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Preliminary results announcement 2006

Enabling people to live healthier, more active lives

1

Forward looking statementsThis presentation contains certain "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995. In particular, statements regarding expected revenue growth and trading margins discussed under "Outlook" are forward-looking statements as are discussions of our product pipeline. These statements, as well as the phrases "aim", "plan", "intend", "anticipate", "well-placed”, "believe", "estimate", "expect", "target", "consider" and similar expressions, are generally intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors (including, but not limited to, the outcome of litigation, claims and regulatory approvals) that could cause the actual results, performance or achievements of Smith & Nephew, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. 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 20F, for a discussion of certain of these factors.

All forward-looking statements in this presentation are based on information available to Smith & Nephew as of the date hereof. All written or oral forward-looking statements attributable to Smith & Nephew or any person acting on behalf of Smith & Nephew are expressly qualified in their entirety by the foregoing. Smith & Nephew does not undertake any obligation to update or revise any forward-looking statement contained herein to reflect any change in Smith & Nephew's expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

John BuchananChairman

3

Introduction

• New management structure working well

• Excellent close to the year

• Good progress from all four businesses

• Return up to $1.5 billion capital to shareholders over two years

• Update on rigorous review of margin improvement opportunities

Sir Christopher O’DonnellChief Executive

5

2006 – An eventful year

• Recon market– Dramatic slowdown– Growth rate halved

• Business structure– Divisionalised Ortho into Recon and

Trauma• Management progression

– New chairman, new CFO, COO• BSN divestment

– Successful but dilutes earnings• Biomet negotiations

– Lengthy but not fruitful• New products

– Strongest slate ever - particularly Recon

6

Business highlights Q4 2006

• Group revenue growth up 11% to $771m

• Trading profit increased 17% to $183m

• Good performance across all divisions

• Reconstruction revenue grows with added momentum at 15%

• Trauma revenue growth improves again to 17%

• Endoscopy achieves revenue growth of 9%

• Advanced Wound Management revenue improves 3% and up 7% after adjusting for DERMAGRAFT®

All revenue increases are given at constant exchange ratesDERMAGRAFT® is a trademark of Advanced BioHealing Inc

7

Strategy: growth

• Continued organic growth through innovation

– Clinical benefits for patients

– Value for healthcare systems

– Focus on younger, more active patients

• Targeting above market revenue growth in each sector

• Continued investment in R&D and innovation

8

Strategy: acquisitions

• Seek value-enhancing acquisitions

– Unique/additive technologies

– Improved channels to market

• Particular focus on emerging markets for biological repair of cartilage and bone

– EXOGEN™ - proven, non-invasive bone repair

– TRU-FIT™ (OBI) – focal cartilage defects

• Maintain balance sheet flexibility to deliver on opportunities

9

Biomet

• Opportunity to gain scale/improve margin

• Serious review and negotiations

• Identified substantial synergies with some unique to

Smith & Nephew

• Private equity bid at upper end of value

• Eventual outcome means no fundamental change to market structure/players

10

Strategy: balance sheet

• BSN divestment has delivered net cash on balance sheet

• Aim to maintain investment grade credit rating

– Efficient balance sheet

– Flexibility for future acquisitions

• Intention to return up to $1.5 billion via share buyback over next two years

11

Strategy: earnings improvement

• Smith & Nephew invests strongly in ortho growth and leads recon sector growth in 15 of last 16 quarters

• Continued investment in all businesses to maintain abovemarket growth

• Competitor ortho companies have leading edge margins in med-tech sector (30% plus). Endo/Wound companies have lower margins

• Clear scope for margin enhancement via Earnings Improvement Programme– extensive management effort– in-depth business analysis– final phase of planning– Biomet process extends delivery timeline

12

Strategy: Advanced Wound Management

• Wound is the global market leader in the wound dressing sector

• Baby boomers have benefited Ortho Recon, but have yet to impact the wound sector

• 2006 a year of transition for Wound

– DERMAGRAFT® exit completed

– New business focus/model

– New management global/US

– Margin enhancement commenced

• Outlook – combination of growth and margin step-up to add significant shareholder value

DERMAGRAFT® is a trademark of Advanced BioHealing Inc.

Adrian HennahChief Financial Officer

14

Income statement 20062005 2006 % growth % growth 2005 2006 % growth$m $m Actual CER $m $m CER

Restated Restated

Revenue 670 771 15% 11% 2552 2779 8%

Trading profit 156 183 17% 13% 517 571 9%

Restructuring costs (40) (84)

Bid related costs (20) (20)

Amortisation of acquisition intangibles (3) (6) (11) (14)

Operating profit 113 157 422 537

Net interest income 2 2 9 10

Other finance income (3) 2 (5) 6

Fair value of hedge of anticipated sales proceeds of J.V.

2 2 (3)

Profit before taxation 114 161 428 550

Trading margin 23.3% 23.7% 20.3% 20.5%

Q4 Full Year

15

Income statement 2006% growth % growth

2005 2006 Actual 2005 2006 Actual$m $m $m $m

Restated Restated

Profit before taxation 114 161 428 550

Taxation (34) (40) (126) (156)

Profit from continuing operations 80 121 302 394

Discontinued operations 7 19 31 351

Attributable profit 87 140 333 745

Add back:

Amortisation of acquisition intangibles 3 6 11 14

Restructuring costs 40 84

Net profit on disposal of JV (19) (351)

Bid related costs 20 20 Fair value of hedge of anticipated sales proceeds of J.V.

(2) (2) 3

Tax on excluded items (12) (5) (29) (6)

Adjusted attributable profit 116 142 22% 397 425 7%

Adjusted EPS ("EPSA") 12.4¢ 15.2¢ 42.3¢ 45.2%

EPS 9.3¢ 14.9¢ 35.5¢ 79.2¢

Q4 Full Year

16

Revenue growth by business segment 2006

(1)

Acq Effect

%

13013Trauma and Clinical Therapies

17(1)18Trauma and Clinical Therapies

8

1

9

10

11

3

9

15

CER

%

9

3

10

11

15

10

14

18

Actual

%

Full Year

(1)Reconstruction

(1)Endoscopy

(2)Advanced Wound Management

(1)Group

(4)Endoscopy

(7)Advanced Wound Management

(3)Reconstruction

(4)Group

Currency

%Quarter 4

17

1365

139

355

357

514

374

40

97

100

137

US$m

8

(3)

7

13

9

10

(5)

4

14

16

Growth%

867

374

190

71

232

243

100

57

20

66

Europe$m

6

1

9

18

8

9

5

14

21

8

Growth%

547

185

120

69

173

154

52

33

21

48

ROW$m

12

6

14

13

16

18

9

20

30

22

Growth%

2779

698

665

497

919

771

192

187

141

251

Total$m

13Trauma and Clinical Therapies

17Trauma and Clinical Therapies

10Reconstruction

9Endoscopy

1Advanced Wound Management

8

15Reconstruction

9Endoscopy

3Advanced Wound Management

11

Full Year

Growth%Quarter 4

CER revenue growth by geography &business segment 2006

18

20.524.429119Trauma and Clinical Therapies

20.324.134141Trauma and Clinical Therapies

20.3

14.1

20.6

24.8

20.5

16.3

18.5

25.4

Margin%

Full Year- - - - - - - - - Q4 - - - - - - - - -

23.3156670

18.432174Advanced Wound Management

25.041164Endoscopy

25.454213Reconstruction

2005 Restated

23.7183771

20.840192Advanced Wound Management

21.440187Endoscopy

27.569251Reconstruction

2006

Margin%

Trading Profit$m

Revenue$m

Profitability by business segment 2006

19

550428161114Profit before taxation (10)(9)(2)(2)Interest received

10922Interest received

150949316Free cash flow(144)(112)(48)(33)Taxation paid

28419713947Operating cash flow

-25-13Dividends received from joint venture

28417213934Cash generated from operationsafter capital expenditure

(217)(240)(32)(71)Working capital movements(222)(200)(37)(47)Capital expenditure1691804838Depreciation, amortisation and impairment

141312Share based payment

2006$m

2006$m

2005$m

Restated

2005$m

Restated

Full YearFourth Quarter

Free cash flow 2006

20

Profit ($m) 2006 2005 2004 2003 Profit in Stock Elimination (2) (9) (8) Trading Profit (2) (9) (8) Finance Income (1) - - Taxation 1 3 3 Profit after Tax (2) (6) (5) Death-in-Service Liability after tax 3 3 1 Exchange difference (6) 3 (2) Equity Impact (5) - (6) Balance Sheet ($m) Inventories (61) (53) (49) (39) Death-in-Service Liability (16) (16) (20) (22) (77) (69) (69) (61) Taxation 25 22 22 20 Equity Impact (52) (47) (47) (41)

Restatement

21

Restatement (2)

Total Q1 Q2 Q3 Q4$m

Reconstruction 1 - (3) (3) 7

Trauma and Clinical Therapies - - - - -

Endoscopy - - (2) (1) 3

Wound Management (3) (3) (1) 2 (1)

Trading profit (2) (3) (6) (2) 9

Finance costs (1) - - - (1)

Taxation 1 1 2 1 (3)

Profit after tax (2) (2) (4) (1) 5

22

Capital structure

• Dividend

• Share Buy Back – up to $1.5 billion over two years

23

2007 outlook

• Revenues – continued market outperformance

– Q1 growth lower than Q4 2006 exit rate

• Margins – anticipate slight improvement pre EIP in 2007

• Tax – 31% or thereabouts

David IllingworthChief Operating Officer

25

Market comment

• Continued strengthening of US reconstructive market

• Mixed picture in European markets with continued constraints on healthcare spending

• Japanese market remains difficult but pressures reducing

• Overall, strong underlying demand for our products that offer clinical benefits

• For Q4 and year led industry for growth

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Stryker Biomet Sythes DePuy Zimmer Smith &Nephew

Global Orthopaedics Growth 4th Qtr FY

Source: Company reports/internal researchNote: Growths in constant currencySynthes growths are estimated as Q4 not yet reported

26

FYQ4

10%12%10%12%9%

19%12%15%14%16%

Global

USOutside US

KneesHips

Reconstruction – Q4 2006

• US market recovery maintained, mixed situation OUS

• Growth rate improves in US and OUS

• Improved knee growth outside US

• Outstanding hip growth with BHR™ in US - ahead of plan at $16 million

• New products 16% of revenue in FY 2006 (16% in FY 2005)

BHR™ preserves patient’s bone compared to total hip replacement

27

Reconstruction in 2007

• Market fundamentals remain strong

• Expect modest US market recovery to continue

• Leading the younger active patient segment – expanding market

• 2006 new products driving growth

• US BHR™ introduction gaining traction

• Innovation and technology attracting new customers

28

Trauma and Clinical Therapies – Q4 2006

• Growth momentum continues

• PERI-LOC™ plates and INTERTAN™ nails drive growth

• Outstanding quarter for Clinical Therapies

• Successful integration of DUROLANE® JFT

• New products 26% of revenue in FY 2006(19% in FY 2005)

FYQ4

23%9%

13%15%13%

33%9%

17%26%14%

Global

USOutside US

FixationClinical Therapies

TRIGEN™ INTERTAN™ NailDUROLANE® is a trademark of Q-Med AB

29

Trauma and Clinical Therapies in 2007

• Ageing population and active life styles underpin growth

• Customer focus strategy delivering benefits

• Complete year of full PERI-LOC™ range

• Extended nailing range (INTERTAN™ and TRIGEN™ Meta Nail) strengthens leadership position

• Thriving JFT (SUPARTZ® and DUROLANE®) and EXOGEN™ businesses

• Minimally invasive spine opportunities through more established channels

DUROLANE® is a trademark of Q-Med ABSUPARTZ® is a Trademark of the Seikagaku Corporation

30

Endoscopy – Q4 2006

• Strong growth continues for Repair from success of shoulder knee and hip product portfolios

• Resection growth improves helped by new hand control and enhanced blade range

• Quieter quarter for DOR illustrates variability of sector

• Integration of OBI completed

• New products 28% of revenue in FY 2006 (24% in FY 2005)

FY*Q4*

38%21%9%11%7%

25%27%10%16%6%

Global

USOutside US

RepairDOR

KINSA™ Suture Anchor

* including OBI

31

Endoscopy in 2007

• Patient demand for minimally invasive surgery

• Use strength of arthroscopy market position

• Continued success in fast growing repair segment

• New pump/new hand control to drive competitive conversions

• Benefit of 2006 new product launches

• Continued investment in new innovative products

• Develop OBI potential

32

(3)%(4)%US incl. DERMAGRAFT®

FYQ4

13%9%1%3%

11%

19%9%3%6%

10%

Global

US ex DERMAGRAFT®

Outside US

ALLEVYN™Wound bed prep

Advanced Wound Management – Q4 2006

• Strong consecutive quarterly US growth

• Healthcare spending constraints OUS have continued to impact the business

• Excellent Wound Bed Prep growth despite low price silver competition effect on ACTICOAT™ growth

• ALLEVYN progress maintained

• VERSAJET™ growing at nearly double the rate of last year

• New products 13% of revenue in FY 2006 (14% in FY 2005)

ALLEVYN™ product range

DERMAGRAFT® is a trademark of Advanced BioHealing Inc.

33

Advanced Wound Management in 2007

• US market penetration opportunity

• Obesity continues to add to diabetic patient population

• ALLEVYN™ leadership strengthened by updated product range

• Sustain rapid growth of VERSAJET™ hydrosurgery system

• Improved pace of new product introductions

• Significant margin improvement gains

34

New products 2007

Advanced Wound ManagementEndoscopyOrthopaedic Reconstruction

ALLEVYN™ major new variant

ACTICOAT™ two new variants

HD Video Platform

ALLEVYN™ major new variantBIORAPTOR™ 2.3 OC suture anchor for the hip

KINSA™ OC Suture anchor for Instability repair in the shoulder

ENDOBUTTON™ Direct for Anatomic ACL fixationIV3000™ with strips and labels

PERI-LOC™ Type B PlatesKINSA™ Suture Anchor for Rotator Cuff repairLateral Hip Positioning SystemALLEVYN™ Shaped and sealed

– US

JET-X™ upgradesBIORAPTOR 2.3 OC suture anchor for the shoulder

CAPTION™ Disposable Platelet Concentrator (Limited Release)

Expanded CALAXO™ Osteoconductive screw sizes

JOURNEY™ CoCr (OUS, Japan)JOURNEY™ DEUCE™ Bi-compartmental bi-cruciateretaining knee replacement

Large Cannulated ScrewsAnatomic ACL instrument set for the knee

REFLECTION™ 3 Universal shell with interchangeable poly, metal, ceramic liners

LEGION™ CoCr (EU, Japan)LEGION™ system line extensions

TRIGEN™ META Nail (international release)

Q4Q3Q2Q1

Orthopaedic Trauma

Sir Christopher O’DonnellChief Executive

36

Summary

• Global market conditions continue to be favourable

• 2006 new products plus 2007 introductions provide strong platform for growth

• Aiming for continued market outperformance

• Expect Earnings Improvement Programme to have a substantial impact across the business – announcement with Q1 results

• Strong appetite for exciting technology based acquisitions

Appendix

39

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

RestatedRestated

$m$m$m$m

37226913050Net cash inflow from operating activities (IAS 7)

2006200520062005

-

222

150

(25)

200

94

Full Year

(13)

47

16

Fourth Quarter

-Deduct: dividends received from JV

37Add back: capital expenditure

93Free cash flow

40

€ : $

12/04 Q4/05 12/05 Q4/06 12/06

Period end 1.36 - 1.18 - 1.32

Average 1.25 1.18 1.24 1.31 1.27

£ : $

12/04 Q4/05 12/05 Q4/06 12/06

Period end 1.92 - 1.72 - 1.96

Average 1.84 1.73 1.81 1.95 1.86

Exchange rates

41

Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FYGrowth Growth Growth Growth Growth Growth Growth Growth Growth Growth

% % % % % % % % % %

Reconstruction

Knees 17% 20% 13% 12% 15% 9% 10% 15% 12% 12%Hips 12% 16% 10% 13% 13% 5% 2% 11% 19% 10%

Trauma amd Clinical Therapies

Fixation 14% 13% 15% 16% 14% 7% 9% 12% 9% 9%Clinical therapies 51% 42% 35% 31% 38% 12% 22% 20% 33% 23%

Endoscopy

Repair 21% 23% 23% 20% 21% 19% 18% 22% 27% 21%Visualisation & DOR 21% 3% 2% 8% 7% 1% 3% 20% -2% 5%Resection 0% 2% 3% 4% 2% 3% 0% 4% 6% 3%

Advanced Wound Management

ALLEVYN™ 13% 14% 12% 16% 13% 7% 9% 10% 9% 9%ACTICOAT™ 30% 33% 25% 16% 25% 20% 12% 1% 5% 9%DERMAGRAFT™ and related -25% -10% -25% 0 -16% -33% -85% -96% -100% -90%

Smith & Nephew 11.5% 12.0% 10.0% 11.0% 11.0% 6.0% 6.0% 10.0% 11.0% 8.0%

20062005

Quarterly revenuesSmith & Nephew Key Product Line Revenues in $m at Average Rates Quarterly and Underlying Growth*

* All revenue growths are on an underlying basis, excluding the effects of acquisitions, currency translation and variations in revenue days