First Half 2016 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 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 our suppliers; 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 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. 2

Chief Financial Officer

Julie Brown

First Half 2016 highlights

Key Comments

• Revenues +3% underlying (+2% reported) ‐ Knee Implants +7% ‐ Sports Med Joint Repair +10% ‐ US +6% ‐ Emerging markets mid teens excl.

China and Gulf states

• Successful BlueBelt integration

• Trading profit margin 20.8%

• EPSA 37.4¢ (-4% reported, -2% CER)

• Interim dividend 12.3¢ (up +4%)

First Half

2016 2015 Underlying

growth

$m $m %

Revenue 2,328 2,272 3

Trading profit 483 512 -3

Trading profit margin 20.8% 22.5%

EPSA 37.4¢ 39.1¢

4

Chief Commercial Officer

Mike Frazzette

Emerging

Est OUS

US

AWD

AWB

AWC

Hips

Knees

Arthroscopic Enabling Tech

Sports Medicine Joint Repair

Trauma & Extremities

Other Surgical

4%

-7%

0%

5%

14%

-6%

4%

10%

-10% 0% 10% 20%

Q2 revenue growth of 2% underlying

6

Geographical growth Product franchise growth Revenue split

Underlying change (%) Underlying change (%)

Note: ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand

1%

-2%

1%

4%

-4% -2% 0% 2% 4% 6%

China – improvements expected in H2

7

Smith & Nephew sales trajectory in China

2014 2015 2016

FY Q1 Q2 Q3 Q4 Q1 Q2 H2e

Reconstruction

Sports Medicine

Trauma

Advanced Wound

Management

Sports Medicine, Trauma & OSB

• Q2 Revenue performance

‐ Sports Medicine Joint Repair +10% ($147m)

‐ Arthroscopic Enabling Technologies (AET) +4% ($160m)

‐ Trauma & Extremities -6% ($119m)

‐ Other Surgical Businesses* +14% ($61m)

• Commentary

‐ strong growth in Sports Medicine Joint Repair led by Shoulder portfolio

‐ Trauma continues to be adversely impacted by Gulf States and China headwinds

‐ ENT generating good growth

8

ULTRABUTTON◊ Adjustable Fixation Device

* ‘Other Surgical Businesses’ includes ENT, Gynaecology and robotics sales (excluding implant sales)

ArthroCare – two year update

strengthened Sports Medicine business

integration completed ahead of time

$65m cost synergies delivered

accelerated growth in Established Markets

successful product launches ‐ such as our Rotator Cuff Repair Solutions

strong and exciting combined pipeline

‐ including WEREWOLF◊ and LENS◊

sales synergies coming through ‐ e.g. faster Shoulder growth than in standalone businesses

9

• Q2 Revenue performance

‐ Knees: global +5%*, US +4%*, OUS +6%* $238m)

‐ Hips: global 0%, US +1%, OUS 0% ($153m)

• Commentary

‐ continued growth in global Knees

‐ JOURNEY II XR ‘live surgeries’ attract strong interest

‐ Hips growth of +1% excluding BHR

Reconstruction

10 * Excludes the effect of ZUK product acquisition

JOURNEY ◊ II XR Bi-Cruciate Retaining Knee System

Syncera

• Interest in Syncera continues to exceed expectations

‐ CJR is stimulating additional interest

‐ but conservative market segment

• Good engagement with providers on future models of healthcare

• Broadening remit of Syncera team

‐ pure Syncera solutions

‐ unique supporting technologies, risk-sharing models, consultancy

11

Not all Models are Different Most are the same. One is unique.

Blue Belt – six month update

6 months post acquisition:

successful integration

strong operational performance

expansion of indications: approval of Total Knee

first Total Knee case on NAVIO

full commercial launch of Total Knee on-track for 2017

Expecting >50% sales growth for full year

12

Advanced Wound Management

• Q2 Revenue performance

‐ Advanced Wound Care -7% ($177m)

‐ Advanced Wound Bioactives +4% ($93m)

‐ Advanced Wound Devices +1% ($43m)

• Commentary

‐ AWC trend impacted by

‐ previously indicated destocking in China

‐ adapting to changing market dynamics in Europe

‐ 14% AWD growth in Established Markets

13

ACTICOAT◊ Flex Antimicrobial Barrier Dressing

Chief Financial Officer

Julie Brown

Q2 2016(1) H1 2016(1)

H1 and Q2 Revenue growth

15 (1) H1 comprises 128 days (2015 – 124 days) Q2 2016 comprises 64 trading days (2015 – 63 trading days) (2) Constant exchange rates

Growth % Growth %

Underlying Underlying

Acquisitions Acquisitions

CER(2) CER(2)

Currency Currency

Reported Reported

3%

1%

4%

-2%

2%

2%

1%

3%

-1%

2%

16

2016 2015

$m $m

Revenue 2,328 2,272

Cost of goods sold (632) (566)

Gross profit 1,696 1,706

Gross profit margin* 72.8% 75.1%

Selling, general and admin (1,100) (1,084)

Research and development (113) (110)

Trading profit 483 512

Trading profit margin 20.8% 22.5%

H1 Trading income statement

* includes the effect of transactional exchange impacting year-on-year margin by around 190bps

17

H1 Trading margin drivers

H1 Trading margin history Selected H1 2016 margin drivers

2014 2015 2016

21.8% 22.5%

20.8%

Transactional exchange ~190 bps in Gross Profit

Margin impact of sales decline in China & Gulf States

Blue Belt investment

Group Optimisation & acquisition benefits

18

H1 IFRS profit adjusting items

2016 2015

$m $m

Trading profit 483 512

Acquisition related costs (6) (13)

Restructuring and rationalisation (35) (19)

Amortisation of acquisition intangibles (67) (78)

Legal and other items (18) 37

IFRS Operating profit 357 439

Growth

2016 2015 Reported CER Underlying

$m $m

Trading profit 483 512 -6% -4% -3%

Net interest payable (24) (21)

Other finance costs (6) (7)

Share of results from associate - (3)

Adjusted profit before tax 453 481

Taxation (119) (131) Tax rate 26.3%

Adjusted attributable profit 334 350

Number of shares – million 894 894

Adjusted earnings per share ("EPSA")

37.4¢ 39.1¢ -4% -2%

Earnings per share ("EPS") 27.0¢ 33.0¢

19

H1 EPSA and EPS

H1 Free cash flow

20

2016 2015

$m $m

Trading profit 483 512

Share based payment 14 13

Depreciation and amortisation 147 148

Capital expenditure (174) (161)

Movements in working capital and provisions (215) (130)

Trading cash flow 255 382

Trading cash conversion 53% 75%

2015 includes $99m cash receipt on Arthrex legal claim

Restructuring, rationalisation, acquisition & other (49) 36

Operating cash flow 206 418

Net interest paid (24) (17)

Taxation paid (87) (72)

Free cash flow 95 329

(1,361)

(1,695)

269

(174) (170)

(214)

- (45)

(1,800)

(1,600)

(1,400)

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

Dec-15 FCF pre

capex

Capex Dividends Acquisitions Share buy

back

Other Jun-16

Net Debt

H1 Cash flow and capital allocation

21

$m

Reinvest for organic growth

Progressive dividend policy

Acquisition in line with strategy

Return excess to share-holders 1 2 3 4

Gynaecology divestment

22

• Reminder of announcement in May

‐ agreement to divest Gynaecology business for $350m gross proceeds

‐ expected completion in early August

‐ launch of related $300m share buyback programme

‐ EPSA impact broadly neutral in 2017, reduction of less than 1.0¢ in 2016

‐ H2 trading margin adversely impacted by 20bps

Updated outlook

• H2 sales

‐ H1 trends continue in Sports Medicine and Reconstruction

‐ partial improvements in China; Gulf States remain challenging

‐ four fewer sales days in H2

• Translational foreign exchange revenue impact of 0% in H2 and -1% in FY

• Full year margin

‐ Guidance relating to transactional foreign exchange and BlueBelt unchanged (-180 bps)

‐ We expect the slower than anticipated sales growth, mainly in the Emerging Markets, to impact H2 margin, as will the divestment of GYN

‐ H2 trading margin will be stronger than H1

23

Guidance

Summary

• H1: continuing trends

‐ trends in most of our franchises continue

‐ innovative products and technologies drive growth

• Excellent product pipeline

‐ WEREWOLF◊ COBLATION System, LENS◊ Surgical Imaging System, JOURNEY◊ II XR Bi-Cruciate Retaining Knee System, REDAPT◊ Revision System, RENASYS◊ TOUCH Negative Pressure Wound Therapy

24

Questions

Appendices

2016 Technical guidance (unchanged)

27

Guidance Full year

Restructuring costs c. $50m

Acquisition and integration costs c. $10m

Amortisation of acquisition intangibles c. $140m

Income from associates Slightly negative

Net interest payable c. $45m

Other finance costs c. $10m

Tax rate on Trading result 26.5% or slightly lower

Franchise revenue analysis

28 All revenue growth rates are on an underlying basis * ‘Other Surgical Businesses’ includes ENT, Gynaecology and robotics sales (excluding implant sales)

2015 2016

Q1 Q2 Q3 Q4 Full Year

Q1 Q2

Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % $m %

Sports Medicine, Trauma & OSB

5 4 2 5 4 5 487 4

Sports Medicine Joint Repair 9 7 4 9 7 11 147 10

Arthroscopic Enabling Technologies

(2) 1 (2) 3 - 4 160 4

Trauma & Extremities 5 2 2 - 2 (7) 119 (6)

Other Surgical Businesses* 11 7 10 13 10 19 61 14

Reconstruction 1 4 3 4 3 7 391 3

Knee Implants 2 7 6 6 5 9 238 5

Hip Implants (1) 1 (2) 1 - 4 153 -

Advanced Wound Management

1 7 6 8 6 - 313 (3)

Advanced Wound Care 9 12 6 4 8 - 177 (7)

Advanced Wound Bioactives 5 6 2 16 7 (4) 93 4

Advanced Wound Devices (27) (9) 17 14 (3) 11 43 1

Group 3 5 4 5 4 4 1,191 2

Regional revenue analysis

29

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

2015 2016

Q1 Q2 Q3 Q4 Full Year

Q1 Q2

Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % $m %

Geographic regions

US 1 4 4 9 5 8 582 4

Other Established Markets (2) 3 1 2 1 4 429 1

Established Markets - 3 3 6 3 6 1,011 3

Emerging Markets 22 14 8 2 11 (6) 180 (2)

Group 3 5 4 5 4 4 1,191 2

Analysis of restructuring costs

30

Of the $34m total charged in the period, all $34m are reflected in ‘selling, general and administrative expenses’ and nothing 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 105 34 139 84 36 120

Asset write-offs - - - n/a n/a n/a

Total 105 34 139 84 36 120

Structural Efficiency Programme

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

Cash costs 149 1 150 146 1 147

Asset write-offs 21 - 21 n/a n/a n/a

Total 170 1 171 146 1 147

Business days per quarter

31

Q1 Q2 Q3 Q4 Full Year

2015 61 63 63 64 251

2016 64 64 63 60 251

Year-on-year differences in the number of trading days typically impacts our surgical businesses in the Established Markets more than our wholesaler and distributor-supported businesses.

Exchange rates

32

Q2/15 FY/15 Q1/16 Q2/16

$:€

Period end 1.12 1.09 1.14 1.11

Average 1.11 1.11 1.10 1.13

$:£

Period end 1.57 1.48 1.42 1.33

Average 1.53 1.53 1.43 1.43