Full Year 2016 Results

1

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 Executive Officer

Olivier Bohuon

Full Year 2016 highlights

4

Comments

• Revenues +2% underlying (+1% reported)

‐ Sports Medicine Joint Repair +8% ‐ BlueBelt up more than 50% ‐ Recon +2% with Knees +4% ‐ strong PICO◊ growth continues

• Trading profit margin 21.8% (-190bps)

• EPSA 82.6¢ (-3% reported)

• Full year dividend [30.8¢]

Full Year

2016 2015 Underlying

growth

$m $m

Revenue 4,669 4,634 2%

Trading profit 1,020 1,099

Trading profit margin 21.8% 23.7%

Operating profit 801 628

Operating profit margin

17.2% 13.6%

EPS 88.1¢ 45.9¢

EPSA 82.6¢ 85.1¢

Q4 revenue growth of -1% underlying*

5

3%

-3%

0%

-5% 0% 5%

Emerging

Est OUS

US

AWD

AWB

AWC

Hips

Knees

Arthroscopic Enabling Tech

Sports Medicine Joint Repair

Trauma & Extremities

Other Surgical

2%

1%

-3%

-6%

0%

15%

-4%

-3%

5%

-10% 0% 10%

Geographical growth Product franchise growth Revenue split

Underlying change (%) Underlying change (%)

* Underlying growth is not adjusted for the impact of four fewer selling days in Q4 2016 compared to Q4 2015 ‘Est OUS’ is Australia, Canada, Europe, Japan and New Zealand; ‘Other Surgical’ includes ENT and robotics sales (excluding implant sales)

Sports Medicine, Trauma & OSB

6

• Q4 revenue performance*

‐ Sports Medicine Joint Repair +5% ($159m)

‐ Arthroscopic Enabling Technologies (AET) -3% ($168m)

‐ Trauma & Extremities -4% ($120m)

‐ Other Surgical Businesses** +15% ($48m)

• Commentary

‐ LENS◊ and WEREWOLF◊ well received

‐ Gulf States remain a headwind in Trauma

‐ first NAVIO◊ sale in India

* Underlying growth rates are not adjusted for the impact of four fewer selling days in Q4 2016 compared to Q4 2015 ** ‘Other Surgical Businesses’ includes ENT and robotics sales (excluding implant sales)

LENS Surgical Imaging System

Reconstruction

7

• Q4 revenue performance*

‐ Knees: global 0%, US -3%, OUS +3% ($247m)

‐ Hips: global -6%, US -5 %, OUS -7 % ($153m)

• Commentary

‐ JOURNEY◊ II remains primary growth driver

‐ ANTHEM◊ launched in several Emerging Market countries

‐ REDAPT◊ Revision System starting to contribute to growth

ANTHEM Knee System

* Underlying growth rates are not adjusted for the impact of four fewer selling days in Q4 2016 compared to Q4 2015

Advanced Wound Management

8

• Q4 revenue performance*

‐ Advanced Wound Care -3% ($186m)

‐ Advanced Wound Bioactives +1% ($97m)

‐ Advanced Wound Devices +2% ($44m)

• Commentary

‐ AWC: strong US growth off-set by Europe and China

‐ PICO growth continues

‐ SANTYL◊ volume growth

PICO Single Use Negative Pressure Wound Therapy

* Underlying growth rates are not adjusted for the impact of four fewer selling days in Q4 2016 compared to Q4 2015

SVP Group Finance

Ian Melling

9

Q4 and Full Year Revenue growth

10

FY 2016(1) Q4 2016(1)

(1) Q4 2016 comprises 60 trading days (2015 – 64 trading days). Full year comprises 251 days (2015 – 251 days)

Growth % Growth %

Underlying Underlying

Acquisitions / Disposals

Acquisitions / Disposals

Currency Currency

Reported Reported

-1%

-1%

-1%

-3%

2%

0%

-1%

1%

Full Year Financial Highlights

11 (1) Non-GAAP measure: Reconciled to the relevant GAAP measure in the Fourth Quarter Trading and Full Year 2016 Results announcement

Reported Trading

2016 2015 2016 2015

Revenue $4,669m $4,634m $4,669m $4,634m

Operating profit $801m $628m

Trading profit(1) $1,020m $1,099m

Operating / Trading profit margin(1) 17.2% 13.6% 21.8% 23.7%

EPS / EPSA(1) 88.1¢ 45.9¢ 82.6¢ 85.1¢

Cash generated from operating activities / Trading cash flow(1)

$1,035m $1,203m $765m $936m

Full year trading income statement

12

Group trading margin 2016

13

Year-on-year trading margin movement Key trading margin drivers

2015 2016

23.7% Exchange and price

Robotic Technologies and GYN disposal

Loss of leverage from lower sales growth

Group Optimisation

21.8%

Full year IFRS profit adjusting items

14

Full year EPSA and EPS

15 * Tax rate on Trading results of 23.8% in 2016 includes a one-off benefit following agreement with IRS

Tax rate* 2016: 23.8% 2015: 26.8%

Full year free cash flow

16

Cash flow and capital allocation

17

(1,361)

(1,550)

849 9

(392)

(279)

(300) (76) (1,800)

(1,500)

(1,200)

(900)

(600)

(300)

0

Dec-15

Net Debt

FCF pre capex Capex Dividends BlueBelt and

GYN

Share buy

back

Other Dec-16

Net Debt

$m

Reinvest for organic growth

Progressive dividend policy

Acquisitions & disposals

Return excess to share-holders

1 2 3 4

Chief Executive Officer

Olivier Bohuon

Strategic priorities and rebalancing

19

• Winning in Established Markets

• Accelerating development in Emerging Markets

• Innovating for value

• Simplifying and improving our operating model

• Supplement organic growth through acquisitions

2011* Future

Lower Growth

65%

Higher Growth

35%

Higher Growth

65%

Lower Growth

35%

Proportion of Revenue

Improving Strengthening

Creating

* Excluding Clinical Therapies

2011-2016: our journey here

20

We simplified the Group structure and invested in talent

• Streamlined from four independent silos to a

single group structure

• Created single country MD model and global functions

• Established governance and rigour around capital deployment

We invested in our growth platforms and our infrastructure

• Stepped up R&D investment

• Built our presence in Emerging Markets

• Built a global infrastructure

• Healthpoint, ArthroCare

• Distribution in Emerging Markets

• Technologies e.g. Robotics

Organic investments

Acquisitions

2017 – 2018: driving improved execution

21

Tools to execute better

• Improve salesforce excellence

• Drive better pricing

• Support sales with compelling Health Economic evidence

• Enhance market access in procurement driven environments

Ongoing improvement programmes

• Research & Development

• Strengthening supply chain

• Responding to increasing regulatory requirements

• Harmonising our IT systems

• Shared Business Services

A structure fit to implement our strategy

• Organisational structure is fully

in place

• Commercial operations; single country MD model

• Global functions to drive excellence and efficiency

Innovation remains at the heart of Smith & Nephew

22

• JOURNEY◊ II Knee System

• REDAPT Revision Hip System

• NAVIO◊ Surgical System

• Our comprehensive Joint Repair portfolio

• COBLATION◊ WEREWOLF System

• LENS Surgical Imaging System

• TRIGEN◊ INTERTAN◊ Intertrochanteric Nail

• PICO Single Use NPWT

Global R&D function

• Single group R&D strategy with focused organisation

• Prioritisation and harmonisation of projects

• Better execution of product launches

• External vs internal competencies

Strong product lines Driving innovation

Our 2017 guidance and medium-term outlook

23

(1) Based on exchanges rates prevailing on 31st January 2017. (2) Tax rate on trading result

Sales growth:

Reported(1): 1.2% to 2.2% Underlying: 3% to 4%

Trading profit margin:

20-70bp improvement

Tax rate(2):

Around 26%

Underlying sales growth:

Consistent growth above market

Trading profit margin:

Ongoing improvement

Cash:

Releasing cash to invest in M&A and/or return to shareholders

2017

Medium - term

A stronger Smith & Nephew

24

• iple growth drivers A fundamentally transformed Group…

…in a unique, strong, global position…

…with multiple drivers of higher growth

• Sports Medicine leadership

• Innovative Knee portfolio including robotics

• PICO changing the NPWT landscape

• Emerging Markets

• M&A optionality

Appendices

26

H1 H2 Full Year

2016 2015 2016 2015 2016 2015

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

Revenue 2,328 2,272 2,341 2,362 4,669 4,634

Cost of goods sold (632) (566) (640) (577) (1272) (1,143)

Gross profit 1,696 1,706 1,701 1,785 3,397 3,491

Gross profit margin 72.8% 75.1% 72.7% 75.6% 72.8% 75.3%

Selling, general and admin (1,100) (1,084) (1,047) (1,086) (2,147) (2,170)

Research and development (113) (110) (117) (112) (230) (222)

Trading profit 483 512 537 587 1,020 1,099

Trading profit margin 20.8% 22.5% 22.9% 24.9% 21.8% 23.7%

Trading income statement - half and full year

27

IFRS profit adjusting items – half and full year

H1 H2 Full Year

2016 2015 2016 2015 2016 2015

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

Trading profit 483 512 537 587 1,020 1,099

Acquisition related costs (6) (13) (3) 1 (9) (12)

Restructuring and rationalisation (35) (19) (27) (46) (62) (65)

Amortisation of acquisition intangibles (67) (78) (111) (126) (178) (204)

Legal and other items (18) 37 48 (227) 30 (190)

IFRS Operating profit 357 439 444 189 801 628

H1 H2 Full Year

2016 2015 2016 2015 2016 2015

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

Trading profit 483 512 537 587 1,020 1,099

Net interest payable (24) (21) (22) (20) (46) (41)

Other finance costs (6) (7) (5) (6) (11) (13)

Share of results from associate - (3) 2 (2) 2 (5)

Adjusted profit before tax 453 481 512 559 965 1,040

Taxation (119) (131) (111) (148) (230) (279)

Adjusted attributable profit 334 350 401 411 735 761

Number of shares – million 894 894 881 894 890 894

Adjusted earnings per share ("EPSA") 37.4¢ 39.1¢ 45.5¢ 46.0¢ 82.6¢ 85.1¢

Earnings per share ("EPS") 27.0¢ 33.0¢ 61.6¢ 12.9¢ 88.1¢ 45.9¢

28

EPSA and EPS – half and full year

Free cash flow – half and full year

29

H1 H2 Full Year

2016 2015 2016 2015 2016 2015

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

Trading profit 483 512 537 587 1,020 1,099

Share based payment 14 13 13 16 27 29

Depreciation and amortisation 147 148 153 159 300 307

Capital expenditure (174) (161) (218) (197) (392) (358)

Movements in working capital and other (215) (130) 25 (11) (190) (141)

Trading cash flow 255 382 510 554 765 936

Trading cash conversion 53% 75% 95% 94% 75% 85%

Restructuring, rationalisation, acquisition & other

(49) 36 (73) (127) (122) (91)

Operating cash flow 206 418 437 427 643 845

Net interest paid (24) (17) (21) (19) (45) (36)

Taxation paid (87) (72) (54) (65) (141) (137)

Free cash flow 95 329 362 343 457 672

Franchise revenue analysis

30 All revenue growth rates are on an underlying basis * ‘Other Surgical Businesses’ includes ENT, Gynaecology (prior to divestment in August) and robotic sales (excluding implant sales)

2015 2016

Q1 Q2 Q3 Q4 Full Year

Q1 Q2 Q3 Q4 Full Year

Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % % % % $m %

Sports Medicine, Trauma & OSB

5 4 2 5 4 5 4 4 1 1,907 3

Sports Medicine Joint Repair 9 7 4 9 7 11 10 8 5 587 8

Arthroscopic Enabling Technologies

(2) 1 (2) 3 - 4 4 2 (3) 631 2

Trauma & Extremities 5 2 2 - 2 (7) (6) 1 (4) 475 (4)

Other Surgical Businesses* 11 7 10 13 10 19 14 12 15 214 15

Reconstruction 1 4 3 4 3 7 3 2 (2) 1,529 2

Knee Implants 2 7 6 6 5 9 5 4 - 932 4

Hip Implants (1) 1 (2) 1 - 4 - - (6) 597 (1)

Advanced Wound Management 1 7 6 8 6 - (3) (1) (1) 1,233 (1)

Advanced Wound Care 9 12 6 4 8 - (7) (2) (3) 719 (3)

Advanced Wound Bioactives 5 6 2 16 7 (4) 4 (3) 1 342 -

Advanced Wound Devices (27) (9) 17 14 (3) 11 1 5 2 172 5

Group 3 5 4 5 4 4 2 2 (1) 4,669 2

Regional revenue analysis

31

‘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 Q3 Q4 Full Year

Growth Growth Growth Growth Growth Growth Growth Growth Growth Revenue Growth

% % % % % % % % % $m %

Geographic regions

US 1 4 4 9 5 8 4 2 - 2,299 3

Other Established Markets (2) 3 1 2 1 4 1 - (3) 1,679 -

Established Markets - 3 3 6 3 6 3 1 (1) 3,978 2

Emerging Markets 22 14 8 2 11 (6) (2) 6 3 691 -

Group 3 5 4 5 4 4 2 2 (1) 4,669 2

2017 Technical guidance

32

Guidance Full year

Restructuring costs Nil

Acquisition and integration costs c. $5m

Amortisation of acquisition intangibles c. $120m

Income from associates ~$0m

Net interest payable $50m - $55m

Other finance costs similar to 2016

Tax rate on Trading result c. 26%

Foreign exchange and other

Impact of disposal of Gynaecology business on revenue -80bps

Impact of translational FX* on revenue c. -1%

* Based on foreign exchange rates prevailing on 31st January 2017

Analysis of restructuring costs

33

Of the $62m total charged in the full year, all $62m are reflected in ‘selling, general and administrative expenses’ and nothing in ‘cost of goods sold’ in the Group Income Statement.

P&L Charge Cash Spend

Previous

Total to Date FY Total to date

Previous Total to Date

FY Total to date

Group Optimisation Plan

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

Cash costs 105 57 162 84 60 144

Asset w/offs - 3 3 n/a n/a n/a

Total 105 60 165 84 60 144

Structural Efficiency Programme

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

Cash costs 149 2 151 146 2 148

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

Total 170 2 172 146 2 148

Business days per quarter

34

Q1 Q2 Q3 Q4 Full Year

2015 61 63 63 64 251

2016 64 64 63 60 251

2017 64 63 63 60 250

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. We define trading days as week days adjusted for significant holidays in our principal countries.

Exchange rates

35

Q4/15 FY/15 Q1/16 Q2/16 Q3/16 Q4/16 FY/16

$:€

Period end 1.09 1.09 1.14 1.11 1.12 1.05 1.05

Average 1.10 1.11 1.10 1.13 1.12 1.08 1.11

$:£

Period end 1.48 1.48 1.42 1.33 1.30 1.23 1.23

Average 1.52 1.53 1.43 1.43 1.31 1.24 1.35