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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
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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
Reported Underlying Comments
2017
growth growth

$m Revenue +3% underlying (0% reported)


Emerging Markets +12%
Revenue 2,336 0% 3% Knees +5%
Advanced Wound Devices +15%
Trading profit 493 2% Trading profit margin 21.1% (+30bps)
Trading profit margin 21.1% 30bps
EPSA 43.0 (+15% reported)
EPSA 43.0 15%
Interim dividend 12.3

Operating profit 414 16% H1 confirms our confidence in full year


guidance
Operating profit
17.7% 240bps
margin
EPS 37.0 37%
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Q2 revenue growth of 3% underlying*
Geographical growth Revenue split Product franchise growth

Sports Medicine 5%
Joint Repair

2% Arthroscopic
Enabling Tech -4%
US
Trauma &
Extremities 7%
Other Surgical
11%

Knees 4%

-1%
Other Est Hips -1%

2%
AWC
0%
13% 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 5
Other Surgical includes ENT and robotics sales (excluding implant sales)
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
TRIGEN INTERTAN
Trauma benefitted from a tender in Gulf States Intertrochanteric Antegrade Nail

Total Knee application launched on NAVIO with strong


interest

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* Other Surgical Businesses includes ENT and robotics sales (excluding implant sales)
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

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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
ACTICOAT Flex
AWB: SANTYL returned to growth Antimicrobial Barrier Dressing

PICO continued strong trend in AWD

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Graham Baker
Chief Financial Officer
H1 trading income statement

2017 Growth
$m
Revenue 2,336 0% 3% underlying
growth
Cost of goods sold -603
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

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H1 2017 trading margin

Year-on-year trading margin Key trading margin drivers


movement

Gross margin SG&A margin impact


+30bps 21.1%
20.8% H1 2016 COGS Off- H1 2016 SG&A
charges setting benefits

Price erosion Cost inflation


+30bps
Manufacturing
and supply Group
chain Optimisation
H1 2016 H1 2017 efficiencies

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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


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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%
Tax rate: 19%
Taxation -88
including one-off
Adjusted attributable profit 376 13%

Number of shares million 874

Adjusted earnings per share ("EPSA") 43.0 15%

Earnings per share ("EPS") 37.0 37%


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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%
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Net debt and capital allocation

1
Reinvest for
2
Progressive
3
Acquisitions in Return excess
organic growth dividend policy line with strategy to shareholders
1,800
1,550 1,597
1,600
32 - 26
162
1,400
$m

351
178
1,200

1,000

800
31 Dec-16 FCF pre Capex Dividends Acquisitions Capital Other 1 Jul-17
Net Debt capex return Net Debt
15
2017 guidance reiterated; ongoing tax rate 1% lower

Sales growth: Trading profit margin: Tax rate(2):


2017 Underlying: 3% to 4% 20-70bp improvement Around 22%
Reported(1): 2.5% to 3.5%
(previously: around 26%)

Medium - Underlying sales growth: Trading profit margin: Tax rate(2):


term Consistent growth above Ongoing improvement Around 25%
market

(1) Based on exchanges rates prevailing on 21 July 2017.


(2) Tax rate on trading result

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Olivier Bohuon
Chief Executive Officer
Our strategic priorities

Winning Accelerating Innovating Simplifying Supplement


in development in for value & improving organic
Established Emerging our operating growth through
Markets Markets model acquisitions

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Focus on Execution in Established Markets

A more agile structure armed with the right tools

A structure fit to implement our Tools and initiatives to execute


strategy better

Organisational structure fully in place Improve salesforce excellence


Commercial operations simplified Drive better pricing and evidence
Global functions to drive excellence and efficiency Inventory management and supply chain
initiatives

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US shift towards day-case surgery

Portfolio breadth and differentiation in outpatient/ASC* setting

Leading Sports Outpatient ENT Differentiated


Medicine portfolio solutions Joint Replacement
offering

Complete line of Comprehensive line of JOURNEY II Total Knee


visualization, access, products for ENT surgery System
resection and repair used in outpatient NAVIO Robotics-assisted
products COBLATION advanced RF Surgical System
LENS Surgical Imaging technology that minimizes VISIONAIRE Cutting
System thermal damage Guides
WEREWOLF COBLATION VERILAST Technology
System

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* Ambulatory Surgery Centres provide same-day surgical care
Emerging Markets - a pillar of higher growth

Return to sustainable double digit growth

Growth potential supported by secular Emerging Markets returned to growth*


growth trends

25%
China: double digit growth expected for 20%
full year with improved channel 15%
management 10%
Gulf States: Tender order in Q2, not 5%
expected to repeat in H2 0%
Latin America and South East Asia -5%
growing well -10%
2013 2014 2015 2016 2017

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* All revenue growth rates are on an underlying basis and without adjustment for number of selling days
Innovation in robotics-assisted surgery

NAVIO expansion continues at pace

Total Knee application robotics becoming


Other highlights mainstream
expands opportunity

FDA approval for Total 2016: >50% growth


Knee indication for our Improving utilisation per
JOURNEY II, GENESIS II installed unit
and LEGION platforms International: Multiple
Strong interest following robots sold in India
full launch
Full pipeline of further
indications

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ArthroCare acquisition update

Meeting all our three-year targets

A strengthened Synergies achieved Year 3 metrics


combined business ahead of time met or exceeded

A stronger Sports Integration completed


Medicine business ahead of time
Combined product >$50m of additional
pipeline delivering sales from cross-selling
Key talent retained $85m of total synergies
on trading profit level

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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

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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%*

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* Based on the foreign exchange rates prevailing on 21 July 2017
Franchise revenue analysis
2016 2017
Full
Q1 Q2 Q3 Q4 Q1 Q2
Year
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


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All revenue growth rates are on an underlying basis and without adjustment for number of selling days
Regional revenue analysis
2016 2017

Full
Q1 Q2 Q3 Q4 Q1 Q2
Year

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 29
All revenue growth rates are on an underlying basis and without adjustment for number of selling days
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

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