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An analyst presentation to discuss the Company’s fourth quarter results will be held at 12.30pm GMT/ 7.30am EST today, Thursday 7 February.  There will be a live webcast of this presentation on the Smith & Nephew website.  An on demand replay will be available shortly following the close of the call.  A podcast will also be available at the same address.  A listen-only service is available by calling +44 (0)20 7806 1955 in the UK or +1 718 354 1389 in the US.  Analysts should contact Samantha Hardy on +44 (0)20 7960 2257 or by email at samantha.hardy@smith-nephew.com for presentation details.

Notes

1. Unless specified as ‘reported’, all revenue increases throughout this document are underlying increases after adjusting for the effects of currency translation and acquisitions.  See note 3 to the financial statements for a reconciliation of these measures to results reported under IFRS.
2. A reconciliation from operating profit to trading profit is given in note 4 to the financial statements.  The underlying increase in trading profit is the increase in trading profit after adjusting for the effects of currency translation and acquisitions.  Unless specified as ‘reported’ all trading profit increases throughout this document are underlying.
3. The EPS for the twelve months in the comparable period included 37.3 cents from the gain on sale of BSN Medical.
4. Adjusted earnings per ordinary share (“EPSA”) growth is as reported, not underlying, and is stated before restructuring and rationalisation costs, acquisition related costs, the legal settlement with the US Department of Justice, (“the legal settlement”), amortisation of acquisition intangibles and taxation thereon, and in 2006 the gain on the disposal of the joint venture and the related fair value adjustment.  See note 2 to the financial statements.
5. Trading cash flow is cash generated from operations less capital expenditure but before the Macrotextured settlements, acquisition related costs, the legal settlement and restructuring costs.

This press release 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 press release 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.

^◊Trademark of Smith & Nephew.  Certain marks registered US Patent and Trademark Office.

Smith & Nephew is a global medical technology business, specialising in Orthopaedic Reconstruction, Orthopaedic Trauma and Clinical Therapies, Endoscopy and Advanced Wound Management products.  Smith & Nephew is a global leader in arthroscopy and advanced wound management and is one of the leading global orthopaedics companies.

Smith & Nephew is dedicated to helping improve people's lives.  The Company prides itself on the strength of its relationships with its surgeons and professional healthcare customers, with whom its name is synonymous with high standards of performance, innovation and trust.  The Company operates in 32 countries around the world.  Annual sales in 2007 were $3.4 billion.

The fourth quarter marked a successful completion of 2007 for Smith & Nephew.  It has been a very active year across the business.

We had a very successful year in Reconstruction with the BIRMINGHAM HIP^◊ Resurfacing System (“BHR^◊”) in the US, following its launch there last year, and saw our US knee business recover in the fourth quarter.  Reconstruction continues to deliver above market growth as it has done for 5 consecutive years.  Advanced Wound Management returned to growth after several difficult years and did so while the business was being restructured.  Endoscopy earned double digit revenue growth for the first time in five years benefiting from investment in its business outside the US.  In Trauma we now have a good product range and the salesforce to deliver continued growth.

We launched the Earnings Improvement Programme (“EIP”) in the first quarter and by the end of the year had improved our trading margin, before the two acquisitions made in the year, by over one per cent.  We have made good progress in the operational management of the company.  We have centralised functions within and across the four businesses in areas such as IT and procurement and made substantial changes in manufacturing and sales force management.

As we move into 2008, our long term strategy is to concentrate on high growth segments in our four businesses, with emphasis on meeting the needs of our customers and acquiring businesses which fit within this strategy. Our innovative products which enable good outcomes for patients, medical professionals and healthcare providers alike are expected to generate continued growth in 2008 and beyond.

We grew Group revenues in the year to $3,369 million (a 21% increase in reported revenues) with particularly strong growth in Reconstruction.  Reconstruction revenues were $1,240 million for the year, benefiting particularly from hip resurfacing in the US and a recovery in US knee revenues in the fourth quarter.
 
Reported trading profit for the year was up 24% to $706 million with a 21.0% trading margin, 50 basis points higher than 2006 as the benefits of the EIP become clear. EIP has good momentum going into 2008.

Net interest and finance charges were $24 million as the gearing of the balance sheet takes effect. The tax charge of $202 million reflects the effective rate for the year of 29.6% on profit before restructuring costs, acquisition related costs, the legal settlement and amortisation of acquisition intangibles.  Adjusted attributable profit of $480 million is before the costs of restructuring, acquisition related costs, the legal settlement and amortisation of acquisition intangibles and taxation thereon.  Attributable profit was $316 million.

EPSA rose by 15% to 52.0¢ (260.0¢ per American Depositary Share, (“ADS”)).  Reported basic earnings per share were 34.2¢ (171.0¢ per ADS).  A calculation of EPSA is provided in note 2 to the financial statements.

Trading cash flow (see note 5 above) was $602 million compared with $342 million a year ago.  This is a trading profit to cash conversion ratio of 85% compared with 60% a year ago reflecting stronger working capital management and a reduction in the working capital and capital expenditure requirements of the US launches of JOURNEY^◊ Bi Cruciate Stabilised Knee System, LEGION^◊ Revision Knee System and BHR^◊.

We grew Group revenues in the quarter to $967 million (25% growth on a reported basis), including a full quarter of Plus revenues of $98 million. This represents underlying growth of 8% on the same period last year after adjusting for movements in currency of 5% and acquisitions of 12%.

Trading profit in the quarter was $222 million, representing underlying growth of 14%.  Trading margin of 24.8% was 110 basis points above the same quarter last year on a like for like basis reflecting the substantial progress in the EIP in all four businesses.  Reported trading margin at 23.0% was 70 basis points below the comparable quarter after the expected dilution of 180 basis points from acquisitions. 

Net interest and finance charges were $13 million, reflecting the borrowings following the Plus acquisition and the share repurchases.  $45 million was charged in the quarter in respect of the Plus integration and the utilisation of Plus inventory stepped-up on acquisition and $15 million in respect of EIP costs.

The tax charge, on profit before restructuring costs, acquisition related costs, the legal settlement and amortisation of acquisition intangibles, was 28.2%.  Adjusted attributable profit, which is before the costs of restructuring, acquisition related costs, the legal settlement and the amortisation of acquisition intangibles and taxation thereon, was $150 million.

EPSA increased by 10% to 16.6¢ (83.0¢ per ADS) in the quarter.  Basic earnings per share was 11.1¢ (55.5¢ per ADS) compared with 14.9¢ (74.5¢ per ADS) in 2006, which reflected the sale in the fourth quarter of 2006 of BSN Medical.

Trading cash flow of $200 million in the quarter, reflects a higher trading profit to cash conversion rate of 90%, compared with 85% a year ago.

We grew Reconstruction revenues to $374 million in the quarter, an increase of 11% compared to the fourth quarter last year. This is ahead of the global market which grew by an estimated 10%. Growth for the year was 13%, at total revenues of $1,240 million, making this the 5th consecutive year of above market growth. The active informed patient segment is the clear focus of this business and the segment in which we continue to have a clear competitive advantage.

Reconstruction revenues in the US at $163 million grew by 16% in the quarter benefiting from continued BHR^◊ procedure adoption and a recovery in the growth of knee revenues.  Outside the US Reconstruction revenues grew by 5% as a result of some disruption from the knee recall.

Hip revenue growth remained strong at 14% worldwide for the quarter.  In the US hip revenues grew by 27% as BHR^◊ enjoyed a continuing high level of acceptance and benefited from the publication of the Australian registry data which showed that the BHR^◊ has superior survival rates to all other hip resurfacing products.

Worldwide knee revenue growth was 10%, with knee growth in the US of 10% as the balancing of the salesforce’s focus in the US drove the recovery of knee revenues.  JOURNEY^◊ Bi Cruciate Stabilised Knee System and JOURNEY DEUCE^◊ Bi-Compartmental Knee System revenues both grew well in the quarter.  Outside the US knee revenues grew 10%.

A small number of Plus knee products were voluntarily recalled in the quarter as a result of a supplier’s manufacturing error which resulted in some knees being produced with a higher than specified iron content. The results to date of intensive testing are positive and show no clinically significant degradation of the wear characteristics of the implants and no indications of toxicity.  There are no current findings which indicate the need for revision surgery and there have been no reported patient incidents.

The fourth quarter’s trading margin of 27% excluding Plus represents a decline of 50 basis points.  Included in the fourth quarter are a number of expenses incurred in relation to the legal settlement with the Department of Justice.  The trading margin including Plus is 22.2%.  Trading margin for the year was 23.8%, 160 basis points lower than in 2006.

In September 2007 an industry wide settlement was agreed with the US Department of Justice. As part of the settlement a Monitor was put in place for 18 months. We continue to work closely and co-operatively with him and his team.  We are co-operating fully with the Securities and Exchange Commission in their informal investigation into industry wide relationships with surgeons in some European countries.

We grew Trauma and Clinical Therapies revenues by 9% in the quarter to $176 million (13% for the year), with growth in the US of 10% and 6% outside the US.

Fixation product revenues grew by 7% worldwide, compared to estimated market growth of 9%, and by 9% in the US, and 5% outside the US. Revenues from TRIGEN^◊ INTERTAN^◊ Nails and the PERI LOC^◊ Locked Plating System, including the new VLP ranges, drove the quarter’s revenue growth.  We are determined to improve this level of growth, which lags the market.  We are focused on measures to improve the quality of our service to customers, especially in the US.

Clinical Therapies revenue growth was 11% in the quarter with a strong contribution from the EXOGEN 4000+^◊ Ultrasound Bone Healing System which grew revenues at three times the market growth rate.  The joint fluid therapies market continued to be impacted by reimbursement pricing pressure causing a slowing of revenue growth in this market segment.  Clinical Therapies as a whole continued to gain market share throughout 2007.

Trading margin for the year was 20.7%, 110 basis points over 2006, as the benefits of the EIP driven reorganisation begin to be realised. In the quarter trading margin was 26.4% excluding Plus (26.7% including Plus).

We grew Endoscopy revenues to $201 million in the fourth quarter, an increase of 7%, which resulted in full year growth of 10%.  This is the first year of double digit revenue growth in Endoscopy for five years.  This growth has been fuelled by investment outside the US in the sales force and marketing, and by the increasing focus on arthroscopy. Revenues in the quarter grew by 10% outside the US and 4% in the US.  We continue to see very good opportunities in the markets in Europe and Asia.

Arthroscopy revenues grew in the quarter by 7%, with strong growth in all segments, behind our current estimate of market growth.  Repair revenues at 9% continue to outpace resection growth where revenues grew by mid single digits this quarter.

Digital Operating Room (DOR) and Visualisation revenues grew by 6% in the quarter. The new HD camera, launched earlier in the year, has been well received in the market.

The trading margin of 23.9% earned in the fourth quarter is a just under two percent improvement on the same quarter last year, reflecting the enduring benefit of the successful manufacturing reorganisation completed earlier in the year.  Trading margin for the year was 20.1%, 110 basis points over 2006.

In 2007 a series of management actions have been taken to restructure Advanced Wound Management.  These actions include the announcement of the move to China of a significant proportion of manufacturing, the renegotiation of supply contracts and the elimination of layers of management.  Momentum is now building in this business and we continue to see substantial potential.

We grew revenues by 4% in the quarter (5% for the year) to $216 million. US revenue growth was 5%.  Outside the US revenues grew by 4% against a background of tighter European healthcare budgets.

Revenues in the exudate management segment grew well above the market at 14% in the quarter benefiting from the launch of ALLEVYN^◊ Ag Absorbent Silver Barrier Dressing.  Infection management grew more slowly as a result of lower US demand.  The surgical segment continued to grow strongly, from a small base, driven by the VERSAJET^◊ Hydrosurgery System and achieved over 50% growth in the quarter.

BlueSky has continued to make good progress ahead of the planned launch in the first quarter of 2008.

The trading margin of 21.6%, excluding the impact of BlueSky, is 80 basis points ahead of the same quarter in 2006.  Trading margin including Bluesky is 20.4%. Trading margin for the year was 17.5%, 120 basis points over last year as management actions taken as part of the EIP realise benefits.

Under the two year share buy-back programme of up to $1.5 billion announced last year we had bought back a total of 52 million shares at a cost of $640 million at the end of the year.  The board has reviewed this programme in the light of current market conditions and opportunities.  In order to preserve flexibility the Board currently expects to complete the programme over a total of three years.

The revenue outlook for 2008 for both the individual businesses and for the business as a whole continues to be favourable.  Underlying demographic trends are creating strong demand and our innovative products and customer focussed approach to the market enables us to meet this demand.

In addition the EIP is progressing well and we continue to expect to achieve, on average, at least a 1% improvement in trading margin per annum, before the impact of acquisitions and any change in pricing environment, between the start of the programme and the end of 2010.

There are several factors driving our confidence in Smith & Nephew’s continued growth, including the growth in demand for our current products, our continued emphasis on new products, the Plus and BlueSky acquisitions and the good momentum from our EIP.  Smith & Nephew faces 2008 and beyond with confidence.