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Smith & Nephew Reports 2008 Results

Smith & Nephew Plc. (Smith & Nephew) reported revenues of $3.8 billion for the full year of 2008, compared with the revenues of $3.37 billion in the previous year-end. It reported net income attributable to the equity holders of $377 million, or $42.4 cents per share, for the full year of 2008, compared with the net income attributable to the equity holders of $316 million, or $34.1 cents per share, in the previous year-end.

Q4 Commentary

Underlying Group revenue grew by 7%

Orthopaedics revenues increased by 6%, reflecting a strong US performance

Endoscopy delivered another good result growing revenues by 9%

Advanced Wound Management grew revenues by 7%, driven by a strong European and rest of the world performance

Trading margin of 23.2%, marginally up on last year, impacted by NPWT investment, Plus and compliance costs

EPSA was maintained at 16.6c

Full Year Highlights

Group reported revenue up 13% to USD3.8 billion, underlying growth of 6%

Trading profit up 10% to USD776 million, up 6% underlying

EPSA increased 7% to 55.6c

Orthopaedics revenues grew at 5% (8% excluding Plus impact(4))

Endoscopy finished the year with 8% growth. Our actions leading to an improving US performance trend

Advanced Wound Management, at 7% growth, delivered its best growth performance for 5 years

Trading margin at 20.4%, masking the longer term operating efficiency improvements we have made to our businesses

Second interim dividend up 10% to 8.12c per share

Commenting on the full year, David Illingworth, chief executive of Smith & Nephew, said: “We finished the year in a positive frame of mind. We grew underlying sales for the year by 6%, with a similar increase in trading profit. All of our businesses reported underlying sales growth. These achievements are particularly notable against the backdrop of the slowdown in the global economy and a number of industry-wide and company specific issues.

“We remain alert to any changes in the near-term outlook in our businesses and believe that our company-wide Earnings Improvement Programme, which we started two years ago, gives us a head start in dealing with any tougher operating climate.

“We are focused on extending our track record of delivering innovative products, bringing clinical benefits to patients and economic benefits to healthcare providers. We put our customers first, listen to their needs and deliver on our promises. The

Board has continued its policy of increasing, by 10%, the dividend which is declared in US dollars, creating a significant additional benefit for sterling-based shareholders. I am confident we will continue to deliver sustainable long-term growth for our shareholders.”

Full Year Results

Smith & Nephew increased reported revenues by 13% to $3,801 million compared to last year, an underlying sales growth of 6% and a similar increase in trading profit. All of our businesses reported underlying sales growth for the year.

In May 2008, we announced that we had uncovered unacceptable selling practices in the former Plus Orthopedics Holding AG (“Plus”) businesses and anticipated that harmonising these sales practices would reduce revenues by about $100 million in a full year. During 2008 we estimate we lost $64 million of sales due to these issues and we are now reducing our full year lost sales guidance to around $80 million, reflecting the trading patterns to date. In January 2009 we announced that we had achieved agreement with the vendors of Plus to reduce the total original purchase price by CHF159 million from CHF1,086 million ($889 million at the then prevailing exchange rates) and release them from substantially all of their warranties.

Fourth Quarter Results

We generated revenues of $960 million, up 7% underlying on the same period last year, after adjusting for movements in currency of 8%.

Trading profit in the quarter was $222 million, representing underlying growth of 8%. The Group trading margin was 23.2%, compared to 23.1%.

Adjusted earnings per share was unchanged on the prior year at 16.6¢ (83.0¢ per American Depositary Share, “ADS”). Basic earnings per share was 13.3¢ (66.5¢ per ADS) compared with 10.4¢ (52.0¢ per ADS) in 2007.

Trading cash flow was $159 million in the quarter reflecting a trading profit to cash conversion rate of 72%.

Net debt decreased in the quarter to $1,332 million.