Q2 Revenue and First Half 2017 Results

Q2 Revenue and First Half 2017 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 forwardlooking 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

Olivier Bohuon Chief Executive Officer

Half Year 2017 highlights Half Year 2017 $m Reported growth Underlying growth Revenue 2,336 0% 3% Trading profit 493 2% Trading profit margin 21.1% 30bps EPSA 43.0 15% Comments Revenue +3% underlying (0% reported) Emerging Markets +12% Knees +5% Advanced Wound Devices +15% Trading profit margin 21.1% (+30bps) EPSA 43.0 (+15% reported) Interim dividend 12.3 Operating profit 414 16% Operating profit margin 17.7% 240bps EPS 37.0 37% H1 confirms our confidence in full year guidance 4

Q2 revenue growth of 3% underlying* Geographical growth Revenue split Product franchise growth Sports Medicine Joint Repair 5% 2% US Arthroscopic Enabling Tech Trauma & Extremities Other Surgical -4% 7% 11% Knees 4% -1% Other Est Hips -1% 13% 2% AWC 0% Emerging AWB 14% AWD -5% 0% 5% 10% 15% -5% 0% 5% 10% 15% Underlying change (%) Underlying change (%) * Underlying growth is not adjusted for the impact of one fewer selling day in Q2 2017 compared to Q2 2016 Other Est is Australia, Canada, Europe, Japan and New Zealand Other Surgical includes ENT and robotics sales (excluding implant sales) 5

Sports Medicine, Trauma & OSB Q2 revenue performance Sports Medicine Joint Repair +5% ($152m) Arthroscopic Enabling Technologies (AET) -4% ($151m) Trauma & Extremities +7% ($127m) Other Surgical Businesses* +11% ($50m) Commentary recently launched products drive Sports Medicine Joint Repair continued softness in resection impacting AET Trauma benefitted from a tender in Gulf States Total Knee application launched on NAVIO with strong interest * Other Surgical Businesses includes ENT and robotics sales (excluding implant sales) TRIGEN INTERTAN Intertrochanteric Antegrade Nail 6

Reconstruction Q2 revenue performance Knees: global +4%, US +5%, OUS +3% ($246m) Hips: global -1%, US -1%, OUS 0% ($150m) Commentary continued good growth in global Knees new additions to LEGION Revision System launched further additions to REDAPT Revision portfolio LEGION Revision Knee System 7

Advanced Wound Management Q2 revenue performance Advanced Wound Care +2% ($177m) Advanced Wound Bioactives 0% ($92m) Advanced Wound Devices +14% ($49m) Commentary AWC trend improving as China returned to growth; continued US strength AWB: SANTYL returned to growth PICO continued strong trend in AWD ACTICOAT Flex Antimicrobial Barrier Dressing 8

Graham Baker Chief Financial Officer

H1 trading income statement 2017 Growth $m Revenue 2,336 0% Cost of goods sold -603 3% underlying growth Gross profit 1,733 2% Gross profit margin 74.2% +140bps Selling, general and admin -1,133 Research and development -107 Trading profit 493 2% Trading profit margin 21.1% +30bps 10

H1 2017 trading margin Year-on-year trading margin movement Key trading margin drivers 20.8% +30bps 21.1% Gross margin H1 2016 COGS charges Offsetting SG&A margin impact H1 2016 SG&A benefits Price erosion Cost inflation H1 2016 H1 2017 Manufacturing and supply chain efficiencies +30bps Group Optimisation 11

H1 IFRS reconciliation 2017 2016 Growth $m $m Trading profit 493 483 2% Trading margin 21.1% 20.8% +30bps Acquisition related costs -2-6 Restructuring and rationalisation - -35 Amortisation of acquisition intangibles -65-67 Legal and other items -12-18 IFRS Operating profit 414 357 16% Operating margin 17.7% 15.3% +240bps 12

H1 EPSA growth 15%, driven by tax 2017 Growth $m Trading profit 493 2% Net interest payable -25 Other finance costs -4 Adjusted profit before tax 464 2% Taxation -88 Adjusted attributable profit 376 13% Tax rate: 19% including one-off Number of shares million 874 Adjusted earnings per share ("EPSA") 43.0 15% Earnings per share ("EPS") 37.0 37% 13

H1 trading cash conversion increased to 66% 2017 2016 Growth $m $m Trading profit 493 483 2% Share based payment 15 14 Depreciation and amortisation 154 147 Capital expenditure -178-174 Movements in working capital and other -157-215 Trading cash flow 327 255 28% Trading cash conversion 66% 53% Restructuring, legal, acquisition & other -67-49 Operating cash flow 260 206 26% Net interest paid -25-24 Taxation paid -62-87 Free cash flow 173 95 82% 14

$m Net debt and capital allocation 1,800 1,600 1,400 1,200 1,550 351 1 Reinvest for organic growth 178 2 3 Return excess Progressive dividend policy 162 Acquisitions in line with strategy to shareholders 32-26 1,597 1,000 800 31 Dec-16 Net Debt FCF pre capex Capex Dividends Acquisitions Capital return Other 1 Jul-17 Net Debt 15

2017 guidance reiterated; ongoing tax rate 1% lower 2017 Sales growth: Underlying: 3% to 4% Reported (1) : 2.5% to 3.5% Trading profit margin: 20-70bp improvement Tax rate (2) : Around 22% (previously: around 26%) Medium - term Underlying sales growth: Consistent growth above market Trading profit margin: Ongoing improvement Tax rate (2) : Around 25% (1) Based on exchanges rates prevailing on 21 July 2017. (2) Tax rate on trading result 16

Olivier Bohuon Chief Executive Officer

Our strategic priorities Winning in Established Markets Accelerating development in Emerging Markets Innovating for value Simplifying & improving our operating model Supplement organic growth through acquisitions 18

Focus on Execution in Established Markets A more agile structure armed with the right tools A structure fit to implement our strategy Tools and initiatives to execute better Organisational structure fully in place Commercial operations simplified Global functions to drive excellence and efficiency Improve salesforce excellence Drive better pricing and evidence Inventory management and supply chain initiatives 19

US shift towards day-case surgery Portfolio breadth and differentiation in outpatient/asc* setting Leading Sports Medicine portfolio Outpatient ENT solutions Differentiated Joint Replacement offering Complete line of visualization, access, resection and repair products LENS Surgical Imaging System WEREWOLF COBLATION System Comprehensive line of products for ENT surgery used in outpatient COBLATION advanced RF technology that minimizes thermal damage JOURNEY II Total Knee System NAVIO Robotics-assisted Surgical System VISIONAIRE Cutting Guides VERILAST Technology * Ambulatory Surgery Centres provide same-day surgical care 20

Emerging Markets - a pillar of higher growth Return to sustainable double digit growth Growth potential supported by secular growth trends Emerging Markets returned to growth* China: double digit growth expected for full year with improved channel management Gulf States: Tender order in Q2, not expected to repeat in H2 Latin America and South East Asia growing well 25% 20% 15% 10% 5% 0% -5% -10% 2013 2014 2015 2016 2017 * All revenue growth rates are on an underlying basis and without adjustment for number of selling days 21

Innovation in robotics-assisted surgery NAVIO expansion continues at pace Total Knee application expands opportunity Other highlights robotics becoming mainstream FDA approval for Total Knee indication for our JOURNEY II, GENESIS II and LEGION platforms Strong interest following full launch Full pipeline of further indications 2016: >50% growth Improving utilisation per installed unit International: Multiple robots sold in India 22

ArthroCare acquisition update Meeting all our three-year targets A strengthened combined business Synergies achieved ahead of time Year 3 metrics met or exceeded A stronger Sports Medicine business Combined product pipeline delivering Key talent retained Integration completed ahead of time >$50m of additional sales from cross-selling $85m of total synergies on trading profit level 23

Summary H1: focus on execution focus on better execution driving improvements innovative products and technologies drive growth Guidance confirmed H1 results underpin our full year guidance Multiple drivers of future growth Sports Medicine leadership, Innovative Knee portfolio including robotics, PICO changing the NPWT landscape, Emerging Markets, M&A optionality 24

Questions

Appendices

2017 technical guidance Guidance As of February 2017 Update Restructuring costs Nil No change Acquisition and integration costs c. $5m No change Amortisation of acquisition intangibles c. $120m No change Income from associates ~$0m No change Net interest $50m - $55m No change Other finance costs Similar to 2016 No change Tax rate on Trading result c. 26% c. 22% Foreign exchange and other Impact of disposal of GYN business on revenue ~80bps No change Impact of translational FX on revenue c. -1% +0.3%* * Based on the foreign exchange rates prevailing on 21 July 2017 27

Franchise revenue analysis 2016 2017 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Sports Medicine, Trauma & OSB 5 4 4 1 3 4 480 3 Sports Medicine Joint Repair 11 10 8 5 8 7 152 5 Arthroscopic Enabling Technologies 4 4 2 (3) 2 (1) 151 (4) Trauma & Extremities (7) (6) 1 (4) (4) 5 127 7 Other Surgical Businesses 19 14 12 15 15 7 50 11 Reconstruction 7 3 2 (2) 2 3 396 2 Knee Implants 9 5 4 0 4 5 246 4 Hip Implants 4 0 0 (6) (1) 0 150 (1) Advanced Wound Management 0 (3) (1) (1) (1) 1 318 3 Advanced Wound Care 0 (7) (2) (3) (3) 1 177 2 Advanced Wound Bioactives (4) 4 (3) 1 0 (8) 92 0 Advanced Wound Devices 11 1 5 2 5 16 49 14 Group 4 2 2 (1) 2 3 1,194 3 All revenue growth rates are on an underlying basis and without adjustment for number of selling days 28

Regional revenue analysis 2016 2017 Q1 Q2 Q3 Q4 Full Year Q1 Q2 Growth Growth Growth Growth Growth Growth Revenue Growth % % % % % % $m % Geographic regions US 8 4 2 0 3 1 582 2 Other Established Markets 4 1 0 (3) 0 1 408-1 Established Markets 6 3 1 (1) 2 1 990 1 Emerging Markets (6) (2) 6 3 0 12 204 13 Group 4 2 2 (1) 2 3 1,194 3 Other Established Markets is Australia, Canada, Europe, Japan and New Zealand All revenue growth rates are on an underlying basis and without adjustment for number of selling days 29

Business days per quarter Q1 Q2 Q3 Q4 Full Year 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. 30

Exchange rates Q2/16 FY/16 Q1/17 Q2/17 $: Period end 1.11 1.05 1.07 1.14 Average 1.13 1.11 1.07 1.10 $: Period end 1.33 1.23 1.25 1.30 Average 1.43 1.35 1.24 1.28 31