annual report 2014
smith  nephew plc 
15 adam street 
london wc2n 6la 
united kingdom
t 44 0 20 7401 7646 
f 44 0 20 7960 2356
wwwsmithnephewcom
pioneering design
annual report 2014
supporting healthcare professionals for over 150 years 1986
acquisition 
of leading 
orthopeadics 
business richards 
medical company 
2001
oxinium a new material that  
improves performance and  
increases the service life of  
total joint replacement  
systems first introduced 
2011
pico the first pocket
sized singleuse system 
revolutionises the 
negative pressure wound 
therapy market 
2012
allevyn life designed 
using pioneering research 
to identify the physical 
and emotional needs 
of patients living with 
wounds launched 
the inks used are renewable biodegradable and emit fewer volatile organic compounds vocs than mineraloil inks 
they are based on high levels of renewable raw materials such as vegetable oils and naturally occurring resin 
the inks do not contain any toxic heavy metals and therefore do not pose a problem if placed in landfill
designed by radley yeldar 
printed by rr donnelley 472599
2013
journey ii bcs sets a 
new standard in knee 
implant performance 
by restoring more 
normal motion 
1989
the first transparent 
film dressing iv3000 
specially designed  
for use on iv sites 
is launched 
2014
new business syncera launches 
giving customers access to our 
advanced products through a  
different economic model 
2014
smith  nephew is the first  
medtech multinational to develop  
a dedicated business for  
economic midtier patients in  
the emerging markets 
we are a global medical  
technology business and have  
been supporting healthcare  
professionals to help improve  
people’s lives for over 150 years we take a pioneering approach to the design of  
our products and services we strive to secure  
wide access to our technologies for more customers 
globally and we seek to enable better outcomes 
for patients and healthcare systems pages 42 – 53 
showcase some examples of the great things  
we are doing  strategic report
4 financial highlights
5 chairman’s statement
6	 chief	executive	officer’s	review
8 smith  nephew today
14 strategic performance
16	 chief	financial	officer’s	overview
18 our marketplace
21 our business
26 advanced surgical devices
30 advanced wound management
34 financial review and principal risks 
40 sustainability
supporting healthcare professionals
42 case studies
corporate governance
54 our board of directors
58	 our	executive	officers
62 corporate governance statement
75 audit committee report 
81 directors’ remuneration report
financial statements  
and other information
103 directors’ responsibilities for the accounts
105 independent auditor’s us reports
106 independent auditor’s uk report
110 group accounts
117 notes to the group accounts
166 company accounts
167 notes to the company accounts
170 group information
174	 other	financial	information
184 information for shareholders
200 smith  nephew heritage
what’s in this report
 these sections and pages 111 113 and 115  
form the directors’ report
hattrick
◊
 
in 2014 we entered the fast growing forefoot  
market with the launch of the hattrick lesser  
toe repair system
smith  nephew annual report 2014 2 delivering advanced medical  
technologies that help healthcare  
professionals our customers  
improve the quality of life for  
their patients
our mission
and this will drive our performance
1 the underlying percentage increasesdecreases are after adjusting for the effect of currency  
translation	and	the	inclusion	of	the	comparative	impact	of	acquisitions	and exclusion of	disposals
2	explanations	of	these	nongaap	financial	measures	are	provided	on	pages	176	to	179
46bn
revenue
1
 up 2 
1055m
trading	profit
12
 up 3 
749m
operating	profit
1
 down 8  
832¢
adjusted earnings per share
2
 up 8 
561¢
earnings per share
 
down	9 
296¢
dividends per share up 8
smith  nephew annual report 2014 3
strategic report corporate governance financial statements and other information
our values
innovation
we are creative and passionate 
– harnessing innovation we 
develop pioneering products and 
commercial models that better 
meet the needs of healthcare 
professionals and improve the 
lives of their patients
trust
we have integrity and an ethical 
approach to business – earning 
trust we work hard to build 
lasting and close relationships 
with customers colleagues 
and the communities in which 
we operate
performance
we work tirelessly to meet the 
needs of customers – creating 
confidence	in	our	performance	
our products are safe and 
effective and deliver both  
clinical	and	cost	benefits 1 the underlying percentage increases
decreases are after adjusting for the 
effects of currency translation and the 
inclusion of the comparative impact of 
acquisitions and exclusion of disposals
2 these are nongaap measures and 
exclude restructuringrationalisation 
costs acquisition and disposalrelated 
costs amortisation of acquisition 
intangibles and other transactions 
which	affect	shortterm	profitability	
an explanation of these measures is 
provided	on	pages	176	to	179		
 strategic report
financial highlights
continuing to improve  
our performance
2
4617m
3962
4270
4137
4351
4617
revenue
1
2014 2013 2012 2011 2010
3
1055m
969
961
965
987
1055
trading proﬁt
12
2014 2013 2012 2011 2010
8
920
862
846
810
749
operating proﬁt
1
2014 2013 2012 2011 2010
749m
9
561¢
686
645
804
617
561
earnings per share eps
2014 2013 2012 2011 2010
8
296¢
1582
1740
2610
2740
296 
dividend per share
2014 2013 2012 2011 2010
51
38
39
41
53
51
rd expenditure as a
percentage of revenue
2014 2013 2012 2011 2010
8
730
737
748
769
832
adjusted earnings 
per share epsa
2
2014 2013 2012 2011 2010
832¢
20bps
trading proﬁt
2
 
margin
229
781m
trading cash ﬂow
2
961m
cash generated
from operations
240bps
operating proﬁt
margin
162
smith  nephew annual report 2014 4 chairman’s statement
“smith  nephew made 
good progress last year  
delivering strong earnings 
growth and enhanced  
value to shareholders ”
dear shareholder 
i joined smith  nephew in december 
2013 and succeeded sir john buchanan as 
chairman	in	april	2014	in	my	first	letter	to	you	
i am pleased to report that smith  nephew 
made good progress last year delivering 
strong earnings growth and enhanced value 
for shareholders we did this whilst making 
major investments to reshape the group for 
future success such as the acquisition of 
arthrocare corporation for 15 billion net 
revenue was 4617 million up 2 on an 
underlying basis or 6 on a reported basis 
trading	profit	was	1055	million	up	3 on an 
underlying basis or 7 on a reported basis 
the	trading	profit	margin	of	22 9 was 20bps 
up on the previous year the board is pleased 
to propose a final dividend for the year just 
gone	of	186¢	per	share	giving	a	total	dividend	
for 2014 of 296¢	up	8 yearonyear
board changes
sir john buchanan retired as chairman in 
april at the 2014 annual general meeting 
after nine years of outstanding service on 
behalf of the board and the whole of smith  
 nephew i thank him for his leadership 
richard ‘dick’ de shutter also retired at the 
annual general meeting in his role as senior 
independent director dick provided wise 
counsel	through	a	period	of	significant	growth	
and change ajay piramal retired in march 
having provided valuable insight into the 
emerging markets as we built our presence 
there pamela kirby retired from the board 
in july she also made a major contribution 
– particularly as chairman of the ethics  
compliance committee i thank dick ajay  
and pamela for their service
it is a credit to the growing strength and 
reputation of the company that we have 
attracted top global talent to succeed these 
individuals vinita bali joined the board in 
december following an impressive career at 
bluechip global corporations such as the 
cocacola company in multiple geographies 
including india africa south america the us 
and uk her strong appreciation of customer 
service and marketing will bring deep insight 
to smith  nephew as we continue to develop 
innovative ways to serve our markets erik 
engstrom the ceo of reed elsevier  joined the 
board in january 2015 his understanding of 
how technology can be used to transform a 
business will be invaluable
first impressions
my	first	impression	of	smith		nephew	was	
of a company with strong leadership a clear 
strategy	and	sound	financial	platform	the	
open communication between the board and 
the executive team is a real strength of the 
business i was particularly impressed with 
the execution of the arthrocare acquisition 
especially the thoroughness of our due 
diligence and how well the team is managing 
the integration
i have also been able to spend time visiting 
our sites and meeting employees including 
attending a sports medicine procedure to 
witness how our highlyskilled reps assist 
surgeons in improving outcomes i have 
consistently found a business with a strong 
culture particularly in areas of ethics and 
compliance and people who are proud of their 
work supporting healthcare professionals 
looking ahead i see many exciting 
opportunities – in the established markets 
where we are challenging the status quo 
through new commercial models in the 
emerging  international markets where 
we have a leadership platform – and from 
recent acquisitions in 2015 i believe we 
will	begin	to	see	more	clearly	the	benefits	
of the transformational work that has been 
undertaken at smith  nephew and i look 
forward to sharing more news of these 
achievements next year  
yours sincerely
 
roberto quarta
chairman
5 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
chief executive officer’s review
a	good	financial	performance	while	
strengthening the business
dear shareholder
smith  nephew proudly supports healthcare 
professionals in their daily efforts to improve 
the lives of their patients we do this by taking 
a pioneering approach to the design of our 
products and services by striving to ensure 
wider access to our advanced technologies 
and by enabling better outcomes for patients 
and healthcare systems in doing so we drive 
growth and create value for our stakeholders
in 2014 we made great progress we drove 
a much improved performance in us hip 
and knee implants and maintained our 
momentum in sports medicine joint repair 
and trauma  extremities advanced wound 
bioactives acquired at the end of 2012 again 
produced doubledigit growth our continued 
investment in emerging  international 
markets drove revenues up 17 
performance in europe was weaker and 
advanced wound management was held 
back by a distribution hold on renasys
◊
 
in	the	us	and	i	am	confident	that	we	have	
taken actions that will deliver a better 
2015 across these areas additionally 
the phase 3 trial results for hp802 were a 
disappointment but we remain committed 
to developing pioneering advanced wound 
bioactives treatments
the group generated a good increase in 
revenues	and	trading	profit	and	an	8 uplift 
in epsa i am pleased by the changing mix of 
the business as we successfully rebalance 
by strengthening our higher growth platforms 
these now represent more than half of our 
revenue up from just 35 three years ago 
pioneering design
smith  nephew has a long history of 
pioneering design dating back to our 
foundations	in	the	19th	century	in	2014	we	
launched many exciting products including 
a cruciate retaining version of our journey
◊
ii 
naturalmotion	knee	a	firstofitskind	
dyonics
◊
 plan surgical planning tool for hip 
arthroscopy and the hattrick lesser toe 
repair system we continued to invest more 
in rd over 5 of revenue and have a strong 
pipeline for 2015 and beyond 
“the journey to reshape  
smith  nephew continues  
and i am excited by our  
prospects for accelerating  
growth in 2015 and beyond ”
6 smith  nephew annual report 2014 for us innovation is not just about products 
it is also about how we do business we seek 
new ways to serve our customers in 2014 
we pioneered a new commercial solution for 
orthopaedic	reconstruction	that	fulfils	the	
unmet needs of customers searching for a 
different value proposition called syncera
◊
 
this offers clinically proven primary hip and 
knee implants combined with cuttingedge 
technology to streamline the extensive 
support process syncera has the potential to 
generate	significant	savings	for	the	customer	
we are encouraged by the contracts signed 
and prospective customers 
widening access
in the emerging  international markets 
we have built an entrepreneurial business 
resourced	to	maximise	the	significant	
opportunities we see in 2014 it generated 
more	than	600	million	revenue	with	china	
our largest market growing revenue at over 
30 15 of group revenue came from these 
markets	in 2014	up	from	8	in	2010	
in 2014 we established a new commercial 
structure to market and expand our mid
tier value product ranges this will provide 
wider access to our advanced technologies 
helping us support an ever greater number of 
customers in delivering affordable healthcare 
enabling better outcomes
we provide high quality products and 
medical education to help drive better clinical 
outcomes during 2014 we saw strong and 
rising demand for unique products such as 
our hardwearing verilast
◊
 hips and knees 
visionaire
◊
 patientmatched instrumentation 
and the pico
◊
 portable disposable 
negative pressure wound therapy system 
these and many other advanced smith  
nephew products also enable healthcare 
professionals to treat more patients faster 
improving the economic outcome for the 
healthcare system payers 
strengthening our platform
in recent years we have successfully 
supplemented our organic growth through 
acquisitions healthpoint biotherapeutics  
gave us a leading position in advanced 
wound bioactives the fastest growing 
segment of advanced wound management 
we have also completed a number of 
acquisitions in the emerging  international 
markets strengthening our platform by adding 
products manufacturing distribution  
and sales teams 
arthrocare completed in may 2014 has 
strengthened our sports medicine business 
its	technology	and	products	significantly	
enhance our portfolio and we will use our 
global presence to drive substantial new 
growth the integration is progressing well
enhanced	efficiency	
by simplifying and improving our operating 
model we are increasing our agility and 
efficiency	in	2011	we	announced	a	
programme to generate annual savings of 
150 million by 31 december 2014 we had 
achieved annualised savings of 146 million 
enabling investment in the emerging  
international markets rd and other 
growth opportunities
in 2014 we announced a further programme 
to realise at least another 120 million of 
annual savings this work is progressing well 
for instance we are rationalising our global 
property portfolio and found major savings 
through better procurement processes  
these	savings	will	more	directly	benefit	the	
bottom line 
great place to work
achieving recognition as a great place to 
work is important to me it means having 
a workplace where employees are proud 
and excited to come each day because they 
are doing work that makes a difference for 
customers and patients during 2014  
i was proud to congratulate our colleagues 
in	spain	for	being	the	first	country	to	achieve	
this distinction from the great place to work 
institute – and it will not be the last also our 
sustainability performance was recognised 
again as we retained our rankings in both the 
ftse4good and dow jones sustainability 
indices acting sustainably and responsibly 
to	deliver	longterm	benefits	to	society	is	
important it is our employees who earn these 
awards and i thank them for their efforts
i am pleased with our momentum in 2014 as 
we	delivered	a	good	financial	performance	
while strengthening the business and you will 
find	more	details	on	our	successful	actions	on	
pages 42 to 53 whilst the journey to reshape 
smith  nephew continues we enter 2015 
stronger	and	more	efficient	and	i	am	excited	
by our prospects for accelerating growth in 
2015 and beyond
sincerely
olivier bohuon
chief	executive	officer
our results
229
trading margin
1
 up 20bps 
832¢
epsa
1
 up 8 
1	 explanations	of	these	nongaap	financial	measures	 
are	provided	on	pages	176	to	179
7 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
smith  nephew today
advanced surgical devices 
total segment value
24bn
advanced wound management 
total segment value
7bn
5 4
our products are used by surgeons and nurses to help  
repair and heal the human body throughout a person’s life
source united nations – world population prospects the 2012 revision
25 billion people 6 billion people 10 billion people
global population
65	5
2064	51
019	44
019	39 019	28
2064	54
2064	56
1950 2000 2050
65	16
65	7
our marketplace is growing
demand for healthcare continues to increase worldwide this is driven by increased longevity more  
prevalence of obesity and associated disease states greater expectation of an active lifestyle improved 
awareness	of	treatment	options	and	the	increasing	affluence	of	the	emerging	markets
smith  nephew annual report 2014 8 served by our global businesses
advanced surgical  
devices global  
revenue
2014
2013
advanced wound  
management global  
revenue
2014
2013
1 the underlying percentage increasesdecreases are after adjusting for the effect of 
currency translation and the inclusion of the comparative impact of acquisitions and 
exclusion of disposals
our global franchises design develop and deliver our advanced medical technologies to customers in more 
than 100 countries globally
advanced surgical devices global
1 orthopaedic reconstruction
specialist hip and knee implant systems
revenue
1
1527m 2
2013 1518m
2 trauma  extremities
internal and external devices used in the stabilisation of severe 
fractures and deformity correction procedures
revenue
1
506m 4
2013 486m
3 sports medicine joint repair
instruments technologies and implants necessary to perform 
minimally invasive surgery of joints
revenue
1
576m 8
2013 496m
4 arthroscopic enabling technologies
cutting	visualisation	and	fluid	management	technologies	
necessary for sports medicine joint repair
revenue
1
542m 1
2013 441m
5 other asd
ent and gynaecology instrumentation
revenue
1
147m 10
2013 74m
advanced wound management global
1 advanced wound care
products for the treatment of acute and chronic wounds  
including leg diabetic and pressure ulcers burns and post
operative wounds
revenue
1
805m –4
2013 843m
2 advanced wound devices
traditional and singleuse negative pressure wound therapy 
‘npwt’ and hydrosurgery systems
revenue
1
192m –9
2013 213m
3 advanced wound bioactives
bioactive technologies that provide unique approaches to 
debridement and dermal repair and regeneration
revenue
1
322m 15
2013 280m 
1
1
3
2
2
3
1
1
3
4
5
5
2
2
3
4
9 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 1
strategic report
smith  nephew today continued
head office division  group
manufacturing
distribution centre
office
our operations are  
global serving  
customers in more  
than 100 countries
1  us
our advanced surgical devices 
headquarters is based in andover our 
advanced wound management us head 
office is in fort worth and we have 
manufacturing facilities in memphis 
mansfield and oklahoma city
employees
6255
2  uk  ireland
home of our global head office  
in london and the advanced  
wound management manufacturing  
site in hull uk 
 
employees
1603
3  continental europe
our european organisation is 
headquartered in baar switzerland and we 
have manufacturing facilities in tuttlingen 
germany and aarau switzerland 
 
employees
2040
smith  nephew annual report 2014 10 2
3
4
4  china
our commercial office is in shanghai  
and we have manufacturing facilities  
in beijing and suzhou 
 
 
employees
1197
rest of the world
we have commercial offices 
manufacturing sites and warehouses 
across the world to serve our customers 
 
 
employees
2373
11 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information maintain a strong balance sheet to ensure solid investment grade credit metrics
961m
 read more about our business model on page 21
we invest in our sales 
and marketing teams 
who ensure our 
customers have the 
advanced technologies 
and supporting 
services they need  
to treat their patients
we support the 
provision of advanced 
medical and surgical 
treatments in over 
100 countries
sales   
marketing
we invest in products 
that meet unmet 
patient needs improve 
outcomes and access 
and reduce the 
economic burden on 
healthcare systems
we also drive 
pioneering into our 
business models 
seeking new ways to 
serve our customers 
such as value 
proposition syncera 
and the midtier 
portfolio
research   
development
we conduct business 
ethically everywhere 
we operate we 
rigorously enforce 
ethics and compliance 
standards and expect 
the same from those 
with whom we do 
business
our code of conduct 
and business 
principles governs 
how we achieve these 
objectives
ethics  
 compliance
we implement lean 
manufacturing 
throughout our 
factories and supply 
chain to improve and 
sustain higher levels 
of service quality 
productivity and 
efficiency
we are optimising 
our manufacturing 
supply and distribution 
footprint to reduce our 
cost of goods
manufacturing
we are proud 
to support the 
professional 
development of 
surgeons and nurses 
by providing medical 
education and training 
on our products to 
help ensure safe and 
effective treatment  
for patients
every year thousands 
of customers attend 
our training centres 
and courses around 
the world
medical  
education
acquisitions in line  
with strategy
progressive  
dividend policy
reinvest for  
organic growth
return excess  
to shareholders
our value creation process
our capital allocation framework
cash generated from operations
resource utilised
73bn 235m 13468 15 245m
total assets investment in rd employees manufacturing  
plants worldwide
corporation tax paid
strategic report
smith  nephew today continued
our business model  
delivers value
smith  nephew annual report 2014 12 with a strategy to  
drive our performance
our strategic priorities
established markets
build upon existing strong positions win market share through greater product and commercial 
innovation and drive efficiencies to liberate resources
emerging  international markets
deliver thought leadership in the emerging  international markets by building strong direct customer relationships 
widening access to our premium products and developing portfolios designed for the midtier population
innovate for value
accelerate our rate of innovation by investing more in research  development to support  
projects that will move clinical and cost boundaries and deliver maximum value
simplify and improve our operating model
pursue maximum efficiency in everything we do streamline our operations and manufacturing  
remove duplication and build strong global functions to support our commercial teams
supplement organic growth with acquisitions
build our platform by acquiring complementary technologies manufacturing and distribution in the  
emerging markets and complementary products or businesses in our higher growth segments
 read more about our strategy in action on pages 42 – 53
13 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information how we performed
revenue from established markets
1
2012 includes clinical therapies revenue of 107m
0
2013
2012
2011
3940m
2011 includes clinical therapies revenue of 237m
3940 2014
3788
3654
3816
performance
established markets for smith  nephew 
are australia canada europe japan  
new zealand and the us
our combined businesses in the 
established markets delivered flat growth 
for the year headwinds in europe 
impacted our performance and offset the 
positive growth we achieved across the 
us japan australia  new zealand
in advanced wound management our 
performance was slightly below estimated 
global segment growth despite a 15 
growth in advanced wound bioactives 
while trauma  extremities hip implants 
and knee implants growth were also 
slightly below the market these franchises 
performed better than last year and 
demonstrated an improving trend in 
the second half of the year as a result of 
our investments in marketing medical 
education and new products in the higher 
growth sports medicine joint repair 
segment we delivered growth at around 
market rate and saw the first benefits  
of the arthrocare acquisition 
global outlook
while there are some signs of 
improvement in economic conditions 
overall the established markets continue 
to experience a challenging environment 
we have responded by realigning our 
business models and made focused 
investments to enhance our performance 
and efficiency in these markets
performance
for smith  nephew ‘innovate for value’ 
means having a pioneering approach 
to creating both products and new 
commercial models to bring products and 
services to our customers
consistent with 2013 rd investment 
represented over 5 of revenue bringing 
a wide range of products to market across 
all our franchises more detail on individual 
products is set out on pages 21 to 22 and 
on pages 27 and 31
in addition we have made investments in 
two venture funds as part of our search for 
future disruptive technologies
we have also been investing in an innovative 
commercial solution for orthopaedic 
reconstruction that fulfils the unmet needs 
of customers searching for a different value 
proposition called syncera it offers 
customers clinically proven primary hip and 
knee implants combined with cuttingedge 
technology that streamlines the supply 
chain and logistics and enables technical 
support in the operating room this new 
model has the potential to generate 
significant savings for the customer
a pioneering approach to products and 
services provides competitive advantages 
smarter easier to use costefficient 
products and services can offset pricing 
pressures disrupt markets and challenge 
the status quo which will be required to 
meet the new and expanding demands  
for healthcare customers globally
emerging   
international markets
established markets innovate for value
performance
emerging  international markets 
represent those outside of the established 
markets including the fast growing bric 
group of brazil china india and russia 
our emerging  international markets grew 
at 17 building further on the double
digit growth of 2013 these geographies 
now represent 15 of the group’s overall 
revenue up from 11 in 2011
during 2014
–  our success in china continued with 
growth of over 30 for a second year in 
a row as our investment in training and 
infrastructure continue to show results
–  our latin american markets which 
include brazil and mexico are set for 
improvement going forward as we 
spent the year integrating acquisitions 
and making organisational and 
strategic changes
–  the execution of our midtier 
market strategy continues with the 
establishment of an independent 
commercial structure and increased 
investment in building a suitable 
product portfolio
global outlook
the healthcare environment in our regions 
continues to rapidly expand and with the 
right investments combined with strategic 
execution will provide sustained growth 
opportunities for the group
strategic report
strategic performance
revenue from emerging 
 international markets
1
17
2013
2012
2011
677m
677 2014
563
483
454
as a percentage of group revenue
15
2013
2012
15 2014
13
12
2011 11
rd expenditure
1
235m
2013
2012
235 2014
231
171
2011 167
as a percentage of group revenue
51
2013
2012
51 2014
53
41
2011 39
smith  nephew annual report 2014 14 acquisition and equity investment spend
2014
2011–2014
17bn
28bn
trading proﬁt
12
3 1055m
2013
2012
1055 2014
987
965
2011      961
trading proﬁt margin
2
20bps 229
2013
2012
2011
229 2014
227
233
225
2012 includes clinical therapies trading proﬁt of 16m
2011 includes clinical therapies trading proﬁt of 48m
simplify and improve 
our operating model
performance
trading profit grew by 3 and trading profit 
margin increased by 20bps while investing 
in our commercial operations and meeting 
market and pricing pressures
key initiatives included
–  continuing to deliver our 150 million  
per annum efficiency savings 
programme of which we have achieved 
annualised savings of 146 million  
as at 31 december 2014
–  commencing a further 120 million 
annualised group optimisation plan 
through a oneoff investment of 150 
million which is progressing well
–  moving to a single managing director 
model in markets outside of the  
us combining the commercial 
organisations to leverage scale  
and better serve customers
by simplifying and improving our  
operating model we have been able  
to liberate resources to invest in growth 
opportunities meet the persistent  
price pressure and improve our financial 
returns a simpler and more efficient 
organisation allows us to make faster and 
better decisions
supplement organic 
growth with acquisitions
performance
in 2014 we completed five acquisitions and 
investments including our largest deal to 
date the 17 billion acquisition of 
arthrocare corporation this brings the 
total over the last 4 years to 15 transactions 
for a combined consideration of 28 
billion including the 782 million 
acquisition of healthpoint therapeutics  
in late 2012
arthrocare was a compelling opportunity  
to add unique technology and highly 
complementary products to further 
strengthen our sports medicine business 
we will be able to generate significant 
additional revenue from the more 
comprehensive portfolio we will use our 
global presence to drive substantial new 
growth the transaction accelerates our 
strategy to rebalance smith  nephew 
towards higher growth opportunities 
we regularly review acquisitions to ensure 
they are meeting our expectations and use 
irrs and roce to confirm performance is 
on track to deliver the required return 
during 2014 we continued to integrate  
our recent emerging markets acquisitions 
whilst healthpoint performed strongly  
in its second full year in smith  nephew 
acquisitions and partnerships are 
important elements which supplement 
organic investment and provide increased 
opportunity for high growth and  
value creation
1 the underlying percentage increasesdecreases are 
after adjusting for the effect of currency translation and 
the inclusion of the comparative impact of acquisitions 
and exclusion of disposals
2 explanations of these nongaap financial measures are 
provided on pages 176 to 179
15 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 1 the underlying percentage increasesdecreases are 
after adjusting for the effect of currency translation and 
the inclusion of the comparative impact of acquisitions 
and exclusion of disposals
2 explanations of these nongaap financial measures are 
provided on pages 176 to 179
we made significant 
progress in 2014…
reinvestment  group optimisation
during 2014 we launched a programme to 
target further efficiencies we have identified 
four main areas of activity
1  globalising functions such as finance 
hr it and legal to ensure that we are 
operating most effectively to support 
business growth
2  driving procurement savings to get the 
most value from the money we spend
3  rationalising our footprint to simplify the 
way we work
4  further simplifying our operating model 
including establishing a single operating 
structure under a single managing 
director in all markets outside the us so 
that we can make decisions more quickly 
and effectively 
all areas of the programme are progressing 
well overall we are on target to deliver 
benefits of over 120 million over a fouryear 
period with the majority of this expected to 
benefit margin over time 
acquisitions
we acquired arthrocare corporation in 2014 
for a net 15 billion this has strengthened 
our sports medicine business its technology 
and products will significantly enhance 
our portfolio and we will use our global 
presence to drive substantial new growth 
the integration is progressing well
the financial rationale for this transaction  
was strong and we expect to realise cost and 
revenue synergies of around 85 million of 
additional annual trading profit in 2017 
our other recent acquisitions continue to 
perform well the advanced wound bioactives 
business acquired at the end of 2012 delivered 
strong 15 growth in 2014 our emerging 
markets acquisitions in brazil turkey and india 
are now bedded in and delivering increasing 
benefits and bioventus our orthobiologic 
therapies development vehicle completed 
a successful external refinancing and repaid 
a 160 million loan note plus 28 million of 
accrued interest to us in october
dear shareholder
smith  nephew made significant progress  
in 2014 and continued to deliver good revenue 
and earnings growth our growth trajectory 
is being enhanced by the integration of our 
acquisitions greater group efficiency and tax 
improvement – combining with strong cash 
generation and disciplined capital allocation  
to accelerate value creation for shareholders 
strong earnings growth
in the full year 2014 we generated revenue 
of 4617 million 2013 4351 million an 
increase of 2 on an underlying basis and 6 
on a reported basis acquisitions added 5  
to the reported growth rate while currency 
was a 1 headwind
trading profit was 1055 million 2013 
987 million up 3 underlying and 7 on 
a reported basis the trading profit margin 
was 229 2013 227 a 20bps increase 
despite the headwind from the us renasys 
distribution hold announced in june
operating profit for 2014 was 749 million 
2013 810 million reflecting acquisition 
costs largely relating to arthrocare as well 
as restructuring and rationalisation costs 
amortisation of acquisition intangibles and 
legal and other items incurred the net  
interest charge and other financing costs  
for 2014 were 33 million 2013 7 million 
profit before tax was therefore 714 million 
2013 802 million
the tax charge of 213 million reflects an 
effective tax rate of 277 for the full year 
2013 292 on trading results
epsa was 832¢ 1664¢ per ads 2013 769¢ 
reported basic earnings per share was 561¢ 
1122¢ per ads 2013 617¢
trading cash flow was 781 million 2013 
877 million reflecting a trading profit to cash 
conversion ratio of 74 2013 89
net debt at the yearend was  1613 million 
reflecting our acquisitions of arthrocare and 
in the emerging markets this represents a 
reported net debtebitda ratio of 12x 
strategic report
chief financial officer’s overview
our results
4617m
revenue
1
 up 2 
1055m
trading profit
12
 up 3 
16 smith  nephew annual report 2014 …and continued to deliver good  
revenue and earnings growth
“we expect the group to 
deliver higher underlying 
revenue growth in 2015 
than in 2014 we also 
expect to deliver a further 
improvement in trading 
profit margin”
segment reporting
as we simplify our operating model and move 
to one commercial organisation in all countries 
barring the us we are updating our segmental 
reporting to reflect this providing disclosure 
consistent with the financial information used 
by senior management to run the business 
this means that from 1 january 2015 we will 
continue to disclose revenue performance 
by franchise but other financial data such 
as trading margin and assets will no longer 
be split between two divisions – advanced 
surgical devices ‘asd’ and advanced 
wound management ‘awm’ since they  
are now part of one operating unit 
outlook
we have made material progress in  
reshaping smith  nephew for higher growth 
since 2011 whilst the journey to transform 
smith  nephew continues increasingly 
we expect to benefit from the actions and 
investments we have made
we expect the group to deliver higher 
underlying revenue growth in 2015 than in 
2014 we also expect to deliver a further 
improvement in trading profit margin
additionally we expect the effective corporate 
tax rate on trading results to reduce to slightly 
above 27 in 2015 absent any changes to tax 
legislation this is incremental to the 220bps 
reduction achieved in the last two years 
we believe the group is at the start of a new 
and exciting phase in its 158year history
sincerely
julie brown 
chief financial officer
17 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
our marketplace
market trends
the combination of ageing populations 
and increasing prevalence of obesity and 
associated chronic illness is expanding the 
gap between the demand for healthcare 
and ability of governments to supply it the 
changing balance in ageing populations also 
means that there is a potential decrease 
in funds available for healthcare raised 
through taxes on the working population 
consequentially governments and healthcare 
providers are looking for various ways to 
constrain their healthcare expenditure 
cost and outcomes
healthcare providers in an effort to reduce 
spending are increasingly focusing on the 
cost of the whole treatment rather than 
the individual components this is leading 
governments and hospitals to seek greater 
transparency of product pricing
as a result health economic data is being 
used to obtain reimbursement or justify 
product pricing health economic data 
currently forms an integral part in shaping 
the recommendations from the national 
institute for health and care excellence nice 
in the uk and in the us the affordable care 
act has committed budget spend to carry 
out comparative effectiveness research 
on treatments 
as well as the focus on suppliers of 
healthcare products some providers are also 
implementing incentives for better health 
outcomes to reduce the costs associated 
with repeated patient treatments or reduced 
hospital stay
governments are beginning to impose 
penalties on healthcare facilities for acute 
patient readmissions or for infections 
acquired within the health system which 
present an additional economic burden on 
health care systems
in the us healthcareacquired infections cost 
almost 10 billion annually with surgical site 
infections being the largest contribution to 
overall cost
product innovation has been the primary 
response by some suppliers in meeting 
patient and healthcare provider demands to 
improve outcomes simplify procedures and 
reduce cost 
new commercial models together with 
product innovation are being adopted by 
health systems as a solution to improving 
resource allocation there is a recent trend 
by health systems to shift towards ‘payment 
for performance’ schemes in an effort to 
promote high quality care and increase the 
effectiveness of treatments additionally 
suppliers of healthcare products and devices 
are providing lower cost or reduced service 
offerings to those segments of the market 
more sensitive to price
the healthcare industry is also seeing 
protectionismlocalisation playing a part 
in the product selection process as some 
jurisdictions are implementing laws to show 
bias towards locally manufactured products 
this already exists in brazil for major tender 
offers and china is considering incentives 
to encourage hospitals to use locally made 
medical devices 
the increased demand for healthcare 
products and the limitation of available 
resources is widening the funding gap 
providing technologies that deliver value by 
improving clinical outcomes while reducing 
the consumption of overall healthcare 
resources is vital for the success and 
sustainability of medical device businesses
selfcare and prevention
selfcare and prevention is regarded as 
an important element of healthcare in that 
it will help protect society from potential 
health threats by minimising the risk factors 
that cause them governments have been 
investing in programmes and providing tools 
to encourage and support healthier behaviour 
to reduce the strain on healthcare systems 
from ‘lifestyle’ diseases additionally pressure 
is gradually being applied on the food industry 
to reduce saturated fats sugar and salt in 
products and increase nutritional labelling 
in an effort to tackle rising rates of obesity 
and diabetes
regulatory standards  
and compliance in the 
healthcare industry
the international medical device industry is 
highly regulated regulatory requirements are 
important in determining whether substances 
and materials can be developed into safe 
and effective products and done so in an 
environmentally sustainable way
national regulatory authorities administer 
and enforce a complex series of laws 
and regulations that govern the design 
development approval manufacture 
labelling marketing and sale of healthcare 
products they also review data supporting 
the safety and efficacy of such products of 
particular importance is the requirement in 
many countries that products be authorised 
or registered prior to the placement on market 
and that such authorisation or registration 
be subsequently maintained the major 
regulatory agencies for smith  nephew’s 
products include the food and drug 
administration ‘fda’ in the us the medicines 
and healthcare products regulatory agency 
in the uk the ministry of health labour and 
welfare in japan the china food and drug 
administration and the australian therapeutic 
goods administration
changing demands
smith  nephew annual report 2014 18 in general with the aforementioned industry 
trends safety standards and regulations in 
the medical device industry are becoming 
more stringent regulatory agencies are 
intensifying audits of manufacturing facilities 
and the approval time for new products has 
lengthened legislation covering corruption 
and bribery such as the uk bribery act and 
the us foreign corrupt practices act business 
also apply to all our global operations 
we are committed to assuring a high level of 
regulatory compliance and to doing business 
with integrity and welcome the trend to higher 
standards in the healthcare industry we and 
other companies in the industry are subject to 
regular inspections and audits by regulatory 
agencies and notified bodies and in some 
cases remediation activities have and will 
continue to require significant financial and 
resource investment see ‘legal proceedings’ 
on page 146
dependence on government 
and other funding
in most markets throughout the world 
expenditure on medical devices is ultimately 
controlled to a large extent by governments 
funds may be made available or withdrawn 
from healthcare budgets as a result of 
government policy we are therefore 
largely dependent on future governments 
providing increased funds commensurate 
with the increased demand arising from 
demographic trends
pricing of our products is largely influenced 
in most developed markets by governmental 
reimbursement authorities initiatives 
sponsored by government agencies 
legislative bodies and the private sector to 
limit the growth of healthcare costs including 
price regulation excise taxes and competitive 
pricing are ongoing in markets where we 
operate this control may be exercised by 
determining prices for an individual product 
or for an entire procedure we are exposed to 
changes in reimbursement policy tax policy 
and pricing which may have an adverse 
impact on revenue and operating profit there 
may be an increased risk of adverse changes 
to government funding policies arising 
from the deterioration in macroeconomic 
conditions in some of our markets
competitors
competition exists among healthcare 
providers to gain patients on the basis of 
quality service and price providers are under 
pressure to reduce the total cost of healthcare 
delivery in order to achieve this there has 
been some consolidation in our customer 
base as well as amongst our competitors 
and these trends are expected to continue 
in the long term we compete against both 
local and multinational corporations including 
some with greater financial marketing and 
other resources
manufacturing facility in suzhou china
19 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
our marketplace continued
smith  nephew estimates that the global 
orthopaedic reconstruction segment is worth 
approximately 14 billion and increased by 
approximately 3 in 2014 competitors in the 
orthopaedic reconstruction segment include 
biomet depuy synthes a division of johnson 
 johnson stryker and zimmer
smith  nephew estimates that the global 
orthopaedic trauma segment is worth 
approximately 5 billion and grew by 
approximately 6 in 2014 competitors in the 
orthopaedic trauma segment include biomet 
depuy synthes stryker and zimmer
smith  nephew estimates that the global 
sports medicine segment representing 
access resection and repair products is 
worth approximately 5 billion and grew by 
approximately 8 in 2014 competitors in the 
sports medicine segment include arthrex 
conmed depuy mitek a division of johnson 
 johnson and stryker
smith  nephew estimates that the global 
wound management segment is worth 
approximately 7 billion and grew by 4 
in 2014 global competitors vary across 
our product areas and geographies and 
include acelity coloplast convatec 3m 
and molnlycke
customers
in certain parts of the world including the 
uk much of continental europe canada 
and japan the healthcare providers are 
largely government organisations funded 
by tax revenues in the us our major 
customers are public and private hospitals 
which receive revenue from private health 
insurance and government reimbursement 
programmes medicare is the major source 
of reimbursement in the us for knee and hip 
reconstruction procedures and for wound 
treatment regimes in the emerging markets 
demand is driven by selfpay patients
seasonality
orthopaedic and sports medicine procedures 
tend to be higher in the winter months when 
accidents and sports related injuries are 
highest conversely elective procedures tend 
to slow down in the summer months due 
to holidays
due to the nature of our product range there 
is little seasonal impact on the advanced 
wound management business
market segment and leadership
data 2014 estimates generated by  
smith  nephew based upon public  
sources and internal analysis
  representing access resection and 
repair products
 a division of johnson  johnson
biomet
4
arthrex
29
depuy mitek
15
stryker
11
smith  nephew
24
linvatec
5
other
12
5bn
8
sports medicine
acelity
20
molnlycke
13
convatec
8
smith  nephew
19
coloplast
4
other
36
7bn
4
advanced wound management
depuy 
synthes
47
smith  nephew
10
biomet
6
stryker
23
zimmer
6
other
8
5bn
6
trauma  extremities
other
14
zimmer
23
stryker
19
biomet
12
depuy 
synthes
21
smith  nephew
11
hip  knee implants
14bn
3
smith  nephew annual report 2014 20 strategic report
our business
delivering advanced 
medical technologies
smith  nephew’s business model set out 
on page 12 supports our mission to deliver 
advanced medical technologies to help 
healthcare professionals our customers 
improve the quality of life for their patients
through it we create value this value  
creation process is actioned through five 
streams of activity 
– research  development 
– ethics  compliance 
– manufacturing
– medical education 
– sales  marketing 
our business model is underpinned by our 
capital allocation framework this enables 
us to invest for the future both in organic 
growth and through acquisitions whilst also 
generating value for shareholders today 
through a progressive dividend policy and 
commitment to return any excess capital
research and development
we have a deep knowledge of the needs 
of surgeons physicians and nurses we 
understand the economic pressures 
healthcare payers work under and we 
recognise that patients are demanding better 
treatment options to restore quality of life
these factors inform our research and 
development ‘rd’ strategy which is at the 
heart of our business model
in 2014 we launched many exciting products 
including a cruciate retaining version of our 
journey ii naturalmotion knee a firstof
itskind dyonics plan surgical planning 
tool for hip arthroscopy and the hattrick 
lesser toe repair system we have a strong 
new product pipeline for 2015 with many 
innovations scheduled 
these new products and many more 
currently in development are a result of our 
focus on rd we invested 235 million in 
this area in 2014 inline with our commitment 
stated in 2011 to increase our investment  
level to around 5 of revenue 
we are highly disciplined in project selection 
our rd experts in the uk us europe china 
and india have extensive customer and sector 
knowledge which is augmented by ongoing 
interaction with our marketing teams 
strict criteria are applied to ensure new 
products fulfil an unmet clinical need 
have a strong commercial case and are 
technologically feasible our rd teams also 
work closely with manufacturing and supply 
chain management to ensure we can produce 
new products to clinical cost and time 
specification our products undergo clinical 
and health economic assessment both  
during their development and post launch
open innovation
as part of our rd strategy smith  nephew 
supports and works with numerous small 
companies looking for help with developing 
and commercialising new technologies 
we scout globally for new technologies and 
services to meet the needs of our customers
we are a primary sponsor of the 
massachusetts medical device development 
center ‘m2d2’ new venture competition 
supporting entrepreneurial product 
development by earlystage medical device 
companies we also work with masschallenge 
a global startup competition and accelerator 
programme to support emerging companies 
that fit with our strategic areas of interest
helping healthcare  
professionals 
improve quality  
of life
suturefix ultra 
by investing in rd smith  nephew continues 
pioneering hip and shoulder repair launching the 
new suturefix ultra allsuture based soft anchor
21 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
our business continued
we continued in 2014 as the commercial 
partner in swanicare an eufunded 
initiative to bring multidisciplinary european 
research teams together to deliver a next 
generation integrated autonomous solution 
for monitoring and adapting personalised 
therapy of foot and leg ulcers
smith  nephew also welcomes new  
product concepts from surgeons through  
our inventures programme we collaborate 
to bring ideas to reality inventures evaluates 
surgeon concepts for technical and market 
viability and our development team works 
handinhand with surgeons to deliver 
new products that advance healing 
commercialised products benefit from  
the global selling power of smith  nephew
in addition smith  nephew invests in 
early stage technologies relevant to our 
business recent examples include ukbased 
michelson diagnostics that is developing a 
pointofcare tissueimaging system that for 
the first time allows users to see below the 
surface of the skin and an incubator fund 
investing in orthopaedic technologies close 
to commercial launch
we continue to scout for further opportunities 
where we can access new disruptive 
technologies in our areas of specialism  
these investments are typically in technologies 
that are not yet ready for acquisition but that 
we believe hold great promise as well as 
funding we may bring rd management and 
manufacturing expertise and gain privileged 
access to or rights to the technology we aim 
to accelerate the journey to market and may 
ultimately acquire the business
intellectual property
we protect the results of our research and 
development through patents and other  
forms of intellectual property the group’s 
patent portfolio currently includes in excess  
of 5000 patents and patent applications 
patent protection for our products is sought 
routinely in our principal markets
we also have a policy of protecting our 
products by registering trademarks under  
the local laws of markets in which such 
products are sold we vigorously protect  
our trademarks against infringement
in addition to protecting our market position  
by filing and enforcing patents and trademarks 
we may oppose third party patents and 
trademark filings where appropriate in 
those areas that might conflict with our 
business interests
in the ordinary course of business we enter 
into a number of licensing arrangements 
with respect to our products none of these 
arrangements individually is considered 
material to our current operations and 
financial results
ethics and compliance
code of conduct and 
business principles
smith  nephew earns trust with patients 
customers healthcare professionals authorities 
and the public by acting in an honest and fair 
manner in all aspects of its operations 
we expect the same from those with whom 
we do business including distributors and 
independent agents that sell our products 
our code of conduct and business principles 
‘code’ governs the way we operate to 
achieve these objectives
smith  nephew takes into account ethical 
social environmental legal and financial 
considerations as part of its operating 
methods we have a robust whistleblowing 
system in all jurisdictions in which smith 
 nephew operates we are committed to 
upholding our promise in our code that we 
will not retaliate against anyone who makes  
a report in good faith 
new employees receive training on our code 
and we assign annual compliance training to 
employees in 2014 we updated our code 
training the new module is more interactive 
rolebased and allows individuals to apply the 
code in different scenarios individuals can 
earn ‘trust points’ and ‘achievement badges’  
if they make the right choices in the scenarios 
individuals who show an understanding of 
the code by selecting the right behaviour 
in a scenario can move through the module 
more quickly than individuals who choose 
the incorrect behaviour and are then subject 
to remediation 
global compliance programme
smith  nephew has implemented what we 
believe is a worldclass global compliance 
programme that helps our businesses comply 
with laws and regulations our comprehensive 
compliance programme includes global 
policies and procedures onboarding and 
annual training for employees and managers 
monitoring and auditing processes and 
reporting channels 
through a global intranet website we provide 
resources and tools to guide employees to 
make decisions that comply with the law and 
our code and earn trust we conduct advance 
review and approval for significant interactions 
with healthcare professionals or government 
officials we regularly assess existing and 
emerging risks in the countries in which 
we operate 
managing directors complete an annual 
certification to the ceo to confirm 
implementation of required programmes 
managers and employees make an annual 
compliance certification and executive 
management managers and employees 
have a compliance performance objective 
customised to their level in the organisation 
in 2014 we developed and piloted a facetoface 
course for new managers which supplements 
the online manager certification training  
in 2015 all new managers will be required  
to complete both the online and the faceto
face course
new distributors and other higher risk third 
parties are subject to screening and are 
contractually obligated to comply with applicable 
laws and our code their management is 
required to take compliance training and 
certify that they will ensure their employees 
and agents comply with the law and our 
code they also receive a cdrom with tools 
to assist them with their own compliance 
programmes we have expanded our oversight 
of independent agents and distributors with  
onsite assessments to check compliance 
controls and monitoring visits to review a sample 
of transactions from their books and records 
in 2014 smith  nephew filed its first report in 
compliance with the us physician payments 
sunshine act which comprised over 
22000 transactions with nearly 18 million 
in payments and expenses to reportable 
individuals and entities
in early 2015 smith  nephew submitted 
the final report to the us department of 
justice ‘doj’ and the us securities and 
exchange commission ‘sec’ required under 
the company’s foreign corrupt practices 
act settlement agreement we also filed our 
first report under the deferred prosecution 
agreement we inherited with the arthrocare 
acquisition see note 17 3 of the notes to the 
group accounts
smith  nephew annual report 2014 22 manufacturing
we operate manufacturing facilities in a 
number of countries across the globe and 
a number of central distribution facilities in 
key geographical areas in which we operate 
products are shipped to individual country 
locations which hold small amounts of 
inventory locally for immediate supply to  
meet customer requirements we have a 
defined manufacturing and facility footprint 
plan inline with our commercial strategy 
which we review on a regular basis 
we continue to implement improved 
processes such as ‘lean manufacturing’ 
throughout our factories the global supply 
chain and the supporting operations to 
improve and sustain the levels of safety 
quality delivery productivity and efficiency 
we have numerous core competences 
including materials technology precision 
machining high volume and automated 
manufacturing for both our advanced 
surgical devices and advanced wound 
management products
we procure raw materials components 
finished products and packaging materials 
from key suppliers these purchases include 
metal forgings and stampings for orthopaedic 
products optical and electronic sub
components for sports medicine products 
active ingredients and semifinished 
goods for advanced wound management 
as well as packaging materials across all 
product ranges
suppliers are selected and standardised 
contracts negotiated by a centralised 
procurement team wherever possible with  
a view to ensure value for money based  
on the total spend across the group 
we outsource certain parts of our manufacturing 
processes where necessary to obtain 
specialised expertise or gain lower cost 
without undue risk to our intellectual property 
suppliers of outsourced products and services 
are selected based on their ability to deliver 
products and services to our specification and 
adhere to and maintain an appropriate quality 
system our specialist teams work with and 
monitor suppliers through onsite assessments 
and performance audits to ensure the required 
levels of quality service and delivery
our largest manufacturing operation for 
advanced surgical devices is based in 
memphis tennessee us with additional 
production and assembly plants based in 
mansfield massachusetts us oklahoma 
city oklahoma us austin texas us  
aarau switzerland tuttlingen germany 
beijing china calgary canada  
warwick uk heredia costa rica and 
sangameshwar india
the memphis facilities produce key products 
and instrumentation in our knee implants 
hip implant and trauma franchises these 
include the journey ii and legion
◊
 knees 
the anthology
◊
 primary hip system and 
key trauma products such as the periloc
◊
 
ankle fusion plating system and trigen
◊
 
intramedullary nails in addition to this 
memphis is the home to the design and 
manufacturing process of the visionaire 
patient matched instrumentation sets 
the mansfield facility focuses on sports 
medicine related products for minimally 
invasive surgery including the fast fix
◊
 
360 meniscal repair system footprint
◊
 pk 
suture anchor dyonics platinum shaver 
blades endobutton
◊
 cl ultra and the 
healicoil
◊
 pk suture anchor
the aarau tuttlingen beijing and warwick 
facilities produce a large number of products 
including key trauma products the plus
◊
 
knee and hip range and the birmingham
◊
 
hip resurfacing system the facility in 
oklahoma city deals mainly with the 
assembly of surgical digital equipment such 
as hd560
◊
 camera 
we operate three main holding warehouses 
one in each of memphis tennessee us 
baar switzerland and singapore these 
facilities consolidate and ship to local country 
and distributor facilities
the advanced wound management 
manufacturing is primarily managed from 
our factory and offices in hull uk wound 
management products are also made at our 
facilities in suzhou china curaçao dutch 
caribbean alberta canada and oklahoma 
city oklahoma us 
the products made at the hull site cover 
the therapies of exudate management 
foam products – principally allevyn
◊
 
burns treatment acticoat
◊
 and wound 
closure opsite
◊
 film products several 
products produced in hull such as jelonet
◊
 
and bactigras
◊
 transitioned to suzhou 
in 2014 as part of our global footprint 
optimisation programme
high quality manufacturing 
an employee at our manufacturing plant in 
tuttlingen germany working on a polished 
cementless hip stem
23 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information a key base material used in the production of a 
large number of dressings is the intermediate 
bulk rolls of film which are manufactured in the 
gilberdyke uk facility the facility in alberta 
canada provides specific expertise in the 
addition of silver coatings onto the acticoat 
burns range prior to shipping to hull for the final 
conversion process into finished dressings 
the facility in gilberdyke uk was sold in 2014 
and will continue to supply sub components to 
other facilities until 2016 the processes at the 
alberta facility are being transferred to the  
hull site during 2015
the suzhou facility opened in 2009 initially 
to manufacture some foam products within 
exudate management it has since expanded 
to take on production of some film wound 
closure products
the majority of the npwt components are 
bought in from third parties and assembled 
in the advanced surgical devices oklahoma 
city facility with the exception of the  
dressings used for the pico product  
which are manufactured in hull
manufacturing for advanced wound bioactives 
takes place in curaçao and at various third party 
facilities in the us the products are distributed 
from a third party logistics facility in san antonio 
t exas us advanced wound bioactives has 
facilities for the development and possible 
production of cell based therapies in fort worth 
texas us
advanced wound management distribution 
hubs are located in neunkirchen germany 
and derby uk for international distribution 
bedford uk for uk domestic distribution  
and lawrenceville georgia us for 
us distribution
medical education
smith  nephew is dedicated to helping 
healthcare professionals improve the quality 
of care for patients we are proud to support 
the professional development of surgeons 
and nurses by providing them with medical 
education and training on our advanced 
surgical devices and advanced wound 
management products
every year thousands of customers attend  
our stateoftheart training centres in the  
us uk and china and smith  nephew 
courses at multiple hospitals and facilities 
around the world
in 2014 we provided training to more than 
25000 surgeons working under expert 
guidance attendees refine techniques 
and learn new skills whilst experiencing 
the safe and effective use of our products 
we also support healthcare professionals 
through our online resources such as 
the global wound academy the wound 
institute and for surgeons our education and 
evidence website
sales and marketing
our customers are the providers of medical 
and surgical treatments and services in over 
100 countries worldwide
the largest single customer worldwide is 
a purchasing group based in the uk that 
represented less than 5 of our worldwide 
revenue in 2014
in our established markets our advanced 
surgical devices are principally shipped and 
invoiced directly to healthcare providers hospitals 
and other healthcare facilities certain advanced 
wound management products are shipped and 
invoiced to wholesale distributors and others are 
consigned to distributors that lease the devices 
to healthcare providers hospitals and other 
healthcare facilities and endusers
our us sales forces consist of a mixture of 
independent contract workers and employees 
sales agents are contractually prohibited 
from selling products that compete with our 
products in most other established markets 
countryspecific commercial organisations 
manage employee sales forces directly
in our emerging  international markets we 
operate through direct selling and marketing 
operations and through distributors in these 
markets our advanced surgical devices 
franchises frequently share sales resources 
the advanced wound management sales 
force may be separate where it calls on 
different customers
strategic report
our business continued
opsite postop visible 
a waterproof bacteriaproof dressing with 
seethrough absorbant pad unique design allows 
continual monitoring of the incision site without the 
need to disrupt the healing process
smith  nephew annual report 2014 24 our people
smith  nephew is committed to attracting 
engaging developing and retaining employees 
in 2014 we had more than 14000 employees 
dedicated to our core values of innovation 
t rust and performance these values represent 
the foundation of our culture and underpin our 
commitment to be an employer of choice as 
well as a responsible corporate citizen
investing in our people and communities 
helps ensure the longterm sustainability 
of our business smith  nephew strives 
to create a more engaged and productive 
workforce and focuses on measures to drive 
employee engagement these include an 
understanding of the group’s mission and 
direction sense of employee involvement 
focus and adaptability to customers and 
market place we continue to listen to our 
employees via regular surveys and focus 
groups and we value their opinions in 2014 
we conducted a global employee survey to 
measure progress against our actions and 
were named great place to work in spain
attracting the best talent and developing 
and engaging our employees are critical 
to achieving and sustaining our business 
objectives and overall performance employee 
advancement is meritbased based on 
performance as well as demonstration of core 
competencies which include our core values 
with an emphasis on ethics and integrity we 
prioritise the development and promotion of 
our existing employees whenever possible
each year smith  nephew conducts a 
comprehensive global development and 
capability review process to identify high
potential employees and ensure they have 
robust career development plans talented 
employees are provided with opportunities 
to develop their skills and career through new 
assignments and on the job experiences 
current programmes include our chief 
executive officer ceo forum – where small 
groups of high potential and emerging talent 
are given the opportunity to learn more 
about the business from the company’s 
most senior leaders and to benefit from peer 
mentorship – and the annual managing 
director’s meeting where country and 
regional commercial leaders begin the year in 
alignment with the group’s strategy and goals 
in addition the board reviews succession 
plans for key executive roles and succession 
plans are in place for critical positions across 
our business
our performance management process 
ensures all employees set objectives which 
align to our overall business goals and have 
clear lineofsight to how their individual 
contributions benefit the company our 
performance management system assesses 
and rewards both performance and behaviour  
in line with our code of conduct all employees 
have a specific annual objective to adhere to 
the code of conduct and to complete training 
and certify their adherence to this code
smith  nephew strives to create a highly 
engaged and productive workforce we foster 
this goal with targeted initiatives to ensure 
understanding of the company’s mission and 
direction encourage employee involvement 
and ensure focus and adaptability to our 
customers and market place we seek 
employee feedback via regular surveys and 
focus groups and we act on this feedback in 
the spirit of continuous improvement
diversity at smith  nephew
smith  nephew believes that diversity fuels 
innovation we are committed to employment 
practices based on equality of opportunity 
regardless of colour creed race national 
origin sex age marital status sexual 
orientation or mental or physical disability 
unrelated to the ability of the person to 
perform the essential functions of the job
smith  nephew has a human resource 
global standard for diversity and inclusion in 
the workplace and is committed to creating 
an inclusive environment that embraces and 
promotes diversity 
the board and executive officers continue 
to recognise the importance of diversity and 
over the last two years have expanded their 
own diversity profile three of our ten board 
members are female 
on 31 december 2014 smith  nephew had 
the following breakdown of employees 
number of employees
 1
board of 
directors
male 7
female 3
total 10
senior managers and above
2
male 562
female 168
total 730
total employees
male 8485
female 5757
total 14242
1 number of employees as at 31 december 2014 
including part time employees and employees on leave 
of absence
2 senior managers and above includes all employees 
classed as directors senior directors vice presidents 
and executive officers and includes all statutory 
directors of our subsidiary companies
we aim to provide an open challenging 
productive and participative environment 
based on constructive relationships 
we maintain open and transparent 
communication with employees through 
regular and timely information and 
consultation we clearly communicate our 
business goals and performance standards 
and provide the training information and 
authority needed to achieve them we 
provide fair recognition and reward based 
on performance our annual ceo award 
open to all employees worldwide recognises 
employees who deliver exceptional results 
in line with our core values encouraging 
innovation and a spirit of continuous 
improvement at all levels we are committed 
to working with employees to develop 
each individual’s talents skills and abilities 
we provide encouragement to learn and 
continuously improve we recruit employ 
and promote employees on the sole basis 
of the qualifications and abilities needed for 
the work to be performed we do not tolerate 
discrimination on any grounds and provide 
equal opportunity based on merit
we are committed to building diversity in a 
working environment where there is mutual 
trust and respect and where everyone 
feels responsible for the performance and 
reputation of our company we are committed 
to providing healthy and safe working 
conditions for all employees we achieve 
this by ensuring that health and safety and 
the working environment are managed as 
an integral part of the business and we 
recognise employee involvement as a key part 
of that process
we do not use any form of forced compulsory 
or child labour we support the universal 
declaration of human rights of the united 
nations this means we respect the human 
rights dignity and privacy of the individual 
and the right of employees to freedom of 
association freedom of expression and the 
right to be heard
25 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
segment performance advanced surgical devices
advanced  
surgical devices
1  the underlying percentage increasesdecreases are after adjusting for the effect of currency translation and the inclusion of the comparative impact of acquisitions
2	 explanation	of	these	nongaap	financial	measures	are	provided	on	pages	176	to	179
revenue split by franchise area 
manufacturing sites
–	 	 us	and	canada	memphis	tn	mansfield	ma		oklahoma	city	ok	
austin tx and calgary – canada
– europe aarau – switzerland tuttlingen – germany
–	 uk	leamington	spa	warwick
– other beijing – china heredia – costa rica sangameshwar – india
service centres
–	 	 us	uk	germany	japan	and	australia
franchise areas
–	 	 orthopaedic	reconstruction	knee	implants	and	hip	implants
– trauma  extremities
–	 sports	medicine	joint	repair
–	 arthroscopic	enabling	technologies	‘aet’
– other asd
3
3298m
3050
3251
3108
3015
3298
revenue
1 
2014 2013 2012 2011 2010
626m
700
630
632
620
626
operating proﬁt
2014 2013 2012 2011 2010
100bps
246
241
246
219
234
236
trading proﬁt margin
2
2014 2013 2012 2011 2010
810m
736
714
728
712
810
trading proﬁt
2 
2014 2013 2012 2011 2010
2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
1 2 4 8 1 10
revenue by franchise area
1 
m
hips knees trauma  
extremities
sports medicine
joint repair
aet other asd
orthopaedic reconstruction sports medicine
653
654
865
873
486
506
496
576
441
542
74
147
other asd
4
sports medicine
34
trauma
extremities
15
orthopaedic
reconstruction
47
hip
20
knee
27
aet
16
sports medicine
joint repair
18
3298m
26 smith  nephew annual report 2014 orthopaedic reconstruction
smith  nephew offers a range of specialist 
products for orthopaedic reconstruction in its 
knee	implants	and	hip	implants	franchises
implant bearing surfaces such as the 
proprietary oxinium
◊
 oxidized zirconium 
continue to be a point of differentiation for 
smith  nephew oxinium technology 
combines the enhanced wear resistance of a 
ceramic bearing with the superior toughness  
of	a	metallic	bearing	when	combined	with	
highly	crosslinked	polyethylene	‘xlpe’	it	
results	in	our	proprietary	verilast	technology	
in hip implants the combination of a 
ceramicised metal head and a highly cross
linked	polyethylene	lined	cup	have	been	shown	
in various national joint replacement registries 
to have displayed best in class survivorship 
rates when compared to implants made 
from	any	other	materials	in	knee	implants	
the	legion	primary	knee	with	verilast	
technology	is	the	only	knee	implant	that	
has been laboratorytested to 30years of 
simulated	wear	while	lab	testing	is	not	the	
same as clinical performance the tests showed 
significant	reduction	in	wear	compared	to	
conventional technologies
knee implants
smith  nephew offers a range of products for 
specialised	knee	procedures	in	2014	smith	
	nephew	launched	the	journey	ii	cruciate	
retaining	‘cr’	knee	implant	extending	the	
journey	ii	active	knee	system	to	procedures	
that preserve the posterior cruciate ligament 
‘pcl’	which	account	for	approximately	half	of	
all	knee	replacement	procedures
the	legiongenesis
◊
	ii	total	knee	system	
is a comprehensive system designed to allow 
surgeons	to	address	a	wide	range	of	knee	
procedures from primary to revision
these	systems	also	feature	verilast	
technology our advanced bearing 
surface and also utilise visionaire 
patientmatched instrumentation
with	visionaire	instrumentation	a	patient’s	
mri and xrays are used to create customised 
cutting	blocks	that	allow	the	surgeon	to	achieve	
optimal mechanical axis alignment of the 
new implant in addition visionaire also 
helps save time by reducing the number of 
procedural steps and instruments used in the 
operating room
in 2014 smith  nephew entered into 
a commercial agreement with blue belt 
technologies	‘bbt’	makers	of	the	navio
®
 
orthopaedic surgical system the next 
generation of orthopaedic robotic surgical 
navigation under this agreement surgeons 
using the navio system will be able to implant 
smith		nephew’s	journey	uni	partial	knee	
we	also	announced	an	agreement	with	
orthosensor the leader in intelligent 
orthopaedics that will enable surgeons to 
benefit	from	orthosensor’s	verasense
tm
 
sensor assisted surgery technology for 
soft tissue balancing when implanting our 
journey	ii	and	legion	total	knee	systems	
verasense utilises advanced sensor 
technologies to enable evidencebased 
surgical decisions regarding component 
position limb alignment and soft tissue 
balance to optimise outcomes in total 
knee	replacement
hip implants
for hip implants core systems include the 
anthology	hip	system	synergy
◊
 hip 
system the smf
◊
 short modular femoral 
hip system the r3
◊
 acetabular system the 
polarcup
◊
 dual mobility hip system and the 
slplus
◊
 hip family system
in	2014	we	introduced	the	polarstem
◊
 
ha cementless stem system in the us 
for stateoftheart minimally invasive 
surgical techniques that preserve bone 
and soft tissue with good functionality 
and reproducible	results
overview
in advanced surgical devices 
‘asd’	we	develop	manufacture	
and sell products in the areas 
of orthopaedic reconstruction 
trauma  extremities sports 
medicine	joint	repair 	arthroscopic	
enabling technologies and  
others such as gynaecology  
and ear  nose and throat
endobutton cl ultra 10mm 
with	our	shortest	continuous	loop	of	suture	the	
10mm	fixation	device	is	designed	specifically	for	
shorter femoral tunnels used in the popular 
anatomic	method	for	acl	reconstruction
27 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information for	us	patients	our	successful	verilast	
knee	consumer	campaign	was	expanded	
to	include	hips	in	2014	thanks	to	the	
combination of a wellestablished brand a 
compelling calltoaction and our position as 
the	first	company	to	advertise	differentiating	
technology to this audience we were able 
to	mirror	the	successes	of	our	earlier	knee	
campaigns by driving potential patients to our 
consumerfacing	rediscoveryourgo	website	
and its surgeon locator
trauma  extremities
our trauma  extremities franchises offer 
both	internal	and	external	fixation	and	tissue	
repair devices as well as other products used 
in the stabilisation of severe fractures and 
deformity correction procedures
for extremities and limb restoration the 
franchise	offers	the	taylor	spatial	frame
◊
 
circular fixation system as well as a range of 
plates screws arthroscopes instrumentation 
resection and suture anchor products for 
orthopaedic surgeons including foot and 
ankle	hand	and	wrist	and	trauma	surgeons	
for	trauma	the	principal	internal	fixation	
products are the trigen
◊
 family of im nails 
trigen	metanail	system	trigen	humeral	
nail system trigen sureshot
◊
 and trigen 
intertan
◊
	and	the	periloc
◊
 plating system 
2014 saw the introduction of the drad
◊
 
smart	pack	system	for	treating	distal	radius	
fractures the new system – which includes 
complete	sterile	singleuse	instrument	kits	
with	implants	and	a	tray	of	sterile	packaged	
fasteners and templates – allows hospital 
operating room staff to reduce the typical 
time and expense involved with reprocessing 
traditional plate and screw systems
in wrist repair we introduced a new solution 
for	triangular	fibrocartilage	‘tfcc’	a	complex	
repair that leverages our fastfix
◊
	360	
technology and provides an all arthroscopic 
repair	which	eliminates	knot	stack
smith  nephew also announced its entry into 
the	forefoot	market	in	2014	with	the	launch	
of	the	hattrick	lesser	toe	repair	system	
comprised of three separate repair options 
the	hattrick	system	includes	products	for	
metatarsophalangeal	‘mtp’	ligament	repair	
and reconstruction a metatarsal osteotomy 
guide	and	a	revisable	allpeek	implant	for	
proximal	interphalanges	‘pip’	fusion	also	
known	as	hammertoe	correction	
in hip repair we introduced intertan
◊
 
gold instrumentation that is designed to 
streamline the surgical steps and improve 
clinical	outcomes	by	offering	a	more	efficiently	
designed set in addition the intertan 10s 
was launched to meet the unique needs of 
smallerstature patients by offering a more 
appropriate size for this population
we	launched	the	evos
◊
 mini plating system 
for use in complex fractures of the long bones 
of	the	arms	and	legs	designed	specifically	for	
traumatologists	this	longbonespecific	system	
includes	the	variety	of	mini	flat	plates	and	
screw sizes necessary to address both fracture 
reduction	and	shortterm	fixation	while	the	
final	loadbearing	repair	is being	completed
sports	medicine	joint	repair
the	sports	medicine	joint	repair	franchise	
offers surgeons a broad array of instruments 
technologies and implants necessary to 
perform minimally invasive surgery of the 
joints	including	knee	hip	and	shoulder	repair
our global position within the sports medicine 
joint	repair	market	was	strengthened	
significantly	in	2014	with	the	may	acquisition	
of arthrocare corporation the transaction 
adds technology and highly complementary 
products to our existing portfolio including 
new shoulder anchor innovation
in 2014 smith  nephew launched its 
suturefix
◊
 ultra soft suture anchor for hip 
and shoulder labral repair to surgeons in the 
us	the	new	anchor’s	small	soft	construct	
and superior pullout strength allow surgeons 
to	more	precisely	place	fixation	points	around	
the joint to more accurately reapproximate the 
patient’s	native	anatomy	
2014 also saw the launch of the n8tive
◊
 
acl anterior	cruciate	ligament	system	which	
helps	surgeons	create	highly	anatomic	acl	
reconstructions n8tive allows surgeons to 
restore the size shape and location of the 
native	femoral	and	tibial	acl	insertion	points
arthroscopic enabling 
technologies	‘aet’
our arthroscopic enabling technologies 
franchise now includes the latest generation 
coblation
◊
	radio	frequency	‘rf’	technology	
acquired from arthrocare as well as 
electromechanical and mechanical blades 
and hand instruments for the removal of 
damaged tissue additionally the franchise 
offers	fluid	management	equipment	for	
surgical	access	and	high	definition	cameras	
digital image capture scopes light sources 
and monitors to assist with visualisation inside 
the joint
key	aet	products	include	dyonics	shaver	
blades acufex
◊
 handheld instruments and 
a wide range of rf probes the arthrocare 
acquisition brought us the latest generation of 
rf technology – the internationally patented 
coblation	technology	–	which	offers	
ablation resection and coagulation of soft 
tissue and hemostasis of blood vessels the 
dyonics	platinum	series	shaver	blades	
are singleuse blades that provide superior 
resection due to their sharpness and virtually 
eliminate clogging through their improved 
debris	evacuation	capabilities	the	dyonics	
plan	hip	impingement	planning	system	was	
launched in 2014 this interactive 3d software 
system uses data from lowdose
1
 ct scans 
to help surgeons visualise assess and plan 
each	patient’s	unique	femoroacetabular	
impingement	‘fai’	surgery	before	they	enter	
the operating room 
other asd
the other asd franchise includes smaller 
businesses such as gynaecology and  
our newly acquired ear nose and throat 
‘ent’	business
the main gynaecology product is the 
truclear
◊
	system	a	firstofitskind	
hysteroscopic tissue removal system 
providing	safe	and	efficient	removal	of	
endometrial	polyps	and	submucosal	fibroids	
the	business	also	sells	a	hysteroscopic	fluid	
management system which provides uterine 
distension and clear visualisation during 
hysteroscopic procedures
our ent business develops manufactures 
and	markets	products	for	the	ent	market	
space	we	offer	a	wide	variety	of	products	
in	this	area	including	our	coblation	
technology and our rapidrhino
◊
 
carboxymethylcellulose	‘cmc’	technology	
which is featured in dissolvable nasal and 
sinus dressings removable nasal and sinus 
dressings and epistaxis treatment products 
1	 lowdose	scan	protocol	reduces	radiation	by	approximately	50	compared	to	standard	ct	protocol	 
ct	protocol	report	hips	document	number	15001984	2013	data	on	file	at	smith		nephew
smith  nephew annual report 2014 28
strategic report
segment performance advanced surgical devices continued regulatory approvals
in 2014 regulatory clearancesapprovals 
were	obtained	for	several	key	products	
and instrumentations
in	the	us	510k	clearances	were	given	to	
the drad
◊
	smart	pack	vlp
◊
 minimod 
plates and screws evos minifragment 
plating	system	journey	ii	bcs	constrained	
articular	inserts	biosure	healicoil
◊
	pk	
screw cannulated captured screw n8tive 
acl	anatomic	reconstruction	system	and	
nasastent
◊
 cmc nasal dressing additional 
510k	clearances	were	also	granted	for	our	
visionaire software revisions as well as 
the qfix
◊
 suture anchor the multifix
◊
 s 
knotless	fixations	system	and	the topaz
◊
 
ez microdebrider	coblation	wand
in canada approvals were granted for our 
legion	narrow	oxinium	and	cocr	femoral	
components	healicoil	regenesorb
◊
 
suture anchor the suturefix
◊
	ultra	suture	
anchor	tfcc	fastfix	kit	truepass
◊
 
suture	passer	dyonics	plan	ultratape
◊
 
n8tive	acl	reconstruction	system	
biosure	healicoil	pk	screw	kvac
◊
 and 
ambient	kvac	coblation	wands	qfix	
suture anchor system and medient
◊
 
turbinate implant
in	australia	legion	narrow	oxinium	
healicoil	regenesorb	legion	hinge	
knee	system	kvac	coblation	wand	
n8tive	acl	reconstruction	system	
speedlock
◊
	hip	knotless	fixation	system	
multifix	s	knotless	fixation	device	qfix 
suture anchor system ventera
◊
 sinus 
dilation system and serpent
◊
 articulating ent 
instrument were approved
in	latin	america	the	quantum
◊
	2	coblation	
system and the magnum
◊
	2	knotless	
fixation device were approved in argentina 
the speedfix
◊
 suture system and the titan
◊
 
suture anchor were approved in brazil and 
the rapidrhino system was approved 
in mexico
in europe the following products obtained 
regulatory	clearance	healicoil	regensorb	
suture	anchor	vlp	minimod	plates	and	
screws the evos minifragments plates and 
screws	the	legion	hinge	knee	system	and	
the	journey	ii	cr	knee	system
in	japan	the	anthology	ha	coated	hip	
stem smf
◊
 hip stem osteoraptor
◊
 os suture 
anchor	healicoil	regenesorb	suture	
anchor	suturefix	ultra	suture	anchor	
tfcc
◊
	fastfix	kit	osteoraptor
◊
 ha 
curved	truepass	suture	passer	dyonics	
plan	and	ultratape	were	all	approved
other approvals include the speedlock	hip	
knotless	fixation	system	in	singapore	and	 
the ent irrigation pump
◊
	in	korea
verilast technology for hip 
replacement 
the proprietary technology combines 
innovation with longterm performance
29 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information advanced wound
bioactives
24
advanced 
wound devices
15
advanced
wound care
61
1319m
strategic report
segment performance	advanced	wound	management
advanced	wound	 
management
1  the underlying percentage increasesdecreases are after adjusting for the effect of currency translation and the inclusion of the comparative impact of acquisitions
2		 explanation	of	these	nongaap	financial	measures	are	provided	on	pages	176	to	179
revenue split by franchise area  
manufacturing sites
–	 	 us	and	canada	oklahoma	city	ok	fort	worth	tx	calgary–	canada
–	 uk	hull
– china suzhou
– other curaçao
service centres
–	 	 us	uk	germany	japan	and	australia
franchise areas
–	 	 advanced	wound	care
–	 advanced	wound	devices
–	 advanced	wound	bioactives
1
1319m
912
1019
1029
1336
1319
revenue
1 
2014 2013 2012 2011 2010
123m
220
232
214
190
123
operating proﬁt
2014 2013 2012 2011 2010
200bps
186
256
243
231
206
186
trading proﬁt margin
2
2014 2013 2012 2011 2010
245m
233
247
237
275
245
trading proﬁt
2
2014 2013 2012 2011 2010
2013 2014 2013 2014 2013 2014
4 9 15
revenue by franchise area
1 
m
advanced
wound care
advanced
wound devices
advanced
wound bioactives
843
805
213
192
280
322
30 smith  nephew annual report 2014 overview
in	advanced	wound	management	
‘awm’	we	offer	products	from	
initial wound bed preparation 
through to full wound closure 
these products are targeted at 
chronic wounds associated with 
the elderly population such as 
pressure sores and venous leg 
ulcers there are also products 
for the treatment of acute wounds 
such as burns and invasive surgery 
that impact the wider population
the	main	products	within	the	awm	business	
are for management of wound exudate 
treatment and prevention of wound infections 
negative	pressure	wound	therapy	‘npwt’	
and bioactive therapies the portfolio 
is grouped into disposable wound care 
products	advanced	wound	care	electrical	
equipment	for	wound	therapy	advanced	
wound	devices	and	bioactives	advanced	
wound	bioactives	
advanced	wound	care
exudate management
exudate management products focus on 
effectively	and	efficiently	managing	wound	
fluid	and	creating	an	optimal	healing	
environment to promote improved healing 
outcomes	our	key	brands	in	this	space	are	
allevyn	foam	dressings	and	durafiber
◊
 
gelling	fibre	dressings
in 2014 we continued to invest in the 
development and commercialisation of our 
flagship	allevyn	brand	with	significant	sales	
and	marketing	efforts	in	key	countries	the	
allevyn	brand	is	evolving	towards	allevyn	
life	our	latest	innovation	in	foam	dressings	
which was designed to provide a better 
patient experience and greater wear time 
this leads to improved patient outcomes and 
economic savings for payers which has now 
been demonstrated in several studies
we	have	also	experienced	a	significant	
increase	in	the	utilisation	of	allevyn	life	
as a prophylactic measure to help prevent 
pressure	ulcers	driven	by	the	dressing’s	
unique multilayer design which gives it 
superior pressure redistribution properties
throughout 2014 we have continued to invest 
in customer insights and the generation of 
meaningful clinical and health economic 
evidence	to	ensure	that	our	allevyn	portfolio	
is in a sustainable category leading position 
and	delivers	to	our	customers’	expectations	
infection management
awm	has	two	significant	technologies	in	
its infection management portfolio silver 
acticoat	durafiber	ag	and	allevyn	
ag	and	iodine	iodosorb
◊
	the	iodine
based iodosorb product has continued 
to gain interest due to the unique properties 
of the cadexomer iodine molecule and their 
impact	on	biofilms	which	have	become	a	
wellrecognised barrier to healing in wound 
care	iodosorb	benefits	from	one	of	the	
most comprehensive evidence bases in 
wound care
we	are	also	experiencing	strong	interest	
in acticoat particularly in postsurgical 
wounds to prevent the complications 
associated with surgical site infection and 
in delayed	healing	chronic	wounds
other
awm	offers	a	wide	range	of	other	wound	care	
products resulting in smith  nephew having 
one of the most comprehensive ranges of 
wound care solutions in the industry these 
products	include	our	film	and	postoperative	
dressings	skincare	products	and	gels
iv3000
◊
	awm’s	specialist	breathable	premium	
iv	dressing	utilising	realtic
◊
	film	technology	
and unique patterned adhesive continues to 
perform well particularly driven by emerging 
markets	in	2014	the	iv3000	range	benefited	
from several product upgrades reinforcing its 
differentiation as a premium offering success 
in	the	emerging	markets	has	created	an	
opportunity for a midtier offering which  
will	be	introduced	in	2015
allevyn life 
an innovative multilayered dressing designed for 
people living their everyday lives
31 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
segment performance advanced	wound	management	continued
opsite postop visible this is our innovative 
dressing that combines the qualities of a 
premium dressing with the ability to see and 
monitor the incision this unique product 
continues to deliver strong growth in both 
our	established	markets	and	emerging	
	international	markets	supported	by	
investment in clinical evidence
advanced	wound	devices
advanced	wound	devices	consists	of	two	
categories	of	products	npwt	and	versajet
◊

npwt
our	npwt	solutions	include	traditional	npwt	
products	renasys	products	and	the	single
use	portfolio	pico	and	kalypto
◊
	products
we	are	also	progressing	with	launch	plans	for	
our	nextgeneration	traditional	npwt	product
during 2014 we were required to initiate 
a	distribution	hold	in	the	us	on	renasys	
products as the fda indicated new regulatory 
clearances were required in respect of certain 
design	enhancements	we	are	working	to	
obtain	these	and	renasys	remains	available	
outside of the us
the pico system our singleuse canister
free	solution	is	revolutionising	npwt	as	
familiar and easy to use as an advanced 
wound dressing pico provides an active 
intervention to help promote optimal healing 
for early discharge and enhanced outcomes 
in	complex	cases	pico	simplifies	the	delivery	
of	negative	pressure	which	benefits	patients	
and	caregivers	alike
versajet
the	versajet	ii	hydrosurgery	system	is	a	
mechanical debridement device used by 
surgeons to excise and evacuate nonviable 
tissue bacteria and contaminants from 
wounds burns and soft tissue injuries
advanced	wound	bioactives
smith		nephew	is	the	global	market	
share leader in the bioactives segment 
which is the fastest growing category 
of	wound	therapeutics	our	diversified	
biotherapeutic portfolio offers differentiated 
costeffective solutions for tissue repair and 
healing addressing the full spectrum of 
hardtoheal wounds
currently our leading bioactive brand is 
collagenase	santyl
◊
 ointment the only fda
approved biologic enzymatic debriding agent for 
chronic dermal ulcers and severe burns in 2014 
smith		nephew	launched	a new	90g	package	
size to bring convenience and economy to 
providers and patients treating large dermal 
ulcers	and	burns	with	santyl	in	addition	
consistent	with	smith		nephew’s	scientific	
leadership strategy  new clinical data highlighting 
the	benefits	of	using	santyl	adjunctively	with	
sharp debridement was released early in the 
year and was closely followed by initiation of 
a larger  followon study of similar design to 
corroborate	the	initial	findings	
regranex
◊
	gel	is	the	first	and	only	fda	
approved recombinant plateletderived 
growth factor indicated for use as an adjunct 
to good ulcer care in the treatment of lower 
extremity diabetic neuropathic ulcers 
physicians increased their prescribing of 
regranex throughout the year in part due 
to	regranex	360	a	novel	programme	
launched by smith  nephew to help patients 
maximise	the	benefits	of	the	brand	by	
informing about insurance coverage shipping 
the	medication	directly	to	the	patient’s	home	
or	office	and	providing	expert	consultation	on	
how to use the brand appropriately 
collagenase santyl ointment 
the only enzymatic debrider approved by the fda 
for use in the us it selectively removes necrotic 
tissue without harming surrounding healthy tissue
smith  nephew annual report 2014 32 oasis
◊
 a family of naturallyderived 
extracellular matrix replacement products 
indicated for the management of both chronic 
and traumatic wounds completes smith  
nephew’s	bioactive	portfolio
in october 2014 we announced the topline 
results	of	the	phase	3	study	of	hp802247 	
a living cell sprayon therapy designed 
to stimulate healing of venous leg ulcers 
hp802247	did	not	meet	the	primary	
endpoint	in	this	trial	and	we	have	taken	the	
decision to stop the phase 3 programme 
we	remain	committed	to	investing	in	
developing	pioneering	advanced	wound	
bioactive treatments
regulatory approvals
in 2014 regulatory clearance was obtained 
for	both	allevyn	life	and	durafiber	
in	japan	making	the	latest	absorbent	
dressing technologies available to this 
important	market	
pico	our	single	use	npwt	system	was	
approved	for	the	first	time	in	japan	in	
addition	a	significant	enhancement	to	the	
pico product in the form of the new soft port 
dressing and tubing set was approved in the 
eu and australia
other registration activities during the year 
include expanding the geographic footprint 
of established products within the emerging 
markets	and	the	ongoing	expansion	of	 
smith		nephew	medical	suzhou	as	a	new	
supply site for multiple wound care products
acticoat silvercoated antimicrobial dressing 
for use on chronic acute or burn wounds 
acticoat features the unique nanocrystalline 
silcryst	silver
33 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
financial review and principal risks
the group finished 2014 set to 
benefit from the actions and 
investments we have made
advanced surgical devices
revenue split by franchise area 
advanced wound management
1  the underlying percentage increasesdecreases are after adjusting for the effect of currency translation and the inclusion of the comparative impact of acquisitions and execution 
of disposals
2 explanation of these nongaap financial measures are provided on pages 176 to 179
other asd
4
sports medicine
34
trauma
extremities
15
orthopaedic
reconstruction
47
hip
20
knee
27
aet
16
sports medicine
joint repair
18
3298m
2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
1 2 4 8 1 10
revenue by franchise area
1 
m
hips knees trauma  
extremities
sports medicine
joint repair
aet other asd
orthopaedic reconstruction sports medicine
653
654
865
873
486
506
496
576
441
542
74
147
advanced wound
bioactives
24
advanced 
wound devices
15
advanced
wound care
61
1319m
2013 2014 2013 2014 2013 2014
4 9 15
revenue by franchise area
1 
m
advanced
wound care
advanced
wound devices
advanced
wound bioactives
843
805
213
192
280
322
revenue split by franchise area 
smith  nephew annual report 2014 34 revenue by market
the underlying increase in each division’s revenues by market reconciles to reported growth the most directly comparable financial measure 
calculated in accordance with ifrs as follows
2014
 million
2013
 million
reported
growth in
revenue

constant
currency
exchange
effect

acquisition
disposal
effect

underlying
growth in
revenue

advanced surgical devices
us 1558 1391 12 – 10 2
other established markets 1229 1204 2 2 4 –
established markets 2787 2595 7 1 7 1
emerging  international markets 511 420 22 3 8 17
advanced surgical devices 3298 3015 9 1 7 3
advanced wound management
us 454 471 4 – – 4
other established markets 699 722 3 1 – 2
established markets 1153 1193 3 – – 3
emerging  international markets 166 143 16 3 5 14
advanced wound management 1319 1336 1 1 1 1
advanced surgical devices
revenue
asd revenue increased by 283 million 9 on a reported basis 
from 3015 million in 2013 to 3298 million in 2014 the underlying 
increase of 3 is after adjusting for a 7 impact from the acquisition 
of arthrocare corp in may 2014 and a 1 unfavourable foreign 
currency translation
in the us revenue increased by 167 million to 1558 million in 2014 
from 1391 million in 2013 12 on a reported basis the underlying 
increase of 2 is after adjusting 10 for the impact of the arthrocare 
corp acquisition in may 2014 in other established markets 
revenue was 1229 million in 2014 an increase of 25 million from 
1204 million in 2013 2 on a reported basis the underlying 
increase was flat after adjusting for 2 from favourable foreign 
currency translation and the impact of 4 from acquisitions our 
emerging  international markets revenue increased by 91 million 
to 511 million in 2014 from 420 million in 2013 22 increase on a 
reported basis the underlying increase was 17 after adjusting for 
3 for unfavourable foreign currency translation and the impact of 8 
from acquisitions 
in the global knee implant franchise revenue increased by 8 million 
from 865 million in 2013 to 873 million in 2014 1 on a reported 
basis representing a 2 underlying revenue increase after 1 of 
unfavourable currency translation growth has been impacted by 
exposure to a weakening european market with conditions continuing 
to deteriorate in germany our largest european market and our 
position in the product life cycle versus our peers growth improved 
driven by sales of the journey ii bcs knee system
global revenue from the hip implant franchise increased by 1 million 
from 653 million in 2013 to 654 million in 2014 flat on a reported 
basis which represented an underlying revenue increase of 1 after 
1 unfavourable foreign currency translation sales in our verilast  
hip and direct anterior approach portfolio contributed to the increase
trauma  extremities revenue increased by 20 million from 
486 million in 2013 to 506 million in 2014 4 on a reported basis 
representing underlying revenue growth of 4 after adjusting for 
a 1 impact from the acquisition of a brazilian distributor and 1 of 
unfavourable foreign currency translation
sports medicine joint repair revenue increased by 80 million from 
496 million in 2013 to 576 million in 2014 16 on reported basis 
representing underlying revenue growth of 8 after adjusting for 
a 8 impact from the acquisition of arthrocare corp 1 from the 
acquisition of a brazilian distributor and 1 of unfavourable foreign 
currency translation
global revenue from arthroscopic enabling technologies increased 
by 101 million from 441 million in 2013 to 542 million in 2014 23 
on a reported basis this increase represents an underlying revenue 
increase of 1 after adjusting for the 22 impact from the acquisition  
of arthrocare corp 1 from the acquisition of a brazilian distributor  
and 1 of unfavourable foreign currency translation
the revenue in the other asd including gynaecology and ent
franchise increased by 73 million from 74 million in 2013 to 
147 million in 2014 following the acquisition of arthrocare corp in 
2014 excluding the impact of this acquisition underlying revenue in  
the other asd franchise which includes gynaecology grew by 10
35 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
financial review and principal risks continued
trading and operating profit
operating profit the most directly comparable financial measure under 
ifrs reconciles to trading profit as follows
2014
 million
2013
 million
operating profit 626 620
acquisitionrelated costs 107 7
restructuring and rationalisation costs 33 44
amortisation of acquisition intangibles 
and impairments 78 41
legal and other 34 –
trading profit 810 712
trading profit margin increased from 236 to 246 trading profit 
increased by 98 million to 810 million from 712 million in 2013 this 
increase reflects the benefits from our structural efficiency programme
operating profit increased by 6 million from 620 million in 2013 to 
626 million in 2014 this comprises the increase in trading profit of 
98 million discussed above offset by increases in acquisitionrelated 
costs of 100 million and amortisation of acquisition intangibles of 
37 million and partially offset by a decrease in restructuring and 
rationalisation costs of 11 million and credit relating to the us pension 
settlement and closure
advanced wound management
revenue
awm revenue decreased by 17 million 1 on a reported basis from 
1336 million in 2013 to 1319 million in 2014 the underlying decrease 
of 1 is after adjusting for an increase of 1 for acquisitions completed 
in the year and a 1 unfavourable foreign currency translation
in the us revenue decreased by 17 million to 454 million in 2014 
from 471 million in 2013 4 on a reported basis the underlying 
decrease was also 4 in other established markets revenue was 
699 million in 2014 a decrease of 23 million from 722 million in 
2013 3 on a reported basis the underlying revenue decrease 
was 2 with 1 of unfavourable foreign currency translation our 
emerging  international markets revenue increased by 23 million in 
2014 16 on a reported basis the underlying increase was 14 after 
adjusting 2 for unfavourable foreign currency translation
advanced wound care revenue decreased by 38 million 5 on 
a reported basis to 805 million in 2014 from 849 million in 2013 
the underlying decline of 4 is after adjusting for foreign currency 
translation conditions across many european markets remain 
challenging but the introduction of the allevyn life range continues 
to make good progress across europe following product introductions 
and investment in marketing
advance wound devices revenue decreased from 213 million in 2013 
to 192 million in 2014 a reported decrease of 21 million and 10 
the underlying decrease of 9 is after adjusting for unfavourable 
foreign currency translations of 1 this decline was due to the hold of 
renasys in the us due to regulatory issues and competitive pressures 
in traditional canisterbased npwt in europe
advanced wound bioactives revenue increase to 322 million in 
2014 from 280 million in 2013 15 reported growth the underlying 
increase was also 15
trading and operating profit
operating profit the most directly comparable financial measure under 
ifrs reconciles to trading profit as follows
2014
 million
2013
 million
operating profit 123 190
acquisitionrelated costs 11 24
restructuring and rationalisation costs 28 14
amortisation of acquisition intangibles 
and impairments 51 47
legal and other 32 –
trading profit 245 275
trading profit margin decreased from 206 to 186 trading profit 
decreased by 30 million to 245 million from 275 million in 2013  
the decrease in the year is primarily attributable to the renasys hold
operating profit decreased by 67 million from 190 million in 2013 
to 123 million in 2014 this comprises of the decrease in trading 
profit of 30 million discussed above costs relating to the hold on 
renasys and cessation of the hp802 trials amounting 52 million 
offset by a decrease in acquisitionrelated costs of 13 million due 
to the integration of the healthpoint acquisition which completed 
in december 2012 an increase in restructuring and rationalisation 
costs of 14 million and an increase of 4 million in amortisation of 
acquisition intangibles
principal risks and risk management
as an integral part of planning and review group business area and 
functional management seek to identify the significant risks involved 
in the business and to review the risk management action plans for 
those risks the group risk committee which is comprised of the 
chief executive officer and senior executives meets twice a year to 
review the risks identified by the businesses and corporate functions 
and any risk management actions being taken as appropriate the 
risk committee may recategorise risks or require further information 
on the risk management action plans the risk committee reports to 
the board on an annual basis detailing all principal risks in addition 
the board considers risk as part of the development of strategy internal 
audit reviews and the audit committee reports on the effectiveness of 
the operation of the risk management process
there are known and unknown risks and uncertainties relating to  
smith  nephew’s business the following pages provide an overview 
of what the board considers the most significant risks that could cause 
the group’s business financial position and results of operations to 
differ materially and adversely from expected and historical levels and 
how these risks relate to the group’s strategic priorities additional 
detail is set forth under risk factors in the group information section 
of this report in addition other factors not listed here that smith  
nephew cannot presently identify or does not believe to be equally 
significant could also materially adversely affect smith  nephew’s 
business financial position or results of operations
smith  nephew annual report 2014 36 product portfolio development
the medical devices industry has a rapid rate of new product introduction the group must be adept at monitoring the 
landscape for technological advances have an efficient and valuable product development pipeline and secure protection for 
its intellectual property the group may also seek to acquire businesses as part our business strategy to augment the product 
portfolio or business scale in a certain geography
specific risks we face risk management actions possible impacts
– competitors may introduce a disruptive  
technology or obtain patents or other  
intellectual property rights that affect the  
group’s competitive position
– claims by third parties regarding infringement  
of their intellectual property rights
– lack of innovation due to low rd investment  
rd skills gap or poor product development 
execution for established and emerging  
international markets
– failure to receive regulatory approval to  
successfully commercialise a pipeline product
– processes focused on identifying new  
products and potential disruptive technologies 
internal and external
– improved productivity prioritisation and  
allocation of rd funds
– increasing rd investment to enhance clinical 
capability and invest in biomaterials
– strengthen intellectual property rights and  
monitor and defend against infringement
– global strategic marketing programmes 
– support an emerging  international market 
product portfolio
– loss of market share profit  
and longterm growth
link to strategic priority
innovate for value
established markets
emerging  international 
markets
 supplement organic growth 
through acquisitions
 – risk champions arrange business
function reviews and submit updated risk 
register  mitigation plans to chief 
compliance and risk officer ‘ccro’
 – registers contain pertinent risks for each 
unit with mitigation plan
 – group risk committee considers 
submissions and decides which risks  
go into grouplevel risks
 – ccro updates group risk register  
and prepares reports for the audit 
committee and the board of directors 
 – contains risks considered significant at 
group level
 – assigns responsibility for each risk and 
mitigation plan to senior executives
business and 
corporate function 
risk registers
process frequency twice yearly
group risk 
committee 
group risk register
acquisitions and business development
the group may seek to acquire businesses or products as part of our strategy to augment the product portfolio or generate 
business scale in certain geographies these acquisitions must deliver the expected returns and not create significant liability 
exposures or the group may not meet its financial targets
specific risks we may face risk management actions possible impacts
–  ineffective acquisition due diligence 
– inflated forecasts or projections may cause 
overvaluation of transaction 
– lack of timely adoption of group standards 
policies and financial controls during integration 
could create additional liabilities 
– acquisitions in emerging markets may identify 
practices that must be ceased to meet group 
standards
– strong resources and processes to ensure 
rigorous review and integration of acquisitions  
or product  related investments
– mergers  acquisitions council consisting of 
senior executives that reviews acquisitions and 
business development transactions
– board of directors review of all significant 
transactions
– loss of market share profit 
and longterm growth
link to strategic priority
emerging  international 
markets
supplement organic growth 
through acquisitions 
established markets
– detailed compliance due diligence and 
integration reporting processes
 – robust internal audit and group finance controls
 – post acquisition review programme
group risk management process
board oversight
37 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information strategic report
financial review and principal risks continued
government action pricing and reimbursement pressure 
in most markets throughout the world expenditure on medical devices is controlled to a large extent by governments many 
of which are facing increasingly intense budgetary constraints the group is therefore largely dependent on governments 
providing increased funds commensurate with the increased demand arising from demographic trends reimbursement rates 
may be set in response to perceived economic value of the devices based on clinical and other data relating to cost patient 
outcomes and comparative effectiveness political upheaval in the countries where the group operates or surrounding regions 
could adversely affect group operations or turnover
group operations are affected by transactional exchange rate movements the group’s manufacturing cost base is situated in 
the us uk costa rica china and switzerland and finished products are exported worldwide
specific risks we face risk management actions possible impacts
– reduced reimbursement levels and increasing 
pricing pressures
–  reduced demand for elective surgery
–  lack of compelling health economics  
data to support reimbursement requests
–  government policies favouring lower priced and 
locally sourced products
–  political upheavals prevent selling of products 
receiving remittances of profit from a member of 
the group or future investments in that country
–  the group is exposed to fluctuations in exchange 
rates if the manufacturing country currencies 
strengthen against the selling currencies the 
trading margin may be affected
–  economic downturn impacts demand and 
collections
– develop innovative economic product and 
service solutions for both established and 
emerging  international markets ‘syncera’
–  incorporate health economic component into 
design and development of new products
–  enhanced expertise supporting reimbursement 
strategy and guidance
–  optimise cost to serve to protect margins and 
liberate funds for investment
– streamline cost of goods sold stock keeping 
units and inventory management
– the group transacts forward foreign currency 
commitments when firm purchase orders are 
placed to reduce exposure to currency 
fluctuations
– loss of revenue profit and 
cash flows
link to strategic priority
 simplify and improve  
our operating model
established markets
emerging  international 
markets 
business operations and business continuity
unexpected events could disrupt the business by affecting either a key facility or system or a large number of employees the 
business is also reliant on certain key suppliers of raw materials components finished products and packaging materials
the group manages a large product portfolio and a large product inventory sales and operation planning and supply chain 
management must ensure the products needed are available at the right place and time
in a fast changing complex global business high performing talent in key positions is a business critical requirement
specific risks we face risk management actions possible impacts
–  catastrophe could render one of the group’s 
production facilities out of action
–  a significant event could impact key leadership or 
a large number of employees
–  issues with a single source supplier of a key 
component and failure to secure critical supply
–  a severe it fault or cyber crime could disable 
critical systems and cause loss of sensitive data
–  overproduction of product inventory and 
instrument sets may occur due to inadequate 
portfolio planning
–  poor retention of high performing and  
high potential staff could jeopardise  
achieving objectives
–  crisis responsebusiness continuity plans at 
major facilities and for key products and key 
suppliers
–  audit programme for critical suppliers and 
second sources or increased inventories for 
critical components
–  enhanced travel security and protection 
programme
–  it disaster and data recovery plans in place  
to support overall business continuity plans
–  mobile device and cyber security protection plan
–  improved sales and operations processes and 
inventory management with dedicated teams 
and key performance indicators
–  robust talent systems and processes with focus 
on identifying key roles and successors
– loss of revenue profit and 
cash flows
link to strategic priority
simplify and improve  
our operating model 
established markets
emerging  international 
markets
smith  nephew annual report 2014 38 product safety regulation and litigation
national regulatory authorities enforce a complex series of laws and regulations that govern the design development approval 
manufacture labelling marketing and sale of healthcare products they also review data supporting the safety and efficacy of 
such products and may also inspect for compliance with appropriate standards including those relating to quality management 
systems ‘qms’ or good manufacturing practice ‘gmp’ regulations design or manufacturing defects in products could result 
in product recalls and liability claims and impact revenues profits and reputation
specific risks we face risk management actions possible impacts
–  defective products supplied to smith  nephew 
or failure in design or manufacturing process
–  new technology product or processes changed 
by smith  nephew or supplier result in product 
deficiencies
–  failure to implement programmes and supporting 
resources to ensure product quality and 
regulatory compliance
–  failure to manage process and analyse customer 
complaints and adverse event data
– global qara organisation to create a single 
quality management system 
–  standardised group quality management and 
practice
–  monitoring and auditing programmes to assure 
compliance
–  groupwide product complaint and registration 
systems
–  groupwide practices to drive design and 
production line performance and dependability
–  design for manufacture in product development
–  post launch review of product safety and 
complaint data 
– loss of revenue profit and 
reduction in share price
–  negative impact on brand
reputation
link to strategic priority
simplify and improve  
our operating model
established markets
emerging  international 
markets
39 smith  nephew annual report 2014
compliance with laws and ethical behaviour
business practices in the healthcare industry are subject to increasing scrutiny by government authorities the trend in many 
countries is towards increased enforcement activity for bribery and corruption the group is also subject to increased scrutiny 
under us healthcare laws eg false claims act and in the eu for data protection acquisitions and expansion into emerging 
markets may require additional compliance controls
specific risks we face risk management actions possible impacts
–   violation of anticorruption healthcare or  
data privacy laws could result in fines loss of 
reimbursement and harm reputation
–  cultures in certain geographies and in acquired 
businesses may not fully support the group  
value to earn trust
– rapid growth in emerging  international markets 
with increasing numbers of distributors
–  third parties retained by the group may be 
involved in improper activities which result in 
penalties or loss of reputation 
–  failure to conduct adequate due diligence or  
to integrate appropriate internal controls into 
acquired businesses could result in fines and 
impact return on investment
– strong board and executive oversight bodies 
supported by a global office of ethics  compliance
–  code of conductglobal policies and procedures 
‘gpps’ providing guidelines for ethical behaviour 
and controls for significant compliance risks
–  training and eresources to guide employees 
and third parties with ethical and compliance  
responsibilities
–  monitoring and auditing programmes to verify 
implementation
– minimum acceptable financial procedures 
adopted by all businesses wholly owned by  
the group
–  independent reporting channels for employees 
and third parties to report concerns with 
confidentiality
–  robust investigation procedures to ensure 
adequate reviews and documentation with 
significant issues escalated to and monitored by 
legal and compliance heads 
–  controls for significant interactions with health 
care professionals and government officials
–  higher risk third parties including distributors and 
agents subject to screening compliance 
requirements training and oversight processes
–  due diligence reviews and integration plans  
and reporting for acquisitions
–  risk assessments to determine resources and 
controls for higher risk markets
– loss of profit and reduction 
in share price
–  negative impact on brand
reputation
link to strategic priority
simplify and improve  
our operating model
emerging  international 
markets
established markets
strategic report corporate governance financial statements and other information strategic report
sustainability
protecting the future
we care about our customers and helping improve 
people’s lives we also care about the people who 
work for us the environment in which we operate and 
the societies in which we do business addressing 
unmet social need with more affordable products 
gathered pace in 2014 with the introduction of our 
syncera range and further growth and consolidation  
of our midtier products as part of our commitment  
to build trust we increased our engagement with 
suppliers to increase assurance around compliance 
and ethics
this is a summary of our sustainability activities and progress  
in 2014 our sustainability report will be published in april 2015
in 2014 there were no employee or contractor fatalities and our lost  
time injury frequency rate ‘ltifr’ fell again for the fourth successive 
year this time by 20 compared to the previous year total waste  
increased by 13 however waste disposed to landfill fell by 19  
as we found new ways to recycle
energy consumption has increased by 9 since 2011 however after 
adjusting for the transient effect of transferring some production to 
china and the impact of newly acquired businesses there was a net 
fall in energy consumption of 2 
after three consecutive years of increases water consumption reduced 
by 7 in 2014 compared to the previous year
as part of the great place to work strategy substantially more of  
our employees enjoyed the benefits of wellness programmes 
we donated approximately 9 million in philanthropic activities 
of which 2 million was in product donations and charitable gifts 
volunteering programmes were active in most of the territories  
where we work and the benefits to society and the level of 
employee involvement continued to increase
safety
total recordable incident rate tir
2013
2012
091 2014
111
109
2011 116
lost time incident frequency rate ltifr
2013
2012
039 2014
048
051
2011 058
the continuous improvement in safety performance is underpinned by 
committed leadership and a sharp focus on managing risks making 
health and safety a priority for all of our employees and contractors was 
an imperative in 2014 this was supported by the progressive rollout 
of our integrated management system and the wide introduction of 
behavioural based safety programmes
behavioural safety campaign
the ‘don’t drop the ball’ campaign is all about raising 
awareness of safety in the workplace this initiative started 
in our memphis facility and will be ‘rolled’ out across other 
divisions in the coming year employees sign the ball thereby 
pledging to put safety at the forefront of all of their actions  
no team wants to be the one who drops the ball
how this delivers value
–  awareness of safety in the workplace is increased  
in a fun and engaging way
–   employees share a collective responsibility for the safety  
of the entire team
smith  nephew annual report 2014 40 water 
water 1000m
3

2013
2012
2014
2011
752
703
695
672
reducing water consumption continued to be a challenge in 2014 
however there was a reduction of 7 achieved as a result of a 
breakthrough in water consumption at our memphis manufacturing 
facility where 66 of smith  nephew’s water is consumed
waste
total waste t
2013
2012
2014
2011
8301
9368
7740
7211
landﬁll waste t
2013
2012
2014
2011
2662
2168
2826
3401
total waste recycled 
2013
2012
2014
2011
72
63
58
48
the annual increase of 13 in total waste was offset by moving landfill 
waste to recycling or energy recovery a transient increase created 
by commissioning new capacity in china and the oneoff event of 
disposing of waste arising from the hull flood increased the total  
waste by 8 in 2014 we carried out a thorough waste audit in order  
to implement more initiatives to manage and reduce our waste 
energy and co 2
energy gwh
2013
2012
2014
2011
177
194
179
178
energy mwhm
2013
2012
2014
2011
44
44
43
42
the energy increase of 152 gwh 9 since 2011 has been dominated 
by the transient impact of commissioning new manufacturing capacity 
in china accounting for 10 gwh whilst continuing production in the uk 
the effect of recently acquired businesses accounted for 87gwh of 
the increase
the underlying reduction of 35 gwh 2 reflects the implementation 
of efficiency improvements in our manufacturing facilities
transferring manufacturing to china from the uk and acquiring 
capacity in india has resulted in higher emissions factors and increased 
co2 emissions
greenhouse gases
methodology materiality and scope
the data reported relates to areas of largest environmental impact 
including manufacturing sites warehouses research and offices smaller 
locations representing less than 2 of our overall emissions are not 
included acquisitions completed before 2014 are included in the data
all emissions fall within the scope of our consolidated financial 
statement and we have used the greenhouse gas protocol a 
corporate accounting and reporting standard revised edition as 
guidance for this process primary data from energy suppliers has 
been used wherever possible the biotherapeutics and the sushrut 
adler acquisitions are included in the data for 2014 for the first time 
data from the arthrocare acquisition is excluded and is in line with  
our established policy for integration of acquired assets
our emissions have been calculated by using specific emissions 
factors for each country outside the us and regional factors within 
the us we have used the us epa ‘emissions  generation resource 
integrated database’ egrid for us regions and the uk government 
defra conversion factors for greenhouse gas reporting for 
elsewhere the emissions from all years have been recalculated using 
the most uptodate factors available in 2014 fugitive emissions are 
included from the manufacturing and research locations and arise  
from the losses of refrigerant gases
2014 2013 
co2e emissions tonnes from
direct emissions 11213 10152
indirect emissions 74797 68795
total 86010 78947
intensity ratio
co2e t per m revenue 195 194
co2e t per fulltime employee 69 75
revenue data 2014 – 44 billion 2013 – 41 billion
fulltime employee data 2014 – 12437 2013 – 10520
  notes 2013 data adjusted to exclude healthpoint biotherapeutics and 2014 data adjusted to 
exclude arthrocare
by order of the board 25 february 2015
susan swabey 
company secretary
41 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information a pioneering approach
we take a pioneering approach to the design of our products and services 
smith  nephew has a long history of innovation dating back to our 
foundations in the 19th century and in 2014 we again launched many  
new exciting products
securing wide access
we strive to secure wide access to our diverse technologies for more customers 
globally in the emerging markets we have built an entrepreneurial business 
resourced to reach and support an ever greater number of customers in 
delivering affordable healthcare
enabling better outcomes
we seek to enable better outcomes for patients and healthcare systems 
providing high quality products and medical education that improve clinical 
outcomes and enable healthcare professionals to treat more patients faster 
also improving the economic outcome for payers 
we support healthcare professionals 
in their daily efforts to improve the 
lives of their patients through
smith  nephew annual report 2014 42 read examples of our work in the  
following case studies on pages 44–53  
  how we do it
  how we do it
  how we do it
                  a pioneering approach
             enabling better outcomes
           securing wide access
what we do
supporting healthcare 
professionals for  
over 150 years
43 smith  nephew annual report 2014 at the top of 
their game
sports medicine is the treatment of injuries 
to the soft tissues through keyhole surgery – 
typically ligaments tendons and cartilage in 
the joints these injuries can affect anyone 
not just athletes sports medicine helps 
patients recover function as well as minimise 
disability and recovery time
smith  nephew is a global leader in  
sports medicine in 2014 nearly a quarter  
of our revenue came from this area and  
our joint repair business delivered revenue  
growth of 8
it is a 46 billion global market and a  
strong area of focus and opportunity for  
smith  nephew 
we expect to see longterm global  
growth driven by delivering both clinical 
benefits and strong health economics 
repairing injuries today prevents them 
becoming more debilitating as patients get 
older which reduces future demands on 
healthcare systems in the emerging markets 
we are helping to widen access to these 
advanced treatments through delivering 
medical education
sports medicine is a great place to innovate 
we are investing more in rd to improve 
existing treatments and to develop new 
instrumentation to enable surgeons to  
better treat their patients
in 2014 we made a major investment in 
sports medicine acquiring arthrocare 
corporation an innovative medical device 
company with a highly complementary 
sports medicine portfolio this 
strengthened our business and brings 
exciting growth prospects 
in resection the combination of 
arthrocare’s coblation radio frequency 
rf technology and smith  nephew’s 
mechanical blade portfolio gives customers 
greater choice in joint repair arthrocare’s 
shoulder anchor innovation complements 
our strength in knee repair forming an 
extensive integrated portfolio
we expect to benefit from additional revenue 
opportunities from our combined global 
footprint and channel presence as well as 
an enhanced new product pipeline
44 smith  nephew annual report 2014 24
nearly a quarter of smith  nephew revenue 
came from sports medicine in 2014
5bn
global sports medicine market with smith  nephew 
having 24 market share in 2014 see page 20
45 smith  nephew annual report 2014 better by
design
we have a deep knowledge of the needs  
of surgeons and nurses we understand the 
economic pressures healthcare payers work 
under and we recognise that patients are 
demanding better treatment options to  
restore quality of life these factors drive our 
new product development programmes 
in 2014 we launched a number of exciting  
new products expanding our portfolios in  
our established markets and emerging  
international markets 
we also invested 235 million in rd in 
2014 over 5 of revenue and have a strong 
pipeline of innovation to come our experts in 
europe us china and india keep us close to 
our customers and ensure our programmes  
target unmet clinical needs have strong 
financials and are technologically feasible 
they also work closely with manufacturing 
to ensure we can produce new products to 
clinical cost and time specifications
journey ii
the journey ii cruciate retaining cr knee 
replacement extends the journey ii total knee 
system to procedures that preserve the 
posterior cruciate ligament pcl which 
accounts for approximately half of all knee 
replacement procedures the journey ii cr 
knee like the journey ii bicruciate stabilized 
bcs knee that was launched last year sets a 
new standard in knee implant performance by 
restoring more normal motion for patients 
pico
pico smith  nephew’s disposable canister
free negative pressure wound therapy system 
has been named most innovative product  
2014 at the irish medical and surgical trade 
association awards the award was judged  
by a panel of top clinicians health service 
executives and medical companies
hattrick
the hattrick lesser toe repair system is our 
entry into the highgrowth forefoot market 
where we believe there are significant 
opportunities for us to enhance the surgeon 
experience simplify the procedures and 
most importantly improve patient outcomes
evos
evos mini plating system for use in complex 
fractures of the long bones of the arms and legs 
designed specifically for traumatologists this 
longbonespecific system includes the variety 
of mini flat plates and screw sizes necessary to 
address both fracture reduction and shortterm 
fixation while the final loadbearing repair  
is being completed
smith  nephew annual report 2014 46 51
rd expenditure as a  
percentage of group revenue
dyonics plan
the dyonics plan hip impingement 
planning system is a revolutionary  
3d software system that allows surgeons  
to visualise assess and generate a 
comprehensive surgical report for each  
patient’s unique impingement surgery 
before that patient ever enters the 
operating room 
47 smith  nephew annual report 2014 syncera
syncera is a new model for highquality 
primary reconstructive knee and hip implants 
launched by smith  nephew in 2014
syncera optimises the supply chain and 
reduces costs whilst offering our clinically 
proven products a hospital that does  
700 implants a year  over the threeyear 
contract will enjoy a net cash flow benefit  
of well over 4 million
syncera allows us to provide a new group  
of customers with the solution to their unmet 
needs we believe that at least 510 of the 
us market is looking for this type of model
40m
savings from syncera for a hospital doing  
700 procedures per annum over three years
all in a  
day’s work
48 smith  nephew annual report 2014
how a rep supports our customers – japan
smith  nephew’s sales representatives 
are highly trained and skilled individuals 
who work tirelessly to support healthcare 
professionals our customers in their daily 
efforts to better treat patients 
in japan becoming a sales representative 
can take many months or even years of 
intense training including passing a strict 
certification programme before being 
allowed to engage in discussions with 
and ultimately  sell product to customers 
depending on their area of specialism 
representatives must be able to demonstrate 
a detailed knowledge of all the surgical 
instruments used to implant a device or 
have specific understanding of the various 
surgical techniques a customer might use 
in advanced wound care representatives 
are expected to have deep knowledge of 
bestpractice for treating both chronic and 
acute wounds 
once a sales representative is certified in 
japan they typically spend the majority 
of their time working directly with and 
supporting customers they help develop 
preoperative plans and provide inhospital 
support to aid in the safe and effective use 
of our implants instruments and medical 
products and techniques 
the use of surgical devices regularly 
necessitates technical training and  
handson experience our sales 
representatives will often arrange such 
training either for clinical experts to visit 
customers at work or for surgeons to 
attend smith  nephew medical education 
courses in japan surgeons often travel 
to our training centres in the us to learn 
the latest surgical techniques from 
acknowledged global leaders in japan 
and everywhere we work our sales 
representatives embody the trust that  
our customers place in smith  nephew 49 smith  nephew annual report 2014 extending 
our reach
serving the midtier
smith  nephew has a strong sustainable 
business in the emerging markets we also 
have a clear strategy to drive this further 
we focus on those countries which offer the 
greatest opportunity we ensure we have a 
more direct relationship with our customers 
– surgeons nurses and other healthcare 
professionals – and we offer these customers 
the right products
over the last five years we have created a 
business with revenues well over 600 million 
growing rapidly the proportion of our group 
revenues from emerging  international 
markets has doubled to 15 today and we 
aspire to 25 
virtually all of this growth has come  
from bringing premium products to  
hightier customers 
however  we believe that it is the midtier   
made up of the economic middle class which 
will grow faster and ultimately become much 
larger than the hightier 
by addressing this midtier market we can 
substantially widen access to our products 
our approach is based upon pioneering 
a different commercial model and often 
different products from those for the hightier 
customers are demanding good quality 
products at significantly lower prices we are 
meeting this need through service product 
and manufacturing innovation 
we launched our first midtier products  
in 2014 – including elect
◊
 foam – and  
have a strong pipeline for the future
elect foam dressing offers access to the 
advantages of foambased wound care at 
an affordable price
smith  nephew annual report 2014 50 closing the skills gap
resources at south african state hospitals 
are limited this means that newly qualified 
orthopaedic surgeons have limited access 
to arthroplasty training and smith  nephew 
south africa is meeting this skills gap  
through its arthroplasty academy
there is keen competition to participate in  
the 12month programme where candidates 
are mentored by leading arthroplasty 
consultants participate in workshops and 
ultimately treat patients 
learning how to present more effectively  
is another valuable component of the 
academy programme a series of public 
speaking coaching sessions culminate in  
the candidates presenting a paper to  
faculty at a formal academic meeting
dr thabo makobela arthroplasty academy 
candidate performing a hip replacement under 
the mentorship of dr paul rowe at mitchells 
plain hospital cape town south africa
sharing 
knowledge
25000
surgeons attended smith  nephew training in 2014
40m
invested in medical education
51 smith  nephew annual report 2014 realising  
potential
the ability to attract and retain talented 
employees is essential to achieving our 
business goals this is why one of our  
strategic imperatives is to be recognised  
as a great place to work
for smith  nephew being a great place 
to work means having a workplace where 
employees are proud and excited to come 
each day because they are doing work 
that makes a difference for customers 
and patients 
it is a place where employees are valued  
for their performance and achievements 
and a place that values trust above all else
to qualify as a great place to work a  
company must complete the great place to 
work t rust index survey and its management  
must participate in a culture audit both 
evaluate the company’s performance on 
key dimensions of engagement credibility 
respect fairness pride and camaraderie
14

000
our employees support healthcare  
professionals in more than 100 countries
23
of our senior managers are female
diverse
smith  nephew believes that diversity fuels innovation we are committed to 
employment practices based on equality of opportunity regardless of colour creed 
race national origin sex age marital status sexual orientation or mental or physical 
disability unrelated to the ability of the person to perform the essential functions of  
the job diversity  inclusion continues to be a key focus for us and we have a global 
steering team sponsored by the ceo with local councils established across the 
business 30 of our board of directors and 23 of senior managers are female
healthy
we strongly believe we perform better when our employees are healthy motivated  
and focused the support we provide our employees when they experience a health 
concern is a critical factor in how well and how quickly they are able to get back to  
peak during 2014 smith  nephew signed up to the uk’s time to change programme 
showing our employees being open about mental health concerns will lead to support 
not discrimination and embarked on a global wellness initiative to support all employees
safe
we are committed to providing healthy and safe working conditions for all employees 
we achieve this by ensuring that health and safety and the working environment are 
managed as an integral part of the business and we recognise employee involvement 
as a key part of that process during 2014 we reduced the lost time injury frequency by 
20 reflecting a sharp focus of leadership on identifying and managing workplace risk
we aim to provide an open challenging productive  
diverse healthy safe and participative environment  
based on constructive relationships 
52 smith  nephew annual report 2014 great place to work
during 2014 our spanish business  
based in barcelona achieved the 
distinction of being the first country 
to achieve the ‘great place to work’ 
accreditation
this is an important honour and  
is the result of a combination of  
highly engaged leaders enthusiastic  
employees and the comprehensive  
efforts of smith  nephew to  
attract develop and retain this  
very talented workforce
53 smith  nephew annual report 2014 corporate governance
our board of directors
roberto quarta 65 
chairman
joined the board in december 2013 and 
appointed chairman following election by 
shareholders on 10 april 2014 he was also 
appointed chairman of the nomination  
governance committee and a member of the 
remuneration committee on that day
career and experience
roberto is a graduate and a former trustee 
of the college of the holy cross worcester 
ma us he started his career as a manager 
trainee at david gessner ltd before moving 
on to worcester controls corporation and 
then btr plc where he was a divisional 
chief executive between 1985 and 1989 he 
was executive vice president of hitchiner 
manufacturing co inc where he helped 
the company to expand internationally he 
returned to btr plc in 1989 as divisional chief 
executive where he led the expansion in 
north america and was appointed to the main 
board from here he moved to bba aviation 
plc as ceo from 1993 to 2001 and then as 
chairman until 2007  he has held several 
board positions including nonexecutive 
director of powergen plc equant nv bae 
systems plc and foster wheeler ag his 
previous chairmanships include italtel group 
spa and rexel sa he is currently chairman 
designate of wpp plc and will shortly retire as 
chairman of imi plc the global engineering 
group as soon as a suitable replacement is 
appointed he is a partner at clayton dubilier 
 rice and he is a member of the investment 
committee of fondo strategico italiano spa
skills and competencies
roberto’s career in private equity brings 
valuable experience to the board particularly 
when evaluating acquisitions and new 
business opportunities he has an indepth 
understanding of differing global governance 
requirements having served as a director and 
chairman of a number of uk and international 
companies since his appointment as 
chairman in april 2014 he has conducted a 
comprehensive review into the composition 
of the board and conducted the search for 
new nonexecutive directors resulting in the 
appointment of vinita bali and erik engstrom
nationality
  americanitalian
olivier bohuon 56 
chief executive officer 
joined the board and was appointed chief 
executive officer in april 2011 he is a member 
of the nomination  governance committee  
 
 
career and experience
olivier has had a highly successful career 
in the pharmaceutical industry he holds a 
doctorate from the university of paris and 
an mba from hec paris his career has 
been truly global he started his career 
in morocco with roussel uclaf and then 
with the same company held a number of 
positions in the middle east with increasing 
levels of responsibility he joined abbott 
in chicago as head of their antiinfective 
franchise with abbott international before 
becoming pharmaceutical general manager 
in spain he subsequently spent 10 years 
with glaxosmithkline rising to senior 
vice president  director for european 
commercial operations he then rejoined 
abbott as president for europe became 
president of abbott international all countries 
outside of the us and then president of 
their pharmaceutical division which was 
a 20 billion business encompassing 
manufacturing rd and commercial 
operations he joined smith  nephew from 
pierre fabre where he was chief executive
skills and competencies
olivier has extensive international healthcare 
leadership experience within a number of 
significant pharmaceutical and healthcare 
companies his global experience provides 
the skillset required to innovate a ftse100 
company with a deep heritage and provide 
inspiring leadership he is a nonexecutive 
director of virbac group 
nationality
  french
julie brown 52  
chief financial officer
joined the board as chief financial officer  
in february 2013  
 
 
 
career and experience
julie is a graduate chartered accountant and 
fellow of the institute of taxation she trained 
with kpmg before working at astrazeneca 
plc where she served as vice president 
group finance and ultimately as interim 
chief financial officer prior to that she was 
regional vice president latin america 
marketing company president astrazeneca 
portugal and vice president corporate 
strategy and rd chief financial officer in 
both julie’s country and regional roles trading 
margins increased significantly improving the 
efficiency and profitability of the business her 
experience encompasses many areas of the 
healthcare value chain including commercial 
operations rd and business development 
she has led multibillion dollar cost saving and 
restructuring programmes in operations rd 
and the commercial organisations and led 
major refinancing programmes including the 
issuance of 2 billion us bonds julie has so 
far in her career fulfilled two nonexecutive 
directorships with the nhs in the uk and the 
board of the british embassy
skills and competencies
julie has deep financial expertise and 
understanding of the healthcare sector 
which has enabled her to lead a major 
transformation project at smith  nephew 
designed to simplify and improve the 
organisation and deliver margin accretion she 
is a recognised leader with a proven ability 
to build teams her commercial experience 
in latin america is of particular benefit as we 
continue to grow in emerging markets she 
has held a number of senior commercial roles 
as well as financial positions making her a 
versatile chief financial officer 
nationality
  british
smith  nephew annual report 2014 54 the rt hon baroness virginia bottomley  
of nettlestone dl 66 
independent nonexecutive director
appointed independent nonexecutive 
director in april 2012 she is a member of 
the remuneration committee and joined the 
nomination  governance committee on 
10 april 2014 
career and experience
virginia gained her msc in social 
administration from the london school of 
economics and political science following her 
first degree she was appointed a life peer 
in 2005 following her career as a member 
of parliament between 1984 and 2005 she 
served successively as secretary of state for 
health and then culture media and sport 
virginia was formerly a director of bupa and 
akzo nobel nv she is currently a director 
of international resources group limited 
member of the international advisory council 
of chugai pharmaceutical co chancellor 
of university of hull and sheriff of hull 
pro chancellor of the university of surrey 
governor of the london school of economics 
and trustee of the economist newspaper 
skills and competencies
virginia’s extensive experience within 
government particularly as secretary of 
state for health brings a unique insight into 
the healthcare system both in the uk and 
globally whilst her experience on the board of 
bupa brings an understanding of the private 
healthcare sector and an insight into the 
needs of our customers her long association 
with hull the home of many of our uk 
employees also brings an added perspective
nationality
  british
vinita bali 59  
independent nonexecutive director
appointed independent nonexecutive 
director on 1 december 2014 she will join 
the remuneration and ethics  compliance 
committees on 1 april 2015 
 
career and experience
vinita holds an mba from the jamnalal bajaj 
institute of management studies university 
of bombay and a bachelor’s degree in 
economics from the university of delhi 
she commenced her career in india with 
the tata group and then joined cadbury 
india subsequently working with cadbury 
schweppes plc in the uk nigeria and south 
africa from 1994 she held a number of senior 
global positions in marketing and general 
management at the cocacola company 
based in the us and south america 
becoming president of the andean division 
in 1999 and vice president corporate strategy 
in 2001 in 2003 she joined the consultancy 
zyman group as managing principal again 
based in the us until recently vinita was 
managing director and chief executive officer 
of britannia industries ltd a leading indian 
publicly listed food company currently vinita 
is a nonexecutive director of syngenta ag 
titan company ltd and crisil credit rating 
information services of india ltd she is also 
a board member of gain global alliance for 
improved nutrition
skills and competencies
vinita has an impressive track record of 
achievement with bluechip global 
corporations in multiple geographies  
including india africa south america the us 
and uk all key markets for smith  nephew 
additionally her strong appreciation of 
customer service and marketing brings deep 
insight to the company as we continue to 
develop innovative ways to serve our markets 
and grow our business 
nationality
  indian
ian barlow 63 
independent nonexecutive director 
appointed independent nonexecutive 
director in march 2010 and chairman 
of the audit committee in may 2010 he 
was appointed a member of the ethics  
compliance committee on 2 october 2014 
career and experience
ian is a chartered accountant with 
considerable financial experience both 
internationally and in the uk he was a partner 
at kpmg latterly senior partner london until 
2008 at kpmg he was head of uk tax and 
legal operations and acted as lead partner 
for many large international organisations 
operating extensively in north america 
europe and asia ian’s previous appointments 
include nonexecutive director and chairman 
of the audit committee of pa consulting 
group and nonexecutive director of candy 
 candy he was chairman of wsp group plc 
and of think london the inward investment 
agency he is currently lead nonexecutive 
director chairing the board of her majesty’s 
revenue  customs nonexecutive director 
of the brunner investment trust plc non
executive director of foxtons group plc board 
member of the chinabritain business council 
and chairman of the racecourse association
skills and competencies
ian’s longstanding financial and auditing 
career and extensive board experience add 
value to his role as chairman of the audit 
committee it was of particular benefit when 
leading the selection process for the new 
external auditor in 2014 his appointment 
as an additional member of the ethics  
compliance committee recognises the close 
links between the activities and oversight role 
of both committees his work for a number of 
international companies gives added insight 
when reviewing our global businesses 
nationality
  british
55 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
our board of directors continued
erik engstrom 51  
independent nonexecutive director
appointed independent nonexecutive 
director on 1 january 2015 and member of the 
audit committee 
 
 
career and experience
erik is a graduate of the stockholm school 
of economics bsc and of the royal institute 
of technology in stockholm msc in 1986 
he was awarded a fulbright scholarship 
to harvard business school from where 
he graduated with an mba in 1988 erik 
commenced his career at mckinsey  co 
and then worked in publishing latterly as 
president and chief operating officer of 
random house inc and as president and 
chief executive officer at bantam doubleday 
dell north america in 2001 he moved on 
to be a partner at general atlantic partners 
a private equity investment firm focusing 
on information technology internet and 
telecommunications businesses between 
2004 and 2009 he was chief executive of 
elsevier the division specialising in scientific 
and medical information and then from 2009 
chief executive of reed elsevier
skills and competencies
erik has successfully reshaped reed 
elsevier’s business in terms of portfolio and 
geographies he brings a deep understanding 
of how technology can be used to transform 
a business and insight into the development 
of new commercial models that deliver 
attractive economics 
nationality
  swedish
brian larcombe 61 
independent nonexecutive director
appointed independent nonexecutive 
director in march 2002 member of the 
audit committee nomination  governance 
committee and remuneration committee 
and appointed senior independent director 
on 10 april 2014
career and experience
brian graduated with a bachelor of commerce 
degree from birmingham university he 
spent most of his career in private equity with 
3i group after leading the uk investment 
business for a number of years he became 
finance director and then chief executive of 
the group following its flotation he has held a 
number of nonexecutive directorships he is 
currently nonexecutive director of gategroup 
holding ag and nonexecutive director of 
kodak alaris holdings limited
skills and competencies
brian’s experience in private equity is 
particularly useful to us when evaluating 
acquisitions and new business opportunities 
his long service as a nonexecutive director 
has provided continuity throughout a period 
of change and his corporate memory and 
wise counsel continues to support our 
new chairman as senior independent 
director and member of the nomination  
governance committee he plays an active 
role in succession planning and the search for 
new nonexecutive directors in 2014 he led 
an insightful review into the effectiveness of 
the board
nationality
  british
michael friedman 71 
independent nonexecutive director
appointed independent nonexecutive 
director in april 2013 he was appointed 
chairman of the ethics  compliance 
committee on 1 august 2014 
 
career and experience
michael graduated with a bachelor of arts 
degree magna cum laude from tulane 
university and a doctorate in medicine 
from the university of texas he completed 
postdoctoral training at stanford university 
and the national cancer institute and is 
board certified in internal medicine and 
medical oncology in 1983 he joined the 
division of cancer treatment at the national 
cancer institute and went on to become the 
associate director of the cancer therapy 
evaluation program michael was most 
recently chief executive officer of city of 
hope the prestigious cancer research and 
treatment institution in california he also 
served as director of the institution’s cancer 
centre and held the irell  manella cancer 
center director’s distinguished chair he was 
formerly senior vice president of research 
medical and public policy for pharmacia 
corporation and also deputy commissioner 
and acting commissioner at the us food and 
drug administration fda he has served 
on a number of boards in a nonexecutive 
capacity including rite aid corporation 
currently michael is a nonexecutive director 
of celgene corporation and nonexecutive 
director of mannkind corporation 
skills and competencies
michael understands the fundamental 
importance of research which is part of 
smith  nephew’s value creation process 
his varied career in both the public and 
private healthcare sector has given him a 
deep insight and a highly respected career 
in particular his work with the fda and 
knowledge relating to us compliance provides 
the skillset required to chair the ethics  
compliance committee and resulted in a 
smooth handover during 2014 
nationality
  american
smith  nephew annual report 2014 56 susan swabey 53 
company secretary
appointed company secretary in may 2009 
 
 
 
 
skills and experience 
susan has 30 years’ experience as a 
company secretary in a wide range of 
companies including prudential plc 
amersham plc and rmc group plc her 
work has covered board support corporate 
governance corporate transactions share 
registration listing obligations corporate 
social responsibility pensions insurance 
and employee and executive share plans 
susan is joint vicechair of the gc100 
group a member of the cbi companies 
committee and is a frequent speaker on 
corporate governance and related matters 
she is also a trustee of sharegift the share 
donation charity 
nationality
  british
joseph papa 59 
independent nonexecutive director
appointed independent nonexecutive 
director in august 2008 and chairman of 
the remuneration committee in april 2011 
member of the audit committee and ethics  
compliance committee 
career and experience
joe graduated with a bachelor of science 
degree in pharmacy from the university 
of connecticut and master of business 
administration from northwestern university’s 
kellogg school of management in 2012 
he received an honorary doctor of science 
degree from the university of connecticut 
school of pharmacy he began his commercial 
career at novartis international ag as an 
assistant product manager and eventually 
rose to vice president marketing having 
held senior positions in both switzerland 
and the us he moved on to hold senior 
positions at searle pharmaceuticals and was 
later president  chief operating officer of 
dupont pharmaceuticals and then watson 
pharma inc between 2004 and 2006 he 
was chairman and chief executive officer of 
the pharmaceutical technologies services 
segment of cardinal health inc joe is 
currently chairman and chief executive of 
perrigo company plc one of the largest over
thecounter pharmaceutical companies in 
the us
skills and competencies
with over 30 years’ experience in the global 
pharmaceutical industry joe brings deep 
insight into the wider global healthcare 
industry and the regulatory environment as 
chairman and chief executive of a significant 
us company joe has a comprehensive 
understanding both of how to attract and 
retain global talent and use remuneration 
arrangements that incentivise performance 
leading to maximum returns for investors 
nationality
  american
57 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
our executive officers
olivier bohuon is supported in  
the daytoday management of  
the group by a strong team of  
executive officers
julie brown 52  
chief financial officer
joined the board as chief financial officer in 
february 2013 julie is a graduate chartered 
accountant and fellow of the institute of 
t axation she is based in london 
skills and competencies
julie ’ s experience in the healthcare sector includes 
25 years with astrazeneca plc in progressively 
senior roles and four years with kpmg most 
recently she served as interim chief financial 
officer of astrazeneca she has international 
experience and a deep understanding of the 
healthcare sector gained through her previously 
held vice president finance positions in all 
areas of the healthcare value chain including 
commercial operations rd and business 
development julie has also led commercial 
organisations being country president and 
regional vice president in astrazeneca 
nationality
 british
rodrigo bianchi 55  
president iramea
joined smith  nephew in july 2013 with 
responsibility for greater china india russia 
asia middle east and africa focusing on 
continuing our strong momentum in these 
regions he is based in dubai 
skills and experience
rodrigo’s experience in the healthcare 
industry includes 26 years with johnson  
johnson in progressively senior roles most 
recently he was regional vice president for 
the medical devices and diagnostics division 
in the mediterranean region and prior to that 
president of mitek and ethicon he started his 
career at procter  gamble italy 
nationality
 italian 
diogo moreirarato 53  
president europe and canada
joined smith  nephew in may 2014 with 
responsibility for leading all of our commercial 
business in europe and canada he is based 
in baar switzerland
skills and experience
diogo’s experience in the healthcare industry 
includes 31 years with johnson  johnson 
in progressively senior roles most recently 
diogo was president depuy synthes emea 
where he led the merger and integration 
of depuy and synthes in emea prior roles 
included international vice president for the 
medical devices and diagnostics business 
president depuy orthopaedics and  
managing director of portugal
nationality
 portuguese
helen maye 55  
chief human resources officer
joined smith  nephew in july 2011 and leads 
the global human resources and internal 
communications functions since 2013 
she has also led the sustainability health 
safety  environment functions she is based 
in london
skills and experience
helen has more than 35 years’ experience 
across a variety of international and global 
roles in medical devices and pharmaceuticals 
including manufacturing supply chain and 
human resources previously she was 
divisional vice president of human  
resources at abbott laboratories
nationality
 irish
smith  nephew annual report 2014 58 jack campo 60  
chief legal officer
joined smith  nephew in june 2008 and 
heads up the global legal function initially 
based in london he has been based in 
andover massachusetts since late 2011
skills and experience
prior to joining smith  nephew jack held 
a number of senior legal roles within the 
general electric company including seven 
years at ge healthcare ge medical systems 
in the us and asia he began his career with 
davis polk  wardwell
nationality
 american
gordon howe 52  
president global operations
joined smith  nephew in 1998 and since 
2013 is responsible for manufacturing supply 
chain and procurement it systems and 
regulatory and quality affairs prior to that he 
headed up the global planning and business 
development teams he is based in memphis 
tennessee 
skills and experience
gordon has held a number of senior 
management positions within the smith  
nephew group firstly in the orthopaedics 
division and more recently at group level 
prior to joining the company he held senior 
roles at united technologies corporation
nationality
 american
cyrille petit 44  
chief corporate development officer
joined smith  nephew in 2012 and leads  
the corporate development function he is 
based in london 
skills and experience
cyrille spent the previous 15 years of his 
career with general electric company 
where he held progressively senior positions 
beginning with ge capital ge healthcare 
and ultimately as the general manager 
global business development of the 
transportation division cyrille’s career began 
in investment banking at bnp paribas and 
then goldman sachs 
nationality
 french
glenn warner 52  
president advanced wound management 
joined smith  nephew in june 2014 
with responsibility for advanced wound 
management’s global franchise strategy 
marketing and produce development as well 
as its us commercial business 
skills and experience
glenn has a broadbased background in 
pharmaceuticals and medical products including 
e xt ensi v e i n t ern a ti on al e x peri enc e  h a vi n g s erv ed 
most recently as abbvie vice president and 
corporate officer strategic initiatives where 
he was responsible for the development and 
execution of pipeline and asset management 
strategies prior to that he was president and 
officer japan commercial operations in abbott’s 
international pharmaceutical business and 
executive vice president tap pharmaceutical 
products inc additional senior level roles 
included international positions in germany and 
singapore for abbott’s diagnostics business
nationality
 american
michael frazzette 53  
president advanced surgical devices
joined smith  nephew in july 2006 as president 
of the endoscopy business since july 2011 he 
has headed up the advanced surgical devices  
division and is responsible for the orthopaedic 
reconstruction t r auma and endoscop y business 
units since 2014 he is also responsible for all 
of our commercial business in latin america 
he is based in andover massachusetts
skills and experience
mike has held a number of senior positions 
within the us medical devices industry he 
was chief executive officer of micro group 
a privately held manufacturer of medical 
devices prior to that he spent 15 years at tyco 
healthcare in various leadership roles including 
president of the patient care division health 
systems and t yco healthcare group canada
nationality
 american
59 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information mergers and acquisitions
following the successful acquisition of our biotherapeutics business in 
2012 we continued to make further acquisitions throughout 2013 of the 
adler business in india two distributorships in brazil and one in turkey  in 
january 2014 we announced the acquisition of arthrocare corporation 
and this deal completed in may you will read elsewhere in this annual 
report about the successful integration of arthrocare into our company 
we also undertook post acquisition reviews of the transaction and 
earlier acquisitions to monitor actual performance against expected 
performance at the time of acquisition and we continued to review 
and evaluate other potential acquisitions for the future to support our 
strategic priorities
succession planning below board level
we believe that succession planning below board level is crucially 
important for the longterm future of the company in october  the board 
therefore reviewed management succession plans both for the executive 
board members and also for their direct reports we recognised that 
whilst there were some gaps there were also plans in place to address 
these gaps and develop the next tier of management to become board
ready in the mediumterm the board also takes the opportunity to meet 
with local management teams when undertaking site visits and senior 
executives below board level frequently present to the board and its 
committees this helps us to get to know executives who could well  
become board members in the future
understanding the business more deeply
corporate governance does not exist in isolation and cannot be 
reduced to compliance with checklists and codes in order for the 
board to be able to review strategy to determine our approach to risk 
and to respond to events we need to have a thorough understanding 
of the business in which we operate 
during the year  the board received a number of presentations from the 
businesses covering corporate development activity the arthrocare 
integration progress and our investment in bioventus llp  in october   
we visited our biotherapeutics facility in fort worth texas where  
we met with management and toured the rd facility 
in september  we held our annual strategy review in singapore and met 
with members of our asean management team and discussed their 
opportunities and challenges 
dear shareholder 
i am delighted to present my first corporate governance statement 
as your chairman following my appointment at the annual general 
meeting in april 2014 i feel very strongly that good corporate 
governance lies at the heart of a wellrun company openness and 
transparency accountability and responsibility should run through 
everything that we do both as a board and throughout the business  
as a whole the board and i aim to set the tone at the top which  
should pervade throughout the rest of the organisation
later in this statement as well as all the standard corporate governance 
disclosures we are required to make you will find reports from ian 
barlow michael friedman myself and joseph papa the chairmen of 
our board committees on the activities of those committees throughout 
the year these reports will explain to you where we have focused  
our work in 2014 firstly however i should like to explain the key  
issues that we as a board have been handling
board succession planning
as mentioned in my letter on page 5 sir john buchanan richard de 
schutter ajay piramal and pamela kirby all retired from the board 
during 2014 one of my first tasks in assuming the role of chairman 
therefore was to refresh the board to take the company into our next 
stage of development the report from the nomination  governance 
committee on page 70 discusses the process we followed to identify 
the gaps in board skills and experiences left by the departing directors 
and to commence the search for our new nonexecutive directors 
vinita bali who joined the board on 1 december 2014 and erik 
engstrom who joined us on 1 january 2015 i believe that we have 
a wellbalanced board with the skills we need for the future and i 
welcome our new board members this however is an ongoing 
process and we shall keep the board composition under constant 
review in the years ahead making changes where necessary to adapt 
to the changing needs of the company
corporate governance
chairman’s letter
the board is committed to the highest standards of corporate governance and we 
comply with all of the provisions of the uk corporate governance code 2012 ‘the 
code’ the company’s american depositary shares are listed on the new york stock 
exchange nyse and we are therefore subject to the rules of the nyse as well as to 
the us securities laws and the rules of the securities exchange commission sec 
applicable to foreign private issuers we comply with the requirements of the nyse 
and sec except that the nomination  governance committee is not comprised 
wholly of independent directors as required by the nyse but consists of a majority 
of independent directors in accordance with the code we shall explain in this 
corporate governance statement and in the reports on the audit committee the 
nomination  governance committee the ethics  compliance committee and the 
remuneration committee how we have applied the provisions and principles of the 
financial conduct authority’s fca listing rules disclosure  transparency rules 
dtrs and the code throughout the year 
the directors report comprises pages 54 to 80 103 111 113 115 and pages 170 to 193 
of the annual report 
good governance lies at the heart  
of a wellrun company
smith  nephew annual report 2014 60 leadership
the board sets the tone at the 
top of the company through
• a clear definition of the roles of the 
individual members of the board
• a comprehensive corporate 
governance framework
• defined processes to ensure the 
independence of directors and the 
management of conflicts of interest 
 
 
read more about our  
board’s leadership
see page 62
effectiveness
the board carries out its 
duties through
• regular meetings focusing on  
the oversight of strategy risk  
and succession planning
• an annual review into the  
effectiveness of the board
• a comprehensive programme of 
development activities throughout 
the year 
 
read more about our  
board’s effectiveness
see page 66
accountability
the board delegates some 
of its detailed work to the 
board committees
• each committee meets regularly and 
reports back to the board on its activities
• the terms of reference of each 
committee may be found 
on the company website at 
wwwsmithnephewcom
• a report from the chairman of  
each committee is included in  
this annual report
read more about our  
board’s accountability
see page 70
working together as a board
given the number of changes at board level in 2014 we decided that 
our review into the board’s effectiveness would focus on how we 
worked together as a board and how we worked with the executive 
team this review was led by brian larcombe our senior independent 
director he asked the directors and key members of the executive 
team a series of openended questions about their views on the role 
of the board and its committees and how we worked together the 
results of his review have proved to be very interesting and we are 
now working on ways to work together even more effectively this is 
explained in greater detail on page 68
yours sincerely 
roberto quarta
chairman
overview
the board is committed to the highest standards of corporate 
governance we maintain these standards through a clear  
definition of our roles continuing development and evaluation  
and accountability through the work of the board committees
61 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
corporate governance statement
role of directors
chairman building a wellbalanced board
chairing board meetings and setting board agendas
ensuring effectiveness of board and enabling the annual review of effectiveness
encouraging constructive challenge and facilitating effective communication between board members
promoting effective board relationships
ensuring appropriate induction and development programmes
ensuring effective twoway communication and debate with shareholders
promoting high standards of corporate governance
maintaining appropriate balance between stakeholders
chief executive officer developing and implementing group strategy
recommending the annual budget and fiveyear strategic and financial plan
ensuring coherent leadership of the group
managing the group’s risk profile and establishing effective internal controls
regularly reviewing organisational structure developing executive team and planning for succession
ensuring the chairman and board are kept advised and updated regarding key matters
maintaining relationships with shareholders and advising the board accordingly
setting the tone at the top with regard to compliance and sustainability matters
daytoday running of the business
whilst we all share collective responsibility for the activities of the board some of our roles have been defined in 
greater detail in particular the roles of the chairman and the chief executive officer are clearly defined
diversity and experience
executivenonexecutive
a executive 2
b nonexecutive 7
c chairman 1
a  male 7
b  female 3
a  american 2
b british 4
c french 1
d indian 1
e  italianamerican 1
f swedish 1
a  less than one year 2
b  one to three years 2
c  three to six years 1
d six to nine years 1
e over nine years 1
gender split board nationality
nonexecutive tenure
leadership
a
b
c
a
b
d
e
c
a
b
b
c
d
e
f
a
smith  nephew annual report 2014 62 role of directors continued
the roles of the nonexecutive directors senior independent director and the company secretary are defined as follows
nonexecutive directors providing effective challenge to management
assisting in development and approval of strategy
serving on the board committees
providing advice to management
senior independent director chairing meetings in the absence of the chairman
acting as a sounding board for the chairman on boardrelated matters
acting as an intermediary for the other directors where necessary
available to shareholders on matters which cannot otherwise be resolved
leading the annual evaluation into the board’s effectiveness
leading the search for a new chairman if necessary
company secretary advising the board on matters of corporate governance
supporting the chairman and nonexecutive directors
point of contact for investors on matters of corporate governance
ensuring good governance practices at board level and throughout the group
changes to the board
chairman
roberto quarta replaced sir john buchanan on 10 april 2014
independent nonexecutive directors
left the board during 2014
ajay piramal resigned 24 march 2014 
richard de shutter retired 10 april 2014 
pamela kirby retired 31 july 2014 
joined the board during 2014
vinita bali appointed 1 december 2014
erik engstrom appointed 1 january 2015 since yearend
role changed during 2014
brian larcombe replaced richard de schutter as senior independent director on 10 april 2014
michael friedman replaced pamela kirby as chairman of the ethics  compliance committee on 31 july 2014
63 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
corporate governance statement continued
leadership
commercial  operations committee – committee of the executive 
officers advising the chief executive officer on commercial and 
operational matters 
regional leadership teams – implement work of regional presidents
functional leadership teams – implement work of functional presidents
disclosure committee – approves all announcements except routine 
regulatory matters released to investors and to ukla london and new 
york stock exchanges and sec
finance  banking committee – approves banking and treasury 
matters corporate structure changes acquisition details
group risk committee – reviews risk registers and mitigation plans 
reports to board and audit committee
health safety and environment leadership team – oversees 
health safety and environment matters across group reports to board 
on sustainability
diversity  inclusion council – implements strategies to promote 
diversity and inclusion across the group
group benefits committee – oversees policies and processes relating 
to pension and employee benefit plans
group ethics  compliance including quality committee – 
monitors developments in compliance and quality matters approves 
enhanced compliance programme reports to board ethics  
compliance committee
research  development council – reviews and evaluates rd 
projects determining the allocation of resources ensuring alignment  
with corporate strategy reports regularly to the board
mergers  acquisitions council – oversees corporate development 
strategy monitors status of transactions and approves various stages of 
acquisition prior to presentation to board
capital governance board– sets group level targets for capital 
expenditure priorities and monitors capital expenditure within the 
parameters set by the board
it governance board – oversees the it strategy and investment 
allocation throughout the group monitors it systems and cyber security 
reports regularly to the audit committee
group optimisation committee – oversees the implementation  
of the group optimisation project reports regularly to the board
european process optimisation committee – oversees the 
implementation of the european erp project
corporate governance framework
the board is responsible to shareholders for approving the strategy of 
the group for overseeing the performance of the group and evaluating 
and monitoring the management of risk 
each member of the board has access collectively and individually 
to the company secretary and is also entitled to obtain independent 
professional advice at the company’s expense should they decide  
it is necessary in order to fulfil their responsibilities as directors 
the daytoday running of the business is delegated to olivier bohuon 
the chief executive officer and his executive team comprising the 
executive officers who are shown on pages 58 to 59
the executive officers form the commercial and operations committee 
which advises the chief executive officer in decisions relating to the 
commercial and operational aspects of the business 
the chief executive officer in turn delegates the daytoday 
management of the group functions and regional commercial 
operations divisions to the executive officers who are assisted in their 
decision making by their own leadership teams and other committees 
and councils 
chief executive officer
board
audit  
committee
provides independent 
assessment of the 
financial affairs of the 
company reviews 
financial statements and 
controls and the risk 
management process 
manages use of internal 
and external auditors 
read more 
see page 75
remuneration  
committee
determines remuneration 
policy and packages for 
executive directors and 
executive officers 
 
 
 
 
read more 
see page 81
ethics  
compliance 
committee
reviews and monitors 
ethics and compliance 
matters across the 
group reviews and 
oversees quality and 
regulatory matters 
 
read more 
see page 72
ad hoc  
committees
ad hoc committees 
may be established to 
review and approve 
specific matters 
or projects 
 
 
 
 
nomination   
governance  
committee
reviews size and 
composition of the 
board succession 
planning diversity and 
governance matters 
 
 
read more 
see page 70
supporting the business
various committees and groups relating to the running of the business 
report to the chief executive officer these groups have a dual role both 
advising the chief executive officer and also implementing the strategy 
throughout the business a number of these committees also report 
regularly to the board or one of its committees 
investment in the strategic priorities
investment in our strategic priorities important for our future success is 
governed through a number of committees and groups these groups 
report either to the chief executive officer or to one of the executive 
officers and are focused on allocating resources to and overseeing 
investment in the strategic priorities regular reports from these groups 
are submitted to the board or one of its committees
smith  nephew annual report 2014 64 independence of directors
we require our nonexecutive directors to remain independent from 
management so that they are able to exercise independent oversight 
and effectively challenge management we therefore continually 
assess the independence of each of our nonexecutive directors 
the executive directors have determined that all our nonexecutive 
directors are independent in accordance with both uk and us 
requirements none of our nonexecutive directors or their immediate 
families has ever had a material relationship with the group none of 
them receives additional remuneration apart from directors’ fees nor 
do they participate in the group’s share plans or pension schemes 
none of them serve as directors of any companies or affiliates in which 
any other director is a director
more importantly each of our nonexecutive directors is prepared to 
question and challenge management to request more information and 
to ask the difficult question they insist on robust responses both within 
the boardroom and sometimes between meetings the chief executive 
officer is open to challenge from the nonexecutive directors and uses 
this positively to provide more detail and to reflect further on issues
we acknowledge that brian larcombe has served as an independent 
nonexecutive director for a period of 13 years which is a period of time 
that some might regard as likely to impact his independence we do not 
believe this to be the case as brian larcombe continues to maintain an 
independent view within board discussions furthermore his experience 
on the board wise counsel and corporate memory has been most 
useful to roberto quarta in his first year as chairman of the company 
particularly in a year when a number of other longserving directors have 
left the board and new nonexecutive directors have been appointed
management of conflicts of interest
none of our directors or their connected persons has any family 
relationship with any other director or officer nor has a material 
interest in any contract to which the company or any of its subsidiaries 
are or were a party during the year or up to 23 february 2015
each of us as a director has a duty under the companies act 2006 
to avoid a situation in which we have or may have a direct or indirect 
interest that conflicts or might conflict with the interests of the company 
this duty is in addition to the existing duty owed to the company to 
disclose to the board any interest in a transaction or arrangement 
under consideration by the company 
if any director becomes aware of any situation which might give rise 
to a conflict of interest they inform the rest of the board immediately 
and the board is then permitted under the company’s articles of 
association to authorise such conflict this information is then recorded 
in the company’s register of conflicts together with the date on which 
authorisation was given in addition each director certifies on an 
annual basis that the information contained in the register is correct
when the board decides whether or not to authorise a conflict only the 
directors who have no interest in the matter are permitted to participate 
in the discussion and a conflict is only authorised if the board believes 
that it would not have an impact on the board’s ability to promote the 
success of the company in the long term additionally the board may 
determine that certain limits or conditions must be imposed when 
giving authorisation no actual conflicts have been identified which 
have required approval by the board however six situations have 
been identified which could potentially give rise to a conflict of interest 
and these have been duly authorised by the board and are reviewed 
on an annual basis
outside directorships
we encourage our executive directors to serve as a nonexecutive 
director of a maximum of one external company olivier bohuon is a 
nonexecutive director of virbac group and julie brown does not hold 
such a position 
reappointment of directors
in accordance with the code all directors offer themselves to 
shareholders for reelection annually except those who are retiring 
immediately after the annual general meeting vinita bali and erik 
engstrom who were appointed to the board on 1 december 2014 and 
1 january 2015 respectively will offer themselves for election at the 
annual general meeting each director may be removed at any time by 
the board or the shareholders
director indemnity arrangements
each director is covered by appropriate directors’ and officers’ liability 
insurance and there are also deeds of indemnity in place between the 
company and each director these deeds of indemnity mean that the 
company indemnifies directors in respect of any proceedings brought 
by third parties against them personally in their capacity as directors 
of the company the company would also fund ongoing costs in 
defending a legal action as they are incurred rather than after judgment 
has been given in the event of an unsuccessful defence in an action 
against them individual directors would be liable to repay the company 
for any damages and to repay defence costs to the extent funded by 
the company
liaison with shareholders
the board meets with retail investors at the annual general meeting 
and responds to many letters and emails from shareholders 
throughout the year 
the executive directors also meet regularly with institutional investors 
to discuss the company’s business and financial performance both 
at the time of the announcement of results and at industry investor 
events during 2014 the executive directors held meetings with 
institutional investors including investors representing approximately 
46 of the share capital as at december 2014
since joining the company roberto quarta the new chairman has 
taken the opportunity to meet with investors to hear from them their 
views of the company and also to talk about his first impressions of 
the company and management he held 12 meetings with investors 
holding approximately 22 of the share capital these meetings have 
been a useful part of his induction process in understanding the 
company from the investor perspective
joseph papa the chairman of the remuneration committee also 
offered to meet with key institutional investors towards the end of 2014 
most investors were overwhelmingly supportive of our remuneration 
arrangements and we have made no changes to these arrangements 
over the year he therefore met with four investors holding around 2 
of the share capital these were useful discussions giving insight into 
current investor thinking
ian barlow the chairman of the audit committee also offered to meet 
with institutional investors to discuss audit related matters and in 
particular the tender process we had followed to select new auditors 
the meetings held with five investors holding around 545 of the 
issued share capital were interesting and useful and we welcomed 
some insightful comments on possible improvements to the audit 
committee report
members of the board are always happy to engage with investors if 
they have matters they wish to raise with the nonexecutive team
a short report on our major shareholders and any significant changes 
in their holdings since the previous meeting is reviewed at each board 
meeting the chairman and nonexecutive directors report back to the 
board following their meetings with investors olivier bohuon and julie 
brown routinely report on any concerns or issues that shareholders 
have raised with them in their meetings copies of analyst reports on 
the company and its peers are also circulated to directors
65 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
corporate governance statement continued
effectiveness
jan 14 feb 14 mar 14 apr 14 may 14 jun 14 jul 14 aug 14 sep 14 oct 14 nov 14 dec 14
board timetable
strategy
– approving the group strategy including major changes to corporate 
and management structure
– approving acquisitions mergers disposals capital transactions in 
excess of 50 million
– setting priorities for capital investment across the group
– approving annual budget financial plan fiveyear business plan
 – approving major borrowings and finance and banking arrangements
– approving changes to the size and structure of the board and the 
appointment and removal of directors and the company secretary
– approving group policies relating to corporate social responsibility 
health and safety code of conduct and code of share dealing and 
other matters
– approving the appointment and removal of key professional advisers
performance
– reviewing performance against strategy budgets and financial and 
business plans
– overseeing group operations and maintaining a sound system of 
internal control
– determining the dividend policy and dividend recommendations
– approving the appointment and removal of the external auditor on 
the recommendation of the audit committee
– approving significant changes to accounting policies or practices
– overseeing succession planning at board and executive officer level
– approving the use of the company’s shares in relation to employee 
and executive share incentive plans on the recommendation of the 
remuneration committee
risk
– overseeing the group’s risk management programme
– regularly reviewing the risk register 
– overseeing risk management processes see pages 36 to 39 for 
further details
shareholder communications
– approving preliminary announcement of annual results the publication 
of the annual report the halfyearly report the quarterly financial 
announcements the release of price sensitive announcements and 
any listing particulars circulars or prospectuses
– approving the sustainability report prior to publication
– maintaining relationships and continued engagement 
with shareholders
providing advice
– using experience gained within other companies and organisations 
to advise management both within and between board meetings
the schedule of matters reserved to the board describes the role and 
responsibilities of the board more fully and can be found on our website 
at wwwsmithnephewcom
responsibility of the board
the work of the board falls into the following key areas
smith  nephew annual report 2014 66 what we did
month
january 
acquisition of arthrocare
– considered and approved acquisition of arthrocare corporation
early february  
approval of preliminary  
announcement
– reviewed the results for the full year 2013 and the preliminary announcement and approved the final dividend  
to be recommended to shareholders for approval
– reviewed and approved the annual risk management report
– approved the budget for 2014 and the fiveyear plan for 2014 to 2018
– approved the continuation of the share buyback programme to repurchase shares issued in connection with share 
plans on a quarterly basis
– reviewed the results of the review into the effectiveness of the board in 2013 and agreed action points for 2014
late february  
by telephone approval  
of financial statements
– reviewed and approved the annual report and accounts for 2013 having determined that they were fair balanced 
and understandable 
– reviewed and approved the notice of annual general meeting and related documentation
early april  
– noted considered and approved the new commercial organisation structure
– received a presentation on syncera the new ‘value’ range for our asd division
– approved the sustainability report
– prepared for the annual general meeting to be held later that day
late april  
by telephone  
approval of q1 results
– reviewed the results for the first quarter 2014 and approved the q1 announcement
july 
approval of h1 results
– reviewed the results for the first half 2014 and approved the h1 announcement having considered management’s 
judgement in a number of areas and approved payment of interim dividend
– received and considered a report analysing the progress of recent acquisitions against expectations at the time 
of acquisition
– received and discussed annual review of defence planning 
– received update reports from group taxation and group treasury
– approved the appointment of deutsche bank as adr depositary bank and the change of the ratio of adr to 
ordinary shares
– updated and approved the schedule of matters reserved to the board
early october 
strategy review
singapore
– approved the strategic plan for 2015 to 2019 over a twoday strategy review with the executive team
– approved the renewal of the directors’ and officers’ liability insurance
– authorised the executive team to arrange the private placement of debt
late october  
approval of q3 results
fort worth texas
– reviewed the results for the third quarter 2014 and approved the q3 announcement
– received and considered the annual report from the executive team on executive succession planning 
– received an update on the progress of the integration of arthrocare
– approved the appointment of vinita bali as a nonexecutive director
december  
approval of budget
– approved the budget for 2015
– authorised the executive team to conduct a selection process for new corporate brokers
– received a report on the progress of our investment in bioventus llp
– received an update on the hr transformation project
– received an update on the commercial structure within europe
we also agreed to appoint erik engstrom as nonexecutive director by written resolution
since the year end we have also approved the annual report and accounts for 2014 and have concluded that taken as a whole they are fair 
balanced and understandable we have approved the notice of annual general meeting recommended the final dividend to shareholders 
and have received and discussed the report on the effectiveness of the board in 2014
each meeting was preceded by a meeting between the chairman and the nonexecutive directors without executive directors and 
management in attendance unless otherwise stated meetings are held in london 
at each meeting we approved the minutes of the previous meetings reviewed matters arising and received reports and updates from  
the chief executive officer the chief financial officer the chief business development officer the chief legal officer and the company 
secretary we also received reports from the chairmen of the board committees on the activities of these committees since the 
previous meeting 
67 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information in the event that a director is unable to attend a board or board committee meeting they ensure that they are familiar with the matters to be 
discussed and make their views known to the chairman of the board or board committee prior to the meeting
yours sincerely
brian larcombe
senior independent director
director
board meetings 
9 meetings
audit 
committee meetings 
8 meetings
remuneration 
committee meetings 
4 meetings
nomination  
governance 
committee meetings 
3 meetings
ethics  compliance 
committee meetings 
4 meetings
roberto quarta 9  9 – 2  2
7
3  3 –
olivier bohuon 9  9 – – 3  3 –
julie brown 9  9 – – – –
vinita bali
1
1  1 – – – –
ian barlow 9  9 8  8 – – 1  1
9
virginia bottomley 9  9 – 4  4 2  2
8
–
sir john buchanan
2
3  4 – – 1  1 –
michael friedman
3
8  9 – – – 4  4
pamela kirby
4
6  6 – 3  3 – 3  3
brian larcombe 9  9 8  8 4  4 3  3 –
joseph papa 9  9 8  8 4  4 – 4  4
ajay piramal
5
1  3 – – – –
richard de schutter
6
4  4 3  3 2  2 1  1 2  2
1 vinita bali was appointed to the board on 1 december 2014
2 sir john buchanan retired from the board on 10 april 2014
3 michael friedman was unable to attend one board telephone update  
due to a flight delay
4 pamela kirby retired from the board on 31 july 2014
5 ajay piramal retired from the board on 24 march 2014 
6 richard de schutter retired from the board on 10 april 2014
7 roberto quarta joined the remuneration committee on 10 april 2014
8 virginia bottomley joined the nomination  governance committee on 10 april 2014
9 ian barlow joined the ethics  compliance committee on 2 october 2014
board and committee attendance
the review into the board’s effectiveness in 2015 will be facilitated externally as although we undertake an annual review the last externally 
facilitated review was in 2012 the areas for attention identified in the 2013 review have been addressed as follows
progress made in 2014 against the areas for attention identified in the 2013 review
succession planning at nonexecutive director 
level would be a key priority following the 
retirement of a number of long serving non
executive directors during the year
nomination  governance committee undertook a comprehensive search for new non
executive directors leading to the appointment of vinita bali on 1 december 2014 and of 
erik engstrom on 1 january 2015 this process is ongoing details of the full search process 
are given in the nomination  governance committee report on page 70
timing and length of the board and committee 
meetings could be reviewed to consider 
whether the current pattern of meetings was 
most effective
the timing and frequency of board meetings has been reviewed by the chairman and 
the chief executive officer who have concluded that the current pattern of meetings is 
appropriate for the company and fits in well with the programme of executive activities 
throughout the year the reporting schedule inhibits changing the board timetable
action identified
make more effective use of the annual board planner to ensure that all key strategic issues were timetabled appropriately throughout the year
encourage the executive team to access the diverse competencies of the nonexecutive directors more between board meetings
continue the practice of inviting members of the executive team to present regularly to the board
corporate governance
corporate governance statement continued
effectiveness
dear shareholder 
the chairman asked me as senior independent director to conduct 
the review into the effectiveness of the board in 2014 i interviewed all 
the members of the board the company secretary and the head of 
human resources towards the end of 2014 basing our discussions 
around a short questionnaire prepared by the company secretary
the board scores highly on all the key assessments of our 
responsibilities for approving strategy monitoring performance 
determining risk diligence of members’ attendance and quality of 
discussion roberto quarta chairman of the board is universally 
respected for his professionalism chairmanship skills and for 
developing an excellent working relationship with olivier he has 
invested the time to understand the business getting to know 
the senior executives and the major shareholders and has made 
excellent progress in strengthening the board with appointment of 
new nonexecutive directors the committees of the board were 
also found to be operating effectively 
there has been some healthy discussion around the role played by 
the board with the nonexecutives eager to play a more active role 
in agenda planning setting the strategy organisational change and 
management succession and the appointment of advisers 
the board discussed the results of my findings at our board meeting 
in february 2015 and agreed the following actions for 2015
smith  nephew annual report 2014 68 board development programme
our board development programme is directed to the specific needs 
and interests of our directors we focus the development sessions on 
facilitating a greater awareness and understanding of our business 
rather than formal training in what it is to be a director we value our 
visits to the different smith  nephew sites around the world where 
we meet with the local managers of our businesses and see the 
daily operations in action meeting our local managers helps us to 
understand the challenges they face and their plans to meet those 
challenges we also take these opportunities to look at our products 
and in particular the new products being developed by our rd teams  
this direct contact with the business in the locations in which we 
operate around the world helps us to make investment and strategic 
decisions meeting our local managers also helps us when making 
succession planning decisions below board level
during the course of the year we receive updates at the board and 
committee meetings on external corporate governance changes  
likely to impact the company in the future 
succession planning 
the board is responsible for ensuring that there are effective 
succession plans in place to ensure the orderly appointment of 
directors to the board as and when vacancies arise the report  
from the nomination  governance committee on pages 70 to 71 
explains the process the board and the nomination  governance 
committee followed in 2014 to build a balanced board for the future  
in undertaking the search for new nonexecutive directors
building a successful executive team is the responsibility of the chief 
executive officer although this process is also overseen by the board 
the chief executive officer and chief human resources officer 
present a report to the board on succession planning on an annual 
basis at which the performance and potential of members of the 
executive team are discussed and considered the board is also given 
a number of opportunities during the course of the year to meet key 
members of the executive team at the strategy review held annually in 
september and at the site visits held in october each year executive 
officers and their direct reports also make regular presentations 
on different aspects of the business the board recognises the 
importance of getting to know the executive team below board level 
both for the purpose of understanding the business better but also  
in order to plan for executive succession
by order of the board on 25 february 2015
roberto quarta
chairman
in 2014 we particularly focused on the changes to narrative reporting 
and reporting on remuneration as well as the changes incorporated in 
the uk corporate governance code 2014 and the financial reporting 
council’s audit quality thematic review into fraud risks and laws 
and regulations new directors receive tailored induction programmes 
when they join the board in 2014 vinita bali commenced her induction 
programme with a series of meetings with key senior executives and a 
briefing on uk company law and corporate governance delivered jointly 
by our corporate lawyers freshfields and our company secretary susan 
swabey since the year end vinita bali and erik engstrom have continued 
meeting with key senior executives and a series of visits to our major 
facilities is planned for them both over the next few months all non
executive directors are encouraged to visit our overseas businesses if 
they happen to be travelling for other purposes our local management 
teams enjoy welcoming nonexecutive directors to their business 
and it emphasises the interest the board takes in all our operations 
the chairman regularly reviews the development needs of individual 
directors and the board as a whole 
development activities
the following development sessions covering both the smith  nephew business and wider market issues were held during the year
month activity
february
– individual cyber profiling sessions with each director
– presentation from external consultants on the current state of the medical devices industry across europe
april – presentation on new syncera range
july – joint presentation from our corporate brokers on equity markets and investor perceptions of smith  nephew
september
– meetings with our asean management team in singapore with presentations from the local managing  
directors in singapore malaysia and thailand
– presentation from a leading indian hip surgeon on the challenges in the indian market
– presentations from the entire executive team as part of the board’s strategy review
– board discussion on risk as part of the board’s strategy discussions
october
– visit to the biotherapeutics facility in fort worth texas and meetings with the biotherapeutics research and 
development teams
– series of presentations from our advanced wound management us commercial team on the challenges  
faced by the business our strategy and initiatives to meet these challenges and an update on progress made since the 
previous year
69 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information role of the nomination  governance committee
our work falls into the following two areas
board composition
– reviewing the size and composition of the board
– overseeing board succession plans
– recommending the appointment of directors
– monitoring board diversity
corporate governance
– overseeing governance aspects of the board and its committees
– overseeing the review into the effectiveness of the board
– considering and updating the schedule of matters reserved to the 
board and the terms of reference of the board committees
– monitoring external corporate governance activities and keeping  
the board updated
– overseeing the board development programme and the induction 
process for new directors
the terms of reference of the nomination  governance committee 
describe our role and responsibilities more fully and can be found on our 
website at wwwsmithnephewcom
activities of the nomination  governance committee 
in 2014 and since the year end
in 2014 we held four physical meetings each meeting was attended 
by all members of the committee the company secretary  the head of 
human resources and external search agents also attended by invitation 
in between each meeting various discussions were held between 
members of the nominations  governance committee and the external 
search agent our programme of work in 2014 was as follows
early february activities related to the year end
– considered and approved the reappointment of directors who  
had completed three or six years’ service and the annual 
appointment of directors serving in excess of nine years
– reviewed and updated the schedule of matters reserved to the 
board and the terms of reference of the board committees
– considered and discussed the results of the annual review into  
the effectiveness of the board
– noted an update on corporate governance matters relating to 
reporting and disclosure requirements
early september appointment of vinita bali
– reviewed the long list of candidates for the position of nonexecutive 
director and discussed the outcome of meetings already held with 
candidates who had been shortlisted
– agreed to recommend to the board that vinita bali be appointed 
nonexecutive director
dear shareholder
i am pleased to present our report on the role and activities of the 
nomination  governance committee in 2014 
current members in 2014
roberto quarta committee chairman
brian larcombe senior independent nonexecutive director
virginia bottomley from 10 april 2014 independent nonexecutive director
olivier bohuon chief executive officer
1 sir john buchanan and richard de schutter left the committee on 10 april 2014 
on their retirement from the board
key activities
– review the composition of the board and make 
recommendations to the board regarding the appointment 
of directors 
– oversee governance aspects of the board and its committees
2015 focus
– continue to search for one more nonexecutive director with 
financial expertise
nomination  governance 
committee report
corporate governance
accountability
accountability
smith  nephew annual report 2014 70 end october appointment of erik engstrom
– further reviewed the longlist and shortlist of nonexecutive 
director candidates and discussed the outcome of meetings held 
with candidates
– agreed to recommend to the board that erik engstrom be appointed 
nonexecutive director
– agreed to hold further meetings with other candidates
early december appointment of nonexecutive directors
– further reviewed the longlist and shortlist of nonexecutive 
director candidates and discussed the outcome of meetings held 
with candidates
since the year end we have also considered the outcomes of the board 
effectiveness review and discussed the future structure of the board
nonexecutive directors
during 2014 there were a number of changes to the composition of 
the board sir john buchanan retired as chairman of the board at the 
annual general meeting after nine years’ service to the company 
richard de schutter also retired at the annual general meeting 
following 13 years’ service and pamela kirby retired after 12 years’ 
service in july earlier in the year ajay piramal also retired from the 
board in march due to the pressure of other commitments these 
departures left a number of positions on the board to be filled we 
therefore undertook a search programme to identify suitable new 
board members which resulted in the appointment of vinita bali as 
nonexecutive director with effect from 1 december 2014 and of erik 
engstrom with effect from 1 january 2015 the process we followed was 
as follows
– i worked with olivier bohuon chief executive officer the company 
secretary and the head of human resources to analyse the skills 
and experiences we felt that we needed on the board to implement 
our strategy over the next five years we also analysed the skills 
and experiences of those directors who would be remaining on 
the board 
– from this review we identified that we would wish to search for up to 
three new nonexecutive directors each with a combination of one 
or more of the following skills experiences or backgrounds
–  experience of one or more of the emerging markets in which 
we operate
–  digital experience – we later modified this to leading a company 
through a period of considerable technological change
– experience as a chief executive officer in another listed company
– at least one new female nonexecutive director
– the board reviewed this analysis and endorsed the skills and 
experiences against which we would be searching
– the nomination  governance committee selected russell 
reynolds to undertake the search for new nonexecutive directors 
having reviewed three firms suggested by the head of human 
resources and the company secretary
– russell reynolds prepared a long list of candidates satisfying one or 
more of the above criteria and brian larcombe and i met with them to 
discuss the longlist and select a shortlist of suitable candidates
– members of the nomination  governance committee then met 
individually with a number of candidates additional board members 
were also asked to meet certain candidates where there were 
particular interests or experiences
– the nomination  governance committee agreed to recommend 
that the board appoint vinita bali and erik engstrom as non
executive directors
the nomination  governance committee selected vinita bali to be 
a nonexecutive director because of her experience as a very senior 
commercial executive in a wide range of emerging markets across india 
africa and south america
we selected erik engstrom because of his experience in his role as chief 
executive officer leading his company reed elsevier through significant 
technological change and his ability to add value to our audit committee
russell reynolds also undertook succession planning assessments on 
behalf of management the committee is satisfied that their advice is 
objective and independent 
diversity
we aim to have a board which represents a wide range of 
backgrounds skills and experiences we also value a diversity of 
outlook approach and style in our board members we believe that a 
balanced board is better equipped to consider matters from a broader 
perspective and therefore come to decisions that have considered a 
wider range of issues and perspectives than would be the case in a 
more homogenous board diversity is not simply a matter of gender 
ethnicity or other easily measurable characteristic diversity of outlook 
and approach is harder to measure than gender or ethnicity but is 
equally important a board needs a range of skills from technical 
adherence to governance or regulatory matters for an understanding of 
the business in which we operate it needs some members with a long 
corporate memory and others who bring new insights from other fields 
there needs to be both support and challenge on the board as well as 
a balance of gender commercial and international experience when 
selecting new members for the board we take these considerations 
into account as well as professional background a new board 
member needs to fit in with their fellow board members but also needs 
to provide a new way of looking at things
in 2012 we stated that our expectation would be that by 2015 25 of 
our board would be female and we have met this expectation 30 
of our board is female we do not regard this as a fixed percentage as 
the number of board members will fluctuate from time to time and we 
would not necessarily expect to replace any retiring director with a new 
director of the same gender we will still continue to appoint directors 
on merit valuing the unique contribution that they will bring to the 
board regardless of gender
governance
during the year the nomination  governance committee also 
addressed a number of governance matters we also received updates 
from the company secretary on new developments in corporate 
governance and reporting in both the uk and europe we reviewed 
the independence of our nonexecutive directors considered 
potential conflicts of interest and the diversity of the board and made 
recommendations concerning these matters to the board
yours sincerely 
roberto quarta 
chairman of the nomination  governance committee
71 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
accountability continued
dear shareholder
i am pleased to present our report on the role and activities of the 
ethics  compliance committee in 2014 
current members in 2014
michael a friedman from 31 july 2014 committee chairman
ian barlow from 2 october 2014 independent nonexecutive director
joseph papa independent nonexecutive director
1 richard de schutter left the committee on 10 april 2014 on his retirement from 
the board
2 pamela kirby left the committee on 31 july 2014 on her retirement from the board
3 vinita bali will join the committee on 1 april 2015 
key activities
– reviews ethics and compliance processes and practices 
across the group
– oversees quality and regulatory matters
– monitors significant compliance quality and regulatory issues 
or failures as they arise 
2015 focus
– develop a deeper oversight of quality and regulatory matters 
– continue to focus on compliance issues within the context of 
our acquisition programme 
– continue to enhance the compliance processes and practices 
of our third party distributors 
ethics  compliance  
committee report
role of the ethics  compliance committee
our work falls into the following two general areas
ethics  compliance
– overseeing ethics and compliance programmes
– monitoring ethics and compliance policies and training programmes
– reviewing compliance performance based on monitoring auditing 
and investigations data
– reviewing allegations of significant compliance issues
– overseeing the group’s internal and external communications 
relating to ethics and compliance matters
– reviewing external developments and compliance activities
– receiving reports from the group’s ethics  compliance committee 
meetings and from the chief compliance officer and the chief 
legal officer
quality assurance and regulatory assurance
– overseeing the processes by which regulatory and quality risks 
relating to the company and its operations are managed
– receiving and considering regular functional reports and 
presentations from the svp quality assurance and regulatory 
assurance qara
the terms of reference of the ethics  compliance committee describe 
our role and responsibilities more fully and can be found on our 
website at wwwsmithnephewcom
smith  nephew annual report 2014 72 activities of the ethics  compliance committee in 
2014 and since the year end
in 2014 we held four physical meetings each meeting was attended by 
all members of the committee the company secretary the chief legal 
officer the chief compliance officer and the svp quality assurance 
and regulatory assurance also attended by invitation our programme 
of work in 2014 included the following
february 
– noted that the sec and doj had confirmed the termination of the 
independent monitorship in january 2014 and that the company 
was now subject to selfreporting discussed and noted the 
requirements of selfreporting 
– noted the ethics and compliance due diligence and integration work 
being undertaken in respect of recent transactions in india turkey 
and brazil and the biotherapeutics business
– noted the preparations being made in capturing data to be filed 
under the us sunshine act and considered the sunshine legislation 
in other territories
april
– reviewed the processes in place to ensure oversight over third 
party sellers
– noted the ethics and compliance due diligence and integration work 
being undertaken in respect of recent transactions in india turkey 
and brazil and arthrocare
– noted that the first aggregate payment report under the us 
sunshine act had been filed in march 2014 and considered the 
sunshine legislation in other territories
july
– noted that the company’s first selfreporting report would be filed 
with the sec and doj in july 2014
october
– reviewed the results of 2014 ethics survey 
– noted the data recently published under the us sunshine act in 
respect of both the company and its competitors
– received a report from the svp quality assurance and regulatory 
assurance on the activities of the qara function reviewing the 
quality and regulatory challenges faced across the company and 
initiatives to address them
at each meeting we noted and considered the activities of enforcement 
agencies and investigation of possible improprieties we also reviewed 
a report on the activities of the group ethics  compliance committee 
and reviewed the progress of the global compliance programme 
since the year end we have also reviewed the work of the group ethics 
 compliance committee meeting held in november 2014 considered 
the compliance implications of recent acquisitions and continued our 
oversight of the quality assurance and regulatory assurance function
employee compliance programme
new employees are trained on our code of conduct which sets 
out the basic legal and ethical principles for conducting business 
a copy of the code of conduct can be found on our website at 
wwwsmithnephewcom
further support is provided through a comprehensive set of tools and 
resources located on our global intranet platform these tools and 
resources are regularly updated 
the code of conduct includes our whistleblower policy which 
enables employees and members of the public to contact us 
anonymously through an independent provider where allowed by local 
law individuals can also report any concern to their direct manager 
or a manager in compliance legal or human resources all calls and 
contacts are investigated and the appropriate action taken including 
reports for senior management or the board where warranted as 
stated in the code of conduct we also enforce our nonretaliation 
policy with respect to anyone who makes a report in good faith the 
ethics  compliance committee is advised of any potentially significant 
improprieties from time to time and the company’s response 
in 2014 we continued to work to enhance the employee compliance 
training programme new employees receive training on our code 
of conduct ‘code’ and we assign annual compliance training to 
employees in 2014 we updated our code training the new module is 
more interactive rolebased and allows individuals to apply the code 
in different scenarios 
we also developed and piloted a facetoface course for new 
managers supplementing the online manager certification training in 
2015 all new managers will be required to complete both the online 
and the facetoface course 
73 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information compliance programme for third parties
we continually review our compliance programme with third  
party sellers such as distributors and sales agents particularly  
in higher risk markets this programme includes due diligence 
contracts with compliance terms and compliance training to increase 
oversight we have augmented monitoring and auditing programmes 
in 2014
we expanded our oversight of third party sellers with site assessments 
to check compliance controls and monitoring visits to review books 
and records 
we have continued to strengthen controls over other third parties 
engaged by us to provide services other than selling our products 
such as customs registration and travel agents in 2014 we focused on 
potentially higher risk third parties we have established a policy and 
process requiring that managers prioritise our oversight of third parties 
and take appropriate steps including performing a risk assessment 
conducting due diligence and assigning training based on third party 
type and risk profile 
compliance implications around acquisitions 
in both 2013 and 2014 there has been increased strategic acquisition 
activity across the group in all cases we undertake comprehensive 
due diligence evaluation prior to acquisition and implement compliance 
integration plans from the point of executing the acquisition this is to 
ensure that new businesses are integrated into the smith  nephew 
compliance culture as soon and consistently as possible and that all 
new employees are immediately made aware of how we do things at 
smith  nephew 
corporate governance
accountability continued
oversight of quality assurance and regulatory 
assurance function
during the course of 2014 it was agreed that primary oversight of the 
quality assurance and regulatory assurance function qara would 
move from the audit committee to the ethics  compliance committee 
product safety is at the heart of our business and regulatory authorities 
enforce a complex series of laws and regulations that govern the 
design development approval manufacture labelling marketing 
and sale of healthcare products including review of the safety and 
efficacy of such products jerry porreca svp quality assurance 
and regulatory assurance presented to the ethics  compliance 
committee in october 2014 explaining the new structure of the qara 
function and the current focuses and initiatives being addressed by the 
function the qara function is built on four pillars – quality assurance 
regulatory affairs customer complaints and quality systems and 
regulatory compliance 
going forward the ethics  compliance committee will monitor the 
work of the qara function on a quarterly basis approve the qara 
annual programme of work as outlined in their 3year qara plan 
consider any quality or regulatory issues that arise during the year  
and approve any appropriate remedial action 
yours sincerely
michael a friedman
chairman of the ethics  compliance committee
smith  nephew annual report 2014 74 role of the audit committee
our work falls into the following five areas
financial reporting
– reviewing significant financial reporting judgments and accounting 
policies and compliance with accounting standards
– ensuring the integrity of the financial statements and their 
compliance with uk and us statutory requirements
– ensuring the annual report and accounts are fair balanced and 
understandable and recommending their adoption by the board
– monitoring announcements relating to the group’s 
financial performance
internal controls and risk management
– monitoring the effectiveness of internal controls and compliance 
with the uk corporate governance code 2012 and the sarbanes 
oxley act specifically sections 302 and 404
– reviewing the operation of the group’s risk management processes 
and the control environment over financial risks
fraud and whistleblowing
– receiving reports on the processes in place to prevent fraud and to 
enable whistleblowing
– if required receiving reports of fraud incidents
internal audit
– agreeing internal audit plans and reviewing reports of internal 
audit work
– monitoring the effectiveness of the internal audit function
external audit
– overseeing the board’s relationship with the external auditor
– monitoring and reviewing the independence and performance of 
the external auditor and evaluating their effectiveness
– making recommendations to the board for the appointment or 
reappointment of the external auditor
the terms of reference of the audit committee describe our role 
and responsibilities more fully and can be found on our website at 
wwwsmithnephewcom
dear shareholder
i am pleased to present our report on the role and activities of the 
audit committee in 2014 
current members in 2014
ian barlow committee chairman and designated financial expert
erik engstrom from 1 january 2015 independent nonexecutive director
brian larcombe senior independent nonexecutive director
joseph papa independent nonexecutive director
1 richard de schutter left the committee on 10 april 2014 on his retirement from 
the board
key activities
– undertake independent assessment of the financial affairs of 
the company
– oversee system of control and risk management throughout 
the group
– undertake detailed work to support the board’s approval of the 
financial results 
2015 focus
– consideration of how to address the requirement to publish a 
viability statement in the 2015 annual report and more detailed 
risk management reporting 
– monitor the rollout of enhanced consistently applied financial 
controls across the group 
audit committee report
75 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
accountability continued
activities of the audit committee in 2014 and since the year end
in 2014 we held five physical meetings and three meetings by telephone each meeting was attended by all members of the committee the 
chief executive officer the chief financial officer the head of internal audit following her appointment in may 2014 the external auditor and key 
members of the finance function the company secretary and deputy company secretary also attended by invitation we also met regularly with 
the external auditor without management present our programme of work in 2014 was as follows
month activity
early february  
approval of preliminary 
announcement
– reviewed the results for the full year 2013 and the preliminary announcement and recommend them for adoption by 
the board
– reviewed the effectiveness of financial controls and of the risk management process and concluded they were 
operating effectively 
– received the internal audit report and approved the internal audit work programme for 2014
– received the quality assurance report and approved the quality assurance work programme for 2014
– received the fraud report and reviewed whistleblowing procedures
– approved external audit fees and the policy for preapproval of ey nonaudit tax fees and noted consulting fees paid to 
other major audit firms
late february  
by telephone approval  
of financial statements
– reviewed and approved the annual report and accounts for 2013 having considered whether they were fair balanced 
and understandable and recommended them for adoption by the board
– considered the effectiveness of the external auditor and concluded that their work had been effective
– agreed to put the audit out to tender for the financial year 2015
early april 
presentations from 
prospective audit firms
– confirmed the detailed plan for the audit tender and appointed the audit tender steering committee
– received a presentation from the three audit firms planning to participate in our audit tender process
late april  
by telephone approval  
of q1 results
– reviewed the results for the first quarter 2014 and approved the q1 announcement
early july  
by telephone 
appointment of 
new auditors
– considered and approved the recommendation of the audit tender steering committee to appoint kpmg llp as the 
company auditors for the year ending 31 december 2015
late july  
approval of h1 results
– reviewed the results for the first half 2014 and approved the h1 announcement
– reviewed the progress report from internal audit which included an update on the status of the 2014 internal audit plan
– received the fraud report and reviewed whistleblowing procedures
– reviewed and discussed the due diligence process for acquisitions noting improvements made to this process in the 
past year
– reviewed and approved the external auditor’s audit plan for 2014
october  
approval of q3 results
– reviewed the results for the third quarter 2014 and approved the q3 announcement
– approved the terms of the engagement letter of ey as auditors for the financial year 2014
– reviewed the progress report from internal audit the status of the 2014 internal audit plan and two internal 
audit reports
– approved the group risk management programme conducted in 2014 
– considered and discussed the updated uk corporate governance code issued by the financial reporting council
– considered and discussed the financial reporting council’s audit quality thematic review  fraud risks and laws 
and regulations
– received the fraud report and reviewed whistleblowing processes
– noted the progress of the european it sap implementation project 
– reviewed the inspection reports on ey from the financial reporting council uk and the public company accounting 
oversight board us 
– reviewed and discussed the rollout of the minimum acceptable practices for finance and other control 
focussed initiatives 
december  
review of functional 
reports
– reviewed and updated the terms of reference of the audit committee
– considered and approved critical accounting policies and judgments in advance of the 2014 year end
– considered and approved the external audit plan for 2015
– reviewed and approved the layout and design of the annual report 2014
– received and discussed a report on the finance transformation project and reports from the head of taxation the 
group treasurer and the chief information officer on disaster recovery and it risk these reports focused on the 
respective controls and risks within each function
during the year we also approved our policy on the use of conflict minerals by written resolution
since the year end we have also reviewed the annual report and accounts for 2014 and have concluded that taken as a whole they are fair 
balanced and understandable and have advised the full board accordingly in coming to this conclusion we have considered the description 
of the group’s strategy and key risks the key elements of the business model which is set out on page 12 and the key performance 
indicators and their link to the strategy
smith  nephew annual report 2014 76 significant matters related to the financial statements
we considered the following key areas of judgement in relation to the 2014 accounts and at each reporting quarter end which we discussed in all 
cases with management and the external auditor
area of judgement our action
valuation of inventories
a feature of the orthopaedic business model whose finished goods inventory 
makes up 81 of the group total finished goods inventory is the high level of 
product inventory required some of which is located at customer premises and is 
available for customers’ immediate use complete sets of product including large 
and small sizes have to be made available in this way these sizes are used less 
frequently than standard sizes and towards the end of the product life cycle are 
inevitably in excess of requirements adjustments to carrying value are therefore 
required to be made to orthopaedic inventory to anticipate this situation
at each quarter end we received reports from and 
discussed with management the level of provisioning 
and material areas at risk the provisioning level was 215 
at 31 december 2014 260 as at 31 december 2013 we 
concluded that the proposed levels were appropriate
liability provisioning
the recognition of provisions for legal disputes is subject to a significant degree 
of estimation provision is made for loss contingencies when it is considered 
probable that an adverse outcome will occur and the amount of the loss can be 
reasonably estimated in making its estimates management takes into account 
the advice of internal and external legal counsel provisions are reviewed regularly 
and amounts updated where necessary to reflect developments in the disputes 
the ultimate liability may differ from the amount provided depending on the 
outcome of court proceedings or settlement negotiations or if new facts come  
to light the level of provisioning for contingent and other liabilities is an issue 
where management and legal judgements are important
as members of the board we receive regular updates from 
the chief legal officer these updates form the basis for the 
level of provisioning these judgements have not moved 
materially during the year with some cases having been 
resolved and we have determined that the proposed levels 
at year end of 74 million in 2014 86 million in 2013 were 
appropriate in the circumstances
impairment
in carrying out impairment reviews of goodwill intangible assets and property 
plant and equipment a number of significant assumptions have to be made 
when preparing cash flow projections these include the future rate of market 
growth discount rates the market demand for the products acquired the future 
profitability of acquired businesses or products levels of reimbursement and 
success in obtaining regulatory approvals if actual results should differ or  
changes in expectations arise impairment charges may be required which  
would adversely impact operating results
we reviewed management’s reports on the key 
assumptions with respect to goodwill acquisition intangible 
assets and investments in associates  particularly the 
forecast future cash flows and discount rates used to make 
these calculations we have also considered the disclosure 
surrounding these reviews and concluded that the review 
and disclosure were appropriate
taxation
provisioning for potential current tax liabilities and the level of deferred tax asset 
recognition in relation to accumulated tax losses are underpinned by a range 
of judgments about the future statutory profitability of constituent entities of 
the group
we annually review our processes and approve the 
principles for management of tax risks we review quarterly 
reports from management evaluating existing risks and 
tax provisions concluding that the levels of provisions 
was appropriate
business combinations
the group has identified ‘growth through acquisitions’ as one of its strategic 
priorities during 2014 we acquired arthrocare corporation the determination 
of the balance sheet fair value acquired is dependent upon understanding the 
circumstances at acquisition and estimates of the future results of the acquired 
business and management judgement is a factor in making these determinations 
for completed acquisitions we received a report from 
management setting out the significant assets and liabilities 
acquired details of the provisional fair value adjustments 
applied an analysis of the intangible assets acquired 
the assumptions behind the valuation of these acquired 
intangible assets and the proposed useful economic life 
of each intangible asset class for material acquisitions 
management engage third party specialists to perform 
a detailed analysis summaries of which are included 
in management reports we reviewed discussed and 
approved these reports
we note that within the external audit report there is a principal risk associated with the timing of revenue recognition and measurement of related 
reserves as required by auditing standards we have considered this and have concluded that we have appropriate procedures and controls in 
place not to include this as a significant area of judgement 
77 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
accountability continued
external auditor
independence of external auditors
the independence of our external auditors is critical for the integrity  
of the audit our auditor independence policy which ensures that this 
independence is maintained is available on the company’s website  
we believe that the implementation of this policy helps ensure that 
auditor objectivity and independence is safeguarded the policy governs 
our approach when we require our external auditor to carry our non
audit services and all such services are strictly governed by this policy 
during 2014 fees paid to ernst  young llp  our external auditor  for non
audit work totalled 18 million representing 35 of total audit fees full 
details are shown in note 32 of the notes to the group accounts during 
2014 fees paid to kpmg llp  who will be appointed as our external 
auditors at the annual general meeting amounted to 39 million the 
provision of nonaudit services by kpmg will be subject to our auditor 
independence policy and the level of these services will be monitored 
closely it is not expected that the level of nonaudit services provided by 
kpmg will be as high in 2015
the auditor independence policy also governs the policy regarding 
audit partner rotation in 2014 les clifford who had been our audit 
partner for five years was replaced by michael rudberg
effectiveness of external auditors
although ey will cease to be the company’s external auditors at the 
annual general meeting we felt that it would still be useful to carry 
out a review of the effectiveness of the external audit process and 
the quality of the audit as the findings could be of use to kpmg the 
incoming external auditor we therefore conducted a review into 
the effectiveness of the external audit as part of the 2014 yearend 
process in line with previous years we sought the views of key 
members of the finance management team considered the feedback 
from this process and shared it with management ey and kpmg
during the year we also considered the inspection reports from the 
audit oversight boards in the uk and us and determined that we were 
satisfied with the audit quality provided by ey
the audit quality review team of the financial reporting council in the 
uk reviewed the 2013 audit ey performed of the company we have 
discussed the results of this inspection with ey and are satisfied that 
the points raised by the review have been appropriately addressed in 
the 2014 audit
overall therefore we concluded that ey had carried out their audit for 
2014 effectively 
appointment of external auditors at annual general meeting
ernst  young llp will be retiring as the company’s external auditor 
at the annual general meeting the reports of ernst  young llp on 
the company’s financial statements for the past two fiscal years did 
not contain an adverse opinion or a disclaimer of opinion and were 
not qualified or modified as to uncertainty audit scope or accounting 
principles in connection with the audits of the company’s financial 
statements for each of the two fiscal years ended 2013 and 2014 and 
in the subsequent interim period to 23 february 2015 there were no 
disagreements with ernst  young llp on any matters of accounting 
principles or practices financial statement disclosure or auditing scope 
and procedures which if not resolved to the satisfaction of ernst  young 
llp would have caused ernst  young llp to make reference to the 
matter in their report
resolutions will be put to the annual general meeting to be held on 
9 april 2015 proposing the appointment of kpmg llp as the company’s 
auditors and authorising the board to determine their remuneration  
on the recommendation of the audit committee
disclosure of information to the auditors
in accordance with section 418 of the companies act 2006 the 
directors serving at the time of approving the directors’ report confirm 
that to the best of their knowledge and belief there is no relevant audit 
information of which the auditor ernst  young llp  are unaware and 
the directors also confirm that they have taken reasonable steps to be 
aware of any relevant audit information and accordingly to establish 
that the auditor is aware of such information
audit and professional fees paid to the auditor
fees for professional services provided by ernst  young llp  the 
group’s independent auditor in each of the last two fiscal years in 
each of the following categories were
2014 
 million
2013 
 million
audit 3 3
auditrelated fees – –
tax 2 3
other – –
total 5 6
internal audit
our internal audit function reports directly to the audit committee 
and is headed by jenny morgan senior vice president internal audit 
whom we appointed in may 2014 she has subsequently restructured 
her team to meet the requirements of the evolving nature of our 
business particularly in emerging markets and new acquisitions
the internal audit function carries out work in the following three areas
– financial systems and processes
– systems that ensure compliance with our code of conduct 
regulation and laws and
– quality management systems in our manufacturing activities
in all three areas they act as a third line of defence behind operational 
management’s front line and the company’s internal assurance 
activities within group finance compliance and quality assurance 
during the year they completed 26 reviews across the business  
the audit committee receives a quarterly report of the activities of 
the internal audit function and reviews the results of the internal audit 
reports looking in detail at any reports with unsatisfactory ratings 
we also receive a quarterly report detailing any unremediated and 
overdue control recommendations and oversee the effective and timely 
remediation of any recommendations
specific activities of the internal audit function in 2014 were the 
review of the design of the postdeal acquisition review process 
and the calculation of the benefits and costs associated with the 
group optimisation programme in addition site specific audits were 
conducted of the china commercial business and the new acquisitions 
in turkey and india to ensure that integration efforts were in line with 
approved plans
in 2015 we will continue to monitor internal audit’s scope of work and 
operational methods to ensure that it continues to play a full role in 
providing assurance over the group’s identification and management 
of risk and its associated controls
during 2014 kpmg carried out an external review into the 
effectiveness of the internal audit function the review made a number 
of recommendations regarding the role and remit of internal audit the 
resourcing of the function and the development of integrated working 
with other functions to provide a more holisitc approach to risk and 
assurance across the group these recommendations were accepted 
and are being implemented 
since this review the internal audit function has been strengthened 
by the appointment of jenny morgan the new senior vice 
president internal audit who has in turn restructured the function as 
detailed above 
smith  nephew annual report 2014 78 tender of external audit services
ey and their predecessor firms have been the company’s auditors 
since the company listed in 1937 we have been very satisfied with 
the effectiveness of the external audit process and the quality of the 
audit and have undertaken a number of measures to ensure that 
the external auditor has continued to maintain its independence 
however in common with a number of other companies as we 
explained in our audit committee report last year we recognised  
in 2014 that it was the right time to put the external audit out to tender  
during the early summer of 2014 i led a process to select a new 
external auditor for the year ending 31 december 2015 i worked 
with the group’s procurement function and established a steering 
committee comprising myself brian larcombe member of the 
audit committee and senior independent director julie brown the 
chief financial officer susan swabey the company secretary and 
dan baker senior vice president group finance given the size 
complexity and geographical scope of the business we invited 
deloitte kpmg and pwc to take part in the tender for carrying out 
our external audit in addition in light of the emerging rules from 
europe we reached mutual agreement with ey that they would not 
take part in the tender process
prior to the commencement of the tender process each firm was 
invited to make a presentation to the early april audit committee 
meeting on a project on which they had recently been working 
with the company this was to ensure that each firm had sufficient 
exposure to the audit committee prior to the financial tender 
we were conscious that the audit tender process is time and 
resource consuming both for the firms involved and for the 
company and were therefore determined to have a concise yet 
thorough process ensuring equivalent access to management for 
each firm we undertook the following process over just six weeks
1 late may – issued the request for tender
2 late may – participating firms attended a joint workshop over a 
period of two days this included a group meeting with all firms 
with a series of presentations from key members of management 
explaining their key expectations from the external audit process 
as well as a series of individual meetings with management
3 late may – each firm was granted access to key senior members 
of management in a structured programme following the 
workshop and then given access to senior managers and  
finance staff throughout the group to help them understand 
the business further
4 end june – each firm submitted their written tender document 
covering predetermined areas of focus including risk 
identification audit approach to risks and audit scope these 
written tenders also included the proposed audit fee as we 
believed that as well as ensuring the quality of the audit we  
also needed to have regard to the sensible containment of costs
5 early july – in the week leading up to the presentation each 
audit firm was asked to prepare a response to an audit query 
the same query for each firm to simulate real life working and 
allow the steering committee to assess how well they responded 
to a request at short notice and how they interacted with the 
committee on a technical issue
6 early july – each firm was asked to make a presentation to the 
steering committee explaining why we should select them  
as our external auditors 
7  early july – following the presentations and further discussions 
the audit committee met and considered the recommendation  
of the steering committee and agreed to appoint kpmg llp  
as our external auditors for the 2015 financial year a resolution  
to this effect will be submitted to shareholders for approval at the  
annual general meeting 
throughout the process we were mindful of the need to preserve the 
independence of the external audit as part of the tender each firm 
was required to disclose all existing relationships with the company 
and explain their proposals for ensuring that these relationships 
would not cause any conflict of interest after 1 january 2015 given that 
up until 2008 i was senior partner in london with kpmg we were 
aware that there might be some concerns about my independence 
in order to address this our chairman roberto quarta joined the 
steering committee for the final stage of presentations to ensure 
impartiality was maintained we also noted that other senior members 
of the finance team had recently joined the company from other 
tendering firms
we chose kpmg to be our external auditors as we felt that they had 
demonstrated that they understood our business and risks well and 
could work both constructively and in a challenging manner with our 
management and provide the audit committee with the assurances 
we would need to fulfil our role
the audit of the 2014 annual report and accounts will therefore 
be the last external audit to be conducted by ey i should therefore 
like to record my thanks to ey and their partners and staff for their 
many years of excellent service to the shareholders of smith  
nephew as chairman of the audit committee for the past five years 
i have enjoyed working with them and have valued the insights and 
professionalism they have brought to the audit committee meetings
risk management and internal control
on behalf of the board we reviewed the system of internal financial 
control and satisfied ourselves that we are meeting required standards 
both for the year ended 31 december 2014 and up to the date of approval 
of this annual report no concerns were raised with us in 2014 about 
possible improprieties in matters of financial reporting
in coming to this conclusion
– we received regular reports from the internal audit and group 
finance functions on their findings from the reviews undertaken 
throughout the year both from an internal audit perspective and also 
with regard to compliance with the sarbanesoxley act
– we requested and reviewed a report mapping group level risks  
and related control assurance
– we requested various reports from management relating  
to specific risks identified through the risk management process  
our risk management framework is underpinned by business 
and functional risk registers that highlight the risks identified and 
the probability and impact of risk to the group as well as mitigation 
plans the most significant of these risks are considered by the 
group risk committee for inclusion on a group risk register the 
effectiveness of the framework is reviewed annually by internal 
audit and by the audit committee in 2014 the audit committee 
concluded that the framework was effective 
79 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
accountability continued
evaluation of internal controls
management is responsible for establishing and maintaining adequate 
internal control over financial reporting as defined in rule 13a–15 f and 
15d–15f under the us securities exchange act of 1934
there is an established system of internal control throughout the 
group and our divisions the main elements of the internal control 
framework are
the management of each division is responsible for the establishment 
and review of effective financial controls within their division
the group finance manual sets out amongst other things 
financial and accounting policies and minimum internal financial 
control standards
the internal audit function agrees an annual work plan and scope of 
work with the audit committee
the audit committee reviewed reports from internal audit on their 
findings on internal financial controls
the audit committee reviews the group whistleblower procedures
the audit committee reviews regular reports from the senior vice 
president group finance and the heads of the financial controls and 
compliance taxation and treasury functions
this system of internal control has been designed to manage rather 
than eliminate material risks to the achievement of our strategic 
and business objectives and can provide only reasonable and not 
absolute assurance against material misstatement or loss because of 
inherent limitation our internal controls over financial reporting may not 
prevent or detect all misstatements in addition our projections of any 
evaluation of effectiveness in future periods are subject to the risk that 
controls may become inadequate because of changes in conditions 
or that the degree of compliance with the policies or procedures 
may deteriorate the system of internal control is not applied to the 
entities in which the group does not hold a controlling interest this 
process complies with the financial reporting council’s ‘internal 
control revised guidance for directors on the combined code’ and 
additionally contributes to our compliance with the obligations under 
the sarbanesoxley act 2002 and other internal assurance activities 
other than the integration of arthrocare there has been no change 
in the group’s internal control over financial reporting during the 
period covered by this annual report that has materially affected or is 
reasonably likely to materially affect the group’s internal control over 
financial reporting
the board is responsible overall for reviewing and approving the 
adequacy and effectiveness of the risk management framework and 
the system of internal controls over financial operational including 
quality management and ethical compliance processes operated by 
the group the board has delegated responsibility for this review to 
the audit committee the audit committee through the internal audit 
function reviews the adequacy and effectiveness of internal control 
procedures and identifies any weaknesses and ensures these are 
remediated within agreed timelines the latest review covered the 
financial year to 31 december 2014 and included the period up to the 
approval of this annual report 
the main elements of this annual review are as follows
the chief executive officer and chief financial officer have 
evaluated the effectiveness of the design and operation of the 
group’s disclosure controls and procedures as at 31 december 2014 
based upon this evaluation the chief executive officer and chief 
financial officer concluded on 23 february 2015 that the disclosure 
controls were effective as at 31 december 2014
management is responsible for establishing and maintaining 
adequate internal control over financial reporting management 
assessed the effectiveness of the group’s internal control over 
financial reporting as at 31 december 2014 in accordance with 
the requirements in the us under s404 of the sarbanesoxley 
act in making that assessment they used the criteria set forth 
by the committee of sponsoring organisations of the treadway 
commission in internal controlintegrated framework based on 
their assessment management concluded and reported that as 
at 31 december 2014 the group’s internal control over financial 
reporting is effective based on those criteria
having received the report from management the audit committee 
reports to the board on the effectiveness of controls
ernst  young llp  an independent registered public accounting firm 
issued an audit report on the group’s internal control over financial 
reporting as at 31 december 2014 this report appears on page 105
code of ethics for senior financial officers
we have adopted a code of ethics for senior financial officers which 
applies to the chief executive officer the chief financial officer the 
senior vice president group finance and the group’s senior financial 
officers there have been no waivers to any of the code’s provisions 
nor have there been any amendments to the code during 2013 or up 
until 23 february 2015 a copy of the code of ethics for senior financial 
officers can be found on our website at wwwsmithnephewcom 
in addition every individual in the finance function certifies to the 
chief financial officer that they have complied with the finance code 
of conduct 
evaluation of effectiveness of the audit committee
the effectiveness of the audit committee was evaluated as part of 
the review into the effectiveness of the board conducted at the end of 
2014 the results of this review are described on pages 66 to 67 of this 
annual report
yours sincerely
ian barlow
chairman of the audit committee
smith  nephew annual report 2014 80 corporate governance
remuneration report
remuneration
our remuneration arrangements have essentially remained unchanged 
from last year and we will therefore not be asking shareholders to vote 
on a new remuneration policy we have however chosen to replicate 
the policy you approved last year following the annual report on 
remuneration for ease of reference 
during the year richard de schutter and pamela kirby ceased to be 
members of the remuneration committee on their retirement from 
the board we value the contribution they each made to the work of 
the committee during the years they served and thank them both for 
their work
we welcome the opportunity we have had during the year to meet with 
our investors to discuss our remuneration arrangements and we thank 
the shareholders who met with us for their valuable contributions and 
insights into the way we think about remuneration we were delighted 
to have received the icsa excellence in governance award for “best 
remuneration report” in ftse 100 in 2014
yours sincerely
joseph papa 
chairman of the remuneration committee
dear shareholder 
the board focuses on the longterm future of the company we 
are delivering on our strategy to rebalance smith  nephew by 
strengthening our higher growth platforms which now represent more 
than half the business up from just 35 in 2011 in 2014 we undertook 
a number of important actions to accelerate this transformation
– we drove a much improved performance in us hip and knee 
implants and maintained our momentum in sports medicine joint 
repair and trauma  extremities
– we strengthened our higher growth platforms acquiring arthrocare 
to give us a broader sports medicine portfolio 
– we created new growth platforms the midtier portfolio for  
emerging markets and syncera as well as delivering doubledigit 
growth from our recent acquisition advanced wound bioactives 
the role of the remuneration committee is to design a remuneration 
strategy that drives performance aligned to the strategic priorities
our performance in 2014 reflected the choices we made to continue 
investing to transform smith  nephew and as a result the group 
enters 2015 stronger more efficient and set for higher growth 
however these choices did impact profit and cash performance in 
2014 and consequently performance against the financial measures in 
the annual incentive plan and the resulting payouts under this plan are 
accordingly lower than in previous years the remuneration committee 
recognises that the executive directors made the right decisions for the 
longterm future of the company and for the benefit of shareholders 
and performed well against their business objectives
in devising our remuneration arrangements we aim to have a clear 
line of sight between the performance of the company and how our 
directors and senior executives are paid we do this by setting the 
fixed elements of pay notably base salary and benefits in line with 
what our executive directors would be paid at another company of a 
comparable size complexity and geographical spread for the variable 
elements of pay we select performance measures that are linked to 
one or more of our strategic priorities as detailed on page 13 of the 
annual report these performance measures are summarised on the 
following page 
81 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
remuneration report continued
compliance statement
we have prepared this directors’ remuneration report the ‘report’ in accordance with the enterprise and regulatory reform act 20122013 clauses 8184 and the large and 
mediumsized companies and groups accounts and reports amendment regulations 2013 the ‘regulations’ the report also meets the relevant requirements of the 
financial conduct authority ‘fca’ listing rules
the first part of the report pages 83 to 93 is the annual report on remuneration the ‘implementation report’ the implementation report will be put to shareholders for approval 
as an advisory vote at the annual general meeting on 9 april 2015 the implementation report explains how the remuneration policy was implemented during 2014 and also how 
it is currently being implemented in 2015 pages 85 and 88 to 90 have been audited by ernst  young llp 
the second part of the report pages 94 to 102 is the directors’ remuneration policy report the ‘policy report’ which was approved by shareholders at the annual general 
meeting held in 2014 the policy report describes our remuneration policy as it relates to the directors of the company all payments we make to any director of the company 
will be in accordance with this remuneration policy we intend that this remuneration policy will remain in place unchanged for at least the next two years and will next be put to 
shareholder vote at the annual general meeting to be held in 2017  we will bring the policy report back to shareholders earlier in the event that we make any material change to the 
remuneration policy or shareholders do not approve the annual report on remuneration the level of base salary and benefits paid and performance measures shown in the policy 
report are as at 2014 when the policy report was approved by shareholders full details of any changes to these details since then in accordance with the policy report are given 
in the implementation report
measure in our variable pay plans link to strategic priorities
financial measures in annual incentive plans
revenue trading profit cash we need to generate cash in our established markets to be able to invest in emerging  
international markets innovation organic growth and acquisitions in order to continue to grow in 
the future cash flow is therefore important and this in turn is derived from increased revenues and 
healthy trading profits
business objectives in annual incentive plans
business process we need to release resources from the businesses through improved structures efficiencies 
and business processes in order to reinvest in our higher growth areas including emerging  
international markets innovation organic growth and acquisitions 
people we need to attract and retain the right people to achieve our strategy through improving our 
operating model 
customer our mission is to deliver advanced medical technologies that help healthcare professionals our 
customers improve the quality of life of their patients 
performance measures in our performance share plan
free cash flow cash flow from our established markets is necessary in order to fund growth in emerging  
international markets innovation organic growth and acquisitions
revenue in emerging   
international markets
our longterm strategy depends on our ability to grow in emerging  international markets
tsr if we execute our strategy successfully this will lead to an increased return for our shareholders
smith  nephew annual report 2014 82 the remuneration committee presents the annual report on 
remuneration the ‘implementation report’ which together with 
the annual statement from the chairman of the remuneration 
committee will be put to shareholders as an advisory vote at the 
annual general meeting to be held on 9 april 2015
current members in 2014
joseph papa committee chairman
virginia bottomley independent nonexecutive director
brian larcombe senior independent nonexecutive director
roberto quarta from 10 april 2014 chairman of the board
1 richard de schutter left the committee on 10 april 2014 on his retirement from 
the board 
2 pamela kirby left the committee on 31 july 2014 on her retirement from the board 
3 vinita bali will join the committee on 1 april 2015
key activities
– setting the remuneration policy and packages for executive 
directors and executive officers 
– approval of all share plans operating throughout the group 
2015 focus
– determination of payouts under cash incentive and longterm 
incentive plans vesting in 2015 
– determine targets to apply to cash incentive and share plan 
awards in 2015 
– review the overall structure of our remuneration policies to 
ensure they still support our business strategy 
role of the remuneration committee
our work falls into the following three areas
determination of remuneration policy and packages
– determination of remuneration policy for executive directors and 
senior executives
– approval of individual remuneration packages for executive 
directors and executive officers at least annually and any major 
changes to individual packages throughout the year
– consideration of remuneration policies and practices across 
the group
– approval of appropriate performance measures for shortterm 
and longterm incentive plans for executive directors and 
senior executives
– determination of payouts under shortterm and longterm incentive 
plans for executive directors and senior executives
oversight of all company share plans
–  determination of the use of longterm incentive plans and oversees 
the use of shares in all executive and allemployee plans
reporting and engagement with shareholders on 
remuneration matters
– approval of directors’ remuneration report ensuring compliance with 
related governance provisions
– continuance of constructive engagement on remuneration issues 
with shareholders
the terms of reference of the remuneration committee describe our 
role and responsibilities more fully and can be found on our website at 
wwwsmithnephewcom
the implementation report
remuneration committee
83 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
remuneration report continued
month activity
early february  
approval of salaries 
awards and payouts 
in 2014
– noted the financial results for 2013 against the targets under the shortterm and longterm incentive plans 
– agreed the targets for the shortterm and longterm incentive plans for 2014 approving the third performance measure 
for the performance share plan
– approved the quantum of cash payments to executive directors and executive officers under the annual incentive plan 
and awards under the equity incentive programme and the performance share programme
– approved the vesting of options and share awards granted in 2011 and reviewed the performance of longterm awards 
granted in 2012 and 2013
– reviewed benchmark data increases to salaries across the group and approved salary increases for executive 
directors and executive officers with effect from 1 april 2014
– approved the text of the remuneration report
– reviewed and approved the business plan for the remuneration committee for 2014
late february  
by telephone 
final approval of 
remuneration report
– approved the final targets for the shortterm and longterm incentive plans for 2014
– approved the final text of the remuneration report
late july midyear  
review of remuneration 
arrangements
– reviewed the shareholder response and support for the remuneration policy and report at the annual 
general meeting 
– reviewed adherence to shareholding guidelines by executive directors executive officers and senior executives
– monitored dilution limits and the number of shares available for use in respect of executive and allemployee 
share plans
– approved the schedule of share awards made since the previous meeting
– approved minor changes to the rules of various share plans in line with local legislative changes
– reviewed the performance of longterm awards granted in 2012 2013 and 2014
december  
review of 
remuneration strategy
– received a report from the chairman of the remuneration committee on recent engagement with shareholders
– approved the remuneration strategy for 2015
– considered the first draft of the remuneration report for 2014
– reviewed and considered the principles for determining payouts under the shortterm and longterm plans due to vest 
in 2015
– approved the schedule of share awards made since the previous meeting
four written resolutions were approved during the year relating to the approval of two leaver and two recruitment arrangements for 
executive officers
since the year end we have also reviewed the financial results for 2014 against the targets under the shortterm and longterm incentive 
arrangements jointly with the audit committee and have agreed the targets for the shortterm and longterm incentive plans for 2015 we 
have also approved increases to the salaries of executive directors and executive officers and determined cash payments under the annual 
incentive plan awards under the equity incentive programme and the performance share programme and the vesting of awards under the 
performance share programme granted in 2012 finally we approved the wording of this directors’ remuneration report
during the year the remuneration committee received information and advice from towers watson an independent executive 
remuneration consultancy firm appointed by the remuneration committee in 2011 following a full tender process they provided advice on 
market trends and remuneration issues in general attended remuneration committee meetings assisted in the review of the directors’ 
remuneration report and in determining the third performance measure for the performance share programme the fees paid to towers 
watson for remuneration committee advice during 2014 charged on a time and expense basis was £39745 in total towers watson also 
provided other human resources and compensation advice to the company for the level below the board towers watson comply with the 
code of conduct in relation to executive remuneration consulting in the united kingdom and the remuneration committee is satisfied that 
their advice is objective and independent
activities of the remuneration committee in 2014 and since the year end
in 2014 we held four physical meetings and determined four matters by written resolution each meeting was attended by all members of the 
committee the chief executive officer the chief human resources officer and the senior vice president global reward key members of the 
finance function and the company secretary also attended all or part of some of the meetings except when their own remuneration was being 
discussed we also met with the independent remuneration consultants towers watson without management present our programme of work 
in 2014 was as follows
smith  nephew annual report 2014 84 base salary
with effect from 1 april in each year executive directors were paid the 
following base salaries
2013 2014
olivier bohuon €1081500 €1111782
julie brown £500000 £514000
in february 2015 we reviewed the base salaries of the executive 
directors having considered general economic conditions and average 
salary increases across the rest of the group which have averaged 
at 3 the remuneration committee has therefore agreed that the 
executive directors’ base salaries will increase by 3 with effect from 
1 april 2015 to the following
olivier bohuon €1145135
julie brown £529420
payment in lieu of pension
in 2014 both olivier bohuon and julie brown received a salary 
supplement of 30 of their basic salary to apply towards their 
retirement savings in lieu of membership of one of the company’s 
pension schemes the same arrangement will apply in 2015
benefits
in 2014 both olivier bohuon and julie brown received death in service 
cover of seven times basic salary of which four times salary is payable 
as a lump sum with the balance used to provide for any spouse and 
dependent persons they also received health cover for themselves 
and their families a car allowance and financial consultancy advice 
oliver bohuon also received assistance with travel costs between 
london and paris the same arrangements will apply in 2015 the 
following table summarises the value of benefits on an elementby
element basis in respect of 2013 and 2014
olivier bohuon julie brown
2013 2014 2013 2014
health cover £12088 £20642 £1130 £1144
car and fuel allowance €18050 €18751 £13270 £14640
financial  
consultancy advice 
ii
£4893
€19816
£24053
€101926 £0 £7597
travel costs £19407 £28537 £0 £0
subscriptions £3504 
i
£3473 £0 £0
i
  
previous years are restated to reflect amounts not known at the date of signing of the previous 
annual report
ii  the level of financial consultancy advice fees for olivier bohuon in 2014 reflects that he is  
a french national working in a global role of a company headquartered in the uk 
these figures have been calculated as follows
base salary the actual salary receivable for the year
payment in lieu of pension the value of the salary supplement paid by the company in lieu of a pension
benefits the gross value of all taxable benefits or benefits that would be taxable in the uk received in the year prior years are restated to reflect 
amounts not known at the date of signing the previous annual report
annual incentive plan – cash the value of the cash incentive payable for performance in respect of the relevant financial year
annual incentive plan – equity the value of the equity element awarded in respect of performance in the relevant financial year but subject to 
an ongoing performance test as described on pages 87 and 88 of this report
performance share plan the value of shares vesting that were subject to performance over the threeyear period ending on 31 december in the 
relevant financial year based on an estimated share price of 1053 pence per share which was the average price of a share over the last quarter 
of 2014 
share option plan the embedded gain of options vesting that were subject to performance over the threeyear period ending on 31 december 
in the relevant financial year
allemployee share plans the gain on the date of grant for saye awards these are only subject to an employment condition and therefore the 
total value is captured in the year of grant reflecting the 20 discount at which options are granted in the relevant financial year
oneoff awards the total face value of shares awarded to julie brown on appointment in 2013 as described on page 89 of this report these 
awards are only subject to an employment condition and therefore the total value is captured in the year of award
total the sum of the above elements
the amounts for 2014 have been converted into us for ease of comparability using the exchange rates of £ to us16464 and € to us13263 and 
for the prior years using exchange rates disclosed in previous years’ accounts
single total figure on remuneration – executive directors
fixed pay
annual 
variable pay hybrid longterm variable pay
other items in the nature 
of remuneration
director base salary
payment  
in lieu 
of pension
taxable 
benefits
annual 
incentive 
plan – cash
annual 
incentive 
plan – equity
performance 
share plan
share 
option plan
all
employee 
share plans
oneoff  
awards total
olivier bohuon 
appointed 1 april 2011
2014 1464515 439354 286341 952318 811006 2641455 – – – 6594989
2013 1425559 427668 112637 1793584 933410 0 0 – – 4692858
julie brown 
appointed 4 february 2013
2014 840487 252146 38494 470373 465437 – – – – 2066938
2013 708450 212536 22510 858978 390800 – – 5684 838266 3037224
85 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
remuneration report continued
annual incentive plan
during 2014 the annual incentive plan for executive directors was 
based on the achievement of specific financial and business objectives 
as follows
financial objectives 70
revenue 30
trading profit 30
trading cash 10
business objectives 30
reinvestment and 
group optimisation 
olivier bohuon 
5
julie brown 
10
olivier bohuon julie brown
business 
people 
customer 25
 
20
the board have considered whether it would be in the best interests 
of the company and its shareholders to disclose the precise targets 
agreed for each of the performance measures in 2014 the targets for 
each year are set within the context of the group’s fiveyear plan which 
is updated at least annually if we were to disclose the precise targets 
for one year of the plan this would give information to our competitors 
about our longterm plans which they could use to compete against 
us for example by retiming the launch of new products or extension 
into new growth areas this could be detrimental to our commercial 
performance both in 2015 and going forward the board has concluded 
that even though the actual results for 2014 are known and published 
it would be commercially sensitive to disclose what the precise targets 
determined at the beginning of 2014 were  at present the board would 
not be in a position to declare these targets at a later date but will keep 
this under review 
in early 2015 the remuneration committee conducted an assessment 
of the executive directors against their 2014 financial and business 
objectives in doing so the remuneration committee focused on the 
need to balance shortterm growth whilst building the platform to 
deliver sustainable strong performance and greater shareholder value 
over the mediumterm
in summary the performance of the executive directors against the 
targets set for 2014 was as follows
below  
threshold
between  
target and  
threshold
between  
target 
and  
maximum
above  
maximum
revenue 30 x
trading profit 30 x
trading cash 10 x
business  
objectives 30 
olivier bohuon x
business  
objectives 30 
julie brown x
multiplier  10 
olivier bohuon
the remuneration committee agreed not  
to apply the multiplier to the annual incentive 
assessment in respect of 2014
multiplier  10 
julie brown
financial objectives
over the period revenue was 4617 million trading profit was 
1055 million and trading cash flow 781 million when set against the 
financial objectives for 2014 revenue performance was between target 
and threshold while trading profit and trading cash performance was 
below threshold 
the committee believes whilst some of the underperformance on 
trading profit and cash is attributable to the renasys hold in the us 
the financial outturn partly reflects the impact of important strategic 
decisions to invest more in the business during 2014 to deliver 
longerterm sustainable value decisions to invest in rd emerging  
international markets the sales force particularly in wound and new 
disruptive business models in 2014 all impacted profitability for the 
year but strengthened the platform for future growth trading cash flow 
was impacted as we made significant investment in instrument sets 
to support growth rebuilt our wound safety stock following flooding in 
our hull uk factory and increased the holdings of advanced wound 
bioactives products to meet anticipated demand
business objectives
under olivier’s strong leadership and consistent with the strategic plan 
he initiated in 2011 the group made significant progress in 2014 
olivier is delivering on his strategy to rebalance smith  nephew by 
strengthening our higher growth platforms which currently represent 
more than half the business up from just 35 three years ago 
advanced wound bioactives delivered strong doubledigit growth 
sports medicine joint repair performed well trauma  extremities 
made good progress and the emerging  international markets 
business increased underlying revenue by 17 he also oversaw 
a successful turnaround in us orthopeadic reconstruction and 
addressed issues in europe and awm where we faced headwinds
in addition to maintaining an increased level of investment in rd and 
supporting new products he introduced new disruptive commercial 
models in orthopaedic reconstruction and the emerging  international 
markets to position smith  nephew to fulfil the unmet needs 
of customers 
finally he continues to deliver on our strategic priority to supplement 
organic growth through acquisition he led the acquisition of 
arthrocare corporation for 17 billion smith  nephew’s largest deal 
to date this has strengthened our sports medicine business and 
we will use our global presence to drive substantial new growth he 
also oversaw the integration of our recent emerging  international 
markets acquisitions
the remuneration committee has therefore determined that olivier 
performed between target and maximum in 2014 with regard to his 
business objectives
under julie’s stewardship we continued our disciplined approach 
to finance applying our cash allocation framework managing 
trading cash effectively to support investments and initiating a major 
group optimisation programme led by julie this will realise at least 
120 million of annual savings this is progressing as planned with 
early results including rationalising our global property portfolio and 
making major savings through better procurement processes she led 
a successful private placement and has overseen an improvement in 
our corporate tax rate with further progress expected
she is leading a finance transformation project establishing new 
transactional systems across europe and new business information 
tools which is improving visibility and consistency of financial 
information in the business 
the remuneration committee has therefore determined that julie 
performed between target and maximum in 2014 with regard to her 
business objectives
it is not appropriate to disclose the precise personal targets set as a 
number of the measurements continue to apply into 2015 and would 
be commercially sensitive if known by our competitors at present 
the board would not be in a position to declare these targets at a later 
date but will keep this under review the remuneration committee did 
highlight a number of their achievements as follows
smith  nephew annual report 2014 86 commentary on 2014 performance
reinvestment and group 
optimisation
olivier bohuon
increased business agility and 
efficiency he has delivered 
annualised savings of 146 
million for reinvestment in higher
growth platforms including 
emerging  international markets 
ensured higher investment 
levels maintained in rd and 
strong pipeline of new products 
including expanding journey 
ii knee system and new sports 
medicine and trauma  
extremities systems initiated 
group optimisation programme to 
achieve further savings including 
optimising locations
julie brown
leading implementation of new 
group optimisation programme 
to achieve 120 million of annual 
savings with programme on 
plan at yearend oversaw 
tax improvement with 220bps 
reduction in fullyear effective rate 
achieved since the end of 2012 
and further progress expected 
business objectives
olivier bohuon
completed 17 billion acquisition 
of arthrocare corporation 
strengthening our sports 
medicine business with 
technology and products and 
strategy to drive substantial 
new growth through our global 
platform implemented leaner 
corporate structure including one 
managing director across markets 
outside of the us to enable better 
focus on the customer
julie brown
maintained rigorous oversight of 
investment performance across 
recent acquisitions including 
advanced wound bioactives 
business acquired at the end 
of 2012 which delivered 15 
growth in 2014 and emerging  
international markets acquisitions 
in brazil turkey and india and the 
acquisition of arthrocare 
people
olivier bohuon
employee engagement surveys 
demonstrated significant 
improvements in strategic 
direction empowerment cross
business coordination and 
customer focus across the group 
achieved first great place to work 
accreditation
julie brown
delivered structural and cultural 
transformation programme 
across finance function and 
improved quality of management 
information to support decision 
making across the group 
customer
olivier bohuon
delivered new business models  
to meet the unmet needs of the 
customer including syncera  
a new commercial solution for 
orthopaedic reconstruction and 
a midtier organisation for the 
emerging  international markets 
these challenge the status quo 
widening access to market and 
giving customers new economic 
options as they seek to improve 
the quality of life for their patients 
set the tone from the top and 
ensured strong ethics and 
compliance performance across 
the group
julie brown
represented the group with 
investors and financial analysts 
gaining strongly positive feedback 
hosted cfo roundtable events 
in new york city and presented 
at investor and other highprofile 
conferences introduced new 
financial disciplines with the 
development of groupwide 
minimum acceptable practices 
refinanced the company through 
us private placement term loans 
and revolving credit facility 
the remuneration committee also considered whether to apply the 
multiplier to the annual incentive assessment of olivier bohuon and julie 
brown and agreed that no multiplier was appropriate in respect of 2014 
in summary as a result of the performance described above the 
remuneration committee determined that the following awards be 
made under the annual incentive plan in respect of performance in 2014
executive director cash component equity component
 of salary amount  of salary amount
olivier bohuon 65 €718026 55 €611480
julie brown 56 £285698 55 £282700
as a result of the 2014 performance assessment for both olivier 
bohuon and julie brown the first tranche of the equity incentive award 
made in 2014 the second tranche of the equity incentive award made 
in 2013 and the third tranche of the equity incentive award made in 
2012 to olivier bohuon only will vest
annual incentive plan 2015
the remuneration committee has also reviewed the annual incentive 
plan arrangements for 2015 and has determined that the following 
performance measures and weightings will apply to the financial and 
business objectives in 2015
financial objectives 70
revenue 30
trading profit 30
trading cash 10
business objectives 30
business process 
people 
customer
the board has determined that the disclosure of performance targets 
at this time is commercially sensitive as explained on page 96 these 
targets are determined within the context of a fiveyear plan and the 
disclosure of these targets could give information to our competitors 
about details of our strategy which would enable them to compete 
more effectively with us to the detriment of our performance at 
present the board would not be in a position to declare these targets at 
a later date but will keep this under review 
for the financial performance measures ‘target’ is set at target 
performance as approved by the board in the budget for 2015 
‘threshold’ and ‘maximum’ are set at –3 from the target for revenue 
and trading profit measures and at – 10 for the cash flow measure
details of awards made under the equity 
incentive programme
details of conditional awards over shares granted as part of the annual 
equity incentive programme to executive directors under the rules of 
the global share plan 2010 in 2014 are shown below the performance 
conditions and performance periods applying to these awards are 
detailed above
date granted
number of shares  
under award date vesting
olivier bohuon
7 march 2014 61683 ordinary shares
13 on 7 march 2015 
13 on 7 march 2016 
13 on 7 march 2017
julie brown
7 march 2014 26497 ordinary shares
13 on 7 march 2015 
13 on 7 march 2016 
13 on 7 march 2017
87 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
remuneration report continued
the precise awards granted in 2015 in respect of service in 2014 will 
be announced when the awards are made and will be disclosed in the 
2015 annual report
performance share programme – grants
performance share awards in 2014 were made to executive directors 
under the global share plan 2010 to a maximum value of 190 of 
salary 95 for target performance performance will be measured 
over the three financial years beginning in 2014 and will vest subject 
to performance and continued employment in 2017  50 of the award 
will vest subject to free cash flow performance 25 to revenue in 
emerging  international markets and 25 to tsr
free cash flow is defined as net cash inflow from operating activities 
less capital expenditure free cash flow is the most appropriate 
measure of cash flow performance because it relates to cash 
generated to finance additional investments in business opportunities 
debt repayments and distribution to shareholders this measure 
includes significant elements of operational financial performance and 
helps to align executive director awards with shareholder value creation
the 50 of the award that will be subject to free cash flow performance 
will vest as follows
cumulative free cash flow award vesting as  of salary
below 164bn nil
164bn 2375
188bn 475
212bn or more 95
awards will vest on a straightline basis between these points
revenue in emerging  international markets is defined as cumulative 
revenue over a threeyear period opening 1 january 2014 from our 
emerging  international markets the 25 of the award that will be 
subject to revenue in emerging  international market performance will 
vest as follows
revenue in emerging   
international markets award vesting as  of salary
below threshold nil
threshold 11875
target 2375
maximum or above 475
it is not possible to disclose precise targets for revenue growth in 
emerging  international markets as this will give commercially 
sensitive information to our competitors concerning our growth plans 
in emerging  international markets which they could use against 
us to launch new products and enter new markets this would be 
detrimental to our business in emerging  international markets 
which are key to our success overall ‘target’ is set at target cumulative 
revenues from emerging  international markets in the corporate plan 
approved by the board for the three years commencing 1 january 2014 
‘threshold’ and ‘maximum’ are set at – 15 from target at present 
the board would not be in a position to declare these targets at a later 
date but will keep this under review 
25 of the award will vest based on the company’s total shareholder 
return tsr performance relative to a bespoke peer group of 
companies in the medical devices sector over a threeyear period 
commencing 1 january 2014 as follows
relative tsr ranking award vesting as  of salary
below median nil
median 11875
upper quartile 475
awards will vest on a straightline basis between these points if the 
company’s tsr performance is below median none of this part of the 
award will vest
the bespoke peer group for the 2014 awards comprises of the 
following companies baxter becton dickinson boston scientific cr 
bard coloplast conmed covidien edwards life sciences medtronic 
nobel biocare nuvasive orthofix stryker st jude medical wright 
medical and zimmer
the group’s tsr performance and its performance relative to the 
comparator group is independently monitored and reported to the 
remuneration committee by towers watson tsr is calculated in 
common currency using a threemonth averaging period at the start 
and end of the performance period the company has established 
protocols for dealing with companies that cease to be listed or merger 
and acquisition activity within the peer group
performance share programme 2015
performance share awards will be made in 2015 to executive directors 
under the global share plan 2010 to a maximum value of 190 of salary 
95 for target performance performance will be measured over the 
three financial years commencing 1 january 2015 and will vest subject to 
performance and continued employment in 2018 vesting will be subject 
to the same three performance measures as applies to the awards 
made in 2014 using the same definitions and same comparator group 
50 of the award will vest subject to free cash flow performance 25 
to revenue in emerging  international markets and 25 to tsr
the 50 of the award that will be subject to free cash flow performance 
will vest as follows
cumulative free cash flow award vesting as  of salary
below 158bn nil
158bn 2375
181bn 475
205bn or more 95
the free cash flow performance measure target for 2015 is lower than 
the same target in 2014 primarily due to exchange rate movement 
as well as the continued impact of the renasys hold in the us and 
restructuring charges associated with the group optimisation plan 
both of which were not factored in when setting the prior year target
vesting of awards made in 2012
since the end of the year the remuneration committee has reviewed 
the vesting of conditional awards made to executive directors under 
the global share plan 2010 in 2012 vesting of the conditional awards 
made in 2012 was subject to performance conditions based on tsr 
and cumulative free cash flow measured over a threeyear period 
commencing 1 january 2012
50 of the award was based on the company’s tsr performance 
relative to a bespoke peer group of companies in the medical devices 
sector over the threeyear period ending 31 december 2014 the 
company was ranked 7th out of 17 companies in the comparator group 
this part of the award therefore vested at 585
50 of the award was based on free cashflow performance over the 
same threeyear period the adjusted cumulative cash free cashflow 
was 1642 billion these adjustments include items such as board 
approved ma including the acquisition of healthpoint and arthrocare 
but do not include items such as the proceeds of the sale of the 
gilberdyke business or the repayment of the bioventus loan which are 
excluded from free cash this part of the award therefore vested at 555
overall therefore the conditional awards made in 2012 will vest at 57 
on 8 march 2015 as follows
director date of grant
number of shares 
under award number vesting
olivier bohuon 8 march 2012 267304 152363
smith  nephew annual report 2014 88 summary of scheme interests awarded during the financial year
olivier bohuon julie brown
basis on which award is made number of shares face value number of shares face value
annual equity incentive award see page 86
61683 €702975 26497 £250000
performance share award see page 88
190 base salary at maximum 180304 €2054850 100688 £950000
95 base salary at target 90152 €1027425 50344 £475000
please see policy table on pages 96 to 97 for details of how the above plans operate the number of shares is calculated using the closing share 
price on the day before the grant which for the awards granted on 7 march 2014 was 9435 pence
details of awards made under the performance share programme
details of conditional awards over shares granted to executive directors subject to performance conditions are shown below these awards  
were granted under the global share plan 2010 the performance conditions and performance periods applying to these awards are detailed  
on pages 96 to 97
date granted number of ordinary shares under award date of vesting
olivier bohuon 8 march 2012
i
267304 8 march 2015
7 march 2013 240928 7 march 2016
7 march 2014 180304 7 march 2017
julie brown 7 march 2013 132866 7 march 2016
7 march 2014 100688 7 march 2017
i on 3 february 2015 43 of the award granted to olivier bohuon lapsed following completion of the performance period
details of option grants under the allemployee sharesave plan
details of options held by executive directors under the smith  nephew sharesave plan 2012 are shown below 
director date granted
number of shares 
under option date of vesting exercise period option price
julie brown 17 september 2013 2400 ordinary shares 1 november 2018
1 november 2018 to 
30 april 2019 £625
details of oneoff awards
details of the award granted to julie brown on joining the company to compensate her for shares forfeited on leaving her former company 
are shown below this award was made under listing rule 9 there are no performance conditions attaching to these shares other than 
continued service
director date granted number of shares under award date of vesting
julie brown 7 march 2013 25000 ordinary shares 4 february 2016
single total figure on remuneration – chairman and nonexecutive directors
director basic annual fee
i
senior independent director
committee fee
intercontinental travel fee total 
2013 2014 2013 2014 2013 2014 2013 2014
roberto quarta
ii
£4846 £334673 na na £0 £7000 £4846 £341673
vinita bali
iii
na £5250 na na na £3500 na £8750
ian barlow £66150 £66150 £15000 £15000 £7000 £7000 £88150 £88150
virginia bottomley £66150 £66150 na na £7000 £7000 £73150 £73150
sir john buchanan
iv
£420000 £112307 na na na na £420000 £112307
michael friedman 126000 126000 na 11250 28000 35000 154000 172250
pamela kirby
v
£66150 £36750 £15000 £8750 £7000 na £88150 £45500
brian larcombe £66150 £66150 na £10865 £7000 £7000 £73150 £84015
joseph papa 126000 126000 27000 27000 28000 35000 181000 188000
ajay piramal
vi
£66150 £10500 na na £10500 na £76650 £10500
richard de schutter
vii
126000 33692 27000 7580 35000 14000 188000 55273
i the basic annual fee includes shares purchased for the chairman and nonexecutive directors in lieu of part of the annual fee details of which can be found on the table on page 101
ii appointed to the board on 4 december 2013 and as chairman of the company on 10 april 2014 iii  appointed to the board on 1 december 2014 iv  retired from the board on 10 april 2014
v  retired from the board on 31 july 2014 vi  retired from the board on 24 march 2014 vii  retired from the board on 10 april 2014 vi erik engstrom is not included in the table because he joined the board  
on 1 january 2015 
89 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
remuneration report continued
chief executive officer’s remuneration compared to employees generally
the percentage change in the remuneration of the chief executive officer between 2013 and 2014 compared to that of employees generally  
is as follows
base salary benefits annual cash bonus
 change 2014  change 2014  change 2014
chief executive officer 30 1540 469
average for all employees 30 na –
i  the average cost of wages and salaries for employees generally increased by 157 in 2014 see notes 24 and 31 of the notes to the group accounts figures for annual cash bonuses are included in 
the numbers 
payments made to past directors
no payments were made to former directors in the year
payments for loss of office
no payments were made in respect of a director’s loss of office in 2014
outside directorships
olivier bohuon is a nonexecutive director of virbac sa and received €21000 in respect of this appointment in 2014 
directors’ interests in ordinary shares
beneficial interests of the executive directors in the ordinary shares of the company are as follows
olivier bohuon julie brown
1 january 2014 31 december 2014 23 february 2015
i
1 january 2014 31 december 2014 23 february 2015
i
ordinary shares 111238 210974 210974
iii
0 25000 38211
iv
share options 151698 0 0 2400 2400 2400
v
performance share 
awards
ii
735779 688536 573595 132886 233554 233554
equity incentive 
awards 143387 147114 147114 0 26497 26497
other awards 66666 0 0 75000 50000 25000
i the latest practicable date for this annual report
ii these share awards are subject to further performance conditions before they may vest as detailed on pages 96 to 97
iii the ordinary shares held by olivier bohuon on 23 february 2015 represent 3049 of his base annual salary
iv the ordinary shares held by julie brown on 23 february 2015 represent 878 of her base annual salary
v this option was granted under the smith  nephew sharesave plan 2012
the beneficial interest of each executive director is less that 1 of the ordinary share capital of the company in addition olivier bohuon holds 50000 deferred shares following the redenomination of ordinary 
shares into us dollars on 23 january 2006 the company issued 50000 deferred shares these shares are normally held by the chief executive officer and are not listed on any stock exchange and have extremely 
limited rights attached to them
beneficial interests of the chairman and nonexecutive directors in the ordinary shares of the company are as follows
director 1 january 2014 or date of 
appointment if later
31 december or date of 
retirement if earlier
 23 february 2015
i
 shareholding as  of 
annual fee
ii
roberto quarta 0 15136 15136 447
vinita bali 0 0 0 0
ian barlow 18232 18403 18403 3286
virginia bottomley 17820 18056 18056 3224
sir john buchanan 166337 166337 – –
erik engstrom na 15000 15000 2678
michael friedman
iii
8624 8822 8822 1277
pamela kirby 15232 15232 – –
brian larcombe 40212 40368 40368 7207
joseph papa
iii
12799 12997 12997 1882
ajay piramal 240 240 – –
richard de schutter 220299 220299 – –
i the latest practicable date for this annual report
ii calculated using the closing share price of 1181p per ordinary share and 3649 per ads on 23 february 2015 and an exchange rate of £115449
iii michael friedman and joseph papa hold some of their shares in the form of ads
the beneficial interest of each nonexecutive director is less that 1 of the ordinary share capital of the company 
smith  nephew annual report 2014 90 relative importance of spend on pay
the following table sets out the total amounts spent in 2014 and 2013 on remuneration the attributable profit for each year and the dividends 
declared and paid in each year
for the year to 31 december 2014 for the year to 31 december 2013  change
attributable profit for the year 501m 556m 989
dividends paid during the year 250m 239m 460
share buyback
i
75m 226m 6681
total group spend on remuneration 1237m 998m 2395
i  share buyback programme ceased during 2014 following the acquisition of arthrocare shares are bought in the market in respect of shares issued as part of the executive and employee share plans  
see note 192 on page 154 for further information
total shareholder return
a graph of the company’s tsr performance compared to that of the ftse 100 index is shown below in accordance with schedule 8 to 
the regulations
jan 2010 dec 2008 jan 201 1 jan 2012 jan 2014 jan 2013
source datastream
smith  nephew ftse 100
six year total shareholder return 
measured in uk sterling based on monthly spot values
25
0
25
50
75
100
125
150
175
200
225
250
however as we compare the company’s performance to a tailored sector peer group of medical devices companies see page 88 when 
considering tsr performance in the context of the global share plan 2010 we feel that the following graph showing the tsr performance of this 
peer group is also of interest
jan 2010 dec 2008 jan 201 1 jan 2012 jan 2014 jan 2013
medical devices peer group
source datastream
smith  nephew medical devices
six year total shareholder return 
measured in us dollars based on monthly spot values
25
0
25
50
75
100
125
150
175
200
225
250
91 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
remuneration report continued
table of historic data
the following table details information about the pay of the chief executive officer in the previous five years
longterm incentive vesting  
rates against maximum opportunity
year 
 
chief executive officer 
 
single figure of 
total remuneration 
annual cash incentive 
payout against maximum 

performance shares  
 
options  
 
2014 olivier bohuon 6594989 65 57 na
2013 olivier bohuon 4692858
iv
84 na na
2012 olivier bohuon 4956771 84 na na
2011 olivier bohuon
iiii
7442191 68 na na
2011 david illingworth
ii
3595787 37 27 27
2010 david illingworth 4060707 57 70 61
2009 david illingworth 4406485 59 46 59
i appointed chief executive officer on 1 april 2011
ii resigned as chief executive officer on 1 april 2011
iii includes recruitment award of €1400000 cash and a share award over 200000 ordinary shares with a value of €1410000 on grant
iv prior years are restated to reflect amounts not known at the date of signing the previous annual report
implementation of remuneration policy in 2015
the remuneration committee proposes to make no changes to the way that the remuneration policy is implemented in 2015 from how it was 
implemented in 2014 other than increasing base salaries in line with salary increases across the group as explained on page 85 and setting new 
targets for the annual incentive plan and the performance share programme as explained on page 88
statement of voting at annual general meeting held in 2014
at the annual general meeting held on 10 april 2014 votes cast by proxy and at the meeting and votes withheld in respect of the two votes on the 
directors’ remuneration policy and the directors’ remuneration report were as follows
resolution votes for  for votes against  against total votes validly cast votes withheld
approval of 
directors’ 
remuneration policy 586941104 9350 40818512 650 627759616 1990842
approval of 
directors’ 
remuneration report 615870158 9797 12774146 203 628644304 1106154
joseph papa chairman of the remuneration committee has met with a number of shareholders in previous years to discuss remuneration 
matters and met and held calls with the holders of around 28 of the shares in 2013 in 2014 he offered again to meet with shareholders to 
discuss remuneration matters very few shareholders accepted his invitation to meet acknowledging that shareholders were broadly happy with 
our remuneration arrangements and had no concerns that they wished to discuss he did however meet with shareholders holding around 2 
of the share capital who also indicated their broad support for our remuneration arrangements joseph papa is always happy to meet and talk to 
shareholders who wish to discuss remuneration matters with him
smith  nephew annual report 2014 92 other remuneration matters
senior management remuneration
the group’s administrative supervisory and management body the ‘senior management’ is comprised for us reporting purposes of executive 
directors and executive officers details of the current executive directors and executive officers are given on pages 54 to 59
compensation paid to senior management in respect of 2014 2013 and 2012 was as follows
2012 2013 2014
total compensation excluding pension emoluments but including cash payments 
under the performancerelated incentive plans 15249000 14186000 12725000
total compensation for loss of office 0 0 2664000
aggregate increase in accrued pension scheme benefits 229000 257000 16000
aggregate amounts provided for under supplementary schemes 537000 414000 507000
as at 23 february 2015 the senior management owned 376202 shares and 100855 adss constituting less than 01 of the share capital of 
the company 
details of share awards granted during the year and held as at 23 february 2015 by members of senior management are as follows
share awards granted during the year 
total share awards held as at  
23 february 2015
equity incentive awards 209623 400695
performance share awards 582474 1397597
conditional share awards under the global share plan 2010 11596 87830
options under employee sharesave plans and under the global 
share plan 2010 2042 4442
dilution headroom
the remuneration committee ensures that at all times the number of new shares which may be issued under any sharebased plans including 
allemployee plans does not exceed 10 of the company’s issued share capital over any rolling tenyear period of which up to 5 may be 
issued to satisfy awards under the company’s discretionary plans the company monitors headroom closely when granting awards over shares 
taking into account the number of options or shares that might be expected to lapse or be forfeited before vesting or exercise in the event that 
insufficient new shares are available there are processes in place to purchase shares in the market to satisfy vesting awards and to netsettle 
option exercises
over the previous 10 years 2005 to 2014 the number of new shares issued under our share plans has been as follows
allemployee share plans 7991875 089 of issued share capital as at 23 february 2015
discretionary share plans 37 853815 423 of issued share capital as at 23 february 2015
by order of the board on 25 february 2015
joseph papa 
chairman of the remuneration committee
93 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information corporate governance
remuneration report continued
the remuneration committee presents the directors’ remuneration policy report which was approved by shareholders at the  
annual general meeting held on 10 april 2014
future policy table
executive directors
the following table and accompanying notes explain the different elements of remuneration we pay to our executive directors
all figures in this policy table are as at 2014 when the policy report was approved by shareholders
how the component supports the short  
and longterm strategy of the company how the component operates
base salary and benefits
base salary
we are a ftse 50 listed company operating in over 100 countries around  
the world our strategy to generate cash from established markets in order to 
invest for growth in emerging markets means that we are competing for 
international talent and our base salaries therefore need to reflect what our 
executive directors would receive if they were to work in another international 
company of a similar size complexity and geographical scope
salaries are normally reviewed annually with any increase applying 
from 1 april
salary levels and increases take account of
 – market movements within a peer group of similarly sized uk 
listed companies
 – scope and responsibility of the position
 – skillexperience and performance of the individual director
 – general economic conditions in the relevant geographic market and
 – average increases awarded across the company with particular regard 
to increases in the market in which the executive is based
payment in lieu of pension
in order to attract and retain executive directors with the capability of driving 
our corporate strategy we need to provide marketcompetitive retirement 
benefits similar to the benefits they would receive if they were to work for one 
of our competitors 
at the same time we seek to avoid exposing the company to defined  
benefit pension risks and where possible will make payments in lieu of  
providing a pension
current executive directors receive an allowance in lieu of membership 
of a companyrun pension scheme
base salary is the only component of remuneration that is pensionable
benefits
in order to attract and retain executive directors with the capability of driving 
our corporate strategy we need to provide a range of marketcompetitive 
benefits similar to the benefits they would receive if they were to work for one 
of our competitors
it is important that our executive directors are free to focus on the company’s 
business without being diverted by concerns about medical provision risk 
benefit cover or if required relocation issues
a wide range of benefits may be provided depending on the benefits 
provided for comparable roles in the location in which the executive 
director is based these benefits will include as a minimum healthcare 
cover life assurance longterm disability annual medical examinations 
company car or car allowance the committee retains the discretion to 
provide additional benefits where necessary or relevant in the context of 
the executive’s location
where applicable relocation costs may be provided in line with company’s 
relocation policy for employees which may include removal costs 
assistance with accommodation living expenses for self and family and 
financial consultancy advice in some cases such payments may be 
grossed up 
 
 
allemployee arrangements
allemployee share plans
to enable executive directors to participate in allemployee share plans on 
the same basis as other employees
sharesave plans are operated in the uk and 27 other countries internationally 
in the us an employee stock purchase plan is operated these plans enable 
employees to save on a regular basis and then buy shares in the company 
executive directors are able to participate in such plans on a similar basis to 
other employees depending on where they are located
the policy report
smith  nephew annual report 2014 94  
maximum levels of payment framework in which performance is assessed
the base salary of the executive directors with effect from 1 april 2014  
will be as follows
olivier bohuon €1111782
julie brown £514000
the factors noted in the previous column will be taken into consideration 
when making increases to base salary and when appointing a 
new director
in normal circumstances base salary increases for executive directors  
will relate to the geographic market and peer group in addition the 
average increases for employees across the group will be taken into 
account the remuneration committee retains the right to approve higher 
increases when there is a substantial change in the scope of the executive 
director’s role a full explanation will be provided in the implementation 
report should higher increases be approved in exceptional cases
performance in the prior year is one of the factors taken into account and poor 
performance is likely to lead to a zero salary increase
up to 30 of base salary the level of payment in lieu of a pension paid to executive directors is not 
dependent on performance
the policy is framed by the nature of the benefits that the remuneration 
committee is willing to provide to executive directors the maximum 
amount payable will depend on the cost of providing such benefits to 
an employee in the location at which the executive director is based 
shareholders should note that the cost of providing comparable benefits 
in different jurisdictions may vary widely
as an indication the cost of such benefits provided in 2013 was as follows
olivier bohuon €80705
julie brown £14400
the maximum amount payable in benefits to an executive director in 
normal circumstances will not be significantly more than amounts paid 
in 2013 or equivalent in local currency the remuneration committee 
retains the right to pay more than this should the cost of providing the 
same underlying benefits increase or in the event of a relocation a full 
explanation will be provided in the implementation report should the 
cost of benefits provided be significantly higher
the level and cost of benefits provided to executive directors is not dependent 
on performance but on the package of benefits provided to comparable 
roles within the relevant location
executive directors may currently invest up to £250 per month in the uk 
sharesave plan the remuneration committee may exercise its  
discretion to increase this amount up to the maximum permitted by the 
hm revenue  customs similar limits will apply in different locations 
the potential gains from allemployee plans are not based on performance 
but are linked to growth in the share price
95 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information how the component supports the short  
and longterm strategy of the company how the component operates
annual incentives
annual incentive plan –  cash incentive
to motivate and reward the achievement of specific annual financial and 
business objectives related to the company’s strategy and sustained 
through a clawback mechanism explained more fully in the notes
the objectives which determine the payment of the annual cash incentive and 
the level of the annual equity award are linked closely to the group strategy
the financial measures of revenue trading profit and cash flow underlie  
our strategy for growth and the need to generate cash to fund future growth
the business objectives are also linked to the group strategy these change 
from year to year to reflect the evolving strategy but will typically be linked to 
the strategic priorities set out in this annual report the implementation 
report each year will explain how each objective is linked to a specific 
strategic priority
for example a reinvestment objective links to the priority of improving the 
efficiency of the business model and investment in higher growth segments 
and geographies and processes and people objectives link to developing 
the right organisation
the annual incentive plan comprises a cash and an equity component 
both based on the achievement of financial and business objectives set 
at the start of the year
the cash component is paid in full after the end of the performance year
at the end of the year the remuneration committee determines the extent 
to which performance against these has been achieved and sets the 
award level
annual incentive plan –  equity incentive
to drive share ownership and encourage sustained high standards through 
the application of a ‘malus’ provision over three years explained more fully in 
the notes
the equity award component comprises conditional share awards made at 
the time of the cash award with vesting phased over the following 
three years
the equity component vests 
1
⁄3 
1
⁄3 
1
⁄3 on successive award anniversaries 
only if performance remains satisfactory over each of these three years 
otherwise the award will lapse
participants will receive an additional number of shares equivalent to 
the amount of dividend payable per vested share during the relevant 
performance period
longterm incentives awards actively being made
performance share programme
to motivate and reward longer term performance linked to the longterm 
strategy and share price of the company
the performance measures which determine the level of vesting of the 
performance share awards are linked to our corporate strategy
our strategy requires the generation of cash in order to invest for growth 
cash flow is therefore a key performance measure in our performance 
share plan
growth in our emerging  international markets is a key part of our strategy 
revenue in our emerging  international markets is therefore included as 
one of our performance share plan measures
if our strategy succeeds the total return to our shareholders will also increase 
and therefore we include a relative tsr measure in our longterm share plan
 
 
the performance share programme comprises conditional share awards 
which vest after three years subject to the achievement of stretching 
performance targets linked to the company’s strategy
awards may be subject to clawback in the event of material financial 
misstatement or misconduct
participants will receive an additional number of shares equivalent to 
the amount of dividend payable per vested share during the relevant 
performance period
oneoff share awards
in order to implement our group strategy we recognise that it is not always 
possible to promote from within the company in the event that we recruit an 
executive director who is currently employed by another company we 
recognise that we might be required to compensate that executive director 
for cash or share awards they may forfeit on leaving their former employer 
our policy regarding such awards is detailed in the notes
oneoff share awards may be made under the provisions of listing 
rule 942 to facilitate the appointment of a new executive director 
such awards will be made on a casebycase basis depending on 
the circumstances at the time to take account of amounts forfeited 
elsewhere on accepting appointment 
 
maximum levels of payment framework in which performance is assessed
the total maximum payable under the annual incentive plan is 215 
of base salary 150 cash incentive and 65 equity incentive
50 salary awarded for threshold performance
100 salary awarded for target performance
150 salary awarded for maximum performance
performance assessed against individual objectives and group 
financial targets
the cash and share awards are subject to malus and clawback as detailed in 
the notes following this table 
70 of the cash component is based on financial performance measures 
which currently include revenue trading profit and trading cash the 
remuneration committee retains the discretion to adopt any financial 
performance measure that is relevant to the company
30 of the cash component is based on other business goals linked to the 
company’s strategy which could include financial and nonfinancial measures
the remuneration committee has the discretion to apply a multiplier adjusting 
the outcome up or down by 10 to reward or penalise conduct in respect of 
leadership corporate reputation ethics organisational behaviours and 
representing the company both internally and externally
the maximum opportunity shown to the left cannot be exceeded through the 
application of the multiplier 
 
0 of salary awarded for performance below target
50 of salary awarded for target performance
65 of salary awarded for maximum performance
performance assessed against individual performance which  
includes an element of group financial targets
the remuneration committee will use their judgement of the individual’s 
performance in determining the level of equity award that may be awarded 
within the range of 50 to 65 of salary
the equity component will vest in three equal tranches over a threeyear 
period provided that the annual performance conditions set at the beginning 
of each year continue to be met
 
 
annual awards
475 of salary for threshold performance
95 of salary for target performance
190 of salary for maximum performance
currently
 – 50 of the award vests on achievement of a threeyear cumulative free 
cashflow target
 – 25 of the award vests subject to threeyear total shareholder return ‘tsr’ 
at median performance relative to industry peers
 – 25 of the award vests subject to the achievement of revenue targets in 
emerging  international markets
 – these measures are described in more detail in the notes and the targets 
and performance against them will be disclosed in the implementation 
report if appropriate
 – the performance share award will vest on the third anniversary of the date of 
grant depending on the extent to which the performance conditions are met 
over the threeyear period commencing in the year the award was made
 – the remuneration committee retains the discretion to change the measures 
and their respective weightings to ensure continuing alignment with the 
company’s strategy
 – the cash and share awards are subject to malus and clawback as detailed in 
the notes following this table
awards made prior to 2014 were subject to tsr and cash flow targets 
each award will be determined on a casebycase basis in normal 
circumstances such awards will be no more beneficial than the value 
of amounts forfeited by the executive director on leaving a previous 
company to join the board 
the remuneration committee has the discretion to apply performance 
conditions to oneoff awards if appropriate however if it is impossible to 
replicate the vesting conditions applicable to awards granted by other 
companies awards may be made without performance conditions 
 
future policy table
executive directors continued
corporate governance
directors’ remuneration report continued
smith  nephew annual report 2014 96 how the component supports the short  
and longterm strategy of the company how the component operates
annual incentives
annual incentive plan –  cash incentive
to motivate and reward the achievement of specific annual financial and 
business objectives related to the company’s strategy and sustained 
through a clawback mechanism explained more fully in the notes
the objectives which determine the payment of the annual cash incentive and 
the level of the annual equity award are linked closely to the group strategy
the financial measures of revenue trading profit and cash flow underlie  
our strategy for growth and the need to generate cash to fund future growth
the business objectives are also linked to the group strategy these change 
from year to year to reflect the evolving strategy but will typically be linked to 
the strategic priorities set out in this annual report the implementation 
report each year will explain how each objective is linked to a specific 
strategic priority
for example a reinvestment objective links to the priority of improving the 
efficiency of the business model and investment in higher growth segments 
and geographies and processes and people objectives link to developing 
the right organisation
the annual incentive plan comprises a cash and an equity component 
both based on the achievement of financial and business objectives set 
at the start of the year
the cash component is paid in full after the end of the performance year
at the end of the year the remuneration committee determines the extent 
to which performance against these has been achieved and sets the 
award level
annual incentive plan –  equity incentive
to drive share ownership and encourage sustained high standards through 
the application of a ‘malus’ provision over three years explained more fully in 
the notes
the equity award component comprises conditional share awards made at 
the time of the cash award with vesting phased over the following 
three years
the equity component vests 
1
⁄3 
1
⁄3 
1
⁄3 on successive award anniversaries 
only if performance remains satisfactory over each of these three years 
otherwise the award will lapse
participants will receive an additional number of shares equivalent to 
the amount of dividend payable per vested share during the relevant 
performance period
longterm incentives awards actively being made
performance share programme
to motivate and reward longer term performance linked to the longterm 
strategy and share price of the company
the performance measures which determine the level of vesting of the 
performance share awards are linked to our corporate strategy
our strategy requires the generation of cash in order to invest for growth 
cash flow is therefore a key performance measure in our performance 
share plan
growth in our emerging  international markets is a key part of our strategy 
revenue in our emerging  international markets is therefore included as 
one of our performance share plan measures
if our strategy succeeds the total return to our shareholders will also increase 
and therefore we include a relative tsr measure in our longterm share plan
 
 
the performance share programme comprises conditional share awards 
which vest after three years subject to the achievement of stretching 
performance targets linked to the company’s strategy
awards may be subject to clawback in the event of material financial 
misstatement or misconduct
participants will receive an additional number of shares equivalent to 
the amount of dividend payable per vested share during the relevant 
performance period
oneoff share awards
in order to implement our group strategy we recognise that it is not always 
possible to promote from within the company in the event that we recruit an 
executive director who is currently employed by another company we 
recognise that we might be required to compensate that executive director 
for cash or share awards they may forfeit on leaving their former employer 
our policy regarding such awards is detailed in the notes
oneoff share awards may be made under the provisions of listing 
rule 942 to facilitate the appointment of a new executive director 
such awards will be made on a casebycase basis depending on 
the circumstances at the time to take account of amounts forfeited 
elsewhere on accepting appointment 
 
maximum levels of payment framework in which performance is assessed
the total maximum payable under the annual incentive plan is 215 
of base salary 150 cash incentive and 65 equity incentive
50 salary awarded for threshold performance
100 salary awarded for target performance
150 salary awarded for maximum performance
performance assessed against individual objectives and group 
financial targets
the cash and share awards are subject to malus and clawback as detailed in 
the notes following this table 
70 of the cash component is based on financial performance measures 
which currently include revenue trading profit and trading cash the 
remuneration committee retains the discretion to adopt any financial 
performance measure that is relevant to the company
30 of the cash component is based on other business goals linked to the 
company’s strategy which could include financial and nonfinancial measures
the remuneration committee has the discretion to apply a multiplier adjusting 
the outcome up or down by 10 to reward or penalise conduct in respect of 
leadership corporate reputation ethics organisational behaviours and 
representing the company both internally and externally
the maximum opportunity shown to the left cannot be exceeded through the 
application of the multiplier 
 
0 of salary awarded for performance below target
50 of salary awarded for target performance
65 of salary awarded for maximum performance
performance assessed against individual performance which  
includes an element of group financial targets
the remuneration committee will use their judgement of the individual’s 
performance in determining the level of equity award that may be awarded 
within the range of 50 to 65 of salary
the equity component will vest in three equal tranches over a threeyear 
period provided that the annual performance conditions set at the beginning 
of each year continue to be met
 
 
annual awards
475 of salary for threshold performance
95 of salary for target performance
190 of salary for maximum performance
currently
 – 50 of the award vests on achievement of a threeyear cumulative free 
cashflow target
 – 25 of the award vests subject to threeyear total shareholder return ‘tsr’ 
at median performance relative to industry peers
 – 25 of the award vests subject to the achievement of revenue targets in 
emerging  international markets
 – these measures are described in more detail in the notes and the targets 
and performance against them will be disclosed in the implementation 
report if appropriate
 – the performance share award will vest on the third anniversary of the date of 
grant depending on the extent to which the performance conditions are met 
over the threeyear period commencing in the year the award was made
 – the remuneration committee retains the discretion to change the measures 
and their respective weightings to ensure continuing alignment with the 
company’s strategy
 – the cash and share awards are subject to malus and clawback as detailed in 
the notes following this table
awards made prior to 2014 were subject to tsr and cash flow targets 
each award will be determined on a casebycase basis in normal 
circumstances such awards will be no more beneficial than the value 
of amounts forfeited by the executive director on leaving a previous 
company to join the board 
the remuneration committee has the discretion to apply performance 
conditions to oneoff awards if appropriate however if it is impossible to 
replicate the vesting conditions applicable to awards granted by other 
companies awards may be made without performance conditions 
 
97 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to future policy table – executive directors
changes to remuneration policy
the remuneration policy described in the future policy table – executive 
directors is the same remuneration policy in respect of executive 
directors that has been in force since the beginning of 2012 it is 
anticipated that this policy will apply at least until the annual general 
meeting in 2017 the only change made has been to introduce a third 
performance measure to our performance share programme 
performance measures – annual incentive plan
the performance measures which apply to the annual incentive plan 
for executive directors comprise 70 financial measures and 30 
business goals linked to the company’s strategy which could include 
financial and nonfinancial measures
the financial measures may differ from year to year to provide 
continued alignment with the company strategy measures to be 
used in 2014 are detailed in the implementation report each year the 
measures are chosen in order to relate to our strategic priorities and in 
turn to our key performance indicators which are set out in this annual 
report the performance targets are set by taking into account the 
strategy of the company and are designed to be realistic yet stretching
the business measures will differ from year to year as the evolving 
corporate strategy means that we will wish to set executive directors 
different business objectives in order to meet the current corporate 
needs the business objectives are personal to each executive 
director and are tailored to reflect their role and responsibilities during 
the year these are set at the start of the year and reflect the most 
important areas of strategic focus for the company the remuneration 
committee sets annual measurement criteria performance targets 
that are appropriate to motivate and measure an executive director’s 
performance in any one year the factors taken into consideration 
include the threeyear strategic plan prior years’ delivered 
performance and budgeted performance in the past measures 
have included rd investment succession planning employee 
engagement compliance development of product portfolio ma 
activity and shared services implementation
performance measures –  
performance share programme
the performance measures which apply to the performance share 
programme awards made in 2014 relate to cumulative free cash flow 
revenue in emerging  international markets and total shareholder 
return we have chosen three measures which are relevant for the 
longterm success of the company 
the free cash flow measure is important for us in a period of 
growth when we need to generate cash to fund both organic and 
inorganic investment
revenue in emerging  international markets is important for us when 
we are seeking to generate profitable revenue in new markets and from 
new products 
the total shareholder return measure which compares our long
term performance against that of our peers seeks to align the payout 
of the performance share programme with the experience of our 
shareholders this helps executive directors relate to the shareholder 
experience and ensure that vesting is aligned to the outperformance 
of our sector
the remuneration committee will keep these performance measures 
under review and retains the discretion to alter the measures or 
their respective weightings to ensure continuing alignment to the 
corporate strategy
malus and clawback
the remuneration committee may determine that an unvested 
award or part of an award may not vest regardless of whether or not 
the performance conditions have been met or may determine that any 
cash bonus vested shares or their equivalent value in cash be 
returned to the company in the event that any of the following matters 
is discovered
– a material misstatement of the company’s financial results or
– a material error in determining the extent to which any performance 
condition has been satisfied or
– a significant adverse change in the financial performance of the 
company or a significant loss at a general level or at the division 
or function in which a participant worked or
– inappropriate conduct for example reputational issues capability 
or performance by a participant or within a team business area or 
profit centre
these provisions apply to share awards under the global share plan 
2010 and cash amounts under the annual cash incentive plan
corporate governance
remuneration report continued
smith  nephew annual report 2014 98 illustrations of the application of the 
remuneration policy
the following charts show the potential split between the different 
elements of the executive directors’ remuneration under three different 
performance scenarios
figures as at salary levels in 2014 when the policy report was approved 
by shareholders
chief executive officer
target minimum maximum
€6028739
€4249888
€1526022
chief financial officer
target minimum maximum
£2764300
£1941900
£682600
■ base salary ■ payment in lieu of pension ■ benefits ■ annual incentive cash 
■ annual incentive equity ■ performance share programme
total remuneration by performance scenario  
for 2014 financial year
chief executive officer
€1526022 €4249888 €6028739
target minimum maximum
25 26 13 36
100
35 12 28 25
chief financial officer
£682600 £1941900 £2764300
target minimum maximum
25 13 27 35
100
35 12 28 25
■ fixed pay ■ annual incentive cash ■ annual incentive equity ■ longterm incentives
data for the chief executive officer assumes an exchange rate of €1  £08494
policy on recruitment arrangements
our policy on the recruitment of executive directors is to pay a 
fair remuneration package for the role being undertaken and the 
experience of the executive director appointed in terms of base 
salary we will seek to pay a salary comparable in the opinion of the 
committee to that which would be paid for an equivalent position 
elsewhere the remuneration committee will determine a base salary 
in line with the policy and having regard to the parameters set out on in 
the future policy table incoming executive directors will be entitled to 
pension benefit and incentive arrangements which are the same as 
provided to existing executive directors on that basis awards would 
not exceed 405 of base salary
we recognise that in the event that we require a new executive director 
to relocate to take up a position with the company we will also pay 
relocation and related costs as described in the future policy table 
which is in line with the relocation arrangements we operate across 
the group
we also recognise that in many cases an external appointee may 
forfeit sizeable cash bonuses and share awards if they choose to 
leave their former employer and join us the remuneration committee 
therefore believes that we need the ability to compensate new hires for 
incentive awards they give up on joining us the committee will use its 
discretion in setting any such compensation which will be decided on 
a casebycase basis we will only provide compensation which is no 
more beneficial than that given up by the new appointee and we will 
seek evidence from the previous employer to confirm the full details of 
bonus or share awards being forfeited as far as possible we will seek 
to replicate forfeited share awards using smith  nephew incentive 
plans or through reliance on 942 in the listing rules whilst at the 
same time aiming for simplicity 
if we appoint an existing employee as an executive director of the 
company preexisiting obligations with respect to remuneration 
such as pension benefits and legacy share awards will be honoured 
should these differ materially from current arrangements these will be 
disclosed in the next implementation report 
we will supply details via an announcement to the london stock 
exchange of an incoming executive director’s remuneration 
arrangements at the time of their appointment
service contracts
we employ executive directors on rolling service contracts with notice 
periods of up to 12 months from the company and six months from 
the executive director on termination of the contract we may require 
the executive director not to work their notice period and pay them an 
amount equivalent to the base salary and payment in lieu of pension 
and benefits they would have received if they had been required to 
work their notice period 
under the terms of the executive director’s service contract executive 
directors are restricted for a period of 12 months after leaving the 
employment of the company from working for a competitor soliciting 
orders from customers and offering employment to employees 
of smith  nephew the company retains the right to waive 
these provisions in certain circumstances in the event that these 
provisions are waived and the former executive director commences 
employment earlier than at the end of the notice period no further 
payments shall be made in respect of the portion of notice period not 
worked directors’ service contracts are available for inspection at the 
company’s registered office 15 adam street london wc2n 6la
99 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information policy on payment for loss of office
our policy regarding termination payments to departing executive 
directors is to limit severance payments to preestablished contractual 
arrangements in the event that the employment of an executive 
director is terminated any compensation payable will be determined 
in accordance with the terms of the service contract between the 
company and the executive director as well as the rules of any 
incentive plans
under normal circumstances excluding termination for gross 
misconduct all leavers are entitled to receive termination payments 
in lieu of notice equal to base salary payment in lieu of pension and 
benefits in some circumstances additional benefits may become 
payable to cover reimbursement of untaken holiday leave repatriation 
and outplacement fees legal and financial advice 
in addition we may also in exceptional circumstances exercise our 
discretion to pay the executive director a proportion of the annual cash 
incentive they would have received had they been required to work 
their notice period any entitlement or discretionary payment may be 
reduced in line with the executive director’s duty to mitigate losses 
subject to applying our noncompete clause
we will supply details via an announcement to the london stock 
exchange of a departing executive director’s termination arrangements 
at the time of departure
in the case of a change of control which results in the termination of 
an executive director or a material alteration to their responsibilities 
or duties within 12 months of the event the executive director would 
be entitled to receive 12 months’ base salary plus payment in lieu of 
pension and benefits in addition the remuneration committee has 
discretion to pay an executive director in these circumstances an 
annual cash incentive for directors appointed prior to 1 november 
2012 an automatic annual cash incentive is payable at target
in the event that an executive director leaves for reasons of illhealth 
death redundancy or retirement in agreement with the company 
then the vesting of any outstanding annual cash incentive and 
equity incentive awards will generally depend on the remuneration 
committee’s assessment of performance to date performance share 
awards will be prorated for the time worked during the relevant 
performance period and will remain subject to performance over the 
full performance period
for all other leavers the annual cash incentive will generally be forfeited 
and outstanding equity incentive awards and performance share 
awards will lapse
oneoff awards granted on appointment will normally lapse on leaving 
except in cases of death retirement redundancy or illhealth the 
remuneration committee has discretion to permit such awards to vest 
in other circumstances and will be subject to satisfactorily meeting 
performance conditions if applicable
the remuneration committee retains discretion to alter these 
provisions on a casebycase basis following a review of 
circumstances and to ensure fairness for both shareholders and 
executive directors
we will supply details via an announcement to the london stock 
exchange of an outgoing executive director’s remuneration 
arrangements around the time of leaving
policy on shareholding requirements
the remuneration committee believes that one of the best ways our 
executive directors can have a greater alignment with shareholders 
is for them to hold a significant number of shares in the company 
executive directors are therefore expected to build up a holding of 
smith  nephew shares worth twotimes their base salary in order to 
reinforce this expectation we require them to retain 50 of all shares 
vesting under the company share plans after tax until this holding 
has been met recognising that differing international tax regimes affect 
the pace at which an executive director may fulfil the shareholding 
requirement when calculating whether or not this requirement 
has been met we will include ordinary shares or adrs held by the 
executive director and their immediate family and the intrinsic value of 
any vested but unexercised options
statement of consideration of employment 
conditions elsewhere in the company and 
differences to the executive director policy
all employees across the group including the executive directors 
are incentivised in a similar manner although the salary levels and 
maximum opportunities under bonus and share plans differ generally 
speaking the same targets and performance conditions relating to the 
company’s strategy apply throughout the organisation
executive director base salaries will generally increase at a rate in 
line with the average salary increases awarded across the company 
given the diverse geographic markets within which the company 
operates the committee will generally be informed by the average 
salary increase in both the market local to the executive and the uk 
recognising the company’s place of listing and will also consider 
market data periodically
a range of different pension arrangements operate across the group 
depending on location andor length of service executive directors 
and executive officers either participate in the legacy pension 
arrangements relevant to their local market or receive a cash payment 
of 30 of salary in lieu of a pension senior executives who do not 
participate in a local company pension plan receive a cash payment 
of 20 of salary in lieu of pension differing amounts apply for lower 
levels within the company
the company has established a benefits framework under which the 
nature of benefits varies by geography executive directors participate 
in benefit arrangements similar to those applied for employees within 
the applicable location
all employees are set objectives at the beginning of each year which 
link through to the objectives set for the executive directors annual 
cash incentives payable to employees across the company depend on 
the satisfactory completion of these objectives as well as performance 
against relevant group and divisional financial targets relating to 
revenue trading profit and trading cash similar to the financial targets 
set for the executive directors
executive officers and senior executives 72 as at 2014 participate 
in the annual equity incentive programme and the performance 
share programme the maximum amounts payable are lower but 
the performance conditions are the same as those that apply to the 
executive directors
no specific consultation with employees has been undertaken relating 
to director remuneration however regular employee surveys are 
conducted across the group which cover a wide range of issues 
relating to local employment conditions and an understanding of 
groupwide strategic matters as at 2014 over 4500 employees in 32 
countries participate in one or more of our global share plans 
corporate governance
remuneration report continued
smith  nephew annual report 2014 100 future policy table
chairman and nonexecutive directors
the following table and accompanying notes explain the different elements of remuneration we pay to our chairman and nonexecutive directors 
no element of their remuneration is subject to performance all payments made to the chairman are determined by the remuneration committee 
whilst payments made to the nonexecutive directors are determined by the directors who are not themselves nonexecutive directors currently 
the chairman the chief executive officer and the chief financial officer
how the component supports the short  
and longterm strategy of the company how the component operates maximum levels of payment
annual fees
basic annual fee
to attract and retain directors by setting fees at 
rates comparable to what would be paid in an 
equivalent position elsewhere
a proportion of the fees are paid in shares in 
the third quarter of each year in order to align 
nonexecutive directors’ fees with the interest 
of shareholders
fees will be reviewed periodically in future 
any increase will be paid in shares until 25 of 
the total fee is paid in shares
fees are set in line with market practice for 
fees paid by similarly sized uk listed 
companies 
annual fees are set and paid in uk sterling 
or us dollars depending on the location of  
the nonexecutive director if appropriate fees 
may be set and paid in alternative currencies
annual fees are currently as follows
£63000 in cash plus £3150 in shares or
120000 in cash plus 6000 in shares
chairman fee
£400000 plus £20000 in shares  
to april 2014
£300000 plus £100000 in shares  
from april 2014
whilst it is not expected to increase the fees 
paid to the nonexecutive directors and the 
chairman by more than the increases paid 
to employees generally in exceptional 
circumstances higher fees might 
become payable
the total maximum aggregate fees payable to 
the nonexecutive directors will not exceed 
£15m as set out in the company’s articles 
of association 
fee for senior independent director and committee chairmen
to compensate nonexecutive directors for the 
additional time spent as committee chairmen 
or as the senior independent director
a fixed fee is paid which is 
reviewed periodically
£15000 in cash or
27000 in cash
whilst it is not expected that the fees paid to 
the senior independent director or committee 
chairman will exceed the increases paid to 
employees generally in exceptional 
circumstances higher fees might 
become payable
intercontinental travel fee
to compensate nonexecutive directors 
for the time spent travelling to attend meetings 
in another continent
a fixed fee is paid which is 
reviewed periodically
£3500 in cash or
7000 in cash
whilst it is not expected to increase these fees 
by more than the increases paid to employees 
generally in exceptional circumstances higher 
fees might become payable
figures as at salary levels in 2014 when the policy report was approved by shareholders
101 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to future policy table – nonexecutive directors
changes to remuneration policy
the board has altered the policy regarding the payment of non
executive directors and to the chairman in one respect in 2013 
by introducing the payment of a proportion of the fees in the form 
of shares the fees paid to the nonexecutive directors and to the 
chairman were reviewed in july 2013 and it was agreed that the basic 
fee should be increased by 5 there having been no increase to these 
fees since august 2011 and that the increase be paid in the form of 
shares the amount of the increase less applicable taxes was used 
to purchase shares in the market on 15 august 2013 going forward 
any increase in the level of fees paid to a nonexecutive director will 
be paid in the form of shares until 25 of the nonexecutive director’s 
fee is paid in the form of shares we have made this change in order 
to align the fees paid to nonexecutive directors with the experience 
of our shareholders with the appointment of roberto quarta as 
chairman of the company with effect from the annual general 
meeting we have taken the opportunity to pay 25 of his fees in the 
form of shares immediately
policy on recruitment arrangements
any new nonexecutive director shall be paid in accordance with the 
current fee levels on appointment in line with the policy set out above 
with respect to the appointment of a new chairman fee levels will take 
into account market rates the individual’s profile and experience the 
time required to undertake the role and general business conditions 
in addition the remuneration committee retains the right to authorise 
the payment of relocation assistance or an accommodation allowance 
in the event of the appointment of a chairman not based within the uk
letters of appointment
the chairman and nonexecutive directors have letters of 
appointment which set out the terms under which they provide their 
services to the company and are available for inspection at the 
company’s registered office 15 adam street london wc2n 6la 
the appointment of nonexecutive directors is not subject to a notice 
period nor is there any compensation payable on loss of office for 
example should they not be reelected at an annual general meeting 
the appointment of the chairman is subject to a notice period of 
six months
the chairman and nonexecutive directors are required to acquire 
a shareholding in the company equivalent in value to one times their 
basic fee within two years of their appointment to the board
statement of consideration of shareholder views
this policy report sets out the remuneration policy in relation to 
executive directors which has been in place since 2012 as this policy 
evolved at the end of 2011 and during 2012 we engaged actively 
with shareholders to explain our remuneration arrangements and to 
discuss their views on our proposals at the time joseph papa the 
chairman of the remuneration committee and members of the senior 
executive team met with the holders of around 30 of our shares 
including collectively with a number of smaller engaged investors as 
well as shareholder advisory bodies we discussed the structure of 
our remuneration package our policies on termination recruitment 
shareholding requirements and the operation of annual incentive 
plan the directors’ remuneration report was approved by 96 of 
shareholders who voted at the annual general meeting in 2013 and we 
received feedback from shareholders around the time of this meeting 
that they understood and approved of our remuneration arrangements 
although the remuneration policy has remained essentially unchanged 
as in previous years given the changes in remuneration reporting 
we also conducted an engagement programme with our larger 
shareholders in 2013 joseph papa met with the holders of around 
20 of our shares and with a number of shareholder advisory bodies 
he has also been available to discuss any aspect of our remuneration 
programme with shareholders throughout the year the shareholders 
who have engaged with us have all been supportive of our approach to 
remuneration recognising the link between the corporate strategy and 
executive reward 
corporate governance
remuneration report continued
smith  nephew annual report 2014 102 directors’ responsibilities for the accounts
the directors are responsible for preparing the group and company 
accounts in accordance with applicable uk law and regulations as  
a consequence of the company’s ordinary shares being traded on the 
new york stock exchange in the form of american depositary shares 
the directors are responsible for the preparation and filing of an annual 
report on form 20f with the us securities and exchange commission 
the directors are required to prepare group accounts for each financial 
year in accordance with the international financial reporting standards 
‘ifrs’ as adopted by the european union which present fairly the 
financial position of the group and the financial performance and cash 
flows of the group for that period in preparing those group accounts 
the directors are required to 
 – select suitable accounting policies in accordance with ias 8 
accounting policies changes in accounting estimates and errors 
and then apply them consistently 
 – present information including accounting policies in a manner 
that provides relevant reliable comparable and understandable 
information 
 – provide additional disclosures when compliance with the specific 
requirements in ifrs is insufficient to enable users to understand the 
impact of particular transactions other events and conditions on  
the group’s financial position and financial performance and 
 – state that the group has complied with ifrs subject to any material 
departures disclosed and explained in the accounts 
under uk law the directors have elected to prepare the company 
accounts in accordance with uk generally accepted accounting 
practice uk accounting standards and applicable law which are 
required by law to give a true and fair view of the state of affairs of  
the company and of the profit or loss of the company for that period  
in preparing the company accounts the directors are required to 
 – select suitable accounting policies and then apply them consistently 
 – make judgements and estimates that are reasonable and prudent 
 – state whether applicable uk accounting standards have been 
followed subject to any material departures disclosed and explained 
in the accounts and 
 – prepare the accounts on a going concern basis unless it is 
inappropriate to presume that the company will continue in 
business 
the directors confirm that they have complied with the above 
requirements in preparing the accounts 
the directors are responsible for keeping proper accounting records 
that disclose with reasonable accuracy at any time the financial 
position of the group and the company and enable them to ensure 
that the accounts comply with the companies act 2006 and in the 
case of the group accounts article 4 of the ias regulation they are 
also responsible for safeguarding the assets of the group and the 
company and hence for taking reasonable steps for the prevention  
and detection of fraud and other irregularities 
the directors are responsible for the maintenance and integrity of the 
corporate and financial information included on the group’s website  
it should be noted that information published on the internet is 
accessible in many countries with different legal requirements 
legislation in the uk governing the preparation and dissemination 
of accounts may differ from legislation in other jurisdictions 
fair  balanced and understandable
as required by the uk corporate governance code the directors 
confirm that they consider that the annual report taken as a whole  
is fair balanced and understandable and provides the information 
necessary for shareholders to assess the company’s performance 
business model and strategy when arriving at this conclusion the 
board was assisted by a number of processes including
 – the annual report is drafted and comprehensively reviewed by 
appropriate senior management with overall coordination by the 
head of financial reporting
 – an extensive verification process is undertaken to ensure factual 
accuracy with third party review by legal advisers and
 – the final draft is reviewed by the audit committee prior to 
consideration by the board
directors’ responsibility statement pursuant to 
disclosure and transparency rule 4
the directors confirm that to the best of each person’s knowledge 
 – the group accounts in this report which have been prepared in 
accordance with ifrs as adopted by the european union and those 
parts of the companies act 2006 applicable to companies reporting 
under ifrs give a true and fair view of the assets liabilities financial 
position and profit of the group taken as a whole 
 – the company accounts in this report which have been prepared in 
accordance with uk generally accepted accounting practice and 
the companies act 2006 give a true and fair view of the assets 
liabilities financial position and profit of the company and 
 – the ‘financial review and principal risks’ section and commentary 
on pages 34 to 39 contained in the accounts includes a fair review 
of the development and performance of the business and the 
financial position of the company and the group taken as a whole 
together with a description of the principal risks and uncertainties 
that they face 
going concern
the group’s business activities together with the factors likely to 
affect its future development performance and position are set out 
in the ‘financial review and principal risks’ section on pages 34 to 39 
the financial position of the group its cash flows liquidity position 
and borrowing facilities are described under ‘commentary on the 
group cash flow statement’ section set out on page 115
in addition the notes to the group accounts include the group’s 
objectives policies and processes for managing its capital its financial 
risk management objectives details of its financial instruments and 
hedging activities and its exposure to credit risk and liquidity risk
the group has considerable financial resources and its customers  
and suppliers are diversified across different geographic areas as  
a consequence the directors believe that the group is well placed to 
manage its business risk successfully despite the ongoing uncertain 
economic outlook
the directors have a reasonable expectation that the group has 
adequate resources to continue in operational existence for the 
foreseeable future thus they continue to adopt the going concern 
basis for accounting in preparing the annual financial statements
management also believes that the group has sufficient working 
capital for its present requirements
directors’ report
the directors’ report has been prepared in accordance with the 
requirements of the companies act 2006
by order of the board 25 february 2015 
susan swabey 
company secretary
103 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information critical accounting policies 
the group prepares its consolidated financial statements in 
accordance with ifrs as issued by the iasb and ifrs as adopted 
by the eu the application of which often requires judgements to be 
made by management when formulating the group’s financial position 
and results under ifrs the directors are required to adopt those 
accounting policies most appropriate to the group’s circumstances for 
the purpose of presenting fairly the group’s financial position financial 
performance and cash flows
in determining and applying accounting policies judgement is often 
required in respect of items where the choice of specific policy 
accounting estimate or assumption to be followed could materially 
affect the reported results or net asset position of the group it 
may later be determined that a different choice would have been 
more appropriate
the group’s significant accounting policies are set out in notes 1 to 23 
of the notes to the group accounts of those the policies which require 
the most use of management’s judgement are as follows
valuation of inventories
a feature of the orthopaedic reconstruction and trauma  extremities 
franchises whose finished goods inventory makes up approximately 
79 of the group total finished goods inventory is the high level of 
product inventory required some of which is located at customer 
premises and is available for customers’ immediate use complete sets 
of products including large and small sizes have to be made available 
in this way these sizes are used less frequently than standard sizes 
and towards the end of the product life cycle are inevitably in excess 
of requirements adjustments to carrying value are therefore required 
to be made to orthopaedic inventory to anticipate this situation these 
adjustments are calculated in accordance with a formula based on 
levels of inventory compared with historical usage this formula is 
applied on an individual product line basis and is first applied when a 
product group has been on the market for two years this method of 
calculation is considered appropriate based on experience but it does 
involve management judgements on customer demand effectiveness 
of inventory deployment length of product lives phaseout of old 
products and efficiency of manufacturing planning systems
impairment
in carrying out impairment reviews of goodwill intangible assets and 
property plant and equipment a number of significant assumptions 
have to be made when preparing cash flow projections these include 
the future rate of market growth discount rates the market demand for 
the products acquired the future profitability of acquired businesses or 
products levels of reimbursement and success in obtaining regulatory 
approvals if actual results should differ or changes in expectations 
arise impairment charges may be required which would adversely 
impact operating results
liability provisioning
the recognition of provisions for legal disputes is subject to a significant 
degree of estimation provision is made for loss contingencies when 
it is considered probable that an adverse outcome will occur and 
the amount of the loss can be reasonably estimated in making its 
estimates management takes into account the advice of internal and 
external legal counsel provisions are reviewed regularly and amounts 
updated where necessary to reflect developments in the disputes 
the ultimate liability may differ from the amount provided depending 
on the outcome of court proceedings and settlement negotiations or if 
investigations bring to light new facts
taxation
the group operates in numerous tax jurisdictions around the world 
although it is group policy to submit its tax returns to the relevant tax 
authorities as promptly as possible at any given time the group has 
unagreed years outstanding and is involved in disputes and tax audits 
significant issues may take several years to resolve in estimating the 
probability and amount of any tax charge management takes into 
account the views of internal and external advisers and updates the 
amount of provision whenever necessary the ultimate tax liability may 
differ from the amount provided depending on interpretations of tax 
law settlement negotiations or changes in legislation
business combinations
the group has identified “growth through acquisitions” as one of its 
strategic priorities during 2014 we acquired arthrocare corporation 
the determination of the balance sheet fair value acquired is 
dependent upon the understanding of the circumstances at acquisition 
and estimates of the future results of the acquired business and 
management judgement is a factor in making these determinations
smith  nephew annual report 2014 104
financial statements independent auditor’s us reports 
report of independent registered public accounting 
firm to the board of directors and shareholders of 
smith  nephew plc
we have audited the accompanying group balance sheets of smith  
nephew plc as of 31 december 2014 and 2013 and the related group 
income statements group statements of comprehensive income 
group cash flow statements and group statements of changes in 
shareholder’s equity for each of the three years in the period ended 
31 december 2014 these financial statements are the responsibility 
of the company’s management our responsibility is to express an 
opinion on these financial statements based on our audits
auditor’s responsibility
we conducted our audits in accordance with the standards of the 
public company accounting oversight board united states those 
standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free 
of material misstatement an audit includes examining on a test basis 
evidence supporting the amounts and disclosures in the financial 
statements an audit also includes assessing the accounting principles 
used and significant estimates made by management as well as 
evaluating the overall financial statement presentation we believe that 
our audits provide a reasonable basis for our opinion 
opinion
in our opinion the financial statements referred to above present fairly 
in all material respects the consolidated financial position of smith  
nephew plc at 31 december 2014 and 2013 and the consolidated 
results of its operations and its cash flows for each of the three years in 
the period ended 31 december 2014 in conformity with international 
financial reporting standards as issued by the international 
accounting standards board and international financial reporting 
standards as adopted by the european union
we also have audited in accordance with the standards of the 
public company accounting oversight board united states 
smith  nephew plc’s internal control over financial reporting as of 
31 december 2014 based on criteria established in internal control 
– integrated framework issued by the committee of sponsoring 
organisations of the treadway commission 2013 framework 
and our report dated 25 february 2015 expressed an unqualified 
opinion thereon
ernst  young llp 
london england
25 february 2015
report of independent registered public accounting 
firm to the board of directors and shareholders of 
smith  nephew plc 
we have audited smith  nephew plc’s internal control over financial 
reporting as of 31 december 2014 based on criteria established in 
internal control—integrated framework issued by the committee 
of sponsoring organizations of the treadway commission 2013 
framework the coso criteria smith  nephew plc’s management 
is responsible for maintaining effective internal control over financial 
reporting and for its assessment of the effectiveness of internal control 
over financial reporting included in the accompanying ‘evaluation of 
internal controls’  our responsibility is to express an opinion on the 
company’s internal control over financial reporting based on our audit 
we conducted our audit in accordance with the standards of the public 
company accounting oversight board united states those standards 
require that we plan and perform the audit to obtain reasonable 
assurance about whether effective internal control over financial 
reporting was maintained in all material respects our audit included 
obtaining an understanding of internal control over financial reporting 
assessing the risk that a material weakness exists testing and 
evaluating the design and operating effectiveness of internal control 
based on the assessed risk and performing such other procedures 
as we considered necessary in the circumstances we believe that our 
audit provides a reasonable basis for our opinion
a company’s internal control over financial reporting is a process 
designed to provide reasonable assurance regarding the reliability 
of financial reporting and the preparation of financial statements 
for external purposes in accordance with generally accepted 
accounting principles a company’s internal control over financial 
reporting includes those policies and procedures that 1 pertain to the 
maintenance of records that in reasonable detail accurately and fairly 
reflect the transactions and dispositions of the assets of the company 
2 provide reasonable assurance that transactions are recorded as 
necessary to permit preparation of financial statements in accordance 
with generally accepted accounting principles and that receipts and 
expenditures of the company are being made only in accordance with 
authorizations of management and directors of the company and 3 
provide reasonable assurance regarding prevention or timely detection 
of unauthorized acquisition use or disposition of the company’s 
assets that could have a material effect on the financial statements
because of its inherent limitations internal control over financial 
reporting may not prevent or detect misstatements also projections 
of any evaluation of effectiveness to future periods are subject to 
the risk that controls may become inadequate because of changes 
in conditions or that the degree of compliance with the policies or 
procedures may deteriorate
in our opinion smith  nephew plc maintained in all material respects 
effective internal control over financial reporting as of 31 december 
2014 based on the coso criteria
we also have audited in accordance with the standards of the public 
company accounting oversight board united states the group 
balance sheets of smith  nephew plc as of 31 december 2014 and 
2013 and the related group income statements group statements 
of comprehensive income group cash flow statements and group 
statements of changes in equity for each of the three years in the 
period ended 31 december 2014 of smith  nephew plc and our report 
dated 25 february 2015 expressed an unqualified opinion thereon
ernst  young llp 
london england
25 february 2015
105 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information independent auditor’s uk report
independent auditor’s report to the members  
of smith  nephew plc
opinion on financial statements 
in our opinion 
 – the financial statements give a true and fair view of the state of the 
group and of the parent company’s affairs as at 31 december 2014 
 – the group financial statements give a true and fair view of the profit 
for the year ended 31 december 2014
 – the group financial statements have been properly prepared in 
accordance with ifrss as adopted by the european union and ifrss 
as adopted by the international accounting standards board iasb
 – the parent company financial statements have been properly 
prepared in accordance with united kingdom generally accepted 
accounting practice
 – the group and the parent company financial statements have been 
prepared in accordance with the requirements of the companies act 
2006 and
 – the group financial statements have been prepared in accordance 
with article 4 of the ias regulation 
what we have audited
we have audited the financial statements of smith  nephew plc for 
the year ended 31 december 2014 which comprise
group company
the group income statement the company balance sheet
the group statement of 
comprehensive income
the related notes 1 to 9
the group balance sheet
the group cash flow statement
the group statement of changes  
in equity 
the related notes 1 to 23
as explained in note 1 to the consolidated financial statements the 
group in addition to applying ifrs as adopted by the european union 
has also applied ifrs as issued by the international accounting 
standards board iasb the financial reporting framework that has 
been applied in the preparation of the company financial statements 
is the provisions of the companies act 2006 and united kingdom 
generally accepted accounting practice
overview
materiality overall group materiality of 45 million which 
represents 5 of adjusted profit before tax
audit scope we performed an audit of the complete financial 
information of two components and audit 
procedures on specific balances for a further ten 
components
the 12 reporting components where we performed 
audit procedures accounted for 81 of the group’s 
total assets 64 group revenue and 85 of the 
group’s profit before tax and 86 of the group’s 
adjusted profit before tax
areas of focus recognition and measurement of provisions for 
litigation reserves and contingent liabilities 
recognition and measurement of provisions  
for taxation 
existence and valuation of inventory 
timing of revenue recognition and measurement of 
related reserves 
judgements determining purchase price allocation 
on acquisitions
our application of materiality 
we determined materiality for the group to be 45 million 2013 
45 million which is calculated as 5 of adjusted profit before tax 
we believe that profit before tax adjusted for the items as described 
below provides us with a consistent year on year basis for determining 
materiality and is the most relevant performance measure to the 
stakeholders of the entity adjustments are made to profit before tax for 
acquisition related costs of 118m and restructuring and rationalisation 
expenses of 61m as highlighted in note 22 of the financial 
statements as well as acquisitionrelated finance costs of 7m this 
provided a basis for identifying and assessing the risk of material 
misstatement and determining the nature timing and extent of further 
audit procedures 
on the basis of our risk assessments together with our assessment 
of the group’s overall control environment and other qualitative 
considerations our judgement was that overall performance materiality 
ie our tolerance for misstatement in an individual account or balance 
for the group should be 75 2013 75 of planning materiality namely 
3375 million 2013 3375 million our objective in adopting this 
approach was to reduce to an appropriately low level the probability 
that the aggregate of total undetected and uncorrected misstatements 
for the accounts as a whole did not exceed our planning materiality
audit work at individual components is undertaken based on a 
percentage of our total performance materiality the performance 
materiality set for each component is based on the relative size of the 
component and our view of the risk of misstatement at that component 
in the current year the range of performance materiality allocated to 
components was 332m to 2158m 
we agreed with the audit committee that we would report to the 
committee all audit differences in excess of 225 million 2013 
225 million as well as differences below that threshold that in our 
view warranted reporting on qualitative grounds 
we evaluate any uncorrected misstatements against both the 
quantitative measures of materiality discussed above and in the light  
of other relevant qualitative considerations
this page does not form part of smith  nephew’s annual report and form 20f as filed with the sec
smith  nephew annual report 2014 106
financial statements scope of our audit 
an audit involves obtaining evidence about the amounts and 
disclosures in the financial statements sufficient to give reasonable 
assurance that the financial statements are free from material 
misstatement whether caused by fraud or error this includes an 
assessment of whether the accounting policies are appropriate to 
the group’s circumstances and have been consistently applied and 
adequately disclosed the reasonableness of significant accounting 
estimates made by the directors and the overall presentation of 
the financial statements in addition we read all the financial and 
nonfinancial information in the annual report to identify material 
inconsistencies with the audited financial statements and to identify 
any information that is apparently materially incorrect based on or 
materially inconsistent with the knowledge acquired by us in the 
course of performing the audit if we become aware of any apparent 
material misstatements or inconsistencies we consider the implications 
for our report 
following our assessment of the risk of material misstatement to 
the group financial statements we selected 12 components which 
represent the principal business units within the group’s two reportable 
segments two of these components were subject to a full audit and 
ten were subject to a partial scope audit where the extent of audit work 
was based on our assessment of the risks of material misstatement 
outlined below and the materiality of the location’s business operations 
relative to the group the scope of these components may not have 
included testing of all significant accounts of the location but will have 
contributed to the coverage of significant accounts tested for the 
group partial scope component testing of significant risks is primarily 
focused on the inventory and revenue recognition risks as tax litigation 
and purchase price allocation risks are audited centrally for the 
remaining components we performed other procedures to test or 
assess that there were no significant risks of material misstatement in 
these components in relation to the group financial statements the 
components subject to full audit or partial scope audit procedures 
make up 81 of the group’s total assets 64 of the group’s revenue 
85 of the group’s profit before tax and 86 of the group’s adjusted 
profit before tax although for countries where a partial scope audit was 
performed not all balances that comprise these coverage percentages 
have been audited
the group audit team continued to follow a programme of planned 
visits that has been designed to ensure that the senior statutory 
auditor or his designate visits each of the locations where the group 
audit scope was focused at least once every two years and the most 
significant of them at least once a year for all full scope entities in 
addition to the location visit the group audit team participated in 
the component team’s planning including the component team’s 
discussion of fraud and error the group audit team have also reviewed 
key working papers and challenged conclusions on significant risk 
areas as identified at the scoping stage primarily inventory and 
revenue recognition the group audit team visited nine locations in total 
over the course of the current year audit
our assessment of risks of material misstatement 
we consider that the following areas present the greatest risk of 
material misstatement in the financial statements and consequently 
have had the greatest impact on our audit strategy the allocation of 
resources and the efforts of the engagement team including the more 
senior members of the team
principal risk area and rationale audit response
recognition and measurement of provisions for litigation reserves and contingent liabilities
the development manufacture and sale of medical devices entails 
risk of product liability claims and patent infringement issues due 
to the surgical nature of the products and the competitive nature of 
the industry 
determining the impact and likely outcome of any litigation matters 
requires significant judgement due to the uncertainty of the litigation 
process and the level of royalty that may be payable for infringed 
products and raises the risk that those legal provisions may 
be incorrect 
 
the litigation reserve at 31 december 2014 included in legal and other 
provisions of 118m in note 171 to the financial statements covers a 
number of open legal matters as described in detail in note 173 to the 
financial statements we held discussions with inhouse legal counsel 
to understand the status of litigation cases we read legal invoices and 
corresponded directly with external legal advisors to understand the 
fact patterns of the cases we reviewed management’s calculations of 
provisions including their assessment of potential royalties payable 
for past sales and challenged and corroborated key assumptions
recognition and measurement of provisions for taxation
the tax charge of profits is determined according to complex tax laws 
and regulations where the effect of these tax laws and regulations is 
unclear judgements are used in determining the liability for the tax to 
be paid
as a multinational company tax audits can be ongoing in a number of 
jurisdictions at any point in time and tax returns are subject to possible 
challenge in most locations in which the company operates 
there can be significant judgement involved in determining the 
provision for tax liabilities 
the details of the tax charge are included in note 51 to the 
financial statements 
we involved tax specialists in the us and the uk to assist us in 
assessing and challenging the assumptions and judgements made 
by the company in their recognition and measurement of provisions 
for taxation we tested tax calculations and challenged the company’s 
transfer pricing arrangements tax planning activities and status and 
findings from ongoing tax audits to assess the reasonableness of the 
provisions recorded this included an assessment of the likelihood 
that known uncertain tax positions would result in a tax liability to 
the company
this page does not form part of smith  nephew’s annual report and form 20f as filed with the sec
107 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information independent auditor’s uk report continued
principal risk area and rationale audit response
existence and valuation of inventory
the company has high levels of finished goods inventory as detailed 
in note 12 to the financial statements some of which are located at 
customer premises to be available for immediate use
complete sets of products including outsizes have to be made 
available in this way with these sizes used less frequently towards 
the end of a product’s life cycle these inventory levels are more than is 
required and therefore excess to requirements 
in estimating the appropriate value for inventory management has to 
apply judgement on how much of the inventory on hand will ultimately 
be used considering the length of product lives predicted product 
usage and how quickly products will be phased out 
we carried out tests of controls over routine inventory processes 
including cycle counts and period end counts
we independently counted or confirmed inventory levels at key 
component locations and also reviewed the results of management’s 
testing results for a sample of counts that we did not attend
we challenged management’s judgements and assumptions used 
in determining the inventory excess and obsolescence provision 
in order to assess that their calculation represents excess and 
obsolete inventory we understood their plans for launching new 
product lines or discontinuing product lines to assess the adequacy 
of the provision as well as reflecting on the adequacy of prior 
year provisions
we tested management’s calculation to eliminate intercompany 
profit held in inventory as goods are sold between group 
companies including the recalculation and vouching of margins on a 
sample basis
timing of revenue recognition and measurement of related reserves
revenue recognition is one of the key areas of audit focus particularly 
in respect of the risk of management override and the risk of cutoff 
of revenue for sales to distributors with the need for the risks and 
rewards of ownership to have passed before revenue is recognised
we carried out tests of controls over revenue recognition including 
the timing of revenue recognition as well as substantive testing 
analytical procedures and assessing whether the revenue recognition 
policies adopted complied with ifrs as detailed in note 21 to the 
financial statements
procedures included independent confirmation with distributors 
reviewing shipping terms for items despatched to test that the risk and 
reward of ownership had passed cut off testing of items despatched 
close to the year end date and a review of returns and credit notes 
issued subsequent to the year end 
we also performed detailed trend analysis by period and by major 
customer to identify unusual fluctuations
judgements determining purchase price allocation on acquisitions
on 27 may 2014 the group acquired arthrocare corporation for 
17bn
the acquisition accounting includes the need to determine the fair 
value of the acquired assets and liabilities at the acquisition date 
this included complex valuation considerations and required the use 
of specialists
the most significant judgements relate to the valuation of intangible 
assets acquired the uplift to the value of inventory and property plant 
and equipment and the value of any provisions recorded
we focused on this area given the significant judgements involves 
in assessing the fair values of assets and liabilities acquired as this 
directly impacts the amount of goodwill recognised on acquisition 
the fair values are based on valuation techniques built in part on 
assumptions around the future performance of the business we 
challenged the assumptions underpinning the valuations assessed 
the fair value of the identified assets and liabilities audited the 
accounting differences upon ifrs conversion and evaluated the 
adequacy of the disclosures
we also discussed the specialist valuations with the specialists and 
read their reports with involvement of our own specialists to conclude 
on the appropriateness of the valuation
this page does not form part of smith  nephew’s annual report and form 20f as filed with the sec
smith  nephew annual report 2014 108
financial statements opinion on other matter prescribed by  
the companies act 2006 
in our opinion the information given in the strategic report and 
the directors’ report for the financial year for which the group 
financial statements are prepared is consistent with the group 
financial statements 
respective responsibilities of directors and auditor 
as explained more fully in the directors’ responsibilities statement set 
out on page 103 the directors are responsible for the preparation of the 
group financial statements and for being satisfied that they give a true 
and fair view our responsibility is to audit and express an opinion on 
the group financial statements in accordance with applicable law and 
international standards on auditing uk and ireland those standards 
require us to comply with the auditing practices board’s ethical 
standards for auditors 
this report is made solely to the company’s members as a body in 
accordance with chapter 3 of part 16 of the companies act 2006 
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 auditor’s 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 
matters on which we are required to report  
by exception 
we have nothing to report in respect of the following 
under the isas uk and ireland we are required to report to you if in 
our opinion information in the annual report is 
 – materially inconsistent with the information in the audited financial 
statements or 
 – apparently materially incorrect based on or materially inconsistent 
with our knowledge of the group acquired in the course of 
performing our audit or 
 – is otherwise misleading 
in particular we are required to consider whether we have identified 
any inconsistencies between our knowledge acquired during the 
audit and the directors’ statement that they consider the annual report 
is fair balanced and understandable and whether the annual report 
appropriately discloses those matters that we communicated to the 
audit committee which we consider should have been disclosed 
under the companies act 2006 we are required to report to you if in 
our opinion 
 – certain disclosures of directors’ remuneration specified by law are not 
made or 
 – we have not received all the information and explanations we require 
for our audit 
under the listing rules we are required to review 
 – the directors’ statement set out on page 103 in relation to going 
concern 
 – the part of the corporate governance statement relating to the 
company’s compliance with the nine provisions of the uk corporate 
governance code specified for our review 
michael rudberg senior statutory auditor 
for and on behalf of ernst  young llp  statutory auditor
london
25 february 2015
this page does not form part of smith  nephew’s annual report and form 20f as filed with the sec
109 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information group income statement
notes
year ended 
31 december 
2014 
 million
year ended 
31 december 
2013 
 million
year ended 
31 december 
2012 
 million
revenue 2 4617 4351 4137 
cost of goods sold 1162 1100 1070
gross profit 3455 3251 3067 
selling general and administrative expenses 3 2471 2210 2050
research and development expenses 3 235 231 171
operating profit 2  3 749 810 846 
interest receivable 4 13 14 11 
interest payable 4 35 10 9
other finance costs 4 11 11 11
share of results of associates 11 2 1 4 
profit on disposal of net assets held for sale 3 – – 251 
profit before taxation 714 802 1092 
taxation 5 213 246 371
attributable profit for the year i 501 556 721 
earnings per ordinary share i 6
basic 561¢ 617¢ 804¢
diluted 557¢ 614¢ 800¢
group statement of comprehensive income
notes
year ended 
31 december 
2014 
 million
year ended 
31 december 
2013 
 million
year ended 
31 december 
2012 
 million
attributable profit for the year i 501 556 721 
other comprehensive income
items that will not be reclassified to income statement
actuarial lossesgains on retirement benefit obligations 18 94 12 5
taxation on other comprehensive income 5 19 16 20 
total items that will not be reclassified to income statement 75 4 15 
items that may be reclassified subsequently to income statement
cash flow hedges – interest rate derivatives
– losses arising in the year 5 – – 
cash flow hedges – forward foreign exchange contracts
– gainslosses arising in the year 31 8 1
– gains transferred to inventories for the year 14 3 6
exchange differences on translation of foreign operations 196 6 36
exchange on borrowings classified as net 
investment hedges – – 1
total items that may be reclassified subsequently to income statement 184 1 30 
other comprehensive expenseincome for the year net of taxation 259 5 45 
total comprehensive income for the year i 242 551 766 
i attributable to equity holders of the company and wholly derived from continuing operations
the notes on pages 117 to 165 are an integral part of these accounts
smith  nephew annual report 2014 110
financial statements commentary on the group income statement and group statement of comprehensive income
revenue
group revenue increased by 266m 6 on a reported basis from 
4351m in 2013 to 4617m in 2014
the underlying increase is 2 after adjusting for the 5 impact 
of the acquisitions of arthrocare and a brazilian distributor and 1 
attributable to the unfavourable impact of currency movements 
despite flat growth in the established markets growth of 17 in the 
emerging  international markets contributed to this underlying 
increase of 2
cost of goods sold
cost of goods sold increased by 62m 6 on a reported basis 
from 1100m in 2013 to 1162m in 2014 the underlying movement 
is 5 after adjusting for the net impact of 4 from the arthrocare 
acquisition and 3 attributable to the unfavourable impact of currency 
movements the movement in underlying costs of goods sold of 5 is 
largely attributable to the increase in underlying trading 
during 2014 12m of restructuring and rationalisation expenses 
2013 – 12m and 23m of acquisition related costs 2013 – 5m were 
charged to cost of goods sold
selling general and administrative expenses 
selling general and administrative expenses increased by 261m 12 
on a reported basis from 2210m in 2013 to 2471m in 2014 the 
underlying movement is 5 after adjusting for the net impact of 7 
from the arthrocare acquisition currency movements had no impact
the underlying increase of 5 is due to the promotion of new product 
and costs associated with the renasys distribution hold and hp802 
termination and the underlying increase in trading
in 2014 administrative expenses included 62m of amortisation of 
other intangible assets 2013 – 64m 49m of restructuring and 
rationalisation expenses 2013 – 46m an amount of 129m relating 
to amortisation of acquisition intangibles 2013 – 88m and 95m of 
acquisition related costs 2013 – 26m
research and development expenses
research and development expenditure as a percentage of revenue 
remained broadly consistent at 51 in 2014 2013 – 53 actual 
expenditure was 235m in 2014 compared to 231m in 2013 the 
group continues to invest in innovative technologies and products to 
differentiate it from competitors
operating profit
operating profit decreased by 61m to 749m from 810m in 2013 
this comprised an increase of 6m in advanced surgical devices 
and a decrease of 67m in advanced wound management 
the movement in advanced surgical devices is attributable to the 
continuing pressure on margins and its investment in the emerging 
 international markets advanced wound management has been 
adversely impacted by the costs assocaited with the renasys 
distribution hold and the impairment and costs associated with the 
termination of the hp802 programme
net interest receivablepayable
net interest payable increased by 26m from a net 4m receivable in 
2013 to a net payable of 22m in 2014 this movement is primarily due 
to an increase in interest payable as a result of financing the arthrocare 
acquisition interest receivable also decreased following the repayment 
by bioventus llc of their loan note in october 2014
other finance costs
other finance costs in 2014 remained at 11m and principally relate to 
costs associated with the group’s retirement benefit schemes
taxation
the taxation charge decreased by 33m to 213m from 246m in 
2013 the rate of tax was 299 compared with 305 in 2013
after adjusting for specific transactions that management considers 
affect the group’s shortterm profitability restructuring and 
rationalisation expenses amortisation of acquisition intangibles 
acquisition related costs and legal and other items the tax rate was 
277 2013 – 292
the financial commentary on this page forms part of the business review and is unaudited 
see pages 180 to 183 for commentary on the 2013 financial year
111 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes
at 
31 december 
2014 
 million
at 
31 december 
2013 
 million
assets
noncurrent assets
property plant and equipment 7 891 816
goodwill 8 2027 1256 
intangible assets 9 1747 1054 
investments 10 5 2 
investments in associates 11 112 107 
loans to associates 11 – 178 
retirement benefit asset 18 7 5 
deferred tax assets 5 77 145 
4866 3563 
current assets
inventories 12 1181 1006 
trade and other receivables 13 1166 1113 
cash at bank 15 93 137 
2440 2256 
total assets 7306 5819 
equity and liabilities
equity attributable to owners of the company
share capital 19 184 184 
share premium 574 535 
capital redemption reserve 11 10 
treasury shares 19 315 322
other reserves 64 120 
retained earnings 3650 3520 
total equity 4040 4047 
noncurrent liabilities
longterm borrowings 15 1666 347 
retirement benefit obligations 18 233 230 
other payables 14 44 7 
provisions 17 63 65 
deferred tax liabilities 5 98 50 
2104 699 
current liabilities
bank overdrafts and loans 15 39 44 
trade and other payables 14 838 785 
provisions 17 67 60 
current tax payable 218 184 
1162 1073 
total liabilities 3266 1772 
total equity and liabilities 7306 5819 
the accounts were approved by the board and authorised for issue on 25 february 2015 and are signed on its behalf by
roberto quarta olivier bohuon julie brown
chairman chief executive officer chief financial officer
the notes on pages 117 to 165 are an integral part of these accounts
group balance sheet
smith  nephew annual report 2014 112
financial statements noncurrent assets
noncurrent assets increased by 1303m to 4866m in 2014 from 
3563m in 2013 this is principally attributable to the following
 – property plant and equipment increased by 75m from 816m in 
2013 to 891m in 2014 depreciation of 222m was charged during 
2014 assets with a net book value of 15m were disposed of and 
14m was impaired relating to hp802 these movements were offset 
by 298m of additions relating primarily to instruments and other 
plant  machinery and 62m of additions arising on the acquisitions 
of arthrocare the balance relates to unfavourable currency 
movements totalling 34m
 – goodwill increased by 771m from 1256m in 2013 to 2027m 
in 2014 of this movement 829m arose on the acquisition of 
arthrocare and 15m on the acquisition in brazil the remaining 
balance relates to unfavourable currency movements totalling 73m
 – intangible assets increased by 693m from 1054m in 2013 to 
1747m in 2014 intangible assets totalling 817m and 16m arose on 
the acquisition of arthrocare and brazil respectively amortisation 
of 191m was charged during the year and assets with a net book 
value of 1m were disposed of a total of 77m relates to the cost of 
intellectual property distribution rights and software acquired the 
balance relates to unfavourable currency movements totalling 25m
 – investment in associates of 112m in 2014 has increased from 107m 
in 2013 the loan to the associate was fully repaid in the year
 – deferred tax assets decreased by 68m in the year from 145m in 
2013 to 77m in 2014
current assets
current assets increased by 184m to 2440m from 2256m in 2013 
the movement relates to the following
 – inventories rose by 175m to 1181m in 2014 from 1006m in 2013 
this movement is principally attributable to the acquisitions of 
arthrocare and distributor in brazil which increased inventory by 
70m and 36m relating to the purchase of an advanced quantity of 
an ingredient to ensure continued supply of regranex
 – the level of trade and other receivables increased by 53m to 
1166m in 2014 from 1113m in 2013 the movement primarily 
relates to the increase in underlying revenues and 54m from 
the arthrocare acquisition offset by 75m of unfavourable 
currency movements
 – cash at bank has fallen by 44m to 93m from 137m in 2013
noncurrent liabilities
noncurrent liabilities increased by 1405m from 699m in 2013 to 
2104m in 2014 this movement relates to the following items
 – longterm borrowings have increased from 347m in 2013 to 
1666m in 2014 as a result of the 11bn private placements and 
400m additional longterm facility use to fund the acquisition 
of arthrocare
 – the retirement benefit obligation increased by 3m to 233m in 
2014 from 230m in 2013 
 – deferred tax liabilities increased by 48m in the year from 50m in 
2013 to 98m in 2014
current liabilities
current liabilities increased by 89m from 1073m in 2013 to 1162m in 
2014 this movement is attributable to
 – bank overdrafts and current borrowings have decreased by 5m 
from 44m in 2013 to 39m in 2014
 – trade and other payables have increased by 53m to 838m in 2014 
from 785m in 2013 this increase includes 75m of trade and other 
payables arising on the acquisition of arthrocare and distributor in 
brazil offset by 34m of favourable currency movements
 – current tax payable is 218m at the end of 2014 compared to 184m 
in 2013
total equity
total equity decreased by 7m from 4047m in 2013 to 4040m in 
2014 the principal movements were 
total equity 
 million
1 january 2014 4047
attributable profit 501
currency translation losses 196
hedging reserves 12
actuarial losses on retirement benefit obligations 94
dividends paid during the year 250
purchase of own shares 75
taxation on other comprehensive income and 
equity items 19
net sharebased transactions 76
31 december 2014 4040
the financial commentary on this page forms part of the business review and is unaudited 
see pages 180 to 183 for commentary on the 2013 financial year
commentary on the group balance sheet 
113 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes
year ended 
31 december 
2014 
 million
year ended 
31 december 
2013 
 million
year ended 
31 december 
2012 
 million
cash flows from operating activities 
profit before taxation 714 802 1092 
net interest payablereceivable 4 22 4 2
depreciation amortisation and impairment 427 361 312 
loss on disposal of property plant and equipment and software 11 23 12 
distribution from investment 1 – –
sharebased payments expense 23 32 28 34 
share of results of associates 11 2 1 4
dividends received from associates 11 – 1 7 
profit on disposal of manufacturing facility 21 9 – –
profit on disposal of net assets held for sale 3 – – 251
net movement in post retirement benefit obligations 81 27 28
increasedecrease in inventories 168 99 12 
increase in trade and other receivables 76 70 5
increase in trade and other payables  
and provisions 86 122 5 
cash generated from operations i ii 961 1138 1184 
interest received 3 4 4 
interest paid 36 10 8
income taxes paid 245 265 278
net cash inflow from operating activities 683 867 902 
cash flows from investing activities 
acquisitions net of cash acquired 21 1572 74 782
proceeds on disposal of net assets held for sale – – 103 
capital expenditure 2 375 340 265
investment in associate 11 2 – 10
purchase of investments 10 4 – –
proceeds from associate loan redemption 11 188 – –
proceeds on disposal of manufacturing facility 21 20 – –
cash received on disposal of associate – 7 – 
net cash used in investing activities 1745 407 954
cash flows from financing activities 
proceeds from issue of ordinary share capital 40 48 77 
purchase of own shares 75 231 – 
proceeds of borrowings due within one year 20 30 12 40 
settlement of borrowings due within one year 20 52 6 296
proceeds on borrowings due after one year 20 3390 695 415 
settlement of borrowings due after one year 20 2068 779 1
proceeds from own shares 4 3 6 
settlement of currency swaps 20 11 1 1
equity dividends paid 19 250 239 186
net cash fromused in financing activities 1008 498 54 
net decreaseincrease in cash and cash equivalents 54 38 2 
cash and cash equivalents at beginning of year 20 126 167 161 
exchange adjustments 20 7 3 4 
cash and cash equivalents at end of year 65 126 167 
i includes 60m 2013 – 54m 2012 – 55m of outgoings on restructuring and rationalisation expenses
ii  includes 112m 2013 – 25m 2012 – 3m of acquisitionrelated costs and 23m 2013 – nil 2012 – 22m of legal and other costs
the notes on pages 117 to 165 are an integral part of these accounts
group cash flow statement 
smith  nephew annual report 2014 114
financial statements the main elements of the group’s cash flow and movements in net 
debt can be summarised as follows
net cash inflow from operating activities
cash generated from operations in 2014 of 961m 2013 – 1138m 
2012 – 1184m is after paying out 112m 2013 – 25m 2012 – 3m 
of acquisitionrelated costs 60m 2013 – 54m 2012 – 55m of 
restructuring and rationalisation expenses and 23m 2013 – nil 2012 
– 22m relating to legal and other exceptional costs
capital expenditure
the group’s ongoing capital expenditure and working capital 
requirements were financed through cash flow generated by business 
operations and where necessary through shortterm committed 
and uncommitted bank facilities in 2014 capital expenditure on 
tangible and intangible fixed assets represented approximately 8 of 
continuing group revenue 2013 – 8 2012 – 6
in 2014 capital expenditure amounted to 375m 2013 – 340m 
2012 – 265m the principal areas of investment were the placement 
of orthopaedic instruments with customers patents and licences plant 
and equipment and information technology
at 31 december 2014 34m 2013 – 41m 2012 – 4m of capital 
expenditure had been contracted but not provided for which will be 
funded from cash inflows
acquisitions and disposals
in the threeyear period ended 31 december 2014 2428m was 
spent on acquisitions funded from net debt and cash inflows this 
comprised 782m for healthpoint acquired in december 2012 74m 
relating to acquisitions in turkey brazil and india completed in quarter 
four of 2013 1546m for arthrocare acquired in may 2014 and 26m 
for the acquisition in brazil completed in quarter one 2014
during 2012 the group completed the transfer of its biologics and 
clinical therapies business ‘ct’ to bioventus for total consideration  
of 367m as part of this transaction the group received a 49  
interest in bioventus with a value of 104m and subsequently invested 
a further 10m
during 2014 the group received repayment of the 160m loan note  
to bioventus and 28m of accrued interest
proceeds of 20m have been received on the disposal of the group’s 
manufacturing plant in gilberdyke uk
liquidity and capital resources
the group’s policy is to ensure that it has sufficient funding and 
facilities in place to meet foreseeable borrowing requirements
at 31 december 2014 the group held 65m 2013 – 126m 2012 
167m in cash net of bank overdrafts the group had committed 
facilities available of 2525m at 31 december 2014 of which 1655m 
was drawn smith  nephew intends to repay the amounts due within 
one year by using available cash and drawing down on the longer term 
facilities in addition smith  nephew has finance lease commitments 
of 12m
during the year ended 31 december 2014 the group refinanced its 
principal banking facilities the group has signed a new fiveyear 
committed 1 billion multicurrency revolving credit facility with a 
maturity date of march 2019 in addition the group signed a 14 billion 
committed term loan facility with a maturity date of february 2016 the 
group drew down its 14 billion committed term loan facility to fund the 
acquisition of arthrocare 1 billion of this loan was repaid during the 
year partly from private placement proceeds 
during the year ended 31 december 2014 the group received the 
entire proceeds of the 325 million private placement debt agreement 
signed in december 2013 the funds have a weighted average fixed 
rate of 37 and mature between 2021 and 2026 the group also 
received 800 million of proceeds from a second private placement 
agreement signed in november 2014 the funds have a weighted 
average fixed rate of 31 and mature between 2019 and 2024 
the principal variations in the group’s borrowing requirements result 
from the timing of dividend payments acquisitions and disposals 
of businesses timing of capital expenditure and working capital 
fluctuations smith  nephew believes that its capital expenditure 
needs and its working capital funding for 2015 as well as its other 
known or expected commitments or liabilities can be met from its 
existing resources and facilities the group’s net debt increased 
from 288m at the beginning of 2013 to 1613m at the end of 2014 
representing an overall increase of 1325m
the group’s planned future contributions are considered adequate 
to cover the current underfunded position in the group’s defined 
benefit plans
the financial commentary on this page forms part of the business review and is unaudited 
see pages 180 to 183 for commentary on the 2013 financial year
commentary on the group cash flow statement
115 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information share  
capital  
 million
share  
premium  
 million
capital 
redemption 
reserve  
 million
treasury  
shares ii  
 million
other  
reserves iii  
 million
retained  
earnings  
 million
total  
equity  
 million
at 31 december 2011 191 413 – 766 91 3258 3187 
total comprehensive income i – – – – 30 736 766 
equity dividends declared and paid – – – – – 186 186
sharebased payments recognised – – – – – 34 34 
cost of shares transferred to beneficiaries – – – 31 – 25 6 
issue of ordinary share capital iv 2 75 – – – – 77 
at 31 december 2012 193 488 – 735 121 3817 3884 
total comprehensive income i – – – – 1 552 551 
equity dividends declared and paid – – – – – 239 239
sharebased payments recognised – – – – – 28 28 
deferred taxation on sharebased payments – – – – – 3 3 
purchase of own shares – – – 231 – – 231
cost of shares transferred to beneficiaries – – – 21 – 18 3 
cancellation of treasury shares 10 – 10 623 – 623 – 
issue of ordinary share capital iv 1 47 – – – – 48 
at 31 december 2013 184 535 10 322 120 3520 4047
total comprehensive income i – – – – 184 426 242
equity dividends declared and paid – – – – – 250 250
sharebased payments recognised – – – – – 32 32
purchase of own shares – – – 75 – – 75
cost of shares transferred to beneficiaries – – – 25 – 21 4
cancellation of treasury shares 1 – 1 57 – 57 –
issue of ordinary share capital iv 1 39 – – – – 40
at 31 december 2014 184 574 11 315 64 3650 4040
i attributable to equity holders of the company and wholly derived from continuing operations
ii refer to note 192 for further information
iii  other reserves comprises gains and losses on cash flow hedges foreign exchange differences on translation of foreign operations and the difference arising as a result of translating 
share capital and share premium at the rate ruling on the date of redenomination instead of the rate at the balance sheet date the cumulative translation adjustments within other 
reserves at 31 december 2014 were 78m 2013 – 118m 2012 – 124m
iv issue of ordinary share capital as a result of options being exercised
the notes on pages 117 to 165 are an integral part of these accounts 
group statement of changes in equity
smith  nephew annual report 2014 116
financial statements 1 basis of preparation
smith  nephew plc the ‘company’ is a public limited company 
incorporated in england and wales in these accounts the ‘group’ 
means the company and all its subsidiaries the principal activities 
of the group are to develop manufacture market and sell medical 
devices in the sectors of advanced surgical devices and advanced 
wound management
as required by the european union’s ias regulation and the 
companies act 2006 the group has prepared its accounts in 
accordance with international financial reporting standards ‘ifrs’ 
as adopted by the european union ‘eu’ effective as at 31 december 
2014 the group has also prepared its accounts in accordance with 
ifrs as issued by the international accounting standards board ‘iasb’ 
effective as at 31 december 2014 ifrs as adopted by the eu differs 
in certain respects from ifrs as issued by the iasb however the 
differences have no impact for the periods presented
the preparation of accounts in conformity with ifrs requires 
management to use estimates and assumptions that affect the 
reported amounts of assets and liabilities and disclosure of contingent 
assets and liabilities at the date of the accounts and the reported 
amounts of revenues and expenses during the reporting period the 
accounting policies requiring management to use significant estimates 
and assumptions are inventories impairment taxation liability 
provisions and business combinations these are discussed under 
critical accounting policies on page 104 although these estimates 
are based on management’s best knowledge of current events and 
actions actual results ultimately may differ from those estimates 
estimates and underlying assumptions are reviewed on an ongoing 
basis revisions to estimates are recognised prospectively 
the directors continue to adopt the going concern basis for accounting 
in preparing the annual financial statements the directors have a 
reasonable expectation that the group has adequate resources to 
continue in operational existence for the foreseeable future
there have been no new accounting pronouncements impacting the 
group in 2014
a number of new standards amendments to standards and 
interpretations are effective for the group’s annual periods beginning 
on or after 1 january 2015 and have not been applied in preparing 
these consolidated accounts with the exception of ifrs 9 financial 
instruments and ifrs 15 revenue which the group does not intend 
to early adopt and for which the extent of the impact is still being 
determined none of these is expected to have a significant effect on 
the consolidated accounts of the group
consolidation
the group accounts include the accounts of smith  nephew plc and 
its subsidiaries for the periods during which they were members of 
the group
subsidiaries are entities controlled by the group the group controls 
an entity when it is exposed to or has rights to variable returns from 
its involvement with the entity and has the ability to affect those returns 
through its power over the entity subsidiaries are consolidated in the 
group accounts from the date that the group obtains control and 
continue to be consolidated until the date that such control ceases 
intragroup balances and transactions and any unrealised income 
and expenses arising from intragroup transactions are eliminated on 
consolidation all subsidiaries have year ends which are coterminus 
with the group’s
when the group loses control over a subsidiary it derecognises the 
assets and liabilities of the subsidiary and any related components 
of equity any resulting gain or loss is recognised in profit or loss any 
retained interest in the former subsidiary is measured at fair value
foreign currencies
functional and presentation currency
the group accounts are presented in us dollars which is the 
company’s functional currency
foreign currency transactions
transactions in foreign currencies are translated to the respective 
functional currencies of group companies at exchange rates at the 
dates of the transactions monetary assets and liabilities denominated 
in foreign currencies are retranslated to the functional currency at 
the exchange rate at the reporting date nonmonetary items are 
not retranslated
foreign operations
balance sheet items of foreign operations including goodwill and fair 
value adjustments arising on acquisition are translated into us dollars 
on consolidation at the exchange rates at the reporting date income 
statement items and the cash flows of foreign operations are translated 
at average rates as an approximation to actual transaction rates with 
actual transaction rates used for large one off transactions
foreign currency differences are recognised in other comprehensive 
income and accumulated in ‘other reserves’ within equity these 
include exchange differences on the translation at closing rates of 
exchange of nonus dollar opening net assets the differences arising 
between the translation of profits into us dollars at actual or average 
as an approximation and closing exchange rates to the extent that the 
hedging relationship is effective the difference on translation of foreign 
currency borrowings or swaps that are used to finance or hedge the 
group’s net investments in foreign operations and the movement in 
the fair value of forward foreign exchange contracts used to hedge 
forecast foreign exchange cash flows
the exchange rates used for the translation of currencies into us 
dollars that have the most significant impact on the group results were
2014 2013 2012
average rates 
sterling 165 156 158
euro 133 133 128
swiss franc 109 108 107
yearend rates
sterling 156 166 163
euro 121 138 132
swiss franc 101 112 109
notes to the group accounts
117 smith  nephew annual report 2014
corporate governance financial statements and other information strategic report notes to the group accounts continued
2 business segment information
during 2014 for management purposes the group was organised 
into two global divisions according to the nature of its products which 
represented two reportable business segments – advanced surgical 
devices and advanced wound management 
as part of the reinvestment  group optimisation programme 
management have created a single unified operating structure with 
a single cost base led by a managing director in each major country 
outside the us the change in structure took effect on 1 january 2015 
and as such the group will report as a single segment from this date
the types of products and services offered by each business segment 
in 2014 are
 – smith  nephew’s advanced surgical devices ‘asd’ business 
offers the following products and technologies
 – orthopaedic reconstruction which includes hip implants knee 
implants and ancillary products such as bone cement and mixing 
systems used in cemented reconstruction joint surgery
 – trauma  extremities consisting of internal and external devices 
used in the stabilisation of severe fractures and deformity 
correction procedures
 – sports medicine joint repair which offers surgeons a broad array 
of instruments technologies and implants necessary to perform 
minimally invasive surgery of the joints
 – arthroscopy enabling technologies which offer healthcare 
providers a variety of technologies such as fluid management 
equipment for surgical access high definition cameras digital 
image capture scopes light sources and monitors to assist 
with visualisation inside the joints radio frequency wands 
electromechanical and mechanical blades and hand instruments 
for removing damaged tissue
 – other asd which includes gynaecological instrumentation and the 
remaining clinical therapies geographies which are in the process 
of being transferred to bioventus 
 – smith  nephew’s advanced wound management ‘awm’ business 
offers a range of products
 – advanced wound care includes products for the treatment of 
acute and chronic wounds including leg diabetic and pressure 
ulcers burns and postoperative wounds
 – advanced wound devices consists of traditional and singleuse 
negative pressure wound therapy and hydrosurgery systems
 – advanced wound bioactives includes biologics and other bioactive 
technologies that provide unique approaches to debridement and 
dermal repairregeneration
management monitors the operating results of its business segments 
separately for the purposes of making decisions about resource 
allocation and performance assessment group financing including 
interest receivable and payable and income taxes are managed on a 
group basis and are not allocated to business segments 
the following tables present revenue profit asset and liability 
information regarding the group’s operating segments as they existed 
during the year investments in associates and loans to associates are 
segmentally allocated to advanced surgical devices
21 revenue by business segment and geography
accounting policy
revenue comprises sales of products and services to third parties 
at amounts invoiced net of trade discounts and rebates excluding 
taxes on revenue revenue from the sale of products is recognised 
upon transfer to the customer of the significant risks and rewards of 
ownership this is generally when goods are delivered to 
customers sales of inventory located at customer premises and 
available for customers’ immediate use are recognised when 
notification is received that the product has been implanted or 
used appropriate provisions for returns trade discounts and 
rebates are deducted from revenue rebates comprise 
retrospective volume discounts granted to certain customers on 
attainment of certain levels of purchases from the group these are 
accrued over the course of the arrangement based on estimates of 
the level of business expected and adjusted at the end of the 
arrangement to reflect actual volumes
2014 
 million
2013 
 million
2012 
 million
revenue by business segment
advanced surgical devices 3298 3015 3108 
advanced wound management 1319 1336 1029 
4617 4351 4137 
there are no material sales between business segments
2014 
 million
2013 
 million
2012 
 million
revenue by geographic market
united states 2012 1862 1651 
united kingdom 299 293 297 
other established markets 1629 1633 1706 
emerging  international markets 677 563 483 
4617 4351 4137 
revenue has been allocated by basis of destination no revenue from a 
single customer is in excess of 10 of the group’s revenue
smith  nephew annual report 2014 118
financial statements 22 trading and operating profit by business segment
trading profit is a trend measure which presents the longterm profitability of the group excluding the impact of specific transactions that 
management considers affects the group’s shortterm profitability the group presents this measure to assist investors in their understanding of 
trends the group has identified the following items where material as those to be excluded from operating profit when arriving at trading profit 
acquisition and disposal related items including amortisation of acquisition intangibles and impairments significant restructuring events gains 
and losses arising from legal disputes and significant uninsured losses operating profit reconciles to trading profit as follows
notes
2014 
 million
2013 
 million
2012 
 million
operating profit 749 810 846 
acquisitionrelated costs 3 118 31 11 
restructuring and rationalisation expenses 3 61 58 65 
amortisation of acquisition intangibles and impairments 9 129 88 43 
legal and other 3 2 – – 
trading profit 1055 987 965 
trading profit by business segment 
advanced surgical devices 810 712 728 
advanced wound management 245 275 237 
1055 987 965 
operating profit by business segment  
reconciled to attributable profit for the year
advanced surgical devices 626 620 632 
advanced wound management 123 190 214 
operating profit 749 810 846 
net interest payablereceivable 22 4 2 
other finance costs 11 11 11
share of results of associates 2 1 4 
profit on disposal on net assets held for sale – – 251 
taxation 213 246 371
attributable profit for the year 501 556 721 
23 assets and liabilities by business segment and geography
2014 
 million
2013 
 million
2012 
 million
balance sheet
assets
advanced surgical devices 5368 3684 3518 
advanced wound management 1761 1848 1776 
operating assets by business segment 7129 5532 5294 
unallocated corporate assets 177 287 348 
total assets 7306 5819 5642 
liabilities
advanced surgical devices 697 609 530 
advanced wound management 315 308 256 
operating liabilities by business segment 1012 917 786 
unallocated corporate liabilities 2254 855 972 
total liabilities 3266 1772 1758 
119 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to the group accounts continued
2 business segment information continued
unallocated corporate assets and liabilities comprise the following
2014 
 million
2013 
 million
2012 
 million
deferred tax assets 77 145 164 
retirement benefit asset 7 5 6 
cash at bank 93 137 178 
unallocated corporate assets 177 287 348 
longterm borrowings 1666 347 430 
retirement benefit obligations 233 230 266 
deferred tax liabilities 98 50 61 
bank overdrafts and loans due within one year 39 44 38 
current tax payable 218 184 177 
unallocated corporate liabilities 2254 855 972 
2014 
 million
2013 
 million
2012 
 million
capital expenditure including acquisitions
advanced surgical devices 2045 327 188 
advanced wound management 73 124 839 
2118 451 1027 
capital expenditure segmentally allocated above comprises
2014 
 million
2013 
 million
2012 
 million
additions to property plant and equipment 298 242 197 
additions to intangible assets 77 98 68 
capital expenditure excluding business combinations 375 340 265 
trade investments 4 – –
acquisitions – goodwill 844 53 73 
acquisitions – intangible assets 833 53 662 
acquisitions – property plant and equipment 62 5 27 
capital expenditure 2118 451 1027 
2014 
 million
2013 
 million
2012 
 million
depreciation amortisation and impairment
advanced surgical devices 320 268 274 
advanced wound management 107 93 38 
427 361 312 
smith  nephew annual report 2014 120
financial statements amounts comprise depreciation of property plant and equipment amortisation of other intangible assets impairment of investments and 
amortisation of acquisition intangibles and impairments as follows
2014 
 million
2013 
 million
2012 
 million
amortisation of acquisition intangibles 129 88 43 
depreciation of property plant and equipment 222 209 212 
impairment of property plant and equipment 14 – –
impairment of goodwill and investments – – 6 
amortisation of other intangible assets 62 64 51 
427 361 312 
14m impairments were recognised within operating profit in 2014 2013 – nil 2012 – 6m recognised within the administrative expenses line in 
2014 the impairment was segmentally allocated to advanced wound management 2012 advanced surgical devices
geographic
2014 
 million
2013 
 million
assets by geographic location
united states 3104 2086 
united kingdom 379 255 
other established markets 1101 902 
emerging  international markets 198 170 
noncurrent operating assets by geographic location 4782 3413 
united states 1104 1121 
united kingdom 234 288 
other established markets 706 486 
emerging  international markets 303 224 
current operating assets by geographic location 2347 2119 
unallocated corporate assets see page 120 177 287 
total assets 7306 5819 
24 other business segment information
2014 
 million
2013 
 million
2012 
 million
other significant expenses recognised within operating profit
advanced surgical devices 106 51 57 
advanced wound management 71 38 19 
177 89 76 
the 177m incurred in 2014 relates to 61m restructuring and rationalisation expenses and 118m acquisition related costs and a net 2m credit 
related to legal and other 2013 – 58m relates to restructuring and rationalisation expenses and 31m acquisition related costs 2012 – 65m 
relates to restructuring and rationalisation expenses and 11m acquisition related costs
2014 
numbers
2013 
numbers
2012 
numbers
average number of employees
advanced surgical devices 9273 7066 7194 
advanced wound management 4195 3970 3283 
13468 11036 10477 
121 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to the group accounts continued
3 operating profit
accounting policies
research and development
research expenditure is expensed as occurred internal development expenditure is only capitalised if the recognition criteria in ias 38 
intangible assets have been satisfied the group considers that the regulatory technical and market uncertainties inherent in the development 
of new products mean that in most cases development costs should not be capitalised as intangible assets until products receive approval 
from the appropriate regulatory body 
payments to third parties for research and development projects are accounted for based on the substance of the arrangement if the 
arrangement represents outsourced research and development activities the payments are generally expensed except in limited 
circumstances where the respective development expenditure would be capitalised under the principles established in ias 38 by contrast the 
payments are capitalised if the arrangement represents consideration for the acquisition of intellectual property developed at the risk of the 
third party 
capitalised development expenditures are amortised on a straightline basis over their useful economic lives from product launch
advertising costs
expenditure on advertising costs is expensed as incurred
2014 
 million
2013 
 million
2012 
 million
revenue 4617 4351 4137 
cost of goods sold iii 1162 1100 1070
gross profit 3455 3251 3067 
research and development expenses 235 231 171
selling general and administrative expenses
marketing selling and distribution expenses 1670 1535 1440
administrative expenses iii iv v vi 801 675 610
2471 2210 2050
operating profit 749 810 846 
i 2014 includes 12m of restructuring and rationalisation expenses 2013 – 12m 2012 – 3m
ii 2014 includes 23m of acquisitionrelated costs 2013 – 5m 2012 – nil
iii 2014 includes 62m of amortisation of other intangible assets 2013 – 64m 2012 – 51m
iv  2014 includes 49m of restructuring and rationalisation expenses and 129m of amortisation of acquisition intangibles 2013 – 46m of restructuring and rationalisation expenses 
and 88m of amortisation of acquisition intangibles 2012 – 62m of restructuring and rationalisation expenses and 43m of amortisation of acquisition intangibles
v 2014 includes 2m credit relating to legal and other exceptionals 2013 – nil 2012 – nil
vi 2014 includes 95m of acquisitionrelated costs 2013 – 26m 2012 – 11m
note that items detailed in i ii iv v and vi are excluded from the calculation of trading profit
operating profit is stated after charging the following items
2014 
 million
2013 
 million
2012 
 million
amortisation of acquisition intangibles 129 88 43 
amortisation of other intangible assets 62 64 51 
impairment of goodwill and investments – – 6 
depreciation of property plant and equipment 222 209 212 
loss on disposal of property plant and equipment and software 25 23 12 
minimum operating lease payments for land and buildings 38 32 29 
minimum operating lease payments for other assets 18 19 21 
advertising costs 96 91 74 
smith  nephew annual report 2014 122
financial statements 31 staff costs
staff costs during the year amounted to
notes
2014 
 million
2013 
 million
2012 
 million
wages and salaries 1237 998 886 
social security costs 127 106 97 
pension costs including retirement healthcare 18 17 72 72 
sharebased payments 23 32 28 34 
1413 1204 1089 
32 audit fees – information about the nature and cost of services provided by auditors
2014 
 million
2013 
 million
2012 
 million
audit services group accounts 2 1 1 
other services 
local statutory audit pursuant to legislation 1 2 2 
taxation services
compliance services 1 2 1 
advisory services 1 1 1 
total auditors’ remuneration 5 6 5 
arising
in the uk 3 3 2 
outside the uk 2 3 3 
5 6 5 
33 acquisition related costs
acquisition related costs of 118m 2013 – 31m 2012 – 11m were incurred within operating profit in the twelve month period to 31 december 
2014 these costs relate to professional and adviser fees and integration costs in connection with the acquisitions of arthrocare and the distributor 
in brazil completed in 2014 the acquisitions in turkey brazil and india during 2013 and the acquisition of healthpoint biotherapeutics completed in 
2012 in addition 7m of debtrelated acquisition costs were incurred in the year
34 restructuring and rationalisation expenses
restructuring and rationalisation costs of 61m 2013 – 58m 2012 – 65m were incurred in the twelve month period to 31 december 2014 
these related mainly to charges of 49m 2013 – nil 2012 – nil incurred in relation to the group optimisation programme announced in may 
2014 charges of 12m 2013 – 58m 2012 – 65m were also incurred relating to people costs and contract termination costs associated with the 
structural and process changes announced in august 2011 
35 legal and other 
the legal and other net credit within operating profit of 2m 2013 – nil 2012 – 251m relates to a settlement credit and past service gain on 
the closure of the us pension plan of 46m and a gain on the disposal of a uk manufacturing facility of 9m offset by a charge of 25m relating 
to the likely costs of a distribution hold on renasys in the us pending new regulatory approvals and a charge of 28m relating to the hp802 
programme which was stopped in the fourth quarter 
in 2012 a profit on disposal of 251m was recorded relating to the disposal of our clinical therapies business
123 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to the group accounts continued
4 interest and other finance costs
41 interest receivablepayable
2014 
 million
2013 
 million
2012 
 million
interest receivable 13 14 11 
interest payable
bank borrowings 19 8 7
private placement notes 14 – –
other 2 2 2
35 10 9
net interest payablereceivable 22 4 2 
42 other finance costs
notes
2014 
 million
2013 
 million
2012 
 million
retirement benefit net interest expense 18 10 11 11
other 1 – –
other finance costs 11 11 11
foreign exchange gains or losses recognised in the income statement arose primarily on the translation of intercompany and third party 
borrowings and amounted to a net 21m gain in 2014 2013 – net 1m gain 2012 – net 5m loss these amounts were fully matched in the income 
statement by the fair value gains or losses on currency swaps carried at fair value through profit and loss held to manage this currency risk
5 taxation
accounting policy
the charge for current taxation is based on the results for the year as adjusted for items which are nonassessable or disallowed it is 
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date
the group operates in multiple tax jurisdictions around the world and records provisions for taxation liabilities and tax audits when it is 
considered probable that a tax charge will arise and the amount can be reliably estimated although group policy is to submit its tax returns to 
the relevant tax authorities as promptly as possible at any time the group has unagreed years outstanding and is involved in disputes and tax 
audits significant issues may take many years to resolve in estimating the probability and amount of any tax charge management takes into 
account the views of internal and external advisers and updates the amount of the provision whenever necessary the ultimate tax liability may 
differ from the amount provided depending on interpretations of tax law settlement negotiations or changes in legislation
deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting 
purposes and the amounts used for taxation purposes 
deferred tax is not recognised for temporary differences related to investments in subsidiaries and associates where the group is able to 
control the timing of the reversal of the temporary difference and it is probable that this will not reverse in the foreseeable future on the initial 
recognition of nondeductible goodwill and on the initial recognition of an asset or liability in a transaction that is not a business combination 
and that at the time of the transaction does not affect the accounting or taxable profit
deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which they can be used 
deferred tax assets are reviewed at each reporting date 
deferred tax is measured on an undiscounted basis and at the tax rates that have been enacted or substantively enacted by the reporting 
date that are expected to apply in the periods in which the asset or liability is settled it is recognised in the income statement except when it 
relates to items credited or charged directly to other comprehensive income or equity in which case the deferred tax is also recognised within 
other comprehensive income or equity respectively
deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority when the group intends to 
settle its current tax assets and liabilities on a net basis and that authority permits the group to make a single net payment
smith  nephew annual report 2014 124
financial statements 51 taxation charge attributable to the group
2014 
 million
2013 
 million
2012 
 million
current taxation
uk corporation tax at 215 2013 – 233 2012 – 245 39 50 53 
overseas tax 235 229 248 
current income tax charge 274 279 301 
adjustments in respect of prior periods 6 5 17
total current taxation 268 274 284 
deferred taxation
origination and reversal of temporary differences 52 23 88 
changes in tax rates – 4 3
adjustments to estimated amounts arising in prior periods 3 1 2 
total deferred taxation 55 28 87 
total taxation as per the income statement 213 246 371 
deferred taxation in other comprehensive income 19 16 20
deferred taxation in equity – 3 – 
taxation attributable to the group 194 259 351 
the tax charge was reduced by 71m as a consequence of restructuring and rationalisation expenses amortisation of acquisition intangibles and 
acquisition related costs and legal and other in 2013 the tax charge was reduced by 40m as a consequence of restructuring and rationalisation 
expenses amortisation of acquisition intangibles and acquisition related costs in 2012 the tax charge was increased by 82m as a consequence 
of restructuring and rationalisation expenses amortisation of acquisition intangibles and legal provision
the applicable tax for the year is based on the uk standard rate of corporation tax of 215 2013 – 233 2012 – 245 overseas taxation is 
calculated at the rates prevailing in the respective jurisdictions the average effective tax rate differs from the applicable rate as follows
2014 

2013 

2012 

uk standard rate 215 233 245 
nondeductiblenontaxable items 05 10 04 
prior year items 12 05 13
tax losses incurred not relieved 16 09 08 
overseas income taxed at other than uk standard rate 75 78 93 
total effective tax rate 299 305 337 
the enacted uk tax rate applicable from 1 april 2014 is 21 the uk government have enacted legislation to reduce the tax rate to 20 from 
1 april 2015 
125 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to the group accounts continued
5 taxation continued
52 deferred taxation
movements in the main components of deferred tax assets and liabilities were as follows
accelerated 
tax 
deprecation
 million
intangibles
 million
retirement 
benefit 
obligation 
 million
macrotexture
 million
inventory 
provisions 
and other 
differences 
 million
total 
 million
at 1 january 2013 90 28 87 52 82 103
exchange adjustment – 1 – – 5 4
movement in income statement – current year 3 5 3 – 28 27
movement in income statement – prior years 2 1 – – – 1
movement in other comprehensive income – – 16 – – 16
charge to equity – – – – 3 3
acquisition – – – – 19 19
transfers – 1 – – 1 –
at 31 december 2013 91 22 68 52 88 95
exchange adjustment 2 1 2 – 10 9
movement in income statement – current year 18 16 18 – 36 52
movement in income statement – prior years 1 1 – – 3 3
movement in other comprehensive income – – 22 – 3 19
acquisition – 220 – – 39 181
at 31 december 2014 70 226 70 52 153 21
represented by
2014 
 million
2013 
 million
deferred tax assets 77 145 
deferred tax liabilities 98 50
net position at 31 december 21 95 
the group has unused tax losses of 92m 2013 – 31m available for offset against future profits a deferred tax asset has been recognised in 
respect of 47m 2013 – 3m of these losses no deferred tax asset has been recognised on the remaining unused tax losses as they are not 
expected to be realised in the foreseeable future the aggregate amount of temporary differences in respect of investments in subsidiaries and 
associates for which deferred tax liabilities have not been recognised is approximately 449m 2013 – nil
smith  nephew annual report 2014 126
financial statements 6 earnings per ordinary share
accounting policies
earnings per share
basic earnings per share is calculated by dividing the profit attributable to equity holders by the weighted average number of ordinary shares in 
issue during the year excluding shares held by the company in the employees’ share trust or as treasury shares
adjusted earnings per share
adjusted earnings per share is a trend measure which presents the longterm profitability of the group excluding the impact of specific 
transactions that management considers affects the group’s shortterm profitability the group presents this measure to assist investors in 
their understanding of trends adjusted attributable profit is the numerator used for this measure the group has identified the following items 
as those to be excluded when arriving at adjusted attributable profit acquisition and disposal related items including amortisation of 
acquisition intangible assets and impairments significant restructuring events significant gains and losses arising from legal disputes and 
significant uninsured losses and taxation thereon
the calculations of the basic diluted and adjusted earnings per ordinary share are based on the following attributable profit and numbers 
of shares
2014 
 million
2013 
 million
2012 
 million
earnings
attributable profit for the year 501 556 721 
adjusted attributable profit see below 743 693 671 
attributable profit is reconciled to adjusted attributable profit as follows
notes
2014 
 million
2013 
 million
2012 
 million
attributable profit for the year 501 556 721 
acquisitionrelated costs 3 125 31 11 
restructuring and rationalisation expenses 3 61 58 65 
amortisation of acquisition intangibles and impairments 9 129 88 43 
profit on disposal of net assets held for sale 3 – – 251
legal and other 3 2 – – 
taxation on excluded items 5 71 40 82 
adjusted attributable profit 743 693 671 
the numerators used for basic and diluted earnings per ordinary share are the same the denominators used for all categories of earnings for 
basic and diluted earnings per ordinary share are as follows
2014 2013 2012
number of shares millions
basic weighted number of shares 893 901 897 
dilutive impact of share options outstanding 6 5 4 
diluted weighted average number of shares 899 906 901 
earnings per ordinary share
basic 561¢ 617¢ 804¢
diluted 557¢ 614¢ 800¢
adjusted basic 832¢ 769¢ 748¢
adjusted diluted 826¢ 765¢ 745¢
there were no share options which were not included in the diluted eps calculation because they were nondilutive in the period 2013 – 05m 
2012 – 82m
127 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to the group accounts continued
7 property plant and equipment
accounting policies
property plant and equipment
items of property plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses
depreciation is calculated to write off the cost of items of property plant and equipment less their estimated residual values using the 
straightline method over their estimated useful lives and is generally recognised in profit or loss leased assets are depreciated over  
the shorter of the lease term and their useful lives unless it is reasonably certain that the group will obtain ownership by the end of the 
lease term freehold land is not depreciated the estimated useful lives of items of property plant and equipment is 3–20 years and for 
buildings is 20–50 years 
assets in course of construction are not depreciated until they are available for use
depreciation methods useful lives and residual values are reviewed at each reporting date and adjusted if appropriate 
finance costs relating to the purchase or construction of property plant and equipment and intangible assets that take longer than one year to 
complete are capitalised based on the group weighted average borrowing costs all other finance costs are expensed as incurred
impairment of assets
the carrying values of property plant and equipment are reviewed for impairment when events or changes in circumstances indicate the 
carrying value may be impaired if any such indication exists the recoverable amount of the asset is estimated in order to determine the extent 
of impairment loss where it is not possible to estimate the recoverable amount of an individual asset the group estimates the recoverable 
amount of the cashgenerating unit to which it belongs
an asset’s recoverable amount is the higher of an asset’s or cashgenerating unit’s fair value less costs to sell and its valueinuse in assessing 
valueinuse its estimated future cash flow is discounted to its present value using a pretax discount rate that reflects the current market 
assessments of the time value of money and the risks specific to the asset
smith  nephew annual report 2014 128
financial statements land and buildings plant and equipment assets in 
course of 
construction 
 million
total 
 million
freehold 
 million
leasehold 
 million
instruments 
 million
other 
 million
cost
at 1 january 2013 143 52 1042 919 73 2229
exchange adjustment 1 1 16 6 – 10
acquisitions see note 21 – 1 2 2 – 5
additions 2 1 139 23 77 242
disposals 3 – 102 80 2 187
transfers – – – 68 68 –
at 31 december 2013 143 53 1065 938 80 2279
exchange adjustment 4 1 68 35 2 110
acquisitions see note 21 11 4 9 17 21 62
additions – – 158 57 83 298
disposal of business – – – 12 – 12
disposals 2 3 108 40 4 157
transfers 1 1 4 38 44 –
at 31 december 2014 149 54 1060 963 134 2360
depreciation and impairment
at 1 january 2013 46 29 738 623 – 1436
exchange adjustment 1 1 10 5 – 7
charge for the year 1 3 135 70 – 209
disposals 3 – 99 73 – 175
at 31 december 2013 43 31 764 625 – 1463
exchange adjustment 2 – 50 24 – 76
charge for the year 5 4 137 76 – 222
impairment – – – 3 11 14
disposal of business – – – 7 – 7
disposals 1 3 107 36 – 147
at 31 december 2014 45 32 744 637 11 1469
net book amounts
at 31 december 2014 104 22 316 326 123 891
at 31 december 2013 100 22 301 313 80 816
land and buildings includes land with a cost of 20m 2013 – 15m that is not subject to depreciation assets held under finance leases with a net 
book amount of 8m 2013 – 10m are included within land and buildings
the impairment charge in the year relates to certain assets which related to the production of hp802 which the group has decided not 
to continue
historically capital expenditure represents the group’s expected annual investment in property plant and equipment and other intangible assets 
this varies between 6 and 8 2013 – 6 and 8 of annual revenue
group capital expenditure relating to property plant and equipment contracted but not provided for amounted to 27m 2013 – 20m
the amount of borrowing costs capitalised in 2014 and 2013 was minimal
129 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 8 goodwill
accounting policy
goodwill is not amortised but is reviewed for impairment annually goodwill is allocated to the cashgenerating unit ‘cgu’ that is expected to 
benefit from the acquisition the recoverable amount of cgus to which goodwill has been allocated is tested for impairment annually the 
cgus monitored by management are at the business segment level advanced surgical devices and advanced wound management 
if the recoverable amount of the cashgenerating unit is less than its carrying amount then an impairment loss is determined to have occurred 
any impairment losses that arise are recognised immediately in the income statement and are allocated first to reduce the carrying amount of 
goodwill and then to the carrying amounts of the other assets of the cgu
in carrying out impairment reviews of goodwill a number of significant assumptions have to be made when preparing cash flow projections 
these include the future rate of market growth discount rates the market demand for the products acquired the future profitability of acquired 
businesses or products levels of reimbursement and success in obtaining regulatory approvals if actual results should differ or changes in 
expectations arise impairment charges may be required which would adversely impact operating results 
notes
2014  
 million
2013 
 million
cost
at 1 january 1256 1186 
exchange adjustment 73 17 
acquisitions i 21 844 53 
at 31 december 2027 1256 
impairment
at 1 january and 31 december – – 
net book amounts 2027 1256 
i 2013 includes an adjustment of 16m following the finalisation of the healthpoint acquisition balance sheet 
each of the group’s business segments represent a cgu and include goodwill as follows
2014  
 million
2013 
 million
advanced surgical devices 1686 918 
advanced wound management 341 338 
2027 1256 
in september 2014 and 2013 impairment reviews were performed by comparing the recoverable amount of each cgu with its carrying amount 
including goodwill these are updated during december taking into account significant events that occurred between september and december
for each cgu the recoverable amounts are based on valueinuse which is calculated from pretax cash flow projections for five years using data 
from the group’s budget and strategic planning process the results of which are reviewed and approved by the board these projections exclude 
any estimated future cash inflows or outflows expected to arise from future restructurings the fiveyear period is inline with the group’s strategic 
planning process
the calculation of valueinuse for the identified cgus is most sensitive to discount and growth rates as set out below
the discount rate reflects management’s assessment of risks specific to the assets of each cgu the pretax discount rate used in the advanced 
surgical devices business is 10 2013 – 10 and for the advanced wound management business it is 11 2013 – 10
in determining the growth rate used in the calculation of the valueinuse the group considered annual revenue growth projections are based 
on anticipated volume and value growth in the markets served by the group and assumptions as to market share movements each year the 
projections for the previous year are compared to actual results and variances are factored into the assumptions used in the current year revenue 
growth rates for the fiveyear period for the advanced surgical devices business franchises vary from 2 to 15 2013 – 1 to 20 and for the 
advanced wound management business franchises from 4 to 19 2013 – 2 to 22
notes to the group accounts continued
smith  nephew annual report 2014 130
financial statements specific considerations and strategies taken into account in determining the sales growth and trading profit margin for each cgu are
 – advanced surgical devices – management intends to deliver growth through continuing to focus on widening access to the customer 
strengthening our portfolio and global presence innovative product development and through continuing to make efficiency improvements
 – advanced wound management – management intends to develop this cgu by focusing on widening access to the customer the higher added 
value sectors of healing chronic wounds and tissue repair using bioactives and by continuing to improve efficiency
following the detailed first 5 years management has used an unchanged size of the market and group’s share thereof in the pretax cash flows 
used to calculate the terminal value of both the advanced surgical devices business 2013 – increase at 3 per year and advanced wound 
management businesses 2013 – increase at 5 per year which were considered to be the group’s cgus in 2014
management has considered the following sensitivities
 – growth of market and market share – management has considered the impact of a variance in market growth and market share the valuein
use calculation shows that if the assumed longterm growth rate was reduced to nil the recoverable amount of all of the cgus independently 
would still be greater than their carrying values
 – discount rate – management has considered the impact of an increase in the discount rate applied to the calculation the valueinuse 
calculation shows that for the recoverable amount of the cgu to be less than its carrying value the discount rate would have to be increased to 
28 2013 – 33 for the advanced surgical devices business and 17 2013 – 65 for the advanced wound management business
9 intangible assets
accounting policies
intangible assets
intangible assets acquired separately from a business combination including purchased patents knowhow trademarks licences and 
distribution rights are initially measured at cost the cost of intangible assets acquired in a material business combination referred to as 
acquisition intangibles is the fair value as at the date of acquisition following initial recognition intangible assets are carried at cost less any 
accumulated amortisation and any accumulated impairment losses all intangible assets are amortised on a straightline basis over their 
estimated useful economic lives the estimated useful economic life of an intangible asset ranges between three and 20 years depending on 
its nature internally generated intangible assets are expensed in the income statement as incurred
purchased computer software and certain costs of information technology projects are capitalised as intangible assets software that is integral 
to computer hardware is capitalised as plant and equipment
impairment of intangible assets
the carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may 
be impaired if any such indication exists the recoverable amount of the asset is estimated in order to determine the extent of impairment loss 
where it is not possible to estimate the recoverable amount of an individual asset the group estimates the recoverable amount of the 
cashgenerating unit to which it belongs
an asset’s recoverable amount is the higher of an asset’s or cashgenerating unit’s fair value less costs to sell and its valueinuse in assessing 
valueinuse its estimated future cash flow is discounted to its present value using a pretax discount rate that reflects the current market 
assessments of the time value of money and the risks specific to the asset
in carrying out impairment reviews of intangible assets a number of significant assumptions have to be made when preparing cash flow 
projections these include the future rate of market growth discount rates the market demand for the products acquired the future profitability 
of acquired businesses or products levels of reimbursement and success in obtaining regulatory approvals if actual results should differ or 
changes in expectations arise impairment charges may be required which would adversely impact operating results 
131 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 9 intangible assets continued
acquisition 
intangibles  
 million
software  
 million
distribution  
rights  
 million
patents   
intellectual  
property  
 million
total  
 million
cost
at 1 january 2013 1109 205 43 176 1533
exchange adjustment 3 – – – 3
acquisitions 53 – – – 53
additions – 53 27 18 98
disposals – 29 – – 29
at 31 december 2013 1165 229 70 194 1658
exchange adjustment 44 11 – 2 57
acquisitions ii 830 3 – – 833
additions – 49 5 23 77
disposals – 3 – – 3
at 31 december 2014 1951 267 75 215 2508
amortisation and impairment
at 1 january 2013 283 91 27 68 469
exchange adjustment 1 – – – 1
charge for the year 88 31 14 19 152
disposals – 18 – – 18
at 31 december 2013 372 104 41 87 604
exchange adjustment 27 3 – 2 32
charge for the year 129 31 10 21 191
disposals – 2 – – 2
at 31 december 2014 474 130 51 106 761
net book amounts
at 31 december 2014 1477 137 24 109 1747
at 31 december 2013 i 793 125 29 107 1054
i the majority of this balance relates to product rights acquired with healthpoint biotherapeutics
ii the majority of this balance relates to technology and product rights acquired with arthrocare corp which are being amortised over 620 years see note 21
group capital expenditure relating to software contracted but not provided for amounted to 7m 2013 – 21m
the carrying values of acquisition intangibles are reviewed for impairment and it was noted that an intangible asset relating to a distribution 
agreement for a brand within our us advanced wound management business had headroom which was highly sensitive to management’s 
estimate of future related earnings growth changes in those assumptions of either a decrease in the medium term growth rate from 4 to 1 or 
an increase in the discount rate of 1 to 111 would give rise to a 3 million impairment
notes to the group accounts continued
smith  nephew annual report 2014 132
financial statements 10 investments
accounting policy
investments other than those related to associates are initially recorded at fair value plus any directly attributable transaction costs on the 
trade date the group has an investment in an entity that holds mainly unquoted equity securities which by their very nature have no fixed 
maturity date or coupon rate the investment is classed as ‘availableforsale’ and carried at fair value the fair value of the investment is based 
on the underlying fair value of the equity securities marketable securities are valued by reference to closing prices in the market non
marketable securities are estimated considering factors including the purchase price prices of recent significant private placements of 
securities of the same issuer and estimates of liquidation value changes in fair value are recognised in other comprehensive income except 
where management considers that there is objective evidence of an impairment of the underlying equity securities objective evidence would 
include a significant or prolonged decline in the fair value of the investment below its cost less any impairment loss previously recognised 
impairment losses are recognised by reclassifying the losses accumulated in other reserves to profit or loss 
2014 
 million
2013 
 million
at 1 january 2 2 
additions 4 –
distribution 1 – 
at 31 december 5 2 
11 investments in associates
accounting policy
investments in associates being those entities over which the group has a significant influence and which is neither a subsidiary nor a joint 
venture are accounted for using the equity method with the group recording its share of the associate’s profit and loss and other 
comprehensive income the group’s share of associates profit or loss is included in one separate income statement line and is calculated after 
deduction of their respective taxes 
at 31 december 2014 and 31 december 2013 the group holds 49 of bioventus llc ‘bioventus’ bioventus is a limited liability company operating 
as a partnership the company’s headquarters is located in durham north carolina us bioventus focuses its medical product development 
around its core competencies of orthobiologic therapies and orthopaedic diagnostics from which it develops and markets clinically proven 
orthopaedic therapies and diagnostic tools including osteoarthritis pain treatments bone growth stimulators and ultrasound devices bioventus 
sells bone stimulation devices and is a provider of osteoarthritis injection therapies the loss after taxation recognised in the income statement 
relating to bioventus was 2m 2013 – loss after taxation 2m
the carrying amount of this investment was reviewed for impairment as at the balance sheet date for the purposes of impairment testing 
the recoverable amount of this investment was based on its fair value less cost to sell estimated using discounted cash flows the fair value 
measurement was categorised as a level 3 fair value based on the inputs and valuation technique used
in addition to its 49 ownership interest in bioventus the group held a senior secured five year loan note with bioventus the loan note was 
created in may 2012 with a principal amount of 160m and an annual coupon rate of libor plus 5 in october 2014 the loan note of 160 million 
plus 28m of accrued interest was repaid by bioventus following a successful external refinancing the group continues to hold 49 of investor 
equity in bioventus
the amount recognised in the balance sheet and income statement for associates are as follows
2014 
 million 
2013 
 million
balance sheet 112 107
income statement loss 2 1 
133 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 11 investments in associates continued
summarised financial information for associates 
set out below is the summarised financial information for bioventus adjusted for differences with group accounting policies
2014 
 million
2013 
 million
summarised balance sheet
noncurrent assets 339 315
current assets 90 129 
noncurrent liabilities 220 194
current liabilities 48 59 
net assets 161 191
group’s share of net assets at 49 79 93
group adjustments i 26 14
group’s carrying amount of investment at 49 105 107
 
summarised statement of comprehensive income
revenue 242 231 
attributable loss for the year 5 4 
total comprehensive loss 5 4
group share of loss for the year at 49 2 2
i group adjustments primarily relate to an adjustment to align the useful life of intangible assets with group policy
at december 2014 the group holds equity investments in two other associates 2013 – none which are immaterial the group’s aggregate 
carrying amount of these investments at 31 december 2014 is 7m 2013 – nil and the group’s aggregate share of profits from these investments 
was nil 2013 – nil the group’s share of loss in 2013 includes a gain of 1m from two austrian associates the group disposed of the austrian 
associates during the year ended 31 december 2013
12 inventories
accounting policy
finished goods and workinprogress are valued at factory cost including appropriate overheads on a firstin firstout basis raw materials 
and boughtin finished goods are valued at purchase price all inventories are reduced to net realisable value where lower than cost inventory 
acquired as part of a business acquisition is valued at selling price less costs of disposal and a profit allowance for selling efforts
orthopaedic instruments are generally not sold but provided to customers and distributors for use in surgery they are recorded as inventory 
until they are deployed at which point they are transferred to plant and equipment and depreciated over their useful economic lives of between 
three and five years
a feature of the orthopaedic business is the high level of product inventory required some of which is located at customer premises and is 
available for customers’ immediate use referred to as consignment inventory complete sets of product including large and small sizes have 
to be made available in this way these outer sizes are used less frequently than standard sizes and towards the end of the product life cycle 
are inevitably in excess of requirements adjustments to carrying value are therefore required to be made to orthopaedic inventory to anticipate 
this situation these adjustments are calculated in accordance with a formula based on levels of inventory compared with historical or forecast 
usage this formula is applied on an individual product line basis and is first applied when a product group has been on the market for two 
years this method of calculation is considered appropriate based on experience but it involves management judgements on effectiveness 
of inventory deployment length of product lives phaseout of old products and efficiency of manufacturing planning systems
2014 
 million 
2013 
 million
2012 
 million
raw materials and consumables 214 151 138 
workinprogress 82 72 45 
finished goods and goods for resale 885 783 718 
1181 1006 901 
reserves for excess and obsolete inventories were 317m 2013 – 354m 2012 – 332m the decrease in reserves of 37m in the year 
comprised releases of 29m inventory writeoffs of 4m and foreign exchange movements of 4m
the cost of inventories recognised as an expense and included in cost of goods sold amounted to 1013m 2013 – 958m 2012 – 906m in 
addition 55m was recognised as an expense within cost of goods sold resulting from inventory write offs 2013 – 73m 2012 – 84m 
notwithstanding inventory acquired within acquisitions no inventory is carried at fair value less costs to sell in any year
notes to the group accounts continued
smith  nephew annual report 2014 134
financial statements 13 trade and other receivables
accounting policy
trade and other receivables are carried at amortised cost less any allowances for uncollectible amounts they are included in current assets 
except for maturities greater than 12 months after the balance sheet date these are classified as noncurrent assets
the group manages credit risk through credit limits which require authorisation commensurate with the size of the limit and which are regularly 
reviewed credit limit decisions are made based on available financial information and the business case significant receivables are regularly 
reviewed and monitored at group level the group has no significant concentration of credit risk with exposure spread over a large number of 
customers and geographies furthermore the group’s principal customers are backed by government and public or private medical insurance 
funding which historically represent a lower risk of default the maximum exposure to credit risk at the reporting date is the fair value of each 
class of receivable the group does not hold any collateral as security
2014 
 million
2013 
 million
2012 
 million
trade receivables 1015 992 964 
less provision for bad and doubtful debts 47 57 49
trade receivables – net loans and receivables 968 935 915 
derivatives – forward foreign exchange contracts 49 28 12 
other receivables 51 60 65 
prepayments and accrued income 98 90 73 
1166 1113 1065 
management considers that the carrying amount of trade and other receivables approximates to the fair value
the provision for bad and doubtful debts is based on specific assessments of risk and reference to past default experience the bad debt credit 
for the year was 4m 2013 – expense 15m 2012 – expense 16m amounts due from insurers in respect of the macro textured claim of 143m  
2013 – 138m 2012 – 137m are included within other receivables and have been provided in full
the amount of trade receivables that were past due were as follows
2014 
 million
2013 
 million
2012 
 million
past due not more than three months 181 206 225 
past due more than three months and not more than six months 49 52 52 
past due more than six months and not more than one year 51 61 52 
past due more than one year 42 70 80 
323 389 409 
neither past due nor impaired 692 603 555 
provision for bad and doubtful debts 47 57 49
trade receivables – net loans and receivables 968 935 915 
movements in the provision for bad and doubtful debts were as follows
at 1 january 57 49 36 
exchange adjustment 4 1 – 
net receivables provision releasedprovided for during the year 4 15 16 
utilisation of provision 2 8 3
at 31 december 47 57 49 
trade receivables include amounts denominated in the following major currencies
2014 
 million
2013 
 million
2012 
 million
us dollar 353 293 258 
sterling 92 103 100 
euro 225 271 276 
other 298 268 281 
trade receivables – net loans and receivables 968 935 915 
135 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes to the group accounts continued
14 trade and other payables
2014 
 million
2013 
 million
trade and other payables due within one year
trade and other payables 807 751 
derivatives – forward foreign exchange contracts 21 20 
acquisition consideration 10 14 
838 785 
other payables due after one year
acquisition consideration 23 7 
other payables 21 –
44 7
the acquisition consideration due after more than one year is expected to be payable as follows 5m in 2016 8m in 2017 and 10m in 2018 
2013 – 4m in 2015 and 3m in 2016
15 cash and borrowings
151 net debt
net debt comprises borrowings and credit balances on currency swaps less cash at bank
2014 
 million
2013 
 million
bank overdrafts and loans due within one year 39 44 
longterm bank borrowings 541 347
private placement notes 1125 – 
borrowings 1705 391 
cash at bank 93 137
creditdebit balance on derivatives – currency swaps 1 1
net debt 1613 253 
borrowings are repayable as follows
within  
one year or  
on demand  
 million
between  
one and  
two years 
 million
between 
two and  
three years  
 million
between 
three and  
four years  
 million
between  
four and  
five years  
 million
after  
five years  
 million
total  
 million
at 31 december 2014
bank loans 9 400 – – 131 – 540
bank overdrafts 28 – – – – – 28
finance lease liabilities 2 2 2 3 3 – 12
private placement notes – – – – 125 1000 1125
39 402 2 3 259 1000 1705
at 31 december 2013
bank loans 31 335 – – – – 366 
bank overdrafts 11 – – – – – 11 
finance lease liabilities 2 2 2 2 3 3 14 
44 337 2 2 3 3 391 
smith  nephew annual report 2014 136
financial statements 152 assets pledged as security
assets are pledged as security under normal market conditions secured borrowings and pledged assets are as follows
2014 
 million
2013 
 million
finance lease liabilities – due within one year 2 2 
finance lease liabilities – due after one year 10 12 
total amount of secured borrowings 12 14 
total net book value of assets pledged as security
property plant and equipment 8 10 
8 10 
153 currency swap analysis
all currency swaps are stated at fair value gross us dollar equivalents of 279m 2013 – 146m receivable and 280m 2013 – 145m payable 
have been netted currency swaps comprise foreign exchange swaps and forward contracts and were used in 2014 and 2013 to hedge intragroup 
loans and other monetary items
currency swaps mature as follows
at 31 december 2014 amount receivable  
 million
amount payable 
currency million
within one year
canadian dollar 14 cad 16
chinese renminbi 16 cny 100
euro 17 eur 14
hong kong dollar 3 hkd 20
japanese yen 8 jpy 950
swedish krona – sek 3
58
at 31 december 2014 amount receivable 
currency million
amount payable  
 million
within one year
australian dollar aud 78 64
swiss franc chf 22 22
euro eur 62 76
sterling gbp 26 40
japanese yen jpy 200 2
new zealand dollar nzd 18 14
swedish krona sek 3 –
singapore dollar sgd 5 4
222
137 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 15 cash and borrowings continued
at 31 december 2013 amount receivable 
 million
amount payable 
currency million
within one year
euro 28 eur 20 
japanese yen 13 jpy 1315 
chinese renminbi 17 cny 100 
sterling 11 gbp 7 
69 
at 31 december 2013 amount receivable 
currency million
amount payable 
 million
within one year
new zealand dollar nzd 9 7 
swiss franc chf 14 16 
swedish krona sek 31 5 
australian dollar aud 41 36 
canadian dollar cad 3 3 
sterling gbp 6 10 
77
154 liquidity risk exposures
the board has established a set of policies to manage funding and currency risks the group uses derivative financial instruments only to manage 
the financial risks associated with underlying business activities and their financing
liquidity risk is the risk that the group is not able to settle or meet its obligations on time or at a reasonable price the group’s policy is to ensure 
that there is sufficient funding and facilities in place to meet foreseeable borrowing requirements the group manages and monitors liquidity risk 
through regular reporting of current cash and borrowing balances and periodic preparation and review of short and medium term cash forecasts 
having regard to the maturities of investments and borrowing facilities
the group has available committed facilities of 25bn 2013 – 17bn  the interest payable on borrowings under committed facilities is either at 
fixed or floating rates floating rates are typically based on the libor or other reference rate relevant to the term and currency concerned
the company is subject to restrictive covenants under its principal facility agreements these financial covenants are tested at the end of each 
half year for the 12 months ending on the last day of the testing period as of 31 december 2014 the company was in compliance with these 
covenants the facilities are also subject to customary events of default none of which are currently anticipated to occur
the group’s principal facilities are
facility date due
400 million syndicated term loan facility february 2016 
10 billion syndicated revolving credit facility march 2019 
80 million 247 senior notes november 2019 
45 million floating rate senior notes november 2019
75 million 323 senior notes january 2021
190 million 297 senior notes november 2021 
75 million 346 senior notes january 2022
50 million 315 senior notes november 2022
105 million 326 senior notes november 2023
100 million 389 senior notes january 2024
305 million 336 senior notes november 2024
25 million floating rate senior notes november 2024
75 million 399 senior notes january 2026
notes to the group accounts continued
smith  nephew annual report 2014 138
financial statements 155 yearend financial liabilities by contractual maturity
the table below analyses the group’s yearend financial liabilities by contractual maturity date including interest payments and excluding the 
impact of netting arrangements
within one  
year or on  
demand  
 million
between  
one and  
two years  
 million
between  
two and  
five years  
 million
after  
five years  
 million
total  
 million
at 31 december 2014
nonderivative financial liabilities
bank overdrafts and loans 37 400 131 – 568
trade and other payables 807 21 – – 828
finance lease liabilities 3 3 9 – 15
private placement notes – – 125 1000 1125
acquisition consideration 10 13 10 – 33
derivative financial liabilities
currency swapsforward foreign exchange contracts – outflow 1811 – – – 1811
currency swapsforward foreign exchange contracts – inflow 1810 – – – 1810
858 437 275 1000 2570
at 31 december 2013
nonderivative financial liabilities
bank overdrafts and loans 42 335 – – 377 
trade and other payables 751 – – – 751 
finance lease liabilities 3 3 9 3 18 
acquisition consideration 14 4 3 – 21 
derivative financial liabilities
currency swapsforward foreign exchange contracts – outflow 1734 – – – 1734 
currency swapsforward foreign exchange contracts – inflow 1733 – – – 1733 
811 342 12 3 1168 
the amounts in the tables above are undiscounted cash flows which differ from the amounts included in the balance sheet where the underlying 
cash flows have been discounted
139 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 15 cash and borrowings continued
156 finance leases
accounting policy
leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the group 
all other leases are classified as operating leases
the leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease 
payments assets held under finance leases are capitalised as property plant or equipment and depreciated accordingly minimum lease 
payments are apportioned between the finance expense and the reduction in the outstanding liability the finance expense is allocated to 
each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability
future minimum lease payments under finance leases together with the present value of the minimum lease payments are as follows
2014 
 million 
2013 
 million
within one year 3 3 
after one and within two years 3 3 
after two and within three years 3 3 
after three and within four years 3 3 
after four and within five years 3 3 
after five years – 3 
total minimum lease payments 15 18 
discounted by imputed interest 3 4
present value of minimum lease payments 12 14 
present value of minimum lease payments can be split out as 2m 2013 – 2m due within one year 10m 2013 – 9m due between one to five 
years and nil 2013– 3m due after five years
16 financial instruments and risk management
accounting policy
derivative financial instruments
derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently 
remeasured at their fair value at subsequent balance sheet dates 
changes in the fair value of derivative financial instruments that are designated and effective as cash flow hedges of forecast third party and 
intercompany transactions are recognised in other comprehensive income until the associated asset or liability is recognised amounts taken 
to other comprehensive income are transferred to the income statement in the period in which the hedged transaction affects profit and loss 
where the hedged item is the cost of a nonfinancial asset the amounts taken to other comprehensive income are transferred to the initial 
carrying value of the asset
currency swaps to match foreign currency net assets with foreign currency liabilities are fair valued at yearend changes in the fair values of 
currency swaps that are designated and effective as net investment hedges are matched in other comprehensive income against changes in 
value of the related net assets
interest rate derivatives transacted to fix interest rates on floating rate borrowings are accounted for as cash flow hedges and changes in the 
fair values resulting from changes in market interest rates are recognised in other comprehensive income amounts taken to other 
comprehensive income are transferred to the income statement when the hedged transaction affects profit and loss
any ineffectiveness on hedging instruments and changes in the fair value of derivative financial instruments that do not qualify for hedge 
accounting are recognised in the income statement within other finance incomecosts as they arise
hedge accounting is discontinued when the hedging instrument expires or is sold terminated or exercised or no longer qualifies for hedge 
accounting at that point in time any cumulative gain or loss on the hedging instrument recognised in other comprehensive income is retained 
there until the forecast transaction occurs if a hedged transaction is no longer expected to occur the net cumulative gain or loss recognised in 
other comprehensive income is transferred to the income statement for the period
notes to the group accounts continued
smith  nephew annual report 2014 140
financial statements 161 foreign exchange exposures
the group operates in over 100 countries and as a consequence has transactional and translational foreign exchange exposure it is group policy 
for operating units not to hold material unhedged monetary assets or liabilities other than in their functional currencies
foreign exchange variations affect trading results in two ways firstly on translation of overseas sales and profits into us dollars and secondly 
transactional exposures arising where some or all of the costs of sale are incurred in a different currency from the sale the principal transactional 
exposures arise as the proportion of costs in us dollars sterling and swiss francs exceed the proportion of sales in each of these currencies and 
correspondingly the proportion of sales in euros exceeds the proportion of costs in euros
the impact of currency movements on the cost of purchases is partly mitigated by the use of forward foreign exchange contracts the group 
uses forward foreign exchange contracts designated as cash flow hedges to hedge forecast third party and intercompany trading cash flows 
for forecast foreign currency inventory purchases for up to one year when a commitment is entered into forward foreign exchange contracts are 
normally used to increase the hedge to 100 of the exposure cash flows relating to cash flow hedges are expected to occur within 12 months 
of inception and profits and losses on hedges are expected to enter into the determination of profit within cost of goods sold within a further 
12month period the principal currencies hedged by forward foreign exchange contracts are us dollars euros and sterling at 31 december 2014 
the group had contracted to exchange within one year the equivalent of 15bn 2013 – 16bn
based on the group’s net borrowings as at 31 december 2014 if the us dollar were to weaken against all currencies by 10 the group’s net 
borrowings would decrease by 6m 2013 – decrease by 2m as the group held a higher amount of foreign denominated cash than foreign 
denominated borrowings in respect of borrowings held in a different currency to the relevant reporting entity if the us dollar were to weaken by 
10 against all other currencies the group’s borrowings would increase by 1m 2013 – increase by 4m 
if the us dollar were to weaken by 10 against all other currencies then the fair value of the forward foreign exchange contracts as at 31 december 
2014 would have been 37m lower 2013 – 34m similarly if the euro were to weaken by 10 against all other currencies then the fair value of the 
forward foreign exchange contracts as at 31 december 2014 would have been 26m higher 2013 – 27m movements in the fair value of forward 
foreign exchange contracts would be recognised in other comprehensive income and accumulated in the hedging reserve 
a 10 strengthening of the us dollar or euro against all other currencies at 31 december 2014 would have had the equal but opposite effect to the 
amounts shown above on the basis that all other variables remain constant
the group’s policy to hedge all actual foreign exchange exposures and the group’s forward foreign exchange contracts are designated as cash 
flow hedges the net impact of transaction related foreign exchange on the income statement from a movement in exchange rates on the value  
of forward foreign exchange contracts is not significant in addition the movements in the fair value of other financial instruments used for hedging 
such as currency swaps for which hedge accounting is not applied offset movements in the values of assets and liabilities and are recognised 
through the income statement 
162 interest rate exposures
the group is exposed to interest rate risk on cash borrowings and certain currency swaps which are all at floating rates when required the group 
uses interest rate derivatives to meet its objective of protecting borrowing costs within parameters set by the board interest rate derivatives are 
accounted for as cash flow hedges and as such changes in fair value resulting from changes in market interest rates are recognised in other 
comprehensive income and accumulated in the hedging reserve with the fair value of the interest rate derivatives recorded in the balance sheet 
the cash flows resulting from interest rate derivatives match cash flows on the underlying borrowings so that there is no net cash flow from 
movements in market interest rates on the hedged items  
based on the group’s gross borrowings as at 31 december 2014 if interest rates were to increase by 100 basis points in all currencies then the 
annual net interest charge would increase by 6m 2013 – 4m a decrease in interest rates by 100 basis points in all currencies would have an 
equal but opposite effect to the amounts shown above
163 credit risk exposures
the group limits exposure to credit risk on counterparties used for financial instruments through a system of internal credit limits which with 
certain minor exceptions due to local market conditions require counterparties to have a minimum ‘a’ rating from one of the major ratings 
agencies the financial exposure of a counterparty is determined as the total of cash and deposits plus the risk on derivative instruments 
assessed as the fair value of the instrument plus a risk element based on the nominal value and the historic volatility of the market value of the 
instrument the group does not anticipate nonperformance of counterparties and believes it is not subject to material concentration of credit risk 
as the group operates within a policy of counterparty limits designed to reduce exposure to any single counterparty
the maximum credit risk exposure on derivatives at 31 december 2014 was 49m 2013 – 29m being the total debit fair values on forward 
foreign exchange contracts and currency swaps the maximum credit risk exposure on cash at bank at 31 december 2014 was 93m 2013 – 
137m the group’s exposure to credit risk is not material as the amounts are held in a wide number of banks in a number of different countries
credit risk on trade receivables is detailed in note 13
141 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 16 financial instruments and risk management continued
164 currency and interest rate profile of interest bearing liabilities and assets
shortterm debtors and creditors are excluded from the following disclosures
currency and interest rate profile of interest bearing liabilities
fixed rate liabilities
gross 
borrowings  
 million
currency 
swaps  
 million
total  
liabilities  
 million
floating  
rate liabilities  
 million
fixed  
rate liabilities  
 million
weighted 
average 
interest  
rate  

weighted 
average time 
for which  
rate is fixed 
years
at 31 december 2014
us dollar 1685 208 1893 826 1067 34 83
euro 10 35 45 45 – – –
other 10 37 47 47 – – –
total interest bearing liabilities 1705 280 1985 918 1067
at 31 december 2013
us dollar 297 77 374 360 14 71 4 
euro 59 28 87 87 – – – 
other 35 40 75 75 – – – 
total interest bearing liabilities 391 145 536 522 14
at 31 december 2014 12m 2013 – 14m of fixed rate liabilities relate to finance leases in 2014 the group also had liabilities due for deferred 
acquisition consideration denominated in us dollars and brazilian real totalling 33m 2013 – 21m 2012 – 8m on which no interest was 
payable see note 14 there are no other significant interest bearing financial liabilities
floating rates on liabilities are typically based on the one or threemonth libor or other reference rate relevant to the currency concerned the 
weighted average interest rate on floating rate borrowings as at 31 december 2014 was 1 2013 – 1
currency and interest rate profile of interest bearing assets
cash 
at bank  
 million
currency  
swaps  
 million
total assets  
 million
floating  
rate assets  
 million
at 31 december 2014
us dollars 13 79 92 92
other 80 200 280 280
total interest bearing assets 93 279 372 372
at 31 december 2013
us dollars 8 69 77 77 
other 129 77 206 206 
total interest bearing assets 137 146 283 283 
floating rates on assets are typically based on the shortterm deposit rates relevant to the currency concerned there were no fixed rate assets at 
31 december 2014 or 31 december 2013
notes to the group accounts continued
smith  nephew annual report 2014 142
financial statements 165 fair value of financial assets and liabilities
accounting policy
measurement of fair values
a number of the group’s accounting policies and disclosures require the measurement of fair values for both financial assets and liabilities 
and nonfinancial assets acquired in a business combination see note 21
when measuring the fair value of an asset or liability the group uses market observable data as far as possible fair values are categorised into 
different levels in the fair value hierarchy based on the inputs used in the valuation techniques as follows level 1 quoted prices unadjusted in 
active markets for identical assets or liabilities level 2 inputs other than quoted prices included in level 1 that are observable for the asset or 
liability either directly ie as prices or indirectly ie derived from prices level 3 inputs for the asset or liability that are not based on 
observable data unobservable inputs
the group recognises transfers between the levels of the fair value hierarchy at the end of the reporting period during which the change 
has occurred
the following table shows the carrying amounts and fair values of financial assets and financial liabilities including their levels in the fair value 
hierarchy it does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is  
a reasonable approximation of fair value
carrying amount fair value
at 31 december 2014
designated  
at fair  
value  
 million
fair value – 
hedging 
instruments  
 million
loans  
and 
receivables  
 million
available 
for sale  
 million
other 
financial 
liabilities  
 million
total  
 million
level 2  
 million
level 3  
 million
total  
 million
financial assets measured  
at fair value
forward foreign exchange contracts – 48 – – – 48 48 – 48
investments – – – 5 – 5 – 5 5
currency swaps 1 – – – – 1 1 – 1
1 48 – 5 – 54 49 5 54
financial liabilities measured  
at fair value
acquisition consideration 33 – – – – 33 – 33 33
forward foreign exchange contracts – 19 – – – 19 19 – 19
currency swaps 2 – – – – 2 2 – 2
35 19 – – – 54 21 33 54
financial assets not measured at 
fair value
trade and other receivables – – 1117 – – 1117
cash at bank – – 93 – – 93
– – 1210 – – 1210
financial liabilities not measured 
at fair value
bank overdrafts – – – – 28 28
bank loans – – – – 540 540
private placement debt – – – – 1125 1125 1144 – 1144
finance lease liabilities – – – – 12 12
trade and other payables – – – – 828 828
– – – – 2533 2533
143 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 16 financial instruments and risk management continued
carrying amount fair value
at 31 december 2013
designated  
at fair  
value  
 million
fair value – 
hedging 
instruments  
 million
loans  
and 
receivables  
 million
available  
for sale  
 million
other 
financial 
liabilities  
 million
total  
 million
level 2  
 million
level 3  
 million
total  
 million
financial assets measured  
at fair value
forward foreign exchange contracts – 28 – – – 28 28 – 28 
investments – – – 2 – 2 – 2 2 
currency swaps 1 – – – – 1 1 – 1
1 28 – 2 – 31 29 2 31 
financial liabilities measured  
at fair value
acquisition consideration 21 – – – – 21 – 21 21
forward foreign exchange contracts – 20 – – – 20 20 – 20
21 20 – – – 41 20 21 41
financial assets not measured at 
fair value
trade and other receivables – – 1085 – – 1085 
cash at bank – – 137 – – 137 
– – 1222 – – 1222 
financial liabilities not measured 
at fair value
bank overdrafts – – – – 11 11
bank loans – – – – 366 366
finance lease liabilities – – – – 14 14
trade and other payables – – – – 751 751
– – – – 1142 1142
the group enters into derivative financial instruments with financial institutions with investment grade credit ratings the fair value of forward 
foreign exchange contracts is calculated by reference to quoted market forward exchange rates for contracts with similar maturity profiles the fair 
value of currency swaps is determined by reference to quoted market spot rates as a result foreign forward exchange contracts and currency 
swaps are classified as level 2 within the fair value hierarchy 
as at 31 december 2014 and 31 december 2013 the fair value of derivatives is net of a credit valuation adjustment attributable to derivative 
counterparty default risk the changes in counterparty credit risk had no material effect on the hedge effectiveness for derivatives designated in 
hedge relationships and other financial instruments recognised at fair value
the fair value of contingent consideration is estimated using a discounted cash flow model the valuation model considers the present value of 
expected payment discounted using a riskadjusted discount rate the expected payment is determined by considering the possible scenarios 
which relate to the achievement of established milestones and targets the amount to be paid under each scenario and the probability of each 
scenario as a result contingent consideration is classified as level 3 within the fair value hierarchy 
there were no transfers between level 1 2 and 3 during 2014 and 2013 
for cash and cash equivalents shortterm loans and receivables overdrafts and other shortterm liabilities which have a maturity of less than 
three months the book values approximate the fair values because of their shortterm nature
longterm borrowings are measured in the balance sheet at amortised cost as the group’s longterm borrowings are not quoted publicly and 
as market prices are not available their fair values are estimated by discounting future contractual cash flows to net present values at the current 
market interest rates available to the group for similar financial instruments as at the yearend
notes to the group accounts continued
smith  nephew annual report 2014 144
financial statements 17 provisions and contingencies
accounting policy
in the normal course of business the group is involved in various legal disputes provision is made for loss contingencies when it is deemed 
probable that an adverse outcome will occur and the amount of the loss can be reasonably estimated where the group is the plaintiff in 
pursuing claims against third parties legal and associated expenses are charged to the income statement as incurred 
the recognition of provisions for legal disputes is subject to a significant degree of estimation in making its estimates management takes into 
account the advice of internal and external legal counsel provisions are reviewed regularly and amounts updated where necessary to reflect 
developments in the disputes the ultimate liability may differ from the amount provided depending on the outcome of court proceedings or 
settlement negotiations or as new facts emerge
a provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the 
unavoidable cost of meeting its obligations under the contract for the purpose of calculating any onerous lease provision the group has taken 
the discounted future lease payments net of expected rental income before a provision is established the group recognises any impairment 
loss on the assets associated with that contract
a provision for rationalisation is recognised when the group has approved a detailed and formal restructuring plan and the restructuring either 
has commenced or has been announced publicly future operating losses are not provided for
17 1 provisions
rationalisation  
provisions  
 million
legal and other  
provisions  
 million
total 
 million
at 1 january 2013 25 97 122
charge to income statement 15 22 37
utilised 22 12 34
at 31 december 2013 18 107 125
acquisitions – 24 24
charge to income statement 17 15 32
utilised 22 28 50
exchange adjustment 1 – 1
at 31 december 2014 12 118 130
provisions – due within one year 12 55 67
provisions – due after one year – 63 63
at 31 december 2014 12 118 130
provisions – due within one year 18 42 60
provisions – due after one year – 65 65
at 31 december 2013 18 107 125
the principal provisions within rationalisation provisions relate to the group optimisation programme mainly severance announced in may 2014 
and people costs associated with the structural and efficiency programme announced in august 2011
included within the legal and other provisions are
 – a provision of 10m 2013 – nil relating to the distribution hold on renasys
 – a provision of 7m 2013 – nil relating to the hp802 programme which was stopped in the fourth quarter of 2014 
 – the remaining balance largely represents provisions for various patent disputes and other litigation
all provisions are expected to be substantially utilised within three years of 31 december 2014 and none are treated as financial instruments
145 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 17 provisions and contingencies continued
17 2 contingencies
the company and its subsidiaries are parties to various legal proceedings some of which include claims for substantial damages the outcome  
of these proceedings cannot readily be foreseen but management believes none of them are likely to result in a material adverse effect on the 
financial position of the group the group provides for outcomes that are deemed to be probable and can be reliably estimated there is no 
assurance that losses will not exceed provisions or will not have a significant impact on the group’s results of operations in the period in which 
they are realised
in august 2003 the group withdrew voluntarily from all markets the macrotextured versions of its oxinium femoral knee components a charge 
of 154m was recorded in 2004 for anticipated expenses in connection with macrotexture claims most of that amount has since been applied 
to settlements of such claims and almost all have been resolved the aggregate cost at 31 december 2014 related to this matter is approximately 
215m the group has sought recovery from its primary and excess insurers for costs of resolving the claims the primary insurance carrier has 
paid 60m in full settlement of its policy liability however the excess carriers have denied coverage citing defences relating to the wording of the 
insurance policies and other matters in december 2004 the group brought suit against them in the us district court for the western district of 
tennessee trial has not yet begun an additional 22m was received during 2007 from a successful settlement with a third party
17 3 legal proceedings
product liability claims
the group faces other claims from time to time for alleged defects in its products and has on occasion recalled or withdrawn products from 
the market such claims are endemic to the orthopaedic device industry the group maintains product liability insurance subject to limits and 
deductibles that management believes are reasonable all policies contain exclusions and limitations however and there can be no assurance 
that insurance will be available or adequate to cover all claims
in recent years there has been heightened concern about possible adverse effects of hip implant products with metalonmetal bearing surfaces 
and the group has incurred and will continue to incur expenses to defend claims in this area as of january 2015 approximately 930 such claims 
were pending with the group around the world of which 539 had given rise to pending legal proceedings most of the pending legal proceedings 
are in the united states most claims relate to the group’s birmingham hip resurfacing ‘bhr’ product and the birmingham hip modular head 
‘bhmh’ and r3 metal liner ‘r3ml’ components in 2012 the group restricted instructions for use of the bhmh and ceased offering the r3ml  
in 2013 the group’s us subsidiary agreed with lawyers representing metalonmetal claimants to consolidate pretrial proceedings such as 
discovery in their lawsuits in a state court in memphis tennessee and those lawsuits account for most of the us proceedings these lawsuits are 
being vigorously defended but outcomes are difficult to predict and defence costs can be significant the group takes care to monitor the clinical 
evidence relating to its metal hip implant products and ensure that its product offerings and training are designed to serve patients’ interests
the group has requested indemnity from its product liability insurers for most of these metalonmetal hip implant claims in general the insurers 
are investigating the claims and have reserved rights under their respective policies as noted above there can be no assurance that insurance 
will be available or adequate to cover all claims
business practice investigations
business practices in the healthcare industry are subject to regulation and review by various government authorities from time to time authorities 
undertake investigations of the group’s activities to verify compliance in september 2007 the sec notified the group that it was conducting an 
informal investigation of companies in the medical devices industry including the group regarding possible violations of the foreign corrupt 
practices act ‘fcpa’ in connection with the sale of products in certain countries outside of the us the us department of justice ‘doj’ 
subsequently joined the sec’s request 
on 6 february 2012 smith  nephew announced that it had reached settlement with the sec and doj in connection with this matter smith  
nephew paid slightly less than 23m in fines and profit disgorgement and committed to maintain an enhanced compliance programme and 
appoint an independent monitor for at least 18 months to review and report on its compliance programme the monitor’s final report was filed 
in late 2013 and the independent monitorship was terminated the settlement agreements had threeyear terms  the deferred prosecution 
agreement with the doj expired on 6 february 2015 and the doj moved to dismiss a related court action against smith  nephew the 
agreement with the sec is scheduled to expire on 3 march 2015
intellectual property disputes
the group is engaged as both plaintiff and defendant in litigation with various competitors and others over claims of patent infringement and 
other intellectual property matters these disputes are being heard in courts in the us and other jurisdictions and also before agencies that 
examine patents outcomes are rarely certain and costs are often significant
the group has won a jury verdict in the us district court for oregon against arthrex inc for infringement of the group’s patents relating to suture 
anchors a number of issues have been disputed and appealed since the case was first filed in 2003 arthrex’s latest appeal was argued in 
january 2015 arthrex asserted other patents against the group in 2014 in the us district court for the eastern district of texas
other matters
in april 2009 the group was served with a subpoena by the us department of justice in massachusetts requiring the production of documents 
from 1995 to 2009 associated with the marketing and sale of the group’s exogen bone growth stimulator similar subpoenas have been served 
on a number of competitors in the bone growth stimulator market around the same time a qui tam or ‘whistleblower’ complaint concerning 
the industry’s sales and marketing of those products originally filed in 2005 against the primary manufacturers of bone growth stimulation 
products including smith  nephew was unsealed in federal court in boston massachusetts a motion to dismiss that complaint was denied in 
december 2010
notes to the group accounts continued
smith  nephew annual report 2014 146
financial statements the group is subject to country of origin requirements under the us buy american and trade agreements acts with regard to sales to certain 
us government customers in 2008 the group voluntarily disclosed to the us veterans administration and the us department of defense that a 
small percentage of the products sold to the us government may have originated from countries that are not eligible for such sales except with 
government consent in december 2008 three months after smith  nephew’s initial voluntary disclosure a whistleblower suit was filed in 
the us district court for the western district of tennessee alleging these violations smith  nephew’s motion to dismiss the suit was denied in 
november 2010 and it was settled in 2014
in january 2014 before agreeing to be acquired by the group arthrocare announced a settlement of charges by the us doj relating to securities 
fraud in which certain members of prior management were implicated arthrocare paid a 30m fine and signed a deferred prosecution 
agreement that imposes reporting compliance and other requirements on arthrocare for a twoyear term
18 retirement benefit obligations
accounting policy
the group’s major pension plans are of the defined benefit type a defined benefit pension plan defines an amount of pension benefit that an 
employee will receive on retirement which is dependent on various factors such as age years of service and final salary the group’s 
obligation is calculated separately for each plan by discounting the estimated future benefit that employees have earned in return for their 
service in the current and prior periods the fair value of any plan assets is deducted to arrive at the net liability
the calculation of the defined benefit obligation is performed annually by external actuaries using the projected unit credit method  
remeasurements arising from defined benefit plans comprise actuarial gains and losses and the return on the plan assets net of the costs  
of managing the plan assets the group recognises these immediately in other comprehensive income ‘oci’ and all other expenses such as 
service cost net interest cost administration costs and taxes are recognised in the income statement
a number of key assumptions are made when calculating the fair value of the group’s defined benefit pension plans these assumptions 
impact the balance sheet asset and liabilities operating profit and finance incomecosts the most critical assumptions are the discount rate 
the rate of inflation and mortality assumptions to be applied to future pension plan liabilities the discount rate is based on the yield at the 
reporting date on bonds that have a credit rating of aa denominated in the currency in which the benefits are expected to be paid and have  
a maturity profile approximately the same as the group’s obligations in determining these assumptions management take into account the 
advice of professional external actuaries and benchmarks its assumptions against external data
the group determines the net interest expenseincome on the net defined benefit liabilityasset for the period by applying the discount rate 
used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liabilityasset
the group also operates a number of defined contribution plans a defined contribution plan is a pension plan under which the group and 
employees pay fixed contributions to a third party financial provider the group has no further payment obligations once the contributions have 
been paid contributions are recognised as an employee benefit expense when they are due
181 retirement benefit net assetsobligations
the group’s retirement benefit obligations comprise
2014  
 million
2013  
 million
funded plans
uk plan 16 50
us plan 74 65
other plans 42 28
132 143
unfunded plans
other plans 48 39
retirement healthcare 46 43
226 225
amount recognised on the balance sheet – liability 233 230
amount recognised on the balance sheet – asset 7 5
the group sponsors pension plans for its employees in 16 countries and these are established under the laws of the relevant country funded 
plans are funded by the payment of contributions and the assets are held by separate trust funds or insurance companies in countries where 
there is no companysponsored pension plan state benefits are considered by management to be adequate employees’ retirement benefits 
are the subject of regular management review the group’s defined benefit plans provide employees with an entitlement to retirement benefits 
varying between 13 and 667 of final salary on attainment of retirement rage the level of entitlement is dependent on the year of service 
of the employee
the group’s two major defined benefit pension plans are in the uk and us both these plans were closed to new employees in 2003 and defined 
contribution plans are offered to new joiners the us plan was closed to future accrual in march 2014
147 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 18 retirement benefit obligations continued
the uk plan operates under trust law and responsibility for its governance lies with a board of trustees this board is composed of representatives 
of the group plan participants and an independent trustee who act on behalf of members in accordance with the terms of the trust deed and 
rules and relevant legislation the uk plan’s assets are held by the trust annual increases on benefits in payment are dependent on inflation the 
main uncertainties affecting the level of benefits payable under the uk plan are future inflation levels including the impact of inflation on future 
salary increase and the actual longevity of the membership
the us plan is governed by a us pension committee which is composed of both plan participants and representatives of the group in the us the 
pension protection act 2006 established both a minimum required contribution and a maximum deductible contribution failure to contribute at 
least the minimum required amount will subject the company to significant penalties and contributions in excess of the maximum deductible have 
negative tax consequences the minimum funding requirement is intended to fully fund the present value of accrued benefits over seven years
182 reconciliation of benefit obligations and pension assets
the movement in the group’s pension benefit obligation and pension assets is as follows
2014 2013
obligation  
 million
asset  
 million
total  
 million
obligation  
 million
asset  
 million
total  
 million
amounts recognised on the balance sheet at  
beginning of the period 1581 1356 225 1487 1227 260
income statement expense
current service cost 22 – 22 29 – 29
past service cost 36 – 36 – – –
settlements 71 60 11 – – –
interest expenseincome 67 60 7 59 51 8
administration costs and taxes 3 – 3 3 – 3
costs recognised in income statement 15 – 15 91 51 40
remeasurements
actuarial gain due to liability experience 5 – 5 1 – 1
actuarial lossgain due to financial  
assumptions change 179 – 179 16 – 16
actuarial loss due to demographic assumptions 30 – 30 42 – 42
return on plan assets greater than discount rate – 110 110 – 37 37
remeasurements recognised in oci 204 110 94 25 37 12
cash
employer contributions – 65 65 – 67 67
employee contributions 5 5 – 4 4 –
benefits paid directly by the group taxes and administration 
costs paid from scheme assets 3 – 3 3 3 –
benefits paid 51 54 3 45 45 –
net cash 49 16 65 44 23 67
exchange rates 84 71 13 22 18 4
amount recognised on the balance sheet 1637 1411 226 1581 1356 225
amount recognised on the balance sheet – liability 1611 1378 233 1548 1318 230
amount recognised on the balance sheet – asset 26 33 7 33 38 5
represented by
2014 2013
obligation  
 million
asset  
 million
total  
 million
obligation  
 million
asset  
 million
total  
 million
uk plan 879 863 16 855 805 50
us plan 482 408 74 482 417 65
other plans 276 140 136 244 134 110
total 1637 1411 226 1581 1356 225
all benefits are vested at the end of each reporting period the weighted average duration of the defined benefit obligation at the end of the 
reporting period is 20 years and 14 years for the uk and us plans respectively for 2013 this was 20 years for the uk plan and 16 years for the 
us plan
notes to the group accounts continued
smith  nephew annual report 2014 148
financial statements 183 plan assets
the market value of the us uk and other plans assets are as follows
2014  
 million
2013  
 million
2012  
 million
uk plan
assets with a quoted market price
cash and cash equivalents 6 8 11
equity securities 237 220 249
government bonds – fixed interest – 61 92
– index linked – 109 282
liability driven investments 227 – –
diversified growth funds 155 159 110
625 557 744
other assets
insurance contract 238 248 –
market value of assets 863 805 744
us plan
assets with a quoted market price
cash and cash equivalents – 6 1
equity securities 167 181 242
government bonds – fixed interest 121 64 106
corporate bonds 120 151 –
hedge funds – 15 10
market value of assets 408 417 359
other plans
assets with a quoted market price
cash and cash equivalents 6 6 5
equity securities 33 32 26
government bonds – fixed interest 7 9 7
– index linked 13 11 34
corporate bonds 12 13 2
insurance contracts 31 24 –
property 6 6 5
other quoted securities 3 3 11
111 104 90
other assets
equities – – 2
insurance contracts 29 29 31
investment property – 1 1
market value of assets 140 134 124
total market value of assets 1411 1356 1227
no plans invest directly in property occupied by the group or in financial securities issued by the group
the us and uk plan assets are invested in a diversified range of industries across a broad range of geographies these assets include liability 
matching assets and annuity policies purchased by the trustees of each plan which aim to match the benefits to be paid to certain members from 
the plan and therefore remove the investment inflation and demographic risks in relation to those liabilities 
in december 2014 the low risk asset portfolio held by the uk plan was transferred into liability driven investments ldi in order to maintain the 
same level of hedging against interest rate and inflation risks
the uk plan also has an insurance contract with rothesay life covering a subset of the uk plan pensioner liabilities the terms of this policy define 
that the contract value exactly matches the amount and timing of the pensioner obligations covered by the contract in accordance with ias19r 
employee benefits the fair value of the insurance contract is deemed to be the present value of the related obligations which is discounted at the 
aa corporate bond rate
149 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 18 retirement benefit obligations continued
184 expenses recognised in the income statement
the total expense relating to retirement benefits recognised for the year is 17m 2013 – 72m 2012 – 72m of this cost recognised for the year 
32m 2013 – 32m 2012 – 32m relates to defined contributions and 15m net income 2013 – 40m expense 2012 – 40m expense relates to 
defined benefit plans
the cost charged in respect of the group’s defined contribution plans represents contributions payable to these plans by the group at rates 
specified in the rules of the plans these were charged to operating profit in selling general and administrative expenses there were nil 
outstanding payments as at 31 december 2014 due to be paid over to the plans 2013 – nil 2012 – nil
included in the 15m net income recognised for defined benefits plans are a 35m past service cost credit which arose on the closure of the us 
plan to future accrual in march 2014 and a 11m gain on settlement of benefits as a result of a member buyout in december 2014
defined benefit plan costs comprise service cost which is charged to operating profit in selling general and administrative expenses and net 
interest cost and administration costs and taxes which are reported as other finance costs
the defined benefit pension costs charged for the uk and us plans are
2014 2013 2012
uk plan  
 million
us plan  
 million
uk plan  
 million
us plan  
 million
uk plan  
 million
us plan  
 million
service cost 10 2 7 10 8 11
past service cost – 35 – – – –
settlement gain – 11 – – – –
net interest cost 
administration 
and taxes 3 3 1 7 1 7
13 41 8 17 9 18
185 principal actuarial assumptions
the following are the principal financial actuarial assumptions used at the reporting date to determine the uk and us defined benefit obligations 
and expense
2014  
 per annum
2013  
 per annum
2012  
 per annum
uk plan
discount rate 37 44 45
future salary increases 35 39 35
future pension increases 30 34 30
inflation rpi 30 34 30
inflation cpi 20 24 22
us plan
discount rate 40 49 40
future salary increases na 30 30
inflation na 25 25
notes to the group accounts continued
smith  nephew annual report 2014 150
financial statements actuarial assumptions regarding future mortality are based on mortality tables the uk uses the s1na with projections in line with the cmi 2011 
table and the us uses the rp2000 table with scale aa the current longevities underlying the values of the obligations in the defined benefit plans 
are as follows
2014  
years
2013  
years
2012  
years
life expectancy at age 60
uk plan
males 294 293 287
females 312 311 302
us plan
males 260 238 229
females 285 255 250
life expectancy at age 60 in 20 years’ time
uk plan
males 324 322 312
females 333 332 319
us plan
males 278 238 246
females 302 255 250
186 sensitivity analysis
the calculation of the defined benefit obligation is sensitive to the assumptions used the following table summarises the increasedecrease on 
the uk and us defined benefit obligation and pension costs as a result of reasonably possible changes in some of the assumptions while holding 
all other assumptions consistent the sensitivity to the inflation assumption change includes corresponding changes to the future salary increases 
and future pension increase assumptions the analysis does not take into account the full distribution of cash flows expected under the plan
changes to the inflation assumption will not have any affect on the us pension plan as it was closed to future accrual in 2014
 million
increase in pension obligation increase in pension cost
50bps1yr 50bps1yr 50bps1 yr 50bps1yr
uk plan
discount rate 80 91 4 4
inflation 90 78 4 4
mortality 31 31 1 1
us plan
discount rate 33 36 2 1
inflation na na na na
mortality 12 12 – –
151 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 18 retirement benefit obligations continued
187 risk
the pension plans expose the group to the following risks
interest rate risk volatility in financial markets can change the calculations of the obligation dramatically as the calculation of 
the obligation is linked to yields on aarated corporate bonds a decrease in the bond yield will increase the 
measure of plan liabilities although this will be partially offset by increases in the value of matching plan assets 
such as bonds and insurance contracts
in the uk the liability matching portfolio held in conventional and indexlinked gilts was transferred into liability 
driven investments in order to reduce interest rate risk
inflation risk the uk plan is linked to inflation a high rate of inflation will lead to a higher liability this risk is managed by 
holding inflationlinked bonds and an inflationlinked insurance contract in respect of some of the obligation
in the uk the liability matching portfolio held in conventional and indexlinked gilts was transferred into liability 
driven investments in order to reduce inflation risk
the us plan has been closed to future accrual which eliminates the exposure to this risk
investment risk if the return on plan assets is below the discount rate all else being equal there will be an increase in the plan 
deficit
in the uk this risk is partially managed by a portfolio of liability matching assets and a bulk annuity together 
with a dynamic de risking policy to switch growth assets into liability matching assets over time
the us plan has a dynamic derisking policy to shift plan assets into longer term stable asset classes the 
policy established ten predetermined funded status levels and when each trigger point is reached the plan 
assets are rebalanced accordingly
longevity risk the present value of the plans defined benefit liability is calculated by reference to the best estimate of the 
mortality of the plan participants both during and after their employment an increase in the life expectancy of 
plan participants above that assumed will increase the benefit obligation
the uk plan in order to minimise longevity risk entered into an insurance contract which covers a portion of 
pensioner obligations 
salary risk the calculation of the defined benefit obligation uses the future estimated salaries of plan participants 
increases in the salary of plan participants above that assumed will increase the benefit obligation
the exposure to salary risk in the us has been eliminated with the closure of the us plan to future accrual
188 funding
a full valuation is performed by actuaries for the trustees of each plan to determine the level of funding required employer contributions rates 
based on these full valuations are agreed between the trustees of each plan and the group the assumptions used in the funding actuarial 
valuations may differ from those assumptions above employees are required to contribute to the plans
uk plan
the most recent full actuarial valuation of the uk plan was undertaken as at 30 september 2012 valuations are performed every two years 
however in 2014 the trustees have agreed that they will defer the 2014 valuation for one year and it will be performed in september 2015 
contributions to the uk plan in 2014 were 33m 2013 – 37m 2012 – 39m this included supplementary payments of 23m 2013 – 31m  
2012 – 30m
the group has agreed to pay the supplementary payments each year until 2017  the agreed supplementary contributions for 2015 are 37m 
us plan
full actuarial valuations were performed annually for the us plan with the last undertaken as at 20 september 2013 before the closure of the  
plan to future accrual contributions to the us plan were 22m 2013 – 20m 2012 – 27m which included supplementary payments of 20m 
the agreed contributions for 2015 are 22m
notes to the group accounts continued
smith  nephew annual report 2014 152
financial statements 19 equity
accounting policy
incremental costs directly attributable to the issue of ordinary shares net of any tax effects are recognised as a deduction from equity
when shares recognised as equity are repurchased the amount of the consideration paid which includes directly attributable costs net of any 
tax effects is recognised as a deduction from equity repurchased shares are classified as treasury shares and are presented in the treasury 
share reserve when treasury shares are sold or reissued subsequently the amount received is recognised as an increase in equity and the 
resulting surplus or deficit on the transaction is presented within share premium
19 1 share capital
ordinary shares 20¢ deferred shares £100
total 
 million thousand  million thousand  million
authorised
at 31 december 2012 1223591 245 50 – 245 
at 31 december 2013 1223591 245 50 – 245 
at 31 december 2014 1223591 245 50 – 245
allotted issued and fully paid
at 1 january 2012 954828 191 50 – 191
share options 8752 2 – – 2
at 31 december 2012 963580 193 50 – 193
share options 5587 1 – – 1
shares cancelled 51000 10 – – 10
at 31 december 2013 918167 184 50 – 184
share options 4180 1 – – 1
shares cancelled 4405 1 – – 1
at 31 december 2014 917942 184 50 – 184
the deferred shares were issued in 2006 in order to comply with english company law they are not listed on any stock exchange and have 
extremely limited rights and effectively have no value these rights are summarised as follows
 – the holder shall not be entitled to participate in the profits of the company
 – the holder shall not have any right to participate in any distribution of the company’s assets on a winding up or other distribution except that 
after the return of the nominal amount paid up on each share in the capital of the company of any class other than the deferred shares and the 
distribution of a further 1000 in respect of each such share there shall be distributed to a holder of a deferred share for each deferred share 
held by him an amount equal to the nominal value of the deferred share
 – the holder shall not be entitled to receive notice attend speak or vote at any general meeting of the company and
 – the company may create allot and issue further shares or reduce or repay the whole or any part of its share capital or other capital reserves 
without obtaining the consent of the holders of the deferred shares
the group’s objectives when managing capital are to ensure the group has adequate funds to continue as a going concern and sufficient 
flexibility within the capital structure to fund the ongoing growth of the business and to take advantage of business development opportunities 
including acquisitions
the group determines the amount of capital taking into account changes in business risks and future cash requirements the group reviews its 
capital structure on an ongoing basis and uses share buybacks dividends and the issue of new shares to adjust the retained capital
the group considers the capital that it manages to be as follows
2014 
 million
2013 
 million
2012 
 million
share capital 184 184 193 
share premium 574 535 488 
capital redemption reserve 11 10 – 
treasury shares 315 322 735
retained earnings and other reserves 3586 3640 3938 
4040 4047 3884
153 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 19 equity continued
19 2 treasury shares
treasury shares represents the holding of the company’s own shares in respect of the smith  nephew employee’s share trust and shares 
bought back as part of the share buyback programme on 2 may 2013 as part of the new capital allocation framework the group announced 
the start of a new share buyback programme to return 300m of surplus capital to its shareholders the programme was suspended in february 
2014 following the annoucement of the arthrocare acquisition shares issued in connection with the group’s share incentive plans are brought 
back on a quarterly basis during 2014 a total of 44m ordinary shares 05 had been purchased at a cost of 72m and 44m ordinary shares 
05 had been cancelled the maximum number of ordinary shares held in treasury during 2014 was 269m 28 with a nominal value of 
54m 
the smith  nephew 2004 employees’ share trust ‘trust’ was established to hold shares relating to the longterm incentive plans referred to in 
the ‘directors’ remuneration report’ the trust is administered by an independent professional trust company resident in jersey and is funded 
by a loan from the company the cost of the trust is charged to the income statement as it accrues a partial dividend waiver is in place in respect 
of those shares held under the longterm incentive plans the trust only accepts dividends in respect of nilcost options and deferred bonus plan 
shares the waiver represents less than 1 of the total dividends paid
the movements in treasury shares and the employees’ share trust are as follows
treasury  
 million
employees’  
share trust  
 million
total  
 million
at 1 january 2013 730 5 735
shares purchased 226 5 231
shares transferred from treasury 8 8 –
shares transferred to group beneficiaries 7 14 21
shares cancelled 623 – 623
at 31 december 2013 318 4 322
shares purchased 72 3 75
shares transferred from treasury 11 11 –
shares transferred to group beneficiaries 8 17 25
shares cancelled 57 – 57
at 31 december 2014 314 1 315
number  
of shares  
million
number  
of shares  
million
number  
of shares  
million
at 1 january 2013 595 05 600
shares purchased 182 04 186
shares transferred from treasury 06 06 –
shares transferred to group beneficiaries 06 12 18
shares cancelled 510 – 510
at 31 december 2013 255 03 258
shares purchased 44 02 46
shares transferred from treasury 09 09 –
shares transferred to group beneficiaries 06 13 19
shares cancelled 44 – 44
at 31 december 2014 240 01 241
19 3 dividends
2014 
 million
2013 
 million
2012 
 million
the following dividends were declared and paid in the year
ordinary final of 170¢ for 2013 2012 – 1620¢ 2011 – 1080¢ paid 7 may 2014 152 146 97 
ordinary interim of 110¢ for 2014 2013 – 1040¢ 2012 –990¢ paid 11 november 2014 98 93 89 
250 239 186
a final dividend for 2014 of 186 us cents per ordinary share was proposed by the board on 4 february 2015 and will be paid subject to 
shareholder approval on 6 may 2015 to shareholders on the register of members on 17 april 2015 the estimated amount of this dividend on 
23 february 2015 is 166m 
notes to the group accounts continued
smith  nephew annual report 2014 154
financial statements 20 cash flow statement
accounting policy
in the group cash flow statement cash and cash equivalents includes cash at bank other shortterm liquid investments with original maturities 
of three months or less and bank overdrafts in the group balance sheet bank overdrafts are shown within bank overdrafts and loans under 
current liabilities
analysis of net debt
borrowings
cash  
 million
overdrafts  
 million
due within  
one year  
 million
due after  
one year  
 million
net currency 
swaps  
 million
total  
 million
at 1 january 2012 184 23 283 16 – 138
net cash flow 10 12 256 414 1 155
exchange adjustment 4 – – – 1 5
at 31 december 2012 178 11 27 430 2 288
net cash flow 38 – 6 84 1 41
exchange adjustment 3 – – 1 2 6
at 31 december 2013 137 11 33 347 1 253
net cash flow 35 19 22 1322 11 1343
exchange adjustment 9 2 – 3 13 17
at 31 december 2014 93 28 11 1666 1 1613
reconciliation of net cash flow to movement in net debt
2014 
 million
2013 
 million
2012 
 million
net cash flow from cash net of overdrafts 54 38 2 
settlement of currency swaps 11 1 1 
net cash flow from borrowings 1300 78 158
change in net debt from net cash flow 1343 41 155
exchange adjustment 17 6 5 
change in net debt in the year 1360 35 150
opening net debt 253 288 138
closing net debt 1613 253 288
cash and cash equivalents
for the purposes of the group cash flow statement cash and cash equivalents at 31 december 2014 comprise cash at bank net of 
bank overdrafts
2014 
 million
2013 
 million
2012 
 million
cash at bank 93 137 178 
bank overdrafts 28 11 11
cash and cash equivalents 65 126 167
155 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 21 acquisitions and disposals
accounting policy
the group accounts for business combinations using the acquisition method when control is transferred to the group the consideration 
transferred in the acquisition is measured at fair value as are the identifiable net assets acquired any goodwill that arises is tested annually for 
impairment any gain on a bargain purchase is recognised in profit or loss immediately transaction costs are expensed as incurred except if 
related to the issue of debt or equity securities
any contingent consideration payable is measured at fair value at the acquisition date if the contingent consideration is classified as equity 
then it is not remeasured and settlement is accounted for within equity otherwise subsequent changes in the fair value of the contingent 
consideration are recognised in profit or loss
211 acquisitions
year ended 31 december 2014
acquisition of arthrocare
on 29 may 2014 the group acquired 100 of the shares of arthrocare corporation an innovative medical device company with a highly 
complementary sports medicine portfolio the purchase price was 4825 per share paid in cash with the fair value of the total consideration 
equalling 1715m the acquisition was financed through existing debt facilities and cash balances including an existing 1 billion revolving credit 
facility and a new twoyear 14 billion term loan facility established in february 2014
the acquisition is deemed to be a business combination within the scope of ifrs 3 business combinations the fair values shown below are 
provisional if new information is obtained within the measurement period about facts and circumstances that existed at the acquisition date the 
acquisition accounting will be revised the provisional estimate of the goodwill arising on the acquisition is 829m it relates to the value of the 
additional economic benefits expected from the transaction including synergies and the assembled workforce the goodwill recognised is not 
expected to be deductible for tax purposes
the following table summarises the consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the 
acquisition date
 million
identifiable assets acquired and liabilities assumed
property plant and equipment 60 
inventories 66 
trade receivables and prepayments 54 
identifiable intangible assets 817 
investments in associates 4
trade and other payables 74
provisions 19
current tax payable 18
deferred tax liabilities 173
net assets 717 
goodwill 829 
consideration net of 169m of cash acquired 1546
the recognised amounts of assets acquired and liabilities assumed are different from those disclosed previously as adjustments to provisional 
values continue to be recorded during the measurement period  none of the adjustments posted to date are material
the group incurred acquisition related costs of 21m relating to professional and advisor fees these costs have been recognised in administrative 
expenses in the income statement
arthrocare’s contribution to group revenue was 207m for the year ended 31 december 2014 representing approximately seven months of 
sales this gave rise to a pretax profit of 28m after amortisation of acquisition intangibles had arthrocare been acquired on 1 january 2014 the 
group’s revenues would have been 147m higher and pretax profit would have been 5m higher
acquisition of brazilian distributor
on 17 march 2014 the group acquired certain assets and liabilities related to the distribution business for its sports medicine orthopaedic 
reconstruction and trauma products in brazil the acquisition is deemed to be a business combination within the scope of ifrs 3 business 
combinations the acquisition date fair value of the consideration was 31m and included deferred consideration of 26m and 5m in relation to 
the settlement of working capital commitments the deferred consideration was subsequently settled during the second quarter
notes to the group accounts continued
smith  nephew annual report 2014 156
financial statements as at the acquisition date the estimated value of the net assets acquired was 16m which included trade and other receivables of 12m 
identifiable intangible assets of 16m inventory of 4m property plant and equipment of 2m trade payables of 1m provisions of 5m current 
tax payable of 4m and deferred tax liabilities of 8m as a result the provisional estimate of goodwill arising on the acquisition was 15m this is 
attributable to the additional economic benefits expected from the acquisition including the assembled workforce which has been transferred as 
part of the acquisition the goodwill is not expected to be deductible for tax purposes 
the recognised amounts of assets acquired and liabilities assumed have been determined on a provisional basis if new information is obtained 
within the measurement period about facts and circumstances that existed at the acquisition date the acquisition accounting will be revised 
the contribution to revenue and attributable profit from this acquisition for the year ended 31 december 2014 was immaterial if the acquisition 
had occurred at the beginning of the year its contribution to revenue and attributable profit for the year ended 31 december 2014 would also have 
been immaterial 
year ended 31 december 2013
acquisition of turkish distributor
on 30 september 2013 the group acquired certain assets and liabilities in respect of a turkish business which distributes products related 
to orthopaedic reconstruction trauma sports medicine and arthroscopic technologies 
the acquisition is deemed to be a business combination within the scope of ifrs 3
the estimated fair value of the consideration is 63m and included 12m of contingent consideration in respect of agreed milestones and 36m 
through the settlement of working capital commitments the accounting for acquisition was completed during 2014 with no change to the 
provisional values as at 31 december 2013
the goodwill arising on the acquisition is 12m it is attributable to the additional economic benefits expected from the transaction including 
the assembled workforce which has been transferred as part of the acquisition the goodwill recognised is expected to be deductible for 
tax purposes
the following table summarises the consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the 
acquisition date
 million
identifiable assets acquired and liabilities assumed
property plant and equipment 4 
inventories 8 
trade receivables and prepayments 24 
identifiable intangible assets 17 
payables and accruals 2
net assets 51 
goodwill 12 
cost of acquisition 63
the group incurred acquisitionrelated costs of 4m primarily related to external legal fees and due diligence costs these costs have been 
recognised in administrative expenses in the group’s income statement 
in 2013 the contribution to revenue and attributable profit from the acquisition was immaterial if the acquisition had occurred at the beginning 
of the year the contribution to revenue and attributable profit would have also been immaterial
other acquisitions
during the year ended 31 december 2013 the group acquired a brazilian distributor of its advanced wound management products and a 
business based in india primarily engaged in the manufacture and distribution of trauma products these acquisitions are deemed to be business 
combinations within the scope of ifrs 3
the aggregated total fair value of the consideration was 63m and included 2m of contingent consideration and 2m through the settlement of 
working capital commitments the accounting for both acquisitions was completed during 2014 with no change to the provisional values as at 
31 december 2013
as at the acquisition date the aggregated fair value of the net assets acquired was 38 million which included property plant and equipment 
of 1m inventory of 4m trade receivables and prepayments of 3m identifiable intangible assets of 47m payables and accruals of 3m and 
deferred tax liabilities of 14m
the goodwill arising on the acquisitions is 25m this is attributable to the additional economic benefits expected from the transactions including 
the assembled workforces which have been transferred as part of the acquisitions the goodwill recognised is not expected to be deductible for 
tax purposes
in 2013 the contribution to revenue and attributable profit from these acquisitions was immaterial if these acquisitions had occurred at the 
beginning of 2013 their contribution to revenue and attributable profit would have also been immaterial
157 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 21 acquisitions and disposals continued
212 disposal of business
year ended 31 december 2014
during the fourth quarter of 2014 the group disposed of a manufacturing facility in the uk for cash consideration of 20 million resulting in a  
pretax gain on disposal of 9 million the 2014 revenue and profit contribution of the disposed business was immaterial 
22 operating leases
accounting policy
leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the group 
all other leases are classified as operating leases
payments under operating leases are expensed in the income statement on a straight line basis over the term of the lease lease incentives 
received are recognised as an integral part of the total lease expense over the term of the lease
future minimum lease payments under noncancellable operating leases fall due as follows
2014  
 million
2013  
 million
land and buildings
within one year 34 30 
after one and within two years 25 22 
after two and within three years 18 16 
after three and within four years 12 13 
after four and within five years 8 7 
after five years 8 5 
105 93 
other assets
within one year 15 15 
after one and within two years 9 9 
after two and within three years 4 4 
after three and within four years 3 2 
31 30
notes to the group accounts continued
smith  nephew annual report 2014 158
financial statements 23 other notes to the accounts
231 sharebased payments
accounting policy
the group operates a number of equitysettled executive and employee share plans for all grants of share options and awards the fair value 
at the grant date is calculated using appropriate option pricing models the grant date fair value is recognised over the vesting period as an 
expense with a corresponding increase in retained earnings
employee plans
the smith  nephew sharesave plan 2002 adopted by shareholders on 3 april 2002 the save as you earn ‘saye’ plan the smith  
nephew international sharesave plan 2002 smith  nephew france sharesave plan 2002 smith  nephew sharesave plan 2012 the save 
as you earn ‘saye 2012’ plan adopted by shareholders on 12 april 2012 smith  nephew international sharesave plan 2012 adopted by 
shareholders on 12 april 2012 and smith  nephew france sharesave plan 2012 adopted by shareholders on 12 april 2012 are together termed 
the “employee plans” 
the saye and saye 2012 plans are available to all employees in the uk employed by participating group companies subject to three months’ 
service the schemes enable employees to save up to £250 per month and give them an option to acquire shares based on the committed 
amount to be saved the option price is not less than 80 of the average of middle market quotations of the ordinary shares on the three dealing 
days preceding the date of invitation the smith  nephew international sharesave plan 2002 and smith  nephew international sharesave plan 
2012 are available to employees in australia austria belgium canada china denmark finland france germany hong kong india ireland 
italy japan south korea mexico the netherlands new zealand norway poland portugal singapore south africa spain sweden switzerland 
and the united arab emirates puerto rico participants were eligible to receive options under the international plans up to 2011 and were eligible to 
receive phantom options from 2013 onwards the smith  nephew france sharesave plans were available to all employees in france up to 2012 
the international and french plans operate on a substantially similar basis to the saye plans 
employees in the us are able to participate in the employee stock purchase plan which gives them the opportunity to acquire shares in the form 
of adss at a discount of 15 or more if the shares appreciate in value during the plan’s quarterly purchase period to the market price through a 
regular savings plan
executive plans
the smith  nephew 2001 uk approved share option plan the smith  nephew 2001 uk unapproved share option plan the smith  nephew 2001 
us share plan adopted by shareholders on 4 april 2001 the smith  nephew 2004 executive share option plan adopted by shareholders on 
6 may 2004 and the smith  nephew global share plan 2010 adopted by shareholders on 6 may 2010 are together termed the ‘executive plans’
under the terms of the executive plans the remuneration committee consisting of nonexecutive directors may at their discretion approve the 
grant of options to employees of the group to acquire ordinary shares in the company options granted under the smith  nephew 2001 us 
share plan the ‘us plan’ and the smith  nephew 2004 executive share option plan are to acquire adss or ordinary shares for executive plans 
adopted in 2001 and 2004 the market value is the average quoted price of an ordinary share for the three business days preceding the date of 
grant or the average quoted price of an ads or ordinary share for the three business days preceding the date of grant or the quoted price on 
the date of grant if higher for the global share plan adopted in 2010 the market value is the closing price of an ordinary share or ads on the last 
trading day prior to the grant date with the exception of options granted under the 2001 us plan and the global share plan 2010 the vesting of 
options granted from 2001 is subject to achievement of a performance condition options granted under the 2001 us plan and the global share 
plan 2010 are not subject to any performance conditions prior to 2008 the 2001 us plan options became cumulatively exercisable as to 10 after 
one year 30 after two years 60 after three years and the remaining balance after four years with effect from 2008 options granted under 
the 2001 us plan became cumulatively exercisable as to 333 after one year 667 after two years and the remaining balance after the third 
year the 2001 uk unapproved share option plan was open to certain employees outside the us and the us plan was open to certain employees 
in the us canada mexico and puerto rico the global share plan 2010 is open to employees globally the 2004 plan was open to senior 
executives only
the maximum term of options granted under all plans is 10 years from the date of grant all share option plans are settled in shares
from 2012 onwards senior executives were granted share awards instead of share options and from 2013 executives were granted conditional 
share awards instead of share options the awards vest 333 after one year 667 after two years and the remaining balance after the third 
year subject to continued employment there are no performance conditions for executives vesting for senior executives is subject to personal 
performance levels the market value used to calculate the number of awards is the closing price of an ordinary share on the last trading day prior 
to the grant date 
159 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 23 other notes to the accounts continued
231 share based payments continued
at 31 december 2014 8708000 2013 – 13601000 2012 – 19690000 options were outstanding under share option plans as follows
number of  
shares  
thousand
range of option 
exercise prices 
pence
weighted average 
exercise price 
pence
employee plans
outstanding at 1 january 2012 3580 3480 – 6400 4328
granted 947 5350 – 5350 5350
forfeited 402 3480 – 6090 4345
exercised 925 3480 – 6090 3960
expired 38 3480 – 6400 4962
outstanding at 31 december 2012 3162 3800 – 6090 4731
granted 1178 6250 6250
forfeited 174 3800 – 6250 4882
exercised 751 3800 – 6090 4538
expired 128 3800 – 6250 4900
outstanding at 31 december 2013 3287 3800 – 6250 5305
granted 799 8310 8310
forfeited 289 3800 – 8310 5338
exercised 743 3800 – 6250 4362
expired 18 4610 – 5560 4657
outstanding at 31 december 2014 3036 3800 – 8310 6327
options exercisable at 31 december 2014 94 3800 – 5850 4396
options exercisable at 31 december 2013 71 4610 – 5560 4678
options exercisable at 31 december 2012 152 3800 – 6090 4008
executive plans
outstanding at 1 january 2012 23736 4095 – 7030 5612
granted 3046 6420 – 6500 6500
forfeited 954 4790 – 7030 5690
exercised 8740 4340 – 6510 5477
expired 560 4355 – 6378 5887
outstanding at 31 december 2012 16528 4095 – 6805 5833
forfeited 118 5140 – 6500 6188
exercised 5540 4355 – 6710 5680
expired 556 4355 – 6500 5823
outstanding at 31 december 2013 10314 4095 – 6805 5911
forfeited 115 5990 – 6500 6450
exercised 4114 4540 – 6710 5830
expired 413 4095 – 6500 5878
outstanding at 31 december 2014 5672 4700 – 6805 5962
options exercisable at 31 december 2014 4713 4700 – 6805 5853
options exercisable at 31 december 2013 6631 4095 – 6805 5711
options exercisable at 31 december 2012 8512 4095 – 6805 5627
the weighted average remaining contractual life of options outstanding at 31 december 2014 was 58 years 2013 – 62 years 2012 – 66 years for 
executive plans and 25 years 2013 – 25 years 2012 – 26 years for employee plans
notes to the group accounts continued
smith  nephew annual report 2014 160
financial statements 2014  
pence
2013  
pence
2012  
pence
weighted average share price 9944 7647 6405
options granted during the year were as follows
options  
granted  
thousand
weighted  
average fair  
value per  
option at  
grant date  
pence
weighted  
average  
share price at  
grant date  
pence
weighted  
average  
exercise  
price  
pence
weighted  
average  
option life  
years
employee plans 799 2558 10690 8310 39
the weighted average fair value of options granted under employee plans during 2013 was 2039p 2012 – 1840p and those under executive 
plans during 2013 was nil 2012 – 1487p
options granted under employee plans are valued using the blackscholes option model as management consider that options granted under 
these plans are exercised within a short period of time after the vesting date
for all plans the inputs to the option pricing models are reassessed for each grant the following assumptions were used in calculating the fair 
value of options granted
employee plans executive plans
2014 2013 2012 2014 2013 2012
dividend yield  20 20 15 – – 15
expected volatility  i 200 250 250 – – 250
risk free interest rate  ii 13 13 13 – – 12
expected life in years 39 38 38 – – 100
i volatility is assessed on a historic basis primarily based on past share price movements over the expected life of the options
ii the risk free interest rate reflects the yields available on zero coupon government bonds over the option term and currency
161 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 23 other notes to the accounts continued
231 share based payments continued 
sharebased payments – longterm incentive plans
in 2004 a sharebased incentive plan was introduced for executive directors executive officers and the next level of senior executives the plan 
included a performance share plan ‘psp’ and a bonus coinvestment plan ‘cip’
vesting of the psp awards is dependent upon performance relative to the ftse 100 and an index based on major international companies in the 
medical devices industry
under the cip  participants could elect to use up to a maximum of onehalf of their annual bonus to purchase shares if the shares are held for 
three years and the group’s epsa growth targets are achieved participants receive an award of matching shares for each share purchased
from 2009 the cip was replaced by the deferred bonus plan this plan was designed to encourage executives to build up and maintain a 
significant shareholding in the company under the plan up to onethird of any bonus earned at target level or above by an eligible employee was 
compulsorily deferred into shares which vested subject to continued employment in equal annual tranches over three years ie onethird each 
year no further performance conditions applied to the deferred shares
from 2010 performance share awards were granted under the global share plan 2010 for all executives other than executive directors awards 
granted under both plans are combined to provide the figures below
from 2012 deferred bonus plan and gsp 2010 options for executive directors executive officers and the next level of senior executives were 
replaced by equity incentive awards ‘eia’ eia are designed to encourage executives to build up and maintain a significant shareholding in 
the company eia will vest in equal annual tranches over three years ie onethird each year subject to continued employment and personal 
performance no further performance conditions apply to the eia
the fair values of awards granted under longterm incentive plans are calculated using a binomial model performance share awards under 
both the psp and global share plan 2010 contain vesting conditions based on tsr versus a comparator group which represent marketbased 
performance conditions for valuation purposes and an assessment of vesting probability is therefore factored into the award date calculations 
the assumptions include the volatilities for the comparator groups a correlation of 40 2013 – 40 2012 – 35 has also been assumed for 
the companies in the medical devices sector as they are impacted by similar factors the performance target for the global share plan 2010 is 
a combination of free cash flow growth revenue in emerging  international markets and the group’s tsr performance over the threeyear 
performance period
the other assumptions used are consistent with the executive scheme assumptions disclosed earlier in this note
at 31 december 2014 the maximum number of shares that could be awarded under the group’s longterm incentive plans was
number of shares in thousands
other 
awards eia psp
deferred 
bonus plan total
outstanding at a january 2012 794 – 6268 492 7554
awarded 187 1060 2190 – 3437
vested 263 49 1785 287 2384
forfeited – 82 1431 41 1554
outstanding at 31 december 2012 718 929 5242 164 7053
awarded 1179 785 1963 – 3927
vested 437 379 411 115 1342
forfeited 11 51 1597 5 1664
outstanding at 31 december 2013 1449 1284 5197 44 7974
awarded 751 642 1510 – 2903
vested 583 751 – 44 1378
forfeited 96 24 2188 – 2308
outstanding at 31 december 2014 1521 1151 4519 – 7191
other awards mainly comprises of conditional share awards granted under the global share plan 2010
the weighted average remaining contractual life of awards outstanding at 31 december 2014 was 11 years 2013 – 14 years 2012 – 08 years for 
the psp  nil years 2013 – 02 years 2012 – 09 years for the deferred bonus plan 15 years 2013 – 18 years for the eia and 20 years 2013 – 21 
years 2012 – 09 years for the other awards
notes to the group accounts continued
smith  nephew annual report 2014 162
financial statements sharebased payments – charge to income statement
the expense charged to the income statement for sharebased payments is as follows
2014  
 million
2013  
 million
2012  
 million
granted in current year 9 10 9 
granted in prior years 23 18 25 
total sharebased payments expense for the year 32 28 34
under the executive plans psp  eia and cip the number of ordinary shares over which options and share awards may be granted is limited so that 
the number of ordinary shares issued or that may be issued during the 10 years preceding the date of grant shall not exceed 5 of the ordinary 
share capital at the date of grant the total number of ordinary shares which may be issuable in any 10year period under all share plans operated 
by the company may not exceed 10 of the ordinary share capital at the date of grant
232 related party transactions
trading transactions
in the course of normal operations the group traded with its associates detailed in note 11 the aggregated transactions which have not been 
disclosed elsewhere in the financial statements are summarised below
2014  
 million
2013  
 million
2012  
 million
sales to the associates – 5 14 
purchases from the associates 1 2 8 
all sale and purchase transactions occur on an arm’s length basis
key management personnel
the remuneration of executive officers including nonexecutive directors during the year is summarised below
2014  
 million
2013  
 million
2012  
 million
shortterm employee benefits 14 15 16 
sharebased payments expense 8 11 10 
pension and postemployment benefit entitlements 1 1 1 
other benefits 3 – – 
26 27 27
163 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 23 other notes to the accounts continued
233 principal subsidiary undertakings
the information provided below is given for principal trading and manufacturing subsidiary undertakings all of which are 100 owned 
in accordance with section 410 of the companies act 2006 a full list will be appended to smith  nephew’s next annual return to 
companies house
company name activity country of operation and incorporation
uk
t j smith  nephew limited medical devices england  wales
smith  nephew artc limited medical devices england  wales
continental europe  
smith  nephew gmbh medical devices austria
arthrocare belgium sprl medical devices belgium
smith  nephew sanv medical devices belgium
smith  nephew as medical devices denmark
smith  nephew oy medical devices finland
smith  nephew sas medical devices france
smith  nephew orthopaedics gmbh medical devices germany
smith  nephew gmbh medical devices germany
smith  nephew hellas sa medical devices greece
smith  nephew limited medical devices ireland
smith  nephew srl medical devices italy
smith  nephew nederland cv medical devices netherlands
smith  nephew as medical devices norway
smith  nephew sp zoo medical devices poland
smith  nephew lda medical devices portugal
smith  nephew sau medical devices spain
smith  nephew ab medical devices sweden
smith  nephew manufacturing ag medical devices switzerland
smith  nephew orthopaedics ag medical devices switzerland
smith  nephew schweiz ag medical devices switzerland
us
arthrocare corporation medical devices united states
arthrocare medical corporation medical devices united states
smith  nephew inc medical devices united states
notes to the group accounts continued
smith  nephew annual report 2014 164
financial statements company name activity country of operation and incorporation
africa asia australasia and other america  
smith  nephew pty limited medical devices australia
smith  nephew surgical pty limited medical devices australia
smith  nephew comercio de productos medicos ltda medical devices brazil
smith  nephew inc medical devices canada
smith  nephew alberta inc medical devices canada
tenet medical engineering inc medical devices canada
smith  nephew medical shanghai limited medical devices china
smith  nephew medical suzhou limited medical devices china
smith  nephew orthopaedics beijing limited medical devices china
arthrocare costa rica srl medical devices costa rica
smith  nephew curaçao nv medical devices curaçao
smith  nephew limited medical devices hong kong
adler mediequip private limited medical devices india
smith  nephew healthcare private limited medical devices india
smith  nephew endoscopy kk medical devices japan
smith  nephew orthopaedics kk medical devices japan
smith  nephew wound management kk medical devices japan
smith  nephew chusik hoesia medical devices korea
smith  nephew healthcare sdn berhad medical devices malaysia
smith  nephew sa de cv medical devices mexico
smith  nephew limited medical devices new zealand
smith  nephew surgical limited medical devices new zealand
smith  nephew inc medical devices puerto rico
llc smith  nephew medical devices russia
smith  nephew pte limited medical devices singapore
smith  nephew pty limited medical devices south africa
smith  nephew limited medical devices thailand
smith ve nephew medikal cihazlar ticaret limited sirketi medical devices turkey
smith  nephew fze medical devices united arab emirates
165 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information notes
at 31 december  
2014 
 million
at 31 december 
2013 
 million
fixed assets
investments 3 5322 3597 
current assets
debtors 4 2143 2140 
cash and bank 6 1 6 
2144 2146 
creditors amounts falling due within one year
borrowings 6 40 2
other creditors 5 1287 1590
1327 1592
net current assets 817 554 
total assets less current liabilities 6139 4151 
creditors amounts falling due after one year
borrowings 6 1655 335
total assets less total liabilities 4484 3816 
equity shareholders’ funds
called up equity share capital 7 184 184 
share premium account 7 574 535 
capital redemption reserve 7 11 10 
capital reserve 7 2266 2266 
treasury shares 7 315 322
exchange reserve 7 52 52
profit and loss account 7 1816 1195 
shareholders’ funds 4484 3816 
the accounts were approved by the board and authorised for issue on 25 february 2015 and signed on its behalf by
roberto quarta   olivier bohuon  julie brown
chairman  chief executive officer chief financial officer
the parent company financial statements of smith  nephew plc on pages 166 to 169 do not form part of the smith  nephew’s  
annual report on form 20f as filed with the sec
company balance sheet
smith  nephew annual report 2014 166
financial statements 1 basis of preparation
smith  nephew plc the ‘company’ is a public limited company incorporated in england and wales
the separate accounts of the company are presented as required by the companies act 2006 the accounts have been prepared under the 
historical cost convention modified to include revaluation to fair value of certain financial instruments as described below and in accordance with 
applicable uk accounting standards as consolidated financial information has been disclosed under ifrs 7 financial instruments disclosures 
the company is exempt from frs 29 financial instruments disclosures the group accounts have been prepared in accordance with international 
financial reporting standards as adopted by the european union and are presented on pages 110 to 165
the company has taken advantage of the exemption in frs 8 related party disclosures not to present its related party disclosures as the group 
accounts contain these disclosures in addition the company has taken advantage of the exemption in frs 1 cash flow statements not to present 
its own cash flow statement as the group accounts contain a consolidated cash flow
in applying these policies management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities 
and disclosure of contingent assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the 
reporting period although these estimates are based on management’s best knowledge of current events and actions actual results ultimately 
may differ from those estimates
foreign currencies
transactions in foreign currencies are initially recorded at the exchange rate ruling at the date of the transaction monetary assets and liabilities 
denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date all exchange differences are dealt with 
in arriving at profit before taxation
deferred taxation
deferred taxation 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
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
2 results for the year
as permitted by section 4084 of the companies act 2006 the company has not presented its own profit and loss account profit for the year was 
922m 2013 – 198m
3 investments
accounting policy
investments in subsidiaries are stated at cost less provision for impairment
2014 
 million
2013 
 million
at 1 january 3597 3597 
additions 1725 – 
at 31 december 5322 3597 
investments represent holdings in subsidiary undertakings
the information provided below is given for the principal direct subsidiary undertakings all of which are 100 owned and in accordance with 
section 410 of the companies act 2006 a full list will be appended to smith  nephew’s next annual return to companies house
activity
country of operation 
and incorporation
company name
smith  nephew uk limited holding company england  wales
smith  nephew overseas limited holding company england  wales
refer to note 233 of the notes to the group accounts for the principal trading and manufacturing subsidiary undertakings of the group
the parent company financial statements of smith  nephew plc on pages 166 to 169 do not form part of the smith  nephew’s  
annual report on form 20f as filed with the sec
167 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 4 debtors
2014 
 million
2013 
 million
amounts falling due within one year
amounts owed by subsidiary undertakings 2074 2091 
prepayments and accrued income 3 3 
current asset derivatives – forward foreign exchange contracts 65 45 
current asset derivatives – currency swaps – 1 
current taxation 1 – 
2143 2140 
5 other creditors 
2014 
 million
2013 
 million
amounts falling due within one year
amounts owed to subsidiary undertakings 1212 1533 
other creditors 9 10 
current taxation – 2 
current liability derivatives – forward foreign exchange contracts 65 45 
current liability derivatives – currency swaps 1 – 
1287 1590
6 cash and borrowings
accounting policy
financial instruments
currency swaps are used to match foreign currency net assets with foreign currency liabilities they are initially recorded at fair value and then 
for reporting purposes remeasured to fair value at exchange rates and interest rates at subsequent balance sheet dates
changes in the fair value of derivative financial instruments are recognised in the profit and loss account as they arise
2014 
 million
2013 
 million
bank loans and overdrafts due within one year or on demand 40 2 
bank loans due after one year 1655 335 
borrowings 1695 337 
cash and bank 1 6
creditdebit balance on derivatives – currency swaps 1 1
net debt 1695 330 
all currency swaps are stated at fair value gross us dollar equivalents of 261m 2013 – 146m receivable and 262m 2013 – 145m payable 
have been netted currency swaps comprise foreign exchange swaps and were used in 2014 and 2013 to hedge intragroup loans 
the parent company financial statements of smith  nephew plc on pages 166 to 169 do not form part of the smith  nephew’s  
annual report on form 20f as filed with the sec
notes to the company accounts continued
smith  nephew annual report 2014 168
financial statements 7 equity and reserves
2014 2013
share 
capital 
 million
share 
premium 
 million
capital 
redemption 
reserve 
 million
capital 
reserves 
 million
treasury 
shares 
 million
exchange 
reserves 
 million
profit and 
loss account 
 million
total 
shareholders’ 
funds 
 million
total 
shareholders’ 
funds 
 million 
at 1 january 184 535 10 2266 322 52 1195 3816 4009 
attributable profit for the year – – – – – – 922 922 198 
net losses on cash flow hedges – – – – – – 5 5 –
equity dividends paid in the year – – – – – – 250 250 239
sharebased payments 
recognised – – – – – – 32 32 28 
cost of shares transferred to 
beneficiaries – – – – 25 – 21 4 3 
new shares issued on exercise 
of share options 1 39 – – – – – 40 48 
cancellation of treasury shares 1 – 1 – 57 – 57 – – 
treasury shares purchased – – – – 75 – – 75 231
at 31 december 184 574 11 2266 315 52 1816 4484 3816 
further information on the share capital of the company can be found in note 191 of the notes to the group accounts
the total distributable reserves of the company are 1449m 2013 – 821m in accordance with the exemption permitted by section 408 of the 
companies act 2006 the company has not presented its own profit and loss account the attributable profit for the year dealt with in the accounts 
of the company is 922m 2013 – 198m
fees paid to ernst  young llp for audit and nonaudit services to the company itself are not disclosed in the individual accounts because group 
financial statements are prepared which are required to disclose such fees on a consolidated basis the fees for the consolidated group are 
disclosed in note 32 of the notes to the group accounts
8 sharebased payments
the company operates a number of equitysettled executive and employee share plans for all grants of share options and awards the fair value 
as at the date of grant is calculated using an appropriate option pricing model and the corresponding expense is recognised over the vesting 
period subsidiary companies are recharged for the fair value of share options that relate to their employees
the disclosure relating to the company is detailed in note 231 of the notes to the group accounts
9 contingencies
2014 
 million
2013 
 million
guarantees in respect of subsidiary undertakings 11 25 
the company has given guarantees to banks to support liabilities under foreign exchange and other contracts and cross guarantees to support 
overdrafts such guarantees are not considered to be liabilities as all subsidiary undertakings are trading as going concerns
the company operated defined benefit pension plans in 2004 but at the end of 2005 its pension plan obligations were transferred to smith  
nephew uk limited the company has provided guarantees to the trustees of the pension plans to support future amounts due from participating 
employers see note 18 of the notes to the group accounts
the parent company financial statements of smith  nephew plc on pages 166 to 169 do not form part of the smith  nephew’s  
annual report on form 20f as filed with the sec
169 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information business overview and group history
smith  nephew’s operations are organised into two primary divisions that operate globally advanced surgical devices and advanced 
wound management
the group has a history dating back over 150 years to the family enterprise of thomas james smith who opened a small pharmacy in hull  
uk in 1856 following his death in 1896 his nephew horatio nelson smith took over the management of the business
by the late 1990s smith  nephew had expanded into being a diverse healthcare conglomerate with operations across the globe producing 
various medical devices personal care products and traditional and advanced wound care treatments in 1998 smith  nephew announced a 
major restructuring to focus management attention and investment on three global business units – advanced wound management endoscopy 
and orthopaedics – which offered high growth and margin opportunities in 2011 the endoscopy and orthopaedics businesses were brought 
together to create an advanced surgical devices division
smith  nephew was incorporated and listed on the london stock exchange in 1937 and in 1999 the group was also listed on the new york stock 
exchange in 2001 smith  nephew became a constituent member of the ftse100 index in the uk this means that smith  nephew is included 
in the top 100 companies traded on the london stock exchange measured in terms of market capitalisation
today smith  nephew is a public limited company incorporated and headquartered in the uk and carries out business around the world
property plant and equipment
the table below summarises the main properties which the group uses and their approximate areas
approximate area 
square feet 000’s 
group head office in london uk 20
group research facility in york uk 84
advanced surgical devices headquarters in andover massachusetts us 144
advanced wound management headquarters and manufacturing facility in hull uk 473
advanced surgical devices manufacturing facilities in memphis tennessee us 971
advanced surgical devices distribution facility in memphis tennessee us 210
advanced surgical devices manufacturing facility in aarau switzerland 121
advanced surgical devices manufacturing facility in beijing china 192
advanced surgical devices manufacturing and warehouse facility in warwick uk 90
advanced surgical devices manufacturing and warehouse facility in tuttlingen germany 64
advanced surgical devices distribution facility and european headquarters in baar switzerland 67
advanced surgical devices manufacturing facility in mansfield massachusetts us 98
advanced surgical devices manufacturing facility in oklahoma city oklahoma us 155
advanced surgical devices manufacturing facility in calgary canada 17
advanced surgical devices manufacturing facility in austin texas us 198
advanced surgical devices manufacturing facility in la aurora costa rica 36
advanced surgical devices research facility in irvine california us 23
advanced surgical devices manufacturing facility in sangameshwar india 39
advanced wound management manufacturing facility in suzhou china 288
advanced wound management manufacturing facility in fort saskatchewan canada 76
advanced wound management us headquarters in st petersburg florida us 44
advanced wound bioactives headquarters and laboratory space in fort worth texas us 105
advanced wound bioactives manufacturing facility in curaçao dutch caribbean 16
the group global operations strategy includes ongoing assessment of the optimal facility footprint the advanced surgical devices 
manufacturing facilities in memphis tennessee are largely freehold a portion of tuttlingen and the advanced wound management facilities in 
hull are freehold while other principal locations are leasehold the group has freehold and leasehold interests in real estate in other countries 
throughout the world but no other is individually significant to the group where required the appropriate governmental authorities have 
approved the facilities
offbalance sheet arrangements
management believes that the group does not have any offbalance sheet arrangements as defined by the sec in item 5e of form 20f that have 
or are reasonably likely to have a current or future effect on the group’s financial condition changes in financial condition revenues or expenses 
results of operations liquidity capital expenditures or capital resources that is material to investors
related party transactions
except for transactions with associates see note 232 of notes to the group accounts no other related party had material transactions or loans 
with smith  nephew over the last three financial years
group information
smith  nephew annual report 2014 170
other information risk factors
there are known and unknown risks and uncertainties relating to 
smith  nephew’s business the factors listed below could cause 
the group’s business financial position and results of operations to 
differ materially and adversely from expected and historical levels in 
addition other factors not listed here that smith  nephew cannot 
presently identify or does not believe to be equally significant could 
also materially adversely affect smith  nephew’s business financial 
position or results of operations
highly competitive markets
the group’s business segments compete across a diverse range of 
geographic and product markets each market in which the business 
segments operate contains a number of different competitors 
including specialised and international corporations significant 
product innovations technical advances or the intensification of 
price competition by competitors could adversely affect the group’s 
operating results
some of these competitors may have greater financial marketing and 
other resources than smith  nephew these competitors may be able 
to initiate technological advances in the field deliver products on more 
attractive terms more aggressively market their products or invest 
larger amounts of capital and research and development ‘rd’ into 
their businesses
there is a possibility of further consolidation of competitors which 
could adversely affect the group’s ability to compete with larger 
companies due to insufficient financial resources if any of the group’s 
businesses were to lose market share or achieve lower than expected 
revenue growth there could be a disproportionate adverse impact on 
the group’s share price and its strategic options
competition exists among healthcare providers to gain patients on the 
basis of quality service and price there has been some consolidation 
in the group’s customer base and this trend is expected to continue 
some customers have joined group purchasing organisations or 
introduced other cost containment measures that could lead to 
downward pressure on prices or limit the number of suppliers in certain 
business areas which could adversely affect smith  nephew’s results 
of operations and hinder its growth potential
continual development and introduction  
of new products 
the medical devices industry has a rapid rate of new product 
introduction in order to remain competitive each of the group’s 
business segments must continue to develop innovative products 
that satisfy customer needs and preferences or provide cost or 
other advantages developing new products is a costly lengthy and 
uncertain process the group may fail to innovate due to low rd 
investment a rd skills gap or poor product development a potential 
product may not be brought to market or not succeed in the market for 
any number of reasons including failure to work optimally failure to 
receive regulatory approval failure to be costcompetitive infringement 
of patents or other intellectual property rights and changes in consumer 
demand the group’s products and technologies are also subject to 
marketing attack by competitors furthermore new products that are 
developed and marketed by the group’s competitors may affect price 
levels in the various markets in which the group’s business segments 
operate if the group’s new products do not remain competitive with 
those of competitors the group’s revenue could decline
the group maintains reserves for excess and obsolete inventory 
resulting from the potential inability to sell its products at prices in 
excess of current carrying costs marketplace changes resulting from 
the introduction of new products or surgical procedures may cause 
some of the group’s products to become obsolete the group makes 
estimates regarding the future recoverability of the costs of these 
products and records a provision for excess and obsolete inventories 
based on historical experience expiration of sterilisation dates and 
expected future trends if actual product life cycles product demand 
or acceptance of new product introductions are less favourable than 
projected by management additional inventory writedowns may 
be required
dependence on government and other funding
in most established markets throughout the world expenditure 
on medical devices is ultimately controlled to a large extent by 
governments funds may be made available or withdrawn from 
healthcare budgets depending on government policy the group 
is therefore largely dependent on future governments providing 
increased funds commensurate with the increased demand arising 
from demographic trends
pricing of the group’s products is largely governed in most established 
markets by governmental reimbursement authorities initiatives 
sponsored by government agencies legislative bodies and the private 
sector to limit the growth of healthcare costs including price regulation 
excise taxes and competitive pricing are ongoing in markets where the 
group has operations this control may be exercised by determining 
prices for an individual product or for an entire procedure the 
group is exposed to government policies favouring locally sourced 
products the group is also exposed to changes in reimbursement 
policy tax policy and pricing which may have an adverse impact on 
revenue and operating profit in particular changes to the healthcare 
legislation in the us have imposed significant taxes on medical device 
manufacturers from 2013 there may be an increased risk of adverse 
changes to government funding policies arising from the deterioration 
in macroeconomic conditions in some of the group’s markets
the group must adhere to the rules laid down by government agencies 
that fund or regulate healthcare including extensive and complex rules 
in the us failure to do so could result in fines or loss of future funding
world economic conditions
demand for the group’s products is driven by demographic trends 
including the ageing population and the incidence of osteoporosis 
and obesity supply of use of and payment for the group’s products 
are also influenced by world economic conditions which could place 
increased pressure on demand and pricing adversely impacting the 
group’s ability to deliver revenue and margin growth the conditions 
could favour larger better capitalised groups with higher market 
shares and margins as a consequence the group’s prosperity 
is linked to general economic conditions and there is a risk of 
deterioration of the group’s performance and finances during adverse 
macro economic conditions
during 2014 economic conditions worldwide continued to create 
several challenges for the group including deferrals of joint 
replacement procedures heightened pricing pressure significant 
declines in capital equipment expenditures at hospitals and increased 
uncertainty over the collectability of european government debt 
particularly those in certain parts of southern europe these factors 
tempered the overall growth of the group’s global markets and could 
have an increased impact on growth in the future
171 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information political uncertainties
the group operates on a worldwide basis and has distribution 
channels purchasing agents and buying entities in over 100 countries 
political upheaval in some of those countries or in surrounding regions 
may impact the group’s results of operations political changes in a 
country could prevent the group from receiving remittances of profit 
from a member of the group located in that country or from selling 
its products or investments in that country furthermore changes in 
government policy regarding preference for local suppliers import 
quotas taxation or other matters could adversely affect the group’s 
revenue and operating profit war economic sanctions terrorist 
activities or other conflict could also adversely impact the group 
these risks may be greater in emerging markets which account for an 
increasing portion of the group’s business
currency fluctuations
smith  nephew’s results of operations are affected by transactional 
exchange rate movements in that they are subject to exposures 
arising from revenue in a currency different from the related costs and 
expenses the group’s manufacturing cost base is situated principally 
in the us the uk china and switzerland from which finished products 
are exported to the group’s selling operations worldwide thus the 
group is exposed to fluctuations in exchange rates between the us 
dollar sterling and swiss franc and the currency of the group’s selling 
operations particularly the euro australian dollar and japanese yen 
if the us dollar sterling or swiss franc should strengthen against the 
euro australian dollar and the japanese yen the group’s trading 
margin could be adversely affected
the group manages the impact of exchange rate movements on 
revenue and cost of goods sold by a policy of transacting forward 
foreign currency commitments when firm purchase orders are placed 
in addition the group’s policy is for forecast transactions to be covered 
between 50 and 90 for up to one year
the group uses the us dollar as its reporting currency and the us 
dollar is the functional currency of smith  nephew plc the group’s 
revenues profits and earnings are also affected by exchange rate 
movements on the translation of results of operations in foreign 
subsidiaries for financial reporting purposes see ‘liquidity and capital 
resources’ on page 115
manufacturing and supply
the group’s manufacturing production is concentrated at 15 main 
facilities in austin memphis mansfield and oklahoma city in the 
us hull and warwick in the uk aarau in switzerland tuttlingen in 
germany fort saskatchewan and calgary in canada sangameshwar 
in india suzhou and beijing in china la aurora in costa rica and 
curaçao if major physical disruption took place at any of these sites 
it could adversely affect the results of operations physical loss and 
consequential loss insurance is carried to cover such risks but is 
subject to limits and deductibles and may not be sufficient to cover 
catastrophic loss management of orthopaedic inventory is complex 
particularly forecasting and production planning there is a risk that 
failures in operational execution could lead to excess inventory or 
individual product shortages
each of the business segments is reliant on certain key suppliers of raw 
materials components finished products and packaging materials or 
in some cases on a single supplier 
these suppliers must provide the materials and perform the activities 
to the group’s standard of quality requirements 
consequently the group may be forced to pay higher prices to obtain 
raw materials which it may not be able to pass on to its customers in 
the form of increased prices for its finished products in addition some 
of the raw materials used may become unavailable and there can be 
no assurance that the group will be able to obtain suitable and cost 
effective substitutes any interruption of supply caused by these or 
other factors could negatively impact smith  nephew’s revenue and 
operating profit
the group will from time to time outsource the manufacture of 
components and finished products to third parties and will periodically 
relocate the manufacture of product andor processes between 
existing facilities while these are planned activities with these 
transfers there is a risk of disruption to supply
attracting and retaining key personnel
the group’s continued development depends on its ability to hire 
and retain highlyskilled personnel with particular expertise this is 
critical particularly in general management research new product 
development and in the sales forces if smith  nephew is unable 
to retain key personnel in general management research and new 
product development or if its largest sales forces suffer disruption or 
upheaval its revenue and operating profit would be adversely affected 
additionally if the group is unable to recruit hire develop and retain  
a talented competitive workforce it may not be able to meet its 
strategic business objectives
proprietary rights and patents
due to the technological nature of medical devices and the group’s 
emphasis on serving its customers with innovative products the group 
has been subject to patent infringement claims and is subject to the 
potential for additional claims
claims asserted by third parties regarding infringement of their 
intellectual property rights if successful could require the group 
to expend time and significant resources to pay damages develop 
noninfringing products or obtain licences to the products which are 
the subject of such litigation thereby affecting the group’s growth 
and profitability smith  nephew attempts to protect its intellectual 
property and regularly opposes third party patents and trademarks 
where appropriate in those areas that might conflict with the group’s 
business interests if smith  nephew fails to protect and enforce its 
intellectual property rights successfully its competitive position could 
suffer which could harm its results of operations
product liability claims and loss of reputation
the development manufacture and sale of medical devices entail 
risk of product liability claims or recalls design and manufacturing 
defects with respect to products sold by the group or by companies 
it has acquired could damage or impair the repair of body functions 
the group may become subject to liability which could be substantial 
because of actual or alleged defects in its products in addition product 
defects could lead to the need to recall from the market existing 
products which may be costly and harmful to the group’s reputation
there can be no assurance that customers particularly in the us the 
group’s largest geographical market will not bring product liability or 
related claims that would have a material adverse effect on the group’s 
financial position or results of operations in the future or that the group 
will be able to resolve such claims within insurance limits
group information continued
smith  nephew annual report 2014 172
other information regulatory standards and compliance in the 
healthcare industry
business practices in the healthcare industry are subject to regulation 
and review by various government authorities in general the trend in 
many countries in which the group does business is towards higher 
expectations and increased enforcement activity by governmental 
authorities while the group is committed to doing business with 
integrity and welcomes the trend to higher standards in the healthcare 
industry the group and other companies in the industry have been 
subject to investigations and other enforcement activity that have 
incurred and may continue to incur significant expense see note 17  
to the group accounts under certain circumstances if the group were 
found to have violated the law its ability to sell its products to certain 
customers could be restricted
international regulation
the group operates across the world and is subject to legislation 
including antibribery and corruption and data protection in each 
country in which we operate our international operations are governed 
by the uk bribery act and the us foreign corrupt practices act fcpa 
which prohibit us or our agents from making or offering improper 
payments to foreign governments and their officials for the purpose of 
obtaining or maintaining business or product approvals enforcement  
of such legislation has increased in recent years with significant fines 
and penalties being imposed on companies and individuals our 
international operations particularly in the emerging markets expose 
the group to the risk that our employees or agents will engage in 
prohibited activities
regulatory approval
the international medical device industry is highly regulated 
regulatory requirements are a major factor in determining whether 
substances and materials can be developed into marketable products 
and the amount of time and expense that should be allotted to 
such development
national regulatory authorities administer and enforce a complex 
series of laws and regulations that govern the design development 
approval manufacture labelling marketing and sale of healthcare 
products they also review data supporting the safety and efficacy  
of such products of particular importance is the requirement in 
many countries that products be authorised or registered prior 
to manufacture marketing or sale and that such authorisation or 
registration be subsequently maintained the major regulatory 
agencies for smith  nephew’s products include the food and 
drug administration ‘fda’ in the us the medicines and healthcare 
products regulatory agency in the uk the ministry of health labour 
and welfare in japan the china food and drug administration and the 
australian therapeutic goods administration  
at any time the group is awaiting a number of regulatory approvals 
which if not received could adversely affect results of operations
the trend is towards more stringent regulation and higher standards  
of technical appraisal such controls have become increasingly 
demanding to comply with and management believes that this trend 
will continue 
regulatory requirements may also entail inspections for compliance 
with appropriate standards including those relating to quality 
management systems or good manufacturing practices regulations 
all manufacturing and other significant facilities within the group 
are subject to regular internal and external audit for compliance with 
national and group medical device regulation and policies
payment for medical devices may be governed by reimbursement tariff 
agencies in a number of countries reimbursement rates may be set in 
response to perceived economic value of the devices based on clinical 
and other data relating to cost patient outcomes and comparative 
effectiveness they may also be affected by overall government 
budgetary considerations the group believes that its emphasis on 
innovative products and services should contribute to success in 
this environment
failure to comply with these regulatory requirements could have a 
number of adverse consequences including withdrawal of approval 
to sell a product in a country temporary closure of a manufacturing 
facility fines and potential damage to company reputation
failure to make successful acquisitions
a key element of the group’s strategy for continued growth is to make 
acquisitions or alliances to complement its existing business failure to 
identify appropriate acquisition targets or failure to conduct adequate 
due diligence or to integrate them successfully would have an adverse 
impact on the group’s competitive position and profitability this 
could result from the diversion of management resources towards 
the acquisition or integration process challenges of integrating 
organisations of different geographic cultural and ethical backgrounds 
as well as the prospect of taking on unexpected or unknown liabilities 
in addition the availability of global capital may make financing less 
attainable or more expensive and could result in the group failing in its 
strategic aim of growth by acquisition or alliance
relationships with healthcare professionals
the group seeks to maintain effective and ethical working relationships 
with physicians and medical personnel who assist in the research and 
development of new products or improvements to our existing product 
range or in product training and medical education if we are unable  
to maintain these relationships our ability to meet the demands of our 
customers could be diminished and our revenue and profit could be 
materially adversely affected
reliance on sophisticated information technology
the group uses a wide variety of information systems programmes 
and technology to manage our business our systems are vulnerable 
to a cyberattack malicious intrusion loss of data privacy or any other 
significant disruption our systems have been and will continue to be 
the target of such threats we have systems in place to minimise the 
risk and disruption of these intrusions and to monitor our systems 
on an ongoing basis for current or potential threats there can be no 
assurance that these measures will prove effective in protecting smith 
 nephew from future interruptions and as a result the performance of 
the group could be materially adversely affected
other risk factors
smith  nephew is subject to a number of other risks which are 
common to most global medical technology groups and are reviewed 
as part of the group’s risk management process
factors affecting smith  nephew’s results of 
operations
government economic fiscal monetary and political policies are all 
factors that materially affect the group’s operation or investments of 
shareholders other factors include sales trends currency fluctuations 
and innovation each of these factors is discussed further in the ‘our 
marketplace’ on pages 18 to 20 ‘segment performance’ on pages 26  
to 33 and ‘taxation information for shareholders’ on pages 190 to 191
173 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information selected financial data
2014 
 million
2013 
 million
2012 
 million
2011 
 million
2010 
 million
income statement
revenue 4617 4351 4137 4270 3962 
cost of goods sold 1162 1100 1070 1140 1031
gross profit 3455 3251 3067 3130 2931 
selling general and administrative expenses 2471 2210 2050 2101 1860
research and development expenses 235 231 171 167 151
operating profit 749 810 846 862 920 
net interest payablereceivable 22 4 2 8 15
other finance costsincome 11 11 11 13 16
share of results of associates 2 1 4 – – 
profit on disposal of net assets held for sale – – 251 – – 
profit before taxation 714 802 1092 841 889 
taxation 213 246 371 266 280
attributable profit for the year 501 556 721 575 609 
earnings per ordinary share
basic 561¢ 617¢ 804¢ 645¢ 686¢
diluted 557¢ 614¢ 800¢ 642¢ 685¢
adjusted attributable profit
attributable profit for the year 501 556 721 575 609 
acquisitionrelated costs 125 31 11 – – 
restructuring and rationalisation expenses 61 58 65 40 15 
legal and other 2 – – 23 – 
amortisation of acquisition intangibles and impairments 129 88 43 36 34 
profit on disposal of net assets held for sale – – 251 – – 
taxation on excluded items 71 40 82 17 10
adjusted attributable profit 743 693 671 657 648 
adjusted basic earnings per ordinary share ‘epsa’ i 832¢ 769¢ 748¢ 737¢ 730¢
adjusted diluted earnings per ordinary share ii 826¢ 765¢ 745¢ 734¢ 729¢
i adjusted basic earnings per ordinary share is calculated by dividing adjusted attributable profit by the average number of shares
ii adjusted diluted earnings per ordinary share is calculated by dividing adjusted attributable profit by the diluted number of shares
other financial information
smith  nephew annual report 2014 174
other information 2014 
 million
2013 
 million
2012 
 million
2011 
 million
2010 
 million
group balance sheet
noncurrent assets 4866 3563 3498 2542 2579 
current assets 2440 2256 2144 2080 2154 
assets held for sale – – – 125 – 
total assets 7306 5819 5642 4747 4733 
share capital 184 184 193 191 191 
share premium 574 535 488 413 396 
capital redemption reserve 11 10 – – – 
treasury shares 315 322 735 766 778
retained earnings and other reserves 3586 3640 3938 3349 2964 
total equity 4040 4047 3884 3187 2773 
noncurrent liabilities 2104 699 828 422 1046 
current liabilities 1162 1073 930 1119 914 
liabilities directly associated with assets held for sale – – – 19 – 
total liabilities 3266 1772 1758 1560 1960 
total equity and liabilities 7306 5819 5642 4747 4733 
group cash flow statement
cash generated from operations 961 1138 1184 1135 1111 
net interest paid 33 6 4 8 17 
income taxes paid 245 265 278 285 235 
net cash inflow from operating activities 683 867 902 842 859 
capital expenditure including trade investments and net of 
disposals of property plant and equipment 375 340 265 321 307
acquisitions and disposals 1556 67 782 33 – 
proceeds on disposal of net assets held for sale – – 103 – – 
investment in associate 2 – 10 – – 
proceeds from associate loan redemption 188 – – – –
proceeds from own shares 4 3 6 7 8 
equity dividends paid 250 239 186 146 132
issue of ordinary capital and treasury shares purchased 35 183 77 11 10 
1343 41 155 360 438 
exchange adjustments 17 6 5 6 13 
opening net debtnet cash 253 288 138 492 943
closing net debt 1613 253 288 138 492
selected financial ratios
gearing closing net debt as a percentage of total equity 40 6 7 4 18
dividends per ordinary share i 2960¢ 2740¢ 2610¢ 1740¢ 1582¢ 
research and development costs to revenue 51 53 41 39 38
capital expenditure including intangibles but excluding 
goodwill to revenue 81 78 64 75 77
i the board has proposed a final dividend of 186 us cents per share which together with the first interim dividend of 110 us cents makes a total for 2014 of 296 us cents
175 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information nongaap financial information
these financial statements include financial measures that are 
not prepared in accordance with international financial reporting 
standards ‘ifrs’ these measures which include trading profit 
trading profit margin epsa and underlying growth exclude the effect 
of certain cash and noncash items that group management believes 
are not related to the underlying performance of the group these 
nonifrs financial measures are also used by management to make 
operating decisions because they facilitate internal comparisons of 
performance to historical results on both a business segment and a 
consolidated group basis
nonifrs financial measures are presented in these financial 
statements as the group’s management believe that they provide 
investors with a means of evaluating performance of the business 
segments and the consolidated group on a consistent basis similar 
to the way in which the group’s management evaluates performance 
that is not otherwise apparent on an ifrs basis given that certain 
nonrecurring infrequent or noncash items that management does 
not otherwise believe are indicative of the underlying performance of 
the consolidated group may not be excluded when preparing financial 
measures under ifrs these nonifrs measures should not be 
considered in isolation from as substitutes for or superior to financial 
measures prepared in accordance with ifrs
revenue
‘underlying growth in revenue’ is used to compare the revenue 
in a given year to the previous year on a likeforlike basis this is 
achieved by adjusting for the impact of sales of products acquired 
in material business combinations and for movements in exchange 
rates underlying growth in revenue is not presented in the accounts 
prepared in accordance with ifrs and is therefore a measure not in 
accordance with generally accepted accounting principles a ‘non
gaap’ measure
the group believes that the tabular presentation and reconciliation 
of reported revenue growth to underlying revenue growth assists 
investors in their assessment of the group’s performance in each 
business segment and for the group as a whole
underlying growth in revenue is considered by the group to be an 
important measure of performance in terms of local functional currency 
since it excludes those items considered to be outside the influence 
of local management the group’s management uses this nongaap 
measure in its internal financial reporting budgeting and planning to 
assess performance on both a business segment and a consolidated 
group basis revenue growth at constant currency is important in 
measuring business performance compared to competitors and 
compared to the growth of the market itself
the group considers that revenue from sales of products acquired 
in material business combinations results in a stepup in growth in 
revenue in the year of acquisition that cannot be wholly attributed 
to local management’s efforts with respect to the business in the 
year of acquisition depending on the timing of the acquisition 
there will usually be a further step change in the following year a 
measure of growth excluding the effects of business combinations 
also allows senior management to evaluate the performance and 
relative impact of growth from the existing business and growth from 
acquisitions the process of making business acquisitions is directed 
approved and funded from the group corporate centre in line with 
strategic objectives
the material limitation of the underlying growth in revenue measure is 
that it excludes certain factors described above which ultimately have 
a significant impact on total revenues the group compensates for this 
limitation by taking into account relative movements in exchange rates 
in its investment strategic planning and resource allocation in addition 
as the evaluation and assessment of business acquisitions is not 
within the control of local management performance of acquisitions is 
monitored centrally until the business is integrated 
the group’s management considers that the nongaap measure of 
underlying growth in revenue and the gaap measure of growth in 
revenue are complementary measures neither of which management 
uses exclusively
‘underlying growth in revenue’ reconciles to growth in revenue 
reported the most directly comparable financial measure calculated 
in accordance with ifrs by making two adjustments the ‘constant 
currency exchange effect’ and the ‘acquisitions and disposals effect’ 
described below
the ‘constant currency exchange effect’ is a measure of the increase
decrease in revenue resulting from currency movements on non
us dollar sales and is measured as the difference between 1 the 
increasedecrease in the current year revenue translated into us 
dollars at the current year average exchange rate and the prior revenue 
translated at the prior year rate and 2 the increasedecrease being 
measured by translating current and prior year revenues into us 
dollars using the prior year closing rate
the ‘acquisitions and disposals effect’ is the measure of the impact 
on revenue from newly acquired material business combinations 
and recent material business disposals this is calculated by 
comparing the current year constant currency actual revenue which 
include acquisitions and exclude disposals from the relevant date 
of completion with prior year constant currency actual revenue 
adjusted to include the results of acquisitions and exclude disposals 
for the commensurate period in the prior year these sales are 
separately tracked in the group’s internal reporting systems and are 
readily identifiable
reported revenue growth the most directly comparable financial 
measure calculated in accordance with ifrs reconciles to underlying 
growth in revenue as follows
 
2014 

2013 

2012 

reported revenue growth 6 5 3
constant currency exchange 
effect 1 1 2 
acquisitiondisposals effect 5 2 3 
underlying revenue 2 4 2 
a reconciliation of reported revenue growth to underlying revenue 
growth by business segment can be found on page 35
trading profit trading profit margin and trading 
cash flow
trading profit trading profit margin and trading cash flow are trend 
measures which present the longterm profitability of the group 
excluding the impact of specific transactions that management 
considers affect the group’s shortterm profitability and cash flows the 
group has identified the following items where material as those to 
be excluded from operating profit and cash generated from operations 
when arriving at trading profit and trading cash flow respectively 
acquisition and disposal related items arising in connection with 
business combinations including amortisation of acquisition intangible 
assets impairments and integration costs restructuring events gains 
and losses resulting from legal disputes and significant uninsured 
losses in addition to these items gains or losses that materially impact 
the group’s profitability or cash flows on a shortterm or oneoff basis 
are excluded from operating profit and cash generated from operations 
when arriving at trading profit and trading cash flow respectively
other financial information continued
smith  nephew annual report 2014 176
other information underlying growth in trading profit and trading profit margin trading profit expressed as a percentage of revenue and trading cash flow are 
measures which present the growth trend in the longterm profitability of the group 
underlying growth in trading profit is used to compare the periodonperiod growth in trading profit on a likeforlike basis this is achieved 
by adjusting for the impact of material business combinations and disposals and for movements in exchange rates in the same manner as 
underlying revenue growth is determined as described above 
adjusted earnings per ordinary share ‘epsa’
epsa is a trend measure which presents the longterm profitability of the group excluding the posttax impact of specific transactions that 
management considers affects the group’s shortterm profitability the group presents this measure to assist investors in their understanding of 
trends adjusted attributable profit is the numerator used for this measure and is determined by adjusting attributable profit for the items that are 
excluded from operating profit when arriving at trading profit and items that are recognised below operating profit that affect the group’s short
term profitability the most directly comparable financial measure calculated in accordance with ifrs is earnings per ordinary share ‘eps’
for the year ended 31 december 2014
trading 
results 
2014 
 million
acquisition 
related 
costs  
 million
restructuring 
and 
rationalisation 
costs  
 million
amortisation 
of acquisition 
intangibles 
 million
legal 
and 
other 
 million
capital 
expenditure 
 million
reported 
results 
2014 
 million
revenue 4617 – – – – – 4617 
cost of goods sold 1127 23 12 – – – 1162
gross profit 3490 23 12 – – – 3455 
selling general and administration expenses 2200 95 49 129 2 – 2471
research and development expenses 235 – – – – – 235
tradingoperating profit 1055 118 61 129 2 – 749 
tradingoperating profit margin 229 – 162
interest receivable 13 – – – – – 13 
interest payable 28 7 – – – – 35
other finance costs 11 – – – – – 11
share of loss from associates 2 – – – – – 2
profit before taxation 1027 125 61 129 2 – 714 
taxation 284 30 15 35 9 – 213
adjusted attributableattributable profit 743 95 46 94 7 – 501 
epsaeps 832¢ 106¢ 52¢ 105¢ 08¢ – 561¢
weighted average number of shares m 893  893 
diluted epsaeps 826¢ 105¢ 51¢ 105¢ 08¢ – 557¢
diluted weighted average number of shares m 899 899
trading cash flowcash generated from 
operating activities 781 112 60 – 23 375 961 
trading profit to cash conversion ratio  74
acquisition related costs for the year ended 31 december 2014 these costs primarily relate to transaction and integration costs associated 
with the arthrocare acquisition with a small portion of costs relating to the continued integration of healthpoint and the recent acquisitions in the 
emerging  international markets in addition trading results eliminate the shortterm increase in cost of goods sold from recognising acquired 
inventory at fair value rather than standard cost for the year ended 31 december 2013 these costs primarily relate to the integration of the 
healthpoint business 
restructuring and rationalisation costs for the year ended 31 december 2014 these costs relate to the group optimisation programme that 
was announced in may 2014 and the structural and efficiency programme announced in august 2011 
amortisation of acquisition intangibles this charge relates to the amortisation of intangible assets acquired in material business combinations
legal and other for the year ended 31 december 2014 this net credit relates to a past service gain and a settlement credit on the closure of us 
pension plan of 46m and a gain on disposal of a uk manufacturing facility of 9m offset by a charge of 25m relating to the likely costs of a 
distribution hold on renasys in the us pending new regulatory approvals and a charge of 28m relating to the hp802 programme which was 
stopped in the fourth quarter
177 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information for the year ended 31 december 2013
trading 
results 
2013 
 million
acquisition 
related 
costs  
 million
restructuring 
and 
rationalisation 
costs  
 million
amortisation 
of acquisition 
intangibles 
 million
legal 
and 
other 
 million
capital 
expenditure 
 million
reported 
results 
2013 
 million
revenue 4351 – – – – – 4351 
cost of goods sold 1083 5 12 – – – 1100
gross profit 3268 5 12 – – – 3251 
selling general and administration expenses 2050 26 46 88 – – 2210
research and development expenses 231 – – – – – 231 
tradingoperating profit 987 31 58 88 – – 810 
tradingoperating profit margin 227 – 186
interest receivable 14 – – – – – 14 
interest payable 10 – – – – – 10
other finance costs 11 – – – – – 11
share of loss from associates 1 – – – – – 1
profit before taxation 979 31 58 88 – – 802 
taxation 286 6 11 23 – – 246
adjusted attributableattributable profit 693 25 47 65 – – 556 
epsaeps 769¢ 28¢ 52¢ 72¢ – – 617¢
weighted average number of shares m 901 901 
diluted epsaeps 765¢ 28¢ 52¢ 71¢ – – 614¢
diluted weighted average number of shares m 906 906
trading cash flowcash generated from 
operating activities 877 25 54 – – 340 1138 
trading profit to cash conversion ratio  89
acquisition related costs for the year ended 31 december 2013 these costs primarily relate to the integration of the healthpoint business 
restructuring and rationalisation costs for the year ended 31 december 2013 these costs primarily relate to the structural and efficiency 
programme announced in august 2011 
amortisation of acquisition intangibles this charge relates to the amortisation of intangible assets acquired in material business combinations
other financial information continued
smith  nephew annual report 2014 178
other information for the year ended 31 december 2012
trading 
results 
2012 
 million
acquisition 
related 
costs  
 million
restructuring 
and 
rationalisation 
costs  
 million
amortisation 
of acquisition 
intangibles 
 million
legal 
and 
other 
 million
capital 
expenditure 
 million
reported 
results 
2012 
 million
revenue 4137 – – – – – 4137
cost of goods sold 1067 – 3 – – – 1070
gross profit 3070 – 3 – – – 3067
selling general and administration expenses 1934 11 62 43 – – 2050
research and development expenses 171 – – – – – 171
tradingoperating profit 965 11 65 43 – – 846
tradingoperating profit margin
interest receivable 11 – – – – – 11
interest payable 9 – – – – – 9
other finance costs 11 – – – – – 11
share of loss from associates 4 – – – – – 4
profit on disposal of net asset held for sale – – – – 251 – 251
profit before taxation 960 11 65 43 251 – 1092
taxation 289 1 5 7 95 – 371
adjusted attributableattributable profit 671 10 60 36 156 – 721
epsaeps 748¢ 11 67 40 174 – 804¢
weighted average number of shares m 897 897
diluted epsaeps 745¢ 11 67 40 173 – 800¢
diluted weighted average number of shares m 901 901
trading cash flowcash generated from 
operating activities 999 3 55 – 22 265 1184
trading profit to cash conversion ratio  104
acquisition related costs for the year ended 31 december 2012 these costs primarily relate to professional and advisor fees in connection with 
the acquisition of healthpoint biotherapeutics which was completed on 21 december 2012
restructuring and rationalisation costs for the year ended 31 december 2012 these costs relate mainly to people costs and contract 
termination costs associated with the structural and process changes announced in august 2011 
amortisation of acquisition intangibles this charge relates to the amortisation of intangible assets acquired in material 
business combinations
legal and other this credit relates to the profit on disposal of the clinical therapies business
transactional and translational exchange
the group’s principal markets outside the us are in order of 
significance continental europe uk australia and japan revenues 
in these markets fluctuate when translated into us dollars on 
consolidation during the year the average rates of exchange against 
the us dollar used to translate revenues and profits arising in these 
markets changed compared to the previous year as follows the euro 
remained flat at 133 0 sterling strengthened from 156 to 
165 6 the swiss franc strengthened from 108 to 109 1 
the australian dollar weakened from 096 to 090 6 and the 
japanese yen weakened from ¥976 to ¥1058 8
the group’s principal manufacturing locations are in the us advanced 
surgical devices switzerland advanced surgical devices uk advanced 
wound management and advanced surgical devices and china advanced 
surgical devices and advanced wound management the majority of the 
group’s selling and distribution subsidiaries around the world purchase 
finished products from these locations as a result of currency movements 
compared with the previous year sales from the us became relatively more 
profitable to all of these countries the group’s policy of purchasing forward 
a proportion of its currency requirements and the existence of an inventory 
pipeline reduce the shortterm impact of currency movements 
contractual obligations
contractual obligations at 31 december 2014 were as follows
payments due by period
total 
 million
less than 
1 year 
 million
1–3 years 
 million
3–5 years 
 million
more than 
5 years 
 million
debt obligations 568 37 400 131 –
finance lease 
obligations 12 2 4 6 –
operating lease 
obligations 136 49 56 23 8
retirement benefit 
obligation 74 74
– – –
purchase 
obligations 40 32 8 – –
capital 
expenditure 34 34 – – –
other 52 29 23 – –
916 257 491 160 8
179 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information other contractual obligations represent 19m of foreign exchange 
contracts and 33m of acquisition consideration provisions that do not 
relate to contractual obligations are not included in the above table
the agreed contributions for 2015 in respect of the group’s defined 
benefits plans are 46m for the uk including 37m of supplementary 
payments 22m for the us plan and 6m for other funded defined 
benefit plans the table above does not include amounts payable in 
respect of 2016 and beyond as these are subject to future agreement 
and amounts cannot be reasonably estimated
there are a number of agreements that take effect alter or terminate 
upon a change in control of the company or the group following a 
takeover such as bank loan agreements and company share plans 
none of these are deemed to be significant in terms of their potential 
impact on the business of the group as a whole in addition there are 
service contracts between the company and its executive directors 
which provide for the automatic payment of a bonus following loss of 
office or employment occurring because of a successful takeover bid 
further details are set out on page 100
the company does not have contracts or other arrangements which 
individually are essential to the business
2013 financial highlights
revenue
group revenue increased by 214m 5 on a reported basis from 
4137m in 2012 to 4351m in 2013 the underlying increase is 4 
after adjusting for the net impact of 2 on the healthpoint acquisition 
and clinical therapies disposal and 1 attributable to the unfavourable 
impact of currency movements
cost of goods sold
cost of goods sold increased by 30m 3 on a reported basis from 
1070m in 2012 to 1100m in 2013 the underlying movement is 2 
after adjusting for the net impact of 2 on the healthpoint acquisition 
and clinical therapies disposal and 1 attributable to the favourable 
impact of currency movements the movement in underlying 
costs of goods sold of 2 is largely attributable to the increase in 
underlying trading
during 2013 12m of restructuring and rationalisation expenses  
2012 – 3m and 5m of acquisition related costs 2012 – nil were 
charged to cost of goods sold
selling general and administration expenses
selling general and administrative expenses increased by 160m 8 
on a reported basis from 2050m in 2012 to 2210m in 2013 the 
underlying movement is 6 after adjusting for the net impact of 3 
on the healthpoint acquisition and clinical therapies disposal and 1 
attributable to the favourable impact of currency movements
the underlying increase of 6 is due to the continuing investment in 
emerging  international markets promotion of new products in asd 
and awm and the underlying increase in trading
in 2013 administrative expenses included 64m of amortisation 
of other intangible assets 2012 – 51m 46m of restructuring and 
rationalisation expenses 2012 – 62m an amount of 88m relating 
to amortisation of acquisition intangibles 2012 – 43m and 26m of 
acquisition related costs 2012 – 11m
research and development expenses
research and development expenditure as a percentage of revenue 
increased by 12 to 53 in 2013 2012 – 41 actual expenditure 
was 231m in 2013 compared to 171m in 2012 the group continues 
to invest in innovative technologies and products to differentiate it 
from competitors 
operating profit
operating profit decreased by 36m to 810m from 846m in 2012 
this comprised a decrease of 12m in advanced surgical devices and 
a decrease of 24m in advanced wound management
the movement in advanced surgical devices is attributable to the 
continuing pressure on margins and its investment in the emerging  
international markets advanced wound management has continued 
to invest in new products and new geographic markets throughout 
the year
net interest receivablepayable
net interest receivable increased by 2m from net 2m receivable 
in 2012 to a net receivable of 4m in 2013 this increase is principally 
a consequence of the interest receivable on the bioventus llc 
‘bioventus’ loan note issued following the disposal of the clinical 
therapies business which has been in place for a full year in 2013 
compared to eight months in 2012 this loan note was repaid in full 
in 2014
other finance cost
other finance costs in 2013 remained at 11m and principally relate to 
costs associated with the group’s retirement benefit schemes
taxation
the taxation charge decreased by 125m to 246m from 371m in 
2012 the rate of tax was 305 compared with 337 in 2012
after adjusting for specific transactions that management considers 
affect the group’s shortterm profitability profit on disposal of 
the clinical therapies business restructuring and rationalisation 
expenses amortisation of acquisition intangibles and acquisition 
related costs the tax rate was 292 2012 – 299
group balance sheet
the following table sets out certain balance sheet data as at 
31 december of the years indicated
2013 
 million
2012 
 million
noncurrent assets 3563 3498
current assets 2256 2144
total assets 5819 5642
noncurrent liabilities 699 828
current liabilities 1073 930
total liabilities 1772 1758
total equity 4047 3884
total equity and liabilities 5819 5642
other financial information continued
smith  nephew annual report 2014 180
other information noncurrent assets
noncurrent assets increased by 65m to 3563m in 2013 from 
3498m in 2012 this is principally attributable to the following
 – property plant and equipment increased by 23m from 793m in 
2012 to 816m in 2013 depreciation of 209m was charged during 
2013 and assets with a net book value of 12m were disposed 
of these movements were offset by 242m of additions relating 
primarily to instruments and other plant  machinery and 5m of 
additions arising on acquisitions in turkey brazil and india the 
balance relates to unfavourable currency movements totalling 3m
 – goodwill increased by 70m from 1186m in 2012 to 1256m in 
2013 of this movement 37m arose on acquisitions in turkey brazil 
and india an additional 16m arose on finalisation of the of the 
healthpoint opening balance sheet the remaining balance relates to 
favourable currency movements totalling 17m
 – intangible assets decreased by 10m from 1064m in 2012 to 
1054m in 2013 intangible assets totalling 64m arose on the 
acquisition in turkey brazil and india there was a reduction of 
11m on finalisation of the healthpoint opening balance sheet 
amortisation of 152m was charged during the year and assets with 
a net book value of 11m were disposed of a total of 98m relates 
to the cost of intellectual property distribution rights and software 
acquired the balance relates to favourable currency movements 
totalling 2m
 – investment in associates including a loan to an associate of 178m 
in 2013 up from 167m in 2012 has increased from 283m in 2012 to 
285m in 2013 this movement relates to the interest of 11m arising 
on the bioventus loan note which was largely offset from the disposal 
of the group’s 49 interest in the austrian entities plus orthopedics 
gmbh and intraplant gmbh and its 20 interest in the german 
entity intercus gmbh
 – deferred tax assets decreased by 19m in the year from 164m in 
2012 to 145m in 2013
current assets
current assets increased by 112m to 2256m from 2144m in 2012 
the movement relates to the following
 – inventories rose by 105m to 1006m in 2013 from 901m in 2012 
this movement is principally attributable to an increase of 48m in 
the us due to inventory build prior to the launch of journey ii bcs 
and an increase of 17m due to inventory build in our hull factory 
prior to the transfer of part of our wound production to china a 
further increase of 12m arose on the acquisitions in turkey brazil 
and india the movement also includes 6m of unfavourable 
currency movement
 – the level of trade and other receivables increased by 48m to 
1113m in 2013 from 1065m in 2012 the movement primarily 
relates to the increase in underlying revenues and includes 9m of 
unfavourable currency movements
 – cash at bank has fallen by 41m to 137m from 178m in 2012
noncurrent liabilities
noncurrent liabilities decreased by 129m from 828m in 2012 to 
699m in 2013 this movement relates to the following items
 – longterm borrowings have decreased from 430m in 2012 to 
347m in 2013
 – the retirement benefit obligation decreased by 36m to 230m 
in 2013 from 266m in 2012 this was largely due to the group’s 
additional pension contributions together with net actuarial gains for 
the year
 – deferred tax liabilities decreased by 11m in the year from 61m in 
2012 to 50m in 2013
current liabilities
current liabilities increased by 143m from 930m in 2012 to 1073m 
in 2013 this movement is attributable to
 – bank overdrafts and current borrowings have increased by 6m from 
38m in 2012 to 44m in 2013
 – trade and other payables have increased by 129m to 785m in 
2013 from 656m in 2012 this increase includes 50m largely 
driven from strong sales performance in the us in quarter four and 
a 23m increase in europe associated with promotional activities 
in advanced surgical devices a total of 19m of trade and other 
payables arose on the acquisitions in turkey brazil and india and an 
amount of 5m is attributable to favourable currency movements
 – current tax payable is 184m at the end of 2013 compared to 177m 
in 2012
total equity
total equity increased by 163m from 3884m in 2012 to 4047m in 
2013 the principal movements were
total equity 
 million
1 january 2013 3884
attributable profit 556
currency translation gains 6
hedging reserves 5
actuarial gains on retirement benefit obligations 12
dividends paid during the year 239
purchase of own shares 231
taxation benefits on other comprehensive income and 
equity items 16
net sharebased transactions 82
31 december 2013 4047
181 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 2013 financial performance by business segment
revenue by market
the underlying increase in each division’s revenues by market reconciles to reported growth the most directly comparable financial measure 
calculated in accordance with ifrs as follows
2013
 million
2012
 million
reported
growth in
revenue

constant
currency
exchange
effect

acquisition
disposal
effect

underlying
growth in
revenue

advanced surgical devices
us 1391 1449 4 – 5 1
other established markets 1204 1298 7 2 2 3
established markets 2595 2747 6 1 4 1
emerging  international markets 420 361 16 2 – 18
advanced surgical devices 3015 3108 3 1 3 1
advanced wound management
us 471 202 133 – 111 22
other established markets 722 705 3 1 1 3
established markets 1193 907 32 1 23 10
emerging  international markets 143 122 17 3 – 20
advanced wound management 1336 1029 30 1 20 11
advanced surgical devices
revenue
asd revenue decreased by 93m 3 on a reported basis from 
3108m in 2012 to 3015m in 2013 the underlying increase of 1 is 
after adjusting for a net 3 adverse impact from the disposal of the 
clinical therapies business in 2012 and the acquisitions completed in 
quarter four 2013 and a 1 unfavourable foreign currency translation
in the us revenue decreased by 58m to 1391m in 2013 from 
1449m in 2012 4 on a reported basis the underlying increase of 
1 is after adjusting 5 for the adverse impact of the clinical therapies 
disposal in 2012 in other established markets revenue was 1204m 
in 2013 a decrease of 94m from 1298m in 2012 7 on a reported 
basis the underlying decrease was 3 after adjusting for the adverse 
impact of 2 on the clinical therapies disposal in 2012 and 2 from 
unfavourable foreign currency translation our emerging  international 
markets revenue increased by 59m to 420m in 2013 from 361m in 
2012 16 increase on a reported basis the underlying increase was 
18 after adjusting 2 for unfavourable foreign currency translation
in the global knee implant franchise revenue decreased by 9m from 
874m in 2012 to 865m in 2013 1 on a reported basis representing 
flat underlying revenue performance after 1 of unfavourable currency 
translation growth has been impacted by exposure to a weakening 
european market with conditions continuing to deteriorate in germany 
our largest european market and our position in the product life cycle 
versus our peers growth improved in the second half of the year 
driven by sales of the journey ii bcs knee system and benefits from 
the verilast bearing surface tv advertising campaign in the us
global revenue from the hip implant franchise decreased by 13m 
from 666m in 2012 to 653m in 2013 2 on a reported basis which 
represented an underlying revenue decline of 1 after 1 unfavourable 
foreign currency translation continuing metalonmetal headwinds 
have contributed to this decline
trauma  extremities revenue increased by 12m from 474m in 2012 
to 486m in 2013 3 on a reported basis this represents underlying 
revenue growth of 4 after 1 of unfavourable foreign currency 
translation during 2013benefits were seen from the additional 
extremities us sales representatives recruited earlier in the year
sports medicine joint repair revenue increased by 22m from 
474m in 2012 to 496m in 2013 5 on reported basis representing 
underlying revenue growth of 7 and 2 of unfavourable foreign 
currency translation this reflects a strong contribution across all key 
joint types and geographies
global revenue from arthroscopic enabling technologies decreased by 
17m from 458m in 2012 to 441m in 2013 4 on a reported basis 
this decrease represents an underlying revenue decline of 2 and 2 
of unfavourable foreign currency translation
the revenue in the other asd franchise fell by 88m from 162m in 
2012 to 74m in 2013 following the disposal of the clinical therapies 
business in 2012 excluding the impact of this disposal underlying 
revenue in the other asd franchise which includes gynaecology  
grew by 14 with the remaining clinical therapies geographies 
contributing 9m
other financial information continued
smith  nephew annual report 2014 182
other information trading and operating profit
operating profit the most directly comparable financial measure in 
accordance with ifrs reconciles to trading profit as follows
2013 
 million
2012 
 million
operating profit 620 632
acquisition related costs 7 –
restructuring and rationalisation costs 44 57
amortisation of acquisition intangibles 
and impairments 41 39
trading profit 712 728
trading profit margin increased from 234 to 236 trading profit 
decreased by 16m to 712m from 728m in 2012 this decrease 
reflects the impact of the ct disposal in may 2012 the impact of the us 
medical device excise tax and the cost of planned investments in the 
knee implants and trauma franchises and emerging  international 
markets offset by benefits from our structural efficiency programme
operating profit decreased by 12m from 632m in 2012 to 620m in 
2013 this comprises the decrease in trading profit of 16m discussed 
above an increase in acquisition related costs of 7m an increase 
in amortisation of acquisition intangibles of 2m partially offset by a 
decrease in restructuring and rationalisation costs of 13m
advanced wound management
revenue
awm revenue increased by 307m 30 on a reported basis from 
1029m in 2012 to 1336m in 2013 the underlying increase of 11 is 
after adjusting for an increase of 20 for the acquisitions completed in 
the year and a 1 unfavourable foreign currency translation
in the us revenue increased by 269m to 471m in 2013 from 202m 
in 2012 133 on a reported basis the underlying increase of 22 is 
after adjusting 111 for the impact of acquisitions in other established 
markets revenue was 722m in 2013 an increase of 17m from 705m 
in 2012 3 on a reported basis the underlying revenue increase was 
also 3 with the 1 impact of acquisitions offset by 1 of unfavourable 
foreign currency translation our emerging  international markets 
revenue increased by 21m in 2012 17 on a reported basis the 
underlying increase was 20 after adjusting 3 for unfavourable 
foreign currency translation
advanced wound care revenue decreased by 6m 1 on a reported 
basis from 849m in 2012 to 843m in 2013 the underlying growth of 
1 is after adjusting for foreign currency translation conditions across 
many european markets remain challenging but the introduction of the 
allevyn life range continues to make good progress across europe 
following product introductions and investment in marketing
advance wound devices revenue increased from 180m in 2012 
to 213m in 2013 a reported increase of 33m and 18 the 
underlying growth of 20 is after adjusting for unfavourable foreign 
currency translations of 2 this growth was impacted by continued 
gain in market share in npwt and our recent expansion into the 
emerging markets
advanced wound bioactives revenue of 280m in 2013 2012 – nil 
relates to healthpoint acquired in december 2012 the underlying 
increase adjusted to include the results of healthpoint for the 
commensurate period in 2012 was 47
trading and operating profit
operating profit the most directly comparable financial measure in 
accordance with ifrs reconciles to trading profit as follows
2013 
 million
2012 
 million
operating profit 190 214
acquisition related costs 24 11
restructuring and rationalisation costs 14 8
amortisation of acquisition intangibles 
and impairments 47 4
trading profit 275 237
trading profit margin decreased from 231 to 206 trading profit 
increased by 38m to 275m from 237m in 2012 the increase 
in the year is primarily attributable to the full year benefit of the 
healthpoint acquisition and growth in the emerging  international 
markets partially offset by additional investment in rd and sales 
and marketing the decrease in trading margin reflects these same 
investments combined with price and mix changes at a gross 
margin level
operating profit decreased by 24m from 214m in 2012 to 190m 
in 2013 this comprises of the increase in trading profit of 38m 
discussed above offset by an increase of 43m in amortisation of 
acquisition intangibles and an increase in acquisition related costs 
of 13m both due to the healthpoint acquisition which completed in 
december 2012 and an increase in restructuring and rationalisation 
costs of 6m
183 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information financial calendar
annual general meeting 9 april 2015
first quarter trading report 30 april 2015
payment of 2014 final dividend 6 may 2015
half year results announced 30 july 2015 i
third quarter trading report 29 october 2015
payment of 2015 interim dividend november 2015
full year results announced february 2016 i
annual report available februarymarch 2016
annual general meeting april 2016
i dividend declaration dates
annual general meeting
the company’s annual general meeting agm will be held on 
9 april 2015 at 2pm at no 11 cavendish square london w1g 0an 
registered shareholders have been sent either a notice of annual 
general meeting or notification of availability of the notice of annual 
general meeting
corporate headquarters and registered office
the corporate headquarters is in the uk and the registered office 
address is smith  nephew plc 15 adam street london w2n 6la 
uk registered in england and wales no 324357 tel 44 020 7401 
7646 website wwwsmithnephewcom
ordinary shareholders
registrar
all general enquiries concerning shareholdings dividends changes to 
shareholders’ personal details and the agm should be addressed to
equiniti aspect house spencer road lancing west sussex 
bn99 6da
tel 0871 384 2081  
tel 44 0 121 415 7072 from outside the uk 
website wwwshareviewcouk
  calls to this number are charged at 8p per minute plus network extras lines are open 
from 830am to 530pm monday to friday excluding uk public holidays 
shareholder facilities
shareview
equiniti’s online enquiry and portfolio management service for 
shareholders to view information about your shareholdings 
online register at wwwshareviewcouk once registered 
for shareview you will also be able to elect to receive future 
shareholder communications via the company’s website  
wwwsmithnephewcom update your address details or dividend 
payment instructions and register your proxy instructions online
ecommunications
we encourage you to elect to receive communications via email as this 
has significant environmental and cost benefits you may register for 
this service through equiniti at wwwshareviewcouk you will receive a 
confirmation letter from equiniti at your registered address containing 
an activation code for future use
payment of dividends direct to your bank or building 
society account
if you who wish to avoid the risk of your dividend awards getting lost or 
mislaid you can arrange to have your cash dividends paid directly to a 
bank or building society account this facility is available to uk resident 
shareholders who receive sterling dividends if you do not live in the uk 
you may be able to register for the overseas payment service further 
information is available at wwwshareviewcouk or by contacting 
equiniti uk and overseas helpline numbers as above
dividend reinvestment plan drip
the company offers shareholders except those in north america 
the opportunity to participate in a drip  this enables you to reinvest 
your cash dividends in further ordinary shares of smith  nephew plc 
these are purchased in the market at competitive dealing costs for 
further details plus an application form to reinvest future dividends 
contact equiniti
duplicate accounts
if you have more than one account due to inconsistency in account 
details you may avoid duplicate mailings by contacting equiniti and 
requesting an amalgamation of your share accounts 
keep your personal details up to date
please remember to tell equiniti if you move house or change bank 
details or there is any other change in your account information 
you can update your information online via the shareview portfolio 
if you are a smith  nephew shareview member if you do not have 
a portfolio you will need to write to equiniti or complete a change of 
address form which can be downloaded from shareview if you hold 
2500 shares or fewer you can also change your address or update 
your bank details quickly and easily over the phone using the contact 
details provided 
individual savings account isa
shareholders who are uk resident may hold smith  nephew plc 
shares in an individual savings account isa which is administered 
by the company’s registrar for information about this service please 
contact equiniti
shareholder communications
we make quarterly financial announcements which are made available 
through stock exchange announcements and on the group’s website 
wwwsmithnephewcom copies of recent annual reports press 
releases institutional presentations and audio webcasts are also 
available on the website
we send paper copies of the notice of annual general meeting and 
annual report only to those shareholders and ads holders who have 
elected to receive shareholder documentation by post electronic 
copies of the annual report and notice of annual general meeting 
are available on the group’s website at wwwsmithnephewcom both 
ordinary shareholders and ads holders can request paper copies of 
the annual report which the company provides free of charge the 
company will continue to send to ordinary shareholders by post the 
form of proxy notifying them of the availability of the annual report 
and notice of annual general meeting on the group’s website if 
you elect to receive the annual report and notice of annual general 
meeting electronically you are informed by email of the documents’ 
availability on the group’s website ads holders receive the form of 
proxy by post but will not receive a paper copy of the notice of annual 
general meeting
information for shareholders
smith  nephew annual report 2014 184
other information investor communications
the company maintains regular dialogue with individual institutional 
shareholders together with results presentations to ensure that all 
members of the board develop an understanding of the views of major 
investors the executive directors review significant issues raised by 
investors with the board nonexecutive directors are sent copies of 
analysts’ and brokers’ briefings there is an opportunity for individual 
shareholders to question the directors at the annual general meeting 
and the company regularly responds to letters from shareholders on a 
range of issues
uk capital gains tax
for the purposes of uk capital gains tax the price of the company’s 
ordinary shares on 31 march 1982 was 3504p
smith  nephew share price
the company’s ordinary shares are quoted on the london stock 
exchange under the symbol sn the company’s share price is 
available on the smith  nephew website wwwsmithnephewcom 
and at wwwlondonstockexchangecom where the live financial data 
is updated with a 15minute delay
sharegift
if you hold a small number of shares which would cost more to sell 
than they are worth you may wish to consider donating them to 
the charity sharegift registered charity 1052686 which specialises 
in accepting such shares as donations there are no implications 
for capital gains tax purposes no gain or loss and it may also be 
possible to obtain income tax relief the relevant stock transfer form 
may be obtained from equiniti at the address given on page 184
further information about sharegift is available at wwwsharegiftorg or 
by contacting sharegift at
sharegift po box 72253 london sw1p 9lq
tel 44 0 20 7930 3737
unauthorised brokers boiler room scams
you are advised to be very wary of any unsolicited advice offers to 
buy shares at a discount or offers of free company reports these are 
typically from overseasbased ‘brokers’ who target uk shareholders 
offering to sell them what often turn out to be worthless or highrisk 
shares in us or uk investments these operations are commonly 
known as ‘boiler rooms’
if you deal with an unauthorised firm you will not be eligible to receive 
payment under the financial services compensation scheme if things 
go wrong if you receive any unsolicited investment advice obtain the 
correct name of the person and organisation and check that they are 
properly authorised by the fca by visiting wwwfcaorgukregister 
if you think you have been approached by an unauthorised firm 
you should contact the fca consumer helpline on 0800 111 6768 
or email consumerqueriesfcaorguk 
more detailed information can be found on the fca website at 
wwwfcaorgukconsumersprotectyourselfunauthorisedfirms
social media 
smith  nephew has a presence across a range of social media 
channels including twitter facebook and linkedin which are linked 
below information provided by smith  nephew through social media 
channels is not incorporated by reference herein and does not form 
part of our annual report on form 20f
 httpstwittercomsmithnephewplc 
 wwwfacebookcomsmithnephewplc 
 httpwwwlinkedincomcompanysmithnephew
american depositary shares adss and american 
depositary receipts adrs
in the usa the company’s ordinary shares are traded in the form 
of adss evidenced by adrs on the new york stock exchange under 
the symbol snn each american depositary share represents two 
ordinary shares deutsche bank is the authorised depositary bank for 
the company’s adr programme
ads enquiries
all enquiries regarding ads holder accounts and payment of dividends 
should be addressed to
deutsche bank shareholder services 
american stock transfer and trust company 
operations centre 6210 15th avenue 
brooklyn new york
tel 1 800 9375449 toll free from us 
tel 1 718 9218124 direct dial 
email dbamstockcom 
website wwwadrdbcom
the company provides deutsche bank as depositary with copies of 
annual reports containing consolidated financial statements and the 
opinion expressed thereon by its independent auditor such financial 
statements are prepared under ifrs deutsche bank will send these 
reports to recorded ads holders who have elected to receive paper 
copies the company also provides to deutsche bank all notices of 
shareholders’ meetings and other reports and communications that are 
made generally available to shareholders of the company deutsche 
bank makes such notices reports and communications available for 
inspection by recorded holders of adss and sends voting instruction 
forms by post to all recorded holders of adss
185 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information smith  nephew ads price
the company’s ads price can be obtained from the official new york stock exchange website at wwwnysecom the smith  nephew website 
wwwsmithnephewcom and is quoted daily in the wall street journal where the live financial data is updated with a 15minute delay 
ads payment information
the company hereby discloses ads payment information for the year ended 31 december 2014 in accordance with the securities and exchange 
commission rules 12d3 and 12d4 relating to form 20f filings by foreign private issuers the depositary collects its fees for delivery and 
surrender of adss directly from investors depositing shares or surrendering adss for the purpose of withdrawal or from intermediaries acting 
for them the depositary collects fees for making distributions to investors including payment of dividends by the company by deducting those 
fees from the amounts distributed or by selling a portion of distributable property to pay the fees the depositary may collect its annual fee 
for depository services by deductions from cash distributions or by directly billing investors or by charging the bookentry system accounts of 
participants acting for them the depositary may generally refuse to provide feeattracting services until its fee for those services are paid
persons depositing or withdrawing shares must pay for
500 or less per 100 adss or portion of 100 adss
005 or less per ads
issuance of adss including issuances resulting from a distribution of 
shares or rights or other property
cancellation of adss for the purpose of withdrawal including if the 
deposit agreement terminates
any cash distribution to ads registered holders including payment of 
dividend
005 or less per ads per calendar year
registration or transfer fees
depositary services
transfer and registration of shares on our share register to or from 
the name of the depositary or its agent when shares are deposited or 
withdrawn
taxes and other governmental charges the depositary or the custodian 
have to pay on any ads or share underlying an ads for example stock 
transfer taxes stamp duty or withholding taxes
as necessary
any charges incurred by the depositary or its agents for servicing the 
deposited securities
as necessary
during 2014 a fee of two us cents per ads was paid on the 2013 final dividend by the bank of new york mellon which totaled 11156354
on 1 october 2014 smith  nephew changed adr bank to deutsche bank trust company americas a fee of one us cent per ads was deducted 
from the 2014 interim dividend paid in november which totaled 17853700 therefore for the period 1 january 2014 to 23 february 2015 the total 
reimbursed by the bank of new york mellon and deutsche bank trust company americas was 29010054
on 14 october 2014 the ratio for ordinary shares per ads changed from five ordinary shares per ads to two ordinary shares per ads 
information for shareholders continued
smith  nephew annual report 2014 186
other information dividend history
smith  nephew has paid dividends on its ordinary shares in every year since 1937 following the capital restructuring and dividend reduction in 
2000 the group adopted a policy of increasing its dividend cover the ratio of epsa as set out in the ‘selected financial data’ to ordinary dividends 
declared for the year this was intended to increase the financing capability of the group for acquisitions and other investments from 2000 to 
2004 the dividend increased in line with inflation and in 2004 dividend cover stood at 41 times having achieved this level of dividend cover the 
board changed its policy from that of increasing dividends in line with inflation to that of increasing dividends for 2005 and after by 10 following 
the redenomination of the company’s share capital into us dollars the board reaffirmed its policy of increasing the dividend by 10 a year in us 
dollar terms
on 2 august 2012 the board announced its intention to pursue a progressive dividend policy with the aim of increasing the us dollar value of 
ordinary dividends over time broadly based on the group’s underlying growth in earnings while taking into account capital requirements and 
cash flows 
at the time of the full year results the board reviews the appropriate level of total annual dividend each year the board intends that the interim 
dividend will be set by a formula and will be equivalent to 40 of the total dividend for the previous year dividends will continue to be declared in 
us dollars with an equivalent amount in sterling payable to those shareholders whose registered address is in the uk or who have validly elected 
to receive sterling dividends
an interim dividend in respect of each fiscal year is normally declared in august and paid in november a final dividend will be recommended by 
the board of directors and paid subject to approval by shareholders at the company’s annual general meeting
future dividends of smith  nephew will be dependent upon future earnings the future financial condition of the group the board’s dividend 
policy and the additional factors that might affect the business of the group set out in ‘special note regarding forwardlooking statements’ and 
‘risk factors’
dividends per share
the table below sets out the dividends per ordinary share in the last five years
years ended 31 december
2014 2013 2012 2011 2010
pence per share
interim 7578 7211 6811 4639 4233 
final i 13377 11233 11778 7444 6639 
total 20995 18444 18589 12083 10872 
us cents per share
interim 12222 11556 11000 7333 6667 
final 20667 18889 18000 12000 10911 
total 32889 30445 29000 19333 17578 
i translated at the bank of england rate on 23 february 2015
dividends above include the associated uk tax credit of 10 but exclude the deduction of withholding taxes all dividends up to the second 
interim dividend for 2005 were declared in pence per ordinary share and translated into us cents per ordinary share at the noon buying rate on 
the payment date since the second interim dividend for 2005 all dividends have been declared in us cents per ordinary share
the 2014 final dividend will be payable on 6 may 2015 subject to shareholder approval
in respect of the proposed final dividend for the year ended 31 december 2014 of 186 us cents per ordinary share the record date will be 17 april 
2015 and the payment date will be 6 may 2015 the sterling equivalent per ordinary share will be set following the record date shareholders may 
elect to receive their dividend in either sterling or us dollars and the last day for election will be 17 april 2015 the ordinary shares will trade ex
dividend on both the london and new york stock exchanges from 16 april 2015 
the proposed final dividend of 186 us cents per ordinary share which together with the interim dividend of 11 us cents makes a total for 2014 of 
296 us cents 
187 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information information for shareholders continued
share prices
the table below sets out for the periods indicated the highest and lowest middle market quotations for the company’s ordinary shares 
as derived from the daily official list of the uk listing authority and the highest and lowest sales prices of its adss as reported on the new york 
stock exchange composite tape
ordinary shares adss
high 
£
low 
£
high 
us
low 
us
year ended 31 december
2010 697 538 5394 4129
2011 742 521 6019 4217
2012 693 580 5613 4513
2013 868 680 7185 5290
2014 1193 857 9727 2939
quarters in the year ended 31 december
2013
1st quarter 760 680 5800 5290
2nd quarter 795 718 6017 5483
3rd quarter 800 730 6306 5601
4th quarter 868 748 7185 6005
2014
1st quarter 960 857 8018 7084
2nd quarter 1100 861 9727 7317
3rd quarter 1080 986 9045 8291
4th quarter 1193 906 8314 2939
2015
1st quarter to 23 february 2015 1200 1148 3671 3507
last six months
august 2014 1065 986 8950 8291
september 2014 1080 1023 8815 8329
october 2014 1 to 14 october 2014 1032 974 8314 7736
october 2014 15 to 31 october 2014 1057 906 3383 2939
november 2014 1138 1045 3612 3321
december 2014 1193 1019 3852 3206
january 2015 1200 1148 3640 3507
february 2015 to 23 february 2015 1198 1155 3671 3517
 on 14 october 2014 the ratio of ordinary shares per ads changed from five ordinary shares per ads to two ordinary shares per ads 
smith  nephew annual report 2014 188
other information share capital
the principal trading market for the ordinary shares is the london stock exchange the ordinary shares were listed on the new york stock 
exchange on 16 november 1999 trading in the form of adss evidenced by adrs each ads represents two ordinary shares from 14 october 2014 
before which time one ads represented five ordinary shares the ads facility is sponsored by deutsche bank acting as depositary
all the ordinary shares including those held by directors and executive officers rank pari passu with each other on 23 january 2006 the 
ordinary shares of 12
2
 9p were redenominated as ordinary shares of us 20 cents following approval by shareholders at the extraordinary general 
meeting in december 2005 the new us dollar ordinary shares carry the same rights as the previous ordinary shares the share price continues 
to be quoted in sterling in 2006 the company issued £50000 of shares in sterling in order to comply with english law these were issued as 
deferred shares which are not listed on any stock exchange they have extremely limited rights and therefore effectively have no value these 
shares were allotted to the chief executive officer although the board reserves the right to transfer them to another member of the board should it 
so wish
as at 23 february 2015 to the knowledge of the group there were 17824 registered holders of ordinary shares of whom 90 had registered 
addresses in the usa and held a total of 168578 ordinary shares less than 002 of the total issued because certain ordinary shares are 
registered in the names of nominees the number of shareholders with registered addresses in the usa is not representative of the number of 
beneficial owners of ordinary shares resident in the usa
shareholdings
as at 23 february 2015 26707860 adss equivalent to 53415720 ordinary shares or approximately 597 of the total ordinary shares in issue 
were outstanding and were held by 92 registered ads holders
major shareholders
as far as is known to smith  nephew the group is not directly or indirectly owned or controlled by another corporation or by any government and 
the group has not entered into arrangements the operation of which may at a subsequent date result in a change in control of the group
as at 23 february 2015 no persons are known to smith  nephew to have any interest as defined in the disclosure and transparency rules 
of the fca in 3 or more of the ordinary shares other than as shown below the following tables show changes over the last three years in the 
percentage and numbers of the issued share capital owned by shareholders holding 3 or more of ordinary shares as notified to the company 
under the disclosure and transparency rules
as at 31 december
23 february 2015 

2014 

2013 

2012 

blackrock inc 55 55 47 50
invesco 50 53 121 119
legal  general group plc – – – 30 
newton investment management limited – – – 49
as at 31 december
23 february 2015 
’000
2014 
’000
2013 
’000
2012 
’000
blackrock inc 49206 49008 41870 44811
invesco 44918 47508 107823 107823
legal  general group plc – – – 26906
newton investment management limited – – – 8432
the company is not aware of any person who has a significant direct or indirect holding of securities in the company and is not aware of 
any persons holding securities which may control the company there are no securities in issue which have special rights as to the control 
of the company
189 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information purchase of ordinary shares on behalf of the company
at the agm the company will be seeking a renewal of its current permission from shareholders to purchase up to 10 of its own shares in 
order to avoid shareholder dilution shares allotted to employees through employee share schemes are bought back on a quarterly basis and 
subsequently cancelled by the company from 1 january 2014 to 23 february 2015 in the months listed below the company has purchased 
5455000 ordinary shares at a cost of   us91595439
total shares  
purchased  
000s
average price  
paid per share  
p
approximate us 
value of shares 
purchased under  
the plan
1222 may 2014 1825 9261138 28687538
619 august 2014 1380 10263662 23833629
414 november 2014 1200 10565981 20198882
1318 february 2015 1050 11683047 18875390
the shares were purchased in the open market by ubs limited and jp morgan cazenove limited on behalf of the company
exchange controls and other limitations affecting 
security holders
there are no uk governmental laws decrees or regulations that 
restrict the export or import of capital or that affect the payment of 
dividends interest or other payments to nonresident holders of 
smith  nephew’s securities except for certain restrictions imposed 
from time to time by her majesty’s treasury of the united kingdom 
pursuant to legislation such as the united nations act 1946 and the 
emergency laws act 1964 against the government or residents of 
certain countries
there are no limitations either under the laws of the uk or under 
the articles of association of smith  nephew restricting the right 
of nonuk residents to hold or to exercise voting rights in respect of 
ordinary shares except that where any overseas shareholder has not 
provided to the company a uk address for the service of notices the 
company is under no obligation to send any notice or other document 
to an overseas address it is however the current practice of the 
company to send every notice or other document to all shareholders 
regardless of the country recorded in the register of members with 
the exception of details of the company’s dividend reinvestment plan 
which are not sent to shareholders with recorded addresses in the usa 
and canada
taxation information for shareholders
the comments below are of a general and summary nature and are 
based on the group’s understanding of certain aspects of current 
uk and us federal income tax law and practice relevant to the adss 
and ordinary shares not in ads form the comments address the 
material us and uk tax consequences generally applicable to a 
person who is the beneficial owner of adss or ordinary shares and 
who for us federal income tax purposes is a citizen or resident of the 
usa a corporation or other entity taxable as a corporation created 
or organised in or under the laws of the usa or any state therein or 
an estate or trust the income of which is included in gross income for 
us federal income tax purposes regardless of its source each a ‘us 
holder’ the comments set out below do not purport to address all tax 
consequences of the ownership of adss or ordinary shares which may 
be material to a particular holder and in particular do not deal with the 
position of shareholders who directly or indirectly own 10 or more of 
the company’s issued ordinary shares this discussion does not apply 
to i persons whose holding of adss or ordinary shares is effectively 
connected with or pertains to either a permanent establishment in 
the uk through which a us holder carries on a business in the uk or 
a fixed base from which a us holder performs independent personal 
services in the uk or ii persons whose registered address is inside 
the uk this discussion does not apply to certain investors subject to 
special rules such as certain financial institutions taxexempt entities 
insurance companies brokerdealers traders in securities that elect to 
use the mark to market method of tax accounting partnerships or other 
entities treated as partnerships for us federal income tax purposes 
us holders holding adss or ordinary shares as part of a hedging 
conversion or other integrated transaction or whose functional currency 
for us federal income tax purposes is other than the us dollar and us 
holders liable for alternative minimum tax in addition the comments 
below do not address the potential application of the provisions of 
the united states internal revenue code known as the medicare 
contribution tax or any us state local or nonus other than uk taxes 
the summary deals only with us holders who hold adss or ordinary 
shares as capital assets the summary is based on current uk and us 
law and practice which is subject to change possibly with retroactive 
effect us holders are recommended to consult their own tax advisers 
as to the particular tax consequences to them of the ownership of 
adss or ordinary shares the company believes and this discussion 
assumes that the company was not a passive foreign investment 
company for its taxable year ended 31 december 2014
this discussion is based in part on representations by the depositary 
and assumes that each obligation under the deposit agreement and 
any related agreement will be performed in accordance with its terms 
for purposes of us federal income tax law us holders of adss will 
generally be treated as owners of the ordinary shares represented 
by the adss however the us treasury has expressed concerns that 
parties to whom depositary shares are released before shares are 
delivered to the depositary ‘prereleased’ may be taking actions that 
are inconsistent with the claiming of foreign tax credits by owners of 
depositary shares such actions would also be inconsistent with the 
claiming of the reduced rate of tax described below applicable to 
dividends received by certain noncorporate us holders accordingly 
the availability of the reduced tax rate for dividends received by certain 
noncorporate us holders of adss could be affected by actions that 
may be taken by parties to whom adss are prereleased
taxation of dividends in the uk and the usa
the uk does not currently impose a withholding tax on dividends paid 
by a uk corporation such as the company
distributions paid by the company will be treated for us federal 
income tax purposes as foreign source ordinary dividend income 
to a us holder to the extent paid out of the company’s current or 
accumulated earnings and profits as determined for us federal income 
tax purposes because the company does not maintain calculations 
of its earnings and profits under us federal income tax principles it is 
expected that distributions generally will be reported to us holders 
as dividends such dividends will not be eligible for the dividends
received deduction generally allowed to corporate us holders
information for shareholders continued
smith  nephew annual report 2014 190
other information dividends paid to certain noncorporate us holders of ordinary shares 
or adss may be subject to us federal income tax at lower rates than 
those applicable to other types of ordinary income if certain conditions 
are met noncorporate us holders should consult their own tax 
advisers to determine whether they are subject to any special rules that 
limit their ability to be taxed at these favourable rates
taxation of capital gains
us holders who are not resident or ordinarily resident for tax purposes 
in the uk will not generally be liable for uk capital gains tax on any 
capital gain realised upon the sale or other disposition of adss or 
ordinary shares unless the adss or ordinary shares are held in 
connection with a trade carried on in the uk through a permanent 
establishment or in the case of individuals through a branch or 
agency furthermore uk resident individuals who acquire adss or 
ordinary shares before becoming temporarily nonuk residents may 
remain subject to uk taxation of capital gains on gains realised while 
nonresident
for us federal income tax purposes gains or losses realised upon 
a taxable sale or other disposition of adss or ordinary shares by 
us holders generally will be us source capital gains or losses and will 
be longterm capital gains or losses if the adss or ordinary shares 
were held for more than one year the amount of a us holder’s gain or 
loss will be equal to the difference between the amount realised on the 
sale or other disposition and such holder’s tax basis in the adss or 
ordinary shares determined in us dollars
inheritance and estate taxes
the hm revenue  customs imposes inheritance tax on capital 
transfers which occur on death and in the seven years preceding 
death the hm revenue  customs considers that the usuk double 
taxation convention on estate and gift tax applies to inheritance 
tax consequently a us citizen who is domiciled in the usa and is 
not a uk national or domiciled in the uk will not be subject to uk 
inheritance tax in respect of adss and ordinary shares a uk national 
who is domiciled in the usa will be subject to both uk inheritance 
tax and us federal estate tax but will be entitled to a credit for us 
federal estate tax charged in respect of adss and ordinary shares in 
computing the liability to uk inheritance tax conversely a us citizen 
who is domiciled or deemed domiciled in the uk will be entitled to a 
credit for uk inheritance tax charged in respect of adss and ordinary 
shares in computing the liability for us federal estate tax special rules 
apply where adss and ordinary shares are business property of a 
permanent establishment of an enterprise situated in the uk
us information reporting and backup withholding
a us holder may be subject to us information reporting and backup 
withholding on dividends paid on or the proceeds of sales of adss or 
ordinary shares made within the usa or through certain usrelated 
financial intermediaries unless the us holder is an exempt recipient 
or in the case of backup withholding provides a correct us taxpayer 
identification number and certain other conditions are met us backup 
withholding may apply if there has been a notification from the us 
internal revenue service of a failure to report all interest or dividends
any backup withholding deducted may be credited against the 
us holder’s us federal income tax liability and where the backup 
withholding exceeds the actual liability the us holder may obtain 
a refund by timely filing the appropriate refund claim with the 
us internal revenue service
certain us holders who are individuals and under proposed treasury 
regulations certain entities may be required to report information 
relating to securities issued by a nonus person or foreign accounts 
through which the securities are held subject to certain exceptions 
including an exception for securities held in accounts maintained by 
us financial institutions us holders should consult their tax advisers 
regarding their reporting obligations with respect to the ordinary shares 
or adss
uk stamp duty and stamp duty reserve tax
uk stamp duty is charged on documents and in particular instruments 
for the transfer of registered ownership of ordinary shares transfers 
of ordinary shares in certificated form will generally be subject to uk 
stamp duty at the rate of ½ of the consideration given for the transfer 
with the duty rounded up to the nearest £5
uk stamp duty reserve tax ‘sdrt’ arises when there is an agreement 
to transfer shares in uk companies ‘for consideration in money or 
money’s worth’ and so an agreement to transfer ordinary shares for 
money or other consideration may give rise to a charge to sdrt at the 
rate of ½ rounded up to the nearest penny the charge of sdrt will 
be cancelled and any sdrt already paid will be refunded if within six 
years of the agreement an instrument of transfer is produced to hm 
revenue  customs and the appropriate stamp duty paid
transfers of ordinary shares into crest an electronic transfer system 
are exempt from stamp duty so long as the transferee is a member of 
crest who will hold the ordinary shares as a nominee for the transferor 
and the transfer is in a form that will ensure that the securities become 
held in uncertificated form within crest paperless transfers of ordinary 
shares within crest for consideration in money or money’s worth are 
liable to sdrt rather than stamp duty sdrt on relevant transactions 
will be collected by crest at ½ and this will apply whether or not the 
transfer is effected in the uk and whether or not the parties to it are 
resident or situated in the uk
a charge of stamp duty or sdrt at the rate of 1½ of the consideration 
or in some circumstances the value of the shares concerned will 
arise on a transfer or issue of ordinary shares to the depositary or to 
certain persons providing a clearance service or their nominees or 
agents for the conversion into adrs and will generally be payable by 
the depositary or person providing clearance service in accordance 
with the terms of the deposit agreement any tax or duty payable 
by the depositary on deposits of ordinary shares will be charged 
by the depositary to the party to whom adrs are delivered against 
such deposits
no liability for stamp duty or sdrt will arise on any transfer of or 
agreement to transfer an ads or beneficial ownership of an ads 
provided that the ads and any instrument of transfer or written 
agreement to transfer remains at all times outside the uk and provided 
further that any instrument of transfer or written agreement to transfer 
is not executed in the uk and the transfer does not relate to any matter 
or thing done or to be done in the uk the location of the custodian as a 
holder of ordinary shares not being relevant in this context in any other 
case any transfer of or agreement to transfer an ads or beneficial 
ownership of an ads could depending on all the circumstances of the 
transfer give rise to a charge to stamp duty or sdrt
191 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information articles of association
the following summarises certain material rights of holders of the 
company’s ordinary shares under the material provisions of the 
company’s articles of association and english law this summary 
is qualified in its entirety by reference to the companies act and 
the company’s articles of association in the following description 
a ‘shareholder’ is the person registered in the company’s register 
of members as the holder of an ordinary share
the company is incorporated under the name smith  nephew plc 
and is registered in england and wales with registered number 324357
the company’s ordinary shares may be held in certificated or 
uncertificated form no holder of the company’s shares will be required 
to make additional contributions of capital in respect of the company’s 
shares in the future in accordance with english law the company’s 
ordinary shares rank equally
directors
under the company’s articles of association a director may not vote in 
respect of any contract arrangement transaction or proposal in which 
he or any person connected with him has any material interest other 
than by virtue of his interests in securities of or otherwise in or through 
the company this is subject to certain exceptions relating to proposals 
a indemnifying him in respect of obligations incurred on behalf of the 
company b indemnifying a third party in respect of obligations of the 
company for which the director has assumed responsibility under an 
indemnity or guarantee c relating to an offer of securities in which 
he will be interested as an underwriter d concerning another body 
corporate in which the director is beneficially interested in less than 1 
of the issued shares of any class of shares of such a body corporate 
e relating to an employee benefit in which the director will share 
equally with other employees and f relating to any insurance that the 
company is empowered to purchase for the benefit of directors of 
the company in respect of actions undertaken as directors andor 
officers of the company
a director shall not vote or be counted in any quorum present at a 
meeting in relation to a resolution on which he is not entitled to vote
the directors are empowered to exercise all the powers of the 
company to borrow money subject to the limitation that the aggregate 
amount of all monies borrowed after deducting cash and current asset 
investments by the company and its subsidiaries shall not exceed the 
sum of 6500000000
any director who has been appointed by the directors since the 
previous annual general meeting of shareholders either to fill a 
casual vacancy or as an additional director holds office only until 
the conclusion of the next annual general meeting and then shall 
be eligible for reelection by the shareholders the other directors 
retire and are eligible for reappointment at the third annual general 
meeting after the meeting at which they were last reappointed if not 
reappointed a director retiring at a meeting shall retain office until the 
meeting appoints someone in his place or if it does not do so until the 
conclusion of the meeting the directors are subject to removal with 
or without cause by the board or the shareholders directors are not 
required to hold any shares of the company by way of qualification
under the company’s articles of association and english law a director 
may be indemnified out of the assets of the company against liabilities 
he may sustain or incur in the execution of his duties
rights attaching to ordinary shares
under english law dividends are payable on the company’s ordinary 
shares only out of profits available for distribution as determined 
in accordance with accounting principles generally accepted in the uk 
and by the companies act 2006 holders of the company’s ordinary 
shares are entitled to receive final dividends as may be declared by 
the directors and approved by the shareholders in general meeting 
rateable according to the amounts paid up on such shares provided 
that the dividend cannot exceed the amount recommended by 
the directors
the company’s board of directors may declare such interim dividends 
as appear to them to be justified by the company’s financial position 
if authorised by an ordinary resolution of the shareholders the board 
may also direct payment of a dividend in whole or in part by the 
distribution of specific assets and in particular of paid up shares or 
debentures of the company
any dividend unclaimed after 12 years from the date the dividend was 
declared or became due for payment will be forfeited and will revert to 
the company
there were no material modifications to the rights of shareholders 
under the articles during 2014
voting rights of ordinary shares
voting at any general meeting of shareholders is by a show of hands 
unless a poll which is a written vote is duly demanded and held 
on a show of hands every shareholder who is present in person at a 
general meeting has one vote regardless of the number of shares held 
on a poll every shareholder who is present in person or by proxy has 
one vote for each ordinary share held by that shareholder a poll may 
be demanded by any of the following
 – the chairman of the meeting
 – at least five shareholders present or by proxy entitled to vote on 
the resolution
 – any shareholder or shareholders representing in the aggregate 
not less than onetenth of the total voting rights of all shareholders 
entitled to vote on the resolution or
 – any shareholder or shareholders holding shares conferring a right 
to vote on the resolution on which there have been paidup sums in 
aggregate equal to not less than onetenth of the total sum paid up 
on all the shares conferring that right
a form of proxy will be treated as giving the proxy the authority to 
demand a poll or to join others in demanding one as above
the necessary quorum for a general meeting is two shareholders 
present in person or by proxy carrying the right to vote upon the 
business to be transacted
information for shareholders continued
smith  nephew annual report 2014 192
other information matters are transacted at general meetings of the company by the 
processing and passing of resolutions of which there are two kinds 
ordinary or special resolutions
 – ordinary resolutions include resolutions for the reelection of 
directors the approval of financial statements the declaration 
of dividends other than interim dividends the appointment and 
reappointment of auditors or the grant of authority to allot shares 
an ordinary resolution requires the affirmative vote of a majority 
of the votes of those persons voting at the meetings at which there is 
a quorum
 – special resolutions include resolutions amending the company’s 
articles of association disapplying statutory preemption rights or 
changing the company’s name modifying the rights of any class of 
the company’s shares at a meeting of the holders of such class or 
relating to certain matters concerning the company’s winding up a 
special resolution requires the affirmative vote of not less than three
quarters of the votes of the persons voting at the meeting at which 
there is a quorum
annual general meetings must be convened upon advance written 
notice of 21 days other general meetings must be convened upon 
advance written notice of at least 14 clear days the days of delivery or 
receipt of notice are not included the notice must specify the nature 
of the business to be transacted meetings are convened by the board 
of directors members with 5 of the ordinary share capital of the 
company may requisition the board to convene a meeting
variation of rights
if at any time the company’s share capital is divided into different 
classes of shares the rights attached to any class may be varied 
subject to the provisions of the companies act with the consent in 
writing of holders of threequarters in nominal value of the issued 
shares of that class or upon the adoption of a special resolution passed 
at a separate meeting of the holders of the shares of that class at every 
such separate meeting all the provisions of the articles of association 
relating to proceedings at a general meeting apply except that the 
quorum is to be the number of persons which must be two or more 
who hold or represent by proxy not less than onethird in nominal 
value of the issued shares of the class and at any such meeting a poll 
may be demanded in writing by any person or their proxy who hold 
shares of that class where a person is present by proxy or proxies he 
is treated as holding only the shares in respect of which the proxies are 
authorised to exercise voting rights
rights in a winding up
except as the company’s shareholders have agreed or may otherwise 
agree upon the company’s winding up the balance of assets available 
for distribution
 – after the payment of all creditors including certain preferential 
creditors whether statutorily preferred creditors or normal creditors 
and
 – subject to any special rights attaching to any other class of shares
 – is to be distributed among the holders of ordinary shares according 
to the amounts paidup on the shares held by them this distribution 
is generally to be made in us dollars a liquidator may however 
upon the adoption of any extraordinary resolution of the 
shareholders and any other sanction required by law divide 
among the shareholders the whole or any part of the company’s 
assets in kind
limitations on voting and shareholding
there are no limitations imposed by english law or the company’s 
articles of association on the right of nonresidents or foreign 
persons to hold or vote the company’s ordinary shares or adss 
other than the limitations that would generally apply to all of the 
company’s shareholders
transfers of shares
the board may refuse to register the transfer of shares held in 
certificated form which
 – are not fully paid provided that it shall not exercise this discretion in 
such a way as to prevent stock market dealings in the shares of that 
class from taking place on an open and proper basis
 – are not duly stamped or duly certified or otherwise shown to the 
satisfaction of the board to be exempt from stamp duty lodged at the 
transfer office or at such other place as the board may appoint and 
save in the case of a transfer by a person to whom no certificate 
was issued in respect of the shares in question accompanied 
by the certificate for the shares to which it relates and such other 
evidence as the board may reasonably require to show the right of 
the transferor to make the transfer and if the instrument of transfer 
is executed by some other person on his behalf the authority of that 
person so to do
 – are in respect of more than one class of shares or
 – are in favour of more than four transferees
deferred shares
following the redenomination of share capital on 23 january 2006 
the ordinary shares’ nominal value became 20 us cents each there 
were no changes to the rights or obligations of the ordinary shares in 
order to comply with the companies act 2006 a new class of sterling 
shares was created deferred shares of which £50000 were issued 
and allotted in 2006 as fully paid to the chief executive officer though 
the board reserves the right to transfer them to another member of 
the board should it so wish these deferred shares have no voting 
or dividend rights and on winding up only are entitled to repayment 
at nominal value only if all ordinary shareholders have received the 
nominal value of their shares plus an additional 1000 each
amendments
the company does not have any special rules about amendments 
to its articles of association beyond those imposed by law
193 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information this table provides a cross reference from the information included in this annual report to the requirements of form 20f 
part i page
item 1 identity of directors senior management and advisers na
item 2 offer statistics and expected timetable na
item 3 key information
 a – selected financial data 174–175
 b – capitalization and indebtedness na
 c – reason for the offer and use of proceeds na
 d – risk factors 171–173
item 4 information on the company
 a – history and development of the company 170
 b – business overview 3–4 8–15 18–39 118–121 171–173 180–183
 c – organizational structure 10–11 133–134 164–165
 d – property plant and equipment 128–129 170 172
item 4a unresolved staff comments none
item 5 operating and financial review and prospects
 a – operating results 8–15 26 30 34–36 111 113 115 180–183
 b – liquidity and capital resources 115 136–140 155
 c – research and development patents and licences etc 14 21–22
 d – trend information 18–20 104 171–173
 e – off balance sheet arrangements 170
 f – tabular disclosure of contractual obligations 179–180
 g – safe harbor 199
item 6 directors senior management and employees
 a – directors and senior management 54–59 63
 b – compensation 81–102
 c – board practices 54–59 62–80
 d – employees 10–11 25 121
 e – share ownership 90 159–162
item 7 major shareholders and related party transactions
 a – major shareholders 189
       – host country shareholders 189
 b – related party transactions 163 170
 c – interests of experts and counsel na
item 8 financial information
 a – consolidated statements and other financial information 103–165
       – legal proceedings 145–147
       – dividends 187
 b – significant changes none
item 9 the offer and listing
 a – offer and listing details 188–189
 b – plan of distribution na
 c – markets 189
 d – selling shareholders na
 e – dilution na
 f – expenses of the issue na
cross reference to form 20f
smith  nephew annual report 2014 194
other information page
item 10 additional information
 a – share capital na
 b – memorandum and articles of association 192–193
 c – material contracts 115 156–157
 d – exchange controls 190
 e – taxation 190–191
 f – dividends and paying agents na
 g – statement by experts na
 h – documents on display 199
 i – subsidiary information 164–165
item 11 quantitative and qualitative disclosure about market risk 140–144 171–173
item 12 description of securities other than equity securities
a – debt securities na
b – warrants and rights na
c – other securities na
d – american depository shares 185–186
part ii 
item 13 defaults dividend arrearages and delinquencies none
item 14 material modifications to the rights of security holders and use of proceeds none
item 15 controls and procedures 75 – 80 105
item 16 reserved na
item 16a audit committee financial expert 75
item 16b code of ethics 80
item 16c principal accountant fees and services 78–79 123
item 16d exemptions from the listing standards for audit committees na
item 16e purchases of equity securities by the issuer and affiliated purchasers 154 190
item 16f change in registrant’s certifying accountant 78
item 16g corporate governance 60 82
item 16h mine safety disclosure na
part iii 
item 17 financial statements na
item 18 financial statements 103–165
item 19 exhibits
195 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information unless the context indicates otherwise the following terms have the meanings shown below 
term meaning
acl the anterior cruciate ligament acl is one of the four major ligaments in the human 
knee
adr in the us the company’s ordinary shares are traded in the form of adss evidenced by 
american depository receipts ‘adrs’
ads in the us the company’s ordinary shares are traded in the form of american depositary 
shares ‘adss’
advanced surgical devices a product group comprising products for orthopaedic replacement and reconstruction 
endoscopy devices and trauma devices products for orthopaedic replacement include 
systems for knees hips and shoulders endoscopy devices comprise of support 
products for orthopaedic surgery such as computer assisted surgery and minimally 
invasive surgery techniques using specialised viewing and access devices surgical 
instruments and powered equipment orthopaedics trauma devices are used in the 
treatment of bone fractures including rods pins screws plates and external frames 
advanced wound management a product group comprising products associated with the treatment of skin wounds 
ranging from products that provide moist wound healing using breathable films and 
polymers to products providing active wound healing by biochemical or cellular action
agm annual general meeting of the company
arthroscopy endoscopy of the joints is termed ‘arthroscopy’ with the principal applications being the 
knee and shoulder
asd advanced surgical devices division
awm advanced wound management division
basis point one hundredth of one percentage point
chronic wounds chronic wounds are those with long or unknown healing times including leg ulcers 
pressure sores and diabetic foot ulcers
company smith  nephew plc or where appropriate the company’s board of directors unless 
the context otherwise requires
companies act companies act 2006 as amended of england and wales
ebita earnings before interest tax and amortisation
ebitda earnings before interest tax depreciation and amortisation
emerging markets emerging markets include greater china india brazil and russia
epsa epsa is a trend measure which presents the longterm profitability of the group 
excluding the posttax impact of specific transactions that management considers 
affects the group’s shortterm profitability the group presents this measure to assist 
investors in their understanding of trends adjusted attributable profit is the numerator 
used for this measure and is determined by adjusting attributable profit for the items 
that are excluded from operating profit when arriving at trading profit and items that are 
recognised below operating profit that affect the group’s shortterm profitability
endoscopy through a small incision surgeons are able to see inside the body using a monitor and 
identify and repair defects
erp enterprise resource planning a software system which integrates internal and external 
management information facilitating the flow of information across an organisation
established markets established markets include united states of america europe australia new zealand 
canada and japan
euro or € references to the common currency used in the majority of the countries of the 
european union
external fixation the use of wires or pins transfixed through bone to hold a frame to the position of a 
fracture
fda us food and drug administration
financial statements refers to the consolidated group accounts of smith  nephew plc
ftse 100 index of the largest 100 listed companies on the london stock exchange by market 
capitalisation
gmp good manufacturing practice or ‘gmp’ is the guidance that outlines the aspects of 
production and testing that can impact the quality of a product
group or smith  nephew used for convenience to refer to the company and its consolidated subsidiaries unless 
the context otherwise requires
health economics a branch of economics concerned with issues related to efficiency effectiveness value 
and behaviour in the production and consumption of health and healthcare
glossary of terms 
smith  nephew annual report 2014 196
other information term meaning
ifric international financial reporting interpretations as adopted by the eu and as issued by 
the international accounting standards board
ifrs international financial reporting standards as adopted by the eu and as issued by the 
international accounting standards board
international markets international markets include middle east north africa southern africa latin america 
asean south korea and eastern europe
lse london stock exchange
metalonmetal hip resurfacing a less invasive surgical approach to treating arthritis in certain patients whereby only 
the surfaces of the hip joint are replaced leaving the hip head substantially preserved
negative pressure wound therapy a technology used to treat chronic wounds such as diabetic ulcers pressure sores 
and postoperative wounds through the application of subatmospheric pressure to an 
open wound
nyse new york stock exchange
orthobiologics products any product that is primarily intended to act as a scaffold andor actively stimulates 
bone growth
orthopaedic products orthopaedic reconstruction products include joint replacement systems for knees hips 
and shoulders and support products such as computerassisted surgery and minimally 
invasive surgery techniques orthopaedic trauma devices are used in the treatment 
of bone fractures including rods pins screws plates and external frames clinical 
therapies products include joint fluid therapy for pain reduction of the knee and an 
ultrasound treatment to accelerate the healing of bone fractures
oxinium oxinium material is an advanced load bearing technology it is created through a 
proprietary manufacturing process that enables zirconium to absorb oxygen and 
transform to a ceramic on the surface resulting in a material that incorporates the 
features of ceramic and metal management believes that oxinium material used in 
the production of components of knee and hip implants exhibits unique performance 
characteristics due to its hardness lowfriction and resistance to roughening and 
abrasion
parent company smith  nephew plc
pound sterling sterling £ pence or p references to uk currency 1p is equivalent to one hundredth of £1
repair a product group within asd comprising specialised devices fixation systems and bio
absorbable materials to repair joints and associated tissue
resection products that cut or ablate tissue within asd comprising mechanical blades radio 
frequency wands electromechanical and hand instruments for resecting tissue
sec us securities and exchange commission
trading results trading profit trading profit margin and trading cash flow are trend measures which 
present the longterm profitability of the group excluding the impact of specific 
transactions that management considers affect the group’s shortterm profitability and 
cash flows the group has identified the following items where material as those to be 
excluded from operating profit and cash generated from operations when arriving at 
trading profit and trading cash flow respectively acquisition and disposal related items 
arising in connection with business combinations including amortisation of acquisition 
intangible assets impairments and integration costs restructuring events gains and 
losses resulting from legal disputes and significant uninsured losses in addition to 
these items gains or losses that materially impact the group’s profitability or cash flows 
on a shortterm or oneoff basis are excluded from operating profit and cash generated 
from operations when arriving at trading profit and trading cash flow respectively
uk united kingdom of great britain and northern ireland
uk gaap accounting principles generally accepted in the united kingdom
underlying growth growth after adjusting for the effects of currency translation and the inclusion of the 
comparative impact of acquisitions and exclusion of disposals
us united states of america
us dollars us  or cents references to us currency 1 cent is equivalent to one hundredth of us1
us gaap accounting principles generally accepted in the united states of america
visualisation products within asd comprising digital cameras light sources monitors scopes image 
capture central control and multimedia broadcasting systems for use in endoscopic 
surgery with visualisation
wound bed an area of healthy dermal and epidermal tissue of a wound
197 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information 2013 financial highlights 180
2014 financial highlights 4
accounting policies 117
accounts presentation 199
acquisitions 156
acquisition related costs 123
advanced surgical devices – business segment review 26
advanced wound management –  
business segment review 30
american depository shares 185
articles of association 192
audit fees 123
board 54
business overview 12
business segment information 26
cash and borrowings 136
chairman’s statement 5
chief executive officer’s review 6
company balance sheet 166
company notes to the accounts 167
contingencies 146
contractual obligations 179
corporate governance statement 62
critical accounting policies 104
cross reference to form 20f 194
currency fluctuations 172
currency translation 117
deferred taxation 126
directors’ remuneration report 81
directors’ responsibilities for the accounts 103
directors’ responsibility statement 103
dividends 154 187
earnings per share 127
employeespeople 25 121
employees’ share trust 154
ethics and compliance 22
executive officers 58
factors affecting results of operations 173
financial instruments 140
financial position liquidity and capital resources 115
glossary of terms 196
goodwill 130
group balance sheet 112
group cash flow statement 114
group history 170 200
group income statement 110
group notes to the accounts 117
group overview 12
group statement of changes in equity 116
group statement of comprehensive income 110
independent auditor’s reports 105
information for shareholders 184
intangible assets 131
intellectual property 22
interest 124
inventories 134
investments 133
investment in associates 133
key performance indicators 14
leases 140 158
legal and other 123
legal proceedings 146
manufacturing 23
marketplace 18
medical education 24
new accounting standards 117
offbalance sheet arrangements 170
operating profit 122
other finance costsincome 124
outlook and trend information 17 18
parent company accounts 166
payables 136
peopleemployees 25
principal subsidiary undertakings 164
provisions 145
property plant and equipment 128
receivables 135
regulation 18 22 29 33
related party transactions 163
research and development 21
restructuring and rationalisation expenses 123
retirement benefit obligation 147
risk factors 171
risk management 36 79
sales and marketing 24
selected financial data 174
share based payments 159
share capital 189
shareholder return 91
strategy 13
sustainability 40
taxation 124
taxation information for shareholders 190
treasury shares 154
index
smith  nephew annual report 2014 198
other information about smith  nephew 
the smith  nephew group the ‘group’ is a global medical devices 
business operating in the markets for advanced surgical devices 
comprising orthopaedic reconstruction trauma and sports medicine 
and advanced wound management with revenue of approximately 
46 billion in 2014 smith  nephew plc the ‘company’ is the parent 
company of the group it is an english public limited company with 
its shares listed on the premium list of the uk listing authority and 
traded on the london stock exchange shares are also traded on the 
new york stock exchange in the form of american depositary shares 
‘adss’ 
this is the annual report of smith  nephew plc for the year ended 
31 december 2014 it comprises in a single document the annual 
report and accounts of the company in accordance with uk 
requirements and the annual report on form 20f in accordance 
with the regulations of the united states securities and exchange 
commission ‘sec’ 
smith  nephew operates on a worldwide basis and has distribution 
channels in over 100 countries in the more established countries by 
revenue the group’s business operations are organised by divisions 
in the majority of the remaining markets operations are managed by 
country managers who are responsible for sales and distribution of the 
group’s entire product range these comprise the emerging markets  
international markets 
smith  nephew’s corporate website wwwsmithnephewcom gives 
additional information on the group including an electronic version of 
this annual report information made available on this website or other 
websites mentioned in this annual report are not and should not be 
regarded as being part of or incorporated into this annual report 
for the convenience of the reader a glossary of technical and financial 
terms used in this document is included on pages 196 to 197 the 
product names referred to in this document are identified by use of 
capital letters and the ◊ symbol on first occurence and are trademarks 
owned by or licensed to members of the group 
presentation 
the group’s fiscal year end is 31 december references to a particular 
year in this annual report are to the fiscal year unless otherwise 
indicated except as the context otherwise requires ‘ordinary share’ 
or ‘share’ refer to the ordinary shares of smith  nephew plc of 20 us 
cents each 
the group accounts of smith  nephew in this annual report are 
presented in us dollars solely for the convenience of the reader 
certain parts of this annual report contain translations of amounts in 
us dollars into sterling at specified rates these translations should not 
be construed as representations that the us dollar amounts actually 
represent such sterling amounts or could be converted into sterling at 
the rate indicated 
unless stated otherwise the translation of us dollars and cents to 
sterling and pence in this annual report has been made at the bank of 
england exchange rate on the date indicated on 23 february 2015 the 
bank of england rate was us15449 per £1 
the results of the group as reported in us dollars are affected 
by movements in exchange rates between us dollars and other 
currencies the group applied the average exchange rates prevailing 
during the year to translate the results of companies with functional 
currency other than us dollars the currencies which most influenced 
these translations in the years covered by this report were sterling 
swiss franc and the euro 
the accounts of the group in this annual report are presented in 
millions ‘m’ unless otherwise indicated 
special note regarding forwardlooking statements 
the group’s reports filed with or furnished to the us securities 
and exchange commission ‘sec’ including this document and 
written information released or oral statements made to the public 
in the future by or on behalf of the group contain ‘forwardlooking 
statements’ within the meaning of the us private securities litigation 
reform act of 1995 that may or may not prove accurate for example 
statements regarding expected revenue growth and trading profit 
margins discussed under ‘outlook’ ‘global outlook’ and ‘strategic 
performance’ market trends and our product pipeline are forward
looking statements phrases such as ‘aim’ ‘plan’ ‘intend’ ‘anticipate’ 
‘wellplaced’ ‘believe’ ‘estimate’ ‘expect’ ‘target’ ‘consider’ and 
similar expressions are generally intended to identify forwardlooking 
statements forwardlooking statements involve known and unknown 
risks uncertainties and other important factors that could cause 
actual results to differ materially from what is expressed or implied by 
the statements 
for smith  nephew these factors include economic and financial 
conditions in the markets we serve especially those affecting health 
care providers payers and customers price levels for established 
and innovative medical devices developments in medical technology 
regulatory approvals reimbursement decisions or other government 
actions product defects or recalls litigation relating to patent or other 
claims legal compliance risks and related investigative remedial or 
enforcement actions strategic actions including acquisitions and 
dispositions and our success in performing due diligence valuing 
and integrating acquired businesses disruption that may result from 
transactions or other changes we make in our business plans or 
organisation to adapt to market developments and numerous other 
matters that affect us or our markets including those of a political 
economic businesscompetitive or reputational nature relationships 
with healthcare professionals reliance on information technology 
specific risks faced by the group are described under ‘risk factors’ on 
pages 171 to 173 of this annual report any forwardlooking statement is 
based on information available to smith  nephew as of the date of the 
statement all written or oral forwardlooking statements attributable 
to smith  nephew are qualified by this caution smith  nephew 
does not undertake any obligation to update or revise any forward
looking statement to reflect any change in circumstances or in smith  
nephew’s expectations 
division data 
division data and division share estimates throughout this report 
are derived from a variety of sources including publicly available 
competitors’ information internal management information and 
independent market research reports 
documents on display 
it is possible to read and copy documents referred to in this annual 
report at the registered office of the company documents referred 
to in this annual report that have been filed with the securities and 
exchange commission in the us may be read and copied at the sec ’s 
public reference room located at 450 fifth street nw washington dc 
20549 please call the sec at 1800sec 0330 for further information 
on the public reference rooms and their copy charges the sec also 
maintains a web site at wwwsecgov that contains reports and other 
information regarding registrants that file electronically with the sec 
this annual report and some of the other information submitted by the 
group to the sec may be accessed through the sec website
199 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information pioneering healthcare  
for over 150 years 
smith  nephew heritage
1856
smith  nephew 
established
thomas james smith 
a wholesale pharmacist 
opens chemist shop  
in hull uk 
1870s
tj smith travels to norway 
seeking improved cod liver  
oil which becomes popular  
in the uk and by 1880 had 
even been shipped to cairo
1896
horatio nelson smith enters  
into a partnership with his uncle  
forming tj smith  nephew 
1914
days after the outbreak of ww1 smith 
 nephew receives a £350000 order 
to provide surgical and field dressing 
supplies to the french army within 
5 months during wwi staff grows  
from 50 to 1200 
1977
opsite dressing the first 
moist wound healing 
product is introduced 
1937
smith  nephew is 
listed on the london 
stock exchange
smith  nephew annual report 2014 200


Summary:
 strategic report
chief executive officer’s review
a	good	financial	performance	while	
strengthening the business
dear shareholder
smith  nephew proudly supports healthcare 
professionals in their daily efforts to improve 
the lives of their patients we do this by taking 
a pioneering approach to the design of our 
products and services by striving to ensure 
wider access to our advanced technologies 
and by enabling better outcomes for patients 
and healthcare systems in doing so we drive 
growth and create value for our stakeholders
in 2014 we made great progress we drove 
a much improved performance in us hip 
and knee implants and maintained our 
momentum in sports medicine joint repair 
and trauma  extremities advanced wound 
bioactives acquired at the end of 2012 again 
produced doubledigit growth our continued 
investment in emerging  international 
markets drove revenues up 17 
performance in europe was weaker and 
advanced wound management was held 
back by a distribution hold on renasys
◊
 
in	the	us	and	i	am	confident	that	we	have	
taken actions that will deliver a better 
2015 across these areas additionally 
the phase 3 trial results for hp802 were a 
disappointment but we remain committed 
to developing pioneering advanced wound 
bioactives treatments
the group generated a good increase in 
revenues	and	trading	profit	and	an	8 uplift 
in epsa i am pleased by the changing mix of 
the business as we successfully rebalance 
by strengthening our higher growth platforms 
these now represent more than half of our 
revenue up from just 35 three years ago 
pioneering design
smith  nephew has a long history of 
pioneering design dating back to our 
foundations	in	the	19th	century	in	2014	we	
launched many exciting products including 
a cruciate retaining version of our journey
◊
ii 
naturalmotion	knee	a	firstofitskind	
dyonics
◊
 plan surgical planning tool for hip 
arthroscopy and the hattrick lesser toe 
repair system we continued to invest more 
in rd over 5 of revenue and have a strong 
pipeline for 2015 and beyond 
“the journey to reshape  
smith  nephew continues  
and i am excited by our  
prospects for accelerating  
growth in 2015 and beyond ”
6 smith  nephew annual report 2014 for us innovation is not just about products 
it is also about how we do business we seek 
new ways to serve our customers in 2014 
we pioneered a new commercial solution for 
orthopaedic	reconstruction	that	fulfils	the	
unmet needs of customers searching for a 
different value proposition called syncera
◊
 
this offers clinically proven primary hip and 
knee implants combined with cuttingedge 
technology to streamline the extensive 
support process syncera has the potential to 
generate	significant	savings	for	the	customer	
we are encouraged by the contracts signed 
and prospective customers 
widening access
in the emerging  international markets 
we have built an entrepreneurial business 
resourced	to	maximise	the	significant	
opportunities we see in 2014 it generated 
more	than	600	million	revenue	with	china	
our largest market growing revenue at over 
30 15 of group revenue came from these 
markets	in 2014	up	from	8	in	2010	
in 2014 we established a new commercial 
structure to market and expand our mid
tier value product ranges this will provide 
wider access to our advanced technologies 
helping us support an ever greater number of 
customers in delivering affordable healthcare 
enabling better outcomes
we provide high quality products and 
medical education to help drive better clinical 
outcomes during 2014 we saw strong and 
rising demand for unique products such as 
our hardwearing verilast
◊
 hips and knees 
visionaire
◊
 patientmatched instrumentation 
and the pico
◊
 portable disposable 
negative pressure wound therapy system 
these and many other advanced smith  
nephew products also enable healthcare 
professionals to treat more patients faster 
improving the economic outcome for the 
healthcare system payers 
strengthening our platform
in recent years we have successfully 
supplemented our organic growth through 
acquisitions healthpoint biotherapeutics  
gave us a leading position in advanced 
wound bioactives the fastest growing 
segment of advanced wound management 
we have also completed a number of 
acquisitions in the emerging  international 
markets strengthening our platform by adding 
products manufacturing distribution  
and sales teams 
arthrocare completed in may 2014 has 
strengthened our sports medicine business 
its	technology	and	products	significantly	
enhance our portfolio and we will use our 
global presence to drive substantial new 
growth the integration is progressing well
enhanced	efficiency	
by simplifying and improving our operating 
model we are increasing our agility and 
efficiency	in	2011	we	announced	a	
programme to generate annual savings of 
150 million by 31 december 2014 we had 
achieved annualised savings of 146 million 
enabling investment in the emerging  
international markets rd and other 
growth opportunities
in 2014 we announced a further programme 
to realise at least another 120 million of 
annual savings this work is progressing well 
for instance we are rationalising our global 
property portfolio and found major savings 
through better procurement processes  
these	savings	will	more	directly	benefit	the	
bottom line 
great place to work
achieving recognition as a great place to 
work is important to me it means having 
a workplace where employees are proud 
and excited to come each day because they 
are doing work that makes a difference for 
customers and patients during 2014  
i was proud to congratulate our colleagues 
in	spain	for	being	the	first	country	to	achieve	
this distinction from the great place to work 
institute – and it will not be the last also our 
sustainability performance was recognised 
again as we retained our rankings in both the 
ftse4good and dow jones sustainability 
indices acting sustainably and responsibly 
to	deliver	longterm	benefits	to	society	is	
important it is our employees who earn these 
awards and i thank them for their efforts
i am pleased with our momentum in 2014 as 
we	delivered	a	good	financial	performance	
while strengthening the business and you will 
find	more	details	on	our	successful	actions	on	
pages 42 to 53 whilst the journey to reshape 
smith  nephew continues we enter 2015 
stronger	and	more	efficient	and	i	am	excited	
by our prospects for accelerating growth in 
2015 and beyond
sincerely
olivier bohuon
chief	executive	officer
our results
229
trading margin
1
 up 20bps 
832¢
epsa
1
 up 8 
1	 explanations	of	these	nongaap	financial	measures	 
are	provided	on	pages	176	to	179
7 smith  nephew annual report 2014
strategic report corporate governance financial statements and other information