

40

P&L Charge Cash Spend

Previous Total to Date

Q2 Total to date Previous Total

to Date Q2 Total to date

Structural Efficiency Programme

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

Cash costs 134 - 134 127 1 128

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

Total 155 - 155 127 1 128

Group Optimisation Plan

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

Cash costs - 13 13 - 13 13

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

Total - 13 13 - 13 13

Of the $13m total charged in Q2, $11m are reflected in ‘selling, general and administrative expenses’ and

$2m are reflected in ‘cost of goods sold’ in the Group Income Statement.

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

Group Optimisation target of $150m total costs.

Reconciliation of free cash flow to IAS 7 net cash flow from operating activities

41

Second Quarter Half Year

2014 2013 2014 2013

$m $m $m $m

Free cash flow 46 69 72 206

Add back: capital expenditure 96 86 161 141

Net cash inflow from operating activities (IAS 7)

142 155 233 347

Business days per quarter

42

Q1 Q2 Q3 Q4 Full Year

2013 62 64 63 62 251

2014 62 63 63 63 251

Exchange rates

43

Q2/13 FY/13 Q1/14 Q2/14

$:€

Period end 1.30 1.38 1.38 1.36

Average 1.31 1.33 1.37 1.37

$:£

Period end 1.52 1.66 1.66 1.70

Average 1.54 1.56 1.65 1.68

H1 2014 Q3 2014

Knee and Hip Implants

• JOURNEY◊ II CR

• POLARSTEM◊ Cementless Stem System for hips (US)

• JOURNEY◊ II BCS Constrained insert

• VERASENSE for knees (an OrthoSensor product)

• Navio for JOURNEY◊ UNI (BlueBelt commercial agreement)

Sports Medicine/ Arthroscopic Enabling Technologies

• Hip Positioning System with Active Heel◊ Technology – full system release

• TRUEPASS◊ Suture passer

• TRUCLEAR◊ Indication Expansion

• DYONICS◊ POWER Small and Large Bone powered instruments

• Distal Thigh Holder

• SUTUREFIX◊ All-Suture Anchor for shoulder

• SUTUREFIX ULTRA◊ Hip Anchor

• DYONICS◊ Pulse wireless iPad image data management

• DYONICS◊ PLAN Hip impingement planning system

Trauma & Extremities

• TFCC FAST-FIX◊ Kit for wrist repair • SURESHOT◊ Drill Depth Measurement Software Upgrade

• HAT-TRICK◊ Lesser toe repair system • D-RAD SMART PACK◊ Single-Use Volar Distal

Radius Plating System (wrist plating system) • TRIGEN INTERTAN◊ Gold Instrument Set

Advanced Wound Management

• IV3000◊ improvements • SANTYL◊ 90g • ALLEVYN◊ variants • PICO◊ enhancements/extensions • RENASYS◊ (India) • OPSITE◊ Post Op Visible (China)

• DURATOUCH◊ larger size • ALLEVYN◊ variants rebrand • RELICARE◊ (Japan)

2014 key new products progression

44