2002
Annual Report and Accounts
Delivering
Sustainable
Growth PERFORMANCE
OUR PERFORMANCE CULTURE IS
DRIVING GLOBAL SALES GROWTH 
AND MARGIN IMPROVEMENT .
2002 2001
£ million £ million
Turnover 1,109.9 1,081.7
Profit before taxation:
before goodwill amortisation and exceptional items 209.9 180.9
after goodwill amortisation and exceptional items 177.9 193.6
Earnings per share before goodwill amortisation and exceptional items 16.02p 13.96p
Earnings per share after goodwill amortisation and exceptional items 12.11p 14.07p
Dividends per share 4.80p 4.65p
We are committed to setting new standards
in patient treatment and recovery,
Contents
Directors’ report
01 Financial highlights
02 Chairman’s statement
04 Chief Executive’s statement
10 Board & Group Executive Committee
12 Financial review
14 Corporate social responsibility
16 Corporate governance
17 Remuneration report
Accounts
20 Directors’ responsibilities for the accounts
21 Auditors’ report
22 Group profit and loss account
23 Group balance sheet
24 Group cash flow statement
25 Statement of total recognised gains 
and losses
25 Movement in shareholders’ funds
26 Parent company balance sheet
27 Accounting policies
29 Notes to the accounts
50 Group five year summary
52 Subsidiary and associated undertakings 
ibc Information for shareholders
Financial
highlights INNOVATION
OUR COMMERCIALL Y ORIENTATED
RESEARCH AND DEVELOPMENT IS
CONTRIBUTING TO A STRONG
NEW PRODUCT PIPELINE.
TRUST
OUR SUSTAINABILITY PROGRESS
HAS BEEN RECOGNISED BY OUR
ENTRY INTO THE DOW JONES
SUSTAINABILITY INDEX FOR 2003.
as well as delivering on our promise of healthy
returns to our shareholders.
16.02
9.61
10.88
12.19
13.96
2002 1998 1999 2000 2001
15.1
16.4
17.8
14.7
17.1
2002 1998 1999 2000 2001
1,110
1,053
1,120
1,135
1,082
2002 1998 1999 2000 2001
1,084
714
800
912
978
Group Turnover/
Continuing Sales
£ Million
Group Margins % 
Before goodwill 
amortisation and
exceptional Items
Earnings Per Share
before goodwill 
amortisation and
exceptional items 
Pence
Where this icon appears, more information can be found at
an alternative source. For more detailed financial information
visit www.smith-nephew.com/investors/profile.html 02 Smith & Nephew 2002
TriGen
A summer time car crash
landed this university-
bound student on a
surgeon’s operating table
with a femoral fracture.
The less-invasive TriGen
femoral nailing system
helped to mend her
broken bone and
restored her to walking
so she could start the
autumn term in time.
Financial performance and dividend 
Group sales grew strongly, led by the
Orthopaedics business. Underlying growth of
14% was augmented by acquisitions, which
added a further 4%. Our drive to deliver innovative
products across all our businesses is paying off
and we are also benefiting from the past two
years’ sales force expansions. 
We achieved an ongoing operating margin 
before exceptional items of 16.5%, despite the
dissynergies of the restructuring divestments 
of this and last year. The underlying margin
increased by 0.7%. Before goodwill amortisation,
the margin was 18.1%. 
Investors continue to recognise the company’s
strength and share price growth potential. Smith
& Nephew was one of the UK’s best-performing
stocks in 2002, outperforming the FTSE 100 by
more than 20%.The recommended final dividend
is increased to 3.00p, making a total dividend 
for the year of 4.80p (4.65p in 2001).
People
Our people take pride in our products which
enable patients to regain their lives. They are an
extremely talented group of individuals and we
thank them for their commitment, creativity and
energy in serving the company and the medical
community.
In 2002 we achieved our targets within the
Orthopaedics, Endoscopy and Advanced 
Wound Management markets. Each of Smith 
& Nephew’s businesses strengthened its
positions in the markets in which it operates
through a combination of sales growth, new
products and technology acquisition. 
In March 2002 we acquired and have since
successfully integrated ORATEC Interventions,
Inc., establishing our Endoscopy business as 
a leader in radiofrequency technology and
minimally invasive spinal surgery. We also
acquired the remaining half of the Dermagraft
and TransCyte joint arrangements from
Advanced Tissue Sciences, Inc., gaining full
strategic control of those products. 
We disposed of our Rehabilitation business 
to AbilityOne Corporation also in March 2002,
retaining a 21.5% interest in the expanded
business. This focused the group on our three
chosen areas of expertise.
Chairman’s
statement
We have had another excellent year of growth
within each of our three businesses. Smith & Nephew 2002 03
TriVex procedure
She faces the same
problems every mother
does: dressing the kids,
making lunches, finding
time for herself. Faced
with an uphill battle of
another type – one
against unsightly, painful
varicose veins, she
received treatment with
the TriVex procedure.
She can now handle 
the challenges of
motherhood without the
added difficulty of leg
pain, which allows her
more time to concentrate
on what matters most –
her family.
We pay particular tribute to Larry Papasan 
for his valued contribution as President of the
Orthopaedics business. He retired at the end 
of 2002 and we welcome David Illingworth, 
who has joined us to lead the division to 
further success.
Board
Tim Lankester has chosen not to stand again 
for re-election to the Board and will be standing
down at the AGM in April. We thank him for 
his contribution over the last seven years. 
Corporate governance has been a priority 
over the past year – particularly as we are listed
on both the London and New York Stock
Exchanges. Smith & Nephew is committed to 
an open and constructive relationship with our
shareholders and the overall investment
community. We are working to comply with the
new US Sarbanes-Oxley Act and the ongoing
detailed guidelines being supplied by the 
Securities and Exchange Commission.
Outlook
The markets on which we focus continue to
demonstrate robust growth. Smith & Nephew 
is achieving sales growth that outpaces the
industry, and is demonstrating its ability to grow
share and position within the Orthopaedics,
Endoscopy and Advanced Wound Management
markets. In 2003, we will see the impact of 
our strong ongoing sales and profit growth
on our reported results without the impact 
of divestments. 
We have a leading range of technology and
products that repair and heal the human body.
We will maintain our progress by investing in 
new and differentiated technologies which bring
benefits to patients, and in the specialist sales
forces to bring these products to the medical
community. We will continue to invest in our
businesses by increasing sales force strength,
adding manufacturing capacity and enhancing
new product development to generate vigorous
growth. We will also acquire businesses or
technologies that strengthen our long term
prospects. 
We remain confident of delivering sustainable
growth and believe we are well placed to 
achieve our mid-teens underlying pre-goodwill
amortisation EPS growth target going forward.
Dudley Eustace
Chairman
We remain confident in our ability to deliver
sustainable growth for the future.
Dermagraft
A keen golfer, he has
suffered from diabetes 
all his life. He ignored 
a wound on his foot,
thinking it would clear 
up, but when he lost
sensation in his lower 
leg he finally went to see
his doctor. The foot ulcer
was so serious he was 
in real danger of having
the limb amputated. 
After 12 weeks of being
treated with Dermagraft,
a bio-engineered human
dermal replacement, 
he was out of the danger
zone and looking forward
to resuming his golf. 04 Smith & Nephew 2002
Advanced wound 
management 30%
Orthopaedics 43%
Endoscopy 27%
Africa, Asia & 
Australasia 14%
America 56%
UK 8%
Continental 
Europe 22%
Our new products are driving our growth and 
setting new standards of care.
Chief Executive’s
statement
Market growth remains buoyant and
demographics and lifestyle trends remain positive.
Healthcare expenditure continues to grow in all 
our major markets. Technology is expanding the
marketplace through the growth of less invasive
and longer lasting surgical techniques and
implants. With the introduction of new orthopaedic
bearing materials, led by Oxinium from Smith &
Nephew, surgeons are increasingly treating
younger patient groups. New techniques
continue to simplify and make procedures faster,
and less invasive techniques in orthopaedics and
endoscopy are taking hold as patients increasingly
drive demand. Technology advancements in
treating hard-to-heal wounds are driving strong
growth in the active healing sector of the
advanced wound management market.
We aim to raise operating margins before
goodwill amortisation from 18% in 2002 to 21%
in 2005, moving half a percentage point closer 
to that goal in 2003 through improvements in
operational performance and product mix. At the
same time we will continue to invest in product
innovation, and in growing our sales teams by 
at least 10% a year for the foreseeable future.
Orthopaedics
Orthopaedics sales rose by an underlying 20%
and its performance continued to outpace the
market. Reconstructive implant sales grew 
by an impressive 20%, boosted by continued
Delivering sustainable growth
In 2002 our markets grew strongly – and once
again Smith & Nephew outpaced the industry. 
I am pleased to report excellent growth in our
Orthopaedics, Endoscopy and Advanced Wound
Management businesses.
We now have formidable teams in place and 
we are focused on three high-growth markets.
We bring truly innovative and differentiating
technologies that meet the needs of physicians,
patients and healthcare systems. We are
marketing our products ever more effectively
through expanded and specialised global 
sales forces.
Our underlying group sales increase was 14% in
2002. Sales in North America grew 15% and the
region now represents some 56% of the group’s
business. Sales growth in Europe was 12%,
reflecting increased healthcare spending and
ageing populations. Sales in the rest of the world 
grew 16%.
Product markets %
sales from ongoing operations
Geographic markets %
sales from ongoing operations Smith & Nephew 2002 05
Oxinium knee implants
His dream of early
retirement and new life 
of golf and sailing went
on hold as osteoarthritis
crippled his plans.
Frustrated by increasing
pain and lack of mobility,
he consulted his surgeon
for a solution. Thanks 
to bilateral Oxinium 
knee implants, this 
retired banker is back 
on course.
Our operational performance and product mix 
is constantly being refined to improve margins.
surgeon response to the additional Oxinium 
knee products launched in 2002. We once again
recorded industry-leading growth in this sector,
led by knee growth of 33%, 10% of which was
contributed by the introduction of our joint fluid
therapy product, Supartz. Hip sales grew by
17% led by continued growth in revision
procedures, increased penetration of our highly
cross linked polyethylene liners and continued
strength in our platform hip systems including
Synergy and Echelon. Trauma grew at 10%.
Sales pricing in Orthopaedics remained positive
by 2%. 
The Oxinium knee has been an outstanding
success since its launch in 2001. We have
continued to invest in the Oxinium programme
and Computer Assisted Surgery throughout the
year where we have received US regulatory
approval for hip, knee and trauma applications.
We have developed an Oxinium femoral head 
for hips and have already launched the product 
in 2003.
We are creating two divisions within our
orthopaedic business, Reconstruction and
Trauma. This initiative is aimed at sustaining 
our industry leading performance by improving
the focus on these separate market sectors. 
This structure will enable us to bring technology
to market faster and increase our customer
responsiveness and satisfaction. Each division
will have responsibility for developing global
strategy and its own product development,
marketing and sales functions. They will share
common manufacturing and support
organisations. The sales forces in major 
US cities will be specialised into separate
reconstructive and trauma units on a phased
basis beginning in the first quarter of 2003. 
Endoscopy
Endoscopy sales grew at an underlying 10% 
with strong growth coming from outside the US.
The company acquired the ORATEC minimally
invasive joint and spine business in the year,
which added 9% to sales growth and has given
us a leading position in radio frequency
technology in arthroscopy. 
Knee and shoulder ligament repair products
grew particularly strongly at 21% making the
group the market leader in arthroscopic repair.
New repair products were launched during the
year to strengthen our position in the arthroscopy
market, including TwinFix, a specialised shoulder
repair device. New bioresorbable screws for
ligament fixation performed well. ElectroBlade
has brought us a unique product that combines
simultaneous resection with coagulation of soft
tissue. We also introduced a bipolar cutting 
and ablation system for the Vulcan generator 
ElectroBlade Resector
From twenty years
experience as an
aerobics instructor, 
she understands the
importance of fitness in 
a well-balanced lifestyle.
That’s why, when she
suffered a torn ligament
in her right knee a year
ago, she wasted no time
agreeing to her doctor’s
recommendation for
minimally invasive
surgery. Due to reduced
pain and recovery time,
she was back at the gym
soon after the procedure
and enjoying the benefits
of a healthy lifestyle.  Orthopaedics
A comprehensive highly advanced range of orthopaedic
implant and trauma products. Sales £470m.
> Implants for hips, knees and shoulders
> Trauma products for severely broken bones utilising
internal and external fixation methods
> Clinical therapies including ultrasound bone healing
devices and joint fluid therapy
Business overview Served markets and
growth in 2002
06 Smith & Nephew 2002
We have a unique range of technology and
products which repair the human body. We are
Business
overview
Endoscopy
Industry leader in the development and commercialisation 
of endoscopic (minimally invasive surgery) products and
techniques. Sales £292m.
> Access – Fluid management and insufflation instruments
for better surgical access.
> Visualisation – Digital cameras, digital image capture,
central control, multimedia broadcasting, scopes, 
light sources and monitors to assist with visualisation.
> Resection – State-of-the-art radiofrequency wands,
ElectroMechanical and mechanical blades, and hand
instruments for resecting tissue.
> Repair – Specialised devices, fixation systems and
bioabsorbable materials to repair damaged tissue.
Advanced Wound Management
Advanced treatment for hard-to-heal wounds offering 
a complete range of products from initial wound bed
preparation through to successful wound closure. 
These products are targeted particularly at wounds
connected with the elderly. Sales £322m.
> Pressure ulcers
> Venous leg ulcers
> Diabetic foot ulcers
> Serious burns
World market value
Growth: +13%
£5.2bn
Market position
6th
World market value
Growth: +6%
£3.0bn
Market position (arthroscopy)
1st
World market value
Growth: +12%
£1.5bn
Market position
1st
IDET procedure
After years of struggling
with lower back pain
resulting from a herniated
disc, he was able to use
his landscaping skills
once again after being
treated with Intradiscal
ElectroThermal Therapy
(also known as the IDET
procedure). 
For more detailed business
and product information visit:
www.smith-nephew.com/
businesses > Expanding patient pool
> Increasing numbers of
elderly people living longer
> Expectation of better
quality of life
> New, longer-lasting
materials technology
> Demand for less invasive
procedures
> Patient knowledge due 
to the internet and media
> Grew sales 20%*
> Expanded global sales
team by 12%
> Over 10,000 Oxinium
knee implants
> Over 250 Computer
Assisted total knee
procedures (newly
branded as Achieve)
> Supartz (joint fluid
treatment) exceeding
expectations
> Completed new
manufacturing facility
> Continued rollout 
of Oxinium knee
applications
> Accuris minimally invasive
uni-compartmental knee
instrumentation 
> Exogen 3000
> OrthoGuard AB
antimicrobial sleeve, 
the orthopaedic
industry’s first antibiotic-
coated medical device 
to be cleared by the US
regulatory agency
What is driving 
market growth
Our achievements 
in 2002
Our key new products
and developments in
2002
Smith & Nephew 2002 07
focusing on three research areas – non-invasive
stimulation, tissue engineering, bioabsorbables.
> More elderly people 
living longer
> More clinically advanced
methods of healing wounds
> Therapies that reduce
nursing time and speed
recovery for cost efficiency
> Two-thirds of global market
still to be converted to
advanced wound healing
> New, advanced
technologies expanding
breadth of market
> Grew sales 11%*
> World leadership in
advanced wound care
strengthened
> Allevyn, our largest
product, grew 21%
> Acticoat burns dressing
increased sales by 65%
> Successful launch of
Wound Bed Preparation
concept
> 100% ownership of
Dermagraft and TransCyte
> 88% coverage of US
outpatient population for
Dermagraft
> Improved and extended
Allevyn range launched
> Continued global roll-out
of Acticoat silver burns
dressing
> Global launch of Cutinova
Hydro and range
extension
> Dermagraft full US launch
ProGuide
Having developed 
a venous leg ulcer,
nurses at his local
hospital agreed to take
part in the clinical trial 
of ProGuide, a two-layer
elastic compression
system designed for
venous leg ulcers. This
allowed the correct
pressure to be applied
and reduced the number
of dressing changes.
Ilizarov technique
Both legs had been
deformed since birth, but
on September 11, 2001,
she walked down nearly
50 flights of World Trade
Center stairs to safety. 
A surgeon had corrected
her limbs using the Ilizarov
technique. 
> Increase in sports injuries 
> More active lifestyles
> Increased surgeon use 
of endoscopic techniques
> Innovative technological
developments 
> Need for cost-effective
procedures in hospitals
> Growing demand for
digitally-integrated 
OR equipment
> Growth in ambulatory
surgery centres
> Payer support driven 
by supporting clinical
evidence
> TwinFix bioabsorbable
suture anchor for 
shoulder repair
> ElectroBlade Resector
> Vulcan System RF
generator 
> Vision 337 Autoclavable
Camera System
> Decompression Catheter
for herniated discs 
> Saphyre bipolar ablation
probe
> Grew sales 10%*
> Entry into the minimally
invasive spinal market
through ORATEC
acquisition
> Launch of the Digital
Operating Room concept
> Major growth in implants
for soft tissue repair
> Launched industry’s first
ElectroMechanical
resection device
> Reached 30,000
procedures for TriVex
> Launched worldwide
network of surgeon
training sites
*on an underlying basis 08 Smith & Nephew 2002
Our commercially orientated innovation is
contributing a strong new product pipeline,
Oxinium hip implant
Although he could have
delayed his total hip
replacement surgery 
until after his daughter’s
wedding, Smith &
Nephew’s mini-incision
technique, in concert 
with an Oxinium implant,
restored his pain-free
mobility in time to give
away the bride and take
a full part in this important
day in his daughter’s life.
Chief Executive’s
statement continued
Sustaining our growth rate
Over the past few years we have maintained
consistently strong investment in expanding the
sales force and expanding our product pipeline. 
In 2002 we expanded the Orthopaedics sales
team by 12%, the Endoscopy team by 30%
including the sales force acquired with ORATEC,
and the Advanced Wound Management team 
by 4%. 
We invested 5
1
⁄ 2% of sales revenue in research 
and development across our businesses. In
2002, products introduced in the last three years
rose to 18% of sales. Our group focus on unique
methods to repair and heal the human body 
has led to group wide research in three fields:
bioresorbable materials to facilitate healing and
surgical reconstruction; tissue engineering to 
help replace, repair and regenerate damaged
tissue; and non-invasive devices to stimulate
tissue repair.
Enhancing manufacturing capacity and quality
To meet future sales growth we expanded our
Orthopaedics and Endoscopy manufacturing
capacity. Orthopaedics enlarged its production
space in Memphis, Tennessee, by about a third.
Endoscopy expanded two factories and moved
its headquarters to new premises near its
production facility in Andover, Massachusetts.
Advanced Wound Management has begun
and a thermal decompression catheter for
herniated spinal discs. The Digital Operating
Room concept gained ground with installations 
in leading hospitals. 
Advanced Wound Management 
In its first full year as an advanced wound
management business, we strengthened our
world-leading position in advanced treatments
for hard-to-heal wounds. Underlying sales
growth was 11%, with the Allevyn product range
achieving 21%. We have successfully integrated
into the business the advanced wound products
of Beiersdorf and the Acticoat silver product for
burns acquired in 2001 and these products are
growing strongly.
Towards the end of the year, we secured 100%
ownership of the Dermagraft and TransCyte
arrangement by acquiring ATS’s 50% share.
Reimbursement for Dermagraft continues to
progress well, with 88% of the outpatient
population now covered in the US. Sales of
Dermagraft in its US launch year achieved £3m.
Acticoat
She tried to help her
mother with the cooking
but she pulled a pan of
boiling water off the
stove, causing mixed
partial thickness burns 
to her arms and upper
torso. In the burns unit 
at the hospital, Acticoat, 
a unique antimicrobial
barrier dressing, was
applied to the affected
areas, helping to minimise
the risk of infection and
scarring. The burns
healed quickly, allowing
her to rejoin her
playmates at nursery
school. Smith & Nephew 2002 09
Allevyn
Following a long illness,
she suffered from a
severe pressure ulcer
around the sacral area,
causing much pain and
discomfort, and limiting
her mobility. Despite the
efforts of a district nurse,
it wasn’t until Allevyn
Sacral was used, a
shaped, highly absorbent
hydrocellular dressing,
that the ulcer showed 
any signs of improvement.
After a few weeks the
pain was alleviated, the
pressure ulcer healed and
mobility was restored.
TwinFix bioabsorbable 
suture anchor
He was a talented tennis 
player in college, and he 
never lost his love for the 
sport. After suffering a 
serious rotator cuff injury, 
his days of swinging a 
racket seemed to have 
vanished forever. But 
thanks to the use of 
a TwinFix bioabsorbable 
suture anchor by his 
surgeon, he is back on 
the court twice a week 
and easing the stress of 
work with some friendly 
competition from the 
other side of the net.
and surgeon medical education programmes
are continuing to speed product adoption.
building a new manufacturing plant in Largo,
Florida, near its existing facilities. 
We continue to maintain rigorous quality
assurance and control systems that are subject
to regular internal and external review. We take
product quality very seriously and are committed
to the highest standards of manufacturing quality.
Business Development
In March we completed our restructuring with 
the disposal of our Rehabilitation business to
AbilityOne in the US. We received £71m in cash
and retained a 21.5% interest in the enlarged
company to benefit from the substantial value
that we believe will be created by combining 
the two businesses.
Our joint venture with Beiersdorf, BSN Medical,
had a successful trading year. BSN and
AbilityOne made a combined operating profit
contribution of £25m in 2002. 
Corporate social responsibility
We are committed to sustainable development,
reducing our impact on the environment while
contributing to the quality of life enjoyed by
society at large. We support local communities
around our manufacturing operations and play 
a substantial role in professional education in 
our clinical fields. 
Our complete Sustainability Report is published 
on our website at www.smith-nephew.com.
Outlook
We are in the next phase of our company’s
development. We have focused our businesses
on three high-growth medical device sectors. 
We are delivering sustained growth in sales and
underlying operating margins. 
We have excellent management teams in place,
intent on building sales and market share as well
as improving the financial performance of their
businesses. Our new products are advancing
clinical performance by benefiting both patients
and healthcare systems. Our sales people
continue to be excited by our product ranges
and we have every reason to expect that our
markets will themselves continue to grow. We
remain confident that we can deliver sustainable
growth over the next three years.
Christopher O’Donnell
Chief Executive < Dr Alan Suggett (59)
Group Director of
Technology He joined the
group in 1982 and was
appointed to the Group
Executive Committee in
1986. 
> David Illingworth (49)
President – Orthopaedics
He joined the group and 
was appointed to the Group
Executive Committee in
2002. 
Christopher O’Donnell, 
Chief Executive 
See above.
Peter Hooley, 
Finance Director
See above.
< Jim Taylor (46) 
Group Director Indirect
Markets He joined the
group and was appointed
to the Group Executive
Committee in 2000.
10 Smith & Nephew 2002
We feel that our innovative and responsive company
is in a good position for future growth,
Group
Executive
Committee
The 
Board
••
Dudley Eustace (66)
Chairman
Appointed Deputy
Chairman in 1999 and
Chairman in January
2000. He is Chairman
of the Nominations
Committee, non-
executive Chairman 
of Sendo Holdings plc
and a non-executive
director of KLM Royal
Dutch Airlines NV ,
Aegon NV , Hagemeyer
NV , Royal KPN NV and
Sonae.Com SGPS.
•
Christopher
O’Donnell (56) 
Chief Executive 
He joined the group 
in 1988 and was
appointed a director 
in 1992. He was
appointed Chief
Executive in 1997. 
He is a non-executive
director of BOC Group.
• Non-executive
directors
• Members of the
Remuneration
Committee
• Members of the
Audit Committee
• Members of the
Nominations
Committee
Kenneth Kemp is
Honorary Life President.
Peter Hooley (56)
Finance Director
He joined the group
and was appointed 
a director in 1991. 
He is a non-executive
director of Cobham plc. 
••
Dr Pamela Kirby (49)
Appointed a director 
in March 2002. 
She is Chief Executive
Officer of Quintiles
Transnational
Corporation.
< Peter Huntley (42) 
Group Director Strategy
and Business Development
He joined the group and 
was appointed to the Group
Executive Committee 
in 1998.  > Paul Williams (56) 
Group Director Human
Resources He joined the
group and was appointed 
to the Group Executive
Committee in 1998.
> Jim Ralston (56) 
Chief Legal Officer 
He joined the group in 1999
and was appointed to the
Group Executive Committee
in 2002.
Smith & Nephew 2002 11
with 7,500 employees who commit their energy
and expertise to its continual improvement.
••
Warren Knowlton (56)
Appointed a director 
in November 2000. 
He is Chairman of the
Audit Committee and
Group Chief Executive
of Morgan Crucible plc.
••
Brian Larcombe (49)
Appointed a director 
in March 2002. He 
is Chief Executive of 
3i Group Plc. 
•••
Richard De Schutter
(62) Appointed a
director in January
2001. He is a non-
executive director 
of Varian Inc., ING
Americas, Incyte
Genomics, MedPointe
Pharmaceuticals and
General Binding
Corporation.
••••
Dr Rolf Stomberg (62)
A director since 1998.
Senior independent
director and Chairman
of the Remuneration
Committee. He is
Chairman of
Management
Consulting Group PLC
and a non-executive
director of Scania AB,
Stinnes AG, Reed
Elsevier plc, Cordiant
Communications plc,
Deutsche BP AG, TPG
Group and Hoyer
GmbH.
•••
Sir Timothy Lankester
(60) A director since
June 1996. He is
president of Corpus
Christi College, Oxford.
Also an independent
director of the London
Metal Exchange and
Deputy Chairman of
the British Council.
< Jim Dick (50) 
President – Wound
Management He joined 
the group in 1977 and was
appointed to the Group
Executive Committee 
in 1999.
< Ron Sparks (47) 
President – Endoscopy
He joined the group in
1983 and was appointed
to the Group Executive
Committee in 1999. 12 Smith & Nephew 2002
Financial review
Transactions and presentation
During the year the group completed the final steps in its
restructuring programme by disposing of the Rehabilitation
business on 27th March for £71m and taking a 21
1
⁄ 2%
interest in AbilityOne Corporation (AbilityOne) the acquiring
company. 
On 28th March ORATEC Interventions Inc., (ORATEC) 
was acquired for £191m net. ORATEC is engaged in the
application of radiofrequency energy to medical devices 
and is being integrated with the Endoscopy business.
Group turnover and operating profit include the results 
of Rehabilitation up to the date of disposal as discontinued
operations. The group’s interest in AbilityOne has been
accounted for under the net equity method. The results 
of ORATEC, following acquisition, are included in ongoing
operations.
Trading results
Group sales for the full year amounted to £1,110m, 
a 3% increase reflecting the divestment referred to above.
Before this, the sales of ongoing operations grew 15% 
of which 14% was underlying sales growth, 4% from
businesses acquired this and last year and 3% of adverse
currency translation. Selling price increases accounted 
for approximately 1% of underlying sales growth.
Profit before tax, goodwill amortisation and exceptional items
amounted to £210m. Of this £196m was operating profit of
ongoing operations, £2m profit of divested operations, £25m
our share of operating profit of the BSN Medical joint venture
and AbilityOne, less £13m of interest costs. 
The operating margin of ongoing operations before goodwill
amortisation and exceptional items was 18%, the same 
as in 2001 and was after absorbing over 
1
⁄ 2% of divestment
dissynergies.
BSN Medical had a successful second trading period,
achieving operating margins of 12
1
⁄ 2%, a 2% improvement,
from integration and rationalisation benefits, and AbilityOne
started to see the benefits of integrating and rationalising 
its two businesses.
Exceptional items
Exceptional items comprise an £18m gain on the disposal 
of Rehabilitation, less £15m of rationalisation and acquisition
integration costs (of which £3m was our share of rationalisation
costs of BSN Medical) and £17m of write off of the whole 
of our holding of Advanced Tissues Sciences, Inc., (ATS)
shares following its filing for bankruptcy. The net exceptional
loss was therefore £14m. 
EPS and taxation
Earnings per share before goodwill amortisation and
exceptional items were 16.02p an increase on 2001 of 15%.
The underlying tax charge of £62m was 29%. A tax charge
of £4m arises on the net exceptional loss, because non-tax
deductible goodwill is included in the Rehabilitation gain.
Adjusting for the dilutive effects of the disposals of this and
last year, and the formation of the BSN Medical joint venture
the increase in earnings per share before goodwill
amortisation and exceptional items rises to 19%.
Dividend and shareholders’ funds 
The recommended final dividend of 3.0p per share together
with the interim dividend of 1.8p makes a total for the year 
of 4.8p. The cost of the dividends will be £45m compared to
earnings before goodwill amortisation and exceptional items
of £148m – a dividend cover of 3.3 times. Retained profit 
of £68m has been taken to reserves, and shareholders funds
have also been augmented by £6m of new shares issued 
for share options, £30m of acquisition goodwill on the
Rehabilitation business previously written off and £9m 
of exchange translation movements. The net movement 
in shareholders’ funds was an increase of £113m.
Investment
Capital expenditure of £85m on tangible and intangible 
fixed assets amounted to 8% of sales. The principal areas
of investment were manufacturing capacity expansions 
at all of our major sites, instrument sets and equipment, 
orthopaedic implants and endoscopy and information
technology. 
As well as acquiring ORATEC, the group also acquired from
ATS its 50% interest in the Dermagraft joint arrangements
for £8m. 
The R&D investment for the ongoing businesses was 5
1
⁄ 2%
of sales and the Dermagraft programme involved further
revenue investment of £8m. We continue to invest in sales
and marketing worldwide with our direct and independent
sales forces now totalling 2,496 a 12% increase during 
the year.
Employees
The average number of employees during the year declined
5% to 7,500 as a consequence of the restructuring
programme. The result is that sales per employee improved
a further 9% to £148,000.
Cash flow and net debt
Operating cash flow before outgoings on rationalisation,
divestment and acquisition integration was £142m, a 72%
conversion of pre-goodwill amortisation and exceptionals
operating profit. The proceeds of divestment of Rehabilitation
and other capital receipts comprise £78m, which partly
offsets the total cost of acquisitions of £206m. Smith & Nephew 2002 13
Financial review
Net cash flow and movements in net debt during the year
were:
£m
Operating cash flow 142
Rationalisation, divestment and integration (19)
Joint venture 10
Interest, tax and dividends (106)
Acquisitions (206)
Divestments 72
Issues of share capital 6
Net cash flow (101)
Exchange movements 68
Opening net debt (244)
Closing net debt (277)
Closing net debt of £277m compares to group capital 
and reserves of £517m. Interest cost of £13m was covered 
17 times by operating profit before amortisation and
exceptional items.
Capital structure, treasury policy and pension funding
The directors have established a set of policies to manage
funding, currency and interest rate risks. The group only
uses financial instruments to manage the financial risk
associated with underlying business activities and their
financing.
Our policy is to ensure that there are sufficient funding 
and facilities in place to meet foreseeable borrowing
requirements. Unused bank facilities amounted to 
£432m of which £199m were committed facilities.
In order to provide additional financing capability we 
will be requesting shareholders to increase the group’s
borrowing powers by adding back to capital and reserves
for borrowing multiple purposes, goodwill previously set 
off on acquisitions.
Shareholders’ funds are protected by matching foreign
currency assets, including acquisition goodwill, with foreign
currency liabilities where practicable. These liabilities take
the form of either borrowings or currency swaps. At the
year-end group borrowings were £316m, mainly in foreign
currency. Cash and bank balances were £22m and a net
£17m was receivable on currency swaps. Gross currency
swaps amounted to £563m, of which 73% were to 
re-denominate internal borrowings into US dollars.
Group borrowings take advantage of short-term interest
rates. We use interest rate swaps to protect borrowing
costs and the differentials between borrowing and deposit
rates, fixing interest rates on major exposures for the
coming year by the beginning of the financial year. 
The majority of interest costs and differentials have been
protected through to December 2003 with some protection
carrying over into 2004.
The group trades in over 90 countries and as a
consequence manages £270m of foreign currency
transactions, by using forward foreign exchange contracts,
of which the major transaction flow is euros into dollars. 
Our policy is for firm commitments to be fully covered and
forecasts to be covered between 50% and 90% for up to
one year. It is group policy for operating units not to hold
unhedged monetary assets or liabilities other than in their
functional operating currencies.
The falls in the stock market values of the last three years
have adversely affected the funding levels of both our 
major defined benefit plans. These plans continue to be
accounted for under SSAP24 and their combined deficits
are estimated as £80m. This is less than the combined
deficits under FRS17 of £111m, which is due to the non
investment return discount rate required to be applied 
to liabilities under FRS17. The SSAP 24 deficit is to be
funded over future working lives.
It is company policy to ensure that suppliers are paid 
within agreed terms. At the year-end the company’s 
trade creditors amounted to £3m, the equivalent of 
30 days credit.
Peter Hooley 
Finance Director Corporate social
responsibility
14 Smith & Nephew 2002
We aim to make our values of Performance, Innovation 
and Trust integral to the way we operate, and are
committed to the principles of sustainable development.
This was recognised by our admission in 2002 – on our 
first application – to the Dow Jones Sustainability Index.
This is the most widely recognised arbiter of good practice
and we achieved the highest rating in our business sector. 
We published our second Sustainability Report in April
2002, outlining our progress in corporate social responsibility
(CSR). It was more detailed and wider in scope than the
first, with increased measurement data and information 
on our activities. 
The third Sustainability Report will be published on our
website in April and will include new measurement
initiatives, especially in the social area. At the same time 
we will be publishing a new Code of Business Principles
which brings together policies that currently appear in
different sections of our website, updated and broadened 
in scope. We have included purchasing policies with
particular emphasis on human rights and suppliers’
practices on health, safety and environmental standards.
Through this code we ensure that our planning and
business decisions take account of ethical, social, legal 
and financial considerations, thereby minimising risks 
and balancing the interests of all our stakeholders. 
Our sustainability efforts focus on:
Environmental management
Minimising the impact of our activities on the environment –
particularly regarding energy and water use, waste,
emissions and discharges.
Social responsibility 
Employees Maintaining high standards of health and safety;
providing training and development; giving people the
opportunity to let us know how they feel about working 
for Smith & Nephew – and acting on what they tell us.
Community Investing in and working with the communities
in which we operate.
Customers Educating healthcare professionals in the
techniques related to our product ranges and providing
opportunities for their continuing professional development.
Suppliers Working in partnership with suppliers and
fostering open, ethical relationships with them.
Economic impact
Making a positive contribution to society through creating
shareholder value, paying taxes, investing capital and
creating employment; maximising the economic benefits 
of our products for healthcare providers, patients and 
those who pay the costs. 
More detail on our policies and the work which we 
do in these areas is provided in the following text.
Environmental management
We are committed to continuing reduction in our
environmental impact: we use renewable resources
wherever possible and reduce any adverse effect from
products and processes to a practical minimum. Our
business units must take effective action to control risks 
and minimise environmental impacts through systems 
and procedures based on a thorough understanding 
of the risks and provision of appropriate training and
support. Progress is reviewed annually by the Board.
Over the past 10 years our environmental management
systems have delivered cost savings as well as
environmental benefits. Our manufacturing processes 
are relatively low in environmental impact with locations in
the US, UK and Germany. Our main environmental impact
comes from waste generated at manufacturing sites. 
We operate waste prevention and minimisation programmes
throughout the group and are examining ways of assessing
sustainable development aspects of our products. In the
past year we have focused on reducing waste, the
improvement in recycling made in 2001 has been sustained
and emissions are down 12%. This is a significant
achievement considering the manufacturing expansion
which took place during the year.
Social responsibility
Employees Our business units are required to provide safe
working conditions, plant and equipment at all their facilities.
We maintain high standards and are determined to raise
them even higher through sharing best practice. Business
unit plans include measures to improve performance
monitoring, enhance hazard analysis and risk assessment,
refine emergency plans and business continuity plans and
deliver better targeted training.
Our employment policies emphasise equality of opportunity,
continuous training and development, open communications,
and rewards appropriate to local markets. Vacancies are
filled within the company wherever possible. We treat
employees with dignity and fairness and have policies and
procedures to encourage this culture. We welcome disabled
people and make every effort to retain any employee who
becomes disabled. Our new Code of Business Principles
underpins the high standards we expect from our people. 
We recognise the importance of good employee
communications. This year we have greatly improved
groupwide measurement and data collection systems to
monitor such areas as employee satisfaction, performance
appraisal, development and career progression. We have
also set up a reporting system to collect data on training
throughout the group. These measures will monitor progress
in the coming years and help ensure that we target our
efforts in the most effective manner. 
More information is available on our website at: 
www.smith-nephew.com/sustainability2002 Smith & Nephew 2002 15
In 2002 we conducted our second global opinion survey
and communicated the results to staff worldwide. Once
again we had over 80% of employees participating in the
survey with positive scores in all areas covered. In addition
91% of respondents indicated that they were proud to work
for the Smith & Nephew group. Significant improvements
(over 10% increase in scores in many areas) were seen
compared with the Year 2000 results particularly in
management style, communication with employees,
anticipating change and the way people feel about their job,
confirming that we have made good progress in all areas
over the past two years. But we still have work to do:
scores for questions about promotion and reward were 
still lower than we would like and this will stimulate action 
to address these issues.
The communications functions at our group head office,
group research centre and global business units work
closely with the Human Resources departments at each 
site on all forms of internal communication. Our linked
business unit and corporate intranets are increasingly well
used, allowing easy two-way communication worldwide and
increasing people’s awareness of financial, economic and
market factors affecting company performance. Electronic
communication in general continues to reduce internal
paperwork throughout the company. 
Community We recognise a strong obligation to contribute
to the communities in which we operate. We encourage
and support employees at all levels who undertake
community work, providing resources and paid time off 
to participate in projects. We support a range of charitable
causes, mainly at local level, by donations of money, gifts 
in kind and employee time. The company is a member 
of UK Business in the Community and we are committed 
to corporate community involvement across the whole
group wherever practical. Of course, we are also committed
to meeting our community obligations under the law. 
Examples of the programmes we support around our
manufacturing sites can be found in the Performance
section of the Sustainability Report on our website.
In 2002 our direct donations to charitable and community
activities totalled £804,000, of which £400,000 went to 
the Smith & Nephew Foundation to fund individual research 
for doctors and nurses. During the year, we restructured 
the Foundation to focus solely on nursing research where 
it makes a major contribution in the UK. We again made 
no political contributions in 2002.
Customers Educational support to the medical community
which we serve is an integral part of the way we do business.
All three of our business units run extensive educational
programmes ranging from seminars and dedicated training
facilities to web-based information sites. During 2002 our
Endoscopy business alone hosted 144 courses, training over
1,700 surgeons. 
Suppliers We treat suppliers with dignity and fairness, 
and expect them to do the same with their own employees
and suppliers. Our Code of Business Principles makes clear
that we support the UN’s Universal Declaration of Human
Rights and states that we will only work with suppliers 
who adhere to business principles and health, safety, social 
and environmental standards consistent with our own.
Specifically, these prohibit the use of forced, compulsory 
or child labour.
Economic impact
Our business policies aim to achieve long-term growth and
profits – which in turn bring continued economic benefits to
shareholders, employees, suppliers and local communities.
Our sustainable development depends ultimately on our
ability to provide a satisfactory return: in 2002 we generated
an operating return on capital employed of 29%. 
We continue to invest in comprehensive R&D programmes
focused on delivering better outcomes for patients and
improvements in application and use for practitioners.
Importantly, we also aim to deliver overall cost savings 
to healthcare systems through such benefits as reduced
dressing changes and shorter operating theatre times. 
Our products seek to reduce patients’ time in hospital 
and return them to health faster, potentially improving 
their productivity and bringing broader social and 
economic benefits. Corporate governance
16 Smith & Nephew 2002
The Board is committed to the highest standards of
corporate governance and considers that the company 
has complied throughout the year with the Combined 
Code of Best Practice on Corporate Governance.
The Board
The Board meets regularly during the year and is
responsible for the strategic direction, policies and overall
management of the group. There is a clear division of
responsibilities between the Chairman and Chief Executive.
The Board consists of an independent non-executive
Chairman, two executive directors and six independent
non-executive directors. All directors have full and timely
access to all relevant information and independent
professional advice. Non-executive directors meet regularly
without management in attendance and appropriate
induction programmes are offered to new directors. 
The Board is assisted by the following committees:
The Audit Committee The Audit Committee monitors 
the operation and effectiveness of internal financial controls
and ensures that the accounts meet statutory and other
requirements. It selects, determines the fees and reviews
the performance, independence and objectivity of 
the auditors. All non-audit work is pre-approved by
the committee. 
The Remuneration Committee The Remuneration
Committee sets the pay and benefits of the executive
directors and members of the Group Executive Committee,
approves their main terms of employment and determines
share options and long-term incentive arrangements. 
It also reviews management succession planning.
The Nominations Committee The Nominations Committee
oversees plans for Board succession and recommends
appointments to the Board.
The Group Executive Committee The Group Executive
Committee assists the Chief Executive in the management
of the group.
The terms of reference of the Audit, Remuneration and
Nominations Committees may be found at www.smith-
nephew.com.
Membership of Board committees and of the Group
Executive Committee is shown with the biographical 
details of directors on pages 10 and 11.
Directors
All directors are subject to re-election every three years, 
and in accordance with the Articles of Association, Dudley
Eustace and Peter Hooley retire by rotation and, being
eligible offer themselves for re-election at the forthcoming
AGM. Sir Timothy Lankester will be retiring at the AGM 
but will not be offering himself for re-election. 
No director had a material beneficial interest in any contract
involving the company or its subsidiaries in 2002.
Shareholders
The group issues summary financial statements in place of
full annual accounts unless shareholders request the latter.
The summary financial statement is received by over 90% 
of shareholders. At the half year, an interim report is sent 
to all shareholders. A copy of the full annual accounts is
available on the Smith & Nephew website along with press
releases, institutional presentations and audio webcasts.
There are regular dialogues with individual institutional
shareholders, together with results presentations twice a
year. There is an opportunity for individual shareholders to
question directors at the AGM and the company regularly
responds to letters from shareholders on a range of issues.
Risk management & internal control 
The Board is responsible for the maintenance of the group’s
systems of risk management and internal control and for
reviewing their effectiveness. An ongoing process has been
in place for the full year identifying, evaluating and managing
key risks through a Risk Committee which reports to the
Board annually, and by a system of functional reports to 
the Board and the review of internal financial controls by 
the Audit Committee.
These procedures are designed to identify and manage
those risks that could adversely impact the achievement 
of the group’s objectives. Whilst they do not provide
absolute assurance against material misstatements or loss,
the directors, following a review of the systems described
are of the opinion that proper systems of risk management
and internal control are in place within the group. 
Share capital
The company has been informed of the following interests 
in its ordinary share capital as at 7 February 2003:
> AXA Investment Management 9.0%
> Fidelity 7.1%
> Legal & General Investment Management 3.4%
At the AGM, the company will be seeking a renewal of its
current permission from shareholders to purchase its own
shares. No shares have been purchased or contracted for
or are the subject of an option under the expiring authority.
Auditors
Ernst & Young LLP have expressed their willingness 
to continue as auditors and a resolution proposing their
reappointment will be put to the AGM. Smith & Nephew 2002 17
Remuneration report
The report is divided into two sections, unaudited and audited
information in accordance with schedule 7A of the Companies
Act 1985. The audited information commences on page 19.
The Remuneration Committee comprises Dr Rolf Stomberg
(Chairman), Sir Timothy Lankester, Richard De Schutter 
and Dr Pam Kirby. Sir Brian Pearse and Sir Anthony Cleaver
retired as members of the committee on 28 February 2002.
On behalf of the Board, it determines the broad policy for
executive remuneration. It reviews annually the remuneration,
including pension entitlements, for executive directors 
and members of the Group Executive Committee, and
determines the operation of and the participants in the 
long-term incentive plan, share option schemes, and the
executive bonus plan. It reviews the relationship between
the remuneration of executive directors and that of other
employees and the competitiveness of executive
remuneration, using data from independent consultants 
on companies of similar size, technologies and international
complexity. It also reviews management succession
planning. The committee is assisted by Christopher
O’Donnell the Chief Executive and Paul Williams the Group
HR Director, both of whom have advised on all aspects of
the group’s reward structures and policies. In 2002 it
received information from Watson Wyatt on a broad range
of remuneration issues, Towers Perrin and Hay Group on
salary data and Monks Partnership on long-term incentive
plan comparative group performance. All the independent
consultants were appointed by the company. Watson 
Wyatt also act as one of the retirement benefit consultants
to the company.
The Remuneration Committee policy for this and future
years is to ensure that remuneration is sufficiently
competitive to attract, retain and motivate executive
directors and Group Executive Committee members 
of a calibre that meets the group’s needs to achieve its
performance against financial objectives and relevant
competitors’ practice. Remuneration throughout the group
is designed to be competitive in the country of employment.
The committee gives full consideration to the requirements
in Schedule A of the Combined Code.
The principal components of remuneration, which will
remain in operation for the next financial year and thereafter,
for executive directors and Group Executive Committee
members are:
Basic salary and benefits 
Basic salary reflects the responsibility of the job and
individual performance. The company also provides private
healthcare cover and a company car or allowance.
Performance-related bonus 
For executive directors the company operates an annual
bonus scheme 75% of which is based on annual growth 
in adjusted basic earnings per share after deducting
goodwill amortisation and 25% on return on operating
capital employed. The scheme is designed to encourage
performance which the Remuneration Committee considers
would contribute most to increasing shareholder value.
Achievement of targets should produce a bonus of 30% 
of annual salary with a maximum of 100% for over
achievement that demonstrates a step change in group
performance. Bonuses are not pensionable.
For members of the Group Executive Committee with
corporate responsibilities the annual bonus plan is linked 
to earnings per share, return on capital employed, and
personal objectives. For those members with specific
business unit responsibilities targets are linked to earnings
per share, return on capital employed, and sales and 
profit of their respective business unit.
Long-term incentives 
The company operates a long-term incentive plan (LTIP) 
for executive directors and members of the Group Executive
Committee to motivate and reward these key executives to
significantly enhance the value of the company. Under this
plan shares are transferred to participants depending on the
company’s performance in relation to a group of 41 UK listed
manufacturing companies with substantial international
activities, using total shareholder return (TSR) over a 
three-year period as the prime measure. The performance
conditions were identified as those which represented a fair
measure of the company’s performance and would reflect
increase in shareholder value. The maximum value of shares
awarded for executive directors will not exceed the
participants’ current annual rate of basic salary at the date 
the award is granted, and for members of the Group
Executive Committee it will not exceed 75% of their current
rate of basic salary. Shares will only be transferred to the
participants if the company’s TSR performance is at or above
the median performance of the comparator companies and 
if growth in the company’s adjusted earnings per share after
deducting goodwill amortisation exceeded growth in the 
RPI in the same three-year period. At the median level, 25%
of the award shares will vest. If the company’s performance
is in the top quartile, all the shares will vest. For performance
between the median and the top quartile, the proportion 
of shares vesting will vary on a straight-line basis. The
company’s TSR performance and its performance relative 
to the comparator group is independently monitored by
Monks Partnership.
The comparator group comprises the following companies:
Aga Foodservice Group IMI
AstraZeneca Group Johnson Matthey
BAE Systems Laird Group 
Balfour Beatty Low & Bonar
BBA Group Marconi
BOC Group Morgan Crucible Company 
BPB Industries Novar 
British Vita Pilkington
Bunzl Reckitt Benckiser
Cadbury Schweppes REXAM
Charter RMC Group
Coats Rolls-Royce
Cookson Group Scapa Group
Croda International Spirax-Sarco Engineering
De La Rue Spirent
Delta Tate & Lyle
Elementis Tomkins
FKI TT Electronics
GKN Unilever (UK)
Halma Weir Group
ICI 18 Smith & Nephew 2002
Remuneration report
Share options
Executive directors were last granted options under executive share option schemes in 1996, which were not subject to
performance conditions of exercise. The exercise of options granted to members of the Group Executive Committee between
1997 and 2000 is subject to growth in adjusted basic earnings per share after deducting goodwill amortisation of not less
than RPI plus 2% per annum in any period of three consecutive years. Since 2001, under the UK Plans the exercise of
options is subject to adjusted basic earnings per share growth after deducting goodwill amortisation of not less than RPI plus
3% per annum, on average, in a performance period of three consecutive years. In the event the performance target is not
met by the end of the third year the performance period is extended to four years. If it has not been met after four years the
performance period is extended to five years, but if it has still not been met at the end of the fifth year the options will lapse.
Performance conditions were selected to be in line with market practice at the time. Options granted under the US Plan, in
line with market practice, are not subject to performance targets but are exercisable cumulatively up to a maximum of 10%
after one year, 30% after two years, 60% after three years and the remaining balance after four years. Since 2002 members
of the Group Executive Committee are not granted share options except on appointment. Share options are not offered at a
discount. UK executive directors are eligible to participate in the savings related share option scheme.
Pensions 
Executive directors have a normal retirement age of 62 and participate in the defined benefit Smith & Nephew UK Pension
Fund and UK Executive Pension Scheme, under which pension has been accrued in the year at an annual rate of 
1
⁄ 30 of final
pensionable salary, up to a limit of 
2
⁄ 3 of final pensionable salary. Pensions in payment are guaranteed to increase by 5% 
per annum or inflation if lower. The company and the pension plan trustees have in the past granted discretionary increases,
particularly at times of high inflation. Death in service cover of four times salary and spouse’s pension at the rate of 
2
⁄ 3 of the
member’s pension are provided on death. A supplementary unfunded defined contribution arrangement partially
compensates for the Inland Revenue earnings cap on final pensionable salary.
Service contracts
Executive directors, in line with group policy, have notice periods of 12 months. All new appointments are intended to have
12 months notice periods, but it is recognised that for some appointments a longer period may initially be necessary for
competitive reasons, reducing to 12 months thereafter. Christopher O’Donnell, appointed to the Board in September 1992
and Peter Hooley, appointed in April 1991 have contracts terminable by the company on not more than 12 months notice
and by the director on six months notice. Termination of the contract by the company would entitle the executive directors
to 12 months basic salary, bonus at target of 30%, a contribution of 30% of salary to reflect the loss of pension benefits, 
an amount to cover other benefits and a time apportionment of the LTIP entitlement.
Non-executive directors do not have service contracts and are normally appointed for terms of three years terminable at will,
without notice by either the company or the director and without compensation. Their remuneration is determined by the
Nominations Committee. 
External non-executive directorships
Non-executive directorships provide executive directors with valuable experience beneficial to the company. Such
appointments are subject to the approval of the Nominations Committee and restricted to one appointment for each
executive director. All fees are paid to the company.
Directors’ interests
31 December 2002 1 January 2002
Beneficial interests of directors in the company’s ordinary shares Shares Options Shares Options
D.G. Eustace 49,679 – 40,909 –
C.J. O’Donnell 122,136 517,495 120,703 331,263
P. Hooley 111,571 450,682 58,789 423,723
B. Larcombe ––––
Sir Timothy Lankester 6,096 – 6,035 –
Dr. P . Kirby ––––
Dr R.W.H. Stomberg 6,945 – 6,864 –
W.D. Knowlton 12,501 – 7,501 –
R. De Schutter 200,000 – 100,000 –
On 7 February 2003 Christopher O’Donnell became entitled to 155,065 shares and Peter Hooley 96,916 shares in respect
of the 100% vesting of the 2000 long-term incentive plan. There were no other changes in the interests of directors
between 31 December 2002 and 7 February 2003.
The register of directors’ interests, which is open to inspection at the company’s registered office, contains full details 
of directors’ shareholdings and share options.
As a component company of the FTSE 100 index, a graph of the company’s TSR performance compared to that of the
TSR of the index can be found on page 2. Smith & Nephew 2002 19
Audited Information
Directors’ emoluments and pensions
Total Total Total Total
emoluments incl. pension excl. pension incl. pension
Salaries excl. pension Pension entitlements entitlements entitlements
& fees Benefits Bonus entitlements entitlements 2002 2001 2001
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Chairman (non-executive)
D.G. Eustace 170 – – 170 – 170 170 170
Executive
C.J. O’Donnell 472 22 362 856 34 890 770 790
P. Hooley 280 19 212 511 72 583 484 545
Non-executive
Sir Timothy Lankester 30 – – 30 – 30 30 30
Dr R.W.H. Stomberg 30 – – 30 – 30 30 30
W.D. Knowlton 30 – – 30 – 30 30 30
R De Schutter 30 – – 30 – 30 30 30
Dr P . Kirby 25 – – 25 – 25 – –
(from 1 March 2002)
B. Larcombe 25 – – 25 – 25 – –
(from 1 March 2002)
Sir Anthony Cleaver 5 – – 5 – 5 30 30
(to 28 February 2002)
Sir Brian Pearse 5 – – 5 – 5 30 30
(to 28 February 2002)
1,102 41 574 1,717 106 1,823 1,604 1,685
Dudley Eustace’s annual fee of £170,000 includes a non-executive director’s fee of £30,000. For C.J. O’Donnell 58% of
total remuneration excluding pension entitlement was base salary and benefits and 42% related to company performance.
For P . Hooley 59% was base salary and benefits, and 41% related to company performance.
Directors’ share options
Range of
exercisable
Number of Market Number of dates of
options Granted price Profit on options Average options held
1 Jan during Exercise at date of exercise 31 Dec exercise at 31 Dec
2002 the year Exercised price (p) exercise (p) £ 2002 price (p) 2002 
C.J. O’Donnell 170,000
(1)
––––– 170,000 187.0 8/97-9/06
–
(2)
3,192* –––– 3,192 296.0 11/05-4/06
161,263
(3)
183,040–––– 344,303 – 2/01-4/09
Total 331,263 186,232–––– 517,495 – 8/1997-
4/2009
*options granted on 25 Sept 2002 at 296p.
P. Hooley 317,500
(1)
– 90,000 168.0 403.5 211,950 227,500 158.0 8/96-9/06
3,349
(2)
––––– 3,349 289.0 11/04-4/05
102,874
(3)
116,959–––– 219,833 – 2/01-4/09
Total 423,723 116,959 90,000 168.0 403.5 211,950 450,682 – 8/1996-
4/2009
(1) 
Options granted under executive share option schemes
(2) 
Sharesave options
(3) 
Nil-cost options acquired through the vesting of LTIP awards. 
The range in the market price of the company’s shares during the year was 305p to 430p and the market price at 
31 December 2002 was 380.5p. All outstanding options at 31 December 2002 were below 380.5p. The total profit on
exercise of options during the year was £211,950 as set out above (2001 – £197,542; Christopher O’Donnell £22,171,
Peter Hooley £175,371). Remuneration report
20 Smith & Nephew 2002
Long-term incentive plan
The maximum number of shares to be allocated to each director under the LTIP , all for nil consideration, are:
Maximum Market
number price at Market Number of
of shares Awards date of price at shares Latest
awarded during Market Vested award (p) date of awarded performance
1 Jan 2002 the year price (p) award 8 Mar 1999 vesting (p) 31 Dec 2002 Period
C.J. O’Donnell 448,649 120,879 409.5 183,040 171.0 403.5 386,488 31.12.2004
P. Hooley 282,965 70,818 409.5 116,959 171.0 403.5 236,824 31.12.2004
For the three year plan period commencing 2000 the company’s TSR of 147.36% was ranked first in the comparator group
and the earnings per share performance criterion was met, enabling the plan participants to be eligible for 100% of the
shares conditionally awarded in 2000.
Pensions
Increase Increase 
in accrued Transfer value in transfer Transfer value
Accrued pension Accrued of accrued Directors’ value over year of accrued
pension at excluding pension at pension contributions less directors’ pension
1 Jan 2002 inflation 31 Dec 2002 1 Jan 2002 during 2002 contributions 31 Dec 2002
£pa £pa £pa £ £ £ £
C.J. O’Donnell 119,000 32,000 153,000 1,521,000 23,000 336,000 1,880,000
P. Hooley 26,000 2,000 29,000 333,000 4,000 22,000 359,000
An amount of £69,000 was provided for under the supplementary unfunded defined contribution arrangement for 
Peter Hooley, bringing his total benefit under the plan to £319,000.
By order of the Board, 7 February 2003
Paul Chambers
Secretary
The directors are responsible for the preparation of the
annual report, including the remuneration report in
accordance with relevant legislation and other requirements.
The directors are required by company law to prepare
accounts for each financial year that give a true and fair
view of the state of affairs of the company and of the group
as at the end of the financial year and of the results of the
group for the year. In preparing the accounts, suitable
accounting policies have been used and applied consistently,
and reasonable and prudent judgements and estimates
have been made. Applicable accounting standards have
been followed. The directors have satisfied themselves from
internal forecasts and available bank facilities that the group
continues as a going concern.
The directors are also responsible for the maintenance 
of the group’s system of internal financial controls. 
These are designed to give reasonable assurance that
proper procedures exist for the maintenance of adequate
accounting records, safeguarding the assets of the group
and for preventing and detecting fraud and other
irregularities. To this end the company has identified and
documented minimum internal financial control standards.
Annual budgets are prepared and approved by the directors,
and the directors have reserved capital expenditure and
treasury authority levels to the Board and its delegated
committees. The group operates a system of regular
monthly reporting including revised profit and cash forecasts.
Business risks are identified and monitored on a regular
basis. The group operates an internal audit function which
monitors the adequacy of internal financial controls and
systems and compliance with group standards. The internal
auditor gives a report to the Audit Committee and the 
Audit Committee reviews the operation and effectiveness 
of internal financial controls and reporting of the group. 
A copy of the accounts is placed on the website of Smith 
& Nephew plc. Information published on the internet is
accessible in many countries with different legal requirements.
Legislation in the United Kingdom governing the preparation
and dissemination of accounts may differ from legislation 
in other jurisdictions.
Directors’ responsibilities 
for the accounts Smith & Nephew 2002 21
Auditors’ report
Independent auditors’ report to the members 
of Smith & Nephew plc
We have audited the group’s accounts for the year ended 
31 December 2002 which comprise the group profit and
loss account, group balance sheet, parent company
balance sheet, group cash flow statement, group statement
of total recognised gains and losses, group reconciliation 
of movements in shareholders’ funds, accounting policies
and the related notes 1 to 33. These accounts have been
prepared on the basis of the accounting policies set out
therein. We have also audited the information in the
remuneration report that is described as having been
audited.
This report is made solely to the company’s members, 
as a body, in accordance with Section 235 of the
Companies Act 1985. Our audit work has been undertaken
so that we might state to the company’s members those
matters we are required to state to them in an auditors’
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s
members as a body, for our audit work, for this report, 
or for the opinions we have formed.
Respective responsibilities of directors and auditors The
directors’ responsibilities for preparing the annual report,
remuneration report and the accounts in accordance with
applicable United Kingdom law and accounting standards
are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the accounts and the part of
the remuneration report to be audited in accordance with
relevant legal and regulatory requirements, United Kingdom
Auditing Standards and the Listing Rules of the Financial
Services Authority.
We report to you our opinion as to whether the accounts
give a true and fair view and whether the accounts and 
the part of the remuneration report to be audited have been
properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the directors’
report is not consistent with the accounts, if the company
has not kept proper accounting records, if we have not
received all the information and explanations we require for
our audit, or if the information specified by law or the Listing
Rules regarding directors’ remuneration and transactions
with the group is not disclosed.
We review whether the corporate governance statement
reflects the company’s compliance with the seven
provisions of the Combined Code specified for our review
by the Listing Rules, and we report if it does not. We are 
not required to consider whether the Board’s statements 
on internal control cover all risks and controls, or form 
an opinion on the effectiveness of the group’s corporate
governance procedures or its risk and control procedures.
We read other information contained in the annual report
and consider whether it is consistent with the audited
accounts. This other information comprises the directors’
responsibilities for the accounts, unaudited part of the
remuneration report, chairman’s statement, chief executive’s
statement, financial review, corporate social responsibility
and corporate governance statement. We consider the
implications for our report if we become aware of any
apparent misstatements or material inconsistencies with 
the accounts. Our responsibilities do not extend to any
other information.
Basis of audit opinion We conducted our audit in
accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the
amounts and disclosures in the accounts and the part 
of the remuneration report to be audited. It also includes 
an assessment of the significant estimates and judgements
made by the directors in the preparation of the accounts,
and of whether the accounting policies are appropriate 
to the group’s circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all 
the information and explanations which we considered
necessary in order to provide us with sufficient evidence 
to give reasonable assurance that the financial statements
and the part of the remuneration report to be audited are
free from material misstatement, whether caused by 
fraud or other irregularity or error. In forming our opinion 
we also evaluated the overall adequacy of the presentation 
of information in the accounts and the part of the
remuneration report to be audited.
Opinion In our opinion the accounts give a true and fair view
of the state of affairs of the company and of the group as 
at 31 December 2002 and of the profit of the group for the
year then ended; and the financial statements and the part
of the remuneration report to be audited have been properly
prepared in accordance with the Companies Act 1985.
Ernst & Young LLP
Registered auditor
London, 7 February 2003 22 Smith & Nephew 2002
Group profit and loss account
2002 2001
for the year ended 31 December 2002 Notes £ million £ million
Turnover 1,2
Ongoing operations 1,083.7 943.0
Operations contributed to the joint venture – 35.3
Continuing operations 1,083.7 978.3
Discontinued operations 26.2 103.4
Group turnover 1,109.9 1,081.7
Share of joint venture 155.0 123.6
1,264.9 1,205.3
Operating profit 1,2
Ongoing operations:
Before goodwill amortisation and exceptional items 196.0 170.8
Goodwill amortisation* (17.5) (10.4)
Exceptional items* 3 (29.9) (19.3)
148.6 141.1
Operations contributed to the joint venture:
Before exceptional items – 3.6
Exceptional items* 3 – (1.8)
Continuing operations 148.6 142.9
Discontinued operations 2.1 11.1
150.7 154.0
Share of operating profit of the joint venture:
Before exceptional items 19.6 12.8
Exceptional items* 3 (2.6) (5.0)
167.7 161.8
Share of operating profit of the associated undertaking 4.9 –
172.6 161.8
Discontinued operations – net profit on disposals* 3 18.0 49.2
Profit on ordinary activities before interest 190.6 211.0
Interest payable 4 (12.7) (17.4)
Profit on ordinary activities before taxation 177.9 193.6
Taxation 7 65.8 64.0
Attributable profit for the year 112.1 129.6
Ordinary dividends 8 44.6 42.9
Retained profit for the year 24 67.5 86.7
Basic earnings per ordinary share 10 12.11p 14.07p
Diluted earnings per ordinary share 10 12.02p 13.95p
*Results before goodwill amortisation and exceptional items
Profit before taxation 9 209.9 180.9
Adjusted basic earnings per ordinary share 10 16.02p 13.96p
Adjusted diluted earnings per ordinary share 10 15.89p 13.84p Smith & Nephew 2002 23
Group balance sheet
2002 2001
at 31 December 2002 Notes £ million £ million
Fixed assets
Intangible assets 11 317.2 187.8
Tangible assets 12 255.8 245.0
Investments 13 8.2 25.7
Investment in joint venture 14 115.0 114.0
Goodwill 70.3 70.6
Share of gross assets 106.2 109.0
Share of gross liabilities (61.5) (65.6)
Investment in associated undertaking 15 8.5 –
704.7 572.5
Current assets
Stocks 16 229.5 232.2
Debtors 17 280.7 266.8
Cash and bank 18 22.5 26.4
532.7 525.4
Creditors: amounts falling due within one year
Borrowings 18 151.9 94.0
Other creditors 20 309.6 334.5
461.5 428.5
Net current assets 71.2 96.9
Total assets less current liabilities 775.9 669.4
Creditors: amounts falling due after more than one year
Borrowings 18 164.2 161.2
Other creditors 20 6.3 8.3
Provisions for liabilities and charges 21 88.1 95.3
258.6 264.8
517.3 404.6
Capital and reserves
Equity shareholders’ funds:
Called up equity share capital 22 113.5 113.1
Share premium account 24 143.8 135.8
Profit and loss account 24 259.7 155.4
517.0 404.3
Non-equity shareholders’ funds:
Called up non-equity share capital 22 0.3 0.3
517.3 404.6
Approved by the Board on 7 February 2003.
Dudley Eustace Chairman Christopher O’Donnell Chief Executive Peter Hooley Finance Director 24 Smith & Nephew 2002
Group cash flow statement
2002 2001
for the year ended 31 December 2002 Notes £ million £ million
Net cash inflow from operating activities* 25 209.3 191.9
Dividends received from joint venture 3.9 –
Interest received 6.6 2.5
Interest paid (16.8) (19.0)
Net cash outflow from returns on investments
and servicing of finance (10.2) (16.5)
Taxation paid (52.3) (76.2)
150.7 99.2
Capital expenditure and financial investment
Capital expenditure (85.2) (74.7)
Disposal of fixed assets 1.1 4.1
Trade investments (1.3) (2.4)
Own shares (purchased)/vested (0.7) 0.4
(86.1) (72.6)
Acquisitions and disposals
Acquisitions (245.4) (69.3)
Cash acquired on acquisition of ORATEC 39.1 –
Disposals 71.8 61.7
Debt repaid by the joint venture 5.7 24.6
Joint venture formation costs – (12.0)
(128.8) 5.0
Equity dividends paid (43.5) (42.0)
Cash outflow before use of liquid resources and financing (107.7) (10.4)
Financing
Issues of ordinary share capital 6.1 9.0
Increase in borrowings due within one year 25 70.6 30.2
Increase/(decrease) in borrowings due after one year 25 18.1 (7.4)
Settlement of currency swaps 25 – (14.0)
Net cash inflow from financing 94.8 17.8
(Decrease)/increase in cash 25 (12.9) 7.4
*After £19.3m (2001 – £23.5m) of outgoings on rationalisation, acquisition integration and divestment costs.  Smith & Nephew 2002 25
Statement of total recognised gains and losses
Movements in shareholders’ funds
Group statement of total recognised gains and losses
2002 2001
for the year ended 31 December 2002 £ million £ million
Profit for the financial year 112.1 129.6
Unrealised gain on formation of joint venture – 31.8
Translation differences on foreign currency net investments 9.1 (8.8)
Total gains and losses related to the year 121.2 152.6
Included in the profit for the financial year is £10.3m (2001 – £4.4m) profit relating to the joint venture and £3.0m (2001 – nil)
profit relating to the associated undertaking.
Group reconciliation of movements in shareholders’ funds
2002 2001
for the year ended 31 December 2002 £ million £ million
Profit for the financial year 112.1 129.6
Dividends (44.6) (42.9)
Retained profit for the year 67.5 86.7
Translation differences on foreign currency net investments 9.1 (8.8)
Goodwill on disposals 30.0 –
Goodwill on operations contributed to the joint venture – 17.9
Unrealised gain on formation of joint venture – 31.8
Movements relating to the QUEST (Note 23) (2.3) (2.1)
Issue of shares 8.4 11.1
Net addition to shareholders’ funds 112.7 136.6
Opening shareholders’ funds 404.6 268.0
Closing shareholders’ funds 517.3 404.6 26 Smith & Nephew 2002
Parent company balance sheet
2002 2001
at 31 December 2002 Notes £ million £ million
Fixed assets
Tangible assets 12 8.0 8.2
Investments 13 760.0 416.4
768.0 424.6
Current assets
Debtors 17 1,444.7 469.6
Cash and bank 18 9.1 14.8
1,453.8 484.4
Creditors: amounts falling due within one year
Borrowings 18 127.2 62.9
Other creditors 20 1,534.5 256.2
1,661.7 319.1
Net current (liabilities)/assets (207.9) 165.3
Total assets less current liabilities 560.1 589.9
Creditors: amounts falling due after more than one year
Borrowings 18 162.3 154.6
Other creditors 20 1.3 0.6
Provisions for liabilities and charges 21 2.6 6.1
166.2 161.3
393.9 428.6
Capital and reserves
Equity shareholders’ funds:
Called up share capital 22 113.5 113.1
Share premium account 24 143.8 135.8
Profit and loss account 24 136.3 179.4
393.6 428.3
Non equity shareholders’ funds:
Called up non equity share capital 22 0.3 0.3
393.9 428.6
Approved by the Board on 7 February 2003.
Dudley Eustace Chairman Christopher O’Donnell Chief Executive Peter Hooley Finance Director Smith & Nephew 2002 27
Accounting policies
The accounts have been prepared under the historical cost
convention and in accordance with other applicable
accounting standards and include the disclosures required
by Financial Reporting Standard 17 (FRS 17).
Consolidation 
The consolidated accounts include the accounts of the
company and of all of its subsidiaries and associated
undertakings during the year ended 31 December 2002 for
the periods during which they were members of the group.
Entities in which the group holds an interest on a long-term
basis and are controlled by the group and one other under 
a contractual agreement are joint ventures. Joint ventures
are included in the consolidated accounts under the gross
equity method. 
Entities in which the group has a beneficial interest of 50%
or less in the equity capital and where the group exercises
significant influence over commercial and financial policy
decisions are associated undertakings. Associates are
included in the consolidated accounts under the net equity
method. 
Joint arrangements are those where the group participates
with a third party in an arrangement to carry on the group’s
trade or business. Joint arrangements are included in the
consolidated accounts in proportion to the group’s interest
in their assets, liabilities and cash flows. 
Turnover
Turnover comprises sales of products and services to third
parties at amounts invoiced net of trade discounts and
rebates, excluding turnover taxes.
Foreign currencies
Balance sheet items of overseas companies and foreign
currency borrowings are translated into sterling at the year
end rates of exchange. Profit and loss items and the cash
flows of overseas subsidiaries and associated undertakings
are translated at the average rates for the year.
Forward currency contracts in respect of contracted and
anticipated amounts payable on purchase transactions 
are accounted for as hedges with the hedge transaction
recorded at the rate implicit in the contract. Changes in 
the fair value of these forward contracts are recognised 
in the profit and loss account on the ultimate sale of the
item purchased.
The following are recorded as movements in reserves:
exchange differences on the translation at closing rates 
of exchange of overseas opening net assets, including
acquisition goodwill; the difference on translation of foreign
currency borrowings or swaps that are used to finance or
hedge group equity investments; and the differences arising
between the translation of profits at average and closing
rates of exchange. All other exchange differences are dealt
with in arriving at profit before taxation.
Intangible fixed assets
Goodwill, representing the excess of purchase
consideration over fair value of net assets acquired, prior 
to 31 December 1997 was set off against reserves in the
year of acquisition. Goodwill acquired since 1 January 1998
is capitalised and amortised on a straight line basis over its
estimated useful economic life, up to a presumed maximum
of 20 years, except for goodwill arising on the formation of
the BSN Medical joint venture and acquisition of the group’s
share of the AbilityOne associated undertaking, which is 
not amortised but is subject to an annual impairment review.
This treatment, which is a departure from the requirement 
of the Companies Act to amortise goodwill, is adopted in
order to show a true and fair view (see Note 14 and Note 15).
Goodwill previously written off to reserves is included in the
calculation of profits and losses on disposals. 
The carrying value of goodwill and acquired intangibles is
reviewed for impairment at the end of the first full financial
year following acquisition and in other periods if significant
events or changes in circumstances indicate the carrying
value may be impaired.
Purchased patents, know-how, trade marks, licences 
and distribution rights are capitalised as intangibles and
amortised over a period not exceeding 20 years.
The carrying values of intangibles are reviewed for
impairment when events or changes in circumstances
indicate the carrying value may be impaired.
Research and development
Revenue expenditure on research and development 
is written off as incurred.
Tangible fixed assets 
Tangible fixed assets are stated at cost and, except for
freehold land, are depreciated as wasting assets. Freehold
and long leasehold buildings are depreciated on a straight-
line basis at between 1% and 5% per annum. Short
leasehold land and buildings (leases of under 50 years) 
are depreciated by equal annual instalments over the term
of the lease. Plant and equipment are depreciated over 
lives ranging between 3 and 20 years by equal annual
instalments to write down the assets to their estimated
disposal value at the end of their working lives.
Leasing commitments
Assets held under finance leases are capitalised as tangible
fixed assets and depreciated accordingly. The capital
element of future lease payments is included in borrowings
and interest is charged to profit before taxation on a
reducing balance basis over the term of the lease.
Rentals payable under operating leases are charged to 
the profit and loss account as incurred. Accounting policies
28 Smith & Nephew 2002
Investments
Trade investments are stated at cost less provision for 
any permanent diminution in value.
Stocks 
Finished goods and work in progress are valued at factory
cost, including appropriate overheads, on a first-in first-out
basis. Raw materials are valued at purchase price and 
all stocks are reduced to net realisable value where lower.
Deferred taxation
Deferred tax is recognised in respect of all timing differences
that have originated but not reversed at the balance sheet
date where transactions or events have occurred at that
date that will result in an obligation to pay more, or a right 
to pay less or to receive more tax. 
No provision is made for deferred tax that would arise 
on the remittance of the retained earnings of overseas
subsidiaries, associates and joint ventures except to the
extent that, at the balance sheet date, dividends have 
been accrued as receivable.
Deferred tax assets are recognised only to the extent that
the directors consider that it is likely that taxable profits will
be available against which future reversals of the underlying
timing differences can be made.
Deferred tax is measured on an undiscounted basis at the
tax rates that are expected to apply in the periods in which
timing differences are expected to reverse. These are based
on tax rates and laws substantively enacted at the balance
sheet date.
Financial instruments
Currency swaps to match foreign currency net assets with
foreign currency liabilities are translated into sterling at year
end exchange rates. Changes in the principle values of
currency swaps are matched in reserves against changes in
the values of the related assets. Interest rate swaps to protect
interest costs and income are accounted for as hedges.
Changes in the values of interest rate swaps are recognised
against interest in the period relating to the hedge. 
Post-retirement benefits
The group’s major pension plans are of the defined benefit
type. For these plans, costs are charged to operating profit
so as to spread the expense of providing future pensions 
to employees over their working lives with the group. 
For defined contribution plans contributions are charged to
operating profit as they become payable. Where the group
provides healthcare benefits after retirement the expected
cost of these is charged to operating profit over the
employees’ working lives with the group.
28 Smith & Nephew 2002 Smith & Nephew 2002 29
Notes to the accounts
Note 1 Segmental analysis 
Group Group Group Group
Group operating operating Group operating operating
turnover profit assets turnover profit assets
2002 2002 2002 2001 2001 2001
Analysis by activity £ million £ million £ million £ million £ million £ million
Orthopaedics 470.2 98.2 309.8 404.6 87.9 304.6
Endoscopy 291.8 53.8 275.1 252.8 46.8 130.8
Advanced wound management 321.7 44.0 222.6 285.6 36.1 223.1
Amortisation of goodwill – (17.5) – – (10.4) – 
Exceptional items – (29.9) – – (19.3) – 
Ongoing operations 1,083.7 148.6 807.5 943.0 141.1 658.5
Operations contributed to the joint venture – – – 35.3 3.6 –
Exceptional items – – – – (1.8) –
Continuing operations 1,083.7 148.6 807.5 978.3 142.9 658.5
Discontinued operations 26.2 2.1 – 103.4 11.1 22.0
1,109.9 150.7 807.5 1,081.7 154.0 680.5
Following completion of the group’s restructuring the group’s segmental analysis is now based on its three core businesses
and comparatives have been restated accordingly.
Items between group operating profit of £150.7m (2001 – £154.0m) and profit on ordinary activities before taxation 
of £177.9m (2001 – £193.6m) comprise share of operating profit of the joint venture £17.0m (2001 – £7.8m), share 
of operating profit of the associated undertaking of £4.9m (2001 – nil), net profit on disposals of businesses of £18.0m
(2001 – £49.2m) and net interest payable of £12.7m (2001 – £17.4m) which are not allocated segmentally.
On 1 April 2001, the group’s casting and bandaging and traditional woundcare businesses were contributed to a joint
venture with Beiersdorf AG called BSN Medical in return for a 50% equity interest. The results of these businesses prior 
to contribution represent operations contributed to the joint venture.
Discontinued operations comprise the results of the rehabilitation business and in 2001 also include the results of the ear,
nose and throat business.
Operating assets comprise fixed assets, stocks and debtors less creditors and provisions other than investment in the
joint venture, investment in the associated undertaking, net debt, taxation and dividends.
Exceptional costs of £29.9m (2001 – £19.3m) within ongoing operations can be allocated as follows: Orthopaedics 
£0.8m (2001 – £0.6m), Endoscopy £7.6m (2001 – £0.3m) and Advanced wound management £21.5m (2001 – £18.4m).
Amortisation of goodwill of £17.5m (2001 – £10.4m) within ongoing operations arises as follows: Orthopaedics £4.7m
(2001 – £4.1m), Endoscopy £7.1m (2001 – £1.0m) and Advanced wound management £5.7m (2001 – £5.3m).
Analysis by geographic origin
United Kingdom 179.6 21.7 153.4 162.9 19.6 134.6
Continental Europe 250.7 21.1 70.6 199.6 18.0 69.4
America 730.7 129.1 524.5 673.1 114.2 398.0
Africa, Asia and Australasia 144.3 24.1 59.0 133.5 19.0 56.5
Amortisation of goodwill – (17.5) – – (10.4) –
Exceptional items – (29.9) – – (19.3) –
Ongoing operations 1,305.3 148.6 807.5 1,169.1 141.1 658.5
Operations contributed to the joint venture – – – 35.3 3.6 –
Exceptional items –––– (1.8) –
Continuing operations 1,305.3 148.6 807.5 1,204.4 142.9 658.5
Discontinued operations 26.2 2.1 – 103.4 11.1 22.0
1,331.5 150.7 807.5 1,307.8 154.0 680.5
Less intragroup sales (221.6) – – (226.1) – –
1,109.9 150.7 807.5 1,081.7 154.0 680.5
Exceptional items of £29.9m (2001 – £19.3m) were incurred as follows: £1.5m (2001 – £11.7m) in the UK, £2.4m 
(2001 – £5.1m) in Continental Europe, £25.9m (2001 – £1.5m) in America and £0.1m (2001 – £1.0m) in Africa, Asia and
Australasia. Amortisation of goodwill of £17.5m (2001 – £10.4m) arises as follows: £1.2m (2001 – £0.9m) in the UK, 
£2.1m (2001 – £2.1m) in Continental Europe, £13.7m (2001 – £6.9m) in America and £0.5m (2001 – £0.5m) in Africa, 
Asia and Australasia. Notes to the accounts
30 Smith & Nephew 2002
Note 1 Segmental analysis continued
2002 2001
Analysis of group turnover by geographic market £ million £ million
Europe† 318.7 268.4
America 610.5 534.9
Africa, Asia and Australasia 154.5 139.7
Ongoing operations 1,083.7 943.0
Operations contributed to the joint venture – 35.3
Continuing operations 1,083.7 978.3
Discontinued operations 26.2 103.4
1,109.9 1,081.7
† Includes United Kingdom sales of £87.3m (2001 – £77.5m).
Note 2 Operating profit
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
2002 2002 2002 2001 2001 2001
£ million £ million £ million £ million £ million £ million
Turnover 1,083.7 26.2 1,109.9 978.3 103.4 1,081.7
Cost of sales (313.6) (16.3) (329.9) (294.9) (55.3) (350.2)
Gross profit 770.1 9.9 780.0 683.4 48.1 731.5
Marketing, selling and distribution (408.5) (5.6) (414.1) (365.4) (26.7) (392.1)
Administration (125.0) (2.1) (127.1) (114.3) (8.7) (123.0)
Research and development (61.2) (0.1) (61.3) (49.3) (1.6) (50.9)
BSN agency and management fees 20.6 – 20.6 20.0 – 20.0
Amortisation of acquisition goodwill (17.5) – (17.5) (10.4) – (10.4)
Exceptional items (29.9) – (29.9) (21.1) – (21.1)
Operating profit 148.6 2.1 150.7 142.9 11.1 154.0
Exceptional items of £29.9m (2001 – £21.1m) were incurred as follows: cost of sales £2.8m (2001 – £9.5m), marketing,
selling and distribution £2.5m (2001 – £6.6m), administration £22.6m (2001 – £4.6m) and research and development £2.0m
(2001 – £0.4m).
2002 2001
Operating profit is stated after charging/(crediting): £ million £ million
Depreciation 51.6 48.1
Loss/(profit) on sale of fixed assets 2.7 (0.7)
Amortisation of other intangibles 5.1 1.8
Operating lease rentals for land and buildings 11.0 8.3
Operating lease rentals for other assets 9.8 9.7
Auditors’ remuneration 0.9 0.8
Payments made to the group’s auditors for non-audit services amounted to £1.2m (2001 – £1.5m) in the UK and 
£1.9m (2001 – £1.0m) outside the UK. Of these payments £1.8m (2001 – £1.7m) relates to taxation services and £1.3m
(2001 – £0.8m) to statutory and other certifications and services. Of the total payments for non-audit services, £1.2m 
(2001 – £1.3m) relates to capital transactions. Smith & Nephew 2002 31
Note 3 Exceptional items
Operating exceptional items within ongoing operations of £29.9m (2001 – £19.3m) comprise £17.5m for the write-down 
of the group’s trade investment in the ordinary stock of Advanced Tissue Sciences, Inc., £8.4m for the acquisition integration 
of ORATEC and Dermagraft and £4.0m for further rationalisation consequent on the contribution of businesses to BSN Medical
in 2001. The exceptional items in 2001 comprised £2.9m manufacturing rationalisation, £7.5m rationalisation consequent on
the contribution of businesses to BSN Medical and £8.9m integration costs in connection with the acquisition of the Advanced
Woundcare business from Beiersdorf AG. Operating exceptional items within operations contributed to the joint venture
represent manufacturing rationalisation costs of operations subsequently contributed to BSN Medical. 
The group’s share of exceptional items of the joint venture relates to its share of manufacturing rationalisation costs. 
A net profit of £17.2m arises on the disposal of the rehabilitation business in March 2002 for a net cash consideration of
£71.3m and a 21.5% equity interest in AbilityOne Corporation (AbilityOne). The net profit comprised a gain of £47.2m less
£30.0m of acquisition goodwill previously written off to reserves. In addition a net gain of £0.8m arises on adjustments in
respect of previous disposals. The net profit on disposal in 2001 related to the sale of the ear, nose and throat business.
Note 4 Interest
2002 2001
£ million £ million
Interest receivable 6.6 2.5
Interest payable 
On bank borrowings 16.2 17.5
Other 0.6 1.5
16.8 19.0
Share of joint venture net interest payable 1.6 0.9
Share of associated undertaking net interest payable 0.9 –
Net interest payable 12.7 17.4
Interest payable on currency swaps of £23.3m (2001 – £22.2m) has been set off against interest receivable.
Note 5 Employees
The average number of employees during the year was: 2002 2001
United Kingdom 1,740 1,810
Continental Europe 1,279 1,281
America 3,291 3,310
Africa, Asia and Australasia 1,196 1,525
7,506 7,926
Staff costs during the year amounted to: £ million £ million
Wages and salaries 261.1 245.0
Social security costs 25.1 25.7
Pension costs (Note 30) 14.3 10.4
300.5 281.1
Of the pension costs £11.0m (2001 – £7.8m) relates to defined benefit plans and £3.3m (2001 – £2.6m) relates to defined
contribution plans.
Note 6 Directors’ emoluments
Aggregate emoluments of the directors, including pension entitlements of £106,000 (2001 – £81,000), were 
£1,823,000 (2001 – £1,685,000). The emoluments of the highest paid director excluding pension entitlement were
£856,000 (2001 – £770,000). The accrued pension benefit of the highest paid director at the end of the year was 
£153,000 (2001 – £119,000).
Information concerning individual directors’ emoluments, pension entitlements, shareholdings and share options 
is shown on pages 18 to 20. Notes to the accounts
32 Smith & Nephew 2002
Note 7 Taxation
2002 2001
£ million £ million
Current taxation: 
UK corporation tax at 30% (2001 – 30%) 8.9 9.5
UK adjustments in respect of prior years (2.3) (1.5)
6.6 8.0
Overseas tax 38.5 51.4
Overseas adjustments in respect of prior years (3.0) 3.6
35.5 55.0
Share of joint venture tax charge 4.5 3.3
Share of associated undertaking tax charge 1.0 –
Total current taxation 47.6 66.3
Deferred taxation: 
Origination and reversal of timing differences 14.6 (0.3)
Adjustments to estimated amounts arising in prior periods 3.0 (1.2)
Share of joint venture deferred taxation 0.6 (0.8)
Total deferred taxation 18.2 (2.3)
65.8 64.0
The tax charge has been reduced by £12.7m (2001 – £6.0m), of which £0.6m (2001 – £1.4m) arises in the joint venture, as 
a consequence of the exceptional costs of the write-off of the Advanced Tissue Sciences, Inc., investment and rationalisation
and acquisition integration costs and increased by £16.9m (2001 – £17.7m) as a result of the exceptional profit on disposal,
leaving the tax charge on profits before exceptional items at £61.6m (2001 – £52.3m). 
The standard rate of tax for the year is based on the UK standard rate of corporation tax of 30%. The current tax charge
differs from the standard rate as follows:
2002 2001
% %
UK standard rate 30.0 30.0
Non-deductible/non-taxable items 3.0 (3.9)
Prior year items (3.0) 1.1
Overseas income taxed at other than UK standard rate 6.9 5.8
Fixed asset timing differences (3.3) 0.2
Other timing differences (6.9) 1.0
Total current tax rate 26.7 34.2
Factors that may affect future tax charges
Tax rates on the group’s overseas profits are generally higher than the UK corporation tax rate so changes in the proportion
of profits earned overseas will affect the group’s effective tax rate over time. Tax rates may also be affected by differences
between tax allowances and book depreciation.
No deferred tax is recognised on unremitted earnings of overseas subsidiaries, associates and joint ventures. However, no
significant additional tax charges are expected to arise on amounts that are planned to be remitted in the foreseeable future. Smith & Nephew 2002 33
Note 8 Dividends
2002 2001
£ million £ million
Ordinary interim of 1.8p (2001 – 1.75p) paid 15 November 2002 16.7 16.1
Proposed ordinary final of 3.0p (2001 – 2.9p) payable 16 May 2003 27.9 26.8
44.6 42.9
Non-equity preference dividends amounted to £15,000 (2001 – £15,000). 
Note 9 Results before goodwill amortisation and exceptional items
In order to provide a trend measure of underlying performance, profit before taxation is adjusted below to exclude goodwill
amortisation and exceptional items, and basic earnings per share has been recalculated as set out in Note 10.
2002 2001
£ million £ million
Profit on ordinary activities before taxation 177.9 193.6
Adjustments:
Continuing operations – goodwill amortisation 17.5 10.4
– exceptional items 29.9 21.1
Share of joint venture exceptional items 2.6 5.0
Discontinued operations – net profit on disposals (18.0) (49.2)
Profit before taxation, goodwill amortisation and exceptional items 209.9 180.9
Taxation on profit before goodwill amortisation and exceptional items 61.6 52.3
Earnings before goodwill amortisation and exceptional items 148.3 128.6
Note 10 Earnings per ordinary share
Basic earnings per ordinary share of 12.11p (2001 – 14.07p) are based on profit on ordinary activities after taxation and
preference dividends of £112.1m (2001 – £129.6m) and on 926m ordinary shares being the basic weighted average
number of shares in issue during the year (2001 – 921m). The calculation of diluted earnings per ordinary share is based 
on basic earnings and on 933m ordinary shares (2001 – 929m) calculated as follows:
Shares Shares
2002 2001
million million
Basic weighted average number of shares 926 921
Weighted average number of shares under option 19 20
Number of shares that would have been issued at fair value (12) (12)
Diluted weighted average number of shares 933 929
Diluted earnings per ordinary share 12.02p 13.95p
The calculation of adjusted basic earnings per ordinary share is as follows:
2002 2001
£ million £ million
Basic earnings 112.1 129.6
Continuing operations – goodwill amortisation 17.5 10.4
– exceptional items 29.9 21.1
Share of joint venture exceptional items 2.6 5.0
Discontinued operations – net profit on disposals (18.0) (49.2)
Exceptional taxation 4.2 11.7
Adjusted basic earnings 148.3 128.6
Adjusted basic earnings per ordinary share 16.02p 13.96p
Adjusted diluted basic earnings per ordinary share 15.89p 13.84p Notes to the accounts
34 Smith & Nephew 2002
Note 11 Intangible fixed assets
Goodwill Other Total
Group £ million £ million £ million
Cost:
At 1 January 2002 177.2 45.3 222.5
Exchange adjustment (27.0) (4.5) (31.5)
Acquisitions 167.7 9.7 177.4
Additions – 4.2 4.2
Discontinued operations – (2.4) (2.4)
At 31 December 2002 317.9 52.3 370.2
Amortisation:
At 1 January 2002 19.5 15.2 34.7
Exchange adjustment (1.6) (1.7) (3.3)
Charge for the year 17.5 5.1 22.6
Discontinued operations – (1.0) (1.0)
At 31 December 2002 35.4 17.6 53.0
Net book amounts:
At 31 December 2002 282.5 34.7 317.2
At 31 December 2001 157.7 30.1 187.8
Note 12 Tangible fixed assets
Group Group Group
Land and buildings Plant and In course of Group
freehold leasehold equipment construction Total Parent
£ million £ million £ million £ million £ million £ million
Cost:
At 1 January 2002 62.1 11.9 450.0 24.6 548.6 22.0
Exchange adjustment (3.6) (0.2) (20.9) (2.1) (26.8) –
Acquisitions – 0.1 4.8 0.4 5.3 –
Additions 0.1 0.1 38.1 42.7 81.0 1.6
Disposals (1.8) (0.2) (21.1) (0.1) (23.2) (3.5)
Transfers 5.32.327.5(35.1)––
Discontinued operations (1.3) (4.0) (15.5) (0.1) (20.9) –
At 31 December 2002 60.8 10.0 462.9 30.3 564.0 20.1
Depreciation:
At 1 January 2002 14.7 4.3 284.6 – 303.6 13.8
Exchange adjustment (0.9) (0.2) (13.3) – (14.4) –
Charge for the year 1.3 0.3 50.0 – 51.6 1.5
Disposals (1.7) (0.2) (17.5) – (19.4) (3.2)
Transfers (1.6) 0.5 1.1 – – –
Discontinued operations (0.2) (0.8) (12.2) – (13.2) –
At 31 December 2002 11.6 3.9 292.7 – 308.2 12.1
Net book amounts:
At 31 December 2002 49.2 6.1 170.2 30.3 255.8 8.0
At 31 December 2001 47.4 7.6 165.4 24.6 245.0 8.2
Group
Fixed assets include land with a cost of £4.7m (2001 – £4.6m) that is not subject to depreciation. The net book value of
leases with less than 50 years to run amounted to £6.1m (2001 – £5.3m). Included in tangible fixed assets are assets held
under finance leases with a net book amount of £2.3m (2001 – £2.4m). There is a property for resale in the group with a 
net book value of £1.1m (2001 – £1.3m).
Parent Company
All tangible fixed assets represent plant and equipment. Smith & Nephew 2002 35
Note 13 Investments
Group Group Parent Parent 
own trade Group subsidiary own Parent
shares investments total undertakings shares total
£ million £ million £ million £ million £ million £ million
At 1 January 2002 2.5 23.2 25.7 413.9 2.5 416.4
Exchange adjustment – (1.5) (1.5) – – –
Additions 2.4 1.3 3.7 1,558.1 2.4 1,560.5
Disposals – – – (1,215.2) – (1,215.2)
Impairment – (18.0) (18.0) – – –
Shares vested (1.7) – (1.7) – (1.7) (1.7)
At 31 December 2002 3.2 5.0 8.2 756.8 3.2 760.0
Principal subsidiary undertakings are listed on page 52. Trade investments are US dollar denominated. They include an
equity investment in Advanced Tissue Sciences, Inc., previously quoted on the Nasdaq exchange in the US against which 
a provision has been made taking the book value down to its market value of nil (2001 – book value £18.6m and market
value £15.3m) following a voluntary petition for reorganisation under Chapter 11 of the US Bankruptcy Code. There is no
material difference between the fair value and the carrying value of the other trade investments. 
The movements in the parent company’s investments in subsidiary undertakings reflect group restructuring and the 
re-financing of group loans following the ORATEC acquisition. This is also reflected in debtors (see Note 17) and other
creditors (see Note 20).
Own shares represent the holding of the company’s own shares in respect of the Smith & Nephew Employees’ Share 
Trust (see Note 32).
Note 14 Investment in joint venture (BSN Medical)
Group
£ million
At 1 January 2002 114.0
Retained profit for the financial year 6.4
Debt repaid by the joint venture (5.7)
Exchange adjustment 0.3
At 31 December 2002 115.0
2002 2001
Group investment in joint venture is represented by: £ million £ million
Share of gross assets:
Fixed 28.2 27.9
Current 78.0 76.0
Share of gross liabilities:
Due within one year (52.6) (57.0)
Due after one year (8.9) (8.6)
44.7 38.3
Goodwill 70.3 70.6
Loans to joint venture – 5.1
115.0 114.0
Goodwill arising on the formation of the joint venture is considered to have an indefinite useful economic life and is capable
of separate measurement since the joint venture operates independently of the group. It operates in a mature sector of the
medical devices industry, has high market shares, and long product life cycles. Significant barriers to entry exist in terms of
technology, manufacturing know-how, regulatory compliance, market reputation and customer relationships. If the goodwill
had been amortised over 20 years, operating profit would have been lower by £3.2m (2001 – £2.6m) and investment in joint
venture would have been lower by £5.8m (2001 – £2.6m). Notes to the accounts
36 Smith & Nephew 2002
Note 15 Investment in associated undertaking (AbilityOne)
Group
£ million
At 1 January 2002 –
Initial investment in associated undertaking 7.5
Retained profit for the financial year 3.0
Exchange adjustment (2.0)
At 31 December 2002 8.5
Group investment in associated undertaking of £8.5m (2001 – nil) comprises goodwill of £15.4m less share of net liabilities
of £6.9m.
Goodwill on acquisition of the associated undertaking of £17.5m comprised the difference between the fair value of the
consideration of £5.7m given, together with transaction costs of £1.8m, and the book value of net liabilities acquired 
of £10.0m.
Goodwill in the associate is considered to have an indefinite useful economic life and is capable of separate measurement
since the associated undertaking operates independently of the group. It operates in the rehabilitation industry, has high
market shares, and long product life cycles. Significant barriers to entry exist in terms of breadth of the product range, 
sales force size, physical distribution capabilities, key customer and professional relationships and market reputation. If the
goodwill had been amortised over 20 years operating profit and investment in associated undertaking each would have
been lower by £0.6m.
Note 16 Stocks
Group Group
2002 2001
£ million £ million
Raw materials and consumables 42.0 47.6
Work in progress 12.9 12.2
Finished goods and goods for resale 174.6 172.4
229.5 232.2
Note 17 Debtors
Group Group Parent Parent
2002 2001 2002 2001
£ million £ million £ million £ million
Amounts falling due within one year:
Trade and other debtors 222.6 224.4 1.9 2.0
Amounts owed by subsidiary undertakings (Note 13) – – 1,418.5 461.0
Amounts owed by joint venture 2.3 7.4 0.5 0.7
Amounts owed by associated undertaking 0.5–––
Prepayments and accrued income 22.4 20.1 2.8 2.3
Debit balances on currency swaps 8.5 2.8 8.4 2.8
256.3 254.7 1432.1 468.8
Amounts falling due after more than one year:
Pension prepayments (Note 30) 5.3 5.6 – –
Other debtors 2.3 2.2 – –
Deferred taxation 4.0 3.5 – –
Debit balances on currency swaps 12.8 0.8 12.6 0.8
280.7 266.8 1,444.7 469.6
In previous years debit balances on currency swaps were reported within cash. The prior year comparative has been
reclassified. Deferred tax assets of £4.0m (2001 – £3.5m) represent short term timing differences and are considered 
to be recoverable. 
Other debtors falling due after more than one year are non interest bearing and denominated in various currencies. 
The fair value of these debtors is the same as the book value. Smith & Nephew 2002 37
Note 18 Borrowings
Group Group Parent Parent
2002 2001 2002 2001
Net debt £ million £ million £ million £ million
Borrowings:
Due within one year 151.9 94.0 127.2 62.9
Due after one year 164.2 161.2 162.3 154.6
316.1 255.2 289.5 217.5
Cash and bank (22.5) (26.4) (9.1) (14.8)
Debit balances on currency swaps (21.3) (3.6) (21.0) (3.6)
Credit balances on currency swaps 4.6 18.3 4.6 16.6
276.9 243.5 264.0 215.7
Borrowings
Bank loans and overdrafts 315.1 253.8 289.5 217.3
Other loans wholly repayable within five years 1.0 1.4 – 0.2
316.1 255.2 289.5 217.5
In previous years, debit balances on currency swaps were reported within cash and credit balances within borrowings. 
The prior year comparatives have been reclassified. 
Bank loans and overdrafts represent drawings under committed and uncommitted facilities of £493m and £255m
respectively. Of the undrawn committed facilities of £199m, £3m expire within one year and £196m after more than two
years (2001 undrawn committed facilities – £99m of which £2m expire within one year and £97m after more than two
years). Borrowings secured on fixed and current assets were £0.9m (2001 – £1.1m). Cash, balances on currency swaps
and borrowings are shown at book value which is the same as fair value. The group’s liquidity risk management policy 
is set out on page 13.
The group and parent company have currency swaps which are retranslated at year end exchange rates and have maturities
ranging from 2003 to 2006. For the group, gross sterling equivalents of £579.9m (2001 – £483.0m) receivable and £563.2m
(2001 – £497.7m) payable have been netted. The net debit balance of £16.7m (2001 – net credit balance of £14.7m) is
included as £21.3m in debit balances on currency swaps and as £4.6m in credit balances on currency swaps (2001 – £3.6m
in debit balances on currency swaps and £18.3m in credit balances on currency swaps). For the parent company, gross
sterling equivalents of £564.4m (2001 – £462.2m) receivable and £548.0m (2001 – £475.2m) payable have been netted, 
the net debit balance of £16.4m (2001 – net credit balance £13.0m) is included as £21.0m in debit balances on currency
swaps and as £4.6m in credit balances on currency swaps (2001 – £3.6m in debit balances on currency swaps and £16.6m
in credit balances on currency swaps). Balances on currency swaps are floating interest rate contracts and forward foreign
exchange contracts and are used for hedging foreign investments.
Group Group Parent Parent
2002 2001 2002 2001
Borrowings are repayable as follows: £ million £ million £ million £ million
Within one year:
Bank loans and overdrafts 151.5 93.5 127.2 62.7
Other loans 0.4 0.5 – 0.2
Total within one year 151.9 94.0 127.2 62.9
Bank loans and overdrafts:
After one year and within two years 57.2 67.0 55.9 61.8
After two years and within five years 106.4 93.3 106.4 92.8
163.6 160.3 162.3 154.6
Other loans:
After one year and within two years 0.3 0.3 – –
After two years and within five years 0.3 0.6 – –
0.6 0.9 – –
Total after one year 164.2 161.2 162.3 154.6
316.1 255.2 289.5 217.5
In addition to the above borrowings, other financial liabilities are £0.3m being 5
1
⁄ 2% undated cumulative preference shares 
as set out in Note 22. Notes to the accounts
38 Smith & Nephew 2002
Note 19 Financial instruments
The group’s treasury policies are set out in the financial review on page 13, and explain the use of currency and interest 
rate swap contracts. Disclosure of the group’s borrowings, the maturity profile of these borrowings and details of borrowing
facilities are set out in Note 18. Short term debtors and creditors are excluded from the following disclosures.
Currency and interest rate profile of interest bearing liabilities
Fixed rate liabilities
Weighted Weighted
average average
Currency Total Floating rate Fixed rate interest time for which
Borrowings swaps liabilities liabilities liabilities rate rate is fixed
At 31 December 2002 £ million £ million £ million £ million £ million % Years
US Dollar 263.8 393.1 656.9 93.5 563.4 3.7 1
Euro 4.8 132.3 137.1 37.4 99.7 3.7 1
Other 47.5 37.8 85.3 85.3–––
Total interest bearing liabilities 316.1 563.2 879.3 216.2 663.1
At 31 December 2001
US Dollar 188.3 361.6 549.9 67.4 482.5 4.6 1
Euro 2.2 111.1 113.3 9.9 103.4 4.0 2
Other 64.7 25.0 89.7 80.8 8.9 1.8 1
Total interest bearing liabilities 255.2 497.7 752.9 158.1 594.8
In addition to the above, the group has a liability due after one year for deferred acquisition consideration (denominated 
in euros) totalling £5.0m (2001 – £6.5m) on which no interest is paid (see Note 20).
Currency and interest rate profile of interest bearing assets
Fixed rate assets
Weighted Weighted
average average
Cash and Currency Total Floating rate Fixed rate interest time for which
bank swaps assets assets assets rate rate is fixed
At 31 December 2002 £ million £ million £ million £ million £ million % Years
Sterling 0.9 579.9 580.8 77.8 503.0 5.1 1
Other 21.6 – 21.6 21.6–––
Total interest bearing assets 22.5 579.9 602.4 99.4 503.0
At 31 December 2001
Sterling 2.1 483.0 485.1 89.1 396.0 5.5 1
Other 24.3 – 24.3 24.3–––
Total interest bearing assets 26.4 483.0 509.4 113.4 396.0
The above interest rate analysis includes the effect of interest rate swaps.
Floating rates on both assets and liabilities are typically based on the three month LIBOR interest rate relevant to the
currency concerned. Smith & Nephew 2002 39
Note 19 Financial instruments continued
Foreign exchange and interest rate exposures
As explained in the financial review on page 13, forward foreign exchange contracts are used to hedge trading payables
and an element of anticipated purchases over the following 12 months. The group’s operating units hold no material
unhedged monetary assets or liabilities other than in their functional operating currency. There are therefore no currency
exposures on monetary assets and liabilities that could give rise to material gains or losses in the profit and loss account.
The group also hedges forward its interest rate risk for up to two years using interest rate swap contracts. 
Fair value of financial assets and liabilities
Forward foreign exchange contracts and interest rate swap contracts, taken out as hedges, are not marked to market.
Gains and losses thereon are recognised only when the exposure that is being hedged is itself recognised. The following
table sets out the book and fair values of the group’s derivative financial instruments. Market rates have been used to
determine the fair values of interest rate swaps, currency swaps and forward contracts.
31 December 2002 31 December 2001
Derivative financial instruments held to Book value Fair value Book value Fair value
manage interest rate and currency risk: £ million £ million £ million £ million
Net interest rate swaps – (8.8) – (6.7)
Net forward contracts – (5.8) – 2.1
Unrecognised gains and losses on hedges – (14.6) – (4.6)
Net currency swaps 16.7 16.7 (14.7) (14.7)
The group’s primary financial instruments are set out in Note 18. The fair value of these instruments is the same as book
value.
The following table shows the amount of unrealised gains and losses which have been included in the profit and loss
account for the year and those gains and losses which are expected to be included in next year’s or later profit and loss
accounts.
Total net
Unrecognised Unrecognised unrecognised
gains losses gains/(losses)
£ million £ million £ million
Unrecognised gains and losses on hedges at 31 December 2000 3.6 (1.8) 1.8
Less: gains and losses arising in previous years that were recognised in 2001 (2.8) 1.7 (1.1)
Gains and losses arising before 31 December 2000 that were not recognised in 2001 0.8 (0.1) 0.7
Gains and losses arising in 2001 that were not recognised in 2001 8.1 (13.4) (5.3)
Unrecognised gains and losses on hedges at 31 December 2001 8.9 (13.5) (4.6)
Less: gains and losses arising in previous years that were recognised in 2002 (8.2) 13.2 5.0
Gains and losses arising before 31 December 2001 that were not recognised in 2002 0.7 (0.3) 0.4
Gains and losses arising in 2002 that were not recognised in 2002 7.9 (22.9) (15.0)
Unrecognised gains and losses on hedges at 31 December 2002 8.6 (23.2) (14.6)
Of which:
Gains and losses expected to be recognised in 2003 8.1 (22.1) (14.0)
Gains and losses expected to be recognised in 2004 or later 0.5 (1.1) (0.6) Notes to the accounts
40 Smith & Nephew 2002
Note 20 Other creditors
Group Group Parent Parent
2002 2001 2002 2001
Amounts falling due within one year: £ million £ million £ million £ million
Trade creditors 141.4 145.1 3.3 4.5
Amounts owed to subsidiary undertakings (Note 13) – – 1,467.9 181.8
Amounts owed to joint venture 4.2 3.9 – –
Social security costs and other taxes 11.1 11.7 – –
Accruals and deferred income 54.0 47.6 14.1 10.9
Acquisition consideration 10.8 15.2 – –
Current taxation 56.9 67.7 18.0 16.2
Ordinary share dividends 27.9 26.8 27.9 26.8
Credit balances on currency swaps 3.3 16.5 3.3 16.0
309.6 334.5 1,534.5 256.2
Amounts falling due after one year:
Acquisition consideration 5.0 6.5 – –
Credit balances on currency swaps 1.3 1.8 1.3 0.6
6.3 8.3 1.3 0.6
In previous years credit balances on currency swaps were reported within borrowings. The prior year comparative has 
been restated. 
Group amounts falling due after more than one year are payable as follows: £2.8m in 2004, £1.7m in 2005 and £1.8m 
in 2006 (2001 – £2.4m in 2003, £2.0m in 2004, £2.1m in 2005 and £1.8m in 2006). Parent amounts falling due after 
one year are payable in 2004 (2001 – payable in 2003). 
Note 21 Provisions for liabilities and charges
Deferred Rationalisation Retirement
taxation and integration healthcare Other Total
Group £ million £ million £ million £ million £ million
At 1 January 2002 55.4 21.3 9.2 9.4 95.3
Exchange adjustments (2.3) (0.3) (0.5) (0.5) (3.6)
Profit and loss account – current year 14.6 13.4 0.8 2.2 31.0
Profit and loss account – prior year 3.0––– 3.0
Acquisitions (15.2) – – 3.9 (11.3)
Movement in deferred tax asset 0.5––– 0.5
Utilisation – (22.8) (0.1) (3.9) (26.8)
At 31 December 2002 56.0 11.6 9.4 11.1 88.1
At 31 December 2002 rationalisation and integration provisions included acquisition integration of £3.9m (2001 – £5.4m).
The deferred taxation and retirement healthcare provisions are long-term in nature, as is the timing of their utilisation.
Rationalisation and integration and other provisions are expected to be utilised within two years. There are no provisions 
for contractual amounts and hence none are treated as financial instruments.
The movement in provisions for liabilities and charges within the parent company during the year from £6.1m to £2.6m
represents utilisation of provisions and changes in deferred taxation.
The provision for deferred taxation consists of the following amounts:
Group Group Parent Parent
2002 2001 2002 2001
£ million £ million £ million £ million
Goodwill timing differences 45.8 48.7 – –
Other fixed asset timing differences 34.8 27.9 1.4 1.4
Other timing differences (24.6) (21.2) (0.5) –
56.0 55.4 0.9 1.4
See Note 7 for information on deferred tax assets and liabilities for which no provision has been made. Smith & Nephew 2002 41
Note 22 Called up share capital
Shares Shares
2002 2002 2001 2001
Authorised ’000 £ million ’000 £ million
Ordinary shares 12
2
⁄ 9p 1,223,591149.51,223,591149.5
5
1
⁄ 2% cumulative preference shares £1 450 0.5 450 0.5
150.0 150.0
Allotted, issued and fully paid Shares
Equity capital: ordinary shares 12
2
⁄ 9p ’000 £ million
At 1 January 2002 924,812 113.1
Share options 3,948 0.4
At 31 December 2002 928,760 113.5
Non-equity capital: 5
1
⁄ 2% cumulative preference shares £1
At 1 January 2002 and 31 December 2002 269 0.3
Total called up share capital at 31 December 2002 113.8
The 5
1
⁄ 2% cumulative preference shares are denominated in sterling and the fair value is not materially different from 
the book value. They are non-voting and carry preferential rights to dividend and distribution on winding up.
Note 23 Share option schemes
At 31 December 2002 19,819,000 (2001 – 19,235,000) of the authorised but unissued ordinary shares of 12
2
⁄ 9p were
reserved in respect of the following options:
Exercise Shares
Exercisable prices per the subject
in stages share range of options
between between ’000
Employee share option schemes 2003 – 2008 124.0p-372.7p 4,246
Executive share option schemes 2003 – 2011 143.0p-409.5p 15,573
19,819
As the employee scheme is an Inland Revenue approved Save As You Earn scheme, the company is exempt from
accounting for the difference between the share option price and the market value at the grant date.
In 2001, the company established a qualifying employee share ownership trust (QUEST) to acquire Smith & Nephew plc
ordinary shares for transfer to employees exercising options under the Smith & Nephew employee share option scheme. 
The trustee of the QUEST is Smith & Nephew Employees Trustees Limited, a wholly-owned subsidiary of the company.
During the year, the QUEST subscribed for 950,317 (2001 – 837,129) shares at a cost of £2.3m (2001 – £2.1m) and
transferred a total of 950,317 (2001 – 837,129) shares to employees on the exercise of options for a consideration of 
£1.4m (2001 – £1.2m). All employees of UK group subsidiary companies, including executive directors of the company, 
are potential beneficiaries under the QUEST.  Notes to the accounts
42 Smith & Nephew 2002
Note 24 Reserves
Share Profit and
premium loss account
Group £ million £ million
At 1 January 2002 135.8 155.4
Translation differences on foreign currency net investments – 9.1
Retained profit for the year – 67.5
Movements relating to the QUEST (Note 23) – (2.3)
Goodwill on disposals – 30.0
Share options 8.0 –
At 31 December 2002 143.8 259.7
Net exchange gains of £68.2m (2001 – losses of £5.8m) arising on foreign currency net borrowings are included within 
the £9.1m (2001 – negative £8.8m) translational differences on foreign currency net investments.
The cumulative amount of goodwill charged to reserves is £292.3m (2001 – £329.5m) against which £116.0m of merger
relief has been offset. The decrease is due to goodwill written back on the disposal of the rehabilitation business of £30.0m
and exchange movements of £7.2m.
Share Profit and
premium loss account
Parent company £ million £ million
At 1 January 2002 135.8 179.4
Retained loss for the year – (40.8)
Movements relating to the QUEST (Note 23) – (2.3)
Share options 8.0 –
At 31 December 2002 143.8 136.3
In accordance with the exemption permitted by Section 230(3) of the Companies Act 1985, the parent company has not
presented its own profit and loss account. The attributable profit for the year dealt with in the accounts of the parent
company is £3.8m (2001 – £87.8m). Smith & Nephew 2002 43
Note 25 Cash flow statement
2002 2001
Reconciliation of operating profit to net cash flow from operating activities £ million £ million
Operating profit 150.7 154.0
Depreciation and amortisation 74.2 60.3
Loss/(profit) on sale of tangible fixed assets 2.7 (0.7)
Write-off of Advanced Tissue Sciences, Inc., investment 17.5 –
Increase in stocks (11.5) (40.0)
Increase in debtors (21.1) (17.9)
(Decrease)/increase in creditors and provisions (3.2) 36.2
Net cash inflow from operating activities 209.3 191.9
Opening Exchange Closing
net debt Cash flow adjustments net debt
Analysis of net debt £ million £ million £ million £ million
Cash 26.4 (4.0) 0.1 22.5
Overdrafts (3.7) (8.9) 0.3 (12.3)
22.7 (12.9) 0.4 10.2
Borrowings due within one year (90.3) (70.6) 21.3 (139.6)
Borrowings due after one year (161.2) (18.1) 15.1 (164.2)
(228.8) (101.6) 36.8 (293.6)
Net currency swaps (14.7) – 31.4 16.7
(243.5) (101.6) 68.2 (276.9)
Reconciliation of net cash flow to movement in net debt
2002 2001
for the year ended 31 December 2002 £ million £ million
Change in cash in the year (12.9) 7.4
Change in net currency swaps – 14.0
Change in borrowings (88.7) (22.8)
Change in net debt from cash flows (101.6) (1.4)
Exchange adjustments 68.2 (5.8)
Change in net debt in the year (33.4) (7.2)
Opening net debt (243.5) (236.3)
Closing net debt (276.9) (243.5)
Disposals
The net assets of the rehabilitation business disposed of comprised fixed assets £9.1m, stocks £10.1m, debtors £13.0m
and creditors £9.1m.
Note 26 Currency translation
The exchange rates used for the translation of currencies that have the most significant impact on the group results were:
Average Average Year Year
rate rate end rate end rate
2002 2001 2002 2001
US dollar 1.51 1.44 1.61 1.46
Euro 1.59 1.61 1.53 1.64 Notes to the accounts
44 Smith & Nephew 2002
Note 27 Acquisitions
On 28 March 2002 the group acquired ORATEC Interventions, Inc., at a net cost of £191.2m in cash. Its assets are
included in the group’s balance sheet at fair value at the date of acquisition as follows:
Net Fair value Fair value
book value adjustments to group
Net assets at date of acquisition: £ million £ million £ million
Fixed assets 6.5 (1.8) 4.7
Intangibles 2.4 – 2.4
Stock 4.5 0.3 4.8
Debtors 6.1 (0.2) 5.9
Creditors due within one year (4.2) 0.6 (3.6)
Provisions (3.9) – (3.9)
Deferred taxation –15.2 15.2
Net assets 11.4 14.1 25.5
Goodwill arising on acquisition 165.7
191.2
Discharged by:
Cash consideration 222.5
Cash acquired in ORATEC (39.1)
Costs associated with acquisition 7.8
191.2
The fair value adjustments reflect the adoption of group accounting policies and deferred taxation arising due to trading
losses in the acquired entity which are available for offset.
In 2001, ORATEC earned a profit after tax of £0.6m. For the period 1 January 2002 to 28 March 2002, which was the
effective date of acquisition, turnover was £7.9m and the loss after tax of £0.5m comprised £0.8m of operating loss and
£0.3m of interest received. There were no other recognised gains and losses in the three months ended 28 March 2002.
Since acquisition ORATEC has contributed £21.6m to the group’s turnover, £3.8m to profit before goodwill amortisation 
and exceptional items and incurred a net operating cash outflow of £6.1m including capital expenditure of £0.7m.
The impact of other acquisitions, including deferred consideration in respect of prior years acquisitions, was:
£ million
Tangible fixed assets 0.6
Intangible assets 7.3
Current assets 3.7
Current liabilities (3.8)
7.8
Goodwill 2.0
Consideration 9.8
Associated undertaking formation costs 1.8
Deferred consideration in respect of previous acquisitions paid in the year 5.5
Total consideration 17.1
£2.0m consideration is accrued and payable in cash in 2003. There was no material difference between the fair value and
book value of net assets acquired. Smith & Nephew 2002 45
Note 28 Financial commitments
Group capital expenditure contracted but not provided for amounted to £4.3m (2001 – £4.5m). 
Following the acquisition of Advanced Tissue Sciences, Inc.’s, 50% share in the Dermagraft joint arrangement all obligations
to make contingent milestone payments ceased (2001 – £3.4m payable).
Under the group’s acquisition and joint development agreements with NUCRYST Pharmaceuticals Corp, amounts of up to
£4.7m (2001 – £7.2m) could become payable on achievement of certain milestones related to regulatory and reimbursement
approvals with a further £28.0m (2001 – £30.9m) contingent on achievement of sales milestones.
At 31 December 2002 the group was committed to making the following payments during 2003:
Land and Land and Other Other
buildings buildings assets assets
2002 2001 2002 2001
Operating leases which expire: £ million £ million £ million £ million
Within one year 1.6 1.8 1.8 1.9
After one year and within five years 3.6 1.9 7.2 6.5
After five years 3.6 3.3 – –
8.8 7.0 9.0 8.4
Note 29 Contingent liabilities
Group Group Parent Parent
2002 2001 2002 2001
£ million £ million £ million £ million
Guarantees in respect of subsidiary undertakings – – 30.8 37.8
Other – 2.3 – 2.3
– 2.3 30.8 40.1
The group is party to legal proceedings in the normal course of business which it is considered will not result in any material
adverse effect. Notes to the accounts
46 Smith & Nephew 2002
Note 30 Post-retirement benefits
The group sponsors pension plans for its employees in most of the countries in which it has major operating companies.
The plans are funded by the payment of contributions to separately administered trust funds or insurance companies.
Pension plans are established under the laws of the relevant territory, with their assets held in separate trust funds or by
insurance companies. In those countries where there is no company-sponsored pension plan, state benefits are considered
adequate. Employees’ retirement benefits are the subject of regular management review.
For many years the group’s major pension plans in the UK and US have been of the defined benefit type. However, from
2003 all new employees will be provided with a defined contribution pension plan. Existing employees will be given the
opportunity to choose whether to remain in their existing plan or change to the new arrangements. Under the projected 
unit method the current service cost will increase as the members of the defined benefit plans approach retirement.
The pension cost for the group’s major defined benefit plans in the UK and US has been determined by independent qualified
actuaries, using the projected unit method to give a substantially level percentage cost on the current and expected future
pensionable payroll. The deficit of plan assets to plan liabilities is amortised, using the percentage of payroll method, over the
weighted average of expected pensionable payroll and remaining service lives of current employees in the plan. The actuarial
assumptions are as follows:
UK US 
% per % per
annum annum
Increase in pensionable earnings 4.6 5.0
Increase in pensions 2.6 nil
Inflation 2.6 3.0
Net return on investments 7.0 8.0
Average remaining service lives 10 years 13 years
At the dates of the most recent actuarial valuations in September and December 2001 the aggregate market value of the
assets of the group’s main defined benefit plans in the UK and US was £268m (2001 – £283m: valuations in September
2000 and January 2001) representing 93% of plan liabilities for accrued benefits, including allowance for projected future
increases in salaries, resulting in a net deficit of £19.8m (2001 – 104% and a net surplus of £10.0m). The estimated deficit
of these plans as at 31 December 2002 was £80m.
The unamortised balance of the plan deficits was £22.7m (2001 – surplus £8.9m).
The contributions made in the UK and US in the accounting period were £2.6m (2001 – £2.2m) and £5.2m (2001 – £6.5m)
respectively. The contribution rates for 2003 are expected to be 11% of pensionable earnings plus a supplementary
payment of £4m in the UK and 4% of pensionable earnings plus a supplementary payment of £5m in the US.
Included in debtors due after more than one year is a prepayment of £5.3m (2001 – £5.6m) and included in creditors 
is an accrual of £6.4m (2001 – £7.3m) relating to the funding of certain group pension plans. 
The group recharges the UK pension plan with the costs of administration and independent advisers. The amount
recharged in the year to 31 December 2002 was £0.4m (2001 – £0.7m). The amount receivable at 31 December 2002 
was £0.1m (2001 – £0.6m).
The cost of providing healthcare benefits after retirement of £0.8m (2001 – £0.1m) is determined by independent qualified
actuaries. The unfunded liability of £9.4m (2001 – £9.2m) in respect of the accrued healthcare benefits is included in
provisions. The principal actuarial assumptions in determining the cost of providing healthcare benefits are those in the 
UK and the US:
UK US
% per % per 
annum annum
Interest rate 5.6 7.0
Medical cost inflation 6.6 8.0 Smith & Nephew 2002 47 Smith & Nephew 2002 47
Note 31 Post-retirement benefits (FRS 17)
The disclosures below show the effect on the group’s financial statements had FRS 17 been adopted and relate to 
the major defined benefit retirement plans in the UK and the US. Other plans are not material.
The principal assumptions used by the independent qualified actuaries in valuing the UK and US plans at 31 December
for FRS 17 purposes were:
2002 2001
UK US UK US
% per % per % per % per 
annum annum annum annum
Increase in pensionable earnings 4.3 5.0 4.0 5.0
Increase in pensions 2.3 nil 2.5 nil
Inflation 2.33.02.53.0
Discount rate 5.6 7.0 6.0 7.1
The assets and liabilities in the plans and the expected rates of return on investments were:
UK Plan US Plan
Rate of Value Rate of Value
At 31 December 2002 return % £ million return % £ million
Equities 7.8 114.3 8.7 34.4
Government bonds 4.5 34.0 5.8 8.0
Corporate bonds 5.6 – 7.0 7.0
Property 6.2 9.6 – –
Other 5.0 7.0 4.2 1.1
Market value of assets 164.9 50.5
Present value of liabilities (221.4) (105.2)
Deficit (56.5) (54.7)
Post-retirement healthcare (3.3) (7.0)
(59.8) (61.7)
Related deferred tax asset 17.9 23.4
Net retirement benefit liability (41.9) (38.3)
UK Plan US Plan
Rate of Value Rate of Value
At 31 December 2001 return % £ million return % £ million
Equities 9.0 149.1 10.0 42.8
Government bonds 4.9 36.0 5.5 8.4
Corporate bonds 6.0 – 7.1 6.8
Property 6.9 9.4 – –
Other 5.8 6.6 2.5 4.8
Market value of assets 201.1 62.8
Present value of liabilities (190.2) (103.8)
Surplus/(deficit) 10.9 (41.0)
Post-retirement healthcare (3.1) (7.4)
7.8 (48.4)
Related deferred tax (liability)/asset (2.3) 18.4
Net retirement benefit asset/(liability) 5.5 (30.0) Notes to the accounts
48 Smith & Nephew 2002
Note 31 Post-retirement benefits (FRS 17) continued
The group’s shareholders’ funds and profit and loss account at 31 December would have been as follows:
2002 2001
Profit Profit 
Shareholders’ and loss Shareholders’ and loss
funds account funds account 
£ million £ million £ million £ million
As reported 517.3 259.7 404.6 155.4
Provided under SSAP 24 7.8 7.8 8.1 8.1
Less: related deferred tax (3.0) (3.0) (3.2) (3.2)
522.1 264.5 409.5 160.3
FRS 17 net retirement liability above (80.2) (80.2) (24.5) (24.5)
As adjusted for FRS 17 441.9 184.3 385.0 135.8
The following amounts would have been charged to operating profit in 2002:
UK plan US plan Total
£ million £ million £ million
Current service cost – employers portion 5.9 5.2 11.1
Past service cost 0.1 – 0.1
Total operating charge 6.0 5.2 11.2
The following amounts would have been charged/(credited) to other finance costs in 2002:
UK plan US plan Total
£ million £ million £ million
Interest cost 11.4 7.1 18.5
Expected return on assets in the plan (16.2) (5.3) (21.5)
Net (credit)/cost (4.8) 1.8 (3.0)
The net amounts that would have been charged under FRS 17 of £8.2m compares with the cost under SSAP 24 of £7.8m.
The following amounts would have been included in the statement of total recognised gains and losses in 2002:
UK plan US plan
Difference between expected and actual return on assets
Amount (£m) (47.9) (13.9)
Percentage of plan assets 29.0% 27.5%
Experience gains and losses arising on the plan liabilities
Amount (£m) (2.5) (1.1)
Percentage of plan liabilities 1.1% 1.0%
Effects of changes in demographic and financial assumptions 
underlying the present value of the plan liabilities
Amount (£m) (18.6) (1.9)
Actuarial loss recognised in the statement of total recognised gains and losses 
Amount (£m) (69.0) (16.9)
Percentage of plan liabilities 31.2% 16.1% Smith & Nephew 2002 49
Note 31 Post-retirement benefits (FRS 17) continued
The following table reconciles the movement in the plan surplus/(deficit) during 2002:
UK plan US plan
£ million £ million
Surplus/(deficit) in the plan at 1 January 2002 10.9 (41.0)
Movement in the year:
Current service cost – total (8.6) (5.2)
Past service cost (0.1) –
Other finance income/(cost) 4.8 (1.8)
Actuarial loss (69.0) (16.9)
Contributions paid (including by employees) 5.5 5.2
Currency adjustment – 5.0
Deficit in the plan at 31 December 2002 (56.5) (54.7)
The cost of providing healthcare benefits after retirement of £0.8m is determined by independent actuaries and would be
charged to operating profit in 2002. The principal actuarial assumptions in determining the cost of providing healthcare
benefits are those in the UK and the US:
2002 2001
UK US UK US
% per % per % per % per 
annum annum annum annum
Interest rate 5.6 7.0 6.0 7.1
Medical cost inflation 6.6 8.0 7.0 9.0
Note 32 Smith & Nephew Employees’ Share Trust
2002 2001 
£ million £ million
At 1 January 2002 2.5 2.9
Shares acquired 2.4 1.2
Shares vested (1.7) (1.6)
At 31 December 2002 3.2 2.5
The Smith & Nephew Employees’ Share Trust (the “Trust”) was established to hold shares relating to the long-term incentive
plan referenced in the remuneration report. The Trust is administered by an independent professional trust company
resident in Jersey and is funded by a loan from the parent company. The costs of the Trust are charged to the profit and
loss account as they accrue. A dividend waiver is in place in respect of those shares held under the long-term incentive 
plan that are yet to vest. The waiver represents less than 1% of the total dividends paid.
At 31 December 2002 the Trust held 1.5m (2001 – 1.1m) ordinary shares of the company at an aggregate cost of £5.2m
(2001 – £3.5m). 0.9m shares, at an aggregate cost of £3.2m, are included within fixed asset investments on the group 
and parent balance sheets. The market value of these shares at 31 December 2002 was £3.4m (2001 – £3.3m). 0.6m
(2001 – 0.3m) shares, with an original cost of £2.0m (2001 – £1.0m), have vested and are held under option for the benefit
of directors and employees.
Note 33 Related party transactions with joint venture and associated undertaking
In the course of normal operations, the group traded on an arm’s-length basis with its joint venture BSN Medical and
associated undertaking AbilityOne. The aggregated transactions which have not been disclosed elsewhere in the accounts
are summarised below.
With With With With 
BSN Medical BSN Medical AbilityOne AbilityOne
2002 2001 2002 2001
£ million £ million £ million £ million
Sales to the joint venture/associate 6.9 6.5 0.4 –
(Loss)/profit made on sales (0.3) (0.4) 0.1 –
Agency fees received 19.0 19.2 – –
Management charges received 1.6 0.8 – –
Purchases from the joint venture/associate 13.2 11.2 5.3 –
Profit made by the joint venture on purchases 0.1 0.5 – –
Interest payable to the joint venture – (0.7) – –
Interest receivable from the joint venture 0.4 1.7 – – 50 Smith & Nephew 2002
Group five year 
summary
2002 2001 2000 1999# 1998#
Profit and loss account £ million £ million £ million £ million £ million
Turnover
Continuing operations 1,083.7 978.3 911.5 799.9 713.6
Discontinued operations 26.2 103.4 223.2 320.0 339.8
Group turnover 1,109.9 1,081.7 1,134.7 1,119.9 1,053.4
Share of joint venture 155.0 123.6–––
1,264.9 1,205.3 1,134.7 1,119.9 1,053.4
Operating profit
Continuing operations:
Before goodwill amortisation and exceptional items 196.0 174.4 156.9 122.7 106.5
Goodwill amortisation* (17.5) (10.4) (6.9) (1.8) (0.3)
Exceptional items* (29.9) (21.1) (12.4) (40.1) (15.9)
Discontinued operations:
Before exceptional items 2.1 11.1 29.0 46.6 47.9
Exceptional items* – – (3.9) (11.6) (2.0)
150.7 154.0 162.7 115.8 136.2
Share of operating profit of the joint venture:
Before exceptional items 19.6 12.8–––
Exceptional items* (2.6) (5.0) – – –
167.7 161.8 162.7 115.8 136.2
Share of operating profit of the associated undertaking 4.9––––
172.6 161.8 162.7 115.8 136.2
Profit on disposals* 18.0 49.2 109.5 62.9 –
Profit before interest 190.6 211.0 272.2 178.7 136.2
Interest (payable)/receivable (12.7) (17.4) (7.0) 3.4 (1.7)
Profit before taxation 177.9 193.6 265.2 182.1 134.5
Taxation 65.8 64.0 57.7 77.3 40.8
Profit after taxation 112.1 129.6 207.5 104.8 93.7
Ordinary dividends 44.6 42.9 41.3 72.5 69.2
Special dividend – – 415.6 – –
Retained profit/(deficit) 67.5 86.7 (249.4) 32.3 24.5
Basic earnings per ordinary share 12.11p 14.07p 20.07p 9.39p 8.42p
Diluted earnings per ordinary share 12.02p 13.95p 19.95p 9.37p 8.40p
Dividends per ordinary share 4.80p 4.65p 4.50p 6.50p 6.20p
*Results before goodwill amortisation and exceptional items:
Profit before taxation 209.9 180.9 178.9 172.7 152.7
Adjusted earnings per ordinary share 16.02p 13.96p 12.19p 10.88p 9.61p
Adjusted diluted earnings per ordinary share 15.89p 13.84p 12.12p 10.85p 9.60p
Operating profit (before goodwill amortisation and 17.8% 17.1% 16.4% 15.1% 14.7%
exceptional items) to group sales
Research and development costs to group sales 5.5% 4.7% 4.0% 4.0% 4.1%
Capital investment (including intangibles) to group sales 7.7% 6.9% 5.6% 5.8% 6.6%
#1999 and 1998 have not been restated for FRS 19. Smith & Nephew 2002 51
2002 2001 2000 1999# 1998#
Balance sheet £ million £ million £ million £ million £ million
Fixed assets 704.7 572.5 428.9 361.1 334.4
Net current assets 71.2 96.9 129.8 248.8 195.3
Creditors falling due after more than one year (170.5) (169.5) (187.2) (20.2) (12.8)
Provisions (88.1) (95.3) (103.5) (38.0) (31.4)
Capital employed 517.3 404.6 268.0 551.7 485.5
Called up share capital 113.8 113.4 112.7 112.1 111.7
Reserves 403.5 291.2 155.3 439.6 373.8
Capital and reserves 517.3 404.6 268.0 551.7 485.5
Operating profit (before goodwill amortisation and
exceptional items) to average capital employed 29% 34% 36% 32% 30%
Cash flow 
Cash inflow from operating activities 209.3 191.9 204.0 198.1 161.9
Capital expenditure and financial investment (86.1) (72.6) (66.7) (65.1) (61.9)
123.2 119.3 137.3 133.0 100.0
Interest, taxation and dividends (102.1) (134.7) (529.4) (127.0) (91.3)
Acquisitions and disposals (128.8) 5.0 158.7 70.9 (16.4)
Issues of share capital 6.1 9.0 7.7 4.4 3.0
Net cash flow (101.6) (1.4) (225.7) 81.3 (4.7)
Exchange adjustments 68.2 (5.8) (32.9) (9.5) 1.8
Opening net debt (243.5) (236.3) 22.3 (49.5) (46.6)
Closing net debt (276.9) (243.5) (236.3) 22.3 (49.5)
Gearing 54% 60% 88% nil 10%
#1999 and 1998 have not been restated for FRS 19. 52 Smith & Nephew 2002
Principal subsidiary undertakings
The information provided below is given for principal subsidiary undertakings in accordance with Section 231(5)(a) of the
Companies Act 1985. A full list will be appended to the company’s next annual return.
Country of operation
Activity and incorporation % owned*
United Kingdom
Smith & Nephew Healthcare Limited Medical devices United Kingdom 100%
Smith & Nephew Medical Limited Medical devices United Kingdom 100%
TJ Smith & Nephew Limited Medical devices United Kingdom 100%
Continental Europe
Smith & Nephew GmbH Medical devices Austria 100% 
Smith & Nephew SA-NV Medical devices Belgium 100%
Smith & Nephew A/S Medical devices Denmark 100%
Smith & Nephew OY Medical devices Finland 100%
Smith & Nephew SA Medical devices France 100%
Smith & Nephew GmbH Medical devices Germany 100%
Smith & Nephew Limited Medical devices Ireland 100%
Smith & Nephew Srl Medical devices Italy 100%
Smith & Nephew BV Medical devices Netherlands 100%
Smith & Nephew A/S Medical devices Norway 100%
Smith & Nephew Lda Medical devices Portugal 100%
Smith & Nephew SA Medical devices Spain 100%
Smith & Nephew AB Medical devices Sweden 100%
Smith & Nephew AG Medical devices Switzerland 100%
America
Smith & Nephew Inc Medical devices Canada 100%
Smith & Nephew SA de CV Medical devices Mexico 100%
Smith & Nephew Inc Medical devices Puerto Rico 100%
Smith & Nephew Inc Medical devices United States 100%
Africa, Asia and Australasia
Smith & Nephew Pty Limited Medical devices Australia 100%
Smith & Nephew Limited Medical devices Hong Kong 100%
Smith & Nephew Healthcare Limited Medical devices India 100%
Smith & Nephew KK Medical devices Japan 100%
Smith & Nephew Limited Medical devices Korea 100%
Smith & Nephew Healthcare Sdn Berhad Medical devices Malaysia 100%
Smith & Nephew Limited Medical devices New Zealand 100%
Smith & Nephew Pte Limited Medical devices Singapore 100%
Smith & Nephew Limited Medical devices South Africa 100%
Smith & Nephew Limited Medical devices Thailand 100%
Smith & Nephew FZE Medical devices United Arab Emirates 100%
*Owned indirectly by the parent company
Principal associated undertakings, joint ventures and other arrangements
The group owns 50% of BSN Medical GmbH & Co KG, a medical devices company, incorporated in Germany which 
has been included in the consolidated accounts as a joint venture.
The group owns 21.5% of AbilityOne Corporation, a supplier of rehabilitation products to hospitals, nursing homes 
and clinics, incorporated in the United States which has been included in the consolidated accounts as an associated
undertaking.
In 2001 the group had interests in two joint arrangements with Advanced Tissue Sciences, Inc., one relating to products 
for the treatment of diabetic foot ulcers and other wound indications, and the other for cartilage replacement. During the
year the group acquired the interests it did not already own in the joint arrangements from Advanced Tissue Sciences, Inc.
Subsidiary and associated
undertakings Financial calendar
Annual General Meeting 29 April 2003
Payment of 2002 final dividend 16 May 2003
Interim results announced 31 July 2003
Payment of 2003 interim dividend 14 November 2003
Full year results announced early February 2004
Annual report posted early March 2004
Annual General Meeting 5 May 2004
Final dividend
The ordinary shares will trade ex-dividend on both the
London and New York Stock Exchanges from 16 April 2003
and the record date will be 22 April 2003 in respect of this
year’s proposed final dividend to be paid on 16 May 2003.
Ordinary shares
Payment of cash dividends Shareholders who wish their
dividends to be paid directly to a bank or building society
and who have not already completed a BACS mandate
should contact the company’s registrars.
Dividend re-investment plan The company has a dividend
re-investment plan that offers shareholders the opportunity
to invest their cash dividends in Smith & Nephew shares,
which are purchased in the market at competitive dealing
costs. Application forms for re-investing the 2002 final
dividend are available from Lloyds TSB Registrars who
administer the plan on behalf of the company. Applications
for re-investment should be returned to the company’s
registrars by 29 April 2003.
UK capital gains tax For the purposes of capital gains tax
the price of ordinary shares on 31 March 1982 was 35.04p.
Smith & Nephew share price The company’s share price is
quoted daily in national newspapers, as well as on Ceefax
and Teletext and at www.londonstockexchange.com where
it is updated at intervals throughout the day. The Financial
Times Cityline Service, telephone 0906 0034043, provides
an up to the minute share price. A fee is charged for this
service.
Low-cost dealing service A postal and telephone facility 
that provides a simple low-cost method of buying and
selling Smith & Nephew shares is available through Hoare
Govett Limited. For information contact Hoare Govett 
Ltd., 250 Bishopsgate, London, EC2M 4AA. Telephone 
020 7678 8300.
Smith & Nephew Corporate ISA The company has a
corporate Individual Savings Account (ISA) administered by
Lloyds TSB Registrars. For information about this service
please contact their helpline on telephone 0870 2424 244.
Shareview To view information about your shareholdings 
on the internet, register at www.shareview.com, the Lloyds
TSB enquiry and portfolio management service for
shareholders. When you have registered for shareview you
will also be able to register your proxy instructions online
and elect to receive future shareholder communications 
via our website www.smith-nephew.com.
Shareholder Enquiries For information about the AGM,
shareholdings, dividends and changes to personal details 
all shareholders should contact: Lloyds TSB Registrars, 
The Causeway, Worthing, West Sussex, BN99 6DS.
Telephone 0870 600 3996.
American depositary receipts (ADRs)
In the US, the company’s ordinary shares are traded in the
form of American Depositary Shares, evidenced by ADRs,
and trade under the symbol SNN. Each American Depositary
Share represents ten ordinary shares. Bank of New York 
is the authorised depositary bank for the company’s ADR
programme. A Global BuyDIRECT plan is available for 
US residents, enabling investment directly in ADRs with
reduced brokerage commissions and service costs. For
further information on Global BuyDIRECT contact: Bank 
of New York on 1-888-BNY-ADS (toll-free) or visit
www.adrbny.com.
Smith & Nephew ADR price The company’s ADR price is
quoted daily in the Wall Street Journal and can be obtained
from the official New York Stock Exchange website
www.nyse.com.
ADR Enquiries All enquiries regarding ADR holder accounts
and payment of dividends should be addressed to Bank 
of New York, 620 Avenue of the Americas, New York, 
New York 10011.
Annual General Meeting
The company’s 66th Annual General Meeting is to be held
on 29 April 2003 at 10.30 am at the Institute of Mechanical
Engineers, One Birdcage Walk, London, SW1H 9JJ. Notice
of the meeting is enclosed with an accompanying letter
from the Chairman.
Registered office
Smith & Nephew plc, 15 Adam Street, 
London WC2N 6LA
Registered in England No. 324357
Advisers
Solicitors: Ashurst Morris Crisp
Pinsent Curtis Biddle
Auditors: Ernst & Young LLP
Stockbrokers: Cazenove & Co
Dresdner Kleinwort Wasserstein
Trademarks
The product names referred to in this document are
trademarks owned by or licensed to members of the 
Smith & Nephew group.
Information for
shareholders
Designed and produced by Fitch:London. 
Printed by CTD Capita. Board photography by Sven Seiffert. You are here: 
Annual Report and Accounts
Contents
Financial highlights
Chairman’s statement
Chief Executive’s statement
Board & Group Executive Committee 
Financial review
Corporate social responsibility
Corporate governance
Remuneration report
Directors’ responsibilities
Auditors’ report
Group proﬁt and loss account
Group balance sheet
Group cash ﬂow statement
Statement of total recognised 
gains and losses
Movement in shareholders’ funds
Parent company balance sheet
Accounting policies
Notes to the accounts
Group ﬁve year summary
Subsidiary and associated 
undertakings
Information for shareholders
You have access to more information 
from the following sources:
Smith & Nephew plc
15 Adam Street
London WC2N 6LA
www.smith-nephew.com
Board/Group Executive Committee biographies
For further biographies, visit: 
www.smith-nephew.com/about/personnel.html
Presentations
For presentations to analysts 
and shareholders, visit: 
www.smith-nephew.com/investors/
archive.html
Available as a printed document or online at:
www.smith-nephew.com/investors/
annualreport2002
Shareholder information
For further up-to-date shareholder
information, visit: www.smith-nephew.com/
investors/shareinfo.html
For up-to-minute share price information,
visit: www.smith-nephew.com/
investors/financial_data.html
For press releases and latest business
information, visit:
www.smith-nephew.com/news
Sustainability report
For further information on sustainability 
and to access our report, visit: 
www.smith-nephew.com/sustainability2002
pp 2002
Report to Shareholders and 
Summary Financial Statement
Delivering
Sustainable
Growth PERFORMANCE
OUR PERFORMANCE CULTURE IS
DRIVING GLOBAL SALES GROWTH 
AND MARGIN IMPROVEMENT .
2002 2001
£ million £ million
Turnover 1,109.9 1,081.7
Profit before taxation:
before goodwill amortisation and exceptional items 209.9 180.9
after goodwill amortisation and exceptional items 177.9 193.6
Earnings per share before goodwill amortisation and exceptional items 16.02p 13.96p
Earnings per share after goodwill amortisation and exceptional items 12.11p 14.07p
Dividends per share 4.80p 4.65p
We are committed to setting new standards 
in patient treatment and recovery,
Contents
Directors’ report
01 Financial highlights
02 Chairman’s statement
04 Chief Executive’s statement
10 Board & Group Executive Committee
12 Corporate social responsibility
14 Corporate governance
15 Summary remuneration report
Accounts
16 Auditors’ statement
17 Summary financial statement
19 Information for shareholders
20 Group five year summary
Financial
highlights INNOVATION
OUR COMMERCIALL Y ORIENTATED
RESEARCH AND DEVELOPMENT IS
CONTRIBUTING TO A STRONG
NEW PRODUCT PIPELINE.
TRUST
OUR SUSTAINABILITY PROGRESS
HAS BEEN RECOGNISED BY OUR
ENTRY INTO THE DOW JONES
SUSTAINABILITY INDEX FOR 2003.
as well as delivering on our promise of healthy
returns to our shareholders.
16.02
9.61
10.88
12.19
13.96
2002 1998 1999 2000 2001
15.1
16.4
17.8
14.7
17.1
2002 1998 1999 2000 2001
1,110
1,053
1,120
1,135
1,082
2002 1998 1999 2000 2001
1,084
714
800
912
978
Group Turnover/
Continuing Sales
£ Million
Group Margins % 
Before goodwill 
amortisation and
exceptional Items
Earnings Per Share
before goodwill 
amortisation and
exceptional items 
Pence
Where this icon appears, more information can be found at
an alternative source. For more detailed financial information
visit www.smith-nephew.com/investors/profile.html 02 Smith & Nephew 2002
TriGen
A summer time car crash
landed this university-
bound student on a
surgeon’s operating table
with a femoral fracture.
The less-invasive TriGen
femoral nailing system
helped to mend her
broken bone and
restored her to walking
so she could start the
autumn term in time.
Financial performance and dividend 
Group sales grew strongly, led by the
Orthopaedics business. Underlying growth of
14% was augmented by acquisitions, which
added a further 4%. Our drive to deliver innovative
products across all our businesses is paying off
and we are also benefiting from the past two
years’ sales force expansions. 
We achieved an ongoing operating margin 
before exceptional items of 16.5%, despite the
dissynergies of the restructuring divestments 
of this and last year. The underlying margin
increased by 0.7%. Before goodwill amortisation,
the margin was 18.1%. 
Investors continue to recognise the company’s
strength and share price growth potential. Smith
& Nephew was one of the UK’s best-performing
stocks in 2002, outperforming the FTSE 100 by
more than 20%.The recommended final dividend
is increased to 3.00p, making a total dividend 
for the year of 4.80p (4.65p in 2001).
People
Our people take pride in our products which
enable patients to regain their lives. They are an
extremely talented group of individuals and we
thank them for their commitment, creativity and
energy in serving the company and the medical
community.
In 2002 we achieved our targets within the
Orthopaedics, Endoscopy and Advanced 
Wound Management markets. Each of Smith 
& Nephew’s businesses strengthened its
positions in the markets in which it operates
through a combination of sales growth, new
products and technology acquisition. 
In March 2002 we acquired and have since
successfully integrated ORATEC Interventions,
Inc., establishing our Endoscopy business as 
a leader in radiofrequency technology and
minimally invasive spinal surgery. We also
acquired the remaining half of the Dermagraft
and TransCyte joint arrangements from
Advanced Tissue Sciences, Inc., gaining full
strategic control of those products. 
We disposed of our Rehabilitation business 
to AbilityOne Corporation also in March 2002,
retaining a 21.5% interest in the expanded
business. This focused the group on our three
chosen areas of expertise.
Chairman’s
statement
We have had another excellent year of growth
within each of our three businesses. Smith & Nephew 2002 03
TriVex procedure
She faces the same
problems every mother
does: dressing the kids,
making lunches, finding
time for herself. Faced
with an uphill battle of
another type – one
against unsightly, painful
varicose veins, she
received treatment with
the TriVex procedure.
She can now handle 
the challenges of
motherhood without the
added difficulty of leg
pain, which allows her
more time to concentrate
on what matters most –
her family.
We pay particular tribute to Larry Papasan 
for his valued contribution as President of the
Orthopaedics business. He retired at the end 
of 2002 and we welcome David Illingworth, 
who has joined us to lead the division to 
further success.
Board
Tim Lankester has chosen not to stand again 
for re-election to the Board and will be standing
down at the AGM in April. We thank him for 
his contribution over the last seven years. 
Corporate governance has been a priority 
over the past year – particularly as we are listed
on both the London and New York Stock
Exchanges. Smith & Nephew is committed to 
an open and constructive relationship with our
shareholders and the overall investment
community. We are working to comply with the
new US Sarbanes-Oxley Act and the ongoing
detailed guidelines being supplied by the 
Securities and Exchange Commission.
Outlook
The markets on which we focus continue to
demonstrate robust growth. Smith & Nephew 
is achieving sales growth that outpaces the
industry, and is demonstrating its ability to grow
share and position within the Orthopaedics,
Endoscopy and Advanced Wound Management
markets. In 2003, we will see the impact of 
our strong ongoing sales and profit growth
on our reported results without the impact 
of divestments. 
We have a leading range of technology and
products that repair and heal the human body.
We will maintain our progress by investing in 
new and differentiated technologies which bring
benefits to patients, and in the specialist sales
forces to bring these products to the medical
community. We will continue to invest in our
businesses by increasing sales force strength,
adding manufacturing capacity and enhancing
new product development to generate vigorous
growth. We will also acquire businesses or
technologies that strengthen our long term
prospects. 
We remain confident of delivering sustainable
growth and believe we are well placed to 
achieve our mid-teens underlying pre-goodwill
amortisation EPS growth target going forward.
Dudley Eustace
Chairman
We remain confident in our ability to deliver
sustainable growth for the future.
Dermagraft
A keen golfer, he has
suffered from diabetes 
all his life. He ignored 
a wound on his foot,
thinking it would clear 
up, but when he lost
sensation in his lower 
leg he finally went to see
his doctor. The foot ulcer
was so serious he was 
in real danger of having
the limb amputated. 
After 12 weeks of being
treated with Dermagraft,
a bio-engineered human
dermal replacement, 
he was out of the danger
zone and looking forward
to resuming his golf. 04 Smith & Nephew 2002
Advanced wound 
management 30%
Orthopaedics 43%
Endoscopy 27%
Africa, Asia & 
Australasia 14%
America 56%
UK 8%
Continental 
Europe 22%
Our new products are driving our growth and 
setting new standards of care.
Chief Executive’s
statement
Market growth remains buoyant and
demographics and lifestyle trends remain positive.
Healthcare expenditure continues to grow in all 
our major markets. Technology is expanding the
marketplace through the growth of less invasive
and longer lasting surgical techniques and
implants. With the introduction of new orthopaedic
bearing materials, led by Oxinium from Smith &
Nephew, surgeons are increasingly treating
younger patient groups. New techniques
continue to simplify and make procedures faster,
and less invasive techniques in orthopaedics and
endoscopy are taking hold as patients increasingly
drive demand. Technology advancements in
treating hard-to-heal wounds are driving strong
growth in the active healing sector of the
advanced wound management market.
We aim to raise operating margins before
goodwill amortisation from 18% in 2002 to 21%
in 2005, moving half a percentage point closer 
to that goal in 2003 through improvements in
operational performance and product mix. At the
same time we will continue to invest in product
innovation, and in growing our sales teams by 
at least 10% a year for the foreseeable future.
Orthopaedics
Orthopaedics sales rose by an underlying 20%
and its performance continued to outpace the
market. Reconstructive implant sales grew 
by an impressive 20%, boosted by continued
Delivering sustainable growth
In 2002 our markets grew strongly – and once
again Smith & Nephew outpaced the industry. 
I am pleased to report excellent growth in our
Orthopaedics, Endoscopy and Advanced Wound
Management businesses.
We now have formidable teams in place and 
we are focused on three high-growth markets.
We bring truly innovative and differentiating
technologies that meet the needs of physicians,
patients and healthcare systems. We are
marketing our products ever more effectively
through expanded and specialised global 
sales forces.
Our underlying group sales increase was 14% in
2002. Sales in North America grew 15% and the
region now represents some 56% of the group’s
business. Sales growth in Europe was 12%,
reflecting increased healthcare spending and
ageing populations. Sales in the rest of the world 
grew 16%.
Product markets %
sales from ongoing operations
Geographic markets %
sales from ongoing operations Smith & Nephew 2002 05
Oxinium knee implants
His dream of early
retirement and new life 
of golf and sailing went
on hold as osteoarthritis
crippled his plans.
Frustrated by increasing
pain and lack of mobility,
he consulted his surgeon
for a solution. Thanks 
to bilateral Oxinium 
knee implants, this 
retired banker is back 
on course.
Our operational performance and product mix 
is constantly being refined to improve margins.
surgeon response to the additional Oxinium 
knee products launched in 2002. We once again
recorded industry-leading growth in this sector,
led by knee growth of 33%, 10% of which was
contributed by the introduction of our joint fluid
therapy product, Supartz. Hip sales grew by
17% led by continued growth in revision
procedures, increased penetration of our highly
cross linked polyethylene liners and continued
strength in our platform hip systems including
Synergy and Echelon. Trauma grew at 10%.
Sales pricing in Orthopaedics remained positive
by 2%. 
The Oxinium knee has been an outstanding
success since its launch in 2001. We have
continued to invest in the Oxinium programme
and Computer Assisted Surgery throughout the
year where we have received US regulatory
approval for hip, knee and trauma applications.
We have developed an Oxinium femoral head 
for hips and have already launched the product 
in 2003.
We are creating two divisions within our
orthopaedic business, Reconstruction and
Trauma. This initiative is aimed at sustaining 
our industry leading performance by improving
the focus on these separate market sectors. 
This structure will enable us to bring technology
to market faster and increase our customer
responsiveness and satisfaction. Each division
will have responsibility for developing global
strategy and its own product development,
marketing and sales functions. They will share
common manufacturing and support
organisations. The sales forces in major 
US cities will be specialised into separate
reconstructive and trauma units on a phased
basis beginning in the first quarter of 2003. 
Endoscopy
Endoscopy sales grew at an underlying 10% 
with strong growth coming from outside the US.
The company acquired the ORATEC minimally
invasive joint and spine business in the year,
which added 9% to sales growth and has given
us a leading position in radio frequency
technology in arthroscopy. 
Knee and shoulder ligament repair products
grew particularly strongly at 21% making the
group the market leader in arthroscopic repair.
New repair products were launched during the
year to strengthen our position in the arthroscopy
market, including TwinFix, a specialised shoulder
repair device. New bioresorbable screws for
ligament fixation performed well. ElectroBlade
has brought us a unique product that combines
simultaneous resection with coagulation of soft
tissue. We also introduced a bipolar cutting 
and ablation system for the Vulcan generator 
ElectroBlade Resector
From twenty years
experience as an
aerobics instructor, 
she understands the
importance of fitness in 
a well-balanced lifestyle.
That’s why, when she
suffered a torn ligament
in her right knee a year
ago, she wasted no time
agreeing to her doctor’s
recommendation for
minimally invasive
surgery. Due to reduced
pain and recovery time,
she was back at the gym
soon after the procedure
and enjoying the benefits
of a healthy lifestyle.  Orthopaedics
A comprehensive highly advanced range of orthopaedic
implant and trauma products. Sales £470m.
> Implants for hips, knees and shoulders
> Trauma products for severely broken bones utilising
internal and external fixation methods
> Clinical therapies including ultrasound bone healing
devices and joint fluid therapy
Business overview Served markets and
growth in 2002
06 Smith & Nephew 2002
We have a unique range of technology and
products which repair the human body. We are
Business
overview
Endoscopy
Industry leader in the development and commercialisation 
of endoscopic (minimally invasive surgery) products and
techniques. Sales £292m.
> Access – Fluid management and insufflation instruments
for better surgical access.
> Visualisation – Digital cameras, digital image capture,
central control, multimedia broadcasting, scopes, 
light sources and monitors to assist with visualisation.
> Resection – State-of-the-art radiofrequency wands,
ElectroMechanical and mechanical blades, and hand
instruments for resecting tissue.
> Repair – Specialised devices, fixation systems and
bioabsorbable materials to repair damaged tissue.
Advanced Wound Management
Advanced treatment for hard-to-heal wounds offering 
a complete range of products from initial wound bed
preparation through to successful wound closure. 
These products are targeted particularly at wounds
connected with the elderly. Sales £322m.
> Pressure ulcers
> Venous leg ulcers
> Diabetic foot ulcers
> Serious burns
World market value
Growth: +13%
£5.2bn
Market position
6th
World market value
Growth: +6%
£3.0bn
Market position (arthroscopy)
1st
World market value
Growth: +12%
£1.5bn
Market position
1st
IDET procedure
After years of struggling
with lower back pain
resulting from a herniated
disc, he was able to use
his landscaping skills
once again after being
treated with Intradiscal
ElectroThermal Therapy
(also known as the IDET
procedure). 
For more detailed business
and product information visit:
www.smith-nephew.com/
businesses > Expanding patient pool
> Increasing numbers of
elderly people living longer
> Expectation of better
quality of life
> New, longer-lasting
materials technology
> Demand for less invasive
procedures
> Patient knowledge due 
to the internet and media
> Grew sales 20%*
> Expanded global sales
team by 12%
> Over 10,000 Oxinium
knee implants
> Over 250 Computer
Assisted total knee
procedures (newly
branded as Achieve)
> Supartz (joint fluid
treatment) exceeding
expectations
> Completed new
manufacturing facility
> Continued rollout 
of Oxinium knee
applications
> Accuris minimally invasive
uni-compartmental knee
instrumentation 
> Exogen 3000
> OrthoGuard AB
antimicrobial sleeve, 
the orthopaedic
industry’s first antibiotic-
coated medical device 
to be cleared by the US
regulatory agency
What is driving 
market growth
Our achievements 
in 2002
Our key new products
and developments in
2002
Smith & Nephew 2002 07
focusing on three research areas – non-invasive
stimulation, tissue engineering, bioabsorbables.
> More elderly people 
living longer
> More clinically advanced
methods of healing wounds
> Therapies that reduce
nursing time and speed
recovery for cost efficiency
> Two-thirds of global market
still to be converted to
advanced wound healing
> New, advanced
technologies expanding
breadth of market
> Grew sales 11%*
> World leadership in
advanced wound care
strengthened
> Allevyn, our largest
product, grew 21%
> Acticoat burns dressing
increased sales by 65%
> Successful launch of
Wound Bed Preparation
concept
> 100% ownership of
Dermagraft and TransCyte
> 88% coverage of US
outpatient population for
Dermagraft
> Improved and extended
Allevyn range launched
> Continued global roll-out
of Acticoat silver burns
dressing
> Global launch of Cutinova
Hydro and range
extension
> Dermagraft full US launch
ProGuide
Having developed 
a venous leg ulcer,
nurses at his local
hospital agreed to take
part in the clinical trial 
of ProGuide, a two-layer
elastic compression
system designed for
venous leg ulcers. This
allowed the correct
pressure to be applied
and reduced the number
of dressing changes.
Ilizarov technique
Both legs had been
deformed since birth, but
on September 11, 2001,
she walked down nearly
50 flights of World Trade
Center stairs to safety. 
A surgeon had corrected
her limbs using the Ilizarov
technique. 
> Increase in sports injuries 
> More active lifestyles
> Increased surgeon use 
of endoscopic techniques
> Innovative technological
developments 
> Need for cost-effective
procedures in hospitals
> Growing demand for
digitally-integrated 
OR equipment
> Growth in ambulatory
surgery centres
> Payer support driven 
by supporting clinical
evidence
> TwinFix bioabsorbable
suture anchor for 
shoulder repair
> ElectroBlade Resector
> Vulcan System RF
generator 
> Vision 337 Autoclavable
Camera System
> Decompression Catheter
for herniated discs 
> Saphyre bipolar ablation
probe
> Grew sales 10%*
> Entry into the minimally
invasive spinal market
through ORATEC
acquisition
> Launch of the Digital
Operating Room concept
> Major growth in implants
for soft tissue repair
> Launched industry’s first
ElectroMechanical
resection device
> Reached 30,000
procedures for TriVex
> Launched worldwide
network of surgeon
training sites
*on an underlying basis 08 Smith & Nephew 2002
Our commercially orientated innovation is
contributing a strong new product pipeline,
Oxinium hip implant
Although he could have
delayed his total hip
replacement surgery 
until after his daughter’s
wedding, Smith &
Nephew’s mini-incision
technique, in concert 
with an Oxinium implant,
restored his pain-free
mobility in time to give
away the bride and take
a full part in this important
day in his daughter’s life.
Chief Executive’s
statement continued
Sustaining our growth rate
Over the past few years we have maintained
consistently strong investment in expanding the
sales force and expanding our product pipeline. 
In 2002 we expanded the Orthopaedics sales
team by 12%, the Endoscopy team by 30%
including the sales force acquired with ORATEC,
and the Advanced Wound Management team 
by 4%. 
We invested 5
1
⁄ 2% of sales revenue in research 
and development across our businesses. In
2002, products introduced in the last three years
rose to 18% of sales. Our group focus on unique
methods to repair and heal the human body 
has led to group wide research in three fields:
bioresorbable materials to facilitate healing and
surgical reconstruction; tissue engineering to 
help replace, repair and regenerate damaged
tissue; and non-invasive devices to stimulate
tissue repair.
Enhancing manufacturing capacity and quality
To meet future sales growth we expanded our
Orthopaedics and Endoscopy manufacturing
capacity. Orthopaedics enlarged its production
space in Memphis, Tennessee, by about a third.
Endoscopy expanded two factories and moved
its headquarters to new premises near its
production facility in Andover, Massachusetts.
Advanced Wound Management has begun
and a thermal decompression catheter for
herniated spinal discs. The Digital Operating
Room concept gained ground with installations 
in leading hospitals. 
Advanced Wound Management 
In its first full year as an advanced wound
management business, we strengthened our
world-leading position in advanced treatments
for hard-to-heal wounds. Underlying sales
growth was 11%, with the Allevyn product range
achieving 21%. We have successfully integrated
into the business the advanced wound products
of Beiersdorf and the Acticoat silver product for
burns acquired in 2001 and these products are
growing strongly.
Towards the end of the year, we secured 100%
ownership of the Dermagraft and TransCyte
arrangement by acquiring ATS’s 50% share.
Reimbursement for Dermagraft continues to
progress well, with 88% of the outpatient
population now covered in the US. Sales of
Dermagraft in its US launch year achieved £3m.
Acticoat
She tried to help her
mother with the cooking
but she pulled a pan of
boiling water off the
stove, causing mixed
partial thickness burns 
to her arms and upper
torso. In the burns unit 
at the hospital, Acticoat, 
a unique antimicrobial
barrier dressing, was
applied to the affected
areas, helping to minimise
the risk of infection and
scarring. The burns
healed quickly, allowing
her to rejoin her
playmates at nursery
school. Smith & Nephew 2002 09
Allevyn
Following a long illness,
she suffered from a
severe pressure ulcer
around the sacral area,
causing much pain and
discomfort, and limiting
her mobility. Despite the
efforts of a district nurse,
it wasn’t until Allevyn
Sacral was used, a
shaped, highly absorbent
hydrocellular dressing,
that the ulcer showed 
any signs of improvement.
After a few weeks the
pain was alleviated, the
pressure ulcer healed and
mobility was restored.
TwinFix bioabsorbable 
suture anchor
He was a talented tennis 
player in college, and he 
never lost his love for the 
sport. After suffering a 
serious rotator cuff injury, 
his days of swinging a 
racket seemed to have 
vanished forever. But 
thanks to the use of 
a TwinFix bioabsorbable 
suture anchor by his 
surgeon, he is back on 
the court twice a week 
and easing the stress of 
work with some friendly 
competition from the 
other side of the net.
and surgeon medical education programmes
are continuing to speed product adoption.
building a new manufacturing plant in Largo,
Florida, near its existing facilities. 
We continue to maintain rigorous quality
assurance and control systems that are subject
to regular internal and external review. We take
product quality very seriously and are committed
to the highest standards of manufacturing quality.
Business Development
In March we completed our restructuring with 
the disposal of our Rehabilitation business to
AbilityOne in the US. We received £71m in cash
and retained a 21.5% interest in the enlarged
company to benefit from the substantial value
that we believe will be created by combining 
the two businesses.
Our joint venture with Beiersdorf, BSN Medical,
had a successful trading year. BSN and
AbilityOne made a combined operating profit
contribution of £25m in 2002. 
Corporate social responsibility
We are committed to sustainable development,
reducing our impact on the environment while
contributing to the quality of life enjoyed by
society at large. We support local communities
around our manufacturing operations and play 
a substantial role in professional education in 
our clinical fields. 
Our complete Sustainability Report is published 
on our website at www.smith-nephew.com.
Outlook
We are in the next phase of our company’s
development. We have focused our businesses
on three high-growth medical device sectors. 
We are delivering sustained growth in sales and
underlying operating margins. 
We have excellent management teams in place,
intent on building sales and market share as well
as improving the financial performance of their
businesses. Our new products are advancing
clinical performance by benefiting both patients
and healthcare systems. Our sales people
continue to be excited by our product ranges
and we have every reason to expect that our
markets will themselves continue to grow. We
remain confident that we can deliver sustainable
growth over the next three years.
Christopher O’Donnell
Chief Executive < Dr Alan Suggett (59)
Group Director of
Technology He joined the
group in 1982 and was
appointed to the Group
Executive Committee in
1986. 
> David Illingworth (49)
President – Orthopaedics
He joined the group and 
was appointed to the Group
Executive Committee in
2002. 
Christopher O’Donnell, 
Chief Executive 
See above.
Peter Hooley, 
Finance Director
See above.
< Jim Taylor (46) 
Group Director Indirect
Markets He joined the
group and was appointed
to the Group Executive
Committee in 2000.
10 Smith & Nephew 2002
We feel that our innovative and responsive company
is in a good position for future growth,
Group
Executive
Committee
The 
Board
••
Dudley Eustace (66)
Chairman
Appointed Deputy
Chairman in 1999 and
Chairman in January
2000. He is Chairman
of the Nominations
Committee, non-
executive Chairman 
of Sendo Holdings plc
and a non-executive
director of KLM Royal
Dutch Airlines NV ,
Aegon NV , Hagemeyer
NV , Royal KPN NV and
Sonae.Com SGPS.
•
Christopher
O’Donnell (56) 
Chief Executive 
He joined the group 
in 1988 and was
appointed a director 
in 1992. He was
appointed Chief
Executive in 1997. 
He is a non-executive
director of BOC Group.
• Non-executive
directors
• Members of the
Remuneration
Committee
• Members of the
Audit Committee
• Members of the
Nominations
Committee
Kenneth Kemp is
Honorary Life President.
Peter Hooley (56)
Finance Director
He joined the group
and was appointed 
a director in 1991. 
He is a non-executive
director of Cobham plc. 
••
Dr Pamela Kirby (49)
Appointed a director 
in March 2002. 
She is Chief Executive
Officer of Quintiles
Transnational
Corporation.
< Peter Huntley (42) 
Group Director Strategy
and Business Development
He joined the group and 
was appointed to the Group
Executive Committee 
in 1998.  > Paul Williams (56) 
Group Director Human
Resources He joined the
group and was appointed 
to the Group Executive
Committee in 1998.
> Jim Ralston (56) 
Chief Legal Officer 
He joined the group in 1999
and was appointed to the
Group Executive Committee
in 2002.
Smith & Nephew 2002 11
with 7,500 employees who commit their energy
and expertise to its continual improvement.
••
Warren Knowlton (56)
Appointed a director 
in November 2000. 
He is Chairman of the
Audit Committee and
Group Chief Executive
of Morgan Crucible plc.
••
Brian Larcombe (49)
Appointed a director 
in March 2002. He 
is Chief Executive of 
3i Group Plc. 
•••
Richard De Schutter
(62) Appointed a
director in January
2001. He is a non-
executive director 
of Varian Inc., ING
Americas, Incyte
Genomics, MedPointe
Pharmaceuticals and
General Binding
Corporation.
••••
Dr Rolf Stomberg (62)
A director since 1998.
Senior independent
director and Chairman
of the Remuneration
Committee. He is
Chairman of
Management
Consulting Group PLC
and a non-executive
director of Scania AB,
Stinnes AG, Reed
Elsevier plc, Cordiant
Communications plc,
Deutsche BP AG, TPG
Group and Hoyer
GmbH.
•••
Sir Timothy Lankester
(60) A director since
June 1996. He is
president of Corpus
Christi College, Oxford.
Also an independent
director of the London
Metal Exchange and
Deputy Chairman of
the British Council.
< Jim Dick (50) 
President – Wound
Management He joined 
the group in 1977 and was
appointed to the Group
Executive Committee 
in 1999.
< Ron Sparks (47) 
President – Endoscopy
He joined the group in
1983 and was appointed
to the Group Executive
Committee in 1999. 12 Smith & Nephew 2002
Corporate social
responsibility
More information is available on our website at: 
www.smith-nephew.com/sustainability2002
We aim to make our values of Performance, Innovation 
and Trust integral to the way we operate, and are
committed to the principles of sustainable development.
This was recognised by our admission in 2002 – on our 
first application – to the Dow Jones Sustainability Index.
This is the most widely recognised arbiter of good practice
and we achieved the highest rating in our business sector. 
We published our second Sustainability Report in April
2002, outlining our progress in corporate social responsibility
(CSR). It was more detailed and wider in scope than the
first, with increased measurement data and information 
on our activities. 
The third Sustainability Report will be published on our
website in April and will include new measurement
initiatives, especially in the social area. At the same time 
we will be publishing a new Code of Business Principles
which brings together policies that currently appear in
different sections of our website, updated and broadened 
in scope. We have included purchasing policies with
particular emphasis on human rights and suppliers’
practices on health, safety and environmental standards.
Through this code we ensure that our planning and
business decisions take account of ethical, social, legal 
and financial considerations, thereby minimising risks 
and balancing the interests of all our stakeholders. 
Our sustainability efforts focus on:
Environmental management
Minimising the impact of our activities on the environment –
particularly regarding energy and water use, waste,
emissions and discharges.
Social responsibility 
Employees Maintaining high standards of health and safety;
providing training and development; giving people the
opportunity to let us know how they feel about working 
for Smith & Nephew – and acting on what they tell us.
Community Investing in and working with the communities
in which we operate.
Customers Educating healthcare professionals in the
techniques related to our product ranges and providing
opportunities for their continuing professional development.
Suppliers Working in partnership with suppliers and
fostering open, ethical relationships with them.
Economic impact
Making a positive contribution to society through creating
shareholder value, paying taxes, investing capital and
creating employment; maximising the economic benefits 
of our products for healthcare providers, patients and 
those who pay the costs. 
More detail on our policies and the work which we 
do in these areas is provided in the following text.
Environmental management
We are committed to continuing reduction in our
environmental impact: we use renewable resources
wherever possible and reduce any adverse effect from
products and processes to a practical minimum. Our
business units must take effective action to control risks 
and minimise environmental impacts through systems 
and procedures based on a thorough understanding 
of the risks and provision of appropriate training and
support. Progress is reviewed annually by the Board.
Over the past 10 years our environmental management
systems have delivered cost savings as well as
environmental benefits. Our manufacturing processes 
are relatively low in environmental impact with locations in
the US, UK and Germany. Our main environmental impact
comes from waste generated at manufacturing sites. 
We operate waste prevention and minimisation programmes
throughout the group and are examining ways of assessing
sustainable development aspects of our products. In the
past year we have focused on reducing waste, the
improvement in recycling made in 2001 has been sustained
and emissions are down 12%. This is a significant
achievement considering the manufacturing expansion
which took place during the year.
Social responsibility
Employees Our business units are required to provide safe
working conditions, plant and equipment at all their facilities.
We maintain high standards and are determined to raise
them even higher through sharing best practice. Business
unit plans include measures to improve performance
monitoring, enhance hazard analysis and risk assessment,
refine emergency plans and business continuity plans and
deliver better targeted training.
Our employment policies emphasise equality of opportunity,
continuous training and development, open communications,
and rewards appropriate to local markets. Vacancies are
filled within the company wherever possible. We treat
employees with dignity and fairness and have policies and
procedures to encourage this culture. We welcome disabled
people and make every effort to retain any employee who
becomes disabled. Our new Code of Business Principles
underpins the high standards we expect from our people. 
We recognise the importance of good employee
communications. This year we have greatly improved
groupwide measurement and data collection systems to
monitor such areas as employee satisfaction, performance
appraisal, development and career progression. We have
also set up a reporting system to collect data on training
throughout the group. These measures will monitor progress
in the coming years and help ensure that we target our
efforts in the most effective manner.  Smith & Nephew 2002 13
In 2002 we conducted our second global opinion survey
and communicated the results to staff worldwide. Once
again we had over 80% of employees participating in the
survey with positive scores in all areas covered. In addition
91% of respondents indicated that they were proud to work
for the Smith & Nephew group. Significant improvements
(over 10% increase in scores in many areas) were seen
compared with the Year 2000 results particularly in
management style, communication with employees,
anticipating change and the way people feel about their job,
confirming that we have made good progress in all areas
over the past two years. But we still have work to do:
scores for questions about promotion and reward were 
still lower than we would like and this will stimulate action 
to address these issues.
The communications functions at our group head office,
group research centre and global business units work
closely with the Human Resources departments at each 
site on all forms of internal communication. Our linked
business unit and corporate intranets are increasingly well
used, allowing easy two-way communication worldwide and
increasing people’s awareness of financial, economic and
market factors affecting company performance. Electronic
communication in general continues to reduce internal
paperwork throughout the company. 
Community We recognise a strong obligation to contribute
to the communities in which we operate. We encourage
and support employees at all levels who undertake
community work, providing resources and paid time off 
to participate in projects. We support a range of charitable
causes, mainly at local level, by donations of money, gifts 
in kind and employee time. The company is a member 
of UK Business in the Community and we are committed 
to corporate community involvement across the whole
group wherever practical. Of course, we are also committed
to meeting our community obligations under the law. 
Examples of the programmes we support around our
manufacturing sites can be found in the Performance
section of the Sustainability Report on our website.
In 2002 our direct donations to charitable and community
activities totalled £804,000, of which £400,000 went to 
the Smith & Nephew Foundation to fund individual research 
for doctors and nurses. During the year, we restructured 
the Foundation to focus solely on nursing research where 
it makes a major contribution in the UK. We again made 
no political contributions in 2002.
Customers Educational support to the medical community
which we serve is an integral part of the way we do business.
All three of our business units run extensive educational
programmes ranging from seminars and dedicated training
facilities to web-based information sites. During 2002 our
Endoscopy business alone hosted 144 courses, training over
1,700 surgeons. 
Suppliers We treat suppliers with dignity and fairness, 
and expect them to do the same with their own employees
and suppliers. Our Code of Business Principles makes clear
that we support the UN’s Universal Declaration of Human
Rights and states that we will only work with suppliers 
who adhere to business principles and health, safety, social 
and environmental standards consistent with our own.
Specifically, these prohibit the use of forced, compulsory 
or child labour.
Economic impact
Our business policies aim to achieve long-term growth and
profits – which in turn bring continued economic benefits to
shareholders, employees, suppliers and local communities.
Our sustainable development depends ultimately on our
ability to provide a satisfactory return: in 2002 we generated
an operating return on capital employed of 29%. 
We continue to invest in comprehensive R&D programmes
focused on delivering better outcomes for patients and
improvements in application and use for practitioners.
Importantly, we also aim to deliver overall cost savings 
to healthcare systems through such benefits as reduced
dressing changes and shorter operating theatre times. 
Our products seek to reduce patients’ time in hospital 
and return them to health faster, potentially improving 
their productivity and bringing broader social and 
economic benefits. 14 Smith & Nephew 2002
Corporate governance
The Board is committed to the highest standards of
corporate governance and considers that the company 
has complied throughout the year with the Combined 
Code of Best Practice on Corporate Governance.
The Board
The Board meets regularly during the year and is
responsible for the strategic direction, policies and overall
management of the group. There is a clear division of
responsibilities between the Chairman and Chief Executive.
The Board consists of an independent non-executive
Chairman, two executive directors and six independent
non-executive directors. All directors have full and timely
access to all relevant information and independent
professional advice. Non-executive directors meet regularly
without management in attendance and appropriate
induction programmes are offered to new directors. 
The Board is assisted by the following committees:
The Audit Committee The Audit Committee monitors 
the operation and effectiveness of internal financial controls
and ensures that the accounts meet statutory and other
requirements. It selects, determines the fees and reviews
the performance, independence and objectivity of 
the auditors. All non-audit work is pre-approved by
the committee. 
The Remuneration Committee The Remuneration
Committee sets the pay and benefits of the executive
directors and members of the Group Executive Committee,
approves their main terms of employment and determines
share options and long-term incentive arrangements. 
It also reviews management succession planning.
The Nominations Committee The Nominations Committee
oversees plans for Board succession and recommends
appointments to the Board.
The Group Executive Committee The Group Executive
Committee assists the Chief Executive in the management
of the group.
The terms of reference of the Audit, Remuneration and
Nominations Committees may be found at www.smith-
nephew.com.
Membership of Board committees and of the Group
Executive Committee is shown with the biographical 
details of directors on pages 10 and 11.
Directors
All directors are subject to re-election every three years, 
and in accordance with the Articles of Association, Dudley
Eustace and Peter Hooley retire by rotation and, being
eligible offer themselves for re-election at the forthcoming
AGM. Sir Timothy Lankester will be retiring at the AGM 
but will not be offering himself for re-election. 
No director had a material beneficial interest in any contract
involving the company or its subsidiaries in 2002.
Shareholders
The group issues summary financial statements in place of
full annual accounts unless shareholders request the latter.
The summary financial statement is received by over 90% 
of shareholders. At the half year, an interim report is sent 
to all shareholders. A copy of the full annual accounts is
available on the Smith & Nephew website along with press
releases, institutional presentations and audio webcasts.
There are regular dialogues with individual institutional
shareholders, together with results presentations twice a
year. There is an opportunity for individual shareholders to
question directors at the AGM and the company regularly
responds to letters from shareholders on a range of issues.
Risk management & internal control 
The Board is responsible for the maintenance of the group’s
systems of risk management and internal control and for
reviewing their effectiveness. An ongoing process has been
in place for the full year identifying, evaluating and managing
key risks through a Risk Committee which reports to the
Board annually, and by a system of functional reports to 
the Board and the review of internal financial controls by 
the Audit Committee.
These procedures are designed to identify and manage
those risks that could adversely impact the achievement 
of the group’s objectives. Whilst they do not provide
absolute assurance against material misstatements or loss,
the directors, following a review of the systems described
are of the opinion that proper systems of risk management
and internal control are in place within the group. 
Share capital
The company has been informed of the following interests 
in its ordinary share capital as at 7 February 2003:
> AXA Investment Management 9.0%
> Fidelity 7.1%
> Legal & General Investment Management 3.4%
At the AGM, the company will be seeking a renewal of its
current permission from shareholders to purchase its own
shares. No shares have been purchased or contracted for
or are the subject of an option under the expiring authority.
Auditors
Ernst & Young LLP have expressed their willingness 
to continue as auditors and a resolution proposing their
reappointment will be put to the AGM. Smith & Nephew 2002 15
Summary remuneration report 
Remuneration policy
The Remuneration Committee policy for this and future years is to ensure that remuneration is sufficiently competitive 
to attract, retain and motivate executive directors and Group Executive Committee members of a calibre that meets the
group’s needs to achieve its performance against financial objectives and relevant competitors’ practice. Remuneration
throughout the group is designed to be competitive in the country of employment. The committee gives full consideration 
to the requirements in Schedule A of the Combined Code.
Directors’ incentive plans
Executive directors participate in an annual bonus scheme based on annual growth in adjusted earnings per share after
deducting goodwill amortisation and return on capital employed, and in a long-term incentive plan (LTIP) based on the
company’s total shareholder return (TSR) in relation to 41 UK listed manufacturing companies with substantial international
activities, and growth in earnings per share over a three year period. The performance conditions were identified as those
which represented a fair measure of the company’s performance and would reflect increase in shareholder value. The
company’s TSR performance and its performance relative to the comparator group is monitored by independent consultants.
Total outstanding conditional awards of shares under the LTIP are: Christopher O’Donnell 386,488 (2001 – 448,649) and
Peter Hooley 236,824 (2001 – 282,965). For the three year plan period commencing 2000 the company’s TSR of 147.36%
was ranked first in the comparator group and the earnings per share performance criterion was met, enabling the plan
participants to be eligible for 100% of the shares conditionally awarded in 2000. As a result, on 7 February 2003,
Christopher O’Donnell became entitled to 155,065 shares and Peter Hooley entitled to 96,916 shares which are included 
in the outstanding conditional awards of shares above.
Executive directors were last granted options under executive share option schemes in 1996 which were not subject to
performance conditions, but under the LTIP , shares that have vested may be taken in the form of nil-cost options and
exercised at a later date. UK directors are eligible to participate in the savings related share option scheme.
As a component company of the FTSE 100 index, a graph of the company’s TSR performance compared to that of the
TSR of the index can be found on page 2.
Service contracts
Executive directors, in line with group policy, have notice periods of 12 months. All new appointments are intended to have
12 months notice periods, but it is recognised that for some appointments a longer period may initially be necessary for
competitive reasons, reducing to 12 months thereafter. Christopher O’Donnell and Peter Hooley have contracts terminable
by the company on not more than 12 months notice and by the director on 6 months notice. Termination of the contract 
by the company would entitle the executive directors to 12 months basic salary, bonus at target of 30%, a contribution of
30% of salary to reflect the loss of pension benefits, an amount to cover other benefits and a time apportionment of the
LTIP entitlement.
Non-executive directors do not have service contracts and are normally appointed for terms of three years terminable at will,
without notice by either the company or the director and without compensation. Their remuneration is determined by the
Nominations Committee. 
Directors’ emoluments and share interests
Total emoluments* Share interests
2002 2001 31 December 2002 1 January 2002
£’000 £’000 Shares Options Shares Options
Chairman: D.G. Eustace 170 170 49,679 – 40,909 –
Executive: C.J. O’Donnell 890 790 122,136 517,495 120,703 331,263
P. Hooley 583 545 111,571 450,682 58,789 423,723
Non- Sir Timothy Lankester 30 30 6,096 – 6,035 –
executive: Dr R.W.H. Stomberg 30 30 6,945 – 6,864 –
W.D.Knowlton 30 30 12,501 – 7,501 –
R. De Schutter 30 30 200,000 – 100,000 –
Dr P . Kirby (from 1 March 2002) 25–––––
B. Larcombe (from 1 March 2002) 25–––––
Sir Anthony Cleaver (to 28 Feb 2002) 5 30––––
Sir Brian Pearse (to 28 Feb 2002) 5 30––––
1,823 1,685
*Inclusive of salaries and fees, benefits, annual bonus and pension entitlements. Profits on exercise of share options were
£211,950: Peter Hooley £211,950 (2001 – £197,542: Christopher O’Donnell £22,171, Peter Hooley £175,371). 16 Smith & Nephew 2002
Auditors’ statement
Independent auditors’ statement to the members of Smith & Nephew plc 
We have examined the group’s summary financial statement for the year ended 31 December 2002 which comprises
summary group profit and loss account, summary group balance sheet and summary group cash flow statement.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the report to shareholders and summary financial statement in accordance with
applicable law.
This report has been prepared for the members of the company pursuant to Section 251 of the Companies Act 1985 
(the “Act”) and for no other purpose.
No person is entitled to rely on this report unless such person:
i) is a person who is entitled to rely on this report by virtue of and for the purpose of the Act; or
ii) has been expressly authorised to do so by our prior written consent.
Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby
expressly disclaim any and all such liability.
Our responsibility is to report to you our opinion on the consistency of the summary financial statement within the report 
to shareholders and summary financial statement with the full annual accounts, directors’ report and remuneration report,
and its compliance with the relevant requirements of section 251 of the Companies Act 1985 and the regulations made
thereunder. We also read the other information contained in the report to the shareholders and summary financial statement
and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies
with the summary financial statement. 
Basis of opinion
We conducted our examination in accordance with Bulletin 1999/6 ‘The auditors’ statement on the summary financial
statement’ issued by the Auditing Practices Board for use in the United Kingdom.
Opinion
In our opinion the summary financial statement is consistent with the full annual accounts, directors’ report and
remuneration report of Smith & Nephew plc for the year ended 31 December 2002 and complies with the applicable
requirements of section 251 of the Companies Act 1985, and regulations made thereunder.
Ernst & Young LLP
Registered auditor
London, 7 February 2003 
This summary financial statement is a summary of information in the group’s full annual accounts and was approved by 
the Board on 7 February 2003 and signed on its behalf by Dudley Eustace, Christopher O’Donnell and Peter Hooley. It does
not contain sufficient information to allow a full understanding of the results of the group and state of affairs of the company
or of the group. A review of the business is included in the directors’ report. The report of the auditors on the full accounts
for the year ended 31 December 2002 was unqualified and did not contain a statement made under either section 237(2) 
of the Companies Act 1985 (accounting records or returns inadequate or accounts not agreeing with records or returns) 
or section 237(3) (failure to obtain necessary information and explanations).
For further information the full annual accounts and the auditors’ report on those accounts should be consulted. Shareholders
have the right to demand, free of charge, a copy of the group’s full annual report and accounts, which may be obtained from
the company’s registrars. Smith & Nephew 2002 17
Group profit and loss account
2002 2001
for the year ended 31 December 2002 £ million £ million
Turnover
Ongoing operations 1,083.7 943.0
Operations contributed to the joint venture – 35.3
Continuing operations 1,083.7 978.3
Discontinued operations 26.2 103.4
Group turnover 1,109.9 1,081.7
Share of joint venture 155.0 123.6
1,264.9 1,205.3
Operating profit
Ongoing operations:
Before goodwill amortisation and exceptional items 196.0 170.8
Goodwill amortisation* (17.5) (10.4)
Exceptional items* (29.9) (19.3)
148.6 141.1
Operations contributed to the joint venture:
Before exceptional items – 3.6
Exceptional items* – (1.8)
Continuing operations 148.6 142.9
Discontinued operations 2.1 11.1
150.7 154.0
Share of operating profit of the joint venture:
Before exceptional items 19.6 12.8
Exceptional items* (2.6) (5.0)
167.7 161.8
Share of operating profit of the associated undertaking 4.9 –
172.6 161.8
Discontinued operations – net profit on disposals* 18.0 49.2
Profit on ordinary activities before interest 190.6 211.0
Interest payable (12.7) (17.4)
Profit on ordinary activities before taxation 177.9 193.6
Taxation 65.8 64.0
Attributable profit for the year 112.1 129.6
Ordinary dividends 44.6 42.9
Retained profit for the year 67.5 86.7
Basic earnings per ordinary share 12.11p 14.07p
Diluted earnings per ordinary share 12.02p 13.95p
*Results before goodwill amortisation and exceptional items 
Profit before taxation 209.9 180.9
Adjusted basic earnings per ordinary share 16.02p 13.96p
Adjusted diluted earnings per ordinary share 15.89p 13.84p
Summary financial
statement Summary financial
statement
18 Smith & Nephew 2002
Group balance sheet
2002 2001
at 31 December 2002 £ million £ million
Intangible fixed assets 317.2 187.8
Tangible fixed assets 255.8 245.0
Investment in joint venture 115.0 114.0
Investment in associated undertaking 8.5 –
Investments 8.2 25.7
704.7 572.5
Stocks 229.5 232.2
Debtors 280.7 266.8
Cash 22.5 26.4
Creditors (315.9) (342.8)
216.8 182.6
Borrowings (316.1) (255.2)
Provisions (88.1) (95.3)
517.3 404.6
Called up share capital 113.8 113.4
Reserves 403.5 291.2
517.3 404.6
Group cash flow
2002 2001
for the year ended 31 December 2002 £ million £ million
Operating profit 150.7 154.0
Depreciation, amortisation and exceptional write-off# 94.4 60.3
Working capital and provisions (35.8) (22.4)
Net cash inflow from operating activities* 209.3 191.9
Capital expenditure and financial investment (86.1) (72.6)
Operating cash flow 123.2 119.3
Joint venture dividend 3.9 –
Interest (10.2) (16.5)
Tax paid (52.3) (76.2)
Dividends paid (43.5) (42.0)
Acquisitions (206.3) (69.3)
Disposals 71.8 61.7
Joint venture formation 5.7 12.6
Issues of ordinary share capital 6.1 9.0
Net cash flow (101.6) (1.4)
Exchange adjustments 68.2 (5.8)
Opening net debt (243.5) (236.3)
Closing net debt (276.9) (243.5)
#Includes goodwill amortisaton of £17.5m (2001 – £10.4m) and £17.5m write-off of the group’s equity investment in
Advanced Tissue Sciences, Inc.
*After £19.3m (2001 – £23.5m) of outgoings on rationalisation, acquisition integration and divestment costs.
Net debt includes £16.7m of net currency swap assets (2001 – net currency swap liabilities of £14.7m). Smith & Nephew 2002 19
Financial calendar
Annual General Meeting 29 April 2003
Payment of 2002 final dividend 16 May 2003
Interim results announced 31 July 2003
Payment of 2003 interim dividend 14 November 2003
Full year results announced early February 2004
Annual report posted early March 2004
Annual General Meeting 5 May 2004
Final dividend
The ordinary shares will trade ex-dividend on both the
London and New York Stock Exchanges from 16 April 2003
and the record date will be 22 April 2003 in respect of this
year’s proposed final dividend to be paid on 16 May 2003.
Ordinary shares
Payment of cash dividends Shareholders who wish their
dividends to be paid directly to a bank or building society
and who have not already completed a BACS mandate
should contact the company’s registrars.
Dividend re-investment plan The company has a dividend
re-investment plan that offers shareholders the opportunity
to invest their cash dividends in Smith & Nephew shares,
which are purchased in the market at competitive dealing
costs. Application forms for re-investing the 2002 final
dividend are available from Lloyds TSB Registrars who
administer the plan on behalf of the company. Applications
for re-investment should be returned to the company’s
registrars by 29 April 2003.
UK capital gains tax For the purposes of capital gains tax
the price of ordinary shares on 31 March 1982 was 35.04p.
Smith & Nephew share price The company’s share price is
quoted daily in national newspapers, as well as on Ceefax
and Teletext and at www.londonstockexchange.com where
it is updated at intervals throughout the day. The Financial
Times Cityline Service, telephone 0906 0034043, provides
an up to the minute share price. A fee is charged for this
service.
Low-cost dealing service A postal and telephone facility 
that provides a simple low-cost method of buying and
selling Smith & Nephew shares is available through Hoare
Govett Limited. For information contact Hoare Govett 
Ltd., 250 Bishopsgate, London, EC2M 4AA. Telephone 
020 7678 8300.
Smith & Nephew Corporate ISA The company has a
corporate Individual Savings Account (ISA) administered by
Lloyds TSB Registrars. For information about this service
please contact their helpline on telephone 0870 2424 244.
Shareview To view information about your shareholdings 
on the internet, register at www.shareview.com, the Lloyds
TSB enquiry and portfolio management service for
shareholders. When you have registered for shareview you
will also be able to register your proxy instructions online
and elect to receive future shareholder communications 
via our website www.smith-nephew.com.
Shareholder Enquiries For information about the AGM,
shareholdings, dividends and changes to personal details 
all shareholders should contact: Lloyds TSB Registrars, 
The Causeway, Worthing, West Sussex, BN99 6DS.
Telephone 0870 600 3996.
American depositary receipts (ADRs)
In the US, the company’s ordinary shares are traded in the
form of American Depositary Shares, evidenced by ADRs,
and trade under the symbol SNN. Each American Depositary
Share represents ten ordinary shares. Bank of New York 
is the authorised depositary bank for the company’s ADR
programme. A Global BuyDIRECT plan is available for 
US residents, enabling investment directly in ADRs with
reduced brokerage commissions and service costs. For
further information on Global BuyDIRECT contact: Bank 
of New York on 1-888-BNY-ADS (toll-free) or visit
www.adrbny.com.
Smith & Nephew ADR price The company’s ADR price is
quoted daily in the Wall Street Journal and can be obtained
from the official New York Stock Exchange website
www.nyse.com.
ADR Enquiries All enquiries regarding ADR holder accounts
and payment of dividends should be addressed to Bank 
of New York, 620 Avenue of the Americas, New York, 
New York 10011.
Annual General Meeting
The company’s 66th Annual General Meeting is to be held
on 29 April 2003 at 10.30 am at the Institute of Mechanical
Engineers, One Birdcage Walk, London, SW1H 9JJ. Notice
of the meeting is enclosed with an accompanying letter
from the Chairman.
Registered office
Smith & Nephew plc, 15 Adam Street, 
London WC2N 6LA
Registered in England No. 324357
Advisers
Solicitors: Ashurst Morris Crisp
Pinsent Curtis Biddle
Auditors: Ernst & Young LLP
Stockbrokers: Cazenove & Co
Dresdner Kleinwort Wasserstein
Trademarks
The product names referred to in this document are
trademarks owned by or licensed to members of the 
Smith & Nephew group.
Information for
shareholders 20 Smith & Nephew 2002
Group five year 
summary
2002 2001 2000 1999# 1998#
Profit and loss account £ million £ million £ million £ million £ million
Turnover
Continuing operations 1,083.7 978.3 911.5 799.9 713.6
Discontinued operations 26.2 103.4 223.2 320.0 339.8
Group turnover 1,109.9 1,081.7 1,134.7 1,119.9 1,053.4
Share of joint venture 155.0 123.6–––
1,264.9 1,205.3 1,134.7 1,119.9 1,053.4
Operating profit
Continuing operations:
Before goodwill amortisation and exceptional items 196.0 174.4 156.9 122.7 106.5
Goodwill amortisation* (17.5) (10.4) (6.9) (1.8) (0.3)
Exceptional items* (29.9) (21.1) (12.4) (40.1) (15.9)
Discontinued operations:
Before exceptional items 2.1 11.1 29.0 46.6 47.9
Exceptional items* – – (3.9) (11.6) (2.0)
150.7 154.0 162.7 115.8 136.2
Share of operating profit of the joint venture:
Before exceptional items 19.6 12.8–––
Exceptional items* (2.6) (5.0) – – –
167.7 161.8 162.7 115.8 136.2
Share of operating profit of the associated undertaking 4.9––––
172.6 161.8 162.7 115.8 136.2
Profit on disposals* 18.0 49.2 109.5 62.9 –
Profit before interest 190.6 211.0 272.2 178.7 136.2
Interest (payable)/receivable (12.7) (17.4) (7.0) 3.4 (1.7)
Profit before taxation 177.9 193.6 265.2 182.1 134.5
Taxation 65.8 64.0 57.7 77.3 40.8
Profit after taxation 112.1 129.6 207.5 104.8 93.7
Ordinary dividends 44.6 42.9 41.3 72.5 69.2
Special dividend – – 415.6 – –
Retained profit/(deficit) 67.5 86.7 (249.4) 32.3 24.5
Basic earnings per ordinary share 12.11p 14.07p 20.07p 9.39p 8.42p
Diluted earnings per ordinary share 12.02p 13.95p 19.95p 9.37p 8.40p
Dividends per ordinary share 4.80p 4.65p 4.50p 6.50p 6.20p
*Results before goodwill amortisation and exceptional items:
Profit before taxation 209.9 180.9 178.9 172.7 152.7
Adjusted earnings per ordinary share 16.02p 13.96p 12.19p 10.88p 9.61p
Adjusted diluted earnings per ordinary share 15.89p 13.84p 12.12p 10.85p 9.60p
Operating profit (before goodwill amortisation and 17.8% 17.1% 16.4% 15.1% 14.7%
exceptional items) to group sales
Research and development costs to group sales 5.5% 4.7% 4.0% 4.0% 4.1%
Capital investment (including intangibles) to group sales 7.7% 6.9% 5.6% 5.8% 6.6%
#1999 and 1998 have not been restated for FRS 19. Designed and produced by Fitch:London. 
Printed by CTD Capita. Board photography by Sven Seiffert.
2002 2001 2000 1999# 1998#
Balance sheet £ million £ million £ million £ million £ million
Fixed assets 704.7 572.5 428.9 361.1 334.4
Net current assets 71.2 96.9 129.8 248.8 195.3
Creditors falling due after more than one year (170.5) (169.5) (187.2) (20.2) (12.8)
Provisions (88.1) (95.3) (103.5) (38.0) (31.4)
Capital employed 517.3 404.6 268.0 551.7 485.5
Called up share capital 113.8 113.4 112.7 112.1 111.7
Reserves 403.5 291.2 155.3 439.6 373.8
Capital and reserves 517.3 404.6 268.0 551.7 485.5
Operating profit (before goodwill amortisation and
exceptional items) to average capital employed 29% 34% 36% 32% 30%
Cash flow 
Cash inflow from operating activities 209.3 191.9 204.0 198.1 161.9
Capital expenditure and financial investment (86.1) (72.6) (66.7) (65.1) (61.9)
123.2 119.3 137.3 133.0 100.0
Interest, taxation and dividends (102.1) (134.7) (529.4) (127.0) (91.3)
Acquisitions and disposals (128.8) 5.0 158.7 70.9 (16.4)
Issues of share capital 6.1 9.0 7.7 4.4 3.0
Net cash flow (101.6) (1.4) (225.7) 81.3 (4.7)
Exchange adjustments 68.2 (5.8) (32.9) (9.5) 1.8
Opening net debt (243.5) (236.3) 22.3 (49.5) (46.6)
Closing net debt (276.9) (243.5) (236.3) 22.3 (49.5)
Gearing 54% 60% 88% nil 10%
#1999 and 1998 have not been restated for FRS 19. You are here: 
Report to Shareholders and 
Summary Financial Statement
Contents
Financial highlights
Chairman’s statement
Chief Executive’s statement
Board & Group Executive Committee 
Corporate social responsibility
Corporate governance
Summary remuneration report
Auditors’ statement
Summary ﬁnancial statement
Information for shareholders
Group ﬁve year summary
You have access to more information 
from the following sources:
Smith & Nephew plc
15 Adam Street
London WC2N 6LA
www.smith-nephew.com
Board/Group Executive Committee biographies
For further biographies, visit: 
www.smith-nephew.com/about/personnel.html
Presentations
For presentations to analysts 
and shareholders, visit: 
www.smith-nephew.com/investors/
archive.html
Available as a printed document or online at:
www.smith-nephew.com/investors/
annualreport2002
Shareholder information
For further up-to-date shareholder
information, visit: www.smith-nephew.com/
investors/shareinfo.html
For up-to-minute share price information,
visit: www.smith-nephew.com/
investors/financial_data.html
For press releases and latest business
information, visit:
www.smith-nephew.com/news
Sustainability report
For further information on sustainability 
and to access our report, visit: 
www.smith-nephew.com/sustainability2002
Annual Report and Accounts
For detailed financial information 
you can request a full printed 
Annual Report and Accounts or visit: 
www.smith-nephew.com/investors/
annualreport2002