International Financial Reporting Standards (“IFRS”)

Peter Hooley, Finance Director17 November 2004

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• Under EU Regulation, Smith & Nephew is required to report its results for 2005 under IFRS.

• Comparative information will be provided for 2003 and 2004, which is the subject of this presentation.

• This comparative information may be amended by subsequent changes in IFRS and interpretations thereof.

• IFRS Impact:

Adjusted EPS -1.5% 2003, -1% 2004

EBITA margin Neutral

Cash Flow Neutral

International Financial Reporting Standards (“IFRS”)

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17 November 2004 - Quantification to investors of IFRS on 2003 and 2004 up to Quarter 3

3 February 2005 - Preliminary announcement of 2004 results under UK GAAP

- Quantification of IFRS on 2004 results

- Thereafter 2005 on IFRS basis (including guidance)

March 2005 - Publication of booklet containing:

■ Revised accounting policies under IFRS

■ Reconciliations between UK GAAP and IFRS for income statements and balance sheets for 2003 and 2004

■ Restated income statements and balance sheets for 2003 and 2004, including quarters.

May 2005 - Announcement of Quarter 1 2005 results under IFRS.

IFRS Timetable

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The Main Impact of IFRS on Smith & NephewBalance Sheet

Attributable Profit

PBTA

Accounting ChangesAcquisition Goodwill Allocation between Intangibles and Goodwill - -

No longer amortised but impairment tested annually -

Intangible Assets Amortisation of Intangibles acquired in a business combination but presented after EBITA

-

Pensions Full deficit recognised and FRS 17 style costing

Share Based Payment Option pricing valuation and amortisation

Deferred Tax Differences in recognition principles -

Presentational ChangesJoint Venture Results now given after tax and interest - -

Discontinued Results and disposal presented net, after tax - -

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IFRS Changes to Adjusted EPS (£m)

2003FYr Q1 Q2 Q3

PBTA under UK GAAP 242.2 62.4 66.8 65.8Tax charge under UK GAAP (70.2) (18.1) (19.4) (19.0)Earnings under UK GAAP 172.0 44.3 47.4 46.8

Adjustments to EBITAPension current service cost 3.1 0.8 0.9 0.9 Share based payments (4.1) (1.0) (1.2) (1.2)Lease reclassification 0.4 0.1 0.1 0.1

(0.6) (0.1) (0.2) (0.2)Adjustments to Financing Charges Earnings

Pension financing cost under IFRS (3.8) (0.4) (0.5) (0.4)

Interest on reclassified lease (0.8) (0.2) (0.1) (0.2)(4.6) (0.6) (0.6) (0.6)

2.5 0.3 0.4 0.3169.3 43.9 47.0 46.3

Average shares 930m 934m 934m 935mAdjusted EPS under UK GAAP 18.49p 4.74p 5.08p 4.99pAdjusted EPS under IFRS 18.20p 4.70p 5.03p 4.95p

2004

Earnings before Intangible amortisation and discontinued restructuring IFRS adjustments to tax

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First Time Adoption – Options Selected

Chosen to present 2003 and 2004 comparative information.

Transition date 1 January 2003.

Business Combinations - No restatement prior to transition date.

Pensions - Full pension deficit recognised at transition and “FRS 17” style costing approach adopted.

Share Based Payments - Option pricing valuations and amortisation applied from 2003; 2001 and 2002 using values disclosed previously in 20-F

Financial Instruments - 2003 and 2004 not restated for IAS 39.

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IFRS Changes to Shareholders’ Funds (£m)

2003FYr Q1 Q2 Q3

Shareholders' Funds under UK GAAP 640.8 681.8 707.9 752.4 Write back of Goodwill Amortisation at year end rategoodwill amortisation at year end rate 17.5 21.4 26.8 32.5 Intangible asset amortisation - (0.4) (1.8) (3.3)Pension deficit net of deferred tax of £43.5m (88.3) (88.3) (88.3) (88.3)Deferred Tax : provision on rolled over gains (35.0) (35.0) (35.0) (35.0)

: write back of provisions not recognised 45.8 45.8 45.8 45.8 : on share options 5.0 5.1 5.3 5.5

Dividend provisions 28.9 28.9 17.8 - Other (5.9) (5.3) (4.8) (4.1)Shareholders' Funds under IFRS 608.8 654.0 673.7 705.5

Based on provisional MMT valuation

2004

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IFRS Changes to Income Statement - 2003 (£m) 1 2 3 4 5

UK GAAP

Profit Recognition

IFRS

EBITA 220.7 - - (0.6) 220.1 Pensions 3.1

Goodwill Amortisation (18.5) - - 18.5 - Share based Exceptionals/Restructuring (22.4) - - - (22.4) payments (4.1)

JV Profit 22.7 (22.7) - - - Leases 0.4

JV Restructuring (2.7) 2.7 - - - (0.6)

Associate Profit 4.8 - (4.8) - - Profit on disposal 31.5 - (31.5) - - Interest on finance lease

PBIT 236.1 (20.0) (36.3) 17.9 197.7 Pensions financing

Interest (6.0) 1.5 0.7 (0.8) (4.6) Tax effect of ,

Other Finance Costs - - - (3.8) (3.8)

Profit before tax 230.1 (18.5) (35.6) 13.3 -

Profit before tax and results of JV - - - - 189.3 reversed

Tax (82.0) 6.0 17.4 2.5 (56.1) Includes tax on disposal

Profit before results of JV - - - - 133.2 of £16.1m

Results of JV 12.5 - - 12.5 Profit from continuing operations - - 145.7 Associate op.profit 4.8

Discontinued operations - - 18.2 8.5 26.7 Interest (0.7)

Attributable profit for year 148.1 - - 24.3 172.4 Tax (1.3)

Gain on disposal 40.0Tax on gain (16.1)

26.7

Discontinued Presentation

JV Presentation

and plus deferred tax differencesGoodwill on disposal

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How we get to adjusted EPS under IFRS (£m)

UK GAAP IFRS Q1 Q2 Q3Attributable profit 148.1 172.4 43.6 45.6 44.8 Restructuring and acquisition expenses 22.4 22.4 - - - JV Restructuring 2.7 2.7 - - - Goodwill amortisation 18.5 - - - - Amortisation of acquisition intangibles - - 0.3 1.4 1.5 Net profit on disposal of associate (31.5) (40.0) - - - Tax on restructuring and profit on disposal 11.8 11.8 - - - Adjusted earnings 172.0 169.3 43.9 47.0 46.3

Average shares 930 930 934 934 935Adjusted EPS 18.49p 18.20p 4.70p 5.03p 4.95p

2003 2004 IFRS

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What does this mean for Smith & Nephew?

2003FYr Q1 Q2 Q3

EBITA Margin UK 18.7% 18.6% 19.4% 19.4%IFRS 18.7% 18.6% 19.4% 19.3%

Adjusted EPS UK 18.49p 4.74p 5.08p 4.99pIFRS 18.20p 4.70p 5.03p 4.95p

Adjusted EPS Growth UK 15% 24% 7% 15%IFRS 16% 24% 8% 16%

ROCE UK 32% 7% 8% 7%IFRS 32% 8% 8% 7%

Gearing UK 20% 22% 24% 21%IFRS 22% 24% 27% 24%

There is no impact on cash flow.

2004

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Income Statement under IFRS (£m)2003

FYr Q1 Q2 Q3Revenue 1,178.9 302.0 307.2 307.1 Cost of Goods sold (345.1) (82.8) (82.5) (81.1)Selling, general and admin expenses (546.9) (147.0) (148.6) (149.9)Research and development expense (66.8) (16.0) (16.6) (16.8)Trading profit 220.1 56.2 59.5 59.3

Restructuring and acquisition related expenses (22.4) - - - Amortisation expense - (0.3) (1.4) (1.5)Profit before financing and results of JV 197.7 55.9 58.1 57.8 Net interest (4.6) 1.3 0.9 0.3 Other finance costs (3.8) (0.4) (0.5) (0.4)Profit before tax and results of JV 189.3 56.8 58.5 57.7 Taxation (56.1) (16.6) (17.0) (16.8)Profit before results of JV 133.2 40.2 41.5 40.9 Share of results of JV 12.5 3.4 4.1 3.9 Profit from continuing operations 145.7 43.6 45.6 44.8 Discontinued operations 26.7 - - - Attributable profit for the year 172.4 43.6 45.6 44.8

2004

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Income Statement under IFRS 2003 (£m)

Q1 Q2 Q3 Q4 FYRRevenue 277.2 300.1 288.9 312.7 1,178.9 Cost of Goods sold (83.1) (89.1) (86.4) (86.5) (345.1)Selling, general and admin expenses (133.1) (137.4) (135.1) (141.3) (546.9)Research and development expense (16.2) (15.7) (16.6) (18.3) (66.8)Trading profit 44.8 57.9 50.8 66.6 220.1

Restructuring and acquisition related expenses (4.3) - (17.6) (0.5) (22.4)Amortisation expense - - - - - Profit before financing and results of JV 40.5 57.9 33.2 66.1 197.7 Net interest (1.1) (1.2) (1.2) (1.1) (4.6)Other finance costs (1.1) (1.4) (1.2) (0.1) (3.8)Profit before tax and results of JV 38.3 55.3 30.8 64.9 189.3 Taxation (10.8) (15.2) (11.6) (18.5) (56.1)Profit before results of JV 27.5 40.1 19.2 46.4 133.2 Share of results of JV 3.0 2.9 2.7 3.9 12.5 Profit from continuing operations 30.5 43.0 21.9 50.3 145.7 Discontinued operations 1.0 0.7 25.1 (0.1) 26.7 Attributable profit for the year 31.5 43.7 47.0 50.2 172.4

2003

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Assets under IFRS (£m)

2003FYr Q1 Q2 Q3

Non-current AssetsProperty, plant and equipment 266.5 266.6 276.1 286.1 Intangible assets 286.9 362.4 365.5 372.5 Investments 5.0 4.9 4.9 5.3 Investment in joint venture 120.2 112.6 117.9 123.8 Non-current receivables 22.9 22.9 22.9 22.9 Deferred tax assets 53.0 53.1 53.3 53.5

754.5 822.5 840.6 864.1 Current Assets

Inventories 230.6 243.6 264.2 291.6 Trade and other receivables 300.1 311.2 308.6 299.8 Cash and cash equivalents 26.0 26.8 25.1 39.3

556.7 581.6 597.9 630.7

Total Assets 1,311.2 1,404.1 1,438.5 1,494.8

2004

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Equity and Liabilities under IFRS (£m)

2003FYr Q1 Q2 Q3

Equity attributable to equity holders of the parentCalled up equity share capital 114.1 114.3 114.3 114.4Share premium account 152.0 154.7 156.0 157.1Own shares (2.1) (2.5) (2.5) (2.5)Retained earnings 344.8 387.5 405.9 436.5

608.8 654.0 673.7 705.5

Non current liabilitiesLong term borrowing 109.2 143.9 146.9 129.2Retirement benefit obligation 137.5 137.4 137.2 136.9Other payables due after one year 8.8 8.8 8.8 8.8Deferred tax liabilities 52.5 53.7 56.6 59.7

308.0 343.8 349.5 334.6

Current liabilitiesTrade and other payables 208.6 219.2 220.7 254.0Bank overdrafts and loans - due within one year 96.9 92.7 96.9 96.9Provisions - due within one year 19.5 17.1 15.3 15.9Current tax payable 69.4 77.3 82.4 87.9

394.4 406.3 415.3 454.7Total liabilities 702.4 750.1 764.8 789.3Total Equity and Liabilities 1,311.2 1,404.1 1,438.5 1,494.8

2004

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Business Unit Analysis under IFRS

FYrQ1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4£m £m £m £m £m £m £m £m % % % % %

2004Orthopaedics 142 145 145 32 34 32 22.8 23.1 22.3Endoscopy 75 75 72 14 14 13 19.0 19.1 18.2Wound Management 85 87 90 10 12 14 11.4 13.4 15.5

302 307 307 56 60 59 18.6 19.4 19.3

2003Orthopaedics 126 133 127 139 28 31 26 35 21.9 23.3 20.3 25.3 22.8Endoscopy 72 77 72 79 12 16 13 18 17.3 20.2 18.2 23.5 19.9Wound Management 79 90 90 95 5 11 12 13 6.1 12.5 13.3 13.6 11.5

277 300 289 313 45 58 51 66 16.2 19.3 17.6 21.3 18.7

Sales EBITA Margin

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Forward Looking Statements

This presentation contains certain “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995. In particular, statements regarding planned growth in our business and in our operating margins discussed under “Outlook” are forward-looking statements. These statements, as well as the phrases “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 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 20-F, 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.